Private Trusts vs Public Trusts
Private Trusts: must be for the benefit of a person and NOT a purpose
Public Trusts: CAN be for a purpose i.e. non-human or for the benefit of some worthy cause or benefit to the public as charitable trust.Thus an exception the requirement of 'definite object'.
1. Morice v Bishop of Durham 1804, Sir Grant MR: This case established the beneficiary principle 200+ years ago. The Bishop was given £ for objects/purpose of 'benevolence and liberality' but trust failed as no definite object/person nor a charitable purpose. 'Every non-charitable trust must have a definite object. There must be somebody in whose favour the court can decree performance'. This is so that the courts can enforce the trust and control it adequately.
2. Leahy v AG New South Wales 1959, Viscount Simonds: 'a gift can be made to persons (including a corporation) but it cannot be made to a purpose or to an object: a trust may be created for the benefit of persons as cestuis que trust but not for a purpose or object unless the purpose or object is charitable. For a purpose cannot sue but if it be charitable, the Attorney General can sue to enforce it.'
3. Saunders v Vautier 1841: beneficiary must be able to call upon a trustee to convey the title or terminate the trust.
Beneficiary Principle cont'd
1. Re Wood 1949 per Harman J: 'a gift on trust must have a cestui que trust and there being no cestui que trust the gift must FAIL!!!'
2. Re Astor's ST 1952: trust created for 'maintenance of good understanding between nations' which was held to be too vague and not definite objects/persons. The trust failed for lack of individual.
3. Re Shaw, Harman J, 1957: trust created for 'developing a 40 letter alphabet'. Despite the trustees willingness to carry out the intentions, held invalid trust for lack of human individual.
4. Re Endacott 1960: trust created for 'the purpose of providing some useful memorial to myself'. Trust failed for being far too wide, uncertain and vague.
Justification for the beneficiary principle
4 justifications for the beneficiary principle:
1. Enforceablity: the beneficiary would not be able to physically come before the courts to enforce the trust. Lack of human being is the 1st reason why trusts of these purpose types fail!
2. Uncertainty: courts try to find ways around this to give effect as far as possible to settlors intentions but if so vague and uncertain they cannot. There are some established exceptions.
3. Delegation of testamentary powers: absence of a human beneficiary means the trustees are left to exercise how they like and have total control which may result in bypassing the intentions
4. Perpetuity (Perpetutities & Accumulation Act 1964/2009): a trust will fail for perpetuity if it is never ending. People die but trusts dont. Financial policy reasons as £ will not circulate into economy. This justification prevents gifts from vesting too remote time in the future, prevents capital from being tiedup and prevents income from being accumulated over time i.e. draining £ from the economy. Old law used to be 21 year limitation and now statute section 9 states 125 year flat period limitation. Beneficiary can set up new trusts but the original trust cannot exceed 125 years....
Exceptions to beneficiary principle
When homer has nodded....
Established through victorian precedent notably from Professors Morris & Leach and judges..
1. Tombs & Monuments
2. Trusts for Animals
3. Saying of Private Masses
Re Endacott, Harman J: 'these cases stand by themselves and ought not to be increased in number, nor indeed followed, except where the one is exactly like the other'. Courts will allow the above 3 to be valid but will NOT extend these.
A possible 4th and 5th?
- 4. Trustees willing to carry out + do the work even if lack of individual if meets perpetuity rules
- 5. Remaining beneficiaries happy?
- Paul Baxendale-Walker argued courts took wrong turn 20th century and ignored hundreds of previous years of judicial precedents purpose trusts of all kinds had been upheld as valid.
Exceptions case law
Tombs and Monuments: (not charitable but private purposes acecepted)
- 1. Trimmer v Dandy: £300 to erect monument. Trustees willing to carry out even though imperfect and no human. However £200 upkeep of monument rejected as offends perpetutity
- 2. Re Hooper: care and upkeep of graves. Can maintain for 21 years only then £ returns.
- 3. Mussett v Bingle: errect and maintain statute of wife's first husband
- 1. Re Dean, North J: £750 left for 50yrs to maintain horses valid but didnt deal with perpetutity. Horses can live longer than 21 years! Not a good case!
- 2. Pettinghall v Pettinghall: £50 for specific horse. Trustees willing and found valid.
- 3. Re Thompson, Clauson J: promotion and furthering of fox hunting held valid.
Private Masses: (problematic as likely to be charitable: public vs private masses)
- 1. Bourne v Keane 1919: HoL's.Not private or public.Suspicious witch craft? Valid if legal!
- 2. Re Caus 1934: £1000 left for masses. Held valid even if was not in public?
- 3. Gilmore v Coates:invalid gift £ left to nuns that stay indoors and pray.Religious contention
- 4. Re Hetherington 1990: held as as long as masses said in public then valid
A retreat from the beneficiary principle?
Even with the exceptions, the courts have found ways outside these to the beneficiary principle in order to try and construe a trust as valid i.e. £ left for building law school. Students that can come to court to enforce as indirectly effected! Almost always an indirect person....
1. Re Bowes 1896: £ left on trust for inplanting trees for shelter. Prima facie is a purpose (trees can't come to court!) ? for court whether public or private purpose? Court held for for benefit of state (public) and persons receiving benefit of trees for time being. Expressed purpose of planting trees merely the motive only. The disposition actually being for estate owners (a father and son). Courts held father and son could come to court + be recognised as beneficiaries.
2. Re Denley's Trust Deed 1969, Goff J: Plot of land conveyed to trustees for use of sports centre subject to rule in perpetuity (21 years) is for the use and benefit of employees and any other persons that trustees allow.Was this void for purpose trust? Held if trust can benefit individuals with locus standi where there is a purpose, would hold valid but not if so strained then would have to invalidate trust. 'Where the trust is expressed as a purpose, is directly or indirectly for an individual, its seems to me that it is in general outside the mischief of the beneficiary principle.'Affirmed in Re Endacott by Harman J:'rule against enforceability of non-charitable "purpose or object" trusts was confined to those which were abstract or impersonal where there was no beneficiary or cestui que trust''
Characteristics of Unincorp Assoc:
1. Society where people can join and leave at will
2. 2 or more people
3. Persue a purpose
4. Mutual undertakings/obligations
5. No legal identity and cannot hold property itself so members hold property
Examples of Unincorporates Associations: Clubs, societies etc.
1. Conservative v Burrell 1982, Lawton LJ: Referring to the Income and Corporation Tax Act 1970 sec 526 stated the meaning of unincorporated associations: 'Two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings each having mutual duties and obligations in an organisation which has rules which identify in whom control of it and its funds rest and on what terms and which can be joined or left at will'.
Unincorporated Associations receiving gifts
How can an unincorp assoc receive a gift?
1st way of holding gifts: Absolute gift: (can be spent by members HOW they like so unsafe!)
1. ***** v Manners: gift to persons who are present members of association on the date the gift made. Held it as tenants in common equally.
2nd way of holding gifts: On trust: (not outright but on trust. Absolute gift but to members who are trustees and beneficiaries.Trust can be ended which gives severe discretion to members.)
2. Re Turkington: a gift on trust for the present members of the association
Another 2nd way of holding gifts: Endowment: trust. Offends perpetutity as future members for ever which rule says cannot do this unless like Re Denley.
3. Leahy v AG NSW: a gift on trust for present and future members of association. Failed as future members offended perpetutity rules.
4. Re Denley: as expressly stated future employees 'within rules of perpetuity' held valid
1st and way are not favourable as are unsafe or may be invalidated for perpetuity
4th way of receiving gifts:
4th way of receiving gifts: Contractual Model/Contract Holding Theory
1. Neville Estates v Madden, Cross J: Land held by Catford Synagogue for promoting jewish religion. Trustees of Catford held £ on trust for advancement of religion.Though generally speaking an association which is supported by its members for the purpose of providing benefits for themselves will not be a charity, this principle cannot apply with full force in the case of trusts for religious purposes. Created way of getting round the less safe ways. 'it may be a gift to the existing members, subject to their respective contractual rights towards one another as members of the association and such a member cannot sever his share. It will accrue to the other members on his death/resignation. It will not now be open to objection on the score of perpetuity or uncertainty unless there is something in the rules of association which precludes the members from dividing the subject of the gift between them on the footing that they are solely entitled to it in equity.' Meaning, when £ given to society, members do not hold £ personally but subject to contract signed upon joining the club and obeying the rules. People can come and go and will not effect the £ as not held personally. J Cross took unincorporated associations out of trust law and into contract law. Leading case and built upon in subsuqent case law....
Subsequent case law..
Case law after Neville Estates v Madden: ADD MORE TO
1. Re Recher, Brightman J: gift to non charities failed as association failed to exist when will read. If it had still existed, it would have been a gift to the members beneficially, subject to their association contract as per Neville Estates. Shows non-charitable purposes possible of being valid. Members were bound by contract. Any such member was entitled to the rights and subject to the liabilities defined by the rules. If the committee acted contrary to the rules, an individual member would be entitled to take proceedings in the courts to compel observance of the rules or to recover damages for any loss he had suffered as a result of the breach of contract. Legacy is a gift to the members beneficially, not as joint tenants or as tenants in common so as to entitle each member to an immediate distributive share, but as an accretion to the funds which are the subject-matter of the contract which the members have made inter se.
2. Re Lipinski, Oliver J: Court held valid gift to a non-charitable organisation. New buildings for the association in memory of wife. If a valid gift may be made to an unincorporated body as a simple accretion to the funds which are the subject matter of the contract which the members have made inter se… I do not really see why such a gift, which specifies a purpose which is within the powers of the association and of which the members of the association are the beneficiaries, should fail. Re Denley and Re Recher applied.
Subsequent case law..
3. Re Grant, Vinelott J: New political labour party subject to rules i.e. non-charitable purpose. Constituency party that doesn't make rules. Estate left to committee. Gift invalid as members not free to dispose of property in any way they felt. Gift to present & future members would fail for perpetuity. Failed because association didn't meet characteristics needed (Conservative v Burrell) and subject to other rules. Held that the estate was to be kept intact as endowment capital on trust for the Labour Party’s purposes, and therefore was void for infringing the beneficiary principle and the rule against inalienability. The Re Recher analysis (that donations take effect as accretions to the group’s funds, subject to the contract that exists between the members) could not be applied. In relation to Re Denley he said: That case on a proper analysis, in my judgment, falls altogether outside the categories of gifts to unincorporated association and purpose trusts. I can see no distinction in principle between a trust to permit a class defined by reference to employment to use and enjoy land in accordance with rules to be made at the discretion of trustees on the one hand, and, on the other hand, a trust to distribute income at the discretion of trustees amongst a class, defined by reference to, for example, relationship to the settlor. In both cases the benefit to be taken by any member of the class is at the discretion of the trustees, but any member of the class can apply to the court to compel the trustees to administer the trust in accordance with its terms.
Subsequent case law..
4. Conservative v Burrell 1982, Brightman LJ: Court of Appeal held there was no contract which connected the various limbs of the Conservative Party, and the various members, so the Re Recher analysis could not apply.
5. Re Horley Town Football Club 2006, Collins J: decided that the trust deed will be construed as a gift to the Club as a ‘contract-holding’ gift to the Club and its members.The beneficial ownership of the assets of the Club was vested in the current full members of the Club on bare trust. A clause will be implied into the rules of the Club to the effect that the surplus funds of the club on a dissolution should be divided amongst its members at the time of dissolution on a per capita basis, irrespective of the length of membership or subscriptions paid.
When associations cease to exist..
When unincorporated associations cease to exist: if members dissolve club and £ in pot, what happens to the money?
It must be clear that the association has failed to exist
1. Re William Denby & Sons, Brightman J: classified 4 categories when association dissolved:
- a. In accordance with the rules of the association
- b. By agreement of all interested persons
- c. By order of the court
- d. When purpose on which the society was founded has gone-distribute assets without court
Must look at how money is received/held in first place: (way £ goes in, way £ goes out)
- 1. On trust: resulting trust analysis back
- 2. Contract: contractual analysis back
- 3. Owner less i.e. bona vacantia: to the crown
1. On trust: Resulting Trust Analysis
1. Gift held on trust = Resulting Trust Analysis
Definition: If gift given on trust for a particular purpose and the purpose ceases to exist = propietary interest in the gift results BACK to the original donor. Court finds this trust not set up.
1. Re Gillingham Bus Disaster Fund, Harman J: Bus crash with army cadets and some killed. Disaster fund set up. All purposes met i.e. funeral expenses, medical etc but fulfilled with surplus funds left over. Where monies held on trust are not exhausted, they will revert to the donor on a resulting trust. The donor did not part with his money absolutely out and out, only under a condition that the purposes declared should be carried into effect. When this has been done, anything left over, still belongs to him. This is only possible where the donor is identifable and has parted out and out. For example donations on the streets where the person is not identifable are assumed to have parted out and out.
2. Davies v Richards & Wallington, Scott J: Pension fund contributed to by employer and employees 50/50. Employers contributions on trust i.e. for purpose of providing funds to pay pensions so £ results back when all £ paid out. Contributions of employees went bona vacantia (to the crown/ownerless) as employees not an unincorporated association and parted out and out and impossible for them to share surplus with different entitlements.
1. On trust: Resulting Trust Analysis
1. Gift held on trust = Resulting Trust Analysis
3. Air Jamaica v Charlton 1999, Lord Millet: Pension fund contributed by employers and employees 50/50 also. Surplus funds. In this case, rejected the idea just because 'you got what you paid for' cant use resulting trust analysis. Surplus shared on resulting trust analysis. Employers decided to follow Davies decision but employees decided differently. Just because employees has received their pensions did not preclude a finding of resulting trust as they had contributed to the fund and surplus.
4. Re Hobourn Aero Components Ltd, Cohen J: From 1940 to 1944 employees of a company situated in Coventry made weekly contributions to a fund to assist employees who had suffered damage as a result of air raids. Only contributors to the fund could benefit. The fund was closed in 1944, and the question arose what to do with surplus moneys. . This funds were not held on any charitable trust, since there was an insufficient element of public benefit. It followed that a cy-près scheme could not be directed. The contributors were entitled to the distribute the fund among themselves, in proportion to the total amount each had contributed, on resulting trust principles. Fund not held on charitable trust.
2. Contract: contractual analysis
2. Gift on Contract: Contractual analysis back:
Definition: If money given in return for a consideration e.g. money raised through paying of subscriptions, an annual dinner or through a raffle, then a contract not a trust. 1 of 2 findings:
- a. monies are accumulated to club funds which are held by all members of the club subject to the rules inter se, so shared between members (i.e. membership costs)
- b. donor has parted out and out and received what they paid for, so surplus is bona vacantia
- a. Re Sick & Funeral Society, Megarry J: Sunday school society formed. Subscriptions on sliding basis (under 12 pay 1/2 and 1/2 benefits,over 12 pay full and full benefits). Society wound up. If cease to be a member, not entitled. 'the sums they pay cease to be their individual property, and so cease to be the subject to any concept of resulting trust. Instead, they come the property, through the trustees of the club or association, of all the members for the time being, including themselves'.Held 1/2 shares to under 12's,full shares to over 12s.
- a. Re Bucks Constabulary 1979, Walton J: Courts reluctant to give £ to crown.Society for relief of widows and orphans of deceased members.Silent rules for surplus funds.'Distribution on basis of equality as between a number of people contactually interest in a fund, there is no other method of distribution.'Funds distributed in equal shares.
3. Ownerless bona vacantia: to the crown
3. Owner less i.e. bona vacantia: to the crown
Def: donors of the money do not retain an interest via resulting trust and if any contractual rights have been satisified, then no one owns the surplus and the funds are claimed by the crown!
1. Cunnack v Edwards: all members are deceased and no one left to pay out with surplus of £1250. 'As the member paid his money to the society, he divested himself of all interest in his money forever' and the money goes to the crown.
2. Re West Sussex Constabulary 1971, Goff J: surplus funds from: note that crown were in the court when this was decided, influenced? Generally, courts do not want £ to go to crown!
- member subscriptions: £ to crown as benefit had and 'got what bargained for'
- proceeds of entertainment: £ to crown, consideration given by prizes/dinners bought etc. and 'got what bargained for'. Surplus for these could have been used up anyway!
- collecting boxes: £ to the crown, unidentifiable and gave £ out and out. Doubted Re Gillingham
- legacies/donation from identifiable donors: resulting trust IF identifiable
However, Re Bucks IS THE PREFERRED METHOD! (i.e. NOT to the crown!)
- Beneficiary principle is to invalidate non-charitable purpose trusts outside accepted exceptions. BP for unincorporated associations has been slightly removed by the construction of gifts on a contractual analysis (Neville Estates v Madden). But the BP still severely limits the operation of non-charitable purpose trusts.
- 'Private purpose trusts - a reform proposal': Pawlowski & Summers: Although a valid power cannot be spelt out of an invalid trust,no reason why an express power to apply property towards a non-charitable purpose (limited to perpetuity) should not be valid and if the power is not exercised,a resulting trust. Or, apply the mandate or agency principle. In Conservative v Burrell,contributions to the treasurer of the Conservative Party were upheld on the ground that they were subject to an authority (or mandate) to use the money in a particular way. If contributions not spent, contributor entitled to their return unless agreed donation was irrevocable. A more robust approach is required to the reform of private purpose trusts involving a general recognition that such trusts are valid. Adopt approach recognised in several offshore jurisdictions involving the use of an enforcer mechanism, which is not limited to any particular category of persons. Many offshore jurisdictions have legislated for the validity of purpose trusts. Over 12 jurisdictions with purpose trust legislation, avoiding the conceptual problems under English law. Since 90’s in Barbados, Bermuda, BVI, the Cayman Islands, Jersey, Mauritius, Seychelles.