Equity and Trusts

Private trust

A private trust is a non-charitable trust.

Express trust

An express trust is a trust that has been expressly created by a settlor, as opposed to being implied by law or arising as a result of statutory provisions.

Implied trust

An implied trust, or a trust implied by law, is a trust which arises when a person obtains legal title in such circumstances that equity requires that the some or all of the beneficial interest is held on trust for someone else. There are two types of implied trust: resulting trusts and constructive trusts.

Resulting trust

A resulting trust is an implied trust which is imposed on the basis of the presumed intention of the parties. For example, it has traditionally been the case that if land is conveyed into one person’s name but another person has contributed to the purchase price, a resulting trust will arise whereby the legal owner will become a trustee and the non-legal owner will obtain a beneficial interest in proportion to his contribution. Resulting trusts also commonly arise as a consequence of a failed attempt to create an express trust. Such trusts are often called automatic resulting trusts. For example, if there is an attempt to create an express trust but it is not clear who the beneficiaries are then, although legal title goes to the trustees, the trust cannot be performed. Therefore, a resulting trust will arise in favour of the settlor (or, if he is dead, his next of kin) as it is presumed that it must have been the intention of the settlor that, should the trust be defective, the property ought to be returned to him.

Constructive trust

A constructive trust is another type of implied trust. A constructive trust arises when a person obtains legal title in circumstances in which it would be unconscionable (fraudulent in equity) for him to deny another party a beneficial interest in that property. There are many examples of types of constructive trust, most of which are covered in subsequent chapters of this book. For example, a constructive trust may arise when land is conveyed into one person’s name, and another person is cohabiting. If it was the common intention of both parties that the non-legal owner should acquire a beneficial interest in the land, but no express trust was properly declared, and the non-legal owner acts to their detriment in reliance on this common intention (e.g. spends money renovating the house) then a constructive trust will arise in the non-legal owner’s favour.

Fixed trust

A fixed trust is an express private trust in which the beneficiaries all have fixed shares in the beneficial interest in the property. Trustees under a fixed trust have a mandatory duty to hold the trust property and distribute it in accordance with the trust’s terms in the shares stipulated. Each beneficiary can, subject to any additional terms of the trust (e.g. an age restriction), claim his share of the trust property once he has reached the age of majority (18). Note that if the trust property is not of a type that can be divided up easily (e.g. land), then, if an adult beneficiary claims his share, a dispute may well arise over whether the property is to be sold. Ultimately, such disputes will be resolved by the courts (in the case of land, see Trusts of Land and Appointment of Land Act 1996, s 14).

Discretionary trust

A discretionary trust is an express private trust in which the trustees must distribute the trust property amongst a class of beneficiaries but are given a discretion as to how this is done. Just as is the case with fixed trusts, the trustees are under a mandatory duty to perform the trust. In the case of a discretionary trust, however, the trustees must merely exercise their discretion in order to perform this mandatory duty. An individual beneficiary under a discretionary trust can force the trustees to perform the trust, but cannot claim a specified share, or indeed any share, in the trust property; although a beneficiary under a discretionary trust has the right to insist that the trustees perform the trust, in so doing, the trustees may not select the beneficiary in question to take a share of the trust property.

1. I leave £40,000 to Davinder for him to hold on trust. He shall distribute the money within 15 years of the trust coming into operation among whichever of my nephews and nieces as he shall in his absolute discretion, think fit

This is a discretionary trust because the language is mandatory (‘he shall distribute’– see McPhail v Doulton [1971] AC 424). The discretionary trust is exhaustive as Davinder has been given no power to accumulate. Davinder, therefore, must exercise his discretion and make the distributions within the stipulated period. Thus, any of the potential beneficiaries (the nephews and nieces) may compel him to exercise his discretion (Vestey v. IRC (No. 2) [1979] Ch 198), but in so doing he may choose to distribute to beneficiaries other than the beneficiary who has insisted on distribution.

2. I leave £40,000 to Shahida to hold on trust. She may, within a ten-year period, distribute the income arising from the fund among whichever of my grandchildren as she thinks fit. After ten years, the fund is to go to the RSPCA.

Shahida is clearly a trustee because she is holding the property on fixed trust for the RSPCA. She has been given no discretion as regards the capital and thus she must make the distribution after ten years, and can be forced to do so by the RSPCA. She has also been given a power of appointment (she is told that she ‘may’ distribute the income – this is discretionary language – see McPhail v Doulton & Re Sayer [1957] Ch 423). As she is a trustee, it is a fiduciary power of appointment. She is under no obligation to exercise the power but, because she has been given the power in her fiduciary capacity, she must, from time to time, consider whether or not to exercise it (see Re Hay’s ST). Thus, any of the potential appointees (the grandchildren) can compel her to consider periodically whether or not to exercise her discretion, but not to actually make distributions.

3. I leave £40,000 to Dennis to hold on trust. He shall distribute the income amongst whichever of my cousins in such amounts, if any, as he sees fit. He may accumulate any income that is not disposed of.  He shall distribute the capital amongst whichever of my children as he shall think fit.

Dennis is holding the capital on discretionary trust in favour of the children (‘he shall distribute’ is an example of mandatory language – see McPhail v Doulton). The discretionary trust is exhaustive as Dennis has been given no power to accumulate. He must therefore make the distributions within the perpetuity period. Thus, any of the potential beneficiaries (the children) may compel him to exercise his discretion (Vestey v IRC (No. 2), but in so doing he may choose to distribute to beneficiaries other than the beneficiary who has insisted on distribution.

Dennis is also a discretionary trustee in relation to the income (note again the mandatory language). He has been given a power to accumulate in relation to the income so this is a non-exhaustive discretionary trust. As he is holding the income on discretionary trust, he is under a mandatory duty to exercise his discretion. In so doing, however, he may elect to accumulate. Thus, any of the potential beneficiaries (the cousins) may compel him to exercise his discretion (Vestey v IR. (No. 2), but in so doing he may choose to distribute to beneficiaries other than the beneficiary insisting on distribution. Alternatively, he may choose to accumulate and make no distributions.

4. I leave £40,000 to Verity to hold on trust. She shall distribute the fund within ten years among whichever of my children as she thinks fit. Whilst she is holding the property on trust she may, in her absolute discretion, distribute any income arising from the fund among whichever of my nephews and nieces as she thinks fit.

Verity is a trustee under a discretionary trust in favour of the children (she shall distribute’ is an example of mandatory language- see McPhail v Doulton). The discretionary trust is exhaustive as Verity has been given no power to accumulate. She must therefore make the distributions within the specified period. Thus, any of the potential beneficiaries (the children) may compel her to exercise her discretion (Vestey v IRC (No. 2), but in so doing she may choose to distribute to beneficiaries other than the beneficiary who has insisted on distribution.

Verity has also been given the power to distribute the income amongst the nephews and nieces (she is told that she ‘may’ distribute the income – this is discretionary language – see McPhail v Doulton & Re Sayer). As she is a trustee, it is a fiduciary power of appointment. She is under no obligation to exercise the power but, because she has been given the power in her fiduciary capacity, she must, from time to time, consider whether or not to exercise it (Re Hay’s). Thus, any of the potential appointees (the grandchildren) can compel her to consider periodically whether or not to exercise her discretion, but not to actually make distributions.

5. I leave £40,000 to Andrea to hold on trust for my wife Alfaas for life. Alfaas may distribute the remainder amongst any of my children in such amounts if any as she sees fit.

Andrea is a trustee under a fixed trust. The trust is fixed because she has been given no discretion as regards the distribution of the property. Alfaas has been given a bare or personal power of appointment; she has been given the authority to allocate property that she does not own (although she has a life interest, she cannot be regarded as the ‘owner’ of the money as she cannot claim any capital), and she is not holding the property in question on trust. Alfaas is under no obligation whatsoever to exercise her power. The potential appointees (the children) can thus take no action if she chooses to ignore the power (Re Hay’s ST [1982] 1 WLR 202). If Alfaas dies without having exercised the power of appointment, the £40,000 and any remaining income will be returned to Andrea’s estate by way of resulting trust.

A sensible introduction:

• What is a resulting trust?
  • Type of implied trust
  • Derives from Latin resalire
  • A means by which the equitable interest in property may be returned to a person.
• Lord Browne Wilkinson’s classification:
  • Category A – voluntary payments and contributions to the purchase price of property
  • Category B – where an express trust fails to dispose of the whole beneficial interest
  • Note that Lord Browne-Wilkinson considered both types to be based on the presumed intention of the parties.

Consider the categories of resulting trusts in more detail, ensuring that you refer to any relevant controversial issues, and that you consider any viewpoints that are contrary to that of Lord Browne-Wilkinson.

• Category A resulting trusts:
  • Include voluntary transfers, situations where A pays some or all of the purchase price of property conveyed into B’s name, or into the names of A and B
  • These trusts are clearly based on a presumed intention (which may be rebutted by appropriate evidence)
  • Explain the types of category A resulting trusts in a little more detail:
    • See Re Vinogradoff [1935] WN 68
      • Explain the meaning of the presumption of advancement and how it operates, and the decline in its significance (also the effect of the Equality Act 2010, s 199)
• Category B resulting trusts:
  • Sometimes called automatic resulting trusts
  • More controversial than Category A resulting trusts
    • In Re Vandervell’s Trusts (No. 2) [1974] Ch 269 at 289, Megarry VC opined that these trusts arise by operation of law independently of any presumed intention of the parties
    • Lord Browne-Wilkinson, in Westdeutsche, took the view that both category A and B resulting trusts operated on the basis of the presumed intention of the parties
    • See also the comments of Lord Millett in Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 at 1412, which seek to reconcile the two above views
    • Give an opinion regarding which view you find most compelling
    • Examples of when category two resulting trusts may arise:
      • Where the beneficial interest is not exhausted: Vandervell v IRC [1967] 2 AC 291- a complex case- you need to summarise the facts in order to explain fully why the resulting trust arose
        • Re Vandervell’s Trusts (No. 2) [1974] Ch 269 – again, a complex case – you need to summarise the facts in order to explain fully why the resulting trust ended
        • Be prepared to mention the controversial nature of these judgments, particularly Vandervell (No.  2).
    • Examples of the arising of category two resulting trusts:
      • Explain the obvious examples of attempts to create trusts, but with uncertain objects, trusts which violate the beneficiary principle, and cases such as Boyce v Boyce (1849) 16 Sim 476
      • Vandervell v IRC [1967] 2 AC 291– a complex case – you need to summarise the facts in order to explain fully why the resulting trust arose
        • Re Vandervell’s Trusts (No. 2) [1974] Ch 269 – again, a complex case – you need to summarise the facts in order to explain fully why the resulting trust ended
        • Be prepared to mention the controversial nature of these judgments, particularly Vandervell (No. 2).
      • Quistclose-resulting trusts:
        • Based on the judgment in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 – explain and analyse this decision with reference to the facts as well as the judgment
        • Refer to the controversies regarding the precise type of resulting trust that is imposed (Lord Wilberforce’s argument in Quistclose based on there being two trusts, cf Lord Millett’s argument in Twinsectra Ltd v Yardley [2002] UKHL 12 based on there being one trust)
        • See also Hussey v Palmer [1972] 1 WLR 1286 – note Lord Denning’s controversial comments, suggesting that the lines between resulting and constructive trusts ought to be blurred – this is contrary to Lord Browne-Wilkinson’s view.

A sensible conclusion – ensure that you include some concluding comments which indicate whether you agree with the classification proposed by Lord Browne-Wilkinson.

A sensible introduction:

• What is a constructive trust? One which arises in circumstances in which ‘it would be unconscionable for the owner of property (usually, but not necessarily, the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another’ (Paragon Finance v D B Thakerar & Co (A firm) [1999] 1 All ER 400 per Millett LJ).
• Lord Millett’s category one constructive trusts – where the party in question had assumed the role of constructive trustee by a lawful transaction which occurred prior to the breach of trust which is being complained of
• Lord Millett’s category two constructive trusts – where the constructive trust arises as a result of the breach which is being complained of.

Consider these two categories of constructive trusts in more detail, ensuring that you explain the reason why the trusts in question arise:

• Category one constructive trusts:
  • arise when someone who has informally become a trustee acts in breach of that trust (usually by seeking to deny it and claim as absolute owner of the property in question)
  • such a breach is treated by equity as unconscionable, hence the imposition of the constructive trust
  • examples of such trusts include secret trusts (according to some commentators, at least), trusts imposed under the rule in Rochefoucauld v Boustead [1897] 1 Ch 196 and trusts involving the ‘Pallant v Morgan equity’ – such trusts are considered in later chapters, so are not mentioned any further in this chapter
  • constructive trusts involving the family home, called common intention constructive trusts, are excellent examples of this type of trust
  • the leading case on the requirements for common intention constructive trusts is Lloyds Bank v Rosset [1991] AC 107:
    • the requirements are that there was a common intention (express or inferred) between the legal and non-legal owners that the non-legal owner would acquire an interest, and that the  non-legal owner relied to his detriment on this common intention, making it unconscionable for the legal owner to deny him an interest
    • express words may create a common intention – see Eves v Eves, Grant v Edwards, and Hammond v Mitchell – once such words are proven, detrimental reliance must be demonstrated
    • the courts may infer a common intention from the conduct of the parties, but only direct contributions to the purchase price of the property will allow the court to draw such an inference (Lloyd’s Bank v Rosset, although note the obiter comments in Stack v Dowden [2007] UKHL 17)

Note also the similarity between inferred common intention constructive trusts and resulting trusts

• Category two constructive trusts:
  • arise when a fiduciary breaches a fiduciary duty
  • such breaches have long been considered frauds by equity
  • according to Millett LJ, the constructive trustee in such circumstances never actually becomes a trustee – he is merely treated as one to satisfy the demand of justice and good conscience
  • Explain what a fiduciary is (see definition in Bristol & West Building Society v Mothew [1998] Ch 1 per Millet LJ). Examples include trustee and beneficiary, company director and company, solicitor and client, doctor and patient
    • Fiduciaries owe a core duty of loyalty – equity abhors the possibility of conflicts of interest and duty because of the chance that a fiduciary may act in his personal interest at the expense of his duty
    • Fiduciaries, in summary, must act in good faith and avoid:
      • making profits from the fiduciary relationship
      • putting themselves in positions where there is a conflict of interest and duty
      • acting for their own benefit without the consent of the principal
  •  Examples from case law should be explained and analysed
    • Examples of equity’s strict approach towards imposing constructive trusts on fiduciaries include, Keech v Sandford (1726) 2 Eq Ab 741, Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 and Boardman v Phipps [1967] 2 AC 46:
      • these are all cases in which, despite their honest intentions, the fiduciaries in question were all held to be constructive trustees
      • reference to the facts of these cases would assist in the analysis
      • note the more lenient decision in Queensland Mines Ltd v Hudson (1978) 18 ALR 1, which concerned a company director.
      • it has recently been questioned whether such constructive trusts should be imposed when the fiduciary ‘has acted in perfect good faith and without any deception or concealment, and in the belief that he was acting in the best interests of the beneficiary’ Murad v Al-Saraj [2005] EWCA Civ 959 at para. 82 per Arden LJ.
• The question of whether English law allows for a remedial constructive trust should also be considered in light of Millett LJ’s classification:
  • What is a remedial constructive trust?
  • Explain how this differs conceptually from the two categories recognised above:
    • see Lord Denning’s judgments in Eves v Eves [1975] 1 WLR 1338 and Hussey v Palmer [1972] 1 WLR 1286
    • the remedial constructive trust was rejected in Re Polly Peck International plc (in administration) (No. 2) [1998] 3 All ER 812, at least in cases where the imposition of such a trust would circumvent the statutory rules of priority in insolvencies
• A sensible conclusion

Ensure that you summarise your view as to the reason for the imposition of the constructive trusts in both of Millett LJ’s categories.

Sensible introduction

• Explain in outline the meaning and effect of s 53(1)(c)
• The question requires detailed analysis of the case law on the meaning of ‘disposition’ under s 53(1)(c)
• This question requires detailed analysis of a relatively small number of cases with complex facts and judgments.

Grey v IRC [1960] AC 1

• Grey is authority that if the trustees themselves are instructed by the beneficiary to transfer the beneficial interest to someone else, this is a disposition for the purposes of s 53(1)(c) and will be void if not in writing
• The judgment and its facts should be explained and analysed.

Vandervell v IRC [1967] 2 AC 291

• Vandervell is authority that an oral instruction from a beneficiary to his trustee to transfer simultaneously the beneficiary’s equitable interest and the trustee’s legal title to a third party, thereby giving the third party an absolute interest in the property, is not a disposition for the purposes of s 53(1)(c) and thus need not be in writing.

• The judgment and its facts should be explained and analysed.

Re Vandervell’s Trusts (No. 2) [1974] Ch 269

• Vandervell (No. 2) is authority that, if a new trust is declared by a trustee at the behest of the beneficiary, this may serve to transfer the beneficial interest to the beneficiary under the new trust without writing.
• The facts and judgment should be analysed and it should be recognised that this is a particularly controversial judgment.

 There are several cases concerning whether an oral, specifically enforceable, contract for the sale of a beneficial interest (e.g. an oral contract for sale of the beneficial interest in shares in a private company) is a disposition for the purposes of s 53(1)(c)

• By virtue of s 53(2), constructive trusts are exempted from the requirements of s 53(1). It is arguable that, when a specifically enforceable contract as described above is entered into, the beneficial interest passes to the purchaser by way of a constructive trust. Thus, a beneficial interest may in this manner be transferred without s53(1)(c) being satisfied.
• Oughtred v IRC [1960] AC 206
  • The House of Lords, in a majority decision, suggested that such a contract is a disposition for the purposes of s 53(1)(b) and is not capable of transferring the beneficial interest without some writing.
  • Note the very strong dissenting opinion of Lord Radcliffe that an oral specifically enforceable contract can transfer a beneficial interest without need to satisfy s 53(1)(c).
• Lord Radcliffe’s reasoning has recently been followed in a number of cases. See, for example, Re Holt’s Settlement [1969] 1 Ch 100, Neville v Wilson [1997] Ch 144 and Singh v Anand [2007] EWCA 3346 (Ch).

Consideration could also be given to the question of whether, if a beneficiary declares himself trustee of his equitable interest, this is a disposition for the purposes of s 53(1)(c) – see Re Lashmar [1891] 1 Ch 258.

A sensible conclusion should be included, emphasising whether the courts have been consistent in their approach to the difficult questions raised by the transactions to which Lord Wilberforce was referring in the quote.

• A sensible introduction should be included, explaining the meaning of the term, ‘fiduciary’ and the underlying duty to act in good faith in the best interests of the beneficiaries.
• The following fiduciary duties should be discussed:
  • Not to make a profit – Williams v Barton [1927] 2 Ch 9 – mention all of the exceptions (especially s 29 Trustee Act 2000) and the court’s inherent power to award remuneration, as in Boardman v Phipps, O’Sullivan v Management Agency and Music Ltd [1985] QB 428) – this rule is intended to prevent the trustee from acting in his own interests at the expense of the interests of the beneficiaries, but cannot really be said to be particularly onerous – there are so many exceptions
  • A trustee must not delegate the trust – again, a rule that is intended to prevent the trustee from acting in his own interests at the expense of the interests of the beneficiaries, but again, cannot really be described as being onerous- there are many exceptions (eg TA 2000, ss 11 and 15)
  • The self-dealing rule – because of the danger of a conflict of a trustee’s interest and duties, if a trustee purchases property from the trust, the transaction is voidable at the insistence of the beneficiaries – see Campbell v Walker (1800) 5 Ves Jun 678, Kane v Radley-Kane [1999] Ch 274
  • Good faith on the part of the trustee is irrelevant. With the exception of Holder v Holder [1968] Ch 353, the self-dealing rule has been rigorously applied
  • The fair dealing rule applies when a trustee purchases a beneficial interest from a beneficiary – this rule is far less stringent than the self-dealing rule:
  • If a trustee who has purchased may prove that the transaction was at arm’s length (i.e. in good faith), then the court will not set aside the transaction. See Dougan v MacPherson [1902] AC 197 and Coles v Trecothick (1804) 9 Ves 234.
• A trustee may not set himself up in competition with the trust – this negative obligation  has been strictly applied to prevent conflicts of interest and duty – see Re Thomson [1930] 1 Ch 203 – good faith is irrelevant to the application of this duty.
• A trustee may not incidentally profit from his position – this negative equitable obligation has been very strictly applied. The courts have been very strict indeed in ensuring that a trustee may not make incidental profits from his position:
  • Leading case Keech v Sandford (1726) Sel Cas Ch 1 – Lord King LC applied the rule where a trustee renewed a lease for himself that had previously been held on trust for the beneficiary
  • The rule has also been applied to the purchase of the reversion by a trustee (see, e.g., Protheroe v Protheroe [1968] 1 All ER 1111)
  • The rule applies to all fiduciaries, not just trustees (see, e.g., Guinness plc v Saunders [1990] 2 AC 663 and Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
  • The rule has been strictly applied, even when the trustee makes a substantial profit for the trust and acts in good faith, but also happens to make a profit (see Boardman v Phipps [1967] 2 AC 46, Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134)
• c.f. Queensland Mines v Hudson (1978) – a Privy Council case concerning a company director, rather than a trustee. This decision is difficult to reconcile with the strict approach evident in other cases. See also the comments in Murad v Al-Suraj [2005] EWCA Civ 959.

A sensible conclusion should be included, summarising the fiduciary duties and their nature and scope.

Property purchased by Valerie:

• This is self-dealing- such a transaction is always voidable at the insistence of the beneficiaries – good faith on the part of the trustee is irrelevant. The transaction will therefore be set aside if the beneficiaries insist – the trust will retrieve the house (but must pay back the £350,000 with interest)
• Cases such as Campbell v Walker, Tito v Waddel, Kane v Radley-Kane are relevant.

Purchase of the remainder interest:

This would fall within the fair dealing rule:

• When a trustee purchases a beneficial interest from a beneficiary, or when a trustee purchases trust property with the permission of the beneficiaries:
  • if a trustee who has purchased can prove that the transaction was at arm’s length (i.e. in good faith), then the court will not set aside the transaction
  • see Dougan v MacPherson [1902] AC 197 and Coles v Trecothick (1804) 9 Ves 234
  • very similar to Dougan v MacPherson – this transaction was not at arm’s length, and will be set aside.

Money claimed by Valerie & Sara:

• Trustees may claim ‘expenses properly incurred’– s 31(1) of the Trustee Act 2000
• Payment – trusteeship is an unpaid office – none of the exceptions are likely to apply here. They must account for the £500 and will hold as constructive trustees for the trust.

Marina’s business:

• She is in competition with the trust – again – as this is a conflict of interest and duty (Re Thomson). The court may issue an injunction to prevent her from setting up the business. She will be required to account for profits and hold them on constructive trust for the trust.

• Introduction: explain the duty to invest, that trustees need powers of investment in order to perform this duty, and from where the trustees get these powers (either statute (TA 2000, s 3, general power of investment) or the trust instrument). Mention s 4 (standard investment criteria, s 5 (duty to seek advice), s 8 (acquisition of land), s 1 (duty of care), and the portfolio theory. Also explain that, as fiduciaries, trustees must always act in the best interests of the beneficiaries, and that most trusts are set up for financial purposes – therefore, their best interests are generally their best financial interests
• Explain the context of the statement – a brief description of the facts of Cowan would be appropriate – why did Sir Robert Megarry make the statement? Were the best financial interests of the beneficiaries in Cowan their best financial interests?
• Explain that the statement is accurate in general – you could cite authorities such as Buttle v Saunders and Martin v Edinburgh DC as further evidence that, at least as far as the courts are concerned, the best interests of the beneficiaries are normally their best financial interests
• You could also specifically comment on whether the Trustee Act 2000 has any bearing on the statement – Cowan was decided before the TA 2000 came into force. Mention s 4 and the Lord Chancellor’s explanatory notes – Cowan is still good law
• Perhaps you could question whether Cowan was a correct decision – undoubtedly the statements of law are correct, but did political considerations find their way into the judgment?
• You also need to consider the exceptions to the general rule – when a beneficiary’s best interests are not necessarily his/her best financial interests:
  • In Cowan, Sir Robert Megarry did not rule out ethical investment policies if all beneficiaries were of full age and in agreement – the reasoning presumably being that if all of the beneficiaries (if sui juris) tell the trustees what their best interests are, then this ought to be conclusive.
  • If an unethical investment is contrary to the purpose of the trust (e.g. cancer charity investing in tobacco companies). This exception only seems to apply to charitable trusts, and only then if an alternative range of suitable alternative investments is available to ensure that the profitability of the trust is not compromised (See Harries v Church Commissioners for England).
  • If the trust instrument allows for ethical investments then this is also acceptable.
• A sensible conclusion, probably along the lines that the statement is an accurate one, but subject to certain exceptions.

Michael:

• Has met contingency – his gift is vested, but is also subject to a life interest. Can he have an advancement? (Note that the trust instrument may provide or prohibit powers of maintenance and advancement – any such provisions will be conclusive).
• The Trustee Act 1925, s 32 provides the default position – trustees have the power to make advancements subject to certain conditions:
  • s 32(1)(a) maximum of half of a beneficiary’s presumptive share may be advanced – £50,000 – although this much will almost certainly not be required;
  • s 32(1)(b) – a beneficiary who has an advancement must account for the advancement when he becomes entitled to the capital;
  • s 32(1)(c) – the trustees must obtain the written permission of any life tenant- Angela must give her written consent;
  • s 32(1) – any advancement must be for the ‘advancement and benefit’ of the beneficiary – the House of Lords construed ‘benefit’ widely in Pilkington v IRC­ and also held that it was no objection that others also benefited from the advancement, as long as it was for the beneficiary’s benefit. See also Re Kershore’s, and Re Clore’s ST.

• It is likely that the advancement will be of benefit to Michael, so the trustees may make the advancement (NB they cannot be compelled to do so)
• He also asks about income – s 31(3) – as Michael is a remainderman, he may not take any income under s 31.

Barry:

• Note that the trust instrument may provide or prohibit powers of maintenance and advancement- any such provisions will be conclusive.
• The same provisions of s 32 are relevant again (s 32(1)(a),(b),(c) must be applied  and a discussion of ‘benefit’ is necessary).
• As long as the advancement was properly made, it need not be paid back, even though he did not end up meeting contingency – he had not yet failed to meet it when the payment was made.

Richard:

• Has failed to meet contingency, and has no interest in the trust property. The trustees may not pay anything to him from the trust.

Louise:

• Note that the trust instrument may provide or prohibit powers of maintenance and advancement – any such provisions will be conclusive.
• Louise is a contingently entitled minor – s 31(1)(i) of the Trustee Act 1925 – income can be paid to parent for the ‘maintenance, education or benefit’ of the child – so, prima facie, the trustees may pay income for the school fees.
• Does her interest carry the intermediate income (as required by s 31(3)?
  • A contingent pecuniary legacy, prima facie, does not
    • BUT – there is an exception if the legacy is from father to child and the contingency is reaching age of majority – as is the case here – so, as long as there is no other fund set up for Louise’s maintenance, she will be entitled to the intermediate income (see Re George, Re Abrahams), thus, trustees have the power to make payments to her mother.
• NB – NOT to pay her mother’s debts – indeed, if the same principles apply to ss 31 and 32 – the trustees must supervise the application of any income which is paid as maintenance, or face liability for breach of trust (Re Pauling’s).

William:

• Note that the trust instrument may provide or prohibit powers of maintenance and advancement – any such provisions will be conclusive.
• He is a contingently entitled adult under a trust of personalty other than money- his interest will carry the intermediate income (LPA, s 175) thus, s 31(3) will be satisfied. By virtue of s 31(1)(ii), he will be entitled to income – he can therefore claim all income arising from the shares since the trust begun.
• Advancement? Unlikely – s 32 (see above) trustees have discretion; any advancement must be for his ‘advancement and benefit’. The trustees are under no obligation to exercise their power, and this is not for his benefit (see X v X for an example of a proper refusal by trustees to make advancement).

Sensible introduction:

• General rule – a trustee must perform the trust according to its terms.
• If a trustee acts outside of the terms of the trust, he will be in breach of trust – the terms of the trust generally cannot be changed.
• It may be appropriate for the terms of the trust to be varied. This is possible in the following circumstances:
  • with the beneficiaries’ consent;
  • under the court’s inherent jurisdiction;
  • when authorised by statute; and
  • when expressly authorised in the trust instrument.

Variation with the beneficiaries’ consent:

• Possible under the rule in Saunders v Vautier (1841).
• If all beneficiaries are together beneficially entitled and they all are sui juris and all of full age, they may call for the legal title of the trust property.
• They may then terminate the trust completely, or resettle the property on different terms.
• In terms of cost-effectiveness, this is the most desirable method of variation, but it is only limited to trusts with certain types of beneficiaries.

Inherent jurisdiction:

• Leading case – Chapman v Chapman [1954] – the court recognised four situations when it has inherent jurisdiction to vary a trust.
• Conversion jurisdiction: the court has the power to authorise a variation permitting the conversion of personalty to realty and vice versa.
  • Rarely of use today – the Trusts of Land and Appointment of Trustees Act 1996, s 6 and the Trustee Act 2000, s 8 give powers of conversion to trustees unless expressly excluded. See also Trustee Act 1925, s 57 and its application to administrative variations.
• Emergency jurisdiction: the court has a narrow and limited power to authorise a variation to avert an emergency – see Re New [1901] and Re Tollemache [1903].
  • This jurisdiction has been largely superseded by the Trustee Act 1925, s 57.
• Maintenance jurisdiction: if the trust instrument specifies that income be accumulated for beneficiaries, the court may authorise the advancement of income.
  • This jurisdiction has been largely superseded by the Trustee Act 1925, s 53 and, in any event, most modern trusts contain expressly drafted wide powers including powers to maintain.
• Compromise jurisdiction: the court has the power to authorise a variation to approve compromise agreements if beneficiaries who cannot consent for themselves are embroiled in a genuine dispute as to the terms of the trust – this jurisdiction has been used to vary trusts in the past.
• The compromise jurisdiction has, in the past, sometimes been claimed as a general power to vary trusts in resolution of manufactured disputes, especially by Lord Denning – see Re Downshire’s Settled Estates [1953].
• In Chapman,the House of Lords held that the courts only use the compromise jurisdiction in instances where there is a ‘genuine dispute’ and further that, in resolving the dispute, the court can only clarify the beneficial interests.
• The decision in Chapman was very restrictive and was perceived as rendering the law unjust towards those beneficiaries who could not consensually vary a trust (see Allen Distillers Co (Biochemicals) Ltd [1974] and Mason v Farbrother [1983]).
• Overall, the inherent jurisdiction is of little practical importance due to its restricted scope since Chapman and due to various statutory interventions.

Variation of Trusts Act 1958:

• Chapman was so restrictive that the legislature intervened. The Variation of Trusts Act 1958 gives courts the power to approve variations that are for the benefit of beneficiaries who cannot consent for themselves:
  • s 1(1)(a): due to infancy/incapacity;
  • s 1(1)(b): unascertained persons;
  • s 1(1)(c): persons unborn; and
  • s 1(1)(d): contingently interested under protective trust (NB there is no benefit requirement for s1(1)(d)).
• The court can approve variations but not resettlements.
  • How to distinguish between variation and resettlement (see Re Ball’s Settlement [1968], Re T’s ST [1964], and Re Holt’s ST [1969]).

• Consider the meaning of ‘benefit’ for the purposes of s 1 – the court can only approve a variation if ‘the carrying out thereof would be for the benefit of that person’ – what constitutes ‘benefit’?
  • Financial benefit – see Re Windeatt’s WT, Re Seale’s Marriage Settlement, Re Wallace’s ST [1986], Re Weston’s ST
  • Non-financial benefit: e.g. the Protection of trust funds from reckless/immature beneficiaries - Re T’s ST, the avoidance of potential family rifts Re Remmant’s ST
• The court will not vary in following circumstances:
  • When variation would amount to a fraud on a power – Re Brook’s Settlement [1968].
  • If variation would eliminate the protective element of a protective trust: Re Steed’s WT [1960].
• Appears to be the only time a settlor’s intention is significant.

Overall, the VTA has been successful; the courts have construed ‘benefit’ very widely and the Act has effectively filled the void left by the Chapman decision.

Trustee Act 1925 s 57:

• Permits variations of trusts to be sanctioned by the courts when it is ‘expedient’ (on the meaning of this term, see Re Craven’s Estate, Lloyd’s Bank Ltd v Cockburn (No. 2) [1937] Ch 431). The section is limited to the management of the trust (i.e. administrative variations) and does not enable beneficial interests to be varied (see Re Downshire and NBPF Pension Trustees Ltd v Warnock-Smith [2008] EWHC 455 (Ch)). Applications which do not involve variations of the beneficial entitlements should be made under s 57 – such applications are much less expensive, being heard in chambers rather than in open court (see Anker-Peterson v Anker-Peterson (1998) 12 TLI 166). Thus, s 57 is of practical importance. For an example of a circumstances under which s 57 may be relied upon, see Mason v Farbrother.

See also Trustee Act 1925 s 53, Settled Land Act 1925 s 64(1), Inheritance (Provision for Family & Dependants) Act 1975, s 2(1)(f) and the Matrimonial Causes Act 1973, s 24.

Sensible conclusion:

Conclude on how the law has responded to Chapman and whether the current law on variations of trusts is satisfactory in its scope.

• Introduction:
  • Explain the requirements of s 9 of the Wills Act and why secret trusts appear to contravene s 9.
  • What is a secret trust?
  • What are the two types of secret trust?
• The explanation in the quote has been used by those who support variants of the fraud theory, and also those who are in favour of the dehors the will theory.
• The fraud theory – the traditional justification (e.g. in McCormick v Grogan): secret trusts are enforced in order to prevent a secret trustee unjustly enriching himself by using statute (s 9 of the Wills Act) as an instrument of fraud. The quote in the question does strongly suggest that the prevention of fraud plays a role in justifying the enforcement of secret trusts.
  • This theory is limited in several senses:
    • it cannot explain the enforcement of half secret trusts or fully secret trusts when the trustee was honest;
    • it cannot explain why, in all cases of secret trusts, a resulting trust is not imposed in favour of the testator’s estate – this would prevent fraudulent enrichment of the secret trustee – but would not necessitate the enforcement of the secret trust in contravention of s 9.
    • there are problems with the standard of proof required for fraud (see Re Snowden).
• The dehors the will theory – based on the idea that a secret trust is an express inter vivos trust which falls outside of the ambit of s 9 – the quote can be used as justification for this. Trust remains unconstituted until the testator dies – transfer of legal title to the secret trustee constitutes the trust – the more modern view.
  • Currently, the most popular theory – hinted at by the House of Lords in Blackwell, but the full judgments seem to indicate support for the fraud theory.
  • There is some judicial support for this theory (e.g. Cullen v Attorney General, Re Snowden, Re Young).
  • It is not an entirely satisfactory theory:
    • it has comparatively little judicial support;
    • it cannot explain why the Law of Property Act 1925, s 53(1)(b) does not apply to secret trusts involving land (see Ottaway v Norman).
    • See Critchley (1999) 115 LQR 631 for a discussion of both the dehors theory and the fraud theory – she argues that commentators have confused outside the will with outside the Wills Act, and that the dehors theory is ‘fatally flawed’.
    • This theory cannot explain the differing communication requirements for FSTs and HSTs – if the trust is outside the will altogether, why does it matter whether communication of its terms is made after execution of the will?
• Incorporation by reference? Matthews [1979] Conv 360 argues that fully and half secret trusts are completely different: fully secret trusts are enforced to prevent fraud, and half secret trusts are enforced because they are incorporated onto the will by reference. This theory does explain the differing communication requirements, but:
  • it has little judicial support;
  • it cannot explain why orally communicated secret trust, where there is no document to incorporate into the will, are enforced; and
  • it was not mentioned by the House of Lords in Blackwell and is not consistent with the quote in the question.
• An alternative view of the fraud theory: fraud on the testator:
  • The testator has left a legacy to the secret trustee in reliance on the secret trustee’s undertaking to hold the property on trust for the secret beneficiary.
  • If the secret trustee does not do this he perpetrates a fraud on the testator.
  • The testator has, by the secret trustee’s fraud, been deprived of the opportunity to leave the property to the secret beneficiary in another way.
  • It is irrelevant whether secret trustee personally gains from the fraud.
  • All secret trusts are enforced so that s 9 cannot be used as an instrument of such fraud.
    • This is the only way that fraud can be the justification for enforcement of both fully and half secret trusts. This view of fraud seemed to be accepted by the House of Lords in Blackwell. See Howard Hodge [1980] Conv 341.
    • It is also arguable that secret trusts are dehors the will in the sense that they are constructive trusts which are imposed on the legacy to prevent fraud on the testator. This explains why the quote in the question seems to endorse both the fraud and dehors theories – see Allan (2011) 40(4) CWLR 311.
• A sensible conclusion on which (if any) of the justifications proposed are supported by Viscount Sumner’s quote.

Howard and Penny:

• Fully secret or half secret trust?
  • half secret trust (similar to the wording in Blackwell)
• Requirements for a valid half secret trust (Blackwell v Blackwell):
  • Intention? YES – Howard told Penny of his intention.
  • Communication before or contemporaneous with the execution of the will (confirmed in Re Keen)? YES (initially) – he told Penny in 1997 before the will was executed in 1998.
  • Acceptance? YES – even if she was silent (Moss v Cooper).
• BUT in 1999, Howard changed his mind. At this stage the trust is not constituted, so Howard is entitled to change his mind and revoke the secret trust BUT this second communication of the new terms took place after the will was executed. This is not, therefore, a valid communication of the half secret trusts (Blackwell/Keen).
• The half secret trust fails – Penny will hold the £5,000 on resulting trust for Benjamin.

Howard and Horace/Sanjit:

• Fully secret trust.
• Requirements for a valid fully secret trust (Ottaway v Norman):
  • Intention;
  • communication (before the death of the testator); and
  • acceptance.
• the main issue is whether communication was properly made to the intended secret trustees:
  • Sanjit: knows he is to be a secret trustee, but the terms of the secret trust were not communicated to him during his lifetime. This is not good communication (Re Boyes).
  • Horace: full communication was made to Horace. His silence will be taken as acceptance (Cooper v Moss). Horace will certainly be bound.
  • Will the communication to Horace mean that Sanjit is bound? Horace and Sanjit are tenants in common. The rule is that only tenants in common to whom communication has been made will be bound (Re Stead). Only Horace will be bound by the secret trust. Sanjit will not be bound. His conscience is affected because he agreed to be a secret trustee, however, so his share will be held on resulting trust for the estate (Re Boyes).

There are several defences that may be relied upon by a trustee who would otherwise be liable to restore the loss to the trust fund or pay equitable compensation to the beneficiaries in question. This question basically requires you to consider each in turn:

The rule in Hastings-Bass:

• This allowed the courts to set aside the exercise of a discretionary power by trustees in certain circumstances.
• This permitted the trustees to avoid liability as the original position is restored and the trustees may now make a more appropriate decision.
• Courts could intervene in such a manner if a decision of the trustees had unintended consequences which were not taken into account by the trustees when that decision was made.
• See Re Hastings-Bass [1975] Ch 25, Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 – the rule was precisely formulated by Lloyd LJ in Seiff v Fox [2005] 1 WLR 3811 at 3847.
• The scope of the rule has been much reduced by the Court of Appeal decision of Futter v Futter [2011] 3 WLR 19, in which it was held that the rule only may apply when a the decision in question was made by the trustees in breach of their fiduciary duties (which cannot be the case when the trustees have taken legal advice):
  • beneficiaries may sue for negligence in cases where there has been no breach of fiduciary duty, and the trustees will not be able to rely on the rule in Hastings-Bass to avoid liability
  • Note that Futter is to be appealed to the Supreme Court – the judgement is expected in early 2013.

Indemnity by a co-trustee:

• A trustee who is the ‘true’ wrongdoer may be made to indemnify any other trustees who were made to restore the trust fund or pay equitable compensation.
• Cases where the court will permit this will be very rare – see Bahin v Hughes (1886) LR 31 ChD and Chillingworth v Chambers [1896] 1 Ch 685.
• If  two (or more) trustees are equally the wrongdoers, but one has been sued for the entirety of the loss, then he may claim proportionate indemnity from the other guilty trustee(s).

Indemnity from a co-trustee who is a solicitor:

• If the act causing the breach was done by the trustees in reliance on the advice of one of the trustees who is also a solicitor, then the solicitor may be liable to indemnify his fellow trustees if they are successfully sued in respect of the breach – see Lockhart v Reilly (1857) 1 De G & J 464.

Indemnity from a co-trustee who is also a beneficiary:

• Beneficiary-trustees will generally be liable to indemnify their co-trustees – see Chillingworth v Chambers [1896] 1 Ch 685.

Participation by a beneficiary in, or consent by a beneficiary to, a breach of trust:

• To consent, a beneficiary must:
  • be of full age and sui juris;
  • have consented or participated freely; and
  • have sufficient knowledge of the breach – see Re Pauling’s Settlement Trusts [1962] 1 WLR 86.

Ratification of the breach by the beneficiaries:

• Beneficiaries who are of full age and sui juris with sufficient knowledge of a breach may, together, give their retrospective consent to a breach.

Impounding of beneficial interests:

• Now governed by the Trustee Act 1925, s 62:
  • the court may impound the beneficial interest of a beneficiary as it sees fit when a trustee has committed a breach ‘at the instigation or request or with the consent in writing of a beneficiary’;
  • the impounded interest is therefore protected so that it can be used to indemnify the trustees as appropriate.

The court’s statutory discretion to excuse a trustee:

• The Trustee Act 1925, s 61, gives the courts a discretion to excuse a trustee who ‘has acted honestly and reasonably and ought fairly to be excused for the breach of trust’.
• The courts are conservative in their use of the power under s 61 (see Berube v Gudsell [2008] WTLR 2008-16 and Re Pauling’s Settlement Trusts [1962] 1 WLR 86).

The statutory limitation period:

• The Limitation Act 1980, s 21, stipulates a six-year limitation period in respect of actions for breach of trust, except in respect of fraudulent breaches and actions to recover trust property (or the proceeds thereof) from a trustee.
• The precise scope of s 21 and its predecessors has been, and remains, controversial – see Williams v Central Bank of Nigeria [2012] EWCA Civ 415 for a general summary of the application and the scope of s 21.

The doctrine of laches:

• This ancient doctrine applies to delays in bringing actions when in instances where the limitation period does not apply (i.e. fraudulent breaches of trust and actions to recover trust property (or the proceeds thereof) from a trustee).
• The doctrine of laches prevents actions where there has been an unconscionable delay in initiating proceedings.
• See Fisher v Brooker [2009] 1 WLR 1764.

• Stephen could be sued for breach of trust but this would be futile as he is bankrupt.
• Tracing/following and subsequently claiming is a far more appropriate remedy – its proprietary nature means that, if successful, it will defeat the claims of creditors.
• Two types of tracing – equitable and common law. Equitable tracing is appropriate here – it is possible to trace/follow through mixed funds in equity. Also, the beneficiaries here are seeking to claim an equitable interest in property.
• Equitable tracing depends on there being a fiduciary relationship – there certainly is one here.

Edward:

• Money paid to innocent volunteer – prima facie traceable, but Edward seems to have mixed it with his own funds and used it to improve his property – similar to Re Diplock, in which it was held inequitable to trace because it would involve a charge being imposed on the land, enforceable by sale. So CANNOT trace here.
• BUT a personal action, as in Diplock, may be possible as the beneficiaries are underpaid legatees and Stephen is bankrupt.

Kelvin:

• Again, an innocent volunteer. Here, the property is identifiable and can be traced, together with the increase in value (Re Tilley’s).

Money taken by Stephen:

• Paid into his own account, Re Hallett’s Estate – general rule – trustee presumed to have spent his own money first.  Exception – if this would give rise to injustice – Re Oatway. It would cause injustice here because if Hallett’s was applied, £2,000 of the money spent on the shares would have been Stephen’s own, and £2,000 would have been dissipated when spent on the holiday.
• Thus – can trace into the shares, probably together with the increase in value (Re Tilley’s, Foskett v McKeown) (NB note the argument that Re Oatway merely gives beneficiaries a lien over the property and arguably no entitlement to the increase in value).
• The £3,000 left in the account was also trust money. It was paid into another account and mixed with that of another trust
  • Rule in Clayton’s Case – if trust money is mixed with the money of another trust in a current account- the ‘first in, first out’ rule applies. On this basis, the £3,000 taken by Stephen to pay off more debts and use on the binge was the Allen trust’s money and the other £3,000 can be traced.
  • NB – first in, first out presumption easy to rebut if will give rise to injustice. The Allen trust beneficiaries will argue that the £3,000 should be apportioned pari passu. There is quite a lot of authority to support this (Barlow-Clowes International Ltd v Vaughan, Russell-Cooke Co v Prentis). It is likely that the court will probably make them share pari passu. If this is the case, £1,500 can be traced.

Introduction:

• Explain the concept that actions against strangers for breach of trust are personal actions (cf proprietary claims of the type pursued when a beneficial interest is traced).
• Explain that there are two types of claims against strangers – accessory liability and recipient liability – often said to have originated from the judgment in Barnes v Addy (1874) LR 9 Ch App 244.
• The courts have had some difficulties in establishing the appropriate tests for liability.

Accessory liability – often called dishonest assistance:

• Depends on ‘knowingly assisting’ in a ‘fraudulent design’– Agip (Africa) Ltd v Jackson [1991] Ch 547. Therefore, there is a requirement of dishonesty.
• The courts have found it difficult to settle upon a test for this type of dishonesty
• Important cases to consider include:
  • Royal Brunei Airlines v Tan [1995] 2 AC 378 – the relevant intention is that of the stranger, not of the actual trustees (cf Lord Selborne’s formulation in Addy).
    • Explain that Lord Nicholls stated that the test  for dishonesty should be an objective test, but apparently with a subjective element.
  • Twinsectra Ltd v Yardley [2002] 2 AC 164 – clarified that dishonesty requires a ‘dishonest state of mind’– failure to ascertain all material facts does not necessarily constitute dishonesty.
    • Iit was also held that there is a subjective element to the test for dishonesty (similar to that in criminal law), but that the objective standard of honest conduct is the minimum standard required (cf Lord Millett’s strong dissent).
    • This seems inconsistent with Tan – in Tan, the it was held that the test is primarily an objective one.
  • Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd [2006] 1 WLR 1476 – Lord Hoffman expanded upon the notion of dishonesty, choosing not to enquire as to the proprietary of conduct may be contrary to normal standards of honesty (much depends on the circumstances of each case), especially when the stranger’s suspicion has been aroused but takes no further steps. Lord Hoffman also viewed Tan and Twinsectra as consistent on the nature of honesty – this view is debatable.
  • Consider also the recent judgement in Starglade Properties Ltd v Nash [2010] EWCA Civ 1314- the Court of Appeal followed the view that the test for dishonest is primarily objective.
  • Note also the debates over whether the civil and criminal standards for dishonesty should be the same

Recipient liability – often called knowing receipt:

• The requirements for a successful action were set out in El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685.
• Most questions have again revolved around what type of knowledge the stranger must have had that he had received the property as a result of a breach of fiduciary duty.
• In Twinsectra, it was suggested that the defendant’s knowledge can be constructive knowledge (ie he will be deemed to have had knowledge if he ought to have had knowledge). It is not necessary to prove actual dishonesty.
• This was explored in BCCI (Overseas) Ltd v Akindele [2001] Ch 437. The stranger would be liable if, based on his knowledge, it was unconscionable for him to retain property. See also R Montagu’s ST [1987] Ch 264.           
• See the alternative view of Lord Millett in Twinsectra – liability is based on the law of restitution and that, subject to the defence of change of position, liability is strict. See also the criticisms of Akindele in Criterion Properties v Stratford UK Properties [2004] 1 WLR 1846.
• Recipient liability therefore also fairly controversial and plagued by inconsistency regarding the extent to which dishonesty must be demonstrated.

A sensible conclusion:

• Plenty of controversies to conclude upon –which views are more compelling?

The question is really asking whether Katie has acquired an interest in the land.

Briefly consider whether she may acquire an interest under a resulting trust:

• Requirements: direct contribution to purchase price to give rise to a rebuttable presumption that she was intended to take an interest.
• Was there a contribution towards acquisition of legal title in the house? (‘Bricks and mortar’ contribution?)
  • No – her contributions will not be sufficient to establish an interest under a resulting trust.
  • NB – the majority of the House of Lords in Stack v Dowden indicated that resulting trusts are no longer the appropriate means by which such disputes can be resolved

The main issue is whether she could acquire any interest under a constructive trust:

• The leading case on the requirements for common intention constructive trusts is Lloyds Bank v Rosset.
• The requirements are that there was a common intention (express or inferred) between the legal and non-legal owners that the non-legal owner would acquire an interest, and that the non-legal owner relied to his detriment on this common intention, making it unconscionable for the legal owner to deny him an interest.
• Was there a common intention?
  • Express words may create a common intention – ‘no need because the house is just as much Katie’s as mine’.
  • This is similar to cases such as Eves v Eves, Grant v Edwards, and Hammond v Mitchell – such words are sufficient to establish a common intention.
  • Has she relied to her detriment on the common intention?
    • Katie has contributed £2,000 redecoration and £10,000 extension – Mollo v Mollo [1999] – extension and all other contributions do constitute detrimental reliance, as long as common intention found.
• Therefore, Laya will likely be able to claim an interest in the house by way of a constructive trust.
• The final question to ask is how will this interest be quantified? Quantification in such cases is determined on the basis of the common intention of the parties by taking all material considerations into account (Oxley v Hiscock, Stack v Dowden). Specifically, in respect of express common intention constructive trusts, this is known as the ‘broad brush approach (see Drake v Whipp). Thus, matters such as her giving up work may be taken into account in respect of quantification. Katie is likely to be awarded a substantial interest (probably 50%).

• The introduction could include the following matters:
  • Explain the two types of implied trust (resulting and constructive). Both have been used to grant a non-legal owner of land a beneficial interest in that land in the absence of an express trust.
  • Explain that the Law of Property Act 1925, s 53(2) exempts implied, resulting and constructive trusts from the requirements of s 53(1)(b)).
  • Explain that resulting trusts and constructive trusts are quantified in different ways

• Resulting trusts:
  • Explain that resulting trusts are based on the presumed intention of the parties. See Lord Upjohn’s speech in Pettitt v Pettitt [1970] AC 777 at 814 and Lord Neuberger’s speech in Stack v Dowden [2007] 2 AC 432.
  • When a non-legal owner makes a direct contribution to the purchase price of land, he may potentially claim a beneficial interest under a resulting trust.
  • Traditionally, resulting trust interests have been quantified based on the proportion of the purchase money that was contributed by the non-legal owner. The courts have had little flexibility (see Walker v Hall [1984] FLR 126 at 134 (although see Springette v Defoe (1993) 65 P & CR 1).
  • The use of resulting trusts as a means by which a non-legal owner may acquire an interest in the family home is now unfashionable – resulting trusts have largely been superseded by constructive trusts in this context. (NB resulting trusts should still be used in instances where the property has been purchased for investment purposes (Laskar v Laskar [2008] 1 WLR 2695.)
• Constructive trusts:
  • Explain that common intention constructive trusts are the type of constructive trusts used in the context of the family home.
  • The requirements are that there was a common intention (express or inferred- sometimes called Rosset first and second category trusts) between the legal and non-legal owners that the non-legal owner would acquire an interest, and that the non-legal owner relied to his detriment on this common intention, making it unconscionable for the legal owner to deny him an interest – see Lloyd’s Bank v Rosset [1991] 1 AC 107.
  • Resulting trusts have been superseded by Rosset category 2 constructive trusts – when there has been a direct contribution to the purchase price of the property, this is sufficient to establish a constructive trust of this type – the quantification rules are more favourable to the beneficiary under a constructive trust of this type than a resulting trust (for a stark example, see Midland Bank v Cooke (1995) 27 HLR 733).
  • Explain the recent development whereby a common intention constructive trust may be used to vary beneficial interests amongst legal joint tenants of land (Stack v Dowden, Jones v Kernott [2011] UKSC 53).
  • Quantification of constructive trusts, whilst clearly more flexible than quantification of resulting trusts, has long been a controversial issue:
    • it has not always been clear whether the court should quantify in accordance with what is fair or what the parties intended.
  • It seems that the means by which a common intention constructive trust will be quantified depends on whether it was a Rosset Category 1 or 2 trust
  • Category 1 express common intention: as these depend on an actual agreement, the courts may quantify based on what the parties actually agreed – Grant v Edwards [1986] Ch 638:
    • If it is unclear what the parties agreed, the ‘broad brush’ approach will be used – Drake v Whipp (1996) 28 HLR 531– this approach takes into account the entire course of dealing between the parties (including indirect contributions which would not be taken into account in establishing detrimental reliance) to ascertain what was agreed.
  • Category 2 inferred common intention constructive trusts
    • There is no actual agreement between the parties:
    • • In Midland Bank v Cooke, it was held that the courts had a wide discretion to quantify based on the entire course of dealing between the parties.
      • In Oxley v Hiscock [2005] Fam 211, Chadwick LJ endorsed the flexibility of the broad brush approach, but added that the courts should quantify based on what is fair (rather than what sort of agreement is evidenced by the course of dealing).
      • Oxley was endorsed by the House of Lords in Stack v Dowden (cf Lord Neuberger’s judgment which dissented strongly as to the reasoning).
      • In Jones v Kernott,the majority of Supreme Court further developed the principles in Oxley and Stack  (although note that there was not full agreement on this point) that beneficial interests should be quantified according to any agreement that may be inferred by the course of dealing between the parties, but if it is not possible to draw such an inference, then a common intention as regards quantification may be imputed on the basis of what is fair.
• Conclusion: Is the law satisfactory with regard to quantification? Have the courts been consistent in dealing with this issue? Has a desirable solution been reached by the Supreme Court in Jones v Kernott?

1. £25,000 to the vicar of St Peter’s Church, Plymouth, to help him promote enjoyable activities for the enjoyment of his parishioners

• Is the purpose charitable within any of the 13heads in s 3(1)(a)–(m) of the Charities Act 2011? It will, prima facie, fall within s 3(1)(c) – advancement of religion.
• Public benefit? Requirement under s 2(1)(b). Explain the effect of s 4 and the requirement in s 17 that the Charity Commission provide statutory guidance as to the operation of the public benefit test. The statutory guidance – both principles must be satisfied:
  • Principle 1 – there must be an identifiable benefit- as long as these purposes are charitable (see below), it will not be difficult to demonstrate that they are of benefit
  • Principle 2 – the benefit must be to the public, or a section of the public – this is clearly a reasonable geographical restriction (the parish) (see, for example Verge v Somerville). If the benefits are only available to adherents to the Anglican faith, this will also not be problematic, as stated by the Commission it is statutory guidance.
• Wholly and exclusively charitable? This is likely to be a problem
  • ‘any purpose in connection with his church’- see Farley and Simson. It must be clear, on proper construction, that the vicar can only use the money for charitable purposes. This is not likely to be the case here, so the disposition will be likely to be held non-charitable.
• Will not be charitable- money will result back to the estate.

2. A gift of £2.5 million to establish a college of fashion design. The college will also house an exhibition of the designs of staff members which will be open to the public on payment of an admission charge. There should also be provision made from the bequest to pay for the trustees of the college to make an annual trip to the Birmingham Fashion Week.

• Is the purpose charitable within any of the 13heads in s 2(2)(a)–(m)? Could fall under 2(2)(b) – advancement of education – the courts have taken wide view of education – certainly the college will be for the advancement of education. Despite the new s 2(2)(f) head, the Charity Commission, in its Commentary on the Descriptions of Charitable Purposes in the Charities Act 2006, suggested that museums should still fall under the education head. Housing the exhibition will thus also fall under s 2(2)(b).
• Public benefit?
  • Principle 1 – there must be an identifiable benefit. This may be problematic as regards the exhibition. Principle 1a states that it must be clear what the benefits are. Whether it will be clear in this case depends mainly on whether the staff members’ designs have any artistic merit – see Re Pinion. There will clearly be an identifiable benefit to the college, however
  • Principle 2 – benefit must be to the public, or a section of the public. The only problem may be the admission charge for the exhibition (also, any college fees, if there are any). Admission charges are not usually problematic, however, as long as the revenue is used for furthering the charitable purpose, unless they are unreasonably high and exclude the poor (see Re Resch’s WT). Thus, Principle 2 will most likely be satisfied.
• Wholly and exclusively charitable? If the exhibition passes the public benefit test, the trust will clearly be wholly and exclusively charitable. If the exhibition were to be deemed non-charitable due to lack of public benefit, it may well be successfully argued that the exhibition, although non-charitable, is ancillary to the main purpose of establishing the college (see Re Coxen). Thus, overall, the bequest is likely to be wholly and exclusively charitable. Regardless of the status of the exhibition, the provision for the trustees to attend London Fashion Week, whilst not charitable in its own right, will be considered to be ancillary to the main charitable purpose and will not affect the charitable status of the entire disposition
• Likely to be a valid charitable gift

3. £300,000 to be held on trust for the non-white community of Liverpool

• No charitable purpose specified here at all.
• Appears not to be exclusively charitable. Trusts for inhabitants of localities with no particular purpose specified will, however, be held charitable (Re Smith, Re Harding, Mitford v Reynolds).
• The second problem here is that this appears to be a discriminatory trust. Section 34(1) of the Race Relations Act 1976 makes special provision for charitable trusts however. A trust which discriminates in favour of a particular racial group is not void, but must be read as if the discrimination was absent from the trust. See Re Harding for an example of the application of this section.
• A scheme for distribution of the money for charitable purposes to benefit the community in Liverpool will be drawn up.
• Briefly explain why s 2(2) of the Charities Act and the public benefit test will be clearly satisfied here.

4. £40,000 for such charitable, useful and worthwhile purposes as my trustees see fit

• The question here is whether the clause is wholly and exclusively charitable. If it is read conjunctively, it will be held charitable, if read disjunctively, it will be held not charitable
• In Re Eades [1920] a trust for ‘such religious, charitable and philanthropic objects’ as the trustees saw fit was read disjunctively and was held to be non-charitable – the fact that there were several alternatives meant that the clause could only be read disjunctively.
• This disposition is not charitable and will fail as a non-charitable purpose trust – the £40,000 will be returned to the testator’s estate by resulting trust.

5. £15,000 for such charitable or necessary purposes as my trustees in their discretion consider fit.

• Again, the question here is whether the clause is wholly and exclusively charitable. If it is read conjunctively, it will be held charitable, if read disjunctively, it will be held not charitable
• ‘Or’ cases such as this will be read disjunctively (Blair v Duncan).
• This disposition is not charitable and will fail as a non-charitable purpose trust- the £15,000 will be returned to the testator’s estate by resulting trust.

A sensible introduction:

• Explain why it is so important that there is an appropriate definition of charitable purposes (taxation implications for organisations deemed charitable).
• Explain that, prior to the Charities Act 2006 coming into force, the legal definition of charitable purposes consisted of common law rules based on preamble to a statute from 1601.
• The 2006 Act was intended to modernise the law relating to the definition of charity.
• The 2011 Act merely consolidated existing charities legislation in on Act it did not substantively alter the law.

The old law:

• Explain the significance of the Preamble to the Statute of Charitable Uses Act 1601.
• The four heads of charity were based on the nineteenth-century judgment The Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531
  • Relief of poverty
  • Advancement of education
  • Advancement of religion
  • The fourth head.
• Explain the public benefit requirement and the requirement of being wholly and exclusively charitable.
• Consider why the old law was changed:
  • Law was archaic and sometimes inconsistent – several charitable purposes had to be artificially included under the education head, difficulties in recognising more modern charitable purposes (e.g. charities for the promotion of sport).
• Note that, in theory, a common law definition of charitable purposes had the benefit of flexibility that a statutory definition may not have.

The new law:

• Explain why the 2006 Act was enacted – to modernise the law and introduce certainty in the law
• Explain the 13 heads – the first three heads of Pemsel are preserved, and there is a ‘catch-all’ head (s 3(1)(m)) similar to the old fourth head.
• Most of the new heads are reclassifications of purposes already recognised as charitable prior to the 2006 Act coming into force.
• New elements – e.g. s 3(1)(g) – the advancement of amateur sport (although note the Charity Commission’s 2003 statement that sport was within the fourth head). Section 3(2)(a) redefines religion as including polytheistic religions and those involving belief in no god (although the pre-2006 Act case law had developed to reflect this view).
• Most of the old law is still relevant – most of the old case law on the definition of charitable purposes is still recognised.
• The influence of the Preamble is preserved to some degree – s 3(1)(m)(iii).
• Explain s 4 – the first statutory statement of the public benefit test, and s 17 – the requirement for statutory guidance on the operation of the public benefit test from the Charity Commission.
  • Note uncertainty as to the application of the public benefit test to the poverty head (s 3(1)(a)).

Did the new legislation achieve its aims?

• Many points that could be discussed. For example, in favour of the Acts:
  • The preservation of flexibility – demonstrated by the revision of the statutory guidance on public benefit in the wake of The Independent Schools Council v The Charity Commission for England and Wales [2011] UKUT, and also by the existence of s 3(1)(m).
  • The range of new heads.
  • The strengthening of the public benefit requirements, especially in the statutory guidance.
• Possible criticisms of the new regime include:
  • The preservation of the influence of the Preamble.
  • How much has actually changed? Most of the old case law is still good law.
  • How can the rule that charitable purposes most not be political purposes be reconciled with the wording of s 3(1)(h).
  • Some areas of uncertainty have been created (e.g. the extent to which the personal nexus test applies to s 3(1)(a)).

A sensible conclusion based on the arguments that have been put forward.

1. £50,000 to the Warley Refuge for Abused Women

This is initial failure involving an unincorporated charity. Unincorporated charities have no legal personality – their property is held by trustees for their charitable purposes.

So a gift to a defunct charity is unlikely to fail – see Re Finger’s Will Trusts – it could not have owned the property itself even had it still been in existence – the property would have been held by its trustees for its charitable purposes. Even if there is initial failure, the purposes are still charitable. As the charity has closed down, the trustees are no longer trustees, but equity will not permit a trust to fail for want of a trustee – hence, there has technically been no failure (unless wording the of the instrument suggests that the property can only have been intended for that particular charity (Re Spence). The wording here is not like that in Spence).

As in Re Finger’s Will Trusts, a scheme (although not technically a cy-près scheme) will be drawn up for distribution of the funds for charitable purposes.

2. £75,000 to the Southampton Poor Solders’ Fund

This is initial failure. The defunct organisation was incorporated, so a general charitable intent on the part of the testator must be construed in order for a cy-près scheme to be applied. This will, however, be difficult. A cy-près  scheme will be applied if a general charitable intent can be construed (see Re Finger’s), but, given that the will appears to give no indication of a general charitable intent, it probably will not be (see Re Rymer, Re Harwood), unless the court applies the somewhat dubious authority of Re Satterthwaite’s WT [1966] Ch 285, where a general charitable intent was construed simply because the testatrix had, in her will, made several other gifts, all of which were charitable.

3. £75,000 to the Hereford Association for Animal Welfare

This is initial failure. Because the defunct organisation has actually been amalgamated with another similar charity, its charitable purpose will continue, the gift will not be seen as having failed, and a cy-près scheme will not be necessary. See Re Faraker [1912].

4. £100,000 to the Hagley Hospital

This is initial failure. The court will construe a general charitable intent if the organisation never existed (Re Harwood) – therefore, a cy-près scheme will be used and the property will be applied for charitable purposes similar to those that would have been carried on by the Hagley Hospital, had it existed.

5. £500,000 to the Slough Modern Art Centre, to be used to educate children about modern art

This is initial failure. The defunct organisation was incorporated, so a general charitable intent on the part of the testator must be construed for a cy-près scheme to be applied. Here, there is a general charitable intent (educating children about modern art), so a cy-près scheme will be possible – see Re Woodhams [1981] 1 WLR 493. A cy-près scheme will be applied.

6. £50,000 to my son, Paul for life, with remainder to the Southwark Fine Art Museum

This is subsequent failure. The property will be applied cy-près as there was a valid bequest to charity on the date of the testatrix’s death (see Re Wright [1954]).

A sensible introduction:

• Explain the nature of injunctions generally – a court order compelling a person to do or refrain from doing something which is granted in order to protect a legal or equitable right.
• Explain the difference between interim and permanent injunctions.
• Explain that there are five types of injunction (prohibitory, mandatory, quia timet, search order and freezing).
  • Some of these may be either interim or permanent.
• Explain that in order to analyse the nature and scope of the different types of injunctions, it is necessary to consider the circumstances in which each may be granted.
• Injunctions will only be granted when damages would be an inadequate remedy.
• Note the Senior Courts Act 1981, s 37(1).

Consider each type of injunction, ensuring that your answer includes some degree of analysis:

• Prohibitory injunctions:
  • An order to refrain from doing something.
  • The most common type of injunction.
  • Can be either interim or permanent.
  • See American Cyanamid Co v Ethicon Ltd [1975] AC 396 – prohibitory injunctions will not be granted if damages would provide an adequate remedy.
    • The ‘balance of convenience’ test.
  • Perhaps refer to the currently controversial topic of ‘super injunctions’ –  it is arguable that they:
    • Stifle the freedom of the press.
    • Create a social imbalance due to the requirement for an undertaking by the claimant to pay any damages arising as a result of the injunction- only the wealthy may give such an undertaking.
• Mandatory injunctions:
  • An order compelling the defendant to do something (i.e. remove a fence in order to restore a right of way).
  • Less commonly granted than prohibitory injunctions as compliance with a mandatory injunction will cost the defendant money (and time).
  • Only very rarely will a mandatory injunction be granted on an interim basis (Shepherd Homes Ltd v Sandham [1971] Ch 340) – explain why this is the case.
  • Explain the factors that will be taken into account by the court when deciding whether to issue a mandatory injunction (Shepherd Homes Ltd v Sandham [1971] Ch 340) – essentially, it will only be granted if it would ensure a ‘fair result’
  • Consider the relationship between mandatory injunctions and specific performance – see Page One Records Ltd v Britton [1968] 1 WLR 157.
• Quia timet injunctions:
  • Explain that they are granted when the claimant fears that his legal rights may be violated in the future- when there is an immediate threat of this occurring, the injunction may be granted.
  • See, for example, Secretary of State for the Environment, Food & Rural Affairs v Meier [2009] 1 WLR 2780 – the threat of trespass is a good reason for the issue of a quia timet injunction.
  • Although equity will not act in vain, it was held in Meier that the fact that the identity of someone who breaches the injunction may not be ascertainable is not sufficient reason for the injunction not to be granted.
• Search orders:
  • Formerly known as Anton Piller injunctions, after the case of Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55.
  • A special type of interim mandatory injunction.
  • Search orders compel the defendant to permit the claimant to search the defendant’s premises for certain documents (cf a warrant, which gives the beneficiary of the warrant the power to enter the defendant’s premises – explain the theoretical differences between search orders and warrants, and the practical similarities between the two).
  • Explain that applications for search orders are often heard ex parte – to prevent the defendant destroying the documents before the injunction can be granted.
  • Explain the requirements which must be fulfilled before the court may issue such an injunction (see Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 at 62 per Ormrod LJ).
  • Explain the relevance of the Civil Procedure Act 1997, s 7.
  • Quite rarely granted.
• Freezing orders:
  • Formerly known as Mareva injunctions, after Mareva Compania Naviera SA v International Bulkcarriers SA; The Mareva [1980] 1 All ER 213.
  • The purpose of a freezing order is to prevent the defendant from disposing of his assets before trial to frustrate a future judgment against him.
  • A freezing order is a type of interim injunction.
  • Explain the Civil Procedure Rules 1998, r 25.1(f) – a freezing order may be made to prevent the defendant from removing assets from the jurisdiction or prevent him from ‘dealing with any assets whether located within the jurisdiction or not’
    • Note the extra-territorial effect of the freezing injunction – see also Derby & Co Ltd v Weldon (Nos 3 & 4) [1990] Ch 65.
  • A freezing order is a draconian order – it will only be granted in proper circumstances – for guidelines, see Third Chandris Shipping Corp v Unimarine SA [1979] 2 All ER 972.
  • Note that freezing orders may also be issued with worldwide effect – special guidelines for the issuing of such injunctions were given in Dadourian Group International Inc v Simms (Practice Note) [2006] 1 WLR 2499 – briefly summarise the Dadourian guidelines.
• A sensible conclusion:
  •  Include some general closing statements.

Sensible introduction:

• Explain that proprietary estoppel is an equitable cause of action whereby the defendant is estopped from asserting his full legal rights in the property, enabling the claimant to claim successfully a proprietary right in that property.
• Briefly outline the requirements – representation, detrimental reliance.
• Explain that there has been controversy concerning the precise requirements for proprietary estoppel and the doctrine’s relationship with other doctrines of equity.

The requirements for a valid claim by proprietary estoppel:

• For many years, the five probanda from Willmott v Barber (1880) 15 Ch D 96 were the requirements.
• The probanda were simplified in Taylor Fashions v Liverpool Victoria Trustees [1982] QB 133 – this simplification has been accepted by the House of Lords in Thorner v Major [2009] 1 WLR 776 and Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752.
• The first requirement – a representation by the legal owner to the non-legal owner regarding the non-legal owner’s rights in property that he owns – such a representation can take the form of a verbal assurance or a non-verbal assurance of some type. (NB, note controversies regarding the precise extent to which the extent of the property in question must be identified for there to be a successful estoppel claim (e.g. see Thorner v Major, Re Basham [1986] 1 WLR 1498, MacDonald v Frost [2009] EWHC 2276 (Ch)).
  • Verbal assurance: whether a certain form of words amounts to a sufficiently precise verbal assurance depends on the circumstances of each individual case. Contrast Lissimore v Downing [2003] 2 FLR 308, Gillett v Holt [2001] Ch 210 and Jennings v Rice [2003] 1 P & CR 8, Cobbe v Yeoman’s Row and Thorner v Major). These cases demonstrate both the flexibility of proprietary estoppel and the potential for uncertainty in property rights caused by such flexibility – be prepared to discuss these cases and consider whether they can be reconciled (it is suggested that they are reconcilable on the ground that when the courts make decisions regarding the adequacy of verbal assurances for the purpose of establishing proprietary estoppel claims, the circumstances in which the words arose must be taken into account).
  • Non-verbal assurances: see Crabb v Arun District Council [1976] Ch 179 – a further example of equity’s flexibility (within set rules).
  • Note that the assurance must be that the claimant would acquire some sort of interest in the property (rather than that further negotiations regarding the claimant’s acquisition of the property will take place) – see Cobbe v Yeoman’s Row.
• The second requirement – reliance – the claimant must rely to on the representation.
  • The reliance must be reasonable (although this will usually be the case – see Thorner v Major).
  • The reliance must be linked to the detriment suffered.
• The third requirement – detriment – the claimant must have acted to his detriment in reliance on the defendant’s representation.
  • The detriment must be substantial, but need not be financial – see Gillett v Holt  [2001] Ch 210 (note that detriment is somewhat easier to demonstrate for the purposes of a proprietary estoppel claim than for a claim under a common intention constructive trust).
  • The detriment will be sufficient if it is unconscionable for the defendant to renege upon his representation.
  • Examples of sufficient detriment – see Inwards v Baker [1965] 2 QB 29, Pascoe v Turner [1979] 1 WLR 431, Gillett v Holt and Jennings v Rice.
  • Examples of insufficient detriment – see Lloyds Bank plc v Rosset [1991] 1 AC 107, Lissimore v Downing.
  • Note that the detriment must be suffered in reliance on the representation, rather than for incidental reasons (Lissimore v Downing).
• Remedies to a successful action for proprietary estoppel:
  • The courts have much flexibility- the award should be ‘the minimum equity to do justice’ (Crabb v Arun District Council [1976] Ch 179 at 198 per Lord Scarman)
  • The remedy must be proportional to the extent of the detrimental reliance and the nature of the representation.
  • Generally, the remedy will be an equitable interest in the property or equitable compensation in lieu of an interest.
  • There has been some degree of judicial inconsistency regarding whether the remedy should reflect the expectation of the claimant (i.e. what was promised, as in Pascoe v Turner) or what the court considers to be fair (as in several more recent cases).

Compare with other concepts:

• Promissory estoppel
  • Note the arguments that proprietary estoppel is a type of promissory estoppel, despite the fact that proprietary estoppel can be used as a ‘sword’ as well as a ‘shield’.
• Constructive trusts
  • Note that there have been arguments that proprietary estoppel should be assimilated with the common intention constructive trust, although the origins of the two concepts are arguably distinct.

A sensible conclusion:

• Proprietary estoppel is an extremely flexible means by which equity may achieve justice – although there have long been controversies regarding the precise nature and scope of the doctrine, it is arguable that such controversies are an inevitable consequence of such flexibility, and that the controversies and academic discussions are essential to the development of the law.