Blackwell v Blackwell (1929)

English Equity & Trusts

Blackwell v Blackwell
‘The Artist’s Mistress’ by Charles Sims

Verbal instructions that are then attested and complied with by the named trustees before the death of a testator, fall neatly between the rules of wills and probate and the equitable field of trust law. On this occasion, the wish of a dying man was such that a large sum of money was to be held upon trust for a party outside of his marriage while unknown to his widow.

Having long agonised over his duty to make provisions for a mother and a child borne out of wedlock, it was decided by the testator to set aside several thousand pounds in the wish that five of his closest friends would act as trustees with the express purpose of investing the funds for the benefit of the two named parties, until such time that the trustees elected to provide them with two thirds of the initial sum, before placing the remaining third back into the residuary estate of his final will.

Upon his death, his widow discovered the bequest, and looked to dismiss its validity upon grounds of fraud and contradiction to the terms of the will where his widow and their son were to benefit from his entire estate. As was common to domestic legislation, s.9 of the Wills Act 1837 read that no will (or codicil) shall be valid unless set in writing and signed by the testator in accordance with statute. On this occasion, the instructions given by the deceased were initially verbal, and only put to writing by means of a memorandum drafted by his solicitor, who himself signed as a trustee and submitted it in support of the codicil.

Using the terms contained within the 1837 Act, it was argued that while the trust memorandum was written, the execution of the codicil was oral, and therefore fell outside the powers granted beneficiaries, unless it was in effect, designed to stand for the sole benefit of the widow through the residual estate; in which case the trustees would be acting in fraud should they look to enforce the terms of the codicil.

While decided twice in favour of the trustees, it was later put before the House of Lords, where the rules of equity were scrutinised in conjunction with proven case law. Having examined the principle that ‘equity will not permit statute to be used as a cloak for fraud’, it was found that where a testator propounds a desire to execute a trust, and then proceeds to provide explicit instruction as to its use, any argument that seeks to undermine the intentions of that person through the use of legislation, must then find themselves party to fraud if they would instead stand to benefit from the funds expressly requested for the enjoyment of another.

In circumstances such as these, it was historically preferred that equity imputes the same responsibility as that agreed to by the original trustee, so that they would then act under the same instructions so as to permit the objective of the deceased to be realised, while this transference effectively circumvents the fraud and makes right, that which is prima facie claimed wrong.

Resting upon this proven application of jurisprudence, the presiding Lords established that far from looking to dissect the flaws proposed by the appellants, it was clear that any conflict arising from a lack of signatory validation, was insufficient when looking to overrule the will of the testator against a trust that by all accounts, left no illusions as to its purpose and means of delivery, and so awarded for the trustees while holding that:

“[V]erbal or written instructions communicated by a testator to a legatee and assented to by him create an enforceable trust…”

Milroy v Lord (1862)

English Equity & Trusts

Milroy v Lord
‘Louisiana Bayou’ by Joseph Rusling Meeker

When a man of standing sought to create a trust for the purposes of a relative’s benefit, he was careful enough to provide specific instructions to his trustee, but unfortunately erred in putting them into action. A number of years after his death, the beneficiary challenged the assigned executor, on grounds that his written desire for her to gain lawful receipt was sufficient enough to constitute an enforceable covenant, and that the courts were inter alia wrong to deny it.

In 1852, the settlor drafted a deed-poll that enabled fifty shares of his stock held in the Louisiana Bank to be transferred to his associate, who had become his appointed trustee, on the proviso that under a number of specific conditions he was to hold the shares upon trust for the benefit of his beloved niece. During the time between his grant and the date of her marriage or his death, the trustee was to manage the trust and pay any profits arising from the dividend interest to the beneficiary.

During this period, the settlor also granted the trustee power of attorney over all of his financial matters, and so while it was possible for the trustee to complete the request, he never managed to fully execute transferral under the banking practice policy, which required the participation of either the settlor himself or a qualified solicitor, and where neither was found, that the power of attorney rested not with the trustee, but the bank instead.

When her contest was heard in the first trial, the presiding judge awarded that by virtue of the deed construction, a valid trust had existed, and that the fifty shares were to be reissued by the executor to the existing trustee, where they would be again held upon trust for the niece, as had been the case before the settlor’s death.

When appealed, the Court took the equitable view that a legally incomplete gesture cannot be enforced (equity will not perfect an imperfect gift), and that it was impossible for the settlor to become a self-appointed trustee for the shares discussed. Rather, it was declared that the funds were to be held upon trust by the executor until amendments could be made to the deed that provided for redistribution in the manner first intended, or until the trustee and beneficiary chose to take individual action against him, while the court reminded the parties that:

“[I]n order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.”

Attorney-General for Hong Kong v Reid (1993)

English Equity & Trusts

Attorney-General for Hong Kong v Reid
‘Hong Kong Skyline’ by Bri Buckley

The phrase ‘two wrongs do not make a right’ is virtuous to the truth that misdeeds can never amount to anything more than loss, yet when adopted for equitable purposes, the exact opposite can be found.

After rising through the ranks of Hong Kong administration, a solicitor turned Director of Public Prosecutions positioned himself whereby he was able to accept sporadic bribes in exchange for his obstruction of justice through the failed convictions of known criminals. Having taken over HK $12m in payments, the respondent in this matter invested the funds into three properties, two of which were in title to himself and his wife and the third to his solicitor.

The discovery of his fraudulent behaviour and subsequent criminal prosecution, raised the question of whether by his breach of fiduciary duty as a servant of the Crown, the sums paid were now held upon constructive trust for his former employers, and that any monetary gain following the purchase of the homes was composite to that trust.

Common law principles surrounding fiduciary breach and profit from such breaches have been long held to apply in favour of the trust beneficiary, despite the illegality on the part of the fiduciary when in receipt of bribes from third parties. This is because when acting beyond the remit of the trustee, and in a manner that is dishonest, the action itself becomes legitimate, if only for the benefit of those the fiduciary/trustee was appointed to serve.

This translates that although the respondent allowed himself to selfishly receive bribes in exchange for personal profit, equity would ascribe that his deceit was immediately converted into a positive gesture conferring direct gain to his employers, as no fiduciary can be seen to profit from his breach as previously mentioned. This, by virtue of the fact of those principles, altered the manner in which the respondent not only executed his plans, but provided the Crown with privilege to acquire beneficial interest in the properties purchased, along with any increase their value since initial conveyance.

When considered by the Privy Council, it was quickly agreed that any conditions imputed by the respondents upon the entitlement of his employers to seek recovery of the debts through the homes, failed to override the fundamental obligations owed to him while serving and acting under fiduciary capacity, despite any notion of separateness or mixed investment on his part.

Re Denley’s Trust Deed (1967)

English Equity & Trusts

Denley's Trust Deed, Re
‘Air Pavillon’ by Sonia Delaunay

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”.