Equity & Trusts I Revision Notes PDF

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Equity & Trusts Notes Equity - The quality of being fair and impartial. The value of shares. Trusts - An arrangement whereby a person (trustee) holds property as its nominal owner for the good of one or more beneficiaries.

A History of Equity & Trusts Courts of Chancery

Kings Bench

Norman Conquest 1066

Lord Chancellor

Judicature Acts 1873 & 1875

The origins of the common law go back as far as 1066 when the Norman conquest introduced a new system of law for England. Towards the end of the thirteenth century, judges in English Courts developed the common law (a system of accepting and deciding cases based on principles of law shaped in preceding cases) two main courts were responsible for administering law. Frustrated individuals would petition the king and ask for his case to be heard who felt he had not received justice. The Chancellor, by way of delegation from the King dealt with justice to be given in individual cases without regard for the common law principled, this became the basis for equity. The idea of two sets of courts that is the common courts and the Courts of Chancery, gave rise to procedural problems for potential litigants in the nineteenth century. Common law courts did not have equity jurisdiction, and the Court of Chancery did not have the right to interfere with a decision of the Common law courts. To overcome this the Judicature Acts 1873 & 1875 were enacted. Under the 1873 Act the old higher courts were abolished and a new Supreme Court of Judicature was created consisting of the High Court of Justice and the Court of Appeal. The establishment of a single Court of Appeal above the High Court simplified the varied procedures of appeal in civil cases. Equity looks to the intent rather than the form.

Equity will not suffer a wrong to be without a remedy.

He who seeks equity must do equity.

Equity looks on as done that which ought to be

He who comes with equity must come with clean hands.

Equity imputes an intention to fulfil an obligation.

Beneficiaries (Equitable Title)

Equitable Maxims

Where the equities are equal, the first in time shall prevail.

Equity follows the law.

Equity acts in personam.

Where there is equal equity the law shall prevail.

Delay defeats equities.

Equality is equity.

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Trustee (Legal Title)

Settlor (By Will)

Beneficiaries (Equitable Title)

Trusts Main uses of trusts      

Tax Savings (as a gift) Hold land for Minors Hold funds for charitable or non charitable purposes Hold pension funds for employees Enable two or more persons to own land Decide disputes to property by constructive or resulting trusts Types of Trusts

o Express private trust

- Inc. Secret trusts, constructive trusts.

o Secret Trusts - Person who is the settlor, may not want other to know about the particular beneficiary. For example, a child resulting from an affair.

o Purpose Trusts and Unincorporated Associations - No named person who can claim the beneficiary right to the trust. Unincorporated trusts = A company or sports club.

o Charitable Trusts - For a trust to be charitable purpose trust, a specific purpose must be specified. Further, the purpose needs to be able to fit into one of four categories recognised as exclusively charitable. Those categories are: trusts for the relief of poverty, trusts for the advancement of religion, trusts for the

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advancement of education and trusts for other purposes beneficial to the community.

o Resulting Trusts - A resulting trust is a creation of an implied trust by operation of law, whereas an express trust is created by the intention of the disposer. The beneficial interest results to, or jumps back to, the settlor who created the trust. The idea behind resulting trusts is; person X gives property to person Y and then Y holds it on a trust for X.

o Constructive Trusts - Arises by operation of law, doesn't look at the intentions of the parties. For example, since 1940's cohabitation has increased without marriage. Constructive trusts can deal with issues surrounding this. [Tinsley v Milligan 1994] - Miss Tinsley sought possession of a house that was solely in her name. Her relationship with her partner, Miss Milligan, had come to an end. Miss Milligan had been living there and had contributed to the purchase price. It had been in Tinsley’s name alone when they bought it, as a way of claiming more in social security. Milligan later repented and confessed to the benefit fraud. Then Tinsley moved out and sought possession of the house, arguing she was solely entitled. Miss Milligan pleaded that it was the common intention that the property should belong to both of them. The House of Lords held that because Miss Milligan could invoke the presumption of a resulting trust without relying on the illegal purpose, she did have a share in the house.

Gift/Power/Trust Spectrum

GIFT I give the sum of £100,000 to X.

POWER OF APPOINTMENT TO A NON-TRUSTEE

POWER OF APPOINTMENT TO A TRUSTEE

£100,000 to such of my grandchildren as T, acting in her personal capacity, may select and, in default of selection, to my residuary beneficiaries.

£100,000 to such of my nephews as T may select and, in default to selection, to my residuary

DISCRETIONARY TRUST £100,000 to be divided among such of my nieces and nephews as T shall think fit.

FIXED TRUST £100,000 to be divided equally among my children.

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The Three Certainties [Knight v Knight 1840] = Certainty of intention Certainty of the subject matter Certainty of the objects

Certainty of intention (Is a trust intended?) Certainty of intention means that the person who is given the property shall hold it on trust, i.e., it is evidence that the settlor intended to impose a binding obligation that the property was to be held on trust. Precatory words Precatory words do not create a trust, precatory words are words such as request, hope, desire which do not impose a trust and where the recipient can keep the property as a gift. Where imperative words express a command or a duty to do something. [Wright v Atkyns 1823] - “the words must be imperative For example: a) John by will leaves £1000 to Albert and says that he would like Albert to look after his children. (Not Trust) b) John leaves £1000 to Albert on trust for his children. (Trust) [Lambe v Eames 1871] - The Testator had left his estate to his widow, "to be at her disposal in any way she may think best, for the benefit of herself and her family" The Court held that the gift was an absolute gift to the widow and not a trust. Modern approach to precatory words - Following Lambe v Eames it of general understanding that precatory words will not create a trust. Loose Conversations [Jones v Lock 1865] - “I give this to baby and I’m going to put it away for him” [Paul v Constance 1977] - “this money is as much yours as mine” Question of fact

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[Re Kayford Ltd 1975] [Don King Productions Inc v Warren 1999] Certainty of subject matter (What property is to be subject and what are the beneficial interests?) It is a requirement that the subject matter be certain. There is no point in creating a trust by showing certainty of intention if we do not know what property is to be held on trust. 1. Describing the property effectively enough: [Palmer v Simmonds 1854] - Henrietta Rosco, the settlor, said she wanted to create a trust for various people over her property, and then to ‘leave the bulk of my said residuary estate. Held that because the court could not be sure which parts of the residue were meant to be held on trust, the trust failed. The term "bulk" was too uncertain for the court to determine what was meant. [Re Golay 1965] - Executors under a will were directed to allow a beneficiary 'to enjoy the use of one of my flats and receive a reasonable income from my other properties' Although the word reasonable seemed too uncertain the gift was upheld as the court assumed that it referred to the beneficiaries previous standard of living. 2. Considering the type of property: Tangible property must be segregated: [Re London Wine Co Ltd 1986] - Buyers of wine could not establish a trust of particular bottles in their favour as the bottles had not been segregated or identified in any way and so could not claim any priority over the other creditors by saying that particular bottles of wine were held on trust for them. Intangible property impossible to segregate: [Hunter v Moss 1994] - An oral declaration of a trust of 5% of the issued shares of a particular private company was held to be sufficiently certain even though no particular shares had been identified as subject to the trust. It was held that the intangible property are all the same provided that the shares are of the same class and there will be no need to identify what particular shares are to be held on trust. 3. Extent of beneficial interest [Boyce v Boyce 1849] - the trust in favour of the second beneficiary was void as it was uncertain what property the trust applied to.

Exceptions to uncertainty of subject matter: 1. Discretionary trusts 2. Fixed trusts

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Effect of uncertainty of subject matter:

Certainty of Objects (Who are the beneficiaries of the trust?) There is a requirement that the beneficiaries of a trust, known as the objects, be certain. The rules differ depending on the type of trust. For example: Charitable trust

Non-charitable trust

(objects no need be certain)

(Objects must be certain)

Fixed Trusts

Discretionary trusts

4 Consistuent Elements to certainty of objects: 1. Conceptual certainty - refers to the way in which the settlor has described the objects (beneficiaries) of the trust. He may refer to them by name e.g. James, or he may refer to them by concept, e.g. niece, sister in law. Or he may refer to them as a class of objects e.g. employees or a company. Whatever method of description used the settlor must have defined the objects with a meaning which is understood by the trustee. Conceptual certainty requires the trust objects to be defined by dictionary meaning. Conceptual certainty is fundamental to the validity of any type of trust. There will be few problems of conceptual certainty in respect of beneficiaries who are named individuals or referred to as a term such as 'my sons'. Problems will however arise where the settlor defines the objects with reference to a class which is vague. [Re Leek 1969] 2. Evidential certainty - Evidential certainty refers to the range of possible beneficiaries or objects in the aforementioned class and an inability to identify the full range of objects. The class of objects may be defined with certainty so that the trustee understands in whose favour the trust should be exercised. However, a trustee may still find himself facing evidential uncertainty, suppose a settlor directs that a fund is divided equally among the employees and

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ex employees of a company. 'employees and ex-employees' has a set meaning and is therefore conceptually certain; however because the trustee is required to distribute equally he would need an accurate list of all such employees, which would be a near impossible task. The same result will arise where a trust is created in favour of relatives of a settlor, 'relatives' is conceptually certain but there may be evidential problems as to which. 3.Ascertainability - Where the objects of a trust are conceptually certain and there are no evidential problems in identifying the full range of beneficiaries, the trustee may face the problem of ascertainbility. The trustee may well know he has 10 beneficiaries; however he is unaware of the whereabouts and continued existence of one or more of the beneficiaries. If this is the case, the courts provide the option to apply for a Benjamin order established in Re Benjamin, which allows the court to presume that the beneficiary predeceased the settlor, in which case the gift to that beneficiary is to lapse and the trustee is required to equally distribute the gift among the remaining beneficiaries.

4. Administrative workability - The objects of the trust may be defined with certainty so that the trustee knows exactly whose in favour the trust should be exercised, however the problem may be that the size of the potential beneficiaries may be so hopelessly wide that the trustee could not realistically apply his mind to the size of the group. [Re Badens Deed Trust] - 'the definition of beneficiaries may be so wide as not to form anything like a class, so that the trust is administratively unworkable.'

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Effect of uncertainty = property held on resulting trust for the settlor. Curing uncertainty This can arise in two situations: 1) Where there is uncertainty of a particular fact. A third party can be made judge of this. [Re Tucks Settlement 1978] - A chief rabbi was made judge of whether a person was of Jewish blood. 2) Gifts subject to conditions precedent. [Re Barlow’s Will Trusts 1979] - A will directed that a friend of the testator should be allowed to purchase any of her paintings. The court held that a friend was a person who had met the testator frequently when circumstances allowed on a social and no business occasion. On this basis the gift was allowed to stand. Gifts subject to conditions precedent are subjects to less strict tests than those in discretionary trust.

Formalities of a trust There are 5 requirements for a valid trust 1. Capacity (not a minor or mentally incapacitated) 2. The Three Certainties 3. Trust not against public policy of defraud creditor 4. Perpetuity Rules Met 5. THE NESSECARY FORMALITIES The necessary formalities A trust may satisfy all elements of certainty, but its enforceability may depend on formal requirements. Formality is concerned with the issue of whether the creation of the trust requires recourse to writing in some form or another. The basic rule is that a trust of pure personal property can be created without any recourse as long as an intention to create a trust is shown, however a trust of land will require manifestation and proof in writing in order to be valid. The law frequently requires that transactions that manipulate property interests should be marked with some formality. Above all, it requires that the transaction should be embodied in a permanent form, such as writing. So far as making trusts is concerned, however, the basic rule is that no formalities are required. Exceptions: A Will - When the trust is to come into effect on the settlor’s death, it will be made through the medium of his will: and wills must be in writing, signed by the testator, and attested by two witnesses.

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Trust of land - Where the subject matter of the trust is land, then even if it is to come into effect in the settlor’s lifetime (inter vivos), it must be put in writing and signed by the settlor. (There are no formality requirements in respect of resulting or constructive trusts, however). Disposition of beneficial interests - Formalities concerning dispositions of the beneficial interests existing under them; in particular, where a beneficiary transfers his interest to someone else. Such a disposition must be made in writing, and signed by the person making it. FORMAL REQUIREMENTS FOR... 1. A Trust of Pure Personality A deceleration of trust in respect of personal property can be made orally. Therefore a trust of painting or shares in a company need not require any formality. [Paul v Constance 1977] - Mr Constance has separated from his wife and lived with a Mrs Paul. In 1973 Mr Constance received a sum of £950 representing compensation for injuries he had suffered at his place of employment. Both Mr Constance and Mrs Paul agreed that the money should be placed in a bank account. The account was opened in Mr Constance name primarily because he did not want to open a joint account. For a period of 13 months money was deposited to the account by both parties. When Mr Constance dies, his wife took over the administration of his estate, Mrs Paul brought an action against Mrs Constance. Held: had manifested an intention over a long period of time that the money in the account was as much hers as it is the settlor's. 2. Testamentary Trusts A testamentary trust is a trust which arises upon the death of the testator. sometimes referred to as a will trust or trust under will. A trust which is intended to take effect on the death of a person must comply with the formal requirements of a will set out in the Wills Act 1873: a) it is in writing and signed by the testator, or by some other person in his presence and by his direction; (b) it appears that the testator intended by his signature to give effect to the will; and (c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and (d) each witness either: (i) attests and signs the will; or (ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of the other witness), but no form of attestation shall be necessary. 3. Trusts of Land Section 53(1)(b) of the Law of Property Act 1925 requires that a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing.

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Absence of writing makes trust unenforceable rather than void and this section does not prevent the creation of resulting, implied or constructive trusts. Does not have to be in writing initially along as it can later be proved by written evidence for enforcement:   

Rochefoucauld v Boustead [1897] Bannister v Bannister [1948] Lyus v Prowsa Developments [1982 4. Disposition of Equitable Interests What is a disposition of an equitable interest?

For a disposition of an equitable interest there are five formalities required under S53(1)(c): "A disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or his agent thereunto lawfully authorised in writing or by will." A disposition of an equitable interest or trust subsisting at time of disposition must be in writing signed by the person disposing of the same or his agent lawfully authorised in writing or by his will. Failure to do so makes purported disposition void. Equitable interest stays where it is. So although no formality is needed to make an inter vivos trust of anything other than land, formality is required to make a disposition of a beneficial interest arising under it, whether land is involved or not. The rule also applies, apparently, whether the beneficial interest in question arises under an express trust, or a resulting or constructive trust.

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Also under S53(1)(c): 4 Types: 1) Direct Assignment of Equitable Interest to a Third Party 2) Direction to Trustee 3) Contract for Valuable Interest to Assign an Equitable Interest 4) Declaration by Equitable Owner of Him/herself as Trustee (creating a sub-trust) 1) Direct Assignment of Equitable Interest to a Third Party Instead of directing the trustee to hold the equitable interest for another, a beneficiary under a trust may request the trustee to transfer the legal title to a 3rd party. a) If assignor is beneficially entitled - s53(1)(c) does not apply because he creates the beneficial title and retains the legal title. b) Where assignor only holds equitable title - the section must apply if there is a “disposition” 2) Direction to Trustee to hold on trust for another A) Equitable owner direct trustees to hold property on trust for another:  

Grey v IRC [1959] Neville v Wilso...