Purpose trusts notes

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Gardner 1998

Matthews- The construction of a gift which he advances is so far as the donor is concerned the same in both cases. It is a matter of the construction of the rules and has nothing to do with the donors intentions.' Mainly correct. In the case of a gift to an unincorporated association the donor will normally make a gift to the association beneficially. That is legally impossible, but there are some analysis which represents the nearest possible approach. 

In order to say whether the gift has been caught by the contract it must first be decided whether the gift to the members is to them 'on account of the club' or 'in their capacity of members of the club.' How do we decide this? It consists in the tag, which expressly or impliedly the donor attaches to the gift. The true view is that the rules, on construction, create a triage between gifts recieved by club members with different tags, namely those recieved 'on account of the club' and those recieved in the members personal capacity. But these tags are generally attached by the donor. Can clearly involve reference to the donors intention. It is ultimately up to the donee, the club members, to do with the gift what htey want.

Donors intentions not always plain and susceptable for judicial construction. 

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Hayton 2001

Orthodox view- trusts need beneficaries to enforce them- the trust has developed from a repositiory of the settlors wishes to a proprietary receptacle providing proprietary interests for beneficiaries. Orthodox view is that non charitable purpose trusts are void. Brightman J concluded in Re Reachers Will that 'a trust for a non charitable purpose as distinct from a trust for individuals, is clearly void because there is no beneficiary.' Trust is an obligation and so requires the trustee to owe duties to the beneficiaries, who have a correlative right to make the trustee account to them for carrying out those duties. 

Why non charitable purpose trusts should only need someone intended by the settlor to enforce them- the trust deed clearly provides a mechanism for the positive enforcement of the trust so that the trustees are under an obligation to account to someone in whose favour the court can decree performance. Wilberforce in McPhail v Doulton said that 'a trust should be upheld if there is sufficient practical certainty in its definition for it to be carried out, if necessary with the administrative assistance of the court, according to the express intention of the settlor.' It should make no difference if the burdens are enforced by the beneficiaries or the AG or the Charity Commissioners or the designated enforcer.

There seems no reason why, in the absense of beneficaries, a settlor should not make a...

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Hayton 2001

charitable purpose trust enforcable by a person nominated in his trust instrument as an enforcer to ensure that the purposes are carried out. In both cases, the presence of an enforcer designedly ensures that there is a trust obligation that the court can enforce and control, assuming certainty and administrative workability exist.

Shouldnt be automatically void. Should be valid if the settlor has appointed an enforcer, so long as they are administratively workable and restricted to a valid perpetuity period. 

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Matthews 1995

Hayton identifies 6 ways that gifts to unincorporated associations can be construed- 1) gift to the persons currently members of the association 2) gift to the persons currently members of the association, by taking effect as an accretion to the association funds, to be dealt with according to the rules of the association, by which the members are contractually bound 3) gift to or for the benefit of present and future members 4) gifts exclusively for charitable purposes 5) gift for non charitable purpose where some have locus standi to apply for enforcement as in Re Denley and 6) gift for non charitable purposes where no person has locus standi as  within Re Denley.

Doubts as to whether 5 exists at all. 6 is not permitted under English law and will fail, unless the gift is an exception and limited by perpetuity period. 4 is a valid gift. 3 satisfies the beneficiary principle, but if not limited to a perpertuity period may depend on the Perpetuity and Accumulations Act 1964 for its validity. 1 and 2 are compatible with the beneficiary principle and the perpetuity rules. 

Contract- in 1 and 2 the donors intention is to give to people rather than purposes. On principle if you give property you cannot give it in a way that fetters your ownership. Can do if know there is a specific contract under which the money will be devoted to the purpose. Bound to co-contractors. 

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Matthews 1995

Distinction between 1 and 2 is not a question of construction of the donors gift, the donors intention is irrelevant. Question of construction of the contract between the donees, and hence of their intention. Thus if the rules provide that all gifts of property to the association or members of the association under the capacity of members, shall be subject to the rules of the association and dealt with as the associations property. Doesnt matter what the donor intended, as a matter of contract, the members have agreed to hold such property according to the rules.

Fettering ownership- to say a gift is limited to being subjected to the contract of the owners is tantamount to giving it for a purpose. If charitable this is not a problem. Category 2, as interpreted by the courts, is a gift which all members may agree to give up the contract and thus retain the property themselves. Cant have it both ways. If the members can throw off the agreement, then it is not a limitation inherent in the nature of the property itself. Would appear to be a self imposed fetter having nothing to do with the property given. If they cant agree to get rid of the restraint then it has effectively been given for a purpose. A limitation which has the effect of preventing the members from severing their shares without everyones agreement must satisfy the perpetuity and beneficary rules. Judges have shown considerable sympathy for the category 2 approach. 

Whether they can retain the gift is to do with the rules and not the donor intentions. A donor should pay attention to the rules. 

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Pawlowski and Summers 2007

Requirement of a human beneficiary- rule comes from Morice v Bishop of Durham. Sometimes construed as saying they must be certain, not certain and human. Evershed in Re Endacott- 'no principle perhaps has greater authority behind it than the general proposition that a trust, in order to be effective, must have ascertained, or ascertainable beneficaries.' Eversheds execeptions-

  • Trusts for erection of monuments or graves
  • Trusts for the saying of masses
  • Trusts for the maintenance of particular animals
  • Trusts for unincorporated associations
  • Miscellaneous cases

A better approach might be to examine cases by reference to their stated rationale where the court either 1) identified an acceptable method of enforcement of the trust or 2) relied on the existence of 'factual beneficiaries' who saved the trust. 

A) acceptable method of enforcement- rationale in some cases. Re Thompson upheld towards promotion of fox hunting, because of the willingness of the residuary beneficiary to apply to the court in the event that the trustee failed to apply it for the purpose. Pettingall and Astors also.

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Pawlowski and Summers 2007

If merely requires an appropriate enforcement mechanism then can be appointed in the trust document itself. Enforcement doesnt explain all cases. There have been cases where individuals with direct interest in enforcement of the purposes have been denied locus standi. (Shaw v Lawless).

B) factual beneficiaries- apparent the rule isnt absolute due to charitable and discretionary trusts being exceptions. In Denley's held valid as the persons entitled to use the ground had sufficient factual interest in its enjoyment. Rationale may explain Quistclose trusts. In Carreras v Freeman Matthews 'in none of the reported cases in the Quistclose line of cases has any consideration been given to the question of whether the person intended to benefit from the carrying out of the specific purpose which created the trust had enforceable rights.' Enforceable rights in such persons has not been treated as crucial to the existence of a trust. Although enforceability was not the rationale for the Quistclose ruling it seems that the HoL considered the existence of a factual beneficiary sufficient to give validity to the trust. 

C) no enforcement mechanism or factual beneficiary- In AG v Whorwood North was enforced without an enforcement mechanism or factual beneficiary. Dixon explains these cases as 'policy driven exceptions validated because ordinary people expect them to be valid.'

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Pawlowski and Summers 2007

Courts might uphold a private purpose trust if they think there is a social need to. If this is correct the types of trusts allowable might change when the needs of society change.

Several alternative approaches have been used to allow gifts. Conservative Society v Burrell upheld on the ground that they were subject to an authority to use the money in a certain way. Relationship was based on agency so there was no question of trust arising or infringement of the beneficiary rule. An alternative mechanism is to adopt the law relating to gifts with conditions subsequent. Provides interest shall be conditional on the person carrying out the stated purpose. Reform could be taken from offshore approaches. 

Offshore approaches- many offshore jurisdictions have legislated for the validity of purpose trusts. British Virgin Islands, Bermuda, Cayman Islands, Isle of Man and Jersey have. a) purpose trusts have negative definitions. b) enforcer- in most regimes the enforcer must be named in the trust instrument, or at least contains the mechanism for appointing an enforcer c) perpetuities- can specify terminating event or date, or stuck with normal perpetuities. d) defintion of purpose- trust must indicate why, or with what objective the trust property is held. e) type of trust instrument- some jurisdictions permit the creation of a purpose trust by will. 

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Pawlowski and Summers 2007

Some reasons to refuse validity to purely purpose trusts- attempts to pervert justice, breach the law or against public morality. Aside from these there are no clear reasons why they shouldnt be recognised in English law.

Enforcer should be an independent person appointed. Must not be in a position of conflict and must be independent of trustees and beneficiaries. Should be appointed in initial trust instrument or mechanism for it. The enforcer should have power to appoint a replacement. Fiduciary obligation and court could remove if breached duty. 

May be some time before purpose trust legislation is made. Many argue for change in the law. Hoping Law Commission will comment soon. 

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Rickett 1980

Strong case for including unincorporated associations where the committment is looser, eg Re Gillingham Bus Disaster. 3 questions- 1) is there a special process for dealing with charitable unincorporated associations and their property on dissolution? 2) how do unincorporated associations in general hold their property? 3) in what circumstances does the answer to the second question determine the distinction of the property of dissolved unincorporated associations and in what circumstances may some other factor determine the destination? 

1) unincorporated associations and charity- nature of society shouldnt automatically determine the nature of the gift. It is reasonable to assume when a person makes a gift to an institution carrying on charitable work the gift is in some sense intended as a purpose gift. Intention of the donor needs to be interpreted properly from his view point and not overridden in regard to 'the excessive refinements of the law governing the validity of trusts for associations.' 

2) Holding of property by unincorporated associations- in Re Bucks members retained an interest in the property but subject to their respective contractual rights and liabilities toward one another as members of the association. Contract holding theory. This theory can be displaced by trust or other indication that members cannot retain an interest in property. Outside gifts have two categories- those for the members and those for the purpose. 

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Rickett 1980

Regard must be had to the intention of the donor. a) gifts for the members beneficially- i) intended as a gift for all members, present and future- invalid due to perpetuities. ii) intended as a gift to existing members beneficially as joint tenants so all can have a share- this is valid. iii) intended as a gift to the members of the association beneficially but on the basis that the subject matter of the gift should be dealt with in accordance with the rules of the association by which the members are contractually bound. Has become the general interpretation of gifts to uninc associations. Contract holding theory is applicable regardless of the purpose for which the society exists. In Re Grants Will Trust it said members can alter their rules so as to provide funds should be used for a new purpose. The actual carrying out of the purpose relys on the legally unenforceable obligation attaching to members to respect and 'honour any special conditions attached to the gift.' 

b) gifts for the purpose- from the terms of the gift or the rules of the association, the gift is not ot be at the absolute disposal of the members for the time being, but is to be held on trust so that it may be used by the association for its purposes or its members from time to time. This is invaild, unless it is not perpetuitous and there is someone to enforce it. 

Destination of property on dissolution- Re Bucks Constabulary is the authority for this. On dissolution funds will be divided between existing members or go bona vacatia (rare). 

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