Week 6- Private purpose trusts/ the nature of a beneficiaries interest Flashcards
What is the beneficiary principle as derived from Morice v Bishop of Durham 1804/ 1805?
How does Roxburgh J sufficiently summarise the principle in Re Astor’s?
The beneficiary principle deriving from Morice v Bishop of Durham 1804 states that a trust cannot be valid unless it is for the benefit of identifiable and specific beneficiaries. This is subject to different rules governing fixed and discretionary trusts, but the underlying principle remains the same.
Morice v Bishop of Durham 1804
Sir William Grant MR: “There can be no trust, over the exercise of which this Court will not assume a control; for an uncontrollable power of disposition would be ownership, and not trust … There must be somebody, in whose favour the court can decree performance.” Only those holding the rights of beneficiaries are entitled to enforce, hence the need to identify who can and cannot enforce a trust. It also illustrates the first of the 3 certainties, certainty of object (along with intention and subject matter).
Morice v Bishop of Durham on appeal in 1805:
Lord Eldon “As it is a maxim, that the execution of a trust must be under the control of the court, it must be of such a nature, that it can be under that control; so that the administration of it can be reviewed by the court … unless the subject and the objects can be ascertained, upon principles, familiar in other cases, it must be decided, that the court can neither reform maladministration, nor direct a due administration.” Illustrates the control of the courts to enforce a trust, and the ability of them to do so rests on the beneficiary principle.
Best expression of the beneficiary principle is as follows:
Roxburgh J in Re Astor’s: “The typical case of a trust is one in which the legal owner of property is constrained by a court of equity so to deal with it as to give effect to the equitable right of another. These equitable rights have been hammered out in the process of litigation in which a claimant on equitable grounds has successfully asserted rights against a legal owner or other person in control of property. Prima facie, therefore, a trustee would not be expected to be subject to an equitable obligation unless there was somebody who could enforce a correlative equitable right, and the nature and extent of that obligation would be worked out in proceedings for enforcement.”
How does Lord Millett explain the difference between a trust for persons and a non-charitable purpose trust with regard to primary and secondary consequences of the trust?
"It must be a question of construction in every case whether the trust is for the benefit of a class of individuals, the specified manner of their enjoyment … being secondary; or whether the specified mode of enjoyment is the essence of the gift, the indirect benefit to individuals being secondary. If the trust is of the first kind it is a valid trust for the benefit of the specified class who may, if unanimous, terminate the trust and call for the trust property. If the trust is of the second kind … it is an invalid purpose trust." -In the absence of any conferral of a right to enforce the trust from someone who is not an intended beneficiary, owing to the nature of the trust as a purpose trust as opposed to a trust for a person, the trust could not be valid. The trust mechanism provides for the enforcement of the trust; a purpose or a physical object (as opposed to referring to beneficiaries as objects) cannot sue, whilst a charitable purpose object can sue through the AG or charity commissioners.
What is the enforcer principle and how does Hayton suggest it could work to justify the existence of non-charitable purpose trusts?
- “Such tracing process will therefore be available if trustees of a non-charitable purpose trust are regarded as legal and beneficial owners of the trust property, subject to fiduciary and equitable obligations enforceable by the enforcer designated as such in the trust instrument… Sufficient proprietary aspects therefore arise in relation to non-charitable purpose trusts to justify their existence as enforceable trusts where an enforcer is expressly appointed in the English or foreign trust instrument. The basis of the trust is the unilateral transfer of assets by a settlor to a person voluntarily undertaking the office of trustee with the benefits and burdens attaching to such office.39 It should make no difference whether the burdens are enforceable by the beneficiaries or by the Attorney-General or the Charity Commissioners or by the designated enforcer.”
“Where the settlor is enforcer of his trust for beneficiaries he may be regarded as a sort of protector or guardian of the interests of any beneficiary not yet ascertained and of full capacity. Most offshore, and some English, trust deeds appoint someone to be a protector with power to monitor the conduct of the trustees and to replace them and whose consent may be necessary to certain actions of the trustees.42 It is assumed in offshore cases43 that the protector must have locus standi to the extent necessary to enable him to perform his functions (and, indeed, the Manx appellate court has held that the court does have inherent jurisdiction to appoint a protector with key functions in the life of the trust where such office is vacant and otherwise no appointment could be made)”
Hayton recognises the possibility of an enforcer principle which allows private purpose trusts to exist without beneficiaries so long as they are administered by a named executor; Penner recognises that caution must be taken with regards to the creation of such trusts:
What rejections to the enforce theory are there?
- At law, the enforcer and trustee can agree to misapply trust property for their own benefit, or any benefit over than that dictated by the executor, and as the executor falls out of the picture once the property is transferred, and the courts can not get involved, there is nothing to prevent this. The obligations and the rights reside solely with trustee and enforcer respectively, and being private, no one else can prevent their misapplication.
- No AG equivalent for non-charitable purpose trusts.
- These are not truly purpose trusts, as the equitable interest resides in the enforcer, enforceable against the trustee, rather than to the purpose, administered by the trustee and overseen by the enforcer. As Penner recognises, The result is that the ‘purpose trust with enforcer’ mechanism Hayton describes, while perhaps within the law, does not deliver a true purpose trust, but rather enables the settlor to give his trustee a power to apply property to purposes and a power to another to make him exercise that power.”
Facts and significance of Re Denley 1969?
Facts- “Trustees for sale of land were directed by the trust deed to maintain land for use as a sports ground “primarily for the benefit of the employees of the company and secondarily for the benefit of such other person or persons (if any) as the trustees may allow to use the same(the second bit being the trust).” The trust deed also provided “If at any time the number of employees subscribing shall be less than 75 per cent of the total number of employees at any given time (subscribing at the rate of 2d. per week per man) or if the said land shall at any time cease to be required or to be used by the said employees as a sports ground or if the company shall go into liquidation then the trustees shall… convey the said land to [a named charity] or as it shall direct.”
Significance- The trust was valid and the gift over was sufficiently precise and certain- money was provided for the purpose of the upkeep of land, but clearly for the benefit of certain people even where the money was not actually held on trust for specific or a class of beneficiaries- this is construed as a trust for persons, even where the money is to be applied by such persons for the upkeep or maintenance of people or property owned by people. Goff J formulated his argument on the basis that the employees were recognisable, and it was clearly a trust for their benefit. A non-charitable purpose trust would otherwise have been void.
What does Goff J say in Re Denley about why non-charitable purpose trusts are void, and thereby why the trust in Re Denley was not void, in comparison to the trusts in Re Endacott and Re Astor?
“I think there may be a purpose or object trust, the carrying out of which would benefit an individual or individuals, where that benefit is so indirect or intangible or which is otherwise so framed as not to give those persons any locus standi to apply to the court to enforce the trust, in which case the beneficiary principle would, as it seems to me, apply to invalidate the trust, quite apart from any question of uncertainty or perpetuity. Such cases can be considered if and when they arise. The present is not, in my judgment, of that character, and it will be seen that clause 2 (d) of the trust deed expressly states that, subject to any rules and regulations made by the trustees, the employees of the company shall be entitled to the use and enjoyment of the land. Apart from this possible exception, in my judgment the beneficiary principle of In re Astor’s Settlement Trusts. which was approved in In re Endacott, decd. - see particularly by Harman L.J. - is confined to purpose or object trusts which are abstract or impersonal. The objection is not that the trust is for a purpose or object per se, but that there is no beneficiary or cestui que trust.
What underlying themes do there appear to be in those non-charitable private purposes trusts which are valid?
Some form of upkeep/ maintenance which is necessary after the death of the testator
Which exception does Re Hooper illustrate?
1) Tombs and monuments- Bequests for family burial enclosures are construed as purpose trusts- a gift of money may be bequeathed for the building of a monument, so long as this is done within the period of perpetuity.
Re Hooper 1932 1 ch 38:
Facts- Testator gave money to trustees for upkeeping family graves, and a tablet in a window in a church so far as it was legal to do so.
Significance- Maugham J held that the gift was upheld for 21 years. Clearly no beneficiary here in the normal sense of a trust. “Something has been said with regard to apportionment. To my mind there is no room for a legal apportionment, because it is left to the discretion of the trustees to arrange how much they will out of this income apply during the twenty-one years to the four objects in question. At the end of the twenty-one years any part which is not applied for the upkeep of the tablet and the window in St. Matthias’ Church will, of course, be undisposed of and will fall, unless some other event happens, into residue.”
-Residuary legatees could enforce it via a court order (Pettinger order)
Which exception does Re Dean 1889 illustrate?
Re Dean 1889 41 Ch D 552:
Facts- gift of £750 per year for 50 years made to maintain the horses and hounds, so long as they continued to live.
Significance- the trust was upheld, although questioned with regards to the length of the validity of the trust.
North J relied on Mitford v Reynolds. There was no objection to this trust so long as “it is not to last for too long a period”.
This case serves as authority for the proposition that a trust for the upkeep of specific animals are valid for the perpetuity period (note a perpetuity period is the length of a life plus 21 years.
What anomalous example of exceptions to the rule against non-charitable purpose trusts does Re Thompson illustrate?
“an alumnus of trinity hall, Cambridge, bequeathed a legacy to Lloyd, an old friend, to be applied in such manner as he should think fit towards the promotion and furtherance of fox-hunting, and gave the residuary to Trinity Hall. Lloyd made no claim to any beneficial interest, but desired to carry out the testator’s wishes if he should be permitted to do so. Trinity Hall also was anxious that the trust should be performed; but felt it it’s duty, as a charity, to submit that the trust was void for lack of a beneficiary. There was no problem of perpetuity, and Clauson J held that the purpose was sufficiently certain. He upheld the gift by ordering the money to be paid to Lloyd upon his giving an undertaking to apply for it for these stated objects and gave trinity hall liberty to apply if the money should be used for other purposes.”
How was it suggested in Re Thompson that a non-charitable purpose trust be enforced, although what limited circumstances was it confined to on the facts of the particular disposition in that case?
Why might it be simply fallacious?
“The proper way for me to deal with the matter will be, not to make, as it is asked by the summons, a general declaration, but, following the example of Knight Bruce V.-C. in Pettingall v. Pettingall 5 , to order that, upon the defendant Mr. Lloyd giving an undertaking (which I understand he is willing to give) to apply the legacy when received by him towards the object expressed in the testator’s will, the plaintiffs do pay to the defendant Mr. Lloyd the legacy of 1000l.; and that, in case the legacy should be applied by him otherwise than towards the promotion and furthering of fox-hunting, the residuary legatees are to be at liberty to apply.” The residual legatee, who’s interest is determined by the ability and the actions of the original legatee to carry out the obligations as trustee, can be the enforcer of that particular trust, and apply for their entitlement of the residual legacy if the original trustee fails to carry out his obligations.
Trinity College’s ability to ‘enforce the trust’ was based off of negative enforceability- they couldn’t actually enforce the purpose trust at all, just threaten the original trustee with the ability to apply to the courts to have the residual legacy bestowed to them upon the original trustee defaulting on using the funds for the purposes of the trust.
Facts and significance of re Astor 1952 regarding the enforceability of trusts without beneficiaries/non-charitable purpose trusts?
Facts- Lifetime settlement expressly limited to a period of lives in being plus 21 years, for trustees to hold a fund upon various non-charitable purposes including “the maintenance of good relations between nations… the preservation of the independence of the newspapers” and other similar purposes in favour of individual newspapers.
Roxburgh J held that the trust was invalid because no one existed to enforce it, and further the objects of the trust were inherently uncertain. Held, (1) a court of equity would not recognise as an equitable obligation, affecting the income of large funds in the hands of trustees, a direction to apply it in furtherance of enunciated non-charitable purposes in a manner which no court or department could control or enforce; therefore, the trusts were void on the ground that they were not trusts for the benefit of individuals; (2) the trusts were also void for uncertainty.
“On the other side is a group of cases relating to horses and dogs, graves and monuments - matters arising under wills and intimately connected with the deceased - in which the courts have found means of escape from these general propositions and also In re Thompson 61 and In re Price 62 which I have endeavoured to explain. In re Price 63 belongs to another field. The rest may, I think, properly be regarded as anomalous and exceptional and in no way destructive of the proposition which traces descent from or through Sir William Grant through Lord Parker to Harman J. Perhaps the late Sir Arthur Underhill was right in suggesting that they may be concessions to human weakness or sentiment (see Law of Trusts, 8th ed., p. 79). They cannot, in my judgment, of themselves (and no other justification has been suggested to me) justify the conclusion that a Court of Equity will recognize as an equitable obligation affecting the income of large funds in the hands of trustees a direction to apply it in furtherance of enumerated non-charitable purposes in a manner which no court or department can control or enforce. I hold that the trusts here in question are void on the first of the grounds submitted by Mr. Jennings and Mr. Buckley.”
What were the facts of Re Endacott and what limited exhaustive list would apply henceforth for non-charitable purpose trusts?
Facts- A gift in a will to a parish council “for the purpose of providing some useful memorial to myself” is not a good charitable gift. A testator gave his residuary estate, worth about GBP 20,000, to a parish council “for the purpose of providing some useful memorial to myself.”
Held, the gift failed and the residue fell to be distributed as on an intestacy
The maintenance of stables and animals
The maintenance of graves/ tombs/ monuments
Both subject to period of perpetuity.
What is the argument that non-charitable purpose trusts do not exist at all?
Only those recognised within the narrow exhaustive list explained in Re Endacott are currently considered as valid NCPT- however there is justifiable criticism that they are even purpose trusts at all, in the same way that charitable purpose trusts are (and are valid without beneficiaries as they have the AG to compel performance, and charities often exist for purposes, of which persons are secondly beneficiaries (in a non-legal sense).
What is an interpretation of trusts for persons?
- Sometimes a purpose trust will be construed as an outright transfer/ gift in favour of a beneficiary who benefits from the purpose of the trusts, or at least it will be a trust for a person as opposed to a trust for a purpose, with the money bequeathed outright and a purpose provided, but not enforceable. The practical effect of this is as follows; the person intended to benefit from the purpose of the trust, ie the way in which the trust fund is to be spent/ applied, takes the trust fund absolutely, even if they choose not to apply the fund in favour of the intention of the testator. This rule can be rebutted in the case of prospective trustees who are of ‘normal capacity’; people with a disability may not be able to apply their money for their absolute benefit due to external pressures or deceit, so any remaining trust property may be returned to the donors or their residue estate, whereas other people who are capable of applying the trust property fully for their own benefit would be entitled to keep it (or fall to their estate upon their death).
