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 in order 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 the instrument were challenged when the company 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 so, in 1936, a trust deed was constructed between H and a number of trustees.
The trust 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 through 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 so, the question arose as to liability to pay any excess funds to the Hospital, whether the trust allowed the trustees to sell any part of the land, and the integrity of the trust as to the exactness of the beneficiaries, which were deemed to be indeterminable.
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 became 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; hence, the court upheld the appeal while reminding the parties that:
“[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.”