2 - formalities

Question 1

What are the two methos of expressly creating a trust?

Answer 1

1. The settlor makes a self declaration
2. Transfer to trustees to hold on trust

Question 2

What are the formalities with a self declaration of a trust

Answer 2

Generally none. But there are exceptions.

• Inter vivos trust of land or of an interest in land - MUST comply with s53(1)(b) LPA 1925
• Trust on dead: Must comply with s9 Wills Act 1837.
• Disposition of a subsisting equitable interest: s53(1)(c) LPA 1925

Question 3

What are the justifications for formality requirements?

Answer 3

1. Certainty and evidence
   
   1. The writing formality provides certainty and evidence, if the settlor declared trust IN WRITING, we are much more certain that he intended to do it, rather than a throwaway line.

If we require writing then we require CLEAR EVIDENCE that a transaction takes place

2. Protective/cautionary
   
   1. Requirements to comply with formality has a protective effect. If a transferor needs to put the transaction into writing, it encourages him to think seriously about what he is doing. It encourages greater precision and accuracy. It can protect purchasers who need to know whether they need to overreach a particular interest.

Question 4

What is Simon Gardner’s “facilitative policy”?

Answer 4

Gardner thought that allowing people to make whatever dispositions they want to facilitate. We should allow him to do whatever he wants with his property – and formality requirements may clearly affect that.

Question 5

What is a constructive trust?

Answer 5

• It arises by operation of law
• It is imposed by the courts
• It arises automatically from the moment certain circumstances occur.
• Nothing to do with the parties intention

In all cases, a constructive trust is imposed because otherwise it would be unconscionable.

Question 6

Paragon Finance v Thackerar

Answer 6

LJ Millett -

A CT arises when - “it would be unconscionable for the owner of property to assert his own beneficial interest in the property and deny the beneficial interest of another”.

Question 7

What makes something unconscionable?

Answer 7

1. In many cases, the unconscionability arises due to detrimental reliance.

In many cases, there is an agreement which is unenforcable, but the courts rely upon their potential detriment and imposes a constructive trust.

1. Prevent an undeserved benefit

Question 8

What are the formalities for inter vivos declarations of trust for property other than land?

Answer 8

No formalities are required. It can be created orally.

A declaration of trust of personal property can be implied from conduct.

Question 9

Paul v Constance

Answer 9

Inter vivos declarations of trust: Declaration of trust of personal property can be implied from conduct:

Question 10

Inter vivos declarations of trust for land

Answer 10

Formality requirement: s53(1)(b) LPA 1925

It must be manifestered and written and signed.

S53(1)(b) does not deal with whether or not a trust exists, it deals with the issue of proof.

If s53(1)(b) is not complied with, there is still a trust - not void just not enforcable.

The declaration of trust does not need to be in writing, all you need is some writing by some person that has come into existence at some time.

Question 11

Is 53(1)(b) LPA 1925 is not complied with, is there a trust?

Answer 11

S53(1)9b) does not deal with whether or not a trust exists. If (1)(b) is not complied with, there is still a trust - it is not void, it just cannot be enforced.

Question 12

Does a inter vivos trust for land need to be in writing?

Answer 12

The declaration of trust does not need to be in writing, all you need is some writing by some person that has come into existence at some time.

It has to be signed by the settlor, but there is flexibility as to who the settlor is. Under s53(1)(c) it can be the settlor’s agent.

Question 13

Taylor v Taylor [2017]

Answer 13

a father and son each contributed funds to the purchase of a small hotel and campsite in Cornwall. On their instructions, their solicitor ticked the “joint tenants” box on the TP1 form. They did not sign the form but their solicitor passed it on to the vendors who executed it in the usual way. The parties later fell out and the father severed the joint tenancy which would ordinarily result in each owner holding half of the equity. The father argued, however, that he was entitled to 80% of the equity based on his contributions and an agreement to that effect. He claimed that the declaration of trust in the TP1 form was of no effect because he had not signed it and that the rules of constructive trusts applied. The father said that the vendors, who had executed the TP1, were not “able to declare” such trusts.

The court disagreed. It said that when the vendors signed the transfer they were the legal and beneficial owners of the property and, as such, were capable of declaring trusts on which it was to be held.

a father and son each contributed funds to the purchase of a small hotel and campsite in Cornwall. On their instructions, their solicitor ticked the “joint tenants” box on the TP1 form. They did not sign the form but their solicitor passed it on to the vendors who executed it in the usual way. The parties later fell out and the father severed the joint tenancy which would ordinarily result in each owner holding half of the equity. The father argued, however, that he was entitled to 80% of the equity based on his contributions and an agreement to that effect. He claimed that the declaration of trust in the TP1 form was of no effect because he had not signed it and that the rules of constructive trusts applied. The father said that the vendors, who had executed the TP1, were not “able to declare” such trusts.

The court disagreed. It said that when the vendors signed the transfer they were the legal and beneficial owners of the property and, as such, were capable of declaring trusts on which it was to be held.

Question 14

If the declaration of trust is not made in writing at the time does this matetr?

Answer 14

No - you can have a later document evidencing the intention of the trust.

Assumption: the trustee who signs the later evidence because the settlor has given the property away so can no longer declare a trust in that property: Dicta in Gardner v Rowe.

Question 15

Gardner v Rowe

Answer 15

Dicta in Gardner v Rowe supports this assumption.

• A Declaration of land or interest in land has to be MANIFESTLY PROVED in writing.

Assumption is: the trustee who will sign the later evidence because settlor has given the property away so can no longer declare a trust in that property

Question 16

When does there not have to be formalities?

Answer 16

1. The statute cannot be used as an instrument of fraud
   2.

Question 17

What is the excetion to formalities as “statute cannot be used as an instruemnt of fraud?”

Answer 17

There are cases where the court has enforced a trust despite the absence of writing. The easoning: statute cannot be used as an instrument of fraud. Courts are prepared to ignore requirement of writing IF they feel that it would otherwise be fraudulent

If there is no written proof, oral testimony will be sufficient WHERE: the transferee of property has been party to an oral agreement that he will hold the property on trust before the property was transferred to him:

Question 18

Rochefoucauld v Boustead

CA

Answer 18

Facts: Rochefoucauld was the owner of estates subject to a mortgage for £25,000. She could not afford to pay the debt. In order to protect her interest, her friend, Boustead, orally agreed to buy the estates from the mortgagee and to hold them on trust for her, subject to her paying the purchase price and expenses. Boustead later claimed the trust was unenforceable. CA held he did hold the estates on trust and could not rely on the lack of writing as that would be to use the statute as an instrument of fraud.

Lindley LJ:

“the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it is so conveyed, to deny the trust and claim the land himself. “

Question 19

Bannister v Bannister

CA

Answer 19

Facts: A Widow orally agreed to sell two cottages to her brother-in-law on the understanding that she could live rent free in one of them for as long as she wished. No mention in the conveyance. Evidence was such that she would not have sold to brother in law, had there not been this understanding. CA held that there was a trust and that it would be fraud to rely on the absence of writing, relying, inter alia, on Rochefoucauld v Boustead.

The oral agreement in Rochefoucauld, was that it would HOLD ON trust for countess, in banister v banister there was no mention of a trust. This was irrelevant.

Scott LJ -

“It is enough that the bargain should have included a stipulation under which some sufficiently defined beneficial interest in the property was to be taken by another.”

Question 20

When will there be a trust without formalities?

Answer 20

CA - Strong CA cases in which:

1) agreement to hold on trust, or agreement that another will have beneficial interest
2) No writing to prove this
3) Because of circumstances, court was prepared to hold and enforce a trust.

Question 21

What are the similarities between Rochefoucauld and Bannister v Bannister?

Answer 21

• Both CA cases
• There was both a pre-existing agreement that the purchaser agreed to acquire property subject to another’s interest.

The question arises: what is the agreement between the transferor and transferee in that a third party right should have rights in the property after the transfer. There is no case concerning s53(1)(b)

Question 22

Lyus v Prowsa Developments

Answer 22

The exception undoubtedly applies to a pre-existing agreement that the purchaser will recognise rights of the transferor. Will it apply where the purchaser agrees to give effect to the interests of a third party?

Facts: Agreement by purchaser to give effect to rights of third party which had not been registered under LRA. Judge relied on Banister v Banister

The court held that the Law of Property Act 1925, section 56 did not apply to the circumstances and therefore the plaintiffs could not rely on their contract. However, the court held that there was a constructive trust between the defendant and the plaintiffs on the basis that having recognised the plaintiffs’ contract at the time of sale, it would be inequitable to deny the existence of it at a later time.

Question 23

Binions v Evans

Answer 23

The exception undoubtedly applies to a pre-existing agreement that the purchaser will recognise rights of the transferor. Will it apply where the purchaser agrees to give effect to the interests of a third party?

Held: Denning prepared to hold purchaser bound by a contractual licence of a third party

Question 24

What are the justification for the exception of formalities?

Answer 24

1. Fraud (in the wide sense)
   
   1. Lindley LJ in Rochefoucauld v Boustead
      1. “…it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it is so conveyed, to deny the trust and claim the land himself.” ​
   2. Scott LJ in Bannister v Bannister:
      1. Fraud in a wide sense, not fraudulently obtaining a conveyance, it is fraud to try and rely on formality requirements to defeat an interest.
   3.

Question 25

Do the Rouchefoucauld and Bannister cases require potnetial detrimental reliance?

Answer 25

There is no mention in either case of detrimental reliance, only mention of fraudulent behaviour:

Patten LJ, De Bruyne v De Bruyne

Question 26

De Bruyne v De Bruyne

Answer 26

Recent case winch discussed Bannister v Bannister.

Patten LJ - In some cases equity will hold the transferee of property to the terms which it was acquired by imposing a constructive trust.

“these cases do not depend on detrimental reliance. They concentrate on the circumstances in which the transferee came to acquire the property in order to provide the justification for the imposition of a trust”.

“The concept of fraud in equity is much wider and can extend to unconscionable or inequitable conduct in the form of a denial or refusal to carry out the agreement to hold the property for the benefit of the third party which was the only basis upon which the property was transferred.”

At first sight, we are not looking at detrimental reliance on person seeking to enforce trust. If we are looking at detrimental reliance from the person seeking to enforce the trust that would be a death nail for agreements giving right to third parties because that third party is not involved in initial agreement so would not have relied upon it. But we can take a wider approach.

In Rochefoucauld and the brother in law in banister v banister both agreed to take property SUBJECT to rights of another. If we do not enforce it, they will get an undeserved benefit, property would not otherwise have been transferred.

Question 27

Was Rouchefoucauld and Bannister an example of the courts enforcing an express trust despite absence of writing or were the courts imposing a constructive trust to prevent the transferee benefiting from his fault as this would be unconscionable?

Answer 27

In Rouchefoucauld, Lindley LJ said it was an express trust.

In later cases, the courts prefferred to reach the decision on the basis of a constructive trust:

Scott LJ in Bannister v Bannister:

Lyus v Prowsa Developments and De Bruyne v De Bruyne reference to a constructive trust.

Academics are divided:

Question 28

Lindley LJ in Rouchefoucauld v Boustead

what kind of trust was it in this case?

Answer 28

Lindley LJ seems to support that the express trust was enforced despite the absence in writing (not a constuctive trust).

“The trust which the plaintiff has established is clearly an express trust … one which both plaintiff and defendant intended to create. “

Question 29

Scott LJ in Bannister v Bannister:

Lyus v Prowsa Developments and De Bruyne v De Bruyne reference to a constructive trust.

Answer 29

Believed that In Rouchefoucauld and Bannister, it was a constructive trust being enforced, not an express trust

Question 30

What do academics think about whether Rouchefoucauld and Bannister being an express or constructive trust?

Academics are divided as to which approach should be seen as the correct one. Some academics argue that because s.53(1)(b) merely makes the trust unenforceable rather than void, then it is not inconsistent with the statute to enforce the express trust. All you are saying is that there is a trust – no doubt about that – and the transferee is prevented from relying on the statute which would make the trust unenforceable. In support of this argument, it is pointed out that the courts automatically enforce the agreement between the parties. They don’t look to see whether there might be another way of preventing unconscionability – just automatic enforcement of the agreement.

However, other academics argue that today, it’s constitutionally unsupportable for the courts to have the power to ignore a statutory provision on the grounds of injustice. They argue that the fraud should be seen not as leading to a disapplication of the statute, but instead the fraud creates a new obligation under a constructive trust. The law should be seen not as enforcing the informal agreement, but instead as preventing unconscionability. As we go back to the terms of s.53, (2) says that the subsection does not prevent constructive trusts; if it is a constructive trust that is imposed, this is not inconsistent with the statute. This is a point that clearly has not been finally resolved

Answer 30

Academics are divided.

1. Express trust
   
   1. because s53(1)(b) merely makes the trust unenforceable rather than void, then it is not inconsistent with the statute to enforce the express trust.
   2. All you are saying is that there is a trust and that the transferee is prevented from relying on the statute which would make the trust unenforcable.
   3. They don’t look to see whether there might be another way of preventing unconscionability – just automatic enforcement of the agreement.
2. Constructive trust
   
   1. , it’s constitutionally unsupportable for the courts to have the power to ignore a statutory provision on the grounds of injustice. They argue that the fraud should be seen not as leading to a disapplication of the statute, but instead the fraud creates a new obligation under a constructive trust.
   2. The law should be seen not as enforcing the informal agreement, but instead as preventing unconscionability. As we go back to the terms of s.53(2) says that the subsection does not prevent constructive trusts; if it is a constructive trust that is imposed, this is not inconsistent with the statute.

This is a point that clearly has not been finally resolved.

Question 31

What are the formalities for wills for testamentary declarations of trust

Answer 31

s9 Wills Act 1837

If someone wants to dispose anything on death, if they want it to take effect on death, it must apply with s9 wills act. If a deceased has not made a valid will (complied with s9), his property will be distributed along the line of the intestacy rules.

1. Writing
2. Signed writing
3. Signature either made or acknowledged in the presence of two witnesses at the same time.

Incorporation by reference: a will can be drafted so as to incorporate another document which is in existence at the time the will is written.

A testator in his will can specifically refer to another document “I leave my property on trust to be held on the terms written out in the document [dates]”. The document referred to will then be part of the will. The limitation is that any document by reference just BE IN EXISTENCE at the time the will was written, and must be possible to IDENTIFY this document.

Question 32

Can a will incorporate another document by reference?

Answer 32

Yes: a will can be drafted so as to incorporate another document which is in existence at the time the will is written. A testator in his will can specifically refer to another document “I leave my property on trust to be held on the terms written out in the document [dates]”. The document referred to will then be part of the will. The limitation is that any document by reference just BE IN EXISTENCE at the time the will was written, and must be possible to IDENTIFY this document.

Wills are a matter of public record, the administrator of the will has to apply for a grant of probate, this grant recognises the will as valid and appoints the executor or administrator authority to carry out their will. A copy of the will is kept in the public authority office and anyone can read anyone else’s will. A document by reference, as it is part of the will, will also be kept in the office and can be read by anyone.

Question 33

What are the exceptions to formalities for wills?

Answer 33

1) secret trusts

Question 34

What are secret trusts?

Answer 34

A testator leaves property to a person in his will intending that person (the legatee) to hold that property as trustee. The testator communicates that trust and/or its terms to the legatee outside the will.

It is a deliberate non-compliance with formality requirements for reasons of secrecy or indecisiveness.

Question 35

What are the two types of secret trust?

Answer 35

1. Fully secret
   
   1. on the face of the will there is an absolute gift to the legatee.
      
      1. There is no reference in the will to either:
         
         1. The trust or the beneficiaries
   2. However, the testator will have privately communicated to the legatee that he will hold the property on trust and the terms of this trust.
2. Half secret trust
   
   1. gift to legatee on trust in the will but no mention of the terms of trust
      
      1. In this case, it is the terms of the trust which will be communicated to legatee outside the will.

Question 36

Re Gardner

CA

Answer 36

A fully secret trust can also arise where the “trustee” inherits under the intestacy rules.

Knowing the particular person who will inherit under intestacy rules, the settlor can communicate with this person bit to hold it on trust for other people

Question 37

Why do we allow secret trusts?

Answer 37

In secret trusts, it must be deliberate. Wills become a matter of public record.

1. Traditionally, a trust has been used where testators want to leave property to mistress or illegitimate child.
   
   1. The world is different today, when secret trusts originally use. Today, such secrecy is arguably no longer necessary. Another reason on the secrecy theme maybe that testators want to leave property to certain organisations or relatives, but they do not want it to be known that they are leaving property to this organisation/relative. One obvious way round it – they give their property away in their lifetime as this won’t be on public record. Could be argued that there is insufficient justification for secret trust, can give a lifetime gift when alive.
2. Indecisive testators
   
   1. testators who want to reserve the opportunity for changing their minds about who should benefit without making a new will every time they change their mind: this is an unjustifiable exception to justifying it. Why not allow testators to create a new will.

Question 38

Rquirements for a valid fully secret trust?

Answer 38

Fully secret trust: On face of the will there is an absolute gift to legatee and what is needed for there to be an effective trust upon that legatee: CIA

1) intention
2) communication
3) acceptance

Question 39

McCormick v Grogan

Re Snowden

Answer 39

For a fully secret trust:

The testator must intend to impose a binding obligation on the legatee/trustee.

Must intend that the legatee hold that property as trustee, not enough to impose a moral obligation – this is certainty of intention issues.

Question 40

Moss v Cooper

Answer 40

For a fully secret trust:

Communication of intention can be oral or in writing; the legatee must accept the terms and silence can amount to acceptance.

Silence by a legatee when communicated the obligation will be taken to amount as acceptance of this obligation. Acceptance can be express, but also implied. Legatee must accept the terms – obligation. Silence by legatee when communicated the obligation will be taken to amount as acceptance of this obligation.

Question 41

Re Gardner

CA

When does communication have to occur for a fully secret trust?

Answer 41

For a fully secret trust:

Communication can be before or after the execution of the will but must be before the testator’s death.

The timing is important, communication can be BEFORE or AFTER the execution of will but must be before death. This is the bound with the justification of the doctrine. But ultimately, the justification for enforcing secret trusts is that the testator has relied upon the legatees acceptance of the obligation. Where communication is before will is executed, the testator has relied upon acceptance by actually making the will/leaving property to legatee.

Communication AFTER the execution of the will is also fine because you can show reliance by testator in the fact that he has not revoked or ultered his will – made clear in re gardner.

Question 42

For a fully secret trust, what does the communication consist of?

Answer 42

1. fact of trust
2. terms of trust
3. property subject to the trust.

Question 43

Re Boyes

Answer 43

The testator told the legatee verbally that he was to hold the property on trust and that he would send him a letter with the details. No such letter was sent. After the testator’s death letters were found amongst his papers setting out the terms of the trust. This was insufficient.

Held: Claim of a fully secret trust failed. There was communication of the fact of trust but no communication of the terms of the trust, which had to take place BEFORE the testator’s death.

Question 44

Re Keen

CA

Answer 44

Establishes that constructive notice of terms of the trust is sufficient.

Half secret trust. The testator gave the legatee a sealed envelope containing the terms of the trust which was not to be opened until the testator’s death. This was held to be sufficient as the legatee had the means of knowledge of which he could avail himself whenever it was necessary and proper.

Establishes that constructive notice of terms of the trust is sufficient. This is a half secret trust but likely that this principle will also apply to a fully secret trust. Legatee had the means of finding out terms of the trust, he could open letter and find them out as and when it was necessary and property. Thereore, he knew terms of trust was in the letter – held: sufficient.

Question 45

Re Colin Cooper

Answer 45

Half secret trust. The testator added a further sum to the initial legacy to legatee by means of a codicil to the will. There was no communication of this to legatee that there was a further property added to this. Held: no secret trust of the further sum.

Testator might want to alter the property subject to trust, this will not be effective unless there is further communication and acceptance in relation to the additional property. Held: there needs to be further communication of THIS property.

Question 46

Re Stead

Answer 46

Communication to co-owners: The law is unsatisfactory.

Situation where there is a gift to two or more legatees as co-owners.

Where tenants in common, one can just accept

Where joint tenants, it depends on the timing.

Farwell J -

One simple question should be asked in all cases:

did the acceptance of one co-owner induce the gift either to be made or not revoked?

If yes, acceptence by A had the conseqnece that the gift was made to all the co-owners, or the gift was not revoked, then any co-owner should be bound, regardless of joint tenants or tenants in common or timing of communication and acceptance because IF that is the case, A’s acceptance CAUSED the gift to be made or unrevoked, if then that is not an effective acceptance. If the acceptance of the one co-owner A did not actually induce the gift or cause it to be revoked, then any other co-owner would not be bound.

1. A tenant in common will only be bound by the trust if it was communicated to and accepted by him.
   
   1. Need communication by every tenant in common because the tenant in common should not be able to deprive others of any beenfits given in the will.
2. Joint tenant (A) accepts the trust before a will is made, any other joint tenant (B) will also be bound
   
   1. Otherwise it is a fraud by A in procuring the execution of the will in reliance of a promise. Any other joint tenant B should not be able to ebenefit from this fraud.
3. Joint tenant (A) accepts the trust after the will is made, any joint tenant who has not accepted will not be bound
   
   1. This is because there is no fraud by A in procuring the execution of the will.

Farewell: could not see a distrinction between the two situations concerning joint tenants.

Question 47

Where there are two or more co-owners, does there need to be communication to/and acceptance by one or both?

Answer 47

The law is not satisfactorry and depends on two factors:

1. Timing of communication
2. Whether the co-owners are joint tenants or tenants in common

Question 48

Requirments of a half secret trust

Answer 48

The terms of the will must impose a trust on the legatee.

See Re Gardner – a gift to a legatee “knowing that he will carry out my wishes” did not impose a trust. This is precatory words, insufficient to impose a trust. Not enough to impose a trust obligation.

The basic requirements of intention, communication and acceptance are the same. However, there are some differences which make it more difficult to establish a half secret trust. All of these can be criticised as unjustifiable.

Question 49

Re Gardner

Half secret trust

Answer 49

Re Gardner – a gift to a legatee “knowing that he will carry out my wishes” did not impose a trust. This is precatory words, insufficient to impose a trust. Not enough to impose a trust obligation.

Question 50

Re Keen

Answer 50

Half secret trusts:

Re Keen – any evidence that is inconsistent with terms of the will is inadmissible.

Evidence inconsistent with the terms of the will is inadmissible.

Facts: The terms had been communicated before the will was executed, but the will refered to communication after the execution.

Therefore, there was inconsistency and so you could not put forward evidence about communication before execution because inconsistent with that was said about communication.

Question 51

What is the difference between fully and half secret trusts in relation to inconsistency?

Answer 51

Half secret - inconsistency with terms of the will is inadmissible.

Fully secret - the legatee is to take absolutely, the evidence is that there is a trust which is inconsistent with the terms of the will. This does not matter for a fully secret trust.

Criticism: A secret trust operates outside the will, not within it. So this argument of inconsistency with the will should be irrelevant unless it casts significant doubt upon intention of testator.

Question 52

Re Keen

Communication

Answer 52

Half secret trust

Communication must be before or at the time of execution of the will.

The court said: a testator should not be able to reserve the power to make a disposition by an unexecuted codicil and thus get round the requirements of the Wills Act).

Criticism:

The distinction for timing has been rejected in other jurisdictions and we can reject the rule in Re Keen in principle. The justification given in Re Keen, suggesting that the testator should not be given power to change mind, implies that secret trusts are okay where reason for them are secrecy but not okay where reason for them is indecision. If this is valid for half secret trusts it should also valid for fully secret trust.

The Will does not take effect until the testators’ death so logically it is the testators death which is the crucial point. Just because a will is made does not prevent the testator from revoking it. Again, it would seem that secret trusts operate OUTSIDE the will so why is the date the will is made of any relevance, by is incorporate by reference important. Secret trust so does no operate within the will but outside it.

Question 53

Half secret trusts - gifts to co-owners?

Answer 53

Whether or not communication to one will bind the others will basically depend on the terms of the will. The legatees are likely to be joint tenants where they are specifically meant to be trustees on face of the will.

Question 54

What is the effect of a fully secret trust?

Answer 54

If the requirements are fulfilled the legatee will hold on trust. He can be one of the beneficiaries and also will take any surplus: Irvine v Sullivan (1869) LR 8 Eq 673.

If there is communication of the fact of the trust but not the terms the legatee will hold the property on resulting trust for the testator’s estate: Re Boyes.

If there is no communication at all, the legatee will take beneficially. No communication of the fact or no terms of trust, the legatee will take beneficially.

Question 55

Irvine v Sullivan

Answer 55

Effect of a fully secret trust:

If the requirements are fulfilled the legatee will hold on trust. He can be one of the beneficiaries and also will take any surplus: Irvine v Sullivan

Question 56

Re Boyes.

Answer 56

Effects of a fully secret trust:

If there is communication of the fact of the trust but not the terms the legatee will hold the property on resulting trust for the testator’s estate.

Position here is that the legatee has agreed to be a trustee so he can no longer take the property beneficiary, he has to hold it as trustee. But since no effective communication of the terms of the trust he will not hold it on any term intended by the testator, instead he will hold the property on a resulting trust for testators estate, this means that the beneficiaries will be those entitled to the residue of the testators estate, it maybe those specified in the will if there is a residuary clause, if not it will be determined by the intestacy laws

Question 58

What is the effect of a half secret trust?

Answer 58

From outset because of terms of will, the legatee is a trustee so he has got to hold this property as trustee. The only thing we are concerned about are terms of trust, if no effective communication of terms of trust, it will be a resulting trust. Issue is whether the legatee can benefit in any way.

Legatee under a fully secret trust can be a trustee and beneficiaries under terms of trust and entitled to any surplus, but opposite has been held in half secret trust.

If the requirements are not fulfilled the legatee will hold on a resulting trust for the testator’s estate.

Question 59

Re Rees

Pennycuick J in Re Tyler

Answer 59

Effect of a half secret trust:

The legatee cannot take beneficially, whether the testator so provides or in the event of any surplus, on the grounds that this would be inconsistent with the terms of the will.

Legatee under half secret trust can never benefit whether he is held as a legatee or by any surplus. Justification is that this would be inconsistent with terms of the will because on terms of the will the person is to be a trustee.

In Rees – the testator specifically said that the legatee could keep any surplus after, court held: he could not.

Question 60

Re Gardner (No. 2) [1923]:

Answer 60

Dehors will theory

Romer J: a secret trust arises immediately — therefore, the beneficiaries title arose not under the will, but by the trust already in existence prior to the testatrix’s death. Trust is created before the will

• Virgo: case is wrongly decided.
• Because she had an interest before she died, the usual rules under which a gift lapses do not apply. However, this is contrary to principle: beneficiaries of a trust cannot acquire an interest in the trust property until the trust has been completely constituted, and a secret trust is not constituted until the testator dies and the trust property is vested in the legatee/trustee by operation of the testator’s will.

Question 61

What are the justifications for the distinctions between fully and half secret trust in relation to being a beneficary?

Answer 61

Can justify the differences if it is a question of money left over - who should get it because the court was right in Re Rees in saying that the indication on the will is that the legatee should not benefit. However, if the testator has expressly stated that the legatee is a beneficiary or potential beneficiary, then why should that not be given effect to. Doubt cast onto decision in Re Rees in Re Tyler – may be relevant to decision in Re Rees, that the legatee in Re Rees was the testators solicitor and therefore a beneficiary gift to him was unlikely. There are doubts if legatee says “he told me I could benefit”.

Question 62

section 15 Wills Act 1837

Answer 62

Where a beneficiary named in a will witnesses the will the gift is void.

Question 63

Re Young

Answer 63

If a beneficiary under a secret trust witnesses the will, will they lose the entitlement under the secret trust? Re Young: no

A beneficiary under a secret trust does not lose his beneficial entitlement by witnessing the will: Re Young [1951] Ch 344 (Testator left property to his wife on a half secret trust. A sum of money was to go to his chauffeur who had witnessed the will).

Held: chauffeur could take the benefit under half secret trust because the court said that the wills act had nothing to do with a secret trust. The court said that the beneficiary under a secret trust does not take /not entitled by virtue by gift in the will, instead the beneficiary is entitled by virtue of the secret trust imposed upon the legatee, it is the legatee who takes under the will, not the beneficiary.

Question 64

What happens if the legatee witnesses the will?

Answer 64

No problem with a half secret trust because under a half secret trust the legatee is not a beneficiary, he is a trustee so s15 does not apply. Under a fully secret trust, if you continue reasoning in Re Young – the legatee takes under the will and apparently takes beneficially under the will and then a trust is imposed on that legatee. So just looking at the will, the legatee is a beneficiary so s15 ought to apply. There is no authority on this.

Question 65

What happens if the beneficiary predeceases the testator?

Answer 65

A gift to a beneficiary who predeceases the testator lapses; a gift on express trust will not fail for want of a trustee.

Where beneficiary dies before predecessor, that does not take effect and it goes back into the estate. This is the rule for a gift to a beneficiary.

Where a will contains a gift on an express trust, then it will not fail for want of a trustee. So if trustee dies before testator, the gift will still take effect and another trustee will need to be appointed.

Question 66

What happens if the legatee predeceases the testator in fully secret trusts?

Answer 66

Dicta from Lord Justice Cozens-Hardy in Re Maddock.

: if legatee dies before testator, the trust fails because secret trusts operate in that there is a gift to legatee, a personal obligation is imposed upon that legatee to give effect to that trust because it is personal, if legatee dies, the secret trust does not operate and the obligation does not pass to residual legatees or those entitled upon intestacy. Suggestion: legatee dies before testator = fails

Question 67

Re Maddock.

Dicta from Cozens-Hardy LJ

Answer 67

CA suggested that a fully secret trust will fail if the legatee dies before the testator on the basis that the trust arises because of personal obligation imposed on the legatee.

Question 68

What happens if the legatee predeceases the testator in half secret trusts?

Answer 68

Half secret trust does not fail. The personal representatives would take upon the role of trustee. Half secret trusts are still effective as long as there is evidence of the terms.

Question 69

Are there justifications for difference of treatment betwene fully secret and half secret trusts in relation to the death of the legatee

Answer 69

Argued by Penner that what should be asked for a fully secret trust, is whether the testator had time to make a new will after the death of the legatee because if he did, and he didn’t bother there might be a problem with the trust failing. But if legatee dies and the testator the next day, the testators intentions are not fulfilled at all and so it wouldn’t be effective and that seems harsh.

Question 70

What happens when the beneficiary predeceases the testator?

Answer 70

In a will – it would lapse, if gift on trust to a beneficiary on will and beneficiary predeceased, that gift would lapse.

Question 71

Re Gardner

What happens where the beneficiary predeceases the testator?

Answer 71

(iii) The beneficiary predeceases the testator

held that the gift to a beneficiary under a secret trust did not lapse, based on an arguably unacceptable view that the trust arose at the moment of communication to the legatee.

Case is arguably wrong

Mr Justice Romer held this. This was based on arguably erroneous reasoning. The starting point is that he said:

1. a gift to beneficiary under a secret trust is not a gift by will, so far no real problem, consistent with our cases which says secret trusts operate outside the wills act.
2. However, he went onto talk about the time when the beneficiary acquired the beneficial interest. The judge held: that the beneficiary acquired his interest at the moment the testator communicated his intention to the legatee. He said it was as if, at that moment, the legatee had executed a declaration of trust. He said that the trust arises/is created at the moment of communication and acceptance.

Problem with this reasoning is that: you cannot have a trust of future property. At the time of communication and acceptance, the legatee did not have the property. He had a mere hope of inheriting. He would only acquire the property IF the testator dies without changing his will. So since you cannot have a trust of future property, how can the beneficiary have acquired rights? The trust would only be effective once the legatee acquired the property, he would only do that upon death of testator, at which point the beneficiary is dead.

If Re Gardiner is wrong, the interest in beneficiary would lapse, the legatee would hold on resulting trust for the legatees estate.

Question 72

Re Young [1951]:

Answer 72

Dehors theory

Testator’s will left property to his wife subject to a condition that she should make certain bequests he had previously communicated to her, including a gift of £2,000 to his chauffer, Mr. Cobb. C had witnessed the will, which meant he could not receive a legacy under it. Dankwets J: C was entitled to receive the money because his interest arose from an oral secret trust, not under the will. Wills Act formalities were irrelevant to the trust.

Question 73

What happens where the legatee revokes acceptance before the testator’s death?

Answer 73

This depends on whether Re Gardner is correct as to when the trust arises. If Re Gardner is wrong will it then depend on whether T had time (or the capacity) to change his will?

If Re Gardner is correct, the trust is in existence from moment of acceptance and legatee can no longer change his mind. However, more likely that Re Gardner is wrong and if it is wrong then the suggested outcome will vary with the precise facts. If a testator is told of the change of mind and does not change his will, and dies a few years later, then it can clearly be argued that the testator accepted the revocation, accepted the fact legatee was not prepare to hold on trust or specific terms and therefore the will takes effect according to its terms.

What if, at time, the legatee changes his mind, the testator is on his death bed or mentally incompetent so that he is unable to change his will?. It can then be argued that it would be “unconscionable” for the legatee to change his mind, particularly if the legatee knows that the testator is on his death bed or mentally incompetent. Here the trust might be willing to impose a constructive trust.

Question 74

What happens if the legatee dies or renounces the trusteeship after the testator’s death?

Answer 74

If the legatee dies after the testator the trust will have been fully constituted at moment of death so will not fail. So does not matter if legatee dies. There will be a fully constituted trust. Therefore, someone will need to step in as trustee. If terms of trust communicated orally, so Problem as might not be able to find terms of the trust so there may be a resulting trust.

If the legatee disclaimed after the testator’s death dicta in Re Maddock suggest the trust would fail because there is only a personal obligation imposed on the legatee whereas Lord Buckmaster in Blackwell v Blackwell expressed the view that a court would not allow the legatee to defeat the purpose by renouncing the legacy.

There is competing dicta, Re Maddock trust would fail because simply personal obligation on trustee so if he refuses to carry it out cannot impose this obligation on anyone else. Preferable view is in Blackwell, logical because trust has become completely constituted at moment of death, beneficiary acquires beneficial interest at death. So the requirement of legatee to comply with trust should not matter.

Question 75

What is the basis for the doctrine of secret trusts?

Answer 75

1. Fraud
   
   1. Banister v banister – express trust enforced despite lack of compliance with wills act or constructive trust enforced.
   2. Historically, they did evolve as a means of preventing fraud, early cases on fully secret trust reference to fact that statute cannot be instrument of fraud.

Question 76

McCormick v Grogan

Answer 76

What amounts to fraud in this context?

Deceit/fraudulent inducement on the part of the legatee:

Facts: Where legatee induces the testator to make a gift in his favour, on the basis that he will comply with testator’s wishes, it would be fraudulent to go back. But in most cases, the legatee initially intends to comply, rare case where deceit or fraudulent inducement.

Question 77

Blackwell v Blackwell

Answer 77

What amounts to fraud in this context?

Preventing the legatee from refusing to comply with the terms on which he acquired the property.

Facts: In Blackwell, testator widow and son claimed trust failed because if trust failed, it would fall into residual and they would be entitled to it.

This is general, should have a reason from preventing him going back on his promise. In many cases, it had not been the legatee trying to go back on his promise. In many cases, the legatee had been happy to comply with his obligations, it has been someone else who claimed that the trust was invalid.

Question 78

Bannister v Bannister

What amounts to fraud in this context?

Answer 78

What amounts to fraud in this context?

Preventing the legatee making a profit; inapplicable to a half secret trust.

In Bannister v Bannister – a trust was imposed to prevent transferee to benefit personally by claiming trust was ineffective. This would justify enforcing a fully secret trust because if this fails the legatee takes beneficiary, but does not justify a half secret trust because legatee is always a trustee so will not benefit if the trust fails.

Question 79

Lord Buckmaster, Blackwell v Blackwell.

Answer 79

What amounts to fraud in this context?

Fraud on the beneficiaries: circular argument?

Intended beneficiaries will suffer loss if trust is ineffective. But the objection is that this is a circular argument. We are talking about beneficiaries suffering a loss. But this question is talking about whether they are beneficiaries – has a trust been created in their favour – in order to be suffering a loss they need to be beneficiaries, but we say that because they are suffering a loss, they are beneficiaries.

Question 80

McCormick v Grogan, Lord Warrington in Blackwell v Blackwell, Kay J in Re Boyes.

What amounts to fraud in this context?

Answer 80

Testator’s reliance?

There is no clear reference to this in the cases.

We can draw an analogy with other cases where a constructive trust arose.

Whether a fully or secret trust arose, the testator acted in reliance on the legatees promise and we have a number of cases where a reference was specific that he acted in reliance upon the legatees promise/acceptance of the terms.

Where a testator has made his will or will not revoke it because of the legatees acceptance, we can assume that had it not been for the acceptance, the testator would have found some other way of achieving his aims. If the legatee had refused, the testtator might have had another legatee who would have been willing to carry out the trust - he might have even made a lifetime transfer to the intended beneficiaries, but because the legatee accepted, the trustor had assumed that therefore his wishes would be carried out. Now the testator is dead, he cannot do anything, so we jusrify the cases on the basis the testators reliance and it would be an unconscionable outcome looking at it from the perspective of the testator.

There are vague references in the cases about the testator’s reliance but this is as far as they go.

Question 81

What is the modern approach to justifying the existence/enforcement of secret trusts?

Answer 81

secret trusts take effect outside the will/secret trusts operates dehors the will. It is inter vivos trust: operates dehors the will.

This analysis is on the basis that the legatee inherits on the will, then equity fastens a trust on the conscience of the legatee and this trust arises because of the prior communication and acceptance. On this argument, the trust has nothing to do with the will. The trust operates OUTSIDE the will. The will operates according to its terms, so the will gives the property to the legatee. But then the will is irrelevant. Therefore, on this reasoning, since the will does not take effect under the will, the wills act and requirement of writing is therefore inapplicable as trust operates outside of the will.

Question 82

Does the opinion that secret trusts take effect outside the will/operates dehors the will mean that it is justified?

Answer 82

There are a number of cases which depend on the trust taking effect outside of the will, such as Re Young, Re Maddock.

Criticism:

When the analysis falls down is here: simply because the trust takes effect outside of the testator’s will does not mean that the will is in fact in application. The wills act applies to all testamentary disposition. Therefore, it applies to every disposal of property on death. So even if the trust takes effect outside of the will, if the trust is to take effect on death, the wills act should apply. This justification for secret trusts on the basis that the trust operates outside of the will, only works if the trust is created inter vivos (trust created BEFORE death), so creation of trust is not a creation on death.

Question 83

Re Young, Re Gardner and dicta in Re Maddock.

Answer 83

The legatee takes the property under the will, but equity fastens a trust on his conscience. Supported by case law

Question 84

Re Gardner

Answer 84

a beneficiary predeceased a testator, the court in this case held that the trust was created from the moment of communication and acceptance. However, at the time, this cannot be right because the legatee did not have any property at that moment. There cannot be a completely constituted trust until the death of the testator because all testator has to do is change his mind and write a new. Therefore, secret trusts do apply on death and arguably the wills act should apply.

Question 85

What happens if it is argued that secret trusts are inter vivos trusts?

Answer 85

If the property is land, s53(1)(b) LPA ought to apply.

However, the mere fact that the trust takes effect outside the will does not mean that the Wills Act should not apply to it. This argument only works if there is the creation of a trust inter vivos. Surely the trust only arises on the testator’s death.

Question 86

Re Baillie

Answer 86

If there is an inter vivos trust s 53(1)(b) LPA 1925 applies if the property is land - Re Baillie accepted obiter that s53(1)(b) does apply.

But in Ottaway v Norman - An orally creation trust of land was held to be valid.

Question 87

Ottaway v Norman

Answer 87

If there is an inter vivos trust does s 53(1)(b) LPA 1925 apply if the property is land? Re Baillie (1886) Accepted obiter that s53(1)(b) does apply.

2 TLR 660; Ottaway v Norman [1972] Ch 69 - An orally creation trust of land was held to be valid.

Question 88

Overall, are there justifications for the secret trust?

Answer 88

Neither fraud nor trust operating outside of the will adequately explains the existence of trust and further issue like in Rouchefoucald which the courts endorse the express trust despite absence of writing or are they imposing a constructive trust. Not real help in the cases. If secret trusts are inter vivos trusts, the logic is that we are enforcing the express trust (this is probably not the case). Other than that, there are vague comments referring to secret trusts referring to imposition of a constructive trust: excerpt in Groan v Groan.

Question 89

Are there any formalities if a beneficiary has an interest under a trust, but they want to assign that equitable interest to someone else?

Answer 89

s53 LPA requires writing.

S53(1)(c) is not limited to land, but applies to SUBSISTING equitable interests, so not creating a beneficial interest but talking about the transfer of an equitable interest.

In combination of s53(1)(b) and para c, the disposition itself must be in writing, cannot provide the writing later. Beneficial interest will only pass if there is writing, not a matter of evidence now, either there is writing or the purported disposition is void.

An electronic document will be accepted. Can also have connected documents which provide you with disposition in writing. Signature by transferor or his agent.

Question 90

Lord Upjohn, Vandervell v IRC

Answer 90

“[T]he object of [section 53(1)(c)], as was the object of the old Statute of Frauds, is to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and making it difficult, if not impossible, for the trustees to ascertain who are in truth his beneficiaries.”

Argument is that you need a paper record to have evidence, to have in writing details of who the beneficiaries are so the trustees know who the beneficiaries are.

Question 91

Is Lord Upjohn’s explanation for s53(1)(c) in Vandervell v IRC satisfactor?

Answer 91

No because when we create a trust, it only has to be created in writing if it is of land. A trust of personal property can be breated by anything without in writing.

The explanation of s53(1)(c) is not satisfactory because when we create a trust it only has to be created in writing if it’s of land. A trust of personal property can be created by anything without in writing to tell the trustees who the beneficiaries are. Although s53(1)(c) requires the assignment/disposition of beneficial interest to be in writing, it does not require that the trustee be told of the transfer. So the comment by Lord Upjohn is more of desirable consequence rather than reason for writing.

Question 92

Where do the issues lie?

Answer 92

The relevant tax in these cases is stamp duty, this is on documents that transfer certain types of property. The rate of tax depends on the value of the interest which is transferred by the document. If you use a document to transfer the beneficial ownership of property, then stamp duty will be based on the value of that beneficial interest transferred: known as ad verlorum. If the document in question only passes legal title and not beneficial ownership their stamp duty is at a fixed rate (this was at 50p at time of cases). If you can transfer beneficial ownership without using the document, you do not have to pay ad verlorum stamp duty, this is even if you confirm the transfer later by a document because that confirmation will not actually pass ownership. These were cases of attempt transfer without separate documents or documents at all.

Question 93

Timpson’s Executors v Yerbury

Answer 93

Romer LJ,

The equitable interest of the trustee can be disposed of by the person entitled to it in favour of a third party in 4 ways:

1. person entitled can assign it to the third party directy
2. direct the trustees to hold the property in trust for the third party
3. contract for valuable consideration to assign the equitable interest to him
4. declare himself to be a trustee for him of such interest

Question 94

Does a direct assignment falls within s53(1)(c)?

Answer 94

Yes.

This is a disposition of a subsisting equitable interest so must be made in writing, or beneficial interest will not move.

Question 95

Grey v IRC [1960]

HOUSE OF LORDS DECISION.

Answer 95

Beneficiary gives oral direction to trustee to hold on trust for another.

Facts: H wanted to transfer shares to his grandchildren in a way to avoid s53(1)(c) and therefore stamp duty. There were 3 steps to his scheme:

1. Create 6 seperate trusts in favour of his grandchildren.
2. Transferred the shares to the trustees of these trsuts to hold as his nominee, i.e. on a bare trust (so only 50p stamp duty). So H is not transferring the equitable ointerest, only the legal interest to trustees to hold for H.
3. H orally directed the trustees to hold 1/6 of the shares for each of the six trusts. So direction to hold for the grandchildren rather than him.

5 weeks later, by confirmation of the oral direction, the trustees executed 6 declarations of trust which H, although not expressed to be a party, also executed. HL question: whether the oral direction was sufficient to transfer the beneficial interest in the shares from H to the grandchildren.

HL have “disposition its natural meaning and held it included a direction by a beneifcial owner whereby the beneficial interest vested in him becomes vested in others.

The beneficial interest which H had, was transferred to the children, so logically it was a disposition of a beneifcial interest. Therefore, that disposition of the oral direction was void. It required writing - only the written confirmation passed the beneficial interest and the law of stamp duty was possible.

Question 96

Vandervell v IRC [1967] 2 AC 291 House of lords decision.

Answer 96

(c) Beneficiary directs trustee to transfer legal title to someone also intended to acquire the equitable interest

Facts: V decided to endow a chair of pharmacology at the Royal college of Surgeans (RCS). His scheme was to avoid tax:

1. He would transfer some shares in Vandervell products (VP) to RCS and to declare dividends on those shares (these dividents were the amount he wanted to donate to to RCS (idea he would get shares back after dividend declared).
2. The transfer of the shares was to be subject to an option to repurchase the shares for £5,000 in favour of Vandervell Trustees (VT). VT was a company that included a trust for Vandervell’s children (VC).

He wanted to surtax on the dividents on the basis that he did not divest himself of all interests in the shares.

The revenue put forward two options:

1. the option was held on resulting trust for V
2. Equitable interest in the shares had not been transferred to RCS because of thr lack of writing complying with s53(1)c).

HL held:

1. the option was held on resulting trust for V as there had been no declaration of trust.
   
   1. When he said that an option should be granted to VT , he had not specified who they should hold the option on trust for
2. Section 53(1)(c) was inapplicable; the equitable ownership was transferred by the transfer; at the time of its creation V had not decided whether its beneficiaries should be his children or his employees. Therefore, he had not disposed of his whole beneficial interest in the shares and he was subject to surtax of shares by NPB to RCS and there was no need for a document signed by V complying with s 53(1)(c).

Question 97

How can Vandervell v IRC be correct?

I.e. how can a transfer by trustees be effective to transfer not only the legal interest which the trustees have, but also V’s equitable interest?

Answer 97

Narrow approproach:

Lord Upjohn:-

Provided there is an intention, the equitable interest passes with the legal interest.

“if the intention of the beneficial owner in directing the trustee to transfer the legal estate to X is that X should be the beneficial owner, I can see no reason for any further document or further words in the document assigning the legal estate also expressly transferring the beneficial interest”

If this is the intention, the transfer of the legal estate also transfers the beneficial interest.

Lord Donovan: Dealt with position HAD position of the bank been sole owner of property because if:when Mr. Vandervell, being competent to do so, instructed the bank to transfer the shares to the college, and made it abundantly clear that he wanted to pass, by means of that transfer, his own beneficial, or equitable, interest, plus the bank’s legal interest, he achieved the same result as if there had been no separation of the interests.

Complication:

There is a further complication when looking at the wording of Lord Upjohn’s judgment because Upjohn L refers “I can see no further document or any further words in this document” because in this case the transfer of shares was in writing (cannot transfer legal ownership without writing). When talking about land or shares, there will be a document transferring the legal title. But what if property in question is a chattel, whereby can transfer ownership simply by delivering it. Howe does this work because if Lord Upjohn saying sees no need for further document, that suggests you need A document. Whereas Lord Donovan just referred to a disposition passing the legal estate so is the effect of V that we require A document but not two documents? Or is it that as long as legal estate has passed by legal document or otherwise, the equitable interest will also pass.

Question 98

What is the wide approach of the court in Vandervell?

Answer 98

Lord Upjohn (with whom Lord Pearce agreed).

Lord Upjohn gave another reason for the result in that case. This is the perceived justification of s53(1)(c).

• The object of s53(1)(c) is to prevent hidden oral transactions in equitable interests, and making it difficult for the trustees to ascertain who are in truth the beneficiaries.

Because it is not a transaction hidden by a trustee because he is the sole beneficiary and he is telling the trustees what he wants to happen with the beneficial interest. Whether one take narrow or wider approach, this has a potential consequence for Grey because IF Lord Upjohns approach is the correct one, then Vandervell and Grey is inconsistent.

Question 99

Summary of Vandervell

Answer 99

No need for a separate document signed by Vandervell passing equitable interest. This was because:

1. Narrow approach where there is an intention to this effect, equitable interest moves with legal; interest with no need for separate documentation. Where no agreement between judges is whether you need A document or by whatever document passes for that property, the equitable interest passes with it.
2. WIDE APPRAOCH – LORD UJOHN- S53(1)(C) is to prevent hidden oral interests where trustees don’t know who interests are. This was a bare trust, beneficiary communicated with trustees so not within section 53(1)(c).

Question 100

What is the conflict between Vandervell and Grey?

Answer 100

Grey = settlor transferred shares to trustees on nomination for him and he gave an instruction to the trustees that they should no longer hold on trust for him but on trust for his grandchildren. HL held: there did need to be writing complying with s53(1)© reality of situation was there was a disposition from hunter to grandchildren. Two reasons given by Vandevell and how they effect this:

Narrow approach – this is still correct, Vandervell does not effect Grey because on this analysis, on what is the perceived view of the facts in Grey, the legal interest is not moved, the trustees remain trustees throughout, hunter gains an interest - that equitable interest should move. No movement of legal interest, no document moving legal interest so narrow approach does not affect Grey.

Wider approach – if you have a bare trust, which we have here (trustees held as nominees for Hunter) and the sole beneficiary communicates with the trustees (so no hidden oral transaction for beneficial interest), then s53(1)(c) does not apply. This wider approach would seem that Grey would have been decided differently because there was no hidden oral transaction. Potential inconsistency between Vandervell and Grey.

Question 101

What authority govers the situation where the beneficiary directs the trustee to transfer legal title to other trustees to hold on different trusts?

Answer 101

This does not fall within Vandervell and Grey:

Vandervell: in this case we do not transfer the legal and beneficial interest to the same person.

Grey: we do have a change in trustees so we are passing the legal title.

Facts of Grey: There was a direction to trustees who held on trust for H to hold for other beneficiaries instead. Looking closely, there was a direction to the trustees holing as trustees of a bare trust in favour of H and a direction to them. Although it was the same trustees, they were trustees of two different trusts - the same people were in charge of the bare trust, but they held it in the different trustees.

Grey might be authourity for this situation.

Vandervell could be distinguished because in this case, the legal and equitable interest was transferred to the same person = RCS so we could take a narrow approach to Vandervell and say it is limited to the situation where the equitable interest goes with the legal interest.

On the other hand, we can distinguish Grey because in Grey, the instruction only related to the equitable interest and so we can say this is different where the legal and equitable interest are dealt with together .

We do not know the law here where there is an instruction to trustees to transfer to new trustees to hold on trust for beneficiaries - it could be Grey or Vandervell.

Question 102

What happens where there is an extinction of interest under a resulting trust?

Answer 102

Situation where a beneficiary under resulting trust either persuades or instructs the trustees to hold on trust for someone else.

Original case of Vandervell (NO1) – shares transferred to RCS as long as they granted option to child of trustees giving right to purchase the shares again. HL in Vandervell held: this option was held by vandervell trustees on trust for Vandervell himself because he had not decided who beneficiaries would be so there was a resulting trust. V directed the V trustees to exercise the option.

Re Vandervell’s Trust (No 2) CA

Question 103

Re Vandervell’s Trusts (No 2)

COURT OF APPEAL DECISION

Answer 103

Facts: V directed the VT to exercise the option (which was held on resulting trust for him), which they did by using £5,000 from the fund held on trust for VC. It was the intention of V and VT that the shares be held on trust for VS; the use of the money from the VC trust would have otherwise have been a breach of trust; the intention was made clear in a letter to the Revenue one week after the exercise of the option. Four years later, V executed a deed by which he formally assigned to VT any interest that he might have retained in the option/ shares. The case concerned a dispute between V’s executors and VT as to the beneficial ownership of the shares (and the dividends declared on them) during that four year period and whether the beneficial interest in the shares could pass to VC without complying with s 53(1)(c).

Held: This was a resulting trust because V had not decided who the trust was for, rather than holding the option, the trustees held shares and claimed that it was held on trust for the children because this was the intention of V. Held: the shares were held on trust for the children. S53(1)(c) was not applicable.

CA held: there was not a disposition of a SUBSISTING beneficial interest, instead there was a declaration of trust by trustees in favour of children and for declaration of trust, the only situation where you need writing is where the trust is of land and as this was a trust of shares, the declaration could be oral.

Denning: held judgment on basis of a resulting trust. “A resulting trust comes into existence whereever there is a gap in the beneficial ownership. It ceases to exist whenever that gap is filled.

Was Denning right?

Is his view of the nature of a resulting trust correct? Originally there was a trust in favour of option for V, V’s interest was found via a resulting trust not express trust but surely, once that trust was created, V had a subsisting equitable interest. The interest he had under a resulting trust was exactly the same interest which he would have had under an express trust. A resulting trust is merely to do with how the equitable interest is created, not what it is when it is created.

Difficult to accept that that interest dies.

Question 104

Lawton’s views in Vandervell (No 2)

Answer 104

Lawton:

Relied on the fact that there were two different assets:

1. Option
2. Shares

From his judgement it was the change of property which was crucial. His views were that V never acquired a beneficial interest in the shares because of the fact the shares were brought with children’s money with V’s consent. His judgment does not rely on resulting trust being created and dying, without needing writing, unlike Denning.

The law arguably is completely wrong in the case. However, on its merits, the case is arguably justifiable. It was a case of accidental noncompliance with s53(1)(c). It was not a case of tax avoidance but him wishing to transfer his shares to children during lifetime, he just failed to do so or might have failed to do hold had Denning or Lawton not held in his favour. Just V not thinking it through because the option should have originally been held for the children. V SHOULD have made the decision when granted that it was to be held on trust for children, this could have been done orally. He failed to remedy the situation later and had it not been for decision of CA he would have failed. CA decided on the merits not arguably the law. But this is now the law.

LJ Lawton; crucial there was a change in the property. What if no change in property? Here: view of Lawton becomes irrelevant.

Question 105

What if there had been no change in property in Vandervell (NO 2)?

Answer 105

Repercussions of denning: if the extinction of the interest under resulting trust with no change of property, so trustee holds on trust for beneficiary under resulting trust and the intention is that the resulting trust comes to an end and there is a new beneficiary. This is very similar to Grey, same trustee, change in beneficiary, all that moves is the equitable interest. So if we compare this situation with Grey, In Grey, the beneficiary directed trustee to hold on trust for new beneficiary. This twist on facts of V, there was an agreement between beneficiary and trustee to hold on new trust. So far, very comparable. But analysis different because V held: this agreement between trustee and beneficiary amounted to a new declaration of trust. Arguably there is no real distinction between two situations, only distinction in Grey is that it is held under an express trust and in V it was held under a resulting trust.

According to Grey, where there is an express trust and wanted to transfer, you need it in wiring under s53(1)(c). But according to Denning, and there is a resulting trust, you do not need it in writing because there is a declaration of trust. In Lord Denning correct, Mr grey could have had what he wanted if he had transferred shares to trustees, without specifying himself as beneficiary there would have been a resulting trust so what he did would have been effective without writing. This idea that this is wrong.: resulting trust should not be different from express trust because this should not have such a difference!!

Question 106

Declarations of trust of an equitable interest

Answer 106

1. Declaration of trust of an equitable interest

Rather than assigning the beneficial interest to someone else, the beneficiary says that he will hold that beneficial interest on trust for another. On face of it, this creates a sub trust, so beneficiary will still have sub interest, he will not have disposed of it, he creates another equitable interest in favour of sub interest but this is a declaration of trust.

He only need writing if property is of land, but on the face of it, there is no disposition of a subsisting interest because the beneficiary still have subsisting interest even though he holds it on trust. Case law, not sure of answer. In past it was argued that: if the beneficiary holds on a bare trust for beneficiary of sub trust, so there is one beneficiary of the sub trust, no active duties of sub trust, it is a bare trust, argument that beneficiary effectively drops out of the picture – he has no duties, he just disappears.

Therefore, argument is : that because B has no role, trustee now holds trust on benefit of sub trust so there has been a disposition for the purposes of s53(1)(c): authority: Re Lasmar + Grainge v Wilberforce. More recent authority suggests (not binding) that B will never drop out of the picture: Nelson v Greening & Sykes.

Question 107

Re Lasmar + Grainge v Wilberforce.

Answer 107

1. Declaration of trust of an equitable interest

because B has no role, trustee now holds trust on benefit of sub trust so there has been a disposition for the purposes of s53(1)(c): authority.

More recent authority suggests (not binding) that B will never drop out of the picture: Nelson v Greening & Sykes.

Question 108

Nelson v Greening & Sykes.

Answer 108

1. Declaration of trust of an equitable interest

More recent authority suggests (not binding) that B will never drop out of the picture:

Question 109

Lawrence Collins LJ, Nelson v Greening & Sykes

CA

Answer 109

Collins -

As matter of law, even where B has no role he does not drop out of picture, T could choose to deal with B, but he still remains in his role, in any case, the argument that a trustee can always refuse to deal with B of sub trust because he could be liable for inter meddling with a trust. None of the authorities are binding, but the present view favours B not dropping out of the picture and that it should not matter that B has no role to play or active duties, in theory he still remains.

Question 110

What is a Specifically enforceable contract to transfer?

Answer 110

A specifically enforceable contract to transfer property creates a constructive trust in favour of the purchaser by application of the maxim “equity looks upon as done that which ought to be done”.

How does this relate to s53(1)(C)?

We have an equitable interest under trust, B contracts to sell the equitable interest to purchaser which creates a constructive trust which means that the B who is the seller of the equitable interest holds that equitable interest on constructive trust on behalf of purchaser.

Question 111

Oughtred v IRC [1960] AC 206 HOUSE OF LORDS DECISION.

Answer 111

Facts: Under a settlement, shares in a company were held by trustees on trust for O for life with remainder to her son, P. By oral agreement between O and P, it was agreed that P would exchange his interest under the settlement for other shares in the company owned by O absolutely. The aim was to transfer the equitable interest from P to O by a constructive trust to avoid stampt duty. A constructive trust arises automatically so do not need documentation so do not need to pay stamp duty.

Hl Held: the document was subject to stamp duty irrespective of any constructive trust and of whether the beneficial interest had already passed pursuant to the oral agreement.

Question 112

Reasoning in Oughtred v IRC

HL

Answer 112

Lord Radcliffe

Decision – IRRESPECTIVE of beneficial interest had already pass, stamp duty applied. Both Upjohn at first instance and Radcliff at HL commented on the situation and took the view that the situation in s53(2) which is “this section has no effect…”, therefore, the purchaser of the shares became the effective owner of the shares, even if there was no writing.

Rather than an outright disposition to P, which needs to comply with s53(1)(C), they can instead enter into contract to transfer which by means of imposition of constructive trust, gives beneficial interest to purchaser without need of writing. This was accepted by CA in Neville v Wilson.

Question 113

Neville v Wilson

CA

Answer 113

Agreement during the informal litigation of a company which included an agreement that an equitable agreement in shares were to be distributed to share holders of the company in liquidation. Question: if there had been an agreement to transfer equitable interest.

Facts:

Shares in U Ltd were held on a bare trust for J Ltd. J Ltd was dissolved. It was alleged that there had been an agreement between the shareholders of J Ltd for the informal liquidation of the company, whereby its debts and liabilities were discharged and the balance of its assets, including its equitable interest in the shares in U Ltd, were distributed to its shareholders. The question arose whether, if there had been such an agreement, section 53(1)(c) operated to render the agreement ineffective for lack of writing.

Nourse LJ: Refered to Oughtred.

what subsection (2) says is that subsection (1)(c) does not affect the creation or operation of implied or constructive trusts. Just as in Oughtred v IRC the son’s oral agreement created a constructive trust in favour of the mother, so here each shareholder’s oral or implied agreement created an implied or constructive trust in favour of the other shareholders. Subsection (2) should still apply.

The CA agreed where there is a contract to assign the beneficial interest that is a purchaser beneficial ownership of constructive trust. In Oughtred, this was deliberately done, deliberate noncompliance with statutory provision to get around need for writing. The ultimate outcome was in Grey, also deliberate non-compliance. Deliberate outcome was to pass beneficial ownership without using writing. Grey looked at the reality of the situation, in reality there was a disposition of subsisting equitable interest so there had to be writing. Comment in Oughtred, was applied in Neville - they didn’t bother to look at reality of situation, looked at the scheme and the difference was that they could identify the creation of a constructive trust which therefore fell with s52(2).

Of limited applicability: requires a valid contract (see section 2, Law of Property (Miscellaneous Provisions) Act 1989 for land) which is specifically enforceable.

So for valid contract, there must be consideration, and also if this is a contract relating to land or an interest in land, the contract has to be in writing because s2.LPA Misc. Moreover, since the contract has to be specifically enforcement, it will only apply to certain types of property – property that is unique. Therefore, the courts will award specific performances rather than damages. Land is unique, but not going to work for land because contract has to be in writing. Going to be limited to such assets as shares in a private company.

Question 114

What are the problems with allowing exceptions?

Answer 114

• Some cases are inconsistent.
  
  • Some cases we don’t know how far the ratio extends.
  • Some cases are difficult to justify on theoretical basis.
    
    • We struggle to find a justification to cover ALL secret trusts.
• There is difficulty in accepting lord Denning’s judgment in Vandervell (no2). Difficulty in accepting the HL decision in Vandervell v ICR.
• The Formality requirements are sometimes disadvantageous as there may be no doubt as to the intention of the settlor, intention of the assignor.
  
  • Strict enforcement of formality requirements means effect may not be given to that intention and means in Bannister (secret trusts cases) may allow someone to go back on their word, back on promises to give rights to a third party, can say “but I am not bound because it is not in writing”.

Question 115

Are some exceptions okay?

Answer 115

• One of the main aims of formality requirements is to provide evidence of intention or give time to settlor to think seriously before committing himself then if we are absolutely sure what the settlor intended, if he had time to change his mind if he wants to, if we don think he needs protection, then maybe we should hold him to his word.

But if you allow to many exceptions, the main rule becomes almost irrelevant. One suggestion has been put forward: we should draw a distinction between accidental non-compliance and deliberate non-compliance. Accidental non-compliance with formality requirements maybe shouldn’t be fatal. But deliberate non-compliance should not be effective. Accidental non-compliance is rare, for example if will needs to be in writing, signed by witnesses. Large proportion of public will know that, and most people will get legal advice

Question 117

What is the difference between s52(1)(b) and (c)?

Answer 117

Unlike s53(1)(b), where the effect of a lack of written evidence is merely to render an oral declaration of trust of land unenforcable, a failure to comply with s53(1)(C) renders the purported disposition void (Grey v IRC)

Question 118

Problem with the dehors theory

Answer 118

Constitution: because trust is declared while testator is still alive, but is constituted following his death, equity allows the trust to bind property added to the estate in this period. This contravenes the rule in Re Ellenborough against declaring an immediate trust of future property.