Contemporary Trust Law - Assignment Example

Running Head: CONTEMPORARY TRUST LAW Contemporary Trust Law of the of the Contemporary Trust Law Introduction As we all be acquainted with, a trust for non-charitable purposes is void, under English law, as having no human beneficiary capable of enforcing the trust. The so-called "human beneficiary" principle is of long-standing and, although there are several notable (albeit limited) exceptions, the general principle relics that a trust must have beneficiaries who are competent of owning the trust property and enforcing the obligations and duties of the trustee. The reason for the rule is that a trust gives rise to a requirement and so, consequently, there must be a recipient to whom the duties of a trustee are owed. Conversely, the beneficiaries have a correlative right to render the trustee answerable for his actions and, if necessary, compel performance of his obligations by court order. If there are no beneficiaries with equitable interests in the trust assets, there is in theory no one "in whose favour the court can decree specific performance": Morice v Bishop of Durham (1804) 9 Ves.399. The complexity, of course, with this approach is that it frustrates the requirements of a settler or testator, who may want to profit a legitimate public object or useful social experiment which does not fall stringently within the definition of charity. A trust, for example, for the promotion of a particular sport (such as angling or yacht racing) is not charitable unless linked to education: Re Nottage [1895] 2 Ch. 649 and Re Clifford [1912] 1 Ch. 29. Similarly, a trust to be relevant income for the purposes of research into a proposed new alphabet also falls outside the description of charity: Re Shaw [1957] 1 W.L.R. 729. To what extent, however, is it legitimate to use the mechanism of a trust for the haulage out of mere purposes where there are no beneficiaries vested with equitable ownership in the trust property Trusts without a beneficiary The law that a valid trust "must be for the benefit of individuals" (Bowman v Secular Society Ltd [1917] A.C. 406, 441, per Lord Parker) is not complete. A trust for charitable purposes is valid even with the absence of an equitable beneficial owner to put into effect the trust. Here, of course, it is the Crown (acting through the Attorney-General or the Charity Commissioners) who takes on the role of parens patriae on behalf of the public at large. Apart from this, there are several well-known "inconsistent" exceptions, classified by Lord Evershed M.R. in Re Endacott [1960] Ch. 232, where the trustee may perform the terms of the trust if he so wishes, but the court will not compel him to do so. These so-called "trusts of imperfect obligation" comprise (1) trusts for the creation of monuments and graves; (2) trusts for the saying of masses; and (3) trusts for the maintenance of particular animals. They will be valid (though unenforceable) provided they do not offend the rule against continuous trusts. Presumably, in the dearth of a beneficiary, the trustee is mutually the legal and beneficial owner of the trust property so that, if he fails or refuses to carry out the trust, the property will relapse back to the testator's residuary estate upon a resulting trust as to both the legal and equitable title. In reality, there is no trust here at all, rather a meagre power to apply for the stated purposes, with a contribution over or a resulting trust in evasion of exercise of the power. There are, of course, other cases where there may be a conviction despite the lack of an equitable owner. The understandable example is that of a discretionary trust in favour of a large class which is too large to list but, nevertheless, theoretically certain in definition. In the same way, there is no equitable title to the estate of a deceased person until such time as the administration is completed. The personal representatives are simply the legal owners during the administration period - there is no reasonable ownership. Is a beneficiary necessary It is evident that a number of situations subsist where a trust is valid even with the absence of an equitable proprietary owner. This prompts the question whether the continuation of a beneficiary with an equitable proprietary interest in the trust property is an essential prerequisite to the enforcement of a purpose trust. It seems that a mere circuitous interest is not enough: Shaw v Lawless (1838) 5 Cl. & Fin. 129. Thus, for example, a trust for the education of the settler's daughter at a particular school would not give the headmaster standing to implement the trust, even though it would indirectly help him. Similarly, the indirect interest of a testator or settler to see that his wishes are performed is inadequate. In the words of Roxburgh J. in Re Astor, at 542: "if the purposes are valid trusts, the settlers have reserved no beneficial interest and could not begin [proceedings]." But what of the notice of a residuary legatee In Re Thompson [1934] Ch. 342, the testator bequeathed the sum of 1,000 to a friend to be used in the direction of the promotion of foxhunting. The residue was to pass to Trinity Hall of the University of Cambridge. Clauson J held the bequest applicable on the basis that the residuary legatee could apply to the court to induce performance should the trustee fail to carry out the trust intention. There are other cases to the same significance, notably, the decision of Knight-Bruce V-C. in Pettingall v Pettingall (1842) 11 L.J. Ch. 176 and Roxburgh J in Re Astor's Settlement Trusts [1952] Ch. 534. The complexity here, as discussed by McKay (see, L. McKay, "Trusts for Purposes - Another View", [1973] 37 Conv. 420), is that a residuary legatee (or next of kin) regularly has no interest (equitable or otherwise) to give him standing to enforce the trust against the trustee. On the contrary, he may be more worried to see that the trust fails since he will then stand to benefit from the trust assets. His only concern, in this regard, will be to thwart a misappropriation of the trust funds by the trustee. By contrast, McKay argues that contractual licensees have adequate interest not only to restrain misapplications on the part of the trustee but also oblige the trustee to carry out the trust: see Re Denley's Trust Deed [1969] 1 Ch. 373, where the employees' rights to use a sports ground were conferred in a endeavour. His winding up, therefore, is that somewhat in the nature of a legal interest is required to confer locus standi to force performance of the trust. If no such interest can be found, then, in his view, "the basic principle primary the human beneficiary principle is breached in that the settler has conferred upon his 'trustee' an authority of ownership, not trust": ibid, at 435. Although the so-called "Denley principle" allows contractual licensees to put into effect the terms of the trust, it is difficult to distinguish where the beneficial ownership lies in such cases. Clearly, the employees in Denley were conferred with an undeviating benefit under the trust, but this does not mean to say that they had an equitable proprietary interest in the land in query. In the absence of any such interest, one can only presume that beneficial ownership is in some way suspended in these circumstances for the period of the trust. This, of course, flies in the face of accepted view that "a gift on trust must have a cestui que trust": Re Wood [1949] Ch. 498, 501, per Harman J. In other words, there have to be a person with a property right (i.e., a beneficiary) who can insist on the trust. The correlative of this rule is that the recipient (having a right in rem) may call upon the trustee (as legal owner) to convey to him the trust property: Saunders v Vautier (1841) Cr.& Ph. 240. Alternative Mechanisms Given that trusts for non-charitable purposes are invalid for want of a recipient with sufficient standing to compel performance of the trust, some alternative approaches have been used to uphold gifts of this nature. Although "a convincing power cannot be spelt out of an invalid trust" ( see, IRC v Broadway Cottages Trust [1955] 1 Ch. 20, 36, per Jenkins L.J.), there is no cause why an express power to apply property towards a non-charitable purpose (provided it is limited to the perpetuity period) should not be valid: Re Douglas (1887) 35 Ch. 472. Of course, if the authority is not exercised, there will be a resulting trust for the persons unrestricted in default of appointment. (Interestingly, Section 16(1) of the Ontario Perpetuities Act 1966 converts a trust for a specific non-charitable purpose into a power to employ the income or capital, provided several circumstances are satisfied). An unusual approach is to make use of the means of the unincorporated association. In Re Lipinski's Will Trusts [1976] Ch. 235, for example, a gift to the Maccabi Association to be used exclusively in the construction of new buildings for the association was upheld on the foundation that, although a gift for a purpose, it was directly for the benefit of the members. Thus, where the donee body is itself the recipient of the prescribed purposes, the gift can be construed as an absolute one to the individual membership, especially where the reason is actually carried out because the members can then vest the property in themselves: se also, Re Turkington [1937] 4 All E.R. 501. In this union, it was important in Re Lipinski that the members could, by a suitable majority, alter the system of the association so as to divide the association's assets among themselves. This point was also stressed by Vinelot J in Re Grant's Will Trusts [1979] 3 All E.R. 359. It is evident, however, that this principle will not operate where the class of beneficiaries is too wide and, therefore, managerially unworkable: R v District Auditor, ex parte West Yorkshire Metropolitan County Council [1986] R.V.R.24. Another advance to the problem has been to be relevant the mandate or agency principle. In Conservative and Unionist Central Office v Burnell [1982] 1 W.L.R. 522, aid to the treasurer of the Conservative Party were upheld on the ground that they were theme to an authority (or mandate) to use the duty in a particular way. If the contributions were not spent, the provider was entitled to their return unless it was agreed that his donation was irrevocable. If, on the other hand, the treasurer misappropriated the duty for other purposes, the contributor would be entitled to sue for breach of fiduciary compulsion based on general principles of agency law. Because the association is based on agency, there is no query of any trust arising and, hence, no breach of the beneficiary principle. An alternative (but related) mechanism is to adopt the law relating to gifts which are made subject to conditions ensuing. Here, the donor confers a beneficial interest in act of kindness of the donee and expressly provides that this interest shall be restrictive (or contingent) upon that person carrying out a stated purpose. In Lloyd v Lloyd (1852) 2 Sim. N.S. 255, for example, an annuity was given upon condition that the testator's tomb be kept in revamp. The court held that the repair of the tomb, although not a charitable purpose, could be validly forced as a condition successive attached to the annuity: see also, Re Chardon [1928] Ch. 464, where the testator gave a sum of 200 to his trustees upon trust to invest it and to pay the income to a cemetery company "during such phase as they shall continue to preserve and keep" two particular graves in the cemetery in good order and condition. (see further, P. St. J. Smart, "Holding Property for Non-Charitable Purposes: Mandates, Conditions and Estoppels", [1987] Conv. 415. The enforcer principle In spite of these various attempts to side-step the beneficiary principle, the fundamental problem remains that a trust for non-charitable purposes will be void if the settler (or testator) has failed to confer on some person sufficient standing to force performance of the trust. The orthodox view is that such person must have an even-handed proprietary attention in the trust property - otherwise, what is created is not a trust but a mere power to apply monies for a stated purpose. This harsh approach, however, appears to have been tempered in cases such as Re Denley and Re Lipinski, referred to earlier, where a difference has been drawn between trusts for purposes personally benefiting individuals (for example, members of a club) and trusts for only abstract or distant objects "where that benefit is so indirect or intangible or which is otherwise framed as not to give those persons any locus standi to be related to the court to enforce the trust": Re Denley, 383, per Goff J. Put simply, if the trust is construed as being for the benefit of ascertained individuals (so as to entitle them to terminate the trust and call for the trust property), it will be suitable, but if the essence of the trust is the specific mode of enjoyment (i.e., the purpose) so that the indirect benefit to individuals is only less important, the trust is cancelled. It is not completely obvious whether the test propounded in Denley permits purely ingenuous (as opposed to legal) interests to meet the criteria under the human beneficiary rule. If a factual interest is enough, what degree of factual benefit is sufficient to confer standing Whilst contractual licensees within a company or organization appear to be eligible, it is apparent that a wider class of the population will not: see, R v District Auditor, ex parte West Yorkshire Metropolitan County Council, above. Most probably also, the Denley test will not save the irregular class of unenforceable trusts which confer no benefit on anyone other than the testator (i.e., trusts for the saying of masses, erection of graves and monuments or maintenance of pet animals). This has expectant some commentators to argue for a more robust solution to the problem of trusts for purposes. Most notably, Hayton has argued that it is sufficient if the settler in his trust deed specially confers locus standi on an "enforcer" interested in the furtherance of the settler's specific non-charitable purpose; see DJ Hayton, "Developing the Obligation Characteristic of the Trust", (2001) 117 L.Q.R. 96. He gives, as an example, a trust to further the security of the Conservative Party expressed to be enforceable by the Leader of the party from time to time, or a trust to further the purposes of a thoughtful order of nuns articulated to be enforceable by the head of the order from time to time. In his view, because the trust act provides a mechanism for the optimistic enforcement of the purpose trust, the trustees are beneath a compulsion to account to someone in whose favour the court can decree specific performance. Crucial to his thesis, therefore, is the impression that trustee accountability need not be limited to equitable beneficiary, but can expand to other persons whom the settler has particularly designated as having enforcement powers. Interestingly, he cites the supplies of Section 12B(1) of the Bermudan Trusts (Special Provisions) Act 1989 which states that the Supreme Court "may make such order as it considers means for the enforcement of a reason trust on the application of ... (a) any person chosen by or under the trust ... (b) the settler ... (c) a trustee of the trust (d) any other person whom the court considers has sufficient attention in the enforcement of the trust". Such an idea already exists (in more limited form) in relation to the so-called Quistclose money reason trusts. Here, if a payer pays money to a recipient to be used for certain specific purposes on the thoughtful that the recipient is not to have the full beneficial interest in the duty, the payer has a right to restrain misuse of the money by the recipient: Barclays Bank v Quistclose Investments Ltd [1970] A.C. 567. Viewed in this light, principle trusts are likely to have an ever more legitimate function in providing a convenient vehicle for the holding of trust assets which are not beneficially owned by anyone. Unavoidably, therefore, the beneficiary principle will need to make way for a broader principle in equity which justifies the enforcement of trust obligations by means of a wider class of persons who have been conferred (either expressly or by statute) with powers of management and rule of the trust. Bibliography Alastair Hudson (2005). Equity & Trusts. Cavendish Publishing, Fourth Edition Cvetkovich T. George & Earle C. Timothy, 1995. "Social Trust: Toward a Cosmopolitan Society": Praeger Publishers: Westport, CT. Denning Alfred & Friedmann W., 1951. "Law and Social Change in Contemporary Britain". : Stevens. Place of Publication: London. Einstein H. Ilana, 2003. "Keeping Charity in Charitable Trust Law" in "The Barnes Foundation and the Case for Consideration of Public Interest in Administration of Charitable Trusts": University of Pennsylvania Law Review. Volume: 151. Issue: 5. Fenton Natalie, Hems C. leslie, Passey Andrew, Tonkiss Fran, 2000. "Trust and Civil Society": Macmillan: New York. Oakley A. J, 1996. "Trends in Contemporary Trust Law": Oxford University: New York. Read More