Summary Equity and Trusts problem question outline
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Course
Equity & Trusts (LAW2041)
Institution
University Of Exeter (UoEX)
This is a thorough outline of all the examinable problem question topics in trust law. There is a detailed outline of how to approach problem questions on each topic; the correct steps to take, the appropriate way to analyse the cases, and the possible remedies. It starts with the three certainties...
Validity of trust
- to determine if a trust is valid; certainty of intention, subject and object must be found-
Knight v Knight
1. certainty of intention
a. essential principles
i. Precatory words will not form a trust obligation- wishes, hopes, desires, or
appeals will not form a trust obligation
ii. A trust requires an intention, resulting in a legal obligation on a trustee- it is not a
moral obligation
iii. Lambe v Eames 1870- start by thinking is this a gift situation or a trust situation-
to take it away from being an absolute gift- the latter part of the will must cut
down the absolute gift as the prior part does to make it- there has got to be a
clear intention otherwise there is a gift
b. in full confidence
i. The court will look to the further context to the disposition of the way the trust is
set up
ii. Re Adams and Kensington Vestry 1884- in full confidence.. she will do what is
right- absolute gift- there was no obligation to do certain things in relation to the
property, here full confidence does not create a trust due to the context it is
used
iii. Comiskey v Bowring-Hanbury 1905- in full confidence… I hereby direct that on
death, that she will divide it amongst my nieces as she sees fit- hereby direct-
clear use of language in the context of what was being set up- therefore a trust
was formed
c. inferred intention
i. There is no need to use the word trust: if the words or acts of the settlor viewed
objectively show an intention to create a trust, then the court will infer the
intention
ii. Twinsecttra v Yardley 2002- what would a reasonable person think regarding
intention- what would the creator who was thinking/acting a certain way at that
time- were they intending to create a trust
iii. Paul v Constance [1977] 1 WLR 527- There is no need for explicit words or
even knowledge of the trust being created for there to be common intention to
create a trust
d. sham trusts
i. If the intention of the settlor is to defraud, then trust will not be valid as a sham
ii. Midland Bank v Wyatt 1995- sham situation
iii. Snook v London & West Riding Investments; The word ‘sham’ should only be
used to describe an act or document where the parties have a common
intention that the act or document is not to create the legal relations and
obligations which it purports to create. Approved by SC in Rossendale BC v
Hurstwood Properties 2021
e. vitiated intention
i. An express trust may be vitiated by misrep, undue influence etc
f. consequences
i. Where a trust fails for lack of certainty of intention, there is no trust and the legal
owner takes, or keeps, the property absolutely.
2. certainty of subject
a. In order for a trust to be formed, there must be certainty as to which property is,
and which is not, covered by the trust.
, i. Sprange v Barnard 1789- At his death, the remaining part of what is left that he
does not want for his own wants” Held to not be sufficiently certain- the subject
was not clearly stated
ii. The subject of the trust must be made clear for certainty of subject matter to be
held
iii. Palmer v Simmons (1854) 2 Drew. 221; 61 ER 704- The ‘bulk of my said
residuary estate’ should be divided among beneficiaries. bulk of the residuary
estate- bulk here was not sufficiently certain
iv. Re Golay's Will Trusts [1965] 1 WLR 969- Property and 'reasonable income' left
to testator's mistress. Held that 'reasonable income' was sufficiently certain to
be enforceable. The subject matter was certain- reasonable income was
regarded as certain because they were able to objectively look at the case and
find the reasonable income based on standard of living and other facts-
v. Boyce v Boyce (1849) 60 ER 959; (1849) 16 Sim 476- ‘all of the other of my
freehold houses which my daughter Maria shall not choose and elect’- Maria
did not make a choice as Maria died- as Maria did not make a choice, the court
could not make a decision on what house the second daughter could get. The
court therefore declared it wasn’t a valid trust arrangement as certainty of
subject was not present
b. Chattels
i. Re London Wine Co 1986; Re Goldcrop Exchange Ltd 1995
§ A trust is not created where a defendants stock is constantly changing.
Tangible property cannot be a trust unless the subjects are identified and
segregated from the bulk
§ If a company becomes liquidated and customers paid for items- they have
no trust and creditors can take these items unless the item was
specifically identified and segregated for the beneficiary of the trust
§ A bulk of items in stock doesn’t make the subject matter clear- it is not
clear which items belong to which people when the items are in bulk
c. business assets
i. North v Wilkinson 2018- A trust over all the business assets, which were
constantly changing and might include money, land, chattels and intellectual
property, was possible.
d. Intangible and Fungible property
i. MacJordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350- No
trust had been created where the main contractors did not set retention funds
aside in a separate account.
ii. Hunter v Moss [1994] 3 All ER 215- A declaration of trust over 50 of the
defendant’s 950 shares in a private company was valid.
iii. Re Farepak Food and Gifts Ltd [2006] EWHC 3272 (Ch)- Company declared a
trust over all money received after a specific date- this failed because It wasn’t
clear what subject was based on the money coming in regarding the facts- as
money was coming in from different sources
e. separate bank account
i. The question of whether it is possible to have a trust over money held in a bank
account, which is mixed with the owner’s own money
ii. If there is not a separate account to look at for the money, where there is a
mixture of money a trust may not be found
iii. Second, since the depositors' money [in Sinclair v Brougham] was intended to
be mixed with that of the society, there was never any intention that there
should be a separate identifiable trust fund, an essential feature of any trust.
iv. There is no doubt that money in a mixed fund may be held on trust, and that a
trust of money can be created without an obligation to keep it in a separate
account: Re Kayford Ltd [1975] 1 All ER 604, 607 (Megarry J)
f. Consequences
, i. Where a trust fails for lack of certainty of subject,
o if it relates to what part of property is to be subject to the trust, there is no trust
and the legal owner takes, or keeps, the property absolutely.
o if the trust property is certain, but the uncertainty relates to the shares of the
property that beneficiaries should receive, there will be a resulting trust for the
settlor.
3. certainty of object
The beneficiaires of trusts may be identified in 4 ways
Named individuals- identifiable as a valid private trust
A group defined by a description- this is not as clear- are there issues with the
description of the object?
An organisation or association- unincorporated associations
A general class of people- could come under a charitable organisation
a. First establish if the object is in a fixed, or discretionary trust, or a power
i. Fixed trust
- Inland Revenue Commissioners v Broadway Cottages [1955] Ch.
20, 29 (Jenkins LJ)- leading authority
- If the individual is clearly named and the subject is clear- there is
certainty of object
- Can we make a list of exactly who the beneficiaries are- list test
- Trustees need to be able to identify the class with sufficient
certainty- Whishaw v Stephens (Re Gulbenkian’s Settlement) [1970]
AC 508, 523-24 (Lord Upjohn)
ii. Discretionary trust
- the trust is valid if it can be said with certainty that any given
individual is or is not a member of the class- McPhail v Doulton [1971]
AC 424, 456 (Lord Wilberforce).
- List test not required and is or is not test is used
iii. power
So the Trustees or the Court must be able to say with certainty who is
within and who is without the power- Whishaw v Stephens (Re
Gulbenkian’s Settlement) [1970] AC 508, 525 (Lord Upjohn).
- Is or is not test is also used for powers
b. After determining whether it is a fixed/ discretionary trust, or power, use the tests
below to discuss them
i. Conceptual and evidential certainty
Conceptual certainty; - if the definition of the objects is unclear, it will
not be possible to compile a complete list of objects, so that the trust
will be void
Evidential certainty- Even if the definition of the objects is certain, if it
is not possible to prove who the objects are, the complete list test will
not be satisfied
As long as there is a clear understanding of what the class is and who
is within it, there will be conceptual and evidential certainty- Re
Baden’s Deed Trusts No 22
ii. Administrative unworkability
the definition of beneficiaries is so hopelessly wide as not to form
"anything like a class" so that the trust is administratively unworkable-
McPhail v Doulton [1971] A.C. 424, 457 (Lord Wilberforce).
Administrative unworkability can be found- R v District Auditor
Administrative unworkability not relevant when dealing with fixed trusts
Mcphail v Doulton- discretionary trust for the benefit of ‘all the
residents of Greater London’ would be administratively unworkable
and so void
, R v District Auditor, ex p West Yorkshire Metropolitan County Council-
size of the class to be so wide that it was incapable of forming
anything like a class and so was administratively unworkable
A class of hundres of thousands may not be administratively
unworkable, but a class of 2.5 million, is too big- Re Harding
recognized by Sachs LJ in Re Baden (No 2) that the size of the class
can be infinitely variable and that the trustees need only to be aware
of the width of the field so that they can adapt their method of
selecting objects
iii. capriciousness
The terms of the power negative any sensible intention on the part of
the settlor- Re Manisty’s Settlement [1974] Ch 17, 27 (Templeman J)
Something that was not genuinely thought true or well intended
Capriciousness can be related to powers
A discretionary trust may also be treated as void on the ground of
capriciousness, in that the settlor had no sensible intent in establishing
the trust
R v District Auditor, ex p West Yorkshire Metropolitan County
Coucncil- was recognized that the council did have a sensible reason
for wishing to benefit the inhabitants of West Yorkshire, so that the
discretionary trust was not capricious
iv. ascertainability
The fact that it cannot be established where a particular object is, or
even whether they are still alive, does not invalidate the trust
the fact that a particular person is an object, but their whereabouts or
existence cannot be ascertained, cannot defeat the validity of the
power- If the trustees were to want to exercise the power in favour of
somebody who could not be located, the power simply could not be
exercised
c. If the object fails the is or is not test, or the list test, determine if it it may be resolved
via
i. trustees as arbiter
The creator of the trust might give to the trustees an express power to
resolve uncertainty relating to the identity of objects
trustees are able to be arbiters about questions of evidential certainty,
but not conceptual certainty- Re Coxen
But, if the defining concept is unclear, leaving it to the trustees to
define the concept will not be sufficient to save the trust- Re Wright’s
Will Trust
ii. Third party as arbiter
acceptable to resolve questions of evidential uncertainty relating to the
identification of objects by referring the matter to a third party whom
the settlor has made an arbiter of the matter.
Re Tucks settlement trusts- third party is not being used to resolve
uncertainty in the definition of the class, but forms part of the definition
of the class
iii. Severance
Where a discretionary trust is established for two classes, one of
which satisfies the test of certainty and the other does not, one
obvious solution is to enable the uncertain class to be severed,
otherwise the whole trust will fail for uncertainty
iv. Wide definition of beneficiaries
intermediate power- whereby the trustees have power to appoint
property to anybody in the world other than a small class of excluded
people-
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