2

NUTSHELLS

Equity & Trusts

NINTH EDITION

by
MICHAEL HALEY, Solicitor, Professor of Property Law
Keele University
Based on original text by Angela Sydenham

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 First Edition – 1987
Reprinted 1988
Reprinted 1990
Second Edition – 1991
Third Edition – 1994
Reprinted 1996
Fourth Edition – 1997
Fifth Edition – 2000
Reprinted 2002
Reprinted 2003
Sixth Edition – 2004
Seventh Edition – 2007
Eighth Edition – 2010

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other published works shall be made to the publishers. Full acknowledgement of author,
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Contents

Table of Cases
Table of Statutes

1. An Introduction to Equity
Introduction
Equity’s Impact
The Maxims of Equity
Specific Performance
Injunctions
Revision Checklist
Question and Answer

2. The Trust
Introduction
Classification of Trusts
Revision Checklist
Question and Answer

3. The Three Certainties

Introduction
Certainty of Intention
Certainty of Subject Matter
Certainty of Objects
Revision Checklist
Question and Answer

4. Constitution of Trusts
Introduction
Self-Declaration as Trustee
Transfer to Trustees
When will Equity Assist a Volunteer
Revision Checklist
Question and Answer

5. Formalities
Introduction
Why Formalities

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 Trusts Created by Will
Lifetime Trust of Land
Dealing with an Existing Trust Interest
Revision Checklist
Question and Answer

6. Secret Trusts
Introduction
The Problem?
Why Secret Trusts?
Two Types of Secret Trust
Justification for Secret Trusts
Fraud
The Creation of a Secret Trust
Predeceasing the Testator
Revision Checklist
Question and Answer

7. The Statutory Avoidance of Trusts

Introduction
Transactions Defrauding Creditors
Special Bankruptcy Provisions
Family Claims
Revision Checklist
Question and Answer

8. Resulting Trusts
Introduction
Failed Trusts
The Apparent Gift Cases
Rebutting the Presumption
Revision Checklist
Question and Answer

9. Constructive Trusts
Introduction
Categories
Mutual Wills: A Summary of the Rules
And the Family Home?
Revision Checklist
Question and Answer

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10. Non-Charitable Purpose Trusts
Introduction
The Beneficiary Principle
Trusts for Persons or for Purposes?
Unincorporated Associations
Revision Checklist
Question and Answer

11. Charitable Trusts

Introduction
The 13 Heads of Charity
Public Benefit
Exclusively Charitable?
Advantages of Charitable Status
The Key Heads of Charity
Relief of Poverty
Advancement of Education
Advancement of Religion
The Remaining Statutory Descriptions of Charity
Revision Checklist
Question and Answer

12. The Cy-Près Doctrine

Introduction
Inherent Jurisdiction
Statutory Jurisdiction
Revision Checklist
Question and Answer

13. Appointment, Retirement and Removal of Trustees

Introduction
Capacity and Number
Appointment of Trustees
Terminating Trusteeship
Revision Checklist
Question and Answer

14. Trustee’s Duties

Introduction
Duties on Appointment
General Fiduciary Duties

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 Duty to Keep Accounts and Provide Information
Investment
Protection of Trustees: Exoneration Clauses
Revision Checklist
Question and Answer

15. Powers of Maintenance, Advancement and Delegation

Introduction
Examples
Maintenance
Advancement
Delegation
Revision Checklist
Question and Answer

16. Variation of Trusts

Introduction
An Express Power
The Rule in Saunders v Vautier
Inherent Jurisdiction
Statutory Jurisdiction
The Variation of Trusts Act 1958
Revision Checklist
Question and Answer

17. Breach of Trust and Associated Remedies

Introduction
Liability for Breach
Personal Claims Against a Trustee
Proprietary Claims and Tracing
Knowing Receipt and Dishonest Assistance
Revision Checklist
Question and Answer

18. Handy Hints

Preparing for and Taking Examinations
Writing Essays

Index

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Table of Cases

Abbott Fund Trusts, Re; sub nom. Smith v. Abbott; Trusts of the Abbott Fund, Re
[1900] 2 Ch. 326 Ch D 85

Abou-Rahmah v Abacha [2006] EWCA Civ 1492; [2007] Bus. L.R. 220; [2007] 1
All E.R. (Comm) 827 202

Adams and Kensington Vestry, Re; sub nom. Adams v Kensington Vestry (1884)
L.R. 27 Ch. D. 394 CA 29, 40

Adams v Bridge; sub nom. ES Group Pension Scheme, Re [2009] Pens. L.R. 153
Pensions Ombudsman 158

Adekunle v Ritchie [2007] B.P.I.R. 1177; [2007] W.T.L.R. 1505 CC (Leeds) 89

Agip (Africa) Ltd v Jackson [1991] Ch. 547; [1991] 3 W.L.R. 116 CA (Civ Div)
195, 203

Agricultural Mortgage Corp Plc v Woodward [1994] B.C.C. 688; [1995] 1

B.C.L.C. 1 CA (Civ Div) 75

Air Jamaica Ltd v Charlton; Air Jamaica Ltd v Clarke; Air Jamaica Ltd v Goodall;
Air Jamaica Ltd v Philpotts [1999] 1 W.L.R. 1399; [1999] O.P.L.R. 11 PC 88

American Cyanamid Co v Ethicon Ltd (No.1) [1975] A.C. 396; [1975] 2 W.L.R.
316 HL 11, 12, 16

Andrew’s Trust, Re; sub nom. Carter v Andrew; St Andrews Trust, Re [1905] 2 Ch.
48 Ch D 85

Anton Piller KG v Manufacturing Processes Ltd [1976] Ch. 55; [1976] 2 W.L.R.
162 CA (Civ Div) 13

Antrobus v Smith, 33 E.R. 16; (1805) 12 Ves. Jr. 39 Ct of Chancery 43

Armitage v Nurse [1998] Ch. 241; [1997] 3 W.L.R. 1046 CA (Civ Div) 160

Armitage, Re; sub nom. Ellam v Norwich Corp; Armitage’s Will Trusts, Re; Ellam
v City and County of Norwich [1972] Ch. 438; [1972] 2 W.L.R. 503 Ch D 71

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Arogundade v Arogundade [2005] EWHC 1766 (Ch) 90, 94

Ashburn Anstalt v WJ Arnold & Co [1989] Ch. 1; [1988] 2 W.L.R. 706 CA (Civ
Div) 98

Astor’s Settlement Trusts, Re; sub nom. Astor v Scholfield [1952] Ch. 534; [1952]
1 All E.R. 1067 Ch D 108, 109

Atkinson’s Will Trusts, Re; sub nom. Atkinson v Hall [1978] 1 W.L.R. 586; [1978]
1 All E.R. 1275 Ch D 84

Attorney General of Hong Kong v Reid [1994] 1 A.C. 324; [1993] 3 W.L.R. 1143
PC 96, 152

Attorney General v City of London (1790) 3 Bro.C.C. 121 131

Attorney General v Ross [1986] 1 W.L.R. 252; [1985] 3 All E.R. 334 Ch D 123

Baden v Societe Generale pour Favoriser le Developpement du Commerce et de

l’Industrie en France SA [1993] 1 W.L.R. 509; [1992] 4 All E.R. 161 Ch D 200

Baden’s Deed Trusts (No.1), Re; sub nom. McPhail v Doulton; Baden v Smith
(No.1) [1971] A.C. 424; [1970] 2 W.L.R. 1110 HL 21, 36, 38, 40

Baden’s Deed Trusts (No.2), Re; sub nom. Pearson v Smith; Baden v Smith (No.2);
Baden (No.2), Re [1973] Ch. 9; [1972] 3 W.L.R. 250 CA (Civ Div) 36, 37, 41

Bahin v Hughes (1886) L.R. 31 Ch. D. 390 CA 189

Bailey v Gould, 160 E.R. 987; (1840) 4 Y. & C. Ex. 221 KB 151

Baker v JE Clark & Co (Transport) UK Ltd [2006] EWCA Civ 464; [2006] Pens.
L.R. 13 160

Balston Ltd v Headline Filters Ltd (No.2) [1990] F.S.R. 385 Ch D 156

Bank of Credit and Commerce International (Overseas) Ltd v Akindele; sub nom.
BCCI v Chief Labode Onadimaki Akindele [2001] Ch. 437; [2000] 3 W.L.R. 1423
CA (Civ Div) 200

Bank of Credit and Commerce International SA (In Liquidation) (No.9), Re; Bank
of Credit and Commerce International SA (Overseas), Re; sub nom. Morris v
Mahfouz; Mahfouz v Morris [1994] 1 W.L.R. 708; [1994] 3 All E.R. 764 CA (Civ

11
Div) 14

Banner Homes Holdings Ltd (formerly Banner Homes Group Plc) v Luff
Developments Ltd [2000] Ch. 372; [2000] 2 W.L.R. 772 CA (Civ Div) 99

Bannister v Bannister [1948] 2 All E.R. 133; [1948] W.N. 261 CA 6, 56, 98

Barclays Bank Ltd v Quistclose Investments Ltd; sub nom. Quistclose Investments
Ltd v Rolls Razor Ltd (In Voluntary Liquidation) [1970] A.C. 567; [1968] 3 W.L.R.
1097 HL 20, 31, 84

Barclays Bank Plc v Eustice [1995] 1 W.L.R. 1238; [1995] 4 All E.R. 511 CA (Civ
Div) 76

Barlow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd

[2005] UKPC 37; [2006] 1 W.L.R. 1476; [2006] 1 All E.R. 333 201, 202

Barlow Clowes International Ltd (In Liquidation) v Vaughan; sub nom. Vaughan v
Barlow Clowes International Ltd [1992] 4 All E.R. 22; [1992] B.C.L.C. 910 CA
(Civ Div) 197, 204

Barlow’s Will Trusts, Re; sub nom. Royal Exchange Assurance v National Council
of Social Service [1979] 1 W.L.R. 278; [1979] 1 All E.R. 296 Ch D 37, 41

Barnes v Addy (1873-74) L.R. 9 Ch. App. 244; (1874) 22 W.R. 505 CA in
Chancery 97

Barraclough v Mell. See Clapham (Deceased), Re Barrett v Hartley (1866) L.R. 2

Eq. 789 Ct of Chancery 155

Bartlett v Barclays Bank Trust Co Ltd (No.1) [1980] 2 W.L.R. 430; [1980] 1 All
E.R. 139 Ch D 159, 192

Beale’s Settlement Trusts, Re; sub nom. Huggins v Beale [1932] 2 Ch. 15 Ch D 181

Behnke v Bede Shipping Co Ltd [1927] 1 K.B. 649; (1927) 27 Ll. L. Rep. 24 KBD
8

Benjamin, Re; sub nom. Neville v Benjamin [1902] 1 Ch. 723 Ch D 36

Bennet v Bennet (1878-79) L.R. 10 Ch. D. 474 Ch D 92

Best, Re; sub nom. Jarvis v Birmingham Corp [1904] 2 Ch. 354 Ch D 117, 118

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Beswick v Beswick [1968] A.C. 58; [1967] 3 W.L.R. 932 HL 9

Bignold’s Settlement Trusts, Re (1871-72) L.R. 7 Ch. App. 223 CA in Chancery

144

Binions v Evans [1972] Ch. 359; [1972] 2 W.L.R. 729 CA (Civ Div) 98

Biscoe v Jackson (1887) L.R. 35 Ch. D. 460 CA 120, 133

Bishopsgate Investment Management Ltd (In Liquidation) v Homan [1995] Ch. 211;
[1994] 3 W.L.R. 1270 CA (Civ Div) 196

Blackwell v Blackwell; sub nom. Blackwell, Re [1929] A.C. 318; 67 A.L.R. 336
HL 66, 68, 72

Boardman v Mossman (1799) 1 Bro. C.C. 68 188

Boardman v Phipps; sub nom. Phipps v Boardman [1967] 2 A.C. 46; [1966] 3
W.L.R. 1009 HL 96, 154, 163

Booth v Booth, 48 E.R. 886; (1838) 1 Beav. 125 Ct of Chancery 188

Bourne v Keane; sub nom. Egan, Re; Keane v Hoare [1919] A.C. 815 HL 110

Bowes (No.1), Re; sub nom. Earl Strathmore v Vane [1896] 1 Ch. 507 Ch D 111

Bowman v Secular Society Ltd; sub nom. Secular Society Ltd v Bowman; Bowman,
Re [1917] A.C. 406 HL 127

Boyce v Boyce, 60 E.R. 959; (1849) 16 Sim. 476 Ct of Chancery 34

Boyes, Re; sub nom. Boyes v Carritt (1884) L.R. 26 Ch. D. 531 Ch D 70

Brogden, Re; sub nom. Billing v Brogden (1888) L.R. 38 Ch. D. 546 CA 151

Brooks v Brooks; sub nom. B v B (Post Nuptial Settlements) (Pension Fund), Re

[1996] A.C. 375; [1995] 3 W.L.R. 141 HL 181

Bryant, Re; sub nom. Bryant v Hickley [1894] 1 Ch. 324 Ch D 167

Buckinghamshire Constabulary Widows and Orphans Fund Friendly Society

(No.2), Re; sub nom. Thompson v Holdsworth [1979] 1 W.L.R. 936; [1979] 1 All
E.R. 623 Ch D 87, 113, 114, 115

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Burns v Burns [1984] Ch. 317; [1984] 2 W.L.R. 582 CA (Civ Div) 90, 94, 102

Burrough v Philcox, 41 E.R. 299; (1840) 5 My. & C. 72 Ct of Chancery 5, 35

Butterworth Ex p. Russell, Re (1881-82) L.R. 19 Ch. D. 588 CA 74, 75

Cadogan Petroleum Plc v Tolly [2011] EWHC 2286 (Ch); [2012] 1 P. & C.R. DG5
96, 152

Cain v Moon [1896] 2 Q.B. 283 QBD 47

Cambridge Nutrition Ltd v BBC [1990] 3 All E.R. 523 CA (Civ Div) 11

Campbell v Walker, 31 E.R. 801; (1800) 5 Ves. Jr. 678 Ct of Chancery 153

Cant v Gregory (1894) 10 T.L.R. 584 CA 48

Carl Zeiss Stiftung v Rayner & Keeler Ltd; Rayner & Keeler Ltd v Courts & Co
[1967] 1 A.C. 853; [1966] 3 W.L.R. 125 HL 95

Cavell USA Inc v Seaton Insurance Co [2009] EWCA Civ 1363; [2009] 2 C.L.C.
991; [2010] Lloyd’s Rep. F.C. 197 160

CD (A Child) v O. See D (A Child) v O Central Trust & Safe Deposit Co v Snider

[1916] 1 A.C. 266 PC 100

Chapman v Chapman [1954] 1 W.L.R. 1332; [1954] 3 All E.R. 116 PDAD 179,
180, 182, 185, 186

Chapman’s Settlement Trusts, Re; Blackwell’s Settlement Trusts, Re; Downshire

Settled Estates, Re; sub nom. Blackwell v Blackwell; Marquess of Downshire v
Royal Bank of Scotland; Chapman v Chapman (No.1) [1953] Ch. 218; [1953] 2
W.L.R. 94 CA 181

Charles v Fraser [2010] EWHC 2154 (Ch); [2010] W.T.L.R. 1489; 13 I.T.E.L.R.
455 100

Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch. 105;
[1980] 2 W.L.R. 202 Ch D 195

Chillingworth v Chambers [1896] 1 Ch. 685 CA 189

Christ’s Hospital v Grainger, 41 E.R. 1343; (1849) 1 Mac. & G. 460 Ch D 119

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CL, Re; sub nom. L, Re [1969] 1 Ch. 587; [1968] 2 W.L.R. 1275 CP 184, 185

Clapham (Deceased), Re; sub nom. Barraclough v Mell [2005] EWHC 3387 (Ch);
[2006] W.T.L.R. 203; [2006] 2 P. & C.R. DG5 160, 190

Clayton’s Case; sub nom. Devaynes v Noble [1814-23] All E.R. Rep. 1; 35 E.R.
781 197, 204

Clough v Killey [1996] N.P.C. 38; (1996) 72 P. & C.R. D22 CA (Civ Div) 103,
106

Cobbe v Yeoman’s Row Management Ltd; sub nom. Yeoman’s Row Management
Ltd v Cobbe [2008] UKHL 55; [2008] 1 W.L.R. 1752; [2008] 4 All E.R. 713 50,
98

Cochrane, Re; sub nom. Shaw v Cochrane; Cochrane’s Settlement Trusts, Re

[1955] Ch. 309; [1955] 2 W.L.R. 267 Ch D 85

Cocks v Manners (1871) L.R. 12 Eq. 574 Ct of Chancery 112, 115

Cohen v Roche [1927] 1 K.B. 169 KBD 8

Cohen, Re [1919] 2 K.B. 271 KBD 120

Coles v Trecothick, 32 E.R. 592; (1804) 9 Ves. Jr. 234 Ct of Chancery 153

Colin Cooper, Re. See Cooper, Re Comiskey v Bowring Hanbury; Hanbury v

Fisher; sub nom. Hanbury, Re [1905] A.C. 84 HL 29

Compton, Re; sub nom. Powell v Compton [1945] Ch. 123 CA 123

Conservative and Unionist Central Office v Burrell [1982] 1 W.L.R. 522; [1982] 2
All E.R. 1 CA (Civ Div) 112, 115

Cook’s Settlement Trusts, Re; sub nom. Royal Exchange Assurance v Cook [1965]
Ch. 902; [1965] 2 W.L.R. 179 Ch D 52

Cooper, Re; sub nom. Le Neve-Foster v National Provincial Bank; Cooper (Colin)
(Deceased), Re [1939] Ch. 811; [1939] 3 All E.R. 586 CA 70, 72

Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] A.C. 1;
[1997] 2 W.L.R. 898 HL 8, 9, 16

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Corbishley’s Trusts, Re (1880) L.R. 14 Ch. D. 846 Ch D 71

Coulthurst (Deceased), Re; sub nom. Coutts & Co v Coulthurst;

Coulthurst’s Will Trusts [1951] Ch. 661; [1951] 1 All E.R. 774 CA 120

Courtenay v Courtenay (1846) 3 Jo. & Lat. 519 145

Cowan v Scargill; sub nom. Mineworkers Pension Scheme Trusts, Re [1985] Ch.
270; [1984] 3 W.L.R. 501 Ch D 147, 159, 160

Coxen, Re; sub nom. McCallum v Coxen [1948] Ch. 747; [1948] 2 All E.R. 492 Ch
D 117, 118, 130

Cradock v Piper, 41 E.R. 1422; (1850) 1 Mac. & G. 664 Ct of Chancery 155

Craven’s Estate (No.1), Re; sub nom. Lloyds Bank Ltd v Cockburn (No.1) [1937]
Ch. 423; [1937] 3 All E.R. 33 Ch D 47

Cream Holdings Ltd v Banerjee [2004] UKHL 44; [2005] 1 A.C. 253; [2004] 3
W.L.R. 918 12

Crippen, In the Estate of. See Cunigunda, In the Estate of Cross v Cross (1983) 4
F.L.R. 235; (1982) 12 Fam. Law 182 5 Cunigunda, In the Estate of; sub nom.
Crippen, In the Estate of [1911] P. 108 PDAD 98

Cunnack v Edwards [1895] 1 Ch. 489 Ch D 87

Curley v Parkes [2004] EWCA Civ 1515; [2005] 1 P. & C.R. DG15 90, 94

Curtis v Pulbrook [2011] EWHC 167 (Ch); [2011] 1 B.C.L.C. 638 44

Curtis v Rippon, 56 E.R. 961; (1820) 5 Madd. 434 Ct of Chancery 34

CWHT, Re [1978] Ch. 67; [1977] 3 W.L.R. 880 CP 181

D (A Child) v O; sub nom. CD (A Child) v O [2004] EWHC 1036 (Ch); [2004] 3

All E.R. 780; [2004] 3 F.C.R. 195 169

Dadourian Group International Inc v Simms [2006] EWCA Civ 399; [2006] 1
W.L.R. 2499; [2006] 3 All E.R. 48 15

Docker v Soames (1834) 39 E.R. 1095 192

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Danish Bacon Co Ltd Staff Pension Fund Trusts, Re; sub nom. Christensen v Arnett
[1971] 1 W.L.R. 248; [1971] 1 All E.R. 486 Ch D 57

Davenport v Bishopp, 63 E.R. 201; (1843) 2 Y. & C. Ch. 451 Ct of Chancery 52

Davis v Richards and Wallington Industries Ltd [1990] 1 W.L.R. 1511; [1991] 2
All E.R. 563 Ch D 87

Dawkins (Deceased), Re; sub nom. Dawkins v Judd [1986] 2 F.L.R. 360; [1986]
Fam. Law 295 80

De Bruyne v De Bruyne [2010] EWCA Civ 519; [2010] 2 F.L.R. 1240; [2010] 2
F.C.R. 251 63

De Francesco v Barnum (1890) L.R. 45 Ch. D. 430 Ch D 9

Dean, Re; sub nom. Cooper-Dean v Stevens (1889) L.R. 41 Ch. D. 552 Ch D) 110

Delamere’s Settlement Trusts, Re [1984] 1 W.L.R. 813; [1984] 1 All E.R. 584 CA
(Civ Div) 166

Denley’s Trust Deed, Re; sub nom. Holman v HH Martyn & Co [1969] 1 Ch. 373;
[1968] 3 W.L.R. 457 Ch D 111, 115

Densham (A Bankrupt), Re; sub nom. Trustee Ex p. v Densham [1975] 1 W.L.R.

1519; [1975] 3 All E.R. 726 Ch D 78

Dillwyn v Llewelyn, 45 E.R. 1285; (1862) 4 De G.F. & J. 517 QB 50

Diplock, Re. See Ministry of Health v Simpson Dougan v Macpherson; sub nom.
Macpherson v Dougan; Dougan’s Trustee v Dougan [1902] A.C. 197; (1902) 4 F.
(H.L.) 7 HL 153

Dover Coalfield Extension Ltd, Re [1908] 1 Ch. 65 CA 154

Downshire Settled Estates, Re. See Chapman’s Settlement Trusts, Re

Drake v Whipp [1996] 1 F.L.R. 826; [1996] 2 F.C.R. 296 CA (Civ Div) 103

Dubai Aluminium Co Ltd v Salaam; Dubai Aluminium Co Ltd v Amhurst Brown

Martin & Nicholson [2002] UKHL 48; [2003] 2 A.C. 366; [2002] 3 W.L.R. 1913
97

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Dubey v Revenue and Customs Commissioners; sub nom. Dubey v Hall; Farepak
Food and Gifts Ltd (In Administration), Re [2006] EWHC 3272 (Ch); [2008]
B.C.C. 22; [2007] 2 B.C.L.C. 1 4

Duke of Norfolk’s Settlement Trusts, Re; sub nom. Earl of Perth v Fitzalan-Howard
[1982] Ch. 61; [1981] 3 W.L.R. 455 CA (Civ Div) 155

Dunbar v Plant [1998] Ch. 412; [1997] 3 W.L.R. 1261 CA (Civ Div) 98

Dyer v Dyer, 30 E.R. 42; (1788) 2 Cox Eq. Cas. 92 KB 88, 92

E v E (1990) 2 FLR 233 146

Eades, Re; sub nom. Eades v Eades [1920] 2 Ch. 353 Ch D 117, 118

El-Ajou v Dollar Land Holdings Plc (No.1) [1994] 2 All E.R. 685; [1994] B.C.C.
143 CA (Civ Div) 97, 200

Emery’s Investment Trusts, Re; sub nom. Emery v Emery [1959] Ch. 410; [1959] 2
W.L.R. 461 Ch D 93

Endacott, Re; sub nom. Corpe v Endacott [1960] Ch. 232; [1959] 3 W.L.R. 799 CA
35, 108, 109

Erskine’s Settlement Trusts, Re; sub nom. Hollis v Pigott [1971] 1 W.L.R. 162;
[1971] 1 All E.R. 572 Ch D 166

Evans Settlement, Re; sub nom. Watkins v Whitworth Jones [1967] 1 W.L.R. 1294;
[1967] 3 All E.R. 343 Ch D 169

Evans v Westcombe; sub nom. Evans (Deceased), Re [1999] 2 All E.R. 777;
(1999) 96(10) L.S.G. 28 Ch D 189

Evans, Re. See Evans v Westcombe

Eves v Eves [1975] 1 W.L.R. 1338; [1975] 3 All E.R. 768 CA (Civ Div) 103

EVTR, Re (1987) 3 B.C.C. 389; [1987] B.C.L.C. 646 CA (Civ Div) 84

Re Family Planning Association (1969) Ch Com Rep 11 126

Faraker, Re; sub nom. Faraker v Durell [1912] 2 Ch. 488 CA 133, 136

Farley v Westminster Bank Ltd; sub nom. Ashton’s Estate, Re; Westminster Bank

18
Ltd v Farley [1939] A.C. 430; [1939] 3 All E.R. 491 HL 125

Finger’s Will Trusts, Re; sub nom. Turner v Ministry of Health [1972] Ch. 286;
[1971] 3 W.L.R. 775 Ch D 134

Fiona Trust & Holding Corp v Privalov [2008] EWHC 1748 (Comm); [2008] 2 P.
& C.R. DG21 5

Fletcher v Fletcher, 67 E.R. 564; (1844) 4 Hare 67 Ct of Chancery 51

Fletcher v Green, 55 E.R. 433; (1864) 33 Beav. 426 Ct of Chancery 192

Foskett v McKeown [2001] 1 A.C. 102; [2000] 2 W.L.R. 1299 HL 194, 195, 197,
204

Fowler v Barron [2008] EWCA Civ 377; [2008] 2 F.L.R. 831; [2008] 2 F.C.R. 1
104

Freeland, Re; sub nom. Jackson v Rodgers [1952] Ch. 110; [1952] 1 All E.R. 16
CA 49

Fry (Deceased), Re; Chase National Executors and Trustees Corp v Fry [1946] Ch.
312 Ch D 45, 53

Fry v Fry, 54 E.R. 56; (1859) 27 Beav. 144 Ct of Chancery 187

Fuller v Evans [2000] 1 All E.R. 636; [2000] 2 F.L.R. 13 Ch D 165

Gardner v Parker, 56 E.R. 478; (1818) 3 Madd. 184 KB 47, 48

Gardner v Rowe, 38 E.R. 1024; (1828) 5 Russ. 258 Ct of Chancery 55

Gardner, Re; sub nom. Huey v Cunnington [1920] 2 Ch. 523 CA 64

Gardom, Re; sub nom. Le Page v Attorney General [1914] 1 Ch. 662 CA 120

Garfield Poverty Trust (1995) 3 Decisions 7-10 120

Gee (Deceased), Re; sub nom. Wood v Staples [1948] Ch. 284; [1948] 1 All E.R.
498 Ch D 154, 162

Gibbs v Harding [2007] EWHC 3 (Ch); [2008] Ch. 235; [2008] 2 W.L.R. 361 38

Gibbs v Harding. See Harding (Deceased), Re

19
Gillingham Bus Disaster Fund; sub nom. Bowman v Official Solicitor [1959] Ch.
62; [1958] 3 W.L.R. 325; [1958] 2 All E.R. 749; (1958) 102 S.J. 581 CA 86

Gilmour v Coats; sub nom. Coats v Gilmour; Coats Trusts, Re [1949] A.C. 426;
[1949] 1 All E.R. 848 HL 124, 125

Gissing v Gissing [1971] A.C. 886; [1970] 3 W.L.R. 255 HL 104

Golay’s Will Trusts, Re; sub nom. Morris v Bridgewater; Golay, Re [1965] 1
W.L.R. 969; [1965] 2 All E.R. 660 Ch D 34

Gold v Hill; Hill v Gold [1999] 1 F.L.R. 54; [1998] Fam. Law 664 Ch D 30

Goldcorp Exchange Ltd (In Receivership), Re; sub nom. Kensington v Liggett;
Goldcorp Finance Ltd, Re [1995] 1 A.C. 74; [1994] 3 W.L.R. 199 PC 33

Goodman v Gallant [1986] Fam. 106; [1986] 2 W.L.R. 236 CA (Civ Div) 92

Goodchild v Goodchild (1996) [1996] 1 W.L.R. 694; [1996] 1 All E.R. 670 Ch D
100

Gosling, Re (1900) 48 W.R. 300 120

Grant v Edwards [1986] Ch. 638; [1986] 3 W.L.R. 114 CA (Civ Div) 102, 103

Grant’s Will Trusts, Re; sub nom. Harris v Anderson [1980] 1 W.L.R. 360; [1979]
3 All E.R. 359 Ch D 113, 115

Gravesham BC v British Railways Board; Port of London Authority v British

Railways Board [1978] Ch. 379; [1978] 3 W.L.R. 494 Ch D 10

Green v Green [1981] 1 W.L.R. 391; [1981] 1 All E.R. 97 Fam Div 79

Gregory v Court Royal Ltd and Castleoak Ltd [2002] EWHC 936 (Ch) 11

Grey v Inland Revenue Commissioners; sub nom. Grey and Randolph (Hunter’s
Nominees) v Inland Revenue Commissioners [1960] A.C. 1; [1959] 3 W.L.R. 759
HL 58, 60, 62

Grove-Grady, Re; sub nom. Plowden v Lawrence [1929] 1 Ch. 557; 66 A.L.R. 448
CA 126

Gwyon, Re; sub nom. Public Trustee v Attorney General [1930] 1 Ch. 255 Ch D

20
121, 129

Hagger, Re; sub nom. Freeman v Arscott [1930] 2 Ch. 190 Ch D 100

Hallett’s Estate, Re; sub nom. Knatchbull v Hallett (1879-80) L.R. 13 Ch. D. 696
CA 195, 196, 204

Hallows v Lloyd (1888) L.R. 39 Ch. D. 686 149

Hambro v Duke of Marlborough [1994] Ch. 158; [1994] 3 W.L.R. 341 Ch D 181

Hampden v Earl of Buckinghamshire [1893] 2 Ch. 531 CA 170

Hanchett-Stamford v Attorney General [2008] EWHC 330 (Ch); [2009] Ch. 173;
[2009] 2 W.L.R. 405 87, 113, 114

Harding (Deceased), Re; sub nom. Winsome Joy Harding (also known as Joseph
Harding) (Deceased), Re

Hardy v Baker, 25 E.R. 1063; (1738) West t. Hard. 519 Ct of Chancery 48

Harries v Church Commissioners for England; sub nom. Lord Bishop of Oxford v
Church Commissioners of England [1992] 1 W.L.R. 1241; [1993] 2 All E.R. 300
Ch D 160

Harwood, Re; sub nom. Coleman v Innes [1936] Ch. 285 Ch D 133, 138

Hasham v Zenab (Executrix of Harji) [1960] A.C. 316; [1960] 2 W.L.R. 374 PC 8

Havelock v Havelock (1881) 44 L.T. 168 180, 186

Hay’s Settlement Trusts, Re; sub nom. Greig v McGregor [1982] 1 W.L.R. 202;
[1981] 3 All E.R. 786 DC 38

Head v Gould [1898] 2 Ch. 250 Ch D 188, 189

Hemmens v Wilson Browne (A Firm) [1995] Ch. 223; [1994] 2 W.L.R. 323 Ch D
32

Henley v Wardell, Times, January 29, 1988 169

Hetherington (Deceased), Re; sub nom. Gibbs v McDonnell [1990] Ch. 1; [1989] 2
W.L.R. 1094 Ch D 110, 125

21
Higginbottom, Re [1892] 3 Ch. 132 Ch D 140

Hill v Royal College of Surgeons. See Lysaght (Deceased), Re

Hobourn Aero Components Ltd’s Air Raid Distress Fund, Re; Ryan v Forrest
[1946] Ch. 194 CA 87

Hodgson v Marks [1971] Ch. 892; [1971] 2 W.L.R. 1263 CA (Civ Div) 56, 91

Holding & Management Ltd v Property Holding & Investment Trust Plc [1989] 1
W.L.R. 1313; [1990] 1 All E.R. 938 CA (Civ Div) 156

Holmes v Attorney General, Times, February 12, 1981 Ch D 124

Hooper, Re; sub nom. Parker v Ward [1932] 1 Ch. 38 Ch D 110

Hope’s Will Trust, Re; sub nom. Hope v Thorp [1929] 2 Ch. 136 Ch D 181

Hopkins Will Trusts, Re; sub nom. Naish v Francis Bacon Society Inc [1965] Ch.
669; [1964] 3 W.L.R. 840 Ch D 121, 129

Hopkinson, Re; sub nom. Lloyds Bank Ltd v Baker [1949] 1 All E.R. 346; 65
T.L.R. 108 Ch D 123

Horley Town Football Club, Re; sub nom. Hunt v McLaren [2006] EWHC 2386
(Ch); [2006] W.T.L.R. 1817 113

Hughes v La Baia Ltd [2011] UKPC 9; [2011] 2 P. & C.R. DG7 5

Hulkes, Re; sub nom. Powell v Hulkes (1886) L.R. 33 Ch. D. 552 Ch D 149

Hunter v Moss [1994] 1 W.L.R. 452; [1994] 3 All E.R. 215 CA (Civ Div) 33

Incorporated Council of Law Reporting for England and Wales v Attorney General
[1972] Ch. 73; [1971] 3 W.L.R. 853 CA (Civ Div) 122

Independent Schools Council v Charity Commission for England and Wales

Unreported December 2, 2011 117, 123

Industrial Development Consultants Ltd v Cooley [1972] 1 W.L.R. 443; [1972] 2

All E.R. 162 Assizes (Birmingham) 154, 163

IRC v Baddeley (Trustees of the Newtown Trust); sub nom. Baddeley (Trustees of
the Newtown Trust) v Inland Revenue Commissioners [1955] A.C. 572; [1955] 2

22
W.L.R. 552 HL 126, 127

IRC v Educational Grants Association [1967] Ch. 993; [1967] 3 W.L.R. 41 CA

(Civ Div) 123

IRC v Hashmi; sub nom. Hashmi v Inland Revenue Commissioners [2002] EWCA
Civ 981; [2002] B.C.C. 943; [2002] 2 B.C.L.C. 489 76

IRC v McMullen [1981] A.C. 1; [1980] 2 W.L.R. 416 HL 122

Irvine v Sullivan (1869) L.R. 8 Eq. 673 Ct of Chancery 65

Isaac v Defriez, 27 E.R. 387; (1754) Amb. 595 Ct of Chancery 120

ISC v The Charity Commission. See Independent Schools Council v Charity

Commission for England and Wales

Jackson, Re; sub nom. Jackson v Talbot (1882) L.R. 21 Ch. D. 786 Ch D 179, 186

James Lyon Geaves and Edmund William Paul, Ex parte, 44 E.R. 402; (1856) 8 De
G.M. & G. 291 Ct of Chancery 188

James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch. 62 Ch D 196, 204

James v Frearson, 62 E.R. 929; (1842) 1 Y. & C. Ch. 370 Ct of Chancery 140

James, Re; sub nom. James v James [1935] Ch. 449 Ch D 48

Jenkins’ Will Trusts, Re; sub nom. Public Trustee v British Union for the Abolition
of Vivisection [1966] Ch. 249; [1966] 2 W.L.R. 615 Ch D 134

Jennings v Rice [2002] EWCA Civ 159; [2003] 1 F.C.R. 501; [2003] 1 P. & C.R. 8
50

Johnson v Ball, 64 E.R. 1029; (1851) 5 De G. & Sm. 85 Ct of Chancery 66

Jones (FC) & Sons v Jones. See Trustee of the Property of FC Jones & Sons (A
Firm) v Jones

Jones v Kernott; sub nom. Kernott v Jones [2011] UKSC 53; [2012] 1 A.C. 776;
[2011] 3 W.L.R. 1121 88, 94

Jones v Lock (1865-66) L.R. 1 Ch. App. 25 LC 7, 30, 42, 52

23
Jones, Re; sub nom. Richards v Jones [1898] 1 Ch. 438 Ch D 33, 34

Jordan v Roberts [2009] EWHC 2313 (Ch) 46

Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney General

[1983] Ch. 159; [1983] 2 W.L.R. 284 Ch D 126, 129

Karis v Lewis. See Lewis v Eliades (No.4)

Kasperbauer v Griffith [2000] W.T.L.R. 333 CA (Civ Div) 67

Kay, Re; sub nom. Mosley v Kay [1897] 2 Ch. 518 Ch D 190

Kayford Ltd (In Liquidation), Re [1975] 1 W.L.R. 279; [1975] 1 All E.R. 604 Ch D
20, 31, 32

Keech v Sandford, 25 E.R. 223; (1726) Sel. Cas. Ch. 61 Ct of Chancery 152, 162,
163

Keen, Re; sub nom Evershed v Griffiths [1937] Ch. 236 CA 68, 73

Kershaw’s Trusts, Re (1868) L.R. 6 Eq. 322 Ct of Chancery 168

King, Re; Kerr v Bradley [1923] 1 Ch. 243 Ch D 134, 138

Kings v Bultitude [2010] EWHC 1795 (Ch); [2010] W.T.L.R. 1571; 13 I.T.E.L.R.
391 132, 133

Knight v Knight, 49 E.R. 58; (1840) 3 Beav. 148 Ct of Chancery 28, 40

Knocker v Youle; Knocker v Letcher [1986] 1 W.L.R. 934; [1986] 2 All E.R. 914
Ch D 183

Knott v Cottee, 51 E.R. 707; (1852) 16 Beav. 82 Ct of Chancery 187

Koettgen’s Will Trusts, Re; sub nom. Westminster Bank Ltd v Family Welfare
Association Trustees [1954] Ch. 252; Kumar (A Bankrupt), Re; sub nom. Lewis v
Kumar [1993] 1 W.L.R. 224; [1993] 2 All E.R. 700 Ch D 76

Lacey, Ex parte, 31 E.R. 1228; (1802) 6 Ves. Jr. 625 Ct of Chancery 153, 162

Lambe v Eames (1870-71) L.R. 6 Ch. App. 597 CA in Chancery 29

Laskar v Laskar [2008] EWCA Civ 347; [2008] 1 W.L.R. 2695; [2008] 2 F.L.R.

24
589 89, 94, 101

Lassence v Tierney, 41 E.R. 1379; (1849) 1 Mac. & G. 551 Ct of Chancery 32

Last, In the Estate of [1958] P. 137; [1958] 2 W.L.R. 186 PDAD 33

Leaf v International Galleries [1950] 2 K.B. 86; [1950] 1 All E.R. 693 CA 5

Leahy v Attorney General of New South Wales [1959] A.C. 457; [1959] 2 W.L.R.
722 PC 108, 112

Learoyd v Whiteley; sub nom. Whiteley v Learoyd; Whiteley, Re (1886) L.R. 33

Ch. D. 347 CA 159

Lehman Brothers International (Europe) (In Administration), Re; sub nom. Lehman
Brothers International (Europe) (In Administration) v CRC Credit Fund Ltd [2010]
EWHC 47 (Ch); [2010] 2 B.C.L.C. 301 33

Lepton’s Charity Ambler, Re v Thomas; sub nom. Ambler v Thomas

Lepton’s Will Trusts, Re; Lepton’s Charity, Re [1972] Ch. 276; [1971] 2 W.L.R.
659 Ch D 135

Letterstedt v Broers; sub nom. Vicomtesse Montmort v Broers (1883-84) L.R. 9

App. Cas. 371; [1881-85] All E.R. Rep. 882 PC 146

Levi v Levi [2008] 2 P. & C.R. DG1 Ch D 61

Lewis v Eliades (No.4); sub nom. Karis v Lewis [2005] EWCA Civ 1637; [2006]
2 P. & C.R. DG2 24

Lewis v Nobbs (1878) L.R. 8 Ch. D. 591 Ch D 151

Lightfoot v Lightfoot-Brown [2005] EWCA Civ 201; [2005] 2 P. & C.R. 22; [2005]
W.T.L.R. 1031 104

Lipinski’s Will Trusts, Re [1976] Ch. 235; [1976] 3 W.L.R. 522 Ch D 113

Llewellin’s Will Trusts, Re; sub nom. Griffiths v Wilcox [1949] Ch. 225; [1949] 1
All E.R. 487 Ch D 154

Lloyd v Cocker, 54 E.R. 256; (1860) 27 Beav. 645 Ct of Chancery 168

Lloyds Bank Plc v Rosset [1991] 1 A.C. 107; [1990] 2 W.L.R. 867 HL 101, 106

25
Lloyds TSB Bank Plc v Markandan & Uddin (A Firm) [2012] EWCA Civ 65;
[2012] 2 All E.R. 884; (2012) 162 N.L.J. 328 189

Londonderry’s Settlement, Re; sub nom. Peat v Walsh [1965] Ch. 918; [1965] 2
W.L.R. 229 CA 157

Long’s Settlement Trust, Re (1868) 38 LJ Ch 125 168

Lord and Fullerton’s Contract, Re [1896] 1 Ch. 228 CA 145

Lord Montford v Lord Cadogan, 34 E.R. 651; (1816) 19 Ves. Jr. 635 Ct of
Chancery 191

Lord Napier and Ettrick v RF Kershaw Ltd (No.2); Society of

Lloyd’s v Woodard; sub nom. Society of Lloyd’s v Robinson [1999] 1 W.L.R. 756;
[1999] 1 All E.R. (Comm.) 545 HL 177

Lowson v Coombes [1999] Ch. 373; [1999] 2 W.L.R. 720 CA (Civ Div) 92

Lysaght (Deceased), Re; sub nom. Hill v Royal College of Surgeons [1966] Ch.
191; [1965] 3 W.L.R. 391 Ch D 131, 140

Lysaght v Edwards (1875-76) L.R. 2 Ch. D. 499 Ch D 100

Macadam, Re; Dallow and Moscrop v Codd [1946] Ch. 73; [1945] 2 All E.R. 664
Ch D 154, 162

Maddock, Re; sub nom. Llewelyn v Washington [1902] 2 Ch. 220 CA 71

Malcom v O’Callaghan (1835) 3 Myl. & Cr. 52 156

Manisty’s Settlement, Re; sub nom. Manisty v Manisty [1974] Ch. 17; [1973] 3
W.L.R. 341 Ch D 38

Mareva Compania Naviera SA v International Bulk Carriers SA (The Mareva);

Mareva, The [1980] 1 All E.R. 213; [1975] 2 Lloyd’s Rep. 509 CA (Civ Div) 14

Margulies v Margulies (1999) 77 P. & C.R. D21 Ch D 29

Mariette, Re; sub nom. Mariette v Governing Body of Aldenham School [1915] 2
Ch. 284 Ch D 122

Marshall v Crowther (1875-76) L.R. 2 Ch. D. 199 Ch D 168

26
Mascall v Mascall (1985) 50 P. & C.R. 119; (1984) 81 L.S.G. 2218 CA (Civ Div)
45

Mason v Farbrother [1983] 2 All E.R. 1078 Ch D 180, 186

McCormick v Grogan (1869-70) L.R. 4 H.L. 82 HL 67

McGeorge, Re; sub nom. Ratcliff v McGeorge [1963] Ch. 544; [1963] 2 W.L.R.
767 Ch D 167

McGovern v Attorney General [1982] Ch. 321; [1982] 2 W.L.R. 222 Ch D 127,
129

McPhail v Doulton. See Baden’s Deed Trusts (No.1), Re

Medland, Re; sub nom. Eland v Medland (1889) L.R. 41 Ch. D. 476 CA 149

Midland Bank Plc v Cooke [1995] 4 All E.R. 562; [1997] 6 Bank. L.R. 147 CA
(Civ Div) 104, 107

Midland Bank Plc v Wyatt [1997] 1 B.C.L.C. 242; [1995] 1 F.L.R. 697 Ch D 28

Milroy v Lord, 45 E.R. 1185; (1862) 4 De G.F. & J. 264 QB 6, 7, 42

Ministry of Health v Simpson; Diplock v Wintle; Simpson v Lilburn; sub nom.

Diplock’s Estate, Re [1951] A.C. 251; [1950] 2 All E.R. 1137 HL 84, 198, 204

Moggridge v Thackwell, 32 E.R. 15; (1802) 7 Ves. Jr. 36 Ct of Chancery 119

Montagu’s Settlement Trusts, Re; sub nom. Duke of Manchester v National

Westminster Bank Plc [1987] Ch. 264; [1987] 2 W.L.R. 1192 Ch D 200

Montford v Cadogan. See Lord Montford v Lord Cadogan

Moon v Franklin [1996] B.P.I.R. 196 Ch D 76

Moore v M’Glynn (1896) 1 I.R. 74 147

Morice v Bishop of Durham, 32 E.R. 947; (1805) 10 Ves. Jr. 522 Ct of Chancery
36, 108, 117

Mussett v Bingle [1876] W.N. 170 110

Nail v Punter, 58 E.R. 447; (1832) 5 Sim. 555 Ct of Chancery 191

27
National Anti-Vivisection Society v IRC (1948) 127

National Trustees Co of Australasia Ltd v General Finance Co (1905) 190

Nestle v National Westminster Bank Plc [1993] 1 W.L.R. 1260; [1994] 1 All E.R.
118 CA (Civ Div) 149, 158, 159

Neville Estates Ltd v Madden [1962] Ch. 832; [1961] 3 W.L.R. 999 Ch D 112, 113,
115, 124, 125, 130

New, Re; Leavers, Re; Morely, Re [1901] 2 Ch. 534 CA 179

Niyazi’s Will Trusts, Re [1978] 1 W.L.R. 910; [1978] 3 All E.R. 785 Ch D 120

North Devon and West Somerset Relief Fund Trusts, Re; sub nom. Hylton v Wright;
Baron Hylton v Wright [1953] 1 W.L.R. 1260; [1953] 2 All E.R. 1032 Ch D 135

O’Rourke v Darbishire; sub nom. Whitworth, Re [1920] A.C. 581 HL 157

Oatway, Re; sub nom. Hertslet v Oatway [1903] 2 Ch. 356 Ch D 195, 196

Oppenheim v Tobacco Securities Trust Co Ltd [1951] A.C. 297; [1951] 1 All E.R.
31 HL 123, 129

Osoba (Deceased), Re; sub nom. Osoba v Osoba [1979] 1 W.L.R. 247; [1979] 2
All E.R. 393 CA (Civ Div) 85

Ottaway v Norman [1972] Ch. 698; [1972] 2 W.L.R. 50 Ch D 64, 67

Oughtred v Inland Revenue Commissioners [1960] A.C. 206; [1959] 3 W.L.R. 898
HL 58, 61, 62

Oxford Group v Inland Revenue Commissioners [1949] 2 All E.R. 537; 42 R. &
I.T. 438 CA 130

Oxley v Hiscock [2004] EWCA Civ 546; [2005] Fam. 211; [2004] 3 W.L.R. 715
103, 104, 107

Paine v Hall, 34 E.R. 397; (1812) 18 Ves. Jr. 475 Ct of Chancery 70, 73

Pallant v Morgan [1952] Ch. 43; [1952] 2 All E.R. 951 99

Palmer v Simmonds, 61 E.R. 704; (1854) 2 Drew. 221 Ct of Chancery 32, 40

28
Paradise Motor Co, Re [1968] 1 W.L.R. 1125; [1968] 2 All E.R. 625 CA (Civ Div)
92

Pascoe v Turner [1979] 1 W.L.R. 431; [1979] 2 All E.R. 945 CA (Civ Div) 50

Patel v Ali [1984] Ch. 283; [1984] 2 W.L.R. 960 Ch D 9

Paul v Constance [1977] 1 W.L.R. 527; [1977] 1 All E.R. 195 CA (Civ Div) 30

Pauling’s Settlement Trusts (No.1), Re; sub nom. Younghusband v Coutts & Co
(No.1) [1964] Ch. 303; [1963] 3 W.L.R. 742 CA 170, 191

Peggs v Lamb [1994] Ch. 172; [1994] 2 W.L.R. 1 Ch D 136

Pemsel’s Case. See Special Commissioners of Income Tax v Pemsel

Penn v Lord Baltimore, 27 E.R. 1132; (1750) 1 Ves. Sen. 444 Ct of Chancery 7

Pennington v Waine (No.1); sub nom. Pennington v Crampton (No.1) [2002] EWCA
Civ 227; [2002] 1 W.L.R. 2075; [2002] 4 All E.R. 215 44, 45, 46, 53

Perotti v Watson [2001] EWCA Civ 116 155

Pettingall v Pettingall (1842) 11 L.J. Ch. 176 110

Phelps Settlement Trusts, Re (1886) L.R. 31 Ch. D. 351 CA 144

Phillipson v Gatty, 68 E.R. 213; (1848) 7 Hare 516 Ct of Chancery 188

Pilkington v Inland Revenue Commissioners; sub nom.

Pilkington’s Will Trusts, Re; Pilkington v Pilkington [1964] A.C. 612; [1962] 3
W.L.R. 1051 HL 168

Pinion (Deceased), Re; sub nom. Westminster Bank Ltd v Pinion [1965] Ch. 85;
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Pirbright v Salwey (1896) W.N. 86 110

Pitt v Holt; Futter v Futter [2011] EWCA Civ 197; [2012] Ch. 132; [2011] 3
W.L.R. 19 170

Powell-Cotton’s Resettlement (No.1), Re; sub nom. Henniker-Major v Powell-

Cotton (No.1) [1956] 1 W.L.R. 23; [1956] 1 All E.R. 60 CA 180

29
Power, Praise and Healing Mission (1976) 124

Printers and Transferrers Amalgamated Trades Protection Society, Re [1899] 2 Ch.

184 Ch D 87

R. v District Auditor Ex p. West Yorkshire Metropolitan CC [1986] R.V.R. 24;

[2001] W.T.L.R. 785 QBD 38

Ralli’s Will Trusts Re; sub nom. Ralli’s Marriage Settlement, Re; Calvocoressi v
Rodocanachi [1964] Ch. 288; [1964] 2 W.L.R. 144 Ch D 44, 48, 49

Reading v Attorney General; sub nom. Reading v King, The; Reading’s Petition of
Right, Re [1951] A.C. 507; [1951] 1 All E.R. 617 HL 152

Recher’s Will Trusts, Re; sub nom. National Westminster Bank Ltd v National Anti
Vivisection Society [1972] Ch. 526; [1971] 3 W.L.R. 321 Ch D 87, 115

Regal (Hastings) Ltd v Gulliver [1967] 2 A.C. 134; [1942] 1 All E.R. 378 HL 154,
163

Regan v Paul Properties Ltd [2006] EWCA Civ 1391; [2007] Ch. 135; [2006] 3
W.L.R. 1131 13, 17

Remnant’s Settlement Trusts, Re; sub nom. Hooper v Wenhaston [1970] Ch. 560;
[1970] 2 W.L.R. 1103 Ch D 184, 185

Revel v Watkinson, 28 E.R. 458; (1748) 1 Ves. Sen. 66 Ct of Chancery 164, 165,
180

Richards v Delbridge (1874) L.R. 18 Eq. 11 Ct of Chancery 43

Ridgwell v Ridgwell [2007] EWHC 2666 (Ch); [2008] S.T.C. 1883; [2008]
W.T.L.R. 527 183

Rigby v Connol (1880) L.R. 14 Ch. D. 482 Ch D 9

Rochefoucauld v Boustead [1897] 1 Ch. 196 CA 56

Roscoe v Winder. See James Roscoe (Bolton) Ltd v Winder

Rose (Deceased), Re; sub nom. Rose v Inland Revenue Commissioners [1952] Ch.
499; [1952] 1 All E.R. 1217 CA 44, 45, 53

30
Royal Brunei Airlines Sdn Bhd v Tan; sub nom. Royal Brunei Airlines Sdn Bhd v
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Rubin v Dweck Unreported April 18, 2012 Ch D 75, 76

Rumball (Deceased), Re; sub nom. Sherlock v Allan [1956] Ch. 105; [1955] 1
W.L.R. 1037 CA 125

Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch. 116 CA 8,

16

Rymer, Re; sub nom. Rymer v Stanfield [1895] 1 Ch. 19; [1891- 94] All E.R. Rep.
328 CA 133, 138

Salusbury v Denton, 69 E.R. 1219; (1857) 3 Kay & J. 529 Ct of Chancery 117, 118

Sanderson’s Trust, Re, 69 E.R. 1206; (1857) 3 Kay & J. 497 QB 111

Satterthwaite’s Will Trusts, Re; sub nom. Midland Bank Executor & Trustee Co v
Royal Veterinary College [1966] 1 W.L.R. 277; [1966] 1 All E.R. 91 CA 134

Saunders v Vautier, 49 E.R. 282; (1841) 4 Beav. 115 Ct of Chancery 177, 186

Savage v Dunningham [1974] Ch. 181; [1973] 3 W.L.R. 471 Ch D 90

Scarisbrick’s Will Trusts, Re; sub nom. Cockshott v Public Trustee; Scarisbrick v
Public Trustee [1951] Ch. 622; [1951] 1 All E.R. 822 CA 120, 121

Schmidt v Rosewood Trust Ltd; sub nom. Angora Trust, Re; Everest Trust, Re;
Rosewood Trust Ltd v Schmidt [2003] UKPC 26; [2003] 2 A.C. 709; [2003] 2
W.L.R. 1442 157

Scowcroft, Re [1862] 2 Ch. 638 126

Segelman (Deceased), Re [1996] Ch. 171; [1996] 2 W.L.R. 173 Ch D 121

Sekhon v Alissa [1989] 2 F.L.R. 94; [1989] Fam. Law 355 Ch D 88

Sellack v Harris (1708) 2 Eq. Ca. Ab. 46 64

Sen v Headley [1991] Ch. 425; [1991] 2 W.L.R. 1308 CA (Civ Div) 47, 48

Series 5 Software Ltd v Clarke [1996] 1 All E.R. 853; [1996] C.L.C. 631 Ch D 11

31
Serious Fraud Office v Lexi Holdings Plc (In Administration) [2008] EWCA Crim
1443; [2009] Q.B. 376; [2009] 2 W.L.R. 905 197

Shah v Shah [2001] EWCA Civ 527; [2002] Q.B. 35; [2001] 3 W.L.R. 31 6

Shah v Shah [2010] EWCA Civ 1408; [2011] W.T.L.R. 519; [2011] 1 P. & C.R.
DG19 30, 42, 52

Shalson v Russo; sub nom. Mimran v Russo [2003] EWHC 1637 (Ch); [2005] Ch.
281; [2005] 2 W.L.R. 1213 194, 196, 198, 203

Shaw, Re; sub nom. Public Trustee v Day [1958] 1 All E.R. 245 (Note) CA 108,
121, 122

Shelfer v City of London Electric Lighting Co (No.1); Meux’s Brewery Co v City

of London Electric Lighting Co [1895] 1 Ch. 287 CA 12, 17

Shepherd Homes Ltd v Sandham (No.1) [1971] Ch. 340; [1970] 3 W.L.R. 348 Ch D
12, 17

Silver v Silver [1958] 1 W.L.R. 259; [1958] 1 All E.R. 523 CA 91

Simpson v Brown (1864) 13 W.R. 312 169, 176

Simson, Re; sub nom. Fowler v Tinley [1946] Ch. 299; [1946] 2 All E.R. 220 Ch D
125

Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration)
[2011] EWCA Civ 347; [2011] 3 W.L.R. 1153; [2011] Bus. L.R. 1126 31, 96, 152,
192, 198

Sinclair v Brougham; sub nom. Birkbeck Permanent Benefit Building Society, Re

[1914] A.C. 398; [1914-15] All E.R. Rep. 622 HL 195

Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 W.L.R. 576; [1974] 1 All E.R.
954 Ch D 8

Slevin, Re; sub nom. Slevin v Hepburn [1891] 2 Ch. 236 CA 134, 138

Smith v Matthew, 45 E.R. 831; (1861) 3 De G.F. & J. 139 Ct of Chancery 55

Snowden (Deceased), Re [1979] Ch. 528; [1979] 2 W.L.R. 654 Ch D 29

32
Society of Lloyd’s v Robinson. See Lord Napier and Ettrick v RF Kershaw Ltd
(No.2)

Society of the Precious Blood (1995) 125

South African Territories Ltd v Wallington [1898] A.C. 309 HL 9

South Place Ethical Society, Re; sub nom. Barralet v Attorney General [1980] 1
W.L.R. 1565; [1980] 3 All E.R. 918 Ch D 124

Southwood v Attorney General [2000] W.T.L.R. 1199; (2000-01) 3 I.T.E.L.R. 94

CA (Civ Div) 123

Sowden v Sowden (1875) 1 Bro. C.C. 582 7

Special Commissioners of Income Tax v Pemsel; sub nom. R. v Income Tax

Commissioners [1891] A.C. 531 HL 126

Speight v Gaunt; sub nom. Speight, Re (1883-84) L.R. 9 App. Cas. 1 HL 171

Spence (Deceased), Re; sub nom. Ogden v Shackleton [1979] Ch. 483; [1978] 3
W.L.R. 483 Ch D 133, 138

Spencer, Re; sub nom. Lloyds Bank Ltd v Spencer [1935] Ch. 533 Ch D 166

Sprange v Barnard (1789) 2 Bro.C.C. 585 33, 34, 40

Springette v Defoe [1992] 2 F.L.R. 388; [1992] 2 F.C.R. 561 CA (Civ Div) 90

Stack v Dowden; sub nom. Dowden v Stack [2007] UKHL 17; [2007] 2 A.C. 432;
[2007] 2 W.L.R. 831 5, 18, 35, 89, 90, 94, 101, 103, 104

Starglade Properties Ltd v Nash [2010] EWCA Civ 1314; [2011] Lloyd’s Rep. F.C.
102; [2011] 1 P. & C.R. DG17 97, 202

Stead, Re; sub nom. Witham v Andrew [1900] 1 Ch. 237 Ch D 70

Steed’s Will Trusts, Re; sub nom. Sandford v Stevenson [1960] Ch. 407; [1960] 2
W.L.R. 474 CA 182

Steele’s Will Trusts, Re; sub nom. National Provincial Bank Ltd v Steele [1948]
Ch. 603; [1948] 2 All E.R. 193 Ch D 29

Stewart, Re; sub nom. Stewart v McLaughlin [1908] 2 Ch. 251 Ch D 48

33
Stopford v Lord Canterbury, 59 E.R. 805; (1840) 11 Sim. 82 Ct of Chancery 165

Strahan, Re. See James Lyon Geaves and Edmund William Paul, Ex parte

Strong v Bird (1874) L.R. 18 Eq. 315 Ct of Chancery 44, 48, 49, 53

Suffert’s Settlement, Re; sub nom. Suffert v Martyn-Linnington [1961] Ch. 1; [1960]
3 W.L.R. 796 Ch D 183

Sweeney v Coghill (1999) 77 P. & C.R. D14 CA (Civ Div) 29

T Choithram International SA v Pagarani; sub nom. Pagarani, Re [2001] 1 W.L.R.

1; [2001] 2 All E.R. 492 PC (BVI) 46

Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd [2006]
EWHC 3589 (Ch); [2007] 1 W.L.R. 2148; [2007] 2 P. & C.R. 3 12

Target Holdings Ltd v Redferns [1996] A.C. 421; [1995] 3 W.L.R. 352 HL 192

Tate v Hilbert, 30 E.R. 548; (1793) 2 Ves. Jr. 111 Ct of Chancery 47

Taylor v Plumer, 105 E.R. 721; (1815) 3 M. & S. 562 KB 194

Templeton Insurance Ltd v Penningtons Solicitors [2006] EWHC 685 (Ch); [2007]
W.T.L.R. 1103 31

The Druid Network September 21, 2010 124

Third Chandris Shipping Corp v Unimarine SA (The Angelic Wings, The Genie and
The Pythia); Aggelikai Ptera Compania Maritima SA v Unimarine SA; Western
Sealanes Corp v Unimarine SA; Angelic Wings, The; Genie, The; Pythia, The
[1979] Q.B. 645; [1979] 3 W.L.R. 122 CA (Civ Div) 14

Thompson v Pritcher (1815) 6 Taunt. 35 125

Thompson, Re; sub nom. Public Trustee v Lloyd [1934] Ch. 342 Ch D 111

Thomson, Re; sub nom. Thomson v Allen [1930] 1 Ch. 203 Ch D 156

Thorner v Major; sub nom. Thorner v Curtis; Thorner v Majors [2009] UKHL 18;
[2009] 1 W.L.R. 776; [2009] 3 All E.R. 945 50

Thornton v Howe, 54 E.R. 5042; (1862) 31 Beav. 14 Ct of Chancery 124

34
Thorpe v Revenue & Customs Commissioner [2010] EWCA Civ 339; [2010]
S.T.C. 964; [2010] B.T.C. 425 177

Tinker’s Settlement, Re [1960] 1 W.L.R. 1011; [1960] 3 All E.R. 85 (Note) Ch D

183

Tinsley v Milligan [1994] 1 A.C. 340; [1993] 3 W.L.R. 126 HL 92

Tito v Waddell; Tito v Attorney General [1977] Ch. 106; [1977] 2 W.L.R. 49 Ch D
153

Tollemache, Re [1903] 1 Ch. 955 CA 179

Towler’s Settlement Trusts, Re [1964] Ch. 158; [1963] 3 W.L.R. 987 Ch D 182

Townley v Sherbourne (1634) J. Bridg. 35 188

Tribe v Tribe [1996] Ch. 107; [1995] 3 W.L.R. 913 CA (Civ Div) 92

Trustee of the Property of FC Jones & Sons (A Firm) v Jones [1997] Ch. 159;
[1997] 1 W.L.R. 51 CA (Civ Div) 193, 194

Trustees of the British Museum v Attorney General [1984] 1 W.L.R. 418; [1984] 1
All E.R. 337 Ch D 181

Tuck’s Settlement Trusts, Re; sub nom. Public Trustee v Tuck; Tuck (Estate of Sir
Adolph) (Deceased), Re [1978] Ch. 49; [1978] 2 W.L.R. 411 CA (Civ Div) 38, 41

Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 A.C. 164; [2002] 2 W.L.R.
802 31, 201

Universal Thermosensors Ltd v Hibben [1992] 1 W.L.R. 840; [1992] 3 All E.R.
257 Ch D 13

Uzinterimpex JSC v Standard Bank Plc [2008] EWCA Civ 819; [2008] Bus. L.R.
1762; [2008] 2 Lloyd’s Rep. 456 201, 204

Vandepitte v Preferred Accident Insurance Corp of New York; sub nom. Vandepitte
v Preferred Accident Insurance Co of New York [1933] A.C. 70; (1932) 44 Ll. L.
Rep. 41 PC 52

Vandervell v Inland Revenue Commissioners [1967] 2 A.C. 291; [1967] 2 W.L.R.

87 HL 25, 59, 60, 62, 83

35
Vandervell’s Trusts (No.2), Re; sub nom. White v Vandervell Trustees [1974] Ch.
269; [1974] 3 W.L.R. 256 CA (Civ Div) 59, 61, 62

Varsani v Jesani (Cy Pres) [1999] Ch. 219; [1999] 2 W.L.R. 255 CA (Civ Div) 136

Verrall v Great Yarmouth BC [1981] Q.B. 202; [1980] 3 W.L.R. 258 CA (Civ Div)
8

Verrall, Re; sub nom. National Trust for Places of Historic Interest or Natural
Beauty v Attorney General [1916] 1 Ch. 100 Ch D 126

Vinogradoff, Re [1936] W.N. 68 24, 91, 139

Vyse v Foster; Vyse v Vyse (1874-75) L.R. 7 H.L. 318 HL 153

Wale, Re; sub nom. Wale v Harris [1956] 1 W.L.R. 1346; [1956] 3 All E.R. 280 Ch
D 49

Walker (Sir James), Re; sub nom. Walker v Duncombe [1901] 1 Ch. 879 Ch D 166

Walker v Stones [2001] Q.B. 902; [2001] 2 W.L.R. 623 CA (Civ Div) 160

Walker v Symonds, 36 E.R. 751; (1818) 3 Swans. 1 CCP 190

Walker v Walker Unreported April 12, 1984 90

Walker, Re (1894) 1 Ch 189 168

Wallgrave v Tebbs, 69 E.R. 800; (1855) 2 Kay & J. 313 Ct of Chancery 68

Walsh v Lonsdale (1882) L.R. 21 Ch. D. 9 CA 6

Ward v Ward, 9 E.R. 1287; (1843) 2 H.L. Cas. 777 151

Ward, Re; Public Trustee v Ward [1941] Ch. 308 CA 117

Warrent v Gurney [1944] 2 All E.R. 472 CA 92

Wedgwood, Re; sub nom. Allen v Wedgewood [1915] 1 Ch. 113 CA 126

West Sussex Constabulary’s Widows, Children and Benevolent (1930) Fund Trusts,
Re; Barnett v Ketteringham [1971] Ch. 1; [1970] 2 W.L.R. 848 Ch D 86

Westdeutsche Landesbank Girozentrale v Islington LBC; Kleinwort Benson Ltd v

36
Sandwell BC; sub nom. Islington LBC v Westdeutsche Landesbank Girozentrale
[1996] A.C. 669; [1996] 2 W.L.R. 802 HL 18, 82, 85, 95

Weston, Re; sub nom. Bartholomew v Menzies [1902] 1 Ch. 680 Ch D 48

Weston’s Settlements, Re; sub nom. Weston v Weston [1969] 1 Ch. 223; [1968] 3
W.L.R. 786 CA (Civ Div) 184, 186

White v Williams [2010] EWHC 940 (Ch); [2010] P.T.S.R. 1575; [2010] W.T.L.R.
1083 136

Wilkes v Arlington [1931] 2 Ch. 104 Ch D 47

Wilkins v Hogg (1861) 31 L.J. Ch. 41 188

William v Barton [1927] 2 Ch. 9 Ch D 96, 154, 162

Wilson v Turner (1883) L.R. 22 Ch. D. 521 CA 165

Wokingham Fire Brigade Trusts, Re; sub nom. Martin v Hawkins [1951] Ch. 373;
[1951] 1 All E.R. 454 Ch D 126

Wolverhampton Corp v Emmons [1901] 1 Q.B. 515 CA 9

Woodward v Woodward [1995] 3 All E.R. 980; [1992] R.T.R. 3 CA (Civ Div) 48

Wright v Wright [2010] EWHC 1808 (Ch); [2011] 1 F.L.R. 387; [2010] Fam. Law
1181 55

Wright, Re; sub nom. Blizard v Lockhart [1954] Ch. 347; [1954] 2 W.L.R. 972 CA
135, 138

Wright’s Will Trust, Re (1982) (unreported) July 29 1982 37

Wrightson, Re; sub nom. Wrightson v Cooke [1908] 1 Ch. 789 Ch D 147

Wroth v Tyler [1974] Ch. 30; [1973] 2 W.L.R. 405 Ch D 8

Yeoman’s Row Management Ltd v Cobbe. See Cobbe v Yeoman’s Row

Management Ltd

Young (Deceased), Re; sub nom. Young v Young [1951] Ch. 344; [1950] 2 All E.R.
1245 Ch D 66

37
Zeital v Kaye; sub nom. Dalmar Properties Ltd, Re; Kaye v Zeital [2010] EWCA
Civ 159; [2010] 2 B.C.L.C. 1; [2010] W.T.L.R. 913 44

38
Table of Statutes

1837 Wills Act (7 Will.4 & 1 Vict. c.26) 63, 65, 66

s.9 54, 55

1858 Chancery Amendment Act (21 & 22 Vict. c.27) 3

1896 Judicial Trustees Act (59 & 60 Vict. c.35)

s.1(5) 155

1873 Supreme Court of Judicature Act (36 & 37 Vict. c.66) 1

1875 Supreme Court of Judicature Act (38 & 39 Vict. c.77) 1

1906 Public Trustee Act (6 Edw.7 c.55) 139, 155

1925 Settled Land Act (15 & 16 Geo. 5 c.18)

s.64 178

1925 Trustee Act (15 & 16 Geo. 5 c.19)

Pt II 164

s.12 164

s.14 164

s.15 164

s.16 164

s.18 140

s.19 164

s.22(4) 157

s.25 171, 172, 173

39
 (1) 171

s.31 165, 166, 172, 174, 175

(1) 165, 166, 175

(ii) 167

s.32 167, 168, 169, 172, 174, 175

(1)(a) 168

(b) 169

(c) 169

s.33 24

s.36 142, 143, 147

(1) 139, 140, 141, 145, 148

(6) 141, 143, 148

s.39 141, 145

s.40 144

s.41 141, 142, 143, 144, 145

s.42 155

s.57 151, 180

(1) 178, 180, 185

s.61 189, 190, 202

s.62 191

s.64(1) 181, 185

s.69(2) 166

40
1925 Law of Property Act (15 & 16 Geo. 5 c.20)

s.20 139

s.52 43

s.53 54

(1)(b) 42, 55, 56, 61, 65

(c) 43, 56, 57, 58, 59, 60, 61, 62, 65

(2) 56, 57, 58, 61

s.56 19

s.60(3) 91

1925 Recreational Charities Act (6 & 7 Eliz.2 c.17) 127

1958 Variation of Trusts Act (6 & 7 Eliz.2 c.53) 178, 181, 182, 184, 186

s.1 182, 185

(1) 182, 183

1961 Trustee Investments Act ((9 & 10 Eliz.2 c.62) 158

1964 Perpetuities and Accumulations Act (13 Eliz. 2 c 55) 109

1970 Parish Councils and Burial Authorities (Miscellaneous Provisions) Act

(c.29)

s.1 110

1973 Matrimonial Causes Act (c.18) 79

s.24 178, 181, 185

s.37 79

1975 Inheritance (Provision for Family and Dependants) Act (c.63) 79, 80

s.2 80

41
 s.3 80

s.10 80

s.11 80

1978 Civil (Liability) Contribution Act (c.47) 189

1979 Sale of Goods Act (c.54)

s.52 8

1980 Limitation Act (c.58) 5, 151

1981 Senior Courts Act (c.54)

s.37 14

s.50 3, 17

1982 Forfeiture Act (c.34) 98

1985 Housing Act (c.68) 90

1986 Insolvency Act (c.45) 74, 77, 78, 81

s.339 77, 81

s.340 77, 81

s.423 75, 76, 77, 81

(1) 75

ss.423-425 75

s.425(2) 77

1989 Law of Property (Miscellaneous Provisions) Act (c.34)

s.2 98

1992 Trade Union and Labour Relations (Consolidation) Act (c.52)

42
 s.221(2) 12

1995 Pensions Act (c.26) 23

1996 Trusts of Land and Appointment of Trustees Act (c.47) 26, 143, 169

s.9 172, 174

(1) 173

s.19 141, 142, 143

(1) 143

ss.19-21 146

s.20 142, 143

1997 Civil Procedure Act (c.12)

s.7 13

1998 Human Act (c.42)

s.12(3) 12

1999 Trustee Delegation Act (c.15)

s.1 172, 173

1999 Welfare Reform and Pensions Act (c.30) 181

1999 Contracts (Rights of Third Parties) Act (c.31) 3, 19

2000 Trustee Act (c.29) 151, 156, 157, 159, 171

Pt II 157

s.1 159, 173, 189

s.3(1) 158

s.4 158

43
 (2) 158

s.5 158

s.8 158

s.11 171

s.28 156

s.29 156

s.31(1) 156

2001 Pensions Act (c.35) 23

2002 Land Registration Act (c.9)

s.27 144

2004 Civil Partnership Act (c.33) 80, 181

2005 Mental Capacity Act (c.9)

s.16 178, 181

(7) 181, 185

2009 Perpetuities and Accumulations Act (c.18) 109

2010 Equality Act (c.15)

s.199 91

2011 Charities Act (c.25) 22, 116, 120, 122, 125, 131, 137

s.1(1)(a) 117

s.3(1) 117, 125

(a) 120, 124, 129

(a)-(m) 116, 129

44
 (b) 120, 129, 130

(c) 120, 129

(d)-(m) 125

(f) 122

(g) 122

(h) 129

s.4(1) 117

(2) 117

(5) 127

s.5 127

(1) 127

(3) 127

s.62 135

(1) 135

(2) 135

s.63 136, 137, 138

s.64 136, 137

s.65 137

s.94 138

45
 1
An Introduction to Equity

INTRODUCTION
This book considers the doctrines and remedies which have been developed by the
branch of law known as “equity” and places emphasis upon the concept of the trust.
In particular, this opening chapter serves as an introduction to equity and trusts and
looks at the impact that equity has had upon the development of English Law.
“Equity” is a term that invokes notions of good conscience, fairness and justice.
In modern times, it exerts an influence in every aspect of the civil law and this is
particularly so in contract, tort and land law. “Equity” is the branch of law that was
administered in the Court of Chancery prior to the Judicature Acts 1873 and 1875.
This was a jurisdiction evolved to achieve justice and to overcome the rigours and
deficiencies of the common law. Injustice was especially apparent in the common
law writ system which, put simply, entailed that: if there was no writ, there was no
cause of action upon which a claimant could rely. In such instances, the aggrieved
party might apply to the King for justice. The King, in turn, passed on these appeals
to the Lord Chancellor. In time, the Lord Chancellor developed his own court, the
Court of Chancery. Initially, the Court of Chancery operated in a flexible manner in
the dispensation of justice. Inevitably, however, equity developed its own body of
rules that had, by the nineteenth century, become almost as technical and rigid as
those at common law.

FUSION?
Not surprisingly, a dual system of courts proved to be expensive, cumbersome
and inconvenient. It also produced major conflict between the common law
judges and their chancery counterparts. The Judicature Acts 1873 and 1875
addressed these issues and provided that all courts could now exercise both a
common law and equitable jurisdiction. This can be said to be “procedural

46
 fusion”. While the Acts merged the Court of Chancery with the common law
courts (to form the Supreme Court of Judicature), Parliament did not
substantively fuse the two streams of law. The Acts did establish, however,
the supremacy of equity by providing that, in a conflict between law and
equity, equitable rules were to prevail. Speaking in Hong Kong in 2010, Lord
Neuberger M.R. emphasised that “substantive fusion” did not occur, “It is
difficult to conceive how the rules of equity could prevail over those of Law,
if there were no longer any rules of Equity or Law; if the Judicature Acts had
assimilated the two in order to create the successor to Equity and Law what
conflict could there be?” As will become clear, the major differences between
the two streams of law concern the types of claim made by litigants and the
remedies that are awarded by the court. As Lord Neuberger M.R. put it, “The
twin streams of English substantive law were thus intended to continue to flow
separately, even though the common law stream would narrow at those points
where it overlapped, but did not mingle, with flowing waters of Equity”.

EQUITY’S IMPACT
There are many and varied contributions to the substantive law that have been made
by equity. The following provide the major examples:

• the trust (originally called a “use”). If property was conveyed to “A upon trust
for B”, the common law courts regarded A as the absolute owner and would not
recognise B’s rights. Equity, however, would enforce the trust and compel A (as
trustee) to hold the property on behalf of B (the beneficiary);

Figure 1: The Trust

47
 • restrictive covenants. The general rule at common law is that covenants only
bind the parties themselves and cannot bind third parties. Although the benefit of a
covenant can easily be transferred to a third party expressly or under statute (e.g.
the Contracts (Rights of Third Parties) Act 1999), stricter rules govern its
burden. In relation to freehold covenants affecting land, equity stepped in to allow
restrictive (or negative) covenants to run with the land so as to bind all future
purchasers;

• the mortgagor’s equitable right to redeem. Where a landowner mortgages his

land (i.e. offers the land as security for a loan), the mortgage contract will specify a
contractual date for redemption. This is the agreed date when the debt is to be paid
off (redeemed) by the borrower. At common law, the borrower had to discharge the
loan by this date or he would lose the land. Equity intervened and allowed
repayment to be made even though the contractual date had passed;

• the subpoena. This is an order developed by the Court of Chancery to compel a

litigant to appear in person before the court and to be questioned;

• estoppel. An estoppel arises most commonly in circumstances where X makes a

statement, promise or some other representation to Y and, as a result, Y acts to his
detriment. Y’s detrimental reliance/change of position can trigger an estoppel that
will prevent X from enforcing his strict legal rights. Of the various categories of
estoppel that exist, the most commonly found are promissory estoppel and
proprietary estoppel. Promissory estoppel can only be employed as a defence (it is
a shield and not a sword) and hinges upon there being a promise as to future

48
conduct (not existing fact). Proprietary estoppel requires a representation or
understanding (whether in the present or future tense) concerning land and can be
used as a cause of action (i.e. it confers a positive right to sue).

New Remedies
At common law, the usual remedy is the award of damages and this is available as
of right. A wider range of remedies was introduced by equity. These include
specific performance, injunctions, rectification (rewriting of a contract), rescission
(unilateral withdrawal from a contract) and the appointment of a receiver (to
receive income from a business). Until the Chancery Amendment Act 1858,
however, equity could not award damages for breach of contract. The Act (now in
its modern form of s.50 of the Senior Courts Act 1981) allowed an award of
damages in addition to, or in substitution for, an injunction or specific performance.
A distinguishing feature of all equitable remedies is that they are discretionary (i.e.
not available as of right) and appropriate only where financial compensation is
inadequate. The remedies of specific performance and injunction are considered in
more detail below.

THE MAXIMS OF EQUITY

DEFINITION CHECKPOINT
There are a number of maxims that represent the general principles of equity.
These maxims retain importance because they provide broad guidelines and
core principles by which the courts exercise their equitable jurisdiction. They
should always be borne in mind because, as equitable remedies are
discretionary, they may often dictate when (and when not) a remedy will be
granted. Below is a list of the most important equitable maxims.

Equity Will Not Suffer a Wrong Without a Remedy

This maxim is not to be taken literally as equitable remedies are geared only to
strike against unconscionable behaviour and operate only if that behaviour
constitutes a legal (as opposed to a moral) wrongdoing (see Dubey v HM Revenue
v Customs (2006) where disappointed Farepak customers, who received neither
their Xmas goods nor a refund, failed in their legal action). The law of trusts
provides a good illustration, as equity (but not the common law) allows the
beneficiary to enforce his rights. A further example concerns quia timet injunctions
which can be employed to prevent an anticipated wrong, whereas there is no
remedy at common law until the wrongful act has been performed. Other modern
developments include the evolution of promissory estoppel, the creation of the so-

49
called deserted wife’s equity, the deployment of the constructive trust and the
expansion of the range of injunctions.

He who Seeks Equity must do Equity

This focuses upon the future conduct of the claimant and entails that, for example, if
the claimant seeks to rescind (i.e. withdraw from) a contract, the court will ensure
that the claimant acts equitably by returning any deposit paid under the contract.
Similarly, if the claimant seeks to specifically enforce a contract then he must be
prepared to perform his side of the bargain. If the claimant cannot, or will not,
perform his obligations, the court will not grant equitable relief. The maxim is,
therefore, employed to ensure fairness.

He who Comes to Equity must come with Clean Hands

This looks to the past conduct of the claimant and entails that, if the claimant’s
conduct in relation to the dispute has been improper and deliberate the chances are
that equity will not assist him. For example, specific performance will not be
granted in relation to a contract which was brought about by the claimant’s
misrepresentation or fraud (Cross v Cross (1983)) or where the claimant is himself
in breach of that contract. If it were otherwise, equity would be operating a dual
standard. As demonstrated in Fiona Trust v Privalov (2008), which concerned a
non-disclosure of documents and the making of secret background investigations,
not all misconduct deprives the claimant of equitable relief and, therefore, trivial
misconduct can be overlooked.

Delay Defeats Equity

“Laches” is an example of the operation of this maxim and means that a claimant
who takes too long to exercise his legal rights will not receive the assistance of
equity. Equity aids the vigilant and not the indolent. The idea is that the claimant has
to act expeditiously. In practice, the role of this maxim has been subsumed by the
Limitation Act 1980 (which sets out time limits within which actions must be
commenced), but it still exerts influence when deciding whether equitable remedies
should be granted (Leaf v International Galleries (1950)). More recently, in
Hughes v La Baia Ltd (2007) the Privy Council emphasised that the onus is on the
defendant to prove that it would be inequitable to grant the claimant the relief to
which he was otherwise entitled.

Equity is Equality
This maxim applies where two or more persons claim to be interested in the same
property. If their respective shares are not stated, and there is an absence of a
contrary intention, equity assumes that they are to have equal shares. For example,

50
as regards claims to property under a fixed trust, if the shares are not allocated
between the claimants, equity presumes that each was intended to have an equal
share (Burrough v Philcox (1840)). In Stack v Dowden (2007), the House of Lords
readily applied the presumption of equality in circumstances where there was a
conveyance of a house into the joint names of a cohabiting couple, but without any
explicit declaration of their respective beneficial interests. Baroness Hale
concluded that, “the starting point where there is joint legal ownership is joint
beneficial ownership. The onus is upon the person seeking to show that the
beneficial ownership is different from the legal ownership.”

Equity will Not Assist a Volunteer

Equity will not grant specific performance of a gratuitous promise (i.e. an
agreement that is not supported by consideration). In relation to trusts, this means
that equity will assist a beneficiary only when there is a perfectly constituted trust
(i.e. once legal title to the trust property has vested in the trustee): see Milroy v
Lord (1862). This is considered further in Ch.4.

Equity Looks on That as Done That Ought to Be Done

KEY CASE

WALSH V LONSDALE (1882)

In Walsh v Lonsdale (1882), a seven-year lease was granted to the tenant, but
no deed was executed. The fixed term lease was, therefore, equitable. In the
light that specific performance of the contract to create a legal lease was
available, the court admitted that an equitable lease is as good as a legal
lease. This was because equity looked on the lease as “legal” as soon as it
was informally created.

A further example of this maxim is the doctrine of conversion that arises on a

binding contract for the sale of land. As soon as the contract is entered, the vendor
becomes the trustee of the legal estate for the benefit of the purchaser. This entails
that the vendor’s interest has been “converted” into the agreed proceeds of sale.
Accordingly, if the property is damaged after the contract, the risk potentially falls
on the shoulders of the purchaser and the vendor is entitled to the full purchase
price.

Equity will Not Permit a Statute to be Used as an Engine of Fraud

This prevents a party from relying upon an absence of statutory formalities (e.g.
relating to land contracts, the creation of legal leases and express trusts and the
registration of land charges) if to do so would be unconscionable and unfair. This

51
maxim is also relied upon as a justification for the law upholding so called “secret
trusts” (see Ch.6).

Illustrative cases
• In Shah v Shah (2001), a deed was not properly executed and a witness to the
deed sought to have it set aside for his own benefit. The court held that for the
witness to rely on this defect would be tantamount to fraud and upheld the deed.

• In Bannister v Bannister (1948), an elderly woman conveyed a house on the

understanding that she would be able to continue to reside there rent-free. The
bargain was not enforceable by her. Nevertheless, equity stepped in to prevent
injustice and imposed a constructive trust which gave her a life interest in the
property.

Equity Acts in Personam

A key feature of equity is that it acts in personam, which means that it is designed to
prevent a specified individual from acting unconscionably. It strikes at the conduct
and conscience of the defendant. This means that equitable remedies are personal in
that they are exercised against specific persons. They compel or permit a person to
do something or not to do something. For example, in relation to a breach of trust,
the remedy is exercisable against the trustees personally. This can involve an order
freezing the trustees’ assets even if those assets are subject to a foreign jurisdiction.
The maxim also entails that an individual who does not comply with an order of the
court will be held to be in contempt and may be imprisoned until he purges his
contempt. It also justifies how equity can make an order relating to property
situated outside the jurisdiction, provided that the defendant is within the
jurisdiction: Penn v Lord Baltimore (1750) where specific performance of a
contract relating to land in North America was granted.

Equity Imputes an Intention to Fulfil an Obligation

This means that where a person is obliged to do something, but instead does
something else that could be regarded as a performance of the obligation, equity
will regard this as fulfilling the obligation. For example, when a debtor leaves a
legacy by will to his creditor, the presumption is that the legacy will be viewed as
the satisfaction of the debt. The creditor will, therefore, not be able both to sue on
the debt and keep the legacy (Sowden v Sowden (1875)).

Equity will Not Perfect an Imperfect Gift

In order to make a perfect gift the donor must comply with the requirements

52
necessary to transfer legal title to the property. There are numerous examples where
equity has not interfered when, although a transfer was intended, the transferor did
not follow the appropriate transfer process. In Jones v Lock (1865), a father
intended to make a gift of a cheque to his child, but failed to endorse the cheque
with the result that legal title did not pass. Equity refused to cure the defect and the
gift failed. Similarly, in Milroy v Lord (1862), an attempt to set up a trust of 50
shares in a bank failed because legal title to the shares never passed to the intended
trustee. This rule, however, has its exceptions and these include deathbed gifts,
fortuitous vesting, proprietary estoppel, unconscionability and the so-called every
effort rule. These are considered in Ch.4.

SPECIFIC PERFORMANCE
DEFINITION CHECKPOINT
Specific performance is, put simply, a court order requiring a party to a
contract to perform his side of the contractual bargain.

General Principles
This discretionary remedy will not be granted if damages would adequately
compensate the claimant. An example of where specific performance will be
readily granted concerns contracts for the sale of land. This is because each piece
of land is considered to be unique and damages would not compensate the potential
purchaser. An action for a specific performance, moreover, may be commenced
even before there has been an actual breach of contract. This would arise where
there is an anticipatory breach (e.g. one party states that he will not perform the
contract): see Hasham v Zenab (1960).

Restricted availability
Specific performance is not available for all types of contract. It does not cover, for
example:

• most contracts for the sale of goods (see Cohen v Roche (1927) where a contract
to sell eight Hepplewhite chairs was not specifically performed because they were
of no special interest or value). This rule gives way when the goods are unique
(Behnke v Bede Shipping Co (1927): a ship); special circumstances make the
payment of damages inadequate (Sky Petroleum Ltd v VIP Petroleum Ltd (1974):
sale of petrol at a time of world shortage) or the contract is catered for by statutory
provision (e.g. s.52 of the Sale of Goods Act 1979 relates to the performance of
“specific or ascertained goods”);

• illegal or immoral contracts (e.g. a contract to pay for stolen goods) or when the

53
specific performance of the contract would offend public policy. In Wroth v Tyler
(1974) the order was refused because it would cause a husband to sue a wife with
whom he was still residing;

• agreements where there is no consideration (“equity will not assist a

volunteer”);

• contracts for transient interests (e.g. a tenancy at will) because “equity will not
act in vain”. Specific performance may, however, be available to enforce
contractual licences where damages are an inadequate remedy (Verrall v Great
Yarmouth (1981));

• contracts requiring continuous supervision (e.g. a contract to provide porterage

in a block of flats (Ryan v Mutual Tontine Westminster Chambers Association
(1893))) and a covenant to keep open a business in a shopping centre (Co-
Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (1998)).
Contracts to build can, however, be specifically enforced provided that the
construction contract sufficiently defines the work to be carried out, damages
would be inadequate and the builder has already taken possession of the land on
which the work is to be carried out (Wolverhampton Corporation v Emmons
(1901));

• contracts involving personal services (e.g. an agreement by an actor to appear in

a play (Rigby v Connol (1878)). This exclusion is based upon public policy
grounds and the objection that enforcement would be futile and require continuous
supervision. Hence, there can be no specific performance so as to compel an
employee to work. The courts must not, as Fry L.J. put it in De Francesco v
Barnum (1890): “turn contracts of service into contracts of slavery”;

• contracts to pay money because damages are clearly an adequate remedy (South
African Territories Ltd v Wallington (1898)). In Beswick v Beswick (1968),
however, the House of Lords departed from this traditional restriction and awarded
specific performance of a contract whereby, in return for a transfer of a business,
the transferee was to pay the transferor’s widow the sum of £5 per week for life.
Justice demanded an equitable remedy.

Defences to Specific Performance

Even though the contract may be of a type that is suitable for specific performance,
the defendant may be able to invoke a defence to the claim. These include where:

• specific performance of only part of the contract is sought;

54
 • there has been some misrepresentation or other default by the claimant (the
“clean hands” maxim);

• the contract reflects a common mistake shared by the parties;

• there is some misdescription in the contract of the property to be transferred;

• there has been an unreasonable lapse of time (“laches”) in seeking the order;

• it will cause hardship to the parties or to a third party. For example, in Patel v
Ali (1984) specific performance of a land contract was denied in order to prevent
“a hardship amounting to injustice”. The plaintiff had to be content with damages;

• the conduct of the claimant is such that he does not come to court with clean
hands (i.e. the conduct is somehow tricky or unfair);

• there is a want of mutuality (i.e. the remedy of specific performance is not

available to the other party). For example, where one party is below the age of
majority.

INJUNCTIONS

DEFINITION CHECKPOINT
An injunction may be granted against an individual, a class or an organisation
restraining the unlawful acts of unidentified people. A person may seek an
injunction to protect his existing private rights. Public rights are usually
protected by injunctions obtained by the Attorney General. A local authority
may also seek an injunction to protect public rights in the locality or to enforce
planning control. To act in breach of an injunction is contempt of court.

Types of Injunction
Each type of injunction has been designed to achieve a different function. These
categories include:

• prohibitory injunctions which forbid the party to do or to continue to do an

unlawful act (e.g. to build upon land in breach of a restrictive covenant);

• mandatory injunctions which order that an act be undone (e.g. to demolish a

building which has been built in breach of a restrictive covenant). Hence, a
mandatory injunction when granted is likely to undo a wrongful act rather than to
order the defendant to carry out a positive obligation. This is because of the

55
difficulties of supervision (Gravesham BC v British Railways Board (1978)).
Mandatory injunctions are uncommon;

• final or perpetual injunctions are granted in final settlement of the dispute

between the parties and are issued at the completion of the court proceedings;

• interim injunctions (sometimes known as “interlocutory injunctions”) which are

made during the course of legal proceedings continue only until the eventual trial of
the action. The purpose is to restrain the defendant immediately without waiting for
a full court hearing;

• without notice (or ex parte) injunctions are granted sparingly, and in an

emergency, without the other side having been informed or given the opportunity to
attend the hearing of the application. Such injunctions are often sought to restrain
possible copyright and patent infringements;

• quia timet injunctions which are designed to prevent an anticipatory infringement

of the claimant’s rights where an infringement is a realistic threat;

• search orders (formerly known as “Anton Piller orders”), which authorise the
claimant, to enter the defendant’s premises, to inspect and seize documents relevant
to the case. The aim is to protect evidence in relation to impending litigation;

• freezing injunctions (formerly known as Mareva injunctions) which prevent the

defendant from taking his assets out of the jurisdiction of the court before the
completion of litigation.

Guidelines for Interim Injunctions

A series of guidelines as to when interim injunctions should be granted were set out
by Lord Diplock in American Cyanamid Co v Ethicon Ltd (1975). Subject to the
Civil Procedure Rules these ensure that:

• the claimant’s case must not be frivolous or vexatious and there must be a
serious question to be tried. Previously the claimant had to show a strong prima
facie case;

• the claimant must give an undertaking in damages to the court;

• a “balance of convenience” or “balance of justice” test must be satisfied. This

test involves weighing up the potential harm suffered by the applicant if no
injunction is awarded, with the potential inconvenience caused to the defendant if it

56
is granted. For example, in Gregory v Castleoak Ltd (2002), the loss to the
claimant, if the injunction was not granted, was minimal whereas, if granted, it
would be financially disastrous for the defendant. Importantly, the case for an
injunction will be strengthened if; the claimant is prepared to give an undertaking to
the court to compensate the defendant for loss in the event of the eventual litigation
being unsuccessful. If the claimant cannot afford to pay such potential damages, the
court may refuse to order the injunction;

• only as a last resort will the strength of each party’s case be considered.
Nevertheless, in Series 5 Software v Clarke (1996) more emphasis was placed
upon this last guideline. The claimant’s case was weak and, in refusing to grant
injunctive relief, Laddie J. adopted a more flexible approach. He was not prepared
to relegate the strength of each party’s case to the last resort.

Exceptions to Cyanamid
The American Cyanamid guidelines do not apply in the following situations:

• when there is no arguable defence. As a permanent injunction will be granted

eventually, an interim injunction will be granted until the trial occurs;

• when the grant or refusal of an injunction will render the trial of the action
unlikely. In Cambridge Nutrition Ltd v BBC (1990), the claimants unsuccessfully
sought an injunction restraining the BBC from broadcasting a program until the
publication of a government report. If the interim injunction had been granted, the
claimants would have achieved their goal without a trial. The Cyanamid guidelines
are inappropriate in such cases;

• when it is an interim mandatory injunction that is sought. It was demonstrated in

Shepherd Homes v Sandham (1971) that the court will not usually require the
defendant to take positive steps (e.g. the demolition of a building) before the issue
has gone to trial;

• when it is a trade dispute (see s.221(2) of the Trade Union and Labour
Relations (Consolidation) Act 1992);

• where a company seeks to restrain a creditor from presenting a winding-up

petition;

• where s.12(3) of the Human Rights Act 1998 applies. This relates to the
European Convention right to freedom of expression (art.10) and provides that no
interim injunction is to be granted to restrain publication before trial unless the

57
court is satisfied that the applicant is likely to be able to establish that the
publication should not be allowed. This is a higher threshold than under the
Cyanamid guidelines (Cream Holdings v Banerjee (2004)). In addition, art.8
promotes respect for private and family life. The scope for tension between the
right to free speech and a right to privacy has fuelled much litigation. This has seen
a host of celebrities attempting to obtain injunctions so as to prevent disclosure of
such matters as extra-marital affairs, drug use and visits to brothels. It is for the
court to determine whether there is a justification for disclosure (i.e. whether it is
in the public interest).

Damages in Lieu of an Injunction

The general presumption is that, if a right is infringed, an injunction will be granted.
In certain circumstances, however, the courts may award damages instead of
injunctive relief. Following Shelfer v City of London Electric Lighting Co Ltd
(1895), the working rule emerges that damages may be the better alternative where:

• the claimant’s loss is small;

• the loss can be valued in money terms;

• money would provide the claimant with adequate compensation; and

• an injunction would be oppressive, unduly harsh or disproportionate.

Illustrative cases
In Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd
(2006), Deputy Judge Moss refused to grant an injunction which would require part
of a building to be knocked down because,

“it would be ‘oppressive’ to grant a mandatory injunction which would

create loss to the Defendants out of all conceivable proportion to any loss that
might be suffered by the Claimant. The grant of a mandatory injunction would be
unjust and inequitable and, in the exercise of my discretion, I am not prepared to
grant it”.

In Regan v Paul Properties (2006), Mr Regan claimed that his right to light had
been infringed by a nearby building development. The Court of Appeal upheld his
claim and awarded a mandatory injunction, which required the redesign of the top
floor of the development. Damages were inadequate because the injury to light was
not small; it could not be compensated by the payment of a small monetary sum and

58
the injunction was not oppressive as the developer was still very much in profit on
the project.

Search Order
This is a mandatory, ex parte order preventing disposal by the defendant of any
evidence prior to trial. The order requires the defendant to allow the holder access
to premises for specified purposes. The design is to prevent vital documents or
files being destroyed before being inspected by the claimant. It is especially
important in commercial cases involving breach of confidence, copyright, passing
off and infringement of patents. The power to make a search order is now on a
statutory footing: see s.7 of the Civil Procedure Act 1997. In Anton Piller KG v
Manufacturing Processes Ltd (1976), it was made clear that before an order will
be made the following conditions must be met:

• there must be a strong prima facie case;

• the claimant must show actual or potential damage of a serious nature; and

• there must be clear evidence that the defendant has incriminating documents or
other items that are likely to be destroyed before the trial. The applicant must make
a full and fair disclosure of all material facts.

Safeguards
Guidelines on the execution of search orders were laid down in Universal
Thermosensors Ltd v Hibben (1992). These include ensuring:

• the presence of a supervising solicitor (ideally with experience and not a

member of the firm of solicitors acting for the claimant);

• the execution of the order in office hours;

• where the order pertains to a private house, perhaps occupied by a woman on

her own, that the solicitor serving the order should be, or should be, accompanied
by a woman;

• unless impracticable, that a list of items to be removed should be prepared at the

premises and the defendant afforded an opportunity to check the list;

• that no items should be taken from the defendant’s premises unless covered by
the terms of the order;

59
 • the setting aside of the order where the claimant or the claimant’s solicitors have
acted improperly;

• the availability of exemplary (i.e. punitive) damages for wrongful actions.

Freezing Injunctions
As in Mareva Compania Naveira SA v International Bulkcarriers SA (1975),
these injunctions were originally granted where a claimant had brought an action in
Britain against a foreign defendant who had assets within the jurisdiction that he
might remove. It is now also possible to seek a freezing injunction where
proceedings are started outside Britain. Freezing injunctions are now governed by
s.37 of the Senior Courts Act 1981 and the Civil Procedure Rules.

KEY CASE

THIRD CHANDRIS SHIPPING CORPORATION V UNIMARINE SA (1979)

In Third Chandris Shipping Corporation v Unimarine SA (1979), Lord
Denning set out guidelines as to when a freezing injunction should be ordered.
He suggested that the claimant should establish a good case by providing:

• a full and frank disclosure of all material matters;

• particulars of his claim against the defendant and the points made against it
by the defendant;

• reasons for believing the defendant has assets within the jurisdiction;

• grounds for believing that the assets may be removed or dissipated before
the claim is satisfied; and

• an undertaking that, if the litigation subsequently fails, the defendant will be

compensated.

Worldwide freezing orders

A freezing order can still be made when the defendant’s assets are located outside
the jurisdiction of the court. Such an order, however, will be justified only in
exceptional circumstances. In BCCI SA (No.9) (1994), a worldwide freezing order
was made against certain employees of BCCI following a major international fraud.
When such an order is made, the court will take an undertaking from the claimant
that he will seek permission of the English court before attempting to enforce the

60
order abroad. Such permission will be granted according to the following
guidelines as set out in Dadourian Group International Inc v Simms (2006):

• the grant of permission should be “just and convenient” and “not oppressive to
the parties”;

• all relevant circumstances and options need to be considered. The onus is on the
applicant to provide sufficient evidence to enable the judge to reach an informed
decision;

• the court must balance the interests of all the parties;

• the applicant must show that there is a real prospect that the assets are located
within the foreign jurisdiction;

• there must be evidence of a risk of dissipation of the assets in question;

• only in cases of urgency should the permission be given without the other party
having notice of the application.

REVISION CHECKLIST
You should now know and understand:

• the meaning of equity and its impact;

• the various maxims of equity;
• the remedy of specific performance and its availability;
• the types of injunction and their availability.

QUESTION AND ANSWER

The Question
X, a local property developer, seeks your advice as to the availability of
equitable remedies in light of the following claims against him:

(i) a claim by Y that X has breached a covenant to provide a night porter for
the security and upkeep of the block of flats in which X resides;

(ii) a claim by X’s neighbour Z, that X’s building project will substantially
limit the flow of light to Z’s property. X has planned an extension to his home,

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which is in a state of partial construction.

Outlining what further information you require (if any), advise X as to the
likely approach of the court and the principles upon which equitable relief
will be granted or refused.

Advice and the Answer

This question requires a brief general outline of the jurisdiction of the court to
award injunctions and grant orders for specific performance.
Part (i) involves a possible claim for an order for specific performance. In
Ryan v Mutual Tontine (1893), a landlord’s covenant to employ a resident
porter was not specifically enforced. The principal concern in such cases is
the prospect of constant supervision by the courts, i.e. that the courts would be
drawn into an indefinite series of rulings to ensure compliance with the order
(Co-Operative Insurance Society Ltd v Argyll (1998)). The modern approach
of the courts, however, is to consider the merit and practicality of enforcing
each individual contract before them. As to Y’s claim, more information is
required and the courts would consider whether: (a) there is sufficient
definition of the obligations within the contract; (b) if enforcing compliance
would involve supervision by the court to an unacceptable degree; and (c) the
respective prejudices and hardships suffered by the parties if the order is
made or not made. Accordingly, if the work of the porter is sufficiently
defined, and involves no unacceptable degree of superintendence, then
specific performance might be granted. Damages would not compensate for
the loss of the feeling of security provided by a porter resident in the
premises.
Part (ii) requires a discussion of the availability of injunctive relief both at
an interim and final stage of proceedings. At trial, Z will need to prove the
existence of his right to light and the extent to which the flow of light into his
property has been diminished. There are experts who specialise in such
matters. At an interim stage, however, before the case is heard in full, Z may
seek injunctive relief to restrain immediately the defendant’s continued
building works.
The concern of the court at an interim stage is to minimise the risk of
injustice to the parties, given that the court has not yet had the opportunity to
determine the case, or to assess fully the strength of the parties’ respective
claims. If an interim injunction is granted, the claimant is required to enter into
an undertaking that he will abide by any order as to damages, which the court
may make if it emerges that the claimant Z was not entitled to injunctive relief

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and X has suffered damage thereby. In determining the availability of interim
relief in favour of Z, the American Cyanamid principles will be applied. At
the heart of this approach, the balance of convenience is determined —that is,
in short, the risk of injustice to the parties which would result from deciding
the case in one way or in the other in the face of incomplete evidence. It is
unlikely that Z would be awarded an interim mandatory order, i.e. to dismantle
the building works to date. Although the court has jurisdiction to do so, the
exercise of discretion is rare. As the case has not been heard in full, there is a
very high risk of injustice to X, in that he will waste time, money and
materials if wrongly mandated (Shepherd Homes v Sandham (1971)) and Z
will receive all he seeks from the action at an interim stage. As Megarry J. put
it, a case must be “unusually strong and clear” before the court will exercise
its discretion.
The principles governing final injunctions are general equitable principles,
such as the adequacy of damages, the conduct of the parties, the possibility of
hardship, etc. If Z can show that his rights have been infringed an injunction
may be granted to dismantle the offending works and prohibit infringement of
Z’s rights. The availability of damages in lieu of injunction may also be
relevant. Under s.50 of the Senior Courts Act 1981, where the court has
jurisdiction to award an injunction or to order specific performance, it may
award damages in lieu. Further information is required as to the injury caused
to Z. Under Shelfer v City of London Electric Lighting Co (1895), Smith L.J.
laid down the good working rule that damages may be awarded in lieu of
injunction where: (a) the injury to the claimant is small; (b) the injury is one
which is capable of being estimated in money; (c) the injury is one which can
be adequately compensated by a small money payment; and (d) it would be
oppressive to the defendant to grant an injunction. If nuisance caused by X can
be demonstrated, the prima facie entitlement of Z is to an injunction. This is
the modern tendency as evidenced in cases such as Regan v Paul Properties
(2006) where damages were not adequate and the developer was ordered to
dismantle parts of its building so as to stop an unlawful interference with the
right to light.

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 2
The Trust

INTRODUCTION
This chapter examines the legal device known as the trust and distinguishes it from
other types of legal relationships. The various types of trust are considered and
particular emphasis is placed upon the distinction between express trusts and
implied trusts.
Although trusts come in a variety of forms and cater for different types of
property and purpose, they all share the same essential characteristics. At its heart,
a trust involves the fragmentation of legal title (legal ownership) and equitable title
(beneficial ownership). The legal title is vested in a character known as the
“trustee” and the trustee holds the trust property on behalf of the “beneficiary”. It is
only on this separation of title that equitable ownership assumes importance
because the general rule is that legal title carries with it all rights (Westdeutsche
Landesbank Girocentrale v London Islington BC (1996)). Hence, in Stack v
Dowden (2007), where the house was conveyed into the joint names of the parties,
equitable title mirrored the legal title to the property (i.e. they were joint tenants
both at law and in equity).

The Fundamentals
The trustee owes a fiduciary duty (i.e. a duty of honesty and utmost good faith) to
both the settlor and the beneficiary. The entitlement of the beneficiaries will
normally be set out in the document creating the trust (the trust instrument), but
where this is not the case the rights of the beneficiaries can be implied by equity.
Trusts can be of any sort of property: land, money, chattels, cheques, debts, etc.
Many trusts are nowadays created simply to maximise tax advantages.

Trusts Distinguished from Other Concepts

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Bailment
This is a common law relationship which arises when goods owned by A are, with
A’s permission, in the possession of B. This may be a contractual relationship (e.g.
if you leave your car in a secure airport car park while on holiday) or a gratuitous
relationship (e.g. when you store furniture in a relative’s attic). This is very
different from a trust because there is no transfer of ownership involved and the
duty expected of the bailee (i.e. to take reasonable care) is much less extensive than
that expected from a trustee.
Agency
This is the relationship between principal and agent, and is normally contractual
(e.g. you normally employ an agent, such as a solicitor or surveyor, to act on your
behalf). The agent’s job is to represent his principal’s interests in dealings with
third parties. An agent will not usually have title to the property vested in him,
which means that, even if the agent has possession of goods, he will have no claim
to ownership.

Contracts
These binding bilateral agreements differ from trusts in a variety of ways:

• a contract is a common law, personal obligation resulting from a negotiated

agreement between the parties. A trust arises from equity and confers property
rights on the beneficiary that can be enforced against both the property itself and
third parties;

• a contract is valid only if supported by consideration or made by deed. A

beneficiary under a properly constituted trust, however, can enforce the trust even
though he has not given any consideration;

• a contract cannot usually be enforced by third parties (“privity of contract” is

necessary). This rule is, however, subject to certain statutory exceptions contained,
for example, in the Contracts (Rights of Third Parties) Act 1999 and s.56 of the
Law of Property Act 1925. In contrast, a beneficiary can always enforce a trust,
even if he is not a party to the agreement that created the trust.

Debts
These are usually contractual (e.g. when I agree to repay a loan to my bank). A debt
is a personal obligation whereas the interest of a beneficiary under a trust is a
proprietary right. This distinction becomes clear on the insolvency of the person in
whom the property is vested. If a trust is in existence, the trust property will not be

65
available to the trustee’s creditors. Where there is no trust, any creditor will be
able to claim against the bankrupt’s estate.

KEY CASES

BARCLAYS BANK LTD V QUISTCLOSE INVESTMENTS LTD (1970) AND

RE KAYFORD LTD (1975)

• Barclays Bank Ltd v Quistclose Investments Ltd (1970) Here Rolls Razor
Ltd declared a dividend on shares which it could not pay. Quistclose agreed to
make a loan specifically for the purpose of paying the dividends. The money was
paid into a special account at Barclays Bank. Rolls then went into liquidation,
leaving a large overdraft at Barclays. The Bank laid claim to the money in the
special account in order to discharge the overdraft. The House of Lords held that,
as Quistclose had paid the money for a particular purpose, on the failure of that
purpose the Bank held the money on an implied trust for Quistclose. This is an
example of an implied “resulting trust”. The Bank was not, therefore, entitled to the
money. The fact that there was a contract for a loan from Quistclose did not exclude
the implication of a trust.

• Re Kayford Ltd (1975) Here a mail order company opened a special

“Customers’ Trust Deposit Account” at its bank for advance payments received
from its customers. This money was not available to its liquidator when the
company was subsequently wound up. By opening the account, the company
demonstrated the intention to create a trust of the prepayments in favour of its
customers. The obligations were transferred from debt to trust. The money was not,
therefore, available to its general creditors. This is viewed as an express trust.

Gifts
These involve the absolute and gratuitous transfer of title to the property to be
donated. For example, if I hand you £20 for your birthday, once the money is
physically passed between us, I cannot later insist that you pay it back. The money
is unconditionally yours. If, instead, I hand you £20 and tell you to give it to X
when you next see him, then very different considerations apply. I (the settlor) have
created a trust whereby you (the trustee) hold the money on trust for X (the
beneficiary). It is not yours to keep and, if you spend it, you can be personally
liable to account for its loss.

Dispositive powers of appointment

Powers are discretionary and permissive whereas a trust is imperative and

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mandatory. These dispositive powers must always operate behind a trust and they
allow the donee the discretion to divert trust money from the beneficiaries in favour
of another person or purpose, but only to the extent as permitted by the settlor. An
example of a power of appointment is where a trust is set up and the trustee is given
the power to donate up to £500 to charity. If this power was not given, any donation
would be unauthorised and in breach of trust. This power, therefore, allows the
trustee lawfully to siphon some of the trust fund away from the beneficiaries. It is,
however, purely up to the trustee to decide whether or not to give any money to
charity. The trustee must, however, address his mind to whether or not to exercise
the power. The distinction between a power and a trust is important, but is not
always easy to draw.

Distinguishing powers from trusts

• a power can be legal (as with a power of attorney) or equitable. Trusts are
always equitable;

• a power is discretionary whereas a trust imposes a duty. Accordingly, if a trustee

does not carry out his duties the court will intervene and compel him to do so. The
court will not intervene to compel a person to exercise a power;

• unlike the beneficiary under a trust, a potential beneficiary under a power has no
interest in the property before the power is exercised;

• the rule of certainty of objects (considered in Ch.3) was once different for
powers than for trusts. Prior to McPhail v Doulton (1971), all trustees would need
a full list of potential beneficiaries before they could carry out their duties. This
was unnecessary where someone had only a power. It was sufficient if it could be
said of any given individual that he or she was or was not within the class of
objects specified by the donor of the power. The rule for powers has now been
extended to discretionary trusts. The old complete list rule still applies to fixed
trusts.

CLASSIFICATION OF TRUSTS
Figure 2: Types of Trust

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Express trusts
DEFINITION CHECKPOINT
These Trusts are intentionally created either by the settlor expressly declaring
himself to be a trustee (uncommon) or by transferring the property to a third
party trustee to hold on stipulated trusts. As a general rule, express trusts may
be created by deed, will, writing or orally. The overwhelming majority of
trusts are created in this way. There are several brands of express trust.

Private trusts
A private trust is a trust for the benefit of either a named individual (e.g. £50,000 to
be held on trust for John) or a named class of individuals (e.g. £50,000 to be held
on trust for my children). Private trusts can be fixed or discretionary in nature. They
cannot, however, be used to advance a purpose as there would be no one to enforce
the trust. Subject to some odd exceptions, there is no such thing as a private
purpose trust. Hence, a trust to promote duck shooting (not being charitable) will
fail.

Public trusts
A public trust is a trust that is to benefit charity, as defined in the Charities Act
2011. This can be to benefit a named charitable organisation or to promote a
charitable purpose (e.g. £50,000 to relieve poverty in Africa). Public purpose
trusts are enforceable by the Attorney General and the Charity Commission.

Fixed trusts
A fixed trust is in contrast to a discretionary trust (below) and, is a trust where the
beneficiaries and their shares are fixed (i.e. stipulated) by the settlor, e.g. £50,000
to be divided equally between Jack and Jill.

Discretionary trusts

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A discretionary trust takes its name from the fact that the settlor gives the trustee
(or, indeed, someone else) the discretion to select who, from a given class of
persons, will receive the trust property and, normally, in what shares. For example,
£50,000 to be divided between such of my children as my trustee shall nominate.
No beneficiary under a discretionary trust has any property rights until the trustee
exercises his discretion. All the beneficiary has is an expectation. The
discretionary trust is prized because of its flexibility.

Secret trusts
As discussed in Ch.6, these are express trusts that are created by testamentary
disposition (i.e. by will). Secret trusts can be fully secret or half secret in nature. A
fully secret trust arises where, on the face of the will, X appears to leave an
unconditional legacy to Y, but Y had previously agreed with X to hold the property
on trust for Z. Note that the will makes no reference whatsoever to the existence of
the trust. A half secret trust, arises where the will makes express reference to the
existence of a trust, but does not disclose the terms of that trust. An example would
be when by will X bequeaths £100,000 to Y “on trusts that I have previously
communicated to Y”.

Pension Trusts
Private pension trusts (otherwise known as “superannuation schemes”) are popular
and attractive. Although governed by the same general principles as other trusts,
pension trusts are undoubtedly distinctive. They are rooted in a contractual
relationship existing between the employee and the employer/ pension provider,
and usually involve large sums of money and large numbers of beneficiaries. In
order to maximise fiscal advantages, the scheme must be approved by the Pensions
Regulator and the HM Revenue & Customs. Under such schemes, the employee
makes financial contributions through the “pay as you earn” scheme administered
by the employer. The employee receives income tax relief as regards these pay as
you earn payments. The employer will also make contributions to the pension
scheme. The trustees will invest the entire pension fund and, on the retirement of an
employee, the idea is that there should be sufficient funds to provide a taxable
pension for the retirement years. The payment may be calculated as a percentage of
the employee’s final salary (final salary schemes) or may reflect the money earned
as a result of the individual’s total contributions to the fund (money purchase
schemes). The use of a trust operates to separate the pension funds from the
employer’s funds and to maximise tax advantages. The Pensions Acts of 1995 and
2004 aim to protect beneficiaries from the effects of poor administration, fraud and
employer’s insolvency. The schemes are policed by the Pensions Regulator and the
Pensions Ombudsman may investigate complaints of maladministration of the fund.

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A Pension Protection Fund exists to provide limited compensation for those who
suffer loss by reason of a pension fund being in deficit.

Protective trusts
A protective trust is aimed at ensuring that a feckless beneficiary will not lose the
trust property to his creditors or sell his trust interest to someone else. The way in
which this protection is achieved is by giving the beneficiary a life interest in the
property which is made determinable (i.e. is to be forfeited) on a given event (e.g.
bankruptcy or assignment). From the ashes of the life interest emerges a
discretionary trust in favour of specified beneficiaries. Hence there are two trusts.
Following s.33 of the Trustee Act 1925, the process of creating a protective trust
has been greatly simplified. It was once necessary to set out the terms of the
protective trust in detail. Since 1925, however, all the settlement must now do is
contain reference to the intention to create a protective trust. The terms of that trust
are then implied by s.33. This section provides that the income will be held upon
trust for the principal beneficiary until his protected life interest is forfeited. On the
failure of this life interest, the income is to be held upon discretionary trust for the
benefit of:

• the principal beneficiary, his spouse and children, or

• if there is no spouse or children, the principal beneficiary and the persons who
would, if he were actually dead, be entitled to the trust property.

Implied Trusts

DEFINITION CHECKPOINT
These are trusts which are not expressly created and which arise by
implication or by operation of law. They include resulting trusts, constructive
trusts and trusts imposed by statute. The boundaries between resulting trusts
and constructive trusts are not, however, always clear.

Resulting trusts
As will be made clear in Ch.8, the resulting trust takes its name from the fact that it
operates to ensure that beneficial title “results back” to a transferor. This is more
easily understood by considering the circumstances in which the resulting trust may
arise.

• Where one party transfers legal title to property to another in return for no
consideration, a presumption of a resulting trust is raised. This is sometimes called

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a “voluntary conveyance resulting trust”. The equitable interest will result back to
the transferor. This occurred in Re Vinogradoff (1935) in circumstances where a
grandmother transferred a bond into the names of herself and her granddaughter. On
the death of the grandmother, it was held that the property was held on resulting
trust for the deceased’s estate.

• Where property is purchased by X with some financial assistance from Y then Y

may acquire an interest in the property by virtue of a purchase money resulting trust.
As demonstrated in Karis v Lewis (2005), the trust results to the person who
advanced the purchase money. Equity, therefore, assumes bargains not gifts. Such a
trust will be relevant only when there is no common intention to share the property
beneficially and when the payments were made to the acquisition cost of the
property. The examples so far concern what is traditionally called the “presumed
intention resulting trust”.

• When a settlor who intends to create an express trust fails in some way to
dispose of the entire equitable interest, then that which remains, results back to the
settlor. In Vandervell v IRC (1967), the settlor failed to divest himself of an option
to repurchase shares which he had transferred to the Royal College of Surgeons.
The equitable interest in the option, therefore, resulted back to him. This third class
is sometimes called an “automatic resulting trust” because it is traditionally
perceived to be an automatic response to the failure to deal with the property fully
and effectively. The modern view, however, is that it is merely a species of the
“presumed intention resulting trust”.

Constructive Trusts

DEFINITION CHECKPOINT
The constructive trust is different to the resulting trust (see Ch.9). It is a trust
imposed to ensure good conscience. A constructive trust is invoked in a
variety of situations, for example: in relation to mutual wills, fully secret
trusts, unauthorised profits made by a trustee and the doctrine of conversion on
a specifically enforceable contract. The constructive trust also operates in
relation to the joint purchase of the family home. The constructive trust has
now largely subsumed the relevance of the resulting trust in this area of the
law.

The family home

Following Lloyds Bank v Rosset (1991), there are two scenarios where this family

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home constructive trust will arise:

• when there has been some discussion, arrangement or understanding between the
parties as to beneficial ownership of the property. If a non-owning party acts to his
detriment on the strength of that understanding, an express bargain constructive trust
will arise and the court will usually give effect to the bargain reached;

• when the parties have no discussion at all about the fate of the beneficial
ownership of the property, but the non-owner makes direct financial contributions
to the purchase of the property, there will be an implied bargain constructive trust.
This type of trust arises from the presumed common intentions of the parties as
evidenced by the course of dealings between them.

Statutory Trusts

DEFINITION CHECKPOINT
Statutory trusts are imposed in certain specific circumstances. The major
example is where there are joint legal owners of land. By virtue of the Trusts
of Land and Appointment of Trustees Act 1996, the joint owners must
necessarily hold the legal title on statutory trust for themselves and/or others.
Statutory trusts arise also on bankruptcy, intestacy and on the conveyance of
land to minor.

REVISION CHECKLIST
You should now know and understand:

• the structure and mechanics of the trust;

• how to distinguish a trust from other legal relationships;
• the distinction between fixed and discretionary trusts;
• the distinction between express and implied trusts.

QUESTION AND ANSWER

The Question
With reference to the following, explain the nature and operation of a trust:

a) the connection between the trust and Equity;

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 b) the separation of legal and equitable ownership and its practical
implications;

c) the distinction between fixed trusts and discretionary trusts and the
implications for the beneficiary.

Advice and the Answer

The question requires an account of the origins of the trust and its development
and refinement by the conscience based jurisdiction known as Equity. This
would include:

• a narrative concerning the separation of law and equity;

• a consideration of the practical distinction between the trustee’s role as

legal owner (i.e. the management and control of the trust property) and the
beneficiary’s role as equitable owner (i.e. entitlement to benefit of the trust
property);

• the nature of fixed and discretionary trusts and trustee’s distributive

functions under each;

• the differences between the two types of trust with emphasis upon the basic
obligations and rights under both types of trust;

• the added problems of enforcement experienced by a beneficiary under a

discretionary trust.

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 3
The Three Certainties

INTRODUCTION
This chapter is concerned with the core ingredients of a valid trust which are often
described as the three certainties. Each certainty will be examined in turn and the
various principles, distinctions and requirements of each identified.
Due to the onerous duties placed upon a trustee, it is necessary that the settlor
makes clear that a trust was intended, what property is subject to the trust and who
the beneficiaries are in order that the trust can be enforced. Accordingly, the law
has developed a test known as the “three certainties” that encompasses certainty of
intention, certainty of subject matter and certainty of objects (Lord Langdale M.R.
in Knight v Knight (1840)). Except as to charitable trusts which do not need
certainty of objects (see below), the three certainties need to be present so that a
trust can be workable and capable of supervision by the court.

CERTAINTY OF INTENTION
It is necessary for the settlor to intend to create a trust as opposed to some other
type of legal relationship. Nevertheless, there is no magic formula necessary to
show the intention to create a trust. Equity looks to the intent rather than to the form.
Although desirable, the use of the word “trust” is not essential. Even if the term
“trust” is employed, this is no guarantee that a trust will be discerned (Midland
Bank v Wyatt (1995)). There is no general requirement that a trust be created or
even evidenced in writing and a trust can even be inferred from the conduct of the
parties and the surrounding circumstances.

Precatory Words
Precatory words are words merely of hope and desire, e.g. “in the hope that”, “I
would like that”, “I desire that” and “I feel confident that”. Although in the older

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cases precatory words were sometimes sufficient to create a trust, since the late
nineteenth century this is no longer the case. The court is now looking for
imperative words that impose a mandatory obligation on the trustee. A moral
obligation is not enough (Sweeney v Coghill (1998)). If there is doubt, the burden
lies on the claimant to establish the necessary intention on a balance of
probabilities (Re Snowden (1979)).

KEY CASES

LAMBE V EAMES (1871), RE ADAMS AND THE KENSINGTON VESTRY

(1884) AND MARGULIES V MARGULIES (1999)

• In Lambe v Eames (1871), the testator gave his estate to his widow “to be at
her disposal in any way she thinks best for the benefit of herself and her family”. It
was held that these were precatory words and did not create a trust.

• In Re Adams and the Kensington Vestry (1884), the gift was made, “in full
confidence that she will do what is right as to the disposal thereof between my
children either in her lifetime or by will after her decease”. These precatory words
ensured that no trust was created.

• In Margulies v Margulies (1999), a legacy of a residuary estate was left to

one son and expressed to be in confidence that, “if in the interests of family
harmony”, he would make provision for his brother and sister. As the words used
were precatory in nature, the son could keep the money for himself.

Anomalous cases
There are two decisions that, at first glance, seem to contradict the modern rule that
precatory words will not create a trust.

• Comiskey v Bowring-Hanbury (1905) where the House of Lords held, that in

looking for certainty of words or intention one should construe the document as a
whole. There a testamentary gift to the widow “in full confidence” that she leaves
the property on her death to one or more of his nieces did not prevent the creation
of a trust in favour of the nieces. This was because the settlor went on to make what
is called a gift over in default of appointment. The added words that proved crucial
were, “in default of any disposition by her . . . I hereby direct that all my estate and
property acquired by her under my will shall at her death be equally divided among
my nieces”. The imperative wording of the gift over imposed the mandatory
obligation on the widow. She held the property on trust for herself for life and then
in remainder for the nieces equally. This case should not, therefore, be cited as

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authority for saying that precatory words can constitute a trust;

• Re Steele’s Will Trusts (1948) where a solicitor drafted a trust for his client that
followed an outmoded precedent which featured precatory words. Although this
may have worked in the past to create a trust, it should have failed for a lack of
certainty of intention. Nevertheless, the court concluded that the deliberate use of
the precedent (albeit itself defective) demonstrated the necessary intention. This is
a maverick case that turns upon its own facts and is of dubious authority.

Inferred Intentions
Even though there may be no express verbal recognition that a trust was intended,
the requisite intention might still be inferred by the court. This inference may arise
equally in both a family and a commercial context and it is convenient to consider
each stream of case law separately.

Family context
In Paul v Constance (1977) the intention to create a trust was identified as Mr
Constance had repeatedly said to Ms Paul about his bank account, “The money is as
much yours as mine”. This was not a gift, but was instead a declaration of a trust
that gave Ms Paul an equal share in the bank account. Similarly, in Gold v Hill
(1999), Mr Gilbert took out a life assurance policy. The named beneficiary of the
policy was Mr Gold. Mr Gilbert had, however, said to Mr Gold that he wanted the
insurance money to be used to look after his mistress, Carol, and her children. This
conversation had the effect of nominating Mr Gold as a trustee.

A gift is not a trust

There must, however, be the intention to declare a trust and not the intention to
make an immediate gift. In Jones v Lock (1865) a father held out a cheque, which
was payable to him, in front of his child and said “I give this to baby”. This was a
failed gift (the title to the cheque did not pass) and could not be construed as a
declaration of trust. The two styles of intention are usually distinct. With an
immediate gift, the donor means to dispose of all entitlement to the property,
whereas with a trust the trustee intends to retain rights subject to the obligations of
the trust. In Shah v Shah (2010), however, the Court of Appeal held that both
intentions might coexist.
On the facts of Shah, Dinesh delivered a signed a letter to his brother, which
attempted to make a gift of 4,000 shares in a company in the latter’s favour. The
letter enclosed a signed stock transfer form, but no share certificate. Dinesh later
sought to withdraw from the arrangement, claiming that the gift had never been
completely constituted. In normal circumstances, this argument would have

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prevailed and the gift would have been ineffective. Dinesh had, however, declared
in his letter that, “I am from today holding 4,000 shares in the above company for
you”. This manifested the clearest intention that the transfer should take effect
immediately. It followed that, to give effect to the wording of the letter, there had to
be a disposition of the beneficial interest until legal title passed. This could occur
only by the imposition of a trust that would survive until registration was complete.
On the admittedly unusual facts before her, Arden L.J. concluded, “One of the ways
of making an immediate gift is for the donor to declare a trust.”

Commercial context
In this context, a trust is inferred usually as a guard against the possibility of the
recipient of funds becoming insolvent. Such trusts have become prevalent in recent
years. For example, a solicitor will pay money received on behalf of clients into a
specially designated “client account” and, by doing so, that account will be
shielded from the claims of the solicitor’s other creditors. Similarly, a lender may
advance money to the recipient on condition that the money be used only for a
specified purpose, with the result that property rights in those funds do not move
from the lender, unless, and until, the money is deployed for that specified purpose.
By way of illustration, in Sinclair Investment Holdings v Versailles Trade
Finance Ltd (2011) the money was to be used only to purchase manufactured goods
and in Templeton Insurance Ltd v Pennington’s Solicitors (2006) it was to be
employed solely to acquire brown field sites for building development.

KEY CASES

BARCLAYS BANK V QUISTCLOSE (1970), TWINSECTRA V YARDLEY

(2002) AND RE KAYFORD (1975)

• Barclays Bank v Quistclose (1970) concerned an implied trust created by

the payment of money to Rolls Razor Ltd (borrowed specifically from Quistclose to
pay dividends to shareholders) into a separate bank account held at Barclays Bank.
The mutual intentions (of the payer and the recipient) had been that the money was
to be held on trust unless it was employed for the purpose specified. Note that if the
purpose had been achieved, Quistclose would have been treated like any other
unsecured creditor of the company;

• Twinsectra v Yardley (2002) involved a solicitor receiving money from a

lender (Twinsectra) on behalf of a client (Yardley). The solicitor gave an
undertaking that the money would be retained by them and used only for the
purposes of purchasing property for the client. The solicitor, however, used the
money for other purposes and did not repay the loan. The limitations placed upon

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the use of the funds advanced demonstrated the existence of a trust. Under this trust
the solicitor held the money for the benefit of Twinsectra, subject to the power of
the solicitor to use it for the purposes specified;

• Re Kayford (1975) concerned advance payments made by customers for

goods which were placed into a “Customers’ Trust Deposit Account”. The company
became insolvent and the general creditors laid claim to the money. The steps taken
by the company overtly demonstrated its intention to create a trust. Here the
necessary intention was evident from the unilateral conduct of the company.

Absence of Intention
There are two possible variations. First, if the property is transferred to a third
party, and there is no intention to create a trust, the transfer will amount to an
absolute gift to the donee (Lassence v Tierney (1848)). Secondly, where the settlor
unsuccessfully declares himself to be a trustee no title passes and the property
remains in the settlor’s estate.

CERTAINTY OF SUBJECT MATTER

Although any existing property may be the subject matter of a trust, it is necessary
that the settlor identify what is to be the subject of the trust and provide the means
by which the interests of the beneficiaries can be ascertained. If not, the trust must
fail for lack of certainty and cannot be enforced.

Trust Property Must be Certain

The entire property that is to be the subject of the trust must be described in such a
way that it becomes certain and ascertainable. There has to be an identifiable trust
fund. For example, in Hemmens v Wilson Browne (1995) a document purported to
give X the right to a monetary payment of £110,000 at any time from Y. This did not
create a trust because there was no fund identified from which the money was to be
paid. In Palmer v Simmonds (1854) a declaration concerning the “bulk of my said
residuary estate” was held to be ineffective to create a trust. “Bulk” has no clear
meaning and is totally uncertain.

Tangibles and intangibles

A distinction is to be drawn between trusts of tangibles (i.e. something which has
physical form) and intangibles (something without physical form such as shares and
debts). The major difference is that with tangibles the physical segregation of the
trust property from other property is necessary. Conversely, with intangibles no

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segregation is required.

KEY CASES

RE GOLDCORP EXCHANGE LTD (1995) AND HUNTER V MOSS (1994)

• Re Goldcorp Exchange Ltd (1995). This case concerned a dealer in

precious metals who became insolvent. A number of customers sought the delivery
of gold (a tangible) that they had recently purchased. Unfortunately, the gold was
unallocated and could not be individually identified. There could be no trust
because the subject matter was not ascertainable.

• Hunter v Moss (1994). This involved Mr Hunter who was entitled, under
his contract of employment with Mr Moss, to claim 50 shares (intangibles) out of
950 shares in a particular company held by his employer. Although it was not
possible to identify precisely which 50 shares were intended to be the subject
matter of the trust, the trust was upheld. Since the shares were essentially identical
and indistinguishable, any 50 shares in the company were capable of forming the
subject matter of the trust. This approach was recently followed in Lehman
Brothers International (Europe) (2010). There Briggs J., felt that such a trust
works by creating a beneficial co-ownership share in the identified fund, rather
than seeking to identify a particular part of the fund that the beneficiary owns
outright.

A trust of the residue of an estate

A residuary estate may form the subject matter of a trust. For example, if a testator
leaves a will containing a number of legacies and creates a trust of “whatever is
left”, there is certainty of subject matter. The executors can readily calculate the
residual estate. There are cases, however, which might be thought to conflict and,
turning on the presence or not of a life interest, are apt to cause difficulties.

KEY CASES

ESTATE OF LAST (1958), SPRANGE V BARNARD (1789), AND RE JONES

(1898)

• In the Estate of Last (1958), property was left to a brother on terms that “at
his death anything that is left, that came from me” was to pass to specified persons.
This was held to be a trust because the brother only had a life interest in the
property.

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 • In Sprange v Barnard (1789), however, a wife left stock to her husband for
his own use on terms that “the remaining part of what is left that he does not want
for his own wants” should be bequeathed to specified individuals. The trust failed
because at its creation there was a total uncertainty of subject matter.

• In Re Jones (1898), a trust of “such parts of my ... estate as she shall not
have sold”, failed for uncertainty of subject matter. The legatee was given an
absolute interest in the property and, therefore, it could be entirely dissipated.
Where, however, a life interest in the property is given, the capital cannot be
touched and, therefore, the subject matter of the trust is known at the outset.

Beneficial Interest Must be Certain

Not only must the trust property be certain and ascertainable, but (except as regards
discretionary trusts where the beneficial interests are never certain) each
beneficiary’s share under the trust must also be allocated in some way when the
trust is established (Curtis v Rippon (1820)).

KEY CASES

BOYCE V BOYCE (1849) AND RE GOLAY (1965)

• In Boyce v Boyce (1849) a fixed trust was set up by will on the death of the
testator. The trust property consisted of two houses and there were two named
beneficiaries, Maria and Charlotte. Maria was to choose which house she wanted.
The other house was to be held on trust for Charlotte. Maria predeceased the
testator and died without making any selection. As it was now impossible to say
which house Charlotte should have, the entire trust had to fail for uncertainty of
beneficial share. Both properties, therefore, stayed in the settlor’s estate. The
difficulty here was that the testator had prescribed a method of allocation that had
subsequently become impossible.

• In Re Golay (1965) a trust was established to provide to Tossy “a

reasonable income from my other properties”. Tossy’s beneficial interest was held
to be certain because the use of the word “reason able” provided an objective
yardstick that the court could employ to calculate what a reasonable income for her
would be. This provided the court with a method of ascertaining her beneficial
interest. The court could look to her standard of living, income, needs, outgoings,
etc. and conjure up an appropriate sum of money. This benevolent approach could
not apply if the trust was of, say, “a reasonable leg acy”, “reasonable share”,
“reasonable amount” or “reasonable sum”. The logic is that a reasonable income
for an individual will be the same regardless of how much money is in the trust

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fund. It is capable of independent, objective assessment. Conversely, a reasonable
share is subjective in that it may vary according to how much money is left. For
example, if I use your lottery numbers and promise to give you a reasonable share
of any eventual winnings then what is reasonable will vary wildly according to
whether I win £10 or £10 million.

Equity is equality
As regards fixed trusts, the equitable maxim equity is equality might be brought into
play to save an otherwise invalid trust. This was demonstrated in Burrough v
Philcox (1840) where a trust was set up to benefit the settlor’s son and daughter.
Their shares, however, were not specified. By relying upon the maxim, each was
deemed to have an equal share. A further illustration is Stack v Dowden (2007)
where the house was registered in joint names and it was presumed that the parties
were joint tenants in equity. The principle of equality can be invoked only where
there is no contrary intention shown. If, say, the trust is “to benefit my children
unequally”, the maxim could not apply and the trust would necessarily fail. The
Stack presumption is also rebuttable when it can be shown that the parties had a
different common intention when they acquired the home or subsequently changed
their common intention (Jones v Kernott (2011)).

Uncertain subject matter?

Where there is no certainty of trust property, there can be no trust. The property,
whatever it is, will remain with the settlor or, if he is dead, will either pass by will
or under the intestacy rules. If, however, the trust fails for uncertainty of beneficial
share then, if the trust property has already been transferred to the trustee, it will be
held on resulting trust for the settlor. If legal title has not moved, then the property
remains with the settlor.

CERTAINTY OF OBJECTS
There have to be beneficiaries (i.e. objects of the trust) who are certain or capable
of being rendered certain (Re Endacott (1960)). This is because there has to be
someone who can enforce the trust. This rule does not, however, apply to charitable
trusts because the Attorney General and Charity Commission can enforce such
public trusts. As will become clear, a private trust can fail for conceptual
uncertainty, evidential uncertainty, administrative unworkability and/or
capriciousness.

Fixed Trusts

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In relation to fixed trusts (i.e. where the interests of the beneficiaries are specified
in the trust instrument), the courts take a strict approach. The trust is void unless
each and every beneficiary is ascertainable (Morice v Bishop of Durham (1804)).
This is called the complete list test. A trust will not fail, however, because a
particular beneficiary cannot be found or there are doubts as to whether the
beneficiary is still alive. In such cases, the money can be paid into court and steps
then taken either to trace or to confirm the existence of the beneficiary. If the trustee
decides eventually to distribute the trust property amongst the known beneficiaries,
this will be done on the basis that any new claimant can recover against them (Re
Benjamin (1902)).

Discretionary Trusts
A discretionary trust arises where the trustee is given the discretion to select who,
amongst a specified class of beneficiaries, will benefit under the trust. In modern
times, the discretionary trust is used to benefit large groups of people such as
employees and dependants. In such cases, a complete list might be a practical
impossibility.

The class test

Since McPhail v Doulton (1971), the rule for certainty of objects for discretionary
trusts is the same as for powers of appointment. The test is whether it can be said,
with certainty of any potential claimant, that he is, or is not, a member of the class.
This is known as the class test and is less strict than the complete list test. The
problem with the class test is how it is to be applied. The potential difficulty lies
with proving a negative: how can a trustee prove that a particular person is not, for
example, a relative of the deceased? This issue was subsequently addressed in Re
Baden (No.2) (1973). This case concerned a trust to benefit “relatives” and
“dependants”. Although the trust was upheld, the Court of Appeal did not speak
with one voice concerning the operation of the class test.

The views of the Court of Appeal

• Megaw L.J. saw the class test as being satisfied where, as regards a substantial
number of beneficiaries, it can be said that they fall within the scope of the trust.
This would be so even where there are others about whom it cannot be said with
certainty that they are inside or outside the class. Accordingly, it did not matter that
there were some “don’t knows”. This is so even though the trustee is making a
selection from a narrower class than that intended by the settlor;

• Stamp L.J. took the literal approach that the class test could be satisfied only if it
could be said of every potential claimant that they were or were not within the

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class. There is no room for any doubt with this approach. This signals a retreat to
the previously jettisoned complete list test;

• Sachs L.J. felt that the class test was that, if a potential claimant could not prove
that he was within the class, he was presumed to be outside the class. Hence, there
is no room for a “don’t know” category. Although superficially attractive, this
approach allows for the fact that there might be numerous individuals who cannot
prove their entitlement. It also caters for the possibility of a discretionary trust
being upheld in circumstances where only one beneficiary can prove positively that
he is in the class. This is clearly not what the settlor would ever have intended.

Conceptual and Evidential Uncertainty

DEFINITION CHECKPOINT
The description of the beneficiaries must, as regards both fixed and
discretionary trusts, be conceptually certain.

• Conceptual certainty refers to semantic or linguistic expression (i.e. precision

of language) as regards the class that is to benefit. For example, in Re Barlow
(1979) a trust to benefit “old friends” was conceptually uncertain. The terms “old”
and “friend” have so many shades of meaning that it was impossible to say who
was intended to benefit. In Re Wright’s Will Trust (1982), a trust to benefit “such
people and institutions as have helped me or my late husband” failed because the
word “help” was without any precise meaning. As mentioned, in Re Baden (No.2)
(1973), however, the terms “relatives” and “dependants” were held to be
conceptually certainty. The latter was a well understood term whereas the word
“relative” was held to mean a descendant from a common ancestor.

• Evidential uncertainty is thought only to apply to fixed trusts (see Sachs L.J. in
Re Baden (No.2) (1973)). Such uncertainty arises where there is an absence of
evidence to show who was intended to benefit under the trust. For example, a fixed
trust to benefit such students of Nutshell University who graduated in 1990 with a
first class degree in law. If the records of Nutshell University have been destroyed
by fire then it will be impossible to draw up a complete list of beneficiaries and,
therefore, the trust will fail for evidential uncertainty. Sometimes the “evidentially
uncertain” can be rendered certain by the trust deed allowing a third party to settle
evidential disputes. For example, in Re Tucks Settlement Trusts (1978) the Chief
Rabbi was tasked with determining whether a wife was of Jewish blood and had
been brought up according to the Jewish faith. Making the Rabbi the arbiter
resolved any evidential difficulties.

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Width of Class and Administrative Unworkability
This is to do with the numbers of potential beneficiaries. In McPhail v Doulton
(1971), Lord Wilberforce admitted that a class of beneficiaries might be so wide as
not to constitute a class at all and this would make the trust (whether fixed or
discretionary) administratively workable. By way of illustration, he suggested that
a trust for “all the residents of Greater London” would be void. Hence, in Re Hay’s
Settlement (1982), it was accepted that a trust to benefit anyone in the world would
be ineffective. In R. v District Auditor Ex p. West Yorkshire Metropolitan CC
(1986), an attempt to benefit “any or all the inhabitants in the County of West
Yorkshire” failed because the class (approximately 2.5 million people) was too
large. More recently, in Gibbs v Harding (2008) the High Court accepted that a
trust to benefit “The Black Community of Hackney, Haringey, Islington and Tower
Hamlets” would be too wide to sustain a private trust.

Capriciousness
A trust can be void if it is capricious, i.e. it reflects a nonsensical intention on the
part of the settlor and precludes any sensible consideration by the trustees. For
example, a trust to benefit red haired women would be struck down as capricious.
In Re Manisty’s Settlement (1974), Templeman J. provided the example of an
attempt to benefit the residents of Greater London as being capricious. In R. v
District Auditor Ex p. West Yorkshire Metropolitan CC, however, the court held
that the trust which purported to benefit 2.5 million inhabitants was not capricious.
There have been no cases decided solely on the basis of capriciousness.

No Certainty of Objects?
Where there is an absence of certainty of objects, two possible consequences may
arise.

• If the settlor is himself the trustee then nothing at all happens. No property has
left the estate of the settlor.

• If however, a third party has been appointed as trustee then, on failure of the
trust, the property will be held upon resulting trust for the settlor (or his estate).

Figure 3: Summary of rules on certainties

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REVISION CHECKLIST
You should now know and understand:

• the need for the certainties;

• the requirements of each certainty;
• the different rules and distinctions which apply as regards each head of
certainty;
• the case law which illustrates what is necessary to be established before
a trust can be said to exist.

QUESTION AND ANSWER

The Question
Buster leaves all his property to his wife “secure in the knowledge that upon
her death anything she has that came from me she will leave to such of my
relatives and such of those persons she knows to be my old friends as she
should think fit”.

Discuss whether this establishes a valid trust.

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Advice and the Answer
In order to create a valid trust the three certainties must be established;
certainty of intention, subject-matter and objects (Knight v Knight (1840)).
As to intention, it is possible on the wording that Buster did not intend to
impose a trust on his widow, but merely to express a hope that she might deal
with the property in a certain way (Re Adams & Kensington Vestry (1884)). It
is not necessary that he should have used the word “trust”, but the words must
be strong enough to impose an obligation on her. The fact that Buster did not
leave his widow a mere life interest in the property or restrict her dealing
with it in any way suggests an absolute gift. On the other hand construing the
will as a whole may lead to the conclusion that he intended a trust.
As to subject matter, it is clear in that Buster left his entire estate to his
wife, not using vague words like “the bulk of my estate” (Palmer v Simmonds
(1854)). However, it is not clear what the size of her beneficial interest is. It
may be that the wife should have only a life interest (the Estate of Last). In
such a case, although entitled to the income, she would not be entitled to the
capital. In Sprange v Barnard (1789) where a testatrix left her property to her
husband Sprange for his sole use and “at his death the remaining part of what
is left, that he does not want for his own wants and uses” to be left to others,
the court held Sprange was absolutely entitled to the property on the ground
that any trust property was uncertain.
As to objects, the trust for friends and relatives is a discretionary trust so
there is no need for a complete list of beneficiaries (McPhail v Doulton
(1971)). It must however be possible to say of any given person that he is or is
not a relative or friend. Taking relatives to mean next of kin (per Stamp L.J. in
Re Baden (No.2) (1973)), the class is conceptually certain but an old friend is
too vague (Re Barlow’s Will Trusts (1979)). This would mean that the class
would be conceptually uncertain were it not for the provision that the widow
is to decide who the testator’s old friends are. As regards evidential
uncertainty, it is permissible for a third party to determine who should be
within the class (Re Tuck Settlement Trusts (1978): questions of Jewish blood
and faith should be determined by the Chief Rabbi). Taking the whole clause
together it appears that the testator did not wish to restrict his widow’s use of
the property during her life and was happy to rely on her judgment for its
disposal on her death. The tenor of the clause is not to create a trust, but to
give her an absolute gift on the assumption that she would want on her death to
leave the property to his friends and relatives.

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 4
Constitution of Trusts

INTRODUCTION
This Chapter focuses upon the circumstances in which a trust may be properly
constituted or, put more simply, it considers the circumstances where a trustee will
have sufficient title to the property in order for the trust to be effective. If the trust is
not properly constituted, equity cannot usually offer assistance because of two
interrelated and venerated maxims, “equity will not assist a volunteer” and “equity
will not perfect an imperfect gift” (see Jones v Lock (1865)). Constitution can
occur by means of an effective self-declaration of trust or an effective transfer of
property to the trustees (Milroy v Lord (1862)).

SELF-DECLARATION AS TRUSTEE
A settlor with a legal interest in property can declare himself a trustee of that
property for a beneficiary. This is the less popular method of creating a trust
because, somewhat obviously, it can only be created during the lifetime of the
settlor (i.e. it only relates to inter vivos trusts). It will also mean that the onerous,
and usually unwelcome, duties of a trustee will rest with the person who has just
divested himself of beneficial ownership in the property.

Key Points
• the general rule is that such declaration can be oral without the need for any
additional formality. An exception applies in the case of land when the trust must be
evidenced in writing and signed by the settlor but not his agent: s.53(1)(b) of the
Law of Property Act 1925;

• the settlor can use any form of words to demonstrate the intention to create a

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trust. Intention can also be inferred from conduct;

• it is crucial to bear in mind that an ineffective gift cannot generally be construed

as a declaration of trust. This is because the settlor has shown the intention to give
the property away absolutely and has evinced no intention to retain the legal estate
on trust for the intended donee (Jones v Lock (1865)). An exception to this arose in
Shah v Shah (2010) where in the context of a single transaction involving the
transfer of shares, the Court of Appeal held that both intentions might coalesce (see
Ch.3).

TRANSFER TO TRUSTEES

Types of Property
The settlor must transfer the title to the property to the trustee in the proper form. As
will become clear, the mode of transfer varies with the nature of the property
concerned.

• Land. Subject to exceptions relating to short leases, s.52 of the Law of Property
Act 1925 requires a deed of conveyance to transfer legal title to land. In the case of
registered land, the transfer only becomes complete on its registration at the Land
Registry.

• Shares. Legal title to shares is transferred traditionally by executing what is

called a share transfer form, passing over of the share certificate and registering the
new owner in the company’s shareholding register. It is upon registration that the
transfer is complete. As regards a public company, registration will automatically
follow on from the documentary transfer. A private company, however, usually has
the discretion to refuse to register a share transfer dealing.

• Chattels. Title to chattels is transferred either by deed of gift (uncommon) or by

physical delivery of the item to the recipient coupled with the intention to effect a
transfer. Delivery includes parting with dominion over an article (e.g. passing over
the key to a jewellery box).

• Cheques. Legal title to a cheque passes on endorsement by the transferor and

delivery of the cheque to the third party. This, seemingly, is not possible when the
cheque is crossed “account payee only”.

• Copyright. Writing is necessary for the transfer of copyright.

• Existing equitable interests. In order to transfer an existing equitable interest to

another, the assignment must be in writing and signed by the assignor or his agent:

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s.53(1)(c) of the Law of Property Act 1925.

Failed Attempts
If the correct procedure is not followed, the transfer to the trustees will be
ineffective. In Richards v Delbridge (1874), Mr Delbridge purported to transfer
title to a lease. He wrote on the back of the lease “this deed and all thereto
belonging I give to Edward Burnetto Richards from this time forth with all the stock
in trade”. The gift failed because there was no deed specifically created to effect
the transfer. It could not be argued that Mr Delbridge had declared himself to be a
trustee because he did not intend a trust to exist. He intended an outright gift.
Similarly, in Antrobus v Smith (1806) an endorsement on the back of a share
certificate was ineffective to pass title to the shares. In Zeital v Kaye (2010), there
was an ineffective transfer in circumstances where the donor had handed to the
donee a blank stock transfer form signed by a non-agent third party which did not
add the donee’s name and was undated. Similarly, in Curtis v Pulbrook (2011),
there were two gifts of shares which failed due to an absence of proper transfer of
title. In relation to both transactions, the donor had passed over the share
certificate, but not the stock transfer form. It followed that legal title to the shares
did not pass to the intended donees.

WHEN WILL EQUITY ASSIST A VOLUNTEER?

A completely constituted trust is enforceable by all beneficiaries whether or not

they have given consideration. An incompletely constituted trust can be enforced
only by those beneficiaries who have given consideration. The imperfect transfer is
then treated as a contract to transfer which may be specifically enforced. The
principle that equity will not assist a volunteer may, however, be sidestepped in a
number of ways. In Curtis v Pulbrook (2011), Briggs, J., expressed some
dissatisfaction with the present rules and doubted that, “the circumstances when
equity will and will not perfect an apparently imperfect gift ... serve any clearly
identifiable or rational policy objective.” These exceptions are:

• the so-called every effort rule (Re Rose (1952));

• when it would be unconscionable for the donor to change his mind, as promoted
by Arden L.J. in the Pennington v Waine (2002);

• donatio mortis causa, the rules which relate to deathbed gifts;

• in cases of fortuitous vesting (Strong v Bird (1874); Re Ralli’s Will Trust

(1964));

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 • proprietary estoppel.

The Every Effort Rule

DEFINITION CHECKPOINT
The “every effort doctrine” is an exception to the general rule that a transfer
that fails at law will not take effect in equity. If the donor has done everything
he needs to do to transfer legal title to the property, but its effectiveness solely
depends on some act of a third party, the gift may not necessarily fail. As
Rimer L.J. explained in Zeital v Kaye (2010), “once the donor has done all in
his own power to transfer the shares, he will be regarded as holding the legal
title to them upon trust for the donee, who will thereupon become their
beneficial owner.”

KEY CASES

RE ROSE (1952), MASCALL V MASCALL (1984) AND RE FRY (1946)

• In Re Rose (1952), the donor executed a share transfer form and handed it,
together with the share certificate, to the donee. Although the transfer would not be
complete until the shares had been registered by the company in the name of the
donee, the gift was upheld. The donor had no more to do to perfect the gift.

• In Mascall v Mascall (1984) a father delivered an executed land transfer

form and land certificate to his son. Following an argument, and before the transfer
was registered, the father sought to withdraw from the transaction. It was held that
the every effort rule applied and that it was too late to withdraw from the process.

• In Re Fry (1946) the problem was that the donor still had something to do
himself and, therefore, had not made every effort. As was required in that case, he
had not obtained Treasury consent to a transfer of shares.

Pennington v Waine
Some confusion has been caused by the Court of Appeal decision in Pennington v
Waine (2002). There the donor signed the appropriate share transfer form in
relation to 400 shares in a private company and gave it to her adviser to deal with.
Prior to the donor’s death, the adviser had written to the donee stating that he had
been instructed to transfer the shares to the donee and inviting the donee to become

90
a director of the company. The donee then signed a form agreeing to become a
director and was assured that there was nothing else for him to do. No further
action was taken by the adviser. On the donor’s death, the issue arose as to whether
the 400 shares formed part of the donor’s residual estate or were, instead, held on
trust for the donee, pending registration of the transaction. The latter argument
prevailed. Arden L.J. took the view that the last step was taken by the donor when
the court deems it to be unconscionable for the donor to renege on the gift. This is
an unhelpful and questionable decision that flies in the face of well-established
authority. The better view is that, unless some arrangement has been made for
delivery of the transfer form, the donor truly cannot be said to have taken every step
that he has to take. Ironically, on the facts of Pennington the court could simply
have found that the adviser became an agent for the donor for the purpose of
submitting the share transfer to the Company. Hence, arrangements for delivery had
been made by the donor and there was no need to invoke the notion of
unconscionability.

Unconscionability: A Stand-Alone Exception?

In Pennington v Waine (2002), the Court of Appeal concluded that, on the facts, it
would have been unconscionable for the donor to recall the gift once the donee had
agreed to become a director. It followed, therefore, that it would be equally
unconscionable for her personal representative to refuse to hand over the share
transfer form to the donee. In those circumstances, delivery of the share transfer
before the donor’s death was unnecessary. Legal title was to remain vested in the
donor’s estate pending registration of the transaction. During the intervening period,
the donor’s personal representative became the constructive trustee of the shares
for the donee. Moreover, both Arden & Schiemann L.JJ., advocated the notion of
unconscionability as being a stand-alone exception to the general rule that Equity
will not intervene. It was to be utilised as a means of engineering a just outcome.
Such was accepted by the High Court in Jordan v Roberts (2009) where Deputy
Judge George Bompas Q.C. accepted that an otherwise imperfect gift of shares
could be treated as having been completely constituted if it would be inequitable
for the donor to resile from the transaction.

Criticism
The prevailing view, however, is that in Pennington (2002) the Court of Appeal
adopted a very mistaken interpretation of previous authority. The key authority
relied on (some might say hijacked) by the appellate court was the Privy Council
decision in T Choithram International v Pagarani (2001). There, the settlor
executed a deed of trust in which he nominated himself and nine others as trustees.
He did not, however, transfer the title of the assets to the other trustees. Lord

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Browne-Wilkinson upheld the trust. The settlor had done enough to declare himself
a trustee. It did not matter that he intended to be one of a number of trustees (and not
a sole trustee). The Privy Council accepted that it would now be unconscionable
for the settlor to renege on the declaration of trust. There was nothing to show that
the settlor wanted the trust to come into effect only when all trustees had legal title.
This is a very different scenario from that which faced the Court of Appeal in
Pennington v Waine (2002) where there was neither a declaration of trust nor the
making of a gift.

Donatio Mortis Causa (DMC)

DEFINITION CHECKPOINT
This exception refers to a lifetime gift made in contemplation of death. The
central notion of a DMC is that a gift by reason of death may, in certain
circumstances, be perfected even though the necessary formalities of transfer
have not been followed. Since Sen v Headley (1991), any type of property
can, seemingly, be the subject of DMC: cheques, chattels, shares (even if in a
private company), bonds, insurance policies, land, etc. Not surprisingly, a
number of conditions need to be satisfied before there can be a valid DMC.

The gift must have be made in contemplation of death

• Death must be thought by the donor to be imminent and more is required than a
vague or general contemplation of death. In Re Craven (1937), it was said that the
contemplation must be of “death within the near future”.

• Death must also be contemplated from a source (e.g. illness, subsequent to an

accident, suicide, fear of a crash). The gift will still be perfected if the deceased
dies from a different cause than was anticipated. In Wilkes v Arlington (1931), the
donor was dying of cancer and made a valid DMC in contemplation of death, even
though he eventually died of pneumonia.

• Contemplation can be expressed (i.e. the “if I die I want you to have this” style
of case) or it can be inferred from the circumstances. In Gardner v Parker (1818),
the connection between the gift and the contemplation of death was inferred from
the fact that the donor was terminally ill when he made the gift and died shortly
after the making of it.

The gift must be conditional on the death of the donor

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 • It was emphasised in Cain v Moon (1896), the gift must be made in
circumstances that show that the property is to revert back to the donor if he
recovers.

• The gift becomes absolute only on the donor’s death and is revocable until that
event occurs and ineffective if it does not: Sen v Headley (1991).

• There can be no DMC if the donor intends to make an immediate gift. In Tate v
Hilbert (1793), the court held that the deceased had attempted to make an
immediate and unconditional gift to his nieces and, hence, there could be no valid
DMC.

• The condition can be express (e.g. “on my death this is for you”) or readily
inferred from the circumstances. Gardner v Parker (1818) suggests as a general
rule that, if the gift is made in expectation of death, in the absence of contrary
evidence it will be regarded as being conditional on the death of the donor.

Control and possession of the property must pass before death

• If delivery occurs after the donor’s death, there will be no DMC (Hardy v Baker
(1738)).

• If the donee refuses to accept delivery there can be no DMC (Cant v Gregory
(1894)).

• Words alone do not suffice for these purposes. There must, therefore, either be
actual and physical delivery of an item or symbolic delivery by the passing over of
indicia of title to the item.

• The passing of keys to a locked safe can pass dominion over its contents. In
Woodward v Woodward (1995), the passing over of keys to a car sufficed to pass
dominion over the vehicle. In Re Weston (1902), the passing over of a savings book
constituted passing dominion of the savings themselves. In Sen v Headley (1991),
the handing over title deeds to house sufficed.

Fortuitous Vesting

DEFINITION CHECKPOINT
Simply put, the rule as to fortuitous vesting is that where there is a purported
gift (including the forgiveness of a debt) to a donee, and the donee later

93
 happens to obtain legal title to the property in the capacity of executor under
the donor’s will, the gift will then be perfected: Re Stewart (1908). There is
dubious authority to support that the rule applies equally where the donee is
appointed an administrator on the intestacy of the donor: Re James (1935).

General observations
Although the rule has been explained in relation to gifts, it will apply equally to the
transfer of property to trustees. Accordingly, if the trustee obtains legal title in the
capacity of executor or administrator then the trust will be constituted and rendered
effective. Equity is unconcerned with how the relevant title actually became vested
in, say, the trustee. There are two types of fortuitous vesting, first under the rule in
Strong v Bird (1874) and, secondly, under the contentious principle contained in Re
Ralli’s Will Trusts (1964).

Strong v Bird
Strong v Bird (1874) concerned a deceased creditor who had appointed her debtor
as an executor under a will. The facts involved the release of a £1000 debt in
favour of the debtor/executor and turned upon the presumed intention of the
deceased. Even though there was no written release of the debt, the release was
effective. Two conditions are present:

• the intention to forgive the debt/make the gift must continue until death (Re Wale
(1956)); and

• there must be the intention to make an immediate release of the debt/ gift of the
property. Accordingly, in Re Freeland (1952), the promise to give a car at a future
date fell outside the rule.

Re Ralli’s Will Trusts

In Re Ralli’s Will Trusts (1964), a testator left his estate on trust for his wife for
life and then for his daughter. Subsequently, the daughter entered into a covenant to
transfer existing and after-acquired property to the trustees of her marriage
settlement. The subsequent property referred to what was to come to her, following
her mother’s death, under her father’s will. No transfer was ever made to her
trustees. The daughter, however, predeceased the mother. On the mother’s death, the
trust property reverted back to the father’s estate and title vested in the sole
executor under the father’s will. The executor was, by coincidence, also the
remaining trustee under the daughter’s marriage settlement. The fact that the trustee
had title vested in him as executor perfected the otherwise imperfect trust.

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Differences
This differs from Strong v Bird (1874) in that Re Ralli’s Will Trusts (1964) is not
limited to executors/administrators of the settlor/donor and, moreover, there is no
need for continuing intention on the part of the donor. It is to be appreciated,
however, that Re Ralli’s Will Trusts has never been followed and real doubts are
raised as to whether it is good law.

Proprietary Estoppel

DEFINITION CHECKPOINT
The doctrine of estoppel can be employed as a mechanism to sidestep
formalities and, hence, perfect an otherwise imperfect gift or imperfectly
constituted trust (Thorner v Major (2009)). Estoppel operates to prevent the
assertion of a party’s strict legal rights in circumstances where it would be
unconscionable for that party to rely on such rights. The key characteristics of
proprietary estoppel are an express or implied assurance (which must be clear
and certain (Cobbe v Yeoman’s Row (2008))), reliance on that assurance and
an associated change of position/detriment.

Satisfaction
Once an estoppel is invoked, it is for the court, in the exercise of a largely
unfettered discretion, to decide how best it is to be satisfied. The claimant cannot,
however, recover more than that which was assured. The court will examine
matters in the round (i.e. assess the value of the representation, evaluate the extent
of the detriment incurred, factor in any benefits already obtained and consider the
conduct of the parties and the interests of others) and determine what remedy (if
any) will be awarded (Pascoe v Turner (1979)). This is known as the principle of
proportionality. In some cases, therefore, the court might order the donor to
complete the gift or transfer (i.e. to perform the representation).

Illustrative cases
• In Dillwyn v Llewelyn (1862), a father assured his son that certain land now
belonged to the son. The father did not, however, transfer the land to the son. The
son then built a house on the land, but later the validity of the gift was challenged.
The son was able to invoke estoppel and compel the gift to be perfected.

• In Jennings v Rice (2002), the representation was that the claimant would be left
a valuable property in the representor’s will. Nevertheless, the court held that the
extent of his detriment warranted instead a cash payment of £200,000.

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Figure 4: Constitution of Trusts

A Trust of the Benefit of a Covenant

DEFINITION CHECKPOINT
It is possible that a covenantor declares that the covenant to settle property
(i.e. the promise itself) is the subject matter of the trust (Fletcher v Fletcher
(1844)). The trust would then be of the covenant and not, for example, the
shares or the land which comprise the subject matter of the promise. In such
cases, the beneficiaries will be able to enforce that trust because that trust will
be perfectly constituted. They will have immediate equitable rights.

Limitations
Although it is perfectly permissible to create a trust of the benefit of a contract or a
covenant, there are two potential limitations:

• The intention to make a trust of the promise (and not a trust of what is promised)
must be clearly demonstrated (Vandepitte v Preferred Accident Assurance Corp of
New York (1933)). It is difficult to imagine a situation where the necessary intention
could be inferred.

• It is debatable whether a trust of the covenant could cover after acquired

96
property (e.g. shares acquired in the future). In Re Cook’s ST (1965), the conclusion
drawn was that it could not embrace such future property. Nevertheless, this runs
contrary to traditional thinking and to the decision in Davenport v Bishopp (1843).

REVISION CHECKLIST
You should now know and understand:

• what the constitution of a trust means;

• how trusts of different types of property may be constituted;
• the operation of the maxim “Equity will not assist a volunteer”;
• the exceptional circumstances where Equity will assist a volunteer.

QUESTION AND ANSWER

The Question
Chive told Garlic that he wanted her to hold some shares in a private company
on trust for Marjoram and Thyme. He then telephoned the director of the
company asking him to carry out the details of the transfer. The next day Chive
was involved in an accident at his home. Marjoram and Thyme visited him.
He told them of his conversation with Garlic and handed the share certificates
to them. Unexpectedly, Chive died that night from his injuries. Garlic is the
executor of Chive’s will.

Advise Marjoram and Thyme.

Advice and the Answer

In order to be enforceable a trust must be properly constituted either by the
settlor making a declaration of trust or by transferring the trust property to
trustees. A trust of shares can be declared orally, but an ineffective gift will
not usually be construed as a declaration of a trust (Jones v Lock (1865)). In
Shah v Shah (2010) both intentions were held to coexist but that was because
of the letter which made it clear that its author intended both a gift and a trust
at the same time. The court must look, as Arden L.J. explained, “to the
intentions of the maker as manifested by the words he has used in the context
of all the relevant facts.”
Chive has purported to transfer the shares to Garlic. There is no equity to
perfect an imperfect gift. To transfer shares a share transfer form must be

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executed, the share certificate passed over and the shares registered by the
company in the name of the transferee. If, however, the transferor has done
everything he needs to do, for example executing the transfer and proffering
the certificate, but the effectiveness of the gift depends on a third party the gift
will not fail (Re Rose (1952)). Where the transferor needs to take some further
steps, like obtaining Treasury consent, the gift will not be effective (Re Fry
(1946)). On the facts Chive has merely made a telephone call which is clearly
insufficient.
Where a donor makes a gift in contemplation of imminent death (a donation
mortis causa), equity may in some circumstances perfect what would
otherwise be an imperfect gift. The gift must have been made in contemplation
of imminent death. Here Chive died, but he did not make the gift because he
expected to die. His immediate death was unanticipated. The handing over of
the share certificates (even without a completed form of transfer) would,
however, amount to sufficient delivery of the gift for the purposes of a DMC. It
would not, however, satisfy the ‘every effort’ doctrine beause no share transfer
form has been signed.
Marjoram and Thyme may be more successful under an extension of the rule
in Strong v Bird (1874). Where there is a continuing intention by the
donor/settlor to make a gift and the property has been lawfully vested in the
donee/trustee in another capacity (e.g. as the personal representative of the
deceased) the gift/trust will then become effective. Accordingly, Garlic will
be bound to hold the shares for Marjoram and Thyme.
The concept of unconscionability, as applied in Pennington v Waine (2002)
would not operate here as it could not be said that it would be unconscionable
for Chive to renege on the gift.

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 5
Formalities

INTRODUCTION
The general rule is that, once the three certainties are present, and legal title to the
trust property is vested in the trustee, there is nothing more demanded of the settlor.
By way of exception to this rule, however, Parliament has decreed that certain
types of disposition require additional formalities before they can become
effective. The most usual insistence is that the transaction either be in writing or, at
the least, be evidenced (i.e. recorded) in writing and that such writing be signed.
All testamentary dispositions (i.e. dispositions by will) are regulated by s.9 of the
Wills Act 1837 whereas inter vivos trusts (i.e. lifetime trusts) are governed by s.53
of the Law of Property Act 1925.

WHY FORMALITIES?
Formalities are imposed primarily in order to protect the parties when property is
held on trust. More specifically, the formality requirements are designed to:

• provide documentary evidence in order to minimise fraud;

• provide a provable record of transactions;

• instill certainty as to what the parties intended;

• establish the obligations of the trustee;

• deter secret transactions; and

• raise revenue for the Treasury by way of stamp duty.

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TRUSTS CREATED BY WILL

DEFINITION CHECKPOINT
A will is a legal formal document which prescribes how a deceased’s
property is to be dealt with. A will has no legal significance until the death of
the testator (will maker) and it can be revoked or revised at any stage prior to
death. Provided that it is valid, a later version automatically replaces any
earlier will. Marriage (but not divorce) also has an invalidating effect.

A testamentary disposition, whether by gift or by trust, must comply with s.9 of the
Wills Act 1837 (as amended). If it does not, the will fails and the gift or trust
cannot take effect. Section 9 provides that a will shall not be valid unless:

• it is in writing;

• it is signed either by the testator or, alternatively, by some other person provided
that it is made in the presence of and at the direction of the testator;

• the signature must be made or, alternatively, acknowledged by the testator in the
presence of at least two witnesses present at the same time; and

• each witness must sign his name in the presence of the testator, but not
necessarily in the presence of the other witness.

LIFETIME TRUST OF LAND

DEFINITION CHECKPOINT
Inter vivos trusts of land are subject to the additional formalities prescribed in
s.53(1)(b) of the Law of Property Act 1925. This provides that, “a
declaration of trust respecting any land or any interest therein must be
manifested and proved by some writing signed by some person who is able to
declare such a trust or by his will”. These extra requirements are imposed
because of both the value of land and the highly technical rules that attend its
transfer.

Requirements
Section 53(1)(b) does not require that the trust be actually declared in writing, but
does demand that a trust of land be evidenced in writing. The writing (which, for
example, can be a will, correspondence or document used in court proceedings)
can come into existence after the trust has been declared, but must contain all the
terms of the trust (Smith v Matthew (1861)). Hence, there is no prescribed form for

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this writing to take and it can span more than one document. In Wright v Wright
(2010) a party’s affidavit supplied the necessary signed evidence. The signature of
the settlor is, however, required, but there is no requirement for a deed or for the
signature to be witnessed. There is no express mention made here of the ability of
an agent to sign the document. The absence of writing does not make the trust void,
but instead makes it unenforceable by a beneficiary (Gardner v Rowe (1828)).

Exceptions
Section 53(1)(b) does not apply to resulting, implied or constructive trusts
(s.53(2)). These types of implied trust are usually informal and exist to achieve
fairness and to prevent unconscionable outcomes. Hence, to require formalities for
the creation of such trusts would undermine the reason for their very existence.

Illustrative cases
• Hodgson v Marks (1971) where a widow was influenced by her lodger to
transfer the title to her house into his name on the basis that this would prevent his
eviction following her death. The lodger later sold the house to a third party. The
Court of Appeal decided that the lodger had held the house on resulting trust for the
widow and, as this implied trust fell outside s.53(1)(b), it was enforceable against
the third party.

• Bannister v Bannister (1948) where two cottages were conveyed to the trustee
on the basis that the beneficiary would be allowed to live in one of them for the rest
of her life. The court would not allow the trustee to rely upon an absence of writing
in these circumstances and invoked a constructive trust.

• Rouchefoucald v Bousted (1897) where there was a purely oral trust of land that
was, at face value, unenforceable. As the claimant had acted to his detriment on the
strength of this otherwise enforceable trust, the court felt that to fail to enforce the
trust would amount to a fraud. The court, therefore, implied a constructive trust and
sidestepped the need for formalities.

DEALING WITH AN EXISTING TRUST INTEREST

DEFINITION CHECKPOINT
Section 53(1)(c) of the Law of Property Act 1925 provides that “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”.

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Initial Observations
• s.53(1)(c) applies only after a trust has been created. It has no relevance to the
actual declaration of the trust under which the equitable interest arises. The
formalities are designed to bite on the transfer of a subsisting equitable interest by a
beneficiary to someone else or the direction of the beneficiary to the trustee to hold
the trust property on behalf of another;

• the section applies to all property, that is, personal property as well as land;

• the formalities do not apply to resulting or constructive trusts (s.53(2));

• a failure to comply with s.53(1)(c) makes the transfer entirely void;

• the disposition (i.e. transfer) of the equitable interest itself has to be made in
writing and not merely supported by documentary evidence. There is no scope here
for any subsequent ratification in writing;

• for the purposes of writing, two interconnected documents can be read together
in order to satisfy s.53(1)(c) (Re Danish Bacon Co Ltd Staff Pension Fund Trust
(1971)); and

• the signature of an agent will suffice for the purposes of s.53(1)(c). This reflects
the fact that such written assignments are unlikely to occur inadvertently.

Figure 5

Section 53(1)(c): Key Cases

THE DIFFICULTY
Sometimes it is not clear whether a transaction amounts to a declaration of
trust or is, instead, a disposition of an existing equitable interest. The cases

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 appear inconsistent and illogical. This is because many of them are tax
avoidance cases that involve the Inland Revenue. As dispositions have to be
in writing, and writing attracts stamp duty, the Inland Revenue tends to argue
for a disposition rather than a declaration. Stamp duty is charged on an
instrument rather than on the transaction itself.

Grey v IRC (1960)

Facts: Mr Hunter transferred legal title in 18,000 shares to his trustees (one of
whom was Mr Grey) to hold on an express, bare trust for himself. Shortly
afterwards, Mr Hunter orally and irrevocably directed his trustees to hold those
shares on trust for new beneficiaries (his grandchildren). The same trustees were
the trustees of the grandchildren’s pre-existing settlements. Mr Hunter attempted to
do everything orally so as to escape liability for stamp duty. Subsequently, the
trustees executed six documents confirming that they now held the shares on trust
for the grandchildren. There was no doubt that the new trusts were valid. The issue
was whether a direction by a settlor to his existing trustees to hold shares on trust
for a third party fell within s.53(1)(c). In other words, did the equitable interest in
the shares pass on the oral direction or subsequently on the trustees’ written
confirmation?
Outcome: The House of Lords had to consider what amounted to a disposition
for the purposes of s.53(1)(c). It was held that a direction to trustees to hold on
trust for another fell within s.53(1)(c) as it was a disposition of Mr Hunter’s
equitable interest. Put simply, Mr Hunter had held a subsisting equitable interest at
the outset and now claimed to no longer hold such an interest. As the oral direction
could not achieve this transfer, the documents executed by the trustees operated to
effect the disposition. Stamp duty was, therefore, payable on those documents.

Oughtred v IRC (1960)

Facts: The trustees held shares for the benefit of Mrs Oughtred for life with
remainder to her son, Peter. In return for some of his mother’s shares, Peter made
an oral contract to transfer his interest in remainder to her. Subsequently, formal
transfers were executed transferring these shares to the mother. The Inland Revenue
claimed stamp duty on the transfers as they were the documents that effectively
transferred the interest. The House of Lords had to consider whether a formal
transfer of shares following an oral agreement amounted to an assignment for the
purposes of s.53(1)(c).
Outcome: It was contended that, by virtue of the doctrine of conversion that
operates on a specifically enforceable contract, the equitable interest had already
passed to the mother. Her case was, therefore, that the disposition of the equitable
interest fell within the exception in s.53(2) because of the constructive sub-trust
attendant to the contract. Hence, the writing transferred nothing. The majority of the

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House of Lords, however, rejected this argument. The contract did not pass the full
equitable interest in the shares and, therefore, the document was subject to stamp
duty. This appears to be a sensible conclusion as, if the contract was rescinded or
specific performance ceased to be available, the entire equitable interest would
have remained with the son.

Vandervell v IRC (1967)

Facts: A bank held shares on bare trust for Mr Vandervell. He directed the Bank to
transfer the shares to the Royal College of Surgeons subject to an option to
repurchase them for £5,000. The option was exercisable by the Vandervell trustees.
The Inland Revenue mounted two alternative arguments. First, was that the transfer
of the shares was caught by s.53(1)(c). This argument was destined to fail.
Secondly, it was argued that the option to repurchase entailed that Mr Vandervell
retained some equitable interest in the shares. This argument proved to be more
fruitful for the Inland Revenue.

Outcomes:

(i) The House of Lords held that an oral direction by a beneficiary to trustees
holding on a bare trust for him to transfer both the legal and the equitable interest to
a third party will be effective. It was, however, important that here the legal and
equitable ownership vested in one body (the Royal College of Surgeons). The
outcome might have been much different if Mr Vandervell had attempted to move
legal title one way and equitable title another.

(ii) The Inland Revenue, however, succeeded in establishing that Mr Vandervell

had not divested himself of the equitable interest in the option to repurchase the
shares. Although the legal title to the option was validly vested in the Vandervell
trustees, no mention had been made of the equitable title. Accordingly, as the terms
of the trusts had not been spelt out, there was a resulting trust to Mr Vandervell of
the benefit of the option. Mr Vandervell was, therefore, liable to pay tax. As Lord
Wilberforce pointed out, an equitable interest cannot exist in the abstract and must
be vested somewhere.

Re Vandervell Trusts (No.2) (1974)

Facts: To continue the Vandervell saga, Mr Vandervell finally wanted to rid himself
entirely of any interest that he had in the shares. In 1961, he instructed his trustees
to exercise the option given to them and orally directed them to hold the shares so
repurchased on trust for his children. The trustees used £5,000 from a trust fund

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already established to benefit Mr Vandervell’s children. Subsequently, the
dividends of those shares were transferred to the children’s trust fund. In 1965, and
to resolve any doubts, Mr Vandervell executed a deed of release by which he
transferred to Vandervell Trustees Ltd his equitable interest in the shares, expressly
declaring that the shares were to be held on trust for his children. Mr Vandervell
died in 1967 and made no further provision for his children in the belief that they
were well provided for under the trust. Later that year, the Inland Revenue claimed
tax from his executors on the dividends that had been paid between 1962 and 1965
(£769,580 net).
Outcome: The dispute reached the Court of Appeal where it was held that there
had been a valid declaration of trust by the trustees in 1961 when they exercised the
option and this put the case outside s.53(1)(c). This declaration had the effect of
terminating the resulting trust in favour of Mr Vandervell. Lord Denning M.R.
consolidated his decision by adding that, even if Mr Vandervell had retained a
post-option equitable interest in the shares, he would have been estopped from
asserting a claim against his children.

Grounds for criticism

• it is difficult to see how there could be a genuine declaration of trust by the
company who already thought that it was a trustee;

• it is also difficult to understand why, as there was a resulting trust of the option,
there was not also a resulting trust of the shares that resulted from the exercise of
such option;

• the fact that the beneficial interest passed from Mr Vandervell to his children
under their settlements looks more like a disposition than the declaration of a new
trust; and

• the case for estoppel is a weak one. As regards the benefits afforded to the
children, it is clearly disproportionate to the payment of £5,000 and well beyond
the “minimum equity” normally afforded to successful claimants. It is also unclear
what detriment (other than the payment of £5,000 which could easily be refunded)
the children had suffered as a result of the representation that they were the
beneficial owners of the shares.

SECTION 53(1)(C): FINAL THOUGHTS

The operation of s.53(1)(c) is complex and defies ready understanding. It is,
therefore, helpful to list the key points concerning its application.

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 • It is the transfer/disposition of an existing equitable interest under a trust
that has to be in signed writing.

• The transfer of the beneficial interest of one beneficiary to another requires

writing (Grey v IRC (1960)). This is so whether the transfer takes the form of an
assignment or a direction to trustees.

• Section 53(1)(c) does not apply when the entire legal and equitable interest
in the property passes to a single entity (Vandervell v IRC (1967)). It is a dubious
proposition to suggest that the section similarly does not apply where legal title
moves one way and equitable title another in the same transaction.

• If a sub-trust is created under which the beneficiary retains some function

and, thereby, does not dispose of the entire beneficial interest, the traditional
understanding is that this sub-trust is beyond the reach of s.53(1)(c). If the sub-trust
involves a complete disposal of the beneficial interest, however, it is thought that
this requires a written transfer.

• It was recognised in Re Vandervell (No.2) (1974) that the interest under a

resulting trust can be disposed of without the need for writing. Similarly, in Levi v
Levi (2008) it was held that the relinquishment of an interest under a constructive
trust did not have to be in writing.

• It was also recognised in Re Vandervell (No.2) (1974) that, even though it

is not specifically identified as an exception in s.53(2), an estoppel can circumvent
the need for writing. This occurred in Singh v Anand (2008) where the court
concluded that, despite an absence of signed writing, the representee ought to have
a 33% share in a company as promised.

• As regards a contract to transfer both legal and equitable title in, say, land
or shares in a private company, the constructive trust that arises does not pass the
full beneficial interest to the purchaser (Oughtred v IRC (1960)).

REVISION CHECKLIST
You should now know and understand:

• the reasons for additional formalities;

• the requirements for a valid will;
• the operation of s.53(1)(b) with reference to case law;
• the operation of s.53(1)(c) with reference to case law.

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QUESTION AND ANSWER

The Question
“Although the formalities imposed by s.53(1)(c) of the Law of Property Act
1925 are intended to promote certainty and to avoid fraud, as Mr Vandervell
might testify the insistence upon writing may itself produce uncertainty and
injustice”.

Discuss this statement.

Advice and the Answer

This is a standard style essay question which requires you to consider the
operation of s.53(1)(c) with reference both to the quotation under discussion
and the seminal cases which have tackled the meaning and application of this
statutory provision. Although there is no set way of undertaking an essay, it is
always useful to keep in mind that there should be a beginning, middle and
end.
The beginning should make some reference to the quotation under
discussion and set out the ingredients of s.53(1)(c). In particular, you should
make clear that it only applies to a disposition of an existing trust interest and
that it requires the disposition itself to be in signed writing. The writing then
becomes a document of transfer and attracts what is commonly known as
stamp duty. Indeed, the latter liability explains most attempts to transfer the
trust interest orally.
The middle should look in detail at the key cases decided on s.53(1)(c). At
the least, you should consider the decisions and arguments raised in Grey v
IRC (1960); Vandervell (No.1) (1967); Oughtred and Vandervell (No.2)
(1974). You should emphasise the types of transaction to which the section
applies and, importantly, those dispositions which fall outside its reach.
The end should apply the previously discussed decisions, arguments and
distinctions with reference to the quotation under discussion. You should
either agree or disagree with the quotation with reference to the option issue
raised in Vandervell (No.1) (1967) and the controversial reasoning of Lord
Denning in Vandervell (No.2) (1974).

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 6
Secret Trusts

INTRODUCTION
Secret trusts are testamentary trusts that usually arise in circumstances where the
settlor leaves a legacy in his will on the secret understanding that the legatee (a
trusted person such as a solicitor) will hold that property on trust for a third party.
The legacy may either appear to be absolute (as with a fully secret trust) or
disclose the trust without revealing its object (as with a half secret trust).

THE PROBLEM?
The potential stumbling block is that, as shown in Ch.5, testamentary dispositions
(including trusts) must be executed and attested in compliance with the formalities
prescribed in the Wills Act 1837. The key features of that prescription are, it is to
be recalled, writing, signature and attestation. Although the general rule is that any
purported legacy or testamentary trust which is not specified in a valid will be
ineffective, the secret trust is an exception to this rule. The secret trustee cannot
deny the trust on the ground of an absence of formality. As Patten L.J. put it in De
Bruyne v De Bruyne (2010), “equity will regard it as against conscience for the
owner of the property to deny the terms upon which he received it”.

WHY SECRET TRUSTS?

The purpose of a secret trust is to keep the identity of the beneficiary undisclosed
(e.g. the secret beneficiary is the testator’s illegitimate child or mistress). This
might be viewed as necessary because, once probate is granted, a will becomes a
document of public record. It can be inspected by anyone who pays the appropriate
fee. A further reason for using a secret trust is to allow any changes and future
dispositions to be made without adherence to the Wills Act 1873. A fully secret

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trust also affords flexibility for a testator who cannot quite make up his mind what
to leave to whom. His instruction to his trustee might change several times before
his death. As will become clear, the same flexibility does not apply to half secret
trusts.

TWO TYPES OF SECRET TRUST

As mentioned, there are two types of secret trust: the fully secret trust and the half
secret trust. It is crucial to understand this distinction because, in some situations,
different rules apply to each. As to which category of secret trust has been created,
it is necessary to look at the wording of the will.

A Fully Secret Trust

DEFINITION CHECKPOINT
A fully secret trust operates in circumstances where it appears from the face of
the will that the legatee is entitled to take the legacy absolutely. No indication
of a trust or its terms is, therefore, discernible from the will itself.

KEY CASE

OTTAWAY V NORMAN (1972)

In Ottaway v Norman (1972), the testator agreed with his housekeeper that she
could have his bungalow after his death provided that she, in turn, left it to the
testator’s son and daughter-in-law on her own death. She agreed to this and the
testator left the bungalow to her absolutely. On her death, however, she left the
property to another. The court held the son and daughter-in-law were entitled
to the property.

Intestacy
It is also possible that a fully secret trust can arise on intestacy (where no will
exists) (Sellack v Harris, (1708)). If an owner of property does not make a will
because the person entitled on intestacy has agreed to hold it for a secret
beneficiary then the trust should be enforceable (Re Gardner (1920)).

A Half Secret Trust

DEFINITION CHECKPOINT
With a half secret trust, the existence of a trust is not secret (i.e. it is mentioned
in the will), but it is the terms of the trust (particularly, the identity of the

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 beneficiary) that will remain private and undisclosed. Take, for example, a
provision that reads, “£500,000 for X to be held on trust for such purposes as
I have communicated to him”. The trust (but not its terms) is evident from the
will itself.

Classification problems
There can sometimes be difficulty in classifying whether a trust is fully secret or
half secret. For example, “£50,000 to X knowing that he will carry out my wishes
as I have communicated to him”. The problem is that the testator has used precatory
words (see Ch.3) that no longer import a trust. Accordingly, this should create a
fully secret trust and not, as it may first appear, a half secret trust. In Irvine v
Sullivan (1869), the wording of the will was “trusting that she will carry out my
wishes with regard to the same, with which she is fully acquainted”. This amounted
to a fully secret trust.

JUSTIFICATION FOR SECRET TRUSTS

Although secret trusts form an exception to the formalities imposed by the Wills
Act, little thought is given by the courts as to why secret trusts are treated
differently. There has to be some justification for equity to override a statutory
provision in this way. There are several schools of thought as to what is the
underlying rationale for the law relating to secret trusts. Unfortunately, none of them
is entirely satisfactory.

FRAUD

The traditional explanation for the enforcement of secret trusts is that they exist in
order to prevent fraud. As to fully secret trusts, if the legatee/trustee attempts to
keep the property for himself this will be a clear fraud. In such a scenario, unless
evidence is admitted contrary to the provisions of the Wills Act 1873, the intended
trustee will profit from his misconduct. As such, the justification for recognising the
fully secret trust is easily made out.

And half secret trusts?

In relation to half secret trusts, however, this reasoning is inapplicable. If the court
refused to admit evidence of the terms of the trust, the trustee could not take the
property himself, but would instead hold it on resulting trust for the testator’s
estate. As the trustee will not profit from the failure of the trust, it is more difficult
to speak in terms of there being a fraud. It might be argued that the fraud is
committed on both the testator and the beneficiary if the trust is not upheld. There

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is, however, no real fraud on the beneficiary who loses out simply because the
settlor did not adhere to the prescribed formalities for creating a testamentary trust.
As shown in Ch.5, equity is not prepared to act in this tolerant fashion in relation to
a non-compliance with s.53(1)(b) and (c) of the Law of Property Act 1925.

Dehors the Will

A more modern view canvassed is that a secret trust (whether fully secret or half
secret) operates “dehors” (i.e. outside) the will (Blackwell v Blackwell (1929)). In
other words, the trust arises not from the will, but from its lifetime communication
to, and acceptance by, the trustee. Communication and acceptance operate to
impose personal obligations on the trustee. The trust, however, only becomes
constituted on the testator’s death (i.e. the property vests in the trustee by virtue of
the settlor’s will). Accordingly, the claim that the trust operates entirely outside the
will is a fictitious one.

KEY CASE

RE YOUNG (1951)
In Re Young (1951) the testator made a bequest to his wife with a direction
that on her death she should leave £2,000 for their chauffeur. Although the
chauffeur had witnessed the will, he was still entitled to the money. The legacy
was not void under s.15 of the Wills Act which is designed to prevent a
witness to a will being a beneficiary under it. Danckwerts J. promoted the
dehors theory, “The whole theory of the formation of a secret trust is that the
Wills Act 1837 has nothing to do with the matter”.

Incorporation by Reference
The least attractive theory is that the doctrine of incorporation by reference offers
the true justification underlying the recognition of half secret trusts. Fully secret
trusts are justified on the fraud theory discussed above. The doctrine of
incorporation is one of probate law and allows incorporation of a written document
into a will when the will specifically refers to it. For example, the will might state
“I leave Blackacre to X on the trusts which I have communicated to him by a letter
dated May 2, 2009”. This letter may then be admitted to probate together with the
will. As the will must refer to the document to be incorporated, the document must
be in existence prior to the will (Johnson v Ball (1851)). If not, there can be no
incorporation.

A flawed theory?
Incorporation by reference is largely discredited as offering the basis of the half
secret trust. The difficulties with it are that secret trusts need not be declared in a

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document (they can be oral), that the trust entirely loses its secrecy (i.e. the
document is admitted into probate with the will and is open for public inspection)
and that it would need to be communicated to the trustee before the will is
executed. The incorporation theory stands in contradiction to key authorities
(whether they point in favour of the fraud or the dehors theories).

THE CREATION OF A SECRET TRUST

Ingredients
In Ottaway v Norman (1972), Brightman J. outlined the three vital ingredients of a
secret trust:

• the intention of the testator to subject the primary donee to an obligation in

favour of the secondary donee;

• the communication of that intention to the primary donee; and

• the acceptance of that obligation by the primary donee either expressly or by

acquiescence.

Intention
The Court of Appeal in Kasperbauer v Griffith (2000) demonstrated that a secret
trust (of whatever category) requires certainty of intention that it is a trust that is to
be created. There a statement that his wife “knew what she had to do” was
equivocal and sufficient only to impose a moral (i.e. not legal) obligation on the
wife. Similarly, in McCormick v Grogan (1869) the testator wrote a letter which
read:
“I do not wish you to act strictly to the foregoing instructions, but leave it
entirely to your own good judgment to do as you think I would if living, and as the
parties are deserving”.

This again did not reveal the intention to create a secret trust and, therefore, the
legatee could keep the money absolutely.

Communication
As regards both a fully secret trust and a half secret trust, it is crucial that the
obligation to hold the property on trust and the terms of the trust (including the
subject matter and its beneficiaries) be communicated to the trustee. For example,
when there is more than one beneficiary, the identity of all the beneficiaries and
their entitlements under the secret trust will need to be divulged to the trustee. If, as

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in Ottaway v Norman (1972), the trustee is to be given a life interest in the
property then this must be communicated to the secret trustee.

Forms of communication
Communication can be oral or take the form of, for example, a letter, fax, text
message, sign language or email. Communication can also occur via the testator’s
agent. It is, moreover, possible that communication of the terms of the trust can be
constructive. The classic example is Re Keen (1937) where the testator made his
will and this disclosed the existence of a secret trust relating to the sum of £10,000.
The trustee was handed a sealed envelope that contained the name of the secret
beneficiary. The letter was not to be opened until after the death of the testator. The
Court of Appeal drew the parallel with a ship sailing under sealed orders where
the exact terms are not ascertained until later. The trustee has the means of
ascertaining the identity of the beneficiary and this amounts to a sufficient
communication.

Communication timing and the fully secret trust

It is as to the timing of the communication that major differences emerge between
the two styles of secret trust. In relation to a fully secret trust, communication must
be made during the lifetime of the testator (i.e. it must be made inter vivos).
Communication may, however, occur either before or after the will is drafted. It
follows that, if the communication is subsequent to death (e.g. by virtue of a letter
found amongst the deceased’s papers), the legatee can take the property absolutely.

KEY CASE

WALLGRAVE V TEBBS (1855)

In Wallgrave v Tebbs (1855), the testator left £12,000 in his will jointly to Mr
Tebbs and Mr Martin. After the testator’s death, a draft letter was found
specifying how the testator wanted them to hold the money. The court held that,
because there had been no communication of this to Tebbs and Martin before
the testator’s death, there could be no binding trust. Tebbs and Martin could,
therefore, keep the money. If, however, the trust had been communicated in the
testator’s lifetime the secret trust would have been effective.

Communication timing and the half secret trust

Although communication must still occur before the death of the testator, as regards
a half secret trust a different dimension is added and this is that communication
must occur either before the will or, at the very latest, when the will is created (Re
Keen (1937)). If communication takes place after the will is executed, the half

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secret trust must fail (Blackwell v Blackwell (1929)). As the intention to create a
trust is disclosed on the face of the will, the intended trustee cannot, of course, keep
the property for himself (Re Boyes (1884)). Instead, the legatee will hold the
property on resulting trust for the testator’s estate.

Figure 6: Secret Trusts

Increases to trust property

If the testator wishes to add further property to the intended secret trust, these
additional instructions must also be communicated to the trustee. A failure to do so
will entail that, as regards the additional property, the secret trust will fail with the
following consequences:

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 • if it is a fully secret trust, the legatee will be able to keep the excess amount;

• if it is a half secret trust, the additional property will be held on resulting trust
for the deceased’s estate. In Re Colin Cooper (1939), the testator left £5,000 to
trustees on terms that he had already communicated to them. Without the knowledge
of the trustees, however, he increased the sum to £10,000 by codicil (i.e. a formal
and attested variation of the will). It was held that the trustees held the initial
£5,000 on the terms of the trust, but that the remaining £5,000 resulted back to the
deceased’s estate. As regards the latter sum, there had simply been no
communication and acceptance of the revised terms of the trust.

Acceptance
The rules concerning the acceptance by the legatee of the obligations of trusteeship
are the same whether it is a fully secret trust or half secret trust. Acceptance can be
made at any time before the testator’s death. The acceptance of trusteeship can arise
in one of two ways, i.e. by express agreement or by implication from silence.
Silence, in this context, amounts to tacit acceptance (Paine v Hall (1812)). The key
is whether the trustee’s conduct induced the testator to make the legacy and pursue
the arrangement of a secret trust. This is because equity will not allow a man to
profit by his fraud. It is open for a person to refuse to act or, indeed, to continue to
act as a secret trustee.

More than one secret trustee?

There are potential difficulties if the gift is to two legatees and only one has
accepted the trust. The problem concerns whether those who were unaware of the
trust will still be compelled to hold the property subject to the uncommunicated
secret trust. The solution promoted in Re Stead (1900) is somewhat elaborate and
may differ according to whether it is a fully secret trust or a half secret trust.
With a fully secret trust, much turns upon whether the legatees are joint tenants
or tenants in common on the face of the will. If the former, both will hold on trust
whereas, if the latter, the trust would bind only the party that undertook the
obligation. When, for example, the will leaves money to John and Brian ‘equally’
then (due to this word of severance) they will be tenants in common. If there is no
communication to Brian, he will be able to keep his legacy.
With a half secret trust, the trustees always hold as joint tenants and so both
legatees should be bound.

PREDECEASING THE TESTATOR

If the Trustee Dies First?

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In circumstances where a fully secret trust is intended, but the sole secret trustee
dies before the testator, the legacy lapses and the property will remain in the
testator’s estate (Re Maddock (1902)). If, however, other trustees survive the
testator, the trust should remain valid in relation to the entire property. As regards
half secret trusts, however, it is thought that the death of the sole trustee will not
prevent the trust from taking effect because of the rule that equity will not allow a
trust to fail for want of a trustee (Re Armitage (1972)).

If the Beneficiary Dies First?

In the situation where the secret beneficiary predeceases the testator, the secret trust
must fail. It comes into effect via the will, which in turn comes into effect on the
death of the testator. If at that time, the beneficiary is no longer living, there can be
no trust. The testamentary trust will, therefore, be frustrated in the same way as
would occur with an inter vivos trust (Re Corbishley’s Trusts (1880)).

REVISION CHECKLIST
You should now know and understand:

• what is a secret trust and why is it problematic?

• the distinction between half secret and fully secret trusts;
• the conditions necessary for the existence of a valid secret trust;
• the theories underpinning the existence of secret trusts.

QUESTION AND ANSWER

The Question
On November 29, Malcolm told Jane that if she agreed, he wanted her to act
as his trustee, holding on behalf of Nathan. On December 1, Malcolm made his
will leaving his home, Dunborin, and £100,000 to Jane “on such trusts as I
have indicated to her” and the residue of his estate to Hollis. On December 2
Malcolm handed Jane a sealed envelope saying that the contents confirmed
their conversation of November 29, but that it was only to be opened upon his
death. The letter, when opened, stated that Dunborin and the £100,000 were to
be held on trust for Nathan.

Advise Jane.

Advice and the Answer

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 Malcolm’s will leaves his home Dunborin and £100,000 to Jane as trustee.
This may create a half secret trust. It is not a fully secret trust as the trust (but
not its terms) is evident from Malcolm’s will. There is no possibility of Jane
taking the property beneficially. Jane will either hold the property on trust for
Nathan if a half-secret trust can be established or, if not, for Hollis (who is
entitled to Malcolm’s residuary estate).
Before a half secret trust will be valid the following must be established:

• there must be sufficient communication of the terms of the trust before or at

the same time as the will. The rule is based on Blackwell v Blackwell (1929), but
has been severely criticised. cf. fully secret trusts where the trustee appears to take
beneficially on the face of the will, communication can take place at any time
before the testator’s death;

• there must be acceptance of the terms by the trustee;

• there must be no conflict between the terms of the will and the secret trust.

It is impossible to tell from the facts whether there was a sufficient

communication on November 29. To be effective, Jane must have been told of
the property to be comprised in the trust (Re Colin Cooper (1939)). If not, the
subsequent letter will not be a sufficient communication. Although
communication can take place in a sealed envelope, provided the trustee
knows it contains the terms of the trust (Re Keen (1937)), in this case it will
be ineffective as the letter is given a day after the will.
Jane can accept the trust by implication (e.g. by silence: Paine v Hall
(1812)). It appears that there is no conflict between the will and the terms of
the trust that are alleged to have been communicated on November 29. If,
however, communication is by the letter of December 2 (after the will) then it
is not only too late, but there is also a conflict with the will because at that
stage nothing had been communicated.

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 7
The Statutory Avoidance of Trusts

INTRODUCTION
Unless there is a power of revocation in the trust instrument, the general rule is that,
once a trust has been completely constituted, it cannot be revoked by the settlor or,
indeed, by anyone else. Unless the settlor is also a trustee, the trust property moves
outside his legal control. Real ownership has become vested in the beneficiaries.
This general rule is, subject to a number of statutory exceptions under which the
court can set aside a gift or transfer to a trustee. Put broadly, these powers arise in
the context of transactions to put property unfairly beyond the reach of creditors,
spouses and family. It is with these statutory exceptions that this Chapter is
concerned.

TRANSACTIONS DEFRAUDING CREDITORS

Context
Settlors may attempt to employ the trust as a means of putting property beyond the
grasp of potential creditors. The transfer of property to trustees on trust for named
family members generally has the effect of negating the settlor’s interest in those
assets and putting them potentially beyond the reach of his creditors. The settlor’s
attitude is described by Jessell M.R. in Re Butterworth (1882), “If I succeed in
business, I make a fortune for myself. If I fail, I leave my creditors unpaid. They
will bear the loss”. Although the law strives to let a person do what he wants with
his own property, Parliament has taken steps to protect creditors from the
consequences of this type of debt evasion. Outside such legislative restrictions,
however, a trust can be employed effectively to sidestep a creditor’s claims.
Indeed, the use of offshore trusts (often situated in the Channel Isles) is usually to
achieve the protection of assets against adverse claims, whether by a private

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creditor or HM Revenue & Customs.

General Protection for Creditors

The present law is to be found within the Insolvency Act 1986. This gives to the
court a jurisdiction to set aside transactions that are at an undervalue and which
operate unfairly to disadvantage creditors. As will become clear, albeit with some
modifications, the jurisdiction applies whether or not the settlor has been adjudged
bankrupt.
Other than on the bankruptcy of the debtor, a transaction at an undervalue may
only be set aside under the auspices of ss.423–425 of the 1986 Act. Under these
provisions there is no need that the transferor be insolvent. There is, moreover, no
requirement that a debt exists at the time of the transaction. As in Re Butterworth
(1882), a businessman might make a settlement in favour of his wife prior to
embarking upon a risky business venture, with a view to putting the property
beyond the claims of future creditors. The transaction is clearly vulnerable to being
set aside. In addition, there is no time limit beyond which the transaction is immune
for these purposes. The overwhelming number of applications under these
provisions are brought by individual creditors. The broad objective of the remedy
is to restore the position to what it would have been had the transaction not taken
place.

Conditions
As demonstrated recently in Rubin v Dweck (2012) there are three conditions
underlying the s.423 jurisdiction:

• the transaction has to involve a significant undervalue;

• the substantial purpose of the transaction must be either to place assets beyond
the reach of a person who is making, or may in future make, a claim against the
settlor or to prejudice in some other way the interests of such a person in relation to
any present or future claim made against the settlor;

• the claimant must demonstrate that he is a victim of the transaction and this is
adjudged as at the time of the application and not the transfer. While the victim will
usually be a creditor of the transferor, it could be a non-creditor who is in litigation
with the transferor or who has a cause of action against the transferor.

What is an undervalue?
By virtue of s.423(1), an undervalue is the making of a gift, entering into a
transaction in consideration of marriage or entering into a transaction for

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consideration which, in terms of money or money’s worth, is “significantly less
than” the equivalent value of the property transferred. In Agricultural Mortgage
Corp v Woodward (1995), a farmer’s land was mortgaged to the AMC. He granted
a tenancy to his wife so that the mortgagee would not be able to sell the land with
vacant possession. Although the wife paid a full market rent, this was treated as a
transaction at an undervalue and was set aside. The real benefit acquired by the
wife was much greater than the rent she paid, because, she was in a position to
demand a ransom for surrendering her tenancy so as to make the farm available to
the creditor. Similarly, in Re Kumar (1993) the wife agreed to take on sole
responsibility for the mortgage repayments in return for acquiring her husband’s
share in the matrimonial home. Although she gave consideration, this was of
significantly less value than the asset that she acquired. The transaction was,
therefore, at an undervalue and set aside.

Purpose
There is no requirement that the settlor must act dishonestly. A transaction can be
impugned even if the settlor was acting on legal advice. It is not even necessary that
a s.423 purpose be the predominant motive underlying the transaction. For example,
in IRC v Hashmi (2002) the fact that it was also the intention of the settlor to
benefit a family member did not prevent the operation of s.423. In Moon v Franklin
(1990), the necessary intention was shown where a husband, threatened with legal
proceedings, made substantial gifts to his wife from the proceeds of the sale of his
business. It suffices that the ambition of the transferor is to deprive creditors of
speedy access to property that would otherwise be applicable for their benefit. It is
not sufficient to show that the transaction has a particular result. Such was made
clear in Rubin v Dweck (2012) where the transaction was not designed to defraud
creditors and was, instead, intended to prevent divorce proceedings and to
recognise her contribution to the home and family.

Inferred intention
In certain circumstances, the intention to put assets beyond the creditor’s reach will
readily be inferred by the court. As Schiemann L.J. put it in Barclays Bank Plc v
Eustice (1995),

“when action by the creditor was clearly anticipated by the debtor and that
these transfers were at an undervalue and that what remains in the hands of the
debtor barely if at all covers the debt, there is in my judgment a strong prima facie
case that the purpose of the transactions was to prejudice the interests of the
creditor”.

Figure 7

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 AND THIRD PARTIES?

To be effective, it is necessary that the powers of the court can be exercised

against third parties. This is acknowledged in s.425(2) which states that an
order made may affect the property of, or impose an obligation on, a third
party whether or not that person was a party to the impugned transaction.
Obviously, the immediate transferee is most at risk from the transaction being
overturned. As regards subsequent transferees, however, they are protected
provided that the transaction was entered in good faith, for value and without
notice of the circumstances which made s.423 applicable in the first place.
The same defence is available to a person who has acquired a benefit under
the impugned transaction.

SPECIAL BANKRUPTCY PROVISIONS

The Insolvency Act 1986 contains a number of further provisions that operate on
the bankruptcy of a debtor and which enable the court to set aside transactions
made at an undervalue (s.339) or by way of preference (s.340). The basic aim is to
facilitate the trustee in bankruptcy in recovering the bankrupt’s property for the
benefit of creditors. These provisions apply only to transactions within a limited
period before insolvency and the intention of the insolvent is irrelevant. They
coexist with those dealing with undervalue transactions independently of
bankruptcy. As will become clear, the two sets of provisions are similar, but are
not identical.

Undervalue
Undervalue is given the same definition as considered above. As in Re Densham
(1975), a trustee in bankruptcy of a husband may claim a wife’s share in the
matrimonial home to the extent that she did not contribute towards its purchase. The
Insolvency Act also caters for a property adjustment order made in divorce
proceedings to be overturned by one party’s trustee in bankruptcy. There is a
rebuttable presumption of undervalue where the transaction was entered into with

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an associate. An associate includes a spouse, relative, partner and employer.

Time limits
Unlike under the provisions considered above, certain time limits are imposed in
relation to undervalue transactions by a bankrupt:

• two years. If a bankruptcy petition is presented within two years of any such
transaction, then an order can be made in respect of it notwithstanding that the
individual was solvent at the time;

• five years. If a bankruptcy petition is presented within five years of any such
transaction, then an order can be made in respect of it unless the individual can
prove that he was solvent at the time without the property included in the
transaction.

Preference
A preference arises where the debtor places one of his creditors or a guarantor in a
more favourable position, should the debtor’s bankruptcy ensue, than would
otherwise have been the case. It strikes at a transaction that improves the position
of one creditor above those of others. The intention especially to benefit one
creditor is a rebuttable presumption when the preference is given to an associate
(see above).

Time limits
Certain time limits operate in relation to a preference:

• six months. The court can make an order concerning a preference given in the six
months preceding the bankruptcy petition unless the individual was solvent at the
time without the property included in the preference;

• two years. Where the preference is given to an associate, the court can make an
order relating to a preference given in the two years preceding the bankruptcy
petition unless the individual was (discounting the property included in the
preference) solvent at the time.

Figure 8

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FAMILY CLAIMS

It is possible that a transaction is designed to place property outside the grasp of a

spouse, registered same sex partner or other dependant. Statutory restrictions have
been imposed on the ability of a transferor to avoid maintenance and to avoid
claims for financial provision. Two incursions upon the freedom of a property
owner to deal with property are to be found in the Matrimonial Causes Act 1973
and the Inheritance (Provision for Family and Dependants) Act 1975. The
former applies to claims made in the course of matrimonial proceedings whereas
the latter concerns the rights of dependants upon the death of the person who
provided for them.

Marital Breakdown
Section 37 of the Matrimonial Causes Act 1973 allows transactions (including the
declaration of a trust) to be set aside on the breakdown of a marriage. This can
occur where the court is satisfied that one spouse has made a disposition with the
intention of depriving the other of financial relief under the Act. The requisite
intention will be presumed when the transaction occurs within three years
preceding the other spouse’s application for financial relief. Outside the three year
period, the applicant must prove that it was the subjective intention of the other
spouse. Obviously, the longer the time lapse the more difficult it will be to
demonstrate this intention. The court can set aside a disposition unless it was made
in favour of a bona fide purchaser for value without notice of any intention to defeat
the applicant’s claim (Green v Green (1981)). This operates as a defence for third
parties. Section 37, moreover, protects spouses and former spouses and, by virtue
of the Civil Partnership Act 2004, operates also on the dissolution of a same sex
registered partnership.

Inheritance Provisions
In order to ensure that a surviving spouse (or same sex registered partner) and/or
surviving dependants are provided for, the Inheritance (Provision for Family and

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Dependants) Act 1975 gives the court a broad, discretionary jurisdiction to make
an award to a claimant. Section 2 empowers the court to allocate part of the
deceased’s estate to make reasonable financial provision for a surviving spouse,
former spouse or registered partner (who has, neither remarried, nor, entered new
partnership), cohabitant, child or other person who was, at the time of the death,
maintained wholly or partly by the deceased. As regards cohabitants who have
lived in the same household as the deceased for two years preceding the death,
there is no need to show dependency. The order overrides the provisions of a will
or the operation of the intestacy rules.

Factors
The court is directed by s.3 to a number of factors which it must take into account.
These include:

• the present and future financial resources and needs of the applicant;

• any obligations and responsibilities which the deceased owed to the applicant;

• the size and nature of the estate;

• the conduct of the parties; and

• any physical and mental disability of the applicant.

And third parties?

Sections 10 and 11 of the 1975 Act cater for the possibility that the deceased may
have given away property prior to death with the intention of not providing for his
spouse and dependants. The court is given the power to require the donee to make
available a sum of money up to, but not in excess of, the value of the gift received.
This power, however, arises only when the gift was made within six years before
the donor’s death and was made with the intention of defeating an application for
financial provision under the 1975 Act. In Re Dawkins (1986), a husband left his
entire estate to his daughter. He had also made a lifetime transfer of the matrimonial
home to her for £100. His widow made a successful claim under the 1975 Act. It
was held that the transfer of the house had been partly motivated by a desire to
reduce the amount of the provision for the wife that the court might otherwise have
granted.

REVISION CHECKLIST
You should now know and understand:

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 • the relevant provisions of the Insolvency Act 1986;
• the differences between a transaction at an undervalue and a
preference;
• the special bankruptcy provisions;
• the family provisions.

QUESTION AND ANSWER

The Question
To what extent has Parliament intervened to protect a creditor against a debtor
utilising a trust in order to put assets beyond that creditor’s reach?

Advice and the Answer

This straightforward essay question requires a consideration of how a trust
might be deployed to sidestep the legitimate claims of a creditor. It also
requires the examination of the provisions of the Insolvency Act 1986 that
apply: (i) other than on bankruptcy and (ii) on bankruptcy.
As regards (i), it is necessary to explain the operation of s.423 in relation to
undervalue transactions. The conditions underpinning this provision must be
recited and, with illustrations from decided cases, the meaning of undervalue
discussed. The essay should also refer to the courts’ powers exercisable
against third party.
In relation to (ii), the bankruptcy provisions contained in s.339 and s.340
need to be examined. Again there is required a brief explanation of undervalue
and a discussion of what amounts to a preference. The different timing
elements associated with both should also feature in the answer.

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 8
Resulting Trusts

INTRODUCTION
The resulting trust is a type of implied trust that arises by operation of law.
Accordingly, it is not expressly created by a settlor and there are no formal
requirements for its creation. Following the speech of Lord Browne-Wilkinson in
Westdeutsche Landesbank v Islington LBC (1996), the modern view is that the
resulting trust arises in two principal contexts:

• failed trusts, where has been an attempt to create a trust and some part of the
beneficial interest has not been entirely dealt with. Traditionally these are styled
automatic resulting trusts;

• apparent gifts, where there is a voluntary transfer of property or a contribution to

the purchase price of property without an express indication as to how equitable
title is to be held. These are traditionally described as presumed intention resulting
trusts.

Figure 9

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FAILED TRUSTS

DEFINITION CHECKPOINT
Where an express trust fails to dispose of the entirety of the beneficial interest,
the remainder is held by implication on resulting trust for the settlor. The
purpose of the resulting trust in this context is to restore equitable title in
property to its previous owner or to establish that that person continues to hold
an equitable interest in the property. This may arise where there is:

• a failure to declare a trust;

• a failure of a trust;

• a failure of a specific purpose; and

• an unexhausted beneficial interest.

Failure to Declare a Trust

Where property is conveyed to persons with the intention that they act as trustees,
the failure to declare the manner in which all of the beneficial interest is to be held
on trust will entail that any property unaccounted for is held on resulting trust for
the settlor. In Vandervell v IRC (1967), the beneficial interest in an option to
repurchase shares was not dealt with. It was held that a resulting trust of the benefit
of the option arose in favour of the settlor. The beneficial interest had to rest in
someone and was not deemed to have been abandoned.

Failure of a Trust
This can occur for a variety of reasons:

• if the settlor has conveyed property on trust for A for life, and made no other
provision, on A’s death the property would result back to the settlor or the settlor’s
estate; or

• where a settlor conveys property on trust for A for life and then to A’s children
absolutely, but A never has children, the remainder will result back to the settlor.
As there was the intention to create a trust, in both cases A or his estate cannot take
the property as a gift; or

• where the trust turns out to be void because it is against public policy, advances
an illegal purpose or offends the perpetuity rule; or

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 • consequent to the failure of a condition precedent (e.g. that X must marry, but X
fails to marry) or condition subsequent (e.g. where beneficiaries must remain
married but they fail to do so). Accordingly, when a transfer of property is made
subject to a condition which is not achieved the resulting trust effects a return of the
property to the transferor.

KEY CASES

RE DIPLOCK (1951) AND RE ATKINSON’S WILL TRUSTS (1978)

In Re Diplock (1951), there was a gift of residue in a will “for purposes
which the trustees consider to be charitable”. This was not exclusively
charitable and was, therefore, a private purpose trust that failed. The property
resulted back to the settlor’s estate and could be claimed by the grasping
relatives.
In Re Atkinson’s Will Trusts (1978), the uncertainty was found in a
residuary gift which was to be divided between “such worthy causes as have
been communicated by me to my trustees in my lifetime”. As no such causes
had been communicated, a resulting trust arose.

Failure of a Specific Purpose

This refers to cases where the transferor intends that the property revert back to him
unless it is used for the particular purpose specified. In Barclays Bank v
Quistclose Investments Ltd (1970), Quistclose paid money to Rolls Razor on the
basis that the money would be used solely for a specified purpose (i.e. paying a
dividend to shareholders) and that it would be deposited in a separate account.
Rolls Razor became insolvent before any dividends were paid. The House of Lords
held unanimously that the money advanced was held on resulting trust for
Quistclose on the basis that the purpose for which it had been advanced had not
been carried into effect.
Similarly, in Re EVTR (1987) a loan was made to a company by a former
employee and the stated purpose was that the company would use the money only
for the purchase of new equipment. The company paid over the money to a supplier,
but became insolvent before the equipment was delivered. The supplier returned
part of the money to the company and the issue was whether the funds were
available to the company’s general creditors or were subject to a resulting trust in
favour of the former employee. The Court of Appeal held that the refunded money
was held on resulting trust for the lender.

Unexhausted Beneficial Interests

Different outcomes occur in different contexts. It is important to consider whether a

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trust is private or charitable in nature and whether a surplus arises from a desire to
maintain individuals, carry out public appeals or in the event of the dissolution of
unincorporated associations or the winding up of a pension fund.

KEY CASE

RE COCHRANE (1955)
In Re Cochrane (1955), a post-nuptial settlement was created into which both
husband and wife brought property. In essence, the income generated was to
be paid to the wife on the condition that she continued to reside with her
husband. Should either die, the other would be entitled to the entirety
beneficially. A problem arose when the wife left her husband and he died
shortly thereafter. It was held that a resulting trust of the income arose in
favour of the settlors in proportion to their contributions. Harman J. described
the resulting trust as,

“the last resort to which the law has recourse when the draftsman has made
a blunder or failed to dispose of that which he has set out to dispose of”.

Maintenance cases
The general rule is that a resulting trust will arise in respect of any surplus
remaining once the purposes of the trust have been carried out. No resulting trust
will arise where the trust instrument explicitly excludes this possibility or where an
inference can be drawn that some other person was intended to take the property
beneficially (Westdeutsche Landesbank Girozentrale v Islington LBC (1996)).

KEY CASES

RE TRUSTS OF THE ABBOTT FUND (1900), RE ANDREWS TRUST (1905)

AND RE OSOBA (1979)

• In Re Trusts of the Abbott Fund (1900), Dr Fawcett collected a sum of

money, raising subscriptions from the public, to assist two women who were deaf
and dumb. No provision was made as to the disposal of any surplus. Following the
death of the two women, Stirling J. held, that the subscriptions were never intended
to be an absolute gift to them and that a resulting trust arose in favour of those who
donated the money.

• In Re Andrews Trust (1905), money was subscribed “for or towards” the

education of the infant children of a deceased clergyman. On the completion of their
education, the children were entitled to all the money in equal shares. The court
ascribed the broadest possible meaning to “education” and held that the overriding

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goal of benefiting the children could still be reached.

• In Re Osoba (1979) where a gift was made to the testator’s widow “for the
training of my daughter Abiola up to university grade”. The daughter completed her
education and a surplus remained. It was held that daughter was entitled to the
entire fund. The reference to “education” was merely an explanation of the motive
for the gift. Megarry J. felt that where the beneficiary is alive the courts should be
reluctant to generate any other outcome.

Disaster funds
In Re Gillingham Bus Disaster Fund (1958), a fund was set up following a
disaster arising from a bus accident. The collection was for the injured survivors
who were all naval cadets. The government later declared that it would take over
responsibility for the welfare of the cadets so that the purpose of the trust failed. It
was held that the surplus money must result back to the subscribers. If the donors
could not be found, the money was to be paid bona vacantia to the crown.

KEY CASE

RE WEST SUSSEX CONSTABULARY’S TRUST (1971)

In Re West Sussex Constabulary’s Trust (1971), money was received from
donations, collecting boxes and proceeds from entertainment events and was
to be used to benefit the widows and dependants of deceased members of the
West Sussex Constabulary. The money was held by an unincorporated
association which was eventually wound up, leaving surplus funds. It was
held that:

• money from identifiable donations should go back on a resulting trust;

• money from collecting boxes was an outright gift by the donors and, as there
could be no resulting trust, inevitably must go to the Crown as bona vacantia;

• the proceeds of the entertainment events should also go bona vacantia.

Those who had purchased tickets had received what they had paid for and there
was no question of them claiming the money back.

Unincorporated associations
Unlike companies, unincorporated associations lack legal personality and cannot
hold property in their own name. Consequently, difficulties arise as to how such

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societies hold their property and what happens to it on dissolution of the
association. Three differing approaches have enjoyed prominence.

Resulting trust approach

A resulting trust was thought to arise in Re Printers and Transferrers
Amalgamated Trades Protection Society (1899), where the unexpended funds of a
society were redistributed on resulting trust principles. Division was in accordance
with the amounts contributed by the existing members. This principle was followed
in Re Hobourn Aero Components Limited’s Air Raid Disaster Fund (1946), where
it was held that any contributor to the disaster fund was entitled to an interest in the
surplus under a resulting trust in proportion to the amount contributed, but subject to
any adjustment made on the basis of a benefit derived from the fund. This approach
is no longer in favour.

Bona vacantia
The surplus may go to the Crown bona vacantia. In Cunnack v Edwards (1895),
financial contributions to a society, made in order to provide annuities for the
widows of its deceased members, were viewed as an out-and-out transfer (i.e. a
gift). On the dissolution of the society, there was no one to whom the surplus could
go to by way of resulting trust. The members had received everything to which they
were entitled and the surplus went to the Crown as bona vacantia. Bona vacantia is
the option pursued in the case of a moribund society, that is, where all of the
members have died. If one member survives then, as in Hanchett-Stamford v AG
(2009), then that person may become absolutely entitled under the contract-holding
theory.

Contract holding theory

The funds may be distributed between the members in accordance with the contract
holding theory. The prime example of this is Re Bucks Constabulary Fund (No.2)
(1979) where Walton J. held that the distribution of property on dissolution was to
be governed by the contract between the members. Walton J. saw no residuary role
for the resulting trust. Where the rules of the association are silent as to what should
happen on dissolution, there is a presumption of equal division amongst the existing
members. The modern tendency is to treat the rights of the members as being of a
contractual nature without imposing a resulting trust (Re Recher (1972)).

Over funded pensions

In Davis v Richards and Wallington Industries Ltd (1990), Scott J. considered the
winding up of a pension fund that contained contributions from three specific
sources: those of employers, those of employees and money transferred from other

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funds. As regards the employers’ overpayments, he observed that these would be
returnable under a resulting trust. By contrast, the employees’ contributions would
go as bona vacantia to the Crown. Scott J. acknowledged that the fact that a party
had received everything he had bargained for was not necessarily a decisive
argument against a resulting trust. He felt that there could be no resulting trust in
favour of the employees because he could devise no workable scheme to apportion
the surplus contributions amongst different classes of employee. In Air Jamaica v
Charlton (1999), however, Lord Millett did not approve of the approach in the
Davis case and concluded that, as it was impossible to say that the members had
received all that they had bargained for, a resulting trust of the surplus for
employers and employees came into being. They were entitled in proportion to
their respective contributions.

THE APPARENT GIFT CASES

Context
The second category in which the resulting trust traditionally makes an appearance
is that of apparent gifts. This contains those resulting trusts that arise where there
has been a contribution to the purchase price of property or a voluntary transfer of
property into the name of another. Although both transactions may look like gifts,
equity adopts a realistic interpretation of the parties’ motivations and assumes, in
the absence of contrary evidence, that they intended bargains not gifts. The
imposition of the resulting trust is based on the rebuttable presumption that the
transferor did not intend to benefit the transferee. This is sometimes referred to as
the presumed intention resulting trust.

Purchase in the Name of Another

The basic idea is that, if X buys property in the name of Y, there is a presumption
that Y holds the property on resulting trust for X (Dyer v Dyer (1788)). There will
also be a resulting trust where two people together provide the purchase price, but
the property is held in the name of one of them only. For example, where the family
home is conveyed only in the husband’s name, but the wife had contributed to the
purchase price, the husband will hold the property on trust for himself and his wife.
In Sekhon v Alissa (1989), a mother and daughter purchased a house together, but
title was transferred only in the daughter’s name. The mother was entitled to a
beneficial interest by reason of a resulting trust in proportion to the amount of her
contribution.

Legal title in joint names

In domestic cases where legal title is in joint names, the resulting trust approach

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has been jettisoned. As Lord Walker and Lady Hale concluded in Jones v Kernott
(2011),

“in the case of the purchase of a house or flat in joint names for joint
occupation by a married or unmarried couple, where both are responsible for any
mortgage, there is no presumption of a resulting trust arising from their having
contributed to the deposit (or indeed, the rest of the purchase) in unequal shares.”

Instead, as Baroness Hale put it in Stack v Dowden (2007), “the starting point
where there is joint legal ownership is joint beneficial ownership”. The onus now
lies heavily with a party who wishes to show that the beneficial interests are
divided otherwise than equally. This can be done by demonstrating a shared
common intention of the parties to the effect that there should be ownership in
different proportions. The latter could occur where, for example, one party
financed an extension or major improvements to the property. The fact that the
parties had contributed unequally to the acquisition of their home would not
normally be sufficient to achieve rebuttal. The court must, therefore, ascertain the
parties’ common intention in light of their whole course of conduct in relation to the
property. Accordingly, the court may consider a wide range of issues. These could
include, for example, financial and indirect contributions, advice received,
discussions between the parties, reasons why the property was bought in joint
names, the purposes for which the home was acquired, whether it was a home for
the parties’ children, how the parties arranged their finances and the nature of the
parties’ relationship. The court may also take into account how the circumstances
have changed since the purchase. Indeed, Mrs Dowden was able to rebut the
presumption by identifying a number of features that indicated a common intention
that the beneficial interests were to be unequal. She had contributed far more to the
acquisition of the property and the repayment of the mortgage than had her partner.
Although they had lived together for 18 years, this was not a case where the parties
pooled their resources for the common good.

Non-domestic settings
Two subsequent cases illustrate the circumstances in which the presumption of
equal ownership arising from joint names should not apply:

• in Adekunle v Ritchie (2007) a mother and son bought a council house together
under the right to buy legislation. The mother was a sitting tenant and had the
benefit of a generous discount. She could not, however, fund the mortgage alone.
The facts were, therefore, very different from that of the normal cohabiting couple.
The primary purpose of the purchase was to provide a home for the mother and the
parties’ finances were kept separate. The judge awarded the son a one-third

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beneficial interest in the property;

• in Laskar v Laskar (2008), property was purchased by a mother and daughter as

an investment. The presumption of equality did not apply as the property was
bought for development or letting purposes and the resulting trust mechanism
operated.

Limitations
The financial contribution for the purposes of the resulting trust must relate to the
acquisition of the property. Except as to mortgage instalments, subsequent payments
will not suffice. The payment must, moreover, be a direct contribution such as when
one party pays either the deposit, part of the balance of the purchase price or the
mortgage instalments. A “right to buy” discount under the Housing Act 1985 is also
a direct contribution (Springette v Defoe (1992)). Not all types of contribution
will, however, count. For example, the following payments are insufficient:

• household expenses and running costs (Burns v Burns (1984));

• conveyancing costs and stamp duty (Curley v Parkes (2004));

• periodic payment of rent (Savage v Dunningham (1974); and

• improvements to the property, except as between spouses and same-sex

registered partnerships and engaged couples.

Quantum
The issue of quantum is, once the facts are established, a straightforward matter. In
Arogundade v Arogundade (2005) a flat was purchased for £207,000. The claimant
contributed £62,000 to the purchase price and, under resulting trust, obtained a 30
per cent share in the property. Put simply, you get back proportionately what you
put in. The exact valuation of the share will normally be calculated as at the date of
the eventual sale.

REBUTTING THE PRESUMPTION

The presumption of resulting trust is occasionally displaced by evidence of

intention or a counter-presumption of equity (e.g. the Stack v Dowden (2007)
presumption of equal ownership when the property is vested in joint names and the
presumption of advancement as considered below). Where there is evidence that

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the purchase money was provided by way of loan, for example, there can be no
room for the presumption of resulting trust. Similarly, the presumption of a resulting
trust will be displaced by evidence that the transferor or contributor intended to
confer a gift. In Walker v Walker (1984), the public declaration by a father that he
intended to give his newly wedded son the money to set up a home was sufficient to
show an intention to benefit the son by way of gift.

Voluntary Transfer to Another

Personalty
On the voluntary transfer of personalty there will be a resulting trust unless there is
either an express intention to make a gift or the presumption of advancement applies
(see below). In Re Vinogradoff (1935), a grandmother made a lifetime transfer of
£800 of War Loan shares to her young granddaughter. The transferor, however,
continued to receive the dividends until her death. Subsequently, it was held that the
granddaughter held the shares on resulting trust for the grandmother’s estate. This
case has been heavily criticised.

Land
As regards the voluntary transfer of land, s.60(3) of the Law of Property Act 1925
provides that no resulting trust is presumed from the mere fact that the owner of a
legal estate makes a gratuitous transfer of his estate into the hands of another. This
is a word saving mechanism to ensure that it is not necessary to employ a particular
formulation of words in order to render a voluntary conveyance to X effective.
There is, however, nothing to prevent the resulting trust where there is other
evidence indicative of the transferor’s intention. In Hodgson v Marks (1971), Mrs
Hodgson was persuaded to transfer her house to her lodger, Mr Evans, on the
understanding that she would continue to be the beneficial owner. When he
subsequently sold it to a purchaser, she was declared to have a beneficial interest
under a resulting trust and, on the facts, this was binding on the purchaser.

Advancement
DEFINITION CHECKPOINT
The counter-presumption of advancement arises in the context of specific
relationships wherein equity recognises that there is a natural obligation owed
by the transferor to promote the welfare of the transferee. If, and when,
enacted s.199 of the Equality Act 2010 will abolish advancement. The
presumption is universally recognised as being outmoded, discriminatory and
unfair. In addition, it is, as it currently operates, incompatible with Article 5 of

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 the Seventh Protocol to the European Convention on Human Rights.

Which relationships?
Advancement might arise in the case of a voluntary conveyance from the transferor
to:

• a wife (Silver v Silver (1958)). This presumption is, however, easily rebutted in
modern times. It is also gender biased because if the wife contributes all the money
and the property is conveyed into the name of the husband, there is no presumption
of a gift;

• a child (Dyer v Dyer (1788)). The older cases indicate that there is no
presumption of gift where a mother pays the purchase money and the property is in
the name of the child (Bennet v Bennet (1879)). This is because, in equity, there is
no obligation on a mother to support her child, or

• someone with whom he/she stands in loco parentis (e.g. for example a stepchild,
nephew, niece or a grandchild) (Re Paradise Motor Co Ltd (1968)). Although
mothers are not caught by the previous head of advancement, it is thought that a
widowed mother providing for her children would, at the least, fall within this
category.

Rebutting the presumption of advancement

The presumption of advancement may be rebutted by evidence of a contrary
intention. For example, in the case of land an express declaration of trust will, in
the absence of fraud, be conclusive. There will be no room for the presumption of
either advancement or a resulting trust (Goodman v Gallant (1986)). In Warrent v
Gurney (1944), the presumption of advancement was rebutted in circumstances
where a father bought a house which was conveyed into the name of his daughter.
The father retained the deeds. On his death, the daughter claimed unsuccessfully to
be the beneficial owner of the house. The retention of the deeds, coupled with other
evidence at the time of the purchase, rebutted the intention to make a gift.

Illegal purpose
Evidence of an illegal purpose cannot, however, be relied upon (Tinsley v Milligan
(1993)). The maxim “he who comes to equity must have clean hands” applies here.
The House of Lords emphasised that a person cannot rely on his own fraud or
illegality to rebut the presumption of advancement. The majority of the House did,
however, accept that a resulting trust could arise when it is not necessary to rely on
illegality as the basis of the claim. In Tribe v Tribe (1995), the issue was whether

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the transferor could rebut the presumption of advancement by adducing evidence of
an illegal purpose that had not subsequently been carried into effect. It was held
that when the planned illegal activity is never carried out, the transferor is not
prevented from relying on evidence of his proposed activities to rebut the
presumption of advancement. In Lowson v Coombs (1998), an illegal purpose
existed, but it was not necessary to rely on that evidence in order to succeed.
Hence, the illegal purpose was ignored. To be inadmissible, the illegality must, be
invoked as evidence to justify the rebuttal of the presumption of advancement. For
example, if a husband puts property into the name of a wife or a child in order to
evade tax, he cannot then rely on this unlawful purpose in order to rebut the
presumption of a gift (Re Emery’s Investment Trust (1959)). As the Law
Commission noted in its 2010 Report (entitled ‘The Illegality Defence’), “This
meant that in most cases the courts would effectively ignore illegal behaviour ....”
Hence, the Commission has recommended that legislation be enacted which would
give the court a general discretion whether or not to disregard the Illegality. This
would operate whether or not the illegal purpose has been acted upon.

REVISION CHECKLIST
You should now know and understand:

• the default nature of the resulting trust;

• the various scenarios in which it may arise;
• how the beneficial interest under a resulting trust is calculated;
• the circumstances in which the presumption of a resulting trust may be
rebutted.

QUESTION AND ANSWER

The Question
In 2007, Jenny and Clare bought a house together in Keele Village. The
property was registered in the sole name of Jenny. Clare discharged the legal
fees and paid both the stamp duty and the removal expenses. In the past years,
Clare has paid the utility bills, decorated the house and occasionally funded
the mortgage repayments. Jenny and Clare never discussed the ownership of
the house. Jenny and Clare have now ceased to be friends and Clare wishes to
know what interest she has in the house.

Advise Clare. Would your advice differ if the property had been registered in

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 their joint names?

Advice and the Answer

This problem is about co-ownership and the means by which a non-legal
owner can acquire an interest in another’s property. This question is about
resulting trusts and not constructive trusts. For the latter, there needs to be an
express bargain (none here) or an implied bargain arising from the common
intention of the parties (there is no common intention discernible here).
This type of case emphasises the inadequacy of resulting trust principles as
regards those who share a home. A resulting trust is activated by financial
contributions to the purchase price of the house. In addition, once activated
Clare will only get back in proportion to her contribution (Arogundade v
Arogundade (2005)). Looking at Clare’s financial input, the problem is that
the payment of conveyancing fees, stamp duty and removal costs do not count
(Curley v Parkes (2004)). They are not directly connected to the acquisition
payment for the house. Similarly paying the utility bills and undertaking
decorating work concerns the running of the home and not the acquisition of
the house (Burns v Burns (1984)). In any event such payments come too late to
activate a purchase price resulting trust. Mortgage payments can, however,
give rise to a resulting trust but only if Clare is under a legal obligation to the
lender to make the payments (Curley v Parkes (2004)). Occasional and
voluntary payments do not count for these purposes. Accordingly, Clare will
not be able to claim an interest by virtue of a resulting trust.
If the property had been conveyed into joint names then different
considerations apply. Following Stack v Dowden (2007), the presumption is
that Clare will share the house (their joint home) equally with Jenny (i.e.
“Equity follows the Law”). It is then for Jenny to show that their common
intention was not that they should share the property equally or, if it had been,
that their common intention had changed (Jones v Kernott (2011)). As in
Stack, it would appear that Jenny could do this easily. The parties seemingly
did not pool their resources for their common good and Jenny’s contribution to
the purchase price far outweighs the value of the payments made by Clare
(Laskar v Laskar (2008)).

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 9
Constructive Trusts

INTRODUCTION
Like the resulting trust, the constructive trust is a form of implied trust that arises by
operation of law and not by the deliberate act of the parties. No formalities are
required for its creation. It is a trust implied in a variety of circumstances where the
defendant has knowledge of some factor that affects his conscience in respect of
specific property. As Edmund Davies L.J. in Carl Zeiss Stiftung v Herbert Smith
& Co (No.2) (1967) explained,

a constructive trust is a trust which is imposed by equity in order to satisfy

the demands of justice and good conscience without reference to any express or
presumed intention of the parties”.

GENERAL PRINCIPLES

In Westdeutsche Landesbank Girozentrale v Islington LBC (1996), Lord

Browne-Wilkinson laid down the following general principles:

• equity operates on the conscience of the owner of the legal interest;

• the legal owner cannot be a trustee until he is aware of the factors which
are alleged to affect his conscience;

• there must be identifiable trust property. The only apparent exception to this
rule is a constructive trust imposed on a person who dishonestly assists in a breach
of trust who may come under fiduciary duties even if he does not receive
identifiable trust property;

• from the date of the establishment of a constructive trust, the beneficiary

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has, in equity, a proprietary interest in the trust property. This is, enforceable in
equity against any subsequent holder of the property (whether the original property
or substituted property into which it can be traced) other than a purchaser for value
of the legal interest without notice.

CATEGORIES

Unfortunately, there is little agreement as to how best to categorise the many

examples of constructive trusts to be found in the case law. The following,
however, provide useful illustrations:

• unauthorised fiduciary gains;

• liability imposed on strangers to the trust who knowingly receive trust property
or dishonestly assist in cases of breach of trust;

• equitable response to wrongdoing or unconscionability; and

• enforcing the agreement between the parties.

Unauthorised Fiduciary Gains

A fiduciary is liable to his principal in respect of unauthorised gains obtained by
reason of his fiduciary office. Fiduciaries include not only trustees, but also others
who owe similar duties of loyalty and good faith to their principal, such as
solicitors, company directors, partners and agents. Unauthorised gains may take a
variety of forms, such as a secret profit (William v Barton (1927)), a bribe or
secret commission (AG for Hong Kong v Reid (1994)) or the use of confidential
information to make an unauthorised profit (Boardman v Phipps (1967)). Any
profits made by exploiting trust property or the office of trustee are held by the
trustee on constructive trust for the beneficiaries of the pre-existing trust. Until
recently it was thought that a constructive trust would arise which entitled the
principal to make a proprietary claim against any property acquired from those ill-
gotten sums (AG for Hong Kong v Reid (1994)). The Court of Appeal in Sinclair
Investments (UK) Ltd v Versailles Trade Finance Limited (2011), however,
concluded that this approach was unsound. Lord Neuberger M.R. explained that,

a bribe paid to a fiduciary could not possibly be said to be an asset which

the fiduciary was under a duty to take for the beneficiary.”

It was merely a fiduciary enriching himself by doing a wrong to the claimant rather

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than the fiduciary depriving the claimant of an asset. A proprietary claim can extend
only to a trust asset or money derived from such an asset and, as regards property
not so classified, the entitlement is only to a personal equitable account.
Accordingly, there was nothing to justify a proprietary entitlement (see also
Cadogan Petroleum Plc v Tolley (2011)).

Strangers to the Trust

This concerns a constructive trust that is imposed on a person who intermeddles or

interferes with the trust so that he assumes the responsibilities of a trustee and faces
consequent liability on that basis. This is grandly known as trusteeship de son tort
(see Barnes v Addy (1874)) or, in modern parlance, a de facto trustee (see Lord
Millett in Dubai Aluminium Co v Salaam (2002)). The responsibilities of the
trustee de son tort are the same as those of the express trustee. Similar liability
extends to those who participate in the fraudulent conduct of the trustee. The
personal liability of strangers to the trust now advances on two fronts:

Third parties who dishonestly assist in a breach of trust

A stranger to a trust can be liable in equity for assisting in a breach of trust, even
though he has never received trust property. Where the third party dishonestly
assists in the misapplication of trust property, he may be held personally liable in
equity to restore the trust fund or to compensate the beneficiary for the loss
occasioned to the trust fund. Dishonesty on the part of the third party acts as the
trigger for his personal liability (Royal Brunei Airlines v Tan (1995)). Much
attention, therefore, has been focused upon what amounts to ‘dishonesty’ for these
purposes. In Twinsectra Ltd v Yardley (2002), the House of Lords favoured a blend
of the subjective and objective and concluded that the third party must be judged by
the standards of honest and reasonable people and must be aware that by those
standards he was acting dishonestly. The more modern stance, however,
emphasises the objective element. In Starglade v Nash (2010), the Court of Appeal
held that the deliberate removal (by its director) of the assets of an insolvent
company was not honest in accordance with honest standards of commercial
behaviour. Sir Andrew Morritt added, “the subjective understanding of the person
concerned as to whether his conduct is dishonest is irrelevant.”
Although traditionally treated as invoking a constructive trust, in this type of
fault-based case title to the property is never vested in the stranger. It is, therefore,
technically incorrect to say that he is liable as a constructive trustee. Accessory
liability is discussed further in Ch.17.

Third parties who knowingly receive trust property in breach of

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trust
Liability to account on the basis of knowing receipt of trust property applies to
strangers to the trust who receive trust property or its proceeds in the knowledge
that the property has been misapplied or transferred in breach of trust. It is a pre-
condition of liability that there has been a breach of trust. The requirements for
liability for knowing receipt were listed by Hoffmann L.J. in El Ajou v Dollar
Land Holdings (1994):

• a disposal of assets in breach of trust or fiduciary duty;

• the receipt by the defendant of assets which are traceable as representing the
assets of the claimant, and

• knowledge on the part of the defendant that the assets he received are traceable
to a breach of fiduciary duty. This includes actual knowledge, constructive
knowledge and imputed knowledge. Note that, unlike liability for dishonest
assistance, dishonesty is not a pre-requisite.

Unconscionability
A further context in which constructive trusts arise concerns general
unconscionable behaviour, i.e. the prevention of “fraud”. The courts have proved
willing to apply constructive trust principles to a range of cases where the
defendant acquires property belonging to another by unconscionable means. This
will now be illustrated.

Acquisition of property by killing

Understandably, the general principle is that a person should not benefit from the
commission of a criminal act. A specific manifestation of this general principle is
to be found in the forfeiture rule, i.e. a rule of public policy that precludes a person
who has unlawfully killed another from acquiring a benefit as a consequence of the
killing: In the Estate of Crippen (1911). Any property acquired by killing is to be
held on constructive trust for the victim’s estate. Some limited statutory relief is
provided by the Forfeiture Act 1982. The Act applies to cases of unlawful killing
other than murder and permits the court to grant relief (in whole or in part) from
forfeiture where the justice of the case requires. In Dunbar v Plant (1998), the
survivor of a suicide pact was allowed to claim her inheritance on the basis that, in
the light of all the circumstances, justice demanded the relaxation of the forfeiture
rule.

Absence of statutory formalities

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Equity will not permit a statute to be used as an instrument of fraud. In Bannister v
Bannister (1948), a widow conveyed legal title to two cottages to her brother-in-
law for less than the market price. She was promised orally that she could reside in
one of the cottages rent free for the remainder of her life. No mention of the promise
was contained in the conveyance. It was not open to argue the absence of written
evidence of the bargain between the parties. By way of further illustration, the
constructive trust has been invoked in relation to land contracts where the
formalities of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989
are not complied with: see Yeoman’s Row Management v Cobbe (2008).

Property acquired expressly subject to personal rights

Provided that his conscience is affected, a constructive trust can arise to bind the
purchaser of property who agrees to take subject to a pre-existing interest: Ashburn
Anstalt v Arnold (1989). In Binions v Evans (1972), Mr Evans was permitted to
live rent free in a cottage owned by his employer. On his death, he left a wife aged
73. Three years later the employer entered into an agreement with Mrs Evans that
she could continue to live in the cottage for the remainder of her life as a tenant at
will, rent free. In return, she agreed to keep the cottage in good repair.
Subsequently, the cottage was sold to Mr and Mrs Binions expressly subject to the
interest held by Mrs Evans. As a consequence, a reduced price was paid for the
cottage. The Binions sought to evict Mrs Evans but this attempt failed. The Binions
took the property subject to a constructive trust in favour of Mrs Evans. The
payment of the lower price was significant.

Property acquired by joint venture

Equity will impose a constructive trust on property acquired by X in furtherance of
an understanding with Y that, if Y refrains from entering the market, Y will be
granted an interest in the property. In Pallant v Morgan (1952), a neighbour
allowed a fellow neighbour to bid for a parcel of adjoining land uncontested on the
understanding that, should the land be successfully acquired, he would transfer part
of that land to the neighbour. When the purchase was made and the neighbour sought
to renege on the agreement, the court concluded that he had acquired the property
for the benefit of both parties jointly and, hence, held it on trust on those terms. In
Banner Homes Group Plc v Luff Developments Ltd (No.1) (2000), the Court of
Appeal outlined the necessary ingredients of liability:

• there must be a pre-acquisition understanding that the acquiring party will take
steps to acquire the relevant property and that the non-acquiring party will obtain
an interest in that property;

• there must be an advantage to the acquiring party gained, or a detriment to the

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non-acquiring party suffered, as a consequence of the understanding;

• it must be unconscionable to allow the acquiring party to retain the property for
himself, in a manner inconsistent with the parties’ agreement or understanding.

Enforcement of Agreements
The following illustrations mark out the role of the constructive trust in preventing a
defendant from unconscionably resiling from an agreement entered into with the
claimant. The selection of examples considered includes specifically enforceable
contracts and mutual wills. Secret trusts provide another example, but these are
discussed in Ch.6. Constructive trusts of the family home are to be considered
separately.

Specifically enforceable contracts for sale

Under a specifically enforceable contract for sale for the sale of land, the vendor
becomes a constructive trustee of the property for the purchaser. This type of
constructive trust is based upon the maxim “equity looks on that as done that ought
to be done”. For example, once a contract for the sale of land has been made, the
beneficial ownership of the property passes to the purchaser and the vendor is
deemed to hold the legal estate on a constructive trust for him (Lysaght v Edwards
(1876)). Consequently, and subject to variation by agreement, it is for the purchaser
to insure against damage to the property by fire or flood in the intervening time
between contract and completion. If the vendor proceeds to sell to a third party, he
is deemed to hold the purchase money on trust for the original purchaser. The trust
is discharged once specific performance ceases to be available (Central Trust &
Safe Deposit Co v Snider (1916)).

Mutual wills
Mutual wills arise where two or more parties enter into a binding agreement that
they will execute wills in a mutual form on the understanding that the wills will be
irrevocable. Typically, a husband and wife may enter into an agreement that each
will execute a will whereby the survivor will inherit the property of the deceased
spouse. On the death of the survivor, their pooled property will pass to nominated
beneficiaries, usually, the children of the marriage. On the date of death of the first
testator, a constructive trust comes into effect and it is no longer open to the
surviving party to leave that property to an alternative beneficiary (e.g. to a new
wife) (Re Haggar (1930)). By this means, equity intervenes in order to prevent the
fraud that would arise if the survivor were able to take the benefit of the agreement
without performing his obligations (Goodchild v Goodchild (1996)).

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MUTUAL WILLS: A SUMMARY OF THE RULES

In Charles v Fraser (2010), the features of mutual wills were helpfully identified
by Jonathan Gaunt Q.C. as follows:

• mutual wills are wills made by two or more persons, usually in substantially the
same terms and conferring reciprocal benefits, following an agreement between
them not revoke them without the consent of the other;

• there has to be what amounts to a contract between the two testators that both
wills will be irrevocable and remain unaltered. A common intention, or desire is
insufficient;

• the mere execution of mirror wills does not imply any agreement either as to
revocation or non-revocation;

• it is not necessary that the second testator should have obtained a personal
financial benefit under the will of the first testator;

• it is possible for there to be an agreement preventing revocability as to part of

the residuary estate only, in which case the doctrine only applies to that part;

• the agreement (which may be oral or in writing) might be incorporated in the

will or proved by extrinsic evidence;

• the agreement must be established on the balance of probabilities;

• the agreement is enforced in equity by the imposition of a constructive trust on

the property which is the subject matter of the agreement;

• the rule relates only to the dispositive part of the will. The new will is fully
effective to deal with non-dispositive matters, say as to the appointment of
executors.

AND THE FAMILY HOME?

Context
Unlike with divorce or the dissolution of a registered same sex partnership, on the
breakdown of a relationship between cohabitants there is no overarching principle
under which the parties’ assets can be redistributed. Absent a formal declaration of
trust, three legal mechanisms assume relevance, namely, the Stack v Dowden
(2007) rebuttable presumption of equality when the property is vested in joint

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names, the purchase money resulting trust (see Chapter 8) and the constructive trust.
The Stack presumption does not operate if the legal title is not in joint names or
when the purchase was made in a non-domestic setting (Laskar v Laskar (2008)).
In other circumstances, and due to the inflexibility of the resulting trust, the courts
have, when possible, elected to rely upon constructive trust principles. This is
attractive in that it offers scope to redistribute family assets according to judicial
perceptions of what represents a fair outcome. In this context, there are two blends
of constructive trust: the express bargain constructive trust and the implied bargain
constructive trust: per Lord Bridge in Lloyds Bank v Rosset (1990). Both operate
to prevent a party from denying a common understanding as to beneficial
entitlement when it would be unconscionable for this to occur.

Figure 10

Express Bargain Constructive Trust

A constructive trust arises here in order to prevent one party resiling from an
understanding as to beneficial entitlement in circumstances where it would be
unconscionable to do so. This will occur only when there has been some discussion
as to property rights between the parties and, consequently, some arrangement,
agreement or understanding reached between them as to ownership. If no discussion
occurs, as demonstrated in Burns v Burns (1984), there is no scope for a
constructive trust under this head. The discussion will usually, but need not
necessarily, occur prior to the acquisition of legal title.

KEY CASE

GRANT V EDWARDS (1986)

In Grant v Edwards (1986), George informed his partner, Linda, that the only
reason the property was conveyed into his sole name was that her on-going
divorce might be prejudiced if she was to be a joint legal owner. It was not the
genuine desire of George that Linda become a beneficial owner. Nevertheless,
she was led to believe that the property was to be theirs jointly. Hence, a

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 constructive trust was imposed to ensure that she received the half-share in the
house that George had led her to believe she would have.

Change of position
Once the court has found an express agreement, arrangement or understanding
relating to the equitable ownership of the property, it is necessary to identify
conduct by the claimant acting upon that intention. This is usually called detrimental
reliance or change of position. The conduct relied upon can adopt a variety of
guises and does not necessarily involve financial expenditure. In Grant v Edwards
(1986) the claimant contributed to household expenses so that the defendant could
meet the mortgage repayments. In Eves v Eves (1975), the claimant did not make
any financial contribution, but did carry out substantial physical labour relating to
internal and external decorating, gardening and general maintenance. She also
performed the role of mother and housewife. The detriment must, however, be
material and not merely emotional or psychological in nature. The court looks for a
net disadvantage to the claimant.

Shares agreed
If the express bargain prescribes the shares that the parties are to take, the
quantification of the beneficial interest is straightforward. In Clough v Killey
(1996), there was an express bargain that the beneficial interest be shared on a
50:50 basis. Mrs Killey argued that a constructive trust arose which, due to the
express agreement, gave her a 50 per cent interest. Subsequent to this arrangement,
Mrs Killey had undeniably acted to her detriment by making the proceeds of her
divorce settlement available to Mr Clough and undertaking work on the cottage. As
to the extent of her share, Peter Gibson L.J. admitted,

“it is only common sense that where the parties form a common intention as
to specific shares they are to take, those shares prima facie are the shares to which
the court will give effect”.

In Gallarotti v Sebastianelli (2012), however, the shares awarded did not

correspond with the pre-acquisition agreement between the parties. This was
because the events anticipated by the parties when they entered into the agreement
never materialised. As Arden L.J. concluded, “the agreement did not apply in the
events which unfolded. It only covered the case where there was a slight imbalance
in contributions ... It did not, in my judgment, mean that they gave up any chance of
substantial equality at the end of the day”.

Shares unagreed

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Matters are more complicated when the express bargain does not prescribe the
shares of each. In Drake v Whipp (1996), the court felt it necessary to look at all
the circumstances, including contributions to the running of the home and family, to
determine what constituted a fair share. This fair share approach has been adopted
also in Oxley v Hiscock (2004) and Stack v Dowden (2006). This means that the
court can look at direct financial contributions as well as indirect contributions
such as payment of household expenses, contributions by way of labour and other
actions of the claimant.

Implied Bargain Constructive Trust

A constructive trust arises here when there is no evidence of an express discussion
having occurred between the parties. In this situation, the court looks in detail at the
conduct of the parties with the prospect of presuming a common intention to share
beneficial ownership.

Two key ingredients

First, the claimant must convince the court that there was a common intention to
share the property beneficially. In the absence of a common intention, no common
intention constructive trust will arise (Lightfoot v Lightfoot-Brown (2005)).
Following Oxley v Hiscock (2004), the task of finding a common intention has been
simplified. Chadwick L.J. emphasised that direct contributions to the purchase
price will be conduct from which such common intention can readily be inferred.
Secondly, the claimant must demonstrate that he changed his position on the basis
of the unexpressed common intention. The change of position is localised only to
direct financial contributions made to the initial and/or ongoing purchase of the
property (Gissing v Gissing (1971)). If direct contributions are found the courts
will readily imply a constructive trust, whereas, if no such contributions are made,
there can be no implied bargain constructive trust. The insistence upon a direct
financial contribution was criticised as being too restrictive, arbitrary and a source
of injustice by the majority of the House of Lords in Stack v Dowden (2007). Lord
Walker commented that, “Whether or not Lord Bridge’s observation was justified in
1990, in my opinion the law has moved on ...”. Baroness Hale felt that many more
factors than financial contributions might be relevant to divining the parties’ true
intentions. In Fowler v Barron (2008), Arden L.J. emphasised that a holistic
approach now had to be taken towards divining the intentions of the parties. She
felt that post-Stack the contributions were no longer limited to financial
contributions.

Quantum
Although the making of direct financial contributions is necessary to buy entry into

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the co-ownership arena, it is important to appreciate that, once the constructive
trust is invoked, the court can look beyond the direct contributions. In doing so it is
able to divine a beneficial share which, on the facts of each case, accords with
justice and good conscience. In Midland Bank Plc v Cooke (1995), the court
undertook a survey of the whole course of dealing between the parties relevant to
their ownership and occupation of the property and their sharing of its burdens and
advantages. The contemporary tendency is, therefore, for the court to adopt a broad
brush approach to the calculation of shares under the implied bargain (Oxley v
Hiscock (2004)).

The Law Commission’s Recommendations

In 2007, the Law Commission finally published its Report entitled ‘Cohabitation:
The Financial Consequences of Relationship Breakdown’. This promoted an
optional scheme to redistribute family assets which was to apply to eligible
cohabitants, usually with children. In outline, to be eligible under this proposed
scheme certain conditions will need to be satisfied:

• the parties must have lived as a couple in a joint household;

• they must not be married or in a civil partnership;

• they must have children of their own or (if not) have lived together for a
continuous period of two years;

• the parties must not have contracted out of the scheme;

• the claim must be brought within two years of the parties’ separation.

Once the above conditions are satisfied, the court would have the discretion to
make an award which will be exercised with regard to listed criteria (e.g. welfare
of the children, conduct of the parties and their respective needs and obligations). It
remains to be seen whether these recommendations will ever be implemented.

REVISION CHECKLIST
You should now know and understand:

• the general principles underpinning a constructive trust;

• the situations in which constructive trusts commonly arise;
• the operation of the constructive trust in the context of the family
home;

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 • the distinctions between the express bargain and implied bargain types
of constructive trust.

QUESTION AND ANSWER

The Question
Tyson is the sole registered proprietor of a farmhouse situated in Yorkshire
which he bought in 2005 with money from his savings. In 2007 he met and fell
in love with Bruno and asked him to come and live with him. Tyson assured
Bruno that “the farmhouse is as much yours as mine”. Bruno agreed and gave
up his job as a chef which provided a rent-free flat. The couple have now
separated and Bruno is asserting a beneficial interest in the farmhouse.

Janice is the legal owner of a country cottage. Janice contributed 95 per cent
of the initial purchase price with Deborah contributing the remaining 5 per
cent. The couple never discussed the beneficial ownership of the cottage. In
2006, they adopted a child and Deborah gave up work to look after it. From
that time, she undertook all the household duties and spent much of her free
time building an extension to the cottage. Janice has now fallen in love with
Abigail and seeks to sell the cottage. She has offered Deborah a settlement
representing 5 per cent of the market value of the cottage.

Advise Bruno and Deborah.

Advice and the Answer

This problem question focuses primarily on the constructive trust as it
operates in the family home.
As regards Bruno, there can be no resulting trust because there was no
financial contribution to the purchase price of the property. The property was
purchased long before Tyson met Bruno. Nevertheless, there was some
express discussion of property rights and some agreement, arrangement or
understanding ensued. As a result, Bruno changed his position by resigning
from his post and giving up his rent free accommodation. This brings Bruno’s
claim squarely within Rule 1 of Lloyds Bank v Rosset (1990). Hence, Bruno
can establish the existence of a constructive trust. As to the calculation of his
interest, in the normal course of events Bruno will be entitled to what was
agreed (Clough v Killey (1996)). All turns upon the expression, “the
farmhouse is as much yours as mine”. This falls to be interpreted as giving
Bruno a 50 per cent share in the property. By way of an alternative, it is
possible that Bruno could succeed in a claim to proprietary estoppel: there is

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a certain representation, a change of position and it would be unconscionable
to allow Tyson to renege on this informal agreement.
In relation to Deborah, she has made a financial contribution to the purchase
price and, as shown in Ch.8, she can claim a beneficial interest under a
resulting trust. This will, however, only give her a 5 per cent interest. In the
light of their relationship, she will undoubtedly want a greater share. Hence,
Deborah will have to show the existence of a constructive trust. As there was
no discussion of property rights, she cannot rely on Rule 1 of Lloyds Bank v
Rosset (1990). Instead, she will have to invoke Rule 2 and claim an implied
bargain constructive trust. In order to do this, she must demonstrate that there
was a common intention that she would have some interest in the property.
This is easy to do as she has contributed directly to the purchase price. This
direct contribution engages the implied trust, but does not limit her entitlement
under it. The modern view, as promoted in Oxley v Hiscock (2004) and
Midland Bank v Cooke (1995), is that the court can look to all other factors
(such as giving up work, child rearing and labouring) in order to divine a
beneficial share that is fair and just on the facts. Although it is for the court to
make this calculation, it is clear that Deborah will be entitled to far more than
a 5 per cent share.

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 10
Non-charitable Purpose Trusts

INTRODUCTION
This Chapter focuses upon the validity of trusts designed to further non-charitable
purposes (sometimes called “Trusts of Imperfect Obligation”). The general rule is
that non-charitable purpose trusts are void (Re Astor’s Settlement Trusts (1952)).
By their very nature their object is a purpose and they lack a beneficiary to enforce
the trust. This chapter will examine:

• the beneficiary principle;

• the permitted historical exceptions to the beneficiary principle;

• the dividing line between trusts for persons and trusts for purposes; and

• property holding by unincorporated associations.

THE BENEFICIARY PRINCIPLE

For a trust to be valid it must have a human beneficiary by whom the trust can be
enforced (Morice v Bishop of Durham (1804)). As mentioned, the general rule is
that private purpose trusts are void (Re Endacott (1960)). This has become known
as the “beneficiary principle”. As Viscount Simonds emphasised in Leahy v AG of
New South Wales (1959), “A gift can be made to persons (including a corporation)
but it cannot be made to a purpose or an object”. Hence the courts have struck
down a variety of non-charitable purpose trusts such as:

• “the preservation of the independence of newspapers” (Re Astor’s Settlement

Trusts (1952));

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 • “the provision of some useful monument to myself” (Re Endacott (1960)), and

• a trust to promote a new 40-letter alphabet (Re Shaw (1957)).

Charitable Trusts
The beneficiary principle is limited to private trusts. Where the purpose of the trust
is charitable the absence of a human beneficiary is not fatal. A charitable trust can,
where necessary, be enforced by the Attorney General and the Charity Commission
(see Ch.11).

PERPETUITY

The operation of the rule against perpetuities has relevance in relation to pure
purpose trusts and gifts for unincorporated associations. There are two major
aspects to the rule against perpetuities.
The rule against remoteness of future vesting, which deals with the
maximum length of time for which the vesting of future interests in the
beneficiaries can be postponed. This is concerned with commencement of
interests. As regards unincorporated associations, care as to be taken if the
funds are to benefit future (as well as present) members. In such an instance,
the gift must be structured so as to end within the perpetuity period. To
complicate matters further here are three sets of rules that may operate:

• the common law rules, that apply to transactions created before July 15,
1964;

• the provisions of the Perpetuities and Accumulations Act 1964, which

concern dealings made after July 14, 1964 and before April 6, 2010; and

• the provisions of the Perpetuities and Accumulations Act 2009 which

concern transactions created after April 5, 2010.

The rule against inalienability. This rule seeks to ensure that property is
not tied up in a trust for longer than an acceptable perpetuity period or, indeed,
for an indefinite period. This second aspect plays an important role in the
context of trusts for non-charitable purposes. For example, where a testator
seeks to cater for the maintenance of a monument or tomb, it is important that a
valid perpetuity period is selected. The Perpetuities and Accumulations
Acts have no role to play here. The common law period of a specified life or
lives in being plus 21 years is the yardstick to be employed. It is possible to
select any number of lives provided that they are identifiable. Where no life or

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 lives are selected, the perpetuity period is 21 years from the date when the
instrument creating the gift takes effect.

Anomalous Exceptions
There are some odd cases where a trust has been upheld even though it clearly
advances a private purpose. If a pure purpose trust is upheld, it is essential that the
trustee must give an undertaking to perform the trust. If the funds are misapplied by
the trustee, those entitled to the residuary estate can complain to the court. These
exceptional cases were decided before Re Astor’s Settlement Trust (1952) and,
based upon a dubious foundation, are unlikely to be followed in modern times.
Indeed, in Re Endacott (1960), these exceptions were described as “troublesome,
anomalous and aberrant.”

Figure 11

Care of specific animals

In Pettingall v Pettingall (1842), a trust of £50 to look after the testator’s favourite
mare for 50 years was upheld. In Re Dean (1889), a gift of £750 per annum to
maintain the testator’s horses, ponies and hounds “if they should so long live” was
held to be valid.

Monuments and graves

In Pirbright v Salwey (1896), £800 was given to the rector of the parish to use the
income for the upkeep of a grave. This case was followed in Re Hooper (1932)
which concerned the upkeep of family tombs and monuments. Similarly, in Mussett
v Bingle (1876), £300 left to erect a monument to the first husband of the testator’s
wife was valid. Maintenance of private graves is now possible for 99 years under

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s.1 of the Parish Councils and Burial Authorities (Miscellaneous Provisions) Act
1970.

Trusts for private masses

In Bourne v Keane (1919), a trust for the saying of private masses for an individual
was held valid by the House of Lords. Note that masses open to the public are
categorised as charitable (Re Hetherington (1989)).

Promotion and furtherance of foxhunting

In Re Thompson (1934), a trust to promote these purposes was upheld on the facts.
Not surprisingly, the decision has never been followed. Here the trustee was
prepared to act in accordance with the settlor’s desires.

TRUSTS FOR PERSONS OR FOR PURPOSES?

A possible area of confusion involves legitimate private trusts for individuals that
are expressed in the form of a purpose or limited by a purpose.

KEY CASES

RE SANDERSON’S TRUST (1857), RE BOWES (1896) AND RE DENLEY’S

TRUST DEED (1969)

• In Re Sanderson’s Trust (1857), the testator’s property was left upon trust
“to pay or apply the whole or any part of” towards the maintenance, attendance and
comfort of his brother. This was not a purpose trust as the purpose in this case
provided merely the means to calculate the amount of his beneficial share.

• In Re Bowes (1896), £5000 was left on trust to estate owners for the
purpose of planting trees on the estate for shelter. The land would have benefited
from £800 worth of trees, any further planting working to the disadvantage of the
beneficiaries. Accordingly, it was held that the owners of the estate were
absolutely entitled to the £5,000. Again, the purpose merely expressed the motive
of the gift.

• In Re Denley’s Trust Deed (1969), a trust to provide a recreation ground

for the benefit of employees of a company was viewed as a valid trust because the
employees were a class of beneficiaries with sufficient standing to enforce the
trust. It was not a pure purpose trust. Goff J. explained,
“when, then, the trust though expressed as a purpose, is directly or indirectly for
the benefit of an individual or individuals, it seems to me that it is in general

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outside the mischief of the beneficiary principle”.

UNINCORPORATED ASSOCIATIONS
DEFINITION CHECKPOINT
Many groups and societies such as sports and social clubs are committed to
the pursuit of non-charitable purposes. An unincorporated association is a
body or group of individuals that has not been incorporated as a company.
Unlike companies, unincorporated bodies or groups do not have legal
personality and are, therefore, unable to hold property in their own name.

In Conservative & Unionist Central Office v Burrell (1982), the Court of

Appeal identified five characteristics of an unincorporated association:

• two or more persons;

• a non-business common purpose;

• the undertaking of mutual duties and mutual obligations between members;

• a body of governing rules; and

• a fluctuating body of members.

Three possibilities
Following Neville Estates v Madden (1962), a gift to an unincorporated
association is likely to be construed in one of three ways.

A gift to present individual members of the association at the

date of the gift
The members could, if they wanted, divide the property between themselves, each
taking a share. This was the construction put upon a gift in Cocks v Manners (1871)
where a testator left a share of his residue to the Dominican Convent at
Carisbrooke “payable to the superior for the time being”.

A gift on trust for the purposes of the association

On this construction the gift would fail for lack of a human beneficiary. In Leahy v
Att Gen of New South Wales (1959), a gift of a sheep station for “such order of
nuns of the Catholic Church or the Christian brothers as my trustees shall select”

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was held not to be a gift for individual members of the order. It was expressed to
be for the benefit of religious orders rather than for specified individuals. The gift
was not, moreover, charitable under the head of advancement of religion because it
was a purely contemplative order of nuns. Accordingly, the gift failed because there
were no individual beneficiaries.

A gift to the members subject to their respective contractual

rights and liabilities
This is known as the contract holding theory. The basis of their ownership is, as
Lewison J. recognised in Hanchett-Stamford v AG (2009), “a form of beneficial
ownership; that is to say that in some sense the property belongs to it members.” In
such a case, the property will accrue to the others on the death or resignation of a
member, even though such members include persons who became members after the
gift took effect. Hence, a major attraction is that it can cater for a fluctuating
membership without contravening the rules against perpetuity. It is not possible for
an individual member to claim an individual share. The contract holding theory was
the preferred option in Neville Estates v Madden (1962). This decision heralded
an approach favoured also in Re Lipinski’s Will Trust (1976), where the testator
left part of his residuary estate to the Hull Judeans (Maccabi) Association “to be
used solely in the work of constructing the new buildings for the association and for
improvements to the said building”. It was held that the gift was not a pure purpose
trust and was, instead, for the benefit of ascertainable beneficiaries. The trust was
valid because the members of the association had the power to alter the purpose for
which the money could be used and could divide the money between themselves.

A number of points are now clear:

• The contract holding theory has emerged as the preferred and most
convenient construction of property holding by unincorporated associations, Re
Horley Town Football Club (2006).

• If the members of the association have no control over the funds the trust
will fail. In Re Grants Will Trusts (1980), there was a trust for the purposes of the
Chertsey Labour Party Headquarters. There the members did not control the
property nor could they change their constitution to enable them to do so. The fact
that third parties have voting rights and can influence rule changes does not prevent
the contract holding theory applying, Re Horley Town Football Club (2006).

• On the dissolution of an unincorporated association, the funds are

distributed to reflect how the members held the property in the first place in
accordance with their contract, Re Bucks Constabulary Fund (No.2) (1979). There

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was in that case an equal distribution of the funds between the surviving members
(to the exclusion of former members) in line with the contract holding theory.
Traditionally this rule gives way when the society is moribund (i.e. has no more
than one member left). The property is then deemed to be ownerless and the funds
go bona vacantia to the Crown (Re Bucks Cosntabulary Fund (No 2)(1979)). In
Hanchett-Stamford v AG (2009), however, Lewison J. arrived at a contrary
conclusion. He was required to determine whether a sole surviving member of an
unincorporated association founded in 1914 (‘The Performing and Captive Animals
Defence League’) could claim ownership of the outstanding association assets.
Lewison J. could not accept that,
“a member who has a beneficial interest in an asset, albeit subject to contractual
restrictions, can have that beneficial interest divested from him on the death of
another member.”

It followed that, where an unincorporated association is reduced to a single

member, the last remaining member becomes solely entitled to any surplus
assets by way of the principle of survivorship. It remains to be seen how
Lewison J.’s approach will fare in future.

REVISION CHECKLIST
You should now know and understand:

• the problems associated with non-charitable purposes trusts;

• the beneficiary principle and the exceptions to it;
• the distinction between a trust for persons or a trust for purposes;
• how unincorporated associations hold property (in conjunction with
Ch.8);
• the consequences following on from the dissolution of an
unincorporated association.

QUESTION AND ANSWER

The Question
Critically examine the construction of gifts to unincorporated associations.

Advice and the Answer

A good answer to this question requires an understanding of the beneficiary

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principle, i.e. that a trust must be for the benefit of ascertainable individuals
and that, accordingly, it is not possible to create a private purpose trust.
Subject to a limited number of historical exceptions, it is simply not possible
to set up a valid trust for purposes. This straightforward conclusion, that
private purpose trusts are void for want of a beneficiary, was tested in Re
Denley (1969), where a gift of property to employees for the purpose of a
recreation ground was upheld on the basis that it did not offend the rule against
perpetuities and because it served an ascertainable class of “beneficiaries”
with sufficient standing to enforce the trust.
Gifts to unincorporated associations assume relevance in this context because
an unincorporated association is a body of individuals bound together to
pursue common purposes (Burrell (1982)). It is common, therefore, for
individuals to seek to further particular purposes by way of gifts to such
associations. There are two important issues that must be addressed in your
answer: firstly, the nature of property holding by such associations and the
construction of gifts to such associations to further specific purposes.
The most common construction of property holding by unincorporated
associations is the contract holding theory (Neville Estates v Madden (1962))
i.e. that members hold property subject to their respective contractual rights
and liabilities towards one another. Gifts construed in this way are treated in
accordance with the rules of the association as an accretion to the funds of the
association (Re Recher’s WT (1972)), with funds held by the treasurer to be
disbursed in accordance with the contractual rules. Crucially, within this
construction, the members of the association must retain control over property
holding (Re Grant’s WT (1980)), be free to alter its purposes (Re Lipinski’s
WT (1976)) and, ultimately, to dissolve the association and distribute the
property amongst themselves (Re Bucks Constabulary (No.2) (1979)).
Although the contract holding theory is the preferred construction, it remains
possible to make an outright gift to present members (Cocks v Manners
(1871)), or to create a trust for the present members as joint tenants or tenants
in common. Gifts on trust for present and future members create most
difficulty, as these must comply with the perpetuity rules. Perhaps, where
perpetuity is not a concern, the principle in Re Denley (1969) may save a gift,
construed for the benefit of present and future members, who may be deemed
to have sufficient standing to enforce the trust.

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 11
Charitable Trusts

INTRODUCTION
Charitable trusts are public trusts designed to promote a purpose that is beneficial
to society or to benefit a particular charitable organisation (which can be a
company or an unincorporated association). As will be shown, the attraction of
achieving charitable status is that it brings with it a variety of fiscal, reputational
and legal advantages. In order to be charitable, a trust must be for a charitable
purpose (i.e. a purpose which is listed in s.3(1) of the Charities Act 2011) and
have a public benefit. The trust must also be exclusively for charitable purposes.

THE 13 HEADS OF CHARITY

Section 3(1)(a)–(m) of the Charities Act 2011 contains a broad list of
charitable purposes. These are:

(a) the prevention or relief of poverty;

(b) the advancement of education;

(c) the advancement of religion;

(d) the advancement of health or the saving of lives. This includes the
prevention of or relief of sickness, disease or human suffering;

(e) the advancement of citizenship or community development. This includes

rural or urban regeneration and the promotion of civic responsibility, volunteering,
the voluntary sector or the effectiveness or efficiency of charities;

(f) the advancement of the arts, culture, heritage or science;

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 (g) the advancement of amateur sport. For these purposes sport means sport
or games which promote health by involving physical or mental skill or exertion;

(h) the advancement of human rights, conflict resolution or reconciliation or

the promotion of religious or racial harmony or equality and diversity;

(i) the advancement of environmental protection or improvement;

(j) the relief of those in need, by reason of youth, age, ill-health, disability,
financial hardship or other disadvantage. This includes relief given by the
provision of accommodation or care to such persons;

(k) the advancement of animal welfare;

(l) the promotion of the efficiency of the armed forces of the Crown or the
efficiency of the police, fire and rescue services or ambulance services;

m) other purposes currently recognised as charitable and any new

charitable purpose which is reasonably analogous to another charitable purpose.

PUBLIC BENEFIT

In order to be charitable, the s.3(1) purpose must also be for the public benefit
(s.4(1)).This entails that it must be of benefit to the public at large or a sufficient
section thereof. Section 4(2) explains that, in determining whether there is a public
benefit, it is not to be presumed that a purpose of a particular description is
automatically for the public benefit. The Charity Commission is obliged to publish
guidance from time to time providing its interpretation of what will satisfy the
public benefit requirement. This guidance, of course, remains open to challenge as
occurred successfully in ISC v The Charity Commission (2011), which concerned
the public benefit and independent schools.

EXCLUSIVELY CHARITABLE?
This entails that the property must be capable of dedication to charitable purposes
only (s.1(1)(a) of the 2011 Act). Accordingly, where a gift is given for a number of
specific purposes it will not be a valid charitable trust unless all the purposes are
charitable.

KEY CASES

MORICE V BISHOP OF DURHAM (1805), RE WARD (1941), RE EADES

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 (1920), RE BEST (1904), SALUSBURY V DENTON (1857) AND RE COXEN
(1948)

• In Morice v Bishop of Durham (1805), a gift for “benevolent purposes”

was held not to be exclusively charitable because some benevolent purposes are
not charitable at law.

• The word “or”, imports an alternative and is said to be disjunctive: Re

Ward (1941). Phrases such as “charitable or benevolent”, “charitable or deserving”
and so on have been held to lack the necessary exclusivity.

• In Re Eades (1920), references were made to “religious, charitable and

philanthropic” purposes. The use of the comma after “religious” indicated that each
class was separate and disjunctive and, therefore, the trust was not exclusively
charitable.

• In Re Best (1904), “charitable and benevolent” was held to be exclusively

charitable. Although “benevolent” is open to a non-charitable meaning, the words
were linked to an overt charitable purpose by use of the word “and”.

• If a trustee is directed to divide property between charitable and non-

charitable objects the trust will not wholly fail. In default of apportionment, the
court may divide the fund equally and the trust will be valid as to the charitable half
(Salusbury v Denton (1857)).

• In Re Coxen (1948), the fact that a testator directed that £100 of a

charitable fund of £200,000 could be used for a dinner for the trustees did not stop
the trust from being exclusively charitable. The non-charitable aspect was merely
ancillary to the main charitable purpose.

Figure 12: Is it Charitable?

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ADVANTAGES OF CHARITABLE STATUS

Enforceability
Charitable trusts do not require ascertainable beneficiaries to enforce them. The
Charity Commission has administrative responsibilities and can exercise powers of
enforcement as can the Attorney General.

Certainty
Charitable trusts differ from private trusts in that the objects of a charitable trust
need not be certain. Provided the objects are wholly and exclusively charitable, the
courts or the Charity Commission can remedy any vagueness by preparing a scheme
for the application of funds. In Moggridge v Thackwell (1803), the testatrix left
property to her trustee to divide, as he saw fit, between charities. The trustee
predeceased the testatrix, but the courts upheld the trust and devised a scheme as to
how the money was to be distributed. The cy-près doctrine, which allows for the
dedication of trust property to purposes as near as possible to those originally
selected, is considered in Ch.12.

Perpetuity
A charity is not subject to the rule against alienability that applies to pure purpose
trusts. Accordingly, capital can be dedicated indefinitely to, for example, the relief
of poverty or the advancement of religion. In addition, although a gift to charity
must vest within the perpetuity period, a gift over from one charity to another can

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occur outside the perpetuity period (Christ’s Hospital v Grainger (1849)).

Tax Advantages
The main advantage of charitable status is the privileged tax position that it attracts.
For example:

• relief from income tax on investment income applicable to exclusively charitable

purposes;

• exemption from tax on trading income where either the trade is exercised in the
course of carrying out the primary charitable purposes of the charity, or the work in
connection with the trade is mainly carried out by the beneficiaries of the charity;

• exemptions from capital gains tax;

• a claim to at least 80 per cent relief from the payment of non-domestic rates for
premises wholly or mainly used for charitable purposes; and

• exemptions from payment of stamp duty on conveyances.

THE KEY HEADS OF CHARITY

Under the 2011 Act, the main heads of charity will remain poverty (s.3(1)(a)); the
advancement of education (s.3(1)(b)) and the advancement of religion (s.3(1)(c)).
The remaining 10 heads might, for convenience, still be grouped together as “other
charitable purposes”. It is, however, possible for a purpose to fall within more than
one of the headings.

RELIEF OF POVERTY

Meaning
Poverty is not limited to destitution and, in Re Coulthurst (1951), was equated with
persons who have to “go short”. There, a gift to be applied for widows and
orphaned children of deceased employees of a particular bank, was upheld as
charitable. In Garfield Poverty Trust (1995), it was held that those who could not
afford to take on a mortgage on the usual commercial terms could be classified as
being “poor” and, hence, the provision of interest free loans to buy houses was
charitable.

Need
It is not necessary that the words “poverty” or “poor” be employed. For example,

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in Re Scarisbrick (1951) the expression “in needy circumstances” indicated
poverty. Similarly, in Re Gardom (1914) the expression “of limited means” was
sufficient. In Re Cohen (1919), however, the term “deserving” did not connote a
sufficient need and was not charitable. Poverty may also be inferred from the nature
of the gift. In Biscoe v Jackson (1887) the provision of a soup kitchen qualified
under the head of poverty. In Re Gosling (1900), the provision of a superannuation
fund for “pensioning off old worn out clerks” was viewed as being implicitly for
the relief of poverty. A borderline example is Re Niyazi (1978) where the
construction of a working men’s hostel in Cyprus was held to be charitable. The
conjunction of the concept of working men and hostel accommodation influenced
the court.

Public Benefit?
The public benefit requirement in relation to poverty is hardly demanding. This
leniency is explained on the basis that the relief of poverty is so altruistic that a
public benefit element can be necessarily inferred. Accordingly, a trust for a
testator’s poor relations is charitable (Isaac v Defriez (1754)). Similarly, in Re
Gosling (1900) poor employees were permitted to benefit. It still remains
necessary to distinguish between a private trust and a public (i.e. charitable) trust.
In Re Scarisbrick (1951), the distinction was drawn between a trust to benefit
named poor relations (a private trust) and a trust to benefit unnamed poor relations
(a public trust). The Court of Appeal made clear also that a trust for the relief of
poverty would not be charitable if the poor persons to benefit were members of a
narrow class of close family. In Re Segelman (1996), a gift to poor and needy
members of a class of six named relatives and their descendants (who totalled 26
persons on the testator’s death) was upheld. Chadwick J. acknowledged that the gift
could not be charitable if it was in essence a gift to the individual members of the
class. In his view, however, the gift was not of that character. The selection of
named beneficiaries focused on need and not mere closeness of relationship. This
is another borderline case.

Exclusively Charitable?
It is also necessary that a trust to relieve poverty is exclusively charitable. A trust
will not be for the relief of poverty if it can benefit the rich as well as the poor. In
Re Gwyon (1930), a trust to establish a clothing foundation to provide clothing to
boys in Farnham floundered because it failed to exclude more affluent children. The
case demonstrates that benefits must be restricted to the poor.

ADVANCEMENT OF EDUCATION

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Meaning
Education is not restricted to formal education in educational institutions such as
schools and universities. It is, however, necessary that there is some element of
instruction or improvement. Although research can clearly fall under the umbrella
of education, there must be more than simply an accumulation of knowledge.

Research
• In Re Shaw (1957), the settlor directed his trustees to use his residuary estate for
a number of specified purposes. These included the devising of a new 40-letter
alphabet and the translation of some of plays into that new alphabet. It was held not
to be charitable because there was “no element of teaching or education”.

• In Re Hopkin’s Will Trust (1965), the testatrix bequeathed some of her residuary
estate to the Francis Bacon Society. This was to be applied towards discovering
evidence of Bacon’s authorship of plays usually accredited to Shakespeare.
Upholding the charitable nature of this trust, Wilberforce J. held that research can
be regarded as charitable when it is worthwhile (unlike in Re Shaw) and will lead
to something which will pass into the store of educational material.

Public services
Education extends to the provision of educational public services and is wide
enough to include forms of worthwhile instruction These activities also fall within
a separate head of charity as listed in s.3(1)(f) of the Charities Act 2011 (the
advancement of the arts, culture, heritage or science). For example, the provision of
botanical gardens, museums, libraries and choirs. In Incorporated Council of Law
Reporting v Att Gen (1972) the preparation of law reports was held to be
charitable. In Re Delius (1957), the wife of the composer Delius gave her residuary
estate for the advancement of her late husband’s work. This was held to be
charitable because the trust was to spread knowledge and appreciation of Delius’
work throughout the world. In Re Pinion (1965), however, an artist left his studio
and its contents to trustees to enable it to be used as a museum to display his
collection of works. Harman L.J. admitted,

“I can see of no useful object to be served in foisting upon the public this
mass of junk. It has neither public utility nor educational value”.

It was held not to be charitable.

Sport

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Although sport is not charitable per se, trusts to advance education by promoting
sport within an educational institution may be charitable. In Re Mariette (1915),
there was a valid charitable trust to provide squash courts at Aldenham School and
a prize for athletics. Nevertheless, the sporting facilities do not necessarily have to
be at a particular school. In IRC v McMullen (1981), a trust to provide facilities
for soccer at schools and universities in the United Kingdom was held to assist the
physical education and development of the young. Under the Charities Act 2011,
the promotion of amateur sport is itself a separate head of charity (s.3(1)(g)), but it
is subject to specific qualifications limiting the types of sport included within that
description.

Public Benefit?
There must be a genuine public benefit in educational trusts. The law is anxious that
educational trusts should not be used as a tax avoidance measure to provide
education for the wealthy at the expense of the taxpayer. In the context of fee-paying
schools, it is for the school to determine the measures it must take to demonstrate
public benefit. This may, of course, include the provision of bursaries to children
who cannot afford the fees, but also may include making available its facilities to
children from state schools (ISC v The Charity Commission (2011)). In another
context, the law will not allow employers to gain commercial advantage by setting
up educational trusts for the children of their employees. Hence, in Re Compton
(1945) a trust providing for the education of the descendants of three named
persons was not a valid charitable trust. As the beneficiaries were defined by
reference to a personal relationship, the trust lacked any public element.

Blood and contract rule

In Oppenheim v Tobacco Securities Trust Co Ltd (1951), the House of Lords
approved a test that has become known as “the blood and contract rule” or “the
personal nexus test”. In that case, money was given to provide education for the
children of employees of the British American Tobacco Corporation and its
subsidiaries. The number of employees exceeded 110,000. It was held that, even
with these large numbers, the personal nexus between the employers and employees
meant that there was not a sufficient public benefit. Lord MacDermott, however,
dissented. He considered that the public benefit question should be one of degree
depending on the facts of the particular case. Attempts are sometimes made to side-
step the blood and contract rule.

• In Re Koettgen’s Will Trust (1954), a trust was established to further the

education of British born persons, with a direction that preference be given to
employees of a particular company in respect of 75 per cent of fund. The trust was
held to be primarily for the public, a mere preference being given to employee’s

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families. This decision is open to question and appears to undermine the policy
underlying the blood and contract rule.

• In IRC v Educational Grants Association Ltd (1967), however, a trust to

advance education was set up by the Metal Box Company. The evidence showed
that over 80 per cent of the payments made went towards the education of children
connected to the company. In respect of those payments, the trust was held not to be
charitable.

Exclusively Charitable?
In Southwood v Att Gen (2000), a project on demilitarisation based at Bradford
University failed because the political dimension of the trust prevented it being
exclusively educational in nature. It was political propaganda and, therefore, not in
the public interest. Similarly, in Re Hopkinson (1949) a trust to educate the public
in the aims of a political party (Labour) could not be charitable because it
amounted to political propaganda and was not exclusively educational. However,
in, Att Gen v Ross (1986), a gift to London Polytechnic Students Union was
charitable even though it had ancillary non-charitable purposes (e.g. providing
shops and a bar).

ADVANCEMENT OF RELIGION

Meaning
The law draws no distinction between one religion and another and adopts the
view that any religion is better than none (Neville Estates v Madden (1962)). The
courts feel ill equipped to make value judgments on the inherent benefit of
particular religious beliefs (Holmes v Att Gen (1981)). For example, in Thornton v
Howe (1862) a trust for the publication of the works of Joanna Southcote was held
to be charitable. She claimed that she had been impregnated by the Holy Ghost and
would give birth to the second Messiah. Charitable status will be refused to any
religion that is deemed to be subversive of morality, contrary to the public interest
or adverse to the very foundations of all religion. The worship of Satan or the
promotion of black magic cannot be charitable. Recent illustrations of beliefs
deemed to be advancing religion include the Druidry (The Druid Network (2010))
and Jainism (where adherents seek to attain a state of purity by living good lives).

A spiritual connection?
For a religion to exist it was once thought that there had to be some belief in the
existence of a Supreme Being and the worship of that being. Section 3(1)(a) of the

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2011 Act now provides that religion includes one which involves belief in more
than one god and a religion which does not believe in a god at all. This represents a
move to overcome doubt that Buddhism is a religion for charitable purposes. In Re
South Place Ethical Society (1980), the society existed to cultivate “rational
religious sentiment”. It was, however, an agnostic society interested in ethical and
rational principles and charitable status was denied. Dillon J. explained, “Religion
is concerned with man’s relations with God and ethics are concerned with man’s
relations with man”. In Power, Praise and Healing Mission (1976), a trust for the
advancement of religion by means including exorcism was granted charitable
status. Gifts to repair a church, to provide a stained glass window, to finance the
purchase of an organ and to train clergy, for example, will fall within this head of
charity.

Public Benefit?
The religion must benefit a sufficient section of the community. This rule is
illustrated by Gilmour v Coates (1949) where property was left on trust for a
Carmelite convent. The Carmelites are a contemplative order who do not venture
outside the convent walls. It was concluded that prayer and spiritual belief alone
were of no tangible benefit to the public. In contrast, the Society of the Precious
Blood (1995) concerned Anglican nuns and this was held to be charitable. These
nuns were not cut off from the outside world. They worked in the community and
provided classes and talks. Unlike Gilmour, this obviously had a public benefit.

Examples
The provision of a retreat house may be charitable if it is open to the public
(Neville Estates v Madden (1962)) on the basis that individuals taking advantage
of such services then mix with their fellow citizens. A gift for masses for the dead
has, moreover, been held to have sufficient public benefit when the mass is part of a
public ritual (Re Hetherington (1990)). Similarly, a gift to maintain an individual
tomb lacks public benefit, but the maintenance of all the tombs in a churchyard is
charitable (Thompson v Pritcher (1815)).

Exclusively Charitable?
A charitable purpose might be linked with another purpose and it is then necessary
to look at wording used. If the gift is limited to, for example, the office of a priest
or vicar, it will be deemed to be exclusively charitable (Re Rumball (1956) (a
bishop)). Similarly, in Re Simson (1946) a gift to a vicar “for his work in the
parish” was upheld as a gift to that person limited to purposes defined by his office.
In Farley v Westminster Bank (1939), however, a gift to a vicar “for parish work”
was not viewed as being a gift for his work as a vicar in the parish. As it was not

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directly linked to his office as vicar, it embraced non-charitable purposes.

THE REMAINING STATUTORY DESCRIPTIONS OF

CHARITY

The remaining descriptions represent a ragbag of worthy causes that have been
recognised as charitable by being of benefit to the community. The Charities Act
2011 lists 10 further categories (see above s.3(1)(d)-(m)). Not every purpose
beneficial to the community has been classified as charitable, but the list in s.3(1)
is not exhaustive. If not listed in the 2011 Act, the purpose must have been
recognised as charitable under the previous law or be reasonably analogous to a
recognised charitable purpose (s.3(1)(m)).

Illustrations of the remaining statutory descriptions

(a) the advancement of health or the saving of lives: e.g. the provision of
health care advice (Re Family Planning Association (1969));

(b) the advancement of citizenship or community development: e.g. the

promotion of moral improvement (Re Scowcroft (1862));

(c) the advancement of the arts, culture, heritage or science: e.g.

promoting the National Trust;

(d) the advancement of amateur sport: e.g. the British Wheelchair Bowls
Association;

(e) the advancement of human rights: e.g. Amnesty International UK;

(f) the advancement of environmental protection or improvement: e.g. to

conserve a particular geographical area or species;

(g) the relief of those in need, by reason of youth, age, ill-health, disability,
financial hardship or other disadvantage: e.g. the provision of housing for the
elderly (Joseph Rowntree Memorial Trust Housing Association Ltd v Att Gen
(1983));

(h) the advancement of animal welfare (trusts for the protection of animals
generally will be upheld if they promote and encourage human kindness: Re
Wedgewood (1915)). In Re Grove-Grady (1929), however, a sanctuary for animals
or birds to keep them safe from molestation by man was not a charitable purpose.
The court could discern no benefit in stopping people becoming involved with

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animals;

(i) the promotion of the efficiency of the armed forces or the emergency
services: e.g. a gift for a Fire Brigade (Re Wokingham Fire Brigade Trusts
(1951)).

Public Benefit?
Unlike the first three statutory descriptions (a-c), which cover purposes long
deemed charitable under the common law, the remaining 9 descriptions (d-l) gained
their charitable status by being ‘otherwise beneficial to the community’ (Pemsel’s
Case (1891)). Accordingly, as regards these purposes a gift had to be for the
potential benefit of the whole public or a sufficiently wide section of it. As to gifts
for the benefit of the community, it does not matter, in practice, that not every
member of the community will take advantage of the gift. For example, the
provision of a bridge is a charitable purpose provided that the bridge is available
for the whole community to use. It does not lose charitable status simply because
only a few people decide to use it.
A key authority concerning public benefit in this context is IRC v Baddeley
(1955). Here, a trust was established to promote the moral, social and physical
wellbeing of persons resident in West Ham who were members of the Methodist
Church. The House of Lords held that this was not of sufficient public benefit. The
distinction was drawn between a benefit that is extended to the whole community
(even though advantageous only to a few) and relief accorded to a selected few out
of a larger number. Viscount Simmonds explained, “the beneficiaries are a class
within a class; they are those of the inhabitants of a particular area who are
members of a particular church.” It is not, as yet, clear how the so-called ‘class
within a class’ test will apply in future. The Charity Commission guidance merely
states that “benefit must not be unreasonably restricted by geographical or other
restrictions”.

Social and Recreational Purposes

Following IRC v Baddeley (1955), a controversy arose over when, if ever, such
purposes could be charitable. This threatened the charitable status of the Women’s
Institute and similar bodies and led to the passing of the now repealed
Recreational Charities Act 1958. The provisions of that Act, albeit in an amended
form, continue forward in s.5 of the Charities Act 2011. Section 5(1) provides that
it is charitable to provide, or assist in the provision of facilities for recreation or
other leisure-time occupation, if the facilities are provided in the interests of social
welfare. Section 5(3) requires that the facilities be provided with the object of
improving the conditions of life for the persons for whom the facilities are

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primarily intended. In addition, s.5(3) prescribes as additional basic conditions that
either the persons have need of these facilities by reason of youth, age, infirmity or
disablement, poverty or social and economic circumstances; or the facilities are to
be available to the members of the public at large or to male or female members of
the public at large. The Act applies in particular to the provision of facilities at
village halls, community centres and women’s institutes as well as the provision
and maintenance of grounds and buildings to be used for purposes of recreation and
leisure (s.4(5)).

Political trusts
Political trusts are never charitable. The traditional reasoning is that the court has
no means of judging whether a proposed change in the law will or will not be for
the public benefit (Bowman v Secular Society (1917)). As demonstrated in
McGovern v Att Gen (1982), if there is an aim to change the law, to promote a
particular political party or theory or to seek to change governmental policy either
here or abroad it is not charitable. There Amnesty International sought charitable
status, but this bid failed because its work involved campaigning to change the law
and influencing government policies around the world. In National Anti-Vivisection
Society v IRC (1948), money was given to further the cause of anti-vivisection. The
court held that the moral benefit resulting to mankind was outweighed by the
detriment that would be suffered by medical research if experiments were not
allowed on live animals. The case failed also because it had a political element in
that it sought to promote legislation to change the law that allowed vivisection. As
with Amnesty International, it is now common for organisations to farm out their
non-political work to a separate charitable company and to retain the political
work within a non-charitable arm.

REVISION CHECKLIST
You should now know and understand:

• the advantages of charitable status;

• the 13 statutory heads of charity;
• the statutory public benefit requirements which operate;
• the requirement that the purpose be exclusively charitable.

QUESTION AND ANSWER

The Question

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 Advise the organisation known as Feminists for Freedom (FFF) on whether its
charter’s aims entitle it to charitable status.

(i) The FFF seeks to promote a greater understanding of feminist literature, to

which end it seeks to publish works by female authors, including books dealing
with prostitution. The FFF also seeks to establish a feminist library for FFF staff
and their families.

(ii) The FFF seeks to provide accommodation for female single parents on 60-
year non-assignable leases at below market price for those who would otherwise
be homeless and therefore in need. The FFF does not seek to make a profit from the
provision of accommodation and any surplus funds will be used to provide child
care facilities for the single mothers.

(iii) The FFF seeks, through lobbying and peaceful demonstration, to change
the law relating to gender discrimination and equal pay in this country and abroad
and thereby alleviate the lot of all women and improve their life in general.

(iv) The FFF seeks to assist the campaign to allow the ordination of women in
the Roman Catholic Church in the belief that this will increase the size of
congregations.

(v) The FFF seeks to advance the study by girls and women at schools and
institutions of further and higher education in engineering, law, computer sciences,
physics and other studies usually associated with men.

Advice and the Answer

In order for the FFF to achieve charitable status, it must show that its objects
are exclusively charitable and have a sufficient element of public benefit. It
must promote a purpose listed in s.3(1)(a)-(m) of the Charities Act 2011 or be
analogous to such a purpose or have previously been regarded as charitable.
Clause (i): this clause could constitute a trust for the advancement of
education: s.3(1)(b). Education is not confined to the classroom (Re Hopkins
(1949)). It is likely that books published by feminists will have a serious
social purpose. The library, although educational, would not be charitable as
it is restricted to FFF staff and their families. It would therefore not be of
general public benefit (Oppenheim v Tobacco Securities Trust Co Ltd
(1951)). As the library is not an ancillary purpose, the whole clause would
fail under head (b) or, indeed, under the arts and culture head (f).
Clause (ii): there can be no effective charitable trust under the heading of
poverty (s.3(1)(a)) if the gift could benefit the rich as well as the poor (Re

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Gwyon). Single female parents are not necessarily poor, but the facts of the
question do state that “they would otherwise be homeless and therefore in
need”. In Joseph Rowntree Memorial Trust Housing Association Ltd v Att
Gen (1983), it was held that the fact that the accommodation was provided by
way of bargain on a contractual basis, rather than by way of bounty, did not
prevent the trust from being charitable. Nor did it matter that the length of the
leases might outlast the needs of the beneficiaries as they might well do on the
facts of the question. The position would be different if FFF intended to profit
from the arrangement and not to use such profit for charitable purposes.
Clause (iii): prima facie this would come within s.3(1)(h) of the 2011 Act
under the head of “the advancement of human rights, conflict resolution or
reconciliation or the promotion of religious or racial harmony or equality and
diversity”. However changing the law is a political purpose and political
purposes are not charitable (McGovern v Att Gen (1982)). This rule applies
where the aim is to change the law or government policy at home or abroad.
Clause (iv): it could be argued that this creates a trust for the advancement
of religion: s.3(1)(c). Larger congregations mean more people going out into
the world to “mix with their fellow citizens” (Neville Estates Ltd v Madden
(1962)). On the other hand, there would need to be a change in canon law to
allow women priests and this aim might therefore fail, being tainted with a
political purpose.
Clause (v): this would succeed as a trust for education being for the benefit
of a sufficiently large section of the community (s.3(1)(b)). It does not matter
that the trust is for women only.
If any one of the clauses is non-charitable then FFF would not acquire
charitable status (Oxford Group v IRC (1949)). It would be otherwise if a
fully charitable purpose incidentally conferred a benefit on objects that are not
charitable (Re Coxen (1948)). FFF should redraft cl.(ii) so that the library is
available to the public at large and delete cll (iii) and (iv). The taxation
advantages would make this exercise worthwhile.

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 12
The Cy-près Doctrine

INTRODUCTION
The term cy-près loosely translated means as near as possible. The cy-près
doctrine determines what happens when trust property devoted to charitable
purposes cannot be applied in the manner intended by the donor. It is to be
remembered that a trust can fail for a variety of reasons, e.g. it might be illegal,
impossible or impracticable to carry out the settlor’s wishes. In private trusts, this
will give rise to a resulting trust in favour of the settlor or his estate. This is,
however, not always so with charitable trusts because the courts have both an
inherent jurisdiction and an extended statutory jurisdiction (now conferred by the
Charities Act 2011) to invoke the cy-près doctrine. The doctrine allows them to
apply the funds to similar charitable bodies or charitable purposes which, of
course, differ to the original charitable purposes.

INHERENT JURISDICTION

Meaning
The court’s inherent jurisdiction is limited and can be claimed only where the
performance of the trust is impossible or impractical. Unlike the statutory
jurisdiction, it does not operate when the trust is cumbersome, inconvenient or
uneconomical. Impossibility or impracticability may be apparent from the outset, or
it may become clear at some later date that the charitable purpose cannot be carried
into effect.

KEY CASES

ATT GEN V CITY OF LONDON (1790) AND RE LYSAGHT (1966)

In Att Gen v City of London (1790), the trust included the advancement and

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 propagation of the Christian religion among the infidels of Virginia. It was
held that the purpose had become impossible as there were no infidels left in
Virginia. Cy-près was allowed.
A creative use of cy-près occurred in Re Lysaght (1966). The testatrix
provided funds to found medical scholarships to be run by the Royal College
of Surgeons. One of the terms was that the awards were not to be made to
Jews or Roman Catholics. The Royal College refused to accept the gift on
these terms so it became impractical to carry out the trust. The court, therefore,
deleted the religious discrimination clause.

Figure 13: Cy-Près

Initial Failure and Finding a General Charitable Intention

Many gifts to specific charities fail because the charity has ceased to exist or the
purpose has become impossible before the date of the gift. In Kings v Bultitude
(2010), for example, a residuary gift to the ‘Ancient Catholic Church’ failed
initially as the church had ceased to exist on the date of the death of the testator.
This is called initial impossibility. In these cases, the trust property can be applied
cy-près under a scheme drawn up by the courts or the Charity Commission
provided that the settlor had a general charitable intention. The need for a general
charitable intention means that, if the gift is solely for a particular purpose, it will
fail and leave no room for cy-près. In Kings v Bultitude (2010) no general

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charitable intention could be discerned where the testator made a residuary bequest
to a church in which she had been the leading member and, to which she had
devoted all her time and energy. The court held that her intention was specific.

KEY CASES
RE RYMER (1895), RE SPENCE (1979), BISCOE V JACKSON (1887) AND
RE HARWOOD (1936)

• In Re Rymer (1895), there was a specific intention to benefit a seminary for

priests that no longer existed. There could be no cy-près because it was viewed as
a gift to a particular body for a particular purpose.

• In Re Spence (1979), there was initial failure of a gift to a named old

people’s home that had ceased to exist. As the gift could not be construed as being
to the old in the area, there was no general charitable intention.

• In Biscoe v Jackson (1887), money was set aside to finance a soup kitchen
and a cottage hospital in Shoreditch. As suitable land could not be found, it was
impossible to carry out the testator’s wishes and initially the gift failed. The money
was applied cy-près because the specified purposes were only two methods of
helping the poor of Shoreditch. The charitable intention was general and not
specific or limited.

• In Re Harwood (1936), one gift was made in favour of the Belfast Peace
Society and another in favour of the Wisbech Peace Society. The Belfast Peace
Society had never existed. The court allowed the application of the gift cy-près
because only a general charitable intention could be attributed to a donor who
incorrectly identified the beneficiary of the gift. The other gift could not be applied
cy-près. It is much more difficult to identify a general charitable intention when the
charity specified is correctly identified, but has since ceased to exist.

Continuation in another form

A named charity may have ceased to function, but may still be continuing in another
form. It may, for example, have been amalgamated or reconstituted under different
trusts. In Re Faraker (1912), a gift to Mrs Bailey’s Charity, Rotherhithe passed into
the hands of a new body that was created by an amalgamation of that charity and
several others. The legacy was applied cy-près for the consolidated charities.
Similarly, in Re Finger’s Will Trusts (1972) one gift was to the National Radium
Commission (an unincorporated association) and another to the National Council
for Maternity and Child Welfare (an incorporated body). When the testatrix died

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both bodies had ceased to exist (i.e. there was initial impossibility). The purposes
of the National Radium Commission continued to exist and the gift was held to be a
gift to those purposes. It did not matter that the donee no longer existed. The gift to
the incorporated body prima facie should have failed. It was a gift to that particular
body and not a trust for its purposes. The court, however, found on the particular
facts of the case (and by applying commonsense) that the testatrix had a paramount
charitable intention and so the gift was applied cy-près.

List of objects
When a failed charitable gift is one of a number of other charitable gifts in the same
document (e.g. the same will), the traditional rule is that this association does not
make it easier to discern a general charitable intention (Re Jenkins (1966)). There
a non-charitable object was specified. As Buckley J. admitted, “if you meet seven
men with black hair and one with red hair you are not entitled to say that there are
eight men with black hair”. Conversely, in Re Satthertewaite’s Will Trust (1966)
eight animal charities were selected at random from the phone book. One had never
existed, but the court was able to infer a general charitable intention and apply the
money cy-près.

Subsequent Failure

Meaning
A charity might cease to exist after the property has become vested in the charity.
This is known as subsequent failure. The cy-près doctrine will apply here
irrespective of whether or not there is a general charitable intention. Accordingly,
there is no chance of a resulting trust to the donor.

KEY CASES

RE SLEVIN (1891) AND RE KING (1923)

• In Re Slevin (1891), money was dedicated to an orphanage. Although the

orphanage was in existence at the testator’s death, it ceased to operate before the
money came into its hands. Nevertheless, the money had become legally vested in it
on the testator’s death. This was considered a straightforward case of subsequent
failure and the money was applied cy-près.

• In Re King (1923), a gift was made to provide a stained glass window in a

church. On completion of the work, there remained a residue of over £1,000. It was
held that this surplus could be applied cy-près even though there was no general
charitable intention shown by the donor.

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Timing
The time for deciding whether there is an initial or subsequent failure is at the time
of the gift. In the case of a will, the relevant date is that of the testator’s death. If the
gift is possible at that time, but becomes impossible before it is available for the
charity, it still counts as a case of subsequent impossibility. In Re Wright (1954),
the testatrix died in 1933 leaving her residuary estate to a tenant for life, the
remainder to be used to found a house for convalescent and impecunious
gentlewomen. By the time the life tenant died in 1942, it was impracticable to
establish the home. The court found that dedication to charity occurred in 1933 and
so the gift could be applied cy-près without the need of finding any paramount
charitable intent.

STATUTORY JURISDICTION

Section 62 of the Charities Act 2011

Cy-près is no longer confined only to cases where it is “impossible” or
“impracticable” to implement the terms of the trust. Section 62 extends the
circumstances in which cy-près is available and allows cy-près on the basis of
convenience and efficacy. Section 62(2) allows the property to be applied in order
to take into account not only the spirit of the gift, but also social and economic
circumstances prevailing at the time of the proposed alteration of the original
purposes. Section 62(1) prescribes certain situations where cy-près is appropriate.

Where the original purposes have as far as may be been

fulfilled
In Re Lepton’s Charity (1972), a will dated 1715 directed that £3 per annum was
to be paid to the local minister and any surplus income to the poor. By 1970, the
trust income had risen from £5 to £800. The court increased the minister’s stipend
to £100 per annum. Modern conditions entailed that £3 was not in keeping with the
spirit of the gift.

Where the original purposes provide a use for part only of the
donated money
In Re North Devon and West Somerset Relief Fund (1953), surplus funds raised
for those who suffered in the floods in 1952 were applicable cy-près. The
contributors had parted with their money out and out and did not intend that the
surplus, if any, would be returned to them should the immediate object of charity

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come to an end. The original purposes provided a use for part only of the property.

Where the property will be more effectively used in conjunction

with other property
This would cover the situation as in Re Faraker (1912) where Mrs Bayley’s
Charity (established to provide for poor widows of Rotherhithe) was amalgamated
with 13 other charities each of which benefited the poor.

Where the original purposes were laid down by reference to an

area or by reference to a class of persons which has for any
reason since ceased to exist or to be suitable
In Peggs v Lamb (1994), a cy-près scheme was authorised in circumstances where
a charitable purpose, which was originally for the benefit of the freemen of a
borough, was enlarged to cover the inhabitants of the borough as a whole. This was
because those who would qualify as freemen had declined in numbers to 15 and the
income to be distributed had risen to £559,000 per annum.

Where the original purposes, in whole or in part, have been

adequately provided for by other means; ceased to be
charitable; or ceased to provide a suitable and effective method
of using the property donated
The court enabled a gift to be divided between two conflicting groups of a Hindu
sect in Varsani v Jesani (1998). The charity had divided into two factions and it
became impossible to achieve the original purposes that had been envisaged. The
property (a temple) was not, therefore, being used in accordance with the spirit of
the gift. A similar approach was adopted in White v Williams (2010) where
members of a congregation in Lewisham sought to have church buildings (donated
for use as a place of worship) transferred to them via a cy-près scheme. The
Lewisham church building had throughout been in the control of the Bibleway
trustees, who had now ceased to be part of the Lewisham congregation and had no
meaningful connection with it. A cy-près scheme was deemed to be the appropriate
form of relief.

Sections 63 and 64: Charity Collections

Context
Problems can arise in the context of funds raised by public appeal for a charitable
purpose where it is impossible or impracticable to apply the property to that

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purpose or where a purpose has been achieved leaving a surplus. Sections 63 and
64 of the Charities Act 2011 are designed to cover this situation and apply when
the money has been donated through collecting boxes, lotteries, competitions and so
forth. Thus, where the method of donation makes it difficult to tell one contribution
from another, there is a presumption of donation to general charitable purposes. The
idea is to avoid the need to impute a fictitious general charitable intention on the
part of the donor, or to seek (often in vain), to return the property to the original
donor.

Two presumptions
The first presumption is that, by virtue of s.63, property donated for specific
charitable purposes which suffer from initial failure can be applicable cy-près as
though the donation was for general charitable purposes. As such, the section caters
for the situation where it is difficult or impossible to locate the donors. This
operates when the donor after the making of prescribed advertisements and
inquiries, and following the expiry of a prescribed period of six months, cannot be
identified or cannot be found. It also applies as regards a donor who has executed a
disclaimer in the prescribed form of the right to have the property returned. A
further presumption is contained in s.64 and this operates in relation to cash
collections and fund-raising events. This assumes that the donors are unidentifiable
for the purposes of s.63 without the need to advertise or make inquiry.

Section 65: Solicited Gifts

This provision applies to property given for specific charitable purposes in
response to a solicitation (e.g. an advertisement or letter). If the solicitation is
accompanied by a statement to the effect that, if the purposes fail, the property will
be applied cy-près, then this will prevail. The exception to this is when the donor
makes a written declaration that he may want the money returned if the purpose
fails.

REVISION CHECKLIST
You should now know and understand:

• the meaning and role of cy-près;

• the inherent jurisdiction of the court;
• the distinction between initial and subsequent failure;
• the meaning of a general charitable intention;
• the statutory jurisdiction conferred by the Charities Act 2011.

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QUESTION AND ANSWER

The Question
In the context of the cy-près doctrine what is the concept of a general
charitable intention and why may it matter whether the failure of trust is
classified as either “initial” or “subsequent”?

Advice and the Answer

This is a straightforward question which requires a straightforward answer.
The answer should open with an explanation of the cy-près doctrine and a
general consideration of the statutory and inherent jurisdictions of the court. It
should be noted that the statutory jurisdiction was intended to widen the scope
of cy-près.
It then is necessary to explain the meaning of the phrase a general charitable
intention and illustrate how it may be established with case law examples (e.g.
Rymer (1895), Re Spence (1979) and Harwood (1936)). The issue of when
the concept assumes relevance must then be addressed. The important point to
make is that a general charitable intention need only be considered in cases of
initial failure.
As a general charitable intention enjoys no relevance as regards subsequent
failure, it is necessary to make the distinction from initial failure. Cases such
as Re King (1923), Slevin (1891) and Re Wright (1954) offer good
illustrations of a subsequent failure. In relation to s.63 of the Charities Act
2011 as it applies to general charity collections, the possibility of initial
failure is dealt with. In order to prevent the money having to be returned to the
donors, ss.63 and 64 presumes a general charitable intention on the basis that
the identity of the donors cannot be ascertained.

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 13
Appointment, Retirement and Removal of Trustees

INTRODUCTION
The trustee is the central figure in the administration of the trust. The trustee labours
under onerous obligations in order to protect the trust property, give effect to the
settlor’s instructions and promote the interests of the beneficiary. The choice and
appointment of the trustee is, therefore, a key matter in the creation and
administration of the trust. In time, it may be that a serving trustee may wish to
retire (e.g. due to old age or illness) or is removed (e.g. due to incompetence or
dishonesty) and a replacement trustee is required. This Chapter considers how
trustees are appointed and how they may be removed whether voluntarily and
involuntarily.

CAPACITY AND NUMBER

Generally any person who has the capacity to hold property can be a trustee. A
minor cannot be appointed a trustee nor can he hold a legal estate in land s.20 of the
Law of Property Act 1925. Infancy is, moreover, one of the grounds for removing
a trustee and appointing another under s.36(1) of the Trustee Act 1925. A minor
may, however, be a trustee of personal property held on an implied trust. In Re
Vinogradoff (1935), a grandmother put War Loan stock into the names of herself
and her granddaughter. The granddaughter was only four years old. It was held that,
as there was no presumption of advancement in the child’s favour, she became a
trustee holding the property on a resulting trust for her grandmother.

Corporations
A corporation can be a trustee. Some corporations are known as trust corporations.
These include the Public Trustee, the Treasury Solicitor, the Official Solicitor,
certain charitable or public corporations and those corporations entitled to act as

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custodian trustees under the Public Trustee Act 1906.

Numbers
In a trust or settlement of land, the maximum permitted number of trustees is four.
The minimum number is one trustee. In order to ensure that trust interests are
overreached (i.e. taken free of) by a purchaser, however, the purchase money must
be paid to at least two trustees or a trust corporation. Hence, if there is a sole
trustee of land, the prospective purchaser should require an additional trustee to be
appointed. The trustees of land must always hold the legal title as joint tenants. This
means that, if one dies, the surviving trustees continue until only one remains alive.
As regards a trust of personal property, there is no limit to the number of trustees
who can be appointed.

APPOINTMENT OF TRUSTEES

There is a general equitable principle that a trust will not fail want for a trustee.
This means that a trust will not fail if, for example, the appointed trustees refuse to
act or have ceased to exist. If necessary, the Public Trustee will act in the capacity
of trustee. An exception to this rule arises when the trust is made conditional upon
certain people acting as trustees (Hill v Royal College of Surgeons (1966)).

Original Trustees
As regards the initial trustees, they are generally appointed in a will or settlement.
The settlor chooses who he wishes to be trustee. The nominated person is free to
decline to act as trustee before acting in relation to the trust property (James v
Frearson (1842)). Such disclaimer can be express or implied from conduct (e.g.
apathy and inaction). Once the role is accepted, however, there can be no
disclaimer and the trustee must elect instead to retire (see below). When one of the
initial trustees dies, the property vests in the survivor(s). On the death of the last
survivor, the property vests in his personal representative, who holds subject to the
trust (s.18 of the Trustee Act 1925).

New Trustees
As soon as the trust is created, the settlor has no automatic right to appoint future
trustees. The authority to appoint replacement trustees can arise either from an
express power, a statutory power or on the order of the court.

• The trust instrument may reserve for the settlor or some other person the express
power to appoint new trustees. This is a common practice and will dictate the
terms and mode of the appointment (Re Higginbottom (1892)).

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 • Under the statutory power afforded by s.36(1) of the Trustee Act 1925
replacement and/or additional trustees may be appointed.

• By virtue of the more limited statutory power, beneficiaries may appoint under
ss.19 and 20 of the Trusts of Land and Appointment of Trustees Act 1996.

Figure 14: Appointment, Retirement and Removal of Trustees

• As a last resort, the court appointment of new trustees is permitted under s.41 of
the Trustee Act 1925.

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Appointment under s.36 of the Trustee Act 1925

Replacement Trustees
Although the trust instrument may confer an express power of appointment of
trustees, reliance is placed (usually by the settlor or trustees) on the wide statutory
power as set out in s.36. The trust instrument, however, will usually nominate those
who may exercise the statutory power. Unless there is a contrary provision in the
trust instrument, s.36 provides that a replacement trustee may be appointed in
writing when a trustee:

• has died (this includes a person appointed in a will who dies before the
testator);

• has remained outside the United Kingdom for a continuous period exceeding 12
months. This ground is often expressly excluded where for tax reasons all the trust
property is outside the United Kingdom;

• seeks to retire from the trust;

• refuses to act or disclaims the role before accepting office;

• is unfit to act (e.g. where he has become bankrupt);

• is incapable of acting. This includes physical and mental illness, old age and, in
the case of a corporation, dissolution;

• is an infant; or

• has been removed under a power in the trust instrument.

Statutory purpose
The aim of s.36 is not only to enable the appointment of a new trustee without a
court order, but also to ensure that there will be someone who has the ability to
exercise the power if necessary. It sets out a hierarchy of persons who may exercise
the power to appoint. If there is no one able and willing to exercise the power in
the first category, the power devolves to those in the second category and so on. If
there is no person able and willing to act, the s.36 power necessarily becomes
redundant. The following characters in the following pecking order have the ability
to engage s.36:

• the person nominated in the trust instrument as having the power to appoint new

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trustees;

• the “surviving or continuing” trustees (i.e. the existing trustees). This caters for a
retiring trustee to nominate his successor; and

• the personal representatives (i.e. executors or administrators) of the last

surviving trustee.

Additional trustees
Traditionally, and unless the trust instrument provided to the contrary, an additional
trustee could only be appointed when there was a vacancy. Section 36(6) of the
Trustee Act 1925, however, caters generally for the appointment in writing of
additional trustees (i.e. without any replacement). The appointment may be made by
the person nominated by the trust instrument to appoint new trustees or, if there is
no such person able and willing to act, the trustee(s) for the time being. Section
36(6), however, only permits an additional appointment when there are no more
than three existing trustees (i.e. the general rule is that the number of trustees cannot
be increased beyond four). While as regards trusts of personalty the trust instrument
itself may increase this number, the maximum ceiling for trusts of land must always
remain at four trustees.

The Trusts of Land and Appointment of Trustees Act 1996

Where all the beneficiaries are sui juris (i.e. of full age and capacity) they may act
in unison and direct the current trustees to appoint in writing any person(s) of the
beneficiaries’ collective choosing as trustee(s) (s.19(1)). The appointment is,
thereby, effected by the existing trustees. If there are none remaining, the direction
must be given to the personal representative of the last surviving trustee. This
power applies retrospectively to trusts of all types of property. The power can be
excluded in the trust instrument, for example, when a power to appoint trustees is
vested in someone nominated for the purpose in the trust instrument. Hence, it is
designed to apply only when the trust instrument makes no provision for the
appointment of new trustees. Unlike the power granted under s.36 of the Trustee
Act, the appointment of new trustees under s.19 is not tied to such occurrences as
death, unfitness, incapacity and the like. The power can, moreover, be exercised as
often as the beneficiaries may deem appropriate.

Mental disorder
Section 20 of the 1996 Act deals with the situation where a trustee is rendered
incapable of carrying out his office by reason of a mental disorder and there is no
person willing or able to appoint a replacement under an express power of

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appointment or under s.36. In this situation, s.20 enables the beneficiaries of full
age and capacity in unison to direct the appointment of a replacement trustee. Again
this provision can be excluded in the trust instrument.

Appointment by the Court

The court has a statutory jurisdiction to appoint replacement or additional trustees
under s.41 of the Trustee Act 1925. This offers the court a broad, discretionary
power to appoint new trustees in circumstances where it is “inexpedient, difficult
or impracticable so to do without the assistance of the court”. It does not have to be
“necessary” for the court to act. An order can be made on the application of either a
trustee or beneficiary. The court will not usually make an appointment when there is
an express power in the trust instrument or where one of the other statutory powers
can be employed. Accordingly, the s.41 power tends to be exercised only in
situations where there is doubt as to whether a trustee is “unfit” or “incapable” to
act (see Re Phelps ST (1886)). It has, however, been employed in circumstances
where the trustee has emigrated (Re Bignold’s ST (1871)), when there is no one
who has the power to make an appointment and where the intention is to increase
the number of trustees beyond four.

Vesting of Trust Property

On their appointment, the trust property has to become vested in the new trustees.
Section 40 of the Trustee Act 1925 provides that, where the trustee is appointed by
deed, a vesting declaration in the deed will operate to vest the property in the new
trustees. Such a declaration may be implied, subject to any provision in the deed to
the contrary. There is, therefore, no need for an express conveyance or assignment.

Section 40 does not apply to:

• land conveyed by way of mortgage as security for a loan of trust money. This
means that, where trust money is invested in the mortgage of land, on the
appointment of new trustees automatic vesting does not occur. Instead, there must
be a separate, formal transfer of the mortgage term to the new trustee;

• land held under a lease or sub-lease that contains a covenant against assignment
without consent, unless the consent has been obtained before the execution of the
deed. This exemption prevents the appointment of a trustee causing an inadvertent
breach of covenant against assignment and giving rise to a forfeiture of the lease;

• stocks and shares: this exception recognises that the legal title to shares can only
be effected by registration with the relevant company, and

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 • registered land: s.27 of the Land Registration Act 2002 requires that the deed
of appointment/retirement must be registered so that the change of registered
proprietor can be duly recorded.

TERMINATING TRUSTEESHIP

Disclaimer
As mentioned above, a person is not bound to accept the onerous duties of a trustee
just because he is named in a trust instrument or because he has previously agreed
to be a trustee. He must, however, disclaim before he has done any act indicating
acceptance. He cannot disclaim part only of the trust (Re Lord Fullerton’s Contract
(1896)). When disclaiming a trust it is advisable, albeit not essential, to do so by
deed. If the trustee disclaiming is the sole trustee, the trust property will result to
the settlor or his personal representatives upon the terms of the declared trust. If
there are other trustees the property will remain with those surviving trustees.

Voluntary Retirement
A trustee may retire only in one of six ways:

• by virtue of a special power in the trust instrument. If express provision is made

for retirement, the trustee can, of course, exercise that power;

• under s.36(1) of the Trustee Act 1925 when a replacement trustee is being
appointed;

• under s.39 of the 1925 Act. This statutory escape is not, however, dependent
upon the appointment of a replacement trustee. It allows a trustee to retire by deed
if there will remain at least two other trustees or a trust corporation in office. It is
also necessary that the remaining trustees consent to the retirement and that the
consent of any person who has an express power to appoint trustees has been
obtained;

• with the consent of all the beneficiaries who must all be of full age and ability. If
there is an infant beneficiary, therefore, no effective discharge can arise in this way;

• by virtue of an order of the court under s.41 of the Trustee Act 1925 when the
trustee is being replaced by a new appointment, and

• the court also enjoys an inherent jurisdiction to discharge a trustee without

nominating any replacement (Courtenay v Courtenay (1846)). This is useful only
when the consent of the other trustees cannot be obtained for the purposes of s.39.

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The court will usually accede to the trustee’s wish to retire.

DIRECTION BY BENEFICIARIES TO RETIRE

Sections 19–21 of the Trusts of Land and Appointment of Trustees Act

1996 provide that beneficiaries (who are unanimous, of full age and capacity
and between them entitled to the whole beneficial interest) may direct the
retirement of a trustee. The conditions for the compulsory removal of a trustee
are:

• there must be no person nominated by the trust instrument who has the
power to appoint new trustees;

• a written direction must be given to the trustee;

• reasonable arrangements must be made for the protection of any rights of

the trustee in connection with the trust;

• on the trustee’s retirement there must remain a trust corporation or at least

two trustees;

• a new trustee must be appointed on his retirement or, if no such appointment

is to be made, the continuing trustees must consent by deed to his retirement;

• the retiring trustee must execute a deed of discharge (he has the ability to
defer the deed until reasonable arrangements for his protection have been made);
and

• the retiring and continuing trustees and any new trustee must do anything
necessary to vest the trust property in the continuing and new trustees.

Removal under the Court’s Inherent Jurisdiction

The High Court enjoys an inherent jurisdiction to control the administration of a
trust and the actions of the trustee. The overarching duty is to see that trusts are
properly executed. To this end, the court may remove a trustee on the application of
any beneficiary. Indeed, it can remove a trustee of its own volition during
proceedings. The inherent jurisdiction is particularly useful when there is a dispute
as to the facts and/or no replacement is to be made. For example, in Letterstedt v
Broers (1884) a beneficiary made a number of allegations of misconduct against the
trustees and asked for their removal. Although the allegations were unfounded, he

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succeeded in his application. It was held that the duty of the court was to ensure the
proper execution of the trust. Even if the facts are disputed, or the trustees can
disprove the allegations, they may still be removed if there is disharmony as to the
manner in which the trust is to be administered.

Beneficiary’s welfare
The welfare of the beneficiary is the paramount concern (E v E (1990)) and the
court must, therefore, evaluate whether the trustee’s continuance in office would be
pre-judicial to the interests of the beneficiaries. Accordingly, the court can consider
the expense to the trust of a change of trustees and, even where there has been a
minor breach of trust, decide against removal (Re Wrightson (1908)). This case
shows that reasonable cause must be established to justify the removal. Obvious
examples include where the trustee has committed a criminal offence, is adjudged
bankrupt or refuses to act. Less obviously, a trustee who sets up a rival business
might not be in breach of trust, but the conflict of interest would be a ground for his
removal (Moore v M’Glynn (1896)). Similarly, a case for removal might be made
out when the trustees persisted with an investment policy which is not in the best
interests of the beneficiaries (Cowan v Scargill (1985)).

REVISION CHECKLIST
You should now know and understand:

• how original trustees are appointed;

• how replacement and additional trustees are appointed;
• how trust property vests in the trustee;
• how trustees may retire or be removed.

QUESTION AND ANSWER

The Question
Consider the purpose and operation of s.36 of the Trustee Act 1925 and
explain how it impacts upon the appointment and replacement of trustees.

Advice and the Answer

By way of an introduction, the essay should open with a statement of context. It
should note that trustees may be appointed both on the creation of a trust and
during its continuance, whether as replacement for an existing trustee or in

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 addition to the existing trustees. It should also make clear that, as soon as the
trust is created, the settlor has no automatic right to appoint future trustees. The
authority to appoint new replacement trustees can arise either from an express
power, a statutory power or on the order of the court. Section 36 affords the
major statutory power to appoint replacement and/or additional trustees. This
provision enables the appointment of a new trustee without a court order and
ensures that there will be someone who has the ability to exercise the power if
necessary. It focuses upon the appointment of replacement and additional
trustees.
As regards replacement trustees, s.36(1) makes clear that the appointment
has to be “in place of” a retiring trustee. This entails that the appointment of
one new trustee will never be sufficient to discharge two retiring trustees. One
trustee can, therefore, only replace another trustee. Retirement can occur under
s.36(1) when a replacement trustee is being appointed. Similarly, the removal
of a trustee can occur under s.36(1) only on the appointment of a replacement
trustee. Section 36(1) can, however, operate only limited circumstances and
these are where a trustee (whether an original trustee or not):

• has died;

• has, for whatever reason, remained outside the United Kingdom for a
continuous period of more than 12 months;

• has expressed the wish to be discharged from the trust;

• has refused or has become unfit to act as trustee or has become incapable of
acting as trustee; or

• is an infant.

As to who can exercise the power to appoint, s.36 lists the following
characters in the order of priority:

• the person nominated in the trust instrument as having the right to appoint
new trustees;

• the existing trustees;

• the personal representatives of the last surviving trustee.

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Traditionally, and unless the trust instrument provided to the contrary, an
additional trustee could only be appointed when there was a vacancy. Section
36(6), however, caters generally for the appointment in writing of additional
trustees (i.e. without any replacement). The appointment may be made by the
person nominated by the trust instrument to appoint new trustees or, if there is
no such person able and willing to act, the trustee(s) for the time being.
Section 36(6), however, only permits an additional appointment when there
are no more than three existing trustees (i.e. the general rule is that the number
of trustees cannot be increased beyond four). While as regards trusts of
personalty the trust instrument may increase the number, the maximum ceiling
for trusts of land must always remain at four trustees.

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 14
Trustee’s Duties

INTRODUCTION
Despite outward appearances, the trustee cannot deal with the property as if it were
his own. Understandably, the trustee’s actions are controlled and closely regulated.
The duties of a trustee are extremely onerous. They have to be carried out with the
utmost diligence. If not, the trustee may be personally liable for breach of trust.
Some duties arise automatically from the relationship between trustee and
beneficiary while others are imposed and regulated by statute. Central to the
trustee’s functions is the fiduciary duty that is imposed by equity. This places an
obligation of loyalty and faithfulness upon the shoulders of a trustee. The fiduciary
duty entails that, put simply, the trustee must act honestly and in utmost good faith.

DUTIES ON APPOINTMENT
There is a general obligation on the trustee not to deviate from the trust (Re Hulkes
(1886)). Accordingly, and on accepting the office, the trustee is expected to
ascertain the terms of the trust and to confirm that he has been validly appointed and
that the trust property has been vested in him (Hallows v Lloyd (1889)). In addition,
the trustee labours under several other administrative duties.

Safeguarding Trust Property

If the trust was in existence before his appointment, a new trustee must ensure the
trust property has been properly invested. If a trust investment has fallen in value
and threatens to jeopardise the trust fund, the trustee should consider whether to
reinvest elsewhere (Nestle v National Westminster Bank (1990)). Otherwise, he
will be liable for the failure to review. In Re Medland (1889), trust money was lent
on mortgage, but the security for the loan had depreciated in value and now risked
the interests of the trust. It was held that the trustee should have deliberated whether

194
or not to call in the mortgage. Except where expressly allowed in the trust
instrument, the trustee should never lend trust money or allow it to remain
outstanding on an unsecured basis. If the trust property includes chattels, the trustee
should also obtain an accurate inventory. The trustee is expected to ensure that all
securities and chattels are in safe custody. As regards land, the trustee should
ensure that it is secure and free from the adverse claims of a trespasser. Perhaps
surprisingly, there appears to be no duty to insure the trust property (Bailey v Gould
(1840)).

Figure 15

Calling in Loans

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The trustee should ensure that, where part of the trust property is a loan due for
repayment, this loan should be called in (Re Brogden (1888)). This action is
required because of the general notion that the trustee must take all reasonable steps
to safeguard trust assets. The danger for the trustee is that, if he allows the debt to
become statute-barred under the Limitation Act 1980, he will assume personal
liability for the ensuing loss to the trust. If necessary, therefore, the trustee must
institute legal action to enforce repayment.

Legal action
The trustee who decides not to bring an enforcement action should ask the court for
directions under s.57 of the Trustee Act 1925 that support the intended inaction. If
not, the trustee might show that he held a well-founded belief that any enforcement
action would be pointless. It is, however, usually no defence for the trustee to argue
that he thought it somehow indelicate or inappropriate to ask for the loan to be
repaid and to initiate recovery proceedings (Re Brogden (1888)). In Ward v Ward
(1843), however, the court decided that the trustee had acted reasonably in failing
to sue a debtor who was also a beneficiary in circumstances where to bring action
would have financially ruined the debtor and impacted deleteriously upon other
beneficiaries (his children).

Joint Control
The trust property ought to be placed in the joint control of all the trustees. It must
be kept distinct from the trustee’s personal property or the property of any other
trust. Accordingly, a new trustee should ensure that investments are in the names of
all the trustees. If not, and where trust property is misapplied by a trustee, the co-
trustees are potentially liable for any loss that arises. In Lewis v Nobbs (1878), the
trust property included bearer bonds which were in the sole control of one trustee.
When this trustee went off with the bonds in his custody, the other trustee was held
liable because by his negligence he had facilitated the misappropriation.

Custodians
In order to protect themselves, trustees are now given the right by the Trustee Act
2000 to appoint custodians of trust property and documents. Indeed, in relation to
so-called bearer securities (i.e. securities which are not registered in the name of
anyone), the trustees must appoint a custodian unless exempted by the trust
instrument or by statutory provision.

GENERAL FIDUCIARY DUTIES

Duty not to make a Profit

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The trustee may not make an unauthorised profit from his position as trustee. He
must not put himself in a position where his duty to the trust and his own personal
interest may conflict. In Keech v Sandford (1726), a trustee of a lease applied for
its renewal for the benefit of an infant beneficiary. It was refused, but the landlord
agreed to renew the lease in the trustee’s own favour. There was no question of
fraud, but it was concluded that the trustee held the lease on trust for the infant. The
reason was that there would be less incentive on the trustee to press for a renewal
for the trust if he knew that he would benefit by a refusal. The rule in Keech v
Sandford (1726), however, applies only when a trustee or some other fiduciary
obtains the benefit.

Bribes
Understandably, where the trustee has acted in bad faith, and by doing so made a
profit, he will have to account for that profit. In Reading v AG (1951), an army
sergeant earned £19,000 by transporting smuggled goods in an army vehicle and
while in army uniform. The proceeds were confiscated and, on his release from
prison, he took action for its return. His action failed because he was a fiduciary
and was liable to account for the profits to the Crown. Similarly, in Att Gen for
Hong Kong v Reid (1994) a fiduciary accepted bribes during the course of his
employment by the Crown. It was held that the Crown was able to claim the
property acquired by the bribes (three houses) even though the houses were now of
a higher value than the bribes received. In Sinclair Investments (UK) Ltd v
Versailles Trade Finance Ltd (2011), Lord Neuberger M.R. concluded that the
Reid case was unsound. Although the claimant still enjoys a personal remedy in
equity to the funds, this is limited to the amount of the bribe, together with interest
(i.e. it does not extend to property purchased with those funds). This approach was
subsequently followed in Cadogan Petroleum Plc v Tolley (2011) as regards a
series of secret commissions and bribes.

Purchase of Trust Property

Traditionally, the prevention of a trustee from purchasing trust property was
classified as merely one aspect of the trustee’s duty not to profit from his position.
The modern approach, however, is to view this type of purchase as being the
subject of two distinct rules, namely, the self-dealing rule (where the trustee buys
trust property) and the insider dealing or fair dealing rule (where the trustee buys
out the equitable interest of the beneficiary).

Self-dealing rule
Subject to any contrary provision in the trust instrument, the purchase of trust
property by a trustee is voidable by any beneficiary (Campbell v Walker (1800)).

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The notion is that the trustee should not profit from his office and it reflects the
possibility that the trustee might not give the best price obtainable. It would give
rise to a conflict between the trustee’s self-interest and his duty to the trust. This
self-dealing rule applies to all types of property and a transaction can be set aside
as against the trustee as well as against any purchaser from the trustee who has
notice of the breach of trust. A transaction is tainted by the self-dealing rule even in
the absence of unfairness or sharp practice and regardless of whether or not the
trustee makes a profit. A beneficiary’s ability to set aside the transaction applies
even if the property was bought at a public auction (Ex p. Lacey (1802)). The rule
does not apply, however, if the contract or sale occurs before assuming the role of
trustee (Vyse v Foster (1874)).

Insider dealing (fair dealing) rule

A different approach is adopted when the trustee or other fiduciary intends to
purchase the equitable interest of a beneficiary, e.g. the trustee wishes to buy out the
beneficiary’s interest in land. Whereas the self-dealing rule is based upon the
relationship between the parties, the fiduciary rule against insider dealing is framed
around the conduct of the trustee. In order for the sale to be effective, the
transaction must be fair and honest, and the onus of proof rests on the trustee. This
means that the consideration provided must be adequate, there must be no undue
influence exerted by the trustee and the beneficiary must be given full and accurate
information about the extent of the beneficial interest to be bought (Tito v Waddell
(No. 2) (1977)).

It is a relevant factor that it is the beneficiary who initiated the sale. In Coles v
Trecothick (1804), the sale was upheld in circumstances where the
beneficiary took control of the sale by auction. The beneficiary had chosen
both the venue and the auctioneer and, moreover, was content with the price
obtained on the sale. In contrast, in Dougan v Macpherson (1902) two
brothers were beneficiaries under a trust. One brother was also a trustee. The
trustee purchased his brother’s beneficial interest without disclosing to him a
valuation report of the trust estate. The beneficial share was worth much more
than the trustee paid for it. The transaction here was set aside.

Remunerative Employment
A trustee must not use his position in order to obtain paid employment. Similar
principles apply to such characters as company directors and business partners.
They are accountable for any profits they make because of their position. In
Williams v Barton (1927), a stockbroker trustee had to hand over to the trust the
commission he earned on valuation by his firm of the trust assets. Often a trustee
will obtain remuneration as a director of a company. If the directorship was

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acquired because of his position as a trustee, he will be accountable to the trust (Re
Macadam (1946)). This is not so, however, if the trustees were directors before
they became trustees (Re Dover Coalfield Extension Ltd (1908)) or if the trustees
were appointed directors without any reliance on the trust votes (Re Gee (1948)).
The will or settlement may, moreover, authorise the trustee to keep any
remuneration (Re Llewellin’s Will Trusts (1949)).

Other Abuses of Position

• In Industrial Development Consultants Ltd v Cooley (1971), a managing
director of a company had been negotiating a contract with the Eastern Gas Board.
The Gas Board did not wish to enter into any dealings with the company, but it was
prepared to enter a contract with the managing director privately. Consequently, he
terminated his association with the company on the false basis of illness and signed
the contract with the Gas Board. Although a contract between the company and the
Gas Board would never have come to fruition, its former managing director had to
account to the company for the benefit of the contract he had personally entered.

• In Regal (Hastings) Ltd v Gulliver (1942), the directors of Regal wished to buy
two further motion picture theatres for the company. As Regal could fund only
£2,000 of the required £5,000, the directors decided to club together and to raise
the shortfall themselves. The purchase went ahead, the directors sold their shares in
Regal and made a substantial profit. Although the directors argued that they had
acted in good faith and had secured a benefit for Regal, it was held by the House of
Lords that the directors were liable to account to the Company for the profits made.

• In Boardman v Phipps (1967), Mr Boardman (the trust solicitor) became

concerned about a trust investment in a failing private company. He concluded that
the only way to protect the trust investment was for the trust to obtain a majority
shareholding in the company and to appoint a new management. As the trustees
were unwilling to do this, he and one of the beneficiaries went off and bought the
outstanding shares themselves. Mr Boardman had claimed to represent the trust and
had obtained information that was not available to the public at large. The trust
benefited by £47,000 and, Mr Boardman and the beneficiary made a profit in the
region of £75,000. The profit had been made by the use of information that had been
acquired by the pair while acting on behalf of the trust and in a fiduciary capacity.
The pair had to account to the trust for the profit made.

Payment for Acting as Trustee

One of the consequences of the rule that a trustee must not make a profit from his

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trust is that, unless authorised in the trust deed (a comprehensive charging clause is
always best) or approved by all the beneficiaries sui juris, a trustee cannot charge
for his time and trouble (Barrett v Hartley (1866)). Even a solicitor trustee cannot
charge for anything other than his out-of-pocket expenses. There are, however,
exceptions to this rule.

Special trustees
The court has a statutory jurisdiction to authorise payment where it appoints a
corporation to be a trustee (s.42 of the Trustee Act 1925). A Judicial Trustee may
be paid out of trust property (s.1(5) of the Judicial Trustees Act 1896). The Public
Trustee or a custodian trustee can charge under the Public Trustee Act 1906.

Inherent jurisdiction
The court has an inherent jurisdiction to allow a trustee to be paid where there is no
charging clause in the trust instrument. Alternatively, it can vary or increase the
amount that can be charged when there is a charging clause. The services of the
trustee must, however, be regarded as being of exceptional benefit to the trust. In
Re Duke of Norfolk’s Settlement (1981), a trust corporation accepted the
administration of the trust for a low annual fee. As trustee, it subsequently became
involved in an extensive redevelopment project and was allowed an increase in
remuneration because the duties became unexpectedly onerous. In Perotti v Watson
(2001), a solicitor undertook the administration of an estate that in time became
unexpectedly complex. Although the services provided were not always of a high
standard, the Court of Appeal allowed the solicitor to claim fees, albeit scaled
down to 75 per cent to reflect the varying quality of those services.

Solicitor’s litigation costs

Solicitor-trustees’ costs of litigation are the subject of special treatment. According
to the rule in Cradock v Piper (1850), a solicitor-trustee is entitled to profit costs
in litigation where he acts as solicitor for himself and a co-trustee in relation to the
trust. This is provided that the costs are no more than they would have been had he
acted for the co-trustee alone. A solicitor-trustee cannot employ his firm to do non-
litigious work.

Trustee Act 2000

Section 28 operates where there is already an express charging clause in the trust
deed and enables a trust corporation or professional trustee to apply for additional
payment. Where there is no entitlement to remuneration given by the trust instrument
or by another statutory provision, s.29 of the Trustee Act 2000 caters for payment
in two ways. First, a trustee that is a trust corporation is entitled to reasonable

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remuneration. Secondly, a trustee who acts in a professional capacity is also
entitled to reasonable remuneration provided that each of the other trustees agrees
in writing. Section 29, therefore, does not apply if there is a sole trustee.

Out of Pocket Expenses

A trustee is entitled to be reimbursed for out of pocket expenses such as insurance
premiums, fees paid to brokers and money spent on repairs. Section 31(1) of the
Trustee Act 2000 provides that a trustee has a right to recover “expenses properly
incurred by him when acting on the behalf of the trust”. A trustee will also be
allowed his litigation costs if the court grants leave to sue or defend. In other cases,
the trustee will obtain costs only if the action was properly brought or defended for
the benefit of the trust estate (Holding & Management Ltd v Property Holding &
Investment Trusts Plc (1990)). Any expenses claimed, however, must be
reasonable and appropriate in the circumstances. In Malcom v O’Callaghan
(1835), the trustee’s claim for expenses for frequent trips to Paris on trust business
was disallowed because his presence there was not necessary.

Business Competition
If the trust contains a business as part of its assets then the trustee should not
compete. In Re Thomson (1930), the trust property included a yacht broker’s
business. A trustee wanted to set up a similar business in the same locality. The
court issued an injunction restraining the trustee because his plans would have
taken trade away from the trust business. A different approach should operate if the
trustee’s business was in existence before his agreeing to act as trustee. The rule
has, moreover, been modified over the years. In Balston Ltd v Headlines Filters
Ltd (1990), a former director wished to set up a competing business with the
company. The High Court held that this was not a conflict of interest and fiduciary
duty because he had not competed while he was a director. It did not matter that the
intention to compete had been formed prior to his resignation.

DUTY TO KEEP ACCOUNTS AND PROVIDE INFORMATION

Trustees must keep clear and accurate accounts and produce them to any
beneficiary when required. Understandably, the trustee will appoint an agent (i.e. a
qualified accountant) to prepare and maintain the trust accounts. Trustees who do
not maintain proper accounts can be directed to do so by the court and may face
liability for costs in those and future proceedings. A beneficiary is entitled to all
reasonable information about the administration of the trust. When a beneficiary
reaches 18 years of age, he should be informed of his interest under the trust.
Section 22(4) of the Trustee Act 1925 gives the trustees an absolute discretion to
have the accounts audited by an independent accountant, but no more than once in

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every three years unless there are special circumstances.

Trust Documents
Beneficiaries are entitled to see all trust documents and title deeds (O’Rourke v
Darbishire (1920)). Not all documents held by trustees, however, are “trust
documents”. Trustees are not bound to give reasons why they have exercised their
discretion in a particular way (Schmidt v Rosewood Trust Ltd (2003)). Hence, they
are not bound to disclose documents, such as minutes of meetings between trustees,
which contain this confidential information (Re Londonderry’s Settlement (1965)).
A disgruntled beneficiary might, however, bring legal proceedings alleging bad
faith, and the confidential documents would then be made available on discovery.

INVESTMENT

Purpose
The investment of trust funds is a major aspect of the administration of trusts and
will be a feature of all but the most primitive of trusts. This is particularly so when
the subject matter of the trust is money (as opposed to, say, a house). Investment
should be aimed to shield the fund from the depreciating effects of inflation and to
generate income for anyone with a life interest. It is common practice to insert an
express investment clause into the trust instrument. The trustee’s ability to invest is
also subject to statutory regulation in the form of the Trustee Act 2000.

Statutory Obligations
Unless the trust instrument contains an express investment clause, the duty to invest
is now widened and regulated by Pt II of the Trustee Act 2000. This duty is
designed to ensure that the trustees treat income and capital beneficiaries in an
impartial manner. This might be described as a duty to act fairly between all
beneficiaries. As Hoffmann J. admitted in Nestlè v National Westminster Bank Plc
(1988), “The trustees must act fairly in making investment decisions which may
have different consequences for different classes of beneficiaries”. It is also
intended to minimise risk while the trustees achieve a reasonable return on the
capital invested.

General power
Section 3(1) offers the trustee a general power of investment and authorises “any
kind of investment that he could make if he were absolutely entitled to the assets of
the trust”. An investment for these purposes requires an anticipation of profit or
income (e.g. granting a mortgage on terms that it will be repaid with interest). This
rids the law of the authorised categorisations previously set out in the (now

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repealed) Trustee Investments Act 1961. Section 8 gives the trustee the general
power to acquire land whether or not it is designed to generate a rental income. It
might be used, for example, to provide a home for a beneficiary.

Suitability
Section 4 requires the trustees, when making an investment, to have regard to the
suitability of particular investments and the need for diversification. These are
described as the standard investment criteria. As the trustees are required to add
diversity to their investment portfolio, they have to be judged on overall
performance and not the failure or success of a particular investment (Nestlè v
National Westminster Bank Plc (1988)). Under s.4(2), the trustees must carry out
periodic reviews of their investment portfolio and, if necessary, vary the
investments.

Advice
Section 5 requires the trustees to obtain and consider investment advice from a
suitable licensed source. The source could be an expert trustee or an outside
adviser. This rule gives way when it would be reasonable to proceed without such
advice (e.g. if the investment is small). Trustees are not obliged to follow the
advice received, but if they decline to do so they run the risk of being liable for any
resultant loss (Adams v Bridge (2009)).

Trustee’s Duty of Care

Portfolio theory
At common law, the duty of care placed upon a trustee when investing trust funds
was higher than that imposed on him when carrying out his other administrative
functions. The general yardstick was that that the trustee must invest the trust
property wisely, acting as an ordinary prudent man making investments (Learoyd v
Whiteley (1886)). This accepted that a prudent man of business might still invest in
risky ventures. This test was, however, to prove ill-suited to developing investment
practices and it became relatively meaningless. In Nestlè v National Westminster
Bank Plc (1988), the modern portfolio theory was launched. This entails that, as
trustees will often introduce an element of diversity to their investment portfolio,
they are to be judged on their overall performance and not on the failure or success
of a particular investment.

Expected standards
The standard of care expected of a trustee has been redefined in s.1 of the Trustee
Act 2000. This overhauled duty is not limited merely to investment and extends

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widely to most functions carried out by a trustee. The standard of care prescribed
in the 2000 Act confirms that a professional trustee is expected to show a higher
degree of care than a lay trustee. As evident from Bartlett v Barclays Bank Trust
Co Ltd (1980), a trust company with specialist staff will be judged on a different
level to an unpaid, family trustee. Subject to exclusion in the trust instrument, s.1
provides that the trustee must exercise such care and skill as is reasonable in the
circumstances having regard:

• to any special knowledge or experience that he has or holds himself out as

having. This instills a subjective element into the test; and

• if he acts as trustee in the course of a business or profession, to any special

knowledge or experience that it is reasonable to expect of a person acting in the
course of that business or profession. This instills an objective element into the test.

Non-Financial Considerations
The duty of a trustee is to act in the best financial interests of the beneficiaries. This
entails that the trustee must obtain the best rate of return available coupled with
diversification of risks. This is so even where it is against the political, social or
moral views of some of the beneficiaries. In Cowan v Scargill (1985), the
investment policy of the mineworkers’ pension fund was challenged. The dispute
concerned investments in foreign energy companies. Some trustees objected on the
ground that these companies were in direct competition with the domestic mining
industry. The High Court held that the trustees had to act in the best financial
interests of the beneficiaries and, hence, that they would be in breach of duty if they
failed to invest in the overseas energy companies. The trustees had to put aside
their personal interest and views.

Ethical investment
It is important to appreciate that ethical investment is not prohibited by the decision
in Cowan. It is still possible for the trust instrument to sanction ethical investment
or to prohibit investment in certain companies. The beneficiaries, moreover, may
collectively sanction such an investment policy and the trustees retain the ability to
choose ethical investing when the financial returns will be equivalent to an
alternative, “non-ethical” portfolio. As regards charitable trusts, however, a
modified approach is adopted. The trustees are entitled to decline investments that
run contrary to the objectives of that trust (e.g. investing in armament companies):
Harries v Church Commissioners for England (1992). Examples include cancer
research companies and tobacco shares or trustees of temperance societies and
brewery and distillery shares. Nevertheless, as demonstrated in the Harries case,

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charitable trustees are not allowed to pursue a blanket policy of ethical investment
if this would be detrimental to value of the trust fund.

PROTECTION OF TRUSTEES: EXONERATION CLAUSES

Scope
A trust instrument will commonly restrict the liability of a trustee (i.e. by way of an
exemption or exoneration clause). Such clauses offer protection for the trustee
while reducing the protection otherwise afforded to the beneficiary. In Armitage v
Nurse (1997), an express exemption protecting a trustee “from any cause
whatsoever unless such loss or damage shall be caused by his own actual fraud”
was upheld. This expressly excluded liability for breach of trust in the absence of a
dishonest intention on the part of the trustee. There can, in any event, be no
exclusion of liability arising from fraud or intentional wrongdoing: Baker v JE
Clark & Co (Transport) Ltd (2006). As demonstrated in Walker v Stones (2000),
the concepts of ‘’fraud’ and ‘dishonesty’ are, however, hard to define. Akin to the
criminal test of dishonesty, recent authorities support the notion that the trustee will
not be acting dishonestly unless he did something that ordinary people would
regard as dishonest and he knew that ordinary people would so regard it (Cavell
USA Ltd v Seaton Insurance Company (2009)).

KEY CASE

BARRACLOUGH V MELL (2005)

In Barraclough v Mell (2005), a trustee exemption clause excused the trustee
from liability for breach of duty for his own personal acts except when he
knew that the relevant acts were wrongful or when he had no belief that the act
was right and did not care if it was wrong. The trustee misapplied trust money
by paying £64,000 to the wrong beneficiaries. Although the trustee admitted
negligence, she still sought to avoid liability under the exemption clause. The
High Court concluded that, as she had genuinely thought that she was acting
within the terms of the trust, she was protected by the exemption clause.

Reform
The wide use of exclusion clauses entails that the protection afforded to
beneficiaries is less strong than it was in the past. This has prompted calls that
professional trustees should insure against potential liability rather than hide behind
broadly drafted exclusion clauses. In 2003, the Law Commission published a
Consultation Paper which provisionally concluded that the present law was
unsatisfactory and that professional trustees should not be exempt from liability
following a negligent breach of trust. This notion was, however, rejected in Report

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of the Law Commission, “Trustee Exemption Clauses” (2006). Instead, a rule of
practice was recommended under which the trustee must take steps, when the trust
is created, to make the settlor aware of the meaning and effect of including an
exclusion clause.

REVISION CHECKLIST
You should now know and understand:

• the meaning and role of a “fiduciary”;

• the various duties that exist when taking office;
• the various duties which prevent profit–making by a trustee;
• the limited exceptions to the non-profit making rule;
• the duty to invest and the statutory safeguards imposed; the
circumstances in which an exclusion clause will be upheld.

QUESTION AND ANSWER

The Question
Tony and Amy are the trustees of a family trust, the major asset in which is
Motor Ltd, a private family company operating four retail garages. By virtue
of their office as trustee, Tony and Amy are also directors of Motor Ltd and as
such each receives a salary of £80,000 pa. They also each have an option to
purchase further shares in Motor Ltd at an advantageous price.

Subsequently, Mend a Car Ltd provides Tony with investment advice and
information about a possible purchase of another garage which seems
advantageous to the trust. Tony and Amy decide that the trust should proceed
with the purchase, but there are insufficient free assets to raise the purchase
price of £900,000. Consequently, Amy puts in £500,000 of her own money to
complete the purchase. She agrees with Tony that, if the value of the new
garage increases, she will take a quarter share of the profit. Within six months
the value of the new garage has increased to £1 million.

Advise the beneficiaries of the trust.

Advice and the Answer

This problem question focuses upon the fiduciary duties of the trustees (in this

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example, Tony & Amy). The answer should start by a description of the
special types of relationship that give rise to this duty of loyalty and fidelity.
The central theme is that, unless authorised by the trust instrument, the
trustee/fiduciary should not profit from his position. Obviously, Tony & Amy
are in breach of their fiduciary duties.
First, as regards the salaries of £80,000 each, both are clearly in breach of
duty and must account for these sums to the beneficiaries. The answer should
consider and discuss case law illustrations (e.g. Williams v Barton (1927); Re
Macadam (1946)) and note that this is not a situation where they were
appointed independently of the trust (cf. Re Gee (1948)).
Secondly, the option to purchase shares in Motor Ltd (unless given in the
Trust Instrument) also contravenes the trustees’ fiduciary duty. This is
illustrated by Keech v Sandford (1726) which demonstrates that a trustee may
not put himself in a position where his duty to the trust and his personal
interest potentially conflict. It might be that the option is not in the best
interests of the trust and it might be that decisions taken by Tony & Amy will
promote self interest at the expense of the interests of the beneficiaries. In
addition, as the company is trust property the transaction appears to
contravene the self-dealing rule and the purchase would then be voidable at
the behest of the beneficiaries (Ex p Lacey (1802)).
Thirdly, the purchase of the garage, while made in good faith and because
the trust did not have enough funds, is a breach of trust by Amy. This is
illustrated generally by Keech v Sandford (1726), but more specifically by
cases such as Cooley (1971); Regal Hastings (1942) and Boardman v Phipps
(1967). She will have to account for any profit made on the transaction. The
facts that the trust could not otherwise have purchased the garage and that it
made a profit are irrelevant.

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 15
Powers of Maintenance, Advancement and
Delegation

INTRODUCTION
As well as labouring under the duties imposed by the trust instrument, the common
law and statute, the trustees will have a variety of fiduciary powers (or
discretions). A number of powers are conferred by statute whereas others may be
stated expressly in the trust instrument. Although for the purposes of this chapter
only the powers of maintenance, advancement and delegation will be considered in
detail, it is useful to provide an indication of the other powers possessed by
trustees.

EXAMPLES
PART II OF THE TRUSTEE ACT 1925 OFFERS TO THE TRUSTEE THE
FOLLOWING POWERS:

• the power to sell the whole or a part of the property at public auction
(s.12);

• the power to give a purchaser a good receipt for money paid (except when
the property is land in which case the receipt must be by at least two trustees or a
trust corporation) (s.14);

• the power to compound liabilities by, for example, the payment of debts,
accepting security for debts, allowing time for payment of debts and compromising
or settling any debt (s.15);

• the power to raise money by the sale or mortgage of trust property (s.16);

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and

• the power to insure trust property (s.19).

MAINTENANCE

An Express Power
Although the court has long claimed a limited inherent jurisdiction to authorise
payments to maintain or educate a minor (Revel v Watkinson (1748)), there is no
overarching power that allows trustees to divert trust money to provide for the
welfare and education of an infant beneficiary. The reality is that someone under 18
years of age cannot give a valid receipt for such payments. Hence, it became
common practice for the trust instrument expressly to give the trustees a power
(perhaps limited by conditions) to apply income for maintenance purposes. In such
cases, the trustees enjoy the discretion whether or not to make an award. The
trustees must, therefore, honestly decide whether or not to exercise the power and
make the payment to the parent or guardian of the minor. Some key observations
may be made concerning the exercise of an express power to maintain.

Decision making
In reaching their decision, the trustees must have regard to the interests of the minor
and not take on board the interests of the settlor or anyone else (e.g. the infant’s
parents (Fuller v Evans (2000))). The trustees have to make a separate decision
each time that payment is claimed or made. In Wilson v Turner (1883), the trustees
handed over the entire income of the trust fund to the father during the infancy of the
minor beneficiary without periodically considering the continuing merits of the
minor’s claim. The money was recoverable from the father’s estate. The trustees
cannot decide upon a blanket refusal ever to make a maintenance payment. If they
do so, a beneficiary can apply to court for an appropriate order (Stopford v Lord
Canterbury (1840)).

The Statutory Power

The statutory power of maintenance is to be found in s.31 of the Trustee Act 1925
which offers trustees a broad, discretionary power to apply trust income for the
benefit of a minor (but not an adult) beneficiary. In the light of this statutory power,
an express power is no longer necessary or common. Unfortunately, s.31 is
notoriously difficult to navigate.

Section 31(1)

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This provides that,

“trustees may, at their sole discretion, pay to his parent or guardian, if any, or
otherwise apply for or towards his maintenance, education or benefit, the
whole or such part of the income of that property as may, in all the
circumstances, be reasonable . . .”.

Trustees, therefore, could pay school fees directly to the school. If trustees are
aware of another trust fund available for the maintenance of the minor, a principle
of proportionality applies. This entails that, as far as is practicable and unless the
court directs otherwise, a proportionate part of each fund should be used for
maintenance purposes. The trustees of the respective funds should, if possible,
reach agreement concerning the proportion to be paid from each fund.

Exclusion
The statutory power can, by virtue of s.69(2), be modified or excluded, whether
expressly or by implication. For example, in Re Delamere’s ST (1984) the trustees
were expressly given an absolute discretion which was not subject to the statutory
temperance by the concept of reasonableness. The use of the word “absolutely”
sufficed to displace the operation of s.31. In Re Erskine’s ST (1971), the settlor
made provision for the income to be accumulated. This provision demonstrated an
intention to exclude the s.31 power to maintain.

Entitlement to income
The s.31 power requires that the trust interest carries the entitlement to intermediate
income (i.e. income generated between the date that the gift is made and the date
that it vests in the beneficiary). For example, a trust of shares for John if he reaches
the age of 18 will vest only when John reaches majority age. In the intervening
period, he has a contingent interest. Whether or not the trust was created inter vivos
(i.e. a lifetime trust) or by will, John will be entitled to any intermediate income
(i.e. the dividends) and can, therefore, benefit from the statutory power to maintain.
Subject to a contrary intention, vested gifts or contingent gifts will carry the
intermediate income.

Maintenance, education or benefit

Section 31 is not restricted to run-of-the-mill living expenses and may be used to
finance the purchase of a house in which the minor beneficiary can live, or a share
in a business partnership for the minor. It can also include the payment of the
beneficiary’s debts (Re Spencer (1935)). Income may be employed to pay past
maintenance expenses and might even be used to make donations to charity (Re

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Walker (1901)). The money can be employed also for school fees and medical
expenses and might be properly used to provide a holiday for the minor.

Making the decision

Section 31(1) directs the trustees to

“have regard to the age of the infant and his requirements and generally to the
circumstances of the case, and in particular to what other income, if any, is
applicable for the same purposes”.

The trustees must focus upon the best interests of the minor beneficiary and these
will vary according to the age of the minor and his family circumstances. Provided
that the trustees act in a bona fide and prudent manner, and periodically direct their
minds to whether or not the power should be exercised, the court will not interfere
((Re Bryant (1894))).
Ceasing to be a minor
When the beneficiary acquires a vested interest (in income or capital) on attaining
18 years there is no problem. The now adult beneficiary becomes entitled to the
unused income. Problems might arise when, on reaching majority age, the
beneficiary’s interest has still not vested. To assist the beneficiary, s.31(1)(ii)
obliges the trustees to pay the income to the beneficiary until his interest either
vests or fails. This provision accelerates the beneficiary’s interest, as he would not
otherwise be entitled to the income until the contingency was satisfied. This
assistance is unavailable when there is a direction in the trust instrument to the
contrary. For example, in Re McGeorge (1963), the testator bequeathed land to his
daughter. The bequest was not to take effect until after his wife’s death. The 21-
year-old daughter claimed the income. The court held that she was not entitled to
maintenance from the income because the gift was deferred. This deferral indicated
a contrary intention.

ADVANCEMENT
DEFINITION CHECKPOINT
Whereas maintenance concerns a trustee’s ability to use trust income to
promote the welfare of a minor beneficiary, advancement caters for the use of
part of the trust capital to benefit permanently a minor or adult beneficiary
before his entitlement under the trust has vested. The key distinction between
the two powers, therefore, lies with the source of the funds given to the
beneficiary. Other differences are that advancement is not geared to the age of
the intended recipient and is designed primarily to make particular, permanent

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 and substantial long term provision for a beneficiary rather than to meet the
payment of day-to-day expenses. The trustee’s ability to make advance
payments from capital will arise either from an express power in the trust
instrument or under s.32 of the Trustee Act 1925.

ILLUSTRATIONS OF HOW THE POWER OF ADVANCEMENT HAS BEEN

UTILISED INCLUDE:

• buying premises for a beneficiary to set up business (Re Kershaw’s Trust

(1868));

• providing a dowry on the marriage of a female beneficiary (Lloyd v Cocker

(1860));

• paying the beneficiary’s emigration costs (Re Long’s ST (1868));

• discharging the beneficiary’s debts (Marshall v Crowther (1874));

• financing improvements to land (Re Walker (1894)); and

• minimising the beneficiary’s tax liability (Pilkington v IRC (1962)).

An Express Power
A power to apply capital for the advancement or benefit of a minor or contingent
beneficiary may be afforded expressly by the trust instrument. An express power
might be employed where the settlor regards the statutory power of advancement to
be too limited. An express power might also be used to overcome problems of
classifying what expenditure should properly come from income and what should
come from capital. Take, for example, routine repairs carried out to a beneficiary’s
house. The cost of such repairs should be defrayed from income (i.e. via the power
of maintenance). Nevertheless, it is open to the settlor to provide expressly that this
expenditure be made from capital.

The Statutory Power

Section 32 of the Trustee Act 1925 provides that, subject to the finding of a
contrary intention, every trust created after 1925 offers the trustees an absolute
discretion to apply capital money for the advancement or benefit of a beneficiary. It
does not matter whether the trust is inter vivos or testamentary in nature. The use of
the word benefit widens the scope of the power to make payments and is to be
given a broad construction (Pilkington v IRC (1962)). The statutory power arises
even if there is a possibility that the beneficiary’s interest may be defeated (s.32 of

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the Trustee Act 1925). There are five limitations to the operation of s.32.

Half-share rule
Section 32(1)(a) imposes what is known as the half-share rule. This entails that the
money advanced cannot exceed, “altogether in amount one-half of the presumptive
or vested share or interest of that person in the trust property”. For example, where
John is entitled to £100,000 on reaching 35 years of age, the maximum amount in
total that can be advanced under s.32 is capped at £50,000. In CD (a minor) v O
(2004), the half-share rule was varied by the court under the Variation of Trusts
Act 1958 (see Ch.16). The rule is also usually relaxed in modern trust instruments.

Capital
Section 32 allows the trustees to make payments only out of “capital”. “Capital” for
these purposes comprises personalty (e.g. money and securities) and realty that is
subject to a trust of land under the Trusts of Land and Appointment of Trustees
Act 1996. Its meaning does not extend to settled land or the proceeds of sale of
settled land.

Deductible
Section 32(1)(b) imposes an obligation on the beneficiary to account for money
advanced when he “becomes absolutely and indefeasibly entitled to a share in the
trust property”. This means that the money advanced is to be deducted from the
beneficiary’s eventual share under the trust. This is sometimes known as hotchpot
and is designed to ensure equality of distribution between the beneficiaries.
Hotchpot is geared to the actual amount advanced and does not represent a
fractional distribution.
Section 32(1)(c) provides that no payment shall be made to prejudice any
interest prior to that of the beneficiary’s interest. For example, where property is
held on trust for John for life with remainder to Ann. If sums from capital were
advanced to Ann while John was still alive, it would reduce the fund from which
John’s income was to be derived. It would, thereby, prejudice the prior interest of
John (see Henly v Wardell (1988)).

Contrary intention
Section 32 gives way in the face of a contrary intention. In Re Evans’ Settlement
(1967), the trust instrument stated that the trustees were to have a power to advance
capital up to a specified amount. As this contradicted the statutory half-share rule,
the intention was that s.32 was not to apply.

Discretion

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Trustees have to take special care to ensure that their discretion is exercised
properly. In Simpson v Brown (1864), a beneficiary successfully recovered from
his trustee money that had been advanced to provide the beneficiary with an
apprenticeship with a chemist. The chemist was unqualified and unable to provide
the beneficiary with the appropriate training. Nevertheless, a trustee who could
show that the advancement was to alleviate a need of the beneficiary would
generally be shielded. Different considerations apply, however, when the
advancement is instead to confer a benefit. More is then expected from a trustee
making an advance. The trustees are expected to take on board all relevant
considerations and determine that it is a proper case for advancement. The court
can, therefore, prevent trustees from an exercise of discretion that is wrong or
unreasonable (Hampden v Earl of Buckinghamshire (1893)).

Continuing Supervision
Once the discretion to make an advance has been exercised, the trustees must
ensure that the funds advanced are actually used for the purposes stated by the
beneficiary. In Re Pauling’s ST (1963), the trustees advanced numerous capital
sums to beneficiaries. Although supposedly for the benefit of the beneficiaries, the
capital was really used to finance the luxurious lifestyle of their parents. The
children were of full age and did not complain about the manner in which the
money was used. It was presumed, however, that they were under the undue
influence of their parents. The children succeeded in suing the trustees for breach of
trust in making improper advances. The Court of Appeal concluded that the power
had been improperly exercised and that, as the payments had been made for a
particular purpose, the trustees had an obligation to inquire as to the actual use of
the money.

Setting Aside the Exercise of a Power

In cases of the exercise of a dispositive power (such as the power of maintenance
or advancement) the trustee must exercise his discretion sensibly and responsibly
while taking on board relevant matters and disregarding irrelevant concerns. In the
conjoined appeals of Pitt v Holt; Futter v Futter (2011), the trustees exercised
discretionary powers. It later became clear that the fiscal consequences of what the
trustees did were very different from what had been intended. Both appeals focused
upon whether the court could set the trustees’ acts aside. All depended upon
whether the acts were ultra vires or not. Lloyd L.J. emphasised that, if the
purported exercise of a discretionary power or duty is ultra vires the trust (i.e.
beyond the legal ability of the trustee because of a procedural defect, a substantive
defect or fraud), it will necessarily be void. In contrast, if the acts undertaken are
within the powers of the trustee they are not void, but merely voidable. The
beneficiary must then establish a breach of fiduciary duty on the part of the trustee.

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This will not usually be possible if the trustee sought proper advice and followed
it.

DELEGATION

General Rule
The duty of personal service is that a trustee cannot delegate his trust powers and
duties (Speight v Gaunt (1883)). The stance is that a trustee is likely to have been
chosen for his personal qualities and wisdom. Hence, and in the absence of an
express power given in the trust instrument, a trustee cannot delegate his discretion
to select who is to get what under a discretionary trust or as to how the trust fund is
to be invested. Nevertheless, there are exceptions to the general rule.

Use of Agents
A trustee can delegate ministerial and administrative functions where special skills
are required. For example, a stockbroker might be employed to buy and sell shares
or a solicitor to undertake conveyancing work. The power to appoint agents is now
governed by the Trustee Act 2000. Under s.11, there is a general power that
allows trustees to delegate their functions to an agent (including one of themselves,
but not a beneficiary).

Not all functions

The 2000 Act, however, makes some functions incapable of statutory delegation.
These are:

• any function concerning whether, or in what manner, the assets of the trust should
be distributed;

• the power to decide whether the payment of fees should be made out of capital
or income;

• any power to appoint a new trustee; and

• any power capable of delegation under the trust instrument or another statutory
provision.

Short-term Delegation
Under section 25(1) of the Trustee Act 1925, a trustee can formally (by power of
attorney) delegate any or all of his individual duties, powers and discretions vested
in him as trustee. This applies whether the trustee is a sole trustee or one of joint

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trustees. The delegation cannot exceed a period of 12 months from the
commencement date of the power. This provision is designed to cater for the
situation where, say, a trustee emigrates abroad or the trust property is situated on
foreign shores. Although there are no restrictions upon the number of delegations
that can occur, s.25 is seldom invoked.

Figure 16

After a s.25 delegation

The delegating trustee must, at the latest within seven days of the formal delegation,
provide the other trustees and anyone else who has an express power to appoint
new trustees with notice in writing. The notice must state the terms of the formal

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delegation: its commencement date and duration, the identity of the donee, the
reason for the delegation and the powers and discretions that are delegated. Once
delegation has occurred, the donee is in the same position as the delegating trustee,
except that the donee has no power to delegate. The delegating trustee is liable for
the acts of the donee as if they were his own acts. Section 25 is used only when
delegation is essential. This is because of the continuing liability of the delegating
trustee. Instead, trustees prefer collectively to appoint agents to undertake their
functions. In the latter scenario, the trustees are liable only for an agent’s actions if
the trustees have themselves failed in their duty of care (s.1 of the Trustee Act
2000).

Indefinite delegation
A further power of delegation arises under s.1 of the Trustee Delegation Act
1999. The power operates only where the delegating trustee has a beneficial
interest in land held by the trust and when the provision is not excluded in the trust
instrument. Put simply, it was designed to cater for an express trust of land where
the trustees are also the beneficiaries. Section 1 allows such a trustee to delegate
indefinitely all trustee functions, relating to the land and income and proceeds of
sale from land, by power of attorney. The delegating trustee remains liable for the
actions of the donee, but the s.1 facility is not limited to a 12-month period.
Trustees who are not also beneficiaries cannot take advantage of this facility and
must delegate under the more restricted s.25 procedures. A trustee who has granted
an existing power of attorney under that procedure cannot also take advantage of s.1
of the 1999 Act.

Advantages of s.1
• it enables a co-owner trustee to delegate without having to comply with the
restrictions that apply where a third party trustee holds land (e.g. duty to review);

• it enables a co-owner to make effective provision for the disposal of the land
where the co-owner becomes mentally incapable; and

• it ensures that the donee is able to deal with the proceeds of sale of the land.

Collective Delegation
Section 9(1) of the Trusts of Land (Appointment of Trustees) Act 1996 enables
trustees of a trust of land collectively to delegate their powers, including the power
of sale, to any beneficiary or beneficiaries of full age entitled with an interest in
possession to the trust land. Delegation can only be of powers relating to land and

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not other trust property. The delegation must be by power of attorney given by all
the trustees. The power of attorney may be revoked subsequently by any one of the
trustees. It ceases also on the appointment of a new trustee.

After s.9 delegation

The delegation may be made for any period of time or indefinitely. Beneficiaries, to
whom the powers have been delegated, have the same duties and liabilities as the
trustees, but are not regarded as trustees for any other purpose. They cannot sub-
delegate their functions nor can they receive capital monies so as to overreach the
equitable interest of any beneficiary. If the donee subsequently ceases to be a
person beneficially interested in the land (e.g. his interest is bought out), his ability
to exercise powers under the delegation also ceases.

Revision Checklist
You should now know and understand:

• the meaning of maintenance, advancement and delegation;

• the scope and operation of the s.31 power of maintenance;
• the power of advancement conferred by s.32;
• the ability of trustees to delegate their functions.

QUESTION AND ANSWER

The Question
By his will, Zac left his estate on trust to be divided equally between his two
daughters, Ann and Beth, on their becoming 18 years of age. Zac died last
month when Ann was 14 years of age and Beth was 17 years old.

Ann, who attends a private school, is unsure how her school fees for next year
are to be paid. Beth, a newly trained stylist, has the rare opportunity to
purchase a successful hairdressing business in a local shopping mall. Both ask
their trustee, Calum for financial assistance from the trust fund.

Advise Calum.

Advice and the Answer

This question is about the trustee’s powers of maintenance and advancement.
The former represents the ability to pay income of the trust for the

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maintenance, education or benefit of an infant beneficiary (i.e. Ann). The latter
concerns the power of the trustee to provide a beneficiary (i.e. Beth) with
funds drawn from the trust capital that she would be entitled to had she
reached the specified age (i.e. 18 years). The initial problem is that there does
not appear to be an express power given to Calum by Zac which allows such
payments. Hence, Calum must rely upon the statutory powers given by s.31
(maintenance) and s.32 (advancement) of the Trustee Act 1925. There is no
suggestion that the statutory powers have been modified or excluded in Zac’s
will.
As regards Ann, it is to be appreciated that s.31 offers Calum a generous
discretionary power to apply trust income for her benefit because she is still a
minor. Indeed, the payment of school fees is authorised expressly by s.31
which speaks of “maintenance, education or benefit”. Ann is, however,
required to show that she in entitled to the intermediate income of the trusts.
Put simply, is she (albeit with her sister, Beth) entitled to the income generated
between the date the trust is created and the date she attains 18 years of age?
There is no doubt that both sisters have what is called “contingent interests”
and both are entitled to income. Hence, Calum may lawfully exercise the s.31
power of maintenance. The decision, however, rests with Calum who must (by
virtue of s.31(1)) have regard to a variety of factors and promote the best
interests of Ann. It is likely that Calum will utilise trust income to pay for
Ann’s fees.
In relation to Beth, she wishes Calum to exercise his s.32 power of
advancement which will entail the use of part of trust capital to benefit her
permanently. The buying of a business for the beneficiary clearly falls within
the scope of “advancement or benefit” and is use permitted by s.32. There are,
however, three factors worth noting here. First, the “half-share rule” limits
Beth’s share to half of her eventual entitlement under the trust (i.e. here a
maximum of 25 per cent of the trust capital can be employed for her
advancement). Secondly, when she reaches 18 years, Beth will have to
account for the sums advanced. Thirdly, Calum must take care to exercise his
discretion in a proper and reasonable manner. This entails that he must take
into account all relevant circumstances in determining whether this is a
suitable instance for the s.32 power to be exercised. If Calum fails to take
sufficient care, he can be liable to Beth for the amount advanced (Simpson v
Brown (1864)). Due to Beth’s young age, limited business experience and the
high costs likely to be involved, this may not appear to be a suitable case for
advancement.

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 16
Variation of Trusts

INTRODUCTION
Until the trust is brought to an end, the trustees must carry out their duties according
to the terms of the trust and the rules of equity. As a trust may last for years,
however, it is possible that the original terms of the trust may become outmoded
and unreasonable. This might occur in relation to the original management and
administrative provisions of the trust or the beneficial interests as originally
allocated by the settlor. In limited circumstances, the law allows the terms of a trust
to be varied.

AN EXPRESS POWER
A variation of the trust terms might be catered for by the settlor giving to the
trustees a power to amend the trust. This is a common feature of modern pension
trusts. If such ability is given by the trust instrument, the court will be vigilant to
ensure that it is properly exercised for the purpose for which it was granted and as
intended by the settlor (Society of Lloyds v Robinson (1999)). Accordingly, any
restrictions on the power of amendment must be complied with.

THE RULE IN SAUNDERS V VAUTIER

Provided that they are adult, of sound mind and between themselves entitled
absolutely to the trust property, the beneficiaries may unanimously dismantle the
trust or vary its terms. This consensual variation is known as the rule in Saunders v
Vautier (1841). The purpose of variation is usually to minimise potential tax
liabilities. The rule cannot apply, however, where the beneficiaries are children,
include persons not yet born, are not all of sound mind or cannot all be found. The
rule is not limited merely to fixed trusts and applies in principle also to

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discretionary trusts, including pension trusts (Thorpe v Revenue & Customs
Commissioner (2010)).

Figure 17

INHERENT JURISDICTION
Generally the court has little power to authorise a departure from the terms of the
trust, but a variation can be made under the inherent jurisdiction of the court. This
jurisdiction was set out by the House of Lords in Chapman v Chapman (1954) and
limited to three instances, namely:

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 • salvage and emergency;

• compromise; and

• maintenance.

Salvage and Emergency

Meaning
The court has an inherent power to authorise a departure from the terms of a trust
where an unforeseen emergency arises or for the purposes of salvage. An
emergency might arise as in Re Jackson (1882), where the trust was varied so as to
provide money to finance major repairs to a house. An example of salvage would
be carrying out repairs to prevent a building from collapsing (Re Jackson (1882)).
In both cases, it is not sufficient that the repairs are merely desirable or beneficial.
The variation is limited to giving the trustees increased management and
administration powers. It does not extend to variations of beneficial interests (Re
Tollemache (1903)).

KEY CASE
RE NEW (1901)
A less conventional example of salvage arose from Re New (1901). There the
trustees held legal title to shares in a particular company and, as an emergency
matter, sought to become involved in the capital reconstruction of that
company. As a result, the existing shares would be exchanged for new shares
in the reconstructed company. This fell outside the trustees’ powers of
investment as set out in the trust instrument. The court sanctioned the
transaction on the basis that it was analogous to the salvage cases.

Compromise
Meaning
The court has a limited jurisdiction to approve compromises on behalf of minors
and unascertained beneficiaries. Compromises are given a restricted meaning that
requires there to be an element of genuine dispute before the court can interfere (Re
Powell-Cotton’s Resettlement (1956)). It does not, therefore, include a mere family
arrangement in which a beneficiary gives up a present right in return for a different
right (Chapman v Chapman (1954)).

KEY CASE
MASON V FARBROTHER (1983)

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 In Mason v Farbrother (1983), the trustees of a pension fund applied to the
court to give them wider powers of investment than they already possessed.
There was a dispute concerning the original investment clause, but the court
refused to substitute a new investment clause under its inherent jurisdiction.
The courts are wary about the possibility of beneficiaries inventing disputes
so that the terms of the trust could be varied.

Maintenance
The court may vary a trust so as to award maintenance from income that the testator
has directed should be accumulated. For example, the testator may make provision
for his family, but might seek to postpone the enjoyment of the gift while the estate
is increasing in value. The court will assume that the testator did not intend for his
family to go short in the interim period and can override his express directions by
ordering the payment of maintenance (Havelock v Havelock (1881)). Any such
order will necessarily result in a variation of the beneficial interests. The
jurisdiction is not restricted to urgent cases and maintenance is not limited to minor
beneficiaries (Revel v Watkinson (1748)).

STATUTORY JURISDICTION
The courts are given wider powers to vary the terms of trusts by a variety of
statutory provisions.

Section 57(1) of the Trustee Act 1925

This provision permits variation of a trust by the court for the purposes of
administration and management. For example, as in Southgate v Sutton (2011) the
trustees may not have the necessary legal powers to enter a transaction that is in the
interests of the beneficiaries. The court can intervene where it is expedient to do so
even where there is no emergency (i.e. it is wider than the court’s inherent salvage
jurisdiction). Section 57, however, gives no power directly to vary the beneficial
interests under a trust (Re Downshire Settled Estates (1953)). The section has been
used to authorise the sale of chattels (Re Hope’s WT (1929)), the sale of land where
the necessary consents were refused (Re Beale’s ST (1932)) and to give the trustees
wider investment powers (Trustees of the British Museum v AG (1984)).

Section 64(1) of the Settled Land Act 1925

This section deals with the variation of strict settlements. It gives the court a widely
defined power to sanction departures from the trust that are for the benefit of the
land or the beneficiaries provided that they could have been effected by an absolute
owner. The section is not limited to management and administration and can be

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used to alter beneficial interests (Hambro v Duke of Marlborough (1994)). Before
the enactment of the Variation of Trusts Act 1958, it was often used to minimise
tax liability. As settlements are being phased out, this power will eventually
become redundant.

Section 24 of the Matrimonial Causes Act 1973

Section 24 allows the High Court, when making an order of divorce or annulment
of marriage, to make a property adjustment order. It applies also to registered
same-sex partnerships under the Civil Partnership Act 2004. Section 24 can
operate to vary the trusts contained in any settlement that was made for the benefit
of the parties to the marriage or the children of that marriage. This jurisdiction
caters for the recasting of beneficial interests. In Brooks v Brooks (1996), the
husband’s pension scheme was viewed as creating a marriage settlement and was
varied for the benefit of a divorced wife. As regards normal pension schemes,
however, ‘pension splitting’ or ‘pension sharing’ will be catered for by the Welfare
Reform and Pensions Act 1999.

Section 16 of the Mental Capacity Act 2005

Section 16 gives the Court of Protection the power to make a settlement of a
patient’s property. Section 16(7) allows the court to vary that settlement in such
manner as it thinks fit where, prior to the death of the patient, either a material fact
has emerged that was not originally disclosed or a substantial change in
circumstances has occurred. In Re CWHT (1978), the Court of Protection ordered
that certain property of a patient be settled on trust. This gave the patient’s sister a
life interest with remainder for the patient’s children and remoter issue. No power
of revocation was reserved. Subsequently, the trust was varied during the lifetime
of the patient so that the property was to be divided between tenant for life and the
remaindermen.

THE VARIATION OF TRUSTS ACT 1958

Background
This Act was passed because of the decision in Chapman v Chapman (1954)
(where the House of Lords refused to vary the beneficial interests of a trust under
the court’s inherent jurisdiction to compromise claims) and followed the
recommendations of the Law Reform Committee 1957. Section 1 of the 1958 Act
confers a wide discretionary jurisdiction on the High Court to approve an
arrangement varying or revoking all or part of an expressly created private trust.
The Act does no more than give the court power to consent to arrangements on
behalf of those unable to consent themselves. The trust instrument, moreover, cannot

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exclude this jurisdiction. The court is, therefore, acting as if it had a statutory
power of attorney. In Re Steed’s WT (1960) Lord Evershed M.R. described this as
a “revolutionary discretion.”

What Variations?
The reference to an ‘arrangement’ catches any proposal put forward for varying or
revoking the trust. In Re Towler’s ST (1964), however, the court refused to approve
an arrangement because it was tantamount to creating a new trust and could not be
viewed as a variation. The proposal would change the whole substratum of the trust
by imposing a protective trust on a beneficiary who would otherwise be entitled
absolutely on reaching 21 years of age. Under the Act, variations can be made
covering not only administrative matters, but also beneficial interests, provided
always that the arrangement is for the benefit of the person on whose behalf the
court is giving approval. Indeed, the Act has been used for a variety of purposes,
including inserting a power of advancement, terminating an accumulation, widening
investment powers and inserting a new perpetuity period. It is, however, most often
used to achieve tax savings. Trustees should make an application only if they
believe that the variation will benefit the beneficiaries and there is no adult
beneficiary prepared to make an application. The beneficiaries should be
unanimous. If not, the non-consenting beneficiaries should be joined as defendants.

On Whose Behalf?

The statutory list

The persons on whose behalf the court may approve a variation are set out in s.1(1)
of 1958 Act and fall into four categories:

• any person who by reason of infancy or other incapacity is incapable of

assenting. This is a straightforward classification that embraces those too young to
consent and those of unsound mind who cannot consent;

• any person unborn. Such beneficiaries obviously cannot consent to a variation;

• any person who has a discretionary interest under a protective trust (as
considered in Ch.2);

• any person who may become entitled to an interest under the trust at a future date
or on the happening of a future event. This covers those with a mere expectation of
entitlement under the trust and it is irrelevant that the interest is extremely remote:
Knocker v Youle (1986). Section 1, however, goes on to exclude from its scope,

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 “any person who would be of that description, or a member of that class, as
the case may be, if the said date had fallen or the said event had happened at
the date of the application to the court”.

KEY CASE

RE SUFFERT’S ST (1961)
Re Suffert’s ST (1961) offers a good example of the last category of person.
There a 61-year old spinster was entitled to the income under a protective
trust. After her death, the property was destined to go to her statutory next of
kin (three cousins). She sought a variation under which a fund of £500 would
be held on trust for her cousins with the remainder of the fund (some £8,300)
to be held on trust for herself absolutely. One cousin consented to the
application, but the others did not. She invited the court to approve the
arrangement on behalf of the other two cousins as well as any unborn or
unascertained persons who might become entitled. Buckley J. held that, while
he could approve the variation on behalf of the unborn and the
unascertainable, the court could not approve the arrangement on behalf of the
two cousins. The cousins would have been entitled as next of kin had the
spinster been dead at the date of the court application and, therefore, they fell
within the prescribed exception. The cousins had themselves to decide
whether or not to consent.

Benefit
With the exception of discretionary beneficiaries under protective trusts, the
arrangement must be for the benefit of the persons on whose behalf approval is
sought. If there is no benefit or reasonable chance of benefit, there can be no
variation (Re Tinker’s ST (1960)). Most cases concern a financial advantage as in
Ridgwell v Ridgwell (2007) where the postponement of the children’s interests
under a trust was outweighed by the tax savings to be made. This is, however, not
the only factor that the courts will consider and, in deciding whether the variation is
for the overall benefit of those on whose behalf the application is made, matters
must be looked at in the round. The court might be influenced by a discernible
moral or social benefit.

KEY CASES
RE REMNANT’S ST (1970), RE CL (1969) ANDRE WESTON’S
SETTLEMENTS (1969)

• In Re Remnant’s ST (1970), the removal of a forfeiture provision, activated

on becoming or marrying a Roman Catholic, was a benefit as its retention could

226
cause trouble within the family. This was so even though the change would be
financially detrimental to the beneficiaries.

• In Re CL (1969), a Mental Health Act patient sacrificed her life interest, for
no consideration, for the benefit of her daughters. There was no financial advantage
for her personally. The benefit was a moral one. The court was influenced by the
fact that her income greatly exceeded her outgoings, that she was unlikely ever to be
discharged from care and that this is what she would have wished for had she been
of full mind.

• In Re Weston’s Settlements (1969), the settlor sought approval of an

arrangement under which property settled on his sons would be transferred from the
existing English settlements to settlements based in the Channel Isles. The purpose
was to avoid capital gains tax in the region of £163,000. The drawback was that the
settlor’s sons would have to take up residence in the Channel Isles. It was not for
the benefit of the children to be uprooted from England and transported to another
country simply to avoid tax.

REVISION CHECKLIST
You should now know and understand:

• the inherent jurisdiction of the court to vary trusts;

• the various statutory means by which trusts may be varied;
• the purpose of the Variation of Trusts Act 1958;
• how the 1958 Act operates.

QUESTION AND ANSWER

The Question
Explain the circumstances in which a trust may be varied.

Advice and the Answer

Absent an express power in the trust instrument, the general rule is that a
departure from the terms of the original trust is not permissible even if it
would be in the interests of the beneficiaries (Chapman v Chapman). As with
all general rules, however, there are exceptions. It is these exceptions that
must be discussed and explained. Accordingly, the essay must explore the

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 various statutory provisions which facilitate variation, the inherent (albeit
limited) jurisdiction of the court to vary a trust for the purposes of salvage and
emergency, compromise an maintenance and the ability of the adult
beneficiaries of sound mind unanimously to vary the terms of the trust.
As regards the statutory powers of variation, the following must be
considered:

i) s.57(1) of the Trustee Act 1925 which allows for variations concerning the
administration and management of the trust (e.g. to facilitate the sale of trust
property);

ii) s.64(1) of the Settled Land Act 1925 which caters for the variation of strict
settlements which are for the benefit of the trust and which could have been made
by an absolute owner. This includes a variation of beneficial interests;

iii) s.24 of the Matrimonial Causes Act 1973 which permits the variation of
existing family trusts on divorce or annulment of marriage so as to enable a
property adjustment order to be made;

iv) s.16(7) of the Mental Capacity Act 2005 permits the Court of Protection to
vary the terms of a trust of a patient’s property when a material fact has emerged or
a substantial change of circumstances has occurred;

v) s.1 of the Variation of Trusts Act 1958 which offers the court wide powers
to vary trusts for the benefit of those who are unable to consent themselves (e.g.
infants, unborn persons and those with a future interest). This could include the
removal of a forfeiture provision on marrying a Roman Catholic (Re Remnant’s ST
(1970)) or the sacrifice of a life interest in favour of an incapacitated person’s
daughters (Re CL (1969)). There must, moreover, be some benefit (whether
financial or moral) before the variation can be made (Re Weston’s Settlements
(1969)).

The answer must then consider the limited inherent jurisdiction of the court
to vary trusts as illustrated in Chapman v Chapman (1954). This arises, first,
in salvage and emergency cases where the trustees require additional
managerial and administrative powers (e.g. where a trust building is in severe
disrepair (Re Jackson (1882)). Secondly, it emerges in cases where a real
dispute is to be compromised ((Mason v Farbrother (1983)) dispute as to
construction of an investment clause). Thirdly, it can operate in cases where
maintenance from trust income is sought for the settlor’s family (Havelock v
Havelock (1881)).

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 The final aspect to be discussed is the rule in Saunders v Vautier (1841).
This case contains the sensible rule that a variation can occur with the consent
of all the beneficiaries who have reached the age of majority and are of sound
mind. If one beneficiary is a minor or incapacitated, the rule cannot operate.
Instead, an application should be made under the Variations of Trust Ac 1958.

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 17
Breach of Trust and Associated Remedies

INTRODUCTION
A trustee assumes a range of duties and responsibilities, breach of which exposes
him to liability in an action by the beneficiary. The trustee has a liability either to
compensate for loss or to account for gains subsequent to the breach. The essential
principle is the same whether the trust is express or implied. Not surprisingly, the
beneficiaries have a number of remedies against the trustee and sometimes third
parties for a breach of trust. This Chapter focuses on possible breaches of duty and
the range of remedies that a beneficiary may pursue of both a personal and
proprietary nature. A trustee may be liable for both acts of omission (failing to do
what he ought to do) and acts of commission (doing what he should not do). There
are many examples of breach in a variety of different circumstances. It is difficult,
therefore, to lay down any exhaustive list of possible breaches that will give rise to
trustee liability.

Categories of Breach
Nevertheless, breaches of trust by a trustee fall within three broad categories:

• gaining an unauthorised profit;

• failing to act with care and skill in the administration of the trust; and

• misapplications of trust property.

LIABILITY FOR BREACH

Liability of a Trustee for His Own Acts

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If the trustee commits a breach of trust, he is liable to the trust for any loss incurred
or personal gain made. In the case of an unauthorised investment, he is liable for the
loss incurred when it is sold (Knott v Cottee (1852)). Where the trustee wrongfully
retains an unauthorised investment, he is liable for the difference between the price
he obtains when it is sold and the price that would have been obtained had he sold
it at the right time (Fry v Fry (1859)). If a trustee improperly realises an authorised
investment, he must replace it or pay the difference between the price obtained and
the cost of repurchasing the investment (Phillipson v Gatty (1848)).

Former trustees
A trustee is not, however, liable for breaches of trust committed by his
predecessors (Re Strahan (1856)). He should, nevertheless, sort out any
irregularities discovered when taking office, including obtaining satisfaction from
the previous trustees. If the trustee fails to do so, he may himself be liable for loss
arising from this omission. If the trustee takes the appropriate steps on appointment,
he is entitled to assume that there has been no preexisting breach of trust (Re
Strahan (1856)).

Retirement
On retirement, a trustee (or, if he is deceased, his estate) will still remain liable for
breaches of trust that occurred during his stewardship (Head v Gould (1898)).
Generally, a trustee is not liable for breaches committed by his successors unless
his retirement occurred so that the breach could be committed or to avoid his
becoming involved with it.

Liability for Acts of Co-Trustees

Scope
A trustee is not, as a general rule, liable for the breach of duty committeed by a co-
trustee (Townley v Sherbourne (1643)). Liability can, however, arise when the
trustee himself is at fault in allowing another trustee to commit a breach. The
yardstick is whether the “innocent” trustee acted as a prudent businessman and this
is not limited to acts of wilful default. A trustee will be liable for a breach of trust
resulting from the act or omission of a co-trustee in the following situations:

• leaving trust income in the hands of a co-trustee for too long without making
proper inquiries (Townley v Sherborne (1643));

• concealing a breach committed by his fellow trustees (Boardman v Mossman

(1779)); and

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 • standing by while to his knowledge a breach of trust is being committed (Booth v
Booth (1838)) or contemplated (Wilkins v Hogg (1861)).

Joint and Several Liability

Meaning
Where two or more trustees are each liable for a breach of trust, they are jointly
and severally liable. This means that any one of the trustees may be sued for the full
amount or, if they all are sued, judgment may be executed against any one (or more)
of them. At common law, all trustees who were in breach were liable equally and,
if one had paid more than his share, he could claim contribution from the others.
Under the Civil (Liability) Contribution Act 1978, however, the sums recoverable
must be “such as may be found by the court to be just and equitable having regard to
the extent of that person’s responsibility for the damage in question”. It is open to
the court, therefore, to depart from the equitable presumption of equal
responsibility where the facts of the case demand.

Indemnity from other trustees

There are also circumstances in which a trustee can claim indemnity from one or
more of his co-trustees. Indemnity is appropriate where:

• one trustee has acted fraudulently or is alone morally culpable (Bahin v Hughes
(1886));

• the breach was committed solely on the advice of a solicitor co-trustee (Head v
Gould (1898));

• only one trustee has benefited from the breach (Bahin v Hughes (1886)); and

• one of the trustees is also a beneficiary (Chillingworth v Chambers (1896)).

Statutory Relief for Trustees

The court is given the discretion to relieve (in whole or in part) a trustee from
liability by s.61 of the Trustee Act 1925. This discretion arises when the trustee
has “acted honestly and reasonably, and ought fairly to be excused for the breach of
trust and for omitting to obtain the directions of the court in the matter in which he
committed such breach”. There are no rules when relief will be granted and each
case will be judged on its own particular circumstances (Re Evans (1999)). The
burden of proof lies on the trustee to establish that he acted reasonably and honestly

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and as prudently as he would have done in organising his own affairs. Hence, in
Lloyds TSB Bank Plc v Markandan (2010) the High Court refused to grant a
solicitors’ firm relief when, as part of a scam conveyancing transaction, it
innocently paid over £742.500 of the Bank’s money without obtaining the proper
documentation and without checking the identity of the recipient. As s.61 does not
mention the conduct of the beneficiary, any contributory negligence of the Bank was
deemed irrelevant. A paid trustee is expected to exercise a higher standard of
diligence and knowledge than an unpaid trustee: s.1 of the Trustee Act 2000.
Hence, an unpaid trustee is more likely to be released from liability than his
professional counterpart.

KEY CASES

RE KAY (1897), NATIONAL TRUSTEES CO OF AUSTRALASIA LTD V

GENERAL FINANCE CO (1905) AND BARRACLOUGH V MELL (2005)

• In Re Kay (1897), the testator left £22,000. The apparent liabilities of the
estate were £100. The trustee advertised for creditors of the estate, having
previously given the widow £300. It turned out that the testator’s debts amounted to
more than £22,000. The court held that the trustee had acted honestly and
reasonably. It was unforeseeable that the actual debts would be more than £22,000
when the apparent debts were £100.

• In National Trustees Co of Australasia Ltd v General Finance Co (1905),

the trustees followed the advice of a solicitor which was incorrect. The trust was
large and complicated and the court held that the advice of a trust expert, a senior
counsel, should have been sought. The trustees did not fall within s.61.

• In Barraclough v Mell (2005), the trustee was shielded behind the very
wide terms of an exclusion clause. The High Court made clear, however, that it
would have refused relief to the trustee under s.61. The trustee’s conduct was
grossly negligent and, while she had acted honestly, she had not acted reasonably
and ought not fairly to be excused for the breach of trust.

Acts of Beneficiaries

General rule
The rule is that a beneficiary who has consented to, or participates in, a breach of
trust cannot afterwards sue the trustees for breach of trust Walker v Symonds
(1818). This rule applies when three conditions are satisfied:

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 • the beneficiary was of full age and sound mind at the time of agreement or
concurrence;

• the beneficiary had full knowledge of the relevant facts and of the legal effect of
his actions; and

• the beneficiary acted voluntarily and was not under the undue influence of
another.

KEY CASES

NAIL V PUNTER (1832) AND RE PAULING’S ST (1964)

• In Nail v Punter (1832), the trustees held stock on trust for a woman for
life, with remainder to such person as she should, by will, appoint. Her husband
persuaded her to sell the stock in breach of trust. She died and appointed her
husband as her beneficiary. It was held that he could not sue the trustees because he
had been a party to the breach of trust.

• In Re Pauling’s ST (1964), a bank advanced money to the adult children,

but the funds were misapplied to finance a lavish lifestyle of their parents. The
children later sought to recover the money from the trustee bank. As a result of
undue influence exerted by their father, the children had not been fully aware of the
nature of their entitlements, had not acted voluntarily and, therefore, could succeed.

Indemnity from a Beneficiary

The court has an inherent jurisdiction to order that a trustee or other beneficiaries
be indemnified out of the interest of a beneficiary who instigated or requested such
a breach. If the beneficiary merely concurred in the breach, it must be shown he
received a benefit from it (Montford v Cadogan (1816)). This is supplemented by
s.62 of the Trustee Act 1925 which applies in cases of written consent and states:

Where a trustee commits a breach of trust at the instigation or request or

with the consent in writing of a beneficiary, the court may, if it thinks fit . . . make
such order as to the court seems just, for impounding all or any part of the interest
of the beneficiary in the trust estate by way of indemnity to the trustee or persons
claiming through him”.

PERSONAL CLAIMS AGAINST A TRUSTEE

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 DEFINITION CHECKPOINT
The trustee’s liability to account provides the basis for a beneficiary’s claim
against the trustee in cases of breach of trust. As the trustee is accountable for
the stewardship of the trust, it is open to the beneficiary to have the account
taken and to require the trustee to restore the trust fund or compensate for any
deficiency arising through the trustee’s action/inaction.

• The account is surcharged where a trustee is made liable for a breach (such
as negligence), which does not involve a misappropriation of trust property. In such
cases, the trustee must compensate the trust fund from his own pocket.

• The account is falsified where the trustee has misapplied trust property. In
such cases the trustee is required to restore to the trust the specific property, its
equivalent or its monetary value to the trust fund.

• In the case of unauthorised profit, the beneficiary may elect not to falsify the
account, but to accept or adopt the transaction. Hence, if a profit arises from an
unauthorised transaction the beneficiaries can claim it (Docker v Soames (1834)).

Set-Off Rules
A trustee cannot claim that a profit made in one transaction should be set off against
a loss suffered in another transaction (Dimes v Scott (1828)). If, however, the gain
and loss are part of the same transaction, then the rule against set-off will not
usually apply (Fletcher v Green (1864)). Nonetheless, in Bartlett v Barclays Bank
Trust Co Ltd (1980) the bank was able to set off the losses on a development
project at the Old Bailey against the profits made on another development at
Guildford. Both resulted from a policy of unauthorised speculative investments.
Brightman J. explained, “I think it would be unjust to deprive the bank of this
element of salvage in the course of assessing the cost of the shipwreck.”

Equitable Compensation
Equitable compensation is also payable directly to beneficiaries where there is no
need to reconstitute a trust fund, for example, where a beneficiary has become
entitled to the entirety of the trust fund, but the trustee has misapplied the property.
A direct payment from the trustee’s pocket to the beneficiary is deemed to be by
way of equitable compensation to the beneficiary. The claimant, however, may only
recover for loss caused by the defendant’s breach (Target Holdings Ltd v
Redfearns (1996)) or gain generated for the trustee by his wrongdoing (Sinclair
Investments (UK) Ltd v Versailles Trade Finance Ltd (2011)).

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PROPRIETARY CLAIMS AND TRACING

The Process of Tracing

Meaning
Technically, tracing is not a remedy. Instead, it is a process which identifies any
trust property that has passed into the hands of a recipient in breach of trust. The
beneficiary is, thereby, positioned to pursue a proprietary remedy that enforces his
ownership of that property. At its most simple, a beneficiary may be able to follow
the specific property into the hands of the recipient, in which case he will seek a
return of that specific property. Following is the process of identifying the same
asset as it moves from hand to hand. In the alternative, a subsitute for the original
trust property may be traced. For example, if money appropriated in breach of trust
is used to pay the total purchase price of a number of shares, there has been a
substitution of the money for the shares. The beneficiary can then locate the value of
the misappropriated in a new asset (the shares) and claim the shares as a substitute
for the old (the money).

Advantages
A proprietary claim (made possible by tracing misappropriated assets) has several
advantages over a mere personal claim:

• it may be available where there is no effective personal claim as where the

trustee is insolvent and the person who has the property is an innocent volunteer;

• if the person, B, who has the property goes bankrupt, then the owner, A, can
claim priority over B’s creditors. A is a secured creditor as he has a proprietary
claim, i.e. a claim which is attached to the property;

• claimants are entitled to any income produced by the assets that have been traced
from the date on which the property came into the defendant’s hands.

Common law and equitable tracing

Historically, different rules have applied to tracing at common law and in equity.
The common law rules are characterised by a restrictive approach. As will become
clear, the utility of common law tracing is evident only in delimited circumstances.
Judges and commentators alike have voiced regret that the law had failed to
develop a single system of rules. For example, in Jones (FC) & Sons v Jones
(1996), Millett L.J. saw no merit in having distinct and differing tracing rules at

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law and in equity, “given that tracing is neither a right nor a remedy but merely the
process by which the plaintiff establishes what has happened to his property and
makes good his claim that the assets which he claims can properly be regarded as
representing his property”. He reiterated the same point in Foskett v McKeown
(2001). Nevertheless, for the time being the distinction remains (Shalson v Russo
(2003)).

Common Law Tracing

Meaning
At common law, tracing misappropriated property was possible as long as it was
not mixed with other property. Hence, once property is mixed (for example, trust
money is mixed with other money in a bank account) there can be no tracing at
common law. Thus, only identifiable, tangible property could be traced, as could a
chose in action (e.g. a bank balance) or property purchased with the claimant’s
money. Tracing into clean substitutions is permissible at common law. In Taylor v
Plumer (1815), for example, the defendant handed money to his stockbroker to
purchase exchequer bonds. The stockbroker purchased American investments
instead. On the stockbroker’s bankruptcy, the defendant was entitled to the
investments that represented the money he had given to the stockbroker.

KEY CASE

JONES (FC) & SONS V JONES (1996)

In Jones (FC) & Sons v Jones (1996), the sum of £11,700 was loaned from the
partnership account of a firm to the wife of one of the partners. With the money
she made a successful stock-market investment. She realised the investment
and paid almost £50,000 into a separate bank account. The partnership was,
however, deemed to have been bankrupt before the loan payment. The Official
Receiver and not the partner’s wife was, thereby, entitled to the original
£11,700 at the point at which the loan was made. More difficulty surrounded
the profits. As there was no fiduciary relationship between the Official
Receiver and the wife, and tracing in equity was thereby not possible (see
below) the court was left to consider only the common law rules. The Court of
Appeal allowed the Official Receiver to recover the profits made on the
investment. Albeit surprising, the Court of Appeal ruled that the common law
rules embrace not only the property representing the original, but also the
profit made by the defendant’s use of it. The wife could have no better title to
the profit than she had to the principal sum.

Tracing in Equity

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Pre-requisites to tracing
For tracing to occur in equity, two conditions must be satisfied:

• there must be a fiduciary relationship between the parties; and

• the property must be traceable.

A fiduciary relationship
The traditional view is that a claimant may take advantage of the equitable tracing
rules only if he can demonstrate the existence of fiduciary obligations between the
claimant and the wrongdoer (Agip (Africa) v Jackson (1990)). For the claimant
who is a beneficiary under an express trust, for example, this is inevitably
straightforward. More difficulty surrounds other types of claims, such as in the case
of a mistaken overpayment made by the claimant bank to a recipient bank. In Chase
Manhattan v Israel-British Bank (1981), therefore, the search for evidence of
fiduciary obligations, purely to allow the claimant to trace in equity, led the court to
discern a fiduciary duty that arose on the receipt of the payment by the defendant
bank when its conscience became duly affected. In Foskett v McKeown (2001),
Lord Millett admitted that he could see no logical justification for insistence on a
fiduciary relationship as a precondition to tracing in equity. It is unclear whether
the courts will abandon this requirement at a future time.

The property must be traceable

It may be easy to trace money where it has been invested in shares or channelled
into the purchase of property for the wrongdoer. Here, the beneficiary can claim
either the property itself or a charge on the property for the money expended in the
purchase (Sinclair v Brougham (1914)). Difficulties arise, however, where money
has been placed in a mixed bank account and mingled with other funds. There are
various and somewhat complicated rules for dealing with the problem.

Trust funds mixed with trustee’s own money

Where a trustee mixes trust funds with his own funds, and uses the mixed funds to
make investments or purchases, the claimant may benefit from the operation of the
rules in Re Hallett’s Estate (1880) and Re Oatway (1903).
Under the rule in Re Hallett’s Estate, a trustee is presumed to draw on his own
money first and is not expected to want to commit a breach of trust. It is only when
his own money is exhausted that he is deemed to draw on trust funds. For example:
a trustee has £1,000 in an account: £500 of his own funds and £500 of trust funds.
He then spends £500 on a holiday. The £500 spent is deemed to be his own money.

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 Re Hallett’s Estate (1880) is subject to the overriding principle that the
beneficiary has a first charge on any property bought out of a mixed fund. In Re
Oatway (1903), however, a trustee withdrew money from a mixed fund and
invested it. Later he withdrew the rest of the money, which he then dissipated. In
such circumstances, the creditors could not successfully claim that the trustee was
deemed to spend his own money first. The beneficiaries were, instead, entitled to
the investments and any profit made on them.

Lowest intermediate balance

Only the lowest intermediate balance of the account may be traced (Roscoe v
Winder (1915)). To continue with the previous example, £500 of trust money
remains in the trustee’s personal account. If the trustee dissipates a further £400, but
later pays in £200 of his own money, the balance of the account stands at £300.
Only £100 may be traced. No part of the £200 added to the account can be deemed
to belong to the trust. The lowest intermediate balance of the account is, therefore,
£100. Remember, at all times, the trust property, or its value, must be identifiable
as it moves from place to place. Additional value added to the account at a later
stage from a different source, will not be deemed to replenish to trust fund
(Bishopsgate Investment Management v Homan (1995)).

Overdrawn accounts
Only a positive balance in an account may be claimed. Consider a scenario where
the wrongdoer’s account is overdrawn by £500. He then misappropriates £700 of
trust funds and adds this to his account. The balance now stands at £200. Only £200
can be claimed. This is because an overdrawn account does not represent an asset
that can be claimed (Shalson v Russo (2005)).

Backwards tracing and swollen assets theory

These represent two failed attempts to loosen up the tracing rules for the benefit of
claimants in equity. Backwards tracing involves tracing backwards into an asset
acquired technically before the misappropriation of trust funds on the basis that the
wrongdoer intended to finance the purchase of the asset with the misappropriated
funds. For example, a wrongdoer uses his overdraft facility to withdraw £15,000
with which he purchases a speed boat. Subsequently, he misappropriates £15,000
to restore the balance of the account. On the basis that tracing is a process, not
concerned with the wrongdoer’s intention, the courts have rejected attempts to
backwards trace (Bishopsgate Investment Management v Homan (1995)).
The swollen assets theory involves tracing into the general assets of the
wrongdoer, on the basis that the misappropriation has ‘swollen’ those assets, in
cases where the claimant can no longer locate the trust property or its specific

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value. For example, misappropriated funds paid into an overdrawn account may
lead the claimant to question why he cannot trace into other accounts with positive
balances held by the wrongdoer. There is little judicial enthusiasm for such
arguments (see Serious Fraud Office v Lexi Holdings Plc (2009)).

Mixture of two trust funds/trust funds mixed with moneys of an

innocent volunteer
The rules to deal with more complex mixtures (i.e. two trust funds or a trust fund
mixed with the property of an innocent volunteer) are necessarily different so as to
balance the competing claims of beneficiaries and innocent volunteers. There are
three options:

• first in, first out (Clayton’s Case (1816)). Withdrawals are deemed to occur in
the same order in which deposits were made. For example, £500 from Trust A is
deposited in a bank account followed by £500 from Trust B, followed by £500
from Trust C. £600 is withdrawn and invested profitably, whereas the remainder in
the account is dissipated. Under Clayton’s Case, Trust A would be entitled to trace
£500 into the profitable investment. This allows for a full recovery of the value of
the misappropriated funds and a claim to a proportionate share of the profit. Trust B
will recover only £100 and the proportion of the profit thereby generated. Trust C
recovers nothing. It will come as little surprise that the first in first out rule has
attracted criticism;

• proportionality (Foskett v McKeown (2001)). The method involves a rateable

distribution in accordance with amounts contributed to the fund. Where the fund is
deficient, all contributors share losses rateably. This method has the advantages of
simplicity and fairness;

• the North American rolling charge Barlow Clowes International v Vaughan

(1992). This method has been adopted in the United States and Canada as
producing the fairest results where there are many contributors to a fund. Each
deposit and withdrawal affects the overall mixture in the account so that each
withdrawal is treated as a withdrawal in the same proportions as the interests in the
account bear to each other before the withdrawal is made. Not surprisingly, the
rolling charge is difficult and expensive to apply.

And the innocent volunteer

Although the right to trace is lost when property falls into the hands of a bona
fide purchaser, the claims of beneficiaries and innocent volunteers rank
equally (Re Diplock’s Estate (1948)). The background to the Re Diplock

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 litigation concerned the will of Caleb Diplock, who gave his residuary estate
to “such charitable institutions or other charitable or benevolent objects as my
executors may in their absolute discretion select”. The executors, thinking this
was a valid charitable gift, distributed £203,000 amongst various charities.
The next of kin succeeded in their attempt to trace against the charities by
establishing a fiduciary relationship between themselves and the executors.
There was held to be nothing inequitable in tracing property into the hands of
innocent charitable institutions. It was, however, considered to be
impracticable to trace funds that had been spent on improving part of a
building in the middle of a hospital. Where the charities held the funds without
mixing with other funds, all the money was held for the next of kin. Where the
money had been mixed the charity and the next of kin shared rateably.

Limits to Tracing and Equitable Proprietary Claims

There are a variety of situations where the right to trace is lost or it is clear that the
claimant will be unsuccessful. The claimant may fail because:

• property has been consumed, dissipated or destroyed Sinclair Investments (UK)

Ltd v Versailles Trade Finance Ltd (2011);

• money was paid into an overdrawn account and ceased to be identifiable:

Shalson v Russo (2003)

• no proprietary claim can be pursued against a bona fide purchaser for value
without notice of the equity Sinclair Investments (UK) Ltd v Versailles Trade
Finance Ltd (2011);

• no claimant can trace who has acquiesced in the wrongful mixing or distribution;

• no tracing will be allowed where it would cause injustice. Accordingly, a

“change of position” defence might be accepted if an innocent recipient’s position
is so changed that he will suffer an injustice if required to repay or to repay in full
(Re Diplock’s Estate (1948)).

Figure 18

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KNOWING RECEIPT AND DISHONEST ASSISTANCE
If a third party has received trust property, but has not retained it, a proprietary
remedy is inappropriate. A beneficiary, however, might be able to bring a personal
action against the recipient/stranger to the trust if he had received the trust property
knowing that it was trust property or assisted in a breach of trust. Equally, where a
third party assists, in a dishonest manner, in the misapplication of trust property, he
too may be personally liable to account in equity.

Knowing Receipt

DEFINITION CHECKPOINT
Liability to account on the basis of knowing receipt of trust property applies to
strangers who receive trust property, or its traceable proceeds, in the
knowledge that the property has been misapplied or transferred in breach of
trust.

Requirements
The requirements for liability are those identified by Hoffmann L.J. in El Anjou v
Dollar Land Holdings (1994):

• a disposal of assets in breach of trust or fiduciary duty;

• the receipt by the defendant of assets which are traceable as representing the
assets of the claimant; and

• knowledge on the part of the defendant that the assets he received are traceable

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to a breach of fiduciary duty.

No need for dishonesty

There is no need to show that a recipient is dishonest. Liability will arise only if
there is the right type of “knowledge” and the right type of “receipt”. A person who
receives property innocently, but later discovers that it is trust property, becomes
liable to account from that discovery. If the recipient parts with the property before
ever knowing that it was trust property, there is no liability.

Traditional categories of knowledge

As to what constitutes knowledge, five categories were identified by Peter Gibson
L.J. in the Baden v Societe General du Commerce SA (1993):

(i) actual knowledge;

(ii) wilfully shutting one’s eyes to the obvious;

(iii) wilfully and recklessly failing to make reasonable inquiries;

(iv) knowledge of circumstances which would indicate the facts to a reasonable

man;

(v) knowledge of facts which would put a reasonable man on inquiry.

Modern interpretations
• In Re Montagu’s Settlement Trusts (1987), Megarry V.C. considered the crucial
question to be whether the recipient’s conscience is sufficiently affected to warrant
the imposition of a constructive trust. He qualified knowledge as including not only
actual knowledge, but also knowledge of types (ii) and (iii) in the Baden case.
Megarry V.C. felt it to be doubtful that knowledge of types (iv) and (v) would
suffice because the levels of carelessness indicated did not stretch to a want of
probity.

• In Bank of Credit and Commerce International v Akindele (2001) Nourse L.J.

doubted the use of the Baden categories and concluded, “All that is necessary is
that the recipient’s state of knowledge should be such as to make it unconscionable
for him to retain the benefit of the receipt”. Unfortunately, Nourse L.J. did not
subject his single test of knowledge to rigorous examination and it remains for
future cases to develop its scope and boundaries.

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 • In Uzinterimpex JSC v Standard Bank (2008), Moore-Bick L.J. believed that it
had to be shown (at least) that the recipient had the “clear suspicion” that he was
not entitled to receive the property.

Dishonest Assistance

DEFINITION CHECKPOINT
Where a third party assists in a dishonest manner in the misappropriation of
trust property, he may be personally liable in equity to restore the trust fund or
compensate for loss occasioned to the trust. Dishonesty on the part of the third
party is a sufficient basis of liability, i.e. it is not necessary that the trustee or
fiduciary was also acting dishonestly (Royal Brunei Airlines v Tan (1995)).

Dishonesty
The meaning of dishonesty came before the House of Lords in Twinsectra Ltd v
Yardley (2002). The majority held that the test for dishonesty was a hybrid (i.e. a
combined test) of subjective and objective elements. This entails that a defendant
will be personally liable as an accessory if he acted dishonestly by the standards of
honest and reasonable people and that he was aware that by those standards he
acted dishonestly. Lord Millett (dissenting) opted for a substantially objective test,
holding that account should be taken of some subjective elements such as the
defendant’s actual state of knowledge, but that it is not necessary that he should
actually appreciate that he was acting dishonestly.

KEY CASE

BARLOW CLOWES INTERNATIONAL LTD (IN LIQUIDATION) V

EUROTRUST INTERNATIONAL LTD (2006)
Barlow Clowes International Ltd (in liquidation) v Eurotrust International
Ltd (2006), concerned a fraudulent off-shore investment scheme, in which the
director of a company providing off-shore services faced an action for
dishonest assistance in the misappropriation of investment monies. Although
he was deemed dishonest by ordinary objective standards, the Privy Council
was required to consider the extent to which his subjective state of mind
should be assessed. The director’s clear suspicion that monies were
misappropriated and conscious avoidance of enquiries that might confirm his
suspicions proved sufficient. It was not necessary that he reflect upon
normally acceptable standards or, indeed, know all the details as to the trust
upon which the money was held. Accordingly, it is not necessary that the
defendant knows of the existence of a trust or fiduciary relationship or that the

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 transfer of money involves a breach of either.
Barlow Clowes (2006) treats the test for dishonesty as essentially
objective. Accordingly, questions remain as to the approach of future courts in
interpreting recent decisions and, in particular, the application of the
subjective element of the Twinsectra test. Indeed, in Abou-Rahmah v Abacha
(2007) Arden L.J. welcomed the guidance in Barlow Clowes (2006), whilst
confirming, nonetheless, that that the approach in Twinsectra had not been
jettisoned. For now the essentially objective approach to dishonesty appears
to be prevailing (Starglade Properties Ltd v Nash (2010)). There the
Chancellor, Sir Andrew Morrit, emphasised that there is an ordinary standard
of honest behaviour and that the subjective understanding of the person
concerned is irrelevant. The standard of dishonesty is not flexible and must be
determined by the court on an objective basis. He explained,

There is a single standard of honesty objectively determined by the court.

That standard is applied to specific conduct of a specific individual possessing the
knowledge and qualities he actually enjoyed.”

REVISION CHECKLIST
You should now know and understand:

• the general rules as to liability for breach of trust;

• the ability of the court to grant relief to a trustee under s.61 of the
Trustee Act 1925;
• the process of tracing and the circumstances that it can operate at
common law and in equity;
• the circumstances that a third party might be liable for knowing receipt
and dishonest assistance.

QUESTION AND ANSWER

The Question
Adam was the sole trustee of two trusts: the Village Trust and the Town Trust.
Last year, Adam wrongly sold assets belonging to the Village Trust and paid
the proceeds of £20,000 into his own bank account, which was £5,000
overdrawn at the time. A month later, Adam paid £3,000 of his own money
into the same account. Soon afterwards, a withdrawal of £10,000 from the
account was used to purchase shares in City Holdings. This proved to be a
profitable investment. To celebrate, Adam spent £4,000 from the account on a

245
 trip to Barbados.

Last month, Adam misappropriated £10,000 from Town Trust and paid this
sum into his own bank account. At this stage Adam’s account showed a credit
balance of £14,000. More recently, Adam has made the following
withdrawals:

• he withdrew £5,000 from his account in May and purchased a second hand
sports car, which he gave to his girlfriend Brenda. Brenda was very surprised as
she knew Adam had no money;

• he withdrew a further £2,000 and gave this to his mum Elsie.

Adam has just died. The shares in City Holdings remain profitable. Brenda
has crashed her car, which was uninsured. Elsie has spent the £2,000 on vital
repairs to her home. £7,000 remains in Adam’s account.

Advise the beneficiaries of Village Trust and Town Trust.

Advice and the Answer

Try to work chronologically through the problem. Adam is the sole trustee of
the Village Trust and the Town Trust and, as such, he is in breach of fiduciary
duty by virtue of the misappropriation of trust assets. As Adam has died, the
beneficiaries of both trusts will seek to trace the value of their misapropriated
assets. Remember, common law tracing is impossible where there are mixed
funds (Agip Africa v Jackson (1990)), but the clear fiduciary relationship
between Adam and the Trusts entails that the rules of equitable tracing may be
employed.
When Adam wrongly sell the assets of the Village Trust and pays the
proceeds into his bank account the balance stands at £15,000. £5,000 is
immediately lost to the Village Trust. This is because it cannot trace into an
overdrawn account, which is deemed a liability rather than an asset (Shalson
v Russo).
When Adam adds £3,000 of his own money to the account, he is not deemed
to replenish Village Trust value. The Village Trust may trace into the lowest
intermediate balance of the account (Roscoe v Winder (1915)), i.e. £15,000.
£10,000 is then withdrawn for the purchase of City Holding shares. Here Re
Oatway applies in preference to the rule in Re Hallett (1880). As the
transaction is profitable, the wrongdoing trustee is not deemed to spend his
own money first. The Village Trust can claim the shares and the profit

246
generated.

As regards the £4,000 spent on the holiday, this money is dissipated, the
first £3,000 of which is deemed to be Adam’s (Re Hallett (1880)). £4,000
worth of Village Trust assets remain in the account.
When £10,000 of Town Trust value is added to the account, the balance
stands at £14,000. As the bank account now contains a mixture of two trust
funds, different rules come into play to determine the competing claims of both
trusts. The courts can apply Clayton’s Case (1816) (first in first out); allow
the trusts to share proportionately in profits and losses from the account
(Foskett v McKeown (2001)) or apply the rolling charge (Barlow Clowes v
Vaughan (1992)).
Two further withdrawals occur, leaving a balance of £7,000 in the account.
The car was a gift to Brenda. Although the car was crashed and accordingly
there would be little value in pursuing a proprietary claim, Brenda might be
vulnerable to a personal action by the claimants on the basis oif her knowing
receipt. Did she shut her eyes to the obvious or wilfully and recklessly fail to
make the inquiries that an honest and reasonable person would make? Was it
unconscionable for her to retain the car (Akindele) or did she have a clear
suspicion (Uzinterimpex JSC v Standard Bank (2006))?
As to Elsie, she seems to be an innocent volunteer. If she cannot show
change of position, such that it would be inequitable to permit recovery of
trust monies, a charge may be placed on her home to the value of the repairs
(Re Diplock (1948)).
£7,000 remains in the account. Applying Clayton’s Case would be to the
disadvantage of the Village Trust. £4,000 of its value was first into the account
before mixing with the Town Trust occurred. Accordingly, the first in first out
approach would entail that all the value of Village Trust is lost in the crashed
car. The Town Trust would be entitled to the remaining funds in the account.
By contrast, rateable sharing for both Trusts would seem to produce a fair
outcome, with Village Trust claiming £2,000 and Town Trust the remaining
£5,000. With £4,000 of Village Trust value in the account at the point at which
£10,000 of Town Trust value was added, the proportions in which they would
share in profits and losses would be 2:5.

247
 18
Handy Hints

PREPARING FOR AND TAKING EXAMINATIONS

• Equity and trusts is a case law and statute law subject. You have to memorise
case names (even if only partially) and statutory provisions and apply them to
support your arguments and assertions.

• Look at past papers and familiarise yourself with the types of questions that
are set.

• Make sure that you revise sensibly and comprehensively. If you cut your
revision down to the bare minimum, you may live to regret it. Remember a topic
might not appear at all on the paper or might appear in a form that you find difficult.

• Practise hand writing essay and problem style questions (within exam type
conditions) and ask your tutor to look over them. Write as clearly as you can and
underline the case names that you use so that they stand out. Flow charts and
diagrams may help understanding.

• Always attempt the required number of questions on an examination paper.

Try to spread your time evenly and remember more marks may be gained at the
beginning of a new question than when finishing off an existing question.

• Read the questions carefully, identify the issues and address them as
thoroughly as you can.

• Avoid the scattergun, ‘write everything you know’ style of answer. Instead,
tailor your answer to what is being asked (e.g. if the question involves a quotation
to be discussed, make sure that you refer to the quote at various points in your
answer).

• Keep as calm as you can both during the revision period and the examination
itself.

WRITING ESSAYS

248
 • Read the title of the essay question carefully and use it to structure your
answer. You must refer to the question (e.g. if it is a quote that is being discussed)
at various stages in your answer.

• Keep to any word limits set. Many institutions deduct marks for overlong
essays and very short essays are not likely to score highly.

• Always read around the subject and make reference to articles, case-notes,
authors’ views etc. This cannot fail but to impress the marker.

• A good and thorough bibliography is necessary for a good mark.

• Utilise headings and subheadings so as to break up the text and to signpost

your arguments.

• Keep your language simple, take care with your use of punctuation and
grammar and spell check everything that you submit.

249
Index

This index has been prepared using Sweet and Maxwell’s Legal Taxonomy. Main
index entries conform to keywords provided by the Legal Taxonomy except where
references to specific documents or non-standard terms (denoted by quotation
marks) have been included. These keywords provide a means of identifying similar
concepts in other Sweet and Maxwell publications and on-line services to which
keywords from the Legal Taxonomy have been applied. Readers may find some
differences between terms used in the text and those which appear in the index.

(all references are to page number)

Accounts
trustees’ powers and duties, 157
Advancement
trustees’ powers and duties
capital, 169
contrary intention, 169
continuing supervision, 170
deductions, 169
definition, 167
discretion, 169—170
examples, 168
express powers, 168
half-share rule, 168—169
setting aside power, 170
statutory powers, 168
resulting trusts
definition, 91
illegal purpose, 92—93
rebuttable presumptions, 92
voluntary conveyances, 91—92
Advancement of education
blood and contract rule, 123
exclusively charitable, 123—124

250
 meaning, 121
personal nexus test, 123
public benefit, 122—123
public services, 122
research, 121—122
sport, 122
Advancement of religion
examples, 125
exclusively charitable, 125
meaning, 124
public benefit, 124—125
spiritual connection, 124
Agency
trusts distinguished, 19
Agents
trustees’ powers and duties, 171
Animals
non-charitable purpose trusts, 110
Anton Piller Orders
see Search orders
Appointments
powers of appointment
dispositive powers of appointment, 19
trusts distinguished, 21
receivers, 3
trustees
additional trustees, 143
court appointment, 143—144
general principle, 140
introduction, 139
mental disorder, 143
new trustees, 140—142
original trustees, 140
overview, 141
replacement trustees, 142
statutory purpose, 142
trusts of land, 143
vesting of trust property, 144
trustees’ powers and duties
calling in loans, 151
custodians, 151—152

251
 general obligation, 149
joint control, 151
legal proceedings, 151
safeguarding trust property, 149—151
Avoidance
trusts
bankruptcy, 77—79
family claims, 79—80
introduction, 74
question and answer, 81
transactions at an undervalue, 74—77
transactions defrauding creditors, 74—76

Bailment
trusts distinguished, 18
Balance of convenience
interim injunctions, 11
Bankruptcy
generally, 77, 79
preferences
generally, 78
time limits, 78
transactions at an undervalue
time limits, 78
undervalue defined, 78
Beneficial interests
certainty, 34—35
resulting trusts, 84—85
Beneficiary principle
animals, care of; 110
charitable trusts, 108
exceptions, 109
foxhunting, 111
generally, 108
graves, 110
monuments, 110
perpetuity, 109
private masses, 110
rule against inalienability, 109
rule against remoteness of future vesting, 109
Benefits of covenants

252
 trust creation, 51—52
“Blood and contract rule”
charitable trusts, 123
Bona vacantia
resulting trusts, 87
Breach of trust
categories, 187
dishonest assistance
definition, 201
dishonesty, 201—202
exclusion clauses, 160—161
knowing receipt
definition, 199
dishonesty, 200
knowledge categories, 200—201
requirements, 200
introduction, 187
question and answer, 202—204
trustees’ liability
beneficiaries’ acts, 190—191
co-trustees, 188
equitable compensation, 192
exclusion clauses, 160—161
former trustees, 188
joint and several liability, 188
own acts, 187
personal claims, 191—192
retirement, 187
right of indemnity, 189, 191
set-off rules, 192
statutory relief, 189
tracing
advantages, 193
common law/equity distinguished, 193
common law tracing, 194
equitable, 195—198
meaning, 193
third parties’ liability, 199

Capacity
trustees

253
 corporations, 139
generally, 139
minors, 139
Capital
advancement, 169
Capriciousness
trust creation
certainty of objects, 38
Certainty
charitable trusts, 35
intention
absence, 32
generally, 28
inferred, 30—32
precatory words, 28—30
introduction, 28
objects and purposes
administrative unworkability, 38
capriciousness, 38
class width, 38
conceptual certainty, 37
discretionary trusts, 36—37
evidential uncertainty, 37
fixed trusts, 36
generally, 35—36
uncertainty, 38
question and answer, 40—41
subject matter
beneficial interest, 34—35
generally, 32
trust property, 32—34
uncertainty, 35
summary, 39
Charitable trusts
advancement of education
blood and contract rule, 123
exclusively charitable, 123—124
meaning, 121
personal nexus test, 123
public benefit, 122—123
public services, 122

254
 research, 121—122
sport, 122
advancement of religion
examples, 125
exclusively charitable, 125
meaning, 124
public benefit, 124—125
spiritual connection, 124
advantages, 119
beneficiary principle, 108
certainty, 119
enforcement, 119
exclusively charitable purposes
advancement of education, 123—124
advancement of religion, 125
generally, 117
relief of poverty, 121
generally, 22, 118
heads of charity, 116—117, 120
introduction, 116
nature, 22
other charitable purposes
categories, 125—126
public benefit, 126—127
perpetuities, 119
political trusts, 127—128
public benefit
advancement of education, 122—123
advancement of religion, 124—125
generally, 117
other charitable purposes, 126—127
relief of poverty, 120—121
question and answer, 128—130
relief of poverty
exclusively charitable, 121
meaning, 120
need, 120
public benefit, 120—121
social and recreational purposes, 127
tax advantages, 119
Charities

255
 see also Charitable trusts
cy-pres doctrine, 133—134
Clean hands
see Conduct
Conduct
equitable principles
clean hands, 4—5
Constructive trusts
categories
enforcement of agreements, 99—100
strangers to the trust, 96—97
unauthorised fiduciary gains, 96
unconscionability, 98—99
definition, 25, 95
enforcement
contracts for sale, 100
generally, 99
mutual wills, 100
family home
context, 101
express bargain, 102—103
generally, 25
implied bargain, 103—105
introduction, 95
mutual wills
enforcement, 100
rules, 100—101
principles, 95
question and answer, 105—107
third parties
dishonest assistance, 97
knowing receipt, 97—98
unconscionability
formalities, absence of; 98
joint ventures, 99
interests in land, pre-existing; 98—99
unlawful killing, 98
Contracts
trusts distinguished, 19
Conversion
equitable principles, 6

256
Covenants
benefits of covenants
Creation
trust creation
see Trusts
Cy-pres doctrine
inherent jurisdiction
amalgamated charities, 133—134
charitable intention, 132—133
initial failure, 132—133
list of objects, 134
meaning, 131
reconstituted charities, 133—134
subsequent failure, 134—135
introduction, 131
overview, 132
question and answer, 138
statutory jurisdiction
charity collections, 136—137
convenience and efficacy, 135—136
solicited gifts, 137

Damages
injunctions in lieu, 12—13
Debts
trusts distinguished, 19
Defences
specific performance, 9
Delay
equitable principles, 5
Delegation
trustees’ powers and duties
agents, 171
collective, 173—174
delegates powers, 174
general rule, 171
indefinite, 173
notice in writing, 173
short-term, 171
Disaster relief
resulting trusts, 87

257
Disclaimer
trustees, 145
Discretionary trusts
certainty of objects, 36—37
generally, 22
Dishonest assistance
constructive trusts, 97
definition, 201
dishonesty, 201—202
Dishonesty
dishonest assistance, 201—202
knowing receipt, 200
Donatio mortis causa
trust creation, 44, 47—48
Duty of care
trustees
expected standards, 159
investments, 158—159
portfolio theory, 158—159

Education
charitable trusts
see Advancement of education
Enforcement
trust creation, 44
Equality
certainty, 35
equitable principles, 5
Equitable principles
conduct, 4
conversion, 6
delay, 5
equality, 5
fraud, 6
imperfect gifts, 7
in personam, 7
intention, 7
legal maxims, 4—7
remedies, 4, 15—17
unconscionability, 7
volunteers, 5

258
Equitable remedies
see Remedies
Equity
doctrine
fusion, 1
generally, 1
impact, 2–3
law/equity conflict, 1—2
equitable principles
conduct, 4
conversion, 6
delay, 5
equality, 5
fraud, 6
imperfect gifts, 7
in personam, 7
intention, 7
remedies, 4
unconscionability, 7
volunteers, 5
legal maxims, 4—7
Equity of redemption
mortgagor’s rights, 3
Estoppel
generally, 3
“Every effort rule”
trust creation, 44—45
Exclusion clauses
trustees’ liability, 160—161
Expenses
educational expenses
maintenance, 166
trustees’ remuneration, 156
Express trusts
charitable trusts, 22
definition, 22
discretionary trusts, 22
fixed trusts, 22
formalities
pension trusts, 23
private trusts, 22

259
 protective trusts, 23
secret trusts, 23

Failure of trusts
bona vacantia, 87
contract holding theory, 87
definition, 83
disaster funds, 86
failure of specific purpose, 84
failure to declare a trust, 83
generally, 82
maintenance cases, 85—86
over funded pensions, 87—88
reasons, 83—84
resulting trust approach, 87
unexhausted beneficial interests, 84—85
unincorporated associations, 86
Fair dealing
trustees’ fiduciary duties, 152—153
Family home
constructive trusts
context, 101
express bargain, 102—103
generally, 25
implied bargain, 103—105
implied trusts, 25
Family provision
trust avoidance
generally, 79
inheritance, 80
marital breakdown, 79
third parties, 80
Fiduciary duty
generally, 18
trustees
abuse of position, 154—155
bribes, 152
business competition, 156
insider dealing rule, 153
payment for acting as trustee, 155
profit, 152

260
 purchase of trust property. 152—153
remunerative employment, 154
self-dealing rule, 153
Fiduciary relationship
tracing, 195
Final injunctions
function, 10
Fixed trusts
certainty of objects, 36
nature, 22
Foreign property
freezing injunctions, 14—15
Formalities
declarations of trust, 57—61
existing trust interests
declaration/disposition distinguished, 57—61
definition, 56
express trusts, 57—61
introduction, 54
lifetime trusts of land
definition, 55
exceptions, 56
requirements. 55
purpose, 54
question and answer, 61—62
secret trusts, 63
trusts created by will
definition, 54
testamentary dispositions, 55
Foxhunting
beneficiary principle, 111
Fraud
equitable principles, 6
secret trusts, 65
Freezing injunctions
extraterritoriality, 14—15
function, 11
generally, 11, 14

Gifts
apparent gifts

261
 resulting trusts, 82, 88—90
cy-pres doctrine
solicited gifts, 137
unincorporated associations
non-charitable purpose trusts, 112—114
Graves
beneficiary principle, 110

Half secret trusts

see Secret trusts

Illegal contracts
specific performance, 8
Immoral contracts
specific performance, 8
Imperfect gifts
equitable principles, 7
Implied trusts
constructive trusts
definition, 25
family home, 25
definition, 24
resulting trusts, 24
statutory trusts
definition, 26
trusts of land, 26
Inferences
certainty of intention, 30—32
Inherent jurisdiction
cy-pres doctrine
amalgamated charities, 133—134
charitable intention, 132—133
initial failure, 132—133
list of objects, 134
meaning, 131
reconstituted charities, 133—134
subsequent failure, 134—135
Initial failure
cy-pres doctrine, 132—133
Injunctions
damages in lieu, 12—13

262
 definition, 10
freezing injunctions
extraterritoriality, 14—15
generally, 14
generally, 3
interim injunctions
American Cyanamid principles, 11—12
guidelines, 11—12
search orders, 13—14
types, 10—11
Insider dealing
trustees’ fiduciary duties, 153
Intangible assets
certainty of subject matter, 32
Intention
certainty
absence, 32
generally, 28
inferred intention, 30—32
precatory words, 28—29
equitable principles, 7
Interim injunctions
function, 10
guidelines
American Cyanamid principles, 11
exceptions, 11—12
Intestacy
secret trusts, 64
Investments
trustees powers and duties
advice, 157
duty of care, 158—159
ethical investments, 160
general power, 158
non-financial considerations, 159
purpose, 157
statutory obligations, 157
suitability, 157

Joint and several liability

trustees’ liability, 188

263
Knowing receipt
constructive trusts, 97—98
definition, 199
dishonesty, 200
knowledge categories, 200—201
requirements, 200

Laches
meaning, 5
Legal maxims
generally, 4—7
Liabilities
see Trustees’ liability

Maintenance
trusts
age, 167
best interests rule, 166—167
educational expenses, 166
express powers, 164—165
income entitlement, 166
resulting trusts, 85—86
setting aside power, 170
statutory powers, 165—166
Mandatory injunctions
function, 10
interim injunctions, 11
Mareva injunctions
function, 10
Mental capacity
trusts
trustees, 143
variation of trust, 181
Minors
trustees
capacity, 139
variation of trust, 182
Mixed funds
tracing
funds mixed with other trust funds, 197

264
 funds mixed with trustee’s own money, 195
funds mixed with volunteer’s money, 197
Money
specific performance, 9
Monuments
beneficiary principle, 110
Mutual wills
constructive trusts
enforcement, 100
rules, 100—101

Non-charitable trust purpose trusts

beneficiary principle
animals, care of; 110
charitable trusts, 108
exceptions, 109
foxhunting, 111
generally, 108
graves, 110
monuments, 110
perpetuity, 109
private masses, 110
rule against inalienability, 109
rule against remoteness of future vesting, 109
introduction, 108
overview, 110
persons or purposes, 111
unincorporated associations
contract holding theory, 113—114
definition, 112
gift on trust for purpose association, 112
gift to present members, 112
question and answer, 114—115
Notice
trustees’ powers and duties
delegation, 173

Objects and purposes

certainty
administrative unworkability, 38
capriciousness, 38

265
 class width, 38
conceptual certainty, 37
discretionary trusts, 36—37
evidential uncertainty, 37
fixed trusts, 36
generally, 35—36
uncertainty, 38
Overreaching
trustees, 139—140

Pension funds
resulting trusts, 87—88
Pension schemes
nature, 23
Perpetuities
beneficiary principle, 109
charitable trusts, 119
Politics
charitable trusts, 127—128
Powers
trusts distinguished, 21
Powers of appointment
trusts distinguished, 21
Precatory words
certainty of intention, 28—30
Preferences
bankruptcy
generally, 77
time limits, 78
“Private trusts”
nature, 22
Profits
trustees’ fiduciary duties, 152
Prohibitory injunctions
function, 10
Proprietary estoppel
definition, 50
trust creation, 50
Protective trusts
express trusts, 23—24
variation

266
Public benefit
advancement of education, 122—123
advancement of religion, 124—125
generally, 117
other charitable purposes, 126—127
relief of poverty, 120—121
Public services
charitable trusts, 122
Public trusts
see Charitable trusts

Qui timet actions

function, 10

Rebuttable presumptions
resulting trusts
advancement, 91—93
generally, 90
voluntary transfer to another, 91
Receivers
appointment, 3
Recreational services
charitable trusts, 127
Rectification
generally, 3
Relief of poverty
exclusively charitable, 121
meaning, 120
need, 120
public benefit, 120—121
Religion
charitable trusts
examples, 125
exclusively charitable, 125
meaning, 124
public benefit, 124—125
spiritual connection, 124
non-charitable purpose trusts, 110
Remedies
availability, 15—17
generally, 3–4

267
 injunctions
damages in lieu, 12—13
definition, 10
freezing injunctions, 14—15
generally, 3, 14
interim injunctions, 11—12
search orders, 13—14
types, 10—11
receivers
appointment, 3
rectification, 3
rescission, 3
specific performance
availability, 8—9
defences, 9
definition, 8
generally, 3, 8
restrictions, 8—9
Remuneration
trustees
generally, 155
inherent jurisdiction, 155
out-of-pocket expenses, 156
remunerative employment, 154
solicitor’s litigation costs, 155
special trustees, 155
Trustee Act 2000, 156
Rescission
generally, 3
Research
charitable trusts, 121—122
Residue of estate
certainty, 33
Restrictive covenants
general rule, 3
Resulting trusts
apparent gifts
context, 88
generally, 82
legal title in joint names, 88
limitations, 90

268
 non-domestic settings, 89
purchase in another’s name, 88
quantum, 90
failure of trusts
bona vacantia, 87
contract holding theory, 87
definition, 83
disaster funds, 86
failure of specific purpose, 84
failure to declare a trust, 83
generally, 82
maintenance cases, 85—86
over funded pensions, 87—88
reasons, 83—84
resulting trust approach, 87
unexhausted beneficial interests, 84—85
unincorporated associations, 86
introduction, 82
nature, 24
question and answer, 93—94
rebuttable presumptions
advancement, 91—93
generally, 90
voluntary transfer to another, 91
trusts of land, 56
Retirement
trustees
beneficiaries’ direction, 146
generally, 139
voluntary, 145
trustees’ liability, 188
Right of indemnity
trustees’ liability, 189, 191
Rule against inalienability
non-charitable purpose trusts, 109

Sale of goods
specific performance, 8
Saunders v Vautier
variation of trusts, 177
Search orders

269
 Anton Piller orders, 10
function, 10
generally, 13
safeguards, 13—14
Secret trusts
creation
acceptance, 70—71
communication, 67—70
ingredients, 67
intention, 67, 69
dehors the will, 66
formalities, 63
fraud, 65
fully secret trusts, 64—65
generally, 23, 63
half-secret trusts, 64—65
intestacy, 64
justification, 66—67
nature of, 23
predeceasing testator, 71
purpose, 63
question and answer, 72—73
summary, 71
Self-dealing
trustees’ fiduciary duty, 153
Set-off
trustees’ fiduciary duty, 192
Settled land
variation of trusts, 181
Specific performance
availability
restrictions, 8—9
defences, 9
definition, 8
generally, 3, 8
Sport
charitable trusts, 122
Statutory avoidance
see Avoidance
Statutory trusts
definition, 26

270
Strangers
see Third parties
Subject matter
certainty
beneficial interests, 34
introduction, 32
trust property, 32—34
uncertainty, 35
Subpoenas
generally, 3
Subsequent failure
cy-pres doctrine, 134—135

Tangible assets
certainty, 32—33
Tax advantages
charitable trusts, 119
Tenancies at will
specific performance, 8
Third parties
dishonest assistance, 97
knowing receipt, 97—98
tracing, 199
transactions at an undervalue, 77
trust avoidance, 80
Time limits
preferences, 78
transactions at an undervalue, 78
Tracing
advantages, 193
common law/equity distinguished, 193
common law tracing, 194
equitable tracing
backwards tracing, 196—197
conditions, 195
fiduciary relationship, 195
funds mixed with other trust funds, 197
funds mixed with trustee’s own money, 195
funds mixed with volunteer’s money, 197
limitations, 198
lowest intermediate balance, 196

271
 mixed trust funds, 195—197
overdrawn accounts, 196
swollen assets theory, 196—197
traceable property, 195
volunteers, 198, 199
meaning, 193
third parties’ liability, 199
Transactions at an undervalue
bankruptcy provisions, 77—78
conditions, 75
generally, 74
inferred intention, 76
purpose, 76
third parties, 77
undervalue defined, 75
Transactions defrauding creditors
generally, 74
transactions at an undervalue, 74—77
Trust property
certainty, 32—34
purchase, 152—153
safeguarding, 149—151
vesting, 144
Trustees
see also Trustees’ liability; Trustees’
powers and duties
appointments
additional trustees, 143
court appointment, 143—144
general principle, 140
introduction, 139
mental disorder, 143
new trustees, 140—142
original trustees, 140
overview, 141
replacement trustees, 142
statutory purpose, 142
trusts of land, 143
vesting of trust property, 144
capacity
corporations, 139

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 generally, 139
minors, 139
disclaimer, 145
numbers, 139
overreaching, 139—140
question and answer, 147—148
removal
beneficiary’s welfare, 146—147
inherent jurisdiction, 146
remuneration
generally, 155
inherent jurisdiction, 155
out-of-pocket expenses, 156
solicitor’s litigation costs, 155
special trustees, 155
Trustee Act 2000, 156
retirement
beneficiaries’ direction, 146
voluntary, 145
Trustee Act 1925, 147—148
Trustees’ liability
beneficiaries’ acts, 190—191
co-trustees, 188
equitable compensation, 192
exclusion clauses, 160—161
former trustees, 188
joint and several liability, 188
own acts, 187
personal claims, 191—192
retirement, 187
right of indemnity, 189, 191
set-off rules, 192
statutory relief, 189
Trustees’ powers and duties
accounts, 157
advancement
capital, 169
continuing supervision, 170
contrary intention, 169
deductions, 169
definition, 167

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 discretion, 169—170
examples, 168
express powers, 168
half-share rule, 168—169
setting aside power, 170
statutory powers, 168
appointments
calling in loans, 151
custodians, 151—152
general obligation, 149
joint control, 151
legal proceedings, 151
safeguarding trust property, 149—151
delegation
agents, 171
collective, 173—174
delegates powers, 174
general rule, 171
indefinite, 173
notice in writing, 173
short-term, 171
duty of care
expected standards, 159
investments, 158—159
portfolio theory, 158—159
fiduciary duty
abuse of position, 154—155
bribes, 152
business competition, 156
insider dealing rule, 153
payment for acting as trustee, 155
profit, 152
purchase of trust property. 152—153
remunerative employment, 154
self-dealing rule, 153
introduction, 149, 164
investments
advice, 157
duty of care, 158—159
ethical investments, 160
general power, 158

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 non-financial considerations, 159
purpose, 157
statutory obligations, 157
suitability, 157
maintenance
age, 167
best interests rule, 166—167
educational expenses, 166
express powers, 164—165
income entitlement, 166
setting aside power, 170
statutory powers, 165—166
overview, 150, 172
question and answer, 161—163, 174—176
trust documents, 157
Trusts
see also Breach of trust; Charitable trusts; Constructive trusts; Express
trusts; Implied trusts; Non-charitable trust purpose trusts; Resulting trusts;
Secret trusts; Trusts of land
agency distinguished, 19
bailment distinguished, 18
avoidance
bankruptcy, 77—79
family claims, 79—80
introduction, 74
question and answer, 81
transactions defrauding creditors, 74—77
certainty
intention, 28—32
introduction, 28
objects, 35—38
question and answer, 40—41
subject matter, 32—35
summary, 39
classification
express trusts, 22—24
flowchart, 21
implied trusts, 24—26
contracts distinguished, 19
creation
donatio mortis causa, 44, 47—48

275
 enforcement, 44
every effort rule, 44—45
fortuitous vesting, 44, 48—49
incomplete, 44
introduction, 42
proprietary estoppel, 44, 50
question and answer, 52—53
secret trusts, 67—71
self-declaration as trustee, 42—43
summary, 51
transfer to trustee, 43—44
trust instrument, 18
trust of benefit of covenant, 51—52
unconscionability, 44, 46
debts distinguished, 19
definition, 18
fiduciary duty, 18
formalities
declarations of trust, 57—61
existing trust interests, 56—57
express trusts, 57—61
introduction, 54
lifetime trusts of land, 55—56
purpose, 54
question and answer, 61—62
secret trusts, 63
trust instrument, 18
trusts created by will, 54—55
gifts distinguished, 19
introduction, 2, 18
powers
dispositive powers of appointment, 19
distinguished, 19
question and answer, 26—27
variation
administration and management, 180
compromise, 179
emergencies, 179
express powers, 177
incapacity, 182
infants, 182

276
 inherent jurisdiction, 179
introduction, 177
maintenance, 180
matrimonial causes, 181
mental capacity, 181
overview, 178
protective trusts, 182
question and answer, 185—186
salvage, 179
Saunders v Vautier rule, 177
settled land, 181
statutory jurisdiction, 180—181
Variation of Trusts Act 1958, 182—184
Trusts of land
formalities
lifetime trusts, 55—56
generally, 26
trustees
appointment, 143

Unconscionability
constructive trusts
formalities, absence of; 98
joint ventures, 99
interests in land, pre-existing; 98—99
unlawful killing, 98
equitable principles, 7
trust creation, 46
Unincorporated associations
gifts
contract holding theory, 113—114
gift on trust for association purposes, 112
gift to present members, 112
question and answer, 114—115
definition, 112
resulting trusts, 86—88
Unlawful killing
constructive trusts, 98

Variation
trusts

277
 administration and management, 180
compromise, 179
emergencies, 179
express powers, 177
incapacity, 182
infants, 182
inherent jurisdiction, 179
introduction, 177
maintenance, 180
matrimonial causes, 181
mental capacity, 181
overview, 178
protective trusts, 182
question and answer, 185—186
salvage, 179
Saunders v Vautier rule, 177
settled land, 181
statutory jurisdiction, 180—181
Variation of Trusts Act 1958, 182—184
Variation of Trusts Act 1958
benefit, 183—184
background, 182
persons, 182
scope, 182
Vesting
beneficiary principle
rule against remoteness of future vesting, 109
fortuitous vesting
assisting volunteers, 44
definition, 48
operation, 48—49
trustees
vesting of trust property, 144
Vexatious proceedings
interim injunctions, 11
Volunteers
donatio mortis causa, 47—48
equitable principles, 5
every effort rule, 44—45
proprietary estoppel, 50
specific performance, 8

278
 unconscionability, 46
Wills
definition, 54
formalities, 54—55
Winding-up proceedings
interim injunctions, 12
Without-notice injunctions
function, 10

279