Trusts exam notes - lecture summaries PDF

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Trusts exam notes: Week 1:  Ownership of an asset can be done through either gift, sell or assign or creation of a trust.  Equity: equality, balance, fairness, even handedness. This is needed to maintain a democratic system, built into our rule making body, built into our judge made law stare dies...

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Trusts exam notes: Week 1:  Ownership of an asset can be done through either gift, sell or assign or creation of a trust.  Equity: equality, balance, fairness, even handedness. This is needed to maintain a democratic system, built into our rule making body, built into our judge made law stare diesis. Everyone is entitled to equal justice- like cases are treated alike, everyone is to be treated equally. Another notion is courts ought to achieve individual justice- decision must be fair to the individual.  Aristotle stated that equity is a ‘correction of the law when it fails for generality.  Sir Edward Coke: started the notion that when an individual is suing the govt they have to sit with the person rather than beside the judge.  Earl of Oxford’s Case 1615: held that the equitable principle takes precedence over common law when the two conflict.  Lord Eldon: Equity will only change a particular area of the law if there is an equitable principle, you can only apply in equity if you fall under the principles of common law.  NZ Supreme Court: established by Ordinance in 1841 that the Court exercised complete jurisdiction in common law and equity.  S 99, Judicature Act 1908 – where a conflict with common law, Equity prevails  Express trust: settlor sets up the trust on the trustees name who holds legal title and has powers, duties and burdens for the beneficiary who owns the title in equity and holds beneficial or equitable title or interest.  Rights in personam: personal rights against the individual, obligor, breach satisfied by personal performance, does not involve delivery or transfer to oblige of identified assets or fund assets.  Rights in rem: rights in assets or fund assets.  Re Lehman Bros: a proprietary claim to trust property which is in a companies hands is a claim that the beneficiary is entitled to in equity. Failure of trustees to preserve that property may give rise to secondary liability. Trusts can reduce the risks of insolvency either personal or corporate by asset partitioning.  Equitable title can be lost if legal title passes into hands of a bona fide purchaser for value without notice (bfpfvwn) or ‘Equity’s darling’  Discretionary trust: settlor defines class and gives the trustee to decide who benefits.  Fixed trust: settlor fixes beneficiary’s interest at outset giving the trustee no discretion  Any property: anything that can be owned. Trustee can change: trust property eg sell shares and buy gold, but beneficial interest subsists despite change. Settlor: can create diff types of equitable interests eg. Life tenancy, remainder, contingent interest, discretionary interest. Equitable interest: in fixed trust can be valuable as prop, beneficiary can sell, give away, leave it under will, create sub-trust. Equitable interest for discretionary beneficiaries: only can hope that discretion is exercised in her favour.

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Saunders v Vautier: if beneficiary is sui juris(of full age and mental capacity) and is entitled to the whole beneficial interest they can put an end to the trust and compel the trustees to hand over the trust property to them. Resulting trust: when for some reason the property returns back to the settlor eg. When beneficiaries not named with sufficient certainty and someone is holding the equitable title/interest then the interests revert back to settlor. Constructive trust: found by court for institutional and remedial situations Inter vivos:

Week 3: three certainties: intention, subject matter and objects  Knight v Knight: Lord Langdale stated this notion of three certainties that ought to be present for a valid trust to be created, certainty of words (intention) to create a trust, certainty of subject matter and certainty of object or beneficiaries.  Certainty of intention: usually can be prominent through use of words. Imperative and mandatory words rather than precatory words which express a wish or a hope. Courts can construe words and declare the existence of a trust. ‘upon trust’ or ‘on trust’  Kinloch v Secretary of State for India: held that there is no magic in use of of the word “trust” because the use of that word alone doesn’t prove existence of a trust.  Thexton v Thexton(NZ) where Salmon J held that “what is needed is the manifestation of an intention to declare a trust.” Burden of proving intention on person alleging the creation of the trust. On the balance of probabilities- Re Snowden.  Pascoe v Boensch: courts can find a trust exists without those words or sometimes a trust doesn’t exist with the use of those words. Intention must be to create trust NOW.  Lambe v Eames the courts will look at imperative words of command which create a duty to do something, the use of such words indicate a trust arrangement is intended.  Comiskey v Bowring Hanbury: left the property to wife “in full confidence” tht she would use the money as she would but then further clause of mandatory terms requiring her to leave property to his nieces by her own will. Case indicated that the whole document ought to be considered to determine the will.  Staden v Jones englishCA : the court indicated that to determine whether there was intention extrinsic evidence outside the confines of the document can be considered. Eg letter by solicitor to show intention to create a trust.  Paul v Constance intention can be inferred is by the donors conduct, they were not married or set up a joint account but they would always use it together, this was a case concerning personal property-money so by him saying money is yours as much as its mine evidenced intention to create trust didn’t have to be in writing because its not land.  Courts may look at conduct in exceptional circumstances: Re Kayford-money placed in separate account. Morrison Kent v Commerce Commission-money placed in separate account.

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If uncertainty of intention in will, court holds no intention to impose any trust on recipient named in will, and recipient holds property absolutely- Re Adams & Kensington Vestry Certianty of subject matter: certianty of the property that is subject to trust and for fixed trust certianty of benecial entitlements for each beneficary. Lehman Brothers International (Europe) (in administration) v CRC Credit Fund Ltd: Arden LJ held a trust cannot be created without property to which it can attach, there must be property that is sufficiently identified. There must be legal title. described in sufficient detail so trustees and court can identify it: ‘bulk of my residue estate’-Palmer v Simmonds in this case the amount of prop was in question and court held that bulk meant greater part but not whole, they held courts will interpret words used in a will or trust but not depart from or elaborate those words. ‘the remaining of what is left’-Sprange v Barnard: held that the residue of the legacy was incapable of being ascertained, so husband was subject to no trust. Mary to have small part of what is left’-White v White: this was held too vague and the gift failed. Re London Wine Co:Company imported wine and stored it in their warehouses , some cases held for customers after payment had been received C would get certificate of title listing quantity of wine. Held that certificates could not confer any equitable interest over specific bottles. It was held that a settlor can not declare itself a trustee of 20 unascertained bottles of wine in the cellar containing 80 bottles. Unsecured creditors of a bankrupt wine trading company, London Wine Co (Shippers) Ltd, argued that they should be able to claim the bottles of wine they had paid for. The fine wine company had gone into receivership, and the remaining wine stock was a valuable asset. The bottles that the customers had bought had not yet been individually identified. The company had not even promised to provide wine from its current stocks.Oliver J held that even if the company had said the wine was to come from current stocks, the trust would in any event have been uncertain. There could be no award for specific performance because the Sale of Goods Act required similarly that any goods be ascertained. In the course of his judgment, Oliver J said as follows. No trust Re Goldcorp: customers has purchased non-allocated gold, which was stored by Goldcorp Goldcorp Exchange Ltd had a business of holding gold reserves in coins and ingots for customers wishing to invest in gold. Some gold was held for customers, but the levels varied from time to time. The company's employees also told customers that the company would maintain a separate and sufficient stock of each type of bullion to meet their demands, but in fact it did not. The Bank of New Zealand on 11 July 1988, being owed money by Goldcorp Exchange Ltd, petitioned for the business to be wound up. It transpired that Goldcorp had not held anywhere near enough money for the members of the public, around 1000 people, who had supposedly bought gold with it, even though in their contracts they were entitled to delivery of the gold (in 7 days, for a fee) if they wished. The company also lacked

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enough assets to satisfy the debts to the bank. The members of the public alleged that the gold that remained in stock was entrusted to them. The bank argued that because the gold stocks had never been isolated, it did not, that all the gold customers were unsecured creditors and that its security interest (a floating charge) took priority. Jonathan Sumption QC represented the bank. The Privy Council advised that the customers had no property interest in the gold, and therefore the bank could use it to satisfy its debts. The customers' purchase contracts did not transfer title, because which gold specifically was to be sold was not yet certain. Although Goldcorp's brochures had promised title, a trust did not arise because there was no declaration of it. There was not enough gold to satisfy the claims, even though it was promised that the gold would be set aside. It was contrary to policy to imply a fiduciary duty simply because there was a breach of contract. It was also rejected that equity required any restitution of the purchase money. Delivery of unascertained goods. Property that is to be subject to the trust. Clearly mark property that is subject to a trust. There has to be segregation of the asset Chose in action: shares: Hunter v Moss: an oral declaration of trusteeship of 50 shares of company’s issued share capital of 1,000, even though the particular shares were not ascertained or indetidfied. However, the company was presciely identified and all the shares in the comp were identical, if the trustee retained all 1,000 shares it was not needed to identify which 50 shares subject to trust. Difficulties with this case if later trustee split up the fund, sold the shares or invested. General rule was that trust cannot attach part of a shared fund unless both the fund and the claimed share are identified with certainty. Moss was the founder and director of Moss Electrical Co Ltd, and owned 950 of the 1,000 available shares. In September 1986 he said that Hunter, the finance director, could have 50 of these shares as part of his employment. Crucially, he made no statement or trust involving the other 900 shares. This gift of 50 shares was never implemented because of tax concerns, the risks of a takeover, and mainly because Moss changed his mind. Hunter brought a case against Moss claiming his 50 shares, which rested on two issues. First, whether the language used was sufficient to create a trust, and second, whether or not the trust failed to provide the three certainties because of the lack of segregation between the shares. [7] Prior to Hunter, a valid trust required three certainties – certainty of intention (that the donor intended to make a trust) certainty of subject matter (that the property to make up the trust was identifiable) and certainty of object (that the beneficiaries were identifiable). [8] The normal rule for certainty of subject matter is that the property intended to be in the trust be separated from other property, showing clarity in what is intended to be trust property. If there is no clear separation, the trust will fail. Re London Wine Co concerned creditors of a bankrupt wine trading company, who argued that they should be able to claim the bottles of wine they had paid for. The problem was that these bottles were not individually identifiable, and Oliver J held that: I appreciate the point taken that the subject matter is a part of a homogeneous mass so that specific identity is of as little as importance as it is, for instance, in the

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case of money. Nevertheless, as it seems to me, 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. Made an absolute trust declaration of his shares Fell out with the employee and didn’t want to honour the self declaration of trust. Defendant argued that there was no valid trust created by him by declaration. In the High Court Colin Rimer QC, sitting as a Deputy High Court Judge, held that since the shares were all identical, the lack of segregation between them did not invalidate the trust. The standard case in this area, Re London Wine Co (Shippers) Ltd,[1] was distinguished because the subject matter there was potentially different, while all of Moss's shares were identical. Rimer J instead cited with approval Rollestone v National Bank of Commerce in St. Louis, a decision of the Supreme Court of Minnesota where it was held that there was no need for segregation in such a situation.[10] On appeal, the Court of Appeal held there was a valid trust. Giving the leading judgment Dillon LJ said the trust was valid, first, because it was necessary for there to be one to enforce the terms of the employment contract. Second, he distinguished Re London Wine Co, saying, "That case is a long way from the present. It is concerned with the appropriation of chattels and when property in chattels passes. We are concerned with a declaration of trust".[11] He instead concluded that as there was no tangible distinction between the shares, and as such no reason to hold the trust void just because the shares had not been segregated. As such, the trust was valid. It was held that London wine was about appropriation of assets rather than declaration of trust. Needed to segregate away from the trustees own property – shares were indistinguishable from one another – all of the same class and same value Not all intangible assets are the same – shares can have different value State a percentage and have a valid trust Re Harvard Securities: held that it was possible to have a valid equitable assignment of unappropriated shares but not unappropriated chattels. \\The liquidator of Harvard Securities Ltd, a stockbroking company, applied under the Insolvency Act 1986 section 112 to determine whether the company or its clients held a beneficial interest in shares of which the company held possession. Harvard Securities business was buying blocks of Australian or US shares, which it sold onto clients in parcels. It retained legal title of the shares, as a nominee for each client. But the parcels were not registered individually in the names of the clients. The company then went insolvent. It was also necessary to determine the applicable law. If the clients had a beneficial interest in the shares, it meant that they would not be available for the liquidator. Neuberger J held that English law applied the US shares (Australian law to the Australian shares, up to those sold after the 14 July), and the clients did have a beneficial interest, as there was no need to segregate the property. In principle, it was a valid declaration of trust to say that a percentage of shares would be held on trust, as in the Court of Appeal's decision in Hunter

v Moss.[1] But here, unidentified shares in a class were being treated as beneficial property. If the correspondence had specified the number of shares, there would have been a beneficial interest. Therefore the clients did have an interest in the US shares. The liquidator was at liberty to sell the shares and account to the former clients out of the net proceeds of sale, pro rata, to their respective interests. Australian law was different for the shares acquired before 14 July 1986. In the course of his judgment Neuberger J said the following  White v Shortall Rejects Hunter v Moss Mac-Jordan Construction v Brook Mount Erostin Ltd: Contractual obligation, Money will be paid – some should be put in a retention fund i.e. trust Money had not been segregated  Beneficial entitlement for fixed trust only should be stated. There needs to be a mechanism which can be used by trustees to work out entitlement or there has to be allocation-Boyce v Boyce. in this case gift failed. Certainty of objects: beneficaries need to be defined. Important for when there is a breach must be able to ascertain who has locus standi to go to court to remedy the situation. Trusts must exist for the benefit of people so these people need to be defined, beneficiaries must be capable of being ascertained-Morice v Bishop of Durham.  Conceptual certainty: use of words with accuracy that have real and recognized meaning. Evidential certainty: which evidence is avail to provide individual is a part of the class.  Fixed trusts test: IRC v Broadway Cottages the court applied the ‘complete list test’ requiring the court to be able to draw up a complete list of all the beneficiaries, it was held that if the list can be drawn then certainty of objects is met.  Discretionary trust test: in out test, McPhail v Doulton where a trust is valid if it can be said that any given individual is or is not a member of the class’  Re Baden’s Deed Trusts(No 2) this case applied the is/is not test to determine who were relatives and dependants. In Re Baden’s Deed Trusts (No 2) (CA), each judge gave different interpretations of test:-Sachs LJ ‘Relatives’ certain. Means ‘all descendents of a common ancestor’. For claimants to prove within class. If cannot, prove then out Megaw LJ ‘Relatives’ certain (as above). Class certain if can say of substantial number that within class, even if cannot be certain about substantial number of others Stamp LJ – ‘Relatives’ certain. Means ‘next of kin’. Must be able to say definitely if someone in and if someone out of class  If ojects are uncertain then trustee holds prop on resulting trust for settlor Formalities: the requirement of the trust to be in writing.  For inter vivos(lifetime) disposition of land s25 prop law act 2007 requires it to be in writing. Vital in order to ensure that trustees know to whom they owe duties to, this notion was held by Lord Upjohn in Vandervell v IRC also to prevent fraud it must be only signed by the settlor. S25(4) requirements don’t apply to resulting, implied or constructive trusts. For inter vivos trusts of land created before 1 January 2008, see s 367(3) and (4) Property Law Act 2007  Wills: s11wills act 2007 needs to be in writing and signed.

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Inter vivos trusts for things other than land: there are no formalities, all that is required is merely manifesting intention to create. Belton v Commissioner of Inland Revenue for shares an oral agreement will suffice for a declaration of trust Part performance: s26 PLA7 may ignore statute, Rochefoucauld v Boustead Land was transferred to the defendant on the understanding that it would be held on trust for the Comtesse de la Rochefoucauld however, this was never actually put into writing. The defendant mortgaged the property. The Comtesse sought a declaration that the defendant held the property on trust. The defendant argued the trust was not enforceable due to lack of writing. Held: Equity will not allow a statute to be an instrument of fraud. To deny the existence of the trust would amount to a fraud on the Comtesse. The trust could be evidenced by oral evidence. Lindley LJ: ‘that the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of the person to whom the land is conveyed a...