Purpose trusts


Purpose trusts

Trusts should be for people and not purposes. 

'The very existence of a trust turns on there being a trust obligation to someone, who has equitable ownership of the trust property. The essence of the beneficiary principle is that for a trust to exist, there must be someone other than the trustee who has the real beneficial ownership of the trust property. If there is no such person, then not only is there no person to enforce the obligations against the trustee, but more fundamentally there are no trust obligations to enforce, for the legal owner owns it for his own benefit absolutely.'-Penner. 

The beneficiary principle- Trusts must have beneficiaries- ascertainable individuals. 

Perpetuities and Accumulations Act 2009.

Morice v Bishop of Durham 1804- 'there can be no trust, over the exercise of which this Court will not assume a control, for an uncontrollable power of disposition would be ownership, and not a trust. There must be somebody, in whose favour the court can decree performance.' 

Bowman v Secular Society 1917- 'for a trust to be valid must be for the benefit of individuals'- Parker. 

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Beneficiary principle

Leahy v AG for NSW 1959- 'a gift can be made to persons (including a corporation) but it cannot be made to a purpose or object.' 

Re Endacott 1960- 'no principle has greater sanction or authority behind it than the general proposition that a trust by English law, not being a charitable trust, in order to be effective, must have ascertainable beneficaries.' 

Re Astors Settlement Trust 1952- 'the typical case of a trust is one in which the legal owner of property is constrained by a court of equity so to deal with it as to give effect to the equitable rights of another. Therefore a trustee would not be expected to be subject to an equitable obligation unless there was somebody who could enforce the correlative equitable right.' 

Twinsectra Ltd v Yardley 2002. 

There is a practical need for someone to enforce the trust. 

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The anomalous exceptions

Didnt want to expand. Non charitable purpose trusts need to fit in the exceptions or they fail.

Re Endacott 1960- 'troublesome, anomalous and aberrant.' 'which are not really to be satisfactorily classified, but are perhaps merely occasions where Homer has nodded, at any rate 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.' 

Re Astors Settlement Trusts 1952

Pirbright v Salwey 1896- 'for so long as the law for the time being permitted.' Worried about perpetuity periods, was a valid gift as complied. About monuments and graves.

Pettingall v Pettingall 1842. 

Re Shaw 1957.

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The approach in Re Denley

Relaxed a bit, May be valid if for the direct or indirect ascertainable individual. This case established the authority for departure from the beneficiary principle. 

Re Denleys Trust Deed 1969- 'the said land should be maintained and used as and for the employees for the purpose of recreation or sports ground primarily for the benefit of the employees of the company and secondarily for the benefit of such other persons the trustees may allow to use the same.' 

'I think that there may be a purpose trust, the carrying out of which would benefit an individual, where the benefit is so indirect or intangible or which is otherwise framed as not to give those persons any locus standi to apply to the court to apply the trust, in which case the beneficiary principle would, as it seems to me, apply to invalidate the trust, quite apart from any question of uncertainty of perpetuity. The present is not of that character, and it will be seen that the trust deed expressly states that, subject to any rules and regulations made by the trustees, the employees of the company shall be entitled to the use and enjoyment of the land, in my judgement the beneficiary principle of Re Astor is confined to purpose trusts which are abstract. Where the trust, though exposed as a purpose, is directly or indirectly for the benefit of an individuals, it seems to me that it is in general outside the mischief of the beneficiary principle'- Goff

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The approach in Re Denley

Re Grant's Will Trust 1980- 'Re Denley falls altogether outside the categories of gifts to unincorporated associations 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 the settlor for example. 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.'- Vinelott.

Re Lipinski's Wills Trusts 1976.

Valid trusts for persons 'limited by a purpose'- 

Re Sandersons Trust 1857- 'pay and apply the whole or any part of the income for and towards the maintenance, attendance and comfort of my brother for the remainder of his life.' 

'There are two classes of cases between which the general distinction is sufficiently clear, although the precise line of demarcation is occassionally somewhat difficult to ascertain. If a gross sum be given, or if the whole income of a property be given, and a special purpose...

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Gifts to unincorporated associations

be assigned for that gift, this Court always regards the gift as absolute, and the purpose merely as the motive of the gift, and therefore holds that the gift takes effect as to the whole sum as the case may be. If an entire fund is given for the maintainence of children or the like, they take the whole fund absolutely, and the maintenance is treated in effect as simply the motive in making the gift, while on the other hand, if a portion only of the fund is given for maintenance then they are entitled to draw out so much only as may be necessary for the purpose specified.'- Page Wood.

  • Re Osoba 1979
  • Re Abbott Fund Trusts 1900
  • Re Bucks Constabulary 1978

Gifts to unincorporated associations- 

Two issues- 1) what is the nature of the way in which unincorporated associations hold property? 2) does the settlors intention that the unincorporated association devote the gift for a particular purpose have any legal effect? 

Conservative Central Office v Burrell 1982- 'two or more persons bound together for one or more common purpose, not being business purposes, by mutual undertakings..

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Gifts to unincorporated associations

each having mutual duties and obligations, in an organisation which has rules which identify in whom control of its funds rests, and on what terms and can be joined or left at will.'- Lawton.

Leahy v AG for NSW 1959- 'for such order of nuns as the Catholic Church or the Christian Brothers as my executors and trustees shall select.' 'In law, a gift to an unincorporated association simpliciter (ie where neither the circumstances of the gift nor the directions given nor the object expressed impose on the donee the character of a trustee) is nothing else than a gift to its members at the date of the gift as joint tenants or tenants in common.' Viscount Simonds.

But see Neville Estates v Madden 1962. Contract holding theory- a gift to members of UA subject to their contractual rights and liabilities towards one another as members of the UA. Flexible and convienient. Whether and how the contract holding works depends on the association. Gave three ways of holding and used the second.

1) 'It may on its true construction, be a gift to the members of the association at the relevant as joint tenants, so that any member can sever his share and claim it whether or not he continues to be a member of the association.' 

2) The one they use- 'it may be a gift to the existing members, not as joint tenants, but subject...

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Gifts to unincorporated associations

to their respective contractual rights and liabilities towards one another as members of the association. In such case a member cannot sever his share. It will accrue to the other members on his death or resignation, even though such members include persons who became members after the gift took place. If this is the effect of the gift, it will not be open to objection on the score of perpetuity or uncertainty unless there is something in its terms or circumstances or in the rules of the association which precludes the members at any given time from dividing the subject of the gift between them on the footing that they are solely entitled to it in equity.' 

3) 'the terms or circumstances of the gift or the rules of the assocation may show that the property in question is not to be at the disposal of the members for the time being, but it is to be held in trust for or applied for the purposes of the association as it is a quasi corporate entity. In this case the gift will fail unless the association is a charitable body.' 

Re Rechers Will Trust 1972- anti vivisection society but it had dissolved so could save gift- 'In the absence of words which purport to impose a trust, the 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.' Brightman. Society ceased to exist, so the contract terminated. 

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Gifts to unincorporated associations

But what if the gift specifies a purpose? Re Lipinksi Wills Trust 1976- gave to build buildings. Said open to members to override that purpose. Owned property absolutely and so overrode purpose. '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 members have made...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 beneficiaires should fail. Why are not the beneficaries able to enforce the trust or indeeed, in the exercise of their contractual rights to terminate the trust for their own benefit? Where the donee association is itself the beneficiary of the prescribed purpose, there seems to me to be the strongest argument in common sense for saying that the gift shold be construed as an absolute one within the second category- the more so where, if the purpose is carried out, the members can by appropriate action vest the resulting property in themselves, for here the trustees and the beneficiaries are the same persons.'- Oliver.

Re Grants Wills Trust 1980- Followed Lipinski. Gift failed as members controlled by an outside body. Didnt control sufficiently to dispose of how they wanted. 'It must, be a necessary characteristic of a gift within the second category that the members of the association can by an appropriate majority, if the rules so provide, or acting unanimously if they do not, alter their rules so as to provide that the funds should be applied for some new purpose...

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Gifts to unincorporated associations

or even distributed amongst members for their own benefit. For the validity of a gift within this category rests essentially upon the fact that the testator has set out to further a purpose by making a gift to the members of the association formed for the furtherance of that purpose in the expectation that althought the members at the date when the gift takes effect, will be free, by a majority if the rules so provide or acting unanimously if they do not, to dispose of the fund in anyway that they may think fit, they and any future members of the association will not in fact do so but will employ the property in the furtherance of the purpose of the association and will honour any special condition attached to the gift.' Vinelott. Restrictive approach to the theory.

Re Horley Town FC 2006. 

What happens on dissolution? Where 2 or more members exist at dissolution, under contract holding theory assets get split. 

Re Bucks Constabulary No 2 1979- 'judicial opinion has been hardening and is now firmly set on the lines that the interests and the rights of persons who are members of any type of unincorporated association are governed exclusively by contract, that is to say the rights between themselves and their rights to any surplus assets.'- Walton. 

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Gifts to unincorporated associations

'I completely deny the basic premise. The members are not entitled in equity to the fund, they are entitled at law. It is a matter of simple entitlement, and that entitlement must be, and can only be, in equal shares.' 

But what is the society is near its end?

Re Bucks Constabulary No 2 1979- 'there is not association since one can hardly associate with oneself or enjoy ones own society.'- where all have died but one. 'Unincorporated societies are not really tontine societies intended to provide benefits for the longest liver of the members.' Property is ownerless so goes to the crown. 

But see Hanchett Stamford v AG 2009- rejected above approach- kept money from the crown. 

Dont know which approach would be used as this issue hasnt gone to an appellate court yet. 

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