Why the English Courts should Ban the Beneficiary Principle - Essay Example

Why the English Courts should Ban the Beneficiary Principle The beneficiary principle, as currently constituted and practiced by the English Courts, is unfair, not only to the trustees, but also to the beneficiaries. Fundamentally, the beneficiary principle invokes the UK Charities Act of 2006 to invalidate all trusts that lack charitable objects.1 Legally, a trust is an obligation that is not only equitable, but also that legally binds a trustee to oversee certain property, which is called the trust property, on behalf of the real beneficiaries of such trust property. The trustee may or may not be one of the beneficiaries, depending on the contract agreed on. Perhaps one of the critical mistakes with the beneficiary principle is that the trustee is under the control of the beneficiaries, particularly through the judicial instruments.2 On the other hand, the beneficiaries are legally mandated to enforce the remittance of the equitable obligation when due. The beneficiary principle, which ought to defend the rights of the beneficiaries, denies them the very rights by excluding the charitable trusts. Therefore, it is only fair that that the courts in Wales and England should stop enforcing the principle.3 Although the beneficiary principle in anchored in the British Law, it is unwarranted for Wales and English courts to enforce the beneficiary principle because the enforcement of such a principle limits the elasticity of private purpose trusts Trust law, as prescribed by most Commonwealth jurisdictions, particularly by the English Law, should undergo radical amendment or the courts should abandon it altogether, owing to its unfairness. The beneficiary principle states that trusts that lack clear structure of benefiting distinct beneficiaries are invalid and should not operate under any other law. In addition, the principle enforces trusts to have charitable objects in order to be legally recognized. Perhaps it is important to understand what charitable objects are in order to decipher the problem with the beneficiary principle. Sections 2 and 3 of the 2006 United Kingdom Charities Act are clear about the valid and void trusts.4 According to the English Law, charitable trusts are anchored under the Charities Act of 1993. Charitable trusts must have the sole purpose of serving charities and not personal interests in order for such trusts to be legally viable. It means that charitable trusts are legal trusts just as taxes and they are subject to enforcement by the office of the Attorney General.5 Regardless of the nature of the beneficiaries of charitable trusts, the locus standi of their enforcement rests with the Attorney General. Perhaps this is problematic area of the law needs redress, considering the huge responsibility and obligation of the trustees. Nonetheless, the favourable tax regime on charity trusts is much welcome by the trustees and their beneficiaries.6 Although the law is supreme and serves everyone equally, the beneficiary principle is unfair to the extent that it places a cap on trust funds and properties. It recognizes only the trusts with charitable dimensions despite the relevance of non-charitable trusts in the United Kingdom and beyond.7 The famous Morice v Bishop of Durham gave clear directions concerning the thorny issue of beneficiary principle. It was so in the sense that the judges ruled that all the trusts that were non-charitable were to have a definite object. It meant that all the non-charitable trusts were obligated to disclose their purpose and beneficiaries in order to be validated. Since the courts in Wales and England are still enforcing this law according to the judgement, they are grossly infringing on confidentiality rights and the freedom of trusts.8 The famous Morice v Bishop of Durham case saw a landmark ruling that obligated the court to oversee the performance of a trustee in all trusts, whether they are charitable or non-charitable. The power to enforce the beneficiary principle rests with the Attorney General, as decided in the case.9 Nonetheless, the House of Lords has deliberated on the issue several times in addition to numerous court cases that have given the beneficiary principle new meaning. In essence, some Lords claimed that the beneficiary principle, as constituted, was perfect in the sense that the lawful discretionary trust was limited in class. Widening the same would mean that it would be a difficult affair to determine the lawful beneficiaries of the trusts and enforce the trusts in their favour.10 United States and other jurisdictions decided to abolish the beneficiary principle because they saw it as being ambiguous as far as the beneficiaries are concerned. Whether charitable or not, a trust should be for a certain purpose, implying that no individuals should be involved in a trust in the name of beneficiaries. On the other hand, the beneficiary principle as enforced by the United Kingdom and Commonwealth jurisdictions, envisions a situation whereby the object of a trust have to be definite and non-charitable. The difference between the English beneficiary principle and that of other nations like the United States is that the beneficiary principle does not allow non-charitable trusts to operate in England and Wales. In this regard, the English courts ought to abandon the principle in order to allow for flexibility in trusts, especially the trusts with private purposes. Besides, the beneficiaries of a particularly trust have the power to control and manage their trustees under the beneficiary principle.11 Beneficiary principle should be banned in the United Kingdom because of the three obligations that it enforces. Fundamentally, the principle demands the existence of an identifiable beneficiary through which the courts can decree performance of the trust. Another injustice to private purpose trust is the declaration of the intention of the settler or the purpose of the trustee, which goes against the privacy of the private purpose trusts. The ruling by the Court of Appeal regarding the beneficiary principle was skewed in favour of the beneficiary without due consideration of the trustees and nature of trusts. The law put a blanket ban on all non-charitable trusts, especially those that lack discrete beneficiaries. The law is unfair to the private purpose trusts and the courts in Wales and England should abolish the law instead of enforcing it in the UK.12 Private trusts are void under the English beneficiary principle, which is unwarranted under all circumstances, including the three fundamental certainties. The private purpose trusts should have the flexibility that they deserve in order to serve their purpose effectively. However, the beneficiary principle, as enforced by the English court necessitates all property trusts to have identifiable objects and beneficiaries. In this regard, a private trust, such as the private property trusts, cannot act as a purpose, making it void. This requirement is unfair to private purpose trusts because it forces them to declare their beneficiaries in order to gain validity under the beneficiaries act and the Law of England.13 Perhaps the ruling made by the courts in Morice v Bishop of Durham [1804] EWHC Ch J80 case was a disservice to the private purpose trusts and to a larger scale, democracy in the United Kingdom. The Court of Appeal made a ruling that appeared unjustified, particularly to the private purpose trusts. Fundamentally, the court maintained the fact that non-charitable trusts were invalid, which was rather detrimental to many trustees with a private purpose. Until the court of England and Wales find a way of abandoning the beneficiary principle, private purpose trusts will always face great challenges operating in such jurisdictions.14 Court of Appeal denied the private purpose trusts their flexibility in the sense that it demanded such trusts to have object and not simply a purpose. Morice v Bishop of Durham case was perhaps a historical case because the UK Court of Appeal clarified the rationale of the beneficiary principle in regards to the inclusion of objects.15 In essence, the courts were of the opinion that the trustees might attempt to avoid obligations if they did not have definite objects, in this case, definite beneficiaries. This notion was far from the truth because the United Kingdom has one of the most trustworthy trusts that uphold integrity and professionalism as far as service and promise delivery are concerned. Besides, the Serious Fraud Office exists to handle all cases of fraud, including frauds pertaining to trusts funds and property. In this scenario, there was no need to limit the beneficiary principle to charitable trusts that have a definite object. It was unnecessary to make the ruling that would reduce the functionality of the private purpose trusts.16 Besides the 1804 ruling by the Court of Appeal, the Leahy v Attorney General for New South Wales [1959] HCA 20 case only fortified the beneficiary principle as constituted. The outcome of the ruling supported the previous case because it emphasised on the need to have an object rather than a purpose for a trust to be lawful. For example, in Re Astor’s Settlement Trusts [1952], the court termed the trust as being void because it lacked an object in the name of beneficiary. All the trust had was a list of purposes, some of which were not charitable in nature.17 Among the many purposes of the trust included securing the release of a journalist and defending the rights of newspaper columnists. Although these purposes were not charitable, they championed for civil rights and they deserved better treatment. Nonetheless, the trust was dismissed because the trusts did not have a definite object or beneficiary and that it was not meant for charity. In essence, some non-charitable trusts offer more fulfilling rewards that the charitable ones.18 It appears that the English law favours charitable trusts and disfavours the non-charitable trusts, given the cap of the private purpose trusts. The English law states clearly that a trust must be charitable and objective as opposed to having an abstract purpose. Although the charity aspect of trusts has been in effect since 17th century, the Charities Act 2011 strengthened the act, particularly against non-charitable private purpose trusts.19 The contemporary world allows for the establishment of various trusts for the benefit of the society. The object of such trusts may not necessarily be outright, but the trust can be charitable in purpose. In most cases, charitable trusts are exempted from taxation because they are meant to benefit the public. It means that charitable trusts must be for the public good.20 In as much as the private purpose trusts may not necessarily have a definite object, they are good intentioned. According to the English beneficiary principle, charitable trusts are supposed to advance religion, education, reduce poverty, or undertake any other activity that benefits the public.21 However, the private purpose trusts also promote public benefit, though indirectly. Since the law does not recognize this indirectness in the purpose, the private purpose trusts are usually in a crippled state as far as the management of their affairs are concerned. In order to ensure fairness in the enforcement of the beneficiary principle, the Lords can either make an amendments to the Act or the courts can dismiss the legitimacy of the beneficiary principle altogether.22 The courts in England and Wales ought to recognize the fact that trusts exists for a number of purposes and the beneficiaries of such trusts. Some trusts are established to be private and not to divulge the nature of the trust in terms of purpose or object. To this end, the English beneficiary principle violates the privacy of private purpose trusts that are legally constituted and denies them flexibility. Unlike a will whose terms are in the public domain, a trust is a private contract with confidential terms. Since a strong regulated exists towards the charitable trusts, the non-charitable trusts, most of which are private, face a legal discrimination. The principle renders such trust as the unit trusts redundant.23 The courts in Wales and England should abandon enforcing the beneficiary principle because it limits flexibility of the private purpose trusts such as the unit trusts. The principle essentially bars the establishment, existence, and operation of non-charitable trusts. The courts must have an identifiable beneficiary under the law, which breaches the confidentiality of private purpose trusts. Since the Charities Act 2006 recognizes charity as any project that benefits the public directly, private purpose trusts do not have under the English beneficiary principle.24 It is no because of the private purpose trusts could be offering indirect benefits to the public. More importantly, private purpose trusts prefer to have their privacy as far as their object or purpose is concerned. Therefore, enforcing the beneficiary principle does not only deny the private purpose trusts their requisite flexibility, but the principle is also an affront to democracy.25 Bibliography Bant E and Harding M, Exploring Private Law (Cambridge University Press 2010) Hayton D, Extending The Boundaries Of Trusts And Similar Ring-Fenced Funds (Kluwer Law International 2002) Hudson A, Equity And Trusts (Routledge-Cavendish 2007) Hudson A, Great Debates In Equity And Trusts (Palgrave Macmillan 2014) Moffat G, Bean G and Dewar J, Trusts Law (Cambridge University Press 2005) Pearce R and Stevens J, The Law Of Trusts And Equitable Obligations (Oxford University Press 2006) Webb C and Akkouh T, Trusts Law (Palgrave Macmillan 2008) Read More