advise on the valididty of these statements PDF

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Summary

1. Zahra died in 2020. Her validly executed will contained the following clauses:
(a) 50 of my 100 bars of gold and 50 of my 950 shares in Boss Electronics Ltd, to be held on trust for Rebekah.
(b) I hereby direct that my three paintings by Rembrandt to be sold and the proceeds given to ...

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Student ID - U1943814 Module Code: LA5014 Equity and Trusts

Q1 According to Lord Langdale MR In Knight v Knight (1840) 3 there are three certainties required to create a valid trust, specifically, certainty of words (or intention), subject matter, and objects. A trust imposes a legal duty onto the trustee’s and failure to execute their duty effectively could result in a breach of trust. Hence, the importance of the three certainties, affording the trustees with a high level of protection by guaranteeing that their duties remain clear and precise. The question to consider here is whether the clauses in Zahra Will, Satisfy the three certainties in order to impose a valid trust.

(a) When property is held in bulk, absolute certainty is required as to which part of the property is being held on trust. Where the property is a part of tangible physical property in bulk, only once the trust property has been separated from the rest will it be certain. The leading case to consider is In Re London Wine Co [1896] PCC 121 where it was determined that no such trust existed, as the wine supposedly put on trust for the customers had failed to be removed from the general stock causing the subject matter to be uncertain and unidentifiable. Mr Oliver J states that ‘to create a trust it must be possible to ascertain with certainty not only what the interest of the beneficiary is to be but to what property it is to attach’ a simple statement is not going to be sufficient given the fact that physical property has different qualities and can go up and down in value, we would need to no which exact bottles are to be held on trust, they are all valuable, but some are more valuable than others. This rule is applicable to all type of physical property whether they vary in quality or not. Fungibles are types of physical property that are interchangeable, legally the same, identical and can be exchanged for others of the same value easily, an

example of this is Gold bullion. Gold bars are generally considered fungible as one bar of gold is equal to another bar of gold. The privy council applied London Wine Co in Re Goldcorp Exchange Ltd [1995] 1 AC 74 where Lord Mustill determined that for a trust to be valid, property must be separated, you must be able to ascertain who is entitled to what property and be able to pinpoint exactly what property is being held on trust in order to justify your rights in the property, here the gold bars are clearly identifiable and ascertainable the subject matter is clear. however, where property such as shares in a trust are a part of intangible nonphysical property, there is no need to recognise the exact shares that are to be kept on trust. The Court of Appeal in Hunter v Moss [1994] 1 WLR 452, determined that a statement of a trust for 50 shares from a holding of 950 was sufficient for certainty of subject matter. Dilion LJ differentiated from Re London Wine Co given that shares are indistinguishable from one another, as opposed to cases of wine and other tangible property which can differ in quality and value. For that reason, in this case no segregation is necessary as holding any 50 of the 950 shares in Boss Electronics Ltd would amount to the same thing and where shares are interchangeable, they are sufficiently certain. The property has also been clearly defined.

While hunter Re Harvard Securities Ltd [198] followed Hunter v Moss (1994) it is important to also note that the law in this area has received many criticisms. Hayton, in [1994] 110 LQR 335, specifically mentions several criticisms to which beneficiaries should take note of. (b)

The subject matter is certain and while Kwame and Nancy, are only referred to by their first names, it should not be difficult to ascertain them, but for the clause to be valid there also needs to be a certainty of words (intention). There are two cases where similar words were used to those found here. A gift `to the absolute use of my wife… In full confidence that she will do what is right as to the disposal thereof between my children’ was held not to enforce trustee duties upon the wife In Re Adams and Kensington Vestry (1884(27 ChD 394 instead of a mandatory duty the wife was considered morally obligated to provide for her husband’s children. In line

with Re Adams and the Kensington Vestry [1884] When interpretating precatory words, a court should look at the whole context and not merely the individual words to make an accurate judgement. Therefore, we need to establish whether the trustee has been commanded to do something. This disposition seems to relate more to the case of Comiskey v Bowring Handbury [1905] AC 84 where the term ‘in full confidence’ was held to create a trust as the testator had later given a clear direction, indicating this was not just a moral obligation. Looking at the disposition as whole, as Zahra went on to say ‘in full confidence that he will follow my instructions’ this shows there was not just simply a moral obligation, Kwame has been instructed to hold half of the sum on trust for Nancy, we now have intention to establish a trust as opposed to Kwame being the absolute owner of the property.

(c) The certainty of objects must be considered here, given certainty of intention and, certainty of subject matter is satisfied. The wording signifies a discretionary trust, meaning the trustees have flexibility and control over the trust assets to allocate them at their discretion to the beneficiaries. Mc Phail v Doulton [1971] AC 424 sets out the test for certainty of objects, Lord Wilberforce stated `can it be said with certain that any given individual is or is not a member of the class?’ Since the Mc Phail Judgement, unlike in a fixed trust, trustees of a discretionary trust are no longer required to put together a complete list of objects (IRC v Broadway Cottages Trust [1955] cH 20, ca) all that is required is conceptual certainty of the class, it must be objectively clear who is going to benefit from the trust, then each individual must demonstrate that they are a part of the class or not. Now if we apply the certainties of object test to the provision is Zahra’s will can it be said with certainty whether each individual is or is not a close relative and friend of Zara’s? in Re Baden’s Deed Trusts (No.2) [1973] Ch 9 The Court of Appeal applied this test to word ‘relatives’ and determined that ‘relatives’ was conceptually certain to meet the terms of the test, all three judges gave a different reason for why the trust was valid, for instance, Stamp LJ held that as the courts would always be able to determine who would be a dependant then the trust was valid. Therefore, the word `relatives has received high judicial authority for being conceptually certain and Zahra’s relatives would be valid beneficiaries and could benefit from the £5 million on trust at the trustee’s discretion.

In Re Barlow ‘s Will Trusts [1979] 1 WLR 279, the testator instructed that ‘any friend of mine’ might purchase a painting in her collection at a lowered cost. The court held this trust to be valid but only because the paintings were held to be individual conditional gifts providing the beneficiaries could prove that they were a friend. However, if this same scenario would have been presented to be a discretionary trust for the testatrix friends it would not have passed the certainty of objects test in McPhail v Doulton given the test for discretionary trusts is tougher than the test for certainty of objects for gifts. The term friends raises issues of conceptual certainty as the meaning changes subjectively, support for this view is shown in Re Barlow’s will trust, Wilkinson identified that “Friends has a great range of meanings; indeed its exact meaning probably varies from person to person. Some would include only those with whom they had been on intimate terms over a long period; others would include acquaintances who they liked’. Therefore, it will be challenging for the trustees to establish who is or is not a friend of Zahra’s and as part (c) concerns a discretionary trust, this clause will not pass the Mc Phail v Doulton test for conceptual certainty. It cannot be said for certain if this would result in the entire trust failing for uncertainty of objects or whether the courts might separate the invalid parts (Re Leek [1969] 1 Ch 564. (d)

This disposition raises questions about certainty of objects and administrative unworkability. Mc Phail v Doulton [1971] AC 424 sets out the test for certainty of objects, Lord Wilberforce stated `can it be said with certain that any given individual is or is not a member of the class?’ Therefore, it’s for the residents of East London to come forward and verify to the trustee’s that they are a member of the class. Megarry V-C in Re Hay’s Settlement Trust [1982] 1 WLR 202 HC suggested that before trustees determine whether a grant is appropriate, a trustee must first survey the ‘width of the field’ and the ‘size’ of the class. There are more than 200,000 inhabitants of East London, this trust may be declared void as the class is so big it may be administratively unworkable. The trustee has a duty to ‘make such a survey of the range of objects or possible beneficiaries as will enable him to carry out his

fiduciary duty’ (Lord Wilberforce in Mc Phail v Doulton [1971]) this is not possible in a class of this magnitude. This is supported by McPhail v Doulton where a discretionary trust created for the citizens of Greater London was considered to be ‘so wide that as to not form anything like a class’ by Lord Wilberforce. Furthermore, the same judgment was reached in R v District Auditor, ex parte West Yorkshire Metropolitan County Council (1986) 26 RVR 24 (QBD), where a discretionary trust was declared void for administrative unworkability over or the inhabitants of the County of West Yorkshire. Lloyd LJ stated, ‘A trust with as many as 2 and a half million potential beneficiaries is quite simply unworkable’. In the event the court determine that this trust is not administratively workable than it will fail. Given that certainty of intention with certainty subject matter is present, the trustees are not able to treat the £2.5 million as an unconditional gift but will retain the sum on resulting trust for Zara’s estate.

(e) Evidence would be required on whether the `collection of rare books’ are able to be identified, otherwise this gift will certainly fail for the lack of certainty of subject matter, as the trustee will not be able to determine what property is being held on trust. This is similar to Peck v Halsey [1720] 2 PW 387 where a gift of `some of my best linen’ was void for uncertainty. If the courts find the subject to be certain, we must then consider Zahra’s request for the proceeds to be ‘split equally between those of my sons Farhaz and Adeel that have a successful legal career’. This looks like a gift with a condition precedent, which the beneficiaries must meet to benefit from the trust. In Re Allen, Faith v Allen [1953] it was held by Lord Evershed MR that a gift with a condition precedent would be considered valid if a person without a doubt qualifies. The example Lord Evershed used was ` A condition precedent that the devisee should at some relevant date be a tall man would be valid’, even though tallness is subjective, it could be said that the testator fulfilled the condition at a reasonable standard. Using this analogy, Farhaz will not be entitled to the proceeds as he had not perused a legal career like Adeel however as he is a successful businessman the court may find that he reasonably satisfied the condition.

Q5

The general principle is that when a breach of trust is committed by a trustee, the trustee is then personally liable to the beneficiaries to provide compensation for any loss caused by the breach. As Jeremy has declared himself bankrupt, it would be of little value for the beneficiaries to pursue a personal claim against him. An alternative would be for the beneficiaries to peruse a proprietary claim to recover trust property. The process by which this takes place is known as tracing. Tracing enables beneficiaries to locate trust assets that have been misappropriated by a trustee. The right to trace can be used at common law, but it is not available where the trust property has been mixed with another person’s property. Therefore, the beneficiaries will need to consider an equitable proprietary claim.

In breach of trust, Jeremy takes £1000 from the Alpha trust and places it into his current account which is £2000 overdrawn. The money to pay the overdraft therefore has been dissipated, as there is no asset into which to trace the property. An application of this rule was used in Bishopsgate Investment Management Ltd v Homan [1994] 3 WLR 1270. The Court of Appeal held that beneficiaries cannot trace money into an overdrawn bank account. Therefore, the total funds in the current account would be £8000: Alpha trust money, the £2000 is not recoverable. £4000 of trust property was then spent paying off Jeremy’s mortgage debt. Presuming the creditors are bona fide purchasers without notice, the beneficiaries of the Alpha Trust are not able to trace the £4000 used in the release of Jeremey’s debts into their hands. Nevertheless, the beneficiaries can request to be subrogated to the creditors’ claims against Jeremy. Subrogation is an equitable restitution remedy; it enables the beneficiaries of the Alpha trust to stand in the shoes of the earlier secured creditors. The same rights that the creditors had will apply to the beneficiaries and they will now have an equitable charge over the mortgage property for the extent of the £4000 of trust money that was used to discharge the debt, see Boscawen v Bajwa [1996] 1 WLR 328, CA. This amount left in the current account is £4000 of the Alpha Trust.

£2000 is then spent on a painting, which is now worth £6000. As the seller of the painting is equity’s darling’ a bona fide purchaser who sold the painting for valuable consideration without notice, they are under no obligation to return the money to the beneficiaries, this is an absolute defence. The money has now become a painting, although the nature of the claim has changed, the beneficiary’s property rights in it have not changed. The painting has been traced into the hands of Jeremy, purchased with the Alpha Trust money, the beneficiaries can place an equitable lien over the painting to claim the £2000 and any increase in value. In Re Oatway [1903] 2 Ch 356 the beneficiaries were awarded ‘first charge’ over any asset purchased with trust money. Although Oatway did not involve the investment increasing in value, following the judgment in Re Tilley’s Will Trusts [1967] Ch 1179 Jeremy will be able to assert that the painting is being held on a constructive trust and benefit from the entire increase in value.

Jeremy then spends the remaining £2000 of the Alpha trust money on the final payment of car. In general, car finance is linked to secured loans, the creditors will secure the loan against the property on finance. Assuming the creditors are bon fide purchasers without notice, the beneficiaries of the trust will not be able to trace its £2000 used in the release of Jeremy’s debts into the creditor’s hands. In most cases, the beneficiaries will decide the most beneficial remedy to themselves, they can either request a proportionate share of the property or apply a charge against the asset for the value of trust money used (Foskett v McKeown (2000) UKHL 29, However, in this case as the car has been crashed and is now worthless, tracing will no longer be possible as there is no valuable property to attach a property right to. Typically, in such a case, the beneficiaries could pursue a personal action against the trustee to compensate for the loss, but as Jeremy is bankrupt this would be of little value. There is now a zero balance in the current account.

Jeremy received £1000 as an inheritance, which is paid into the current account. The general rule introduced in Roscoe v Winder (1915), is that when a trustee makes later payments into an account, combining their own money with trust money, the presumption is that the money is not intended to replace the misappropriated funds. The trustee has the property right in this money not the beneficiaries. The

presumption will only be rebutted if the trustee demonstrates a clear intention of repaying the money back. On this basis, the Alpha and Omega beneficiaries are unable to claim that the £1000 inherited by Jeremy signifies any of their trust property.

There is now a balance of £10,000 in the account, which belongs as follows, £3000 to the Alpha trust, £6000 to the Omega trust and £1000 of Jeremy’s inherited money. In Re Hallett’s Estate [1880] 13 Ch D 696 CA, the court uses a presumption of honesty, meaning when the trustee withdrawals money from an account he is assumed to spend his or her own money first. Only once the money in the account falls lower than the amount of trust funds is it then presumed that the trust fund money was used. The rationale behind this rule is to provide protection for the beneficiaries, as where funds are left in the account it is more probable that the money will belong to the beneficiaries.

Jeremy then withdraws £6000 from the account for lottery tickets, applying the presumption of honesty in Re Hallett’s Estate would mean that the £1000 of Jeremy’s own money is compromised first. However, this leaves £5000 which had to have come from the funds of one or both the Alpha and Omega trusts. The position is now that there is a mixed fund between two innocent parties, to determine which trust the funds were taken from, we apply the rule in Clayton’s Case [1816] 35 ER 781 HC, which states that in an active continuing bank account, the trustee is considered to take the money out on a ‘first in, first out’ basis. It was held in Re Mecca that the first in first out rule would only apply where the trustee had taken the money out on different days. As the question does not specify a day, both payments were taken out in December we will therefore assume that they went in on subsequent days. Therefore, given that this is indeed an active current account and as the funds from the Alpha trust was presumed first in, this will be the trust that the funds to purchase the lottery tickets will come from first. However, as there is only £3000 in this account, the other £2000 must have come from the Omega trust. According to Sinclair v Brougham [1914] assets that are purchased from the money of multiple parties are shared amongst them in proportion to their contribution. The court will then need to determine in what proportion the lottery tickets belong to the

two trusts and the trustee in breach. The balance of the current account is now Alpha £0, Jeremy £0 omega: £4000 £3000 of was then dissipated by Jeremy on Christmas dinner kits. Applying the rule in Clayton’s Case, it was £3000 of the Omega Trust dissipated by Jeremy on Christmas dinner kits. Dinner kits are food and thus the property is no longer traceable, no proprietary remedy can be claimed. As the dinner kits were given as gifts, the equity’s darling defence would not apply, and beneficiaries can trace ‘into the hands’ of the innocent volunteers. An innocent volunteer is someone who did not give consideration for the property received and has no knowledge of the breach. Even though Jeremy’s family no longer have the gift, they can still be held personal liability as a knowing recipient, also known as stranger liability. In line with Barnes v Addy (1874) LR 9 Ch App 244, Jeremy’s family can be held personally liable if they had actual knowledge or suspicion of the breach or failed to make inquiries that a `reasonable person’ would make. Whether this personal liability can be imposed, will rest on the actual standard of knowledge of the defendants which is not clear in this is case. The money remaining in the account belongs as follows Alpha £0, Jeremy £0 omega: £1000.

Jeremy gives £1000 to his brother Paul. As Paul was gifted the money, he will be a volunteer, albeit innocent and t...