Law of Trusts - 2020 (English)

Pro|Studies 2020 Intermediate Year
First compiled and distributed in Sri Lanka in 2017 by the Pro|Studies

No 244, Hulftsdorp Street, Colombo 12
Modified/updated and distributed by the Law Students’ Union of Sri Lanka 2019
No. 244, Hulftsdorp Street, Colombo 12
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Contents
1. Equity
2. Application of English Law
3. Trusts
4. Certainties
5. Lawful Purpose
6. Charitable Trusts
7. Constructive Trusts
8. Rights and Powers of Trustee
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1. EQUITY
What is equity?
Equity means that which is fair and just, moral and ethical; but its legal meaning is much
narrower. It is not synonymous with justice in a broad sense.
The early development of equity categorized it as a separate system from the then existing common
law.
Equity is the means by which a system of law balances out the need to achieve fair results in
individual circumstances.
Equity mitigates the rigour of the common law, so that the letter of the law is not applied in such
a strict way that it may cause injustice.
Equity appears to imbue the courts with the general discretion to disapply statutory or common
law rules whenever good conscience requires it.
Equity can be understood as the means by which English law ensures that the strict application
of a common law or statutory rule does not result in any unfairness. To this extent equity is a form
of natural justice and it has a moral basis.
Equity can be considered in its formal sense as constituting the collection of substantive principle
to judge people’s consciences.
Equity should be understood as being a code of technical, substantive rules and not simply as a
reservoir of general principles.
Principles of justice and conscience are the basis of equity jurisdiction, but it must not be thought
that the contrast between law and equity is one between a system of strict rules and one of broad
discretion- A. Duggan (1997) 113 L.Q.R 601)
What is common law?
Norman invasion in 1066 and William I seized control of the entire Kingdom.England and Wales
developed as a single jurisdiction and Scotland retained its own legal system.Hence the term
“common law” coined to mean this new system of legal principle created by the English courts
which was common to the entire Kingdom.
Henry II created the courts of King Bench to hear the matters. Medieval courts and the principles
of the common law began.
If the common law courts’ decision was unfair or unjust, there remained a right to petition the
King directly.
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The proliferation of suits that were brought directly before the King required the creation of a
separate mechanism for hearing them.
During the Medieval period, the position of Lord Chancellor was created to hear the petitions.
The Medieval Lord Chancellor was empowered to issue royal writs on behalf of the Crown.
The Lord Chancellor was a politician and foremost. Until 1741, it was the Lord Chancellor who
would have been considered the prime minister to the Crown.
Early Lords Chancellor were all clerics; that is they were bishops who were keepers of the King’s
conscience. Latterly, the Lords Chancellor were secular appointments.
In time, the number of petitions brought before the Lord Chancellor became so numerous that a
separate system of courts was created to hear those cases – the courts of chancery.
Lord Chancellor’s intervention gradually developed a distinct body of law called ‘equity’ which was
well established by the fifteenth century. From then on, the Chancellor’s jurisdiction was exercised
via what later becomes ‘Court of Chancery.’
Equity is the branch of the law which, before the Judicature Act of 1873 (Britain) came into force,
was applied and administrated by the Court of Chancellery.
Developed system of law has been assisted by the introduction of discretionary power to do justice
in particular cases where strict rules of law cause hardship.
Equity is the body of rules which evolved to mitigate the severity of rules of the common law. Its
origin was the exercise by the Chancellor of the residual discretionary power of the King to do
justice.
History of the Court of chancery
At the end of 13th century, if the common law courts failed to do justice, an aggrieved person might
petition to the King.
From early times, these petitions seeking the King’s extraordinary justice seem to have been
referred to the Chancellor, and as early as the reign of Edward-I petitions are found addressed to
the Chancellor and the Council.
This procedure became more frequent, and by the end of 14 th century petitions began to be
addressed to the Chancellor alone.
As the practice became habitual and references were frequent, the Chancellor and his office of
chancery inevitably acquired the characteristic of the court.
The Chancellor made a decree upon his own authority.
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In medieval period, the Chancellor’s jurisdiction was vague and undefined; as well as the subject
matter of the petitions which invoked it.
The basis of intervention was that it was necessary on grounds of conscience. His authority was
unquestioned in the case of fraud and breach of confidence.
During the medieval period, the chancellor was the most important person in the country next to
the King himself: Maitland described him as “the King’s Secretary of State for all departments.
One of the important functions of the Chancery was to issue the royal writs or inventing new ones,
the Chancellor could have some influence on the development of the law.
If land was given to A on A’s undertaking to hold the land to use and benefit of B, it was
unconscionable for A to keep it for his own benefit. B however had no legal claim or title of the
land.
The conveyance to A gave him whatever legal estate was conveyed, and, at common law, A could
exercise all the rights which that estate gave him.
The cases referred to the Chancellor and chancery fall into two main groups, firstly cases where
the law was defective, and secondly those where there was a theoretically remedy at common law
but the petitioner was unable to obtain it because of disturbed state of the country, power and
wealth of the other party.
In exercising jurisdiction in cases of this kind, it is unlikely that the Chancellor regarded himself
as administering separate system of law.
Since the Constitutional Reforms Act 2005, the Lord Chancellor need not be a lawyer. He must
be ‘qualified by experience’.- section 2 (Lord Bingham (2006) 122 L.Q.R 211.
Consequently hardship increasingly often arose because of defects in the law, and petitions began
to be brought on this ground. In giving relief in these cases, new law was being created, and it was
this new law which became known as equity in contrast common law dispensed in the common law
courts.
The conflict between the jurisdiction was reduced by the fact that it was a cardinal rule of the court
of chancery that ‘equity acts in personam’.
In the central institution, the trusts, the Chancellor never denied that the trustee was the legal
owner of the trust property.
But merely insisted that the trustee should deal with it in accordance with trust for the benefit of
the beneficiaries.
Until Judicature Act 1873, the Court of Chancellery had almost exclusive equity jurisdiction;
rules of equity were not enforced in the common law courts.
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The two systems had a lot of conflict to the extent that, by the nineteenth century a number of
series of Parliamentary reports resulted to the Judicature Acts 1873 and 1875.
The two Acts were responsible for amalgamating the existing superior courts into a single Supreme
Court of Judicature.
A claimant could only sue at common law, if his complaint came within the scope of an existing
writ.
In the 13th century, the available writs covered very narrow ground. Even if the claim came within
the scope of an existing writ, it may have been that for some reason, such as the power and
influence of the defendant or etc.
It was possible after the Statute of Uses 1535, to create equitable interests in land by imposing a
use upon a leasehold, or by requiring the legal owners of freehold land to collect the rents and
profits and to pay them over to the beneficiaries.
If the land limited to A to the use of B to the use of C, is it possible to argue that the first use will
be executed, and that B will hold the legal estate to the use of C?
Such a resolution was reached by about 1700; the second use is called a trust.
A shorter form, which became settled practice, was to omit A, and to make the disposition “unto
and to the use of B in trust for C”.
However, the story of development is confused and uncertain.
From the beginning of Chancellorship of Lord Nottingham in 1673 and to the end of that of Lord
Eldon in 1827, equity was transformed from a jurisdiction based upon the personal interference of
the Chancellor into system of established rules and principles.
Lord Nottingham did much to weld together and consolidate the whole system.
In the nineteenth century, the modern law of trusts developed and shaped to meet entirely new
conditions of social life.
Section 25 of the Supreme Court of Judicature Act 1873 provided for the solution of many problems
in which those rules would conflict.
Subsection 11 contained a general residual clause: “Generally, in all matters in which there is any
conflict or variance between the rules of equity and the rules of common law with reference to the
same matter, the rules of equity shall prevail.”
There used to be two completely distinct sets of courts in England. This position continued until
enactment of Judicature Act 1873, which removed the need to sue in common law courts for a
common law remedy, and so forth.
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Before the Judicature Act 1873 came into full effect in 1875, it was necessary for a litigant to
decide whether his claim related to common law or to equity.
The result of the Judicature Act 1873 was that the practical distinction between common law and
equity disappeared. However, it is vitally important to understand that the intellectual distinction
remains.
Amalgamation of Administration or Fusion of Rules?
The Judicature Acts 1873 and 1875 were responsible for amalgamating the existing superior
courts into a single Supreme Court of Judicature.
This Supreme Court replaced the courts of Queen’s Bench, Court of Exchequer chamber,
Exchequer and Common Pleas as well as the court of Chancery, and the court of appeal in
Chancery.
Many academicians have distinct perceptions as to whether the Judicature Acts fused both the
rules of equity and common law to make then one, or whether it was just an amalgamation of the
two rules so that each of them retains its identity but administered in the same court.
The Judicature Act clearly fused the administration of law and equity. The question is whether
equity and law fused.
Some scholars think that the rules of common law and equity are totally fused and are thus no
longer distinguished while others perceive the effect of the Judicature Act to have been procedural.
Fusion of Administration and Continuing Distinction between Common Law and

Equity
The orthodox view is that only jurisdictions have been fused.
Legal rights remain legal rights and equitable rights remain equitable rights though administered
in the same court.
In Salt v Cooper, Sir George Jessel MR, stated to the effect that, the intent of the Judicature
Act was not to fuse the two rules , but rather administrating law and equity under a single
tribunal.
According to Professor Ashburner although equity and common law are streams of jurisdiction
running through the same channel, they run side by side without mingling their waters.
In MCC Proceeds Inc v Lehman Bros International Mummery LJ revealed the fact that, the
Judicature Acts intended to gain procedural improvements when it comes to the administering of
law and equity. (continue)
This was thus not to transform the existing equitable rights into legal titles or fuse the equitable
rules with common law.
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The legislation 1925 is based on the assumption that legal ownership is different from equitable
ownership.
In China and South Sea Bank Ltd v. Tan Soon Gin [1990 1 AC536] the equitable nature of
the duties of a mortgagee has been emphasized.
In Medforth v. Black [2000 Ch 86 at 102] It was said whether the duty is expressed as a common
law duty or as a duty in equity, the result is same. However, in Raja v. Lloyeds TSB Bank Plc
[2001] 82 PCR 191] it was said that result may not always be same.
Target Holdings Ltd. V. Redferms [1996 a AC 310] although common law damages and
compensation in equity share the requirement of causation, they differ on remoteness and
foreseeability.
Mcc Proceeds Inc. v. Lehman Brothers International (Europe)- whether an equitable owner
could sue for conversion. It was held that such an owner, who has no title at common law, could
not bring such an action.
Fusion of Common Law and Equity
Some scholar and judges believe that, the Judicature Act did not merely fuse the administration
of the rules of law and equity, but rather fussed the rules themselves.
According to Lord Denning in Errington v Errington stated that, the rules of equity and common
law have been fused for almost eighty years by that time.
In Tinsley v Milligan [1994] 1 AC 340, Lord Browwne-Wilkinson held to the effect that,
English law now has one single law that contains both legal and equitable interests.
Therefore, Lord Browne- Wilkinson saw that a person in ownership of either type of estate
possessed a right of property that amounted to a right in rem as opposed to merely a right in
personam. (continue)
It was thus held that the equitable principle that governs when property or a title was affected
under illegality had now become one after merging the common law rule.
In the case of In Lord Napier and Hunter [1993]1 All.ER 385 at 401, it was stated by Lord Goff
inter alia that, the judiciary task nowadays is to view the two strands of authority equity and law,
as one coherent whole.
Aquaculture Corp. v. New Zealand Green Mussel Co. Ltd. [1990 NZLR 299] it was stated
equity and common law are now mingled … full range of remedies should be available as
appropriate, no matter whether they originated in common law, equity or statute.
Medforth v. Black [2000] ch. 86] Sir Richard Scott VC. Has stated “I do not, for my part think
that it matters one jot whether the duty is explained as a common law duty or as a duty in equity.
The result is same.
Tinsley v. Million [1994 1 AC 340] the question was whether an equitable interest could be
asserted in spite of an element of illegality in its acquisition. Lord Browne-Wilkinson explained
that legal and equitable interests had different incidents for historical reasons, but that “fusion”
resulted in the adoption of a single rule as to the circumstances in which the court would enforce
interests acquired an illegal transaction.
Napier and Ettrick (Lord) v. Hunter [1993 AC 713] the nature of the insurer’s subrogation
right was in issue. Lord Goff examined the origins of subrogation at law and in equity and
concluded that “no doubt our task nowadays is to see the two strands of authority, at law and in
equity, moulded into coherent whole.
BICC Plc v. Burney Corp. (1985) ch. 232] It was said that set-off, whether legal or equitable,
can be raised as a defence whether the relief sought by the claimant is legal or equitable.
In Sempara Metals Ltd. V. IRC [2008 AC 561] the House of Lords held that the compound
interest may be recovered at common law as well as in equity.
Coulthard v. Disco Mix Club Ltd. [2000 1 WLR 707] in the context of limitation periods, it has
been held that there is no distinction between an action for fraud at common law and an action in
equity for deliberate and dishonest breach of fiduciary duty based on the facts, which is equitable
counterpart of the common law claim. “It would have been a blot on our jurisprudence if those
self-same facts gave rise to a time bar in the common law courts but none in the court of equity.
Att Gen v. Balck[2001] 1 AC 268] House of Lords went further holding that the equitable remedy
of account of profits (which is traditionally associated with a fiduciary relationship) could be
awarded in exceptional cases for breach of contract.
Swindle v. Harrison [1997 4 AllEr 705] Hobhouse LJ. confirmed that common law damages were
not available for breach of fiduciary duty.
In Tinsley vs. Milligan (1994 1AC340) the question whether an equitable interest could be
asserted in spite of an element of illegality in its acquisition. Lord Browne-Wilkinson explained
the legal and the equitable interest had different incidents for historical reasons, but that “fusion”
resulted in the adoption of a single rule as to the circumstances in which the court would enforce
interests acquired under the illegal transaction. Thus, the rule is the same whether the claim is to
a legal or equitable title, can be fully stated without reference to its origin.
In Napier and Ettrick (Lord) vs. Hunter (1993AC713) the nature of an insurer’s subrogation
right was in issue. Lord Goff examined the origins of subrogation at law and in equity and
concluded that “no doubt our task nowadays is to see the two strands of authority, at law and
equity, moulded into a coherent whole”. Similarly, it has been held that set-off, whether legal or
equitable, can be raised as a defence whether the relief sought by the plaintiff is legal or equitable.
One indication of fusion is a situation where the legal remedy of damages may be given for breach
of an equitable right.
The converse, an equitable remedy for breach of a legal right, such as an injunction to restrain a
tort, or specific performance of a contract, is explicable as the exercise of equity’s concurrent
jurisdiction and is not an example of fusion.
Generally, the breach of an equitable right will provide an equitable remedy only. Thus a breach
of a restrictive covenant by a non-contracting party is remedied by an injunction, not damages.
In AG vs. GurdianNews paper Ltd. (1990 1AC190) Lord Goff said that damages are available
for breach of confidence, despite the equitable nature of the wrong.
In Catt vs. Marac Australia Ltd. (1986) the Commonwealth courts have gone further regarding
it as now settled that damages may be awarded for breach of confidence or other fiduciary duty.
In Aquaculture Corporation vs. New Zealand Green Mussel Co. Ltd. (1990) it was stated
that “equity and common law are now mingled and merged…. A full range of remedies should be
available as appropriate, no matter whether they originated in common law, equity or statute.
Conclusion
Both views are supported by authorities and strong justification that a lot of confusion as to which
side is right occurs. However, despite all the diverse opinions by judges and scholars, the rules of
equity and common law are clearly administered in one court and as seen in the cases above, are
at times subjected to ‘cross-remedies’ as in Harris v Digital Pulse Pty Ltd.
This is to mean that, although not entirely the same, the rules of equity and common law at times
apply inter-changeably.
This perception accrues from the observation that, the Judicature Act does not authorize any
substantive fusion between equity and law; neither does it reveal any prohibition for the
occurrence of such a fusion.
Nature of Equitable Rights
In its simplest form, one view emphasizes the fact that a beneficiary’s remedy is in the form of an
action against the trustee; a right in personam.
On the other hand, equitable interests under trusts are equitable proprietary interests,
corresponding to legal estates, and the beneficiary can properly be regarded as the owner of the
beneficial interest; and ownership is a right in rem.
Ewing v. Orr-Ewing (1883)- there is no space here to run through every aspect of equity
jurisdiction to establish the point that equity acts in personam. One practical application of this
proposition is the fact that a court of equity will exercise to order specific performance to
administer assets abroad if the executors are in England.
R. Nolan (2006) 122 L.Q.R 232] – trustee is owner at law; and the beneficiary is the owner in
equity. A recent analysis is that the interest of the beneficiary is negative, or ‘exclusionary’. It is a
negative right to exclude non-beneficiary from the assets as opposed to a positive right to impose
trustee duties on them.
S. Aaron (2010) 24 T.L.I 155 at 173] Another view is that the beneficiary’s interest is “a bundle of
in personam equitable rights against the trustee”.
Mcc Proceeds Inc. v. Lehman Brothers International (Europe) [1998 4 All ER 675] trustee
sues for conversion of the trust property.
Shell UK Ltd. V. Total UK (2011) Q.B 86] it has been held that a duty of care may be owned to
a beneficial owner of property just as much as to a legal owner, but this has been criticized as
blurring legal and equitable ownership in a manner contrary to principle and authority.
It seems that the proper meaning of a right in rem in the present context is a right enforceable
against the world with respect to a particular thing. It is assumed throughout that a legal owner
does have the right in rem.
The basis of equitable jurisdiction is that in accordance with the maxim, equity acts in personam,
equitable rights grew up where the Chancellor was willing to intervene. The use has its origin in
the insistence of the Chancellor that the foeffees to uses should administer the property for the
benefit of the cestui que use.
Equity did not say that cestui quetrust was the owner of the land, it said that the trustee was the
owner of the land, but added that he was bound to hold the land for the benefit of cestui que trust.
A beneficiary’s interest behind a trust has been treated as having the basic characteristics of a
proprietary interest in that it can be bought, sold, mortgaged, and devised or bequeathed.
Even though, the protection of the beneficiary was based on the Chancellor’s willingness to proceed
in personam against the trustee, that the protection has ended up by creating rights in the nature
of ownership.
To argue that a beneficiary is not to say that legal rights are the same as equitable, or that
equitable ownership is the same as legal.
Rather, it is to accept the basic peculiarity of ownership under the English law of trusts. The
trustee is the owner at law; and the beneficiary is the owner in equity.
The trustee sues for rent or possession; and with personality, the trustee, not the beneficiary, sues
for conversion of the trust property. The beneficiary's right is to compel the trustee to take action;
though he may, in some cases, take action himself, on behalf of the trust, joining the trustee as
defendant.
The right sometimes be inadequate; as where the trustee has sold the property to bona fide
purchaser of the legal estate for value without notice, who will defeat the equitable ownership of
the beneficiary.
In Boyer vs. Warbey(1953 1QB234) the question arose whether covenants in a lease bound
assignees, not only where the lease was by deed, but also where the lease was a valid written lease
(not exceeding three years). The Court of Appeal held that, whatever the position before 1875,
This was not an area where distinctions based on formalities were now acceptable, and that the
covenant should bind.
It was further suggested that the same result would follow, if there was merely a contract for a
lease which was enforceable in equity. Whether it was law or equity that regarded the lease as
effective, the rule as to the running of covenants should be the same. In a limited sense this is
“fusion” in that reasons why a particular lease is effective are ignored in favour of a uniform
consequential rule.
Webb v. Webb (1994) 8 J.L.T 99) Where a father bought a flat in France in his son’s name and
sought a declaration that the son was trustee and an order to vest the property in the father, his
action was classified as in personam for the purposes of the 1968 Brussels Convention. Now Article
22 of the Council regulation (EC) No. 44/2001 so that the son’s claim that only the French Court
had jurisdiction failed.
Prazic v. Prazic[2006] 2 F.L.R 1128] Where a wife sought a declaration in the English courts as
to her beneficial interest in land in England, her claim was classified as in personam. Thus the
English courts did not have exclusive jurisdiction and the action was stayed because her husband
had already commenced divorce and ancillary relief proceedings in France.
On the other hand in Re Hayward [1997 Ch 45] the claim by the trustee in bankruptcy of a
deceased legal and beneficial co-owner of a villa in Spain to his share of the property was held to
be in rem, so that the Spanish Court had exclusive jurisdiction under the Convention.
Common Law and Equitable Remedies
The main result of the distinction between common law and equity is that each has distinct claims
and remedies.
Common law is the system which is able to award cash damages for loss.
Common law claims such as breach of contract, negligence and fraud and, remedies such as
damages and tracing property.
Equity claims such as breach of trust, claiming property and, remedies such as specific
performance, injunction, rescission, rectification
Equitable remedies-
Specific Performance
Injunction
Rescission and Rectification &etc.
Specific Performance
Specific performance is an equitable remedy in relation to the enforcement contracts.An award of
specific performance compels the defendant to perform his contractual obligations. The specific
performance is a residual and discretionary remedy.
Cooperative Insurance v. Argyll [1997] 3 All ER 297
Specific performance is traditionally regarded in English Law as an exceptional remedy, as

opposed to the common law remedy of damages to which a plaintiff is entitled as of right…
specific performance was part of the discretionary jurisdiction of the Court of Chancery to do
justice in cases in which the remedies available at common law were inadequate.
Specific performance is an order which is made to require the performance of contractual
obligations in certain circumstances.
Consequently, the order requires only the performance of those obligations and does not rest on
there having been some breach of contract. (no requirement of breach)
Contracts where specific performance available
The underlying principle in relation to real property is that each parcel of land is unique, so that
an award of damages would be insufficient compensation for a failure to transfer a specified piece
of land. Therefore, the buyer of the land may be able to impose an award of specific performance
on the seller to compel the transfer. (Adderley v. Dixon 1824)
The underlying in relation to contracts for the transfer of chattels is that specific performance will
be ordered in circumstances in which the chattel has a intrinsic value such that it would not be
readily possible to acquire a substitute chattel.
Contracts where specific performance unavailable
This remedy may be displaced in situations in which such performance is impracticable.
Contracts involving the personal skill of one of the parties are the clearest example of contracts
which will not be specifically enforced on the basis that an order of specific performance would be
inappropriate in the circumstances.
In the case of Patel v Ali [1984] 1All ER 978 ‘A’ entered into a contract to sell his land to B.
Completion of sale was delayed because of certain personal difficulties on the part of ‘A’. At the
time that he agreed to sell, ‘A’ was wealthy and healthy. However, during the delay, ‘A’ contracted
cancer and hospitalized. ‘A’ became heavily reliant on friends and neighbours. ‘B’ sought specific
performance of the contract.
It was held that exceptionally specific performance may be refused because of change of
circumstances subsequent to the contract such that a decree of specific performance would inflict
on the defendant ‘a hardship amounting to injustice’.
Injunction
The injunction is an equitable remedy. It is at the discretion of the court to make an order to either
party to litigation.
An injunction will be awarded on an interim or a permanent basis, either in a mandatory or

prohibitory form.
It is necessary that no common law remedy would be sufficient in the circumstances; the applicant
must come with the clean hands; there must not have been delay on the applicant’s part; some
rights of the applicant must be affected.
The respondent must not suffer undue harm as a result of the injunction.
Injunctions divide between those which require some action from the respondent (mandatory
injunction) those which require the respondent to refrain from some action (prohibitory
injunction) and those which seek to prevent some action which it is feared may be performed in
the future.
Interim injunction is awarded on an interim basis during the litigation.
Their award is based on a balance of convenience between the potential harm suffered by the
applicant if no injunction were awarded, and the potential convenience caused to the respondent
if the injunction were to be awarded.
An injunction will not be ordered in circumstances in which damages would be sufficient.
Rescission
Rescission is an equitable remedy used to set aside contracts and to restore the parties to the
positions which they had occupied previously.
In the case fraudulent misrepresentation, the claimant will be entitled to rescind the contract to
prevent the wrongdoer from benefiting from its wrongdoing.
A material mistake made by both parties to a contract will enable that contract to be rescinded.
The right to rescind will be lost where it is impossible to return the parties to the positions they
occupied previously, where the contract has been affirmed, or where there has been delay.
Rectification
Rectification is available to amend the terms of a contract better to reflect the true intentions of
the parties.
Rectification will be available in circumstances of common mistake.
Maxims
The maxims of equity embody the general principles which evolved in the Court of Chancellery.
They are not rules which must be rigorously applied in every case, but are more in the nature of
general guidelines illustrating the way in which equitable jurisdiction is exercised.
I. Equity will not suffer a wrong to be without a remedy;

II. Equity follows the law;
III. He who seeks equity must do equity;
IV. He who comes to equity must come with clean hands;
V. Where equities are equal the law prevails;
VI. Where equities are equal the first in time prevails;
VII. Equity imputes an intention to fulfill an obligation;
VIII. Equity regards as done that which ought to be done;
IX. Equality is equity;
X. Equity looks to the intent rather than the form;
XI. Delay defeats equity;
XII. Equity acts in personam.
Equity will not suffer a wrong to be without a remedy
The principle behind this maxim is that equity will intervene to protect a right which, perhaps
because of some technical defect, is not enforceable at law. It is not sufficient that the defendant
may guilty of some moral wrong: the plaintiff ’s right must be suitable for enforcement by the court.
A beneficiary has no right at common law to have the terms of the trust enforced, but the court
will require the trustee to carry out those terms to prevent him committing what would be in effect
a wrong against the beneficiary.
The classic example is the enforcement of the trusts. The beneficiary had no remedy at common
law if the trustee claimed the property for himself, as the trustee was the legal owner, but he could
enforce his right in equity.
Following are limitation of the maxim.

1. Where right and remedy both within the jurisdiction of common law.
2. Acts of State; the courts are not authorized to question the acts of State.
A beneficiary has no right at common law to have the terms of the trust enforced, but the court
will require the trustee to carry out those terms to prevent him committing what would be in effect
a wrong against the beneficiary.
Equity follows the law
Clearly equity may not depart from statute law, nor does it refuse to follow common law rules save
in exceptional circumstances. Thus, equitable interests in land correspond with the legal estates
and interests.
it can be said that equity always follows the law in the sense of obeying it and conforming to its
general rules and policy, whether contained in common law or statue law. The rules of equity can
not override the specific provisions of law.
Strickland vs. Aldrige 1804 It was held exclusion of the younger member of a family from
property according to the rule of primogeniture does not create any particular circumstances
entitling to a relief at equity, because the eldest son gets only what he is entitled to get in law.
The court of common law and a court of equity came to completely different decisions on the merits
of the very same case. The common law courts applies the rules mechanically. Equity enables
fairness and principle to outweigh rigid rules. Therefore, equity will have priority over non-
statutory common law rules.
Mexfield Housing Co-operative Ltd. V. Berrisford(2011 Ch. 244) – it was said “if an interest
in land does not satisfy the basic legal requirements for its existence, then it will not, as a general
rule, exist as an interest in land either at law or in equity.
Stack v. Dowson(2007 2 A.C. 432) where the legal title to land is held jointly, the equitable
interests follow the legal unless a contrary intention is proved.
He who seeks equity must do equity
A plaintiff who seeks equitable relief must be prepared to act fairly towards the defendant. The
operation of this principle can be seen where equity, in allowing the rescission of a contract for
mistake, puts the plaintiff on terms which appear to the court to be just and equitable.
In Ashby v. White, wherein a qualified voter was not allowed to vote and who therefore sued the
returning officer, it was held that if the law gives a man a right, he must have a means to maintain
it, and a remedy, if he is injured in the enjoyment of it.
A plaintiff seeking an injunction will not succeed if he is unable to carry out his own future
obligations.
He who comes to equity must come with clean hands
This principle is closely related to the last one, save that the latter looks to the plaintiff ’s future
conduct, while the ‘clean hand’ principle looks to his previous conduct. Thus equity will not grant
relief against forfeiture for breach of covenant where the breach in question was flagrant.
In Argyll vs. Argyll (1967) the fact that the wife’s adultery had led to the divorce proceedings was
no ground for refusing her an injunction to restrain her husband from publishing confidential
materials.
If both parties have “unclean hands,” the court should consider only those of the applicant, and
need not balance the misconduct of one against that of the other.
A court of equity will not act in favour of someone who has committed an illegal act.
Where equities are equal the law prevails
This maxim operates where there are two or more competing interests, one legal and the other
equitable. Where the claims of both parties are fair and meritorious, precedence will be given to
the legal interest.
This maxim was developed in connection with interests in lands. When a purchaser acquires
property bona fide without notice of a defect in the vendor’s title, the equities are equal and the
legal estate will prevail.
If the purchaser takes title with notice of the defect, the earlier title, if valid, will prevail. The force
of this maxim has largely been displaced by legislated systems of land title registration.
Where two people have purported to purchase goods from a fraudulent vendor for same price,
neither of them would have a better claim to the goods in equity. Therefore, the rules of commercial
rules would be applied.
Where equities are equal the first in time prevails
This maxim dealing with the priorities of competing interests, may be dealt with. This provides
the foundation for the doctrine of notice. Thus, a prior equitable interest in land can only be
defeated by a bona fide purchases of a legal estate without notice.
It the purchaser is bona fide and without notice, then the equities are equal and his legal estate
prevails.
If he took with notice the position is otherwise, as the equities are not equal. If he does not acquire
a legal estate then the first in time, i.e. the prior equitable interest, prevails as equitable interests
rank in order of the creation.
This maxim has lost some of their importance since the introduction of the system of registration
of certain interests in land.
Equity imputes an intention to fulfill an obligation
Where a person is obliged to do some act, and does some other act which could be regarded as a
performance of it, then it will be so regarded in equity. This is the basis of the doctrines of
performance and satisfaction. For example, if a debtor leaves a legacy to his creditor, this is
presumed to be a repayment of the debt so that unless the presumption is rebutted, the creditor
cannot take the legacy and sue to recover the debt.
In Sowden v. Sowden, a husband covenanted with the trustee of his marriage settlement to pay
to them £50,000 to be laid out by them in purchase of land in a particular area D. He, in fact, never
paid the sum, but after marriage purchased the land at D in his own name, for £50,000. He died
and could not bring the land into settlement. Equity courts construed that he purchased land to
fulfill his obligation.
Equity regards as done that which ought to be done
Where there is a specially enforceable obligation, equity regards the parties as already in the
position which they would be in after performance of the obligation. Therefore in equity a
specifically enforceable contract for a lease creates an equitable lease. This is the doctrine of Walsh
vs. Lonsdale.
Similarly, a specifically enforceable contract for the sale of land transfers the equitable interest to
the purchaser, the vendor holding the title on constructive trust until completion.
In AG for Hong Kong vs. Reid (19940 1 A.C. 3240the issue was whether a fiduciary who took a
bribe became constructive trustee of it or was merely personally accountable. Because he was
under a duty to hand over the bribe to his principal, it was held that the property belonged to the
principal in equity.
Napier and Ettrick (Lord) v. Hunter(1993 A.C. 713) it was considered that the duty of an
insured person to hand over any damages from the wrongdoer to the insurer was enforceable, so
that the insurer had immediate proprietary rights in the form of lien over money.
Equality is equity
Where two or more persons are entitled to an interest in the same property, then the principle of
equity is equal division, if there is no good reason for any other basis for division. Equity, therefore,
dislikes the joint tenancy where, by the doctrine of survivorship, the last survivor takes all.
This may be contrasted with the tenancy in common, where the interest of each party devolves
upon his personal representative on his death. In the absence of an express declaration, to the
effect that the equitable interest is held jointly, equity presumes a tenancy in common in certain
cases where at law the parties are joint tenants: for example where the purchase money provided
in unequal shares, equity presumes a tenancy in common in shares proportionate to the
contributions.
Equity looks to the intent rather than the form
This principle does not mean that formalities may be ignored in equity, but rather that equity looks
at the substance rather than form. Thus equity will regard a transaction as a mortgage even
though it is not so described, if in substance it appears that the property was transferred by way
of security. Similarly a trust may be created although the word ‘trust’ has not been used.
A trust is created with- (1) an intention on his part to create a trust thereby, (2) the purpose of the
trust, (3) the beneficiary, and (4) the trust property. Where an author uses words such as ‘I hope’,
‘I request’ or ‘I recommend’ the first condition is missing. In cases where subsequent ingredients
are found, in early days, it was held by the equity courts that he had the intention. This view is in
use now but not as liberally as before.
Delay defeats equity
Equity aids vigilant and not the indolent. This is the foundation of the doctrine of laches, whereby
a party who has delayed cannot obtained equitable relief.
For example under the English law, actions against trustees for breach of trust must be brought
within six years and delay short of this will nor bar relief. Under the Trusts Ordinance there is no
time bar.
Plaintiff ’s unreasonable delay is a weapon of defence by the defendant against the plaintiff.
In a Bombay case, the plaintiff allowed his land to be occupied by the defendant and this was
acquiesced by him even beyond the period of limitation. On a suit of the land it was decided that
as the period of limitation to recover possession had expired, no relief could be granted.
Humphreys v. Humphreys[2004 W.T.L.R 125] it was said that the claims to rescission and
rectification may be barred by delay.
Equity acts in personam
Equity has jurisdiction over the defendant personally. The personal nature of the jurisdiction is
illustrated by the fact that failure to comply with an order, such as specific performance or an
injunction, is contempt of court punishable by imprisonment.
Provided that the defendant is within the jurisdiction, it is no objection that the property which is
the subject matter of the dispute is outside it.
Thus in the leading case of Penn vs. Lord Baltimore (1750) specific performance was ordered of
an agreement relating to land boundaries in Pennsylvania and Maryland, the defendant by in that
country.
Nature of the interest of a beneficiary
One view emphasizes that beneficiary’s remedy is in the form of an action against the trustee – a
right in personam.
On the other hand, equitable interest under a trust is an equitable proprietary interest, because
the beneficiary can be regarded as owner of the beneficial interest. Ownership is a right in rem.
In the Roman law, from which they are taken, the expressions “in rem” and “in personam” were
always opposed to one another, an act or proceeding in personam being one done or directed against
or with reference to a specific person, while an act or proceeding in rem was one done or directed
with reference to no specific person, and consequently against or with reference to all whom it
might concern, or “all the world.”
The phrases were especially applied to actions; an actio in personam being the remedy where a
claim against a specific person arose out of an obligation.
While an actio in rem was one brought for the assertion of a right of property, easement, status,
etc., against one who denied or infringed it.
The proper meaning of a right in rem is a right enforceable against the world with respect of to the
particular thing. The legal owner does have the rights in rem, Rights against the world with
respect to the property.
In accordance with the maxim equity acts in personam, equity did not say that the cestui que trust
was the owner of the land, it said that the trustee is the owner of the land. But was bound to hold
the property for the benefit of the cestui que trust.
Feoffees means a trustee invested with a freehold estate to hold in possession for a purpose,
typically a charitable one. Cestui que trust means the beneficiary of a trust
The maxim that equity acts in personam does not prevent us from treating a beneficiary under a
trust as having equitable ownership.
A beneficiary’s interest behind a trust has long been treated as having the basic characteristics of
a proprietary interest in that it can be sold or mortgaged.
Historically, the protection of the beneficiary was based on the Chancellor’s willingness to proceed
in personam against the trustee, that protection has ended up by creating the rights in the nature
of the ownership.
The trustee is the owner at law and the beneficiary is the owner in equity. The trustee sues for the
possession of the trust property. Trustee not the beneficiary, sues for conversion of the trust
property. The beneficiary’s right is to compel the trustee to take action.
Certain cases, beneficiary may take action himself on behalf of the trust, joining the trustee as
defendant.E.g. The trustee has sold the property to bona fide purchaser. Here trustee would defeat
the equitable ownership of the beneficiary.
In this situation, bona fide purchaser is not determinative of the question whether beneficiary’s
interest is proprietary or whether his rights are in rem or in personam. It demonstrates simply
that legal and equitable ownership may have different effects.
In the practical point of view, it can be said that where the problem involves the working of the
trust machinery, so that the beneficiary asserts his rights by an action against the trustees to
enforce their duties the old theory that equity acts in personam is wholly acceptable.
But in other cases, the theoretical view is overtaken by a pragmatic approach. So, it depends on
the language of the statute.
2. APPLICATION OF ENGLISH LAW
Section 2 of the Trusts Ordinance
All matters with reference to any trust, or with reference to any obligation in the nature of a trust
Law arising or resulting by the implication or construction of for which no specific provision is
made in this or any other enactment, shall be determined by the principles of equity for the time
being in force in the High Court of Justice in England.
This section permits the reception of principles of equity in force in the High Court of Justice in
England in the event of a casus omissus, i.e. when there is no specific provision in the Trusts
Ordinance or any other enactment on any issue arisen with reference to-
(a) any trust; or
(b) any obligation in the nature of a trust arisingby the implication or construction of law.
This section need to be analyzed after breaking it into several parts as follows:
All matters with reference to any trust
The above words seem to point out those trusts created under Chapter II of the Ordinance while
“with reference to any obligation in the nature of a trust arising or resulting by the implication or
construction of law” to those arising under Chapter IX.
Section 2 would not permit the introduction of English Law in determining whether the factors
essential for the creation of a trust are present, e.g. whether the “three certainties” were
observered; the prescribed formalities were followed or the perpetuity rules were infringed. It is
only after a valid trust under Chapter II has been created that the section would operate.
The alternate view is that there are no limitations on the applicability of the section and the word
‘trust’ should be loosely construed to include a potential trust.
The view expressed that the former construction is to be preferred.
There is judicial authority for the proposition that Chapter II is complete and therefore section 2
is irrelevant to matters which arise in the creation of a trust.- Valiyammai Vs. Majeed (45NLR
169).
The words ‘arising or resulting’ make clear that in determining whether a “constructive trust”
exists, unlike in the case of a trusts under Chapter II.
The view is expressed that the former construction is to be preferred. (see A.G.V.Abraham
Singho- 18 NLR 417).
There is judicial authority for the proposition that chapter II is complete and therefore section 2
is irreverent to matters which arise in the creation of a trust. (see Valliyammaiv.Majeed-45
NLR169) and (Fernando v. Sivasubramaniam- 60NLR 241). However, the question whether
the section applies to the creation of trusts has never been canvassed as a specific issue in a case
before the court.
“All matters…. With reference to any obligation in the nature of a trust arising or resulting by
implication or construction of law…”
The words “any obligation in the nature of trust arising or resulting by implication or construction
of law…” suggest that this part of the section deals with the Constructive trusts.
See the wordings in section 82 in chapter IX of the Trusts Ordinance. It states: “An obligation in
the nature of trust….”. The sections of chapter IX contain examples of resulting and construction.
“English principles are applicable where there is no specific provision in the Trusts Ordinance or
any other enactment.”
Muthalibu v.Hameed (1950-52 NLR 97)is a case where the application of section 2 was discussed
in the event of casus omissus. In this case, father provided consideration and purchased a property
in the name of the son. After a time, the father asked the property back relying on section 84 of
the Trusts Ordinance.
Section 84 of the Trusts Ordinance enacts “Where property is transferred to one person for a
consideration paid or provided by another person, and it appears that such person did not intend
to pay or provide such consideration for the benefit of the transferee, The transferee must hold the
property for the benefit of the person paying or providing the consideration.
In this case there was evidence that it was the father who had paid or provided the consideration
for the transfer of the property in the name of the son. In such a situation the only fact that the
father must prove is that he did not intend paying or providing such consideration for the benefit
of the son as per section 84.
However, in this case the son relied on section 2of the Trust Ordinance and cited the equitable
principle of advancement available in England and argued that were a person in loco parentis pays
or provides such consideration, a presumption of advancement arises that such purchases was
made by the other person for the advancement or benefit of the transferee and that this aspect has
not been provided for in the Trusts Ordinance or any other enactment is applicable in Sri Lanka
where the consideration is paid by a person in loco parentis, such as a father /husband by the
virtue of the provisions of section 2.
Dias S.P.J said: “that it is a well settled principle of equity , which is recognized by section 2 of the
trusts Ordinance, that where a father or person in loco parentis purchases a property in the name
of his child such child or wife and the provisions of section 84 of the Trusts Ordinance do not apply
to such transaction. The onus in such cases is, therefore, on the party seeking to establish the trust
to prove that fact. The son therefore did not hold the lands or the consideration in trust for his
father”.
It was further said that “although our Trusts Ordinance was only enact in the year 1917,
nevertheless, ever since the time the British connection begins in this Island, thereafter, our courts
have applied Principles of Equity to the problems which arise in our courts whenever necessary.
…..that the doctrine of ‘advancement’ is part of the law of Ceylon is placed beyond all questions by
the provisions of section 2 which makes applicable the English rules of equity to all casus omissus.
It is only where section 2 applies that English authorities are binding and that otherwise they are
relevant but of persuasive authority.
Bernedettevalangenberg Vs.Hapuarachchige Anthony ([1990] 1 SLR 190)The Court

discussed the question of a presumption of advancement in favour of the defendant-appellant who
admittedly was the mistress of the plaintiff, and not the wife. Learned Counsel for appellant
sought to extend the rationale in Mutalibu v. Hameed to the case of a man and mistress
relationship. As no such presumption can arise in such a relationship in the law of Sri Lanka,
Counsel sought to introduce modern trends in the law of England through s.2 of the Trusts
Ordinance.
I do not think this can be done. The decisions of the English Courts have given rise to qualified
trusts based on property concepts and rules of English property law which is not the law of Sri
Lanka. Furthermore, the Courts of this country have been disinclined to introduce categories of
English constructive and resulting trusts not mentioned in Chapter IX of the Trusts Ordinance.
the principles of equity for the time being in force in the High Court of Justice in England
Section 2 has been applied and English principles received into Ceylon but there has been no
judicial definition and analysis of “principles of Equity”.
In the light of Keeton’s definition the phrase “principles of equity” in section 2 may be defined as
follows, “The rules evolved by the courts of chancery and “in force” in England.
Where a rule of equity is repealed by legislation, the repealed rule cannot be said to be in force
within the meaning of section 2.
Refer the pages from 36 to 57 in Reception in Ceylon of the English Trust.
3. Trusts
The modern concept of ‘trust’ has come to Sri Lanka via English law.
The English law of trust stipulates dual ownership of the trust property; Legal title vests with the
trustee while equitable title vests with beneficiary.
Justice Story:- A trust in the most enlarged sense may be defined to be an equitable right, title or
interest in property distinct from the legal ownership thereof.
Lord Lindley :- A trust as equitable obligation to deal with the property in a particular way.
A trust formally known as nothing except a confidence repose by one person in another, and
enforceable in a Court of Law.
Sec 3 of the Trusts Ordinance
Trust" is
(i) an obligation annexed to the ownership of property; and
(ii) arising out of a confidence reposed in and accepted by the owner, or declared and
accepted by him,
(iii) for the benefit of another person,
(iv) while the ownership is nominally vested in the owner, the right to the beneficial
enjoyment of the property is vested in such other person, or in such other person
concurrently with the owner.
The above definition emphasizes the ideas of confidence, the legal ownership of the trustee and
the beneficial ownership of the beneficiary cestui qui trust.
Keeton states that a trust may be said to be the relationship which arises, wherever a person called
the trustee is compelled in equity to hold the property whether real or personal and whether by
legal or equitable title, for the benefit of some persons for some objects permitted by law in such a
way that the real benefit of the property accrues not to the trustee but to the beneficiaries or other
objects of the trust
The person who reposes or declares the confidence is called the "author of the trust“;
The person who accepts the confidence is called the "trustee";
“Beneficiary” means a person, or a defined or definitely ascertainable class of persons, for whose
benefit the confidence is accepted; (Amended by Act, No. 6 of 2018)
The subject-matter of the trust is called "trust property " or " trust money ";
"The beneficial interest" or "interest" of the beneficiary is his right against the trustee as owner of
the trust property ; and
The instrument, if any, by which the trust is declared is called the "instrument of trust";
The words ‘confidence reposed in’ are the keywords for the formation of a trust. Trust is a gift
property or an interest in the property, to an individual or group of individuals or an institution
through the instrumentality of ‘trustee’, in whom the owner of the property reposes confidence.
The trustee is bound to hold the property for the beneficiary and he can’t use the property for his
own benefit.
Similarities and Differences
Trust and contract
A contract is agreement enforceable by law, entails an obligation or legal duty to do or abstain

from doing something what one has promised to do or abstain from doing. A trust resulting from
the act of the parties though some of the characteristics of a contract, it differs from a contract
with respect to beneficial interest in and legal ownership of the trust property.
Trust is an obligation to use one’s property for the benefit of another in whom it is concurrently
vested.
The beneficiary has more than the personal right against the trustee for the performance of the
obligations of the trust, he has the beneficial interest in the property though the legal ownership
vests in the person holding the property for his benefits.
Trust and gift
A trust differs from gift in the sense that a gift requires a delivery of the property and complete
transfer of title. While in a trust the legal ownership vests with the trustee, though for the benefit
of beneficiary.
The role of the "declaration" also comes into focus when self-declarations are compared with gifts.
In Shah v Shah [2011] W.T.L.R. 519 ‘D’ signed a letter which purported to dispose of shares in
favour of his brother, ‘M’. He delivered the letter to M, together with the executed share transfer
forms but without a share certificate (which was held by the company). The letter stated: "I am as
from today holding 4,000 shares in the above company for you … from this declaration and letter."
D argued that the letter merely contained an expression of an intention to make a gift, which was
never completely constituted, and therefore was ineffective to vest title in M. The Court of Appeal
held that in fact the letter contained a valid self-declaration of trust in M’s favour.
It would take effect immediately, and as a matter of law this could only involve a disposition of the
beneficial interest in the shares, as legal title could not pass before the share transfer forms had
been registered.
D had executed and delivered a stock transfer form, he clearly intended registration to occur in
due course. The idea that D would hold the shares for M pending registration could be made
effective only by the imposition of a trust and this was what D had to be taken in law to have
intended.
A mere intention to make a gift is insufficient for this purpose.
The principal distinction between gifts and self-declarations of trust is that in the former the donor
transfers rights to another, whereas in the latter the settlor holds rights for another.
Trust and Agency
A trust has full title to the trust property. An agent to whom property has been transferred does
not have title.
Trustee is not subject to the general control of the beneficiary, whereas as agent is subject to the
control of his principal.
Agency is based an agreement between principal and agent but there is not necessarily any
agreement between trustee and beneficiary.
The agent can involve his principal in liability towards third person, whereas a trustee cannot so
involve his beneficiary.
Agent arises by consent, whereas a trust can arise without consent.
Trust and fideicommissum
Section 3(b) of the Trusts Ordinance declares that a trust does not include a fideicommissum.
Fideicommissum has been received into the law of Sri Lanka through Roman Dutch Law.
Fideicommissum arises where property is given to a person called the fideicommissary who has
the absolute control over it, and on his death or on the happening of a condition, the property
passes to another person called the fideicommissary, and may likewise devolve on successive
fodeicommissaries.
Differences between two concepts-
(1) In the trust, the legal ownership of the trustee and the equitable ownership of the beneficiary
are concurrent and co-extensive;In the fideicommissum, the ownership of the fideicommissary
begins when the ownership of the fiduciary ends;
(2) In the trust, the interest of the beneficiary, though not described as equitable ownership is
against bona fide alienation of the legal estate it is ineffectual; in the fideicommissum, the
fideicommissary once his interest has vested, has a right which he can make good against the
world.
(Abolition of Fideicommissa and Entails Act, No.13 of 1972)
Classification of Trusts
1. Express Trusts
2. Informal/ implied Trusts
3. Resulting Trusts
4. Constructive Trusts
5. Express Trusts
Express Trust
“Express trust” means a trust that is created by the author of the trust generally in the form of an
instrument in writing with certainty indicating the intention of the trust, but does not include a
constructive trust or a de facto trust, whether charitable or not. (Act, No. 6 of 2018)
An express trust is one which is deliberately established and which the trustee deliberately
accepts.
For example:- Trusts created under section 5(1) and (2) of the Trusts Ordinance.
Informal/ Implied Trusts
A implied trust may be said to arise where the intention of the settlor to set up a trust is inferred
from his words or actions, e.g. precatory words.
Implied trust in that sense are probably best regarded as express trusts, in that, the trust is
expressed, albeit in ambiguous and uncertain language.
Resulting Trusts
The term resulting trust seems to be limited to three well defined categories.
First, where a man purchases property and has it conveyed or transferred into the name of another
or the joint names of himself and another when the beneficial interest will normally, as it is said,
result to the man who put the purchase money.
Secondly, where there is a voluntary conveyance or transfer into the name of the another or into
the joint names of the grantor and another where likewise there is prima facie a resulting trust
for the grantor.
Where there is a transfer of property to another on trusts which leave some or all of the equitable
interest undisposed of.
Constructive Trusts
The trust arises by operation of law as from the date of the circumstances which give rise to it.
The function of the court is merely to declare that such a trust having arisen in the past.
Express Trust in Sri Lanka
Subject to the provisions of section 107, no trust in relation to immovable property is valid unless
declared by the last will of the author of the trust or of the trustee, or by a non-testamentary
instrument in writing signed by the author of the trust or the trustee, and notarially executed.
(Sec 5 (1))
The term “notarially executed” is defined in section 3(o) of the Trusts Ordinance to mean that the
instrument should be executed in the manner prescribed by section 2 of the PFO.
No sale, purchase, transfer… of land… shall be of force or avail in law unless the same shall be in
writing and signed by the party making the same, in the presence of a licensed notary public and
two or more witnesses present at the same time, and unless the execution of such writing, deed,
or instrument be duly attested by such notary and witnesses. (sec 2 of PFO)
No trust in relation to movable property is valid unless -
(1) declared by the last will of the author of the trust or of the trustee, or by a non-testamentary
instrument in writing signed by the author of the trust or the trustee, or
(2) the ownership of the property is transferred to the trustee by delivery. Sec 5(2)
Milroy v Lord [1862] 4 De G.F. & J. 264; 45 E.R. 1185

Express trusts may be constituted in one of two ways.
"[The trust will be] effectual if [the settlor] transfers the property to a trustee for the purposes of
the settlement, or declares that he himself holds it in trust for those purposes”
Bernedette Valangenberg Vs. Hapuarachchige Anthony ([1990] 1 SLR 190)
Court stated that section 5(1) of the Trusts Ordinance specially enacts that a trust created under
Chapter II of that Ordinance must be notarially executed in the manner prescribed by s.2 of the
Prevention of Frauds Ordinance.
Essential elements to form a trust
1. Author or settlor of the trust;

2. Trustee;
3. Beneficiary;
4. Trust property or subject matter of the trust;
5. Objects of the property.
6. The three persons must have the capacity to enter into the transaction;
7. There must be certainty as to intention to create trust, beneficiary and subject-matter;
8. Trust must not violate the rule of perpetuity;
9. It must be lawful purpose;
10. Trust property must be transferred to the trustee.
Capacities
Three parties
There should be person to repose or declare confidence, known as ‘author of the trust’. Another
person should accept the confidence as reposed in him by the author, called the ‘trustee’. When the
author declares and accepts the confidence himself he becomes a trustee also.
There should be a third person for whose benefit the confidence is reposed by the author and
accepted by the trustee. The author of the trust may himself be the beneficiary or one of the several
beneficiaries under trust property
Capacity of settler
A trust may be created by every person competent to contract – (sec 7(a).

A group or community of persons can create a trust by contributing towards the value of the trust
property.
Every person is " competent to contract " who is of the age of majority, or has otherwise acquired
the status of majority according to the law to which he is subject, and who is of sound mind, and
is not disqualified by law from contracting – Sec 3(l).
Section 2 and 3 of the Age of Majority Ordinance provides that legal age of majority is 18 years.
A trust may be created with the permission of the court by or on behalf of a minor – (sec 7(b)). The
permission should have been obtained prior to the creation of trust.
Capacity to be trustee
Every person capable of holding property may be a trustee; but, where the trust involves the
exercise of discretion, he cannot execute it unless he is competent to contract. – (sec 10(1))
The term “capable of holding property” is not defined; but it includes all living persons, corporation
and company.
It is said that a settlor has the liberty to appoint a beneficiary or an insolvent as trustee in an
instrument of trust, but a court when appointing had shown reluctance such persons as trustees.
In Sesma Lebbe Marrikar Vs. Manatchy Umma (11NLR237) the Court held that an undischarged
bankrupt is not ipso jure disqualified for the office of administrator of a deceased person's estate
under the Civil Procedure Code. In Ceylon, an application for a grant of administration of an
intestate's estate is made under section 544 of the Civil Procedure Code, which places no restriction
on the power of the Court to appoint any person interested in having the estate administered.
Capacity to be beneficiary
The person for whose benefit the confidence is accepted is called the " beneficiary”. -3(e)
Every person capable of holding property may be a beneficiary. – sec 9(1).
Every written law whether made before or after the commencement of this Ordinance, unless there
be something repugnant in the subject or context " person " includes any body of persons corporate
or unincorporate.- (sec 2(s) of the Interpretation Ordinance).
A trust for the maintain animals is invalid.
Trusts Created by Action
Also section 6 states that the trust must be declared by words or acts of the settlor.
The formalities laid down in section 5(1) of the Trusts Ordinance will have to be adhered to in
creating a valid trust in respect of immovable property.
Therefore, any trust alleged to have been created without complying with the above said
formalities is invalid and will no force in law.
However section 5(3) of the Trusts Ordinance presents exception. It states that the rules specified
in section 5(1) and (2) do not apply where they would operate so as to effectuate a fraud.
Re Keyford[1975] 1WLR 279Kayford Ltd were a mail order company. They received pre-payments
from customers and was concerned that they may be facing insolvency. On taking legal advice,
they opened a separate bank account to deposit the customer's pre-payments. The account was
named 'Customer Trust Deposit Account'. Kayford Ltd subsequently did become insolvent and the
creditors sought to claim the money in the separate account as part of the company assets.
It was held the money in the account on trust for its clients. Megarry J: There is no doubt about
the so-called “three certainties” of a trust. The subject-matter to be held on trust is clear, and so
are the beneficial interests therein, as well as the beneficiaries. As for the requisite certainty of
words, it is well settled that a trust can be created without using the words “trust” or “confidence”
or the like: the question is whether in substance a sufficient intention to create a trust has been
manifested.
Pawl v. Constance: Mr Constance was married to the defendant. He left his wife in 1965 and later
met the claimant and moved in with her in 1967. He never divorced his first wife. In 1973 Mr
Constance received £950 in relation to a personal injury claim from his employer. He discussed
what to do with the money with the claimant and decided to open a bank account.
As they were not married, the bank advised him to open the account in his own name but assured
him that the claimant would be able to draw on the account if she had a signed note from him.
Constance had told the claimant that the money was as much hers as it was his. There were three
further deposits into the account which came from the couple's bingo winnings which they played
as a joint venture.
Constance died intestate in 1974 and his wife as administratrix of his estate closed the account
and claimed the sums contained in the account formed part of his estate. The claimant argued that
the sums contained in the account were held on trust for the benefit of her and Constance jointly.
There was an express declaration of trust and the claimant was entitled to the money in the
account.
Lord Justice Scarman:"When one bears in mind the unsophisticated character of the deceased and
his relationship with the plaintiff during the last few years or his life, the words that he did use
on more than one occasion, "This money is as much yours as mine," convey clearly a present
declaration that the existing fund was as much the plaintiff's as his own."
Paul v Constance, in this case, the deceased partner of the defendant had frequently said to the
defendant, in respect of a sum of money: "This money is as much yours as mine". In finding that
this amounted to a self-declaration of trust.
Trusts extinguish
A trust is extinguished-
(a) when its purpose is completely fulfilled;
(b) when its purpose becomes unlawful;
(c) subject to the powers of the court under Chapter X and to section 110 (4), when the
fulfillment of its purpose becomes impossible by destruction of the trust property or
otherwise;
(d) when the trust, being revocable, is expressly revoked.-(sec 79)
A trust created by will may be revoked at the pleasure of the testator.
A trust created otherwise than by will can be revoked only-

(a) where all the beneficiaries are competent to contract, by their consent;
(b) where the trust has been declared by a non- testamentary instrument or by word of
mouth, in exercise of a power of revocation expressly reserved to the author of the trust;
(c) where the trust is for the payment of the debts of the author of the trust, and has not
been communicated to the creditors, at the pleasure of the author of the trust. –(sec 80)
Declaration of Trust
Declaration of Trust consists of the following:-
(i) Name and address of the settlor and the name and address of the trustee;
(ii) Name of the trust;
(iii) Definitions which shall include the definition of the trustees and trust property;
(iv) Objects of the trust;
(v) General powers of the trustees;
(vi) Special powers of the trustees;
(v) Meetings and proceedings of the board of trustees;
(vi) Appointment and removal of trustees;
(vii) Bank accounts and audit of accounts;
(viii) Application of trust property and income; and
(ix) Amendment s and declaration.
Self-declarations and transfers on trust
A self-declaration of trust is a comparatively recent mode of constituting a trust. Traditionally a

settlor would create a trust by transferring rights to another, a trustee, to be held for a beneficiary.
Ex parte Pye (1811): The settlor had instructed his agent to purchase an annuity in his mistress’
name. The agent ignored the instruction, and purchased the annuity in the settlor’s name. Lord
Eldon held that trusts could be created in one of two ways: the traditional method of transfer of
the legal title, in a manner that would be effective at law, to a trustee, and by self-declaration.
In Lord Eldon’s words: “he has committed to writing what seems to me a sufficient declaration,
that he held this part of the estate in trust for the annuitant".
Charity Commission for England and Wales v Framjee [2015] 1 W.L.R. 16. where donors made
donations to particular charities through the defendant’s website. The issue was whether the
defendant held the donations upon trust for the intended charities before the money was paid over
to them.
Henderson J. in finding that there was a trust, was not troubled by the absence of a specific
declaration by the donors. Instead of a clear oral or written statement declaring a trust, we find
contextual evidence of the purpose of the transfer, from which Henderson J. could infer an
unexpressed intention to create a trust.
In the case of trusts by transfer, the declaration is relevant only because it reveals something about
the settlor’s intentions, and not as a specific act that constitutes the trust.
When one turns to self-declarations, because legal title remains with the settlor, there is no legally
relevant act or transaction other than the declaration itself. This alone is effective to change the
settlor’s status from absolute owner to trustee and give the beneficiary equitable title.
Choithram International SA v Pagarani [2001] 2 All E.R. 492: The difference between transfers on
trust and self-declarations lies in the role played by the declaration. In the latter case, because the
declaration is the only legally relevant event, courts will require evidence of a specific act of
declaration in order to find a trust.
Incorporation
The Minister may, in his discretion, by Order, on the application of the trustees of any charitable
trust or of any public or private association (not being an association for the purposes of gain),
authorize the incorporation of the said trustees, and upon the publication of the said Order, the
said trustees of the charity or association and their successors for the time being shall be
constituted a corporation under such style and subject to such conditions as may be specified in
the Order. –(sec 114)
4. Certainties
Three certainties
In the English case of Knight Vs. Knight, Lord Langdale declared that for a trust to be validly
created three things were necessary. They are that-
(1) The words employed must be couched that, taken as a whole, they could be deemed to be
imperative;
(2) The subject matter of the trust must be certain;
(3) The objects or persons intended to be benefited must be certain.
When creating express trust, it is important that the settlor act with sufficient certainty. The
settlor must demonstrate a clear intention to create a trust.
Trust property must be sufficiently segregated from other property so that the trust fund is certain.
People who are to benefit from the trust must be identified with the sufficient certainty.
Subject to the provisions of sections 5 and 107, a trust is created when the author of the trust
indicates with reasonable certainty by any words or acts –
i. an intention on his part to create thereby a trust,
ii. the purpose of the trust,
iii. the beneficiary,
iv. the trust property, and (unless the trust is declared by will or the author of the trust is
himself to be the trustee) transfers the trust property to the trustee – (Sec 6)
Section 6 refers acts. An express trust under 5(1) could not be created by acts alone because writing
is necessary, but it would be possible to do so under section 5(3), and under section 5(2) if
accompanied by transfer of the ownership by delivery.
These rules do not apply where they would operate so as to effectuate a fraud. (section (5(3))
In order to that a trust may be valid and enforceable at law, the intention to create a trust must
be indicated by words or acts with reasonable certainty. The language used must be clear enough
to show an intention to create a trust.
A bequeaths certain property to B, " having the fullest confidence that he will dispose of it for the
benefit of" C. This creates a trust so far as regards A.
A bequeaths certain property to B, "hoping he will continue it in the family". This does not create
a trust, as the beneficiary is not indicated with reasonable certainty.
A bequeaths certain property to B, requesting him to distribute it amongst such members of C's
family as B should think most deserving. This does not create a trust, for the beneficiaries are not
indicated with reasonable certainty.
A bequeaths certain property to B, desiring him to divide the bulk of it among C's children. This
does not create a trust, for the trust property is not indicated with sufficient certainty.
A bequeaths a shop and stock in trade to B, on condition that he pays A's debts and a legacy to C.
This is a condition, not a trust, for A's creditors and C.
Intention to create a trust
A trust is created when the author of the trust indicates with reasonable certainty by any words
or acts an intention on his part to create thereby a trust. – sec 6(a).
In construing the term of the deed, the question is not what the parties may have intended, but
what is the meaning of the words they have used.
The use or non-use of word ‘trust’ in a document is not an indication of the intention.
No formal language is necessary to constitute an effective declaration of trust, but the language
used must take it certain that the settlor intended to constitute a trust binding in law on himself
or the person to whom the property was given.
The use of words ‘trust or trustee’ is not essential to create the trust; even where the words by the
settlor are in precatory form, the trust will come existence.
Where the words used in the instrument do not indicate with certainty an intention to create a
trust, no trust can come into existence.
A trust may be created by any language sufficient to show the intention or by conduct of parties.
Dr. L.J.M Coorey has noted as follows-
“Though for the sake of brevity, we refer to ‘intention of the settlor’ it is more correct to speak of
the settlor's ‘manifestation of intention’ to create a trust.”
In Fernando Vs. Jossie (58NLR 114) the Court cited the case of Maharaja Manindra Chandra
Nandi v. Raja Durga Prashad Singh [A.I.R. (1917) Privy Council 23.], Lord Parmoorsaid :-
"In construing the terms of a deed, the question is not what the parties may have intended, but
what is the meaning of the words which they used. “
Settlor may use the words precatory or recommendatory or expressing a belief when they mean to
declare a trust.
A bequeaths certain property to B, " having the fullest confidence that he will dispose of it for the
benefit of" C. This creates a trust so far as regards A. (illustration sec 6(a)).
Paul [1977] 1 W.L.R. 527 at 531. there must be a clear declaration of trust and that means there
must be clear evidence from what is said or done of an intention to create a trust.
In the case of Visaladchypillai Vs. Sivapakkiammal (40NLR114), it was argued by the plaintiff
respondent that the whole transaction seems almost in illustration of the definition of a trust as
set out in section 6 of the Trusts Ordinance. The property will otherwise have to be sold and the
money paid out of the proceeds in order to comply with the terms of the deed creating the trust. A
refusal to pay the sum would be in fraud of the trust.
The defendant Appellant argued that a gift subject to a condition is all we have here. It is a class
of donation well known to the Roman-Dutch law and in such a case the Court will apply the
common law in order to determine the rights and liabilities of the parties who must be deemed
primarily to have intended to create only a common law obligation.
The Court said that Now, as the legal ownership has to be vested in the person who is designated
the owner, language, however forcible and full, may be invoked to vest that ownership without
affecting the intention to create a trust in favour of another, and this will explain the use of the
words “absolutely forever". This done, there must be words to indicate a beneficial enjoyment of
the whole or part of that property by another.
It would appear that the words “out of the said lands and premises” satisfies this requirement.
Koch J. said ”I should wish to emphasize firstly the words “upon condition” in the passage quoted,
for this will explain the presence of the words “subject to the conditions” in the deed in question;
and secondly, the requirement that the condition must be “performed and satisfied out of the
property”. We have these words in clause 3 of the deed. The essentials of a trust being present, I
hold that a trust has been created.
However,a more stricter and more correct test was applied in Arumugampillai Vs. Veluppillai
(46NLR241). In this case Where a deed of gift contained the following conditions:-
(1) That the said V. S. shall look after the said properties and take the rents and profits of
the said properties and perform the Arthasamapoojah, which is being generally performed
and which we now are performing and also the Theertam festival in the temple standing in
the land.
(2) That after the lifetime of the said V. S. the person who was appointed by him in his place
and, in default of such appointmentthe eldest child of his descendant will have the right to
perform the duties of the said temple.
(3) That the said V. S. will have no right to sell and transfer the said properties or alienate
the same by documents in his lifetime andthat whenever he in his lifetime appoints a
person, whom he likes, he shall have to appoint such person subject to the bindings recited
in this paragraph.
Held, that the conditions annexed to the deed were not sufficient to constitute a charitable trust.
In Murugesoe Vs. Chelliah (57NLR463) H.N.G Fernando J cited the case of Karthigasu
Ambalavaner vs. Subramaniar Kathiravelu [27 N LR15], Bertram C. J. said " When a person
who is the owner of property purports to transfer it to a Temple, the effect of his so doing is to
constitute himself a trustee of the Temple. The document of dedication is in fact a declaration of
trust and the dominium remains with the dedicator and passes on his death to his heirs subject to
the trust ".
Where a transfer of immovable property contained a recital that the consideration was paid by the
transferee "for" a specified Hindu temple.
Held, that the transferee must be taken to have purchased the property with funds provided by,
or held by him for, the religious charity represented by the temple. The transferee, therefore, held
the property as trustee, and, on his death, the land devolved on his heirs subject to the same trust.
The words " for the Temple " were not merely precatory but were sufficient to create a trust.
H.N.G Fernando A.J cited the case of Arumugam Pillai v. Velupillai Periyatamby [46 NLR
241.] the deed in question transferred a land "by way of donation" and on account of " natural
affection " for the donee, who was entitled by its terms to " take the rents and profits of the land ".
There was a condition also that the donee should perform a certain " poojah " as also a certain
festival in the Temple standing on the land, but Wijeyewardene J. was unable to find any evidence
as to whether or not the performance of the stated ceremonies would involve expenditure, nor was
the donee enjoined to utilize any part of the income for the purpose of those ceremonies. He held
that the conditions were insufficient to create a trust, being presumably more in the nature of a
pious desire on the part of the donors, than an expression of an intention to impose an obligation
annexed to ownership.
Harrison and another v Gibson and others [2006] 1 ALL ER 858: The testator made a homemade
will and he said: “The bungalow I leave in trust for my wife. On her death the Bungalow is to be
sold and cash raised is to be equally divided between my children.” The court held that the wording
of the bequest created an express trust, not a gift.
Re Adams and the Kensington vestry (1884) 27 CH.D. 394: A testator left property to his wife (W)
by will “in full confidence that she would do what was right by his children”.
Held: It was held that the property passed to W absolutely and no trust had been created.
Comiskey v Bowring-Hanbury [1905] AC 84: The testator left property to his wife "in full
confidence... she will devise it to one or more of my nieces as she may think fit".
Held: This appeared to be merely a moral obligation on the wife; however, the House of Lords held
(by a majority) that a trust had been created.
This is because the entire instrument must be construed (you must look at the whole document,
and not just the phrase in isolation) → later words indicted that it was the intention of the settlor
that a legally enforceable trust should be created and not just a moral obligation
So a trust was created because, having expressed that the property would be dealt with in full
confidence (and thus looking like a moral obligation), the settlor went on to say that he directs that
the property should be held on trust → so this showed there was not just a moral obligation
Midland bank v Wyatt [1997] 1 BCLC 242,:Mr Wyatt settled his family home on trust for the
benefit of his wife and daughter, so as to immunise it from any business failure he might suffer.
When his business did fail, he sought to protect his house from creditors by relying on the
settlement earlier executed, of which his wife was a trustee. It emerged that Mr Wyatt’s wife had
had no knowledge of the effect or nature of the declaration she signed as ‘trustee’.
Held: There was a sham, and the declaration of trust was void and could not be enforced.
Where a trustee goes along with a settlor neither knowing nor caring what he or she is signing,
this constitutes sufficient intention to create a sham.
Paul v Constance [1977] 1 WLR 527: Mr Constance left his wife to live with his mistress, Mrs Paul.
Constance received a court award of £950 for an injury suffered at work, subsequently to which
Constance and Paul decided to set up a joint bank account. After visiting the bank, they were
advised that the account should be set up in the name of Constance alone because the couple were
not married: therefore, Constance was the common law owner of the account
⇒ The £950 lump sum was paid into the account and formed bulk of the money held in it. The
couple also added joint bingo winnings to the account, and used some for the money to pay for a
joint holiday. Importantly, evidence was also adduced at trial that Constance had said to Paul “this
money is as much yours as mine”
Constance died, and his wife sought to claim that the bank account belonged entirely to her
deceased husband and that it therefore passed to her as his widow under the Intestacy rules. Mrs
Paul, However, argued that the money was held on trust by Constance, as legal owner of the bank
account, for both Constance and Paul as beneficiaries; therefore, she argued, the bank account
should pass to her as sole surviving beneficiary.
Held: Constance had declared a trust over the money in the bank account → the reasoning was
that the words “the money is as much yours as mine” manifested sufficient intention that
Constance would hold the property on trust for them both.
Lambe v Eames (1870) L. R. 10 EQ. 267: In this case words were said that property was "to be at
her disposal in any way she may think best, for the benefit of herself and her family"
Held: This was held not to create a trust as the words are clearly precatory (there is no clear
intention to create a trust)
To create a valid trust you “must show a clear intention” to do so (Sir Malins VC).
Jones v Lock (1865) 1 CH.APP. 25: A father returned from a business trip and he was scolded for
not bringing back a present for his infant son. In a rage he wrote a cheque out in favour of him as
payee and thrust the cheque into the baby’s hand. AN issue arose as to whether a trust was created
over the cheque for the benefit of the baby
Held: There was nothing to indicate an intention to create a trust over the cheque → rather the
father’s intention was to make a gift or simply make a point to his wife
Don King v. Warren [1988] 2All ER 608: Don King was the leading boxing promoter in USA and
Warren was the leading boxer and manager in Europe. The two men formed a partnership
agreement whereby they, and the companies which they controlled, agreed to exploit agreements
with boxers in Europe for their mutual advantages. Under the partnership agreement, each
partner was required to hold the benefit of the partnership.
Subsequently one or more of the partners attempted to terminate the partnership agreement and
sought to argue that certain management agreements did not fall to be included in the partnership
property. The question arose whether the partners held the benefit of their management
agreements on trust for the partnership.
It was held that the intention of the parties had been to hold the benefit derived from any contract
andthat any benefit received from them could be the subject matter of a trust and that this
partnership arrangement evinced sufficient intention to create a trust.
Certainty of object and beneficiary
The object or purpose of the trust must be certain or capable of being rendered certain. Certainty
of beneficiaries implies, firstly, that the beneficiaries should be identifiable, and secondly, that the
interest which the beneficiaries take should be ascertainable.
Clayton v Ramsden [1943] A.C. 320: Property was left to the settlor's daughter. The trust would be
invalid, if she married a man not of the Jewish faith or parentage. She subsequently married a
non-Jewish man.
Held: Lord Atkin said the condition subsequent here was void for uncertainty and therefore the
daughter could benefit from the trust.
Clough Mill v. Martin [1984] 3All ER 982: A manufacturer of yarn supplied a clothes manufacturer
with yarn. The clothes manufacturer used the yarn to make clothes- that is, the yarn ceases to
exist as yarn but rather became cloth which was incorporated into clothes. The supplier wanted
security for the contractual payments made to it by the clothes manufacturer.
Therefore, the supplier wanted to retain title in the yarn until it was used to create clothes, and
then to have rights in the cloths themselves. That aim was incorporated into the contract between
the parties. Subsequently, the clothes manufacturer did go into insolvency without having made
full payment to the supplier. The supplier argued that the yarn and the clothes were held on trust
for it until such time as it received payment.
It was held that if more people claims than there was than there was property to go around, the
trust would have been meaningless because no claimant could have identified which property was
held on trust for them alone.
It is important that the which is to be held on trust is clearly identifiable and segregated from all
other property. Therefore merely a charge created under these circumstances.
Certainty of beneficiary involves-

As to who may be beneficiary;
As to identity of beneficiary;
Whether the interests taken by each of beneficiaries are indicated with certainty.
A trust is created when the author of the trust indicates with reasonable certainty by any words
or acts the purpose of the trust. Sec.9 (c).
A trust is valid only if it can be construed as being to or for the present members of the society. If
it is included future members it would be void for uncertainty and for perpetuity unless the future
members are to be ascertained within the perpetual period.
Anthony Gasper Vs. The Bishop of Jaffna: The trust property was a land adjacent to the sea
shore with a shed built on it, to enable the beneficiaries under the trust who were fishermen, to
keep their boats on the land, and to store their fishing tackle in the shed. It is apparent that the
trust was not limited to the present members, and was intended to endure indefinitely. It is
submitted that the reasonable certainty required by section 6 was not present because the
beneficiaries included future members and the members of the community constitute an
uncertainable group.
The Court held that “Just as a community of persons can hold property or acquire rights in
property so also a community of persons can be beneficiaries under a trust deed. No provisions of
the Trusts Ordinance invalidates the trust and there is no reason why it should not prevail.
Kandasamy Vs. Kumarasekaran (63NLR193): The Anthony case was distinguished. An

unincorporated society, not being a juristic person, has no legal capacity to acquire property.
Accordingly, a sale of immovable property in favour of an unincorporated society or association
cannot pass title if it is not clear whether the transferor meant to benefit the present members of
the society as individuals or to benefit the society as a quasi-corporation.
Weerasooriya J citied “I do not think the dictum amounts to more than that the individual
members comprising a community (and not the community as a distinct entity) can hold or acquire
rights in the property.
In Kandasamy case trust for the unincorporated society was held to be void.
But in Leahy Vs. A.G. (1959 (101CLR 611) it was held that a gift to the unincorporated body was
prima facie gift to the individual members.
Sabapathy Vs. MuhamedYoosoof (37NLR70) The document is a will and in interpreting this
will one must give full effect to the intention of the testator. Beyond the prohibition of alienation
which sometimes occurs in fidei commissa there are no words in the will to show that the testator
intended to create a fidei commissum. On the contrary the word " trust" is used. The English law
of trusts was part of the law of Ceylon in. 1872 (see Ibrahim v. Oriental Banking Corporation [ 3
N. L. R.148. ] and Suppramaniam v. Erampakurukal [2 23 N. L. R. 417.]
The object of the trust should not be of a nebulous character but must be of such nature that a
court can administer it.
In Muthuswamy Naidu Vs. Rajulu Naidu (AIR 1925) case a trust for feeding the poor on a
certain specific day has been held to be sufficiently precise and certain object of the valid trust.
In the case of Anthony Gaspar Vs. The Bishop of Jaffna (52NLR230) Basanayake J held that A
community of persons can hold property or acquire rights in property. In the same way a
community of persons can be beneficiaries under a trust deed. It is not disputed that the
defendants belong to the class of persons for whose benefit the land has been provided. there is no
provision of the Trusts Ordinance which invalidate the trust created and there is no reason why
it should not prevail.
Certainty of subject matter
The subject-matter of the trust is the property in respect of which the trust has been created. For
creating a valid trust, it is necessary that the subject-matter of the trust is defined with the
certainty and it should be such which is capable of disposition.
The word ‘property’ includes any property which a person can in law transfer or assign or dispose
of inter vivos or under a will.
The subject-matter of a trust must be property transferable to the beneficiary. So, any property
inalienable by law can’t be the subject matter of the trust.
The subject-matter of a trust must be property transferable to the beneficiary. It must not be a
merely beneficial interest under a subsisting trust – Sec 8.
In other words there can’t be trust upon a trust.
There must be certainty both of the property intended to be affected by the trust and as to the
beneficial interest to be taken by each of the several beneficiaries.
Where there is uncertainty as to the property it is evident that there can be no transfer of title and
purported transferor is never divested of his title.
Where certainty of intention and property are present but beneficiaries are uncertain there would
be a resulting trust under section 85 of the Trusts Ordinance.
Boyce V Boyce (1849) 60 ER 959: The testator devised “all my houses” – probably two but the report
is ambiguous on this point – on trust to convey one to the eldest daughter Maria (of which she
could select which house she wanted) and the other house would go to the other daughter,
Charlotte. Maria died before her mother without making a choice as to which house she wanted.
Held: The court held that the bequest to Charlotte failed since there could be no certainty as to
which house should be held on trust for her → both properties were therefore held on resulting
trust for the testator’s heirs, his grandson
Henry V Hammond [1913] 2 KB 515: The question is whether you can you have a trust over part
of the money in a bank account or is it that trust money mixed in an account with non-trust money
is fatal to the formation of a trust?
Held: In this case, the high court said that if the trust money is placed in a separate account there
will be a trust, but if it is mixed in it cannot be a trust (Channel J)
Re Goldcorp Exchange Ltd [1995] 1 AC 74: It was held that only those customers who could prove
that their order of bullion was in fact held separately from the general store of bullion would be
entitled to enforce a trust against the exchange and consequently be able to take their bullion
orders away as secured creditors.
Re Harvard Securities (Holland V Newbury) [1997] 2 BCLC 369: This case appears to have applied
the rule drawn from the Court of Appeal in Hunter v Moss: A dealer in financial securities held
securities as nominee for his clients. While the terms of the contracts suggested that the dealer
held the securities on bare trust for each of his clients, the securities were not numbered and were
not separated. In consequence, none of the clients were able to identify which securities were held
on bare trust for which client.
Neuberger distinguished Re Wait, Re London Wine and Re Goldcorp on the basis that those cases
concerned chattels and considered himself obliged by the doctrine of precedent to apply Hunter v
Moss because that case similarly concerned intangible securities
It was therefore held that the trusts were not invalid for uncertainty of subject matter because the
securities were intangible property and therefore did not require segregation
This means that in English law Hunter v Moss remains good law!
Re London Wine Co. [1986] PCC 121: A wine merchant bought and held wine for clients to their
order. The stock of wine was held together without distinguishing which particular bottles were
held for which client. The wine merchant company went into liquidation and the claimants argued
that the wine they had ordered from the shipper was held on trust for them under the terms of
their contracts. However, the creditors said it belonged to the company and was part of the
company’s assets in insolvency
Held: There could not be a valid trust because the claimants could not identify which wine was
held for them out of the general store
It would have been necessary for the claimant’s wine to be segregated: that is, to be separately
identifiable from the general stock of wine
Sprange v Barnard (1789) 2 BRO.C.C. 585: A testatrix provided that property would be left to her
husband to use absolutely but that “the remaining part of what is left, that he does not want for
his own wants and use” was to be held on defined trusts.
Held: This statement was too uncertain for the trust to take effect over any part of the property
because the property was not sufficiently clearly identified by the expression “the remaining part
of what is left”
Hunter v Moss [1994] 3 ALL ER 215: An employer agreed to give 50 of his 950 shares to the finance
director. The employer did no transfer the shares nor were any attempts made to identify those
shares which were to be subject to the arrangement. An issue arose as to whether or not the finance
director could assert a proprietary right over the 50 shares
If we were to apply the rule in Re Goldcorp to these facts, there would have been no valid trust
over the shares because it would be impossible to know which 50 shares out of the total holding of
950 shares were to be held on trust.
It was held that a trust over the shares had been formed (so a different approach was taken from
that set out in Goldcorp and held there was a valid trust here).
Ong v Ping [2017] EWCA Civ 2069; [2018] 1 P. & C.R. DG17: A buyer purchased and executed a
trust deed declaring its subject matter to belong to her grandchildren. She wrote to her solicitors
saying she wished to cancel the trust of the house (but this was not followed up, whether or not
that might have been possible). The existence of the trust was not disclosed when she obtained a
series of Court orders for possession and mesne profits for use and occupation. The property was
sold in 2006 for a price. The mother died in 2009, but in 2012 the wife discovered the existence of
the trust deed.
She successfully applied to have the decisions set aside on the basis of fraudulent non-disclosure
of the trust deed. Unfortunately, the trust deed which was drawn up failed to mention the subject
matter of the trust (the key blank spaces in the relevant schedule having not been filled in!). The
Court of Appeal held the background circumstances and correspondence at the time the deed was
drawn up led to the conclusion it had to relate to the property. So long as the intent of the parties
can be identified from the background circumstances, the courts will be loath to find a deficient
document is ineffective. Here the Court of Appeal effectively decided that the trust had been
established by conduct.
Absence of Certainties
In the case of Fernando Vs. Sivasubramaniam (61NLR241) It was mentioned that no particular
formula is required by law for the creation of a trust. The requirement of law is that the author
should make his meaning clear and evince his intention to create a trust and the Court will give
effect to that intention. In the instant case Kanapathy the author of the trust declared by PI has
clearly indicated that the purpose of granting the lands in question to himself andanother was for
the advancement of his religion and maintenance of religious rites and practices of the Hindu faith.
The beneficial interest is not vested in any ascertained individual or individuals but in an
uncertain and fluctuating body, the Brahmins. Under the law in force in 1888 he was entitled to
create a trust in the way he did.
Glanville Williams in his “The Three certainties” has suggested three ways by which uncertainty
as beneficial interests may be cured.
Where trustee is given a discretion to apportion the property among the beneficiaries or the court
cures the uncertainty by applying the maxim equality is equity, dividing the property in equal
shares;
If all beneficiaries are competent to contract and are collectively absolutely entitled, they may elect
to apportion the property among themselves in a definite manner
The phrase notarially executed has been defined in section 3(o) of the Trusts Ordinance.
Accordingly “notarially executed” means executed in accordance with the provisions of section 2 of
the Prevention of Frauds Ordinance (PFO).
In Vyrupulle v. Perera (15NLR199) a testator bequeathed to certain specified persons all the
rents and profits arising from his properties, and further directed that the share of the rents of the
legatee dying should be distributed among the widows and really deserving destitute people of the
Burgher community according to the discretion and judgment of the executors.
Held (by Grenier J. and obiter by Wood Renton J.), that the trust in favour of the Burgher
community was not void on the ground of its being vague.
5. Lawful Purpose
The object must be certain, practicable and lawful.
A trust may be created for any lawful purpose. The purpose of a trust is lawful, unless it is –
(a) forbidden by law, or
(b) is of such a nature that, if permitted, it would defeat the provisions of any law, or
(c) is fraudulent, or
(d) involves or implies injury to the person or property of another, or
(e) the court regards it as immoral or opposed to public policy – (Sec 4)
Saroja Nisansala vs. Aberfoyle ([2011]2SLR340): The appellant had been Dubai where she had
been working in several houses and had stayed at the plaintiff-respondents house. At that she had
not paid any rent and in lieu of rent she had helped to clean the garden. Plaintiff-respondent
agreed to purchase a house for appellant and did so.
The issue in question is as to whether a purchase of a property by a third party for and on behalf
of a foreigner, allegedly in order to evade the payment of 100% tax on the sale, could create trust
on the basis sections 4(1) and 98 of the Trusts Ordinance.
Section 98. Nothing contained in this Chapter shall impair the rights of transferees in good faith
for valuable consideration, or create an obligation in evasion of any law for the time being in force.
(Saving right of bona fide purchasers).
Appellant contended that there is a breach of Revenue Law and therefore the respondent cannot
seek relief under Trusts Ordinance.
The court cited as follows - Dr. L.J.M. Coorey in his work on the subject of Trust has discussed the
nature of an unlawful trust. According to L.J.M. Coorey, if sections 4 and 98 of the TO had been
omitted, the general law of the land would have prevented the operation of trusts for unlawful
purposes.
Referring to trusts for unlawful purpose Dr. Coorey refers to Prof. Weeramantry’s Treatise on the
Law of Contract. Prof. Weeamantry, referring to breach of revenue regulations clearly states that
mere breach of revenue regulations would not itself render illegal a contract in respect of which
they are imposed.
Prof. Weeramantry stated that where a statute merely imposes a penalty on the performance of
certain acts without declaring such acts to be illegal or void, the question arises whether such acts
are void. In such cases, we must look to the intention of the legislature to see whether the
imposition of the penalty implies as to make the resulting contract void.
The imposition by the legislature of a penalty on any specific act or omission is prima facie
equivalent according to Pollock to an express prohibition. Such provision is however, only prima
facie evidence and is not enough by itself to make a contract to do that act illegal or void.
Court said the an act could not be treated as invalid simply due to illegality.
The Court cited the case of Fernendo vs. Ramanathan, in that case a full bench at that time
had decided that a deed is not invalid on the ground of illegality because it is contrary to what may
be termed the policy of an ordinance.
Court stated that no arguments were put forwarded that if it was allowed, the transaction which
took place would defeat the provisions of any law, Similarly no material was put forward to
substantiate the fact that the transaction is not one which is forbidden by law, fraudulent, involves
or injury to the person or property of another and the court regards it as immoral or opposed to
public policy.
The Court held that

(1) the Finance Act empowered the Commissioner to recover the tax;
(2) the trust is not contrary to sections 4 and 98 of the Trusts Odinance;
(3) an unlawful intention bilaterally entertained is no longer an absolute bar to restitution.A
trust whose purpose is unlawful shall be void; and where a trust is created for two purposes
one of which is unlawful and non-separable from other purpose, the whole of such trust shall
be void. If the two types can be separated, the trust as whole will fail but shall stand for
those objects which are lawful.
(a) A bequeaths property to B in trust to employ it in carrying on a smuggling
business, and out of the profits thereof to support A's children. The trust is void.
(b) A, while in insolvent circumstances, transfers property to B in trust for A during
his life, and after his death to B. A is declared an insolvent. The trust for A is invalid
as against his creditors. (illustration (a) and (b) of section 4)
6. Charitable Trusts
Certainty
Since section 6 is expressly subject to 107, it may be argued that 107 gives the court power to
ignore the requirement of certainty of beneficiary in relation to the charitable trusts. It is also
relevant that most of the decisions have ignored the requirement in section 6 that beneficiaries
must be indicated with certainty in a valid charitable trust.
Where there is a specific intention to create a charitable trust defined by section 99, uncertainty
as to the manner in which the trust is to be administered may be cured either, by reference to
sections 99(2) and 100 or 101(1)(e) or 102(1)(a) or by a discretion given to the trustee by the settlor.
It is an important that the definition of charity and the requirement of public benefit are regarded
as two distinct requirements.
It has been stated that purpose of the trusts will fail, if the purpose is not stated with sufﬁcient
certainty. This rule does not apply to charities. It does not matter that the charitable purpose is
only vaguely stated, or that no purpose is stated at all. Thus, a gift simply ‘for charitable purposes’
or, as in Moggridge v Thackwell (1792) 1 Ves Jr 464, a gift to A ‘to dispose of to such charities as
he shall think ﬁt’ will be valid.
The trusts in section 99 may be explained by reference to section 3(a). Because of the words “unless
the context or the subject matter otherwise implies,” the implication in 3(a) that a beneficiary must
be a person can be modified by section 99(1) (a) to (d).
To constitute the valid trust, it is necessary that its objects or purposes are certain and that the
directions to the trustees are given in imperative terms. If the testator leaves a discretion to the
trustee to apply a fund to a charitable or non-charitable purpose at his option, no valid charitable
trust can be created.
It however, does not mean that the trustee cannot be given any discretion under a charitable trust.
In Manorama vs. Kalicharan (1904) it has been held that gift for a purpose which can be
regarded as charitable or to charity generally, would be a valid trust even though a wide discretion
is given to the trustee.
In Gangabai Charities vs. CIT (1992) 197 ITR 27, the object of the trust were described in the Trust
Deed as “religious, charitable, cultural and social” purposes. There was no mention in the Deed as
to how the trust income was to be utilized. There was no mandate that the income was to be spent
on religious or charitable purposes. In these circumstances, it was held that it was not possible to
cull out in clear terms any specific charitable or religious objects from the trust deed to conclude
that the trust was set up wholly for religious or charitable purposes.
Dedication to Trust
The mere declaration of a trust or execution of a deed is not enough to constitute a valid
endowment; it is necessary for the validity of a deed that the executor should divest himself of the
property. Whether he had done or not, is to be determined by his subsequent acts or conduct
_Dharma Raja vs. Raja Ammal (1978) 1 Mad. LT 492.
In order that a dedication must be real, the following are essential requirements:-
1. Subject matter of the dedication must be specific and well defined;
2. The words employed for the dedicating the property for the endowment must be
unambiguous and certain;
3. The object of the charity should be certain;
4. The dedication should be made by an unambiguous expression of intention to divest.
Once a valid trust has been created, the subsequent conduct of the founder contrary to the
dedication cannot invalidate or affect the trust.
If a trust had been validly created, any deviation by founder of the trust would amount only to a
breach of trust.-Thanthi Trust vs. ITO (1973) 91 ITR 261 (Mad.)
Perpetuity
Charities are not bound by this rule and may therefore last forever. There are many charities of
considerable age which continue to operate. Thus, where a gift is made of the income from a
particular fund to a charity in perpetuity, it will never be possible to release the capital from the
fund: Re Levy [1960] Ch 346
Rule against perpetuities - Section 110(5) of the Trusts Ordinance-
The restrictions of this section shall not apply to charitable trusts as defined by section 99.
De facto trusts: In dealing with any property alleged to be subject to a charitable trust, the court
shall not be debarred from exercising any of its powers by the absence of evidence of the formal
constitution of the trust, if it shall be of opinion from all the circumstances of the case that a trust
in fact exists, or ought to be deemed to exist- section 107
Charitable trusts where these formalities had not been observed were nonetheless held to be valid
because of section 107.
Section 107 appears to be respective and has been assumed without argument to apply to trusts
arising before 1918.
Charities
The expression "charitable trust" includes any trust for the benefit of the public or any section of
the public within or without Sri Lanka of any of the following categories:-
(a) for the relief of poverty; or
(b) for the advancement of education or knowledge; or
(c) for the advancement of religion or the maintenance of religious rites and practices; or
(d) for any other purposes beneficial or of interest to mankind not falling within the
preceding categories. (Sec 99 of the Trusts Ordinance)
Section 34 of the Companies Act-
Where the Registrar is satisfied that an association about to be formed as a company limited by
guarantee is to be formed for promoting commerce, art, science, religion, charity, sport, or any
other useful object, and intends to apply its profits, if any, or other income in promoting its objects,
and to prohibit the payment of any dividend to its members —
The Registrar may by licence direct that the association be registered as a company limited by
guarantee, without the addition of the word “Limited” to its name; and
(b) the association may be registered accordingly and shall on registration enjoy all the
privileges and subject to the provisions of this section, be subject to all the
obligations of a limited company.
Section 57 of the Inland Revenue Act 2017-
A trust shall be liable to tax separately from its beneficiaries.
A beneficiary of a trust shall be liable to tax on the income of the trust to which that beneficiary is
entitled for as individual.
Distributions of a resident trust shall be exempt in the hands of the trust’s beneficiaries.
Where any charitable institution provides institutionalized care for the sick or the needy and
where the Commissioner-General is satisfied that the cost of provision of such care is borne by
such charitable institution, the Commissioner-General may, reduce the tax payable. –section 68(3)
Section 193 of IRA 2017
“charitable purposes” means a purpose for the benefit of the public or any section of the public in
or outside Sri Lanka, including the following categories:
(a) the relief of poverty;
(b) the advancement of education or knowledge other than by any institution established for
business purposes or by any institution established under the Companies Act;
(c) activities for the protection of the environment or eco-friendly activities;
(d) the advancement of religion or the maintenance of religious rites and practices or the
administration of a place of public worship;
(e) any other purpose beneficial to the community, not falling within any of the above
categories;
Charities Act 2011 (UK)[14th November 2011]

For the purposes of the law of England and Wales, a charitable purpose is a purpose which—
(a) falls within section 3(1), and

(b) is for the public benefit (see section 4).
A purpose falls within this subsection if it falls within any of the following descriptions of
purposes—
(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;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(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 because of youth, age, ill-health, disability, financial hardship
or other disadvantage;
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown or of the efficiency of the
police, fire and rescue services or ambulance services;
(m) any other purposes that are not within paragraphs (a) to (l) but are recognized as
charitable purposes.
In paragraph (c), “religion” includes—

(i) a religion which involves belief in more than one god, and
(ii) a religion which does not involve belief in a god,
This is very obviously an adaptation of the test laid down by Lord Macnaghten in Income Tax
Commissioner vs. Pemsel that,
“Charity in its legal sense comprises four principal divisions: (1) trusts for the relief of
poverty; (2) trusts for the advancement of education; (3) trusts for the advancement of religion;
and (4) trusts for other purposes beneficial to the community, not falling under any of the preceding
heads.”
It has been pointed out in relation to the word “include” in section 99 that the effect of this word
in a statutory definition is that prima facie the enumeration following the word is not exhaustive.
The Privy Council, in A-G of the Cayman Islands v Wahr-Hansen [2000] 3 All ER 642, has recently
held that gifts to ‘organisations or institutions operating for the public good’ and acting ‘for the
good or for the benefit of mankind . . .’ were not exclusively charitable purposes; the words used
were wider than charity. It is also a general rule that a limitation to, for example, ‘charitable and
deserving’ is effective whereas a gift to ‘charitable or public’ is not, for in the first case the money
must go to charitable purposes whereas in the second it can go to public purposes which are not
necessarily charitable.
Benefit of the public or any section of the public and advancement of religion or the
maintenance of religious rites and practices
The Pemsel definition refers to “trusts for the advancement of religion”. Section 99 has the
additional words “or the maintenance of religious rites and practices”.
The trusts for the maintenance of religious rites and practices may be invalid in England. The
inclusion of extra words in section 99 was perhaps intended to widen this category because
Buddhism, Hinduism and Islam which are practiced in Sri Lanka are heavily ritualistic.
In University of Bombay vs. Minicipal Commissioner, Bombay (1892) 16Bom. 217) it was stated
that the charitable purpose has been defined to include relief of poverty, advancement of education,
advancement of religion and other purposes beneficial to the community not falling under any of
the preceding heads.
A charitable or religious endowment, in order to be a charity in the legal sense, will have to be for
the purpose of the public nature, in other words for the benefit of the community of some part of
it- Ram SarupDasi vs. Sahi (AIR 1959 SC 951).
When the beneficiaries of a trust constitute general public or a section of public, as distinguished
from private individuals, and when the trust is meant to perform a public charity, it is a public
charitable.
Section 4 of the Charities Act 2011 UK
The “public benefit” test
This section applies in connection with the requirement in section 2(1)(b) that a purpose falling
within section 3(1) must be for the public benefit if it is to be a charitable purpose.
But despite of differences in the facts, the principle in Gilmour could have been applied in
Fernando case and the issue could have been formulated, whether the ceremonies, the
performance of which was directed by the trust, constituted a “central act” of the Hindu religion,
and whether it could be objectively proved that their performance was for the benefit for the public.
The House of Lords in Gilmour vs. Coats [1949] 1 All ER 848 held that the requirement of public
benefit is not satisfied, and a trust will fail as charity, if the trust is created for the performance of
private ceremonies.
In Fernando vs. Sivasubramanium (61NLR241) a trust was created by a Hindu testator,

“desirous of my soul’s attainment of salvation” for the performance of religious ceremonies. Pulle
J held that the facts in two cases were very different and therefore Gilmour case was not a relevant
authority.
There is a dual test to be satisfied. The purposes of the trust must (i) fall within legal definition of
charity, and (ii) be for the public benefit, if it is to be valid charitable trust.
That purely private religious services are not charitable has been confirmed in Re Le Cren Clarke
[1996] 1 All ER 715. The contrast between this case and Re Hetherington [1989] 2 All ER 129 was
that in Re Hetherington the services could be conducted either in public or in private and the judge
was entitled to take a benignant view of the gift and assume that they would be held in public.
In Re Le Cren Clarke, on the other hand, evidence clearly indicated the services were conducted in
private, so there was no room for a benignant assumption where the facts were clear (though it
was also held on the facts that the services were merely ancillary, so the gift as a whole was upheld
as charitable). The case appears also to recognize faith healing as charitable within this heading
of charity.
English authorities regarding the element of public benefit have not generally been even cited in
local decisions except in Fernando case. Trusts for observing various ways Hindu festival days, for
the bathing of idols and the offering of eatables to a deity on the festival days, for keeping a lamp
burning in a temple, for performing ceremonies at the Hindu shine, for the maintenance of
Buddhist rites.
In Bhupati Nath vs. Ram Lal (1910) 37 Cal. 128) it was stated that a religious endowment is one
which has for its object the establishment, maintenance or worship, of an idol or deity, or any object
or purpose subservient to the religion. A charitable endowment is one which has its object the
benefit of the public or of mankind.
In CIT vs. Jamal Mohammed Sahib (1941) 9ITR 375 (mad) it was said that there might be a
private trust for religious purposes, but there can be no private charitable trust.
In Bihar State Board of religious Trust vs. Palat Lal. (AIR 1972 SC 57) it was said that if an
endowment is not intended to benefit the general body of worshippers but only for the members of
family or specified individuals it is a private endowment.
But where the beneficiaries are not members of a family or specified individual, then the
endowment can only be regarded as public, intended to benefit the general body of worshippers.-
KannikaParameswari vs. Educational Institution (1990) 1MLJ 293)
A public temple is one where a considerable portion of the public or a section thereof has a
beneficial interest. A gift for the purpose of such a temple must therefore benefit the public-
Mahant Ram Swaroop Dasji vs. S.P. Sahi. (AIR 1956 SC 951)
The main characteristic of a public temple is that it is intended for the use of pubic at large or
specified class, who are entitled the right of worshipping in it.- Smt. CharusilaDassi, in re. (1946)
14ITR 362 (Cal.)
In brief, the origin of the temple, the manner in which its affairs are managed, the nature and
extent of the gift received by it, expenses of the temple being met by public contribution, rights
exercised by the devotees in regard to the worship therein, the consciences of the manager and the
consciences of the devotees themselves as to the character of the temple are factors that go to
establish whether a temple is a public or private temple.- T.D. Gopalan vs. Commir. Of Hindu
Religious and Charitable endowments (AIR1972 SC1716)
In Narayanan Bhawant Rao GosaviBalajiwale vs. Gopal Vinayak Gosavi (AIR 1960 SC100) the
Supreme Court of India held that the vastness of the temple, the mode of its construction, the long
user of public as of right, grant of land and cash by the Rulers taken along with the other factors,
were consistent with the public nature of the temple.
Advancement of education or knowledge or the relief of poverty
Lord Hailsham, in IRC v McMullen [1980] 1 All ER 884, said of education:
when applied to the young [it] is complex and varied . . . It is a balanced and systematic process of
instruction, training and practice containing both spiritual, moral, mental and physical elements.
It may be assumed therefore that anything which forms part of the normal educational process
and which can be said to fall within that definition will be regarded as education and that any
trust for the advancement of such things will be charitable, subject to the requirements of public
benefit.
The courts will reserve to themselves the right to exclude things which they regard as harmful:
Harman J in Re Shaw [1957] 1 All ER 748 stated that schools for prostitutes or pickpockets would
not be regarded as charitable.
Attempts to disseminate political propaganda under the guise of education have been consistently
rebuffed by the courts. Similarly, educational charities will be restrained from using their
resources for political purposes. Thus, in Baldry v Feintuck [1972] 2 All ER 81, Sussex University
Students’ Union, a registered charity, was restrained from spending money on a campaign to
restore free school milk. Since this was an attempt to challenge government policy, it was regarded
by the courts as political and not charitable.
In Southwood v A-G (1998) The Times, 26 October, the express objects of PRODEM were ‘the
advancement of the education of the public in the subject of militarism and disarmament’. In
practice this went beyond educating the public in peaceful means of dispute resolution, and
identified ‘militarism’ with current policies of western governments with the intention of
challenging those policies. This ‘clear and dominant message’ was political, and, The decision was
subsequently confirmed by the Court of Appeal ((2000) The Times, 18 July).
In McGovern v A-G [1981] 3 All ER 493 by Slade J, who stated:

(1) A trust for research will ordinarily qualify as a charitable trust if, but only if (a) the
subject matter of the proposed research is a useful object of study; and (b) it is contemplated
that the knowledge acquired as a result of the research will be disseminated to others; and
(c) the trust is for the benefit of the public, or a sufficiently important section of the public.
(2) In the absence of a contrary context, however, the court will be readily inclined to
construe a trust for research as importing subsequent dissemination of the results thereof.
(3) Furthermore, if a trust for research is to constitute a valid trust for the advancement of
education, it is not necessary either (a) that the teacher/pupil relationship should be in
contemplation, or (b) that the persons to benefit from the knowledge to be acquired should
be persons who are already in the course of receiving ‘education’ in the conventional sense.
In the case advancement of education, unfettered by English precedents the Sri Lanka courts are
free to hold that research and learning at least in scientific subjects are unquestionably in the
public benefit.
In Falilcaffoor vs. Commissioner of Income Tax the Judicial Committee assumed without deciding
that “educational instruction or training in any department of human activity is a charitable
purpose.” It is relevant that section 99(1)(b) refers to “education or knowledge”.
Poverty may mean different things to different people. Those who have been wealthy but are no
longer so may regard themselves as poor even though still comparatively well off. Support for the
relative approach is to be found in the words of Sir Raymond Evershed in Re Coulthurst [1951] Ch
661:
“Poverty, of course, does not mean destitution. It is a word of wide and somewhat indefinite import,
and, perhaps, it is not unfairly paraphrased for present purposes as meaning persons who have to
‘go short’ in the ordinary acceptation of that term, due regard being had to their status in life and
so forth.”.
Two points may be elucidated from this statement. First, a person may in legal terms be poor
without being entirely without means. The term is wide enough to embrace anyone who does not
have enough.
The relief of the poor must not be relief to a body of private individuals but must have a public
character.- In re, Mercantile bank of India (Agency) Ltd (1942)10ITR 512(Cal.).
Relief of a group of individuals like “poor relations” of the donor or the poor employee of a company
would not amount to the charitable trust.- Trustees of Gordhandas Gonidram family Charity Trust
vs. CIT (1952) 21 ITR 231 (Bom.)
Trusts for the relief of poverty form a major exception to the usual rule as laid down in Re
Oppenheim. The courts have long accepted the so-called ‘poor relation’ exception, whereby a valid
trust can be established for the relief of poverty among the settlor’s poor relations. This is valid so
long as the class of beneficiaries is not further restricted, for example, to a group of named
relations. The question was reviewed in Dingle v Turner [1972] 1 All ER 878.
In Dingle v Turner [1972] 1 All ER 878, a trust was established for the benefit of poor employees
of Dingle & Co. The class was therefore identified by a personal nexus, that is they were all
employees of the same firm, such as had been held invalid in Re Oppenheim. On the authority of
the ‘poor relations’ cases the court held that poverty was an exception: a trust for poor persons who
are also identified by a common ancestor, employment by the same firm or some other personal
nexus, does not lack the necessary public benefit.
The essential difference between charitable and private trusts in this area is between gifts for the
relief of poverty among poor people of a particular description (which is charitable), and gifts to
particular persons, the relief of poverty being the motive of the gift (which is not charitable). A gift
for the relief of poverty in a particular class of relations could therefore be charitable: in Re
Scarisbrick’s Will Trust [1951] 1 All ER 822, the class named was ‘the relations of my son and
daughter’.
It appears that even a selected group of relations may qualify, in the light of Re Segelman [1995]
1 All ER 676. In that case the testator listed some, but not all, of his siblings, and stated that they,
together with their issue, formed the class to be benefited.
Accordingly, there might be circumstances where a narrow beneficial class, such as employees of
a firm or relations of an individual, is a sufficient section of the public for relief of poverty.
Nonetheless, the ‘poor relations’ cases as anomalous and invite debate on this issue. They do not
appear to share the same concern about restriction to a firm’s employees, as long as the purpose is
purely relief of poverty.
The Supreme Court of India has however, confined the meaning of the word “education” to connote
the process of systematic instruction, developing the knowledge, skill, mind and character of the
students by formal schooling.- Sole Trustee, Lok Shikshana Trust vs. CIT (1975)101 ITR 234 (SC)
Education in order to charitable, must relate to the public and a trust created for the education of
the members of a family or the descendants of a certain named individual are not for charitable
purposes.- D.V. Arur vs. CIT (1945) 13 ITR 465 (Bom.).
The promotion of search for the truth and diffusion of useful knowledge, promotion conferences
and discussion, the foundation and maintenance of conference centres and reading room for the
general use among the members and others are objects directly relating to education,- Ecumenical
Charistian Centre vs. CIT (1983)139 ITR 226. (Karn.)
In Commissioner of Income Tax vs. The Trustees of the Abdul Gaffoor Trust a trust for “charity
once a year during the month of Ramalhan” was held to be charitable because of the significance
to Muslims of the month of Ramalhan and their practice of distributing alms to the poor during
that month. The trust was regarded as one for the relief of poverty.
In Sri Lanka, a sum of money given in trust to the high priest of the particular temple, to Bishop
for the benefit of the church, for the priesthood of the Buddhist sect have been upheld without
upheld English authorities.
The words “beneficial or of interest of mankind” in section 99 differ from the words used in the
Pemsel classification. In England, a trust only for the benefit of animals may not be charitable.
Public benefit must be there. (section 2(2)(k) read with section 2(1)(b) of the Charities Act 2006)
Swinfen-Eady LJ observed in Re Wedgewood [1915] 1 Ch 113:

A gift for the benefit and protection of animals tends to promote and encourage kindness towards
them, to discourage cruelty, and to ameliorate the condition of brute creation, and thus to stimulate
humane and generous sentiments in man towards the lower animals; and by these means promote
feelings of humanity and morality generally, repress brutality, and thus elevate the human race.
It is the indirect benefit to the community as a whole which counts and so as with religion it is
necessary that the example of kindly behaviour is a public one.
An attempt to protect animals in isolation from humans thus lacks the necessary benefit, as
emerged in Re Grove-Grady [1929] 1 Ch 557. In this case, the testator left money to provide ‘a
refuge or refuges for the preservation of all animals, birds or other creatures not human . . . so that
they shall be safe from molestation and destruction by man’. Since man was entirely excluded, he
had no opportunity to be elevated and so there was no public benefit.
In Commissioner of Income Tax vs. The Trustees of Abdul Caffoor Trust H.N.G Fernando J thought
that section 99,
“…. Does not require a trust to be solely for the public benefit, so that a trust which is essentially
and substantially for the public benefit may reasonably be considered to fall within the definition.”
H.N.G Fernando J. essayed in some detail to define the words “the public or section thereof.” The
test of the public benefit laid down by the House of Lords in Oppenheim vs. Tobacco Securities Ltd.
has been adopted in Sri Lanka.
According to this test an aggregate of individuals ascertain by reference to some tie. (e.g blood or
contract), such as the relations of particular individual or family, or the employees of the particular
firm, do not constitute a section of public.
In the Abdul Gaffoor case a trust for the deserving youths of the following Islamic faith, which
contained a discretion to the trustees to give preference to descendants of the testator’s family was
held to be not for the benefit of the public.
In the Abdul Caffoor case, the English case of Re Koettgen’s Trust was not followed. In Re Koettgen’s
Trust an educational trust for “British born subjects,” contained a clause that in selecting
beneficiaries’ preference should be given to the employees and the members of their families. This
trust was held to be for the public benefit.
In Sri Lanka, there are different minorities groups and religions. So, a trust for a group may be
qualified as valid charitable trust.
For any other purposes beneficial or of interest to mankind not falling within the preceding
categories
section (99(1)(d)
The charitable purpose listed by the Charity Commission of UK as follows-
1. provision of public works and services such as the repair of bridges, ports and the provision for
water and lighting;
2. relief of unemployment;
The promotion of mental or moral improvement;
3. preservation of public order;
4. promoting of the sound administration and development of law;
5. Rehabilitation of ex-offenders and prevention of crime.
For the benefit of the public or any section of the public within or without Sri Lanka
Whicker vs. Hulme (1858): The House of Lords upheld a trust, “for the benefit and advancement
and advancement, and propagation, of education and learning in every part of World as far as
circumstances will permit”.
In the case of Camille and Henry Dreyfus Foundation Inc. Vs. IRC, it was stated “It may be that,
on very broad and general grounds, relief of poverty or distress in any part of the World would be
regarded as being for benefit of the community in the UK. I see formidable difficulties, however
where the objects of the trust were, say, the setting of the soldiers or repair of bridges in a foreign
country.”
A more cautious tack is to be adopted. Accordingly, other purposes deemed charitable if carried out
at home can be charitable when carried out overseas provided that there is no offence to public
policy.
In McGovern vs. AG (1982) it was stated that in addition, there must be some benefit to the UK
community, however indirect or an accepted, identifiable benefit to the community abroad.
Scope of sections 101 and 102
Section 101 applies to all types of charitable trust and section 102 to religious trusts. These
sections provide a mean whereby the beneficiaries, settlor, or other persons interested in charitable
trust, or the Attorney-General, may bring an action inter alia where there is a breach of trust, for
the appointment or dismissal of trustees, demanding accounts, and for the purpose of settling a
scheme for the administration of a charitable trust.
Sections 101 and 102 are intended primarily to serve the needs of the Hindus.
Section 102(8) enacts “this section shall not apply to any Christian religious trust.
Section 109 - This Chapter shall not apply-

(a) to religious trusts regulated by the Buddhist Temporalities Ordinance;
(b) to religious trusts regulated by the Muslim Mosques and Charitable Trusts or Walks
Act, No. 51 of 1956, in so far as this Chapter is inconsistent with the provisions that Act.
In Wijewardena vs. Buddharakkita Thera (59NLR121) it has been held that 109 does not
prevent a Buddhist creating a trust for the benefit of a temple regulated by the Buddhist
Temporalities Ordinance.
In Mapitagama vs. Wijeyawardena (62NLR49) it was stated that section 109 merely prevents
actions brought under sections 101 and 102 in respect of property which is vested in the trustee
appointed under Buddhist Temporalities Ordinance.
The Cy-Pres Doctrine
Where the object of a charitable trust, specified by the settlor or subsequently becomes impossible,
impracticable or unlawful, the trust will not necessarily fail, but the court has power to apply the
trust to some other charitable object as nearly as possible resembling the intention of the donor.
In other words, in the particular mode of charity indicated by the donor is not capable of being
carried out, yet if the donor had expressed a general intention of charity, the court would execute
it “cypres”, in a way as nearly as possible to that which the testator specified. This is known as
‘doctrine of cypres’.
The cypres doctrine applies if the nature of the charitable object is general and not specific.- State
of U.P. vs. Bansi Dhar (AIR 1974 SC1084).
Where the donor has specified a special object or mode for the course of his beneficiation, the court
cannot innovate and undo, but where a general charitable goal is projected and particular objects
and modes are indicated the court, acting to fulfill the broader benevolence of the donor and to
avert the frustration of the good to the community, reconstructs as nearly as may be the charitable
intent and make viable what otherwise may die.
Where the doctrine of cy-pres can be applied, a charitable trust shall not be held void for the
uncertainty of the object.- Hidayat Beg vs. Beharilal (AIR 1941 All. 225).
Where the paramount general intention of the charity is manifested, the certainty of the charitable
object is not essential to its validity.
The twin conditions to be satisfied for the application of ‘doctrine of cy-pres’ are-
1. The settlor must have expressed a general intention of charity;
2. It has become impossible to carry out the settlor’s intention or some surplus has remained
after application to objects specified by settlor.
The doctrine of cy-pres applies only in relation to the public charitable trusts not private charities.
The court shall have the same power for the establishment, regulation, protection, and adaptation
of all " charitable trusts " (as defined by this Ordinance) as are exercised for the time being with
reference to " charitable trusts" within the meaning of English law by the High Court of Justice in
England –sec 100.
The expression "adaptation " with reference to a trust means adaptation of the trust in such a
manner as to carry out the wishes of the author of the trust as nearly as practicable, according to
the doctrine of cypres, where it is not possible to carry out those wishes in the exact manner
prescribed by the instrument of trust- 99(2)
The expression " settlement of a scheme" includes variation of a scheme previously settled-99(3).
In England, if non-charitable trust fails there will be a resulting trust. But if a charitable trust
fails the court will direct that trust fund be applied cy-pres, provided, it is possible to discover a
general charitable intention in the original gift.
The English rule that the cy-pres doctrine may be invoked only where a general charitable
intention is present has not been applied in a local decision.
Charitable and other trusts
The perpetuity rules do not apply to charitable trusts.

The formalities for creation of charitable trusts are very flexible. Provided there is a charitable
intention, the beneficiaries of a charitable trust need not be indicated with certainty.
The cy-pres doctrine applies only to charitable trusts.
7. CONSTRUCTIVE TRUSTS
What is constructive trust?
An obligation in the nature of a trust created under the following circumstances defined as
constructive trusts–(section 82)
Where it does not appear that transferor intended to dispose of beneficial interest.
A constructive trust is one which is not created by express or implied act of the settlor, but which
is deemed by operation of law or arises by the construction of law.
Where a person who is the legal owner of the property, but is in fiduciary position as regards
another person in respect of that property, he is compelled by the doctrine of equity to hold the
property for the benefit of that other person, it is constructive trust.
Since section 5 is to be read with section 6, the trusts created under Chapter II would be those
where there is an intention to create a trust, and such intention may be manifested in the form
prescribed by 5(1) and (2), or on the proof of fraud, by parole.
A trust arising under Chapter IX must fall within one of the categories in sections 82 to 98. Section
83 would include cases where there is specific intention not formally expressed, to create a trust
in favour of the settlor.
Chapter II (sections 5 and 6); Chapter IX (sections 82 to 96) and section 107 of the Trusts Ordinance
govern the origins of trusts.
Section 5(1) and (2) read with section 6 falls with the category of express trusts.
Section 5(3) read with section 5(1) and (2) and section 6 falls with the category of informal trusts.
Chapter IX is headed constructive trusts.
Under section 107 a trust may be arisen even in the absence of a written declaration of trust as
required by section 5, or in the absence of a valid legal conveyance to the trustee as required by
section 6, and such trust may be imposed on a person who never agreed to be trustee.
In Muttammah vs. Thiyagarajah (62NLR559) Sonsoni CJ said “the dividing the line between
express and constructive trust is very thin and some cases fall within both categories.
Where the owner of property transfers or bequeaths it, and it cannot reasonably be inferred
consistently with the attendant circumstances that he intended to dispose of the beneficial interest
therein, the transferee or legatee must hold such properly for the benefit of the owner or his legal
representative. (sec 83)
Chandradasa v. Hemalatha SC Appeal 168/14 decided on August 8, 2017: The transferor is

duty bound to adduce evidence to show that he did not intend to dispose of the beneficial interest
of the property. He is obliged to adduce evidence to show the attendant circumstances that there
was no intention to transfer the beneficial interest.
Section 83 declares that where property is transferred or bequeathed and if it cannot be inferred
that the beneficial interest was disposed of, the transferee or legatee is a trustee of the property.
Section 83 places the emphasis on the intention of the transferor and does not refer to payment of
consideration. But whether consideration has passed would be an element in arriving at the
transferor's intention.
(a) A conveys land to B without consideration and declares no trust of any part. It cannot,
consistently with the circumstances under which the transfer is made, reasonably be inferred that
A intended to transfer the beneficial interest in the land. B holds the land for the benefit of A-
(illustration to the sec 83).
(b) A transfers certain stock belonging to him into the joint names of himself and B. It cannot,
consistently with the circumstances under which the transfer is made, reasonably be inferred that
A intended to transfer the beneficial interest in the stock during his life. A and B hold the stock for
the benefit of A during his life-(illustration to the sec 83).
(c) A makes a gift of certain land to his wife B. She takes the beneficial interest in the land free
from any trust in favour of A, for it may reasonably be inferred from the circumstances that the
gift was for B's benefit-(illustration to the sec 83).
Patrick Perera v. Linette Fernando SC Appeal 101/16; decided on : 05.12.2017: “it is only the
owner of a property who held the property before transferring the same to another who can claim
the benefit of section 83 of the Trusts Ordinance.”
Where a person has a notarial conveyance in his favour, the courts have placed heavy burden on
the transferor to prove facts bringing himself within the section 83.
Proof by a person relying on section 83 that he made a voluntary conveyance to a stranger is not
enough. He must prove that he did not intend to transfer the beneficial interest.
Section 83 refers to the “owner or legal representative” would not apply where ‘A’ transfers the
property to ‘B’, not stating in the conveyance that he intended to benefit ‘C’.
In Theevanapillai vs. Sinnapillai (22NLR316) The land was conveyed to the first defendant on
an express verbal understanding that she was to convey to her son ‘S’ when his debts were settled.
The learned Judge also came to the conclusion that no consideration was paid. He, therefore, held
that the defendant held the land in trust for ‘S’ and decreed a conveyance.
On appeal, Ennis ACJ held that there are no reasons to interfere with the decision of the District
Court.
In Goonewardena vs. Goonewardena (24NLR385) ‘C’ argued that ‘B’ held the property on trust
for him. ‘C’ stated that his father asked him by letter to quit Government service and return home
and that the father promised to convey land on which mills were situated to him; that ‘C’ acted on
this promise and gave up his job; that the father intended to carry out his promise but died before
doing so; that the father’s will all his property was bequeathed to his wife (C’s mother)
Bertram C.J said that ‘C’ had an equitable claim and also referred to C’s claim to an equitable to
an equitable right based upon a trust. Section 83 or any other section in the Trusts Ordinance was
not referred to.
LJM Coorey suggested that this section could be amended by the addition after words “legal
representative” of the words “or other person intended to be benefited”, “attendant circumstances”
in section 83 have been described as those “which precede or follow the transfer” … but are not too
far removed in point of time to be regarded as attendant …” Whether a circumstance is attendant
or not would depend on the facts of the each case.
In Premawathi vs. Gnanawathi (1994 2SLR 171) an undertaking to re-convey the property sold
was by way of a non‑notarial document which is of no force or avail in law under section 2 of the
Prevention of Frauds Ordinance. However the attendant circumstances must be looked into as the
plaintiff had been willing to transfer the property on receipt of Rs. 6000/‑ within six months but
could not do so despite the tender of Rs. 6000/‑ within the six months as she was in hospital, and
the possession of the land had remained with the 1st defendant and the land itself was worth Rs.
15,000/‑.
The attendant circumstances point to a constructive trust within the meaning of section 83 of the
Trusts Ordinance. The "attendant circumstances" show that the 1st defendant did not intend to
dispose of the beneficial interest.
Agreement to re-convey?
‘A’ may transfer the property ‘B’ by a notarial conveyance, for a stated price, subject to an
agreement to re-convey on tender of purchase price with interest, within the stated period.
The problems which confront the court depend on whether the agreement to re-convey is -
notarially executed and signed by transferee, mentioned in the notarial document conveying the
property but not signed by the transferee, alleged by the transferor by parol evidence.
In (i) the agreement to re-convey is enforceable only if the purchase price is tendered within the
stated period, and after that ‘A’ cannot prove by parol evidence that the transaction was in reality
a mortgage and thus rely on the maxim once a mortgage always a mortgage, and enforce the
agreement after the specified period has elapsed.
(ii) has been held to fall within section 96.
In (iii) where there is a notarial conveyance absolute on the face of it, ‘A’ cannot prove by parol
evidence that the transfer was subject to an agreement to re-convey on payment of the purchase
price with interest.
Since parol evidence is admissible to prove a trust, a party who has transfered the property subject
to an agreement to re-convey, either after the specified period has elapsed, or because of the
agreement is a parol one, seeks to argue that the transaction is a trust.
In this situation the courts have posed the issue, is there a plain agreement to re-convey or are
there other factors which show that the agreement to re-convey amounts to a trust?
It is submitted that some of the cases which have decided that parol agreement to re-convey
amounts to a trust.
In Carthelis vs. Perera (32NLR19) land was transferred as security for debt of Rs. 5000/-, subject
to a re-conveyance on payment of that amount, and this was regarded as creating trust.
In Fernando vs. Fernando, (Supra n. 15) a notarial conveyance of land valued at Rs. 2000/- by a
man seriously ill for a stated purchased price of Rs. 600/- the transferor remaining in possession,
subject to a parol agreement to re-convey if the transferor recovered, was held not to create a trust,
the transferee being absolutely entitled. In all probability the transfer was effected on the tacit
condition set out in the plaint. But that condition the plaintiff is not in a position to prove, as it
was purely an oral agreement, if it existed at all. The plaintiff cannot, therefore, rely on a resulting
trust.
Where a person conveys land the transferee has a notarial conveyance in his favour, and the
question is to be asked is, whether the transferee has the beneficial interest in the property, or are
there any rights still outstanding in the transferor.
Among other factors which may be taken into consideration are whether the consideration paid
adequate, whether the transferor remained in possession and purpose for which the property was
transferred.
In some of the cases where there was held to be no trust, either the transferor remained in
possession.
An agreement to re-convey could also come within the provisions of section 96.
In ValliyammaiAtchi Vs. Abdul Majeed (45NLR169) case, A’s affairs were in an embarrassed
condition due to want of liquid cash and creditors pressing for payment. A transferred absolutely
by means of notarial conveyance all his property to B who was the one of the principal creditors,
the stated price being the amount of A’s debts to B.
The value of the properties was much more than the amount of A’s debts. A sought to prove by
parol that the transfer to B was effected to enable B to manage A’s affairs collecting the rents and
profits, selling properties if necessary and after paying A’s debts to retransfer the residuary
properties to A.
A had been in possession of some of the properties. B was held to be a trustee for A of the residuary
properties. B was held to be a trustee for A of the residuary properties.
B’s argument was that there was no declaration of trust notarially executed as required by section
2 of the PFO was met by reference to section 5(3) of the Trusts Ordinance which enacts that the
formalities for the creation of trust cannot be used so as to effectuate a fraud. At this stage, A put
forward the argument that according to section 91 read with section 92 of the Evidence Ordinance
a written contract cannot be varied by oral evidence.
When the terms of a contract, or of a grant, or of any other disposition of property have been
reduced by or by consent of the parties to the form of a document, ….., no evidence shall be given
in proof of the terms of such contract. Grant, or other disposition of property,…, except the
document itself, … (Section 91 of the Evidence Ordinance)
When the terms of any such contract, grant, or other disposition of property, …have been proved
according to the last section, no evidence of any oral agreement .. shall be admitted as between the
parties to any such instrument, or their representatives in interest, for the purpose of
contradicting, varying, adding to, or subtracting from its terms. (section 92 of the Evidence
Ordinance)
Howard CJ rejected B’ argument citing the proviso 1 to section 92 which is to the following effect:
Any fact may be proved which would invalidate any document, or which would entitle any person
to any decree or order relating thereto, such as fraud, intimidation, illegality,
To summarize this situation, where a person attempts to effectuate a fraud on another person
alleging that the other person had not adhered to the provisions of section 5(1) in respect of an
immovable property and therefore arguing that there is no valid trust, the other person can resort
to section 5(3) to prove a constructive trust. In such instant, the other person can cite section 83
or section 96 of the Trusts Ordinance to prove the existence of a constructive trust although the
requirements in section 5(1) or (2) have not been satisfied.
Bernedettevalangenberg Vs.Hapuarachchige Anthony ([1990] 1 SLR 190): By Deed for a

total consideration of Rs. 45,000/- of which Rs. 5,000/- was paid out of monies saved by him whilst
employed abroad; and that on Deed No. 3974 -P3 he conveyed the legal interest in the said house
property to his mistress the defendant -appellant retaining the beneficial interest in himself; and
prayed that the said property be declared subject to a trust in favour of himself (the plaintiff) and
for an order that the defendant transfer the said property to the plaintiff.
The court stated that the plaintiff has succeeded in showing fraud on the part of the defendant in
denying the claim of the plaintiff. In the result s.2 of the Frauds Ordinance and s.92 of the Evidence
Ordinance have no application to this case and the plaintiff can lead oral evidence of the existence
of a constructive trust in his favour on the basis that he retained the beneficial interest in the
property at the time P3 was executed.
In Thisa Nona and three others vs. Premadasa (1997 1SLR169) it was said “The 1st
defendant-appellant paid the Notary's fees and stamp fees. If it was an outright transfer, the
purchaser would have had to pay the charges. Why did 1st defendant-appellant willingly come
forward to pay same if the transaction was not beneficial to her in that she was receiving a loan or
had received a loan for which a security was given in the form of an outright transfer? In fact
according to the attestation clause most of the consideration had been received by the transferor
prior to the signing of P16.
The fact that document 1V2 was admitted by the plaintiff-respondent, the fact that the 1st
defendant-appellant paid the stamp and Notary's charges, the fact that P16 was a document which
came into existence in the course of a series of transactions between the plaintiff respondent and
the fact that the 1st defendant appellant continued to possess the premises in suit just the way
she did before P16 was executed all go to show that the transaction was a loan transaction and not
an outright transfer.
The attendant circumstances show that the 1st defendant-appellant did not intend to dispose of
the beneficial interest in the property transferred.
In Ehiya Lebbe v. A. Majeed it was held that if the transferor paid the whole costs of the
conveyance it would be a test to find out the nature of the transaction. It therefore appears that
having taken the bulk of the loan earlier the 1st defendant-appellant was forced to consent to the
terms of the plaintiff-respondent. By allowing the cost of the conveyance to be paid by the 1st
defendant-appellant, the plaintiff-respondent exposed the nature of the transaction.
Does it not show that the 1st defendant-appellant had not intended to part with the beneficial
interest in the land to the plaintiff-respondent?
In Ehiya Lebbe v A. Majeed (Supra) it was held that if the transferor continued to remain in
possession after the conveyance that would also be a test to find out the nature of the transaction.
W.C. K. Kulasuriya vs. W.H Gunathilaka SC. Appeal 157/2011 (Decided on 04/04/2014): This
case relates to a block of land which was conveyed by Deed of Transfer by Kulasuriya to Mohotti
for Rs. 10, 000/-. The premises in suit was later transferred by Mohotti by Deed of Transfer
Gunathilake for Rs. 40, 000/-.
Kulasuriya took up the position that Deed No. 7948 was not in fact a Transfer, but was executed
in favour of Mohotti as security for a loan and that he was holding the premises in suit on a
constructive trust for the Kulasuriya . She further claimed that he had transferred the land to the
Gunathilake dishonestly and fraudulently in order to place the property beyond her reach and
disallow the Kulasuriya to make the requisite payments and re-convey the property.
This particular Deed, was an absolute transfer on the face of it, and made no mention regarding a
conditional agreement or an agreement to re-transfer the property. the total market value of the
property ranges between Rs. 11, 962.50 – Rs. 15, 950.00.
The Court held that the absence of a notarial instrument to establish the agreement to re-convey,
or even a non-notarial agreement that could have been taken into account as an attendant
circumstance, along with the fact that
adequate consideration has passed, there is inconclusive proof of continued possession, makes it
impossible for this Court to accept the existence of such an agreement to re-convey through which
a constructive trust could be established. it is clear that a constructive trust cannot arise in the
present case.
Fernando vs. Thamel (47NLR297): In the plaintiffs conveyed a land to the defendant for sum of
650/-. The Defendant agreed to settle the mortgage bond. On the same day that P 2 was executed
the defendant gave the plaintiffs the document P 3. This is an inform al document by which the
defendant undertook to g iv e a retransfer o f the land in question within a period o f 3 years if the
plaintiffs paid him Rs. 671/-.
In this case there are circumstances tending to show that the transfer was to be in trust. The
evidence of the 2nd plaintiff that no money was paid by the defendant on the day of transfer that
he merely undertook to free the property from the mortgage, that she was reluctant to grant the
transfer and only did so on an agreement to retransfer are circumstances indicative of a trust.
Moreover there is a gross disparity in the price under P2, namely, Rs. 650 and the value of the
property at the time of the transfer which is put by the second plaintiff at Rs. 1,750 or Rs. 2,000.
The defendant admits the agreement to retransfer the property and also that he had no money at
the time of the transfer. He also says that when he gave P3 he had no intention of retransferring
the land, but would do so now if he was paid.
It was proved that no money was paid by the defendant that the plaintiffs were reluctant to grant
the transfer and only did on an agreement to retransfer and that there was gross disparity between
the price and the value of the property. It was held that the transfer of the land was to be in trust
and establishing fraud on the part of defendant.
The District Judge held that P 3 being an inform al document subsequently made cannot b e used
to vary P 2 which is an outright transfer. He, however, admitted P 3 to prove that the defendant
held the property in trust for the plaintiffs.
The only question that arises for consideration is whether the District Judge was right in so
admitting P 3.
The Court held that the informal document was admissible to prove that the defendant held the
property in trust for the plaintiffs and further, that the informal document was not admissible
under proviso (3) to section 92 of the Evidence Ordinance.
Dayawathie and others V. Gunasekera& another (1991 1 SLR 115): The Plaintiff, a building
contractor, needed finances in 1966 and sought the assistance of the 2nd defendant with whom he
had transactions earlier. This culminated in a Deed of Transfer in favour of the 1st Defendant, who
is the mother of the 2nd Defendant and the 2nd Defendant being a witness to the Deed.
The property was to be re-transferred within 3 years if Rs. 17,000/- was paid. The Plaintiff
defaulted, in his action to recover the property, the Plaintiff succeeded in the trial Court in
establishing a constructive trust. The Court of Appeal reversed the judgment on the sole ground
that the agreement was a pure and simple agreement to re-transfer.
The SC cited that “as was emphasized by Sir John Beaumont in Walliamma Atchi v. Abdul
Majid one has to bear in mind that the Trusts Ordinance is a later enactment, and it deals
expressly with trusts. Naturally in any conflict of the provisions of the Evidence Ordinance with
the provisions of the Trusts Ordinance the later must undoubtedly prevail. I think the best of all
guides on this question is the observation of H.N.G. Fernando J. in Muttamma v Thiyagarajah
he stated as follows :- "The plaintiff sought to prove the oral promise to re-convey not in order to
enforce that promise but only to establish an "attendant circumstances" from which it could be
inferred that the beneficial interest did not pass.” Although that promise was of no force or avail
in law by reason of section 2 of the Prevention of Frauds Ordinance, it is nevertheless a fact from
which an inference of the nature contemplated in section 83 of the Trusts Ordinance properly
arises.
The Prevention of Frauds Ordinance does not prohibit the proof of such an act. If the arguments
of counsel for the appellant based on the Prevention of Frauds Ordinance and on section 92 of the
Evidence Ordinance are to be accepted, then it will be found that not only section 83, but also many
of the other provisions in chapter IX of the Trusts Ordinance will be nugatory.
The Court held that the Prevention of Frauds Ordinance and Section 92 of the Evidence Ordinance
do not bar parole evidence to prove a constructive trust and that the transferor did not intend to
pass the beneficial interest in the property, that extrinsic evidence to prove "attendant
circumstances" had been properly received in evidence at the trial.
Hewage Don Piyasena Vs. Karunasena Hathurusinghe SC. Appeal 41/2013: Sections 91 and
92 of the Evidence Ordinance prevents leading evidence to prove or disprove a written document.
But Section 83 of the Trusts Ordinance provides that if one can prove that in the attendant
circumstances that if the donor did not intend to transfer the beneficial interest, even though the
written document appears to speak otherwise, a constructive trust will be formed.
M.H.S. Zulfika vs. C. Seelavangsha SC. (Appeal) No. 8A/2010: The Respondent instituted an
action seeking a declaration of title to the property, eviction of the Appellant, who was in unlawful
possession of the property. There had been an outright transfer by the Appellant to the
Respondent, of the land.
This was challenged by the Appellant who alleged that the purported transfer on the Deed was
merely to secure the loan of Rs 11,000/- given by the Respondent, and the property was to be held
on trust until the loan was repaid.
Two attendant circumstances which this Court needs to consider are the allegations pertaining to
the undervaluing of the property in the Deed of transfer, and the Respondent's husband's alleged
employment as a moneylender.
Appellant alleges that the value of the property mentioned in the Deed was significantly below the
market value at the time, as the amount on the Deed was intended to reflect the sum actually
taken as a loan from the Respondent.
The Court notes that the Deed of Transfer No. 2572 dated 06.03.1986 (P1) values the land in
question at LKR11,000/= and that the Deed No. 2375 dated 07.09.1985 attested to by R S K
Chandrakanthi, Notary Public (P2) values the land at LKR5,600/=. The property had not been
undervalued on the Deed of transfer.
In addition, the Deed of Transfer occurred in the presence of a Notary who would have expressly
indicated the conditions of the transfer, if there were any, and in this instance if such transfer was
to be temporary. Further, if the intention of the Appellant was not to transfer the beneficial interest
of the property, the notarial document would have been a mortgage bond, rather than an outright
transfer.
Court finds there to be no attendant circumstances to suggest the existence of a constructive trust.
P.J.Fernando v. H.T.A.M.Fernando decided on 17.1.2017: I hold that Section 2 of the

Prevention of Frauds Ordinance and Section 92 of the Evidence Ordinance do not operate as a
bar to lead parole evidence to prove a constructive trust and to prove that the transferor did not
intend to dispose of beneficial interest in the property.
Section 84
Where property is transferred to one person for a consideration paid or provided by another person,
and it appears that such other person did not intend to pay or provide such consideration for the
benefit of the transferee, the transferee must hold the property for the benefit of the person paying
or providing the consideration.
The English rule that where a purchase was made in the name of a stranger, in the absence of
proof to the contrary, the transferee was a trustee, was adopted in Sri Lanka before 1918.
But section 84 has effected a change because a person who relies on it must prove, that he provided
the consideration; and that it was not for the benefit of the transferee.
Where B was express trustee of a money for A and use this with A’s consent to purchase a land, B
was held to be a trustee under section 84.
An alternative remedy which was open to A in this situation was to follow the property in a changed
form in the trustee’s hand under section 65(2)
Daniel v. Arnolis [30 N.L.R. at 247]: It was held that the plaintiff must prove that he paid the
consideration and he paid so not for the benefit of the defendant when claiming a constructive
trust in terms of Section 84 of the Trust Ordinance.
In Marrikar vs. Lebbe (52NLR193) out of money which defendant was holding in trust for the
plaintiff, certain immovable property was bought in the name of the defendant.
Held, that, under section 84 of the Trusts Ordinance, the plaintiff was entitled to a declaration
that the defendant held the property as trustee for the plaintiff and to a conveyance of the premises
by the defendant to the plaintiff.
Where the trustee has disposed of trust property, and the money or other property which he has
received therefor can be traced in his hands or the hands of his legal representative or legatee, the
beneficiary has, in respect thereof, rights as nearly as may be the same as his rights in respect of
the original trust property- 65(2)
The following situations may arise where A’s money is used and the conveyance is taken in the
name of B.
(i) The money is used and the conveyance is taken with A’s consent.
(ii) The money is used with A’s consent, but B has disregarded the instructions to purchase
in A’s name.
(iii) The money is used without A’s consent, B having used A’s money which was in his care
and possession.
(iv) The money is used with A’s consent, but B has disregarded instructions to purchase in
the name of C.
(v) A pays the money and directs that the conveyance be issued to B.
In Gould vs. Innasithaby (9NLR177) The plaintiff employed the defendant to purchase a
property for him. It was understood between the plaintiff and the defendant that the plaintiff
should pay the purchase money, and that the defendant should get the conveyance in his own
name, and should subsequently re-convey the property to the plaintiff.
The defendant having refused to re-convey the property, the plaintiff raised this action to compel
him to do so. The defendant pleaded section 2 of Ordinance No. 7 of 1840 in bar of the plaintiff's
claim.
Held, that the plaintiff was entitled to maintain the action, notwithstanding the absence of any
notarial instrument signed by the defendant agreeing to re-convey the property.
In this case, Moncrieff J thought in situation (i) A’s right was to conveyance, while in (ii) the
transaction was set aside because of fraud; perhaps on the basis that the former was a resulting
trust and the latter a constructive trust.
In Arunasalam Chetty vs. Somasunderam Chetty (21NLR389) Where a property was conveyed
to a Chetty with the firm name R. M. A. R. A. B., it was held that the property was transferred to
him as agent of the firm, and not in his private capacity.
As the Chetty to whom the property was so conveyed was express trustee and not constructive
trustee, it was not open to him to plead prescription as against the other members of the firm.
"An express trust can only arise between the cestui que trust and his trustee. A constructive trust
is one which arises when a stranger to a trust already constituted is held by the Court to be bound
in good faith and in conscience by the trust in consequence of his conduct and behaviour. "
Sangarapilai vs. Kandiah (19NLR389) A agreed to buy a land from B and paid the purchase
money, but, fearing some litigation, obtained a conveyance in the name of C without C 's
knowledge. A informed C subsequently of the execution of the deed in C's favour, and C acquiesced
in it, and agreed to transfer the land to A whenever called upon.
Held, that C held the land in trust for A, and that A could maintain an action for a conveyance for
the land from C, or if C had parted with the land, to recover its value.
If “paid or provided” implies a handing over of the consideration this might exclude (iii). But (iii)
has consistently has been assumed to fall within section 84.
In (iv) there will be no trust for C, because according to section 84, the results to the person
providing the consideration.
Three other situations in which the application of 84 is problematical may arise.
(vi) A’s money loaned to B is used by B for a purchase in B’s name .
(vii) A’s money loaned to B is used and the conveyance is taken in A’s name:-
(a) with B’s consent to provide a security till B’s pays;
(b) because though B asks A to pay the money to the vendor and to purchase in B’s name, A
takes conveyance in his name.
In (vi) A relying on 84 is met by B’s claim that he provided the consideration.
In (vii) B is seeking to set up a trust under 84 on the basis that he provided the consideration.
Levin and Scott both think (vi) and (vii) would give rise to a trust, and a similar conclusion could
be reached on a construction of section 84.
In Swaminathan vs. Vander Poorten (37NLR287) where B intending to purchase property for
Rs.275,000, paid Rs.65,000 from his own money and borrowed Rs.210,000 from A, and the
conveyance was taken in A’s name as security for repayment for loan, the Privy Council held there
was a trust without reference any section.
In Perera vs. Tissera (35NLR257) Where the widow of an intestate transferred her half share of
certain lands to the administrator under an arrangement, the object of which was to preserve the
property for the minor children of the intestate, and where by a subsequent deed, which purported
to be a deed of agreement between the administrator and the guardian ad litem of the children,
the administrator undertook to sell to the children the share of the lands, which he obtained, upon
payment of a certain sum of money within a stated period.
Held, that, in the circumstances, a trust had been established in favour of the children and that
all the pecuniary advantages obtained by the administrator in dealing with the lands transferred
to him must be held by him in trust for the benefit of the minors.
It seems clear that under section 83 and 84 it is the intention of the parties at the time transfer
or purchase that is most important.
In Mendis vs. Paramaswami (62NLR302) it was said that “Where property is transferred to one
person for a consideration paid by another person, statements made by the purchaser long after
the transaction (about four and a half years in the present case), and not contemporaneously, are
not relevant under section 84 of the Trusts Ordinance to show that the consideration was not paid
for the benefit of the transferee”.
In this case Basanayake CJ thought “that contemporaneous statements alone are relevant on the
construction of section 84.
In Adamjee vs. Board of Review, Ceiling on Housing Property and others (1985 1SLR 169)
the 5th respondent applied under s. 13 of the Ceiling on Housing Property Law to the
Commissioner of National Housing to purchase premises. The 4th respondent refused the
application as the premises had been used as business premises-being given to boarders and
lodgers - from 1964 to 1972. The premises had been purchased in 1964 by Alibhoy Adamjee father
of the petitioner. The application was resisted on the ground that these were business premises
and the petitioner was not in a position to purchase the premises.
Held : There was prima facie evidence that the petitioner was in a position to purchase the
premises. Though she had not the means, her son who was doing a lucrative business would buy
them for her. Such a purchase by the son will not result in a constructive trust in favour of the son
because this would be a case where the son is providing the consideration for the benefit of the
mother.
The Presumption of Advancement
Where A provides the consideration but the conveyance made to B, a presumption of trust arises,
and the burden is on B to rebut this.
But A is in loco parentis to B, the counter presumption arises that the purchase was for the B’s
benefit and the burden is on A to rebut.
A must prove under section 84 (i) he has paid the consideration; (ii) he did not do so for B’s benefit,
otherwise no presumption of trust arises.
In considering whether the beneficial interest has been transferred under 83, and whether the
consideration provided for the benefit of transferee under section 84, the relationship between
parties would be very relevant factor.
In Fernando vs. Fernando a man bought a sweepstake ticket in the name of his 16years old son.
When he won the first prize, the court thought that the father, a poor man, had no intention of
making a gift of this nature.
In Perera vs. Scholastica, a case under section 84, Gratiean J thought that the presumption
could be given effect under section 83. Two brothers held to be loco parentis had deposited money
in the saving bank in the name of their orphan sister. The court inferred from the fact they had
retained the saving book, that the beneficial interest under section 83 had not been transferred
unconditionally and was subject to condition that their sister married according to their wishes.
Therefore, where the girl married a person of a different caste she was held to have forfeited her
rights in the money.
Trustees of the trusts arising under Chapter IX of the Trusts Ordinance on the same footing as
trustees of the trust created under Chapter II
Section 97 places trustees of the trusts arising under Chapter IX of the Trusts Ordinance on the
same footing as trustees of the trust created under Chapter II, subject to two exceptions, stated in
section 97.
(a) where he rightfully cultivates the property or employs it in trade or business, he is
entitled to reasonable remuneration for his trouble, skill, and loss of time in such cultivation
or employment; and
(b) where he holds the property by virtue of a contract with a person for whose benefit he
holds it, or with anyone through whom such person claims, he may, without the permission
of the court, buy or become lessee or mortgagee of the property or any part thereof.
Section 52 which applies to trusts created under Chapter II states that a trustee may not charge
for his services, except where there is “an Order of court”.
While section 52 leaves the award of the remuneration to the discretion of the court, but 97 (b)
gives a trustee a right to it.
In Phipps vs. Boardman (1965) the court in granting limited remuneration to a constructive
trustee stressed that he had acted bona fide. But it may be argued that the effect to ‘rightfully’ is
that he must employ the trust property in circumstances in which as a trustee it is proper for him
to do so.
The person who accepts the confidence is called the " trustee “ – section 3(d). The person holding
property in accordance with any of the preceding sections of this Chapter must, so far as may be,
perform the same duties, and, save as in this Ordinance otherwise provided, is subject, so far as
may be, to the same liabilities and disabilities, as if he were a trustee of the property for the person
for whose benefit he holds it… – section 97.
Therefore the combined effect of the sections 3 and 97 of the Trusts Ordinance is that a trustee
includes a ‘constructive trustee’.
Nothing contained in Chapter IX shall impair the rights of transferees in good faith for valuable
consideration, or create an obligation in evasion of any law for the time being in force- (section 98).
The first part of this section is a remainder that section 69 to 72 apply to Chapter IX. Those are
wrongful employment by partner trustee of trust property for partnership purposes; liability of
beneficiary joining in breach of trust; rights and liabilities of beneficiary's transferee
In second part, the word ‘evasion’ implies an intentional attempt to circumvent the existing law
and does not touch a case which merely happens to conflict with the strict law.
Therefore, section 98 does not require trust of a land arising under Chapter IX to be notarially
executed.
Resulting Trust
A resulting trust is one which implied in favour of the settlor or his representatives. It may be
defined as the one where the property is incompletely conveyed or where on a conveyance the
beneficial interest in property is incompletely disposed of, and the property or the indisposed
beneficial interest in it reverts back to the settlor.
Where a trust is incapable of being executed, or where the trust is completely executed without
exhausting the trust property, the trustee, in the absence of a direction to the contrary, must hold
the trust properly, or so much thereof as is unexhausted, for the benefit of the author of the trust
or his legal representative. (sec 85)
(a) A conveys certain land to B - " Upon trust", and no trust is declared ; or " Upon trust to
be thereafter declared ", and no such declaration is ever made ; or Upon trusts that are too
vague to be executed ; or Upon trusts that become incapable of taking effect; or " In trust for
C ", and C renounces his interest under the trust. hi each of these cases B holds the land for
the benefit of A,
(b) A transfers Rs. 10,000 in the four per cents, to B, in trust to pay the interest annually
accruing due to C for her life. A dies. Then C dies. B holds the fund for the benefit of A's
legal representatives.
(c) A conveys land to B upon trust to sell it and apply one moiety of the proceeds for certain
charitable purposes, and the other for the maintenance of a particular form of worship. B
sells the land, but the charitable purposes wholly fail, and the maintenance of the worship
does not exhaust the second moiety of the proceeds. B holds the first moiety and the part
unapplied of the second moiety for the benefit of A or his legal representative.
(d) A bequeaths Rs. 10,000 to B, to be laid out in buying land to be conveyed for purposes
which either wholly or partially fail to take effect. B holds for the benefit of A's legal
representative the undisposed of interest in the money or land, if purchased.
According to section 85 of the Trusts Ordinance a resulting trust arises in two situations namely,
(i) Where a trust is incapable of being executed, and;
(ii) Where the trust is completely executed without exhausting the trust property.
But a resulting trust can arise only in the absence of a direction to the contrary contained in the
terms of the trust- Dwarkadas vs. CIT (1948)16 ITR 160 (Bom).
A constructive trust is thus a relationship with respect to the property subjecting the person by
whom the title to the property is held by an equitable duty to convey it to another person on the
ground that his acquisition or retention of the property is wrongful and that he would be unjustly
enriched if he were permitted to retain the property.
Where the owner of property transfers it to another for an illegal purpose, and such purpose is not
carried out into execution, or the transferor is not as guilty as the transferee, or the effect of
permitting the transferee to retain the property might be to defeat the provisions of any law, the
transferee must hold the property for the benefit of the transferor. (sec 86)
Where a testator bequeaths certain property upon trust, and the purpose of the trust appears on
the face of the will to be unlawful, or during the testator's lifetime the legatee agrees with him to
apply the property for an unlawful purpose, the legatee must hold the property for the benefit of
the testator's legal representative. Where property is bequeathed and the revocation of the bequest
is prevented by duress, the legatee must hold the property for the benefit of the testator's legal
representative- section 87.
Where property is transferred in pursuance of a contract which is liable to rescission or induced

by fraud or mistake, the transferee must, on receiving notice to that effect, hold the property for
the benefit of the transferor, subject to repayment by the latter of the consideration actually paid,
and subject to any compensation or other relief to which the transferee may be by law entitled-sec
88
Where a debtor becomes the executor or other legal representative of his creditor, he must hold the
debt for the benefit of the persons interested therein – sec 89.
Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person
bound in a fiduciary character to protect the interests of another person, by availing himself of his
character, gains for himself any pecuniary advantage, or where any person so bound enters into
any dealings under circumstances in which his own interests are, or may be, adverse to those of
such other person and thereby gains for himself a pecuniary advantage, he must hold for the
benefit of such other person the advantage so gained- sec 90.
A, an executor, buys at an under-value from B, a legatee, his claim under the will. B is ignorant of
the value of the bequest. A must hold for the benefit of B the difference between the price and
value. (illus (a))
A, a trustee, retires from his trust in consideration of his successor paying him a sum of money. A
holds such money for the benefit of his beneficiary. (illus (b))
A, a partner, buys land in his own name with funds belonging to the partnership. A holds such
land for the benefit of the partnership-(illus (c)
A, a partner, employed on behalf of himself and his co-partners in negotiating the terms of a lease,
clandestinely stipulates with the lessor for payment to himself of a lakh of rupees. A holds the lakh
for the benefit of the partnership-(illus (d)
A and B are partners. A dies. B, instead of winding up the affairs of the partnership, retains all
the assets in the business. B must account to A's legal representative for the profits arising from
A's share of the capital. (illus (e))
A, an agent employed to obtain a lease for B, obtains the lease for himself. A holds the lease for the
benefit of B. (illus (f))
A, a guardian, buys up for himself incumbrances on his ward B's estate at an under-value. A holds
for the benefit of B the in cumbrances so bought, and can only charge him with what he has actually
paid- (illus (g))
The words of section 90 have the effect of constituting an executor, partner, agent, director of a
company or legal representative, a trustee in all circumstances where such a person gains a
“pecuniary advantage,” by “availing himself of his character” or by entering into dealings where
his “interest are…adverse” to that of the person whom he is bound to protect.
Under section 90, an agent or any fiduciary would be trustee of a secret commission.
In England, a person with a beneficial interest in property which is in the hands of fiduciary can
follow the property, until it reaches the hands of a bona fide purchaser without notice, or until it
has ceased to be identifiable. This principle has been incorporated into the law of Sri Lanka by
sections 65 to 69 of the Trusts Ordinance, but is available only against a transferee from the
trustee.
Please refer the sections 90 to 98.
8. Rights And Powers Of Trustees
Sections 11 to 56 of the Trusts Ordinance relate to the duties (sections 11 and 12), liabilities (23 to
31), rights (sections 32 to 37), powers (38 to 47) and disabilities (48 to 56).
Acceptance and disclaimer
Section 10 enacts that a trustee may accept or disclaim the office of trustee. Section 10(3) enacts
that a trusts is accepted by any words or acts of the trustee indicating with reasonable certainty
such acceptance.
In the law of Sri Lanka, a conveyance of land must be constructively accepted by the transferee,
and this would amount to an acceptance within the meaning of 10(3).
In the case of charitable trusts enforced by reference to section 1107, acceptance by the trustee is
not essential.
MacDonell C.J. said in Ranasinghe vs. Dhammananda “such a trustee is recognized in English
Law, and since trusts have been received into our law from English law it is necessary to use the
terminology of that law… if a person by mistake or otherwise assumes the character of trustee,
when it really does not belong to him, and so becomes a trustee de son tort, he may be called upon
to account by cestius que trust for the money he received under the colour of the trust….”
MacDonell C.J. also held that since the trustee de son tort had acquired title by prescription to
property adjacent to the trust property, he had acquired it as trustee on behalf of the trust.
MacDonell C.J. assumed that a trustee de son tort was in the same position as any other trustee.
But in Muttucumaru vs. Vaithy it was held that a trustee de son tort could not institute an
action under section 101 of the trusts Ordinance because he was not vested with title to the trust
property.
Discharge, dismissal and appointment
Discharge: according to section 48 a trustee who has accepted office, cannot afterwards renounce
it except in the circumstances stated in sections 48 and 73 to 74.
Dismissal: sections 62 and 75(1) which overlap, and 101(a) and 102(h) deal with the powers of the
court to remove trustees from office.
Appointment: sections 75, 76, 101(a) and 102(h) deal with the appointment of new trustees.
Vesting of property in the trustee
When the trust is created the trust property must be conveyed to and vested in the trustee.
The trust property must be conveyed to and vested in the successors to the original trustee.
Where a trustee is appointed he has no power to act, unless the trust property is vested in him.
But where the trust property is not vested in a succeeding trustee the administration of the trust
is not necessarily affected, if there are other trustees in whom the trust property is vested.
On the death or discharge of one of several co-trustees the trust survives, and the trust property
passes to the others, unless the instrument of trust expressly declares otherwise.- sec 78.
When an authority to deal with the trust property is given to several trustees and one of them
disclaims or dies, the authority may be exercised by the continuing trustees, unless from the terms
of the instrument of trust it is apparent that the authority is to be exercised by a number in excess
of the number of the remaining trustees.- sec 46.
Kandappa vs. Janakiammh (62NLR447) it was stated that where there are co-trustees, or
where the trust property has not been vested in the succeeding trustees, the property passes to
the heirs of the last surviving trustee, but subject to the trust.
Sec. 112(1) In any of the following cases, namely :-

(i) where it is uncertain in whom the title to any trust property is vested ; or
(ii) where a trustee or any other person in whom the title to trust property is vested has been
required in writing to transfer the property by or on behalf of a person entitled to require such
transfer, and has willfully refused or neglected to transfer the property for twenty-eight days after
the date of the requirement, the court may make an order (in this Ordinance called a "vesting
order") vesting the property in any such person in any such manner or to any such extent as the
court may direct.
An action under 112 should be instituted by way of summary procedure. The requirement of
uncertainty in 112(1) has been stressed. Where there is no uncertainty sections 75 or 76 read with
77 should be resorted to.
In Rajammah vs. Balasubramanium (62NLR343) it was said that the vesting order will be
granted only in respect of the entire property, and not to a person who asserts a claim in respect
of part of it.
The care required from a trustee
A trustee is bound, subject to the provisions of the instrument of trust, to deal with the trust
property as carefully as a man of ordinary prudence would deal with such property if it were his
own; and, in the absence of a contract to the contrary, a trustee so dealing is not responsible for
the loss, destruction, or deterioration of the trust property. - Sec 15.
In English Law, where equity or the trust instrument imposes upon a trustee an imperative duty
(as opposed to a mere discretion), the trustee must perform it precisely and with due diligence,
whether or not he thinks it prudent unless the court authorizes him to do so differently.
In exercising his discretionary powers he must “use as much diligence as a prudent man of
business would exercise in dealing with his private affairs.
Sections 11,12,13, 26 and 50 and 19 are deals with - to follow the instrument of trust; to inform
himself about the state of the trust property; to protect the title to the trust property; where there
are two or more trustees to reduce the property into joint control of all and to keep accounts.
The discretionary powers of trustees include delegation in certain circumstances, comprising of

claims, the maintenance and advancement of beneficiaries, and these are reproduced in sections
49, 45 and 43 respectively.
Section 13 which enacts that a trustee should protect the title to the trust property expressly states
that the trustee should act reasonably.
Garvin vs. Abeyawardene (26NLR119) a trustee with the consent of the beneficiary, invested a
trust fund with a bank, which became insolvent. Bertram C.J. thought that there were no relevant
authorities on the point, and held that “on all the principles of equity” the trustee had no obligation
to salvage the trust property unless he were indemnified against all expenses.
Section 12 - duty of trustee to get in trust property invested in hazardous securities;

Section 13 – duty of trustee to protect title to the trust property;
Section 15- duty of care;
Section 23 – Where beneficiary concurs in a breach of trust the trustee is not liable for the loss.
Breach of Trust
Where the trustee commits a breach of trust, he is liable to make good the loss which the trust
property or the beneficiary has thereby sustained, unless the beneficiary has by fraud induced the
trustee to commit the breach, or the beneficiary, being competent to contract, has himself, without
duress or undue influence having been brought to bear on him, concurred in the breach, or
subsequently acquiesced therein with full knowledge of the facts of the case and of his rights as
against the trustee. - Sec 23(1)
(2) A trustee committing a breach of trust is not liable to pay interest except in the following cases
:-
(a) where he has actually received interest;
(b) where the breach consists in unreasonable delay in paying trust money to the
beneficiary ;
(c) where the trustee ought to have received interest, but has not done so ;
(d) where he may be fairly presumed to have received interest;
(e) where the breach consists in failure to invest trust money and to accumulate the interest
or dividend thereon, he is liable to account for compound interest (with half-yearly rests) at
the same rate ;
(f) where the breach consists in the employment of trust property or the proceeds thereof in
trade or business, he is liable to account, at the option of the beneficiary, either for compound
interest (with half-yearly rests) at the same rate or for the net profits made by such
employment.
(3) He is liable in case (a) to account for the interest actually received, and in cases (b), (c), and (d)
to account for simple interest at the rate of six per centum per annum, unless the court otherwise
directs.
An act by a trustee which is (i) contrary to trust instrument; (ii) infringes the relevant sections of
the Trusts Ordinance, judged in relation to section 15, constitutes a breach of trust.
A trustee who is liable for a loss occasioned by a breach of trust in respect of one portion of the
trust property cannot set off against his liability a gain which has accrued to another portion of
the trust property through another and distinct breach of trust. Sec 24.
If a breach of trust leads to a profit, the profit accrues to the trust property. This is implied by
section 24 and is also caught by section 90.
If a succeeding trustee discovered, or should have discovered if he had observed the duty of care
enunciated in section 15, a breach of trust committed by his predecessor, and does not take steps
to recover satisfaction from the former trustee, his neglect to do so would perhaps constitute a
breach of trust.
It was held in Charlis Appu vs. Manis that a succeeding trustee cannot be made liable in respect
of a personal liability incurred by his predecessor.
Where a trustee succeeds another, he is not, as such, liable for the acts or defaults of his
predecessor. –sec 25.
Therefore a succeeding trustee would at the most, be liable only if the trust property including the
share which had not been paid had passed into his hands.
But (i) if the deceased trustee had misappropriated the beneficiary’s share, or (ii) this share had
passed to his legal representative, or (iii) the deceased trustee had committed a breach of trust,
the succeeding trustee is not liable.
In (i) and (iii) English law principles may be applicable and in (ii) the beneficiary may follow the
property under section 65(1).
In respect of personal liability in contract incurred by a trustee, the trustee alone is liable and
payment cannot be claimed from the property. The succeeding trustee to a deceased trustee in such
situation, could not be liable.
A trustee under section 35 may apply to court and obtain sanction for a particular course of action.
A trustee so acting is not liable for loss subsequently incurred.
A trustee is not liable for the loss arising from an act specially authorized in the trust instrument.
Section 31 gives the court a discretion to give relief to a trustee who “.. had acted honestly and
reasonably and ought fairly to be excused …” for a breach of trust.
According to section 23(1) a beneficiary who by fraud has induced the trustee to commit a breach
cannot sue the trustee for a resulting loss.
Section 26 and 30 indicate how one co-trustee may be liable for a breach of trust committed by
another trustee.
Where co-trustees jointly commit a breach of trust, or where one of them by his neglect enables
the other to commit a breach of trust, each is liable to the beneficiary for the whole of the loss
occasioned by such breach.- 27(1)
But as between the trustees themselves, if one be less guilty than another and has had to refund
the loss, the former may compel the latter, or his legal representative to the extent of the assets
he has received, to make good such loss, and if all be equally guilty, any one or more of the trustees
who has had to refund the loss may compel the others to contribute. – sec 27(1)
Trustee may not profit from trust
A trustee may not use or deal with the trust property for his own profit or for any other purpose
unconnected with the trust. –Sec 53.
In Mohemud vs. Abdul Gaffoor (57NLR228) a trustee who made a profit was regarded as a
trustee of the profit under section 90.
No trustee whose duty it is to sell trust property, and no agent employed by such trustee for the
purpose of the sale may, directly or indirectly, buy the same or any interest therein on his own
account or as agent for a third person.-sec 54.
No trustee, and no person who has recently ceased to be a trustee, may, without the permission of
the court, buy or become mortgagee or lessee of the trust property or any part thereof; and such
permission shall not be given unless the proposed purchase, mortgage, or lease is manifestly for
the advantage of the beneficiary. –Sec 54 (part I)
Lease of trust property
(1) Except with the permission of the court, and subject to any special statutory provision in that
behalf, no trustee shall lease trust property for a term expiring at a date later than the end of ten
years from the date of the execution of the lease, or if the date of the termination of the trust is
ascertained, for a term expiring at a date later than the date of such termination, nor without
reserving the best yearly rent that can be reasonably obtained.- sec 38(1)
(2) Any lease executed without the permission of the court for a term exceeding the limits
authorized by this section shall be void to the extent to which it so exceeds the said limits.- sec 38.
Application to court
Any trustee may, without instituting a suit, apply by petition to the court for its opinion, advice,
or direction on any present questions respecting the management or administration of the trust
property other than questions of detail, difficulty, or importance not proper, in the opinion of the
court, for summary disposal.- sec 35(1)
Section 35(2) provides that a copy of such petition shall be served upon all persons interested in
the matter; and 35(3) enacts that a trustee acting under the instructions from the court obtained
consequent to a petition under section 35(1), is not liable for the consequences of so acting.
Beneficiary’s rights against trustee
The beneficiary is entitled to have the intention of the author of the trust specifically executed to
the extent of the beneficiary's interest. And, where there is only one beneficiary and he is
competent to contract, or where there are several beneficiaries and they are competent to contract,
and all of one mind, he or they may require the trustee to transfer the trust property to him or
them, or to such person as he or they may direct.- sec 58.
Selliah vs. Rupasinghe (36NLR208), the trustees were directed to hold property on trust for the
sons and daughters of the settlor (since deceased). The property was to be divided among the sons,
after the marriage of all the daughters. The court held that until the last daughter married, even
if all the beneficiaries were majors, it was not possible to say what property remained to be divided.
The beneficiary has a right to require that his trustee shall be compelled to perform any particular
act of his duty as such, and restrained from committing any contemplated or probable breach of
trust.- (sec 63)
The beneficiary can institute an action against the trustee to enforce his rights under section 57
(right to rents and profits of the trust) and section 59 (right to inspect trust documents and
accounts)
(a) A contracts with B to pay him monthly Rs. 100 for the benefit of C. B writes and signs a
letter declaring that he will hold in trust for C the money so to be paid. A fails to pay the
money in accordance with his contract. C may compel B on a proper indemnity to allow C to
sue on the contract in B's name.
(b) A is trustee of certain land, with a power to sell the same and pay the proceeds to B and
C equally. A is about to make an improvident sale of the land. B may sue on behalf of himself
and C for an injunction to restrain A from making the sale.
Follow the Trust Property
The right to follow the property is important where the trustee is insolvent. The beneficiary has a
preferential claim to trust property in a trustee’s hands, and may also be able to follow the property
itself in the hands of a transferee from the trustee.
Sec 64- Where a trustee has wrongfully bought trust property, the beneficiary has a right to have
the property declared subject to the trust, or re-transferred by the trustee if it remains in his hands
unsold, or, if it has been bought from him by any person with notice of the trust, by such person.
But in such case the beneficiary must repay the purchase money paid by the trustee, with interest
and such other expenses (if any) as he has properly incurred in the preservation of the property;
and the trustee or purchaser must -
(a) account for the net profits of the property,
(b) be charged with an occupation rent if he has been in actual possession of the property, and
(c) allow the beneficiary to deduct a proportionate part of the purchase money if the property has
been deteriorated by the acts or omissions of the trustee or purchaser.
Section 64(2) enacts that 64(1) cannot affect the right of persons who have in good faith contracted
with the trustee, and that a beneficiary may lose his remedy under 64(1) in certain circumstances.
Where the trustee has disposed of trust property, and the money or other property which he has
received therefor can be traced in his hands or the hands of his legal representative or legatee, the
beneficiary has, in respect thereof, rights as nearly as may be the same as his rights in respect of
the original trust property.- sec 65(2)
(a) A, a trustee for B of Rs. 10,000, wrongfully invests the Rs. 10,000 in the purchase of certain
land. B is entitled to the land. (b) A, a trustee, wrongfully purchases land in his own name,
partly with his own money, partly with money subject to a trust for B. B is entitled to a charge
on the land for the amount of the trust money so misemployed. (illustration to 65)
Where the trustee wrongfully mingles the trust property with his own, the beneficiary is entitled
to a charge on the whole fund for the amount due to him.-sec 68.
The beneficiary would have a right to have the property re-conveyed or returned and to have it
declared subject to trust. But the words of section 65(2) by themselves cannot be construed so as
to give rise to a trust. But in such a situation a trust could be said to arise under section 53 read
with section 90.
But where a trustee mixes trust property with his own the beneficiary merely has a “charge” on
the fund according to section 68. sections 53 and 90 may also be relevant.
Where trust property comes into the hands of a third person inconsistently with the trust, the
beneficiary may institute a suit for a declaration that the property is comprised in the trust.- sec
65(1).
Section 64(1) applies to a wrongful purchase by a trustee, also states that the beneficiary may
follow trust property in the hands of a purchaser from a trustee.

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Pro|Studies 2020 Intermediate Year

First compiled and distributed in Sri Lanka in 2017 by the Pro|Studies

Text and illustration copyright © Prostudies 2018/2019/2020

All rights reserved

For free distribution

2. Application of English Law

8. Rights and Powers of Trustee

What is common law?

History of the Court of chancery

The Chancellor made a decree upon his own authority.

However, the story of development is confused and uncertain.

Amalgamation of Administration or Fusion of Rules?

Fusion of Administration and Continuing Distinction between Common Law and

The orthodox view is that only jurisdictions have been fused.

Fusion of Common Law and Equity

Nature of Equitable Rights

Common Law and Equitable Remedies

Cooperative Insurance v. Argyll [1997] 3 All ER 297

Specific performance is traditionally regarded in English Law as an exceptional remedy, as

Contracts where specific performance available

Contracts where specific performance unavailable

This remedy may be displaced in situations in which such performance is impracticable.

An injunction will be awarded on an interim or a permanent basis, either in a mandatory or

Interim injunction is awarded on an interim basis during the litigation.

An injunction will not be ordered in circumstances in which damages would be sufficient.

Rectification will be available in circumstances of common mistake.

I. Equity will not suffer a wrong to be without a remedy;

Equity will not suffer a wrong to be without a remedy

Following are limitation of the maxim.

He who seeks equity must do equity

He who comes to equity must come with clean hands

Where equities are equal the law prevails

Where equities are equal the first in time prevails

Equity imputes an intention to fulfill an obligation

Equity regards as done that which ought to be done

Equity looks to the intent rather than the form

Delay defeats equity

Equity acts in personam

Nature of the interest of a beneficiary

Section 2 of the Trusts Ordinance

All matters with reference to any trust

The view expressed that the former construction is to be preferred.

Bernedettevalangenberg Vs.Hapuarachchige Anthony ([1990] 1 SLR 190)The Court

Refer the pages from 36 to 57 in Reception in Ceylon of the English Trust.

Sec 3 of the Trusts Ordinance

The person who accepts the confidence is called the "trustee";

Similarities and Differences

Trust and contract

A contract is agreement enforceable by law, entails an obligation or legal duty to do or abstain

Trust and gift

Trust and Agency

Agent arises by consent, whereas a trust can arise without consent.

Trust and fideicommissum

Differences between two concepts-

Informal/ Implied Trusts

Milroy v Lord [1862] 4 De G.F. & J. 264; 45 E.R. 1185

Essential elements to form a trust

1. Author or settlor of the trust;

A trust may be created by every person competent to contract – (sec 7(a).

Every person capable of holding property may be a beneficiary. – sec 9(1).

A trust for the maintain animals is invalid.

Trusts Created by Action

A trust created by will may be revoked at the pleasure of the testator.

A trust created otherwise than by will can be revoked only-