Professional Documents
Culture Documents
introduction
&
Resulting Trusts
Lectures 1 and 2
LAWS4152 – Term 2
2017-2018
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Today’s Agenda
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COURSE INTRODUCTION 3
Teaching in Term 2
• Course Leader: Mr. Elliot Fung
• E-mail: elliotfung@cuhk.edu.hk
• Office: Faculty of Law 6/F (ask reception)
• Office hours by appointment
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Overview of Topics in T2
• Implied trusts
• Automatic resulting trusts
• Presumed resulting trusts
• (Constructive trusts will show up in various topics below)
• Trustees
5
• Tracing
Course objectives
• The doctrines and concepts of equity
• Secondary Text
• Ma & Lower, Principles of Equity & Trusts Law in Hong Kong, LexisNexis,
2015
• Participation – 10%
• The Trust
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The Trust For big assets, the settlor may be the trustee to hold the legal title
留留意FACTS! Equity
Automatic
Resulting
Trusts
Resulting
Trusts
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A, C, E, B, D, F,
X, Y Z
Negotiation of terms
The Contract
Tort
“Express Terms” “Implied Terms”
I. […] Representations
Written Contract Oral Terms J. […] X
A. […] E.[…] K.[…] Y
B. […]
C. […] F.[…] L.[…] Z
D. […] G.[…]
H.[…]
(Signed) …
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What is an “implied trust”?
Does the trustee aware of the trust property?
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When does a resulting trust arise?
• Examples
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What is a “Resulting Trust”?
logic: the asset still belong to settlor
if trust failed, sensible option is to result back to the settlor
- safety net to make settlor’s asset "not a penny less, not a penny more"
• What is meant by “Resulting”? Express trust - outwards
• To “Rebound”
• To “Spring-back”
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When does a Resulting Trust arise?
• Vandervell v IRC [1967] 2 AC 291 at 312D-314B per Lord
Upjohn:
(emphasis added)
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Vandervell v IRC (cont’d)…
(Emphasis added) 18
Vandervell v IRC (cont’d)…
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Re Vandervell (No.2) (cont’d)…
“For the second category, there is no mention of any expression
of intention in any instrument, or of any presumption of a
resulting trust: the resulting trust takes effect by operation of
law, and so appears to be automatic. What a man fails
effectually to dispose of remains automatically vested in him,
and no question of any mere presumption can arise. The two
categories are thus of presumed resulting trusts and automatic
resulting trusts” (emphasis added)
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3 Resulting Trust Scenarios
technical error (three certainties, consititution)
Resulting Trusts
• Surplus funds
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ART Scenario 1: Failure to dispose of the
beneficial interest
• Re Boyes (1886) 26 ChD 531
• Boyes told Carritt that the property was to be held on trust and to
be dealt with according to further directions.
• Such further directions did not come during Boyes’ lifetime. After
his death, 2 letters were found in his belonging, instructing Carritt
to keep £25 and to transfer the rest to a Mrs. Brown.
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• Challenge by Boyes’ next of kin.
Re Boyes
Boyes Carritt Brown
express trust
implied trust
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Boyes’ next
of kin
ART Scenario 1: Failure to dispose of
the beneficial interest
• Vandervell v IRC [1967] 2 AC 291
• Vandervell (“V”) was the majority shareholder of Vandervell Products
Ltd. (“VPL”).
• Paying cash would not have been tax efficient. So to effect this gift, V
instructed his bank to transfer 100,000 shares in VPL to RCS and then
VPL would declare dividends in the amount £150,000.
Mr. Vandervell IRC Even Mr V wants to give away, the law forces it back
Dividends
£
Bank
major shareholders
Option
so arrange share transfer to RCS, declare dividends
Vandervell Vandervell
Products Ltd. Trustees Ltd.
Vandervell Trustees
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- always intended to be vehicle to hold trust
- clearly not gift to VTL, but for the benefit of Mr Vandervell
- result back to Mr Vandervell, subject to taxation
£366.70
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Why can’t the trustee keep it?
• The principle was stated in Carreras Rothman Ltd v Freeman
Matthews Treasure Ltd [1985] Ch 207 at 222B per Gibson J:
• In other words, it was not the intention that the trustee was
being given the property for his/her own benefit.
Term 2 key: how to give back to settlor?
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ART Scenario 2: Surplus Funds
• Re Gillingham Bus Disaster Fund [1958] Ch 300
• £9,000 was received from people all over the country. Some
could be identified, others could not. Since the bus company 34
paid damages, there was a lot of money left over.
Re Gillingham Bus Disaster Fund (Cont’d)
Key: how to deal with surplus?
Injured
£ Gillingham Bus
Disaster Funeral
Fund expenses
£2,368
“such worthy
cause or causes
residual clauses
in memory of the
boys who lost
practical concern: to street raiser?
- F cannot keep the surplus
£ their lives as the
Mayors may 35
- bona vancantia? (once cannot identify the owner)
The settlor does not intend to give to government, last resort
—> paid back to Court, Court to hold on trust
Surplus determine”
conceptual uncertainty, it fails
Re Bucks Constabulary’s Widows and Orphans’
Fund Friendly Society (No 2) [1979] 1 WLR 936
Key: how to deal with the surplus?
Existing members take a portion when they leave (contractual clause)
• There was a clause in the trust deed which said “No moneys
which at any time have been contributed by the company
under the terms hereof shall in any circumstances be
repayable to the company”.
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ART Scenario 3: Failure of the Trust
• There are many ways in which a trust may subsequently fail
after it comes into existence. For example, the purpose of the
trust may cease to exist.
• 28 Apr 1908 – John Ames & Miss Hamilton married and the
father transferred the money to a trustee.
• 1926 – Marriage annulled (Incapacity to remarry). John Ames
and Miss Hamilton subsequently renounced their interests under
the marriage settlement trust.
• 1945 – John dies. His next of kin sue the trustee for the settled 39
funds.
Re Ames Settlement [1946] Ch 217
Marriage settlement: Daughter is married so that Husband cannot take all her assets (matrimonial),
to create a trust that it donates money, give to Trustee so that he distribute the fund from time to time
Marriage
Father Trustee Next of kin
Children
£10,000
???
the purpose of the trust has failed, how to deal with the fund?
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- next of kin: only express trust, sue T that he should continue to distribute
- ART: the blue arrow (not giving to T beneficiary), the asset has trust quality, T hold on trust for Father
ART Scenario 3: Failure of the Trust (cont’d)
• Could Barclays Bank set off the loan against the overdraft account? 42
Barclays Bank v Quistclose [1970] AC 567
BB treat No.4 account as overdraft account money (legal owner)
Q argues there is a trust quality, BB is holding on trust, purpose failed, result back to Q
- the trust is a form of security to protect lenders interest
Barclay’s Bank - Prior to QT, the usual form of security is have a charge claim over a property.
QT a higher level of protection (higher than secured creditors), bringing a proprietary claim.
The asset never come into the equation of debtors’ assets.
Cheque
£209,719 8s. 6d.
Rolls Razor Quistclose
Liquidation
Ltd. urgent money from Quistclose Ltd. 43
In the loan agreement, the cheque is
expressly for the purpose of paying
dividends, no other usage to protect
the loan (segregation)
Brief overview of liquidation
shareholders Secured
Creditors they ask for securities
Company
Employees
manager
directors
General
Business Creditors
44
Brief overview of liquidation
Secured
Creditors
Company
LIQUIDATOR
Employees
Business General
Creditors
(Losing money!!!) 45
Barclays Bank v Quistclose [1970] AC 567
(emphasis added)
46
Barclays Bank v Quistclose [1970] AC 567
• And continuing at 581G-582B:
“…in the present case the intention to create a secondary trust for the
benefit of the lender, to arise if the primary trust, to pay the dividend,
could not be carried out, is clear and I can find no reason why the law
should not give effect to it.”
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(emphases added)
Barclays Bank v Quistclose [1970] AC 567
What is the logical basis of such return?
• Advantages?
• Protects the lender. The lender enjoys a security (a proprietary
right!) on the loan until the purpose is satisfied. After the
purpose is fulfilled, the relationship reverts to a simple creditor-
debtor relationship.
• Disadvantages?
• Lack of publicity may give creditors a false sense that the
company is in better financial state than it actually is
(misleading). May result in excessive credit being taken out.
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Alternative views of the Quistclose Trust
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Twinsectra Ltd v Yardley [2002] AC 164
• Mr. Yardley obtained a loan of £1M from Twinsectra Ltd. for the purpose of
purchasing a piece of land in Bradford.
• Twinsectra advanced the £1M to Mr. Sims on his express undertaking that:
• “(I) the loan moneys will be retained by us until such time as they are applied in
the acquisition of property…”;
• “(ii) the loan moneys will be utilised solely for the acquisition of property…and for
no other purposes…”
• The £1M was released to Mr. Leach, who released it to Mr. Yardley. Mr. Yardley
used £357,720.11 to repay debts not connected with the purchase of property.
Mr. Yardley became bankrupt and unable to repay Twinsectra.
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Twinsectra Ltd v Yardley (Cont’d)
Conveyancing fees
• Resulting trusts
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