Tuesday, November 18, 2008

EQUITY & TRUSTS LAW

`EQUITY& TRUSTS LAW - AN OVERVIEW

The term 'trust' describes a particular form (or forms) of property holding. Where there is a trust, the legal title holder must apply the property for the benefit of someone else unlike the standard absolute ownership where the owner is free to use the property howsoever he wishes. The person holding the property is a trustee and the person for whose benefit he holds it is the beneficiary and the person who set up the trust is usually referred to as the settlor. In a typical trust, the beneficiary has right against the trustee that the property be applied solely for his benefits, he also have equitable title to the trust property.

Trust could either be expressed (what the owner wanted), while other are impossed by law irrespective of the property owner's wishes. These are resulting or constructive trusts. For a long time English law had both the common law applied by the king's courts and equity applied by the chancery court. These two were merged in 1875.

Trusts are extremely versatile legal devise. Settlors may use them both to provide for family members and to secure their commercial interest. The law imposed trusts ti ensure a just division of the family home upon relationship breakdown, to strip gains from wrongdoers, and to return misapplied property. It is for this reason that trusts play such a central role in English law.

CERTAINTY

To create a valid express trust, the settlor must have intended to create a trust, the trust property must be sufficiently certain and the beneficiaries must have been adequately identified. These are know as the three certainties; intention, subject matter and objects. The purpose of this is to enable the court have adequate information. Trust is intentional and failed gift will not be re-interpreted as trust. No trust will be created if the settlor intended merely to impose some moral obligation on the trustee to use the property for another's benefit. The intention must be legal obligations. The court in establishing whether a settlor intended to create a trust would adopt objective rather than subjective approach. Trust object and subject matter may be uncertain in a variety of ways and to differing degrees. These could be either inexact words (conceptual uncertainty) and not enough factual information (evidential uncertainty).

In respect to certainty of subject matter, the general principle is that the precise identity and location of the trust property, what parts are to go to which beneficiaries must be clearly stated. There is however an exception with homogeneous intangible property, where it is sufficient to identify the source of the trust property from the proportion of that bulk which is to be held on trust. Where a trust if x£ to each of my friend, the trust will succeed so long as any one person can be found who falls within the defined class of beneficiaries. However, where it is x£ to be shared among certain beneficiaries, the trust will only succeed if it is possible to draw-up a complet list of all those who falls within the defined class of beneficiaries.

Where a settlor creates a discretionary trust, the trust will success only if it can be said of any given person that he is or he is not a members of the class of beneficiaries. A discretionary trust will fail, even if its objects are sufficiently certain, it is held to be administratively unworkable or capricious. This is where the class is too big (administrative) and settlor reason for chosing the beneficiaries (capriciousness.) It may be possible to cure uncertainty of subject matter or objects by stipulating for a third party to fix the problem (most useful of evidential uncertainty). If the settlor seeks to make a self declaration of trust, then any uncertainty will result in him continuing to hold the property absolutely, where the property is transferred to a trust, then uncertainty of objects or subject will lead to the trustee holding the property on trust for the settlor.


PURPOSE TRUST


Purpose trusts are set up to use property to promote a particular objective rather than benefit certain individuals. GHowever, the basic rule of English trusts law is that trust must have beneficiaries, where there is no beneficiaries it is not possible to create a purpose trust. This rule is known as the beneficiary principle firmly established in Re Ebdacott (1960) Probition applies only to purpose trust and not to powers for purpose (Re. Douglas (1887. There are however a number of exceptions to the beneficiary princile.

The most frequently cited explanation for the rules come from Marice v Bishop of Durham, which ruled that for trust to be valid it must be capable of being supervised by the courts to ensure that the trustees duties are enforced and the settlor's intentions respected. This is based on the reasoning that i) if a trust cannot be enforced it must fail; and b) it is only beneficiaries that can enforce a trust.

Enforcement of Trusts

The general rule is that a settlor is divorced from the trust once it is created and the trustees and the beneficiary are then left to enforce the trust. There is a counter arguement that if a settlor is still alive, he should be able to enforce the trust in addition to other interested parties.

Must trust be enforceable

There is need to find an enforcer to ensure that the trustees perform their duty. It my be possible however for an honest settlor to enforce a purpose trust to allow if from failure. The difficulty in finding a beneficiary to enforces Sauders v Vaulier right is one the things militating against enforcement of purpose trusts.
Re. Bowes (£5,000 for planting shelter trees for Wemmegil Estate) the court interpreted the owners of the estate as the beneficiary of the trust and gave them the discretion to use the money as they saw fit. In re Andrew's Trusts, a trust for children's education was interpreted to mean the general use of the childred since their education has been provided for.

EXCEPTIONS TO PURPOSE TRUSTS

Anomalous Purposes Trusts - These trust are created by accidents of legal history and they are:

a) Trusts to look after or provide for certain animals - Re Dean (Trust for the maintenance of testator horses and hounds

b)Trust for the contruction and or maintenance of graves and funeral monuments - Re Hooper

c) Trust for saying or private masses - Bourne v Keane.


A second exception is found in Re Denley's Trust Deed provided that the carrying out of the purpose must benefit an individual in a way which is not to remote or indirect; and it must be possible to identify all those who would beneftit.

Other requirements of purpose trusts are that it must be defined with sufficient certainty for the courts to be able to enforce it. Morice v Bishop of Durham; Re. Astor's Settlement Trusts. Secondly, where the purpose is regarded as capricious or unlawful a clearly defined purpose trust will fail e.g. Brown v Burdett (1882), a trust to block up the rooms of a house for 20 years. Finally purpose trust will fail if they do not satisfy the rule against perpetuities (there must be time limit.


UNINCORPORATED ASSOCIATIONS


Two or more people bound together for one or more common purpose. Three issues arising from unincorporated association are:

a) How they acquire such properties
b) How it is held once acquired
c) What happens to it after the association comes to an end.

Features of unincorporated associations;

Members generally understand that they are not free to treat the groups property as if it were their own.

How unincorporated association owns property.

The property is held on trust on behalf by a few people for the association and members agreed to its being used exclusively for the association. The trust contains power to add or remove members based on exigencies of time. The assest are beneficially owned by the members under a trust where the Treasure or a committee is the trustee. In addition there is a contract between all the members governing the application of the property - This is known as contract holding theory recognised in Neville Estates Ltd v Madden (1962); Re. Rechers Will Trust (1972). It is open to the members as a whole to vary the contract to remove the legal restriction.

Gift to Unincorporated Association

This could be transferred to the current members beneficially, the current and future members and on trust for the purpose of the association. The donor transfer the property to the members as a whole, they in turn receive it as a group property and its usage is guided by the contract that it would be used for the purpose of the association. Such property are treated as transferred on trust for the members generally.

Distribution of Property Upon Dissolution of the Association


Upon dissolution of the association, the property could either revert back to the owner or it becomes ownerless and be vested in the crown as as bona vacantia. Re. West Constabulary's Widows Children and Benevolent (1930) fund trust. The property were treated as follows:

Subscrition - Bona vacantia
Raffle and sweepstake - bona vacantia
Collection box - bona vacantia
Donation & Legal - Could return to the owner.

However in Re. Bucks Constabulary Widows and Orphan Fund Trust Society, the court ruled that upon dissolution, members at the time of the dissolution are entitled to an equal share in the association's property precisely because they are equally beneficially entitled to that property. The exception is that where the association is reduced by death or resignation to one person, the property become bona vacantial Re. Bucks.

Political Parties

Contract holding theory of unincorporated association does not apply to political parties Re. Grant Will Trust & Conservative and Unionist Central Office v Bureel Personal Agency Relationship, where the owner donated the property to the treasure to use for political purpose.

The beneficiary principle is satisfied if an apparent purpose trust turn out, on closer examination, a persons trust. The interpretation is that it is to benefit those individual who would benefit from the purpose being pursued.

CHARITABLE TRUST

Charitable trust is an exception to the rule that trusts must have beneficiaries. Charities Act 2006 sets out 13 categories of charitable purpose and modify how to apply the test of public benefit.

Charities enjoys numerous taxation advantages, recognitions is viewed by many as a state-sanctioned stamp of legitimacy or approval. Charities are registered with the Charity Commission and provide information to the Commission on periodic basis. Duge v Turner set out qualification for charity

Traditional Approach - Charitable Uses Act 1601:

Relief of Poverty
Advancement of Education
Advancement of Religion
Other purposes beneficial to the the community

The above are known as Pensel head of charity

Charity Act 2007

Sets out 13 purposes of charity and s.2(2) confirms the case laws on the defintion of charity.


1. The Prevention or Relief of Poverty - Joseph Rowtree Memorial Trust Housing Association v Attorney General - provision of houses for the aged at below market rate

2. The Advancement of Education - Inland Revenue Commissioner v McMuller (1981) Football academic recognised, Research recognised in Re. Hopkins Will Trust

3. Advancement of Religion: s.2(3)changes made to the definition of relition by the Act do not dispense with the requirement of worship in Re. South Place Ethical Society (1980). The trust must not be just religions, but also for the advancement of religion United Grand Lodge of Ancient Free and Accepted Masons v Holborn Borough Council (1975)

4. Advancement of Health or the saving of lives. s.2(2) - Reliefs to the sick is charitable (Re. Resch's Will Trust (1969) Relief of the sick was extended to spritual healing in Funnell v Stewart (1996).

5. Advancement of Citizenship or Community Development s.2(3)(c) - The Charity Commission include providing financial assistance to the port, housing to those in need; helping unemployed to find work, providing education and training, providing financial and technical assistance

6. Advancement of Arts, culture, heritage or science - these were dealt with unde Pemsel classification. Horticulture was recognised as science in Re. Pleasnts

7. The Advancement of Amateur Sport - Starting point is Re. Nottage, where yatch race was no recognised. However more sports and games such as chess, monopoly, etc have been recognised

8. Advancement of human rights, conflict resolution or reconciliation, or the promotion of religious or racial harmony or equality and diversity - these are new areas recognised.

9. Advancement of environmental protection or improvement - For the purpose of trust to be recognised as charitable it must be demonstrated by independent expert evidence that such species of part of environment are worthy or preservation.

10. Relief of those in need by reason of youth, age, ill-health, disability, financial hardship and other disadvantage - s.2(2)(j) introduced by IRC v City of Glasgow Police Athletic Association (1953) and IRC V Baddelley (1955)

11. Advancement of Animal Welfare - recognised in cases such as Re. Moss, Re. Murawski's Will Trust (1971)

12. Promotion of the efficiency of the armed forces of the crown, or of the efficiency of the police, fire and rescue serices or ambulance services - Re. Cray

13. Other purposes s.2(4) - Scotish Burial Reform and Cremation Society v Glasgow Corporation


The 2006 Act removes the presumption of public benefit that previously operated and put the onus on the trust to prove the the charitable trust is for public benefit. Trust for political purpose cannot be charitable and tho include trust for supporting particular politcal party, change of laws in foreign country. Charitable purposes cannot be positively harmful to the public. If it is impossible to carry out the charitable purpose, the cy-pres (as close as possible) doctrine may operate to keep the funds in charitatble domain. In the case of initial failure, it is necessary to show a paramount charitable intention on the part of the settlor befor cy-pres can apply, in case of subsequent failure, cy-pres applies automatically. The perpetuality rule do not apply in same way to charitaable trust as to private trusts. The rule against inalienability does not apply at all and there is a limited exception from the rule against remote vesting.

The beneficiary principle does not apply to charitable trust and the enforcement is carried out by the Attorney-General of the Charity Commission.


FORMALITIES AND THE CONSTITUTION OF TRUSTS

The general rule is that certain transaction must be conducted in certain way for it to have legal effect. This rules means that a party must do more than simply form an intention to make a particular disposition of his property for the disposition to be effect. Courts sometime in trying to ameliorate apparent to which such rules can give rise on individual fact ofter create exception to formality requirement such as in Re. Vanderwell's Trust (No. 2) (1974)

Equity will not perfect an imperfect gigt. Milroy v Lord (1962) A shareholder using deed rather than transfer form was regardes as ineffective declaration of trust. The harshness of this rule was avoided in T Cholthram International SA v Pagavani (2001) - the trust succeed because the donor himself was to be one of the trustees.

Principlein Re. Rose (1952) relying on transfers of shares. When he died the title passed to the beneficiary. When you set to make outright transfer of shares, once all the steps have been taken the sharesare held on trust until the third party completes the process.

Mascall v Mascall (1984) Father and son where the land was transferred and the father later changed his mind. Pennington v Waine (2002) transfer of 400 shares where form was given to the representative of the company's auditors, who did not pass it to the company. It was held that the trust was agreen even when there are still some things to be done.

Other exceptions to the rule that equity will not perfect an imperfect gift are:

a) The rule in Strong v Bird (1874) Where a tranfer property to B and when A dies, B was also made the executioner of A's will

b) Deathbed gifts - donationes mortis cause - donation made on death bed.

Where a promise made by a deed but not supported by consideration is breach the other party can only recover damages for loss caused by the breach. By contract, where consideration has been given, ther is possibilility of specific performance. Equity will not assist a volunteer (one who has provided no consideration. Equity will not allow statute to be used as instrument of fraud (secret trust (full and half secret).

Sometimes if you wannt to make a transfer or other disposition of property all you need to do is to make clear that this is what you want and the tranfer then takes effect. However, often, more is needed. For intance you may beed to express your intenton in a particular form such as in writing, or registration of the new owner. If you want to pass the benefit of property to someone else, there are three basic ways - outright transfer (gift); declare yourself trustee of the property; or you can transfer the property to some third party to hold on trust for your intended beneficiary. A trust cannot arise until the intended trust is properly vested in the intended trustee. An intended beneficiary may also enforce a promise to create a trust if despite not having provided consideration or being a party to the deed, the person who did provide the consideration or the party to the deed holds his right to enforce the promise on trust for the beneficiairy. Trust can usually be created without formality. There are however, two principal exception; trusts of land and testamentary trusts. S.53(1)(b) of the Law of Property Act requires your intention to be evidenced in writing. You can create trust to take effect on your death and this must satisfy the requirement of s.9 of Will Act 1937, which requires the trust to be in writing and signed. A beneficiary trust will usually have an equitable title to the trust property, this interest like other proprietary interest can be transfert to others. An outright transfer of a beneficiary's equitable interest clearly counts as a disposition. So tho where the benefiiciary directes his trustee now to hold the property on trust for someone else. However, there is no such disposition where beneficiary tells his trustee to transfer the trust property outright to someone else, thus bring the trust to an end. Neither is there a disposition where the beneficiary declares himself a trustee of his equitable interest in favour of another, save perhaps where there is a bare trust.

Direction to the trustee to transfer the property to another outright - An equitable interest is like proprtiatary interest which can be a subject matter.

A bare trust is one where your only duty as a trustee is to hold it to the beneficiary's order, to do with it as he directes. Declarations of sub-trust are bot disposition of beneficiary's equitable intrest, and do do not require writing, unless the sub-trust is a bare trust in which care there is a disposition and writing is required. Where a beneficiary surrenders his interest, this does amount to a disposition and so would require writing to be effective under s.53(1)(c) - Newtlon Housing Trust V Al-Suleimen (1999). Disclaimer, where would be beneficiaries rejects any interest under the trust from the onset, does not require writing to be effective - Re. Paradise Motor Co. Ltd (1968)

RESULTING TRUSTS




of trustVandervell v IRCReliefs to the sick is charitable (Re. Resch's Will Trust (1969) Relief of the sick was extended to spritual healing in Funnell v Stewart (1996).

5 comments:

JB Monsese said...

There is a confusion about how to clearly explain the meaning of a trust. The initial point should be the Express trust, where s52LPA & s53LPA apply. If the trust is not identified as an Express trust than equity(Implied trusts and Proprietary Estoppel)should be involved.So let's go with an Express trust.
1-The general rule(Knight v Knight)is about the exitence of the 3 Certainties(Intention, Subject Matter and object)
-For a gift to be valid, 2 certainties are required(Subject Matter & Object), because there is no legal obligation(Re Diggle's case where there was no intention), it is just a moral obligation which can depend on the trustee's discretion.
2-The Subject matter should be clearly identified.Furthermore,the subject matter should be separated from the property if there is a tangible distinction of the shares(Re London Wine Ltd's case and Re Goldcorp Exchange's case).But if the shares are identical, the clarity should be made based on Hunter v Moss(no need of separation).Eventually, for a trust to be valid, the settlor should specify clearly the Subject Matter in avoiding to grant a beneficiary is share, subject to the possession of another beneficiaty(Boyce v Boyce, held void).
2-The biggest issue is about the certainty of object for the fact that it is one of the problem in our society. in Fixed trusts, the method used to identify the Object is the "Complete List test"(Commission v Broadway Cottages)but when dealing with a discretionary trust, the identification of the beneficiaries is based on the "is or is not Test"(Re Baden's Deed Trusts, where the words dependants,and relatives were identified in the scope of certainty).The general rule of Certainty of Object is clearly explained in Morice v Bishop, where the law states that a trust should be enforced by a beneficiary.Otherwise, it should be void. However, the exceptions to that rule can arise when dealing with the Maintenance of animals(Pettingal v Pettingal), maintenance of tombs(Re Hooper's case)and trust with charitable purpose(Funnel v Stewart).Furthermore, a gift made to an uncorporated association(such as a social or sport club)is subject to fail(Not a valid gift), because it has not a charitable purpose,it has not a legal body and it opposes the perpetuity rule(Leahy v AG and Neville v Madden).Meaning, in this particular case, the gift should be made to an ascertainable beneficiary,with a charitable purpose, no perpetuity(s15Perpetuities & Accumulations Act1964) should be involved(Re Denley's case)and cannot be capricious.For the members of a club to make a legal claim of a gift, they should provide an evidence of the rules of the association stating that they are recognised as joint tenants(Re Lipinski's WT). Meaning, if it is not approved by the body(Uncorporated Association)it will be seen as not forming a gift(Re Grant's WT). What is a charity?-s1 Charities Act 2006. Meaning, for an association to be identified as having a charitable purpose it should comply with any list of the charitable purposes cited under s2 4b of the Charities Act2006(Funnell v Stewart).
If equity is involved, meaning the express trust is void, the can provide remedy based on resulting trusts or constructive trust or proprietary Estoppel...Contact Docteur JB Monsese Email:jb_nba@yahoo.com contact available in Facebook. Thank you!

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