Possible Objects Of Trusts Purpose Quistclose Trusts Notes

Possible Objects of Trusts

What are the justifications for trusts?

Facilitative? – people have the power to transfer and contract in relation to their possessions, and trusts allow settlors to do things that they otherwise would not be able to do by assigning property or using a contract:

1. The requirements for contractual certainty are stricter than those for trusts. Trust rules are more flexible.

   1. BUT: Williams: Not sure that trusts are really more flexible. Contractual powers can also be quite vague. Need to look up the certainty requirements there.

2. Contracts require consideration, whereas trusts do not.

   1. BUT: Williams: The fact that there is no minimum requirement on the adequacy of consideration means that this is not really an obstacle to settlors, who can just use a contract instead of a trust.

Key Q: Why is it good to facilitate settlors in this way?

Charity? – It is possible that the existence of charitable trusts makes more people donate money to charity (though it is very difficult to measure the counterfactual).

1. BUT: It could be argued that this is greatly outweighed by the tax avoidance that trusts enable. Unless there are better rules on tax avoidance, trusts may not be justifiable on the basis of encouraging charity (NB: this is a bold view).

There must be a positive justification for trusts, otherwise they should not exist.

The beneficiary principle

1. The beneficiary principle = trusts must have beneficiaries

   1. Therefore, purpose trusts cannot exist.

      1. Lord Evershed MR in Re Endacott: “a trust by English law, not being a charitable trust, in order to effective, must have ascertained or ascertainable beneficiaries”.

      2. BUT: There are exceptions, e.g. charitable trusts.

   2. The rule does NOT apply to powers, since there is no requirement of an object (Twinsectra)

      1. BUT: The court will NOT usually validate a non-charitable purposes trust which fails by treating it as a power (CoA in IRC v Broadway Cottages: “A valid power is not to be spelled out of an invalid trust”)

1. Rationale: enforceability

   1. Sir William Grant in Morice v Bishop of Durham: “there must be somebody, in whose favour the Court can decree performance”.

   2. Roxburgh J in Re Astor asserted there were both theoretical and practical difficulties for non-charitable purpose trusts: “In theory, because having regard to the historical origins of equity it is difficult to visualise the growth of equitable obligations which nobody can enforce, and in practice, because it is not possible to contemplate with equanimity the creation of large funds devoted to non-charitable purposes which no court and no department of state can control, or in the case of maladministration reform.”

   3. The reasons given by Roxburgh J and Sir William Grant essentially amount to the following idea:

      1. For a trust to be valid it must be capable of being supervised by the courts, in order to ensure the Ts’ duties are enforced and S’s intentions respected.

      2. For the court to do this, there must be someone who will take the Ts to court if he thinks that they are failing to administer the trust properly.

         1. Trusts for charitable purposes are enforceable as this is done by the AG and the Charity Commission.

   4. Two premises to this argument:

      1. A trust which cannot be enforced must fail (generally accepted)

      2. Only beneficiaries can enforce trusts (focus of criticism)

2. Rationale: the nature of a trust

   1. Some argue that beneficiaries are essential to the nature of the ‘trust’:

   2. ‘Duties cannot exist without rights’

      1. As asserted by Matthews, all trusts involve duties on the part of the Ts only possible if we can identify someone to whom those duties are owed.

         1. BUT: Webb: This is not true – criminal law duties not to kill or steal are not owed to any particular person; charitable purpose trusts have no identified beneficiary, and it is not like these duties are owed to the AG or Charity Commission.

         2. BUT: We can perhaps explain a purpose trust by saying that T owes a duty to S to dispose of the trust property according to the terms of the trust. This could be a chose in action similar to that recognised by the UKPC in Commissioner of Stamp Duties (Queensland) v Livingston (below), though that was in relation to the beneficiary of an estate.

         3. Williams: Environmental restrictions place duties on oil companies not to pollute the oceans, but no one person has a right that Shell do not pollute the ocean. There is a collective interest, which is different to an individual interest.

            1. BUT: It could simply be argued that the ‘collective interest’ is simply a grouping/accumulation of individual interests.

   3. ‘Property must have a beneficial owner’

      1. The beneficial interest in property cannot ‘disappear’ or be ‘in suspense’ purpose trusts are necessarily impossible (Lord Millett in Twinsectra v Yardley)

         1. BUT: There are plenty of resources in the world not held by anybody, so why can’t the law accommodate property not being beneficially owned by anyone, at least for a period of time?

         2. BUT: There are a number of situations in which the beneficial interest in an asset is temporarily in abeyance, e.g. charitable trusts, and see Commissioner of Stamp Duties (Queensland) v Livingston (1965), which was a UKPC case on appeal from the High Court of Australia not binding but persuasive was summarised by Buckley J in In re Leigh’s Will Trusts which was then cited with approval in the HoL by Lord Templeman in Marshall v Kerr (1995) it was then applied by the EWHC in Re Bernstein (2008).

            1. These cases hold that when a testator dies but the will has not yet been administered, the executor or personal representative holds both the legal and equitable title to the property, and the beneficiary or legatee under the will simply has a chose in action – a right to require the deceased's estate to be duly administered – and no beneficial equitable interest in the assets under the estate. The beneficiary or legatee’s right consists of “the chose in action in question with such rights...

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