Purpose Trusts

Question 1

Equity – Introduction

I. Maxims of Equity

Answer 1

1. Equity is discretionary
   a. Though now governed by principles, they are not set in stone and remedies are awarded at the discretion of the court, emphasizing fairness
   b. Schmidt v Rosewood – beneficiaries of a trust have no right to inspect trust documents but court has discretion to allow them to do so
2. Equity is triggered by unconscionability
3. Those who seek equity must do equity
   a. Equitable remedies won’t be granted if C doesn’t intend to treat D fairly
   b. Chappell v Times – employees denied remedy because they refused to sign an undertaking not to strike in the future
4. Those who come to equity must come with clean hands
   a. Remedies will not be granted to C who has acted improperly
   b. Dering v Earl of Winchelsea – legal impropriety only (not moral); conduct must relate to relief sought
5. Equity treats as done that which ought to be done
   a. If A has a specifically enforceable contractual obligation to transfer property to B, Equity will regard it as transferred
6. Equity protects the weak and vulnerable
7. Equity is cynical
   a. In certain cases Equity will mistrust gifts and hold that donee is holding them on a trust on behalf of donor
8. Equity is imaginative
9. Equity follows the law
   a. Equity recognizes Common Law principles but doesn’t apply them slavishly or always
10. Equity looks to substance rather than form
11. Equity will not assist a volunteer
12. Equity assists the diligent
    a. C may be denied a remedy due to lapse in time
13. Equity is equality
    a. If there are multiple equitable interests, they are treated equally
14. Equity acts in personam
    a. Rights destroyed when bona fide acquirer acquires the property (no rights in rem)

Question 2

The Beneficiary Principle

I. Principle

Answer 2

Property must be held on trust for identified beneficiaries or objects, or it is void, so that the court has people in whose favor it can decree performance. A trust for purposes will not be valid.

Question 3

The Beneficiary Principle

II. Example Cases

Answer 3

• Morice v Bishop of Durham – a trust bequeathing “such objects of benevolence and liberality as the Bishop of Durham in his own discretion shall most approve of” was invalid as there were no ascertainable beneficiaries
Sir William Grant: “There must be somebody, in whose favour the Court can decree performance

Question 4

The Beneficiary Principle

III. Exceptions

Answer 4

• Charitable trusts – valid though trust for purposes (does not undermine rationale because Charity Commision and AG enforce them
• Express trusts – though appearing to be trusts for purposes people can benefit indirectly, satisfying the requirement
• Exceptionally non-charitable purpose trusts – old cases that are likely to be followed on facts but unlikely extended

Question 5

Gardner, An Introduction to the Law of Trusts

I. Trustee’s Duties

Answer 5

Traditionally duties are in personam but increasing recognition of rights in rem attached to the trust property:

1. Trust property cannot be taken on bankruptcy because the duties owed are attached to it, whereas borrower can have the money taken away because duties are in personam.
2. When trust property is transferred from trustees, obligations stay with it and affect other people
   a. Except when trustee is authorized to make the transfer (eg. to pay beneficiary from trust assets)
   b. Bona fide purchaser for value (someone who pays what the property is worth without knowing/reasonably knowing it is trust property)

Question 6

Gardner, An Introduction to the Law of Trusts

II. Beneficiaries’ Rights

Answer 6

Beneficiaries’ rights mirror trustee’s duties; interest thesis holds that a beneficiary holds interest in the trust property and trustee must provide, rather than the other way around.
Two (three?) categories of NCP trusts being valid:
1. Re Denley’s Trust Deed – two interpretations:
a. Trust is for the employees as beneficiaries (where employees could claim sports field’s monetary value and not just use)
b. Judge opted for view that trust is for purpose of providing employees with a sports field so the NCP trust was still valid because employees were benefited and could enforce the trust
2. Quistclose trusts:
a. Money transferred with understanding that payee would spend it in a particular way failing which it would return to transferer (trustee is not beneficiary as strings are attached to spending)
3. Graves/monuments, masses, particular animals etc.:
a. Other jurisdictions introduced statutes holding NCP trusts valid as long as there is someone to enforce them

Question 7

Gardner, An Introduction to the Law of Trusts

III. Arguments of Principle

Answer 7

Technically all trusts are “purpose trust” because trusts with beneficiaries are simply purpose trusts to transfer money to them. Distinction on this basis is purely for policy. Policy concerns include 1) rights to enjoy property and 2) property be exposed to market influence (thus owned by someone with liberty to dispose). Thus trusts benefiting certain people (eg. sports field for employees) prevents those benefitted from spending the money as they wish, and those of erecting monuments (benefiting no-one) channels money away from enjoyment altogether.

Question 8

Gardner, An Introduction to the Law of Trusts
IV: Is Enforceability Necessary?
Examples of enforceable PTs:

Answer 8

• CPTs enforced by AG and Charity Commission
• Re Denley enforced by individuals benefitted by purpose (but only they can enforce – thus if employees didn’t want sports field and trustees did something else with money, nobody else can enforce)
• “Remaindermen” of anomalous cases: they can enforce but have no incentive (underspending on monument/purpose gives them more)

Question 9

Gardner, An Introduction to the Law of Trusts
IV: Is Enforceability Necessary?
Non-enforcement:

Answer 9

• If person with right to enforce chooses not to enforce, the choice prevails over settler’s wishes (this upholds interest theory as beneficiary has a choice to exercise his ownership)
• Lack of information, energy, resources etc. often impede enforcement

Question 10

Gardner, An Introduction to the Law of Trusts
IV: Is Enforceability Necessary?
Arguments against requirement of enforceability:

Answer 10

1. Against facilitative policy: while the requirement is supposed to prevent frustration of settlers by subversion of their intentions (eg. trustees keeping money for self) it simultaneously itself frustrates them by denying validity (abolishing requirement allows trust to exist but at the risk of subversion – both only partially vindicate settler’s wishes)
2. Purpose of enforcement is not to secure trustee’s performance of duties as established by settlor but only to the extent that suits the beneficiary

Question 11

Gardner, An Introduction to the Law of Trusts
IV: Is Enforceability Necessary?
Arguments for requirement:

Answer 11

1. Availability of enforcement is intrinsic to concept of legal duty (or trustee will have full ownership)

Question 12

Gardner, An Introduction to the Law of Trusts
IV: Is Enforceability Necessary?
However enforcement is not the only factor that ensures trustees use the property for intended purpose.

Answer 12

• No need to worry about enforceability because trustees are mostly solicitors liable to professional authorities so are “self enforced”

Question 13

Perpetuity Rule

I. Rule against remoteness of vesting

Answer 13

Property must be vested in individuals within a recognized period of time (the perpetuity period), so as to prevent wealth being locked away indefinitely.

Question 14

Perpetuity Rule

II. Perpetuity Period

Answer 14

• Common Law: Life in being plus 25 years
• Reformed by Perpetuities and Accumulations Act 1964: possible to specify a period not exceeding 80 years
• Reformed by Perpetuities and Accumulations Act 2009: 125 years even if trust specifies a different period

Question 15

Perpetuity Rule

III. Wait-and-See Rule

Answer 15

• Under common law: if at the outset property may not be vested within the perpetuity period it is considered void
• Under the Perpetuities and Accumulation Act 2009: if at any one time it possible that property will not vest during perpetuity period it is not to be treated as void until it is certain that it will not vest.

Question 16

Perpetuity Rule

IV. Duration of Purpose Trusts

Answer 16

• Charitable purpose-trusts: since these are vested in the public there is an interest in them lasting forever so Act does not apply
• Non-charitable purpose-trusts: Act still doesn’t apply but since no public interest these are caught by common law perpetuity rules

Question 17

Law Commission Report on Perpetuities (1998)

Answer 17

• Rule against perpetuities restricts duration of non-charitable purpose trusts
• These are usually void because no beneficiaries can enforce them, but also objectionable because they can be perpetual
• Rule is one method of keeping these trusts in check, so any consideration of it belongs to the law of non-charitable purpose trusts
• Thus made no recommendation of reform to rule

Question 18

Non-Charitable Purpose Trusts

I. Testamentary Trusts of Imperfect Obligation

Answer 18

A type of non-charitable purpose trust where trustee is entitled to carry out the purpose of the trust but is not obliged to do so. They must fall into a recognized category and are bound by common law perpetuity rules.

Question 19

Non-Charitable Purpose Trusts

II. Categories

Answer 19

• Trust for a particular animal (trusts for the welfare of animals are charitable)
  o Re Dean – trust to maintain the testator’s horses for fifty years as long as they lived that long was enforced
• Trust to erect and maintain monument and graves
  o Pirbright v Salwey – trust to maintain a grave and decorate it with flowers was valid
  o Re Hooper – trust for care and upkeep of family graves and monuments valid for 21 years
• Trust for the saying of private masses (trusts for public masses are charitable)
• Other cases:
  o Re Endacott – these categories should not be extended (here trust to provide “some useful memorial” was void despite comparison to monuments and graves)

Question 20

Non-Charitable Purpose Trusts

III. Other Methods for Non-Charitable Purposes

Answer 20

• Fiduciary power
• Power attached to gift (donee would not be obliged to use the property for purpose stipulated but if he doesn’t the gift would elapse)
• Mandate (donee can act as agent to apply a gift to a purpose; if he doesn’t then he is in breach of fiduciary duty)
• Appointment of an enforcer

Question 21

Hayton, Obligation Characteristic of the Trust

I. Requirement of Beneficiary

Answer 21

• Trusts are obligations so there must be a beneficiary to enforce it; settlor drops out of the picture as soon as property is transferred as he retains no beneficiary interest
• However, if settlor designates an enforcer (eg. Conservative Party case where settlor designates Party Leader to enforce and at perpetuity deadline enforceability passes onto a new person), submitted that English law will hold it valid because BP should be regarded as “enforcement principle”
• If settlor designates himself as enforcer of trusts for the benefit of minors, his rights must be additional to (not to the exclusion of) beneficiaries or there wouldn’t be a trust

Question 22

Hayton, Obligation Characteristic of the Trust

II. Conclusion

Answer 22

• Status of beneficiary automatically confers rights as enforcer
• No reason why enforcer shouldn’t be allowed to confer additional enforcement rights on others (including himself)
• In case of purpose trusts settlor should be allowed to confer original primary enforcement rights on an enforcer whom he believes can be relied upon to affect his purpose

Question 23

Useless or Capricious Purpose

I. Principle

Answer 23

Even when purpose trusts are valid, there may be exceptions for illegal, immoral, wasteful or useless purposes

Question 24

Useless or Capricious Purpose

Brown v Burdett

Answer 24

Testator made a trust to block up all the rooms of the house – Bacon V-C held that this was void.

Question 25

Useless or Capricious Purpose

M’Caig v University of Glasgow

Answer 25

Testator made a will for his whole estate to be used to build statues of himself. Testator’s heir successfully had the trust set aside on the ground that under Scots law an heir can only be disinherited by a beneficial gift to someone else.
Lord Kyllachy considered whether the trust could also be set aside for policy – If it is not unlawful, then it ought to be unlawful to dedicate the whole of a large estate to “objects of no utility” that benefit nobody and serve no purpose than perpetuate at great cost “the idiosyncracies of an eccentric testator.”
NB subsequent case of M’Caig’s Trustees (similar facts) declared trust void on grounds of public policy.

Question 26

Useless or Capricious Purpose

Thrupp v Collett

Answer 26

Trusts to commit legal wrongs are void for illegality – trust to pay the fines of convicted poachers is void.

Question 27

Re Dean

Answer 27

A trust for the benefit of particular animals is a valid non-charitable purpose trust, (dictum) as is a trust for erecting a monument or grave for the testator

Facts:
Testator charged a sum to his trustees for the maintenance of his horses for up to 50 years (provided they lived that long).

Held:
Trust was valid despite there being nobody to enforce it.

Judgment:
North J:
- Just because nobody can actively enforce a trust does not make it invalid: there is no doubt that someone can give a trust to build a monument for himself, though nobody would be able to enforce that either

Question 28

Re Hooper

Answer 28

A trust for the benefit of particular animals is a valid non-charitable purpose trust, as is a trust for erecting a monument or grave

Facts:
Testator gave a trust for the care and upkeep of family graves and monuments, and for the care and upkeep of a church window

Held:
Trust for family graves was valid for 21 years; trust for church window was charitable and therefore no limit.

Question 29

Re Thompson

Answer 29

Despite not fitting into any recognizable categories of non-charitable purpose trusts, it was nevertheless held that a trust for the purpose of furthering fox-hunting was acceptable.

Facts:
Testator made a will for the purpose of fox-hunting.

Held:
Trust was valid.

Question 30

Re Astor

Answer 30

NCP trusts are not enforceable because courts cannot control them.
Trusts’ purpose must be ascertainable so that a court could carry it out without eliminating uncertain parts.

Facts:
Testator made trusts for non-charitable purposes including 1. Maintaining good understanding between nations, 2. Preserving independence of newspapers etc. subject expressly to the perpetuity period.

Held:
Trust was invalid because i) they were non-charitable purpose trusts and ii) they were uncertain.

Judgments:
Lord Roxburgh on NCP trusts being unenforceable
- Non-charitable purpose trusts present difficulties: theoretical – difficult to visualize the growth of equitable obligations that nobody can enforce; practical – impossible to contemplate creating large funds for purposes that no court can control
- In no case of NCP trusts has the court ever directly enforced the trust and no agent analogous to AG in case of charitable trusts
- The cases concerning horses, monuments etc. should be regarded as “anomalous and exceptional”, perhaps “concessions to human weakness or sentiment” but not authority for recognizing the enforceability of NCP trusts
On uncertainty
- Applying the Morrice test, this trust is too uncertain: to be valid, the purpose must be so defined that “if the trustees surrendered their discretion, the court could carry out the purposes declared, not a selection” after eliminating those too uncertain

Question 31

Re Endacott

Answer 31

NCP trusts are unenforceable – the anomalous cases should not be extended to form any principle and should only be followed by identical cases.

Facts:
Testator gave his estate for the purpose of “providing some useful memorial to myself”

Held:
Trust was invalid as it was not beneficial to the trustee nor to the inhabitants, and wasn’t charitable

Judgment:
Lord Evershed
- The anomalous cases that allowed NCP trusts are not to be extended or to form a principle, as the most deeply rooted principle is that a trust that is not charitable must have ascertainable beneficiaries to be valid
- Though this case’s purpose is “capable of expression”, it is too uncertain to draw an analogy to the anomalous cases
Lord Harman
- Whether it is better for a case to say that the anomalous cases are wrong might be considered, but at any rate they shouldn’t be extended or followed except where “one case is exactly like the other”

Question 32

Morice v Bishop of Durham

Answer 32

Trusts (except charitable purpose trusts) must have a clear beneficiary to be valid, because otherwise the Court cannot control it.

Facts:
Trust bequeathing “such objects of benevolence and liberality as the Bishop of Durham in his own discretion shall most approve of” was invalid as there were no ascertainable beneficiaries

Held:
Trust was invalid as it could not amount to a charity; money had to return to next of kin

Judgment:
Sir William Grant on need for beneficiaries
- “There must be somebody, in whose favour the Court can decree performance”
- There can be no trust over the whose exercise the court will not control because uncontrollable power of disposition would be ownership and not trust. If the benefit is uncertain then it has to go to those who in law can claim ownership
On what constitutes a charitable purpose trust
- “Purposes of liberality and benevolence” do not necessarily make a trust charitable – this is decided by analogy to purposes enumerated in the Statute of Elizabeth
Maxim regarding Court’s control of trusts
- Maxim: the execution of a trust shall be under the control of a court, so that if the subject or object is unascertainable, then the trust is invalid because the court cannot control it

Question 33

Re Denley

Answer 33

Trusts expressed as purpose trusts but directly or indirectly benefitting an individual falls outside the beneficiary principle.

Facts:
Trust for the purpose of maintaining recreation ground “primarily for the benefit of the employees … and secondarily for the benefit of such other persons as the trustees may allow to use the same”

Held:
Trust was valid as it could be construed as ultimately for the benefit of individuals.

Judgment:
Lord Goff:
- There may be purpose trusts that would benefit an individual so indirectly as to be unenforceable, so that the beneficiary principle would invalidate the trust. This is not one of those – the Astor principle is confined to object trusts that are “abstract or impersonal”
- Where a trust, though expressed as a purpose is directly or indirectly for the benefit of an individual, it falls outside the beneficiary principle

Question 34

Re Bowes

Answer 34

Trusts for the benefit of an individual, though expressed as a purpose, are valid, and the beneficiary may dissolve the trust.

Facts:
Trust was for “planting trees for shelter on the Wemmergill estate”, for a far larger sum of money than needed for planting trees.

Held:
The trust was for the benefit of the owners of the estate, and was valid. The beneficiaries could use surplus money as they choose.

Judgment:
Lord North:
- It is very disadvantageous to plant trees on every part of the estate, and since the sum is clearly for the benefit of those entitled to the estate, they may spend any surplus however they wish

Question 35

Re Osoba

Answer 35

Where a testator has given the whole of a fund for a purpose, rather than just enough for that purpose, this purpose is simply the testator’s motive for giving the gift, and the trust is valid.

Facts:
Trust was for “the maintenance of my daughter up to university grade and for the maintenance of my aged mother”. Argued that the trust for the daughter was invalid as it was for a purpose.

Held:
The trust was valid.

Judgment:
Lord Goff:
- If a testator has given the whole of a fund to a beneficiary, even one expressed as a purpose, rather than just enough for the fulfillment of that purpose, then it is to benefit the beneficiary to the full.
- Reference to a specified purpose is simply the testator specifying his motive for making the gift; any other interpretation would frustrate the testator’s intention that the whole subject matter should be applied to benefit the beneficiary

Question 36

Re Abbott

Answer 36

When funds are collected from subscriptions for a particular purpose and that purpose cease to exist (death of beneficiary) then a resulting trust is formed for the benefit of the subscribers.

Facts:
Trust was left to support testator’s two deaf sisters; trustee died and money disappeared. An appeal was made for subscriptions for the ladies and a large surplus remained after they died; in the absence of express provisions regarding disposal, court had to determine who was entitled to the funds.

Held:
There was a resulting trust as the subscribers couldn’t have intended to part with their funds irrevocably and for the ladies to become absolute owners of the property.

Judgment:
Stirling J
- It is unenvisageable that the ladies became absolute owners of the property; the trustees have a wide discretion as to any and what part of the sum will be applied for the benefit of the ladies
- However if the trustees hadn’t done their duty the ladies can apply to the court to have the funds properly administered
- Thus there is a resulting trust for the benefit of the subscribers

Question 37

Gifts to Unincorporated Associations

I. Problem

Answer 37

Fact that NCP trusts are not valid causes problems for property transferred to unincorporated associations (non-commercial clubs or societies) because they have no legal personality.

Question 38

Gifts to Unincorporated Associations

II. Definition of Unincorporated Associations

Answer 38

Per Lawton LJ in Burrell -

1. Non-profit making
2. Members bound by identifiable rules (eg. constitution)

Question 39

Gifts to Unincorporated Associations

III. Property-Holding

Answer 39

Absence of legal personality means associations cannot own property, so various mechanisms go around that:

1. Charitable trust
   a. Only if recognized charitable purpose and trust is for public benefit (easier now that sport is charitable)
2. Non-charitable purpose trust
   a. Associations were once an exception to NCP trust exception, but this was rejected in Leahy
   b. However can fall into the Denley principle of benefiting directly/indirectly association members
3. For members at the time
   a. Property can be treated as belonging to the members absolutely or held on trust, with legal title in an officer (eg. treasurer)
4. On trust for present and future members
   a. A trust for the benefit of “present and future members” satisfies the beneficiary rule but has been void for infringing the perpetuity rule (tho probably no longer because of PAA 2009)

Question 40

Leahy v AG for NSW

Answer 40

Gifts in trust cannot be made for a purpose or object, unless it is charitable.
The presumption that where a trust expresses a beneficiary it is a trust to the order of the beneficiary can be rebutted by the presence of an intended purpose

Facts:
Trust for “such order of nuns of the Catholic Church or Christian Brothers as my executors and trustees shall select”. Was not a charitable trust because some orders were NC; NSW Conveyancing Act 1919-54 held that a trust should not be invalid because some objects were charitable and some weren’t. Question was whether it was a private trust in favor of individual members or a charitable trust under the Act applicable only for the charitable orders.

Held:
Trust was not a private trust to the order of the individual nuns, but valid under the Act

Judgment:
Viscount Simmonds
- A gift to individuals “given to them for the benefit of the community” is not a gift to individuals because then each would be entitled to his distributive share and nothing would be added by “benefit of the community” therefore such a gift is void for uncertainty
- Thus the gift is not to the individual order of the Nuns to dispose of as they see fit

Australian Solution:

• Clubs can incorporate (cheap)
• Mandate (Burrell)
• Bacon v Pianta

Question 41

Bacon v Pianta (Australia)

Answer 41

A gift to a UA is prima facie a gift to individual members at the time when the bequest becomes operative but it can also be trust for present and future members (subject to perpetuity rule) or a purpose trust (will fail unless charitable)

Facts:
Trust for “Communist Party of Australia for its sole use and benefit”

Held:
Gift failed as it appears to benefit both present and future members (offends rule against perpetuities)

Judgment:
- Gifts to UAs are prima facie gifts to individual members at the time when bequest becomes operative
- However circumstances can rebut this presumption and hold that it is:
o A trust for present and future members (may fail as infringing perpetuity rule)
o A purpose trust (will fail unless charitable)

Question 42

Neville Estates v Madden

Answer 42

Gifts to unincorporated associations can take effect in three ways, either as a gift to members as joint tenants, to members subject to their contractual rights, or held in trust for the association.

Facts:
Trustees of a synagogue wanted to sell land and would need the Charity Commissioners’ consent if the land was held upon charitable trusts.

Held:
The land was held on charitable trusts.

Judgment:
Cross J
- A gift to an unincorporated association may take effect in three ways:
1. Gift to members of the association a joint tenants,
2. Gift to existing members subject to their contractual rights (which would not be charitable even if objects of association are charitable because funds can be divided)
3. Property not to be held at the disposal of members but held in trust for the association as a quasi-corporate entity (where gift will fail unless it is charitable)

Question 43

Re Recher’s Will Trust

Answer 43

Gifts to UA can be held as 1) gifts to members, 2) gifts on trust for association’s purpose, 3) trust for members and future members, and 4) gifts to members subject to their contractual obligations (this will be the case where property unaccompanied by declaration of trust).

Facts:
Trust gave estate to Anti-Vivisection Society (main object: abolish vivisection) that wound up and amalgamated into the National Anti-Vivisection Society (neither were charities)

Held:
Trust was invalid as the old society no longer existed and the trust could not be construed as being for the new society

Judgment:
Brightman J on whether the gift would be valid had old society still been in existence (as gift for members subject to contract)
- NCP trusts are void, but this does not preclude people from paying subscriptions devoted to NCP
- In such a case these funds are subject to the contract between the members, who are free to unwind the society and divide the assets for their benefit
- Gifts that are not accompanied by words that purport to impose a trust take effect in favor of existing members
- In this case though testator undoubtedly didn’t contemplate the possibility of unwinding, nevertheless made a valid gift
Four accepted ways that gift to an UA can be held:
1. Gift to members (any member can sever)
2. Gift on trust for association’s purpose (void under beneficial principle and potentially for perpetuity unless charitable)
3. Trust for members and future members (limited to perpetuity period)
4. Gift to members subject to their own contractual obligations dealt with by association’s rules

Question 44

Artistic Upholstry Ltd v Art Forma Ltd

Answer 44

Extends Re Recher’s and Neville Estates principle that property can be held by members subject to contract to the ownership of trademarks.

Facts:
C, UA, sued D for declaration that registration of a trademark by D was invalid. Issue: whether a UA could own the goodwill in a name.

Held:
Yes.

Judgment:
Lawrence Collins QC
- Since associations increasingly hold property in form of subscriptions, it has been necessary to provide legal solution to problem that they cannot hold property eg:
o Members as joint tenants
o On trust for members/purpose of UA
o Prevailing view: where transfer unaccompanied by declaration of trust, it is held under terms of the members’ contract inter se (as held in Re Recher’s and Neville Estates)
- Thus members can hold property subject to contract
- Same applies to goodwills (ownership of trademarks?) – these are held by members under terms of the contract

Question 45

Re Horley Town Football Club

Answer 45

Only the adult or senior members of a club own the association’s assets

Facts:
Issue: which class of members of an UA owned the association’s assets.

Held:
Only adult or senior members of the club do so.

Judgment:
Lawrence Collins J
- Since members own assets subject to contract, they can vary the contractual arrangements between each other
- In deciding which members hold the beneficiary interests a “broad sword” approach applying fairness and common sense is adopted
- Though the exclusion of voting rights would not mean a category of members is excluded, in cases where a category is excluded from entitlement to surplus upon dissolution does not own any of the assets
- Thus beneficial ownership is held on trust for the members who can call for the assets to be transferred

Question 46

Re Lepinski’s Will Trust

Answer 46

Gifts to unincorporated associations can take effect in three ways, either as a gift to members as joint tenants, to members subject to their contractual rights, or held in trust for the association. Where the gift’s purpose benefits the UA, then the UA is free to use the funds for purposes other than the one stated in the will.

Facts:
Trust for Hull Judeans Association “in memory of my late wife to be used solely in the work of constructing the new buildings for the association”

Held:
Valid – was a trust for the members of the association.

Judgment:
Oliver J
- Neville Estate principle applies and in deciding category:
o Next of kin argued: not a gift for members as joint tenants, and not one for members subject to contract (because of express purpose stated) and therefore fails because 1. Purpose trust and 2. Perpetuitous
o Rejects perpetuity argument relying on Re Price
- There is a difference between cases where purpose is intended for ascertainable beneficiaries and those not (eg. memorial for pet); thus, if a valid gift is made, there is no reason why it should fail just because it specifies a purpose
- Thus this fits into category of members subject to contract
- Re Bowes should be applied even though this is a UA – “solely” does not add any legal force to direction. Beneficiaries (members of the association) can enforce the purpose and are entitled not to enforce it

Question 47

Re Grant

Answer 47

Gifts to unincorporated associations can take effect in three ways, either as a gift to members as joint tenants, to members subject to their contractual rights, or held in trust for the association.

Facts:
Trustees of a synagogue wanted to sell land and would need the Charity Commissioners’ consent if the land was held upon charitable trusts.

Held:
The land was held on charitable trusts.

Judgment:
Cross J
- A gift to an unincorporated association may take effect in three ways:
1. Gift to members of the association a joint tenants,
2. Gift to existing members subject to their contractual rights (which would not be charitable even if objects of association are charitable because funds can be divided)
3. Property not to be held at the disposal of members but held in trust for the association as a quasi-corporate entity (where gift will fail unless it is charitable)

Question 48

Conservative Central Office v Burrell

Answer 48

Subscriptions to organizations to which Re Recher does not apply (no contract) are a mandate in the members of the association to use the funds for the donation’s purpose.

Facts:
Inland Revenue argued that Conservative Party should pay corporation tax because members’ contributions took effect as an accretion to the funds

Held:
No contract between the members so Re Recher doesn’t apply

Judgment:
Brightman LJ
- Issue: whether the Conservative Party was an UA (and therefore the Conservative Central Office funds are from UA)
o If yes – Re Recher applies
o If not – unclear
- Donations to parties give a mandate (authority as an agent) to the party treasurer to add the party’s funds and use it for party purposes
- Mandate is irrevocable but contributor has remedy to restrain misapplication of money until his contribution is spent
- There is no legal difficulty in the mandate theory so no need to invent an UA
Vinelott J (first instance)
- In this instance there is no reason why the court would not direct the receiver of subscriptions to use the funds for the designated purpose; therefore he is not the beneficiary owner of the funds

Problem: testator cannot be dead for mandate to apply

Question 49

Surplus Funds on Dissolution of UA

I. When the UA is Dissolved

Answer 49

Dissolution can occur by court order, members’ resolution according to rules of constitution/unanimous agreement, or automatically when number of members falls below two, or when it is moribund (Re GKN Bolts).

Question 50

Surplus Funds on Dissolution of UA

II. Distribution of Surplus Assets

Answer 50

Three possibilities

1. Returned to subscribers (resulting trust)
   a. This happens if dissolution terminates an express trust
   b. But not if subscriber divested themselves of all rights to the property (eg. donation in return for contractual benefits, as in Re West Sussex)
   c. However Air Jamaica – contributors had resulting trust despite getting contractual benefits (held not to have lost rights)
2. Transferred to the Crown (become bona vacantia)
   a. If property is deemed ownerless, such as in Re West Sussex after it was recognized that there was no resulting trust
3. Transferred to members at time of dissolution (contract-holding theory)
   a. Generally recognized, as in Re Buckinghamshire and Hanchett-Stamford

Question 51

Surplus Funds on Dissolution of UA

III. Deciding Between Mechanisms

Answer 51

• General recognition of contract-holding theory makes little scope for resulting trust and bona vacantia
• Thus members that contribute money will not get it back on resulting trust because per implied contract the money now belongs to all the members and only members at time of dissolution will get the money
• Resulting trust will only apply if property is transferred on trust for the purposes of the association (very rare because it would have to be a valid NCP trust)
• Bona Vacantia only applies if last member of association and his family cannot be identified

Question 52

Re Gillingham Bus Disaster Fund

Answer 52

Where donors do not part with their money absolutely but only with the intent that it be used for the declared purpose, the surplus will be held on resulting trust for their benefit.

Facts:
After a bus killing marching cadets, a fund was established for “among other things, to defraying the funeral expenses, caring for the boys who may be disabled, and then to such worthy cause or causes… as the mayors may determine”. Part of the contributions came from identifiable subscribers but most came from street collections. Question of surplus after dissolution.

Held:
Resulting trust for the donors.

Judgment:
Harman J
- When subscribers did not part with his money absolutely but only with the intent that his wishes are declared by the purpose of the trust, the surplus will belong to them
- This does not rest on evidence of donor’s state of mind (for most would not expect their money back)
- Crown failed to show that this case should not follow ordinary rule of resulting trusts just because a number of donors are unascertainable, because small givers do not have wider intentions than large ones – they all give for one object

Question 53

Re West Sussex Constabulary Trusts

Answer 53

Where money comes from multiple sources, it will be split and different sources can employ different mechanisms. Subscribers who gained contractual benefits cannot have resulting trust.

Facts:
Fund for providing payments to widows and dependants of deceased members of the West Sussex Constabulary had a clause that provided that members who resigned should forfeit all claims to fund. Funds came from members’ subscriptions, proceeds from raffles, collecting boxes, donations etc. Funds ceased.

Held:
Where a donation is made for the specific purpose of the fund, the donor is entitled under a resulting trust; money received from other sources are bona vacantia

Judgment:
Goff J
- Argument that funds belong to surviving members rejected because this is not a members’ clubs case:
o It doesn’t look like one – it’s a pensions fund
o All those cases the club existed for benefit of current members while this existed for third parties
- Argument of resulting trust would divide moneys into a) contributions of former members, b) contribution from surviving members and c) outside sources
o Surviving members take (b) and possibly (a) (clause)
o (c) is bona vacantia or distributed to donor
o (a) can be returned to donors
- Members until death obviously excluded because they got all the contractual benefits (got funding or weren’t widows)
- Other members also excluded because contractual benefits thus (a) and (b) are bona vacantia
Funds from outside sources are held on resulting trust

Question 54

Re Bucks Constabulary Society (No. 2)

Answer 54

In clubs where upon dissolution there are members, surplus is held on trust for them to the total exclusion of claims on behalf of Crown.

Facts:
On dissolution of the fund issue was whether the surplus was to be distributed among existing members or bona vacantia

Held:
Distributed to members.

Judgment:
Walton J
- Implied contract that when a member leaves he will no longer have interest in funds (unless expressly otherwise)
- Unclear when a society is moribund: if only one member remains there is no society and assets become ownerless, but two members can continue (not followed in Hanchett)
- Distinguished from Re West Sussex because that was a UA and this was a friendly society so S49(1) of 1896 Act applies but also criticizes Goff J’s analysis:
o Goff J’s main argument was that it wasn’t a member’s club, but this is plainly wrong – the purpose was different from a members’ club’s but we must ask why a separate principle should be applicable
o Argument that funds benefited third party must also fail because it wasn’t a charity as members could alter the rules to diver the money to themselves
o Goff J’s reliance on Cunnack is unacceptable because that case is exceptional on its facts resting on a principle of 1829 Act that no longer applies
- Thus on dissolution where there are members in existence, assets are held on trust for the members to the total exclusion of claims on behalf of the Crown

Question 55

Davis v Richards

Answer 55

Contractual benefits doesn’t conclusively preclude RT but the circumstances of the case does.

Facts:
On dissolution of a pension fund derived from contributions from employers (had to pay ‘whatever was necessary’) and employees (had to contribute 5% of salary and got pension + benefits in return) and transferred from other schemes, there is a trust deed providing employers were entitled to surplus.

Held:
Trust deed was valid but if not then surplus from employees’ contribution would have been bona vacantia (resulting trust excluded by a contrary intention)

Judgment:
Scott J
- Argument that if the context in which rights arise is contractual a resulting trust will be excluded, but if they arise out of trust it applies, rejected as inconclusive
- Thus the fact that payment was made under contract and payer got all contractual benefits doesn’t preclude RT
- Though both employers and employees contributed under contract the difference was that the latter was certain in amount: thus benefits funded first by employees and surplus as funded first by the employers
- No resulting trust from employees’ contribution because each was supposed to benefit unequally (depending on age, length of service etc.) so a RT would lead to an unworkable result and would also exceed the maximum permitted by legislation
NB criticized in Air Jamaica – argued that it is not obvious that when employees are promised certain benefits they shouldn’t get a return of excess contributions.

Question 56

Re Sick and Funeral Society

Answer 56

If there are different classes of members entitled to different benefits, this is to be reflected in the distribution of surplus funds, and not the proportion of contribution of members.

Facts:
Society to provide sickness and death benefits to members had members under 13 paying 0.5d a week and others paying 1d, with full members getting double benefits. On dissolution ex-members excluded for failure to pay offered to pay all arrears and participate

Held:
Distribution of full shares for full members and half shares for half members; ex-members excluded

Judgment:
Megarry J on method of distribution
- Two possibilities
o Full members get full shares and half members get half shares
o Distribution in proportion to contribution
- Inequality among classes of members is different from inequality among members of same class based on contribution

Question 57

Westdeutsche Landesbank v Islington

Answer 57

For a resulting trust to arise, it must be intended or be able to be presumed to have been intended. Resulting trusts can arise in two circumstances: 1) where A makes a voluntary payment to B there is a presumption that A didn’t intend to make a gift to B and the money is held on trust for A and 2) where A transfers property to B on express trusts that are declared not to exhaust the whole beneficial interest.

Judgment:

• Where A transfers property to B on express trusts but the trusts are declared not to exhaust the whole beneficial interest, a resulting trust arises
• This depends on intention and does not operate automatically – if settlor expressly or impliedly abandons beneficial interest in the trust, there is no resulting trust

Question 58

Hanchett-Stamford v A-G

Answer 58

When an association dissolves any surplus funds go to the members of the association. Where dissolution is automatic because only one member remains, he gets the surplus.

Facts:
Performing and Captive Animals Defence League (purpose of banning animals performing) had no charitable status because it was meant to change the law. C was the only surviving member and unwound the society, seeking to claim the money.

Held:
The society was not charitable but she could claim the money as the sole surviving member of an association (when the association ends any surplus funds go to the members)

NB this did not follow Lord Walton’s dicta in Re Bucks Constabulary Trust which said that if only one member remained he couldn’t call himself the society so the assets become ownerless.

Question 59

Re William Denby Fund

Answer 59

Societies or funds should be regarded as dissolved and assets distributable when: 1. In accordance with rules, 2. By agreement of interested persons, 3. By court order or 4. When fund no longer has any effective purpose (“permanent loss of substratum”).

Facts:
Society to provide sickness and death benefits to members had members under 13 paying 0.5d a week and others paying 1d, with full members getting double benefits. On dissolution ex-members excluded for failure to pay offered to pay all arrears and participate

Held:
Distribution of full shares for full members and half shares for half members; ex-members excluded

Judgment:
Brightman J
- Four categories of cases where friendly society or fund should be regarded as dissolved and assets distributable:
1. In accordance with rules
2. By agreement of all interested persons
3. By court order
4. When fund no longer has any effective purpose (spontaneous dissolution)
- Funds can be spontaneously dissolved though doubt as to whether mere inactivity will suffice

Question 60

Re GKN Bolts

Answer 60

A club can dissolve spontaneously, but mere inactivity is insufficient – test is whether all the facts carry sufficient conviction that society is at an end and not merely dormant.

Facts:
Trustees of club established for benefit of company employees bought a sports ground. Later the club was in financial difficulties and sports ground was no longer in use, membership cards ceased to be issue, general meetings ceased to be held, and club ceased to be registered for VAT. Sports ground was sold. Issue was whether club ceased to exist and when, and when the assets were distributable to members.

Held:
Dissolution complete upon resolution to sell the sports ground as it was accepted then that the club could no longer carry out its objects. Assets distributed equally as in Re Bucks irrespective of length of membership/amount of contribution.

Judgment:
Megarry VC on when club dissolved
- Possible for a club to dissolve spontaneously; mere inactivity is not enough (as per Brightman J in Re William Denby) but inactivity coupled with other circumstances may be sufficient: test is whether facts carry sufficient conviction that society is at an end and not merely dormant
- “a cataleptic trance may look like death without being death”
On distribution of assets
- Should be distributed according to Re Sick and Funeral Society on a basis of equality (as there is nothing in the rules or anything else to indicate a different basis)
- There are different classes of members: full members, temporary members and honorary members. Only full members, who pay subscriptions, are entitled to assets

Question 61

Re St Andrew’s Allotment Association

Answer 61

Surplus assets are to be distributed equally between all members but where certain members had contributed advances they are to get these returned.

Facts:
Society for the benefit of association and its members (shareholders and allotment holders), where if rent was one month in arrears membership should lapse. Association became inactive in 1961 (no further dividends paid on shares, no rent, no meetings), but some allotment holders continued to cultivate their plot. Land was sold and method of distribution questioned.

Held:
Those ceased to be members before 1961 were excluded.
Those who paid no rent since 1961 were excluded.
Assets distributed between all members per capita and not in proportion to the amounts contributed.
However the shareholders had also advanced on their shares and the capital so advanced should be repaid.

Question 62

Re Hobourn

Answer 62

A resulting trust is distributed in a manner proportionate to the total contributor of each.

Facts:
Fund to assist employees who had suffered damage as a result of air raids was dissolved.

Held:
This went to a trust fund and distribution was proportionate to the total amount that each had contributed.

Question 63

What purpose, if any, is served by the rule against non-charitable purposes trusts?

Intro

Answer 63

1. reinforcement of the beneficiary principle
   - but reinforcement of the BP only makes sense if predicated upon a proprietary view of trusts.
   - essay takes the view that the obligational view is preferred, and thus the beneficiary principle should be conceived in terms of enforceability
2. Main argument = the rule against non-charitable purpose trusts should be dropped if there is an enforcer
3. if there is no enforcer, (a) there is reason to question whether the rule against non-charitable purpose trusts has any meaningful purpose to play in upholding the beneficiary principle due the the BP’s hollowing out in Re Denley and (b) due to the role of other grounds of trust invalidity: public policy, excessive duration, and certainty.
4. A final purpose which will be examined is whether the rule against non-charitable purpose trusts helps to cement the special status of charity.
5. In light of the fact that the purposes served by the rule against non-charitable purpose trusts are limited, this essay will argue that the rule should be scrapped.

Question 64

What purpose, if any, is served by the rule against non-charitable purposes trusts?

1. Reinforcement of the BP

Answer 64

The BP states that a trust can only be valid if it has a beneficiary. Per Harman J in Re Wood, ‘a gift on trust must have a cestui que trust’. Thus, it is axiomatic that non-charitable purpose trusts should in general, be invalid. While for charitable purposes trusts the AG or Charity Commission can request a trust be enforced, in non-charitable trusts, there is in most cases no one to this (NB where is there??)

However, the extent to which ‘reinforcement of the beneficiary principle’ can be deemed a valid purpose of the rule against non-charitable trusts depends upon the conception of the BP adopted.

Question 65

What purpose, if any, is served by the rule against non-charitable purposes trusts?

2. The different conceptions of the BP

Answer 65

The BP is a facet of the proprietary vision of trusts - it is an argument that a trust should only be valid as such only if it involves B holding property for C, who has an ‘interest’ in the property; the ‘ownership’ understanding of the beneficiary principle, viz. that the BP is predicated on the notion of someone having ‘equitable ownership’ of the trust property, is a fortiori. Per Grevling, this proprietary vision of trusts aligns with, and is presumably rooted in, a desire (for libertarian reasons - perhaps discuss Gardner’s article re property intertia) to maximise the extent to which the settlor’s dispositions gives full rights to a recipient. rather than confirming the recipient’s enjoyment within the bounds of the settlor, and to minimise the damage that trusts do to the economy, by ensuring that the wealth concerned remains fully accessible to the market. These desiderata are only fully met if the trust gives the recipient a malleable entitlement. So, the beneficiary principle, conceived in this way, becomes an argument for saying that other trusts, either require justification in some way (As charitable trusts, which have utilitarian and communitarian justifications) or emerge as unacceptable (as in the cases of non-charitable purpose trusts and Re Denley trusts to benefit persons in kind).

Thus, the rule against non-charitable purposes trusts serves a purpose: upholding such a proprietary conception of the BP.

Question 66

What purpose, if any, is served by the rule against non-charitable purposes trusts?

3. Taking an obligational view of trusts

Answer 66

We should take an obligational view of trusts and of the beneficiary principle. According to this conception, the rule against non-charitable purpose trusts does not serve any purpose in this area.

The obligation view of trusts focuses not on the beneficiary having a crystallised interest, but on B holding the legal title to the property, owing obligations regarding its use. This conception of trusts has the ability to capture not only trusts involving the giving of an entitlement to a recipient (the classic fixed trust), but also trusts which do not feature beneficial interests, such as Re Denley-type trusts, charitable trusts and the anomalous examples of non-charitable purpose trusts that exist (e.g. Re Endacott), which though not featuring beneficial interests, do feature obligations on the trustee.

Thus, according to the obligational vision of trusts, there is no need for a trust to have beneficiaries, but it must involve trustees’ obligations. Based on this, assuming that a trust counts as involving trustess’ obligations only if said obligations are legally enforceable, it is possible to say that the existence of a valid trust depends not on the existence of beneficiaries (the BP principle) but instead on the presence of someone to enforce the obligations - this is the ‘enforceability principle’. The view that a trusts’ validity depends on there being someone to enforce it has judicial support from Grant MR in Morice v Bishop of Durham: ‘there must be somebody, in whose favour the court can decree performance,’ and Lord Eldon LC in that same case

(NB see Hayton)

Question 67

What purpose, if any, is served by the rule against non-charitable purposes trusts?

4. Summary of argument thus far

Answer 67

the rule against non-charitable purpose trusts serves the purpose of upholding the beneficiary principle. However, for reasons examined, such as a conception is problematic for it does not include all types of trusts. So, an obligational conception of trusts is to be preferred, which means that the beneficiary principle is better conceived of as an enforceability principle. If this is so, then the rule against non-charitable purpose trusts loses its main purpose, for reasons discussed below.

NB - is there any support in the case law? - LIMITED!

Question 68

What purpose, if any, is served by the rule against non-charitable purposes trusts?

5. If there is an enforcer, then non-charitable purpose trusts should be valid

Answer 68

Therefore, it is axiomatic that, as Harris argues, there is no reason why a settlor/personal representative should not be given leave to apply to the court on the failure of a pure purpose trust. This addresses one of the key justifications of the rule against non-charitable purpose trusts: there is no one with locus standi to apply to the court should the trustees fail to carry out their duty. Hayton similarly argues that the bP should be regarded as the ‘enforceability principle’; non-charitable purpose trusts should only need someone intended by the settlor to enforce them. If the settlor has given someone locus standi to enforce the trust, then the trust should be valid subject to requirements of administrative workability and the valid perpetuity period; so long as there is sufficient practical certainty for the trust to be carried out according to the expressed intentions of the settlor (per McPhail v Doulton) then there should be a valid trust. Thus the rule against non-charitable purpose trusts would take a new meaning: only those non-charitable purpose trusts without an enforcer would be invalid.

Question 69

What purpose, if any, is served by the rule against non-charitable purposes trusts?

6. Parkinson’s examples
   (a) Baden litigation

Answer 69

Hayton’s argument is similarly based upon an obligational view of the nature of trusts. As to why such a view should be adopted, Parkinson provides a convincing hypothesis. Parkinson provides the following examples as to why it is incorrect to think of trusts always in terms of legal and equitable ownership: it may be impossible for the rule in Saunders v Vautier to apply, for it may be impossible to say where the beneficial interest may lie - as in the trust which was the subject of the Baden litigation, where the class is so wide that no list of beneficiaries can be drawn up-and thus, the legal estate would vest in the trustees without a symmetrical equitable estate being located elsewhere;

Question 70

What purpose, if any, is served by the rule against non-charitable purposes trusts?

6. Parkinson’s examples
   (b) other examples of the legal estate being held on trust without symmetrical equitable estate being located elsewhere

Answer 70

(i) Re Denley
(ii) Quistclose trust

Hence, per Parkinson, the core idea of a private express trust lies in the notion of equitable obligations in relation to property, which in most cases will also give to beneficiaries commensurate property rights in equity. This obligations-based approach helps more clearly to answer the Q of what is the irreducible core content of the trust idea. It is possible to have a trust without being able to locate an equitable estate in proeprty held on trust. But it is not impossible to have a trust without enforceable obligations owed to those who are intended to gain the benefit of the property held on trust.

Hence, the rule against non-charitable purpose trusts becomes purposeless when an obligational view of trusts is adopted (which is desirable per the para above), which means that the rule’s main purpose under the proprietary vision of trusts becomes redundant, and militates in favour of a dropping of the rule against non-charitable purpose trusts.

Question 71

What purpose, if any, is served by the rule against non-charitable purposes trusts?

7. The impact of Re Denley on Purpose 1

Answer 71

However, even if what has been said above is wrong, it can be questioned to what extent the rule against non-charitable prupose trusts really does serve the purpose of reinforcing the beneficiary principle due to the hollowing out of the beneficiary principles in Re Denley: a trust that appears to be for a non-charitable purpose might be valid if the purposes can be regarded as directly or indirectly benefitting ascertained individuals. While these individuals do not have a proprietary interest, the benefit they obtain gives them a factual interest so they have locus standi to enforce the trust if necessary.

(NB Re Denley is controversial and some commentators would get rid of it i.e. Swadling)

Question 72

What purpose, if any, is served by the rule against non-charitable purposes trusts?

8. Other Purposes served by the rule: filtering

Answer 72

Arguably, the rule against non-charitable purpose trusts prevents wastage of community resources - charitable purposes trusts are sui generis due to the utilitarian and communitarian concerns involved. This is one of the rationales of the BP; in Re Astor, Roxburgh J cautioned against the creation of large funds devoted to non-charitable purposes which no court or department of sate could control. But in light of hurdles of certainty and perpetuity which a non-charitable purposes trust would need to surmount, this justification for the rule seems unnecessary. These hurdeles include: public policy (Re Shaw), excessive duration, and certainty (e.g. Morice v Bishop of Durham).

Thus, though the rule against non-charitable trusts may serve a filtering roles as to the ‘quality’ of trusts, such as a purpose limited due to the presence of other filters on quality.

Question 73

What purpose, if any, is served by the rule against non-charitable purposes trusts?

9. Another purpose: Charity is ‘special’

Answer 73

The non-charitable purpose rule also emphasises that charity is special. By treating charitable trusts as an exception to the rule against pure purpose trusts, the rule against non-charitable purpose trusts shows the law’s and hence society’s implicit endorsement of charity, which serves valuable communitatrian and utilitarian functions. Further, such status is only granted where there is a recognise ‘public benefit’. Thus, this may not be a deliberate purpose of the rule, but is nevertheless an inadvertent purpose served by it - the endorsement of charity as a valuable social goal.

Question 74

What purpose, if any, is served by the rule against non-charitable purposes trusts?

10. Conclusion

Answer 74

The main reason against non-charitable purpose trusts = the reinforcement of the BP, but due to the preferability of the obligational view over the proprietary one, it was found that this was not really a convincing purpose of the rule.

Besides, the extent to which the rule would have upheld the BP has been undermined by Re Denley.

Other purposes examined were: the rule acting as a quality ‘filter’ - but this was deemed to not be a significant purposes; and the promotion of charity.

However, equity ought to give effect to the settlor’s intentions unless there is some good reason not to, and given that pure purpose trusts may represent desirable social experiments falling outside the realm of charity e.g. Re Shaw - a trust for researching into a new alphabet, the lack of meaningful purposes served by the rule against NCPT means that it should be changed: so long as there is someone to enforce the trust, such trusts should be valid.