Equity and Trusts

(a) Xavier is the beneficiary under a trust with trustees, Alan and Bernard who are the registered owners of 1,000 shares in Pluto Ltd, a company with an issued share capital of 2,000 shares. Xavier orally directed the trustees to hold 10 per cent of the company’s shares for the benefit of Yuri.

(b) Xavier verbally declares himself a trustee of his beneficial interest in 50 shares in Pluto Ltd for Zeus absolutely.

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(a) This is a verbal direction by X and an intended ‘disposition’. The effect is that the transfer is unenforceable because the formal requirements for such a transfer have not been complied with. (1) Confusion and inaccurate statement of the law as to the effect of non-compliance with s 53(1)(c) of the LPA 1925. If, in the future, X were to execute a document acknowledging the directions given to the trustees the court may apply the maxim, ‘equity will not allow a statute to be used as an engine for fraud’ and enforce the direction from the date of the verbal direction. (2) Confusion as to the use of the maxim, 'equity will not allow a statute to be used as an engine for fraud'.

The fact that X does not identify the shares that are subject to the direction given to the trustees has the effect that the intended trust is void for not satisfying the test for certainty of subject matter. The test is whether the court may identify the intended trust property. Failure to clearly identify the shares will be conclusive that no trust has been created. The rule that equity will not assist a volunteer is applicable to the transaction. (3) Incorrect and vague statement of the law regarding certainty of subject matter.

Key points

• No narration of the requirements of s 53(1)(c) of the LPA 1925.
• No analysis of the issues involved in the question.
• No attempt to state the relevant principles of law before applying these to the facts of the problem.
  

(b) A declaration of trust is a ‘disposition’ within the formal requirements. Thus, X’s oral self-declaration of trust of 50 shares in Pluto Ltd in favour of Z fails to comply with the formal requirements and is, therefore, void. The effect is that the declaration of trust will be too vague to constitute a valid trust. Accordingly, X may retain the shares.

A point to note is whether the oral intended self-declaration of trust of 50 shares from a portfolio of 1,000 shares satisfies the test for certainty of subject matter. The issue is which 50 shares in Pluto Ltd was intended to be subject to the trust? (4) The test for certainty of subject matter has not been stated. This issue was discussed fully in (a) above, where it was submitted that the shares are required to be identified by reference to the share certificate numbers, see Knight v Knight. (5) Incomplete answer on certainty of subject matter.

Key points

• No analysis of the legal issues.
• Omission to deal with whether a self declaration of trust of part of an equitable interest may constitute a disposition.

Case references
Knight v Knight (1840) 3 Beav 148
Re Goldcorp Exchange [1995] 1 AC 74
Grainge v Wilberforce (1889) 5 TLR 436
Grey v IRC [1960] AC 1
Re Harvard SEC (1997) The Times 18 July
Hunter v Moss [1994] 1 WLR 452
Re Lashmar [1891] 1 Ch 258
Re London Wine [1986] PCC 121
Onslow v Wallis (1849) 1 Mac & G 506
Oughtred v IRC [1960] AC 206
Re Staplyton [1994] 1 WLR 1181
Timpson’s Executors v Yerbury [1936] 1 KB 645