Case Summaries

Question 1

Paul v Constance [1977] 1 WLR 527 (CA)

Answer 1

Facts: A bank account was set up by the deceased (A) in his sole name to hold accident compensation. It was also used for joint-bingo winning. The deceased always told his partner (B) it was a shared account and money withdrawn from it had been shared.

Issue: Did A hold the account on trust for himself and B

Held: Yes - under an express trust.

Reasoning: Despite the casual nature of the verbal assurances there was clear evidence from what was said and done - using it to deposit joint winning showed sufficient intention to create a trust.

• Can be distinguished from Jones v Lock by: (i) several statements as opposed to one; (ii) made over a period of time; (iii) backed up by conduct which was also over a period of time; (iv) not concerned with an imperfect gift.
• N.b: So held despite noting the difficulties in ascertaining the exact time the trust had arisen.

ANALYSIS

In Stack v Dowden type cases the courts are willing to find that assurances and conduct over a long time give rise to constructive trusts; and there is an argument that cases like Paul v Constance and Rowe v Prance are better characterised as trust of this type. It avoid the difficulties of treating informal assurances of declaration by which the settlor intended to be bound.

Question 2

Lambe v Eames (1871) 6 Ch App 597

Answer 2

Facts: A testator left his estate to his widow “to be at her disposal in any way she may think best, for the benefit of herself and family”

Held: No trust.

Reasoning: “… it is impossible in this case to say that there was a trust. The testator clearly intended her to deal with the property as she pleased”.

(Trusts can be distinguished from mere powers through the use of imperative words that convey more than a mere wish.)

Question 3

Singha v Heer [2016] EWCA Civ 424

Answer 3

Key point: An arrangement described as a ‘trust’ which is in substance a charge will be treated like a charge:

Facts: A provided B a loan to buy a house, and B gave A an interest over the house to secure repayment of the loan. In correspondence between A and B, B had referred to himself as holding the house ‘on trust’ for A.

Held: A had a charge, not a beneficial interest under a trust.

- Compare with Pearson v Lehman where the Court ignored the substance of the agreement (the agreement was in substance/function a charge since A had free use of the security assets) and looked instead to the parties expectations. [N.b. Rob Stevens criticism of Briggs J at first instance who looked to expectation rather than substance]

Question 4

JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch)

Answer 4

Facts: A set up a trust, transferring property to B to hold on discretionary trusts for listed potential beneficiaries. These included A. The ‘trust deed’ provided that A was also a ‘protector’ with extensive powers to veto trustee decision, sell trust porperty add/removes trustees etc.

Held: No intention to declare a discretionary trust. The trust was ‘illusory’. A retained beneficial ownership of trust assets.

Reasoning: Given the powers A accorded himself there is no evidence that he intended to part with free use of the trust assets. (Birss J)

Question 5

Re Kayford [1975] 1 WLR 279​

Answer 5

Principle of segregation (Megarry J):

• If a settlor segregates what is alleged to be trust property from his general property that can be evidence that he intends to part with free use of that property.
• No need to use the words ‘Trust’.

Question 6

Jones v Lock (1865) 1 Ch App 25

Answer 6

Facts: Father who had informally declared a cheque in favour of his baby son, but had not signed the cheque,

Held:No trust

Reasoning

(1) Father had not evidenced an adequate intention to create trust because of the casual/theatrical nature of the assurnace

(2) The Father had therfore intended a gift, and equity will not perfect an imperfect gift (the Father had not done all that was necessary to transfer legal title because he had not signed the cheque (see Re Rose)).

Question 7

Rowe v Prance [1999] 2 FLR 787

Answer 7

Facts: A and B were in a relationship. A asked B to live on his yacht with him and referred to it as ‘ours’ on a few occasions.

Held: A “had effectively constituted himself an express trustee of the boat”.

Question 8

Re Adams and the Kensington Vestry (1884) CA

Answer 8

Key Point: If A transfers property to B, and states that he ‘wishes’ or ‘hopes’ that B will use the property in a certain way, (without more) that will not be construed as intending to create a trust:

Facts: A testator left his estate to his widow “in full confidence that she would do what was right as to the disposal thereof between his children”. He also said he “trusted” her to do what was right as between his children.

Held: No trust.

Reasoning: A mere wish or desire is not clear or certain enough. Court won’t find a trust on the basis of merely a moral obligation.

Question 9

Re Osoba [1979] (CA)

Answer 9

Facts: A testator, in paragraph 3 of his will, left rents from certain properties for the “maintenance” of his wife “and for the training of [his] daughter up to university grade and for the maintenance of [his] aged mother provided [his] wife is resident in Nigeria”. In a separate paragraph he provided that the residue of his estate was settled on his wife “upon trust to be used as in paragraph 3 above”.

Issue: Did the wife hold the property on trust for herself and her daughter.

Held: No trust.

Reasoning: All the testator had done was explain his reasoning for giving the money – not imposing an obligation. Freedom of use was not restricted. “maintenance and education” was construed as too wide a purpose to demonstrate such intention to limit free-use.

Question 10

T Choithram International SA v Pagarani [2001] 1 WLR 1 (PC)

Answer 10

Key point: There is an exception to the ‘imperfect gift’ rule in cases where a settlor intends to make a gift to a body of trustees of whom he is one.

Facts: A set up a charitable trust (“the foundation”) and was one of its trustees. He made an oral “gift” to the foundation, stating “I give to the foundation” company shares and deposit balances, the title to which was vested in him alone. At the time of his death, the title was not vested in all the trustees

Held: A held the property on trust. A was one of the trustees of the intended transferee, and so it would have been unconscionable for him not to complete the transfer. For that reason, A was treated as having intended an express declaration of trust rather than a gift.

Reasoning: A was already a trustee and owed duties, therfore unlike in typical gift cases, finding that trust had arisen did not involve imposing duties onto the transferor that he had not already agreed to undertake.

Question 11

Re Schebsman [1944] Ch 83

Answer 11

Facts: A entered into a contract with B, which provided that B should pay C.

Issue: Did A hold its contractual rights on trust for C?

Held: No trust.

Question 12

Knight v Knight (1840) 3 Beav. 148

Answer 12

Classic formulation of the three certainties

Question 13

Re Ellenborough [1903] 1 Ch 697

Answer 13

Key point: You cannot declare a trust over property you do not yet have

Facts: A purported to declare a trust over any property she might receive under B’s will. Later, B died, and left property to A.

Issue: By virtue of the declaration, did A hold the property on trust?

Held: No trust.

Reasoning:

• Declaration failed because A could not declare that she held rights on trust that she did not yet have, an dos there was no certain subject matter.
• The declaration was not made retrospectively valid by the fact that A had received property under B’s will later, after teh time the declaration had been made.

Question 14

Wilkinson v North [2018] EWCA Civ 161

Answer 14

you can declare at trust over property which it exists and its [later] substitutes, such as over the assets of a trading business:

• The original assets of the business are settled on trust, and the beneficiaries acquire rights in those assets. If the original assets are later traded for new assets, the beneficiaries can claim the substitutes of the old.
• There is always identifiable property held on trust – thus differentiating the case from the Re. Ellenborough type case where at the time of the purported declaration there is no identifiable property/rights that can be held on trust.

Question 15

Palmer v Simmonds (1854) 2 Drew 221

Answer 15

Key point: No trust over an unspecified part of a person’s estate

Facts: A in his will left his residuary estate to B “for his own use and benefit, as I have full confidence in him, that if he should die without lawful issue he will … leave the bulk of my said residuary estate unto certain persons”.

Issue: Did B hold the ‘bulk’ of the estate on trust?

Held: No trust—‘bulk’ too uncertain.

Reasoning: The court could not determine which assets in the residuary estate were part of the ‘bulk’ that was to be held on trust.

Question 16

Re London Wine Company (Shippers) Ltd. [1986] P.C.C. 121.

Answer 16

Facts: A wine seller had accepted payment for bottles of wine from various customers. The customers had been given certificates assuring them they were owners of the wine they had paid for. They had also been charged for storage and insurance of bottles in the seller’s warehouse. No particular bottles had been allocated to the customers. The wine seller became insolvent.

Issues: Could the customers argue that the wine was held on trust for them?

• They wanted to show there was a trust so that they could claim the wine in priority over the Wine Company creditors.

Held: No trust

Reasoning: Without an appropriate of particular bottle of wine, there could be no sufficiently certain subject matter for a trust to arise.

“I appreciate the point taken that the subject-matter is part of a homogeneous mass so that specific identity is of as little importance as it is, for instance, in the case of money. Nevertheless, as it seems to me, to create a trust it must be possible to ascertain with certainty not only what the interest of the beneficiary is to be but to what property it is to attach.”

• Re London Wine Company (Shippers) Ltd.* [1986] P.C.C. 121, 137, per Oliver J
• *Analysis:**

This rule requiring specific appropriation of assets forming part of a bulk only applies to tangible (or non-fungible (?)) property.)

Question 17

Hunter v Moss [1994] 1 W.L.R. 452

Answer 17

Facts: A was registered holder of 950 shares in a company which had 1000 shares. He said he would hold 5% of the company’s total shares (i.e. 50 shares) on trust for B.

Held: There was a valid trust with a certain subject matter.

“Just as a person can give, by will, a specified number of his shares of a certain class in a certain company, so equally, in my judgment, he can declare himself trustee of 50 of his ordinary shares … that is effective to give a beneficial proprietary interest to the beneficiary under the trust.” (at 459, per Dillon LJ)

Distinguished from Re London Wine Co because:

1. It concerned when a beneficial interest passed under a contract of sale, not a declaration of trust.
2. It concerned chattels not intangibles. Intangibles of the same type are identical, whereas tangibles of the same type are not.

e.g. bottles of wine, even if of the same type/vineyard can be different (i.e. some might be corked). Hence why in order to have a trust over bottles of wine, you need to be able to specify which bottles are held on trust. However shares, if are of the same, type, are identical. Thus it didn’t matter which of the shares were held on trust.

The decision in Hunter was reluctantly applied by Neuberger J in Re Harvard Securities Ltd. [1997] 2 B.C.L.C. 369.

• N.b. Neuberger decision turned solely on the distinction between in/tangible (point 2) – not on the basis of point 1.

Question 18

Pearson v Lehman Brothers [2011] EWCA Civ 1544

Answer 18

Facts: A and B entered into a securities ‘swap’. Under this agreement, B gave securities (tradeable financial assets) to A. The agreement provided the following:

• After B gave securities to A, A could do whatever it wanted with them;
• A’s only obligation was to pay B back at a future date, by giving B securities of the same number and type that B had given to A.
• Before that date, A had no obligations to B in respect of the securities. A might at any given time hold no securities at all, but have personal rights against third parties allowing it to claim securities it might need to satisfy B’s demands.

On the facts, A made no appropriation of any securities or personal rights to meet the demands of B. A held a number of securities at the time it became insolvent.

Issue: Did A hold anything on trust for B? Was there sufficiently certain subject matter?

Held: Yes. There was certain subject-matter.

The trust fund compromised (i) the securities A held at any given time and (ii) A’s personal rights to claim securities from third parties.

There was certain subject-matter because A’s duties to account to B could always be identified.

• The fact that A’s duties could be identified was sufficient, notwithstanding the fact that no specific rights could be identified as being held on trust at a particular time.
• Court was also influenced by A and B;s expectations that B had retained a beneficial interest in the securities, and so did not risk losing them in the case of A’s insolvency.

The more flexible duty-based approach allowed the court to give effect to A and B’s expectations. A and B had understood that A did hold the securities on trust for B. B needed the trust to exist in order to meet regulatory requirements.

Analysis/Critcisim by Rob Stevens

1. No certain subject matter
2. No certain intention to declare a trust

Question 19

Re Barlow’s Will Trusts [1979] 1 W.L.R. 278.

Answer 19

Facts: a testator provided that each of her “old friends” was to have the option to purchase a painting from her estate.

Held: “Old friends” was sufficiently certain for the option to take effect.

“[E]ach person coming forward to exercise the option has to prove that he is a friend; it is not legally necessary, in my judgment, to discover who all the friends are. In order to decide whether an individual is entitled to purchase, all that is required is that the executors should be able to say of that individual whether he has proved that he is a friend. The word ‘friend’, therefore, is a description or qualification of the option holder.”

Re Barlow’s Will Trusts [1979] 1 W.L.R. 278, 282 per Browne Wilkinson J

NOTE

*** Re Barlow did not concern a trust, executors were simply told to allow ‘old friends’ to buy paintings, and the direction was said to be certain enough to given effect to.

It was a gift of an option in a will not a trust.

You will be penalised in the exam if you say that there was a trust in Re Barlow.

However, the rule in Re Barlow could save a real trust: “All my paintings to my trustees, who have a duty to sell the paintings to any of my old friends that wish to buy one”. ***

Question 20

Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 (Ch D)

Answer 20

Key point: Although the general rule is that because a trustee has no duty to exercise a mere power, teh court will not compel its exercise, an ‘exception’ is that the court will sometimes compel the exercise of emre powers which are ‘fully fidcuiary’.

Facts: A was a manufacturer and employer. Its employees’ pension fund was held on trust by B. The pension fund had more than enough money to pay its liabilities (i.e. the agreed pensions), and so had a surplus. The question was who should get the surplus, the employer (A) or the employee. A term of the trust provided that B had a mere power to appoint any surplus in favour of the pensioners, otherwise the surplus would go to A.

A became insolvent. Its liquidators argued that B could not be made to exercise the power, so the surplus from the pension fund would be paid to A’s creditors. If B exercised the mere power, the surplus would instead go to the pensioners/employees.

Held: The court compelled the exercise of the mere power, which Warner J described as “fiduciary in the full sense”. In the context of A’s dissolution at least, the power imposed a duty.

Warner J’s reasons:

1. The power would have been meaningless if the court could not compel its exercise. A as beneficial owner of the surplus by default could have paid it over to the pensioners even without being expressly conferred a power to that effect. As a matter of construction therefore, the ‘power’ included in the trust fund imposed a duty, even if its wording made it look like a ‘mere power’.
2. The pensioners were seen as having given value (i.e. their pensions contributions) not only for the benefits they contracted for under the pension scheme, but for a share of any surplus. It was therefore right that they should get the surplus.

Analysis

Simon Gardner (1991) 107 LQR 214.

• The concerns were policy based.
• Only reason Warner J held there was a power was a policy decision between creditors and former-employees. If the conflict had been between a predator and the employees, he may have chosen differently.

Question 21

Re Manisty’s Settlement [1974] Ch. 17

Answer 21

Facts: Trustees who were given a power to appoint beneficiaries from a class, were also given the power “at their absolute discretion to declare that any person, corporation or charity [other than themselves and certain other specified parties] be included in the class of [potential] beneficiaries”.

Held: The power was valid.

• It is possible, in effect, to create a trust for ‘close friends’, by creating a discretionary trust for a small certain class, under which the trustees have a power to add to the class – and including a “letter of wishes” where you say only to add people to the class who are your close friends.

Question 22

Burrough v Philcox (1840) 5 Mylne & Craig 72, 41 ER 299

Answer 22

Facts: A testator had two children. In his will he provided that, should he have no grandchildren, that the survivor of his children should have powers to dispose, by will, of his real and personal estate, “Amongst my nephews and nieces, or their children, either all to one of them or to as many of them as my surviving child shall think proper”.

Issue: What was the effect of this disposition?

Held: There were two dispositions. There was a fixed disposition in favour of the nephews and nieces, but their interests were subject to a mere power of the testator’s longest-lived child to vary the shares.

The same principle would apply to a disposition along the following lines:

A transfers £1m to B and provides that (i) B will hold the money on trust for A’s children in equal shares, (ii) B has a mere power to vary the shares.

In an exam context you need to check the validity of both parts of the disposition.

There is both a fixed trust here and a mere power, and you must check that both have sufficiently certain objects using the appropriate tests. (list test for fixed disposition, “is or is not” for mere power)

Question 23

Re Tuck [1978] Ch 49

Answer 23

N.b These are not cases about certainty of object. They are about the certainty of a condition in the trust deed.

However, the reasoning Re Tuck suggests that uncertainty more broadly, including certainty of object, could be cured by reference to a third party in the trust deed but—again—each judge reasoned differently:

Facts: A provided that B was to receive an income if he should be of Jewish faith and married and living with a wife “of Jewish blood by one or both of her parents and who has been brought up in and has never departed from and at the date of her marriage continues to worship according to the Jewish faith as to which facts in case of dispute or doubt the decision of the Chief Rabbi of London of either the Portuguese or Anglo German Community…shall be conclusive”.

Held: The clause was certain enough.

Lord Denning MR: “I see no reason why a testator or settlor should not provide that any dispute or doubt should be resolved by his executors or trustees, or even by a third person”.

• Analogised with Common law where such a reference is possible to resolve certainty.

Lord Russell: Declined to rule on whether a reference to third parties would solve all ambiguities, or whether the court might rule that the class was too uncertain for the third party.

Eveleigh LJ: The settlor had incorporated the third party’s definition of the class, (The settlor “is in effect saying that his definition of “Jewish faith” is the same as the Chief Rabbi’s definition”)

On the majority view, if applied to certainty of objects case by analogy, the clause in the example above (“£1000 to my trustees to be distributed amongst my close friends. Any doubt as to who is a ‘close friend’ is to be resolved by asking my childhood friend, Harry Smith”.) would be sufficiently certain.

However remember that the reasoning in Re Tuck is only dicta in so far as they relate to certainty of object.

Question 24

Re Ralli’s Will Trust [1964] Ch 288

Answer 24

Key point: So long as B acquires legal title, the trust will be constituted, whether or not A transfers it to B in the way promised.

Question 25

Formalities for transferring legal title from A to B

Answer 25

These depend on the type of property being transferred:

• Transferring legal title to goods for no consideration requires intention to give and delivery or a deed;
• Transferring legal freehold title to registered land requires a deed and registration, (LPA 1925, s 52, LRA 2002, s 27);
• Transferring legal title to company shares: typically requires handing the transferee a filled-out share transfer form and registration, (but depends on the company’s articles, for more details see Stock Transfer Act 1963, s 1 and Sch 1; Companies Act 2006, ss 544, 770, 771).

The general rule is that whatever the type of property, A must have completed the appropriate formalities in order for B to acquire legal title. And if B is to hold that legal title on trust, the trust won’t be constituted until B has received that title.

***N.B. The formality requirements for the transfer of legal title to B are not the same as the formalities required to give C an equitable title under the trust.***

Question 26

Fuller’s 3 functions of formalities

Answer 26

1. Evidentiary
2. Cautionary
3. Chanelling

Question 27

LPA 1925 s.53(1)(b)

Answer 27

(b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;

Question 28

Ong v Ping [2017] EWCA Civ 2069

Answer 28

Key point: Section 53(1)(b) provides that the trust needs to be ‘manifested and proved’ by some writing. (By contrast s.52(1)(a)/(c) require that signed writing is need to create or dispose of an interest in land). The writing does not need to purport to create the trust itself, i.e. to amount to a declaration. Evidence of the creation of the trust(i.e. with regards its subject matter) can be extrinsic to the trust deed.

Facts: A intended to declare a trust over a house but signed a badly drafted settlement which did not include the house. She had signed two letters which showed she acknowledged that the house was held on trust, though they did not purport to create a trust.

Held: That these letters satisfied s.53(1)(b).

Question 29

Rochefoucauld v Boustead [1897] 1 Ch. 196

Answer 29

Background: Although teh case predates s.53(1)(b) it concerned the equivalent provision in thE Statute of Frauds. S.7 held that ‘declarations of trust of land shall be manifested and proved by some writing signed by the party who is by law enabled to declare such trust, or by his last will in writing or else they shall be utterly void and of null effect.’

Facts: B agreed to purchase land on A’s behalf, and to hold it on trust for A. The arrangement was not put in writing. B purchased the land and argued he did not hold it on trust, as the trust was never evidenced in writing. A sued for breach of trust.

Issue: Could A enforce thE trust against B despite the lack of writing.

Held: B held on trust for A.

We are by no means satisfied that the letters signed by the defendant do not contain enough to satisfy the Statute of Frauds. Whether this is so or not, the other evidence is admissible in order to prevent the statute from being used in order to commit a fraud; and such other evidence proves the plaintiff’s case completely.”

at 207 per Lindley LJ

Lindley LJ’s reasoning

• On the facts that may well have been enough written to satisfy the formality requirements, but even if there was not…
• B was effectively estopped from pleading that the trust was void due to lack of formality.
• B had agreed to hold the property on express trust for A, see Bill Swadling, ‘The Nature of the Trust in Rochefoucauld v Boustead in C Mitchell (ed), Constructive and Resulting Trusts (Hart 2009).
• Because of this agreement, when A sued B for breach of trust, B was not allowed to go back on his word and argue that the trust was unenforceable because it was not in writing, as required by statute.
• By implication, if C (a third party Creditor of B) had sued B—e.g. seeking to levy judgment against the land in satisfaction of a debt B owed C—C could have argued that the trust was unenforceable due to lack of writing.
• Whereas B was estopped form making such an argument because of his agreement to hold the property on trust. A TP who had made no such representation would not be estopped from contending that the trust was void due to failure to comply with the statutory formality requirements.

Televantos Conclusion

The court did treat the trust as an express trust. But all Linley LJ said was that it was enforceable against B. The reasoning did not go so far as to suggest it would be enforceable against a third party.

Question 30

Law of Property Act 1925, s 53(2)

Answer 30

“This section [s.53] does not affect the creation or operation of resulting, implied or constructive trusts.”

Question 31

Hodgson v Marks [1971] 1 Ch 933

Answer 31

Key point: If A purports to create an express trust of land, which is not evidenced in writing, a resulting or constructive trust can nevertheless arise.

Facts: A gratuitously gave legal title to land to B to hold on trust for A. It was not clear that the trust was evidenced in signed writing. Later, B sold the title to C.

Issue: Did B hold on trust for A before the sale? Meaning that C took the property subject to A’s equitable interest.

Held: B had held on resulting trust for A, despite the absence of signed writing.

Reasoning: Because A had transferred the land to B for no consideration, the court would presume that A had intended B to hold the land on trust unless B could rebut this presumption by showing that A intended to make an absolute gift – however on the facts there was no such evidence.

• Note that Rochefoucauld this Resulting Trust reasoning did not apply, on teh facts of that case B was buying property on A’s behalf and thus there could have been no interest to result back to A. In this instance C had not agreed to hold the property on trust for A, and was not estopped from denying the lack of writing.
• Whenever you have a case where A gives property to B to be held on trust. Then in the absence of signed writing B will hold on resulting trust for A, proving A can evidence an intention to declare an express trust, and not to make an absolute gift.

Question 32

Bannister v Bannister [1948] 2 All E.R. 133

Answer 32

Facts: A sold land to B, on the basis that A could remain in occupation of part of the property rent free for life. The promise was not proved by signed writing. Did B hold on trust for A?

Held: B was a constructive trustee for A, who had an equitable life interest.

“It is, we think, clearly a mistake to suppose that an equitable principle on which a constructive trust is raised against a person who insists on the absolute character of a conveyance to himself for the purpose of defeating a beneficial interest which, according to the true bargain, was to belong to another, is confined to cases in which the conveyance itself was fraudulently obtained.

[In short B’s counsel had argued that because the sale was not procured by any dishonesty, B was allowed to rely on the lack of signed witing in order to defeat A’s equitable interest. The court however rejected that argument.]

The fraud which brings the principle into play arises as soon as the absolute character of the conveyance is set up for the purpose of defeating the beneficial interest,

[In other words B would be disabled from claiming property free of any equitable interest in any circumstances where he had agreed to hold teh property on trust. Lord Justice Scott went on to say that this principle, described above as a constructive trust, was the result of the decision in Rouchefoucauld v Boustead]

and that is the fraud to cover which the Statute of Frauds, or the corresponding provisions of the Law of Property Act, 1925, cannot be called in aid in cases in which no written evidence of the real bargain is available…The above propositions are, we think clearly borne out by….Rouchefoucauld v Boustead” (Scott LJ, at 135C to F, emphasis added)

[Lord Justice Scott and the CofA saw the decision in Rochefoucauld as a constructive trust arising to prevent unconscionable conduct. The unconscionability in questoin presumably arises from A’s detrimental reliance. B made a representation to A. A relied on this by selling B the property at a discounted price. This caused a constructive trust to arise, even if the lack of formality prevented an express trust from arising.]

The constructive trust rationalisation was adopted by Millett LJ in Paragon Finance Plc v D B Thakerar & Co [1999] 1 All ER 400 at 408-409

Question 33

Grey v I.R.C. [1960] A.C. 1

Answer 33

Key point: When a Beneficiary directs trustees to hold on trust for someone else this does invoke s.53(1)(c)

Facts: B held legal title to shares on trust for A. A orally directed B to hold that title on trust for C instead of A.

[N.b. The reason an oral direction was given to avoid payment of stamp-duty, which only applied when writing was used. However if writing wasn’t needed because s.53(1)(c) wasn’t engaged, then no stamp duty would have been payable.]

Issue: Did this involve a disposition of A’s interest under the trust?

Held: There was a disposition of A’s interest, writing was needed.

Reasoning: Following A’s direction, C would have ended up with the same interest in the shares that A had before. Accordingly A had disposed of his interest to C

Question 34

Vandervell v I.R.C. [1967] 2 A.C. 291

Answer 34

Key point: When a Beneficiary directs trustees to transfer legal title to a third party this is not disposition of equitable interest. s.53(1)(c) does not apply.

Facts: B held legal title to shares on trust for A. A orally directed B to convey that legal title to C, who was to hold it free of the trust.

Issue: Did this involve a disposition of A’s interest under the trust?

[If it did, writing would have been needed and tax would have been payable]

Held: It did not. Accordingly, signed writing by A was not needed.

However, the judges all gave different reasons for this result:

Lord Upjohn at 311-312 (with the agreement of Lord Pearce)

• Section 53(1)(c) is designed to prevent beneficiaries from being defrauded.
• However in cases, like Vandervell, where the beneficiary gave the direction to the trustee, there was no risk of this, so writing was not needed.

Lord Donovan at 317-18

• That the section did not apply because C ended up with legal title, and A only ever had equitable title.
• There was thus no disposition of A’s equitable interest—C did not end up with what A had originally.

Lord Wilberforce at 329

• A was “owner in equity” of the shares, and so “absolute master of the shares”.
• A intended that C become legal owner of the shares, and had done everything he could to give C legal title to the shares (i.e. ask the trustees to hold on trust for C).
• By analogy to the rule in Re Rose, A had done everything he could to give C legal title to the shares, and so equity regarded the transfer as complete—even without writing.
• Lord Wilberforce argues that A had done everything he could do to give C legal title to the shares. But surely the very question the court weas dealing with was what steps A needed to take in order to give C legal and beneficial title to the shares. The court was asking: Do the necessary steps required by A involved signed writing by A.
• LW seems to presuppose the answer to this question.

Lord Reid: Agreed as to the result (at 307), but gave no reasons, and didn’t say he agreed with anyone else’s reasons

Best explanation: A’s interest was destroyed because B had transferred legal title to C with A’s consent, see Richard Nolan: “Vandervell v IRC: A Case of Overreaching” [2002] CLJ 169.

Question 35

Sheffield v Sheffield [2013] EWHC 2937 (Ch)

Answer 35

Key point: Sub-trusts are not dispositions of equitable interests.

Facts: A held a beneficial interest under a trust and signed a declaration of trust prepared by solicitors over his beneficial interest in favour of C. A owed no duties under the trust.

Issue: Did this amount to an assignment (i.e. transfer) of A’s interest?

Held: There was no assignment, A held his beneficial interest on trust for C under a ‘sub-trust’.

There is no transfer from A to C. C acquires a new equitable interest, and A becomes a trustee of A’s pre-existing equitable interest. This is called a sub-trust.

Question 36

Re Holt [1969] 1 Ch 100

Answer 36

Facts: W held a life interest under a trust of private shares, with remainders to her children in equal shares. W wanted to resettle the trust, so that her life interest only applied to half the trust assets—giving the children interests in those assets immediately, (subject to additional restraints on when the capital would vest, and trustee powers to accumulate income).

W applied to the court to revoke the existing trusts and establish new trusts.

Issues:

1. Did the Variation of Trusts Act only allow the court to approve a variation (or revocation)?
2. Did the transfer of part of W’s interest to the children require signed writing under s.53(1)(c)? Or did the court order itself effect the transfer, so no signed writing was needed?

Held (Megarry J): No signed writing needed

1. That the Variation of Trusts Act 1958, s 1(1) gave the court jurisdiction to vary the trust by a court order. Because the court order effected the transfer from W, no signed writing by W was needed.
2. The variation was an agreement reached between the beneficiaries for valuable consideration, in respect of shares in a private company (ie which could not be bought on an open market). The agreement was therefore specifically enforceable, and so a constructive sub-trust arose over W and the children’s beneficial interest, and no signed writing was needed—because constructive trusts have no requirement for signed writing and a sub-trust involves teh creation of a new right, not the transfer of a pre-existing right. (s.53(2)).

Therefore when the court exercises their jurisdiction under the Variation of Trusts Act 1958, s1(1), then even when that bring about a transfer between the interests of beneficiaries, you don’t need any signed writing.