Equity and Trusts Lecture Notes Semester 12

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Equity and Trusts - Lecture Notes Semester 1&2
Equity and Trusts (University of Leeds)
Verspreiden niet toegestaan | Gedownload door Studeer Snel (m169426@mvrht.com)

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Transfers of Property 28/09/2015 11:16:00
1st question: what types of property exist?

Real property = land (estates and interest)
Personal property (2)
o Choses in possession/chattels (tangible)
o Choses in action (intangible) shares, debts, IP
2nd question: by what methods can property be transferred?

1. INTER VIVOS SALE different legal requirements for different types of property
2. INTER VIVOS GIFT (gift made during lifetime)
a. Recipient (done) of the gift is a volunteer and has not given consideration
3. ON DEATH: By will/intestancy must comply with s9 of the Wills Act [1837]
a. Transfer of property shall be left to the executor
TRANSFER OF REAL PROPERTY (land)
1st method: inter vivos sale

2 requirements
1) Contract in writing signed by both parties: s.2 Law of Property (Miscellaneous) Act
1989
2) Transfer of a legal estate must be by deed under S.52 LPA 1925
Deed must be expressed to be a deed and signed
Transfer is only effective at law once registered s.27 LRA 2002
2nd method: inter vivos gift

Also must be done by deed
By deed: s52 LPA 1925
Transfer is only effective at law once registered s.27 LRA 2002
3rd method: on death

1) Compliance with will: s.9 Wills Act [1837]
2) In absence of will: Administration of Estates Act [1925]
TRANSFER OF CHOSES IN POSSESSION (chattels)

No special formality requirement
Usually contract law: acceptance, consideration and intention to create
legal relations

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There must be either:
1) Deed of gift complying with s1 Law of Property (Mischellaneous) Act [1989]
2) a) A legally recognised form of delivery with b) an intention to give on the part of

the donor and c) an absence of rejection by the donee
a) A legally recognised form of delivery

Actual physical handing over of object (Re Cole)
Symbolic handing over one item out of a larger group (Lock v Heath)
Constructive no physical delivery due to bulky object (Rawlinson v Mort)
b) Intention to give e.g. as opposed to a loan

Must not be merely lending it must be manifested through words/conduct
c) Absence of rejection
Donees are presumed to accept a gift unless they repudiate it (Dewar v
Dewar)

TRANSFER OF CHOSES IN ACTION (debt)

Contract: different rules apply depending on the nature of the chose in action
Debt bought and sold through means of statutory assignment (s.136
LPA [1925])
Shares stock transfer form

Due to intangible nature delivery is not an option
Therefore special rules of transfer also apply as above


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EQUITY AND TRANSFER
The rule in Strong v Bird

Where a person intends to make a lifetime gift and appoints the potential donee as
his/her executor, and the gift is not completed during his/her lifetime, the gift
becomes complete on death when the property vests in the executor.
KEY ELEMENTS
1. Person must intend to make lifetime gift more than mere intention is required,
but it is not sure where the line is drawn.
2. Property cannot be lent or given to another continuing intention of benefit
This can also be applied in transfers of land: Re James (academic doubt on how
valid this really is)
DONATIO MORTIS CAUSA
Also known as deathbed gifts bypass transfer rules

Distinct doctrine can cannot save a failed inter vivos gift as it is based on
the intention to transfer property only on death, not immediately
Can be applied to unregistered land, choses in possession and choses in
action
3 conditions set out in Cain v Moon and confirmed in King v Dubrey

Gift must have been made in contemplation of death
o Sen v Headley: being seriously ill in hospital is sufficient
The donor must part with dominion over the property
o King v Doubrey: physical possession, documents, means to access
the subject matter
o Vallee v Birchwood: concept termed slippery
The gift must have been made conditional on death and must be
revocable if the person to make the gift recovers
King v Dubrey this doctrine should be kept within its proper grounds

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Transfer Formalities 28/09/2015 11:16:00
Three requirements for a valid and completely constituted trust:

1. The trustee has become the owner of the property according to the rules for the
particular type of property.
2. There must be certainty
3. There is a beneficiary
A wants B to benefit from his/her property. There are three alternative methods,
outlined in Milroy v Lord [1862]
A makes an outright gift of the property to B
A declares her/himself trustee of the property, to hold on trust for B
A transfers the property to a third party (C) as trustee, to hold on trust for
the B
Method 1 outright gift

All the interest of the donor is transferred into Bs ownership.
Must comply with the formalities according to the type of transfer (see
previous topic)
Method 2 declaration of trust

Relies on the fact that Equity enables title to property to be split into
equitable and legal ownership.
A has made a self-declaration of trust, but has not parted with the legal
title.
A = legal ownership (trustee), B = equitable ownership (beneficiary)
Beneficiary is no longer a volunteer in the eyes of equity and may enforce
a trust through the courts.
Method 3 transfer of property to third person

C (third person) becomes the trustee with the legal ownership, whilst B is
the beneficiary and has the equitable ownership
TRUSTS TERMINOLOGY
Settlor = original owner of the trust property creates the trust, sets out the
terms upon which the trust is to operate and determines how long it will
last. In the case of an inter vivos (created in lifetime) trust, the creator is
known as the settlor.
Testamentary trust = a trust created to take effect on death. The person
who establishes this trust is known as the testator or testatrix.

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Trustee = holds the legal title and has management and control of the
trust property.
Fiduciary relationship = between the trustee and beneficiary, and one of
trust and acting upon best interests. Trustee must carry out wishes of
settlor as expressed in the trust.
Beneficiary = holds the equitable title and has the right to enjoyment of
the property.
Express trust = those expressly created by the settlor.
Equity will not assist a volunteer: a volunteer is someone who has not provided
consideration for a particular transaction. This is applied when a donor purports to
make a gift to the donee, but the gift is not effective and retains the legal title. Equity
will not assist the person to make a valid trust when they did not do it effectively.
Despite this, the courts have been prepared to find that a gift or trust is complete
even if all the legal requirements for transfer of property have not been satisfied
EXCEPTIONS TO EQUITY WILL NOT EXIST A VOLUNTEER
Strong v Bird - nephew entitled to benefit from aunt before she died on her
death bed that debts would be waived, process of appointing executor
created the gift.
Doctrine of donatio mortis causa deathbed gifts
A lenient approach: Choithram v Pagarani [2001]

C established charitable foundation of which he was one of the trustees.
On his deathbed he made statements that he gave all his wealth to the
foundation but this was not legally completed before his death.
Even though equity will not construe a trust from an imperfect gift, it was
held that his words were apparently words of outright gift.
Trust sufficiently constituted since he was already one of the trustees.
His conscience was bound by trust and he was under obligation to carry it
into effect.
LENIENT APPROACH, FAILURE TO TRANSFER LEGALLY BEFORE DEATH,

WORDS OF OUTRIGHT GIFT, ALREADY A TRUSTEE, CONSCIENCE BOUND BY
TRUST TO ENFORCE
A strict approach: Re Fry [1946]

Would be donor did not obtain the necessary Treasury consent to the
transfer.

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Gift of shares thus held ineffective as he had not done all that was
required.
A lenient approach: Re Rose [1952]

Held sufficient that donor had done all that he could to transfer the
shares.
Gift was already valid in equity prior to registration of the transfer.
Mr Rose became unwilling constructive trustee time period before
equitable title and legal registration of the transfer.
An even more lenient approach: Pennington v Waine [2002]

Aunt transferred shares to her nephew in order to make him director of the
company. She executed the stock transfer form yet this was not complete
as it was not filed by her lawyers.
CA followed a benevolent approach in Pagarani and held that there had
been such a transfer.
This level of generosity was criticised but was seen as a step towards
adopting unconscionability as a unifying theme in equity.
Transfer complete in equity when it would be unconscionable to withdraw
the gift.
Rejecting this approach: Cobbe v Yeomans Row Management [2008]

The approach in Pennington v Waine was a step too far in the context of
proprietary estoppel.
Unconscionable conduct alone is not sufficient to sustain a case.
Back to Re Rose?: Zeital v Kaye [2010]

Re Rose was interpreted as once the donor has done all in their power to
transfer the shares, a beneficial owner is created.
Rejection of the issue of unconscionability.
A variety of options?: Curtis v Pulbrook [2011]

No valid legal transfer nor any form of transfer recognised in equity.
Mr Pulbrook had issued share certificates to his wife and daughter, but he
was not authorised to issue them.
o No amount of benevolent construction would lead to the conclusion
that Pulbrook had intended to declare himself trustee.
o He had not taken the necessary sufficient steps.
o Evidence did not show any acts or omissions by his wife and
daughter.

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OTHER METHODS OF ENFORCEMENT
As outlined in Milroy v Lloyd (3rd way of transferring property), problems arise if the
settlor fails effectively to transfer the trust property to the trustee. However, the
following possibilities should be considered.
1. Did the potential beneficiary provide valuable consideration recognised in

equity?
If the potential beneficiary has provided valuable consideration, then they
are not a volunteer and the trust can be enforced.
Pullan v Koe marriage consideration is valuable consideration
AG v Jacobs-Smith children of the marriage are also considered
2. Did the potential beneficiary provide consideration recognised at common

law?
Being party to a covenant is regarded as consideration.
Cannon v Hartley action can be bought for damages at common law
3. If no consideration was provided, and the potential beneficiary was not a

party to the deed, was there a trust of the right to sue under the covenant?
Fletcher v Fletcher even if a trust is not created, the intention to create
the trust may also create a right to sue. Court was prepared to infer an
intention to create such a trust of the right to sue from the fact that the
covenant was made solemnly.
4. In cases where there is a contract created after the Contracts (Rights of

Third Parties) Act 1999 came into force, is there a potential to recover under
this act?
The Act operates to allow a third party to enforce a contract even though
there is no privity of contract.
5. If there is no valuable consideration, potential beneficiary was not a party to

the covenant, there is no right to sue under the covenant or under the
Contracts (RTP) Act, can the potential trustee sue the settlor for breach of
covenant and hold the damages on trust for the potential beneficiary?
Re Pryce trustees can be compelled to sue.
Re Kay and Re Cook trustees should not be instructed to sue; consistent
with the fact that the trustees themselves suffered no loss.
Does the rule in Re Rallis WT apply?

Parallel reasoning to Strong v Bird

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Where a complete constitution in respect of a marriage settlement created

by a beneficiary under a will was effected when the same person became
both sole surviving trustee of the marriage settlement and sole surviving
trustee of the will.

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The Three Certainties: Intention and Subject

Matter (1+2)
STARTING POINT
Any valid trust must satisfy the three certainties Knight v Knight
1. Intention to create a trust
2. Sufficient subject matter certainty
3. The objects of the trust must be sufficiently clear (objects = the persons who are
beneficiaries)
The key question here is how much uncertainty courts are willing to tolerate.
The three certainties are generally used in the context of trusts rather than gifts.
1) CERTAINTY OF INTENTION
Intention guides the court in distinguishing between gifts and trusts

Helps determine which alternatives outlined in Milroy v Lord [1862] are
applicable (3 ways of creating a trust see previous topic notes)
Self-declaration of trust there must be sufficiently clear evidence of this intention of

holding property for benefit of another.
Transference to a third party there must be an intention that the third party is to
hold for the benefit of another.
In both situations courts should be not too willing to find an intention to create a trust,
since trustees have onerous fiduciary duties.
APPROACH TO CONSTRUCTION
Investors compensation scheme objectivity and admission of extrinsic evidence

Intention is approached objectively and not subjectively. What matters is
the intention which the reasonable person would think to have been
present.
Construction (ascertainment of intention) does not take place in a vacuum;
but rather, the courts will interpret words with the benefit of any admissible
extrinsic evidence. Known as the matrix of fact
Re Adams [1884] Precatory words are not sufficient per se to create a trust.

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The testator gave his estate to his wife in full confidence that she will do
what is right for my children.
The words in full confidence did not create a trust.
Can also use the case of Lamb v Eames [1870] in any way she may
think best = not sufficient intention.
PRECATORY = EXPRESSING A WISH/DESIRE.

Knight v Knight words of trusts are ones which are imperative.
However, the use of precatory words is not fatal to there being an intention to create
a trust.
Comiskey v Bowring Handbury [1905] precatory words not fatal

C gave all his real and personal property in the confidence that at her
death she would give the property on to his nieces
It was held that the bequest of all the testators property to his wife was not
a mere gift despite the inclusion of the words that he left the estate
absolutely in full confidence that she will make use of it as I should have
made myself.
A trust had been created, and the wife had the power to divide the
property as she saw fit (legal right of a trustee)
GIFT OVER CASES
Cases involving wills where there are words purporting to give certain property to
one person, but then a gift over to another person on the death of the first named
person.
Main example: the testator owns a house/property and they declare that it will go to
his wife and then his children. These cases force the courts to choose between 2
possible outcomes:
1. An absolute gift was intended to the first recipient. In this case, the gift over to the
second is void
2. The first recipient takes only life interest in the relevant property, and that the
second recipient takes it absolutely on the death of the first recipient
Life interest
You can live in the house, but not sell it
This allows testator to fully exert control over who gets the property, as if it
was just given to one person then they could transfer it to anyone they like.

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Danger with this approach: partner will be cash strapped they will have
the house yet no money, however there is a certain statutory minimum, yet
it is wise to consider bequeathing some additional money.
Leslie v Earl of Rothes at common law there is intention to make absolute gift
The intention is to make an absolute gift unless the purported gift over to
the second recipient is sufficiently clear to cut down the interest of the first
recipient to a mere life interest.
Sprange v Barnard wording is crucial to show an absolute gift/gift over

Testatrix left a bequest to her husband and tried to make a gift-over of the
remaining part of what is left on his death.
These words were not sufficient therefore the husband took the property
as an absolute gift.
Law Reform Committee 19th Report

Identified that life interest cases can lead to hardship particularly in the
case of widowed wives, who could find themselves in financial difficulties if
they were given a gift over.
S22 of the Administration of Justice Act 1982: creates a rebuttable
presumption of an intention to make an absolute gift to the spouse.
2) CERTAINTY OF SUBJECT MATTER
There is just as much need to define subject matter in the case of gifts as
well as trusts.
There are 2 ways in which a subject matter may be uncertain:
1. Failure to define actual property

Wording may be too vague to determine the amount of property to be held
on trust.
Palmer v Simmonds the bulk of my estate considered uncertain
Day v Royal College of Music courts do not usually strive to find that there IS
NOT sufficient certainty
Boxes arrived to Miss. Arnolds house including a large number of scripts,
paintings and other items.
The note included contained the word etc. and this was interpreted by the
courts as including everything in the boxes, even though it was uncertain.

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Re Golays Trusts judicial generosity

Court treated the words to enjoy one of my flats during her lifetime and to
receive a reasonable income from other properties as sufficiently certain
to define the subject matter.
TRUSTS AS PART OF A LARGER BULK OR MASS
Some cases have been concerned with alleged trusts that allow a
proportion of some larger mass/bulk, and how to categorise this
Method 1: a trust of fractional proportion of each individual chattel is valid
a tenancy in common of each specific chattel
Method 2: hold a specific numerical quality of the chattels on trust
Hunter v Moss leading authority

Alleged self-declaration of trust by the defendant, taking 50 out of 950
shares in a company.
The analogy of a proportion of each chattel was applied, making the trust
void.
CA held that the trust was valid important to remember that this was a
case concerning choses in action rather than chattels.
Criticism: shares are not totally identical as they have a specific serial
number
Goode alternative view of shares

When one has shares of the same issue, seen as a single asset.
The shareholding is a solitary chose in action they must be seen as a
single asset.
What if there is a failure to identify respective interests of the beneficiaries in the

subject matter?
Boyce v Boyce
Testator left certain houses to his wife for life, upon her death his first
daughter being able to choose which ever house she wanted and his other
houses passing to another daughter.
In the event the first daughter died without having made a choice, it was
held that the gift in favour of the other daughter failed.
If the actual property of the trust is certain, the trust will nonetheless fail if
the respective interests of the beneficiaries are not ascertainable.
Executors of the will are best advised to simply not give effect to the trust,
so that the relevant property will go into residue.

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The Three Certainties: Objects (3) 28/09/2015 11:16:00
Starting Point
Objects = beneficiaries (people) of the trust
Disposition = neutral term for some kind of transaction
There are different tests for different types of disposition.
Problem Qs
Questions in this topic always involve wills focusing on the validity of the
disposition do not focus on transfer rules from Seminar 1.
Problem q 4 types of disposition, although 5 are listed in the hand-out
1, 2, 5 guaranteed, then either one of 3 or 4
The FIVE types of disposition (transaction)

1. Fixed trusts
2. Discretionary trusts
3. Fiduciary powers of appointment
4. Personal powers of appointment
5. A series of individual gifts
1) FIXED TRUST imperative, obligation, no precatory words

A disposition will create a trust if its wording is imperative and it imposes
on the trustees an obligation to distribute the specified property.
No precatory words.
Testator must specify exactly which beneficiaries get what property and
when they get it.
Once the trust is validly constituted, the beneficiaries have equitable title to
the trust property and may enforce the trust.
Example: I leave 10,000 to Georgina on trust for my grandchildren in equal shares.
2) DISCRETIONARY TRUST more power in the hands of the trustee

The settlor or testator has given the trustee some discretion over either:
o Which beneficiaries will benefit
o What each is entitled to
o When the property is to be distributed
There is still an obligation that the property should be distributed.
McPhail v Doulton: trustees should make a survey of the entire field of
objects, decide on certain priorities and proportions.
Re Badens Deed Trust: need for a comprehensive survey by the
trustees was emphasied.

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Example: I leave 100,000 to George to distribute as he sees fit amongst my former

colleagues at the Theatre Royal.
3) FIDUCIARY POWERS OF APPOINTMENT power due to position

Entitlement to distribute, rather than an obligation to do so.
If this power is not exercised, the property will pass on a gift over.
The person who creates the power is a donor and the person who is
given the power is the donee of it.
A power is fiduciary if the donee has been given power because of their
official position or profession.
The power is attached to the position, not the individual.
Re Hays Settlement: when surveying the field, there is not a requirement
to do it as extensively as trustees of a discretionary trust
Example: My solicitor is to have 10,000 to allocate as he thinks best amongst

current law students at the University of Leeds, with anything left over on December
31st 2016 to be spent on the purchase of law books for the Brotherton library.
4) PERSONAL POWERS OF APPOINTMENT power due to personal relationship

Privilege to distribute specified property based on a personal relationship
with testator/settlor.
Not obliged to survey the field of objects.
Trustees are entitled to prefer one object to another as he pleases.
The only thing he/she cannot do is appoint in favour to those who are not
objects of power.
Example: Amy is to have 2,000 to distribute amongst members of the book club as
she sees fit.
5) INDIVIDUAL GIFTS SUBJECT TO A CONDITION PRECEDENT

Specified sums of money given to any persons who meet the criteria to be
members of a specified class.
Series of individual gifts subject to a condition precedent.
In the case of a will, such a disposition will be administered by the
executor/administrator.
Example: I give 100 to each of my nephews and nieces.
Now we have defined the 5 types of disposition, we must consider the test for each
disposition

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FIXED TRUSTS
IRC v Brodway Cottages complete list or class ascertainability test

It must be possible to draw up a list that is, on the balance of
probabilities, complete
There must be wording to suggest equal distribution, otherwise the
amount to each object will be unspecified.
In order for a list to be drawn up, there must be conceptual and evidential certainty.
1) CONCEPTUAL CERTAINTY (also referred to as linguistic or semantic)

Re Tuck words used are not too vague for the courts to apply.
Re Gulbenkians Settlements it is the duty of the court to give a
reasonable meaning to the language used without doing any violence to it.
Judicial generosity can lead to some words being accepted as sufficiently
certain, even though their meaning may be debated.
Wright v Atkyns some words fall on the other side of the line, including
friends and family
IMPORTANT: one can never solely rely on any past cases on a particular word in
approaching conceptual certainty. This is because each disposition must be
considered in its own specific content.
2) EVIDENTIAL CERTAINTY
Re Tuck it must be possible to gather sufficient factual evidence as to
who falls within the class of objects.
Must be viewed pragmatically.
Although there may be conceptual certainty, it may be impossible to draw
up a list based on this which is accurate.
Re Sayer term ex-employees was conceptually certain, yet it was found
impossible to draw up a list that was accurate.
FIXED TRUSTS AND UNKNOWN MISSING BENEFICIARIES

When there is a valid fixed trust (i.e. has conceptual and evidential
certainty), trustees may wish to seek the protection of s27 of the Trustee
Act [1925].
Protects the trustees against claims of breach of trust by people who were
in fact beneficiaries, but whom they had no notice of at the time.
Trustees must first sufficiently advertise their intention to make such a
distribution.

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What about if a trustee has difficulty in locating an individual, or ascertaining whether

they are still alive?
Option 1: use s27 Trustee Act [1925] after they had made reasonable enquiries to
find the beneficiary.
Option 2: obtain a court order under Re Benjamin to indemnify them on the

distribution of the trust property to the known beneficiaries.
Option 3: pay the share of the missing beneficiary into court under Re Gelbunkian
Settlements missing beneficiary has 12 years to come forward before it is returned
to other beneficiaries.
Option 4: take out missing beneficiary insurance capacity to protect both trustees
and beneficiaries (this is the most viable)
DISCRETIONARY TRUSTS
IRC v Broadway Cottages complete list of members of the class also needed for
discretionary trusts.
McPhail v Doulton HL rejected the complete list requirement for discretionary

trusts, holding that the test should be the same as for fiduciary powers is or is not
test.
Re Badens Deed Trust No.2 each of the judges interpreted the word relative in
different ways.
It appears that a valid discretionary trust still requires conceptual certainty in the
same way as a fixed trust, but the appropriate standard of evidential certainty
depends on which judgment you apply from Re Badens Trust No.2.
FIDUCIARY POWERS OF APPOINTMENT

Conceptual certainty required.
Relevant certainty of object test is the is or is not test Gulbenkian.
PERSONAL POWERS OF APPOINTMENT

Grubb - test of certainty remains to be settled conclusively.
INDIVIDUAL GIFTS SUBJECT TO A CONDITION PRECEDENT

Re Allen it must be possible to say with certainty that at least one person
would clearly be a member of the class.

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Most lenient and easiest to satisfy.
1) ADMINISTRATIVE UNWORKABILITY
A disposition which means the relevant certainty of objects can sometimes fail, for
another reason.
In practice, this only arises with discretionary trusts.
What makes a disposition administratively unworkable? Starting point =

McPhail v Doulton: the meaning of the words is clear but the definition of the
beneficiaries is so hopelessly wide as to not form anything but a class.
Lord Wilberforce the example of all residents of Greater London shall
suffice
R v District Auditor ex parte West Yorkshire only reported case

The class of objects extended to any or all of the 2.5 million inhabitants of
West Yorkshire.
The most persuasive view is that a trust will be administratively unworkable if

carrying it out would be excessively burdensome.
Re Gulbenkian, Lord Reid: this would happen when the class of potential
beneficiaries were so numerous it would be quite disproportionate to find them and
discover their needs.
2) CAPRICIOUSNESS
Re Manisty a disposition may be void if its terms negative any sensible intention
on the part of the settlor. (sudden change in aim, unpredictability)
Applies to discretionary trusts and powers.

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The Beneficiary Principle and Unincorporated

Associations
Similar to certainty of objects under the requirement for the three certainties (objects
= beneficiaries).
BENEFICIARY PRINCIPLE
A trust is an obligation, and as a general rule, must have somebody to
enforce it.
This means a human beneficiary, or a company (this also counts as a
beneficiary)
Trusts for charitable purposes (a form of public trust) are a major
exception to beneficiary principle.
Where, however, the object of the trust is a purpose which is non-
charitable, there is in principle nobody to enforce it.
Re Astors ST: a court of equity does not recognise as a trust something
which it cannot both enforce and control.
Morice v Bishop of Durham [1804]

Bishop of Durham created a trust and the trust deed was for objects that
the trustee should approve of in their own and absolute discretion
Without certain objects, the trustees are not subjected to any obligations.
Non-charitable private purpose trusts
1) Is the purpose in question one of the limited class of anomalous private

purposes where trusts have been held to be valid?
Here there is nobody to enforce them, yet they are still classed as valid trusts.
Mussett v Bingle trusts for tombs or monuments

Pettingall trusts for the care of specific animals
Bourne v Keane trusts for masses of private individuals
Re Khoo Cheng Teow trusts for non-Christian private ceremonies
Re Thompson trusts for the furtherance of fox funting (would now fall
foul of the Hunting Act 2004)
2) If a non-charitable purpose falls within these limited categories, does it fulfil the
additional 2 requirements?
A. Re Endacott the purpose must be defined with sufficient certainty

Gift to provide useful memorial to myself too vague

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B. There must be no infringement of either of the two perpetuity rules:
Perpetuity rules = stops the property being indefinitely available and allows it to be
recognised for a certain period of time.
Rules against the remoteness of vesting: no possibility that the gift could
take effect beyond the end of the relevant perpetuity period
Rules against perpetual duration or inalienability: there must be no
possibility of the capital being required to be preserved for longer than the
relevant perpetuity period.
Perpetuity period at common law = 21 years.
Exceptions to the perpetuity rules:
1) Mussett v Bingle: assumption that tomb would be constructed within perpetuity

period.
2) Parish Councils and Burials Act: allows contracts to be entered not exceeding 99
years for the maintenance of a grave, memorial or monument.
3) Funds can be given to a charitable trust on the condition that the grave is
maintained if the condition is broken.
2) Can the disposition be construed as people for people and not purposes?
Re Sanderson Construction
A disposition in favour of a named individual/s for a specified non-
charitable purpose should be construed as an absolute gift and the
purpose regarded as an expression of motive (which has no legal
significance).
Differing results (both cases are concerned with trust funds for impoverished people)
1) The Abbot Fund: two elderly beneficiaries had died and it was decided that the
remaining funds were held to be on resulting trust for the subscribers as the intention
was to provide the beneficiaries with so much as they needed.
2) Re Andrews Trust: the beneficiaries were children whose education was now
complete: it was decided that the remaining funds should be divided equally between
the children.
Re Denley Construction

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A trust that appears to be for a non-charitable purpose will be enforceable if:

It provides sufficient factual benefit
The sufficient factual benefit is to ascertainable individuals
It is sufficiently certain
It is not administratively unworkable
It is not void for perpetuities
UNINCORPORATED ASSOSCIATIONS
Definition in Conservative and Unionist Trade Office: an unincorporated

association exists where two or more persons are bound together for one or more
common purposes, not being business purposes, by mutual undertakings, each
having mutual duties and obligations, in an organisation which has rules identifying
in whom control of the organisation and which can be joined or left at will.
Unincorporated associations are not legal entities so the cannot hold property.

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SEMESTER 2 28/09/2015 11:16:00

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Charities 28/09/2015 11:16:00
CONTEXT
Historically most charities were set up as charitable trusts
Legal meaning of charity does not always match the popular meaning
Until recently, if a court decided whether something was a charity, they
used the Charitable Uses Act 1601 (now repealed)
Analogies developed through case law (may still be relevant)
Lots of criticism courts were using a 400 year old document
Charities Act 2006 substantive
Charities Act 2011 consolidated all existing law
What provisions are relevant when looking at charities?

Law prior to Charities Act 2006 still relevant
Charities Act 2006/2011
Charity Commission guidance does not have the force of law but
publishes guidance
1) CHARITABLE ENTITIES
S1 2006/2011 Charity Act:

Definition: charity means
An institution which is established for charitable purposes only and;
Subject to jurisdiction to the high court
The first criteria is the one which causes the most problems:
Charities most commonly take the form of trusts, although a charity can operate
through an unincorporated association.
Responsibility for the governance and administration of charitable entities rests with
the charity trustees.
Special Features of Charities

1. Valid form of purpose trust they do not exist for individual/s.
2. Charitable trusts are not subject to the beneficiary principle - Attorney General
represents interests in court.
3. Relaxed approach to certainty of objects and not subject to problems of
administrative unworkability.
4. Not subject to the perpetuity rules trust capital may be rendered inalienable.
5. Charities and charitable gifts get certain tax reliefs main benefit.
6. Charitable trusts are subject to tighter regulation than private trusts subject to
control of the High Court and the Charity Commission.

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2) PURPOSES WHICH CANNOT BE CHARITABLE
a. Unlawful/against public policy Re Pinion

Setting up a school for pickpockets is not charitable.
b. Where not exclusively charitable IRC v Oldham TEC
Giving advice to businesses would advance non-charitable purposes as
well as charitable ones.
c. Where designed to create profit for private persons Re Girls Day School
Profit is allowed in charities, but it cannot benefit one person alone.
4. Political purposes trust whose main purpose is to change the law
Bowman v Secular Society the court has no means of judging whether
a proposed change in the law will or will not be for the public benefit.
Re Sowcroft educational charities with the purpose of informing political
debate are not exempt.
Charity Commission Speaking Out: Guidance on Campaigning and
Political Activity by Charities provides guidelines.
WHAT IS A CHARITABLE PURPOSE?
Now consolidated under s2(1) of Charities Act 2011, a charitable purpose is one
which:
A) falls within the s.3(1) of the Charities Act
B) is for the public benefit under s.4
A statutory list of 13 different heads is now provided in s.3(1) as follows:

This replaces the 4 heads found under Pemsel [1891]
Relief of poverty
Advancement of education
Advancement of religion
Other purposes beneficial to charity
It is questionable how far the new statutory heads represent a change in the law.
Statutory Definition from the Charities Act 2006/2011

A charitable purpose is any purpose which:
A) falls within one of the s.3(1) statutory heads
B) is for the public benefit
THE STATUTORY HEADS

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S.3(1)(a) the prevention or relief of poverty

Re Coulthurst there can be no absolute definition of what poverty
means; problems are multi-dimensional and cumulative.
S.3(1)(b) the advancement of education

Re Shaw wide interpretation by the courts, yet research must go merely
beyond the increase of knowledge.
S.3(1)(c) the advancement of religion

Thornton v Howe although not necessary, there is an emphasis on the
need for and worship of a supreme being or entity
S.3(1)(d) the advancement of health or the saving of lives

Re Resch a private hospital can be charitable
S.3(1)(e) the advancement of citizenship or community development

Rural or urban regeneration, civic responsibility, volunteering, voluntary
sector, the effectiveness or efficiency of charities
S3.1(f) the advancement of the arts, culture, heritage or science
S.3(1)(g) the advancement of amateur sport

Sports or games which promote health
S.3(1)(h) the advancement of human rights, conflict resolution or reconciliation or

the promotion of religious or racial harmony or equality and diversity
S.3(1)(i) the advancement of environmental protection or improvement
S.3(1)(j) the relief of those in need by reason of youth, ill-health, disability, financial
hardship or other disadvantage
S.3(1)(k) the advancement of animal welfare

Re Wedgwood the benefits of protecting animals tends to encourage a
kindness towards them.
S.3(1)(1) the promotion of the efficiency of the armed forces of the Crown, or the
efficacy of the police, fire and rescue services or ambulance
S.3(1)(m) any other purposes that

Are not within (a) to (1) but are recognised as charitable purposes under
the old law

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Are analogous to or within the spirit of any purposes within (a) to (l)
Are analogous to, or within the spirit, of any purposes which come to be
recognised as charitable
The large amount of statutory heads create a wide net in which many different
entities may be classed as charities, as well as the final section making sure that
others may not be left out.
THE PUBLIC BENEFIT REQUIREMENT
1) CASE LAW PRIOR TO THE CHARITIES ACT 2006

Fell under the 4th head of Pemsels case: are the purposes of the
organisation, on balance, beneficial or detrimental to the public?
o National Anti-Vivisection Society medical and scientific
evidence showed vivisections to be beneficial to the public,
therefore the society could not be considered a charity.
Is benefit provided to a sufficient section of the public?
o 1st head: poverty Dingle v Turner: individuals must be selected
as needy from a larger class.
o 2nd head: education Oppenheim: beneficiaries must not be
numerically negligible.
o 3rd head: religion Gilmour v Coates: any benefit derived from
private prayer is not proof.
2) BENEFIT UNDER S.4 CHARITIES ACT 2011 [S.3 CA 2006]

s.4(1) the purpose must fall within a public benefit if it is to be a
charitable purpose.
S.4(2) it is not to be presumed that a purpose of a particular description
is for the public benefit.
These have been subject to much criticism intending to place all
charitable trusts on a similar footing is a presumption that never existed.
3) CHARITY COMMISSION GUIDANCE

Charities and Public Benefit Summary Guidance was issued in 2008:
Principle 1a it must be clear what the benefits are
Principle 1b the benefits must be related to the aims
Principle 1c benefits must be balanced against detriment or harm

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Cy-Pres 28/09/2015 11:16:00
CONTEXT
The doctrine of cy-pres means near to or as near as possible.
Applies only to charitable purposes.
Concerned with the failure of charitable purposes.
Allows property held for charitable purposes to be applied in other, similar
charitable purposes where the original intentions of the donor cannot be
fulfilled.
Cannot be used to turn a non-charitable purpose into a charitable one.
Lengthy and expensive process, therefore best avoided where possible so
charitable funds are not expended unnecessarily.
Cy-pres scheme = the mechanism for applying charitable property cy-pres.
s.67(2) CA 2011: HIGH COURT and the CHARITY COMMISSION have the power to
make cy-pres schemes. In doing so they must attend to s.67(3):
a. The spirit of the original gift
b. The desirability of securing the property close to its original purposes
c. The need for the relevant charity (to which the property will be transferred) to
have purposes which are suitable and effective in the light of current social and
economic circumstances.
1) CIRCUMSTANCES IN WHICH CY-PRES DOCTRINE IS NOT APPLICABLE
Cy-pres can only apply if there has been a failure of a charitable purpose. There are
circumstances where it may appear that there has been a failure, but on a closer
look, there has not been a failure at all:
a. The rule in Re Fingers WT

No failure when a gift is made to a charitable unincorporated association
which has ceased to exist before the gift takes place.
The fact that a particular association ceased to exist does not mean that
its charitable purposes cannot be carried out.
An administrative scheme (rather than cy-pres scheme) would have to be
drawn up to pass the gift over to another charitable body with similarities.
b. The rule in Re Faraker

Where there is a gift to a charity that has recently amalgamated with
another charity, the gift will take effect as a gift to the new amalgamated
body.

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Exceptions:
Re Stemson: if the body ceased to exist before it was incorporated then
this approach cannot be applied.
Re Roberts: this approach cannot be applied if the purposes of the
amalgamated charity differ too widely from those of the original body.
The rule in s.311 Charities Act 2011

Statutory mechanism to save gifts to charities which cease to exist
because of a merger or incorporation.
Register of Mergers is kept by the Charity Commission
2) FAILURE OF CHARITABLE PURPOSES
Case law prior to the Charities Act 1960:

Ironmongers Co no failure unless gift became impracticable or
impossible to carry out.
This was narrowly construed and made it difficult to apply property cy-
pres.
The new law expands and clarifies the circumstances in which the court or Charity
Commission may apply property and/or alter the original purposes under the cy-pres
doctrine.
S.62(1) Charities Act 2011

a. The original purposes cannot be carried out to the spirit of the gift.
b. Only part of the original donated property can be used.
c. The property can be more effectively combined with other property given for
similar purposes.
d. The original purposes have become unsuitable or impracticable.
e. The original purposes have:
a. Been adequately provided for by other means.
b. Ceased to be charitable in law.
c. Ceased to provide a suitable and effective way of using the donated
property.
Re JW Laing Trust: statutory provisions could not be applied to delete a discretion

of the donor, as they were limited to alteration of the original purposes, rather than
administrative direction.
2.2) IF THERE HAS BEEN FAILURE, IS IT INITIAL OR SUBSEQUENT?

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Re Slevin: a failure will be initial if it occurs before the gift could take effect, and
subsequent if it occurs after the gift has taken effect.
A failure will be a subsequent failure where the charitable institution
existed at the time of the death of the testator.
Inter vivos gifts: gift takes effect when the deed is executed or the delivery takes
place.
Testamentary gifts: gift takes effect on moment of death.
3) INITIAL FAILURE
Property which is subject of the gift will not be applied cy-pres unless a
general (paramount) charitable intention on the part of the donor can be
found.
Absence of general charitable intention =
o Failed inter vivos gift will be held for the donor on a resulting trust
o Failed testamentary gift will pass into residuary estate
Re Harwood: easier to find a general charitable intent where the gift is named to a
body which never existed than in a case where a named body did exist but now
doesnt.
Re Scatterthwaite: general charitable intention may be revealed by the fact that the
gift is one of a number of gifts for similar types of charitable purposes.
Re Rymer: no charitable intention where the gift has been drawn up in a way as to
indicate that only one body should benefit from the gift.
Re Ulverston: if there has been initial failure because it does not prove possible to
collect sufficient funds to carry out the intended project, how should the gifts already
made be treated?
Ss.63-64 CA 2011
S.63 = no need to establish a general charitable intention
S.64 = presumed donors are unidentifiable
Thus in cases of initial failure, the gift may be applied cy-pres, if, before the gift could
take effect:
It has become impossible or impracticable to fulfil the specified charitable
purpose, or one the circumstances in s.62(1) CA apply or;
Either a general charitable intention by the donor or ss. 63 65 apply.

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4) SUBSEQUENT FAILURE
Occurs much more frequently and is less problematic.

Occurs when the property has already successfully transferred to a
charitable institution and then it fails.
No need for general charitable intention.
Property will be applied cy-pres unless there is evidence that the intention
of the donor was that the property would be returned in the event of the
failure of the specified charitable purpose.
Once a donor has made an out and out gift to the charity, then in the
event of failure of the property will be applied cy-pres to another charitable
organisation with similar purposes.
Surplus charitable funds:

Cases in which some funds remain unspent after the charitable purpose has been
achieved.
Re Welsh Hospital: in cases of subsequent failure, the surplus was applied cy-pres
only after a general charitable intention had been found.
Re Wokington Fire Brigade Trust: surplus was applied cy-pres without any finding
of a general charitable intention.
Also confirmed in Re Ulverston and District Hosptial Building Trust
5) DUTIES AND POWERS OF CHARITABLE TRUSTEES IN RELATION TO CY-

PRES
s.61 CA 2011: makes it clear that trustees are under a duty to take steps to have
trust property applied cy-pres in order to find its effective use for charity.
Powers in the Trust Deed

Deed may include powers of trustees to amalgamate with other charities.
Consitutions of many modern charities give power to trustees to amend
the purposes of their trust.
Can also be used in situations when cy-pres would not apply.
Statutory powers applicable to small unincorporated associations

Ss. 267 279 CA 2011 applies to charities which:
i. Are unincorporated
ii. Had a gross income not exceeding 10,000

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iii. Do not own land held on trusts which stipulate that the land is to be used for the
purposes of the charity.
If these are satisfied, they can transfer property of their charity to another
with similar purposes, on a 2/3 majority vote.
Consent of Charity Commission not required, but they must be notified.
If neither of these are available, the trustees must undertake the expensive
and time consuming procedures necessary in order to apply for a cy-pres
scheme.

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Cy-Pres 28/09/2015 11:16:00
Unique doctrine that only applies when there has been a failure of charitable
purpose.
Problem Q
1. Identify charitable purpose - if yes:
Is there failure?
Is there cy-pres?
Applies assets that remain to other charitable purposes

Concept of failure is where the real issues lie
Where cy-pres is not applicable: if assets have been dedicated to a non-
charitable trust.
In what circumstances does failure occur?

Case law: cy-pres could only come into play where a purpose had become
impossible and impracticable to carry out - until the 1950s there were trusts
being carried out that were completely time consuming.
Statutory intervention 1960s Charities Act, developed in 1993 Act, now found in
s.62 Charities Act 2011
Much broader than case law impracticability and impossibility
Re Lepton [1972] s.62(1)(a)

Purpose of gift was to provide 3 p/a to minister and anything else to
provide for poor
Made in 1715 - 5 p/a was the income of the church
By 1970s, income of charity had grown to 800 p/a
Court decided to raise payment to minister to 100 with the rest going to
the poor
They thought this was in line with the spirit of the gift
Peggs v Lamb [1994] (d)

Charity with past of helping widows
Freeman and widows of Freemans declined in number
CC advised trustees to go to court to extend beneficial class
Relied on s.62(1)(d) and extended to all local inhabitants
Varsani v Jesani [1999] (e)(iii)

Hindu sect that had assets
Split into two groups but both claimed assets

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Court decided that the assets should be divided between two groups as
this was closest to the original spirit of the gifts
Is failure initial or subsequent?

Initial failure: occurs before gift can take effect
Subsequent failure: gift has been dedicated to charity then fails
Re Slevin
Rules apply differently what date do I have to determine if this was subsequent or
initial?
Initial Failure
Gift to a corporate body
The property which is the subject of the gift will not be applied cy-pres
unless a general charitable intention on the part of the donor can be found
Re Harwood
A gift to an organisation that has never existed is easier to find charitable
intent
Re Scatterthwaite
Testatrix left everything to animal charities each to have a share
London Animal Hospital there was no charity
There was however a private vet practice
Court held it couldnt go to the private entity
Judge decided it was an inept attempt to charity that did not exist
1st question: have I got initial failure? Date of death

2nd question: incorporated or unincorporated?
Unidentifiable/disclaiming donors
S.63-65 Charities Act 2011
Subsequent Failure
Property will be applied cy-pres
Surplus charity funds
No need to find a general charitable intention
Modern charities powers in the trust deed itself

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Dishonest Assistance and Unconscionable Receipt

CONTEXT
In recent years, courts have found a growth in a large number of claims
with increasingly complex frauds.
This involves strangers to a trust: persons who have not been appointed
trustees but who nonetheless intermeddle with the funds or administration
of a trust.
Barnes v Addy: traditionally the law has been divided into two categories:
knowing assistance and knowing receipt and dealing.
Royal Brunei Airlines: a more accurate way to categorise this is as the
liability of an accessory to a trustees breach of trust (hence the phrase
dishonest assistance being widely employed).
Distinction between two categories = only in the case of knowing receipt does the
stranger receive the property. If this is established, stranger will be personally liable.
Dishonest assistance = at no point does the trust property come into the hands of
the accessory.
COURT DEVELOPMENT OVER THE LAST 20 YEARS

Knowing assistance (but not receipt and dealing) = breach of trust and
fraudulent.
Royal Brunei Airlines = swept away this distinction.
Privy council: no requirement for a dishonest or fraudulent breach of trust
by the trustee, otherwise, a very fraudulent accessory could escape
liability simply because the trustee himself was innocent.
Williams: neither knowing receipt or dishonest assistance could give rise
to a constructive trust.
o Departure in the case of knowing receipt, where a defining
characteristic is that the stranger receives property.
Much debate continues as to the degree of knowledge necessary to found
liability.
Baden Delvaux: 5 categories of knowledge were identified.

Actual knowledge
Wilfully shutting ones eyes to the obvious
Wilfully and recklessly failing to make such enquiries as an honest and
reasonable person would make
Knowledge of circumstances which would indicate the facts to an honest
and reasonable person and

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Knowledge of circumstances which would put an honest and reasonable

person on inquiry
DISHONEST ASSISTANCE
Earlier test: knowing assistance
Belmont Finance Corporation v Williams actual knowledge: the courts
imposed a strict requirement that fits in with Baden Delvaux categories 1,
2&3
Agip (Africa) v Jackson actual knowledge or constructive knowledge:
in other early cases the courts were willing to widen this margin.
SHIFT TO A TEST OF DISHONESTY
Royal Brunei Airlines

Shift away from the Baden Delvaux categories to state that the test was
not one of knowledge but one of dishonesty.
Required an objective test with subjective element
o Honesty was to be judged objectively.
o Conduct of third party was to be assessed on the basis of his actual
knowledge at the time, not on the basis of what a reasonable
person would have known.
This test was considered again in
Twinsectra v Yardley
It was held that, for an accessory to be liable:
i. He had to have acted dishonestly by the ordinary standards of reasonable and
honest people and;
ii. Have himself been aware that by those standards he was acting dishonestly.
Not fully subjective or fully objective.
CASES SINCE TWINSECTRA
Barlow Clowes
Accepted the element of ambiguity in Twinsectra.
No requirement that he should have reflections about what those normally
acceptable standards were.
Twincetra has not invited inquiry into the views of the defendant about
generally acceptable standards of conduct
Abacha

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Sophisticated judgment CA decision.

Only one of the judges gave a full judgment on the issue questions of
authority.
Clear awareness of precedence and careful to not overstep HL.
it was not a requirement of the standard of dishonesty that the defendant
should be conscious of his wrongdoing; rather, the test of dishonesty was
predominantly objective with subjective aspects.
Draws similarities with Brunei case.
Starglade
The subjective standard of the person concerned as to whether his
conduct is dishonest is irrelevant.
Ultimately, in civil proceedings, it is for the court to determine what the
standard is and to apply it to the facts.
The court will set the standard, not a lot of people saying something is ok.
FINAL OUTCOME
Courts still seem to follow Abacha, and the second limb of Twincetra seems to have
taken a backseat.
Similarities with criminal proceedings: the Ghost test conscious impropriety

defendant should have been aware of the standards of dishonesty.
UNCONSCIONABLE RECEIPT
CONTEXT
Was previously known as knowing receipt.
Considerable uncertainty under English law.
Differing early authorities :
Belmont Finance: constructive knowledge/notice will suffice
Eagle Trust: not certain on whether constructive knowledge will suffice
Akindele [2000]
Provided some resolution on this uncertainty.
if there is now a single test of dishonesty for knowing assistance, so ought
there to be a single test for knowing receipt.
Held that dishonesty was not a prerequisite to liability under knowing
receipt.
Instead, the recipients state of knowledge must be as to make it
unconscionable for him to retain the benefit of the receipt.

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Difference between dishonesty and unconscionability remains to be

clarified.
Question of unconscionability could not be answered simply by reference
to whether or not there was actual knowledge of the circumstances giving
rise to breach of duty.
Since Akindele, the courts would seem consistently to have adopted this
unconscionability test.
City Index, Starglade, AAH Pharmaceuticals: all confirm Akindele.
Armstrong DLW
Court reaffirmed that circumstances in which the receipt of trust property
by a defendant will render a person liable is found in Akindele.
No need for Baden categorisation.
Nevertheless, both parties agreed that some categories of Baden
knowledge would be helpful in finding unconscionable receipt.
Position can be summarised as follows:

Baden types 1-3 render the receipt of trust property unconscionable. It is
not necessary to show the defendant realised the transaction was
obviously or probably in breach.
Baden types 4-5 also render liability but only if the facts known to the
defendant mean a reasonable person would have appreciated that the
transfer was in breach of trust.
STRICT LIABILITY AND RESTITUTION?
New Zealand: liability for knowing receipt and dealing is based on unjust
enrichment, the state of mind of the receipt being irrelevant.
There is much academic opinion that liability should be receipt based, not
fault based.
For the time being, there remains a respectable argument that there is a
distinction with fault being required in the case of knowing receipt but not
in the case of restitutionary action for unjust enrichment.


Equity and Trusts Lecture Notes Semester 12

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lOMoARcPSD|1301988

Equity and Trusts - Lecture Notes Semester 1&2

Equity and Trusts (University of Leeds)

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Transfers of Property 28/09/2015 11:16:00

1st question: what types of property exist?

2nd question: by what methods can property be transferred?

TRANSFER OF REAL PROPERTY (land)

1st method: inter vivos sale

2nd method: inter vivos gift

3rd method: on death

TRANSFER OF CHOSES IN POSSESSION (chattels)

1st method: inter vivos sale

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2nd method: inter vivos gift

2) a) A legally recognised form of delivery with b) an intention to give on the part of

a) A legally recognised form of delivery

b) Intention to give e.g. as opposed to a loan

3rd method: on death

TRANSFER OF CHOSES IN ACTION (debt)

1st method: inter vivos sale

2nd method: inter vivos gift

3rd method: on death

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EQUITY AND TRANSFER

The rule in Strong v Bird

DONATIO MORTIS CAUSA

Also known as deathbed gifts bypass transfer rules

3 conditions set out in Cain v Moon and confirmed in King v Dubrey

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Transfer Formalities 28/09/2015 11:16:00

Three requirements for a valid and completely constituted trust:

Method 1 outright gift

Method 2 declaration of trust

Method 3 transfer of property to third person

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EXCEPTIONS TO EQUITY WILL NOT EXIST A VOLUNTEER

A lenient approach: Choithram v Pagarani [2001]

LENIENT APPROACH, FAILURE TO TRANSFER LEGALLY BEFORE DEATH,

A strict approach: Re Fry [1946]

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A lenient approach: Re Rose [1952]

An even more lenient approach: Pennington v Waine [2002]

Rejecting this approach: Cobbe v Yeomans Row Management [2008]

Back to Re Rose?: Zeital v Kaye [2010]

A variety of options?: Curtis v Pulbrook [2011]

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OTHER METHODS OF ENFORCEMENT

1. Did the potential beneficiary provide valuable consideration recognised in

2. Did the potential beneficiary provide consideration recognised at common

3. If no consideration was provided, and the potential beneficiary was not a

4. In cases where there is a contract created after the Contracts (Rights of

5. If there is no valuable consideration, potential beneficiary was not a party to

Does the rule in Re Rallis WT apply?

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Where a complete constitution in respect of a marriage settlement created

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The Three Certainties: Intention and Subject

Intention guides the court in distinguishing between gifts and trusts

Self-declaration of trust there must be sufficiently clear evidence of this intention of

Investors compensation scheme objectivity and admission of extrinsic evidence

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PRECATORY = EXPRESSING A WISH/DESIRE.