law of trusts

lecture 01 30/09/13 the nature and the legal classication this is the creation of equity. the paradime case of equitys intervention of common law rights. equity holds the trustee to treat the place well, with the result that the trustee cant treat the land as his own. the separation of equitable from legal ownership. lord browne wilkinson set out the way trusts operates. 1a. westdeutsche case (1996) - equity operates on the conscience of the trustee, the explanation is that the trustee receives property in circumstances where it will be against conscience for him to refuse to be bound by the trust - 2 forms: at rst an express trust in which the set law has consciously and deliberately created a trust, here equity wont allow the trustee to go against the trust and the trust which is imposed by the courts bcos although he seems to own it, it seems unconscionable to let him continue as though he own it ( the constructive trust), by reason of his conduct. - implied trust ( redundant in english law) - trust is built on the combo of property law and personal obligations - identiable property must be present, but the term property is dened more widely than normal. if someone decides to create a trust without ownership, there is no trust, but once a trust is created, the trustee must hold the property for the benets of the beneciaries, equity recognizes the property rights, where the trustee retains a common law prop rights, the beneciaries acquire equitable prop right. the manner in which the trustees are supposed to treat the beneciaries are by the equity, the obligations are recognized and come from equity and they stem from the - the bs rights are not simply attached to the trusts prop. if it was, if the prop was lost, the bs would lose their rights, so they are also owed personal obligations by the trustee to acc for the trust prop or its value, bs are allowed personal action. in express trust the obligations are similar to those that are found in the law of contract, the terms are found in trust doc and would be interpreted and enforced by the courts, there are remedies available when breached, as with contract, but there is a diff. liability for breach of trust is diff from contract; 2 bites of cherry against the trustee, the trustee may still be required to make good the loss to the beneciaries. (this dichotomy of rights is explored further and is one of the themes running through the module) classication of trusts private trusts and public trusts private trusts are trad divided into express and non-express trust (browne wilkinson) non express: resulting and constructive trust, implied is here sometimes an express trust is one which is created by the set law, or by will, trust have often been created even of the set law has not said them bcos the intention of the set law to create has been inferred from action or words. (shd be implied) non express trust: resulting and constructive trust- next semester shizz; a resulting trust comes into existence where prop has been conveyed to another but the equitable interest returns or remains or results with the transferor. the simplest case is where prop is
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trnasferred to the t where the trust does not transfer the who benecial interest, the rest of the prop remains with the transferor. eg a trust for life. a resulting trust of this kind is an automatic resulting trust. it comes into existence by the operation of the law, implications dont matter; however, Lord B-W asserts that the automatic resulting trust comes from the set laws implication, but there is case law that is wholly inconsistent with this view, so just go with the rst. 2nd type is the presumed intention resulting trust where someone contributed to the purchase price of the prop, but is not on the legal doc of the prop. the contributor acquires an equitable share of the ownership interest, bcos it is presumed that the person who contributed didnt intend to make a gift, but assumed he had acquired an interest in the prop. this assumption is rebuttable but if it isnt it becomes an interest. constructive trust: while the express trust arises from the deliberate act of the parties and intentions, constructive trust arises form the law irregardless of the intentions of the parties, there are arguments as to how and when this shd happen. If a trustee obtains the benet of the trusts by fraud, there is no doubt that he has to keep the prop in benet of the real owners, if a prot has been acquired form the prop even though innocently, he has to hold it for the bs. If a stranger assists the trustee in fraud, the stranger is held to be a constructive trustee (brings some problems in the case)(indication of the looseness of the trust)(billings v evans- lord denning old woman case that was followed by ives v high). implied trusts again; the term is sometimes used as an alternative expression for non express trust, at the same time, there are some statutory refs to the implied trusts, but it is clomped with the other types of non express trust. challenges of the classication - peter birks. 1b. he adopted a taxonomy of private law, centered on events and responses to events. he argued that private law rights are the legal response to one of four categories of events and they are: consent(contract), wrongs(torts), unjust enrichment, and other events. conclusion: the trust is a response to any of the four events lecture 02 30/09/13 private law rights may be either personal or prop, legal or equitable. 1b again. to call a trust an express trust gives us why there is a result, the labels resulting in a constructive trust gives no backstory, the trust was once conceived as an event, the placing of trust on the trustee, now it is the result of a series of events, in which the placing of trust is just one. as a result to the events, the express trust is prop and personal rights. In resulting and constructive, the element of personal rights are overshadowed by the prop rights. bcos of this, birks advocated that whatever the response, it shd be regarded as prop one. *more meaningful labels* birks approach was taken up by 2 other ppl; bill swadling 2002, endorsed birks but reclassied it as consensual an non consensual... express trust and presumed resulting trust; trust has appeared as a response to any of the 4 event- if we see the trust as a prop one, he questions if it is a response to anything other than consent, is trust really a proper response here charles rickett 1999; endorses birks taxonomy and diverses in a few points, the main diff is the events that trigger the trust, rickett says that provided that certain responses which are
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labeled as constructive trust are not prop, they shd not be trust. all trust shd be founded on intention or consent. his idea of consent is rather unreal in some circumstances. birks, swadling and rickett all acknowledge that express trust has personal and prop rights, the prop rights are the most important and to varying degrees, the latter 2 wonder if prop trust is a good response to any event other than consent. you cant have a trust unless you have bs with prop interest in the property (beneciary principle), is challenged by hayton and parkinson who say that trust is based on obligations, the enforcement doesnt have to be done by bs with see-able interest, stresses the obligation of the t rather than the prop interest of the bs. enforcement s wider here. They differ as to the range of the enforcer. hayton- as long as there is someone around with a legal power of enforcement, that is sufcient as a valid trust, this is backed by international prop law around the world, he goes on to say recog of trust act 1987 that validates international prop law, so he says we can use the international one. all about enforcing obligations parkinson- the enforcement of trust depends on tension btwn the ts who are threatning to not carry out the trust and the interest of the ppl who will lose out if the trust is not carried out, an enforcer appointed has no interest as cannot be relied upon to enforce the transaction. this person doesnt have to be a b with prop interest, but he must have an interest in the trust being carried out. classication by context family this is the trad context and remains the main one in express trust, can be combined with tax liability and wealth preservation ( a has a large income so pays a higher rate of tax, a decides that such is his income that he doesnt need it all, so he transfers some to b, his aging relatives who he loves and b has a smaller income. Initially a has helped to nance b by giving her a check every year 3k he has to earn 5k to give b, but if he creates a trust which producces an income for b, he can help b without so much trust for himself. he can generate a trust blah with b as the beneciary, the effect is that a no longer pays tax on this b does, and since it is 20% instead of as 40% this becomes cheaper on a, if b was paying no tax at all, he would be even better of). machinery of co-ownership resolution of prop disputes ( the trust is used to resolve and accommodate family prop disputes) charity although here is no direct link between the 2, most charities operate as trusts, less money spent, benet to the donor and the donee. commercial there is a tendency to see that trust only appears in the private(family) context, the trust has grown to the comm context. - pension plans: most occupation pension plans are established and administers under trust law, pensions are paid into a trust fund and the powers are laid down by the trust doc and there is a trust board that reg all this, fundamentally, pensions are trusts... anytime there is an inquiry as to wether this is the right way, the conclusion has been that yes it is. the last one was 20yrs ago though (robert maxwell was raiding the pension
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funds of all his companies to fund his lifestyle and other businesses, disappeared form his yatch, stole 400m, another review, trust was still found to be the right machinery). Why is trust the right machine not contract or something else? - a. a trust can be tailor made to suit the needs of the company - b. the trust machinery allows the tax advantages - c. a trust 1st of all keeps separate the interest of the employer and the employee and keeps the trust out of the general income of the employer,, safe from insolvency claims. it overall protects the employees or the beneciaries. Mettoy pension trustees (1990) - security for creditors: diff btwn secure and non secure creditors, insisting on securities for large loans esp in mortgages, and the signicance of the distinction when the borrower gets bankrupt. the secure creditor gets pref treatment. trust has become another means of pref treatment, if the prop is being held on trust for someone else, when the trustee gets bankrupt, the prop cannot be part of the discarded one. lecture 03 02/10/13 does the payer simply have to queue up or can he prove security over the other creditors. by establishing trust, you get the whole lot never minding the general creditors. Loans: if someone runs into another, the borrowers obligation is prima facie personal. what if the money is lent for a particular purpose and what if the lender requires the money to be kept in a separate acc till the specied purpose is carried out, if the purpose is not carried out, the lender can collect all his money. Quitclose (1970): company in serious difculties, but brought out dividends and borrowed 200,000 from Quitclose to pay for the dividends, the loans were paid into a separate acc at barclays bank who were their bankers, they were overdrawn at the time. before the dividends was paid, the rasor company went into liquidation, bank wanted to set off the money lent by quitclose against the money overdrawn, Hl decided that the money had been received by road rasor on trust to pay the dividend, and since the trust had failed, the money was held on a secondary trust for quitclose. Since the bank knew about this, they could not claim otherwise. Lord wilberforce: no reason why common law and equity could not work together in this case. Twinsectra (2002): when the money was tranferred, a resulting trust arises. that trust was subject to the borrowers power of duty to apply it to the specic objective. main point was wether the parties intended the money to be of free disposal of the borrower, if yes, the bank would have won, if not , quitclose would have won. The courts went one step closer in Re kayford (1975)and said where there was a loan that gave rise to a debt, the loan debt analysis was excluded. the case deals with prepayment, if the supplier gets bankrupt, the customers that have prepaid w/out receiving their goods become unsecured creditors. the question was wether the issue could be applied as equity rather than as a regulatory measure....read the full case gist on page 13 of the handout. Re farepak: christmas gift scheme where they saved money year round and you collected it at christmas time and buy gifts, they went into liquidation but only the money received for m agents from the last 3 days were put into a separate acc. to whom did the money belong? the agents or farepak until the last 3 days, the last 3 days money was held on trust and the rest was part of the general income of the company.
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Re Lehman Brothers (2009): the indication that the Uk had a nancial crisis showed with their collapse. the lehman bros worked on the eu level and put their customers money in diff accounts even though they were allowed to put it in the main account. when was the trust imposed? when it was received by the brothers or when it was segregated? normally the answer would be when it was segregated but the courts said the trust was imposed when they received the money, cos they said as soon as the money received, they werent allowed to use it as they felt like. imposition of standards for honesty: Cooley (1972) the courts decided to impose a trust in order to provide a basis for another decision they wished to come to on another matter. the defendant was a director at ps company who provided industrial enterprise, he was the hype man. he approached a public gas board and attempted to interest them in a priject, and was denied bcos the gas board didnt employ development companies but they offer a consultancy to mr cooley, he accepted and falsely sated that he was ill and had to give up work to leave the ps company. he made money from it and when p found out, they said they were entitled to prots he made. The courts decided that it would impose a trust on the prot and that the beneciary of the trust was the p company. the courts rejected cooleys rst line of defence that the info from the gas board came in his private capacity, not as a worker of the ps company. the decision as to wether the s company was to be used was not made by cooley, but by the gas board. on the other hand on the facts there were special circumstances, but he acted in bad faith by lying that he was ill instead of telling the truth. Trusts and powers: the conceptual framework express trust, private trusts gift-power-trust spectrum: when one person transfers something to another, he intends to do it fully, the transferor doesnt retain any interest in the prop or tell the transferee what to do with the prop. but we shall look at non-outright transfer. the transfer is on terms that the transferee will deal with it a certain way, usually in the benet of the beneciaries, the terms would involve trusts and powers. however the trustees are under a duty or obligstion to invest thr prop to produce income and divert the income or benet to the beneciaries, the essence of the trust is the duty on the trustee, they must carry out the trust according to the rules made by the set law. the trust is the very antithesis of outright transfer cos the trustees have no interest in the prop, they are simply used as middlemen to divert the benets to the true transferees, the beneciaries. the xed trust answers the question who is entitled to what and when in the trusteeship. (e) it is true the benet is decided by the no of children, he has xed the interest of which the bs are to receive or x the formula. the trustees have no way of changing this and have no use except to carry out the set laws orders. it is the bs that own the trust prop, and if they are all of full age and without disability, they can come together, terminate the trust and share the prop even if its not what the set law wanted.. the law of Saunders v Vautier (1841). Outright sale (no compulsion: one end of the spectrum)___________ Fixed Trust (max compulsion: the other end). btwn the 2 extremes is occupied by other types of trust. Power: it is an authorization given to a person to take certain action regarding a prop. a wide range of admin and appointment. A power of appointment gives the t the power to dispose of the prop to the bs. (b) authorization to d to select the grandchildren to give the money to. the person with the power is merely authorized to appoint the prop to one or more of the possible bs. he does not have to do it. it is discretionary
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lecture 06 09/10/13 the creation of express trust... pg 10 -any trust must be sufciently constituted -express trust can be set up in 2 ways; either the set law can declare himself trustee or appoint somebody else. In the rst sit, there has to be the trust implement and a valid declaration of trust; the second, there must be a transfer of prop and decelartion. - there must be a declaration, in writing or from actions and it must contain, wether there is a trust at all, who or what it is for and what prop is subject to the trust ( the tree certainties- of intention, subject and object) - the rst certainity must be clear which of the ways the trust has been set up and a clear intention to create trust, if this is not too certain, you can derive many answers you dont want to - subject matter; what peop is tp be subject to the trust, if not, not only is there no valid trust, but also the proprted diposition has no legal power. - object: for trust for indivuduals, the set law must list the beneciaries or the class of persons from who he intends the trustee to select. Diff considerations apply according to wether the set law has created the numerous species of trust. If the req. are not satised, the trust will fail, but if the set law has fulled the 2 of the req, then, there is a resulting trust back to the set law.(automatic resulting trust). trust for purposes; you have to distinguish btwn private purpose trustwhich generally speaking are void bcos of the beneciary princy, however for a public/ charitable purpose trust, the absrnce of a b does not matter. some trust have to satisfy certain req as to formalities; a particular form of writing. If the set law is using the second method of constitution, certain formalities have to be followed in order to transfer the prop (land, shares). the second context is that the declaration of trust may have to comply with certain formalities. the 3 certainties Knight v Knight (1840):6A: the classic certainty statement. 1. Certainty of Intention: the transferor has the same aim to benet another person...... the courts have diff the general intention to benet or a particular intention to benet using one over the other. the courts generally disregard the general intention to benet except it the particular intention of the transferor can be shown. the logically prior question is there a trust depends on wether the set law has made it clear by words pr conduct, that he intended to create a trust, deed, will and shizz. can those words be construed as imposing on the transferee a degree of obligation. element of circularity. when looking at the lang, it is clear that technical words are not required, the word trust need not be used, also the use of the word trust does not conclusively show that there is a trust. you have to look at the doc as a whole. Expressions of hope, desire,request (precatory words) are not capable of creating a trust. It has not always been like this, the courts used to construe this as trust, not to deal with trust law but the law of inheritance, to avoid unjust enrichment of will executors ( bcos they could keep any prop not given to any particular person in a will). the case Re Adams and Kensington Vestry;6B: they held this did not make the wife a trustee: 6C: u must look at the whole of the will to get the gist of
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the supposed trust. Nothing that turns the statement of condence to trust obligation. this case shows the laws change in this matter. the disposition became a gift to the wife to do with as she wanted. but in other circumstances the alternatives will be diff and the q would be did the doc try to create a trust or a power. The q arises where you have a disposition of prop in these terms to such of my grandchildren as A shall select does this impose on A an obligation to select, or a power to select and distribute, if they choose. If the trust doc provides an answer as a gift in default if there is no selection, it constitutes a power (Re Hays). unfortunately the opp is not conclusively true, just bcos there is no gift alternative, it does not automatically show a discretionary trust. the court must look for further evidence as to what the set law intended (Burrough) the courts decided that such was the overriding intention of the transferor to benet the class, it provided an obligation on the surviving child. contrasting case is Re weeks- wife to husband for his life and said she gave her husband the power to dispose by will to the children; on the face of it, it is a power:6D: and there is no way to come to another decision. McPhail v Doulton: modern large scale non-discretionary trust (terms of the gift on page 7). Did that create a trust or a power, Mr J Goff and the Ca at rst instance decided it was a trust and not a power, the arguments on either way was evenly balanced, but decided as the law then stood on the certainty of objects, if they had said it was a trust, it would have collapsed the scheme. if they said it was a trust, it would have condemed the scheme to almost certain failure. The HL was unanimous in holding that clause 9 created a discretionary trust not a power:6E: the assumption is that non exhaustive discretionary trust can be distinguished from power that the trustees would have to distribute. q od certainty can come where there is no doc at all. do the oral staements and conduct of the parties constitiute the creation of a trust. Paul v Constance: 6F: - Mr. C left his wife to be with Mrs. P, he got an injury claim and decided to open a joint acc with Mrs. P and add their bingo winnings, the bank manager frowned at this and they had to open it under Mr Cs name but appaz it was made clear that the money was as much hers at it was his. Mr C died and the q was as to who owned the money. the a was that the money was held on trust for mrs p and mr c on equal trust, the trust was created on the words of my c. the courts said it was an express trust even though mr c did not know he was creating one. the courts look that if you intend to create something and the law characterises it as a trust, you intend to create a trust, the same conclusion was reached in Rowe v Prance: 6G: expressly relying on paul v constance, the courts decided it was a trust. Wallbank v Price: there was a very informal letter: 6H: if the H wanted to remain staying there, she wanted no part of it, but if he wanted to dispose of ot, her share shd be given to her 2 children. look at the words in the concept of factual circumstances. it was a home doc,and she intended to create a share of the matrimonial home. lecture 07 14/10/13 Re Kayford (1975): a mail order rm concerned about their insolvency and the insolvency of one of their customers and they put the pre paid customers money in a separate acc for their customers:7A: by instructing the bank to open a separate acc showd intention. Don King v Warren: leading boxing promoters in the Uk and the US entered into a partnership so as to exploit both markets, relationship broke down and shizz happened. the agreements which he alleged were outside the partnership were personally stated as non assingnable to the boxers and the guy and so could not be reassigned. the judge rst
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said that despite the non-assignabliltiy, the partnership gist prevailed:7B: it was the intention for all the benets to be sharable, so the non-assignablity clause did not go. it was sha overturned at the CA. Quitclose case: looked like a loan agreement, but a trust was imposed so the money went back to quitclose if the loanee did not do what he was supposed to do with the money. Certainity of Subject matter can be an interest in land, personal prop, money, shares, legal or equitable, interest in reversion and all, and it even goes wider than than cos it includes the right o sue on a contract. the subject matter can be a non assignable contract (Don King). Swift v Dairywise farms involved the milk quote that is needed for milk production but can exist outside of the prop and has economic value. the only one that cannot have subject matter is no property at all as in Re Ellenborough, a woman wanted to assign prop that she might inherit from the death of her bro and sis, at the time she porported to sign it, there was no prop, so no trust. whatever form the prop takes, it must be specied by the set law with certainty, bcos the trustees m ust know exactly what is and what isnt subject to the trust. the courts have held void non sufcently certain eg the bulk of my estates or for my other houses or for the remaining part of what is left in Sprange v Barnard. but if you have a will and have a specic request, then say the remaining ones, it is easy to calc what it is, so it is ne. Re Golays will trust; the courts are willing to nd certainty from seeming uncertainty; quite a generous approach, since the courts are the ones that nd what is reasonable, it is ne. if you a purporting to create a trust from a larger mass, that part must be segregated so it can be identied form the larger mass. in Re London Wines; had contracted with the comp to buy wine and they paid for it, the comp had started to do the deal, but when the comp went into liquidation, the comp had not segregated the wine for the plaintiffs, so they had to queue up with the other gen creditors. it was reinforced in Re gold corp (1995) was a case abt a company that had a contract with the p to hold gold bullion for their customers in the :7C: it included three group of pliantiffs; the 1st had had their gold gotten and segregated, so they had priority as to their full amount; the 2nd group were not so lucky cos their orders had not been segregated, cos the exchange didnt even have that much at hand, so no trust; the 3rd category was an individual, he placed an order for maple gold leaf coins a rare nd of which the exchange did not normally carry, although they had some, the C could not demonstrate that it had been purchased for him and that it was not part of the bulk. the case seems to demonstrate that not only does it need to be practical to segregate, it must be actually segregated. no reason why the orthodox approach shd not be applied to intagible prop. according to MacJordan v Brookmount (1992): stage payments made to subcontractors at particular times, the money had been put into a particular acc but had not been segregated from the other monies in the acc. however the courts decided the orthodox approach applied equally to intagible prop. they said there shd have been segregation i n a seperate accc. In HUnter v Moss: the courts took a diff approach, the courts held that the d held 50 of the shares for the P; 7D: the d said no bcos they were not segregated from the 950. courts decided there was no need to segregate. 2 underlying motivations for the decision . a the entitlement was actually a term of his contract so by enforcing the trust, they were enforcing his contract and b. the argument was lacking merit bcos there was no way to
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differentiate one share from the other. when the trust prop is intangible, segregation is not required, although that would appear to be a simple explanation, LJ Dylan never said so, it said it was concerned with title in chapel (wine case) and hunter v moss was abt declaration of trust.In Re Havard securities, it was used in another case where it was expressley stated that there was a diff between the tangible and intangible one and used it to explain hunter v moss. Hunter v Moss just ignored the case before and it was very easy to decide on the fact bcos there was sufcent shares to go round, it was not an insolvency case, so u might argue that the proper distinction it make is not btwn tangible and intangible prop but is the would be trustee solvent and insolvent, only in cases of insolvency that u have to be more rigid, bcos you have to allocate the available money and no unsecured creditor be given preference to another. the employer in Hunter v Moss ought leave to appeal that decision, but the HL refused him after Goldcorp so the strict approach need not be applied. Re Lehman bro (2012) according to a reg, any investments by clients were to be segregated but were given the leave to wait before the segregation, at what stage did the trust crystalized. applying the orthodox approach it would be as soon as it was segregated, but the courts said no, it was as soon as they get the money. it seems to be a sensible distinction. Parkinson argues that the debate of trust as part of a larger fund is somewhat misconceived, he accepts that_____________ but says it is satised if 2 conditions are met. a. there shd be identiable subject matter within which the trust prop is located. b. the trust obligation shd be denable within the trust document. the req of certainty of subject matter is to an extent a req of certainty of obligation. in some of the insolvency cases, the lack of segregation reects the fact the at the intended relationship is not that of trustee and b, but that of debtor and creditor. serious doubt as to wether there was any intention to create a trust. Certainty of Objects Generally means the beneciaries are the purported potential beneciaries of the trust. it requires the object of a trust of power must be sufciently certain so that the trustees or the court can execute the trust in accordance with the set laws intentions. Emery refers to this as the cardinal principle and it is seen in McPhail v Doulton :7F:

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