VANDERVELL v IRC

Avoidance of duty through the floatation of a private business, was the driving force behind what some might describe as a text book error in accounting procedure, and one that on this occasion, left the owner (and his trusted colleagues) feeling less than savvy.

Having already positioned himself as a controlling shareholder, the director of a vibrant engineering company took steps to create a trust company, before appointing his three friends as trustees for the purpose of two previously created trusts.

When explained that making the firm open to public investment would attract increased wealth, the appellant expressed that he was now looking to set up another trust using 100,000 shares, in order to circumvent excess taxation through estate duty after his passing. 

The initial plan was that an employee trust could serve to not only benefit his workers, but help avoid the inevitable revenue claims; however, nothing went beyond the drafting stage.

After looking further afield, the appellant then chose to secure a pharmacology chair at a nearby surgical college, and set out to establish this at a cost of £150,000, as per the terms set by the institution.

When in many instances a simple cash payment would suffice, the appellant (under advisement by one of his accountant trustees), elected to have his bank transfer the shares to the college, whereupon dividends to the amount of £150,000 would be paid over a specific period.

With consideration of the plan to go public, the trustee then advised that the best course of action would be to request that the college allow for an option to repurchase the shares for a small sum, in order to prevent any concerns by potential stock market investors when assessing the pattern of ownership.

In light of this, the college were asked for their compliance, at which point they duly acquiesced, as their interests were purely fiscal.

This led to a deed of variation comprising payment of £145,000, followed by the immediate repurchase of the 100,000 shares for a sum of £5,000; after which, the property would be held upon trust by the trust company until such time as it would be decided by the trustees to place them in a suitable trust of their choice.

When carrying out the transfer, the bank were asked to leave the transferee name space blank, while following all other legal requirements for a successful gift.

It was made expressly clear by his letter, that the appellant had relinquished any interest whatsoever in the shares, and that the trustees were to act as they saw fit.

Upon receipt of the share certificates, the college signed themselves as shareholders, and were duly added to the company register, in accordance with company laws.

When the Inland Revenue learned of this transaction, it was claimed that the appellant had failed to act outside of his settlor obligations, and that under section 415 of the Income Tax Act 1952, it was declared that any income generated under a settlement paid to another person other than the settlor, and where the settlor has not released himself of his legal and equitable interest, the money will be construed as that of the settlor and taxed accordingly.

When brought before the courts, it was first found that the appellant had acted in error, and that liability to taxation was due.; however, when appealed the outcome was much the same, and so granted leave to present before the House of Lords, the judges took steps to examine the finer points of the transaction. 

While arguments as to section 53 of the Law of Property Act 1925 rested upon written dispositions (or a lack of it in this case), the root of the matter was more about the assignation of the shares, with the intention to recoup equitable and legal title upon the final dividend sum.

This was where the appellant contested that there had been no retention of interest, but rather an alternate means of investment and transferral to his trustees.

With a fiercely divided judgment, it was found on the facts that while the construction of a repurchase option was not entirely fatal to the existence of a disposition, the absence of a named transferee meant that until such time as one appeared, the shares and any revenue attached to them, remained the property of the appellant settlor.

Therefore, the implications of section 415 of the Income Tax Act 1952 remained in effect, and any undeclared revenue was now taxable, while the House reminded the parties that:

“The grant of an option to purchase is very different from a grant of a legal estate in some real or personal property without consideration to a person nominated by the beneficial owner.”

RE MONTAGU

Aristocracy and the burden of constructive trusteeship, are brought to bear when the misinterpretation of an appointed solicitor allows for the sale of valuables designated a place within the family trust. 

By the actions of a family re-settlement drafted in 1923 by Viscount Mandeville (the future tenth Duke of Manchester), for the purposes of himself and each successive Duke, it was stated under clause 14 that the existing trustees to the estate were required, upon death of the ninth Duke of Manchester, to compile an inventory of goods deemed inheritable by the Viscount, prior to including them into the settlement, while paragraph B further expressed they should be held:

“Upon trust after the death of the present Duke or (if and so far as may be found practicable and convenient) during his lifetime to select and make an inventory or inventories of such of the chattels hereby assigned as the trustees in their absolute discretion may consider suitable for inclusion in the settlement hereby made (which selected chattels are hereinafter called ‘the selected chattels’) and to hold the residue (if any) of the said assigned chattels in trust for Viscount Mandeville absolutely.”

After the ninth Duke’s passing, the trustees handed the Viscount a number of items with the intention that he would look to sell them; yet, he failed to compile a list of valuables for retention into the settlement for future Dukes.

When the tenth Duke died in 1977, those items remaining came into possession by his widow, the Dowager Duchess of Manchester, whereupon in 1979, the eleventh Duke of Manchester issued a writ for breach of trust by the surviving trustees of the 1923 settlement, on grounds of having delivered the property to the deceased in the knowledge of their duties under clause 14 of the 1923 settlement.

And so, by virtue of his having sold them, the tenth Duke was also held accountable as a constructive trustee, and liable for payment of the proceeds to the value of those items sold, as was his widow. It was also argued that failure to compile the list resulted in all items of value falling within the scope of the settlement, and that both repossession of those items and recompense for any property sold was due.

Heard over a lengthy ten-day hearing, judge Megarry V-C took pains to explore the definition of constructive trustees, along with the term ‘notice’, as had been claimed by the eleventh Duke.

When the chain of communication was examined, it became apparent that during the lifetime of the tenth Duke, his solicitor had written to him to explain his obligations, but in way that failed to fully embrace the limitations of the settlement, as illustrated below:

“I had a long conversation with Nicholl on Thursday last, and the trustees have agreed that the heirlooms should be released, except the pictures. Under the resettlement executed by you on 20 December 1923 there is a clause by which the trustees can in their discretion release a large quantity of heirlooms and make a new list of such articles as are to remain as heirlooms. The amount obtained for the sale of any articles will be your personal property and the proceeds of sale will not have to be considered as capital trust money.”

From this it was easily construed that the lack of legal knowledge on the part of the tenth Duke would have left him reliant upon the professional expertise of his solicitor, who on this occasion had neglected to mention that the trustees were under a lawful obligation to draft a comprehensive list prior to any passing of estate property.

This meant that prima facie, the deceased was by extension, a constructive trustee by imputation.

However, his ignorance of the facts raised strong argument for his exemption, with particular regard to the five principles of ‘knowing’ as set down by Gibson J in Baden, Delvaux and Lecuit v Société General pour Favoriser le Développement du Commerce et de l’Industrie en France SA; which included actual knowledge, wilfully shutting one’s eyes to the obvious, wilfully and recklessly failing to make honest and reasonable enquiries as to the facts, reasonable and honest knowledge of circumstances indicative of the facts and, honest and reasonable knowledge of circumstances as to cause inquiry.

While the claimants preferred to impute the knowledge of clause 14 upon the Duke, it was clear by the evidence presented, that the deceased was largely ignorant to his legal requirements, and instead wholly dependent on the instructions of his acting solicitor.

It was also noted that sections 199 and 205 (1)(xxi) of the Law of Property Act 1925 specifically exempts beneficiaries under trust from the powers of constructive notice; which left the court little recourse other than to hold that in this instance, the tenth Duke of Manchester was not liable as a constructive trustee, and therefore no action against him could be sustained, while the court reminded the parties that:

“In determining whether a constructive trust has been created, the fundamental question is whether the conscience of the recipient is bound in such a way as to justify equity in imposing a trust on him.”

GREY v IRC

The creation of trusts run closely to dispositions of interest unless properly worded and executed in accordance with English law.

In this matter, the settlor elected to draft and duly sign a declaration of trust, while orally providing the exact nature of the trusts to his trustees; and so, it was this indiscretion that caused the Inland Revenue to seek proportionate stamp duty on grounds that the gesture amounted to a disposition of property and nothing less.

Having chosen to leave consideration for his grandchildren, the settlor created six trusts on two separate occasions, each leaving 3,000 company shares per beneficiary, along with particular instructions as to their use.

When looking to officialise his request, he brought together his trustees, before instructing them as how best to manage the trusts; and so, having finalised six declarations of trust, he signed and sealed them in witness of his solicitor.

A key part of his participation was that as of the date the deeds were completed, the settlor had agreed to renounce his continued beneficial, equitable (and therefore legal) interest in the trust property, and that the trustees were now holding them on trust for the benefit of his grandchildren.

Unfortunately, section 53 (1) of the Law of Property Act 1925 reads that:

“Subject to the provisions hereinafter contained with respect to the creation of  interest in land by parol, . . . (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 by his agent thereunto lawfully authorised in writing or by will.”

The question then raised, was whether by virtue of their release, the actions of the settlor and the construction of the declarations of trust, were tantamount to voluntary dispositions, that under the terms of statute, attracted stamp duty (or ad valorem duty as referred to at the time), or that by lack of written instructions as to their use, the trusts were ineffective and thus exempt from taxation?

When first heard, the judge awarded in favour of the trustees, and cited that no duty was applicable because no ‘disposition’ had been intended nor indicated, except for the choice of words used by the settlor.

Upon appeal, the Court reversed the decision and took the opposing view that despite the intentions of the settlor, the manner in which the trusts were created altered the nature of the relationship between executor and trustee; inasmuch as the settlor had granted beneficial and equitable ownership to the trustees, and could no longer see himself as a trustee of the property, until such time as the grandchildren took title upon his death.

Presented again before the House of Lords, much greater focus was placed upon the consolidation of the Law of Property Act 1924 and The Statute of Frauds, which under section 9 explained:

“[A]ll grants and assignments of any trust or confidence shall likewise be in writing, signed by the party granting or assigning the same, or by such last will or devise, or else shall likewise be utterly void and of none effect…”

Statute of Frauds

The appellants relied this time upon the terms ‘grants and assignments’ to circumvent the requirements of the Law of Property Act 1925; on grounds that because the terms of the trust had failed to take written form, the trusts were both invalid and therefore exempt from duty, and that reliance upon the term ‘disposition‘ was an overextension of the facts and a misdirection of law. 

Upon generous consideration, it was unanimously agreed that despite the intimation that the actions of the settlor were misconstrued, it was relatively easy to interpret that the renunciation of interest was equatable to a disposition, and that under those circumstances, the relevant statutory duty was owed, while the House reminded the parties that:

“[A] direction to a trustee by the equitable owner of the property prescribing new trusts upon which it is to be held is a declaration of trust but not a grant or assignment.”

GISSING v GISSING

The imputation of beneficial rights to property based upon the conduct of the contending parties, has been a delicate issue for the courts for many years.

On this occasion, the lines of demarcation were drawn by the House of Lords, in order to prevent further abuses of equity and its associated maxims.

After marrying at a young age in 1935, the respondent in this appeal joined her husband in the purchase of their first home in 1951 for a sum of £2,695. The mortgage was held in sole title by her appellant husband, who contributed £500 by way of a loan, and £45 from his own savings; while the respondent paid £220 for a new lawn, household appliances and furniture.

During the time of their marriage, the mortgage was paid by the appellant, who also provided the respondent with regular weekly payments for housekeeping costs, while repaying the loan furnished him by his employer.

Prior to the purchase, the appellant had served time in the military, and after finding himself discharged following the war, the respondent secured him a position with a printing firm that she herself worked at.

While the respondent’s earnings remained at a stable £500 p.a, the appellant was successful in his endeavours, and soon established himself as director of the firm, with earnings  of around £3,000 p.a.

After twenty-five years of marriage and the raising of their son, the appellant committed adultery with a younger woman, before leaving the home and beginning a life with her.

This led to their divorce; during which, the appellant continued to pay the mortgage, loan and outgoings on their marital home, until the loss of his job and subsequent financial troubles.

Around this time, the respondent issued a summons declaring absolute ownership of the home, based upon the oral promise by the appellant that she could keep the house.

Under section 53(1) of the Law of Property Act 1925, any declaration of trust with regard to beneficial interest in property must be written; however, the courts can find the existence of such an agreement by equitable principles of resulting, implied and constructive trusts where sufficient evidence allows.

In order to establish this, the court would seek to infer through the conduct of the parties, reasonable proof that when engaging in the purchase of the home there had either been agreement as to how to apportionment of interest was to be divided, or the financial contributions made by each party for the duration of the marriage or occupancy.

In the first hearing, the court awarded that the appellant was, by extension of his financial payments and obvious legal title, the sole owner of the property, and allowed for repossession under law.

In the Court of Appeal, the decision was reversed by a majority, who held that the respondent was entitled to a fifty percent share of the home, while presented to the House of Lords, the recent outcome of Pettitt v Pettitt was taken under consideration, along with the principles of cestuis que trusts.

In Pettitt, the former wife pursued proprietary interest of the sole legal title held by her ex-husband under section 17 of the Married Woman’s Property Act 1882, on a home still subject to an outstanding mortgage.

Her contention was that having occupied the home for ten years, she was entitled to a beneficial interest due to her substantial contributions to both the deposit and subsequent repayments during the time of their marriage; whereupon the husband countered that his individual improvements to the house afforded him an equal share of the property. 

While on that occasion the judgment fell in favour of the wife, there was little with which to compare it to this case; and so, the equitable nature of trusts were explored through the conduct of the respondent.

Here it was held by majority, that while an oral declaration by the appellant suggested otherwise, there was absolutely no evidence that the respondent did, at any time, intend to contribute to the purchase of the home, or the upkeep of mortgage repayments, even when the appellant had suffered financial setbacks.

And so it was for those reasons, that suggestions of trusts of any kind were simply obiter dictum, and that for the purposes of natural justice, the appeal was upheld with costs, while the House reminded the parties that:

“Any claim to a beneficial interest in land by a person, whether spouse or stranger, in whom the legal estate in the land is not vested must be based upon the proposition that the person in whom the legal estate is vested holds it as trustee upon trust to give effect to the beneficial interest of the claimant as cestui que trust.”

HOLWELL SECURITIES v HUGHES

Conveyance of property and the requisite methods of notice when accepting an offer are clearly defined under section 196 of the Law of Property Act 1925, so when a buyer elected to take advantage of an option to purchase, they did so in a way that flirted with the prescribed method yet failed to secure the bargain, despite arguments to the contrary.

Having decided to sell his home, the respondent wrote to the appellants setting out an option to purchase, which expired within a six-month period, while the specific terms of the offer outlined in clause 2, stated clearly that:

“The said option shall be exercisable by notice in writing to the intending vendor at any time within six months from the date hereof…”

Contrastingly, section 196(4) of the Law of Property Act 1925, also explains that:

“Any notice required or authorised by this Act to be served shall also be sufficiently served, if it is sent by post in a registered letter addressed to the lessee, lessor, mortgagee, mortgagor, or other person to be served, by name, at the aforesaid place of abode or business, office, or counting-house, and if that letter is not returned through the post-office undelivered; and that service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.”

Law of Property Act 1925

And so, on this occasion the appellants solicitors drafted a written acceptance of the offer, before hand delivering it to the respondent’s solicitors, while noting within the correspondence that a copy of the written notice of acceptance and a deposit cheque had also been posted to the respondent’s home. 

After receiving the letter, the solicitors telephoned the respondent to advise him they had received the notice and that a copy of it was on its way to him, whereupon he explained that he had already made travel plans; and so, having been instructed by his solicitors to leave despite the expected letter, he vacated his home for a number of days.

After being franked and handed to the post-office, the letter failed to arrive at the respondent’s home; hence, the appellants sought legal action to secure the property, on grounds that a contract for both sale and purchase had been executed, irrespective of whether the posted letter had arrived, while it was also argued that the oral communication between the solicitors and the respondent further confirmed acceptance of the offer, when factoring in the solicitors possession of the letter.

In the first instance, the appellants relied upon Henthorn v Fraser; in which, the Court of Appeal held that:

“Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.”

Henthorn v Fraser

However, the court ruled against them, before the Court of Appeal overruled and distinguished Henthorn in light of an absence of expressed postal methods expressed within the purchase option.

And so, dismissing the appeal on grounds that failure of the respondent to physically take receipt and read the notice became fatal to any claim of right to buy, the court reminded the parties that:

“If a notice is to be of any value it must be an intimation to someone. A notice which cannot impinge on anyone’s mind is not functioning as such.”

IN RE BADEN’S DEED TRUSTS NO.2

In what was to become an overly protracted and yet hotly debated case, the question of trust instrument validity and the limiting scope of trust powers, fell upon the English courts to answer, when what appeared at the time was judicial wisdom, later proved a confused doctrine that polluted similar cases in the years following its declaration.

Having become the director of a highly successful M&E company first established in 1927, and as a man of inherent providence, the deceased had taken it upon himself to draft a trust deed in 1941, that would allow his current and former employees to benefit from financial gifts on a potentially recurring basis, while in addition to this their immediate relatives were also to enjoy similar windfalls, as was contained in clause 9(a) of the trust, which read that:

“The trustees shall apply the net income of the fund in making at their absolute discretion grants to or for benefit of any of the officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit and any such grant may at their discretion be made by payment to the beneficiary or to any institution or person to be applied for his or her benefit and in the latter case the trustees shall be under no obligation to see the application of the money…”

However upon his death in 1960, the appointed executors notified the trustees that the trust was void for uncertainty, as it would be almost impossible to distinguish one employee from another, never mind any relatives known to exist at the time of his passing, which was a position adopted in light of the company’s growth from 110 to 1,300 employees during the preceding years.

Commencing by way of an originating summons in 1967, the trustees argued that clause 9(a) merely represented a power to distribute funds to a class of beneficiaries, while the executors held that the use of the word ‘shall’ created instead, a mandatory trust that once unable to be fully executed, would nullify itself and thus fall within the residual estate.

In the first instance, the Court of Chancery examined the construction of the deed, and found that due to discretionary nature of clause 9(a), the trust conferred a power upon the trustees, and not an immutable instruction that once unfulfilled, rendered the trust void for uncertainty; a statement upon which the executors challenged the findings in the Court of Appeal.

Here, the court referred to In re Gestetner Settlement, in which Harman J had held that when ascertaining the exactness of a trust deed beneficiary class:

“[T]he trustees must worry their heads to survey the world from China to Peru…”

In re Gestetner Settlement

Which was to suggest an immense undertaking for trustees, unless it could be proven that the deed conferred a mere power, in which case, reasonable certainty of the beneficiary class ought then be shown. In light of this precedent, the court subsequently held that as before, the context of clause 9(a) was such that the trustees were afforded discretionary powers, and so held that:

“[C]lause 9 of the deed may properly be construed as the judge did, by holding that it creates a power and not a trust…”

At which point the executors along with the deceased’s widow, pursued their argument before the House of Lords on grounds that clause 9(a) represented a mandatory trust, and that as such, the ruling in the recent Inland Revenue Commissioners v Broadway Cottages directed the decision of the court when it held that:

“[A] trust for such members of a given class of objects as the trustees shall select is void for uncertainty, unless the whole range of objects eligible for selection is ascertained or capable of ascertainment…”

Inland Revenue Commissioners v Broadway Cottages

Which it was argued, was now impossible due to the vast number of both former and existing employees, causal employees and extended family members; a contention that left the House allowing the appeal by way of reference back to the Chancery Court for greater clarification, while also holding that in their opinion:

“[T]he trust is valid if it can be said with certainty that any given individual is or is not a member of the class.”

Once again in 1972, the court reviewed the position on the wording, and thereby meaning of trusts and powers, along with the validity of the trust in relation to section 164 of the Law of Property Act 1925, which stipulated that:

“1. No person may by any instrument or otherwise settle or dispose of any property in such manner that the income thereof shall…be wholly or partially accumulated for any longer period than one of the following…(a)the life of the grantor or settlor; or (b) a term of twenty one years from the death of the grantor, settlor or testator…” 

Law of Property Act 1925

And so with a thoughtful, albeit exhaustible, examination of the deed, the court held that a discretionary trust did exist, and that despite the 31 years since its execution, such an instrument was valid when called into purpose, which echoed the sentiment of the House when the court further held that the trust was valid on the principle that there were sufficient company records to show, and thereby establish, who was reasonably eligible for the benefit of the funds when distributed by the trustees, upon which the executors challenged the judgment before the Court of Appeal one final time.

Here, the executors argued that unless an individual could not be proven as falling outside the scope of the trust, the trust must fail, while the court reasoned that while operating within the bounds of practicality, the trustees had shown that they were equipped to trace staff records back to the inception of the company, and thereby allocate the majority of employees and their immediate relatives, whereupon the court conclusively dismissed the appeal, while simply holding that:

“[A] trust for selection will not fail simply because the whole range of objects cannot be ascertained.”

BORMAN v GRIFFITH

Implication by way of contract, is argued in a case involving the conflict of interests between two tenants and a perhaps disorganised and rushed grant of occupancy by the landlord.

In a time immediately before the Law of Property Act 1925, a landowner sought to let out a part of his estate for a determined period, while under the terms of the lease, there was at the time, a gravelled road that passed by the tenant’s rented property named ‘The Gardens’, which led to the door of the main estate property named ‘The Hall’.

At the time the tenant began his residence, there was also an unfinished bridleway that allowed for access to the rear of the Gardens, albeit given no mention within the contract, nor any reliable evidence that use of the drive had been orally agreed between the two parties.

During this period, and shortly after taking occupancy of the Gardens, the Hall was leased to another occupier, with no issues arising between them.

A few years afterwards, this same tenant vacated the Hall; and so, the landowner let it out to another party for a fixed period; after which, the occupier of the Gardens continued to use the gravelled drive as a means of access to the front of his property, as he had since his lease began.

Two years after taking up residency, the defendant in this case erected a wire fence to prevent the claimant and tenant of the Gardens from using the gravelled drive as a means of access; hence, the need for litigation.

Relying upon the wording of section 62(1) of the 1925 Act, and the fact that there had never been any other suitable means of access to his home, the claimant argued that an easement by way of implication had been granted by the landlord.

When considered by the court, the facts determined that there was a clear difference between the granting of a lease and the conveyance of interest in land or property; and that in this instance, the former applied.

There was however, the principle that under the terms of the contract there could be argued, an obligation to undertake full performance of the rights bestowed the claimant, where unless the contract provides specific exclusion of a right of way between two sharing tenants, the gravelled drive afforded both users equal powers to enforce their rights.

It was on these grounds, that the judge endorsed the action and awarded accordingly, while holding that:

“[A] grantor of property, in circumstances where an obvious, i.e., visible and made road is necessary for the reasonable enjoyment of the property by the grantee, must be taken prima facie to have intended to grant a right to use it.”

TRUSTS

Originating from the latin phrase ad opus, the purpose of a trust is to provide the safe containment of assets (whether those of property or money) on condition that they will be of benefit to another party or parties.

There are many instances in which a trust can be created and it is the intention of this article that we have a look at the more common trusts used today, before explaining their application through suitable case law propositions.

Purpose Trusts

Subject to the same qualifying criteria as that of a will bequest, the terms of a valid trust require that three certainties must be readily ascertainable:

(i) The intention of the settlor
(ii) The subject matter of the trust
(iii) The identity(s) of the beneficiary(s)

The inherent problem with purpose trusts is that they are by nature, constructed so as to benefit an unlimited number of people, although often under a charitable intention.

An excellent example of a purpose trust is the one described in Re Denley, where the use of recreational ground was exclusively reserved for the current and future employees of an aircraft manufacturer; and that, despite presupposition of its failure, the judge upheld its validity on grounds that an approximation of the staff was, in the immediate sense, obtainable.

This allowance was expressed by Goff J who remarked:

“[T]here may be a purpose or object trust, the carrying out of which would benefit an individual or individuals, where that benefit is so indirect or intangible or which is otherwise so framed as not to give those persons any locus standi to apply to the court to enforce the trust, in which case the beneficiary principle would, as it seems to me, apply to invalidate the trust, quite apart from any question of uncertainty or perpetuity. Such cases can be considered if and when they arise.The present is not, in my judgment, of that character…”

Re Denley

Resulting Trusts

Ironically, resulting trusts are express trusts that by their lack of specificity, wound up benefiting the settlor, despite the very wish to relinquish title or interest.

As with the third element of a successful trust, where the identities of the beneficiaries are either remitted or withheld, the principles of equity would defer the construction of the trust to that of the settlor’s gain.

While in some instances the outcome causes little damage, there are equally those where a resulting trust inflicts financial loss, as was seen in Vandervell v IRC.

Appreciatively, there is rarely if ever, any intention to create a resulting trust; and so, the instances where they do emerge, rely upon clear conditions, as explained by Lord Millet in Air Jamaica v Charlton, when he remarked that:

“Like a constructive trust, resulting trust arises by operation of law, though unlike a constructive trust it gives effect to intention. But it arises whether or not the transferor intended to retain a beneficial interest – he almost always does not – since it responds to the absence of any intention on his part to pass beneficial interest to the recipient. It may arise even where the transferor positively wished to be part with the beneficial interest…”

Air Jamaica v Charlton

Charitable Trusts

One of the advantages of a charitable trust is that it enjoys exemption from the otherwise exactness of both beneficiary and subject; although in many cases, the charity of choice is typically named to avoid confusion within the court, or a need to invoke the cy-pres doctrine.

Another advantage is the avoidance of taxation, as charities are free from the burden of inheritance tax, capital gains tax and occupancy rates (where circumstances allow); while also outlined in s.1(1) of the Charities Act 2006, the trust beneficiaries must fall within the scope of legislation in order for the trust to succeed, and as found under s.2(2) of the 2006 Act, the possible forms such charities might take are reasonably extensive.

Constructive Trusts

Sharing a close relevance to the strictness of fiduciary duties, constructive trusts are a means of remedy where a trustee has immorally profited from another’s property through the dysfunction of their relationship.

Where evidence is found to support wrongful gain, a constructive trust is created that serves to hold the assets on trust for the now slighted settlor.

An example of this is Attorney-General of Hong Kong v Reid  , where Lord Templeman stressed that:

“As soon as the bribe was received it should have been paid or transferred instanter to the person who suffered from the breach of duty. Equity considers as done that which ought to have been done. As soon as the bribe was received, whether in cash or in kind, the false fiduciary held the bribe on a constructive trust for the person injured.”

Attorney-General of Hong Kong v Reid

Express Trusts

As with purpose trusts, an express trust is the standard form of trust, whereby the settlor makes a clear expression of his wish to create a trust, deliberately illustrates what form the trust takes (property or funds), who the beneficiaries are, takes the correct steps to transfer the property in accordance with statute and where necessary, makes it known who the acting trustees will be.

The reason for this is to facilitate court intervention in the event of contention, particularly where the settlor has since died,  leaving instructions within their final will or codicil.

Failure to demonstrate evidence of those key elements will result in a void trust, and in death, eventual lapse into the residual estate of the deceased.

An example of the exactness required for an express trust is found in Milroy v Lord, where despite having made verbal declarations as to his wish for his company shares to benefit his niece, his associate had failed to officiate the trust through the legal channels; resulting in the shares remaining on trust for himself (as would be the case in a purpose trust).

This was elaborated by Lord Justice Turner, who remarked:

“[I]n order to render a voluntary settlement valid and effectual, the settlor 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.”

Milroy v Lord

Cestuis Que Trusts

Cestui que is an abbreviated version of ‘cestui a que use le foeffment suit fait‘, which means ‘the person for whose use the foeffment was made.’

Further simplified, ‘foeffment‘ represents any grant of freehold property, therefore a cestui que trust would be those holding property upon trust for the benefit of another named individual who retains legal title; although any beneficial interest remains in the hands of the cestui que trust (or person assigned the interest).

This translates that unlike other forms of trust, the legal owner acts as a trustee, while the actual beneficiary serves as operator of the trust, much like a reversal of roles.

The result of this is that should the trustee decide to convey the property, the cestui que trust can sue for breach of duty where no permission has been granted and no profits enjoyed.

This was explained by Austin Wakeman Scott in his Columbia Law Review article ‘The Nature of the Rights of the Cestui Que Trust’ (1917), when he wrote:

“If a trustee should destroy the trust res, or should sell it to a purchaser without notice of the trust and dissipate the purchase money, the cestui que trust may maintain a suit in equity against the trustee for breach of trust, and recover a sum of money, either the value of the trust res, or the amount of profits which should have accrued if no breach had been committed.”

The Nature of the Rights of the Cestui Que Trust’ (1917)

Fixed Trusts

These are typically used where multiple beneficiaries exist, while the nature of the fixed trust is to state exact figures or quantities of benefit to each party, so as to avoid inequitable profit by those in receipt or miscalculation by the appointed trustees.

The criteria for a fixed trust was established by Jenkins LJ in Inland Revenue Commissioners v Broadway Cottages Trust, where having examined the specificity of the trust, there was insufficient evidence to obtain certainty of the beneficiaries, thus the trust failed with the reasons given that:

“[T]he trust of the capital of the settled fund for all the beneficiaries living or existing at the termination of the appointed period, and if more than one in equal shares, must be void for uncertainty, inasmuch as there can be no division in equal shares amongst a class of persons unless all the members of the class are known.”

Inland Revenue Commissioners v Broadway Cottages Trust

Secret Trusts

Undoubtedly designed to protect the identity and interest of the beneficiary(s), the settlor is able to draft and execute a secret trust that can be both observed during life, and inserted into a will under the pretence that a named beneficiary will inherit absolutely, when in fact they will act as trustees for those with the intended benefit (similar arrangements can fall under intestacy provided prior agreement was arranged by the deceased).

Similarly, there are half-secret trusts that operate beyond the terms of a will but under the duties of a trustee, this translates that the dispositions of the trustee remain unknown, although there is no uncertainty as to where the trust property resides.

The framework of secret trusts was outlined by Peter Gibson LJ in Kasperbauer v Griffith, when he said:

“[T]he authorities make plain that what is needed is: (i) an intention by the testator to create a trust, satisfying the traditional requirements of three certainties (that is it say certain language in imperative form, certain subject matter and certain objects or beneficiaries); (ii) the communication of the trust to the legatees, and (iii) acceptance of the trust by the legatee, which acceptance can take the form of acquiescence…it is an essential element that the testator must intend to subject the legatee to an obligation in favour of the intended beneficiary. That will be evidenced by appropriately imperative, as distinct form precatory language.”

Kasperbauer v Griffith

Discretionary Trusts

While operating much like a typical trust, the discretionary trust allows the trustee(s) to regulate and thus self-determine, the extent of the distribution to assigned beneficiaries.

With two differing types, the exhaustive discretionary trust provides full and complete distribution of trust assets; whereas the non-exhaustive trust allows the trustee(s) to decide how much is awarded, and to specify what, within the trust, is granted to the beneficiaries.

Statutory Trusts

Brought about through the disposition of land under co-ownership and the rules of intestacy, these trusts are designed to protect the interests of those in title.

First introduced through s.34-36 of the Law of Property Act 1925 the intervention, or at least creation of statutory trusts, was also enforced through s.33 of the Law of Administration Act 1925, before consolidation of both Acts came through the Trusts of Land and Appointment of Trustees Act 1996.

In the former instance, there is an automatic trust power to sell and retain under co-ownership, and in the latter, a power to sell through personal representative where no will was executed.

Public Trusts

There is little to explain here other than that unlike a private trust, a public trust is created by the settlor with the express intention of benefitting certain members (or sections) of the general public.

This is often achieved through the use of a charitable trust, as deemed valid through the requirements of rules required by the Charities Act 2006.

Bare (or Simple) Trusts

Perhaps the most basic of trusts, the bare or ‘simpletrust serves only to hold property or funds in favour of a beneficiary, yet with no trustee duties attached.

In this instance, the trustee is replaced with the title of nominee until transfer is required.

Special Trusts

Unlike the previous trusts, special trusts are created with prerequisite trustee instructions, albeit divided into two categories, namely ministerial and (as above) discretionary trusts.

In the former, those duties may include rent collection and administrative functions, whereas the latter affords the trustee with powers to decide how best go about his or her role.

Quistclose Trusts

Running parallel to laws of contract, the quistclose trust was brought about in Barclays Bank v Quistclose Investments Ltd; in which, the lender took steps to clarify that the money loaned was on condition of use, and held within the bank until the borrower chose to redeem the funds.

When the borrower lapsed into liquidation, the lender asserted property rights against the bank under the principle that the funds were held on trust, and that the bank was now acting as a trustee; thus circumventing the rights of other creditors, while holding the funds in safe reserve for the lender as acting settlor.

This unique approach was supported by the House of Lords, and explained well when Lord Wilberforce remarked:

“In the present case the intention to create a secondary trust for the benefit of the lender, to arise if the primary trust, to pay the dividend, could not be carried out, is clear and I can find no reason why the law should not give effect to it.”

Barclays Bank v Quistclose Investments Ltd

RE DENLEY’S TRUST DEED

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.”