Analysis of the Rationale behind the Rule that Non-charitable Purpose Trusts Are Unenforceable - Research Paper Example

? Equity and Trusts of Introduction The concepts of trust and equity developed in the Middle ages as opposition to the strict application of rules by the Royal Courts, otherwise known as the Courts of Common Law. As a result of the strict application of the law by these Royal Courts, there arose the need among the aggrieved to petition the Crown Courts. The resultant appeals would then be heard by the Lord Chancellor, a clergy who was the principle minister by then1. Although the principles of Trust and Equity would later be transformed into the rigid practices of the Crown Courts, recent times have realized more widespread application of the principles of equity and trust, more so in civil cases. In fact, trust has been a rather conspicuous beneficiary of equity since the former is an invention of the latter2. Generally, trust laws are applied in situations in which an individual places trust and confidence in another or others to handle or manage his/her affairs. While the law of equity governs the individuals entering such relationships, the law of trust offers the mechanisms for dealing with the different situations and circumstances of such relationships including pension funds, family relationships and charities among others. Although most cases such as estoppels and secret trusts allow the courts to easily deal with the formalities of property laws, there are certain unique and technical situations and terms with which one needs to be conversant to understand trust law3. Trust law, whose applicability may start before or after a trust commences has the objective of clarifying the activities and purposes for which trusts are created. The validity of trusts may be dependent on the nature of its creation, whether an oral declaration or an instrument created in writing such as a will or a codicil. Additionally, a trust may be created by a mere conduct, without involving any technical expressions or activities. However, unit trusts, real property trusts and non-charitable purpose trusts must only be created by written instruments. Trusts could also be identified as either valid or invalid. In fact, trusts that purport to or are contrary to the law are considered invalid. Similarly, trusts without identifiable and ascertainable beneficiaries are also regarded as invalid in the courts. The only exceptions in this latter case are those trusts on which charitable purposes are attached. Notably, trusts with enforceable non-charitable purposes are also considered valid. However, generally, a trust may be invalid if a court declares it so, in most cases, a properly constituted trust being generally regarded as valid and enforceable. In this regard therefore, it is important that the beneficiaries of a trust are identifiable by name, class reference and/or by relationship to the person creating the trust4. As stated above, in cases where there is no easily and directly identifiable and ascertainable beneficiary, only those trusts with charitable purposes could be considered valid5. In case there is a non-charitable purpose is attached to such a trust, it is important that the enforcers of the non-charitable purposes are provided. This paper thus explores the rationale behind the rule that non-charitable purpose trusts are unenforceable. In addition, this paper critically considers the suggestions by academic commentators by which purpose trusts could be valid and enforceable. Enforceability of Non-Charitable Purpose Trust A unique feature of purpose trusts is that they are created to meet certain goals and never to benefit individuals, the reason they are normally regarded as invalid by the courts. That most purpose trusts lack beneficiaries has made the courts to argue that such trust do not have people to enforce them6. Fortunately, there are exceptions to the unenforceability rule on non-charitable purpose trusts. From the validity and enforceability issues, it is evident that non-charitable purpose trusts have been at the centre of heated debates and controversies in the legal circles, with sections of scholars, authors and legal practitioners taking different stands regarding their enforceability. The first reason for which non-charitable purpose trusts have attracted these validity and enforceability debates is the fact that such trusts do not have beneficiaries. Instead, purpose trusts seek to advance certain non-charitable purpose. In many a jurisdiction, such non-charitable purpose trusts are only enforceable to certain limits and exceptions. However, some countries have legislations that promote the applicability, the validity and the enforceability of non-charitable purpose trusts7. Nonetheless, charitable purpose trusts are also purpose trusts in the technical sense although they are generally referred to as charitable trusts. In other words, purpose trust is often generally considered to mean non-charitable purpose trusts although the latter also have purposes. There is thus a general trend of prohibition or exclusion of the non-charitable purpose trust’s enforceability, on the basis of a number of rationales. The first ground on which the non-charitable purpose trust is considered unenforceable is the beneficiary principle. Since a trust is an obligation, trusts (the non-charitable type) must have a definite objective and an individual in whose favour the performance of the trust is decreed. Luckily for most charitable trusts, the power or decree to ensure the performance of a charitable trust often falls on the Attorney General or any other individual specified. However, cases such as Morice versus Bishop of Durham (1804) 9 Ves Junior 399 versus Re Astor [1952] Ch 5348, which exemplified situations in which the substance of a trust are a purpose and not an individual or individuals, re-affirmed the court's unwillingness to enforce trusts that are not specific and detailed. The second rationale on which the enforceability of non-charitable purpose trusts have been attacked relates to the excessive delegation of testamentary powers. However, recent cases have cast a lot of doubts on the validity of this rationale and reasoning. In addition, while charitable purpose trusts are exempted from the rules against perpetuities (the character of being perpetual or seemingly ceaseless), the non-charitable purpose/private trusts are not. Thus, for a non-charitable purpose trust to be valid and enforceable, it must be compliant with the perpetuity rules applicable in the relevant jurisdiction. Luckily for non-charitable purpose trusts, there are certain common law exceptions for which they could be enforced. For example, common law considers building, tomb or monument maintenance weighty matters for which non-charitable purpose trusts may be upheld. This exception is however majorly based on ancient practices and precedents. An example is the Hooper [1932] 1 Ch 389 case in which a trust was upheld to allow for the maintenance of graves. The decision in this case was based on a precedent set in the Pirbright versus Salwey [1896] WN 8610. However, these trusts must still comply with the requirements of certainty. Situations and trusts involving animals have also been exempted from the unenforceability attacks on non-charitable purpose trusts. Thus, certain purpose trusts involving animals have been upheld even though they may have lacked certain conditions for which enforceability may not have been met. For instance, in the case of Dean (1889) 41 Ch D 55211, it was upheld that Dean maintains the horses and hounds for 50 years. Like the case of monuments and graves, this decision relied on older authorities and cases. In addition to the above examples, authors have documented numerous cases in which non-charitable purpose trusts have been upheld, more so those considered anomalous. An example in this regard is the Re Thompson [1934] 34212 in which the court upheld a gift given to the Trinity Hall, Cambridge for the promotion of fox hunting. Authors have since decried the recent trend of the courts to ignore the many hundreds of precedents in which different kinds of non-charitable purpose trusts have been validated. Particularly, the beneficiary principle has been misunderstood, leading to the invalidation of many a purpose trust13. Fortunately, some jurisdictions have established statutes that serve to validate certain purpose trusts that do not fall under the animal and grave/monument exceptions listed above as recognised by common law. Among the countries that have established these statutes are the British Virgin Islands, the Cayman Islands, the Bahamas and Bermuda among others. Just like the other types of non-charitable purpose trusts, these jurisdictions require written instruments and identifiable protectors/enforcers. With the right amendments and statutes, it is possible to have a valid trust for specific purpose, regardless of the fact that non-charitable trusts may not have charitable objectives and ascertainable beneficiaries. It is only necessary that such a purpose trust has all the characteristics of a trust, as stipulated in the trust and equity laws of a given jurisdiction. First, the terms of a non-charitable trust must define its purpose, on which there are no statutory restrictions, provided the principles of certainty and consistency with the law and public policy are observed in defining the purpose of a trust. In other terms, the purpose of a non-charitable trust must be valid in the promotion of a given field of endeavour for the trust to be valid. The duration of a purpose trust must also fall within the confines of the jurisdiction within which it is to be enforced, such as the one hundred years used in many countries. If the period set by the jurisdiction expires, the dictates/terms of the trust should then be followed in distributing the trust property to those entitled to benefit from it14. Provided the laid down formalities are followed and the ascertained beneficiaries identifiable, a purpose trust may just be upheld, provided it has not expired. Nevertheless, objections against purpose trusts being valid abound, prompted by the fact that most of these trusts are vaguely worded requests, mostly for maintenance of items and relations. One way in which a purpose trust may evade the rule against its validity is by the creation of a trust that targets to benefit a group of people but confines its purpose. For instance, a piece of land may be give as gift to an organisation for its members or others approved by the trustees to use as a sports ground. Conclusion Since its inception in the Middle Ages to counter the restrictive application of laws by the Royal Courts, the concepts of equity and trust have continued to be applied in the legal system despite the erosion their principles have endured over time. However, the validity, applicability and enforceability of non-charitable purpose trust continue to be challenged on the rationale of lack of the clear identification of beneficiaries and uncertainty among other reasons. However, some scholars and authors have highlighted certain exceptions to these rules against the enforceability of non-charitable purpose trusts. The exceptions include anomalous trusts relating to animal, grave and monument maintenance among others. Cases Cited Dean (1889) 41 Ch D 552, [1889] Pirbright versus Salwey [1896] WN 86, [1896] Hooper [1932] 1 Ch 38, [1932] Re Thompson [1934] 342, [1934] Morice versus Bishop of Durham (1804) 9 Ves Jr 399 [1804] Re Astor [1952] Ch 534, [1952] References D. Hayton, Developing the Obligation Characteristic of the Trust (2001) 96 LQR 117. H. Alastair, Equity and Trusts (6th edition, Routledge-Cavendish, 2009). J. Brown, What Are We to Do With Testamentary Trusts of Imperfect Obligation? (Conveyancer and Property Lawyer, 2007) 148 M. Pawlowski, and S. Jo, Private Purpose Trusts - A Reform Proposal (Conveyancer and Property Lawyer, 2007). 444. P. Matthews, Trends in Contemporary Trust Law (in Oakley, A (editors) Oxford University Press, Oxford, 1996). R. Edwards, and N. Stockwell, Trusts and Equity (8th edition, Pearson Longman, 2007) R. Parry, Trusts for Masses (Conveyancer and Property Lawyer, 1989) 453 Read More