TRUST LAW LECTURE NOTES

Trusteeship involves onerous obligations, where a donor retains no responsibility for the property once the gift has been made.

Difficulty has been found in providing a comprehensive definition of a trust but various authors have made attempts to define the term trust.

A trust is a relationship which subsists when a person called the trustee is compelled by a court of Equity to hold property, whether real or personal, and whether by legal or equitable title for the benefit of some persons, of whom the trustee himself may be one and who are called cestui que trust or beneficiaries, or for some object permitted by law; in such a way that the real benefit of the property accrues not to the trustee, as such, but to the beneficiaries or other objects of the trust.

1.         Lord Coke’s Definition

Lord Coke defined a trust as “a confidence reposed in some other, not issuing out of the land but as a thing collateral thereto, annexed in privity to the estate of the land, and to the person touching the land, for which cestui que trust has no remedy but by subpoena in the Chancery.” 

2.         SIR ARTHUR UNDERHILL’S DEFINITION 

Sir Arthur Underhill, the original author of the leading practitioners’ work which is now known as Underhill and Hayton, Law of Trusts and Trustees, described a trust as “an equitable obligation binding a person (who is called a trustee) to deal with property over which he has control (which is called trust property), for the benefit of persons (who are called beneficiaries or cestuis que trust) of whom he may himself be one and any one of whom may enforce the obligation.

 

This is not satisfactory, for it is not wide enough to cover trusts for purposes rather than persons. Trust for charitable purposes (e.g. for the repair of a church or the prevention of cruelty to animals) may lack human beneficiaries and yet be valid as trusts and there may also be other trusts which lack beneficiaries who can enforce them. 

1.                  There is a person called a Trustee

2.                  Trust Property

3.                  Beneficiaries

 

Underhill’s definition does not cover

1. Charitable trusts.
2. Trusts of imperfect obligation- such as a trust “for the maintenance and support of my dog Tigger” –this may well amount to a valid trust but is a trust of imperfect obligation because Tigger cannot enforce it.

 

 The Successive editors of what is now Underhill and Hayton have, however, pointed out that, even though charitable trusts are outside the scope of the work, they are in any event covered by the definition, simply because such a trust is for the benefit of persons, namely the public, on whose behalf the Attorney General may intervene.

 

3.         Lewin’s Definition

Lewin on Trusts adopts a rather more comprehensive definition, which is based on a definition given by Mayo J. in Re Scott.

            “the word ‘trust’ refers to the duty or aggregate accumulation of obligations that rest upon a person described as trustee.  The responsibilities are in relation to property held by him, or under his control.  That property he will be compelled by a court in its equitable jurisdiction to administer in the manner lawfully prescribed by the trust instrument, or where there be no specific provision written or oral, or to the extent that such provision is invalid or lacking, in accordance with equitable principles.  As a consequence the administration will be in such a manner that the consequential benefits and advantages accrue, not to the trustee, but to the persons called cestui que trust, or beneficiaries, if there be any; if not, for some purpose which the law will recognise and enforce.”

 

This definition is an improvement on Underhill’s definition.

1.                  Duties and obligations are clearly expressed;

2.                  Trust Instrument;

3.                  Beneficiaries do not have to be persons –purpose which takes care of charities etc.

 

 A trustee may be a beneficiary, in which case advantages will accrue in his favour to the extent of his beneficial interest.

4.         Definition in Hague Convention on Law of Trusts:

This has been incorporated into English Law by the UK Recognition of Trusts Act 1987 and under Article 2 of that convention, a trust is defined as follows:-

For the purpose of this convention, the word ‘trust’ refers to the legal relationships created – inter vivos or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.

 

 A trust has the following characteristics—

(a)               the assets constitute a separate fund and are not part of the trustee’s own estate;

(b)               title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;

(c)               The trustee has the power and duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law.

 

The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily inconsistent with the existence of a trust.

 

The PURPOSE OF THE CONVENTION was twofold:

(i)                 to provide rules by which the courts of signatory states can uniformly determine the jurisdiction by rules of trust law trusts with international dimensions are;

(ii)              to provide some means of dealing with trusts in jurisdiction where the trust concept is unknown.  When property situated in such jurisdictions becomes the subject matter of a trust, problems potentially arise because it can be extremely difficult to convince the authorities of the jurisdiction in question that the trustees are not the beneficial owners of the trust property.

The definition has added the following to the previous definitions:

      The characteristics of a trust;

      the trust can be created during the lifetime of the settlor or after his death.

      it touches on the powers and duties or the trustee.

 

Main elements of a trust

1.                  Equity/equitable jurisdiction. It is a creature of equity rather than common law.

2.                  There is an equitable obligation – an imperative duty.

3.                  There is a trustee-beneficiary relationship.

4.                  There is property constituting the subject matter.

5.                  There is duality of ownership – the trust separates legal ownership of trust property from its equitable or beneficial ownership.

5. Keeton in his book Keeton Law of Trust defines trust as

“the relationship which arises whenever a person called the trustee is compelled in equity to hold property for the benefit of some persons or for some object in such a way that the real benefit of the property accrues not to the Trustee but to the beneficiaries or other objects of the trust.

 

Snell is of the opinion that Keeton definition is the more satisfactory because it encompasses a wider area in which objects are confined.

 

6. The Trustee Act Cap 167 Laws of Kenya does not contain any definition of the word Trust but its attempt is a negative and inclusive definition which seeks to show the types of transactions to which the Act applies and does not apply.

 

Section 2 of Trustee Act Cap 167 – contains words that:

Trust does not include the duties incidents to an estate conveyed by way of mortgage but with this exception the expressions trust and trustee extend to implied or constructive trusts and to cases where the trustee has a beneficial interest in the trust property and to the duties incident to the office of a personal representative and Trustee where the context admits includes a personal representative.

 

THE CONCEPT OF “USE”

Historically the concept of Trust arose from the concept known as the use.  The use is said to be the predecessor of the modern trust in English law.  General uses originated around 1230 AD under which land was held by one person or several persons on behalf of another or others for a particular purpose or use.  Land would be conveyed to A for example for the use of B where B was for example a community of Franciscan Friars which at the time was not allowed to hold property at common law.  Uses with time became more common as conveyancing devices often specifically to avoid common law restrictions.  The difficulty was however that A had the legal title while common law only recognised legal title and not the use.  So although clearly B was intended to enjoy the benefits of the property common law would not enforce his rights.

 

The Chancellor from about the year 1400 ensured that B did get this benefit by acting on the conscience of A.  A who retained the legal title became known as the feoffee to uses and B became known as the cestui que use and was regarded as the equitable owner.  This was a major landmark in the development of English property law as it created a division of ownership into legal and equitable ownership and thereafter developed two separate legal systems.

 

The use was used mainly to avoid feudal dues (taxes).  The legal estate could for example be vested in a number of Feoffee to uses as joint tenants and because jointly held estates pass automatically to the survivors, on the death of a joint tenant it was possible to avoid death duties.   This is the rule of survivorship in property.

 

 

TRUSTS  Lecture 3                                                                                       

 

TRUSTS IN THE HIGHER SENSE AND IN THE LOWER SENSE

A trust is an equitable obligation enforceable in court.  As was stated in the case of Kinloch V. Secretary of State for India [1882]7 A.C 619 630  by Lord O’Hagan,

 “…there is no magic in the word ‘Trust’ and it can mean different things in different contexts.”

A person may be in a position of trust without being a trustee in the equitable sense and therefore terms such as anti-trust laws or trust territories are not intended to relate to a trust enforceable in a court of equity.  Anti trust (laws against restraint of commerce such as the Restrictive Trade Practices And Monopolies Act, a trust territory is a colony placed under the security council)  A trust in the conventional legal sense maybe created without using the word trust.  In each case it is necessary to consider whether such a trust was intended so the issue of intention is very important.

 

The issue of definition arose for decision in the case of Tito V. Waddell [1977] Ch. 106 which Megarry V.C. described as litigation on the grand scale.  This case involved Ocean Island a small island in the pacific called Banaba by its inhabitants and they themselves were referred to as Banabans.  It was partly part of a protectorate which later became a colony.  At the beginning of the 20^th century phosphates was discovered on this island and royalties for mining the phosphates were paid to the inhabitants.  As time passed the banabans sought increases in the royalties and some increases were paid but they were considerably less than what the Banabans claimed.   Claims continued to be made by the banabans politically and internationally but when they failed they brought proceedings to court.  In the court proceedings they claimed that the rates of royalty payable under certain transactions were less than the proper rates and accordingly that the crown as the responsible authority was subject to a trust or a fiduciary duty for the benefit of the Plaintiffs or their predecessors and was liable for breach of that trust.  The question whether there was a fiduciary duty or trust involved the construction of various agreements and statutes as well as other documentations.

 

It was held in the end that there was no such trust or duty.  Now the essential elements of the decisions were

1.                  Although the word trust was occasionally used with reference to the Crown or its agents it did not create a trust enforceable in the courts, what Megarry V.C. described as a Trust in the lower sense or true trust but rather a trust in the higher sense by which was meant a government obligation which was not enforceable in the courts;

 

2.                  Such a trust in the higher sense involved the discharge of duties under the direction of the Crown.  There might be many means available of persuading the crown for example by international pressure to honour its governmental obligations and it might be more than a mere obligation but it was not enforceable in the courts;

 

3.                  Although various statutes imposed statutory duties, they did not impose fiduciary obligations and normally when a duty is imposed by statutes on the government to perform certain functions it does not as a general rule impose fiduciary obligations;

 

Our course therefore is concerned with Trust in the lower sense and not in the higher sense.  Those that give rights to fiduciary obligations that are enforceable in court.

 

USES OF THE TRUST

Throughout its history, the trust has been used especially by lawyers as a device to circumvent inconvenient rules of law.  in medieval times a use which was the forerunner of the trust was brought into existence as a result of a transfer of property by its owner to 3^rd parties to the use of either of himself or some other beneficiaries especially where such other beneficiary was not capable of owning property in law e.g. infants, religious associations etc.

 

Similarly from the 13^th Century statutes referred to as Statutes of Mortmain imposed prohibitions on gifts of land to corporations in an attempt to prevent land from being taken out of circulation more or less permanently thereby depriving the feudal lords of their revenue.  This statute was trying to prevent land being given by way of gifts to corporations.

 

These statutes could often be avoided by taking advantage of a use.  All that the owner needed to do was to transfer his property to B for the use of C where C was corporation for the use of the land.  Before 1540 when the statute of Wales was enacted, it was not possible to leave freehold land by will. However if a land owner wished to achieve the same result he could convey the land during his lifetime to 3^rd parties to the use of himself during the remainder of his life and thereafter to the use of the intended beneficiaries.  The result was that the land owner would continue to derive the benefit from his land for as long as he lived and upon his death the intended beneficiaries would automatically become entitled to the benefits.

 

The use was employed most frequently as a device to avoid feudal taxes.  It was a medieval equivalent of a tax avoidance scheme for example on the death of a person who held land, as a tenant in  Knight service an adult heir would have to pay the feudal lord a fixed sum before he could claim his inheritance and a year’s profit of the land in question.  Although after the year 1267 profits were only payable to the feudal lords in question or the king.

 

All these disadvantages could be avoided if before his death the tenant in Knight service conveyed his land to 3^rd parties to the use of himself during the remainder of his life and thereafter to the use of his heir because the effect of uses was to deprive feudal lords in general and the King in particular of a substantial proportion of the feudal revenues uses became very unpopular with the crown and the crown consequently attempted to abolish the advantages of the use by the enactment of the Statute of Uses 1535.

 

The effect of the statutes was to execute the use by transferring the legal title from the 3^rd parties who were known as Feoffee to uses to the beneficiary or the cestui que use or beneficiary thereby making the beneficiary liable to pay the feudal taxes.

 

However the effect of this statute was short-lived and by the 18^th century the use had returned under the name of Trust.  The device that the lawyers invented to circumvent the taxes was for A to confer land to B for the use of C in trust for D so that the statute only had effect on the first use but could not touch the second use which then became known as the trust.

 

In subsequent centuries the trust was used to tie up land or wealth for succeeding generations of a family and to make provisions for dependants.  It also had other purposes for example the common law rule which was of general application that a married woman could not hold property in her own right during her marriage could be circumvented by the device of the use of a trust.  One could vest property in trustees to hold upon trust for the married woman thereby circumventing the rule.  Likewise un-incorporated organisation such as clubs, societies, trade unions etcetera which are not of themselves legal entities and therefore cannot hold real property would not have developed as they have if it had not been possible for property to be held by trustees on their behalf.    The trust has also once again come to be used as a means of creating tax avoidance schemes.  The law does not proscribe avoidance it proscribes evasion.

 

The principal uses of a trust

 

They may be summarised as

(a)               To enable property particularly real property to be held for persons who cannot themselves hold it e.g. even though the legal title to land cannot be vested in an infant or a minor, there is no objection to land being held in trust for the infant or minor;

 

(b)               To enable a person to make provision for dependants privately, the most obvious examples are provisions made a man for his mistress or illegitimate child; during the lifetime of the man there is no problem but if the man were to provide for the mistress or illegitimate child through his will, these circumstances are likely to leak out because once probate of the will has been obtained the will is a public document and is open to public inspection.  On the other hand a trust deed in favour of the mistress or illegitimate child escapes this publicity;

 

(c)               To tie up property so that it can benefit persons in succession; an outright gift may be made to a spouse in the hope that on their death that property will go to the children but there is no guarantee that it will do so.  The spouse could get married again and the property could get alienated.  On the other hand a gift to trustees to hold on trust for the spouse for life with the remainder to the children will ensure that the children get the benefit;

 

(d)               To protect family property from Wastrels, a person may feel that an outright gift or money or other property to a surviving spouse or child will lead to its being squandered or wasted,  a gift of that money or transfer of that property to trustees to hold upon trust and to pay either the income therefrom or only a limited proportion of the capital to the surviving spouse or child at given intervals will probably prevent this;

 

(e)               To make a gift to take effect in the future in the light of circumstances which have not yet arisen and therefore are not yet known.  A person may for instance have 3 young daughters and may by will set up a trust whereby a sum of money is given to trustees for them to distribute among the daughters either as they deem fit or having regard to stated factors and with that discretion the trustees would be able for example in due course to give say one quarter of the fund each to two of the daughters who have married well and the remaining one half to the other daughter who was not so lucky.

Lecture 4

Trusts- 4

 

Property that may be held in trust

The subject matter of a trust may be real or personal property. A trust may be not only a legal interest but also an equitable interest in the property.

 

In case of Lord Strathcona S.S. v Dominion Coal Ltd . It was stated that

 

“the scope of the trust recognized in equity is unlimited. There can be a trust of a chattel or of a chose in action or of a right or obligation and an ordinary legal contract just much as the trust for land. A ship owner might declare himself a trustee of his obligations under a charter party.”

 

Classifications of trust

There are no hard and fast categories but the following classes may be convenient:

 

1.         Express trust.

An express trust is one created by an express declaration of the person in whom the property is vested. This could be under a will or by way of a trust deed or even under a document not under seal or orally.   What matters is that there is intention and conduct creating the trust. An express trust is also referred to as a declared trust.

 

2.         Implied trust.

An implied trust arises from the presumed as opposed to the expressed intention of the owner of the property. So for example if property is transferred to A to be held on certain trust which fail there is a presumption that A hold the property in trust for the owner’s estate. Sometimes these are also called presumptive trusts or resulting trusts.

3.         Constructive trust.

This is a trust imposed by equity although it is neither the expressed nor the presumed intention of the settlor or the testator or the owner of the property. Equity will impose such a trust  when it would an abuse of confidence to allow the holder of the property to use it for his own benefit. See Keech v Standford (1726) where the trustee of leasehold property had used his position to induce the landlord to renew the lease in his favour upon the determination of the initial term of the lease. The court held that this was an attempt to obtain a personal advantage for himself which was antagonistic to the beneficiary’s interest and in bad faith. He was directed to hold the new lease on the trust under which he held the old lease. And this situation has also arisen in Kenya in customary view of land trust: you cannot defeat the first title under LRA. But judges have gone around this especially where the land involved was family land.

 

Trust may also be classified between private and public or charitable trusts.

A trust is said to be private if it is for the benefit of an individual or a class of individuals which the law refers to as a defined but limited group of beneficiaries. By its nature it can be enforced by the individual or individuals. It is private even though there may be some benefit conferred thereby to the public at large.

 

On the other hand a public trust promotes the public welfare as an object and is public even if it incidentally confers a benefit on an individual or class of individuals. The public trust is only enforceable by the Attorney-General or an officer appoint by him for that purpose or by two or more persons who can show that they have interest in the trust with the express consent of the Attorney-General.

 

Then you have trusts of perfect and imperfect obligation.

Trust of imperfect obligation

A trust not enforceable by a beneficiary or on the beneficiary’s behalf is called a trust of imperfect obligation. The courts are rather reluctant to uphold such trusts, e.g. a trust to take care of my dog Simba. But some have been enforced such as a trust to take care of a tomb. There have been borderline cases that the courts have upheld but refused to follow as precedent, e.g. a trust to enhance grounds for hunting

 

Trust of perfect obligation

In the case of perfect obligation the objects are specific and capable of enforcing the trust

Imperfect obligation

 

Express Private Trust

Who has the capacity to create an express private trust. If a person a power of dispossession over a particular type of property he can create a trust of that property. He must be of age and of sound mind and a trust will be set aside if it can be show that the settlor did not understand the nature of his act. The burden of proof will normally lie with the person seeking to set aside the trust but where there is a long history of mental illness the burden is easily discharged and it is then for the other side to prove that the trust was made  during a lucid interval. See the case of Cleare v Cleare (1869) 1 P & D 655.

 

There are the so-called the three certainties of a trust. In the case of Knight v Knight (1840) Vol 49 ER 58. In that case Lord Langdale set 3 certainties that are required for creation of a trust:

1.         the words used must be so phrased that taken as a whole they may be deemed to be imperative.

2.         the subject matter of the trust must be certain

3.         the persons or objects intended to be benefited must also be certain.

 

Certainty of words or intention

Equity applies the maxim that equity looks to the intent rather than to the form and therefore no particular form is necessary for the creation of a trust but the intent must be manifest from the document or the circumstances. Therefore even precatory words can rise to a trust if it can be shown from the construction of the document that a trust was intended. It is all a matter of construction for the court looking at the entire document to ascertain whether a trust was intended or not. In the case of  Re Hamilton (1895) 2 Ch 370, 373. It was said of a will: “You must take the will which you have to construe and see what it means and if you come to the conclusion that no trust was intended you say so although previous judges have said the contrary on some wills more or less similar to the one you have to construe.”

 

Certainty of subject matter

 

Certainty of objects

 

The law states that for a trust to succeed those three certainties must be established.

 

LAW OF TRUST Lecture 5                                                  

Law of Trusts- Lecture 5

 

Estates of deceased persons

Marlott v Wilson

July 31 1866 voluntary settlement

 

The legal personal representative, called an executor where there is a will, otherwise an administrator with respect to a deceased who died intestate is a trust for all the creditors and beneficiaries claiming under the deceased. He holds the real and personal property of the deceased for their benefit and not his own.

 

Under the Trustee Act, a personal representative is said to be a trustee. However the true relationship should not be treated as being exactly the same although the personal representative may become a trustee in the full sense.

 

In the case of Re Cockburn’s Wills Trusts otherwise known as Cockburn v Lewis (1957) 1 Ch 438. 4 persons had been appointed executors and trustees of a will, 2 of them  the predecessors and the third denounced probate. Two administrators with the will attached were then attached were then appointed and they carried out their duties for 10 years after which a question arose relating to a scheme for the purpose of distributing the residuary estate and a sermons was taken out to determine whether the administrators who had cleared the estate and completed the administration in the ordinary way were trustee for the purposes of the will and therefore at liberty to exercise the powers and the discretions conferred on the trustee for the time being of the will. The question is arising because they were not the persons appointed as the executors and administrators, and it was held that the administrators having duly completed their duties as administrators had the power under the Act  to appoint new trustees of the will to act in their place and that if they did not so appoint new trustees to execute the trust of the will they themselves would become trustees in the full sense. The administrators are not being seen as full trustees but they can become full trustees if they do not appoint somebody else.

 

The judge stated at p440” Whether persons are executors or administrators once they have completed the administration in due course they become trustees holding for the beneficiaries either on an intestacy or under the terms of the will and are bound to carry out the duties of trustees although in the case of personal representatives  they cannot be compelled to go on acting indefinitely as trustees and are entitled to appoint new trustees in their place and thus clear themselves from those duties which were not expressly conferred on them under the terms of the testator’s will and which for that purpose they are not bound to accept.”

 

We may also see the differences in the two offices. The duty of trustees to administer a trust on behalf of beneficiaries some of whom may be minors or even unborn may a long continuing process and many years may elapse before a trust can be brought to an end. On the other hand the primary duty of personal representatives is to wind up the estate by paying debts and taxes and thereafter distributing the residue to the persons beneficiaries entitled to it or to trustees who in some cases may be themselves to hold on trust if there provision for a continuing trust. Whereas the beneficiary has …… soon ass the trust takes effect a person who is entitled to a share of the deceased estate has no proprietary interest while the assets of the estate remain in the course of the administration. All he has is a right to acquire the deceased’s estates to be duly administered by the person representatives.

See Commissioner of Stamp Duties v Livingstone (1965) AC 694; RE Leigh’s Wills Trust.

 

In the second case it was held that the nature of the interest of a beneficiary under a will is the right to require the estate to be duly administered which right is a chose in action which is transmissible.

 

In the other case it was held that the executor it was held he takes both legal and equitable title subject to his fiduciary duties to the beneficiaries and creditors of the testator for whose benefit he is to administer the estate.

 

A beneficiary under a trust acquires proprietary rights immediately the trust comes into operation. There are also differences in limitation period, Cap 22 section 20 and 21.

 

Power

A trust is an obligation on the trustees which is mandatory while a power is normally discretionary. E.g. a trust in favour of X and Y must be carried out to the letter and if money is to be paid to them in equal shares it does not matter whether one needs it more than the other. The trust is bound to distribute it as directed. In the case of Re Baden’s Deed Trust (1973) Ch 9 the House of Lords stated what as to powers “although the trustees may and normally will be under fiduciary duty to consider whether or in what way they should exercise their power the court will not normally compel its exercise. It will intervene if the trustees exceed their power and possibly if they are proved to have exercised it capriciously. But in the case of a trust power if the trustees do not exercise it, the court will do so in a manner best calculated to give effect to the settlors or testators intention.”

 

It is not always easy to distinguish where it is a trust power or real power. It is always a question of construction. One has to construe whether the settlor has shown an intention to benefit the objects of the power and sometimes this may depend on a few words or mere straws in the wind as stated by Lord Justice Harman LJ in  Re Baden’s Deed Trusts and also in McPhail v Doulton (1971) AC 424 illustrated. In McPhail v Doulton the deed in question provided that the trustees should apply the net income in making payments at their absolute discretion what to or for the benefit of any of the officers and employees or ex officers or ex employees of the company or to any relatives or defendants of any such persons in such amounts or on such conditions if any as they think fit.”

 

Thus there is wide open discretion.

 

The judge of first instance (176) I WLT 457, Goff J, held it created a power and the court of appeal agreed by a majority. The House of Lords however held unanimously that it was a trust power and accordingly took effect as a trust. The clearly expressed scheme of the deed pointed to a mandatory construction according to the House of Lords.

 

So a power may be said to be an authority given to a person either by instruments or by statutes to deal with or dispose of property. There are those powers which give powers of dispossession over property such as a power of appointment.

 

Then there are those which give power to deal with property in a particular manner. An example of a power of appointment would be where the owner of a certain property gives power to another to appoint to the property to some third parties for example, Kenya shillings one million to the third party for life and the remainder to whomsoever he shall appoint.

 

The differences may be to

 (1) A trust is imperative while a power is discretionary.

(2) A trust is always equitable whereas a power can be legal, e.g. a power of attorney to transfer land on behalf of the appointer. However note the majority of powers are also equitable.

 (3) A trust is always under a fiduciary duty but the holder of a power may or may not be under such duty in relation to the power.

 (4) A power may be released by its holder but a trustee may not release his trust. Look at the case of Re Hay’s Wills trust (1982) 1 WLR 1202 in which the VC said that both concepts should be treated similarly.

 

Nature of the beneficiary’s interests

At common laws the only right recognized were the legal rights in the trustee and so equity stepped in to recognize a beneficial interest in favour of the beneficiary and allowed the beneficiary to enforce it. The interests of a beneficiary are therefore equitable.

 They confer on the beneficiary rights which include:

(1) The right to apply for a receiver to be appointed over trust property

(2) The right to apply for the court’s sanction for unauthorized transaction

 (3) Right to apply for injunction

(4) A right to a charge on property bought partly with trust money

(5) Right to inspect and take copies of account

(6) Right to join as dependants

(7) To sue in the trustees name

 (8) when jus juris to bring the trust to an end

 

TRUST & DEBT

With respect to a debt a liability without more cannot be the subject matter of a trust.  There are exceptions to the rule

1.                  That a debtor will be able to create a valid trust of the sum which he owes for the benefit of his creditor or of a third party if segregates the appropriate sum from his other assets and makes an express declaration of trust in respect of the segregated amount.  The effect of the creation of such a trust will be to give its beneficiary an advantage over the other creditors of the debtor in the event of the debtor being declared bankrupt;

Why did the trust give an advantage to the creditor who is a beneficiary?  The proprietary interest of the beneficiary takes precedence;

 

2.                  There is in principle no reason why the same transaction should not give rise both to a trust and to a debt e.g. a loan for a specific purpose can be made on the condition that the sum advanced will be held on trust for the lender unless and until the purpose of the loan is carried out.  In such circumstances, what is crucial is the intention of the two parties (equity looks to the intent rather than form)  in the case of Barclays Bank V. Quistclose Investments [1970] AC 567, A company which was substantially indebted to the Bank needed funds in order to pay a dividend on its shares. Quistclose advanced the necessary funds to the company on the basis that they were only to be used for this purpose (to pay the dividends) and they were placed into a separate account at the bank which bank was made aware of this arrangement.  The company went into liquidation before the dividend was paid.  The question for decision was whether the bank could set-off these funds that were held in this separate account against the indebtedness of the company to the bank.  Whether they could do so or not depended entirely on whether there was a trust in favour of Quistclose Investments.  If Quistclose was no more than a creditor of the company that had gone burst, then the funds in the bank belonged to the company and the bank would be entitled to set-off the credit balance of the account against the substantially greater indebtedness of the company.  If on the other hand the funds were held on trust for Quistclose Investments its proprietary interests in the funds would enjoy priority over the rights of the bank.  The case went to the House of Lords which held that arrangements for the payments of a person’s creditors by a 3^rd party give rise to a relationship of a fiduciary character or trust in favour as a primary trust of the creditors and if the primary trust fails in favour of the 3^rd party as a secondary trust.

 If the primary purpose had been achieved, Quistclose investments the 3^rd party would have been no more than a creditor of the company but as that had not happened, its proprietary interest in the funds were held to take priority over the rights of the bank. 

 

This case gave rise to what is now known as the ‘Quistclose Trust’.   It is important that the bank is aware of the arrangement and here the bank had been made aware of the arrangement.  In the case of Carreras Rothmans V. Freeman Mathews Treasure [1985] Ch. 207. The judge was Peter Gibson J. who stated “the principle in all these cases is that equity fastens on the conscience of the person who receives property from another, transfers for specific purpose only and not therefore for the recipient’s own purposes so that such person will not be permitted to treat the property as his own or to use it for other than the stated purpose.”

 

3.                  It is equally possible for proprietary rights to be conferred on someone who would ordinarily be no more than an unsecured creditor as a result of the unilateral act of one of the parties.  For example a purchaser who is paying for goods in advance can specify that the funds remitted are to remain her property in equity unless and until the goods are actually delivered.  Such a reservation will bind the seller and his trustee in Bankruptcy but will not however bind a bank in which the funds have been deposited in which they are clearly segregated in what the bank knows to be trust account.

 

 In the case of  Re Kayford [1975] 1 WLR 279, This case concerned a mail order company.  A mail order company in financial difficulties became concerned as to its ability to supply the goods for which its customers were paying in advance.  It opened what was called a customers’ trust deposit account into which all purchase moneys received from customers were deposited and were withdrawn only as and when the customers orders could be met.  Shortly after opening this account the company went into liquidation and the Meggary J. held that the funds in this bank account were held on trust for the customers. By paying the purchase moneys into the trust account the company had prevented the customers from ever becoming creditors and therefore no question of preference arose.

 

TRUST & BAILMENT

A bailment is a delivery of personal chattels to a bailee subject to a condition that they be returned to the Bailor or be dealt with as the Bailor directs when the purpose of the bailment has been carried out.  There is an element of delivery in bailment. 

 

The position of a bailee is similar to that of a trustee in the sense that both are ‘entrusted’ with another’s property.  The Trustee’s duty to take care of trust property is roughly comparable with the duty of a gratuitous bailee although generally the trustee’s duties are more onerous.  In fact Blackstone in his commentaries Book II at page 451 defines bailment rather confusingly as a delivery of goods upon trust.  This is perhaps due to the similarity.  There are however differences

 

(a)               A bailee obtains only possession and what is referred to as special property in the goods property while a trustee takes title to the trust property.  As a consequence a bailee cannot except in a sale in market overt by virtue of estoppel or under special legislations such as the Factors Acts pass a title to the Chattels valid against the bailor whereas a bona fide purchaser who purchases the legal estate from a Trustee for value without notice of the trust acquires a good title;

 

(b)               Bailment is a common law notion worked out in proceedings for common law relief such as actions for conversion, detinue or breach of contract whereas the trust relationship is purely equitable.  In conversion, initial possession is lawful but later converts the goods contrary to what the owner intended.  Detinue is where the defendant is unlawfully withholding the plaintiff’s goods with no good reason. 

 

(c)               Bailment applies only to personal chattels that are capable of delivery whereas a trust may arise in respect of real or personal property and whether tangible or intangible.

 

(d)              A bailment is enforced by the bailor who is a party to the arrangement while generally the trust is enforced by the beneficiary who is not a party to the trust instrument.

 

LAW OF TRUSTS Lecture 6                                                                     

 

Swain v Law Society,  the law society passed an Act in 1974 Section 7 of the Act directed that every lawyer was supposed to be insured as an indemnity for litigation that will arise in the course of their performance.

 

Swain went to court and argued that the Act of 1974 was Ultra Vires the court held that the society had powers to make rules for its members but where the society was being paid by the broker.

 

Act of 1974 ultra vires

Premium from the broker should be paid directly to the lawyers and not to the society.

 

Power given to the society was power in the public interest and

Had the law society entered into a policy contract as trustee for the lawyers who were members of this society?  No the society was not a trustee.

 

There was no intention to create a trust in reference to the premiums paid.

 

 

 

Trust & Agency

An agency arises where a person called the agent has expressed or implied authority to act on behalf of another called the principal and he consents to do so.  The agent is normally treated as an accounting fiduciary party and he binds the principal vis-à-vis third parties.  The two relationships are similar in that

1.                                       both the trustee and the agent act for another’s benefit;

2.      their fiduciary roles prevent them from allowing personal interest and duty to conflict e.g. they may not purchase the property of the person to whom the fiduciary duty is owed. 

3.                                       Thirdly both are normally obliged to act personally and the duties are not ordinarily delegable.

 

There are differences however

1.                  The trustee in exercise of his office will contract as principal and cannot bind the beneficiaries unless they have constituted him both trustee and agent but an agent binds his principal so long as he acts on the principal’s authority or on the apparent or ostensible authority that he is deemed to have.

2.                  Although the trustee has a right of re-coupment and indemnity against the beneficiaries for any properly incurred expenses and creditors may subrogate those rights in certain circumstances there is therefore no direct contractual link between the beneficiary and 3^rd parties comparable to the link between the principal and 3^rd parties

 

3.                  Agency is normally terminated on death of either party and also by the principal acting unilaterally if there is no contract to the contrary or the contract permits him to do so.  On the other hand a trust cannot be revoked unless the trust instrument reserves the power of revocation.  Mallot v. Wilson [1930] 2 Ch. 494.

 

 However the beneficiaries if sui juris unanimous and together entitled may demand that the trust property be distributed and consequently that the trust be brought to an end.

 

4.                  Normally the principal in agency gives binding directions to his agent whereas beneficiaries cannot control the exercise of the trustee’s discretion.  Refer to Re Brockbank [1948]Ch. 206;

 

5.                  The central distinction between agency and trust is in relation to property.  An agent does not per se hold any property for his principal. Many agents do not obtain items of property at all and those who do so acquire only possession but not title.  On the other hand there can be no trust unless title to the trust property vests in the trustee or in another party on behalf of the trustee.

 

Trust and agency overlap

 Note that trust and agency may overlap.  A trust may be created under which the trustee undertakes a contractual obligation to act on behalf of the beneficiary e.g. the vesting of company shares in a nominee for a fee.  Conversely an agent may become a trustee if for instance he acquires title to property to be held for the benefit of his principal. 

 

It has been said that an agent becomes a trustee for his principal if he obtains title to the property for the principal’s benefit and on the face of if this is a clear proposition.  However this is not easy to gauge in practice especially if what is involved is a mere chattel or money whose title may be transferred by mere delivery of possession with an intention to transfer it.  The question was tested in Cohen v. Cohen [1929]1 CLR in which a wife had sued her estranged husband for several sums of money and the husband in defence pleaded the statute of limitations her claims were time barred under the statutes of the Limitations Act.  The defence would succeed unless the claims arose under a trust or had been acknowledged within the limitation period applicable to personal claims.  The claims were as follows:  9000 DM being money and the sale price of chattels sold on her behalf by an agent in Germany.  In order to overcome difficulties which attended transfer of funds from Germany to England where she lived, the wife had arranged for her husband to collect her 9000 marks and use it for purchase of goods in Germany for his own business, it being agreed that he would pay her out of his own funds in England.

 

The second claim was for £123 pounds sterling being the sale price of surplus furniture of the wife sold after the marriage, the husband having retained this amount.

 

The third claim was as to £80 pounds sterling being settlement of an insurance claim arising from the loss of the wife’s jewellery again the husband having retained this amount.

 

The court held that she succeeded in all the claims, the court finding that the husband stood in a fiduciary relationship with regard to the wife’s property in the circumstances and was therefore a trustee for her benefit.  In arriving at this decision the court followed the decision in Burdick v. Garrick 9000 DM (1870) L.R. 5 C.L 233 where Lord Justice Giffard stated as follows:

      “in respect of attorneys who had been authorised and buy property and had attempted to set up the statute of limitations as a defence “there was a very special power of attorney under which the agents were authorised to receive and invest to buy real estate otherwise to deal with the property but under no circumstances could the money be called theirs.”  Under no circumstances had they the right to apply the money to their own use or to keep it otherwise than to a distinct and separate account throughout the whole of the time that this agency lasted, the money was the money of the principal and not in any sense theirs.  Under these circumstances, I have no hesitation in saying that there was in the plainest possible terms a direct trust created.  I do not hesitate to say that where the duty of persons is to receive property and to hold it for another and to keep it until it is called for, they cannot discharge themselves from that trust by pleading lapse of time.”

 

LAW OF TRUSTS Lecture 7                                                

 

ESTATES OF DECEASED PERSONS:

The legal personal representative (executor) where there is a will nominating him as such otherwise an administrator with respect to the deceased who dies intestate is a trustee for the creditors and beneficiaries claiming under the deceased.  He holds the real and personal property of the deceased for their benefits and not his own.  Under the Trustee Act a personal representative is said to be a Trustee.  However the two relationships should not be treated as being exactly the same although the personal representative may become a trustee in the full sense.  In the case of Re Cockburn’s Wills Trust (Cockburn v. Lewis [1957] 1 Ch. 438.  Three persons had been appointed executors and trustees of a will two of them, predeceased the testator and the 3^rd renounced probate.  Two administrators with the Will annexed were then appointed and they carried out their duties for a period of ten years after which a question arose relating to a scheme for the purpose of distributing the residuary estate.  A summons was taken out to determine whether the administrators who had cleared the estate and completed the administration in the ordinary way were trustees for the purposes of the will and therefore at liberty to exercise the powers and discretions conferred on the trustees for the time being of the will.  It was held that the administrators having duly completed their duties as administrators had the power under the Act to appoint new trustees of the will to act in their place and that if they did not so appoint, new trustees to execute the trusts of the will, they themselves would become trustees in the full sense.  The judge stated at page 440 “whether persons are executors or administrators, once they have completed the administration in due course, they become trustees holding for the beneficiaries either on an intestacy or under the terms of the will and are bound to carry out the duties of the trustees though in the case of personal representatives they cannot be compelled to go on acting indefinitely as trustees and are entitled to appoint new trustees in their place and thus clear themselves form those duties which were not expressly conferred on them under the terms of the testator’s will and which for that purpose they are not bound to accept.”

 

There are differences in the offices of the personal representatives and the trustee, the duty of trustees who administer trust on behalf of beneficiaries some of whom may be minors or even unborn may be a long continuing process and many years may elapse before a trust can be brought to an end.  On the other hand the primary duty of personal representatives is to wind up the estate by paying debts and taxes and thereafter distributing the residue to the persons beneficiary entitled to it or to trustees who in some cases may be themselves to hold on trust if there is provision for a continuing trust.  The trustee’s duty is not merely the passive one different from a personal representative whose duty is to wind up and distribute the residue estate.  Whereas a beneficiary has an equitable interest in the trust property, as soon as the trust takes effect a person who is entitled to a share of the deceased estate has no proprietary interest while the assets of the estate remain in the course of administration.  All he has is a right to require the deceased estate to be duly administered by the personal representatives.  Refer to the case of Commissioner of Stamp Duties V. Livingstone  [1965] A.C. 694 and Re Leigh’s Wills Trust [1970] Ch. 227.  in Re Leigh’s it was held that the nature of the interest of a beneficiary under a will is a right to require the estate to be duly administered which right is a ‘chose’ in action which is transmissible.

 

In commissioner of stamp duties, it was held that the executor takes both legal and equitable title subject to his fiduciary duties to the beneficiaries and creditors of the testator for whose benefits he is to administer the estate. A beneficiary under a trust acquires proprietary rights immediately the trust comes into operation.

 

There are also differences in respect of the limitation periods under Section 20 and 21 of Cap 22.

 

TRUST & POWER

It is said that a trust is an obligation on the trustees which is mandatory while a power is normally discretionary. For example a trust in favour of X and Y must be carried out to the letter and if money is to be paid to them in equal shares it does not matter whether one needs it more than the other.  The trustee is bound to distribute it as directed.  In the case of Re Baden’s Deed Trusts [1973] Ch. 9  the House of Lords stated “as to powers although the trustees may and normally will be under a fiduciary duty to consider whether or in what way they should exercise their power, the court will not normally compel its exercise.  It will intervene if the trustees exceed their power and possibly if they are proved to have exercised it capriciously.  But in the case of a trust power if the trustees do not exercise it the court will do so in a manner best calculated to give effect to the settlor’s or testator’s intentions.”

 

It would appear that power is a question of construction with respect to each case depending on its circumstances.  One has to construe whether the settlor has shown an intention to benefit the objects of the power and sometimes this may depend on a few words or mere straws in the wind as stated by Lord Justice Harman in Re Baden and also as the leading case of McPhail v. Doulton (1971) A.C. 424 illustrates.  In this case the deed in question provided that the trustees should apply the net income in making payments at their absolute discretion “to or for the benefit of any of the officers and employees or X officers or X employees of the company or to any relatives or dependants of any such persons in such amounts or on such conditions if any as they think fit.”  The Judge of first instance (1967) 1 WLR 457 Goff J. held that it created a power and the court of appeal agreed by a majority.  The House of Lords however held unanimously that it was a trust power and accordingly took effect as a trust.  The clearly expressed scheme of the Deed pointed to a mandatory construction according to the House of Lords.

 

A power may be said to be an authority given to a person either by instrument or by statute to deal with or dispose off property.  There are those powers which give power of this possession of a property such as a power of appointment to decide who takes what property amongst many properties.  Then there are those which give power to deal with property in a particular manner.  An example of a power of appointment would be where the owner of certain property gives power to another to appoint the property to some third parties e.g. Kenya Shillings one million to the 3^rd party for life and the remainder to whomsoever he shall appoint.  The differences may be said to be

1.         A trust is imperative while a power is discretionary;

2.         A trust is always equitable whereas a power can be legal e.g. a power of attorney to transfer land on behalf of the appointer. However note that the majority of powers are also equitable;

3.         A trustee is always under a fiduciary duty but the holder of a power may or may not be under such duty in relation to the power;

4.         A power may be released by its holder by a trustee may not release his trust.

 

Re Hay’s Wills Trust (1982) 1 W.L.R. 1202 in which the vice chancellor Megarry J. expressed the view that both concepts should be treated similarly.

 

 

Nature of the Beneficiary’s interest

At common law the only rights recognised were the legal rights in the trustees and so equity stepped in to recognise a beneficial interest in favour of the beneficiary and allowed the beneficiary to enforce it.  The interests of a beneficiary are therefore equitable and they confer on him rights which include

(a)               The right to apply for a receiver to be appointed over trust property;

(b)               The right to apply for the court sanction of unauthorised transactions

(c)               The right to apply for injunctions;

(d)               The right to a charge on property bought partly with trust money,

(e)               The right to inspect and take copies of the account;

(f)                The right to joint trustees as defendants;  to sue the trustees, to sue in the trustee’s name etc.  When sui juris and together entitled to bring the trust to an end.

 

LAW OF TRUSTS Lecture 8                                                            

 

CERTAINTY OF WORDS CONTINUED

 

The trend would seem to be to negative such an intention where such words occur but each case depends on its particular set of circumstances.  In Re Adams & Kensington Vestry (1884) 27 Ch. D 394 where a testator had given all his real and personal estate to his wife “in full confidence that she would do what was right as to the disposal thereof between my children”.  It was held that under these words the widow took an absolute interest in the property unfettered by any trust in favour of the children.  The judge also observed that some case had gone very far and unjustifiably imposed upon words a meaning beyond that which they would bear if looked at alone.

 

What is meant by certainty of words is certainty of intention to create a trust appearing from the words in the document.   In the case of Re Diggles (Gregory v. Edmonson (1888) 39 Ch.D 253 a testatrix Maryanne Diggles had made a will dated 4^th August 1868 in the following terms “I give device and bequeath all my real and personal property and effects unto my daughter Frances Edmonson her heirs and assigns and it is my desire that she allows to my relatives and companion Anne Gregory now residing with me an annuity of 25 sterling pounds during her life and that the said Anne Gregory shall if she desire it have the use of such portions of my household furniture linen etcetera as may not be required by my daughter Frances Edmonson…”  Under this will the daughter and her husband Alfred had been appointed as executrix and executor of the will.  They continued paying annuity to Anne for a number of years and then stopped.  She filed a suit for payment of arrears and a decision that they held the Estate subject to a trust in her favour.  The question was whether under these words there was any trust created in favour of Anne Gregory and the Court of Appeal held that no trust or obligation to pay the annuity was imposed upon the daughter but that there was only a request to the daughter not binding on her in law to make that provision for Anne Gregory.

 

No trust was created either in Lambe V. Eames (1871) E.R. Ch. App 57   using the words “have confidence”  and in Re Williams (1897) 2 Ch. 12  by the use of the words “fullest, trust and confidence” and neither was such trust created in Re Connoly (1910) 1 Ch. D 219 by the words “specially desire”

 

On the other hand in the case of Comiskey V. Bowring –Hanbury (1905) A.C. 84 The testator gave all his property to his wife “absolutely in full confidence that she will make such use of it as I would have made myself and that at her death she will device it to such one or more of my nieces as she may think fit.”  The House of Lords held that on a true construction of the whole will the words in full confidence created a trust.

 

CERTAINTY OF SUBJECT MATTER:

There are two limbs to this rule that the subject matter be certain:

1.                  The trust property or trust fund must be certain, it is uncertain to say for example “the bulk of my residuary estate”

 

2.                  The actual interest that the beneficiaries are to have must also be certain.

 

The maxims of equity will in certain cases come in to remedy the defects.  Equity is equality, equality is equity.  Equity tries to save a trust by finding a way to cure the uncertainty so where the maxim is applicable equity will apply equality is equity to divide in equal proportions.  Note that there is no uncertainty if the testator does not specify the exact interest but confers upon the trustees a discretionary power to apply the trust fund or to pay it among a class of persons as they think fit.  The discretionary power provides the absolute certainty.

 

Even if part of the trust is uncertain a certain part is still good and in certain circumstances if the uncertain part fails the entire interest will go to the persons entitled to the certain part of Curtis V. Rippon (1820) 5 Madd. 434 where the testator had left all his property to his wife “trusting that she would in fear of God and in love of the children committed to her care make such use of it as should be for her own and their spiritual and temporal good remembering always according to the circumstances the church of God and the poor”. The court held that the beneficial interest was to be taken by unascertained beneficiary subject to the rights of others to unascertained portions of it and the rights of these others therefore failed due to uncertainty and the ascertained beneficiary took the entire interest.

 

In Re Kolb’s Wills Trusts (1962) Ch. 531 what was in issue in this case was the construction of an investment clause in a will where the testator had referred to among other things investments in Blue-Chip Securities.  The term blue-chip securities is often used to denote shares in large public companies thought to be entirely safe but is not a term of art and it lacks precision.  The judge held that the term depended essentially on the standard applied by the testator and should not be regarded as an objective quality of the investment.  If the testator had made his trustees the judges of the standard to be applied, all would have been well but as he had not that part of the clause in which the term was contained was void for uncertainty.

 

Contrast this decision with the decision in Re Golay’s Wills trust (1965) 1 WLR 969

 

Law of Trusts-Lecture 10

 

Claire v Claire

Capacity and approval, testamentary capacity

 

Certainty of objects

The question: who has locus standi or who stands to benefit. The test of certainty here is that the objects be certain or be capable of being rendered certain. This test was restrictively interpreted in the case of I.R.C v Broadway Cottages Trust, to require that the trustees should at any time be able to make a full list of the beneficiaries an (1955) Ch 678 if the class was uncertainable at any time the trust will fail for uncertainty.

 

 with regard to trust powers in favour of a discretionary class of objects. This test was later discarded by the House of Lords. In the case of McPhail v Doulton (1971) AC 424 and a new test identical to that used in Powers was formulated which is whether it can be said of any given person that he or she is or is not a member of the class. There has been arguments that this new test should also apply to fixed trusts and not only to discretionary trusts but the issue has not finally be determined.

 

There is an important exception to the rule that the objects be certain and this is the charitable trust where provided that a paramount general intention of charity is manifested certainty is charitable trusts is not essential to the validity of the trust.

 

The effect of uncertainty is as follows:

1.         with respect to certainty of word or intention if an intention to create a trust cannot be derived the words used in the instrument the alleged trustee will take the property beneficiary.

2.         if it is the subject matter that is uncertain the transaction will fail “in limine” or from the threshold. In such circumstances there is nothing certain on which the trust can fasten. If it is the beneficial interest which is to be taken by the beneficiaries which is uncertain there is may a trustee in favour of the settlor or rep if he dead. Ort in certain cases in favour of the residual legatee is there is one. There may also be cases where p-art of the trust is certain in which case the uncertain parts may go to the person entitled to the certain parts. Sometimes the maxim of equity will be applied to divide equally.

3.         if it is the objects that are uncertain with the exception of the charitable trust there will be a resulting trust either in favour of the settlor, his estate if he is dead, or in favour of the residuary legatee.

 

Secret trust

These usually arise where a person wishes to make provision for another but does not want the whole world to known about it. When a person dies his will become open to public inspection and secret trusts are used to  avoid this public scrutiny and sometimes this is because  the testator mistress or illegitimate children. The doctrine of secret trust was originally based on equity’s maxim that equity will not allow a statute to be used as a cloak or  engine of fraud. The statute referred to in this maxim was the Wills Act 1837, which was a statute of general application. Under section 9 of that act (equivalent to section 160) no will shall be valid unless

(a)               it is in writing and signed by testator or by some other person in his presence or by his direction

(b)               it appears that the testator intended b y his signature to give effect to the will

(c)               the signature is made or acknowledged by the testator in the presence of two or more witnesses

(d)               each witness either (1) attests and signs the will or (2) acknowledges his signature in the presence of the testator. A will executed without these formalities is void and this applies to both inequitable interest as well as a legal estate disposed of by the will.
The doctrine of secret trust applies in that the details of the trust or the very existence of the trust is not disclosed in the will. And the doctrine applies as follows: If a testator makes a provision of a gift in his will to a trustee therein named on the strength of a promise that the recipient will hold that property on trust for a third party, equity will prevent any attempt by the recipient to rely on the absence of any mention of the trust in the will and to claim the property for himself. And this is despite the testator’s failure to comply with section 9. an equitable obligation communicated to the trustee during the testator’s lifetime, which obligation which the trustee has expressly or by implication accepted. The doctrine of secret trust therefore operates outside the provisions of the will Act or the Law of Succession Act. In Blackwell v Blackwell (1929) AC 318, 335, it was stated by Viscount Summer “ For the prevention of fraud equity fastens on the  conscience of the legatee a trust which otherwise would be inoperative. In other words it makes him do what the will has nothing to do with. It lets him take what the will gives him and then makes him apply it as the court of conscience directs and it does so in order to give effect to the wishes of the testator which would not otherwise be effectual.”

 

The basis of the secret trust is therefore the existence of a validly executed will which passes the title of property to the intended trustee and the acceptance by the trustee of an equitable obligation during the testator’s lifetime

This is illustrated in the case of Re Young (1951). Ch 344.  Here one of the intended beneficiaries under a secret trust had witnessed the will and the question was whether he forfeited his legacy under section 15 of the Wills Act which provides that a witness to a will cannot take a benefit under it (S 13 (2) of the Law of Succession Act. The judge held that there was no forfeiture because the whole theory of the formation of a secret trust was that the act had nothing to with the matter. He went on to say that the forms required by the Wills Act were to be entirely disregarded because the beneficiary did not take by virtue of a gift in the will but by virtue of a secret trust imposed on an apparent beneficiary who did not take under the will and who was bounded by the trust.

 

Secret TRUSTS will be classified into full and half secret trust.

A full secret

A full secret trust, which are completely concealed by the testator in his will. On the face of the will, the alleged trustee takes absolutely. If property is given by will to x absolutely and a communication is made to x by the testator during his lifetime that x is to hold the property on specified trusts and provided also that x accepts the trust, a fully secret TRUST which is enforceable at equity will come into being. In the case of Ottaway v Norman (1972) Ch 698 the judge stated the essential requirements of a secret trust as follow

1.         The intention of the testator to subject the primary donee to an obligation in favour of a secondary donee

2.         the communication of that intention to the primary donee

3.         The acceptance of that obligation by the primary donee either expressly or by acquiesce. Evidence oral or written is admissible to show the terms of a trust. And in the case of Ottaway it was stated that clear evidence is needed before court will assume that the testator did not means what he said but intended that the gift should be held by the beneficiary subject to a secret trust. He was also of the opinion that the standard of proof required to establish a secret trust was perhaps analogous to that which the court requires for the ratification of a written instrument. On the other hand in Re Snowden (1979) the vice chancellor conceded that the standard of proof for ratification was not the appropriate analogy. He thought that in the absence of fraud or the special circumstances the standard of proof of a secret trust was merely the ordinary civil standard of proof required to establish an ordinary trust. In this case the testator had left her residual estate to her brother who subsequently died leaving his estate to his only son. There was some evidence that the testatrix had said that the brother would know what to do and would deal with everything for  her but it was held that although there was some arrangement between the parties it amount only to a moral obligation which was not intended to be binding and accordingly the brother had taken the residual free from any secret trust and on his death it passed to his son absolutely

 

The doctrine of fully secret trust has a rather long history and its basis was established as long ago as 18^th century. Thus in the case of Drakeford v Wilks (1737) the t. had bequeathed a bond to the plaintiff. She was thereafter induced to make a new will by which she bequeathed the same bond to a third party  on the strength of a promise by the third party that upon his death the bond would go to the plaintiff and it was held on those facts that the plaintiff could compel the performance of the trust

 

Law of Trusts-Lecture 11

 

FULLY secret acts

1. It is essential to show that the testator did in fact communicate the trust during his lifetime to the legatee and that the latter explicitly or impliedly accepted it. If the legatee only hears about the trust after the testator’s death the secret trust will fail and the legatee will take absolutely.

[Legatee-one who is named in a will to take personal property; one who has received a legacy or bequest; loosely, one to whom a devise of real property is given]

 

2.      The communication of the trust and its acceptance may take place either before or after the date of the Will provided that it takes place during the lifetime of the testator.

 

3.      If the fully secret trust is accepted by the trustee but the objects of the trust are not communicated during the lifetime of the testator the trust will not take effect but in such a situation the legatee will not take absolutely and there will be a resulting trust in favour of the testator’s estate or in favour of the residuary legatee if there is one.

 

In the case of Re Boyes (1884) 26 Ch D 531, the testator had made an absolute gift of property to his executor. The testator had previously told the executor that he wished him to hold the property according to directions which he would communicate by letter and the executor had agreed to this arrangement. However, these directions were not communicated by the testator but after his death two unwitnessed documents were found in which the testator stated that he wished a particular person to have the property and on those facts it was held that the secret trust failed and the executor held the property for the testator’s next of kin as there was no gift of residual.

 

4.      Communication and acceptance of the trust may be effected constructively and in that case in Re Boyes the judged expressed the view that a trust put in writing and placed in the trustee’s hands in a sealed envelope would constitute communication and acceptance at the date of delivery for that purpose. This view was accepted by the court of appeal in the case of Re Keen (1937) Ch 236 which was a case of half secret trust.

 

5.      It is required that the property that forms the subject matter of the intended trust be certain which is a rule that applies generally in the law of trust.

 

Half secret trusts

These arise where the trustee on the face of the will takes as trustee but the terms of the trust are not specified. For example, if property is given to a person for purposes which I have communicated to him or for purposes which he is aware of a half secret trust will arise. It is clearly established that evidence cannot be adduced to contradict the express terms of the will, therefore if the will points to a future communication, for example, to my trustees for purposes which I will communicate to them evidence cannot be admitted of communication made before the will was made. Similarly if the will points to a contemporaneous or past communication evidence cannot be admitted of communication made after the execution of the will. You should note that as the present state of the law stands future communications with respect to half secret trusts, whether or not the will points to them, are not in any even admissible.

 

However where the communication of the trust is made before or at the same time as the execution of the will evidence is admissible to show the terms of the trust and the trustee is bound by it. You may refer to the case of Backwell v Blackwell (1929) A 318 for that proposition.

 

It has been argued that the principle governing communication made after the execution of will yet prior to the testator’s death with respect to half secret trust cannot be justified and it would appear that the courts have confused the doctrine of secret trust with the probate doctrine of incorporation by reference. Section 12 sets out the probate doctrine of incorporation. It means that it is possible to incorporate in a will a document which is not executed in accordance with —- in our case-- the Law of the Succession Act but for the doctrine to apply the document must be in existence at the date of the will and must be specifically referred to in the will. It is argued that this rule of probate is concerned purely with the validity of the will itself and the documents to be incorporated within it. The rule should not and does not relate to secret acts, which according to the doctrine of secret trusts operates outside the will.

 

If a testator wishes to carry out his purpose by making a number of secret trusts piecemeal he must inform the trustees in respect of every edition to the secret objects. Example in the case of Re Colin Cooper (1939) Ch 811 in which a testator by will bequeathed 5,000 pounds sterling to two trustees “upon trusts already communicated to them”. He had in fact communicated the nature of the trusts to the trustees by a farther will he purported to increase the sum to be devoted to the secret trust to 10,000 pounds but did not inform the trustees. The result was that though the first install of 5,000 pounds could be devoted to the secret trust the second installment could not.

 

Charitable trusts

Charitable trusts or public trusts are distinguished from private trusts in that they are aimed to benefit society at large or an appreciable portion of society. On the other hand a private trust is aimed to benefit defined persons or defined classes of persons. In general charitable trust are subject to the same rules as private trusts. However, because of their public nature they enjoy a number of advantages which are not shared by private trusts:

 

1. They are restricted to the rule against perpetuity.

 

2. They enjoy income tax exemptions over their investment incomes

 

3. They will not fail for uncertainty of objects if they are exclusively charitable and there is a paramount general intention of charity.

 

Through case law three requirements have emerged for the creation of charitable trusts:

1.         They must be of charitable nature

 

2.         They must be for the public benefit

 

3.         They must be exclusively charitable

Charitable nature

The definition of charity adopted by the courts has been drawn from the preamble of the Statutes of Elizabeth 1601, 43 Eliz 1 .4. In this preamble a list of charitable objects was set out as follows:

 

“The relief of aged, impotent and poor people, the maintenance of sick and maimed soldiers and marines, schools of learning, free schools and schools in universities, the repair of bridges, ports, havens causeways, churches, sea banks and highways, the education and preferment of orphans, the relief of stock or maintenance for houses of correction, the marriage of poor maids, the support, aid and help of young tradesmen, handicraftsmen, and persons decayed, the relief or redemption of prisoners or captives and the aid or care of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes.”

 

The statute was repealed in 1888 by the Mortmain and Charitable Uses Act 188 but the preamble was repeated under section 13(2) of the 1888 Act. The 1888 Act was also repealed in its entirely by the Charities Act of 1960 but the preamble remains a guide to the courts as to the legal meaning of charity. The spirit of the preamble has been used extensively to extend charitable objects by analogy into new situations. The continued relevance of the preamble was affirmed in the case of Scottish Burial Reform and Cremation Society v Glasgow City Corporation (1968) AC 138 in which cremation was held to be a charitable purpose. Lord Wilberforce in that case stated: “What must be regarded is not the wording of the preamble but the effect of decisions given by the courts as to its scope, decisions which have endeavoured to keep the law as to charities moving according as new social needs arise or old ones become obsolete or satisfied.”

 

Likewise in the case of the Incorporated Council for Law Reporting for England and Wales v Attorney General (1972) Ch 73. The Court of Appeal in affirming the charitable status of the council specifically held that the publication or dissemination of law reports was a purpose beneficial to the community being within the spirit and intendments of the preamble to the Statutes of Elizabeth. And in the case of Re Pemsel (1891) AC 531 Lord MacNaghten stated at page 583 as follows:

 

“Charity in its legal sense comprises four principal divisions:

1.         Trusts for the relief of poverty

 

2.         Trusts for the advancement of education

 

3.         Trusts for the advancement of religion

 

4.         Trusts for other purposes beneficial to the community not following under any of the preceding heads.

 

The trusts last referred to are not less charitable in the eyes of the law because incidentally they benefit the rich as well as the poor and indeed every charity that deserves the name must do so either directly or indirectly.”

 

Law of Trusts Lecture 12                                                                  

                                 

FOUR CLASSES OF CHARITY

 

As established by Lord Mcnaghten

 

For a trust to be termed charitable it must benefit or be intended to benefit the public at large.   In Re Horbourn Air Raid Distress Fund [1946] Ch. 194 an emergency fund which had been built up during the war had been used partly for comforts for ex0-employees serving in the forces and later for employees who had suffered distress from the air raids.  An application was made to court with respect to surplus funds arising from this fund and it was held that because of the absence of a public element no charitable trust had been created and the surplus funds should be returned to the contributors.

 

In the case of Oppenheim V. Tobacco Securities Trust Co Ltd [1951] A.C. 297  Trustees had been directed under a settlement to apply monies in providing for the education of children of employees or ex-employees of BAT or any of its subsidiaries or allied companies.  The employees numbered over 110,000.  the question was whether or not the settlement was a charitable trust.  The House of Lords held that although the group of persons indicated was numerous, the nexus between them was employment by a particular employer and it therefore followed that the Trust did not satisfied the test of public benefit which was required to establish it as charitable.

 

In Re Compton [1945] Ch. 123 a trust for the education of the descendants of 3 named persons was held not to be a charitable trust because the beneficiaries were identified by reference to a personal relationship and it therefore lacked the quality of a public trust.  It was a family trust and not one for the benefit of a section of the public.  Therefore an aggregate of individuals ascertained by reference to some personal tie such as blood or contract for example the relations of a particular individual, the members of a particular family or the members of a particular association does not amount to the public or a section thereof for the purpose of the general rule and will not accordingly rank as legally charitable.

 

1.         RELIEF OF POVERTY

Poverty does not constitute destitution it can cover for example the provision of flats at economic rents to benefit old people of small means or to assist widows and orphans of the deceased officers of a bank as in Re Coulthurst [1951] Ch. 661.  Conversely a person is not necessarily poor merely because he cannot afford to provide for himself the advantages that the trust will give him.  Thus a trust to provide dwellings for the working classes in Re Saunders Wills Trust [1954] Ch. 265 was held not charitable and so too a trust to encourage a migration generally in the case of Re Sidney [1908] 1Ch. 488 which was a bequest in trust for “such charitable uses or for such emigration uses or partly for such charitable uses and partly for such emigration uses as the trustees may think fit.”  The trust was firstly held void for uncertainty and master of the Rolls went on to express the view that emigration uses are not necessarily objects of general public utility.  In Re Saunders the testator had directed that his trustee should apply certain property “in any manner in which he considers to be in furtherance of any general charitable intention with regard to the disposal thereof namely to provide dwellings for the working classes and their families residents in the area of Pembroke Dock Pembroke Shire Wales.”  It was held

1.                  The gift for the working classes was not a gift for the relief of poverty and was therefore not a charitable one;

 

2.                  Notwithstanding the testator reference to his general charitable intention no such intention was to be inferred as the phrase as used by the testator was referable only to the particular non-charitable purpose of erecting houses for the working classes.

 

The doctrine of           - general intention of charity

In Sheikh Fazal etc Trust V. Commissioner of Income Tax [1957] EA 616 in which the case of Re Pemsel was applied.  The words “for the benefit or towards the relief of poor and needy Muslims in Mecca and/or Medina” were held to constitute a charitable trust within the meaning of the Income Tax Act.

 

2.         TRUST FOR THE ADVANCEMENT OF EDUCATION

The general rule is that there must be an intention that learning should be imparted not simply that it be accumulated.  The tendency is however to widen the fields of education.  The rule in its somewhat restrictive sense appears to have been adopted by Harman J. in Re Shaw [1957]1 LR 729  it is clear however that advancement of education is broader than the concept of a classroom or formal institution.  However there must be an element of instruction and improvement. Examples of what has been held charitable under this head includes

(a)               The foundation of lectureship in universities;

(b)               Carol singing;

(c)               A trust for “Education, self control oratory, deportment and the arts of personal contact in Ireland in Re Shaws [1952] Ch. 163

(d)               The endowment of a National Theatre Re Shakespeare Memorial Trust (1963) Ch.

(e)               A trust for reviving classical drama;

(f)                Trust for the production of a dictionary;

(g)               Publication of Law Reports (Incorporated Council for Law Reporting for England and Wales V. A.G.

(h)               Prices for sports at an educational establishment;;

(i)                 Publication of vernacular Newspapers Re Tanganyika National Newspapers Ltd [1959] E.A. 1057

 

Those held not to be charitable include

(a)               A trust to found a college for training spiritualistic mediums Re Hummelttenburg {1923} 1 Chg. 213

(b)               A trust for preserving a useless collection of pictures and furniture as a Museum Re Pinion [1965] Ch. 85

(c)               Political purposes which are put forward as educational purposes Re Hopkinson (1949) 1 All E.R. 346.

 

In the case of Re Hopkins Wills Trust (1965) Ch. 669 the testatrix had given her residuary estate to the Francis Bacon Society to be applied towards finding the Bacon/Shakespeare Manuscripts.  One of the main objects of the society was to encourage the general study of the evidence of Francis Bacon’s authorship of plays commonly ascribed to Shakespeare.  The terms of the Will were held to mean that the money was to be used to search for manuscripts of plays commonly ascribed to Shakespeare but believed by the testatrix and society to have been written by Bacon.  The Judge held that the purposes of search or research for original manuscripts of England’s greatest dramatist were within the law’s conception of a charitable purpose on two grounds:

 

1.                  As being for education;

2.                  As being for other purposes beneficial to the community within the fourth head of Lord Mcnaghten’s classification because it was a gift for the improvement of the country’s literary heritage.

 

Wilberforce J. spelt out the requirements that must be satisfied by research as follows:

 

1.                  It must be of educational value to the researcher;

2.                  It must be so directed as to lead to something which will  pass into the store of educational material;

3.                  It must be so as to improve the sum of communicable knowledge in an area which education may cover;

Law of Trusts Lecture 13                                                                         

 

ADVANCEMENT OF RELIGION

Under this group there is a large measure of tolerance in equity and as long as the purpose is not subversive of other religions or morality, it will be upheld as charitable.  In Thornton V Howe (1862) 31 Beav . 14 the master of the rolls recognised as charitable a Trust for the publication of one Joana Southcott even though he evidently thought her doctrines were ridiculous.  There appear to be limits to the court’s latitude  in Jeap Cheah Neo V. Ong Cheng Neo (1875) L.R. 381

 

The privity council held that a trust requiring ancestor worship was not charitable  the Courts concerned would then appear to be only monotheistic religions.  Like in other charities the religious purpose must confer some benefit to the public.  Thus in the case of Gilmour V. Coats [1949] A C 426 a Trust Fund to be applied to the purposes of a Carmelite Convent which comprised an association of strictly cloistered and purely contemplative nuns who did not engage in any activities for people outside the convent was held to fail by the house of Lords on two grounds

(a)               The benefit of intercessory prayer could not be proved in law;

(b)               The Element of edification was too vague and intangible;

 

Examples of trusts held charitable under this head include:

1.                  Support for a religious order or community e.g. a monastery or convent;

2.                  Saying of prayers for the dead. Refer to Re Caus (1934) Ch. 162

3.                  The improvement of musical services in the Church;

4.                  A gift for God’s work has also been held to constitute a valid trust in Re Barker’s Wills Trust [1948] 64 LTR 273

5.                  The repair of a Church Yard or Burial ground;

6.                  Repair of headstones in a graveyard;

 

Those held not charitable under this Head include:

1.                  A trust for the upkeep of a particular tomb;

2.                  A trust to establish a Catholic Daily Newspapers which was held to be only partly conducive to religion in the case of Roman Catholic Arch Bishop of Melbourne V. Lawlor 51 CLR 1. 

 

It is essential that the trust be exclusively charitable and it will fail if it mixes religious objects with some other non charitable purposes.  Thus in the case of Dunne V. Byrne [1912] A.C. 407  a gift was made to the Roman Catholic Archbishop of Brisbane and his successors to be used “as they judged most conducive to the good of religion in the diocese was held to be to wide and therefore failed.  So too a gift for parish work in Farley V. Westminister Bank [1939] AC 430 . 

 

In the White Paper of 1939 under the heading ‘Charities a Framework for the Future-Charities Act 1992’ it was noted anxieties have been expressed in particular about a number of organisations whose influence over their followers especially the young is seen as destructive of family life and in some cases as tantamount to brain washing”

 

OTHER PURPOSES BENEFICIAL TO THE COMMUNITY:

This is a residuary class under Lord Mcnaughten’s classification and as a result provides the most varied set of decisions of trusts held charitable.  The courts have held that any objects within this class must still be within the statute of Elizabeth or at least with the spirit of the statute.  Therefore even though it is a vague and general class, it does not cover every public utility.  The courts approached the category on the tests of whether it is within the statutes and whether it is beneficial to the public.  Examples of trusts held charitable under this heading include;

1.                  A trust for the protection of animals;  Refer to Re Hedgewood [1915] 1 Ch. 113;

2.                  A trust for the provision of a fire brigade;

3.                  Trusts for Hospitals but not a nursing home for private profits;

4.                  Trust for the Defence of the country;

5.                  A trust for a animal hospital;

6.                  A home for lost dogs;  Re Douglas (1887) 37 Ch.D 472  Emphasis here was laid on public utility which is not the normal trend with respect to animal trusts.

 

A gift for the suppression of vivisection has been held not to be charitable although it was once charitable.  Refer to National anti Vivisection V. IRC [1948] AC. 31 on the ground that the benefit of suppressing vivisection did not outweigh the benefit to be derived from it.

 

Among the most important charities under this head are recreational trust and in the UK this are now governed by the Recreational Charities Act of 1958.  The Act was enacted after what was felt to be an inconvenient decision by the House of Lords in the Case of Inland Revenue Commissioner V. Baddeley [1955] A.C. 572.  This case concerned certain trusts “for the promotion of the moral social and physical well-being of persons residents in West Ham and Leyton who for the time being are members or likely to become members of the Methodist Church by the provision of facilities for moral social and physical training and recreation”.  The House of Lords decided that the Trusts failed because they were expressed in a language so vague as to permit the property to be used for purposes which the law did not recognise as charitable and also because they did not satisfy the necessary test of public benefit.  The decision threatened the validity of many trusts which had for a long time enjoyed charitable status such as women’s institutions, boys clubs, miners welfare trust, village halls etc and therefore the need for legislative intervention.

Section 1(1) of the Act provides that it shall be and shall be deemed always to have been charitable to provide all assist in providing facilities for recreation or other leisure time occupations if the facilities are provided in the interest of social welfare.  The sub section also contains an overriding proviso that the trust must be for public benefit.  The requirement that facilities must be provided in the interest of social welfare is not satisfied unless

1.                  It is provided with the object of improving the conditions of life for the persons for whom the facilities are primarily intended and;

2.                  Either

(a)               The persons have need for such facilities by reason of their age, youth, infirmity or disablement, poverty or social and economic circumstances; or

(b)               The facilities are to be available to the members or females members of the public at large;

 

In conclusion therefore, it can only be said that each charitable trust must promote a public benefit but not everything that promotes a public benefit is such a trust.  Therefore a private trust which may benefit the public does not thereby become a public trust.  Public refers to the public in general or a section of the public.  A trust will be charitable if it confers a public benefit and is aimed at the public at large even though by its very nature only a limited number of people can avail themselves of that benefit.

 

The Courts of Chancery have defined thus “On the one hand a form of relief extended to the whole community yet by its very nature advantageous only to the few and on the other hand a form of relief accorded to a selected few out of a larger number equally able and willing to take advantage of it.  The first is charitable and there is a public benefit while the second does not have a public benefit.  The question of whether the gift is charitable is one of evidence to be decided upon by the courts and the opinion of the donor that he gives his gift to the public is not material.

 

There is an exception to the rule that a charitable trust must be for charitable benefit and that is the trust for the relief of poverty.  Such a trust in favour of ones relations or members of a club or employees of a particular employer although having a restricted class of beneficiaries is nonetheless charitable.  The exception is well established but is anomalous and will not be extended by analogy.  For example a trust for the education of ones relatives has been held not to be charitable.

 

 

 

THE EXCLUSIVE NATURE OF CHARITY

In the UK subject to the Charitable Trusts (Validation) Act 1954 it is essential that the Trustees be bound to devote the trust property or the trust fund to charitable purposes exclusively and in the case of Hunter V Attorney General [1899] A.C. 309 it was held that a gift does not create a valid charitable trust unless every object or purpose is wholly charitable.  Therefore if there are joint purposes or alternative purposes which are non-charitable the gift will not succeed as a charitable trust.

 

 

Law of Trusts Lecture 14                                                                         

 

AND/OR

 

The exclusive nature of charity

The settlor may for example join the word charitable with another adjective such as benevolent or philanthropic.  It has been argued that if the joining word used is ‘and’ for example for charitable and benevolent purposes the gift will succeed as it can only be applied to such benevolent purposes as are charitable.  It might also be argued that if the joining word used is ‘or’ the gift may fail because the property can be applied to benevolent purposes that are not charitable.  Therefore a gift “for such charitable or disserving purposes which my executor may select” will fail because the executor without committing any breach of trust may apply the property either partly or wholly to a non-charitable object.  It is all a question of construction however and the word ‘and’ may have been used disjunctively and the word ‘or’ conjunctively.

 

In the case of Houston V. Burns [1918] AC 337 the gift was made for “public benevolent or charitable purposes” in a Scottish Parish and according to the House of Lords the gift failed as not being charitable because the words were wide enough to justify the trustees in disposing of the fund to non-charitable purposes.  

 

A similar result occurred in Chichester Diocesan Fund & Board of Finance (Inc) V Simpson [1944] AC 341 by the use of the words charitable or benevolent.  In this case the trustees had paid the money which was considerable to various charities not anticipating litigation by the next of kin which in fact occurred.  Their case to recover the money from the charities themselves also went to the House of Lords in the leading case of Re Diplock [1948] Ch. 465

 

In the case of AG of Bahamas V. Royal Trust Co. [1986]3 All E.R. 323  the privy Council held not charitable a bequest for “any purposes for and or connected with the education and welfare of Bahamian Children and Young People on the grounds that education and welfare should be interpreted disjunctively and that a trust for welfare was not necessarily charitable.

 

In Webb V. O’Doherty The Times 11^th February 91  Officers of a Students Union were restrained from making any payments to the National Students Committee to stop war in the Gulf or to the Cambridge Committee to  stop war in the Gulf whose purposes were said not to be charitable.  The Union was an educational charity and the officers were therefore only entitled to use its property for charitable purposes.

 

Article in 56 L’QR 458 when and means or by Khanna

 

Compound charitable purposes are valid for example a gift for educational or religious or charitable purposes because each of these items is exclusively charitable.  Refer to Public Trustee V. Ward [1941] Ch. 308 

 

(profit making) 

Generally it is not compatible with charitable status to seek profit as primary objective.  Fees may however be charged and incidental acquisition of profit arising therefrom will not disqualify the trust.  Refer to Scottish Burial Reform   in which it was held in relevant part that the charging of fees by the society did not disqualify it and the society whose main object was the promotion of sanitary methods of disposing of the dead was held charitable. 

 

There are exceptions to the exclusively charitable rule as follows:

1.                  Apportionment – the trustees may be given power or may be under a duty to apportion the property between charitable and non-charitable purposes.  Such a power or duty will not disqualify the trust.  If the trustees fail to apportion the court will apply the maxim equality is equity and divide equally between charitable and non-charitable.

 

2.                  Power of variation: Where the trustees have the power to revoke charitable trust and to declare substitute non-charitable ones the mere existence of this unexercised power does not render the original trust non-charitable.

 

3.                  Incidental or Ancillary purposes:  If a purpose is incidental to the achievement of a purpose which is charitable, it will not destroy the gift.   Refer to Royal College of Surgeons V. National Provincial Bank Ltd [1952] A.C. 631 in which the House of Lords held that the college in law was a charity since its objects as recited in the Charter was “the advancement, promotion and encouragement of the study and practice of surgery” the professional protection of its members provided for in the bylaws was held to be merely ancillary to that object.

 

In the case of Re Coxen [1948] Ch. 747 the testator entrusted to the court of Aldermen of the City of London the management of a large fund for the benefit of orthopaedic hospitals and directed that an annual sum not exceeding a hundred pounds be applied for a dinner for the court upon meeting for the trust business.  The dinner was held by the Judge to be purely ancillary to the primary charitable trust and for the better administration of the trust.

 

Ancillary or Incidental purposes must be distinguished from purposes which are subsidiary and not merely incidental.  Thus in the case of Oxford Group V IRC [1949]2 All E R 537 The Court of Appeal held that one of the objects set out in the groups memorandum of association namely “to support any charitable or benevolent association” actually conferred powers which were so wide that they could not be regarded as charitable.  They were not merely ancillary to the main objects which were admittedly charitable and set out elsewhere in the Memorandum and the group did not therefore constitute a charity. 

 

As a result of this decision which was thought to affect a large number of charities a committee was appointed known as the Nathan Committee which recommended some amendment to the law resulting in the Charitable Trust (Validation) Act 1954 which Act did not however go as far as completely reversing the decision.  The general intendment of the Act is to allow variation of a vague gift so that it becomes wholly charitable.  Refer to Re Chitty’s Wills Trust (1970) Ch. 254.

 

Law of Trusts Lecture 15                                                             

 

Section 62 of the Civil Procedure Act and the Cy Près Doctrine

 

Under Section 62 of the CPA the High Court is given the supervisory jurisdiction over charitable trusts.  Section 62 can be invoked

 

(a)               Where there is an alleged breach of trust;

(b)               Where a direction of the court is deemed necessary for the administration of such a trust.

 

Proceedings can be brought by either the Attorney General or by two or more persons who have an interest in the Trust, they have to show locus with the express consent of the AG.  On the question of who is sued, it is normally the trustees who are sued but sometimes the suit may be non-contentious e.g. where only a direction is being sought in which case the trustee themselves can bring the proceedings and that would be a Declaratory Suit under Order II Rule 7 of the Civil Procedure Rules.  By virtue of Section 62 such proceedings can only be brought in the High Court and under Section 62 various remedies can be sought as follows:

(a)               Removal of any trustee;

(b)               Appointment of a new trustee;

(c)               Vesting of property in the trustee;

(d)               An order directing accounts and inquiries – this stems from the fact that the trustee is accountable to the beneficiaries and conversely the beneficiaries themselves are entitled to accounts and information;

(e)               Declaring what proportion of the fund shall be allocated to any particular object of the trust;

(f)                Authorising the whole or any part of the trust property to be let, sold, mortgaged or exchanged;

(g)               Setting up a scheme – this arises under the Cy-Près doctrine.

 

Sometimes purposes for which the trust is set up cannot be achieved in the prescribed manner.  If it is a private trust and the objects are impossible, the trust will fail and there will be a resulting trust in favour of the settlor or his estate if he is dead.  On the other hand, if it is a public or charitable trust, even if it is initially impossible or it subsequently becomes so, in many cases the trust does not fail as a result of the Cy-Près doctrine.  Instead of allowing the trust to fail, the court will apply the doctrine of Cy-Près  (which means near to it) and apply the property to charitable objects as close as possible to the original trust.  The operation of the Cy-Près doctrine is by what are called schemes under Section 62 (g) of Cap 21. 

 

For Cy-Près  to operate, two conditions must be met:

1.                  There must be a paramount or general intention of charity.  The donor must show a clear intention to pass on the property to charity instead of the usual beneficiaries.  This first rule is however not universal and applies only where the original trust fails ab initio.  If the trust subsequently becomes unattainable but was operational it will not fail because of the absence of a general charitable intention.  In such a case and also in the case of unidentified donors the funds will apply Cy-Près .  A general intention towards charity can be resisted if there is a contrary indication either express or implied under the Will or the Trust Deed.  Therefore if the gift is for a particular purpose only and that purpose fails, there is no room for the application of the Cy-Près doctrine and the entire gift will fail.  Refer to the case of Re Wilson [1913]1 Ch. 314 – 320. 

 

Cy-Près is an Anglo-Norman phrase which meant something as near as possible or near to it.  The doctrine of Cy-Près in charity law lays down that where property given on trust for charitable purposes cannot be used in the precise manner prescribed by the donor, the courts and also the charity commissioners in the UK may make a scheme for the application of the property to purposes resembling as closely as possible those originally intended by the donor.  The idea is not to frustrate the intention of the donor who in any case cannot be consulted where the gift is testamentary.

 

Initial Failure

In the case of Re Harwood [1936]Ch. 285 a gift had been made to the peace society in Belfast which society could not be shown to have ever existed.  The Judge found that there was a general intention to benefit societies aimed at promoting peace and the gift was therefore applied Cy-Près.  There was also a second gift in the Will to the Wisbech Peace Society which had once existed but had ceased to exist prior to the Testator’s death and this gift was held to have lapsed.  (Is promotion of peace Charitable?  Can the court determine whether a particular society that claims to promote peace is actually promoting peace? In the case of Re Satterwaite [1966]1 WLR 277 A Will listed a number of organizations concerned with animal welfare.  The list had been created carelessly from the London Telephone Directory and the testatrix chief concern was merely to divert her Estate to animal charities because she hated the entire human race.  One of the institutions named namely the London Animal Hospital had in fact never existed.  The Court of Appeal nevertheless held the gift to be applicable Cy-Près as a general intention could be discerned from the testatrix known attitude towards the human race. 

 

Note that if a body has ceased to exist by reason of amalgamation, with other charitable bodies a gift to the non-existent body will not fail and will be applied Cy-Près  to the amalgamated organization.  Refer to the case of Re Faraker [1902]2 Ch. 488

Another approach adopted by the court is to find that the gift was made for the purpose of the named charity rather than the body itself.  Refer to Re Finger’s Wales Trust [1972] Ch. 286 where gifts had been made to the National Radium Commission which was an unincorporated association and also to the National Council for Maternity and Child Welfare which was incorporated.  Both bodies had ceased to exist by the time of the testatrix’s death.  The gift to the Radium Commission was interpreted as a gift to its purposes and since this still continued, the gift did not fail.  The other gift would have failed as a gift to a corporate charity except that there was a general charitable intention and it could therefore also be applied Cy-Près.

 

In the case of Biscoe V. Jackson [1887] 35 Ch.D 460 money was to be applied towards the establishment of a Soup Kitchen in Shoreditch and a Cottage Hospital there.  It was not possible to apply the gift in the manner indicated.  The Court of Appeal held that there was sufficient general intention of charity for the benefit of the poor of Shoreditch to entitle the court to execute the trust Cy-Près .  It was decided in effect that the direction to establish a soup kitchen and a cottage hospital was only one means of benefiting the poor of Shoreditch whom there was a general intention of benefiting.

 

2.         The second condition for the application of the Cy-Près doctrine is that the trust has become impossible or impracticable to carry out or alternatively that a surplus has remained after carrying out the purpose.  It may be impossible because the beneficiaries no longer exist, cannot be identified or traced or because the property is generating no income where it is the income to be applied to the purpose or even because the funds are insufficient.  Impossibility has been interpreted very widely by the courts and for example in the case of Re Dominion, Students  Hall Trust [1947] Ch. 183 in which the charity in question was restricted to Dominion Students of European origin yet the objects were stated to be the promotion of a community of interests in the Empire.  An application was made to court to delete the words “of European Origin” and the Judge held that the retention of the words amounted to a colour-bar which would defeat the object of the charity and that the word ‘impossible’ should be construed widely and covered this case.  He allowed the deletion of the words.

 

Sometimes a trust generates surplus income so that the objects are achieved and there are leftover funds.  The Cy-Près doctrine will be applied to give the excess to similar charities or objects.  Refer to Re North Devon & West Somerset Relief Fund [1953] 1 WLR 1260 in which a surplus remained out of funds subscribed for the relief of the flood disaster at Lynmouth. 

 

A gift may also be impracticable for example where the funds are insufficient for the purpose.

 

Law of Trusts Lecture 16                                                             

WAQF (WAKF)

 

Wakf means to bind the property.  It is a trust for charitable purposes established under Islamic Law and it is therefore tied up to purposes related to religion.  Like in all other trusts the donor gives and the trustees take and then the purposes of the trust are identified and administered through case law for essentials of the WAKF have been established as follows:

1.                  It must be a final gift to charity; 

2.                  the donor must actually divest himself of his right in the property – this means that with respect to a wakf there can never be anything like a resulting trust.  They are supposed to divest themselves.

3.                  It must be an irrevocable and absolute gift;

4.                  It must be perpetual.

 

The rule against perpetuity – the requirement of the wakf offends this rule – Acts such as the RLA there are exceptions for purposes of the waqf.

 

With regard to the 1^st essential – final gift to charity – the purpose can be any object which Mohamedan Law would approve of and therefore the objects must fall within the Sheriat.  The public or a section of the public and other groups approved by equity will qualify.  For purposes of charitable trusts equity does not approve of any other group apart from the public, a section of the public and other groups approved by equity will qualify.  However in a WAQF even family members and specific groups which equity would normally exclude as not charitable will qualify.  Therefore a trust as a waqf for the education of members of the family is a good trust.

 

With regard to the 2^nd and 3^rd essentials this is a fundamental part of a wakf a gift as trust fund and a wakf cannot be contingent.  It must not only be an absolute gift but the donor must actually divest himself of the property.  He cannot retain title to the property.  As a result no resulting trust to the donor or his Estate can arise. 

 

With regard to the 4^th essential, a wakf is a trust in perpetuity contrary to a trust in equity perpetuity is not only permitted, it is a characteristic of a waqf and even if the donor does not state that he gives his gift in perpetuity the law will deal with the gift as a perpetual trust.

 

Under Section 88 of the RLA a transfer shall not limit disposal of real property otherwise it shall be void.  This is a rule against perpetuities.  Section 88(4) makes exceptions for purposes of a wakf which conflicts with this rule.  The administration of a wakf is by administration of person called Mutawalis.  The Wakf is administered by trustees called Mutawalis.  Any person may be appointed a Mutawali including the donor but he may not by reason of such appointment retain any right in the property.  Refer to Kermali & Others V. Dhalla & Others [1957] EA 168 and Abdoo & Others V. Saleh [1964] EA 115

 

Note that a Wakf being a public trust is subject to Section 62 of the Civil procedure Act and which fact was upheld in the above cases.

 

In Kermali a wakf was held public and an action which had been brought under the equivalent of Section 62 of Cap 21 asking for the removal of a trustee was refused in the exercise of the Court’s discretion.

 

The WAQF is also governed by the WAQF Commissioners Act Cap 109 of the Laws of Kenya.

 

TRUSTEES

In general the ability to be a trustee is co-extensive with the ability to own property.  Therefore if an alien can hold land, he can be a trustee of such land.  Capacity to be a trustee is also now extended to corporations.  A very large number of Trust Corporations have arisen and every big bank for example has a Trustee Department.

 

A trust corporation is defined under Section of the Trustee Act Cap 167 as

1.         The public Trustee

2.         A corporation appointed by the court;

3.         A trust corporation as defined by the law of Succession Act Cap 160 S. 3 (1)

 

Certain administrative conveniences attach to trust corporations for example they do not need to give security to the court when taking out letters of administration.  The court considers that they are good for the money except where under the law of Succession Act the Corporation has a subscribed Capital of less than KShs. 500,000/-.

 

An infant or minor cannot be appointed a trustee and any conveyance to one as trustee will give rise only to a declaration of trust under a resulting trust in favour of the settlor.  If the appointed trustees are partly infant and partly adult then only the adults will take as trustees. 

 

Section 36 of Cap 167 provides that there shall not be more than 4 with the exception of a charitable trust.  If there is a private trust you cannot have more than 4 trustees.  If more than 4 are appointed then only the 1^st 4 names who are able and willing to act will alone be trustees.  However this applies only to trusts which came into effect after the commencement of the Trustee Act on 16^th November 1929.

 

The rule as to the maximum of 4 trustees does not apply to trusts for charitable ecclesiastical and public purposes or where the net proceeds of sale of the trust property are to be held for those purposes.

The saying goes that Equity does not want for a Trustee’  therefore a trust can be variedly brought into being even if there are no trustees for example because they have to be appointed or have all renounced their duties as trustees or have died or are unable to act or any other reason for example insanity or bankruptcy.  In such cases the trust continues and on application of those entitled the court will appoint new trustees.

 

APPOINTMENT OF TRUSTEES

Initial trustees are normally named in the Trustee Document and they could also be named by the personal representatives of the testator and in very rare cases by the courts.

 

SUSBSEQUENT TRUSTEES

These are appointed either by the surviving trustee or trustees or under a direction of the Will or Trust Deed or by the courts.  Once the trust is constituted the settlor has no power to appoint trustees unless he has reserved such a power for himself.

 

The trust deed may vest or reserve power to some specific persons to name new trustees.  Normally the power will be vested in the surviving trustee or trustees.  Therefore unincorporated bodies such as clubs and societies their constitutions and rules will normally vest the power of appointment of trustees in the general membership or a specific committee such as the executive committee of the organization.

 

Law of Trusts Lecture 17                                                            

 

APPOINTMENT OF NEW TRUSTEES

 

There is power vested in the court under Section 42 of the Trustees Act to appoint new trustee which is exercisable

(a)               When it is expedient to appoint a new trustee or new trustees;

(b)               Where it is found inexpedient difficult or impracticable to appoint without the court’s assistance;

(c)               The court may also appoint in circumstances where Section 37 would have been invoked but however these powers do not empower the court to appoint an executor or administrator of an estate which powers are specifically and exclusively dealt with under the law of Succession Act Section 51 – 55 of Cap 160.

 

The Public Trustee under the Public Trustee Act Cap 168 is the Corporation sole and is therefore self perpetuating and does not need substitution by individuals other government offices like the PS Treasury are also corporation sole.

 

HOW TRUSTEEISHIP ENDS

(a)               By disclaimer; a person appointed as a trustee is not bound to act as such unless he or she has received consideration.  However if the trustee has accepted the trust, he cannot therefore disclaim it.  Disclaimer must be ab initio.  Refer to Re Lister [1926] Ch. 149; for the disclaimer to be effective it must be of the whole trust and not just a part of the trust.  The effect of disclaimer is that if there are other trustees the property will vest in them.  If the disclaiming trustee was  sole trustee or if all the trustees disclaim then if inter vivos  the settlor himself will become the Trustee and if the Trust was through a will, the personal representative will hold on trust.  If the instrument creating the trust vests someone with power to appoint new trustees this power may be used to fill the gap.  If all else fails the court will appoint new trustees on application of those entitled.

 

(b)               By retirement – formerly a trustee could not retire save under stringent express powers or by order of the court or by consent of all the beneficiaries if sui juris.  Application may now be made to the court and the court will first examine if there are sufficient surviving trustees to continue the trust before allowing retirement.

(c)               On appointment of new trustees e.g. where the term of office of the trustees is fixed, for the clubs societies and so on normally the term is fixed and after expiry of 4 years the board meets and appoints new trustees

 

(d)               On removal by the court either by statutory power or under its inherent jurisdiction.  Refer to the case of Lettersdet V. Browers [1884]9 App. Cas 371  where trust and respect between the Trustee and the beneficiaries had broken down and where even though no evidence of misconduct had been alleged by the beneficiaries the court allowed an application for removal of the trustee in exercise of its inherent jurisdiction.

 

 

DUTIES & DISCRETIONS OF TRUSTEES

Snell in his principles of Equity points out that “the office of a trustee is onerous.  A trust is an office necessary in the concerns between man and man and if faithfully discharged attended with no small degree of trouble and anxiety so that it is an act of great kindness in anyone to accept it”.

 

A trustee has to perform many duties and in doing so he must observe the utmost diligence in addition he must comply with the provisions of statutes with the principles of equity with any directions of the court and with the provisions of the trust instrument itself. However the trustee also exercises discretion for example where to invest the trust fund and how much to advance a beneficiary. 

 

In carrying out his duties the trustee must act honestly and must use such diligence as a prudent man of business would exercise in dealing with his own affairs.  He must do his best to enlarge and not to endanger the trust fund.  His is an active duty and not merely a passive one of keeping the assets.  He must not commit fraud in dealing with the trust fund or profit himself out of it.  The courts take the view that a prudent man of business will act profitably and so should a trustee.

 

As part of his duties the trustee must keep the trust property in a state of security.  He must firstly reduce it into his possession.  He has to take control. 

 

Secondly he must invest it whenever there is a surplus, the duty to invest also includes a duty to convert and then invest.  For example wasting assets such as motor vehicle would mean selling and investing in income generating investments, it is an active duty.

 

Thirdly he must pay the expenses and debts of the trust or the Estate and in respect to the Estate he must also pay any Legacies provided under a will.  When the trust invests he must invest only in authorised investments namely those investments authorised under the Will or the Trustee or by Section 4 of the Trustee Act or by Equity.

 

The Categories of Investments and the manner in which they must be invested are prescribed by the schedule to the Trustee Act.  In choosing investments the Trustee is under a duty to take advice in the way prescribed in the schedule for example a valuer’s advice, surveyor’s advice, Estate Agents and even legal advice etc.

 

Alongside the duties to convert invest and manage is the duty to keep accounts and records.  He has to remember that a trustee is an accounting fiduciary party. 

 

CONTROL OF THE TRUSTEE BY THE BENEFICIARIES

In carrying out his duties a trustee is guided by the trust instrument as well as by statutes and by the rules of equity.  He must carry out the will of the settlor or the testator.  The beneficiaries cannot therefore determine how the trustee’s duties are to be exercised.  However if all the beneficiaries are sui juris and are together entitled to the whole of the beneficial interest, they can put an end to the trust and direct the trustee to hand over or distribute the property.

 

CONTROL BY THE COURTS OVER THE TRUSTEE’S PERFORMANCE:

The court can always supervise the trustee and it does so through its inherent powers and through the power set out in the Trustee Act as well as Section 62 of the Civil Procedure Act for purposes of Public Trust. 

 

The court does not administer the trust itself.  What it does is to constantly supervise and it has wide powers under the Trustee Act

1.                  In the management and administration itself for example by approving a certain sale or other transaction and in giving directions for the appointment of new trustees;

2.                  To permit variation in the trust and in doing so the court will have the best interests of all the beneficiaries in mind.

 

 

 

ENTITLEMENT OF TRUSTEES UNDER A TRUST

Trustees may not profit from the Trust either directly or indirectly.  They are generally not entitled to remuneration for the care and trouble they undertake.  So for example if the trustee is an advocate, he may not charge legal fees.  There are however exceptions to the rules:

1.                  By agreement with the beneficiaries if they are sui juris;

2.                  By express authority in the Trust instrument;

3.                  Through court order by application;

4.                  Advocates costs in litigation; so if the trustee is an advocate and she acts on her own behalf and on behalf of court trustees profits costs on successful litigation may be retained by the advocate trustee.

5.                  A trustee is entitle to be indemnified against actual expenses which have been properly incurred in the trust administration.  If he went on a frolic f his own, he should be surcharged.  For example he may pay insurance premium on the trust property, pay for expert advise maintenance, etc, these he is entitled to recoup.

 

POWERS OF TRUSTEES

Powers are conferred either by the Trust Instrument or by the Trustee act and the principal powers are as follows:

1. Power of Sale;
2. Partition;
3. Delegation;
4. Compromise;
5. Maintenance and Advancement;
6. Powers of appointment.

 

Others include the power to insure under the Trustee Act.

 

POWER OF SALE

This is provided for under Section 13 of the Trustee Act Cap 167 however the trust instrument may also authorise trustee to sell.  In the absence of such authority the trustee must have statutory authority or alternatively must apply to court for an order of approving the sale.

 

The method of sale must be that which is to the best advantage of the beneficiaries.  So if the trustee applies for an order approving a sale he must state the method that will be followed either by public auction or by private treaty.  The trustee must conduct himself in the best interests of the beneficiaries to whom he is accountable.  He can sell in whole or in part.

 

 

Law of Trusts Lecture 18                                                

 

DELEGATION

 

The office of the trustee is one of confidence and therefore in general cannot be delegated.  Exceptions to the rule are that;

1.                  The Trustee may now employ agents – the power to employ agents is a power to employ certain persons to perform specific tasks and this is provided for under Section 24 of the Trustee Act.  Examples are agents to take legal action and this would be advocates in our case, to write up accounts, to give advice on investments etc and the Trustee is authorised to pay for the services out of the Estate or the Trust Fund.  Nevertheless the Trustee remains personally liable for any breach in the trust although he may not be liable for the negligence of the employed agents if he has acted reasonably in relying on these qualified persons.

 

2.                  Section 20 of the Act confers power to delegate trusts during the absence of the Trustee out of the country for periods of over 1 month.

 

POWER OF COMPROMISE

The court has inherent power as well as power under Section 16 (f) of Cap 21 to sanction a compromise in respect of the disputed rights on application by the trustees.  Refer to Re Chapman [1954] AC 429 AND Re Downshire’s Settled Estate [1953] 1 AER 103.  the second case discusses the extent of the meaning of the word compromise and suggest that it should not be limited only to disputed rights.

 

POWER OF APPOINTMENT

This is the exercise by the Trustee of the right to designate the person or persons to take the trust property or part of the Trust property thereof.

 

 In the case of Turner V Turner [1984] Ch. 100  1983 2 All ER 745 trustees had exercised powers of appointment at the request of the settlor not appreciating the duty to consider the exercise of this power which attached to their office as trustees.  They merely acted on the instructions of the settlor and did not exercise their discretion.  When the appointments were challenged in court they were held to have acted in breach of trust and the appointments they had made in the years 1967 to 1971 and 1976 were held to be void.

 

POWER OF MAINTENANCE

The power of the court to order maintenance on the trustee’s application is based on the assumption that the intention to provide sensibly for the family members is paramount.

 

  Refer to the case of Re Downshire’s Settled Estate [1953] 1 AER 103.   The court orders maintenance in disregard of the Trust where the immediate beneficiaries have no funds for their present maintenance.  An order for maintenance will obviously resort in a variation of the beneficial interests.

 

POWER OF ADVANCEMENT

This consists of the payment or application of a capital sum in order to establish a beneficiary in life or to make a permanent provision for him or for her. 

 

Refer to the cases of :

• Kernot V. Hayward [1957] Ch. 528
• Hardy V. Shaw [1975] All ER 1052.

 

Advancement can be on more than one occasion provided that the total amount advanced does not exceed one half of the presumptive or vested share of a particular beneficiary.  What is advanced must be brought into account at the time of distribution.

University of Nairobi 2004

Faculty of Law JMN LLB 3