Specific Performance

Insight | May 2017

Specific Performance
Image: ‘The Contract’ by Fritz Wagner

Under the law of contract there are times when two parties can no longer honour their agreement and at which point one of them is left wanting. In some instances the award of monetary damages is enough to provide remedy, however there are also those where the loss is irreplaceable. On those occasions the court can legally impose a duty on those no longer willing (or seemingly able) to perform the task they originally contracted to undertake. While in certain cases the source of non-performance can also stem from frustration the criteria here is one of general breakdown of communication or even unresolvable conflict that while perhaps entirely warranted on the part of the negator, leaves the claimant with no other option than to sue.

Once agreed upon, an order for specific performance will comprise two elements (i) declaration of the order and (ii) provision of consequential detections to that effect. It is also important to note that where a contractual breach is only anticipated the court can still require specific performance or provide injunctive measures, as was outlined by Lord Tucker in Hasham v Zenab:

“In equity all that is required is to show circumstances which will justify the intervention by a court of equity. The purchaser has an equitable interest in the land and could get an injunction to prevent the vendor disposing of the property.”

On this occasion the potential vendor immediately tore up a signed contract for sale of land after learning that the acreage was greater in the conveyance than as she had orally agreed. The language barrier between the two parties thus prevented clear understanding of what was at stake; and so left with a collapsed purchase the buyer sought specific performance prior to the completion date, upon which the court pondered its feasibility before dismissing the claim upon grounds of falsified evidence on both sides.

A positive example of specific performance can however be found in Rosesilver v Paton where a purchaser entered into a contract to acquire residential property, after which the vendor argued that the terms of the agreement relied on reimbursement of the part-purchase payments upon winning their two pending litigation cases, therefore the intention to sell was implied at the outset. Having examined the inconsistency of the vendor’s argument the judge dismissed additional claims of fiduciary breach and undue influence on a lack of cohesive evidence before ruling that the sale must now be completed. When reaching summary judgement Mann J concluded:

“I do not consider that Mr Paton has advanced a sufficiently clear and plausible case for saying that there was any form of binding (in any sense) arrangement, contemporaneously with the contract and its variation, which would restrict or restrain the enforcement of the contract.”

There are of course a number of factors that can hinder the ability to undertake a contract of engagement and these can range from disability and illness, personal conflict, mistrust based upon recent behaviour and costly supervision to enforce the performance. Likewise a failure to seek remedy for a protracted period can also work against a claimant as the negator could claim estoppel under the doctrine of laches. Ultimately though the choice to pursue specific performance will always run with an attached risk of further complications, as the inherent trust between contracting parties will have been irreversibly eroded once litigation commences; therefore financial damages should never be ruled out unless all other options have been exhausted.

Fraud

Insight | May 2017

Fraud
Image (left) ‘Self-Potrait with Pallette’ by Vincent Van Gogh (Right) Forgery

Finding effect through the inception of the Fraud Act 2006 there are three means by which fraud can occur; namely fraud by false representation, failure to disclose information and by abuse of position. Here we shall look at each one respectively and support with suitable cases where applicable.

Fraud by False Representation

S.2(1) of the Fraud Act clearly states that a person is guilty of fraud by false representation when it is proven that they did so to (i) cause gain for themselves or another party or (ii) cause or expose another person to loss or a risk of loss (this can be achieved in a number of ways and so oral and written methodology equally apply). This was demonstrated in R v Lambie in which a consumer continued to use her credit card despite exceeding her credit limit and after being asked by the bank to return it.

When carrying out a purchase in a Mothercare store the appellant in the appeal case was accused by the defedant of knowingly encouraging a transaction in the knowledge that the bank had no longer given the respondent authority to continue using the card. This argument was stringently dismissed while emphasis was placed squarely upon the intention of the respondent to knowingly defraud the store. An illustration of fraud by false representation was summed up by Lord Roskill who explained:

“…it is in my view clear that the representation arising from the presentation of a credit card has nothing to do with the respondent’s credit standing at the bank but is a representation of actual authority to make the contract with, in this case, Mothercare on the bank’s behalf that the bank will honour the voucher upon presentation.”

This ethos was also outlined in Rex v Sullivan where Humphreys J stressed:

“…the facts are such that it is patent that there was only one reason which anybody could suggest for the person alleged to have been defrauded parting with his money, and that is the false pretence, if it was a false pretence.”

Fraud by Failure to Disclose Information

Subject to s.3 of the Fraud Act a person dishonestly failing to disclose information when (i) under a legal duty to so and (ii) by intention gains for themselves or another or causes or exposes another to a loss or risk of loss is thus guilty (where proven) of fraud. As this relates more to those in public body roles or parties to contract, the establishment of guilt falls to the judicial interpretation of civil law and statute as opposed to the collective opinion of a jury. An example of this R v Padellec in which a man accused of harbouring indecent images on his computer refused to disclose the encryption password as required under s.53 of the Regulation of Investigatory Powers Act 2000. After being summarily convicted the appellant appealed under plea in order to reduce his sentence at which point Singh J exclaimed:

“The whole point of requiring access is so that it can be seen what was in fact there. We express the hope that in a situation such as arose in this case, and in the context of an offence under the Regulation of Investigatory Powers Act (section 53), there will never again be a basis of plea accepted which is based upon keeping the contents secret and the defendant saying, to his advantage, what was or was not contained.”

Fraud by Abuse of Position

S.4(1) of the Fraud Act convicts those (again where proven) for gainful abuse of a position held to safeguard and preserve the financial interests of another. The gain can be both personal or on behalf of third party(s) while such profits must cause (or expose those assigned protection) loss or risk of loss. Given the nature of the breach it is typically applied to fiduciary or professional relationships where trust has been given under express conditions, however it could just as easily apply to family matters depending upon the relationship shared and the declarations made. As with fraud by failure to disclose information the judgments are typically free from jury persuasion and will benefit from equitable principles as much as civil laws for guidance.

An example of this was found in R v Conway (Catherine) in which a domestic care worker abused the trust placed in her by her client by obtaining and then keeping the victim’s debit card before defrauding her of £27,000 over a period of three years. Once caught and convicted the defendant then accused the victim’s family members of conspiring to the fraud before admitting full liability. When passing sentence Weir LJ illustrated the gravity of the abuse when he said:

“This was the calculated and systematic theft over years of a vulnerable lady’s life savings by the very person employed to assist and befriend her at a time in her life when she was at a low ebb and grateful for the help which this appellant cynically pretended to be giving her by buying her a few necessaries using her post office savings card.”

Trusts

Insight | May 2017

Trusts
Image: ‘Trust’ by Christine Lytwynczuk

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:

“…there 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…”

Resulting Trusts

Ironically, resulting trusts are express trusts that have, 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. Appreciably, 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:

“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…”

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 so as to avoid confusion within the court, or a need to invoke the cy-pres doctrine. Another is the avoidance of taxation, as charities are free from the burden of inheritance tax, capital gains tax and occupancy rates (where circumstances allow). As 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 can be 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.”

Express Trusts

As with purpose trusts, an express trust is the standard form of trust, whereby the settlor (i) makes a clear expression of his wish to create a trust (ii) deliberately illustrates what form the trust takes (property or funds) (iii) who the beneficiaries are (iv) 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:

“…in 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.”

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.”

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 this form of 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:

“…the 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.”

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:

“…the 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.”

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 such 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 ‘simple’ trust 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, these 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.”