Equity and Trusts - CILEx L31 EQUITY.pdf · held on trust and was not part of the company’s wider...

CPD2008 edition

Training in Law

prepared for

CPD Update

Fran Wright

Equity and Trusts

ILEX CPD reference code: L31 CPD

© 2008 Copyright ILEX Tutorial College Limited

All materials included in this ITC publication are copyright protected.

All rights reserved.

Any unauthorised reproduction or transmission of any part of this publication, whether electronically or otherwise, will constitute an infringement of copyright. No part of this publication may be lent, resold or hired out for any purpose without the prior written permission of

ILEX Tutorial College Ltd.

WARNING: Any person carrying out an unauthorised act in relation to this copyright work may be liable to both criminal prosecution

and a civil claim for damages.

This publication is intended only for the purpose of private study. Its contents were believed to be correct at the time of publication or any

date stated in any preface, whichever is the earlier.

This publication does not constitute any form of legal advice to any person or organisation.

ILEX Tutorial College Ltd will not be liable for any loss or damage of any description caused by the reliance of any person on any part of the

contents of this publication.

Published in 2008 by:ILEX Tutorial College LtdCollege HouseManor DriveKempstonBedfordUnited KingdomMK42 7AB

Preface

This update has been prepared by ILEX Tutorial College (ITC) to assist Fellows and Members of the Institute of Legal Executives (ILEX) in meeting their continuing professional development (CPD) or lifelong learning requirements for 2008. Fellows are required to complete 16 hours of CPD in 2008 and Members eight hours of CPD. It has been written for Fellows and Members currently practising in this area and it is assumed, therefore, that those using it have a level of knowledge equivalent to an ILEX Level 6 Professional Higher Diploma in Law pass.

Each update contains information on developments in law and/or practice in 2007 and early 2008. Studying each update and completing the accompanying self-assessment test will account for four hours of CPD. Fellows and Members are entitled to two free updates a year.

Details of the completion of the self-assessment test should be recorded by Fellows in their CPD logbooks using the reference code printed inside the front cover of the update. It is not necessary to return the completed self-assessment test to ILEX. All completed self-assessment tests should be retained, however, as ILEX may request their return for monitoring purposes.

Any queries about completion of the self-assessment test and any other CPD issues should be made to the Membership Operations Division on 01234-845733.

Contents

i

Chapter 1: Equitable Remedies

Chapter 2: Intention to Create a Trust

Chapter 3: Discretionary Trusts

Chapter 4: Resulting Trusts

Chapter 5: Trusts of the Family Home

Chapter 6: Charitable and Purpose Trusts

Chapter 7: Trustees

Chapter 8: The Equitable Liability of Third Parties

Self-assessment Test

Introduction

This update is not intended to be an academic study of the law. It is for those Fellows already practising in this field, and therefore assumes a level of knowledge in this subject equivalent to an ILEX Membership Examination Level 6 pass. It is advised that you do not attempt this update if you are not currently practising in this field of law.

This update is provided for educational updating and tuition purposes. Decisions on legal practice should not be taken on the basis of this update, which is intended to clarify certain areas of difficulty. For further information on any of the subjects, please refer to standard reference works and sources of law. Ensure that you use the latest material, and that you are aware that other legal subjects may impinge on this one.

NB All references to Rules or Parts in this update refer to the Civil Procedure Rules 1998 (CPR) unless otherwise indicated.

L31 CPD © ITC 1

Equitable RemediesChapter 1:

Injunctions1.1

One of the most useful of the equitable remedies is an injunction, an order by the court to a party to do or refrain from doing a particular act. As with other equitable remedies, injunctions are discretionary, available only because common law remedies are not adequate in the circumstances.

One of the situations where injunctions may be available is the protection of confidential information. Often, damages will not provide protection: the goal is to prevent the information from being used or made public.

There is a useful discussion of the principles governing protection of confidential information in Crowson Fabrics v Rider [2007] EWHC 2942. Information does not become confidential simply because it is labelled confidential. There is no protection for information that is in the public domain, even if it was derived from the claimant’s documents. An ex-employee is not in breach of any duty of fidelity or fiduciary duty if he makes use of the skills and expertise he has developed through his employment. Nor can the ex-employee be prevented from using information that has been recalled through memory and skills, rather than through retention of documents or files (although it would be different if the information had been deliberately copied or memorised for use after the employment ended). Information must be in the nature of a trade secret in order to be protected post-termination.

It is well-established that delay is a defence to a claim for an injunction. Most cases involving delay involve a delay by the claimant in bringing the action, but in EE & Brian Smith (1928) Ltd v Hodson [2007] EWCA Civ 1210 the delay was caused by the judge hearing the application. The appellants were appealing against the issue of an interim injunction restraining them from working in competition with their former employer. The application for the injunction had been heard a week after it was made, but judgment was reserved, with no order being made. It was a month before the judge released his decision granting an injunction, stating that the formal order would be drawn up in two weeks’ time. The judge refused to deal with representations during that period. The Court of Appeal set the injunction aside. This had not been a complex case and the delay had been too long, especially as the case had arisen during the main selling season for the business in question. The injunction was also too wide, containing restrictions not requested by the applicant, and it prevented the appellants from fulfilling orders they had accepted before the order was made. In place of the injunction, the court accepted a limited undertaking from one of the appellants.

Rectification1.2

Another equitable remedy that has been the subject of recent decisions is rectification. This is a remedy available where those who have executed a legal document realise that the document does not mean or do what they intended it to mean or do. One of the difficulties with rectification is distinguishing between cases were the parties made a mistake in the contract itself and one where they made a mistake in how the contract was recorded. Rectification is only available in the latter case. There is a useful explanation of this in Smithson v Harrison [2008] 1 All ER 1216. A claim is one for rectification if the problem with a document cannot be resolved by ignoring a clause in that document, and instead the clause needs to be changed because it does not mean what the drafters intended it to mean. “If rectification is obtainable

L31 CPD © ITC2

Equitable Remedies

the court will alter the wording of a document so that it ceases to say what it had mistakenly been expressed to say and instead says the different thing that it had been intended to say: the court substitutes a correct version for the incorrect version which the party or parties had mistakenly brought into effect.”

Another example of a situation that could not be corrected through rectification arose in Oun v Ahmad [2008] EWHC 545. Mr Oun and Mr Ahmad recorded the terms of an agreement they had reached for the sale of a lease to Mr Oun. A separate memorandum gave the apportionment of the price between the building, fixtures and fittings, the value of the business and (possibly) stock. This memorandum was not incorporated into the contract for sale. There was a disagreement which meant that the sale was not completed. It was conceded by both parties that the contract for the sale of the lease itself did not comply with the formal requirements of s2(1) Law of Property (Miscellaneous Provisions) Act 1989 because it did not incorporate all the terms which they had expressly agreed. Therefore, it was not enforceable. Mr Oun sought rectification of the offending document so that it recorded the additional terms of the agreement. An Adjudicator held that the non-compliance could not be cured by an order for rectification. The contract itself contained everything that the parties intended it to contain, and accurately reflected their agreement. Therefore, there was no room for rectification.

Mr Oun’s appeal was unsuccessful. Morgan J discussed the principles that applied where rectification was sought under s2(4) Law of Property (Miscellaneous Provisions) Act 1989 . This expressly provides for rectification in cases where a contract is invalid because it does not incorporate all the terms expressly agreed. Morgan J concluded that rectification was not available as of right: if it was, this would undermine the objective of s2(1). The usual principles therefore applied. The situation here had arisen because the parties, having agreed terms, also expressly agreed to record only some of them in the written document. They were both unaware that this meant it would not be binding. It was not a mistake in recording the terms of the transaction but a mistake about how the transaction was expressed in writing. In consequence, the document could not be “rectified” – there was no relevant mistake to put right.

L31 CPD © ITC 3

Intention to Create a TrustChapter 2:

The intention to create a trust is one of the “three certainties”. Problems can arise where the alleged settlor’s words (spoken or written) are ambiguous, so that it is unclear whether there was an intention to create an enforceable obligation rather than a moral obligation, or where the evidence of intention comes from conduct rather than explicit words.

Two recent cases have looked at whether the intention to create a trust can be inferred from conduct. In both cases, the defendant was insolvent; unless there was a trust, the claimant was in the position of an unsecured creditor and unlikely to get any of their money back. The cases do not establish any new principles but are of illustrative value. The claimants argued that they had given money to the defendant for a specific purpose, which had then become impossible to perform, and therefore it was held on constructive trust. They relied in part on Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567. In that case, money had been lent to a company in order to pay a dividend to its shareholders; this was not possible because the company was placed in receivership. The lender argued, successfully, that the loan money had been held on trust and was not part of the company’s wider assets. It was therefore able to reclaim its loan and avoid being treated as an unsecured creditor.

Azam v Iqbal [2007] EWHC 2025 (Admin) considered whether a money transfer facility (Hawala) held customer moneys on trust. The defendant ran a business known as Madina Express. It was a money exchange facility or Hawala. Customers who wished to transfer money to another country would agree an exchange rate with the Hawala and then pay them the money plus a small fee. The Hawala would use sums paid in by customers to purchase US dollars in large amounts, and then convert the dollars into other currencies. The system worked because small sums were consolidated into much larger ones, so that the hawaladar could take advantage of the better exchange rates available for those trading currency in bulk.

The claimant had paid Madina Express £12,000, to be transferred to his sister in Pakistan. Before she received the money, Madina Express was placed in receivership under the terms of an order under the Drug Trafficking Act 1994. It was unable to continue in business, and the transfer did not take place. The claimant was able to establish that the money they had paid was from a legitimate source but the receiver refused to refund the money because it had been paid into an overdrawn account. The claimant argued that this did not make any difference because Madina Express held the £12,000 on trust. This argument was successful at first instance, and Pitchford J “ordered that the claimant’s claim that the £12,000 had been held by the first defendant on trust for a specific purpose, namely the onward transmission of the equivalent value in rupees to Pakistan and, that purpose having failed in consequence of the making of the restraint order, that there was a resulting trust which entitled the claimant to follow the money into the hands of the [receiver]” (para 13).

This decision was reversed on appeal to the Queen’s Bench Division. Sullivan J held that Madina Express was not a trustee. The relationship between Hawala and customer was more like a banker-customer relationship than one of trustee and beneficiary. It is significant that this was not a one-off arrangement for Madina Express to transfer funds overseas. Arranging the transfers was the whole point of the business. If the claimant’s money was held on trust, so was that of every other customer. Organising the business like this would have been impossible and it would not have been able to operate. For instance, if there was a trust, each customer’s money would have to be kept separate from that of other customers, and none of the money could be used as part of ordinary cash flow. Although the claimant in this case had not positively intended his money to be combined, it was the essence of the Hawala system that it would

L31 CPD © ITC4

Intention to Create a Trust

be. If it was not, then the better exchange rates could not be obtained. The way in which the money transfer system operated was inconsistent with the existence of a trust, and therefore there was no intention that the money would be held on trust for the client. The result was that the claimant was unable to rely on a Quistclose trust to recover their savings.

Some similar issues arose in Dubey v HM Revenue & Customs [2008] BCC 22. Farepak Food & Gifts Ltd operated a “savings scheme”, through a network of agents. Customers paid regular sums to their agent, who passed these on to Farepak. The savings were then used to purchase vouchers for retailers and hampers of Christmas food and other festive items. In October 2006 Farepak decided to cease trading, due to insolvency, and administrators were appointed. Customers who had finished paying for their vouchers and hampers found they would receive nothing. As unsecured creditors, the payout was likely to be a few pence in the pound. One argument presented on behalf of disappointed customers was that their savings were held on trust.

As in Azam v Iqbal, the court concluded that there was no trust, and again the way in which the business as a whole operated was decisive. The money received from individual customers was not kept separate by the agents, nor by Farepak. Although, obviously, this should be done if the money was held on trust, it was not decisive because Farepak could have been in breach of trust in the way it was handling customer money. However, another feature of the business model was completely inconsistent with the existence of a trust. Farepak did not purchase goods or vouchers until October of each year and, until that time, customer money was part of the company’s general accounts. This is not surprising from a business point of view: if all the money was kept separate, the company would, in effect, have no income for most of the year. The conclusion reached was that Farepak did not hold customer money on trust for the purpose of purchasing vouchers and hampers. What it was operating was a savings scheme – which is, of course, how it was described to customers – whereby Farepak took regular savings through the year and then exchanged them for goods of value to the customer. It followed that the relationship between individual customer and Farepak was that of debtor and creditor, not beneficiary and trustee, and the customers were unable to rely on a Quistclose trust to receive their savings back.

L31 CPD © ITC 5

Discretionary TrustsChapter 3:

One of the advantages of a discretionary trust is that it is not necessary to determine the entitlement of individual beneficiaries in advance. There is therefore a lot more flexibility than with a fixed trust. However, although the exercise of the discretion is in the hands of the trustees, a settlor may well have views about how that discretion should be exercised. Information about this can be passed on to the trustees through a wish letter. Breakspear v Ackland [2008] EWHC 220 looks at the question of whether the contents of wish letters can or must be disclosed to beneficiaries. The decision is at first instance, but it is still of considerable interest and Briggs J undertakes a detailed survey of case law on the issue.

The general principles relating to disclosure of documents to beneficiaries are set out in Re Londonderry’s Settlement [1965] Ch 918 and wish letters come within the Londonderry principles. While beneficiaries may wish to scrutinise documents in order to establish that a trust is being administered correctly, any prima facie right to the production of documents is overridden by the principle that trustees are not required to give reasons for the exercise of their discretion. There are, therefore, some documents in the hands of trustees which do not have to be disclosed. Briggs J looked at a number of cases about wish letters, including Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, Re Rabaiotti’s Settement [2000] WTR 953 and Schmidt v Rosewood Trust Ltd [2003] 2 AC 709. He said that it was in the interests of beneficiaries of family discretionary trusts, and advantageous to their administration, for the trustees’ exercise of discretion to be confidential. This enabled trustees to make discreet enquiries if necessary, and reduced the risk of litigation. Wish letters were brought into existence for the sole purpose of serving a confidential process: there could be no doubt that they were confidential to the same extent as the purpose that they were intended to serve. In general, trustees should regard a wish letter as confidential but this confidentiality may be maintained, relaxed or even abandoned as they judge best, given the needs of the beneficiaries and the administration of the trust. There is some discussion of whether a settlor can insist upon confidentiality. This is left undecided but Briggs J suggests that there are limits to a settlor’s power to do this. If it is, in the trustees’ opinion, in the interests of the beneficiaries for a letter to be revealed, their discretion to do this should not be fettered.

L31 CPD © ITC6

Notes

L31 CPD © ITC 7

Resulting TrustsChapter 4:

Presumed resulting trusts and the presumption of 4.1 advancement

Because equity does not assist a volunteer, a number of broad principles have arisen for dealing with transfers of valuable property in circumstances where it is not clear whether a gift was intended. The usual presumption is that someone who pays for or contributes to the purchase of property will be the beneficial owner of the relevant proportion of that property, even though they do not have legal title (a “presumed resulting trust”). This presumption can be rebutted by evidence that a gift or loan was intended. However, because there are some situations in which a gift is the most likely explanation of a transfer, equity also developed a competing presumption, the “presumption of advancement”. Where a father or someone else in loco parentis transfers property to their child, the presumption is that their intention was to make a gift. As with the presumed resulting trust, it is readily rebutted by evidence of what was actually intended.

In recent years, the presumption of advancement has received little attention. It was described as “weak” in Pettitt v Pettitt [1970] AC 777, and some writers thought it might no longer exist. However, two recent decisions suggest it is still relevant in the appropriate type of case, and might even be capable of further development.

In Antoni v Antoni [2007] UKPC 10 the Privy Council held that the Court of Appeal of the Commonwealth of the Bahamas had erred in failing to consider the relevance and importance of the presumption of advancement. Dr Amado Antoni was the founder of a property investment company in the Bahamas, Peaches Ltd. Five fully paid-up shares had been issued. These were initially held by Dr Antoni and four nominees, all of whom were partners in or employees of a local law firm. Dr Antoni had three children: Kirk Antoni, Melanie Malone and Blair Antoni. In 1991, the shares previously held by nominees were transferred to Kirk, Melanie and two others, Donald Malone and Donna Long. Donald Malone signed a declaration of trust in favour of Dr Antoni and Donna Long signed a declaration of trust in favour of Blair Antoni. There were no formal declarations of trust relating to the shares transferred to Kirk and Melanie.

Some years later, after Dr Antoni’s death, his second wife and sole legatee claimed that all the shares had been held on trust for Dr Antoni. The trial judge upheld this claim, even that relating to the shares held by Donna Long, apparently because he did not think the evidence about the declaration of trust in favour of Blair Antoni was reliable. The judge relied on the doctrine of a presumed resulting trust, leaving Dr Antoni’s children to rebut this with evidence that their father had intended to make them a gift. Some emphasis was placed on the wording of Dr Antoni’s will, which suggested he still regarded himself as sole owner of Peaches Ltd. An appeal against this finding was successful, but the court directed that there should be a retrial. The children appealed to the Privy Council against the direction for a re-trial, and their stepmother appealed against the reversal of the trial judge’s decision.

The Privy Council agreed with the Bahamian Court of Appeal that the trial judge had decided the case wrongly. Although counsel for Dr Antoni’s children had referred to the presumption of advancement, this was ignored by the trial judge. This made a major difference to the outcome of the case: rather than Kirk and Melanie having to prove their father had transferred the shares to them as a gift, the presumption meant that their stepmother had to prove that

L31 CPD © ITC8

Resulting Trusts

it was not a gift. She had not managed to do this. What Dr Antoni had said in his will was not relevant, because this was written some time after the transfers were made.

The transfer to Donna Long was different, since she was not a child of Dr Antoni. However, the Privy Council did not think that the trial judge was entitled to conclude that the evidence was unreliable: “at a trial where, by the parties’ choice, evidence has been given by affidavit, with no request to cross-examine any defendant, it is not . . . open to a judge to refuse to accept admissible evidence given by a defendant where that refusal involves an inference, or is based on a belief or a suspicion, that the defendant has given perjured evidence or is guilty of a fraud. In adversarial proceedings it is for the parties to decide whether evidence given by opponents should be challenged.” (para 24).

In Pecore v Pecore [2007] 1 SCR 795 the presumption of advancement was again potentially relevant in resolving a dispute about property transferred from a parent to a child. The court described both the presumed resulting trust and the presumption of advancement as a useful guide for courts where there is no other evidence of a transferor’s intent, and provide certainty and predictability for transferors themselves. There were also some interesting observations about the scope of the presumption of advancement. First, no distinction should be made nowadays between fathers and mothers. More controversially, the majority of the court held that the presumption of advancement between a parent and child applies only to transfers from a parent to a minor child. A gratuitous transfer to an adult child would be governed by the presumption of a resulting trust, and it would be for the adult child to rebut that presumption. A specific situation where the presumption did not apply was one where a parent placed assets in a joint account with a child so that the child could assist with their financial affairs: where this was done, the presumption would be that the child was holding the assets on trust, and therefore would not take them by right of survivorship.

The court supports this limitation by saying that the presumption is justified by the parental obligation to support dependent children. While some adult children are dependent on their parents, application of the presumption of advancement would be difficult because of the varied circumstances and the uncertainty about whether there was dependence in individual cases. Dependency is better viewed as evidence to rebut the presumption of a resulting trust. Abella J dissented on the point that the presumption of advancement was not based purely on the obligation to support children, but also recognised parents’ affection for their children. In the joint account situation, it was quite possible that the parent intended the child to benefit upon their death; there were other ways of arranging for financial assistance that did not involve a joint account.

Applying these principles to the facts in Pecore itself, an ageing father had placed most of his assets in joint accounts with his daughter, Paula. He had two other children, but was closest to Paula, and she was also living in difficult circumstances. Her husband was quadriplegic and she was working in low-paid jobs so that she could look after him. Paula’s father was the only person to put money into the accounts, and he paid tax on the income from them. The father also provided Paula and her family with additional financial help. On his death, there were specific gifts to Paula, her husband and their children. The residue of the estate was divided equally between Paula and her husband. The assets in the bank accounts were not mentioned, and Paula claimed them by survivorship. When she and her husband later divorced, he claimed the bank accounts were part of the residue, and that he had an interest in them.

L31 CPD © ITC 9

Resulting Trusts

The issue was whether there was a presumed resulting trust, so that the assets in the account were held on trust by Paula for her father’s account, or whether the presumption of advancement applied, so that the burden of proving that Paula’s father had not intended her to receive what was in the accounts upon his death. The Supreme Court held that the presumption of advancement did not apply because Paula was an adult, but that there was sufficient evidence to rebut the presumption of a resulting trust. There was strong evidence that her father intended her to have whatever was left in the account on his death.

Whether this limitation to minor children would be applied by a UK court is unclear. The children in Antoni v Antoni were adults and there is no suggestion that this affected the application of the presumption of advancement. The views of the Privy Council may well be a better guide to those of UK courts than those of the Canadian Supreme Court, especially as the panel included Baroness Hale and Lord Bingham. However, the point was not discussed in detail and the advice was given before the decision in Pecore v Pecore so it is probably better to regard this point as undecided.

The application of presumptions in cases where a transaction was motivated by an illegal purpose was considered again in Painter v Hutchinson [2007] EWHC 758. The disputed property was a house that was held in the name of Mrs Painter. She had executed a deed of trust in favour of a third party at the time of purchase. When the third party claimed an interest in the property, Mrs Painter argued that the declaration of trust was a sham, its purpose being to conceal family assets from H M Revenue & Customs. The third party argued that, applying Tinsley v Milligan [1994] 1 AC 340, Mrs Painter could not assert that the declaration of trust was a sham because that would mean relying on her own illegal act. The court held that the exception to this rule in Tribe v Tribe [1995] 3 WLR 913 applied. Where the illegal plan was not actually carried into effect (whether because it was unnecessary or because of repentance), then the evidence of that plan can be relied on. This is justified in terms of encouraging wrongdoers to repent and withdraw from illegality. In Mrs Painter’s case, the declaration of trust was not illegal because she was not avoiding any tax liability of her own. Furthermore, she did not hide the asset, she actually included the disputed property in a declaration of her assets: the declaration of trust was never shown to H M Revenue & Customs.

Mutual wills4.2

In Olins v Walters [2007] EWHC 3060, the deceased executed a codicil to her will, stating that it was made “pursuant to an agreement made between my husband and me for the disposal of our property in a similar way by mutual testamentary dispositions”. Her husband executed an identical codicil to his will. The husband argued, inter alia, that there had been no intention to make a binding agreement and that the wording was inapt to create a mutual will. The court held that the use of the term “mutual testamentary disposition” was correct because this was a codicil and not a will. It was not fatal to the validity of the agreement that there was no reference to revocation. The criteria for a valid mutual will in Re Dale [1993] 4 All ER 129 were satisfied. In discussing the rules relating to mutual wills, Norris J agreed with a comment that they were “anomalous and unprincipled”. He also accepted that it was now well-established that the basis of the enforcement of a mutual will was a constructive trust.

L31 CPD © ITC10

Notes

L31 CPD © ITC 11

Trusts of the Family HomeChapter 5:

Law Commission report5.1

The Law Commission published its report, Cohabitation: The Financial Consequences of Relationship Breakdown in July 2007. The Commission criticised the current patchwork of statute and case law governing the breakdown of relationships. It was “complex, uncertain, expensive to rely on and, as it was not designed for family circumstances, often gives rise to outcomes that are unjust” (Executive Summary). The Commission made recommendations for reform, suggesting a specific regime for unmarried couples rather than an expansion of the scheme that applies to married couples. The scheme would apply only to couples with a child or who had lived together for a certain period, and couples could opt out of the scheme. Financial relief would not be automatic: it would be available only where qualifying contributions had been made to the relationship, which had given rise to certain consequences. Put very simply, and applying the scheme to the ownership of a home, an applicant for relief would have to show that the respondent had retained a benefit or that the applicant had suffered continuing economic disadvantage through their contributions to the relationship. The size of an award would depend on the extent of the benefit/disadvantage. The court could take the welfare of children into account: this would be a major difference between the Commission’s proposed scheme and the current law relating to trusts of the family home.

Constructive trust: property conveyed into joint 5.2 names

2007 also saw a major House of Lords’ decision on trusts of the family home. Stack v Dowden [2007] 2 AC 432 was the first case in which their Lordships had been required to consider the beneficial ownership of a home that had been registered in the joint names of an unmarried couple. There was no express declaration of trust, although there was a declaration that the survivor could give a good receipt for capital money arising from a disposition of the property.

Stack v Dowden involved a dispute about the beneficial ownership of a property in the joint names of Mr Stack and Ms Dowden. The purchase was funded by a combination of a mortgage, the proceeds of the sale of their previous home, which was in the sole name of Dowden, and Dowden’s savings. Stack made mortgage and endowment policy payments and both Stack and Dowden made lump sum payments, eventually paying off the loan. Dowden argued that she was entitled to more than half of the house.

Given that the contributions to the purchase of the house had not been equal, one approach to the problem would have been to apply a purchase money presumed resulting trust, so that the legal ownership directly reflected financial contributions. This approach was rejected. Hale LJ cited with approval a passage from Kevin Gray and Susan Francis Gray, Elements of Land Law (4th ed (2005) p 864, para 10.21):

“In recent decades a new pragmatism has become apparent in the law of trusts. English courts have eventually conceded that the classical theory of resulting trusts, with its fixation on intentions presumed to have been formulated contemporaneously with the acquisition of title, has substantially broken down . . . Simultaneously the balance of emphasis in the law of trusts has transferred from crude factors of money contribution (which are pre-eminent in the

L31 CPD © ITC12

Trusts of the Family Home

resulting trust) towards more subtle factors of intentional bargain (which are the foundational premise of the constructive trust) … But the undoubted consequence is that the doctrine of resulting trust has conceded much of its field of application to the constructive trust, which is nowadays fast becoming the primary phenomenon in the area of implied trusts.”

It is clear that the current judicial preference is to avoid the use of the purchase money resulting trust and rely instead on the common intention constructive trust, even in circumstances where a resulting trust might be presumed. This approach permits consideration of a wider range of “contributions” to the family home and, arguably, provides a fairer result. Nonetheless, their Lordships have firmly rejected any suggestion that their task was to reach a conclusion that was “fair”. Hale LJ emphasised “the search is still for the result which reflects what the parties must, in the light of their conduct, be taken to have intended … therefore, it does not enable the court to abandon that search in favour of the result which the court itself considers fair”.

The placement of the burden of proof can be crucial to resolving disputes like the one in Stack v Dowden. The court stated that where the property is in joint legal ownership, the starting point should be joint beneficial ownership. The onus lies on the party seeking a greater share to show that the parties intended their beneficial interests to differ from their legal interests. This can be contrasted with the case where a home is registered in the name of just one party. Here, the onus is on the claimant to establish that the parties intended to share the beneficial interest.

In discovering the intention of joint legal owners, a wide variety of factors can be considered. It is not only financial contributions that may be considered. Hale LJ gave a long and non-exhaustive list of what might be relevant. This included “any advice or discussions at the time of the transfer which cast light upon their intentions then; the reasons why the home was acquired in their joint names; the reasons why (if it be the case) the survivor was authorised to give a receipt for the capital moneys; the purpose for which the home was acquired; the nature of the parties’ relationship; whether they had children for whom they both had responsibility to provide a home; how the purchase was financed, both initially and subsequently; how the parties arranged their finances, whether separately or together or a bit of both; how they discharged the outgoings on the property and their other household expenses.” She added that “The parties’ individual characters and personalities may also be a factor in deciding where their true intentions lay. In the cohabitation context, mercenary considerations may be more to the fore than they would be in marriage, but it should not be assumed that they always take pride of place over natural love and affection.”

Applying these principles to the case in hand, Stack’s appeal from a Court of Appeal decision giving him a 35 per cent share was rejected. Although equity should follow the law, so that in a case of joint ownership, there was a prima facie case for equal shares, this was only a presumption and could be rebutted by evidence of the parties’ actual intentions. Here, despite being together for 27 years and having four children, the couple kept their finances rigidly separate, and the house in question was their only joint asset. It was clear that Stack and Dowden had never intended the house to be shared equally.

Stack v Dowden has been applied in a number of subsequent cases. One of the more unusual is Tackaberry v Hollis [2007] EWHC 2633. The house in issue had been purchased in 1930 by Anthony Tackaberry, one of 10 children. Anthony emigrated to Australia in 1951 and died there in 1985, but he never

L31 CPD © ITC 13

Trusts of the Family Home

sold the house. Various family members used the house over the years. The claimants argued that the house was held by Anthony on trust for himself and seven of his siblings, and that, effectively, the house was family property.

Because the house was in Anthony’s name, the burden of proving that there was a common intention it should be shared lay on the claimants. He had paid the purchase price: he was assisted by some family loans, but these were repaid with the possible exception of a portion of one loan from 1932.There was no evidence of any agreement or understanding by Anthony that his siblings would be entitled to any interest in the house, and he behaved throughout as though it was his alone, arranging for and paying for repairs and improvements, and even selling off some surplus land at one point. These actions were inconsistent with the existence of a trust. Although the evidence did support the claim that the house was used as an assembly point for the whole family, this did not assist the claim, because there is no legal concept of family property. There was no evidence of detrimental reliance.

Finally, and interestingly, Evans-Lombe J relied on the fact that the beneficiaries of the trust were uncertain. This is not normally an issue in cases involving family homes, as the beneficiary is obvious, but here, it was not. Two elder siblings who had emigrated to America at a young age were regarded by the claimants as excluded, and they had not been involved in family matters, but there was no clear evidence that if there was a trust, they were excluded from that too. At times, there were suggestions that siblings who were wealthy or living abroad should be excluded but one sibling who would not qualify under this test was regarded throughout as having a “share” in the house. There was not enough certainty to satisfy the requirements for a trust. This aspect of the case is a useful reminder that, since a constructive trust of the family home is based on the express intent that the beneficial interest is to be shared, certainty of objects is as important here as it is in express trusts.

L31 CPD © ITC14

Notes

L31 CPD © ITC 15

Charitable and Purpose TrustsChapter 6:

More provisions of Charities Act 2006 come into force6.1

Although the Charities Act received Royal Assent in 2006, many of its provisions have only recently come into force. The Charity Tribunal was set up in March 2008 and, at the same time, a number of other provisions took effect. These include new powers for trustees of unincorporated charities, more charities having the power to spend their permanent endowment, and the introduction of the new, more flexible cy-près rules. In April 2008 the new legal definition of charity in s2 Charities Act 2006 came into effect. New fundraising requirements are also now in place. For more information about the implementation of the new Act, see the Charity Commission’s own website, www.charity-commission.gov.uk .

Guidance on public benefit requirement6.2

One of the major changes introduced by the Charities Act 2006 is the extension of the public benefit requirement to all charitable purposes. s2(1(b) CA 2006 provides specifically that a charitable purpose must be for the public benefit. s4(2) adds that it is not to be presumed that a purpose of a particular description is for the public benefit.

The public benefit test has two components: the charitable purpose must provide a benefit, and that benefit must be provided to the public or a section of the public. A trust might fail because what it was proposing to do was not regarded as beneficial. It might also fail because, although what it was proposing to do was beneficial, those benefited were a group who could not be described as the public or a section of the public. CA 2006 has removed the old presumption that certain purposes are for the public benefit. This affects all charities, as they will need to show evidence of benefit, and is of particular relevance for trusts for the relief of poverty. Historically, these were permitted even where the potential beneficiaries did not amount to a section of the public.

The Charity Commission for England and Wales recently issued its guidance as to the operation of the public benefit requirement (Charities and Public Benefit: Summary Guidance for Charity Trustees, Charity Commission, January 2008). The guidance identified four principles:

There must be an identifiable benefit. The nature of the benefit may •be different according to what the charity’s purpose is. Benefits must be balanced against any harm that might result from carrying out the purpose. Charities may not be concerned with fulfilling a political purpose.

The benefit must be to the public or section of the public. Who is the •public varies according to the organisation’s purpose: it is not a simple matter of numbers. Any restriction on who may benefit must be rational, reasonable and justified.

People on low incomes must be able to benefit. It is suggested this •means households living on less than 60 per cent of the average income or on or below the level of income support. Assets are relevant as well as income. While charities can charge for their services, this principle means that there may be problems satisfying the public benefit test if there are charges that exclude those on low incomes.

L31 CPD © ITC16

Charitable and Purpose Trusts

Any private benefit must be incidental. Charities can provide incidental •private benefits to individuals or organisations, but these must not outweigh public benefits.

It is not inconsistent with charitable status to charge fees, so long as they •are reasonable and necessary for carrying out the charity’s aims. The important issue will be whether the charge restricts who may benefit. The Commission has made some important observations about the principle that those in poverty must not be excluded from the opportunity to benefit:

“The fact that the services will be charged for and therefore provided •mainly to people who can afford to pay does not necessarily mean the organisation’s aims are not for the public benefit. However, if an organisation excluded people from the opportunity to benefit because they could not pay the fees, then its aims would not be for the public benefit. In particular, people in poverty must not be excluded from the opportunity to benefit. So it would not, for example, be enough to reduce very high fees slightly to enable more ‘middle income’ people to benefit, if people in poverty were still excluded from the opportunity to benefit.

In general, the lower the fees that are charged, the greater the opportunity •there is likely to be for most people to have the opportunity to benefit. But where the fees charged are, of necessity perhaps, very high, then trustees of those charities will have to think about other ways in which people who cannot afford those fees can benefit in some material way related to their charity’s aims. This does not mean charities have to offer services for free, or offer concessions on fees, although clearly that would help. There could be other ways of benefiting people who cannot afford the fees in a way that is related to the aims. For example, one way of doing this might be an independent school working in partnership with a local state school, or an arts charity might broadcast concerts or operatic performances via TV or radio to a wider audience. What matters is that people unable to pay are not excluded from the opportunity to benefit, whether or not they actually choose to take up the opportunity.”

The Commission emphasised that “What constitutes public benefit can change over time, as modern needs and circumstances change…Those changes are influenced … by social and economic conditions, by increasing knowledge and understanding and by changes in social values.” This principle will influence the Commission’s interpretation of the law. The Commission will also have regard to public opinion.

The Commission reported that it will take action where charities are not meeting the public benefit requirement. This might involve helping them amend their stated purposes. If the trustees do not co-operate, the Commission might use its regulatory powers to enforce change, for example, by appointing new trustees or giving directions to trustees.

Dissolution of unincorporated society6.3

An area of difficulty for a long time has been the destination of the funds of an unincorporated association when that association is wound up or comes to an end for some other reason. The contract-holding theory has become dominant, and this was confirmed again in Hanchett-Stamford v HM

L31 CPD © ITC 17

Charitable and Purpose Trusts

Attorney General [2008] EWHC 330, where Lewison J stated that this would be the normal construction of a gift to the members of an unincorporated association. The Performing and Captive Animals Defence League had assets worth nearly £2 million. It was accepted that the League was not charitable, as it had a political purpose. There was now only one surviving member, all other members having left or died. It was accepted that at the point where there were two members left, the assets could have been divided equally between them. It was also accepted that the unincorporated society had ceased to exist once it only had one member. An argument was then put forward, relying on dicta in Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society (No. 2) [1979] 1 All ER 623, that the assets should pass to the Crown as bona vacantia. This was rejected. The reason for the dissolution of the unincorporated society should not make any difference to how its assets were then disposed of. Therefore, the effect of the death of the second-last member was that the League was dissolved and the last member took the assets beneficially, and without any of the contractual restrictions that had existed while the League still had members. This approach was also preferred because it was consistent with the principle that people were guaranteed the peaceful enjoyment of their possessions (Art 1 First Protocol ECHR).

L31 CPD © ITC18

Notes

L31 CPD © ITC 19

TrusteesChapter 7:

One problem that can arise in determining whether someone is liable for a breach of trust is whether they owed a fiduciary duty in the first place. Two recent cases have looked at whether those duties had arisen.

An unusual situation arose in Statek Corporation v Alford [2008] EWHC 32 (Ch). Alford was told that he would be appointed as director of Statek but was never formally appointed. However, he appears to have believed that he had been appointed, despite not receiving information such as accounts and dates of meetings. He was deeply involved in Statek’s finances and took part in some transactions that were fraudulent. For the purposes of limitation periods, it was relevant whether he was actually a trustee or fiduciary before the events complained of or whether his fiduciary duty arose only because of his involvement in the fraudulent transaction. The reasoning of Evans-Lombe J is not entirely clear but it appears that he was treated as a ‘de facto’ director and thus as a fiduciary for the whole period of his involvement with Statek. Thus the action against him was not time barred.

Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 considers the duties of a director in the period between their resignation and the end of their notice period. Bryant submitted his resignation following a breakdown in the relationship between him and the majority shareholder. After he had resigned but before he had stopped working for the company, he was offered a position with a competitor, and agreed to take this after his notice period had ended. The appellant company claimed that this was a breach of fiduciary duty because accepting the new job put him in a position of conflict. The claim was rejected. Bryant had not resigned in order to take the new business opportunity and had not actively sought the new role. His resignation was already irrevocable when the agreement was made.

L31 CPD © ITC20

Notes

L31 CPD © ITC 21

The Equitable Liability of Third PartiesChapter 8:

In Abou-Rahmah v Abacha [2007] 1 All ER (Comm) 827 the Court of Appeal had another opportunity to consider the elements of dishonest assistance in a breach of trust.

The claimants believed they had an agreement whereby, in return for identifying suitable investments for a family trust based in Nigeria, they would receive a share of the trust capital and the income on it. However, the trust money first had to be retrieved from Benin, and various payments had to be made in order to do this. The claimants provided funds for this purpose, making payments into the London account of a City Express Bank of Lagos. The money was then transferred to an account held at a Nigerian branch of the City Express Bank by Trusty International (sometimes described as Trust International). Of course, there was no family trust, the claimants had been scammed, and they sought recovery from City Express Bank. This bank was no longer operating, having lost its banking licence, but it was agreed that this made no difference to the action. The essence of the claim against the bank was that the manager concerned with the transactions suspected that Trusty International was involved with money laundering and, by processing the transfer from London to Nigeria, the bank was assisting in a breach of trust. The trial judge rejected the claim because he was not persuaded that the bank employee dealing with the transfer to Trusty International was suspicious about these specific transactions, even though he suspected or even knew that Trusty International was engaged in money laundering.

The main interest in the case stems from the Court of Appeal’s endeavours to resolve a dispute about the true meaning of the House of Lords’ decision in Twinsectra Ltd v Yardley [2002] 2 AC 164. One interpretation of Twinsectra was that it required both objective and subjective dishonesty, so that a third party could not be found liable for assisting in a breach of trust unless he was aware that the transaction was below normally acceptable standards of dishonesty. In Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 All ER 333, however, the Privy Council stated that this was a misinterpretation of Twinsectra, and that there was no requirement of conscious wrongdoing. The practical problem for the Court of Appeal was whether the Privy Council’s “re-interpretation” of Twinsectra was binding. Arden LJ discussed the issue at some length. Her view was that, if it was a foregone conclusion that the House of Lords would prefer the interpretation given by the Privy Council to its own previous decision, then the Court of Appeal should adopt the Privy Council’s interpretation. Her conclusion was that Barlow Clowes International merely indicated the correct interpretation of Twinsectra and therefore it was not improper to follow it. Thus, it now seems to be settled (for the time being) that a third party’s own view as to the morality of his actions is not relevant to the concept of dishonesty in the context of assistance in a breach of trust.

Applying the law to the facts of the case, it might have been expected that the appeal would therefore have succeeded: the trial judge’s approach looks more consistent with the rejected interpretation of Twinsectra than with the post-Barlow Clowes International interpretation. However, the Court of Appeal decided not to allow the appeal. The trial judge had acquitted the bank of any dishonesty and this should not be overturned by an appeal court.

L31 CPD © ITC22

Notes


Name: ...........................................................

Date: .............................................................

Membership No: ............................................

Equity and Trusts

L31 CPD © ITC 1


Question 1

Which of the following types of trust is an express trust?

A discretionary trust. (a)

An automatic resulting trust. (b)

A constructive trust. (c)

All of the above. (d)

Question 2

Which of the following statements about interim injunctions is not correct?

An interim injunction may be issued to protect confidential (a) information.

Information will not be protected if it is already in the public domain. (b)

Delay is a defence to an interim injunction. (c)

Delay is only a defence if it is the result of the claimant’s own actions. (d)

Question 3

Which of the following is not an equitable maxim?

Equity will not assist a volunteer. (a)

Equity is fairness. (b)

Delay defeats equity. (c)

Equity follows the law. (d)

Question 4

In its report, Cohabitation: The Financial Consequences of Relationship Breakdown, did the Law Commission say:

The current law was “complex, uncertain, expensive to rely on and not (a) designed for family circumstances”.

The current law often gave rise to unjust outcomes. (b)

There should be a specific scheme for unmarried couples. (c)


Question 5

Which of the following is not required for a valid discretionary trust?

Certainty of intention. (a)

Certainty of subject-matter. (b)

L31 CPD © ITC2


A wish letter. (c)

Certainty of objects. (d)

Question 6

Which of the following statements explains why the Canadian Supreme Court held that the presumption of advancement did not apply to transfers from a parent to an adult child?

The presumption of advancement is outdated and should be (a) abolished.

A presumption in favour of a gift would encourage parents to avoid (b) inheritance tax.

Ties of affection between parent and child are much weaker once the (c) child is an adult.

Parents do not have an obligation to provide financial support for an (d) adult child.

Question 7

In which of the following situations would it be possible for a court to order rectification of a document?

The parties had a common understanding of what they wished the (a) document to achieve, but the words used did not mean what they thought they meant.

The parties did not record all the details of their agreement for the sale (b) and purchase of a lease because they did not know that this was required for the contract to be valid.

One party made a mistake and signed a document that was not in their (c) financial interests.

After signing the document for the sale of a property, the seller wanted (d) to increase the selling price.

Question 8

The definition of a charitable purpose is now contained in:

s2 Charities Act 2008(a) .

s32 Trustee Act 1925(b) .

s1 Charities Act 2006(c) .

s2 Charities Act 2006(d) .

Question 9

Three years ago Maria bought a flat for £100,000. She did not have any money saved, so her brother, David, paid a deposit of £10,000 and Maria took out a mortgage for £90,000. The flat was conveyed into Maria’s name. Maria died recently, leaving all her estate to her best friend, Julia. Which of the following statements about the ownership of the flat is correct?

L31 CPD © ITC 3


In the absence of other evidence, equity assumes that voluntary transfers (a) were intended as gifts.

Because Maria was the sole legal owner, the onus will be on David to (b) show that he has a beneficial interest in the flat.

The exception to the assumption that a voluntary transfer was a gift is (c) where it is a transfer from a parent to their child, in which case the presumption will be that the parent intended to retain an interest in the property.

As legal ownership has now been transferred to Julia, David needs to (d) establish that it would be unfair for Julia to retain full beneficial ownership.

Question 10

Which of the following recommendations was not made by the Law Commission in its report on financial consequences of relationship breakdown?

Financial relief should not be automatic. (a)

Financial relief should only be available where the couple had (b) children.

An applicant for relief would have to show that qualifying contributions (c) had been made.

The court would be permitted to take the welfare of children into (d) account when quantifying financial relief.

Question 11

Which of the following statements about discretionary trusts is correct?

Wish letters are relevant to both fixed and discretionary trusts. (a)

Trustees are required to give beneficiaries reasons for the exercise of (b) their discretion.

The wish letter is generally confidential. (c)

The principles in (d) Re Londonderry’s Settlement do not apply to wish letters.

Question 12

Which of the following statements about the facts in Stack v Dowden is correct?

The property that was in dispute was in the joint names of Mr Stack and (a) Ms Dowden.

Ms Dowden gave up work when she had children and Mr Stack paid the (b) mortgage.

All the couple’s bank accounts were in joint names. (c)

Mr Stack was awarded 100 per cent of the property. (d)

L31 CPD © ITC4


Question 13

Mohsin runs a small printing business. His main printing machine has broken down and cannot be repaired. He is concerned that his business will fail as a result. Amir has agreed to lend Mohsin £5,000 so that he can buy a new printer. He wants to make sure he gets his money back if the business fails before the printer has been purchased. Which of the following advice to Amir is not correct?

An arrangement of this kind will not be valid unless it is evidenced in (a) writing signed by both Mohsin and Amir.

If it was intended that Mohsin could use the £5,000 for ordinary business (b) expenses while waiting for the printer to be delivered, then this is evidence that there is no trust.

A trust of this kind is known as a (c) Quistclose trust.

If Mohsin is found to be holding the money on trust for Amir until the (d) purpose has been fulfilled, then it is Amir’s own money, and he will not be treated as an unsecured creditor.

Question 14

Which of the following purposes is not charitable under the Charities Act 2006?

A trust to promote healthy eating. (a)

A trust to provide speech therapy to children whose parents were unable (b) to pay for private therapy.

A trust to campaign for a reversal of the law banning smoking in public (c) houses.

A trust to support the City of Birmingham Symphony Orchestra. (d)

Question 15

Which of the following statements about fiduciary duties is not correct?

In order to be liable for a breach of trust, there must be a fiduciary duty (a) in the first place.

A trustee owes a fiduciary duty to the beneficiaries of a trust. (b)

A director of a company owes a fiduciary duty to the company. (c)

A person cannot owe a fiduciary duty to a company unless they have (d) been formally appointed as a director.

Question 16

Annabel writes in her will that she would like her trustees, Ben and Charlie, to hold £250,000 on trust for her children, Dominic and Edward, in equal shares. What kind of trust is this?

A discretionary trust. (a)

A fixed trust. (b)

L31 CPD © ITC 5


A secret trust. (c)

A constructive trust. (d)

Question 17

Which of the following statements about the decision in Dubey v HM Revenue and Customs is not correct?

The case was about the collapse of Madina Express. (a)

In deciding whether there was a trust, the court was not permitted to (b) take into account the distress suffered by the company’s customers.

Customers who had already paid for vouchers and hampers were (c) unsecured creditors.

The business model was inconsistent with the existence of a trust (d) relationship.

Question 18

Which of the following statements is correct?

An injunction is an order to perform the terms of a contract. (a)

Injunction is a common law remedy, available if equitable remedies are (b) not adequate.

An injunction is an order to do or refrain from doing a particular act (c)

Injunctions are an automatic remedy. (d)

Question 19

Evidence of the intent to create a trust of personal property can come from:

Spoken words. (a)

Written words. (b)

Conduct. (c)


Question 20

The House of Lords stated in Stack v Dowden that the best device for resolving disputes about the ownership of the family home after an unmarried couple split up was:

A purchase money resulting trust. (a)

By applying the equitable doctrine of “equality is equity”. (b)

The presumption of advancement. (c)

A common intention constructive trust. (d)

L31 CPD © ITC6


Question 21

When does a will come into effect?

When it is validly executed. (a)

When it is admitted to probate. (b)

On the testator’s death. (c)

When the testator can no longer manage his own affairs. (d)

Question 22

Which of the following cases involved the validity of a mutual testamentary disposition?

Pettitt v Pettitt(a) .

Olins v Walters(b) .

Antoni v Antoni(c) .

Tribe v Tribe(d) .

Question 23

In Painter v Hutchinson the declaration of trust by Mrs Painter was a sham because:

The beneficiary of the trust was not resident in the UK. (a)

Mr Painter was bankrupt. (b)

The money for the purchase of the house was provided by Mr Painter. (c)

The purpose of declaring the trust was to hide assets from H M Revenue (d) & Customs and Mrs Painter did not really intend the property to be held on trust.

Question 24

Derek has been a member of the Free Yorkshire society for many years. The society is not charitable because it has a political purpose: independence from the rest of the UK. The society has assets worth £3 m, thanks to a number of large legacies and good investment. However, no one has joined the society for many years and Derek is now the only living member. Advise Derek on what is likely to happen to the society’s assets.

The assets will be shared between the estates of all the deceased (a) members of the society.

Derek will take the assets without any restrictions on how he uses (b) them.

The assets will go to the Crown as (c) bona vacantia.

The assets will be transferred to a charity with a similar purpose. (d)

L31 CPD © ITC 7


Question 25

Generally, trustees may not purchase trust property. This rule does not apply in some cases. In which of the following cases will it still apply?

Where the trust instrument authorises purchase. (a)

Where a fair price, determined by an independent person, is paid. (b)

Where leave of the court is obtained. (c)

Where a tenant for life of settled land wants to purchase the freehold. (d)

Question 26

When quantifying the interest under a common intention constructive trust, which of the following factors will not be taken into account?

Discussions between the parties at the time when the property was (a) purchased.

How the couple arranged their day-to-day financial affairs. (b)

The court’s perception of what a fair outcome would be. (c)

The nature of the parties’ relationship. (d)

Question 27

After March 2008, the public benefit requirement applies to charities for the following purposes:

Advancement of education. (a)

Advancement of religion. (b)

Relief of poverty. (c)


Question 28

When is a person permitted to rely on their own illegal purpose to rebut the presumption of a resulting trust?

It is never possible to rely on an illegal purpose. (a)

If the illegal plan was not carried into effect. (b)

Only if the illegal purpose was not carried out (c) and there has been full and genuine repentance.

It is always possible to rely on an illegal purpose. (d)

Question 29

Which of the following statements about the public benefit requirement for charitable trusts is not correct?

L31 CPD © ITC8


Charities are not permitted to charge fees. (a)

Benefits must be balanced against any harm that might result from (b) carrying out the purpose.

People on low incomes must be able to benefit. (c)

Any private benefit must be incidental. (d)

Question 30

Eric is the settlor of a discretionary trust. The trustees have made a payment to a person with whom Eric has fallen out. Is there anything Eric can do about this?

Yes, the payment is a breach of trust because the trustees should have (a) consulted Eric before making any payments under the trust.

No, provided the beneficiary was within the terms of the trust and the (b) trustees properly exercised the discretion that has been given to them.

Not at the moment, but he is permitted to remove the trustees and (c) appoint new trustees in their place.

Eric can apply for a variation of the trust deed so that this cannot happen (d) again.

L31 CPD © ITC 9

Feedback

Question 1

(a) is the correct answer.

An express trust is a trust that has been created voluntarily and deliberately by the settlor. A discretionary trust is a type of express trust, one in which the trust document gives the trustees a discretion as to how to apportion the trust funds between a defined class of beneficiaries.

Question 2

(d) is the correct answer.

An example of an application to protect confidential information is Crowson Fabrics v Rider. The case states clearly that it is not enough for an employer to label information “confidential”: information that is already in the public domain will not be protected and it is not a breach of fiduciary duty for an ex-employee to make use of skills and expertise they have developed through their employment. When applying for an injunction, it is essential that everyone involved acts without delay, as delay (or laches) is a defence. This is true even where the delay is the result of a judge’s own actions. In EE & Brian Smith (1928) Ltd v Hodson, an application was heard within a week of being made but the judge reserved judgment, released his decision a month later and then said a formal order would be drawn up in two weeks. This process was too slow and the injunction was set aside.

Question 3

(b) is the correct answer.

There is no equitable maxim “Equity is fairness”. In the recent case of Stack v Dowden Hale LJ emphasised that equity was based on principle, not vague notions of fairness.

Question 4


See the summary of the Law Commission’s comments in Chapter 5.

Question 5

(c) is the correct answer.

The three certainties required for any express trust to be valid are certainty of intention, subject-matter and objects. Although the settlor of a discretionary trust may provide the trustees with a wish letter, stating how they would like the discretion to be exercised, there is no obligation to do so. For a discussion of wish letters, see Breakspear v Ackland.

Question 6


Although some writers have suggested that the presumption of advancement should be abolished, the decisions in Pecore v Pecore and Antoni v Antoni suggest it still has some relevance. The reason given by the Canadian Supreme Court for limiting it to transfers to a minor child is that the presumption is

L31 CPD © ITC10

Feedback

based on the idea that parents have an obligation to support minor children, and therefore it is more likely than not that a transfer would be a gift. The presumption in favour of a gift is, of course, always rebuttable.

Question 7


Rectification is not available to alter the terms of an agreement, only to correct the written expression of that agreement. Therefore, there needs to be a common understanding of what the document was to achieve.

Question 8


s2 Charities Act 2006 contains the new legal definition of charity.

Question 9


Because the property was in Maria’s name, the onus of proof is upon David, if he claims that he has a beneficial interest. This is an application of the maxim that “Equity follows the law”. Statement (a) is incorrect: unless the presumption of advancement applies, equity will presume that someone who has voluntarily transferred property to another intends to retain a beneficial interest. This is an application of the maxim that “Equity will not assist a volunteer.” Statement (c) is incorrect: where there is a transfer from a parent to their child, the presumption is that it is a gift. Statement (d) is incorrect: fairness to Julia is not a factor to be taken into account.

Question 10


The Law Commission recommended that the scheme would apply to couples who had a child or who had lived together for a certain period.

Question 11


Wish letters are not relevant to fixed trusts, because the trustees do not have any discretion as to how to apportion the trust funds. Wish letters are generally confidential, in line with the principle that trustees do not have to give beneficiaries reasons or an explanation for their exercise of discretion. In Breakspear v Ackland it was held that the principles in Re Londonderry’s Settlement did apply to wish letters.

Question 12


In Stack v Dowden, the property was in joint names but Ms Dowden had paid most of the household expenses throughout her relationship with Mr Stack. She continued working after having children. Their finances were kept completely separate. Ms Dowden was awarded a 60 per cent share in the property.

L31 CPD © ITC 11

Feedback

Question 13


There is no requirement that a declaration of trust must be in writing unless it relates to an interest in land: s53(1)(b) Law of Property Act 1925.

Question 14


A trust campaigning for a change in the law would not be charitable. This is a political purpose and it will not satisfy the requirement that the purpose must be for the benefit of the public or a section of the public.

Question 15


It is not necessary to be appointed as a director in order to owe a fiduciary duty to a company. The defendant in Statek Corporation v Alford was told that he would be appointed a director of Statek but he was never formally appointed. He took part in some transactions that were fraudulent. The court held that because he behaved and was treated as a de facto director, he owed Statek a fiduciary duty.

Question 16


The shares that Dominic and Edward will receive have been determined by the settlor so this is a fixed trust. An example of a discretionary trust would be if the will said that the money was to be held for Dominic and Edward “in such shares as the trustees in their discretion decide”. It is not a secret trust because all the terms of the trust appear on the face of the will. It is not constructive because it was created voluntarily and deliberately.

Question 17


Dubey v HM Revenue & Customs was about the collapse of Farepak.

Question 18


An injunction is a discretionary, equitable remedy, available if common law remedies are not adequate. It is an order to do or refrain from doing a particular act. The answer in (a) refers to an order of specific performance.

Question 19


There are no formalities required to create a trust of personal property, and the evidence of intent to create a trust may come from spoken or written words or even conduct, as in Paul v Constance. The claimants in Azam v Iqbal and Dubey v HM Revenue & Customs unsuccessfully relied on conduct to support an argument that a trust had been created.

L31 CPD © ITC12

Feedback

Question 20


The House of Lords stated in Stack v Dowden that the best device for resolving disputes about the ownership of the family home after an unmarried couple split up was a common intention constructive trust. This was more likely to produce fair results because more factors could be taken into account than with an approach based on resulting trusts.

Question 21


A will comes into effect on the death of the testator.

Question 22


Olins v Walters is a case where a husband and wife executed identical codicils to their wills. The court held that the same principles applied as in mutual wills, but that the appropriate term for the device was a mutual testamentary disposition.

Question 23


The purpose of declaring the trust in Painter v Hutchinson was to conceal assets from H M Revenue & Customs, which was investigating Mr Painter.

Question 24


This is similar to the facts in Hanchett-Stamford v HM Attorney General. Under the contract-holding approach to disposal of the assets of an unincorporated society, if there is only one member left, that member takes the assets. As the society no longer exists, there would be no restrictions on the use of the assets.

Question 25


Even purchases at full market value have been set aside: Wright v Morgan.

Question 26


The court is not permitted to apply its own view of what a fair division of the property would be: Stack v Dowden.

Question 27


L31 CPD © ITC 13

Feedback

Before the Charities Act 2006 came into effect, trusts for the relief of poverty were an exception to the public benefit requirement: Dingle v Turner. The Act removes this exception and the public benefit requirement now applies to all charities, whatever their purpose.

Question 28


The rule that a person may rely on their own illegal purpose if the plan was never carried out was set out in Tribe v Tribe. It was applied recently in Painter v Hutchinson.

Question 29


In the guidance issued by the Charity Commission for England and Wales on the operation of the public benefit requirement (Charities and Public Benefit: Summary Guidance for Charity Trustees, Charity Commission, January 2008), the Commission stated that it is not inconsistent with charitable status to charge fees, so long as they are reasonable and necessary for carrying out the charity’s aims. The important issue will be whether the charge restricts who may benefit.

Question 30


Once the trust has been completely constituted, the trust property is no longer under the control of the settlor. If the trustees have been given a discretion, they are required to exercise that discretion themselves. The settlor cannot direct them how to do it.

Equity and Trusts - CILEx L31 EQUITY.pdf · held on trust and was not part of the company’s wider...

Documents

Transcript of Equity and Trusts - CILEx L31 EQUITY.pdf · held on trust and was not part of the company’s wider...