Equity & Trusts for Finance Flashcards
What is a Trust?
“A legal relationship created… by a Settlor [whereby] assets are placed under the control of a Trustee for the benefit of a Beneficiary, or for a specified purpose.”
Thomson Reuters.
What are the Elements of an Express Trust?
Otherwise known as ‘the Three Certainties’.
There must be Certainty of:
- Intention, i.e. willingness to create a Trust.
- Object(s), i.e. the Trust’s purpose and those who benefit therefrom.
- Subject Matter, i.e. what the Trust pertains to.
Knight v Knight (1840) 3 Beav 148, at [173].
How must the Certainty of Intention be evidenced in an Express Trust?
Intention must be:
* In writing, forming part of the Trust Deed; and
* Clear from the language used.
Re Kayford [1975] WLR 279, at [282].
To Satisfy the Certainty of Objects, who must the Beneficiaries be?
A clearly identifiable person, natural or otherwise, who forms part of an an ascertainable class.
This is known as the Beneficiary Principle.
IRC v Broadway Cottages [1955] Ch 20, at [25]-[27].
What must be done to satisfy the Certainty of Subject Matter?
The Trust Asset must be specifically identified.
Lecture Notes.
Regarding the Certainty of Subject Matter, how is Tanginble and Intangible Property treated differently with respect to Identification?
To be sufficiently identified:
* Tangible Property may not form part of a defined pool of assets, and must be named particularly;° whereas
* Intangible property may form part of a defined pool of assets, but only if that does not obstruct the Trust’s execution.°°
Compare wine bottles and Apple shares, respectively.
Lecture Notes.
° Wright v National Westminster Bank [2014] EWHC 3158 (Ch).
°°Hunter v Moss [1994] 1 WLR 934, at [945]
In a Trust, who is the Assets’ Legal Owner?
The Trustee, who possesses the legal proprietary interest therein, whereas the Beneficiary holds the equitable proprietary interest.
Lecture Notes.
This equitable proprietary interest subsists aginst any subsequent legal owners (with the exception of bona fide purchasers), even in insolvency.
Does a Beneficiary Rank higher than a Creditor in Insolvency?
Yes, but only with respect to the Trust Asset.
Lecture Notes.
This makes Trusts particularly useful in finance, given that it may support limitless Beneficiaries.
Is the Trustee a Fiduciary of the Beneficiary?
Yes. Both the elements of trust and confidence and the obligation of loyalty are present in the relationship.
Bristol v Mothew [1996] EWCA Civ 533, at [18].
What is a Fiduciary?
An individual who has:
* “Undertaken to act for, or on behalf of, another in a particular matter;
* Under circumstances which gives rise to a relationship of trust and confidence… [whose] distinguishing obligation is… [that of] loyalty.”
P. 498.
Bristol v Mothew [1998] Ch 1 at [18].
Millet LJ later said: “Confidence is the very essence of the relationship. Unless a relationship is one of trust and confidence, it is not fiduciary,” and explained that merely undertaking to act for another’s benefit does not give rise to a fiduciary obligation.
R v Chester [1998] 1 WLR 1496 at [1500].
How is the Nature and Scope of a Fiduciary Duty demarcated?
By observing the factual background and the nature of the parties’ relationship.
P. 523; Netherlands Society v Kuys [1973] 1 WLR 1126 at [1129]-[1130].
Broadly, what are a Trustee’s Fiduciary Duties?
Aside from those outlined in the Trust Deed, it must:
* Exercise loyalty.
* Act with prudence.
* Avoid conflicts of interest.
* Act with reasonable care and skill.
* Follow the Beneficary’s instruction.
And otherwise maximise the Beneficary’s interests.
Lecture Notes.
See: Barnes v Addy (1874) LR 9 Ch App 244; Boardman v Phipps [1967] 2 AC 46; Bray v Ford [1896] AC 44; Keech v Sandford (1726) Sel Cas Ch 61; Letterstedt v Broers (1884) 9 App Cas 371; Moss v Cooper [1861] 31 Beav 46; Pilkington v IRC [1964] AC 612; Re Londonderry’s Settlement [1965] Ch 918; Re National Trust [1952] Ch 198; Speight v Gaunt [1883] 22 Ch D 727; Temple v Barker [1840] 2 Beav 374.
What are Remedies for Breach of Fiduciary Duties?
- Usually, equitable compensation;° but
- Other equitable remedies, like specific performance or account of profits, may be ordered depending on the case.°°
° Henderson v Merret Syndicates [1995] 2 AC 145, at [205]-[206].
°° FHR v Cedar Capital [2014] UKSC 45, at [83]-[85].
