Equity
The Development of Equity and Equitable Maxims
The Nature of Equitable Jurisdiction
•
Equity was a body of principles that evolved with the objective of mitigating
the severity of common law rules.
•
Equity is a supplementary jurisdiction to the Common Law.
-
Lord Millett, speaking extra-judicially: ‘The Common law is a complete
system of law which could stand alone, but which if not tempered by
Equity would often be productive of injustice; while Equity is not a
complete and independent system of law and could not stand alone.’
-
A fragmentary jurisdiction.
-
These systems are not two parallel systems.
Adherence to precedent
•
Keane:
It is the application of settled principles largely contained in precedent which
gives the law of equity the virtues of certainty and consistency. It is as true
today as in centuries past that hard cases make bad law and that the arbitrary
abandonment of principle and precedent to meet what may seem to be the
demands of justice in a particular context leads only to uncertainty,
inconsistency and, in the end, injustice at a more profound level.’
•
It is a mistake to assume that equity rose to provide a remedy in any case,
without there being any precedent.
•
Principles of certainty and consistency form an integral part of fair
administration of justice.
•
Looking at precedent prevents arbitrariness.
Origins of Equitable Jurisdiction
•
Rooted in past times, around 13th century, it was becoming clear that there
were a number of defects in the common law system which led to unfairness.
-
Many wrongs were without a remedy and, even where a remedy was
available, it was inadequate or inappropriate.
•
Individual litigant started petitioning the King asking for justice, the King
delegated this function to the Chancellor.
❖ Earl of Oxford’s case (1615): The Court of Chancery might issue common
injunctions to prevent a plaintiff who had obtained judgment in a court of law
from enforcing it if in the opinion of the former court, he had obtained
judgment unfairly.
Development of equitable principles
•
To what extent to which it is appropriate for the courts to effect changes in the
law?
❖ In ACC Loan Management Ltd v Connolly [2017]
-
Hogan J stated as follows:
One may readily concede that no modern court could justifiably invent
or conjure up a new equitable principle by reference to the subjective
notions of fairness and equity on the part of the individual judges. If
the law is considered to be unsatisfactory or inadequate, far-reaching
change of this kind is reserved to the Oireachtas by Article 15.2.1 of
the Constitution.’
▪
-
Legislature should tackle issues of inadequacy of the law.
States on 653-654 of the judgement that if there is no modern
willingness to adapt modern principles to modern conditions, judges
would effectively be allowing an ancient path of escape from the
gravel path of the common law to be disused and overgrown.
-
Modern principles call for principles that can evolve and change over
time.
-
Stated that if equity doesn’t bring this moral element to the common
law, then equity would in time become too inflexible.
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Balance between adapting existing principles to meet the justice of an
individual case and avoiding making decisions with no bases.
Discretionary nature of equitable jurisdiction
•
One of the hallmarks of equitable jurisdiction is that it is discretionary in nature.
•
Virgo states that:
Modern equity is…founded on a framework of principles which purport to
provide structure and predictability, but their application and the award of
remedies can be tempered by the exercise of judicial discretion to secure a
just and fair result.
•
A good illustration of the discretionary nature of equitable jurisdiction is in
relation to the grant of equitable remedies and factors such as the parties’
conduct and delay may play a role when the Court is weighing up whether to
grant relief.
•
Court has to engage in careful balancing if they are exercising their
discretionary jurisdiction.
Unconscionability
•
Virgo states at p28:
Although doctrine and principle is vital to modern equity, the very existence of
the most important equitable principle might undermine the doctrinal
coherence of the subject if it is not defined tightly and coherently. That
principle is unconscionability.
•
Harding in Law Quarterly View 2016, challenges the view that equity
undermines the rule of law by arguing that equity’s tolerance of indeterminacy
constitute a much smaller threat to the rule of law than is commonly supposed
and suggests that there are reasons to think that equity makes a particular
contribution to the rule of law by performing a function of restraining
unconscionable reliance on legal rights.
•
Agnew in the Cambridge Law Journal p503, argues that no system of law can
anticipate every eventuality. Each requires some kind of adjustment
mechanisms to prevent its rules from being exploited in an opportunistic way.
Effect of the Judicature (Ireland) Act 1877
•
Reform of system of administration of justice was effected by the Judicature
(Ireland) Act 1877 which replaced the system of separate courts of common
law and equity.
•
Section 28(11) of the 1877 Act provided that where any conflict arose, the
equitable rule was to prevail.
❖ Salt v Cooper: Jessel MR stated that the Act had only affected a fusion
administration. Stated that there was no fusion of a substantive nature.
❖ Walsh v Lonsdale: Jessel MR contradictorily stated that there is one court,
and equity prevails.
The Fusion Fallacy
❖ United Scientific Holdings Ltd v Burnley BC
FACTS:
-
Question was whether the Council had failed to stick precisely to a timetable
laid down by a rent review clause in lease. Thus, was the Council deprived of
its right to obtain the increased rent, as it did not stick to the timetable.
HELD:
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HoL held that in equity, time was not of the essence.
-
The Council was entitled to invoke the rent review provisions,
notwithstanding that the time limit provisions prescribed had expired.
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Lord Diplock: the two systems of substantive law, which were formally
administered by the courts of common law and equity were fused.
❖ Hynes v Independent Newspapers
•
O’Higgins CJ talked about the fusion of common law and equitable rules or
principles having been brought about by the Judicature Act.
•
Applied the aforementioned case.
❖ Meagher v Dublin City Council
FACTS:
-
Plaintiffs brought a claim for damages for breach of contract which arose out
of an agreement to provide hostel facilities for asylum seekers.
ISSUE:
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Whether an equitable principle could be used to defeat a claim for damages
for breach of contract at common law.
-
This equitable principles was called the doctrine of laches with the effect that
if you fail to pursue a remedy with sufficient speed, and if that is coupled with
circumstances which may make it unfair for you to get your remedy, which
generally means prejudice being cause to the other side, the defendant due
to your delay.
-
Then, due to this principle of laches, you may not be able to get a remedy
that you might otherwise be entitled to.
HELD:
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Hogan J held in the negative.
-
Equitable rights and remedies are not merged, but co-exist.
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Two systems of law work ever more closely together and draw mutual
inspiration from each other, but are not fused
-
There is no basis for allowing equitable principles here to disentitle
somebody to an award of damages for breach of contract.
❖ McGrath v Stewart
•
Laffoy referred to the decision reached in the Meagher case by stating that
the two systems of law are not yet fused.
❖ ACC Loan Management v Rickard
•
Justice MacMenamin stated that it was not necessary for him to express any
conclusive view on the issue of the effect of the Judicature Act for the purpose
of the judgement.
•
However, he stated that the persuasive dicta from England do not require the
Court to arrive at the conclusion that law and equity have been fused.
•
Martin argued that the view that flexibility and the capacity to develop
principles is best achieved by disregarding the different legal and equitable
origins of claims and remedies is misconceived.
•
She didn't seem to think that these so-called fusion fallacy, evidenced in
cases like United Scientific, has become established in England.
•
In this jurisdiction, from cases like Meagher, it is fairly clear that we would also
support this approach.
The Maxims of Equity
•
General principles developed by Court of Chancery over the years.
•
Not to be interpreted as positive rules of law to be applied literally but they
reflect general trends.
•
Some of maxims overlap or may contradict each other.
•
Purpose of examining the maxims is to provide better understanding of the
operation of equitable jurisdiction.
Equity will not suffer a wrong to be without a remedy
•
Equity will intervene to protect recognised right which for some reason is not
enforceable at common law.
•
An example – the enforcement of trusts.
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See Virgo Ch 3.
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The enforcement of a trust is a scenario where someone called a
trustee is holding property for the benefit of someone called the
beneficiary. A beneficiary is a person who is entitled to the benefit of
the property.
-
The beneficiary is not the legal owner but have equitable/beneficial
interests in the property.
•
It should not be interpreted too literally – see comments of Greene MR in Re
Diplock.
-
‘If a claim in equity exists, it must be shown to have an ancestry
founded in history and in the practise and precedence of the courts
administering equity jurisdiction.’
❖ Holmes v Millage
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Lindley LJ - ‘It is an old mistake to suppose that, because there is no
effectual remedy at law, there must be one in equity’.
-
Equity does not inevitably jump in and provide a remedy or fair
outcome just because the common law doesn’t.
1. Equity Follows the Law [as a starting point]
•
Maxim should not be interpreted too strictly – more accurate to say that
although equity does not seek to question the existence of legal rights, it will
attempt to mitigate harsh results caused by their strict enforcement.
•
However, equity may modify the application of common law principles where it
is in the interests of fairness to do so.
•
Equity will not allow a statute to be used to perpetrate a fraud.
-
E.g. equity will not permit a beneficiary to deprived of an interest in
land under the terms of a trust where this would amount to fraud, even
if there is insufficient compliance with the requisite statutory
formalities.
•
Even where there isn’t evidence in writing, equity will not insist on legislation
being complied with if it would lead to a fraudulent outcome.
❖ Jones v Kernott
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‘[t]he starting point is that equity follows the law’ but presumption can
be displaced by showing parties had different common intention.
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The starting point is that their beneficial interests are a reflection of
their legal interests and they were the joint legal owner.
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Issue was that Ms Jones had paid for 90% of the property.
HELD:
-
House of Lords stated that this presumption that equity follows the law and
that they are joint tenants, both in law and in equity, can be displaced by
showing that the parties had a different common intention when they
acquired the house.
-
Or they might have later formed a common intention that are beneficial
shares would change.
-
Ms Jones ended up with a 90 percent beneficial share in this house as that is
what she had contributed.
•
Illustrates that although it may be the starting point that equity or beneficial
ownership follows the law or legal ownership. It is only a starting point. And
often, equity moves in a different direction.
2. He Who Seeks Equity Must Do Equity
•
To obtain equitable relief, a plaintiff must be prepared to act in a fair manner.
•
Reflects the fact that remedies are discretionary in nature.
•
Maxim concerned with likely future conduct.
•
Noticeable in approach towards granting remedies.
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A feature of equitable jurisdiction that differentiates it very clearly from
the common law.
❖ Chappell v Times Newspapers Ltd
FACTS:
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The plaintiffs were looking for an interim injunction to restrain their employers
from terminating their contracts.
-
When asked by the Court to give an undertaking sought by the employers
not to engage in disruptive behaviour, the plaintiffs refused.
-
The plaintiffs were not directly involved with any disruptive behaviour in the
past but the CoA wanted them to make this undertaking before giving them
the remedy.
HELD:
-
Court of Appeal said that the plaintiffs had failed to establish that they
intended to act equitably by abiding by the terms of their contracts of
employment.
-
Lord Denning MR: ‘if one party seeks relief, he must be ready and willing to
do his part in it’.
3. He Who Comes to Equity Must Come with Clean Hands
•
Requires a person seeking equitable relief to refrain from dishonest conduct if
he seeks a remedy.
•
Refers principally to the past conduct of a plaintiff.
•
Inequitable conduct must be connected to the remedy.
❖ Argyll v Argyll
FACTS:
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The plaintiff was looking for a remedy to restrain a breach of confidence by
her husband in terms of giving private information to newspapers.
-
And there was an argument made that she had been engaged in adultery
and all sorts of immoral behaviour, and for that reason Court of Equity could
not give her a remedy.
HELD:
-
Court stated that the plaintiff’s conduct which had led to her divorce, did not
deprive her of an entitlement to an equitable remedy.
-
The Court stated that the plaintiff’s conduct, albeit repugnant, shouldn't allow
the husband to, as he put it, broadcast unchecked, intimate confidences of
earlier and happy days.
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‘a person coming to equity must come with clean hands, but the cleanliness
required is to be judged in relation to the relief that is sought.'
❖ Overton v Banister – beneficiary acted fraudulently - claim disallowed in equity
FACTS:
-
This beneficiary was under the age of 21 which had fraudulently
misrepresented herself as being 21. Although she was only 19.
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She induced the trustee to give her possession of trust assets that she
should only have been entitled to when she reached the age of 21.
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When she then reached 21, sued the trustees to reimburse the trust fund as
they had improperly paid assets out to her.
HELD:
-
She was refused relief.
-
It wouldn't have seemed fair that she could take the property and then sue
the trustees when she had acted fraudulently.
❖ Smelter Corporation v O'Driscoll – although mistake and not dishonest
conduct – prejudice caused and unjust to grant specific performance
FACTS:
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Related to claim for a specific performance of a contract to sell lands.
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One of the examples of a case where the plaintiff or the plaintiffs agents in
this case conduct was not dishonest. But it did cause significant prejudice to
the defendants.
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The plaintiff’s agent had told he defendant that if she didn't sell the land, it
was going to be acquired on a compulsory basis.
HELD:
This was not true.
-
The court was satisfied that the agent didn't realise this, but effectively, the
plaintiff's agent had had done something that led to serious prejudice or
potential serious prejudice to the defendant.
-
The Supreme Court decided to refuse a decree of specific performance,
which is a form of equitable remedy.
-
O’Higgins CJ stressed that it is an equitable remedy.
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He said that because of the plaintiff's misrepresentations, the defendant was
under a fundamental misapprehension about the true facts.
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Thus, it would be unjust to grant specific performance in the circumstances.
•
Concepts of presumption of resulting trust and of advancement
•
Not possible to plead illegal purpose to rebut these presumptions – explains
different outcomes depending on nature of relationship between parties
•
Equitable relief may be refused where plaintiff’s conduct less than honest
even where conduct has not directly prejudiced defendant – see Parkes v
Parkes
Resulting trust
•
If the ownership of property is transferred to someone who does not pay for it,
there is a presumption that the person to whom it is transferred (the grantee)
holds the property by way of a resulting trust for the person who gave it in the
first place.
-
The beneficial interest reverts back to the grantor of the gift.
Presumption of advancement
•
Arises due to the relationship between the parties, the donor (person buying
the property if it is a purchase) is under an obligation which equity recognises,
to provide for the other person to whom they’re giving the property.
•
Equity assumes that they are advancing or making a gift to the other person
because of their relationship with them.
•
Pg 239 of Virgo
-
Virgo explains that for reasons of public policy, it is not possible to
plead an illegal purpose.
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This doesn't prevent the presumption of a resulting trust or the
presumption of advancement from being engaged.
-
However, it does mean that the party against whom the presumption
applies may not be able to assert his illegal purpose to rebut the
presumption.
❖ Parkes
FACTS:
Situation where a husband bought land and took the conveyance in his wife’s
-
name for dishonest reasons.
-
He wished to avoid paying a higher rate of stamp duty and avoid a
requirement of getting land commission consent which applied at the time.
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The parties fell out and question arose as to who owned the beneficial
ownership in this property, in this piece of land.
HELD:
-
Costello J stated that the Court should not grant relief to the purchaser.
-
The husband who put property into his wife’s name dishonestly and by
means of an illegal act performed for the purpose of evading his legal
obligations.
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Although the husband’s dishonest conduct had not prejudiced the wife, his
dishonesty had been enough to disentitle him to the equitable remedy he
was seeking.
-
Effectively, there was a presumption of a resulting trust in this case. This was
in turn rebutted by this presumption of advancement as he had put the
property into the wife’s name.
-
The husband could not rely on his own illegal conduct to rebut the
presumption of advancement.
More flexible approach taken by House of Lords in
❖ Tinsley v Milligan
•
Reliance principle from Tinsley will not be followed in England.
FACTS:
-
Dispute re the beneficial ownership of property registered in the sole name of
the plaintiff.
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It had been bought and paid for jointly by the parties.
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Two women had bought this property as part of a business venture on the
understanding that they would both be joint beneficial owners of the house.
-
The purpose of this arrangement was effectively to perpetrate a fraud on the
Department of Social Security.
-
Ms Milligan was fraudulently claiming housing benefit.
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The defendant decided to disclose this fraud to the authorities.
ISSUE:
-
Did the two parties both share the beneficial ownership, or was it all the
plaintiff’s as it was in her sole name.
HELD:
-
Majority of House of Lords stated that a more flexible approach needed to be
taken with this clean hands maxim and the concept of illegality.
-
Lord Brown Wilkinson said that illegality may render a proprietary interest
unenforceable in certain circumstances, but only where the claimant had to
rely on the illegality to prove the equitable right.
-
Pg 372 of Lord Brown Wilkinson’s judgement—explains that the relationship
of the parties contributes to the different outcomes.
❖ Patel v Mirza
FACTS:
-
Not about trust, about illegality.
HELD:
-
Supreme Court set out a new purposive approach.
-
Case was decided on unjust enrichment principles.
-
Much fairer approach to illegality.
❖ Curust Financial Services Ltd v Loewe-Lack-Werk Otto Loewe GmbH & Co.
KG
FACTS:
-
Regarding an alleged breach of an exclusive licencing agreement to sell
paint.
-
Issue about whether the fact that the plaintiff had allegedly breached one
clause in that contract might count against the plaintiff when it sough an
injunction.
HELD:
Finlay CJ held that the Court has a discretion where it’s satisfied that
-
somebody has come to equity with otherwise than with clean hands, to
refuse equitable relief.
-
However, this involves some element of turpitude, and it cannot necessarily
be equated with a mere breach of contract.
In the circumstances, he stated that the plaintiff’s conduct should not
-
disentitle them to relief.
❖ Shiel v McKeon
•
Where only one party has been up to no good, then the courts do not take
such a flexible approach.
FACTS:
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There was evidence before the Court that there was an informal arrangement
entered into between the parties.
-
This led the plaintiff to the reasonable belief that the defendant would buy
property partly in trust for the plaintiff.
-
Problem was that the plaintiff was not acting in a very fair way.
-
The plaintiff was aware that there was a deadline imposed by the estate
agent handling the sale for making a higher offer.
-
When he met the defendant, he was not honest about failing to meet the
deadline.
HELD:
-
Clarke J referred to the principle that he who seeks equity must do equity,
and that you have to come to equity with clean hands.
-
Stated that he would have regard to the fact that it would be unfair to allow
the plaintiff to benefit from an arrangement that he’d entered into in
circumstances where he had not been totally honest with the defendant.
Summary of principles
•
If the claimant needs to rely on illegality to establish a claim – unlikely to
succeed (Parkes).
•
Where a plaintiff/counter-claimant is involved in dishonest conduct
(Overton/Parkes), or even an innocent misrepresentation where prejudicial to
defendant (Smelter), likely to be denied relief.
•
If both parties are involved in a degree of illegality, the courts may take a
more flexible approach (Curust/Tinsley).
•
If only the claimant/one party is involved in the illegality, a stricter approach
may be taken (Sheil).
•
The principle of unconscionability may play a role – it may be unconscionable
for the defendant to suffer when the plaintiff’s conduct is questionable.
4. Delay defeats equity
•
Legal claims are governed by a period of limitation.
•
The type of delay that is going to be sufficient to bar a claim for equitable
relief is often much less clear cut.
•
Principle of laches: if a party whose rights have been infringed fails to pursue
his rights with sufficient speed, his inactivity may cause his right of action
may be barred. This delay has to be combined with some sort of prejudice
towards the defendant.
•
Principle of acquiescence: where one party infringes another's rights and the
other does nothing or expressly or impliedly represents that he does not
intend to enforce claim.
-
Delay + conduct which may lull the defendant into a false sense of
security.
•
Toal v Duignan (No.2) - Finlay CJ - courts have inherent jurisdiction to dismiss
claim in interests of justice.
•
Allcard v Skinner - lapse of time and plaintiff's conduct amounted in effect to
confirmation of the gift.
FACTS:
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Plaintiff was a nun who made her will in gavour of the superior of the order.
-
She also transferred large amounts of money and stock.
-
When she left the order she revoked her will but did not attempt to claim
the rest of her property until nearly six years later when she took
proceedings that this property had been transferred as a result of undue
influence.
HELD:
-
Majority of CoA were clearly sympathetic but stated that the claim was
barred by laches and acquiescence.
-
Linney LJ stated that it was not just a case that rested on the lapse of time
alone. It was the lapse of time coupled with the plaintiff’s conduct.
-
The plaintiff had given the impression to the other side that she wasn't
going to try and reclaim this property.
❖ J.H. v W.J.H.- lapse of time coupled with circumstances which made it
inequitable to enforce claim barred plaintiff's action
FACTS:
-
Plaintiff had signed a document in which she agreed to compromise her
rights under the Succession Act to her late husband’s farm in favour of her
son.
HELD:
-
Keane J accepted that the transaction was an improvident one. So it was
one that the courts would in the normal course of events, have set aside.
-
However, he decided to not grant her equitable relief in the circumstances.
Due to a combination of delay and conduct.
o A period of four years had gone by and during that time, the
defendant had invested in running the farm on the basis that the
wife had abandoned her rights.
-
This combination of a lapse of time and circumstances which would make
it inequitable to enforce the claim, was enough to bar the plaintiff’s action.
❖ Similar conclusion reached in HC in McGrath v Stewart and specific
performance refused
FACTS:
-
Plaintiff was looking for specific performance to enforce a contract, for the
sale of land.
-
He did not take the proceedings until six years after the contract had been
entered into.
HIGH COURT:
-
Murphy J stated that where a defendant has indicated an intention not to
perform a contract, then the plaintiff is expected to act with ‘great
expedition’.
-
Fairly clear that the plaintiff knew that by not proceeding, the defendant
was ultimately going to be prejudiced.
-
Murphy J stated that the plaintiff must have been well aware of this
increase in property prices and how it would prejudice the defendant.
-
Stated that the defence of laches had been made out and it would be
unfair to make an order of specific performance against the defendant.
-
However, he decided to make an award of damages.
SUPREME COURT:
-
Pointed out that the defence of laches had been established.
-
However, they took a different view in relation to the remedy.
-
Laffoy J: if there is no entitlement to specific performance, you have no
entitlement to damages in lieu of or instead of specific performance where
laches where established.
5. Equality is equity
•
Where more than one person entitled to property, equity favours a principle of
equal division.
•
Common illustration of maxim is equity’s dislike of joint tenancy, leans in
favour of tenancy in common.
•
E.B. v S.S.
FACTS:
-
Case taken under S 117 of the Succession Act 1965.
-
Mechanism that a child can take alleging that a parent has failed in his or
her moral duty to make proper provision for the child.
HELD:
-
Keane J held that this maxim that ‘equality is equity’ should not necessarily
apply.
-
Held that it was a fair solution in this case. However, it is not always the
case.
6. Equity looks to intent rather than form
•
Conflicts with the maxim that equity follows the law.
•
It does not mean that legal formalities wont be required by equity, it is fair to
say that equity does look at the substance rather than the form of a
transaction.
•
If by insisting on statutory formalities, a fraud is likely to be perpetrated, equity
won’t insist on those statutory formalities being complied with.
•
Parkin v Thororld - ‘Courts of Equity make a distinction in all cases between
that which is matter of substance and that which is matter of form; and if it find
that by insisting on the form, the substance will be defeated, it holds it to be
inequitable to allow a person to insist on such form, and thereby defeat the
substance.’
7. Equity looks on that as done which ought to be done
•
Where specifically enforceable obligation exists, equity regards the parties as
already in the position they would be in had the obligation been performed.
•
Specifically enforceable contract for sale of land - equitable interest passes to
purchaser and legal title held for him on trust by vendor until completion.
•
S 52(1) of Land and Conveyancing Law Reform Act 2009 (also minority view
of Henchy J in Tempany v Hynes).
8. Equity imputes intention to fulfil obligation
•
Where a person is under an obligation to perform an act and does some other
act which could be regarded as fulfilment of the original obligation, it will be
regarded as such.
•
Maxim forms the basis for equitable doctrine of satisfaction (e.g. the
satisfaction of a debt by a legacy).
•
Presumed that legacy is to satisfy debt if the amount is equal to or exceeds
the amount of the debt.
9. Equity acts in personam
•
Traditionally equitable jurisdiction exercised against the person of the
defendant rather than against his property.
•
Failure to comply with an order e.g. injunction, constitutes contempt of court
•
But equitable proprietary rights are increasingly being granted – this maixm
must be treated with caution.
❖ FHR European Ventures
FACTS:
-
Relates to the debate about the nature of a claim where a fiduciary
receives a secret commission out of a transaction.
-
Ongoing controversy as to whether the fiduciary is merely personally
liable, or whether a proprietary claim may lie.
HELD:
-
A proprietary claim lies, and a constructive trust is imposed.
-
Lord Neuberger: ‘Equity, unlike the common law, classically acts in
personam; yet equity is far more ready to accord proprietary claims than
common law’.
10. Where equities equal
•
Where the equities are equal, the first in time prevails.
•
Where the equities are equal, the law prevails.
•
Two related maxims refer to question of priorities as between competing
interests in land.
•
Distinction between equitable interests and mere equities.
-
An equitable interest is an actual right in property. Things like an interest
under a trust or an equitable mortgage.
-
Mere equities are rights of a procedural nature. They are ancillary to
property rights. e.g. right to have a transaction set aside or undue
influence or mistake.
•
Practical significance of distinction seen in relation to priorities.
•
Status of beneficiary's equitable right to trace trust property into hands of third
parties - recognised as equitable interest in Cave v Cave but only regarded as
mere equity in Re ffrench’s Estate.
•
Maxims should not be interpreted too literally.
❖ FHR European Ventures LLP
•
Lord Neuburger: ‘given that equity is far more ready to recognise proprietary
rights than common law, the effect of having an equitable right is often to give
priority over common law claims ...’
-
Acknowledging that these maxims are not of general application anymore.
-
As equity has become more likely to recognise rights that attach to
property.
Express Trusts
Development of the concept of a trust
•
The modern trust developed out of the medieval concept of the use whereby the
owner of land would give it to another to hold it on his behalf.
-
•
Effectively, it created a moral obligation.
Following the enactment of the Statute of Uses (extended to Ireland in 1634) it
became clear that a use upon a use did not come within the ambit of the statute
(see Tyrrel case).
•
The Court of Chancery decided to enforce this second use in a manner similar to
that in which the first use had been enforced prior to the enactment of the Statute
of Uses.
•
The second use became known as a trust.
Definition of a trust
•
A trust is a relationship where you have a trustee(s) who are compelled in equity
to hold property.
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Whether real or personal and whether by legal or equitable title.
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For the benefit of persons (of whom he may be one and who are termed
beneficiaries) or for some object permitted by law,
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In such a way that the real benefit accrues not to the trustee(s), but to
beneficiaries or other objects of the trust.
•
A way of setting up benefit to individuals but in a way that can allow them to
enjoy the benefit of the property without a lot of the relevant obligations.
•
Ch 3 of Virgo.
Trusts and powers
•
Distinction may be significant in determining whether instrument valid.
•
Question of intention of settlor ascertained from construction of language of
instrument.
•
Fundamental distinction between trusts and powers.
-
While trusts are of an imperative nature, powers do not have to be
exercised.
-
Beneficiaries under fixed trust are owners in equity of trust property while
objects of a power have only an expectation that the power may be
exercised in their favour.
-
A beneficiary is recognised as being the owner in equity, thus giving them
much more extensive rights.
•
A power of appointment authorises the creation or grant of beneficial interest
and property.
•
Gives authority to the donee of the power of appointment to nominate objects
in the same way as a trustee would be able to nominate beneficiaries.
•
A much dodgier way of ensuring something you want to happen will happen—
not enough of an imperative aspect to the power of appointments.
•
Distinction between general power of appointment and a special power of
appointment.
-
General power of appointment: if the done can designate anybody, even
himself, as the object of the power, otherwise it would be termed as a
special power of appointment.
-
An intermediate power of appointment: anyone except certain people or
groups can be nominated.
•
Fixed trust is where the interest which each beneficiary is to take is specified.
•
Discretionary trust is where a certain measure of discretion is given to trustees.
-
Trustees may have a discretion to choose who may benefit out of a
specified class, and or to decide the proportions in accordance with which
the trust property is going to be distributed.
❖ Burrough v Philcox
FACTS:
-
The testator in the case gave life estates in certain property to his two
children with remainder to their children.
-
He said that if they should both die without having any lawful issue, the
survivor of the children would have power to dispose of the estate amongst
his nephews and nieces and their children.
ISSUE:
-
What happens when no selection is made? Can it be enforced?
-
If no selection is made, the Court could step in and effectively treat it as a
HELD:
trust.
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When there appears a general intention in favour of a class, and a
particular intention in favour of individuals of a class to be selected by
another person and this fails, the court will carry into effect the general
intention in favour of the class.
❖ Re Kieran – example of power in the nature of a trust
FACTS:
-
The testator left a farm and the rest of his property to his brother on trust
for the brother’s eldest son.
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Stated that if the brother’s eldest son should die before he reached the age
of 21, the brother could effectively appoint one of the other sons.
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The eldest son died before reaching the age of 21 and the testator’s
brother also died without making any appointments.
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A power of appointment was not exercised.
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Dispute arose as to what should happen to the farm.
HELD:
-
Justice Pim held that the three surviving sons were entitled to the farm in
equal shares.
-
He stated that it is the duty of every court to carry out a trust if it is possible
to do so.
-
If it is possible, a court will avoid a construction that might or will result in
an intestacy.
Formalities
•
Express trusts of land – s.4 of Statute of Frauds (Ireland) 1695 requires that
trust be evidenced in writing and signed by person able to declare trust or by
his will.
❖ McCormick v Grogan – legislation shall not be used as instrument of fraud.
❖ Rochefoucauld v Boustead [1897]
FACTS:
-
Plaintiff was the owner of mortgaged property and it was sold by the
mortgagee to the defendant.
-
The defendant had agreed orally but not in writing, to hold the property on
trust for the plaintiff, subject to being paid back the purchase price and any
other expenses incurred.
-
The defendant sold the land at a profit and went bankrupt.
ISSUE:
-
Whether the plaintiff had any claim to the profit, where there was no written
agreement.
HELD:
-
‘It is a fraud on the part of a person to whom land is conveyed as a
trustee, and who knows it was so conveyed, to deny the trust and claim
the land for himself’.
-
Equity’s intervention allows the trust to be enforced.
❖ Applied in Ireland in McGillicuddy v Joy
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Related to a contract.
-
Similar facts to above.
•
Requirements in relation to trusts created by will – Section 78 of Succession
Act 1965 – in writing, signed and signature witnessed.
Essential elements
•
Certain essential elements - known as ‘the three certainties' must be present if
a valid express trust is to be created.
1. The words relied on as creating trust must have been used in imperative
sense to show that testator intended to create obligation.
-
Language used when creating a trust has to be mandatory in nature.
2. The subject matter of the trust must be certain.
3. The objects must be certain.
•
Requirements set out - Knight v Knight and Chambers v Fahy.
1. Imperative words/certainty of words
•
No precise form of wording must be used but words should convey obligation
(e.g ‘should apply’, ‘to be distributed’).
❖ Re Hamilton - court will not allow precatory words to create a trust unless this
is the clear intention of the testator.
FACTS:
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The testatrix gave legacies to her two nieces. One of them died.
-
She had added that she wanted the nieces to leave this property equally
between two named families of another nephew and another niece.
ISSUE:
-
Did this create a trust obligation or not?
-
Court stated at upon looking at the language, the Court held that the
HELD:
legacies had been given absolutely to the two nieces, and there was no
trust in favour of these two other families.
-
Court will not allow a trust to come into effect unless upon looking at the
words used, that it was the testator’s clear intention to create a trust.
-
The use of this precatory language resulted in no trust in being created
and that the nieces could effectively keep the property.
❖ Re Humphrey’s Estate - ‘the tide has turned and is running strong against
precatory trusts’.
FACTS:
-
The testator left all of his property to his wife.
-
He added that he wished that would either leave by will or transfer during
her lifetime a house and an estate to his son.
-
He also stated that he wished for the rest of his property to be left to his
daughters.
HELD:
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Ross J stated that inn the circumstances, she took an absolute interest.
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She was not bound by what he had stated in the will.
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Both jurisdictions, the courts do not like the use of precatory language, and
tend to interpret such language as not creating a trust obligation.
❖ Re Sweeney - words used were not intended to create a trust.
HELD:
-
Hamilton J stated that if something is given in absolute terms, it would be
reasonable to assume that if a trust is intended that would be done in
equally clear and explicit terms.
Despite this general trend, the law is still inconsistent:
❖ Comiskey v Bowring Hanbury - precatory words may be sufficient if it is clear
from the language used as a whole that the testator's intention was to create a
trust.
FACTS:
-
Concerned words which are clearly precatory words.
-
HoL stated that they were sufficient to create a trust obligation.
-
Stated that from the language as a whole, the testator intended to created
HELD:
a trust.
2. Certainty of subject matter
•
To ensure the creation of a valid express trust, the subject matter of the trust
(the property and the shares to be taken) must be defined with sufficient
certainty.
•
Where an objective criterion can be applied by the court, a failure to precisely
quantify the extent of the subject matter of a trust will not prove fatal to its
validity – see Re Golay’s Will Trusts.
❖ Hunter v Moss – intangible property – any suggested uncertainty as to
subject matter appeared theoretical and conceptual rather than real and
practical.
FACTS:
-
The trust was comprised of a number of shares in a company which were
of their nature indistinguishable from other shares in the same company.
-
The defendant owned 950 out of 1000 shares in a company, and declared
that 5% of the share capital should be held on trust.
-
Equally, any one of those shares was capable of satisfying the trust
obligation.
HELD:
-
At first instance, the Court held that any suggested uncertainty as to the
subject matter was theoretical and conceptual, rather than real and
practical.
-
The Court held that the trust was not void on the grounds of uncertainty.
-
Decision was upheld by CoA. (first instance judgement is more useful)
Types of Trust
•
Fixed Trust: The interest which each beneficiary is to take is specified in the
trust instrument and the trustees have no discretion to determine either who
will benefit or the extent of that individual's share.
•
Discretionary trust: Trustees are under an obligation to distribute the trust
property to the beneficiaries, although they have a discretion to select which
members of the class should benefit and to what extent.
3. Certainty of objects
•
Objects or beneficiaries of a trust must be defined with a sufficient degree of
certainty to enable trustees, or if necessary, the court, to administer it
according to settlor or testator's intentions.
•
Test for Fixed Trusts: are there ascertained or ascertainable beneficiaries?
•
Test for Mere Powers: Re Gulbenkian's ST – can you say with certainty
whether any given individual is or is not a member of the class?
•
Difficulty arises in the middle of these two spectrums, where you have a
discretionary trust.
❖ The law is uncertain regarding which test to use for discretionary trusts.
Test for discretionary trusts
•
Test originally applied in England in:
❖ IRC v Broadway Cottages Trust
❖ Court of Appeal stated that a trust would be void for uncertainty unless the
whole range of objects eligible for selection is ascertained or capable for
ascertainment.
❖ Rationale behind this approach is twofold.
o It is only really possible for a trustee to do their job properly if they
have a comprehensive list of all the potential beneficiaries to start
with.
o If the Court is required to step in and make a distribution where the
trustees fail to act, it could only really do this on the basis of equal
division.
•
Test of certainty reformulated by House of Lords in:
❖ McPhail v Doulton - trust is valid if it can be said with certainty that any given
individual is or is not a member of the class.
FACTS:
❖ Deed executed by a settlor and it provided that the fund was to be held on
certain trust for the benefit of the staff of a company and their relatives and
dependents.
HELD:
❖ HoL held that the deed created a trust rather than a power.
❖ Lord Wilberforce concluded that the test for discretionary trust ought to be
similar to that accepted by the HoL in the Re Gulbenkian's ST—can you
say with certainty whether any given individual is or is not a member of the
class?
❖ Re Baden - meaning of conceptual and evidential certainty.
❖ HoL laid down the test for discretionary trusts and remitted the matter for
determination.
❖ CoA had to weigh up whether the phrase ‘relatives’ and ‘dependants’ was
sufficiently certain.
❖ Conceptual certainty = precision of language used to define the class.
❖ Evidential certainty = the extent to which there is evidence available which
enables parties to be identified.
❖ CoA held that these tests had been satisfied in this case.
•
But in Ireland - Re Parker’s Will and O'Byrne v Davoren – trust invalid unless
whole class of potential beneficiaries can be ascertained.
❖ Re Parker’s Will
FACTS:
❖ Small family discretionary trust.
❖ Property to be divided amongst the testators.
❖ Expressly limited to people who are alive at the date of the testator’s
death.
HELD:
❖ Budd J stated that the trust was not void for certainty.
❖ However, he did stress that it was essential that the trustees would know
who the beneficiaries were.
❖ He stated that an imperative trust for division of income between such
members of a class as the trustees may select is invalid unless the whole
class of potential beneficiaries can be ascertained.
❖ O'Byrne v Davoren
FACTS:
❖ Small class, which could go on indefinitely.
❖ The testatrix provided that the residue of her estate should be held on trust
for the post primary education of members of a class consisting of her
children, grandchildren, and the direct descendants of named individuals.
❖ That meant that this trust purported to go on indefinitely. This is impossible
for a private trust and the courts will not enforce this.
❖ Murphy J stated that the trust was void as it breached the rule against
perpetual trust.
❖ He also stated that the trust was not charitable in nature.
❖ Obiter comments on the test of certainty of objects:
o Justice Murphy stated that the judgement of Parker was a
precedent of greater of authority than that of the HoL, but he also
preferred the reasoning of the case as the class of the trusts were
similar.
Which approach is preferable?
•
Rationale of the need for equal division which seems to lie behind Parker is
far from suitable in the case of many modern discretionary trusts.
❖ When it comes to a case like Parker, one could argue that to enable the
trustees to do their job fairly (to choose which of the nephews and nieces
to benefit), it would be necessary who each and every member of the class
is.
❖ This rationale does not hold water when it comes to a large modern
discretionary trust like the one in McPhail v Doulton.
•
Question of how the court would exercise its discretion where the trustees fail
to do so should be addressed.
❖ The underpinning rationale for the law in this area.
❖ P451 in McPhail.
•
Where the testator's intentions are likely to be fulfilled by equal division
amongst all the potential beneficiaries, the certainty requirement laid down in
Parker is to be preferred.
•
However, as the judgment of Lord Wilberforce in McPhail made clear, this is
no longer the case in relation to many modern discretionary trusts which are
designed to benefit a wider class of beneficiary.
Administrative unworkability
❖ Re Manisty’s Settlement: ‘a power cannot be uncertain merely because it is
wide in ambit‘.
•
Discretionary trust in favour of a wide class may be void as administratively
unworkable, see:
❖ R. v District Auditor ex p West Yorkshire Metropolitan County Council
FACTS:
❖ Trust for the benefit of any of all or some of the inhabitants of the county of
West Yorkshire.
❖ Council who purported to set it up wanted to benefit as many as were
relevant as they realised that they did not spend all the available funds in a
financial year.
HELD:
❖ Held to be unworkable as the size of the class was too big.
•
Likely that both discretionary trusts and mere powers may be declared void on
grounds of capriciousness.
❖ Re Manisty: p26-27
-
Virgo p104.
Outcomes where test of certainty not met
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Uncertainty of words – recipient takes beneficially as there is no trust
obligation.
•
Uncertainty of objects – resulting trust for settlor.
•
Uncertainty of subject matter – recipient takes beneficially where not clear
what the trust can attach to.
•
Uncertainty about the division of beneficial shares—uncertainty of subject
matter – resulting trust where uncertainty in relation to beneficial share.
Secret trusts
Introduction
•
Statutory formalities which must normally be complied with to create a valid
trust which takes effect after a testator’s death may be waived to give effect to
a secret trust.
•
Fully secret trust arises where a testator makes a gift of property to a named
person in his will without expressly stating that the latter is to hold it on trust.
-
•
There is no evidence of any kind of trust obligation.
Half secret trust arises where clear from the will that legatee is to hold
property on trust but neither terms of trust nor identity of beneficiaries
disclosed in the will.
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Clear that the trust is intended but it isn’t clear from the face of the will who
the beneficiaries are or what the terms of that trust should be.
-
Trust cannot be enforced if the legatee is not prepared to be honest. In
that case, the property reverts back to the testator’s estate so there is a
resulting trust, as it is clear that a trust is intended.
•
Requirement is that this obligation has to have been communicated to the
legatee and accepted by him before the testator has died.
Joint tenants and tenants in common
•
Tenants in Common – Re Stead – the tenant in common who does not know
anything about the trust obligation is not bound.
❖ Geddis v Semple – ‘innocent’ tenant in common will take free of the trust if the
gift not induced by his co-tenant’s undertaking.
•
Joint tenants – Re Stead – distinction drawn between cases where the will
made on faith of antecedent promise and left unrevoked on the faith of a
subsequent promise.
-
•
Irish courts have not really drawn this distinction.
Perrins’ Inducement theory:
-
Theory that the only question the Court has to look at in these
circumstances is whether the gift to the person who did not know about the
testator’s intention to create a secret trust was induced by the promise of
the legatee who did know about his intentions.
-
If you take this approach, issues such as whether joint tenants or tenants
in common and timing of promise merely matters of evidence.
Onus of Proof
•
Onus lies on person seeking to show existence of secret trust to establish this
on balance of probabilities.
•
Re Snowdon
-
Megarry VC suggested obiter that standard might be higher if any question
of fraud arose, although Virgo proposes that this is problematic as it would
be ironic if whether allegations of fraud made it harder to establish a secret
trust.
•
Banco Ambrosiano v Ansbacher & Co
FACTS:
-
Regarded issue where standard of proof where fraud is alleged.
-
Makes it clear that the standard of proof where fraud is alleged is the
HELD:
ordinary civil standard burden of proof.
-
SC rejected the suggestion that any higher burden of proof should be
placed on the plaintiff where there is an allegation of fraud.
Half secret trusts
•
Half secret trust: where a testator gives property to a legatee on trust without
disclosing the precise terms or the objects of the trust in the will.
❖ Riordan v Banon: accepted communication and acceptance at or before the
making of the will or probably subsequently.
FACTS:
-
A will directed that a legacy should be disposed of by a legatee in a
manner of which ‘he alone should be cognisant and is contained in a
memorandum which I shall leave with him.’
-
Accepted by the legatee and was proved by all evidence that before the
will was executed, the testator had told him that he intended to leave this
legacy for a named lady and that the legatee had accepted this.
HELD:
-
Held that the testators can't reserve the right in a will to subsequently
dispose of property by an instrument not subject to statutory requirements.
-
Acknowledged that if at the time of making a will or as he said, probably
subsequently, then the Court will allow the trust to be proved by oral
evidence.
-
Rationale of preventing outright fraud does not apply when it comes to half
secret trusts.
-
The Court was driven much more by the aim of giving effect to the
testator’s clear intentions.
-
Pointed out that there isn’t the same danger of outright fraud when we’re
talking about a case of a half secret trust, as you can see from the will that
the legatee is not intended to claim for his own benefit.
•
Good example of a strong rationale for enforcing secret trusts.
-
Positive rationale that they are being forced to ensure that someone’s real
intentions can be carried out.
-
Negative rationale is to prevent either fraud or some kind of
unconscionable conduct.
•
Enforceability of half secret trusts in doubt in England until:
❖ Blackwell v Blackwell
FACTS:
-
Regarded a testator who gave a sum of money to a number of legatees to
apply the income for purposes indicated to them in a codicil to his will.
-
It was agreed that the trust had been accepted prior to the execution of the
codicil.
-
A case of a half secret trust where there was communication and
acceptance before the instrument was drawn up.
HELD:
-
Lord Sumner said that a trust existed which arose independently of the
will, and that potentially is quite significant.
-
Essentially stated that the requirements of the Wills Act don’t apply to this.
-
Stated that the communication and acceptance removes the matter from
the provisions of the Wills Act.
-
Stated that a testator cannot reserve to himself a power of making future
unwitnessed dispositions, leaving the purposes of the trust to be supplied
afterwards.
o This has been interpreted in England as authority for the proposition
that communication of a half secret trust cant be effective if its made
after the date of a will.
❖ Re Keen: sometimes taken as authority for the proposition that
communication of a half secret trust cannot be effective if made after the date
of a will but inconsistency also an issue.
FACTS:
-
Situation of a testator giving property to trustees to be held on trust
through the testator’s will.
-
The wording was ‘to be disposed of amongst such persons or charities as
may be notified by me to them’.
-
At the time of making an earlier will, the testator had told one of the
legatees that he wanted to benefit a named individual and handed him a
sealed envelope.
HELD:
-
The CoA accepted that this was the appropriate notification.
-
Accepted that the communication and acceptance element had been
complied with. And that that had taken place before the will was drafted.
-
Lord Wright: stated that if you look at the true construction of this will, the
clause that was being looked at by the Court reserved power on the part of
the testator to dispose of property by a future unattested disposition
contrary to the Wills Act.
-
Also stated that there was a clause in the will referring to future definitions
of trust subsequent to the date of the will. The notification had been
accepted by the Court as having taken place before the will. It was
inadmissible as it was inconsistent with what the will had prescribed.
❖ Prendiville v Prendiville: principles of law to be applied to secret and half
secret trusts are the same.
FACTS:
-
Key thing to note is that the clause in the will talked about the testator’s
estate being left to his wife for her lifetime to be used ‘according to my
wishes, as she has been advised.’
-
Suggested clearly that the wife had been told what these wishes were.
-
There were very detailed instructions such as stating that property was to
be offered for sale to one of their sons at a ‘reasonable valuation’.
-
After the testator died, the wife made a statutory declaration
acknowledging that her husband’s instructions had been communicated
and accepted by her during his lifetime.
-
After her death, a dispute arose as to what should happen—should the
son have the option to buy the property that was specified at a reasonable
valuation?
HELD:
-
Barron J looked at surrounding case law.
-
Stated that Re Keen had been relied on as authority for this general
proposition that a half secret trust unless its terms are communicated and
accepted prior to the will being executed.
o Stated that Re Keen turned on the construction of a particular
clause in the will and on this issue of inconsistency.
-
Concluded that the principles of law which should apply to both fully secret
and half secret trusts are the same.
-
As long as you have communication and acceptance and sufficient
evidence of that communication and acceptance during the testator’s
lifetime, that should suffice to make the trust enforceable.
Issues with Prendiville
•
The case seems to confirm the general principle that it does not matter
whether you have communication and acceptance before or after a will as long
as it is during a testator’s lifetime.
•
It is fair to say that Justice Barron did not clarify precisely the time at which
communication and acceptance occurred in the case before him, and the use
of the words as she has been advised.
•
Flaw in judgement: as proposed by Coughlan(?) and Biehler, why did Justice
Barron take the trouble to refute the suggestion that Re Keen was authority for
this broader proposition that you can’t have subsequent communication and
acceptance unless he needed to do it to deal with the facts of the case before
him.
•
Thus, we cannot be sure whether Barron J’s rejection of the need for prior
communication formed part of the ratio of the case as we are not really clear
about the precise facts.
•
Other possible flaw: potential failure to address the consistency or
inconsistency issue.
-
Barron J seemed to endorse this ground of inconsistency as a basis for the
decision in Re Keen.
-
However, he did not address the potential inconsistency that may a have
arisen in this case.
•
Virgo’s unified theory of secret trusts – should be recognised in order to
prevent unconscionable conduct.
-
Similar reasoning underpins both full and half secret trusts.
-
Both arise outside the will, even though they’re only constituted after the
testator has died.
-
Stated that both types of trusts should be recognised in order to prevent
fraud in the wide sense of unconscionable conduct.
•
See also Prendiville p. 585.
-
Barron J made the point that a party who has agreed to hold an apparently
beneficial gift on trust couldn’t in conscience refuse to carry out that trust.
-
Stated that this reasoning should apply to both half and fully secret trusts.
Problem Question 1
By a deed executed in November 2020 Mr Smith sought to establish a private trust
for the benefit of the staff of his company Smith Ltd (which employs over 5,000
people) their relatives and dependants, and in a deed he directed that the named
trustees should apply the net income of the fund of €5 million in making, at their
absolute discretion, grants to or for the benefit of “any of the officers and employees
or ex-officers or ex-employees of the company or to any relatives or dependants of
any such persons …” A clause in the deed confined its operation to a period
permitted by the rule against inalienability or trusts of perpetual duration.
-
Situations where there is no written evidence tend to end up in court.
-
Formality question can be dealt with very briefly—a deed was executed.
-
Mr Smith is still alive—no issue about wills/formality about wills.
-
Vast majority of the problem relates to issues about certainty of objects.
-
Is there a trust or power?
-
Pick out the language that points in a direction of a trust—similar to
McPhail.
o Lord Wilberforce states at the top of p450, how he thinks that the
judges all thought that this type of instrument was a trust. Only
reason that they found that it was a power was as they wanted to
make sure that it was effectuated, and the test for a discretionary
trust at the time was much more restrictive.
-
Test of certainty of objects: modern discretionary trust in Ireland
o Re Parker: have to be able to ascertain everyone—full list test.
o State that the test is formulated in Parker and approved in O’Byrne
but make the point that those two cases involved relatively small
family trusts. Distinguish facts from these two cases.
o Look at McPhail for large company.
o If Irish courts were to follow Parker however, this trust would not
meet the test. The result would thus be a result in trust for the
settlor.
o Likelier that Irish Courts would follow McPhail.
-
Conceptual uncertainty:
o Is there any conceptual uncertainty in the words ‘relatives’ or
‘dependants’ and where would you pick up from that?
▪
Re Baden (No2): court should never be defeated by the issue
of evidential uncertainty in the case of a discretionary trust.
▪
There should not be an issue of evidential certainty in the case
of the discretionary trust.
-
If you want to create a trust of a private nature (not for a charitable
purpose), it cannot go on indefinitely. It has to be confined to some kind of
perpetuity period.
o It is important as in McPhail that a clause of the nature was
contained in the deed. This is why the trust in O’Byrne failed.
Problem question 2
In December 2020, Mr Smith also sought to establish a trust for the benefit of his
friend Mr Jones. He did not execute a deed to this effect but told the two individuals
whom he intended should act as trustees that he was transferring a sum of €500,000
to them and that it was his express wish that they hold this sum on trust. He also told
them that he hoped that the trustees would ensure that Mr Jones receive a
“reasonable income” every year from this fund.
-
Dealing with a trust of money, we don’t have any formality issue per se.
o Possible issues of proof may lead to practical issues, however.
o There may be issues of evidence if this matter was to end up in
litigation.
-
Focus on certainty requirements.
-
Certainty of words:
o There is no precise form of wording required.
o Preferable to use words that are mandatory.
o Fairly clear that a trust was intended.
o Problem begins at ‘express wish’ and ‘hoped’.
▪
Use of precatory words.
▪
Sweeney: explicitly stated that the gift was to the putative
trustee ‘absolutely’.
▪
Here, we could distinguish it as there was no sense of an
absolute gift being given to the two trustees.
▪
There is no real evidence of an absolute gift that is being cut
down by words of trust.
▪
Comiskey: the Court may interpret the trust as whole to
conclude that the obligation may be conveyed.
▪
-
However, precatory words should be avoided.
Certainty of subject matter:
o Dealing with a fixed trust.
o Problem is that Mr Jones’ beneficial share is that he is to receive a
reasonable income every year from the fund.
o Re Golay’s Will Trusts: on the basis of this authority, the question is
whether the settlor has given a sufficiently objective determinant so
that the Court can give effect to the settlor’s intention.
o ‘reasonable valuation’, p71 of Coughlan’s article where he criticised
that the decision in Golay is criticised due to the absence of criteria
by which the standard of reasons is to be measured.
o Refers to the fact that other academics have criticised it as unless
you know the context of what is reasonable, how can you judge it?
Some element of criticism of the Golay approach is analysis which
would get you a First.
-
Quite likely that the courts in Ireland would follow the Golay approach.
Particularly as the word ‘reasonable’ didn’t seem to cause a problem for
the High Court in the principle case.
o Thus, the most likely outcome is that the courts would probably
accept, despite the use of precatory words, that it was the clear
intention of Mr Smith to create a trust here.
o Although the use of precatory words was not a good idea, in the
circumstances, however it may be accepted given the overall
intention of Mr Smith.
o The use of ‘reasonable income’ Is not ideal but on the authority of
Golay it is probably acceptable.
▪
Could argue that the courts may not accept a ‘reasonable
income’ clause and determine that the requirement of certainty
of subject matter was not met in this case.
▪
In that scenario the most likely outcome would be a resulting
trust in favour of Mr Smith. As it is clear that he did not intend
these two individuals to have the five hundred thousand
absolutely.
Constitution of trusts: background
•
We have looked at the formality and certainty requirements in relation to the
creation of an express trust.
•
Now we examine the requirements for the vesting of trust property in trustees
by transfer or declaration of trust.
•
These principles are also relevant where a gift is not effectively transferred in
law (and some of the case law deals with this issue)
•
Litigation may occur where a beneficiary seeks to enforce a trust but may not
be able to if it is not completely constituted and he is a volunteer, e.g., if the
settlor dies before the trust is completely constituted or if the settlor changes
his mind before all the formalities have been completed.
•
A trust is completely constituted when the trust property is vested in the
trustees by transfer or declaration for the benefit of beneficiaries.
•
Until this is done, the trust remains incompletely constituted.
•
This distinction is important as once a trust is completely constituted, it can be
enforced by any beneficiary, whether he has given value or is a mere
volunteer.
-
Important in practice to draw distinction of whether a trust is completely
constituted as once this step has been reached, then the beneficiaries may
enforce it, even if they are only volunteers.
•
Generally, equity will not enforce or perfect an incomplete or imperfect trust in
favour of a volunteer set out in:
❖ Milroy v Lord
FACTS:
-
A settlor executed a voluntary deed (no consideration given) purporting to
transfer shares in a bank to be held on trust for the plaintiff.
-
This transfer could only be done by registering the name of the transferee
in the bank’s record.
-
The trustee did have a power of attorney to act on the settlor’s behalf but
failed to register the transfer.
HELD:
-
The CoA held that there was no enforceable trust despite the intention of
the settler.
-
Lord Justice Turner: in order to render a voluntary settlement valid, the
settlor must have done everything, which according to the nature of the
property, comprised in the settlement, was necessary to be done in order
to transfer the property.
o Explains that there are two ways of doing this: transfer the property,
or declare that you hold the property on trust.
o Stated that in order to render the settlement enforceable and
binding in all circumstances, one or other of these modes has to be
used as there is no equity to perfect an imperfect gift.
Methods of completely constituting trust
•
Two main ways in which trust may be completely constituted:
1. by transferring trust property to trustees inter vivos or by will.
2. by declaration of trust – i.e. settlor may declare himself a trustee.
•
Transfer Method: Must be effective transfer of property to be included in trust
and intention on settlor’s part to effect transfer will generally not suffice
❖ McArdle v O’Donohoe
FACTS:
-
Settlor purported to execute a deed of settlement, wanted to make
provisions for his adopted daughter and her children.
HELD:
-
O’Donovan J was satisfied that that the time the settlor executed the deed,
he did intend that a sum of money which was invested in a bond would for
part of a trust fund.
-
However, did this money remain his property or not?
-
O’Donovan J concluded that the settlor had never effectively transferred
any money or property into the trust fund.
-
Therefore the trust was not completely constituted and so could not be
enforced by a volunteer (by someone who had not given value).
-
Also held that the settlor had never expressed an intention to constitute
himself as a trustee either.
-
He did not succeed by either method—did not transfer the property and
had no intention to declare himself as a trustee.
-
Effectively the Court stated that this money remained his personal
property.
Qualifications to Milroy v Lord Principle
(1) Where settlor has done everything in his power to transfer title to property but
cannot ensure compliance with some formality which is outside his control, then the
trust may nevertheless be regarded as completely constituted.
❖ Re Rose [1952]: settlor had done all in his power to divest himself of shares.
FACTS:
-
The settlor executed a voluntary deed purported to transfer shares in a
private company to trustees.
-
The settlor died before the transfer was registered by the company’s
directors.
ISSUE:
-
Was the settler was still the owner of the shares at the time of his
death for the purpose of determining what tax was payable.
HELD:
-
The formal step was something outside of the settlor’s control.
-
CoA stated that the settlor had done everything in his power to divest
his himself of the shares. Unlike in Milroy where the transfer had not
been registered.
-
In law, the settlor remained the owner until the transfer was registered.
-
In equity, the transfer was regarded as being effective from the date of
the deed.
(2) Where unconscionable for donor to deny gift.
❖ Pennington v Waine: donor intended to make an immediate gift and stage had
been reached when it would have been unconscionable to recall it.
FACTS:
-
The donor here wanted to transfer shares in a company to her
nephew, who was one of the defendants, and to make him a director
of the company.
-
The donor signed a share transfer form, but it was retained by the
company’s auditor, her agent, and it was not sent to the nephew.
-
By the time that she died, the share register had not been changed
and following her death, there was an action taken by her executors.
HELD:
-
CoA decided to enlarge the circumstances in which there could be a
qualification to the Milroy principle.
-
Stated that delivery of the share transfer certificate either to the
nephew or the company was not required for there to have been a
valid equitable assignment of the shares.
-
Lady Justice Arden: there was a clear finding that the donor intended
to make an immediate gift. Would have been unconscionable for her to
change her mind.
-
The principle against imperfectly constituted gifts has led to harsh and
seemingly paradoxical results.
-
Milroy principle taken at face value may produce unfair and
unconscionable results.
-
Sometimes equity has to intervene to perfect an imperfect gift.
Reaction to Pennington
•
P142 Virgo.
•
Garton [2003] Conv 364, 376 suggests it is an opportunity to recast Re Rose
by shifting the focus away from the extent of the formalities completed and
onto the conscience of the transferor.
-
He expresses the view that the introduction of the notion of
unconscionability in this context has the potential to mitigate the
harshness of legal formalities but recognises that it is important to
ensure that it is not used to give judges an unfettered discretion to
perfect imperfect transactions in an arbitrary and unpredictable fashion.
•
Halliwell [2003] Conv 192, 200 criticised the decision as representing
‘unfettered judicial discretion’ and argued that the concept of
unconscionability, while valuable, must be based on principled reasoning.
•
Biehler: Pennington reasoning is a potential mechanism for good. It does
allow for perfecting what might otherwise remain an imperfect gift.
-
Could say that it is done in a manner that effectuates the clear intention
of the donor.
Declaration of trust method
•
Alternative method of completely constituting a trust - for settlor to declare
himself a trustee of property for benefit of third parties.
❖ T. Choithram International SA v Pagarani
FACTS:
-
Mr Choithram, the donor, executed a trustee establishing a
philanthropic foundation.
-
He appointed himself one of the trustees.
-
He had used the declaration of trust method to declare himself to be a
trustee.
-
He stated orally that he wanted to give all of his wealth to this
foundation.
-
This property was to include his money, his shares in a number of
companies.
-
Problem was that by the he died, in some instances, the shares in
these companies had not been transferred.
ISSUE:
-
Thus, was this trust completely constituted or not?
-
Where settlor one of a number of co-trustees, trust may be completely
HELD:
constituted by declaration of trust made by him even though property
has still to be vested in co-trustees.
-
Lord Browne Wilkinson acknowledged that the case did not fall
squarely within any of the existing case law.
-
However, he said that there was no difference in principle between a
case where a donor declares himself to be the sole trustee, or where
he declare himself to be one of a number of trustees.
-
Stated that in both cases, the donor’s conscience is affected, and it
would be unconscionable to resile from the gift.
Comments on Pennington and Choithram
•
Virgo – In Choithram it was considered to be unconscionable to refuse to
transfer title to the other trustees jointly given that the donor was already a
trustee given his declaration. In a sense, the trust was arguably already
constituted. But in Pennington, unconscionability was used to impose a form
of trusteeship.
•
Results in Pennington and Choithram might have been correct as they gave
effect to the donor or settlor’s intention and that donor didn’t want to change
his mind.
•
However, such a result might not always be so supportable.
-
In other circumstances, where the donor has changed his mind or there
isn’t the same giving effect to the settlor’s intention element, in a sense
these cases could be used as a precedent to achieve a result that
would not be as supportable.
•
Giving effect of settlor’s intentions as law develops vs uncertainty of
outcomes.
Further exceptions: equity will not perfect an incomplete gift
•
Where the settlor subsequently vests the legal title in the donee, the rule in
Strong v Bird.
-
Effect of the rule is that if you have an incomplete gift, and if that is
made during a donor’s lifetime and the legal title to the property
subsequently becomes vested by the donee by will, then the donor’s
prior intention to make the gift is regarded as having been perfected as
long as that intention has continued until the donor’s death.
-
Keane 120, Virgo 152
-
Keane: where a settlor manifests an intention of making a gift and
subsequently vests the legal estate in the beneficiary, the trust is
completely constituted unenforceable by the beneficiary.
•
Donatio Mortis Causa.
•
Proprietary Estoppel: Where an imperfect gift made and donor knowingly
allows donee to improve property or acts to his detriment in some manner,
equity will compel donor to perfect gift even where donee is a volunteer.
Donatio Mortis Causa
•
Another example of a situation where equity intervenes after someone’s death
despite the lack of compliance with formalities.
•
‘A gift in contemplation of death’.
•
If you have an imperfect voluntary transfer of property, it may be perfected
where the conditions for the operation of this principle are satisfied.
•
There essential elements set out in Cain v Moon:
1. There must be a gift made in contemplation of the donor’s death.
2. The subject matte must be delivered to the donee before the donor’s
death.
3. The gift must only take effect on the donor’s death. The donor must be
able to revoke the gift until he dies.
❖ Sen v Headley - gift of land not excluded from doctrine
FACTS:
-
The deceased and the plaintiff had been living together for about 10
years. Even when they stopped living together, they remained close.
-
When the deceased was very ill, he told the plaintiff that a house was
hers. He said that the deeds to the house were in a steal box and that
she had the key.
-
That was regarded the Court as enough o satisfy the delivery aspect of
the requirement.
-
The deceased died intestate and the plaintiff claimed that he had
made a valid gift to her in contemplation of death.
HELD:
-
For the first time, the CoA said that a gift of land by the delivery of the
title deeds should not be excluded from the doctrine of donation mortis
causa.
-
Upheld the plaintiff’s claim.
❖ Bentham v Potterton - onus lays on party claiming gift
•
If you are trying to affect a donation mortis causa you have to show the Court,
why what is set out in some of these wills should not be given effect to.
FACTS:
-
The deceased had left a lot of legacies and varying amounts to a
number of beneficiaries, including the plaintiffs, the grandnieces.
-
There was a residuary clause in her will providing for the rest of the
estate to be divided amongst all but one of these beneficiaries.
HELD:
-
Trial judge was satisfied that the deceased was never told that her
condition was terminal, although she made this purported gift three or
four weeks before she died.
-
Mr Justice Barr made it clear that the onus was on the plaintiff to
establish the requirements for donatio mortis causa.
-
Held on the facts of the case that she had not done this.
-
The requirement of showing that the gift had been made in
contemplation of death fell short.
-
The Court was not satisfied that the deceased positively intended to
make any radical change in the disposition of her property.
❖ King v Dubrey
•
Shows frustration of doctrines re this doctrine.
•
As per Jackson LJ: Doctrine of donatio mortis causa serves little useful
purpose today. It paves the way for abuses which legislation such as the Wills
Act is intended to prevent.
FACTS:
-
Relatively elderly lady in reasonable health handed the title deeds of a
house to the claimant and said something like ‘this will be yours when I
go’, four months before her death.
HELD
-
Trial judge was satisfied that there had been delivery to the claimant.
-
Was not satisfied that the deceased had been contemplating her
impending death in the near future when she did this.
-
CoA held that the property had passed not to the claimant as a
donation but under the will. The property then went to charity.
•
The Law Commission in its Consultation Paper, Making a Will, CP 231 (2017),
expressed the view that the doctrine may continue to serve a useful purpose,
‘because it “softens” the hard edges of formalities law.’ [13.47]
Resulting Trusts
•
Resulting trusts come into existence by implication.
•
Founded on unexpressed but presumed intention of settlor.
•
Exempt from formalities required in relation to express trusts.
•
Distinction made by Megarry J in Re Vandervell’s Trusts (No.2):
-
Automatically resulting trusts: where trust has been declared but
beneficial interest fails or entire beneficial interest not disposed of.
-
Presumed resulting trusts: grantee gives no consideration—voluntary
disposition or purchase in name of another.
•
Debate about theoretical basis – Westdeutsche case.
Automatically resulting trusts
•
Occurs where an express trust fails completely, e.g.
-
Total failure of the beneficiaries.
▪
E.g. if someone set out to create an express trust but everyone
he named as a beneficiary had died before the trust came into
effect.
-
Unsuccessful attempt to create half secret trust.
▪
Sometimes a resulting trust is an outcome where someone has
attempted unsuccessfully to create a half secret trust.
-
Settlement deed defining scope of trust may have been lost.
▪
This would be an example where there was enough evidence to
support the proposition that a trust was intended, but the detail
has been lost. In these circumstances, the property results back
to the original owner.
-
Trust may be void for uncertainty.
-
Failure to qualify for charitable status.
❖ Vandervell v IRC: beneficial interest ‘cannot remain in the air: the
consequence in law must be that it remains in the settlor’
FACTS:
-
Mr Vandervell transferred shares in a private company to a college
that he wanted to give money to.
-
He had the intention of declaring dividends on the shares and then the
college would get the dividends on the shares.
-
However the arrangement was intended to be one whereby the college
would then give an option to a company that acted as a trustee for
various family trusts, enabling the shares to then be acquired by the
company.
-
Problem arose as the scheme was not thought through and it was not
stated nor made clear on what trust these shares were to be held.
HELD:
-
HoL stated that the option to get back the share was held on a
resulting trust for Mr Vandervell. The net effect of this outcome was
that he had not completely divested himself of his interests in the
shares. So he was liable for a from of tax on the dividends paid to the
college.
-
Lord Wilberforce stated that the option was vested in the trustee
company on trusts which were not defined.
-
The interest cannot remain in the air. The consequence in law must be
that it remains in the settlor.
-
If the trust fails for a lack of forward planning, something has to
happen to the interest, it cannot remain in the air. The interest goes
back to the original owner.
•
Failure to Exhaust the Beneficial Interest.
-
Where trust is for individual(s) but for a specified purpose.
❖ Re Trusts of the Abbott Fund: on death of survivor, balance of fund should
be held on a resulting trust for the subscribers.
FACTS:
-
Contributions were made to a fund to be used to maintain to help two
elderly ladies.
-
Problem was that no provision had been made about what should
happen to the property when the second of the two elderly ladies had
died.
HELD:
-
Justice Stirling held that the balance of the fund had to be held on a
resulting trust for the subscribers.
•
Can see a practical issue here—problematic outcome.
Better outcome in:
❖ Re Andrew's Trust: when children’s formal education complete, no resulting
trust of remaining balance should arise - should instead be divided equally
amongst them.
FACTS:
-
There was a fund set up by friends of a deceased clergyman for the
education of his children.
-
A question arose as to what would happen when the children’s
education was complete.
HELD:
-
Court held that there should be no resulting trust.
-
The children should be entitled to keep any remaining trust funds and
they should be divided equally between them.
Presumed resulting trust
•
Where ownership of property transferred to grantee who gives no
consideration, inference arises that grantee holds property by way of resulting
trust for grantor where:
•
-
Voluntary conveyance or transfer and
-
Purchase in the name of another
It is only a presumption.
-
It can be rebutted by evidence that contrary result was intended
(evidence of intention to benefit transferee).
-
Can also be displaced by the presumption of advancement.
Voluntary conveyance or transfer
•
Transfer of freehold land – affected by statute.
•
Section 62(3) of the Land and Conveyancing Law Reform Act 2009.
-
‘use’ = ‘trust’ in this section.
-
Section is not open to much doubt.
-
Voluntary conveyance of land takes effect as it was expressed unless
there is sufficient evidence of contrary intention.
•
Section 60(3) of the Law of Property Act 1925 in England.
-
Alternative construction in England is based on a first instance
decision, also based one Supreme Court judge in a relatively recent
case assumed that a resulting trust arose where there was a voluntary
transfer of land.
-
However he didn’t make any reference to the legislation.
-
Uncertainty re how this area of law will develop in England, not so
much in Ireland.
•
Transfer of personal property: presumption of resulting trust arises (as in Re
Vinogradoff) unless sufficient evidence of contrary intention to rebut the
presumption (as in Standing v Bowring) or presumption of advancement
applies.
❖ Re Vinogradoff
FACTS:
-
The testatrix had transferred personal property into the joint names of
herself and her granddaughter.
HELD:
-
Court held that the granddaughter held this personal property on a
resulting trust for the testatrix’s estate.
-
Questionable as to whether this actually coincided with the transferor’s
actual intention.
-
Sometimes this presumption of resulting trust can end up with an
outcome that does not reflect presumed intention at all.
❖ Standing v Bowring
FACTS:
-
The plaintiff had transferred stock into the joint names of herself and
the defendant.
-
She had been warned that if she made the transfer, then she could not
change her mind.
-
She attempted to do this and claimed that there was a presumption of
resulting trust and that the onus was on the defendant to rebut.
HELD:
-
Court held that the plaintiff could not claim the property back on
equitable grounds.
-
On the contrary, there was evidence to suggest that she intended to
benefit the defendant, and the presumption of resulting trust was
therefore rebutted.
-
Where there’s a transfer by somebody
Joint deposit account
•
Common situation where transfer of property takes place into joint names—
where joint deposit account opened.
•
Whether money remaining after death of co-depositor subject to resulting trust
or payable to survivor?
❖ Owens v Greene: presumption of resulting trust not rebutted.
FACTS:
-
The deceased had capped sums of money on deposit in the joint
names of himself and a nephew.
-
There was a second account in the joint name of himself and a distant
relative.
-
He kept control over the funds during his lifetime but did make it clear
that he wanted the money to go to the co-depositors when he died.
HELD:
-
SC held that these individuals had failed to rebut the presumption of
resulting trust.
-
A rebuttal could only be down by showing that it was the deceased’s
intention when he opened the accounts to give them ‘then and there’
an immediate right to take the money.
-
The SC stated that it was insufficient to show a testamentary interest
as dispositions of a testamentary nature could only be made by will.
-
The case went against the plaintiffs due to the manner in which the SC
had interpreted what had happened.
•
Better approach in:
❖ Russell v Scott (HC of Australia): placing money in joint names gave a
present right of survivorship.
FACTS:
-
Involves an elderly lady transferring money into a joint account in the
names of herself and her nephew.
-
It was fairly clear that she did not intend to benefit during her lifetime.
HELD by Australian High Court:
-
Stated that the deceased did intend to give a present right of
survivorship in the money.
-
Although that gift didn’t fall into possession until she died, it did convey
enough for the Court to agree that there was an immediate beneficial
interest.
-
In a sense it avoided the problems from the Owens case inherent in
regarding the action as a form of testamentary disposition.
Policy issues
•
Any policy argument against a more flexible approach in Ireland not easily
reconcilable with rationale of a resulting trust which might be said to depend
on the implied intention of the donor.
•
Arguable that insistence on strict compliance with statutory provisions
designed to prevent fraud not necessary or even desirable.
-
Where no danger of fraud would arise in bypassing their requirements,
and
-
Where such an approach gives effect to a donor's real intentions about
the disposition of his property on his death.
Joint deposit accounts
❖ Lynch v Burke: SC overruled Owens v Greene
FACTS:
-
The deceased was an elderly lady. She opened a joint account in the
names of herself and her niece.
-
The niece was quite involved with the setting up of the account.
-
All lodgements were made by the deceased.
-
She kept control over the account in her lifetime.
-
She left all her property to the plaintiff rather than the niece.
-
Who got the money after her death?
ISSUE:
HIGH COURT:
-
O’Hanlon J in the HC stated that a resulting trust arose, the plaintiff
was entitled to the money and effectively the defendant had not been
able to overcome the problems caused by the Owens case.
-
Stated that he felt obliged on the authority of Owens to hold that the
transaction was an unsuccessful attempt to make a testamentary
disposition otherwise than by will.
SUPREME COURT:
-
SC took more of a pragmatic approach.
-
Taking the unusual step of overruling Owens v Greene.
-
The concept of a resulting trust is supposed to defeat misappropriation
of property as a consequence of fraud.
-
It would be paradoxical if the doctrine was allowed to defeat the clear
intention of the donor as found by the trial judge.
•
Discussed the transaction not being testamentary in nature.
Capper / Woods: underlying theories
-
Capper: points out that there are potential theoretical or conceptual
difficulties with the theories underlying the Lynch v Burke case.
-
Stated that the contract theory (the fact that the niece travelled to
Scotland and signed all the documents is a preferable one).
❖ O’Meara v Bank of Scotland plc – some lingering uncertainty about outcome
in joint deposit account cases in absence of any basis for applying contractual
theory.
-
There are two different bank accounts involved.
-
The husband and wife were involved in both and in relation to the first
bank account, the Court held that the presumption of advancement
resolved the question. The fact that the parties were husband and wife
altered the position.
-
Laffoy J: stated that she would in any event have reached the same
conclusion on the basis of the contractual theory as set out in Lynch v
Burke.
-
Problem was with the second bank account. There was no contractual
relationship between the plaintiff and the bank (the defendant), in
relation to the money in that account.
-
Held that the wife could not rely on the Lynch v Burke case as she was
not a party to it at any time.
•
This case could potentially cause problems due Laffoy J’s references to the
lack of any contractual relationship, and the view that she expressed that the
wife could not rely on Lynch v Burke, might suggest that the ratio of Lynch v
Burke is narrower than we thought.
•
There is some lingering uncertainty as a result of O’Meara however the
practical reality of the situation means that Lynch v Burke should apply in
pretty much all circumstances.
Formalities: some conclusions
•
Courts seem reluctant to disregard formalities where dispositions are
regarded as ‘testamentary’.
•
In case of both secret trusts and joint deposit accounts, reasoning employed
appears to no longer regard them as such.
•
Secret trust: ‘dehors the will’ theory.
•
Joint deposit accounts—by treating the disposition as giving an immediate
beneficial interest which did not fall into possession until death.
•
What is the rationale for not insisting on such formalities in trusts taking effect
after the donor’s death?
•
Giving effect to true intentions of the donor.
•
Avoiding fraud or an unconscionable result (with fully or half secret trusts
respectively).
•
However, with a joint deposit account, there is not the same danger of fraud
so to insist on compliance with formalities is even less justifiable.
•
Ironic that the Irish courts until Lynch v Burke took a stricter position vis a vis
joint deposit accounts.
Purchase in the name of another/rebutting presumption
•
Where person provides purchase money for property conveyed or transferred
to another person or to himself and the other person jointly, it is presumed
that the latter holds property on resulting trust for person who provided the
purchase money.
-
•
E.g. Dyer v Dyer
Presumption may be rebutted by evidence purchaser intended to benefit other
party (as seen in Standing v Bowring) or by the presumption of advancement
(which can also be displaced).
❖ Stanley v Kieran – presumption not rebutted – property held on resulting trust
but note different conclusions in HC and SC.
FACTS:
-
The plaintiff was looking for a declaration that he was the beneficial
owner of property. Which, as he put it, as a matter of convenience.
-
The evidence clearly gave rise to a presumption of resulting trust as the
plaintiff had provided all of the purchase money.
HIGH COURT:
-
Laffoy J held that as a matter of probability, the plaintiff had intended to
benefit the defendant.
SUPREME COURT:
-
The plaintiff was entitled to the property and the presumption of
resulting trust was not rebutted.
-
Denham J stated that she would not accord the weight to the
inferences drawn by the HC judge.
-
In her view, these inferences did not discharge the owners and did not
displace the presumption of the resulting trust.
-
She was satisfied that the property was held on a resulting trust for the
plaintiff.
-
Thus, the person who put up the money, ended up with a resulting trust
in his favour, and the presumption of a resulting trust was not rebutted.
Illegal Purpose
•
Traditional principle: where a transfer of property occurs for illegal purpose,
this would not prevent resulting trust arising in favour of transferee where the
claim could be made without reliance on this unlawful purpose (see Tinsley v
Milligan).
-
In Tinsley, the HoL held that a party to an illegality can claim or recover
an interest in property without relying on their own legality.
•
However, a number of members of UK Supreme Court in Patel v Mirza
expressed the view that the approach towards illegality and the reliance
principle adopted in Tinsley should not be followed (see e.g. Lord Toulson at
[110]).
-
Important to note that Patel had nothing to do with trusts.
-
Background of the case was unjust enrichment, an agreement
contravening insider dealing provisions.
-
Lord Toulson: the rule that a party to a legal agreement can’t enforce a
claim against the other party to the agreement if he has to rely on his
own illegal conduct to establish that claim, should no longer be
followed.
-
Effectively distancing itself from Tinsley approach.
-
Majority view in Patel was that the Court should assess whether the
public interest would be harmed by enforcing an illegal agreement.
•
•
Principles in Patel look at public policy in a general, more flexible way.
-
Taking a purpose approach.
-
Asking whether the Court’s response is proportionate.
Tinsley likely to be still decided in same way but on basis of different
reasoning.
Stance in Ireland
❖ Quinn v Irish Bank Resolution Corporation
-
Clarke J focused on public policy and proportionality.
-
Irish courts take their lead from the approach to illegality in this case.
Presumption of advancement
•
A presumption of advancement arises where because of relationship which
exists between the parties, the donor or purchaser is under an obligation
recognised in Equity to provide for the person to whom the property is given.
•
Presumption of advancement can be rebutted by evidence which establishes
that the donor did not intend to benefit or make provision for the donee.
❖ Shephard v Cartwright – explains operation of presumptions.
FACTS:
-
Father buying shares and putting them into the name of his children.
-
Distinction between circumstances where the presumption does and
HELD:
doesn’t apply and how these presumptions do and don’t apply.
-
The presumption of resulting trust or advancement may be rebutted by
evidence.
•
Husband and wife scenarios: presumption of advancement arises where a
husband transfers property to his wife or purchases it in her name.
❖ R.F. v M.F. – presumption of advancement in favour of wife rebutted in the
circumstances so husband owned beneficial interest in house.
FACTS:
-
Concerned a dispute of the ownership of property bought by the
husband in the parties’ joint names.
-
He bought the house with the aid of a bank loan himself but put in in
the joint names of himself and his wife, thus rendering them 50/50 legal
owners.
ISSUE:
HELD:
Did the wife have any beneficial ownership of the house?
-
End result was that the husband owned the beneficial interest in the
house in its entirety.
-
Court made reference to the fact that if someone is looking to ask for
equity’s help, the Court will not grant it it’s going to amount to a reward
to an unfair, unconscionable, inequitable conduct.
•
The wife was behaving unfairly.
Relationship of father and child or where donor or purchaser stands in loco
parentis to a child.
-
Traditionally, where a father bought property and put it into his child’s
name, or where the donor was in loco parentis to a child, in those
circumstances, the presumption of advancement traditionally applied.
•
Dowling argues that social attitudes have changed. The disctinctions between
husbands and wives and fathers and mothers are archaic and should be
abandoned.
•
Carolan in Irish Law Times, examining a Canadian SC decision which stated
that this presumption should apply equally to mothers and fathers, and that it
should only apply to minor children.
❖ O’Malley v Breen: need to modernise the application of a doctrine
characterised as ‘antiquated and dubious’.
FACTS:
-
Husband and wife had already been separated for a long time.
-
O’Connor J decided to not apply the presumption of advancement in
HELD:
this case.
-
Stated that the presumption of advancement is ‘limited, antiquated and
dubious’.
-
Stated that the issue of whether it is actually repugnant to the
Constitution, having regard to the guarantee of equality in Article 40,
has been the subject of debate.
-
Stated that the Court recognises the need to modernise the application
of the doctrine to accommodate changes in society and the makeup of
family units.
Rebutting presumption of advancement
•
In circumstances where presumption has traditionally been held to exist,
generally it has become easier to rebut
•
Presumption of advancement will be rebutted:
-
If evidence is adduced to show that no gift was intended by the donor,
as in R.F. v M.F.
-
If the circumstances of the transaction suggest it:
❖ Anson v Anson
FACTS:
-
Husband was guaranteed his wife's bank account.
-
It cannot be presumed to be an advancement unless donor makes it
HELD:
clear to donee at time of making guarantee that he does not expect to
be reimbursed.
Question for discussion
Critically analyse this statement:
‘The introduction of unconscionability into the mould, following Pennington v Waine,
has the potential to develop into a flexible way of mitigating the harshness of the
legal formalities in the spirit of Re Rose but in a manner consistent with accepted
trust law theory. However, the burden is on the shoulders of the courts to ensure that
the concept is not used in such a way as to grant judges an unfettered discretion to
perfect imperfect transactions in an arbitrary and unpredictable fashion.’
Garton [2003] Conv 364, 378-379.
•
Start with general comments.
-
The role that judges in administering equitable principles have to try
achieve a balance between flexibility and consistency.
-
Have to steer a middle course between adapting existing principles
where they think it’s appropriate to meet the justice of an individual
case, but also have to avoid making decisions that have no basis in
precedent.
•
Need to explain why it is important that a trust is fully constituted.
-
Need to explain that it means that it can be enforced by volunteer.
-
Virgos 145, makes the point hat a beneficiary will rarely have provided
any valuable consideration. In practice, it is very important that a trust
is fully constituted if it’s going to be enforceable.
•
Pennington: based on the principle of it being unconscionable for the donor to
deny the gift.
-
Lady Justice Arden: identified the fact that the donor intended to make
an immediate gift, and that a stage in the transaction had been reached
where it would have been unconscionable for her to recall it.
-
Clarkle LJ agreed, both judges were in favour of a flexible
interpretation.
•
Virgos p 142.
Trusts of family property
•
Application of principles that resulting trusts arise when property is voluntarily
conveyed into the name of another or purchased in another party’s name.
•
Where ownership of family property at issue recourses to equitable principles
still necessary in some circumstances.
•
But legislation (e.g. Family Law Act 1995, the Family Law (Divorce) Act 1996
and the Civil Partnership and Certain Rights and Obligations of Cohabitants
Act 2010) has reduced circumstances in which trusts continue to play a role.
•
In the past, the norm was often that a house would be bought in a husband’s
sole name.
•
Issue for equity is to what extent can a part who is perhaps only 50% legal
owner but has contributed significantly more to the purchase price, get some
kind of equitable interest proportionate to what they have contributed.
•
Circumstances in which equitable principles still play a role:
-
Where spouses separate without divorce or judicial separation.
-
Where co-habitees do not come within the scope of the 2010 Act.
-
Where one spouse or partner dies.
-
Where one spouse or partner is adjudicated bankrupt.
-
Where judgment mortgage is registered against the interest of one
spouse or partner.
•
Doctrinal differences between approaches in this jurisdiction and in England –
each has advantages and disadvantages.
•
Principles apply because of circumstances in which contribution made.
-
All of the principles in litigation between spouses is setting a precedent
for the types of disputes that are more likely to arise today.
Direct contributions
•
Where property purchased in one spouse or partner's name, but other party
has made direct contributions to purchase price or payment of mortgage,
property will be held on a resulting trust to the extent of these contributions.
❖ C. v C.: in the absence of inconsistent agreement, interest arises
proportionate to contribution.
FACTS:
-
Case from 1970s.
-
A husband and wife bought a house in the husband’s sole name.
-
The wife had made a direct contribution to the purchase price.
-
When their marriage broke down, there was no legislative provision at
the time for assessing the types of contributions that may give rise to a
beneficial interest, and how those interests may be recognised.
HELD:
-
Kenny J stated that the correct approach was to apply the concept of a
resulting trust to the relationship that arises when a wife makes
payments towards the purchase of a house.
-
Stated that the husband becomes a trustee for the wife of a share in
the house proportionate to the size of her contributions.
❖ W. v W.
•
Finlay J made it clear that if a wife contributes in a direct way to the
repayment of a mortgage, she will, in the absence of an inconsistent
agreement, be entitled to a share approximately proportionate to the
contribution.
❖ Hickey v O’Dwyer: evidence not consistent with understanding to effect that
beneficial interest should arise.
•
Case which turned precedent on its head as it was decided due to the specific
facts of the case.
FACTS:
-
Husband and wife were living in the house that ended up being te
subject of the dispute after the husband died.
-
It was clear from the evidence that the parties had agreed that each of
them would own their own house.
-
The husband had a child from a previous relationship and after he died
the Court was trying to do the right thing by the husband’s child.
-
Although it was a scenario where both parties had contributed to a
bank account that was used to pay off the mortgage. As per precedent,
the wife would have gained a beneficial interest.
HELD:
-
Laffoy J stated that the evidence before her was not consistent with the
understanding that the plaintiff would have a share.
Indirect contributions
❖ W. v W.: where a party contributes either directly to repayment of a mortgage
or to general family fund, will in the absence of proof of an inconsistent
agreement or arrangement be entitled to equitable share in property.
•
Finlay J stated that if a partner contributed either directly or indirectly to a
general family fund, this releases the other party from an obligation which they
would otherwise have.
•
In the absence of proof of an inconsistent agreement, the person paying into
the general family fund will be entitled to an equitable share proportionate to
their contributions.
•
Approach of assuming that spouse /partner should be entitled to a beneficial
interest proportionate to the extent of indirect contributions in the absence of
proof of an inconsistent agreement or arrangement also applied by the
Supreme Court in McC. v McC.
Improvements
❖ W. v. W. – Finlay J stated that where a party expends monies or carries out
work in improving property, the legal ownership of which is vested solely in
another, he will have no claim unless he can establish specifically agreed or
he was led to believe he would be recompensed for it.
❖ Applied by Barron J in N.A.D. v T.D.
FACTS:
-
A house was built on land which was solely the property of one party.
-
Despite the fact that the plaintiff, the wife, had contributed over one
HELD:
third of the building costs of this house, it was held that she was not
entitled to any beneficial interests in the property.
•
Less restrictive attitude was adopted by Finlay CJ in:
❖ E.N. v R.N – possibility of beneficial interest if agreement to this effect.
FACTS:
-
Plaintiff was a widow and she was claiming a beneficial interest in he
family home on the basis of a number of different contributions.
-
She was looking for a declaration in proceedings against the executors
of her late husband’s estate.
-
She was trying to argue that she was entitled to the greatest possible
beneficial share in the house.
-
She had made a number of contributions—contributed her earnings
towards a general family fund; she had managed beds at her flats
which the parties had set up in part of the house that they had
converted; she had also done a considerable
❖ But in C.F. v J.D.F.: established that the making of improvements to property
cannot establish any form of beneficial title.
-
McGuinness J stated that the making of improvements to property
cannot establish any form of beneficial title.
-
Court rejected the argument that the husband could have acquired a
beneficial interest in property belonging to his father to which he had
made improvements.
Other forms of contribution
•
Traditionally, courts refused to accept that a partner's contribution by working
in the home might give rise to a beneficial interest – see:
❖ B.L. v M.L. (usurpation of function of legislature)
FACTS:
-
The plaintiff (wife) had made no direct contributions, but had made
significant contributions in running the household and looking after the
children.
HIGH COURT:
-
Stated that if you look at Article 41.2 of the Constitution, someone who
chooses to stay at home and adopt the ‘full-time role of wife and
mother’, is precluded from making a financial contribution to the
acquisition of the house, and thus should have her work in the home
taken into account.
-
Wife was entitled to a 50% beneficial share.
SUPREME COURT:
-
Finlay CJ stated that to allow the courts to extend the circumstances in
a wife may claim a beneficial interest in a house in this situation where
she has not contributed financially, although she had ‘performed the
constitutionally preferred role of wife and mother, would not be
developing a new principle but would be creating an entirely new right.
-
This is not something that the courts could do unless it was clearly and
unambiguously warranted by the Constitution.
-
Stating that it was a matter for the legislature.
o Would be usurping the function of the legislature for the courts to
develop a new right.
❖ E.N. v R.N.
-
Held in HC that Article 41.2 was not supporting any additional claim to
a share in the home.
-
SC recognised that work in legal owner's business different from and
not to be identified with work in home. The wife running the business
was characterised as her doing work in her husband, the legal owner’s
business. Court was prepared to recognise this contribution.
-
Wife ended up with a 50% beneficial share in the home against the
financial institution that was claiming it as her husband had died
insolvent.
•
Note effect of family law legislation now.
-
Family Law Act 1995.
-
Divorce Act 1996.
-
Civil Partnership 2010.
o All make specific provision for recognising work done in the home.
•
Potential of the constructive trust as a device which will provide a remedy
where 'justice and good conscience' demand explored by Barron J in:
❖ Murray v Murray: only example where family property disputes in Ireland were
resolved by using a constructive trust.
FACTS:
-
The defendant and his sister, who was the plaintiff’s aunt, had each
contributed to the purchase price of a house.
-
The defendant had only paid 25%. His sister had paid 75%.
-
The defendant was the legal owner. But for many years, his sister lived
in the house with the plaintiff.
ISSUE:
-
There was no evidence that the sister (plaintiff’s aunt) wanted to take a
transfer of the legal ownership during her lifetime, and so arguably the
presumption of resulting trust might well have been rebutted.
-
After she died, the plaintiff was trying to argue that the aunt had owned
75% of the property and was looking for a declaration that the aunt had
had had that share as he could then claim it as her next of kin.
HELD:
-
Barron J discussed the potential of using a constructive trust to resolve
such an issue, where arguably a resulting trust simply would not have
helped.
-
He stated that it would be unjust and unconscionable for the defendant
to effectively take 100% beneficial ownership in the house when he had
only paid for 25% of it.
The approach in England: common intention constructive trust
•
Involves imposition of constructive trust based on parties’ common
intentions—share measured by reference to such intentions and may be in
excess of actual financial contributions made.
❖ Lloyds Bank plc v Rosset – triggers for CICT:
(1) an agreement based on discussions plus evidence of detriment or
(2) direct contributions to the purchase price will readily justify the
inference necessary for the creation of a constructive trust.
•
In determining quantum, whole course of dealing between the parties
considered:
❖ Midland Bank plc v Cooke
FACTS:
-
The original contribution to the direct financial contirbution was very
small, around 6.5% of the value of the property.
HELD:
-
CoA accepted that this contribution established the common intention
to share the property.
-
Once that could be established, the Court would undertake a survey of
the whole course of dealing between the parties.
-
Different contributions which would never have been accepted by Irish
courts such as contributing towards improvements, were all accepted.
-
The plaintiff got a half share in the house.
❖ Oxley v Hiscock
-
The initial trigger, a direct financial contribution, once it had been
established, allowed the courts to consider everything that had been
made by way of a contribution, financial or otherwise.
•
The outcome in this case was proportionate to the contributions made, but
this case and the above case shows the potential of the English approach for
allowing a much broader and more flexible assessment of quantum.
❖ Stack v Dowden - Court should ascertain shared intentions with respect to the
property and undertake a survey of the whole course of dealing between the
parties and take account of all conduct which throws light on the question
what shares were intended.
-
Stated that the Court has to look at the shared intentions with the
property.
-
HoL stated that in terms of deciding what is the fairest share, the Court
should undertake a survey of the whole course of dealings between he
parties and take account of all conduct that throws light on the question
of what shares were intended.
❖ Jones v Kernott
FACTS:
-
Deposit on the house had been paid by Jones. While the parties had
jointly paid off the mortgage when they lived in the house together, for
many years after Kernott had moved out, she lived in the house on her
own with their children.
-
She alone had made all of the mortgage repayments since then.
-
She was held entitled to a 90% beneficial share at first instance.
-
In the CoA, it was held that they were 50/50 legal owners.
-
In the SC, Ms Jones got a 90% beneficial share as she had contributed
HELD:
pretty much 90% of the purchase price.
-
Lord Walker and Lady Hale: stated that primarily, what the Court has to
do is ascertain the party’s actual shared intentions, which may be
expressed or inferred from their conduct.
-
Also stated that where it’s clear that the beneficial interests are to be
shared but it’s impossible to show common intention about the portion
in which those beneficial interest are to be shared, the Court may
impute intention.
•
Mee states that this case may be seen to limit imputing of intention to the
quantification stage of the process.
❖ Marr v Collie – CICT not confined to domestic setting.
FACTS:
-
Involved partners who were cohabiting.
-
The property that was investment property and other assets that were
in their joint names.
HELD:
-
Stated that the principles such as that in Jones should not be confined
to a domestic setting.
Summary of position in England
1) Is there a common intention to share the beneficial interest?
•
May be expressed or inferred from conduct.
•
Where conveyance into joint names, this is usually sufficient to establish
intention to share beneficial interest but onus on person seeking to show
beneficial interest different from legal one is heavy (Stack and Jones).
2) Issue of Quantification
•
Involves survey of whole course of dealings in relation to property which
throws light on shares intended (Stack).
•
Based on intentions – expressed or inferred from conduct (Jones).
•
Where impossible to divine common intention as to proportions, court may be
driven to impute intention (Jones). P308 Virgo.
Doctrinal issues
•
Virgo - the preferable view is that an imputed common intention cannot be
justified doctrinally and should be rejected. P318 Virgo.
•
Re quantification - avoid imputed common intention and revert to what is a fair
result?
•
What is fair having regard to the whole course of dealings in relation to the
property will generally be proportionate to what is contributed (as in Oxley).
•
Bets of Irish approach + English approach = might have regard to greater
range of contributions than purchase money resulting trust model in Ireland
would allow for.
Problem question
David and Jane decided to live together in March 2019 and they purchased a house
for €300,000. Although the house was in David’s sole name, each party contributed
€100,000 to the purchase price and the remainder was financed by way of a
mortgage. David alone paid the mortgage instalments from an account in his sole
name. The parties also had a joint account and most of the money in this account
was contributed by Jane using money she earned from part time work. All household
bills were paid from this joint account. Jane was solely responsible for redecorating
the entire house, and she spent €25,000 carrying out this work without any
contribution from David. The parties did not discuss whether this expenditure would
give her any interest in the property. From the start, Jane undertook the principal
share of the domestic chores and housework.
In 2020, a further mortgage of €100,000 was taken out and used to convert the
basement of the house into flats as a business venture for the couple. The mortgage
repayments on this additional mortgage were paid from the monies in their joint
account, so were mainly financed by Jane’s contributions. Jane has handled all of
the day to day management of these flats. In January 2021, the relationship between
the couple broke down. The parties are not “qualified co-habitants” for the purposes
of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010.
Advise Jane as to the extent of the beneficial interest, if any, in the property to which
she is likely to be held entitled by the courts in this jurisdiction.
•
Introduction explaining core issues—role which equitable principles play in
resolving family property disputes. Brief explanation of the concept that is
used in his jurisdiction—concept of a presumed resulting trust or purchase
money resolving trust. Legislation does now provide a mechanism for making
property adjustment orders in the context of relationship breakdown.
However, there may be circumstances where it may be necessary to
determine ownership of family property where legislation will not be relevant.
1. State that in Ireland, equitable trust principles are applied on a proportionate
basis. Thus, in a sense, what you put in in terms of a financial contribution you
would take out. Focus first on direct financial contribution issue.
2. Indirect contribution issue: W v W.
3. Issue of improvements: W v W; N v N.
4. Chores and housework: B.L. v M.L.; E.N. v R.N.
-
Jane will not get any additional beneficial share for her housework.
5. Further mortgage that was taken out to finance another improvement: E.N. v
R.N. (Mee in 1993 Conveyancer)
6. Business venture issue: E.N. v R.N.
How would your advice differ if this situation were to arise in England?
•
Explain that the English courts use common intention constructive trusts.
•
State that there are 2 issues: the trigger, and the quantification of the interest.
•
Is there any common intention to share the beneficial ownership? If so, to
what extent is that ownership.
•
CoA in O’Neill v Holland where the Court suggests that in these sole interest/
legal owner cases, there is some evidence of looking for detrimental reliance.
Constructive Trusts and Liability of Third Parties to Account
•
Note that terminology in this rea and the categorisations are evolving.
•
There is a greater distinction drawn between these areas now than there has
been in the past.
Introduction
•
Arises by operation of law and comes into being, irrespective of the intention
of the parties.
•
Imposed by equity in order to satisfy the demands of justice and good
conscience.
•
Used to deal with situations where it is the right thing to do to impose a
remedy.
-
•
Predictability is thus a problem.
No formalities required due to the manner in which these trusts come into
effect.
•
Distinction between institutional and remedial constructive trusts.
-
An institutional constructive trust is one that arises by operation of law
on the occurrence of some kind of event. The Court is thus simply
recognising that a trust exists.
o It is in a sense triggered by an event.
-
A remedial constructive trust is a form of remedy which is rewarded by
the Court where it is considered necessary that a defendant should
hold property on trust for someone else.
•
Constructive trust may arise where there is a fiduciary relationship.
Liability to account
•
Where there is no existing relationship of trustee and beneficiary or any type
of fiduciary relationship.
•
Liability to account, traditionally labelled ‘as a constructive trustee’, may arise
because of the circumstances in which the property is held.
•
This label is misleading – it is better described as equitable liability of third
parties to account – liability is personal not proprietary.
Constructive trusteeship/ liability to account
•
Differences between constructive trusteeship (proprietary remedy) and liability
to account (personal remedy).
1. Where the fiduciary is insolvent - where a constructive trust arises, the
principal will take in priority to the general creditors.
2. Proprietary remedy are advantageous where assets are profitably invested
and increase in value.
3. Also opens up the possibility of a tracing remedy against a third party which
does not depend on fault.
Where there is a fiduciary relationship
❖ Bristol and West Building Society v Mothew
-
Millett LJ:
-
‘A fiduciary is someone who has undertaken to act for or on behalf of
another in a particular matter in circumstances which give rise to a
relationship of trust and confidence’.
-
A distinguishing obligation is of loyalty.
-
Fiduciary must act in good faith.
-
Must not make profit out of trust.
o ‘no profit rule’.
-
Must avoid conflict between your duty and self-interest.
o ‘no conflict rule’.
-
Must not act without fully informed consent.
Key aspects of fiduciary obligations - no profit and no conflict principles
❖ Greene v Coady
-
Charleton J: As trustees owe to the trust, and thus to the beneficiaries,
a duty of good faith and fidelity … they are not entitled to put
themselves into a situation of conflict of interest.
❖ Gabbett v Lawder
-
No person in a fiduciary capacity will be allowed to retain an advantage
gained by him through his position as trustee.
Relevance of fully informed consent
•
Where fully informed consent has been given, a fiduciary’s actions are
regarded as authorised.
•
However, as Lord Hodson stated in Boardman v Phipps nothing short of ‘fully
informed consent’ could aid a fiduciary.
❖ Greene v Coady
-
It is clear that a trustee may proceed to act in a situation where there is
a potential conflict between duties or between duty and interest,
provided fully informed consent is given by the principal(s).
Rule in Keech v Sanford
•
Where a trustee of leasehold property obtains a renewal of lease in his own
name
❖ Keech v Sanford
FACTS:
-
Related to a situation where a trustee of leasehold property obtained a
renewal of a lease in his own name.
-
Trustee in this case held the lease of the profits of a market on trust for
an infant beneficiary.
-
Before the lease expired, he applied for a renewal of the lease for the
benefit of the beneficiary.
-
The lessor refused that renewal as the circumstances at the time
meant that the infant beneficiary could not enter into the covenants that
would normally be entered into by an adult.
-
The landlord thus did not want to renew the lease.
-
The lessor made it clear that he would be willing to give the trustee the
lease instead and the trustee accepted the renewal in his own name.
HELD:
-
Lord King said that he must be regarded as holding that renewal of the
lease for the benefit of the trust. And he was obliged to pay over any
profits that he had received.
-
Stated that it may seem harsh that the trustee is the only person in all
mankind that might not have the lease, but it is proper that the rules
should be strictly pursued.
•
Illustrates how strictly the principle of no profit is applied.
•
Extended to buying the reversion in a lease.
❖ Gabbett v Lawder – principle applied where administrator of estate of an
intestate held lands under a lease as trustee and then bought reversion for
himself at public auction.
FACTS:
-
The administrator of an estate of someone who died intestate held
lands under a lease as trustee.
-
There was an opportunity to buy the fee simple reversion, but the
administrator thought that the price was too high and declined to buy it.
-
It was then put up for sale at a public auction, and he personally then
bought the reversion at this public auction for a lower sum.
HELD:
-
If you come by some kind of benefit, even though it looked to all intents
and purposes as if bought it personally at this public auction, you could
argue that he only came by that opportunity because he had turned
down the chance of buying it on behalf of the trust.
-
For that reason, he held the benefit of it on a constructive trust.
Competition with a trust business
•
A trustee must not place himself in a situation where his duty to the trust and
his own personal interest may conflict.
•
Fundamental principle exists which prevents a trustee or other party in a
fiduciary position from taking advantage of his position to make a personal
profit.
❖ Moore v McGlynn - although trustee not guilty of a breach of trust in setting up
for himself in a similar line of business, he should not be allowed to continue
in position where his duties and his self-interest may conflict.
FACTS:
-
The testator was a shopkeeper and a postmaster. He left all of his
property to his brother and son to be held on trust and managed by
them for the benefit of his wife and children.
-
He directed that his brother would be entitled to a salary for managing
the business.
-
The brother took over the role as postmaster and carried on the
business in the testator’s shop for some years.
-
He subsequently decided to set up his own business in the same town
and opened up the post office there.
ISSUE:
-
Whether this new business should be affected by a trust for the benefit
of the testator’s estate.
-
Did he hold the profits that he made in his capacity or in the capacity of
setting up his own business on trust for the original estate?
HELD:
-
Chatterton VC: was not prepared to hold that there was a breach of
trust and effectively did not impose a constructive trust in this case.
-
Did state however that there was an issue regarding potential conflict of
interest, and he should not remain any longer as a trustee.
Liability for secret commissions and bribes
•
As general principle, a fiduciary may not accept secret commissions or bribes
arising out of a transaction in which he is acting on behalf of his principal
without the knowledge and consent of the principal.
•
There has been an ongoing debate about the nature of liability – are we
discussing the proprietary form of remedy or the personal remedy?
❖ AG for Hong Kong v Reid - property which a trustee obtains by use of
knowledge acquired as trustee becomes trust property – this principle extends
to bribes.
FACTS:
-
Mr Reed was employed by the HK govt in various capacities and was
ultimately promoted to acting DPP.
-
However he had accepted a number of bribes in breach of his fiduciary
duty.
-
He pleaded guilty to a number of bribery offense and was sentenced to
a long time in jail.
-
He was ordered to pay a sum equivalent to the value of the assets that
could only have come from the bribes.
-
He did not pay this money. The AG of Hong Kong lodged caveats in
New Zealand against title to property that had been allegedly bought
with the bribed money.
-
The AG for Hong Kong then brough an application to review the
caveats which was refused by the CoA in NZ and it ended up before
the Privy Council.
HELD:
-
Held by the Privy Council that when a bribe is accepted by someone in
a fiduciary position in breach of his duty, he will hold that bribe on a
constructive trust for the person to whom the duty is owed.
-
To the extent of which the properties represented bribes received by Mr
Reid, these properties were held in trust for the Hong Kong
government.
-
P 332 of the report—Lord Templeman: the importance of these
principles extending to bribes.
-
If the property increases in value, that means that the fiduciary is not
entitled to the surplus.
•
Case note in 1994 Conveyancer by Jones: it is not so obvious that a windfall
is justified where you have a contest in a sense, between creditors who have
given value and a principal who has not.
-
When you impose a constructive trust, you are giving an advantage to
the principal.
-
If there isn’t enough money to go round and there is a contest between
the principal and other creditors who might have an unsecured interest,
then in a sense that constructive trust is giving the principal an unfair
advantage.
❖ Sinclair Investments – Court of Appeal declined to follow Reid. (now
overruled)
FACTS:
-
Involved a situation where a secret profit had been made on the sale of
shares in circumstances that breached fiduciary duty.
HELD:
-
CoA decided not to follow the Privy Council in Reid and held that the
beneficiary of a fiduciary duty could not claim a proprietary interest and
was limited to a personal claim in equity.
-
This approach was taken as otherwise, this principle was going to be in
competition with other unsecured creditors, and that seemed unfair to
the CoA.
❖ FHR European Ventures LLP – SC overruled Sinclair – claimants entitled to
proprietary remedy in respect of secret commission.
FACTS:
-
Defendants had negotiated the purchase of a hotel for the claimants,
but they didn’t tell the claimants that they had already entered into a
brokerage agreement with the hotel owners.
-
They were effectively getting paid twice. They obtained a secret
commission for negotiating the purchase of this hotel.
ISSUE:
-
Did this give rise to a proprietary form of interest?
-
Lord Neuberger who had delivered the judgement in the CoA in
HELD:
Sinclair, he took a diametrically opposed approach in this case.
-
Stated that where an agent acquires a benefit (any kind of benefit), if it
has come to him as a result of his fiduciary position or through an
opportunity which results from that fiduciary position, the general
principle is that he is treated as having acquired that benefit on behalf
of his principal.
-
Due to the objectionable nature of the bribes and secret commissions,
as they undermine trusts in a commercial context, the law had to be
particularly stringent.
Pros and cons of the imposition of constructive trusts
•
Arguments for a constructive trust:
o The objectionable nature of bribes and secret commissions –
otherwise the bribee may make a profit.
•
Arguments against a constructive trust:
o Where property is not profitably invested, the principal may receive a
windfall at the expense of unsecured creditors who have given value to
the fiduciary.
o How can the bribee be said to have acquired the assets on behalf of
his principal? (as Neuberger MR said in Sinclair).
▪
You cannot state that someone taking a bribe or secret
commission is acquiring the assets on behalf of the
principal, as the principal would not be taking a bribe.
•
To an extent, the ‘fair’ result may depend on whether the bribe or secret
commission is profitably invested.
Summary of issues
•
Controversial issue was the appropriate remedy where the fiduciary obtained
a benefit from a third party rather than depriving the claimant of property or an
opportunity to make a profit.
-
•
Resolved by the UK Supreme Court in FHR.
So, whenever a fiduciary makes a profit as a result of a breach of fiduciary
duty, those profits will be held on a constructive trust for the principal, even if
they did not derive from interference with the principal’s property or from the
exploitation of an opportunity which should have been exploited for the
principal.
Position of agents
❖ FHR European Ventures LLP – the agent owes duty of undivided loyalty to
principal unless the latter has given his informed consent to some less
demanding standard of duty.
❖ Sherrard v Barron – the agent cannot without the knowledge of his principal
make any profit for himself out of services rendered to his principal – in this
case principal had consented.
FACTS:
-
The defendant in this case were house agents and they were collecting
rents and effecting repairs for the plaintiff.
-
They set up their own repair yard and did repairs for clients and made a
profit.
-
There was no liability in this case as the plaintiff knew and had
approved of the defendant carrying out these repairs.
-
The agent made full disclosure and the principal asserting to that profit
being made.
HELD:
-
General principle was accepted by Moore LJ.
-
He made it clear that there is an obligation to make full disclosure and
unless the principal consents either expressly or impliedly, then any
profit that is made should be held on a constructive trust.
❖ Boardman v Phipps – majority – abuse of fiduciary position – illustrates rigour
with which these principles have been applied.
FACTS:
-
Concerned a trust and assets were held on trust on behalf of a
testator’s children.
-
The trustees were his widow, who had dementia so consent to
anything, the daughter, and an accountant.
-
The trust had a sizeable minority shareholding in a company and with
the consent of the two active trustees.
-
The problem was that the third trustee had not consented.
-
Mr Boardman who was the solicitor and one of the beneficiaries set
about acquiring a majority shareholding in the company to make it
more profitable.
-
Thus, by purporting to act on behalf of the trust, they got hold of a lot of
detailed information about the company and did succeed in gaining
control of it and made a significant profit.
-
One of the beneficiaries took a claim.
-
HoL held that Mr Boardman and this other beneficiary were liable for
HELD:
the profits that they had made.
-
Majority of the HoL said that the defendants had places themselves in
a position where their duty and self-interest may conflict, and they had
abused their fiduciary position by using information they had acquired
in a fiduciary capacity.
Position of company directors
•
Company directors are treated as being fiduciaries insofar as they owe a duty
to the company.
•
Not permitted to place themselves in position where duty to company and
personal interests conflict or to derive a profit from fiduciary relationship.
•
Section 227(4) of the Companies Act 2014 – duties based on existing
principles.
•
Section 228 (fiduciary duties of directors).
•
Sections 232-233 (liability to account and indemnify).
❖ Regal (Hastings) Ltd v Gulliver – liability in no way depends on fraud or
absence of bona fides - arises from the mere fact of a profit having been
made.
FACTS:
-
Involved a scheme that a company which owned a cinema had come
up with.
-
The company wanted to develop the cinema into a bigger enterprise.
-
It formed a subsidiary to take up the lease of two other cinemas with
the intention of then selling them as a going concern.
-
The problem was that they couldn’t acquire these leases unless the
subsidiary company had a certain paid up share capital. And the parent
company didn’t have enough resources to subscribe for these shares.
-
The directors at the time agreed to take up the remainder of the shares
in a personal capacity, which was a successful venture.
-
But when the company was taken over by new owners, the company
went looking for the profit that the original directors had made.
ISSUE:
-
Could the directors keep the profit they had made in a personal
capacity?
HELD:
-
Court held in the negative.
-
Lord Russell stated that the rule of equity that insists on those who by
use of a fiduciary position make a profit being liable doesn’t depend on
fraud or lack of good faith.
-
The reality was that they had made a profit.
-
The liability arises from the mere fact of a profit having been made.
❖ Industrial Development Consultants v Cooley – liability also imposed where
company itself not in position to take on a contract.
FACTS:
-
The defendant had not acted in good faith.
-
He was a managing director of a company that provided construction
consultancy services.
-
He learned in the course of negotiations with the gas company that the
gas company would not enter into an agreement with the company but
was interested in giving him a contract in a personal capacity.
-
He claimed ill health falsely and entered into a contract with the gas
company.
HELD:
-
Held that the defendant was a trustee of the benefit of the contract and
had to account for the profits that he had made.
-
Otherwise he would have made a profit from deliberately putting
himself into a position where his own self-interest and loyalty to the
company may conflict.
❖ CMS Dolphin – director is not precluded from using general fund of skill and
knowledge but may not exploit maturing business opportunity.
-
Drew a distinction between this and exploting a ‘maturing business
opportunity’.
FACTS;
-
Concerned an advertising agency.
-
The defendant was a director of this agency. He resigned and set up a
new business and recruited all of the agency’s staff.
-
This resulted in a lot of the agency’s clients switching to his new
business venture.
HELD:
-
The Court imposed a constructive trust.
-
Stated that the director became a constructive trustee of the fruit of the
abuse of the company’s property.
Institutional and remedial constructive trusts
Institutional Constructive Trust
•
Arises where there has been a breach of fiduciary duty and in certain other
situations.
•
Arises by operation of law and the Court’s role is to effectively recognise a
trust which has already arisen.
Remedial Constructive Trust
•
Imposed by the Court in the exercise of its discretion as a remedy in
circumstances where it considers that fairness requires it.
-
Downside is that you have an equitable proprietary interest in property
arising as a result of judicial discretion which may be problematic.
•
Lord Neuberger in FHR rejected remedial constructive trust, stating extrajudicially that using them would render the law too unpredictable.
•
Advantage of remedial constructive trust – more flexible – need not be
imposed where a defendant is insolvent, and a proprietary remedy would
have a knock-on effect on unsecured creditors.
-
P 294, 295, 296, 482, 483 of Virgo.
-
Suggestion that the courts in England could use remedial constructive
trusts but only in defined circumstances. E.g. where a defendant was
solvent.
-
Virgo: reform institutional constructive trusts and temper their impact.
▪
Proposing a hybrid—advantages of institutional
constructive trusts in terms of certainty + advantages of
remedial constructive trusts in terms of flexibility.
•
Disadvantage – may lead to uncertainty.
•
Which achieves greater fairness – institutional constructive trust which leads
to consistency or a remedial constructive trust which allows for flexibility but
can lead to inconsistency?
Remedial constructive trust
❖ Hussey v Palmer – Denning MR – a constructive trust would be imposed
whenever justice and good conscience require it.
❖ N.A.D v T.D. – imposition dependent on conduct of person on whom trust
imposed and prevents him from acting in breach of good faith.
-
Barron J stated that he could not apply resulting trust principles as the
wife’s contribution was characterised as improvements.
-
He dabbled with the idea of using a constructive trust instead.
-
Stated that sometimes these types of trusts will arise by operation of
law to satisfy the demands of good conscience.
-
Stated that its imposition is dependent on the conduct of the person
upon whom the trust is imposed.
-
Stated that there was no conduct on the part of the husband that would
make it inequitable for him to assert his legal right to the entire legal
ownership.
❖ Murray v Murray – law will impose constructive trust in all circumstances
where it would be unjust and unconscionable not to do so.
-
Case regarding brother and sister, brother who was legal owner paid
for 25%. Nephew was claiming as aunt’s next of kin.
-
Aunt had made a decision that she did not want to take a transfer of
legal ownership of the house to her.
-
Barron J: there was no basis on which to impose a purchase money
resulting trust.
-
He instead turned to the more flexible option of a constructive trust.
-
Court seems to lose sight of the significant requirement of asking
whether there is conduct of the defendant that would make it
inequitable for him to assert his legal right.
❖ H.K.N. Invest Oy v Incotrade Pvt Ltd - when circumstances of case are such
as to render it inequitable for legal owner of property to deny another's title to
it.
FACTS:
-
Plaintiffs were trying to execute a judgement that they had obtained
against the defendants.
HELD:
-
Costello J stated that money that had been received by way of
commission on contracts both before and after the company had been
incorporated were held by these individual defendants on a
constructive trust for the company.
-
The plaintiffs thus could not execute their judgement against these
defendants. Meant that the liquidator was beneficially entitled to the
proceeds of these sets of contracts as the company’s assets.
-
The company was insolvent and if the plaintiffs could execute their
judgment then they would have gotten in ahead of the other creditors.
-
Using a constructive trust had the effect of strengthening the position of
the general body of creditors.
•
Criticism of Keane P 268: focusing on issue of how individual defendants be
constructive trustees of funds that in theory belong to a company that hasn’t
even been incorporated yet.
•
Findings were driven by the underlying premise that in equity and in good
conscience these monies should be held for the company.
❖ Kelly v Cahill - justice and good conscience required that defendant should
not be allowed to inherit property [but where was the element in the
defendant’s conduct that made it unconscionable?].
FACTS:
-
Deceased decided that he wanted to change the way in which he was
going to pass on his property.
-
He decided that he didn’t want to benefit his nephew, that he wanted to
leave everything to his wife.
-
He went to get advice from his solicitor. The solicitor stated that the
best thing to do from a tax POV was to put all of the property under the
joint names of himself and his wife, rather than change his will.
-
Problem was that when the solicitor was doing the paperwork, a
mistake was made. Some of the property went by a remainder interest
to the nephew.
HELD:
-
Court stated that justice and good conscience required that the nephew
should not be entitled to inherit any of the property, and it should be
held on a constructive trust in favour of the widow.
•
However, there was no element in the conduct of the newphew for him to
assert his legal rights which was required by the N.A.D. principle.
•
Criticisms of O’Dell in 2001 DULJ: the Court seems to be conflating the issue
of unjust enrichment and a remedial constructive trust. In doing this, he was
collapsing the distinction between personal and proprietary claims.
❖ Re Custom House Capital Ltd - Court must be satisfied that it was by reason
of fraudulent conduct by or on behalf of the company that it retained the
applicant’s monies in order to make a finding of a constructive trust in her
favour.
FACTS:
-
Applicant had transferred funds to a company for investment.
-
She had left the funds in the company rather than getting the money
back, on the basis of assurances she had been given.
HELD:
-
Held that the money that she had put into the company was held on a
constructive trust for her.
-
That mean that the applicant was getting a priority over the unsecured
creditors when the company went into liquidation.
-
Stated that the Court has to be satisfied that it was by reason of
fraudulent conduct by or on behalf of the company that it retained the
applicant’s monies, before making a finding of constructive trust.
-
Looking for evidence of fraudulent conduct.
Liability of third parties to account
•
Where there is no existing relationship of trustee and beneficiary or any type
of fiduciary relationship.
•
Liability to account ‘as a constructive trustee’ may arise because of the
circumstances in which the property is held.
•
Label of constructive trust/ trustee is misleading and is better described as
liability of third parties to account as the liability is personal and not
proprietary.
•
Persons not appointed as trustees may be liable to account to beneficiaries
where they are found to possess the requisite degree of fault or knowledge
about the nature and consequences of their activities.
•
A third party may incur liability where he:
-
dishonestly assists in a breach of trust or fiduciary duty, or
-
receives or deals with trust property possessing a degree of knowledge
sufficient to justify the imposition of liability.
Alternative remedies
•
Personal liability to the beneficiary/principal in the fiduciary relationship where
trustee/fiduciary has acted in breach of trust or fiduciary duty.
•
Proprietary remedy involving:
-
Imposition of a constructive trust or
-
Tracing trust property which allows a beneficiary to trace property
subject to a trust into the hands of an innocent volunteer.
▪
But, while a beneficiary may be able to trace trust property into
the hands of an innocent volunteer, the latter’s liability will be
confined to the return of the property or its proceeds while still in
his possession.
•
Where a trustee or a fiduciary is insolvent or where it is no longer possible to
trace trust property, liability to account in equity may be the best option, and
sometimes can be the only option.
Terminology
•
Constructive trust terminology has been used in some case law.
•
Better described as equitable liability to account and it is a form of personal
liability.
❖ Williams v Central Bank of Nigeria - dishonest assister and/or knowing
recipient of trust assets, ‘while liable to account in the same way as a trustee,
is not, …a trustee, not even a constructive trustee’.
-
So, in Williams it was held that such a person is not a ‘trustee’ for the
purposes of the Limitation Act – claim was statute barred.
-
Williams at [9] - Lord Sumption: stated that the reason why he is
making this decision is because such a party while liable to account
in the same way as a trustee, is not according to the law, a trustee
nor a constructive trustee.
•
Analysis by Lee of 2015 Law Quarterly Review p 39.
Dishonest assistance
•
There is little Irish case law in this area.
❖ Royal Brunei Airlines Sdn Bhd v Tan Kok Ming
HELD:
-
Lord Nicholas stated that the way you formulate this head of liability is
to look at imposing liability to make good loss attaching to a person
who dishonestly assists in a breach of trust or fiduciary obligation.
-
The focus is on the dishonesty of the individual doing the assisting.
-
Asking the Court to weigh up whether the third party, the person
assisting, is acting in a dishonest way or not. Rather than looking for
dishonesty on the part of the actual trustees.
•
The Knowledge Requirement – the Baden scale of knowledge (i) – (v) –
ranging from actual to constructive knowledge.
Baden scale of knowledge
(i) actual knowledge.
Forms of actual knowledge:
(ii) wilfully shutting one's eyes to the obvious.
(iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable
man would make.
Constructive knowledge:
(iv) knowledge of circumstances which would indicate the facts to an honest and
reasonable man.
(v) knowledge of circumstances which would put an honest and reasonable man on
inquiry.
❖ Agip (Africa) v Jackson - constructive notice of fraud not sufficient to make
defendant liable - true distinction is between honesty and dishonesty.
FACTS:
-
A senior officer in the plaintiff company had fraudulently ordered a
payment order for a lot of money (half a million pounds) which was
intended to go to a creditor.
-
He did this by substituting the name of a company managed by the
defendants which had been set up to launder money.
-
Problem tracing the money in these circumstances.
-
If plaintiff wanted to make anyone liable it would have been necessary
to try impose liability under the heads of knowing assistance or
knowing receipt.
HELD:
-
First instance judgement of Lord Millett: stated that there was no basis
for holding the defendants liable for having knowingly received any
trust property or property subject to fiduciary obligation.
-
Then, upon looking at the assistance category, stated that the
defendants were at best ‘indifferent to the possibility of fraud’.
-
Spoke of the true distinction in this case being between honesty and
dishonesty.
-
Forms of constructive knowledge or notice are not sufficient to make a
defendant liable, have to show actual knowledge.
❖ Lipkin Gorman v Karpanale Ltd – Court of Appeal suggested nothing less than
knowledge, as defined in one of the first three categories in Baden, is
sufficient.
FACTS:
-
Partner at a solicitor’s firm took money out of clients’ accounts in the
firm’s name and lost this money gambling at a club.
-
Firm took an action against the club on the basis of knowing receipt.
-
Also took a claim against the bank on the basis that they had assisted
in effectively misappropriating these funds.
HELD:
-
CoA followed Millett J’s approach in Agip (Africa) v Jackson.
-
Note that the House of Lords decided the case on the basis of
restitutionary principles.
•
-
CoA held that the club was not liable, and the bank was not liable.
-
Claim against the club was pursued in the HoL.
P 629 Virgo.
-
HoL decided that the innocent recipient of stolen money is obliged to
pay back an equivalent sum to the true owner, where they have been
unjustly enriched by the true owner.
Royal Brunei Airlines Sdn Bhd v Tan Kok Ming
•
Some subjective elements involved – individual’s conduct is assessed in the
light of what the person knew and takes into account his personal attributes.
•
However, these subjective characteristics of honesty do not mean that
individuals are free to set their own standards of honesty.
•
The standard of what constitutes honest conduct is not subjective.
•
A defendant will not escape a finding of dishonesty simply because he sees
nothing wrong in his behaviour.
Twinsectra Ltd v Yardley
•
Differences of opinion arose in relation to what type of test Lord Nicholls had
intended to lay down in Royal Brunei.
•
Lord Hutton (majority) - dishonesty requires knowledge by the defendant that
what he was doing would be regarded as dishonest by honest people.
•
Lord Millett dissenting – it was not necessary that the defendant should
actually have appreciated that he was acting dishonestly - it was sufficient that
he was.
-
Situation where you have a defendant who is immoral, whose set of
values differ from society’s generally.
❖ Barlow Clowes International - reference to ‘what he knows would offend
normally accepted standards of honest conduct’ meant only that his knowledge
of the transaction had to be such as to render participation contrary to normally
acceptable standards of honest conduct.
❖ Abou-Rahmah v Abacha – confirmed obiter that the test of dishonesty in this
context is ‘predominantly objective’ and not a requirement that the defendant
should be conscious of his wrongdoing.
•
Des Ryan in 2006 Conveyancer: argued that Barlow Clowes in a sense
brought closure to any ambiguity brought about by the Twinsectra case.
-
Argued that Barlow Clowes is a more accurate reading of the Royal
Brunei test that that pur forward by the majority in Twinsectra.
•
Des Ryan in 2007 Conveyancer: points out that merely because the courts
accept that a particular judicial development has clarified the correct
interpretation of previous authorities, does not rid the law of complexity and
doubt.
❖ Group Seven Ltd v Nasir 2019– was the defendant’s conduct honest or
dishonest according to the standards of ‘ordinary decent people’?
-
CoA made clear that Lord Millett’s approach in Twinsectra is the
appropriate one.
-
Made clear that the touchstone of liability in this area is the
interpretation placed on the test by Lord Millett.
-
Effectively once the relevant facts have been ascertained, and once
you have taken into account the defendant’s knowledge about the
facts. That is the end of the subjective side of the test.
-
The Court then has to ask itself whether the defendant’s conduct was
honest or dishonest according to the standards of ordinary, decent
people. Return to the test set out by Lord Nichols in Brunei.
•
Virgos p 657:
-
Talks about an objective test being justifiable for policy reasons.
-
Says it’s consistent with the core meaning of conscience and
unconscionability which underpin equitable liability.
-
Stated that the Court has to assess the defendant’s knowledge of or
suspicions in relation to the transaction. And in the light of this
knowledge and his experience in intelligence, the Court has to asses
whether the defendant’s conduct falls below the ordinary standards of
honesty.
Knowing receipt
•
Dealing with a situation where a recipient of property which has been
misappropriated in breach of trust may be liable to account for it provided he
possesses the necessary degree of knowledge of breach of trust.
•
There are different tests for imposing liability in England and Ireland.
❖ Belmont Finance Corporation - either actual or constructive knowledge would
suffice.
❖ Re Montagu’s Settlement Trusts - Megarry VC favoured imposition of liability
only in circumstances where the recipient possessed actual knowledge (in the
sense of categories 1-3 in Baden). Have to as whether the recipient’s
conscience was sufficiently affected?
Knowing receipt – basis of liability in England
❖ Agip Africa (Ltd) v Jackson - Millett J reserved the question of whether
Megarry VC’s doubts about constructive notice being sufficient in relation to
knowing receipt were well founded.
❖ Bank of Credit and Commerce International (Overseas) Ltd v Akindele - all
that is necessary is that the ‘recipient's state of knowledge should be such as
to make it unconscionable for him to retain the benefit of the receipt’
•
This approach is now firmly established in England.
Knowing receipt – basis of liability in Ireland
❖ Re Frederick Inns Ltd – constructive knowledge sufficient.
-
Clear from SC approach that either actual or constructive knowledge
will suffice to impose liabilities.
-
Note that this was a commercial context.
o Controversial sometimes that liability could be impose across
such a wide range of circumstances in a commercial transaction.
FACTS:
-
There were a number of payments made by a group of associated
companies to the revenue commissioners in the months before four of
these companies were wound up.
ISSUE:
-
When the liquidator challenged these payments as being ultra vires,
issue was whether this transaction one that the companies had the
authority to make?
HELD:
-
SC held in the negative.
-
There was no clause in the memorandum of association which gave
the companies power to pay the debts of an associated company.
-
Thus, the payments made in so far as they were dealing with a tax
liability of other companies were ultra vires.
-
Held that these ultra vires payments constituted a misapplication by
the directors of company funds in breach of their fiduciary duties.
❖ Fyffes plc v DCC plc – Laffoy J stated that it was not necessary to decide
between whether to apply the Akindele unconscionability test or the
Belmont/Frederick Inns actual or constructive knowledge test, but she did
consider Frederick Inns as ‘a decision by which this court is bound’.
❖ O’Donnell v Bank of Ireland – Laffoy J acknowledged the divergence in the
law and said that ‘knowledge, actual or constructive’ of the breach of trust is
necessary.
•
As Keane points out in pg357, the threshold for a finding of knowing receipt is
lower in Ireland as a result.
Receipt or fault based liability?
•
Lord Millett suggested in Twinsectra Ltd v Yardley that liability in knowing
receipt is receipt-based and does not depend on fault.
•
Bank of Credit and Commerce International (Overseas) Ltd v Akindele –
Nourse LJ doubted whether a strict liability approach coupled with a change of
position defence would be preferable to fault-based liability in many
commercial transactions.
•
Virgo pg644-646: equity continues to insist on a fault-based approach that
does require proof of fault despite suggestions that a struct liability approach
could be recognised.
-
A strict liability approach would place onerous burden on innocent
recipients to establish defence.
-
The burden would shift to defendants like the bank or whoever it is to
prove that the receipt and the subsequent conduct was not
unconscionable.
-
Argued that it would place an unacceptable burden on third-party
recipients.
Purpose and Charitable Trusts
Purpose trusts – background
•
Private trust may be established in favour of specified or ascertainable
individuals.
•
A valid private trust may also exist where specified purposes are regarded as
merely constituting the settlor or testator’s motive for making the gift - e.g. Re
Andrews Trusts.
•
However, some trusts cannot be construed as if they are for individuals and
are for ‘purposes’.
•
A trust for purposes treated in law as charitable will be recognised as valid –
equity considers that that is for the public benefit.
•
Note provisions of s.49(1) of Charities Act 1961.
❖ States that if the purposes of a gift include both charitable and noncharitable objects. The terms are construed so as to exclude the noncharitable object.
Non-charitable purpose trusts
•
Trusts for non-charitable purposes are not generally regarded as valid as they
are considered to:
❖ Lack the human beneficiaries necessary to secure their enforcement
(although this can be overlooked in exceptional cases),
❖ be too uncertain in nature,
❖ they will often offend the rules against trusts of undue duration and
inalienability.
Enforceability—the beneficiary principle
•
No one who can secure performance.
❖ Morice v Bishop of Durham – Lord Grant stated that there must be somebody
in whose favour the court can decree performance. There was no such
person in this case.
❖ Re Astor's Settlement Trusts - a trustee would not be expected to be subject
to an equitable obligation unless there was somebody who could enforce a
correlative equitable right.
•
Virgo pg201: there is no duty without a corresponding duty. And if there is no
equitable duty then there can be no valid trust.
Enforceability—clarity and certainty
•
Non-charitable purpose trusts are often not expressed in terms which are
sufficiently clear and certain to enable a court to oversee their performance.
❖ Morice v Bishop of Durham - Gift for ‘such objects of benevolence and
liberality as the Bishop of Durham in his own discretion shall most approve of'
- considered to be too uncertain to enforce.
❖ Re Astor's Settlement Trusts – concerned a settle where the objects were
clearly not charitable, included things like establishing and maintain good
understanding between different nations, preservation of the independence
and integrity of newspapers etc..
❖ These trusts fell afoul of the beneficiary principle.
❖ Would have failed anyway as they were too vague in nature.
Compliance with the rule against trusts of undue duration and inalienability
•
Considerations of public policy dictate that property should not be tied up for
excessive periods of time.
❖ Mussett v Bingle - erection of monument and further sum for its maintenance validity of former gift upheld on the assumption monument would be erected
within perpetuity period but latter gift was of a perpetual nature and void.
FACTS:
❖ A testator gave a sum of money to be applied to put up a monument to
his wife’s first husband. And a further sum of money and the interest
on that sum was to be used for its maintenance.
HELD:
❖ The validity of the sum of money to be used to put up the monument
was upheld. Took a relatively flexible approach to the first element of
the gift.
❖ The maintenance element was of a perpetual nature and was
therefore void.
•
Law Reform Commission in the Rule Against Perpetuities and Cognate Rules
LRC 62- 2000 recommended no change to rule against trusts of undue
duration.
Exceptional cases where purpose trusts are enforced - tombs and monuments
•
Lack of beneficiaries is overlooked if trust is sufficiently certain and rule
against trusts of undue duration is complied with (as in Mussett v Bingle).
•
To come within exception, trust must be expressed with sufficient certainty to
be carried out. Only valid if it is in someone’s will, for a period of 21 years from
the date of the testator’s death.
•
Trusts for maintenance will only be valid for a limited period.
•
Option of gift to entire churchyard which is regarded as being charitable in
nature.
•
Section 50 of the Charities Act 1961 - gifts for the maintenance of a ‘tomb,
vault, grave or…tombstone' are deemed to be charitable gifts if they do not
exceed £60 a year (income) and £1,000 in any other case.
Exceptional cases where purpose trusts are enforced - animals
•
Lack of human beneficiaries is overlooked if the trust for an animal(s) is
sufficiently certain and the rule against trusts of undue duration is complied
with.
•
Gifts to provide for the welfare of animals generally or for the care and
maintenance of a class of animals is regarded as being charitable. E.g. a gif
to the cats’ home.
•
However a distinction is drawn between these types of gifts and gifts for a
specified or particular animal.
❖ Re Dean - gift for period of 50 years for care and maintenance of testator's
horses and hounds upheld.
❖ English case.
❖ Lack of human beneficiaries was overlooked but the problem was that
it was intended to go on for 50 years.
❖ Gift was upheld.
❖ Re Kelly - gift for care and maintenance of testator’s dogs upheld as valid for
period of 21 years.
❖ Irish case.
❖ Effectively, trusts for a specific animals are considered valid as long as
they are clear and as long as they do not last for more than 21 years
after the testator’s death.
Gifts to unincorporated associations
•
If you have a gift to a company, even for non-charitable purposes, it will be
valid as that body corporate has a separate legal personality. The company
can thus enforce the gift and can make an application to the Court if it needs
to.
•
However, unincorporated associations have no separate legal personality in
law.
❖ Gifts to unincorporated associations may fall foul of this beneficiary
principle, and may fall foul of this rule against trusts of undue duration.
•
Gifts of this nature may fall foul of the beneficiary principle or may contravene
the rule against trusts of undue duration.
•
Construed as for members of association for the time being - Cocks v
Manners - a gift to contemplative order of nuns was treated as a gift to the
superior of community for the time being.
•
Contract holding theory - Re Lipinski's Will Trusts - gift treated as one to
members of association as an accretion to its funds subject to its rules.
FACTS:
❖ Testator left half of his residuary estate to an association to be used
for various purposes such as building new buildings for the
association.
HELD:
❖ It was a gift to the members of the association as an accretion, as an
addition to that association’s funds subject to its rules.
❖ This contract-holding theory has been recognised as the easiest way
to allow a trust or a gift to an unincorporated association to take effect.
❖ Re Endacott - categories of these ‘anomalous' cases should not be extended.
FACTS:
❖ The gift was a sum of money to be used to provide a useful memorial
to the testator.
HELD:
❖ Gift was far too wide and uncertain in nature to be given effect to.
•
Clear sense that the courts in England and Ireland do not want to extend any
exceptions to this principle that you cannot have a non-charitable purpose
trust.
Reform of beneficiary principle?
•
Hayton (2001) 117 LQR 96, 107 has suggested that an ‘enforcer’ might be
appointed under the terms of a trust in order to oversee its enforcement.
❖ Pg97 - The rationale behind the beneficiary principle is that a trust is
an obligation and so requires the trustee to owe duties to the
beneficiaries, who have a correlative right to make the trustee account
to them for the carrying out of those duties.
•
Modern Equity pg463 – capricious trusts are the rare ones and the fact that
they do exist is no reason for failing to establish a rational method of
validating the useful ones.
•
Virgos pg208: explains that a number of offshore jurisdictions such as the
Cayman Islands and Jersey use non-charitable purpose trusts to a great
extent. And it is one of the reasons why those jurisdictions are so successful.
❖ They can structure transactions without beneficial ownership if
purpose trusts are allowed and they have the advantage of avoiding a
lot of tax liability and of protecting assets from creditors.
❖ But they do need enforcement mechanisms.
❖ These jurisdictions have an enforcement mechanism which allows
them to do a lot of business that they wouldn’t do otherwise.
Advantages of charitable status
•
Charitable trusts – regarded as being for the benefit of the public generally.
•
They enjoy a number of advantages over other types of trust.
❖ Don’t pay income tax or corporation tax or capital taxes.
❖ Do not depend on human beneficiaries to enforce them.
o Charities Regulatory Authority.
o Charities Regulator.
❖ Charitable trusts are not subject to same stringent requirements in
relation to certainty of objects. It is possible to get away with a trust
that is pretty vague.
o There also exists a mechanism that allows for charitable trusts to
continue even where the original objects effectively are no longer
a good way of using the property.
o Enormous flexibility when it comes to the objects of charitable
trusts.
•
May be perpetual in nature.
•
S.49(1) of Charities Act 1961
❖ Effectively says is that if you look at some kind of gift and if there are
charitable and non-charitable purposes, you can exclude the noncharitable purposes.
❖ Daly v Murphy
-
Criticised for being over-flexible but in tune with the Court’s general
approach to charitable trusts.
FACTS:
-
Clause in the will was a residuary bequest to apply for purposes as the
deceased executor would in his absolute discretion, think it.
-
This clause was incredibly vague and broad.
-
Gilligan J stated that he was satisfied that the intention was that this
HELD:
gift be used for both charitable and non-charitable purposes.
-
Applied s 49(1) and stated that the non-charitable purposes fell away,
and the residuary bequest could be applied for charitable purposes
only.
•
Questionable as to whether this approach is too broad.
Role of Charities Regulator
•
Charities Act 2009 - took over the functions exercised both by the AG and the
Commissioners of Charitable Donations and Bequests.
•
Possesses extensive powers to oversee the administration of charitable
trusts. Its functions include:
•
-
ensuring accountability.
-
establishing and maintaining a register of charitable organisations.
-
monitoring compliance with legislation.
-
carrying out investigations in accordance with Charities Act 2009.
Trustees of a charitable organisation are required to keep proper books of
account and to prepare an annual report and submit it to the Regulator.
Definition of a charitable trust
•
Preamble to Statute of Charitable Uses 1634.
-
Old piece of legislation.
-
List of the types of things that might be regarded as being charitable.
❖ Re Worth Library - trust might be considered charitable if it fell within the
‘spirit or intendment' of the statute.
-
Keane J looked at what the definition of a charitable trust may mean.
-
Stated that something could be considered charitable if it fell within the
spirit or internment of the earlier legislation.
FACTS:
-
A collection of valuable books that were given as a gift to what was
then Dr Stevens Hospital in Dublin, by a Dr Worth.
-
When the hospital closed, a question arose as to what had happened
to these books. They were temporarily transferred to the Trinity Library
for safekeeping.
-
Question arose as to whether they should stay there or go back to the
building where they had originally been kept, which had been taken
over by the Eastern Health Board.
-
Keane J had to consider whether the original bequest was charitable,
and if it was, what type of charitable bequest it was, and then what kind
of scheme could be put in place.
❖ Pemsel’s case
•
-
Trusts for the relief of poverty.
-
Trusts for the advancement of education.
-
Trusts for the advancement of religion.
-
Trusts for other purposes beneficial to the community.
Section 3(1) of the Charities Act 2009.
-
Put into legislation what was already in the case law.
-
Made clear in the debate to enact the legislation, that the 2009 Act
intended to reduce to legislation what had already been developed.
Public benefit
•
Must be of public character and contain element of benefit to public.
•
Concept of public benefit retained by s.3(2) of the Charities Act 2009.
•
Section 3(7) - in determining whether gift is of public benefit, account shall be
taken of any limitation imposed by the donor and whether this limitation
justified and reasonable and the amount of any charge payable for any
service provided.
•
Section 3(8) - a limitation on persons who may benefit shall not be justified
and reasonable if all of intended beneficiaries or a significant number of them
have a personal connection with the donor.
•
Section 2(2) – connection includes close family, employment contract.
Trusts for the relief of poverty
•
Note different approach in Ireland now to scope of this category and to
public benefit test.
•
Section 3(1) of the Charities Act 2009 modified to ‘the prevention or relief of
poverty or economic hardship’.
❖ Re Coulthurst - poverty does not mean destitution - persons who have to ‘go
short’.
-
English CoA Lord Evershed: relieving poverty doesn’t mean that you
have to be destitute.
❖ Re Segelman deceased – includes people who need a helping hand from
time to time in order to overcome an unforeseen crisis.
FACTS:
-
Case in which the testator was clearly trying to benefit his own family.
-
A trust for the poor and needy members of a class of the testator’s
relatives.
-
Regarded as a valid charitable trust for the relief of poverty.
-
Evidence suggested that most of the class were ‘comfortably off’ in the
HELD:
sense that they were able to meet their day to day expenses of income.
-
However they were not affluent, and the judge held that they might need
a ‘helping hand’ from time to time to overcome an unforeseen crisis.
•
Case note 1996 Conveyancer p379: point made that the Court came
perilously close to implying that an occasional problem of expenditure
exceeding income is sufficient to qualify a class member as poor.
•
This is the area where the law of Ireland and England diverge.
•
English courts have continued, despite criticism, to uphold trust for ‘poor
relations’ or ‘poor employees’, where you would have serious doubts as to the
legitimacy of these trusts as charitable.
Trusts for the relief of poverty – public benefit aspect
❖ Re Scarisbrick – trust for ‘poor relations’ upheld.
FACTS:
-
Trust to benefit relations of the testatrix’s sons and daughters who were
in needy circumstances.
HELD:
-
CoA surprisingly upheld it as a valid charitable trust.
-
Stated that these poor relations trusts are regarded as being altruistic in
character and the public benefit element can be inferred.
-
Example of a case where the public benefit test was not met.
❖ Re Segelman deceased - gift to poor and needy members of class of
testator's relatives, not to close until 21 years after his death.
❖ Dingle v Turner - trust for ‘poor employees’ upheld.
❖ AG v Charity Commission for England and Wales - trusts for relief of poverty
could be upheld as charitable even if confined to a restricted class defined by
personal relationship or contract of employment.
•
But – law in Ireland now stricter.
•
Ss. 3(7) and (8) of the Charities Act 2009 - requirement of public benefit will
be more rigorously applied in the future.
Discussion question
Explain the circumstances in which a ‘stranger’ to a trust may incur liability where he
dishonestly assists in a breach of trust. Critically analyse whether the test formulated
by Lord Millett or that put forward by the majority of the House of Lords in Twinsectra
is more appropriate in this context.
•
Introduction.
-
Explaining where this form of liability fits in.
-
Explain that individuals who are not appointed as trustees, may still be
liable to account to beneficiaries in certain circumstances where they
are found to possess the necessary degree of fault or in some cases,
knowledge about the nature and consequences of their activities.
•
What we’re being asked to look at is how a third party might incur liability
where he dishonestly assessed in a breach of trust or fiduciary duty.
•
A lot of these cases in a commercial context, so they are really dealing with
breaches of fiduciary duty. But the same principles apply.
•
Imposing liability on a stranger is just one of the possible avenues that might
be pursued by a beneficiary where a trust, property or property subject to a
fiduciary obligation has been misappropriated.
•
Why is this liability useful?
-
Where a third party, often a financial institution, or a professional
individual or body that has insurance has assisted in a breach of trust,
these defendants are far more likely to be in a position to meet any
claim. They may often be insured than the individual who is initially
responsible for committing the breach of trust or fiduciary duty.
-
In practice, where property that is subject to a trust or a fiduciary
obligation is misappropriated, the guiltiest party is the one who is least
likely to be in a position to compensate you.
-
Often where the trustee has committed a breach of trust and
misappropriated the assets, he has spent the money, or it has
disappeared without trace.
-
And thus, if you want some means of redress, going after a so-called
stranger to a trust may be your best and only option.
•
Royal Brunei Airlines Sdn Bhd v Tan Kok Ming
-
Some subjective elements—conduct assessed in the light of what the
person knew and takes into account his personal attributes.
-
However, these subjective characteristics of honesty do not mean that
individuals are free to set their own standards of honesty.
-
The standard of what constitutes honest conduct is not subjective.
-
A defendant will not escape a finding of dishonesty simple because he
sees nothing wrong in his behaviour.
•
Twinsectra Ltd v Yardley
-
Difference of opinions arose in relation to what type of test Lord Nicholls
had intended to lay down in Royal Brunei.
-
Lord Hutton of the majority – dishonesty requires knowledge by the
defendant that what he was doing would be regarded as dishonest by
honest people.
-
Lord Millet dissenting – not necessary that he should actually have
appreciated that he was acting dishonestly – it was sufficient that he
was.
•
Dishonest assistance.
-
Barlow Cloves International: reference to ‘what he knows would offend
normally accepted standards of honest conduct’ meant only that his
knowledge of the transaction had to be such as to render participation
contrary to normally acceptable standards of honest conduct.
-
Abou-Rahmah v Abacha: Lady Justice Arden confirmed obiter that the
test of dishonesty in this context is ‘predominantly objective’ and not a
requirement that the defendant should be conscious of his wrongdoing.
-
Group Seven Ltd v Nair: CoA stated that it would be questioned as to
whether the defendant’s conduct honest or dishonest according to the
standards of ‘ordinary decent people’?
•
Ryan [2007] Conv 188, 196: if by ordinary standards a defendant’s mental
state would be characterised as dishonest, it is irrelevant that the defendant
adhered to different standards or that he was unaware that his conduct would
be objectively regarded as dishonest.
•
Dixon [2019] Conv 195. 197 – post Group Seven – ‘Thus, it is irrelevant
whether the defendant appreciated that his or her conduct would be regarded
as dishonest by an ordinary, reasonable person. Nor does it matter if the
defendant truthfully and sincerely believed that there was nothing wrong in his
or her conduct. They still may be “dishonest”, even if genuinely amazed that
anyone else should think so. A defendant cannot escape liability by relying on
their own moral code.’
•
Virgo p657: This objective test of dishonesty can be justified for policy
reasons. This test of dishonesty, which has regard to the defendant’s
knowledge of and suspicions about the facts, is consistent with the core
meanings of conscience and unconscionability which underpin equitable
liability.
Trusts for the advancement of education
•
s.3(7)(b) of the Charities Act 2009.
❖ Re Shaw - narrow view of concept of what is ‘educational'.
FACTS:
-
1950s English case.
-
Direction in the will of George Bernard Shaw that his trustees should
use his residuary estate to do research into the advantages of reforming
the alphabet.
HELD:
-
Held that if the object of this was merely the increase in knowledge, that
in itself would not be a charitable object unless it was combined with
teaching or education.
•
Broader approach taken in:
❖ Re Hopkins' Will Trusts - more expansive interpretation of ‘education'.
FACTS:
-
Gift given to a society to be applied to the task of finding the Bacon
Shakespeare manuscripts.
-
These were plays that had been ascribed to Shakespeare but were
believed to be written by Francis Bacon.
-
There was a myth that manuscripts exist which may prove this.
-
Wilberforce J: the word ‘education’ as used previously in Shaw must be
HELD:
interpreted in a wider sense.
-
It certainly should extend beyond teaching and would encompass
research.
-
Stated that it must be either something that is of educational value to
the researcher or something that would effectively pass into a store of
‘educational material’ improving knowledge.
•
Pure research can well come within this category of advancement of
education, provided it is something that is of use in terms of contributing to a
store of knowledge.
•
Irish case:
❖ Re Worth Library – trusts for the advancement of education given broad
meaning by Keane J.
-
Not merely gifts to schools and universities, but gifts for establishment
of theatres, art galleries and museums and promotion of literature and
music.
-
Element of public benefit must be present and, if the benefit extends to
section of community only, it must not be numerically negligible.
English authorities in this area:
❖ Oppenheim – beneficiaries must not be numerically negligible and quality
which distinguishes them must not depend on their relationship to a particular
individual.
FACTS:
-
Concerned the validity of a trust set up to provide for the education of
the children of employees or former employees of a large tobacco
company or its subsidiaries.
-
Number of employees was well over 100,000 at the date of the
settlement.
-
Large class of potential beneficiaries.
-
HoL held that the trust was void and that it could not take effect.
-
As it failed the public benefit test.
-
Lord Simmons: the distinguishing quality of the potential beneficiaries
HELD:
was a relationship with a particular individual. And for this reason this
class could not constitute an adequate section of the public.
❖ Different from McPhail v Doulton – intended purpose for ‘education’ and
created a perpetuity, so if not charitable, would be void (as also transpired in
O’Byrne v Davoren).
❖ R (Independent Schools Council) – fee paying schools – must do enough to
promote access by way of scholarships, etc.
-
Court said that a school that had as its sole object the advancement of
the education of children whose families could afford to pay fees, would
not effectively satisfy the public benefit elements necessary to be a
charity.
-
Stated that the primary focus is on direct benefits, things such as
scholarships or other forms of financial assistance.
-
Court acknowledges that it would be permissible to look at indirect or
wider benefits to the community. That is why public schools tend to be
engaged in a lot more outreach activities in their communities than they
might otherwise be.
-
Court stated that no-one can or has suggested that fee-paying schools
are not entitled to charitable status provided they do enough to
promote access. They also need to be engaging with their community
in a wider sense (the indirect benefit).
-
Key findings at paragraph 213.
Irish authorities:
❖ O’Connell v AG - too narrow in scope to be charitable and intention of the
testator was to benefit specific individuals.
-
Gavin Duffy J: bequest to enable the nieces and nephews of the
testator of their male descendants was too narrow t be charitable.
-
Equity has consistently insisted on the public character of a trust. There
must be some benefit to the community or a section of the community.
-
The trust failed in this case.
❖ Re Worth Library - element of public benefit must be present and if benefit is
to a section of the community only, it must not be numerically negligible.
-
Keane J: there was a very extensive library in Dr Worth’s collection
which was effectively the subject matter of the trust. But it could not be
used by everyone. The library was only to be used by three named
office holders in the hospital.
-
Effectively, no-one else could use the library and read the books.
-
There was no question about the wider public being able to take
advantage of this library.
-
Held that for this reason, the trust could not qualify as one for the
advancement of education.
•
Impact of s.3(7)(b) of Charities Act 2009.
-
In determining whether something is of public benefit, you take account
of any limitation imposed on the class of people who can benefit.
•
One aspect of this is whether the limitation is justified and reasonable.
Keane suggest that it may be difficult for fee-paying schools in the light of
s.3(7)(b) – taking account of the amount of the charge and whether this will
limit the number who will benefit.
-
Register of charities in Ireland has been evolving to a position that
most private schools have now set up separate charitable foundations
that might help current or past pupils rather than attempting to actually
retain charitable status for themselves.
Trusts for the advancement of religion
•
Section 3(4) of the Charities Act 2009 - ‘[i]t shall be presumed, unless the
contrary is proved, that a gift for the advancement of religion is of public
benefit’.
-
Presumption of public benefit provided you can show that the gift is for
the advancement of religion.
•
Gifts to Ecclesiastical Office Holders (ministers, priests, clergymen) – see
Gibson v RCB – distinguish gifts for office holder and for personal use.
-
Have to ask whether the gift is for the benefit of the office for the time
being or whether it’s a gift for a particular individual who happens to be
a priest or minister etc.
❖ Gibson v RCB
-
Bequest to the chaplain of a named chapel and to his successors at
the time of the testatrix’s death.
-
That was construed as being charitable as it was to the office holder for
the time being.
-
However there was also a separate gift in a codicil in the testatrix’s will
to the chaplain for his own persona use and benefit. That was held as
being not a charitable gift.
•
Gifts for the Celebration of Masses – issue resolved in O'Hanlon v Logue but
note different position in England.
❖ O'Hanlon v Logue
-
Irish Courts have accepted that gifts for the saying of masses whether
in private or public, are regarded as being charitable in nature.
-
This decision was put beyond doubt by the enactment of Section 45(2)
of the 1961 Charities Act. (which has been repealed but the law has
been clearly established through caselaw anyway).
❖ Re Hetherington (England) - prima facie charitable.
-
Establishes that gifts for the saying of masses are prima facie
charitable but not necessarily.
-
Lord Browne-Wilkinson stated that a gift for the saying of masses is
prima facie a charitable one, as it is for a religious purpose. It contains
the necessary element to public benefit as in practice, a mass is
celebrated in public.
-
He also stated that if it was possible to construe it as being said either
in public or private, then the gift is to be construed as one to be carried
out by charitable means only, i.e. to be said in public.
•
A gift for the saying of mass if there is a stipulation of it to be done in private,
then it is not to be charitable.
•
Section 99 of Charities Act 2009 - challenge to its validity rejected in McNally
v Ireland.
-
Section relating to the sale of mass cards. Provides that someone who
sells a mass card other than pursuant to an arrangement with a
recognised person (there is a list of who these are), is guilty of an
offence.
❖ McNally v Ireland:
-
Constitutionality of the section was challenged and failed.
-
McMenamin J was satisfied that there was a rational connection
between the means and the objective of the legislation, and there was
a minimal intrusion into the constitutional rights of people.
•
Gifts to Religious Orders - contemplative religious orders - Cocks v Manners not charitable at the time.
❖ Cocks v Manners
-
Two separate bequests in the case. One to a religious order that did
things that were useful for the community and was considered to be
charitable. Another bequest was to a Dominican convent, to the
superior for the time being which was held not to be charitable on the
basis that the community had none of the requisites of a charitable
institution.
-
So a religious order that only prayed and didn’t nurse the sick or teach
children, was not considered to be a charitable institution.
-
Finding that contemplative religious orders were not charitable was
tested on many occasions.
❖ Maguire v Attorney General – In Ireland, contemplative religious orders in fact
did provide public benefit.
-
Gavin Duffy J got around the authority of Cooks by saying that that was
a decision made on a question of fact.
-
Stated that at the time it was made the public may not have been
edified by private prayer unaccompanied by external works of charity,
1940s Ireland was a different place.
-
Stated that he would not attribute that outlook to public opinion in
Ireland at the time.
•
Before Maguire, gifts to all religious orders in Ireland are considered to be up
to the public benefits test. This is not an issue anymore due to the intervention
of legislation. But it is still an issue in England.
❖ Gilmour v Coates (England) – lacked necessary element of public benefit.
-
Regarded gift to a community of cloistered nuns.
-
Contemplative religious order that did not do any external works of
charity.
-
HoL: it was not charitable as it lacked the necessary element of public
benefit.
•
In England, not all religious purposes are regarded as being for the public
benefit.
❖ Bank of Ireland Trustee – gift to contemplative order was charitable.
•
Effect of s.45(1) of 1961 Act and now s.3(4) of Charities Act 2009.
•
Gifts for Churches/Churchyards – Re Vaughan – charitable.
-
Gifts to maintain a church building, its fixtures, put up a structure,
upkeep for a church yard or cemetery will be regarded as charitable.
-
Issue may arise where you want a monument to be erected and
maintained but if it goes on for too long, a gift for its maintenance is
likely to be invalid.
-
A way around this was to make your gift for the church and for the
upkeep of the church yard generally and to hope that your bequest will
be used to maintain your family’s grave.
Trusts for any other purposes of benefit to community
•
S.3(1)(d) of the Charities Act 2009 - ‘any other purpose that it is of benefit to
the community’.
•
S.3(11) of the Act of 2009 - purpose that is ‘of benefit to the community’
includes purposes which are specifically set out.
-
Non-exhaustive list.
-
Comprises of things such as relief of sickness, disease, human
suffering, prevention, or relief of suffering of animals.
-
Contemporary things also set out: protecting the natural environment,
advancing environmental sustainability.
❖ Inc Council for Law Reporting - if a purpose is shown to be of sufficient benefit
or utility to community, it is prima facie charitable.
-
Also held that it qualified as being for the advancement of education.
-
Illustrates how the four categories are not mutually exclusive –
something may qualify under more than one heading as it did in this
case.
❖ Re Dunlop – (NI case) essence of the charitable nature of trusts in this
category is that no limitation should be placed on the gift which would prevent
the public as a whole from benefitting.
-
Concerned a trust to assist in the founding of a home for elderly
Presbyterians. Held that this could qualify as a valid charitable gift as it
was to help elderly people.
-
Useful example of how at a general level, the test of public benefit is
pretty stringent to the public benefit element in this category.
-
Court stated that when you are talking about this fourth category, there
should not be any limitations placed on the gift that would prevent the
public as a whole from enjoying the advantage. – very stringent
approach.
▪
Suggesting that to come within this fourth category, everyone
should be entitled to benefit from whatever it is. – very difficult to
show
-
It would be more difficult for a trust under this fourth head to satisfy the
requirements of public benefit than any other.
-
Gave the example in stating that: a bridge to be used only by
Methodists should fail to qualify, as a gift to educate to the children of
members of that church might well be a charity.
Objective or subjective test
•
Predominately subjective approach is favoured in Ireland.
❖ Re Cranston - view of donor should be decisive provided not illegal or
immoral.
FACTS:
-
Case concerning whether gifts for vegetarian societies were charitable
in nature.
HELD:
-
Court held that this could not be a charitable trust.
-
Majority said that the objects of the societies were charitable within the
legal sense of the term.
-
Fitzgibbon J: the view of the donor should be decisive in determining
whether the gift fell within this fourth category as long as the purpose
was not illegal or immoral.
-
P446-447 judgement
❖ Re Worth Library - intention of testator is of paramount importance provided it
is not illegal, irrational or contra bonos mores.
•
Objective approach favoured in England – see Re Hummeltenberg - question
to be answered by the court.
❖ Re Hummeltenberg
FACTS:
-
Gift for a college for training mediums was held not to be charitable as
the Court held that there was no public benefit.
-
Russell J referred to the views expressed in the Irish Court of Appeal
and stated that although he agreed with their views in so far as the
personal opinion of a judge was not relevant. He stated that in his view,
the question had to be answered by the Court forming an opinion upon
the evidence before it about what, objectively speaking, would be
something that could be of benefit to the community.
•
In Ireland, if you have a donor or testator who has a slightly non-mainstream
view of what might be charitable, they may have a better chance that their gift
is going to be recognised as charitable.
•
Whereas in England, a more mainstream or objective approach is taken.
Gifs for the aged and sick
•
S.3(11)(a) and (d) of the Charities Act 2009.
❖ Re McCarthy's Will Trusts – gifts upheld as charitable.
-
Gift to a society whose principal object was to look after the sick who
were making pilgrimages and a bequest to a hospital.
❖ Barrington’s Hospital v Commissioner of Valuation
FACTS:
-
Case concerning the payment of rates.
-
Plaintiff hospital sought to challenge the changing of its exemption from
rates.
-
It argued that because its purposes were exclusively charitable in
nature, it should continue to have this exemption from rates.
HELD:
-
Kingsmill Moore J in SC looked at the meaning of the phrase
‘charitable purpose’ in the context of the rating legislation.
-
Acknowledged that in this context, often a more restrictive view is taken
of the concept of charitable purpose.
-
P321: a trust for the care of the sick or the maintenance of a hospital is
a charity in the legal meaning of the term.
-
The real issue the SC had to grapple with was whether the presence in
the hospital of a limited number of fee-paying patients could alter this
position. The Court held in the negative – the presence of a limited
number of private patients did not detract the charitable purpose of the
institution.
❖ Re Worth Library - flexible interpretation placed by Keane J on concept of gift
for benefit of hospital – ‘haven’ for office holders was of benefit for the hospital
as a whole.
-
Careful when using this as precedent as the decision was made firmly
on the facts of the case.
•
Keane textbook p197 – status of private hospitals and nursing homes?
-
Makes point that there is a problem here as hospitals or nursing homes
are unlikely to satisfy the public benefit test if they are financed
exclusively by fees for admissions.
-
This is in line with the statutory provision at 3(7).
-
These kind of institutions are run on a for profit basis and are not going
to be able to avail of charitable status.
Gifts for sporting and recreational purposes
•
Distinguish trusts to promote individual sport(s) and facilities for recreational
purposes.
❖ Guild v IRC - construction of s.1(2)(a) of the Recreational Charities Act 1958
(England) - now see s.5(3)(a) of Charities Act 2011 - no equivalent provision
here in Ireland.
-
Gift was to a town council to be used in connection with the town sports
centre or for some purpose in connection with sport.
-
HoL construed the relevant provisions of the Recreational Charities Act
and said that facilities for recreation or other leisure time activities can
be provided with the object of improving people’s conditions of life,
even if they are not in a position of suffering any kind of relative social
disadvantage.
-
Any kind of recreational facilities can thus come within the scope of this
legislation and be considered charitable, and it doesn’t just have to b
for those who suffered disadvantage.
•
There is some authority that if you construe the gift as being for the benefit of
a locality or a community, you might come within the scope of a charitable
purpose:
❖ Shillington v Portadown - gift to urban council for recreation was considered
charitable.
❖ National Tourism Development Authority v Coughlan - ‘[s]port has never been
recognised to be an object of sufficiently wide benefit to the community as to
enjoy charitable status’.
FACTS:
-
Concerned golf courses designed to encourage tourism.
-
Charleton J acknowledged that the definition of charity in law is
HELD:
different from what one might imagine it should be.
-
Stated that while one would imagine that trust for sporting objects
would be held to be beneficial to the community, that is not how the law
has regarded them where they promote a particular sport. P565 of his
judgement.
-
Look at also p569: sport has never been recognised to be an object of
sufficiently wide benefit to the community as to enjoy charitable status.
•
S.2 of Charities Act 2009 – advancing sporting activity is excluded.
•
Caselaw (Coughlan) and the aforementioned statutory provisions of this
jurisdiction does not provide for scope of development in this area.
•
These kind of excluded bodies can get certain tax benefits but cannot get
charitable status.
•
Note different position in England – amateur sport recognised in s.3(1)(g) of
the Act of 2011.
Gifts for the benefit of animals
• Distinguish trusts for individual animals (non-charitable purpose trusts) and
for animals generally (charitable trusts).
• Section 3(11)(j) of the Charities Act 2009 now specifically includes
prevention or relief of suffering of animals.
❖ Armstrong v Reeves – legacy to Society for the Abolition of Vivisection
held to be charitable – tended to correct cruelty to animals.
❖ National Anti-Vivisection Society v IRC – society not entitled to income tax
relief on grounds that its object was not a charitable one – benefit to
humanity in allowing vivisection outweighed suffering of animals.
• Note provisions of s.3(11)(d) ‘prevention or relief of … disease’.
-
If case were to come before the Court today, the Court would have to
grapple with the fact that there are two conflicting things – preventing
cruelty to animals and preventing the relief of disease.
-
The way in which the matter was decided in the National AntiVivisection Society v IRC would probably be the same today.
Gifts for political purposes
•
Trusts for advancement of political purposes are not charitable in Ireland an in
England.
❖ Re Ní Brudair - gift for benefit of republicans not charitable.
-
Objects held to be too vague and uncertain to constitute a valid
charitable trust.
-
Also clear from his judgement that this gift was to further a statement of
political objectives and this could not be considered as charitable in this
jurisdiction.
•
Often trusts for advancement of political purposes will involve advocating a
change in the law, see:
❖ McGovern v AG, although it was acknowledged that incidental powers to
employ political means will not deprive a trust of charitable status.
FACTS:
-
Concerned a trust created by Amnesty International to achieve certain
stated purposes.
HELD;
-
Stated that if you have a trust and its main objective is to try and
secure a change in the law of a foreign country, it could not be
regarded as charitable as the Court would have no means of knowing
whether such a change would be for the public benefit.
-
P340: A trust for political purposes cannot be regarded as being for the
public benefit.
-
P343: if all the main objects of a trust are exclusively charitable, the
fact that the trustees might have incidental powers to employ political
means to further these objects wont deprive the trust of its charitable
status.
•
There is a fine line between pursuing political activities as a means to a
charitable end and pursuing purposes which are political in their own right.
•
Australian and NZ approach are more progressive:
❖ Aid/Watch Inc (Australia) – there is no general rule excluding ‘political
objects’.
❖ Re Greenpeace New Zealand Inc (New Zealand) – blanket political purpose
exclusion should no longer be applied.
-
Majority of the NZ SC agreed that political and charitable purposes are
not mutually exclusive and that a blanket exclusion is unnecessary and
distracts from the enquiry about whether a purpose is of public benefit.
-
Saying that the courts should be able to weigh up whether a purpose is
a public benefit and this type of blanket exclusion is preventing them
from doing the job that they should be doing.
-
P196: a strict exclusion policy risks rigidity in an area of law which
should be responsive to the way that society works.
-
Charity and the meaning of charity is an evolving concept and any kind
of blanket policy excluding objects runs counter to that.
-
P194: questioned the view as seen in McGovern, the idea that trying to
procure a change in the law of a foreign country is political and
something that should not be regarded as charitable. States that in the
context of modern participatory democracy, there is no basis for doing
a distinction between generally promoting views within society and
advocating a change in the law.
•
Section 2 of Act of 2009 – excluded body – ‘political party’ or ‘body that
promotes political cause’.
•
Breen (2008) NILQ p223 – Section 2 of Act of 2009 does not exclude
organisations with charitable objects from using political means to achieve
charitable ends, as long as the principle object of the organisation is
charitable.
•
Breen [2012] PL – are human rights too political to be charitable?
-
In Ireland, the answer seems to be yes.
-
In England, the advancement of human rights is specifically included in
the list of charitable purposes in Section 3 of the Charities Act 2011.
•
Note effect of s.49 of Charities Act 1961.
-
Provides that where purposes are both charitable and non-charitable, a
gift shall be construed so as to exclude the non-charitable ones.
Assessment of the scope of charitable purposes as set out in 2009 Act
•
Some of the omissions from the list of other purposes of benefit to the
community in the Charities Act 2009 are surprising – e.g. advancement of
human rights.
•
Scope of s.2 of the Charities Act 2009 – excluded bodies - promotion of
amateur sport, bodies that promote political causes.
•
Note effect of s.49 of Charities Act 1961 – where purposes include both
charitable and non-charitable objects shall be construed so as to exclude noncharitable objects.
Cy-près jurisdiction
•
Where a gift is made to charity, it may be impossible or impracticable to give
effect to the intentions of donor in precise terms intended.
•
Allows for the making of a scheme for purposes as near as possible to original
ones.
•
Distinction between where gift fails ab initio – where a general charitable
intention is required – and cases of subsequent failure.
-
Case law has clearly established that where you have an initial failure,
you have to show general charitable intention before a cy-près order
can be made.
❖ Re Dunwoodie (NI case) – testatrix had shown general charitable intention –
property should be applied cy-près.
-
P145: explains the distinction between cases of initial and subsequent
failure.
FACTS:
-
Original bequest was the residue of the testatrix’s estate, which was
given to a particular named Presbyterian church.
-
There was a direction that it was to be used to install bells at the
church, which would be a valid charitable purpose as an advancement
of religion.
-
Problem was that the committee that ran the church didn’t want bells,
they wanted the money.
ISSUE:
-
Question arose whether this bequest could take effect by a cy-près
order.
-
Could the church put forward a cy-près scheme that the Court would
approve or if they didn’t want the bells, would the bequest go back into
the will and they would lose the money entirely?
HELD:
-
Murray J stated that where you have a gift which cannot be carried out
from the beginning, you must show general charitable intention to
further some general purpose of a charitable nature.
-
In this case, he was satisfied that there was such a general charitable
intention to further the purposes of this particular church.
-
He made a cy-près order.
❖ Re Stewart’s Will Trusts – further, more general purpose disclosed.
-
Liberal approach applied to the concept of general charitable intention.
-
The residue of the testator’s estate was left for the non-subscribing
FACTS:
Presbyterian Church of Ireland for the purpose of supplementing the
income of ministers of that church.
-
Problem was that the gifts involved a condition and would only go to
churches that used particular types of hymn books which were
effectively the original unaltered and unabridged hymn books. This was
an impossible condition to fulfil in the circumstances.
HELD:
-
Murray J ordered a cy-près scheme and said that there was a general
charitable intention to benefit this church.
-
The paramount intention of the testator was to increase the salary of
ministers of this church.
-
Stated that it was possible to draw a distinction between cases where
every element in the description of the trust is indispensable to its
validity and cases where there is a further and more general purpose
disclosed as he was satisfied the latter was the case in this case.
❖ Re Prescott – no indication that testatrix had any intention other than to
benefit named institution – no cy-près order – questionable?
FACTS:
-
Gift to a Dublin parish.
-
Testatrix said that if there were no members of the church living in
Ireland at the time she died, then the house that she had left in the trust
should be sold and the money be used for the general purposes of the
church in England.
HELD:
-
Held rather surprisingly that the parish should cease to exist.
-
There was no general charitable intention and a cy-près order could
not be made.
•
Key thing if you are making an application for a cy-près order in cases of initial
failure, you need to be ready to show general chairtable intention.
Cy-près jurisdiction – subsequent failure?
•
The gift may be capable of being carried out in precise terms laid down at
time it takes effect but may subsequently fail or become impossible or
impracticable to enforce.
•
Not necessary to establish a ‘general charitable intention’ provided that the
gift is given ‘absolutely and perpetually to charity’ – e.g.
❖ Re Royal Kilmainham Hospital
-
HC approved a cy-près scheme directing that the available funds in the
trust be used to benefit organisations of former members of the British
Army and of the Irish Defence Force to give effect to the spirit of the
original gift.
❖ Re Worth Library - original bequest of library in the will was ‘undoubtedly an
absolute and perpetual gift’ – could be applied cy-près.
Cy-près jurisdiction – legislative reform
•
s.47 of the Charities Act 1961 – introduced broader parameters for exercise of
this jurisdiction – where difficulties in implementing original terms or where
more effective use might be made of trust property.
❖ Representative Church Body v AG – original purposes of charitable gifts had
ceased to provide suitable or effective method of using property available –
s.47(1)(e)(iii).
FACTS:
-
Plaintiff was looking for a cy-près order under Section 47 in relation to
a valuable collection of books that were kept in something called the
Old Library which was attached to Kilkenny Cathedral.
-
The plaintiff wanted to sell the books and use the proceeds to effect
urgent repairs to the cathedral.
-
It was argued that the books were no longer used in the manner
envisaged in the original bequest.
-
But the AG opposed the application as it was fairly clear that if the cyprès order was made, the church would sell the books and they would
probably end up being taken abroad. The AG felt that this was not an
appropriate thing to do.
HELD:
-
The plaintiffs convinced the HC that the original purpose had ceased to
provide a suitable or effective means of using the property and the HC
made the cy-près order.
•
Same conclusion reached in Varsani v Jesani (now s.62(1)(e)(iii) of the
Charities Act 2011 in England).
•
Effect of Section 47(2) of the Charities Act 1961.
-
Preserving case law in terms of the need to show general charitable
intention in cases of initial failure.
•
Role of Charities Regulatory Authority in framing cy-près schemes.
-
By the time that the 2009 Act came into effect, the HC was no longer
involved in making cy-près orders.
Question for discussion
Assess the extent to which the law in this jurisdiction in relation to the various
categories of charitable trust and public benefit requirement which applies in each
category differs from that in England and wales.
•
Have a general introduction and then focus on the different categories which
in some instances might involve bringing up elements of the public benefit
test.
•
Introduction.
-
Briefly explain what charitable purposes are, what charitable trusts are.
-
Equity clearly regards them as a good thing and they benefit the
community, explain this.
-
They have traditionally enjoyed a number of advantages over other
types of trusts. Mention these advantages.
-
Setting out that until the enactment of the 2009 Charities Act, we didn’t
have any statutory definition in this jurisdiction. All we had was the
original statute of charitable uses, the list was never intended to define
charitable purposes.
▪
All we had was the comment from the Re Worth Library case
that a trust would be considered charitable if it fell within the
spirit of internment of the original legislation.
•
State that the legislative provisions in both jurisdictions in terms of the scope
of both charitable purposes and the public benefit test are broadly similar.
•
-
But there are some significant differences.
-
Flag these differences in explaining what section 3(7) and 3(8) do.
-
And section 49 of the 1961 Charities Act.
Relief of poverty category:
-
‘economic hardship’ addition.
▪
Look at case law in England. No doubt that the English
interpretation of the relief of poverty was a very broad one.
-
Irish legislature has more narrow scope but reflects a more accurate
reflection of exiting law.
-
Charity Commission v AG case which confirmed hat the status quo
remains. Even if the class if confined or is a restricted class defined by
personal relationship or a contract of employment, the things that our
legislation gets at, even in those circumstances, these so-called poor
relations cases are still regarded as coming within the scope of
charitable trusts for the relief of poverty.
-
Issue of advantages that flow from charitable status is something that
has preoccupied the courts.
▪
In cases such as Dingle v Turner, Oppenheim, Court seems to
be influenced by the idea of undeserved fiscal immunity. The tax
advantages that would go with charitable trusts.
-
In Ireland we don’t have the same lock between fiscal benefit and
charitable status as a result of Section 7 of the 2009 Act, as there still
is in the UK.
-
But the idea of certain privileged attaching to charitable status does
remain.
•
Education category:
-
Closest overlap but not complete overlap.
-
Scope of category: no differences.
-
Public benefits test: mention that in England that in England, the public
benefit approach has tended to be fairly strict as per Oppenheim.
-
Say that the test in Ireland as set out in the Re Worth Library case was
very similar.
-
Now reflected in Section 3(8).
-
Different area: fee-paying schools. Mention the Independent Schools
case in England and that a fairly broad approach is taken there. These
schools are still entitled to charitable status as long as they do what the
Court said was enough to promote access.
-
Pick up on point as mentioned by Keane in P186 in stating that it may
prove difficult for fee-paying schools to demonstrate that they provide
access to a sufficient proportion of the public.
▪
Evidence to support this is if you were to look at the Register of
Charitable Trusts now, as opposed to q0 years ago before the
legislation came into effect, there are fewer private schools
listed as charities. There is a move to set up charitable bodies
either helping current or past pupils in fee-paying schools who
are in need due to their personal circumstances, rather than
seeking to maintain charitable status for the schools themselves.
•
Advancement of religion:
-
Greater statutory intervention in this area in Ireland.
-
Section 3(4) of the 2009 Act which states that it will be presumed
unless the contrary is shown that a gift for the advancement of religion
is of public benefit as in a sense, that is what has driven the approach.
-
Now underpinned by Section 3(4).
-
Keane P193: stated that it’s arguable whether the prominent role
assigned to religion is justified in this context.
-
He said its status in a law which places such emphasis on the public
benefit is open to question.
-
Argue that law in England is more in tune with the underlying theme of
having to show benefit.
•
Objective vs subjective approach.
The Administration of Trusts
Introduction
•
Trustee Act 1893
•
Law Reform Commission Report, Trust Law: General Proposals (LRC 922008).
•
Trustees expected to display a high degree of honesty and integrity.
•
Professional and non-professional trustees.
•
Any person can be appointed in this jurisdiction.
•
Minimum and maximum numbers of trustees: very little guidance on this area.
-
LRC recommended that there should be a minimum of 2 for a
corporate trustee.
Appointment of trustees
•
Initial trustees are ordinarily appointed by the settlor or testator in the trust
instrument.
•
If in a will – often executors and trustees are the same people.
•
Power to appoint new or additional trustees.
•
S.10 of the Trustee Act 1893 – new trustees.
•
S.25 of Trustee Act 1893.
-
States that the Court has the power to appoint new or additional
trustees whenever it is expedient to do so.
Retirement of trustees
•
You can refuse at the outset. However it is important to renounce the
obligation immediately. Preferable to do this by deed.
•
Circumstances in which you can retire if you don’t refuse to take up the office
at the outset:
-
If there is an express clause in trust instrument that sets out the
circumstances in which one may retire.
-
If the trustee receives consent of beneficiaries (provides sui juris and
entitled to entire beneficial interest).
-
S11 of Trustee Act 1893 (provided at least 2 trustees left and if cotrustees consent by deed).
-
S25 of Trustee Act 1893 – trustee may seek Court order.
Removal of trustees
•
Trustee may be removed:
-
Where express provision in trust instrument.
-
If receives consent of beneficiaries (provided sui juris and entitled to
entire beneficial interest).
-
S. 25 of Trustee Act 1893.
-
Pursuant to Court’s inherent jurisdiction.
❖ Arnott v Arnott – persistent non-co-operation – may be removed if the welfare
of the beneficiaries demands it - even though no dishonesty or incompetence.
FACTS:
-
Defendant was consistently uncooperative.
-
Her persistent non-cooperation rendered the trust virtually unworkable.
-
Held that the jurisdiction of the Court to remove a trustee could be
HELD:
exercised in the welfare of the beneficiary’s demands, even if there
isn’t dishonesty or incompetence.
❖ Moore v McGlynn - Chatterton VC stated that the trustee ‘should not be
continued in a position where his duties and his self-interest may conflict.'
FACTS:
-
Trustee who took over the post office business.
-
He moved the post office to a new premises in the same town.
-
There was an issue regarding whether he held the profits of that new
business on a construct of trust.
HELD:
-
Held that he did not hold the profits on a constructive trust.
-
Chatterton VC stated that he should not be allowed continue to be a
trustee.
-
It is not appropriate for someone to act as a trustee if there is a conflict
of interest.
❖ Spencer v Kinsella - Barron J confirmed that the welfare of the beneficiaries
is the key factor.
FACTS:
-
Concerned showgrounds that were being used by different interests—
local football club, grazing of sheep…
-
Complaints were made against the trustees by the football club, which
had spent a lot of money on the upkeep and repair of the grounds.
HELD:
-
Barron J held that some kind of reorganisation had to take place.
-
Acknowledged that it would be difficult to find local people who had no
affiliation with any of the organisations that were using the grounds, or
had no affiliation with the people using the grounds, however, in all
cases of trusts, no trustees should allow his interests to conflict with his
duty.
-
The welfare of the beneficiaries was the key issue.
-
As far as possible, it would be best to appoint trustees who are
impartial as between various uses of the grants.
-
Decided in the circumstances to adjourn the matter and told everyone
to go away and sort it out.
Duties of trustees
•
Ascertain nature and extent of property.
•
Understand terms of trust.
•
Understand the nature and extent of powers.
-
Can end up being liable for breach of trust if you don’t fully understand
the nature and extent of your trust.
•
Ensure property is under trustees’ control.
•
Satisfy himself of no evidence of breach of trust.
❖ Greene v Coady – Charleton J: ‘expectation … that the trustees will pursue
the aims of the trust honestly and in good faith’.
-
High standards are expected of trustees, as they are being entrusted to
the trust property.
Duty to invest
•
Trustees are under a general obligation to invest trust property to ensure
steady income/ preserve capital.
•
And ensure investment authorised by trust instrument or statutory scheme.
•
Part I, 1893 Act as amended by Trustee (Authorised Investments Act) 1958
and list of authorised investments updated by Statutory Instruments.
-
1958 Act allowed for statutory instruments to vary and update the list.
❖ Re O’Connor - ‘The trustee has no power to act dishonestly, negligently or in
breach of trust to invest on insufficient security’ [but note potential effect of
exemption clauses].
-
Lord O’Connor: stated that however unlimited the power of investment
may be, trustees do remain subject to the jurisdiction of the Court.
-
Stated that they have to power to act dishonestly, negligently or in
breach of trust. Sometimes trustees can get out of liability in surprising
circumstances.
English authorities:
❖ Bartlett v Barclays Bank Trustee Co Ltd
FACTS:
-
Barclays Bank was the trustee of a trust and the only assets were
nearly all the shares in a family property company.
-
The bank thought that funds might be more readily raised to pay tax,
which was due if the company went public.
-
One speculative investment resulted in very large losses to the trust.
-
Defendant was acting in good faith, however.
-
The plaintiff beneficiaries succeeded in their claim against the bank for
HELD:
breach of trust.
-
Duty of trustee to use same care as an ordinary, prudent man of
business would extend towards his own affairs.
-
But there is a higher duty of care expected of professional trustee.
❖ Nestle v National Westminster Bank
FACTS:
-
Bank (trustee) did not take sufficient time to fully understand the scope
of its investment powers.
-
It was given wide powers to invest but never obtained legal advice
about the scope of these powers, and assumed they were narrower
than they were.
-
The plaintiff was a remainder beneficiary and contended that the trust
fund should have been worth many multiples of what it was actually
worth when she became entitled to if it had been properly invested.
HELD:
-
Hoffman J rejected the plaintiff’s claim and said that the bank had
acted conscientiously, fairly and carefully.
-
Essence of bank's duty to take such steps as prudent businessman
would have taken to maintain and increase value of the trust fund.
-
Importance of preservation will outweigh success in advancement.
-
P128 Leggatt LJ: the bank’s engagement was as a trustee and as
such, it is to be judged not by success, but by absence of proven to
fault. The importance of preservation of a trust fund will always
outweigh success in its advancement.
•
Criticism by Kenny [1993] Conv 63, 67.
-
‘It is a sad reflection on the present state of trust law that a bank that
no testator would choose for the effective management of his
investment should be found not liable for a breach of trust.
•
England: as per Bartlett, the defendants were liable for breach of trust
although they were trying their best; but as per Nestle, where the trustees
were found to be not liable even though it was not doing its best, it took a
conservative approach that the importance of preserving the trust fund
outweighed success in its advancement.
Irish authorities:
❖ Stacey v Branch
FACTS:
-
Dealt with situation where there was a very broad scope of investment
authority so that the plaintiff was a beneficiary who brought a claim
against the defendant, an individual trustee (his godfather), alleging a
breach of trust on the basis that a house which formed a main part of
the trust had not been managed properly.
-
His specific complaint was that for a period of 14 years, rather than
letting out the house and generating income, the trustee had decided to
put a caretaker in to look after it.
HELD:
-
Murphy J: the words ‘ absolute discretion’ were used in the trust
instrument, but it would not necessarily relieve the trustee from having
to use reasonable care and prudence.
-
However, he also drew attention to the broad scope of the investment
power.
-
The plaintiff’s claim was dismissed.
-
Court accepted that the decision to employ the caretaker was taken in
good faith.
-
Murphy J discussed the obligation of the trustee in acting honestly, and
the use of this standard of a reasonable prudent businessman in
exercising his discretion. He also stated that one should act with the
kind of care that one would take if one was making an investment for
the benefit of people you are morally obliged to provide for. And
effectively, that is what you are doing as a trustee.
-
Also stated that there is a duty to avoid investments attended with
hazard.
•
Stacey and Nestle – where default is due to lack of initiative rather than
speculative investment decisions, it is difficult for the beneficiary to succeed in
establishing breach of trust.
•
Legislative provision in England – Schedule 1 paragraph (1) of the Trustee
Act 2000 - statutory duty of care applied to powers of investment – ‘such care
and skill as is reasonable in the circumstances’.
-
This has to have regard to any special knowledge or experience that
someone holds themselves out as having, or to any special knowledge
or experience that is reasonable to expect of someone acting in the
course of a business or profession.
-
Graham Virgo: explores whether using the phrase ‘in the
circumstances’ could mean that a trustee who is unskilled perhaps
might only be expected to exercise less skill than would be objectively
reasonable.
o Does the standard become subjective? States that the
defendant’s circumstances should not be taken into account to
reduce the standard between or below that of the reasonable
man.
o However, the standard can be raised if the trustee possess
particular skill or knowledge or is a profession, but it is still an
objective standard.
•
LRC recommended introduction of statutory duty of care in this jurisdiction.
❖ Harries v Church Commissioners
FACTS:
-
Involved an application made against the Church Commissioners who
are the trustees in the case.
-
The plaintiffs were looking for declarations that the commissioners
were obliged to have regard to the object of promoting the Christian
faith, and that they should not act in a manner that was incompatible
with that. They were trying to dictate their investment policy based on
the fact that the trust in question was a church trust.
HELD:
-
Nicholls VC: generally speaking, it is the job of the trustees to make
money for the trust and the purposes of that trust were best served by
seeking to obtain a good return consistent with commercial prudence.
-
Circumstances in which charity trustees were bound or entitled to make
a financially disadvantageous investment decision for ethical
considerations were extremely limited.
-
Trustees must not use property held by them for investment purposes
as a means for making ‘moral statements’ at the expense of the
charity.
Duty to distribute
•
Duty to ascertain the identity of those entitled and to take the necessary steps
to ensure that trust property is distributed in accordance with its terms.
❖ Re Benjamin – order that shareholder is presumed dead after 7 years.
FACTS:
-
Testator’s son had disappeared, the father died the year after the son
disappeared.
-
Under the father’s will, he was entitled to a share in the father’s estate
if he survived him.
HELD:
-
Joyce J: concluded that the son must be presumed dead. The court
gave the trustees liberty to distribute the son’s share on the basis that
he had died before the testator.
-
Known as ‘Benjamin order’ thereafter.
❖ Re Green's Will Trusts – liberty to deal with estate on basis that testatrix’s son
had predeceased her – Benjamin order.
FACTS:
-
Testatrix’s son went missing in 1943 during a wartime bombing raid
and was certified by the Air Ministry as presumed to being dead.
-
The testatrix didn’t believe that her son was dead and left the residue
of her estate to trustees for the son’s benefit.
-
She stated that if he did not come forward to claim the property by
2020, the trustees were to establish a charitable foundation.
HELD:
-
The trustees applied to the Court and the Court gave them liberty to
deal with the estate and to distribute the property on the basis that the
son had predeceased the testatrix and more than 7 years had gone by.
•
The Civil Law (Presumption of Death) Act 2019.
-
Section 5: presumption of death if someone has gone missing in
circumstances which indicate that the death is virtually certain, the
Court may order that you are presumed dead at any time.
-
If you go missing in circumstances where your death is highly probably,
the Court can also make an order that you are presumed dead, after
one year.
•
English legislation: Presumption of Death Act 2014 continuing the Benjamin
order. There is a procedure for seeking a declaration that someone missing
for 7 years is presumed dead.
❖ Re Evans – missing beneficiary insurance policy.
-
Trustees should be encouraged to try and seek practical solutions to
deal with these kinds of issues at the expense of resorting to the Court,
and taking out a beneficiary insurance policy is a way of doing this.
Duty to keep accounts and provide information
•
Trustees are obliged to keep clear and accurate accounts.
•
Beneficiaries are permitted to have access to information relating to their
interest in the trust.
-
E.g. you might, as a beneficiary be entitled to information about the
current investments if you’re a current beneficiary.
-
However, if you’re only entitled to a remainder interest in the trusts, you
would only be entitled to information about capital transactions. You
would not be entitled to know what was currently being paid to the
existing beneficiaries.
❖ Chaine-Nickson v Bank of Ireland – potential beneficiary under a discretionary
trust entitled to copies of trust accounts and details of investments
representing trust funds.
FACTS:
-
Concerned a relatively small, family discretionary trust.
-
Plaintiff was one of a number of potential beneficiaries under a
discretionary trust and was looking for information about the
administration of the trust.
-
The defendants, the trustee, argue that in the case of a discretionary
trust, none of the potential beneficiaries were entitled as of right to any
information about the management of the trust.
HELD:
-
Kenny J: if the defendant’s argument were taken, its logical conclusion
would be that no-one would be entitled to any information about the
management of the trust, if it is a discretionary trust.
-
Stated that even where you are dealing with a discretionary trust,
potential beneficiaries are entitled to copies of the trust accounts and
details of investments representing the trust funds.
❖ Murphy v Murphy – entitled to ask for information as to the nature and value
of the trust property, the trust income, and as to how the trustees have been
investing and distributing it.
-
Concerned a large commercial trust.
-
Neuberger J drew a distinction between settlements under which he
was identified as a specific potential beneficiary and settlements under
which he was, along with the rest of the world, merely a potential
beneficiary.
-
Neuberger J agreed that in relation to the former type of settlement, a
potential beneficiary does have the right to ask the trustees for
‘information as to the nature and value of the trust property, the trust
income, and as to how the trustees have been investing and
distributing it’.
❖ Schmidt v Rosewood Trust Ltd
-
Lord Walker: Court may have to balance interests of beneficiaries,
trustees and third parties.
-
Disclosure may have to be limited and safeguards put in place.
-
Courts have to be careful to ensure that the trustees are not
overburdened with superfluous amounts of requests for information,
but equally, they must make sure that the administration of the trust
can be supervised by beneficiaries and ultimately the Court.
❖ Re Londonderry’s Settlement – trustees exercising a discretionary power are
not bound to disclose to the beneficiaries the reasons which motivate.
-
CoA: trustees exercising discretionary powers are not bound to
disclose the reasons for their decisions. Otherwise, trustees could not
do their job properly and would not be able to properly exercise their
confidential role.
•
David Hayton Conv 2005 P229: suggested that courts should insist on
pension trustees providing reasons for the decisions.
-
P236: refers to the fact that judges speaking extra-judicially have
expressed the view that the Londonderry settlement principle should
not be applied to pension trusts.
❖ Breakspear v Ackland – status of ‘wish letter’.
FACTS:
-
Status of wish letters concerned.
-
When you set out the terms of a trust in a trust instrument, you might
set out your wishes for how the trustees would do their job. It is not
binding.
-
The claimants in this case were looking for disclosure of a wish letter
that they knew existed to try and evaluate their future expectations
under the trust. But the trustees refused the request.
HELD:
-
Briggs J: the exercise by trustees of their discretionary powers is
essentially a confidential process.
-
Trustees need to be able to act in a confidential way and not be obliged
to always disclose reasons.
-
Stated that having made a decision about disclosure, the trustees were
not obliged to give reasons. Although they dud sim the Court would not
be prohibited from examining the rationality of those reasons. (Biehler:
this is counter-intuitive. If there are no reasons given for a decision,
how can we judge whether something is reasonable or rational?)
-
Regarding the wish letter, he made the point that it should be disclosed
but this was based on the circumstances that were before him. He
made the pint that the trustees were seeking Court sanction for a
scheme of distribution. In those circumstances, he would order the
disclosure of a wish letter. However, generally speaking, that isn’t
necessarily going to be the case.
Duty not to profit from trust
•
Someone who is in a fiduciary position such as a trustee is not entitled to
profit unless authorised to do so.
•
Remuneration and Expenses.
•
Position of Solicitor/Trustee – Rule in Cradock v Piper.
-
Rule/principle is designed to avoid solicitors engaging in unnecessary
litigation that might benefit them in a professional capacity.
-
Principle: if you are a solicitor and trustee and you’re acting for yourself
and your co-trustees in litigation, provided the costs of acting don’t
exceed the costs that you would have been incurred if you had just
been taken on to act for your co-trustees, you are entitled to be paid
these costs so you should not have to suffer just because you are a
solicitor.
-
Equally however, you shouldn’t be able to profit from it.
•
Purchase of Trust Property – Tito v Wadell (No.2).
•
Self-Dealing Rule.
-
Subject to some limited exceptions, the general rule is that trustees are
not allowed to buy trust property from themselves and their co-trustees
as they would effectively be both vendor or purchaser.
❖ Tito v Wadell (No.2)
o If a trustee sells a trust to himself, that sale is voidable by any
beneficiary, however fair the transaction.
o The beneficiary would have the option to take steps to have the
transaction set aside. They do not have to prove that the
transaction is unfair. It is voidable juts because of the
circumstances and the relationship between the vendor and the
purchaser insofar as they are they same person.
o Exceptions to this principle:
▪
Where the trust instrument expressly allows it, then you
would be allowed to buy trust property.
▪
The Court may sanction a purchase in a suitable case, it
would have to be convinced that this would be
appropriate.
▪
If all the beneficiaries are of a full age and capacity, and
they all agree to this course of action, then a trustee may
be allowed to buy trust property.
•
Fair-Dealing Rule.
-
Deals with a situation where a trustee is looking to buy trust property
from a beneficiary – trust property that has already been distributed to
a beneficiary rather than from the trust itself.
❖ Tito v Wadell (No.2)
o P241: if a trustee buys the beneficial interest of any of the
beneficiaries, the transaction isn’t voidable as it would be with
the self-dealing rule. However it can be set aside unless the
trustee can show that he has taken no advantage of his position
and has made full disclosure to the beneficiary and that the
transaction is fair and honest.
o There is a presumption of undue influence due to the nature of
the relationship. This presumption is rebuttable, with the onus
lying on the trustee to rebut this presumption and to show that
the transaction should be upheld.
❖ Smyth v Smyth – relevance of independent legal advice or duty to procure an
independent valuation?
•
Note that this case is based on its own facts, does not create a precedent that
would really be widely-used in this area.
FACTS:
-
The deceased gave a life interest in a piece of property to his brother
who was the defendant and one of the trustees, and gave a remainder
interest to his nephews, the plaintiff.
-
It was the plaintiff who suggested that the trustee buy out his remainder
interest. Note that this was instigated by the plaintiff.
-
The problem was that there had been no independent valuation.
-
Costello J made it clear that the onus of proving good faith in the
HELD:
transaction lies on the trustee, the uncle.
-
Stated that the defendant, the trustee, was not under any obligation to
procure an independent valuation and was not under any obligation to
ensure that the plaintiff had received independent legal advice.
-
The trustee had succeeded in rebutting the presumption of undue
influence. This was due to the fact that the beneficiary had instigated
the purchase, thus the trustee got off the hook.
Duty not to delegate
•
Confidence placed in abilities of particular individual appointed.
•
However, trustees may delegate in situations of legal necessity or moral
necessity.
-
Professional help may be needed – solicitor, accountant.
-
Where an ordinary, prudent man of business would employ an agent to
delegate his functions, a trustee would be entitled to delegate his
functions.
-
Virgo P425.
•
Provision may be made for delegation in trust instrument.
•
Section 11 of the Trustee Act 2000 (England) – a trustee may delegate except
in relation to how assets are distributed and the power to appoint trustees.
•
LRC Report [6.20] and [6.25] made recommendations in similar terms.
Powers of trustees
•
Trustee Act 1893 confers some basic powers but still largely dependent on
powers conferred by trust instrument.
•
Power of Sale – express or implied power.
•
Power of Maintenance – Recommendation of LRC [10.23].
•
What happens if the beneficiaries are under 18 years old?
-
Express provision is often made in a trust instrument empowering
trustees to apply the income of the trust property for a minor
beneficiary’s benefit.
-
LRC has recommended that existing powers should be extended.
There should be a general statutory power to apply trust income.
•
Power of Advancement – LRC [10.27], [10.30], [10.38].
-
Advancement is used to describe payments made out of trust capital.
-
Section 1 of Guardianship of Infants Act.
-
LRC felt that it is necessary to have a more comprehensive regime in
this area. They recommended the introduction of a statutory power to
advance capital. This may be problematic as you’re easing into the
trust capital.
-
LRC has also recommended the introduction of a statutory power to
advance capital.
❖ Re O’Neill - payment made out of the trust capital for the maintenance and
education of the testator's children but power should only be exercised where
it was really necessary.
Liability for breach of trust
•
Breach of trust occurs if the trustee fails to perform duties required or acts in
an unauthorised manner.
•
-
Making unauthorised investments.
-
Failure to distribute correctly.
-
Failure to exercise proper degree of supervision.
Breach of trust and breach of fiduciary duty (no conflict and no profit rules).
❖ Greene v Coady - ‘counsels of perfection cannot be applied to the decisions
of trustees’.
-
P396: Charleton J: in making any decision about liability, it is not for the
Court to be cleverer or better informed, or more astute or more
enquiring, or better in its judgement than the trustees. Stated that the
Court should avoid the temptation to listen to the evidence and make
its own conclusion as to what should have been done – don’t act with
the benefit of hindsight.
•
•
Where trustee acts in breach of trust.
-
Liable to make good loss to trust if caused by the breach.
-
If the trustee makes an unauthorised profit, he is to account for it.
Liability if personal, not vicarious.
-
Trustees are liable only in respect of breaches of trust that they
themselves commit, and not a breach of trust committed by their cotrustees.
•
-
There will be no indemnity where there is wilful default.
-
Inactivity can constitute sufficient grounds to impose liability.
Breaches before appointment.
-
General principle: you are not liable for a breach of trust committed
before your appointment unless there is evidence indicating that there
should be further investigation.
-
When you take over from someone else as a trustee, you should take
the necessary steps to ensure that the trust affairs are in order, that the
trust is being properly administered.
-
Investigated anything that causes you suspicious as if you don’t, you
may well end up being liable.
•
Breaches after retirement or death.
-
You could remain liable for a breach committed by you during your
term of office.
-
Your estate will remain liable after your death.
-
If the breach occurred at the time you were a trustee, it is reasonable
that you are liable. Your estate is also potentially going to be liable.
-
You might be liable if you retired in order to facilitate a breach of trust
that you foresaw would happen.
❖ Head v Gould – scope of liability of retiring trustee.
-
Establishes that to make a retiring trustee liable for breach of trust
committed by its successor, it has to be proved that the breach was not
merely the outcome of the retirement but was contemplated by the
former trustee when he retired.
-
The former trustee must be proved to have been guilty as an accessory
before the fact of the impropriety perpetrated.
•
Measure of liability – loss caused directly or indirectly by the breach of trust.
-
If a breach consists of a trustee making an unauthorised investment,
the liability, the measure of damages, will be the loss incurred by the
trust in selling whatever that is an investment.
-
If the trustees improperly retain an unauthorised investment for a
period of time, they would be liable for the difference between the price
that the property would have fetched if it was sold which it should have
been, at the price actually received for it.
❖ Fry v Fry – unauthorised investment.
-
English case from 1850s.
-
Testator made a direction that a piece of property, a roadside inn,
FACTS:
should be sold as soon as convenient, after his death. There was an
explicit instruction to sell this property.
-
The trustees refused an initial offer of 900 pounds at the time.
-
Over years, the value of the property decreased.
-
26 or so years after the testator’s death, the roadside inn has still not
sold. The trustees had died in the meantime.
HELD:
-
The estates of the trustees who had died in the meantime were liable
for the difference between the original offer, the 900 pounds, and the
amount of the proceeds of the sale which the Court directed should
take place.
-
Shows that your estate can be liable even after you die, for any breach
of trust you have committed.
-
Also shows the measure of liability between the price that was offered
at the time when the sale should have happened, and the much lower
amount that the property ended up being worth.
❖ Target Holdings – liability to make good a loss caused by the breach – need
for causal connection.
-
Lord Browne Wilkinson: talked about equitable compensation for
breach of trust being designed to achieve exactly what the word
‘compensation’ suggests. To make good loss suffered by the
beneficiaries caused by the breach, there is a need for a causal
connection.
-
Stressed that there has to be this causal connection between the
breach of trust and the loss to the trust estate.
-
Trustees will not be required to compensate for a loss that would have
occurred in any event, even if there had been no breach of trust.
-
The HoL in this case, accepts that a loss had been suffered and it was
attributable to an inadequate security being provided.
-
It was also satisfied however that this loss was not attributable to the
trustees. There was no liability as there was a lack of a causal
connection between the loss suffered and the actions of the trustees.
❖ AIB Group – compensatory analysis - to require trustee to restore trust fund to
position would have been in if trustee had performed obligation – loss must be
caused by breach.
-
Compensatory approach also applied in this case.
-
P154 of the appeal case, Lord Reid makes it clear that the model of
equitable compensation where trust property is misapplied is a
compensatory model. It requires the trustee to restore the trust fund to
the position it would have been if the trustees had performed their
obligations.
-
Foreseeability of the loss if generally not relevant, but the loss must be
caused by the breach of trust.
-
Held that the claimant bank was entitled to compensation for loss as it
was caused by the defendant’s breach of duty.
Liability of trustees inter se
•
Liability is personal not vicarious but default by doing nothing may amount to
a breach of trust.
-
If you have two or more trustees involved in a breach of trust. The
liability is joint and several. This means that any or all of them are liable
for all of the loss, although they may not all have been equally
blameworthy.
-
As a trustee, if you are found to be personally liable, you may end up
being liable for the entire loss, even if your part was to do nothing.
•
Liability is joint and several – see Bahin v Hughes.
FACTS:
-
The testator gave a legacy to three daughters as trustees to pay the
income to the plaintiff for her lifetime and then after her death to her
children.
-
One of the trustees, one of the daughters and the husband of another,
affected an unauthorised investment and the security proved
insufficient. There was an issue about whether liability could be
imposed on the trustees.
HELD:
-
CoA held that the trustees were jointly and severally liable. All of them
were equally responsible for indemnifying beneficiaries in that situation.
-
Cotton LJ: the money had been lost just as much as a result of the
default of the inactive trustees. ‘by the innocent though erroneous
action of their co-trustee’.
-
All trustees are equally at fault in this situation where they exercise an
inadequate degree of supervision. Not saying that there is vicarious
liability, saying that they are all personally liable.
o This may be significant in cases where one of more of the
trustees have assets and the others do not.
•
Key points to take from Head v Gould:
1. You can be made personally liable for a breach of trust where you
have done nothing, but you have sat back and exercised
inadequate supervision.
2. If you are the only trustee who has assets, you could end up footing
the entire bill as liability for breach of trust is joint and several.
•
Circumstances where a trustee may be entitled to an indemnity:
1. Head v Gould – whether exercising controlling influence?
-
If you can show that someone like a solicitor is exercising a controlling
influence that would provide grounds for an indemnity for the trustees.
2. Fraud – if trustee(s) acts fraudulently.
-
If you are acting as a trustee, it is reasonable to assume that if one of
your co trustees is acting fraudulently, they're covering their tracks
-
You may be acting in a perfectly reasonable manner and exercising
due care and diligence, but not realise that there was fraud going on.
3. Re Pauling’s ST – whether trustee can establish a valid request or consent by
the beneficiary.
-
If the beneficiaries are either actively or sometimes impliedly instigating
the breach of trust or acquiescing sometimes in a breach of trust it may
be possible to claim it indemnity.
-
But it's important that in a situation where you're trying to rely on this
principle that the beneficiaries of full age and capacity and he must
have participated in or consented to the breach of trust freely with full
knowledge.
-
There has to be informed consent and capacity.
❖ Illustrated in Re Pauling’s ST
-
Establishes the principle that it is possible to obtain an indemnity in
some cases.
FACTS:
-
Concerned a marriage settlement. The trustees had made a number of
advancements to the children of this marriage with their mother's
consent. And although the money was nominally paid to the children,
the mother was pulling the strings behind what was going on here.
-
There were a number of children. After all this money had been paid
out, they realised that there was the possibility of suing the trustees for
breach of trust.
HELD:
-
In the case of some of the children where they had already reached the
age majority and where they had requested money be paid out, the
Court said the trustees should not be liable. In other words, they had
consented or more actually requested the breaches of trust and so they
couldn't sue the trustees.
-
But in the case of some of the children where they hadn't reached the
age of majority, that was not the case.
-
In certain circumstances where a beneficiary either takes the active
step of requesting something that's a breach of trust, or acquiesces in it
where they are a full age capacity and where they know what they're
doing, it can be taken as providing an indemnity to the trustee.
Exemption clauses
English case law:
❖ Armitage v Nurse – Millett LJ
-
Clause would exempt a trustee from liability ‘no matter how indolent,
imprudent, lacking in diligence, negligent or wilful he may have been,
so long as he has not acted dishonestly’.
-
Widely held view that exemptions clauses have gone too far.
❖ Spread Trustee Co Ltd v Hutcheson
-
Majority agreed with Millett LJ’s conclusion in Armitage.
-
Privy Council: common law position that applies in England is that you
can have an exemption clause going as far as extending liability for
gross negligence.
-
Baroness Hale – not an eccentric or unusual view to find that exclusion
for gross negligence is repugnant to the nature of the trust.
Position in Ireland:
❖ Greene v Coady – Charleton J
FACTS:
-
Plaintiffs were the potential beneficiaries of a company pension fund
who were claiming damages for breach of trust against the trustees for
accepting an offer from the company to close its liability to contribute to
the fund.
-
The claim made by the plaintiffs was that the trustees failed to try and
get a higher sum to be paid by the company into the pension fund.
-
They claimed that the conduct of the trustees amounted to wilful
default.
-
There was an exemption clause in this trust that would protect trustees
for anything other than wilful default.
HELD:
-
Plaintiff’s claim dismissed.
-
The decision of the trustee was not one with which any Court could
take issue and was within the range of what was reasonable.
-
P444-445: ‘[i]t is always possible for a trust deed to provide in advance
for exemption from anything except the core obligation of trustees to
exercise fidelity to the objects of the trust … through acting honestly
and objectively and in good faith’.
-
Provided trustees have acted honestly and in good faith, they may take
advantage of an exemption clause.
•
English and Irish LRC Proposals:
-
Liability for breach of ‘irreducible core obligations’ may not be excluded
and should not be possible to absolve from liability in relation to duty to
act honestly and in good faith.
-
Trustees should be relieved of liability where they have acted honestly
and reasonably and ought fairly to be excused.
•
Virgo Ch17:
-
Looks at the parallels with contract law.
-
States that this parallel would not really hold up as we need to look at
who is involved here, and who is protecting the interests of
beneficiaries.
-
It may be important in inducing a trustee to take on the responsibility
that they can rely on an exemption clause.
•
Biehler:
-
Reasonable to draw a distinction between the role taken on by
professional and non-professional trustees. When it comes to nonprofessional trustees, it is probably reasonable to allow an exemption
clause to be relied upon as otherwise no trustees may be prepared to
do the job.
-
As suggested by Armitage, it is questionable that professional trustees
should be allowed rly on exemption clauses.
Variation of trusts
•
At all stages, it is possible to vary the terms of a trust without Court approval
in accordance with the rule in Saunders v Vautier.
❖ Saunders v Vautier
-
The testator had left property to accumulate until the beneficiary
reached the age of 25 and decided it was actually directed in the trust
that all he was entitled to was to be paid some income until he was 25.
-
When the beneficiary reached the age of 21, which was the age of
majority, he successfully claimed that he was entitled to wind up the
trust.
-
In practice, if any one or more adult beneficiaries are of sound mind
and entitled between them to the entire beneficiary interest, they can
wind up the trust. They can direct the trustees to transfer the trust
property to them and put an end to the trust.
•
Circumstances where variation may be sanctioned by court.
-
Where unborn or minor beneficiaries (they will be unable to or lack the
capacity to consent).
-
To avoid destruction of, or ensure preservation of, trust property
(known as ‘emergency or salvage’ jurisdiction).
-
To effect a compromise of disputes as between the claims of various
beneficiaries (legislation introduced in England to address
consequences of narrow interpretation of this jurisdiction).
Variation of trusts – statutory intervention
•
Ss 23 and 24 of Land and Conveyancing Law Reform Act 2009.
-
Statutory mechanism for approving variations of the terms of a trust.
-
Application by ‘appropriate person’ - includes trustee or beneficiary.
-
May approve arrangements for a ‘relevant person’ (with a vested or
contingent interest who is incapable of consenting).
-
‘Arrangement’ may include varying, revoking, enlarging, or restricting
powers of trustees.
-
Requirement of notice in writing to Revenue Commissioners.
o There is a potential for abuse. E.g. if the law changes in relation
to tax, it may be tempting to vary the terms of a trust to take
advantage of that change.
Application of Section 23 & 24 of the 2009 Act
❖ W. v M.
•
In W. v M. two judgments were delivered in circumstances where it was
necessary to submit an amended scheme of arrangement.
FACTS:
-
Concerned a situation where there was a trust, the proceeds of a life
insurance policy, and the children were beneficiaries. One of the
children had died and the widow of the child who had died was still
paying some of the premium into this life insurance policy.
-
The father had died, and the mother lacked the capacity to consent to
any variation.
-
It was necessary to apply to the Court to vary the terms of the trust to
ensure that the widow would get a pay-out at the end of the day.
HELD:
-
Laffoy J made an order approving a scheme of arrangement pursuant
to Section 24(4) of the Act of 2009.
-
The plaintiff, as personal representative of a deceased beneficiary, was
an ‘appropriate person’ within the meaning of Section 23.
-
However, the judgments of Laffoy J in W. v M. illustrate that some
flexibility may be necessary if the legislation is to function effectively,
particularly where, as here, a beneficiary is incapable of assenting to a
variation.
Problem question
Mark, Chris and Sarah are the trustees of a trust established by a testator for the
benefit of his niece, Anne. At the time the trust came into effect in January 2009,
Anne was six years old and the trust assets were a house and €200,000 in cash.
Provision was made in the trust instrument for the payment of monies to Anne each
year for her maintenance until she reached the age of 18. At all stages Sarah has
taken no active part in the management of the trust and has consistently told the
other trustees that she has no interest in its affairs. Mark has tried to take an active
role in the management of the trust but has frequently been told by Chris “to leave
things to him” as the latter is a professional financial consultant.
In February 2009, the trustees put a caretaker into possession of the house, which
was then worth about €500,000, and while they have ensured that all essential
maintenance work has been carried out, no attempt has been made to let the house
in the intervening years. Mark and Chris agreed to use €100,000 of the cash to
support Anne in the form of maintenance payments between 2009 and 2021. The
terms of the trust gave the trustees full power to invest “in or upon such investments
authorised by law” and Chris persuaded Mark to agree to invest the other €100,000
in a number of speculative mineral exploration ventures which have led to substantial
losses being sustained by the trust. By February 2021 the house is still worth about
€500,000 but the other trust assets left are only worth €10,000.
Advise Mark, Chris and Sarah.
•
Three trustees. Situation where a single beneficiary, Sarah, took no active
part in the management of the trust. One of the trustees took n active part in
the management of the trust. Mark was trying to do the right thing. And Chris,
made a lot of the decisions as he had professional capacity as a financial
consultant.
Introduction:
•
There is a limited statutory framework in Ireland, and there is some useful
material in the trustee Act of 1893.
•
There is a much more extensive legislative background in England in their
Trustee Act 2000, which includes a statutory duty of care.
•
Best case to look at in terms of general principles in Ireland is Greene v
Coady: trustees have to pursue the aims of the trust honestly and in good
faith, it is not for the Court to effectively be better in its judgement ‘counsels of
perfection cannot be applied to the decision of trustees’. The Court has to
avoid the temptation to listen to the evidence and make its own conclusions in
hindsight.
•
Important to make clear that when you take over as a trustee, you ascertain
the nature and extent of powers, and you understand what powers you do and
don’t have, and id there is any reasonable doubt as to what you powers entail,
seek professional advice.
-
Not necessary with this problem question scenario.
Investment issue:
•
Mention at the outside what is authorised by the trust instrument and by
statute. Follow this by stating, as per O’Connor, that however unlimited the
power of investment may be, the trustee does remain subject to the
jurisdiction of the Court.
-
In O’Connor, Lord O’Connor said that the trustee has no power to act
dishonestly, negligently. (Unless there’s an exemption clause or in
breach of trust).
•
The fact that an investment is authorised either by the instrument or by
legislation does not absolve a trustee from responsibility to use ordinary
prudence.
•
Stacey v Branch is important in this jurisdiction as we have no statutory duty
of care. A lot of the principles which derive from the English case law. Idea of
using the care that a prudent businessman would take in making investments
for people he was morally obliged to provide for comes from Learoyd v
Whiteley.
•
Wide discretion given to the trustees in Stacey v Branch. Murphy J stated that
there was a lot of emphasis placed on that discretion. He was also satisfied
that the trustees had acted in a bona fide way. Bear in mind that the decision
was made on the basis that the trustees had been acting in good faith.
Lack of initiative issue:
•
House was sitting idle for these years. House did not make money for the
trust.
•
Nestle v National Westminister Bank: preserving the trust assets should take
priority.
-
Frustration of CoA: no testator would choose this bank for the effective
management of his investment.
-
Kenny: it is a sad reflection on the present state of trust law that a bank
that no testator would choose for the effective management of his
investment should be found not liable.
-
Bartlett v Barclays Bank Trustee Co Ltd: situation where the trustees
were acting to do their best, in good faith, but were held liable as they
got involved in a scheme that was risky and didn’t wok out. Distinct to
Nestle where trustees were not doing their best, did not take any risks
and did not lose money. However, they also did not fulfil the potential of
the trust and were in turn, in fact reward for this.
•
If a default is due to lack of initiative (as in Nestle and Stacey v Branch),
rather than speculative investment decisions (as in Bartlett v Barclays Bank
Trustee Co Ltd), it is difficult to succeed in establishing a breach of trust.
•
Could try convince the Court that putting the caretaker in charge of the house
in this scenario, as occurred in Stacey v Branch, was a bona fide action. If the
trustees can convince the Court that they were acting in good faith and did
ensure that all essential maintenance was carried out, even though they did
not get any rental income that might have contributed towards the
maintenance and preserves the assets more, it is likely there will be no
liability.
Speculative investments:
•
Even if the motives of the trustees were of good faith, it is likely that they will
be liable for a breach of trust.
•
Necessary for courts to take the approach in Nestle and Stacey as they need
to avoid speculation. Hard to get a right balance.
Liability issue:
•
Measure of liability is the loss caused to the trust, which may be caused by an
unauthorised investment, or may be by failing to exercise reasonable care
and prudence.
•
The speculative investment here was a breach of trust.
•
Taking risks, even in good faith, is likely to be penalised, as per Bartlett.
•
Key authority is English authority, Target Holdings and AIB Group cases.
•
There is a liability to make good any loss suffered by the beneficiary, which
using hindsight and common sense was caused by the breach.
•
Key thing about liability in this context is that there has to be a causal
connection between the breach of trust and the loss caused to the trust
estate.
-
As per AIB Group, the loss must flow directly from the breach of trust.
•
Causal connection is established here.
Liability of the trustees amongst themselves:
•
Basic principle: liability for breach of trust is joint and several. Each trustee is
liable in respect of the whole loss, although they may not be all equally
blameworthy.
•
Bahin v Hughes: all equally responsible for indemnifying the beneficiaries.
•
For Sarah in this problem question, she is probably equally liable. Her breach
of trust was a failure to act with an adequate supervision of her co-trustees.
•
Chris was possible exercising a controlling influence.
•
Head v Gould: clear that there is no rule that someone is bound to indemnify
the co-trustees merely because they are a professional.
•
Mark could argue that he is entitled to an indemnity from Chris. He would
have to demonstrate that Chris was exercising a controlling influence. It is
possible that Mark could escape liability.
•
Courts do not distinguish between active and passive trustees. You are either
liable or not. Either entitled to a full indemnity or not.
•
If all three trustees have assets, they’re all likely to be liable for EUR30,000
each. EUR90,000 is the loss. EU100,000 only ended up being worth
EUR90,000.
•
Most likely outcome is that all are liable.
•
Anne and her EUR100,000 is a non-issue.
Injunctions
Introduction
•
Damages as a remedy was often inadequate or inappropriate.
•
Types of Injunction:
•
-
Prohibitory - restrains performance or continuance of a wrongful act.
-
Mandatory - has effect of requiring performance of an act.
Further classification - interim, interlocutory (prior to trial) and perpetual
injunctions (determination of issues).
General Principles
❖ B.S. v Minister for Justice and Equality [2020] IEHC 401 at [45] Humphreys J
stated that an injunction should be available ‘in any case where this is
appropriate to prevent injustice’. See also [54] (ii) – (iii).
-
States that the situations in which injunctions may be granted are not
set in stone. It is a dynamic remedy that can evolve to meet the needs
of changing circumstances.
•
Discretionary nature of injunctions as a remedy:
-
A plaintiff may establish the infringement of a right and a prima facie
entitlement to relief but may still be denied this relief on discretionary
grounds.
•
Difficulty in quantifying damages as a remedy can be seen in:
❖ Curust Financial Services Ltd
-
Finlay CJ – ‘difficulty, as opposed to complete impossibility, in the
assessment of … damages should not, in my view, be a ground for
characterizing the awarding of damages as an inadequate remedy.'
-
Plaintiff was looking for an injunction to prevent the alleged breach of
an exclusive licencing agreement.
-
Court said that the loss that might be caused to the plaintiff if no
interlocutory injunction was granted was an exclusively commercial
loss in a stable market.
-
The Court concluded that the damages were an adequate remedy and
that an interlocutory injunction should be refused.
•
Conduct of the Parties:
❖ Argyll v Argyll – clean hands – necessary connection with relief.
-
Importance of showing causal connection between the misconduct and
the remedy that is being sought.
-
The cleanliness required is to be judged in relation to the relief that is
sought.
-
The plaintiff’s alleged immorality did not deprive her of an entitlement to
look for an injunction in relation to an alleged breach of confidence by
her husband.
❖ Chappell v Times Newspapers – he who seeks equity must do equity.
-
Lord Denning: if the employees wanted to get an injunction, they had to
make an undertaking to the Court that they would not engage in
disruptive industrial action in the future.
• Laches and Acquiescence.
-
Laches comprises two elements, length of delay and additional factors
such as prejudice.
-
Acquiescence relates to conduct from which it can be inferred that the
plaintiff has waived his right to complain.
❖ Shaw v Applegate
-
Example of how acquiescence may bar a claim to the remedy of an
injunction but not bar a claim to a remedy in damages.
FACTS:
-
Defendant had bought property and covenanted not to use it as an
amusement arcade. The vendor subsequently assigned the benefit of
the covenant to the plaintiffs.
-
Several years after the defendant had set up the amusement arcade
equipment, the plaintiff sought an inunction to restrain the breach of
covenant.
HELD:
-
The Court (dubiously) held that the plaintiffs had not been clear as to
whether the defendant’s activities had amounted to a breach of
covenants. It could not be said that the plaintiffs would be acting
unconscionably in seeking to enforce their rights.
-
Court held that given the lapse of time and the goodwill built up by the
defendants over this period of years and the expenditure they incurred,
the Court held that the appropriate remedy would be damages, not an
injunction.
-
By not acting more promptly, the party had effectively waived its right to
get a remedy of an injunction which may have been preferable.
Awarding damages – Lord Cairns’ Act
❖ Shelfer v City of London Electric Lighting Co. - Smith LJ laid down general
principle that damages should only be awarded in lieu of an injunction or
specific performance in specified circumstances.
-
Case involving nuisance relating to excavation work that was being
carried out.
-
At first instance, the judge held that although the defendants had
created a nuisance, damages was an appropriate remedy.
-
The injunction was then granted in the Court of Appeal.
-
Smith LJ stated that damages should only be awarded in lieu of an
injunction or specific performance or any such equitable remedies in
certain limited circumstances.
-
If the injury to the plaintiff’s legal rights is small, and if it’s one that is
being capable of being estimated in monetary terms, and if it’s one that
can be adequately compensated by a small monetary payment, and if it
would be oppressive to the defendant to grant an injunction, then
damages may be awarded in lieu.
-
He went on to say however that even where these principles are
satisfied, an injunction may still be awarded if the defendant has acted
‘in reckless disregard of the plaintiff’s rights’.
-
Lindley LJ stated that it would be wrong to allow some kind of nuisance
to continue simply because the wrongdoer is able and willing to pay for
the injury he may inflict.
❖ Kennaway v Thompson - applied Shelfer principles.
-
Plaintiff was looking for an injunction to restrain powerboat racing on a
lake near her house.
-
The CoA held that the Shelfer principles applied and awarded her an
injunction.
-
They went through the principles and held that the injury to the plaintiff
was not small, and was not capable of being estimated in monetary
terms, nor could the sum that had been awarded by the High Court
who had decided to award damages of a small payment.
• Good example of a rigid application of the Shelfer principles.
❖ Lawrence v Fen Tigers Ltd - reservations were expressed about the
application of the Shelfer principles.
-
Lord Neuberger: the approach should be more flexible. A mechanical
application of the test of the Shelfer principle was not appropriate. He
expressed that he thought it was wrong in principle and may give rise
to a serious risk of injustice.
-
Stated that the Court’s power to award damages in lieu of an injunction
is a classic exercise of discretion, and such discretion as a matter of
principle, should not be fettered.
-
Lord Sumption: the decision in Shelfer itself was out of date and it was
unfortunate that it had been followed so slavishly.
Position in Ireland:
❖ Patterson v Murphy - leading Irish authority in this area.
-
Costello J: applied the Shelfer case word for word.
• However this is an old case from the 1970s so the approach in Lawrence v
Fen Tigers Ltd will probably be followed in the future in this jurisdiction.
The rigid Shelfer approach of restricting how discretion is exercised is not
really appropriate in a modern application of equitable principles.
Interlocutory injunctions
• Aim of Interlocutory Injunctions – preserving status quo.
❖ American Cyanamid Co. v Ethicon Ltd – English case
-
Involved a scenario where the plaintiff was looking for an interlocutory
injunction to restrain the defendant from marketing surgical products in
an alleged infringement of the plaintiff’s patent law.
-
Lord Diplock set out a modified test which required a plaintiff to show:
1. That the claim is not frivolous or vexatious, in other words that there
was ‘a serious question to be tried'.
2. Where this was established, the Court had to go on to consider the
balance of convenience (key role of adequacy of damages).
• Principles approved in Irish case of Campus Oil Ltd v Minister for Industry
and Energy (No.2) (fair question to be tried) and Westman Holdings Ltd v
McCormack.
❖ Campus Oil Ltd v Minister for Industry and Energy (No.2)
FACTS:
-
Concerned an application for an interlocutory injunction of a mandatory
nature.
-
The plaintiff claimed a declaration that the obligation imposed on it by a
statutory to buy a specified portion of oil supplies from a state-owned
refinery was contrary to various provisions of the then EEC Treaty.
-
Issue was referred to the ECJ.
-
Defendants sought an interlocutory injunction to compel the plaintiff to
comply with the terms of the order.
HELD:
-
O’Higgins CJ of the SC: upheld the order made by Keane J of the High
Court and said that the Court has to do what the House of Lords said in
asking whether or not there is a fair question, a bona fide question to
be tried. Once it has been shown that there is a bona fide question to
be tried, the Court has to go on to consider other factors involving the
balance of convenience.
❖ Westman Holdings Ltd v McCormack
-
Useful in looking at how the issue of the adequacy of damages plays a
significant role in the second part of the test – the question of where
the balance of convenience lies.
FACTS:
-
The plaintiff was looking for an injunction to prevent the defendants
from picketing their premises. (Note that recently, legislation re trade
disputes have come into effect here).
HELD:
-
However, looking at general principles, it was held by the SC that an
interlocutory injunction should continue until the trial of the action.
-
Finlay CJ stated that while the loss that would be suffered by the
plaintiff if they were refused an injunction, but it subsequently
succeeded at the trial, would be an exclusively financial loss.
-
The combination of the inability on the part of some of the defendants
to pay damages, and the potential immunity from liability of the trade
union, made it improbable that the plaintiff would, if they were refused
compensation, be able to obtain compensation.
-
Effectively stating that the plaintiffs were in a better position to
compensate the defendants if the wrong decision was made at the
interlocutory stage.
• Good example of how the adequacy of damages and the likelihood of
compensating one side or the other can play a very significant role in
making the decision at the interlocutory stage.
❖ Merck Sharp and Dohme - established principles should not treated as
though laying down strict mechanical rules for the control of future cases.
-
O’Donnell J: the principles set out in American Cyanamid Co. are a
valuable guide, but should not be approached as though they were
laying down strict mechanical rules for the control of future cases.
-
It is important that discretion as to this matter should not be unduly
fettered.
Test for interlocutory injunctions
•
Whether serious or fair question to be tried?
❖ Chieftain Construction Ltd v Ryan -any evaluation of plaintiff’s prospects of
success must necessarily involve consideration of both utility and strength of
the points being put forward.
-
Once the serious or fair question to be tried has been established, the
courts have to resist the temptation to look too closely at the merits of
the case.
-
At the preliminary stage, it is appropriate to look at the strength of a
plaintiff’s case, but perhaps not as we go forward to the second stage
in the process, weighing up where the balance of convenience lies.
❖ Metro International SA v Independent News and Media plc
-
Clarke J: whether the criteria are viewed as single test of balance of
convenience of which adequacy of damages is a potentially significant
part or as two separate tests is ‘more a matter of semantics than
substance’.
❖ Merck Sharp & Dohme
-
O’Donnell J: the preferable approach is to consider adequacy of
damages as part of the balance of convenience.
-
States that in his view, while the question of adequacy of damages to
either party and the capacity of the parties to pay damages is often the
largest element in the balance of convenience and is often decisive,
there may sometimes be other factors which are relevant, such as
preserving the status quo or seeking to preserve the status quo in
terms of the parties’ rights.
Summary of test
•
Is there a serious or fair question to be tried?
•
Where does the balance of convenience lie? The first and main issue in
considering this is the adequacy of damages.
•
If damages will be an adequate remedy and the defendant has assets, the
balance of convenience will almost inevitably favour rejecting the application
for the interlocutory injunction.
•
If damages will not be an adequate remedy, consider further where the
balance of convenience lies (may favour granting injunction to preserve
rights).
•
In such cases the court must weigh one need against the other. The factors
will vary from case to case and may include seeking to preserve the status
quo in terms of the parties’ rights.
Summary of the test
•
Is there a serious or fair question to be tried?
•
Where does the balance of convenience lie? The first and main issue in
considering this is the adequacy of damages.
•
If damages will be an adequate remedy and the defendant has assets, the
balance of convenience will almost inevitably favour rejecting the application
for the interlocutory injunction.
•
If damages will not be an adequate remedy, consider further where the
balance of convenience lies (may favour granting injunction to preserve
rights).
•
In such cases the court must weigh one need against the other. The factors
will vary from case to case and may include seeking to preserve the status
quo in terms of the parties’ rights.
Circumstances in which departure from the Cyanamid test is justified
•
Cyanamid principles are only guidelines and there are circumstances where
departure from them is justified:
1. Where an interlocutory injunction is sought in the context of a trade
dispute.
2. Where an interlocutory injunction is sought in proceedings for defamation.
3. Where the trial of the action is unlikely.
1. Trade disputes
❖ Westman Holdings Ltd v McCormack - clear that common law position
favoured the employer where proceedings brought seeking to restrain
picketing by means of an interlocutory injunction.
•
An Employer could usually establish that the balance of convenience favoured
the preservation of status quo.
•
Section 19(2) of the Industrial Relations Act 1990 has qualified the effect of
common law principles.
Effect of s.19(2) of Industrial Relations Act 1990
-
The onus on the plaintiff to establish that a fair question to be tried.
-
Then, the onus is on the defendants to establish a fair case that they were
acting in furtherance or contemplation of a trade dispute.
-
If the defendants can do this, the interlocutory injunction will not be granted.
-
If they cannot, the Court will go on to consider whether the balance of
convenience favours the grant of an injunction as it would in other cases (this
is likely to favour the employer).
•
Section 19 is quite significant as it allows employees to be in a position that if
they can show that they’re acting in furtherance of contemplation of a trade
dispute, they will succeed at the interlocutory stage which they would never
have done before.
Application of s.19(2) of Act of 1990
•
S. 19 can only be availed of if other provisions in the Act were complied with.
❖ G. & T. Crampton Ltd -- strict approach was applied to application of s. 19(2).
-
The Court held that no effective secret ballot was being carried out.
-
This was a precondition to operation of s.19(2) as it had not been
compiled with effectively.
-
An interlocutory injunction was granted against the people doing the
picketing.
❖ Dublin City Council v TEEU – more flexible approach.
-
Laffoy J held that the conditions to application of s.19(2) were complied
with.
-
Union had established fair case that acting in contemplation or
furtherance of trade dispute, thus, no interlocutory injunction was
granted.
2. Defamation proceedings
•
More onerous task faces plaintiff seeking to restrain publication of alleged
defamatory material and there has been a reluctance to interfere with the right
to freedom of expression.
•
Defendant may intend to plead a variety of defences at trial.
❖ Reynolds v Malocco - unusually, an injunction was granted.
-
Kelly J referred to American Cyanamid Co. v Ethicon Ltd and stated
that the guidelines have a wide but not universal application.
-
Stated that in a defamation case, in order to obtain an interlocutory
injunction, a plaintiff has to show not merely that he’s raised a serious
issue, but also that there is no doubt that the words are defamatory.
-
Furthermore, if the defendant intends to plead the defence of
justification (truth), or any other recognised defence, an inunction
would be refused. However this matter is complicated, and the Court
needs to be careful in weighing up the significance of the fact that the
defendant is going to plead a defence.
-
It is not enough to make a broad statement of intent to plead defence,
the Court has to delve into the evidence supporting that defence to
assess its prospects of success.
-
In this case, the defendant did not demonstrate the prospect of making
a defence.
•
The injunction was granted.
Cogley v RTE – application for interlocutory injunction refused.
-
‘Clear case’ meant where it is obvious that the plaintiff would succeed
and where it was equally clear that none of the possible lines of
defence open to a defendant could reasonably succeed.
-
Key issue is to achieve the correct balance between encouraging
public debate and protecting the reputation of an individual.
•
Effect of s. 33 of the Defamation Act 2009 examined in Philpott v Irish
Examiner where Barrett J states that the Court must be of the opinion that the
statement is defamatory.
❖ In Gilroy v O’Leary – Allen J concluded that the threshold under s. 33 is the
same as that applied at common law.
Where trial of the action is unlikely to take place
❖ N.W.L. Ltd v Woods
-
Lord Diplock sets out test where a grant or refusal of an interlocutory
injunction will have the practical effect of putting an end to the action.
As where the harm that would have been caused to whichever party
loses is effectively complete or couldn’t possibly be compensated.
-
In such cases, the degree of likelihood that the plaintiff would have
succeeded in establishing his right to an injunction if the action had
gone to trial is a factor to be brought into the balance.
❖ Cayne v Global Natural Resources plc - ‘balance of the risk of doing an
injustice' better described the process.
FACTS:
-
Plaintiffs were shareholders and they were looking for an interlocutory
injunction to prevent the defendants, the company, from implementing
a merger agreement and from proceeding with the allotment of shares
prior to the company’s impending AGM.
-
If the injunction were granted, the balance of power in the company
would remain the same, until after the crucial vote was taken, so the
plaintiffs would get what they wanted.
-
If the injunction was refused, the votes of the new shareholders would
ensure that the plan of the directors succeeded.
-
The decision made at the interlocutory stage would thus determine the
outcome of the case.
HELD:
-
Held that in a case such as this one, where the refusal of the injunction
will effectively dispose of the action in favour of whichever party is
successful – ‘the balance of the risk of doing an injustice’ better
describes the process.
-
In these circumstances, it would not have been appropriate to apply the
American Cyanamid guidelines which were based on the assumption
that a trial would effectively determine the issues.
-
Also stated that in general, it would be an injustice to grant an
injunction at the interlocutory stage if this effectively precludes a
defendant from having the opportunity of having his rights determined
at a full trial.
-
There may be cases where the plaintiff’s evidence is so strong that to
refuse an injunction and to allow the case to trial would be an
unnecessary waste of time an expense and would do an overwhelming
injustice to the plaintiff.
❖ Jacob v Irish Amateur Rowing Union Ltd - whether plaintiff’s case on the
evidence was so strong that to refuse an injunction would constitute an
injustice? No.
FACTS:
-
Plaintiff was a rower, and he sought an interlocutory injunction
restraining the defendant from preventing him from competing at a
regatta that was due to take place.
-
He wanted to qualify for the Olympics, and this was his last remaining
opportunity to meet the qualifying standards.
HELD:
-
Laffoy J: held that due to the nature and the effect of the order, if it was
granted, it was very much a case of balancing the risk of injustice.
-
She held that the best that the Court could do in a case like this was to
consider the question posed in the Cayne case.
-
She said you have to ask as to whether the plaintiff’s case on the
evidence is so strong that to refuse an injunction would constitute an
injustice.
-
In her view, it was not possible to conclude that the plaintiff’s case was
so strong when looking at the balancing of the risk of injustice.
-
The request for an interlocutory injunction was refused.
Mandatory injunctions
•
Courts are more reluctant to grant mandatory injunctions.
•
Mandatory injunction compels a defendant to do something.
❖ Shepherd Homes Ltd v Sandham – ‘high degree of assurance’ test in relation
to mandatory interlocutory injunctions.
-
Court stated that the case has to be unusually strong and clear, and
the Court needs to be able to feel a high degree of assurance that it will
appear at the trial that the injunction was correctly granted.
-
Case involved an application by the plaintiff who was developing a
housing estate, and the plaintiff was looking for an interlocutory
injunction at a mandatory stage to compel the defendant to pull down a
fence that had been put up in breach of covenant.
-
Injunction was refused.
❖ Films Rover International Ltd - more flexible approach - greater risk of
injustice test.
-
Hoffman J held that this high degree of assurance test does not have
to be satisfied in every case before an interlocutory injunction of a
mandatory nature is granted.
-
Where withholding such an injunction would carry with it a greater risk
of injustice than granting it, even where the Court does not feel a high
degree of assurance about the plaintiff’s likelihood of success at trial,
there can be no rational basis for withholding the injunction.
❖ National Commercial Bank Jamaica Ltd - unified test - whichever course
seems likely to cause the least irremediable prejudice to one party or the
other.
-
Lord Hoffman: at a level of principle, there is no reason to think that if
you go back to American Cyanamid Co. v Ethicon Ltd, Lord Diplock
was intending to confine the statements he made to injunctions of a
prohibitory nature.
-
Stated that in both cases, the underlying principle is the same – the
Court should take whatever course seems likely to cause the least
irremediable prejudice to one side or the other.
-
In practise, the features that ordinarily justify an injunction as
mandatory, are much more likely to cause irremediable prejudice than
in cases where the defendant is merely being prevented from doing
something.
This jurisdiction:
•
Two different approaches taken in Ireland - A. & N. Pharmacy Ltd v United
Drug Wholesale Ltd / Boyhan v Tribunal Of Inquiry into the Beef Industry
❖ A. & N. Pharmacy Ltd v United Drug Wholesale Ltd
-
Straight application of American Cyanamid.
-
Carroll J used the two-pronged test – was there a serious question to
be tried and where did the balance of convenience lie?
❖ Boyhan v Tribunal Of Inquiry into the Beef Industry
-
Denham J: mandatory injunctions are powerful instruments, a form of
exceptional relief.
-
Stated that it is up to the plaintiffs to establish a strong and clear case
so that the Court can feel a degree of assurance that at the trial of the
action, a similar injunction would be granted.
-
This approach is closely aligned to the approach in English case law.
❖ Lingham v HSE – mandatory in substance – ‘strong case’ likely to succeed at
hearing of action.
FACTS:
-
Lingham was looking for an interlocutory defendant to restrain the
defendant from dismissing him from his temporary post as a surgeon.
-
Although the injunction was phrased in prohibitory terms, the effect of
granting it would be to allow him to stay in his jobs, so it was essentially
mandatory in substance.
HELD:
-
Fennelly J: the Court does need to look at the substance of what is
being sought. The plaintiff was seeking a mandatory injunction in
substance.
-
In cases of this nature, it is necessary for the applicant to show that he
has a strong case which is likely to succeed at the hearing.
❖ Okunade – SC approved higher standard set out in Lingham.
-
Clarke J reaffirms the principles in Lingham as the law in this
jurisdiction.
-
Stated and reaffirmed that when the order sought involves something
which is in substance a mandatory order, then the courts do require the
plaintiff to establish not just a fair question to be tried, but also a higher
standard of a strong case as set out by the SC in Lingham.
-
Clarke J also addresses the criticism of implementing the higher
standard, which is that this higher standard may force the Court to look
at the merits of the case in more detail than it should at the
interlocutory stage when it doesn’t have the advantage of hearing
evidence.
-
In response to this, Clarke J states that there is tension between the
practical requirement that suggests that the Court shouldn’t look in a
detailed way at the facts or any complex legal questions at the
interlocutory stage on the one hand, and the requirement of meeting a
higher standard on the other hand.
o He responds to this by saying that even in cases where a higher
threshold may need to be met, the strong case that does not
necessarily involve the Court in going into a detailed analysis of
any complex questions that arise in the case. Rather, it obliges
the plaintiff to put forward a case that meets this higher
threshold in a straightforward way.
o Thus, it is up to the plaintiff to provide the evidence to meet this
higher standard, and the Court should not be forced into trying
to resolve conflicts of fact in law.
•
The Supreme Court, in cases like Lingham and Okunade, have acknowledged
that there are pragmatic difficulties in meeting a higher standard at an
interlocutory stage, but nevertheless accepting that it would be possible if the
plaintiff has a strong case and can provide the evidence, that the order can be
made at the interlocutory stage.
❖ Shelbourne Hotel Holdings Ltd
FACTS:
-
Application made by the plaintiff for an inunction to direct the defendant
to give them access to the hotel’s books and records on foot of its right
under a management agreement.
HELD:
-
Kelly J in the High Court made it clear that what the Court needs to do
in these types of applications is seek to minimise the risk of injustice by
making the wrong the decision at the interlocutory stage.
-
The fundamental principle in relation to both prohibitory and mandatory
injunctions at the interlocutory stage is that the Court should adopt
whatever course would carry the lower risk of injustice if it turns out to
be the wrong decision.
-
States that whatever test you use, if you are looking for a mandatory
order, it is going to play a role in weighing up where the balance of
convenience lies.
❖ Taite v Beades at [22] – [31] – summary of principles
-
Irvine J: perhaps the most important consideration of all for a Court to
take into account in an application for an interlocutory injunction is the
need to minimise the risk of injustice,
-
Stressed the important of deciding whether in substance what is being
sought is prohibitory in nature or mandatory in nature.
-
Reiterated that if the injunction is prohibitory in form as well as in
nature, then the plaintiff only has to establish a fair question to be tried
– the Campus Oil test.
-
However, if the order being sought is mandatory wither in form or in
substance, the higher standard of a strong case described in Lingham
will apply.
Mandatory interlocutory injunctions – summary
•
The ‘strong case’ standard (Lingham) is appropriate (Okunade, Taite) in this
jurisdiction.
•
Arguable that the Court should adopt whatever course would carry the lower
risk of injustice if it turns out to have been the ‘wrong’ decision (Shelbourne).
•
In any event, balance of convenience is unlikely to lie in favour of granting
mandatory relief (Shelbourne).
•
The most important consideration for the Court on an application for an
interlocutory injunction is the need for it to take an overall approach which will
minimise the risk of injustice (Taite).
•
Generally, the strong case requirement should be met (Lingham, Okunade,
Taite) but may not always be insisted on where withholding an injunction
would lead to higher risk of injustice and minimising the risk of injustice is key
(Taite).
Ouia timet injunctions
•
Jurisdiction is preventative in nature - will be exercised.
-
where a person threatens and intends to do an unlawful act or
-
where the plaintiff's rights have already been infringed and he alleges
that the infringement will be repeated.
•
Fact that no breach has as yet occurred is of relevance as it may be more
difficult to establish as a matter of evidence that there is a sufficient risk of
future injury to justify the grant of an injunction.
•
Court must consider how likely it is that injury will in fact occur and how
severe the apprehended damage is likely to be.
❖ Redland Bricks v Morris – where mandatory quia timet injunction sought, must
show very strong probability that grave damage would accrue.
FACTS:
-
The plaintiff’s land had been affected by subsidence caused by
excavation work carried out by the defendant on adjoining property.
-
The plaintiff was award damages and a prohibitory injunction at the
trial.
-
However the mandatory injunction was of a quia timet nature as it was
sought to effectively restore support to the plaintiffs’ land to prevent
further subsidence, which was going to be expensive.
HELD:
-
HoL: allowed the appeal against the mandatory element of the orders
made, as it was effectively an order of a quia timet nature. In those
scenarios, the plaintiff must show a very strong probability that grave
damage would accrue in the future.
-
If this restoring of the excavation work was not done, it was up to the
plaintiff to show that more subsidence would occur and more damage
would occur.
❖ Attorney General (Boswell) - proof of actual and real danger, a strong
probability, almost amounting to moral certainty.
FACTS:
-
Plaintiff was looking for an injunction to prevent the defendant from
building a smallpox hospital in a Dublin suburb.
HELD:
-
The injunction was refused on the basis that the high standard of test
that applied in the case of a quia timet injunction had not been met.
-
Fitzgibbon LJ: to get an injunction of this nature, the law requires proof
by the plaintiff of a well-founded apprehension of injury, and a proof of
actual and real danger, a strong probability almost amounting to moral
certainty.
❖ Szabo v ESAT Digiphone Ltd – test that applies now in this jurisdiction
FACTS:
-
Case from late 1990s when there were a lot of scare stories going
around about the dangers posed by mobile phone base stations.
-
These mobile phone base stations were often built in the grounds of
Garda Stations which were often located beside primary schools.
-
The plaintiffs sought an interlocutory injunction of a quia timet nature to
restrain the erection and operation of mobile phone base stations in the
grounds of a Garda station beside their primary school.
HELD:
-
Geoghegan J talked about the importance of showing a proven
substantial risk of danger.
-
If no breach of the plaintiff’s rights has actual taken place, then it may
be more difficult to establish as a matter of evidence that there is a
sufficient risk of future injury to justify the immediate grant of an
injunction.
-
Held that it was highly improbable that any injury would be caused to
the children before the hearing of the action.
-
Application at the interlocutory stage was refused.
❖ Ryanair Ltd v Aer Rianta cpt - must balance the magnitude of the evil against
the chances of its occurrence.
FACTS:
-
Plaintiff was looking for an interlocutory injunction against Aer Rianta in
relation to imposing and collecting charges at Dublin Airport.
HELD:
-
Kelly J: the fact that no breach of the plaintiff’s rights had actually
happened yet was of relevance. It would make it more difficult to
establish a sufficient risk of future injury.
-
Stated that the Court had to balance the magnitude of the evil against
the chances of its occurrence.
-
Two key factors are: how likely is it the injury will occur, is there a
proven substantial risk of danger? And how severe would that damage
be if it did happen?
-
Weighing up these two factors, he was not satisfied that there was a
sufficient risk of future injury. The injunction was refused.
Employment cases
•
Injunctions are relevant where positive obligation are not enforceable.
❖ Lumley v Wagner – injunction to restrain breach of negative term.
FACTS:
-
Defendant was a singer who undertook to sing at the plaintiff’s theatre
for a specified period of time. There was a negative obligation in her
contract to not perform in any other theatres during the time of her
contract.
-
She subsequently greed to another contract for a larger fee with a third
party.
-
The plaintiff wanted to get an injunction to stop her from breaching the
negative term in the contract.
HELD:
-
Held that the plaintiff was entitled to an injunction to restrain the breach
of the negative stipulation in the contract.
❖ Warner Brothers Pictures - rejected argument that order amounted to indirect
form of specific performance.
FACTS:
-
The actress Betty Davis agreed to act for Warner Brothers for 5 years
and undertook not to act for any other studio during that time.
HELD:
-
An injunction was granted to restrain her from breaching this negative
obligation.
❖ But, in Page One Records Ltd v Britton - injunction would be tantamount to
ordering specific performance of contract.
FACTS:
-
The plaintiffs had contracted with The Troggs that they would act as
their manager for 5 years.
-
The group agreed not to employ anyone else to manage them during
that time.
-
The plaintiffs sought an injunction to prevent the employment of
another manager.
HELD:
-
Keane J refused to grant an injunction as it would have the indirect
effect of forcing The Troggs to continue to employ Page One Records.
-
It would be wrong to put pressure on the defendants to continue to
employ someone in a fiduciary capacity in whom they had lost
confidence.
❖ Warren v Mendy - court ought not to enforce performance of negative
obligations if their enforcement will effectively compel performance of positive
obligations.
FACTS:
-
Boxer involved in this case agreed that he would not be managed by
anyone except the plaintiff for a 3 yar period.
-
He then entered into a management agreement with the defendants.
-
The promoter, Warren, sought an injunction to restrain the defendant
from inducing a breach of contract.
HELD:
-
The Court accepted that the effect of this injunction would arguably
have compelled the boxer to perform his agreement with the plaintiff,
as he was a professional boxer and could not operate without a
manager.
-
Court stated that when you’re dealing with a person with a special
skillset, it is not realistic to do nothing for three years.
-
The courts have to be realistic about what is involved.
❖ Hill v Parsons – still a relationship of mutual trust and confidence.
FACTS:
-
Employer had reluctantly been forced to terminate the employee’s
contract as he had refused to join a trade union.
-
Due to pressure from the trade union, the employer dismissed the
employee.
HELD:
-
The CoA held ghat the employer still had confidence in the employee
and therefore it was reasonable to grant an injunction preventing his
dismissal.
Employment injunctions – key issues
•
•
Type of relief sought.
-
Prohibitory or mandatory in substance.
-
Test of serious issue to be tried or strong case?
Nature of ongoing relationship between parties.
-
If there is no trust and confidence, the parties generally won’t be forced
to work together.
•
Type of responsibilities involved.
-
Spectrum ranging from administrative (Wallace) to senior management
(Bergin).
Employment injunctions in Ireland
❖ Lingham v Health Service Executive - where mandatory relief is in effect,
plaintiff will have to meet a strong case requirement.
❖ Bergin v Galway Clinic Doughiska
FACTS:
-
Involving Chief Executive of a clinic, there was a disciplinary procedure
taken. There were breaches relating to the rules of fair procedures.
-
Brogan sought a number of different types of interlocutory relief.
-
Clarke J: Where the relief you are seeking is mandatory in effect, you
HELD:
have to meet the strong case requirement.
-
Plaintiff was granted interlocutory injunctions restraining the defendant
from dismissing the plaintiff and for appointing another Chief Executive,
except on terms that would allow the plaintiff to return to his post if he
succeeded at trial.
-
Clarke J refused orders requiring the defendant to re-engage him.
Refused orders restraining the defendant from appointing anyone else.
•
Clarke J took the realistic approach insofar as the clinic could not operate
without someone doing the job of the Chief Executive.
•
Orders restraining implementation of dismissal or requiring reinstatement:
❖ Coffey – order restraining defendant from giving effect to plaintiff’s purported
dismissal.
-
Edwards J: not satisfied that the plaintiff had shown a strong case.
-
Satisfied that the plaintiff should be granted an injunction effectively
giving effect to her dismissal. She did not get any injunction treating her
as otherwise than continuing to be employed. Thus she was not
allowed to continue doing her job pending the trial.
❖ Wallace v Irish Aviation Authority – order restraining defendant from placing
plaintiff on administrative leave.
-
Hogan J: satisfied that the plaintiff proved a strong case.
-
Thus the plaintiff was entitled to an order restraining the employer from
placing her on administrative leave. She was entitled to continue to do
her job pending trial.
•
Orders requiring payment of an employee’s salary pending trial:
❖ Fennelly v Assicurazioni Generali SPA - courts were willing to make such an
order notwithstanding lack of continuing relationship of trust and confidence.
-
Ordered the defendant, the employer, to continue to pay the plaintiff
salary pending trial on the basis that the plaintiff would be willing to
carry out any duties under his contract that the employer should ask of
him.
❖ Stoskus v Goode Concrete Ltd – strong case requirement now applies
-
Case involving a lorry driver.
-
Order being sought was one which would maintain that the lorry driver
get his salary pending trial. It was in prohibitory terms but had a
mandatory effect.
-
Irvine J: onus of proof of this case is a strong case requirement. She
said that the plaintiff’s case did not meet that strong case requirement.
•
Injunctions to restrain the appointment of a third party:
❖ Coffey v William Connolly & Sons Ltd
-
Coffey was able to get an injunction restraining the employer from
appointing someone else to do her job pending the trial.
❖ Bergin v Galway Clinic Doughiska Ltd
-
More nuanced approach was taken reflecting the significance of
Bergin’s functions in the organisation.
-
Clarke CJ: restrained the defendant from appointing anyone
permanently to the Chief Executive job.
-
The company was allowed to put someone in on a temporary basis but
had to be on terms that would not prevent Bergin to go back to his job if
he succeeded at trial.
Summary of principles
•
Many interlocutory injunctions sought in an employment context are
mandatory in substance – ‘strong case’ requirement is likely to apply.
•
Even where this requirement is met (e.g. in Bergin), reluctance to force the
parties to continue to work together where the relationship of trust and
confidence has broken down (but granted in Wallace where there were duties
of a routine nature).
•
Orders restraining actual dismissal and permanent employment of a
replacement may be granted, as in Coffey, but where the orders sought are
construed as mandatory, a strong case requirement is imposed, as in Bergin
and Lingham.
Question for discussion
Critically evaluate the principles which generally govern the grant of interlocutory
injunctions and consider the most common of circumstances in which the courts
have held that a departure from these principles may be justified.
Introduction:
•
Explain what interlocutory injunctions are, what they aim to achieve, and
some of the practical issues surrounding them.
-
The essential aim of an interlocutory injunction is to preserve the status
quo in terms of the rights of the parties pending trial.
-
The rationale behind interlocutory injunctions is the need to preserve
the rights of a plaintiff and to prevent him suffering irreparable prejudice
because of the inevitable delay before a trial can take place.
-
On the other hand, a balance is needed to protect the defendant to an
interlocutory injunction.
-
The courts have made it clear that they should not be sued as a means
of effectively granting summary judgement, without the defendant given
a chance to be heard properly.
•
Injunctions as a form of equitable remedy are discretionary in nature.
American Cyanamid Co. v Ethicon Ltd:
•
Two-prong test: serious or fair question to be tried; where does the balance of
convenience lie?
•
Relationship between the adequacy of damages and the balance of
convenience with the balance of justice.
Merck Sharp and Dohme:
•
O’Donnell J’s approach.
•
Adequacy of damages is a part of the balance of convenience.
•
American Cyanamid guidelines should not be taken as a strict rule.
•
Flexibility is important.
•
‘Injunctions: Law and Practice’ by Brendan Kirwan available on Westlaw.ie
-
Kirwan speaks on the importance of O’Donnell J’s analysis in Merck.
-
Importance of identifying the need for flexibility and the fundamental
objective of seeking to minimise injustice.
Exceptional cases/circumstances where a departure from principles is justified:
•
Some of the common circumstances in which the courts hold that a departure
from these principles is justified are contextual.
•
Contextual circumstances:
-
Trade disputes situation:
▪
Important to set out what the position was before legislation
came into effect.
▪
Westman Holdings case – the common law clearly favoured the
employer, which was one of the reasons why it was felt that the
legislation was necessary.
-
Explain the effect of Section 19.
▪
Key difference: once the plaintiff establishes that there is a fair
question to be tried, then the onus shifts to the defendants to
establish a fair case that they were acting in furtherance or
contemplation of a trade dispute.
-
The courts now take a more pragmatic approach – Laffoy J in Dublin
City Council v Technical Engineering and Electrical Union.
▪
Courts not so much looking at the fine detail of every element in
the legislation so long as the main provision sin terms of holding
appropriate ballots etc. have been complied with.
-
Policy question we need to ask: is the broad approach preferable?
▪
Yes. The strict approach made it impossible for people
picketing to ever obtain an injunction.
▪
Wider public policy issue: have to have regard to the wider
public interest and often people who continue to picket after the
dispute may cause damage and inconvenience to the public at
large.
-
Defamation of free speech.
▪
There is a more onerous task facing a plaintiff seeking an
interlocutory injunction to restrain publication of an alleged
defamatory matter, partly due to the courts’ reluctance to
interfere with an individual’s right to freedom of expression. It is
also because defendants may plead a defence of truth or honest
opinion, or they may be protected by privilege at trial.
▪
Reynolds and Cogley.
▪
Cogley probably more important as there is a useful discussion
of achieving the correct balance between encouraging public
debate and preserving freedom of the press on one hand, and
protecting the reputation of an individual on the other hand.
▪
Given the constitutional protection given to the right to the
freedom of expression and the defences in the Defamation Act,
it is clear that the American Cyanamid principles would not be
appropriate. There is a question of whether the bar that has
been placed is at too high a level given the reputational damage
that individuals may suffer.
▪
Mention that Section 33 of the Defamation Act continues the
position as it existed in case law.
•
Non-contextual departure/situation where the trial of the action is unlikely:
-
Cayne v Global Natural Resources plc case is important, and how it is
applied in the Jacob case.
-
Laffoy J in Jacob: in a situation where the trial of the action is unlikely
to take place, the key question is whether the plaintiff’s case on the
evidence is so strong that to refuse the inunction would constitute an
injustice.
-
Is this test too unfair? Is it weighted too heavily towards the
defendants?
▪
No. Jacob at p741: Laffoy J stated that it was not possible to
conclude that the plaintiff’s case, on his own evidence, leaving
aside any conflicts, bears the necessary weight so as to render
the refusal of interlocutory relief an injustice.
▪
The plaintiff’s case at its height, accepting everything that he is
arguing, leaving aside any conflicts in the evidence, even then, it
was not appropriate to grant the order.
-
Useful general comment in Taite v Beades: the most important
consideration is to take an overall approach which will minimise the risk
of injustice.
Mareva injunctions – introduction
•
Order to prevent the defendant from removing assets from the jurisdiction or
from disposing of them in a manner likely to frustrate the plaintiff's
proceedings.
•
Called ‘freezing orders’ in England.
•
More recently extended to worldwide assets.
❖ Nippon Yusen & Mareva cases – early test – where strong prima facie case
that plaintiff is entitled to money from defendant within the jurisdiction and
plaintiff has reason to believe that defendant may remove these assets from
jurisdiction.
FACTS:
-
Both cases entailed almost identical facts.
-
The plaintiffs were shipowners and they had let a number of ships to
charterers who defaulted.
-
They believed that the defendants had funds in banks in London which
they were concerned could be sent out of the jurisdiction with a view to
trying to avid any claim.
-
The plaintiff sought an injunction to prevent this from happening.
-
Where there is a strong prima facie case that a plaintiff is entitled to
HELD:
money from a defendant within the jurisdiction, and the plaintiff has a
reason to believe the defendant may remove these assets from the
jurisdiction, the Court may grant an interlocutory injunction on an ex
parte basis, restraining the defendant from disposing of the assets.
Procedural issues
•
A Mareva injunction will usually be sought on an ex parte basis.
•
There is a duty to make full and frank disclosure and the plaintiff will be
required to divulge all material facts to the Court.
•
Failure to make sufficient disclosure may result in the Mareva injunction being
subsequently discharged (see Bambrick v Cobley).
•
The relief is ancillary in nature so substantive proceedings need to be in being
or, exceptionally, about to be brought.
•
The plaintiff will be required to give an undertaking in damages.
-
If it turns out that the order should not have been made, then the
plaintiff is required to compensate the defendant at a later stage.
Test for a Mareva injunction
❖ Countyglen v Carway – whether fair and serious question to be tried
-
Balance of convenience considerations will be different.
❖ Fleming v Ranks (Ireland) Ltd
-
Justice McWilliams: in order to justify an injunction of this nature, the
anticipated disposal of the defendant's assets must be for the purpose
of preventing plaintiff from recovering damages and not merely for the
purpose of carrying on business or discharging lawful debts.
-
Motive an intention takes on a real significance here.
-
Spending the money or moving the money has to be with a view to
frustrating subsequent Court proceedings.
❖ O'Mahony v Horgan – Supreme Court favoured the 'good arguable case' test.
There must be an intention on the part of defendant to dispose of his assets
with a view to evading his obligation to plaintiff and to frustrate anticipated
order of the Court.
FACTS:
-
The applicant had been appointed as liquidator of a company of which
the respondents were directors.
-
Murphy J granted an interlocutory injunction to restrain the second
respondent from disposing of or dissipating a sum of money payable
under an insurance policy.
HELD:
-
The Supreme Court allowed the appeal of the respondent and refused
the Mareva injunction.
-
P419 Hamilton CJ: there is a need of establishing a likelihood that the
defendant’s assets will be dissipated with the intention that they would
not be available to meet any decree ultimately made in the
proceedings.
-
This intention or requisite intention, has not been established.
-
The cases show that you must provide evidence of an intention on the
part of a defendant to dispose of his assets with a view to try in evading
his obligations to the plaintiff.
-
Made the point as set out in Fleming – it is not sufficient to show that
the assets are likely to be dissipated in the ordinary course of business
or in the payment of lawful debts.
•
Problem here is how do we show what someone’s intention is?
•
English courts have not focussed on intention in this context.
•
There is a well-established line of authority on this in Ireland.
•
Capper’s criticism of the ‘requisite intention’ test.
Irish authorities:
❖ Bennett Enterprises Inc. v Lipton – O’Sullivan J accepted that direct evidence
of intention to evade rarely available at interlocutory stage.
•
Significance of nature of wrongdoing alleged and the nature of assets.
❖ Tracey v Bowen
FACTS:
-
The plaintiff was looking for a Mareva injunction of an interlocutory
nature against the defendant in the context of proceedings taken by
him against the defendant in relation to money which the plaintiff had
transferred to the defendant as part of an investment scheme.
HELD:
-
Clarke J accepted that there was a fair issue to be tried but the rest of
the test and how it played out was contentious.
-
Stated that he felt that the Bennett case was authority for this
proposition and in assessing the risk of dissipation, the Court is entitled
to take into account all of the circumstances of the case, and it may
draw and inference from the nature of the wrongdoing alleged.
-
Other issues could also play a role in determining the approach.
-
Nature of the assets: the Court is required to look at all the
circumstances.
-
Where you are talking about assets that cannot be sold in a hurry, then
the likelihood of someone being able to evade the Court’s jurisdiction in
a hurry is reduced.
Duty of full and frank disclosure
•
Due to urgency, an order is generally applied for on an ex parte basis.
•
The Court must also seek to protect interests of defendant who will not be
before the Court at this early stage in proceedings.
❖ Bambrick v Cobley – Court examined underlying rationale.
FACTS:
-
Plaintiff applied on an ex parte basis to the High Court for an interim
order restraining the defendant from reducing her assets within the
jurisdiction below a certain sum.
-
The plaintiff then sough to convert that into an interlocutory injunction,
to continue the Mareva injunction.
-
The defendant was before the Court at this stage.
-
The defendant argued that the plaintiff’s lack of candour seeking the
interim order should go against him. It was claimed that the plaintiff had
inappropriately failed to disclose detailed discussions about the terms
on which the money may be set aside to meet any possible claim.
HELD:
-
At the interlocutory stage both parties were before the Court, Clarke J
had to weigh up whether the plaintiff’s conduct at the earlier stage in
the proceedings by not disclosing the Court of the full story, should
count against the plaintiff.
-
P89 of judgement: set out a number of factors which he deemed to be
relevant when it comes to determining this issue of has there been
sufficient full and frank disclosure:
1. Significance of how material the facts that were not disclosed are.
2. The extent to which it may be said that the plaintiff is culpable in
respect of a failure to disclose.
▪
If a plaintiff has been deliberately misleading, that is likely to
weigh more heavily in favour of discretion being exercised
against the order continuing.
-
The plaintiff was a solicitor in this case, and Clarke J said that it
seemed to him that the facts not disclosed were on sufficient
materiality.
-
He would exercise his discretion in this case in favour of the applicant’s
application to have the Mareva injunction discharged at the
interlocutory stage.
-
Clarke J also considered another issue – if the Court had gone on to
consider the merits of the interlocutory injunction, whether it had been
granted or not, it would have found the plaintiff had not established the
likely removal of assets with a view to try and evade the Court’s
obligations.
▪
Considered the relevance of the fat that the defendants may
seek to remove assets from this jurisdiction to another country
which is party to the Brussels Regulation, with a view to evading
his obligation to the plaintiff.
-
The Brussels Regulation – once you have judgement in one jurisdiction
within the EU, it is relatively more straightforward o enforce that
judgement in another EU jurisdiction.
-
Clarke J obiter: it seemed to him that where a defendant had
identifiable assets held in the country to which the Brussels Regulation
applied, this was a factor that the Court could take into account in
assessing whether there was a real risk that assets may be removed
from this jurisdiction to another in which the Brussels Regulation
applies.
Recap on Bambrick:
•
Two key issues to look at:
1. The obligation in relation to full and frank disclosure.
2. The relevance of where you’re moving your assets to.
•
Clarke J’s obiter comments also worth looking at.
Wordwide Mareva injunctions
•
Worldwide orders may be made in ‘rare’ cases, but unqualified orders cannot
be justified and limiting provisos are included.
Useful English cases:
❖ Babanaft International Co. SA v Bassatne – post-judgment order but bound
only the defendant personally and included limiting proviso.
-
CoA, the first recorded case on worldwide Mareva injunction.
-
Held that although they may be rare, there is nothing to preclude the
courts in England from granting a Mareva injunction against defendants
extending to assets outside the jurisdiction, where it is appropriate.
-
Stressed that ‘unqualified Mareva injunctions’ covering worldwide
assets can never be justified.
-
Talked about the importance of providing a limiting proviso.
❖ Republic of Haiti v Duvalier – pre-judgment order is ‘rare — if not very rare
indeed‘ – limiting proviso extended.
-
Court held that it would only be in cases that were rare that the courts
would grant worldwide Mareva injunctions before a trial.
-
The order was that the Mareva should not affect any third parties
unless and to the extent that they were enforced by the courts of the
state in which the defendants assets are located.
•
Zuckerman: worldwide Marevas are binding on the defendant, but the
domestic courts do not have any jurisdiction over foreign third parties.
Effectively, these orders are only affective against third parties to the extend
that they’ll be recognised and enforced by the foreign courts.
-
The enforcement of Mareva orders on third parties abroad generally is
left to local courts as there is no alternative.
-
There are significant limitations in practice about how useful these kind
of worldwide Marevas are.
Irish authority:
❖ Bennett Enterprises Ltd v Lipton – the fewer the assets within the jurisdiction,
the greater the necessity for taking protective measures in relation to those
outside it.
-
Key issue: it was clear that the defendant did not have any assets
within the jurisdiction of the Irish courts.
-
O’Sullivan J said that he did not consider that the plaintiff’s failure to
establish that there were assets within the jurisdiction was a problem.
On the contrary, he would look at it as even more important to be able
to make a Mareva order of a worldwide nature were there were no
assets within the jurisdiction.
-
The fewer the assets within the jurisdiction, the greater the necessity
for taking protective measures in relation to those outside it.
A more cautious approach?
•
Draconian nature of orders more readily recognised today.
❖ Polly Peck International plc v Nadir (No. 2) – Court will not grant a Mareva
injunction before any liability established if the injunction would interfere with
normal course of defendant's business, particularly if the cause of action is no
more than speculative.
•
Zuckerman (1992) 108 LQR 559 – true basis is as a measure against abuse
rather than as a form of security.
❖ O’Mahony v Horgan (Hamilton CJ) and Bambrick v Cobley – not intended to
provide security but to avoid frustrating judgment of the Court.
❖ O'Mahony v Horgan – O’Flaherty J: very powerful remedy which if improperly
invoked will bring about an injustice.
Have the courts in Ireland achieved an appropriate balance?
•
Yes. The requisite intention test is being more pragmatically applied, as seen
in cases such as Bennett.
•
The courts can now draw inferences from the nature of the alleged
wrongdoing.
•
The courts are aware of the potentially serious consequences for defendants.
Anton Piller orders – introduction
•
A form of interlocutory injunction – a form of ancillary order.
•
A means of dealing with cases where there is serious risk that defendant may
destroy or otherwise dispose of material which may be of vital importance to
the plaintiff if he is to establish claim at trial.
•
Requires the defendant to consent to the plaintiff, attended by his solicitor, in
entering premises to inspect, and if necessary, take away any documents or
articles specified in the order.
•
Obtained on an ex parte basis and applications are often heard in camera –
secrecy important so that defendant is not forewarned.
❖ Anton Piller KG v Manufacturing Processes Ltd
FACTS:
-
The plaintiff must have an extremely strong prima facie case.
-
Concerned a claim brought by the plaintiffs that the defendants were
selling confidential information to their competitors. They were alleging
that this information had been obtained by the defendants in their
capacity as selling agents for the plaintiff’s electrical equipment.
-
The plaintiff was concerned that this information would be destroyed if
it were not preserved in some way.
HELD:
-
The CoA made an order on an ex parte basis allowing the plaintiffs to
enter the defendant’s premises to inspect, remove, make copies of
documents relating to the electrical equipment.
-
Lord Denning makes it clear that the plaintiffs may not force their way
in. An Anton Piller order is not a search warrant.
-
However, if the defendant refuses to allow them to access the
premises, the defendants are put in peril of proceedings for contempt
of court – of ‘adverse inferences’ being drawing against them by the
Court in the proceedings.
-
Essential preconditions that have to satisfied before such an order may
be granted:
1. The plaintiff must have an extremely strong prima facie case.
2. The potential or actual damage must be very serious for the
plaintiff.
3. There must be clear evidence that the defendant has
incriminating documents or articles in its possession.
4. There must be a real possibility that the evidence will be
destroyed.
❖ Columbia Picture Industries v Robinson - requires a balance to be struck
between plaintiff's need that remedies should be attainable and the
requirement of justice that a defendant should not be deprived of his property
without being heard.
FACTS:
-
Regarded a claim brought by the plaintiffs against the defendants for
breach of copyright. A video piracy operation was going on.
-
Plaintiffs obtained an Anton Piller order but failed to disclose all
material facts in making their application.
-
In executing the order they had also removed items that had not been
included in the terms of the order.
-
The defendants brought a motion seeking to have the order set aside.
-
Held that the plaintiffs had failed to make a full and frank disclosure.
-
Also agreed that they had acted oppressively and abused their power
HELD:
in executing the order.
-
There was no point in setting aside the order as it had already been
executed, but the Court could find that the plaintiffs were liable in
damages to the defendant as the execution of the order had significant
implications for the defendant.
-
Scott J: the decision whether or not to grant an Anton Piller order does
require balance to be struck between the plaintiff’s need to get the
remedies that they are entitle to for breach of their rights, but also the
requirement that a defendant should not be deprived of his property
without being heard.
-
Stated that the balance had swung too far in favour of plaintiffs. The
Anton Piller orders have been granted with insufficient safeguards for
the respondents.
-
Also made the point that due to the draconian nature of Anton Piller
orders, they should extend no further than the minimum extent
necessary to achieve the purpose for which they are granted.
❖ Rank Film Distributors Ltd v Video Information Centre
-
Lord Russell: as privilege against self-incrimination could deprive a
copyright owner of his right to protect his property, legislation in this
area would be desirable.
•
In England – effect of s.72 of the Senior Courts Act 1981 in proceedings to
obtain disclosure of information relating to the infringement of rights in the
area of intellectual property – the section provides that matters disclosed will
not be admissible in evidence against the defendant in proceedings against
him for a related offence.
•
England – where s.72 applies, if the defendant has no assets, the plaintiff may
lose out by enforcing the Anton Piller order as the information obtained may
not be used in criminal proceedings.
❖ Tate Access Floors v Boswell - privilege against self-incrimination can still
provide effective weapon in a defendant's fight against the application of AP
orders in actions not covered by legislation in England.
•
Involved a fraud action where the privilege could still be invoked.
In Ireland – privilege can still be invoked in intellectual property disputes –
option of complaint to gardai who can obtain warrant under s.143 of Copyright
Act 2000.
❖ Universal Thermosensors Ltd v Hibben – Nicholls VC suggested a number of
safeguards in relation to the execution of Anton Piller orders, such as
execution being supervised by another solicitor and the preparation of a
detailed list of items removed.
-
Vice Chancellor Nichols suggested a number of safeguards in the
context of the execution of Anton Pillar orders.
-
Such orders should only be executed during normal working hours at a
business premises.
-
The defendant should be given an opportunity to check what has been
taken away at the time that the order has been executed.
-
The order should be served, and its execution supervised by an
experienced solicitor who is familiar with the workings of such orders
other than a member of the firm of solicitors acting for the plaintiff.
o This safeguard is useful as it provides for someone independent
to be present.
❖ Microsoft Corporation v Brightpoint Ireland Ltd
FACTS:
-
Plaintiff companies were in the business of software development and
production. They brought various claims against the defendant that if
had infringed their rights with actions such as unlawful copying, use,
distribution, possession of software programmes.
-
An Anton Piller order was made at the interim stage.
-
This order was executed at the defendant’s premises the same day.
-
The defendant then subsequently brought a motion seeking relief at the
interlocutory stage.
HELD:
-
Smith J: the essence of an Anton Piller order is surprise, and the
publication of its existence would deprive it of its element of surprise.
-
Made the point in support of the application ought to err on the side of
excessive disclosure. You should include any material and it is the
judge who should decide what is relevant.
-
On the facts, there had been full and proper disclosure, and that there
was strong prima facie evidence of dishonest conduct by the
defendants which indicated a strong probability that they would be
likely to destroy records.
-
Detailed record of the material taken should be made by a solicitor
executing Anton Piller order.
Bayer injunctions
•
Restrains a defendant from leaving the jurisdiction.
•
Usually granted in circumstances where existing Mareva or Anton Piller order
has not been complied with.
❖ Bayer AG v Winter - Fox LJ suggested that order should be of very limited
duration and should be in force for no longer than necessary to enable
plaintiffs to serve Mareva and Anton Piller orders.
❖ O’Neill v O’Keeffe - Such relief could be granted only in ‘exceptional and
compelling circumstances’.
FACTS:
-
Plaintiff had invested money through the defendant who called himself
a ‘personal investment manager’.
-
The plaintiff sough repayment of his investments, he did not get this
back. He was apprehensive that his money was going to disappear and
that the defendant was going to disappear also.
HELD:
-
O’Higgins J made a number of orders on an expedited basis, including
a Mareva injunction and an Anton Piller order.
-
Problem was that entry to the named premises in the Anton Piller order
could not be affected. Thus, the plaintiff sought a Bayer order.
-
The Court then accepted that where a defendant’s whereabouts were
unknown, an order could be made that he be restrained from leaving
the jurisdiction under a specified date, and be ordered to give in his
passport, but only in ‘exceptional and compelling circumstances’.
•
Courtney states the injunction should be limited to the shortest possible period
of time and that the defendant’s right to travel has to be balanced with the
rights of the plaintiff and the proper and effective administration of justice.
Proprietary Estoppel
General principles
•
To prevent a person from insisting on his strict legal rights where to do so
would be inequitable having regard to the dealings which have taken place
between the parties.
•
Developed as an exception to formalities required for creation of interests in
land.
•
Rationale behind the doctrine could be said to be to prevent unconscionable
behaviour.
•
Generally relates to rights in relation to land.
•
Ties in with material on constitution of trusts – exception to principle that
Equity will not perfect an imperfect gift.
Elements of the doctrine
❖ Thorner v Major Lord Walker - the doctrine of proprietary estoppel is based on
three main elements:
-
Representation or assurance made to the claimant
-
Reliance on it by the claimant, and
-
Detriment to the claimant in consequence of his reliance, but
❖ Gillett v Holt - the doctrine cannot be treated as if it can be ‘subdivided into
three or four watertight compartments’. These elements are not separate from
each other.
•
Context is also important.
-
Background can play a significant role.
Assurance
•
While it need not necessarily be express, it must have been made with the
intention that it should be relied on.
•
Usually consists of encouragement by words or deeds – possible that mere
acquiescence will suffice although doubt cast on this proposition in
❖ C.F. v J.D.F.
FACTS:
-
Dispute between husband and wife.
HELD:
-
The Court held that the husband had not acquired a beneficial interest
in some additional property by virtue of proprietary estoppel.
-
He had spent time and money developing facilities at a stud farm which
belonged to his father. The Court said that it could not form part of his
assets and effectively the trial judge had erred in holding that it could.
-
On the issue of whether proprietary estoppel could arise because of
acquiescence: the Court stated that in order to establish an estoppel,
there must actually be a promise or a reasonably clear direct
representation. It was not sufficient that something was simply allowed
to happen.
•
Samet (2015) 78 MLR 85 – where acquiescence, justifying principles are
weaker and the remedy might be more limited to reflect this.
-
Dissimilarity between lack of response and active encouragement
could also be expressed in the form of a remedy.
❖ Thorner v Major
FACTS:
-
The claimant was the deceased’s cousin’s son.
-
He had worked on an unpaid basis on the cousin’s farm for a period of
nearly 30 years.
-
Over this time, a number of oblique references were made by the
deceased to the fact that the claimant would inherit the farm and the
deceased had made a will and he left his residuary estate including the
farm to the claimant.
-
Issue arose when he fell out with one of the legatees named in the will.
And he destroyed the will.
-
Before he made a new will he died intestate. He never intended to cut
the claimant out.
-
The trial judge found in favour of the claimant on the basis of
proprietary estoppel.
HELD:
-
CoA reversed this finding, the HoL then restored the original order of
the trial judge – the claimant won eventually.
-
Lord Scott – relevant assurance must be ‘clear and unequivocal’.
-
Lord Walker – the assurance must be ‘clear enough’ and what amounts
to sufficient clarity will greatly depend on the context.
Reliance
•
Reliance seems to be established once it is shown that a representation is
calculated to influence the judgment of a reasonable man.
•
Generally there tends to be a presumption of reliance once an assurance on
the part of the legal owner is established.
❖ Gillett v Holt – assurances intended to be relied on.
❖ Thorner v Major – insufficient reason to reverse trial judge’s findings in
relation to reliance.
Detriment
•
Detriment will be suffered where an assurance on which reliance is placed is
withdrawn.
•
It is the fact of detriment having been suffered which will render it
unconscionable for the legal owner to insist on enforcing his rights.
•
Need not be financial detriment but must be substantial.
❖ Bracken v Byrne – Clarke J not satisfied that sufficient detriment incurred.
FACTS:
-
The plaintiff was one of two sisters contended that she had entered into
an arrangement with her other sister and that she would get a plot of
land on the sister’s property on which to build a house.
-
Issue was lack of detriment – Clarke J said that the only detriment that
had been suffered by the plaintiff was that she had made a planning
application and she had some brief discussions with a builder.
HELD:
-
Her claim failed on the basis of lack of judgement. Clarke J was not
satisfied that there was any sufficient detriment incurred.
❖ Gillet v Holt
-
There must be a sufficient causal link between assurance and detriment.
-
Issue of detriment must be judged at the moment when the person who has
given the assurance seeks to go back on it.
-
Whether the detriment is sufficiently substantial is to be tested by whether it
would be unjust or inequitable to allow the assurance to be disregarded.
-
Need not be quantifiable financial detriment so long as it is something
substantial.
-
It is part of a broad inquiry as to whether the repudiation of an assurance is or
is not unconscionable in all the circumstances.
Where an imperfect gift is made
•
General principle that Equity will not complete an imperfect gift (Milroy v Lord).
•
However:
❖ Dillwyn v Llewelyn – although voluntary agreement would not be completed,
subsequent acts of the donor may give rise to claim.
FACTS:
-
Involved a scenario that looked, to all intents and purposes, as a case of an
imperfect gift.
-
A son had built a house on his father’s land with the father’s consent.
Although there had been some informal memoranda drawn up that showed
that it was the father’s intention to convey the land to the son, it never actually
happened.
HELD:
-
After the father died, the HoL held that due to proprietary estoppel, the
father’s intention to convey the fee simple interest in the land would be carried
into effect by the Court.
-
Lord Westbury said that the son had been given an assurance and suffered
detriment as he built the house.
-
He stated that although the courts don’t prefect voluntary agreements, the
would act on the subsequent acts of their donor, which may give rise to a
claim.
❖ Smyth v Halpin – protection of the equity arising from the expenditure required
that an order conferring the fee simple interest be made.
FACTS:
-
Involved a father and son. The son had asked his father to give him a site on
his land so that he could build a house. The father stated that the son would
have the family home after himself and the mother dies.
-
The father thus suggested that the plaintiff build an extension onto the family
home.
-
An issue arose wherein the father left the house to his wife for her lifetime,
and then one of his daughters, after his death.
-
There was an assurance, reliance, detriment.
HELD:
-
Although there was an imperfect gift, equity would intervene and perfect that
gift.
Common expectation
•
Where parties deal with each other in such a way as reasonably to cause one
party to rely on shared assumption that he would acquire rights in the other
party's lands.
•
Lord Kingsdown’s dissenting speech in:
❖ Ramsden v Dyson
-
Verbal agreement with landlord for interest in land.
-
Where expectation is created or encouraged by the landlord.
-
Where possession is taken with consent of the landlord in reliance on
promise.
-
Where money is laid out on the land.
-
Equity will compel the landlord to give effect to the promise.
-
But – if someone lays out money, in hope or with the expectation of
something, but is not created or encouraged by the landlord, then
there is no claim.
❖ Attorney General of Hong Kong v Humphrey's Estate - Group had not
encouraged or allowed a belief or expectation on the government's part that it
would not withdraw from the agreement.
FACTS:
-
There was an agreement in principle between the Hong Kong
Government and this group of companies.
-
The agreement in principle was that the government would grant the
group release of certain property in exchange for flats that the
government really wanted kit out for civil servants.
-
The government jumped the gun in fitting out these flats for civil
servants. Before the contract was actually concluded however, the
group withdrew from the transaction.
HELD:
-
The Privy Council drew attention to the fact that the government may
have acted to detriment, however this detriment or expectation had not
been created or encouraged by the group of companies. This is why
the claim failed.
❖ Haughan v Rutledge - even if the plaintiffs had the required belief, any hope
and expectation was not created or encouraged by defendant, so the plaintiffs
had no claim.
FACTS:
-
Involve a scenario where a harness racing organisation had an
informal agreement that they would run harness races on the
defendant’s land.
-
They had spent money building a racetrack and improving the property.
-
When the plan fell through the parties fell out and there was no
prospect of them getting an ongoing lease.
HELD;
-
Held that the case fails as there was no evidence of any expectation
being created or encouraged by the defendant.
-
In terms of the evidence, there was not enough evidence to prove that
the plaintiffs had the required belief in the first place.
-
He said even if they had such evidence, it had not been created or
encouraged by the defendant.
Unilateral mistake
•
Proprietary estoppel may also be invoked where one party has made an error
as to the nature of his rights.
•
The crucial factor is that there is detriment suffered by party who innocently
relies on mistaken assumption that he has rights in the land.
❖ Ramsden v Dyson - Lord Cranworth
-
If a stranger builds on land and landlord, perceiving his mistake,
abstains from setting him right, equity will not allow landlord to assert
his title to the land.
-
But if the stranger builds on land knowing that it is owned by another,
the claim will fail.
-
You have to convince the Court that you were mistaken about the
nature of your legal rights. in the vast majority of cases, the reason
these claims fail is that the Court is not satisfied of this.
❖ O’Callaghan v Ballincollig Holdings Ltd - no estoppel where the stranger
knows that he has no rights over the land.
FACTS:
-
Plaintiffs had been in the house for a long time and they claimed that
they had acquired title to the house by adverse possession.
-
They sought a declaration that they were entitled to the house/a
declaration that they were entitled to some kind of lean on the house in
respect of the money that they had spent reinstating it.
HELD:
-
Their claim based on proprietary estoppel failed.
-
The Court was satisfied that they did not think they owned the property.
They were spending money on a property that they knew they did not
own.
Discussion Question – Essay Q
Have the courts achieved an appropriate balance as between the rights of plaintiffs
and defendants in assessing whether to grant interlocutory injunctive relief in the
form of Mareva and Anton Piller orders?
General factors:
•
Fair to say that all litigation involves balancing the rights of plaintiffs and
defendants. It is particularly the case where you have a discretionary
jurisdiction being exercised. Where discretionary factors such as the parties’
conduct are being taken into account by the Court, this balancing exercise is
particularly acute.
-
We are really discussing the interlocutory relief of an injunctive nature.
-
Where you are discussing this, the balancing process can be more
difficult as the Court is making a preliminary assessment.
•
In the context of interlocutory injunctions generally, the judge may not have as
great an appreciation of all the facts that he or she would have at the trial.
•
The interlocutory injunction and certainly the interim one will be based on
affidavit evidence. This makes the balancing exercise more difficult.
•
The balancing exercise is particularly important in this context given the
chances of irreparable harm to the defendant.
•
Important to stress the draconian nature of Mareva and Anton Piller orders. It
is important due to the dangers that could be posed to defendants if these
were made readily, that there is an effective balancing process at the
interlocutory stage.
•
There are a number of practical issues:
-
The need to comply with this obligation of full and frank disclosure as
seen in the Bambrick case. The injunction was discharged due to nondisclosure of material facts.
-
In the context of Anton Piller orders, we saw the importance of plaintiffs
disclosing everything in their affidavit and executing the order strictly in
accordance with its terms.
o There was a sanction or consequences for the plaintiff in
Columbia Pictures where it exceeded the scope of the order.
Mareva Injunctions:
•
Try and weigh up where the balance lies as between the rights of plaintiffs
and defendants when it comes to the granting of Mareva injunctions.
•
Starting with Ireland:
-
The good arguable case test is a relatively low bar.
-
The requisite intention test makes it more difficult for plaintiffs in
Ireland.
-
Refer to Tracey v Bowen case – the nature of the wrongdoing is
relevant. Possibly mention the nature of the assets which may play a
role. As per Tracey, if the property is real in nature, it may be more
difficult to establish a risk of removal.
-
Key point: point made in O’Mahony and Bambrick v Cobley.
o Mareva injunctions are not intended to provide security for
plaintiffs, but rather to avoid frustrating the judgement of the
Court.
o Not about compensating a plaintiff in advance, about trying to
ensure that defendants do not evade the Court’s orders and that
the administration of justice is allowed to run its course.
o O’Flaherty J in O’Mahony: Mareva injunctions are very powerful
remedies and if they are improperly invoked, they may bring
about an injustice, which is something it was designed to
prevent.
o Refer to Polly Peck case: Scott LJ stressed that if it would
interfere with the normal course of other defendants’ business,
the other should not be granted.
o Zuckerman’s case note on the above case: Marevas were in a
sense, conceived as a measure to protect not so much plaintiffs,
but the Court’s position. The Court does not want to be making
orders in trials that cannot be enforced.
Anton Pillar side:
•
In England:
-
Columbia Pictures case: insufficient safeguards; any order should
extend no further than the minimum extent necessary.
-
Universal Thermosensors: certain safeguards should be built in.
-
Refer to the fact that in England, the privilege against self-incrimination
was withdrawn in the context of intellectual property disputes, which is
where most of this litigation takes place.
•
In Ireland:
-
Very little case law here.
-
Important to note that the privilege against self-incrimination can still be
invoked in all contexts in Ireland.
-
Looking at Microsoft case, there is no sign of really pro-plaintiff bias in
that case.
o Smith J: the Anton Pillar Order had been justifiably granted in
the first place and he was rather dismissive of the defendant’s
position.
•
Conclusion: have the courts achieved an appropriate balance between the
rights of plaintiffs and that of defendants?
-
In Ireland, the balance has been struck reasonably fair.
o The requisite intention test is being more pragmatically applied,
as seen in cases like Bennett.
o You can draw inferences from the nature of the wrongdoing
alleged as per Tracey.
-
Columbia Pictures shows the potential for abuse and the importance of
effective mechanisms such as the possibility of an award of aggravated
damages being made to deter this.
o Scott J made It clear that any damages awarded was not to
compensate the defendants for the illegal things they were
doing, but in recognition of the fact that not all of its business
was illegitimate.
-
Courts have to be cognisant of the potential for abuse given the
potential consequences for the defendants – Columbia Pictures.
Refer briefly to position in England:
•
Bar in England was initially higher for plaintiffs having to establish a strong
prima facie case.
•
In all other respects it tended to be easier for plaintiffs in England.
-
•
There has never been a focus on the so-called requisite intention test.
Focus in England is more on the effect of the defendant’s actions.
Unconscionability
•
Broader approach developed based on unconscionability.
❖ Taylor's Fashions Ltd v Liverpool Victoria Trustees Co
-
Oliver J: A broader approach is necessary in ascertaining whether it is
unconscionable for one party to be permitted to deny something which,
knowingly or unknowingly, he has allowed or encouraged another to
assume to his detriment.
❖ Lim Teng Huan v Ang Swee Chuan – it is enough if, in all the circumstances,
it is unconscionable for the representor to go back on the assumption which
he has permitted the representee to make.
FACTS:
-
The plaintiff acknowledged his consent to the defendant in building a
house on the land. The agreement was that the plaintiff would
exchange his share in the land for some unspecified property that the
defendant was planning to acquire.
-
The defendant completed the house, went into occupation of it, but the
parties then fell out.
-
Question was whether the defendant could counter-claim beneficial
ownership of all the land.
HELD:
-
Held by the Privy Council that the defendant had built the house in
reliance on this agreement and found that it would be unconscionable
for the plaintiff to renege on the assumption that he had allowed the
defendant to make that the defendant would have a sole interest in the
land, provided he compensated the plaintiff.
-
Lord Browne-Wilkinson refers to statement by Lord Oliver in the Taylor
Fashions case: in order to establish a claim based on proprietary
estoppel, it is enough if in all of the circumstances it is unconscionable
for the representor to go back on the assumption which he has
permitted the representee to make.
❖ Taylor v Dickens - claim unsuccessful – to conclude otherwise, ‘one might as
well forget the law of contract and issue every judge with a portable palm
tree’.
FACTS:
-
Involved a scenario where the plaintiff had worked for an elderly widow
who had no family.
-
He effectively worked on the basis that he would not charge as she
was leaving the house to him in her will, which she did.
-
However she then altered her will and the plaintiff did not discover this
until she died.
HELD:
-
Held by Weeks J that there was nothing unfair or unjust in her
changing her will when she was free to do that.
-
However it is the basis on which he reached the conclusion that the
claim would fail is questionable – stated that if you were to take the
approach that unconscionability would decide this question, you may
as well forget the law of contract and issue every judge with a portable
palm tree – idea of a judge sitting on a deserted island under a palm
tree, dispensing justice on a whim – this would lead to too much
inconsistency.
❖ Gillett v Holt
FACTS:
-
Plaintiff had spent his working life as a farm manager for the defendant.
-
The defendant had repeatedly promised the plaintiff that he would
succeed to the farming business and to the house in which the plaintiff
and his family had lived in for more than 25 years.
-
The relationship between the parties deteriorated and the plaintiff was
dismissed from his job.
-
He was concerned that he was not going to get this business and he
was not going to be left this property in his will.
HELD:
-
At first instance, the plaintiff did not succeed – the representations
could not be construed as amounting to an irrevocable promise.
-
Appeal was allowed in CoA: Walker LJ stated that the assurances were
intended to be relied on and they were in fact relied on. Stated that it
was not necessary to look for an irrevocable promise as it was the
other parties’ detrimental reliance on the promise that made it
irrevocable.
-
It is a fundamental principle that equity is concerned to prevent
unconscionable conduct, and that permeates all elements of the
doctrine.
-
Requirement of detriment must be approached as part of a broad
inquiry as to whether repudiation of an assurance is or is not
unconscionable in all the circumstances.
Significance of context
❖ Cobbe v Yeoman’s Row Management Ltd – role which unconscionability
plays in establishing claim based on proprietary estoppel, particularly in a
commercial context, needed to be reassessed in the light of this decision.
FACTS:
-
The claimant was an experienced property developer, and he entered
into an oral agreement with the defendants.
-
The plan was to develop an apartment block with considerable
development potential.
-
The parties agreed that the claimant would apply for planning
permission at his own expense and develop the property. They then
had an agreement about how the profits were going to be distributed.
-
The problem was that after the plaintiff had gone to the trouble and
expense of getting planning permission, the defendants sought to
renegotiate the terms of the deal and tried to back out of what was
agreed.
-
Claimants thus brought proceedings based on proprietary estoppel.
-
Succeeded at first instance, and in the CoA.
-
However, in the House of Lords, the claimants relief was limited to a
HELD:
remedy of damages for his services in obtaining planning permission.
-
He was ultimately unsuccessful in establishing what he wanted.
-
Lord Walker – it is not enough ‘to hope, or even to have a confident
expectation, that the person who has given assurances will eventually
do the proper thing’…’hopes by themselves are not enough’.
-
Lord Walker – the courts ‘should be very slow to introduce uncertainty
into commercial transactions’.
-
Lord Scott – ‘to treat a “proprietary estoppel equity” as requiring…
simply unconscionable behaviour is … a recipe for confusion.’
❖ Thorner v Major – suggests that a more flexible approach will be taken
towards the use of the concept of unconscionability where proprietary
estoppel is not invoked in a commercial context.
•
Views of McFarlane and Robertson (2009) 125 LQR 535.
-
They express the view that the decision in Thorner by implicitly
rejecting the limitations set out in Cobbe, allows proprietary estoppel to
continue to perform its role of protecting those who reasonably rely on
assurances to their detriment.
❖ Coyle v Finnegan
FACTS:
-
The plaintiff had worked on a farm for the deceased for many years.
-
There were promises made that he would be left the farm in the
deceased’s will.
-
Deceased altered his will in the first instance to leave the plaintiff with
some money but then cut the plaintiff out of his will completely.
-
Deceased had left his house and farm to the defendants who had taken
over the plaintiff’s role in helping the deceased.
HELD:
-
Laffoy J: said that there had been an express representation or
assurance.
-
She was satisfied that the plaintiff had acted in reliance on the
assurance, and had suffered detriment in consequence of what she
termed as his ‘reasonable reliance on the deceased’s assurances’.
-
Satisfied that it would be unconscionable if the plaintiff was not
recompensed for the work that he had done for the deceased over this
period of time.
-
Decided to impose a charge on the property for a sum that she felt was
equivalent to reasonable payment for the work that the plaintiff had
done.
-
Laffoy J also made the point that in this case, unlike in many other
cases, there was an express representation or assurance by the
deceased that he would leave the farm to the plaintiff in his will.
Extent of remedy
❖ Waltons Stores v Maher – the remedy required to satisfy an equity varies
according to the circumstances of the case.
•
Can range from fee simple interest to mere licence.
❖ Commonwealth of Australia v Verwayen example shows how there may be
different outcomes.
-
If a party spends one hundred dollars erecting a shed on a piece of
land which belongs to someone else which is worth a million dollars on
the faith of a representation that the land will be his, clearly the
expectation and reliance-based models are going to yield very
significantly different results.
-
Under the expectation-based approach, the Court would have to
transfer the land in order to fulfil the individual’s expectation.
-
Under the reliance-based approach, you would have to question what
the detrimental reliance is. All that would be necessary would be to
compensate for the detriment suffered, so only the value of 100 dollars.
•
Expectation-based approach – but expectations may be uncertain, not fairly
derived from assurance and/or out of proportion to detriment suffered.
-
Disadvantages:
o An individual’s expectations may be uncertain – subjective
concept.
o Often, the expectation may be out of all proportion to the
detriment suffered.
•
Reliance-based approach – focuses on detriment but this may be hard to
quantify.
-
Advantages:
o Focussing on detriment so perhaps it is more in proportion with
the detriment that is suffered.
o Equally, however detriment may be hard to quantify.
•
Intermediate approach – is expectation disproportionate to detriment
suffered?
Decisions on scope of remedy
❖ Jennings v Rice
FACTS:
-
Claimant had worked for the deceased for many years on a part-time
basis.
-
First as a gardener and then he stated running errands and carrying
out maintenance work about the house. As the deceased became older
he slept at her house to care for her.
-
He was not paid for many years.
-
The deceased died intestate despite having made representations to
the plaintiff that she ‘would see him right’.
HELD:
-
The trial judge held that the claimant was entitled to an award of two
hundred thousand pounds. The claimant was disappointed with this
and appealed to the CoA.
-
His appeal was dismissed.
-
Walker LJ: The equity arises not from expectations alone but from
combination of expectations, detrimental reliance, and
unconscionableness of allowing the benefactor to go back on the
assurance.
-
Although it may be a natural response for the Court to try and fulfil
expectations, if these expectations are uncertain, extravagant and out
of all proportion to the detriment suffered, the Court can and should
recognise the claimants equity should be satisfied in a more limited
way.
-
‘the essence of the doctrine of proprietary estoppel is to do what is
necessary to avoid an unconscionable result, and a disproportionate
remedy cannot be the right way of going about that’.
❖ Suggitt v Suggitt - if expectations are extravagant or out of all proportion to
detriment which claimant has suffered, court should recognise that claimant's
equity should be satisfied in another and generally more limited way.
FACTS:
-
An appeal by the daughter of the deceased against a decision to grant
her brother part of the deceased father’s estate. The son had helped
the father around the farm for no wages and a limited period, but the
daughter felt that he had gotten too much.
HELD:
-
CoA decided to uphold the decision of the High Court.
-
Arden LJ stated that the trial judge had been entitled to hold that there
was sufficient reliance and detriment.
-
She stated that this principle does not mean that there has to be a
relationship of proportionality between the level of detriments and the
relief awarded.
-
Referred to the Jennings v Rice case and stated that what Walker LJ
was saying there was that if the expectations are extravagant or out of
all proportion to the detriment, the Court can and should recognise that
the equity should be satisfied in a limited way.
•
But is this the right question to ask in the light of Jennings?
•
Mee [2013] Conv 280 suggests that the expectation-based remedy was
disproportionate to the detriment suffered, and that on the basis of Jennings a
lesser remedy should have been granted.
❖ Davies v Davies - general principles set out by Lewison LJ.
-
Stated that there must be proportionality between the remedy and the
detriment. This does not mean that the Court should abandon
expectations and seek only to compensate detrimental reliance.
However, if the expectation is disproportionate to the detriment, the
Court should be satisfied in a more limited way.
-
He referred to a sliding scale by which ‘the clearer the expectation, the
greater the detriment and the longer the passage of time during which
the expectation was reasonably held, the greater would be the weight
that should be given to the expectation’.
Relationship between proprietary estoppel and constructive trusts
•
Similarities:
-
It is unfair to allow a party to enforce strict legal rights.
o Both proprietary estoppel and constructive trusts allow for the
creation of informal interests in land, outside the scope of what
would otherwise be permitted by statute.
-
The concept of unconscionability appears to underlie both proprietary
estoppel and constructive trusts.
•
Also differences:
-
The type of interest which will be generated may vary.
-
The time at which of interest arises may vary.
❖ Yaxley v Gotts – same facts can give rise to either – ‘at a high level of
generality there is much common ground between the doctrines’.
FACTS:
-
English case.
-
There was an oral agreement. The plaintiff was promised an interest in
part of a house in exchange for work carried out.
-
At first instance he was awarded a lease over this aspect of the
property on the basis of the doctrine of proprietary estoppel.
HELD:
-
When the matter reached the CoA, it held that the agreement was
unfair. It was enforceable on the basis of a constructive trust.
-
Section 2 of the Law of Property and Miscellaneous Provisions Act of
1989 in England provides that contracts for the sale of land have to be
in writing. Section 2(5) allows for a saver in relation to resulting or
constructive trusts. For that reason the CoA thought it would be
preferable to use a constructive trust approach.
•
Moore in Modern Law Review (2000) makes the point that in this case, it did
not matter that the approaches were different, the result was going to be the
same. However, in another case, the differences between the two doctrines
could be very significant.
❖ Stack v Dowden - Lord Walker now ‘rather less enthusiastic’ about the idea
that two doctrines could or should be completely assimilated.
❖ Thorner v Major - Lord Scott - would prefer to keep proprietary estoppel and
constructive trust as distinct and separate remedies.
FACTS:
-
An individual had worked for many years on an unpaid basis on the
deceased’s farm.
HELD:
-
Scott LJ: did not disagree with the conclusion that the other law lords
had reached – that the appellant could establish his claim based on
proprietary estoppel – he said that the would find it easier and ‘more
comfortable’ to regard his equity as being established through a
remedial, constructive trust.
-
P785: stated that he would regard proprietary estoppel and
constructive trusts as being separate remedies. he would confine
proprietary estoppel to cases where there was a representation which
was unconditional in nature, and in other cases where the
representations were of future benefits and subject to qualification on
account of unforeseen future events, he would deal with those kinds of
cases by using remedial constructive trusts.
•
Biehler: does not agree with Lord Scott’s reasoning – the courts can take
account of unforeseen future events. They can also fashion remedies to take
account of those so-called unforeseen future events.
❖ Finnegan v Hand - open to court where uncertainty in particular to future
promise of bequest in a will to hold that remedial constructive trust arises.
FACTS:
-
Plaintiff had worked on a part-time basis to quite a great extent for the
deceased.
-
He left school early and had basically worked on the basis of
assurances made to him that he was going inherit the deceased’s farm.
-
He was not unpaid but was substantially underpaid.
-
Issue arose regarding the amount of work he had done for which he
was not paid.
HELD:
-
White J: referred to Thorner v Major and stated that the decision in this
case would suggest that it’s open to the Court where it has concerns
about the uncertainty of a promise in relation to something that is going
to happen in the future to hold that a constructive remedial trust or a
remedial constructive trust arises.
-
It would be unconscionable for the plaintiff not to get a remedy.
-
Although the Court may not that proprietary estoppel arose, due to the
uncertain nature of the promises made as to the deceased’s future
intentions, he thought that the most appropriate remedy was to use a
constructive remedial trust.
-
Made an order that the appropriate remedy was half of the farmland
and half of the value of the stock machinery of the farm.
•
But remedial constructive trusts not accepted in England (FHR case).
-
Lord Neuberger: it was authoritatively not a part of Englush law.
-
Virgos: Lord Neuberger is critical of the fact that remedial constructive
trusts may render the law unpredictable.
•
Undermining priorities on insolvency.
-
If you use a constructive trust mechanism, you are creating a
proprietary interest and that may prejudice the rights of the defendants’
creditors.
-
Effectively, there may be unforeseen knock-on effects on third parties
as well.
-
Biehler: proprietary estoppel does not have the same disadvantages,
and a remedy can be fashioned to avoid or to mitigate unforeseen
consequences. Proprietary estoppel is a more flexible type of remedy
and it can be adjusted to avoid unforeseen effects on third parties, in a
way which constructive trusts simple cannot.
Relationship between proprietary estoppel and promissory estoppel
❖ Re J.R. – Costello J concluded that respondent had made out a case of
promissory estoppel - had acted to her detriment on the representation made
to her.
FACTS:
-
The committee of someone who was a ward of Court was trying to
affect the sale of his house as the house had fallen into a state of
disrepair.
-
He had been living in this house with the respondent for many years
and when litigation arose, she argued that he had represented to her
that he would look after her, that she would be sure of a home for the
rest of her life, and that he had left everything to her in his will.
-
He had made various representations over the years saying it would be
her house and there was no issue that, to all intents and purposes, it
looked like a classic proprietary estoppel case.
HELD:
-
Costello J surprisingly held that the respondent had made out a case of
promissory estoppel. Stated that she had acted on this representation
to her detriment, and it would be inequitable to deny that. Effectively,
held that she should have a remedy of being allowed to stay n the
house, rent free, for as long as she wanted.
-
Problem was that the house was very dilapidated. In the circumstances
it would be thus appropriate to order the sale of the house and that
another suitable one for her needs be bought.
•
Criticism of this approach (Coughlan and Mee)- is promissory estoppel really
appropriate here?
-
Mee: Not clear why Costello J chose to rest his judgement on
promissory rather than proprietary estoppel.
-
Biehler: promissory estoppel probably not appropriate here. There are
a lot of underlying issues about whether the promise was even
intended to create legal relationships between the parties, which is a
prerequisite for promissory estoppel.
❖ Waltons Stores (Interstate) Ltd (Australian case)
-
Mason CJ – ‘one may … discern a common thread’.
-
Focussed on the similarities between the doctrines rather than on their
distinguishing features. Talked about the fact that in both cases, you
have a situation where equity comes to the relief of a plaintiff who has
acted to his detriment on the basis of an assumption. It would not be
unfair or unjust if the person who had led to that assumption in being
drawn were to go back on it.
•
Mee – no considered decision to merge estoppels in Ireland.
❖ Thorner v Major - Lord Walker gave consideration to some of the distinctions
between what he clearly viewed as separate doctrines.
-
Promissory estoppel must be based on an existing legal relationship,
usually a contract, but not necessarily a contract relating to land.
-
Proprietary estoppel need not be based on an existing legal
relationship, but it must relate to identified property, usually land, either
owned or about to be owned by the defendant.
-
Lord Walker’s analysis in this case suggests that the two doctrines
have clear differences and will co-exist as separate doctrines.
❖ Cobbe v Yeoman’s Row – Lord Scott referred to proprietary estoppel as a
sub-species of promissory estoppel – this is questionable.
•
The role which unconscionability plays in the doctrine of proprietary estoppel
has given rise to considerable debate and uncertainty.
•
Etherton [2009] Conv 104, 125 - it is ironic that the House of Lords relaxed the
requirements for a constructive trust in Stack v Dowden while at the same
time restricting the doctrine of proprietary estoppel in Cobbe v Yeoman’s Row
Management Ltd.
•
Etherton suggests that ‘[i]t might be said that they have shot the wrong beast’.
Conclusions
Advantages of proprietary estoppel:
•
Flexibility as to remedy.
•
Requirement of detrimental reliance is preferable. It facilitates the courts in
fashioning a proportionate remedy. When they look at what the detrimental
reliance is, they can come up with a fairer remedy that is proportionate to that
detriment.
Disadvantages:
•
Can create uncertainty in relation to rights relating to land where formality
requirements tend to be strict.
-
This is even more of an issue in England as there is even less flexibility
when it comes to formality requirements relating to land in England.
•
Can introduce uncertainty in relation to commercial transactions where parties
can be expected to enter into a contract.
•
Importance of context - views of Neuberger in (2009) Cambridge Law Journal
537, 542.
-
Stated that where parties can reasonably be expected to regulate their
relationship by binding contract if they want to do so, equity should fear
to tread, not where the relationship between the parties is such that
they cannot be expected to have recourse in contracts.
-
Saying that we need to examine the circumstances of the case.
-
Is it a situation where we are reasonable and normal for the parties to
enter into contracts?
-
What would be the norm in the circumstances in question? To have a
contract or to not have one?
•
Proprietary estoppel can play a very useful role where the parties would not
be expected to enter into a contract and that the element of uncertainty that
this can give rise to is probably outweighed by the advantages that the
doctrine offers in terms of addressing unconscionable conduct and seeking to
avoid an unconscionable result.
•
Biehler: while proprietary estoppel does have its disadvantages and it may
sometimes give rise to uncertainty, it has such advantages in terms of
flexibility of remedy that that advantages outweigh the disadvantages.
Problem Question
Ian was a wealthy farmer who had no children of his own. His neighbour’s eldest
son, John, started working as a farm hand on Ian’s farm in 2000 when he was 15
and ever since has worked loyally for years helping Ian manage the farm for very
little pay. John has effectively run the farm business in recent years and on several
occasions has turned down more lucrative offers of work as a farm manager
elsewhere. Although Ian never directly promised John that he would inherit the farm,
he often made comments such as “don’t worry, I’ll see you right” and “this will all be
yours after I’m gone”. Ian also promised his neighbour’s younger son, Paul, that he
could build a house on some of the farm property in 2020, although Paul had never
helped out on the farm. Ian identified the site and Paul had some discussions with a
builder about the building project. However, Ian did not transfer the land to Paul and
the latter has incurred no expense in relation to the proposed project. In February
2022 Ian died and, in a will drafted in 1990 which he had never updated, left his
entire estate to his cousin Emily.
Advise John and Paul as to any possible claims based on proprietary estoppel that
they may have in respect of Ian’s estate.
•
Identify key factual elements.
-
Scenario that is vaguely familiar as it is pretty similar to previously seen
cases such as Gillett v Holt, Thorner v Major, Finnegan v Hand.
-
We have a wealthy farmer who has died. There are two individuals with
whom he had dealings.
1. Introduction.
•
Important to explain what proprietary estoppel does and what its aim is, and
that it provides a means for a plaintiff to establish a cause of action effectively
to prevent someone from insisting on his strict legal rights where this would be
inequitable, having regard to the dealings that have taken place between the
parties.
•
Could say that proprietary estoppel developed as an exception to the
formalities require for the creation of interests in land. could state that the
rationale behind the doctrine is arguably to prevent unconscionable
behaviour.
•
Could mention the importance of context, the different outcomes in cases like
Thorner on one hand, and Cobbe, on the other hand.
•
Looking at this case, it seems to be a type of scenario where the parties are
not likely to have thought about entering into a contract because of the nature
of the relationship.
2. Examine various aspects of the doctrine.
•
Relevant in relation to both John and Paul’s claim.
•
Assurance, reliance, and detriment.
•
Assurance.
-
It does not necessarily have to have been expressed. It must have
been made with the intention that it should have been relied on. Just
expressing an opinion would not be sufficient in this context.
-
Add that it does usually consist of encouragement by words or deeds.
That is what we have here.
-
Lord Walker’s suggestion in Thorner v Major: assurance can be clear
enough. He did add that what amounts to sufficient clarity will greatly
depend on the context.
-
This explanation is better than the ‘clear and unequivocal’ bar set by
Lord Scott as the lower bar allows for more flexibility.
•
Reliance.
-
Seems to be established once it is shown that a representation was
calculated influence some of the judgements.
-
Once an assurance has been established, there tends to be a
presumption of reliance – Gillett v Holt.
•
Explain that detriment would usually involve either expenditure of money or
some other quantifiable financial detriment – something substantial, not
necessarily financial but usually does mean some kind of quantifiable financial
detriment.
•
Unconscionability plays an increasingly significant role in relation to
establishing a claim. For example in Gillett v Holt, that the requirement of
detriment now has to be approached as part of this broad enquiry as to
whether repudiating an assurance is or is not unconscionable in all the
circumstances.
3. How these concepts would play out in the context of the parties and the
problem.
John – is the assurance element sufficiently clear?
-
It is stronger than the rather oblique comments in the Thorner case, but
not as strong as the express assurances made in Gillett.
-
This scenario matches Jennngs v Rice best.
▪
When it comes to reliance, it is likely to be presumed here, as
would be in most cases, that the assurances were clearly relied
upon.
•
When it comes to the detriment in the problem – detriment was clearly
substantial. John worked for many years for very little pay. He turned down
offers of work elsewhere. There is a close comparison in terms of the
Thornery v Major case wherein the individual worked for 20 years and also 10
years before then on a part-time basis.
•
There is assurance, there is reliance, and there is detriment. It would be
unconscionable for john to not get a remedy.
Paul
•
Assurance is not an issue – he was promised the land.
•
Reliance element is probably met – he had discussions with a builder as a
result of assurance, he relied on the assurance.
•
The detriment, however, seems insufficient, not sufficiently substantial. Similar
case is Bracken v Byrne wherein the facts were stronger in the plaintiff’s
favour. The sister ad gone off and made a planning applications with the
builder in that case, but this was not even considered to be sufficient
detriment.
•
Thus, Paul is likely to fail in terms of establishing sufficient detriment.
•
Considering approach in Gillett – would repudiating this assurance be
unconscionable in the circumstances? Probably now.
•
No matter how strong the assurances, without clear evidence of detrimental
reliance, your claim is likely to fail.
Remedy aspect in relation to John
•
Waltons Stores v Maher: the remedy to satisfy an equity varies according to
the circumstances of the case.
•
Irish courts have tended to adopt an expectation-based approach – Smyth v
Halpin.
•
Draw on English material such as Jennings v Rice due to lack of Irish case
law, and particularly a lack of underlying rationale or analysis.
•
However Irish case – Coyle v Finnegan – Although Laffoy J does not spell out
why she held as she did, it is fairly clear from her judgment that she was
carrying out an exercise of a similar nature to that in Jennings.
•
Middle-ground approach adopted in Jennings – what are the expectations of
John in this case, and are these expectations uncertain? Are they extravagant
or out of proportion to the detriment which he had suffered? This is the
Jennings test.
-
•
Answer: no.
To give John less than his expectation would not be proportionate and would
not avoid an unconscionable result.
•
Slight area of uncertainty: we do not know if Emily ever worked on the farm,
thus it is important to point out that you would need more information in this
area – if Emily did not do any work on the farm and did not suffer any
detriment, then there is no reason why Ian should not have a strong claim
based on the elements as discussed.
•
In Thorner v Major, the individual made his will in favour of the applicant but
then destroyed the will as he wanted to change one of the legacies and never
made a new one. This is not the case here. There is no evidence that Ian ever
made a will in which he wanted to benefit John. This arguable renders John’s
case a bit weaker.
Exam Preparation
•
4 hour open book exam.
•
3 essay questions. 2 problem questions.
-
Answer 2 from 5.
-
Essay Q includes one general thematic question.
-
Others may or may not involve themes which extend beyond the topic
– read carefully.
•
2 problem questions.
-
Identify issues, set out legal principles and apply them. It is not always
possible to arrive at a definitive conclusion.
•
Same format as last year.
•
3000 word-limit.
Topics
•
All material is examinable.
•
There may be mixing of topics – natural overlap.
-
E.g. where trust is misappropriated – liability of trustees and equitable
liability to account.
-
Express trusts – formalities, essential elements, and constitution of
trusts.
•
Charitable and non-charitable purpose trusts.
General question – underlying common themes.
-
E.g. unconscionability.
Jurisdictions
•
Where there is a conflict – e.g. secret trusts, rely on Irish authorities.
•
May be asked whether answer would be different if the facts were to arise in
England – charitable trusts – relief of poverty.
•
May be asked to compare and contrast the approach of the courts in both
Ireland and England – e.g. family property disputes.
•
May be useful to refer to English authorities, particularly where there is a lack
of relevant Irish case law – e.g. dishonest assistance. May refer to English
cases where the rationale seems more preferable – e.g. McPhail v Doulton –
certainty of objects in relation to modern discretionary trusts.
•
Where appropriate, it may be useful to refer to authorities from other
jurisdictions – e.g. political purposes – New Zealand and Australia.
•
Where there is no instruction in relation to jurisdiction, refer to authorities
which are most useful in answering the question.
Revision
Liability of Third Parties to Account
Knowing / Unconscionable Receipt
Q. Why are the different approaches adopted in Ireland and England towards
knowing receipt likely to lead to different outcomes?
❖ Frederick Inns and Akindele (test of unconscionable receipt) – different tests.
❖ Frederick Inns: test of actual or constructive knowledge.
-
Unless you have actual or constructive knowledge of the breach of
trust or breach of fiduciary duty, you won’t be liable.
-
Money was received by the Revenue Commissioners with constructive
knowledge of a breach of duty – the Court’s attitude was that the
company’s memoranda of association were documents of public
record, and the Revenue Commissioners should have known and
should have seen the lack of capacity. This approach has been
approved in recent cases.
•
Keane p. 246 suggests that Laffoy J in Fyffes meant that the threshold for a
finding of knowing receipt was lower in Ireland.
-
This means that a defendant is more likely to be liable in Ireland than in
England.
•
There will be situations where the defendant is not acting unconscionably but
is held to have constructive knowledge of the breach of duty such as in
Frederick Inns where the Supreme Court held that the Revenue had
constructive knowledge of the lack of capacity, but it is likely that its conduct
of the Revenue was not unconscionable.
•
So, the outcome in this case is likely to have been different in England.
•
Argued that the Irish standard of constructive knowledge goes too far,
particularly in a commercial context. as effectively what happened there was
that the Revenue Commissioners were put on notice of information that the
Court reckoned they should have been aware of. This is perhaps too stringent
of a standard.
•
Arguable that approach in England is fairer as it is drilling down to see
whether the conduct was really unconscionable.
Baden Scale of Knowledge
Q. How would we deal with discussing the Baden scale in a problem question
considering the Royal Brunei case stated that the Baden scale ‘is best forgotten
about’ ? Is it just worth mentioning that a given scenario would fall within a certain
category and then go on to talk about the issue of dishonesty?
•
Although the emphasis has shifted from knowledge to dishonesty, an
assessment of whether an action is dishonest requires reference to what the
defendant knew - Lord Nicholls in Royal Brunei said that when a court is
called upon to decide whether a person is acting honestly, it will look at all the
circumstances known to the third party at the time and to personal attributes
such as his experience and intelligence.
•
xplain the Baden scale, that the test has now moved to one of honesty and
dishonesty but that the defendant’s degree of knowledge still plays a role in
determining whether he is acting dishonestly will be held liable.
•
Relevance of Baden scale in relation to knowing receipt.
Administration of Trusts
Duty of Investment
Q. When it comes to the duty of investment, can you explain the relationship
between what the trust and the legislation allows, and the standard of care set out in
the caselaw?
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The question of whether an investment is authorized is governed in the first
instance by the terms of the trust instrument.
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In the absence of an express investment clause, or subject to its terms, a
trustee may invest the trust property in accordance with the statutory scheme
- in Ireland this is mainly the Trustee (Authorized Investments) Act 1958 and
any SIs made under it (note importance of regular review and diversification).
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Even where a trustee does not stray outside the ambit of investments
authorised either by the terms of the trust or by statute, he must observe
certain minimum standards in carrying out his duties (Re O’Connor).
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Note that the LRC recommended that a statutory duty of care should apply to
trustees powers of investment.
Express Trusts
Trusts and Powers
Q. Can you explain the difference between trusts and powers and trust powers and
how to tell them apart?
Q. What is the difference between a power and a discretionary trust? Is the
difference based on the other certainties, i.e. if the certainty of words or intention is
not there, is it a power rather than a discretionary trust?
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Fixed trusts: interest which every beneficiary is to take is specified in the trust
instrument. The trustees do not have any discretion to determine either who is
going to benefit, or the extent of their share.
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Discretionary trusts: trustees are under an obligation to do something. It is a
mandatory form of obligation, but they do have a lot of discretion. In
accordance with what the trust instrument sets out, they have discretion to
select who should benefit and to what extent.
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Powers: in some ways similar to discretionary trusts as the donee of the
power does have a discretion as to who should benefit. However key
distinction is that the donee of the power of appointment is not obliged to
exercise that power.
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The key is to analyse language used to try and identify settlor or testator’s
intention - Re Manisty’s Settlement.
❖ McPhail v Doulton – comments of Lord Wilberforce at p. 448, p.450.
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It is striking how narrow and artificial the distinction between a trust and
power is.
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A trust power (power in the nature of a trust) is rare today and could only be
treated as a trust if the court made such a determination.
•
Using discretionary trusts is preferable as these instruments are mandatory in
nature.
Trusts of Family Property
Presumed Resulting Trusts/Common Intention Constructive Trusts
Q. What kinds of contributions are recognised in England but not in Ireland in terms
of beneficial ownership of family property?
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In Ireland, contributions to improvements will not be recognized unless there
is an express or readily implied agreement to this effect (N. v N.).
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In addition, work in the home will not be recognised (L. v L.). Note Mee’s
comments in [1993] Conv.
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In England, the courts may undertake a survey of the whole course of dealing
between the parties and take account of all conduct which throws light on the
question what shares were intended (Stack).
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Many factors in addition to financial contributions may be relevant in
ascertaining the parties’ true intentions (Stack).
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Once a common intention to share beneficial ownership is established, a
whole range of contributions – financial and non-financial – can be taken into
account and a claimant may end up with a beneficial share greater than the
extent of his contributions.
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The focus in England is on what the ‘common intention’ is and so there is not
necessarily the same link between quantifiable contributions and beneficial
share.
Express Trusts/Charitable Trusts
Certainty of Objects / Trusts for the Advancement of Education
Q. Why was the trust void in Oppenheim but not in McPhail v Doulton?
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In Oppenheim the purported trust was for a purpose - education - but in
McPhail for it was for individuals (relatives and dependents of employees).
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In Oppenheim, the purported trust created a perpetuity whereas in McPhail
there was a clause which limited the trust to a perpetuity period (Clause 11).
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In Oppenheim, if the trust was not charitable it would be void as it could not go
on indefinitely (this was also problem in O’Byrne v Davoren).
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If a trust is for individuals or the intended for a purpose which is not for a
charitable purpose, it will be void if it is not limited to a perpetuity period – this
was what happened in Oppenheim and O’Byrne.
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However, in McPhail the trust was valid as it was limited to perpetuity period.