Formalities Constitution Of Trusts Incompletedly Constituted Trusts Notes

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TABLE OF CONTENTS
TABLE OF CONTENTS.........................................................................................................................................................................1
INTRODUCTION.......................................................................................................................................................................................2
PART I - FORMAL REQUIREMENTS OF EXPRESS TRUSTS....................................................................................................................... 2
I - Inter vivos transactions..................................................................................................................................................................................... 2
II - On Death...................................................................................................................................................................................................................... 6
PART II - COMPLETELY AND INCOMPLETELY CONSTITUTED TRUSTS.................................................................................................7
PART III - SUMMARY OF BASIC PRINCIPLES...................................................................................................................................................18
A = COMPLETELY CONSTITUTED TRUSTS.....................................................................................................................19
|*MILROY V LORD (1862) DE GF & J 264, 45 ER 1185.....................................................................................................................19
|*JONES V LOCK (1865) 1 CH APP 25.............................................................................................................................................................. 20
|*RICHARDS V DELBRIDGE (1874) LR 18 EQ 11.......................................................................................................................................20
|*RE ROSE [1952] CH 499, [1952] 1 ALL ER 1217;............................................................................................................................20
|*T CHOITHRAM INTERNATIONAL V PAGARANI [2001] 2 ALL ER 492 (PC)...........................................................................21
|*PENNINGTON V WAINE [2002] 4 ALL ER 215;......................................................................................................................................21
|NOTE GARTON [2003] CONV 364............................................................................................................................................................. 22
|NOTE [2003] CONV 192................................................................................................................................................................................... 24
B = INCOMPLETELY CONSTITUTED TRUSTS...............................................................................................................25
|KINCAID, "PRIVITY REFORM IN ENGLAND" (2000) 116 LQR 43..................................................................................................25
|MACMILLAN, "A BIRTHDAY PRESENT FOR LORD DENNING: THE CONTRACTS (RIGHTS OF THIRD PARTIES)
ACT 1999" (2000) 63 MLR 721.........................................................................................................................................................................26
|ELLIOTT, "THE POWER OF TRUSTEES TO ENFORCE COVENANTS IN FAVOUR OF VOLUNTEERS" (1960) 76
LQR 100.............................................................................................................................................................................................................................. 27
|HORNBY, "COVENANTS IN FAVOUR OF VOLUNTEERS" (1962) 78 LQR 228.........................................................................28
|LEE, "THE PUBLIC POLICY OF RE COOK'S SETTLEMENT TRUSTS" (1969) 85 LQR 213...............................................29
|BARTON, "TRUSTS AND COVENANTS" (1975) 91 LQR 236 (RESPONSE TO LEE)...............................................................30
|MEAGHER AND LEHANE, "TRUSTS OF VOLUNTARY COVENANTS" (1976) 92 LQR 427 (RESPONSE TO BARTON
AND LEE)......................................................................................................................................................................................................................... 30
|FELTHAM, "INTENTION TO CREATE A TRUST OF A PROMISE TO SETTLE PROPERTY" (1982) 98 LQR 17..........32
|FRIEND, "TRUSTS OF VOLUNTARY COVENANTS---AN ALTERNATIVE APPROACH" [1982] CONV 280......................32
|GODDARD, "EQUITY, VOLUNTEERS AND DUCKS" [1988] CONV 19..............................................................................................33
|MACNAIR, "EQUITY AND VOLUNTEERS" (1988) 8 LEGAL STUDIES 172...................................................................................34
|CH THAM, 'THE "TRUSTEE EXCEPTION" IN LLOYD'S V HARPER: LOSS, LIABILITY AND "BLACK HOLES"' (2016)
132 LQR 148................................................................................................................................................................................................................... 36
C = COVENANTS TO SETTLE......................................................................................................................................................37
|*RE PLUMPTRE'S MARRIAGE SETTLEMENT [1910] 1 CH. 609.......................................................................................................37
|*PULLAN V. KOE [1913] 1 CH. 9........................................................................................................................................................................ 37
*DAVENPORT V. BISHOPP (1843) 2 Y. & C.C.C. 451.......................................................................................................................... 37
|*IN RE PRYCE [1917] 1 CH. 234........................................................................................................................................................................38
|*IN RE KAY'S SETTLEMENT [1939] 1 CH. 329..........................................................................................................................................38
|*IN RE COOK'S SETTLEMENT TRUSTS [1965] CH. 90..........................................................................................................................38
|*CANNON V. HARTLEY [1949] CH. 213......................................................................................................................................................... 39
|*RE CAVENDISH BROWNE [1916] W.N. 341.............................................................................................................................................39
|COULLS V. BAGOT'S EXECUTOR (1967) 119 C.L.R. 460 (HIGH COURT OF AUSTRALIA)..............................................39
D = COMPLETELY CONSTITUTED TRUST OF THE (CONTRACTUAL) PROMISE, AS OPPOSED
TO THE TRUST PROPERTY...........................................................................................................................................................40
|*FLETCHER V. FLETCHER (1844) 4 HARE 67.............................................................................................................................................40
|*LLOYDS V. HARPER (1880) 16 CH. D. 290..............................................................................................................................................40
|DON KING PRODUCTION V. WARREN [1999] 2 ALL E.R. 218, 230-237.................................................................................40
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TRUSTS: INCOMPLETELY CONSTITUTED TRUSTS |BURTON V. FX MUSIC THE TIMES 8 JULY 1999................................................................................................................................... 41
|TRIDENT INSURANCE V. MCNIECE BROTHERS (1988) 165 C.L.R. 107 AT 120-1, 140, 147-8...............................41
E = FUTURE PROPERTY..................................................................................................................................................................42
|*RE ELLENBOROUGH [1903] 1 CH 697.......................................................................................................................................................... 42
|*WILLIAMS V CIR [1965] NZLR 395............................................................................................................................................................. 42
|NORMAN V. FEDERAL COMM. OF TAXATION (1963) 109 C.L.R. 141........................................................................................43
|CONTRAST: SHEPHERD V. FEDERAL COMM. OF TAXATION (1965) 113 C.L.R. 384...................................................43
F = PURPORTED TRUST OF OR COVENANT TO SETTLE FUTURE PROPERTY FOLLOWED BY
VESTING OF PROPERTY IN THE TRUSTEES..................................................................................................................44
|*RE BROOKS [1939] 1 CH 993; 3 ALL ER 920.........................................................................................................................................44
|*RE RALLI'S WILL TRUSTS [1964] CH 288, [1963] 3 ALL ER 940...........................................................................................44

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TRUSTS: INCOMPLETELY CONSTITUTED TRUSTS INTRODUCTION
PART I - FORMAL REQUIREMENTS OF EXPRESS TRUSTS
I - INTER VIVOS TRANSACTIONS
A - CONTRACTS TO CREATE A TRUST OR DISPOSE OF A SUBSISTING EQUITABLE
INTEREST:Land = signature of both parties (s2 MPA 1989)
Personalty = no formality requirements
Equitable interests (in personalty or land) = s53(1)(c) LPA (infra)

B - DECLARATION OF TRUST INTER VIVOS (SETTLOR (S) DECLARES THAT
HENCEFORTH HE WILL HOLD THE PROPERTY (P) ON TRUST)
1/ EFFECT:If S is legal and beneficial owner = S remains legal owner but equitable interest becomes vested in beneficiaries
If S is beneficial owner only = creates a sub-trust

Effect:
-(i) where S has active duties to perform or has only declared part of his equitable interest ? active sub-trust ? conventional view is that settlor does not drop out.
-(ii) where the trust declared is S' entire interest under the existing trust and is a bare trust so that there is nothing left for S to do ? passive subtrust ?
-Conventional view is that the settlor drops out and the legal owner of the head trust becomes a trustee directly for the beneficiaries under the sub-trust (Upjohn J, Grey v IRC), however:
-However, Nelson v Greening (CoA, Collins LJ): the authorities didn't bind the Court to hold that in such circumstances the intermediate trustee ceases to be a trustee. When Grey v IRC said that the practical effect would amount to getting rid of the trust of the equitable interest, it was not the same as saying that in law, it does get rid of the intermediate interest.
-However, Collins LJ also said that Grey was about personalty where the trustees of a head trust may find it more practical to deal directly with beneficiaries of the sub-trust, and is of no application to cases where the trust property is the purchaser's interest in land created by the existence of an executory contract for sale and purchase.
-Thus it is arguable that the old Grey rule still applies in the case of a bare or simple intermediate trust of personal property, while land is governed by Nelson v Greening.
o Formalities:
-Conventional view:

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TRUSTS: INCOMPLETELY CONSTITUTED TRUSTS If the settlor drops out = the declaration of trust will be treated as amounting to a disposition of his subsisting equitable interest ?
s53(1)(c) applies.
-If the settlor does not drop out = s53(1)(c) does not apply.
Green's alternative view: all declarations of sub-trusts must comply with s53(1)(c) irrespective of whether the settlor drops out or not.?

2/ FORMALITY REQUIREMENTS:-

Land = writing signed by the person declaring the trust (s53(1)(b) LPA 1925)
o This is only an evidentiary requirement - non-compliance doesn't make the trust void, just unenforceable against the trustees (who can perform if they want to)
o Writing need not be contemporaneous with the declaration of trust
(Rochefoucould)
Personalty = no formality requirements (can be unsigned writing, orally, or by conduct)
Equitable interest = writing may be required in some cases under s53(1)(c)
o HL has applied it to personalty, even though s201(1)(x) LPA 1925 defines
"equitable interests" as "all the other interests and charges in or over land"
unless the context otherwise requires:
-Grey v IRC1: Held (HL) that s53(1)(c) applied and that the purported oral disposition was invalid, and the deed was therefore a disposition attracting stamp duty.
o Not sure if required for land, though reasoning in Grey would seem equally to apply: writing is already required under s53(1)(b) but if s53(1)(c) also applies then the writing is no longer merely evidentiary.

3/ DISPOSITIONS OF EQUITABLE INTERESTS INTER VIVOS:
A/ WRITING REQUIREMENT UNDER S53(1)(C):Not merely an evidentiary requirement; the disposition must itself be in writing (so no subsequent rectification possible - implicit in Grey v IRC and Oughtred v IRC)

B/ SCOPE OF S53(1)(C) "DISPOSITION OF AN EQUITABLE INTEREST OR TRUST":-

1 Transfer by legal and beneficial owner of equitable interest to a third party = not covered because the legal owner didn't have a separate beneficial interest so it was not a transfer of a "subsisting" beneficial interest (Commissioner of Stamp Duties v
Livingston)
Direct assignment or transfer by beneficiary of his equitable interest = covered.
Direction to trustee (settlor directs trustee to hold the property in trust for a third party) = covered

Grey v IRC ? essentially, if you start with a subsisting equitable interest and at the end of the transaction you no longer have that interest, then there will have been a disposition and s153(1)(c) applies.2

A settlor transferred shares to trustees to be held by them as nominees for himself on 1 February.
On 18 February, he orally directed the trustees to hold the shares on specified trusts, and on 25
March, the trustees executed a deed of declaration of trust declaring that they had been holding the shares on trust since 18 February. The reason was that "written dispositions" attracted stamp duty, so if the oral declaration of 18 February had been effective, and 25 March deed wasn't therefore a
"disposition", it would not attract stamp duty.
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TRUSTS: INCOMPLETELY CONSTITUTED TRUSTS

2 Contract (specifically enforceable agreement) to assign an equitable interest = not covered

Oughtred v IRC3: IRC claimed stamp duty, arguing that the oral agreement could not effect a disposition of P's reversionary interest because of s53(1)(c),
so the interest remained vested in him until (iii). The parties argued that the oral agreement made P a constructive trustee of the reversionary interest in favour of O so the entire beneficial interest had already passed to O, and a constructive trustee is exempt from the writing requirement by s53(2). Held that there was disagreement as to whether s53(2) applied 4, but even if it did,
the transfer was still a conveyance on sale within the Stamp Act.
o Neville v Wilson (CoA)5: Lord Radcliffe's (dissenting) view in Oughtred was the
"unquestionably correct" view - specifically enforceable agreements to assign an interest in property creates an equitable interest in the assignee under a constructive sub-trust, and s53(2) excludes the requirement of writing under s53(1)(c). Essentially, where an equitable interest becomes subject to a constructive sub-trust as a result of the creation of a specifically enforceable6 contract of sale, that equitable interest will immediately vest in the purchaser without the need for writing (s53(2)).
o However, if Lord Radcliffe is right:
-This would make S53(1)(c) and S53(2) more artificial because if C assigns equitable interest to D then writing is needed; however if C agrees so to assign and agreement is specifically enforceable, then no writing is required because of constructive trust.
-S53(1)(c) can be avoided in many ways, eg. instead of disposing of the equitable interest, parties can contract of its disposal for value. Then constructive trust will arise.
o Thompson attempts to reconcile Oughtred and Neville by distinguishing between:
-Executory contracts (before purchase price paid - vendor retains equitable interest as in Oughtred)
-Executed contracts (after payment - entire equitable interest passes by constructive trust, because of "Equity regards as done that which ought to be done" as in Neville)

Only two exceptions have subsequently developed: disclaimer of an equitable interest (Re Paradise
Motor) an rights given by pension schemes to employees to nominate a person to receive a payment in the event of their death.
3 settlement under which shares were to O for life with remainder to P absolutely. By oral agreement between O and P, they agreed that P would make over to O his reversionary interest in the settled shares, and O would make over to P a separate block of shares in the same company, which were P's property absolutely. In an attempt to save stamp duty, there were three documents: (i) transfer of shares from O to P, (ii) deed of release whereby O and P gave release to trustees and (iii) a transfer of the previously settled shares by the trustees to O.

4 Lord Denning (the only one in the majority to mention the point) said that though the constructive sub-trust arose without need for writing, the interest arising under it could not be transferred without complying with s53(1)(c). But this view ignored authority that the settlor dropped out because it was a passive constructive sub-trust, so Lord Radcliffe's view is preferable (and was adopted).

5 Shareholders of company reached agreement over informal liquidation, including that company's equitable interest in the shares of another company should be divided amongst shareholders. Held that no writing was required because a constructive trust had been created where each shareholder was trustee for the others.

6 But the only specifically enforceable contracts for sale of personalty are for shares in a private company and rare chattels...
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TRUSTS: INCOMPLETELY CONSTITUTED TRUSTS -Transfer by bare trustee of the legal and beneficial estate (equitable owner directs the trustee to transfer the legal estate to a third party and the transfer actually takes place) = not covered

Vandervell v IRC7: Argued that, because V had equitable interest in the shares before the transaction, and the purported transfer was oral, it was ineffective to transfer the beneficial interest to the College by virtue of s53(1)(c). Held (HL)
that s53(1)(c) does not apply when the holder of the equitable interest also holds the legal interest and intends that both should be transferred to the third party. Essentially, s53(1)(c) only applies to dispositions of an existing equitable interest which is both before and after the disposition vested in someone other than the holder of the legal interest.
-Lord Upjohn (Lord Pearce agreeing, Lord Donovan reaching the same conclusion): the object of s53(1)(c) was to prevent hidden oral transactions in equitable interests in fraud of those truly entitled. But when the beneficial owner owns the whole beneficial estate and is in a position to give directions to his bare trustee with regard to the legal and equitable estate there can be no possible ground for invoking that section where the beneficial owner wants to deal with the legal and equitable estate.
-But the mischief rule of statutory interpretation is only to be invoked when there is ambiguity or lacuna in the statute, which isn't the case here... And this decision isn't exactly consistent with
Grey v IRC where the settlor was also beneficially entitled to the subject matter of the trust.
-Other judges either didn't give reasons (Lord Reid) or said it was an application of the Re Rose principle (Lord Wilberforce).
o Nolan alternatively explains the decision in terms that where beneficiary directs legal interests to be transferred to D, the equitable interest is overreached.
Declaration of new trust by trustee with assent of beneficiary (where property is held on resulting trust, a direction by the beneficiary to the trustees to declare new trusts of that property does not require writing under s53(1)(c)) = seems not to be covered because of Vandervell II.
o Re Vandervell (no. 2)8: Was argued that because V had an equitable interest under a resulting trust, and never disposed of that interest until 1965, he retained that resulting trust until 1965. Also, because any disposition prior to 1965 would necessarily have been oral, it was ineffective by virtue of s53(1)(c).
Held (Megarry J) that the argument was correct. CoA reversed because the dealings with the dividends amounted to the declaration of a trust of the shares

7 V transferred money and shares to a trustee company to be held on trust for his children. Later, V
wanted to fund a college so arranged for some shares in the trustee company, held by a bank as his nominee, to the College so that dividends from the shares are sufficient to found the College. The
College agreed to give the trustee company an option to purchase the shares, and the option was held on resulting trust for V (with unfortunate tax consequences for him). The bank, as legal owner of the shares but holding them as bare trustee, transferred the shares to the College on the direction of V
(beneficial owner).
8 with V's consent, the trustee company exercised the option to buy back shares using money held on trust for the children, and informed IRC that the shares would henceforth be held by the company on trust for the children, and put the dividends on trust for the children. In 1965, V executed a deed transferring to the trust company any interest that he might have in the shares and expressly declaring that the trust company held them on trust for the children.
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TRUSTS: INCOMPLETELY CONSTITUTED TRUSTS

in favour of the children. Because shares were personalty, s53(1)(b) does not apply and the trust could be created orally. S53(1)(c) was therefore irrelevant.
o This decision gives rise to problems:
-Is the trust completely constituted?
-Certainty of intention? How can there be an intention to dispose of interest under the resulting trust if V didn't even know he had the interest until Vandervell I was decided?
-Even if it were completely constituted and there was certainty of intention so there was a trust, why did Grey v IRC not apply so that s53(1)(c) required writing?
-CoA said that V's interest under the resulting trust had been extinguished when the gap in the beneficial ownership giving rise to it was filled by the declaration of a valid trust ? possible to interpret it as being restricted to exercise of options, but statement of principle suggests otherwise.
Declaration of trust by equitable owner = appears to be covered if the equitable owner "disappears from the picture" but unlikely to be the case since Nelson v
Greening so probably not covered

4/ EQUITY WILL NOT PERMIT A STATUTE TO BE USED AS AN INSTRUMENT OF
FRAUD (SAVING NON-COMPLIANT TRUSTS)
The statutory provisions above originate in the Statute of Frauds 1677, the purpose was to prevent injustice likely to occur from perjury or fraud when oral evidence was permitted.
However, if strict application of the statute would actually promote fraud, the Court regarded itself as having the power to intervene.9

If A transfer property to B to be held on trust for himself, Equity will intervene to make sure B doesn't deny the trust or try to use his legal title to defeat A's beneficial interest

Rochefoucauld v Boustead9: the Statute of Frauds does not prevent the proof of fraud, and it is fraud on the part of a person to whom land is conveyed as a trustee with knowledge to deny the trust and claim the land himself. Thus,
notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for C, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and statute in order to keep the land for himself.
o NB here it is clear that the COA was enforcing the express trust notwithstanding the absence of writing and provisions of the statute, and this is how Hodgson understood it:
-Hodgson v Marks10: Held (Ungoed-Thomas J) that fraud prevented reliance on s53(1) to defeat the express trust, as no attempt had been made to argue s53(2). CoA decided on s53(2), but seemed to agree in saying that D "could not have placed any reliance on s53, for that would have been to use the section as an instrument of fraud".

A mortgaged his house and the mortgagee sold it to D, who orally agreed to hold it on trust for A
subject to A paying her for the purchase price plus expenses. D sold it for profit instead and then was declared bankrupt; whether A could claim the profit depended on whether a valid trust had been declared in her favour.

10 C transferred a house to D, it having been orally agreed that the house was to remain C's though held in D's name.
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TRUSTS: INCOMPLETELY CONSTITUTED TRUSTS

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