Inland Revenue Commissioners v Broadway Cottages Trust (1954)

English Equity & Trusts

AN
‘Anonymity’ by Ben Will

Uncertainty as to the exact class of trust beneficiary lies central to the disposition and taxation of funds, when after establishing two virtually identical charitable trusts (the Broadway Cottages Trust and the Sunnylands Trust), the nominated trustees and now appellants were faced with claims by the Inland Revenue that any monies generated by the use of the trust were lawfully subject to taxation under the Income Tax Act 1918.

In the summer of 1950, the now deceased settlor bequeathed a sum of £80,000 for the benefit of a number of beneficiaries, while the design was such that the appellants were granted discretionary powers to invest and apply the money, so as to accrue sufficient income for his wife and numerous other parties for the duration of the trust.

However the appellees claimed that clause 8 of the trust instrument was void for uncertainty, on grounds that while it stated in relevant part that:

“[T]he trustees shall hold the income of the trust fund from the date or respective dates from which the trustees shall become entitled to such income upon trust to apply the same for the benefit of all or any one or more of the donor’s said wife and the beneficiaries….

The beneficiary schedule conversely included:

“1. All persons (other than the settlor and any wife of his and any infant child of his) who have been in the past or (as the case may be) at the date of these presents or subsequently thereto at any time during the period ending on December 31, 1980, or during the appointed period whichever shall be the shorter employed by: (a) the settlor; (b) the wife of the settlor; (c) William Timpson deceased (father of the settlor and who died on January 20, 1929); (d) Katherine Chapman Timpson deceased (mother of the settlor and who died on December 16, 1940); (e) William Timpson Limited or by any other limited company which may succeed to the business of William Timpson Limited; (/) Any other limited company of which the settlor is a director at the date of these presents.
2. The wives and widows of any such persons as is specified in cl. 1 of this schedule.
3. All persons (other than the settlor and any wife of his and any infant child of his) who are the issue however remote of the said William Timpson deceased . . . and Charles Henry Rutherford deceased (father of the wife of the settlor and who died on February 17, 1930).
4 , 5, 6, 7. [Certain named persons.]
8. Alastair John Grenville Stevenson and any spouse of his or issue of him.
9. [The trustees of the settlement and their spouses or issue].
10. Joseph Baker and any spouse of his or issue of him.
11. Godchildren of the settlor or his wife.”

And so the appellees argued that there was no clear and ascertainable list of beneficiaries upon which to refer, while the appellants contended that the trust afforded them discretionary powers to assign the funds to those parties they believed to be ascertainable, and so the trust remained valid under clause 10, which read in relevant part that:

“The trustees shall also have power during the appointed period to apply the whole or any part of the capital of the trust fund in their discretion for the benefit of all or any one or more of the beneficiaries either by way of advancement on account of his or her or their share or shares or not as the trustees may in their discretion think fit….”

In the first instance, the Inland Revenue Special Commissioners reviewed the claim, and awarded for the respondents, while holding that:

“[T]he trusts of the settlement in so far as they related to the income of the trust fund were not void for uncertainty, and that the trustees under the provisions of cl. 8 of the settlement had a power of selection and that it was a valid and effective trust of the income of the trust fund, and that, accordingly, the sums of money received by the respondents from the trustees were the income of the respondents and thus entitled to the exemption claimed.”

Whereupon the appellees challenged the judgment in the Chancery Court, who allowed the appeal, while instead holding that:

“[I[n cases of an imperative trust to distribute there must be certainty as to the objects.”

Upon which the appellants challenged the judgment in the Court of Appeal, who then relied upon In re Gestetner Settlement, in which the Chancery Court had held that:

“[I]n a case where there is a duty on a trustee to select from a number of persons which of them shall be the recipients of the settlor’s bounty, there must be a certainty as to those recipients.”

Thus the court dismissed the appeal whilst reiterating to the parties 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….”

In re Baden’s Deed Trusts (No.2) (1972)

English Equity & Trusts

Baden's Deed Trusts
‘Il Quarto Stato’ by Guiseppe Pellizza da Volpedo

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…”

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…”

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 s.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…” 

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.”

Twinsectra v Yardley (2002)

English Equity & Trusts

Twinsectra v Yardley
‘A Country Solicitor’ by Edward Lamson

Interference with the performance of a contract, and assistance in a breach of trust, lie central to a matter involving two solicitors and a property developer, whose triangulated relationship resulted in financial abuses and ethical ignorance by those expected to conduct themselves with nothing less than self-discipline and professionalism.

Having owned and operated a number of business ventures, the respondent had ventured to obtain a business loan for the purposes of acquiring further properties, however at the time of inquiry his bank was unable to commit to lending the money, therefore he made contact with the plaintiffs, so as to borrow the sum of £1m, to which the plaintiffs requested that the loan agreement be underwritten by a qualified solicitor.

Upon consultation with the appellant his request was denied, and so with time against him he approached another law practice, whose second partner had a business history with the defendant, and through which the partner had become liable to the defendant to the sum of £1.5m.

In order to repay the debt owed, the partner then agreed to become principle debtor to the loan by way of its underwriting, while keeping the truth of their arrangement from the plaintiffs, and so when signing the loan agreement, they were now legally subject to its terms, in which sections 1 and 2 read:

“1. The loan moneys will be retained by us until such time as they are applied in the acquisition of property on behalf of our client. 

2. The loan moneys will be utilised solely for the acquisition of property on behalf of our client and for no other purpose.”

While s. 4 further read that:

“We confirm that this undertaking is given by us in the course of our business as solicitors and in the context of an underlying transaction on behalf of our clients which is part of our usual business as solicitors.”

However once the money had been loaned, the partner contacted the appellant, and asked that he retain the funds in a client account until such time that the plaintiff required it. While both solicitors were aware that such a transfer was tantamount to a breach of s.1, the money was nonetheless accepted and then released by the appellant to the respondent with no proof that any of the money was being used for the purchase of properties, as per s. 2 of the agreement.

At the point of initial litigation, the plaintiffs sued for recovery of the funds following non-payment by the now dissolved partner on grounds of breach of trust, and for dishonest assistance on the part of the appellant when holding the money and paying it to the respondent upon his request, despite knowledge of the initial breach prior to his receipt of the funds from the partner.

While in the first instance the Court of the Queen’s Bench dismissed the claim on grounds that the appellant had merely acted recklessly in the course of his duties, the Court of Appeal reversed the judgment on grounds that the appellant had knowingly received money destined not for the purchase of property, and thereby in breach of s.2, and that he had wilfully closed his eyes to the facts when agreeing to both hold and transfer the funds to the respondent.

Upon appeal to the House of Lords, the appellant argued that his involvement in the matter was certainly naive and remiss but in no way unlawful, and so the House agreed to examine the details of the case for the purposes of clarity.

Turning first to Royal Brunei Airlines Sdn Bhd v Tan, the House noted that the Court of Appeal had explained how:

“A fraudulent and dishonest design is not confined to personal gain. It is sufficient if the stranger knowingly assists in the use of trust property in a way which is not permitted by the trust.”

And that in its simplest form:

“[A] trust is a relationship which exists when one person holds property on behalf of another. If, for his own purposes, a third party deliberately interferes in that relationship by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look for recompense to the third party as well as the trustee.”

Thus in its conclusion, the court had held that:

“[D]ishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.”

And so it was clear that when the appellant acquiesced to the instructions of the partner, he had, whether intentionally or not, become complicit in the misuse of what was held to be trust property of the plaintiffs, while the House also also referred to Gilbert v Gonard in which the Court of Chancery had also held that:

“[I]f one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given. He may decline to take it if he likes; but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose.”

Although the House drew the distinction that unlike civil courts, equity relies less upon the mens rea of a man and more on his behaviour, and while the appeal was founded upon a breach of trust and dishonest assistance, there was insufficient evidence to suggest certainty as to the mind of the appellant when carrying out his part of the agreement. However, the House did conclusively note that under the circumstances there was ample grounds for a liability under wrongful interference with a contract and for assisting in a breach of trust, therefore the court of appeal judgment was upheld and reversed in part, while the House held that:

“[E]quity looks to a man’s conduct, not to his state of mind.”

And:

“Where a third party with knowledge of a contract has dealings with the contract breaker which the third party knows will amount to a breach of contract and damage results, he commits an actionable interference with the contract…”

Burrough v Philcox (1840)

English Succession Law

Burrough v Wilcox
‘The Writing Of The Will’ by Christian Ludwig Bokelmann

The intention to bequeath when drafting a well organised and thoroughly considered will remains the deciding authority of the testator, and so when perhaps vital elements to that redistribution are left wanting, the power falls to the court to compel the wishes of the deceased in as full a manner as possible, as was found in this potentially convoluted suit.

Having given tremendous thought to the lifetime of his estate, and the unavoidable dilemma of untimely deaths, the deceased had made express stipulations as to the execution of his legacy should his immediate  progeny die, while this caveat was made clear by the words:

“[I]n case my son and daughter should both of them die without leaving lawful issue, then for the said estates to be disposed of as shall be hereinafter mentioned (that is to say), the longest liver of my two children shall have power, by a will, properly attested, in writing, to dispose of all my real and personal estates amongst my nephews and nieces or their children, either all to one of them, or to as many of them as my surviving child shall think proper.”

And so in the sad event that his two children were unable to live long enough to bear children, or oversee the disposition of his estate as he had wished, the matter was presented to the Court of Chancery, so as to establish if when dying, the power to assign to those in vivo was relinquished, or if the estate was to remain in trust for the benefit of those now dead.

After much deliberation, and a reinvestigation of a number of arguable precedents, the court turned to Brown v Higgs, in which it was held that within circumstances where those granted executory powers have passed, the will itself becomes a mere trust, and therefore:

“[T]he trustee having died without executing it, or transgressing it, or refusing to execute it, shall not prevent its being held an absolute benefit for the objects, with a power to give a preference.”

Thus the court held that where a will or codicil is deliberate enough to provide express use of its power, the court is granted proper authority to ensure that its instructions are followed both with judicial impartiality and honest justiciability, therefore the will was enforced and the proper class of beneficiaries shown due privilege, while the court also held that:

“[W]hen there appears a general intention in favour of a class, and a particular intention in favour of individuals of a class to be selected by another person, and the particular intention fails, from that selection not being made, the Court will carry into effect the general intention in favour of the class.”

Trusts (An Overview)

Insight | May 2017

Trusts
Unknown artwork by Jon Krause

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…”

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 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…”

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:

“[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.”

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:

“[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.”

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.”

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.”

Blackwell v Blackwell

English Equity & Trusts

Blackwell v Blackwell
Image: ‘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…”