Trusts - Express trust creation

Question 1

Re Gulbenkian’s Settlement (Whishaw v Stephens) [1970] AC 508.

certainty of objects - powers

Answer 1

The power was valid.
The ‘is or is not’ test is applicable to the certainty of objects of powers

A settlement contained a power to appoint in favour of any person relating to G’s son, including his wives, children, or “any persons or persons by whom [G] may from time to time be employed and any person with whom [G] from time to time is residing”
It was argued that the power was void for conceptual uncertainty and the main focus of the attack was on the concept of “residence”

Question 2

Re Hay’s Settlement [1982] 1 WLR 202 at 209

failure to consider

“The trustee must not simply proceed to exercise the power in favour of such of the objects as happen to be at hand or claim his attention. He must first consider what persons or classes of persons are objects of the power within the definition in the settlement or will. In doing this, there is no need to compile a complete list of the objects or even to make an accurate assessment of the number of them: what is needed is an appreciation of the width of field, and thus whether a selection is to be made merely from a dozen or, instead, from thousands or millions. Only when the trustee has applied his mind to the size of the problem should he then consider in individual cases whether, in relation to other possible claimants, a particular grant is appropriate”. Sir Megarry VS+C

Answer 2

‘…the trustee is not bound to exercise a mere power, and the court will not compel him to do so. That, however, does not mean that he can…ignore it, for normally he must from time to time consider whether or not to exercise the power and the court may direct him to do this. Sir Megarry VC,

Question 3

Klug v Klug [1918] 2 Ch 67.

.

failure to consider

Answer 3

The court could interfere.
Neville J at 71: She has not exercised her discretion at all. “I think that in such circumstances it is the duty of the Court to interfere and, in the exercise of its control over the discretion given to the trustees, to direct a sum … “.

Facts: The beneficiary’s mother was a trustee and refused to approve a power of advancement to her. This was because mum was annoyed with daughter over her choice of husband

Question 4

Wright v Atkyns (1823) Turn & R 143 at 157.

certainty of intention

Answer 4

‘words must be imperative, and the subject and object certain’. Lord Eldon

Question 5

Tito v Waddell (No. 2) [1977] Ch. 106.

certainty of intention

Answer 5

use of the words ‘on trust for’ – compelling evidence of a trust but not always conclusiv

Question 6

Re Adams & Kensington Vestry (1884) 27 Ch D 394

certainty of intention - precatory words

Answer 6

There was no trust created

Cotton LJ
The question is whether on true construction of the will the testator imposed a trust on his wife
He did not intend a trust, but was only placing a moral obligation upon her to use the money to provide for the children

A testator gave all his real and personal estate unto and to the absolute use of his wife, and assigns, “in full confidence that she would do what was right as to the disposal thereof between his children, either in her lifetime or by will after her decease”

Question 7

Comiskey v Bowring-Hanbury [1905] AC 84

certainty of intention - precatory words

Reasoning: This cannot be a gift bc If you chose not to exercise the power it shall be divided in the surviving nieces + imperative language

NB: gift over in default of appointment:
Where a settlor has created a trust which gives the trustee a discretion on distribution of the trust property, the settlor may sometimes include an alternative gift in the event of a failure to distribute the property (reflextion: is this what the tutor was referring to as a default position)

Answer 7

In this case, although precatory words were used, the testator also included a gift over in default of appointment. This imposed a mandatory obligation. The court was able to find an intention to create a trust here as the settlor made it clear in the whole context of the will that a trust was intended by including instructions for the nieces to acquire a benefit in any event.

Lord Davey (with whom three of the law lords agreed): my conclusion is that the testator is speaking only of a default of any such disposition as he is confident she will make. This is a good executory limitation. (the word shall seems in the view of the majority, to have imposed an obligation).

Lord Lindley (dissenting): the limitation shows an intention to make an absolute gift to the wife

Principle: The court will look at the meaning of the words, their true effect and at the intention of the testator as expressed in the wi

I give to my wife: “the whole of my real and personal estate in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it to such one or more of my nieces as she may think fit and in default of any disposition by her thereof by her will I hereby direct that all my estate and property acquired by her under this my will shall at her death be equally divided among the surviving said nieces”.

Is this a gift or a trust?

Question 8

Lambe v Eames (1870-71) LR 6 Ch App 597.

certainty of intention - precatory words

Answer 8

Held: This was held not to create a trust as the words are clearly precatory (there is no clear intention to create a trust)
James LJ notes perverse effect on widow if precatory words are read as imposing an obligation. Watershed moment. Words must be imperative.

NB: Prior to that case precatory words may have been sufficient to lead to the conclusion that the testator intended to create trust (making the asset subject to an obligation). An obligation is better characterised as imperative/mandatory language.

=> Now precatory words prima facie taken to be words of a gift, not creating a trust. Words must be imperative, precatory words is merely moral encouragement. However, even if rights words used still need to read the document as whole.

*Facts**: In this case words were said that property was “to be at her disposal in any way she may think best, for the benefit of herself and her family”

Question 9

Midland Bank v Wyatt [1995] 6 WLUK 14.

certainty of intention - sham trusts

Young QC (sitting as a Deputy High Court Judge) at 22: “In short, subsequent to the execution of the trust deed nothing had changed in Mr Wyatt’s behaviour or attitude with regard to his dealings involving Honer House… I do not believe Mr Wyatt had any intention when he executed the trust deed of endowing his children with his interest in Honer House… I consider the trust deed was executed by him, not to be acted upon but to be put in the safe for a rainy day… As such I consider the declaration of trust was not what it purported to be but a pretence or, as it is sometimes referred to, a ‘sham”.

Voidable under s.423 of the Insolvency Act 1986 (transactions defrauding creditors)

Answer 9

Held: It was held that the purported trust was a sham, intended to place his property beyond the reach of his secured creditors, and that the trust was void.
Principle: Trusts to defeat the settlor’s creditors are void.

Facts: Mr Wyatt created express trust of family home, making himself trustee for his wife and children. However, he did not tell the beneficiaries, and continued to use the property as his own.

Question 10

Paul v Constance [1977] WLR 527.

certainty of intention - conduct

“It is, of course, right that one should consider the various things that were said and done by the plaintiff and the deceased during their time together against their own background and in their own circumstances” (Scarman LJ)

• Context is important: parties lack of expertise is noted by the court

Answer 10

Held: Constance had declared a trust over the money in the bank account → the reasoning was that the words “the money is as much yours as mine” manifested sufficient intention that Constance would hold the property on trust for them both

Furthermore, that the couple had treated the money in the account as joint money was taken to be evidence of the intention to create a trust

Principle: look at the words and the conduct of the parties should be taken into account to assess intention

Facts: Mr Constance left his wife to live with his mistress, Mrs Paul. Constance received a court award of £950 for an injury suffered at work, subsequently to which Constance and Paul decided to set up a joint bank account. After visiting the bank, they were advised that the account should be set up in the name of Constance alone because the couple were not married: therefore, Constance was the common law owner of the account

⇒ The £950 lump sum was paid into the account and formed bulk of the money held in it. The couple also added joint bingo winnings to the account, and used some for the money to pay for a joint holiday. Importantly, evidence was also adduced at trial that Constance had said to Paul “this money is as much yours as mine”

⇒ Constance died, and his wife sought to claim that the bank account belonged entirely to her deceased husband and that it therefore passed to her as his widow under the Intestacy rules. Mrs Paul, However, argued that the money was held on trust by Constance, as legal owner of the bank account, for both Constance and Paul as beneficiaries; therefore, she argued, the bank account should pass to her as sole surviving beneficiary

Question 11

Jones v Lock (1865) 1 Ch Ap 25

certainty of intention

Answer 11

No trust was created due to lack of intention.

A father put a cheque into the hand of his son of nine months old, saying, “I give this to baby for himself,” and then took back the cheque and put it away
He also expressed his intention of giving the amount of the cheque to the son
Shortly afterwards the father died, and the cheque was found amongst his effects

Question 12

Don King Productions v Frank Warren [2000] Ch. 291

certainty of intention - business common sense

Lightman J (affirmed on appeal) at 311: *‘The essential task in construction is to deduce, if this is possible, from the two agreements construed as a whole against their commercial background the commercial purpose which the businessmen and entities who were parties to them must as a matter of business common sense have intended to achieve by entering into them…’ ‘and if such intent can fairly be deduced and if this is necessary to effectuate that intent, the court may have to require what may appear to be errors or inadequacies in the choice of language to yield to that intention and be understood as saying what (in the light of that purpose) that language must reasonably be understood to have been intended to mean.’ *

Answer 12

Principle: intention can be inferred from business common sense.
Held: The partnership agreements were found, on their true construction, to show an intention that the management contracts were held on trust for the benefit of the partnership.

Facts: This case involved two famous boxing promoters; Don King was the leading boxing promoter in the USA and Frank Warren was the leading boxing promoter and manager in Europe. They formed a partnership agreement whereby they, and the companies which they controlled, agreed to exploit agreements with boxers in Europe for their mutual advantage. Under the partnership agreement each partner was entitled to hold the benefit of any existing or future management agreement for the benefit of the partnership. Subsequently, one or more of the partners attempted to terminate the partnership agreement and sought to argue that certain management agreements did not fall to be included in the partnership property. The question arose whether the partners held the benefit of their management agreements on trust for the partnership

Question 13

Re Burley [1910] 1 Ch 215:

certainty of intention

Answer 13

Held, that a trust was created.

absolute gift in will, followed by codicil using precatory words.

Question 14

Mills v Sportsdirectdirect.com Retail [2010] EWHC 1072 Ch

special case - certainty of intention

Answer 14

The court noted a clear certainty of intention of trust despite absence of written articulation as Sinjul had no part to play in the transaction except to have the custody of the securities until called upon to give them back.

Sportsdirect transferred proprietary interest in a set of securities in favour of KSF, an entity of which Mills was an administrator. The understanding was that KSF would assign the interest to Sinjul Nominees, a third party who was to act a mediator or a kind of escrow custodian. When called upon to do, KSF was to restore the securities to Sportsdirect. KSF went insolvent and SD sued claiming a trust on the shares with Sinjul. In a normal straightforward transaction, it would not have stood a chance but here Sinjul was holding the securities ‘in trust’ and so SD recovered its rights. Loan you some shares and in exchange you will do x. When the solicitors negotiated : here is their correspondence.

• KSF: “[E]ssentially, we will put all of the stock into your account in the investment management business which is segregated, you provide us with the cash and then we will send it free of payment . . .”
• SD: “And where is it held currently?” …
• KSF: “Currently, it’s in Treasury, so that’s our account effectively, with that investment management business. So we can transfer that almost immediately.
• SD: “How can we get comfort that that legal process is safe and that transaction of moving it into that segregated client account is safe?”
• KSF: “That’s the crux.”
• SD: “That is the crux of it yes?”
• KSF: “Exactly. I need to send you a note to that effect to give you that comfort.”
• SD: “And I need legal people to sort of say that it is then ringfenced and secure?”
• KSF: “Sure.”
• Context and detail: discussion revealed agreement funds would be protected in a segregated client account. The asset is being ring-fenced, held until something is done for the benefit of another – even though trust is not used, the characteristics of it are present.

Question 15

Mussorie Bank v Raynor (1882) LR 7 App Cas 321

certainty of intention - lookingat things in the round

Answer 15

Sir Arthur Hobhouse stated: “uncertainty in the subject of a gift has a reflex action upon the previous words, and throws into doubt the intention of the testator”.

If the subject-matter is unclear reflects the certainty of intention : enabling to be more confident that you were not intending to set up a trust.

Question 16

Re Golay [1962]

certainty of subject matter

Answer 16

In this case it was held that a provision that a ‘reasonable income’ be provided out of a fund could be held to be valid if one could make an objective measurement of what would constitute a reasonable income in any particular case

Held: So, although leaving ‘reasonable income’ does seem vague and uncertain, the court here held it to be sufficiently certain

Ungoed-Thomas J [970]: “… testator had provided an effective determinant … [972] … the yardstick indicated by the testator is not what he or some other specified person subjectively considers to be reasonable but what he identifies objectively as “reasonable income”’.

” The court is constantly involved in making such objective assessments of what is reasonable and it is not to be deterred from doing so because subjective influences can never be wholly excluded. In my view the testator intended by “reasonable income” the yardstick which the court could and would apply in quantifying the amount so that the direction in the will is not in my view defeated by uncertainty”.

Testator directed his executors to allow the beneficiary to “enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties”

Question 17

Palmer v Simmonds [1854] 61 ER 704

certainty of subject matter- the bulk

Answer 17

Held: It was held that the subject matter of this trust was too uncertain by dint of the vagueness of the expression “the bulk”

However, a trust of all of the residue of an estate – the remaining property when all debts have been paid, money owed called in, tax paid and specific bequests made - will not fail for uncertainty of subjects → this is sufficiently certain!

Facts: A testatrix left “the bulk of her estate” on certain trusts

Question 18

Sprange v Barnard (1789) 2 Bro CC 585.

certainty of subject matter - the residue

Answer 18

Held: This statement was too uncertain for the trust to take effect over any part of the property because the property was not sufficiently clearly identified by the expression “the remaining part of what is left”

The court stated that a disposition of ‘the residue’ of the testator’s estate is sufficiently certain but a disposition of property ‘to Ant, and whatever remains after he has taken what he needs to be given to Dec’ does not confer a trust in favour of Dec

. A testatrix made the following provision in her will: ‘ … for my husband Thomas Sprange, to be will to him the sum of £300 … for his sole use; and at his death, the remaining part of what is left, that he does not want for his own want and use, to be divided between [other named legatees]

Question 19

Re Last’s Estate [1958] P 137.

certainty of subject-matter - the residue

Cf Comiskey v Bowring Hanbury. These cases are not easy to reconcile

= You want to distinguish them and say which one should be chosen. The first case was about income and not capital.

Answer 19

Held: sufficiently clear

Anything that is left’ of the testator’s estate.

Question 20

Anthony v Donges [1998] 2 FLR 775

three certainties - gifts

Answer 20

Held: Void for uncertainty (but wife could make family provision application) => policy decision (on the acts, not dramatic that there was no trust).

Testator’s widow to receive “such minimal part of the estate as she might be entitled under English law for maintenance purposes”.

Question 21

Re London Wines Co. (Shippers) Ltd. [1986] PCC 121

certainty of subject-matter- segregation (chattels)

Here: tension with creditors, third parties

Did insolvency context influence the judges (?)

Sales of Goods (Amendment) Act 1995 reversed the effect of this decision in so far as goods are concerned, making purchasers co-owners of the bulk.(held under a Joint Tenancy for the purchaser)

Answer 21

Cs’ claim failed; no trust was created as there was uncertain subject matter
Priniciple: Segregation of chattels from a bulk is required for the subject matter of a trust to be certain.

No two bottles of wine are exactly the same; wine may deteriorate, become corked, etc.

Receiving claims from purchasers that this is not part of the asset of the company.

Contract: the company unable to fulfill the agreement. Line of creditors. The liabilities exceed the assets => means not going to get much. The only way to secure the wine – subject to a trust (no longer an asset of th2e wine company, the company becomes a trustee). You intend to hold the wine until it is shipped to the purchaser. The subject matter is problematic, in the warehouse all the bottles are not labeled.

Question 22

Hunter v Moss [1994] 1 WLR 452

certainty of subject matter - segragation(shares)

Answer 22

Valid trust was created
CA’s holding : Dillon LJ does not place the same emphasis on tangible/intangible distinction, rather they were indistinguishable from one another: being all shares of the same class (fungibility – the shares are indistinguishable from one another = identical).

he distinguished: The facts in this case are distinct from Re London Wine Co, since Re London Wine Co concerned the passing of property in chattels
Just as a person can give by will as specified number of shares of a certain class in a certain company, so equally can he declare himself trustee and give beneficial proprietary interest to the beneficiary under the trust

• Permission to appeal to HoL’s refused.

The claimant agreed to work for M in return for a salary and 5% shares in the company (Moss Electrical Company). The title to the shares never transferred.
* Self-declaration trust: 50 of the 950 shares held by H for M.
* They fell out. H goes to work elsewhere but demands transfer of shares.
* Defendant relies on re London Wines: impossibility to segregate form the bulk.

First instance: Rimer J held there was valid trust.

=> Distinguished re London Wine: that case dealt with tangible property, this case deals with intangible property.

=> The shares, he says, are identical: [946] “each of them could satisfy the trust just as well as any other of them”.

Question 23

Re Goldcorp Exchange Ltd [1995] AC 74

certainty of SM - segregation

Answer 23

No trust was created due to lack of certainty of subject matter.
Only those whose bullion had been segregated from the bulk were successful

Goldcorp Exchange Ltd offered investments in gold and other precious metals. In respect of ‘non-allocated’ transactions, its brochure stated that it would store and insure customers’ bullion and that it would maintain sufficient stocks. A monthly audit would take place. An investor could order delivery, at which point metal would be separated and issued.

However, it did not keep sufficient stocks. Moreover, it did not allocate what stocks it did have to these investors. The obligations arising from those representations (held to amount to a contract for the sale of unascertained goods) were precise, and amounted merely to the right to the relevant amount of precious metal. However, the common perceptions of the investors were that they had bought not rights to the precious metal, but the metal itself.

Goldcorp became hopelessly insolvent. Because the bullion it had in stock was insufficient to meet the security under its debentures and a floating charge in favour of the Bank of New Zealand, there was nothing at all left available for unsecured creditors like these investors. They therefore sought a proprietary remedy under a trust in order to obtain super-priority ahead of the debenture-holders and the bank.

Gold bars and coins: Gold stored the gold in the vault and when you need it, we can sell it or we can ship it out.

Claimants: investors who had paid for, but not yet taken delivery of, the bullion when the gold trading company went into insolvency => will stand in the line of creditors.

Question 24

Re Harvard Securities Ltd [1998] BCC 567

certainty of SM - segregation

Answer 24

The shares were held on trust for the clients.

Neuberger J
Re London Wines and Re Goldcorp are distinguished from Hunter v Moss on the same ground that Hunter was concerned with shares as opposed to chattels
Shares, debt or funds are to be treated differently from chattels

Commentary
Neuberger J was himself unconvinced by the distinction between chattels and intangible assets but thought he was bound by precedent

A company purchased shares on behalf of clients and retained legal title in the shares as nominee for each client
The company later went into liquidation.
Did the clients have beneficial interest in the shares even though the shares had not been allocated to them?

Question 25

Pearson and others v lehman brothers finance sa and other [2011] ewca civ 1544

certainty of SM - segregation

Question 26

Boyce v Boyce [1849] 60 ER 959.

certainty of SM

Answer 26

Held the trust failed because it was uncertain which house Maria would have chosen, and which would go to Charlotte.
Vice-Chancellor Shadwell [960]. ‘…the gift in favour of Charlotte was a gift, not of all the testator’s freehold houses situate on the North Cliff in Southwold, but of all the other of his freehold houses which Maria should not choose; and, therefore, it was only a gift of the houses that should remain, provided Maria should choose one of them: that no choice had been, or, indeed, could have been made by Maria, and, therefore, the gift in favour of Charlotte had failed.

The testator left four houses on trust for his daughters, under the condition that his daughter Maria would choose the one she wanted, and the remaining three would then go to his other daughter Charlotte. Maria died before her father, and it was unknown which house she would have chosen

Question 27

IRC v Broadway Cottages [1955] Ch 20.

certainty of objects

Answer 27

The trust was void for uncertainty.
This case formulated a ‘complete list test’ which states that discretionary trusts are valid only if it is possible to ascertain the identity of every single member of the class (i.e. to make a complete list) of potential beneficiaries

Was a valid trust created?

The settlor settled a sum of £80,000 upon trust
The trust directed the trustees to apply the income of the trust fund to persons who were employed by himself or his family during a certain period of time
The trustees had free discretion to select which members of this class of beneficiaries to distribute to.

Question 28

Re Benjamin [1902] 1 Ch 723

certainty of objects - missing beneficiary

The Benjamin order protects the trustees, but not any overpaid beneficiaries who remain vulnerable to claims within the limitation period. (allow the trustee to distribute the sum equally between the other beneficiaries – if the missing bene then turn up can recover the asset)

Answer 28

The High Court held that the missing beneficiary could be presumed to have died in 1892. They therefore gave the trustees permission to distribute the estate on the assumption that the son had died before his father.

This Case is Authority For…
If the trustees cannot find a particular beneficiary with all practicable steps, they can apply to the court for a ‘Benjamin order’. This allows them to administer the trust on the basis that the missing beneficiary is dead. If the beneficiary then re-emerges, they have no action for breach of trust against the trustee.

A testator died in 1893, leaving his property to his children. One of his sons had disappeared on his travels a year prior, and no one could contact him or knew where to find him. The trustees applied to the court, asking how to administer his share.

Question 29

Re Evans [1999] 2 AII ER 777

certainty of SM - missing beneficiary

Answer 29

Decision
The High Court granted partial relief from liability, reducing the amount which Westcombe had to pay. The nature of the estate, the fact that it was understandable to assume Evans was dead, and the fact that Westcombe acted on legal advice without having any personal expertise in the matter made it appropriate to grant her a degree of relief.

This Case is Authority For…
When deciding whether to grant a trustee relief from liability, relevant factors include whether the trustee is a professional or an amateur, their reason for acting, the extent of the breach, and whether they sought and relied on expert advice.

Other
The court noted that having legal advice does not automatically entitle the trustee to relief, however.

A man died intestate. His two children were estranged from each other. His daughter, Westcombe, became the administrator of the estate. Unable to contact her brother, Evans, Westcombe assumed that he was also dead. She subsequently distributed the estate entirely to herself. However, on the advice of solicitors, she took out insurance in case her brother turned out to be alive.

Six years later, Evans resurfaced. The insurance policy paid Evans for his share of the estate, but without interest, so Evans sued Westcombe for the interest. Westcombe sought relief for breach of trust under s.61 of the Trustee Act 1925.

Question 30

Re Gestetner Settlement [1953] Ch 672 and Re Park [1932] 1 Ch 580.

Question 31

re Gibbard [1966] 1 AII ER 27

Question 32

Mcphail v Doulton [1971] AC 424.

discretionary trusts - certainty of SM

Goff J at first instance, interpreted clause as a power and held it as valid. Applied re Gulbenkian.

Court of appeal (majority): if the court construed a trust, it would fail for certainty of objects. Whether it constituted a mere power or a trust was so finely balanced a question that the court ought to decide in a favour of a mere power so that the deed might have a chance of being valid. Remitted to HC to apply test.

• Appeal allowed: HoL invited to decide appropriate test. Lord Willberforce:

“It is striking how narrow and, in a sense, artificial is the distinction, in cases such as the present, between trusts or as the particular type of trust is called, trust powers, and powers … A layman and, I suspect, also a logician would find it hard to understand what difference there is. It does not seem satisfactory that the entire validity of a disposition should depend on such delicate shading … Such distinction as there is would seem to lie in the extent of the survey which the trustee is required to carry out: if he has to distribute the whole of a fund’s income, he must necessarily make a wider and more systematic survey than if his duty is expressed in terms of a power to make grants.”

“…as to the trustees’ duty of inquiry or ascertainment, in each case the trustees ought to make such a survey of the range of objects or possible beneficiaries as will enable them to carry out their fiduciary duty (cf. Liley v. Hey). A wider and more comprehensive range of inquiry is called for in the case of trust powers than in the case of powers”

“I desire to emphasise the distinction clearly made and explained by Lord Upjohn ( [1970] A.C. 508 , 524) between linguistic or semantic uncertainty which, if unresolved by the court, renders the gift void, and the difficulty of ascertaining the existence or whereabouts of members of the class, a matter with which the court can appropriately deal on an application for directions. There may be a third case where the meaning of the words used is clear but the definition of beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is administratively unworkable or in Lord Eldon’s words one that cannot be executed.”

Answer 32

The House of Lords unanimously rejected the conclusion that this was a mere power. The particular imperative words chosen, which did not include a gift over, indicated a duty to distribute the whole of the relevant property. This was consistent only with a discretionary trust and not a mere power. By a bare majority, the House held that the relevant test was whether any given postulant could be said to be in the class or not (the ‘individual ascertainability’ or ‘in-or-out test’), as for a mere power.

For the minority, Lord Hodson (from 437), with whom Lord Guest agreed, explained the rationale for the previous line of thought. The ‘complete list’ test was thought to be necessary so that the court could control the trust in the event of the trustee’s default:Morice v Bishop of Durham(1805) 10 Ves 522, 32 ER 947.

Facts: The chairman and managing director of a company of some 4,300 employees, Bertram Baden, attempted to create one such trust. The deed provided that ‘[t]he trustees shall apply [income] … as they see fit’ to provide for ‘the staff of the Company and their relatives or dependants’.

It was thought that the relevant test for certainty of objects was that it had to be possible to enumerate a complete list of beneficiaries in order for the trust to be valid (the ‘complete list’ or ‘complete ascertainability’ test):Re Broadway Collages Trust[1955] Ch 20 (CA). While for mere powers (where, unlike discretionary trusts, there is nodutyto distribute the property), a less stringent test was required (Re Gestetner[1953] Ch 672 (Ch);Re Gulbenkian’s Settlement Trusts[1970] AC 508 (HL)), this was thought not to be the case for discretionary trusts.

Question 33

Re Baden’s Deed Trusts (No 2) [1973] Ch 9.

certainty of objects - evidential uncertainty

All said it was certain, but different approaches adopted

• Sachs and Megaw LJJ: adopted broad definition of relative: descent from a common ancestor, while Stamp LJ adopted narrower definition, namely, ‘next of kin’ - the dissenting judges started from different standpoints

Sachs LJ – “Once the class of persons to be benefited is conceptually certain it then becomes a question of fact to be determined on evidence whether any postulant has on inquiry been proved to be within it: if he is not so proved, then he is not in it” [20] = we place the onus on the person doing the inquiry

Megaw LJ – “…the test is satisfied if, as regards at least a substantial number of objects, it can be said with certainty that they fall within the trust … What is a “substantial number” may well be a question of common sense and of degree in relation to the particular trust…” [24]

Stamp LJ– “…the trustees ought to make such a survey of the range of objects or possible beneficiaries as will enable them to carry out their fiduciary duty. It is not enough that trustees should do nothing but distribute the fund among those objects of the trust who happen to be at hand or present themselves. … a wider and more comprehensive range of inquiry is called for in the case of what I have called discretionary trusts than in the case of fiduciary powers. But, as I understand it, having made the appropriate survey, it matters not that it is not complete or fails to yield a result enabling you to lay out a list or particulars of every single beneficiary”

Comment:
The executor’s argument, in essence accepted by Stamp LJ, was tantamount to returning to the ‘complete ascertainability’ test, rejected in McPhail v Doulton. This, for Sachs LJ, was almost unarguable. Megaw LJ quickly pointed out that Lord Wilberforce had insisted that the trust would not fail if some objects could not be ascertained and thus this literal interpretation could not stand. It is therefore welcome that the majority adopted a logical and workable interpretation of the test.

The executor’s interpretation, it is submitted, is contrary to the authority of the House of Lords in McPhail v Doulton, and cannot be the law. Moreover, Stamp LJ’s narrowing of ‘relative’ is unconvincing; the settlor could have chosen a narrower word but did not do so. Given the settlor’s general benevolent intent and words used, it is quite possible that he intended his trustees to have sufficient discretion to favour need rather than prioritising descendants over lateral relatives.

That leaves two significantly different definitions of ‘individual ascertainability’. It is not clear which test would prevail if they would produce different outcomes. This will matter in a case where there is such conceptual uncertainty that there are some, but not many, objects that can be positively proved to be in the class.

Answer 33

Held:

• The trust is conceptually certain
• The judges also agreed that the trust was evidentially certain, but differed as to the correct test for evidential uncertainty

Three different tests were laid down for dealing with evidential uncertainty of objects in discretionary trusts:

• Sachs LJ: evidential uncertainty is cured by presumption against being in the class
• Megaw LJ: substantial number “core number” can be proved to be in the trust ⇒ the current approach
• Stamp LJ: there must be absolute evidential certainty such that any person can be determined to be in or out of the class

in exam discuss the 3 judge’s approach.

Facts: McPhail v Doultonwas remitted to the Chancery division to determine the validity of the trust, Brightman J held that it was valid, and was affirmed by the Court of Appeal. The problem is whether ‘relatives’ is certain enough.

Question 34

R v District Auditor, ex p, West Yorkshire Metropolitan County Council [1986] 26 RVR 24,

certainty of objects-adminsitrative unworkability-evidential uncertainty

Answer 34

Held: was deemed void for uncertainty of objects as being administratively unworkable…”.

a trust fund for, “all or some of the inhabitants of West Yorkshire’

Question 35

Re Tuck’s Settlement Trusts [1976] Ch 99

certainty of objects

Answer 35

The trust was valid.
Made an arguement that Delegation can cure conceptual uncertainty (argued majority of Lord Denning MR and Eveleigh LJ) - Russel LJ dissented

The settlor provided an income for the holder of the family baronetcy if he is,
Jewish,
married and living with an approved wife, defined as a wife ‘of Jewish blood’ and ‘Jewish faith’ or
if separated, being so separated through no fault of his
The Chief Rabbi in London was designated to decide any question as to who was an approved wife and whether the separation was due to the fault of the baronet
It was argued that the trust was invalid on two grounds:
there was conceptual uncertainty and the words are not clear enough for a rabbi either
alternatively by entrusting the decision to a rabbi the settlor was ousting the jurisdiction of the court

Question 36

Re Barlow’s Will Trusts [1979] 1 WLR 278

certainty of objects

Reasoning:
Browne-Wilkinson J
* The word ‘friends’ is said to be conceptually uncertain as there are so many degrees of friendship and it is impossible to say which degree the testatrix had in mind
A gift does not require one to establish all members of the class, as long as some people would qualify on any test
‘Friends’ shall be defined as acquaintances so close that on any reasonable basis, anyone would treat them as being ‘friends.’
* The rule in Re Gulbenkian is only applicable to cases where it was necessary to establish all member of the class (due to distribution of equal shares), it is not applicable to cases where there is condition or description attached to one or more individual gifts as uncertainty relating to whether another postulant qualifies does not affect the quantum of the gift.
* There is no legal necessity to inform those entitled to rights to the trust, a potential beneficiary has to prove that he is a friend to the executor.
* The correct test is that established in Re Allen: the gift is valid if it is possible to say of one or more persons that he or they undoubtedly qualify even though it may be difficult to say of others whether or not they qualify.

Answer 36

The trust was certain enough to be valid.

Laid down the single person test for the certainty of objects applicable to individual gift on condition precedent.

Is the trust certain enough to be valid?

A testatrix died in 1975, owning a large collection of pictures.
She gave some of the to her executor upon trust for sale, directing him ‘to allow any member of my family and any friends of mine who may wish to do so to. purchase any of such pictures’ at a valuation made in 1970.

Question 37

Pleshakov v Sky Stream Corporation [2021] UKPC 15

formation - formalities

Lord Sales:

[47] ‘The creation of an express trust, whether a bare trust or otherwise, does not require any form of contractual agreement between the settlor and the beneficiaries… trusts can be created (and often are created) by the unilateral act of the settlor without any involvement on the part of the beneficiaries.’

Answer 37

Held: The Court of Appeal’s decision has now been set aside and Justice Bannister’s decision restored.

Although the case largely turned on its own facts, Lord Sales endorses at (paragraphs 47 to 49) what he described as the “basic principles” that:

• The creation of an express trust, whether a bare trust or otherwise, does not require any form of contractual agreement between the settlor and the beneficiaries (see paragraph 47).
• Trusts can be created (and often are created) by the unilateral act of the settlor without any involvement on the part of the beneficiaries. All that is required for the valid creation of a trust is the three certainties (intention, subject matter, and object) (see paragraph 47).
• In relation to establishing certainty of intention to create a trust neither a written trust instrument nor any formal language is required. Informal language can be sufficient and the necessary intention can be inferred from conduct (see paragraph 48).

The case concerned the beneficial ownership of the shares in a BVI company (Sky Stream) which was incorporated for the purpose of receiving a 19.9% stake in Transaero, a Russian airline.

Mr Pleshakov’s case was that the respondents, Mr Linkov (a Russian lawyer and longstanding trusted associate of Mr Pleshakov) and Ms Kazantseva (a partner in Mr Linkov’s law firm and subsequently Mr Linkov’s wife) had incorporated Sky Stream at his direction and for his benefit as a vehicle for holding the 19.9% stake in Transaero.

At first instance, Justice Bannister held that the respondents had indeed incorporated Sky Stream for Mr Pleshakov’s benefit and that they held the Sky Stream shares on bare trust for Mr Pleshakov. Justice Bannister reached this conclusion by drawing inferences from the conduct of the respondents both at the time of the incorporation of Sky Stream and in the years that followed.

The Eastern Caribbean Court of Appeal reversed Justice Bannister’s decision on the basis that, inter alia, Justice Bannister had not made any finding that Mr Pleshakov had entered into an oral contractual agreement with the respondents for them to hold the Sky Stream shares on trust.

Question 38

Hudson v Hathway,

formalities - signed writing - s 53(1)(c)

Reasoning:
Issue 1: Did the email chain which expressed the parties’ common intention comply with the requirement for signed writing in the disposition of an equitable interest in land prescribed by section 53(1)(c) Law of Property Act 1925?

Yes.

There was no dispute that the emails were “writing” as defined by Schedule 1 to the Interpretation Act 1978.

As to whether the emails had been “signed”, there was a substantial body of authority to the effect that deliberately subscribing one’s name to an email amounts to a signature. Lewison LJ stated: “Given that so much correspondence takes place nowadays by email rather than by letters with ‘wet ink’ signature, it is, in my judgment, entirely appropriate that the law should recognise that technological developments have extended what an ordinary person would understand by a signature”.

Issue 2: Is detrimental reliance required to be shown by a party claiming a post-acquisition increase in their equitable share?

Yes.

Lewison J provided a review of the relevant sources and concluded that the overwhelming weight of authority was to the effect that detrimental reliance is required.

Issue 3: Was the requirement for detrimental reliance met in this case?

Yes.

Lewison LJ concluded that, absent a transcript of the original trial, the Court of Appeal could not interfere with HHJ Ralton’s evaluative findings of fact.

Lewison LJ did comment though that there is no significant difference between the detriment required in proprietary estoppel cases and in common intention constructive trust cases. A granular, point-by-point analysis of detrimental reliance was not the correct approach. Rather, one should “stand back and look at the matter in the round”.

Answer 38

Held: ⇒ The meaning of “disposition” in theLaw of Property Act 1925 s.53was wide enough to apply to one joint tenant’s release of their interest in property to the other. Emails were capable of amounting to a disposition because they were in writing, and deliberately subscribing one’s name to an email was capable of amounting to a signature.

Facts: The parties started a relationship in 1990 and had two children. They did not marry. In 2007, they bought the property in question with a mortgage. There was no declaration of trust. In 2009, they separated and the appellant moved out. The respondent stayed at the house with the children. The appellant continued to pay most of the mortgage. In 2011, an oil spill affected the possibility of selling the house and gave rise to a lengthy insurance claim. In an exchange of emails between the parties in 2013, the appellant agreed to the respondent having the whole of the net sale proceeds when the house was sold. The emails were concluded with the appellant’s name. In 2015, he ceased contributing to the mortgage. In 2019, the appellant issued a claim seeking an order for sale with equal division of the net proceeds. The respondent claimed to be entitled to the whole of the proceeds under a constructive trust following a common intention and agreement evidenced by the emails. She claimed to have relied on that agreement to her detriment by refraining from claiming against the appellant’s pension and assets acquired during their relationship. The trial judge held that the respondent had shown that she had established detrimental reliance. An appeal judge upholding that decision held that it was not necessary to show detriment, and that a common intention alone was sufficient.

Question 39

Taylor v Taylor [2017] 4 W.L.R. 83

formalities - s 53(1)(b) LPA 1925

HJ Matthews:

[50] ‘Under section 53(1)(b) of the Law of Property Act 1925, it is not necessary that a declaration of trust be made in writing. It is only necessary that it should be evidenced in writing. **Accordingly, it is possible for an oral declaration of trust of land to be made on one day and evidenced by signed writing on another. In such a case the oral declaration of trust is rendered enforceable from the beginning.’ **

[44] ‘Although Mark and Boyd would have been able to declare such trusts once the legal title had been conveyed to them, at the time when the transferors signed the form, they were the legal and beneficial owners of the land and well able to declare such trusts. On the face of it, if A conveys to B on trust for C, only A’s signature on a declaration of trust is required.’

Answer 39

Holding: the court found no agreement supporting the claimant’s claim of a greater share. The presumption of a resulting trust was overridden by the express declaration of trust in the transfer document, which was valid and conclusive absent fraud, mistake, or vitiating factors—none of which were alleged. The severance notice further evidenced an agreement to hold the property as tenants in common in equal shares. Additionally, the first defendant relied on their common intention when entering the transaction, establishing a common-intention constructive trust, which required no writing. Thus, the property was held as tenants in common with equal beneficial shares.

The case concerned the beneficial ownership of land comprising a small hotel and campsite. The land was transferred on 1 June 2012 to the claimant and the first defendant (his son), with the transfer document declaring them as joint tenants in trust. In May 2013, the claimant served a notice severing the joint tenancy, asserting the property would be held as tenants in common with equal shares. However, the claimant argued for four-fifths of the beneficial interest, citing his greater financial contribution, while the first defendant claimed an equal share, referencing the claimant’s promise and his reliance on it, including contributing £100,000 and working on the property.

Question 40

Ong v Ping [2017] EWCA Civ 2069,

formalities - s 53(1)(b)

Rimer LJ:

[62] ‘I consider that Madam Lim’s later letter of 16 May 1988 anyway provided sufficient proof and manifestation for section 53(1)(b) purposes of the trust she had created. … The trust deed dated 14 December 1985 can be identified by extrinsic evidence. On its face, it created no trusts of anything. If Madam Lim had regarded that as all it did, a letter from Singapore to RG seeking to cancel it would not have been worth the candle. Her letter, however, expressly linked the house with the trust. What can she have thereby intended to acknowledge other than that the house was an asset of the trust?’

= the writing does not have to be in a single document

Answer 40

Held: the Court of Appeal considering that, as a matter of construction, having regard to the whole body of antecedent correspondence, an effective trust of the house had been declared by conduct when the trust instrument was executed.

The issues included whether a valid Jersey law trust was created in respect of a house in circumstances where the executed trust instrument had not specified any trust fund and, if so, whether its existence was deliberately concealed from the court.

Question 41

Parker v Financial Conduct Authority [2021]

formalities - s 53(1)(b) LPA -E will not permit a S to be used as I of F

idk if this case should be here

Answer 41

The Court of Appeal reviewed the case and focused on whether a common intention constructive trust arose. The court held that:

A common intention constructive trust arises when one party acts to their detriment based on an express promise of an interest in property.
Despite the lack of written evidence, the oral agreement between Parker and Moore, Parker’s financial contribution, and Moore’s actions established a common intention constructive trust.
Parker was entitled to 70% of the net proceeds from the sale of Bockingford Court, with Moore and his wife sharing the remaining 30%.
The court ruled in Parker’s favor, recognizing his beneficial interest in the property.

Michael Moore, a convicted fraudster, defrauded numerous elderly and vulnerable individuals. Among his victims was Mr. Parker, although Parker’s losses were not included in the criminal charges brought against Moore.

In 2010, Moore persuaded Mr. Parker to loan £320,000 to Moore’s company, Manor Rose Ltd, for purchasing land. Parker also invested in Bockingford Court, with the understanding that the property would be refurbished, sold for profit, and Parker would hold a share reflecting his financial contribution. However, Moore misrepresented his intentions, ultimately occupying the property as a matrimonial home. Parker contributed £260,000—40% of the purchase price and 70% of the deposit—without a written agreement documenting their arrangement.

Question 42

Rochefoucauld v Boustead [1897] 1 Ch. 196

formalities - s 53(1)(b) LPA-E will not permit S to be used as an I of F

Lindley LJ at 206: ‘It is further established by a series of cases, the propriety of which cannot now be questioned, that the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself’

‘notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and the statute, in order to keep the land himself.’

Answer 42

Held:

The Court of Appeal held that the defendant had purchased the estates having agreed to acknowledge the claimant’s rights as beneficiary. It would be fraudulent for him to renege on the agreement. Equity will not allow formalities statutes to be used as an instrument of fraud. Accordingly, the defendant held the estates on trust for the claimant.

NB: The Rochefoucauld principle only applies when the property is transferred from A to B and B has agreed to keep the property on trust for A.

Facts: The claimant owned estates in Ceylon (Sri Lanka) , subject to significantmortgages. The mortgagees put the estates up for auction. This was something mortgagees could do at the time. The defendant initially agreed with the claimant and a third-party to bid on the estates. If he succeeded, he would buy them subject to her interest. The agreement was never a bindingcontract, and the third-party ultimately pulled out of the deal. Nevertheless, the defendant successfully bought the property at auction. The transfer deed made no express declaration of trust in the claimant’s favour. The defendant proceeded to manage the estates. He occasionally paid the claimant money from the estates’ profits in line with their original agreement. Later, without the claimant’s consent, the defendant mortgaged the estates to a third-party. The defendant then became bankrupt. The new mortgagee sold the estates to recoup their money. The claimant argued that the defendant bought the estates on trust for her, subject to a lien representing the money he paid. Accordingly, he wasliable to accountfor the proceeds of the sale. The defendant’s trustee-in-bankruptcy rejected this. While the claimant did not formally renounce her claim, she did not pursue a formal claim for an account in court until 14 years later.

Issues:

1. Did the defendant purchase the estates on trust for the claimant?
2. Was any trust defeated by the fact that the trust was not made in signed writing (as required byformalities statutes)?
3. Was the claimant’s suit barred by the defendant’s bankruptcy (which had since been discharged)?
4. Was the claimant’s suit barred by a limitation period or the defence of laches due to the excessive delay?

Question 43

Re Smith [2023] EWHC 255 (Comm):

formalities - s 53(1)(b)

Limited the La Rochefoucauld principle.
Foxton J:

[8] ‘[Rochefoucauld] principle is only engaged when property is transferred by a beneficiary to the putative trustee on the basis of an oral agreement that the property will be held on trust when received, with the trustee then seeking to rely on the absence of written record of the trust to preclude the beneficiary from challenging the absolute nature of the transfer. This is not such a case; rather it is a case in which Dr Smith acquired the property from a third party and is said, either contemporaneously or immediately afterwards, to have made an oral declaration of trust.’

= The Rochefoucauld principle only applies when the property is transferred from A to B and B has agreed to keep the property on trust for A.

Answer 43

Decision:
The court held that there was no valid express declaration of trust by Dr. Smith in favor of Mrs. Phyllis Smith. The evidence did not support the claim that the property was held beneficially by Dr. Smith’s parents. Based on the totality of the evidence, the court found that Dr. Smith was the sole beneficial owner of the property. The court declared the property as the beneficial property of Dr. Smith, subject to a confiscation order made by the Crown Court.

Rationale:
The court found Dr. Smith’s registration of the property in his name, his consistent dealings with the property, and the lack of supporting documentation for the alleged express declaration of trust to be compelling evidence of his sole beneficial ownership. The court also noted the unreliability of witnesses’ testimonies, including Mr. Anthony Smith and Dr. Cochrane, which further supported the finding in favor of Dr. Smith.

Facts:
Dr. Gerald Martin Smith was found guilty of theft and false accounting. An order was made against him following his guilty pleas. The issue in dispute was the beneficial ownership of a property. Mr. Curry argued that Mrs. Phyllis Smith was the beneficial owner based on an alleged express declaration of trust by Dr. Smith. However, no documentation supported this claim. Dr. Smith had a history of dishonesty, and his brother, Mr. Anthony Smith, provided vague and unreliable evidence regarding the property’s ownership.

Procedural History:
Dr. Smith registered the property in his name with the Land Registry. The court heard evidence from various witnesses, including Mr. Anthony Smith and Dr. Cochrane. After considering all evidence, the court found that Dr. Smith was the sole beneficial owner of the property.

Issues:
1. Whether there was a valid express declaration of trust by Dr. Smith in favor of Mrs. Phyllis Smith.

2. Whether the property was held beneficially by Dr. Smith or his parents.
3. Whether the evidence presented was sufficient to establish beneficial ownership.

Question 44

Grey v IRC [1960] AC 1

formalities - s 53(1)(c) - meaning of disposition

Viscount Simonds at 13:

‘I am clearly of the opinion, which I understand to be shared by your Lordships, that there is no justification for giving the word “disposition” a narrower meaning than it ordinarily bears…’

12-13 ‘If the word “disposition” is given its natural meaning, it cannot, I think, be denied that a direction given by Mr. Hunter, whereby the beneficial interest in the shares theretofore vested in him became vested in another or others, is a disposition.’

Answer 44

Held: The House of Lords held that there was no transfer of the equitable interest when the oral declaration was made (due to non-compliance with s53(1)(C)), but the disposition of Hunter’s interest in the shares was effective when the later declaration was made in writing (so stamp duty was payable)
Principle: disposition should be given its ordinary meaning

Facts: Hunter attempted to transfer shares to his 6 grandchildren under separate trusts. To avoid tax liability he created a trust over 18000 shares and declared himself as sole beneficiary (as beneficial interest was retained no tax was payable). He then directed his trustees orally to transfer his equitable interest in those share to the trusts held for his grandchildren before subsequently writing these instructions down with the trustees

Question 45

Grainge v Wilberforce (1889) 5 T.L.R. 436 at 437

formalities - s 53(1)(c) - subtrust

Answer 45

‘where A was trustee for B, who was trustee for C, A holds in trust for C, and must convey as C directed’.

Question 46

Vandervell v Inland Revenue Commissioners [1967] 2 AC 29

s 53(1)(c) - formalities

Lord Upjohn at 311: .

‘[T]he object of the section, as was the object of the old Statute of Frauds, is to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and making it difficult, if not impossible, for the trustees to ascertain who are in truth his beneficiaries. But when the beneficial owner owns the whole beneficial estate and is in a position to give directions to his bare trustee with regard to the legal as well as the equitable estate there can be no possible ground for invoking the section where the beneficial owner wants to deal with the legal estate as well as the equitable estate.’

= As the legal interest was moving in the same direction as the beneficial interest was, even though emanating from different places, it was not a case of dealing independently with the beneficial interest.

Answer 46

Held:

The House of Lords dismissed the appeal. Lord Upjohn, distinguishedGrey v Inland Revenue Commissioners[1960] AC 1 (HL). In that case there was a transfer of the equitable interest only (in an extant trust), which engaged s 53(1)(c), but that was not the case here. The purpose of that section was to protect against fraud. Transfers of the equitable interest to a new beneficiary without involving the legal owner are uniquely susceptible to fraud because it is then very difficult for the trustees to ascertain the true beneficiaries. This is not the case where the beneficial owner directs the trustee to transfer the property. While such a transfer might not expressly direct the transfer of equitable interest to the same recipient, if the intention is to do so, there is ‘no reason’ to require express words of transfer of the beneficial title. Then, the equitable interest is also transferred because ‘the greater includes the less’ (at 311). Therefore, s 53(1)(c) did not apply to the transfer of the shares and Vandervell won on this point.

However, Vandervell lost, by a bare majority, on the other point. The option was silent as to the beneficial ownership of it. It must have been intended to have been held on some kind of trust rather than for the benefit of VTL. Therefore, in the absence of specified beneficiaries, it would be held on an automatic resulting trust in favour of Vandervell, because he was originally the beneficial owner of the shares.

Wider considerations and questions:

• The practical benefits of the s 53(1)(c) ruling are clear, as it enables efficient share trading through nominees and electronic systems. Though Neocleous v Rees [2019] EWHC 2462 (Ch) recognizes email signatures, this only partially addresses modern needs.
• However, the legal reasoning is problematic. Lord Upjohn avoided directly addressing whether transferring or destroying an equitable interest constitutes a ‘disposition’ under s 53(1)(c). The other judgments are equally unsatisfying. Lord Wilberforce’s application of Re Rose [1952] Ch 499 (CA) suggests Vandervell did everything possible to dispose of his interest, yet he could have provided signed instructions. This doctrine was later expanded in Pennington v Waine [2002] EWCA Civ 227, though that case’s authority remains debated.

The legal issue discussed here concerns the formalities required for the disposition of property held on trust, specifically for the disposition of the legal estate where the equitable interest also passes to the new owner and thus the trust collapses into absolute ownership.

Tony Vandervell, the settlor, wished to give the Royal College of Surgeons a gift in a tax-efficient way. Shares, held on trust for Vandervell by the National Provincial Bank, were transferred to the college. The college also granted an option to repurchase them for £5,000 in favour of Vandervell Trustees Ltd (‘VTL’, a trustee company used to manage Vandervell’s trusts). The college, as a charity, would enjoy tax-free dividends. However, the Inland Revenue considered that surtax was payable because Vandervell was the beneficiary of a resulting trust of the repurchase option and hence he had not divested his full interest in the shares. At first instance, Plowman J agreed.

On appeal to the Court of Appeal, the Revenue added another argument. Since Vandervell had not used signed writing—as required for a ‘disposition of an equitable interest or trust’ by the Law of Property Act 1925, s 53(1)(c)—the disposition of the equitable interest in the shares to the college was void and he had thereby retained his interest in them. The Court of Appeal dismissed the appeal. Vandervell appealed to the House of Lords

Question 47

Akers v Samba [2017] AC 424

formalities - s 53(1)(c)

Lord Neuberger:

[72] ‘there is no “disposition” of an equitable interest … , when there is a transfer by the legal owner of the legal estate, which is subject to that equitable interest, to a bona fide purchaser for value without notice of that equitable interest.’

Answer 47

Held: Appeal allowed; there was no ‘disposition’ for the purposes of section 127 of the Insolvency Act 1985
The transfer of Mr Al-Sanea’s legal interest to Samba was not a disposition of any equitable interest of SICL’s in the shares; but SICL’s equitable interest was enforceable against Samba subject to the “usual equitable defences” (Lord Sumption at [88]), namely that Samba was a bona fide purchaser for value without notice

Principle: If you have a transfer by the legal owner of the legal estate in property to a bona fide purchaser without notice (equity’s darling), that will clear the beneficial title. That is not a disposition but an extinction of the bene’s interest.

Was the transfer of shares a ‘disposition’ within s 127 of the Act ?

Section 127 of the Insolvency Act 1986 prima facie voids any “disposition of the company’s property … made after the commencement of the winding up”
Shares in various Saudi banks had been held on trust for SICL in liquidation by one Mr Al-Sanea; Mr Al-Sanea, six weeks after the compulsory winding up of SICL had begun, transferred his legal title to those shares to Samba
If Samba was a bona fide purchaser for value without notice, SICL’s beneficial interest in the shares was liable to being overridden if the transfer was valid
Therefore, SICL and its liquidators sought to impugn the transfer as a void ‘disposition of … property’’ under section 127 of the Insolvency Act 1986
The precise issues argued in the High Court and Court of Appeal changed throughout the litigation process; but the question for the Supreme Court on appeal was whether there was a ‘disposition’ of SICL’s beneficial interest in the shares involved in the transfer of the legal title between Mr Al-Sanea and Samba

Question 48

Oughtred v IRC [1960] AC 206,

s 53(2) - formalities

overruled in Neville v Wilson [1997] Ch 144.

Answer 48

Held: Lord Jenkins said stamp duty is payable on documents only and not transactions: As s53(1)(c) had not been complied with, when the son told the trustees to transfer his reversionary interest to his mother it had no effect; this meant the value was transferred in the document (NOT the oral contract) and therefore was taxable under stamp duty

Principles:
A constructive trust arising from the oral agreement does transfer some proprietary interest, but not the full beneficial interest under a trust and thus does not amount to a ‘disposition’ under section 53(1)(c) LPA 1925.

Oughtred had a beneficial interest in 200,000 shares in a company under trust, with her son owning the reversion (i.e. so when she died the shares would be held on trust for her son). Oughtred was also the absolute owner (i.e. legal and beneficial owner) of another 72,200 shares in the comapny. To reduce estate duty (ie. a tax paid on the property left by a dead person) payable on Oughtred’s death, an oral agreement was made whereby the son would surrender his reversionary interest in the settled shares in consideration for the 72,200 shares, so both would have a parcel of shares absolutely

⇒ The IRC assessed whether stamp duty was payable on the oral contractual transfer of the son’s reversionary shares to Oughtred. The IRC argued as they were attempting a disposition of the shares it should be void as under s53(1)(C) this needed to be done in writing

Issue
Did the oral contract create a constructive trust that effectively disposed of the equitable interest or was it the subsequent deed that did so?

Question 49

Neville v Wilson [1997] Ch 144,

53(2) - formalities

Nourse LJ at 158:

‘Just as in Oughtred v. Inland Revenue Commissioners … the son’s oral agreement created a constructive trust in favour of the mother, so here each shareholder’s oral or implied agreement created an implied or constructive trust in favour of the other shareholders. Why then should subsection (2) not apply? No convincing reason was suggested in argument and none has occurred to us since… Moreover, to deny its application in this case would be to restrict the effect of general words when no restriction is called for, and to lay the ground for fine distinctions in the future. With all the respect which is due to those who have thought to the contrary, we hold that subsection (2) applies to an agreement such as we have in this case.’

Answer 49

Held: no writing was required.
=> An oral contract does not require writing under s53(1)(c) LPA 1925 to transfer equitable interest in the subject of the contract

Trustees held 120 shares in U Ltd on trust for N Ltd, a family company
In 1969 the shareholders of JE Neville agreed to liquidate their company
They decided to divide the equitable interest in the Universal shares among themselves, in proportion to their existing shareholding in N
There were oral agreements for consideration purporting to dispose of the equitable interest.

Question 50

LA Micro Group (UK) Ltd v LA Micro Group Inc

s 53(2) - formalities

Answer 50

[123] ‘the constructive trust in favour of Mr Bell came into existence and ceased to exist at the same moment. As soon as Inc’s (B’s) beneficial interest in the share held by Mr Bell was held on a constructive trust for Mr Bell, Inc dropped out and the beneficial interest ceased to exist separately from the legal interest which Mr Bell already held. That may be an unusual situation, but does not detract from the analysis.’

On this occasion the Court of Appeal addressed whether a constructive trust came into existence when the legal owner of property (the property being shares in LA Micro Group (UK)), and who held that property on express trust, had entered into a specifically enforceable obligation with the beneficiary of the express trust to transfer back their beneficial interest to the legal owner – such that the legal owner held both the legal interest (as a trustee of the express trust) and the beneficial interest (as a beneficiary of the constructive trust, albeit under a ‘sub-trust’). The relevance of this point was the need for there to be a constructive trust, parasitic on the entering into of the specifically enforceable obligation, so as to avoid the formality requirements of s.52(1)(c) of the LPA 1925 and where, on the facts, those requirements had not been complied with.

In determining that a constructive trust did come into existence, the Court of Appeal held that the sub-trust was created and then died “at the same moment”, the effect being to vest absolute title in the original express trustee, and that it was not fatal to that trust analysis that the legal and beneficial interest were held, for that moment, by the same entity

Question 51

IRC v Buchanan

surrender - formalities

Answer 51

a trust created by will is not a disposition and therefore not a settlement. It follows that a testator of a will is not a settlor.

Question 52

Re Paradise Motor Co Ltd [1968] 1 WLR 1125

disclaimer - formalities

Answer 52

A disclaimer of beneficial interest on the authority of Re Paradise Motor Co (1968) is not a disposition within s 53(1)(c). The CA held this on the ‘short ground’ that ‘a disclaimer operates by way of avoidance, and not by way of disposition’. In other words, the stepson in the case, when disclaiming shares which his stepfather had purportedly given him, was refusing a gift before he ever had it, rather than getting rid of the gift after receiving it.

Question 53

Milroy v Lord (1862) 4 De G.F. & J. 264

constitution - equity will not perfect an imperfect gift

Turner LJ at 274-5:

‘He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this Court, be resorted to, for there is no equity in this Court to perfect an imperfect gift.
* Outright gift
* Transfer to trustee to hold on trust
* Self-declaration of trust

Answer 53

Held (Court of Appeal)
No, the legal and beneficial title remained with the settlor.

Did the settlor hold the shares on trust for L?

The settlor, Mr Medley, executed a deed to transfer 50 shares in the Bank of Louisiana for Mr. Lord (L) to hold on trust for Eleanor Medley (M), Mr. Medley’s niece.
The settlor also handed the relevant share certificates to L.
However, the shares were never registered in L’s name by the bank as L failed to hand over the deed of transfer and share certificates to the bank.
Registration is required under company law for legal title in shares to be transferred.
When the settlor died the shares still remained in his name.
M sought to argue that the shares had been held on trust by the settlor for L, who then held such beneficial interest on a sub-trust for herself.

Question 54

Richards v Delbridge (1874) LR 18 Eq 11

constitution - equity will not perfect an imperfect gift

Jessel MR at 14

‘[S] need not use the words, ‘I declare myself a trustee,’ but he must do something which is equivalent to it, and use expressions which have that meaning; for, however anxious the Court may be to carry out a man’s intention, it is not at liberty to construe words otherwise than according to their proper meaning.’

Answer 54

Held (Court of Appeal)
No trust had been created in favour C

A grandfather purported to make a gift of the lease and stock of his business to his grandson (C) in a memorandum
The grandfather later died after having executed several wills which did not grant the lease and stock to C
C claimed that he was entitled to the lease and stock against the heirs of his grandfather (Ds) as a trust had been created in his favour by the memorandum

Question 55

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

equity will not perfect an imperfect gift - constitution

‘Although equity will not aid a volunteer, it will not strive officiously to defeat a gift.’

Answer 55

Held: The court held that a gift, made to a charitable foundation, had been completed where the trust property had been vested in a trustee who, in turn, was one of a larger group of trustees, concluding that the trustee was bound by the trust and was obliged to transfer the property into the names of all the trustees

(1) it was apparent that P had intended to make an immediate unconditional gift to the charitable foundation. The judge had erred in his conclusion that P had meant the gift to be recoverable. The transaction had been undertaken by P’s declaration that those assets he already held were thereafter vested in him as a trustee of the charitable foundation

(2) whilst P’s words had been indicative of an outright gift, given the context in which they had been spoken there had been no breach of the principle established in Milroy v Lord. The sole legal basis for the charitable foundation derived from the trust declared through the foundation trust deed. Accordingly, in stating that he had given his wealth to the charitable foundation, P could only be understood to mean that he had given “to the trustees of the foundation trust deed to be held by them on the trusts of the foundation trust deed”. P, as one of the trustees, having declared his intention and subsequently given his wealth to the trust, his conscience was affected and it would be improper and against equitable principles for him to be authorised to go back on that gift.

BENEVOLENT CONSTRUCTION

Facts:

• The purported donor was dying of cancer and executed a trust deed establishing a charity foundation with himself as one of the trustees
• However, he had neglected to sign documents for the transfer of his assets to the trust before he passed

It had been found that (1) P had made or tried to make an immediate and unconditional gift to the charitable foundation but that such a gift had not been meant to be irrecoverable, and (2) the gifted property had not been vested in all the trustees, as there had been an imperfect gift which, notwithstanding P’s intentions, could not be enforced.

Question 56

Deslauriers v Guardian Asset Management Ltd (Trinidad and Tobago) [2017] UKPC 34

equity will not perfect an imperfect gift - constitution

Recitals:

(4) The Settlor intends shortly to transfer the Trust Property into the names of the Trustees to be held by the Trustees upon the trusts hereinafter declared

(5) The Settlor desires that the Settlement made by this Deed shall take effect immediately upon the execution of this Deed.

[45] ‘in the Board’s view Recital (5) certainly does not evidence an intention on the part of the settlor that she should constitute herself a trustee until the property is vested in the trustees of the settlement. This settlement was intended to be effected by a transfer to trustees and, in the present circumstances, it is not open to the court to give it effect as a declaration of trust.’

Answer 56

The Privy Council upheld the lower courts’ rulings that the trust was not “completely constituted” because the legal title was never transferred to the trustees.
Mrs. Deslauriers retained both the legal and beneficial interest in the land.
The land was available to satisfy GAM’s claim as a creditor.

Rule of Law
A Private Trust Must Be Completely Constituted: For a trust to be valid and enforceable, legal title to the trust property must be transferred to the trustees, or the settlor must declare themselves a trustee. (Milroy v Lord [1862])
Equity Will Not Assist a Volunteer: Equity will not enforce an incompletely constituted trust or compel a transfer of property to trustees if the settlor fails to complete the necessary steps.
Intent to Create a Trust Must Be Clear: The settlor must evince a clear and immediate intention to divest themselves of beneficial interest in the property. Ambiguity or deferred intentions cannot create a valid trust.
Creditor Priority Over Incomplete Trusts: In cases involving creditor claims, the court will not uphold a purported trust where the equities favor the creditor over the beneficiaries.

The Deslauriers, property developers, borrowed TT$18.6 million from Guardian Asset Management Ltd (GAM) in 2007, secured by a demand mortgage on their land. They defaulted on repayment.
GAM sought to enforce the debt by selling other land owned by Mrs. Deslauriers.
Mrs. Deslauriers claimed the land was held on trust for her children under a 2009 deed of settlement.
The deed stated an intention to transfer the property to trustees for the benefit of her children but did not effectuate this transfer. Both legal and beneficial ownership remained with Mrs. Deslauriers.

Question 57

Re Rose [1949] Ch 78

constitution-equity will not perfect an imperfect gift-the Re Rose excep

Jenkins J at 89:

‘In this case, as I understand it, the testator had done everything in his power to divest himself of the shares in question to Mr Hook. He had executed a transfer. It is not suggested that the transfer was not in accordance with the company’s regulations. He had handed that transfer together with the certificates to Mr Hook. There was nothing else the testator could do.’

Answer 57

Jenkins J, held that, because the testator (Mr Rose) had done everything in his power to transfer the shares inter vivos, from that moment he held the shares on trust for the transferee (Hook); consequently, the legatee (Hook) had taken the shares inter vivos

Mr Rose put in his will that some shares would go to a man named Hook. But, before Mr Rose’s death, he did execute a share transfer in respect of the same shares to Hook i.e. Rose attempted to transfer the shares, thus nullifying the need of operation of the term in his will

⇒ Because these were shares in a private company, its directors had the right to refuse to register the transfer and did not actually register it until the death of the testator

So the transfer form completed by Mr Rose constituted everything he needed to do to transfer the shares, but the transfer was not complete because there were further formalities to be completed by the company
⇒ The issue was whether the transfer of shares to Hook had taken effect under the ineffective inter vivos transfer form or under the terms of the will

As mentioned, the completion of the transfer form was the only formality which Mr Rose was required to carry out as transferor, however, the company’s articles of association gave the board of directors power to refuse to register the transfer of shares → Therefore transfer not complete until board approved it
⇒ Whether the legatee had taken the shares inter vivos or post mortem mattered a lot

This mattered because the bequest in Mr Rose’s will was conditional on the shares not having been transferred to the legatee prior to the testator’s death; it was, therefore, possible to argue that the transfer inter vivos was ineffective to pass any title but nevertheless sufficient to defeat the testamentary gift, thus preventing the legatee from receiving the shares at all!

Question 58

Re Rose [1952] Ch 499

constitution-Re Rose rule-equity will not perfect an imperfect gift

Answer 58

The shares are held on trust for his wife; R’s estate is not liable for tax
=> the fact that the settlor has done everything in their power perfects the gift.

Rose (R) sought to transfer shares to his wife before he died so he can avoid the payment of estate taxes
R executed the share transfer form and delivered the form together with the share certificates to his wife
The company delayed registering the shares in his wife’s and thus the shares remained in R’s name when he passed
The Internal Revenue sued R’s estate for estate tax

Question 59

Re Fry [1946] Ch 312

constitution - equity will not perfect an imperfect gift- Re Rose rule

Answer 59

*it is not enough that the settlor has done the majority of things, they need to have done everything in their power.
*

Question 60

Mascall v Mascall (1985) 50 P & CR 119

constitution- equity will not perfect an imperfect gift-Re Rose Rule

Browne-Wilkinson LJ at 126:

‘The basic principle underlying all the cases is that equity will not come to the aid of a volunteer. Therefore, if a donee needs to get an order from a court of equity in order to complete his title, he will not get it. If, on the other hand, the donee has under his control everything necessary to constitute his title completely without any further assistance from the donor, the donee needs no assistance from equity and the gift is complete. It is on that principle, which is laid down in Re Rose, that in equity it is held that a gift is complete as soon as the settlor or donor has done everything that the donor has to do, that is to say, as soon as the donee has within his control all those things necessary to enable him, the donee, to complete his title.’

Answer 60

Held:

The father had done everything in his power to effect the transfer. There was no more on his part which was required to be done. Therefor the father held the house on trust for his son.

In 1976, a retired builder (the claimant) purchased a house for his terminally ill daughter, intending for her to live near him. When she declined, his son (the defendant) offered to buy the house for the original purchase price. The claimant instead gifted the house to his son, who moved in and treated it as his own with the claimant’s approval.

In 1981, the son requested the legal title be transferred to him. The claimant agreed and sought legal advice. To avoid Capital Gains Tax, a scheme was devised showing the son “purchasing” the property for £9,000 (the original price). A transfer form was completed, and the land certificate was handed to the son, who submitted the form to the Stamp Office.

Before the transfer was finalized, the father and son quarreled, and the son moved to Canada. The claimant decided against the transfer and requested the Stamp Office return the land certificate, which they did. This action prevented the son from registering the property with the Land Registry.

Question 61

Zeital v Kaye [2010] EWCA Civ 159

constitution - unconscionability - extent of Pennington

Pennington v Wayne was distinguished

Answer 61

The children’s claim succeeded
Z’s intended gift to S could not be perfected

Z intended to transfer shares he owned to his lover S
However, Z did not complete the share transfer form nor hand over the share certificates to S
Z died intestate and his children sought to claim the shares from S.

Question 62

Shah v Shah [2010] EWCA Civ 1408

constitution - unconscionability - extent of pennington

Answer 62

Held: = the court held that there was a self-declaration of trust

D wrote to his brother M, stating: as from today I am holding 4000 shares… for you subject to you being responsible for all tax consequences… from this declaration and letter
D later wished to withdraw, arguing letter was failed gift as he had not handed over share certificate

Question 63

Curtis v Pulbrook [2011] EWHC 167 (Ch)

constitution - unconscionability - extent of pennington

Briggs J at [47]:

‘In the present case… no amount of benevolence in construction would lead to the conclusion that Mr Pulbrook intended to declare himself a trustee. On the contrary he did his incompetent best to transfer both legal and beneficial title to the shares. Nor do the difficulties in identifying a perfect gift stem from any lack of clarity of intention that there should be an immediate gift, capable of being resolved by a benevolent construction. Again, on the contrary, Mr Pulbrook did his best, but without success, to effect an immediate and outright transfer of his beneficial interest.’

‘I reach that conclusion without any great comfort that the existing rules about the circumstances when equity will and will not perfect an apparently imperfect gift of shares serve any clearly identifiable or rational policy objective.’

Answer 63

D did not transfer away the shares successfully
None of the three situations below are applicable
Briggs J at [43]-[48]
There are three situations in which equity will perfect an imperfect gift

Where the donor has done everything in his power to give (principle in re Rose)
Where there is detrimental reliance by the donee on the imperfect gift
Benevolent construction to find an intention to give or declare a trust
Interpretation of Pennington v Waine

On the facts, Pennington v Waine was an example of detrimental reliance by the donee who had agreed to become a director of the subject company upon an assumption that he had received an effective gift of qualifying shares in it

An interim charging order was granted against shares D owned for court damages
D claimed that he had in 2007 given 300 of his shares to his wife and 14 to his daughter and these shares could not be subject to the final charging order
D did not complete the share transfer forms and did not pass them his share certificates but issued them new certificates unauthorised by the company.

Question 64

Pennington v Waine [2002] EWCA Civ 227

constitution - unconscionability

Wider consideration and questions:

• Penningtonhas not been applied subsequently. InZeital v Kaye[2010] EWCA Civ 159, [2010] 2 BCLC 1 [38]–[40], Rimer LJ considered it to have ‘special facts’ and to be unhelpful to that case. This is almost like the practice of confining a case to its facts so it is not to be followed without formally overruling it. However, his argument is not particularly convincing given the breadth of Arden LJ’s argument.
• InCurtis v Pulbrook[2011] EWHC 167 (Ch), [2011] 1 BCLC 638 [43] Briggs J rationalised the unconscionability test inPenningtonas one of detrimental reliance justifying the imposition of a constructive trust. Harold had agreed to become a director upon the mistaken assumption he was to receive a qualifying parcel of shares. As Luxton [2012] Conv 70 points out, this would make it a form of proprietary estoppel. But this would be an extension of proprietary estoppel outside of where it is usually confined, namely to land. This doctrine, should it exist in law, had not been applied in any other case. Moreover, there is a difficulty with precedent—Curtiswas only at first instance andPenningtonwas at the Court of Appeal.
• As is often the case, the wider matter this case raises is the role of unconscionability and the uncertainty it brings, especially in property law. One might question whether it really would be unconscionable, rather than simply mean-spirited, to resile from this gift and this illustrates how subjective and how much of an individual value judgement the concept of unconscionability is. Garton [2003] Conv 364, for example, considers it here to be ‘apparently unfettered discretion’ and a step too far that diminishes the credibility of unconscionability as a principle of equity.

Answer 64

The shares were held on contructive trust for H.

• Arden LJ, the gift should be considered valid if it would be unconscionable for the donor to change her mind and resile from the gift.

To determine that, the court had to evaluate all relevant factors. On the facts, Arden LJ considered that it was too late to resile because Ada had acted of her own free will, made her intentions clear, and because of Harold’s need for the shares in order to become a director. The rule that the transfer form should have been delivered to the donee or the company for registration was not absolute and the other considerations prevailed

Facts: This case concerned an incompletely constituted (or imperfect) gift. The question was whether the ‘last act’ doctrine applied. This doctrine provides that where the donor has done everything he or she could to transfer the property to the donee, the gift will be considered constituted and thus owned by the intended donee even though the necessary formalities have not been carried out.

Ada Crampton wished to transfer 400 of her shares in a company, Crampton Bros, to her nephew Harold Crampton. She also wanted Harold to become a director and indeed the company’s articles of association required directors to hold at least one share in the company. The only practical way to obtain a share was from Ada. Ada signed the relevant share transfer form and returned it to Mr Pennington, one of the company’s auditors. However, he did not take any action other than placing it on file. No-one else took any further action as regards the form. In fact, Mr Pennington told Harold that no further action was necessary. But there is a requirement of registration before the share transfer is complete, which had not been done.

The trial judge held that the transfer was valid. Those entitled to the shares in default of a valid transfer appealed.

Question 65

Khan v Mahmood [2021] EWHC 597 (Ch)

unconscionability - the extent of Pennington

‘…But Pennington v Waine makes clear that the test is not whether everything has been done which, according to the nature of the property, is necessary to be done to effect the transfer, but whether it is unconscionable to allow the donor to resile from his or her gift. In short, whilst I entirely accept the imperfections in the gift identified by the Judge, and accept their relevance to the question before me, I consider that [149] of the Judgment places too much weight on them as contra- indicators to equitable intervention.

‘Unconscionability, as it seems to me, focuses more on the conduct of the donor, whereas reliance focuses more on the conduct of the donee in respect to the donor’s gift. Whilst hard-and-fast lines obviously must be eschewed…’

Answer 65

The court found in favor of Mr. Mahmood, ruling that Mr. Khan had failed to establish that the transfer of the property was unconscionable. The court held that for a transaction to be unconscionable, there must be evidence of an unfair advantage taken by one party over another. In this case, the court found no such evidence.

The case involved a dispute over the ownership of a property. The claimant, Mr. Khan, argued that he was the beneficial owner of the property, while the defendant, Mr. Mahmood, claimed that he was the legal owner.

Question 66

Strong v Bird (1874) LR 18 Eq 315.

exception - constitution - fortuitous vesting

Answer 66

B was released from his outstanding debt to his stepmother when he was made her executor.

Principle: An imperfect gift is perfected when the intended donee is appointed as the executor of the donor’s will, as long as the donor had the immediate intention to gift at the time of death (known as the rule in Strong v Bird)

reasoning: being a continuing intention to give and a legal act which transferred the ownership in the £900 to B , the transaction is perfected: p. 319B?

B borrowed £1100 from his stepmother who was a tenant his house.
It was agreed that her rent shall be reduced by a £100 every quarter, which will go towards discharging B’s debt
Reduced rent was paid for two quarters, but on the third quarter the stepmother insisted on paying the full amount and continued till her death 4 years later, the total extra amount paid amounting to £900
B was appointed as sole executor of his stepmother after she died.