Nature of Trusts

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Nature of trusts

“Of all the exploits of equity, the largest and most important is the invention and development of the Trust”    Maitland

“The trust performs a very simple trick: it enables more than one person to have rights in the same property simultaneously”  Hudson

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History of trusts:

“The Use” – pre 1066 & 13th C religious crusades?
Franciscan monks and their vow of poverty?
The Muslim “waqf” to provide charity to family

Equitable recognition of rights of the family in 14th and 15th Centuries (in addition to legal interest (it looks beyond the legal title to substance)

Henry VIII and the Statute of Uses 1535: dealt with tax avoidance of feudal dues and then draftsmen avoiding that statute – the “Use upon a Use” -
By 1700 that device became known as the "trust"

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Definition of a trust

“…the imposition of an equitable obligation on a personwho is the legal owner of the property(a trustee) which requires that person to act in good conscience when dealing with that property in favour of any person ( the beneficiary) who has a beneficial interest recognised by equity in the property.”

Thomas and Hudson

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Trusts redefined

The most important recent judicial statement of the core trust principles: 

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] HL, per L Browne-Wilkinson


   i)  equity operates on the conscience of the legal owner
   ii)   the holder cannot be trustee if he is ignorant of the facts
   alleged to affect his conscience
   iii)   there must be identifiable trust property
   iv)   the beneficiary has a proprietary interest in the trust
   property which is enforceable against any subsequent
   owner save for a purchaser for value of the legal
   interest without notice

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Creating trusts

  • Settlor creates expressly (absolute owner) EXPRESS TRUST
  • Establish by some act albeit settlor not aware creating express trust, Re Kayford [1975]: Mail Co in  financial difficulty, Ct held seperate account was a trust
  • By operation of law where trust is not successfully created or by contribution to purchase price (Westdeutsche) RUSLTING TRUST
  • Implied by operation of law to stop legal owner acting unconscionably to deny other’s rights (construstive trust) IMPLIED TRUST
  • implied by operation of law to stop legal owner acting unconscionably to deny other's rights CONSTRUCTIVE TRUST
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The magic triangle

  • Settlor: intends to part with property for benefit of others. Can be inter vivos (while alive) or testamentary trust (after death) with testator/ testatrix
  • Trustee: legal title to property vests in T who holds for the benefit on B, the property does not form part of T's assets
  • Beneficiary: equitable title, right to enjoy (viewed as owner)
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Westdeutsche Case:

a person who is solely entitled to full ownership at law and in equity does not enjoy an equitable interest, the legal title carries all rights and there is no separate equitable title until separation (eg trust created)

someone cannot leave their proerty to themselves alone, there must be other B's as well.

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Types of trust:

1. Express: intended creation, fllowing certainty and formality rules
2. Implied: not created deliberatley
3. Resulting: the law operates where wrongful denial of other's property
4. Constructive: usually implied where wrongful denial of other's property

Private: the B's are people
Public: trusts for charitable purposes
Fixed: the B's and their equitable interest is identified
Discretionary: T can select B from a specified class and/or chose share
Mere Power: can have power of appointment to pay- but need not
Secret: Under a Will, the T but not the B is identified (T knows B)
Bare: B does not know the identity of the settlors
Quistclose:
purpose of (loan) payment and payment results back

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Trusts compared to other legal relationships

Contract:
Beswick v Beswick [1968] rights and obligations between
   contracting parties only but B under trust can enforce
   against all save equity’s darling, Langbein 1995.
   Consideration required in contract, B under trust is
      a volunteer.  Contract = personal claim, trust = proprietary

Agency:
Agents and Trustees both have fiduciary duties
  BUT T and B have not entered relationship by agreement
  T does not represent B
T cannot bring B into contract with 3rd party
T only subject to B's control re terms of trust

Loan:
A right in personem NOT a right in rem thus creditor’s right to recover from the debtor is defeated on insolvency

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Co-existence of trust and loan

Barclays Bank Ltd v Quistclose Investments Ltd [1970]:

Q made loan to Rolls Razors for express purpose of paying shareholder dividend.  Loan paid into separate bank account but before dividend paid RR became insolvent.  In usual loan contract, Q’s claim would rank alongside all other personal creditors but HL held: money was held on trust as it was lent for a special purpose, when the purpose failed the money resulted back to Q by way of a resulting trust.

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Quistclose trust

L Wilberforce: to avoid inference that the money forms part of the general assets, the loan is for

1. A specific purpose

2. Purpose known to recipient

3. Special account set up

4. Cannot use for another purpose

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Quistclose trust

Re EVTR [1987]

– Employee won on premium bonds and gave money to employer’s solicitors “for sole purpose of buying new equipment”. When emplyer became insolvent before equiptment arrived it was held: the money was on trust for an emplyee, although no seperate account, the inference the it formed part of the general assests was negated by other factors.

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Quistclose trust:

Twin v Yardley [2002]: T lent Y £1M to buy land, Y's solicitor giving undertaking that the money will only be used for that purpose.

The analysis of the nature of the Quistclose Trust is controversial. L Millett in Twinsectra, for example, puts forwards an analysis that differs from Lord Wilberforce

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