Conceptualising the Singapore Real Estate Investment Trust

Seah Xiande Aaron*

*LLB (NUS)

Email: aaronseah@yahoo.com

ABSTRACT

The Singapore Real E state Investm ent Trus t (“S-REIT” ) is an inv estment ve hicle

structured as a trust to hold, trade and m anage real property or property m ortgages for the

benefit of investors called unithol ders. A unique feature of the S- REIT is that unitholders are

expressly excluded as the equita ble owners of the underlying S-REIT assets. Two prom inent

commentators have taken the view that this re nders the S -REIT an inva lid trust b ecause the

exclusion of equitable ownership offends the be neficiary principle, which is a funda mental

trust law rule. However, they suggested that the S-REIT is possibly valid by being construed

as a Re Denley non-charitable purpose trust. This paper argues that the Re Denley trust is not

a non-charitable purpose trust. Instead, the Re Denley trust is a trust for hum an beneficiaries.

Accordingly, it will be shown that the S-REIT is a Re Denley trust for hum an beneficiaries,

thereby not offending the benefici ary principle. In support of th is view, the jurisprudential

bases of the beneficiary principle and allege d need to vest equ itable in terest in the

beneficiaries shall be investigated. The further argument advanced in this paper is that if the

S-REIT is considered invalid because equitabl e ownership does not vest in the unitholders,

the beneficiary principle should be re-conceptu alised as being prem ised on the enforcer

principle. This means that the S-REIT should be valid if there are enforcers who can hold the

trustees accountable to the obligations undertaken.

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I. INTRODUCTION

In a world where financial innovations abound, it is unsurprising to fi nd financiers and

lawyers collaborating to com e up with m ore creative ways to raise funds and improve

investment returns. One such financial ingenu ity that proved to be successful is that of

securitisation (Burns 2006; Finch 2008, pp.759–761; but see Hovanesian and Conlin (2002),

who reported that securitisation has somehow lost its grandeur ). Securitisation is a process where

viable assets with the potential to generate future cash flows are hiv ed off to an investm ent

vehicle (Borrows and Smith 2002, pp.1–4). The investment vehicle is in turn managed for the

benefit of a multitude of investors, who will subsequently be paid returns from the future cash

flows generated. An exam ple of this investm ent vehicle is the Real Es tate Investment Trust

(“REIT”), which essen tially ow ns and m anages comm ercial pr operty and other real-estate

related assets such as mortgages. As its name suggests, the REIT is structured as a trust which

interest is divided into units. Investors subscrib e to the se units to be e ntitled to the prof its

generated by the assets held under the trust. In addition, investors ar e also entitled to the

residual REIT assets on dissolution of the REIT.

The success of the REIT has been nothing sh ort of phenom enal. Ever since the REIT

began its existence in the United States in 1960 (Campbell, Samuels and Yuasa 2006, p.219;

Chan, Erickson and W ang 2003, p.3), the use of the REIT has proliferated in m any

jurisdictions. This was due in no sm all part to the publicity generated by Kim co Realty

REIT’s Initial Public Offering in the US in 1991 (Schaefer 2005, p.5) and the fact that m ost

other assets in the United States have b een securitised (Hovanesian and Conlin 2002).

Furthermore, owing to the inherent flexibility of the REIT as a property investment vehicle to

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create a robust property m arket, jurisdictions s uch as th e United Kin gdom (HM Treasury

2005, pp.5–6) have read ily embraced the use of the REIT. As of December 2009, the g lobal

market capitalisation of REITs worldwide ha s been valued at a whopping $568 billion and is

set to grow in 2010 (Ziem inski 2010). In Singa pore, the total m arket capitalisation of the

REITs listed on the S ingapore Exchange Ltd. (“SGX”) was approximately S$26 billion as of

30 October 2009 (Lee and Foo 2010, p.40).

The REIT was introduced in Singapore in 1999 when the Monetary Authority of

Singapore issued the first REIT regulations (Tan 2005, p.109). However, the taxation levied

on the Singapore REIT (“S-REIT”) discouraged the setting up of the REIT in Singapore as an

investment vehicle. It was only in 2001 when the Inland Revenue Authority of Singapore

granted a case-by-case ruling to exem pt S- REITs from taxation did the REIT become

attractive as an alternative inves tment vehicle. SingMall Property Trust was granted such tax

exemption but its lis ting was withd rawn because of lack of investo r interest (there was a 20

percent under-subscription of the 530 m illion units offered; Tan 2005, p.111). In 2 002, the

first S-REIT, CapitalMall Trust, was listed on the SGX. As of 8 April 2010, a total of 20 S-

REITs is listed on the SGX (SGX Real Estate Investment Trusts 2010).

A unique feature of the S-REIT is that m ost S-REIT trust deeds expressly provide that

the equitable interest in the underlying S-REIT assets does not vest in the unitholders

(Ascendas REIT Prospectus, p.146; Suntec RE IT Prospectus, p.151; K-REIT Introductory

Document, p.120; Saizen REIT Trust Deed; Koh 2006, p.182). The equ itable interest does

not vest for taxation reasons. W hen equitable interest is e xcluded, st amp duty need not be

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paid when unitholders transfer their units to another person. 1 It is noted that other common

law jurisd ictions such a s Australia (Deveson et el 2006), Canada (Arm strong and Ul mer

2006, p.41), the United States (Campbell, Sa muels and Yuasa 2006, p. 222), Hong Kong

(Leung and Sm ith 2006) and Malaysia (Gooi and Teong 2006) do not have a practice of

excluding beneficial intere st. In A ustralia (De veson et el 2006, p. 23), Hong Kong 2 and

Malaysia,3 the m ost likely reason for doing so is th at stam p duty is required to be paid

whenever units under the REIT are traded, so there is no need to exclude beneficial interest to

avoid payment of stamp duty.

However, this special trait of excluding equita ble interest has proven to be the S-REIT’s

Achilles' heel, for two prominent commentators, Professor Hans Tjio and Mrs. Lee Suet Fern,

have argued that the S-REIT offends one of th e cardinal requirem ents of trust law, na mely

that of the beneficiary principl e. According to the beneficiar y principle, a trust must have

ascertainable beneficiaries for it to b e valid.4 While the S-REIT technically has beneficiaries

in the form of unitholders (see also Sin ( 1997, p.69) who has taken the view that the S-

REIT’s clos est cous in, the unit trust, has “certainty of objects becaus e the objects are the

same persons who have transferred the subject matter [i.e. subscription monies] to the trustee

(or transferees of such p ersons)”), thereby satisfying the b eneficiary principle, Tjio and Lee

were of the view that the beneficiary princi ple is com plied with only when the unitholders

own the underlying S-REIT a ssets (Tjio and L ee 2006, p.50). To suppor t their view, the

learned authors re lied on Michael Hwang JC’s (as he then was) rem ark in Lee Chuen Li v

                                                            1 See Stamp Duty Act (Cap 312, 2000 Rev Ed Sing) s 4 read with First Schedule Article No. 3(a). 2 The Stamp Duty Ordinance (Cap 117) s 19 (Hong Kong); 3 The Stamp Act 1949 (Malaysia) read with First Schedule Item 31. 4 Leahy v AG for New South Wales [1959] AC 457 (PC) 478–479.

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Singapore Island Country Club5 that “[l]ike nature , the law abhors a vacuum of ownership”.

Since Hwang JC’s statem ent was m ade in the context of ownership in an unincorporated

association,6 where assets are usually held on trus t for the m embers, it appears that Tjio and

Lee were suggesting that there has always to be two owners over S-REIT assets, nam ely the

legal and equitable owners. In this case, given that the trustee has the legal interest in the trust

property, the unitholders shoul d correspondingly have an equitable inte rest in the trust

property. Accordingly, if equitabl e interest does not vest in the unitholders, the beneficiary

principle is offended. As a result, the learned authors have taken the position that the S-REIT

is a trust for the purpose of investm ent in co mmercial re al p roperty which is prima facie

invalid for being a non-charitable purpose trust.

Although Tjio and Lee considered the S-REIT to be a non-charitable purpose trust, they

argued that the S-REIT should be upheld on the basis that it is a Re Denley7 (“Re Denley”)

trust (Tjio and Lee 2006, pp.52–53; see also Tjio 1993, p.114). However, the learned authors

rationalised the Re Denley trust to be an ex ceptional non-ch aritable pu rpose trust because

they regarded the em ployees in Re Denley not as “traditional benefi ciaries” but as “indirect

beneficiaries with a negative locus standi to see that the trust was properly adm inistered”

(Tjio and Lee 2006, p.53). While Tjio and Lee are correct in conceptualising the S-REIT as a

Re Denley trust, this author respectfully disagrees that Re Denley is an exceptional non-

charitable purpose trust. Inst ead, it is sugge sted that the Re Denley trust should be

conceptualised as a trust for human beneficiaries.

                                                            5 [1992] 2 SLR(R) 266, para 48. 6 Ibid, where His Honour further described the club members as “co-owners”. Since an unincorporated association has no separate legal personality, any property has to be held on trust for the benefit of the club members. 7 [1969] 1 Ch 373.

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The first argument advanced in this paper is that it is erroneous to s uggest that equitable

interest ha s to vest in the benef iciaries f or the beneficiary principl e to be satisfied. An

investigation into the underlying principle of the beneficiary prin ciple in Part III sh ows that

the benef iciary pr inciple was essen tially f ormulated to aid the court in the enforcem ent of

trusts. Further, an exam ination of the basis for the vesting of equitable interest in the

beneficiaries demonstrates that this is done in order to give the beneficiaries locus standi to

enforce the trust. However, as ca se law illustrates, the enforcement of a trust is possible even

when equitable interest does not vest in the bene ficiaries. It appears th at so long as there are

identifiable beneficiaries , a tr ust which does not vest equita ble inte rest in th e benef iciaries

will nevertheless satisfy the benef iciary principle. Since the em ployees in Re Denley are the

identifiable benef iciaries, the Re Denley trus t is ac tually consistent with the be neficiary

principle. Accordingly, the Re Denley trust is a trust for human beneficiaries.

The second argument put forth in this paper is that if the S-REIT is not considered to be a

Re Denley trust but an invalid non-charitable purpos e trust, this author suggests that the

beneficiary principle should be re-conceptualised as being premised on the enforcer principle

to validate the S-REIT. This m eans that if the unitho lders are ab le to hold the trustees

accountable to their m anagement of the S-REIT assets, the S-REIT should be a valid non-

charitable purpose trust (see also Tjio and L ee (2006), p.55 who appeared to agree with this

view but at the sam e time expressed apprehension about adopting a pure enforcer principle).

This author will, in Part IV, show that this proposition is supported by the various authorities

and presents a better view of the relationship between a trustee and beneficiary.

Before the discussion proper, this author shall describe the detailed structure of a typ ical

S-REIT in Part II to facilitate the understanding of the arguments in Parts III and IV.

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II. STRUCTURE OF A TYPICAL S-REIT

An S-REIT is a trust settle d in Singapore for the comm ercial purpose of holding, trading

and managing real property or property m ortgages for the benefit of beneficiaries who are

called unitholders. The interest in the S-RE IT is divided into equal and undivided

transferrable units. Ind ividuals will then be invited either through prospectuses or

advertisements to subscribe to the units.

If the units are not tradable in a sto ck exchange, the S-REIT is called a private S-R EIT.

Private S-REITs are usually open-ended investm ents in that trus tees may have an obliga tion

to sell or redeem units. Should priv ate S-REITs have a value of m ore than S$5 m illion8 or

more than 50 investors,9 it will be subject to the whole of the Securities and Futures Act10 and

Code on Collective Investment Scheme (MAS 2002; see further Tjio 2004, paras.3.16–3.21).

If the units are tradab le in a stock exchange, the S-REIT is called a public S-REIT. Public S-

REITs are closed-end ed investments because th e trustees are not required to sell or redeem

any unit. Any “redem ption” is done by the unitholder sellin g his or her units on the stock

exchange. Since public S-REITs are trad ed on the Singapore Stock Exch ange Ltd. (“SGX”),

the listing requirements (see SGX Li sting Manual) set forth by the SGX, in addition to those

prescribed by the Securities and Futures Act 11 and Code on Collective Investm ent Scheme

(MAS 2002; see further Tjio 2004, paras.3.16–3.21), have also to be satisfied.

                                                            8 Securities and Futures Act (Cap 289, 2006 Rev Ed Sing) ss 272A and 302B. 9 Ibid ss 272B and 302C. 10 Ibid. 11 (n 8).

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The figure below shows a typical S-REIT.

Figure 1. Graphical illustration of a typical S-REIT

The S-REIT is form ed by a declaration of trus t over S-REIT assets for the benefit of the

unitholders (Ascendas REIT Prospectus, p.146; Suntec R EIT Prospectus, p.151; K-REI T

Provides property 

management services 

Provides property 

management services 

Income from Real Property 

Owns

S‐REIT Unitholders 

Provides management services to S‐REIT 

Pays fees for trustee services 

Pays fees for management services 

Trustee 

Holds S‐REIT assets and income  

in trust

Manager 

Subscribes to units in  S‐REIT 

Pays dividends regularly 

 

Instructs Trustee on 

administration of S‐REIT 

Local Real Property 

Special Purpose Vehicle 

Owns 

Pays Dividends 

Local / Foreign Real Property 

Owns

Income from Real Property 

Property Manager

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Introductory Docum ent, p.120; S aizen REIT Trust Deed). These assets include the

subscription monies put forth by the unitholders. The declarati on of tru st is ev idenced by a

trust deed, which contains other provisions governing the rights and obligations of the

unitholders, trustee and managers.

(1) Rights and Obligations of the Manager

The manager is responsible for providing m anagement services to the S -REIT. It has to

devise investment strategies and directions to maximise returns from the S-REIT assets. After

the investment strategies and directions have been f ormulated, the m anager will in struct the

trustee to act according to th e strategies and directions (s ee also S in (1997, p.167) who also

argued that the trus tee and m anager owe fiduc iary duties to each other). The m anager is

usually remunerated in respect of the management services rendered.

(2) Rights and Obligations of the Trustee

The trustee, which is usually a Singapore corporate entity, is responsible for the proper

administration of the S-REIT. The trustee is obliged to use th e m oney pooled by the

unitholders to purchase real es tate investments as instructed by the m anager or as set out in

the trust deed or legislation 12 (see also MAS 2002) or both. If th e trustee is investing in local

real property as joint owner, the trustee has to do so through a special purpose vehicle ( i.e.,

the trustee has to own a special purpose vehicle which in turn owns the piece of real property)

(MAS 2002, Appendix 2 (Property F unds), para.6.4). For taxation reasons, the trustee is also

advised to use a special purpose vehicle to invest in overseas properties (Koh 2006, p.181).

The trustee is also obliged to receive incom e from the real esta te inv estments and m ake

                                                            12 Securities and Futures Act (n 8); Trustees Act (Cap 337, 2005 Rev Ed Sing).

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dividend paym ents accordingly. Fu rther, th e trustee is us ually entitled to rece ive f ees in

respect of the trustee services rendered.

(3) Rights and Obligations of the Property Manager

A property m anager is hired to provide prope rty management services. These services

generally relate to the upkeep of the real properties held under the S -REIT. The property

manager will be remunerated accordingly for the services provided.

(4) Rights and Obligations of Unitholders

A trust deed typically provides that the trustee h olds the S- REIT assets on trust f or the

benefit of unitholders. However, the unithol ders have no “equitable interest” in the

underlying S-REIT assets (Koh 2006, p.182; Ascendas REIT Prospectus, p.146; Suntec REIT

Prospectus, p.151; K-REIT Introductory Docu ment, p.120; Saizen REIT Trust Deed).

Furthermore, unitholders have no right to dem and that the trustee transfer the ownership in

the S-REIT assets in their jo int names as typ ically perm itted under the rule in Saunders v

Vautier13 (see also Matthews 2006). Unitholders are also not entitled to interfere with the

management of the S-REIT. However, unitholders have th e righ t to ensure the due

administration of the tru st and receive incom e distributions, audited accounts, annual reports

and a share of the residual S-REIT assets after the S-RE IT has been wound up (K-REIT

Introductory Document, p.IV-26; K oh 2006, p.182). Should the trustee breach the term s of

the trust deed, unitholders are entitled only to dam ages (as o pposed to specific perform ance

or injunctive relief) (Saizen REIT Trust Deed) . Another important feature of the S-REIT is

that unitholders are liable towards the S-REIT only to the extent of the a mount paid or

payable for a unit of the S-REIT (Ascenda s REIT Prospectus, p.151; Suntec REIT                                                             13 (1841) 4 Beav. 115.

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Prospectus, p.II-25; K-REIT Introductory Document, p.IV-26; Saizen REIT Trust Deed; Lee

and Foo 20 10, pp. 61– 64), rend ering the un itholders’ po sition being sim ilar to that of

shareholders in a limited liability company (Lee and Foo 2010, pp. 61–64).

III. THE BENEFICIARY PRINCIPLE AND THE S-REIT

(1) Does Equitable Interest need to vest in the Beneficiaries to comply with the Beneficiary Principle?

Tjio and Lee argued that the beneficiary prin ciple is offended when the beneficiaries do

not collectively own the underlying trust prope rty (Tjio and Lee 2006, p.50). This means that

there has to be legal and equitable owners re spectively over trust property, such a view being

implicit from the learned authors’ citation of Hwang JC’s view in Lee Chuen Li14 that “[l]ike

nature, the law abhors a vacuum of ownership”. Lee Chuen Li was a case involving the right

to c laim relief for forfeiture in a c lub m embership. The claim ants in th at case argu ed that

such a right subsisted in their favour because they had a proprietary in terest in th e assets of

the club. Hwang JC appeared to agree with the claimants when he rem arked that the club

members held the clu b assets as “co-owners”. 15 Since the club is an unincorporated

association with no separate legal entity, any club asset has to be held under a trust. 16

Accordingly, by being “co-owners”, the club m embers must have been the beneficiaries

under the trust over the club assets.

                                                            14 (n 5). 15 Ibid. 16 Chen Cheng v Central Christian Church [1995] 3 SLR(R) 806, para 31.

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The view of Tjio and Lee also app ears to be supported by the rule in Saunders v

Vautier,17 where the ben eficiaries who are of the ag e of m ajority and ha ve an indefeasible

interest in the trust property may ask for a transfer of the legal title to the trust property from

the tru stee to them selves. Hence, Saunders v Vautier 18 demonstrates that beneficiaries

technically own the underlying trust property, for th e trustee is obliged to effect the transfer

when requested by these beneficiaries (see also Matthews 2006; Matthews 1996, p.13–15).

However, this author respectfully disagrees with Tjio and Le e, for an inv estigation into

the basis of the beneficiary principle reveals th at the beneficiary principle was developed to

allow a cou rt to address a breach of trust th rough the help of the beneficiary. F urther, a

scrutiny of the basis of vesting an equitable intere st shows that equitable interest is vested to

give locus standi to th e benef iciaries to enf orce the trust. However, the v esting of an

equitable interest is only but one way of giving locus standi to the beneficiaries to enforce the

trust. There are m any instances where the ben eficiaries are entitled to enforce the trust even

in the absence of a vested equi table interest. These instances can be broadly grouped into the

discretionary trust and Re Denley trust categories. Thus, as these two categories of trust show,

if a court is able to identify beneficiaries to enforce the trust, the trust will be upheld. There is

no need for the beneficiaries to “own” the trust property.

                                                            17 (n 13). 18 Ibid.

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(a) Basis of Beneficiary Principle

The beneficiary principle was form ally introduced into trust law by an obiter dictum of

Lord Parker in Bowman v Secular Society Ltd19(but see Baxendale-W alker (1999, pp.145–

147) who argued that the beneficiary principle was never binding but persuasive authority)

where His Lordship remarked: “[a] trust to be valid must be for the benefit of individuals ...”.

(emphasis mine)

The beneficiary principle was reiterated in Re Wood,20 where Harm an J held th e trust

therein to be invalid for want of be neficiaries. A f ew years late r, in Re Astor’s Settlement

Trusts, 21 Roxburgh J considered the aut horities in detail including Re Wood22 and Lord

Parker’s obiter dictum in Bowman23 and held that a trust to m aintain “good relations between

nations” and preserve “the i ndependence of newspapers” was invalid for offending the

beneficiary principle. The benefi ciary pri nciple has si nce been app lied to invalid ate trus ts

such as one for the research and development of a “British alphabet” 24 and one for providing

“some useful memorial to myself”.25

What then is the rationale for having the beneficiary principle? Th e rationale appears to

be the courts’ fear of trustees behaving as though they are the absolu te owners of trust

property. This concern was expressed by Sir Grant MR in Morice v Bishop of Durham:26

                                                            19 [1917] AC 406, 441. 20 [1949] Ch 498. 21 [1952] 1 All ER 1067. 22 (n 20). 23 (n 19). 24 Re Shaw [1957] 1 WLR 729. 25 Re Endacott [1960] Ch 232. 26 (1805) 10 Ves Jr 522.

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“There can be no trust over the exercise of which this court will not assume a control, for

an uncontrollable power of di sposition would be ownership and not trust. ... There must

be somebody in whose favour the court can decree performance.”27

The aversion can be further seen through Roxburgh J’s description in Re Astor’s

Settlement Trusts28 of the distribution of large accumulated funds without proper control over

the trustees as being against public policy (but see Hayton, Matthews and Mitchell 2007,

para.8.144, where a power could be construed instead, the basis being “ verba ita sunt

intelligenda ut res magis valeat quam pereat” ( i.e., an interpretation which gives effect is

preferred to one which m akes void). However, this appears to be possible only where the

intention is to create a charitable trust.29)

Such fear is real becaus e ownership at co mmon law a llows the owne r to exclude others

from enjoyment of the owned asset (Bridge 2002, p.12; McFarlane 2008, pp.132–133). Thus,

it would be highly inequitable fo r trustees to behave as thoug h the trust property belonged to

them when they are in fact subjected to a trust.

In order to ensure that trustees do not behave as absolute owners, a court will require the

assistance of a person to petition the court to enforce the trust. A trust for purposes is unlikely

to assist the court in this rega rd because there is technically no pers on who will ensu re that

the trustee perform his or her obliga tions. A court will ther efore find that no trust has been

created in such circumstances (i.e., the trust is invalid). Prof essor Paul Matthews (1996, p.1)

brought this point out forcefully w hen he sati rically wrote that “anim als and trees could not

                                                            27 See also Re Davidson [1908-1910] All ER Rep 140, 144 (Sir Cozens-Hardy MR). 28 (n 21). 29 Inland Revenue Commissioners v McMullen [1981] AC 1 (HL) (Lords Hailsham LC, Diplock, Salmon and Keith).

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[complain to the Chancellor who is the keeper of the King’s conscience]” if a trust settled for

their upkeep (which from a legal perspective is a trust for a purpose since anim als and trees

have no legal personality) was be ing misapplied (Matthews 1996, p.1).30 By parity of reason,

the tru st in Re Astor’s Settlement Trusts31 has to be invalid because the “nation” or the

“newspaper” could not possibly petition a court if the trustee m isapplied the trust property

therein. Similarly, the trusts in Re Shaw and Re Endacott are also invalid because it would be

impossible for the “British Alphabet” and decease d settlor in each respective case to appear

in court to accuse the trustees of breach of their fiduciary duties! Therefore, in the light of the

development of the beneficiary principle, it ha s become customary for trust law to r egard a

pure purpose trust as being void (Hayton, Matthews and Mitchell 2007, para.8.144; Mowbray

et el 2008, para.4-38).

(b) Basis of Vesting Equitable Interest in the Beneficiaries

The recognition of a beneficiary as having an equitable interest in trust property is

closely linked to the enforcem ent requirem ent (see also Thom as and Hudson 2010,

para.6.13). As noted by Roxburgh J in Re Astor’s Settlement Trusts,32 “a trustee would not be

expected to be subject to an equitable obligation unless there was som ebody who could

enforce a correlative equitable right.”

If a truste e is not the absolute owner of the trust property, there has to be a regime to

ensure that the trustee does not behave othe rwise. Since the common law regards the trustee

                                                            30 See also Re Davidson (n 27) 14 4 (Sir Cozens-H ardy MR); Re Alsagoff Trusts [1956] 1 MLJ 244 , 245 (Murray -Aynsley CJ); Re Shaw (n 24) 745 (Harman J.); Leahy (n 4) 479. 31 (n 21). 32 Ibid.

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as the owner of the trust proper ty, thereby allo wing the trustee to deal f reely with the tru st

property, equity intervenes by r ecognising the beneficiary as bei ng equitably entitled to th e

trust property.33 In order to give effect to such recognition, equity creates an equitable interest

over the trust property and vests it in the beneficiary (Gray 1994, p.163). 34 As a result, if the

trustees breach their fiduciary duties, by virtue of the equitable interest, the beneficiary has

locus standi to appear before a court to enforce the trust.

Another way of analysing the need for equity to vest an equitable interest is the fact that,

unlike the civil law, g ratuitous undertakings are generall y not enforced at common law

(Chitty 2008, para.3-002).35 This means that when a trustee agrees to ho ld trust prop erty for

the benefit of another, the common law will not enforce this obligation unless the s ettlor or

beneficiary has provided som e consid eration (Chitty 2008 , paras.3-00 1–3-003).36 The need

for consideration is a real stum bling block if a settlor declares himself a trustee or if a settlor

contracts with a trustee to hold trust property gratuitously for the be nefit of another. The

common law will igno re th e c laims of both th e settlor an d benef iciary. However, even if

consideration is provided, the beneficiary has to surmount the privity of contract doctrine37 to

have locus standi to sue the truste e if consideration had been provided by the settlor. 38 This

conundrum leads to an unsatisfact ory result because the trustee in these specific situations

need not account to anyone at common law. Since “equity will not suffer a wrong without a

                                                            33 Baker v Archer-Shee [1927] AC 844 (HL); see also Saunders (n 11), where a beneficiary who is of the age of majority and who has an absolute and indefeasible equitable interest in the trust property can call for the transfer of the legal title to the trust proper ty; Foskett v McKeown [2001] 1 A C 102, where the equ itable in terest entitled th e beneficiaries to claim the whole of a windfall benefit arising from the trust property. 34 See Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, 712 , where Lord Radcliffe remarked that equity “calls into existence and protects equitable rights and interest in property only where their recognition has been found to be required in order to give effect to its doctrines”. 35 This author notes that a possible exception is a contract executed by way of deed. 36 Re Hudson (1885) 65 LJ Ch 811; Re Cory (1912) 29 TLR 18; Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, 19. 37 Contrast th e cu rrent position u nder Contr acts ( Rights of Third Parties) Act (C ap 53B , 2002 R ev Ed Sing); C ontracts (Rights of Third Parties) Act 1999 (c 31) (UK). 38 The settlor also faces the same issue if the beneficiary is the one who provided the consideration.

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remedy” (Meagher, Heydon and Leem ing 2002, paras.3-010–3-030), it is im perative that

equity intervene and give locus standi to the beneficiaries by vesting a n equitable interest in

them.

On a m ore general note, since a b eneficiary’s equitable in terest in the trust prop erty is

binding in equity against every person in the world excep t the bona fide purchaser for value

without notice 39 and the beneficiary’s successo r in title, 40 the beneficiary is considered to

have a proprietary interest in the trust property (Hayton, Matth ews and Mitchell 2007,

paras.2.12 and 2.15; Mowbray et el 2008, para.1-06). The propr ietary nature of the

beneficiary’s equitab le interest can also be s een from the fact that an assignm ent of an

equitable interest will p rotect the as signee from the inso lvency of the assignor-ben eficiary

and that a trust ceases to exist when the trust property is lost without fault of the trustees

(Penner 2008, pp.27 –29). 41 This is in contras t to a purely personal right which in the former

case disentitles the as signee from claim ing an in terest in the trus t bu t m ust prove in the

assignor-beneficiary’s insolvency and which in the latter case entitles a beneficiary to sue the

trustee despite the trust property being lost . Furthermore, where the beneficiaries are sui juris

and have an absolute an d indefeasible interest in the trus t, they are entitled to term inate the

trust and demand the transfer of the trust property to themselves.42

It is ther efore appo site f or Lord Browne-W ilkinson in Westdeutsche Landesbank

Girozentrale v Islington London Borough Council43 to acknowledge that: “[o]nce a trust is

                                                            39 Pilcher v Rawlins (1872) 7 Ch App 259, 268– 269 (Lord James); Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 705 (Lord Brown-Wilkinson). 40 Wilkes v Spooner [1911] 2 KB 473. 41 Westdeutsche (n 39) (Lord Brown-Wilkinson). 42 Saunders (n 13). 43 (n 39). See also Abdul Hameed Sitti Kadija v De Saram [1946] AC 208 (PC) 217; Gosling v Gosling (1859) Johns 265; Re Nelson [1928] Ch 920.

910

 

established, as from the date of its establishment the beneficiary has, in equity, a proprietary

interest in the trust property” (emphasis mine). Arguably, the beneficiaries are v indicating

their “proprietary interest” by enforcing the trust.44

Prima facie, from the a bove discussion, it appears that if the equitable interest in trust

property is not vested in the benef iciaries, the benef iciaries will have n o right to e nforce a

trust (Matthews 2002, p.223). This would offend the beneficiary principle whose object, as

discussed above, is to ensure that a court can effectively enforce a trust.

(c) Categories of Non-charitable Trusts whic h are valid even when Equitable In terest does not vest in Beneficiaries

However, it is not alway s true that equitable interest in a trust property has to vest in the

beneficiaries so as to give rise to a right to enf orce the trust or a proprietary interest in the

trust (Thomas and Hudson 2010, paras.6.13–6.20 and 6.40–6.48). Lord Radcliffe implicitly

acknowledged that equitable in terest need not always vest in the beneficiaries in

Commissioner of Stamp Duties (Qld) v Livingston45 when he said:

“This dilemma [that there m ust be a separation of legal and equitable estates] is founded

on a fallacy, for it assu mes mistakenly that for all purposes and at every moment of time

the law req uires th e se parate existence of two dif ferent kinds of estate or inte rest in

property, the legal and the eq uitable. There is no need to m ake this assum ption.”

(emphasis mine)

                                                            44 See e.g., O'Rourke v Darbishire [1920] AC 581, 626–627, where Lord Wrenbury remarked that the beneficiary’s equitable proprietary right entitled the beneficiary there to have access to the trust documents. 45 (n 34).

911

 

Professor Kevin Gray (1994, p. 163) also made a similar observation when he wrote that:

“An equitable right of property finds its orig in not as a pre-existing component of some

larger inte rest which is then hewn free as a blo ck of equitable entitlem ent; ins tead it

represents the resu lt of a doctrina lly-driven movement which im presses new rights upon

the pre-existing estate under the mandate of the controlled conscience of equity.”

This m eans that the view of Tjio and Lee th at equitable inte rest h as to ves t in the

unitholders is simply a generalisation of the mechanics of trust law. This generalisation has to

be particularised according to the co ntext. In this regard, Professor Patrick Parkinso n (2002)

has astutely observed, inter alia, that there are non-charitable tr usts which are valid despite

the equitable interest not vesting in the bene ficiaries. These trusts are nam ely the (1)

discretionary trust and (2) Re Denley trust.

(i) Discretionary Trust

In a d iscretionary trust, the trustees hold trust property with a m andatory duty to choose

from am ong the class of beneficiaries those w ho are to receive an interest in the trust

property.46 Prior to any alloca tion of the equitab le inte rest, equitab le in terest in the tru st

property does not vest in anyone (cont rast this with Everton (1982) who argued that a quasi-

proprietary ri ght vests in t he beneficiary ).47 Accordingly, Hwang JC’s statem ent in Lee Chuen

                                                            46 Mettoy Pension Trustees Ltd v Evans [1991] 2 All E.R. 513 (Warner J). 47 Gartside v IRC [1968] AC 553; Vestey v IRC [1980] AC 1148 (HL); Re Brookes’ Settlement Trusts [1939] Ch 993, 997–998 (Farwell J).

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Li48 that “[l]ike natu re, the law abh ors a v acuum of ownership” ca nnot be regarded as

applicable in all contexts, especia lly in the conte xt of the discretionary tr ust which is a well-

recognised form of the trust.

Although equitable interest does not vest, this does not prevent the persons in the class of

beneficiaries f rom petitioning the c ourt to enf orce the trus t. The r ight to seek the court’ s

assistance to superv ise the adm inistration of a dis cretionary trus t does not depend on the

vesting of any equitable interest.49 Thus, in Re the Trusts of the Abbott Fund,50 Stirling J held

in obiter that although the two lady beneficiaries di d not have a fixed interest in the trust

fund, they could nevertheless apply to court to have the funds adm inistered accordingly.

Further, in Gartside v IRC,51 Lord Reid held that m embers of the class of beneficiaries have

the right to be considered a potenti al recipient of the trust property. 52 Lord Wilberforce also

added that the m embers have the right to dem and that the trustees exercise their discretion

“fairly”, “reasonably” or “properly”.53

(ii) Re Denley Trust

In Re Denley, Goff J upheld a trust over “land [to be] used as and for the purpose of a

recreation or sports ground prim arily for the benefit of the em ployees of the com pany and

secondarily for the benefit of su ch other person or persons (if a ny) as the trustees m ay allow

                                                            48 (n 5). 49 Schmidt v Rosewood Trust Ltd [2003] 3 All ER 76 (PC) para 51. See also Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405; AG for Ontario v Stavro (1994) 119 DLR 750. 50 [1900] 2 Ch 326. 51 (n 47). 52 Ibid, 606. 53 Ibid, 618; see also ibid, 606 ( Lord Reid), wh ere His Lordship r emarked that members can dem and the trustee to act “i n bona fide”.

913

 

to use”. In the case, although the trust was word ed as promoting a purpose, Goff J held that

the beneficiary principle was not offended (Mowbray et el 2008, para.4-39). 54 His Honour

construed the trus t as one for the factual benefit of the employees, and this f actual benef it

entitled the employees to bring an action to en force the trust. This proposition was approved

and applied by Megarry J in Re Northern Developments (Holdings) Ltd (see also Pawlowski

and Summ ers 2007, pp.443–445). 55 (but see Re Grant’s Will Trusts, 56 where Vinelott J

preferred to consider Re Denley as a discretionary trust; Matthews, on the other hand,

suggested that Re Denley is a fixed trust of which “the inte ntion of the settler or testator was

to benefit som e person or persons, and hence the purpose is subordinate to the benefit”.

Under this analysis, the equitable interest appe ars to be vested in the employees, som ething

which no court has agreed with (Mowbray et el 2008, para.4-40). Hence, it is unclear whether

Matthew’s view on this point is the preferable one.)

Hence, the Re Denley trust is another exam ple of a trust where the beneficiaries (who are

in the cas e the em ployees) could s till enforce th e trust without the equitable in terest in the

trust property vesting in them.

(2) The S-REIT being a Re Denley Trust

This author agrees with Tjio and Lee that the S-REIT closely resembles a Re Denley trust

and could possibly be valid on that basis. The only difference in opinion lies with the fact that

Tjio and Lee viewed the Re Denley trust as an exceptional non-charitable purpose trust while

this author considers the sam e to be a trust for hum an benefi ciaries. Tjio and Lee adopted                                                             54 Re Denley (n 7) 383–384. 55 unreported, 6 October 1978 Ch. D. See also Carreras Ltd v Freeman Mathews Ltd [1985] Ch 207. 56 [1980] 1 WLR 360, 370.

914

 

such a stan ce because the em ployees th erein we re not “traditional be neficiaries”, having

merely a “negative locus standi” to enforce the trust (Tjio and Lee 2006, pp.52–53). Im plicit

in th is reas oning is th at th e em ployees hav e n o equitable inte rest ves ted in them , so th e

employees were not “traditional beneficiaries” for the purposes of the beneficiary principle.

This probably led Tjio and Lee to conclude that the Re Denley trust is an exceptional non-

charitable purpose trust.

This author respectfully disagrees with Tjio and Lee that the Re Denley trus t is an

exceptional non-charitable purpose trust. As seen in Part II I(1) above, the purpose of having

the beneficiary principle is to enable the benef iciary to b ring to the cou rt’s attention of any

breach of trust. Equity then ves ts an equitable interes t in th e beneficiary to g ive him or her

locus standi to enforce the tru st. However, as was discussed, enforcement of the tru st can be

effected even though the beneficiar y is not vested with an equita ble interest. This is seen in

the case of the discretio nary trus t and Re Denley trus t in P art III(1 )(c) above. Further, this

view is supported by L ord Walker in Schmidt v Rosewood Trust Ltd,57 where His Lordship

remarked:

“The right to seek the c ourt's intervention does not depend on entitl ement to a fixed and

transmissible beneficial interest. The object of a discreti on (including a mere power) may

also be entitled to protection from a court of equity ....”

It appears therefore that so long as there are identifiable beneficiaries, a court will allow

those benef iciaries to enforce the trust (Paw lowski and Summ ers 2007, pp.444–445;

                                                            57 (n 49).

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Baxendale-Walker 1999, p.225).58 In Re Denley, Goff J identified the employees as being the

beneficiaries of the trust, entitling them to enforce the trust (but see Matthews (1996, p.14)

who preferred to construe Re Denley as a trust which although is expressed as a purpose, “the

intention of the settle r or tes tator was to benefit som e person or persons, and hence the

purpose is subordinate to the benefit” [em phasis inherent from source]). Re Denley thus

opens up the possibility of a court m aking a fi nding of fact where necessary to identify

beneficiaries in cases where it is unclear who the ben eficiaries are. In the case of the

discretionary trust, the identif iable benef iciaries are the objects who for m the class of

beneficiaries. As such, there is strictly no need f or the ves ting of an e quitable in terest to

enforce a trust.

Since the u nitholders a re the iden tifiable benef iciaries (for the trus t deed stipulates tha t

the S-REIT assets a re to be held on trust f or the benefit of t he unitholders), the unitholders

should have the right to enforce the S-REIT (see also Trukhtanov 2007). 59 Accordingly, the

S-REIT is a Re Denley trust for hum an beneficiaries, th ereby not offending the beneficiary

principle.

IV. IF THE S-REIT IS A NON-CHARITABLE PURPOSE TRUST,

WILL IT NEVERTHELESS BE VALID?

While the S-REIT arguably does not offend the be neficiary principle from the analysis in

Part III, a conservative court m ay hold a contra ry view. Like Tjio and Lee, a court m ay be

averse to finding that the benefi ciary principle has been satisfie d when equitable interest in a

                                                            58 See also Re Bowes [1896] 1 Ch 507. 59 See also Citibank NA v QVT Financial LP [2006] EWHC 3215 (Ch), wher e the English Cour t of Appeal decided to uphold the terms of the trust despite there being a possible breach of the irreducible core of trust obligations.

916

 

trust does not vest in the benefi ciaries. Th is is especially so in the light of Lord Browne -

Wilkinson’s obiter dictum in Westdeutsche Landesbank Girozentrale v Islington London

Borough Council,60 where His Lordship rem arked that when a trust has been estab lished, the

beneficiary has an equitable proprietary interest in the trust. Moreover, in Baker v Archer-

Shee,61 the House of Lords by a bare m ajority held that eq uitable inte rest h as to v est in a

legatee-beneficiary after the administration of a deceased’s estate. An application of this view

would probably mean that the S-REIT will be regarded as a non-charitable purpose trust.

In this cas e, a better wa y to validate the S-REIT is to re-c onceptualise the benef iciary

principle as being prem ised on th e enforcer prin ciple. Tjio and Lee appeared to support this

approach although they had some reservations about the adoption of a pure enforcer principle

(Tjio and L ee 2006, pp.55 and 57). W hen the bene ficiary principle is conceived as the

enforcer principle, the q uestion to ask is not wh ether there is a beneficiary with an equitab le

interest in the S-REIT assets. Instead, the question is whether there is an enforcer who has the

right to hold the trustee accountable to th e obligations undertaken (Thom as 2006, pp. 218–

221). This author shall (1) proffer arguments to support the enforcer principle and (2) explain

how the enforcer principle is applicable to validate the S-REIT in the ensuing paragraphs.

(1) Arguments for the Enforcer Principle

The enforcer principle was first articulate d by Professor David Ha yton (2001) in his

article: Developing the Obligation Characteristic of the Trust (see also Hayton, Matthews and

Mitchell 20 07, paras.8. 157–8.167; Hillard 200 3). According to Hayto n, a trus t s hould be

                                                            60 (n 39), where His Lordship remarked that a trust creates a legal and equitable title. See also Abdul Hameed (n 43). 61 (n 33).

917

 

valid on the basis that an enforcer has been identified to a trust (Leigh 1955, p.137). This

author agrees with this v iew for two reasons. F irst, the right of the beneficiaries against the

trustee is es sentially in personam and not in rem in nature. Secondly, th e enforcer principle

does not conflict with the beneficiary principle.

(a) Beneficiary’s right against the Trustee being in personam in nature

As discussed in Part III above, the m ain concern of courts is that trustees are not held

accountable to the obligations they undertook and behave as though they are the absolute

owner of the trust property. In order to prevent trustees from misbehaving, there is a need for

someone to petition th e cour t to enf orce th e tr ust. F rom the analysis of the benef iciary

principle in Part III above, it can be seen that this duty has been conveniently vested in the

beneficiaries. This has le d to some commentators arguing that the bene ficiary’s right agains t

the trustee is in rem in nature (Scott 1917; Martin 2009, p.19). Their main justification for the

in rem right is syllogistic: since an equitable in terest corresponds to a legal estate and the

beneficiary is en titled to the equ itable in terest, the sub stance of the tr ansaction gives the

beneficiary an in rem right in the estate (Martin 2009, p.19). Thus, when a beneficiary

enforces a trust, the beneficiary is arguably vindicating the in rem right it has against the trust

property.

However, this author s ubmits that that the in rem analysis of the beneficiary ’s righ t

against the trustee is an incorrect view, for this leads to the assumption that there has always

to be two owners over the sam e trust property (see also Stone 1917; Hayton 2001; Parkinson

2002, Part II; Duckworth 1998, p.23; but Pearce and Stevens (2006, p.111) and Thom as and

Hudson (2010, paras.1.41 and 7.01) ar gued that a trust is both proprietary and obligatory;

918

 

while Martin (2009, p.22) suggested that the beneficial interest in a trust is sui generis in nature).

As noted by Professor F rederic Maitland (1936, p.17), a beneficiary can not be the owner of

the trust property when the trustee is already the owner:

“An examiner will sometimes be told that whereas the common law said that the trustee

was owner of land, equity said that the cestui que trust was the owner. W ell here in all

conscience there seems to be conflict enough. Think what this would mean were it really

true. There are two courts of co-o rdinate jurisdiction – one says that A is owner, [while]

the other says that B is the owner of Blackacre. That m eans civil war and anarch y. ...

Equity did not say that the cestui que trust was the owne r of the lan d, it sa id that the

trustee was owner of the la nd, but added that he was bou nd to hold the land for the

benefit of the cestui que trust.”

Thus, the right which the beneficiary ha s against the trustee is essentially in personam in

nature. If an owner undertakes to hold the property for the benefit of another, though he is the

owner at la w, equity will act in personam62 (see also Maitland 1984, p. 258) against him or

her to perform according to the trust obliga tions undertaken. As such, the beneficiary

acquires an in personam right against the trustee. Shou ld one insist on classifying the

beneficiary’s right as an in rem right, the beneficiary has, at the very most, only a negative in

rem right which entitles the beneficiary primarily to exclude third parties from the enjoyment

of the trust property and secondarily to recover the tr ust property from non- bona fide

purchasers for value without notice of the tr ust (Nolan, 2006). However, this negative in rem

right does not necessarily require the equitable interest to vest in th e beneficiary. The reason

is that this negative in rem right is de rived from the positive in rem right that the trustee and

                                                            62 Penn v Lord Baltimore (1750) 1 Ves Sen 447 1134–1135 (Lord Hardwicke).

919

 

his or her transferees possess over the trust property. The net result is that a beneficiary is still

acting in personam against the trustee and the subsequent transferees.

Hence, while Isaacs J in Hoystead v Federal Commissioner of Taxation63 (see also

Pearce and Stevens 2006, p.97) ack nowledged that “Equity regards the cestui que trust as the

true owner of the property itself,” His Honour qua lified that view by remarking that: “[b]ut it

is, nevertheless true that equity acts only in personam and the rights it recognizes and

enforces are rights in personam and not rights in rem.” 64 Further, as Gray (1994, p. 163) has

observed: “[e]quitable rights of property ... derive from conscientious obligations to deal with

an asset or resource in a certain way.”

That equity funda mentally wields an in personam power was also astutely observed by

Gibson J in Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd65:

“[E]quity fa stens on the conscience of the pe rson who receives from another property

transferred for a specific purpose only and not therefore for the recipient’s own purposes,

so that such person will not be pe rmitted to tr eat the property as h is own or use it f or

other than the stated purpose.”66

This necessarily follows that the separation of the legal and equitable estate in a tru st is

merely a mechanism to aid a cou rt’s analysis with regard to locus standi to enforce the trus t

                                                            63 (1920) 27 CLR 400, 422. 64 Ibid. 65 (n 55) 222. 66 See also Westdeutsche (n 39), where Lord Browne-Wilkinson als o remarked t hat equi ty affe cts the conscience of the owner of the legal interest.

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and possibly the tracing of trust property. 67 This was alluded to by Lord Radcliffe in

Commissioner of Stamp Duties (Qld) v Livingston,68 where His Lordship stated that:

“When the whole right of property is in a pe rson [e.g. a trustee] … there is no need to

distinguish between the legal and equitable interest in that property, any more than there

is for the property of a full beneficial owner. What matters is that the court will control

the executor in the use of his rights over assets that come to him in that capacity; but it

will do it by the enforcement of remedies which do not involve the admission or

recognition of equitable rights of property in those assets. Equity in fact calls into

existence and protects equitable rights and interests in property only where their

recognition has been found to be required in order to give effect to its doctrines.”

(emphasis mine)

Although Baker v Archer-Shee69 stands for the proposition that equitable interest has to

vest in the beneficiary, thereby creating som e in rem right in favour of the beneficiary, the

case can be confined to its facts, for the case involved the analysis of the beneficiary’s right

in the specific context of taxation. Thus, for taxation purposes, the beneficiary was

considered to have an equitable interest in the trust fund (Martin 2009, pp.21–22). This rule,

however, cannot extend to all speci es of trusts for there are trus ts such as the discretionary

trust and Re Denley trust which are valid despite no equi table in terest being ves ted in the

beneficiaries. It must also be noted that Lords Sumner and Blanesburgh who dissented in the

Baker v Archer-Shee70 adopted an in personam approach rath er than a proprietary ap proach

                                                            67 See Re Diplock [1948] Ch 465; Foskett (n 33). 68 (n 34). 69 (n 33). 70 (n 33).

921

 

towards the analysis of the beneficiary’s interest. That one has to analyse a trust in its specific

context but without losing sight of the basic prem ise of trust law was acknowledged by Lord

Browne-Wilkinson in Target Holdings v Redfern:71

“[I]n my judgment it is in a ny event wrong to lift wholesal e the detailed rules developed

in the context of traditional trusts and then seek to apply them to trusts of quite a different

kind. In the m odern world the trust has beco me a valuable device in comm ercial and

financial dealings. The fundamental principles of equity apply as much to such trusts as

they do to the traditional trusts in relation to which those principles were originally

formulated. But in my judgment it is important, if the trust is not to be rendered

commercially useless, to distinguish between the basic principles of trust law and those

specialist rules developed in relation to traditional trusts which are applicable only to

such trusts and the rationale of which has no application to trusts of quite a different

kind.” (emphasis mine)

Therefore, as can be seen from the above discussion, the right acquired by a beneficiary

against the trustee is essentially in personam and not in rem in nature. The most fundamental

principle still is that courts will enf orce obligations undertaken by trustees to prevent them

from dealing with trust property as though they are the absolute owners , and this is achieved

by the active enforcement by the beneficiaries through the exercise of their in personam right

against the trustee. There is strictly no involvement of in rem rights between the beneficiaries

and trustee per se.

                                                            71 [1996] AC 421, 435.

922

 

Hence, the true te st of the valid ity of a trust is whether there is som eone who possesses

an in personam right against the trustee and is thereby able to bring to the courts’ attention of

any breach of trust ( i.e., an enforcer). 72 An application of this test to th e differing categories

of trusts shows that this is the case: typical non-charitable trusts are valid because the

beneficiary has the right to de mand that the trus tee perform faithfully the duties und ertaken

by petition ing the cour t to enf orce the tru st; ch aritable tr usts a re als o valid bec ause the

Attorney-General can hold the trustee account able to the trust oblig ations undertaken by

bringing to the court’s atten tion of any breach of trust; 73 the discretionary and Re Denley

trusts are valid because there are beneficiaries who have the right to en force the respective

trusts should the trustee breach his or her fiduciary duties. That the presence of an enforcer is

sufficient to valid ate a trust can be further gleaned from Re Thompson,74 where Clausen J

upheld a non-charitable purpose trust for the “promotion and furthering of fox-hunting”

despite such trusts being typically invalid for want of benefi ciaries. The Re Thompson75 trust

was upheld simply because the residual legatees had the right to enforc e the trust should the

trustee there not perform his obligations ( but see Pawlowski and Summ er (2007, p.446) who

argued that exceptional non-charitable purpose trusts m ay be "policy driven exceptions

validated because ordinary people expect them to be valid).

(b) The Enforcer Principle does not conflict with the Beneficiary Principle

Further, since the beneficiary principle is one of the sacrosanct principles of trust law, the

enforcer principle should be acceptable as an analytical tool for validating trusts if it does not

                                                            72 See Morice (n 26) (Sir Grant MR). 73 Leahy (n 4) 479. 74 [1934] Ch 342. 75 Ibid.

923

 

conflict with the ben eficiary principle. As s een in Part III above, the purpose of the

beneficiary principle is to ensure that the bene ficiaries can notify the courts of any breach of

trust. The enforcer p rinciple performs the sam e function albeit the en forcer can be som eone

other than the beneficiary. Hence, the enforcer principle is the overarching explanation of the

beneficiary principle. In this case, this autho r submits tha t there is no conf lict be tween the

two principles, so the enforcer principle should be an acceptable tool to analyse the S-REIT.

However, th is au thor no tes that a p otential weakness of the enforcer princip le is th at

disinterested third parties can be design ated as the enfo rcer. U nlike beneficiaries,

disinterested third-party enforcer s may not perform the enforcer role well, for their interests

are unlikely to be jeopardised if they should they perform their role defectively. Thus, to

allow a disinterested third-party to perform its ro le def ectively is an af front to the

fundamental principle that courts enforce oblig ations undertaken by trustees to prevent them

from dealing with the trust property as though they are the absolute owners. As Parkinson

(2002, p.680) has observed, to ensure proper enforcement, the enforcer has to be one who is

interested in enf orcing the trus t, f or a dis interested enf orcer will un likely com plain to th e

court of any breach of trust. This was probably the unarticulated consideration of the courts in

the twen tieth century p ost Morice v Bishop of Durham76 when they decided that a non-

charitable trust, unlike a charitable trust which is enforceable by the Attorney-General, has to

be for the benefit of persons. It m ay then be imperative for equity to v alidate a trust on the

basis of the enforcer principle only when th e enforcer is pecuniarily, legally (Tan 2009,

p.485–489)77 or morally interested in the trust (but see Tjio and Lee (2006, pp. 55–56) who

                                                            76 (n 26). 77 See Special Trusts (Alternative Regime) Law, 1997 (Cayman Islands) s 8(2).

924

 

advocated the use of a negativ e equitable property right or negative locus standi instead of a

mere enforcer).

In any case, the S-REIT does not suffer from this potential weakness because the

unitholders are inte rested parties in enforcing the S-REIT. S ince unitholders usually hold on

to the units to receive returns on their investment, it would be foolhardy for unitholders not to

be interested in enforcing the S-REIT. A breach of trust will almost certainly affect the rate of

return for the unitholders, so it is absolutely in the interest of the unitholders to enforce the S-

REIT.

 

(2) The Enforcer Principle and the S-REIT

As seen from the discussion above, the benefici ary’s right against a tr ustee is essentially

in personam in nature, and an enforcer is all tha t is required to validate a trust. It necessarily

follows that should the S-REIT be consider ed as a non-charitable purpose trust, it is

nevertheless valid because the unitholders take on the role of the enforcer. It is sufficient that

the truste e express ly o wes an obligation to h old the S-R EIT assets f or the ben efit of the

unitholders, and the unitholders are correspondingly conferred a power by the tr ust deed to

enforce the term s of the S-REIT agains t the trustees. As a result, there is no need for

equitable interest (and consequently proprietary interest) to vest in the unitholders.

V. CONCLUSION

In this paper, this author has argued that de spite the non-vesting of the e quitable interest

in the unitholders, the S-REIT does not offend the beneficiary principle. The beneficiary

925

 

principle w as developed for the simple reason of ensuring that th ere is som eone who ha s

locus standi to b ring to the court’s attention of any b reach of trus t. T hus, the cou rts h ave

conveniently given locus standi to the ben eficiaries by v esting an eq uitable in terest in th e

beneficiaries. However, in the ligh t of the va lidity of no n-charitable trus ts such as the

discretionary trus t and the Re Denley tru st, the re appea rs to be no need for an equitable

interest to vest in order to give a beneficiary locus standi to enforce a trust.

While this a uthor agrees with Tjio a nd Lee that the S-REIT is essen tially a Re Denley

trust and could be validated as su ch, this author prefers to view Re Denley as a trus t f or

human beneficiaries and not an exceptional non-ch aritable purpose trust. This can be gleaned

from the fact that the discretionary trust and Re Denley trust are upheld even when equitable

interest does not vest in the beneficiaries. It appears from these cases that trusts which do not

vest equitable interest in the beneficiaries will be upheld if ther e are identifiable beneficiaries

who can enforce the trus t. It the refore follows that the benef iciary principle will be s atisfied

even when equitab le in terest in the S-REIT does not vest in the un itholders because the

unitholders are the id entifiable beneficiaries who have the requisite locus standi to enforce

the S-REIT.

However, assum ing the beneficiary principle is not s atisfied unless eq uitable inte rest

vests in the unitholders, thereby rendering the S-REIT an invalid non-charitable purpose trust,

the beneficiary principle should be re-concep tualised as being based on the enforcer

principle. Under the enforcer principle, a trust is valid if there is an enforcer who has the right

to bring to the courts’ attention of any breach of trust. In this way, the S-REIT can be seen as

a valid trust, for the unitholders have a right provided by the trust deed to enforce the terms of

the S-REIT against the trustees.

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VI. Acknowledgements The author would like to thank Associate Professor Tang Hang Wu from t he National University of Singapore and an anonym ous re feree for their invaluable comm ents on the earlier version of this paper. The author woul d also like to thank Mr. Andrew Chan from Allen & Gledhill LLP f or his p ertinent insigh ts on the S ingapore Real Estate Investm ent Trust and Saizen Real Estate Investm ent Trus t for readily providing the relevant copies of their tru st d eed f or the purposes of this pap er. All respon sibility f or def iciencies rem ains solely with the author.

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