Week 1 cases- Creation of an express trust Flashcards
Morice v Bishop of Durham (1804) 9 Ves 399 at 405 (MR); (1805) 10 Ves 522,539–40, 542–3 (LC)
Facts- Bishop of Durham persuaded the daughter of a navy commander to appoint him as the executor of his will. This agreement gave him rights which equated to wide powers over the property to be distributed. Cousins brought a case against the Bishop to overturn the creation of the new will, which named the Bishop sole executor.
Significance- In the lower court, it was held that no charitable trust had been created, because the “uncontrollable power of disposition would be ownership, and not trust”
- It was repeated that a charitable trust will not fail “on account of the uncertainty of the object”.
- In the high court of chancery, Lord Eldon held that the trust was invalid as a private express trust too, because it did not purport to leave any rights to beneficiaries. This stops the court from being able to execute the trust, and if the court is unable to execute the trust then the trust cannot be valid. THERE BEING NO OBJECT FOR THE TRUST, THERE CAN BE NO VALID TRUST
Saunders v Vautier (1841) 4 Beav 115
Facts- Testator left property in East India Company on trust for a number of family members. The terms of the trust dictated that the nephew’s stocks would accumulate until he was 25, but upon obtaining 21 he ordered the stocks to be transferred to him by the trustee.
Significance- The nephew, being a man of age, was entitled to an early transfer of the stocks. “An absolute indefeasible interest” means that the beneficiary is entitled to claim the object of the trust. The beneficiaries wishes “superseded those of the testator”.
Re Adams and the Kensington Vestry (1884) 27 Ch D 394
Facts- A testator gave all his property to his wife “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”.
Significance- No trust had been created. On a true construction of the agreement, no trust had been set up, and this equated to no more than precatory language imposing a moral obligation onto the wife with regards to the property and their children.
-This was an absolute gift to the wife instead.
*Milroy v Lord (1862) De GF & J 264
Facts- Testator held shares in the Bank of Louisiana and purported to transfer these to Milroy to hold on trust for his niece. He failed to comply with the requirements of the bank.
Milroy sought to claim ownership over these shares
Significance- No trust had been created due to the failure of the testator to do all in his power to transfer the property to Milroy to be held on trust for his niece. Therefore Milroy was not entitled to sole ownership over the shares because the court would not step in to “rectify an imperfect gift” by turning it into a perfect trust.
3 Ways to give something in law:
Turner LJ concurred.”
(1) legal transfer of title to recipient
(2) transfer of title to a trustee for a beneficiary
(3) a self-declaration of trust.” None of these were present in this case; it was an ‘imperfect gift’.
Jones v Lock (1865) 1 Ch App 25
Facts- Man handed a cheque to his baby saying that he was to leave it to him upon his death. Yet his will only contained express provision for provided for his first child (the baby was his second).
Significance- NO trust for the child had been made out. Whilst the court was reluctant to deprive the child of such a substantial amount of money, the transaction was merely symbolic of what he should have executed with his solicitor in his will.
FOLLOWING PAUL V CONSTANCE, THIS MAY TODAY STAND AS A DECLARATION OF TRUST
Richards v Delbridge (1874) LR 18 Eq 11
Facts- Richards employed a family member in his business and wished to hand it over to this family member by gifting it to him outright.
Significance- One needs not use the expression “I declare a trust” but something which can reasonably be construed as a declaration of trust is necessary. The court will not step in to turn an imperfect method of transfer into a trust. “The court is not at liberty to construe words otherwise than according to their proper meaning”.
“For a man to make himself a trustee there must be an expression of intention to become a trustee, whereas words of present gift shew an intention to give over property to another, and not retain it in the donor’s own hands for any purpose, fiduciary or otherwise.”
Re Schebsman [1944] Ch 83
Facts- Schebsman entered into an agreement with his employers to receive six annual payments as compensation for his loss of employment. If he died before all six were made, the payments were to be made to his wife. S was declared bankrupt two months before he died, and the trustee in bankruptcy sought a declaration that the sums payable to the wife and daughter formed part of the deceased estate.
Significance- The contract did not create a trust in favour of the daughter and wife, but the court were also unwilling to allow the deceased estate to recover any of the funds and intercept the contract.
-The parties intended to keep alive their common law right to vary the terms of the agreement.
JSC Bank v Pugachev 2017 EWHC 2426 Ch
Facts- The court were assessing the trust deeds made by the defendant, which appeared to give him extensive powers as settlor, a discretionary beneficiary, and protector, allowing him to exercise power selfishly. He sought to hide his true ownership of the assets, to prevent them being paid to the claimant bank, who had gone into liquidation and was said to be owed substantial funds from the defendant.
Significance- The beneficial interest in the trust was retained by Mr Pugachev despite trying to disguise it under a sham trust.
The test for intention is subjective, and to create a sham trust, the settlor and trustee must intend to have disguised their true intention to third parties.
A reckless indifference towards the intention of the trust will be treated as a common intention towards the trust.
The powers retained by Mr Pugachev in his different sham capacities allowed him to exercise his powers selfishly, remove himself as protector of the trust if criminal proceedings started against him, and made him both settlor and beneficiary in the mean time.
Wilkinson v North 2018
Facts- Having received a large $18mn payout for the use of a product illegally made by North, those entitled to that money were the subject of claims by North’s investors, who were told that they would reclaim 5x their investment, plus a % in of assets agreed with North. Thus. the investors wanted to claim this money from the $18mn payout.
Significance- No trust had been created in favour of the investors.
Though constantly changing assets may form the subject matter of a trust, the intention to create a trust was not easily ascertained from the contractual agreement, and the original judge had failed to consider that the only reference to a trust alongside other possible legal agreements could lead to a plausible conclusion of some personal obligation other than a trust over a %share in the company.
-Even on a more flexible Paul v Constance reading of the agreement, there was no sufficient evidence of a trust.
Re Ellenborough [1903] 1 Ch 697
Facts- The respondent had agreed to hand over the estates of her brother and sister to certain beneficiaries upon their death.
Significance- An expectation cannot suffice as the subject matter of a trust capable of enforcement by a mere volunteer. The trust was invalid due to a lack of sufficiency of the subject matter, and at the time the agreement was made, the respondent did not have any sufficient interest in the property capable of assignment.
BUT IF THE EXPECTANCY FORMS A CONTRACTUAL PROPERTY RIGHT, THEN IT CAN BE THE SUBJECT OF A TRUST; consideration required by the applicant.
-“In my judgment the interest of the plaintiff as sole heiress-at-law and next of kin of the late Lord Ellenborough was not effectually assigned to the trustees by the deed, and the trustees cannot call upon her to grant, assign, transfer, or pay over to them his residuary real and personal estate.”
*Re London Wine Co [1986] PCC 121
Facts- the company ran a scheme allowing customers to bulk buy wine, which would remain in an identifiable warehouse; however it was not separately from other existing stock. The purchaser would own the wine, but it would be housed with the wine company, and held on bare trust by the wine company.
Significance- As the wine remained as part of the common stock, the trusts lacked the certainty of subject matter required for it to arise. Its important not just to know what the interest is for the beneficiary but also what that interest is in.
TRUST PROPERTY MUST BE SEPARATED FROM NON-TRUST PROPERTY FOR SUBJECT MATTER TO BE CERTAIN.
*Re Goldcorp Exchange Ltd [1995] 1 AC 74
Facts- Customers who had bought bullion from a New Zealand bank sought to exercise their rights as purported beneficiaries to claim their share to the bullion when the company went insolvent. The company had contractually agreed to separate each customers’ gold but failed to actually do so. Goldcorp therefore asserted that all customers had suffered a breach of contract, but were no more than unsecured creditors, and therefore were not entitled to any priority as beneficiaries of the gold fund.
Significance- The failure of the bank to separate the gold reserves meant that there was no identifiable subject matter for the trusts.
Lord Mustill: “What the non-allocated claimants are really trying to achieve is to attach the proprietary interest, which they maintain should have been created on the non-existent stock, to wholly different assets. It is understandable that the claimants, having been badly let down in a transaction concerning bullion should believe that they must have rights over whatever bullion the company still happens to possess. Whilst sympathising with this notion their Lordships must reject it, for the remaining stock, having never been separated, is just another asset of the company, like its vehicles and office furniture.”
*Hunter v Moss [1994] 1 WLR 452
Facts- The beneficiary of a trust for 5% of a 1000 share company sought to enforce the trust as against the trustee.
Significance- The trust was enforceable even if the 50 shares remained as part of the whole stock of shares.
A portion of intangible assets does not have to be segregated from the rest to form the subject of a trust
The logical rational for this case is that It would be inconvenient to identify share numbers when declaring a trust over part of ones share.
The case is criticised because the testators beneficial and legal interest in the property passes to the executor upon the passing of the testator.
Re Harvard Securities, Holland v Newbury [1997] 2 BCLC 369
Facts- an Australian securities dealer bought both Australian and US shares; the US shares governed by English law and, after July 14th 1986, so were the Australian. Upon becoming liquidated, the companies’ liquidator had to determine whether the customers had any equitable title to the shares, as the shares were not separated upon purchase, and were held under the name of a London bank, potentially on trust to the customers.
Significance- English law, following Hunter v Moss, dictated that the former customers of the defendants had an equitable interest in the US shares, and Australian shares bought after July 14th 1986. There was no subject matter certainty for the other Australian shares, as Australian law had not followed the approach regarding non-tangible property in Hunter v Moss.
Pearson v Lehman Brothers 2011 EWCA Civ 1544
On certainty of subject matter- “Proprietary rights do not attach to an unappropriated part of a larger mass”- even where shares were still incorporated into a larger mass, it is conceded that the confusion doesn’t prevent a trust having been created, but rather is relevant as to whether the obligations of the trustee have been discharged.
70. The judge derived from this case the following proposition, set out in his paragraph 225:
“A trust of part of a fungible mass without the appropriation of any specific part of it for the beneficiary does not fail for uncertainty of subject matter, provided that the mass itself is sufficiently identified and provided also that the beneficiary’s proportionate share of it is not itself uncertain.”
