TRUSTS AND THE MODERN COMMERCIAL WORLD

Question 1

Trusts and the Modern Commercial World

Answer 1

• Lord Browne-Wilkinson in Target Holdings v Redfernssaid that it is important “to distinguish between the basic principles of trust law and those specialist rules developed in relation to traditional trusts which are applicable only to such trusts and the rationale of which has no application to trusts of quite a different kind”
  
  • Flagging that there are some situations where we need to take into account the context in deciding what principles are engaged
  • Not saying that there are two laws of trusts (i.e. one for traditional trusts, operating in the family or land context, and then commercial trusts), he is saying that you need to consider context in deciding how things pan out
    
    • Concerns around the detergent effect of imposition of certain duties and obligations when it is a bare trust as opposed to someone holding a family’s accumulated wealth on trust for the children
• Law Commission has committed to reforming the law of trusts in its current reform of the law
  
  • In an earlier declaration, the Commission said that the way in which people own property is pervaded by the law of trusts

Question 2

Property management

Answer 2

• Conferral of management powers over property
  
  • Allow trustee to have legal ownership and deal with it in the best interests of the beneficiaries
  • In Shell v Total, we see the benefits of having a trust mechanism, as Shell was able to have a shell company own the pipelines and thus have more people using the pipes as legally permissible. But, Shell did not have legal title to the property. This shows the supposed utility of trusts as well as the potential disadvantages (especially not having legal ownership)
• Pooled investments
  
  • Make more success of investments
• Pension funds
  
  • Involve property being held on trusts, where employers and employees contribute, and the pooling of the resources of the funds to invest in major sectors
• Purposes (charitable ones)

Question 3

Thanakharn Kasikorn Thai Chamkat v Akai Holdings

Answer 3

• Lord Neuberger highlighted that “the question when it is right to invoke an equitable right in a commercial context is not always easy to resolve”
• Equitable principles might be deployed by companies seeking to recover or avoid paying out

Question 4

Scholars and thinkers on trusts in the commercial context

Answer 4

• Sir Anthony Mason: “trusts are created in commercial settings and commercial transactions are so structured that they provide scope for the creation of relationships recognised in equity, with consequences for proprietary remedies and for third parties”
• Man Yip: if we allow principles to be shaped by the contractual agreements between the parties, trusts may “become further distorted in the pursuit of commerce”
  
  • “Courts may come under the temptation and even the pressure to conveniently adapt private law principles to suit commercial objectives … context is relevant but the manner in which it is relevant differs from case to case”

Question 5

AIB Group v Mark Redler

FACTS

Answer 5

• The bank, as a result of the solicitors missing an existing charge on the property, lost a lot of money. Because of a fall in the property market, the property is now worth much less (they lost £2.4m).
• The bank argued that the solicitor breached their duty and caused the bank a loss. The solicitor admitted to the mistake, and said they were liable for the £275,000 lost because of this mistake. The bank then argued that because of the fiduciary duty, part of which is to make good of the loss suffered as a result of the transaction as a whole, and because the breach was part of that the solicitors should be liable to repay the trust fund as a whole
• The solicitors were only liable for the £275,000, and not the overall amount

Question 6

AIB Group v Mark redler

RULING

Answer 6

• Lord Toulson said that “it is a fact that a commercial trust differs from a typical traditional trust in that it arises out of a contract rather than the transfer of property by way of gift. The contract defines the parameters of the trust. Trusts are not commonly part of the machinery used in many commercial transactions”
  
  • This is important because of the involvement of trusts in the financial market
  • It is not the case that there are two different principles for commercial and traditional trusts, but that “commercial trusts may differ widely in their purpose and content, but they have in common that the trustee’s duties are likely to be closely defined and may be of limited duration”
  • The contract in question gives the scope of the trustees’ duties

Question 7

Trusts and the financial crisis

Answer 7

• A significant number of appellate level trust related decisions are borne out of the global financial crisis
• In Lehman Brothers Holdings Intermediate 2 v Lomas, Lewiston LJ said “the collapse of Lehman Brothers in September 2008 sent shock waves around the financial world”
  
  • LB was an investment bank that went bankrupt, and this had knock on effects around the world, and various British and US banks were bailed out because of this
• The financial crisis is a driver for the development of the law of trusts
• This will have an influence going forward in the wake of Brexit’s effect on the economy
  
  • There are some concerns that leaving the EU without a deal will be worse for the British economy than the financial crisis
  • The global financial crisis was of such a large scale, some think it will not be seen again
• Understanding the commercial context