Trusts Law. Non-Charitable Purpose Trusts - Essay Example

? Critically evaluate the rationale behind the rule that non-charitable purpose trusts are unenforceable; and consider critically the ways in which it has been suggested by academic commentators that such trusts could be valid and enforceable. - An Analysis Introduction The conventional observation is that non-charitable purpose trusts are void. In “Re Endacott”1, Lord Evershed M.R viewed that “a non-charitable trust under English law cannot be enforceable as it is not having ascertainable or quantifiable beneficiaries.” In “Bowman v. Secular Society”2, Lord Parker was of the view that “benefit to individuals should be an essential ingredient of a trust or must be in that category of gifts which the courts identify as charitable.” In “Re Recher's Will Trusts”, Brightman J was of the view that as there is no beneficiary, a non-charitable trust is void. “Just as a rail requires an engine, so a trust requires a recipient”3. In “Astor's Settlement Trusts”, it was held by Roxburgh J that due to lack of a beneficiary, every non-charitable trust is void4 For a pure purpose, a private purpose trust (for instance, a trust to advance a cause) may be established where there will no single beneficiary to enjoy the benefits or for the advantages of an unquantifiable group of people (for instance, a trust to construct a playground for a school). A private, non-charitable purpose trust of the first type mentioned above will always be annulled, since it is not enforceable by anybody. As opposed, a charitable trust is always a purpose trust and hence, enforceable and there will no problem in enforcing the same as the Attorney-General will have locus standi to litigate5. Though, there exists a general rule which appears to forbid purpose trusts in the non-charitable background, there are, some scenarios in which non-charitable purpose ? trusts have been endorsed in English law, and these can be detailed as follows: If confined to a perpetuity period, trusts for the prolongation of other non-charitable, religious ceremonies / rites may well be held valid. For instance, a gift for the recital of ceremonies namely Sin Chew (worship of ancestor) so as to disseminate the testator's reminiscence during the perpetuity period was upheld by the Supreme Court of the Straits Settlement in “Khoo Cheng Teow, Re”6.The House of Lords in “Bourne v Kean”e7 which viewed such trusts for the saying of masses as valid and clearly held it to be charitable. This research essay will analyse in detail the validity of such non-charitable trust under English law and will recommend suitable amendments in English Trust laws to give legal sanctity to such non-charitable trust. Analyse Since the gift encourages an essential part of religion, namely, the saying of prayers, a gift for the saying of prayer of masses in public is held to be charitable. Though, saying cannot be established to beneficial to the mankind per se, but are supposed to offer an adequate element of public benefit. The prima facie hypothesis that is made is that prayers mentioned by a settlor in an inter viva or a will instrument are supposed to be said in public as held in “Re Caus”8. In “Re Hetherington”9 , and in this case, a testatrix by her will had bequeathed ? 2,000 for saying of “ masses for the souls of her parents , sisters, husband and herself” It was held that trust was valid as it was for the advancement of religion10. Though, in, it was held by Roxburgh J that due to lack of a beneficiary, every non-charitable trust is void but the English law has conventionally permitted four fundamental varieties of testamentary private purpose trust where it has been held that non-charitable trust even without beneficiaries can be held valid under the following scenarios. • The upholding of specific animals; • The building and preservation of private tombs, graves and monuments; • The conducting other religious ceremony in private or saying of masses and • The encouragement of fox-hunting Purpose trusts emanating in the background of gifts to Unincorporated Associations For instance, in “Lipinski's Will Trusts11”, , to the Hull Judeans (Maccabi) Association, a gift was held to b valid, which was “to be employed exclusively for construction of new buildings for the association” was maintained even though a gift for a purpose, since it was honestly for the advantage of the membership. In this case, Oliver J further observed that if the association, by the phrases expressed in the testator's will, were sure to spend the money for a specific objective, then such trust can be held as valid. He also cited on the authority of “Denley's Trust Deed, Re12”, where is was mentioned that a trust which though stated for a specific rationale, was indirectly or directly for the advantage of individuals or an individual, and if had legitimately provided that those beneficiaries were quantifiable or recognisable at any one point of time and the trust was not otherwise invalid for vagueness. The judge also further observed that there was no restriction in spending the money immediately (as there being no verifiable purpose to establish a permanent endowment), thus ushering no perpetuity dilemma13. The” Denley Exception” In “Denley's Trust Deed, Re14”, some trustees got a sports field through a conveyance to preserve it on trust for a company's employees with an aim of providing a sports field to them. Further, the trust has been vested with a limited perpetuity period of 21 years. In this case, it was confirmed by Goff J that the trust as being for the objective of rendering the staffs with a sports field and acknowledged it as legal on the footing that in the ordinary sense, a trust without beneficiaries was permitted if there were recognisable or quantifiable beneficiaries evidently and directly profited by its performance (which can possibly include the Settlor, where he is tangibly and directly derived the advantages by the trust's performance15. It is to be noted that the same type of exception as provided in Denley was also held to be valid in “Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd16”. In this case, the respondent company Freeman Mathews & Treasure Ltd (FMT) was employed by the applicant Carreras Rothmans (CR) to administer its advertising strategy. FMT usually spent money on the advertisement by engaging various agencies and later claimed it from CR. At some point of time, FMT was in financial difficulty, and CR was worried over its advertisement program if FMT should fail and hence consented with FMT that CR would open a special bank account (escrow) and would deposit the monthly expected advertisement expenses thereby claiming that the money should be applied solely to defray its creditors. When FMT went into liquidation later, CR initiated proceedings against the liquidator and the FMT, stating that the money in the so called escrow account should be applied exclusively for the payment of CR creditors. However, it was argued by the defendant that since the trust was void, the third party creditors had no enforceable right. In this case , it was held that if spending the earmarked money in a chosen way will confer an advantage to some persons like creditors , but the trust is not once again for them as beneficiaries , so as to bestow them to the money without any conditions and in such cases, it can be spent only in the designated way.17 the “Quistclose Trust” Quistclose trust name was christened from the verdict of “Barclays Bank Ltd v Quistclose18”, where the amount given as loan to be employed for a particular reason was to be hold in trust for the lender when the reason could not be accomplished. It falls outside the ambit of the customary types of resulting trust. In this type of trust, the reason need not be an express trust and the transfer need not be obvious. The application of the resulting trust well outside the customary groups which is not an innovation. Though, the House of Lords had decided the Quistclose case some twenty-five years back, yet the Quistclose trust is still remained as the theme for academic discussion. Though the principle is simple, to explain but its effect and nature have remained elusive; money which is earmarked for payment to other creditors of the borrower does not form part and parcel of the general assets of the borrower. If the objective cannot be attained, the money is to be held in trust for the lender. Further, the Quistclose trust is not limited to loans with an aim to be paid to another to be employed for a certain objective, even where that objective does not redound to the advantages of recognisable class of recipients, and hence it remained as an “abstract19.” In “Conservative and Unionist Central Office v. Burrell20”, where payment for a conceptual objective can establish an implementable limitation on the receiver’s usage of funds was debated. The crux of the issue in this case was whether the plaintiff, for taxation purpose, was an unincorporated association and the crown debated that it could not otherwise accommodate funds. Disagreeing, the Court of Appeals was of the opinion that the beneficiaries could not be trustees as the law does not acknowledge trusts for non-charitable objectives. Nonetheless, the court opined that contributions could be advanced with the mandate from the contributor to employ the funds only for the purposes of the party21. Under section 405 (c) of the American Uniform Trust Code makes it obvious that a settlor can establish a non-charitable reason without specific quantifiable recipients. As per Donovan Waters, non-charitable purpose trust can be valid (if not unworkable or unlawful) if an enforcer has been appointed expressly through the trust instrument. As a matter of private international law under the Recognition of Trust Act 1987 there by implementing The Hague Trusts Conventions , would the English courts acknowledge such offshore or American non-charitable trust , which under Article 2 covers for a specified objective or for beneficiaries22? It is argued that the beneficiary principle should not vitiate such a trust where a trust instrument provides for an enforcer to enforce a non-charitable purpose trust. In Armitage v. Nurse23, it was observed by Millett L.J that “there is no trust, if the beneficiaries have no privileges enforceable against the trustees.” The very core of the trust is the accountability of the trustees to the beneficiaries (other than non-charitable purpose or charitable trusts), so that de facto exception of such responsibility or de jure by a clause in the trust deed censures any trust for the so-called beneficiaries24. It has been affirmed that as one of the established exceptions to the “beneficiary principle is a trust for the maintenance of a specific animal which is not charitable” provided the trust does not surpass the infinity period. A gift by a testator of ?50 per annum for the upkeep of his favourite black mare was upheld In” Pettingall v Pettingall25”. Likewise, a gift for the upkeep of the testator's horses was affirmed in “Mitford v Reynolds26”. In “Dean, Re “27, the testator charged his freehold estates with an annuity of ?750 per annum for 50 years and left his eight horses and his hounds to his trustees . It was held by North J. that this was a valid non-charitable trust. Conspicuously, he appeared to rebuff the “beneficiary principle”, viewing that he did not agree to the perception that a trust was invalid if there was no cestui que trust to implement the same28. Despite the fact that even if there is no beneficiary who can enforce the trust, and if trusts, which stipulate for the maintenance of specific graves, tombs and monuments have been held as valid. For instance, where the testator gave ?1,000 to his executors to erect a monument to himself in St. Paul's Cathedral, and the trust was upheld in Cathedral Trimmer v Danby 29and a gift for the erection of a monument was upheld as valid in “Mitford v Reynolds”30. In “Thompson, Re31”, trust created for the purpose of promoting the fox hunting as a form of valid private purpose trust held to be valid. Testamentary imperfect obligation trusts to have conventionally been “allowed as concessions to human sentimentality and weakness. It appears proper that the law prolongs to offer some guise of vehicles through which these testamentary gifts can be effected32. To use the words of Hayton to know whether the English trust concept is footed upon the beneficiary or enforcer notion as a rail requires an engine so whether a trust requires a recipient or an enforcer.” To facilitate asset safety and tax planning, nowadays, more non-charitable trust is being used nowadays. Today, many jurisdictions have non-charitable purpose trust laws most evidently in Seychelles, British Virgin Islands, Jersey, Bahamas. etc. “These non-charitable trust laws require a protector or an enforcer or an administer to supervise and carry-out the mandates of the trust. Hence, as per Mathews, one should acknowledge the increased usage of “client-driven” or purpose trust, which being predominantly employed for maintain the assets of the trust which are not constructively owned by anyone. Hence, in the contemporary world, there is a necessity to replace the beneficiary principle with that of broader principle in purposive trusts to accommodate the interest of business community in general. Conclusion To sum up, though in “Re Endacott, Bowman v. Secular Society, Re Recher's Will Trusts and in Astor's Settlement Trusts and in Armitage v. Nurse,” it was held that a non-charitable trust under English law cannot be enforceable as it is not having ascertainable or quantifiable beneficiaries, and if there is no enforcer like locus standi of Attorney General for enforcing the same. However, there are some scenarios in which non-charitable purpose trusts have been endorsed in English law. If confined to a perpetuity period, trusts for the prolongation of other non-charitable, religious ceremonies / rites may well be held valid. There are many instances, where English Courts have recognised the non-charitable trust validity even though, there is no specific provision in English law governing the non-charitable trust. In “Bourne v Keane, Re Caus ,Astor's Settlement Trusts, Lipinski's Will Trusts, Denley's Trust Deed, Re, Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd, Barclays Bank Ltd v Quistclose, and Unionist Central Office v. Burrell, Pettingall v Pettingall, Mitford v Reynolds ,Dean, Re, Trimmer v Danby, Mitford v Reynolds and in Thompson, Re “where it was held that non-charitable trusts can be regarded as valid ,even if there are no enforcer or definite beneficiaries but within some specific time and in cases where it has been formed for preserving the welfare of some animals , for the construction of private graves ,monuments and tombs and for saying masses and for the encouragement of fox-haunting. Further, it highly recommended that English Trust law should be amended to include above mentioned non-charitable trust and also trust to safeguard the businessmen’s interest, specifically for tax planning purposes. References Brown, J,’ what are We Do with Testamentary Trusts of Imperfect Obligation?’ [2007] Conveyance and Property Lawyer Chambers, R, Resulting Trusts (Oxford University Press 1997) Gardner, S, An Introduction to the Law of Trusts (Oxford University Press 2011)71 Hayton, D J, Extending the Boundaries of Trusts and Similar Ring-fenced Funds (Kluwer Law International 2002) Hayton, D J., ‘Developing the obligation characteristic of the trust ‘[2001] Law Quarterly Review [1952] Moffat, G, Bean, G M D, Bean, G & Dewar, John, Trusts Law: Texts and Materials (Cambridge University Press 2009) Ramjohn M, Cases and Materials on Equity and Trusts (4th edition, Taylor & Francis 2008) Wilson, S, Todd & Wilson’s Textbook on Trusts (OUP 2007) Read More