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Purpose trusts, and those with intended beneficiaries can be hard to distinguish, and so it can often fall to the courts to reexamine the intention of the settlor, so as to avoid failure where none need exist. In a case involving a company trust deed, appointed trustees, valued employees and a forfeiture clause, the terms contained within it were challenged when the company itself looked to sell some of the land granted for use, as was expressly prescribed in the trust.
In 1917, aircraft manufacturing companies Airco (A) and H.H Martyn (H) merged to become Gloster Aircraft Co Ltd; and in 1936 a trust deed was constructed between H and a number of trustees, which provided that a plot of land and a right of way had been conveyed to the trustees to be held on trust for H, and that the trustees were to allow H to take out a mortgage on the land in order to pay A.
In another part of the deed it was agreed that the trustees were empowered to manage the land and grant use of it to the employees (and others by agreement) for sports and recreational purposes by way of weekly subscriptions. The caveat to this arrangement was that when the subscription percentage dropped below seventy-five percent of the male workforce, or the company fell into insolvency, the land reserved was to be sold to Cheltenham General Hospital, and the proceeds used to settle the mortgage owed to A.
Roughly thirty years later, H decided to sell a portion of the land to pay for maintenance work, and at this point the question arose as to (i) liability to pay any excess funds to the Hospital, (ii) whether the trust allowed the trustees to sell any part of the land, and (iii) the integrity of the trust as to the exactness of the beneficiaries, which were deemed to be undeterminable.
When the details of the deed were scrutinised, it was argued that as the nature of the trust was one of purpose and not benefit, it could not be enforced as the purpose was not one of charity but general enjoyment. For this reason it was contended that the trust must fail, and that H was now free to use the land as it wished; however, the court took a different view and explained that while governance of the trust did include the use of the land by parties beyond the employees, it was at the discretion of the trustees and therefore a power rather than a specific point of benefit.
This interpretation changed the nature of the trust from purpose into one of direct benefit, as the names and identities of the employees (including those unsubscribing) were readily ascertainable. This translated that the trust was in every sense, valid, and that to the knowledge of the court, the subscription levels had remained above that of the percentage set, particularly when reference to s.61 of the Law of Property Act 1924 outlined how “the masculine included the feminine”.
“[C]lause 2 (d) of the trust deed expressly states that, subject to any rules and regulations made by the trustees, the employees of the company shall be entitled to the use and enjoyment of the land.”
“Where, then, the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, it seems to me that it is in general outside the mischief of the beneficiary principle.”
“[T]he provision as to “other persons” is not a trust but a power operating in partial defeasance of the trust in favour of the employees which it does not therefore make uncertain.”
“The court can, as it seems to me, execute the trust both negatively by restraining any improper disposition or use of the land, and positively by ordering the trustees to allow the employees and such other persons (if any) as they may admit to use the land for the purpose of a recreation or sports ground.”