Intro2 maxims and modern uses of trusts

Supporting materials Full list of maxims, case list.

Over the years, equitable rules and principles have developed through case law and
the system of precedent. There are also some very general equitable principles
which evolved in the court of Chancery and may still apply today. They are not rules
but merely general guidelines and are known as the maxims of equity.

There are twelve agreed maxims, in your supporting materials you will find a list of
all twelve. Im going to go through a couple of examples and you will find that
during the course of the module as you read various cases every so often a maxim of
equity will be relevant.

He who comes to equity must come with clean hands

This maxim means that the claimant must show that his past record in the
transaction is clean, i.e. that his own conduct was right and fair. It is considered
when the court is deciding whether or not to exercise its discretion to award an
equitable remedy (i.e. in the case of injunctions or specific performance).

Douglas v Hello provides an example the court refused to grant an injunction to

prevent Hello magazine publishing unauthorised photos of the wedding of Michael
Douglas and Catherine Zeta Jones. The celebrities had an exclusive deal with OK
magazine, so they and OK were trying to stop Hello from undermining the deal. The
court had various reasons for refusing the injunction, but one of them was that OK
had engaged in exactly the same kind of spoiling practices themselves they had
previously arranged for photos of Gloria Hunnifords wedding to be taken sneakily
from a helicopter and had published them despite the fact that Hello had an
exclusive deal for photos of the wedding. Since they had been engaging in the same
kind of conduct themselves, they did not have clean hands.

Equity regards as done that which ought to be done

This maxim is frequently applied in relation to granting specific performance in the

context of contract law.

In the context of trusts, the case Attorney General for Hong Kong v Reid provides an
example. It is a case that we will look at again later in the course. The defendant
was the public prosecutor for Hong Kong, who took bribes worth over $12 million
Hong Kong dollars to obstruct prosecutions, in breach of his duty to the crown. It
was held that as soon as he received the bribe money he had a duty to pay it over to
his principal, the Crown, and that therefore a form of trust called a constructive trust
arose at that instance he may have been legal owner of the money but, applying
the maxim equity regards as done what ought to be done, the money was the
property of the principal in equity from that point onwards.

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Equity is equality

What this means is that where two or more people have an interest in the same
property, equity will divide the property equally between them unless there is some
good reason for another basis for division. An example of where the maxim has
sometimes been applied is in relation to the treatment of joint bank accounts upon
divorce.

The maxim only applies in the absence of some other good basis for division, it is a
default position to be applied unless there are indications to the contrary.

Equity looks to the intent rather than the form

This means that equity looks at the substance rather than the form. For example, in
order for a trust to be created it is not essential that the settlor uses the word trust
if it is clear from the circumstances that this is what was intended. Paul v Constance,
provides an example. The case was about whether a woman had a beneficial
interest in some money in a bank account that was held in the name of her late
partner. It was held that she did, as the circumstances demonstrated his intention to
hold the money on trust, e.g. he had said many times that the money was as much
hers as his. In other words, although he did not use the word trust he was saying
that he was holding the money for the benefit of her as well as for himself in
substance there was a trust here despite the unsophisticated form of words that had
been used to describe it.

So, those are some examples of the maxims of equity. You can read about the other
maxims briefly in the textbook, there are others that you will become familiar with
later in the course.

We will finish this webcast by considering some examples of how trusts are used
nowadays.

Firstly - Trusts in relation to family property

The trust concept originally developed in the context of the preservation of family
wealth:

Example a - a grandparent setting up a fixed trust for such of their grandchildren

who attain 25 years in equal shares, thus allowing the money to be properly
managed and looked after until the grandchildren are old enough to deal with the
money themselves.

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Example b a trust to the settlors spouse for life, remainder to their children
equally. The spouse in such a situation is known as the tenant for life and during
their lifetime they would be entitled to the benefit of any income produced by the
trust fund, but they are not entitled to the capital itself. So say the trust was initially
set up with 100,000 and the trustees put it in a high interest savings account, the
trustees would hand over the monthly interest to the spouse as his/her entitlement.
When the spouse dies, the trust comes to an end and the capital, the 100,000 gets
divided between the children.

Example c - Constructive/resulting trusts of the family home. The above examples

dealt with express trusts, i.e. trusts expressly declared and created by the settlor.
But sometimes trusts arise that have not been expressly created, and there are two
main categories here, known as resulting trusts and constructive trusts. One area in
which such trusts tend to arise is in relation to the family home, where upon the
breakdown of a relationship it transpires that the house is in the name of one
partner only but the other partner feels that they should be entitled to a share.

Now for some other uses of trusts:

1. Charities

Charities are run as trusts. Charitable trusts are quite different from other trusts
because, although many of them do benefit humans, they are primarily trusts for
purposes rather than for human beneficiaries. The trust mechanism can be used
to ensure that the funds are secure and being managed and invested
appropriately so as to preserve and generate money for the charitable purposes
in question.

2. Pension trusts.

The law of trusts provides the most suitable mechanism for dealing with pension
funds, thanks to the duties cast upon trustees and the proprietary rights enjoyed by
beneficiaries.

As a general rule, the usual principles of trust law apply to pension trusts as well as
other trusts. However, there are also some special rules, deemed necessary as a
result of the size of the funds involved, the opportunities for misappropriation by the
employer, and the public interest in encouraging such trusts to thrive.

3. Collective investment schemes

Another major use of trusts in the commercial sector is the collective investment
scheme, under which investors can pool their resources. Such schemes are managed
by professional fund managers and are large enough to be able to invest in a diverse

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range of investments, which helps to protect against risk and encourages a good
level of return.

4. Client accounts, e.g. solicitors

Professionals who in the course of their business are often in receipt of money from
clients to use for some particular purpose will tend to make use of the trust
mechanism to keep that money safe. A prime example would be solicitors, who hold
money for clients for various purposes such as house purchases. This is simply
achieved by having a separate account for clients money as distinct from the firms
own money. The client account money is then held on trust for the clients, which
helps the clients to get their money back should the firm become insolvent as
beneficiaries under a trust take priority over other types of creditor.