Paul S. Davies Graham Virgo Edward Burn Equity Trusts Text Cases and Materials Oxford University Press 2013

Contents Gotopage:
FrontMatter
Preface
Acknowledgments
TableofCases
TableofStatutes
TableofStatutoryInstruments
TableofInternationalLegislation
PartIIntroductiontoEquityandTrusts
1.IntroductiontoEquity
2.IntroductiontoTrusts
PartIIExpressPrivateTrusts
PartIIIPurposeTrusts
5.CharitablePurposeTrusts
6.NonCharitablePurposeTrusts
PartIVNonExpressTrusts
7.ConstructiveTrusts
8.ResultingTrusts
9.InformalArrangementsRelatingtoProperty
PartVBeneficiaries
10.Beneficiaries
PartVITrustees
11.GeneralPrinciplesRelatingtoTrustees
12.TheAdministrationofTrusts
13.DispositivePowersandDuties
14.FiduciaryObligations
PartVIIVariation
15.VariationofTrusts
PartVIIIBreach
16.LiabilityforBreach
17.PersonalClaimsandRemedies
18.ProprietaryClaimsandRemedies
19.ThirdPartyLiability
PartIXOrders
20.EquitableOrders
EndMatter
Index
Preface
Thisbookhasemerged,likeabutterflyfromachrysalis,fromMaudsleyandBurnsTrustsandTrustees:Cases
andMaterials,theseventheditionofwhichwaspublishedin2008.Theaimofthebookcontinuesthetraditionset
byMaudsleyandBurn:extractsfromkeycases,articles,andothermaterialsarepiecedtogethertoprovidethe
readerwithaclearunderstandingofacomplexbodyoflaw.Butwhereasthepreviousworkcontainedonlycases
andmaterialswithsomecommentary,thisnewbookincludesasignificantamountofourowntext.Wehave
soughttoexplain,analyse,andcriticizethelawbyweavingextractsfromrelevantcasesandmaterialsintothe
text,presentinganaccessibleandcoherentaccountofEquityandtrusts.
Thetrustisattheheartofthebook,andisthemostsignificantcontributionofEquitytothelaw.Butother
aspectsofEquityscontribution,includingbreachoffiduciarydutyandequitableorders,arealsocovered.Equity
andtrustsisabodyoflawthatistraditionallyconsideredtobedifficulttounderstand.Thisispartlybecauseitis
sometimes,unfairly,consideredtobeasubjectthatisoldfashionedandnotrelevanttoday.Itistruethatmuchof
thelawderivesfromoldcases,butitsmodernsignificancecannotbedoubted.Thecontemporaryandcommercial
importanceofthesubjectisreflectedinthewidevarietyofnewcases,statutes,andlawreformproposalsthatwe
havebeenabletoincludeinthisnewedition.Atthetimeofwriting,theSupremeCourtisduetohearPittv
Holt1 inSpring2013,andhasalsograntedpermissiontoappealinWilliamsvCentralBank ofNigeria.2 These
decisionsandotherfuturedevelopmentswillbecoveredintheonlineresourcecentre,wherefurthercommentary
canalsobefound.
Attheendofeachchapterwehaveincludedahypotheticalquestiontoencouragethereadertothinkaboutthe
applicationofthelawthathasbeenconsideredearlierinthechapterandinthebook.Guidanceisgiveninthe
onlineresourcecentreastotheissuesraisedinthesequestionsandthecasesandmaterialsthatmightbeused
inananswer.
ConsistentwiththegoalsoftheText,Cases,andMaterialsseries,thisbookcanbeusedasafreestandingbook
initsownright.ButitalsocomplementsatraditionaltextbookthatGrahamVirgohasrecentlywrittenfor
OUP,ThePrinciplesofEquityandTrusts.Bothbooksadoptbroadlythesamestructure,althoughsometimes
differentperspectivesareadoptedanddifferentmaterialconsidered.
Althoughwehaveeachtakenprimaryresponsibilityforthepreparationofparticularchapters,wesharejoint
responsibilityforthebookasawhole.WearebothdelightedthatEdwardBurn,whocelebratedhis90thbirthday
inNovember2012,hasremainedinvolvedwiththebookinhiscapacityasconsultanteditor,andwouldalsoliketo
thankMarilynKennedyMcGregor,hiswife,forherencouragement.Wehaveappreciatedtheassistanceofthe
publishers,whohavecompiledtheTableofCases,StatutesandStatutoryInstruments,andtheIndex.Wehave
greatlybenefitedfromtheadviceandfeedbackofourstudents,particularlyWilliamDayandJamesGoodwin.
GrahamVirgowouldliketothankCally,Elizabeth,andJonathanfortheirsupportandencouragement,andPaul
Daviesissimilarlygratefultohisfamily,particularlyMarine,whohascontinuedtosupportthewritingofthisbook
amidstthechaosoforganizingtheirmovefromCambridgetoOxford.
(p.vi) Thiseditionpurportstostatethelawasitwason31October2012,butithasbeenpossibletoincorporate
somemorerecentdevelopmentswherespacehaspermitted.
PaulS.Davies
StCatherinesCollege
Oxford
GrahamVirgo
DowningCollege
Cambridge
28January2013
Notes:
1.OnappealfromthedecisionoftheCourtofAppeal:[2011]EWCACiv197[2012]Ch132.SeeChapter11.7(g),
pp.55965.
2.[2012]EWCACiv415[2012]3WLR1501.SeeChapter16.9(b),pp.7656.
Acknowledgments
Gratefulacknowledgementismadetoalltheauthorsandpublishersofcopyrightmaterialwhichappearsinthis
book,andinparticulartothefollowingforpermissiontoreprintmaterialfromthesourcesindicated:Extractsfrom
LawCommissionandCharityCommissionReports,ConsultationPapers,andDiscussionPapersareCrown
copyrightmaterialandarereproducedunderClassLicenceNumberC2006010631withthepermissionofthe
ControllerofOPSIandtheQueensPrinterforScotland
BloomsburyProfessional:extractfromTrustLawInternational(TLI):EdelmanandElliott,MoneyRemedies
againstTrustees(2004)18TLI116LordBrowneWilkinson,EquityanditsRelevancetoSuperannuationSchemes
Today(1992)62TLI119VinelottJ,ReBeattysWT(No.2)(1997)11TLI77JudgePaulBakerQC,Ank er
PetersenvAnk erPetersen(1998)12TLI166.
CambridgeUniversityPressviatheauthors:extractsfromTheCambridgeLawJournal:LordNeuberger,The
StuffingofMinervasOwl?TaxonomyandTaxidermyinequity(2009)68CLJ537549Etherton,Constructive
Trusts:ANewModelforEquityandUnjustEnrichment(2009)67CLJ265287Nolan,VandervellvIRC:ACase
ofOverreaching(2002)61CLJ169188ThorntonEthicalInvestments:ACaseofDisjointedThink ing(2009)67
CLJ396422.
ColumbiaLawReviewAssociationInc.:extractfromFuller,ConsiderationandForm,41ColumbiaLawReview
799(1941)reproducedwithpermissionofColumbiaLawReviewAssociation,Inc.permissionconveyedthrough
CopyrightClearanceCenter,Inc.
HartPublishing:extractsfromBirksandPretto,BreachofTrustConaglen,FiduciaryLoyaltyCornish,Nolan,
OSullivan,andVirgo,Restitution:PastPresentandFutureGardner,ReliancebasedConstructiveTrustsin
Mitchell(ed.)ConstructiveandResultingTrustsGarton,NationalAntiVivisectionSocietyvIRCinMitchelland
Mitchell(eds.)Landmark CasesinEquityMitchell,ConstructiveandResultingTrustsSwadling,TheQuistclose
Trust.
HarvardLawReviewPublishingAssociation:extractfromScott,ConveyancesuponTrustsNotProperly
Declared37HarvardL.Rev.653(1924)republishedwithpermissionofHarvardLawReviewPublishing
AssociationpermissionconveyedthroughCopyrightClearanceCenter,Inc.
HebrewUniversityofJerusalem:extractfromGoldstein,Equity:ContemporaryLegalDevelopments.
InformaUKLtd:extractsfromLloydsMaritimeandCommercialLawQuarterly:Goode,AreIntangibleAssets
Fungible?[2003]LMCLQ379andfromLloydsLawReports:MarevaCompaniaNavieraSAvInternational
Bulk carriersSA[1975]2LloydsRep509.AlsoextractsfromBirksandRose(eds.)RestitutionandEquity
Volume1:ResultingTrustsandEquitableCompensation.
LegaleaseLtd:extractsfromWillsandTrustsLawReports(WTLR):NestlvNationalWestminsterBank
plc.[2000]WTLR795RichardvTheHonA.B.Mack ay[2008]WTLR1667KasperbauervGriffith[2000]1
WTLR333LohiavLohia[2001]WTLR101.
LexisNexisAustralia:extractsfromAustralianLawReports:QueenslandMinesvHudson(1978)18ALR1.Also
viatheauthors,extractsfromtheJournalofEquity:McFarlaneandStevens,Thenatureofequitable
property(2010)4JoE1Edelman,MoneyAwardsoftheCostofPerformance(2010)4JoE122(p.
xiv) Conaglen,ExplainingTargetHoldingsvRedferns(2010)4JoE288andS.Hiebendaal,TheRecipientHas
NoClothes:Conscience,ConduitsandKnowingReceipt(2011)5JoE43.
MarenexPress:extractsfromRestitutionLawReview:LordMillett,BribesandS0etCommission[1993]RLR7
Sheehan,DisentanglingEquitablePersonalRemediesforReceiptandAssistance[2008]RLR41.
OttawaLawReview:extractsfromBattersby,SomeThoughtsontheStatuteofFrauds(1975)7OttawaLR
483.
OxfordUniversityPress:extractfromMatthews,TheNewTrust:ObligationWithoutRights?inOakley
(ed.)TrendsinContemporaryTrustLaw.
RatingPublishersLtd:extractsfromRatingandValuationReporter(RVR):RvDistrictAuditor,exparteWest
York shireMetropolitanCountyCouncil[1986]RVR24.
ReedElsevier(UK)LimitedtradingasLexisNexis:extractsfromlawreportsincludingAllEnglandLaw
Reports(AllER),ButterworthsCompanyLawCases(BCLC),EncyclopaediaofFormsand
Precedents(EF&P),NewLawJournal(NLJ),andSimonsTaxCases(STC).
ThomsonReuters:extractsfromAustralianLawJournalReports(ALJR)BritishCompany
Cases(BCC)CommercialLawCases(CLC)ConveyancerFleetStreetReports(FSR)LawQuarterly
Review(LQR)PropertyandCompensationReports(P&CR)PropertyandCompensationReportsDigest(P&
CRD)Property,PlanningandCompensationReports(PPC)andScotsLawTimes(SLT).Alsoextractsfrom
GoffandJones,TheLawofRestitutionHodge,Rectification:TheModernLawandPracticeGoverningClaimsfor
RectificationforMistak eLordMillett,ProprietaryRestitutioninDegelingandEdelman(eds.)Equityin
CommercialLawMegarryandWade,TheLawofRealPropertyandMcGhee(ed.),SnellsEquity.
TrustLawCommittee:extractsfrompapersConsultationPaperonTrusteeExemptionClausesandRightsof
CreditorsagainstTrusteesandTrustFunds.
UniversityofWesternAustralia:extractsfromTheUniversityofWesternAustraliaLawReview(UWALR):
Tarant,PropertyRightstoStolenMoney(2005)32UWALR234.
YaleLawJournalCompanyInc.:extractsfromLangbein,QuestioningtheTrustLawDutyofLoyalty:Sole
InterestorBestInterest?114YaleLJ929andLangbein,TheContractarianBasisoftheLawofTrusts105Yale
LJ625:Copyright2005byYaleLawJournalCompany,Inc.ReproducedwithpermissionofYaleLawJournal
Company,Inc.intheformatrepublishinatextbookviaCopyrightClearanceCenter.
Everyefforthasbeenmadetotraceandcontactcopyrightholderspriortogoingtopressbutthishasnotbeen
possibleineverycase.Ifnotified,thepublisherwillundertaketorectifyanyerrorsoromissionsattheearliest
opportunity.
TableofCases
Pagereferencesinboldtypeindicatewhereacaseissetoutinpartorfull.
AvA(StGeorgeTrusteesLtd)Intervening[2007]EWHC99(Fam)702
AvC(No.2)[1981]QB961n946
AGforHongKongvReid[1994]1AC324,[1994]1AllER1,[1993]3WLR1143,[1993]NLJR1569,137Sol
JoLB251,PC19,347,686,68992,695,696
AGfortheDominionofCanadavRitchieContractingandSupplyCo.Ltd[1919]AC999927
AGoftheBahamasvRoyalTrustCo.[1986]3AllER423,[1986]1WLR1001,130SolJo526,[1986]LS
GazR2487,PC252
AGoftheCaymanIslandsvWahrHansen[2001]1AC75,[2000]3AllER642,[2000]3WLR869,PC252
AGvAlford(1855)4DeGM&G843,3EqRep952,1JurNS361,102RR406,3WR200,24LTOS
265804,805
AGvBlake(JonathanCapeLtdthirdparty)[1997]Ch84,[1996]3AllER903,[1996]3WLR741,[1996]FSR
727,[1996]EMLR382,revsd[1998]Ch439,[1998]1AllER833,[1998]2WLR805,[1998]NLJR15,[1998]
EMLR309,subnom.AGvBlake[1998]04LSGazR33,142SolJoLB35,CAaffdsubnom.AGvBlake
(JonathanCapeLtdthirdparty)[2001]1AC268,[2000]4AllER385,[2000]3WLR625,[2000]NLJR1230,
[2000]EMLR949,[2000]2AllER(Comm)487,subnom.AGvBlake[2001]IRLR36,[2000]32LSGazR
37,144SolJoLB242,HL9,649
AGvCocke[1988]Ch414,[1988]2AllER391,[1988]2WLR542,132SolJo418761,768
AGvRoss[1985]3AllER334,[1986]1WLR252,130SolJo184,[1985]LSGazR869254
AGvTheCordwainersCo.(1833)3My&K53446
ARoberts&Co.LtdvLeicestershireCC[1961]Ch555960
AbacusTrustCo.(IsleofMan)LtdvNationalSocietyforthePreventionofCrueltytoChildren[2001]STC
1344,[2001]35LSGazR37564
AbbottFundTrusts,Re,SmithvAbbott[1900]2Ch326,69LJCh539,48WR451391
AbbottvAbbott[2007]UKPC53425,426,436,437,446
AberdeenRlyCo.vBlaikieBros(1854)2EqRep1281,[184360]AllERRep249,23LTOS315,1Macq461,
HL654
Abergavenneys(Marquess)EstateActTrusts,Re,MarquessofAbergavennyvRam[1981]2AllER643,
[1981]1WLR843,125SolJo291634
AbouRahmahvAbacha[2006]EWCACiv1492,[2007]1AllER827867,893,895,896,902,912,913
AbrahamsvAbrahamsTrusteeinBankruptcy[1999]31LSGazR38,[1999]BPIR637359,362
ACourtvCross(1825)3Bing329759
Adam&Co.InternationalTrusteesLtdvTheodoreGoddard[2000]13LSGazR44,144SolJoLB150,[2000]
WTLR349526
AdamsandKensingtonVestry,Re(1884)27ChD394,54LJCh87,32WR883,51LT382,CA68
AddisvGramophoneCo.Ltd[1909]AC488807
AdekunlevRitchie[2007]WTLR1505442
AffrteursRunisSAvLeopoldWalford(London)Ltd[1919]AC801,88LJKB861,14AspMLC451,24Com
Cas268,121LT393,35TLR542,HL167
Agip(Africa)LtdvJackson[1990]Ch265,[1992]4AllER385,[1989]3WLR1367,[1990]BCC899,134Sol
Jo198,[1990]2LSGazR34affd[1991]Ch547,[1992]4AllER451,[1991]3WLR116,135SolJo117,
CA827,828,829,833,882,890,9046
AgipSpAvNavgazioneAltaItaliaSpA[1984]1LloydsRep353960
AgriculturalMortgageCorpnplcvWoodward(1994)70P&CR53,[1996]2FCR796,[1996]1FLR226,
[1996]FamLaw149,[1995]1BCLC1,[1994]BCC688,[1995]1EGLR1,[1995]04EG143,CA73
Aid/WatchIncorporatedvCommissionerofTaxation[2010]HCA42200
AirJamaicaLtdvCharlton[1999]1WLR1399,143SolJoLB158,PC34,35,312,321,377,388,389,401
AITCFoundationsApplicationforRegistrationasaCharity[2005]WTLR1265201
A.J.Bekhor&Co.vBilton[1981]QB923946,951
AliandFahdShobokshiGroupLtdvMoneim[1989]1WLR710945
AllcardvSkinner(1887)36ChD145,56LJCh1052,36WR251,[188690]AllERRep90,57LT61,3TLR
751,CA14
AllenMeyricksWillTrusts,Re,MangnallvAllenMeyrick[1966]1AllER740,[1966]1WLR499,109SolJo
957548,617
Allen,Re,FaithvAllen[1953]Ch810,[1953]2AllER898,[1953]3WLR637,97SolJo606,CA91
AllenvDistillersCo.(Biochemicals)Ltd[1974]QB384,[1974]2AllER365,[1974]2WLR481,118SolJo
242827,843
AllenvJamboHoldingsLtd[1980]1WLR1252941
Allsop,Re[1968]Ch39107
AlsopWilkinson(afirm)vNeary[1955]1AllER431,[1996]1WLR1220,[1995]NLJR52n538,5401,608
AmericanCyanamidCo.vEthiconLtd[1975]AC396936,937,938,939,940,944,945
(p.xvi) AmesSettlement,Re,DinwiddyvAmes[1946]Ch217,[1946]1AllER689,115LJCh344,90Sol
Jo188,175LT222,62TLR300377
Anfield(UK)LtdvBankofScotlandplc[2010]EWHC2374(Ch),[2011]1WLR2414863
AnkerPetersenvAnkerPetersen[1990],reported[1998]12TLI1707056
AnsonvPotter(1879)13ChD141,41LT582503
Anstis,Re,ChetwyndvMorgan(1886)31ChD596,34WR483,54LT742,2TLR335,CA18
AntonPillerKGvManufacturingProcessLtd[1976]Ch55953,954
AntonivAntoni[2007]UKPC10[2007]WTLR1335363
AquacultureCorpnvNewZealandGreenMusselsLtd[1990]3NZLR299807
AracivFallon[2011]EWCACiv668932
Argyll(Duchess)vArgyll(Duke)1967]Ch30217
ArmitagevNurse[1998]Ch241,[1997]2AllER705,[1997]3WLR1046,[1997]PLR51,74P&CRD13,
CA469,470,512,553,556,7257,7305,738,739,741,761
ARMS(MultipleSclerosisResearch)Ltd,Re,AlleynevAG[1997]2AllER679,[1997]1WLR877,[1997]1
BCLC157259
ArmstrongvSheppard&ShortLtd(1959)2QB38418,926
ArmstrongDLWGmbHvWinningtonNetworksLtd[2012]EWHC10(Ch)[2012]3WLR
835817,869,912,913
ArmstrongGmbHvWinningtonNetworksLtd[2012]EWHC10(Ch),[2012]3WLR835328
ArthurvAttorneyGeneraloftheTurksandCaicosIslands[2012]UKPC30877,907,912
AshburnAnstaltvArnold[1989]Ch1,[1988]2AllER147,[1988]2WLR706,55P&CR137,132SolJo
416,[1987]2EGLR71,[1988]16LSGazR43,284EstatesGazette1375,CA333,334
AstorsSettlementTrusts,Re,AstorvScholfield[1952]Ch534,[1952]1AllER1067,96SolJo246,[1952]1
TLR1003279,280,282,285
AT&TIstelLtdvTully[1993]AC15956
AtkinsonsWillTrusts,Re,AtkinsonvHall[1978]1AllER1275,[1978]1WLR586,122SolJo148252
Attenborough(George)&SonvSolomon(1913)AC76,82LJCh178,[191113]AllERRep155,57SolJo
76,107LT833,29TLR79,HL48
AttorneyGeneralvCharityCommissionforEnglandandWales,20February2012,FTC/84/2011206
AttorneyGeneralvColneyHatchLunaticAsylum(1868)4ChApp146926
AttorneyGeneralofZambiavMeerCare&Desai[2007]EWHC952(Ch)905
BAPetersLtd,Re[2008]EWCACiv1604,[2010]1BCLC142844
BabanaftInternationalCo.SAvBassatne[1990]Ch13942
BaddeleyvIRC[1953]Ch504,[1953]2AllER233,[1953]3WLR135,31ATC524,46R&IT44,[1953]TR
485,97SolJo436,CArevsdsubnom.IRCvBaddeley[1955]AC572,[1955]1AllER525,[1955]2WLR
661,34ATC22,48R&IT157,99SolJo166,HL238
BadenvSocitGnralepourFavoriserleDveloppementduCommerceetdelIndustrieenFranceSA
[1992]4AllER161,[1983]BCLC325,[1993]1WLR509naffd[1992]4AllER279n,[1985]BCLC258n,
CA876,882
BadensDeedTrusts(No.2),Re[1972]Ch607,[1971]3AllER985,[1971]3WLR475,115SolJo488affd
[1973]Ch9,[1972]2AllER1304,[1972]3WLR250,116SolJo356,CA947,104,106,612
BadensDeedTrusts,Re,BadenvSmith[1967]3AllER159,[1967]1WLR1467,111SolJo773affd[1969]
2Ch388,[1969]1AllER1016,[1969]3WLR12,113SolJo149,CArevsdsubnom.McPhailvDoulton
[1971]AC424,[1970]2AllER228,[1970]2WLR1110,114SolJo375,HL20,21,53,66,91
4,97,98,102,105,478,611,613,615
BahinvHughes(1886)31ChD390,55LJ472,34WR311,54LT188,2TLR276,CA753,756
Baillie,Re,FitzgeraldvNoad(1886)2TLR660131,337
BainbridgevFirmstone(1838)8A&E743660
BairdvBaird[1990]2AC548,[1990]2AllER300,[1990]2WLR1412,[1990]ICR525,[1991]FamLaw96,
134SolJo725,[1990]23LSGazR28,PC488
BairstowvQueensMoatHousesplc[2001]2BCLC531802
BakervArcherShee[1927]AC84438
BakervJEClarkandCo.[2006]EWCACiv464738
Baker(GL)LtdvMedwayBuildingandSuppliesLtd[1958]3AllER540,[1958]1WLR1216,102SolJo877,
CA914
BaldryvFeintuck[1972]2AllER81,[1972]1WLR552,115SolJo965222
BallsSettlement,Re[1968]2AllER438,[1968]1WLR899,112SolJo4457089
BallsvStrutt(1841)1Hare146558
BalticShippingCo.vTranslinkShippingLtd[1995]1LloydsRep.673948
BankofAmericavArnell[1999]LloydsRepBank399828,911
BankofCreditandCommerceInternational(Overseas)LtdvAkindele[2001]Ch437,[2000]4AllER221,
[2000]3WLR1423,[2000]26LSGazR36,[2000]NLJR950,[2000]AllER(D)798,CA880,908
11,912,917
BankMellatvNikpour[1985]FSR87954
BankersTrustCo.vShapira[1980]3AllER353,[1980]1WLR1274,124SolJo480,CA951
BannerHomesGroupplcvLuffDevelopmentsLtd[2000]Ch372,[2000]2AllER117,[2000]2WLR772,
[2000]2BCLC269,[2000]06LSGazR35,[2000]EGCS15,144SolJoLB83,79P&CRD29,
CA449,453
(p.xvii) BannistervBannister[1948]2AllER133,[1948]WN261,92SolJo377,CA1212,123
BanqueBelgepourLEtrangervHambrouck[1921]1KB321,90LJKB322,26ComCas72,65SolJo74,37
TLR76,CA827,829
BanqueBruxellesLambertSAvEagleStarInsuranceCo.Ltd[1997]AC191796
BanqueFinanciredelaCitvParc(Battersea)Ltd[1999]1AC221,[1998]1AllER737,[1998]2WLR475,
[1998]15LSGazR31,[1998]NLJR365,[1998]EGCS36,142SolJoLB102,HL14,853,862
BanksvSutton(1732)2PWms70018
BarbadosTrustCo.vBankofZambia[2007]EWCACiv148,[2007]1LloydsRep49545,473
BarclayJohnsonvYuill[1980]1WLR1259946
BarclaysBankLtdvWJSimmsSonandCooke(Southern)Ltd[1979]3AllER522398
BarclaysBankplcvQuistcloseInvestmentsLtd[1970]AC56740,74,403,4046,40710,41417
BarclaysBankplcvWillowbrookInternationalLtd[1987]BCLC717n,[1987]1FTLR386,CA167
BaringsSettlementTrusts,Re,BaringBros&Co.LtdvLiddell[1940]Ch737,[1940]3AllER20,109LJCh
337,84SolJo382,163LT403,56TLR77732
BarkervPeile(1865)2Drew&Sm340,34LJCh497,11JurNS436,5NewRep425,143RR150,13WR
573,12LT50627
BarlowClowesInternationalLtdvEurotrustInternationalLtd[2005]UKPC37,[2006]1WLR
1476891,892,893,897,898
BarlowClowesInternationalLtd(inliquidation)vVaughan[1992]4AllER22,[1992]BCLC910,CA83942
BarlowsWillTrusts,Re[1979]1AllER296,[1979]1WLR278,122SolJo6468890,97
BarnesvAddy(1874)9ChApp244,43LJCh513,22WR505,30LT4875,876,878,879,880
BarnesvTomlinson[2006]EWHC3115,[2007]WTLR377557
Barney,Re,BarneyvBarney[1892]2Ch265,61LJCh585,40WR637,67LT23332,512,518
BarraletvAG[1980]3AllER918,subnom.ReSouthPlaceEthicalSociety,BarraletvAG[1980]1WLR
1565,54TC446,[1980]TR217,124SolJo744209,223
BarrettvBarrett[2008]EWHC1061(Ch),[2008]2P&CR17374
BartlettvBarclaysBankTrustCo.Ltd[1980]Ch515,[1980]1AllER139,[1980]2WLR430,124SolJo
85569,588,803
BartlettvBarclaysBankTrustCo.Ltd(No.2)[1980]Ch515,[1980]2AllER92,[1980]2WLR430,124Sol
Jo22158990,769,803,806
BartonvBriscoe(1822)Jac603505
BatemansWillTrusts,Re,BrierleyvPerry[1970]3AllER817,[1970]1WLR1463,114SolJo707135
BatstonevSalter(1875)LR10ChApp431399
Beaney,Re[1978]2AllER595,[1978]1WLR770,121SolJo83267
BeattysWillTrusts(No.2),Re(1991)11TruLI77104,525
Beddoe,Re,DownesvCottam[1893]1Ch547,62LJCh233,2R223,41WR177,37SolJo99,68LT595,
CA540,541,542
BellsIndenture,Re,BellvHickley[1980]3AllER425,[1980]1WLR1217,123SolJo322781
BelmontFinanceCorpnLtdvWilliamsFurnitureLtd[1979]Ch250,[1979]1AllER118,[1978]3WLR712,
122SolJo743,CA882,907
Benjamin,Re,NevillevBenjamin[1902]1Ch723,71LJCh319,46SolJo266,86LT387,18TLR
283623,624,625
BennetvBennet(1879)10ChD474,27WR573,40LT378361
Bernstein,Re[2008]EWHC3454(Ch),[2010]WTLR559706
BernsteinvJacobson[2008]EWHC3454(Ch),[2010]WTLR559712
BestermansWillTrusts,Re(1980)Times,21January209
BhullarBrosLtd,Re[2003]EWCACiv424,[2003]2BCLC241(2004)120LQR198677,683
BiebervTeathersLtd(inliquidation)[2012]EWCACiv1466416
BigosvBousted[1951]1AllER92374
BinionsvEvans[1972]Ch359,[1972]2AllER70,[1972]2WLR729,23P&CR192,116SolJo122,222
EstatesGazette2147,CA123
BirkettvJames[1978]AC297759
BiscoevJackson(1887)35ChD460,56LJCh540,35WR554,56LT753,3TLR577,CA260
BishopsgateInvestmentManagementLtd(inliquidation)vHoman[1995]Ch211,[1995]1AllER347,[1994]
3WLR1270,[1964]BCC868,[1994]36LSGazR37,138SolJoLB176,CA844,846,849
Biss,Re,BissvBiss[1903]2Ch40,72LJCh473,51WR504,[19003]AllERRep406,47SolJo383,88
LT403,CA665,667
BlackvFSFreedmanandCo.(1910)12CLR105328
BlackwellvBlackwell[1929]AC318,subnom.Blackwell,Re,BlackwellvBlackwell98LJCh251,[1929]All
ERRep71,73SolJo92,140LT444,45TLR208,HL1324
BlaustenvIRC[1972]Ch256,[1972]1AllER41,[1972]2WLR376,47TC542,[1971]TR363,115SolJo
871,CA106
BMPGlobalDistributionInc.vBankofNovaScotia[2009]SCC15,[83]DFox(2010)68CLJ28829
BoardmanvPhipps.SeePhippsvBoardman
BofingervKingswayGroupLtd[2009]HCA44863
BoggvRaper[1998]CLY4592,Times,22April,CA742
BonhamvBlakeLapthornLinnell[2007]WTLR189542
BonisSmithsGoods,Re(1869)LR1P&D717(1953)69LQR33499
(p.xviii) BoscawenvBajwa[1995]4AllER769,[1996]1WLR769,[1996]1WLR328,70P&CR391,
[1995]21LSGazR37,CA812,813,855,862,863,868
BouchvSproule(1887)12AppCas385,56LJCh1037,36WR193,[188690]AllERRep319,57LT345,
HL595
Bowes,Re,EarlStrathmorevVane[1896]1Ch507,65LJCh298,44WR441,74LT16505
BowersSettlementTrusts,Re1942]Ch19721
BowmanvSecularSocietyLtd[1917]AC406,86LJCh568,[191617]AllERRep1,61SolJo478,117LT
161,33TLR376,HL197,279
BoycevBoyce(1849)16Sim476,80RR12366,109
Boyes,Re,BoyesvCarritt(1884)26ChD531,53LJCh654,32WR630,50LT581134,140,144
BracewellvAppleby[1975]AC408964
BrayvFord[1896]AC44,65LJQB213,73LT609,12TLR119,HL645,660
BreadnervGranvilleGrossman[2001]Ch523,[2000]4AllER705,[2001]2WLR593512,87,61819
BreakspearvAckland[2008]EWML220(Ch)474,478,47982
BrigidFoleyLtdvEllott[1982]RPC433e941
BrinksLtdvAbuSaleh(No.3)(1995)Times,23October,[1996]CLC133881,897
BristolandWestBuildingSocietyvMothew(t/aStapley&Co.)[1998]Ch1,[1996]4AllER698,[1997]2
WLR436,[1996]NLJR1273,140SolJoLB206,[1997]PNLR11,subnom.MothewvBristol&West
BuildingSociety75P&CR241,CA569,642,647,663,784
BritishMuseum(Trustees)vAttorneyGeneral[1984]1AllER337707
Brockbank,Re,WardvBates[1948]Ch206,[1948]1AllER287,[1948]LJR952,92SolJo
141472,526,527
Brogden,Re,BillingvBrogden(1888)38ChD546,37WR84,[188690]AllERRep927,59LT650,4TLR
521,CA5723
BrookeBond&Co.LtdsTrustDeed,Re,BrookevBrookeBond&Co.Ltd[1963]Ch357,[1963]1AllER
454,[1963]2WLR320,107SolJo9451617
Broomhead(JW)(Vic)PtyLtd(inliquidation)vJWBroomheadPtyLtd[1985]VR891470
BrothertonvAseguradoraCobeguros(No.2)[2003]EWCACiv705,[2003]3AllER(Comm)298961
Brown&RootTechnologyLtdvSunAllianceandLondonAssuranceCo.Ltd[2001]Ch733,[2000]2WLR
566,75P&CR223,[1997]1EGLR39,[1997]7LSGazR29,[1997]18EG123,141SolJoLB38,CA155
BrownvBennett[1999]1BCLC649,[1999]BCC525,CA876,881
BrownvHiggs(1800)5Ves495affd(1803)8Ves561onappeal(1813)18Ves192,HL51,52
BrownvIRC[1965]AC244,[1964]3AllER119,[1964]3WLR511,42TC42,43ATC244,[1964]TR269,
108SolJo636,192EstatesGazette457,1964SC(HL)180,1964SLT302643,667
BrownvLitton(1711)2EqCasAbr5,722,10ModRep20,1PWms140699
BucksConstabularyWidowsandOrphansFundFriendlySociety,Re,ThompsonvHoldsworth(No.2)[1979]
1AllER623,[1979]1WLR936,122SolJo557299,300,308,312,313,315
Buckton,Re,BucktonvBuckton[1907]2Ch406,76LJCh584,97LT332,23TLR692540
BurnsvBurns[1984]Ch317,[1984]1AllER244,[1984]2WLR582,[1984]FLR216,[1984]FamLaw24,
128SolJo173,[1984]LSGaxR893,CA421
BurroughvPhilcox(1840)5My&CR72,5Jur453,48RR23653,91
BurroughsFowler,Re,TrusteeofthePropertyofBurroughsFowler(abankrupt)vBurroughsFowler[1916]2
Ch251,85LJCh550,[1916]HBR108,60SolJo538,114LT1204,32TLR49332
BushvHigham(1728)2PWms453539
BuschauvRogersCommunicationsInc.(2004)236DLR(4th)186ITELR919507
ButlinsWillTrust,Re[1976]Ch251548,610,738
ButtlevSaunders[1950]2AllER193,[1950]WN255,94SolJo369,66(pt1)TLR1026579
CAPacificFinanceLtd,Re[2000]1BCLC49481
CadoganPetroleumplcvTolley[2011]EWHC2866Ch347,695,697
CaffreyvDarby(1801)6Ves48831ER1159683
CamdexInternationalLtdvBankofZambia(No.2)[1997]1WLR632942
CampbellvMGN[2004]UKHL22[2004]2AC457934
CampdenHillLtdvChakrani[2005]EWHC911327,834
CannonvHartley[1949]Ch213,[1949]1AllER50,[1949]LJR370,92SolJo719,65TLR63163
CansonEnterprisesLtdvBroughton&Co.[1991]SCR534,131NR321,[1992]1WWR245,9CCLT(2d)1,
85DLR(4th)129,39CPR(3d)449799
CapeBrandySyndicatevIRC[1921]1KB64,90LJKB113,37TLR33affd[1921]2KB403,12TC358,90
LJKB461,65SolJo377,125LT108,37TLR402,CA35
Car&UniverseFinanceCo.LtdvCaldwell[1965]1QB525961
CarlZeissStiftungvHerbertSmith&Co.(afirm)(No.2)[1969]2Ch276,[1969]2AllER367,[1969]2WLR
427,[1969]FSR40,[1969]RPC338,112SolJo1021,CA882
CarmanvYates[2004]EWHC3448(Ch)[2005]BPIR47672,73
CarrerasRothmansLtdvFreemanMathewsTreasureLtd[1985]Ch207,[1985]1AllER155,[1984]3WLR
1016,[1984]BCLC420,[1985]PCC222,128SolJo614,[1984]LSGazR2375409
CarvervDuncan[1985]AC1082596
CasioComputerCo.LtdvSayo(No.3)[2001]EWCACiv661881
(p.xix) CassellvBroome[1972]AC1027807
CattleyvPollard[2006]EWHC3130,[2007]Ch353761,765,769
CavevCave(1880)15ChD639818
CavendishBrownesSettlementTrusts,Re,HornervRawle[1916]WN341,61SolJo27166
CaynevGlobalNaturalResourcesplc[1984]1AllER225939
CentralBankofNigeriavWilliams[2012]EWCACiv415[2012]3AllER579765
ChanvZacharia(1983)154CLR178,53ALR417,58ALJR353,HCofA645
Chapman,Re[1896]2Ch763784
ChapmanvChapman[1954]AC429,[1954]1AllER798,[1954]2WLR723,33ATC84,47R&IT310,
[1954]TR93,98SolJo246,HL538,704
ChappelvTimesNewspapers[1975]1WLR48216
ChappellvUnitedKingdom(1990)12EHHR1955
Chappell&Co.LtdvNestlCo.Ltd[1960]AC87865
ChaseManhattanBankNAvIsraelBritishBank(London)Ltd[1981]Ch105354,399,400
ChaseManhattanEquitiesLtdvGoodman[1991]BCLC89770
CityIndexLtdvGawler[2007]EWCACiv1382919
ChartbrookLtdvPersimmonHomesLtd[2009]UKHL38[2009]1AC1101959
ChaudharyvYaruz[2011]EWCACiv1314,[2012]3WLR9873356
CheltenhamandGloucesterplcvAppleyard[2004]EWCACiv291862
CherryTreeInvestmentsLtdvLandmainLtd[2012]EWCACiv736959
Chettiar(Palaniappa)vArunasalamChettiar[1962]AC294,[1962]1AllER494,[1962]2WLR548,106Sol
Jo110,PC374
ChichesterDiocesanFundandBoardofFinanceInc.vSimpson.SeeDiplock,Re,WintlevDiplock
ChillingworthvChambers[1896]1Ch685,65LJCh343,44WR388,40SolJo294,74LT34,12TLR217,
CA755
Choithram(T)InternationalSAvPagarani[2001]2AllER492,[2001]1WLR1,145SolJoLB8,[2001]1
LRC694,PC20,27,1468,151,159
ChurchoftheNewFaithvComrforPayRollTax(1983)154CLR120,57ALJR785,49ALR65,14ATR769,
83ATC4652,HCofA224
CiadeSegurosImperio(abodycorporate)vHeath(REBX)Ltd(formerlyCEHeath&Co.(NorthAmerica)Ltd)
[2001]1WLR112,[2000]2AllER(Comm)787,[2001]LloydsRepIR109,[2000]PNLR795,
CA767,768,770
CitibankNAvMNIAAssuranceSA[2007]EWCACiv11,[2007]1AllER475553,727,728,742
CityIndexLtdvGawler[2007]EWCACiv1382,[2008]Ch313755
CL,Re[1969]1Ch587,[1968]1AllER1104,[1968]2WLR1275,112SolJo254709,713
Clarke,Re,BraceyvRoyalNationalLifeboatInstitution[1923]2Ch407,92LJCh629,[1923]AllERRep607,
67SolJo680,129LT310,39TLR433110,201
ClarkevDickson(1858)ElBl&El148961
ClaytonsCase.SeeDevaynesvNoble,ClaytonsCase
Cleaver,Re,CleavervInsley[1981]2AllER1018,[1981]1WLR939,125SolJo44533941,342
ClipperMaritimeCo.LtdofMonraviavMineralimportexport[1981]1WLR1262946
CloresSettlementTrusts,Re,SainervClore[1966]2AllER272,[1966]1WLR955,110SolJo252639
CloseInvoiceFinanceLtdvAbaowa[2010]EWHC1920(QB)3634
CloughvBond(1838)3My&Cr490,8LJCh51,2Jur958,45RR314,40ER1159684,695
CMSDolphinLtdvSimonet[2001]EWHC415(Ch),[2001]2BCLC704650,685,877
CooperativeInsuranceSocietyvArgyllStores(Holdings)Ltd[1998]AC19579
Coates,Re,RamsdenvCoates[1955]Ch495,[1955]1AllER26,[1954]3WLR959,98SolJo871102
CoatestoParsons,Re(1886)34ChD370,56LJCh242,35WR375,56LT16,3TLR173525
CoatsTrusts,Re,CoatsvGilmour[1948]Ch340,[1948]1AllER521,[1948]LJR1178,92SolJo205,64
TLR193,CAaffdsubnom.GilmourvCoats[1949]AC426,[1949]1AllER848,[1949]LJR1034,93SolJo
355,65TLR234,HL189,223,2268
CobbevYeomansRowManagementLtd[2006]EWCACiv1139,[2006]1WLR
2964322,451,454,455,457,460,462,464
CobboldvBakewellManagementLtd[2003]EWHC2289348
CocovANClark(Engineers)Ltd[1969]RPC4110
CohensSettlementTrusts,Re,EliotCohenvCohen[1965]3AllER139,[1965]1WLR1229,109SolJo
680713
Cole,Re,expTrusteeofPropertyofBankruptvCole[1964]Ch175,[1963]3AllER433,[1963]3WLR621,
107SolJo664,CA149
ColesvTrecothick(1804)1SmithKB233,7RR167,9Ves234,[180313]AllERRep14658
ColliervCollier[2002]EWCACiv1095374
ColumbiaPictureIndustriesInc.vRobinson[1987]Ch38951,955
ConservativeandUnionistCentralOfficevBurrell(InspectorofTaxes)[1980]3AllER42,[1980]STC400,55
TC671,[1980]TR143,124SolJo361affd[1982]2AllER1,[1982]1WLR522,[1982]STC317,55TC671,
[1981]TR543,126SolJo50,CA290,294,3067
ConsulDevelopmentPtyLtdvDPCEstatesPtyLtd.SeeDPCPtyLtdvGrayandConsulDevelopmentsPty
Ltd
Cook,Re,BeckvGrant[1948]Ch212,[1948]1AllER231,[1948]LJR902,92SolJo125,64TLR9755
CookvDeeks[1916]1AC554668,671,697
(p.xx) CookvFountain(1676)3Swanst.585392
CooksSettlementTrusts,Re,RoyalExchangeAssurancevCook[1965]Ch902,[1964]3AllER898,[1965]
2WLR179,109SolJo771645,167
Cooper(Colin),Re,LeNeveFostervNationalProvincialBankLtd[1939]Ch811,[1939]3AllER586,108LJ
C388,83SolJo671,161LT127,CA134,136
CoopervPRGPowerhouse[2008]EWHC498(Ch)[2008]2AllER(Comm)964408
CoresCase(1537)1Dyer20a820
CorinvPatton[1990]HCA12155
CorporacinNacionaldelCobredeChilevSogeminMetalsLtd[1997]1WLR1396796
CostellovChiefConstableofDerbyshire[2001]3AllER150328
CoulthardvDiscoMixClubLtd[1999]2AllER457,[2000]1WLR707,[1999]EMLR434765,766,767
CountessofShelburnevEarlofInchiquin(1784)1Bro.CC338959
Couturier[1907]1Ch470503
CowandeGrootPropertiesLtdvEagleTrustplc[1992]4AllER700,[1991]BCLC1045907
CowanvScargill[1985]Ch270,[1984]2AllER750,[1984]3WLR501,[1984]ICR646,[1984]IRLR260,
128SolJo55035,573,577,579,581,5824,594,778
Coxen,Re,McCallumvCoxen[1948]Ch747,[1948]2AllER492,[1948]LJR1590,92SolJo442100,254
CrabbvArunDistrictCouncil[1976]Ch179456
CreamHoldingsLtdvBanerjee[2004]UKHL44[2005]1AC253940
CriterionPropertiesplcvStratfordUKPropertiesLLC[2002]EWCACiv1783,[2003]1WLR
2108903,912,913,916
CrosscoNo.4UnlimitedvJolanLtd[2011]EWCACiv1619,[2012]1PandCR16449,451,464
CrowdenvAldridge[1993]3AllER603,[1993]1WLR433,[1993]11LSGazR45486
CrowhurstPark,Re,SimsHilditchvSimmons[1974]1AllER991,[1974]1WLR583,28P&CR14,118Sol
Jo331521
CrownSuppliers(PropertyServicesAgency)vDawkins[1993]ICR517,subnom.DawkinsvDepartmentof
theEnvironment[1993]IRLR284,CA469
CTBvNGN[2011]EWHC1326(QB)933
CunnackvEdwards[1895]1Ch489,59JP279,64LJCh344,43WR325,11TLR249revsd[1896]2Ch
679,61JP36,65LJCh801,45WR99,75LT122,12TLR614,CA310,312,385
CunninghamandFrayling,Re[1891]2Ch56731
CurleyvParkes[2004]EWCACiv1515,[2005]1P&CRDG15360
CurtisvPulbrook2011]EWHC167(Ch)[2011]1BCLC638160,161
CustomerSystemsplcvRanson[2012]EWCACiv841[2012]IRLR769646
CustomsandExciseCommissionersvBarclaysBankplc[2006]UKHL28,[2007]1AC181948,949,950
Dacre,Re[1916]1Ch344752
Dale,Re,ProctorvDale[1994]Ch31,[1993]4AllER129,[1993]3WLR652,[1994]FamLaw77,[1993]14
LSGazR43,[1993]NLJR544,137SolJoLB83338
Dalziel,Re,MidlandBankExecutorandTrusteeCo.LtdvStBartholomewsHospital[1943]Ch277,[1943]2
AllER656,112LJCh353,87SolJo281,169LT168,59TLR408290
DanielvFerguson[1891]2Ch27940
DanishBaconCo.LtdStaffPensionFund,Re,ChristensenvArnett[1971]1AllER486,[1971]1WLR248,
115SolJo95486,502
DaraydanHoldingsLtdvSolland[2004]EWHC622,[2005]Ch119668,692,697
DaventryDCvDaventry&DistrictHousingLtd[2011]EWCACiv1153[2012]1WLR1333959,960
DavisvRichardsandWallingtonIndustriesLtd[1991]2AllER563,[1990]1WLR1511312,378,385,3869
Dawson,Re,UnionFidelityTrusteeCo.LtdvPerpetualTrusteesCo.Ltd(1966)84WN399,[1966]2NSWLR
211781,783
DeBusschevAlt(1878)8ChD286,47LJCh381,3AspMLC584,[187480]AllERRep1247,38LT370,
CA643,749
DeCarteret,Re,ForstervDeCarteret[1933]Ch103,102LJCh52,[1932]AllERRep355,76SolJo474,
148LT188,48TLR555202
DeFrancescovBarnum(1890)45ChD430930
Dean,Re,CooperDeanvStevens(1889)41ChD552,58LJCh693,60LT813,5TLR404286
DelameresSettlementTrusts,Re,KennyvCunninghamReid[1984]1AllER584,[1984]1WLR813,128
SolJo318,[1984]LSGazR1597,CA633
Delius,Re,EmanuelvRosen[1957]Ch299,[1957]Ch299,[1957]2WLR548,101SolJo286,subnom.Re
DeliusWillTrusts,EmanuelvRosen[1957]1AllER854234
DemeraraBauxiteCo.LtdvHubbard[1923]AC673658
DenleysTrustDeed,Re,HolmanvHHMartyn&Co.Ltd[1969]1Ch373,[1968]3AllER65,[1968]3WLR
457,112SolJo673284,297
DennisvMinistryofDefence[2003]EWHC793(QB)[2003]EnvLR34968
Derby&Co.LtdvWeldon(1990)Ch48945
DeringvEarlofWinchelsea(1787)1CoxEqCas31816
DerryvPeek(1888)LR14AppCas337787
DevaynesvNoble,ClaytonsCase(1816)1Mer572,[181423]AllERRep1394,839,842
(p.xxi) Diggles,Re,GregoryvEdmondson(1888)39ChD253,59LT884,CA67
DillwynvLlewellyn(1862)4DeGFandJ517456
DimesvScott(1828)4Russ195,28RR46,[182434]AllERRep653802,803
DinglevTurner[1972]AC601,[1972]1AllER878,[1972]2WLR523,116SolJo195,HL205,21315,226
Diplock,Re,DiplockvWintle[1948]Ch465,[1948]2AllER318,[1948]LJR1670,92SolJo409,484,CA
affdsubnom.MinistryofHealthvSimpson[1951]AC251,[1950]2AllER1137,94SolJo777,66(pt2)TLR
1015,HL6,49,625,818,825,827,831,832,843,847,914
Diplock,Re,WintlevDiplock[1941]Ch253,[1941]1AllER193,110LJCh55,85SolJo56,164LT339,57
TLR263,CAaffdsubnom.ChichesterDiocesanFundandBoardofFinanceInc.vSimpson[1944]2AllER
60,113LJ225,88SolJO246,171LT141,60TLR492,HL250,253,377
DonKingProductionsvWarren[2000]Ch29140,45,74,666
DouglasvHello!Ltd[2001]QB967940
DPCEstatesPtyLtdvGreyandConsulDevelopmentsPtyLtd[1974]1NSWLR443onappealsubnom.
ConsulDevelopmentPtyLtdvDPCEstatesPtyLtd(1975)132CLR373,5ALR231,49ALJ74,HCof
A680,899
Drummond,Re,AshworthvDrummond[1914]2Ch90,83LJCh817,[191415]AllERRep223,58SolJo
472,111LT156,30TLR429298
DubaiAluminiumCo.LtdvSalaam[2002]UKHL48,[2003]2AC366325,332,518,519,878,911,916,920
DufourvPereira(1769)1Dick419,subnom.DorourvPerraro2HargraveJuridicalArguments304338
DugganvGovernorofFullSuttonPrison[2004]1WLR101039
DunbarvPlant[1998]Ch412,[1997]4AllER289,[1997]3WLR1261,[1998]1FLR157,[1998]FamLaw
139,[1997]36LSGazR44,CA16,3434
DundeeGeneralHospitalsBoardofManagementvWalker[1952]1AllER896,subnom.DundeeGeneral
HospitalsvBellsTrustees1952SC(HL)78,1952SLT270100,102
DupreesDeedTrusts,Re,DaleyvLloydsBank[1945]Ch16,[1944]2AllER443,114LJCh1,88SolJo
407,171LT384,61TLR50238
DyervDyer(1788)2RR14,2CoxEqCas92,[17551802]AllERRep205359
Eades,Re,EadesvEades[1920]2Ch353,89LJCh604,123LT777252
EagleTrustplcvSBCSecuritiesLtd[1992]4AllER488,[1993]1WLR484,[1991]BCLC438882
EastbourneMutualBuildingSocietyvHastingsCorpn[1965]1AllER779,[1965]1WLR861,17P&CR
121,129JP300,109SolJo156,[1965]RVR22049
EdgevPensionsOmbudsman[2000]Ch602,[1999]AllER546,[2000]WLR79,[2000]ICR748,[1999]PLR
215,[1999]35LSGazR39,[1999]NLJR1442,CA35,594
EdwardsvCarter[1893]AC360,58JP4,63LJCh100,1R218,[18914]AllERRep1259,69LT153,
HL67
EdwardsWillTrusts,Re,EdwardsvEdwards[1982]Ch30,[1981]2AllER941,[1981]3WLR15,125Sol
Jo258,CA534
EdwinHillandPartnersvFirstNationalFinanceCorpnplc[1989]1WLR225896
ElAjouvDollarLandHoldingsplc[1993]3AllER717,[1993]BCLC735,[1993]BCC698revsd[1994]2All
ER685,[1994]1BCLR464,[1994]BCC143,CA330,828,835
EldersPastoralLtdvBankofNewZealand[1989]2NZCAonappealsubnom.EldersPastoralLtdvBankof
NewZealand(No.2)[1990]1WLR1478,134SolJo1336,PC833
Ellenborough,Re,TowryLawvBurne[1903]1Ch697,72LJch218,51WR315,47SolJo255,87LT
714129
EMILtdvPandit[1975]1WLR302951
Endacott,Re,CorpevEndacott[1960]Ch232,[1959]3AllER562,[1959]3WLR799,58LGR25,103Sol
Jo918,CA111,281,286,2878
EnglewoodPropertiesLtdvPatel[2005]EWHC188,[2005]3AllER307346
ErlangervNewSombreroPhosphateCo.(1878)3AppCas1218,27WR65,[187480]AllER271,39LT
269,subnom.NewSombreroPhosphateCo.vErlanger48LJCh73,HL773,961
EvansvBartlam[1937]AC473961
Evans,Re,EvansvWestcombe[1999]2AllER777,143SolJoLB72626
EvansSettlement,Re,WatkinsvWhitworthJones[1967]3AllER343,[1967]1WLR1294,111SolJo
811634
EvesvEves[1975]3AllER768,[1975]1WLR1338,119SolJo394,CA10,322,421
EVTR,Re,GilbertvBarber[1987]BCLC646,3BCC389,CA406,409
EzekielsSettlementTrusts,Re,NationalProvincialBankLtdvHyam[1942]Ch230,[1942]2ER224,111LJ
Ch41,affd[1942]2AllER224,111LJCh155,86SolJo76,166LT137,CA573
FarahConstructionsPtyLtdvSayDeePtyLtd[2007]HCA2907,916
Faraker,Re,FarakervDurell[1912]2Ch488,81LJCh635,[191113]AllERRep488,56SolJo668,107
LT36,CA256
FarepakFoodsandGiftsLtdvRevenueandCustoms[2006]EWHC3272(Ch)327,348
FattalvWalbrookTrustees(Jersey)Ltd[2010]EWHC2767(Ch)557
FeatherstonhaughvFenwick(1810)17Ves298,31WR318,[180313]AllERRep89643
Fellowes&SonvFisher[1976]QB122939
FHREuropeanVenturesLLPvMankarious[2011]EWHC2999(Ch)697
(p.xxii) FibrosaSpolkaAkcynjavFairbairnLawsonCombeBarbourLtd[1943]AC32,[1942]2AllER122,
111LJKB433,86SolJo232,167LT101,58TLR308,HL14
Figgis,Re,RobertsvMacLaren[1969]1Ch123,[1968]1AllER999,[1968]2WLR1173,112SolJo
156259,268
FilbyvMortgageExpress(No.2)Ltd[2004]EWCACiv759862
FingersWillTrusts,Re,TurnervMinistryofHealth[1972]Ch286,[1971]3AllER1050,[1971]3WLR775,
115SolJo790257,262,263
FitzroyvTwilim(1786)1TR15316
FlavelsWillTrusts,Re,ColemanvFlavel[1969]2AllER232,[1969]1WLR444,113SolJo189110
FletchervBealey(1885)28ChD688928
FletchervFletcher(1844)4Hare67,14LJCh66,8Jur1040,67RR61678,472
FletchervGreen(1864)33Beav426,3NewRep626,140RR199803
FlightlineLtdvEdwards[2003]EWCACiv63[2003]1WLR1200942
FoleyvBurnell(1783)1Bro.CC274472
ForstervWilliamsDeaconsBankLtd[1935]Ch359,104LJCh132,[1935]AllERRep374,79SolJo145,
152LT433,51TLR254,CA516
FosecoInternationalLtdvFordathLtd[1975]FSR507938
FoskettvMcKeown[1998]Ch265,[1997]3AllER392,[1998]2WLR298,CArevsd[2001]1AC102,
[2000]3AllER97,[2000]2WLR1299,144SolJoLB231,[2000]LloydsRepIR627,
HL324,445,812,814,81719,8215,828,829,831,834,837,845,846,850,8512,853,855,856
61,864,869,906
FosterBryantSurveyingLtdvBryant[2007]EWCACiv200,[2007]2BCLC239650
FostervSpencer[1996]2AllER672538,5467
FourievLeRoux[2007]UKHL1,[2007]1WLR320935,944,945
Foveaux,Re,CrossvLondonAntiVivisectionSociety[1895]2Ch501,64LJCh856,13R730,43WR661,
39SolJo671,73LT202,11TLR540195
FowkesvPascoe(1875)10ChApp343,44LJCh367,23WR538,[187480]AllERRep521,32LT545,
CA3656
FoxvFox(1870)LR11Eq142777
FoxvMackreth(1788)2CoxEqCas320,2BroCC400,[17751802]AllERRep275onappealsubnom.
MackrethvFox(1791)4BroParlCas258,HL961
Frame,Re,EdwardsvTaylor[1939]Ch700,[1939]2AllER865,108LJCh217,83SolJo438,160LT620,
55TLR74647
FrancomevMirrorGroupNewspapersLtd[1984]1WLR892938
FrederickERoseLtdvWilliamHPim&Co.Ltd[1953]2QB450959
FreevaleLtdvMetrostore(Holdings)Ltd[1984]Ch199,[1984]1AllER495,[1984]2WLR496,47P&CR
481,[1984]BCLC72,128SolJo116346
FrenchProtestantHospital[1951]Ch567514
FriendsProvidentLifeOfficevHillierParkerMay&Rowden(afirm)(EstatesandGeneralplc,thirdparties)
[1997]QB85,[1995]4AllER260,[1996]2WLR123,71P&CR286,CA754
Fry,Re,ChaseNationalExecutorsandTrusteesCorpnLtdvFry[1946]Ch312,[1946]2AllER106,115JO
Ch225,90SolJo346,175LT392,62TLR41451,154
FryvFry(1859)27Bev144,28LJ591,5JurNS1047,122RR354,34LTOS51785
FullervEvans[2000]1AllER636630
FunnellvStewart.SeeLeCrenClarke,Re,FunnellvStewart
Furniss(InspectorofTaxes)vDawson[1984]AC474,[1984]1AllER530,[1984]2WLR226,[1984]STC
153,55TC324,128SolJo132,HL38
FyffesGroupLtdvTempleman[2000]2LloydsRep643686,692,899
GalambosvPerez2009SCR48,[2009]3SCR24764
GardenCottageFoodsLtdvMilkMarketingBoard[1984]AC130938
Gardner,Re,HueyvCunningham[1923]2Ch230,92LJCh569,67SolJo517,129LT206130,131
GardnervRowe(1828)5Russ258,7LJOSCh2121
GartsidevIRC[1968]AC553,[1967]2AllER173,[1967]3WLR671,46ATC25,[1967]TR31,111SolJo
521,CArevsd[1968]AC553,[1968]1AllER121,[1968]2WLR277,46ATC323,[1967]TR309,111Sol
Jo982,HL477
GaudiyaMissionvBrahmachary[1998]Ch341,[1997]4AllER957,[1998]2WLR175,
CA175,176,179,197
GearyvRankine[2012]EWCACiv555438
GencorACPLtdvDalby[2000]2BCLC734877
GeneralAccidentFireandLifeAssuranceCorporationLtdvIRC[1963]1WLR120731
GestetnerSettlement,Re,BarnettvBlumka[1953]Ch672,[1953]1AllER1150,[1953]2WLR1033,32
ATC102,46R&IT467,[1953]TR113,97SolJo33291
Gibbard,Re,PublicTrusteevDavis[1966]1AllER273,[1967]1WLR42,110SolJo87191
GibbonvMitchell[1990]3AllER338,[1990]1WLR130433
GibbonsTrusts,Re(1882)30WR287,45LT756528
GibbsvHarding[2007]EWHC3(Ch)[2008]2WLR361203
GibsonvJeyes(1801)6Ves.266(31E.R.1044)658
GillvLewis[1956]2QB118
GillinghamBusDisasterFund,BowmanvOfficialSolicitor[1958]Ch300,[1958]1AllER37,[1957]3WLR
1069,101SolJo974,affd[1959]Ch62,[1958]2AllER749,[1958]3WLR325,102SolJo581,CA389
GissingvGissing[1971]AC886,[1970]2AllER780,[1970]3WLR255,21P&CR702,114SolJo550,
216EstatesGazette1257,HL421
(p.xxiii) GKNBoltsandNutsLtdSportsandSocialClub,Re,LeekvDonkersley[1982]2AllER855,[1982]
1WLR774,126SolJo327308,309,315
GlencoreInternationalAGvMetroTradingInternationalInc.(formerlyMetroBunkeringandTradingCo.)vOrs
[2001]1AllER(Comm)819
GodboldvFreestone(1695)3Lev406355
Golay,Re,MorrisvBridgewater[1965]2AllER660,[1965]1WLR969,109SolJo517756
GoldvHill[1999]1FLR54,[1998]FamLaw664,142SolJoLB226144,502
GoldcorpExchangeLtd(inreceivership),Re[1965]1AC74,[1994]2AllER806,[1994]3WLR199,[1994]2
BCLC578,[1994]NLJR792,subnom.KensingtonvUnrepresentedNonallocatedClaimants[1994]24LS
GazR46,138SolJoLB127,PC77,348,649,844,849
GoldenStraitCorporationvNipponYusenKK(TheGoldenVictory)[2007]UKHL12,[2007]2AC353794
Gonin,Re[1979]Ch16,[1977]3WLR379,121SolJo558,subnom.ReGonin,GoninvGarmeson[1977]2
AllER720170
GonthiervOrangeContractScaffoldingLtd[2003]EWCACiv873926
Goodchild,Re,GoodchildvGoodchild[1997]3AllER63,[1997]1WLR1216,[1997]2FLR644,sub
nom.GoodchildvGoochild[1997]3FCR601,[1997]NLJR758,CA338
GoodmanvGallant[1986]Fam106,[1986]1AllER311,[1986]2WLR236,52P&CR180,[1986]1FLR
513,[1986]FamLaw159,129SolJo891,CA425
GouldingvJames[1996]4AllER865revsd[1997]2AllER239,CA706,716,71719,720
GourjusWillTrusts,Re,StarlingvCustodianofEnemyProperty[1943]Ch24,[1942]2AllER605,112LJ
Ch75,86SolJo367,168LT1,59TLR4733
GrafvHopeBuildingCorp(1920)254NY119
GraingevWilberforce(1889)5TLR436494
GrantsWillTrusts,Re,HarrisvAnderson[1979]3AllER359,[1980]1WLR360,124SolJo84297,304
Gray,Re,ToddvTaylor[1925]Ch362,94LJCh430,[1925]AllERRep250,69SolJo398,133LT630,41
TLR335237,248
GreasleyvCooke[1980]3AllER710,[1980]1WLR1306,124SolJo629,CA324
GreatPeaceShippingLtdvTsalvirisSalvage(International)Ltd[2002]EWCACiv1407,[2003]QB679330
GreensWillTrusts,Re,FitzgeraldHartvAG[1985]3AllER455624
GreyvIRC[1958]Ch375,[1958]1AllER246,[1958]2WLR168,36ATC296,[1957]TR293,102SolJo84
revsd[1958]Ch690,[1958]2AllER428,[1958]3WLR45,37ATC136,[1958]TR165,102SolJo469,CA
affd[1960]AC1,[1959]3AllER603487,488
GrimaldivChameleonMiningNL(No.2)[2012]FCAFC6348,350,696
GrupoTorrasSAvAlSabah[2004]WTLR170,881
GuerinvR[1984]2SCR335,13DLR(4th)321,55NR161(CanSC)644
Guild(ExecutornominateofthelateJamesYoungRussell)vIRC[1992]2AC310,[1992]2AllER10,[1992]
2WLR397,[1992]STC162,1992SLT438,136SolJoLB88,HL240
GuinnessplcvSaunders[1990]2AC663,[1990]1AllER652,[1990]2WLR324,[1990]BCLC402,134Sol
Jo457,[1990]661,662,699
GulbenkiansSettlements,Re,HacobianvMaun[1968]Ch126,[1967]3AllER15,[1967]3WLR1112,111
SolJo686,CAaffdsubnom.WhishawvStephens[1970]AC508,[1968]3WLR1127,112SolJo882,sub
nom.ReGulbenkiansSettlementTrusts,WhishawvStephens[1968]3AllER785,
HL52,67,86,87,88,91,98,1056,110
Gwyon,Re,PublicTrusteevAG[1930]1Ch255,99LJCh104,73SolJo833,46TLR96,subnom.Public
TrusteevAG142LT321203
HaganvWaterhouse(1991)34NSWLR308872
Hagger,Re,FreemanvArscott[1930]2Ch190,99LJCh492,[1930]AllERRep620,143LT610338
HalifaxBuildingSocietyvThomas[1996]Ch217,[1995]4AllER673,[1996]2WLR63,CA324
HalifaxplcvOmar[2002]EWCACiv121,[2002]2P&CR377863
HallettsEstate,Re,(1880)13ChD696,49LJCh415,28WR732,[187480]AllERRep793,42LT421,
CA6,42,832,835,836,837,842,843,844,855,856
HalloranvMinisterAdministeringNationalParksandWildlifeAct1974[2006]HCA3,(2006)80Australian
LawJournalReports519[2006]Conv390501
HalpernvHalpern(No.2)[2007]EWCACiv291,[2008]QB1959,961,962
Hamilton,Re,TrenchvHamilton[1895]2Ch370,64LJCh799,12R355,43WR577,39SolJo524,sub
nom.ReHamilton,ReAshtown,TrenchvHamilton72LT748,CA67
HamiltonvWright(1842)9Cl&F111689
HamptonFuelAllotmentCharity,Re[1989]Ch484,[1988]3WLR513,132SolJo1146,subnom.Richmond
uponThamesLondonBoroughCouncilvRogers[1988]2AllER761,CA184
HanchettStamfordvAttorneyGeneral[2008]EWHC330(Ch),[2009]Ch173198,246,299,308,313,385
HancockvWatson[1902]AC14109
HarmanPicturesN.V.vOsborne[1967]1WLR723935
HardoonvBelilios1901]AC118539
HarriesvChurchComrsforEngland[1993]2AllER300,[1992]1WLR1241,[1992]41LSGaxR36,135Sol
JoLB180584,5857
(p.xxiv) HarrisvDigitalPulsePtyLtd(2003)56NSWLR298(2006)OJLS303808
HarrisonvTew[1989]QB307,[1987]3AllER865,[1988]2WLR1,131SolJo1626,[1987]LSGazR3577,
[1987]NLJRep711,CAaffd[1990]2AC523,[1990]1AllER321,[1990]2WLR210,134SolJo374,
[1990]NLJR132,HL67
HartiganNomineesPtyLtdvRydge(1992)29NSWLR405551,620
HarvardSecuritiesLtd(inliquidation),Re,HollandvNewbury[1997]2BCLC369,[1998]BCC567812,83
Harwood,Re,ColemanvInnes[1936]Ch285,105LJCh142,[1935]AllERRep918,154LT624261
HastingsBass,Re,HastingsBassvIRC[1975]Ch25,[1974]2AllER193,[1974]2WLR904,[1974]STC
211,53ATC87,[1974]TR87,118SolJo422,CA109,555,556,559,560,564
HawkesleyvMay[1956]1QB304,[1955]3AllER353,[1955]3WLR569,99SolJo781472,620
HaysSettlementTrusts,Re[1981]3AllER786,[1982]1WLR202,125SolJo86666,106,61213,615
HazellvHammersmithandFulhamLondonBoroughCouncil[1992]2AC1,[1991]1AllER545,[1991]2
WLR372,89LGR271,[1991]RVR28,HL393
HeadvGould[1898]2Ch250,67LJ480,46WR597,42SolJo553,78LT739,14TLR444532,756,758
HealeyvHealey[1915]1KB93857,473
HeinlvJyskeBank(Gibraltar)[1999]LloydsBankRep511894
HelenaPartnershipsLtdvTheCommissionersforHerMajestysRevenueandCustoms[2012]EWCACiv
569181,187,244,2456
HendersonvHuntingtonCopperandSulphurCo.SeeHuntingtonCopperandSulphurCo.vHenderson
HendersonvMerrettSyndicatesLtd[1995]2AC145,[1994]3AllER506,[1994]3WLR761,[1994]NLJR
1204,HL569,784
HeseltinevHeseltine[1971]1AllER952,[1971]1WLR342,135JP214,114SolJo972,CA421
Hetherington,Re[1990]Ch1,[1989]2WLR1094,subnom.ReHetherington,GibbsvMcDonnell[1989]2All
ER129,133SolJo457229
HillvHaines[2007]EWCACiv1284,[2007]50EG109(CS)76,865
HillvSpreadTrusteeCo.Ltd[2006]EWCACiv542,[2007]1WLR240473
HillsdownHoldingsplcvPensionsOmbudsman[1997]1AllER862,[1966]PLR427,[1996]OPLR
291559,657
HiltonvBarkerBoothandEastwood(afirm)[2005]UKHL8,[2005]1WLR567(2005)64CLJ291(2006)122
LQR1643,646,647,663
HitchvStone(InspectorofTaxes)[2001]EWCACiv63,[2001]STC21469,72
HkrukII(CHC)LimitedvMarcusAlexanderHeaney[2010]EWHC2245(Ch)970
H.M.Revenue&CustomsvEgleton[2006]EWHC2313(Ch)[2007]1AllER606944
HoarevOsborne[1866]LR1Eq58520
HobournAeroComponentsLtdsAirRaidDistressFund,Re,RyanvForrest[1946]Ch86,[1945]2AllER
711,115LJCh50,89SolJo590,174LT91,62TLR69onappeal[1946]Ch194,[1946]1AllER501,115
LJCh158,90SolJo260,174LT428,62TLR313,CA310
HodgsonvMarks[1971]Ch892,[1971]2AllER684,[1971]2WLR1263,22P&CR586,115SolJo224,
CA358
HoldervHolder[1968]Ch353,[1968]1AllER665,[1968]2WLR237,112SolJo17,205EstatesGazette
211,CA6556
HoldingandManagementLtdvPropertyHoldingandInvestmentTrustplc[1990]1AllER938,[1989]1WLR
1313,21HLR596,134SolJo262,[1990]1EGLR65,[1990]05EG75,CA539
HolmanvJohnson(1775)1Cowp341,98ER1120,[17751802]AllERRep98370
HoltsSettlement,Re,WilsonvHolt[1969]1Ch100,[1968]1AllER470,[1968]2WLR653,112SolJo195,
[1968]BTR122708,713,721
Hooper,Re,ParkervWard[1932]1Ch38,101LJCh61,[1931]AllERRep129,146LT208285
HopkinsWillTrusts,Re,NaishvFrancisBaconSocietyInc[1965]Ch669,[1964]3AllER46,[1964]3WLR
840,108SolJo601207,216
Hopkinson,Re,LloydsBankLtdvBaker[1949]1AllER346,93SolJo87,65TLR108220
HorleyTownFootballClub,Re[2006]EWHC2386(Ch),[2006]WTLR1817300,302,315
HovendenvLordAnnesley(1806)9RR119,2Sch&Lef607759
HowevEarlofDartmouth(1802)6RR96,7Ves137,1White&TudLC68,[17751802]AllERRep24598
HRHPrinceofWalesvAssociatedNewspapersLtd[2006]EWCACiv1776[2007]2AllER139934
HuffvPrice[1990]76DLR(4th)138807
HuntervMoss[1993]1WLR934affd[1994]3AllER215,[1994]1WLR452,[1994]8LSGazR38,138Sol
JoLB25,CA779,80,82,83
HuntingtonCopperandSulphurCo.vHenderson(1877)4R294,14SLR219onappealsubnom.Henderson
vHuntingtonCopperandSulphurCo.(1878)5R1,15SLR217,HL664
HusseyvPalmer[1972]3AllER744,[1972]1WLR1286,116SolJo567,CA421
ImperialGroupPensionTrustvImperialTobaccoLtd1991]1WLR58935
IncomeTaxSpecialPurposesComrsvPemsel[1891]AC531,3TC53,55JP805,61LJQB265,[18914]
AllERRep28,65LT621,7TLR657,HL188,201
IncorporatedCouncilofLawReportingforEnglandandWalesvAG[1971]Ch626,[1971]1AllER436,
[1971]2WLR550,47TC321,115SolJo142onappeal[1972]Ch73,[1971]3AllER1029,[1971]3WLR
853,47TC321,115SolJo808,CA207,209,248,254
(p.xxv) IndependentSchoolsCouncilvTheCharityCommissionforEnglandandWales[2011]UKUT421
(TCC),[2012]Ch214177,178,183,184,186,192195,197,201,215,216220,233
IndependentTrusteeServicesLtdvGPNobleTrusteesLtd[2012]EWCACiv195[2012]3AllER
210645,8657
IndependentTrusteeServicesLtdvHope[2009]EWHC2810(Ch)36
IndustrialDevelopmentConsultantsvCooley[1972]2AllER162,[1972]1WLR443,116SolJo255650
Inglewood(Lord)vIRC[1983]1WLR366,[1983]STC133,127SolJo89,CA634
InverugieInvestmentsvHackett[1995]1WLR713970
InvestmentandPensionsAdvisoryServicevGray[1990]BCLC38942
InvestorsCompensationSchemeLtdvWestBromwichBuildingSociety[1998]1WLR89666,959
IRCvAngus(1889)23QBD579488
IRCvBaddeley.SeeBaddeleyvIRC
IRCvBroadwayCottagesTrust[1955]Ch20,[1954]3AllER120,[1954]3WLR438,35TC577,98SolJo
588,L(TC)1703,subnom.BroadwayCottagesTrustvIRC33ATC305,47R&IT574,[1954]TR295,
CA87,91,288
IRCvDukeofWestminster[1936]AC1,104LJKB383,[1935]AllERRep259,79SolJo362,153LT223,51
TLR467,subnom.DukeofWestminstervIRC19TC490,14ATC77,HL38
IRCvEducationalGrantsAssociationLtd[1967]Ch123,[1966]3AllER708,[1966]3WLR724,44TC93,
45ATC282,[1966]TR247,110SolJo568affd[1967]Ch993,[1967]2AllER893,[1967]3WLR41,44TC
93,46ATC71,[1967]TR79,111SolJo194,CA215
IRCvFalkirkTemperenceCafeTrust(1927)11TC353,1927SC261197
IRCvHashmi[2002]EWCACiv981,[2002]WTLR102773
IRCvHolmden[1968]AC685,[1968]1AllER148,[1968]2WLR300,46ATC337,[1967]TR323,112Sol
Jo31,HL706,720
IRCvMcMullen[1978]1AllER230,[1978]1WLR664,54TC413,122SolJo331,L(TC)2648178,207,237
IRCvNationalAntiVivisectionSociety[1946]KB185,[1946]1AllER205,CAaffdsubnom.NationalAnti
VivisectionSocietyvIRC[1948]AC31,[1947]2AllER217,26ATC309,41R&IT99,[1947]LJR1112,177
LT226,63TLR424,311,L(TC)1432,subnom.IRCvNationalAntiVivisectionSociety28TC311,
HL189,195,200,247
IRCvOldhamTrainingandEnterpriseCouncil[1996]STC1218,69TC231178,201,207,233
IRCvWilloughby[1997]4AllER65,[1997]1WLR1071,[1997]STC995,70TC57,[1997]29LSGazR28,
[1997]NLJR1062,HL37
IsaacvClark(1615)2Bulst.306820
IslamicRepublicofIranShippingLinesvDenby[1987]1LloydsRep367,[1987]1FTLR30,[1986]NLJRep
1162328
IslandExportFinanceLtdvUmunna[1986]BCLC460649,650
IslandRecords,exp[1978]Ch122955
ItemSoftware(UK)LtdvFassihi[2004]EWCA(Civ)1244,[2005]BCLC91646,647
JaffavTaylorGalleryLtd(1990)Times,21March149
JaffrayvMarshall[1994]1AllER143,[1993]1WLR1285,[1993]15LSGazR39595
JaggardvSawyer[1995]1WLR269964,965,967,969
James,Re,JamesvJames[1935]Ch449,104LJCh247,[1935]AllERRep235,153LT277170
JamesvWilliams[2000]Ch1,[1999]3AllER309,[1999]3WLR451,79P&CR421,[1999]2FCR498,
[1999]15LSGazR30,78P&CRD17,CA333
JamesHayPensionTrusteesLtdvKeanHirdetal.[2005]EWHC(Ch)1093959
JasmineTrusteesLtdvWellsandHind[2007]3WLR810522,532
JDWetherspoonplcvVandeBerg&Co.Ltd[2009]EWHC639(Ch)877
JenkinssWillTrusts,Re,PublicTrusteevBritishUnionfortheAbolitionofVivisection[1966]Ch249,[1966]1
AllER926,[1966]2WLR615,110SolJo134264,265
JenningsvRice[2002]EWCACiv159,[2003]1P&CR100458
JIHvNewsgroupNewspapersLtd[2011]EWCACiv42934
JohnvDodwell&Co.[1918]AC563,87LJPC92,118LT661,34TLR261,PC940
Johnson,Re(1880)15ChD548757
JohnsonvBall(1851)5DeG&Sm85,16Jur538,18LTOS182134
JohnsonvYouden[1950]1KB544894
Jones,Re[1942]Ch328126
JonesvBadley(1868)3Ch362,16WR713,19LT106,CA141
JonesvDeMarchant(1916)28DLR561,26MANR455,10WWR841819
JonesvJones[1997]Ch159812
JonesvKernott[2011]UKSC53,[2012]1AC
77615,20,325,360,392,421,422,425,426,428,429,431,433,436,440,443,447
JonesvLock(1865)1ChApp25,35LJCh117,11JurNS913,14WR149,13LT51468,1467
JonesvPacayaRubberandProduceCo.Ltd[1911]1KB455935
JonesvSelby(1710)Prec.Ch300168
KallsEnterprisesPtyLtd(inliq)vBaloglow[2007]NSWCA191,(2007)63ACSR557877
(p.xxvi) KanevRadleyKane[1999]Ch274,[1998]3AllER753,[1998]3WLR617,[1998]3FCR502,
[1998]24LSGazR33,142SolJoLB189,subnom.RadleyKane,Re[1998]2FLR585,[1998]FamLaw
525657
KarakRubberCo.LtdvBurden(No.2)[1972]1AllER1210,[1972]1WLR602,[1972]1LloydsRep73,115
SolJo888882,907
KasperbauervGriffith(2000)1WTLR333,CA137
KayfordLtd,Re[1975]1AllER604,[1975]1WLR279,118SolJo75267,74
KeechvSandford(1726)2EqCasAbr741,SelCasCh61,CastempKing61,25ER223,[15581774]All
ERRep230664,665,666,667,669,683
KeelersSettlementTrusts,Re,KeelervGledhill[1981]Ch156,[1981]1AllER888,[1981]2WLR499,125
SolJo170662
Keen,Re,EvershedvGriffiths[1937]Ch236,[1937]1AllER452,106LJCh177,81SolJo97,156LT207,
53TLR320,CA134,140
KekewichvManning(1851)1DeGM&G176,21LJCh577,16Jur625,91RR53,18LTOS263151
Kelly,Re,ClearyvDillon[1932]IR255286
KennawayvThompson[1981]QB88968
KerrvBaranow2011SCC10,(2011)328DLR(4th)577443
KhanvAli[2002]EWCACiv974359
KhooChengTeow,Re[1932]StraitsSettlementReports226285
KinanevMackieConteh[2005]EWCACiv45[225]Conv501485
King,Re,KerrvBradley[1923]1Ch243,92LJCh292,67SolJo313,128LT790267
KingsWillTrusts,Re,AsshetonvBoyne[1964]Ch542,[1964]1AllER833,[1964]2WLR913,108SolJo
335,189EstatesGazette87948,521
KleinwortBensonvLincolnCityCouncil[1999]2AC349332
KlugvKlug[1918]2Ch67,87LJCh569,62SolJo471,118LT696551,564,615,635
KnightvEarlofPlymouth(1747)Dick120537
KnightvKnight(1840)3Beav148,9LJCh354,4Jur839,52RR74affdsubnom.KnightvBoughton(1844)
11Cl&Fin513,8Jur923,HL66,67
KnockervYoule[1986]2AllER914,[1986]1WLR934,130SolJo542,[1986]LSGazR
2568710,711,712
KnottvCottee(1852)16Beav77,16Jur752780
KoepplerWillTrusts,Re,BarclaysBankTrustCo.LtdvSlack[1984]Ch243,[1984]2AllER111,[1984]2
WLR973,128SolJo398,[1984]LSGazR1843revsd[1986]Ch423,[1985]2AllER869,[1985]3WLR
765,129SolJo670,[1985]NLJRep531,CA201,210,222,294
KolbsWillTrusts,Re,LloydsBankLtdvUllman[1962]Ch531,[1961]3AllER811,[1961]3WLR1034,
105SolJo888onappeal(1962)106SolJo669,CA590
KuddusvChiefConstableofLeicestershireConstabulary[2001]UKHL29,[2002]2AC122807
LadyHoodofAvalonvMackinnon[1909]1Ch476331
LadyNaasvWestminsterBankLtd1940]AC366470
LadyNavigationInc.vLauritzencoolAB[2005]EWCACiv579[2005]2LloydsRep.63932
Laing(JW)Trust,Re,StewardsCo.LtdvAG[1984]Ch143,[1984]1AllER50,[1983]3WLR886,127Sol
Jo839,[1984]LSGazR358272
Lake,Re[1903]1KB439782
LakevBayliss[1974]2AllER1114,[1974]1WLR1073,28P&CR209,118SolJo532346
LambevEames(1871)6ChApp597,40LJCh447,19WR659,25LT17468
LandsAllotmentCo.,Re[1894]1Ch616,63LJCh291,1Mans107,7R115,42WR404,[18914]AllER
Rep1032,38SolJo235,70LT286,10TLR234,CA901
Lashmar,Re1891]1Ch258494
LaskarvLaskar[2008]EWCACiv347360,442
Last,Re[1958]P137,[1958]1AllER316,[1958]2WLR186,102SolJo8985
LatimervCommissionerofInlandRevenue[2004]UKPC13,[2004]1WLR1466253,415
LavellevLavelle[2004]EWCACiv223[2004]2FCR418369
LawSocietyvHaider[2003]EWHC2486847
LawMemorialTrustvIRC(1933)17TC508,12ATC164,77SolJo101,49TLR220523
LeCrenClarke,Re,FunnellvStewart[1996]1AllER715,subnom.FunnellvStewart[1996]1WLR288223
LeafvInternationalGalleries[1950]2KB86961
LeahyvAGforNewSouthWales[1959]AC457,[1959],2AllER300,[1959]2WLR722,103SolJo391,
33ALJR105,PC293,295
LearoydvWhiteley.SeeWhitely,Re,WhiteleyvLearoyd
LeatherClothCo.LtdvAmericanLeatherClothCo.Ltd(1863)4DeGJ&S13718
Leeds(Duke)vEarlofAmherst(1846)2Ph.117774,926
Leek,Re,DarwenvLeek[1967]Ch1061,[1967]2AllER1160,[1967]3WLR576,47ATC28,111SolJo
500onappeal[1969]1Ch563,[1968]1AllER793,[1968]2WLR1385,47ATC28,[1967]TR375,112Sol
Jo444,CA91,110
LehmanBrothersInternational(Europe)(inadministration),Re[2009]EWCACiv116111,39,60
LeighandSillivanLtdvAliakmonShippingCo.Ltd[1986]AC78512,57,473
LeptonsCharity,Re,AmblervThomas[1972]Ch276,[1971]2WLR659,114SolJo970,subnom.Re
LeptonsWillTrusts,LeLeptonsCharity,AmblervThomas[1971]1AllER799271,273
LestervWoodgate[2010]EWCACiv199[2010]2P&CRDG14774,9267
LetterstedtvBroers(1884)9AppCas371,53LJPC44,[188185]AllERRep882,51LT1695345
(p.xxvii) LindsayPetroleumCo.vHurd(1874)LR5PC221,22WR492773
LipinskisWillTrusts,Re,GosschalkvLevy[1976]Ch235,[1977]1AllER33,[1976]3WLR522,120SolJo
473116,284,297,300
LipkinGormanvKarpnaleLtd[1992]4AllER409,[1989]1WLR1340,[1989]FLR137,[1989]BCLC756n,
134SolJo234,[1990]4LSGazR40,[1989]NLJR76,CAvariedsubnom.LipkinGorman(afirm)v
KarpnaleLtd[1991]2AC548,[1992]4AllER512,[1991]3WLR10,[1991]NLJR815,135SolJoLB36,
HL14,818,867,870,914,915,917
Lister&Co.vStubbs(1890)45ChD1,59LJCh570,38WR548,[188690]AllERRep797,63LT75,6
TLR317,CA688,690,695
LiverpoolandDistrictHospitalforDiseasesoftheHeartvAG[1981]Ch193,[1981]1AllER994,[1981]2
WLR379,125SolJo79,131NLJ142259
LivinginRadiancesApplicationforRegistrationasaCharity[2007]WTLR683210
LloydsBankplcvDuker[1987]3AllER193,[1987]1WLR1324,131SolJo1358,[1987]LSGazR
3254503
LloydsBankplcvRosset[1991]1AC107,[1990]1AllER1111,[1990]2WLR867,60P&CR311,[1990]2
FLR155,[1990]FamLaw395,22HLR349,[1990]16LSGazR41,[1990]NLJR478,HL4234,428
LloydsBowmakerLtdvBritanniaArrowHoldingsplc[1988]1WLR1337945
LloydsTrust,Re(1854)2WR371627
LloydsvHarper(1880)16ChD290,50LJCh140,29WR452,43LT481,CA167
LockersSettlementTrusts,Re,MeachemvSachs[1978]1AllER216,[1977]1WLR1323,121SolJo
79661415,619,777
LockhartvReilly(1856)25LJCh697,4WR438,27LTOS49757
Loftus(decd),Re[2005]2AllER700[2006]Conv245[2006]EWCA1124,[2007]1WLR591761,772,773
LohiavLohia[2001]WTLR101358,359
LondonAlliedHoldingsLtdvLee[2007]EWHC2061348,350
LondonandBlackwallRyvCross(1886)31ChD354928
LondonRegionalTransportvMayorofLondon[2001]EWCACiv1491[2003]EMLR4934
LondonWineCo.(Shippers)Ltd,Re[1986]PCC12176,77,83
LondonderrysSettlement,Re,PeatvWalsh[1964]Ch594,[1964]2AllER572,[1964]3WLR246,108Sol
Jo379revsd[1965]Ch918,[1964]3AllER855,[1965]2WLR229,108SolJo896,CA474,549,551
LonrhoplcvFayed(No.2)[1991]4AllER961,[1992]1WLR1329,351
LordDudleyvLadyDudley(1705)PrecCh2414
Lucas,Re,RhysvAG[1922]2Ch52,91LJ480,[1922]AllER317,66SolJo368,127LT272204
LukevSouthKensingtonHotelCo.(1879)11ChD121548
LumleyvWagner(1852)1DeGM&G604931,932
LuptonvWhite(1808)15Ves432,[180313]AllRep336835
LyellvKennedy(1889)14AppCas43733
LysaghtvEdwards(1876)2ChD499,45LJCh554,3CharPrCas243,24WR778,34LT787345,346
Lysaght,Re,HillvRoyalCollegeofSurgeons[1966]Ch191,[1965]2AllER888,[1965]3WLR391,109Sol
Jo577267,513,528
LyusvProwsaDevelopments[1982]2AllER953,[1982]1WLR1044,44P&CR213,126SolJo102335
Macadam,Re,DallowandMoscropvCodd[1946]Ch73,[1945]2AllER664,115LJCh14,89SolJo531,
173LT395,62TLR48662
MacDonaldvScott[1893]AC642163
Macduff,Re,MacduffvMacduff[1896]2Ch451,65LJCh700,45WR154,[18959]AllERRep154,40Sol
Jo651,74LT706,12TLR452,CA252
MacmillanInc.vBishopsgateInvestmentTrustplc(No.3)[1995]3AllER747,[1995]1WLR978onappeal
[1996]1AllER585,[1996]1WLR387,[1995]43LSGazR25,[1995]TLR573,139SolJoLB225,
CA22,23,864,865
Maddock,Re,LlewelynvWashington[1902]2Ch220,71LJCh567,50WR598,86LT644,CA130
MaerskAirLtdvExpeditorsInternational(UK)Ltd[2003]1LloydsRep491686,913
MagnusvQueenslandNationalBank(1888)37ChD466797
ManifestShippingCo.LtdvUniPolarisInsuranceCo.Ltd[2003]1AC469896
ManistysSettlement,Re,ManistyvManisty[1974]Ch17,[1973]2AllER1203,[1973]3WLR341,117Sol
Jo66598,107,484,559,612,620
ManoogianvSonsino[2002]EWHC1304,[2002]WTLR989207
ManufacturersTrustCo.vBecker338US304,70SupCt127(1949)679
MaqsoodvMahmood[2012]EWCACiv251327,329
MaravBrowne[1896]1Ch199,65LJCh225,44WR330,40SolJo131,73LT638,12TLR111,
CA518,519
MarevaCompaniaNavieraSAvInternationalBulkcarriersSA[1975]2LloydsRep509.943
MarksandSpencerplcvFreshfieldsBruckhausDeringer(afirm)[2004]EWHC1337,[2004]1WLR2331684
MascallvMascall(1984)50P&CR119,128SolJo663,[1984]LSGazR2218,CA154
MasonvFarbrother[1983]2AllER1078590,705
MasrivConsolidatedContractorsInternational(UK)Ltd(No.2)[2008]EWCACiv303[2009]2WLR621947
(p.xxviii) MassingberdsSettlement,Re,ClarkvTrelawney(1890)63LT296,CA781
MaysWillTrusts,Re,MayandStanfordvBurch[1941]Ch109,110LJCh96,84SolJo561,57TLR22528
McArdle,Re,decd[1951]Ch669152,155
MCBaconLtd[1990]BCLC32473
MCCProceedsInc.vLehmanBrosInternational(Europe)[1998]4AllER675,[1998]2BCLC659,
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MCPPensionTrusteesLtdvAonPensionTrusteesLtd[2010]EWCACiv377,[2012]Ch16223,625
McCormickvGrogan(1867)IR1Eq313,CAonappeal(1869)4AppCas82,LR4HL82,17WR961337
McDonaldvHorn[1995]1AllER961,[1995]685,[1994]NLJR1515,CA542
McGovernvAG[1982]Ch321,[1981]3AllER493,[1982]2WLR222,[1981]TR157,125SolJo
255198,241
McGrathvWallis[1995]3FCR661,[1995]2FLR114,[1995]FamLaw551,[1995]15LSGazR41,
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McKennittvAsh[2006]EWCACiv1714[2008]QB73934,935
McKenzievNuller2007SLT(ShCt)17443
McPhailvDoulton.SeeBadensDeedTrusts,Re
MemoryCorporationvSidhu[2000]1WLR1443945
MetallundRohstoffAGvDonaldsonLufkin&JenretteInc.[1990]1QB391,[1989]3AllER14,[1989]3WLR
563,CA324,348
MettoyPensionTrusteesLtdvEvans[1991]2AllER513,[1990]1WLR
158735,107,109,484,522,553,560,615,616,619
MidlandBankplcvWyatt[1995]3FCR11,[1995]1FLR697,[1995]FamLaw299,[1997]1BCLC242,
[1996]BPIR28870,72
MidtownLtdvCityofLondonRealPropertyCo.Ltd[2005]EWHC33(Ch)[2005]1EGLR65967
MillersDeedTrusts,Re[1978]LSGazR454572
Mills,Re,MillsvLawrence[1930]1Ch654,99LJCh396,[1930]AllERRep355,73SolJo437,143LT409,
46TLR328,CA553
MilroyvLord(1862)4DeGF&J264,31LJCh798,8JurNS806,135RR135,[186173]AllERRep783,7
LT17820,145,1501,152,155,399
MinistryofHealthvSimpson.SeeDiplock,Re,WintlevDiplock
MoggridgevThackwell(1802)7VesJun36178
MontagusSettlementTrusts,Re,DukeofManchestervNationalWestminsterBankLtd[1987]Ch264,
[1992]4AllER308,[1987]2WLR1192,131SolJo411,[1987]LSGazR1057907
MoodyvCox&Hatt[1917]2Ch71658,661
MoorevUllcoatsMiningCo.Ltd[1908]1Ch575927
MoricevBishopofDurham(1804)7RR232,9Ves399,[180313]AllERRep451onappeal(1805)10Ves
52211011,279,280,377
Moss,Re,HobroughvHarvey[1949]1AllER495,93SolJo164,65TLR299246
MossvCooper(1861)1John&H352,128RR410,4LT790140
MothercareLtdvRobsonBrooksLtd[1979]FSR466938
MultiGuaranteeCo.Ltd,Re[1987]BCLC257,CA68
MumanvNagasena[1999]4AllER178,[2000]1WLR299,CA184,186
MuntvBeasley[2006]EWCACiv370960
MuradvAlSaraj[2005]EWCACiv969,[2005]WTLR15736823,685,686,699,700,749
MurphysSettlements,Re,MurphyvMurphy[1998]3AllER1,[1999]1WLR282(1999)115LQR
206478,482,485,620
MuschinskivDodds(1985)160CLR583,62ALR429,60ALJR52,HCofA8,348,443
MussettvBingle[1876]WN170286
MussoorieBankLtdvRaynor(1882)7AppCas321,51LJPC72,31WR17,46LT63266,67
NationalAntiVivisectionSocietyvIRC.SeeIRCvNationalAntiVivisectionSociety
NationalCommercialBankJamaicaLtdvOlintCorpnLtd[2009]UKPC16[2009]1WLR1405930
NationalTrusteesCoofAustralasiavGeneralFinanceCoofAustralasia[1905]AC373,74LJPC73,54WR
1,92LT736,21TLR522743
NationalWestminsterBankplcvJones[2001]1BCLC9870,72
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NelsonvRye[1996]2AllER186,[1996]1WLR1378,[1996]FSR313,[1996]EMLR37773,774
NestlvNationalWestminsterBankplc(1996)10TLI113,CA570,573,575,581,591,5924,784,785
NettlefoldsTrusts,Re(1888)59LT315627
NevillevWilson[1997]Ch144,[1996]3AllER171,[1996]3WLR460,[1996]2BCLC310,
CA305,498,499500,501
NevilleEstatesLtdvMadden[1962]Ch832,[1961]3AllER769,[1961]3WLR999,105SolJo
806229,294,295,298300
New,Re,ReLeavers,ReMorley[1901]2Ch534,[190003]AllERRep763,subnom.ReNewsSettlement,
LanghamvLangham,ReLeavers,LeaversvHall,ReMorley,FraservLeavers70LJCh710,50WR17,45
SolJo706,85LT174,CA704
NightingalevGoulbourn(1847)5Hare484onappeal(1848)2Ph594,17LJCh296,12Jur317,[184360]
AllERRep420,11LTOS169252
NipponYusenKaishavKarageorgis[1975]1WLR1093941
(p.xxix) NiruBatteryManufacturingCo.vMilestoneTradingLtd[2002]EWHC1425,[2002]2AllER705,
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NisshinShippingCo.LtdvCleaves&Co.Ltd[2003]EWHC2602(Comm)[2004]1AllER(Comm)481162
NiyazisWillTrusts,Re[1978]3AllER785,[1978]1WLR910,122SolJo129197,202
NoctonvLordAshburton[1914]AC932,83LJCh784,[191415]AllERRep45,111LT641,HL697
NorbergvWynrib[1992]2SCR226644
Norfolks(Duke)SettlementTrusts,Re,EarlofPerthvFitzalanHoward[1979]Ch37,[1978]3AllER907,
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NormanvFederalComrofTaxation(1963)109CLR9,[1964]ALR131,HCofA166
NorthDevonandWestSomersetReliefFundTrusts,Re,BaronHyltonvWright[1953]2AllER1032,[1953]1
WLR1260,97SolJo728268
NottinghamBuildingSocietyvEurodynamicsSystemsplc[1993]FSR468940
NWLLtdvWoods[1979]1WLR1294940
Oatway,Re,HertsletvOatway[1903]2Ch356,72LJCh575,88LT622836,837,842,844
OBGLtdvAllan[2007]UKHL21,[2008]AC1,HL10,72
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OcularSciencesLtdvAspectVisionCareLtd[1997]RPC289692
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OldhamBoroughCouncilvAG[1993]Ch210,[1993]2AllER432,[1993]2WLR224,91LGR71,[1992]39
LSGazR30,136SolJoLB252,CA273
Oliphant,Re(1917)86LJCh452556
OllinsvWalters[2008]EWCACiv782,[2009]Ch212338,3412
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HL196,21113,215,284
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OrakpovMansonInvestmentsLtd[1978]AC95,[1977]3AllER1,[1977]3WLR229,35P&CR1,121Sol
Jo632,HL862
ORourkevDarbishire[1920]AC581,89LJCh162,[1920]AllERRep1,64SolJo322,123LT68,36TLR
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SolJo548,CA385,699
OttawayvNorman[1972]Ch698,[1971]3AllER1325,[1972]2WLR50,116SolJo38,220Estates
Gazette143449,856,131,137,1389,141,143,337,339
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OxleyvHiscock[2004]EWCACiv546,[2005]Fam211325,424,445
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PallantvMorgan[1953]Ch43,[1952]2AllER951,[1952]2TLR813448,449
PalmervSimmonds(1854)2Drew221,100RR98,2WR31375
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PapamichaelvNationalWestminsterBankplc[2003]1LloydsRep34913
ParadiseMotorCo.Ltd,Re[1968]2AllER625,[1968]1WLR1125,112SolJo271,CA470,502
ParagonFinanceplcvThakerar&Co.[1999]1AllER400,142SolJoLB243,
CA42,322,325,763,764,766,770,773
ParamountAirwaysLtd(inadministration),Re[1993]Ch223,[1992]3AllER1,[1992]3WLR690,[1992]
BCLC710,[1992]BCC416,136SolJoLB97,CA316
Parinv(Hatfield)LtdvIRC[1998]STC305,CA496
ParkinvThorold(1852)16Beav5922
Partington,Re,PartingtonvAllen(1887)57LT654,3TLR828756
PatelvW.H.Smith(Eziot)Ltd[1987]1WLR853939
PaulvConstance[1977]1AllER195,[1977]1WLR527,7FamLaw18,121SolJo320,CA68,120,146
PaulvPaul[1882]20ChD742,51LJCh839,30WR801,47LT210,CA149,163
PaulingsSettlementTrusts(No.2),Re,YounghusbandvCoutts&Co.[1963]Ch576,[1963]1AllER857,
[1963]2WLR838,42ATC97,[1963]TR157,107SolJo395594,635,640,746,747,748751,774
PCW(UnderwritingAgencies)LtdvDixon[1983]2AllER158,697n946
PearsevGreen(1819)1Jac&W135,20RR25,[181423]AllERRep405607
PearsonvLehmanBrothersFinanceSA[2010]EWHC2914(Ch),upheldonappeal:[2011]EWCACiv1544
[2012]2BCLC15129,435,55,60,61,66,80,83,84,464
PecoArtsInc.vHazlittGalleryLtd[1983]3AllER193,[1983]1WLR1315,127SolJo806770
PeconicIndustrialDevelopmentLtdvLauKwokFai[2009]HKCFA17765
PeelsRelease,Re[1921]2Ch218,90LJCh369,[1921]AllERRep103,65SolJo580,127LT123266
PellFrischmannEngineeringLtdvBowValleyIranLtd[2009]UKPC45970,971
PenningtonvWaine[2002]EWCACiv227,[2002]1WLR2075151,152,1569,160,161,342
(p.xxx) PercivalvWright[1902]2Ch421,71LJCh846,9Mans443,51WR31,46SolJo616,18TLR
697643
PermanentBuildingSocietyvWheeler(1994)14ACSR109784
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PerrinsvBellamy[1898]2Ch521,67LJCh649,46WR682,79LT109onappeal[1899]1Ch797,68LJ
Ch397,47WR417,43SolJo437,80LT478,CA745
PeskinvAnderson[2001]1BCLC372,379643
PesoSilverMinesLtdvCropper[1966]SCR673,58DLR(2d)1,56WWR641,CanSC680
PettittvPettitt[1970]AC777,[1969]2AllER385,[1969]2WLR966,20P&CR991,113SolJo344,211
EstatesGazette829,HL362,365,367,423
PettkusvBecker[1980]2SCR834,117DLR(3d)257,34NR384,19RFL(2d)165,8ETR143,CanSC348
PeymanvLanjani[1985]Ch.457656
PhillipsvPhillips(1862)4DeGF&J208330
PhillipsvPhillips(1885)29ChD673,54LJCh943,33WR863,53LT403,CA666
PhippsvBoardman[1964]2AllER187,[1964]1WLR993,108SolJo619onappeal[1965]Ch992,[1965]
1AllER849,[1965]2WLR839,109SolJo197,CAaffdsubnom.BoardmanvPhipps[1967]2AC46,
[1966]3AllER721,[1966]3WLR1009,110SolJo853,HL687,871
PhippsvBoardmansubnom.BoardmanvPhipps[1967]2AC46,[1966]3AllER721,[1966]3WLR1009,
110SolJo15,645,646,647,648,654,666,671,672,674,676,677,678,679,682
PhotoProductionLtdvSecuricorTransportLtd[1980]1AllER556777
PilchervRawlins(1872)LR7Ch.App.25923
PilkingtonvIRC[1964]AC612,[1962]3AllER622,[1962]3WLR1051,40TC416,41ATC285,[1962]TR
265,106SolJo834,HL559,6359
Pinion,Re,WestminsterBankLtdvPinion,[1965]Ch85,[1964]1AllER890,[1964]2WLR919,108SolJo
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PittvHoltFuttervFutter[2011]EWCACiv197,[2012]Ch13214,38,109,330,3312,554
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PlimmervWellingtonCorporation(1884)9AppCas669456
PlumptresMarriageSettlement,Re,UnderhillvPlumptre[1910]1Ch609,79LJCh340,54SolJo326,102
LT315,26TLR321163
PlusGroupLtdvPyke[2002]EWCACiv370(2003)CLJ42650
PollyPeckInternationalplc(inadministration)(No.2),Re[1998]3AllER812,CA324,348,882,907
PowellvThompson[1991]1NZLR597348
PricevWilliamsWynn[2006]WTLR1633556
ProtheroevProtheroe[1968]1AllER1111,[1968]1WLR519,19P&CR396,112SolJo151,205Estates
Gazette889,CA666
PrudentialAssuranceCo.LtdvNewmanIndustriesLtd(No.2)[1981]Ch257,[1980]2AllER841,[1980]3
WLR543,124SolJo756revsd[1982]Ch204,[1982]1AllER354,[1982]2WLR31,126SolJo32,CA671
PublicTrusteesvCooper[2001]WTLR901553
PughsWillTrusts,Re[1967]1WLR1262131,134,144
PulcifervPage(1851)32Me404820
PullanvKoe[1913]1Ch9,82LJ37,[191113]AllERRep334,57SolJo97,107LT811163,166
Pulvers(afirm)vChan[2007]EWHC2406(Ch)971
QuakerOatsCo.vAlltradesDistributorsLtd[1981]FSR9938
QuarterMasterUKLtdvPyke[2005]1BCLC245676
QueenslandMinesLtdvHudson(1978)18ALR1,52ALJR399,PC677,678,681,682
QuistcloseInvestmentsLtdvRollsRazorLtd.SeeBarclaysBankplcvQuistcloseInvestmentsLtd
RvBroadbridge(1983)5CrAppR(S)269899
RvDistrictAuditorNo.3AuditDistrictofWestYorkshireMetropolitanCountyCouncil,expWestYorkshire
MetropolitanCountyCouncil[1986]RVR2486,1023,104,105,109
RvGnango[2011]UKSC59[2012]2WLR17880
RvRadioAuthority,expBull[1998]QB294,[1997]2AllER561,[1997]3WLR1094,[1997]NLJR489,
[1997]EMLR201,CA200
Rae(InspectorofTaxes)vLazardInvestmentCo.Ltd[1963]1WLR555595
RahmanvChaseBank(C.I.)TrustCo.Ltd[1991]JLR10372
RallisWillTrusts,Re,RallisMarriageSettlement[1964]Ch288,[1963]3AllER940,[1964]2WLR144,108
SolJo74149,152
RamzanvBrookwideLtd[2011]EWCACiv985698
RankFilmDistributorsLtdvVideoInformationCentre[1982]AC380956
RaynervPreston(1881)18ChD1,45JP829,50LJCh472,29WR547,44LT787,CA18,346
ReadingvAG[1951]AC507,[1951]1AllER617,95SolJo155,[1951]1TLR480,HL668,689
RechersWillTrusts,Re,NationalWestminsterBankLtdvNationalAntiVivisectionSocietyLtd[1972]Ch
526,[1971]3AllER401,[1971]3WLR321,115SolJo448301
RedlandBricksLtdvMorris[1970]AC652928,929
Rees,Re,WilliamsvHopkins[1949]Ch541,[1949]1AllER609,[1949]LJR898,93SolJo182affd[1950]
Ch204,[1949]2AllER1003,66(pt1)TLR23,CA135,136
RefcoInc.vEasternTradingCo.[1999]1LloydsRep159946
(p.xxxi) Regal(Hastings)LtdvGulliver(1942)[1967]2AC134n,[1942]1AllER378,
HL643,646,669,670,675,676,681,682
RemnantsSettlementTrusts,Re,HoopervWenhaston[1970]Ch560,[1970]2AllER554,[1970]2WLR
1103,114SolJo398715,716
ReschsWillTrusts,Re[1969]1AC514197,2312
RevenueandCustomsCommissionersvTrusteesofthePeterClayDiscretionaryTrust[2008]EWCACiv
1441,[2009]Ch296596
RichardvTheHonABMackay[2008]WTLR16675235
RichardsvDelbridge(1874)LR18Eq11,43LJCh459,22WR584145
RichardsonvBlackmore[2005]EWCACiv1356[2006]BCC276926
Ridsdel,Re,RidsdelvRawlinson[1947]Ch597,[1947]2AllER312,[1947]LJR1486,91SolJo48351516
RobertsvGillandCo.[2010]UKSC22,[2010]2WLR1227473
RobinsonvPett(1724)3PWms249537
RochefoucauldvBoustead[1897]1Ch196,66LJCh74,subnom.DeLaRochfoucauldvBoustead45WR
272,41SolJo156,75LT502,13TLR118,CA1223,125,131,337
Roscoe(James)(Bolton)LtdvWinder[1915]1Ch62,84LJCh286,[1915]HBR61,112LT121,[191415]
AllERRepExt1375843,844,845
Rose,Re,RosevIRC[1952]Ch499,[1952]1AllER1217,31ATC138,[1952]TR175,[1952]1TLR1577,
CA1524,155,156,170
Rowntree(Joseph)MemorialTrustHousingAssociationLtdvAG[1983]Ch159,[1983]1AllER288,[1983]
2WLR284,127SolJo137243
RoxboroughvRothmansofPallMallAustraliaLtd(2002)185ALR3358
RoyalBankofScotlandplcvEtridge(No.2)[2002]2AC773,HL10
RoyalBruneiAirlinesSdnBhdvTan[1995]2AC378,[1995]3AllER97,[1995]3WLR64,[1995]BCC899,
27LSGazR33,[1995]NLJR888,PC733,882,886,890,892,896,898,902,911
RSPCAvAG[2002]1WLR448185,552,553
RussellvScott(1936)53WN178,55CLR440,42ALR375,36SRNSW454,10ALJ211357
RussellvWakefieldWaterworksCo.(1875)LR20Eq474877
RussellCookeTrustCo.vPrentis[2003]2AllER478842
Rymer,Re,RymervStanfield[1895]1Ch19,64LJCh86,12R22,43WR87,[18914]AllERRep328,39
SolJo26,71LT590,CA257,2589
S(AChild)(Identification:RestrictiononPublication)[2004]UKHL47[2005]1AC593934
STrust,Re[2011]JRC117332
SainsburyvIRC[1970]Ch712477
SalomonvSalomon&Co.Ltd[1897]AC22,66LJCh35,4Mans89,45WR193,[18959]AllERRep33,
41SolJo63,75LT426,13TLR46,HL293
SalusburyvDenton(1857)21JP726,3K&J529,26LJCh851,3JurNS740,5WR865,30LTOS63255
SandemansWillTrusts,Re,SandemanvHayne[1937]1AllER368,81SolJo137503
SandersWillTrusts,Re,PublicTrusteevMcLaren[1954]Ch265,[1954]1AllER667,[1954]2WLR487,98
SolJo196onappeal(1954)Times,22July,CA202
SargeantvNationalWestminsterBankplc(1990)61P&CR518,CA655
SatchwelvMcIntosh2006SLT(ShCt)117443
SatnamInvestmentsLtdvDunlopHeywood&Co.Ltd[1999]3AllER652,[1999]1BCLC385,[1999]02LS
GazR30,[1998]EGCS190,CA876
SatterthwaitesWillTrusts,Re,MidlandBankExecutorandTrusteeCo.LtdvRoyalVeterinaryCollege[1966]
1AllER919,[1966]1WLR277,110SolJo92,CA264,265
SaundersvVautier(1841)4Beav115affd(1841)Cr&Ph240,10LJCh354,54RR286,[183542]AllER
Rep58409,503,504,505,507,526,532,533,539,704,706,708
Schebsman,Re,expOfficialReceiver,TrusteevCargoSuperintendents(London)LtdandSchebsman[1944]
Ch83,[1943]2AllER768,113LJCh33,88SolJo17,170LT9,60TLR128,CA67,168
SchmidtvRosewoodTrustLtd[2003]UKPC26,[2003]2AC70952,4746,477,478,484,505,507
ScottvNationalTrustforPlacesofHistoricInterestorNaturalBeauty[1998]2AllER705,subnom.exp
Scott[1998]1WLR226,subnom.RvNationalTrustforPlacesofHistoricInterestorNationalBeauty,exp
Scott[1998]JPL465184
ScottishBurialReformandCremationSocietyLtdvGlasgowCorpn[1968]AC138,[1967]3AllER215,
[1967]3WLR1132,[1967]RA272,132JP30,111SolJo654,1967SC(HL)116,1967SLT265188,197
SecuritiesandExchangeCommissionvCheneryCorpn318US80(1943)648
Segelman,Re[1996]Ch171,[1995]3AllER676,[1996]2WLR173204
SekhonvAlissa[1989]2FLR94362
SelangorUnitedRubberEstatesLtdvCradock(abankrupt)(No.3)[1968]2AllER1073,[1968]1WLR1555,
[1968]2LloydsRep289,112SolJo744882
SelbitvColdwynLtd(1923)58LJNews,305941
Selous,Re[1901]1Ch92155
SempraMetalsLtdvIRC[2007]UKHL34,[2007]3WLR3549,393,805
SenvHeadley[1991]Ch425,[1991]2AllER636,[1991]2WLR1308,62P&CR277,[1996]1FCR449,
[1991]FamLaw373,135SolJo384,[1991]NLJR384,CA168
Series5SoftwarevClarke[1996]1AllER853938
SeriousFraudOfficevLexiHoldingsplc[2009]EWCACrim1443,[2009]QB376844,850
(p.xxxii) ShaftosTrusts,Re(1885)29ChD247,54LJChD247,54LJCh885,33WR728,53LT261521
ShalsonvRusso[2003]EWHC1637(Ch),[2005]2WLR1215[2005]Ch
28170,328,330,816,820,829,842,844
SharpvJackson[1899]AC44139
Sharpe(abankrupt),Re,TrusteeoftheBankruptvSharpe[1980]1AllER198,[1980]1WLR219,39P&CR
459,124SolJo147348,367
SharpsSettlementTrusts,Re,IbbotsonvBliss[1973]Ch331,[1972]3AllER151,[1972]3WLR765,116
SolJo666507
Shaw,Re,PublicTrusteevDay[1957]1AllER745,[1957]1WLR729,101SolJo408onappeal[1958]1
AllER245n,CA194,288
ShawvFoster(1872)LR5HL321,42LJCh49,20WR907,27LT281345
ShawsWillTrusts,Re,NationalProvincialBankLtdvNationalCityBankLtd[1952]Ch163,[1952]1AllER
49,95SolJo803,[1951]2TLR1249281
ShelfervCityofLondonElectricLightingCo.[1895]1Ch2879624,967,968
ShellUKLtdvTotalUKLtd[2010]EWCACiv180,[2011]QB86578,473
ShephardvCartwright[1955]AC431,[1954]3AllER649,[1954]3WLR967,98SolJo868,HL3679
ShephardsInvestmentsLtdvAndrewWalters[2006]EWHC836646
SickandFuneralSocietyofStJohnsSundaySchool,Golcar,Re[1973]Ch51,[1972]2AllER439,[1972]2
WLR962,116SolJo355315
SieffvFox[2005]EWHC1312,[2005]1WLR3811560
SigmaFinanceCorporation(inadministrativereceivership),Re[2009]UKSC266
SinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd[2011]EWCACiv347,[2012]Ch
45319,39,347,348,350,452,501,667,668,687,6925,696,697,835,875,912,918
SinclairInvestmentHoldingsSAvVersaillesTradeFinanceLtd[2005]EWCACiv722,[2006]1BCLC60327
SinclairvBrougham[1914]AC398,83LJCh465,[191415]AllERRep622,58SolJo302,111LT1,30
TLR315,HL832,838
SiteDevelopments(Ferndown)LtdvBarrattHomesLtd[2007]EWHC415(Ch)967
SlatervSimm[2007]EWHC951(Ch),[2007]WTLR1043501
SlattersWillTrusts,TurnervTurner[1964]Ch512,[1964]2AllAllER469,[1964]3WLR18,108SolJo
378257
SledmorevDalby(1996)72P&CR196458
Slevin,Re,SlevinvHepburn[1891]2Ch236,60LJCh439,39WR578,[18914]AllER200,64LT311,7
TLR394,CA266
SmartsGoods,Re[1902]P238,71LJP123,46SolJo587,87LT142,18TLR663126
SmirthwaitesTrust,Re(1871)LR11Eq251521
SmithNewCourtSecuritiesLtdvScrimgeourVickers(AssetManagement)Ltd[1997]AC254796
Smith,Re,PublicTrusteevAspinall[1928]Ch915,97LJ441,140LT369505
SmithvLucas(1881)18ChD531,30WR451,45LT460167
SmithsTrusts,Re[1872]WN134,20WR695,26LT820523
SnookvLondonandWestRidingInvestmentsLtd[1967]2QB78669,72
Snowden,Re,SmithvSpowage[1979]Ch528,[1979]2AllER172,[1979]2WLR654,123SolJo
323129,137,141,1423,144
SoarvAshwell[1893]2QB390,4R602,42WR165,[18914]AllERRep991,69Lt585,CA518,519,765
SocietyofLloydsvRobinson[1999]1WLR756,[1999]22LSGazR34,143SolJoLB150,[1999]1AllER
(Comm)545,HL703
Somerset,Re,SomersetvEarlPoulett[1894]1Ch231,63LJCh41,7R34,42WR145,38SolJo39,69LT
744,10TLR46,CA751
SouthPlaceEthicalSociety,Re.SeeBarraletvAG
SouthwoodvAG[2000]NLJR1017,80P&CRD34,CA221
SpaceInvestmentsLtdvCanadianImperialBankofCommerceTrustCo.(Bahamas)Ltd[1986]3AllER75,
[1986]1WLR1072,[1986]BCLC485,2BCC99,302,130SolJo612,[1986]LSGazR2567,PC848,849
SpeightvGaunt(1883)9AppCas1,48JP84,53LJCh419,32WR435,50LT330,HL568,580
Spence,Re,OgdenvShackleton[1979]Ch483,[1978]3WLR483,122SolJo574,subnom.ReSpences
WillTrusts,OgdenvShackleton[1978]3AllER92262,263,265
SpencevUnionMarineInsuranceCo.(1868)LR3CP427818
SprangevBarnard(1789)2BroCC58585
SpreadTrusteeCo.LtdvHutcheson[2011]UKPC13[2012]2WLR1360729,734,735,736,740,741
StackvDowden[2007]UKHL17,[2007]2AC432325,357,360,364,392,421,422,42432,433
5,436,43941,4437,452
StackhousevBarnston(1805)10Ves453749
StampDutiesComr(Queensland)vLivingston[1965]AC694,[1964]3AllER692,[1964]3WLR963,43ATC
325,[1964]TR351,108SolJo820,PC49,50,472
StandardCommercialPropertySecuritiesLtdvGlasgowCC[2006]UKHL50968
StandingvBowring(1885)31ChD282470
StapyltonFletcherLtd,Re[1995]1AllER192,[1994]1WLR1181,[1994]2BCLC68177
StargladePropertiesLtdvNash[2010]EWCACiv1314894,895
(p.xxxiii) Stead,Re,WithamvAndrew[1900]1Ch237,69LJCh49,48WR221,44SolJo146,81LT
751140
SteedsWillTrusts,Re,SandfordvStevenson[1960]Ch407,[1960][1960]1AllER487,[1960]2WLR474,
104SolJo207,CA719
Steel,Re[1979]Ch21821
SteelvWellcomeCustodianTrusteesLtd[1988]1WLR167,131SolJo1589,[1987]LSGazR3335590
SteelesWillTrusts,Re,NationalProvincialBankLtdvSteele[1948]Ch603,[1948]2AllER193,[1948]LJR
1888,92SolJo39268
Stephenson(InspectorofTaxes)vBarclaysBankTrustCo.Ltd[1975]1AllER625,[1975]1WLR882,
[1975]50TC374,53ATC357,[1974]TR343,119SolJo169504
StokesvCheek(1860)28Beav620,29LJCh922504,505
StottvMilne(1884)25ChD710,50LT742,CA538
Strafford(Earl),Re,RoyalBankofScotlandLtdvByng[1980]Ch28,[1979]1AllER513,[1979]2WLR459,
123SolJo50,CA607
Strahan,Re,expGeaves(1856)8DeGM&G291,25LJBcy53,2JurNS65,4WR536,27LTOS129758
Strakosch,Re,TemperleyvAG[1949]Ch529,[1949]2AllER6,[1949]LJR1477,93SolJo372,65TLR
383,CA240
StrathedenandCampbell(Lord),Re,AltvLordStrathedenandCampbell[1894]3Ch265,63LJCh872,8R
515,42WR647,38SolJo602,71LT225,10TLR574177
StrongvBird(1874)LR18Eq315,43LJCh814,22R788,[187480]AllERRep230,30LT745169
Stuart,Re,SmithvStuart[1897]2Ch583,66LJCh780,46WR41,77LT128743,744
StubbsvSargon[1837]2Keen255,6LJCh254onappeal(1838)3My&CR507,7LJCh95,2Jur150,44
RR241127
SuensonTaylorsSettlement,Re,MooresvMoores[1974]3AllER397,[1974]1WLR1280,118SolJo
757599
SuffertsSettlement,Re,SuffertvMartynLinnington[1961]Ch1,[1960]3AllER561,[1960]3WLR796,104
SolJo892710
SurreyCountyCouncilvBrederoHomesLtd[1993]1WLR1361969
Sutton,Re,StonevAG(1885)28ChD464,54LJCh613,33WR519252
SwainlandBuildersLimitedvFreeholdPropertiesLimited[2002]EWCACiv560[2002]EGLR71959
SwiftvDairywiseFarmsLtd[2000]1AllER320,[2000]1WLR1177,[2000]1BCLC632,[1999]EGCS137
revsdinpartsubnom.SwiftvDairywiseFarmsLtd[2001]EWCACiv145[2001]1BCLC67274
SwiftFortuneLtdvMagnificaMarineSA(TheCapazDuckling)[2007]EWHC1630(Comm)[2008]1Lloyds
Rep54945
SwindlevHarrison[1997]4AllER705,[1997]PNLR641,CA569,686,697,698
SwissBankCorpnvLloydsBankLtd[1982]AC584,[1981]2AllER449,[1981]2WLR893,125SolJo495,
HL68
TsSettlementTrusts,Re[1964]Ch158,[1963]3WLR987,107SolJo981,subnom.ReTowlers
SettlementTrusts[1963]3AllER759708,713
Tacon,Re,PublicTrusteevTacon[1958]Ch447,[1958]1AllER163,[1958]2WLR66,102SolJo53,
CA267
Tamares(VincentSquare)vFairpointProperties(No.2)[2007]EWHC212(Ch),[2007]1WLR2167970
TangManSit(PersonalRepresentatives)vCapaciousInvestmentsLtd[1996]AC514,[1996]1AllER193,
[1996]2WLR192|[1996]05LSGazR32,140SolJoLB29,PC698,807
TargetHoldingsLtdvRedferns(afirm)2AllER337,[1994]1WLR1089,CArevsd[1996]AC421,[1995]3
AllER785,[1995]3WLR352,[1995]31LSGazR36,[1995]NLJR1164,139SolJoLB195,
HL472,777,780,782,783,786,78794,795802
TathamvDrummond(1864)4DeGJ&Sm484,34LJCh1,10JurNS1087,5NewRep24,13WR61,11LT
324246
TaylorvDavies[1920]AC636,89LJPC65,123LT121518
TaylorvPlumer(1815)3M&S562,2Rose457,[181423]AllERRep167826
TchenguizvImerman[2010]EWCACiv908955
Tempest,Re(1866)1ChApp485,35LJCh632,12JurNS539,14WR850,14LT688,CA528
TempestvLordCamoys(1882)21ChD571,51LJCh785,31WR326,48LT13,CA554,614
TeppersWillTrusts,Re,KramervRuda[1987]Ch358,[1987]1AllER970,[1987]2WLR729,[1987]2FLR
439,[1987]FamLaw379,131SolJo327,[1987]LSGazR105788
TexacoLtdvMulberryFillingStationLtd[1972]1WLR814938,939
ThirdChandrisShippingCorpnvUnimarineSA[1979]QB645945
ThomasandAgnesCarvelFoundationvCarvel[2007]EWHC1314(Ch),[2007]4AllER815367
ThomasvTimesBookCo.Ltd[1966]2AllER241,[1966]1WLR911,110SolJo252149
ThomasBatesvWyndhams[1981]1AllER1077960
ThompsonsSettlement,Re,ThompsonvThompson[1986]Ch99,[1985]2AllER720,[1985]3WLR486,
129SolJo575656,657
ThompsonsTrusteeinBankruptcyvHeaton[1974]1AllER1239,[1974]1WLR605,118SolJo
295666,667
ThomsonvClydesdaleBankLtd[1893]AC282,62LJPC91,1R255,[18914]AllERRep1169,69LT156,
HL56,865
ThornervMajors[2009]UKHL18,[2009]1WLR776351,456,458,462,815
(p.xxxiv) ThorntonvHowe(1862)26JP774,31Beav14,31LJ767,8JurNS663,10WR642,6LT
525223
ThorntonvStokill(1855)1Jur(NS)751782
ThreeRiversDCvGovernorandCompanyoftheBankofEngland(No.3)[2000]2WLR15894
ThynnvThynn(1684)1EqCasAbr380,1Vern296137
TilleysWillTrusts,Re,BurginvCroad[1967]Ch1179,[1967]2AllER303,[1967]2WLR1533,111SolJo
237835,856
TimeLifeInternational(Nederlands)BVvInterstateParcelExpressCo.PtyLtd(1978)FSR21518
TinkersSettlement,Re[1960]3AllER85n,[1960]1WLR1011,104SolJo805716
TinsleyvMilligan[1994]1AC340,[1993]3AllER65,[1993]3WLR126,[1994]2FCR65,[1993]2FLR
963,HL17,72,361,3701,372
TitovWaddell(No.2)[1977]Ch106,[1977]3AllER129,[1977]2WLR496,121SolJo
10655,658,659,768
Tollemache,Re[1903]1Ch955,72LJCh539,51WR597,88LT670,CA704
TownleyvSherborn(1634)CroCar312,Toth151,JBridg35752
TribevTribe[1996]Ch107,[1995]4AllER236,[1995]3WLR913,71P&CR503,[1996]1FCR338,[1995]
2FLR966,[1996]FamLaw29,[1995]32LSGazR30,[1995]NLJR1445,139SolJoLB203,
CA72,372,3734
TriffittsSettlement,Re[1958]Ch852611
TrimmervDanby(1856)20JP709,25LJCh424,2JurNS367,4WR399,430285,286
TrusteeofthePropertyofFCJones&Sons(afirm)vJones[1997]Ch159,[1996]4AllER721,[1996]3WLR
703,[1996]19LSGazR29,140SolJoLB123,CA812,826,829,830,870
TrusteesoftheBritishMuseumvAG[1984]1AllER337,[1984]1WLR418,128SolJo190,[1984]LSGaz
R585590
TrustorABvSmallbone(No.2)[2001]3AllER987,[2001]1WLR1177,[2001]2BCLC436,[2001]20LS
GazR40,[2001]NLJR457,145SolJoLB99906
TucksSettlementTrusts,Re,PublicTrusteevTuck[1978]Ch49,[1978]1AllER1047,[1978]2WLR411,
121SolJo796,CA88,1002
Turner,Re,BarkervIvimey[1897]1Ch536,66LJCh282,45WR495,41SolJo313,76LT116,13TLR
249757
TurnersWillTrusts,Re,DistrictBankLtdvTurner[1937]Ch15,[1936]2AllER1435,106LJCh58,80Sol
Jo791,155LT266,52TLR713,CA632
TwinsectraLtdvYardley[1999]LloydsRepBank438,[2000]LloydsRepPN239,CArevsd[2002]UKHL
12,[2002]2AllER377,[2002]2WLR802,[2002]NLJR4694035,40710,415,733,740,88692,893
7,902,916
Tyler,Re,TylervTyler[1891]3Ch252,60LJ686,40WR7,65LT367,7TLR654,CA289
TylersFundTrusts,Re,GravesvKing[1967]3AllER389,[1967]1WLR1269,111SolJo794135
Ultraframe(UK)LtdvFielding[2005]EWHC1638,[2005]AllER(D)900
UnitedGrandLodgeofAncientFreeandAcceptedMasonsofEnglandvHolbornBoroughCouncil[1957]3All
ER281,[1957]1WLR1080,56LGR68,50R&IT709,2RRC190,121JP595,101SolJo851,170Estates
Gazette507225
UniversalThermosensorsLtdvHibben[1992]3AllER257955
UzinterimpexJSCvStandardBankplc[2008]EWCACiv819906
VanGruisensWillTrusts,Re,BaggervDean[1964]1AllER843n,[1964]1WLR449,108SolJo237716
VandepittevPreferredAccidentInsuranceCorpnofNewYork[1933]AC70,102LJPC21,[1932]AllERRep
527,76SolJo798,148LT1969,49TLR90,PC58,67,168,473
VandervellvIRC[1967]2AC291,[1966]Ch261,[1965]2WLR1085,43TC519,43ATC74,[1964]TR93,
108SolJo279,L(TC)2093onappeal[1966]Ch261,[1965]2AllER37,[1965]2WLR1085,43TC519,44
ATC46,[1965]TR45,109SolJo235,L(TC)2137,CAaffd[1967]1AllER1,[1967]2WLR87,43TC519,
45ATC394,[1966]TR315,110SolJo910,L(TC)2214,HL355,365,37680,4002,485,4889,490
VandervellsTrusts(No.2),Re,WhitevVandervellTrusteesLtd[1974]Ch269,[1974]1AllER47,[1973]3
WLR744,117SolJo856revsd[1974]Ch269,[1974]3AllER205,[1974]3WLR256,118SolJo566,
CA355,356,3804,4913
VarsanivJesani[1999]Ch219,[1998]3AllER273,[1999]2WLR255,CA(2001)unreported268
VatchervPaull[1915]AC372,84LJPC86,[191415]AllERRep609,112LT737,PC559
VesteysExecutorsvIRC[1949]1AllER110827
VesteysSettlement,Re[1951]Ch209629,631
Vickery,Re,VickeryvStephens[1931]1Ch572,100LJCh138,[1931]AllERRep562,144LT562,47TLR
242569
Vinogradoff,Re,AllenvJackson[1935]WN68,179LTJo274358,520
VysevFoster(1872)8ChApp309807
Wait,Re[1927]1Ch606,96LJCh179,[1927]B&CR140,[1926]AllERRep433,71SolJo56,136LT
552,43TLR150,CA81
WalkervStones[2001]QB902,[2000]4AllER412,[2001]2WLR623,[2000]LloydsRepPN864,[2000]
35LSGazR36,CA557,732,733,734,740,741,920
WalkervSymonds(1818)3Swans1747
WallersteinervMoir(No.2)[1975]QB373,508n,[1975]1AllER849,[1975]2WLR389,119SolJo97,
CA806
(p.xxxv) WallgravevTebbs(1855)2K&J313140
WalshvLonsdale(1882)21ChD918
WaltonsSettlement,Re[1922]2Ch509331
WardvWard(1843)2HLCas777n,9ER1287573
WarmanInternationalLtdvDwyer(1995)182CLR544,128ALR201686,699
WarnerBrothersPicturesInc.vNelson[1937]1KB209931
WarrenvGurney[1944]2AllER472,CA369
WarrenvMendy[1989]1WLR853931,932
WatermansWillTrusts,Re,LloydsBankLtdvSutton[1952]2AllER1054,96SolJo850,[1952]2TLR
877514
WatsonvCroftPromoSport[1895]1Ch287968
WatsonvDolmark[1992]3NZLR311880
WebbvJonas(1888)39ChD66604
WebbvODoherty(1991)Times,11February,[1991]3AdminLR731222
Wedgwood,Re,AllenvWedgwood[1915]1Ch113,84LJCh107,59SolJo73,112LT66,31TLR43,
CA246
WeekesSettlement,Re[1897]1Ch289,66LJCh179,45WR265,41SolJo225,76LT11254
WeirHospital,Re[1910]2Ch124,79LJCh723,54SolJo600,102LT882,26TLR519,CA267
WestSussexConstabularysWidows,ChildrenandBenevolent(1930)FundTrusts,Re,Barnettv
Ketteringham[1971]Ch1,[1970]1AllER544,[1970]2WLR848,114SolJo92,134JPJo119,120NLJ
22531012,385
WestdeutscheLandesbankGirozentralevIslingtonBoroughCouncil[1996]AC669,[1996]2AllER961,
[1996]2WLR802,95LGR1,[1996]NLJR877,140SolJoLB136,Hl7,8,12,28,55,60,76,322,324,326
9,348,352,356,366,3938,400,470,512,754,805,816,828,831,838,878
WestminsterBankLtdvLee[1956]Ch7330
WestonsSettlements,Re,WestonvWeston[1969]1Ch223,[1968]1AllER720,[1968]2WLR1154,47
ATC237,[1968]TR215,112SolJo137affd[1969]1Ch223,[1968]3AllER338,[1968]3WLR786,47
ATC324,[1968]TR295,112SolJo641,CA714
WethvAG[1999]1WLR686179
WheelerandDeRochow,Re[1896]1Ch315,65LJ219,44WR270,73LT661522
White,Re,WhitevEdmond[1901]1Ch570,70LJCh300,49WR429,45SolJo294,84LT199593
WhitevShortall[2006]NSWC137980
Whiteley,Re,London(Bishop)vWhiteley[1910]1Ch600,79LJCh405,55SolJo291,102LT313,26TLR
309548
Whiteley,Re,WhiteleyvLearoyd(1886)33ChD347,51JP100,55LJCh864,55LT564,2TLR864,CA
affdsubnom.LearoydvWhiteley(1887)12AppCas727,57LJCh390,36WR721,58LT93,3TLR813,
HL568,573,580
WhitenvPilotInsuranceCo.[2002]1SCR595(SupremeCourtofCanada)807,808
WightvOlswang(1999)Times,18May,CA742
Wilkes(Beloved)Charity,Re(1851)20LJCh588,3Mac&G440,17LTOS101550,553
WilliamsSettlement,Re(1858)4K&J87,116RR266,6WR218,32LTOS9627
Williams(SurveyorofTaxes)vSinger[1921]1AC65,7TC387,89LJKB1151,64SolJo569,123LT632,36
TLR661,[1920]AllERRepExt819,HL38
WilliamsTrusteesvIRC[1947]AC447,[1947]1AllER513,27TC409,[1948]LJR644,176LT462,63TLR
353,HL236
WillmotvBarber(1880)15ChD96456
WilsonvLawDebentureTrustCorpnplc[1995]2AllER337,[1994]PLR141549
WindeattsWillTrusts,Re[1969]2AllER324,[1969]1WLR692,113SolJo450715
WinkworthvEdwardBaronDevelopmentCo.Ltd1986]1WLR15128
Wittke,Re,ReynoldsandGorstvKingEdwardssHospitalFundforLondonandCustodianofEnemyProperty
[1944]Ch166,[1944]1AllER383,113LJCh161,88SolJo86,171LT8,60TLR20532
Wood,Re,BartonvChilcott[1949]Ch498,[1949]1AllER1100,LJR1509,93SolJo357111
WoodardvWoodard[1995]3AllER980,[1992]RTR35,[1997]1FCR533,[1996]1FLR399,[1991]Fam
Law470,CA168
Wragg,Re[1919]2Ch58574
Wright,Re,BlizardvLockhart[1954]Ch347,[1954]2AllER98,[1954]2WLR972,98SolJo336,
CA255,266
WrightvMorgan[1926]AC788,95LJPC171,[1926]AllERRep201,135LT713654
WrightsWillTrusts,Re[1981]LSGazR841102,110
Wrightson,Re,WrightsonvCooke[1908]1Ch789,77LJCh422,98LT799,[190810]AllERRepExt
1399535,536
WrothamParkEstateCo.LtdvParksideHomesLtd[1974]1WLR798969
WuKoonTaivWuYauLoi[1997]AC179,[1996]3WLR778,[1996]NPC139,140SolJoLB221,[1996]3
HKC559,PC501
WylievMitchell(1870)8M552(Ct.Sess.)820
WynnsWillTrusts,Re,PublicTrusteevNewborough[1952]Ch271,[1952]1AllER341,96SolJo120,
[1952]1TLR27886,99
XvA[2006]1WLR75263940
YaxleyvGotts[2000]Ch162,[2000]1AllER711,[1999]3WLR1217,79P&CR91,[1999]2FLR941,
[1999]FamLaw700,32HLR547,[1999]EGCS92,78P&CRD33,CA445
Yorke,Re,StonevChataway[1997]4AllER907,[1997]33LSGazR26621,626
Young,Re,YoungvYoung[1951]Ch344,[1950]2AllER1245,94SolJo839,[1951]1TLR262129
(p.xxxvi) YouyangPtyLtdvMinterEllisonMorrisFletcher(2003)196ALR482792,802
YukosCapitalSarlvOJSCRosneftOilCompany[2010]EWHC784(Comm)944
ZLtdvA[1982]1AllER556946
ZeitalvKaye[2010]EWCACiv159[2010]2BCLC1160,161
TableofStatutes
Thistableissortedasfollows:UKlegislation,foreignlegislation,Europeanlegislation,andinternational
instruments.Pagereferencesinboldtypeindicatewhereastatuteissetoutinpartorinfull.
AdministrationofEstatesAct1925344
s.9512
s.36(4)48
AdministrationofJusticeAct1982
s.20(1)959
s.48627,628
ChanceryAmendmentAct1858seeLordCairnssAct1858(ChanceryAmendmentAct1858)
CharitableTrusts(Validation)Act1954255
CharitableUsesAct1601(StatuteofElizabethI)(43Eliz.1,c4)187
Preamble187,223
CharitiesAct1960187
CharitiesAct1993176
s.13269
CharitiesAct200686,189,207
CharitiesAct2011176,177,178,184,186,189,199,204,206,224,226,234,237,241,246,281,514
Pt8178
Pt11176
Pt17183
s.1176
s.1(1)(a)250
s.2189
s.2(3)223
s.3190
s.3(1)(a)201
s.3(1)(i)243
s.3(1)(j)201,243
s.3(1)(k)246
s.3(1)(m)248
s.3(2)(b)231
s.3(2)(c)233
s.3(2)(d)237
s.3(2)(h)240
s.4191
s.4(2)210
s.5177,239,240,248
s.9176
s.11176,250
s.13179
s.14179,180
s.15180
s.17191
s.29181
s.34181
s.35(1)181
s.35(3)181
s.36182
s.37181
s.46182,533
s.62268,2704
s.63274,391
s.64274,275
s.65275,276
s.67256
s.69(1)182
s.69(1)(b)528,533
s.70(1)182
s.70(8)182
s.80(2)531
s.84182
s.86182
s.96579
s.104A597
s.110182
s.115183
s.177177,514
s.185544
s.189753
s.268276
(p.xxxvii) CivilEvidenceAct1968
s.14(1)956
CivilJurisdictionandJudgmentsAct1982
s.25(1)945
CivilLiability(Contribution)Act1978753,755
s.1(1)753,918
s.2753
s.6(1)754,918
CivilPartnershipAct2004421
Sch.5421
CivilProcedureAct1997
s.7951,952
CompaniesAct2006643,669
Pt2640
s.168590
ss170171650
s.171651
ss17081794
s.175651,652,653,680,681
s.176652,653
s.176(4)669
s.177652
s.178653
s.544149
ss770774149
Contracts(RightsofThirdParties)Act199939,161,333,338
s.1161,162
s.267,162
s.7(1)162
s.10(2)162
s.10(3)162
EqualityAct2010363
s.199363
EstatesofDeceasedPersons(ForfeitureRuleandLawofSuccession)Act2011344
FinanceAct1999
s.139488
Sch.20
PtV(2)488
ForfeitureAct1982343
s.1(1)343
s.2344
s.5344
HumanRightsAct1998
s.12(3)940
InsolvencyAct198673
s.23874
s.23974
s.33973
s.42373
s.43674
JudicatureAct18735,8
JudicatureAct18755
JudicialTrusteesAct1896515
s.1515
LandRegistrationAct1925335
LandRegistrationAct2002149
s.2923,907
s.29(2)907
Sch.3907
LawofPropertyAct1925120,121,131
s.20520
s.26(3)549
s.40486
s.47346
s.52(1)149
s.53120,123,124
s.53(1)120
s.53(1)(b)124,125,131,337,416,419,421
s.53(1)(c)120,124,151,383,464,485,48690,4926,498,5002,721
s.53(2)120,131,322,416,420,421,492,496,721
s.60(3)358,359
s.164598
LawofProperty(Amendment)Act1926
s.3518
LawofProperty(MiscellaneousProvisions)Act1989
s.2420,486
s.2(1)453,454,464
s.2(5)420,464
LimitationAct1939
s.26(b)769
LimitationAct1980760
s.2760
s.5760
s.21760,761
s.21(1)(a)765,766
s.21(3)761
s.22761
s.23762
s.2828
s.32769,770
s.36762,772
s.38(1)761
LordCairnssAct1858(ChanceryAmendmentAct1858)964,968
s.2962
MatrimonialCausesAct1973421
MentalCapacityAct200567
s.18(l)(h)(i)67
MisrepresentationAct1967
s.2(2)962
PartnershipAct1890
s.10919,920
s.11920
(p.xxxviii) s.19920
s.22920
PensionSchemesAct1993
s.16334
PensionsAct199536,514
s.32(1)548
s.33571
s.34514
s.65584
PensionsAct200436
PerpetuitiesandAccumulationAct2009285,298,635
s.1113
s.1(2)114
s.2113,114
s.2(3)289
s.5114
s.7114,115,285,300
s.7(2)298
s.8115,116,300
s.13598
s.14598
s.14(4)177
s.15(4)116
s.18116,285
PublicTrusteeAct1906518
s.4516
RaceRelationsAct1976
s.34(1)203
RecognitionofTrustsAct198725,111
Sch.art.225,26
Sch.art.1126
ReligiousDisabilitiesAct1846223
SaleofGoodsAct1979
s.20A77
SeniorCourtsAct19815,939
s.37928
s.37(3)942
s.495,6
s.72956
StampAct1891
s.54488
StatuteofFrauds1677121,487
StockTransferAct1963
s.1149
SupremeCourtAct(nowSeniorCourtsAct)1981
s.35A805
s.50962
TheftAct1968
s.31956
Torts(InterferencewithGoods)Act1977854
s.3815,816,826
TownandCountryPlanningAct1990
s.237968
TradeMarksAct1994
s.14930
TradeUnionandLabourRelations(Consolidation)Act1992
s.221940
TrusteeAct192532,590,607,704
s.14(1)599
s.14(2518,599
s.15573,607
s.16(1)599
s.16(2)567
s.18512
s.18(1)512
s.18(2)512,533
s.18(4)533
s.19600
s.20(1)600
s.20(4)600
s.22(4)607
s.25606,608
s.26(1)626
s.27621
s.31629
s.31(1)630
s.31(2)631,632
s.31(3)631
s.32633
s.32(1)(a)634
s.32(1)(b)634
s.32(1)(c)634
s.3332,709,719
s.34520
s.36521,525
s.36(1)522,523,533
s.36(1)(a)522
s.36(2)522,533
s.36(6)522,523
s.36(8)525
s.37(1)(c)522,526
s.39532
s.41528
s.41(1)528,533
s.43528
s.57590,600,601,601,707
s.61549,730,732,743,744,746,747,797
s.62750
s.63627
s.68(17)567
s.68(18)518
s.69(2)521,567,629,632,633,634
(p.xxxix) TrusteeAct2000514,567,591,607,610,611
PartII574
PartIII578
PartIV577,601
s.1570,578
s.2570
s.3575
s.3(1)598
s.4576
s.5564,577
s.6575
s.6(1)576,584
s.7576
s.86,578
s.9578
s.11601,602
s.11(2)611
s.12(1)602
s.12(3)602
s.13(1)577,602
s.13(2)578
s.14602,603
s.15(1)603
s.15(2)603
s.15(5)603
s.16603
s.17604
s.19(2)604
s.22(2)603,604
s.23605
s.24605
s.26602,604
s.28542,660
s.29660,661
ss.29325434
s.31537,538,539
s.31(1)757
s.31(2)603
s.32(1)603,604
s.32(3)603,604
s.36(3)576
s.36(5)514
s.37(1)576
Sch.1
para.1576
para.2578
para.3605,606
para.7567,571,728,736
TrusteeDelegationAct1999
s.1607
Trusts(CapitalandIncome)Act2013596
s.1(2)598
s.2595
s.4597
TrustsofLandandAppointmentofTrusteesAct1996
s.6598
s.6(2)599
s.6(5)598
s.6(9)599
s.9(1)607
s.9(5)607
s.11(1)599
s.19527
s.19(3)532
s.19(4)532
s.20527
s.22(1)60
UnfairContractTermsAct1977737,738
s.3737
VariationofTrustsAct1958590,704,705,706,708,709,714,715,719,721
s.1707
s.1(1)706,712
s.1(1)(b)710
s.1(1)(c)710,716
WillsAct1837120,128,132,137,344
s.9125,126
s.15129
WillsAct1968129
TableofStatutoryInstruments
CivilProcedureRules1998,SI1998/3132
r.1.1939
r.25.1952
r.25.1(1)(g)950
r.25.2942
PracticeDirection25
para.7952
para.8952
Pt64553,621
Pt64PD621
CourtFundRules1987,SI1987/821
r.26806
PerpetuitiesandAccumulationsAct2009(Commencement)Order,SI2010/37114
SolicitorsRegulationAuthorityAccountsRules2011
r.1343
r.1443
TableofInternationalLegislation
Australia
NewSouthWales
DeFactoRelationshipsAct1984447
EuropeanLegislation
Guernsey
Trusts(Guernsey)Law2007
s.39(7)(a)738
Jersey
Trusts(Jersey)Law1984738
art.26(9)738
Trusts(Amendment)(Jersey)Law1989
art.8738
InternationalInstruments
EuropeanConventiononHumanRights1950
art.8934,955
art.10934
art.14362
SeventhProtocol
art.5362
HagueConventionontheLawApplicabletoTrustsandontheirRecognition(1984)25
art.2111
1.IntroductiontoEquity
Chapter: (p.3) 1.IntroductiontoEquity
Author(s): PaulS.Davies,GrahamVirgo,andEdwardBurn
DOI: 10.1093/he/9780199661480.003.0001
CentralIssues
1.EquityisthebodyoflawthathasbeenmadeanddevelopedbyjudgesintheChancerycourtsto
modifytherigidapplicationofthecommonlaw.
2.Equityisgroundedonrules,principles,anddoctrinesthatarestrictlyinterpreted,buttheir
applicationandtheremediesawardedcanbetemperedbytheexerciseofjudicialdiscretiontoensure
ajustandfairresult.
3.AlthoughtheadministrationofCommonLawandEquityhasbeenfusedintoasingleprocedural
system,thishasnotresultedinthesubstantivefusionofCommonLawandEquityasbodiesofrules.
4.Equitycontinuestohaveasignificantroleinmanycontemporaryaspectsofthelaw,including
commercialandcorporatelaw.
5.AttheheartofEquityisafundamentaldivisionbetweentherecognitionandprotectionofproperty
rightsandpersonalrights.
6.Thereareavarietyofequitablemaximsthatareusefulgeneralizationsofcomplexlaw.
1.WhatisEquity?
(a)HistoricalFoundationsofEquity
Thereisafundamentaldivisioninthelegalsystembetweenlawthatiscreatedbythelegislatureandlawthatis
createdbythejudges.Thisjudgemadelawiscalledthecommonlaw.ButCommonLawisusedinanother,
morespecificsense,toindicatethatbodyoflawwhichwasmadeanddevelopedbythejudgesintheCommon
Lawcourts,asopposedtothatbodyoflawwhichwasmadeanddevelopedbythejudgesintheChancerycourts.
ItisthislatterbodyoflawthatiscalledEquity.
EquityhascertaincharacteristicsthatdistinguishitfromtheCommonLawandthatderivefromthehistorical
originsoftheequitablejurisdiction.1 Frommedievaltimes,theCommonLawwasaformalisticbodyofrules,
whichwereinterpretedstrictly.WheretheCommonLawdidnotprovidearemedyorwheretheresultreachedby
theCommonLawwasharsh,itwaspossibletopetitiontheKing,andlatertheLordChancellor,toprovidea
remedythroughtheexerciseofhisdiscretion.Eventually,somanypetitionscametotheChancellorthatitwas
necessarytoestablishaseparatecourt,knownastheCourtofChancery,todealwiththemanditwasthelaw
thatwasdevelopedandappliedinthisCourtthatbecameknownasEquity.
(p.4) TheredevelopedastrugglebetweentheCommonLawandChancerycourts,witheachconsideringthatits
approachshouldprevailovertheother.ThisstrugglecametoaheadintheEarlofOxfordscase,2 inwhichEquity
prevailed.LordChancellorEllesmereinthatcaserecognizedthatEquitysfunctionwastosoftenandmollifythe
extremityofthelaw.Later,LordChancellorCowpersummarizedtherelationshipbetweenCommonLawand
Equitywellwhenhesaid:3
Equityisnopartofthelaw,butamoralvirtuewhichqualifies,moderatesandreformstherigour,hardness
andedgeofthelaw.
Suchmodificationwasbaseduponideasofmoralityandjustice.But,ultimately,theinterventionoftheLord
ChancellordependedupontheexerciseoftheLordChancellorsownconscience.Thisinherentlydiscretionary
approachmeantthatitwasdifficulttopredicttheoutcomeofanypetitiontotheLordChancellor.Inthe
seventeenthcentury,JohnSeldonwrotethat:4
Equityisaroguishthing.ForLawwehaveameasure,knowwhattotrusttoEquityisaccordingtothe
conscienceofhimthatisChancellor,andasthatislargerornarrower,soisEquity.Tisalloneasifthey
shouldmakethestandardforthemeasurewecallafootaChancellorsfootwhatanuncertainmeasure
wouldthisbe!OneChancellorhasalongfoot,anotherashortfoot,athirdanindifferentfoot.Tisthesame
thingintheChancellorsconscience.
Thus,forsometimeitwasthoughtthatEquityvarieswiththelengthoftheChancellorsfoot.But,overtheyears,
Equitybecamemorerulebasedandprincipled,withidentifiabledoctrinesbeingrecognized.Thiswaslargely
becausetheEquityjurisdictionwastransferredfromtheChancellortojudges,whosedecisionshadvalueas
precedentforfuturedecisions,sothatlikecasescouldbetreatedalike.
EventhoughEquitysfunctioninmoderatingtherigoursoftheCommonLawwasclear,thelegalsystemthat
emergedwasfarfromideal.ThedualcourtstructureresultingfromhavingdistinctCommonLawandChancery
courts,inwhichdifferentbodiesoflawwereapplied,causedgreatinconvenienceandinjustice:itmeantthatthe
claimanthadtochoosetherightcourtinwhichtopursuetheclaim.Ifthewrongcourtwerechosen,theclaimant
wouldhavetostartagainintheothercourt,leadingtolengthydelaysandhighcosts.
TheperceptionthatproceedingsinChancerywerebesetbyinordinatedelaysandexpensewasreflectedby
CharlesDickensinBleak House,firstpublishedin1853,whichstartswiththefollowingdescriptionofEquity,as
practisedinthecourtsofthetime:
Onsuchanafternoon,somescoreofmembersoftheHighCourtofChancerybaroughttobeashere
theyaremistilyengagedinoneofthetenthousandstagesofanendlesscause,trippingoneanotherup
onslipperyprecedents,gropingkneedeepintechnicalities,runningtheirgoathairandhorsehairwarded
headsagainstwallsofwords,andmakingapretenceofequitywithseriousfaces,asplayersmight.
(p.5) [Everyoneis]yawningfornocrumbofamusementeverfallsfromJarndyceandJarndyce(thecause
inhand),whichwassqueezeddryyearsuponyearsago.
JarndyceandJarndycedroneson.Thisscarecrowofasuithas,incourseoftime,becomesocomplicated
thatnomanaliveknowswhatitmeans.
Thatcaseinvolvedadisputedinheritance.Bytheendofthenovel,judgmentisgiven,butthelegalcoststhathave
beenincurredaresogreatthattheydevourmostoftheestatethatwasdisputedinthefirstplace.
Thecomplexityoflitigationinthenineteenthcenturywastosomeextentresolvedbytheenactmentofthe
JudicatureActsof1873and1875,whichabolishedtheCommonLawandChancerycourtsandreplacedthem
withasingleHighCourt.TheeffectofthislegislationwastofusetheadministrationofCommonLawandEquity.
TheJudicatureActsemphasizedthatEquity,asabodyoflaw,couldbeappliedinanycourtwithintheHigh
Court.ThisisnowrecognizedbytheSeniorCourtsAct1981.
SeniorCourtsAct1981
49.Concurrentadministrationoflawandequity.
(2)Everycourt[exercisingjurisdictioninEnglandorWales]shallgivethesameeffectashitherto

(a)toallequitableestates,titles,rights,reliefs,defencesandcounterclaims,andtoall
equitabledutiesandliabilitiesand
(b)subjectthereto,toalllegalclaimsanddemandsandallestates,titles,rights,duties,
obligationsandliabilitiesexistingbythecommonlaworbyanycustomorcreatedbyany
statute,
and,subjecttotheprovisionsofthisoranyotherAct,shallsoexerciseitsjurisdictioninevery
causeormatterbeforeitastosecurethat,asfaraspossible,allmattersindisputebetweenthe
partiesarecompletelyandfinallydetermined,andallmultiplicityoflegalproceedingswith
respecttoanyofthosemattersisavoided.
Itfollows,forexample,thatremediesderivedfromtheCommonLaworEquityjurisdictioncanbeawarded,
regardlessofthecourtinwhichtheclaimwasheard.However,itisimportanttoappreciatethattheJudicature
ActsonlyfusedtheadministrationoftheCommonLawandEquitytheydidnotfusethetwobodiesoflaw.AsSir
RaymondEvershedsaid,extrajudicially:5
thesocalledfusionoflawandequitywasaproceduralmatterand(saveincidentallyandbecause
proceduralmatterscannotunderoursystemsensiblybedivorcedfromsubstantivelaw)thefunctionof
equityinrelationtothecommonlawwasnottherebychanged.
TheprinciplethatEquityprevailsovertheCommonLawwasmaintainedbytheJudicatureActs,andisalsonow
recognizedintheSeniorCourtsAct1981.
(p.6) SeniorCourtsAct1981
49.Concurrentadministrationoflawandequity
(1)SubjecttotheprovisionsofthisoranyotherAct,everycourtexercisingjurisdictioninEnglandor
Walesinanycivilcauseormattershallcontinuetoadministerlawandequityonthebasisthat,
whereverthereisanyconflictorvariancebetweentherulesofequityandtherulesofthecommonlaw
withreferencetothesamematter,therulesofequityshallprevail.
AlthoughtheequitablejurisdictionprevailswherethereisdifferencebetweenCommonLawandEquity,overthe
yearstheoperationofCommonLawandEquityhasbecomecloser.6
(b)CharacteristicsofEquity
EquitywasoriginallyfoundedontheLordChancellorsdiscretion,whichwasexercisedwithreferencetohis
conscience.Asaresult,Equityistraditionallycharacterizedasadiscretionaryjurisdiction,whichisgroundedon
unconscionability.
(i)Discretionaryjurisdiction
ThereisatendencytotreatEquityasbeingadiscretionaryregimethatseekstosecureajustandfairresult,
withoutnecessarilyhavingregardtoidentifiablerulesthatproducecertaintyandpredictability.Equityinthe
seventeenthcenturywascertainlycharacterizedinthatway.7
ButsubsequentdevelopmentsmeanthatmodernEquityispreferablycharacterizedasdoctrinal,inthesensethat
itismadeupofidentifiablerulesthataretobeappliedstrictlywithoutanyroleforjudicialdiscretion.InRe
8
Diplock ,8 theCourtofAppealrecognizedthat:
ifaclaiminequityexists,itmustbeshowntohaveanancestryfoundedinhistoryandinthepracticeand
precedentsofcourtsadministeringequityjurisdiction.Itisnotsufficientthatbecausewemaythinkthat
thejusticeofthepresentcaserequiresit,weshouldinventsuchajurisdictionforthefirsttime.
LordDenning,writingextrajudicially,notedthat:9
theCourtsofChanceryarenolongercourtsofequityTheyareasfixedandimmutableastheCourtsof
laweverwere.
ButitdoesnotfollowthatEquityitselfisimmutable.SirGeorgeJesselMRrecognizedinReHalletts
Estate10 that:11
(p.7) therulesofCourtsofEquityarenot,liketherulesoftheCommonLaw,supposedtohavebeen
establishedfromtimeimmemorial.Itisperfectlywellknownthattheyhavebeenestablishedfromtimeto
timealtered,improved,andrefinedfromtimetotime.incasesofthiskind,theolderprecedentsin
Equityareofverylittlevalue.Thedoctrinesareprogressive,refined,andifwewanttoknowwhattherules
ofEquityare,wemustlook,ofcourse,rathertothemoremodernthanthemoreancientcases.
TherecontinuestobeasignificantrolefordiscretionwithinEquity.Theawardofequitableremediesliesinthe
discretionofthecourt,anditisentirelyappropriatethatquestionsofjusticeandfairnessaretakenintoaccount
whendeterminingthenatureandextentofanyremedythatisawarded.Forexample,iftherequirementsfor
proprietaryestoppelcanbeestablished,12 whichwillbeamatterofapplicationofequitabledoctrine,thejudge
thenhasadiscretiontodeterminewhatthemostappropriatemethodforsatisfyingtheEquitymightbe.
ThetruecharacterizationofEquityisthatitisgroundedonrules,principles,anddoctrinethatarestrictly
interpreted,buttheirapplicationandtheawardofremediescanbetemperedbytheexerciseofjudicialdiscretion
tosecureajustandfairresult.
(ii)Unconscionability
Unconscionabilityisarguablythemostimportantequitableprinciple.InWestdeutscheLandesbank Girozentralev
IslingtonLBC,13 LordBrowneWilkinsonrecognizedthatthekeyjustificationfortherecognitionofatrust,Equitys
mostsignificantcreation,14 wasthatEquityoperatesontheconscienceoftheownerofthelegalinterest.15 The
essentialfunctionofEquityisthatitrestrainsinjusticebystoppingtheunconscionableconductofaparticular
person.16
WhilstthenotionsofconscienceandunconscionabilityareundoubtedlysignificanttotheoperationofEquity,it
remainsunclearhowunconscionabilityistobedetermined.Originally,referencewasmadetotheconscienceof
theLordChancellor.Itlaterappearsthatconscienceatonepointreferredto:17
thejudgesandthedefendantsprivateknowledgeoffactswhichcouldnotbeprovedatcommonlaw
becauseofmedievalcommonlawconceptionsofdocumentaryevidenceandoftrialbyjury.
Thisproceduralinterpretationofconscienceisnolongerrelevant,butthelanguageofconscienceand
unconscionabilityremainssignificant.Ifsuchlanguagecannotbeclearlydefined,thedoctrinalcoherenceof
Equitymightbeundermined.
Itis,therefore,crucialtodecidewhetherunconscionabilityisaruleofsubstanceorsimplyaguidingprinciple.The
formerwouldrequireaverycleardefinitionofunconscionability,whichwouldbeappliedinordertodetermine
whetheradefendanthasactedunconscionablythelattermightbemanipulatedbythecourtsinordertofashion
rightsandremediestoreachthejustandfairresult.Unconscionabilityhassometimesbeeninterpretedasa
guidingprinciple.For(p.8) example,inWink worthvEdwardBaronDevelopmentCo.Ltd,18 LordTempleman
memorablysaid:
Equityisnotacomputer.Equityoperatesonconscience.
19
InAustralia,19 unconscionabilityisregardedsimplyasaguidingprinciple,whichgivesthecourtdiscretionto
reachajustresult.ButinEnglandandWales,unconscionabilitytendstobetreatedasasubstantivedoctrine.
Forexample,ithasbeenusedtopreventadefendantfromrelyingonhisorherstrictstatutoryrightswherethe
defendanthadinducedtheclaimanttoacttohisorherdetriment.20 Further,andveryimportantly,
unconscionabilityhasbeenusedasabasisforcreatingequitableproprietaryrightswherethedefendanthas
receivedpropertyfromtheclaimantthatthedefendantshouldhavereturned,butfailedtodoso.21
DespitethesignificantroleofunconscionabilityinmodernEquity,itneedstobeestablishedwhoseconscienceis
relevantwhenapplyingthisconcept.Unconscionabilitymightrefertotheconscienceofthecourt,inthesense
thatthecourtconsidersthatitwouldbeunconscionabletodenyaremedyortotheconscienceofareasonable
personortothedefendantsownconscience.Choosingbetweentheseoptionsmightgreatlyinfluencethe
outcomeofacase22 itsimportancewillbecarefullyanalysedinsubsequentchapters.
2.AssimilationofCommonLawandEquity
Aswehaveseen,theJudicatureAct1873didnotabolishEquity,butsimplyfusedtheadministrationofCommon
LawandEquity.OneofthegreatcontroversiesconcerningthefunctionofEquitytodayiswhethertheseparate
existenceoftheCommonLawandEquitycanstillbejustified,orwhetherthesubstantivelawofthetwo
jurisdictionsshouldbefused.TheapproachofthoseinfavouroffusionhasbeensummarizedbyBurrows:23
thefusionschoolofthoughtarguesthatthefusionoftheadministrationofthecourtsbroughtaboutbythe
18735Acts,whilenotdictatingthefusionofthesubstantivelaw,renderedthis,forthefirsttime,a
realisticpossibility.Whilethereareareaswherecommonlawandequitycanhappilysitalongsideone
another,therearemanyexamplesofinconsistenciesbetweenthem.Itisimportanttoremovethe
inconsistenciestherebyproducingacoherentorharmonizedlaw.Indevelopingthelawitislegitimatefor
thecourtstoreasonfromcommonlawtoequityandviceversa.Aharmonizedruleorprinciplethathas
featuresofbothcommonlawandequityisattheveryleastacceptableand,dependingontheruleor
principleinquestion,mayrepresentthebestwayforthelawtodevelop.
(p.9) Forothers,thecontinuedexistenceofCommonLawandEquityisnotamatterofconcern.Forexample,
LordMilletthassaid:24
Thosewhofavourthefusionoflawandequitymightperhapsreflectthatthethreegreatestsystemsof
jurisprudenceintheWesternworldhaveallbeendualsystems.Jewishlawhaditswrittenandorallaw
RomanlawitscivilandpraetorianorbonitarylawEnglishlawcommonlawandequity.Ineachcasethe
dualityservedasimilarfunction.Onesystemprovidedcertaintytheotherthenecessaryflexibilityand
adaptabilitytoenablejusticetobedone.Butthecommonlawandequityarenottwoseparateandparallel
systemsoflaw.Thecommonlawisacompletesystemoflawwhichcouldstandalone,butwhichifnot
temperedbyequitywouldoftenbeproductiveofinjusticewhileequityisnotacompleteandindependent
systemoflawandcouldnotstandalone.
Infact,thereisnotagreatdifferencebetweenthesetwoapproaches.CommonLawandEquityareclosely
intertwinedandarenotindependentlegalsystems.ThishasbeenrecognizedbyKittoJ,extrajudicially:25
[I]twillbesalutaryforthelawyertoremindhimselfthatequityistheappendixthattheChancerywas
composingforthesavingofthecommonlaw,andisnotanindependentsystemoflaw.
ButthecontinuedexistenceofaseparatebodyoflawknownasEquityisessential.Forexample,complete
assimilationofCommonLawandEquitywouldnotresultintheabolitionofthetrust,butwouldrenderitsanalysis
muchmorecomplexthesubtletiesandnuancesofthelawwouldbelost.26 Where,however,therulesof
CommonLawandEquityconflict,thenthereisscopeforassimilation.Thereisgrowingevidenceofsuch
assimilationoccurring.Forexample,theequitablejurisdictiontopaycompoundinteresthasbeenextendedto
CommonLawclaimsforbreachofcontractandtort,27 andtheequitableremedyofaccountofprofitsmay
exceptionallybeavailablewherethedefendanthasbreachedacontract.28 InHalpernvHalpern(No.
2),29 CarnwathLJreliedontheSeniorCourtsAct1981toconcludethatrescissionofacontractforduressat
CommonLawwouldbesubjecttothemoreflexible,equitableinterpretationofthebarthattheclaimantcouldnot
restorethedefendanttohisorherprecontractualposition.CarnwathLJsaid:30
130yearsafterthefusionoflawandequitybytheJudicatureAct1873anargumentbasedona
materialdifferenceinthetwosystemswouldhavefacedanuphilltask.
rescissionforduressshouldbenodifferentinprinciplefromrescissionforothervitiatingfactors.
(p.10) TheseothervitiatingfactorsincludethosethatarerecognizedinEquity,suchasundueinfluence.It
thereforeappearsthatinthisareaofrescission,theCommonLawisbeingassimilatedwithEquity.This
illustratestheappropriateresponsetofusion:completesubstantivefusionisnotappropriaterather,wherethere
isconflictorvariancebetweenEquityandtheCommonLaw,theequitablerulesshouldprevail,althoughthereare
areasofthelawwhereithasbeenarguedthatEquityshouldbeinfluencedbytheapproachadoptedbythe
CommonLaw.31
3.TheContemporaryContributionofEquity
Equityinthenineteenthcenturywasconcernedwithdeathandsuccession,taxes,anddebts.Thisisdryand
technicallaw.ButEquitytodayisverydifferent.Althoughthemodernsubjectisbuiltontheoldcases,the
principlesthatunderpinthosecaseshavebeenrefinedovertheyearsandarestillofrealsignificance,ofteninvery
differentcontexts.Equityremainsrelevant,bothintermsofexplaininglongestablisheddoctrinesofprivatelaw
andalsoasamechanismforprovidingnewsolutionstocontemporaryproblems.AsLordDenningMRnoted
inEvesvEves,Equityisnotpasttheageofchildbearing.32
Equityhasmadeaprofoundcontributiontomanyareasofthelaw,especiallyasregardstheidentificationof
rightsandthedevelopmentofimportantremedies.Examplesincludetheorderofspecificperformancetomake
thedefendantperformhisorherobligationsunderacontract,andinjunctionstopreventthedefendantfrom
committingawrong.33 ButEquityhasalsobeeninfluentialinmanyotherways.Forinstance,itcanbeusedto
regulateexploitativetransactions,suchaswhereonepartyundulyinfluencesanothertoenterintoa
disadvantageouscontractortomakeagift.34 Equityrecognizesanactionforbreachofconfidenceincasesin
whichthedefendantisinarelationshipwiththeclaimantbyvirtueofwhichthereisadutytomaintain
confidences,andthedefendantbreachesthatdutybydisclosingtheconfidentialinformationtoanother.35 Thisis
beingexpandedtoencompassliabilityforinvasionofprivacy.36 Equityisalsoresponsiblefortherecognitionand
regulationofcertaintypesofrelationshipknownasfiduciaryrelationships.37 Afiduciaryissomebodywhoisina
relationshipoftrustandconfidencewithsomebodyelse,knownastheprincipal.Thefiduciaryisexpectedtobe
loyaltotheprincipalandtomaintainthehigheststandardsofbehaviourinlookingaftertheprincipalsinterests.
Typicalfiduciaryrelationshipsarethoseofcompanydirectorswiththeircompanyandsolicitorswiththeirclients.
ThemostimportantcontributionofEquitytoEnglishlawisundoubtedlythetrust.Theessenceofthetrustisthat
propertyisheldbyonepersonforthebenefitofanother.Thisisrecognizedthroughthedivisionofpropertyrights.
Oneperson,knownasthetrustee,holdsthelegaltitletotheproperty.Thatpersonis,therefore,thelegalowner
atCommonLaw.However,thatlegalownerdoesnothaveabsolute,beneficialownership.WhereastheCommon
Lawcannotseepastlegalownership,Equityisabletoseethatthelegalownerholdsthepropertynotfor
themselvesbutforthebenefitofsomebodyelse,knownasthebeneficiary.InEquity,thebeneficiariesundera
trustaretheownersofthebeneficialinterestsgiventothem.Thetrusteesownershipiswhollyburdensome.
Trusteeshipimposes(p.11) onerousdutiesandliabilitiesupontrustees,whohavetomanagethetrustproperty
intheexclusiveinterestofthebeneficiaries.
4.EquitableRights
AttheheartofEquityisafundamentaldivisionbetweentherecognitionandprotectionofpropertyrightsand
personalrights.Inavarietyofsituations,Equitywillrecognizethattheclaimanthasaninterestinproperty,orthat
thedefendantispersonallyliabletopaytheclaimantasumofmoneytocompensateforlosssufferedortogive
upagainmade.Sometimes,theclaimantmayhavebothpropertyandpersonalrightsatthesametime.Itisthen
importanttodeterminewhichrightitisbetterfortheclaimanttoassert.
(a)ProprietaryRights
(i)Advantagesofproprietaryrights
Often,butnotalways,itwillbepreferablefortheclaimanttorelyonarighttopropertythatisinthedefendants
hands.Generally,thesepropertyrightstakeoneoftwoforms.First,theclaimantmaybeabletoassertarightto
recoverparticularpropertyfromthedefendant.Secondly,theclaimantmayhavearighttoasecurityinterestin
theproperty.
Claimingpropertyrightshastwoadvantagesfortheclaimant,dependingonthenatureofthepropertyrightthatis
claimed.First,theclaimantspropertyrightwillgivehimorherpriorityoverothercreditorsofthedefendant.This
willbesignificantwherethedefendantisinsolvent.Forexample,inReLehmanBrothersInternational(Europe)(in
administration),PattenLJsaid:38
abeneficiaryunderatrustisnotipsofactoacreditorofthetrustee.Althoughthetrustrelationshipmay
giverisetounsecuredclaimsagainstthetrusteeforbreachoftrustorevennegligenceandmay
sometimesexistinawidercontractualframework,itremainsatitscoreadifferentlegalrelationship.
Subjecttothetermsofthetrustinstrument,thetrusteeholdsthetrustpropertyforthebenefitofthose
beneficiallyentitledtoitandhasaprimaryobligationtomaintainthoseparticularassets(oranywhich
replacethem)totheexclusionofallotherclaims.Thetrustpropertydoesnotformpartofthetrustees
estateintheeventofinsolvencysoastobeavailabletomeettheclaimsofgeneralcreditorsandthe
beneficiaryisentitledtothepropertyinspeciefreeofanysuchclaims.
Whereatrusteebecomesinsolvent,alltheassetsbelongingtothetrusteearedividedupamongsthisorher
creditors.Butifabeneficiaryhasanequitablepropertyrighttoassetsheldbythetrustee,itcannotbesaidthat
thoseassetsbelongtothetrusteebeneficially.Thoseassetsare,therefore,removedfromthepoolofthetrustees
assets,astheybelonginEquitytothebeneficiary.Onlytheremainingassetsthatbelongtothetrustee
beneficiallyarethendistributedamongsttheremainingcreditors(generallyparipassu,orproportionally).Clearly,
thisputsabeneficiaryinamuchstrongerpositionthanothercreditors.Similarly,ifaclaimanthasasecurity
interestinthepropertyheldbyadefendantwhobecomesinsolvent,thatpropertyinterestwillbesatisfiedbefore
theclaimsofanyotherunsecuredcreditorsaresatisfied.
(p.12) Secondly,wheretheclaimanthasapropertyinterestthatisnotasecurityinterest,ifthepropertyhas
increasedinvaluetheclaimantwillgetthebenefitofthatincrease.Thisisbecausethepropertyitself39 belongs,
inEquity,totheclaimant.Butthisalsomeansthat,ifthepropertyhasfalleninvalue,theclaimantwouldsuffer
fromthelossofvalue.Insuchcircumstances,theclaimantwouldgenerallyprefertoassertapersonalright
againstthedefendantforthevalueofthelossessufferedbytheclaimantorthegainsmadebythedefendant.
(ii)Creationofpropertyrights
Equitableproprietaryrightsneedtobecreatedspecifically.Ifsomebodyisthelegalownerofproperty,itdoesnot
followthatthatpersonalsohasanequitableinterestinthatproperty.Indeed,thatpersonwillcommonlybethe
absolutelegalownerofpropertyinwhichthereisnoequitableinterest.AsLordBrowneWilkinsonobserved
inWestdeutscheLandesbank GirozentralevIslingtonLBC:40
Apersonsolelyentitledtothefullbeneficialownershipofmoneyorproperty,bothatlawandinequity,
doesnotenjoyanequitableinterestinthatproperty.Thelegaltitlecarrieswithitallrights.Unlessanduntil
thereisaseparationofthelegalandequitableestates,thereisnoseparateequitabletitle.
Thereareavarietyofeventsthatwilloperatetoseparatethelegalandequitableestatesandtherebycreatean
equitableinterestinproperty.Byfarthemostsignificantistheexpresscreationofthatinterest,asoccurswhere
anexpresstrustiscreated.Secondly,anequitableinterestmayarisebyvirtueofapresumedintentthatproperty
shouldbeheldbythelegalowneronbehalfoftheclaimant.41 Thirdly,anequitableproprietaryinterestmayarise
byoperationoflaw,oftenbecausethedefendantcanbeconsideredtohaveactedunconscionably.42
(iii)Beneficialinterest
Thedistinctionbetweenlegalandequitableproprietaryrightsissignificantforanumberofreasons.Eachtypeof
propertyrightfunctionsinadifferentway.Whereanequitablepropertyinteresthasnotbeencreated,thelegal
ownerofpropertywillalsobeitsbeneficialownerinthesensethatheorshecanobtainthebenefitsofthe
property,includingitsuseandincomearisingfromthepropertysuchasthedividendspaidinrespectofshares.
Onceanequitableinteresthasbeencreated,however,thelegalownerwillnolongerhavethebeneficialownership
ofthepropertyitistheequitableownerwhoisthebeneficialownerandwhohastherighttoreceivethebenefits
oftheproperty.Inthissituation,thelegalownerwillbeobligedtoadministerandmanagethepropertyonbehalfof
theequitableowner.Thelegalownerofthepropertywilldeterminehowthatpropertyistobeusedandisobliged
tobringlegalproceedingsifthatpropertyisdestroyedordamaged.43
(iv)Successiveproprietaryrights
Afurthercharacteristicofequitableproprietaryrightsisthatitispossibletoplanforsuccessiverightstoproperty,
sothatprovisioncanbemadeforthepresentandfuturebeneficialuseoftheproperty.Forexample,atestator
canleavehisestatetohiswifeforlife,withremaindertoachild.Itwillfollowthat,(p.13) onthetestatorsdeath,
thewifewillgetthebenefitofthepropertywhilstsheisalive,butonherdeathitwillpasstothechild.Theability
toprovideforconsecutiveinterestsinpropertyisanimportantfeatureofEquity.Itispossibletoprovideforsuch
consecutiveinterestsatCommonLawtoo,butonlyasregardslandinEquity,thiscanoccurasregardsboth
landandpersonalproperty.
Apresentequitableproprietaryinterestisdescribedasaninterestinpossession.Abeneficiarywithaninterest
inpossessionhasarighttothepresentenjoymentoftrustproperty.Futureproprietaryinterestsaredivided
betweenvestedandcontingentinterests.Avestedinterestisaninterestwherethepersonentitledtoitis
ascertainedandtheinterestisreadytotakeeffectinpossessionimmediately,subjectonlytoanyprior
interest.44 So,forexample,inatrustoflandheldforAforlifewithremaindertoB,Bwillhaveavestedinterest,
whichwillbecomeaninterestinpossessiononAsdeath.AsMegarryandWaderecognize:45
[avestedinterest]isafutureinterest,sincetherightofenjoymentispostponed.However,itisalsoan
alreadysubsistingrightinpropertyvestedinitsowner:itisapresentrighttofutureenjoyment.
Acontingentinterestisonewhichwillgivenorightatallunlessoruntilsomefutureeventhappens.46 For
example,wherepropertyislefttoAforlifeandremaindertoBifheattainstheageof21,then,untilBattainsthat
age,theinterestwillbecontingent.Onattainingthatageitwillbevested.OnthedeathofAitwillbevestedin
possession.
Abeneficiarysentitlementtoavestedinterestmaydependonthesatisfactionofacondition,knownasa
conditionprecedent.Anexistinginterestmaybedeterminedifacondition,knownasaconditionsubsequent,is
satisfied.
Whetheraninterestisinpossession,vested,orcontingent,andwhethertheinterestissubjecttoacondition
precedentorsubsequent,issignificantasregardstheoperationofanumberofruleswithinthelawoftrusts.47
(v)Sharedpropertyownership
Therearetwotypesofsharedownershipofproperty.Oneisjointtenancy,wherebytheownersownthewholeof
thepropertytogetheranddonothaveaparticularshareinit.Itfollows,thatifoneoftwojointtenantsdies,the
otherautomaticallybecomesthesoleowneroftheproperty.Thealternativemethodofsharedownershipis
tenancyincommon,wherebytheownersownadefiniteshareoftheproperty,whichcanbedevisedinawill.
Typicallyjointtenancyandtenancyincommoncanbedistinguishedbyreferencetoseparationofinterest.Ifthere
isnoindicationthatthepartiesaretohavedistinctandseparatesharesinthepropertythentherewillbeajoint
tenancy.Where,however,thereisanindicationthatthepartiesaretotakeseparateanddistinctinterests,such
aswherepropertyistransferredtoAandBequally,thentherewillbeatenancyincommon.
(b)PersonalRights
Equitablepersonalrightshavealsoprovedtobesignificant.Suchrightsmightarisefromafiduciaryrelationshipof
trustandconfidence:forexample,asolicitor,asafiduciary,willoweparticular(p.14) personalobligationstohis
orherclient,asaprincipal.Suchfiduciaryobligationsaredistinctfrom,andinadditionto,theordinaryduties
imposedbytheCommonLawincontractandtort.48
AclaimantmayhavebothproprietaryandpersonalrightsinEquity.Forexample,trusteeswilloftenowefiduciary
dutiestotheirbeneficiaries.So,ifatrusteemisappropriatestrustproperty,thebeneficiariesmaybeabletorely
notonlyontheirequitableproprietaryrightstomakeaclaimtorecovertheproperty,49 butalsoontheirpersonal
rightsagainstthetrustee:thetrusteemayconsequentlybeliableeithertocompensatethebeneficiariesforthe
lossthattheyhavesufferedortoaccountfortheprofitthetrusteemadeasaresultofthebreachofhisorher
personalobligations.50
Personalequitablerightsmayariseasaresultofwrongdoing,suchasbreachoftrust.Buttheycanalsoarise
fromunjustenrichment.ThelawofunjustenrichmentwasrecognizedbytheHouseofLordsin1991,51 butthis
wassimplytheformalrecognitionofaprinciplethathadbeendevelopingformanyhundredsofyears.Muchofthis
developmenthadoccurredatCommonLaw,butEquityhashadasignificantinfluenceonthatdevelopmenttoo.
TheessenceofthelawofunjustenrichmentwasrecognizedbyLordSteyninBanqueFinanciredelaCitv
Parc(Battersea)Ltd:52
unjustenrichmentranksnexttocontractandtortaspartofthelawofobligations.Itisanindependent
sourceofrightsandobligations.
Fourquestionsarise.(1)Has[thedefendant]benefitedorbeenenriched?(2)Wastheenrichmentatthe
expenseof[theclaimant]?(3)Wastheenrichmentunjust?(4)Arethereanydefences?
Ifadefendantsenrichmentisunjust,thenheorshewillberequiredtogivebackthevalueofthegainmadetothe
claimant.Thisisarestitutionaryremedy:restitutionisconcernedwithdeprivingthedefendantofgainsratherthan
compensatingtheclaimantforlosssuffered.
AllfourquestionsidentifiedbyLordSteynarecrucial.Thethirdquestionwillbesatisfiedwhereagroundof
restitutioncanbeidentified.Therecognizedgroundsofrestitutionincludemistake,53 totalfailureof
consideration,54 andundueinfluence.55 Themostsignificantdefencetoaclaiminunjustenrichmentisthatof
changeofposition,whichwasrecognizedbyLordGoffinLipk inGorman(afirm)vKarpnaleLtd:56
Iammostanxiousthat,inrecognisingthisdefence[ofchangeofposition]toactionsofrestitution,nothing
shouldbesaidatthisstagetoinhibitthedevelopmentofthedefenceonacasebycasebasis,intheusual
way.Itis,ofcourse,plainthatthedefenceisnotopentoonewhohaschangedhispositioninbadfaith,as
wherethedefendanthaspaidawaythemoneywithknowledgeofthefactsentitlingtheplaintiffto
restitutionanditiscommonlyacceptedthatthedefenceshouldnotbeopentoawrongdoer.Atpresent
Idonotwishtostatetheprincipleanylessbroadlythanthis:thatthedefenceisavailabletoaperson
whosepositionhassochangedthatitwouldbeinequitableinallthecircumstancestorequirehimtomake
restitution,oralternativelytomakerestitutioninfull.Iwishtostresshoweverthatthemerefactthatthe
defendanthasspentthemoney,inwholeorinpart,doesnotofitselfrender(p.15) itinequitablethathe
shouldbecalledupontorepay,becausetheexpendituremightinanyeventhavebeenincurredbyhimin
theordinarycourseofthings.Ifearthatthemistakenassumptionthatmereexpenditureofmoneymaybe
regardedasamountingtoachangeofpositionforpresentpurposeshasledinthepasttooppositionby
sometorecognitionofadefencewhichinfactislikelytobeavailableonlyoncomparativelyrare
occasions.
Consequently,thedefencewillapplywherethedefendanthasreceivedanenrichmentand,inrelianceonthat
receipt,haschangedhisorherposition,suchasbybuyingsomethingwhichheorshewouldnototherwisehave
bought.Thedefencewillnotbeavailablewherethedefendanthasactedinbadfaithorcanbeconsideredtobea
wrongdoer.
Itisimportanttoappreciatethatunjustenrichmentleadstoapersonalremedytogivebackthevalueofthegain
receivedbythedefendant,butdoesnotcreateproprietaryrights.Liabilityinunjustenrichmentisstrict:a
defendantmayhavetoeffectrestitutionevenifheorsheisnotatfault.
5.EquitableMaxims
Therearevariousestablishedequitablemaximsthatareoftencitedbyjudgeswhenreachingadecision.
Sometimesthesemaximsarereferredtosimplyasamantra,57 withoutanyobviousunderstandingastowhy
theyarebeingused.Indeed,thecurrenteditionofSnellsEquitycallsfortheabolitionofthesemaxims:58
Thestrongestargumentforthepreservationoftheequitablemaximsor,moreaccurately,thelegal
principlestheyembody,isthattheyenunciatestandardsofmoralityinjudicialdecisionmaking.But,even
acceptingthisargument,therearetwosignificantreasonswhythegameisnotworththecandle.Thefirst
isatendencyinsomecasestotreatmaximsandprinciplesasasubstitutefortransparentreasoning:they
oftenconcealthatwhichajudgeoughttoexposit.Themaximsareexpressedatsuchhighlevelsof
generalitythatitisimpossibletodeducefromthemaclearreasonforaparticularrule.theyareusedas
substitutesforreasoning.Anybenefitgainedfromenunciationofbroadmoralstandardsisnotworththis
priceoflosttransparency.Thesecondpitfallisthetendencytoforgetthatthedifferentmaximsoften
conflict.Together,thesetwodangershaveledtodecisionswhichobfuscateandwhicharedifficulttojustify
ortounderstand.Infew,ifany,ofthedecisionsinwhichthemaximshavebeenexpositedwouldthe
reasoninghavebeenanyworse,ortheruleanylessclear,withoutthem.Inmost,thereasoningwould
havebeenimproved.
Certainly,thesemaximsmustbeapproachedwithcare,anditisimportantnottoapplythemliterallybuttobe
sensitivetotheparticularfactsatissue.However,anunderstandingofthemoreimportantmaxims,consideredin
thissection,remainshelpful:theyareusedbytheCourtsandcontinuetobesignificant.AsLordUpjohn
recognizedinBoardmanvPhipps:59
Rulesofequityhavetobeappliedtosuchagreatdiversityofcircumstancesthattheycanbestatedonly
inthemostgeneraltermsandappliedwithparticularattentiontotheexactcircumstancesofeachcase.
(p.16) Themaximsmay,therefore,serveasusefulgeneralizationsofcomplexlaw,eveniftheapplicationofa
maximwillrarelybedecisiveinisolation.
(a)ThoseWhoSeekEquitymustdoEquity
Whenajudgedecideswhetheritisappropriatetoawardanequitableremedy,onerelevantconsiderationis
whethertheclaimantiswillingtoactfairlytothedefendantinthefuture.InChappellvTimesNewspapers
Ltd,60 aninjunctionwasdeniedtoemployeeswhowishedtorestraintheiremployerfromdismissingthem
becausetheyhadrefusedtoundertakethattheywouldnotstrikeinthefuture.MegarryJsaid:61
Insteadoflookingtothepast,Iwouldlooktothefuture.Thereisageneralprinciplewhichliesenshrinedin
themaximHewhoseeksequitymustdoequity.Thatmaxim,liketheothermaximsofequity,isnottobe
construedorenforcedasifitwereasectioninanActofParliamentbutitexpressesinconciseformone
approachmadebythecourtwhenthediscretionaryremedyofaninjunctionissought.Iftheplaintiffasks
foraninjunctiontorestrainabreachofcontracttowhichheisaparty,andheisseekingtoupholdthat
contractinallitsparts,heis,inrelationtothatcontract,readytodoequity.Ifontheotherhandheseeks
theinjunctionbutinthesamebreathisconstrainedtosaythatheisreadyandwillinghimselftocommit
gravebreachesofthecontractatthebehestofabodyorperson(whetherhisunionornot)engagedinan
activecampaignoforganisingtherepeatedcommissionofsuchbreaches,thenitseemstomethatthe
plaintiffcannotverywellcontendthatinrelationtothatcontractheisreadytodoequity.Onemayleaveon
onesideanytechnicalitiesoflaworequityandsimplysay,inthelanguageofchildhood,thatheistrying
tohaveitbothways:heissayingYoumustnotbreakourcontractbutIremainfreetodoso.
(b)ThoseWhoCometoEquitymustComewithCleanHands
Whereasthepreviousmaximwasconcernedwiththeclaimantsconductinthefuture,themaximthatthosewho
62
cometoEquitymusthavecleanhands 62 relatestotheclaimantspastconduct.Themaximhasbeendescribed
as
aprincipleofjusticedesignedtopreventthoseguiltyofseriousmisconductfromsecuringadiscretionary
remedy,suchasaninjunction.63
InDeringvEarlofWinchelsea,64 EyreCBsaidthattheprincipleofcomingtoEquitywithcleanhands:
doesnotmeanageneraldepravityitmusthaveanimmediateandnecessaryrelationtotheequitysued
foritmustbeadepravityinalegalaswellasinamoralsense.
(p.17) Itfollowsthattheimproperconductmustrelatetothereliefthatissoughtinsomeway.Justbecausethe
claimantsgeneralconductisunacceptabledoesnotmeanthatEquitywilldenyrelieftotheclaimant.So,for
example,inArgyll(Duchess)vArgyll(Duk e),65 theDuchesswasabletoobtainaninjunctiontorestrainher
formerhusbandfrompublishingconfidentialinformation,eventhoughitwasheradulterythathadledtothe
breakdownofthemarriageinthefirstplace.Thatadulterywasunrelatedtotheclaimantsattempttopreventthe
publishingofconfidentialinformation.UngoedThomasJsaid:66
Should,then,theplaintiffbedeniedtheinjunctionwhichshewouldotherwisegetbecauseshehasherself
toanextentbrokenconfidenceandbecauseshe,aftertheconfidencesofwhosebreachshecomplains,
adoptedanimmoralattitudetowardshermarriage?ApersoncomingtoEquityforreliefandthisis
equitablereliefwhichtheplaintiffseeksmustcomewithcleanhandsbutthecleanlinessrequiredisto
bejudgedinrelationtothereliefthatissought.
Thecleanhandsmaximwillnot,however,denyreliefwhereitisnotnecessaryfortheclaimanttorelyonimproper
conducttoestablishanequitableclaim.InTinsleyvMilligan,67 onepartywasabletoassertanequitablerightto
propertythatwasregisteredinthenameofherpartner,eventhoughthepurposeofthearrangementhadbeento
enablehertoperpetrateafraud.Itwasheldthatshecouldassertanequitablepropertyright,becauseshedidnot
needtorelyonherillegalitytodoso.LordBrowneWilkinsonsaid:68
Inmyjudgmentthecourtisonlyentitledandboundtodismissaclaimonthebasisthatitisfoundedonan
illegalityinthosecaseswheretheillegalityisofakindwhichwouldhaveprovidedagooddefenceifraised
bythedefendant.Inacasewheretheplaintiffisnotseekingtoenforceanunlawfulcontractbutfoundshis
caseoncollateralrightsacquiredunderthecontract(suchasarightofproperty)thecourtisneitherbound
norentitledtorejecttheclaimunlesstheillegalityofnecessityformspartoftheplaintiffscase.
Theclaimantsfraudulentconductwasclearlyreprehensible,butdidnotneedtobeinvokedforhertoestablish
herequitablepropertyright.Asaresult,themaximdidnotapply.However,LordGoffdissentedinTinsleyand
relieduponthismaxim:69
onceitcomestotheattentionofacourtofequitythattheclaimanthasnotcometothecourtwithclean
hands,thecourtwillrefusetoassisttheclaimant,eventhoughtheclaimantcanprimafacieestablishhis
claimwithoutrecoursetotheunderlyingfraudulentorillegalpurpose.
OnthefactsofTinsley,itmaybethattheclaimanthadcleanedherhands:shehadrepaidthebenefitsobtained
fromthefraudulentschemeandsomaynolongerhavehaduncleanhandsatall.Butinanyevent,any
uncleanlinesswassurelytooremotefromtheclaimantsclaimforanequitableinterestintheproperty.
(p.18) TheoperationofthecleanhandsmaximwasjustifiedbyMurphyJintheHighCourtofAustraliainTime
LifeInternational(Nederlands)BVvInterstateParcelExpressCoPtyLtd70 asfollows:
[it]isfarmorethanamerebanality.Itisaselfimposedordinancethatclosesthedoorsofacourtofequity
toonetaintedwithinequitablenessorbadfaithrelativetothematterinwhichheseeksrelief,however
impropermayhavebeenthebehaviourofthedefendant.Thatdoctrineisrootedinthehistoricalconceptof
acourtasavehicleforaffirmativelyenforcingtherequirementsofconscienceandgoodfaith.
ThismaximisclearlybaseduponthehistoricaloriginsofEquityasbeingfoundedonconscience.Thiswas
consideredbyPettit:71
Unconscionabilityisperhapsthecommonfactor.Thecleanhandsdoctrineisperhapsnomorethana
backgroundprinciplefromwhichhavedevelopedparticularequitabledefencesinnocent
misrepresentation,equitablefraud,lachesandacquiescenceandunfairnessandhardshipMostcases
wherethecleanhandsmaximisfoundinfactinvolveoneorotherofthesedefencesandthereferenceto
cleanhandsisotiose.Thereremainexceptionalcaseswhichdonotreadilyfallintoanyofthese
categoriesyetwherethecourtshavetakentheviewthatitwouldbeunconscionablefortheplaintiffto
succeed,andthesecasescanberegardedasapplicationsofacleanhandsdoctrine.Theyincludecases
wheretheplaintiffhasbeenseekingtofurtheradeceptionofthepublic72 wheretheplaintiffisshownto
havemateriallymisledthecourtortohaveabuseditsprocess 73 whereatenantnotoriouslyusingthe
premisesasadisorderlyhousesoughtreliefagainstforfeiture74
(c)EquityTreatsasDonethatwhichOughttobeDone
ThismaximhasbeenparticularlysignificantinthedevelopmentofEquity,75 butthereisatendencytorelyonit
tooreadilywithoutregardtoitsrationale.Themaximhasprovedtobeparticularlysignificantwheretheparties
haveenteredintoacontractthatisspecificallyenforceableforthenEquitywilltreatthecontractashavingbeen
performed.ThiswasrecognizedbyLindleyLJinReAnstis:76
Equity,nodoubt,looksonthatasdonewhichoughttobedonebutthisrule,althoughusuallyexpressed
ingeneralterms,isbynomeansuniversallytrue.Wheretheobligationtodowhatoughttobedoneisnot
anabsoluteduty,butonlyanobligationarisingfromcontract,thatwhichoughttobedoneisonlytreated
asdoneinfavourofsomepersonentitledtoenforcethecontractasagainstthepersonliabletoperformit.
So,forexample,wherethedefendanthasagreedtoselllandtotheclaimantbuthasnotdoneso,thedefendant
willstillownthelandatLaw,butEquitywilltreatthelandashavingbeentransferredtotheclaimantsothevendor
willholdthelandonconstructivetrustforthepurchaser.77 ThemaximwasappliedinWalshvLonsdale,78 in
whichEquitytreatedapersonwhohadenteredintoaspecifically(p.19) enforceableagreementtotakealease
asthoughthatpersonwasalesseeoftheproperty.SirGeorgeJesselMRsaid:79
Thereisanagreementforaleaseunderwhichpossessionhasbeengiven.NowsincetheJudicatureAct
thepossessionisheldundertheagreement.Therearenottwoestatesastherewereformerly,oneestate
atcommonlawbyreasonofthepaymentoftherentfromyeartoyear,andanestateinequityunderthe
agreement.ThereisonlyoneCourt,andtheequityrulesprevailinit.Thetenantholdsunderanagreement
foralease.Heholds,therefore,underthesametermsinequityasifaleasehadbeengranted,itbeinga
caseinwhichbothpartiesadmitthatreliefiscapableofbeinggivenbyspecificperformance.Thatbeing
so,hecannotcomplainoftheexercisebythelandlordofthesamerightsasthelandlordwouldhavehadif
aleasehadbeengranted.
Therehave,however,beencasesinwhichthemaximhasbeenappliedoutsidethecontextofspecifically
enforceablecontracts.Insuchcircumstances,theuseofthemaximhasbeenmuchmoredifficulttojustify.Ithas
beenapplied,forexample,whereadonorhasfailedtomakeaneffectivegiftatLaw.80 InAttorneyGeneralfor
HongKongvReid,81 thePrivyCouncilreliedonthemaximtoconcludethatafiduciarywhohadbeenbribedto
actinbreachofhisfiduciarydutyheldthatbribeonconstructivetrustfortheprincipaltowhomthedutieswere
owed.LordTemplemansaid:82
Assoonasthebribewasreceiveditshouldhavebeenpaidortransferred[instantly]tothepersonwho
sufferedfromthebreachofduty.Equityconsidersasdonethatwhichoughttohavebeendone.Assoon
asthebribewasreceived,whetherincashorinkind,thefalsefiduciaryheldthebribeonaconstructive
trustforthepersoninjured.
Thiswasaverydifferentapplicationofthemaximfromitsusualoperationinthecontextofspecificallyenforceable
contracts:therewasnocontractinReidthatwasbeingenforced.Theconclusioninthatcasewasrejectedbythe
CourtofAppealinSinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd,83 primarilybecauseitwasnot
appropriateasamatterofprincipleorpolicytoconvertthepersonalliabilitytoaccountforthevalueofthebribe
intoaproprietaryclaim.TheapproachofLordTemplemaninReidwasconsideredtobegthequestion,orto
assumewhatitasserts.84
(d)EquityFollowstheLaw
AlthoughthemaximthatEquityfollowsthelawhaslongbeenrecognized,itsmeaningisambiguous.Itis
certainlythecasethatEquityrecognizeslegalrules,butifEquityweretohavefollowedthelawabsolutely,there
wouldhavebeennoscopeforthedevelopmentofseparateequitabledoctrines.Itisforthisreasonthatthe
AmericanjudgeCardozoJrecognizedthatEquityfollowsthelaw,butnotslavishlynoralways.85
(p.20) OneexampleofEquityfollowingthelawariseswheretwopartiesownahousethatisregisteredintheir
jointnames.ItwasrecognizedinJonesvKernott86 that:
Thestartingpointisthatequityfollowsthelawandtheyarejointtenantsbothinlawandinequity.
Equitywillconsequentlypresumethatthebeneficialinterestinthepropertycorrespondstotheirlegalinterest,so
thattheywillsharethebeneficialinterestequally,althoughthispresumptioncanberebuttedbyacontrary
intention.
(e)EquityWillnotAssistaVolunteer
Avolunteerissomebodywhohasnotprovidedconsiderationforaparticulartransaction,suchastherecipientof
agift.Whereadonorpurportstomakeagiftbutitisnoteffectiveatlaw,Equitywillnotperfectanimperfect
gift,87 thisbeingfoundedontheprinciplethatEquitywillnotassistavolunteer.So,ifasettlorfailstotransfer
propertytoatrustee,Equitywillnotintervenetoperfectthetransfer.Thismaximis,however,subjecttoanumber
ofexceptions,whereEquitywillassistavolunteerandwillperfectanimperfectgift,suchaswherethetransferor
hasdoneeverythingnecessarytotransfertitle.88 Importantly,onceatrusthasbeenfullyconstituted,thena
beneficiarywillbeabletoenforcethetrust,evenifthatbeneficiaryhasprovidednoconsideration.AsLord
BrowneWilkinsonsaidinTChoithramInternationalSAvPagarani:89
Untilcomparativelyrecentlythegreatmajorityoftrustswerevoluntarysettlementsunderwhich
beneficiarieswerevolunteershavinggivennovalue.Yetbeneficiariesunderatrust,althoughvolunteers,
canenforcethetrustagainstthetrustees.Onceatrustrelationshipisestablishedbetweentrusteeand
beneficiary,thefactthatabeneficiaryhasgivennovalueisirrelevant.
(f)EquityisEquality
ThemaximthatEquityisequalitymeansthatwherethereareequitableinterestsinproperty,Equitypresumes
thattheyareequalinterests.Forexample,wherethetrusteeshaveapowertoappointtoacharitablepurpose
andanoncharitablepurpose,ifthepowerisnotexercisedthecourtwillallocatehalfofthefundforcharitable
purposesandhalffornoncharitablepurposes.90 Themaximwillnotbeapplied,however,whereitisnot
consideredtoreflecttheintentionoftheparties.InMcPhailvDoulton,91 thetrusteeshadadiscretiontoappoint
propertyamongstalargeclassofbeneficiaries,buttheCourtthoughtitwouldbeinappropriatetoapplythe
maximthatEquityisequalityinthatcontext.LordWilberforcesaid:92
Asamatterofreason,toholdthataprincipleofequaldivisionappliestotrustssuchasthepresentis
certainlyparadoxical.Equaldivisionissurelythelastthingthesettloreverintended:equaldivisionamong
allmay,probablywould,producearesultbeneficialtonone.Whysupposethatthecourtwouldlenditself
toawhimsicalexecution?andasregardsauthority,Idonotfindthatthenatureofthetrust,andofthe
courtspowersovertrusts,callsforanysuchrigidrule.Equaldivisionmaybesensibleand(p.21) has
beendecreed,incasesoffamilytrusts,foralimitedclass,herethereislifeinthemaximequalityis
equity,butthecasesprovidenumerousexampleswherethishasnotbeenso,andadifferenttypeof
executionhasbeenordered,appropriatetothecircumstances.
OnthefactsofMcPhailvDoulton,ifthetrustpropertyhadbeendistributedaccordingtothemaximthatEquityis
equality,eachbeneficiarywouldhavereceivedverylittleindeed,giventhelargenumberofbeneficiariesinthe
class.Thiswouldnothavebeenasensibleresult,sothemaximwasnotapplied.
However,themaximthatEquityisequalitywasappliedliterallyinReBowersSettlementTrusts.93 Asettlement
providedthatifoneofthebeneficiariesweretodie,hisshareshouldaccruetotheotherbeneficiaries.Oneofthe
beneficiarieshaddiedandMortonJappliedtheequitablemaximsothatthedeceasedbeneficiaryssharewas
distributedequallybetweentheotherbeneficiaries,ratherthanproportionatelyinaccordancewiththeirexisting
shareoftheresidue.WhetherthisliteralapplicationofthemaximwasappropriatewasconsideredinRe
Steel.94 Inthatcase,legaciesofdifferentamountswereleftinawill,whichalsocontainedaclausestating:Any
residueremainingtobedividedbetweenthosebeneficiarieswhohaveonlyreceivedsmallamounts.Ininterpreting
thisclause,MegarryVCappliedthemaximanddividedtheresidueequallyamongthebeneficiaries.Buthe
consideredtheinterpretationofthemaximmoregenerally:95
thereisthenthequestionofwhatistobethebasisofdivision.Thereweretworivalcontentionsonthis.
Onewasthattheresidueshouldbedividedequallybetweenallthelegateeswhoselegacieshadnot
lapsed,irrespectiveofthesizeofthoselegacies.Theotherwasthattheresidueshouldbedivided
proportionatelyamongthoselegatees,inproportiontothesizeofeachlegacy,sothat,forinstance,a
200legateewouldgettwicetheshareofresidueofa100legatee.Insupportofequaldivision,itcouldbe
saidbythe100legateetothe200legatee:Youwereintendedtoget100morethanme,andifwe
eachgetanequalshareofresidue,youwillstillget100morethanme.Theriposteofthe200legatee
is:Iwasintendedtogettwiceasmuchasyou:equaldivisionoftheresiduewillalterthatproportion,and
sotocarryouttheproportionsoriginallyintended,theresidueshouldbedividedproportionatelytoour
respectivelegacies.Infavourofequaldivisionthereisthemaximequalityisequity,andInReBowers
SettlementTrusts[1942]Ch197
in[thatcase]thepropertywassettledintermsofshares,ratherthanfixedamounts.Itcanthereforebe
saidthatthenaturalformofcomparisoninthatcasewasonaproportionatebasis,andthattherewasnot
thesamefreedomtochoosebetweenacomparisonofproportionsandacomparisonofamounts,suchas
thatonelegateeisgetting100morethananother,asthereisinthiscase.
Thusfar,theconceptofequalitymaybesaidtobeintheascendant.Butdoesequalityinthiscontext
necessarilymeanasimplemathematicalequality?
Whenthemaximequalityisequitycomestobeapplied,itoften,andIthinkusually,willmean
mathematicalequality,inthatnootherbasisofequalitycanbediscerned:butgivensuitable
circumstancesatrueequalityoftreatmentmayrequiretheapplicationofamathematicalinequality,and
insteadaproportionateequality.Sofarascanbejudgedfromtheshortreport,thisconsiderationwasnot
putbeforeMortonJ.inInReBowersSettlementTrusts.
ThesubjectisoneonwhichIfeelconsiderabledoubt.Withalltherespectduetoagreatequitylawyer,I
mightwell,Ithink,havereachedtheoppositeconclusionhadthefactsofInReBowersSettlement(p.
22) TrustscomebeforemewithoutthebenefitofthedecisionofMortonJ.Buttherestandsthedecision.
Further,Ithinkthatitwouldbeeasiertosupportthecauseofproportionatedivisiononthefactsofthat
casethanitisonthefactsofthecasenowbeforeme.Thereseemstometobearealdifferencebetween
sharesofafundontheonehandandlegaciesoffixedamountsontheotherhand:onemovesinaworldof
proportions,andtheotherinaworldofdeterminatesumsIfinditdifficult,too,toseewhyindividingthe
residuetheintentionshouldbetreatedasbeingtopreservetheproportionsratherthanthegapsinamount,
insteadofbeingtheopposite.Intheend,Ithinkthatonthewhole,inacaseofrealdoubtandasa
matteroflastresort,thesimplicityofmathematicalequalityistobepreferredtoanyprocessof
proportionatedivision.
(g)EquityLookstoSubstanceratherthanForm
InPark invThorold,96 LordRomillyMRrecognizedthat:
CourtsofEquitymakeadistinctioninallcasesbetweenthatwhichismatterofsubstanceandthatwhich
ismatterofformand,iftheydofindthatbyinsistingontheform,thesubstancewillbedefeated,theyhold
ittobeinequitabletoallowapersontoinsistonsuchform,andtherebydefeatthesubstance.
Thisprovidesthebasisfortheequitableremedyofrectification.97 Wherethewordsofacontractdonotreflectthe
commonintentionsoftheparties,Equityiswillingtorewritethedocumenttoreflectthoseintentions.98 Similarly,
whereitispossibletoidentifyanobligationthattherecipientofpropertyholdsthatpropertyforsomebodyelse,
Equitywillrecognizethatatrusthasbeencreated,eventhoughthesettlorhasnotexplicitlystatedthatheorshe
intendedtocreateatrust.99 Attheotherextremearecircumstancesinwhichthesettlorhaspurportedtocreatea
trust,butEquity,havingregardtothesubstanceofthetransaction,concludesthatthetrustisasham.100
(h)WhereTheEquitiesareEqual,theFirstinTimeshallPrevail
Equitableinterestsusuallyrankintheorderinwhichtheywerecreated.Sowheretherearetwocompeting
equitableinterestsinproperty,theusualruleisthattheinterestthatwascreatedfirstwillhavepriorityoverthe
interestthatwascreatedlater.AsMillettJsaidinMacmillanInc.vBishopsgateTrust(No.3):101
InEnglishlawtheorderofprioritybetweentwocompetinginterestsinthesamepropertydependsprimarily
onwhethertheyarelegalormerelyequitableinterests.Wherebothinterestsareequitableorbothlegal,
forthatmatterthebasicruleisthatthetwointerestsrankintheorderoftheircreation.Inthecaseof
equitableintereststheorderofprioritymaybereversedinspecialcircumstances,butwheretheequities
areequal,thefirstintimeprevails.
(p.23) AnexampleofthespecialcircumstancestowhichMillettJreferredariseswhereaninteresthasbeen
appropriatelyregistered:registrationensuresthataninteresthaspriorityoveranunregisteredinterest.102 Itis
importanttoappreciatethatthisruleoffirstintimeonlyappliesregardingtwoequitableinterests.A
subsequentlyacquiredlegalinterestmayhavepriorityoverapreviouslycreatedequitableinterestifthelegal
interestwasacquiredbyabonafidepurchaserforvaluewithoutnotice.Insuchasituation,thelegalinteresthas
priorityovertheequitableinterestinbothEquityandatLaw.103
Question
Alanhasamistress,Brenda,withwhomhehasachild,Christopher.Alanispreparinghiswillandwantsto
leavepropertytoBrendaandChristopher,butwithoutrevealingthistohiswife.Alanaskshisbestfriend,
David,whether,ifAlanleftpropertytoDavidinhiswill,DavidwouldtransferittoBrenda.Davidagreestodo
soandAlanleaves10,000toDavidinhiswill.AfterAlansdeath,Davidreceives10,000,butrefusesto
transferittoBrendabecausethewillcouldnotbeclearer:thisismymoney.
ShouldBrendaandChristopherhavearemedy?Ifso,howmightEquityhelp?
FurtherReading
Baker,IntroductiontoLegalHistory(4thedn)(Oxford:OxfordUniversityPress,2002),pp.97116.
FindThisResource
Burrows,WeDoThisatCommonLawButThatinEquity(2002)22OJLS1.
FindThisResource
Martin,Fusion,FallacyandConfusionAComparativeStudy[1994]Conv13.
FindThisResource
Pettit,HeWhoComesintoEquityMustComewithCleanHands[1990]Conv416.
FindThisResource
Virgo,RestitutionThroughtheLookingglass:RestitutionWithinEquityandEquityWithinRestitution,
inRationalizingProperty,EquityandTrusts:EssaysinHonourofEdwardBurn(ed.Getzler)(London:
ButterworthsLexisNexis,2003),p.106.
FindThisResource
Worthington,Equity(2ndedn)(Oxford:OxfordUniversityPress,2006),chs1and10.
FindThisResource
Notes:
1
SeeBaker,IntroductiontoLegalHistory(4thedn)(Oxford:OxfordUniversityPress,2002),pp.97116.
2 (1615)1ChRep1.SeeIbbetson,TheEarlofOxfordscase,inLandmark CasesinEquity(edsMitchelland
Mitchell)(Oxford:Hart,2012),ch.1.
3
LordDudleyvLadyDudley(1705)PrecCh241,244.
4 Pollock(ed.),TableTalk ofJohnSelden(SeldenSociety,1927)p.43.
5 Evershed,ReflectionsontheFusionofLawandEquityafterSeventyFiveYears(1954)LQR326,327.
6 SeefurtherChapter1.2,pp.810.
7 SeethecommentsofSeldon,Chapter1.1(a),p.4,inPollock(ed.),TableTalk ofJohnSelden(London:Selden
Society,1927),p.43.
8 [1948]Ch465,481.
9
Denning,TheNeedforaNewEquity(1952)5CLP8.
10
(1880)13ChD696,710.
11
Forfurtherconsiderationofthiscase,seeChapter18.3(c)(ii)(c),p.836.
12
SeeChapter9.4,p.455.
13 [1996]AC669.
14 SeeChapter4.1,p.24.
15 [1996]AC669,705.
16 Evershed,RegistrationsontheFusionsofLawandEquityafterSeventyfiveYears(1954)LQR326,329.
17
Macnair,EquityandConscience(2007)OJLS659.
18
[1986]1WLR1512,1516.
19
Muschinsk ivDodds(1985)160CLR583RoxboroughvRothmansofPallMallAustraliaLtd(2002)185ALR
335,355(GummowJ).
20
RochefoucauldvBousted[1897]1Ch196.SeeChapter4.2(b),p.122.
21
WestdeutscheLandesbank GirozentralevIslingtonLBC[1996]AC669.
22
See,inparticular,Chapter7,ConstructiveTrusts.
23 See,especially,Burrows,WeDoThisatCommonLawButThatinEquity(2002)22OJLS1,4.Seealso
Worthington,Equity,ch.10.
24 Proprietaryrestitution,inEquityinCommercialLaw(edsDegelingandEdelman)(Sydney:LawBookCo.,
2005),ch.12,p.309.
25
Foreword,inEquity:DoctrineandRemedies(edsMeagher,Gummow,andLehane)(London:Butterworths,
1975).
26
26
SeeVirgo,RestitutionThroughtheLookingGlass:RestitutionWithinEquityandEquityWithinRestitution,
inRationalizingProperty,EquityandTrusts:EssaysinHonourofEdwardBurn(ed.Getzler)(Oxford:Oxford
UniversityPress,2003),ch.5,p.106.SeealsoMartin,Fusion,FallacyandConfusion:AComparativeStudy
[1994]Conv13.
27
SempraMetalsLtdvIRC[2007]UKHL34[2008]1AC561.SeefurtherChapter17.5,p.805.
28
AttorneyGeneralvBlak e[2001]1AC268.
29
[2007]EWCACiv291[2008]QB195,[70].
30
Ibid.
31 Seeliabilityforunconscionablereceipt,Chapter19.3,pp.91417,andrectification,Ch.20,Section4,pp.
95961.
32
[1975]1WLR1338,1341.
33 SeeChapter20.23,pp.92759.
34 RoyalBank ofScotlandplcvEtridge(No.2)[2002]2AC773.
35 CocovANClark (Engineers)Ltd[1969]RPC41.
36 OBGLtdvAllan[2007]UKHL21[2008]AC1,[255](LordNicholls),and[272](LordWalker).
37
SeefurtherChapter14,FiduciaryObligations.
38
[2009]EWCACiv1161,[33].
39
Oratleastashareintheproperty:seeChapter18.5(ii),pp.85561.
40
[1996]AC669,706.
42 SeeChapter7.2(a),pp.3269.
43 LeighandSillivanLtdvTheAliak monShippingCo.Ltd[1986]AC785MCCProceedsInc.vLehmanBrothers
International(Europe)[1998]4AllER675.
44 BurnandCartwright(eds),CheshireandBurnsModernLawofRealProperty(18thedn)(Oxford:Oxford
UniversityPress,2011),p.532.
45 Harpum,Dixon,andBridge(eds),MegarryandWade:TheLawofRealProperty(8thedn)(London:Sweet&
Maxwell,2012),p.310.
46 Ibid.
48 SeeChapter14.
49
SeefurtherChapter18,ProprietaryClaimsandRemedies.
50
SeefurtherChapter17,PersonalClaimsandRemedies.
51
Lipk inGorman(afirm)vKarpnaleLtd[1991]2AC548.
52
[1999]1AC221,227(LordSteyn).
53
53
PittvHolt[2011]EWCACiv197[2012]Ch132.SeeChapter7.2(c),pp.3302.
54
FibrosaSpolk aAk cyjnavFairbairnLawsonCombeBarbourLtd[1943]AC32.
55
AllcardvSk inner(1887)36ChD145.
56 [1991]2AC548,580.
57 JonesvKernott[2011]UKSC53[2012]1AC776,[19](LordWalkerandLadyHale).
58 McGhee(ed.),SnellsEquity(32ndedn)(London:Sweet&Maxwell,2010)para5001.
59 [1967]2AC46,123.
60
[1975]1WLR482.
61
Ibid,495.
62
FitzroyvTwilim(1786)1TR153.SeeChafee,ComingintoEquitywithCleanHands(1949)47MichLRev877
and1065.
63
DunbarvPlant[1998]Ch412,422(MummeryLJ).
64
(1787)1CoxEqCas318,319.
65 [1967]Ch302.
66 Ibid,322.
67 [1994]1AC340.SeefurtherChapter8.2(d)(i),pp.3702.
68 Ibid,377.
69
Ibid,358.
70
(1978)FSR215.
71
HeWhoComesintoEquityMustComewithCleanHands[1990]Conv416,425.
72
LeatherClothCoLtdvAmericanLeatherClothCoLtd(1863)4DeGJ&S137.
73 ArmstrongvSheppard&ShortLtd(1959)2QB384.
74 GillvLewis[1956]2QB1.
75 Bank svSutton(1732)2PWms700,715.
76 (1886)31ChD596,695(LindleyLJ).
77
RaynervPreston(1881)18ChD1.SeeChapter7.2(g),p.346.
78
(1882)21ChD9.
79
Ibid,14.
80
SeeChapter14.3(c),pp.15161.
81 [1994]1AC324.SeeChapter14.5(b)(i),pp.68992.
82 Ibid,331.
83 [2011]EWCACiv347[2012]Ch453.SeeChapter14.5(b)(i),pp.6925.
84
84 Ibid,[78](NeubergerLJ).
85
GrafvHopeBuildingCorpn(1920)254NY1,9.
86
JonesvKernott[2011]UKSC53[2012]1AC776,[51](1)(LadyHaleandLordWalker).SeeChapter9.2(b),
pp.42536.
87
MilroyvLord(1862)4DeGF&J264,275(TurnerLJ).SeeChapter4.3(c),p.151.
88
SeeChapter4.3(c)(i),pp.1525.
89
[2001]1WLR1,12.
90 HoarevOsborne[1866]LR1Eq585.
91 McPhailvDoulton[1971]AC424.
92 Ibid,at451.
93 [1942]Ch197.
94
[1979]Ch218.
95
Ibid,225.
96
(1852)16Beav59,66.
97
SeeChapter20.4,pp.95961.
98 TheOlympicPride[1980]2LloydsRep67.
100 SeeChapter3.2(b),pp.6973.
101 [1995]1WLR978,9991000.
102
Seee.g.LandRegistrationAct2002,section29.
103
PilchervRawlins(1872)LR7Ch.App.259MacmillanInc.vBishopsgateTrust(No.3)[1995]1WLR978,
1000(MillettJ).SeefurtherChapter18.6(a),pp.8647.
2.IntroductiontoTrusts
Chapter: (p.24) 2.IntroductiontoTrusts
DOI: 10.1093/he/9780199661480.003.0002
CentralIssues
1.Thetrustinvolvesatrusteeortrusteesholdingpropertyrightsonbehalfofanotherorforanidentified
purpose.AtrusteeisobligedinEquitytoexercisethoserightsforthatpersonorpurpose.
2.Itisunconscionableforatrusteeappointedbyasettlortodenythetrustandkeepthepropertyfor
himorherself.
3.Thereareanumberofdifferentcategoriesoftrust,theoperationofwhichisinfluencedbythecontext
inwhichthetrustarises.
4.Thereareavarietyofreasonswhysomeonewouldwishtocreateatrust,withtheconsequent
separationoflegalandequitabletitle,whetherinthecontextofthefamily,orbusinessandfinance.
5.Itisimportanttodistinguishthetrustfromotherlegalmechanisms,suchasagencyandbailment,
whichhavedifferentlegalimplicationstothetrust.
6.Thelawoftrustsisprimarilyconcernedwiththedifferentrightsthatvariouspeoplemighthave
followingthecreationofatrust.Thereisparticularcontroversyaboutthenatureofthebeneficiarys
rightstotrustproperty.
1.HistoryoftheTrust
Althoughthetrusthasbeenrecognizedforhundredsofyears,itsnatureandfunctionhasnotbeenconstant.
Grbichrecognizedthat:1
thetermtrustisnotclearandunchanginglikeacrystal,itistheskinroundalivingandgrowingconcept.
Theoriginsofthetrustcanbetracedbacktothethirteenthcentury,whenitwasessentiallyaconveyancing
devicefortheholdingoflandtoavoidfinancialliabilitiesandrestrictionsontheinheritanceofproperty.2 This
forerunnerofthemoderntrustwascalledtheuse.Atitsmostbasic,thisdevicewasusedtotransferlandto
peoplewhowouldholditfortheuseofthetransferorforlifeandthenforselectedfamily(p.25) members.Inthat
way,thetransferorcouldensurethatthelandwasinheritedbyamemberofhisfamilyratherthanforfeitedtoa
lord.Theusewasalsodeployedwhereatenantoflandwasfightingabroad,forexampleintheCrusades,sothat
trusteescouldbeappointedtomanagethelandonhisbehalf.Thepersonwhotransferredthelandwouldtodaybe
calledthesettlor,buthemightalternativelybedescribedasthetrustor,sincehetrustedthetransfereetoholdthe
landforthebenefitofhimselforsomebodyelse.Thetransfereeofthelandwascalledatrustee,becausehewas
trustedbythetransferor.Thepersonforwhomthelandwasheldwascalledthebeneficiary,becauseheorshe
benefitedfromtheuseoftheland.
Althoughthistripartitestructureofthetrustcanbeidentifiedinthemoderntrustdevice,thecontextinwhichthe
trustarisestodayisverydifferent.Thetrusthasdevelopedfromatrustofland,toatrustofallkindsofproperty
withinthefamily,includingmoneyandshares,andhasfurtherexpandedtoitssignificantusetodayasa
commercialdeviceforthemanagementofaportfoliooffinancialassets.3 Althoughmanyoftheessential
componentsofthemoderncommercialtrustcanbetracedbacktothemedievaluse,thecontextinwhichthe
trustarisesiscompletelydifferent,andthishashadasignificantimpactonthedevelopmentofthelawoftrusts.
2.DefinitionoftheTrust
Thetrusthasbeendefinedinmanydifferentways,4 butoneofthemosthelpfuldefinitionswassuggestedby
Maitland:5
Ishoulddefineatrustinsomesuchwayasthefollowingwhenapersonhasrightswhichheisboundto
exerciseuponbehalfofanotherorfortheaccomplishmentofsomeparticularpurposeheissaidtohave
thoserightsintrustforthatotherorforthatpurposeandheiscalledatrustee.Itisawide,vague
definition,butthebestthatIcanmake.
Thisdefinitionidentifiescertainkeyfeaturesofthetrust.Itisconcernedwithoneperson,thetrustee,actingon
behalfofanotherorforanidentifiedpurpose.Itisconcernedwiththeexerciseofrights.Itisconcernedwiththe
impositionofobligationsonthetrustee.
AusefuldefinitionofthetrusthasbeenprovidedbytheRecognitionofTrustsAct1987,whichratifiedthe1984
HagueConventionontheLawApplicabletoTrustsandtheirRecognition,whichestablishesuniformconflictoflaw
rulesfortheinternationalrecognitionofthetrust.Whilstthedefinitionofthetrustinthe1987Actdoesnotpurport
todefinethetrustdomestically,itsdefinitiondoesaccordwiththeunderstandingofthetrustinEnglishlaw.
RecognitionofTrustsAct1987
ScheduleConventionontheLawApplicabletoTrustsand
theirRecognition
Article2
ForthepurposesofthisConvention,thetermtrustreferstothelegalrelationshipcreatedinter
vivosorondeathbyaperson,thesettlor,whenassetshavebeenplacedunderthecontrolofa
trusteeforthebenefitofabeneficiaryorforaspecifiedpurpose.
(p.26) Atrusthasthefollowingcharacteristics
(a)theassetsconstituteaseparatefundandarenotapartofthetrusteesownestate
(b)titletothetrustassetsstandsinthenameofthetrusteeorinthenameofanotherpersonon
behalfofthetrustee
(c)thetrusteehasthepowerandtheduty,inrespectofwhichheisaccountable,tomanage,
employordisposeoftheassetsinaccordancewiththetermsofthetrustandthespecialduties
imposeduponhimbylaw.
Thereservationbythesettlorofcertainrightsandpowers,andthefactthatthetrusteemayhimself
haverightsasbeneficiary,arenotnecessarilyinconsistentwiththeexistenceofatrust.
Article11
[Recognitionofatrust]shallimply,asaminimum,thatthetrustpropertyconstitutesaseparatefund,
thatthetrusteemaysueandbesuedinhiscapacityastrustee,andthathemayappearoractinthis
capacitybeforeanotaryoranypersonactinginanofficialcapacity.
Insofarasthelawapplicabletothetrustrequiresorprovides,suchrecognitionshallimplyin
particular
(a)thatpersonalcreditorsofthetrusteeshallhavenorecourseagainstthetrustassets
(b)thatthetrustassetsshallnotformpartofthetrusteesestateuponhisinsolvencyor
bankruptcy
(c)thatthetrustassetsshallnotformpartofthematrimonialpropertyofthetrusteeorhis
spousenorpartofthetrusteesestateuponhisdeath
(d)thatthetrustassetsmayberecoveredwhenthetrustee,inbreachoftrust,hasmingledtrust
assetswithhisownpropertyorhasalienatedtrustassets.
Thereareconsequentlytwofundamentalfeaturesofthetrust:
(1)atrusteeholdspropertyrightsforapersonorpurposethepropertycomponentand
(2)thetrusteeisobligedinEquitytoexercisethoserightsforthatpersonorpurposetheobligation
component.
ThesignificanceofthesetwocomponentshasbeenidentifiedparticularlywellinParkinsonsdefinitionofthetrust
thatisintentionallycreated,knownasanexpresstrust:6
Anexpresstrustisanequitableobligationbindingaperson(thetrustee)todealwithidentifiable
propertytowhichheorshehaslegaltitleforthebenefitofotherstowhomheorsheisinsomeway
accountable.Suchobligationsmayeitherbeforthebenefitofpersonswhohaveproprietaryrightsin
equity,ofwhomheorshemaybeone,orforthefurtheranceofasufficientlycertainpurposewhichcan
beenforcedbysomeoneintendedtohavearightofenforcementunderthetermsofthetrustorby
operationoflaw.
Thetrustisdistinguishedfromotherlegalconceptsbythesetwocomponentsofi)holdingpropertyrightsfor
peopleorpurposesandii)thepersonalobligationsofthetrustee.7
(p.27) Ofthesecorecomponentsofthetrust,itisthepropertycomponentinvolvingthesplitoflegaland
equitabletitletopropertythatisusuallyconsideredtobetheessenceofthetrust.Whilstthiscomponentis
undoubtedlysignificant,morerecentanalysisofthetrusthasemphasizedtheobligationcomponent.8 Most
significantly,Langbeinhasdevelopedthecontractarianaccountofthetrust,9 byvirtueofwhichheconcludesthat
thetrustshouldbeconsideredtobeabargainconcerninghowthetrustassetsshouldbemanagedand
distributed.Inparticular,thetrustdeal,asheputsit,definesthepowersandresponsibilitiesofthetrusteein
managingthetrustproperty.Langbeindoesnotpurporttoarguethatthetrustshouldbedefinedonlybyreference
totheobligationcomponent,withthatobligationderivingfromacontract.Heconsidersthatthetrustisahybridof
contractandproperty,andthatitstraddlesourcategoriesofpropertyandcontract,becauseitembodiesa
contractabouthowpropertyistobedeployed.10
Langbein,TheContractarianBasisoftheLawofTrusts(1995)105YaleLJ62511
Weareaccustomedtothinkofthetrustasabranchofpropertylaw.TheRestatement(Second)of
Trustsdefinesthetrustasafiduciaryrelationshipwithrespecttoproperty,andthecodesand
treatisessaysimilarthings.Thiswayofspeakingaboutthetrustomitsanimportantdimension.
Thecontractarianclaim.Intruth,thetrustisadeal,abargainabouthowthetrustassetsaretobe
managedanddistributed.Tobesure,thetrustoriginatesexactlywhereconventionsaysitdoes,with
property.TheRestatementsays,Atrustcannotbecreatedunlessthereistrustproperty.Theowner,
calledthesettlor,transfersthetrustpropertytoanintermediary,thetrustee,toholditforthe
beneficiaries.Wetreatthetrusteeasthenewownerforthepurposeofmanagingtheproperty,while
thetrustdealstripsthetrusteeofthebenefitsofownership.
Thedistinguishingfeatureofthetrustisnotthebackgroundevent,notthetransferofpropertytothe
trustee,butthetrustdealthatdefinesthepowersandresponsibilitiesofthetrusteeinmanagingthe
property.Sometimesthetrustdealalsoconferssignificantdiscretionuponthetrusteeoverdispositive
provisions,thatis,inallocatingthebeneficialinterestsamongthebeneficiaries.Thesettlorandthe
trusteemayexpresstheirdealindetailedtermsdraftedfortheparticulartrust,ortheymaybecontent
toadoptthedefaultrulesoftrustlaw.Eitherway,thedealbetweensettlorandtrusteeisfunctionally
indistinguishablefromthemodemthirdpartybeneficiarycontract.Trustsarecontracts.
Thiscontractarianaccountofthetrustisundoubtedlyuseful,especiallybecauseitdoesnotunderminethe
significanceofthepropertycomponenttothetrust.Itisclearlythecasethatthenatureofatrusteesdutiesand
powersandtheoperationofthetrustdependonthetermsofthedocumentthatgovernsthetrust.Inmanycases,
thelawoftrustsissimplyabodyofdefaultrulesthatcanberejectedbythesettlorincreatingthetrustand
whichapplywherenoalternativeprovisionhasbeenmadeinthetrustinstrument.
ButthekeyproblemwithLangbeinsthesisishisemphasisonacontractorbargainbetweenthesettlorandthe
trustee,whichisunrealistic.Thisisbecause,oncethetrusthasbeencreated,thesettlorhasnorightstoenforce
thebargainandusuallyhasnorightsrelatingtothetrust,exceptwhereheorshehasreservedpowerstorevoke
thetrust,12 toappointtrustees,todirectinvestmentbythetrustees,13 or(p.28) toamendthetrust.Enforcement
ofthetrustislefttothebeneficiarieswhowerenotpartiestothebargain.Further,thetrusteeofatestamentary
trustcannotusuallybeconsideredtohaveenteredintoanybargainwiththetestator.Finally,itispossiblefora
settlortodeclarehimorherselfatrusteeandthereclearlycannotbeacontractbetweenthesettlorandtrusteein
suchcircumstances.
Thecontractariananalysisofthetrustcannotberegardedasauniversalexplanationoftheexpresstrust,butit
doesnotfollowthatthethesisshouldberejectedcompletely.Langbeinidentifiesanimportanttruthrelatingtothe
lawoftrusts,namelythattheobligationsofthetrusteecanbemodifiedbythetermsofthetrustinstrument.Itis
nothelpfultoconsiderthatinstrumentasinevitablybeingabargainoracontract,butitclearlyhasavitalrolein
determiningthenatureofthetrusteesobligations.
Itfollowsthat,howeverthetrustmightbedefined,thedefinitionmustconsistoftwocomponents.Theproperty
componentemphasizesthatitisonlypossibletohaveatrustofproperty,andthattherightsrelatingtothat
propertyaresplitbetweenthelegalproprietaryrightsofthetrustee14 andtheequitableproprietaryrightsofthe
beneficiary.Thisissignificantbecause,ifthetrusteebecomesinsolvent,thetrustpropertycannotbetransferred
tohisorhercreditors,sincethatpropertybelongstothebeneficiariesinEquity.15 Also,ifthatpropertyhasbeen
misappropriatedandtransferredtoathirdparty,thebeneficiarieshaveaclaimbasedontheirequitableproperty
rightstorecoverthatproperty.16 Theobligationcomponentemphasizesthatthetrusteeowesanobligationtothe
beneficiariesasregardsthemanagementanduseofthatproperty.Thisissignificantbecauseitmeansthatthe
trusteeisunabletobenefitfromthatpropertyforhimorherself,savetotheextentthatheorshemightalsobea
beneficiaryofthetrust.
3.TheEssenceoftheTrust
InWestdeutscheLandesbank GirozentralevIslingtonLBC,17 LordBrowneWilkinsonidentifiedfourfundamental

principlesrelatingtoalltrusts,thatheconsideredtobeuncontroversial:18
Therelevantprinciplesoftrustlaw
(i)Equityoperatesontheconscienceoftheownerofthelegalinterest.Inthecaseofatrust,the
conscienceofthelegalownerrequireshimtocarryoutthepurposesforwhichthepropertywas
vestedinhim(expressorimpliedtrust)orwhichthelawimposesonhimbyreasonofhis
unconscionableconduct(constructivetrust).
(ii)Sincetheequitablejurisdictiontoenforcetrustsdependsupontheconscienceoftheholderofthe
legalinterestbeingaffected,hecannotbeatrusteeofthepropertyifandsolongasheisignorantof
thefactsallegedtoaffecthisconscience,i.e.untilheisawareinthecaseofaconstructivetrust,
ofthefactorswhichareallegedtoaffecthisconscience.
(iii)Inordertoestablishatrusttheremustbeidentifiabletrustproperty.Theonlyapparentexception
tothisruleisaconstructivetrustimposedonapersonwhodishonestlyassistsinabreachoftrust
whomaycomeunderfiduciarydutiesevenifhedoesnotreceiveidentifiabletrustproperty.19
(p.29) (iv)Onceatrustisestablished,asfromthedateofitsestablishmentthebeneficiaryhas,in
equity,aproprietaryinterestinthetrustproperty,whichproprietaryinterestwillbeenforceablein
equityagainstanysubsequentholderoftheproperty(whethertheoriginalpropertyorsubstituted
propertyintowhichitcanbetraced)otherthanapurchaserforvalueofthelegalinterestwithout
notice.
Theseprinciplesaresignificanttotheinterpretationandoperationoftrusts,althoughtheyaremorecontroversial
thanLordBrowneWilkinsonappearedtothink.Forexample,althoughhisLordshipisgenerallycorrecttostate
thatitisunconscionableforatrusteeappointedbyasettlortodenythetrustandkeepthepropertyforhimor
herself,thiswillonlybethecasewherethetrusteeisawarethatheorshehasbeenappointedastrustee.Buta
personmaybecomeatrusteedespitenotknowingthis20 insuchcircumstances,thetrusteewillnotbeawareof
significantfactsthataffecthisorherconscience.However,itisrightthattheremustbeidentifiabletrustproperty
inwhichthebeneficiaryhasanequitableproprietaryinterest.Asageneralrule,thetrusteeshouldkeeptrust
propertysegregatedfromhisorherownproperty.Ifadefendantisallowedtomixthepropertythathasbeen
receivedwithhisorherownproperty,thismaybeasignificantfactorwhichsuggeststhatthepropertyisnotheld
ontrust,butbythedefendantbeneficially.21
4.ClassificationofTrusts
Thereareavarietyofwaysinwhichtrustscanbeclassified,butthemostsignificantmethodsarebyreferenceto
theeventthatcreatesthetrustandbythecontextinwhichthetrustarises.
(a)ByEvent
Trustscanbeclassifiedbyreferencetoparticulareventstodeterminewhenthetrustarises.Thiseventbased
schemewaspropoundedbyBirks,22 andhasbeensummarizedbyChambers:23
Muchmoreusefulthantheconventionalclassificationoftrusts,asexpress,implied,resultingor
constructive,wouldbeaclassificationdistinguishingtrustsasgeneratedbyconsent,wrongs,unjust
enrichmentorotherevents.Theadvantageofthisapproachwouldbethegreatereaseofaligningthelawof
trustswithotherareasoflawrespondingtothesameideas.
Althoughthiseventbasedclassificationhasprovedusefultosomecommentators,ithasnotbeenendorsedby
thecourtsand,asregardstheclassificationoftrusts,itdoesnotreflectthestateofthelawandistoouncertain
tobeofanypredictivevalue.Forexample,thefinalcategoryofothereventsispotentiallyverywide,sincethere
areavarietyofothereventsthattriggertherecognitionoftrustsbutwhichcannotbeconsideredtofallwithinthe
firstthreecategoriesexamplesincludetrustsarisingfromunconscionableconductnotamountingtoa
recognizedwrong24 orestoppel.25 Further,nocasehasexplicitlyrecognizedthatatrustariseswherethe
defendantisunjustlyenrichedattheexpense(p.30) oftheclaimant.Similarly,thecommissionofmostwrongs,
suchasbreachofcontractandtort,willnottriggertherecognitionofatrustevenwherethedefendanthas
committedanequitablewrongofbreachoffiduciaryduty,atrustwillonlybetriggeredexceptionally.26 Finally,
whilstexpresstrusts,whichareintendedtobecreatedbyatrusteeorsettlor,mightfallwithinthecategoryof
consensualtrusts,thelanguageofconsentisinappropriatesinceitmightsuggestthatthecreationofan
expresstrustiscontractual.However,thereisusuallynocontractbetweenanyofthesettlor,trustee,or
beneficiary,primarilybecauseoftheabsenceofconsiderationbetweentheparties.
Itfollowsthatclassificationoftrustsbyeventis,atbest,unhelpfuland,atworst,distortsourunderstandingof
whentrustscanandshouldarise.
(b)ByContext
Itispreferabletocharacterizetrustsbyreferencetothecontextinwhichthetrustarises.AsMcBridehas
recognized:27
Ifyouwanttoknowwhatatrustisthenyouwillwanttoconsultorconstructanidentitybased
classificationoftrustswhichclassifiestrustsasinstancesofirreduciblydissimilarlegalconcepts.Ifthe
wordtrustdescribesonediscretelegalconceptthenunderanidentitybasedclassificationoftrustsall
trustswillbeclassifiedasinstancesofthesametypeoflegalconcept,thefeaturesofwhichcanthenbe
delineatedandusedtodefinewhatatrustis.
Variouscategoriesoftrustcanbeidentified.Infact,thecategoriesarenotmutuallyexclusive,sinceaparticular
trustmightfallwithinmorethanonecategory.
(i)Expresstrusts
Anexpresstrustiscreatedintentionallybythesettlor(ifthetrustiscreatedbysomebodywhilstheorsheis
alive,whosettlespropertyontrust)orthetestator(ifthetrustiscreatedbysomebodyinawill).Thesettlorofa
trustmayeitherdeclarethatheorsheholdspropertyontrustforsomebodyelseortransferpropertytosomebody
elsetoholdontrustforanother.
(ii)Fixedtrusts
Inafixedtrust,thebeneficiariesinterestsarespecifiedinthetrustinstrument.Forexample,9,000maybeheld
ontrustbyAlanforBrenda,Carol,andDebbieinequalshares,sothateachofthebeneficiarieshasaonethird
interestinthefund.
(iii)Discretionarytrusts
Anotherformofexpresstrustisthediscretionarytrustsunderwhichthetrusteeshavediscretiontoappoint
(meaningtodistribute)thepropertyastheywishtopeoplefromaparticularclassofpotentialbeneficiaries,
knownastheobjects.Forexample,1millionmaybesettledontrustforthetrusteesintheirabsolutediscretion
tousetopayfortheeducationofthechildrenofemployeesofaparticular(p.31) company.Thetrusteescould
thenallocatethefundtosuchchildrenofemployeesandinsuchamountsastheyconsideredappropriate.The
objectsofadiscretionarytrustdonothaveanequitableproprietaryinterestinthetrustproperty,sincethe
trusteesdiscretionmaynotbeexercisedintheirfavour.Instead,theyhaveonlyanexpectationthatthetrustees
mightexercisethediscretionintheirfavour.
(iv)Intervivostrusts
Trustsmaybecreatedintervivos,whichsimplymeansthattheyarecreatedwhilstthesettlorremainsalive.
(v)Testamentarytrusts
Atestatormayleavepropertyinhisorherwilltoabeneficiary,knownasadeviseeorlegatee,absolutely,so
thatoncethetestatorsestatehasbeenadministeredthepropertywillbetransferredtothelegatee.Butthe
testatormayinsteadwishtoleavesomepropertyontrust.Oncetheestatehasbeenadministered,thetrust
propertywillthenbetransferredtoatrusteetoholdonthetrustsidentifiedinthewill.Thiscouldbea
discretionarytrustoritcouldbeafixedtrustinwhichthetestatorhascreatedsuccessiveinterests.
(vi)Baretrusts
Abaretrustariseswherepropertyisvestedinthetrusteeforthesolebenefitofthebeneficiary,whoisoffullage.
Thetrusteeofabaretrusthasnoactivedutiesrelatingtothemanagementanddisposalofthetrust
property,28 butisboundtofollowtheinstructionsofthebeneficiary.Thiscanbecomparedwithasocalled
specialtrust,wherespecialdutiesareimposedonthetrusteetomanagethepropertyandtodistributeittothe
beneficiaries.
(vii)Publicandprivatetrusts
Trustsmaybecreatedforpublicpurposesaswellasforindividualsoraclassofpeople.Trustsforindividualsor
classesofpeopleareprivatetrusts,sincetheyarenotcreatedforthebenefitofthepublic.Publictrusts,known
ascharitabletrusts,mustoperateforthebenefitofthepublic.29
(viii)Protectivetrusts
Aprotectivetrustprotectsabeneficiarysassetsagainsttheeffectsofbankruptcyorothermisfortune.30 The
typicalprotectivetrustinvolvesthebeneficiarybeinggivenalifeinterestthatisdeterminableontheoccurrenceof
adesignatedevent,suchasthebeneficiarysbankruptcyortheassignmentoftheinterest.Ifthedesignatedevent
occurs,thelifeinterestisforfeited,butthepropertywillthenbeheldonadiscretionarytrust,withtheoriginal
beneficiarybeingamemberoftheclasswhomightstillbeabletobenefitfromtheexerciseofthetrustees
discretion.
Thetrustiscalledprotectivebecauseitprovidesamechanismforprotectingthebeneficiaryfromadverseevents.
DonovanLJrecognizedthatthistrustisintendedasprotectiontospendthriftorimprovidentorweaklife
tenants.31 Theuseofthetrusthasprovedtobeespeciallyimportantwhere(p.32) aparentisconcernedabouta
profligatechildlosingpropertyonbeingdeclaredbankrupt.So,ifthebeneficiarybecomesbankrupt,the
terminationofhisorherlifeinterestmeansthatthereisnopropertyavailabletothebeneficiaryscreditors,
becauseheorshenolongerhasanequitableproprietaryinterestinthatproperty.
Theprotectivetrustisaparticularlysignificantmechanismfordefeatingtheclaimsofcreditorsandsoissubject
toanumberofrestrictions.Forexample,itcannotbecreatedbyasettlortoprotecthisorherownpropertyfrom
creditorsonbeingdeclaredbankrupt.32 Thenatureoftheprotectivetrustandtheconsequencesofforfeiturecan
bedeterminedexpresslybythetrustinstrument,butifthatinstrumentsimplysaysthatthebeneficiaryhasalife
interestandthepropertyisheldonprotectivetrust,33 thestatutoryregimeundersection33oftheTrusteeAct
1925applies.
TrusteeAct1925
33.ProtectiveTrusts
(1)Whereanyincomeisdirectedtobeheldonprotectivetrustsforthebenefitofanyperson(inthis
sectioncalledtheprincipalbeneficiary)fortheperiodofhislifeorforanylessperiod,then,duringthat
period(inthissectioncalledthetrustperiod)thesaidincomeshall,withoutprejudicetoanyprior
interest,beheldonthefollowingtrusts,namely:
(a)Upontrustfortheprincipalbeneficiaryduringthetrustperiodoruntilhe,whetherbeforeor
aftertheterminationofanypriorinterest,doesorattemptstodoorsuffersanyactorthing,or
untilanyeventhappens,otherthananadvanceunderanystatutoryorexpresspower,whereby,
ifthesaidincomewerepayableduringthetrustperiodtotheprincipalbeneficiaryabsolutely
duringthatperiod,hewouldbedeprivedoftherighttoreceivethesameoranypartthereof,in
anyofwhichcases,aswellasontheterminationofthetrustperiod,whicheverfirsthappens,
thistrustofthesaidincomeshallfailordetermine.
(b)Ifthetrustaforesaidfailsordeterminesduringthesubsistenceofthetrustperiod,then,
duringtheresidueofthatperiod,thesaidincomeshallbeheldupontrustfortheapplication
thereofforthemaintenanceorsupport,orotherwiseforthebenefit,ofalloranyoneormore
exclusivelyoftheotherorothersofthefollowingpersons(thatistosay)
(i)theprincipalbeneficiaryandhisorherspouseorcivilpartner,ifany,andhisorher
childrenormoreremoteissue,ifanyor
(ii)ifthereisnospouseorcivilpartnerorissueoftheprincipalbeneficiaryinexistence,the
principalbeneficiaryandthepersonswhowould,ifhewereactuallydead,beentitledtothe
trustpropertyortheincomethereofortotheannuityfund,ifany,orarrearsoftheannuity,
asthecasemaybe
asthetrusteesintheirabsolutediscretion,withoutbeingliabletoaccountfortheexerciseof
suchdiscretion,thinkfit.
Theconsequencesofforfeituremaybebeneficialtothebeneficiary,especiallywheretheeffectistoprotecttrust
propertyfromcreditors.Butitmaysometimeshaveadverseconsequencesforthebeneficiary.Forexample,inRe
BaringsSettlementTrusts,34 awifehadaprotectedlifeinterestwithincomepayabletoheruntilsomeevent
happenedbyvirtueofwhichtheincomewouldbecomepayableto(p.33) somebodyelse.Shefailedtoobeya
courtordertoreturnherinfantchildrentothejurisdictionofthecourtandconsequentlyherhusbandobtaineda
sequestrationorderagainstherproperty.Thiswassufficienttoforfeitherlifeinterest,becauseshenolongerhad
arighttoreceivetheincomefromthetrustpropertyadiscretionarytrust,therefore,arose,eventhoughthe
sequestrationorderwasonlytemporary.MortonJsaid:35
[thesettlor]intendedthatthereshouldbeacontinuousbenefittothebeneficiariessothateitherthetenant
forlifeshouldbeinapositiontohavetheincomeorthediscretionarytrustshouldarise.
ThiscanbecomparedwithReOppenheimsWillTrusts,36 whereatenantforlifeunderaprotectivetrusthadbeen
certifiedasapersonofunsoundmind.Areceiverwasconsequentlyappointedtoconducthisaffairs.HarmanJ
heldthatthisdidnoteffectaforfeitureandsaid:37
Ithinkthatamanwhohasastatutoryagent,asthismanhas,cangivebyhisagentapersonaldischarge
nolessthanifhewereonthetopofMountEverest,hisbankercouldgiveapersonaldischargeonhis
behalf.Itseemstomealsothattheforfeiturewasnotintendedtooperateinacaseofthiskindwhereno
oneelsewillbeentitledtothebenefitoftheincomeintheeventwhichhashappened.Itwasintendedto
preventtheincomefromgettingintootherhands.Thatdoesnotoccurinthepresentcase.
Oncethelifeinteresthasbeenforfeitedthediscretionarytrustcomesintoeffectandthetrusteesareobligedto
exercisetheirdiscretiontodisposeofthepropertytooneofthemembersoftheclass.38 Thiscouldbethe
beneficiarywhoformerlyhadthelifeinterest,butonlyifthetrusteesconsiderittobeappropriatetoexercisetheir
discretioninthisway.
Iftheprincipalbeneficiaryactsinsuchawayastoinadvertentlyforfeithisorherprotectedlifeinterest,itmightbe
possiblefortheacttobesetasidethroughtheexerciseoftheequitablejurisdictionrelatingtomistake.39 For
example,inGibbonvMitchell,40 theclaimantvoluntarilysurrenderedhisprotectedlifeinterestinfavourofhis
childrenbyadeed,inordertominimizehisinheritancetaxliability.However,hedidnotrealizethatthiswould
resultintheforfeitureofthelifeinterestandbringadiscretionarytrustintoeffect.Consequently,thedeedof
surrenderwassetasideonthegroundthathehadmadeaseriousmistake.
(ix)Pensionfundtrusts
Atypicalcontributorypensionschemeinvolvesmembersofthescheme,whoareemployeesofacompanyora
groupofcompanies,contributingapercentageoftheirsalarytothescheme.Theiremployeralsomakes
contributions.Onretirement,themembersoftheschemereceivedefinedbenefits,eitherasaproportionoftheir
finalsalaryoroftheiraveragesalary.Althoughcontributorypensionschemescanbeestablishedcontractually
withoutusingatrust,thetrustmechanismisusedforlargepensionschemesasawayofmanagingsubstantial
sumsofmoneyforthebenefitof(p.34) theemployeeswhoparticipateinthescheme.Thiswasconsideredby
LordMillettinAirJamaicaLtdvCharlton:41
Apensionschemecan,intheoryatleast,beestablishedbycontractbetweentheemployerandeach
employeeandwithoutusingthemachineryofatrust.Suchaschemewouldhavetobeverysimple.It
wouldlookverylikeaselfemployedpensionpolicy.Therewouldbenotrustfundandnotrustees.The
employerwouldsimplycontractwitheachofhisemployeesthat,iftheemployeemadeweeklypayments
totheemployer,theemployerwouldpaytheemployeeapensiononretirementoralumpsumondeath.
Theemployerwouldnotmakeanycontributionsitself,sincetherewouldbenoonetoreceivethem.But
thebenefitswouldbecalculatedatahigherlevelthanwouldbejustifiedbytheemployeescontributions
alone.
Thecompanyspensionschemewas,however,ofaverydifferentkind.Atrustfundwasestablishedwith
itsowntrustees.Contributions,whetherbymembersorbythecompany,werepaidintothetrustfund,and
thetrusteesweregivenpowersofinvestmentoverthefund.Thebenefitswerefundedinpartby
contributionsandinpartbytheincomeoftheinvestmentsheldinthefund.Theinterpositionofatrustfund
betweenthecompanyandthemembersmeantthatpaymentofbenefitstomemberswastheresponsibility
ofthetrustees,notthecompany.Themachineryemployedwasthatofatrust,notacontract.
Thisisnottosaythatthetrustislikeatraditionalfamilytrustunderwhichasettlorvoluntarilysettles
propertyforthebenefitoftheobjectofhisbounty.Theemployeemembersofanoccupationalpension
schemearenotvoluntarysettlors.Ashasbeenrepeatedlyobserved,theirrightsarederivedfromtheir
contractsofemploymentaswellasfromthetrustinstrument.Theirpensionsareearnedbytheirservices
undertheircontractsofemploymentaswellasbytheircontributions.Theyareoftennotinappropriately
describedasdeferredpay.Thisdoesnotmean,however,thattheyhavecontractualrightstotheir
pensions.Itmeansonlythat,inconstruingthetrustinstrument,regardmustbehadtothenatureofan
occupationalpensionandtheemploymentrelationshipthatformsitsgenesis.
Inthepresentcaseprospectiveemployeeswereinformedthatthecompanymaintainedapensionscheme
foritsstaffandthatmembershipwascompulsoryforthoseunder55yearsofage.Theyweretoldthe
amountoftheemployeescontribution,andthatthecompanypaidanamountnotlessthanthe
employeescontribution,plusanyamountnecessarytosupportthefinancialviabilityofthescheme.Even
ifthesecanberegardedasimposingcontractualobligationsonthecompany,theonlyobligationwhich
wasundertakenbythecompany,andonewhichithasfullyperformed,wastomakecontributionstothe
fund.Theobligationtomakepensionpaymentswasnotacontractualobligationundertakenbythe
company,butatrustobligationimposedonthetrustees.eachemployeebecomesamemberofthe
pensionschemebyvirtueofhisemployment,buthisentitlementtoapensionarisesunderthetrustsof
thescheme.
TheirLordshipsshouldaddforcompletenessthat,whilethemembersentitlementsariseunderthetrusts
ofthepensionplan,thecompanysobligationtodeductcontributionsfrommembersandtopaythemto
thetrusteestogetherwithitsownmatchingcontributions,iscontractual.Thecompanyundertookthis
obligationbyitscovenantwiththetrusteesinthetrustdeed.Theobligationwas,however,subjecttothe
powerofthecompanyunilaterallytodiscontinuetheplanundersection13.2oftheplan.
Itiswellestablishedthat,absentstatutoryintervention,suchpensionsschemesaresubjecttotherule
againstperpetuitiestheSocialSecurityAct197342 makesspecialprovisionforallqualifying
occupationalpensionschemestobeexemptfromtherule.
(p.35) Haytonhasnotedthat:43
thespeciesofpensiontrustshouldberegardedashavingevolvedfromthetrustgenusasadrastically
differentspeciesfromthespeciesoftraditionalfamilytrust.
Thismaywellbetrue,butthepensiontrustisagenuinetrustandisinfluencedbyfundamentalprinciplesoftrust
law.44 Infact,someoftheleadingcasesonthemodernlawoftrustsarepensiontrustcases.45 But,asLord
MillettrecognizedinAirJamaica,theexistenceoftheemployeescontractofemploymentmeansthatsomeof
theprinciplesareapplieddifferently.46 So,forexample,thetypicaltripartitestructureofthetraditionaltrust,in
whichthesettlor,trustee,andbeneficiaryareallindependentanddistinct,doesnotoperateinthesamewayfor
pensiontrusts.ThiswasrecognizedbyBrowneWilkinsonVCinImperialGroupPensionTrustvImperial
TobaccoLtd:47
Pensionschemetrustsareofquiteadifferentnaturetotraditionaltrusts.Thetraditionaltrustisoneunder
whichthesettlor,bywayofbounty,transferspropertytotrusteestobeadministeredforthebeneficiaries
asobjectsofhisbounty.Normally,thereisnolegalrelationshipbetweenthepartiesapartfromthetrust.
Thebeneficiarieshavegivennoconsiderationforwhattheyreceive.Thesettlor,asdonor,canimposesuch
limitsonhisbountyashechooses,includingimposingarequirementthattheconsentofhimselforsome
otherpersonshallberequiredtotheexerciseofthepowers.
apensionschemeisquitedifferent.Pensionbenefitsarepartoftheconsiderationwhichanemployee
receivesinreturnfortherenderingofhisservices.Inmanycases,includingthepresent,membershipofthe
pensionschemeisarequirementofemployment.Incontributoryschemes,suchasthis,theemployeeis
himselfboundtopayhisorhercontributions.Beneficiariesofthescheme,themembers,farfrombeing
volunteershavegivenvaluableconsideration.Thecompanyemployerisnotconferringabounty.
Inapensiontrust,eachmemberisasettlorofaseparatesettlementwithintheheadtrust,butthatmemberis
alsothebeneficiary.Theemployeescontractofemploymenttreatstheprovisionoftheirpensionrightsaspartof
theirpaythereceiptofbenefitsbytheemployeesubsequentlycanbeconsideredtobedeferredremunerationfor
theirservicestotheiremployer.
Whereastrusteesoftraditionaltrustsarerequiredtopromotethebestinterestsofthebeneficiariesexclusively,
thisisnottrueofpensiontrustees.AsFoxhasobserved:48
pensiontrustsdonotoperateinanarrowsettingwherethetrusteesexclusiveconcernistopromotethe
membersbestinterests.TheviewofSirRobertMegarryVCinCowanvScargill[1985]Ch.270,28889
thatpensiontrustees,liketraditionaldonativetrustees,mustaimtopromotetheirbeneficiariesbest
financialinterestsmighthavebeentruefortheirinvestmentpowersbutitisnotnecessarilytrueforall
powersofpensiontrustees.Themembersareonesectionofalargernetworkofrelevant(p.
36) participantsinthepensionscheme.Sothetrusteesmustalsohaveregardtotheemployersinterest
inoperatingtheschemeThisisentirelyappropriate.Theschemeisanadjuncttotheemployers
business.Theemployercarriestheimmediateriskofmoralhazardarisingfromthetrusteesdecisions
sinceitisliabletopaythebalanceofcostoffundingtheschemeifitfallsintodeficit.
AnotherparticipantinthisnetworkisthePensionsProtectionFund,aninsuranceschemethatunderwrites
pensionschemesthatareindeficitwhentheyarewoundup.Trusteesofthepensionfundcannot,however,
exercisetheirdiscretioninsuchawayastoincreasethetrustfundssurpluswhilstrelyingonthePensions
ProtectionFundtounderwritetheeffectoftheiractions,sincethatFundwasonlyintendedtoprovide
compensationinthelastresort.49
Thefinancialsignificanceofpensiontruststomanyemployees,andthedangersofabuseofpowersand
misappropriationoftrustassetsbyemployers,hasmeantthatthesetrustsareregulatedbystatute,notablythe
PensionsAct1995.Thisprovidessafeguardsfortheprotectionofbeneficiaries,includingarequirementtoappoint
professionaladvisersandaminimumfundingrequirementtopreventashortfalloffunds.50 ThePensionsAct2004
resultedinthecreationofaPensionsRegulatortoreducethepossibilityofpensionfundsbeingmisappropriated.
(x)Resultingtrusts
Incertainrecognizedsituations,atrusteewillholdpropertyontrustforthepersonwhotransferredpropertytothe
trustee.Thisfactpatternisnotexclusivetoresultingtrusts:atrusteemayholdpropertyforthesettlorunderan
expresstrust,forexample.However,whereasanexpresstrustarisesbecauseitwasexpresslyintended,the
resultingtrustariseswheretheintentionsofthetransferorhavenotbeenmadeexpressbutthetransferoris
presumedtohaveintendedthatthepropertytransferredbeheldontrustforhimorher.Thepropertyissaidto
resultbacktothesettlorortheestateofthetestator,andsothetrustiscalledaresultingtrust.51 Atrusteewill
holdpropertyonresultingtrustforthesettlorwhosoughttocreateanexpresstrustthathasfailed.Similarly,
whereatransferorhastransferredpropertytothetransfereefornoconsiderationinreturn,itwillgenerallybe
presumedthatthetransferorintendedthetransfereetoholdthepropertyontrustforhimorherself.
(xi)Constructivetrusts
Theconstructivetrust52 arisesthroughtheapplicationoflegalrules,ratherthantheexpressorpresumedintentof
asettlor.Thesetrustsarerecognizedinanumberofdifferentcircumstances,butprimarilywheretherecipientof
propertycanbeconsideredtohaveactedunconscionably,suchaswherethepropertywasobtainedfraudulently.
5.ReasonsforCreatinganExpressTrust
Thereareavarietyofreasonswhysomeonewouldwishtocreateatrust,withtheconsequentseparationoflegal
andequitabletitle,whetherinthecontextofthefamily,orbusinessandfinance.
(p.37) (a)SegregationofAssets
Thetrustenablestrustassetstobesegregatedfromotherassetsofthesettlor.Providedthatthesettlorisnot
alsothebeneficiaryunderthetrust,thisarrangementwillprotectthetrustassetsfromtheconsequencesofthe
settlorsinsolvency.Ifthesettlorbecomesinsolvent,heorshewillnolongerhaveanyproprietaryinterestinthe
assets,sotheywillnotbeavailabletohisorhercreditors.Segregationofassetsisalsorelevantasregardsthe
trustee,sinceifthetrusteebecomesinsolvent,thetrustassetswillnotbeavailableforthetrusteescreditors,
becausetheassetsbelongtothebeneficiariesinEquity.
(b)AssetPartitioning
Assetpartitioningreferstotheabilitytotakeanassetandtocreatedifferentrightsinthatasset.Inthefamily
context,assetpartitioningcanbeespeciallysignificantbecauseitenablesthesettlorortestatortoprovideforthe
successiveenjoymentofproperty,suchaswhenpropertyislefttoawifeforlifewithremaindertothetestators
children.Thismeansthatthewifewillhavethebenefitofthepropertyforherlife,but,onherdeath,theproperty
willpasstothechildren.
(c)ManagementofProperty
Theremaybeaparticularadvantageinhavingtrusteesmanageandadministerthepropertyonbehalfofthe
beneficiaries.Forexample,thetrusteesmighthaveparticularfinancialandinvestmentexperience.Alternatively,
thebeneficiariesmaybetooyoungtomanagethepropertythemselves,oritmightbethattheycannotbetrusted
withthepropertyineitherevent,itispreferableforsomebodyelsetomanagethepropertyontheirbehalf.Thisis
oneofthemainreasonswhythetrustisusedinthecommercialworld,suchasforpensionfunds.Itis
commerciallyusefulforagroupofpeopletobeabletoinvesttheirfundsbymeansofaunitorinvestmenttrust,
underwhichtrusteesholdinvestmentsinarangeofsecuritiesintrustforinvestorswhohavepurchasedunitsor
sharesinthetrustfund.
(d)TaxAvoidance
Taxationisoftenaprominentconsiderationinthedecisiontocreateatrust.Theuseofthetrustcanprovidea
mechanismforavoidingorminimizingataxliability.Thetrustissignificantinthisrespectbecauseitenables
morethanonepersontohaveaninterestinpropertyitis,therefore,possibletostructuretheownershipof
propertyinsuchawayastoensurethatonepersonbenefitsfromthepropertybutthatanotherownsitatlaw.For
example,asettlormaynamehisorherinfantchildrenasbeneficiariesofsomeofhisorherassetsifthesettlor
isahigherratetaxpayer,thismightbeadvantageousasthetrustmaybechargedalowerrateoftax.Another
optionisforthesettlortotransfertitletopropertytoatrusteewhoisresidentinanothercountrythatisatax
haven,wherelittleornotaxispaid,sothatthetrustwouldbetaxedinthatcountry.
Thetrustcannotbeusedasamechanismtoevadethepaymentoftaxthatisalreadydue,sincethatisa
criminaloffence.Thetrustcan,however,beusedtoavoidormitigateataxliability.Thedistinctionbetweentax
avoidanceandmitigationwasrecognizedbyLordNolaninInlandRevenueCommissionersvWilloughby:53
Thehallmarkoftaxavoidanceisthatthetaxpayerreduceshisliabilitytotaxwithoutincurringthe
economicconsequencesthatParliamentintendedtobesufferedbyanytaxpayerqualifyingforsuch
reductionin(p.38) histaxliability.Thehallmarkoftaxmitigation,ontheotherhand,isthatthetaxpayer
takesadvantageofafiscallyattractiveoptionaffordedtohimbythetaxlegislation,andgenuinelysuffers
theeconomicconsequencesthatParliamentintendedtobesufferedbythosetakingadvantageofthe
option.
Taxmitigationisalwayslegitimate.Taxavoidanceisgenerallylegitimate,althoughthemoreartificialthescheme
themorelikelythatitwillbefoundtobeasham.
Awidevarietyoftaxavoidanceschemeshavebeendeveloped,whichusethetrustastheirmeansof
implementation.ThefundamentalprinciplerelatingtothevalidityofsuchschemeswasrecognizedbyLordTomlin
inIRCvDuk eofWestminster:54
EverymanisentitledifhecantoarrangehisaffairssothatthetaxattachingundertheappropriateActsis
lessthanitotherwisewouldbe.Ifhesucceedsinorderingthemsoastosecurethatresult,then,however
unappreciativetheCommissionersofInlandRevenueorhisfellowtaxpayersmaybeofhisingenuity,he
cannotbecompelledtopayanincreasedtax.
Butifatrustiscreatedsolelytoavoidtaxliabilityandithasnootherpurpose,itisprobablyashamandwillbe
treatedasinvalid.55
Whereincomearisesfromatrust,itstaxationtakesplaceattwodifferentstages.Thetrusteesarechargeable
becausetheyreceivetheincome,56 andthebeneficiariesarealsoassessableonanyincometheyreceivedunder
thetrust,butsuchassessmentwilltakeaccountofanyIncomeTaxalreadypaidbythetrustees.However,where
thetrustisabaretrust57 thebeneficiaryistaxedasthoughheorsheweretheabsoluteowneroftheproperty.58
ThetrusteeswillbechargeabletoCapitalGainsTaxonanyincreaseinthecapitalvalueoftrustassetsmadein
disposingoftrustassetsinthecourseofadministeringthetrust.Asettlorwhosettlespropertyontrustwillnot,
however,beliabletopaytaxonanygaininthecapitalvalueofthepropertyunlessheorsheretainsaninterestin
thatproperty.InheritanceTaxisthetaxthatmostconcernsthetrustlawyer.Thisisthetaxthatispaidonthe
valueofadeceasedsestate.TheuseofthetrustcanbeespeciallysignificantinreducingInheritanceTax
liability,especiallywherepropertyissettledontrustandthesettlordoesnotdiewithinthenextsevenyears.59
6.DistinguishingTrustsfromotherLegalMechanisms
Tounderstandthetrustitisimportanttodeterminehowitdiffersfromotherlegalmechanisms.Sometimesthe
boundariesareclear,buttheyarebecomingmoredifficulttodefine.
(a)Contract
Trustandcontractareverydifferentconcepts.Contractisbaseduponagreement,requiringeitheradeedor
consideration,andcreatesapersonalrightagainsttheotherparty.Thetrustisanequitable(p.39) concept,
arisingtypicallybyvirtueoftheintentionofthesettlorortestator,andcreatesproprietaryandpersonalrightsin
thebeneficiary,whichheorsheisabletoenforcedespitebeingavolunteerandnotapartytoanybargain.
Whereasonecontractingpartycansuetheotherforbreachofcontract,oncethetrusthasbeencreated,the
settlorcannotsuethetrusteeforbreachoftrustandcannotseektheterminationofthetrust.
Itisimportantalsotodistinguishbetweenthecreationofatrustandacontractorcovenanttocreateone.Oncea
trustiscreated,thebeneficiariesbecomeownersinEquityoftheirshareofthesettledproperty.Butifthesettlor
hasonlypromisedtocreateatrustortoaddpropertytoanexistingsettlement,bymeansofacovenant,the
rightsoftheintendedbeneficiariesdependonwhethertheycancompelthesettlortoperformthecovenant.
Traditionally,theycannotdosoiftheyarevolunteers,forEquitydoesnotassistavolunteer.60 However,theeffect
ofthisrulehasnowbeenmodifiedbytheContracts(RightsofThirdParties)Act1999.61
Despitethesedifferencesbetweentrustandcontract,thereareagrowingnumberofsituationsinwhichthe
dividinglinebetweenthemisblurred.Forexample,thetrustmightderivefromacontract,suchasthepension
fundtrustthatderivesfromtheemploymentcontract.62 Contractscanalsomodifytheapplicationoftherulesin
thelawoftrustsandevenexcludethem.63 Thisisparticularlyimportantsincemanytrusteesareprofessionals
whosedutiesandresponsibilitiesaredeterminedbytheircontractofappointment,whichwilloftenexcludetheir
64
liabilityforbreachoftrust.64
(b)Debt
Therelationshipofcreditoranddebtorisoneofpersonalobligation,sincethedebtorispersonallyliabletothe
creditorforthevalueofthedebt.Ifthedebtorbecomesinsolvent,hisorherassetswillbeavailabletoallhisorher
creditors,whowillnothavepriorityovereachotherunlessoneofthemhasasecurityinterestoverthedebtors
property.Therelationshipofbeneficiaryandtrusteeisdifferent,becausethebeneficiaryhasanequitable
proprietaryinterestinthetrustassets,sothatheorshewillbeabletoclaimthoseassetsinprioritytothe
trusteescreditorsifthetrusteebecomesinsolvent.
ThedistinctionbetweentrustanddebtisillustratedbyDugganvGovernorofFullSuttonPrison.65 Aruleinthe
PrisonRulesprovidedthatanyprisonerwhohadcashinprisonwasrequiredtopayitintoanaccountunderthe
Governorscontrol.TheCourtofAppealheldthatthiscreatedarelationshipofdebtorandcreditor,butdidnot
imposeatrust,becausetherewasnothinginthePrisonRulestoindicatethatatrustwasintended.Itfollowed
that,sincetheGovernorhadnotreceivedthemoneyastrustee,hewasnotobligedtoinvestthemoneyinan
interestbearingaccountforthebenefitoftheprisoners.
Thecreditordebtorrelationshipisnot,however,entirelyalientothetrust.Thetrusteemaybepersonallyliableto
thebeneficiaryforbreachoftrust,andthisliabilitywillcreateadebtowedtothebeneficiary,sothat,tothis
extent,thebeneficiaryisthecreditorofthetrustee.66
WhetherthebeneficiarycanbeconsideredtobecreditorofthetrusteewassignificantinReLehmanBrothers
International(Europe)(No.2).67 Abank,LehmanBrothers,hadcollapsed,leavingalotof(p.40) moneyowingto
creditors.Toensurethatthecreditorswerepaidsomeofwhattheywereowed,thebanksadministratorsapplied
forasocalledschemeofarrangement68 toreducesomeofthebanksliabilities,whichrequiredtheconsentof
creditorstobeeffective.Oneissueforthecourtconcernedtheidentificationofcreditors.PattenLJsaid:69
acreditorwillconsistofanyonewhohasamonetaryclaimagainstthecompanywhich,whenpayable,
willconstituteadebt.Contingentclaimsareincludedforthispurpose.Aclaim(e.g.)fordamagesintortis
stillalegalliabilityofthecompanywhichwillultimatelyresultineitheranagreedpaymentorajudgment
debt.TheSchemehasbeendraftedsoastoexcludeanyonewhoseonlyclaimagainstthecompanywill
beoneinrem.TobeaSchemeCreditoronehastohaveacurrentorcontingentclaimfordamagesor
equitablecompensationagainstthecompany,eitherofwhichissufficienttorendertheclaimantacreditor
atleastinthatrespect
Itisobviousthatsomeonewithapurelyproprietaryclaimagainstthecompanyisnotitscreditorinany
conventionalsenseofthatword.Asamatterofordinarylanguage,acreditorissomeonetowhommoney
isowed
Noonecandisputethatacreditorwithsecurityforwhatisowedremainsacreditorofthecompany.Their
securityexistsandisonlyenforceabletotheextentandforsolongastheunderlyingindebtedness
continues.Theinterestsgrantedtosecuredcreditors(which,inthecaseofrealproperty,amounttoa
legalestate)areonlyeverheldassecurityinterestssubjecttothedebtorsequityofredemption.An
arrangementunderwhichthatindebtednessisreorganisedwillthereforenecessarilyimpactonany
securityheldinrespectofitandmayinvolvetherepatriationofthedebtorspropertyfreefromthecharge.
Whenthisoccursthesecuredcreditorissimplyreturningtothedebtorpropertywhichthecreditornever
ownedbeneficiallyandwasonlyeverheldassecurityforthedebt.BlackburneJwasquiterighttoregard
thisaswhollydifferentfromtheconversecaseofpropertywhichhasneverformedpartofthecompanys
assetsbutisheldbyitonlyastrustee.
Itfollowedthatformerclientsofthebankwhohadequitablerightsinpropertythatwasheldbythecompanyon
trustforthemwerenotcreditors,becauseaproprietaryclaimtotrustpropertydidnotconstituteaclaimin
respectofadebtowedbythecompany:thebeneficiariesofthetrustwouldhaveaclaimtothepropertythatwas
heldontrustratherthantothevalueofthatproperty.Bycontrast,thosewhohadsecurityrightsinthecompanys
propertywouldbeclassedascreditorsofthecompany,sincetheywouldnothaveaclaimtorecoverparticular
property,butaclaimonlytothevalueofwhatwasduetothem.Admittedly,byvirtueofsuchcreditorssecurity
overproperty,theirclaimswouldrankabovethoseofotherunsecuredcreditorsofthebank,butthecreditorwitha
securityinterestisstillproperlycharacterizedasacreditor.
Theboundarybetweentrustanddebtissometimesblurred.Itis,forexample,possibleforadebtitselftobethe
subjectmatterofatrust.70 Itisalsopossibletoensurethatwhatmightotherwisebeasimpledebtisconsidered
tobeatrustwheremoneyislentforaparticularpurposeand,ifthatpurposefails,theborrowerwillholdthe
moneyontrustforthecreditor.71
(p.41) (c)Bailment
Thetrustandbailmentappeartohavemuchincommon,sincebothinvolveobligationstolookafterpropertyfor
thebenefitofanother,withthetrusteeholdingthepropertyforthebeneficiaryandthebaileeforthebailor.This
wasconsideredbyMaitland:72
Wemustdistinguishthetrustfromthebailment.Thisisnotveryeasytodo,forinsomeofourclassical
textbooksperplexinglanguageisusedaboutthismatter.Forexample,Blackstonedefinesabailment
thus:Bailment,fromtheFrenchbailler,isadeliveryofgoodsintrust,uponacontractexpressedor
implied,thatthetrustshallbefaithfullyexecutedonthepartofthebailee(Comm.II,451).
Hereabailmentseemstobemadeakindoftrust.Nowofcourseinonewayitiseasyenoughto
distinguishabailmentfromthosetrustsenforcedbyequity,andonlybyequity,ofwhichwearespeaking.
Wesaythattherightsofabailoragainsthisbaileearelegal,arecommonlawrights,whilethoseof
acestuiquetrustagainsthistrusteearenevercommonlawrights.Butthenthisseemstobeaputtingof
thecartbeforethehorsewedonotexplainwhycertainrightsareenforcedatlawwhileotherrightsareleft
toequity.
Letuslookatthematteralittlemoreclosely.OntheonehandwewillhaveabailmentAlendsBa
quantityofbooksAletstoBaquantityofbooksinreturnforaperiodicalpaymentAdepositsalotof
bookswithBforsafecustody.IneachofthesecasesBreceivesrightsfromA,andineachofthesecases
BisunderanobligationtoAheisboundwithmoreorlessrigourtokeepthebookssafelyandtoreturn
themtoA.StillwedonotIthinkconceivethatBisboundtouseonAsbehalftherightsthathe,B,hasin
thebooks.SuchrightsasBhasinthemhehasonhisownbehalf,andthoserightshemayenjoyas
seemsbesttohim.Ontheotherhand,Sismakingamarriagesettlementandthepropertythatheis
settlingincludesalibraryofbooksheveststhewholeownershipofthesebooksinTandTwhoareto
permitStoenjoythemduringhislifeandthentopermithisfirstbornsontoenjoythemandsoforth.Not
unfrequentlyvaluablechattelsarethussettledsothatwhoeverdwellsinacertainmansionduringthe
continuanceofthesettlementshallhavetheuseofthepictures,books,plate,andsoforth.NowhereT
andTarefullownersofthechattels.Sandtheothercestuiquetrustshavenorightsinthechattels,butT
andTareboundtousetheirrightsaccordingtothewordsofthesettlement,wordswhichcompelthemto
allowSandtheothercestuiquetruststoenjoythosethings.
Youmaysaythedistinctionisafineone,almostametaphysicaloneandverylikelyIamnotstatingit
wellbuttherearetwotestswhichwillbringoutthedistinction.Theoneisaffordedbythelawofsale
Aisthebailor,BisthebaileeofgoodsBsellsthegoodstoX,thesalenotbeingauthorisedbytheterms
ofthebailmentX,thoughhepurchasesingoodfaith,andthoughhehasnonoticeofAsrights,does
notgetagoodtitletothegoods.AcanrecoverthemfromhimifheconvertsthemtohisusehewrongsA.
Why?Becauseheboughtthemfromonewhowasnotownerofthem.Turntotheothercase.Tisholding
goodsastrusteeofSsmarriagesettlement.InbreachoftrusthesellsthemtoXXbuysingoodfaithand
hasnonoticeofthetrust.Xgetsagoodtitletothegoods.Twastheownerofthegoodshepassedhis
rightstoXXbecametheownerofthegoodsandShasnorightagainstXforitisanelementaryrule
thattrustrightscannotbeenforcedagainstonewhohasacquiredlegal(i.e.commonlaw)ownershipbona
fide,forvalue,andwithoutnoticeoftheexistenceofthosetrustrights.Hereyouseeonedifference
betweenthebaileeandthetrustee
Casescanbeconceivedwhereitwouldbedifficulttosaywhethertherewasabailmentbydepositora
trust.Forinstance,IgoabroadinahurryanddonotknowwhetherIshallreturn.Isendapianotoafriend,
andIsaytohim,TakecareofmypianoandifIdontreturngiveittomydaughter.Thismaybeconstrued
bothways,asabailmentorasatrust.Perhapstheageofmydaughterathingstrictlyirrelevantwould
decidewhichwayitwouldgo.
(p.42) Thecrucialdifferencebetweenbailmentandtrustturnsonthelocationofthelegalownership:thetrustee
typicallyobtainslegalownershiptopropertyandmanagesthepropertyforthebenefitofthosewhohavean
equitableproprietaryinterest,whereasthebaileedoesnotobtainlegalownership,andmanagesthepropertyfor
thelegalowner,thebailor.73 Thenatureofthedutiesofmanagementandtheconsequencesofmisapplicationof
thepropertywilldependonwhetheratrustorabailmentcanbeidentified,andthiswillturnonwhatthetransferor
ofthepropertyintended.AsMaitlandobserved,wherethepropertyissoldtoathirdpartyingoodfaiththe
differencesbetweentrustandbailmentarestark:thebailormayrelyuponhisorherlegaltitletosuethethird
partyforthetortofconversion,evenifthethirdpartypurchaserboughtthepropertyforvalueandingoodfaith,but
theequitableownerofthepropertywillnotbeabletobringanyclaimagainstsuchathirdparty,sinceany
equitableinterestinthepropertywillbedefeatedbythethirdpartysbeingabonafidepurchaserforvaluewithout
notice.74
Therewillsometimesbecircumstancesunderwhichabailmentwillbeconvertedintoatrust,suchaswherethe
baileehassoldthepropertythatheorshewaslookingafterandtheproceedsofsalearemixedwithhisorher
ownmoney.Legaltitlewillthenbetransferredtothebailee,butheorshewillholdthevalueofthepropertythat
wassoldontrustforthebailor.75
(d)Agency
Althoughbothtrusteesandagentsaresubjecttofiduciarydutiessuchasthedutynottomakeanunauthorized
profit76 theessentialdifferencebetweenatrustandagencyrelationshipagainrelatestoproprietaryrights.The
agencyrelationshipisapersonalrelationship.Thismeansthatanypropertytransferredbytheprincipaltothe
agenteitherstillbelongstotheprincipalatlawor,iflegaltitlehaspassedtotheagent,theprincipalwillnothave
anyequitableproprietaryinterestinthepropertyrather,theagentissimplyliabletoaccounttotheprincipalfor
thevalueofthepropertyreceived,sotherelationshipisoneofcreditoranddebtor.
Therewillbecircumstances,however,wherethelinebetweenagencyandtrustisdifficulttodiscernandthe
agencyrelationshipcanbeconvertedintoatrustrelationship.Thiswilloccurwheretheagenthasreceived
propertyfromtheprincipalorfromathirdpartyonbehalfoftheprincipal,sothattheagentholdsthepropertyon
trustfortheprincipal.Whetheratrustcanbeidentifiedfromanagencyrelationshipwilldependontheprincipals
intention.Butaverysignificantfactorindeterminingwhattheprincipalintendedconcernswhethertheagentwas
underadutytokeepgoodsormoneyreceivedseparatefromhisorherowngoodsormoney,sincethissuggests
thattheagenthasnotreceivedthepropertybeneficiallyforhisorherownpurposes.Thiswasrecognizedby
MillettLJ:77
Whether[thedefendantagent]wasinfactatrusteeofthemoneymaybeopentodoubt.UnlessIhave
misunderstoodthefacts[ofNelsonvRye[1996]1WLR1378,(explainedinthefollowingextract)]orthey
wereveryunusualitwouldappearthatthedefendantwasentitledtopayreceiptsintohisownaccount,mix
themwithhisownmoney,usethemforhisowncashflow,deducthisowncommission,andaccountfor
thebalancetotheplaintiffonlyattheendoftheyear.Itisfundamentaltotheexistenceofatrustthatthe
trusteeisboundtokeepthetrustpropertyseparatefromhisownandapplyitexclusivelyforthebenefitof
hisbeneficiary.Anyrightonthepartofthedefendanttomixthemoneywhich(p.43) hereceivedwithhis
ownanduseitforhisowncashflowwouldbeinconsistentwiththeexistenceofatrust.Sowouldaliability
toaccountannually,foratrusteeisobligedtoaccounttohisbeneficiaryandpayoverthetrustpropertyon
demandHisliabilityarosefromhisfailuretoaccount,notfromhisretentionanduseofthemoneyforhis
ownbenefit,forthiswassomethingwhichhewasentitledtodo.
Forexample,whereaclienttransfersmoneytohisorhersolicitor,thesolicitormustkeepthatmoneyina
separateaccount.78 Asolicitormightactasanagentforhisorherclientinnegotiatingthepurchaseofproperty,
andwhentheclientlatertransfersmoneytothesolicitortocompletethepurchase,thatmoneyisheldbythe
solicitorontrustfortheclientinaseparateclientaccount.
Thedecisionwhetheraparticularrelationshipshouldbecharacterizedasanagencyoratrustrelationshipwill
ultimatelydependontheintentionofthepartycreatingtherelationship.Toassistwiththeidentificationofthis
intention,variousprincipleswereidentifiedbyBriggsJinPearsonvLehmanBrothersFinanceSA:79
v)thequestionwhetherBhasaproprietaryinterestinthepropertyacquiredbyAforBsaccount
dependsupontheirmutualintention,tobeascertainedbyanobjectiveassessmentofthetermsof
theagreementorrelationshipbetweenAandBwithreferencetothatproperty.
vi)Thewordsusedbythepartiessuchastrust,custody,belonging,ownership,title,maybe
persuasive,buttheyarenotconclusiveinfavouroftherecognitionofBsproprietaryinterestinthe
property,ifthetermsoftheagreementorrelationship,viewedobjectively,compeladifferent
conclusion.
vii)TheidentificationofarelationshipinwhichAisBsagentorbrokerisnotconclusiveofa
conclusionthatAis,inrelationtotheproperty,Bstrustee,althoughitmaybeapointertowardsthat
conclusion.
viii)ArelationshipwhichabsolvesAfromoneormoreofthebasicdutiesoftrusteeshiptowardsBis
nottherebyrenderedincapableofbeingatrusteebeneficiaryrelationship,butmaybeapointer
towardsaconclusionthatitisnot.
ix)Specialcareisneededinabusinessorcommercialcontext.Thus:
(a)Thelawshouldnotconfinetherecognitionandoperationofatrusttocircumstanceswhich
resembleatraditionalfamilytrust,wherethefulfilmentofthepartiescommercialobjectivecalls
fortherecognitionofaproprietaryinterestinB.
(b)ThelawshouldnotunthinkinglyimposeatrustwherepurelypersonalrightsbetweenAand
Bsufficientlyachievetheircommercialobjective.
x)Thereis,atleastatthemargin,anelementofpolicy.Forexample,whatappearstobeAs
propertyshouldnotlightlybemadeunavailablefordistributiontoitsunsecuredcreditorsinits
insolvency,bytherecognitionofaproprietaryinterestinfavourofB.Conversely,theclientsof
intermediarieswhichacquirepropertyforthemshouldbeappropriatelyprotectedfromthe
intermediarysinsolvency
Aconclusionthat,asbetweenthem,AactsasBsagentintheacquisitionofpropertyfromCbyno
meansleadstotheinevitableresultthatBtherebyobtainsaproprietaryinterestintheproperty,such
thatitisheldbyAashistrustee.NelsonvRye[1996]1WLR1378isaclassicexampleofacasein
whichthatassumptionwaswronglymade,asisillustratedbythedevastatingcritiqueofthat
judgment(p.44) byMillettLJinParagonFinancevDBThak erar&Co[1999]1AllER400,41516.
Nelsonwasasolomusician,managedbyRye,whocollectedNelsonsfeesandroyaltiesashis
agent,withanundoubteddutytoaccount.Nonethelessthetermsoftheagencyrelationship
permittedRyetomixNelsonsfeesandroyaltieswithhisownmoney,tousethemforhisowncash
flow,todeducthisowncommissionandtoaccountforthebalancetoNelsononlyattheyearend.
Thosefeaturesoftherelationshipwereinconsistentwiththeexistenceofanytrustofthereceipts,
andthereforewithanyproprietaryinterestofNelsoninthem,foraslongastheyremainedwithRye.
ThetrueprinciplesareinmyjudgmentadmirablysummarizedinBowstead&ReynoldsonAgency(19th
ed)inpara6041,fromwhichIhavedrawnthefollowingextracts(althoughthewholepassagedeserves
readinginfull):
Theanalogywithtrustmightbetakentosuggestfirst,thatwhenanagentholdstitletomoneyor
otherpropertyforhisprincipal,healwaysdoesso(insituationswheretheprincipaldoesnothimself
ownit)astrustee.Thiswouldoftenbeimpracticalandhasneverbeentherule.Itisperfectly
possibleforpropertysoheld,especiallymoney,tobetheagentsown,andmixedwithhisown
assetssubjectonlytoadutytotransferoraccountforittohisprincipal.Equallyhoweverhemay
certainlyholdastrustee.
Sometimestheanswerturnsonthecontractbetweenprincipalandagent.Itisclearinthiscontext
andingeneralthattheexistenceofacontractualrelationshipofdebtorandcreditorbetweenthe
partiesdoesnotpreventtheexistenceofasimultaneoustrustrelationship,orafiduciary
relationshipofalessonerousnature,involvingneverthelessthatcertainmoneyorpropertyisheld
ontrust.
Thusitmaybeprovidedexpresslybetweenprincipalandagentthatmoneyreceivedissoheld.At
othertimestheintentiontocreateatrustmaybeinferredthematterturnsontheobjective
interpretation,accordingtogeneralprinciples,oftheintentionsoftheparties.
thepresenttrendseemstobetoapproachthemattermorefunctionallyandtoaskwhetherthe
trustrelationshipisappropriatetothecommercialrelationshipinwhichthepartiesfindthemselves
whetheritwasappropriatethatmoneyorpropertyshouldbe,andwhetheritwas,heldseparately,or
whetheritwascontemplatedthattheagentshouldusethemoney,propertyorproceedsofthe
propertyaspartofhisnormalcashflowinsuchawaythattherelationshipofdebtorandcreditoris
moreappropriate.
Arelevantconsiderationalsoiswhethermoneyorpropertywasreceivedinpursuanceofasingle
transactionforwhichtheagentwasappointed,oraspartofagroupoftransactionsinrespectof
whichageneralaccountwastoberenderedlaterorperiodically.
Althoughtheissuedoesnotariseinmanyofthecases,acentralquestion,reallyoneofpolicy,and
perhapstoooftenoverlooked(becausenotinissue)iswhethertherightsoftheprincipalare
sufficientlystrong,anddifferentiatablefromotherclaims,forhimtobegivenpriorityinrespectof
themintheagentsbankruptcy.
Sometimesthepositionissecuredbystatuteorregulationprovidingthatparticulartypesof
functionary(egestateagentsandsolicitors)holdclientsmoneyontrust,payintoclientaccounts
andkeeptrustaccounts.
InmyjudgmentthereisnoimmutableprinciplethatanarrangementbetweenAandB(whereAacquires
propertyforBsaccount)whichincludesaconsensualdisapplicationofsomefiduciaryobligationgenerally
regardedasabasicfeatureofatrust,therebypreventstheexistenceofatrusteebeneficiaryrelationship
arisingbetweentheparties,ortherecognitionofAsproprietaryinterestintheproperty.
(p.45) Anexampleofthedisapplicationofabasicfiduciaryobligationwouldbewheretheagentispermittedto
usetheprincipalsmoneyfortheagentsownpurposes.BriggsJcontinued:80
Inmyjudgmentthetrueprinciplewhichemergesfromthesecasesisthat,whiletherearenohardandfast
ruleswherebytheconsensualdisapplicationofsomebasictrusteedutyprecludestherecognitionofa
trusteebeneficiaryrelationshipbetweentheparties,nonethelessthegreatertheextenttowhichthose
dutiesaredisapplied,theharderitwillbeforthecourttoconclude,takingallrelevantmattersintoaccount,
thatthepartiesobjectivelyintendedtocreatesucharelationshipbetweenthem.
TherecognitionoftheseprinciplesbyBriggsJisimportant,althoughtheemphasisonquestionsofpolicywhen
determiningwhetheratrustwasintendedgivesthejudgesignificantdiscretioninrecognizingatrust.Thisisat
oddswithsomeotherrecentpronouncementsthatarecriticaloftheroleofjudicialdiscretioninidentifying
proprietaryinterests.81
(e)Assignment
Anassignmentinvolvestransferringrightsfromoneperson,theassignor,toanother,theassignee.Forexample,if
BowesmoneytoA,AcanassignthedebttoCsothatBwillthenowethemoneytoC.Thisdoesnotinvolvethe
creationofanytrust,sincetheessenceofassignmentisthetransferofexistingrightsratherthanthecreationof
newrights.
Theboundarybetweenassignmentandtrustisnotasclearcutasmightfirstappear,especiallybecausethe
creationofatrustcanbeusedtoavoidlimitationsontheassignmentofrights.Forexample,inDonKing
ProductionsLtdvWarren,82 twoboxingpromotersenteredintoapartnership.Theyagreedthatthebenefitofall
theirexistingcontractswithparticularboxersshouldbebroughtintothepartnership.Thepromoterslaterfellout
andthepartnershipneededtobedissolved.Oneofthequestionsforthecourtconcernedwhetheralltheboxing
contractshadbeentransferredtothepartnership.Onthefacts,anassignmentofrightstothepartnership
appearedtohaveoccurred,butthiswouldnothavebeenvalidbecausemanyofthecontractscontainedanti
assignmentclauses.Butthecourtgotaroundthisrestrictionbyholdingthattheantiassignmentclausesdidnot
preventthepersonwhowastoreceivethebenefitofthecontractsfromholdingthosebenefitsontrustfor
somebodyelse.LightmanJsaid:83
AccordinglyinprincipleIcanseenoobjectiontoapartytocontractsinvolvingskillandconfidenceor
containingnonassignmentprovisionsfrombecomingtrusteeofthebenefitofbeingthecontractingpartyas
wellasthebenefitoftherightsconferred.Icanseenoreasonwhythelawshouldlimitthepartiesfreedom
ofcontracttocreatingtrustsofthefruitsofsuchcontractsreceivedbytheassignorortocreatingan
accountingrelationshipbetweenthepartiesinrespectofthefruitsmostimportantlythisviewaccords
withcommonsenseandjusticeandachievesthecommercialobjectiveoftheparties.
Sincethecontractsreferredonlytoaprohibitiononassignmentanddidnotrefertoaprohibitiononcreatinga
trust,theywerenotconstruedasprohibitingthetransferofrightsbytrust,becauseassignmentandtrustare
functionallydifferent.Anassignmentinvolvesthetransferofanexistingrightand(p.46) atrustinvolvesthe
creationofanewright.Inotherwords,wherearighttothebenefitofacontractistransferreddirectlyfromAtoB,
thisinvolvesanassignment.If,however,AdeclaresthatheholdsthoserightsforthebenefitofB,thisinvolvesthe
creationofanewequitableproprietaryright.
(f)Gift
Giftsandtrustsaredistinct.Atypicalgiftinvolvestransferringallrightstopropertytothedoneeabsolutelyand
withoutobligation,whereasthetypicaltrustinvolvesthetransferofpropertytothetrustee,subjecttoanobligation
toholdthatpropertyontrustforthebeneficiary.Sincethetrusteedoesnotreceivethepropertybeneficially,it
cannotbeconsideredtohavebeengiventohimorherasagift.
Inbetweenthecategoriesofgiftandtrustisathirdcategorywherepropertyistransferredsubjecttoacondition.
Whetheraconditionaltransferisagiftoratrustwilldependontheintentionofthetransferor,objectively
determinedbythecourts.84 ThisisillustratedbyAttorneyGeneralvTheCordwainersCo.,85 inwhichthetestator
hadleftaninntotheCordwainersCompanyonconditionthatitpaidannuitiestocertainrelativesofthetestator
andmadesomepaymentsforcharitablepurposes.Overtheyears,therentsobtainedfromtheinnincreased,so
thattherewasasubstantialsurplusthequestionforthecourtconcernedtheidentificationofwhowasentitledto
it.Itwasheldthattheoriginalbequestoftheinnconstitutedagiftsubjecttoacondition,ratherthanatrust,and,
subjecttosatisfactoryperformanceofthecondition,thecompanywasentitledtokeepthesurplusrentsfromthe
propertybeneficially.Inotherwords,thetestatorintendedthatthecompanyshouldreceivetheinnabsolutelyasa
giftsubjecttothecontinuedperformanceofthecondition.SirJohnLeachMRsaid:86
Thefirstquestioniswhetherthistestatorintendedthecorporationtotakeasmeretrustees,orwhetherhe
intendedtogivethemanybeneficialinterest
Itdoesnotappeartomethatthewordsofthisdevisedoconstitutethiscorporationmeretrustees.The
estateisabsolutelygiventothemnotupontrust,butfortheuse,interest,andperformanceofthe
testatorswill.Itisratheragiftuponcondition,thanagiftupontrust.Theyaretotaketheestateso
devisedtothem,uponconditionthattheyperformthedutieswhichbythetermsofthewillareimposed
uponthem.Thosedutiesarenotformerecharitablepurposes.Halfthepropertythatthistestatordisposes
ofisdisposedoftohisbrotheranannuityof6isgiventohisbrotherforhislifeandafterhisbrothers
deaththereisnodispositionofthisannuity,exceptthat2ayeararegiventohiswidowifshesurvived
him.Thesearenotcharitablepurposes.Itisplainthatabeneficialestatewasintendedtobegiventothe
CordwainersCompany,becausethetestatorexpresslydeclaresthat,iftheconditionuponwhichthis
estateisdevisedtothecorporationbenotperformed,thebrothershallenteranddefeattheestategivento
theCordwainersCompany.Defeatwhatestate?Anestategiventotheminmeretrust,fromwhichthey
weretoderivenobenefit?Isittobesupposedthatthiswasconsideredbythetestatorinthenatureofa
penalty?Theimpositionofapenaltyfornonperformanceoftheconditionimpliesabenefit,ifthecondition
beperformed,andisinconsistentwithanyotherintention,thanthatthetestatormeanttogiveabeneficial
interesttothecompanyuponthetermsofcomplyingwiththedirectionscontainedinhiswill.
(p.47) ThiscanbecomparedwithReFrame,87 inwhichpropertywasbequeathedtoahousekeeper,MrsTaylor,

onconditionthatsheadoptedoneofthetestatorsdaughtersandmadepaymentstothetestatorsotherchildren.
Thehousekeepersapplicationtoadoptthedaughterwasunsuccessful,sotheconditionwasnotsatisfied.The
housekeeperconsequentlyarguedthatthetestatorhadmadeagiftsubjecttoaconditionandthat,sincethe
conditionhadbecomeimpossibletoperform,shewasentitledtoreceivethepropertyabsolutely.Itwasheldthat
thetestatorhadactuallyintendedtocreateatrustforhischildren,aswasmadeclearfromtheimpositionofthe
obligationtopaymoneytohisotherchildren.Thehousekeeperwasthereforeobligedtoprovidemaintenancefor
thedaughter.SimondsJsaid:88
Thequestioniswhatthosewordsmean.Ihavelistenedtoanableandinterestingargumentonthese
questions:whethertheconditionisaconditionsubsequentoraconditionprecedent89 whether,ifitbea
conditionprecedent,theconditionhasbecomeimpossibleofperformance,andwhether,ifso,thegiftfails
whether,ifitbeaconditionsubsequent,thedoneehasfailed,throughnofaultofherown,tocomplywith
thecondition,andwhether,inthatevent,thegifthasfailed.AsIlistenedtothatargumentitimpressed
itselfmoreandmoreonmethat,afterall,thiswasnotaconditionatall,for,inmyview,onthetrue
constructionofthisclause,thewordconditionisnotusedinitsstrictlegalsense.ItisagifttoMrs.
Tayloroncondition,inthesenseofonthetermsoronthetrustthatshedoescertainthings,andthat,I
think,becomesclearerwhenitisrealizedthattheconditionrelatesnotonlytotheadoptionofone
daughter,buttothepaymentofcertainsumstootherdaughters.Adevise,orbequest,onconditionthat
thedeviseeorlegateemakescertainpaymentsdoesnotimportaconditioninthestrictsenseoftheword,
butatrust,sothat,thoughthedeviseeorlegateediesbeforethetestatorandthegiftdoesnottakeeffect,
yetthepaymentsmustbemadeforitisatrust,andnotrustfailsforwantoftrustees.WhenIcometo
lookatthecondition,itseemsclearthatwhatthetestatorintendedwasthatMrs.Taylorshouldreceive
certainmoneysonthetermthatsheperformedcertainacts.Muchargumenthasbeendirectedtowhatis
involvedintheconditionthatsheadoptsmydaughter.Itseemsclearthatwhetherornotanadoption
undertheauthorityofanordermadeunder[statute]isnecessary,whatisintendedisnotanysingleformal
act,butaseriesofactstoestablishasbetweenMrs.Taylorandthetestatorsdaughtertherelationshipof
parentandchildinaword,Mrs.Taylorwastotreatthechildasifshewereherdaughter,becausethatis
whatadoptionmeans.IsthatatrustwhichtheCourtcanenforce?Itincludesnotonlytheparentalduties
ofcare,advice,andaffection,butalsothedutyofmaintenance.ThisCourtcannotcompel,sofaras
adoptioninvolvesthegivingofcare,adviceandaffectionthatsuchthingsbegiven.But,seeingthatit
involvesthedutyofmaintenance,thatisatrustwhichtheCourtcanenforce,directing,ifnecessary,an
inquiryinthatregard.Itwillnotallowthewholetrusttofailbecauseinpartitcannotbeenforced.
Asalways,whetheratrustwasintendedrequirescarefulanalysisbythecourtofthecontextofthetransfer.
(g)InterestsUnderaWillorIntestacy
Whereatestatordies,hisorherpropertywillpasstoexecutors,whowillreceivethepropertyabsolutely,but
subjecttoafiduciarydutytoensurethatitistransferredtothoseentitledunderthewill.Wherethedeceasedhas
notleftawill,heorshewillhavediedintestate.Therewillbenoexecutorsoftheestate,butthecourtswill
appointadministratorstoensurethatthedeceasedspropertyis(p.48) transferredtothosewhoareentitledtoit
underthelawofintestacy.Executorsandadministratorsarecollectivelydescribedasthepersonal
representativesofthedeceased.
Thepersonalrepresentativeshavelegaltitletotheestate.Titletopropertywillpasstothoseentitledunderthewill
oncetheexecutorshaveassented.Thisassentcanbeimpliedwherethepropertyispersonalty,90 butwritten
assentisrequiredifthepropertyisland.91 Itfollowsthat,ifthewillcreatesatestamentarytrust,oncethe
necessaryassenthasbeenobtained,titlewillthenpasstothetrustees,whomaybethesamepeopleasthe
executors,butwhowillreceivethepropertyinadifferentcapacity.Thesignificanceofthisdistinctionbetween
92
personalrepresentativeandtrusteeisillustratedbyAttenboroughvSolomon.92 Thetestatorbequeathedhis
residuaryestatetohistwosons.Beforetheestatewasdistributed,oneofthesonsdeliveredsomesilverplate
fromtheresiduaryestatewithapawnbroker,inordertosecureapersonalloan.Ifthesonhadactedasan
executor,thepawnbrokerwouldhaveobtainedrightsovertheplate,becausethepowerofdisposalofpersonalty
byexecutorsisseveral,whichmeansthatanyexecutorcouldpawntheplate.Butifthesonhadactedasa
trustee,hecouldnothavepawnedtheplate,becausethetrusteespowerofdisposalisjoint,whichrequiresthem
alltoagree.Itwasheldthatthesonhadactedasatrustee,sothepawnbrokerhadnorightstotheplate.
ViscountHaldaneLCsaid:
Thepositionofanexecutorisapeculiarone.Heisappointedbythewill,butthen,byvirtueofhisoffice,by
theoperationoflawandnotunderthebequestinthewill,hetakesatitletothepersonalpropertyofthe
testator,whichvestshimwiththeplenumdominium[fullownership]overthetestatorschattels.Hetakes
that,Isay,byvirtueofhisoffice.Thewillbecomesoperativesofarasitsdispositionsofpersonaltyare
concernedonlyifandwhentheexecutorassentstothosedispositions.Itistruethatbyvirtueofhisoffice
hehasageneralpowertosellorpledgeforthepurposeofpayingdebtsandgettinginthemoneyvalueof
theestate.Heisexecutorandheremainsexecutorforanindefinitetime.theofficeofexecutorremains,
withitspowersattached,butthepropertywhichhehadoriginallyinthechattelsthatdevolveduponhim,
andoverwhichthesepowersextended,doesnotnecessarilyremain.Sosoonashehasassented,and
thishemaydoinformallyandtheassentmaybeinferredfromhisconduct,thedispositionsofthewill
becomeoperative,andthenthebeneficiarieshavevestedinthemthepropertyinthosechattels.The
transferismadenotbythemereforceoftheassentoftheexecutor,butbyvirtueofthedispositionsofthe
willwhichhavebecomeoperativebecauseofthisassent.
Now,myLordsandinviewofthefourteenyearswhichhadpassedsincethetestatordiedbeforethe
timewhen[theson]madethepledgetotheappellantsin1892,Iamofopinionthatthetrueinferencetobe
drawnfromthefactsisthattheexecutorsconsideredthattheyhaddoneallthatwasduefromthemas
executorsby1879,andwerecontentwhentheresiduaryaccountwaspassedthatthedispositionsofthe
willshouldtakeeffect.ThatistheinferenceIdrawfromtheformoftheresiduaryaccountandtheinference
isstrengthenedwhenIconsiderthelapseoftimesincethen,andthatintheintervalnothingwasdoneby
thempurportingtobeanexerciseofpowerasexecutors.MyLords,ifthisbeso,thisappealmustbe
disposedofonthefootingthatinpointoffacttheexecutorsassentedataveryearlydatetothe
dispositionsofthewilltakingeffect.Itfollowsthatunderthesedispositionstheresiduaryestate,including
thechattelsinquestion,becomevestedinthetrusteesastrustees.Thattheywerethesamepersonsas
theexecutorsdoesnotaffectthepoint,orinmyopinionpresenttheleastobstacletotheinference.Butif
thatwasso,thenthetitletothesilverplateof[theson]asexecutorhadceasedtoexistbeforehemade
thepledgeof1892.Whatthenwasthepositionoftheappellants?When[theson]handedoverthese
articlesofsilverto[thepawnbroker]hehadnopropertytopassasexecutorandtheygotnocontractual
rightswhichcouldprevailagainstthetrustees.Thelatterwerethetrueownersandtheyarenowina
positiontomaintainanactiontorecoverpossessionofthechattels.
(p.49) Thenatureoftheproprietaryinterestoftheexecutororadministratorissignificant.Legaltitletothe
propertyinthedeceasedsestatewillbeautomaticallyvestedinthepersonalrepresentativesonthedeceaseds
death.Therewillbenoequitableproprietaryinterestinthatproperty,sincetherewillhavebeennoeventtocreate
suchaninterestandnobodyotherthanthepersonalrepresentativewhocouldhaveitaswehavealready
seen,93 onepersonalonecannothaveboththelegalandequitableproprietaryinterest.Butthepersonal
representativecannotbeconsideredtohavethebeneficialinterestintheproperty,94 since,asfiduciaries,theyare
notinapositiontobenefitfromtheproperty.Sowhereisthebeneficialinterest?Itmightbeconsideredtobe
locatedinthosepeoplewhoareentitledtotheestate.However,suchpersonshaveonlyanexpectationofbenefit,
whichischaracterizedasamereequity,andtheycannotenforcethisinterestby,forexample,requiringthe
personalrepresentativetotransferpossessionofthepropertytothem.Thebetterview,therefore,isthatthe
beneficialinterestinthepropertyshouldsimplybeconsideredtobeinsuspensependingtheadministrationofthe
estate.95
Abeneficiaryunderawillhasneitheralegalnoranequitableinterestinanyofthedeceasedspropertyuntilthe
executorshavedischargedallthedeceasedsdebtsorhavetakentheriskofconveyingthepropertyprematurely
96 97
totherelevantbeneficiary.96 Thesameistrueofthosewhoareentitledonintestacy.97 Thisisbecause,untilthe
estatehasbeencompletelyadministeredwithalldebtspaid,itisimpossibletosayofwhattheestate
consists.98 Thisillustratesthekeydifferencebetweenabeneficiarysinterestsunderawillorintestacyand
interestsunderafixedtrust.Theformerinterestsarenotproprietarytheyconsistonlyofapersonalrightto
ensurethattheestateisadministered,ratherthanarightthatattachestoaspecificpieceofproperty.Interests
underafixedtrustareproperlycharacterizedasproprietary,sincetheyrelatetoidentifiabletrust
assets.99 Despitethis,ifpropertyfromanunadministeredestatehasbeenmisappropriated,thepersonentitledto
theestatecanbringaproprietaryclaimtorecoverthepropertyfromathirdparty.100 Thismightsuggestthatthe
beneficiarydoeshaveaproprietaryinterestintheestatebeforeitisadministered.Infact,thebeneficiaryisacting
onlyonbehalfoftheestateandinlieuofthepersonalrepresentatives,whomightthemselvesbeimplicatedinthe
misappropriationoftheproperty.101 Consequently,ifthatpropertyisrecovered,itwillberestoredtotheestate
ratherthantothebeneficiarythisissimplyaconsequenceofthebeneficiarysrighttoensurethattheestateis
properlyadministered.102
ThesignificanceofthisanalysisofinterestsunderawillisillustratedbyCommissionerofStampDuties
(Queensland)vLivingston.103 Atestatorhadlefthisestatetohiswife.Followinghisdeath,andwhilsttheestate
wasstillbeingadministered,thewidowdiedintestate.Herestatewasliabletopaytaxifsheheldabeneficial
interestinthepropertylefttoherbyherhusband.Itwasheldthatshedidnothavesuchaninterestbecause
administrationoftheestatewasnotcomplete.Onherhusbandsdeath,(p.50) fullownershipoftheestatehad
passedtotheexecutorsandthewifehadnotacquiredanyproprietaryinterestinit.ViscountRadcliffesaid:104
whateverpropertycametotheexecutorvirtuteofficii[byvirtueofoffice]cametohiminfullownership,
withoutdistinctionbetweenlegalandequitableinterests.Thewholepropertywashis.Hehelditforthe
purposeofcarryingoutthefunctionsanddutiesofadministration,notforhisownbenefitandtheseduties
wouldbeenforceduponhimbytheCourtofChancery,ifapplicationhadtobemadeforthatpurposebya
creditororbeneficiaryinterestedintheestate.Certainly,therefore,hewasinafiduciarypositionwith
regardtotheassetsthatcametohimintherightofhisoffice,andforcertainpurposesandinsome
aspectshewastreatedbythecourtasatrustee.Anexecutor,saidKayJinReMarsden(1884)26ChD
783at789,ispersonallyliableinequityforallbreachesoftheordinarytrustswhichinCourtsofEquityare
consideredtoarisefromhisoffice.Heisatrusteeinthissense.
Itmaynotbepossibletostateexhaustivelywhatthosetrustsareatanyonemoment.Essentially,they
aretruststopreservetheassets,todealproperlywiththem,andtoapplytheminaduecourseof
administrationforthebenefitofthoseinterestedaccordingtothatcourse,creditors,thedeathduty
authorities,legateesofvarioussorts,andtheresiduarybeneficiaries.Theymightjustaswellhavebeen
termeddutiesinrespectoftheassetsastrusts.Whatequitydidnotdowastorecogniseorcreatefor
residuarylegateesabeneficialinterestintheassetsintheexecutorshandsduringthecourseof
administration.Conceivably,thiscouldhavebeendone,inthesensethattheassets,whatevertheymight
befromtimetotime,couldhavebeentreatedasapresent,thoughfluctuating,trustfundheldforthe
benefitofallthoseinterestedintheestateaccordingtothemeasureoftheirrespectiveinterests.Butit
neverwasdone.Itwouldhavebeenaclumsyandunsatisfactorydevicefromapracticalpointofviewand,
indeed,itwouldhavebeeninplainconflictwiththebasicconceptionofequitythattoimposethefettersof
atrustuponproperty,withtheresultingcreationofequitableinterestsinthatproperty,therehadtobe
specificsubjectsidentifiableasthetrustfund.Anunadministeredestatewasincapableofsatisfyingthis
requirement.Theassetsasawholewereinthehandsoftheexecutor,hispropertyanduntil
administrationwascompletenoonewasinapositiontosaywhatitemsofpropertywouldneedtobe
realisedforthepurposesofthatadministrationorofwhattheresidue,whenascertained,wouldconsistor
whatitsvaluewouldbe
AtthedateofMrs.Coulsonsdeath,therefore,therewasnotrustfundconsistingofMr.Livingstons
residuaryestateinwhichshecouldbesaidtohaveanybeneficialinterest,becausenotrusthadasyet
comeintoexistencetoaffecttheassetsofhisestate
Whatshewasentitledtoinrespectofherrightsunderherdeceasedhusbandswillwasachoseinaction,
capableofbeinginvokedforanypurposeconnectedwiththeproperadministrationofhisestate.
Thefactthattherighttohavetheestateproperlyadministeredisamereequitythatistransmissiblemeansthata
legatee(otherwiseknownasadevisee)whoisentitledtolandunderthetestatorsestatecanenterintoavalid
contracttosellthelandevenbeforetheestatehasbeenadministered.ThiswasrecognizedbyLordBrowne
WilkinsoninWuKoonTaivWuYauLoi:105
Inprinciple,thereisnoreasonwhyadeviseeoflandcomprisedinanunadministeredestatecannotenter
intoabindingcontracttosellthatland.True,untilcompletionoftheadministrationandthevestingofthe
propertyinthedevisee,thedeviseecannotconveythelandinspecie.
ButtheirLordshipswerereferredtonoauthoritytosuggestthatsuchdeviseecannotvalidlycontracttosell
thelandatatimewhenhisinterestisamerechoseinactionorexpectancy.TheirLordshipscan(p.
51) seenodistinctioninprinciplebetweensuchacontractandacontractforvaluetoassignafuture
choseinaction.Asandfromthedatewhenthechoseinactioncomesintoexistence,thecontract
becomesspecificallyenforceable.
(h)Powers
Trustsandpowersarefundamentallydifferent.Trustsimposeobligationsthatmustbeexercised.Powersare
discretionary,sotheymaybeexercised.Itisimportanttodistinguishbetweentrustsandpowers,notonly
becauseitisnecessarytodeterminewhetherthetrusteemustormayact,butalsobecausetrustscanbe
executedbythecourt,whereaspowerscannot.106 So,forexample,whereatrusteedieswithoutmakingan
appointmentoftrustpropertytothebeneficiaries,ifthereisatrustobligationtomakesuchanappointment,the
courtwilldoso,butifthereisonlyapower,itwilllapseonthetrusteesdeath.107 Thedistinctionbetweentrusts
andpowerswasoncemoresignificant,becausethereweredifferentteststodeterminewhetheradispositionto
trusteeswasvoidforuncertaintydependingonwhetherthedispositionwascoupledwithatrustorapower.But
thetestsofcertaintyhavenowbeenassimilated.108 Itisimportanttonotethattrustsandpowersdonotinvariably
operateinisolation:asingletrustinstrumentmightbothimposetrustobligationsonthetrusteesandcreate
discretionarypowersthatmaybeexercisedbythetrustees.
(i)Trustsandpowers
Thedistinctionbetweentrustsandpowersissignificantwhendeterminingtheobligationsofatrusteewhen
distributingtrustpropertytoobjectsofthetrust.ThiswasconsideredbyParkJinBreadnervGranville
Grossman:109
Itistritelawthatthereisadistinctionbetweentwokindsofdispositivediscretionswhichmaybevestedin
trustees.Therearediscretionswhichthetrusteeshaveadutytoexercise(sometimescalledtrust
powers),anddiscretionswhichthetrusteemayexercisebuthavenodutytoexercise(sometimescalled
merepowers).Thedistinctionismostfamiliarinthecontextofdiscretionstodistributeincome.Incases
oftrustpowersthetrusteesareboundtodistributetheincome,buthaveadiscretionastohowitshouldbe
dividedbetweenthebeneficiaries.Incasesofmerepowersthetrusteeshavetwodiscretionsfirsta
discretionwhethertodistributetheincomeornot,andsecond,iftheydecidethattheywillexercisethe
firstdiscretion,afurtherdiscretionastohowtodividetheincomebetweenthebeneficiaries.Inthelatter
kindofcasetherewillusuallybeadefaulttrustwhichdealswiththeincomeifthetrusteesdonotexercise
theirdiscretiontodistributeit.Typicallythedefaulttrustwillprovidefortheundistributedincometobe
accumulatedortobepaidasofrighttoabeneficiarywhoseinterestinitisvestedbutdefeasiblebythe
trusteesexercisingtheirdiscretiontodistribute
Sometimesthedistinctiondoesnotmatter,butthereisanimportantdifferencebetweenthetwokindsof
caseifthetrusteesdonotexercisethediscretiontodistributeincomewithinthenormaltimeforexercising
it.Thattimeisusuallyareasonabletime.Ifthereisatrustpowerand,althoughthetrusteesarerequired
toexerciseitwithinareasonabletime,theydonotdoso,thediscretionstillexists.(p.52) Ifthetrustees
arewillingtoexerciseit,albeitlaterthantheyshouldhavedone,thecourtwillprobablypermitthemtodo
soAlternativelythecourtwillexercisethediscretionitself.Butifthediscretiontodistributeincomeisa
merepower,andthetrusteesdonotexerciseitwithinareasonabletimeofthereceiptofanitemof
income,thediscretionnolongerexistsasrespectsthatincome.Thedefaulttruststakeeffectindefeasibly.
110
ThispassagewasdescribedbythePrivyCouncilinSchmidtvRosewoodTrustLtd110 asaveryclearand
eminentlyrealisticaccountofboththepointsofdifferenceandthesimilaritiesbetweenadiscretionarytrustanda
fiduciarydispositivepower.
However,thiscommentinitselfhighlightsthescopeforconfusioninthisarea:thesamethingsaresometimes
givendifferentnames.WhatthePrivyCouncilinSchmidtcalledafiduciarydispositivepower,isexactlythesame
aswhatParkJinBreadnercalledamerepower.Thistypeofpowerisgiventoafiduciary,suchasatrustee,in
hisorhercapacityasafiduciary.Itisatruepowerbecausethetrusteeisnotobligedtoexerciseitatall.Butits
fiduciarynaturemeansthatthetrusteemustconsiderwhetherornotthepowershouldbeexercised.111
Suchpowersmightbecontrastedwithnonfiduciarypowers.Confusingly,suchpowersarealsooftencalled
merepowersifthetermmerepowersistobeused,itisprobablybetterifitisusedinthisnonfiduciarysense.
Incontrasttotheholderofafiduciarypower,thedoneeofamerepowerisnotevenrequiredtoconsider
exercisingthepower.112 Theholderofamerepowerisgenerallynotafiduciary.However,itispossibleforamere
powertobegiventoatrustee,butitmustbemadeclearthattherecipientofthepoweristoholdthepowerina
personalcapacityratherthanasatrustee.
Powersandtrustsareconceptuallydistinct.However,theterminologyagainbecomesconfusing,because
discretionarytrustsaresometimesalsoknownastrustpowers.Thisisbecauseofthedualcomponentsofa
discretionarytrust:itisclearlyatrust,sincethetrusteemustmakeanappointment,butthattrustiscoupledwith
apower,sincethetrusteesmaychoosewhichobjectistobenefitfromtheexerciseofthepower.113
(ii)Determiningwhetheratrustorpowerhasbeencreated
Whetherthesettlorortestatorhascreatedatrustobligationoradiscretionarypowerdependsonhisorherintent,
asdeducedfromcarefulconstructionofthetrustinstrument.Ifmandatorylanguageisused,thissuggeststhat
thereisatrustobligationthatmustbeexercised,suchasbyuseofthephrasetobedistributed.Discretionary
languagesuggestsafiduciarypower,suchasthetrusteemayappoint.Ifthereisexpressprovisionforwhat
shouldhappentothepropertyifthepowerisnotexercisedknownasagiftoverprovisionthisisaclearsign
thatapowerandnotatrusthasbeencreated:sincetheexerciseofthetrusteesdiscretionunderatrustis
mandatory,itisincompatiblewiththenotionoftherebeinganygiftover.114 So,ifasettlorgivestohistrusteesa
sumofmoneywithpowertoappointinfavourofsuchofmychildrenandinsuchproportionsasmytrusteesshall
thinkfit,and,indefaultofappointment,themoneyistobegiventomybrother,thiswillcreateapower.The
trusteesdonothavetoexercisethepower,althoughtheymaychoosetodoso,andthecleargiftoverprovisionin
favourofthesettlorsbrothermeansthatitcannotbeatrust.
(p.53) TheprocessofconstructionofthetrustinstrumentisillustratedbythedecisionoftheHouseofLords
inMcPhailvDoulton.115 Aclauseinadeedstatedthatthetrusteesshallapplythenetincomeofthefundin
suchamounts,atsuchtimes,andsubjecttosuchconditions(ifany)astheythinkfit.Itwasheldthatthishad
createdadiscretionarytrustratherthanafiduciarypower,becauseofthemandatorywordsusedinthedeed.
LordWilberforcesaid:116
Itisstrikinghownarrowandinasenseartificialisthedistinction,incasessuchasthepresent,between
trustsorastheparticulartypeoftrustiscalled,trustpowers,andpowers.Itisonlynecessarytoreadthe
learnedjudgmentsintheCourtofAppealtoseethatwhattoonemindmayappearasapowerof
distributioncoupledwithatrusttodisposeoftheundistributedsurplus,byaccumulationorotherwise,may
toanotherappearasatrustfordistributioncoupledwithapowertowithholdaportionandaccumulateor
otherwisedisposeofit.Alaymanand,Isuspect,alsoalogicianwouldfindithardtounderstandwhat
differencethereis
Naturallyread,theintentionofthedeedseemstomeclear:clause9(a),whoselanguageismandatory
(shall),creates,togetherwithapowerofselection,atrustfordistributionoftheincome,thestrictnessof
whichisqualifiedbyclause9(b),whichallowstheincomeofanyoneyeartobeheldupand(underclause
6(a))eitherplaced,forthetime,withabank,or,ifthoughtfit,investedIthereforedeclarethatthe
provisionsofclause9(a)constituteatrust.
(iii)Powercoupledwithatrust
Thetrusteemaybegivenapowertodeterminewhetherornottomakeanappointment,but,ifthepowerisnot
exercisedbeforethetrusteedies,itwilllapseandbereplacedwithatrustobligationinfavouroftheobjectsofthe
power.Forexample,inBurroughvPhilcox,117 thetestatorgavelifeinterestsinhispropertytohistwochildren
withremaindertotheirissue.Hiswillprovidedthat,ifhischildrenshoulddiewithoutissue,thesurvivorhada
powertodisposeofthepropertyinhiswillamongstthetestatorsnephewsandniecesinsuchproportionsasthe
survivingchildthoughtproper.Itwasheldthatthetestatorhadcreatedatrustinfavourofhisnephewsandnieces,
butthiswassubjecttoapowerofselectioninthesurvivingchild,whichlapsedonthatchildsdeath.Lord
Cottenhamsaid:118
Thequestionis,whetherthesenephewsandniecesandtheirchildren,takeanyinterestintheproperty,
independentlyofthepowerthatis,whetherthepowergiventothesurvivorofthesonanddaughterisa
merepower,andtheinterestsofthenephewsandniecesandtheirchildrenwere,therefore,todepend
upontheexerciseofit,orwhethertherewasagifttothem,subjectonlytothepowerofselectiongivento
thesurvivorofthesonanddaughter
Theseandothercasesshewthatwhenthereappearsageneralintentioninfavourofaclass,anda
particularintentioninfavourofindividualsofaclasstobeselectedbyanotherperson,andtheparticular
intentionfails,fromthatselectionnotbeingmade,theCourtwillcarryintoeffectthegeneralintentionin
favouroftheclass.Whensuchanintentionappears,thecasearises,asstatedbyLordEldoninBrownv
Higgs(1803)8Ves561at574,ofthepowerbeingsogivenastomakeitthedutyofthedoneetoexecute
itand,insuchcase,theCourtwillnotpermittheobjectsofthepowertosufferbythenegligenceor
conductofthedonee,butfastensuponthepropertyatrustfortheirbenefit.
(p.54) Ifthesurvivingchildhadmadeaselectioninhisownwill,thiswouldhavebeeneffective,butnosuch
selectionhadbeenmade,sothepropertywasheldontrustforthenephewsandnieceswhotookinequalshares.
Thisconstructionwasjustifiablebecausethetestatorwasconsideredtohaveageneralintentiontobenefitthe
classofnephewsandniecesasawhole,althoughthiswassubjecttoaparticularintentionforhissurvivingchild
tohaveadiscretiontoselectfromthatclass.ThiscanbecomparedwithReWeek esSettlement.119 The
testatrixgavealifeinterestinthepropertytoherhusbandandalsogavetohimapowertodisposeoftheproperty
bywillamongsttheirchildren.Thehusbanddidnotleavethepropertytotheirchildreninhiswill.Inholdingthat
thechildrenwerenotentitledtotheproperty,RomerJsaid:120
Ishouldgatherfromthetermsofthewillthatitwasamerepowerthatwasconferredonthehusband,and
notonecoupledwithatrustthathewasboundtoexercise.Iseenowordsinthewilltojustifymein
holdingthatthetestatrixintendedthatthechildrenshouldtakeifherhusbanddidnotexecutethepower.
Thisisnotacaseofagifttothechildrenwithpowertothehusbandtoselect,ortosuchofthechildrenas
thehusbandshouldselectbyexercisingthepower.
Ifinthiscasethetestatrixreallyintendedtogivealifeinteresttoherhusbandandamerepowertoappoint
ifhechose,andintendedifhedidnotthinkfittoappointthatthepropertyshouldgoasindefaultof
appointmentaccordingtothesettlement,whyshouldshebeboundtosaymorethanshehassaidinthis
will?
Icometotheconclusiononthewordsofthiswillthatthetestatrixonlyintendedtogivealifeinterestanda
powertoherhusbandcertainlyshehasnotsaidmorethanthat.
AmIthenboundbytheauthoritiestoholdotherwise?IthinkIamnot.Theauthoritiesdonotshew,inmy
opinion,thatthereisahardandfastrulethatagifttoAforlifewithpowertoAtoappointamongaclass
andnothingmoremust,ifthereisnogiftoverinthewill,beheldagiftbyimplicationtotheclassindefault
ofthepowerbeingexercised.Inmyopinionthecasesshewthatyoumustfindinthewillanindication
thatthetestatrixdidintendtheclassorsomeoftheclasstotakeintendedinfactthatthepowershould
beregardedinthenatureofatrustonlyapowerofselectionbeinggiven,as,forexample,agifttoAfor
lifewithagiftovertosuchofaclassasAshallappoint.
Asalways,whenconstruingtrustsandpowerstheintentionofthesettlorortestatormustbeinterpretedcarefully.
7.RightsandInterestsunderaTrust
Thelawoftrustsisprimarilyconcernedwiththedifferentrightsthatvariouspeoplemighthavefollowingthe
creationofatrust.
(a)EventCreatingEquitableInterests
Itisafundamentalprincipleofthelawoftruststhatwhereapersonhaslegaltitletoproperty,heorshehasan
absoluteorsolerighttothepropertyandthereisnoequitableinterestinit.Aparticulareventneedstobe
identifiedtocreatetheequitableinterestandtoseparateitfromthelegal(p.55) interest.Thiswasrecognizedby
LordBrowneWilkinsoninWestdeutscheLandesbank GirozentralevIslingtonLBC:121
Apersonsolelyentitledtothefullbeneficialownershipofmoneyorproperty,bothatlawandinequity,
doesnotenjoyanequitableinterestinthatproperty.Thelegaltitlecarrieswithitallrights.Unlessanduntil
thereisaseparationofthelegalandequitableestates,thereisnoseparateequitabletitle.
(b)InterestsofTrustee
Althoughmanytrustsinvolvethetrusteehavinglegaltitletoproperty,itispossibletodeclareatrustofan
equitableproprietaryinterestinproperty.Thiswouldcreateasubtrust,asitoperatesunderthemain
trust.122 ThispossibilitywasrecognizedbyBriggsJinPearsonvLehmanBrothersFinanceSA:123
Itiscommongroundthatatrustmayexistnotmerelybetweenlegalownerandultimatebeneficialowner,
butateachstageofachainbetweenthem,sothat,forexample,AmayholdontrustforX,XontrustforY
andYontrustforB.Theonlytruetrustofthepropertyitself(ieofthelegalrights)isthatofAforX.At
eachlowerstageinthechain,theintermediatetrusteeholdsontrustonlyhisinterestinthepropertyheld
ontrustforhim.ThatishowtheholdingofintermediatedsecuritiesworksunderEnglishlaw,wherevera
proprietaryinterestistobeconferredontheultimateinvestor.
(c)MergerofLegalandEquitableInterests
Onceanequitableinteresthasbeencreated,itwillbelostifthepropertyistransferredtoapersonwhohassole
legalandbeneficialtitletoit.ThiswasrecognizedbyFarwellJinReSelous:124
whereequitableandlegalestates,equalandcoextensive,uniteinthesameperson,theformermerges,or,
inotherwords,thatapersoncannotbetrusteeforhimself.
ThisisillustratedbyReCook ,125 inwhichlandwasheldontrustbyahusbandandwifeforthemselves.Since

thereweretwoofthem,eachcouldholdthelegaltitletothelandontrustforhimorherselfandtheother.But
whenthehusbanddied,theentireinterestintheproperty,bothlegalandequitable,vestedinthewife.Itwasheld
thatthelegalinteresthadswalloweduptheequitable,sothattherewasamergerofthetwointerests.Itfollowed
thatthetrustwasterminated.AsHarmanJrecognized:126
youcannothaveatrustexistingwhennobodyisinterestedunderitexceptthetrustee,becausenobody
canenforceitandthereis,infact,notrustinexistence.
ThisisentirelyconsistentwithLordBrowneWilkinsonsremarksinWestdeutsche:127 atrustcannotexistwhere
apersonhasbothlegalandbeneficialtitletoproperty.Legalandequitabletitleneedstobesplitinordertocreate
atrust,but,iftheylatermergetogether,thetrustwillnolongerexist.
(p.56) (d)OverreachingofEquitableInterests
Wheretrustpropertyistransferredbythetrusteetoathirdparty,itisamatterofsomesignificancewhetherthe
transfereeholdsthepropertyontheoriginaltrustorobtainsthepropertyfreefromthetrustbyvirtueofthe
128
doctrineofoverreaching.ThishasbeenexplainedbyFoxasfollows:128
Inthecontextoftrusts,overreachingisprimarilyamechanismbywhichT[thetrustee]isenabledto
transferindividualassetsoutofthetrustfundsoastoconferonthetransfereeatitleclearofanybeneficial
interestsorpowerswhichaffectedtheassetswhenTheldthem.Thesecondaryaspectofoverreachingis
thatanysubstitutedassetwhichTacquiresinexchangefortheoriginaltrustassetbecomessubjecttothe
sameequitableinterestsorpowersasaffectedtheoriginalassetByoperationofthelaw,Bs[the
beneficiarys]interestintheoriginalassetistransposedtothesubstitutewithouttheneedforanyexpress
resettlementorattornmentbyT.
Overreachingwilloperateinthismannerwherethetransferisauthorized:theeffectofthetransactionisto
overreachthebeneficiarysequitableproprietaryinterest.So,ifthetrusteesellssomesharesforcash,andthisis
authorized,thebeneficiarysinterestinthesharesisoverreachedandtransposedintothecash.
However,whereatrusteetransferstrustpropertytoathirdpartybyatransactionthatisunauthorized,the
overreachingdoctrinewillnotapply.Foxhaswrittenthat:129
SupposenowasecondtransactioninwhichT[thetrustee]haslimitedpowersofsaleandinvestmentover
thetrustfund.TsellsanoriginalholdingofsharesheldforBaslifetenantwithoutobtainingtheconsentof
somethirdperson,asthetermsofthetrustrequirehimtoThisisanunauthorizedsale,beyondTs
powerofdisposition.Itisalsoabreachoftrust.TsabilitytooverreachBsinterestisanincidentofa
properlyexercisedpowerofdisposition.IfthereforeTactswithouttheauthorityconferredbythatpower,
overreachingcanhavenoplaceinthetransaction.PrimafacieBsequitableinterestinthesharescan
subsistsoastobindP[thepurchaser],thoughitwouldbeextinguishedifPacquiredthelegaltitletothem
asabonafidepurchaser.
Consequently,wherethetransferisunauthorized,thebeneficiarysequitableproprietaryinterestwillnotbe
overreached,sothethirdpartyrecipientwillholdthepropertyontrustforthebeneficiary,evenifthethirdparty
wasunawareofthebeneficiarysequitableproprietaryinterest.Thisequitableproprietaryinterestwillbe
destroyed,however,ifthethirdpartywasabonafidepurchaserforvalueofthetrustproperty.130 So,ifthetrust
propertyissoldbythetrusteewithoutauthorityunderthetrustinstrument,andthepurchaserhasprovidedsome
valueforthetransferingoodfaithandwithoutnoticeoftheexistenceofthebeneficiarysequitableproprietary
interest,thepurchaserwilltakefreeofthatproprietaryinterest.131 Insuchcircumstances,thebeneficiarysonly
claimisagainstthetrusteeforbreachoftrust.
(p.57) (e)TheNatureofaBeneficiarysRight
Althoughitisclearthatwhereatrusteeholdspropertyontrustthebeneficiarieshaveanequitablerighttothe
trustproperty,thenatureofthisrightisamatterofsomecontroversy.Therightcanbecharacterizedinthree
differentways.
(i)Proprietaryright
Thebeneficiarysrightcanbecharacterizedasaproprietaryrightagainstaparticularasset,knownasarightin
rem.Thisisthemostcommonwayofanalyzingtheright.132 ThishasbeenanalyzedbyNolanasfollows:133
Inshort,abeneficiaryscoreproprietaryrightsunderatrustconsistinthebeneficiarysprimary,negative,
righttoexcludenonbeneficiariesfromtheenjoymentoftrustassets.Infringementofthisprimaryrightwill
generatesecondaryrightsbywhichabeneficiarymayalsoprevent(oratleastrestrict)accesstoassets
bynonbeneficiaries.
Thisproprietaryrightisnot,however,asstrongasalegalproprietaryright.Itwillbedefeatedifathirdparty
obtainsthepropertyingoodfaithandforvalue.Ifathirdpartystealsthetrustproperty,thebeneficiaryhasno
claiminthetortofconversion,134 becausethattortdependsontheclaimanthavingapossessory
right.135 Similarly,wherethepropertyisnegligentlydamaged,thebeneficiaryhasnodirectclaimagainstthe
tortfeasorforpropertydamageoreconomicloss,becausesuchaclaimcanbebroughtonlybyapersonwhohas
136
alegalproprietaryinterestorpossessoryinterestintheproperty.136 Aclaimcanonlybebroughtifthetrusteeis
madeapartytotheproceedings.ThiswasacknowledgedbytheCourtofAppealinShellUKLtdvTotalUK
Ltd.137 Inthatcase,theclaimant,Shell,storedoilataterminal.Thetanksandpipelineswereheldontrustforthe
claimantbytwocompanies.Thedefendant,Total,negligentlyoverfilledafuelstoragetank,whichconsequently
explodedanddamagedthetanksandpipelinesinwhichtheclaimanthadabeneficialinterest.Thecourthadto
decidewhethertheclaimantcouldsuefordamagetopropertyinwhichithadabeneficialinterestandwhetherit
couldalsosueforconsequentialeconomicloss.Theissueforthecourtwassummarizedasfollows:138
TheexplosioncauseddamagetopropertyinwhichandthroughwhichShellstoredordistributeditsoil.
LegaltitletothetanksandpipelineswereinavehiclecompanywhichheldthesameontrustforShelland
others.TotalhasacceptedliabilityforthedestructionofanythingwhichwasthepropertyofShell,but
disputedliabilityforthelossofprofitsthatShellclaimsflowedfromthedestructionofordamagetothe
tanksorpipelines.Totalreliesonwhatitassertsistherulerecognisedbymanyauthoritiestotheeffect
thatonlyalegalownerorsomeonewithanimmediaterighttopossessionhastherighttoclaimdamages
foreconomiclosstheconsequenceofdamagetoproperty.
WallerLJheld:139
(p.58) [We]wouldbepreparedtoholdthatadutyofcareisowedtoabeneficialownerofproperty(justas
muchastoalegalownerofproperty)byadefendant,suchasTotal,whocanreasonablyforeseethathis
negligentactionswilldamagethatproperty.If,therefore,suchpropertyis,inbreachofduty,damagedby
thedefendant,thatdefendantwillbeliablenotmerelyforthephysicallossofthatpropertybutalsoforthe
foreseeableconsequencesofthatloss,suchastheextraexpendituretowhichthebeneficialownerisput
orthelossofprofitwhichheincurs.Providedthatthebeneficialownercanjointhelegalownerinthe
proceedings,itdoesnotmatterthatthebeneficialownerisnothimselfinpossessionoftheproperty
Itshouldnotbelegallyrelevantthatthecoownersoftherelevantpipelines,forreasonsthatseemedgood
tothem,decidedtovestthelegaltitletothepipelinesintheirservicecompaniesandenjoythebeneficial
ownershipratherthantheformallegaltitle.Differingviewsaboutthewisdomoftheexclusionaryruleare
widelyheldbuthowevermuchonemaythinkthat,ingeneral,thereshouldbenodutytomerecontracting
partieswhosuffereconomiclossasaresultofdamagetoathirdpartysproperty,itwouldbeatriumphof
formoversubstancetodenyaremedytothebeneficialownerofthatpropertywhenthelegalownerisa
baretrusteeforthatbeneficialowner.
[we]holdthatShellcanrecoverforitsprovablelossor,ifformalityisnecessary,that[thetrustees]can
recovertheamountwhichShellhaslostbutwillholdthesumssorecoveredastrusteesforShell.
WhilsttheCourtofAppealexpandedthepossibilityofatortclaimbeingbroughtbyabeneficiary,byfindingthata
tortfeasorcanoweadutyofcaretothebeneficiary,theCourtofAppealacknowledgedthelessernatureofthe
beneficiarysproprietaryinterestbyrecognizingthat,forreasonsofformality,theclaimantdidnothaveadirect
claimagainstthedefendantforconsequentialeconomicloss,becauseitwasneitherthelegalownerofthe
propertynorinpossessionofit.Butitwasheldthatsuchaclaimcouldbebroughtifthetrusteeswerejoinedas
partiestotheproceedings,sincetheirlegaltitletothepropertycouldbeusedtoestablishtheclaim,eventhough
thelosswassufferedbythebeneficiary.Ifthetrusteesweretorefusetosue,thenthebeneficiarycouldeithersue
thetrusteesforbreachoftrustorusetheexceptionalprocedureknownastheVandepitteprocedure,140 whereby
thebeneficiarycannamethetrusteesasdefendantandalsobringproceedingsagainstthethirdparty.Thisis
whathappenedinShellUK.
(ii)Personalrights
Maitlandcharacterizedthebeneficiarysequitablerightsasbeingpersonalrightsagainstthetrusteeratherthan
propertyrightsagainstathing,knownasrightsinpersonam.Hesaid:141
Equitableestatesandinterestsarerightsinpersonambuttheyhaveamisleadingresemblancetorightsin
rem.
Thatisbecause,hesaid,abonafidepurchaserforvaluecanacquirelegaltitletopropertyanddefeatthe
beneficiarysinterest.
Butthisdoesnotexplainhowthebeneficiaryacquiresrightsthatcanbindthirdpartiesevenifthethirdpartyis
unawareoftherights.Similarly,ifthetrusteeisdeclaredbankrupt,thetrusteeinbankruptcycannotclaimthe
trustpropertyinprioritytothebeneficiarysrights,whichwouldbethecase(p.59) ifthebeneficiarysrights
againstthetrusteewereonlypersonal.Further,wherethesubjectmatterofthetrustisapersonalright,suchas
whereatrusteeholdsthevaluecreditedtoabankaccountontrust,ifthetrusteebecomesinsolvent,the
beneficiarywillstillhaveaclaimtothemoneycreditedtotheaccount,eventhoughthebankwascontractually
liabletopayonlythevaluethatiscreditedtotheaccount.Inotherwords,thebankhasapersonalrighttothe
moneycreditedtothebankatCommonLaw,butthebeneficiaryhasanequitableproprietaryrighttoit.
(iii)Rightsagainstrights
McFarlaneandStevens 142 treatthebeneficiarysequitablerightasbeingarightagainstrights,namelythe

beneficiarysrightagainstthetrusteesrightsofownership:
Anequitablepropertyrightisneitherarightagainstapersonnotarightagainstathing.Rather,itisaright
againstaright.Asaresult,itcannotbefittedintotheRomandichotomyofrightsinpersonamandrightsin
rem
wheneveraparty(B)hasarightagainstarightofanother(A),Bsrightisprimafaciebindingonanyone
whoacquiresarightthatderivesfromAsright.thereremainsadifferencebetweenarightagainsta
thingandarightagainstaright.Thekeyattributeofarightagainstathingisitsuniversalexigibility:ifB
hasarightagainstathing,Bsrightisprimafaciebindingontherestoftheworld.Thekeyattributeofa
rightagainstathingcanbelabelledpersistence:ifBhasarightagainstAsright,Bsrightisprimafacie
bindingonanyonewhoacquiresarightthatderivesfromAsright.
BwillacquiresuchapersistentrightwheneverAisunderadutytoholdaspecificclaimrightorpower,in
aparticularway,forB.
Inotherwords,ratherthansayingthatthetrusteeholdspropertyontrustforthebeneficiary,theyconsiderthat
thetrusteeholdshisorherrightofownershipofthepropertyontrustforthebeneficiary,whohasanequitable
rightagainstthatrightofownership.
Thisanalysisisusedtoexplainthecharacteristicsofequitablerights,especiallythattheypersistagainstthird
partieswhoacquirerightsthatderivefromthetrusteesrights,suchaswherethetrusteetransfersownershiptoa
thirdparty.Thethirdpartyisthenboundbythebeneficiarysrightasagainstthethirdpartysrighttoownership,
savewherethethirdpartyisabonafidepurchaserforvalue.Where,however,thethirdpartyhasstolenor
damagedthetrustproperty,thebeneficiarycannotsuethethirdpartybecausethethirdpartysrightsdonotthen
derivefromthetrusteesrights.So,forexample,ifthethirdpartystealsacarthatisheldontrust,thethirdpartys
righttothecardoesnotderivefromthetrusteesownershipofit,sincethethirdpartysrightwillbeanoriginal
possessoryright.Thethesisisalsousedtoexplainhowthebeneficiaryobtainsequitablerightswherethetrustee
hasonlyapersonalright.So,forexample,wherethebeneficiaryassertsanequitablerightinrespectofabank
account,heorsheisnotassertingarighttothebankaccount,butinsteadtothetrusteespersonalrighttobe
paidbythebankthisisthebeneficiarysrightagainstaright.Ifthispersonalrightisacquiredbyathirdparty,
suchasthetrusteeinbankruptcyofthetrustee,itwillbearightthatcancontinuetobeenforcedbythe
beneficiaryeventhoughthetrusteeinbankruptcywasunawareofthebeneficiarysexistence,inthesamewayas
athirdpartywhoacquiresownershipofpropertyfromthetrusteewillautomaticallybeboundbythebeneficiarys
rightagainstthethirdpartysrightofownership.
(p.60) McFarlaneandStevensthesisisusefulinexplainingthecharacteristicsofequitablerightsbyavoiding
theneedtocharacterizethemasproprietaryorpersonal.Italsoavoidstheneedtodistinguishbetweenlegaland
equitableownershipofproperty,sinceitrejectsanynotionofequitableownershipandreplacesitwithanotionof
equitablerights.Italsoexplainshowtherecanbetrustsofequitablerights.So,forexample,Bsequitableright
asabeneficiarycanbeheldontrustforC,sothatChasarightagainstBsequitablerightagainstthetrustees
rightofownershiptotheproperty.Thethesisalsoenablesnotionsofequitablerightstobeexportedto
jurisdictionswithnotraditionofEquity,becauseanylegalsystemcanrecognizetheconceptofarightagainsta
right.
AlthoughMcFarlaneandStevensthesisdoespurporttoexplainthenatureofabeneficiarysequitableright,it
shouldberejectedprimarilybecauseitinvolvesanartificialandunnecessarilycomplexanalysisforthefollowing
specificreasons.
(1)ThelanguageofarightagainstarightisalientoEquityjurisprudence.Thislanguageisnotusedbythe
courts,inwhichthefocusisinsteadonpropertyrights,andthecourtsrecognizethatabeneficiarydoes
haveaproprietaryinterestinthetrustproperty.143 Similarly,therearestatutesthatrefertointerestsundera
trustasbeinginterestsinproperty.144
(2)Thethesisfailstoexplainadequatelytheessentiallyproprietarynatureofthebeneficiarysinterestunder
atrust.Thatinterestisassignable,canbetraded,canbeheldontrustforanother,cansometimesenable
thebeneficiarytodirectthetransferoftrustpropertytohimselforherself,145 andmayresultinataxliability
becausethebeneficiaryhasanimmediateclaimtothetrustproperty.
(3)ItisafundamentalprincipleofEquitythatatrustwillnotfailforwantofatrustee.146 Ifatrustiscreated
bythesettlor,butthetrusteedeclinestoactastrustee,thebeneficiarycanapplytothecourttohavea
trusteeappointed.Therightofthebeneficiarytohaveatrusteeappointedcannotbeconsideredtobearight
againstthetrusteesrightofownership,becausetherewillbenotrusteeatthatparticularmoment.Itis
muchmoresatisfactorytoanalysethisrightasarisingbecauseEquitywillensurethatthebeneficiarys
proprietaryrighttothetrustpropertyisrespected.
Despiteitsflaws,therightsagainstrightsthesisdoesatleastpurporttoexplainthekeycharacteristicsof
equitablerights,whichtheinremandinpersonamtheoriescannotsatisfactorilydo.Thepreferableviewisthat
equitablerightsshouldberegardedasproprietary,whichiswhytheycanpersistagainstthirdparties.But
equitableproprietaryrightsaremodifiedrights,inthattheydonothavethesamecharacteristicsaslegal
proprietaryrights.Thisisbecauseequitableproprietaryrightsareproperlytreatedassubsidiarypropertyrights
theyaresubsidiarytolegalproprietaryrights.Thatiswhylegalproprietaryrightsarenotdefeatedbytheproperty
beingreceivedbyabonafidepurchaserforvalueandwhythelegalownerofpropertycanbringthefullrangeof
claimsfortortiousinterferencewiththeproperty.
Themodifiednatureoftheequitableproprietaryrightsalsoexplainshow,althoughthetrusteesclaimagainsta
bankformoneycreditedtoabankaccountisapersonalclaim,itistransformedintoaproprietaryrightofthe
beneficiaryifthetrusteebecameinsolventorifthemoneycreditedtotheaccountwasmisappropriatedbyathird
party.ThisarisesbecauseoftheabilityofEquitytoidentify(p.61) propertyinafund.147 Equityseesthat,where
trustmoneyiscreditedtoabankaccount,thebeneficiaryofthetrusthasarighttothevalueinthefund.Itisnot
thefunditselfthatisheldontrust,butratherthevalueinthefund,thecredit,evenwherethefundismadeupof
valuefromdifferentsources,suchaswheremoneyfromthetrusteeiscreditedtotheaccountaswell.Onceitis
recognizedthatEquitycanidentifypropertyinafund,itiseasytotreatthebeneficiarysrightstothevalueinthe
fundasaproprietaryrightthatpersistsagainstthirdpartiesapartfromabonafidepurchaserforvalue,even
thoughthetrusteehasonlyapersonalrightagainstthebank.ThiswasrecognizedbyBriggsJinPearsonv
LehmanBrothersFinanceSA:148
[N]oonedoubtsthebeneficialinterestofclientsinasolicitorsclientaccount.Yetthesubjectmatterof
thatfundconsistsentirelyofthesolicitorspurelypersonalrightsasacustomeroftheclientaccountbank
orbanks.
Thismodifiednatureofthebeneficiarysequitableproprietaryrightsagainsttrustpropertyisespeciallyimportant
whenanalysingtheclaimsofbeneficiariestorecovertrustpropertythathasbeenreceivedbythirdparties,even
wheretheoriginalpropertyhasbeensubstitutedfornewproperty.149 So,forexample,wheresharesareheldon
trustandhavebeenmisappropriatedbythetrusteeandgiventoathirdparty,whothensellsthesharesanduses
theproceedstobuyacar,thebeneficiaryofthetrustcanassertanequitableproprietaryrightagainstthecar.
Thiscouldbeexplained,usingthelanguageofMcFarlaneandStevens,onthebasisthatthebeneficiaryhasa
rightagainstthetrusteesrighttotheownershipofthesharesthatpersistsagainstthethirdparty,andwhich
continueswhenthesharesaresoldandthecarispurchasedinitsplace.Butitissomucheasier,conceptually
andanalytically,torecognizethatthebeneficiaryhasanequitableproprietaryrighttothesharesthatcanthenbe
assertedagainstthecarwhenitissubstitutedfortheshares.But,beingrecognizedinEquity,thisproprietary
rightismodifiedandwouldbedefeatediftheshareshadbeenpurchasedbythethirdpartyingoodfaith.
Question
Alanisasoldierwhoisabouttobedeployedtoaforeigncountryforoverayear.HeaskshisfriendBrianto
lookafterAlansdog,Clive,andalsototake10,000,whichAlanwantsBriantousetobuysharesina
companyforhim.Brianagreestodoso.Brianpaysthemoneyintohisownbankaccount,whichisalready
creditedwith10,000.AfterAlanhasleftthecountry,BriansellsClivetoDebbiefor1,000,andcreditsthis
moneytohisbankaccount.Brianwithdraws20,000fromhisbankaccount,whichheusestobuy20,000
sharesinEuropaLtdfor1each.AyearlaterAlanreturnstothecountry.DebbiestillhasCliveandthe
sharesinEuropaLtdarenowworth2each.
AlanseeksyouradviceastoanyclaimshemighthaveagainstBrianandDebbie.
(p.62) FurtherReading
Fox,Overreaching,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),ch.4.
FindThisResource
Hayton,PensionTrustsandTraditionalTrusts:DrasticallyDifferentSpeciesofTrusts[2005]Conv229.
FindThisResource
Langbein,TheContractarianBasisoftheLawofTrusts(1995)105YaleLJ625.
FindThisResource
McBride,OntheClassificationofTrusts,inRestitutionandEquity,Volume1:ResultingTrustsand
EquitableCompensation(edsBirksandRose)(Oxford:MansfieldPress,2000),ch.2.
FindThisResource
McFarlaneandStevens,TheNatureofEquitableProperty(2010)4JoE1.
FindThisResource
Nolan,EquitableProperty(2006)122LQR232.
FindThisResource
Parkinson,ReconceptualisingtheExpressTrust(2002)61CLJ657.
FindThisResource
Sheridan,ProtectiveTrusts(1957)21Conv110.
FindThisResource
Notes:
1 Baden:AwakeningtheConceptuallyMoribundTrust(1974)MLR643,648.
2
SeeMilsom,HistoricalFoundationsoftheCommonLaw(2ndedn)(London:Butterworths,1981),
ch.9Baker,AnIntroductiontoEnglishLegalHistory(4thedn)(Oxford:OxfordUniversityPress,2002),ch.14.
3 SeeLangbein,TheSecretLifeoftheTrust:TheTrustasanInstrumentofCommerce(1997)107YaleLJ165.
4
4 SeeHart,WhatisaTrust?(1899)LQR294.
5 Equity:ACourseofLectures(2ndedn)(ed.Brunyate)(Cambridge:CambridgeUniversityPress,1936),p.44.
6 ReconceptualisingtheExpressTrust(2002)61CLJ657,683.
8
See,e.g.Parkinson,ReconceptualisingtheExpressTrust(2002)61CLJ657.
9
TheContractarianBasisoftheLawofTrusts(1995)105YaleLJ625.SeealsoMaitland,Equity:ACourseof
Lectures(2ndedn),p.28.
10
TheContractarianBasisoftheLawofTrusts(1995)105YaleLJ625,669,and671.
11
Footnotesomitted.
12
ChoithramInternationalSAvPagarani[2002]1WLR1,11.
13
VesteysExecutorsvIRC[1949]1AllER1108.
14 Althoughitissometimespossibleforatrusteetoholdequitablepropertyrightsontrustforthebeneficiary.See
Chapter2.7(b),p.55.
15 SeeChapter1.4(a),p.11.
16 SeeChapter18,ProprietaryClaimsandRemedies.
17 [1996]AC669.
18 Ibid,705.
19 Butthebetterviewisthatthereisnoconstructivetrustinsuchasituation,butonlyapersonalliabilitytothe
claimant.SeeChapter7.1(b)(iv),p.325.
20 SeeChapter2.4(b)(x)(xi),p.36.
21 PearsonvLehmanBrothersFinanceSA[2010]EWHC2914(Ch),[225](BriggsJ).
22 Birks,EquityintheModernLaw:AnExerciseinTaxonomy(1996)UnivWALR1,9.
23 ResultingTrusts(Oxford:ClarendonPress,1997),p.5.
26 SeeChapter7.2(h),pp.3478.
27 Ontheclassificationoftrusts,inRestitutionandEquity,Volume1:ResultingTrustsandEquitable
Compensation(edsBirksandRose)(Oxford:MansfieldPress,2000),p.23.
28 ReCunninghamandFrayling[1891]2Ch567.
29 SeeChapter5.3(c)(ii),pp.191201.
30 SeeSheridan,ProtectiveTrusts(1957)21Conv110.
31
GeneralAccidentFireandLifeAssuranceCorporationLtdvIRC[1963]1WLR1207,1218.
32
ReBurroughsFowler[1916]2Ch251.
33
33
ReWittk e[1944]Ch166.
34
[1940]Ch737.
35 Ibid,753.
36 [1950]Ch633.
37 Ibid,636.
38 ReGourjusWillTrusts[1943]Ch24.
39 Ontheroleofmistakegenerallytosetasidetrustsanddispositionstotrusts,seeChapter7.2(c),pp.3302.
40 [1990]1WLR1304.
41 [1999]1WLR1399,1407.
42 SeenowthePensionSchemesAct1993,s.163.SeegenerallyChapter3.7,pp.11217.
43 PensionTrustsandTraditionalTrusts:DrasticallyDifferentSpeciesofTrusts[2005]Conv229,245.
44 See,forexample,thelawondistributionofsurplusfundsfollowingtheterminationofapensiontrust,at
Chapter8.3(c)(ii),pp.3859.
45 AirJamaicaLtdvCharlton[1999]1WLR1399(resultingtrust),Chapter8.3(b),pp.3778Cowanv
Scargill[1985]Ch270(ethicalconsiderationsinmakinginvestmentdecisions),Chapter12.4(c)(ii),pp.581
4MettoyPensionTrusteesLtdvEvans[1990]1WLR1587(releaseoffiduciarypower),Chapter11.7(e),p.
553EdgevPensionsOmbudsman[2000]Ch602(dutytoexercisediscretionforproperpurpose).
46 Milner,PensionTrust:ANewTrustForum[1997]Conv89.
47 [1991]1WLR589,597.
48 DiscretionandMoralHazardinPensionTrusts(2010)CLJ240,242.
49 IndependentTrusteeServicesLtdvHope[2009]EWHC2810(Ch),[119](HendersonJ).
50 Nobles,PensionsAct1995(1996)59MLR241.
51 SeeChapter8,ResultingTrusts.
52 SeeChapter7,ConstructiveTrustsandChapter9,InformalArrangementsRelatingtoProperty.
53
[1997]1WLR1071,1079.
54
[1936]AC1,19.
55
FurnissvDawson[1984]AC474.SeefurtheronthedoctrineofshamtrustsatChapter3.2(b),pp.6973.
56
WilliamsvSinger[1921]1AC65.
57 SeeChapter2.4(b)(vi),p.31.
58 Bak ervArcherShee[1927]AC844.
59 SeePittvHolt[2011]EWCACiv197[2012]Ch132,Chapter11.7(g),pp.5605.
60 SeeChapter4.3(c),p.151.
61 SeeChapter4(3)(d)(i),pp.1613.
62
62 SeeChapter2.4(b)(ix),pp.336.Seealsotheroleofcontractinexplaininghowpropertycanbeheldforthe
purposesofanunincorporatedassociation:seeChapter6.4(b)(v),pp.299306.
64 SeeChapter16.2(b)(iii)(a),pp.7324.
65 [2004]1WLR1010.
66 SharpvJack son[1899]AC441,426(EarlofHalsburyLC)SinclairInvestments(UK)LtdvVersaillesTrade
FinanceLtd[2011]EWCACiv347[2012]Ch132.
67 [2009]EWCACiv1161[2010]BCC272.
68 UnderCompaniesAct2006,Pt26.
69 [2009]EWCACiv1161,[58](PattenLJ).
70 DonKingProductionsvWarren[2000]Ch291.
71 AsrecognizedinBarclaysBank plcvQuistcloseInvestmentsLtd[1970]AC567.SeeChapter8.5(a),pp.
4047.
72 LecturesonEquity(2ndedn),p.45.
73 MCCProceedsInc.vLehmanBrosInternational(Europe)[1998]4AllER675,688(MummeryLJ).
75
ReHallettsEstate(1879)13ChD696.
76
77
ParagonFinancevDBThak erarandCo.[1999]1AllER400,416.
78
SolicitorsRegulationAuthorityAccountsRules2011,rules13and14.
79 [2010]EWHC2914(Ch),[225].Appealdismissed[2011]EWCACiv1544[2012]2BCLC151,without
consideringthisissue.
80 Ibid,260.
81 Seeinparticulartheexaminationoftheremedialconstructivetrust,atChapter7.3,pp.34851.
82 [2000]Ch291.SeealsoBarbadosTrustCo.vBank ofZambia[2007]EWCACiv148[2007]1LloydsRep
495.
83 [2000]Ch291,321.ThiswasapprovedbytheCourtofAppeal,Ibid.
84 SeeThomas,ConditionsinFavourofThirdParties(1952)11CLJ240.
85 (1833)3My&K534.
86 Ibid,542.
87 [1939]Ch700.
88 Ibid,at703.
89 SeeChapter1.4(a)(iv),p.13.
90 ReKingsWillTrusts[1964]Ch542.
91
91 AdministrationofEstatesAct1925,s.36(4).
92 [1913]AC76.
93
SeeChapter1.4(a)(ii),p.12.
94
CommissionerofStampDuties(Queensland)vLivingston[1965]AC694,707(ViscountRadcliffe).
95
Byanalogywiththetrustcreatedbyatestator,butwhicharisesonthedeathofalegatee:seeOttawayv
Norman[1972]Ch698,discussedatChapter4.2(c)(iii)(c),pp.13740.
96
CommissionerofStampDuties(Queensland)vLivingston[1965]AC694.
97
EastbourneMutualBuildingSocietyvHastingsCorporation[1965]1WLR861.
98
CommissionerofStampDuties(Queensland)vLivingston[1965]AC694,708(ViscountRadcliffe).
99 SeeChapter2.7(e)(i),p.57.
100 ReDiplock sEstate[1948]Ch465.
101 CommissionerofStampDuties(Queensland)vLivingston[1965]AC694,714(ViscountRadcliffe).
102 Bailey,EquitableInterests:PositionofBeneficiariesUnderWillorIntestacyWhetherAdministration
Complete:Tracing(1965)23CLJ44,46.
103 [1965]AC694.
104 Ibid,707.
105 [1997]AC179,188.
107 BrownvHiggs(1803)8Ves561.
109 [2001]Ch523,540.
110 [2003]UKPC26[2003]2AC709,at[40].
111 ReGulbenk ian[1970]AC508,525(LordUpjohn).
112
Ibid,518(LordReid).
113
BrownvHiggs(1803)8Ves561,570(LordEldon).
114
Hopkins,CertainUncertaintiesofTrustsandPowers(1971)29CLJ68,72.
115
[1971]AC424.SeefurtherChapter3.4(b),pp.914.
116 Ibid,448.
117 (1840)5My&Cr72.
118 Ibid,at89.
119 [1897]1Ch289.
120 Ibid,292.
121
121 [1996]AC669,706.
122 SeefurtherChapter10.2(e),pp.4936.
123 [2010]EWHC2914(Ch),[226].Upheldonappeal:[2011]EWCACiv1544.
124 [1901]1Ch921,922(FarwellJ).
125 [1948]Ch212.
126 Ibid,at[215].
127 Seeabove.
128 Overreaching,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.95.
129 Ibid,96.
130 ThomsonvClydesdaleBank Ltd[1893]AC282.
131 SeeChapter18.6(e),pp.8647.
132 SeeScott,TheNatureoftheRightsoftheCestuisQueTrust(1917)17ColumbiaLRev269.
133
EquitableProperty(2006)122LQR232,234.
134
MCCProceedsInc.vLehmanBrosInternational(Europe)[1994]4AllER675.
135
HealeyvHealey[1915]1KB938.
136
LeighandSillivanLtdvAliak monShippingCo.Ltd[1986]AC785,809(LordBrandon).
137 [2010]EWCACiv180[2011]QB86.
138 Ibid,[5].
139 Ibid,[142].
140 AfterVandepittevPreferredAccidentInsuranceCorporationofNewYork [1933]AC70,79(PC)(Lord
Wright).SeefurtherChapter10.1(a)(ii)(e),pp.4734.
141 Maitland,LecturesonEquity(2ndedn),p.117.
142 Thenatureofequitableproperty(2010)4JoE1.
143 See,e.g.WestdeutscheLandesbank GirozentralevIslingtonLBC[1996]AC699,705(LordBrowne
Wilkinson)ReLehmanBrothersInternational(Europe)(No.2)[2009]EWCACiv1161PearsonvLehman
BrothersFinanceSA[2010]EWHC2914(Ch),[225](BriggsJ).UpheldbyCourtofAppeal:[2011]EWCACiv
1544.
144 See,e.g.TrustsofLandandAppointmentofTrusteesAct1996,s.22(1).
146 SeeChapter11.3(f),p.528.
147 Nolan,PropertyinaFund(2004)120LQR108.
148 [2010]EWHC2914(Ch),[227].UpheldbyCourtofAppeal:[2011]EWCACiv1544.
3.TheRequirementsofanExpressTrust
Chapter: (p.65) 3.TheRequirementsofanExpressTrust
DOI: 10.1093/he/9780199661480.003.0003
CentralIssues
1.Avalidexpresstrustrequirescertaintyofintention,certaintyofsubjectmatter,andcertaintyof
objects(thethreecertainties).
2.Expresstrustsrespondtotheintentionofthecreatorofthetrust,whethersettlorortestator.This
intentionisassessedobjectively.However,ifthesettlorortestatoractuallyintendedarelationshipother
thanatrust,thenthetrustmaybeasham.
3.Theremustbepropertyuponwhichthetrustcanbite.Certaintyofsubjectmatterisassessed
objectively.Problemsariseifthepropertyisnotclearlyascertained.Itappearsthatatrustovertangible
propertythathasnotbeenclearlysegregatedfromsimilarpropertywillbeuncertain,butatrustover
intangiblepropertyinsuchcircumstanceswillbecertain.
4.Itmustbecleartowhichobjects,whetherpeopleorpurposes,thetrusteescanandcannotappoint
theproperty.Differenttestsareusedtoestablishthecertaintyofobjects:forafixedtrust,acomplete
listofbeneficiariesisneededunlessthetrustissubjecttoaconditionprecedent,inwhichcasethe
trustwillbevalidifonepersonfulfilsthecondition.Fordiscretionarytrustsandfiduciarypowers,it
needstobecertainwhetheranygivenpersonisorisnotwithinthescopeoftheclassofobjects.
5.Thereneedstobesomeoneinwhosefavourthetrustees,andindefaultthecourt,canenforcethe
trust.Thisisknownasthebeneficiaryprinciple.
6.Settlorsmaynottieuptheirwealthforever.Theperpetuityrulesarethereforeimportant.Theproperty
underthetrustmustvestwithintheperpetuityperiod.
1.Introduction
Thischapterconsiderstherequirementswhichneedtobefulfilledforanexpresstrusttobevalid.Thetrustmust
besufficientlycertaintheremustbebeneficiarieswhoareabletoenforcethetrustandthetrustmustcomply
withtheperpetuityrules.FormalitiesforthecreationofatrustareconsideredinChapter4.Thischapterisonly
concernedwithtrustsforpeopleandnottrustsforpurposes.Charitableandnoncharitablepurposetrusts,willbe
examinedinChapters5and6.
(p.66) Crucially,anexpresstrustmustfulfilthethreecertainties,whichwereinfluentiallyformulatedbyLord
LangdaleMRinKnightvKnightasfollows:1
First,ifthewordsaresoused,thatuponthewhole,theyoughttobeconstruedasimperative
Secondly,ifthesubjectoftherecommendationorwishbecertainand,
Thirdly,iftheobjectsorpersonsintendedtohavethebenefitoftherecommendationorwishbealso
certain.
Thus,atrustcannotbecreatedunlessthereiscertaintyinrespectof(i)theintentiontocreateatrust(ii)the
propertythatisthesubjectmatterofthetrustand(iii)theobjectsofthetrust.Althoughthethreeaspectsof
certaintyareheretreatedseparately,inmanycasestheyoverlap.So,forexample,ithasbeenrecognizedthat
uncertaintyinthesubjectofthegifthasareflexactionuponthepreviouswords,andthrowsdoubtuponthe
2
intentionofthetestator.2 Similarly,adivisionofpropertyamongvariousbeneficiariesmaycreateuncertaintyas
toboththepropertyandthebeneficiaries.3
Nevertheless,itremainsimportantthatallaspectsofthecertaintyrequirementbefulfilled.Expresstrustsrespond
totheexpressintentionsofthesettlorortestatorwithoutacertainintentiontocreateatrustnotrustcanarise.
Certaintyofsubjectmatterandobjectsarealsonecessary,primarilybecauseiftheyareuncertainthenitwillnot
bepossibleforthecourttoadministerthetrustifthetrusteefailstodoso.InMcPhailvDoulton,considered
later,4 LordWilberforcewaspreparedtoacceptthatthetestofvalidityiswhetherthetrustcanbeexecutedby
thecourt.5
Decidingwhetherornotatrustsatisfiestherequirementofcertaintycallsforcarefulconsiderationofthelanguage
usedtoestablishthetrust.Often,thismeansinterpretingthetrustdeedorwillcarefully.Althoughathorough
examinationofthedoctrineofinterpretationliesbeyondthescopeofthisbook,6 itisimportanttoappreciatethat
theprinciplesthatapplytotheinterpretationofcontractsapplyequallytotrustdeeds.7 Themeaningofthewords
usedtocreatethetrustneedstobeascertainedobjectively,takingintoaccountthecontextinwhichthe
languagewasused.8 Carefuldraftingofthetrustinstrumentshouldhelptoreduceproblemsof
uncertainty.9 However,thecourtswillnotlightlyallowcontractingpartiespurposesandintentionstobedefeated
bysupposeduncertainty,10 andgenerallyseektoresolveanyambiguityinfavourofupholdingthetrustif
possible.AsSirRobertMegarryVCheldinReHaysS.T.:11
Dispositionsoughtifpossibletobeupheld,andthecourtoughtnottobeastutetofindgroundsuponwhich
apowercanbeinvalidated.
(p.67) InReGulbenk iansSettlementsLordUpjohninsistedthatmistakesindraftingwouldnotnecessarily

meanthattherewasinsufficientcertaintyforavalidtrust.Commonsenseisrequiredtoascertainthemeaningof
thelanguageused:12
veryfrequently,whetheritbeinwills,settlementsorcommercialagreements,theapplicationofsuch
fundamentalcanons[ofconstruction]leadsnowhere,thedraftsmanhasusedwordswrongly,his
sentencesborderontheilliterateandhisgrammarmaybeappalling.Itisthenthedutyofthecourtbythe
exerciseofitsjudicialknowledgeandexperienceintherelevantmatter,innatecommonsenseanddesire
tomakesenseofthesettlorsorpartysexpressedintentions,howeverobscureandambiguousthe
languagethatmayhavebeenused,togiveareasonablemeaningtothatlanguageifitcandosowithout
doingviolencetoit.Thefactthatthecourthastoseewhethertheclauseiscertainforaparticular
purposedoesnotdisentitlethecourtfromdoingotherwisethan,inthefirstplace,tryingtomakesenseof
it.
2.CertaintyofIntention
(a)GeneralPrinciples
Thekeyrequirementofanexpresstrustisthatthesettlorortestatorintendedtocreateatrust.Ifatrustwasnot
intended,anexpresstrustcannotbefound.
Thesettlorortestatormusthavecapacitytocreateatrust.Consequently,asettlementmadebyachildis
voidablebythechildbeforeorreasonablysoonafterheorsheattainedtheageof18,13 andasettlementmadeby
amentallyincapacitatedpersonisvoid.14
Theintentiontocreateatrustisparticularlyimportantbecause,onceestablished,thetrustisgenerally
consideredtobeirrevocable.Acontractmightbevariedbythecontractingpartiesthemselves,15 butthesettlor
cannotusuallyvaryatrustonceithasbeencreated.16 Strongevidenceis,therefore,neededtoshowthatatrust
ratherthanamereagreementwasintended.17
However,itisnotnecessaryforthewordtrusttobeused.AsMegarryJsaidinReKayfordLtd:18
Itiswellsettledthatatrustcanbecreatedwithoutusingthewordtrustorconfidenceorthelike:the
questioniswhetherinsubstanceasufficientintentiontocreateatrusthasbeenmanifested.
Itisneverthelessnecessaryforthesettlortouseimperativewords:ifthetrusteesdonothavetodistributethe
property,thenapower,notatrust,willhavebeencreated.19 Althoughitwasoncethecasethatmereprecatory
words,expressingadesire20 orwish21 orconfidence22 thatapersonactinacertainway,weresufficientforan
expresstrusttobeintended,thatisnolongernecessarily(p.68) true.23 Instead,whetherornotatrustis
intendedwillalwaysbeaquestionofinterpretation.Thisisapparentfromthefollowingcase.24
ReAdamsandtheKensingtonVestry[1884]27ChD394
GeorgeSmith,thetestator,providedinhiswillasfollows:Igive,devise,andbequeathallmyrealand
personalestateandeffectswhatsoeverandwheresoeveruntoandtotheabsoluteuseofmywife,Harriet
Smith,herexecutors,administratorsandassigns,infullconfidencethatshewilldowhatisrightastothe
disposalthereofbetweenmychildren,eitherinherlifetimeorbywillafterherdecease.
Thequestionwaswhetherthiswasanabsolutegift,orwhetherthepropertywassubjecttoatrustinfavourof
thechildren.
Thecourtheldthatthewidowtookabsolutelynotrustwasintended.
COTTON LJ:Undoubtedlyconfidence,iftherestofthecontextshewsthatatrustisintended,maymake
atrust,butwhatwehavetolookatisthewholeofthewillwhichwehavetoconstrue,andifthe
confidenceisthatshewilldowhatisrightasregardsthedisposaloftheproperty,Icannotsaythat
thatis,onthetrueconstructionofthewill,atrustimposeduponher.Havingregardtothelater
decisions,wemustnotextendtheoldcasesinanyway,orrelyuponthemereuseofanyparticular
words,but,consideringallthewordswhichareused,wehavetoseewhatistheirtrueeffect,andwhat
wastheintentionofthetestatorasexpressedinhiswill.Inmyopinion,herehehasexpressedhiswill
insuchawayasnottoshewanintentionofimposingatrustonthewife,butonthecontrary,inmy
opinion,hehasshewnanintentiontoleavetheproperty,ashesayshedoes,toherabsolutely.
Althoughexamplescanbegivenwherethethresholdofcertaintyregardinganintentiontocreateatrustwasset
veryhigh,25 therearealsoinstanceswherethecourthasbeenmoregenerousinfindingatrust.Paulv
Constance26 illustratesthispoint.DennisConstancewasmarriedtoBridgetConstance,but,whenthemarriage
brokedown,helefthiswifeandlaterbeganarelationshipwithDoreenPaul.WhilsttogetherwithDoreen,Dennis
depositedmoneyinanaccountinhisname,fromwhichDoreencouldalsowithdrawmoney.Dennisalsoput
someofhisandDoreensbingowinningsintotheaccount,tellingherthatthemoneyisasmuchyoursasmine.
Dennisthendiedintestate,andBridgetclaimedallthemoneyintheaccountasDenniswife.Doreenarguedthat
DenniswasholdingthemoneyontrustforthebenefitofDoreenandhimselfinequalshares.Boththejudgeand
theCourtofAppealagreedthatDoreenwasentitledtohalfofthemoneyintheaccountasabeneficiaryundera
trust.Intheirparticularcontext,thewordsthemoneyisasmuchyoursasminewassufficienttoevincean
intentiontocreateanexpresstrust.ScarmanLJrecognizedthatitmight,however,bethoughtthatthiswasa
borderlinecase,27 anditissuggestedthatthedecisioninPaulvConstanceisprobablyatthelimitofhowfarthe
courtswillgotofindasufficientlycertainintentiontocreateatrust.Itisobviousthatclearerwordsaredesirable.
(p.69) (b)ShamTrusts
Althoughitmayseem,onanobjectiveinterpretationofthefacts,thatitcanbeestablishedwithsufficient
certaintythatthesettlordidintendtocreateatrust,insomeinstancesthisconclusionwillbeundermined
becausethetrustisapretence,orasham.Wherethereal,subjectiveintentionsofthesettlorandtrusteeareto
misleadordeceiveinsomeway,theappearanceofanexpresstrustconcealsthetrueintentionswhichdonot
involveatrustrelationshipatall.Insuchcases,thesubjectiveintentionsofthepartiestrumptheobjective
28
appearanceofatrust,andthecourtwillfindthetrusttobeasham.InHitchvStone,ArdenLJsaid:28
Itisoftheessenceofthistypeofshamtransactionthatthepartiestoatransactionintendtocreateone
setofrightsandobligationsbutdoactsorenterintodocumentswhichtheyintendshouldgivethird
parties,inthiscasetheRevenue,orthecourt,theappearanceofcreatingdifferentrightsandobligations.
Agoodindicatorthatatrustisashamisifthetrusteedoesnottrulyhavethepowertoadministerthetrust
propertyashisorherown,andthesettlorcontinuestoexerciserealcontroloverthetrustproperty.Ultimately,it
isaquestionofdegreewhetherornotthesettlorretainssuchpoweroverthepropertythatthetrustisasham.
ThispointhasbeenwellmadebyConaglen.
Conaglen,ShamTrusts(2008)67CLJ176,1967
Thequestionisoneofdegree:doesthesettlorhavesuchadegreeofcontroloverthetrustees
conductthatitispropertoinferthatthesettlorandthetrusteeenteredintothesupposedtrust
arrangementinordertomisleadothersintobelievingthattheapparenttrustwasvalid?Itisimportant
inthisregardtoemphasisethatthemerefactthatthetrusteehasabdicatedsomeofitsdecision
makingpowerstothesettlorafterthetrustwascreateddoesnotnecessarilyindicatethatthetrust
wasashamwhenitwasoriginallycreated:suchsubsequentconductmayinsteadamounttonomore
thanabreachoftrustonthetrusteespart(orpotentiallyavaliddelegationofpowersbythetrustee).
Butwherethepatternofconductindicatesthatthetrusteehasneverexerciseditsdiscretionary
powersandhasalwaysbeenpreparedtoactsimplyasthesettlordirects,thecourtmaylegitimately
concludethatboththesettlorandthetrusteeneverintendedtogiveeffecttothetrustinstrumentand
insteadenteredintoitonlyinordertodisguisethetruearrangement.Itisimportanttoemphasisethis
highthreshold:themereinclusioninatrustinstrumentofapowerforthesettlortorevokethetrust,or
tocontrolthetrustsinvestments,doesnotnecessarilymeanthatthetrustisasham.
Itmightbehelpfultothinkofthecourtsapplyingsomesortoftrustometerdevice:29 themorepowersthesettlor
retainsforhimorherself,themorelikelyitisthatthetrustisasham.
(p.70) Althoughashamneedonlybeprovedonthegeneralcivilstandardofabalanceofprobabilities,convincing
evidencewillberequiredgiventhatashamgenerallyinvolvesafindingofdishonesty,30 courtswillnotreadily
concludethatanapparentlylegitimatetrustisinfactasham.
NationalWestminsterBankplcvJones[2001]1BCLC98,[59]
NeubergerJ:Becauseafindingofshamcarrieswithitafindingofdishonesty,becauseinnocent
thirdpartiesmayoftenrelyuponthegenuinenessofaprovisionoranagreement,andbecausethe
courtplacesgreatweightontheexistenceandprovisionsofaformallysigneddocument,thereisa
strongandnaturalpresumptionagainstholdingaprovisionoradocumentasham.
Therehasbeensomediscussionaboutwhethertheintentionsofthesettlorandthetrusteeneedtobefound.Isit
sufficientifthesettloralonedidnottrulyintendtosetuparealtrust?Ordoesthetrusteealsoneedtointendthat
thetrustnotoperateasatruetrust?
InShalsonvRusso,31 RimerJthoughtthatboththesettlorandthetrusteemustintendthetrusttobeasham.
So,ifthesettlorlackstheintentiontocreateatrust,butthetrusteedoesnotsharethisintention,thetrustcould
stillbevalid.32 Thisseemssatisfactory:ifthesettlorintendsasham,butthetrusteeisunawareofthisand
operatesthetrustasapropertrust,thecourtshouldnotinterferebydeclaringthetrustasham.Thesettlors
intentionshavebeendefeated,butsincetheywereimproperfromtheoutset,thisisnotobjectionable.Anyother
conclusionmaydisadvantageinnocentthirdpartieswhohavereliedupontheoutwardappearanceofavalidtrust.
ThisargumentwasacceptedbyMunbyJinAvA,givenintheextractbelow,whichprovidesthoughtful
discussionofshamtrusts.Attheendofthepassage,thejudgealsooffersagoodexplanationofdictainMidland
Bank plcvWyatt,33 whichhavesometimesbeenthoughttobeinconsistentwiththepropositionthatallthe
partiestotheshamtrustneedtosharethedishonestintention.InWyatt,thetrustwascreatedbyadeclaration
madebythesettlorthatheholdpropertyontrustforanotherinsuchcircumstancesofselfdeclaration,itseems
reasonableonlytoexaminethesettlorsintention,giventhatthesettlorisalsomeanttobethetrustee.34
AvA[2007]EWHC99(Fam),[41][50]
MunbyJ:
Inthepresentcasetherehavebeen,fromtimetotime,anumberofdifferenttrusteesofthetrusts.The
questionthereforearisesastowhichofthetrusteesintentionsarerelevantforthispurpose.Put
somewhatdifferently,thequestionarisesastowhetheratrustwhichisnotashamcansubsequently
becomeashamand,conversely,whetheratrustwhichisashamcansubsequentlylosethat
character
(p.71) Itseemstomethatasamatterofprincipleatrustwhichisnotinitiallyashamcannot
subsequentlybecomeashamOnceatrusthasbeenproperlyconstituted,typicallybythevesting
ofthetrustpropertyinthetrustee(s)andbytheexecutionofthedeedsettingoutthetrustsupon
whichthetrustpropertyistobeheldbythetrustee(s),thepropertycannotloseitscharacterastrust
propertysaveinaccordancewiththetermsofthetrustitself,forexample,bybeingpaidtoorapplied
forthebenefitofabeneficiaryinaccordancewiththetermsofthetrustdeed.Anyotherapplicationof
thetrustpropertyissimplyandnecessarilyabreachoftrustnothinglessandnothingmore.
Atrusteewhohasbonafideacceptedofficeassuchcannotdivesthimselfofhisfiduciaryobligations
byhisownimproperacts.Iftherefore,atrusteewhohasenteredintohisresponsibilities,andwithout
havinganyintentionofbeingpartytoasham,subsequentlypurports,perhapsinagreementwiththe
settlor,totreatthetrustasasham,theeffectisnottocreateashamwherepreviouslytherewasa
validtrust.Theonlyeffect,eveniftheagreementisactuallycarriedintoexecution,istoexposethe
trusteetoaclaimforbreachoftrustand,itmaywellbe,toexposethesettlortoaclaimforknowing
assistance35 inthatbreachoftrust.Norcanitmakeanydifference,wherethetrusthasalreadybeen
properlyconstituted,thatatrusteemayhaveenteredintoofficemayindeedhavebeenappointeda
trusteeinplaceofanhonesttrusteefortheverypurposeandwiththeintentionoftreatingthetrust
forthefutureasasham.If,havingbeenappointedtrustee,hehasthetrustpropertyunderhiscontrol,
hecannotbeheardtodisputeeitherthefactthatitistrustpropertyortheexistenceofhisown
fiduciaryduty
Iturntoconsidertheconversecase.Canatrustwhichisinitiallyashamsubsequentlylosethat
character?Iseenoreasoninprinciplewhythatshouldnotbepossible.Thesituationisbestexplained
byanexample.ShaspurportedlyvestedpropertyinT1astrusteeofatrustwhichisinfact,
consistentlywiththeircommonintention,ashamfromtheoutset.T1nowwishestoretireastrustee.
S,executingalltheappropriatedocuments,purportstoappointT2asT1ssuccessorandtotransfer
thetrustpropertyintoT2sname.NowifT2knowsthatthetrustisashamandacceptsappointment
astrusteeintendingtoperpetuatethesham,thennothinghaschanged.Thetrustwasashamwhilst
T1wasthetrusteeandremainsashameventhoughT1hasbeenreplacedbyT2.ButwhatifT2does
notknowthatthetrustwasasham,andacceptsappointmentbelievingthetrusttobeentirely
genuineandintendingtoperformhisfiduciarydutiesconscientiouslyandstrictlyinaccordancewith
whathebelievestobeagenuinetrustdeed?Icannotseeanyreasonwhy,inthatsituation,whatwas
previouslyashamshouldnotbecome,evenifonlyforthefuture,agenuinetrust.
Onthecontrary,principlearguescompellinglythatinsuchcircumstancesthereisindeed,forthe
future,avalidandenforceabletrust.Afterall,inthecircumstancesIhavepostulated,thetrustproperty
hasbeenvestedinsomeonewhoacceptsthatheholdsthepropertyastrusteeonthetrustsofa
documentwhichhebelievestobeagenuineinstrument.Hehasnointentionthatthearrangement
shouldbeasham
Thecorollaryofallthiscanbestatedverysimply.Whateverthesettlororanyoneelsemayhave
intended,andwhatevermayhavehappenedsinceitwasfirstcreated,atrustwillnotbeashamin
myjudgmentcannotasamatteroflawbeashamifeitheri)theoriginaltrustee(s),orii)the
currenttrustee(s),werenot,becausetheylackedtherelevantknowledgeandintention,partytothe
shamatthetimeoftheirappointment.Inthefirstcase,thetrustwillneverhavebeenasham.Inthe
secondcase,thetrust,evenifitwaspreviouslyasham,willhavebecomeagenuineavalidand
enforceabletrustasfromthedateofappointmentofthecurrenttrustee(s).
Therehasbeensomedebateintheauthoritiesastowhatisrequiredtoestablishtherequisite
commonintention.InMidlandBank plcvWyatt[1995]1FLR696,theDeputyJudge,MrDavidYoung
QC,saidatpage699that:
(p.72) ashamtransactionwillstillremainashamtransactionevenifoneofthepartiestoit
merelywentalongwiththeshammernoteitherknowingorcaringaboutwhatheorshewas
signing.Suchapersonwouldstillbeapartytotheshamandcouldnotrelyonanyprincipleof
estoppelsuchaswasthecaseinSnook 36
Whatisrequiredisacommonintention,butrecklessindifferencewillbetakentoconstitutethe
necessaryintention.
Thisrecognitionthatrecklessindifferencecanbeequatedwithintentionseemssatisfactoryandisconsistentwith
howintentionisdefinedinotherareasofthelaw.37
Generally,ashamtrustisconsideredtobevoid.Butitshouldberememberedthatshamtrustsareoften
establishedinordertohideorconcealsomething.Forexample,asettlormaygivetheimpressionofsettingupa
trustinordertodeceivehiscreditors.Insuchinstances,thetrustcanalsobesaidtobetaintedbyillegality,
sincethetrustmechanismisbeingexploitedinordertodefraudhisorhercreditors.Theprinciplesofillegality
must,therefore,beborneinmindwhenconsideringtheimpactofshamtrustsinthisarea.Thesewillbe
consideredinmoredetailinChapter8.38 However,itisimportanttoappreciatethatanyillegalityshouldnotaffect
therightofathirdparty,suchastheRevenue,toestablishthatatrustisasham.Butthefactthatthepartiesare
taintedbyillegalitymeansthattheymaynotbeablethemselvestoclaimthatatrustisasham.Thisisbecause
apartymaynotleadanyevidenceofillegalityinordertoestablishhisorherclaim.39 Butifoneoftheparties
withdrawsfromtheillegaltransactionbeforeanypartoftheillegalpurposeisimplemented,thenthatpartymaybe
abletorelyupontheillegalintentionsinordertoestablishthatatrustisasham.40
Ifthetrustisasham,thenthatgenerallyleadstotheconclusionthatthetrustisvoid.41 However,holdingthe
trusttobevoidmay,insomecircumstances,adverselyaffectinnocentthirdpartieswhohaverelieduponthe
apparentlyvalidexpresstrust.Insuchcases,thirdpartiesshouldbeprotectedandthedoctrineofestoppelmight
beemployedtopreventpartiestotheshamfromdenyingtheexistenceofatrusttothedetrimentofthosewho
haveinnocentlyrelieduponthetrust.42 InCarmanvYates,CharlesJinsistedthat:43
asagainstaninnocentthirdpartyitcannotlieinthemouthsofthepretenderstoasserttothe
disadvantageofthatinnocentthirdpartythatthetransactionisasham,orpretence,andthusofnoeffect.
Thisseemsentirelyappropriate,butitisnotclearhowthecourtwoulddealwiththesituationwheretheinterests
ofvariousinnocentthirdpartiesconflict,suchthatsomewouldinsistonthetrustbeing(p.73) asham,and
otherspreciselythecontrary.44 CharlesJinCarmanvYatessuggestedthatthecourtswouldbenefitfroma
degreeofflexibilityinsuchasituation.45 Conaglenhascautionedagainstunconstrainedjudicialdiscretioninthis
area,preferringinsteadtofocusuponestablishedprinciplesconcerningestoppelandthepriorityofcompeting
equities.46 Thismaybethemostappropriateapproach.However,thereissomemeritinallowingthecourtsthe
flexibilitytoachievethemostsatisfactoryoutcomefromahighlyunsatisfactorysituation.Indeed,theLaw
Commissionhasrecentlyrecommendedaslightlymoreflexibleapproachwhenestablishingwhatthe
consequencesofatrusttaintedbyillegalityshouldbe.47
(c)InsolvencyAct1986
SimilartothediscussiononshamsinSection(b),adeclarationoftrustmayalsobesetasidewhereitismadeto
theunfairprejudiceofcreditors.Section423oftheInsolvencyAct198648 providesthatatransaction,includinga
gift,whichwasatanundervalue49 andwhichwasintendedtoputassetsbeyondthereachofcreditors 50 orto
prejudicetheirinterestsinaclaimagainstthetransferor,51 maybesetasideandthecourtmayorderthatany
propertytransferredunderthetransactionistobereturned.So,forexample,ifasettlorcreatesasettlementnot
forvalueinordertodefraudcreditors,thistrustcanbesetasideandthesettledpropertyberestoredtothe
settlor.
ThisisillustratedbyIRCvHashmi,52 whereatenanthadacquiredthefreeholdofthepropertyandpurportedto
declareatrustofthisforhisson.Thetenanthadbeenunderdeclaringhisprofits.Inconcludingthathehad
intendedtodefraudhiscreditors,ArdenLJsaid:53
[Section423oftheInsolvencyAct1986]doesnotrequiretheinquirytobemadewhetherthepurposewas
adominantpurpose.Itissufficientifthestatutorypurposecanproperlybedescribedasapurposeandnot
merelyasaconsequenceitwilloftenbethecasethatthemotivetodefeatcreditorsandthemotiveto
securefamilyprotectionwillcoexistinsuchawaythateventhetransferorhimselfmaybeunabletosay
whatwasuppermostinhismindforsomethingtobeapurposeitmustbearealsubstantialpurpose.
Moreover,itisunlawfulforapersontodeclarehimselftobeholdingpropertyontrustforonecreditor,orgroupof
creditors,tothedetrimentofothercreditors:thisisknownasavoidablepreference.Insuchcircumstances,a
sufficientlycertainintentiontocreateatrustmaybeestablished,butthatintentionisnot(p.74) giveneffectdue
tothepolicyunderpinningtheInsolvencyAct1986,sections238and239,whichinsiststhatunsecuredcreditors
shouldbetreatedequallyamongstthemselves.Thus,ifacompanydeclaresitselftobeholdingthepropertyofa
customerontrust,itisdifficulttoascertainwhetherthecustomershouldtrulybeabletorelyuponaproprietary
interest,ratherthansimplyacontractualclaimindebt.Thisisparticularlysignificantwhenconsidering
theQuistclosemechanism,consideredinChapter8.54 But,forpresentpurposes,itisimportanttonotethatthe
intentionofthecompanydeclaringatrustmaynotbegiveneffectbythecourt.Whetherornotanunfair
preferenceisatissuedependsontheparticularcircumstancesofacase.InReKayfordLtd,55 MegarryJheld
thatthetrustwasvalidwhereamailordercompany,experiencingfinancialdifficulties,setupaseparateaccount
calledtheCustomersTrustDepositAccount,inordertotrytoringfencedepositsreceivedfromitscustomers.
Thecompanyonlyintendedtotakethemoneyoutoftheaccountoncethegoodsweredeliveredtothe
customers.Thejudgeheldthatthiswasnotanunlawfulpreferenceinfavourofthenewdepositors:56
Imaysayattheoutsetthatonthefactsofthecase[counsel]wasunabletocontendthatanyquestionof
afraudulentpreferencearose.Ifoneleavesononesideanycaseinwhichaninsolventcompanyseeksto
declareatrustinfavourofcreditors,oneisconcernedherewiththequestionnotofpreferringcreditorsbut
ofpreventingthosewhopaymoneyfrombecomingcreditors,bymakingthembeneficiariesunderatrust.
Thisdecisioncanbejustified,since,withouttheprotectionofferedbyatrust,thecompanymayhavebeenless
likelytoreceiveordersfromcustomers.Withoutsuchorders,thecompanymaysimplyhaveenteredliquidation
evenearlier,soitsothercreditorswouldnothavebeeninanybetterpositionbyopposingthecreationofatrust.
Nevertheless,itwassomethingofaboontothecustomerstofindthemselvesbeneficiariesunderatrust,and
companiesmustremaincautiousaboutpreferringonegroupofcreditorsoveranotherthroughthetrust
mechanism.
3.CertaintyofSubjectMatter
Thesubjectmatterofatrustmustbesufficientlycertain.Withoutpropertyuponwhichthetrustcanbite,there
canbenovalidtrust.Exactlywhatpropertyisheldontrustmustbedefinedwithcertainty.Otherwise,itisdifficult
toadministerthetrustproperly:trustees,andindefaultthecourt,needtoknowexactlywhatpropertymustbe
distributed.Definingthesubjectmatterofthetrustalsomakesitclearwhichpropertyisunavailabletobe
distributedtocreditorsintheeventofthetrusteesinsolvency.
(a)NatureofSubjectMatter
Propertyisdefinedbroadlyandisnotlimitedtotangiblegoods.57 Forexample,inSwiftvDairywiseFarmsLtd58 it
washeldthatmilkquotas(whichgavetheholderanexemptionfromalevythatwouldotherwisebepayable)could
formthesubjectmatterofatrust.Injustifyingthisdecision,JacobJreferredtothewidedefinitionofpropertyin
section436oftheInsolvencyAct1986:
(p.75) propertyincludesmoney,goods,thingsinaction,landandeverydescriptionofpropertywherever
situatedandalsoobligationsandeverydescriptionofinterest,whetherpresentorfutureorvestedor
contingent,arisingoutof,orincidentaltoproperty.
(b)ObjectiveInterpretation
Identifyingthesubjectmatterofthetrustandwhetheritmeetsthecertaintyrequirementrequirescareful
constructionofthelanguageused.Thefollowingtwocasesareinstructiveinthisregard.
PalmervSimmonds[1854]2Drew221
Thetestatrix,byherwill,gaveherresiduaryestatetoThomasHarrisonforhisownuseandbenefit,asIhave
fullconfidenceinhim,thatifheshoulddiewithoutlawfulissuehewillleavethebulkofmysaidresiduary
estateuntocertainnamedpersons.
Theexpressionofconfidencewassufficient,accordingtothepracticeatthattime,tomanifestanintentionto
createatrust.59 Thequestionwaswhetherthesubjectmatterofthetrustwassufficientlycertain.Itwasheld
thatitwasnot.
KindersleyVC:
Whatisthemeaningthenofbulk?Theappropriatemeaning,accordingtoitsderivation,issomething
whichbulgesout,&c.[HisHonourreferredtoToddsJohnsonandRichardsonsDictionaryforthe
differentmeaningsandetymologyoftheword.]Itspopularmeaningweallknow.Whenapersonis
saidtohavegiventhebulkofhisproperty,whatismeantisnotthewholebutthegreaterpart,andthat
isinfactconsistentwithitsclassicalmeaning.When,therefore,thetestatrixusesthatterm,canI
sayshehasusedatermexpressingadefinite,clear,certainpartofherestate,orthewholeofher
estate?Iamboundtosayshehasnotdesignatedthesubjectastowhichsheexpressesher
confidenceandIamthereforeofopinionthatthereisnotrustcreatedthatHarrisontookabsolutely,
andthoseclaimingunderhimnowtake.
ReGolaysWillTrusts[1965]1WLR969(ChD)
Byhiswill,thetestatordirectedhisexecutorstoletTossyMrsF.Bridgewatertoenjoyoneofmyflats
duringherlifetimeandtoreceiveareasonableincomefrommyotherproperties.Thequestionwas
whetherthegiftoftheincomewasvoidforuncertainty.Itwasheldthatthegiftwasvalid.
UngoedThomasJ:
Thequestionthereforecomestothis:Whetherthetestatorbythewordsreasonableincomehas
givenasufficientindicationofhisintentiontoprovideaneffectivedeterminantofwhatheintendsso
thatthecourtinapplyingthatdeterminantcangiveeffecttothetestatorsintention.
Whethertheyardstickofreasonableincomewereappliedbytrusteesunderadiscretiongivento
thembyatestatororappliedbyacourtincourseofinterpretingandapplyingthewordsreasonable
incomeinawill,theyardsticksoughttobeappliedbythetrusteesintheonecaseandthecourt
in(p.76) theothercasewouldbeidentical.Thetrusteesmightbeotherthantheoriginaltrustees
namedbythetestatorandthetrusteescouldevensurrendertheirdiscretiontothecourt.Itwould
seemtometobedrawingtoofineadistinctiontoconcludethatanobjectiveyardstickwhichdifferent
personssoughttoapplywouldbetoouncertain,notbecauseofuncertaintyintheyardstickbutas
betweenthosewhoseektoapplyit.
Inthiscase,however,theyardstickindicatedbythetestatorisnotwhatheorsomeotherspecified
personsubjectivelyconsiderstobereasonablebutwhatheidentifiesobjectivelyasreasonable
income.Thecourtisconstantlyinvolvedinmakingsuchobjectiveassessmentsofwhatisreasonable
anditisnottobedeterredfromdoingsobecausesubjectiveinfluencescanneverbewhollyexcluded.
Inmyviewthetestatorintendedbyreasonableincometheyardstickwhichthecourtcouldandwould
applyinquantifyingtheamountsothatthedirectioninthewillisnotinmyviewdefeatedby
uncertainty.
Thesetwocasesshowthatthesubjectmatterofthetrustmustbeobjectivelyclear.Differentpartiescouldhave
haddifferentviewsaboutwhatconstitutedthebulkofanestate,and,therefore,thescopeofthetrustcouldhave
variedconsiderablybetween,forexample,theoriginaltrustees,subsequenttrustees,andthecourt.Bycontrast,
reasonablenessisaconceptwithwhichlawyersandcourtsregularlygrappleacrossawidevarietyofconcepts
asaresult,areasonableamountcanbeascertainedwithahigherdegreeofcertaintythanbulk.Nevertheless,
itmustalsobeacceptedthatreasonableincomecannotbepreciselydefined,andthattrusteesandthecourt
maydifferaboutwhatexactlyconstitutesareasonableamount.Itissuggestedthattheroomfordisagreement
withintheconfinesofreasonablenessisperhapssufficientlynarrowforthecourtstofeelabletoupholdthetrust.
Afterall,courtsdonotstrivetodefeatgifts.Buttherearelimitstohowfarthecourtwillgotoupholdatrustand
thebulkofanestateinPalmervSimmondsclearlycrossedtheboundaryofcertainty.
(c)PropertyinaLargerBulknotClearlySegregated
Thepropertythatissubjecttothetrustmustbeidentifiable.60 Ifthesubjectmatterofthetrustissegregatedand
clearlyseparatedfromotherpropertyofthetrustee,thatclearlyhelpstoensurethatthecertaintyrequirementis
met.So,ifatrustisdeclaredoverapartofalargerquantityofproperty,itisadvisabletosegregatetheproperty
thatformsthesubjectmatterofthetrust.Problemsarisewherethisisnotdone.Forexample,inReLondonWine
Co(Shippers)Ltd61 theLondonWineCompany(LWC)allowedpeopletopurchasewine,generallyasan
investment.Uponpurchase,LWCprovidedthecustomerwithadocumentoftitleconfirmingthatthewine
belongedtothepurchaser.Thewineboughtbythecustomerswouldremaininwarehouses.However,the
customersbottlesofwinewerenotsegregatedfromtherestofLWCsstock.WhenLWClaterentered
liquidation,itbecamenecessarytoestablishwhetheralltherelevantbottlesofwinebelongedtoLWC,orwhether
somewereheldontrustforthecustomers.OliverJheldthattherecouldbenotrust,sincethesubjectmatterof
thetrustwasuncertain:itwasnotclearwhichbottlesofwinewereheldontrustforthecustomers.
Thisdecisionisentirelyorthodox:itmustbeclearuponwhichpropertythetrustbites.However,thedecision
mightseemharshuponthepurchasersafterall,thepurchasersmighthavebelievedthatthewinebelongedto
them,andthatLWCwouldensurethatthiswasthecase.Indeed,giventhat(p.77) thecaseinvolvedthesaleof
goods,theresultofthecasewouldnowbeaffectedbytheSaleofGoods(Amendment)Act1995,which
introducedsection20AintotheSaleofGoodsAct1979:
SaleofGoodsAct1979s.20A.Undividedsharesingoodsformingpartofabulk.
(1)Thissectionappliestoacontractforthesaleofaspecifiedquantityofunascertainedgoodsif
thefollowingconditionsaremet
(a)thegoodsorsomeofthemformpartofabulkwhichisidentifiedeitherinthecontract
orbysubsequentagreementbetweenthepartiesand
(b)thebuyerhaspaidthepriceforsomeorallofthegoodswhicharethesubjectofthe
contractandwhichformpartofthebulk.
(2)Wherethissectionapplies,then(unlessthepartiesagreeotherwise),assoonasthe
conditionsspecifiedinparagraphs(a)and(b)ofsubsection(1)abovearemetoratsuchlater
timeasthepartiesmayagree
(a)propertyinanundividedshareinthebulkistransferredtothebuyer,and
(b)thebuyerbecomesanownerincommonofthebulk.
Butstatutoryreforminaspecificcontextofsaleasopposedtogiftordeclarationoftrustshouldnotcloudthe
generalprincipleoftrustlaw:foratrusttobevalid,thepropertyinquestionshouldbecertain.InReStapylton
FletcherLtd62 therewasavalidtrustwhere,onsimilarfactstoReLondonWineCompany,thewinecompanyin
questiondidseparatethestockdesignatedforthecustomersfromitsgeneralstock.Thismadeiteasyto
ascertainwhichbottlesorcaseswerebeingheldforthepurchasers.Bycontrast,inReGoldcorpExchange
Ltd63 thepurchasersofgoldbullionwerenotabletoprovetheexistenceofavalidtrustwherethebullionwas
neversegregated64 anditwasimpossibletodistinguishwhichpropertymightbethesubjectmatterofatrust.
Fromthesecases,theneedclearlytodemarcatethepropertythatissubjecttothetrustmightbeconsideredto
beapparent.However,thefollowingdecisionheldthatatrustof50outof950shareswasvalid,despitethose
sharesnotbeingclearlysegregated.
HuntervMoss[1994]1WLR452
Thedefendantwastheregisteredownerof950sharesinacompany(MEL)withanissuedsharecapitalof
1,000shares.Hemadeanoraldeclarationoftrustinfavouroftheplaintiffinrespectof5percentofthe
companysissuedsharecapital(i.e.50shares).TheCourtofAppealheldthatthetrustwasnotvoidfor
uncertainty.
DillonLJ:
Itiswellestablishedthatforthecreationofatrusttheremustbethethreecertaintiesreferredto
byLordLangdaleinKnightvKnight(1840)3Beav148.Oneofthoseis,ofcourse,thattheremust
becertaintyofsubjectmatter.Alltheseshareswereidenticalinoneclass:5percentwas50shares
andthedefendantheldpersonallymorethan50shares.Again,itwouldnotbegoodenoughfora
settlortosayIdeclarethatIhold50ofmysharesontrustforB,withoutindicatingthecompanyhe
hadin(p.78) mindofthevariouscompaniesinwhichheheldshares.Therewouldbenosufficient
certaintyastothesubjectmatterofthetrust.Butherethediscussionissolelyaboutthesharesof
oneclassintheonecompany.
Itisplainthatabequestbythedefendanttotheplaintiffof50ofhisordinarysharesinMELwouldbea
validbequestonthedefendantsdeathwhichhisexecutorsoradministratorswouldbeboundtocarry
intoeffect.[Counsel]soughttodisputethatandtosaythatif,forinstance,ashareholderhad200
ordinarysharesinICIandwantedtogivethemtoA,B,CandDequallyhecoulddoitbygiving200
sharestoA,B,CandDastenantsincommon,buthecouldnotvalidlydoitbygiving50sharestoA,
50sharestoB,50sharestoCand50sharestoD,becausehehasnotindicatedwhichofthe
identicalsharesAistohaveandwhichBistohave.Idonotacceptthat.Thatsuchatestamentary
bequestisvalid,appearssufficientlyfromReClifford[1912]1Ch29andReCheadle[1900]2Ch620.
[Counsel],however,reliedontwoauthoritiesinparticular.OneisadecisionofOliverJinReLondon
WineCo(Shippers)Ltd[1986]PCC121whichwasdecidedin1975.Thatwasacaseinwhichthe
businessofthecompanywasthatofdealersinwineandoveraperiodithadacquiredstocksofwine
whichweredepositedinvariouswarehousesinEngland.Quantitieswerethensoldtocustomersby
thecompany,butinmanyinstancesthewineremainedatthewarehouse.Therewasnoappropriation
ontheground,asitwerefrombulk,ofanywine,toanswerparticularcontracts.Butthecustomer
receivedfromthecompanyacertificateoftitleforwineforwhichhehadpaidwhichdescribedhimas
thesoleandbeneficialownerofsuchandsuchwineofsuchandsuchavintage.Thecustomerwas
chargedforstorageandinsurance,butspecificcaseswerenotsegregatedoridentified.
Subsequently,atastagewhenlargestocksofwinewereheldinvariouswarehousestotheorderof
thecompanyanditscustomers,areceiverwasappointedbyadebentureholder.Thequestionthat
arosewaswhetherthecustomerswhohadreceivedthesecertificatesoftitlehadagoodtitletothe
quantityofwinereferredtointhecertificateasagainstthereceiverappointedunderafloatingcharge.
Thejudgeheldthatitcouldnotbesaidthatthelegaltitletothewinehadpassedtoindividual
customersandthedescriptionofthewinedidnotadequatelylinkitwithanygivenconsignmentor
warehouse.And,furthermore,itappearedthattherewasalackofcomparisonatthetimethe
certificateswereissuedinthat,insomecases,thecertificateswereissuedbeforethewinewhichhad
beenorderedbythecompanyhadactuallybeenreceivedbythecompany.Itseemstomethatthat
caseisalongwayfromthepresent.Itisconcernedwiththeappropriationofchattelsandwhenthe
propertyinchattelspasses.Weareconcernedwithadeclarationoftrust,acceptingthatthelegaltitle
remainedinthedefendantandwasnotintended,atthetimethetrustwasdeclared,topass
immediatelytotheplaintiff.Thedefendantwastoretainthesharesastrusteefortheplaintiff.
[Counsel]alsoreferredtoMacJordanConstructionLtdvBrook mountErostinLtd(1991)56BLR1,a
decisionofthiscourt.ThepositiontherewasthatMacJordanweresubcontractorsforBrookmountas
maincontractors.TherewasretentionmoneykeptbackbyBrookmountwhich,onthedocuments,
wastobeheldonatrustforthesubcontractors,butithadnotbeensetasideasaseparatefund
whenareceiverwasappointedbythemaincontractor,Brookmountsbank.Itwas,consequently,held
thatMacJordanwerenotentitledtopaymentinfulloftheretentionmoneysinprioritytothereceiver
andthesecuredcreditor.Itwascommongroundinthatcasethat,priortotheappointmentofthe
receivers,therewerenoidentifiableassetsofBrookmountimpressedwiththetrustapplicabletothe
retentionfund.Atbest,therewasmerelyageneralbankaccount.
Inrelianceonthatcase[Counsel]submittedthatnofiduciaryrelationshipcanattachtoan
unappropriatedportionofamixedfund.Theonlyremedyisthatofafloatingcharge.Hereferredtoa
passageinthejudgmentofLordGreeneMRinReDiplock [1948]Ch465at519520wherehesaid:
(p.79) Thenarrownessofthelimitswithinwhichthecommonlawoperatedmaybelinkedwith
thelimitednatureoftheremediesavailabletoitInparticular,thedeviceofadeclarationof
chargewasunknowntothecommonlawanditwastheavailabilityofthatdevicewhichenabled
equitytogiveeffecttoitswiderconceptionofequitablerights.
So[Counsel]submittedthatthemostthattheplaintiffcouldclaimistohaveanequitablechargeona
blendedfund.
AsIseeit,however,wearenotconcernedinthiscasewithamereequitablechargeoveramixed
fund.Justasapersoncangive,bywill,aspecifiednumberofhissharesofacertainclassinacertain
company,soequally,inmyjudgment,hecandeclarehimselftrusteeof50ofhisordinarysharesin
MELorwhateverthecompanymaybeandthatiseffectivetogiveabeneficialproprietaryinterestto
thebeneficiaryunderthetrust.Noquestionofablendedfundthereafterarisesandwearenotinthe
fieldofequitablecharge.
ThereasoningusedbytheCourtofAppealinHuntervMosshasbeencriticized.Inparticular,theanalogywith
testamentarytrustsisdubious.
Hayton,UncertaintyofSubjectMatterofTrusts110(1994)LQR335,3389
[DillonLJ]ignoredthefactthatthereisacrucialdifferencebetweensuchatestamentarybequest,
whereundoubtedlythetestatorhaseffectivelydivestedhimselfofhislegalandbeneficialownership,
andanintervivosdeclarationofoneselfastrusteeforanother,wherethedisputedquestioniswhether
ornotthesettlorhaseffectivelydivestedhimselfofthisbeneficialownershipinspecificproperty.
Itiselementarythatabequestisaperfectgiftthatiscompletedbythetestatorsdeath.Thereupon,
certainproperty,namelythetestatorswholeestate,passestotheexecutor,whohasfullownership
withoutdistinctionbetweenlegalandequitableintereststherein,subjecttofiduciaryobligationsto
administeritbypayingdebts,expenses,taxes,etc.,andthenimplementingtheexecutorytrustsof
thetestatortotheextentthatthereissufficientpropertylefttosatisfysuchtrusts.Theintended
beneficiariesonlyhaveanequitablechoseinactionuntiltheexecutorhascompletedthe
administrationoftheestate:ComrofStampDutiesvLivingston[1965]AC694.65
ItfollowsthattheonlyintervivossituationanalogoustothetestamentarysituationinstancedbyDillon
LJisthatwherethesettlormakesaperfectgiftofspecificpropertytoatrusteesoastodivesthimself
oflegalandbeneficialownershipthereof,e.g.bytransferring950sharestoatrusteeandimposing
equitableobligationsuponthetrusteetodistribute50toXand900toY.
Thepositionisverydifferentwherethesettlor,S,retainsthelegaltitleandintendstodeclareatrust
soastomakeaperfectgifttoXoftheequitableinterestinspecificproperty.ScanintendeitherthatX
istobeequitablyentitledtoonenineteenthofeachofSs950shares,sothatSandXareequitable
tenantsincommon,or,asinHuntervMoss,thatXistobeexclusivelyentitledinequityto50ofSs
950shares.Intheformercase,Xhasacertainequitableinterestinonenineteenthofeverysharebut
inthelattercaseShasnotyetdivestedhimselfofanybeneficialinterestinanyspecificshares
becausehehasnotsetasideaspecific50sharesforX,sosurelytheequitablegiftisimperfectandX
hasnoequitablerightsinanyshares.IfSthenchangeshismind,itfollowsthatequitywillnotcompel
himtoperfecthisimperfectgiftbytreatingthelattertypeofintentionastheformer:cp.Milroyv
Lord(1852)4DeGF&J264.66 Incontrast,ifShaddeclaredhimselftrusteeof50forXand900forY,
thenhewouldhave(p.80) divestedhimselfofallbeneficialinterestinhis950shares.Thus,underthe
ruleinSaundersvVautier(1841)4Beav115,67 ifXandYagreed,beingbetweenthemabsolutely
entitledtothewholeequitableinterestinthe950,theycouldjointlycallfortheshares.
AsHaytonobserves,ifthetrusthadbeenforonenineteenthofthe950shares,asopposedto50outof950
shares,thesubjectmatterofthetrustwouldhavebeensufficientlycertain.68 Thisisbecausethecourtdoesnot
havetodecidewhich50sharesareheldontrust,butrathercansaythatallthesharesareheldontrustinthe
proportionsof1:18.Indeed,thisapproachwasrecentlyadoptedinAustraliainWhitevShortall.Campbell
J69 foundthereasoninginHuntervMosstobeunpersuasive,butdidconcludethatthedeclarationofatrustof
222,000sharesoutof1.5millionwasvalid.
WhitevShortall[2006]NSWC1379,[210](CampbellJ):70
Thedeclarationoftrustlefthimfreetodealwiththeparcelof1.5millionsharesashepleased,
providedthatitwasnotreducedbelow222,000,providedthatanyencumbrancesontheshareholding
weresuchthatatleast220,000wereleftunencumbered,andprovidedthattheplaintiffwasentitledto
callforthetransferof222,000sharesatanytimeIfthereweretobeanydeclarationofdividendor
returnofcapitalpriortothetimethattheplaintiffhadthe222,000sharestransferredtoher,theplaintiff
wouldbeentitledtoreceiveanappropriateproportionatepartofthedividendorreturnofcapitalA
trustofthiskindisnotanalogoustoasimpletrust,whereasingleanddiscreteitemisheldonabare
trustforasinglebeneficiary.Rather,itisatrustofthefund(theentireshareholdingof1.5million
shares)fortwodifferentbeneficiariesItisbecausethetrustisconstruedasbeingoftheentire
shareholdingthatitisnotnecessaryfortheplaintifftobeabletopointtosomeparticularshareandbe
abletosayThatshareismine.Inthepresentcase,onecanidentifythepropertythatissubjectto
thetrust(theentireshareholding)onecanidentifythetrustee(thedefendant),andonecanidentifythe
beneficiaries(theplaintiffasto220,000shares,thedefendantastotherest).Thatisallthatisneeded
foravalidtrust.
Ifthetrustcanbeconstruedinthismanner,suchthattheentirefundisbeingheldontrust,thenthisisthe
preferableapproach,whichcanresolvemanyofthedifficultiessurroundingHuntervMoss.Thiswasconfirmedby
BriggsJinPearsonvLehmanBrothersFinanceSA,71 whosaidthat:
TheanalysiswhichIhavefoundthemostpersuasiveisthatsuchatrustworksbycreatingabeneficialco
ownershipshareintheidentifiedfund,ratherthanintheconceptuallymuchmoredifficultnotionofseeking
toidentifyaparticularpartofthatfundwhichthebeneficiaryownsoutright.Aprincipalacademicadvocate
forthecoownershipapproachisProfessorRoyGoode:seeforexampleAreIntangibleAssetsFungible?
[2003]LMCLQ379.72 AmongthejudicialcommentatorsIhavefoundtheanalysisofCampbellJinWhitev
Shortallatparagraph212tobethemostpersuasive.
Bethatasitmay,theapproachadoptedbytheCourtofAppealinHuntervMosswasdifferent,evenif
theresultisconsistentwithsuchananalysis.Moreover,althoughDillonLJinHunterthoughtLondon(p.
81) WinewasalongwayfromthefactsofHunter,itisnotimmediatelyobviouswhythisshouldbetrue.
HisLordshiphintedthatthedifferencemaylieinthefactthatLondonWineconcernedtangibleproperty,
whereasHunterconcernedintangibleproperty.ThisdistinctionwasapprovedbyNeubergerJinReHarvard
SecuritiesLtd.73
ReHarvardSecuritiesLtd[1998]BCC567
Acompanypurchasedsharesonbehalfofclientsandretainedlegaltitleinthesharesasnomineeforeach
client.Thecompanylaterwentintoliquidation.Thequestionforthecourtwaswhethertheclientsofthe
companyhadabeneficialinterestintheshareseventhoughtheshareshadnotbeenallocatedtothem.
NeubergerJ:
IreferagaintothewayinwhichDillonLJdistinguishedLondonWine:hesaiditwasconcernedwith
theappropriationofchattelsandwhenthepropertyinchattelspasses,whereasinHuntertheCourtof
Appealwasconcernedwithsharesandadeclarationoftrust.Inmyjudgment,therefore,theground
uponwhichtheCourtofAppealinHunterdistinguishedLondonWineissubstantiallythesameground
uponwhichGoldcorpcanbedistinguishedfromHunter.
[Counsels]alternativeargumentwasthatHuntercouldbeproperlydistinguishedfromWait,London
WineandGoldcorponagroundonwhichthepresentcasecouldbeproperlydistinguished
fromHunter,namelythatHunterwasconcernedwithanexpressdeclarationoftrust,whereasthe
othercases(includingthepresentone)arenot.Whileitistruethatthisisapointmentioned
byDillonLJwhendistinguishingLondonWine(seeatp.458H)Ihavecometotheconclusionthatit
isnotapropergroundfordistinguishingHunterfromWait,74 LondonWineand,indeed,Goldcorpand
thepresentcase.First,itisclearfromthereasoninginWaitandLondonWinethatthisisnotavalid
groundfordistinction.ThepointiswellillustratedbyOliverJsinabilitytoseehow:
afarmerwhodeclareshimselftobetrusteeoftwosheep(withoutidentifyingthem)canbesaid
tohavecreatedaperfectandcompletetrustofwhateverrightshemayconferbysuch
declarationasamatterofcontract
WhileIamnotparticularlyconvincedbythedistinction,itappearstomethatamoresatisfactoryway
ofdistinguishingHunterfromtheothercasesisthatitwasconcernedwithshares,andnotwith
chattels.First,thatisagroundwhichisconsistentwithDillonLJsrelianceonReRose75 (acase
concernedwithshares)andhisgroundfordistinguishingLondonWine(and,byimplication,Wait)
which,itwillberemembered,hedescribedasbeingconcernedwiththeappropriationofchattelsand
whenpropertyinchattelspasses.Secondly,itisonthisbasisthattheeditorsofUnderhillandHayton
believethatHunterisexplained(althoughtheyregarditonanunsatisfactorybasis).Thirdly,the
observationsofAtkinLJinWaitatp.630referringtotheordinaryoperationsofbuyingandselling
goodscouldbesaidtoprovideapolicygroundfortherebeingoneruleforchattelsandanotherfor
shares.
Fourthly,astheeditorsofMeagherGummow&LehaneonEquityDoctrines&Remedies(3rdedn,
1993,ButterworthLawNZ))pointout,theneedforappropriationbeforeanyequitableinterestcanexist
inrelationtochattelscanbecontrastedwiththeabsenceofanysuchneedbeforetherecanbean
effectiveequitableassignmentofanunascertainedpartofawholedebtorfund(seeatpara.679682).
Thisdistinctionisdescribedbytheeditorsasverydifficulttoseenonetheless,theyaccept(p.
82) that,despitethecriticismtowhichcasessuchasWaithavebeensubjected,itisunlikelythat
theywillbeoverruled.
ThedescriptionofthesubcontractedgraininWait,theclientswineinLondonWine,andthe
customersbullioninGoldcorpasanunascertainedpartofamassofgoodsisquiteapt.Itwouldnot,
however,beasensibledescriptionofthe50sharesinHunteror,indeed,thesharesinthepresent
case.MrHalpernpointedoutthatitisnotreallypossibletoidentify,whetherphysicallyorbywords,a
proportionofadebt,whereasitispossibletoidentifychattels(bylabellingorsegregation)orshares
(byreferencetotheirnumber)healsopointedoutthatpartofadebtorfundisfungiblewiththe
balance.Forthosetworeasons,hesubmittedthattheinconsistencysuggestedinMeagherGummow
&Lehaneisnotvalid.Thereisobviousforceinthatpoint,but,intheend,itseemstomethat,given
thatthedistinctionexistsbetweenanassignmentofpartofaholdingofchattelsandanassignmentof
partofadebtorfund,theeffectofthedecisioninHunteristhat,inthiscontext,sharesfalltobe
treatedinthiscontextinthesamewayasadebtorfundratherthanchattels.
Inallthecircumstances,therefore,itseemstomethatthecorrectwayforme,atfirstinstance,to
explainthedifferencebetweentheresultinHunter,andthatinWait,LondonWineandGoldcorp,ison
thegroundthatHunterwasconcernedwithshares,asopposedtochattels.
Thus,evenNeubergerJhimselfwasnotconvincedthatthisdistinctionbetweenintangiblesandtangiblesis
satisfactory,buthethoughtthatwashowhemustdecidethecase,giventhathewassittingonlyatfirstinstance.
Haytonhasdescribedthisdistinctionasapossible,oldfashioned,butsurelyspecious,distinction.76 ButMartin
hasdefendedthecontrarypointofview.
Martin,CertaintyofSubjectmatter:ADefenceofHuntervMoss[1996]Conv223,224
Althoughnodoubtsomechattelscanberegardedasidenticaltootherchattelsofthesame
description,therationaleoftherulethattherecannotbeatrustofchattelswhichhavenotbeen
segregatedfromamassofsimilarchattelsisthattheyarenotnecessarilyidentical.Evenbottlesof
wineofthesamelabelmaynotbeidenticalsomemaybecorkedandundrinkable.Thechattels
ruledoesnotapplytomoney,sharesandotherchosesinactionbecause,inthenatureofthings,
thereisnodifferencebetweenonepoundandanotherpound,oroneshareandanothershareofthe
sameclassinthesamecompany.
Thetangible/intangibledistinctionisaclearstatementofthecurrentorthodoxy.Butithasbeensuggestedthata
betterdistinctionwouldbebetweenfungiblesandnonfungibles.Thereisadifference:fungiblesarenot
necessarilytangibles.
RGoode,AreIntangibleAssetsFungible?[2003]LMCLQ379,38377
Fungibilitypresupposesthatperformanceistoberenderedorprocuredbyselectionandsegregation
fromanindeterminatesourceorfromalarger,identifiedcollectionorbulk,eachunitwithinthe(p.
83) collectionandeachpartofthebulkbeinglegallytheequivalentofanyotherunitorpart.Inshort,
theobligationistodeliverortransfernotanidentifiedassetbutanythingwhichcorrespondstothe
contractdescription.
Butfungibilityinitsproperlegalsenseisnotconfinedtotangiblesitisequallyapplicabletointangible
property,suchasdebtsandshares.Thefundamentalrequirementofinterchangeabilitymeansthatthe
propertysubjectoftheenquirymustbesusceptibleofbeingdivisibleintoseparateunitscapableinlaw
ofbeingseparatelyowned.
ThusGoodesuggeststhatwine,grain,flour,andmoney,althoughtangible,arefungibles,becausetheyare
interchangeable.Yetatrustdeclaredover10kilosoutof50kilosofflour,ifunsegregatedandunascertainable,
seemslikelytofailbecausethepropertyisnotintangible.InReLondonWine,OliverJexplicitlysaid:78
Iappreciatethepointtakenthatthesubjectmatterispartofahomogeneousmasssothatspecificidentity
isoflittleimportanceasitis,forinstance,inthecaseofmoney.Nevertheless,asitseemstome,to
createatrustitmustbepossibletoascertainwithcertaintynotonlywhattheinterestofthebeneficiaryis
tobebuttowhatpropertyitistoattach.
ThismayhelptoexplainwhyNeubergerJinReHarvardconfinedthedistinctiontotangible/intangible.Butitis
notclearwhythelogicofthelaterdecisioninHuntervMoss,whichledtothetrustoversharesbeingvalid,should
notextendtotangiblefungibles.Indeed,althoughnotcrucialtodecidingthecase,BriggsJrecentlysaid
inPearsonvLehmanBrothersFinanceSA:79
Atrustofpartofafungiblemasswithouttheappropriationofanyspecificpartofitforthebeneficiarydoes
notfailforuncertaintyofsubjectmatter,providedthatthemassitselfissufficientlyidentifiedandprovided
alsothatthebeneficiarysproportionateshareofitisnotitselfuncertain.
Thus,itmaybethatthereisscopeforthetangible/intangiblereconciliationofReLondonWineandHunterv
Mosstobetweakedsothatthedividinglineisdrawnbetweenfungiblesandnonfungibles.Thiswouldbea
welcomedevelopment.
However,distinguishingbetweentangibleandintangiblepropertymaynotbetheonlywaytoreconcilethecase
lawinthisarea.IthasalsobeensuggestedthatHuntervMossandReLondonWineCompanyareconsistent
sinceonlyintheformercasewasthelargerbulkidentifiedthe950shareswhichthedefendantownedwhereas
inthelattercasethestockofwineownedbyLWCfluctuated.
Parkinson,ReconceptualisingtheExpressTrust(2002)CLJ657,6712,and6756
However,afurthergroundfordistinctionisthatinthesecasesalso,therewasafluctuatingmass,and
soonecouldnotidentifytheassetsownedinequitybyeachcustomerbyreferencetoproportions.
InLondonWine,forexample,themassofwhichthepurchasedbottlesusuallyrepresentedaportion
wassubjecttofluctuationandchange.Itsohappenedthatinsomecasesacustomeror
customers(p.84) betweenthemhadpurchasedtheentirecompanystockbuttherewasnoreason
whythecompanyshouldnotatsomelaterstagepurchasemorewineofthatvintageandalsono
reasonwhyitshouldnotsatisfythecustomerscontractsoutofnewlypurchasedstock.Itwasthus
notpossibletosayeitherthatcertainbottlesorcaseswereheldontrustorthataparticularcustomer
ownedadefinitepercentageofthecompanysentirestock.Thismightnotmatterperhapsifthe
bottlesstoredincreasedinnumberbutitcouldmatterverymuchifthenumbersdecreased.Thisis
illustratedbyReGoldcorp.Inthiscase,thelevelsofbullionheldbythecompanyvariedfromtimeto
time.Thusnotonlywasitimpossibletosaywhatbullioneachcustomerownedbutitwasalso
impossibletoknowwhatfractionofthetotalbullioneachcustomerownedespeciallysincetheamount
purchasedexceededthegoldbullionwhichwasstored.
Itfollowsfromanalysisoftherequirementsofcertaintyinrelationtotrustpropertythatattheheartof
thedoctrine,itistheobligationwhichmustbedescribedwithsufficientcertainty,notthetrust
property.Itisenoughthatthesubjectmatterofthetrustcanbeascertained,thatisthepoolof
propertyfromwhichthetrustfundmustcome,andthatthetrustobligationwithrespecttothat
propertyisdefinedwithsufficientclarity.Thisisthethreadwhichrunsthroughallthecases
concerninguncertaintyofsubjectmatterwhichhavebeendiscussed.If,asinHunterv.Moss,a
trusteedeclaresthat50sharesoutofaparcelof950sharesareheldontrust,thatisasufficient
definitionofhisobligationwithrespecttotheparcelof950shares.Ifthetrusteeindicatesthatallthe
moneyinaparticularbankaccount,less50,isheldontrust,thatisasufficientdefinitionofthe
obligation.Andifthereisanobligationtocollectsalestaxesasatrusteeortoaccountasatrustee
fortheproceedsofsaleofairlinetickets,thenitissufficientlycertainiftheobligationisdefinedclearly
enoughtoprovideaproperbasisforcomputationofhowmuchmoneywhichhasbeencollectedfrom
customersisimpressedwithatrust.
Focussingontheobligationsowedmaybehelpfulinthesecircumstances.Inparticular,ifitisclearthatthe
defendantshouldhavebeenholding50sharesontrust,andthenhesellssomeofhisshares,theordinary
presumptionsoftracingmightapplysuchthattheinnocentclaimantbeneficiaryofthesharescanchoosetosay
whetherthetrusteesoldhisownsharesorthoseoftheclaimant.80
(d)WhateverisLeftTrusts
InPearsonvLehmanBrothersFinanceSA,BriggsJstated:81
Atrustdoesnotfailforwantofcertaintymerelybecauseitssubjectmatterisatpresentuncertain,ifthe
termsofthetrustaresufficienttoidentifyitssubjectmatterinthefuture.
Thus,ifatestatorprovidesthattheresidueofhispropertyshouldbeheldontrust,thenthatresiduewillnotfail
forwantofcertaintyofsubjectmatter:theresidueofthetestatorsestatebecomesclearuponhisdeath.
(p.85) ReLast[1958]P137
Awomanleftpropertytoherbrotherinherwill,furtherprovidingthat:Athisdeathanythingthatisleft,that
camefrommetogotomylatehusbandsgrandchildren.Thebrotherthendiedintestate,andthequestion
aroseastowhetherhewasholdingtheremainingpropertyontrustforthegrandchildren.Itwasheldthat
therewassufficientcertaintyofsubjectmatterforatrust.
KarminskiJ:
Inamatterofconstructionofthiskinditisclearlyessentialtopayparticularattentiontothetermsof
theinstrumentwhichisbeingconstruedandtoavoidtooclosecomparisonswithwordsusedinwills
inothercases.Inthiscase,lookingatthewillasawhole,Ihavecometotheconclusionthatthe
wordsusedaresufficientlycleartocutdown[thebrothers]interestfromanabsolutetoalifeinterest.
Clearlythereisanambiguity,butIhaveattemptedtoreadthewillasawhole,andthentoreachthat
constructionwhichmosteffectively,inmyview,expressestheintentionsofthetestatrix.Iremind
myselfofthewordsofJoyceJ.inInReSanford:82 Weightmaybegiventotheconsiderationthatit
isbettertoeffectuatethantofrustratethetestatorsintentions.
Thus,inReLastthecourtfeltabletoconstruethetrustinstrumentasgivingthebrotheralifeinterestinthe
propertyalongwithapowertodisposeofthepropertyduringhislifetime.But,onsimilarfacts,thecourthad
previouslyheldthattheinitialrecipienttookthepropertyabsolutely,becausethesubjectmatterofwhatwasheld
ontrustforthesubsequentrecipientswasuncertain.83 ItissuggestedthattheconstructionfavouredinReLastis
preferable.
Analternativepossibilityistorecognizeafloatingtrust:ifpropertyisgiventoAontheunderstandingthatAwill
leavetoBwhateverofthepropertyisleftathisorherdeath,avalidtrustmightbecreatedinfavourofBthatis
floatingorinsuspenseduringthelifetimeofA,butattachestotheestateofAuponAsdeath.InOttawayv
Norman,84 BrightmanJwashappytoassumethatsuchatrustwasvalid,withoutrecoursetotheRe
Lastconstructionoftheinitialrecipientenjoyingalifeinterestcoupledwithapowertobenefitfromtheproperty
himself.Admittedly,Ottawayconcernedasecrettrust,85 butitisconceivablethatasimilarapproachmaybe
adoptedbeyondthecontextofsecrettrusts.
OttawayvNorman[1972]Ch698
Atestatorlefthisbungalowtohishousekeeper,aswellas1,500andhalftheresidueofhisestate,onthe
understandingthatthehousekeeperwouldleavethebungalowandwhatevermoneywaslefttothetestators
soninherownwill.Thehousekeeperfailedtodothis,butthecourtheldthattherewasasecrettrustin
favouroftheson.
BrightmanJ:
Ifpropertyisgiventotheprimarydoneeontheunderstandingthattheprimarydoneewilldisposeby
hiswillofsuchassets,ifany,ashemayhaveathiscommandathisdeathinfavourofthesecondary
donee,avalidtrustiscreatedinfavourofthesecondarydoneewhichisinsuspenseduringthelifetime
oftheprimarydonee,butattachestotheestateoftheprimarydoneeatthemomentofthelatters(p.
86) death.TherewouldseemtobeatleastsomesupportforthispropositioninanAustraliancaseto
whichIwasreferred:Birminghamv.Renfrew(1937)57C.L.R.666.
4.CertaintyofObjects
Itiscrucialthattheobjectsofatrustbedefinedwithsufficientcertaintysothattrustees,orindefaultthecourt,
knowtowhomthetrustpropertycanandcannotbeappointed.InReGulbenk iansSettlements,LordUpjohn
said:86
Theprincipleis,inmyopinion,thatthedonormustmakehisintentionssufficientlyplainastotheobjects
ofhistrustandthecourtcannotgiveeffecttoitbymisinterpretinghisintentionsbydividingthefundmerely
amongthosepresent.Secondly,andperhapsitisthemorehallowedprinciple,theCourtofChancery,
whichactsindefaultoftrustees,mustknowwithsufficientcertaintytheobjectsofthebeneficenceofthe
donorsoastoexecutethetrust.
ThiscertaintyrequirementhasbeenbrokendownintofurtherelementsbyCarlEmery.
Emery,TheMostHallowedPrincipleCertaintyofBeneficiariesofTrustsandPowersof
Appointment(1982)98LQR551,552
(a)Conceptualcertainty:thisreferstotheprecisionoflanguageusedbythesettlortodefine
theclassesofpersonwhomheintendstobenefit.
(b)Evidentialcertainty:thisreferstotheextenttowhichtheevidenceavailableinaparticular
caseenablesspecificpersonstobeidentifiedasmembersofthoseclassesandsoas
beneficiariesorpotentialbeneficiaries.
(c)Ascertainability:thisreferstotheextenttowhichthewhereaboutsorcontinued
existence87 ofpersonsidentifiedasbeneficiariesorpotentialbeneficiariescanbeascertained.
(d)Administrativeworkability:thisreferstotheextenttowhichitispracticablefortrusteesto
dischargethedutieslaiduponthembythesettlortowardsbeneficiariesorpotential
beneficiaries.
Itisusefultoanalysecertaintyofobjectsnotasamonolithicwhole,butratherasdiscreteelements.Conceptual
certaintyisgenerallyaquestionoflaw,and,assuch,needstobeabletoberesolvedbythecourts.88 Evidential
certainty,ontheotherhand,isaquestionofevidencewhich,inaccordancewithgeneralprinciplesofcivillaw,
needstobeprovedonabalanceofprobabilities.Thesefirsttwotypesofcertaintymeritthemostattentionthe
othertwoformsofcertaintyidentifiedbyEmeryareoflesserimportance.Aswillbeseen,problemssurrounding
ascertainabilitydonotseemtorenderanytrustvoid,and,althoughadministrativeunworkabilityhasrendereda
purporteddiscretionarytrustvoid,thisresulthasbeenmuchcriticized.89
(p.87) Beforeexaminingthedifferenttypesoftrustsandpowers,itshouldbenotedthattheterminologyinthis
areaoftenleadstoconfusion.Thedividinglinebetweentrustsandpowersisnotalwaysmadecleartheveryuse
ofphrasessuchastrustpowersandpowersinthenatureofatrust90 showsthis.Suchphrasesrefertotrusts
inwhichthetrusteeshaveapowerofselectionasinadiscretionarytrust.91 Trusteesarerequiredtoexercisea
trustpower.Thisshouldbecontrastedwithamerepower,whichneednotbeexercised.92
(a)FixedTrusts
Underafixedtrust,thetrusteeshavenodiscretionregardinghowthetrustpropertyshouldbedistributed:exactly
howmucheachbeneficiaryshouldreceivehasalreadybeendeterminedbythesettlor.Thismeansthatthe
trustees,andindefaultthecourt,mustknowtowhomthepropertyshouldbeappointed.Bothconceptual
certaintyandevidentialcertaintyneedtobeestablished.
ReGulbenkiansSettlements[1970]AC50893
LordUpjohn:
Supposethedonordirectsthatafundbedividedequallybetweenmyoldfriends,thenunlessthereis
someadmissibleevidencethatthedonorhasgivensomespecialdictionarymeaningtothatphrase
whichenablesthetrusteestoidentifytheclasswithsufficientcertainty,itisplainlybadasbeingtoo
uncertain.Supposethatthereappearedbeforethetrustees(orthecourt)twoorthreeindividualswho
plainlysatisfiedthetestofbeingamongmyoldfriends,thetrusteescouldnotconsistentlywiththe
donorsintentionsacceptthemasclaimingthewholeoranydefinedpartofthefund.Theycannot
claimthewholefundfortheycanshownotitletoitunlesstheyprovetheyaretheonlymembersof
theclass,whichofcoursetheycannotdo,andso,too,byparityofreasoningtheycannotclaimany
definedpartofthefundandthereisnoauthorityinthetrusteesorthecourttomakeanydistribution
amongasmallerclassthanthatpointedoutbythedonor.94
Althoughitmightbearguedthatthereisacoreofcertainmeaning95 tooldfriends,thecourtcannotallowsuch
atrusttostand,asbotholdandfriendsareinsufficientlycertainandmayhavearangeofmeanings.
Inessence,trusteeshavetobeabletodrawupacompletelistofthebeneficiarieswhendealingwithafixed
trust.96 Otherwise,thetrusteeswouldnotbeabletogiveeffecttothesettlorsintentionsequalshares,for
example,canonlybecalculatedonceallthebeneficiariesareknown.Asaresult,bothconceptualcertaintyand
evidentialcertaintyarerequired.However,ascertainabilitydoesnotappeartobenecessary:thereisnoreason
whyallthebeneficiariesneedtobeascertainedifoneof(p.88) thebeneficiariescannotbefound,thenhisshare
couldsimplybepaidintothecourt.AsLordUpjohnremarkedinReGulbenk ian:97
iftheclassissufficientlydefinedbythedonorthefactthatitmaybedifficulttoascertainthewhereabouts
orcontinuedexistenceofsomeofitsmembersattherelevanttimemattersnot.Thetrusteescanapplyto
thecourtfordirectionsorpayashareintocourt.
Norshouldafixedtrustbeafflictedbyadministrativeunworkability:ifacompletelistcanbedrawnup,thenit
shouldalwaysbepracticableforthetrusteestogiveeffecttothesettlorsintention.
(i)Anexceptionfixedtrustssubjecttoaconditionprecedent
Itispossibleforasettlortogiveagiftprovidedthattherecipientfirstfulfilsagivencondition.Thismaybe
construedasafixedtrustofaseriesofindividualgiftssubjecttoaconditionprecedent:thetrusteeisobligedto
distributethepropertytoanyindividualwhosatisfiesthecondition.Theonusliesoneachpotentialobjectofthe
trusttoshowthathesatisfiestherelevantcondition.Asaresult,thetrustwillnotfailforevidentialcertainty:the
presumptionisthattheobjectdoesnotsatisfytheconditionunlessheproducesevidencethatprovesthe
contrary.Norwillsuchatrustfailforunascertainability:itisnotforthetrusteestoseekoutobjects,butforthe
potentialobjectstoestablishthattheysatisfythecondition.Forsimilarreasons,itisdifficulttoimaginesucha
trustbeingadministrativelyunworkable.
Moredifficultistherelevanttestofconceptualcertainty.Itappearstobemorelax 98 thanthecompletelisttest
generallyrequiredforfixedtrusts.Amorerelaxedapproachisjustifiablesinceitissufficientifonlyoneperson
satisfiesthecondition,sothereisnoneedtoknowallthepossiblebeneficiaries.Noristhereanyneedforthe
trusteestoundertakeawidesurveyofpotentialobjects:99 eachpotentialbeneficiaryneedstotaketheinitiative
andshowthatheorshesatisfiestherelevantcondition.Thus,eventhoughaconceptsuchasoldfriendsmaybe
insufficientlycertainforfixedtrustsnotsubjecttoaconditionprecedent,itisunproblematichere:theremaybe
individualswhoonanyconceivabletestdefinitelysatisfythecondition.
ThisapproachhasbeenclearlyexpoundedbyBrowneWilkinsonJinReBarlowsWillTrusts.
ReBarlowsWillTrusts[1979]1WLR278
Atestatrixdiedin1975,owningalargecollectionofvaluablepictures.Byherwillshegavesomeofthemto
herexecutorupontrustforsale,andaddedadirectiontohimtoallowanymemberofmyfamilyandany
friendsofminewhomaywishtodosotopurchaseanyofsuchpicturesatavaluationmadein1970,orat
probatevalue,whichevershouldbethelower.
Inholdingthatthedirectionwasvalid,BrowneWilkinsonJsaid:
(p.89) Themainquestionswhichariseformydecisionare(a)whetherthedirectiontoallowmembers
ofthefamilyandfriendstopurchasethepicturesisvoidforuncertaintysincethemeaningoftheword
friendsistoovaguetobegivenlegaleffectand(b)whatpersonsaretobetreatedasbeingmembers
ofthetestatrixsfamily.Iwilldealfirstwiththequestionofuncertainty.
Thosearguingagainstthevalidityofthegiftinfavourofthefriendscontendthat,intheabsenceofany
guidancefromthetestatrix,thequestionWhowereherfriends?isincapableofbeinganswered.The
wordissaidtobeconceptuallyuncertainsincetherearesomanydifferentdegreesoffriendshipand
itisimpossibletosaywhichdegreethetestatrixhadinmind.Insupportofthisargumenttheyrely
onLordUpjohnsremarksinReGulbenk iansSettlements[1970]AC508,100 andthedecisionofthe
HouseofLordsinReBadensDeedTrusts[1971]AC424,101 totheeffectthatitmustbepossibleto
saywhoiswithinandwhowithouttheclassoffriends.Theysaythatsincethetestatrixintendedall
herfriendstohavetheopportunitytoacquireapicture,itisnecessarytobeabletoascertainwith
certaintyallthemembersofthatclass.
Mr.Shillingford,whoarguedinfavourofthevalidityofthegift,contendedthatthetestlaiddownin
theGulbenk ianandBadencaseswasnotapplicabletothiscasethetest,hesays,isthatlaiddown
bytheCourtofAppealinReAllen[1953]Ch810,asappropriateincaseswherethevalidityofa
conditionprecedentordescriptionisinissue,namely,thatthegiftisvalidifitispossibletosayofone
ormorepersonsthatheortheyundoubtedlyqualifyeventhoughitmaybedifficulttosayofothers
whetherornottheyqualify.
ThedistinctionbetweentheGulbenk iantestandtheReAllentestis,inmyjudgment,wellexemplified
bythewordfriends.Thewordhasagreatrangeofmeaningsindeed,itsexactmeaningprobably
variesslightlyfrompersontoperson.Somewouldincludeonlythosewithwhomtheyhadbeenon
intimatetermsoveralongperiodotherswouldincludeacquaintanceswhomtheyliked.Somewould
includepeoplewithwhomtheirrelationshipwasprimarilyoneofbusinessotherswouldnot.Indeed,
manypeople,ifaskedtodrawupacompletelistoftheirfriends,wouldprobablyhavesomedifficultyin
decidingwhethercertainofthepeopletheyknewwerereallyfriendsasopposedtoacquaintances.
Therefore,ifthenatureofthegiftwassuchthatitwaslegallynecessarytodrawupacompletelistof
friendsofthetestatrix,ortobeabletosayofanypersonthatheisnotafriend,thewholegiftwould
probablyfailevenastothosewho,byanyconceivabletest,werefriends.
Butinthecaseofagiftofakindwhichdoesnotrequireonetoestablishallthemembersoftheclass
(e.g.agiftof10toeachofmyfriends),itmaybepossibletosayofsomepeoplethatonanytest,
theyqualify.ThusinReAllenat817,SirRaymondEvershedMRtooktheexampleofagifttoXif
heisatallmanaman6ft.6ins.tallcouldbesaidonanyreasonablebasistosatisfythetest,
althoughitmightbeimpossibletosaywhetheraman,say,5ft.10ins.highsatisfiedtherequirement.
Sointhiscase,inmyjudgment,thereareacquaintancesofakindsoclosethat,onanyreasonable
basis,anyonewouldtreatthemasbeingfriends.Therefore,byallowingthedispositiontotakeeffect
intheirfavour,onewouldcertainlybegivingeffecttopartofthetestatrixsintentioneventhoughasto
othersitisimpossibletosaywhetherornottheysatisfythetest.
Inmyjudgment,itisclearthatLordUpjohninReGulbenk iansSettlements[1970]AC508was
consideringonlycaseswhereitwasnecessarytoestablishallthemembersoftheclass.Hemakesit
clear,at524,thatthereasonfortheruleisthatinagiftwhichrequiresonetoestablishallthe
membersoftheclass(e.g.agifttomyfriendsinequalshares)youcannotholdthegiftgoodinpart,
sincethe(p.90) quantumofeachfriendssharedependsonhowmanyfriendsthereare.Soall
personsintendedtobenefitbythedonormustbeascertainedifanyeffectistobegiventothegift.In
myjudgment,theadoptionofLordUpjohnstestbytheHouseofLordsintheBadencaseisbasedon
thesamereasoning,eventhoughinthatcasetheHouseofLordsheldthatitwasonlynecessaryto
beabletosurveytheclassofobjectsofapowerofappointmentandnottoestablishwhoallthe
membersare.
Butsuchreasoninghasnoapplicationtoacasewherethereisaconditionordescriptionattachedto
oneormoreindividualgiftsinsuchcases,uncertaintyastosomeotherpersonswhomayhavebeen
intendedtotakedoesnotinanywayaffectthequantumofthegifttopersonswhoundoubtedly
possessthequalification.Hence,inmyjudgment,thedifferenttestlaiddowninReAllen[1953]Ch
810.
TherecentdecisionoftheCourtofAppealinReTuck sSettlementTrusts[1978]Ch
49,102 establishesthatthetestinReAllenisstilltheappropriatetestinconsideringsuchgifts,
notwithstandingtheGulbenk ianandBadendecisions:seeperLordRussellofKillowenat65.
Accordingly,inmyjudgment,theproperresultinthiscasedependsonwhetherthedispositionin
clause5(a)isproperlytoberegardedasaseriesofindividualgiftstopersonsansweringthe
descriptionfriend(inwhichcaseitwillbevalid),oragiftwhichrequiresthewholeclassoffriendsto
beestablished(inwhichcaseitwillprobablyfail).
Theeffectofclause5(a)istoconferonfriendsofthetestatrixaseriesofoptionstopurchase.
Althoughitisobviouslydesirableasapracticalmatterthatstepsshouldbetakentoinformthose
entitledtotheoptionsoftheirrights,itiscommongroundthatthereisnolegalnecessitytodoso.
Therefore,eachpersoncomingforwardtoexercisetheoptionhastoprovethatheisafrienditisnot
legallynecessary,inmyjudgment,todiscoverwhoallthefriendsare.Inordertodecidewhetheran
individualisentitledtopurchase,allthatisrequiredisthattheexecutorsshouldbeabletosayofthat
individualwhetherhehasprovedthatheisafriend.Thewordfriend,therefore,isadescriptionor
qualificationoftheoptionholder.
ItwassuggestedthatbyallowingundoubtedfriendstotakeIwouldbealteringthetestatrixs
intentions.Itissaidthatsheintendedallherfriendstohaveachancetobuyanygivenpicture,and
sincesomepeopleshemighthaveregardedasfriendswillnotbeabletoapply,thenumberof
competitorsforthatpicturewillbereduced.ThismaybesobutIcannotregardthisfactorasmaking
itlegallynecessarytoestablishthewholeclassoffriends.Thetestatrixsintentionwasthatafriend
shouldacquireapicture.Mydecisiongiveseffecttothatintention.
Ithereforeholdthatthedispositiondoesnotfailforuncertainty,butthatanyonewhocanprovethatby
anyreasonabletestheorshemusthavebeenafriendofthetestatrixisentitledtoexercisethe
option.Withoutseekingtolaydownanyexhaustivedefinitionofsuchtest,itmaybehelpfulifI
indicatecertainminimumrequirements:(a)therelationshipmusthavebeenalongstandingone.(b)
Therelationshipmusthavebeenasocialrelationshipasopposedtoabusinessorprofessional
relationship.(c)Althoughtheremayhavebeenlongperiodswhencircumstancespreventedthe
testatrixandtheapplicantfrommeeting,whencircumstancesdidpermittheymusthavemet
frequently.Ifinanycasetheexecutorsentertainanyrealdoubtwhetheranapplicantqualifies,they
canapplytothecourttodecidetheissue.
(b)DiscretionaryTrusts
Underadiscretionarytrust,alsoknownasatrustpower,thetrusteesenjoyadiscretionastowhichobjects
shouldreceivethetrustproperty,andhowmucheachobjectshouldreceive.Thepotential(p.91) objectsneedto
bedefinedwithsufficientcertaintytoenablethetrustees,orindefaultthecourt,toexercisetheirdiscretion
appropriately.Sinceatrustobligationisconcerned,theappointmentofthetrustpropertyismandatory:atrust
powermustbeexercised.103
InIRCvBroadwayCottagesTrust104 itwasheldthatatrustwasvoidforuncertaintyunlessitwaspossibleto
make,atthetimewhenthetrustcameintooperation,alistofallthebeneficiariesthisisknownasthecomplete
listtest.Thisrulewasthoughttobenecessaryinordertomakeadistributionpossibleifthetrustees,inbreach
oftheirduty,failedtomakeaselection.Themethodofdistribution,itwassaid,wouldbebyequaldivision
amongstthemembersoftheclassofbeneficiariesontheprinciplethatequalityisEquityandequaldivisionwas
onlypossibleifitwasknownhowmanysharestherewouldbe.105 However,theproblemwasartificial,inthatit
hadneverarisenintheformoftrusteesrefusingtoselectbeneficiaries.Rather,theissuehadonlyarisenwhen
thetrusteeshadaskedthecourtwhetheraselectionwouldbevalid.Reluctanttrusteescouldinanycasebe
replaced.Further,inmoderntrustswiththeemployeesofabusinesstycoonasobjects,andnotmerelymembers
ofthefamilyaswasusuallythecasewitholdertrusts,equaldivisionwouldbeabsurd.Theproblemofdetermining
thedivisionifthetrusteesfailedtoselectwasnotinsuperable:thecourtwouldfindaway.
ThesecriticismswererecognizedbytheHouseofLordsinMcPhailvDoulton(alsoknownasReBadensDeed
Trusts(No.1)),whichdepartedfromthetestinBroadwayCottagesandinsteadadopted,asthetestforcertainty
ofbeneficiariesunderadiscretionarytrust,thetestwhichhadbeenappliedtomerepowersinReGulbenk ians
Settlements.106 Thishasbecomeknownasthegivenpostulanttest,107 ortheisorisnottest:itneedstobe
possibletodeterminewithcertaintywhetheranygivenpostulantisorisnotamemberoftheclass.
McPhailvDoulton[1971]AC424
Adeed,executedonJuly17,1941,bythesettlor,Mr.BertramBaden,providedthatafundwastobeheld
uponcertaintrustsinfavourofthestaffofMatthewHallandCoLtdandtheirrelativesanddependants.
Thedeedprovided(clause9(a))thatthetrusteesshouldapplythenetincomeinmakinggrantsattheir
absolutediscretiontoorforthebenefitofanyoftheofficersandemployeesorexofficersorexemployeesof
thecompanyortoanyrelativesordependantsofanysuchpersonsinsuchamountsatsuchtimesandon
suchconditions(ifany)astheythinkfit
Twomainquestionsarose:whetherthedeedcreatedapoweroratrustandwhetheritwasvoidfor
uncertainty.Atfirstinstance,108 GoffJheldthatitwasapowerandnotatrustandthatitwasvalid,applying
109
asthetestofcertaintythatwasusedbytheCourtofAppealinReGulbenk iansSettlements:109 (p.92) a
powerwasvalidifitwassufficientlycertaintoenableanyoneclaimanttoshowthatheorshecomeswithin
thedescription.
TheCourtofAppeal110 agreedthatitwasapowerandnotatrustbutremittedthecasetotheChancery
Divisiontodeterminethevalidityupontheapplicationofthetestforcertaintyofpowerswhichhadbeenlaid
downbytheHouseofLordsinReGulbenk iansSettlements.111 ThedecisionoftheCourtofAppealwas
appealedtotheHouseofLords.
TheHouseofLordsheldthat:(i)thedeedcreatedatrustandnotapower(ii)thetestforcertaintyfor
discretionarytrustswasthesameasthatforpowersi.e.whetheritcouldbesaidwithcertaintythatanygiven
individualwasorwasnotamemberoftheclass.112
ThecasewasremittedtotheChanceryDivisionforthedeterminationofvalidityuponthisbasis.Brightman
JuphelditsvalidityandthiswasaffirmedbytheCourtofAppealinReBadensDeedTrusts(No.2).113
LordWilberforce:
InthisHouse,theappellantscontend,andthisisthefirstquestionforconsideration,thatthe
provisionsofclause9(a)constituteatrustandnotapower.Ifthatisheldtobethecorrectresult,both
sidesagreethatthecasemustreturntotheChanceryDivisionforconsideration,onthisfooting,
whetherthistrustisvalid.Butherecomesacomplication.Inthepresentstateofauthority,the
decisionastovaliditywouldturnonthequestionwhetheracompletelist(oronanotherviewalist
completeforpracticalpurposes)canbedrawnupofallpossiblebeneficiaries.Thisfollowsfromthe
CourtofAppealsdecisioninIRCvBroadwayCottages[1955]Ch20,asappliedinlatercasesby
which,unlessthisHousedecidesotherwise,theCourtofChancerywouldbebound.Therespondents
inviteyourLordshipstoreviewthisdecisionandchallengeitscorrectness.Sothesecondissuewhich
arises,ifclause9(a)amountstoatrust,iswhethertheexistingtestforitsvalidityisrightinlawand,if
not,whatthetestoughttobe.
[Havingconcludedthatclause9(a)constitutedatrusthisLordshipcontinued:]
Thismakesitnecessarytoconsiderwhether,[inremittingthecasetotheChanceryDivisionto
determinewhetherclause9(1)wasvoidforuncertainty],thecourtshouldproceedonthebasisthatthe
relevanttestisthatlaiddowninIRCvBroadwayCottagesTrust[1955]Ch20orsomeothertest.
ThatdecisiongavetheauthorityoftheCourtofAppealtothedistinctionbetweencaseswhere
trusteesaregivenapowerofselectionandthosewheretheyareboundbyatrustforselection.Inthe
formercasetheposition,asdecidedbythisHouse,isthatthepowerisvalidifitcanbesaidwith
certaintywhetheranygivenindividualisorisnotamemberoftheclassanddoesnotfailsimply
becauseitisimpossibletoascertaineverymemberoftheclass:ReGulbenk iansSettlements[1970]
AC508.Butinthelattercaseitissaidtobenecessary,forthetrusttobevalid,thatthewholerange
ofobjects(IusethelanguageoftheCourtofAppeal)shouldbeascertainedorcapableof
ascertainment.
TherespondentsinvitedyourLordshipstoassimilatethevaliditytestfortruststothatwhichappliesto
powers.AlternativelytheycontendedthatinanyeventthetestlaiddownintheBroadway
Cottagescasewastoorigid,andthatatrustshouldbeupheldifthereissufficientpracticalcertainty
initsdefinitionforittobecarriedout,ifnecessarywiththeadministrativeassistanceofthecourt,
accordingtotheexpressedintentionofthesettlor.Iwouldagreewiththis,butthisdoesnotdispense
fromexaminationofthewiderargument.ThebasisfortheBroadwayCottagesprincipleisstatedtobe
thatatrustcannot(p.93) bevalidunless,ifneedbe,itcanbeexecutedbythecourt,and(thoughit
isnotquiteclearfromthejudgmentwhereargumentendsanddecisionbegins)thatthecourtcanonly
executeitbyorderinganequaldistributioninwhicheverybeneficiaryshares.Soitisnecessaryto
examinetheauthorityandreasonforthissupposedruleastotheexecutionoftrustsbythecourt.
Assuming,asIampreparedtodoforpresentpurposes,thatthetestofvalidityiswhetherthetrust
canbeexecutedbythecourt,itdoesnotfollowthatexecutionisimpossibleunlesstherecanbe
equaldivision.
Asamatterofreason,toholdthataprincipleofequaldivisionappliestotrustssuchasthepresentis
certainlyparadoxical.Equaldivisionissurelythelastthingthesettloreverintended:equaldivision
amongallmay,probablywould,producearesultbeneficialtonone.Whysupposethatthecourtwould
lenditselftoawhimsicalexecution?Andasregardsauthority,Idonotfindthatthenatureofthetrust,
andofthecourtspowersovertrusts,callsforanysuchrigidrule.Equaldivisionmaybesensibleand
hasbeendecreed,incasesoffamilytrusts,foralimitedclassherethereislifeinthemaximequality
isequity,butthecasesprovidenumerousexampleswherethishasnotbeenso,andadifferenttype
ofexecutionhasbeenordered,appropriatetothecircumstances.
SoIcometoIRCvBroadwayCottagesTrust[1955]Ch20.Thiswascertainlyacaseoftrust,andit
proceededonthebasisofanadmission,inthewordsofthejudgment,thattheclassofbeneficiaries
isincapableofascertainment.Inadditiontothediscretionarytrustofincome,therewasatrustof
capitalforallthebeneficiarieslivingorexistingattheterminaldate.Thisnecessarilyinvolvedequal
divisionanditseemstohavebeenacceptedthatitwasvoidforuncertaintysincetherecannotbe
equaldivisionamongaclassunlessallthemembersoftheclassareknown.TheCourtofAppeal
appliedthispropositiontothediscretionarytrustofincome,onthebasisthatexecutionbythecourt
wasonlypossibleonthesamebasisofequaldivision.Theyrejectedtheargumentthatthetrustcould
beexecutedbychangingthetrusteeship,andfoundtherelationscasesofnoassistanceasbeingina
classbythemselves.Thecourtcouldnotcreateanarbitrarilyrestrictedtrusttotakeeffectindefaultof
distributionbythetrustees.Finallytheyrejectedthesubmissionthatthetrustcouldtakeeffectasa
power:avalidpowercouldnotbespeltoutofaninvalidtrust.
MyLords,itwillhavebecomeapparentthatthereismuchinthiswhichIfindoutoflinewithprinciple
andauthoritybutbeforeIcometoaconclusiononit,ImustexaminethedecisionofthisHouseinRe
Gulbenk iansSettlementsonwhichtheappellantsplacedmuchrelianceasamountingtoan
endorsementoftheBroadwayCottagescase.Butisthisreallyso?
[HisLordshipexaminedthecaseandcontinued:]Whatthisdoessay,andIrespectfullyagree,isthat,
inthecaseofatrust,thetrusteesmustselectfromtheclass.Whatitdoesnotsay,asIreadit,or
imply,isthatinordertocarryouttheirdutyofselectiontheymusthavebeforethem,orbeabletoget,
acompletelistofallpossibleobjects.
SoIthinkthatwearefreetoreviewtheBroadwayCottagescase.TheconclusionwhichIwouldreach,
implicitinthepreviousdiscussion,isthatthewidedistinctionbetweenthevaliditytestforpowersand
thatfortrustpowersisunfortunateandwrong,thattherulerecentlyfasteneduponthecourtsbyIRCv
BroadwayCottagesTrustoughttobediscarded,andthatthetestforthevalidityoftrustpowersought
tobesimilartothatacceptedbythisHouseinReGulbenk iansSettlementsforpowers,namely,that
thetrustisvalidifitcanbesaidwithcertaintythatanygivenindividualisorisnotamemberofthe
class.
Assimilationofthevaliditytestdoesnotinvolvethecompleteassimilationoftrustpowerswithpowers.
Astopowers,IagreewithmynobleandlearnedfriendLordUpjohninReGulbenk ians
Settlements(p.94) thatalthoughthetrusteesmay,andnormallywill,beunderafiduciarydutyto
considerwhetherorinwhatwaytheyshouldexercisetheirpower,thecourtwillnotnormallycompel
itsexercise.Itwillinterveneifthetrusteesexceedtheirpowers,andpossiblyiftheyareprovedtohave
exerciseditcapriciously.Butinthecaseofatrustpower,ifthetrusteesdonotexerciseit,thecourt
will:IrespectfullyadoptastothisthestatementinLordUpjohnsopinionat525.Iwouldventureto
amplifythisbysayingthatthecourt,ifcalledupontoexecutethetrustpower,willdosointhemanner
bestcalculatedtogiveeffecttothesettlorsortestatorsintentions.Itmaydosobyappointingnew
trustees,orbyauthorisingordirectingrepresentativepersonsoftheclassesofbeneficiariestoprepare
aschemeofdistribution,oreven,shouldtheproperbasisfordistributionappearbyitselfdirectingthe
trusteessotodistribute.Thebooksgivemanyinstanceswherethishasbeendone,andIseeno
reasoninprinciplewhytheyshouldnotdosointhemodernfieldofdiscretionarytrusts(seeBrunsden
vWoolredge(1765)Amb507SupplevLowson(1773)Amb729LileyvHey(1842)1Hare580
andLewinonTrusts(16thedn,1964)p.630).Then,astothetrusteesdutyofinquiryor
ascertainment,ineachcasethetrusteesoughttomakesuchasurveyoftherangeofobjectsor
possiblebeneficiariesaswillenablethemtocarryouttheirfiduciaryduty(cf.LileyvHey).Awiderand
morecomprehensiverangeofinquiryiscalledforinthecaseoftrustpowersthaninthecaseof
powers.
Twofinalpoints:first,astothequestionofcertainty.Idesiretoemphasizethedistinctionclearly
madeandexplainedbyLordUpjohnat524,betweenlinguisticorsemanticuncertaintywhich,if
unresolvedbythecourt,rendersthegiftvoid,andthedifficultyofascertainingtheexistenceor
whereaboutsofmembersoftheclass,amatterwithwhichthecourtcanappropriatelydealonan
applicationfordirections.Theremaybeathirdcasewherethemeaningofthewordsusedisclearbut
thedefinitionofbeneficiariesissohopelesslywideasnottoformanythinglikeaclasssothatthe
trustisadministrativelyunworkableorinLordEldonswordsonethatcannotbeexecuted:Moricev
BishopofDurham(1805)10Ves522at527.Ihesitatetogiveexamplesfortheymayprejudicefuture
cases,butperhapsalltheresidentsofGreaterLondonwillserve.Idonotthinkthatadiscretionary
trustforrelativesevenofalivingpersonfallswithinthiscategory.
Thislastparagraphsuggeststhatthegivenpostulanttestrequiresconceptualcertainty,evidentialcertainty,and
administrativeworkability.Onceagain,ascertainabilityneednotbeanissue:ifapotentialobjectcannotbefound,
thatsimplymeansthatthetrusteeswillnotappointthetrustpropertyinhisfavour.
AlthoughMcPhailvDoultonsetouttheappropriatetestofcertainty,itdidnotdecidewhetherornotthe
discretionarytrustatissuesatisfiedthegivenpostulanttest.ThiswasthetaskoftheCourtofAppealinRe
BadensDeedTrusts(No.2).
ReBadensDeedTrusts(No.2)[1973]Ch9
OnremittancetotheChanceryDivision,BrightmanJandtheCourtofAppealfoundthatthetestofcertainty
wassatisfied.Thewidedifferencesintheirapplicationofthetestdemonstrateshowdifficultitmayproveto
beinpractice.
SACHSLJ:
Thenextpointasregards[the]approachthatrequiresconsiderationisthecontention,strongly
pressedbyMr.Vinelott,thatthecourtmustalwaysbeabletosaywhetheranygivenpostulant
isnotwithintherelevantclassaswellasbeingabletosaywhetherheiswithinit.Inconstruingthe
wordsalreadycited(p.95) fromthespeechofLordWilberforceintheBadencase(aswellasthoseof
LordReidandLordUpjohnintheGulbenk iancase),itisessentialtobearinmindthedifference
betweenconceptualuncertaintyandevidentialdifficulties
AsMr.Vinelotthimselfrightlyobserved,thecourtisneverdefeatedbyevidentialuncertainty,anditis
inmyjudgmentclearthatitisconceptualcertaintytowhichreferencewasmadewhentheisorisnot
amemberoftheclasstestwasenunciated.(Conceptualuncertaintywasinthecourseofargument
convenientlyexemplified,rightlyorwronglymattersnot,bythephrasesomeoneunderamoral
obligationandcontrastedwiththecertaintyofthewordsfirstcousins.)Oncetheclassofpersonto
bebenefitedisconceptuallycertainitthenbecomesaquestionoffacttobedeterminedonevidence
whetheranypostulanthasoninquirybeenprovedtobewithinit:ifheisnotsoproved,thenheisnot
init.Thatpositionremainsthesamewhethertheclasstobebenefitedhappenstobesmall(suchas
firstcousins)orlarge(suchasmembersoftheXTradeUnionorthosewhohaveservedintheRoyal
Navy).Thesuggestionthatsuchtrustscouldbeinvalidbecauseitmightbeimpossibletoproveofa
givenindividualthathewasnotintherelevantclassiswhollyfallaciousandonlyMr.Vinelotts
persuasivenesshaspreventedmefromsayingthatthecontentionisalmostunarguable
InagreementwiththepracticalapproachofBrightmanJ[1972]Ch607at625,Iconsiderthatthe
trustees,orifnecessarythecourt,arequitecapableofcomingtoaconclusioninanygivencaseasto
whetherornotaparticularcandidatecouldproperlybedescribedasadependantawordthat,asthe
judgesaid,conjuresupasufficientlydistinctpicture.Iagree,too,thatanyonewhollyorpartly
dependentonthemeansofanotherisadependant.Thereisthusnoconceptualuncertaintyinherent
inthatwordandtheexecutorscontentionsastotheeffectofitsusefail.
AsregardsrelativesBrightmanJ,afterstating,at625,Itisnotindisputethatapersonisarelativeof
anemployee,ifbothtracelegaldescentfromacommonancestor:alittlelatersaid:In
practice,theuseoftheexpressionrelativescannotcausetheslightestdifficulty.WiththatviewI
agreeforthereasonshegavewhenhecorrectlysetouttheevidentialposition.
MEGAW LJ:
Theexecutorsargumentconcentratesonthewordsorisnotinthe[givenpostulanttest]:ifitcanbe
saidwithcertaintywhetheranygivenindividualisorisnotamemberoftheclass.Itissaidthatthose
wordshavebeenuseddeliberately,andhaveonlyonepossiblemeaningandthat,howeverstartlingor
drasticorunsatisfactorytheresultmaybeandMr.Vinelottdoesnotshrinkfromsayingthatthe
consequenceisdrasticthiscourtisboundtogiveeffecttothewordsusedintheHouseofLords
definitionofthetest.Itwouldbequiteimpracticableforthetrusteestoascertaininmanycases
whetheraparticularpersonwasnotarelativeofanemployee.Themostthatcouldbesaidis:Thereis
noproofthatheisarelative.Buttherewouldstillbenocertaintythatsuchapersonwasnota
relative.Hence,soitissaid,thetestlaiddownbytheHouseofLordsisnotsatisfied,andthetrustis
void.Foritcannotbesaidwithcertainty,inrelationtoanyindividual,thatheisnotarelative.
Idonotthinkitwascontemplatedthatthewordsorisnotwouldproducethatresult.Itwould,asI
seeit,involveaninconsistencywiththelatterpartofthesamesentence:doesnotfailsimply
becauseitisimpossibletoascertaineverymemberoftheclass.Theexecutorscontention,in
substanceandreality,isthatitdoesfailsimplybecauseitisimpossibletoascertaineverymemberof
theclass.
Thesameverbaldifficulty,asIseeit,emergesalsowhenoneconsidersthewordsofthesuggested
testwhichtheHouseofLordsexpresslyrejected.ThatissetoutbyLordWilberforceinapassage
immediatelyfollowingthesentencewhichIhavealreadyquoted.Therejectedtestwasintheseterms
[1971]AC424at450:itissaidtobenecessarythatthewholerangeofobjectsshouldbe
ascertainedorcapableofascertainment.Sincethattestwasrejected,theresultingaffirmative
proposition,whichbyimplicationmusthavebeenacceptedbytheirLordships,isthis:atrustfor
selectionwillnotfailsimplybecausethewholerangeofobjectscannotbeascertained.Inthepresent
case,thetrustees(p.96) couldascertain,byinvestigationandevidence,manyoftheobjects:asto
manyothertheoreticallypossibleclaimants,theycouldnotbecertain.Isittobesaidthatthetrust
failsbecauseitcannotbesaidwithcertaintythatsuchpersonsarenotmembersoftheclass?Ifso,is
thatnottheapplicationoftherejectedtest:thetrustfailingbecausethewholerangeofobjectscannot
beascertained?
Inmyjudgment,muchtoogreatemphasisisplacedintheexecutorsargumentonthewordsoris
not.Tomymind,thetestissatisfiedif,asregardsatleastasubstantialnumberofobjects,itcanbe
saidwithcertaintythattheyfallwithinthetrusteventhough,asregardsasubstantialnumberofother
persons,iftheyeverforsomefancifulreasonfelltobeconsidered,theanswerwouldhavetobe,not
theyareoutsidethetrust,butitisnotprovenwhethertheyareinorout.Whatisasubstantial
numbermaywellbeaquestionofcommonsenseandofdegreeinrelationtotheparticulartrust:
particularlywhere,ashere,itwouldbefantasy,touseamildword,tosuggestthatanypractical
difficultywouldariseinthefair,properandsensibleadministrationofthistrustinrespectofrelatives
anddependants.
Idonotthinkthatthisinvolves,asMr.Vinelottsuggested,areturnbythiscourttoitsformerview
whichwasrejectedbytheHouseofLordsintheGulbenk iancase.IfIdidsothink,Ishould,however
reluctantly,acceptMr.Vinelottsargumentanditsconsequences.ButasIreadit,thecriticisminthe
HouseofLordsofthedecisionofthiscourtinthatcaserelatedtothiscourtsacceptanceoftheview
thatitwouldbesufficientifitcouldbeshownthatonesinglepersonfellwithinthescopeofthepower
ortrust.TheessenceofthedecisionoftheHouseofLordsintheGulbenk iancase,asIseeit,
isnotthatitmustbepossibletoshowwithcertaintythatanygivenpersonisorisnotwithinthetrust
butthatitisnot,ormaynotbe,sufficienttobeabletoshowthatoneindividualpersoniswithinit.Ifit
doesnotmeanthat,Idonotknowwherethelineissupposedtobedrawn,havingregardtotheclarity
andemphasiswithwhichtheHouseofLordshaslaiddownthatthetrustdoesnotfailbecausethe
wholerangeofobjectscannotbeascertained.
STAMPLJ:
Mr.Vinelott,fasteningonthosewords,ifitcanbesaidwithcertaintythatanygivenindividualisoris
notamemberoftheclass,submittedinthiscourtthatatrustfordistributionamongofficersand
employeesorexofficersorexemployeesoranyoftheirrelativesordependantsdoesnotsatisfythe
test.Youmaysaywithcertaintythatanygivenindividualisorisnotanofficer,employee,exofficeror
exemployee.Youmaysaywithcertaintythataverylargenumberofgivenindividualsarerelativesof
oneofthembut,sotheargumentruns,youwillneverbeabletosaywithcertaintyofmanygiven
individualsthattheyarenot.IamboundtosaythatIhadthoughtatonestageofMr.Vinelottsable
argumentthatthiswasnomorethananexerciseinsemanticsandthatthephraseonwhichherelies
indicatednomorethanthatthetrustwasvalidiftherewassuchcertaintyinthedefinitionof
membershipoftheclassthatyoucouldsaywithcertaintythatsomeindividualsweremembersofit:
thatitwassufficientthatyoushouldbesatisfiedthatagivenindividualpresentinghimselfhasorhas
notpassedthetestandthatitmattersnotthathavingfailedtoestablishhismembershipherehis
relationshipyoumay,perhapswrongly,rejecthim.Thereare,however,inmyjudgmentserious
difficultiesinthewayofarejectionofMr.Vinelottssubmission.
Thefirstdifficulty,asIseeit,isthattherejectionofMr.Vinelottssubmissioninvolvesholdingthatthe
trustisgoodifthereareindividualsorevenoneofwhomyoucansaywithcertaintythatheisa
memberoftheclass.ThatwasthetestadoptedbyandthedecisionoftheCourtofAppealin
theGulbenk iancasewherewhatwasunderconsiderationwasapowerofdistributionamongaclass
conferredupontrusteesasdistinctfromatrustfordistribution:butwhentheGulbenk iancasecame
beforetheHouseofLordsthattestwasdecisivelyrejectedandthemorestringenttestuponwhichMr.
Vinelottinsistswasadopted.ClearlyLordWilberforceinexpressingtheviewthatthetestofvalidityof
adiscretionarytrustoughttobesimilartothatacceptedbytheHouseofLordsintheGulbenk iancase
didnottaketheviewthatitwassufficientthatyoucouldfindindividualswhowereclearlymembersof
theclassforhehimselfremarked,towardstheendofhisspeechastothetrusteesdutyof
inquiring(p.97) orascertaining,thatineachcasethetrusteesoughttomakesuchasurveyofthe
rangeofobjectsorpossiblebeneficiariesaswillenablethemtocarryouttheirfiduciaryduty.Itisnot
enoughthattrusteesshoulddonothingbutdistributethefundamongthoseobjectsofthetrustwho
happentobeathandorpresentthemselves.LordWilberforce,aftercitingthatpassagewhichIhave
alreadyquotedfromthespeechofLordUpjohnintheGulbenk iancase,putitmoresuccinctlyby
remarkingthatwhatthisdidsay(andheagreed)wasthatthetrusteesmustselectfromtheclass,but
thatpassagedidnotmean(ashadbeencontended)thattheymustbeabletogetacompletelistof
allpossibleobjects.IhavealreadycalledattentiontoLordWilberforcesopinionthatthetrustees
oughttomakesuchasurveyoftherangeofobjectsorpossiblebeneficiariesaswillenablethemto
carryouttheirfiduciaryduty,andIoughtperhapstoaddthatheindicatedthatawiderandmore
comprehensiverangeofinquiryiscalledforinthecaseofwhatIhavecalleddiscretionarytruststhan
inthecaseoffiduciarypowers.But,asIunderstandit,havingmadetheappropriatesurvey,itmatters
notthatitisnotcompleteorfailstoyieldaresultenablingyoutolayoutalistorparticularsofevery
singlebeneficiary.Havingdonethebesttheycan,thetrusteesmayproceeduponthebasissimilarto
thatadoptedbythecourtwhereallthebeneficiariescannotbeascertainedanddistributeuponthe
footingthattheyhavebeen:see,forexample,ReBenjamin[1902]1Ch723.Whatwasreferredtoas
thecompleteascertainmenttestlaiddownbythiscourtintheBroadwayCottagescaseisrejected.
SoalsoisthetestlaiddownbythiscourtintheGulbenk iancase.Validityorinvalidityistodepend
uponwhetheryoucansayofanyindividualandtheaccentmustbeuponthatwordany,foritisnot
simplytheindividualwhoseclaimyouareconsideringwhoisspokenofisorisnotamemberofthe
class,foronlythuscanyoumakeasurveyoftherangeofobjectsorpossiblebeneficiaries.
Ifthematterrestedthere,itwouldinmyjudgmentfollowthat,treatingthewordrelativesasmeaning
descendantsfromacommonancestor,atrustfordistributionsuchasishereinquestionwouldnotbe
valid.Anysurveyoftherangeoftheobjectsorpossiblebeneficiarieswouldcertainlybeincomplete,
andIamabletodiscernnoprincipleuponwhichsuchasurveycouldbeconductedorwhereitshould
startorfinish.Themostyoucoulddo,sofarasregardsrelatives,wouldbetofindindividualswhoare
clearlymembersoftheclassthetestwhichwasacceptedintheCourtofAppeal,butrejectedinthe
HouseofLords,intheGulbenk iancase.
Thematterdoesnot,however,restthereHardingvGlyn(1739)1Atk469wasanearlycase
wherethecourtexecutedadiscretionarytrustforrelationsanditisadiscretionarytrustforrelations
thatIamconsideringbydistributingtothenextofkininequalshares 114
HardingvGlynaccordinglycannotberegardedsimplyasacasewhereindefaultofappointmentagift
tothenextofkinistobeimpliedasamatterofconstruction,butasauthorityendorsedbythe
decisionoftheHouseofLords[1971]AC424,thatadiscretionarytrustforrelationswasavalidtrust
tobeexecutedbythecourtbydistributiontothenextofkin.Theclassofbeneficiariesthusbecomes
aclearlydefinedclassandthereisnodifficultyindeterminingwhetheragivenindividualiswithinitor
withoutit.
Doesitthenmakeanydifferencethatherethediscretionarytrustforrelationswasareferencenotto
therelationsofadeceasedpersonbutofonewhowasliving?Ithinknot.Thenextofkinofaliving
personareasreadilyascertainableatanygiventimeasthenextofkinofonewhoisdead.
ThedecisioninReBadensDeedTrusts(No.2)createsconsiderabledifficultybecauseallthreejudgesadopted
differentapproaches.WhenconsideringthemeritsoftherespectivespeechesofSachsLJ,MegawLJ,andStamp
LJ,itmustberememberedthatthetaskoftheCourtofAppealwastoapplythejudgmentoftheHouseofLords
inMcPhailvDoulton.ItisagainstthisbackgroundthatthedecisionoftheirLordshipsmustbejudged.
(p.98) TheresultoftheBadenlitigationtellsusthatatrustinfavourofdependantsorrelativesissufficiently
certain.Butwhythisisso,andhowdifficulttermssuchasrelativesshouldbeinterpreted,remaintricky
questions,whichcouldposeproblemstotrusteesinthefuture.
Regardingconceptualcertainty,thejudgesintheCourtofAppealdisagreedonthecorrectmeaningofrelatives.
MegawLJandSachsLJthoughtrelativeswouldstillbeconceptuallycertainifdefinedasdescendantsfroma
commonancestor,whereasStampLJconsideredthattobetoowidesinceitwouldbeimpossibletostatewith
certaintywhetheranyandeverypersonisorisnotwithintheclassandinterpretedrelativesasmeaning
statutorynextofkin.TherestrictiveapproachofStampLJisconsistentwithhisapproachtoevidentialcertainty,
discussedfurtherhere.Butitgreatlyrestrictsthescopeoftheclass.Whetherornotthisisappropriatepresents
aquestionofconstructionthatwillturnuponthefactsofeachparticularcasethetrustinstrumentshouldbe
interpretedinamannerbestsuitedtogiveeffecttothesettlorsintention.
Significantly,thejudgesalsodifferedonthemeaningoftheisorisnottest.Inparticular,theydidnotagreeon
theweightthatshouldbeattachedtotheisnotpartofthetest.Inasensethisismisleading:ifitcannotbe
provedwithcertaintythatapersonisnotwithintheclass,thatnecessarilymeansthatitcannotbeestablished
withcertaintythatthatpersoniswithintheclass.Essentially,thecruxofthedebateiswhetheritispermissible
tohavesomegivenpostulantsaboutwhomitcannotbesaidwithcertaintyeitherthattheyfallwithin,orthatthey
fallwithout,thescopeoftheclass.StampLJinsistedthatitwasimpermissible:itmustbepossibletosay
ofanygivenpostulantwhetherheorsheisorisnotamemberoftheclass.Iftheevidenceisinconclusiveeither
way,thetrustmustfail.Ontheotherhand,MegawLJthoughtthatifitcouldbeshown,withcertainty,thata
substantialnumberofpostulantswerewithintheclass,thenthetrustwouldnotfailforevidentialuncertainty,even
ifthepositionofsomepostulantswasunclear.SachsLJfavouredanevidentialpresumptionthatanypostulant
wouldnotbewithinthescopeoftheclassunlessheorshecouldprovewithcertaintythatheorshewas.
Whichinterpretationshouldbefavoured?TheapproachofStampLJismostfaithfultothatputforwardbythe
HouseofLords,whereastheapproachesofMegawLJandSachsLJperhapsshiftthelawbackinthedirectionof
theonepersontestrejectedbytheHouseofLordsinReGulbenk ianandMcPhailvDoulton.Nevertheless,the
rigidityinStampLJsinsistenceupontheneedtoprovewithcertaintywhetherany,andthereforeevery,postulant
isorisnotwithinthescopeoftheclasswilloftenprovedifficulttomeetandleadtomanytrustsfailingforwantof
certainty.Thisisunsatisfactory,andwillgenerallybecontrarytotheintentionsofthesettlor.Itwouldbe
preferabletoadopttheapproachofSachsLJ,andmakepostulantsthemselvesprovethattheyarewithinthe
scopeoftheclass.Ineffect,thiswouldmeanthatatrustwillneverfailforlackofevidentialcertainty.Whilst
desirable,itmustbeadmittedthatthisdoesappeartobeinconsistentwithLordWilberforcesinsistence
inMcPhailvDoultonthatbothconceptualandevidentialcertaintyneededtobeestablished.
Inanyevent,itshouldbenotedthatsuchdifficultieshavenotmuchappearedinsubsequentcases,probably
becausetherearesomanywaysforsettlorstoavoiddifficultiesregardingcertaintyofobjectsthroughcareful
draftingofthetrustinstrument.Moreover,asettlorcouldsimplycreateatrustinfavourofasmall,certainclassof
persons,butthengivethetrusteesthepowertoaddbeneficiariestotheclass,115 providingguidancetothe
trusteesregardingwhoshouldbeaddedthroughaletterofwishes.116 Anotherpotentialmeansofdealingwith
uncertaintyistoallowthirdpartiestoresolvequestionsofinterpretation.
(p.99) (i)Curinguncertaintythroughdelegation
Asettlorortestatormayseektocircumventanyuncertaintybyprovidingthatsomebodyelseeitheratrusteeor
thirdpartycanresolveanyuncertaintyrelatingtotheidentityofobjects.Thereis,however,aneedtobalance
twoconflictingprincipleswherethevalidityofsuchapowerisconsidered.First,itisnotacceptabletoexclude
thejurisdictionofthecourttodeterminewhethertheobjectsarecertain.Conceptualcertaintybeingaquestionof
law,itistraditionallythoughttobethecasethatifthecourtisunabletodefineaclassofobjectswithsufficient
certainty,thennobodyelseisabletoestablishthattheclassisconceptuallycertain,regardlessofwhatis
providedintheinstrumentcreatingthetrust.Further,thereistheprincipleagainstexcessivedelegationtoa
trusteebythesettlorandespeciallythetestator,whocannotrelyonthetrusteetoeffectivelymakethewillfor
himorher,forexamplebysayingthatallthetestatorspropertyistobedistributedbythetrusteeasheorshe
wishes.117 Againstthisistheprinciplethatthesettlorsortestatorsintentionshouldberespected,soifthe
creatorofthetrustwishesthetrusteestobethearbiterstoresolveuncertainty,thensobeit.Upholdingsuch
curingclauseswouldmeanthatfewertrustsfailforlackofcertainty,andtheintentionsofthesettlorortestator
would,therefore,belesslikelytobefrustrated.
Theimportanceofpreservingthecourtsjurisdictiontodecidequestionsoflawwashighlightedinthefollowing
case.
ReWynn[1952]Ch271
Aclauseinawillstated:Iauthoriseandempowermytrusteestodeterminewhatarticlespassunderany
specificbequestcontainedinthismywillandwhetheranymoneysaretobeconsideredascapitalor
incomeandhowvaluationsaretobemadeandorvaluedeterminedforanypurposeinconnexionwiththe
trustsandprovisionsofthismywillandtoapportionblendedtrustfundsandtodetermineallquestions
andmattersofdoubtarisingintheexecutionofthetrustsofthismywillandIdeclarethateverysuch
determinationwhethermadeuponaquestionactuallyraisedoronlyimpliedintheactsandproceedingsof
mytrusteesshallbeconclusiveandbindinguponallpersonsinterestedunderthismywill.
Theclausewasheldtobevoid.
DanckwertsJ:
Nodoubtitmaybesaidthatitisconvenienttohavemattersregardingtheapportionmentofcapital
moneysandtheapplicationofmoneysinthepaymentofexpensesreferredtosomeinformaldecision,
andthatinthatwayexpensemaybesavedwhichwouldbenecessarilyincurredifthemattershadto
bereferredtothecourtbutinmyviewaclauseofthiskindhasnoeffectifitisattemptedtouseitso
astopreventthebeneficiariesrequiringthemattertobedecidedbythecourt.Aslongastheclauseis
notcontested,itmaybethatthebeneficiarieswillbecontenttohavethemattersdealtwithbythe
trusteesinthecourseoftheiroperationsintheadministrationoftheestateanditmay,ofcourse,be
thatthetrusteeshaveappliedtheirmindsandcarriedouttheirdutiesinaperfectlypropermannerin
thewayinwhichtheydealwithmattersconnectedwiththeestatebutitseemstomethattheresult
isthatanybeneficiaryisentitledtogotothecourttohavehisrightsconsideredand,ifnecessary,
upheldandthatatestatormaynotbytheprovisionsofhiswillexcludetherightofthecourttodecide
thematters,eventhoughthetrusteeshaveconsideredthemandreachedacertaindecision.
(p.100) Bycontrast,evidentialcertaintyisaquestionoffact,notlaw,andthecourtisnotconcernedtohave
exclusivejurisdictionoverquestionsoffact.
ReCoxen[1948]Ch747(ChD)
Thetestatorleftahousetotrusteesupontrustforhiswifetoliveinandhedeclaredthat,ifintheopinionof
mytrusteessheshallhaveceasedpermanentlytoresidetherein,thehousewastofallintoresidue.The
questionwaswhetherthisprovisoconstitutedavalidlimitationuponthegift.
JenkinsJheldthattheconditionwasnotvoidforuncertainty:thedecisionofthetrusteeswouldbesufficient
todeterminethewidowsinterest.
JenkinsJ:
Ihavesofartreatedtheconditionasifitwassimplyinthetermsifsheshallhaveceased
permanentlytoreside,whereasitsactualtermsareifintheopinionofmytrusteessheshallhave
ceasedpermanentlytoreside.ThatIthinkmakesaverymaterialdifference.Theopinionofthe
trusteesthatthedoubleeventhashappened,andnotsimplythehappeningofthedoubleevent,is
whatbringsaboutthecesserofLadyCoxensinterest.Ifthetestatorhadinsufficientlydefinedthe
stateofaffairsonwhichthetrusteesweretoformtheiropinion,hewouldnotIthinkhavesavedthe
conditionfrominvalidityonthegroundofuncertaintymerelybymakingtheiropinionthecriterion,
althoughthedeclarationbythetrusteesofthisorthatopinionwouldbeaneventaboutwhichinitself
therecouldbenouncertainty.ButasIhavealreadyindicated,Ithinktherelevantdoubleeventis
sufficientlydefinedtomakeitperfectlypossibleforthetrustees(asthejudgesoffactforthispurpose)
todecidewhetherithashappenedornot,andinmyviewthetestatorbymakingthetrusteesopinion
thecriterionhasremovedthedifficultieswhichmightotherwisehaveensuedfromagiftoverinadouble
eventthehappeningofwhich,thoughinitselfsufficientlydefined,maynecessarilybeamatterof
inferenceinvolvingnicequestionsoffactanddegree.
Theremightbethoughttobeadividebetweenaclausethatpurportstoresolveevidentialuncertaintyandonethat
seekstocureconceptualuncertainty.Butithasbeensuggestedthattheimportanceofgivingeffecttothe
settlorsintentionmeansthatevenconceptualuncertaintymightbecurable.Forexample,inDundeeGeneral
HospitalsBoardofManagementvWalk er,118 aScottishcase,theHouseofLordsheldthataclauseinawillthat
providedthattrusteesintheirsoleandabsolutediscretioncoulddeterminewhetherahospitalhadbeentaken
overbytheStatewasvalid.LordDenningMRhassubsequentlyinterpretedthisdecisiontomeanthatatestator
orsettlorcandelegatetoanotherinordertocureconceptualuncertaintyofobjects.
ReTucksSettlementTrusts[1978]Ch49
Thesettlorprovidedanincomefortheholderforthetimebeingofthefamilybaronetcyifandwhenandso
longasheshouldbeoftheJewishfaith,andmarriedandlivingwithanapprovedwifeor,ifseparated,being
soseparatedthroughnofaultofhis.AnapprovedwifewasdefinedasawifeofJewishbloodbyoneorboth
ofherparents,whohadbeenbroughtupintheJewishfaith,hadneverdepartedfromit,and,who,atthedate
ofthemarriage,continuedtoworshipaccordingtotheJewishfaith.TheChiefRabbiinLondonofeitherthe
PortugueseortheAngloGerman(p.101) communitywasdesignatedtodecideanyquestionastowhowas
anapprovedwife,andwhetheranyseparationwasorwasnotduetothefaultofthebaronet.
ThequestionwaswhetherthetrustswerevoidforuncertaintyandwhetherthereferencetotheChiefRabbi
waseffective,orvoidasanousterofthejurisdictionofthecourt.TheCourtofAppealheldthatthecondition
wassufficientlycertain.Onthequestionwhether,ifithadbeenvoidforuncertainty,thetrustwouldhavebeen
savedbytheprovisionmakingtheChiefRabbisdecisionconclusive,LordDenningMRsaid:
[Counsel]submittedthat,inacasewheretherewasconceptualuncertainty(wherethewordswerenot
clearenoughforthecourt)itfollowedinexorablythattheywerenotclearenoughforarabbieither.
HebasedthisonthewordsofJenkinsJ.inInReCoxen[1948]Ch.747,761andonInReJones,Decd.[1953]
Ch.125.Alternativelyhesaidthat,byentrustingthedecisiontoarabbiinsteadoftothecourt,thesettlorwas
oustingthejurisdictionofthecourt.HebasedthisonInReRaven[1915]1Ch.673andInReWynn,
Decd.[1952]Ch.271.
Icannotaccepteitherofthesesubmissions.NorcanIacceptthedecisionsonwhichMr.Dillonrelies.All
thecasesonthissubjectneedtobereconsideredinthelightofDundeeGeneralHospitalsBoardof
Managementv.Walk er[1952]1AllE.R.896.Atestatortheregavemoneytoahospitalprovidedthatat
hisdeathitshouldnothavebeentakenoverbythestate.Hegavehistrusteessoleandabsolute
discretiontodecidewhetherithadbeentakenoverbythestate.TheHouseheldthatthisentrustingtohis
trusteeswasperfectlyvalid:andtheirdecisionwastobeupheld.ItwasadecisionoftheHouseofLordsin
aScottishcase.ItmaynotbebindingontheEnglishcourtsinanEnglishcase.Butitisofthehighest
persuasivevalue.Donoghuev.Stevenson[1932]A.C.562wasaScottishappeal.Butittransformedthe
lawofEngland.Iventuretosuggestthat,onquestionsofprinciple,itismostdesirablethatthelawsof
EnglandandScotlandshouldbeuniform:and,accordingly,thatadecisionoftheHouseofLordswhen
foundedonprincipleandnotonauthorityshouldberegardedasapplicabletobothcountries:unlessthe
Houseitselfsaysotherwise.WhyotherwiseshouldwehaveScottishLawLordssittingonEnglishcases
orEnglishLawLordssittingonScottishcases?TheveryconstitutionoftheHouseshowsthateach
systemoflawhasmuchtolearnfromtheother:andthatadecisiononapointofprincipleshouldreflect
thebestofboth.
Iseenoreasonwhyatestatororsettlorshouldnotprovidethatanydisputeordoubtshouldberesolvedby
hisexecutorsortrustees,orevenbyathirdperson.Toprovethis,Iwillfirststatethelawinregardto
contracts.Herethegeneralprincipleisthatwheneverpersonsagreetogethertoreferamattertoathird
personfordecision,andfurtheragreethathisdecisionistobefinalandbindinguponthem,then,solong
ashearrivesathisdecisionhonestlyandingoodfaith,thetwopartiesareboundbyit.
Iftwocontractingpartiescanbyagreementleaveadoubtordifficultytobedecidedbyathirdperson,Isee
noreasonwhyatestatororsettlorshouldnotleavethedecisiontohistrusteesortoathirdparty.Hedoes
nottherebyoustthejurisdictionofthecourt.Iftheappointedpersonshouldfinddifficultyintheactual
wordingofthewillorsettlement,theexecutorsortrusteescanalwaysapplytothecourtfordirectionsso
astoassistintheinterpretationofit.Butiftheappointedpersonisreadyandwillingtoresolvethedoubtor
difficulty,Iseenoreasonwhyheshouldnotdoso.Solongashedoesnotmisconducthimselforcometo
adecisionwhichiswhollyunreasonable,Ithinkhisdecisionshouldstand.Afterall,thatwasplainlythe
intentionofthetestatororsettlor.
Clearly,LordDenningsapproachhelpstoprotecttheintentionofthetestatororsettlor.Butitdidnotreceivethe
supportoftheotherjudgesintheCourtofAppeal.Forexample,EveleighLJthoughtthat(p.102) theChiefRabbi
wasnotresolvinguncertainty,butthattheclassshouldbedefinedasthosewhomtheChiefRabbiconsidersto
beoftheJewishfaith.EveleighLJsaid:
IthereforedonotregardthesettlorasleavingittotheChiefRabbitodiscoverwhatthesettlormeantorto
provideameaningfortheexpressionusedbythesettlorwhenthemeaningisindoubt.Thecourtitselfwill
notdosoandIdoubtifDundeeGeneralHospitalsBoardofManagementv.Walk er[1952]1AllE.R.896
allowsmetosaythatthecourtwillpermittheChiefRabbitodoso.ThefactisthattheChiefRabbiknows
whathemeansbyJewishfaithandthetestatorhassaidthathemeansthesamething.Thereisno
elementofspeculationhere.Idcertumest.
TheapproachofEveleighLJmaywellbepreferableandabetterinterpretationofDundeeGeneralHospitals.In
definingtheclasssuchthatthearbiterispartofthedefinitionoftheclass,thereisnodangerofthecourts
jurisdictionoverquestionsoflawbeingusurped.Indeed,nomentionwasmadeofLordDenningsremarksinRe
WrightsWillTrusts,119 whichinsistedthatconceptualuncertaintycouldnotbecuredbydelegation.
However,evenifitisacceptedthatconceptualuncertaintycanbecuredbydelegation,thisdoesnotrenderthe
courtsredundant.Thepersonresolvingtheuncertaintymustactreasonably,andcanberequiredtoexplainhisor
herdecisiontothecourt.InDundeeGeneralHospitals,LordReidsaid:120
But,bymakinghistrusteesthesolejudgesofaquestion,atestatordoesnotentirelyexcluderecourseto
theCourtbypersonsaggrievedbythetrusteesdecision.Ifitcanbeshownthatthetrusteesconsidered
thewrongquestion,orthat,althoughtheypurportedtoconsidertherightquestion,theydidnotreallyapply
theirmindstoitorperverselyshuttheireyestothefacts,orthattheydidnotacthonestlyoringoodfaith,
thentherewasnotruedecisionandtheCourtwillintervene.
(ii)Administrativeunworkability
InMcPhailvDoulton,LordWilberforcehintedthataclassmaybesohopelesslywideastobeadministratively
unworkable.121 Thiswastheproblematissueinthefollowingcase.
RvDistrictAuditor,expWestYorkshireMetropolitanCountyCouncil[1986]RVR24
(QB)
AlocalauthorityresolvedtocreateatrustunderwhichthetrusteesweretoapplyandexpendtheTrustFund
forthebenefitofanyorallorsomeoftheinhabitantsoftheCountyofWestYorkshireinfourspecifiedways.
Itwasconcededthatthiswasnotacharitabletrust,becauseoneofitsobjects,thedisseminationof
informationabouttheproposedabolitionofthemetropolitancountycouncils,wasnotcharitable.122 TheCourt
heldthatthetrustcouldnottakeeffectasanexpressprivatetrust.
LloydLJ:
Counselforthecountycouncilarguedthatthebeneficiariesofthetrustwereallorsomeofthe
inhabitantsofthecountyofWestYorkshire.Theclassmightbeonthelargeside,containingasit
does(p.103) some2millionpotentialbeneficiaries.Butthedefinition,itwassaid,isstraightforward
andclearcut.Thereisnouncertaintyastotheconcept.Ifanyoneweretocomeforwardandclaimto
beabeneficiary,itcouldbesaidofhimatoncewhetherhewaswithintheclassornot.
Icannotacceptcounselforthecountycouncilsargument.Iampreparedtoassumeinfavourofthe
council,withoutdeciding,thattheclassisdefinedwithsufficientclarity.Idonotdecidethepoint
becauseitmight,asitseemstome,beopentoargumentwhatismeantbyaninhabitantofthe
countyofWestYorkshire.ButIputthatdifficultyononeside.Forthereistomymindamore
fundamentaldifficulty.Atrustwithasmanyas2millionpotentialbeneficiariesis,inmyjudgment,
quitesimplyunworkable.Theclassisfartoolarge.InReGulbenk iansSettlements[1970]AC508
LordReidsaidat518:
Itmaybethatthereisaclassofcasewhere,althoughthedescriptionofaclassof
beneficiariesisclearenough,anyattempttoapplyittothefactswouldleadtosuch
administrativedifficultiesthatitwouldforthatreasonbeheldtobeinvalid.
[HisLordshipquotedLordWilberforcesfinalparagraphinMcPhailvDoulton[1971]AC424at
457,123 andcontinued:]
ItseemstomethatthepresenttrustcomeswithinthethirdcasetowhichLordWilberforcerefers.I
hopeIamnotguiltyofbeingprejudicedbytheexamplewhichhegave.Butitcouldhardlybemore
apt,orfitthefactsofthepresentcasemoreprecisely.
ImentionthesubsequentdecisionsinReBadensDeedTrusts(No2)[1972]Ch607,andonappeal
[1973]Ch900,andReManistysSettlement[1974]Ch17,withmisgiving,sincetheywerenotcitedin
argument.Thelatterwasacaseofanintermediatepower,thatistosay,apowerexercisableby
trusteesinfavourofalltheworld,otherthanmembersofanexceptedclass.Afterreferring
toGulbenk ianandthetwoBadencases,TemplemanJ(ashethenwas)said:
Iconcludethatapowercannotbeuncertainmerelybecauseitiswideinambit.
Apowertobenefit,forexample,theresidentsofGreaterLondonmight,hethought,bebad,not
onthegroundofitswidthbutonthegroundofcapriciousness,sincethesettlorcouldhaveno
sensibleintentiontobenefitanaccidentalconglomerationofpersonswhohadnodiscernible
linkwiththesettlor.Butthatobjectioncouldnotapplyhere.Thecouncilhadeveryreasonfor
wishingtobenefittheinhabitantsofWestYorkshire.
LordWilberforcesdictumhasalsobeenthesubjectofagooddealofacademiccommentand
criticism,noticeablybyL.McKay(1974)38Conv269andC.T.Emery(1982)98LQR551.I
shouldhavewelcomedfurtherargumentonthesematters,butthroughnofaultofcounselfor
thecountycouncilthiswasnotpossible.SoIhavetodothebestIcan.
MyconclusionisthatthedictumofLordWilberforceremainsofhighpersuasiveauthority,despiteRe
Manisty.Manistyscasewasconcernedwithapower,wherethefunctionofthecourtismore
restricted.Inthecaseofatrust,thecourtmayhavetoexecutethetrust.Notsointhecaseofa
power.Thattheremaystillbeadistinctionbetweentrustsandpowersinthisconnectionwas
recognizedbyTemplemanJhimselfinthesentenceimmediatelyfollowinghisquotationofLord
Wilberforcesdictum,whenhesaid:
IntheseguardedtermsLordWilberforceappearstorefertotrustswhichmayhavetobe
executedandadministeredbythecourtandnottopowerswherethecourthasaverymuch
morelimitedfunction.
(p.104) Therecanbenodoubtthatthedeclarationoftrustinthepresentcasecreatedatrustandnot
apower.FollowingLordWilberforcesdictum,Iwouldholdthatthedefinitionofthebeneficiariesofthe
trustissohopelesslywideastobeincapableofforminganythinglikeaclass.Iwouldtherefore
rejectcounselforthecountycouncilsargumentthatthedeclarationoftrustcantakeeffectasan
expressprivatetrust.124
Thereis,therefore,nodoubtthatatrustmaybevoidbecauseofadministrativeunworkability.Indeed,inRe
Hardingitwasrecentlyacceptedascommongroundthataprivatetrustforsuchalargeclassastheblack
communityinfourLondonBoroughswouldbesolargeastomakeaprivatetrustunworkable,andhencevoid.125
However,itisnotclearwhythesheersizeofaclassshouldrenderatrustvoidforadministrativeunworkability.
Forexample,theclassinReBadensDeedTrusts(No.2)waslarge,suchthatthetrusteeswouldbeunableto
surveyeverypotentialbeneficiary,butthetrustwasneverthelessheldtobevalid.Thisisentirelyappropriate:
trusteesshouldalwaysbeabletomakeareasonablesurveyoftheclassingeneralterms.Aslongasthetrust
propertyisthenappointedtoobjectswhofallwithinthescopeoftheclass,thesizeoftheclassshouldnot
matter.Administrativeworkabilityshouldbeanirrelevantconsideration.126 Toadoptsuchanapproachwould
simplyrequirethecourtnottobetooexigentinitsexpectationsofwhatactionstrusteesshouldtake.Onthe
basisthatthesettlorsintentionshouldberespectedasmuchaspossible,courtsshouldnotinterfereanddeclare
atrustadministrativelyunworkablesolelybecausethesettlorgavehistrusteesawidediscretiontoappoint
propertywithinahugeclassofpotentialobjects.
McKay,ReBadenandtheThirdClassofUncertainty[1974]Conv269,2802
Ononeviewitispossibletoarguethatif[thecourt]istobeinapositiontomaketheselection
contemplatedthenitmusthaveamoreprecisenotionoftheaimsandambitionsofthesettlorthana
broadintentiontobenefitthestatedclass.
Themostcompellingargumentagainstthethirdclass[ofadministrativeunworkability]requiringthe
provisionofrulesofamorespecificcharacterthanbenefitisthattosorequirewouldundomostofthe
goodworkperformedinReBadenbyLordWilberforcehimself.TheBadendeed,andmostother
establishingquasipublicemployeetrusts,wasbothpromptedbythatbroadsentimentand
appropriatelyexpressedinthosebroadterms.Themultifariousformsinwhichbenefitmaylegitimately
beconferredbytrusteesshouldnotcloudthefactthat,ifithasto,thecourtthroughitsown
determinationorwiththeaidofpersonsactingonitsbehalfisjustascapableofdeterminingwhethera
particularproposalisoneofthoseforms.FlexibilityintherealmofexecutionisattheheartoftheRe
Badendecision,anditwouldbeinconsistentwiththatdecisionwerethecourtstofalterandrefuseto
makesuchadetermination.AndiftheyshouldandwouldmakeitintheBadendeedcontext,thereis
noreasonforaffordingdifferenttreatmenttotheGreaterLondontrust.
However,suchargumentsareunlikelytosucceedgiventhedecisioninWestYork shire.Asmentionedalready,
settlorswouldbebetteradvisedtocreateatrustinfavourofasmall,certainclassofpersons,butthengivethe
trusteesthepowertoaddbeneficiariestotheclass,providingguidancetothetrusteesregardingwhoshouldbe
addedthroughaletterofwishes.127 Butitisinterestingtowonder(p.105) whethertheresultinWest
York shirewouldhavebeenthesamehadthefundbeenlarger.InWestYork shire,400,000wastobeheldon
trustforaclasscontainingaround2.5millionpeople.Itmaybethatadministeringsuchafundforsuchahuge
classwasthoughttobeimpracticalandthat,therefore,thetrustwasdeemedadministrativelyunworkable.
Perhapstheoutcomemighthavebeendifferentifamuchgreatersumsay,50millionhadbeengiventothe
inhabitantsofWestYorkshire.Itissuggestedthatsuchatrustcouldbeadministeredproperly,giventhe
increasedsizeofthefundatthetrusteesdisposal.Itmightbethatadministrativeunworkabilityinvolvessome
sortofassessmentofproportionalityofthesizeofthefundwiththesizeoftheclass.Admittedly,though,thereis
nosuggestionofthiseitherinLordWilberforcesdictainMcPhailvDoultonorinWestYork shire.
(c)FiduciaryPowers
Thecrucialdifferencebetweenpowersanddiscretionarytrustsisthatpowersdonothavetobe
exercised.128 However,ifthepowerisafiduciarypower,129 thentheholdersofthepower(oftentrustees)
mustconsidertheexerciseofthepower,eveniftheyultimatelychoosenottodistributethepropertyattheir
disposal.130 Thefactthattheholdersofsuchpowersneedtoconsidertheirexercisemeansthatitmustbe
possibleforthemtomakeareasonablesurveyofpotentialobjectsinordertomakeasensibledecisionwhether
ornottoappointanyofthepropertytopotentialobjects.131 Asaresult,suchpowersmustbecertain.InMcPhail
vDoulton,LordWilberforcenotedthatthedifferencebetweentrustsandfiduciarypowersisnarrow.132 Indeed,
inMcPhailLordWilberforceessentiallyadoptedthetestforcertaintyoffiduciarypowersenunciatedinRe
Gulbenk ian.
ReGulbenkiansSettlements[1970]AC508
AsettlementcontainedapowertoappointinfavourofNubarGulbenkiananywifeandhischildrenorremoter
issueandanypersoninwhosehouseorapartmentsorinwhosecompanyorunderwhosecareor
controlorbyorwithwhom[he]mayfromtimetotimebeemployedorresiding.Thequestionwaswhether
thepowerwasvoidforuncertainty.ItwasunanimouslyupheldbytheHouseofLords.Apowerisvalidifit
couldbesaidwithcertaintywhetheranygivenindividualwasorwasnotamemberoftheclass.
LordUPJOHN :
Inmyopinion,thisclauseisnotvoidforuncertainty,andtheCourtofAppealwerequiterightto
overrulethedecisionofHarmanJinReGreshamsSettlement[1956]1WLR573,wherehehelda
similarclausewasvoidonthatground.
MyLords,thatissufficienttodisposeoftheappeal,but,asIhavementionedearlier,thereasonsof
twomembersoftheCourtofAppealwentfurtherandhavebeensupportedbycounselforthe
respondentswithmuchforceandsomustbeexamined.
LordDenningMR[1968]Ch126at134E,propoundedatestinthecaseofpowerscollateral,namely,
thatifyoucansayofoneparticularpersonmeaningthereby,apparently,anyonepersononlythat
he(p.106) isclearlywithinthecategorythewholepowerisgoodthoughitmaybedifficulttosayin
othercaseswhetherapersonisorisnotwithinthecategory,andhesupportedthatviewbyreference
toauthority.WinnLJat138Esaidthatwheretherewasnotacompletefailurebyreasonofambiguity
anduncertaintythecourtwouldgiveeffecttothepowerasvalidratherthanholditdefeatedsinceitwill
havewhollyfailed,whichputthoughmorebroadlytheviewexpressedbytheMasteroftheRolls.
Counselfortherespondentsinhissecondlineofargumentreliedupontheseobservationsasamatter
ofprinciplebuthecandidlyadmittedthathecouldnotrelyuponanyauthority.Moreover,theMasterof
theRollsat133B,expressedtheviewthatthedifferentdoctrinewithregardtotrustpowersshouldbe
broughtintolinewiththerulewithregardtoconditionsprecedentandpowerscollateral
Butwithrespecttomerepowers,whilethecourtcannotcompelthetrusteestoexercisetheirpowers,
yetthoseentitledtothefundindefaultmustclearlybeentitledtorestrainthetrusteesfromexercising
itsaveamongthosewithinthepower.Sothetrusteesorthecourtmustbeabletosaywithcertainty
whoiswithinandwhoiswithoutthepower.ItisforthisreasonthatIfindmyselfunabletoacceptthe
broaderpropositionadvancedbyLordDenningMRandWinnLJmentionedearlier,andagreewiththe
propositionasenunciatedinReGestetnerSettlement[1953]Ch672andthelatercases.
Itwouldseemthatfiduciarypowersarealsosubjecttothesamerequirementsofconceptualandevidential
certaintythatconcerndiscretionarytrusts.133 Ascertainabilitywillnotposeaproblemforpowersbecausetheydo
notneedtobeexercisedanyway.
Itmightbethoughtthatadministrativeunworkabilityalsoafflictsfiduciarypowers.Forexample,inBlaustenvIRC,
BuckleyLJ,albeitobiter,suggestedthat:134
Iftheclassofpersonstowhosepossibleclaimstheywouldhavetogiveconsiderationweresowidethatit
reallydidnotamounttoaclassinanytruesenseatallnodoubtthatwouldbeadutywhichitwouldbe
impossibleforthemtoperformandthepowercouldbesaidtobeinvalidonthatground.
Nevertheless,sucharesultseemsunlikely.135 Indeed,BlaustenwasnotthoughttodecidetheissueineitherRe
ManistysSettlement136 orReHaysSettlementTrust.137 Inboththesecases,fiduciarypowerswererecognized
asvalidwherethetrusteeholdersofthepowercouldexercisethepowerinfavourofabsolutelyanybodywiththe
exceptionofalimitedclass.InReHaysSettlementTrustSirRobertMegarryVCexplicitlydepartedfromthe
viewofBuckleyLJinBlausten,pointingoutthatBuckleyLJscommentsweremadebeforethedecisionofthe
CourtofAppealinReBadensDeedTrusts(No.2),andconcluded:138
Idonotseehowmerenumberscaninhibitthetrusteesfromconsideringwhetherornottoexercisethe
power,asdistinctfromdecidinginwhosefavourtoexerciseit.NorcanIseethatthepoweris
administrativelyunworkable.ThewordsofLordWilberforceinInreBaden(No.1)[1971]A.C.424,457are
directedtodiscretionarytrusts,notpowers.
(p.107) Itthereforeseemsasifsheersizedoesnotappeartobeanissue.Thisisentirelyappropriateafterall,a
potentiallyhugerangeofobjectsdoesnotpreventtheholderofapowerfromconsideringitsexercise.
However,distinctfromsizeistheissueofcapriciousness.Itmaybethatafiduciarypowercouldbedeclared
voidonthisbasis.ThiswassuggestedbyTemplemanJinReManisty:
Thecourtmayalsobepersuadedtointerveneifthetrusteesactcapriciously,thatistosay,actfor
reasonswhichIapprehendcouldbesaidtobeirrational,perverseorirrelevanttoanysensibleexpectation
ofthesettlorforexample,iftheychoseabeneficiarybyheightorcomplexionorbytheirrelevantfactthat
hewasaresidentofGreaterLondon.
ApowertobenefitresidentsofGreaterLondoniscapriciousbecausethetermsofthepowernegativeany
sensibleintentiononthepartofthesettlor.139 Ifthesettlorintendedandexpectedthetrusteeswouldhave
regardtopersonswithsomeclaimonhisbountyorsomeinterestinaninstitutionfavouredbythesettlor,
orifthesettlorhadanyothersensibleintentionorexpectation,hewouldnothaverequiredthetrusteesto
consideronlyanaccidentalconglomerationofpersonswhohavenodiscerniblelinkwiththesettlororwith
anyinstitution.Acapriciouspowernegativesasensibleconsiderationbythetrusteesoftheexerciseofthe
power.140
ThisnotionofcapriciousnesswasalsodiscussedinReHay,soitappearstoberelevantwhenconsideringthe
validityofpowers.However,itisnotclearwhythisshouldbethecase.141 Afterall,whyshouldthelawpreventa
settlorfrombeingcapricious?Surelythegoalofupholdingthesettlorsintentionshouldtrumpanyqualms
surroundingcapriciousness?Moreover,ithasbeenheldthatatestatorcanbecapriciousinhiswill.Forexample,
inReAllsopp,LordDenningMRsaid:142
Ifyoufindthataliteralinterpretationgivesrisetoacapriciousresultwhichyouaresatisfiedthetestator
canneverhaveintended,thenyoushouldrejectthatinterpretationandseekforasensibleinterpretation
whichdoesaccordwithhisintention.Itissometimessaidthatatestatorcanbecapriciousifhelikes.
Yes,ifyouaresurethatheintendedtobebutyoushouldnotimputecapriciousnesstohimmerelyto
justifyyourselfingivingthewordsaliteralinterpretation.
Althoughcapriciousnesshasbeendiscussedbythecourts,ithasneverrenderedafiduciarypowervoid,anditis
suggestedthatitisunlikelyevertodoso.Theverytestofcapriciousnessisvagueevenifasettlorhascreateda
trustcapriciously,itisdifficulttoenvisagethateverpreventingasensibleconsiderationbythetrusteesofthe
exerciseofthepower.Thecourtshouldnotstrivetodefeatthepowerthesettlorintended.
(i)Amalgamatingthetestsforpowersanddiscretionarytrusts
Thedifferencebetweenfiduciarypowersanddiscretionarytrustsisverythin.Thishasledsometoarguethat
thereshouldbegreateramalgamationofthetwoareas.Forexample,inMettoyPensionTrusteesLtdv
Evans,143 WarnerJsuggestedthattheremediesavailablefortheenforcementof(p.108) discretionarytrusts
couldalsobeusedregardingmerepowers.Gardnerhascontemplatedwhatconsequencesthisapproachmight
have.
Gardner,FiduciaryPowersinToytown(1991)107LQR214,21819
Thisadoptionofdiscretionarytrustremediesforfullyfiduciarypowersofappointmentisof
considerabledoctrinalimportance.Ubiremedium,ibijus.Theideaofsuchpowersinvolvingdutiesto
theirobjectsnolongerrestsevenpartlyonstatementsaboutthesedutiesintheabstract:thenew
positiononremediesmeansthattheyhavenowbeengiventhemostcomprehensiveavailable
concreteform.
SoWarnerJ.sjudgmentcanbeseenastoppingoutthedevelopmentoffullyfiduciarypowersof
appointment.Oneshouldnot,however,thinkofthisintermsofaprogressionfromdarknessto
enlightenment.Ofcourse,anelementofsuchaperceptionmayhavehelpedmotivatethe
development.Judgesmayhavefeltthatitwassimplynotfairthattheobjectsofsuchpowersshould
besomuchlessfavouredthanthetakersindefault,andhavesetaboutrectifyingthesituationby
accordingtheformergreaterrights.Butitwouldbemoreaccuratetothinkofthetwotypesofpower
thosewithdutiestotheobjects,andthosewithoutintermsofthelawofferingthesetwodifferent
facilitiestothosesettingupsuchpowers,allowingthemtochoosewhicheverismoreappropriatefor
theirneeds.Perhapsfewsettlorswouldwanttonegatedutiestowardstheirobjectsmerelyforthe
sakeofit.Butonecountervailingconsiderationisthatthehigherdutiesandremediesoffullyfiduciary
powersmaycarryapriceintheformofamorestringentcertaintytest.ByMoricev.Bishopof
Durham(1805)10Ves.522,thetermsofatrustorpowermustbesufficientlycertainforthe
performanceoftherelevantdutiesandtheapplicationoftherelevantremedies.Thismight,therefore,
meanthatnotallpowersofappointmentwhichcouldbevalidwithoutthenewdutiesandremedieswill
necessarilybevalidwiththem.
Thestandardisorisnotcertaintytest,establishedbyReGulbenk iansSettlementTrusts[1970]
A.C.508,shouldremainunaffected,sinceitisdirectedatthedutynottopaynonobjects,whichhas
alwaysbeenowedtothetakersindefaultanyway.Butitisatleastarguablethattheassimilationof
dutiesandremediesinfiduciarypowerswiththoseencounteredindiscretionarytrustsmeansthat
suchpowersnowneedadditionallytosatisfytherequirement,hithertofoundonlyindiscretionary
trusts,thattheobjectsmustrepresentsomethinglikeaclass,whichapparentlyrulesoutgroups
suchastheresidentsofGreaterLondon(McPhailv.Doulton[1971]A.C.424atp.457).
Unfortunately,evenindiscretionarytruststhemselves,althoughitseemsreasonablyclearthatthis
testhastodowiththedutiesinvolvedinthediscretion,itisnoteasytoseejustwhatdifficultyitis
aimedatpreempting.Commentatorshavemadevalianteffortstoexplainit,butmostultimatelyseem
unconvincedofitsrole.Thesoledecisionofwhichitformstheratio,R.v.DistrictAuditor,exp.West
York shireMetropolitanCountyCouncil[1986]R.V.R.24,washeardundertheCrownListandprovides
noillumination.MegarryJ.wasnotdemonstrablywrong,therefore,inholdingthetestinapplicableto
fullyfiduciarypowersofappointmentinReHaysSettlementTrusts[1982]1W.L.R.202.Butthat
decisionslessdevelopedtreatmentofremediesstillleftitscommitmenttotheideaofsuchfully
fiduciarypowersalittlelesscertainthanthatoftheMettoycase.Thenewlyunequivocalcommitment
inthelatteroughttomeanthatthequestionofapplyingthesomethinglikeaclasstesttothemwill
needtobeatleastlookedatoncemore.Atallevents,however,itsapplicationwouldhavepresented
noproblemintheMettoycase,sincetheclassofobjectstherethepensionerswascertainlyno
morediffusethantheclasswhichapparentlyoccasionednoconcerninMcPhailv.Doultonitself.
(p.109) Gardnerisultimatelycriticalofadministrativeunworkability,andappearsreluctanttoacceptits
applicationinthecontextoffiduciarypowers.Thisseemscorrect.Moreover,anyamalgamationthatMettoymay
ormaynotbringaboutshouldnotseetrustsbeingstruckdownforcapriciousness.Itmay,therefore,bethat
administrativeunworkabilityafflictstrustsbutnotpowers,whereascapriciousnessconcernspowersbutnot
trusts.Thetwoarecertainlydifferent:intheWestYork shirecase,forexample,therewasasensiblereasonwhy
thecouncilwantedtobenefittheinhabitantsofWestYorkshire.Capriciousnesswas,therefore,notatissue,
althoughadministrativeunworkabilitywas.Inanyevent,bothadministrativeunworkabilityandcapriciousnesshave
beencriticized,sincetheirapplicationrunscountertotheimportantaimofgivingeffecttothesettlorsintentions,
anditmightbepreferableforneitherdoctrinetoapplyeithertodiscretionarytrustsortofiduciarypowers.
However,thisclearlyconflictswiththejudgmentofWarnerJinMettoy,whosuggestedthatafiduciarypower
couldbeafflictedbyadministrativeunworkability.ButitmightsimplybethatMettoywasadifficultcaseandtoo
muchweightshouldnotbeplaceduponit144 theparticularnatureofpensiontrusts,atissueinthecase,perhaps
meansthatthecommentsofWarnerJshouldbelimitedtothatcontext.
5.AbsenceofCertainties
Ifthereisinsufficientcertaintyofintention,subjectmatter,orobjects,thenthetrustwillfail.Ifthetrustwas
createdbyadeclarationofthesettlor,thenthetrustsimplywillnottakeeffect.Butoftenthepropertythatwas
thesubjectofthepurportedtrustwillhavebeentransferredtothepurportedtrustee.Insuchcircumstances,
differentresultsmayfollow.
Ifitisclearthatthesettlorintendedtherecipientofthepropertytoholdthatpropertyontrustforothers,butthere
isinsufficientcertaintyofsubjectmatterorobjects,thenitwilloftenbethecasethattheputativetrusteecannot
holdthepropertyforherorhimself.Thisisbecauseitwouldbeunconscionableforsuchapersontoclaimthe
propertyabsolutelyandbeneficiallywhenheknewthatthesettlorintendedotherwise.Thus,therecipientofthe
propertywillbeholdingthepropertyontrust,butnotinaccordancewiththeexpresstrustthatfailedforlackof
certainty,butratherforthesettloronaresultingtrust.145
However,insomeinstancestherecipientofthepropertywillbeabletoholdthereceivedpropertybeneficially.For
example,ifthereisuncertaintyastosubjectmatter,itmightnotbeclearuponwhichpartofthereceivedproperty
thetrustshouldbite.Ifthefactscanbeinterpretedasthepurportedsettlorgivinganabsolutegiftofpropertyto
theputativetrustee,whichwasthentobesupplementedbyanexpresstrust,146 thenthatsupposedtrusteemay
takethepropertybeneficiallyundertheruleinHancock vWatson.147 Inthatcase,LordDaveysaid:148
inmyopinion,itissettledlawthatifyoufindanabsolutegifttoalegateeinthefirstinstance,andtrusts
areengraftedorimposedonthatabsoluteinterestwhichfail,eitherfromlapseorinvalidityoranyother
reason,thentheabsolutegifttakeseffectsofarasthetrustshavefailedtotheexclusionoftheresiduary
legateeornextofkinasthecasemaybe.
(p.110) Difficultiesalsoarisewherethereisuncertaintybecausepartofthetrustinstrumentfailsoneofthe
certainties.Forexample,whatwouldhavebeentheresultif,inReBaden,149 thecourthaddecidedthat
dependantwassufficientlycertain,butrelativeswasnot?Wouldthetrusthavefailedentirely?Orwoulditbe
possibleforthecourttoseverrelatives,inorderthatthetrusteescouldstillappointthetrustpropertytothe
dependants?
Althoughithassometimesbeensuggestedthatthetermgivingrisetotheuncertaintycouldbesevered,150 inRe
WrightsWillTrusts,151 wheretherelevantclassconsistedofidentifiablenamedcharitiesandotherbodiesthat
couldnotbeidentified,theCourtofAppealrefusedtogiveeffecttothegiftinfavourofthenamedcharitiesonly.
TemplemanLJsaid:
whereatrustcreatesbeneficiariessomeofwhomcannotbeascertainedbyvirtueofuncertaintywhile
includingcertainbeneficiariesorcharities,thetrustmustbewhollyinvalid.Where,ofcourse,atestator
givespartofhispropertytocharitablepurposes,sothatpartcanbesegregated,thatprincipledoesnot
applybutwhere,ashere,thetrusteeshavepowertodistributethetrustfundbetweenobjectswhoare
uncertainandbetweencharities,then,asageneralrule,thewholetrustmustfailandthecharitiesare
deprived.
Yet,TemplemanLJrecognizedthatseveranceispossibleinthecontextofcharitabletrusts,inordertogiveeffect
tothesettlorswishesasmuchaspossible.152 Itisunclearwhythesameconsiderationdoesnothaveequal
importanceintheprivatesphere.Surelyitwouldbebettertopermitthepossibilityofseverance,suchthatatleast
someofthoseintendedtobenefitbythesettlorcandoso.Ofcourse,ifseverancewouldruncountertothe
intentionsofthesettlor153 thenitshouldnotbeemployed,butitissuggestedthecourtsshouldbeableto
employthisdevicewhereitwouldhelptoupholdthetrustandthesettlorsintentiontothegreatestextent
possible.
6.TheBeneficiaryPrinciple
Theorthodoxviewisthataprivatetrustcanonlyexistifthetrusteesholdthetrustpropertyontrustfor
ascertainableindividualsorforsuchaswillbeascertainedduringtheperiodofperpetuity.154 Thecourtmustbe
abletoenforceatrust,andtheremustbeascertainablepersonsinwhosefavourthecourtcandecree
performance.Atrustisobligatoryandtherecannotbeanobligationunlessthereisacorrespondingright,heldby
thebeneficiaries.
ThebeneficiaryprinciplewascrucialtothedecisioninMoricevBishopofDurham.
MoricevBishopofDurham[1804]9Ves399upheldonappeal(1805)10Ves522)
TherewasabequesttotheBishopupontrustforsuchobjectsofbenevolenceandliberalityastheBishopof
Durhaminhisowndiscretionshallmostapproveof.Thiswasheldnottobeacharitabletrust.Astherewere
noascertainablebeneficiaries,thetrustfailed.
(p.111) SirWilliamGRANTMR:
TheonlyquestioniswhethertheTrust,uponwhichtheresidueofthepersonalEstateisbequeathed,
beatrustforcharitablepurposes.Thatitisuponsometrust,andnotforthepersonalbenefitofthe
BishopisclearfromthewordsoftheWillandisadmittedbyhisLordshipwhoexpresslydisclaims
anybeneficialinterest.ThatitisaTrust,unlessitbeofacharitablenature,tooindefinitetobe
executedbythisCourt,hasnotbeen,andcannotbedenied.TherecanbenoTrustovertheexercise
ofwhichthisCourtwillnotassumeacontrolforanuncontrollablepowerofdispositionwouldbe
Ownership,andnotTrust.IftherebeaclearTrust,butforuncertainobjects,theproperty,thatisthe
subjectofthetrust,isundisposedof,andthebenefitofsuchTrustmustresulttothose,towhomthe
LawgivesOwnershipindefaultofdispositionbytheformerowner.Butthisdoctrinedoesnothold
goodwithregardtoTrustsforCharity.EveryotherTrustmusthaveadefiniteobject.Theremustbe
somebody,inwhosefavourtheCourtcandecreeperformance.
AstheMasteroftheRollsmadeclear,thebeneficiaryprincipledoesnotapplytocharitabletrusts.Charitable
trustsareaspecialtypeofpurposetrust,onethatisofspecialimportancetosociety,andisthereforegiven
specialprivilegesintermsofperpetuity,taxation,andenforcement.155 TheAttorneyGeneralandtheCharity
Commissionarechargedwiththedutyofenforcementofcharitabletrusts.
Somecasesatfirstinstancehaveupheldnoncharitablepurposetrusts.156 Themoderntrendhoweveristo
declarethemvoidandthecourtwillnotextendtheconfinesofexistingdecisions.Eventhosehavebeen
describedbyHarmanLJastroublesome,anomalousandaberrant.157 WewillconsiderinChapter6thewaysin
whichitispossibletoachieveanoncharitablepurposewithoutsettingupatrust.158
IthasbeenarguedthattheorthodoxviewthatEnglishlawdoesnotrecognizepurposetrustsis
incorrect.159 Althoughthismaybecorrectwhentheoldauthoritiesareexamined,itisclearfromthemorerecent
authoritiesthatthesettledviewisthatnoncharitablepurposetrustsarenotgenerallyconsideredtobevalidin
Englishlaw.Thisviewisnowsoentrenchedthatitisunlikelytobeoverturnedsavebylegislation.Nevertheless,
otherjurisdictionshaverecognizednoncharitablepurposetrusts,andithasbeensuggestedthatEnglishlaw
shoulddevelopinasimilarmanner.160
Hayton,DevelopingtheObligationCharacteristicoftheTrust(2001)117LQR96,1001
Underlyingandunderpinningthetrustobligationisthefundamentalprinciplethatjustasacarneeds
anengine,soatrustneedsanenforcer(whethertheenforcerbeabeneficiaryortheAttorneyGeneral
ortheCharityCommissionersorsomepersonexpresslyappointedbythesettlortobeenforcer
withlocusstandipositivelytoenforcethetrust).IsitseriouslytobesuggestedthattheEnglishcourt
wouldinvoketheorthodoxbeneficiaryprincipletorefusetogiveeffecttoaforeignnoncharitable
purposetrustofEnglishassetswhereundertheforeigngoverninglawasaresultoflegislation(like
thatof(p.112) JerseyorBermudaortheIsleofManortheCaymanIslandsortheBritishVirgin
Islands)suchatrustisvalidwherethetrustinstrumentexpresslyprovidesforanenforcer?Wouldthe
Englishcourtreallyholdtheassetstobesubjecttoaresultingtrustforthesettlor?Itissubmitted
that,becausethebeneficiaryprincipleshouldberegardedastheenforcerprinciple,theEnglishcourt
wouldregardtheforeigntrustconceptneitherasrepugnanttotheEnglishtrustconceptnorcontraryto
Englishpublicpolicy,thetrustbeingonethattheEnglishcourtcanbothenforceandcontrol.
Thus,whereatrustinstrumentprovidesforanenforcertoenforceanoncharitablepurposetrust,the
beneficiaryprincipleshouldnotvitiatesuchatrust,whetherthetrustbegovernedbyaforeignlawwith
legislationacceptingsuchatrustasvalid(andwhetherthetrustiswhollyforeign,exceptforsome
trustassetslocatedinEngland,oriswhollyinternaltoEnglandexceptforthechoiceoftheforeign
governinglaw)orbegovernedbyEnglishlawundergeneralequitableprinciples.Ofcourse,itshould
notmatterthatthesettlorappointshimselfthefirstenforcerunderthetermsofhistrustdeedasthe
personbestfittedfortheenforcementtask,withprovisionforsubsequentenforcers.
7.PerpetuityRules
Foratrusttobevaliditmustcomplywithavarietyofrulesknownastheperpetuityrules.Failuretocomplywith
theseruleswillrenderthetrustvoid.161 Theessenceoftheperpetuityrulesistopreventpropertybeingtiedup
foreverbyoneperson,abletocontrolthepropertyforanundulylongperiodafterhisdeath.Thisfearofthepower
ofthedeadhandhasledtoperpetuityrules,whichinsistthataninterestmustvest162 inapartywithinagiven
period.AsSimeswrote:163
TheRuleagainstPerpetuitiesfurthersalienabilityifitwerenotforthisRule,propertywouldbe
unproductive,andsocietywouldhavelessincome.
Simeswasoftheviewthatitwasnecessarilydesirableforpropertytobecontrolledbythelivingratherthanthe
dead,sinceonlytheformercouldrespondtochangesincircumstancesastheyarose.Deechwasalso
sympathetictothisrationale:164
ThemostconvincingmodernexplanationofthefunctionsoftheRule[againstperpetuities]isthesocalled
DeadHandRationale.Accordingtothisdoctrine,theRuleisnecessaryinordertostrikeabalance
betweenontheonehandthefreedomofthepresentgenerationand,ontheother,thatoffuturegenerations
todealastheywishwiththepropertyinwhichtheyhaveinterests.Ifasettlorortestatorhadtotallibertyto
disposeofhispropertyamongfuturebeneficiaries,therecipients,beingfetteredbyhiswishes,wouldnever
enjoythatsamefreedomintheirturn.Thelibertytomakefreshrearrangementsofassetsisnecessarynot
onlyinordertoberidofirksomeconditionsattachedbyearlierdonorstotheenjoymentofincomebutalso
inordertobeabletomanoeuvreinthelightofnewtaxlaws,changesinthenatureofthepropertyandin
thepersonalcircumstancesofthebeneficiaries,unforeseeablebythebestintentionedandmost
perspicaciousofdonors.
(p.113) Itisappropriatethatabalancebestruckbetweentheinterestsoftestatorstodisposeoftheirassetsas
theywish,andthepublicinterestinnothavingpropertytiedupandunabletobeusedinaneconomically
advantageousfashionforexcessiveperiodsoftime.
(a)TheRuleAgainstRemotenessofVesting
Theruleagainstremotenessofvestingisofbroadscope:165
PerpetuitiesandAccumulationsAct2009
1Applicationoftherule
(1)Theruleagainstperpetuitiesapplies(andappliesonly)asprovidedbythissection.
(2)Ifaninstrumentlimitspropertyintrustsoastocreatesuccessiveestatesorintereststhe
ruleappliestoeachoftheestatesorinterests.
(3)Ifaninstrumentlimitspropertyintrustsoastocreateanestateorinterestwhichissubject
toaconditionprecedentandwhichisnotoneofsuccessiveestatesorinterests,theruleapplies
totheestateorinterest.
(4)Ifaninstrumentlimitspropertyintrustsoastocreateanestateorinterestsubjecttoa
conditionsubsequenttheruleappliesto
(a)anyrightofreentryexercisableiftheconditionisbroken,or
(b)anyequivalentrightexercisableinthecaseofpropertyotherthanlandifthecondition
isbroken.
(5)Ifaninstrumentwhichisawilllimitspersonalpropertysoastocreatesuccessiveinterests
underthedoctrineofexecutorybequests,theruleappliestoeachoftheinterests.
(6)Ifaninstrumentcreatesapowerofappointmenttheruleappliestothepower.
(7)Forthepurposesofsubsection(2)anestateorinterestincludesanestateorinterest
(a)whicharisesunderarightofreverteronthedeterminationofadeterminablefeesimple,
or
(b)whicharisesunderaresultingtrustonthedeterminationofadeterminableinterest.
(8)Thissectionhaseffectsubjecttotheexceptionsmadebysection2andtoanyexceptions
madeundersection3.
.
Undersection3,exceptionsmaybespecifiedbystatutoryinstrument.Ofmoreimportanceissection2,which
providesthatcharitablepurposetrustsareexemptfromtheruleagainstperpetuities:
2Exceptionstorulesapplication
(1)Thissectioncontainsexceptionstotheapplicationoftheruleagainstperpetuities.
(2)Theruledoesnotapplytoanestateorinterestcreatedsoastovestinacharityonthe
occurrenceofaneventifimmediatelybeforetheoccurrenceanestateorinterestintheproperty
concernedisvestedinanothercharity.
(p.114) (3)Theruledoesnotapplytoarightexercisablebyacharityontheoccurrenceofan
eventifimmediatelybeforetheoccurrenceanestateorinterestinthepropertyconcernedis
vestedinanothercharity.
(4)Theruledoesnotapplytoaninterestorrightarisingunderarelevantpensionscheme.
(5)Theexceptioninsubsection(4)doesnotapplyiftheinterestorrightarisesunder
(a)aninstrumentnominatingbenefitsunderthescheme,or
(b)aninstrumentmadeintheexerciseofapowerofadvancementarisingunderthe
scheme.
However,the2009Actonlyappliestotruststakingeffect,orwillsexecuted,before6April2010,sotheprevious
rulesremainofsomerelevance.166 Asaresult,thelengthoftheperpetuityperiodwilldependuponwhenthetrust
wascreated.Therearethreepossibilities:theoldCommonLawregime,underthePerpetuitiesandAccumulation
Act1964,andnowunderthePerpetuitiesandAccumulationAct2009.Bothstatutesapplyprospectivelyonly,so
allthreeregimesremainrelevant.
TheperpetuityperiodatCommonLawisassessedbyreferencetoarelevantlifeinbeingplus21years.For
example,ifAlanswillcreatessuccessiveinterests,withalifeinterestforhisdaughterBrenda,thenforherson
CliveforlifeandremaindertoClivesfirstbornchild,eachinterestwillonlybevalidifitisvestedineachperson
withintheperpetuityperiod.167 So,whilstthelifeinterestsofBrendaandClivewouldclearlyvestwithinthe
perpetuityperiod,ifClivehadnochildrenwhenBrendadied,theinterestofanychildrenhemightlaterhavewould
bevoidundertheCommonLawperpetuityrules,sincethatinterestmightnotvestuntilmorethan21yearsafter
Brendasdeath.
Legislationhasnowprovidedforthepossibilityoffixedperpetuityperiods.UnderthePerpetuitiesand
AccumulationAct1964,section1,itbecamepossibletospecifythattheperpetuityperiodwouldbenomorethan
80yearslong.UnderthePerpetuitiesandAccumulationsAct2009,section5,thisperiodhasbeenextendedto
125yearsandhasbecomemandatory.
PerpetuitiesandAccumulationsAct20095Perpetuityperiod
(1)Theperpetuityperiodis125years(andnootherperiod).
(2)Subsection(1)applieswhetherornottheinstrumentreferredtoinsection1(2)to(6)specifies
aperpetuityperiodandaspecificationofaperpetuityperiodinthatinstrumentisineffective.
WhethertheperpetuityperiodwassatisfiedwasoriginallydeterminedatCommonLawatthetimewhenthetrust
wascreated.Thisdeterminationwasdefinitive,andifitwaspossiblethatthepropertymightvestoutsidethe
perpetuityperiod,theinterestinthatpropertywouldbevoid.UnderthePerpetuitiesandAccumulationsAct2009
thereisawaitandseerule,168 whichapplieswhereaninterestwouldbevoidonthegroundthatpropertymight
notvestuntilaftertheperpetuityperiodhaspassed.Insuchcircumstances,theinterestinthetrustpropertyis
nottobetreatedasvoiduntilitisclearthatthepropertymustvestifatallaftertheendoftheperpetuityperiod.
Everythingdonebeforethispointremainsvalid.Thisprincipleofwaitandseeisasensiblewaytoseektogive
effecttotheintentionsofthesettlorortestator,andavoidsundulyharshresultswhereagiftisdeclaredvoid,even
thoughaninterestmighthavevestedwellwithintheperpetuityperiod.
(p.115) PerpetuitiesandAccumulationsAct2009
7Waitandseerule
(1)Subsection(2)appliesif(apartfromthissectionandsection8)anestateorinterestwouldbe
voidonthegroundthatitmightnotbecomevesteduntiltooremoteatime.
(2)Insuchacase
(a)untilsuchtime(ifany)asitbecomesestablishedthatthevestingmustoccur(ifatall)
aftertheendoftheperpetuityperiodtheestateorinterestmustbetreatedasifitwerenot
subjecttotheruleagainstperpetuities,and
(b)ifitbecomessoestablished,thatdoesnotaffectthevalidityofanythingpreviously
done(whetherbywayofadvancement,applicationofintermediateincomeorotherwise)in
relationtotheestateorinterest.
(3)Subsection(4)appliesif(apartfromthissection)anyofthefollowingwouldbevoidonthe
groundthatitmightbeexercisedattooremoteatime
(a)arightofreentryexercisableifaconditionsubsequentisbroken
(b)anequivalentrightexercisableinthecaseofpropertyotherthanlandifacondition
subsequentisbroken
(c)aspecialpowerofappointment.
(4)Insuchacase
(a)therightorpowermustbetreatedasregardsanyexerciseofitwithintheperpetuity
periodasifitwerenotsubjecttotheruleagainstperpetuities,and
(b)therightorpowermustbetreatedasvoidforremotenessonlyifandsofarasitisnot
fullyexercisedwithintheperpetuityperiod.
(5)Subsection(6)appliesif(apartfromthissection)ageneralpowerofappointmentwouldbe
voidonthegroundthatitmightnotbecomeexercisableuntiltooremoteatime.
(6)Untilsuchtime(ifany)asitbecomesestablishedthatthepowerwillnotbeexercisable
withintheperpetuityperiod,itmustbetreatedasifitwerenotsubjecttotheruleagainst
perpetuities.
Similarly,apowerofappointmentwillnotbetreatedasvoiduntilitisestablishedthatthepowerwillnotbe
exercisedwithintheperpetuityperiod.Ifagiftismadeinfavourofaclassofpeople,itmightnotbepossibleto
ascertainallmembersoftheclasswithintheperpetuityperiodbecause,forexample,someofthemembersofthe
classareunborn,suchaswherethereisatrustformychildren,grandchildren,andgreatgrandchildren.Insuch
acase,ratherthantreatingthewholetrustasvoidbecausepartofthepropertymightvestoutsidetheperpetuity
period,itispossibleartificiallytoclosetheclasssothatthosewhoareascertainablewithintheperpetuityperiod
willbenefitfromthetrust.Thisisdonebyexcludingfromtheclassthosewhoseinterestsmightvestoutsidethe
perpetuityperiod,aslongastheirexclusiondoesnotmeanthattherearenomembersoftheclass:
8Exclusionofclassmemberstoavoidremoteness
(1)Thissectionappliesif
(a)itisapparentatthetimeaninstrumenttakeseffectorbecomesapparentatalatertime
that(apartfromthissection)theinclusionofcertainpersonsasmembersofaclasswould
causeanestateorinteresttobetreatedasvoidforremoteness,and
(p.116) (b)thosepersonsarepotentialmembersoftheclassorunbornpersonswhoat
birthwouldbecomemembersorpotentialmembersoftheclass.
(2)Fromthetimeitisorbecomessoapparentthosepersonsmustbetreatedforallthe
purposesoftheinstrumentasexcludedfromtheclassunlesstheirexclusionwouldexhaustthe
class.
(3)Ifthissectionappliesinrelationtoanestateorinteresttowhichsection7applies,this
sectiondoesnotaffectthevalidityofanythingpreviouslydone(whetherbywayofadvancement,
applicationofintermediateincomeorotherwise)inrelationtotheestateorinterest.
(4)Forthepurposesofthissection
(a)apersonisamemberofaclassifinthatpersonscasealltheconditionsidentifyinga
memberoftheclassaresatisfied,and
(b)apersonisapotentialmemberofaclassifinthatpersonscasesomeonlyofthose
conditionsaresatisfiedbutthereisapossibilitythattheremainderwillintimebesatisfied.
(b)RuleAgainstInalienability
Theruleagainstperpetuitiesmayalsoaffectthedurationofatrust,sinceatrustwillbevoidif,byitsterms,the
capitalisrequiredtobetiedupforatimeinexcessoftheperpetuityperiod.169 Thisisknownastheruleagainst
excessivedurationortheRuleagainstInalienability.170 Itisnotapplicabletotrustsforcharitablepurposesthe
communityinterestisthatcharitabletrustsshouldlastforever.171 However,itdoesapplytononcharitable
purposetrusts,althoughthestatutoryperpetuityperioddoesnotapplytosuchtrustsandinsteadtheCommon
Lawperpetuityperiodwillapply.172
PerpetuitiesandAccumulationsAct2009173
18Ruleastodurationnotaffected
ThisActdoesnotaffecttheruleoflawwhichlimitsthedurationofnoncharitablepurposetrusts.
(p.117) Question
Philmakesthefollowingprovisionsinhiswill:
(i)10,000tomywife,Claire,tobedistributedamongstmybestfriendsandrelativesatherdiscretion.
Claireisabletodetermineconclusivelywhomybestfriendsare.
(ii)10bottlesof1953ChteauPtrusclarettomyson,Luke.
(iii)5,000tomywife,Claire,whoisable,inherabsolutediscretion,todividethefundamongstthe
peopleofMansfield,myhometown.
(iv)Thebulkofmyremainingestatetomybrother,Ed.
(v)Whateverisleftofmyestateshouldbegiventomysurvivingchildrenequally.
Thereare50bottlesofwineinPhilscellaruponhisdeath.ThepopulationofMansfieldis100,000
inhabitants.
Arealltheabovegiftsvalid?WouldyouranswerdifferifPhilhadmadethesegiftswhenhewasalive,rather
thaninawill?
FurtherReading
Conaglen,ShamTrusts(2008)67CLJ176.
FindThisResource
Emery,TheMostHallowedPrincipleCertaintyofBeneficiariesofTrustsandPowersofAppointment(1982)
98LQR551.
FindThisResource
Gardner,FiduciaryPowersinToytown(1991)107LQR214.
FindThisResource
Goode,AreIntangibleAssetsFungible?(200)]LMCLQ379.
FindThisResource
Hayton,UncertaintyofSubjectMatterofTrusts(1994)110LQR335.
FindThisResource
Hayton,DevelopingtheObligationCharacteristicoftheTrust(2001)117LQR96.
FindThisResource
Martin,CertaintyofSubjectmatter:ADefenceofHuntervMoss[1996]Conv223.
FindThisResource
Matthews,TheNewTrust:ObligationsWithoutRights?inOakley,TrendsinContemporaryTrust
Law(Oxford:OxfordUniversityPress,1996).
FindThisResource
McKay,ReBadenandtheThirdClassofUncertainty[1974]Conv269.
FindThisResource
Parkinson,ReconceptualisingtheExpressTrust(2002)61CLJ657.
FindThisResource
Worthington,SortingOutOwnershipInterestsinBulk:Gifts,SalesandTrusts(1999)JBL1.
FindThisResource
Notes:
1
KnightvKnight(1840)3Beav148,173(LordLangdaleMR).However,amererecommendationorwishmay
nolongerbesufficienttocreateatrust:seethediscussionofprecatorywordsinChapter3.1(a),pp.678.
2 MussoorieBank vRaynor(1882)7AppCas321,331(SirArthurHobhouse).
3
BoycevBoyce(1849)16Sim476.
4
4 SeeChapter3.4(a)(i),pp.914.
5
[1971]AC424,451.
6
Seee.g.Lewison,TheInterpretationofContracts(4thedn)(London:Sweet&Maxwell,2007)McMeel,The
ConstructionofContracts:Interpretation,ImplicationandRectification(2ndedn)(Oxford:OxfordUniversityPress,
2011).
7
ReSigmaFinanceCorporation(inadministrativereceivership)[2009]UKSC2.
8 SeenotablyInvestorsCompensationSchemeLtdvWestBromwichBuildingSociety[1998]1WLR896,912
13(LordHoffmann).Theliteralmeaningofwordsmaynotrepresentthetrueinterpretationofthelanguage.
9
Asmightgivinganotherpartythepowertoresolveanyuncertainty:seeChapter3.4(b)(i),pp.99102.
10
PearsonvLehmanBrothersFinanceSA[2010]EWHC2914(Ch),at[245](BriggsJ)(upheldonappeal:[2011]
EWCACiv1544[2012]2BCLC151).
11
ReHaysSettlementTrusts[1982]1WLR202,212.
12
[1970]AC508,522(LordUpjohn).Thecaseitselfconcernedapower:seeChapter3.4(i),pp.1056.
13
EdwardsvCarter[1893]AC360.
14
ReBeaney[1978]1WLR770.ButnotetheMentalCapacityAct2005byvirtueofwhichthecourtmaymakea
settlementofpropertyorexecuteawillonbehalfofapersonwholacksmentalcapacity:s.18(1)(h),(i).
15
Subjecttoanythirdpartyrights:seetheContracts(RightsofThirdParties)Act1999s.2.
16
ReSchebsman[1944]Ch83.Forvariation,seeChapter15,p.703.
17 VandepittevPreferredAccidentInsuranceCorpofNewYork [1933]AC70.
18
[1975]1WLR279,28.
19 SeeKnightvKnight,Chapter3.1,p.66.
20
ReDiggles(1888)39ChD253.
21 ReHamilton[1895]2Ch370.
22
MussorieBank LtdvRaynor(1882).
23 LambevEames(1871)6ChApp597.
24
SeealsoReSteelesWillTrusts[1948]Ch603.
25 JonesvLock (1865)1ChApp25,Chapter4.3(a),p.146SwissBank CorpnvLloydsBank Ltd[1982]AC
584ReMultiGuaranteeCo.Ltd[1987]BCLC257.
26
[1977]1WLR527.
27 Ibid,532.
28
[2001]EWCACiv63[2001]STC214at[63].SeealsoSnook vLondonandWestRidingInvestments
Ltd[1967]2QB786,802.
29 Harris,NoSuchThingasaShamTrust?[2004]PrivateClientBusiness95.
30
AlthoughinMidlandBank plcvWyatt[1997]1BCLC242,252itwasheldthatatrustmaybeashamevenifit
wastheresultofmistakenlegaladvice,ratherthantheresultofdishonesty.Suchcircumstanceswill,however,be
veryrare.
31
[2003]EWHC1637(Ch)[2005]Ch281.
32 SeealsoChaseManhattanEquitiesLtdvGoodman[1991]BCLC897GrupoTorrasSAvAlSabah[2004]
WTLR1(DeputyBailiffoftheRoyalCourtofJersey).
33
[1997]1BCLC242.
34 SeealsoPaintervHutchison[2007]EWHC758(Ch)[2008]BPIR170,[109][115](LewisonJ).
35
SeeChapter19,ThirdPartyLiability.
36 Snook vLondonandWestRidingInvestmentsLtd[1967]2QB786.
37
Seee.g.inthecontextofthetortofinducingabreachofcontract,OBGLtdvAllan[2007]UKHL21[2008]1
AC1at[40][41](LordHoffmann)[192](LordNicholls).
38 SeeChapter8.2(d)(i),pp.3705.
39
TinsleyvMilligan[1994]1AC340.
40 TribevTribe[1996]Ch107PaintervHutchison[2007]EWHC758(Ch).
41
MidlandBank plcvWyatt[1995]1FLR696,707RahmanvChaseBank (C.I.)TrustCoLtd[1991]JLR103,
168Hitchv.Stone[2001]EWCACiv63[2001]STC214,at[87].
42 HitchvStone[87]NationalWestminsterBank vJones[2001]1BCLC98,[60].
43
[2004]EWHC3448(Ch)[2005]BPIR476,[219].
44 NeubergerJhassaidthatthecourtwouldhavetoconsidersuchascenarioifandwhenitarises:Natwestv
Jones[2001]1BCLC98,[60].
45
[2004]EWHC3448(Ch)[2005]BPIR476,[220].
46 Conaglen,ShamTrusts(2008)67CLJ176,2056.
47
DraftTrusts(ConcealmentofInterests)Bill,tobefoundinLawCommission,TheIllegalityDefenceLawCom.
No.320(2010).SeeChapter8.2(d)(i),pp.3745.
48 SeealsoInsolvencyAct,s.339:transactionsatanundervaluewherethetransferorisdeclaredbankruptwithin
fiveyearsofthetransaction,butthereisnoneedtoproveanintenttodefraudcreditors.Seee.g.Hillv
Haines[2007]EWCACiv1284[2007]50EG109(CS).
49
SeeReMCBaconLtd[1990]BCLC324AgriculturalMortgageCorpnplcvWoodward[1995]1EGLR1
(creationoftenancyforwifesetaside,eventhoughitwasatfullvalue,sincewifeachievedbenefitsgreaterthan
thoseconferredbythetenancyitself).
50 IRCvHashmi[2002]EWCACiv981[2002]WTLR1027.
51
HillvSpreadTrusteeCo.Ltd[2006]EWCACiv542[2007]1WLR2404(purposeinmakingasettlementto
inducetherevenuetomakeanincorrectassessmentofcapitalgainstax:withins.423).
52 [2002]EWCACiv981[2002]WTLR1027.
53
IRCvHashmi[2002]EWCACiv981[2002]WTLR1027,[23][25].
54 BarclaysBank LtdvQuistcloseInvestmentsLtd[1970]AC567,seeChapter8.5,p.403.
55
[1974]1WLR279.
56
56
[1974]1WLR279,281.
57 InDonKingProductionsvWarren[2000]Ch291theCourtofAppealacceptedthatpersonalandunassignable
rightscouldbeheldontrust.Thishasbeencriticized:Tetterborn,TrustsandUnassignableAgreementsAgain
[1999]LMCLQ353(A.Tettenborn).
58
[2000]1WLR1177.See[2000]AllERRev247(Clarke).
59 Fordiscussionofprecatorywords,seeChapter3.2(a),pp.678.
60
WestdeutscheLandesbank GirozentralevIslingtonLondonBoroughCouncil[1996]AC669,705(Lord
BrowneWilkinson).
61 [1986]PCC121.
62
[1994]1WLR1181.
63 [1995]1AC74(PC).Thiscase,aswellasReLondonWine,predatedsection20AoftheSaleofGoodsAct
1979.
64
Apartfromforasmallnumberofpurchasers.
65 SeeChapter2.6(g),pp.4950.
66
68
TheCourtofAppealcertainlyconsideredthecasetoturnuponwhetheratrustover50shareswasvalid.Yet
theactualdeclarationoftrustwasfor5percentoftheshareholding,anditissuggestedthatthiscouldhavebeen
interpretedasatrustforonenineteenthofthewhole.
69 [2006]NSWSC1379.Notdisturbedonappeal:[2007]NSWCA372.
70
SeeChapter18,ProprietaryClaimsandRemedies,forananalogousanalysisofequitableproprietary
interestsinamixedfund.
71 [2010]EWHC2914(Ch),[244]upheldonappeal:[2011]EWCACiv1544[2012]2BCLC151,[69][77].
72
73
SeealsoReCAPacificFinanceLtd[2000]1BCLC494(CourtofFirstInstance,HongKongSpecial
AdministrativeRegion).
74
ReWait[1927]1Ch606.
75
[1952]Ch499seeChapter4.3(c)(i),pp.1524.
76
(1994)110LQR335,337.
77
SeealsoWorthington,SortingOutOwnershipInterestsinBulk:Gifts,SalesandTrusts[1999]JBL1.
78 [1986]PCC121,137.
79
[2010]EWHC2914(Ch)[225].Thiswascitedwithapparentapprovalonappeal:[2011]EWCACiv1544[2012]
2BCLC151,[70].
80 SeeChapter18.3(c)(ii)(c),pp.8347.SeealsoMartin[1996]Conv223.
81
[2010]EWHC2914(Ch)[225]upheldonappeal:[2011]EWCACiv1544[2012]2BCLC151.
82
82
[1901]1Ch939.
83
SprangevBarnard[1789]2BroCC585.
84
[1972]Ch698.
85
Fordiscussionofsecrettrusts,seeChapter4.3(c)(iii),p.127.
86
[1970]AC508,524.
87 ThiswordsarethoseofLordUpjohninReGulbenk ian[1970]AC508,524.
88
ReWynn[1952]Ch271.SeeChapter3.4(b)(i),p.99.
89 RvDistrictAuditor,expWestYork shireMetropolitanCountyCouncil[1986]RVR24seeChapter3.4(b)(ii),
pp.1025.
90
SeeBreadnervGranvilleGrossman[2001]Ch523at540(ParkJ).
91 See[1984]Conv227(BartlettandStebbings).
92
SeeChapter2,IntroductiontoTrusts.
93 Admittedlyacaseconcerningapowerratherthanatrust.SeeChapter2.6(h),p.51.
94
[1970]AC508,524.
95 Emery,TheMostHallowedPrincipleCertaintyofBeneficiariesofTrustsandPowersofAppointment(1982)
98LQR551,564.
96
SeeIRCvBroadwayCottagesTrust[1955]Ch20,albeitconcerningadiscretionarytrust.Thereisan
exceptionifthefixedtrustcanbeinterpretedasaseriesofindividualgiftssubjecttoaconditionprecedent:see
Chapter3.4(c)(i),pp.8890.
97 [1970]AC508,524.
98
Althoughastrictertestseemstoapplyforconditionssubsequent:ReTuck sSettlementTrust[1978]Ch49,
60ReTeppersWillTrusts[1987]Ch49.
99 Asisthecaseforbothdiscretionarytrusts(Chapter3.4(b),p.90)andfiduciarypowersChapter3.4(c),p.105.
100
Chapter3.4(c),pp.1056.
101 Chapter3.4(b),pp.914.
102
Chapter3.4(b)(i),pp.1002.
103 Chapter2.6(h)(i),p.51.
104
[1955]Ch20.
105
BurroughvPhilcox(1840)5My&Cr72.
106
107
FollowingtheformulationoftherulebyHarmanJinReGestetnerSettlement[1953]Ch672,688:whether
anygivenpostulantisamemberofthespecifiedclass.
108
[1967]1WLR1457.
109
[1968]Ch126,followingReAllen[1953]Ch810ReLeek [1967]Ch1061affd[1969]1Ch563ReGibbards
WillTrusts[1967]1WLR42.
110
[1969]2Ch388(HarmanandKarminskiLJJ,RussellLJdissenting).
111 [1970]AC508.
112
Onthisissue,LordReid,ViscountDilhorne,andLordWilberforceformedthemajorityLordHodsonandLord
Guestdissented.
113 [1973]Ch9,Chapter3.4(b),pp.947.
114
CfReBarlowsWillTrusts[1979]1WLR278,Chapter3.4(a)(i),pp.8890,whererelationswasheldtomean
everyonerelatedbybloodtothetestatrix.
115 ReManistysSettlement[1974]Ch.17.
116
SeeChapter10.1(b)(ii),pp.97882.Asaletterofwishesisnotlegallybinding,itcouldnotbevoidfor
uncertainty.
117 InBonisSmith(1869)LR1P&D717(LordPenzance)Gordon(1953)69LQR334.
118
[1952]1AllER896.
119 [1981]LSGaz841.
120
[1952]1AllER896,905(LordReid).SeetooReCoates[1955]1Ch495,500(RoxburghJ)ReTuck s
SettlementTrust[1978]Ch49,62(LordDenning).
121 SeeChapter3.4(b),p.94.
122
123 Chapter3.4(b),p.94.
124
CfReBeatty[1990]1WLR1503(fiduciarypowergiventotrusteesinfavourofsuchpersonorpersonsas
theythinkfitheldvalidwithoutconsiderationofadministrativeunworkability)Martin[1991]Conv138.
125 [2008]Ch235at[15],althoughitwasheldthatthetrustinquestionwascharitable.
126
SeetheacademiccriticismcitedbyLloydLJ:L.McKay(1974)38Conv269andEmery(1982)98LQR551.
127
SeeChapter3.4(b),p.94.
128
SeeChapter2.6(h),p.51.
129
SeeChapter2.6(h)(i),p.52.
130 Ibid.
131
Eventhisisnotrequiredunderanonfiduciarymerepower:Ibid.
132 Chapter2.6(h)(ii),p.53.
133
Chapter3.4(b),p.90.
134 [1972]Ch256,271.
135
AlthoughseeChapter3.4(c)(i),pp.1079fordiscussionofMettoyPensionTrusteesLtdvEvansandthe
amalgamationofpowersanddiscretionarytrusts.
136 [1974]Ch17.
137
137
[1982]1WLR202.
138 [1982]1WLR202,211.
139
ButnotethatinWestYork shireitwasacceptedthatthetrustwasnotcapricious,sincethereweregood
reasonswhythecouncilwantedtobenefitthepeopleofWestYorkshire.
140 [1974]Ch17,267.
141
LMcKay,ReBadenandtheThirdClassofUncertainty[1974]Conv269,2823.
142
[1968]Ch39,47.
143
[1990]1WLR1587.SeeChapter13.2(b)(ii),pp.61516.
144
AndithasbeenoverruledonitsinterpretationofReHastingsBassbyPittvHolt[2011]EWCACiv197
[2011]3WLR19:seeChapter11.7(g),p.560.
145
146
Althoughifthepropertywasalwaystobeheldbeneficiallyforothersthenthetrusteecannottakebeneficially:
e.g.BoycevBoyce(1849)6Sim476.
147
[1902]AC14.
148
[1902]AC14,22.
149 Chapter3.4(b),pp.948.
150
ReLeek [1969]1Ch563,586(SachsLJ)ReGulbenk iansSettlements[1968]Ch126,138(CA,WinnLJ)
cf.decisionsontrustswhicharenotexclusivelycharitable:seeChapter5.5(b)(iii),p.255.
151 (1999)13TLI48(decidedin1982).
152
SeeReClark e[1923]2Ch407.
153 Forexample,ifaletterofwishesindicatesthatthesettlorintendedthattheuncertaingroupreceivethelarger
shareofthetrustpropertytothe(almost)exclusionofthecertaingroup.
154
ReFlavelsWillTrusts[1969]1WLR444,especiallyat4467.
156
SeeChapter6.2,p.283.Further,article2oftheHagueConventionontheLawApplicabletoTrustsandon
theirRecognition(1984),incorporatedintoEnglishlawbytheRecognitionofTrustsAct1987,definesatrustto
includeoneforaspecifiedpurpose.
157 ReEndacott[1960]Ch232,251ReWood[1949]Ch498.
158
159 BaxendaleWalker,PurposeTrusts(2ndedn)(Tottel1999).
160
SeealsoMatthews,TheNewTrust:ObligationsWithoutRights?inA.J.Oakley,TrendsinContemporary
TrustLaw(Oxford:OxfordUniversityPress,1996).
161 ButseeJaconelli,IndependentSchools,PurposeTrustsandHumanRights[1996]Conv24,278arguing
thatsuchtrustsarevoidable,i.e.theystanduntiltheyareterminated.
162
Aninterestwillbevestedwhenitdoesnotdependuponapriorconditionbeingfulfilled:seeChapter1.4(a)(iv),
p.13.
163
163
Simes,PublicPolicyandtheDeadHand(AnnArbor:UniversityofMichiganPress,1955)36.
164
Deech,LivesinBeingRevived(1981)97LQR593,594.
165
AlthoughintheUnitedStatesofAmericathereisagrowingtendencytoallowsettlorstocreatefamilytrusts
whichareperpetual:seeWaggonerUSPerpetualTrusts(2011)127LQR423.
166 PerpetuitiesandAccumulationsAct2009(Commencement)Order2010/37.
167
PerpetuitiesandAccumulationsAct2009,s.1(2).
168 SeesimilarlyPerpetuitiesandAccumulationsAct1964,s.3.
169
SeeReLipinsk isWillTrusts[1976]Ch235.
170 Dawson,TheRuleAgainstInalienabilityARuleWithoutAPurpose(2006)26LS414(I.Dawson).
171
SeeChapter5,CharitablePurposeTrusts.
172 SeefurtherChapter5,CharitablePurposeTrusts.
173
SeesimilarlyPerpetuitiesandAccumulationsAct1964:s.15(4).
4.CreationofExpressTrusts
Chapter: (p.118) 4.CreationofExpressTrusts
DOI: 10.1093/he/9780199661480.003.0004
CentralIssues
1.Certainformalityrequirementsmustbemetforthecreationofexpresstrusts.Forexample,a
declarationofanexpresstrustoverlandrequiressignedwriting.
2.Equitywillnotallowastatutetobeusedasaninstrumentoffraud.Asaresult,apersonmaynot
denytheexistenceofatrustbyrelyinguponanotherslackofcompliancewiththerequisiteformalities
ifthatwouldallowafraudtobeperpetratedonthesettlororbeneficiary.
3.Trustscreatedbyawillalsoneedtosatisfyformalityrequirements.Theserequirementscanbe
modifiedincertaincircumstances,suchasbytheincorporationofotherdocuments.
4.Atestatormightwishtocreateatestamentarytrustwithoutdisclosingtheidentityofthe
beneficiaries.Thiscanbedonebydeclaringatrustandstatinginthewillthattheidentityofthe
beneficiarieshasalreadybeendisclosedtothetrustee.Thisiscalledahalfsecrettrust.
5.Alternatively,thetestatormayleavepropertytoalegateeapparentlyabsolutely,butthetestatorwill
havepreviouslyrequestedthelegateetoholdthepropertyontrust.Thisiscalledafullysecrettrust.
6.Neitherhalfsecretnorfullysecrettrustswillcomplywithstatutoryformalityrequirementsbut,
subjecttothefulfilmentofcertainconditions,theywillberegardedasvalidtoensurethatthestatutory
formalitiesarenotusedasaninstrumentoffraud.
7.Atrustmustbeconstitutedbytitletothetrustpropertybeingvestedinthetrustee.Atrustcanbe
constitutedintwoways:bydeclarationofoneselfasatrusteeorbytransferofpropertytotrustees.
Thesetwomethodsofconstitutionaremutuallyexclusive.
8.Fortheeffectivetransferoflegaltitletoproperty,compliancewithanyrelevantformalitiesrequiredat
lawisnecessary.Butevenifalltherequirementsforthetransferoflegaltitlearenotfulfilled,theperson
towhomthepropertyisintendedtobetransferredmayobtainanequitableproprietaryinterestifthe
transferorhasdoneeverythinginhisorherpowertoeffectthetransfer.Suchanequitableinterestmay
evenariseearlier,ifatthatpointitwouldbeunconscionableforthedonortopulloutofthetransfer.
(p.119) 1.Introduction
InChapter3weconsideredtherequirementsforanexpresstrusttobevalid.Inthischapterweareconcerned
withtheformalitiesrelatingtothecreationoftrusts.Inordertocreateanexpresstrusttwodistinctformality
issuesneedtobeconsidered.Thefirstrelatestotheformalitiesforthedeclarationoftrusts.Thesecondconcerns
theformalitiesfortheconstitutionoftrusts,bywhichpropertyisvestedintrustees.
2.FormalitiesfortheDeclarationofTrusts
(a)FunctionofFormalities
Fullerhasidentifiedthreecrucialpurposesservedbyformalityrules.
Fuller,ConsiderationandForm(1941)41ColumbiaLawReview799,8004
2.TheEvidentiaryFunction.Themostobviousfunctionofalegalformalityis,touseAustinswords,
thatofprovidingevidenceoftheexistenceandpurportofthecontract,incaseofcontroversy.The
needforevidentiarysecuritymaybesatisfiedinavarietyofways:byrequiringawriting,orattestation,
orthecertificationofanotary.
3.TheCautionaryFunction.Aformalitymayalsoperformacautionaryordeterrentfunctionby
actingasacheckagainstinconsiderateaction.Thesealinitsoriginalformfulfilledthispurpose
remarkablywell.Theaffixingandimpressingofawaxwafersymbolinthepopularmindoflegalism
andweightinesswasanexcellentdeviceforinducingthecircumspectiveframeofmindappropriatein
onepledginghisfuture.Toalessextentanyrequirementofawriting,ofcourse,servesthesame
purpose,asdorequirementsofattestation,notarization,etc.
4.TheChannelingFunction.Thoughmostdiscussionsofthepurposesservedbyformalitiesgono
furtherthantheanalysisjustpresented,thisanalysisstopsshortofrecognizingoneofthemost
importantfunctionsofform.Thatalegalformalitymayperformafunctionnotyetdescribedcanbe
shownbytheseal.Thesealnotonlyinsuresasatisfactorymemorialofthepromiseandinduces
deliberationinthemakingofit.Itservesalsotomarkorsignalizetheenforceablepromiseitfurnishes
asimpleandexternaltestofenforceability.ThisfunctionofformIheringdescribedasthefacilitationof
judicialdiagnosis,
Thethingwhichcharacterizesthelawofcontractsandconveyancesisthatinthisfieldformsare
deliberatelyused,andareintendedtobesoused,bythepartieswhoseactsaretobejudgedbythe
law.Tothebusinessmanwhowishestomakehisownoranotherspromisebinding,thesealwasat
commonlawavailableasadevicefortheaccomplishmentofhisobjective.Inthisaspectformoffersa
legalframeworkintowhichthepartymayfithisactions,or,tochangethefigure,itofferschannelsfor
thelegallyeffectiveexpressionofintention.ItiswiththisaspectofforminmindthatIhavedescribed
thethirdfunctionoflegalformalitiesasthechannelingfunction.
5.InterrelationsoftheThreeFunctions.ThoughIhavestatedthethreefunctionsoflegalform
separately,itisobviousthatthereisanintimateconnectionbetweenthem.Generallyspeaking,
whatevertendstoaccomplishoneofthesepurposeswillalsotendtoaccomplishtheothertwo.
Justaschannelingmayresultunintentionallyfromformalitiesdirectedtowardotherends,sothese
otherendstendtobesatisfiedbyanydevicewhichaccomplishesachannelingofexpression.Thereis
anevidentiaryvalueintheclarityanddefinitenessofcontourwhichsuchadeviceaccomplishes.
Anythingwhicheffectsaneatdivisionbetweenthelegalandthenonlegal,orbetweendifferentkinds
oflegaltransactions,willtendalsotomakeapparenttothepartytheconsequencesofhisactionand
willsuggestdeliberationwheredeliberationisneeded.
(p.120) Fullerishereprimarilyconcernedwithconsiderationincontractlaw,buthisanalysisofformalities
extendsbeyondthatcontextandisimportantfortrusts.Itexplainswhyweinsistuponcertainformal
requirementsbeforeholdingatrusttobevalid.Theseformalitiesmakeiteasierforthecourttoestablish,onthe
evidence,thatatrustwascreated(theevidentiaryfunction).Theyalsotendtoensurethatthesettlorhasthought
carefullyabouttheconsequencesofhisorheractions(thecautionaryfunction).Formalitiesalsohelptoensure
thatthetrustscreatedareeasilyrecognizableastrusts,withinacceptableparameters,andmaybedealtwith
routinely(thechannellingfunction).
Thus,therearegoodreasonsforformalityrulesbeinginplace.Itshould,however,berecognizedthatastrict
insistenceuponformalitieswillinevitablymeanthattheintentionofthesettlorisfrustratedinsomeinstances.
Thereis,therefore,atensionbetweengivingeffecttotheclearandunambiguousintentionofthesettlorand
ensuringcompliancewiththerelevantformalities.Thistensionhasproducedsomedifficultcases,whichwillbe
examinedinthischapter.
Itishelpfultoconsidertheformalitiesrelatingtointervivostrustsandtestamentarytrustsseparately.Thisis
becausetheWillsAct1837appliesonlytothelatterandhasanimportantimpactupontheformality
requirementsnecessaryforavalidtrust.
(b)InterVivosDeclarationofTrusts
Writingisnotrequiredfortrustsofpurepersonalty.1 Trustsoflandorinterestsinlandmust,however,be
evidencedbywriting.Thecrucialprovisionissection53oftheLawofPropertyAct1925.
LawofPropertyAct1925
s.53Instrumentsrequiredtobeinwriting
(1)Subjecttotheprovisionhereinaftercontainedwithrespecttothecreationofinterestsinland
byparol
(a)nointerestinlandcanbecreatedordisposedofexceptbywritingsignedbytheperson
creatingorconveyingthesame,orbyhisagentthereuntolawfullyauthorisedinwriting,or
bywill,orbyoperationoflaw
(b)adeclarationoftrustrespectinganylandoranyinterestthereinmustbemanifested
andprovedbysomewritingsignedbysomepersonwhoisabletodeclaresuchtrustorby
hiswill
(c)adispositionofanequitableinterestortrustsubsistingatthetimeofthedisposition,
mustbeinwritingsignedbythepersondisposingofthesame,orbyhisagentthereunto
lawfullyauthorisedinwritingorbywill.
(2)Thissectiondoesnotaffectthecreationoroperationofresulting,impliedorconstructive
trusts.
Thisprovisionisoftheutmostimportancebutnoteasytointerpret.Someinitialpointsregardingitsscopeare,
therefore,worthemphasizing.
First,itmustbeappreciatedthatsection53(1)(c)isrelevanttothedispositionofequitableintereststhat
arealreadyexistingatthetimeofthedisposition.ThisisconsideredinChapter10.Inthischapter,thefocusis
uponthecreationofatrust,andweareonlyconcernedwiththeformalityrequirementsrelatingtothecreationof
anexpresstrust.Section53(2)makesitclearthatsection53(1)doesnotapplytoresulting,implied,or
constructivetrusts.
(p.121) Withinsection53(1),thereis,potentially,someoverlapbetweenparagraphs(a)and(b).Paragraph(a)
concernsthecreationofaninterestinland,whereasparagraph(b)concernsthedeclarationofatrustrespecting
land.Thetwoarenotmutuallyexclusive:theabsolutelegalowneroflandmightdeclarehimselftobeholdingthe
propertyontrustforhischildren.Insuchanevent,shouldparagraph(a)or(b)apply?Theanswerisnotobvious,
butitissuggestedthat,ifparagraph(b)istohaveanyscopeofitsown,thenitshouldapplytosuchsituations.
Choosingbetweenparagraphs(a)and(b)haspotentiallysignificantconsequences.Beforeconsidering
theeffectofnoncompliance,itishelpfultothinkaboutwhatthewritingrequirementforatrustoverlandactually
entails.Paragraphs(a)and(c)explicitlycontemplatetheformalitybeingsatisfiedbyanagent,butnot(b).This
mightsuggestthatanagentcannotsatisfytherequirementofwritinginparagraph(b)otherwise,asin(a)and
(c),agentwouldhavebeenspecificallymentioned.However,paragraph(b)doesprovidethatthesignedwriting
maycomefromsomepersonwhoisabletodeclaresuchtrust,andthismayincludeanagent.Thiswouldbea
sensible,practicalinterpretationindeed,ithasbeenheldthatthisrequirementofwritinginparagraph(b)mightbe
fulfilledbythetrusteewhoistoholdthepropertyontrust.2 Thewrittendocumentusedtomanifestandprovethe
existenceofatrustinaccordancewithparagraph(b)canbeprovidedafterthetimeatwhichthetrustwas
declared.3
Failuretocomplywithparagraph(a)meansthatnointerestinlandcouldhavebeencreatedordisposed.
However,failuretocomplywithparagraph(b)doesnotmeanthattherewasnotrust,onlythatitis
unenforceable.4 Thus,ifAdeclareshimselftobeholdinglandontrustforB,butthereisnosignedwritingtoprove
this,thenBcannotenforcethetrust.Insuchascenario,theresultisrelativelystraightforward:Aremains
absolutelyentitledtotheproperty.
Itismuchmoredifficultwherethesettlornolongerhaslegaltitletothepropertybecausethepropertyhasbeen
transferredtoB,ontheunderstandingthatBwastoholdthepropertyontrust.Ifithasbeenintendedbythe
settlorthatBholdontrust,andBknowsthatthiswastheintention,thenitwouldbeunconscionableforBtorely
uponhishavinglegaltitletoclaimbeneficialownershipofthepropertyjustbecausethetrustcannotbeprovedby
signedwriting.Thisisbecauseastatute5 cannotbeusedasaninstrumentoffraud.Byrelyingupontheabsence
ofwritingtoassertabsoluteownership,Bwouldbecommittingafraud,andthelawsimplywillnotallowthis.B
mustbeholdingthepropertyontrust.InBannistervBannister,theCourtofAppealconsideredthatBwouldbe
holdingthepropertyonaconstructivetrust,sinceitwouldbeunconscionableforBtodenythathewasholding
thepropertyontrust.6
BannistervBannister[1948]2AllER133,CA
Awidowagreedtosellacottagetoherbrotherinlaw,ontheunderstandingthatshecouldliveintheproperty
aslongasshelikedwithoutpayingrent.Thebrotherinlawrenegedontheagreementandlatersoughtto
evictthewidow.Thecourtheldthathecouldnotrelyuponthelackofsignedwritingfraudulentlytodenythat
hewasholdingthepropertyontrustforthewidowforlife.
ScottLJ:
Itis,wethink,clearlyamistaketosupposethattheequitableprincipleonwhichaconstructivetrustis
raisedagainstapersonwhoinsistsontheabsolutecharacterofaconveyancetohimselfforthe
purpose(p.122) ofdefeatingabeneficialinterest,which,accordingtothetruebargain,wastobelong
toanother,isconfinedtocasesinwhichtheconveyanceitselfwasfraudulentlyobtained.Thefraud
whichbringstheprincipleintoplayarisesassoonastheabsolutecharacteroftheconveyanceisset
upforthepurposeofdefeatingthebeneficialinterest,andthatisthefraudtocoverwhichtheStatute
ofFraudsorthecorrespondingprovisionsoftheLawofPropertyAct,1925,cannotbecalledinaidin
casesinwhichnowrittenevidenceoftherealbargainisavailable.Norisit,inouropinion,necessary
thatthebargainonwhichtheabsoluteconveyanceismadeshouldincludeanyexpressstipulation
thatthegranteeisinsomanywordstoholdastrustee.Itisenoughthatthebargainshouldhave
includedastipulationunderwhichsomesufficientlydefinedbeneficialinterestinthepropertywasto
betakenbyanother.Theabovepropositionsare,wethink,clearlyborneoutbythecasestowhichwe
werereferredof[variouscasesincluding]RochefoucauldvBoustead.7 Weseenodistinctionin
principlebetweenacaseinwhichpropertyisconveyedtoapurchaserontermsthattheentire
beneficialinterestinsomepartofitistoberetainedbythevendor(asinBoothvTurle8 )andacase,
likethepresent,inwhichpropertyisconveyedtoapurchaserontermsthatalimitedbeneficial
interestinsomepartofitistoberetainedbythevendor.
InBannister,ScottLJheldthattherelevanttrustwasconstructive:itwouldbeunconscionableforthebrotherin
lawtodenythathewasholdingthepropertyontrustforthewidowforthedurationofherlife,sothelawshould
imposeaconstructivetrust.However,thisanalysisisnotuniversallyaccepted.Indeed,theCourtofAppeal
referredtoRochefoucauldvBoustead,butinthatcasethecourtinsistedthat,despitethelackofformalities,the
settlorcouldstillrelyuponanexpresstrust.
RochefoucauldvBoustead[1897]1Ch196
TheclaimantownedcoffeeplantationsinCeylonwhichwerethesubjectofamortgage.Themortgageesold
thepropertytothedefendant,whohadpreviouslyagreedtoholdthepropertyontrustfortheclaimant.There
wasnosignedwritingtoprovetheexistenceofatrust,whichwasrequiredundertheStatuteofFrauds1677
(nowreplacedbysection53oftheLawofPropertyAct1925).LindleyLJsaid:9
[Itis]necessarytoconsiderwhethertheStatuteofFraudsaffordsadefencetotheplaintiffsclaim.
[I]tisnecessarytoprovebysomewritingorwritingssignedbythedefendant,notonlythatthe
conveyancetohimwassubjecttosometrust,butalsowhatthattrustwas.Butitisnotnecessary
thatthetrustshouldhavebeendeclaredbysuchawritinginthefirstinstanceitissufficientifthe
trustcanbeprovedbysomewritingsignedbythedefendant,andthedateofthewritingisimmaterial.
Itisfurtherestablishedbyaseriesofcases,theproprietyofwhichcannotnowbequestioned,thatthe
StatuteofFraudsdoesnotpreventtheproofofafraudandthatitisafraudonthepartofapersonto
whomlandisconveyedasatrustee,andwhoknowsitwassoconveyed,todenythetrustandclaim
thelandhimself.Consequently,notwithstandingthestatute,itiscompetentforapersonclaimingland
conveyedtoanothertoprovebyparolevidencethatitwassoconveyedupontrustfortheclaimant,
andthatthegrantee,knowingthefacts,isdenyingthetrustandrelyingupontheformofconveyance
andthestatute,inordertokeepthelandhimself.
(p.123)
Thetrustwhichtheplaintiffhasestablishedisclearlyanexpresstrustwithinthemeaningofthat
expressionasexplainedinSoarv.Ashwell[1893]2QB390.Thetrustisonewhichbothplaintiffand
defendantintendedtocreate.Thiscaseisnotoneinwhichanequitableobligationarisesalthough
theremayhavebeennointentiontocreateatrust.Theintentiontocreateatrustexistedfromthefirst.
TheCourtinRochefoucauldthoughtthatthetrustwhicharosewasexpress.Thenatureofthetrustwasimportant
becausethedefendantsoughttorelyuponalimitationperiod,whichwouldonlyhaveassistedhisdefenceifthe
trustwereconstructiveratherthanexpress.Swadlinghasstronglydefendedthisresult.
Swadling,ThenatureofthetrustinRochefoucauldvBousteadinConstructiveand
ResultingTrusts(ed.Mitchell)(Oxford:Hart,2010)p.113
[S]ection7oftheStatuteofFrauds167710 ispotentiallyinplay,butthiswasaruleofevidence
whichthecourtdisappliedonperfectlyorthodoxandlongsettledgrounds.Thatinturnmeantthere
wasnobarriertotheadmissionoftheclaimantsoraltestimonytoproveadeclarationoftrustbythe
defendantinherfavour,andanorderingofaccountsonthebasisofthedeclaredtrust.Thatthetrust
wasexpresscanbetestedinanotherway.Assumethelegislaturerepealedsection7/section53(1)
(b).WerethefactsofRochefoucauldtorecur,therecouldbenoargumentbutthatthetrustwas
express.WhatinfacthappenedisthattheCourtofAppealinRochefoucaulddideffectivelyrepealthe
statute,atleastsofarastheclaimantwasconcerned,withtheresultthatthetrusttherecould
likewiseonlybeexpress.
Theargumentsthatthetrustwasconstructiveeitherignorethereasoningofthecourtaltogetheror
mistakethenatureofsection7orboth.Whenproperlyanalysed,theonlypossiblecategorization
oftheRochefoucauldtrustwhichaccordswithboththeratioofthecaseandthewordingofsection7
oftheStatuteofFrauds1677isthatthetrustenforcedinthecasewasanexpresstrust.
Swadlingsanalysisisforcefulandpersuasivehedismissesthesuggestion,oftenmade,11 thattheimportanceof
thelimitationperioddistortedRochefoucauld.Nevertheless,Rochefoucauldhasregularlybeenexplainedas
concerningaconstructivetrust,andtheapproachinBannisterhasbeenfollowed.12
InasimpletwopartycasesuchasBannister,wheretherearenoproblemsconcerninglimitation,itdoesnot
makemuchdifferencewhetherthetrustisdescribedasconstructiveorexpress.Indeed,aresultingtrust13
whicharisestofillthegapcausedbythefailureofanexpresstrustwouldhaveledtothesameresultonthe
facts.Butchoosingwhichtypeoftrustariseswheretheformalityrequirementisnotsatisfiedisofparticular
importancewhereAtransferspropertytoBtoholdontrustforC.
Insuchthreepartyscenarios,aresultingtrustwouldmeanthatBwouldbeholdingthepropertyontrustforA,
whereasidentificationofanexpresstrustor,possibly,aconstructivetrustwouldmeanthatBwouldbeholding
thepropertyontrustforC.TheseissueshavebeenwellcanvassedbyYoudan,whoultimatelyfavouredan
analysisbaseduponconstructivetrust.
Youdan,FormalitiesforTrustsofLand,andtheDoctrineinRochefoucauldv
(p.124)
Boustead(1984)43CLJ306,334
Aviewaboutthenatureofthetrustenforcedmaysuggestimportantconsequences.Themostobvious
whoseoutcomemaybesoaffectediswhereAconveyspropertytoBonthetermsofanoraltrustfor
C.Iftheviewistakenthatthetrustenforcedistheexpresstrustcreatedbythepartiesthenitseems
tofollowthatCcantakethebenefitoftheRochefoucaulddoctrineandenforcethetrust.Ifthetrust
enforcedisaconstructivetrusttheconclusionislessobvious.Itmightbearguedthattheconstructive
trustshouldbeusedonlytoeffectrestitutionofthepropertybacktowhereitcamefrom.Theremedy
ofconstructivetrustis,however,sufficientlymalleablethatitsadoptioninthepresentcontextshould
notforeclosedebateaboutwhetherthebenefitofitistakenbyAorC.
Youdanultimatelyreachedtheconclusionthatifaconstructivetrustarises,itoperatesinfavourofC.Bmaynot
ingoodconsciencebeabletodenythatheorsheshouldbeholdingthepropertyontrustforC.Thissortoftrust
isnotincompatiblewithsection53,sincesection53(2)statesthattheformalityrequirementsdonotaffectthe
creationoroperationofconstructivetrusts.
Youdan,FormalitiesforTrustsofLand,andtheDoctrineinRochefoucauldvBoustead
(1984)43CLJ306,3356
Isuggest,however,thatthethirdpartybeneficiaryshouldbeentitledtoenforcethetrustwhetheror
notthesettlorisdeadundertheRochefoucaulddoctrineaswellasinsecrettrusts.AsIalready
mentioned,itseemstobeestablishedthatanoraltrustoflandisvaliddespitenoncompliancewith
section7itismerelyunenforceable.Consequently,whereAconveyslandtoBonanoraltrustforC,
AhasordinarilynorighttorestitutionsinceBisholdingthepropertyonavalidtrustforC,andhemay
carryoutthattrustifhechoosestodoso.TheproblemariseswhereBrefusestocarryoutthetrust
thequestiontheniswhetherAorCcanclaimthebenefitoftheRochefoucaulddoctrine.Theclaimof
Cis,Isuggest,strongerforthreemain,related,reasons.First,itseemsinappropriatethatB,the
trustee,shouldhavethepowertodeterminewhetherCorAshouldgetthebenefitoftheproperty.
Secondly,Ahaseffectivelydivestedhimselfoftheproperty.Itishewhoisseekingequitytoobtainthe
returnofpropertyhehasgivenawayonavalidtrust.Thirdly,theallowanceofCsclaimisnotcontrary
tothepurposeoftheformalityrequirement.IfAhadsimplyconveyedthelandtoBasagiftforBhe
obviouslycouldnotrecoveritsinceheeffectivelydivestedhimself,thepresumptionofresultingtrust
(evenassumingtherewasone)couldberebuttedbyevidenceofthegift,andsection7oftheStatute
ofFraudswouldhavenoapplicationtosuchacase.ThereisnoreasonwhyAshouldbeinastronger
positionmerelybecausethebeneficialgiftwastoCwiththeinterpositionofBstrusteeship.
However,theobjectionhasbeenraisedthatsuchaconstructivetrusthasexactlythesameeffectastheexpress
trustthatfellfoulofsection53(1)(b).ScotthaspreferredtoarguethatBshouldbeholdingthepropertyontrustfor
A.Afterall,ifneitherthesettlornorthetrusteeiswillingtoprovidesignedwriting,perhapsthebeneficialinterest
shouldnotbeheldbyC.
Scott,ConveyancesuponTrustsNotProperlyDeclared(1924)37HarvardLRev653,666
7
Tothewriteritwouldseemthat[atrustinfavourofC]canbereachedonlybyaviolationoftheStatute
ofFrauds.WhenthelandwasconveyedbyAtoB,Cacquirednoenforceablerightundertheoral
trust(p.125) orcontractanditseemsunsoundtosaythattherefusaltoperformanobligation,which
becauseoftheStatuteofFraudscannotbeenforced,createsanyenforceablerightinC.Itseems
strangetoholdthatalthoughthemakingofapromisegivesnoenforceablerighttoC,thebreakingof
thepromiseshouldgivesucharight.SotoholdwouldseemtoviolatethepurposeoftheStatute.
SinceBwouldbeunjustlyenrichedifhewereallowedtokeeptheproperty,butsincethatenrichment
isnotattheexpenseofCbutofA,BshouldbecompelledtoreturnthepropertytoA,andinthe
meantimeshouldbeheldasconstructivetrusteeforA.ThepolicyoftheStatuteofFrauds,whichdoes
indeedforbidgoingforward,withthetransaction,doesnotforbidgoingbackwardandputtingthe
partiesinstatuquo.Inthisclassofcases,unlikethecasesofatransferuponanoraltrustorcontract
forthetransferor,theresultofimposingaconstructivetrustforthetransferorisentirelydifferentfrom
enforcingtheoraltrustorcontract.
Scottsuseofunjustenrichmentheremightbecriticized,14 buthisuseofaconstructivetrustinfavourofA
providesthesameresultasfindingaresultingtrustarisinguponthefailureofanexpresstrustinfavourofA.
Ifananalogyismadewithsecrettrusts,15 thenYoudansanalysisshouldbepreferred.Itwouldbe
unconscionableforBtodenythatheisholdingthepropertyontrustforC.Suchaconstructivetrustprovidesthe
sameoutcomeaswouldbereachediftheBCtrustisconsideredtobeanexpresstrust,asinRochefoucauld.
Eventhoughlaterdecisionsseemtohavelargelyconsideredthetrusttobeconstructive,ananalysisbasedupon
theBCtrustbeinganexpresstrustseemsmostconsistentwithRochefoucaulditself.Thismaybeparticularly
appropriatesinceitappearsthatBisabletoprovidethesignedwritingnecessarytofulfiltherequirementof
section53(1)(b),evenafterheacquireslegaltitle.16
(c)ByWill
(i)Formalitiesfortestamentarydispositions
Whereatestatorintendstocreateatrustinawill,theformalityrequirementsundertheWillsAct1837needtobe
satisfied.
WillsAct1837
9.Signingandattestationofwills
Nowillshallbevalidunless
(a)itisinwriting,andsignedbythetestator,orbysomeotherpersoninhispresenceandby
hisdirectionand
(b)itappearsthatthetestatorintendedbyhissignaturetogiveeffecttothewilland
(c)thesignatureismadeoracknowledgedbythetestatorinthepresenceoftwoormore
witnessespresentatthesametimeand
(p.126) (d)eachwitnesseither
(i)attestsandsignsthewillor
(ii)acknowledgeshissignature,inthepresenceofthetestator(butnotnecessarilyinthe
presenceofanyotherwitness),
butnoformofattestationshallbenecessary.
Ifanyoftheserequirementsisnotsatisfiedthewillisinvalidandanytestamentarytrustwillbevoidtoo.Itis
importantthatstrictformalitiesmustbesatisfiedbeforeawillcanbeconsideredtobevalid.Ifaproblemshould
arise,thetestatorisnolongeravailabletoexplainhisorherintention.Alsotheimpositionofcertainformalities
reducesthechanceofmistake,fraud,andundueinfluenceaswellasillconsideredandhastydispositions.
AfurtherfunctionoftheformalitiesundertheWillsActistoensurethatthetestatordoesnotreserveforhimor
herselfapowertodisposeofpropertybyafuturedocumentthatfailstocomplywiththestatutoryformality
safeguards.ItwasforthisreasonthatagiftinawillinReJones,17 thatpurportedtoreservetothetestatorthe
powertoalterthesettlementinthefuture,washeldnottobevalid.
(ii)Modificationofformalityrequirements
VariousmechanismshavebeendevelopedbyEquitytoensurethatthestrictformalityrulesforwillsdonot
unnecessarilyfrustratethetestatorsintent.So,forexample,informaldocumentscanbeincorporatedintoawill
providedthattheyareexpresslyidentifiedbythewillandexistedwhenthewillwasexecuted.Thisiscalledthe
doctrineofincorporationbyreference.TheoperationofthisdoctrineisillustratedbyIntheGoodsof
Smart.18 Thetestatrixswilldirectedthathertrusteesshouldgivetoherfriendscertainarticles.Thesearticles
wouldbespecifiedinabook,whichwastobefoundwithherwill.Sincethebookwasnotprepareduntilthreeor
fouryearsafterthetestatrixmadeherwill,thebookwasafuturedocumentandcouldnotbeincorporatedintothe
will.GorellBarnesJsaid:19
Itseemstomethatithasbeenestablishedthatifatestator,inatestamentarypaperdulyexecuted,refers
toanexistingunattestedtestamentarypaper,theinstrumentsoreferredtobecomespartofhiswillin
otherwords,itisincorporatedintoitbutitisclearthat,inorderthattheinformaldocumentshouldbe
incorporatedinthevalidlyexecuteddocument,thelattermustrefertotheformerasawritteninstrument
thenexistingthatis,atthetimeofexecutioninsuchtermsthatitmaybeascertained.
Informaldocumentscan,nevertheless,beincorporatedintothewillafterithasbeenexecutedifthereferenceto
thesedocumentsinthewillisconfirmedbyanotherformaldocument,knownasacodicil,whichreferstothe
20
samedocuments.ThiswasalsorecognizedbyGorellBarnesJinIntheGoodsofSmart:20
Ifthedocumentisnotexistingatthetimeofthewill,butcomesintoexistenceafterwards,andthen,after
thatagain,thereisacodicilconfirmingthewill,thequestionarises,asithasdoneinanumberof(p.
127) thesecases,whetherthatdocumentisincorporated.Itappearstomethat,followingouttheprinciple
whichIhavealreadyreferredto,thewillmaybetreated,bytheconfirmationgivenbythecodicil,as
executedagain,andasspeakingfromthedateofthecodicil,andiftheinformaldocumentisexistingthen,
andisreferredtointhewillasexisting,soastoidentifyit,therewillbeincorporationbutifthewill,treated
asbeingreexecutedatthedateofthecodicil,stillspeaksintermswhichshewthatitisreferringtoa
futuredocument,thenitappearstomethereisnoincorporation.
Anotherdevicewithwhichtofulfilthetestatorsintentariseswherepropertyisleftinawilltopeoplewhoaretobe
identifiedsubsequently,inwhichcasethevalidityofthebequestmaybeupheldiftheidentificationofthelegatees
ismadebyreferencetosocalledfactsofindependentlegalsignificance,whicharenotdependentonthe
testatorssubsequentdecision.Itdoesnotthenmatterthattheidentificationofthelegateesismade
subsequentlytothemakingofthewillandoutsideofthewill.So,forexample,ifafatherstatesinhiswillthathe
willleavehispropertytowhicheverofhistwosonsdoesnotobtainpropertyfromathirdparty,thedecisionofthe
thirdpartywilldeterminewhowillbenefitunderthefatherswill.Thisisvalidbecauseitisdeterminedbyreference
toadecisionthatisbothverifiableandindependentofthetestator.InStubbsvSargon,21 itwasheldthata
bequesttotrusteestodividepropertyamongstthetestatrixspartnersatthetimeofherdeathwasvalid,because
itwaspossibletoascertainwhothepartnerswere.LordLangdaleMRsaid:22
[Itisobjected]thatitisimperfect,asnotdesignatingthedevisees,andleavingthemtobeconstituted
afterwardsbysomeactofthetestatrixherself,requiringnoneofthesolemnitiesrenderednecessarybythe
StatuteofFrauds.Thedevisees,accordingtothewords,weretobethepartnersofthetestatrixatthetime
ofherdecease,orthepersonstowhomshemighthavedisposedofherbusinessandaspersonsmight
besuchpartnersordisponeesbyactsofthetestatrix,donewithoutformality,itwasarguedthatthedevise
wasvoid.Ithinkthatthisobjectioncannotbesustainedaman,thoughnotmarriedwhenhemakeshis
will,maydevisetosuchpersonsasshallbehischildrenatthetimeofhisdeath.Andifthedescriptionbe
suchastodistinguishthedeviseefromeveryotherperson,itseemssufficientwithoutenteringintothe
considerationofthequestion,whetherthedescriptionwasacquiredbythedeviseeafterthedateofthewill,
orbythetestatorsownactintheordinarycourseofhisaffairs,orinthemanagementofhisproperty,andI
thinkthatadevisetosuchpersonasmaybethetestatorspartnersorthedisponeesofhisbusinessmay
begood.
(iii)Secrettrusts
Failuretocomplywiththetestamentaryformalitiesmaybeintendedbythetestator,andthisraisesdistinctand
complexproblemsforEquity.Theremightbeparticularreasonswhyatestatordoesnotwantittobegenerally
knownwhoistobenefitunderhisorherwill.Thetestatormight,therefore,decidetoleavepropertytoanamed
personinawill,butonlyintheexpectationthatthepropertywillbeusedforthebenefitoftheseunnamedpeople.
Thismayoccurintwodifferentways.First,thetestatormaystateinthewillthatpropertyistobeheldontrustby
anamedlegateeforthebenefitofpeoplewhosenamesaretobecommunicatedseparately.Thisisknownasa
halfsecrettrust.Inthiscase,itisclearfromthewillthatthetrusteeisreceivingpropertyasatrusteeandnot
beneficially,sotheopportunitytoactcontrarytothetestatorsintentisreducedbecausethelegateecannot
fraudulently(p.128) takethepropertyforhimorherself.Butissuchatrustvalid,whenthenameofthe
beneficiaryisnotdisclosedonthefaceofthewill?ThiscertainlyappearstobecontrarytotheWillsAct1837,
sincethisinvolvesadispositionofpropertytotakeeffectafterthetestatorsdeathwheresignificanttermsofthe
trusthavenotbeenincorporatedinthewill.
Theotherscenarioisknownasafullysecrettrust.Here,thewillpurportstoleavepropertytoanamedperson
absolutely,butthetestatoractuallyintendsthelegateetoholdthepropertyontrustforthebenefitofanother,and
thisintentionwillhavebeencommunicatedtothelegateeseparately.Inthissituation,thereismuchgreater
scopeforthetestatorsintentiontobedefeatedbecause,accordingtothewill,thelegateeistohavetheproperty
absolutelyandthereisnothingtoindicateatrust.Butifthelegatee,beingawareofthetestatorsintention,seeks
torelyonhisorherlegalrightstothepropertyunderthewill,heorshewouldbeseekingtousetheformality
requirementsoftheWillsActasaninstrumentwithwhichtoperpetratefraud.Therewouldappear,therefore,tobe
astrongcaseforequitableinterventioninsuchcircumstances.
Sincehalfsecretandfullysecrettrustsraisedistinctissues,itisappropriatetoconsiderthemseparately.But
therearecertaingeneralprinciplesrelatingtoallsecrettruststhatneedtobeconsideredfirst.
(a)Generalprinciplesrelatingtosecrettrusts
ThekeycontroversyinvolvingsecrettrustsrelatestowhethertheirrecognitioniscompatiblewiththeWillsAct
1837.Inbothcases,propertyistobedisposedafterthetestatorsdeathaccordingtotermsthatarenotdeclared
inthewill,whichiscontrarytothestrictformalityrequirementsofthatAct.
Therecognitionofsecrettrustshassometimesbeenjustifiedonthebasisthatthelegatee,whoreceivesproperty
underthewillknowingthatthetestatorintendedhimorhertoholditontrustforsomebodyelse,cannotthenrely
ontheformalityrequirementsoftheWillsActtoinvalidatethetrust,sincethiswouldinvolvetheuseofthat
statuteasaninstrumentoffraud.Suchtrustsarecommonlytreatedastestamentarytrusts,whicharerecognized
despitethefailuretocomplywiththeformalitiesoftheWillsAct.Thepreferableview,however,isthatbothfully
secretandhalfsecrettrustsarevalidnotasexceptionstotheformalityrequirementsundertheWillsAct,but
becausetheyoperateoutsidethewillandare,therefore,notcaughtbythoserequirements.Thisisknownasthe
dehors(oroutside)thewilltheory.Secrettrustsareproperlyanalysedasexpresstruststhatarevalidlydeclared
duringthetestatorslifetime,23 followingcommunicationbythetestatorandacceptancebythetrustee.These
trustsariseindependentlyofthewillbyreasonofthepersonalobligationthathasbeenacceptedbythelegatee.
Althoughthesetrustsarenotconstituteduntilthesubjectmatterofthetrustisvestedinthetrusteebythe
executorfollowingthetestatorsdeath,itdoesnotfollowthattheyaretestamentarytrusts,becausetheyhave
alreadybeencreatedintervivositisonlytheconstitutionthatoccursondeathandthisconstitutionofthetrust
happensautomaticallyoncepropertyhasbeentransferredbytheexecutorstothetrustee.Thishasbeen
recognizedbyRickett:24
theCourtlooksfortheexpressionofthetrusteeshipbythetestatrix,andtheacceptanceofthetrusteeship
bythedevisee.Thetrustobligationisowedtothebeneficiariesoncethetrustisdulyconstitutedbythe
(testamentary)transferofpropertytothetrustee(devisee).Thesecrettrustisexpresswhere
necessaryitmustsatisfytheformalrequirements(meaningthatafullysecrettrustoflandwillbecaught
bytherelevantstatutoryprovision)andthematterofconstructivenessofanytrustisaredherring.A
restitutionaryapproachisnotnecessary.Thisisacaseofanexpresstrustinaparticular(p.129) factual
context.Ofcourse,thecourtistoleratingadevolutionofthebeneficial(equitable)ownershipofproperty
ondeathoutsidetheformrequiredbythestatute,butwherethefactualcontextdemandsitthecourt
mustsoact.Thecontextmakingthedemandisthedeclarationofatrustindependentlyofthewill,but
intimatelyinvolvedwiththewillinthatthelatteristhechosentechniqueforvestinginthetrusteethe
ownershipofthetrustpropertyInfact,thewillisrecognisedinsofarasthedeviseeacquireslegaltitle
byvirtueofitsoperation.
ThedehorsthewilltheoryofsecrettrustswasrecognizedbySirRobertMegarryVCinReSnowden:25
thewholebasisofsecrettrustsisthattheyoperateoutsidethewill,changingnothingthatiswrittenin
it,andallowingittooperateaccordingtoitstenor,butthenfasteningatrustontothepropertyinthe
handsoftherecipient.
Thedehorsthewilltheoryisnot,however,aperfectexplanationofthesecrettrust.Thefactthatthetrustis
declaredwhilstthetestatorisstillalive,butisconstitutedonlyfollowingthetestatorsdeath,meansthatEquity
allowsthetrusttobindpropertyinthetestatorsestatethatmayhavebeenacquiredafterthetrusthadbeen
declared.Thiscontravenestheusualrulethatitisnotpossibletodeclareanimmediatetrustoffuture
property,26 althoughthismightinsteadbetreatedasatrustofthetestatorspromisetoleavefutureacquired
propertytothetrusteeratherthanatrustofthepropertyitself.27
Analysingbothfullysecretandhalfsecrettrustsasexpresstruststhatarecreatedintervivosandnotbythewill
isimportantwhenconsideringhowbothtypesoftrustarecreatedandoperate.Certainkeyprinciplescanbe
identified:
(1)TheformalityrequirementsoftheWillsAct1837arenotrelevanttotherecognitionofsecrettrusts.For
example,inReYoung,28 atestatormadeabequesttohiswifeandimposedaconditionthatsheshouldmake
certainbequeststhathehadpreviouslycommunicatedtoher,includingagiftof2,000tohischauffeur,MrCobb.
Thechauffeurhadwitnessedthewill,whichmeantthathecouldnotreceivealegacyunderit.29 Itwasheld,
however,thatthechauffeurwasstillentitledtothegift,becauseitarosefromanoraltrustdeclaredbythetestator
andwasnotabequestunderthewill.Thetestamentaryformalitieswerethereforeirrelevanttothetrust.
DanckwertsJsaid:30
ThewholetheoryoftheformationofasecrettrustisthattheWillsActhasnothingtodowiththematter
becausetheformsrequiredbytheWillsActareentirelydisregarded,sincethepersonsdonottakeby
virtueofthegiftinthewill,butbyvirtueofthesecrettrustsimposeduponthebeneficiary,whodoesinfact
takeunderthewill[E]veryconsiderationconnectedwiththisprinciplerequiresmetoreachthe
conclusionthatabeneficiaryunderasecrettrustdoesnottakeunderthewill
(2)Sincesecrettrustsarenotconstituteduntilafterthetestatorsdeath,thetermsofthetrustcanbechangedby
thetestator,forexamplebythewillbeingrevokedoraltered,orbythepropertybeingdisposedofinsomeother
way.
Kincaid,Thetangledweb:therelationshipbetweenasecrettrustandthewill[2000]
(p.130)
Conv420,426
Itwouldthereforeappearthatthetrustisnotcompletelyconstitutedatthetimeoftheacceptanceby
thesecrettrustee.Itdoesnotbecomeconstitutedandthereforeirrevocableuntilitcrystallisesonthe
deathofthesecretsettlor.Thusasecretsettlormayrevokethewillatanytimeuntildeath.
Whatoftherevocationnotofthewillnorthelegacytothesecrettrusteebutofthesecrettrustitself?
Itisgenerallyassumedthatasecrettrustcreatedbywillcanberevokedascananyotherprovisionof
thewill.itwouldappearthatbecausethetrustisnotconstituteduntilthedeathofthesettlor,the
settlorcanrevokeasecrettrust,eitherbyrevokingthewill(orthelegacy)altogether,orbyrevoking
thesecrettrustaspectofthelegacyitappearsthatasecrettrustisnotsufficientlyconstitutedto
standonitsownandthusbeirrevocableitrequiresthedeathofthesecretsettlortocrystallisethe
trustandenablethetransferofthepropertytothetrustee.
Anotherpossibleargumentisthat,unlikeothertrusts,revocabilitycanbeimpliedintoasecrettrust
becauseofthesecrettrustsintimateconnectionwiththeepitomeofrevocableinstruments,thewill.
Itmight,however,bepossibletoinvokethedoctrineofproprietaryestoppeltoinvalidateanyattempttorevokethe
trustortochangeitsterms.31 Thiswillapplywherethetestatorhasmadeaclearrepresentationaboutthevalidity
ofthetrust,followedbydetrimentalrelianceonthepartofthebeneficiary.32
(3)Ifthetrusteeweretodiebeforethetestator,itismatterofsomeuncertaintyastowhetherthiswouldinvalidate
thetrust.Asregardshalfsecrettrusts,itmightbearguedthatthedeathofthetrusteeshouldnotinvalidatethe
trustbecauseofthemaximthatatrustwillnotbeallowedtofailforwantofatrustee,33 unlesstheidentityofthe
trusteeisespeciallysignificant.Thismaximwouldberelevanttohalfsecrettrusts,becausetheexistenceofthe
trusteeisclearonthefaceofthewill.Asregardsfullysecrettrusts,ithasbeenrecognizedthatthedeathofthe
trusteebeforethetestatorwouldinvalidatethetrust.34 Butthereisnoreasonwhythemaximthatatrustshould
notbeallowedtofailforwantofatrusteeshouldnotbeextendedtofullysecrettrustsaswell,sincethetestator
willhavereliedonthelegateetoholdthepropertyontrustafterthetestatorsdeath.35 Ofcourse,wherethe
trusteehasdiedbeforethetestator,thetestatorwillusuallyhavetheopportunitytoappointanothertrustee.
(4)Thetrusteeisfreetorevokehisorheracceptanceofthetrustbeforethetestatorsdeath,sothatthetrustee
willnolongerbeboundbyhisorherundertakingtoholdthepropertyontrust.Again,thetestatorwillhavethe
opportunitytoappointanewtrustee,butiftherewerenotsufficienttimetodosobeforethetestatorsdeath,it
wouldbeappropriateforthecourttoappointanewtrustee.36 Ifatrusteeseekstorenouncethetrustafterthe
testatorsdeath,thiswillbetoolateandthetrusteewillbeboundbythetrustuntilareplacementtrusteecanbe
appointed.37
(5)Whatshouldhappenwherethebeneficiaryofthetrustdiesbeforethetestator?InReGardner(No.2),38 itwas
heldthatthepersonalrepresentativesofthedeceasedbeneficiarycouldclaimhisorher(p.131) shareofthe
estate.Butusually,wherealegateediesbeforethetestatorandthelegateehasnotacquiredapriorinterestin
theproperty,thegiftsimplylapses,andthepropertypassestotheresiduarybeneficiaryunderthewill.The
putativebeneficiaryunderasecrettrustdoesnothaveanyalreadyacquiredinterest,becausethetrustwillnotbe
constituteduntilafterthetestatorsdeath,whenlegaltitleisvestedinthetrustee.ReGardner(No.2)should
consequentlyberegardedaswronglydecided.Thelapsedgiftshouldinsteadhavebeenheldbythetrusteeon
resultingtrustforthoseentitledtotheresiduaryestateofthetestator.
(6)Ifsecrettrustsareproperlycharacterizedasexpresstrusts,thedeclarationofthetrustmustbeevidencedby
signedwritingwherethesubjectmatterofthetrustisland.39 ThiswasrecognizedinReBaillie,40 asregardsa
halfsecrettrustofland.InOttawayvNorman,41 however,afullysecrettrustoflandwasheldtobevalideven
thoughitwasnotevidencedinwriting.Thismightmeanthatfullysecrettrustsoflandoperateasconstructive
trusts,sincesuchtrustsoflandarevaliddespitetheabsenceofwriting42 orthetrustisvalidbecauseotherwise
thetrusteewouldbeseekingtouseastatuteasaninstrumentoffraudorperhapsthecourtsimplyfailedto
appreciatethesignificanceoftheoraldeclarationofthetrustinthatcase.Thepreferableviewisthat,regardless
ofwhetherthetrustisafullysecretorhalfsecrettrustofland,thetrustcanbevalidlydeclaredeventhoughitis
notevidencedbysignedwritingbecausethetrusteesconductinconsciouslyallowingthetestatortoleavehimor
herthelandintheexpectationthatthetrusteewillholditontrustforanothermeansthatthetrusteeshouldnot
beallowedtousetheformalityrequirementsoftheLawofPropertyAct1925asaninstrumentoffraud.Theuseof
thisdoctrinedoesnotmeanthatthetrustitselfisnotanexpresstrust.43
(b)Halfsecrettrusts
Ahalfsecrettrustariseswhereatestatorleavespropertytoanamedpersoninawilltoholdonatrustthathas
been,orwillbe,declared.44 Sincetheintendedbeneficiaryisnotidentifiedinthewill,thestrictformalitiesofthe
WillsAct1837arenotsatisfied.Despitethis,thecourtshavebeenwillingtoenforcesuchtrusts,albeitsubjectto
stringentconditions.
Ifevidenceofthetermsofthehalfsecrettrustwerenotadmitted,thetrusteewouldholdthepropertyonresulting
trustforthoseentitledtothetestatorsresiduaryestate,45 becauseitisclearthatthetrusteecannotreceivethe
propertybeneficially.Twodifferentexplanationshavebeensuggestedastowhyitispossibletoallowevidenceof
thetermstobeadmittedsothatthetrusteeholdsthepropertyonthesecrettrustforthebeneficiarieschosenby
thetestator.
Thefirstisthedoctrineofincorporationbyreference.46 Therequirementsforthisdoctrine47 doappeartobe

consistentwiththerequirementsforthehalfsecrettrust,sincethetestatormusthavecommunicatedthetermsof
thetrust,includingtheidentityofthebeneficiaries,totheintendedtrusteebefore,oratthetimethat,thewillwas
madeandreferencetothetrustmustbemadeinthewill.48 Oncetheseconditionsaresatisfied,itwouldthenbe
possibletoincorporatethetermsofthesecrettrustintothewill,sothattheformalityrequirementsoftheWills
Act1837couldthenbeconsidered(p.132) tobesatisfied.Thistheoryalsoexplainswhycommunicationofthe
termsofthetrustafterthewillhasbeenexecutedwillnotbeeffective,unlessthewillisconfirmedbyacodicil
thatreferstothecommunication.49
Althoughtheuseofthedoctrineofincorporationbyreferencetoexplainthelawonhalfsecrettrustsappearsto
explaintherequirementsofthattrust,thisisnotasufficientexplanationforanumberofreasons.First,that
doctrinerelatesonlytotheincorporationofdocumentsintothewillanddoesnotextendtotheincorporationof
oralcommunications,whichclearlydonotcomplywiththeformalityrequirementsoftheWillsAct1837thatall
partsofthewillneedtobeinwriting.Butithasbeenrecognizedthatoralcommunicationofthetermsofthetrust
aresufficientforahalfsecrettrusttobevalid.50 Secondly,adocumentcanbeincorporatedintoawilleventhough
ithasnotbeencommunicatedtothetrustee,whereascommunicationofthetermsofthetrusttothetrusteeisa
vitalrequirementforahalfsecrettrusttobevalid.Thirdly,themainadvantageofthedoctrineofincorporationby
referencetoexplainthehalfsecrettrustistojustifytherequirementofcommunicationoftermsbeforeexecution
ofthewill.Butthatrequirementhasalreadybeencriticizedasbeinginconsistentwiththerequirementsforfully
secrettrustsandalsothedehorsthewilltheory.AsCritchleyhasrecognized:51
Allinall,theargumentbyanalogywithincorporationbyreferenceisnotcompelling.Itwouldbe
considerablystrongerwerehalfsecrettruststobelimitedtowrittencommunications,butthiswouldthen
createyetanotherodddiscrepancybetweenfullyandhalfsecrettrusts.Itisthereforeperhapsbetterto
concludethat,whilsttheremayhavebeencrossfertilisationbetweenincorporationbyreferenceandhalf
secrettrusts,theyareproperlyviewedasseparatedoctrines.Thismeansthatitisnecessarytofindsome
otherjustificationfortheinformalitypermittedtohalfsecrettrusts.
Analternativeexplanationofthehalfsecrettrustisthatsuchtrustsshouldberecognizedtopreventafraudfrom
beingperpetratedontheintendedbeneficiariesifalegatee,havingagreedtoholdpropertyontrust,failstodo
so.52 Althoughfraudhasprovedsignificanttotherecognitionofthefullysecrettrust,53 itappearsnottobe
relevanttothehalfsecrettrust,since,asthetrustisapparentonthefaceofthewill,thereislittlescopeforthe
trusteetodefraudthebeneficiaries,savewherethetrusteemightassertthatthecommunicationofthetermsof
thetrustoccurredafterthewillhadbeenexecuted.Eventhen,thereisnoscopeforthetrusteebenefitingfromthe
halfsecrettrustfailing,unlessheorshewasotherwiseentitledtothetestatorsresiduaryestate.
Fraudcannot,therefore,explainwhyhalfsecrettrustsarerecognizediffraudisinterpretedrestrictivelysothatit
onlyapplieswherethetrusteewishestobenefitfromtheinvalidityofthetrust.Butiffraudwereinsteadinterpreted
asencompassingunconscionableconduct,itcouldbeusedtojustifytherecognitionofthesetrusts.Trustees
canbeconsideredtoactunconscionablywheretheyseeknottobeboundbytheirundertakingtothetestatorto
holdpropertyontrustforanother.Thetrustcouldthenberecognizedtopreventsuchunconscionablebehaviour
fromoccurring.SuchaprinciplewaseffectivelyrecognizedbytheHouseofLordsinBlack wellvBlack well,54 in
whichthetestatorhadleftmoneyinhiswilltofivelegateestobeappliedforthebenefitofpeoplewhosenameshe
hadpreviouslycommunicatedtothem.Beforethewillwasexecuted,thetestatorhadinformedthetrustees
orally(p.133) thatthemoneywastobeusedforthebenefitofhismistressandhisillegitimateson.Itwasheld
thatthiswasavalidtrust.ViscountSumnersaid:55
Initselfthedoctrineofequity,bywhichparolevidenceisadmissibletoprovewhatiscalledfraudin
connectionwithsecrettrusts,andeffectisgiventosuchtrustswhenestablished,wouldnotseemto
conflictwithanyoftheActsunderwhichfromtimetotimetheLegislaturehasregulatedtherightof
testamentarydisposition.ACourtofconsciencefindsamaninthepositionofanabsolutelegalownerofa
sumofmoney,whichhasbeenbequeathedtohimunderavalidwill,anditdeclaresthat,onproofof
certainfactsrelatingtothemotivesandactionsofthetestator,itwillnotallowthelegalownertoexercise
hislegalrighttodowhathewillwithhisown.Thisseemstobeaperfectlynormalexerciseofgeneral
equitablejurisdiction.Thefactscommonlybutnotnecessarilyinvolvesomeimmoralandselfishconduct
onthepartofthelegalowner.Thenecessaryelements,onwhichthequestionturns,areintention,
communication,andacquiescence.Thetestatorintendshisabsolutegifttobeemployedasheandnotas
thedoneedesireshetellstheproposeddoneeofthisintentionand,eitherbyexpresspromiseorbythe
tacitpromise,whichissignifiedbyacquiescence,theproposeddoneeencourageshimtobequeaththe
moneyinthefaiththathisintentionswillbecarriedout.Thespecialcircumstance,thatthegiftisby
bequestonlymakesthisruleaspecialcaseoftheexerciseofageneraljurisdiction,butinitsapplication
toabequestthedoctrinemustinprinciplerestontheassumptionthatthewillhasfirstoperatedaccording
toitsterms.Itisbecausethereisnoonetowhomthelawcangivereliefinthepremises,thatrelief,ifany,
mustbesoughtinequity.Sofar,andinthebarecaseofalegacyabsoluteonthefaceofit,Idonotsee
howthestatutelawrelatingtotheformofavalidwillisconcernedatall,andtheexpressions,inwhichthe
doctrinehasbeenhabituallydescribed,seemtobearthisout.Forthepreventionoffraudequityfastenson
theconscienceofthelegateeatrust,atrust,thatis,whichotherwisewouldbeinoperativeinotherwords
itmakeshimdowhatthewillinitselfhasnothingtodowithitletshimtakewhatthewillgiveshimand
thenmakeshimapplyit,astheCourtofconsciencedirects,anditdoessoinordertogiveeffecttowishes
ofthetestator,whichwouldnototherwisebeeffectual.
Tothistwocircumstancesmustbeaddedtobringthepresentcasetothetestofthegeneraldoctrine,
first,thatthewillstatesonitsfacethatthelegacyisgivenontrustbutdoesnotstatewhatthetrustsare,
andfurthercontainsaresiduarybequest,and,second,thatthelegateesareactingwithperfecthonesty,
seeknoadvantagetothemselves,andonlydesire,iftheCourtwillpermitthem,todowhatinother
circumstancestheCourtwouldhavefasteneditontheirconsciencetoperform.
SincethecurrentofdecisionsdowntoReFleetwood(1880)15ChD594andReHuxtable[1902]2Ch793
hasestablishedthattheprinciplesofequityapplyequallywhenthesecircumstancesarepresentasin
caseswheretheyarenot,thematerialquestioniswhetherandhowtheWillsActaffectsthiscase.It
seemstomethat,apartfromlegislation,theapplicationoftheprincipleofequity,whichwasmade
inFleetwoodsandHuxtablescases,waslogical,andwasjustifiedbythesameconsiderationsasinthe
casesoffraudandabsolutegifts.Whyshouldequityforbidanhonesttrusteetogiveeffecttohispromise,
madetoadeceasedtestator,andcompelhimtopayanotherlegatee,aboutwhomitisquitecertainthat
thetestatordidnotmeantomakehimtheobjectofthisbounty?Inbothcasesthetestatorswishesare
incompletelyexpressedinhiswill.Whyshouldequity,overamerematterofwords,giveeffecttothemin
onecaseandfrustratethemintheother?Nodoubtthewordsintrustpreventthelegateefromtaking
beneficially,whethertheyhavesimplybeendeclaredinconversationorwritteninthewill,butthefraud,
whenthetrustee,socalledinthewill,isalsotheresiduarylegatee,isthesameaswhenheisonly
declaredatrusteebywordofmouthacceptedbyhim.Irecoilfrominterferingwithdecisionsoflong
standing,whichrejectthisanomaly,unlessconstrainedbystatute.
(p.134) Theanswerisputinthephrase,thisismakingthetestatorswillforhim,instead,thatis,of
limitinghimtothewillmadeinstatutoryform.Whatthenofthelegislation?Greatauthoritiesseemtohave
expressedanopinion,thatthisequitableprinciple,asawhole,conflictswithsection9oftheWillsAct.
LordCairnsin1868saysthatwhenadeviseeseekstoapplywhathasbeendevisedtohimotherwisethan
inaccordancewiththetestatorsintentions,communicatedbyhimandaccepted,itisineffectacaseof
trust,andinsuchcasetheCourtwillnotallowthedeviseetosetuptheStatuteofFrauds,or,rather,the
StatuteofWills.ButinthistheCourtdoesnotviolatethespiritofthestatutesbutfortheprevention
offraud,itengraftsthetrustsonthedevisebyadmittingevidencewhichthestatutewouldinterms
exclude,inordertopreventadeviseefromapplyingpropertytoapurposeforeigntothatforwhichhe
undertooktoholdit:JonesvBadley(1868)3ChApp362at364
Ithinktheconclusionisconfirmed,whichtheframeofsection9oftheWillsActseemstometocarryon
itsface,thatthelegislationdidnotpurporttointerferewiththeexerciseofageneralequitablejurisdiction,
eveninconnectionwithsecretdispositionsofatestator,exceptinsofarasreinforcementoftheformalities
requiredforavalidwillmightindirectlylimitit.Theeffect,therefore,ofabequestbeingmadeintermson
trust,withoutanystatementinthewilltoshowwhatthetrustis,remainstobedecidedbythelawaslaid
downbytheCourtsbeforeandsincetheActanddoesnotdependontheActitself.
Itfollowsthattheessentialconditionforrecognizingahalfsecrettrustisthatthetestatorhascommunicatedthe
purposeofthetrusttothelegatee,whotheneitheracquiescesorpromisestocomplywiththispurpose,andthe
testatorconsequentlyreliesonthisbyexecutingthewillsoastoleavepropertytothetrustee.56 Inotherwords,
thisacquiescenceorpromiseoperatesasaformofestoppel,becauseofthekeyrequirementsofcommunication,
acceptance,andreliance.Itwillthenbeunconscionableforthelegateenottofulfiltheundertakingthatheorshe
hasgiventocarryoutthepurposesforwhichthebequestwasmade.57 Thissatisfactorilyexplainswhyhalfsecret
trustsarerecognizedandwhythereareparticularrequirementsfortherecognitionofsuchatrust.
Thetermsofthetrustmustbecommunicatedtothetrusteebefore,orcontemporaneouslywith,theexecutionof
thewill.58 Communicationofthetermsafterthewillhasbeenexecutedwillmeanthatthehalfsecrettrustfails
andthepropertywillbeheldbythetrusteeonresultingtrustforresiduarybeneficiariesofthetestatorsestate
similarlywherethetermsarenotcommunicatedtothetrusteeatall.59 ItwasrecognizedinReKeen60 thatthe
reasonwhycommunicationofthetermsofthetrustafterthewillhasbeenexecutedcannotbeeffectivetodeclare
ahalfsecrettrustisbecausethisinvolvesthetestatorreservingapowertochangeawillinformally,contraryto
theWillsAct1837.Butcommunicationbeforeexecutionofthewillisnotarequirementforfullysecret
trusts 61 andisinconsistentwiththedehorsthewilltheoryofsecrettrusts.Itfollowsthatitshouldbesufficient
thatthetermsofthehalfsecrettrustarecommunicatedbeforethetestatorsdeath,62 becausethenthetestator
canbeconsideredtohavereliedonthetrusteesacquiescencebynotchangingthetermsofthewill.
InReKeen,63 itwasrecognizedbytheCourtofAppealthatgivingasealedenvelopetoonetrusteewassufficient
communicationoftheidentityofthebeneficiary,eventhoughitwasnotreaduntil(p.135) afterthetestators
death,becausethetrusteewasawarethatitcontainedthenameofthebeneficiary.Further,itdidnotmatterthat
theenvelopewasgiventoonlyoneofthetwotrusteesnamedinthewill.LordWrightMRsaid:64
Totakeaparallel,ashipwhichsailsundersealedorders,issailingunderordersthoughtheexactterms
arenotascertainedbythecaptaintilllater.Inotethatthecaseofatrustputintowritingwhichisplacedin
thetrusteeshandsinasealedenvelope,washypotheticallytreatedbyKayJaspossiblyconstitutinga
communicationinacaseofthisnature:ReBoyes(1884)26ChD531at536.This,sofarasitgoes,
seemstosupportmyconclusion.Thetrusteeshadthemeansofknowledgeavailablewheneveritbecame
necessaryandpropertoopentheenvelope.
Nevertheless,thetrustwasdeclaredvoidbecausethecommunicationofthetermsofthewillbeforethetrustwas
executedwasinconsistentwiththetermsofthewill,whichstatedas[thetestator]wouldnotifyratherthanas
hehadnotified.InReBatemansWillTrusts,65 thetestatorhaddirectedhistrusteestopayincometosuch
personsandinsuchproportionsasshallbestatedbymeinasealedletterinmyownhandwritingaddressedto
mytrustees.Sincetherewasnoevidenceastowhetherasealedletterhadbeenwrittenandaddressedtothe
trusteesbythetestatoratthedateofthewill,thetrustwasdeclaredvoid.PennycuickVCsaid:66
Thesewordsclearly,Ithink,importthatthetestatormay,inthefuture,afterthedateofthewill,givea
sealedlettertohistrustees.Itisimpossibletoconfinethewordstoasealedletteralreadysogiven.Ifthat
isthetrueconstructionofthewording,itisnotindisputethatthedirectionisinvaliditisreallyclearand
notindisputethatonceonemustconstruethedirectionasadmittingofafutureletterthenthedirectionis
invalid,asanattempttodisposeoftheestatebyanontestamentaryinstrument.
InReRees,67 thetestatordeclaredahalfsecrettrust.Whenthewillwasexecuted,hetoldthetrusteesthatany
surplusaftermakingcertainpaymentscouldberetainedbythemfortheirownuse.Itwasheldthatthesurplus
couldnotbelongtothetrustees,butratherwasheldonresultingtrustforthoseentitledtothetestatorsresiduary
estate.Thiswasbecausethetestatorsoralcommunicationtothetrusteesaboutthesurplusconflictedwiththe
termsofthewill,whichstatedthatthetrusteesweretoreceivethepropertyastrusteesratherthanbeneficially.
EvershedMRsaid:68
[thetestator]intended[thetrustees]totakebeneficialinterestsandthathiswishesincludedthatintention,
wouldbetoconflictwiththetermsofthewillfortheinevitableresultofadmittingthatevidenceandgiving
effecttoitwouldbethatthewillwouldberegardednotasconferringatrustestateonlyuponthetwo
trustees,butasgivingthemaconditionalgiftwhichonconstructionisthethingwhich,ifIamright,itdoes
notdo.
InReTyler,69 PennycuickJsaidthathedidnotfindthereasoninginReReestobeeasy.Onthefaceofit,the
reasoningofEvershedMRinReReesisunconvincing:ifthewillsaysthatthepropertyisheldontrustforcertain
people,whycannotsomeofthosepeoplebethetrusteeswhocouldbenefitfrom(p.136) thesurplus?But,
althoughthiswasnotacknowledgedinReRees,itissurelybecausethetrusteeswereassertingthattheywere
entitledtothesurplusthattherewasarealdangeroffraudontheirpart,sincetheywereseekingtoobtaina
personalbenefitthatwasnotidentifiedonthefaceofthewill.Wherethetrusteesareintendedtobenefitfromthe
testatorsestate,butthisisnotexpressedinthewill,thehighstandardsofbehaviourexpectedfromthetrustees
shouldbesuchthattheyshouldnotreceivethepropertybeneficially.Ifthisisthecorrectanalysis,itmeansthat
evenifthetrusteesinReReeswereintendedtobenefitunderthehalfsecrettrustitselfratherthantoobtainany
surplus,theywouldnothavebeenabletodoso.
Changestothetermsofahalfsecrettrustafterthewillhasbeenexecutedwillnotbeeffectiveifthechanges
70
havenotbeencommunicatedtothetrustees.InReCooper,70 thetestatordeclaredahalfsecrettrustof5,000in
hiswill,havingcommunicatedthetermsofthetrusttohistrusteesbeforethewillwasexecuted.Amonthlater,
thetestatormadeanewwillwhichpurportedtocancelthepreviousone.Thisnewwillstatedthatthe5,000
bequeathedtohistrusteeswastobeincreasedto10,000andthatthetrusteesknewthetestatorswishesas
regardstheuseofthissum.Thefactthattheamounthadbeenincreasedwasnot,however,communicatedtothe
trustees.Itwasheldthatthefirst5,000washeldonthetermsofthesecrettrust,ashadpreviouslybeen
communicated,buttheadditional5,000washeldonresultingtrustforthoseentitledtothetestatorsresiduary
estate,becausethisadditionalamounthadnotbeencommunicatedtothetrustees.SirWilfridGreeneMR
said:71
Itseemstomethatuponthefactsofthiscaseitisimpossibletosaythattheacceptancebythetrustees
oftheonusoftrusteeshipinrelationtothefirstandearlierlegacyissomethingwhichmustbetreatedas
havingbeenrepeatedinreferencetothesecondlegacyortheincreasedlegacy,whicheverwayone
choosestodescribeit.Inorderthatasecrettrustmightbemadeeffectivewithregardtothataddedsumin
myopinionpreciselythesamefactorswerenecessaryaswererequiredtovalidatetheoriginaltrusts,
namely,communication,acceptanceoracquiescence,andthemakingofthewillonthefaithofsuch
acceptanceoracquiescence.Noneoftheseelements,asIhavesaid,werepresent.Itisnotpossible,in
myopinion,totreatthefigureof[]5000.inrelationtowhichtheconsentofthetrusteeswasoriginally
obtainedassomethingofnoessentialimportance.Icannotmyselfseethatthearrangementbetweenthe
testatorandthetrusteescanbeconstruedasthoughithadmeant[]5000.orwhateversumImay
hereafterchoosetobequeath.Thatisnotwhatwassaidanditwasnotwithregardtoanysumotherthan
the[]5000.thattheconsciencesofthetrustees(touseatechnicalphrase)wereburdened.Itmustnot
bethoughtfromwhatIhavebeensayingthatsometriflingexcessofthesumactuallybequeathedoverthe
figurementionedinthefirstbequesttothetrusteeswouldnecessarilynotbecaught.Suchanaddition
mightcomewithintheruleofdeminimisifthefactsjustifiedit.Similarlyitmustnotbethoughtthat,ifa
testator,havingdeclaredtohistrusteestrustsinrelationtoaspecifiedsum,afterwardsinhiswillinsertsa
lessersum,thatlessersumwouldnotbecaughtbythetrusts.InsuchacasethegreaterwouldI
apprehendbeheldtoincludetheless.
(c)Fullysecrettrusts
Inafullysecrettrustthewillindicatesthatagiftismadetoaparticularpersonabsolutely,butthetestatorintends
thelegateetoholdthegiftontrustforsomebodyelse.Thismaybebecausethetestatorwantstobenefit
somebodywithoutanybodyknowingorsuspectingthatthereisadifferentbeneficiary,suchasamistressor
illegitimatechild.Alternatively,thetestatormightbeuncertainastowhoshouldbebenefitedatthetimethatthe
willisexecuted,andsoleavespropertytosometrustedperson,(p.137) suchasasolicitor,todisposeof
accordingtoinstructionsthataretobecommunicatedsubsequently.72 Whateverthereasonfortheircreation,
suchfullysecrettrustsdonotcomplywiththenecessaryformalitiesoftheWillsAct1837.Iftheyarenottobe
enforcedinfavouroftheintendedbeneficiaries,whatshouldhappen?Itisinequitableforthelegateetokeepitfor
himorherselfandEquitywillnotallowastatutetobeusedasaninstrumentoffraud.Fraudwouldbepreventedif
thelegateewererequiredtoholduponaresultingtrustforthetestatorsestate,butthiswouldbeadenialofthe
testatorsintention.Providedthattheintendedtrustsarecommunicatedtothelegateebeforethetestatorsdeath,
suchtrustsareenforcedinfavouroftheintendedbeneficiarybecauseotherwisethelegateesrelianceonthe
stricttermsofthewilltoignorethetestatorsintentiontoholdpropertyontrustforanotherwouldbe
unconscionable.
Thattherecognitionofafullysecrettrustispromptedbyadesiretopreventfraudisillustratedmostclearly
byThynnvThynn.73 Afather,inhiswill,hadmadehiswifehisexecutrix.Theirsonpersuadedhismotherthatit
wouldbebetterforhimtobetheexecutorandthathewouldholdtheestateontrustforher.Thesonarrangedfor
thefatherswilltobecancelledandanewwillwaspreparedthatmadethesontheexecutor.Whenitcametothe
fathersigningthenewwill,whichwasreadouttohimbythewillwriter,thefathersaidthathecouldnothearwhat
wasbeingsaid.Hedidsignthewill,butclearlyinverysuspiciouscircumstances.Onthefathersdeath,theson
obtainedtheestateanddeniedthatheheldthisontrustforhismother.Itwasheldthatthetrustwasvalid,even
thoughithadnotbeendeclaredinwritingasrequiredbystatute,becauseofthesonsfraud.TheLordKeeper
heldthatitappearedtobe,aswellasFraud,asalsoaTrust.
74
InKasperbauervGriffith,74 PeterGibsonLJrecognizedthatafullysecrettrustwillonlybevalidifthefollowing
conditionsaresatisfied:
theauthoritiesmakeplainthatwhatisneededis(i)anintentionbythetestatortocreateatrust,satisfying
thetraditionalrequirementofthreecertainties(thatistosaycertainlanguageinimperativeform,certain
subjectmatterandcertainobjectsorbeneficiaries)(ii)thecommunicationofthetrusttothelegatees,and
(iii)acceptanceofthetrustbythelegatee,whichacceptancecantaketheformofsilentacquiescence.
Thecrucialquestioninthepresentcaseiswhethertherewasthatintentionanditisanessential
elementthatthetestatormustintendtosubjectthelegateetoanobligationinfavouroftheintended
beneficiary.Thatwillbeevidencedbyappropriatelyimperative,asdistinctfromprecatorylanguage.
Eachoftheserequirementsneedstobeexaminedinturn.
(1)Testatorsintention:thetestatormustintendthelegateetobesubjecttoanobligationtoholdidentified
propertyontrustforidentifiedbeneficiaries.Butthefullysecrettrustmaynotbeintendedtoariseimmediatelyon
thetestatorsdeath.So,forexample,thetestatormightintendtocreateanobligationonthelegateetodisposeof
thepropertyinaparticularwaybyhisorherownwill.ThistypeoftrustisillustratedbyOttowayvNorman[1972]
Ch698.Thetestator,HarryOttaway,lefthisbungalow,itscontents,andsomemoneytohishousekeeper,Miss
Hodges,inhiswill.Thetestatormadeanagreementwiththehousekeeperthatshewouldleavethebungalowin
herwilltothetestatorsson.Shemadeawillinaccordancewiththisarrangement.But,fouryearslater,she
madeanewwillthatleftthebungalowtothedefendant,MrNorman.Thetestatorandthehousekeeperdied,
and(p.138) thetestatorssonthensoughtadeclarationthatthedefendantheldthebungalowonafullysecret
trustforhim.BrightmanJupheldthesonsclaimandsaid:75
Itwillbeconvenienttocallthepersonuponwhomsuchatrustisimposedtheprimarydoneeandthe
beneficiaryunderthattrustthesecondarydonee.Theessentialelementswhichmustbeprovedtoexist
are:(i)theintentionofthetestatortosubjecttheprimarydoneetoanobligationinfavourofthesecondary
donee(ii)communicationofthatintentiontotheprimarydoneeand(iii)theacceptanceofthatobligation
bytheprimarydoneeeitherexpresslyorbyacquiescence.
Itisimmaterialwhethertheseelementsprecedeorsucceedthewillofthedonor.Iaminformedthatthere
isnorecentreportedcasewheretheobligationimposedontheprimarydoneeisanobligationtomakea
willinfavourofthesecondarydoneeasdistinctfromsomeformofintervivostransfer.Butitdoesnot
seemtomethattherecanreallybeanydistinctionwhichcanvalidlybetakenonbehalfofthedefendantin
thepresentcase.Thebasisofthedoctrineofasecrettrustistheobligationimposedontheconscienceof
theprimarydoneeanditdoesnotseemtomethatthereisanymaterialityinthemachinerybywhichthe
donorintendsthatthatobligationshallbecarriedout.
[Counsel]forMr.Norman,reliedstronglyonMcCormick vGrogan(1869)LR4HL82.Inthatcasea
testatorin1851hadleftallhispropertybyathreelinewilltohisfriendMr.Grogan.In1854thetestator
wasstruckdownbycholera.WithonlyafewhourstolivehesentforMr.Grogan.HetoldMr.Groganin
effectthathiswillandaletterwouldbefoundinhisdesk.Theletternamedvariousintendedbeneficiaries
andtheintendedgiftstothem.Theletterconcludedwiththewords:
Idonotwishyoutoactstrictlyontheforegoinginstructions,butleaveitentirelytoyourowngood
judgmenttodoasyouthinkIwould,ifliving,andasthepartiesaredeserving.
AnintendedbeneficiarywhomMr.Groganthoughtitrighttoexcludesued.Iwillreadanextractfromthe
speechofLordWestbury,at97,because[counsel]reliedmuchuponit.
thejurisdictionwhichisinvokedherebytheappellantisfoundedaltogetheronpersonalfraud.It
isajurisdictionbywhichaCourtofEquity,proceedingonthegroundoffraud,convertstheparty
whohascommitteditintoatrusteeforthepartywhoisinjuredbythatfraud.Now,beinga
jurisdictionfoundedonpersonalfraud,itisincumbentonthecourttoseethatafraud,amalus
animus,isprovedbytheclearestandmostindisputableevidence.
LordWestburycontinued,at97:
Youareobliged,therefore,toshewmostclearlyanddistinctlythatthepersonyouwishtoconvert
intoatrusteeactedmaloanimo.Youmustshewdistinctlythatheknewthatthetestatororthe
intestatewasbeguiledanddeceivedbyhisconduct.Ifyouarenotinaconditiontoaffirmthat
withoutanymisgiving,orpossibilityofmistake,youarenotwarrantedinaffixingontheindividualthe
delictumoffraud,whichyoumustdobeforeyouconverthimintoatrustee.Nowarethereany
indiciaoffraudinthiscase?
FoundinghimselfonLordWestbury[counsel]soughtatonestagetodeployanargumentthataperson
couldneversucceedinestablishingasecrettrustunlesshecouldshowthattheprimarydoneewasguilty
ofdeliberateandconsciouswrongdoingofwhichhesaidtherewasnoevidenceinthecasebeforeme.
Thatproposition,ifcorrect,wouldleadtothesurprisingresultthatiftheprimarydoneefaithfullyobserved
theobligationimposedonhimtherewouldnoteverhavebeenatrustatanytimeinexistence.The
argumentwasdiscarded,andIthinkrightly.[Counsel]thenfastenedonthewordsclearestandmost
indisputableevidenceandhesubmittedthatanexceptionallyhighstandardofproofwasneededto
establishasecrettrust.IdonotthinkthatLordWestburyswordsmeanmorethanthis:thatifawill
containsagiftwhichisintermsabsolute,clearevidenceisneededbeforethecourtwill(p.139) assume
thatthetestatordidnotmeanwhathesaid.Itisperhapsanalogoustothestandardofproofwhichthis
courtrequiresbeforeitwillrectifyawritteninstrument,forthereagainapartyissayingthatneithermeant
whattheyhavewritten
IfindasafactthatMr.HarryOttawayintendedthatMissHodgesshouldbeobligedtodisposeofthe
bungalowinfavouroftheplaintiffsatherdeaththatMr.HarryOttawaycommunicatedthatintentionto
MissHodgesandthatMissHodgesacceptedtheobligation.Ifindthesamefactsinrelationtothe
furniture,fixturesandfittingswhichpassedtoMissHodgesunderclause4ofMr.HarryOttawayswill.I
amnotsatisfiedthatanysimilarobligationwasimposedandacceptedasregardsanycontentsofthe
bungalowwhichhadnotdevolvedonMissHodgesunderclause4ofMr.HarryOttawayswill.
Iturntothequestionofmoney.IncrossexaminationWilliamsaidthetrustextendedtothehouse,
furnitureandmoney:
EverythingmyfatherlefttoMissHodgeswastobeinthetrust.Thetrustcomprisedthelot.She
couldusethemoneyassheliked.Shehadtoleavemywifeandmewhatevermoneywasleft.
IncrossexaminationMrs.DorothyOttaway[thetestatorsdaughterinlaw]saidthatherunderstanding
wasthatMissHodgeswasboundtomakeawillgivingherandherhusbandthebungalow,contentsand
anymoneyshehadleft.Shecouldpleaseherselfaboutthemoney.Shedidnothavetosaveitforus.She
wasfreetospendit.Itseemstomethattwoquestionsarise.First,asamatteroffact,whatdidthe
partiesintendshouldbecomprisedinMissHodgessobligation?AllmoneywhichMissHodgeshadather
deathincludingbothmoneywhichshehadacquiredbeforeMr.HarryOttawaysdeathandmoneyshe
acquiredafterhisdeathfromallsources?OronlymoneyacquiredunderMr.HarryOttawayswill?
Secondly,asamatteroflaw,ifsuchanobligationexistedwoulditcreateavalidtrust?Onthesecond
questionIamcontenttoassumeforpresentpurposesbutwithoutsodecidingthatifpropertyisgivento
theprimarydoneeontheunderstandingthattheprimarydoneewilldisposebyhiswillofsuchassets,if
any,ashemayhaveathiscommandathisdeathinfavourofthesecondarydonee,avalidtrustiscreated
infavourofthesecondarydoneewhichisinsuspenseduringthelifetimeoftheprimarydonee,but
attachestotheestateoftheprimarydoneeatthemomentofthelattersdeath.Therewouldseemtobeat
leastsomesupportforthispropositioninanAustraliancasetowhichIwasreferred:Birminghamv
Renfrew(1937)57CLR666.Iacceptthatthepartiesmentionedmoneyonatleastsomeoccasionswhen
theytalkedaboutMr.HarryOttawaysintentionsforthefuturedispositionofAshcroft.Idonot,however,
findsufficientevidencethatitwastheintentionofMr.HarryOttawaythatMissHodgesshouldbe
compelledtoleaveallhermoney,fromwhateversourcederived,totheplaintiffs.Thiswouldseemto
precludehergivingevenasmallpecuniarylegacytoanyfriendorrelative.IdonotthinkitisclearthatMr.
HarryOttawayintendedtoextractanysuchfarreachingundertakingfromMissHodgesorthatshe
intendedtoacceptsuchawideobligationherself.Thereforetheobligation,ifany,isinmyview,tobe
confinedtomoneyderivedunderMr.HarryOttawayswill.Iftheobligationisconfinedtomoneyderived
underMr.HarryOttawayswill,theobligationismeaninglessandunworkableunlessitincludesthe
requirementthatsheshallkeepsuchmoneyseparateanddistinctfromherownmoney.Iamcertainthat
nosuchrequirementwaseverdiscussedorintended.Ifshehadtherighttomingleherownmoneywith
thatderivedfromMr.HarryOttaway,therewouldbenoascertainablepropertyuponwhichthetrustcould
biteatherdeath
Thereisanotherdifficulty.Doesmoneyinthiscontextincludeonlycashorcashandinvestments,orall
movablepropertyofanydescription?Theevidenceisquiteinconclusive.Inmyjudgmenttheplaintiffs
claimsucceedsinrelationtothebungalowandinrelationtothefurniture,fixturesandfittingswhich
devolvedunderparagraph4ofMr.HarryOttawayswillsubject,ofcourse,tonormalwastage,fairwearand
tear,butnottoanyotherassets.
AlthoughtheanalysisofthesuspensorytrustobligationinOttawayvNormanwasobiter,itisnonetheless
significant.Itfollowsthatifthetestatorinthatcasehadintendedthehousekeepertoleaveany(p.140) residue
tothetestatorsson,thesonwouldhavehadanequitableproprietaryinterestinthatresidue.Butwhatsortof
trustwouldthisbe?Thenormalsecrettrustthatarisesimmediatelyonthetestatorsdeathhasbeenanalysedas
anexpresstrustthatismadeintervivos,butwhichisconstitutedondeath.Butthatcannotbetrueofthe
suspensorytrust,since,onthetestatorsdeath,thetrustpropertyisstilluncertainandmightneverexistifthe
legateedissipatesallofit.Anytrustoftheresiduecouldbeconstitutedonlyonthedeathofthelegatee.
Consequently,thisisbetteranalysedasaconstructivetrustthatattachestoanyresidueofthetestatorsestate
atthetimeofthelegateesdeath.76 Itisonlyatthatpointthatthesubjectmatterofthetrustwillbecertain.
Duringtheperiodfromthetestatorsdeathuntilthelegateehasdied,thelegateeisbestregardedastheabsolute
ownerofthepropertysubjecttofiduciaryresponsibilitiesarisingoutofthearrangementswiththetestatorto
preventhimorhermakinggiftsandsettlementsintervivoswiththepurposeofdefeatingtheundertaking.The
potentialinterestofthepersonwhomthetestatorintendedtoreceivetheresidueenableshimorhertoobtainan
injunctiontopreventsuchadispositionandtorecoveranypropertythathasbeensodisposed.Onthedeathof
thelegatee,ifnoprovisionhasbeenmadeinhisorherwillfortheresiduetobegiventotheotherperson,the
executorofthelegateesestatewillholdtheresidueonconstructivetrustforthatperson.But,crucially,ifthe
legateelegitimatelydissipatesthelegacyreceivedfromthetestator,therewillbenopropertytobeheldon
constructivetrustfortheotherperson.
(1)Communicationtolegatee:thetestatormusthavecommunicatedthetrust,itsterms,theidentityofthetrust
property,andthebeneficiariestothelegateebeforethetestatorsdeath.77 So,forexample,inReBoyes,78 the
testatorleftalegacytohissolicitor,whowastoldthatitwastobeheldontrust,butwhowasnottoldforwhom.
Afterthetestatorsdeath,aletterwasfoundamongstthetestatorspapersstatingthattheresiduaryestatewas
tobeheldforthetestatorsmistress.Itwasheldthatthiswasnotsufficienttocreateavalidsecrettrustandso
theestatewasheldonresultingtrustforthetestatorsnextofkin.Thedeliveryofasealedletterduringthe
testatorslifetimeisasufficientcommunicationprovidedthatitisknowntocontainthetermsofatrustandis
acceptedassuch.79
Presumablythisrequirementisneededbecause,ifcommunicationafterthetestatorsdeathwassufficientto
validatethetrust,thisisasteptoofarinallowingatrusttobevalidoutsidethetermsofthewill.
(2)Acceptancebylegatee:thetrustmustbeacceptedbythelegateeexpresslyorbyacquiescencebeforethe
testatorsdeath.80 Wheretestamentarygiftsaremadetotwoormorepeopleasignificantdistinctionisdrawn,
dependingonwhethertheyweretenantsincommonorjointtenants.81 ThiswasrecognizedinReStead,82 where
FarwellJsaid:83
IfAinducesBeithertomake,ortoleaveunrevoked,awillleavingpropertytoAandCastenantsin
common,byexpresslypromising,ortacitlyconsenting,thatheandCwillcarryoutthetestatorswishes,
andCknowsnothingofthematteruntilafterAsdeath,Aisbound,butCisnotbound:TeevFerris(1856)
2K&J357thereasonstatedat368being,thattoholdotherwisewouldenableonebeneficiarytodeprive
therestoftheirbenefitsbysettingupasecrettrust.If,however,thegiftweretoAandCasjointtenants,
theauthoritieshaveestablishedadistinctionbetweenthosecasesinwhichthewill(p.141) ismadeon
thefaithoftheantecedentpromisebyAandthoseinwhichthewillisleftunrevokedonthefaithofa
subsequentpromise.Intheformercase,thetrustbindsbothAandC:RussellvJack son(1852)10Hare
204JonesvBadley(1868)3ChApp362,thereasonstatedbeingthatnopersoncanclaimaninterest
underafraudcommittedbyanotherinthelattercaseAandnotCisbound:BurneyvMacdonald(1845)
15Sim6andMossvCooper(1861)1John&H352,thereasonstatedat367beingthatthegiftisnot
taintedwithanyfraudinprocuringtheexecutionofthewill.PersonallyIamunabletoseeanydifference
betweenagiftmadeonthefaithofanantecedentpromiseandagiftleftunrevokedonthefaithofa
subsequentpromisetocarryoutthetestatorswishesbutapparentlyadistinctionhasbeenmadebythe
variousjudgeswhohavehadtoconsiderthequestion.Iambound,therefore,todecideinaccordancewith
theseauthorities.
ThereasonforthisdistinctionhasbeenexplainedbyPerrins:84
ThereasonsstatedbyFarwellJinReSteadareatfirstsightcontradictory.Oneconsiderationisthata
personmustnotbeallowed,byfalselysettingupasecrettrust,todepriveanotherofhisbenefitsunderthe
will.Apparentlythisisdecisiveifthepartiesaretenantsincommonbutnotiftheyarejointtenants.Onthe
otherhandonepersonmustnotprofitbythefraudofanother.Apparentlythisisdecisiveonlyiftheparties
arejointtenantsandnotiftheyaretenantsincommon.Yetagainitisapparentlyonlyfraudinprocuring
theexecutionofawillthatisrelevant,andnotfraudininducingatestatornottorevokeawillalready
made.Allveryconfusing,butaddHugueninvBaseley(1807)14Ves273andthewholepicturesprings
intofocusandtheconfusiondisappears.ReturningtoAandC,whethertheyaretenantsincommonor
jointtenants,CisnotboundifhisgiftwasnotinducedbythepromiseofAbecausetoholdotherwise
wouldbetoenableAtodepriveCofhisbenefitbysettingupasecrettrustbutCisboundifhisgiftwas
inducedbythepromiseofAbecausehecannotprofitbythefraudofanotherandifthetrustwas
communicatedtoAafterthewillwasmade,thenCtakesfreeifhisgiftwasnotinducedbythepromiseof
AbecauseifthereisnoinducementthereisnofraudaffectingC.
This,itissubmitted,iswhatwasdecidedbythecasescitedinFarwellJsjudgment.
Consequently,thepreferableviewisthatifthetestatorhasbeeninducedbythepromiseofoneofthepartiesto
leavepropertyonsecrettrust,suchthatthegiftwouldnothavebeenmadewithoutthepromise,thetrustshould
bindallpartiesregardlessofwhethertheyarejointtenantsortenantsincommon.
(d)Standardofproof
Thepersonseekingtoestablishthesecrettrustbearstheburdenofprovingthatthetrusthasbeencreated.85 As
regardsthestandardofproof,itwasrecognizedinOttawayvNorman86 thatclearevidencewasrequiredbeforethe
courtwouldbewillingtoconcludethatthetestatorhadintendedsomethingdifferentfromwhatappearedonthe
faceofthewill.InReSnowden,87 however,MegarryVCacceptedthattheordinarycivilstandardofproofona
balanceofprobabilitiesappliedtoestablishafullysecrettrust,savewherefraudwasassertedagainstthealleged
trustee.Inthatcase,thetestatrixmadeherwillsixdaysbeforeshedied.Sheleftherresiduaryestatetoher
brotherabsolutely.Sixdaysafterherdeath,thebrotherdied.Helefthispropertytohisson.Thetestatrixs
solicitors,whohadprepared(p.142) andwitnessedthewill,gaveevidencethatshewantedherbrothertodivide
herestateforhersothatshecouldbefairtoeveryone.Inholdingthattherewasnosecrettrust,MegarryVC
consideredthestandardofproof:88
Onequestionthatarisesiswhetherthestandardofproofrequiredtoestablishasecrettrustismerelythe
ordinarycivilstandardofproof,orwhetheritisahigherandmorecogentstandard.Ifitisthelatter,Ifeelno
doubtthattheclaimthatthereisasecrettrustmustfail.Onthisquestion,OttawayvNorman[1972]Ch
698wasciteditwas,indeed,theonlyauthoritythatwasputbeforeme.Accordingtotheheadnote,the
standardofproofwasnotanexceptionallyhighonebutwasanalogoustothatrequiredbeforethecourt
wouldrectifyawritteninstrument.Whenoneturnstothejudgment,onefindsthatwhatBrightmanJsaid
at712,wasthatLordWestburyswordsinMcCormick vGrogan(1869)LR4HL82at97,acaseonsecret
trusts,didnotmeanthatanexceptionallyhighstandardofproofwasneeded,butmeantnomorethanthat:
ifawillcontainsagiftwhichisintermsabsolute,clearevidenceisneededbeforethecourtwill
assumethatthetestatordidnotmeanwhathesaid.Itisperhapsanalogoustothestandardofproof
whichthiscourtrequiresbeforeitwillrectifyawritteninstrument,forthereagainapartyissaying
thatneithermeantwhattheyhavewritten.
Ifeelsomedoubtabouthowfarrectificationisafairanalogytosecrettrustsinthisrespect.Manycasesof
rectificationdoofcourseinvolveapartyinsayingthatneithermeantwhattheyhavewritten,andrequiring
thatwhattheyhavewrittenshouldbealtered.Ontheotherhand,thewholebasisofsecrettrusts,asI
understandit,isthattheyoperateoutsidethewill,changingnothingthatiswritteninit,andallowingitto
operateaccordingtoitstenor,butthenfasteningatrustontothepropertyinthehandsoftherecipient.It
isatleastpossiblethatverydifferentstandardsofproofmaybeappropriateforcaseswherethewordsofa
formaldocumenthavetobealteredandforcaseswherethereisnosuchalterationbutmerelyaquestion
whether,whenthedocumenthasbeengiveneffectto,therewillbesometrustofthepropertywithwhichit
dealt.Iamnotsurethatitisrighttoassumethatthereisasingle,uniformstandardofproofforallsecret
trusts.ThepropositionofLordWestburyinMcCormick vGroganwithwhichBrightmanJwaspressed
inOttawayvNormanwasthatthejurisdictionincasesofsecrettrustwas
foundedaltogetheronpersonalfraud.ItisajurisdictionbywhichaCourtofEquity,proceedingonthe
groundoffraud,convertsthepartywhohascommitteditintoatrusteeforthepartywhoisinjuredbythat
fraud.Now,beingajurisdictionfoundedonpersonalfraud,itisincumbentonthecourttoseethatafraud,
amalusanimus,isprovedbytheclearestandmostindisputableevidence.
Ofthat,itisrighttosaythatthelawonthesubjecthasnotstoodstillsince1869,andthatitisnowclear
thatsecrettrustsmaybeestablishedincaseswherethereisnopossibilityoffraud.McCormick v
Groganhastobereadinthelightbothofearliercasesthatwerenotcited,andalsoofsubsequentcases,
inparticularBlack wellvBlack well[1929]AC318.Itseemstomethatfraudcomesintothematterintwo
ways.First,itprovidesanhistoricalexplanationofthedoctrineofsecrettruststhedoctrinewasevolvedas
ameansofpreventingfraud.That,however,doesnotmeanthatfraudisanessentialingredientforthe
applicationofthedoctrinethereasonfortheruleisnotpartoftheruleitself.Second,therearesome
caseswithinthedoctrinewherefraudisindeedinvolved.Therearecaseswhereforthelegateetoassert
thatheisabeneficialowner,freefromanytrust,wouldbeafraudonhispart.
ItistothislatteraspectoffraudthatitseemstomethatLordWestburyswordsareapplicable.Ifasecret
trustcanbeheldtoexistinaparticularcaseonlybyholdingthelegateeguiltyoffraud,thennosecret
trustshouldbefoundunlessthestandardofproofsufficesforfraud.Ontheotherhand,ifthereisno
questionoffraud,whyshouldsohighastandardapply?Insuchacase,Ifinditdifficulttosee(p.
143) whythemerefactthatthehistoricaloriginofthedoctrinelayinthepreventionoffraudshouldimpose
thehighstandardofproofforfraudinacaseinwhichnoissueoffraudarises.Inaccordancewiththe
generalruleofevidence,thestandardofproofshouldvarywiththenatureoftheissueanditsgravity:
seeHornalvNeubergerProductsLtd[1957]1QB247.
Nowinthepresentcasethereisnoquestionoffraud.Thewilldirectedtheresiduetobeheldintrustfor
thebrotherabsolutely,andtheonlyquestioniswhetherornotthebeneficialinterestthusgiventohimhas
beensubjectedtoatrust,andifso,whatthattrustis.Thetrust,ifitisone,isplainlyonewhichrequired
thebrothertocarryitout:itwashewhowastodistributethemoneyandseethateverythingwasdealt
withproperly,andnotthetrusteesofthewill.Therewasthusnoattempttocancelthetestamentarytrust
ofresidueforthebrotherandrequirethetrusteesofthewilltoholdtheresidueonthesecrettrustinstead.
AccordinglyIcannotseethatrectificationprovidesanyrealanalogy.Thequestionissimplythatofthe
ordinarystandardofevidencerequiredtoestablishatrust.
Ithereforeholdthatinordertoestablishasecrettrustwherenoquestionoffraudarises,thestandardof
proofistheordinarycivilstandardofproofthatisrequiredtoestablishanordinarytrust.Iamconscious
thatthisdoesnotaccordwithwhatwassaidinOttawayvNorman[1972]Ch698butIthinkthepointwas
takensomewhatshortlythere,andthejudgedoesnotseemtohavehadtheadvantageofhavingcitedto
himtheauthoritiesthatIhaveconsidered.ForthosereasonsIhaveovercomemyhesitationindiffering
fromhim.Icannotthereforedisposeofthecasesummarilyonthefootingthatahighstandardofproofhas
plainlynotbeenachieved,butImustconsidertheevidenceinsomedetailtoseewhethertheordinary
standardofproofhasbeensatisfied.Theinitialquestion,ofcourse,iswhetherthebrotherwasboundbya
secrettrust,orwhetherhewassubjecttonomorethanamoralobligation
Thegeneralpicturewhichseemstometoemergefromtheevidenceisofatestatrixwhoforlonghadbeen
worryingabouthowtodivideherresidueandwhowasstillundecided.Shehadabrotherwhomshetrusted
implicitlyandwhoknewhergeneralviewsaboutherrelationsandherproperty.Shethereforelefther
residuetohiminthefaiththathewould,induetimeandinaccordancewithhergeneralwishes,makein
hersteadthedetaileddecisionsaboutthedistributionofherresiduewhichhadforsolongtroubledherand
onwhichshewasstillundecided.Hewashertrustedbrother,morewealthythanshe,andalittleolder.
TherewasthusnoneedtobindhimbyanylegallyenforceabletrustandIcannotseeanyrealindication
thatshehadanythoughtofdoingthis.Instead,shesimplylefthim,asamatteroffamilyconfidenceand
probity,todowhathethoughtshewouldhavedoneifshehadeverfinallymadeuphermind.Inshort,to
reverttothelanguageofChristianLJinMcCormick vGrogan(1867)IR1Eq313at328,Icannotseeany
realevidencethatsheintendedthesanctiontobetheauthorityofacourtofjusticeandnotmerelythe
conscienceofherbrother.Ithereforeholdthatherbrothertooktheresiduefreefromanytrust.
Sinceithadnotbeenestablishedthattherewasaclearintentionthatthepropertyshouldbeheldontrust,the
firstrequirementofafullysecrettrusthadnotbeensatisfied.
ThedifficultywithReSnowdenrelatestowhatismeantbyfraudforthesepurposes.Itappearsthatfraudistobe
interpretednarrowlytomeandeliberateandconsciouswrongdoingamountingtodeceit.Consequently,wherethe
allegedsecrettrusteedeniestheexistenceofthetrustandclaimstotakethepropertybeneficially,ahigher
standardofproofthanthenormalbalanceofprobabilitiesstandardmustbesatisfied,asinOttawayv
Norman.Where,however,theissueissimplywhethertheconditionsforestablishingafullysecrettrusthavebeen
satisfied,suchaswhetherthetestatorintendedsuchatrusttobedeclared,asinReSnowden,thereisno
allegationoffraudinthisnarrowsenseandthenormalbalanceofprobabilitiesstandardapplies.Similarly,forhalf
secrettrusts,therewillusuallybenofraudinthisnarrowsensebecausethetrustisclearonthefaceofthewill.
But,evenwithhalfsecrettrusts,fraudinthenarrowsensemightberelevantif,forexample,thetrusteedenies
thatthecommunicationofthetermsofthetrustoccurredbeforethewillwasexecutedandthetrusteeisentitled
totheresiduaryestate,andsowouldtakethepropertybeneficiallyifthetrustfails.
(p.144) ButthisanalysisofReSnowdencreatesaparadox:itmeansthattheworsethetrusteesconductis
allegedtobe,thehigherthestandardofproofthatneedstobesatisfiedbeforethetrustisrecognized.Itfollows
that,sincefraudinthisnarrowsenseofdeceitneednotbeprovedtoestablishafullysecrettrust,itwouldbe
preferablenottopleaditandforthebeneficiaryofthetrustsimplytosatisfythestandardofproofonthebalance
ofprobabilities.
(e)Failuretoestablishallrequirementsofafullysecrettrust
Ifitispossibletoprovethatthetestatorintendedatrust,andthatthiswascommunicatedtoandacceptedbythe
legatee,butitisnotpossibletoprove,forexample,whotheintendedbeneficiarieswere,orifthetermsofthe
trustareunlawfuloruncertain,89 thepropertywillbeheldonresultingtrustforthoseentitledtothetestators
residuaryestate,90 becauseoffailureoftheexpresstrust.Whereitisnotpossibletoproveeventhatthetestator
intendedthelegateetotakethepropertyasatrustee,heorshewilltakethepropertybeneficially.
(f)Nontestamentaryapplications
Althoughafullysecrettrustcanariseonlyinthetestamentarycontext,theprinciplesrecognizedinthesecret
trustcaseshavebeenappliedtotransactionsoutsideofwills.So,forexample,inGoldvHill,91 thetestator
nominatedhissolicitorasthebeneficiaryofalifeinsurancepolicy.Hethentoldthesolicitorthathewantedhimto
usetheproceedsofthepolicytolookafterhispartnerandchildren.Followingthetestatorsdeath,thesolicitor
receivedtheproceedsofthepolicy.Itwasheldthatthesolicitorheldthismoneyontrustforthepartnerand
children,byanalogywithasecrettrust.CarnwathJsaid:92
Thenomination,likeatestamentarydisposition,doesnottransferorcreateanyinterestuntildeath.Itis
consistentwiththeprincipleofBlack wellvBlack wellthatthenomineeshouldtakeundertherulesofthe
policy,butthenberequiredtoapplyitasthecourtofconsciencedirectsandsotogiveeffecttothe
wishesofthetestator.Suchdoubtsastheremaybe,inthecaseoftestamentarydispositions,astothe
effectivenessofanintentioncommunicatedaftertheexecutionofthewill,appeartobederivedfromthe
particularrulesapplyingtowills.Thereisnoreasonwhytheyshouldcreatesimilardifficultiesinthecase
ofnominations.Sincethenominationhasnoeffectuntilthetimeofdeath,itshouldbesufficientthatthe
natureofthetrustissufficientlycommunicatedpriortothattime.
Thiswasnotpreciselythesamemechanismasasecrettrustbecausethesolicitorwasnominatedasbeneficiary
ofthepolicyratherthaninawill,buttheeffectwasthesamesincethesolicitorwasintendedtoholdthemoney
ontrustforothersandthisbecameeffectiveonlyonthedeathofthetestator.Atthatpoint,thesolicitorreceived
theproceedsofthepolicy,buthewasthenobligedtoapplythemoneyforthebenefitofthetestatorspartnerand
children.
(g)AUnifiedTheoryofSecretTrusts?
Althoughhalfsecretandfullysecrettrustsappeartobejuridicallydifferent,sinceoneappearsonthefaceofthe
willandtheotherdoesnot,thepreferableviewisthattheyarenot.Theyarebothexpresstruststhatarisedehors
thewill,eventhoughtheyareconstitutedonlyoncethetestatorhasdied.(p.145) Bothtypesoftrustshouldbe
recognized.Thetrusteecanbeconsideredtohaveactedunconscionablyinreceivingpropertyinthewilland
denyingtheexistenceofanytrustwhenthetestatorexpectedthetrusteetoholdthepropertyontrustforanother.
Inotherwords,secrettrustsarerecognizedtopreventfraudinthewidersenseofunconscionableconductin
betrayingtheundertakingmadetothetestator.93 Itfollowsthattherequirementsforbothtypesoftrustshouldbe
thesame,namelyanintentiontocreateatrust,communicationofthetermstothetrusteebeforethetestators
death,andacknowledgementoracquiescenceofthetrustbythetrustee.Analysedlikethis,halfsecretandfully
secrettrustsaredefensibleandworkable.
3.ConstitutionofTrusts
Anexpresstrustonlyexistsifthetrustisconstitutedbytitletothetrustpropertybeingvestedinthetrustee.This
isbecausetheremustbepropertyuponwhichthetrustobligationscanbiteifthetrusteehasnoproperty,there
canbenotrust.Atrustcanbeconstitutedintwoways:bydeclarationofoneselfasatrusteeorbytransferof
propertytotrustees.
(a)DeclarationofSelfasTrustee
Ifthesettlordeclareshimorherselftobeatrustee,thereisnoproblemofconstitutionofthetrustsincethe
propertyisalreadyvestedinthesettlor.Theprobleminthiscontextrelatestowhethertherehasbeena
declarationoftrust.Itisnecessarytoshowthatthesettlormanifestedanintentiontodeclarehimorherselftobe
atrustee.Nothingelsewilldo.94 AsMaitlandobserved:95
[m]enoftenmeantogivethingstotheirkinsfolk,theydonotoftenmeantoconstitutethemselvestrustees.
Itisimportanttonotethatthetwomethodsofconstitutingatrustdeclarationandtransfercannotbemeshed
together,sothatifneitherisquiteeffectivebutbotharealmostsatisfiedthecourtwillstillnotfindthatatrusthas
beenconstituted.Anintentiontogivewillnotbeconstruedasanintentiontodeclareoneselftobeatrustee:An
imperfectgiftisnodeclarationoftrust.96 AsTurnerLJsaidinMilroyvLord:97
ifthesettlementisintendedtobeeffectuatedbyoneofthemodestowhichIhavereferred[eitherself
declarationastrusteeortransfertoanothertoholdontrust],theCourtwillnotgiveeffecttoitbyapplying
anotherofthosemodes.Ifitisintendedtotakeeffectbytransfer,theCourtwillnotholdtheintended
transfertooperateasadeclarationoftrust,fortheneveryimperfectinstrumentwouldbemadeeffectualby
beingconvertedintoaperfecttrust.
(p.146) Agoodillustrationofthisapproachcanbefoundinthefollowingcase.
JonesvLock[1865]1ChApp25
OnreturningfromabusinessvisittoBirmingham,Mr.Joneswasreprovedbyhisfamilyfornotbringinga
presentforhisbabyson.Heproducedachequefor900payabletohimself,andsaid:Lookyouhere,Igive
thistobabyitisforhimself,andIamgoingtoputitawayforhim,andwillgivehimagreatdealmorealong
withit.Heplacedthechequeinthebabyshand.Hiswifefearedthatthebabymighttearit,andJones
added:Nevermindifhedoesitishisown,andhemaydowhathelikeswithit.Hethentookthecheque
backandlockeditinasafe.Sixdayslaterhedied.Thequestionwaswhetherthebabywasentitledtothe
cheque.
Itwasheldthattherehadbeennogifttothebaby98 andnodeclarationoftrustinhisfavour.
LordCranworthLC:
Thisisaspecialcase,inwhichIregrettosaythatIcannotbringmyselftothinkthat,eitheron
principleoronauthority,therehasbeenanygiftoranyvaliddeclarationoftrust.Nodoubtagiftmay
bemadebyanypersonsuijurisandcomposmentis,byconveyanceofarealestateorbydeliveryof
achattelandthereisnodoubtalsothat,bysomedecisions,unfortunateImustthinkthem,a
parol99 declarationoftrustofpersonaltymaybeperfectlyvalidevenwhenvoluntary.IfIgiveany
chattelthat,ofcourse,passesbydelivery,andifIsay,expresslyorimpliedly,thatIconstitutemyself
atrusteeofpersonalty,thatisatrustexecuted,andcapableofbeingenforcedwithoutconsideration.I
donotthinkitnecessarytogointoanyoftheauthoritiescitedbeforemetheyallturnuponthe
question,whetherwhathasbeensaidwasadeclarationoftrustoranimperfectgift.Inthelattercase
thepartieswouldreceivenoaidfromaCourtofequityiftheyclaimedasvolunteers.100 Butwhenthere
hasbeenadeclarationoftrust,thenitwillbeenforced,whethertherehasbeenconsiderationornot.
Thereforethequestionineachcaseisoneoffacthastherebeenagiftornot,orhastherebeena
declarationoftrustornot?Ishouldhaveeveryinclinationtosustainthisgift,butunfortunatelyIam
unabletodosothecaseturnsontheveryshortquestionwhetherJonesintendedtomakea
declarationthatheheldthepropertyintrustforthechildandIcannotcometoanyotherconclusion
thanthathedidnot.Ithinkitwouldbeofverydangerousexampleiflooseconversationsofthissort,in
importanttransactionsofthiskind,shouldhavetheeffectofdeclarationsoftrust.
LordCranworthobviouslyregrettedtheresult,butitwasdifficulttoestablishhowthechildcouldreceivethe
money.Thetransferbygiftwasineffective,andthesituationcouldnotberescuedbysayingthefatherhad
declaredhimselfatrustee:hedidnotintendatrust,butagift.
Neverthelessitshouldberememberedthatthewordtrustdoesnotneedtobeusedexplicitlyinordertofindthat
apersondeclaredhimorherselftobeholdingpropertyasatrustee.Forexample,inPaulvConstance,101 the
courtheldthatthewordsthemoneyisasmuchyoursasmineintheirparticularcontextweresufficienttofind
thatthespeakerwasdeclaringhimselftoholdthepropertyastrusteeforhimselfandtheaddresseeofthewords
beneficially.ScarmanLJsaid:102
Whenonebearsinmindtheunsophisticatedcharacterofthedeceasedandhisrelationshipwiththe
plaintiffduringthelastfewyearsofhislife,Mr.Wilsonsubmitsthatthewordsthathediduseonmore(p.
147) thanoneoccasion,thismoneyisasmuchyoursasmine,conveyclearlyapresentdeclarationthat
theexistingfundwasasmuchtheplaintiffsashisown.Thejudgeacceptedthatconclusion.Ithinkthat
hewaswelljustifiedindoingsoand,indeed,Ithinkthathewasrighttodoso.
Onecasewhichhascauseddifficultyinthisarea,andhasoftenbeenmisinterpreted,103 isthatofTChoithram
InternationalSAvPagarani,wherethemethodofconstitutionofthetrustwasessentiallybyselfdeclaration.
TChoithramInternationalSAvPagarani[2001]1WLR1(PC)
Thedonor(TCP),whowasseriouslyill,executedatrustdeedtoestablishaphilanthropicfoundation.Having
appointedhimselfoneofthetrustees,hestatedorallythathegaveallhisestatetothefoundation.TCPdied
beforedepositbalancesandshareshadbeentransferredtothefoundation.Theplaintiffsclaimedthatthey
wereentitledtoTCPsestateonanintestacybecausehehadnotmadeavalidgifttothefoundation.
ItwasheldthatTCPhadintendedtomakeanimmediateirrevocablegifttothefoundation.SinceTCPwas
oneofthetrusteesofthefoundationhewasboundbythetrustandsothegifttothefoundationwasproperly
vestedinallthetrustees.
LordBrowneWilkinson:
TheirLordshipsthenturntothecentralandmostimportantquestion:onthebasisthatTCPintended
tomakeanimmediateabsolutegifttothefoundationbuthadnotvestedthegiftedpropertyinallthe
trusteesofthefoundation,arethetrustsofthefoundationtrustdeedenforceableagainstthedeposits
andthesharesoristhis(asthejudgeandtheCourtofAppealheld)acasewheretherehasbeenan
imperfectgiftwhichcannotbeenforcedagainstTCPsestatewhateverTCPsintentions[?]
So,itissaid,inthiscaseTCPusedwordsofgifttothefoundation(notwordsdeclaringhimselfa
trustee):unlesshetransferredthesharesanddepositssoastovesttitleinallthetrustees,hehad
notdoneallthathecouldinordertoeffectthegift.Itthereforefails.Furtheritissaidthatitisnot
possibletotreatTCPswordsofgiftasadeclarationoftrustbecausetheymakenoreferenceto
trusts.Thereforethecasedoesnotfallwithineitherofthepossiblemethodsbywhichacompletegift
canbemadeandthegiftfails.Thoughitisunderstandablethatthecourtsbelowshouldhavereached
thisconclusionsincethecasedoesnotfallsquarelywithineitherofthemethodsnormallystatedas
beingtheonlypossiblewaysofmakingagift,theirLordshipsdonotagreewiththatconclusion.The
factsofthiscasearenovelandraiseanewpoint.Itisnecessarytomakeananalysisoftherulesof
equityastocompletegifts.Althoughequitywillnotaidavolunteer,itwillnotstriveofficiouslytodefeat
agift.Thiscasefallsbetweenthetwocommonformsituationsmentionedabove.Althoughthewords
usedbyTCParethosenormallyappropriatetoanoutrightgiftIgivetoXinthepresentcontext
thereisnobreachoftheprincipleinMilroyvLordifthewordsofTCPsgift(i.e.tothefoundation)are
giventheironlypossiblemeaninginthiscontext.Thefoundationhasnolegalexistenceapartfromthe
trustdeclaredbythefoundationtrustdeed.ThereforethewordsIgivetothefoundationcanonly
meanIgivetothetrusteesofthefoundationtrustdeedtobeheldbythemonthetrustsoffoundation
trustdeed.Althoughthewordsareapparentlywordsofoutrightgifttheyareessentiallywordsofgift
ontrust.
But,itissaid,TCPvestedthepropertiesnotinallthetrusteesofthefoundationbutonlyinone,i.e.
TCP.Sinceequitywillnotaidavolunteer,howcanacourtorderbeobtainedvestingthegifted
propertyinthe(p.148) wholebodyoftrusteesonthetrustsofthefoundation[?]Again,this
representsanoversimplifiedviewoftherulesofequity.Untilcomparativelyrecentlythegreatmajority
oftrustswerevoluntarysettlementsunderwhichbeneficiarieswerevolunteershavinggivennovalue.
Yetbeneficiariesunderatrust,althoughvolunteers,canenforcethetrustagainstthetrustees.Oncea
trustrelationshipisestablishedbetweentrusteeandbeneficiary,thefactthatabeneficiaryhasgiven
novalueisirrelevant.Itisforthisreasonthatthetypeofperfectedgiftreferredtoinclass(b)aboveis
effectivesincethedonorhasconstitutedhimselfatrusteeforthedoneewhocanasamatteroftrust
lawenforcethattrust.
Whatthenisthepositionherewherethetrustpropertyisvestedinoneofthebodyoftrustees,viz.
TCP?IntheirLordshipsviewthereshouldbenoquestion.TCPhas,inthemostsolemn
circumstances,declaredthatheisgiving(andlaterthathehasgiven)propertytoatrustwhichhe
himselfhasestablishedandofwhichhehasappointedhimselftobeatrustee.Allthisoccursatone
compositetransactiontakingplaceon17February.Therecaninprinciplebenodistinctionbetween
thecasewherethedonordeclareshimselftobesoletrusteeforadoneeorapurposeandthecase
wherehedeclareshimselftobeoneofthetrusteesforthatdoneeorpurpose.Inbothcaseshis
conscienceisaffectedanditwouldbeunconscionableandcontrarytotheprinciplesofequitytoallow
suchadonortoresilefromhisgift.Say,inthepresentcase,thatTCPhadsurvivedandtriedto
changehismindbydenyingthegift.IntheirLordshipsviewitisimpossibletobelievethathecould
validlydenythathewasatrusteeforthepurposesofthefoundationinthelightofallthestepsthathe
hadtakentoassertthatpositionandtoasserthistrusteeship.IntheirLordshipsjudgmentinthe
absenceofspecialfactorswhereoneoutofalargerbodyoftrusteeshasthetrustpropertyvestedin
himheisboundbythetrustandmustgiveeffecttoitbytransferringthetrustpropertyintothename
ofallthetrustees.
TheplaintiffsreliedonthedecisionofSirJohnRomillyMRinBridgevBridge(1852)16Beav315as
showingthatthevestingofthetrustpropertyinonetrustee,thedonor,outofmanyisnotsufficientto
constitutethetrust:seeat324.TheirLordshipshavesomedoubtwhetherthatcasewascorrectly
decidedonthispoint,thejudgegivingnoreasonsforhisview.Butinanyeventitisplainly
distinguishablefromthepresentcasesincethejudgeconsideredthatthetrustcouldnotbefully
constitutedunlessthelegalestateinthegiftedpropertywasvestedinthetrusteesandinthatcase
thelegalestatewasvestedneitherinthedonornorinanyoftheothertrustees.
Itmustbewondered,contrarytotheopinionofthePrivyCouncil,whetherPagaraniwasinfactallthatnovelatall.
Notingthecase,Rickettwrote:104
attheendofthedaythecasedoesnotfallbetweenthetwocommonformsituationsandisreallynot
novel.Ineffect,adifferentconclusionisreachedontheeffectiveconstitutionofthetrustbecausetheir
LordshipsconstruethecaseasoneofasuccessfuldeclarationbyTCPofhimselfastrustee,ratherthan
asoneoftransfertotrustees.
DespiteRickettsdoubtsastowhetherthisissatisfactory,theoutcomeseemsappropriate.TCPwasoneofthe
trustees,hadtherelevantproperty,anddeclaredhimselftobeholdingitontrust.Admittedly,heusedthe
languageofhandingoverthepropertytotrustees,buttowhomwashesupposedtohandovertheproperty?TCP
wasoneofthetrusteeshimself,andreferringtohimashandingmoneytohimselfmightlegitimatelybe
interpretedashimholdingthepropertyhealreadyownedonthetrustsalreadyestablished.Thisinterpretationis
strengthenedbythePrivyCouncilsrecognitionthat,ifthepropertyisvestedinoneofanumberoftrustees,then
thetrustwillbefullyconstituted.Thisissensible:ifatrusteehastitletopropertyontheunderstandingthatitis
heldontrust,thenitwould(p.149) beunconscionableforthattrusteetodenythatlegaltitleshouldbevestedin
alltrustees.AsLordBrowneWilkinsonmemorablyputit,Equitywillnotstriveofficiouslytodefeatagift.
(b)TransferofTrustPropertytoTheTrustee
Theothermethodofconstitutingatrustisforthesettlortotransferthepropertytothetrustees.Thevestingofthe
trustpropertyinthetrusteeconstitutesthetrust.Inacompletelyconstitutedtrust,thereisnoneedfor
considerationandthequestionofwhetherabeneficiaryisavolunteerisimmaterial.105
Thetransferofpropertyfromthesettlortothetrusteeinitselfhaslittletodowiththelawoftrusts,andmuchtodo
withthelawofgifts.TherequirementsforAtogivepropertytoBarefoundinthelawconcerningthetransferof
property.IfBhappenstobeatrustee,thenavalidtransferwillalsomeanthatthetrustisfullyconstituted.In
mostcircumstances,thetransferorwillseektotransferlegaltitletothetrustee,butinsomesituationsthetrustee
mightonlyreceiveequitabletitle.
(i)Legalinterests
Themethodoftransferoflegaltitlevarieswiththepropertyinquestion.Alegalestateinunregisteredlandmust
betransferredbydeed,106 andinregisteredlandbyregistration107 stocksandsharesbyanappropriateformof
transferfollowedbyregistrationoftitleintheshareregister108 chattelsbydeedofgift109 orbyanintentiontogive
coupledwithadeliveryofpossession.110
Aslongasthetrusteereceiveslegaltitleoftheproperty,thetrustwillbeconstituted,regardlessofthereason
whytitleisvestedinthetrustee.ThisprinciplewasmadeclearinReRallisWillTrusts.111 Atestatorlefthis
residuaryestateontrustforhiswifeforlife,andthenforhistwodaughters,HelenandIreneabsolutely.Helen,by
hermarriagesettlement,covenantedtosettlepropertyacquiredsubsequentlyinfavourofthechildrenofIrene.
Helenandthetestatorswidowlaterdied,leavingtheclaimant,whowasIreneshusband,asthesolesurviving
trusteebothofthetestatorswillandofthemarriagesettlement.Helensshareofthetestatorsresiduaryestate
wasthusvestedintheclaimant,andthequestionwaswhethertheclaimanthelditontrustforthoseinterested
underHelenswill,oronthetrustsofHelensmarriagesettlement,thebeneficiariesofwhichweretheclaimants
threechildren.BuckleyJheldthatthepropertywashelduponthetrustsofthemarriagesettlement:theproperty
wasvestedinthetrusteeofthemarriagesettlement,anditmadenodifferencethatitcametohiminhiscapacity
astrusteeofthewilltrusts:112
Thefund,havingcomewithoutimproprietyinto[theclaimants]hands,isnow,hesays,impressedinhis
handswiththetrustsuponwhichheoughttoholditunderthesettlementandbecauseofthecovenantit
doesnotlieinthemouthofthedefendantstosaythatheshouldholdthefundintrustforHelensestate.
(p.150) Inmyjudgmentthecircumstancethattheplaintiffholdsthefundbecausehewasappointeda
trusteeofthewillisirrelevant.Heisatlawtheownerofthefund,andthemeansbywhichhebecameso
havenoeffectuponthequalityofhislegalownership.Thequestionis:forwhom,ifanyone,doeshehold
thefundinequity?Inotherwords,whocansuccessfullyassertanequityagainsthimdisentitlinghimto
standuponhislegalright?ItseemstometobeindisputablethatHelen,ifshewerealive,couldnotdoso,
forshehassolemnlycovenantedundersealtoassignthefundtotheplaintiff,andthedefendants[as
representativesofHelen]canstandinnobetterposition.
Helensrepresentativeswereunabletoassertanyrightagainsttheclaimant,andtheclaimantwasconsideredto
beholdingthepropertyonthetrustsofthemarriagesettlement.Thefactthathereceivedthepropertyinan
unanticipatedmannerdidnotaffectthenatureofhisholdingthepropertyassuchatrustee.
Itisworthemphasizingagainthatafailedattempttotransfertitlewillnotbereinterpretedasadeclarationoftrust
simplyinordertoensurethatthegiftisfullyconstituted.Agoodexampleofthisinthecontextofproperty
transfersisMilroyvLord.
MilroyvLord[1862]4DeGF&J264
Thesettlorexecutedavoluntarydeed,purportingtotransferfiftysharesintheBankofLouisianatoMr.Lord
tobeheldontrustfortheclaimants,andlaterhandedtohimthesharecertificates.Atthetime,Lordhelda
generalpowerofattorney,whichwouldhaveentitledhimtotransferthesettlorsshares.However,theshares
couldonlybetransferredbyregistrationofthetransfereeinthebooksofthebank,andthiswasneverdone.
Thecourtheldthatnotrustoftheshareshadbeencreatedinfavouroftheclaimants.
TurnerLJ:
Underthecircumstancesofthiscase,itwouldbedifficultnottofeelastrongdispositiontogiveeffect
tothissettlementtothefullestextent,andcertainlyIsparednopainstofindthemeansofdoingso,
consistentlywithwhatIapprehendtobethelawoftheCourtbut,afterfullandanxiousconsideration,
Ifindmyselfunabletodoso.ItakethelawofthisCourttobewellsettled,that,inordertorendera
voluntarysettlementvalidandeffectual,thesettlormusthavedoneeverythingwhich,accordingtothe
natureofthepropertycomprisedinthesettlement,wasnecessarytobedoneinordertotransferthe
propertyandrenderthesettlementbindinguponhim.Hemayofcoursedothisbyactuallytransferring
thepropertytothepersonsforwhomheintendstoprovide,andtheprovisionwillthenbeeffectual,and
itwillbeequallyeffectualifhetransfersthepropertytoatrusteeforthepurposesofthesettlement,or
declaresthathehimselfholdsitintrustforthosepurposesandifthepropertybepersonal,thetrust
may,asIapprehend,bedeclaredeitherinwritingorbyparolbut,inordertorenderthesettlement
binding,oneorotherofthesemodesmust,asIunderstandthelawofthisCourt,beresortedto,for
thereisnoequityinthisCourttoperfectanimperfectgift.ThecasesIthinkgofurthertothisextent,
thatifthesettlementisintendedtobeeffectuatedbyoneofthemodestowhichIhavereferred,the
Courtwillnotgiveeffecttoitbyapplyinganotherofthosemodes.Ifitisintendedtotakeeffectby
transfer,theCourtwillnotholdtheintendedtransfertooperateasadeclarationoftrust,forthenevery
imperfectinstrumentwouldbemadeeffectualbybeingconvertedintoaperfecttrust.Thesearethe
principlesbywhich,asIconceive,thiscasemustbetried.
Applying,then,theseprinciplestothecase,thereisnothereanytransfereitheroftheoneclassof
sharesoroftheothertotheobjectsofthesettlement,andthequestionthereforemustbe,whethera
valid(p.151) andeffectualtrustinfavourofthoseobjectswascreatedinthedefendantSamuelLord
orinthesettlorhimselfastoalloranyoftheseshares.Nowitisplainthatitwasnotthepurposeof
thissettlement,ortheintentionofthesettlor,toconstitutehimselfatrusteeofthebankshares.The
intentionwasthatthetrustshouldbevestedinthedefendantSamuelLord,andIthinkthereforethat
weshouldnotbejustifiedinholdingthatbythesettlement,orbyanyparoldeclarationmadebythe
settlor,hehimselfbecameatrusteeofthesesharesforthepurposesofthesettlement.Bydoingso
weshouldbeconvertingthesettlementortheparoldeclarationtoapurposewhollydifferentfromthat
whichwasintendedtobeeffectedbyit,and,asIhavesaid,creatingaperfecttrustoutofanimperfect
transaction.
(ii)Equitableinterests
Thesettlormaytransferequitabletitletothetrustee.Thiswouldcreateasubtrust.113 Inordertotransfera
subsistingequitableinterest,compliancewithsection53(1)(c)oftheLawofPropertyAct1925is
required,114 suchthatsignedwritingisneeded.InKek ewichvManning,115 forexample,trusteesheldshareson
trustforAforlife,remaindertoBabsolutely.BassignedhisequitableinteresttoCtoholdontrustforD.Thiswas
heldtocreateacompletelyconstitutedtrustofBsequitableinterestinremainder.
(c)FailedGifts:IncompletelyConstitutedTrusts
InMilroyvLord,inconcludingthatthetransferfailed,TurnerLJrelieduponthefundamentalprinciplesthatequity
willnotassistavolunteerandthereisnoequitytoperfectanimperfectgift.ThusinReFry116 apurportedgiftof
sharesfailedsincetheconsentoftheTreasurytothetransferwasrequired,andthedonordiedbeforetheconsent
wasgiven.Eventhoughthedonorhadappliedforconsentandclearlyintendedthetransfertooccuratthetimeof
hisdeath,RomerJwasclearthatfurtherstepswerenecessaryforthegifttobeperfected:117
NowIshouldhavethoughtitwasdifficulttosaythatthetestatorhaddoneeverythingthatwasrequiredto
bedonebyhimatthetimeofhisdeath,foritwasnecessaryforhimtoobtainpermissionfromthe
Treasuryfortheassignmentandhehadnotobtainedit.Moreover,theTreasurymightinanycasehave
requiredfurtherinformationofthekindreferredtointhequestionnairewhichwassubmittedtohim,or
answerssupplementaltothosewhichhehadgiveninreplytoitand,ifsoapproached,hemighthave
refusedtoconcernhimselfwiththematterfurther,inwhichcaseIdonotknowhowanyonecouldhave
compelledhimtodoso.
CasessuchasMilroyandFryhavesometimesbeenthoughttobetooharsh:forthegifttofailinitsentiretymight
appeartofrustratetheintentionsofthedonor.InordertoalleviatethestrictandunforgivingnatureofMilroy,
emphasisissometimesplaceduponthedifferentmaximthatEquitywillnotstriveofficiouslytodefeata
gift.118 ThiswascertainlythecaseinPenningtonvWaine,discussedfurtherbelow,inwhichArdenLJ
commentedthat:119 (p.152)
theprinciplethatequitywillnotassistavolunteeratfirstsightlookslikeahardedgedruleoflawnot
permittingmuchargumentorexception.Historicallytheemergenceoftheprinciplemayhavebeendueto
theneedforequitytofollowthelawratherthananintuitivedevelopmentofequity.Theprincipleagainst
imperfectlyconstitutedgiftsledtoharshandseeminglyparadoxicalresults.Beforelong,equityhad
temperedthewindtotheshornlamb(i.e.thedonee).Itdidsoonmorethanoneoccasionandinmore
thanoneway.
TherearetwomajorwaysinwhichitwillbeseenthatEquityhasenabledatransfertobeeffectiveinEquity,even
thoughitisnoteffectiveatLaw:(i)wherethedonorhasdoneeverythinginhisorherpowertotransfertitleunder
theruleinReRose(ii)whereitwouldbeunconscionableforthedonortodenythegiftundertherule
inPenningtonvWaine.Althoughthelatterisbyfarthemorecontroversial,itisimportanttobearinmind
thatbothexceptionsareopentocriticism.ThereisarespectableargumentthatEquityshouldnotdeclineto
followtheLawhere.AsJenkinsLJobservedinReMcArdle,iftherequiredformalitiesarenotfulfilled,then:120
thevoluntaryassignmentsuffersthefateofotherincompletegifts:thedonorhasalocuspoenitentiand
canchangehismindatanytime.Noquestionofconscienceentersintothematter,forthereisno
consideration,andthereisnothingdishonestonthepartofanintendingdonorifhechoosestochangehis
mindatanytimebeforethegiftiscomplete.
Thisseemssensible:ifthegiftisnotyetcompleted,andthedoneehasnotprovidedanyconsideration,thenthe
donormightlegitimatelyexpecttobeabletochangehisorhermind.Theproblemthattendstoariseisthatthe
donordiesjustbeforethegiftisperfected,andalltheevidencesuggeststhatthedonorwouldnothavechanged
hisorhermind.Thereisclearlyadesireofthecourtstotrytogiveeffecttothewishesofatestator.Yeteventhis
mightbequestioned.Afterall,itisalwayspossible,althoughadmittedlyunusual,foradonortodeclarehimor
herselftobeholdingthepropertyontrustforthedonee,pendingcompletionofthetransfer.121
(i)Donororsettlorhasdoneallnecessarytotransfertitle
ThestrictapproachofMilroyandFryhasclearlybeensoftenedbytheinterventionofEquity.Ofparticular
significanceistheruleinReRose,whichprovidesthatifthedonorhasdoneeverythinginhispowertocomplete
thetransfer,thenthegiftwillbeeffective.
ReRose[1952]Ch499
On30March,1943thesettlormadetwotransfersofsharesinanunlimitedcompanyintheformrequiredby
itsArticlesofAssociation.UndertheArticles,thedirectorsofthecompanycouldrefuse,attheirdiscretion,
toregisteratransfer.Thetransferswereregisteredon30June,1943.Thesettlordiedatatimewhenestate
dutywouldhavebeenpayableonthesharesiftheeffectivedateofthetransferwas30June,butnotifitwas
30March.TheCourtheldthatnodutywaspayable.
(p.153) EvershedMR:
theCrownsargumentisfounded[on]thebroad,generalpropositionthatifadocumentis
expressedas,andonthefaceofitintendedtooperateas,atransfer,itcannotinanyrespecttake
effectbywayoftrustsofarIunderstandtheargumenttogo.Inmyjudgment,thatstatementistoo
broadandinvolvestoogreatasimplificationoftheproblemandisnotwarrantedbyauthority.Iagree
thatifamanpurportingtotransferpropertyexecutesdocumentswhicharenotapttoeffectthat
purpose,thecourtcannotthenextractfromthosedocumentssomequitedifferenttransactionandsay
thattheywereintendedmerelytooperateasadeclarationoftrust,whichexfacietheywerenot:butif
adocumentisaptandpropertotransferthepropertyisintruththeappropriatewayinwhichthe
propertymustbetransferredthenitdoesnotseemtometofollowfromthestatementofTurnerLJ
that,asaresult,eitherduringsomelimitedperiodorotherwise,atrustmaynotarise,forthepurpose
ofgivingeffecttothetransfer.Thesimplestcasewill,perhaps,provideanillustration.Ifaman
executesadocumenttransferringallhisequitableinterest,say,inshares,thatdocument,operating,
andintendedtooperate,asatransfer,willgiverisetoandtakeeffectasatrustfortheassignorwill
thenbeatrusteeofthelegalestateinthesharesforthepersoninwhosefavourhehasmadean
assignmentofhisbeneficialinterest.And,formypart,IdonotthinkthatthecaseofMilroyv
Lord(1862)4DeGF&J264isanauthoritywhichcompelsthiscourttoholdthatinthiscasewhere,
inthetermsofTurnerLJsjudgment,thesettlordideverythingwhich,accordingtothenatureofthe
propertycomprisedinthesettlement,wasnecessarytobedonebyhiminordertotransferthe
propertytheresultnecessarilynegativestheconclusionthat,pendingregistration,thesettlorwasa
trusteeofthelegalinterestforthetransferee.
TheviewofthelimitationsofMilroyvLord,whichIhavetriedtoexpress,wasmuchbetterexpressed
byJenkinsJintherecentcasewhichalsobearsthesamenameofReRose[1949]Ch78(though
thatisacoincidence).Itistruethatthemainpoint,theessentialquestiontobedetermined,was
whethertherehadbeenatransfereonomine122 ofcertainshareswithinthemeaningofawill.The
testatorinthatcase,Rose,byhiswillhadgivenanumberofsharestooneHookbutthegiftwas
subjecttothisqualification,ifsuchshareshavenotbeentransferredtohimpreviouslytomydeath.
Thequestionwas,hadthesharesbeentransferredtohiminthesecircumstances?Hehadexecuted
(ashadthisMr.Rose)atransferinappropriateformandhandedthetransferandthecertificateto
Hookbut,atthetimeofhisdeath,thetransferhadnotbeenregistered.Itwassaid,therefore,that
therehadbeennotransferandtherehadbeennopassingtoHookofanyinterest,legalor
beneficial,whatever,bythetimethetestatordied.Ifthatviewwererightthen,ofcourse,Hookwould
beentitledtothesharesunderthewill.Butmybrotherwentalittlemorecloselyintothematter,
becauseitwasobviousthatononeviewofit,ifitwereheldthattherewasatransferwithintheterms
ofthewill,thoughthetransferwasinoperativeintheeyeofthelawandnotcapableofbeingcompleted
afterthedeath,thenMr.Hooksufferedthemisfortuneofgettingthesharesneitherbygiftinter
vivosnorbytestamentarybenefaction.Therefore,mybrotherconsideredthecaseofMilroyvLord,and
inregardtoitheusedthislanguage[1949]Ch78at89:
IwasreferredonthattothewellknowncaseofMilroyvLord,andalsototherecentcaseofRe
Fry[1946]Ch312.Thosecases,asIunderstandthem,turnonthefactthatthedeceased
donorhadnotdoneallinhispower,accordingtothenatureofthepropertygiven,tovestthe
legalinterestinthepropertyinthedonee.Insuchcircumstancesitis,ofcourse,wellsettled
thatthereisnoequitytocompletetheimperfectgift.Ifanyactremainedtobedonebythe
donortocompletethegiftatthedateofthedonorsdeaththecourtwillnotcompelhispersonal
representativestodothatactandthegiftremainsincompleteandfails.InMilroyvLordthe
imperfectionwasduetothefactthatthewrongformoftransferwasusedforthepurposeof
transferringcertainbankshares.Thedocumentwasnottheappropriatedocumenttopassany
interestinthepropertyatall.
(p.154) ThenhereferstoReFry,whichisanotherillustration.
Inthiscase,asIunderstandit,thetestatorhaddoneeverythinginhispowertodivesthimself
ofthesharesinquestiontoMr.Hook.Hehadexecutedatransfer.Itisnotsuggestedthatthe
transferwasnotinaccordancewiththecompanysregulations.Hehadhandedthattransfer
togetherwiththecertificatetoMr.Hook.Therewasnothingelsethetestatorcoulddo.
IventurerespectfullytoadoptthewholeofthepassageIhavereadwhich,inmyjudgment,isacorrect
statementofthelaw.Ifthatbeso,thenitseemstomethatitcannotbeassertedontheauthority
ofMilroyvLord,andIventuretothinkitalsocannotbeassertedasamatteroflogicandgoodsense
orprinciple,thatbecause,bytheregulationsofthecompany,therehadtobeagapbeforeMrs.Rose
could,asbetweenherselfandthecompany,claimtherightswhichthesharesgavehervisvisthe
company,thedeceasedwasnotinthemeantimeatrusteeforherofallhisrightsandbenefitsunder
theshares.Thatheintendedtopassallthoserights,asIhavesaid,seemstobetooplainfor
argument.Ithinkthemattermightbeputperhapsinasomewhatdifferentfashion,thoughitreaches
thesameend.Whatevermightbethepositionduringtheperiodbetweentheexecutionofthis
documentandtheregistrationoftheshares,thetransferswereon30June,1943,registered.After
registration,thetitleofMrs.Rosewasbeyonddoubtcompleteineveryrespectandifthedeceased
hadreceivedadividendbetweenexecutionandregistrationandMrs.Rosehadclaimedtohavethat
dividendhandedtoher,whatwouldhavebeenthedeceasedsanswer?Itcouldnolongerbethatthe
purportedgiftwasimperfectithadbeenmadeperfect.Iamnotsuggestingthattheperfectionwas
retroactive.Butwhatelsecouldhesay?Howcouldhe,inthefaceofhisownstatementunderseal,
denythepropositionthathehad,on30March,1943,transferredthesharestohiswife?andbythe
phrasetransferthesharessurelymustbemeanttransfertoherthesharesandallmyrighttitleand
interestthereunder.Nothingelsecouldsensiblyhavebeenmeant.
TheCourtofAppealinReRoserecognizedthecreationofanequitableproprietaryinterest,eventhoughtitlehad
notpassedatLaw.ThismightappeartodepartfromReFry.Afterall,inReFry123 thedonorhaddoneeverything
thatwasinhispowertodototransfertheshares:consentwasconditionalupontheTreasury,athirdparty.
Similarly,inReRose,thetransferwasstillconditionaluponthediscretionofthedirectorsofthecompanyto
registerthesharetransfer.Afterexaminingthesecases,McKay 124 struggledtoreconcilethemandultimately
favouredReFryonthebasisthat:
iftheconsentofathirdpersontoatransferoflegaltitleisrequired,thatconsentmustbeforthcoming
beforethegiftmaybecompleteandperfect.Withevenmoreconfidenceitissubmittedasevenifthis
conclusionisincorrect,theReRosedecisionsareincorrectforthequiteseparatereasonthatneither
donorcouldbesaidtohavedoneallthatheonlycoulddototransferthelegaltitle.
However,thereislittledoubtthattheruleinReRoseisgoodlaw,atleastattheleveloftheCourtofAppeal.It
hasevenbeenappliedinthecontextofatransferofregisteredland.InMascallvMascall,125 theclaimant
executedatransferofahousewithregisteredtitleinfavourofhisson,andalsohandedthelandcertificatetohim.
BeforethedocumentsweresenttotheLandRegistryfortheregistrationofthesonasproprietor,theclaimantand
hissonhadaseriousrow.Theclaimantthensoughtadeclaration(p.155) thatthetransferwasvoid.Inholding
thattherehadbeenaneffectivegifttotheson,LawtonLJreferredtoMilroyvLordandReRoseandsaid:126
Theplaintiffhaddoneeverythinginhispowertotransferthehousetothedefendant.Hehadintendedtodo
it.Hehadhandedoverthelandcertificate.Hehadexecutedthetransferandallthatremainedwasforthe
defendant,intheordinarywayofconveyancing,tosubmitthetransferforstampingandthentoaskthe
LandRegistrytoregisterhistitle.Mr.Pearsonsoughttosaythat,inrelationtoregisteredland,ifnotto
unregisteredland,theplaintiffcouldhavedonemorebecausehehimself,pursuanttosection18ofthe
LandRegistrationAct1925,couldhaveaskedtheLandRegistrytoregisterthetransferandhehadnot
donesothereforehehadnotdoneeverythingwithinhispower.Inmyjudgment,thatisafallacious
argument.Hehaddoneeverythinginhispowerintheordinarywayofthetransferofregisteredproperty
and,intheordinaryway,itwasforthedefendanttogettheLandRegistrytoregisterhimastheproprietor
oftheproperty.
MascallmightbethoughttobesomethingofanextensionofReRosenotonlybecauseofthenatureofthe
subjectmatterinvolved,butalsobecausetheapplicationoftherulefrustratedthechangedintentionofthedonor.
ButitclearlyshowsthattitleiscreatedinEquityatthemomentthatthedonorhasnothingfurthertodotoenable
titletopassatLaw.
GiventhattitleiscreatedinEquity,butdoesnotpassatlaw,onewouldexpectatrustrelationshiptoarise.But
whatsortofatrustiscreatedbyReRose?Itsurelycannotbeanexpresstrust:thedonorintendedagift,nota
trust,socertaintyofintentionislacking.Itissuggestedthatthetrustmustbeconstructive:oncethedonorhas
doneallthathecantocompletethegift,itwouldbeunconscionableforhimtodenythegift,soaconstructive
trustarisesbyoperationoflaw.ThisapproachhasbeenfavouredbyGarton,127 whohasarguedthat:
itisinfactentirelypossibletoviewallthesituationswhereequityhasintervenedtoperfectthetransfer
asbeingbasedonunconscionability.InReRose,MidlandBank vRoseandMascallvMascalleach
transferor,bycompletingthoseformalitiesnecessaryofhimpersonally,createdastateofaffairswhereby
athirdpartycouldcompletethetransferatlaw.Indoingthis,herelinquishedtherighttostopthelegal
transfer,andanyattempttopreventitscompletionwouldthereforehavebeenunconscionable.
ConsideringReRosetoinvolvethecreationofaconstructivetrustisconsistentwiththeapproachtakenbythe
HighCourtofAustralia.128 But,especiallyinthelightofcommentsmadeinReMcArdle,itremainsunclearwhyit
wouldbeunconscionableforthedonortoresilefromthegiftwhenthedoneehasnotgivenanyconsiderationfor
thetransfer.Inanyevent,ifthedonoristobecomeatrustee,itwouldbeunfortunateforhimtobeburdenedand
surprisedbyallthefiduciarydutieswhichtrusteeshipofanexpresstrustnormallyentails.Thedonorshould
becomeabareconstructivetrusteeandescapeonerousfiduciaryduties.129 Thisanalysisisconsistentwiththe
casesandexplainshowthedoneehasenforceablerightsagainsttherelevantproperty.
(p.156) (ii)BeyondReRose:exploitingunconscionability
GiventhecontroversialnatureofReRose,itmightbeexpectedthatthecourtswouldbeunlikelytoextendthe
interventionofEquityinperfectingagiftthatwasimperfectatlaw.YetinPenningtonvWaine,130 thisisexactly
whattheCourtofAppealdid.MrsAdaCramptontoldhernephew,HaroldCrampton,thatshewantedtogivehim
400sharesinacompanyandforhimtobecomeadirectorofthecompany,forwhichheneededtoownatleast
oneshare.Theybothsignedthesharetransferform,whichwasdeliveredtothecompanysauditor,Mr
Pennington,butwasnotdeliveredtothecompanybeforeAdadied.Clearly,titletothesharesdidnotpassat
Law,buttheCourtofAppealinsistedthat,becausethenephewhadbeeninformedofthegiftandhadbeenmade
adirector,itwouldhavebeenunconscionablefortheaunttorevokethegift.Itwasheldthattheauntmusthave
beenholdingthesharesontrustforhernephew.
Whenreadingthecase,itisimportanttoappreciatewhyasimpleapplicationofReRosewasinsufficientfortitle
tothesharestobecreatedinEquity.Crucially,AdahadgiventhetransferformtoMrPennington,whowas
consideredtobeAdasagentand,therefore,onherside.Bygivingtheformtoherownagent,shehadnotdone
everythingthatwasinherpowertoeffectthetransfer.Afterall,herownagentcanbeconsideredtobean
extensionofherself,andsinceherownagenthadmoretodotoeffectthetransfer,theruleinReRosecouldnot
apply.Bycontrast,ifMrPenningtonhadbeentheagentofHarold,thentherewouldbenothingmorethatAda
couldhavedone,andHaroldthroughhisownagentwouldhavebeeninthepositionofcompletingthetransfer
atlaw:ReRosewouldthereforehaveapplied.
Asaresult,PenningtonisdistinguishablefromReRose.Butpreciselywhysuchanextensiontotheequitable
jurisdictionwasmadeisdifficulttodiscernfromthereasoningoftheCourtofAppeal.ClarkeLJsaid:
Iwouldaccept[the]submissionthatequitywillinterveneonlywherethedonorhasdoneeverythinginhis
powertoperfectthegiftcannotbeabsolutelytruesincethereisalwayssomethingmorethatthedonor
couldhavedone.Thus,evenifAdahaddeliveredthetransferformtoHarold,shecouldhavedonemoreby
makingaspecificrequesttothecompanytoregisterthesharesinHaroldsname.InmyopinionAda
executedavalidequitableassignmentinfavourofHaroldbysigningtheformincircumstancesinwhich
shehadnointentionofrevokingitinthefuture.Thisisnot,thereforeacaseofanimperfectgift(or
assignment)ofherequitableinterest.AsIseeit,shethereafterheldthelegalinterestinthesharesintrust
forHarold,who,asbetweenhimandher,wouldthereafterhavebeenbeneficiallyentitledtoanydividend
declaredontheshares.
Thisreasoningmustbedoubted:itseemsprematurefortitletobetransferredatthemomentofsignature.IfAda
signstheform,doesnothingfurtherwithit,andthenchangeshermindthefollowingdayanddestroystheform,it
wouldseemunfairtoholdthattitletotheshareshasalreadypassedtoHaroldinEquityanditistoolateforAda
tochangehermind.Afterall,Haroldhasnorighttoexpectthegift:hehasnotprovidedanyconsideration.
Moreover,thesuggestionthatAdabecomesatrusteeatthepointofsignatureappearstoconfusethetwo
methodsofconstitutingatrust:Adaintendedtotransfertheshares,notdeclareherselftobeatrustee.
ThebetterreasoninginthecasewasprovidedbyArdenLJ,withwhomSchiemannLJagreed:131
Thisappealraisesthequestionofwhatisnecessaryforthepurposesofavalidequitableassignmentof
sharesbywayofgift.Ifthetransactionhadbeenforvalue,acontracttoassignthesharewouldhave(p.
157) beensufficient:neithertheexecutionnorthedeliveryofaninstrumentoftransferwouldhavebeen
required.However,wherethetransactionwaspurelyvoluntary,theprinciplethatequitywillnotassista
volunteermustbeappliedandrespected.Accordinglythegiftmustbeperfected,orcompletely
constituted
for[theReRose]exceptiontoapplyitwasnotnecessarythatthedonorshouldhavedoneallthatitwas
necessarytobedonetocompletethegift,shortofregistrationofthetransfer.Onthecontraryitwas
sufficientifthedonorhaddoneallthatitwasnecessaryforhimorhertodo.
Thereisalogicaldifficultywiththisparticularexceptionbecauseitassumesthatthereisaclearanswerto
thequestion,whendoesanequitableassignmentofasharetakeplace?Infactthequestioniscircular.
ForifbyhandingtheformoftransfertoMr.Penningtoninthiscase,Adacompletedthetransactionofgift
andtheequitableassignmentofthe400shares,HaroldcanbringanactionagainstMr.Penningtonto
recoverthesharesashisproperty,andtheprinciplethatequitywillnotassistavolunteerisnotinfringed.If
ontheotherhand,byhandingthesharetransfertoMr.Pennington,Adadidnotcompletethetransaction
ofgiftortheequitableassignmentoftheshares,Haroldcannotrecoverthesharesbecausetodosowould
meancompellingthedonororthedonorsagenttotakesomefurtherstep.Theequitableassignment
clearlyoccursatsomestagebeforethesharesareregistered.Butdoesitoccurwhenthesharetransferis
executed,orwhenthesharetransferisdeliveredtothetransferee,orwhenthetransferislodgedfor
registration?Ireturntothispointbelow.
Secondlyequityhastemperedthewind(oftheprinciplethatequitywillnotassistavolunteer)totheshorn
lamb(thedonee)byutilisingtheconstructivetrust.Thisdoesnotconstituteadeclarationoftrustandthus
doesnotfallfouloftheprinciple(seeMilroyvLord(1862)4DeGF&J264andJonesvLock (1865)LR1
ChApp25)thatanimperfectlyconstitutedgiftisnotsavedbybeingtreatedasadeclarationoftrust.Thus,
forexample,inTChoithramInternationalSAvPagarani[2001]1WLR1,thePrivyCouncilheldthatthe
assetswhichthedonorgavetothefoundationofwhichhewasoneofthetrusteeswereheldupontrustto
vestthesameinallthetrusteesofthefoundationonthetermsofthetrustsofthefoundation.This
particulartrustobligationwasnotatermoftheexpresstrustconstitutingthefoundationbutaconstructive
trustadjuncttoit.So,too,inRosevInlandRevenueComrs[1952]Ch499,theCourtofAppealheldthat
thebeneficialinterestinthesharespassedwhenthesharetransfersweredeliveredtothetransferee,and
thatconsequentlythetransferorwasatrusteeofthelegalestateinthesharesfromthatdate.Atonestage
inhisjudgmentSirRaymondEvershedMRwentfurtherandheldthatanequitableinterestpassedwhen
thedocumentdeclaringagiftwasexecuted.
Thirdlyequityhastemperedthewindtotheshornlambbyapplyingabenevolentconstructiontowordsof
gift.Asexplainedaboveanimperfectgiftisnotsavedbybeingtreatedasadeclarationoftrust.Butwhere
acourtofequityissatisfiedthatthedonorhadanintentiontomakeanimmediategift,thecourtwill
construethewordswhichthedonorusedaswordseffectingagiftordeclaringatrustiftheycanfairlybear
thatmeaningandotherwisethegiftwillfail.ThispointcanalsobeillustratedbyreferencetoTChoithram
InternationalSAvPagarani[2001]1WLR1.
Accordinglytheprinciplethat,whereagiftisimperfectlyconstituted,thecourtwillnotholdittooperateas
adeclarationoftrust,doesnotpreventthecourtfromconstruingittobeatrustifthatinterpretationis
permissibleasamatterofconstruction,whichmaybeabenevolentconstruction.Thesamemustapplyto
wordsofgift.Anequitytoperfectagiftwouldnotbeinvokedbygivingabenevolentconstructiontowords
ofgiftor,itfollows,wordswhichthedonorusedtocommunicateorgiveeffecttohisgift.
Thecasestowhichcounselhavereferredusdonotrevealany,oranyconsistentsinglepolicy
considerationbehindtherulethatthecourtwillnotperfectanimperfectgift.Theobjectivesoftherule
obviouslyincludeensuringthatdonorsdonotbyactingvoluntarilyactunwiselyinawaythattheymay(p.
158) subsequentlyregret.Thisobjectiveisfurtheredbypermittingdonorstochangetheirmindsatany
timebeforeitbecomescompletelyconstituted.Thisisapaternalisticobjective,whichcanoutweighthe
respecttobegiventothedonorsoriginalintentionasgiftsareoftenheldbythecourtstobeincompletely
constituteddespitetheclearestintentionofthedonortomakethegift.Anothervalidobjectivewouldbeto
safeguardthepositionofthedonor:suppose,forinstance,that(contrarytothefact)ithadbeendiscovered
afterAdasdeaththatherestatewasinsolvent,thecourtwouldbeconcernedtoensurethatthegiftdidnot
defeattherightsofcreditors.But,whilethismaywellbearelevantconsideration,formyownpartIdonot
considerthatthisneedconcernthecourttotheexclusionofotherconsiderationsasintheeventof
insolvencythereareotherpotentremediesavailabletocreditorswhereinsolventshavemadegiftstodefeat
theirclaims:seeforexamplesections339and423oftheInsolvencyAct1986.Theremustalsobe,inthe
interestsoflegalcertainty,aclearlyascertainablepointintimeatwhichitcanbesaidthatthegiftwas
completed,andthispointintimemustbearrivedatonaprincipledbasis.
Therearecountervailingpolicyconsiderationswhichwouldmilitateinfavourofholdingagifttobe
completelyconstituted.Thesewouldincludeeffectuating,ratherthanfrustrating,theclearandcontinuing
intentionofthedonor,andpreventingthedonorfromactinginamannerwhichisunconscionable.As
[counsel]pointedout,boththesepolicyconsiderationsareevidentinTChoithramInternationalSAv
Pagarani[2001]1WLR1.ItdoesnotseemtomethatthisconsiderationisinconsistentwithwhatJenkins
LJsaidinReMcArdle[1951]Ch669.Hispointwasthatthereisnothingunconscionableinsimply(without
more)changingyourmind.
Ifoneproceedsonthebasisthataprinciplewhichanimatestheanswertothequestionwhetheran
apparentlyincompletegiftistobetreatedascompletelyconstitutedisthatadonorwillnotbepermittedto
changehisorhermindifitwouldbeunconscionable,intheeyesofequity,visvisthedoneetodoso,
whatisthepositionhere?Therecanbenocomprehensivelistoffactorswhichmakesitunconscionablefor
thedonortochangehisorhermind:itmustdependonthecourtsevaluationofalltherelevant
considerations.Whatthenaretherelevantfactshere?Adamadethegiftofherownfreewill:thereisno
findingthatshewasnotcompetenttodothis.ShenotonlytoldHaroldaboutthegiftandsignedaformof
transferwhichshedeliveredtoMr.Penningtonforhimtosecureregistration:heragentalsotoldHaroldthat
heneedtakenoaction.InadditionHaroldagreedtobecomeadirectorofthecompanywithoutlimitof
time,whichhecouldnotdowithoutsharesbeingtransferredtohim.IfAdahadchangedhermindon(say)
10November1998,inmyjudgmentthecourtcouldproperlyhaveconcludedthatitwastoolateforherto
dothisasbythatdateHaroldsignedtheform288A,thelastoftheeventsidentifiedabove,tooccur.
Thereisnextthepurequestionoflaw:wasitnecessaryforAda[to]delivertheformoftransfertoHarold?

EvenifIamcorrectinmyviewthattheCourtofAppealtooktheviewinRosevInlandRevenueComrsthat
deliveryofthesharetransferswasthererequired,itdoesnotfollowthatdeliverycannotinsome
circumstancesbedispensedwith.Here,therewasaclearfindingthatAdaintendedtomakeanimmediate
gift.Haroldwasinformedofit.Moreover,Ihavealreadyexpressedtheviewthatastagewasreachedwhen
itwouldhavebeenunconscionableforAdatorecallthegift.Itfollowsthatitwouldalsohavebeen
unconscionableforherpersonalrepresentativestorefusetohandoverthesharetransfertoHaroldafterher
death.Inthosecircumstances,inmyjudgment,deliveryofthesharetransferbeforeherdeathwas
unnecessarysofarasperfectionofthegiftwasconcerned.
Clearly,ArdenLJconsideredthatthetrustarosebeforedeliveryfromAdassidetoHaroldsside.Soeven
thoughtherewasmorethatAdacouldhavedonetocompletethetransfer,Equitywouldstillconsidertitletohave
passed.ArdenLJandClarkeLJ,wereevidentlyconcernedthatadeadwomansclearintentionberespected
ratherthanfrustrated,anditwouldappearthatthisgreatlyinfluencedthe(p.159) result.Yetinothercases,the
donormaynotdieandsimplychangehisorhermindpriortodeliverytothedoneeinsuchcircumstances,
givenPennington,itmaynowbearguablethatatrusthasarisenanditistoolateforthedonortochangehisor
hermind.Thisissurelyundesirable.Indeed,ArdenLJcitedthefollowingpassageinherjudgment:132
Accordingtocounselsresearches,thesituationinthepresentcasehasnotariseninanyreportedcases
before.Inotethatinherrecentwork,PersonalPropertyLaw,Text,CasesandMaterials(2000),p241
ProfessorSarahWorthingtontakesitasaxiomaticthatnotwithstandinganydemonstrableintentionto
makeagift,therewillbenoeffectivegiftinequityifthedonorsimplyplacesmatters(suchascompleted
transferformsaccompaniedbytherelevantsharecertificates)inthehandsofthedonorsagents.Inthose
circumstancesthedonorremainsatlibertytorecallthegiftsimplybyrevokingtheinstructionspreviously
giventotheagent.Thedonorhasnotdoneallthatisnecessary,andthedoneeisnotinapositionto
controlcompletionofthetransfer.Itfollowsthattheintendedgiftwillnotberegardedascompleteeitherat
laworinequity.
WorthingtonthoughtthecontraryresulttoPenningtontobeaxiomatic.Penningtongivesrisetonumerous
difficulties,anditmaybethatthereasoningwasflawed:reliancewasplaceduponPagarani,but,ashasalready
beenseen,thatcasewasanexampleofdeclarationoftrust,nottransferofproperty.Assuch,different
considerationsapply,butthiswasnotrecognizedbytheCourtofAppeal.Instead,reliancewasplacedupon
unconscionability,butitwasusedforverydifferentpurposesinthetwocases.InPagarani,itwasconsideredto
beunconscionabletorefusetotransfertitletotheothertrusteesjointly,giventhatthepersonwasalreadya
trusteegivenhisdeclaration.ButinPennington,unconscionabilitywasusedtoimposetrusteeship.
SuchrelianceuponPagaranimightmeanthatthereasoningisirretrievablycontaminatedandshouldnotbe
followed.PenningtonmayjustbeahardcasewheretheCourtstrovetogiveeffecttoadonorsclearwishthat
titlepasstohernephew.Ontheotherhand,usingunconscionabilityasthetouchstonefortheconstructivetrust
seemsconsistentwithgeneralprinciplesofEquityandmightbesupported.Forexample,Gartonhasargued
that:133
theeffectofPenningtonvWaineshouldnotbeseenasintroducinganewexceptiontotheruleagainst
perfectingimperfectgiftsratheritisanopportunitytorecastReRoseinatheoreticallysoundfashionby
shiftingthefocusawayfromtheextentoftheformalitiescompletedandontotheconscienceofthe
transferor.Inaddition,abroadattitudetounconscionability,enablingthecourtstotakethesurrounding
circumstancesofthetransferintoaccount,wouldresolvemanyofthepracticalproblemsinherentinthe
ruleasitstands.
Butifunconscionabilityistobeusedhere,itmustbeestablishedwhatfactorsarerelevant.Thisisespecially
importantgiventhatithaslongbeenthoughtnottobeunconscionabletochangeonesmindaboutagift,atleast
atanypointbeforethedonorhasdoneeverythinginhispowertoeffectthegift.InPennington,ArdenLJstated
thattherecanbenocompletelistofrelevantconsiderations.Butsomeguidancemightbegleanedfromthefacts
ofthecaseitself.Thus,Doggetthaswritten:134
ThedoneeinPenningtonhadagreedtobecomeadirectorinthecompany,whichrequiredashare
qualification,andthedonorhadexpresslytoldthedoneethatheneednotdoanythingfurthertosecure
the(p.160) transferofshares.Thesewerethefactorsthatjustifiedafindingofunconscionability.Yet
thesedonotconstitutedetrimenttothedonee.InBannerHomesGroupplcv.LuffDevelopmentsLtd.(No.
2)[2000]Ch.372135 twopartiesagreedthatonewouldbuylandandthenbothwouldowntheland
together,aspartofajointventure.Thepartymakingtheacquisitiongainedfromthisagreementbynot
havingtheotherpartyasarivalinthebuyingprocess.Thusitwasunconscionableforthispartytorenege
onthepreviousagreement,andaconstructivetrustarosetopreventthis.YetthedonorinPenningtonhad
notgainedanything.Sowhywasequityspreemptivestrike,precludingaretractionwhichhadnotactually
beenattempted,justifiedinthenameofunconscionabilitywhenthedoneehadnotincurredanydetriment
inrelianceuponthegiftandthedonorhadnotgainedanybenefit?Onotherfactsdisclosinggenuine
unconscionabilitytheimpositionofaconstructivetrustmaybejustified,butonthefacts
ofPenningtonandReRosethesearchforanexplanationcontinues.
136 137
InZeitalvKaye,RimerLJsaidthatPenningtonconcernedspecialfacts.136 ButinCurtisvPulbrook ,137 BriggsJ
tookanapproachcontrarytothatofDoggettintheextractaboveandsaidthatPenningtondidinvolvedetrimental
reliance:
Onitsfacts,PenningtonvWaineappearstohavebeenanexampleofasufficientdetrimentalrelianceby
thedonee,whohadagreedtobecomeadirectorofthesubjectcompanyuponanassumptionthathehad
receivedaneffectivegiftofqualifyingsharesinit
Suchdetrimentistobefoundinassumingtheonerousdutiesplaceduponadirector.138 However,itisnotclear
thatthedoneeactuallysufferedanydetrimentatall,orthatlosinghisdirectorshipwouldleaveHaroldinaworse
position,sothisexplanationremainscontroversial.Indeed,BriggsJthencontinued:139
Ireach[my]conclusionwithoutanygreatcomfortthattheexistingrulesaboutthecircumstanceswhen
equitywillandwillnotperfectanapparentlyimperfectgiftofsharesserveanyclearlyidentifiableorrational
policyobjective.Ihavethusfararrivedat[my]conclusiononhighlytechnicalgroundsinrelationtoan
areaoflawthatmaywarrantfurtherexamination.
BriggsJstaskofreconcilingconflictingcaseswasnoteasyanditmightbethathisconclusionsarebestsuited
toachievingsomedegreeofconsistencywithgeneralequitableprinciples.However,Luxtonhascontinuedtourge
caution:140
ThedecisioninCurtisisconsistentwithestablishedprinciples,andBriggsJ.dealteffectivelywiththe
unsatisfactoryreasoninginPennington.However,hisLordshipsadmissioninCurtisthat,butforthe
applicationofinsolvencylaw,hemighthavebeenstrainingtofindawayinwhichtogiveeffecttothe
attemptedgifts,couldindicateamoregeneraljudicialreadinesstodepartfromthoseprincipleswhenthe
opportunityarises.InPennington,ArdenLJsattempttofindarationaleforequitysinvolvementinthisarea
concentratedonadonorsintentionattheexpenseofadonorsactsand,inCurtis,BriggsJ.wassimilarly
attractedtotreatingperfectionasdependentonintention.Thisapproachrisks(p.161) uncertainty.An
intention(evenaferventdesire)togive,nomatterhowclearlyexpressedandrepeated,isnotenoughthe
donormustalsodoeverythingnecessarytobedoneasstatedinMilroyandappliedbytheCourtof
AppealinReRose.RecognisingthejudgmentsinPenningtontobelessthanpersuasiveisnoreasonto
rejecttheunspokenrationalethatunderliestheleadingcasesonperfectgiftsandvoluntarytransfersto
trustees.
ThejudgmentsinPenningtonremaindifficulttoexplain.Onecommentatorhassuggestedthatwecanexplainthe
resultinPenningtonusingorthodoxcontractualprinciples,141 butitisunclearwhethersuchananalysiswouldbe
consistentwiththedecidedcasesintheeventofthedonorsinsolvency,forexample.InPennington,thenephew
obtainedanequitableproprietaryinterestunderatrust.It,therefore,seemsmostlikelythatfuturecaseswill
followtheleadofdecisionssuchasZeitalandCurtisandwillcontinuetotrytosqueezePenningtonwithingeneral
equitableprinciples.Giventhedifficultiesinherentinthelatterdecision,thismaywellleadtounfortunate
contortions.
(d)CovenantstoSettle
Itisimportanttodistinguishbetweenthecreationofatrustorsettlementandacovenantorcontracttocreate
one.Onceasettlementiscreated,thebeneficiarieshaveanequitableproprietaryinterestintheirshareofthe
settledproperty.Butifthesettlorhascovenantedtocreateasettlementortoaddpropertytoanexisting
settlement,therightsoftheintendedbeneficiariesdependonwhetherornottheycancompelthesettlorto
completethesettlement.Traditionally,theycouldnotdosoiftheywerevolunteers,sinceEquitydoesnotassist
avolunteer.If,however,apersonhadprovidedconsideration,includingmarriageconsideration,142 heorshecould
enforcethecovenant.ThisCommonLawrulehasnowbeensupplementedbytheContracts(RightsofThird
Parties)Act1999,whichmakesiteasierforathirdpartywhohasnotprovidedconsiderationtobeabletoenforce
thecovenantinhisorherownright.
(i)Contracts(RightsofThirdParties)Act1999
Thisstatutegreatlyimprovesthepositionofathirdpartytoacontractwhohasnotprovidedconsideration.
Contracts(RightsofThirdParties)Act1999
1.Rightsofthirdpartytoenforcecontractualterm
SubjecttotheprovisionsofthisAct,apersonwhoisnotapartytoacontract(athirdparty)mayin
hisownrightenforceatermofthecontractif
(a)thecontractexpresslyprovidesthathemay,or
(b)subjecttosubsection(2),thetermpurportstoconferabenefitonhim.
(p.162) (2)Subsection(1)(b)doesnotapplyifonaproperconstructionofthecontractit
appearsthatthepartiesdidnotintendthetermtobeenforceablebythethirdparty.
(3)Thethirdpartymustbeexpresslyidentifiedinthecontractbyname,asamemberofaclass
orasansweringaparticulardescriptionbutneednotbeinexistencewhenthecontractis
enteredinto.
(4)Thissectiondoesnotconferarightonathirdpartytoenforceatermofacontractotherwise
thansubjecttoandinaccordancewithanyotherrelevanttermsofthecontract.
(5)Forthepurposeofexercisinghisrighttoenforceatermofthecontract,thereshallbe
availabletothethirdpartyanyremedythatwouldhavebeenavailabletohiminanactionfor
breachofcontractifhehadbeenapartytothecontract(andtherulesrelatingtodamages,
injunctions,specificperformanceandotherreliefshallapplyaccordingly).
(6)Whereatermofacontractexcludesorlimitsliabilityinrelationtoanymatterreferencesin
thisActtothethirdpartyenforcingthetermshallbeconstruedasreferencestohisavailing
himselfoftheexclusionorlimitation.
(7)InthisAct,inrelationtoatermofacontractwhichisenforceablebyathirdparty
thepromisormeansthepartytothecontractagainstwhomthetermisenforceablebythethirdparty,
andthepromiseemeansthepartytothecontractbywhomthetermisenforceableagainstthe
promisor.
AsaresultofthisAct,thecomplicatedCommonLawrulesmaybecircumventedbyaclaimant.IfAentersintoa
contractwithBtoprovideabenefittoC,thenCmaybeabletoinvoketheActinordersueAinhisownname.
However,theActonlyappliestocovenantsenteredintoafter11May,2000,143 andtheclaimantmustbe
expresslyidentifiedinthecovenantonthetrueconstructionofthecovenantitmaybethatthecovenantordidnot
intendthebeneficiarytobeabletoenforcetherelevantterms.Inanyeventitmightbepreferableforaclaimant
nottorelyupontheActandfindatrust:144 atrust,onceconstituted,isirrevocable,butaclaimantsrightsunder
theActmightbeextinguishedbythepartiestothecovenantasprovidedforbysection2.
2.Variationandrescissionofcontract
(1)Subjecttotheprovisionsofthissection,whereathirdpartyhasarightundersection1to
enforceatermofthecontract,thepartiestothecontractmaynot,byagreement,rescindthe
contract,orvaryitinsuchawayastoextinguishoralterhisentitlementunderthatright,without
hisconsentif
(a)thethirdpartyhascommunicatedhisassenttothetermtothepromisor,
(b)thepromisorisawarethatthethirdpartyhasreliedontheterm,or
(c)thepromisorcanreasonablybeexpectedtohaveforeseenthatthethirdpartywould
relyonthetermandthethirdpartyhasinfactreliedonit.
(2)Theassentreferredtoinsubsection(1)(a)
(a)maybebywordsorconduct,and
(b)ifsenttothepromisorbypostorothermeans,shallnotberegardedascommunicated
tothepromisoruntilreceivedbyhim.
(p.163) (3)Subsection(1)issubjecttoanyexpresstermofthecontractunderwhich
(a)thepartiestothecontractmaybyagreementrescindorvarythecontractwithoutthe
consentofthethirdparty,or
(b)theconsentofthethirdpartyisrequiredincircumstancesspecifiedinthecontract
insteadofthosesetoutinsubsection(1)(a)to(c).
(ii)Covenantstosettle:theCommonLaw
ThegeneralrulethatEquitywillnotassistavolunteermeansthatitisdifficultforbeneficiariestoenforcethe
covenant.However,thebeneficiarywillnotnecessarilybewithoutaremedyforexample,acovenantmayhave
beenmadewiththebeneficiarybydeed,uponwhichthebeneficiarywouldbeabletosue.145 Similarly,ifthe
propertyisactuallyreceivedbythetrustees,thenthetrustwillbefullyconstitutedandthebeneficiarieswillbe
abletoenforcethetrust.146 Apartyisnotavolunteerifheorshehasprovidedconsideration,andinEquity
considerationisdefinedmorebroadlythanatCommonLaw.UnlikeatCommonLaw,considerationinEquity
includesmarriageconsideration:whereacovenanttotransferpropertytobeheldontrustismadein
considerationofamarriage,thehusband,wife,andanyissueofthemarriage147 areabletoenforcethecovenant.
Thus,inPullanvKoe,148 SwinfenEadyJstated:149
thetrusteesareentitledtocomeintoaCourtofEquitytoenforceacontracttocreateatrust,containedin
amarriagesettlement,forthebenefitofthewifeandtheissueofthemarriage,allofwhomarewithinthe
marriageconsideration.Thehusbandcovenantedthatheandhisheirs,executors,andadministrators
should,assoonascircumstanceswouldadmit,convey,assign,andsurrendertothetrusteestherealor
personalpropertytowhichhiswifeshouldbecomebeneficiallyentitled.Thetrusteesareentitledtohave
thatcovenantspecificallyenforcedbyaCourtofEquity.InReDAngibau(1879)15ChD228at242and
inRePlumptresMarriageSettlement[1910]1Ch609at616itwasheldthattheCourtwouldnotinterfere
infavourofvolunteers,notwithinthemarriageconsideration,butheretheplaintiffsarethecontracting
partiesandtheobjectoftheproceedingistobenefitthewifeandissueofthemarriage.
Thetwocasescitedbythejudgeinthispassagehighlightthelimitsofmarriageconsideration:onlythelegitimate
childrenofthemarriagewillbewithinthemarriageconsideration,nototherrelatives,includingillegitimatechildren
andchildrenfromothermarriages.Itiscommoninmarriagesettlementstoincludeanultimateremainderinfavour
ofthenextofkinofoneofthespouses,giventhatitisnotnormallyknownwhenamarriagesettlementismade
whetherornotthemarriagewillproduceanychildren.However,thenextofkinisnotwithinthemarriage
considerationand,therefore,cannotenforceanyoftheobligationsitcontains.150
AlthoughconsiderationisdefinedmorebroadlyinEquitythanatCommonLaw,somedifficultiesremain.Asat
CommonLaw,itisimportantthattheconsiderationmovesfromtheclaimant,ratherthanfromathirdparty.If
valuableconsiderationforthecovenantisprovidedbyathirdparty,itwillnothavecomefromthebeneficiary,so
thebeneficiarywillnotbeabletoenforcethecovenant.
(p.164) ReCooksSettlementTrusts[1965]Ch902
In1934,byanagreementandsubsequentsettlementoffamilyproperty,madebetweenSirHerbertCook,Sir
FrancisCook(hisson),andthetrusteesofthesettlement,certainpicturesbecametheabsolutepropertyof
SirFrancisCook.Inthesettlement,SirFranciscovenanted(clause6)forvaluableconsiderationthatifanyof
thosepicturesshouldbesoldduringhislifetime,thenetproceedsofsaleshouldbepaidtothetrusteesof
thesettlementtobehelduponthetrustsofthesettlement.
In1962,SirFrancisgaveapicturebyRembrandttohiswife,whowantedtosellit.Thequestionwas
whether,onthesaleoftheRembrandt,thetrusteeswereobligedtotakestepstoenforcetheperformanceof
thecovenant.
BuckleyJheldthatasthebeneficiarieshadgivennoconsiderationforthecovenant,theycouldnotrequire
thetrusteestotakestepstoenforceit.
BuckleyJ:
Mr.Goff,appearingforSirFrancis,hassubmittedfirstthat,asamatteroflaw,thecovenantcontained
inclause6ofthesettlementisnotenforceableagainsthimbythetrusteesofthesettlement[He]
submitsthatthecovenantwasavoluntaryandexecutorycontracttomakeasettlementinafuture
eventandwasnotasettlementofacovenanttopayasumofmoneytothetrustees.Hefurther
submitsthatasregardsthecovenantallthebeneficiariesunderthesettlementarevolunteers,withthe
consequencethatnotonlyshouldthecourtnotdirectthetrusteestotakeproceedingsonthe
covenantbutitshouldpositivelydirectthemnottotakeproceedings.HereliesuponRePryce[1917]1
Ch234andReKaysSettlement[1939]Ch329.
Counselforthesecondandthirddefendantshavecontendedthatonthetrueviewofthefactsthere
wasanimmediatesettlementoftheobligationcreatedbythecovenant,andnotmerelyacovenantto
settlesomethinginthefuture.Itwassaid,asMr.Moncktonputit,thatbytheagreementSirHerbert
boughttherightsarisingunderthecovenantforthebenefitofthecestuisquetrustentunderthe
settlementandthat,thecovenantbeingmadeinfavourofthetrustees,theserightsbecameassetsof
thetrust.HereliedonFletchervFletcher(1844)4Hare67WilliamsonvCodrington(1750)1VesSen
511andReCavendishBrownesSettlementTrusts[1916]WN341.Iamnotabletoacceptthis
argument.ThecovenantwithwhichIamconcerneddidnot,inmyopinion,createadebtenforceable
atlaw,thatistosay,apropertyright,which,althoughtobearfruitonlyinthefutureandupona
contingency,wascapableofbeingmadethesubjectofanimmediatetrust,aswasheldtobethe
caseinFletchervFletcher.Noristhiscovenantassociatedwithpropertywhichwasthesubjectofan
immediatetrustasinWilliamsonvCodrington.Nordidthecovenantrelatetopropertywhichthen
belongedtothecovenantor,asinReCavendishBrownesSettlementTrusts.Incontrasttoallthese
cases,thiscovenantuponitstrueconstructionis,inmyopinion,anexecutorycontracttosettlea
particularfundorparticularfundsofmoneywhichatthedateofthecovenantdidnotexistandwhich
mightnevercomeintoexistence.Itisanalogoustoacovenanttosettleanexpectationortosettle
afteracquiredproperty.Thecase,inmyjudgment,involvesthelawofcontract,notthelawoftrusts.
Asanalternativeargument,Mr.Brightmanformulatedthisproposition,whichheadmittednottobe
directlysupportedbyanyauthority,butheclaimedtoconflictwithnone:thatwhereacovenantorhas
forconsiderationmovingfromathirdpartycovenantedwithtrusteestomakeasettlementofproperty,
thecourtwillassistanintendedbeneficiarywhoisavolunteertoenforcethecovenantifheisspecially
anobjectoftheintendedtrustor(whichMr.Brightmansaysisthesamething)iswithinthe
considerationofthedeed.InformulatingthispropositionMr.Brightmanbaseshimselfonlanguage
usedbyCottonLJinReDAngibau(1879)15ChD228at242andbyRomerJinCannonv
Hartley[1949]Ch213at223.Asanexampleofacasetowhichthepropositionwouldapply,Mr.
Brightmansupposesafatherhavingtwosonswhoentersintoanagreementwithhiseldersonand
withtrusteeswherebythefather(p.165) agreestoconveyanestatetohiseldersonabsolutelyin
considerationofthesoncovenantingwithhisfatherandthetrustees,orwiththetrusteesalone,to
settleanexpectationontrustsforthebenefitoftheyoungerson.Theyoungersonisastrangertothe
transaction,butheisalsotheprimary(andspecial)beneficiaryoftheintendedsettlement.Acourtof
equityshould,andwould,Mr.Brightmancontends,assisttheyoungersontoenforcehisbrothers
covenantandshouldnotpermittheeldersontofrustratethepurposesoftheagreementbyrefusingto
implementhiscovenantalthoughhehassecuredthevaluableconsiderationgivenforit.The
submissionisnotwithoutattraction,foritisnottobedeniedthat,generallyspeaking,theconductof
amanwho,havingpledgedhiswordforvaluableconsideration,takesthebenefitshehassoobtained
andthenfailstodohispart,commandsnoadmiration.Ihave,therefore,givencarefulconsiderationto
thispartoftheargumenttoseewhetherthestateofthelawissuchasmightjustifyme(subjecttothe
constructionpoint)indealingwiththecaseonsomesuchgrounds.
TherewasnoconsiderationforSirFrancisscovenantmovingfromthetrusteesnor,ofcourse,was
thereanyconsiderationmovingfromSirFrancisschildren.
thereisanequitableexceptiontothegeneralruleoflawwhichIhavementionedwherethecontract
ismadeinconsiderationofmarriageandtheintendedbeneficiarywhoseekstohavethecontract
enforcediswithinthemarriageconsideration.Theydonotsupporttheexistenceofanywider
exceptionsaveperhapsinthecaseofabeneficiarywhoisnotwithinthemarriageconsiderationbut
whoseinterestsundertheintendedtrustsarecloselyinterwovenwithinterestsofotherswhoarewithin
thatconsideration.Theydonotsupporttheviewthatanysuchexceptionexistsinfavourofaperson
whowasnotapartytothecontractandisnottobetreatedasthoughhehadbeenandwhohasgiven
noconsiderationandisnottobetreatedasifhehadgivenconsideration.Wheretheobligationto
settlepropertyhasbeenassumedvoluntarilyitisclearthatnoobjectoftheintendedtrustscan
enforcetheobligation.ThusinReKaysSettlement[1939]Ch329,aspinstermadeavoluntary
settlementinfavourofherselfandherissuewhichcontainedacovenanttosettleafteracquired
property.Shelatermarriedandhadchildrenwho,asvolunteers,wereheldtohavenorighttoenforce
thecovenant.Mr.BrightmandistinguishesthatcasefromthepresentonthegroundthatinReKays
Settlementthesettlementandcovenantwereentirelyvoluntary,whereasSirFrancisreceived
considerationfromSirHerbertbutSirFrancisreceivednoconsiderationfromhisownchildren.Why,it
maybeasked,shouldtheybeaccordedanindulgenceinacourtofequitywhichtheywouldnothave
beenaccordedhadSirHerbertgivennoconsideration?Asregardsthemthecovenantmust,inmy
judgment,beregardedashavingbeengivenvoluntarily.Aplaintiffisnotentitledtoclaimequitable
reliefagainstanothermerelybecausethelattersconductisunmeritorious.ConductbyAwhichis
unconscientiousinrelationtoBsoastoentitleBtoequitablereliefmaynotbeunconscientiousin
relationtoCsothatCwillhavenostandingtoclaimreliefnotwithstandingthattheconductinquestion
mayaffectC.ThefatherinMr.Brightmansfictitiousillustrationcouldafterperforminghispartofthe
contractreleasehiseldersonfromthelatterscovenantwithhimtomakeasettlementontheyounger
son,andtheyoungersoncould,Ithink,notcomplain.Onlythecovenantwiththetrusteeswouldthen
remain,butthiscovenantwouldbeavoluntaryone,thetrusteeshavinggivennoconsideration.Ican
seenoreasonwhyinthesecircumstancesthecourtshouldassisttheyoungersontoenforcethe
covenantwiththetrustees.Buttherightoftheyoungersontorequirethetrusteestoenforcetheir
covenant,couldnot,Ithink,dependonwhetherthefatherhadorhadnotreleasedhiscovenant.
Therefore,asitseemstome,onprincipletheyoungersonwouldnotinanyeventhaveanequitable
righttorequirethetrusteestoenforcetheircovenant.Inotherwords,thearrangementbetweenthe
fatherandhiseldersonwouldnothaveconferredanyequitablerightorinterestuponhisyoungerson.
IreachtheconclusionthatMr.Brightmanspropositionisnotwellfounded.Accordingly,the
secondandthirddefendantsarenot,inmyjudgment,entitledtorequirethetrusteestotake
proceedingstoenforcethecovenantevenifitiscapableofbeingconstruedinamannerfavourableto
them.
(p.166) ThispassagefromCook highlightsvariousissues.Oneisthesuggestionthatthetrusteesshouldbe

directedbythecourtnottosueonthecovenant.Thisissurprising:afterall,eventhoughthebeneficiaryhasnot
givenconsiderationandisavolunteer,thetrusteeisapartytothecontract,sowouldbeexpectedtobeableto
bringaclaimatCommonLaw.YetthecontrarywassuggestedinCook ,relyingonthepreviouscases
ofPryceandKay.Thefearseemstobethatanyotherapproachwouldallowthebeneficiariestoachieveindirectly
whattheycouldnotachievedirectly.Thishasbeenpowerfullycriticized.
Elliott,EnforcingCovenantsinFavourofVolunteers(1960)76LQR100,114
Supposethecovenantismadedirectlywiththevolunteerandnotwithapersonexpressedtobea
trusteeforhim.Inthissituationthevolunteermaysueatlawonthecovenant.Equitywillnotstandin
hislight,heisgivenfulldamages,andthefactthathegavenoconsiderationisimmaterial,sinceheis
suingonapromiseunderseal.Inwhatwayisthevolunteercovenanteemoredeservingofequitys
indulgencethan[apurportedbeneficiary]?Thatfeaturewhichequityregardswithsomethinglessthan
enthusiasminalitigant(i.e.,thefactthathegavenoconsideration)iscommontothemboth.Itmay
beansweredthatthevolunteercovenanteedoesnotneedequitysindulgence,butneitherdoes[the
purportedbeneficiary]hemerelyaskstobefreeofgratuitousinterference.
Intruth,theinterpositionofatrusteecovenanteecannotmakeanymaterialdifferencetothevolunteer,
providedthatthetrusteeiswillingtosueatlawyetifRePryceandReKaysSettlementareright,
evenawillingtrusteewillbedirectednottosue.Sincethereisnodiscernibledifferencebetweenthe
volunteercovenanteeandthevolunteerwithatrusteecovenanteewhoiswillingtohelphimthe
conclusionmustbethatthesecasesarewrongonthispoint.
Thelogicunderpinningthisargumentiscompelling.Atrusteecovenanteeshouldbeabletoasserthisorherlegal
rights.Thereisnogoodreasonforsuppressinghisorherclaim.Norisitcorrectthatheorshewouldonlybeable
torecovernominaldamagesforbreachofthecovenant,sinceitisthebeneficiaryandnotthetrusteewhobearsa
substantialloss:inReCavendishBrownesSettlementTrusts,151 YoungerJdecidedthat:
thetrusteeswereentitledtorecoversubstantialdamagesforbreachofthecovenanttoassure,andthat
themeasureofdamageswasthevalueofthepropertywhichwouldhavecometothehandsofthetrustees
ifthecovenanthadbeendulyperformed.
(e)TrustsofaPromise
ThepassagefromCook alsoraisesissuesconcerningcovenantsrelatingtopropertytobeacquiredinthefuture.
Onedifficultyhereisthatitisimpossibletohaveatrustoverfutureproperty.However,thecovenantcanoperate
asapromisetotransferthepropertyonceacquired,sothatwhenthecovenantordoesgettheproperty,Equity
willassumethatithasalreadybeentransferredtothetrustsothatthecovenanteeobtainsanequitableinterestin
it.152 Asaresult,thecovenantorholdsthepropertyonconstructivetrustforthecovenantee.Thishelpstoexplain
theresultinPullanvKoe.153 Theeffectofamarriagesettlement(p.167) wasthatpropertywassettledonthe
husband,wife,andanychildrenofthemarriage.Thewifecovenantedtosettleonthesametrustsanyproperty
worth100ormorethatsheacquiredafterthemarriage.Shereceivedapresentof285fromhermother,which
wascreditedtoherhusbandsbankaccount.Someofthismoneywasusedtobuybondsandtheintereston
thesebondswasalsocreditedtotheaccount.Herhusbanddiedandthetrusteesofthemarriagesettlement
claimedthebondsfromherhusbandsexecutors.Itwasheldthatthegiftfromhermotherwasheldontrustand,
sincethebondshadbeenboughtwiththismoney,theybecametrustpropertyaswell.Whenthewifereceived
thegiftfromhermother,Equityassumedthatithadalreadybeentransferredtothetrustbyvirtueofthewifes
covenant.154
Apossiblealternativeapproach,whichmightapplyoncertainfacts,isthatthesettlorspromisetotransfer
propertytothetrustisachoseinactionand,therefore,propertyinitsownrightthischoseinactioniscapableof
beingheldontrustbythetrusteesforthebenefitofthebeneficiary.Suchtrustsofthepromiseareconstituted
immediatelythepromiseismade,sothefactthebeneficiaryisavolunteerisirrelevantthetrusteecanenforce
thepromiseforthebenefitofthebeneficiary,155 orthebeneficiarycanenforcethepromisehimorherself,joining
thetrusteeascoclaimantorasdefendant.156
InReCook sSettlementTrusts,BuckleyJdoubtedwhetheracovenanttosettlefuturepropertycanbethe
subjectmatterofatrust,butthebetterviewisthatitisentirelypossible,sincethesubjectmatterofthetrustis
notthepropertythatwillbeacquiredinthefuturebutrathertheexistingpromise.FletchervFletcher,oneofthe
casescitedbyBuckleyJinReCook ,illustratesthispoint.
FletchervFletcher[1844]4Hare67
Byavoluntarydeed,Mr.Fletchercovenantedwithtrusteestopaytothem60,000,whichthetrusteeswere
toholdupontrustfor,intheeventswhichhappened,hisillegitimateson.Thetrusteeswereunawareofthe
deed,whichwasfoundamongFletcherspapersafterhisdeath.Thetrusteesdidnotwishtoestablishthe
trustexceptunderanorderofthecourt.Thecourtheldthatthesonwasentitledtoenforcethecovenant
againstthefathersexecutor.
WigramVC:
Itisnotdeniedthat,iftheplaintiffinthiscasehadbroughtanactioninthenameofthetrustees,he
mighthaverecoveredthemoneyanditisnotsuggested,thatifthetrusteeshadsimplyallowedtheir
nametobeusedintheaction,theirconductcouldhavebeenimpeached.Therearetwoclassesof
cases,oneofwhichisinfavourof,andtheother,ifapplicable,against,theplaintiffsclaim.The
questionis,towhichofthetwoclassesitbelongs.
IntryingtheequitablequestionIshallassumethevalidityoftheinstrumentatlaw.Iftherewasany
doubtofthatitwouldbereasonabletoallowthePlaintifftotrytherightbysuinginthenameofthe
survivingtrustee.Thefirstpropositionrelieduponagainsttheclaiminequitywas,thatequitywillnot
interfereinfavourofavolunteer.Thatproposition,thoughtrueinmanycases,hasbeentoolargely
stated.Acourtofequity,forexample,willnot,infavourofavolunteer,enforcetheperformanceofa
contractinspecie.Thatitwill,however,sometimesactinfavourofavolunteerisprovedbythe
commoncaseofavolunteeronabondwhomayprovehisbondagainsttheassets.Again,wherethe
relationoftrusteeandcestuiquetrustisconstituted,aswherepropertyistransferredfromtheauthor
ofthetrustintothenameofatrustee,sothathehaslostallpowerofdispositionoverit,and(p.
168) thetransactioniscompleteasregardshim,thetrustee,havingacceptedthetrust,cannotsay
heholdsit,exceptforthepurposesofthetrustandtheCourtwillenforcethetrustatthesuitofa
volunteer.Accordingtotheauthorities,Icannot,Iadmit,doanythingtoperfecttheliabilityofthe
authorofthetrust,ifitisnotalreadyperfect.Thiscovenant,however,isalreadyperfect.The
covenantorisliableatlaw,andtheCourtisnotcalledupontodoanyacttoperfectit.Onequestion
madeinargumenthasbeen,whethertherecanbeatrustofacovenantthebenefitofwhichshall
belongtoathirdpartybutIcannotthinkthereisanydifficultyinthat.Suppose,inthecaseofa
personalcovenanttopayacertainannualsumforthebenefitofathirdperson,thetrusteewereto
bringanactionagainstthecovenantorwouldhebeafterwardsallowedtosayhewasnotatrustee?If
hecannotdosoafteronceacknowledgingthetrust,thenthereisacaseinwhichthereisatrustofa
covenantforanother.InthecaseofCloughvLambert(1839)10Sim174thequestionarosethepoint
doesnotappeartohavebeentakenduringtheargument,buttheViceChancellorofEnglandwasof
opinionthatthecovenantboundthepartythatthecestuiquetrustwasentitledtothebenefitofitand
thatthemereinterventionofatrusteemadenodifference.Theproposition,therefore,thatinnocase
cantherebeatrustofacovenantisclearlytoolarge,andtherealquestioniswhethertherelationof
trusteeandcestuiquetrustisestablishedinthepresentcase.
However,althoughthecourtsmayhavebeenmoregenerousinthepast,157 itisnowclearthatthecourtswillnot
readilyinferthatapromiseistobeheldontrust.InVandepittevPreferredAccidentInsuranceCorpnofNew
York ,158 LordWrightheldthat:
theintentiontoconstitutethetrustmustbeaffirmativelyproved:theintentioncannotnecessarilybe
inferredfromthemeregeneralwordsofthe[contract].
Aclearintentionofthesettlorthatthepromisebeheldontrustmustbeestablished.
(f)DonatioMortisCausa
Donatiomortiscausameansdeathbedgift.ThisequitabledoctrineoperatestorenderagifteffectiveinEquity,
evenwheretherequisiteformalitieshavenotbeencompliedwith,if:(i)itwasmadebythedonorincontemplation
ofdeath(ii)thegiftwasconditionaluponhisdeathand(iii)thepropertyoressentialindiciaoftitletotheproperty
weregiventothedonee.Thislastrequirementmightbefulfilledbygivingthekeystoacartothedonee,for
example,withoutactuallyhandingoverthecaritself.159 Itisimportanttoappreciatethatthegiftonlybecomes
irrevocableuponthedonorsdeath,andbeforethatpointheisfreetochangehismind.160 However,ifthethree
criteriagivenherearefulfilled,itisjustforEquitytoperfecttheimperfectgiftbycompellingthepersonal
representativesofthedeceasedtoperfectthedoneestitle,eventhoughthedoneeisavolunteer.
SenvHeadley161 heldthatlandcouldbethesubjectofadonatiomortiscausa.Inthatcase,thedonor,onhis
deathbed,gavethedoneethekeystoaboxcontainingthetitledeedstoahouseheowned,andhetoldthe
doneethathewasgivingthehousetoher.Clearly,thenecessaryformalities(p.169) forthetransferoflandwere
notfulfilled,buttheCourtofAppealinsistedthatthegifttookeffectinequity.NourseLJsaid:162
thethreegeneralrequirementsforsuchagiftmaybestatedverymuchastheyarestatedinSnells
EquityFirst,thegiftmustbemadeincontemplation,althoughnotnecessarilyinexpectation,of
impendingdeath.Secondly,thegiftmustbemadeupontheconditionthatitistobeabsoluteand
perfectedonlyonthedonorsdeath,beingrevocableuntilthateventoccursandineffectiveifitdoesnot.
Thirdly,theremustbeadeliveryofthesubjectmatterofthegift,ortheessentialindiciaoftitlethereto,
whichamountstoapartingwithdominionandnotmerephysicalpossessionoverthesubjectmatterofthe
gift.
Itcannotbedoubtedthattitledeedsaretheessentialindiciaoftitletounregisteredland.Moreover,onthe
factsfoundbythejudge,therewashereaconstructivedeliveryofthetitledeedsof56,GordonRoad
equivalenttoanactualhandingofthembyMr.HewetttoMrs.Sen.anditcouldnotbesuggestedthatMr.
Hewettdidnotpartwithdominionoverthedeeds.Thetwoquestionswhichremaintobedecidedare,first,
whetherMr.Hewettpartedwithdominionoverthehousesecondly,ifhedid,whetherlandiscapableof
passingbywayofadonatiomortiscausa.
ItistruethatintheeyesofthelawMr.Hewett,bykeepinghisownsetofkeystothehouse,retained
possessionofit.Butthebenefitswhichtherebyaccruedtohimwerewhollytheoretical.Heutteredthe
wordsofgift,withoutreservation,twodaysafterhisreadmissiontohospital,whenheknewthathedidnot
havelongtoliveandwhentherecouldhavebeennopracticalpossibilityofhiseverreturninghome.Hehad
partedwithdominionoverthetitledeeds.Mrs.Senhadherownsetofkeystothehouseandwasin
effectivecontrolofit.Inallthecircumstancesofthecase,wedonotbelievethatthelawrequiresustohold
thatMr.Hewettdidnotpartwithdominionoverthehouse.Weholdthathedid.
Letitbeagreedthatthedoctrineisanomalous.Anomaliesdonotjustifyanomalousexceptions.Ifdue
accountistakenofthepresentstateofthelawinregardtomortgagesandchosesinaction,itisapparent
thattomakeadistinctioninthecaseoflandwouldbetomakejustsuchanexception.Adonatiomortis
causaoflandisneithermorenorlessanomalousthananyother.Everysuchgiftisacircumventionofthe
WillsAct1837.Whyshouldtheadditionalstatutoryformalitiesforthecreationandtransmissionof
interestsinlandberegardedassomelargerobstacle?Theonlystepwhichhastobetakenistoextend
theapplicationoftheimpliedorconstructivetrustarisingonthedonorsdeathfromtheconditionaltothe
absoluteestate.
Iftherequirementsofdonatiomortiscausaaresatisfied,aconstructivetrustarisessothatthepersonal
representativeofthedonorholdsthepropertyontrustforthedonee.Ifthedoneeishimorherselfatrustee,this
willfullyconstituteatrust.
(g)TheRuleinStrongvBird
AnothermethodforperfectinganimperfectgiftisknownastheruleinStrongvBird.Essentially,thisrule
providesthatifthedoneeofapromisedgiftobtainstitletothegiftinanothercapacity,thiswillbesufficientto
perfectthegiftinEquity.Usually,theothercapacityinwhichthedoneereceivesthegiftisthatofexecutor.
InStrongvBird,163 thedonorwasMrBirdsstepmother,wholivedwithhim.ShepaidasumofmoneytoBird
eachmonth.HethenborrowedmoneyfromheranditwasagreedthatBirdwouldrepaythedebtovertimeby
deductingasumeachmonthfromwhatshepaidtohim.Thestepmotherdidthisfortwomonthsandthen
continuedtopaythefullamounttoBird.Onherdeath,Birdwas(p.170) appointedherexecutor.Thequestionfor
thecourtwaswhetherthedebtwhichBirdcontinuedtoowehisstepmothercouldbeconsideredtohavebeen
releasedthroughhisappointmentasexecutor.Itwasheldthatthedebtwasreleasedwhenheobtainedprobateof
thewill.SirGeorgeJesselMRsaid:164
Firstofall,itissaid,andsaidquiteaccurately,thatthemeresayingbyacreditortoadebtor,Iforgiveyou
thedebt,willnotoperateasareleaseatlaw.Itiswhatthelawcallsnudumpactum,apromisemade
withoutanactualconsiderationpassing,andwhichconsequentlycannotbesupportedasacontract.Itis
notarelease,becauseitisnotunderseal.Thereforethemerecircumstanceofsaying,Iwillforgiveyou,
willnotdo.Thereare,however,twomodesinwhich,asitappearstome,thevalidityofthistransactioncan
besupported.Firstofall,wemustconsiderwhatthelawrequires.Thelawrequiresnothingmorethanthis,
thatinacasewherethethingwhichisthesubjectofdonationistransferableorreleasableatlaw,thelegal
transferorreleaseshalltakeplace.Thegiftisnotperfectuntilwhathasbeengenerallycalledachangeof
thepropertyatlawhastakenplace.Allowingthatruletooperatetoitsfullextent,whatoccurredwasthis.
Thedonor,ortheallegeddonor,hadmadeherwill,andbythatwillhadappointedMr.Bird,thealleged
donee,executor.Afterherdeathheprovedthewill,andthelegaleffectofthatwastoreleasethedebtin
law,andthereforetheconditionwhichisrequired,namely,thatthereleaseshallbeperfectatlaw,was
compliedwithbythetestatrixmakinghimexecutor.Itisnotnecessarythatthelegalchangeshall
knowinglybemadebythedonorwithaviewtocarryoutthegift.Itmaybemadeforanotherpurposebutif
thegiftisclear,andthereistobenorecallofthegift,andnointentiontorecallit,sothatthepersonwho
executesthelegalinstrumentdoesnotintendtoinvestthepersontakinguponhimselfthelegalownership
withanyothercharacter,thereisnoreasonwhythelegalinstrumentshouldnothaveitslegaleffect.For
instance,supposethisoccurred,thatapersonmadeamemorandumonthetitledeedsofanestatetothis
effect:IgiveBlack acretoA.B.,andafterwardsconveyedthatestatetoA.B.byageneraldescription,
notintendinginanywaytochangethepreviousgift,wouldtherebeanyequitytomakethepersonwho
hadsoobtainedthelegalestateatrusteeforthedonor?Theanswerwouldbethatthereisnoresulting
trustthatisrebuttedbyshewingthatthepersonwhoconveyeddidnotintendthepersontakingthe
conveyancetobeatrustee,andalthoughthepersonconveyingactuallythoughtthatthatwasnotoneof
theestatesconveyed,becausethatpersonthoughtthathehadwellgiventheestatebefore,stilltheestate
wouldpassatlaw,notwithstandingthatidea,andtherebeingnointentiontorevokethegift,surelyitwould
getridofanyresultingtrust.Onthesameprinciple,whenatestatormakeshisdebtorexecutor,and
therebyreleasesthedebtatlaw,heisnolongerliableatlaw.Itissaidthathewouldbeliableinthis
Court:andsohewould,unlesshecouldshewsomereasonfornotbeingmadeliable.Thenwhatdoeshe
shewhere?WhyheprovestothesatisfactionoftheCourtacontinuingintentiontogiveanditappearsto
methattherebeingthecontinuingintentiontogive,andtherebeingalegalactwhichtransferredthe
ownershiporreleasedtheobligationforitisthesamethingthetransactionisperfected,andhedoes
notwanttheaidofaCourtofEquitytocarryitout,ortomakeitcomplete,becauseitiscompletealready,
andthereisnoequityagainsthimtotakethepropertyawayfromhim.
Thisreasoninghasbeenappliedtoperfectimperfectgifts.165 So,evenifthedonordoesnotfallwithintherule
inReRose,aslongasheorshehadtheintentiontomakeanimmediategiftoftheproperty,andstillhadthat
intentionatthetimeofhisorherdeath,thenthegiftwillbeperfectedifthedoneeobtainstitletothepropertyby
becomingtheexecutor.Theruleappliesinthesamewayifthedoneereceivesthepropertythroughbeingthe
administratorofthedonorsestate.166 Ifthedoneeistobeatrustee,theruleinStrongvBirdcanoperateto
constitutethetrust.167
(p.171) Question
JamestransferredtitletoapropertyheownedtoRichard.HeorallytoldRichardtoholdthelandontrustfor
Barry.Jamesalsotoldhisagent,Steve,totransfersharesinLucrativeLtdtoSarahandJennatoholdon
trustforAmy.
Jamesfellilloneweeklater.Awarehewasabouttodie,heaskedhisbrother,Colin,tocometoseehimin
hospital.JamesgaveColinthekeystothelockonhisbicycle,andtoldColinthatthebicyclewashis.James
diedthefollowingday.
StevegavethesharetransferformtoSarahthatsameday.Inhiswill,Jameshadprovidedthatthoseshares
shouldbeheldbyBarry.JameshadtoldBarrysomeyearsearlierthathewastoholdthosesharesontrust
forJameslover,Kate.
AdviseBarry,Sarah,andColin.
FurtherReading
Critchley,InstrumentsofFraud,TestamentaryDispositionsandtheDoctrineofSecretTrusts(1999)115
LQR631.
FindThisResource
Fuller,ConsiderationandForm(1941)41ColumbiaLawReview799.
FindThisResource
Garton,TheRoleoftheTrustMechanisminReRose[2003]Conv364.
FindThisResource
Hayton,OttawayvNorman[1972]Conv129.
FindThisResource
Hodge,SecretTrusts:TheFraudTheoryRevisited[1980]Conv341.
FindThisResource
Kincaid,SecretandSemisecretTrusts:JustifyingDistinctionsbetweentheTwo[1995]Conv366.
FindThisResource
Kincaid,TheTangledWeb:TheRelationshipBetweenaSecretTrustandtheWill[2000]Conv420.
FindThisResource
Luxton,InSearchofPerfection:TheReRoseRuleRationale[2012]Conv70.
FindThisResource
Matthews,TheTrueBasisoftheHalfsecretTrust?[1979]Conv360.
FindThisResource
McKay,ShareTransfersandtheCompleteandPerfectRule[1976]Conv139.
FindThisResource
PawlowskiandBrown,ConstitutingaSecretTrustbyEstoppel[2004]Conv388.
FindThisResource
Rickett,ThoughtsonSecretTrustsfromNewZealand[1996]Conv302.
FindThisResource
Rickett,CompletelyConstitutinganInterVivostrust:PropertyRules?[2001]Conv515.
FindThisResource
Scott,ConveyancesuponTrustsNotProperlyDeclared(1924)37HarvardLRev653.
FindThisResource
Swadling,TheNatureoftheTrustinRochefoucauldvBoustead,inConstructiveandResultingTrusts(ed.
Mitchell)(Oxford:Hart,2010).
FindThisResource
Wilde,SecretandSemisecretTrusts:JustifyingDistinctionsbetweentheTwo[1995]Conv366.
FindThisResource
Youdan,FormalitiesforTrustsofLand,andtheDoctrineinRochefoucauldvBoustead(1984)43CLJ
306.(p.172)
FindThisResource
Notes:
1 E.g.PaulvConstance[1977]1WLR527.
2
GardnervRowe[1828]5Russ.258,38ER1024.
3
GardnervRowe[1828]5Russ.258,38ER1024RochefoucauldvBoustead[1897]1Ch196.
4
GardnervRowe[1828]5Russ.258,38ER1024.
5
OfparticularrelevancehereistheLawofPropertyAct1925,previouslytheStatuteofFrauds1677.
6 SeeChapter7,ConstructiveTrusts.
7
Seeimmediatelybelow.
8 (1873),LR16Eq182,37JP710.
9
[1897]1Ch196,2058.
10 Theforerunnerofsection53oftheLawofPropertyAct1925.
11
E.g.TGYoudan,FormalitiesforTrustsofLand,andtheDoctrineinRochefoucauldvBoustead(1984)43CLJ
306,331.
12 E.g.BinionsvEvans[1972]Ch359.
13
See8.3,p.376.
15
ConsideredinChapter4.2(c)(iii),p.127.
16 GardnervRose[1828]5Russ258,38ER1024RochefoucauldvBonstead[1897]1Ch196.
17
[1942]Ch328.
18 [1902]P238.
19
Ibid,240.
20
[1902]P238,241.
21
21 (1837)2Keen255.
22
Ibid,269.
23 Oakley,ConstructiveTrusts(3rdedn)(London:SweetandMaxwell,1996),p.262.
24
ThoughtsonSecretTrustsfromNewZealand[1996]Conv302,306.
25 [1979]Ch528,535.
26
ReEllenborough[1903]1Ch697.
27 SeefurtherChapter4.3(e),pp.1668
28
[1951]Ch344.
29 WillsAct1837,s.15.NowseetheWillsAct1968,whichallowsawitnesstoawilltotakeunderitifthewill
wouldhavebeenvalidwithouttheparticularwitnesssattestation.
30
[1951]Ch344,350.
31 PawlowskiandBrown,ConstitutingaSecretTrustbyEstoppel[2004]Conv388.
32
SeefurtherChapter9.4,pp.45565.
33 Fortheviewthatahalfsecrettrustwouldalsofail,seeWilde,SecretandSemisecretTrusts:Justifying
DistinctionsBetweentheTwo[1995]Conv366,373.
34
ReMaddock [1902]2Ch220,231(CozensHardyLJ).
35 Kincaid[2000],Conv420,440.
36
Ibid,at441.
37
SeefurtherChapter11.4,pp.5313.
38
[1923]2Ch230.
39
LawofPropertyAct1925,s.53(1)(b).SeeChapter4.2(a),p.120.
40 (1886)2TLT660,661(NorthJ).
41
[1972]Ch698.SeeChapter4.2(c)(iii)(c),pp.1379.
42 LawofPropertyAct1925,s.53(2).
43
AsinRochefoucauldvBousted[1897]1Ch196.SeeChapter4.2(b),pp.1223.
44 Ifthetrustsaredeclaredinwritingsubsequently,itmaybepossibletoincorporatethemintothewillifthe
conditionsforincorporationaresatisfied.SeeChapter4.2(c)(ii),p.126.
45
RePughsWillTrusts[1967]1WLR1262.
46 Matthews,TheTrueBasisoftheHalfsecretTrust?[1979]Conv360.
47
SeeChapter4.2(c)(ii),p.126.
48 SeeChapter4.2(c)(iii)(b),p.134.
49
50 Black wellvBlack well[1929]AC318.
51
51
InstrumentsofFraud,TestamentaryDispositionsandtheDoctrineofSecretTrusts(1999)115LQR631,646.
52 Black wellvBlack well[1929]AC318.
53
SeeChapter4.2(c)(iii)(c),p.137.
54 [1929]AC318.
55
Ibid,334.
56 ReCooper[1939]Ch811,816(SirWilfridGreeneMR).
57
ReKeen[1937]Ch236,245(LordWrightMR).
58
JohnsonvBall(1851)5DeG&Sm85.
59
RePugh[1967]1WLR1262.
60
[1937]Ch236.
61 SeeChapter4.2(c)(iii)(c),p.140.
62
Communicationofthetermsafterthetestatorsdeathwillnotsufficeforafullysecrettrust(ReBoyes(1884)26
ChD531)andshouldnotdosoeitherforahalfsecrettrust.
63 [1937]Ch236.
64
Ibid,at242.
65 [1970]1WLR1463.
66
Ibid,1468.
67 [1950]Ch204.
68
Ibid,207.
69 [1967]1WLR1269,1278.
70
[1939]Ch811.
71 Ibid,817.
72
See,e.g.ReSnowden[1979]Ch528.
73 (1684)1Vern296.
74
(2000)1WTLR333.
75
Ibid,711.
76
Hayton,OttawayvNorman[1972]Conv129,132.
77
WallgravevTebbs(1855)2K&J313.
78
(1884)26ChD531.
79
ReKeen[1937]Ch236,242(LordWrightMR).SeeChapter4.2(c)(iii)(b),p.134.
80 MossvCooper(1861)1J&H352,367(WoodVC).
81
SeeChapter1.4(a)(v),p.13.
82
82
[1900]1Ch237.
83
Ibid,241.
84
CanYouKeepHalfaSecret?(1972)88LQR225,228
85
JonesvBadley(1868)LR3ChApp362.
86
[1972]Ch698.SeeChapter4.2(c)(iii)(c)(1),pp.1379.
87 [1979]Ch528.
88
Ibid,534.
89 RePughsWillTrust[1967]1WLR1262.
90
ReBoyes(1884)26ChD531.
91 [1999]1FLR54.
92
Ibid,at63.
93 Hodge,SecretTrusts:TheFraudTheoryRevisited[1980]Conv341.
94
SeeChapter3.2,p.67.
95 Maitland,Equity(2ndedn)(Cambridge:CambridgeUniversityPress,1929)p.72.
96
Maitland,Equity(2ndedn)p.72.
97 MilroyvLord(1862)4DeGF&J264at274.SeeChapter4.3(b)(i),pp.1501.Forotherexamplesofthecourt
notsavingatrust,seee.g.RichardsvDelbridge(1874)LR18Eq11.
98
Becausethegiftofanonbearerchequerequiresendorsement.
99
Meaningwithoutwriting.
100
SeeChapter1.5(e),p.20.
101
[1977]1WLR527.SeeChapter3.2(a),p.68.
102
Ibid,531.
103
SeeChapter4.3(c)(ii),pp.1569.
104 Completelyconstitutinganintervivostrust:propertyrules?[2001]Conv515,519.
105
SeePaulvPaul(1882)20ChD742.
107
LandRegistrationAct2002.
108 SeeCompaniesAct2006ss.544,7704StockTransferAct1963,s.1.
109
JaffavTaylorGalleryLtd(1990)TheTimes,21March.
110 ReCole[1964]Ch175ThomasvTimesBook CoLtd[1966]1WLR911.
111
[1964]Ch288(ChD,BuckleyJ).
112 Ibid,3001.
113
113 Chapter10.2(e),pp.4936.
114
115 (1851)1DeGMandG176.
116
[1946]Ch312.
117 [1946]Ch312,3188.
118
E.g.TChoithramInternationalSAvPajarani[2001]1WLR1,11seeChapter4.3(c),pp.1978
119 [2002]EWCACiv227[2002]1WLR2075,[54]seeChapter4.3(c)(ii),pp.15661.
120
[1951]1Ch677.
121 ReRallisWillsTrusts,298.
122
Meaningbythatname.
123
[1946]Ch312seeChapter4.3(c),p.151.
124
McKay,ShareTransfersandtheCompleteandPerfectRule[1976]Conv139,155.
125
(1984)50P&CR119.
126
Ibid,125.InBrown&RootTechnologyLtdvSunAllianceandLondonAssuranceCoLtd[2001]Ch733itwas
held,inthecontextofadisputeabouttheassignmentofaleasethathadnotbeenregistered,thattheRe
Roseprincipledidnotapplyasregardslegal,ratherthanequitable,rights.SeeDowling,CanRosesSurviveon
RegisteredLand?(1999)50NorthernIrelandLawQuarterly90.
127
TheRoleoftheTrustMechanisminReRose[2003]Conv364,3745.
128
CorinvPatton[1990]HCA12,[38].
129
SeeChapter14.1,pp.6435.Indeed,ToddandLowriehavearguedthatifReRoseistobeaccepted,the
donorshouldnotbeatrusteeatall,althoughitisunclearhowthiswouldwork:ToddandLowrie,Re
RoseRevisited(1998)CLJ46.
130
[2002]EWCACiv227[2002]1WLR2075.
131
Ibidat[52][66].
132
Ibid,[58].
133
TheRoleoftheTrustMechanisminReRose[2003]Conv364,376.
134 ExplainingReRose:TheSearchGoesOn?(2003)62CLJ263,266.
135
SeeChapter9.3(a),pp.44950.
136 [2010]EWCACiv159[2010]2BCLC1,[40].
137
[2011]EWHC167(Ch)[2011]1BCLC638,[43].
138 SeeChapter14.
139
[2011]EWHC167(Ch)[2011]1BCLC638,[47][48].
140 InSearchofPerfection:TheReRoseRuleRationale[2012]Conv70,745.
141
Tham,CarelessShareGiving[2006]Conv411.
142
142
Forexample,ifAoffersBpropertyontheconditionthatBmarryAsdaughter,thenBoffersmarriage
considerationtoA.
143 Contracts(RightsofThirdParties)Act1999,s.10(2).Alternatively,theActwillapplytocovenantsentered
intoafter11November,1999ifthecontractexpresslyprovidesthattheActshallapply:s.10(3).
144
Section7(1)providesthattheActisinadditionto,anddoesnotreplace,theCommonLaw.SeetooNisshin
ShippingCo.LtdvCleaves&Co.Ltd[2003]EWHC2602(Comm)[2004]1AllER(Comm)481.
145 CannonvHartley[1949]Ch213.
146
PaulvPaul(1882)20ChD742.
147 Thisincludesgrandchildrenandgreatgrandchildren:MacDonaldvScott[1893]AC642,650.
148
[1913]1Ch9.
149 Ibid,at14.
150
RePlumptresSettlement[1910]1Ch609.
151
[1916]WN341.
152
NormanvFederalCommissionerofTaxation(1963)109CLR9,24(WindeyerJ)(HighCourtofAustralia).
153
[1913]1Ch9seeChapter4.3(d)(ii),p.163.
154 SeeSmithvLucas(1881)18ChD531,543(JesselMR).
155
LloydsvHarper(1880)16ChD290.SeealsoBarclaysBank plcvWillowbrook InternationalLtd[1987]1
FTLR386HarrisonvTew[1989]QB307.
156 AffrteursRunisSAvLeopoldWalford(London)Ltd[1919]AC801.
157
CfAffrteursRunisSAvLeopoldWalford(London)Ltd[1919]AC801.
158 [1933]AC70,7980.SeetooReSchebsman[1944]Ch83.
159
WoodardvWoodard[1995]3AllER980.
160 JonesvSelby(1710)Prec.Ch300
161
[1991]Ch425.
162 [1991]Ch425,431
163
(1874)LR18Eq315.
164 Ibid,at317.
165
ReStewart[1908]2Ch251.
166 ReJames[1935]Ch449cfReGonin[1979]Ch16,34.
167
Cf.ReRallisWillTrust[1964]Ch288seeChapter4.3(b)(i),pp.14950.
5.CharitablePurposeTrusts
Chapter: (p.175) 5.CharitablePurposeTrusts
DOI: 10.1093/he/9780199661480.003.0005
CentralIssues
1.Acharitabletrustisapublictrustforpurposesthatprovideabenefittothepublicorasectionofthe
public.
2.CharitabletrustsareheavilyregulatedandsubjecttosupervisionbytheCharityCommission.
3.Atrustwillonlybecharitableifestablishedforapurposethatthelawregardsascharitable.There
arealargenumberofcharitablepurposesrecognizedbystatute,includingthereliefandpreventionof
povertyandtheadvancementofeducationandreligion.
4.Whendeterminingwhetherasufficientsectionofthepublicisbenefited,generallytheremustnotbe
apersonalnexusbetweenadonortothetrustandthosewhowillbenefitfromit.
5.Thepurposesofthetrustmustbewhollyandexclusivelycharitableotherwisethetrustwillbevoid.
6.Theconsequencesofthecharitabletrustfailingdependonwhetherthefailureoccursinitiallyor
subsequently.Ifthepurposefailsinitiallyandthesettlorhadageneralcharitableintention,thetrust
propertycanbeappliedforasimilarcharitablepurposethroughtheapplicationofabodyofrulesknown
asthecyprsdoctrine.Ifthepurposefailssubsequentlythecyprsdoctrinewillapplyautomatically.
1.TheEssentialCharacteristicsofaCharity
InPartII,weexaminedprivatetrustsforindividualbeneficiaries.InPartIII,weareconcernedwithtrustsfor
purposes.Thebeneficiaryprinciplerequirestheretobeidentifiablepeoplewhoareabletoenforcethetrust.1 It
followsthatatrustforpurposeswillgenerallynotbevalid.Onesignificantexceptiontothisprincipleisthat
charitabletrustshavelongbeenrecognizedasvalideventhoughtheyaretrustsforpurposesratherthanfor
particularpeople.Theseexpresstrustsaretreatedwithspecialfavourbythelawbecausetheyprovideabenefitto
thepublicorasectionofthepublic.Charitabletrustscanusefullybecharacterizedaspublictrustssincethey
promotepurposesbeneficialtothecommunity,2 asdistinctfromtrustsforpeople,whichareprivatetrusts
becausetheyprovidebenefits(p.176) toprivateindividuals.Charitabletrustsoperateinaverydifferentlegal,
fiscal,andsocialcontexttoprivatetrusts.Thereareover180,000charitiesregisteredwiththeCharity
Commission,withanannualincomeof52billion.Equityhashadaveryimportantroleindevelopingthelaw
relatingtothecreation,definition,andoperationofcharities.
Acharitableinstitutionisdefinedbystatute.
CharitiesAct2011
1Meaningofcharity
(1)ForthepurposesofthelawofEnglandandWales,charitymeansaninstitutionwhich
(a)isestablishedforcharitablepurposesonly,and
(b)fallstobesubjecttothecontroloftheHighCourtintheexerciseofitsjurisdictionwith
respecttocharities.
9Interpretation
(3)InthisActinstitutionmeansaninstitutionwhetherincorporatedornot,andincludesatrust
orundertaking.
SinceacharitymustbesubjecttothejurisdictionoftheHighCourtitfollowsthatthecharitymustbeestablished
underEnglishlaw,evenifthecharitablepurposeistobefulfilledabroad.
TheessentialcharacteristicsofacharitywererecognizedbyMummeryLJinGaudiyaMissionvBrahmachary:3
Acharitydoesnothavetotakeanyparticularlegalformitmaybeatrustoranundertakingitmaybe
incorporatedorunincorporated.Butitmustsatisfybothrequirementsforthedefinitioninsection96(1).4 It
mustbeestablishedforcharitablepurposes.Itwillbenotedthatcharitablepurposesisadefinedterm,
meaningthosepurposeswhichareexclusivelycharitableaccordingtothelawofEnglandand
Wales5 anditmustbesubjecttothecontroloftheHighCourtintheexerciseofthecourtsjurisdiction
withrespecttocharities
UnderEnglishlawcharityhasalwaysreceivedspecialtreatment.Itoftentakestheformofatrustbutitis
apublictrustforthepromotionofpurposesbeneficialtothecommunity,notatrustforprivateindividuals.It
isthereforesubjecttospecialrulesgoverningregistration,administration,taxationandduration.Although
notastateinstitution,acharityissubjecttotheconstitutionalprotectionoftheCrownasparenspatriae,
actingthroughtheAttorneyGeneral,tothestatesupervisionoftheCharityCommissionersandtothe
judicialsupervisionoftheHighCourt.Thisregimeapplieswhetherthecharitytakestheformofatrustorof
anincorporatedbody.
Socharitablepurposescanbesatisfiedwithoutresortingtoatrustdevice.Forexample,itispossibleto
incorporateacharitablecompany 6 ortouseanunincorporatedassociationtoeffectacharitable(p.
177) purpose.Regardlessofthetypeoflegalmechanismthatisusedtoimplementacharitablepurpose,the
peoplewhohavethegeneralcontrolandmanagementoftheadministrationofacharityarecalledthecharity
trustees.7 Thecharitytrusteeisstrictlydistinctfromtrusteesofacharity,whichrefersonlytothetrusteesofa
charitabletrust.Themechanismforimplementingacharitablepurposemightnotbeatrust,andthosepeoplewho
controlandmanagethecharitywillstillbecalledcharitytrustees,buttheyarenottrusteesofacharity.So,for
example,thedirectorsofanincorporatedcharityarecharitytrusteesforthepurposesoftheCharitiesAct2011,
butarenottrusteesofthecharity.Thisisgenerallyadistinctionofonlytechnical,ratherthanpractical,
significance,sincecharitytrusteesarestillsubjecttofiduciarydutiesandhaveadministrativeresponsibilitiesin
justthesamewayastheywouldiftheyweretrusteesofatrust.
Whatevermechanismisusedtoeffectacharitablepurpose,aninstitutioncanbeconsideredtobecharitableonly
ifthreeconditionsaresatisfied:
(1)itmustbeestablishedforapurposethatthelawregardsascharitable8
(2)itspurposesmustbenefitthepublicorasufficientsectionofthepublic9
(3)itmustbewhollyandexclusivelycharitableinbothitspurposeandoperation.10
(a)AdvantagesofBeingaCharitableTrust
Acharitabletrusthasanumberofadvantagesoverprivateexpresstrusts,aswasrecognizedinTheIndependent
SchoolsCouncilvTheCharityCommissionforEnglandandWales:11
Whereatrustorcorporationisacharitycertainlegalconsequencesfollow.Forinstance,acharitable
trust,unlikeaprivatetrust,canhaveperpetualdurationitisnot,inlegaljargon,subjecttotheruleagainst
perpetuitiesitisentitledtoanumberoffavourabletaxreliefsand,ofcourse,itissubjecttoregulationby
theCharityCommissionorotherregulatorsand,possibly,interventionbytheAttorneyGeneral.Charitable
statusalsoconfersreputationalbenefits,withaconsequentialgreaterabilitytoraisefunds.
Morespecifically,theadvantagesofatrustbeingcharitableare:
(i)Whereasprivatetrustsaresubjecttotheperpetuityrule,12 sothattheycanlastforonlyalimitedtime,
charitabletrustscanexistperpetually.However,therulesonvestingofpropertywithintheperpetuityperioddo
operateinthesamewayforcharitabletrustsasforprivatetrusts,13 sothepropertymustvestinthecharitywithin
125years.14
(ii)Whereas,forprivatetrusts,therearestrictrulesastocertaintyofintenttocreateatrust,andcertaintyin
definingtheobjects,15 theequivalentrulesaremuchmoreflexibleregardingcharitable(p.178) trusts.Itisalso
notnecessarytosatisfythebeneficiaryprinciple.16 Itisnoobjectionthatthetrustfailstoprovidewithreasonable
certaintywhatarethecharitablepurposesforwhichthepropertymustbeapplied17 certaintyofintentiontoapply
thepropertyforcharitablepurposesissufficient,althoughthepurposesmustbewhollyandexclusively
charitable.18 Ifthereisdoubtastotheparticularcharitablepurposes,theCharityCommissionorthecourtsmay
prepareaschemefortheuseofthepropertyforparticularcharitablepurposes.Thecourtswill,however,generally
seektoconstruethetrustdocumentinamannerthatavoidsproblemsregardingthevalidityofthetrust.19 InIRC
vMcMullen20 LordHailshamsaid:
inconstruingtrustdeedstheintentionofwhichistosetupacharitabletrust,andinotherstoo,whereit
canbeclaimedthatthereisanambiguity,abenignantconstructionshouldbegivenifpossible.
Forexample,ifapotentialcharitabletrustcanbeconstruedintwoways,withonewaymakingitcharitableand
effectual,andtheothernoncharitableandvoid,thecourtswilladopttheformerconstruction,ifatallpossible,so
astoensurethatpropertyisusedforbenefitofcharitablepurposes.
(iii)Therearenumeroustaxadvantagesforcharitiesanddonorstocharities.Anumberofthekeycharitycases
thathavereachedthecourtshaveinvolveddisputeswithHMRevenue&Customsastowhetherornotatrustis
charitable,withadecisionthattheinstitutionisnotcharitable,resultinginasignificanttaxliability.Forexample,
thedecisionoftheUpperTribunalinTheIndependentSchoolsCouncilvTheCharityCommissionforEnglandand
Wales,21 essentiallyconcernedtheteststodeterminewhetherindependentschoolsfulfilledcharitablepurposes
forthebenefitofthepublic.Ifsuchschoolslosttheircharitablestatus,thiswouldhaveasignificantfinancial
impactonsuchschoolsthroughtheimpositionoftaxliability.22
(iv)Whereaprivatetrustfailsandtherearestilltrustfundsavailable,thosefundswillusuallybereturnedtothe
settlorbymeansofaresultingtrust.23 Whereacharitabletrustfails,however,thesurplusfundswillbeappliedfor
asimilarcharitablepurpose,byvirtueofthecyprsdoctrine24 cyprsmeansasnearasmaybe.Thisis
advantageousinthatthecreatorofthetrustanddonorstoitwillknowthat,oncepropertyhasbeenreceivedby
thattrust,itwillbeusedforcharitablepurposeseveniftheparticulartrustfails.
(b)DisadvantagesofBeingaCharitableTrust
Therearealsosomedisadvantagesthatarisefromcharitablestatus,suchasrestrictionsonpermittedactivities
andtheapplicationoffunds.Therearesignificantadministrativeandbureaucraticobligationsimposedupon
charitiesaswell.AllcharitiesneedtoberegisteredbytheCharityCommission,whichcaninvolvean
administrativeburdeninestablishingthatthehallmarksofacharityaresatisfied.Onceregistered,Part8ofthe
CharitiesAct2011imposesstrictdutiesoncharitytrusteestoprepare(p.179) annualaccounts,toarrangefor
theiraudit,andtosendannualreportstotheCharityCommissionontheiractivities.Therearecriminalpenalties
forfailuretosubmitreportsandreturns.
2.RegulationandSupervisionofCharities
Thereareavarietyofmechanismsforregulatingandsupervisingcharities:(a)theAttorneyGeneral(b)the
CharityCommissionand(c)theTribunalsandcourts.
(a)TheAttorneyGeneral
TheAttorneyGeneralisresponsibleforenforcingthecharitabletrustinthenameoftheCrown.25 Heorsheacts
astheprotectorofthecharityandhasbeendescribedastherepresentativeofthebeneficialinterest.26 Thereis
aneedfortheAttorneyGeneraltointervenetoprotectthepropertyofthecharitabletrustbecausenoprivate
personhasabeneficialinterestinthetrustsproperty.
(b)CharityCommission
ThegeneraladministrationofcharitiesiscarriedoutbytheCharityCommission.
CharitiesAct2011
13TheCharityCommission
(1)TherecontinuestobeabodycorporateknownastheCharityCommissionforEnglandand
Wales(inthisActreferredtoastheCommission).
(3)ThefunctionsoftheCommissionareperformedonbehalfoftheCrown.
(i)ObjectivesandfunctionsoftheCharityCommission
TheCharityCommissionhasanumberofidentifiedobjectivesandfunctions.
CharitiesAct2011
14TheCommissionsobjectives
TheCommissionhasthefollowingobjectives
1.Thepublicconfidenceobjective
Thepublicconfidenceobjectiveistoincreasepublictrustandconfidenceincharities.
(p.180) 2.Thepublicbenefitobjective
Thepublicbenefitobjectiveistopromoteawarenessandunderstandingoftheoperationofthe
publicbenefitrequirement.27
3.Thecomplianceobjective
Thecomplianceobjectiveistopromotecompliancebycharitytrusteeswiththeirlegal
obligationsinexercisingcontrolandmanagementoftheadministrationoftheircharities.
4.Thecharitableresourcesobjective
Thecharitableresourcesobjectiveistopromotetheeffectiveuseofcharitableresources.
5.Theaccountabilityobjective
Theaccountabilityobjectiveistoenhancetheaccountabilityofcharitiestodonors,beneficiaries
andthegeneralpublic.
15TheCommissionsgeneralfunctions
(1)TheCommissionhasthefollowinggeneralfunctions
1.Determiningwhetherinstitutionsareorarenotcharities.
2.Encouragingandfacilitatingthebetteradministrationofcharities.
3.Identifyingandinvestigatingapparentmisconductormismanagementinthe
administrationofcharitiesandtakingremedialorprotectiveactioninconnectionwith
misconductormismanagementintheadministrationofcharities.
4.Determiningwhetherpubliccollectionscertificatesshouldbeissued,andremainin
force,inrespectofpubliccharitablecollections.
5.Obtaining,evaluatinganddisseminatinginformationinconnectionwiththeperformance
ofanyoftheCommissionsfunctionsormeetinganyofitsobjectives.
6.Givinginformationoradvice,ormakingproposals,toanyMinisteroftheCrownon
mattersrelatingtoanyoftheCommissionsfunctionsormeetinganyofitsobjectives.
(2)TheCommissionmay,inconnectionwithitssecondgeneralfunction,givesuchadviceor
guidancewithrespecttotheadministrationofcharitiesasitconsidersappropriate.
(3)Anyadviceorguidancesogivenmayrelateto
(a)charitiesgenerally,
(b)anyclassofcharities,or
(c)anyparticularcharity,
andmaytakesuchform,andbegiveninsuchmanner,astheCommissionconsiders
appropriate.
(4)TheCommissionsfifthgeneralfunctionincludes(amongotherthings)themaintenanceofan
accurateanduptodateregisterofcharitiesundersections29(theregister)and34(removalof
charitiesfromregister).
(5)TheCommissionssixthgeneralfunctionincludes(amongotherthings)complying,sofaras
isreasonablypracticable,withanyrequestmadebyaMinisteroftheCrownforinformationor
adviceonanymatterrelatingtoanyofitsfunctions.
(ii)Theregisterofcharities
TheregisterofcharitiescontainsthenameofeverycharityregisteredbytheCharityCommission.
(p.181) CharitiesAct2011
29Theregister
(1)Therecontinuestobearegisterofcharities,tobekeptbytheCommissioninsuchmanner
asitthinksfit.
(2)Theregistermustcontain
(a)thenameofeverycharityregisteredinaccordancewithsection30,and
(b)suchotherparticularsof,andsuchotherinformationrelatingto,everysuchcharityas
theCommissionthinksfit.
Aninstitutionthatisincludedontheregisterisconclusivelypresumedtobeacharity,theonlyexceptionbeing
wheretheregisterisrectified.
CharitiesAct2011
37Effectofregistration
(1)Aninstitutionis,forallpurposesotherthanrectificationoftheregister,conclusively
presumedtobeortohavebeenacharityatanytimewhenitisorwasontheregister.
Ifaninstitutionisnotregistereditdoesnotfollowthatitisnotacharity,sincetherequirementsforregistration
mayhavebeensatisfied,butthetrusteesmayhavefailedtoregisterthecharity.28
Bysection30oftheCharitiesAct2011,allcharitiesarerequiredtoberegisteredotherthancharitiesthatare
exemptedbystatute,charitieswithagrossincomeoflessthan5,000,andcertaincharitieswithagrossincome
oflessthan100,000thatareexceptedfromregistrationeitherbytheCommissionorunderregulationsmadeby
theSecretaryofState.Whereacharityisrequiredtoberegistered,itisthedutyofthecharitytrusteestoapply
forregistration.29 CharitytrusteesarealsounderadutytoinformtheCommissionifthecharityceasestoexistor
ifthereisachangeinthecharitystrusts.30
TheCharityCommissionisrequiredtoremovecharitiesfromtheregisterincertaincircumstances.
CharitiesAct2011
34Removalofcharitiesfromregister
(1)TheCommissionmustremovefromtheregister
(a)anyinstitutionwhichitnolongerconsidersisacharity,and
(b)anycharitywhichhasceasedtoexistordoesnotoperate.
(p.182) Anybodywhomightbeaffectedbytheregistrationofaninstitutionasacharity,suchasatestators
nextofkin,canobjecttoitsinclusionontheregisterorapplyforittoberemoved.31
(iii)Regulatorypowers
TheCharityCommissionhasvariousregulatorypowers.Forexample,itcaninstituteaninquirywithregardtoa
charityoraclassofcharities32 itcangivedirectionstothecharitytrusteestotakeparticularactionsinthe
interestsofthecharity33 itcangiveadvicetocharitytrusteesrelatingtotheadministrationofthecharityorthe
performanceofthetrusteesduties34 anditcanalsosanctionactionsthatareexpedientintheadministrationof
thecharity,suchasaparticularapplicationofcharityproperty,evenifthecharitytrusteesdonothavethepower
totakesuchaction.35
(iv)ConcurrentjurisdictionwiththeHighCourt
TheCharityCommissionhasjurisdiction,whichisconcurrentwiththatoftheHighCourt,asregardsvarious
matters,36 suchasestablishingaschemefortheadministrationofthecharityappointing,discharging,or
removingacharitytrusteeandtransferringproperty.ButtheCharityCommissiondoesnothavejurisdictionto
determinetitletoproperty,ortodeterminetheexistenceorextentofanytrust,37 anditshouldnotexerciseits
concurrentjurisdictionifthematterismoreappropriatelyadjudicatedbythecourtbecauseofitscontentious
nature,orbecauseitraisesspecialquestionsoflaworfact.38
(v)CritiqueoftheroleoftheCharityCommission
IthasbeensuggestedthattheCharityCommissionisnotexercisingitspowersappropriatelyindetermining
whetheraninstitutionisorisnotacharity.ThefunctionoftheCharityCommissionistoapplythelawasithas
beendevelopedbythecourtsandbyParliament,butitappearstobedevelopingitsowninterpretationofthose
principles.
LuxtonandEvans,CogenandCohesive?TwoRecentCharityCommissionDecisionsonthe
AdvancementofReligion[2011]75Conv144,151
TheCommissionsnewapproachisofconcernbecausetheCommissionsguidanceanditsown
analysisofthelawunderpinningthatdocumentarenotsourcesoflaw,butmerelytheCommissions
understandingofthelawgenerally.TheCommissionhowever,whichisagovernmentdepartment,
relieson,andquotesextensivelyfrom,itsownguidanceandanalysisasifthesedocumentswere
entitledtothesameregardasdecisionsofthehighercourtswhereastheCommissionsguidanceis
producedforthelimitedpurposeofassistingthosenotconversantwithcharitylawWorryingly,when
thishasbeenpointedout,theCommissionsresponsehasbeensimplytostatethatitsdecisions
arebasedontheapplicationofexistingcharitycaselawandtheCommissionspublicguidance,
whichisitselfbasedon(p.183) caselaw.ThisdemonstratestheCommissionslackofawareness
oftheneedforlegalrigourwhenmakingalegaldecision,suchasadecisionwhetherornottoregister
abodyasacharity.
Insteadoftryingtopullitselfupwithitsownbootstraps,theCommissionshouldbeinterpretingand
applyingthelawontheparticularfactsoftheapplicationbeforeit.
(c)TheTribunalsandCourts
TheFirsttierandUpperTribunal39 havejurisdictiontohearappealsandapplicationsinrespectofdecisions,
orders,anddirectionsoftheCharityCommission,suchasadecisiontoregisterornottoregisteracharity,orto
removeaninstitutionfromtheregisterofcharities.
TheCharityCommissionortheAttorneyGeneralmayalsorefermatterstotheTribunals,includingmatters
relatingtothepowersoftheCommissionitselfandtotheoperationofthelawofcharity.TheTribunalshavea
potentiallyveryimportantroleindevelopingcharitylaw,asillustratedbytheUpperTribunalsdecisionrelatingto
thecharitablestatusofindependentschools.40 ItispossibletoappealfromdecisionsoftheUpperTribunaltothe
CourtofAppealortotakecertainproceedingsdirectlytotheHighCourt.
(i)Charityproceedings
Thecourtshavejurisdictionwithrespecttodisputesrelatingtotheinternalorfunctionaladministrationofa
charitabletrust,socalledcharityproceedings.
CharitiesAct2011
115Proceedingsbyotherpersons
(1)Charityproceedingsmaybetakenwithreferencetoacharityby
(a)thecharity,
(b)anyofthecharitytrustees,
(c)anypersoninterestedinthecharity,or
(d)ifitisalocalcharity,anytwoormoreinhabitantsoftheareaofthecharity,
butnotbyanyotherperson.
(2)Subjecttothefollowingprovisionsofthissection,nocharityproceedingsrelatingtoacharity
aretobeentertainedorproceededwithinanycourtunlessthetakingoftheproceedingsis
authorisedbyorderoftheCommission.
(8)InthissectioncharityproceedingsmeansproceedingsinanycourtinEnglandorWales
broughtunder
(a)thecourtsjurisdictionwithrespecttocharities,or
(b)thecourtsjurisdictionwithrespecttotrustsinrelationtotheadministrationofatrust
forcharitablepurposes.
(p.184) Apersonisinterestedinthecharityifheorshehasaninterestinsecuringthedueadministrationof
thecharitythatisgreaterthanordifferentfromthatpossessedbyordinarymembersofthepublic.41 Generally,
suchproceedingsmustbeauthorizedbytheCharityCommissionandtheywillnotbeiftheycanbedealtwith
undertheCommissionsownregulatorypowers.
InMumanvNagasena,42 MummeryLJsaid:
Thisisatrustforcharitablepurposes,anditisclearthattherearenowissuesinthepossession
proceedingswhichrelatetotheadministrationofthosetrusts,namely:(i)whoarethetrusteesofthe
charityand(ii)whoisthepatronofthecharity.Thereisapossiblethirdissueastowhoarethemembers.
Thosearemattersofinternalordomesticdisputeandarenotadisputewithanoutsidertothecharity.
ThesearecharityproceedingsThatmeansthattheycannotbecontinuedwithouttheauthorisationeither
oftheorderoftheCharityCommissionersorofajudgeoftheHighCourtofJustice,ChanceryDivision.No
suchauthorisationhasbeenobtained.Toallowtheproceedingstocontinuewithoutauthorisationwouldbe
tooffendthewholepurposeofrequiringauthorisationforthecharityproceedings.Thatistoprevent
charitiesfromfritteringawaymoneysubjecttocharitabletrustsinpursuinglitigationrelatingtointernal
disputes.
(ii)Judicialreview
DecisionsoftheCharityCommission,43 andofcertaincharitiesthathavethecharacteristicsofapublicbody,
maybeexaminedbythecourtsthroughjudicialreviewproceedings.
InScottvNationalTrust,44 theNationalTrusthaddecidednottorenewlicencestohuntdeeronsomeofitsland.
Membersofvarioushuntsaffectedbythisdecision,alongwithtenantfarmersontherelevantland,soughta
judicialreviewofthisdecisionandalsocommencedcharityproceedings.Inholdingthattheclaimantscould
bringcharityproceedingsbutnotanactionforjudicialreview,RobertWalkerJsaid:45
Itiseasytorecogniseapublicelementincharitableinstitutions,andespeciallyinacharitableinstitution
whichisregulatedbyActofParliamentandisofsuchgreatnationalimportanceastheNationalTrust.
Charitabletrustswerebeingcommonlyreferredtoaspublictrustslongbeforetheexpressionpubliclaw
wasincommonuse
Thequestionsofhowthelawshouldmonitorcharities,andofhowthelawshouldmonitorthosepublic
officersandnoncharitablebodieswhichareobviouslyamenabletojudicialreview,raisesimilarproblems,
towhichthelawhas,itseemstome,providedsimilaralthoughbynomeansidenticalsolutions.
Thewayinwhichtheseentitiesexercisetheirpowersanddiscretionsmayaffectdirectlyorindirectlymany
differentsectionsofthepublicandevenmembersofthegeneralpublicwhoarenotpersonallyaffected
financiallyorotherwiseinanyway,maystillhaveverystrongandsincerelyheldviewsabouttherightsor
wrongsofdecisions,whetherbyacharityoralocalauthorityonasubjectsuchashunting.Thecourthas
jurisdictiontopreventmisuseofpublicpowerseitherbyjudicialreviewor(inthecaseofacharity)by
charityproceedings
(p.185) Moreover,ineachcasethereisaprotectivefilter[which]isintendedtoprotectpublicofficers,
publicbodiesandcharitiesfrombeingharassedbyamultiplicityofhopelesschallengesTheefficacyof
theprotectivescreenis,ofcourse,enhancedbytheneedforthecomplainanttohaveasufficientinterest
oraninterestinthecharity.
InthiscasetheDevonandSomersetstaghoundsandtheQuantockstaghoundshavebeenhuntingdeeron
ExmoorandtheQuantockssincelongbeforetheNationalTrustownedlandthere.Whethertheiractivities
areregardedaslaudableordeplorable,theaffidavitevidencemakesoutastrongcasethattheyarean
importantpartoftheruraleconomyincontributingtodeerculling,inprovidingaserviceindestroyingand
removingsickandinjuredbeasts,andgenerallyindeermanagement
ForthosereasonsIconcludethattheplaintiffsintheoriginatingsummonsproceedingshaveasufficient
interesttobringcharityproceedings
Idonotthinkitishelpful,orevenpossible,toconsiderthebroadquestionofwhetheranycharity,oreven
anycharityspeciallyestablishedbystatute,issubjecttojudicialreviewButtheNationalTrustisa
charityofexceptionalimportancetothenation,regulatedbyitsownspecialActsofParliamentItseems
tometohaveallthecharacteristicsofapublicbodywhichis,primafacie,amenabletojudicialreview,and
tohavebeenexercisingitsstatutorypublicfunctionsinmakingthedecisionwhichischallenged.
However,itiswellestablishedthatjudicialreviewwillnotnormallybegrantedwhereanalternativeremedy
isavailableButitseemstomethatParliamenthaslaiddownaspecialprocedurecharityproceedings
intheChanceryDivisionforjudicialmonitoringofcharities,andthatinallbutthemostexceptionalcases
thatistheprocedurewhichshouldbefollowed.Apossibleexception(andthisismerespeculation)might
bewherealocalauthorityheldlandoncharitabletrustsandquestionsaboutitsdealingswiththatland
werecaughtupwithotherquestionsaboutitsdealingswithlandwhichitownedbeneficially(though
subject,ofcourse,tostatutoryconstraints).ButIcanseenogoodreasonformakinganexceptioninthis
caseitseemstomethattherightcourseisfortheplaintiffstoproceedwiththeircharityproceedings
thatistheoriginatingsummonsandthattohaveparalleljudicialreviewproceedingswouldsimplybe
wastefulduplication.Idonothowever,formyself,regardtheprotectivefilterandtheneedforasufficient
interestasmattersoftechnicality,but(forreasonswhichIhavetriedtoexplain)asasensibleand
necessaryrequirementinthepubliclawfield,includingthelawofpublic(orcharitable)trusts.
AfurtherrestrictionontheavailabilityofjudicialreviewproceedingswasrecognizedinRSPCAvAttorney
General,46 whichconcernedthelegitimacyofthecharityspolicyofexcludingexistingmembersandpreventing
newmembersfromjoiningiftheirreasonforwishingtobememberswastochallengethecharityspolicyagainst
huntingwithdogs.Itwasheldthatanexistingmemberofthecharitywhowasthenexcludedwouldhavelocus
standitobringcharityproceedings.Anunsuccessfulapplicantformembershipwasnotsufficientlyinterestedin
thecharitytobringcharityproceedings,butcouldalsonotbringjudicialreviewproceedingsbecausethiswould
circumventthestatutoryrequirementsofcharityproceedings.LightmanJsaid:47
Thequestionraisediswhether[thecomplainants]areabletobringjudicialreviewproceedingsiftheydo
nothavethenecessaryinteresttobringcharityproceedings.Theanswertothisquestionisinthenegative.
ThereisaseriousquestionwhethertheSocietyisthesortofpublicbodywhichisamenabletojudicial
review,mostparticularlyinrespectofdecisionsmadeinrelationtoitsmembership(p.
186) (considerScottscase(at716)).Thefactthatacharityisbydefinitionapublic,asopposedtoa
private,trustmeansthatthetrusteesaresubjecttopubliclawdutiesandjudicialreviewisingeneral
availabletoenforceperformanceofsuchduties.Thereisthereforeatheoreticalbasisforallowingrecourse
tojudicialreview.ItisalsotruethattheSocietyisaveryimportantcharityanditsactivities(inparticular,
theinspectorateanditsprosecutionsforcrueltytoanimals)areofgreatvaluetosocietyButincarrying
outtheseactivitiestheSocietyisinlawinnodifferentpositionfromthatofanycitizenorother
organisation.UnliketheNationalTrust,thesubjectofconsiderationbyWalkerJinScottscase,the
Societyhasnostatutoryorpubliclawrole.AllIwillsayisthat,thoughtheoreticallyandinapropercase
anapplicationforjudicialreviewmaylie,itwouldnot(atanyrateinanyordinarycase)lieattheinstanceof
disappointedapplicantsformembershipwhoseinterestwasinsufficienttomeetthestatutorystandardfor
theinstitutionofcharityproceedings.Thestatutorystandardislaiddownasaformofprotectionofcharity
trusteesandtheAdministrativeCourtwouldrarely(ifever)bejustifiedinallowingthatprotectiontobe
circumventedbytheexpedientofcommencing(inplaceofcharityproceedings)judicialreviewproceedings.
Thatdoesnotmeanthatadisappointedapplicantformembershipiswithoutrecourse,forhecancomplain
totheCharityCommissionortheAttorneyGeneralandrequestthemtotakeaction.
Itispossibleforthecourttorequireinternaldisputesarisingwithinacharitytoberesolvedbymediationbefore
legalproceedingsarepursued.48 AcombinedmediationserviceforcharitieshasbeenestablishedbytheCentre
forDisputeResolutionjointlywiththeNationalCouncilforVoluntaryOrganisations.MummeryLJinMumanv
Nagasena49 recognizedthatthepurposeofthisserviceisto:
achieve,byvoluntaryactionconfidentiallyconducted,ahealingprocessunderwhichdisputeswithina
charitycanberesolvedatamodestfeeandwithoutdiminishingthefundswhichhavebeenraisedfor
charitablepurposes.
3.TheDefinitionofCharity
TherewasnoformaldefinitionofcharityinEnglishlawuntiltheenactmentoftheCharitiesAct2006,now
consolidatedintheCharitiesAct2011.Beforethen,thedefinitionofcharityemergedthroughlimited
Parliamentaryinvolvement,decisionsofthecourts,and,morerecently,decisionsoftheCharityCommissionas
towhetherornottoregisteracharity.Thehistoryofthedefinitionofcharityremainssignificanttodaybecausethe
newstatutorydefinitionbuildsontheseearlierdevelopments.AstheUpperTribunalobservedinTheIndependent
SchoolsCouncilvTheCharityCommissionforEnglandandWales:50
thewordscharityandcharitablehavebecometermsofart.Thelegalconceptofcharityhasdeveloped
incrementally,andnotaltogetherconsistentlyThemeaningwhichthelawandlawyersgivetocharity
doesnotcorrespondentirelywiththemeaningofthewordasordinarilyunderstood.Itisimportantto
rememberthat,intheproceedingsbeforeus,weareconcernedwiththelegalconceptofcharityandnot
withtheordinarymeaningoftheword,althoughitisnodoubtthecasethatordinaryconceptsmustinform
thelegalmeaning,ameaningwhichisnotfrozenatsometimeinthepast.
(p.187) (a)ThePreambletotheCharitableUsesAct1601
TheCharitableUsesAct1601featuredaPreamblethatidentifiedanumberofcharitableobjects.Theseprovedto
behighlysignificanttothesubsequentdevelopmentofthelawofcharity.
CharitableUsesAct160143Eliz.I,c.4:ThePreamble
WhereasLands,Tenements,Rents,Annuities,Profits,Hereditaments,Goods,Chattels,Moneyand
StocksofMoney,havebeenheretoforegiven,limited,appointedandassigned,aswellbytheQueens
mostexcellentMajesty,andhermostnobleProgenitors,asbysundryotherwelldisposedPersons
someforReliefofaged,impotentandpoorPeople,someforMaintenanceofsickandmaimed
SoldiersandMariners,SchoolsofLearning,FreeSchools,andScholarsinUniversities,somefor
RepairofBridges,Ports,Havens,Causeways,Churches,SeaBanksandHighways,somefor
EducationandPrefermentofOrphans,someforortowardsRelief,StockorMaintenanceforHousesof
Correction,someforMarriagesofpoorMaids,someforSupportation,AidandHelpofyoung
Tradesmen,HandicraftsmenandPersonsdecayed,andothersforRelieforRedemptionofPrisonersor
Captives,andforAidorEaseofanypoorInhabitantsconcerningPaymentsofFifteens,settingoutof
SoldiersandotherTaxeswhichLands,Tenements,Rents,Annuities,Profits,Hereditaments,Goods,
Chattels,MoneyandStocksofMoney,neverthelesshavenotbeenemployedaccordingtothe
charitableIntentofthegiversandFoundersthereof,byreasonofFrauds,BreachesofTrust,and
Negligenceinthosethatshouldpay,deliverandemploythesame:ForRedressandRemedywhereof,
Beitenacted
ThePreamblewasrepealedbytheCharitiesAct1960,but,foratrusttobecharitable,itspurposesstillhadtofall
withinthespiritandintendmentofthePreamble.TheeffectofthePreamblewasconsideredbyLloydLJ
inHelenaHousingLtdvTheCommissionersforHerMajestysRevenueandCustoms:51
Thelawastothepurposesthatarecharitableisnotoriouslydifficultandunsatisfactory,partlybecauseof
itshistoricaldevelopment.Itisstrangeenoughtofindthatreferenceneedstobemadeinthe21stcentury,
wellintothereignofQueenElizabethII,tothetextofthepreambletoastatutepassedinthelastyearsof
thereignofQueenElizabethI,theStatuteofCharitableUses1601,inordertofindwhatcategoriesof
purposeshouldberegardedascharitable.Itisallthemoreoddtodosowhenonerealisesthatthe1601
statutewaspassedinordertoreformtheprocedureforenforcingcertainkindsofcharitableuses,tothe
exclusionofotherswhich,accordingly,althoughcharitablewerenotmentionedinthestatuteorinthe
preamble.Themostobviousexclusionisreligiouspurposes,otherthantherepairofchurches.Astothe
contextandscopeoftheAct,seeGarethJones,HistoryoftheLawofCharity1532to1827,CUP1969,
page22andfollowing.Thelistofpurposesinthepreamblemayhaveamoreancientprovenance.As
Jonesobservesatpage25footnote2,thelanguageofthepreambleisinpartremarkablysimilartothatof
apassageinWilliamLanglandsfourteenthcenturyworkTheVisionofPiersPlowman,whichmentionsthe
repairofhospitals,roadsandbridges,helpingmaidenstomarry,helpingthepoorandprisoners,and
providingeducationortraining,andothercausesreflectedinthepreamble.
Thepreamblewasfirstusedasaguidetotheidentificationofwhatwasorwasnotacharitablepurposein
thecaseofMoricevBishopofDurham,whichisofseminalimportanceinthisaswellasinother(p.
188) contextsasregardsthedevelopmentofthelawoftrusts:(1804)9Ves399(SirWilliamGrantMR)
and(1805)10Ves522(LordEldon)
Theissueinthatcasewhichisrelevantforourpurposeswaswhetheragiftofresiduetobeappliedto
suchobjectsofbenevolenceandliberalityastheBishopofDurhaminhisowndiscretionshallmost
approveofwasvalidasbeingconfinedtopurposesthatwerecharitable.Thedecision,atfirstinstanceand
onappeal,wasthatobjectsofbenevolenceandliberalitywerenotsolimited,andthatthegifttherefore
failed.
SirWilliamGrantstatedthesignificanceofthe1601statuteinthefollowingwords,whichdonotseemto
havebeenbasedonanysubmissionsmadetohimintheargumentasreported,at9Ves405:
Here[i.e.inCourt]itssignification[i.e.thatofthewordcharity]isderivedchieflyfromtheStatuteof
Elizabeth.Thosepurposesareconsideredcharitable,whichthatStatuteenumerates,orwhichby
analogiesaredeemedwithinitsspiritandintendment.
IfaparticularpurposedidnotfallwithinthePreambleexpresslyorbyanalogy,itcouldnotberegardedas
charitable,eventhoughitwasbeneficialtothepublic.
(b)TheFourHeadsofCharity
Thenextsignificantstepinthehistoricaldevelopmentofcharitylawwastheidentificationoffourdistinctheadsof
charitablepurpose.InCommissionersforSpecialPurposesofIncomeTaxvPemsel,52 LordMacnaghtensaid:
Charityinitslegalsensecomprisesfourprincipaldivisions:trustsforthereliefofpovertytrustsforthe
advancementofeducationtrustsfortheadvancementofreligionandtrustsforotherpurposesbeneficialto
thecommunity,notfallingunderanyoftheprecedingheads.Thetrustslastreferredtoarenottheless
charitableintheeyeofthelaw,becauseincidentallytheybenefittherichaswellasthepoor,asindeed,
everycharitythatdeservesthenamemustdoeitherdirectlyorindirectly.Itseemstomethatapersonof
education,atanyrate,ifhewerespeakingastheActisspeakingwithreferencetoendowedcharities,
wouldincludeinthecategoryeducationalandreligiouscharities,aswellascharitiesforthereliefofthe
poor.Roughlyspeaking,Ithinkhewouldexcludethefourthdivision.Eventhereitisdifficulttodrawthe
line.AlaymanwouldprobablybeamusedifheweretoldthatagifttotheChancelloroftheExchequerfor
thebenefitofthenationwasacharity.Manypeople,Ithink,wouldconsideragiftforthesupportofa
lifeboatacharitablegift,thoughitsobjectisnottheadvancementofreligion,ortheadvancementof
education,orthereliefofthepoor.Andevenalaymanmighttakethesamefavourableviewofagratuitous
supplyofpurewaterforthebenefitofacrowdedneighbourhood.Butafterall,thisisratheranacademical
discussion.Ifagentlemanofeducation,withoutlegaltraining,wereaskedwhatisthemeaningofatrust
forcharitablepurposes,Ithinkhewouldmostprobablyreply,Thatsoundslikealegalphrase.Youhad
betteraskalawyer.
InScottishBurialReformandCremationSocietyvGlasgowCorporation,53 LordWilberforceclarifiedthedefinition
ofcharityfurther:
Onthissubject,thelawofEngland,thoughnodoubtnotverysatisfactoryandinneedofrationalisation,is
tolerablyclear.Thepurposesinquestion,tobecharitable,mustbeshowntobeforthebenefit(p.189) of
thepublic,orthecommunity,inasenseormannerwithintheintendmentofthepreambletothestatute43
Eliz.I,c.4.Thelatterrequirementdoesnotmeanquitewhatitsaysforitisnowacceptedthatwhatmust
beregardedisnotthewordingofthepreambleitself,buttheeffectofdecisionsgivenbythecourtsasto
itsscope,decisionswhichhaveendeavouredtokeepthelawastocharitiesmovingaccordingasnew
socialneedsariseoroldonesbecomeobsoleteorsatisfied.LordMacnaghtensgroupingoftheheadsof
recognisedcharityinPemselscaseisonethathasprovedtobeofvalueandtherearemanyproblems
whichitsolves.Butthreethingsmaybesaidaboutit,whichitsauthorwouldsurelynothavedenied:first
that,sinceitisaclassificationofconvenience,theremaywellbepurposeswhichdonotfitneatlyintoone
orotheroftheheadingssecondly,thatthewordsusedmustnotbegiventheforceofastatutetobe
construedandthirdly,thatthelawofcharityisamovingsubjectwhichmaywellhaveevolvedevensince
1891.
Theeffectofthesedecisionsisthatatrustwouldbeconsideredtobecharitableifitweretofallwithinthespirit
andintendmentofthePreamble,butthefourheadsofcharityidentifiedbyLordMacnaghtenprovidedauseful
checklistwithwhichtotestwhetherthepurposewascharitable.Butitwasalsonecessarytoestablishthatthe
purposewasforthepublicbenefit.Benefitwaspresumed54 fortrustsforthereliefofpovertyandforthe
advancementofeducationandreligion,althoughthispresumptioncouldberebuttedbyshowingthattheparticular
charitywasnotforthepublicbenefit.55 Benefitneededtobeprovedforatrusttofallwithinthefourthheadof
beinganotherpurposethatwasbeneficialtothecommunity.Undereachoftheheadsitwasnecessaryto
determinethatthepublicorasufficientsectionofthepublicwasbenefited.Differenttestswereadoptedforthe
identificationofthepublicforeachheadofcharity.
(c)TheCharitiesActs2006and2011
TheCharitiesAct2006,whichcameintoforcein2008,provided,forthefirsttime,astatutorydefinitionofcharity,
albeitonethatbuiltonthepreviouslaw.TheCharitiesAct2011cameintoforceinMarch2012andhas
consolidatedthevariousstatutoryprovisionsrelatingtocharitiesintoonestatute,butwithoutsignificantlyadding
tooralteringexistinglaw.
CharitiesAct2011
2.Meaningofcharitablepurpose
(1)ForthepurposesofthelawofEnglandandWales,acharitablepurposeisapurposewhich
(a)fallswithinsection3(1),and
(b)isforthepublicbenefit(seesection4).
(i)Headsofcharity
TheCharitiesAct2011identifiesthirteendescriptionsofrecognizedcharitablepurposes.Thepurposesofa
charitymustsatisfyatleastoneofthesedescriptions,althoughtheydooverlapandsoacharitymaysatisfy
morethanoneofthem.
(p.190) CharitiesAct2011
3Descriptionsofpurposes
(1)Apurposefallswithinthissubsectionifitfallswithinanyofthefollowingdescriptionsof
purposes
(a)thepreventionorreliefofpoverty
(b)theadvancementofeducation
(c)theadvancementofreligion
(d)theadvancementofhealthorthesavingoflives
(e)theadvancementofcitizenshiporcommunitydevelopment
(f)theadvancementofthearts,culture,heritageorscience
(g)theadvancementofamateursport
(h)theadvancementofhumanrights,conflictresolutionorreconciliationorthepromotion
ofreligiousorracialharmonyorequalityanddiversity
(i)theadvancementofenvironmentalprotectionorimprovement
(j)thereliefofthoseinneedbecauseofyouth,age,illhealth,disability,financialhardship
orotherdisadvantage
(k)theadvancementofanimalwelfare
(l)thepromotionoftheefficiencyofthearmedforcesoftheCrownoroftheefficiencyofthe
police,fireandrescueservicesorambulanceservices
(m)anyotherpurposes
(i)thatarenotwithinparagraphs(a)to(l)butarerecognisedascharitablepurposes
byvirtueofsection5(recreationalandsimilartrusts,etc.)56 orundertheoldlaw,
(ii)thatmayreasonablyberegardedasanalogousto,orwithinthespiritof,any
purposesfallingwithinanyofparagraphs(a)to(l)orsubparagraph(i),or
(iii)thatmayreasonablyberegardedasanalogousto,orwithinthespiritof,any
purposeswhichhavebeenrecognised,underthelawrelatingtocharitiesinEngland
andWales,asfallingwithinsubparagraph(ii)orthissubparagraph.
(3)Whereanyofthetermsusedinanyofparagraphs(a)to(l)ofsubsection(1),orinsubsection
(2),hasaparticularmeaningunderthelawrelatingtocharitiesinEnglandandWales,theterm
istobetakenashavingthesamemeaningwhereitappearsinthatprovision.
Someofthesedescriptorsreplicatepreviouslyrecognizedheadsofcharity,suchastheadvancementof
educationandreligion.Otherssimplycodifysubsequentdevelopmentsinthedefinitionofcharity,eitherthough
decisionsofthecourtsortheCharityCommission,suchastheadvancementofcultureorenvironmental
protection.TheCharityCommissionhasrecognizedthatthedefinitionofcharitablepurposeswillcontinueto
develop:57
Newcharitablepurposesmayberecognisedinthefuture,bytheCharityCommissionortheTribunal,
UpperTribunalorthecourts,ascharitylawcontinuestodevelop.
(p.191) (ii)Publicbenefit
CharitiesAct2011
4Thepublicbenefitrequirement
(1)InthisActthepublicbenefitrequirementmeanstherequirementinsection2(1)(b)thata
purposefallingwithinsection3(1)mustbeforthepublicbenefitifitistobeacharitablepurpose.
(2)Indeterminingwhetherthepublicbenefitrequirementissatisfiedinrelationtoanypurpose
fallingwithinsection3(1)itisnottobepresumedthatapurposeofaparticulardescriptionisfor
thepublicbenefit.
(3)InthisChapteranyreferencetothepublicbenefitisareferencetothepublicbenefitasthat
termisunderstoodforthepurposesofthelawrelatingtocharitiesinEnglandandWales
Theeffectofthisprovisionisthatallcharities,newandexisting,havetosatisfythetestofpublicbenefit.Thisisa
testthathasbeendevelopedovermanyyearsthroughthecourtsandisnotanewtestunderthe2011Act.The
oldpresumptionsofbenefithavebeenabolished,whichmeansthatineachcaseanorganizationwillhaveto
demonstratethatitspurposesdobenefitthepublic.Ifthiscannotbeestablishedthenanewcharitywillnotbe
registeredandanexistingcharitywillceasetoberegistered.Onceacharityhasbeenregistered,charitytrustees
areunderstatutorydutiesbothtoensurethatthecharityactsforthepublicbenefitandtoavoidmakingdecisions
thatadverselyaffectthecharityspublicbenefit.
TheCharitiesAct2011doesnotprovideanydefinitionofpublicbenefit.Thatdefinitionisderivedfromprevious
casesanddecisionsoftheCharityCommission.TheCharityCommissionisrequiredtoproduceguidanceasto
theinterpretationofpublicbenefit.
CharitiesAct2011
17Guidanceastooperationofpublicbenefitrequirement
(1)TheCommissionmustissueguidanceinpursuanceofitspublicbenefitobjective
(2)TheCommissionmayfromtimetotimereviseanyguidanceissuedunderthissection.
(3)TheCommissionmustcarryoutsuchpublicandotherconsultationasitconsiders
appropriate
(a)beforeissuinganyguidanceunderthissection,or
(b)(unlessitconsidersthatitisunnecessarytodoso)beforerevisinganyguidanceunder
thissection.
(4)TheCommissionmustpublishanyguidanceissuedorrevisedunderthissectioninsuch
mannerasitconsidersappropriate.
(5)Thecharitytrusteesofacharitymusthaveregardtoanysuchguidancewhenexercisingany
powersordutiestowhichtheguidanceisrelevant.
TheCharityCommission,havingundertakenapublicconsultation,publisheditsguidanceinJanuary2008.58 This
identifiedtwokeyprinciplesofpublicbenefit,namelythatthereisanidentifiablebenefit,(p.192) whichistothe
publicorasectionofthepublic,andanumberoffactorsthatneedtobeconsideredwhendeterminingwhether
thispublicbenefitrequirementismet.Theseprinciplesandfactorshadpurportedlybeendistilledfromthemyriad
ofcasesontheinterpretationofpublicbenefit.
ThevalidityofthisguidancewasconsideredbytheUpperTribunalinTheIndependentSchoolsCouncilvThe
CharityCommissionforEnglandandWales.59 Theguidancehadbeenchallengedonthegroundthatitcontained
errorsoflawinrespectofthepublicbenefitrequirementasitappliedtocharitiesthatchargedfeesfortheir
charitableactivities,specificallyindependentschools.Variousaspectsoftheguidancewerefoundwantingbythe
UpperTribunal,eitherasbeingincorrectasamatteroflaworasbeingambiguousandobscure.Someaspectsof
theguidancewereconsequentlywithdrawn.60 TheCharityCommissionisconsultingonthepublicationofnew
guidance.ThefollowingistheexistingguidancefromtheCharityCommission,asamendedinthelightofthe
rulingoftheUpperTribunal.
CharityCommission,CharitiesandPublicBenefit:theCharityCommissionsGeneral
GuidanceonPublicBenefit(asamended)
C3.Whataretheprinciplesofpublicbenefit?
Therearetwokeyprinciplesbothofwhichmustbemetinordertoshowthatanorganisationsaims
areforthepublicbenefit.Withineachprincipletherearesomeimportantfactorsthatmustbe
consideredinallcases.Theseare:
Principle1:Theremustbeanidentifiablebenefitorbenefits
Principle1aItmustbeclearwhatthebenefitsare(seesectionE2)
[E2:Thebenefitstothepublicshouldbecapableofbeingrecognised,identified,definedor
describedbutthatdoesnotmeanthattheyalsohavetobecapableofbeingquantifiedormeasured.
]
Principle1bThebenefitsmustberelatedtotheaims(seesectionE3)
[E3Somecharitiescarryoutincidentalactivitiesthatarenotrelatedtoachievingtheircharitable
aims.Suchactivitiesmaybepermitted,onthebasisthattheyareasmallorincidentalpartofwhat
thecharitydoes,butanybenefitarisingfromsuchactivitieswouldnotcounttowardsanypublic
benefitassessmentofthecharitysaims.]
Principle1cBenefitsmustbebalancedagainstanydetrimentorharm(seesectionE4)
[E4Theexistenceofdetrimentorharmdoesnotnecessarilymeanthattheorganisationcannotbe
charitable.Itisaquestionofbalancingthebenefitsagainstthedetrimentorharm.
Ifthedetrimentalorharmfulconsequencesaregreaterthanthebenefits,theoverallresultisthatthe
organisationwouldnotbecharitable.]
Principle2:Benefitmustbetothepublic,orasectionofthepublic
Principle2aThebeneficiariesmustbeappropriatetotheaims(seesectionF2)
[F2Whoconstitutesthepublic,orasectionofthepublicisnotasimplematterofnumbers,but
thenumberofpeoplewhocanpotentiallybenefit(noworinthefuture)mustnotbenegligible.Whatis
importantiswhocouldbenefit,aswellaswhoisbenefiting.Theclassofpeoplewhocanbenefitmust
beapublicclass.Ingeneral,thepublicclassmustbesufficientlylargeoropeninnaturegiventhe
charitableaimthatistobecarriedout.Theactualnumberofpeoplewhocanbenefitatonetimecan
bequitesmallprovidedthatanyonewhoqualifiesasabeneficiaryiseligibletobeconsidered.A
charityis(p.193) forthepublicbenefitifthebenefitsitoffersaremadewidelyavailable,eventhough
inpracticeonlyafewpeoplefromtimetotimeareabletobenefit]
Principle2bWherebenefitistoasectionofthepublic,theopportunitytobenefitmustnotbe
unreasonablyrestricted:
bygeographicalorotherrestrictions(seesectionsF4F9)61
[F4:Itisgenerallyreasonableforacharitysaimstobeintendedtobenefitpeoplelivingina
particulargeographicalarea,suchasavillage,town,city,countyorcountry.Restrictingbenefitto
peoplelivinginaparticularstreet,orafewnamedhouses,islikelytobetoosmallanareatobe
consideredasectionofthepublic.Insomecases,restrictingbenefittoawardorparishmaybe
acceptableitdependsonthecharitysaims.]
Principle2cPeopleinpovertymustnotbeexcludedfromtheopportunitytobenefit62
Principle2dAnyprivatebenefitsmustbeincidental(seesectionF12)
[F12Privatebenefitsarebenefitsthatpeople,ororganisations,mayreceiveotherthanasa
beneficiaryPrivatebenefitswillbeincidentalifitcanbeshownthattheydirectlycontributetowards
achievingthecharitysaimsand/orareanecessaryresultorbyproductofcarryingoutthoseaims]
D2.WhatisthelegalstandingoftheCharityCommissionspublicbenefitguidance?
TheCharityCommissionspublicbenefitguidanceisguidanceonwhatthelawsaysonpublicbenefit.
Itdoesnotcreatenewpublicbenefitlaw.Nordoesitcreateanewlegaldefinitionofpublicbenefit.Our
guidancesetsoutaframeworkoffactorstoconsiderwhenassessingpublicbenefitbasedonthe
principlesofpublicbenefitcontainedinexistingcaselaw.
Wehaveexpressedtheprinciplesofpublicbenefitaslegalrequirements,aswebelievetheyare
requiredbyexistingcaselaw.Butwerecognisethatthisguidanceis,ofnecessity,asummaryofthe
underlyinglaw,ratherthanadetailedstatementofthelawwithallthefinedistinctionsthatcanapply
indiverse,individualcases.
Whenestablishingwhetherthepublicbenefitrequirementissatisfied,thereare,therefore,twodistinctprinciples
thatmustbeconsidered,relatingtotheidentificationofbenefitandasufficientsectionofthepublic.Thiswas
confirmedbytheUpperTribunalinTheIndependentSchoolsCouncilvTheCharityCommissionforEnglandand
Wales:63
Thecourtshaveadoptedanincrementalandsomewhatadhocapproachinrelationtowhatbenefitsthe
communityorasectionofthecommunity.Therehasneverbeenanattemptcomprehensivelytodefine
whatis,orisnot,ofpublicbenefit.Itispossible,however,todiscernfromthecasestworelatedaspectsof
publicbenefit.Thefirstaspectisthatthenatureofthepurposeitselfmustbesuchastobeabenefittothe
community:thisispublicbenefitinthefirstsenseThesecondaspectisthatthosewhomaybenefit
fromthecarryingoutofthepurposemustbesufficientlynumerous,andidentifiedinsuchmanneras,to
constitutewhatisdescribedintheauthoritiesasasectionofthepublic:thisispublicbenefitinthe
secondsense
Oneresultofthisadhocdevelopmentisthatwhatsatisfiesthepublicbenefitrequirementmaydiffer
markedlybetweendifferenttypesofallegedlycharitablepurposes.Thisiswhycautionmustbeexercised
inapplyingauthoritiesdecidedinoneareaofcharitytoanotherarea.
(p.194) Thesetwokeyprincipleswillbeconsideredinturn.
(a)Identifiablebenefit
Thecharitymustprovideabenefitthatiscapableofbeingrecognizedordescribed,butitneednotbemeasured.
Theuseofthewordbenefitinthecontextofthepublicbenefittesthassometimescausedconfusiontothe
courts,sincebenefitissometimesusedtodescribethecharitablepurpose.Animportantdistinction,therefore,
needstobedrawnbetweentwousesofthewordbenefit.Acharitablepurposedoesneedtobebeneficial,but
thisisdeterminedasamatteroflawwithreferencetotheheadsofrecognizedcharitablepurposesandthespirit
ofthePreamble.Ontheotherhand,benefitforpurposesofthepublicbenefittestneedstobeidentifiedasa
questionoffact.TheUpperTribunalrecognizedthisinTheIndependentSchoolsCouncilvTheCharity
CommissionforEnglandandWales:64
AgiftwhichfellwithintheexpresswordsofthePreamblemightneverthelessfailtobecharitableifthe
natureofthepurposewasnotsuchastobebeneficialtothecommunityandsofelloutsidethespiritofthe
Preamble.Evenatrustfortheadvancementofeducationintheformofaschoolwouldnothavebeen
charitableregardlessoftheformofeducationofferedsimplybecauseitprovidedforasufficientsectionof
thecommunity.Inthewellknownexample,atrusttotrainpickpocketswouldnotbecharitableandthat,
wethink,wouldbebecausesuchatrustwouldnotbefortheadvancementofeducationwithinthescopeor
spiritofthePreamble
Onereasonforholdingthegiftin[InreHummeltenberg[1923]1Ch237](fortraininganddeveloping
suitablepersons,maleandfemale,asmediums)nottobecharitablewasthatthejudgewasnotsatisfied
thatthegiftwouldormightbeoperativeforthepublicbenefit.AsRussellJsaid,atp241:Thereisno
evidenceworthyofthenamenothingbutvagueexpressionsofopinionsandbelief,directedinthemainto
allegedpowersofdiagnosisandhealingattributedtosomemediumswhichwasthebasisonwhichthegift
wassaidtohavetherequisitebenefit.Thisabsenceofpublicbenefitwasnotrelatedtothesecondaspect
ofthepublicbenefitrequirement(whetherthebenefitwasdirectedtothepublicorasufficientsectionofit)
itwasrelatedonlytothefirstaspect(whetherthenatureofthegiftwassuchastobeabenefittothe
community).
Similarly,inReShaw,65 GeorgeBernardShawsrequestinhiswillthathisestateshouldbeusedtocreatea
fortyletteralphabettoreplacetheexistingtwentysixletteronewasnotconsideredtobeofanygeneralutilityto
thepublic.Theopinionofthetestatororthedonorofagiftthatthepublicbenefittestissatisfiedisnotrelevant.
Anyidentifiablebenefitwillbebalancedagainstanydetrimentorharmarisingfromthatcharitablepurpose,so
thatifthedetrimentexceedsthebenefitthepublicbenefitrequirementwillnotbesatisfied.InTheIndependent
SchoolsCouncilvTheCharityCommissionforEnglandandWales,66 theUpperTribunalsaid:
Thecourt,weconclude,hastobalancethebenefitanddisadvantageinallcaseswheredetrimentis
allegedandissupportedbyevidence.Butgreatweightistobegiventoapurposewhichwould,ordinarily,
becharitablebeforetheallegeddisadvantagescanbegivenmuchweight,theyneedtobeclearly
demonstrated.Thereis,wethink,aconsiderableburdenonthoseseekingtochangethestatusquo.
(p.195) So,forexample,inNationalAntiVivisectionSocietyvIRC,67 itwasheldthatthepublicbenefittestwas

notsatisfiedwhereanorganizationsoughttobanexperimentationonanimals,becausethedetrimenttothe
publicthroughadverseeffectsonmedicalresearcharisingfromsuchabanoutweighedtheputativebenefitarising
fromthewelfareoftheanimals.AsLordWrightsaid:68
What[antivivisection]seemstodohoweveristodestroyasourceofenormousblessingstomankind.That
isapositiveandcalamitousdetrimentofappallingmagnitude.Nothingisofferedbywayofcounterweight
butavagueandproblematicalmoralelevation.Thelawmaywellsaythatquiteapartfromanyquestionof
balancingvalues,anassumedprospect,orpossibilityofgainsovague,intangibleandremotecannotjustly
betreatedasabenefittohumanity,andthattheappellantcannotgetintotheclassofcharitiesatall
unlessitcanestablishthatbenefit.
Thiscasealsoillustrateshowtheinterpretationofpublicbenefitcanchangeovertime.Adecisionfiftyyears
earlier69 hadheldthatasocietywhosepurposewastostopexperimentsonanimalswascharitable,asbeingfor
apurposethatwasbeneficialtothecommunity.BythetimeofNationalAntiVivisectionSociety,anawarenessof
thebenefitstomedicalresearcharisingfromexperimentsonanimalsmeantthatsuchacharitablepurposewas
nolongerconsideredtobebeneficialtothepublic.
Inassessingthebalanceofbenefits,itisalsonecessarytoconsideranyprivatebenefitsthatarereceivedby
peopleororganizationsthatarenotbeneficiariesofthecharity.Suchprivatebenefitswillnotdefeatthepublic
benefittest,buttheymustbeincidentaltothefulfilmentofthecharitysaims,suchaswheretheyarea
necessarybyproductofthefulfilmentofthoseaims.
Ithasbeenrecognizedthatindirectbenefitstothegeneralpublicarisingfromthefulfilmentofthecharitable
purposemayberelevanttothepublicbenefitinquiry.ThiswasconsideredbytheUpperTribunalinThe
IndependentSchoolsCouncilvTheCharityCommissionforEnglandandWales:70
Giventheverywiderangeofpotentialcharitablepurposes,itisobviousthatsomecharitieshavepurposes
whichhavetheprimaryeffectofconferringdirectbenefitsoncertainindividuals,whileothercharitieshave
purposeswhichconferbenefitsonthepublic,whetherindividuallyorcollectively,muchmoreindirectly.An
educationalcharitysuchasaschoolisaclearexampleofthefirstclassofcharity,whileacharityforthe
advancementofanimalwelfareisaclearexampleofthesecondclass.Atrustformaintainingabridgeis
somewhereinbetween:itisofdirectbenefittothosewhouseitbutofindirectbenefittotherelevant
community.[Counsel]hasputforwardaterminologywhichwehavefoundhelpfulinilluminatingthesubject
andweadoptitinthisjudgment.Itdistinguishesthefollowingthreetypesofbenefit.(1)Directbenefits:
benefitstopersonswhoseneedsitisapurposeofthecharitytorelievewhicharereceivedbysuch
personsasrecipientsofthemainservicewhichthecharityprovides.(2)Indirectbenefits:benefitsto
personswhoseneedsitisapurposeofthecharitytorelievewhicharereceivedbysuchpersonsotherwise
thanasrecipientsofthemainservicewhichthecharityprovides.(3)Widerbenefits:benefitsotherthan
directandindirectbenefitswhicharereceivedbythecommunityatlargefromtheactivitiesofthecharity.
Werecognisethecasesdonotuseaconsistentterminologytodistinguishpublicbenefitofdifferent
degrees.Forinstance,thetermindirectbenefitissometimesusedtoincludeboth(2)and(3)in[the]
classification.
(p.196) TheUpperTribunalhadtoconsidertherelevanceofindirectbenefitsinrespectoftheadvancementof
education.Itwasemphasizedthattherelevantbenefitmustrelatetothecharitablepurpose,namelythe
advancementofeducation.Consequently,allowingmembersofthepublictousetheschoolsfacilitieswasheld
nottobearelevantbenefittothepublic,sinceitwouldnotadvanceeducation.Butotherindirectbenefitswould
berelevanttoestablishingthepublicbenefitrequirement,suchaswherestudentsfromtheschoolinvolve
themselvesincommunityprojectsaspartoftheschoolscitizenshipeducationprogramme.Crucially,whilstthe
UpperTribunalacknowledgedtheargumentthateducationinindependentschoolsmightbenefitthepublic
becauseittakesstudentsoutoftheStatesector,itconcludedthatthiswouldmakelittle,ifany,differencetothe
determinationofanindependentschoolscharitablestatus.TheUpperTribunalstated:71
Itmightindeedbesaidthattheprovisionofprivateeducationisaconsiderablebenefittothe
community,inthateachschooltakesstudentsoutofthestatesectorwhowouldotherwisehavetobe
educatedattheexpenseofthestate.Acrossthewholeindependentsector,thatamountstosome
hundredsofthousandsofstudents.
Thereisobviouslysomethinginthatpoint,althoughitmustnotbetakentoofarWearetherefore
concernedwithhow,ifatall,thisfactorwouldimpactonthewayinwhichaschoolmustoperateinorder
tobedoingsoforthepublicbenefit.Thiscomesdowntowhetherthissavingtothestatejustifiesalesser
provisionofpublicbenefitthanmightotherwisebeexpected.
Wethinkthisfactorwouldbelikelytomakeverylittle,ifany,difference.First,weanticipatethat,even
ignoringthisfactor,manyschoolswouldhavenodifficultyactinginawayconsistentwiththeirdutiesto
actforthepublicbenefit.Forsuchaschool,thisfactordoesnotprovidemuchjustificationforrequiringless
ofitthanwouldotherwisebethecase.Secondly,wehavenoideahowmanyschoolswouldfindit
impossibleorverydifficult,ignoringthebenefittothestate,tooperateinawaywhichwasforthepublic
benefit.Nordowehaveanyideaofthenumberofschoolswithinthatclasswhichwouldwithcomparative
easebeabletooperateinawaywhichwasforthe(lesser)publicbenefitifthatfactorcouldbetakeninto
account.Accordingly,thesuggestedbenefittothestateishighlyspeculativeandtheimplicitsuggestion
thatlocalauthoritiessimplycouldnotcopeisnotestablished.
(b)Tothepublic
Thebenefitmustbeavailabletothepublicortoasectionofthepublic.Thisiscrucialinordertodistinguish
betweenpublicandprivatetrusts.Thepolicyofthelawisclear:itisnotappropriateforasettlortoobtainthe
benefitsofcharitablestatusthroughthemechanismofatrustwherethebeneficiariesare,infact,aprivategroup
ofpeople,suchasthesettlorsclosefamilyorfriends.Consequently,theclassofactualandpotential
beneficiariesmustbeapublicclass.Althoughrelativelysmallnumbersarelikelytobenefitfromacharitys
purpose,itiscrucialthattheopportunitytobenefitbeavailabletoasufficientsectionofthepublic.Butthesizeof
theclassmustnotbenumericallynegligibleanditsmembersmustnotbelinkedbyacontractorbyaquality
thatdependsontheirrelationshiptoaparticularindividual.72
Theopportunitytobenefitmustnotbeunreasonablyrestricted,forexample,byreferencetogeographicallocation.
Itdoesnotfollowthatthebenefitcannotberestrictedtoaparticulararea,butsucharestrictionmustbe
reasonable.Restrictingthebenefittopeoplelivinginaparticulartownislikelytobeacceptable,asconstituting
anappropriatesectionofthepublic,whereaslimitingittopeople(p.197) livinginaparticularstreetwillnot,
althoughthiswilldependontheparticularaimsofthecharity.Thepublicbenefittestcanstillbesatisfiedeven
thoughthebeneficiariesareabroad,73 butthecharitymustberegisteredinEnglandandWales.74
Theopportunitytobenefitmustalsonotbeunreasonablyrestrictedbytheabilityofpotentialbeneficiariestopay
fees.Itdoesnotfollowthatcharitiescannotchargefortheservicesorfacilitiesthattheyprovide,suchascharging
schoolfees 75 orfeesforaprivatehospital,76 andtheycanevenmakeaprofitaslongasthisisreasonableand
necessarytocarryoutthecharitysaims,suchasbyenhancingthefacilitiesthatareprovided.Inotherwords,
theprofitmustbeploughedbackintothecharitablework.77 InScottishBurialReformandCremationSocietyLtdv
GlasgowCorporation,78 LordWilberforce,inholdingthatprovisionofacremationservicewascharitable,even
thoughafeewascharged,said:
Thecompanymakeschargesforitsservicestoenableit,inthewordsofthejointagreedminute,tofulfil
effectivelytheobjectsforwhichitwasformed.Thesecharges,thoughapparentlymodest,arenotshownto
behigherorlowerthanthoseleviedforotherburialservices.Inmyopinion,thefactthatcremationis
providedforafeeratherthangratuitouslydoesnotaffectthecharitablecharacterofthecompanysactivity,
forthatdoesnotconsistinthefactofprovidingfinancialreliefbutintheprovisionofservices.
If,however,thechargesrestrictthebenefitsonlytothosewhocanaffordthefees,itmayfollowthatthebenefits
arenotavailabletoasufficientlylargesectionofthepublic.Thisisallamatterofdegree,however,andthe
CharityCommissionwillconsiderallthebenefitsthatareprovidedbyacharitythatchargesfees,sincetheremay
besufficientbenefitsavailabletopeoplewhocannotaffordfeestosatisfythepublicbenefitrequirement.Thishas
provedparticularlysignificantasregardsindependentschools.Thefactthatfeesarechargeddoesnot
automaticallyrendertheschoolnoncharitable,butitwillbenecessaryfortheschooltoshowthatsufficient
benefitisprovidedtomembersofthepublicwhoareunabletoaffordfees,suchasthroughtheprovisionof
scholarshipsandbursaries,forotherwisethepoorwillbeexcludedfromthecharityswork.79
(c)Politicalobjectives
Aninstitutionwillnotbecharitableifitspurposesarepolitical.Thisisrelatedtotheidentificationofabenefit
withinthepublicbenefitrequirement.InBowmanvSecularSocietyLtd80 LordParkerrecognizedthat:
atrustfortheattainmentofpoliticalobjectshasalwaysbeenheldinvalid,notbecauseitisillegalbut
becausethecourthasnomeansofjudgingwhetheraproposedchangeinthelawwillorwillnotbeforthe
publicbenefit.
(p.198) Eveniftherewasevidenceofthepublicbeingbenefitedbythechangeinlaworpolicy,additional
reasonshavebeenidentifiedastowhypoliticalpurposesshouldnotbecharitable.LewisonJinHanchett
StamfordvAttorneyGeneral81 consideredthedictumofLordParkerandsaid:
However,thismaybetoodogmaticaview.InNationalAntiVivisectionSocietyvInlandRevenue
Commissioners[1948]AC31theHouseofLordsdidevaluatethecompetingargumentsforandagainstthe
abolitionofvivisectionandcametotheclearconclusionthatthebenefitstothepublicintermsofscientific
andmedicalresearchoutweighedtheharmcausedbythesufferingofanimalsthatvivisectionnecessarily
entailed.Asecondreasonthathasbeengivenisthatlawcannotstultifyitselfbyholdingthatitisforthe
publicbenefitthatthelawitselfshouldbechangedandthateachcourtmustdecideontheprinciplethat
thelawisrightasitstands.ThiswasthereasonputforwardbybothLordWrightandLordSimondsin
theNationalAntiVivisectionSocietycase.Athirdreasonisthatifthecourtssanctionascharitabletrusts
withthepurposeofchangingthelaw,theywouldbetrespassingontheroleofthelegislature,whose
constitutionalresponsibilityitistoevaluatetheneedforsuchchanges.Thiswasoneofthereasonsgiven
bySladeJinMcGovernvAttorneyGeneral[1982]Ch321andbyChadwickLJinSouthwoodvAttorney
General[2000]WTLR1199.Thislastreasonseemstometobethemostpersuasive.Butwhateverthe
rationale,thereisnodoubtthattheprincipleremainsthatatrust,oneofwhosepurposesistochangethe
law,cannotbecharitable.
Whenanalysingwhetheracharityispursuingapoliticalobjective,animportantdistinctionneedstobedrawn
betweenthosecasesinwhichanorganizationsmainpurposeispoliticalandthoseinwhichthepoliticalobjective
ismerelyincidentaltothecharitysprincipalnonpoliticalpurpose.Anorganizationwillbeconsideredtobe
pursuingapoliticalpurposenotonlywhereitsmainpurposeisofapartypoliticalnature,butalsowhereit
advocatesoropposesachangeinthelaworpolicy,ordecisionsofcentralorlocalgovernmentauthorities,either
inEnglandorabroad.82 Courtsareunwillingtoconsiderwhetherthepursuitofpartypoliticalpurposesisforthe
benefitofthepublicbecausethelawwishestoremainpoliticallyneutral.
However,acharityisabletousepoliticalmeanstofurtheranonpoliticalpurposeinavarietyofsituations,such
aswherethecharityiscampaigningforachangeinthelawforthebenefitofthosewhoareobjectsofthe
charityspurpose,orwherethecharityseekstoraiseawarenessofaparticularissue,and/orinfluencepublic
attitudesandgovernmentpolicyorlegislation.Suchpoliticalmeansareallowedbecausethecampaigningand
demonstrationsareameansoffurtheringtheorganizationscharitablepurposes,butwithoutbecomingthe
dominantmeansbywhichitcarriesoutthosepurposes.TheCharityCommissionhasprovidedguidanceon
campaigningandpoliticalactivities:83
Campaigningandpoliticalactivitycanbelegitimateandvaluableactivitiesforcharitiestoundertake
However,politicalcampaigning,orpoliticalactivity,asdefinedinthisguidance,mustbeundertakenbya
charityonlyinthecontextofsupportingthedeliveryofitscharitablepurposes.Unlikeotherformsof
campaigning,itmustnotbethecontinuingandsoleactivityofthecharity
(1)Campaigning:Weusethiswordtorefertoawarenessraisingandtoeffortstoeducateorinvolve
thepublicbymobilisingtheirsupportonaparticularissue,ortoinfluenceorchangepublicattitudes.
Wealsouseittorefertocampaigningactivitywhichaimstoensurethatexistinglawsare
observed.(p.199) Wedistinguishthisfromanactivitywhichinvolvestryingtosecuresupportfor,or
oppose,achangeinthelaworinthepolicyordecisionsofcentralgovernment,localauthoritiesor
otherpublicbodies,whetherinthiscountryorabroad,andwhichwerefertointhisguidanceas
politicalactivity.Examplesofcampaigningmightinclude:
ahealthcharitypromotingthebenefitsofabalanceddietinreducingheartproblems
arefugeecharity,emphasisingthepositivecontributionthatrefugeeshavemadetosocietyand
callingforGovernmenttoenforceexistinglegislationthatsupportstherightsofrefugees
achildrenscharity,drawingattentiontothedangersofdomesticviolenceandchildabuse
ahumanrightscharitycallingonagovernmenttoobservecertainfundamentalhumanrights,
andforthepracticeoftorturetobeabolished
acharityconcernedwithpovertyandtheenvironmentcampaigningagainstinvestmentbysome
banksinfossilfuelextractionprojectsor
adisabilitycharitycallingforexistinglegislationtobeadheredtoinordertoensurethatall
childrenwithspecialeducationalneedsreceivethesupporttheyareentitledtoinordertoaccess
learning
(2)Politicalactivity:Politicalactivity,asdefinedinthisguidance,mustonlybeundertakenbya
charityinthecontextofsupportingthedeliveryofitscharitablepurposes.Weusethistermtorefer
toactivitybyacharitywhichisaimedatsecuring,oropposing,anychangeinthelaworinthepolicy
ordecisionsofcentralgovernment,localauthoritiesorotherpublicbodies,whetherinthiscountryor
abroad.Itincludesactivitytopreserveanexistingpieceoflegislation,whereacharityopposesit
beingrepealedoramended.Thisdiffersfromactivityaimedatensuringthatanexistinglawis
observed,whichfallsunder(1),Campaigning.
Politicalactivitymightincludesomeorallof:
raisingpublicsupportforsuchachange
seekingtoinfluencepoliticalpartiesorindependentcandidates,decisionmakers,politiciansorpublic
servantsonthecharityspositioninvariouswaysinsupportofthedesiredchangeandrespondingto
consultationscarriedoutbypoliticalparties.
ThisguidancefromtheLawCommissionsummarizesthecurrentstateofEnglishlawaccurately.Therule
preventingcharitiesfrompursuingpoliticalpurposeshasbeencriticizedasbeingoutdated.84
StevensandFeldman,BroadcastingAdvertisementsbyBodieswithPoliticalObjects,
JudicialReview,andtheInfluenceofCharitiesLaw[1997]PL615,62
Thosecaseswhichestablishedthatcharitablestatuscouldnotextendtopurposeswhicharepolitical
belongtoanearliersocialera.Thefundamentalobjectiontoaccordingsuchstatus,namelythatthe
lawisincapableofjudgingwhetherachangeinthelaworgovernmentpolicyisgoodorbad,isplainly
spurious.Inarelativisticageandamaturedemocracythelawshouldbeabletoupholdascharitable
objectswhicharediametricallyopposedtoeachother,providedthattheyareforthepublicbenefitin
theviewofasizeablebodyofadherents.Religiouspurposeswhicharediametricallyopposedare
alreadyupheldasequallycharitable.AChristianmissionaryorganisationseekingtoconvertMuslims
wouldbejustascharitableasaMuslimorganisationseekingtoconvertChristians.Thereisnoreason
whyabody(p.200) seekingtopromoteresearchintothebenefitsofvegetarianismshouldnotbe
charitablealongsideabodytopromoteresearchintothehealthbenefitsofmeatconsumption.AsLord
WilberforceobservedinScottishBurialReformandCremationSocietyLtdvGlasgowCityCorpn85 the
lawofcharitiesisnotstatic.Itshouldbeallowedtoevolvesoastoencompassthepromotionofthe
observanceofhumanrights,whetherinthiscountryoroverseas,andthehonouringofinternational
obligationswhichhavebeenenteredinto.TheveryfactthattheUKhasaccededtosuchinternational
conventionsisindicativethatthepursuitofsuchobjectivesshouldbeconclusiveevidenceofbenefitto
thecommunity.Ifitisregrettablethatthelawsandpoliciesofmanycountriesdonotcomplywith
theCharteroftheUnitedNationsofwhichtheyaremembers,andthatcampaigningtochange
incompatiblelawsandpoliciesiscommendable86 thelawofcharitiesshouldbeallowedtotreatsuch
campaignsascharitablenotwithstandingtheirpoliticalcharacter.
FeldmanandStevensarerighttohighlightthatthereasonsgivenfortheillegitimacyofpursuingsuchobjectives
areunconvincing.Indeed,inNationalAntiVivisectionSocietyvIRC,87 theHouseofLordsjudgedthataproposed
changeinthelaw,intheformoftheabolitionofvivisection,wasnotinthepublicinterestbecausebenefitstothe
publicintermsofscientificandmedicalresearchoutweighedtheharmtoanimalsarisingfromvivisection.Itdoes
not,therefore,seemtobethecasethatthelawisinvariablyincapableofjudgingwhetherachangeinthelawor
governmentpolicyisgoodorbad.Also,thecrucialdistinctionbetweenpoliticalpurposesthatareamainobjective
ofanorganization,oronlyincidentaltoadominantcharitablepurpose,isadistinctionthatcanbeverydifficultto
drawinpractice.Consequently,thereshouldbenoobjectiontoacharitypursuingpoliticalobjectivesinthesense
thatthecharityisseekingachangeinlaworpolicy,whetherathomeorabroad.Thishasbeenrecognizedbythe
HighCourtofAustraliainAid/WatchIncorporatedvCommissionerofTaxation,88 whichconcernedan
organizationthatcampaignedforeffectiveAustralianandmultinationalforeignaidpolicies,albeitnotforaspecific
changeinthelawbuttoencouragepublicdebate.Thiswasconsideredtobeforthepublicbenefit.
Thepursuitofpoliticalobjectivesbyacharityshouldonlybequalifiedintworespects.First,acharityshouldnot
beallowedtopursuesuchapoliticalobjectiveifthedetrimenttothepublicoutweighsthebenefit,asdetermined
eitherbythecourtsortheCharityCommission.So,forexample,acharitythatseeksachangeinthelawin
favourofracialorsexualdiscriminationshouldnotberegardedaspursuinganobjectivethatisbeneficialtothe
public.Secondly,acharityshouldnotpursuepartypoliticalobjectives,sincethebenefitsofcharitylaw,
particularlythefiscaladvantages,shouldnotbeavailableinsupportofsuchpurposes.Essentially,thisanalysis
suggeststhereisnoneedforaspecialrulerelatingtopoliticalobjectiveswhetherornottrustsforsuchpurposes
arecharitableshouldbeassessedinthenormalwaybyreferencetothepublicbenefitcriteria.
ButasEnglishlawstands,itisclearthatwhereamainpurposeofanorganizationispolitical,thetrustwillbe
invalidasacharitabletrust.Thisisthecaseevenifthereareothercharitablepurposes,becauseacharitys
purposesmustbewhollyandexclusivelycharitable.89 Where,however,theorganizationspurposesmightbe
carriedouteitherinawaythatisnonpolitical,orinawaythatispolitical,thecourtswilladoptabenignapproach
totheconstructionofthepurpose,andwillassumethatthetrusteeswillactinalawfulandpropermannerand
notinawaythatcanbeconsideredto(p.201) bepolitical.90 Suchatrustmaythereforebecharitable,butitis
importantthatthetrustisthenrunexclusivelyforcharitablepurposes.
GartonhascriticizedthestateofEnglishlaw:91
WhentheHouseofLordsconfirmedtheprohibitionofpoliticalpurposesintheNationalAntiVivisection
Societycaseitreliedonscantauthority,noneofwhichwasbindingonit,andunconvincingjustifications
whichfailtowithstandseriousscrutiny.Indoingso,theHousemissedanimportantopportunityto
recognisethenumerousbenefitsofapoliticallyactiveorganisedcivilsocietywithcharitiesbeatingatits
heart.ThecasecontinuestolimittheextenttowhichcharitiescanengagewithpoliticalissuesinEngland
tothisday.
4.CharitablePurposes
(a)PreventionorReliefofPoverty
(i)Charitablepurpose
Undertheoldlawofcharity,thefirstofthefourheadsofcharitablepurposerecognizedinPemselscase92 was
thereliefofaged,impotent,andpoorpeople.Thisheadhasnowbeendividedintothereliefofthepoorinsection
3(1)(a)oftheCharitiesAct2011,withreliefofthoseinneednowcoveredbysection3(1)(j).93 Itisimportantto
notethatsection3(1)(a)coversboththereliefandthepreventionofpoverty.Theseprovisionsmayoverlap.
Povertyisarelativeterm.94 InTheIndependentSchoolsCouncilvTheCharityCommissionforEnglandand
Wales,95 theUpperTribunalrecognized:
poordoesnotmeandestituteeveninthecontextofatrustforthereliefofpoverty.Broadlyspeaking,and
inthepresentcontext,apoorpersonisapersonwhocannotreasonablyaffordtomeetaparticularneed
bypurchasingatthefullcostpricetheservicewhichitisthecharityspurposetoprovide.
Povertycanextendtopeopleofmoderatemeansandmayevenincludepeoplewhosufferonlytemporaryfinancial
hardshiparisingfromasuddenchangeintheircircumstances.InReCoulthurst,96 afundforthewidowsand
orphansofofficersofabankwhosefinancialcircumstancesweresuchthattheywereconsideredtodeserve
assistancewasheldtobecharitable.InAITCFoundationsApplicationforRegistrationasaCharity,97 theCharity
Commissionregisteredacharitytorelievepoverty,need,hardship,anddistresssufferedbypeoplewhohad
investedincompaniesthathadcollapsed.Theseinvestors,possiblyfewerthan300,mighthavebeeneligiblefor
compensation,butonlyafteraninvestigationhadbeenconcludedandliabilitydeterminedandtheywouldhave
sufferedfinancialhardshipinthemeantime.InIRCvOldhamTrainingandEnterpriseCouncil,atrusttosetupthe
unemployed(p.202) intradeorbusinesswasheldtobecharitableasbeingforthereliefofpovertybecause,as
LightmanJrecognized,98 itwasa
trustfortheimprovementoftheconditionsinlifeofthosegoingshortinrespectofemploymentand
providingafreshstartinlifeforthoseinneedofit.
InRedeCarteret99 theimpositionofaminimumincomequalificationdidnotpreventatrustfrombeingforthe
reliefofpoverty.Thetrustprovidedforthepaymentofannualallowancesoffortypoundseachtowidowsor
spinstersinEnglandwhoseincomeotherwiseshallnotbelessthaneightyormorethanonehundredandtwenty
poundsperannum.Inrecognizingthatthetrustwascharitable,MaughamJemphasizedthefactthatpreference
wastobegiventowidowswithyoungchildrendependentonthem.Hesaid:
Ishouldhavehesitatedtoholdthatitwasagoodcharitablegifthaditmerelybeenforwidowsand
spinstersbutIthinkthat,inconfiningit,asIdo,ineffect,towidowswithyoungchildrendependenton
them,IamwithinthedecisionstowhichIhavereferred.
Imposingaminimumincomerequirementis,however,surelyincompatiblewiththenotionofrelievingpoverty.
InReSandersWillTrusts,atrusttoprovidedwellingsfortheworkingclasseswasheldnottobecharitable
becausetherewasnorequirementofbeingpoortobenefitfromit,100 whereasinReNiyazisWillTrusts,101 a
testamentarygifttoconstructaworkingmenshostelinCypruswasheldtobecharitable.Thiswasconsideredto
bedifferentbecause,asMegarryVCsaid:102
Thewordhostelhastomymindastrongflavourofabuildingwhichprovidessomewhatmodest
accommodationforthosewhohavesometemporaryneedforitandarewillingtoacceptaccommodationof
thatstandardinordertomeettheneed.Whenhostelisprefixedbytheexpressionworkingmens,then
thefurtherrestrictionisintroducedofthehostelbeingintendedforthosewitharelativelylowincomewho
workfortheirliving,especiallyasmanualworkers.Theneed,inotherwords,istobetheneedofworking
men,andnotofstudentsorbatteredwivesoranythingelse.Furthermore,theneedwillnotbetheneedof
thebetterpaidworkingmenwhocanaffordsomethingsuperiortomerehostelaccommodation,butthe
needofthelowerendofthefinancialscaleofworkingmen,whocannotcompeteforthebetter
accommodationbuthavetocontentthemselveswiththeeconomiesandshortcomingsofhostellife.It
seemstomethatthewordhostelinthiscaseissignificantlydifferentfromtheworddwellingsinRe
SandersWillTrusts[1954]Ch265,awordwhichisappropriatetoordinaryhousesinwhichthewelltodo
maylive,aswellastherelativelypoor.
Hastheexpressionworkingmenshostelasufficientconnotationofpovertyinittosatisfythe
requirementsofcharity?Onanyfootingthecaseisdesperatelyneartheborderline,andIhavehesitated
inreachingmyconclusion.Onthewhole,however,forthereasonsthatIhavebeendiscussing,Ithinkthat
thetrustischaritable,thoughbynogreatmargin.Thisviewisinmyjudgmentsupportedbytwofurther
considerations.First,thereistheamountofthetrustfund,whichin1969wasalittleunder15,000.Ithink
oneisentitledtoassumethatatestatorhasatleastsomeideaoftheprobablevalueof(p.203) his
estate.Themoneyisgivenforthepurposeoftheconstructionoforasacontributiontowardsthecostof
theconstructionofaworkingmenshostel.15,000willnotgoveryfarinsuchaproject
TheotherconsiderationisthatofthestateofhousinginFamagusta.Wherethetrustistoerectabuilding
inaparticulararea,Ithinkitislegitimate,inconstruingthetrust,tohavesomeregardtothephysical
conditionsexistinginthatarea.Quiteapartfromanyquestionofthesizeofthegift,Ithinkthatatrustto
erectahostelinaslumorinanareaofacutehousingneedmayhavetobeconstrueddifferentlyfroma
trusttoerectahostelinanareaofhousingaffluenceorplenty.Wherethereisagravehousingshortage,it
isplainthatthepoorarelikelytosuffermorethantheprosperous,andthattheprovisionofaworking
menshostelislikelytohelpthepoorandnottherich.
Clearly,thedecisionofwhetheragiftisforthepoorrequiressomeverysubtledistinctionstobedrawn.
Sometimes,thecreatorsoftrustshavetriedhardtosqueezetheirgiftswithinthecharitabledefinitionofpoverty.
Forexample,inReGwyon,103 thetestatorleftafundtoprovidetrousersforboysinFarnham,subjecttovarious
conditions.Themotiveforthisgiftisunclear,butitwasheldnottobeforthereliefofpovertybecausethe
conditionsdidnotidentifyclearlythattheeligibleboyshadtobechildrenofpoorparents.EveJsaid:104
Thequestioniswhetherthetestatorhaseffectivelycreatedsuchacharityashecontemplated,acharityin
thelegalsenseoftheword.Istheobjectofhisbenefactionthereliefofpoverty,arethegiftsforthebenefit
ofthepoorandneedy?Idonotthinktheyare.Apartfromresidentialandagequalifications,theonly
conditionsimposedonarecipientare(1)thatheshallnotbelongtoorbesupportedbyanycharitable
institution,(2)thatneitherhenorhisparentsshallbeinreceiptofparochialrelief,(3)thatheshallnotbe
black,105 (4)thatonasecondorsubsequentapplicationheshallnothavedisposedofanygarment
receivedwithinthethenprecedingyearfromtheFoundationandthatwhenhecomesforanewpairof
knickersortrousersthelegendGwyonsPresentshallstillbedecipherableonthewaistbandofhisold
ones.
Noneoftheseconditionsnecessarilyimportspovertynorcouldtherecipientsbeaccuratelydescribedasa
classofaged,impotentorpoorpersons.Thereferencestothereceiptofparochialreliefandtothe
possibilityoflastyearsgarmenthavingbeendisposedofshow,nodoubt,thatthetestatorcontemplated
thatcandidatesmightbeforthcomingfromaclassofsocietywhereincidentsofthisnaturemightoccur,
butalthoughagifttoorforthepoorotherthanthosewhowereinreceiptofparochialreliefthatis,
pauperswouldbeagoodcharitablegift,itdoesnotfollowthatagifttoallandsundryinaparticular
localityandnotexpressedtobeforthepooroughttobeconstruedasevidencinganintentiontorelieve
povertymerelybecausethetestatorismindedtoexcludepaupers.Ithinkthataccordingtothetrue
constructionofthesetestamentarydocumentsthebenevolenceofthetestatorwasintendedforalleligible
boysotherthanpaupers,andIcannotspelloutofthemanyindicationwhichwouldjustifytheFoundation
Trusteesrefusinganapplicantotherwiseeligibleonthegroundthathismaterialcircumstanceswereoftoo
affluentacharacter.InthesecircumstancesIcannotholdthistrusttobewithinthedescriptionofalegal
charitabletrust.
ThepresumptionthattrustsforthereliefofthepoorwouldbebeneficialhasbeenremovedbytheCharitiesAct
2011.Itisnownecessarytoestablishineachcasethatsuchtrustsdoindeedsatisfythepublicbenefittest.The
oldlawremainsrelevant,however,indeterminingwhatthepublicbenefitmightberegardingtrustsforthe
preventionofpovertyorforthereliefofthepoor.Therealsignificanceofpreviouscaselawisthelongstanding
recognitionthatthetestofpublicbenefitisinterpretedmoreliberallywherethepurposeisforthereliefofthepoor
thanforothercharitablepurposes,primarilybecauseofthebenefittotheStatefrompovertybeingrelievedwhich
meansthatitiseasiertojustifyallowingfiscalprivilegestosuchcharities.Asaresult,thepublicrequirementof
publicbenefitmightrelatetoamuchsmallerclassofpotentialbeneficiariesthanisthecasewiththeotherheads
ofcharity,suchaspoorrelativesofthetestator,106 orpoorpeoplefromasmallgeographicalarea,suchasa
parishortown.107 Consequently,therecanbeafamilyconnectionbetweenthecreatorofthecharitabletrustand
thepoolfromwhichthebeneficiariesaredrawnwherethecharitablepurposeisforthereliefofpoverty,whenthis
wouldnotbeallowedforothercharitablepurposes.Forexample,inReScarisbrick 108 itwasheldthatatrustfor
therelationsofthetestatorssonanddaughterwhowereinneedycircumstanceswasavalidcharitabletrust.
JenkinsLJsaid:109
thisisatrustforthereliefofpovertyinthecharitablesenseamongsttheclassofrelationsdescribed,and,
beingatrustforthereliefofpoverty,isnotdisqualifiedfromrankingasalegallycharitabletrustbythe
circumstancesthatitsapplicationisconfinedtoaclassofrelations(albeitawideclass),withtheresult
thatitspotentialbeneficiariesdonotcomprisethepublicorasectionthereofunderthedecisionstowhichI
havereferred.
Ithinkthetruequestionineachcasehasreallybeenwhetherthegiftwasforthereliefofpovertyamongst
aclassofpersons,orratheraparticulardescriptionofpoor,orwasmerelyagifttoindividuals,albeit
withreliefofpovertyamongstthoseindividualsasthemotiveofthegift,orwithaselectivepreferencefor
thepoororpoorestamongstthoseindividuals.
Similarly,inReSeglman110 itwasheldthatatrustforthebenefitofthepoorandneedymembersofadesignated
111
groupofthetestatorsfamilycreatedacharitabletrust.ChadwickJsaid:111
mostmembersoftheclassarecomfortablyoff,inthesensethattheyareabletomeettheirdaytoday
expensesoutofincome,butnotaffluent.Likemanyothersinsimilarcircumstances,theyneedahelping
handfromtimetotimeinordertoovercomeanunforeseencrisis:thefailureofabusinessventure,urgent
repairstoadwellinghouseorexpensesbroughtonbyreasonoffailinghealth.Further,theclass
includestheissueofnamedindividuals,manyofwhomarestillminors.Itisimpossibletoconcludethat
theminorshavebeenselectedbecausetheyare,orarelikelytobe,poor.Nodoubt,incommonwithmost
oftheircontemporaries,theywillexperiencerelativepovertyasstudents.Therewillbeperiodswhentheir
incomefromgrantsorparentalresourcesfailstocoverexpenditureontheiractualorperceivedneeds.But
theyarenotasaclasspoorpersonswithinanyordinarilyacceptedmeaningofthatexpression.The
conclusionthatIdrawfromtheevidenceisthatthetestatorselected(p.205) themembersoftheclass
onthebasisthattheywerepersonswhomightneedfinancialhelpfromtimetotimeinthefutureashad
beenthecase,atleastinrelationtosomeofthem,inthepastandthattheywerepersonswho,by
reasonsoftiesofbloodoraffection,hewouldwishtohelpafterhisdeath,ashehaddonefromtimeto
timeduringhislifetime.
Whereverthelineistobedrawn,itisclearthatthepresentgiftisnearertoitthanthatwhichtheCourtof
AppealhadtoconsiderinReScarisbrick [1951]Ch622.Theclassisnarrowerthanaclassofrelations
ofeverydegreeonbothsidesofthefamily.Thequestioniswhethertheclassissonarrowthatthegift
mustbedisqualifiedasatrustforthereliefofpovertyinthecharitablesenseIsthisproperlytobe
regardedasagifttosuchofanarrowclassofnearrelativesasatthetestatorsdeathshallbeinneedy
circumstances?
Thebasisfordisqualificationasacharitablegiftmustbethattherestrictednatureoftheclassleadstothe
conclusionthatthegiftisreallyagifttotheindividualmembersoftheclass.Inmyview,thegiftisnotof
thatcharacter.ThegiftwithwhichIamconcernedhas,incommonwiththegiftwhichtheCourtofAppeal
hadtoconsiderinReScarisbrick ,thefeaturethattheclassofthoseeligibletobenefitwasnotclosed
uponthetestatorsdeath.Itremainedopenforafurtherperiodof21years.Duringthatperiodissueofthe
namedindividualsbornafterthedeathofthetestatorwillbecomemembersoftheclass.Itis,inmyview,
impossibletoattributetothetestatoranintentiontomakeagifttothoseafterbornissueassuch.His
intentionmustbetakentohavebeenthereliefofpovertyamongsttheclassofwhichtheywouldbecome
members.
InDinglevTurner,112 theHouseofLordsconsideredwhetherthesepoorrelationcasescouldbeextendedto
pooremployees.
DinglevTurner[1972]AC601
Thetestatorsoughttocreateatrustfundtoapplytheincomethereofinpayingpensionstopooremployees
ofE.DingleandCoLtdwhowereagedorincapacitated.Atthedateofthetestatorsdeathin1950,the
companyhadover600employeesandtherewasasubstantialnumberofexemployees.Itwasheldthatthe
willcreatedavalidcharitabletrust.
LordCrossofChelsea:YourLordshipsarenowcalledupontogivetotheoldpoorrelationscases
andthemoremodernpooremployeescasesthatcarefulconsiderationwhich,inhisspeech
inOppenheimvTobaccoSecuritiesTrustCoLtd[1951]AC297at313113 LordMortonofHenryton
saidthattheymightonedayrequire.
Thecontentionsoftheappellantandtherespondentsmaybestatedbroadlyasfollows.Theappellant
saysthatintheOppenheimcasethisHousedecidedthatinprincipleatrustoughtnottoberegarded
ascharitableifthebenefitsunderitareconfinedeithertothedescendantsofanamedindividualor
individualsortotheemployeesofagivenindividualorcompanyandthatthoughthepoorrelations
casesmayhavetobeleftstandingasananomalousexceptiontothegeneralrulebecausetheir
validityhasbeenrecognisedforsolongtheexceptionoughtnottobeextendedtopooremployees
trustswhichhadnotbeenrecognisedforlongbeforetheirstatusascharitabletrustsbegantobe
calledinquestion.Therespondents,ontheotherhand,say,first,thattherulelaiddownin
theOppenheimcasewithregardtoeducationaltrustsoughtnottoberegardedasaruleapplicablein
principletoallkindsofcharitabletrust,and,secondly,thatinanycaseitisimpossibletodrawany
logicaldistinctionbetweenpoorrelationstrustsandpooremployeestrusts,andthat,astheformer
cannotbeheldinvalidtodayafterhavingbeenrecognisedasvalidforsolong,thelattermustbe
regardedasvalidalso.
(p.206) Mostofthecasesonthesubjectweredecidedintheeighteenthorearlynineteenthcenturies
andareveryinadequatelyreported,buttwothingsatleastwereclear.First,thatitneveroccurredto
thejudgeswhodecidedthemthatinthefieldofpovertyatrustcouldnotbeacharitabletrustifthe
classofbeneficiarieswasdefinedbyreferencetodescentfromacommonancestor.Secondly,that
thecourtsdidnottreatagiftortrustasnecessarilycharitablebecausetheobjectsofithadtobepoor
inordertoqualify,forinsomeofthecasesthetrustwastreatedasaprivatetrustandnotacharity.
TheprobleminReScarisbrick sWillTrusts[1951]Ch622wastodetermineonwhatbasisthe
distinctionwasdrawn.TheCourtofAppealheldthatinthisfieldthedistinctionbetweenapublic
orcharitabletrustandaprivatetrustdependedonwhetherasamatterofconstructionthegiftwasfor
thereliefofpovertyamongstaparticulardescriptionofpoorpeopleorwasmerelyagifttoparticular
poorpersons,thereliefofpovertyamongthembeingthemotiveofthegift.Thefactthatthegifttook
theformofaperpetualtrustwouldnodoubtindicatethattheintentionofthedonorcouldnothavebeen
toconferprivatebenefitsonparticularpeoplewhosepossiblenecessitieshehadinmindbutthefact
thatthecapitalofthegiftwastobedistributedatoncedidnotnecessarilyshowthatthegiftwasa
privatetrust.
Evenon[theassumptionthatthepoorrelationscases,thepoormemberscases,andthepoor
employeescasesareallanomalous]theappealmustfail.Thestatusofsomeofthepoorrelations
trustsasvalidcharitabletrustswasrecognisedmorethan200yearsagoandafewofthosethen
recognisedarestillbeingadministeredascharitiestoday.Butthepoormembersandthepoor
employeesdecisionswereanaturaldevelopmentofthepoorrelationsdecisionsandtodrawa
distinctionbetweendifferentsortsofpovertytrustswouldbequiteillogicalandcouldcertainlynotbe
saidtobeintroducinggreaterharmonyintothelawofcharity.Moreover,thoughnotasoldasthe
poorrelationstrustspooremployeestrustshavebeenrecognisedascharitiesformanyyearsthere
arenowalargenumberofsuchtrustsinexistenceandassuming,asonemust,thattheyare
properlyadministeredinthesensethatbenefitsunderthemareonlygiventopeoplewhocanfairlybe
saidtobe,accordingtocurrentstandards,poorpersons,totreatsuchtrustsascharitiesisnotopen
toanypracticalobjection.
ThattheCharitiesAct2011,asinitiallyenactedin2006,didnotchangethelawontheintepretationofpublic
benefitforcharitiesforthereliefofpovertywasconfirmedbytheUpperTribunalinAttorneyGeneralvCharity
CommissionforEnglandandWales.114 TheUpperTribunalansweredthreequestionsthathadbeenposedtoit
bytheAttorneyGeneral,asfollows:
Question2.1:Whetheratrustforthereliefofpovertyamongstaclassofpotentialobjectsofthetrusts
bountydefinedbyreferencetotherelationshipofthepotentialobjectstooneormoreindividualsiscapable
ofbeingacharitabletrust.
Answer:Yes
Question2.2:Whetheratrustforthereliefofpovertyamongstaclassofpotentialobjectsofthetrusts
bountydefinedbyreferencetotheiroramemberoftheirfamilysemploymentorformeremploymentby
oneorspecifiedcommercialcompaniesiscapableofbeingacharitabletrust.
Answer:Yes
Question2.3:Whetheratrustforthereliefofpovertyamongstthemembersofanunincorporated
associationortheirfamiliesiscapableofbeingacharitabletrust.
Answer:Yes
Itfollowsthatthepublicbenefittestfortrustsforthereliefofpovertycanencompassapotentiallynarrowclassof
beneficiariesandthefactthattheclassisdefinedbyreferencetoapersonalnexus,(p.207) suchashavinga
commonrelativeoremployerorbeingamemberofthesameclub,willnotpreventthetestfrombeingsatisfied.
(b)AdvancementofEducation
TheconceptofeducationhasprogressedalongwaysincethePreambletotheCharitableUsesAct1601
identifiedthemaintenanceofschoolsoflearning,freeschoolsandscholarsinuniversitiesandtheeducationand
prefermentoforphans.BuckleyLJhassaidthatEducationisnow:115
regardedasextendingtotheimprovementofausefulbranchofhumanknowledgeanditspublic
dissemination.
PriortotheCharitiesAct2006,educationwaswidelyinterpretedtoincludethepromotionoftheartsandculture.
Thishasnowbeenseparatedfromtheadvancementofeducationtoformanewheadofcharity,alongwiththe
promotionofheritageandscience.116 Inthelightofthis,itisnolongernecessaryforeducationtobegivenan
artificiallywideinterpretation.
Variousprinciplescanbeidentifiedrelatingtothedeterminationofeducationalcharitablepurposes.Atitscore,
educationrelatestoteaching,includingpayingteachers,117 whetherathomeorabroad.118 Butitisnotconfined
toformalinstructionintheclassroom,andencompassesvocationaltraining119 andpracticecontainingspiritual,
moral,mental,andphysicalelements.120
Educationalsoencompassesresearch.Inassessingwhethertheresearchiseducational,thecourtwillhave
regardtoitsaimsandutility.InReHopk insWillTrust,121 thekeyissuewaswhetheragifttotheFrancisBacon
SocietytoidentifyevidenceinsupportofhisauthorshipoftheplaysattributedtoShakespearewascharitable.
WilberforceJsaid:122
LetmesayatoncethatnodeterminationoftheauthorshipoftheShakespeareplays,orevenofany
subsidiaryquestionrelatingtoit,fallstobemadeinthepresentproceedings.Thecourtisonlyconcerned,
atthispoint,withthepracticabilityandlaterwiththelegalityofcarrying[thetestators]wishesintoeffect,
anditmustdecidethis,onewayortheother,upontheevidenceoftheexpertswhichisbeforeit
Onthisevidence,shouldtheconclusionbereachedthatthesearchfortheBaconShakespeare
manuscriptsissomanifestlyfutilethatthecourtshouldnotallowthisbequesttobespentuponitasupon
anobjectdevoidofthepossibilityofanyresult?Ithinknot.Theevidenceshowsthatthediscoveryofany
manuscriptoftheplaysisunlikelybutsoaremanydiscoveriesbeforetheyaremade(onemaythinkof
theCodexSinaiticus,ortheTombofTutankhamen,ortheDeadSeaScrolls)Idonotthinkthatthat
degreeofimprobabilityhasbeenreachedwhichjustifiesthecourtinplacinganinitialinterdictonthe
testatrixsbenefaction
(p.208) abequestforthepurposeofsearch,orresearch,fortheoriginalmanuscriptsofEnglands
greatestdramatist(whoeverhewas)wouldbewellwithinthelawsconceptionofcharitablepurposes.The
discoveryofsuchmanuscripts,orofonesuchmanuscript,wouldbeofthehighestvaluetohistoryandto
literature.Itisobjected,againstthis,thataswealreadyhavethetextoftheplays,fromanalmost
contemporarydate,thediscoveryofamanuscriptwouldaddnothingworthwhile.ThisIutterlydeclineto
accept.Withoutanyundueexerciseoftheimagination,itwouldsurelybeareasonableexpectationthat
therevelationofamanuscriptwouldcontribute,probablydecisively,toasolutionoftheauthorshipproblem,
andthisaloneisbenefitenough.Itmightalsoleadtoimprovementsinthetext.Itmightleadtomore
accuratedating.
Isthereanyauthority,then,whichshouldleadmetoholdthatabequesttoachievethisobjectiveisnot
charitable?By[counsel]forthenextofkinmuchreliancewasplacedonthedecisiononBernardShaws
will,theBritishAlphabetcase(ReShaw[1957]1WLR729).HarmanJheldthatthegiftwasnot
educationalbecauseitmerelytendedtotheincreaseofknowledgeButthejudgedidsaythisat737:if
theobjectbemerelytheincreaseofknowledge,thatisnotinitselfacharitableobjectunlessitbe
combinedwithteachingoreducationandhereferredtotheHouseofLordsdecision,Whick erv
Hume(1858)7HLCas124,where,inrelationtoagiftforadvancementofeducationandlearning,twoof
theLordsreadlearningasequivalenttoteaching,therebyinhisviewimplyingthatlearning,inits
ordinarymeaning,isnotacharitablepurpose.
Thisdecisioncertainlyseemstoplacesomelimitsupontheextenttowhichagiftforresearchmaybe
regardedascharitable.ThoselimitsarethatitmustbecombinedwithteachingoreducationThe
wordscombinedwithteachingoreducation,thoughwellexplainingwhatthejudgehadinmindwhenhe
rejectedthegiftinShawscase[1957]1WLR729,arenoteasytointerpretinrelationtootherfacts.I
shouldbeunwillingtotreatthemasmeaningthatthepromotionofacademicresearchisnotacharitable
purposeunlesstheresearcherwereengagedinteachingoreducationintheconventionalmeaningandI
amencouragedinthisviewbysomewordsofLordGreeneMRinReCompton[1945]Ch123at127.The
testatrixtherehadforbiddentheincomeofthebequesttobeusedforresearch,andLordGreeneMR
treatedthisasanegativedefinitionoftheeducationtobeprovided.Itwould,hesaid,excludeagrantto
enableabeneficiarytoconductresearchonsomepointofhistoryorscience.ThisshowsthatLordGreene
MRconsideredthathistoricresearchmightfallwithinthedescriptionofeducation.Ithink,therefore,that
thewordeducationasusedbyHarmanJinReShawmustbeusedinawidesense,certainlyextending
beyondteaching,andthattherequirementisthat,inordertobecharitable,researchmusteitherbeof
educationalvaluetotheresearcherormustbesodirectedastoleadtosomethingwhichwillpassintothe
storeofeducationalmaterial,orsoastoimprovethesumofcommunicableknowledgeinanareawhich
educationmaycovereducationinthislastcontextextendingtotheformationofliterarytasteand
appreciation(compareRoyalChoralSocietyvIRC[1943]2AllER101).Whetherornotthetestiswider
thanthis,itis,asIhavestatedit,amplywideenoughtoincludethepurposesofthegiftinthiscase.
OntheothersidethereisReBritishSchoolofEgyptianArchaeology[1954]1WLR546,alsoadecisionof
HarmanJ,acasemuchclosertothepresent.Thetruststhereweretoexcavate,todiscoverantiquities,to
holdexhibitions,topublishworksandtopromotethetrainingandassistanceofstudentsallinrelationto
Egypt.HarmanJheldthatthepurposeswerecharitable,asbeingeducational.Thesocietywasoneforthe
diffusionofacertainbranchofknowledge,namely,knowledgeoftheancientpastofEgyptanditalsohad
adirecteducationalpurpose,namely,totrainstudents.Theconclusionreachedthattherewasan
educationalcharitywasgreatlyhelpedbythereferencetostudents,butitseemsthatHarmanJmusthave
acceptedthattheotherobjectsthoseofarchaeologicalresearchwerecharitable,too.Theywerequite
independentobjectsonwhichthewholeofthesocietysfundscouldhavebeenspent,andthelanguage
theschoolhasadirecteducationalpurpose,namely,totrainstudentsseemstoshowthatthejudgewas
independentlyupholdingeachsetofobjects.
(p.209) [Counselforthenextofkin]correctlypointedoutthatinthatcasetherewasadirectobligationto
diffusetheresultsofthesocietysresearchandsaidthatitwasthisthatjustifiedthefindingthatthe
archaeologicalpurposeswerecharitable.Iacceptthatresearchofaprivatecharacter,forthebenefitonlyof
themembersofasociety,wouldnotnormallybeeducationalorotherwisecharitableasdidHarmanJ
[1954]1WLR546at551,butIdonotthinkthattheresearchinthepresentcasecanbesaidtobeofa
privatecharacter,foritisinherentlyinevitable,andmanifestlyintended,thattheresultofanydiscovery
shouldbepublishedtotheworld.Ithink,therefore,thattheBritishSchoolofEgyptianArchaeologycase
supportstheSocietyscontentions.
WilberforceJssuggestionthatanattributeofresearchasacharitableobjectisthatitisofeducationalvalueto
theresearcherisdoubtful,especiallybecausethiswouldnotappeartomeetthepublicbenefitrequirement.
Consequently,thepreferableviewisthatresearchshouldbeconsideredtobeeducationalonlywhereitinvolves
someelementofdisseminationoftheresults,althoughthecourtwillbewillingtoassumethatatrustforresearch
willinvolvesubsequentdisseminationofresults.123
InIncorporatedCouncilofLawReportingforEnglandandWalesvAttorneyGeneral,124 atrustforthepublication
oflawreportswasconsideredtoadvanceeducationbecauseitassistedresearchintothelawanddisseminated
knowledgeofthelaw.AsBuckleyLJrecognized:
inalegalsystemsuchasours,inwhichjudgesdecisionsaregovernedbyprecedents,reporteddecisions
arethemeansbywhichlegalprinciples(otherthanthoselaiddownbystatutes)aredeveloped,
establishedandmadeknown,andbywhichtheapplicationofthoselegalprinciplestoparticularkindsof
factsareillustratedandexplained.Reporteddecisionsmaybesaidtobethetissueofthebodyofournon
statutorylaw.Whoever,therefore,wouldcarryoutanyanatomicalresearchesuponournonstatutory
corpusjurismustdosobyresearchamongst,andstudyof,reportedcases
Thelegalprofessionhasfromtimeslongpastbeentermedalearnedprofession,andrightlyso,fornoman
canproperlypractiseorapplythelawwhoisnotlearnedinthatfieldoflawwithwhichheisconcerned.He
musthavemorethananaptitudeandmorethanaskill.Hemustbelearnedinasenseimportingtrue
scholarship.Inasystemoflawsuchaswehaveinthiscountrythisscholarshipcanonlybeacquiredand
maintainedbyacontinualstudyofcaselaw.
TheservicewhichpublicationofTheLawReportsprovidesbenefitsnotonlythoseactivelyengagedinthe
practiceandadministrationofthelaw,butalsothosewhosebusinessitistostudyandteachlaw
academically,andmanyotherswhoneedtostudythelawforthepurposesoftheirtrades,businesses,
professionsoraffairs.Inallthesefields,however,thenatureoftheserviceisthesame:itenablesthe
readertostudy,andbystudytoacquainthimselfwithandinstructhimselfinthelawofthiscountry.There
isnothingherewhichnegativesanexclusivelycharitablepurpose.
Althoughtheobjectsofthecouncilarecommercialinthesensethatthecouncilexiststopublishandsell
itspublications,theyareunselfregarding.Themembersareprohibitedfromderivinganyprofitfromthe
councilsactivities,andthecouncilitself,althoughnotdebarredfrommakingaprofitoutofitsbusiness,
canonlyapplyanysuchprofitinthefurtherpursuitofitsobjects.Thecouncilisconsequentlynot
preventedfrombeingacharitybyreasonofanycommercialelementinitsactivities.
InReSouthPlaceEthicalSociety,125 theobjectsoftheSocietywerethestudyanddisseminationofethical
principlesandthecultivationofarationalreligioussentiment.Inholdingthatthiswasatrust(p.210) forthe
advancementofeducation,aswellasbeingforotherpurposesbeneficialtothecommunity,DillonLJsaid:126
Thefirstpartoftheobjectsisthestudyanddisseminationofethicalprinciples.Dissemination,Ithink,
includesdisseminationofthefruitsofthestudy,andIhavenodoubtthatthatpartoftheobjectssatisfies
thecriterionofcharityasbeingfortheadvancementofeducation.Thesecondpart,thecultivationofa
rationalreligioussentiment,isconsiderablymoredifficult.AsIhavealreadysaid,Idonotthinkthatthe
cultivationislimitedtocultivationoftherequisitesentimentinthemembersoftheSocietyandinnoone
else.InthecontexttheSocietyisoutwardlooking,andthecultivationwouldextendtoallmembersofthe
publicwhomtheSocietysteachingsmayreach.Thesentimentorstateofmindistoberational,thatisto
sayfoundedinreason.AsIseeit,asentimentorattitudeofmindfoundedinreasoncanonlybecultivated
orencouragedtogrowbyeducationalmethods,includingmusic,andthedevelopmentoftheappreciation
ofmusicbyperformancesofhighquality.ThedifficultyinthispartoftheSocietysobjectsliesin
expressingaveryloftyandpossiblyunattainableidealinaveryfewwords,andthedifficultyis
compoundedbythechoiceofthewordreligious,whichwhilegivingtheflavourofwhatisinmind,isnotin
myviewusedinitscorrectsense.
InLivinginRadiancesApplicationforRegistrationasaCharity,127 aninstitutionthatprovidedinformation,
services,andeducationaboutthescienceofmeditationandpeaceeducationwasnotregisteredasacharity
becauseitfailedtoaddtotheparticipantsfactualknowledgeorskillsbase.Theorganizationofconferencesto
discussissuesofpublicandinternationalinterestatwhichtheparticipantslearnedfromandinstructedeachother
128 129
was,however,heldtobeeducationalinReKoepplersWillTrusts.128 SladeLJsaid:129
thefollowingsalientpointsemergedfromtheevidence:(i)theconferencessoughttoimprovethemindsof
participants,notnecessarilybyaddingtotheirfactualknowledgebutbyexpandingtheirwisdomand
capacitytounderstand(ii)thesubjectsdiscussedatconferenceswererecognisedacademicsubjectsin
highereducation(iii)theconferencesoperatedbyaprocessofdiscussiondesignedtoelicitanexchange
ofviewsinamannerfamiliarinplacesofhighereducation(iv)theconferencesweredesignedtocapitalise
ontheexpertiseofparticipantswhoweretherebothtolearnandtoinstruct.
(ii)Publicbenefit
(a)Definitionofthepublic
Therequirementofpublicbenefithasprovedespeciallysignificantwhendeterminingwhethertrustsforthe
advancementofeducationarecharitable,andwillbeevenmoresonowthatbenefitcannolongerbe
presumed.130 Ithasbeeninthecontextofthischaritablepurposethatthetaxadvantagesofbeingacharityhave
provedtobeparticularlyimportant,especiallyasregardswhetherindependentschoolsshouldbetreatedas
charitable.Also,employersmightseektoprovidetaxfreebenefitstoemployeesbyprovidingfortheeducationof
theirchildren,butthiswillbeeffectiveonlyifasufficient(p.211) sectionofthepubliccanbeidentified.Thiswas
thekeyissueintheleadingdecisionoftheHouseofLordsinOppenheimvTobaccoSecuritiesTrustCoLtd.131
OppenheimvTobaccoSecuritiesTrustCoLtd[1951]AC297
Theincomeofatrustfundwasdirectedtobeappliedinprovidingfortheeducationofchildrenof
employeesorformeremployeesoftheBritishAmericanTobaccoCoLtdoranyofitssubsidiaryorallied
companiesinsuchmannerastheactingtrusteesshallintheirabsolutediscretionthinkfit,withpower
toapplythecapitalforthesamepurposes.Thenumberofemployeesofthecompanyandtheirsubsidiary
andalliedcompaniesexceeded110,000.Thequestionwaswhethertheclasstobebenefitedwasasufficient
sectionofthepublic.Itwasheldthatbecausethequalificationtobenefitwasbaseduponapersonalnexus
betweenthosewhomightbenefitandthesettlors,theclassofbeneficiarieswasnotasectionofthepublic
andthetrustwasvoid.
LordSimonds:
Inthecaseoftrustsforeducationalpurposestheconditionofpublicbenefitmustbesatisfied.The
difficultyliesindeterminingwhatissufficienttosatisfythetest,andthereislittletohelpyour
Lordshipstosolveit.
IfImaybeginatthebottomofthescale,atrustestablishedbyafatherfortheeducationofhissonis
notacharity.Thepublicelement,asIwillcallit,isnotsuppliedbythefactthatfromthatsons
educationallmaybenefit.Attheotherendofthescaletheestablishmentofacollegeoruniversityis
beyonddoubtacharity.Schoolsoflearningandfreeschoolsandscholarsofuniversitiesarethevery
wordsofthepreambletotheStatuteofElizabeth.Soalsotheendowmentofacollege,universityor
schoolbythecreationofscholarshipsorbursariesisacharityandnonethelessbecausecompetition
maybelimitedtoaparticularclassofpersons.Itisuponthisground,asLordGreeneMRpointedout
inReCompton[1945]Ch123at136thatthesocalledFoundersKincasescanberested.The
difficultyariseswherethetrustisnotforthebenefitofanyinstitutioneitherthenexistingorbythe
termsofthetrusttobebroughtintoexistence,butforthebenefitofaclassofpersonsatlarge.Then
thequestioniswhetherthatclassofpersonscanberegardedassuchasectionofthecommunityas
tosatisfythetestofpublicbenefit.Thesewordssectionofthecommunityhavenospecialsanctity,
buttheyconvenientlyindicatefirst,thatthepossible(Iemphasizethewordpossible)beneficiaries
mustnotbenumericallynegligible,andsecondly,thatthequalitywhichdistinguishesthemfromother
membersofthecommunity,sothattheyformbythemselvesasectionofit,mustbeaqualitywhich
doesnotdependontheirrelationshiptoaparticularindividual.Itisforthisreasonthatatrustforthe
educationofmembersofafamilyor,asinReCompton,ofanumberoffamiliescannotberegardedas
charitable.Agroupofpersonsmaybenumerousbut,ifthenexusbetweenthemistheirpersonal
relationshiptoasingle[person]ortoseveral[people],theyareneitherthecommunitynorasectionof
thecommunityforcharitablepurposes.
Icome,then,tothepresentcasewheretheclassofbeneficiariesisnumerousbutthedifficultyarises
inregardtotheircommonanddistinguishingquality.Thatqualityisbeingchildrenofemployeesofone
orotherofagroupofcompanies.Icanmakenodistinctionbetweenchildrenofemployeesandthe
employeesthemselves.Inbothcasesthecommonqualityisfoundinemploymentbyparticular
employers.ThelatterofthetwocasesbywhichtheCourtofAppealhelditselftobebound,Re
HobournAeroComponentsLtdsAirRaidDistressFund[1946]Ch194,isadirectauthorityforsaying
thatsuchacommonqualitydoesnotconstituteitspossessorsasectionofthepublicforcharitable
purposes.Intheformercase,ReCompton,LordGreeneMRhadbywayofillustrationplaced
membersof(p.212) afamilyandemployeesofaparticularemployeronthesamefooting,finding
neitherincommonkinshipnorincommonemploymentthesortofnexuswhichissufficientIt
appearstomethatitwouldbeanextension,forwhichthereisnojustificationinprincipleorauthority,
toregardcommonemploymentasaqualitywhichconstitutesthoseemployedasectionofthe
community.
Sincetherewasapersonalnexusthetrustwasaprivatetrustwhichwasvoidforperpetuity.
ThedecisionoftheHouseofLordsinOppenheimdoesnotsiteasilywiththelaterdecisionofthesamecourt
inDinglevTurner,132 whichconcernedtheprovisionofbenefitsbyanemployerforemployeesforthereliefof
poverty.Despitetheexistenceofapersonalnexus,thepublicbenefittestwassatisfied.Thecasesare
distinguishablebecausetheyinvolveddifferentcharitablepurposes,butwhyshouldthismakeadifference?
InOppenheim,LordMacDermottdissented:133
Thenumericalstrengthoftheclassisconsiderableonanyshowing.Theemployeesconcernednumber
over110,000,anditmayreasonablybeassumedthatthechildren,whoconstitutetheclassinquestion,
arenofewer.Thelargesizeoftheclassisnot,ofcourse,decisivebutinmyviewitcannotbeleftoutof
accountwhentheproblemisapproachedinthisway.Thenitmustbeobservedthatthe[beneficiaries]are
notlimitedtothosepresentlyemployed.Theyincludeformeremployees(notreckonedinthefigureIhave
given)andare,therefore,amorestablecategorythanwouldotherwisebethecase.And,further,the
employeesconcernedarenotlimitedtothoseintheserviceoftheBritishAmericanTobaccoCoLtdor
anyofitssubsidiaryoralliedcompaniesitselfadescriptionofgreatwidthbutincludetheemployees,in
theeventoftheBritishAmericanTobaccoCoLtdbeingreconstructedormergedonamalgamation,ofthe
reconstructedoramalgamatedcompanyoranyofitssubsidiarycompanies.Nodoubtthesettlorshere
hadaspecialinterestinthewelfareoftheclasstheydescribed,but,apartfromthefactthatthismayserve
toexplaintheparticularformoftheirbounty,Idonotthinkitmaterialtothequestioninhand.Whatis
material,asIregardthematter,isthattheyhavechosentobenefitaclasswhichis,infact,substantialin
pointofsizeandimportanceandhavedonesoinamannerwhich,tomymind,manifestsanintentionto
advancetheinterestsoftheclassdescribedasaclassratherthanasacollectionorsuccessionof
particularindividuals.
Butcananyreallyfundamentaldistinction,asrespectsthepersonalorimpersonalnatureofthecommon
link,bedrawnbetweenthoseemployed,forexample,byaparticularuniversityandthosewhomthesame
universityhasputinacertaincategoryastheresultofindividualexaminationandassessment?Again,if
thebondbetweenthoseemployedbyaparticularrailwayispurelypersonal,whyshouldthebondbetween
thosewhoareemployedasrailwaymenbesoessentiallydifferent?Isadistinctiontobedrawninthis
respectbetweenthosewhoareemployedinaparticularindustrybeforeitisnationalizedandthosewho
areemployedthereinafterthatprocesshasbeencompletedandoneemployerhastakentheplaceof
many?AreminersintheserviceoftheNationalCoalBoardnowinonecategoryandminersataparticular
pitorofaparticulardistrictinanother?IstherelationshipbetweenthoseintheserviceoftheCrowntobe
distinguishedfromthatobtainingbetweenthoseintheserviceofsomeotheremployer?Or,ifnot,arethe
childrenof,say,soldiersorcivilservantstoberegardedasnotconstitutingasufficientsectionofthepublic
tomakeatrustfortheireducationcharitable?
Itwasconcededinthecourseoftheargumentthat,hadthepresenttrustbeenframedsoastoprovidefor
theeducationofthechildrenofthoseengagedinthetobaccoindustryinanamedcountyortown,itwould
havebeenagoodcharitabledisposition,andthateventhoughtheclasstobebenefitedwouldhavebeen
appreciablysmallerandnomoreimportantthanistheclasshere.Thatconcessionfollowsfromwhatthe
CourtofAppealhassaid.Butifitissoundandapersonalorimpersonalrelationship(p.213) remainsthe
universalcriterionIthinkitshows,nolessthanthequeriesIhavejustraisedinindicatingsomeofthe
difficultiesoftheproblem,thattheCompton[personalnexus]testisaveryarbitraryandartificialrule.This
leadsmetotheseconddifficultythatIhaveregardingit.IfIunderstanditarightitnecessarilymakesthe
quantumofpublicbenefitaconsiderationoflittlemomentthesizeoftheclassbecomesimmaterialand
theneedofitsmembersandthepublicadvantageofhavingthatneedmetappearaliketobeirrelevant.To
mymindtheseareconsiderationsofsomeaccountinthesphereofeducationaltrustsfor,asalready
indicated,Ithinktheeducationalvalueandscopeoftheworkactuallytobedonemusthaveabearingon
thequestionofpublicbenefit.
Finally,itseemstomethat,farfromsettlingthestateofthelawonthisparticularsubject,
theComptontestismorelikelytocreateconfusionanddoubtinthecaseofmanytrustsandinstitutionsof
acharacterwhoselegalstandingascharitieshasneverbeeninquestion.Ihaveparticularlyinmindgifts
fortheeducationofcertainspecialclassessuch,forexample,asthedaughtersofmissionaries,the
childrenofthoseprofessingaparticularfaithoracceptedasministersofaparticulardenomination,or
thosewhoseparentshavesentthemtoaparticularschoolfortheearlierstagesoftheirtraining.Icannot
butthinkthatincasesofthissortananalysisofthecommonqualitybindingtheclasstobebenefitedmay
revealarelationshipnolesspersonalthanthatexistingbetweenanemployerandthoseinhisservice.
Take,forinstance,atrustfortheprovisionofuniversityeducationforboyscomingfromaparticularschool.
Thecommonqualitybindingthemembersofthatclassseemstoresideinthefactthattheirparentsor
guardiansallcontractedfortheirschoolingwiththesameestablishmentorbody.Thattheschoolinsucha
casemayitselfbeacharitablefoundationseemsaltogetherbesidethepointandquiteinsufficienttohold
theComptontestatbayifitiswellfoundedinlaw.
LordMacDermottsapproachtotheidentificationofasectionofthecommunitycommendeditselftothejudges
inDinglevTurner.134 LordCrosssaid:135
Oppenheim[1951]AC297wasacaseofaneducationaltrustandthoughthemajorityevidentlyagreed
withtheviewexpressedbytheCourtofAppealintheHobournAerocase[1946]Ch194that
theComptonrule[1945]Ch123wasofuniversalapplicationoutsidethefieldofpovertyitwouldnodoubt
beopentothisHousewithoutoverrulingOppenheimtoholdthatthescopeoftherulewasmorelimited.If
everIshouldbecalledupontopronounceonthisquestionwhichdoesnotariseinthisappealIwould
asatpresentadvisedbeinclinedtodrawadistinctionbetweenthepracticalmeritsoftheComptonrule
andthereasoningbywhichLordGreeneMRsoughttojustifyit.Thatreasoningbasedonthedistinction
betweenpersonalandimpersonalrelationshipshasneverseemedtomeverysatisfactoryandIhave
alwaysifImaysaysofelttheforceofthecriticismtowhichmynobleandlearnedfriendLord
MacDermottsubjecteditinhisdissentingspeechinOppenheim.FormypartIwouldprefertoapproach
theproblemonfarbroaderlines.Thephraseasectionofthepublicisintruthavaguephrasewhichmay
meandifferentthingstodifferentpeople.Inthelawofcharityjudgeshavesoughttoelucidateitsmeaning
bycontrastingitwithanotherphrase:afluctuatingbodyofprivateindividuals.ButIgetlittlehelpfromthe
supposedcontrastforasIseeitoneandthesameaggregateofpersonsmaywellbedescribablebothas
asectionofthepublicandasafluctuatingbodyofprivateindividuals.TheratepayersoftheRoyalBorough
ofKensingtonandChelsea,forexample,certainlyconstituteasectionofthepublicbutwoulditbea
misuseoflanguagetodescribethemasafluctuatingbodyofprivateindividuals?Afterall,everypartofthe
publiciscomposedofindividualsandbeingsusceptibleofincreaseordecreaseisfluctuating.Soatthe
endofthedayoneisleftwhereonestartedwiththebarecontrastbetweenpublicandprivate.Nodoubt
someclassesaremorenaturallydescribableassectionsofthepublicthanasprivateclasseswhile(p.
214) otherclassesaremorenaturallydescribableasprivateclassesthanassectionsofthepublic.The
blind,forexample,cannaturallybedescribedasasectionofthepublicbutwhattheyhaveincommon
theirblindnessdoesnotjointhemtogetherinsuchawaythattheycouldbecalledaprivateclass.On
theotherhand,thedescendantsofMr.Gladstonemightmorereasonablybedescribedasaprivateclass
thanasasectionofthepublic,andinthefieldofcommonemploymentthesamemightwellbesaidofthe
employeesinsomefairlysmallfirm.Butifoneturnstolargecompaniesemployingmanythousandsof
menandwomenmostofwhomarequiteunknowntooneanotherandtothedirectorstheanswerisbyno
meanssoclear.Onemightsaythatinsuchacasethedistinctionbetweenasectionofthepublicanda
privateclassisnotapplicableatalloreventhattheemployeesinsuchconcernsasICIorGECarejustas
muchsectionsofthepublicastheresidentsinsomegeographicalarea.Intruththequestionwhetheror
notthepotentialbeneficiariesofatrustcanfairlybesaidtoconstituteasectionofthepublicisaquestion
ofdegreeandcannotbebyitselfdecisiveofthequestionwhetherthetrustisacharity.Muchmustdepend
onthepurposeofthetrust.Itmaywellbethat,ontheonehand,atrusttopromotesomepurpose,prima
faciecharitable,willconstituteacharityeventhoughtheclassofpotentialbeneficiariesmightfairlybe
calledaprivateclassandthat,ontheotherhand,atrusttopromoteanotherpurpose,alsoprimafacie
charitable,willnotconstituteacharityeventhoughtheclassofpotentialbeneficiariesmightseemtosome
peoplefairlydescribableasasectionofthepublic.Inansweringthequestionwhetheranygiventrustisa
charitabletrustthecourtsasIseeitcannotavoidhavingregardtothefiscalprivilegesaccordedto
charities.AscounselfortheAttorneyGeneralremarkedinthecourseoftheargumentthelawofcharityis
bedevilledbythefactthatcharitabletrustsenjoytwoquitedifferentsortsofprivilege.Ontheonehand,
theyenjoyimmunityfromtherulesagainstperpetuityanduncertaintyandthoughindividualpotential
beneficiariescannotsuetoenforcethemthepublicinterestarisingunderthemisprotectedbythe
AttorneyGeneral.Ifthiswasalltherewouldbenoreasonforthecourtsnottolookfavourablyontheclaim
ofanypurposetrusttobeconsideredasacharityifitseemedcalculatedtoconfersomerealbenefiton
thoseintendedtobenefitbyitwhoevertheymightbeandifitwouldfailifnotheldtobeacharity.Butthat
isnotall.Charitiesautomaticallyenjoyfiscalprivilegeswhichwiththeincreasedburdenoftaxationhave
becomemoreandmoreimportantandindecidingthatsuchandsuchatrustisacharitabletrustthecourt
isendowingitwithasubstantialannualsubsidyattheexpenseofthetaxpayer.Indeed,claimsoftruststo
rankascharitiesarejustasoftenchallengedbytherevenueasbythosewhowouldtakethefundifthe
trustwasinvalid.Itis,ofcourse,unfortunatethattherecognitionofanytrustasavalidcharitabletrust
shouldautomaticallyattractfiscalprivileges,forthequestionwhetheratrusttofurthersomepurposeisso
littlelikelytobenefitthepublicthatitoughttobedeclaredinvalidandthequestionwhetheritislikelyto
confersuchgreatbenefitsonthepublicthatitshouldenjoyfiscalimmunityarereallytwoquitedifferent
questions.ThelogicalsolutionwouldbetoseparatethemandtosayastheRadcliffe
Commission136 proposedthatonlysomecharitiesshouldenjoyfiscalprivileges.But,asthingsare,
validityandfiscalimmunitymarchhandinhandandthedecisionsintheCompton[1945]Ch123
andOppenheim[1951]AC297caseswereprettyobviouslyinfluencedbytheconsiderationthatifsuch
trustsaswerethereinquestionwereheldvalidtheywouldenjoyanundeservedfiscalimmunity.To
establishatrustfortheeducationofthechildrenofemployeesinacompanyinwhichyouareinterestedis
nodoubtameritoriousactbuthowevernumeroustheemployeesmaybethepurposewhichyouare
seekingtoachieveisnotapublicpurpose.Itisacompanypurposeandthereisnoreasonwhyyourfellow
taxpayersshouldcontributetoaschemewhichbyprovidingfringebenefitsforyouremployeeswillbenefit
thecompanybymakingtheirconditionsofemploymentmoreattractive.Thetemptationtoenlistthe
assistanceofthelawofcharityinprivateendeavoursofthissortisconsiderablewitnesstherecentcase
oftheMetalBoxscholarshipsInlandRevenueCommissionersvEducationalGrantsAssociation
Ltd[1967]Ch993137 andthecourtsmustdowhattheycantodiscouragesuchattempts.Inthefieldof
poverty(p.215) thedangerisnotsogreatasinthefieldofeducationforwhilepeoplearekeenlyaliveto
theneedtogivetheirchildrenagoodeducationandtotheexpenseofdoingsotheyaregenerally
optimisticenoughnottoentertainseriousfearsoffallingonevildaysmuchbeforetheyfallonthem.
Consequentlytheexistenceofcompanybenevolentfundstheincomeofwhichisfreeoftaxdoesnot
constituteaveryattractivefringebenefit.Thisisapracticaljustificationthoughnot,ofcourse,the
historicalexplanationforthespecialtreatmentaccordedtopovertytrustsincharitylaw.Forthesame
sortofreasonatrusttopromotesomereligionamongtheemployeesofacompanymightperhapssafely
beheldtobecharitableprovidedthatitwasclearthatthebenefitsweretobepurelyspiritual.AsIsee
it,itisonthesebroadlinesratherthanforthereasonsactuallygivenbyLordGreeneMRthat
theComptonrule[1951]AC123canbestbejustified.
LordCrossssuggestionthattheavailabilityoffiscalprivilegesshouldbetakenintoaccountwhenassessing
publicbenefitwasnotsupportedbythreeoftheotherjudgesinthecase,oneofwhombeingLord
MacDermott.138 So,whereisthelawleftconcerningtheidentificationofpublicbenefitfortheadvancementof
educationfollowingOppenheimandDingle?Althoughithasbeensuggestedthattheconsequenceofthe
commentsinDingleisthatOppenheimmustbetreatedaswronglydecided,139 thosecommentswereobiterand
nothingwassaidinDinglevTurnertosuggestthatOppenheimshouldhavebeendecided
differently.OppenheimwassubsequentlyfollowedinIRCvEducationalGrantsAssociationLtd,140 althoughthis
wasdecidedbeforeDinglevTurner.TheEducationalGrantsAssociationLtdwasanassociationestablishedfor
theadvancementofeducation.IthadacloserelationwiththeMetalBoxCo.Ltd,andthebulkofitsincomecame
fromthatcompany.MuchoftheincomeoftheAssociationwasappliedfortheeducationofchildrenofpersons
connectedwiththeMetalBoxCo.Ltd.Itwasheldthattheincomewasnotappliedforcharitablepurposesonly.
SalmonLJsaid:
Ifatrustestablishedforthepurposeofmakinggrantsfortheeducationofchildrenofemployeesorformer
employeesofMetalBoxwouldnotbeestablishedforcharitablepurposesonly,itseemstometofollow,
asthenightfollowstheday,thatannualpaymentsappliedforthepurposeofeducatingthechildrenof
employeesorformeremployeesofthecompanyarenotappliedforcharitablepurposesonly.Idonotmean
thatanychildofaMetalBoxemployeeisnecessarilyexcludedfromtheambitofthisbeneficence.Ifithad
beenshown,forexample,thatbychanceafewsuchchildrenhadbeenamongstthemembersofthe
generalpublictohavebenefitedfromthegrants,Ishouldnothavethoughtthatthiswasinanyway
breachingtherequirementthattheannualpaymentsmustbeappliedforcharitablepurposesonly.The
troubleinthiscaseisthatwhenonelooksatallthefactswhichhavebeenrecitedbymyLordsandwhichI
neednotrepeat,oneisdriventothesameinescapableconclusionaswasthejudge,namely,that75%to
85%oftheannualpaymentswereinfactnotappliedforthebenefitofasectorofthepublicbutforthe
benefitofchildrenofemployeesorformeremployeesofMetalBoxassuch.
IfthefactsofOppenheimandEducationalGrantsAssociationweretoarisetoday,itisclearthattheCharity
Commission,Tribunals,andthecourtswouldapplythepersonalnexustesttodeterminewhetherthe
beneficiariesconstitutedasufficientsectionofthepublic.Butinassessingthis,itwouldbeappropriatetohave
regardtothefactorsidentifiedbyLordMacDermottandaffirmedbyLordCross.Thefactthatthecreatorofthe
trustisseekingtoobtaintaxadvantagesshouldalsoberegarded(p.216) asarelevantfactorthisisalegitimate
motiveforseekingcharitablestatus,butcannotberegardedasapurposeinitsownright.Itisnotappropriatefor
companiestousethelawofcharitytoprovidetaxfreebenefitstoemployees.Thisunacceptablyconfusesthe
publiclawofcharitywiththeprivateendeavoursofcompanies.
Althoughmuchofthediscussionaboutpublicbenefitinrespectoftheadvancementofeducationhasfocusedon
thepersonalnexustest,itmustnotbeforgottenthatafactualbenefitmustbeshownandthatthisbenefitis
availabletothepublicorasectionofthepublic,soeventhoughthereisnopersonalnexusitmuststillbe
establishedthatthepublicbenefittesthasbeensatisfied.141 So,forexample,ifthecharitablepurposerelatesto
research,thisneedstobedisseminatedandnotrestrictedtotheuseoftheresearcherortothemembersofa
particularsociety.142
Whereeligibilitytoobtainthebenefitsofthecharityarerestricted,thisdoesnotmeanthatthebenefitisnolonger
availabletoasectionofthepublic,aslongastherestrictionisreasonableandisnotbasedonapersonalnexus.
So,forexample,ascholarshiptostudyataparticularschooloruniversitymaylegitimatelyberestrictedtopeople
fromaparticulartownortopeoplewhoattainacertainlevelofacademicachievement,butitcannotberestricted
torelativesofthedonor.
(b)Publicschools
Amatteroflongstandingcontroversyhasrelatedtothesatisfactionofthepublicbenefitrequirementbypublic
schoolsintheUK.Charitablestatusisveryimportanttosuchschoolsbecauseitprovidessignificantfiscal
advantages.About5percentoftheschoolpopulationinEnglandandWalesattendaprivateschool,andtheir
familiespayanaveragefeeof12,000peryear.Whethersuchschoolssatisfybothelementsofthepublicbenefit
requirementwasconsideredbytheUpperTribunalinTheIndependentSchoolsCouncilvTheCharity
CommissionforEnglandandWales.
TheIndependentSchoolsCouncilvTheCharityCommissionforEnglandand
Wales[2011]UKUT421(TCC)[2012]Ch214,[111]
Educationaltrustsofanordinarysortareseenasbeingforthepublicbenefitinthefirstsense[of
beingbeneficial]becauseofthevaluetosocietyofhavinganeducatedpopulation.Itisnomoreandno
lessofbenefittothecommunityinthecaseofarichpersonthanapoorperson.Thusthetrust
inOppenheimvTobaccoSecuritiesTrustCoLtd[1951]AC297isproperlytobeseenasforthe
benefitofthecommunityinthefirstsensebutitfailedtobeacharitabletrustbecauseitwasaprivate
trustlackingthenecessaryelementofpublicbenefitinthesecondsense[relatingtotheidentification
ofthepublicorasectionofthepublic].Accordingly,ifaneducationalinstitutionsuchasweare
concernedwithfailstobeforthepublicbenefitbecauseitislimited,eitherconstitutionallyorin
practice,toprovidingbenefitstotherich,thiswillbesobecause,andonlybecause,itfailstobefor
thebenefitofasufficientsectionofthepublic.
Wethuslocatetheneedtoincludethepoorwithinthepublicbenefitrequirementinitssecondsense
wethereforereachtheconclusionthattheschoolswithwhichweareconcerneddohavepurposes
whichareforthepublicbenefitinthefirstsense
(p.217) Weareconcernedwithwhethertherich(bywhichwemeanthoseabletoaffordtheschool
fees)areasufficientsectionofthecommunity
Weconcludefromourexaminationoftheauthoritiesthatthehypotheticalschooladdressedinthe
reference(iewherethesoleobjectoftheschoolistheadvancementoftheeducationofchildren
whosefamiliescanaffordtopayfeesrepresentingthecostoftheprovisionoftheireducation)doesnot
havepurposeswhichprovidethatelementofpublicbenefitnecessarytoqualifyasacharity.Sucha
schoolhaspurposeswhichthereforefailtosatisfythepublicbenefittestunderthe[Charities]Act.(As
wenotelater,suchaschoolisinpracticeunlikelytoexist.)
Thisconclusionisbasedonthepropositionthatatrustwhichexcludesthepoorfrombenefitcannot
beacharity.Thereisnocasewhichdecidesthatpoint,butweconsideritisrightasamatterof
principle,giventheunderlyingconceptofcharityfromearlytimes
Itisalsoimplicitinourconclusionthatitiscorrecttolookbeyondthebeneficiaryconcernedtoseeif
thepoorareexcluded.Wewouldexpectthatveryfewofthechildrenwhoattendprivateschoolshave
theirownresourcestopaytherequisitefees.Itcannot,wethink,berighttofocusonthechildren
themselvesinaddressingthisissue.Althoughthestudentsthemselvesarethedirectbeneficiariesof
theeducation,theybenefitonlybecausetheirfamiliescanaffordtopay.JustasinInlandRevenue
CommissionersvEducationalGrantsAsssociationLtd[1967]Ch993itwasrighttolookbeyondthe
childrentotheirparentsandsoontoMetalBoxinascertainingwhethertherewaspublicbenefit,so
tooitisrighttolookbeyondthestudentstotheirparentsorotherfamilymemberspayingthefees,
toseewhethertheprovisionofbenefitbytheschoolistoapoorperson.
Itisonethingtotreatastudentandhisfamilyastherelevantentityforassessingwhetherthestudent
ispoor.Itwouldbeanotherthingtoaffordthesametreatmenttoastudentwhohadmanagedto
acquirefundingfromathirdpartysource.Howthatfundingistobebroughtintoaccountinassessing
whetherthestudentispoorwill,inourview,dependonthesource.
Atoneendofthescale,fundingfromanemployerisreceivedbythestudentasapurelyprivatebenefit
which,wethink,oughtgenerallytobebroughtintoaccount.Theschoolcouldnotrelyoneducating
suchstudentsasprovidingabenefittothepoor.
Attheotherendofthescale,fundingfromagrantmakingeducationalcharitytoachildinafamily
whichispoorbyanystandardisabenefitreceivedbythestudentnotasaprivatebenefitbutasa
resultoftheimplementationbythegrantmakingbodyofpurposeswhichareforthepublicbenefit.It
seemstousthattheschooloughttobeabletotreattheeducationofthatstudentastheprovisionof
directbenefittoapersonwhoispoor.Ofcourse,fromtheschoolspointofview,itmakesno
differencetoitsfinanceswhetherthefeescomefromthefamily,athirdpartyoracharity.Butthatis
notthepointthepointiswhethertheschooliseducatingpoorpeopleand,intermsoftheaccessto
schools,whichisamostimportantconsiderationfromtheperspectiveofthepublic,apoorpersonin
receiptofagrantisnonethelesspoor.Thecontraryviewcouldproducestartlingresults.Some
schoolshavelargeendowmentsoutofwhichtheyareabletoprovidesignificantnumbersof
substantialscholarships,thusenablingthemtoopenuptheiraccesstopersonswhocouldnot
otherwiseaffordtoattendtheschool,includingpoorstudentsItcannotberight,weconsider,that
theschoolisunabletorelyonitsownprovisionofeducationtopoorstudentsreceivingscholarships
fromsuchendowmentsasadirectbenefittopersonswhoarepoorinthecontextofitsowntrusts
andduties
Wenowturntoconsideraschoolwhich,asamatterofitsconstitution,canadmitstudentswhatever
theirabilitytopay,butasamatteroffact(whetherbecauseofapolicyofacceptingonlyfeepaying
studentsorbecauseofsomefinancialimperative)doesnotdoso.Thefirstquestionwhichthenarises
iswhethersuchaschoolisestablishedforcharitablepurposesonly
Whereaschoolis,byitsconstitution,opentoall,weconsiderthat,generallyspeaking,itis
establishedforcharitablepurposesonly.Thatsuchaschoolischaritablemaybemadeclear
expresslybyits(p.218) constitution,forinstancebystatingthatitspurposesmayonlybeeffected
inawaywhichisforthepublicbenefitorsomesuchwords.Butevenintheabsenceofsuchwords,
itwilloftenbeimplicitthatsuchaschoolwillcarryoutitsexpresspurposesinawaywhichisforthe
publicbenefit
Itisinthiscontextofactivitiesthatindirectbenefitsandwiderbenefitsfalltobetakenintoaccount
aspartofthepublicbenefitrequirement.Many,andprobablymostalthoughnotall,schoolsofthe
typewithwhichweareconcernedprovidebenefitsotherthaneducationtothosewhopayfullfees.
Thosebenefitsincludesomeorallofthefollowing:(a)provisionofscholarshipsandbursaries(b)
arrangementsunderwhichstudentsfromlocalstateschoolscanattendclassesinsubjectsnot
otherwisereadilyavailabletothem(c)sharingofteachersorteachingfacilitieswithlocalstate
schools(d)makingavailable(whetherontheinternetorotherwise)teachingmaterialsusedinthe
school(e)makingavailabletostudentsoflocalstateschoolsotherfacilitiessuchasplayingfields,
sportshalls,swimmingpoolsorsportsgrounds(f)makingthoselastfacilitiesavailabletothe
communityasawhole.
Category(a)isadirectbenefit.Categories(b)to(e)willbedirectorindirectbenefits,dependingonthe
preciseconstitutionoftheschool.Theymightalsobewiderbenefits.
Category(f)isnotadirectbenefitoranindirectbenefitorevenawiderbenefitinthesenseinwhichwe
areusingthoseterms
Whenitcomestoconsideringwhetheraschoolwhichisacharityisoperatingforthepublicbenefitin
accordancewithitscharitablepurposes,theprimaryfocusmustbeonthedirectbenefitswhichit
provides.Scholarshipsorotherformsofdirectassistancetostudentsarethereforeimportant.Account
cancertainlybetakenofotherdirectbenefitssuchasthosedescribedincategories(b)and(c).
Accountcanbetakenofthebenefitsdescribedincategory(d)sincetheyareclearlyavailabletothe
wholecommunityhowever,itmustbeverydoubtfulwhethermuchweightcanbeattachedtoabenefit
whichmustbecomparativelyeasytoprovideatlittlecostandtheeffectofwhichseemstous,onthe
evidencewehave,veryuncertain.
weconsiderthatthebenefitsdescribedincategory(e)aretobetakenintoaccountindeciding
whetheraschoolwhichisacharityisoperatingforthepublicbenefit.
Wedonot,however,considerthatbenefitsofthesortdescribedincategory(f)canbetakeninto
account.Thefactthatanancillaryactivitymaybeagoodthingfortheschoolisnotenough.The
ancillaryactivityisnotitselfbeingcarriedoutinfulfilmentofthecharitablepurpose,namelythe
advancementofeducation.
wehavealreadydecidedthataschoolwhichisrequiredbyitsgoverninginstrumenttoadmitonly
thosewhosefamiliesareabletoaffordfeesisonewhichexcludesthepoorandisnotthereforeforthe
publicbenefit.Itmightthereforebeaskedwhytheprovisionofanumberofscholarshipstopoor
studentscouldeverbeenoughtoprotectitscharitablestatus.ByanalogywithOppenheimvTobacco
SecuritiesTrustCoLtd[1951]AC297andInlandRevenueCommissionersvEducationalGrant
AssociationLtd[1967]Ch993,itmightbearguedasfollows:(a)aschoolfortherichisnotcharitable
becausethetrustforthatclass,excludingthepoorasitdoes,isnotforthepublicbenefit(justasthe
beneficiariesinOppenheimscasewerenotasufficientsectionofthecommunity)(b)acharitable
trustwhichinfactselectsbeneficiariesbyreferencetotheirmembershipofsuchaclasswouldnotbe
operatingforthepublicbenefit(justasintheEducationalGrantsAssociationLtdcasethebeneficiaries
wereselectedfromaclasswhichwastoonarrowandtheincomeappliedtothemwasnotappliedfor
charitablepurposesonly)and(c)theprovisionofscholarshipstosomepoorstudentsdoesnotturn
thenoncharitableapplicationoffundstotherichintoacharitableapplicationforthebenefitofthe
public.Inotherwords,itisnotpossibletoturnanoncharitableoperationoftheschoolintoa
charitableonebyprovidingsomebenefitswhichareforthepublicbenefit
Propositions(a)and(b)dohaveconsiderableforceinadifferentcontext.Consideraneducational
grantmakinginstitutionratherthanaschool.Clearly,suchaninstitutionwouldnotbeacharityifits
constitutionrequiredittoprovidegrantsonlytoaclasswhichexcludedthepoor,eg,toreimburse
school(p.219) feesofthosewellabletoaffordthem.Butsupposethatitsconstitutionallowsgrants
tobemadetoall,regardlessofmeans,sothatitcanaseasilyprovideagranttothepoorastothe
rich.Supposethat,inawaysimilartoEducationalGrantsAssociationLtd,itgives,say,10%ofits
incometothepoorbutgives90%toreimbursethosesameschoolfees.Itwouldbeanalmost
inevitableconclusiononthosefactsthattheselectionofthosetoreceivethe90%wasbeingcarried
outnotforthepublicbenefitbutforthebenefitofaclasswhichexcludesthepoor.Itwouldnotbea
properimplementationoftheinstitutionscharitableobjects.
Buttheschoolswithwhichweareconcernedareinaverydifferentposition.Thoseschoolscannotas
easilyadmitonepersonasanother.Whoaschoolisabletoadmitdependsonthefinancialstateof
theschool,thesizeofitsendowmentandthewayinwhichthoserunningtheschoolchooseto
prioritiseexpenditureeg,onprovidingscholarshipsorkeepingclasssizesdownbyemployingmore
staffandthefacilitieswhichitprovides.Itisnecessaryforalloftheschoolstochargefees.Theydo
not,itseemstous,choosethemajorityoftheirstudentsbecauseofapreferenceforstudentswho
haveasacharacteristicanabilitytopayfeestheydosobecausetheycannotaffordnottochoose
suchstudents.And,ofcourse,thechargingoffeesdoesnot,aswehaveseen,persepreclude
charitablestatus.
Thesepracticalconstraintsonfreeselectionmeanthatthepositionofschoolsisverydifferentfrom
thepositionoftheassociationintheEducationalGrantsAssociationLtdcase.Indeed,theclassof
thoseabletopayfeesisdifferentinnaturefromthetypeofprivateclassconsidered
inOppenheimscaseandtheEducationalGrantsAssociationLtdcase.Thereisnonexusatallthere
issimplyasharedcharacteristicwhichnecessarilyexcludesthepoor.Thusthosecasesdonotreally
lendanysupporttotheargument.
wereturntowhataschoolhastodoifitistooperateforthepublicbenefit.Nobodyhas
suggestedthatfeepayingschoolsarenotentitledtocharitablestatusprovidedthattheydoenoughto
promoteaccesswhetherbywayofscholarships,bursariesorotherprovision,butpayingregardtothe
needtochargefeestooperateatall.Nobodycomplainsthattheschoolsareeducatingfeepaying
studentstheconcernisthattheymustbeseentobedoingenoughforthosewhocannotaffordfees.
Thisisanimportantdistinction,becauseitlocatesthefailuretoactinthepublicbenefitasbeingthe
makingofinadequateprovisionforaccessbyandbenefitsforcertainsubclassesofthepotential
beneficiaryclass,thewholeclassbeingthestudentcommunityatlarge.Itmaybethecasethatifa
schoolwhichfailstomeetthepublicbenefitrequirementhadinsteadmademoreprovisionforpoor
studentsthatwouldhavemeantthattherewasroomforfewerfeepayingstudents,sosomefee
payingstudentsmaybesaidtoreceivetheireducationatthepriceoftheschoolsfailuretooperatein
accordancewithitscharitableobjects.Butitdoesnotfollowfromthatthattheprovisionofeducation
forthevastmajorityoffeepayingstudentsisinanywaybeyondtheschoolscharitableobjects.In
otherwords,evenafeepayingstudentwouldbereceivingbenefitsnotasamemberofsome
inappropriateclassbutasamemberofthegeneralbodyofpotentialbeneficiariesalthoughwehave
justdescribedtheinadequateprovisionforthepoorasafailuretoactforthepublicbenefit,inasense
eventhatisnotentirelyaccurate.Sinceprovisionofeducationtofeepayingstudentsbyaschoolwith
charitablestatusis,ofitself,forthepublicbenefit,aschoolmakingmorethandeminimisortoken
provision,couldsaythattheentiretyofitsactivitieswereforthepublicbenefit.Butforreasonsgivenin
thenextparagraph,wedonotconsiderthattobecorrect.Accordingly,whenwerefertoaschool
failingtoactforthepublicbenefit,wemeanthatitismakinginadequateprovisionotherthanthe
provisionofeducationtofeepayingstudents.
Inrelationtothat,thereisonepointofprinciplewhichwecanandshouldresolve.Therearetwo
mutuallyexclusivepossibilitiesforassessingwhetherthepublicbenefitrequirementissatisfied.(1)
Thefirstisthatthetestissatisfiediftheschoolprovidessomebenefitforthepoorwhichismorethan
ademinimisbenefit,oratokenbenefitfortheschooltobeabletopointatinorder,asitwere,tocock
asnookattheCharityCommission.Thejustificationforthisapproachwouldbethatitisthedefacto
exclusionofthepoorwhichpreventstherebeingthenecessaryelementofpublicbenefitsothatonce
somebenefitisprovidedforthepoorhoweversmallprovidedthatitismorethandeminimisora(p.
220) tokenbenefitalloftheschoolsactivities,includingeducationoffeepayingstudentscanbe
takenintoaccountaspartofthepublicbenefitprovided.(2)Thesecondapproachistoapplyamore
factsensitiveassessment.Itistolookatwhatatrustee,actingintheinterestsofthecommunityas
awhole,woulddoinallthecircumstance[s]oftheparticularschoolunderconsiderationandtoask
whatprovisionshouldbemadeoncethethresholdofbenefitgoingbeyondthedeminimisortoken
levelhadbeenmet.
Weconsiderthatthesecondapproachiscorrect.Eachcasemustdependonitsownfacts.Itisan
approachwhichisnot,wereadilyacknowledge,withoutdifficultyofapplicationand,ofitsnature,it
makesitverydifficulttolaydownguidelinesitisnecessarytolookatthefactsofeachcaseandto
treatthematterasoneofdegree:theprocessisoneofreachingaconclusiononageneralsurveyof
thecircumstancesandconsiderationsregardedasrelevantratherthanofmakingasingleconclusive
test.
Theverynatureofthisapproachmeansthatitisnotpossibletobeprescriptiveaboutthenatureofthe
benefitswhichaschoolmustprovidetothepoornortheextentofthem.Itisforthecharitytrusteesof
theschoolconcernedtoaddressandassesshowtheirobligationsmightbestbefulfilledinthecontext
oftheirownparticularcircumstances.Notallofthebenefitswhichtheschoolprovidestothoseother
thanstudentspayingfullfeesneedtobeforthepoor.Weseenoreasonwhytheprovisionof
scholarshipsorbursariestostudentswhocanpaysome,butnotall,ofthefeesshouldnotbeseen
asforthepublicbenefit.Providedthattheoperationoftheschoolisseenoverallasbeingforthepublic
benefit,withanappropriatelevelofbenefitforthepoor,asubsidytothenotsowelloffistobetaken
accountofinthepublicbenefit.Itiscertainlyourviewthatintherightcircumstances,remissionof
feesforanexistingstudentwhohasbecomeunabletomeetanyofthefeesduetochanged
circumstances,shouldbeseenasbeingnotonlyforthepublicbenefitbutasabenefitprovidedtoa
personwhohasbecomepoor
Althoughitisnecessarythattheremustbemorethanademinimisortokenbenefitforthepoor,once
thatlowthresholdisreached,whatthetrusteesdecidetodointherunningoftheschoolisamatter
forthem,subjecttoactingwithintherangewithinwhichtrusteescanproperlyact.Thatissomething
entirelydifferentfromimposingonthetrusteestheviewofanyoneelseaboutwhatisreasonable.In
somecircumstances,itmaybethatthetrusteeswouldbeactingproperlyiftheyprovidedaquite
modestbenefitforthepoorinexcessofthedeminimislevel.Thepublicbenefitrequirementapplicable
totheschoolwouldthenbefulfilledandinthatcontext,werepeatthatprovisionofeducationtothe
fullfeepayingstudentsisitselfforthepublicbenefit.TheerroroftheapproachoftheCharity
Commissionaswereadtheguidanceistoviewthepublicbenefittestassatisfiedif,andonlyif,the
provisionforthepoororasitmightsay,forthosewhocannotpayfeesisreasonable.
Itfollowsthat,whetheraparticularschoolhadprovidedmorethanameretokenpublicbenefitisamatterforthe
trusteestodetermineandwilldependontheschoolsparticularcircumstances.
(c)Politicalpurposes
Anotherwisevalidpurposefortheadvancementofeducationwillnotbecharitableifitinvolvespolitical
propagandamasqueradingaseducation,sincethetrustwillnotthenbeexclusivelycharitable.143
Wehavealreadyseenthatapoliticalpurposeisonethatrelatestoapoliticalparty,ortochangesinlawor
policy.144 Thedividinglinebetweenneutraleducationincertainpoliticalprinciplesandpartisaneducationin
supportofapoliticalpartyissometimesdifficulttodraw,butatrustforeducationaboutpartypoliticalprinciplesor
dogmawillnotbecharitable.InReHopk inson,145 atrustwasdeclaredfortheadvancementofadulteducation
withparticularreferencetotheeducation(p.221) ofmenandwomenofallclasses(onthelinesoftheLabour
PartysmemorandumheadedANoteonEducationintheLabourParty)toahigherconceptionofsocial,
politicalandeconomicideasandvaluesandofthepersonalobligationsofdutyandservicewhicharenecessary
fortherealisationofanimprovedandenlightenedsocialcivilisation.Inholdingthisnottobecharitable,VaiseyJ
said:146
Inmyjudgment,therearetwowaysofreadingthe[wordsinthetrustinstrument].Theymayberead,first,
asequivalenttoageneraltrustfortheadvancementofadulteducationwhich,standingalone,would
admittedlybecharitable,thesuperaddedpurposebeingtreatedmerelyasaroughguidetobefollowedor
asahinttobetakenastothekindofadulteducationwhichthetestatorhadinmind,thestrictly
educationalmainpurposealwaysbeingadheredto,or,secondly,theymaybereadasindicatingthatthe
firstpartistobetakenasageneraldirectionandthesecondpartbeginningwiththewordswithparticular
referencetoastheparticulardirectiondominatingthewholeofthetrust.Thesecondofthesealternative
viewsseemstometobetherightone.Ithinkthattheparticularpurposeisthemainpurposeofthetrust,
thatistosay,whileeveryoranykindofadulteducationiswithinthediscretionreposedintheresiduary
legatees,theparticularpurposereferredtois,sotospeak,theoverridingandessentialpurpose,onthe
natureofwhichthevalidityofthewholetrustdepends.
InSouthwoodvAttorneyGeneral,147 atrusttoadvancetheeducationofthepublicaboutdisarmamentwasheld
nottobecharitablebecausethemainpurposewaspolitical,inthesenseofseekingachangeingovernment
policy,andthecourtwasnotinapositiontodeterminewhetherunilateraldisarmamentwasforthepublicbenefit.
ChadwickLJsaid:148
Thereisnoobjectiononpublicbenefitgroundstoaneducationalprogrammewhichbeginsfromthe
premisethatpeaceisgenerallypreferabletowar.Formypart,Iwouldfinditdifficulttobelievethatany
courtwouldrefusetoaccept,asageneralproposition,thatitpromotespublicbenefitforthepublictobe
educatedtoanacceptanceofthatpremise.Thatdoesnotleadtotheconclusionthatthepromotionof
pacifismisnecessarilycharitable.Thepremisethatpeaceisgenerallypreferabletowarisnottobe
equatedwiththepremisethatpeaceatanypriceisalwayspreferabletoanywar.
Iwouldhavenodifficultyinacceptingthepropositionthatitpromotespublicbenefitforthepublictobe
educatedinthedifferingmeansofsecuringastateofpeaceandavoidingastateofwar.Thedifficulty
comesatthenextstage.Therearedifferingviewsastohowbesttosecurepeaceandavoidwar.Togive
twoobviousexamples:ontheonehanditcanbecontendedthatwarisbestavoidedbybargainingthrough
strengthontheotherhanditcanbeargued,withequalpassion,thatpeaceisbestsecuredby
disarmamentifnecessary,byunilateraldisarmament.Thecourtisinnopositiontodeterminethat
promotionoftheoneviewratherthantheotherisforthepublicbenefit.Notonlydoesthecourthaveno
materialonwhichtomakethatchoicetoattempttodosowouldbetousurptheroleofgovernment.So
thecourtcannotrecogniseascharitableatrusttoeducatethepublictoanacceptancethatpeaceisbest
securedbydemilitarizationNor,conversely,couldthecourtrecogniseascharitableatrusttoeducate
thepublictoanacceptancethatwarisbestavoidedbycollectivesecuritythroughthemembershipofa
militaryalliancesay,NATO
[Thetrusts]objectisnottoeducatethepublicinthedifferingmeansofsecuringastateofpeaceand
avoidingastateofwar.[Thetrusts]objectistoeducatethepublictoanacceptancethatpeaceisbest
securedbydemilitarisation.Itisbecausethecourtcannotdeterminewhetheror(p.222) notit
promotesthepublicbenefitforthepublictobeeducatedtoanacceptancethatpeaceisbestsecuredby
demilitarisationthat[thetrusts]objectcannotberecognisedascharitable.
Itwouldhavebeendifferentifthetrustspurposehadbeenmorebalancedandlesspartisan.Forexample,inRe
KoepplersWillTrust,149 thetrustsoughttoeducatethepublicinthedifferingwaysofsecuringpeaceand
avoidingwar,butnoparticularpoliticalstancewasadopted,andthetrustwasintendedtofacilitategenuine
discussionandthetradingofideas.SladeLJsaid:150
inthepresentcase,asIhavealreadymentioned,theactivitiesarenotofapartypoliticalnature.Nor,so
farastheevidenceshows,aretheydesignedtoprocurechangesinthelawsorgovernmentalpolicyofthis
oranyothercountry:evenwhentheytouchonpoliticalmatters,theyconstitute,sofarasIcansee,no
morethangenuineattemptsinanobjectivemannertoascertainanddisseminatethetruth.Inthese
circumstancesIthinkthatnoobjectionstothetrustariseonapoliticalscoreThetrustis,inmyopinion,
entitledtowhatissometimescalledbenignantconstruction,inthesensethatthecourtisentitledto
presumethatthetrusteeswillonlyactinalawfulandpropermannerappropriatetothetrusteesofa
charityandnot,forexample,bythepropagationoftendentiouspoliticalopinions.
Theidentificationofpoliticalpurposeshasbeenofparticularsignificanceasregardstheoperationofstudents
unionsofcollegesanduniversities.Suchunionsarecharities,sincetheyhaveacharitablepurposeconnected
withtheadvancementofeducation,byfosteringandrepresentingtheinterestsofstudentstofurtherthe
educationalpurposesofthecollegeoruniversity.However,theymustoperateforthepublicbenefit.Consequently,
suchorganizationsmustnotusetheirfundsforpoliticalpurposes.Thereisafinelinebetweenwhatisandisnot
acceptablepoliticalcampaigningbystudentsunions.151 Asabasicrule,ifthecampaigningrelatestoanissue
thatfurtherstheinterestsofthestudentsofthatunioninawaythatassistsintheeducationalaimsofthe
universityorcollege,thenitwillnotbeapoliticalpurpose.Butastudentunionwasrestrainedfrommaking
paymenttoapublicitycampaignagainsttheabolitionoffreemilkforschoolchildren152 andanotherwas
restrainedfrommakingpaymentstotheNationalStudentCommitteetoStopWarintheGulf,153 since,inboth
cases,thecampaignwasnotrelatedtotheinterestsofthestudentsofthoseparticularunions.Inthelattercase,
HoffmannJsaid:
TheStudentUnionisaneducationalcharity.Itspurposesarewhollycharitableanditsfundscanbe
devotedtocharitablepurposesonly.Charitableeducationalpurposesundoubtedlyincludediscussionof
politicalissues:AGvRoss[1986]1WLR252at263,perScottJ.Thereis,however,acleardistinction
betweenthediscussionofpoliticalmatters,ortheacquisitionofinformationwhichmayhaveapolitical
content,andacampaignonapoliticalissue.Thereisnodoubtthatcampaigning,inthesenseofseeking
toinfluencepublicopiniononpoliticalmatters,isnotacharitableactivity.Itis,ofcourse,somethingwhich
studentsare,liketherestofthepopulation,perfectlyatlibertytodointheirprivatecapacities,butitisnot
aproperobjectoftheexpenditureofcharitablemoney.
(p.223) Fundscould,however,bespentoncampaignstoimprovestreetlightingnearthecampusorto
demonstrateagainsttuitionfees,sincethisaffectstheinterestsofthebeneficiariesofthecharity.
(c)AdvancementofReligion
Therecognitionoftheadvancementofreligionasacharitablepurposederivesfromnothingmorespecificthanthe
inclusioninthePreambletotheCharitableUsesAct1601oftherepairofchurches.Theconceptof
advancementofreligionhasbeenexpandeddramaticallysincethen.Whenconsideringwhetheracharitys
purposeinvolvestheadvancementofreligionitisimportanttoconsiderthedefinitionofbothadvancementand
religion.
(a)Religion
Overtheyears,variouscharitiesrelatingtoChristiandenominationshavebeenrecognizedasinvolvingthe
advancementofreligion,includingtheChurchofEngland,nondenominationalchurches,theCatholic
religion154 andtheUnificationChurch.155 InThorntonvHowe,156 atrustforthepublicationoftheworksofJoanna
Southcotewasconsideredtobefortheadvancementofreligion,JoannaSouthcotehavingclaimedthatshewas
withchildbytheHolyGhostandwouldgivebirthtoasecondMessiah.Afaithhealingmovementhasalsobeen
heldtoinvolvetheadvancementofreligion.157 Otherreligionshavebeenrecognizedaswell,includingcharities
relatingtotheadvancementofJudaism158 andIslam.
TheinterpretationofreligionwasbeenwidenedevenfurtherbytheCharitiesAct2011.
CharitiesAct2011
3.(2)Insubsection(1)159
(a)inparagraph(c)religionincludes
(i)areligionwhichinvolvesbeliefinmorethanonegod,and
(ii)areligionwhichdoesnotinvolvebeliefinagod.
ItfollowsthattrustsfortheadvancementofBuddhism,Hinduism,andSikhismclearlyinvolvetheadvancementof
religion.
Thecourtshaveheldthatcertainbeliefsystemscannotbecharacterizedasreligious.So,forexample,inRe
SouthPlaceEthicalSociety,160 theobjectsoftheSocietywerethestudyanddissemination(p.224) ofethical
principlesandthecultivationofarationalreligioussentiment.DillonJ,inholdingthatthiswasnotforthe
advancementofreligion,161 said:162
Inafreecountryitisnaturalthatthecourtshoulddesirenottodiscriminatebetweenbeliefsdeeplyand
sincerelyheld,whethertheyarebeliefsinagodorintheexcellenceofmanorinethicalprinciplesorin
Platonismorsomeotherschemeofphilosophy.ButIdonotseethatthatwarrantsextendingthemeaning
ofthewordreligionsoastoembraceallotherbeliefsandphilosophies.Religion,asIseeit,isconcerned
withmansrelationswithGod,andethicsareconcernedwithmansrelationswithman.Thetwoarenot
thesame,andarenotmadethesamebysincereinquiryintothequestion:whatisGod?Ifreasonleads
peoplenottoacceptChristianityoranyknownreligion,buttheydobelieveintheexcellenceofqualities
suchastruth,beautyandlove,orbelieveinthePlatonicconceptoftheideal,theirbeliefsmaybetothem
theequivalentofareligion,butviewedobjectivelytheyarenotreligion.Thegroundoftheopinionofthe
court,intheUnitedStatesSupremeCourt,thatanybeliefoccupyinginthelifeofitspossessoraplace
paralleltothatoccupiedbybeliefinGodinthemindsoftheistspromptsthecommentthatparallels,by
definition,nevermeet.
AlthoughDillonJindicatedthatreligionrequiredfaithinagodandworshipofthatgod,thisisnowinconsistent
withthestatutorydefinitionofreligion.Butevenwiththenewstatutorydefinitionofreligion,atrustforthe
advancementofethicalprinciplesorhumanismwouldappearnottobeatrustfortheadvancementofreligion,
sincetherestillneedstobeabeliefinsomeformofsupremebeingorentitythatisworshipped,venerated,or
revered,althoughotherheadsofcharitymayberelevant,suchastheadvancementofeducation.
Perhapsmorecontentiously,isScientologyareligion?In1999,theCharityCommission163 decidedthatthe
ChurchofScientologyshouldnotberegisteredasacharity.Itconcludedthat:
ScientologyisnotareligionforthepurposesofEnglishcharitylaw.Thatreligionforthepurposesofcharity
lawconstitutesbeliefinasupremebeingandworshipofthatbeing.ThatitisacceptedthatScientology
believesinasupremebeing.However,thecorepracticesofScientology,beingauditing164 and
training,165 donotconstituteworshipastheydonotdisplaytheessentialcharacteristicofreverenceor
venerationforasupremebeing.
InAustralia,however,Scientologyhasbeenheldtobecharitable.166 Itislikelythattheeffectofthewider
definitionofreligionundertheCharitiesAct2011willmeanthatScientologymightnowbeclassedasareligion,
sincethereisnolongeranyneedforabeliefinasupremebeing.Butthisconclusionisnotinevitablegiventhe
lackofworshipinvolveditisunclearwhetherauditingandtrainingwillbeconsideredtobepracticesofa
religion.Inanyevent,itwillstillbenecessarytoestablishpublicbenefit,whichwasafurtherreasonwhythe
CharityCommissionrefusedtoregisteritasacharityin1999.Itstillhasnotbeenregistered,presumablyforthat
reason.167
(p.225) TheCharityCommissiondecidedthattheGnosticCentrefortheadvancementofGnosticism,under
whichthefollowersbelievethattheworldwascreatedbyalessergodandthetrueGodisahigherbeing,wasnot
charitablebecausetherewasnoevidenceoftheteachingofaclearandidentifiablemoralframework.168 Thisisa
newrequirementthathadnotpreviouslybeenrecognizedinthecaselawandappearstoinvolvetheCharity
Commissionoverreachingitsjurisdiction.169 TheDruidCentre,whichpromotespaganism,has,however,been
consideredcharitableasadvancingreligion,becauseofthepromotionofethicalcodes,170 relatingprimarilytothe
preservationofancientmonuments.
(b)Advancement
Theadvancementofreligionhasbeendefinedastakingpositivestepstopromoteorspreadreligiousbelief.171 It
wasbecausefreemasonrydoesnotdothisthatitwasheldnottoinvolvetheadvancementofreligion.
UnitedGrandLodgeofAncientFreeandAcceptedMasonsofEnglandvHolborn
BoroughCouncil[1957]1WLR1080,1090(DonovanJ)
Accordingly,onecannotreallybegintoarguethatthemainobjectoffreemasonryistoadvance
religion,exceptperhapsbysayingthatreligioncanbeadvancedbyexampleaswellasbyprecept,so
thatthespectacleofamanleadinganuprightmorallifemaypersuadeotherstodolikewise.The
appellantsdidnotinfactadvancethisargument,butevenifitwereaccepted,itleadstonouseful
conclusionhere.Foramanmaypersuadehisneighbourbyexampletoleadagoodlifewithoutatthe
sametimeleadinghimtoreligion.Andthereisnothingintheconstitution,nor,apparently,inthe
evidencetenderedtotheappealscommittee,tosupporttheviewthatthemainobjectofmasonryisto
encouragemasonstogooutintheworldandbytheirexampleleadpersonstosomereligionor
another.
Whenoneconsiderstheworkdonebyorganizationswhichadmittedlydosetouttoadvancereligion,
thecontrastwithmasonryisstriking.Toadvancereligionmeanstopromoteit,tospreaditsmessage
everwideramongmankindtotakesomepositivestepstosustainandincreasereligiousbeliefand
thesethingsaredoneinavarietyofwayswhichmaybecomprehensivelydescribedaspastoraland
missionary.Thereisnothingcomparabletothatinmasonry.Thisisnotsaidbywayofcriticism.For
masonryreallydoessomethingdifferent.Itsaystoaman,whateveryourreligionoryourmodeof
worship,believeinaSupremeCreatorandleadagoodmorallife.Laudableasthispreceptis,itdoes
notappeartoustobethesamethingastheadvancementofreligion.Thereisnoreligiousinstruction,
noprogrammeforthepersuasionofunbelievers,noreligioussupervisiontoseethatitsmembers
remainactiveandconstantinthevariousreligionstheymayprofess,noholdingofreligiousservices,
nopastoralormissionaryworkofanykind.
BeforetheenactmentoftheCharitiesAct2011,allcharitabletrustsfortheadvancementofreligionwere
presumedtobebeneficial.Now,thishastobeprovenbyevidencethatisacceptabletothecourtthefaithofa
particularreligionthatprayerandintercessionwillconferabenefitonthepublicisnotsufficient.172 Itseemsthat
theconceptofpublicbenefitunderthisheadissimilartothatinthecaseofeducation,butnotidentical,173 since,
whilstthepupilsofaprivateschoolmayformasectionofthepublicforthepurposesofeducation,thesameis
nottrueofthemembersofacloisteredorderinthecontextofreligion.ThiswasrecognizedbytheHouseofLords
inGilmourvCoats.174 AgiftwasmadeintrustforaCarmelitePriory.ThePriorywasacommunityofstrictly
cloisterednuns,whodevotedtheirlivestoprayer,contemplation,penance,andselfsanctification.Theyengaged
innoworksoutsidetheconvent.ItwasheldthatthepurposesofthePriorylackedtheelementofpublicbenefit
thatwasnecessarytomakethemcharitable.
GilmourvCoats[1949]AC426(LordSimonds)
ItistheestablishedbeliefoftheRomanCatholicChurchthattheprayersandotherspiritual
penancesandexercises,inwhichthenunsengageforthebenefitofthepublic,infactbenefitthe
publicbydrawingdownuponthemgracefromGod,whichenablesthosewhoarenotyetChristiansto
embracetheChristianreligionandthosewhoarealreadyChristianstopractiseChristianitymorefully
andfruitfully,and,furtherthattheprayersandotherspiritualexercisesofthenunsarethemore
efficaciousbyvirtueofthefactthattheydevotetheirliveswithespecialdevotiontotheserviceofGod.
Itisthisbenefittoalltheworld,arisingfromthevalueoftheirintercessoryprayers,thattheappellant
putsintheforefrontofhercaseinurgingthecharitablepurposeofthetrust.
Norisitonlyontheintercessoryvalueofprayerthattheappellantreliesfortheelementofpublic
benefitintheirlives.ForitistheevidenceofCardinalGriffinandIdonotpausetoaskwhetheritis
evidenceoffactoropinionthatthepracticeofthereligiouslifebytheCarmelitenunsandother
religionsisasourceofgreatedificationtootherCatholicsandindeedininnumerablecasestonon
Catholicsleadingthemtoahigherestimationofspiritualthingsandtoagreaterstrivingaftertheir
ownspiritualperfectionandthattheknowledgethattherearemenandwomenwhoarepreparedto
sacrificeallthattheworldlyinmanholdsdearinordertoattainagreaterloveofGodandunionwith
Himinculcatesinthemagreaterestimationofthevalueandimportanceofthethingswhichareeternal
thantheywouldhaveiftheyhadnottheseexamplesbeforethem.Herethenisthesecondelementof
publicbenefitonwhichtheappellantrelies,theedificationofawiderpublicbytheexampleoflives
devotedtoprayer.
Iwillreserveforfinalconsiderationanargumentwhichwasnoturgedinthecourtsbelowthatthe
trustsdeclaredbythesettlementarebeneficialtothepublic,inthatqualificationforadmissiontothe
communityisnotlimitedtoanyprivategroupofpersonsbutanypersonbeingafemaleRoman
Catholicmaybeaccepted,andthereforethosetrustsprovidefacilitiesfortheintensifiedandmost
completepracticeofreligionbythosemembersofthepublicwhohaveavocationforit
Iturnthentothequestionwhether,apartfromthisfinalconsideration,theappellanthasestablished
thatthereisinthetrustswhichgovernthiscommunitytheelementofpublicbenefitwhichisthe
necessaryconditionoflegalcharity
(p.227) IneednotgobeyondthecaseofCock svManners(1871)LR12Eq574whichwasdecided

nearly80yearsagobyWickensVC.Inthatcasethetestatrixleftherresiduaryestatebetweena
numberofreligiousinstitutions,oneofthembeingtheDominicanConventatCarisbrooke,a
communitynotdifferinginanymaterialrespectfromthecommunityofnunsnowunderconsideration.
Thelearnedjudgeusedthesewords,whichIventuretorepeat,thoughtheyhavealreadybeencited
inthecourtsbelow(1871)LR12Eq574at585:
Avoluntaryassociationofwomenforthepurposeofworkingouttheirownsalvationby
religiousexercisesandselfdenialseemstometohavenoneoftherequisitesofacharitable
institution,whetherthewordcharitableisusedinitspopularsenseorinitslegalsense.Itis
said,insomeofthecases,thatreligiouspurposesarecharitable,butthatcanonlybetrueas
toreligiousservicestendingdirectlyorindirectlytowardstheinstructionortheedificationofthe
publicanannuitytoanindividual,solongashespenthistimeinretirementandconstant
devotion,wouldnotbecharitable,norwouldagifttotenpersons,solongastheylivedtogether
inretirementandperformedactsofdevotion,becharitable.ThereforethegifttotheDominican
Conventisnot,inmyopinion,agiftonacharitabletrust.
Nocase,saidthelearnedViceChancellor,hadbeencitedtocompelhimtocometoacontrary
conclusion,norhasanysuchcasebeencitedtoyourLordships.Norhavemyownresearches
discoveredone.ButsincethatdatethedecisioninCock svMannershasbeenacceptedandapproved
innumerouscases
ApartfromwhatIhavecalledthefinalargument,whichIwilldealwithlater,thecontentionofthe
appellantrestsnotonanychangeinthelivesofthemembersofsuchacommunityasthisnor,froma
wideraspect,ontheemergenceofanynewconceptionofthepublicgood,butsolelyonthefactthat
forthefirsttimecertainevidenceofthevalueofsuchlivestoawiderpublictogetherwithnew
argumentsbaseduponthatevidencehasbeenpresentedtothecourt.Neverbefore,itwasurged,has
thebenefittobederivedfromintercessoryprayerandfromedificationbeenbroughttotheattentionof
thecourtifithadbeen,thedecisioninCock svManners(1871)LR12Eq574would,oratleast
should,havebeenotherwise.IhaveexaminedtherecordsofCock svMannerswhichweresuppliedto
mebytheRecordOfficeandIfindthatthecasehasbeenfullyandaccuratelyreported.Therewasno
suchevidenceaswasadducedinthiscasebytheappellantandCardinalGriffin.Nor,asappearsfrom
thereport,wasanyargumentaddressedtothisspecificpointnoranyjudgmentonit.Whatweightis
tobeattributedtothis,whichisthemainstayoftheappellantscase?Tome,myLords,despitethe
admirableargumentof[counselfortheappellant],theweightisnegligible.TrueitisthatWickensVC
emphasisedthataspectofthereligiouslifewhichisadmittedlyitsmoreimportantaim,theloveand
contemplationofdivinethings(1871)LR12Eq574at585.Butitssecondaryaimtheapostolate,
particularlyallthatpertainstoourneighbourssalvation(Iusetheappellantswords)isnonewthing
andIcannotsupposethatitwasabsentfromthelearnedjudgesmindthatthose,whodevotetheir
livestoprayer,praynotforthemselvesalone,orthattheybelievethattheirprayersarenotinvain.
Nor,asIthink,canhehavebeenunawareoftheeffectwhichtheexampleoftheirlivesmayhaveupon
others.AsIventuretothink,theseaspectsofthecasewereneitherinsistedoninevidenceor
argumentnordiscussedbythelearnedjudgebecausetheydonotaffordanyrealsupportforthe
contentionthatthereisinthepurposeofthecommunitytheelementofpublicbenefitwhichisthe
conditionoflegalcharity.
MyLords,Iwouldspeakwithallrespectandreverenceofthosewhospendtheirlivesincloistered
piety,andinthisHouseofLordsSpiritualandTemporal,whichdailycommencesitsproceedingswith
intercessoryprayers,howcanIdenythattheDivineBeingmayinHiswisdomthinkfittoanswer
them?But,myLords,whetherIaffirmordeny,whetherIbelieveordisbelieve,whathasthattodowith
theproofwhichthecourtdemandsthataparticularpurposesatisfiesthetestofbenefittothe
community?Hereissomethingwhichismanifestlynotsusceptibleofproof.But,thenitissaid,thisis
amatternotofproofbutofbelief:forthevalueofintercessoryprayerisatenetoftheCatholicfaith,
thereforeinsuchprayerthereisbenefittothecommunity.ButitisjustatthisthereforethatImust
pause.Itis,nodoubt,truethatthe(p.228) advancementofreligionis,generallyspeaking,oneofthe
headsofcharity.Butitdoesnotfollowfromthisthatthecourtmustacceptasprovedwhatevera
particularchurchbelieves.Thefaithfulmustembracetheirfaithbelievingwheretheycannotprovethe
courtcanactonlyonproof.Agifttotwoortenorahundredcloisterednunsinthebeliefthattheir
prayerswillbenefittheworldatlargedoesnotfromthatbeliefalonederivevalidityanymorethandoes
thebeliefofanyotherdonorforanyotherpurpose
Iturntothesecondoftheallegedelementsofpublicbenefit,edificationbyexample.AndIthinkthat
thisargumentcanbedealtwithveryshortly.Itisinmyopinionsufficienttosaythatthisissomething
toovagueandintangibletosatisfytheprescribedtest.Thetestofpublicbenefithas,Ithink,been
developedinthelasttwocenturies.Todayitisbeyonddoubtthatthatelementmustbepresent.No
courtwouldberashenoughtoattempttodefinepreciselyorexhaustivelywhatitscontentmustbe.
Butitwouldassumeaburdenwhichitcouldnotdischargeifnowforthefirsttimeitadmittedintothe
categoryofpublicbenefitsomethingsoindirect,remote,imponderableand,Iwouldadd,controversial
asthebenefitwhichmaybederivedbyothersfromtheexampleofpiouslives.Theappellantcalledin
aidtheusebyWickensVCofthewordindirectlyinthepassagethatIhavecitedfromhisjudgment
inCock svManners(1871)LR12Eq574at585,butIseenoreasontosupposethatthatlearned
judgehadinmindanysuchquestionasyourLordshipshavetodetermine.
Itremainsfinallytodealwithanargumentwhich,asIhavesaid,wasnotpresentedtotheCourtof
Appealbutappearsintheappellantsformalcase.Itisthattheelementofpublicbenefitissuppliedby
thefactthatqualificationforadmissiontomembershipofthecommunityisnotlimitedtoanygroupof
personsbutisopentoanywomaninthewideworldwhohasthenecessaryvocation.Thus,itissaid,
justastheendowmentofascholarshipopentopubliccompetitionisacharity,soalsoisagiftto
enableanywoman(or,presumably,anyman)toenterafullerreligiouslifeacharity.Tothisargument
which,itmustbeadmitted,hasaspeciouslylogicalappearance,thefirstansweristhatwhichIhave
indicatedearlierinthisopinion.Thereisnonoveltyintheideathatacommunityofnunsmust,ifitis
tocontinue,fromtimetotimeobtainfreshrecruitsfromtheoutsideworldItisatritesayingthatthe
lawislife,notlogic.Butitis,Ithink,conspicuouslytrueofthelawofcharitythatithasbeenbuiltup
notlogicallybutempirically.Itwouldnot,therefore,besurprisingtofindthat,whileineverycategoryof
legalcharitysomeelementofpublicbenefitmustbepresent,thecourthadnotadoptedthesame
measureinregardtodifferentcategories,buthadacceptedonestandardinregardtothosegiftswhich
areallegedtobefortheadvancementofeducationandanotherforthosewhichareallegedtobefor
theadvancementofreligion,anditmaybeyetanotherinregardtothereliefofpoverty.Toarguebya
methodofsyllogismoranalogyfromthecategoryofeducationtothatofreligionignoresthehistorical
processofthelaw.Norwouldtherebelackofjustificationforthedivergenceoftreatmentwhichishere
assumed.Forthereisalegislativeandpoliticalbackgroundpeculiartosocalledreligioustrusts,
whichhasIthinkinfluencedthedevelopmentofthelawinthismatter.Thus,evenifthesimple
argumentthat,ifeducationisagoodthing,thenthemoreeducationthebetter,mayappeartobe
irrefutable,torepeatthatargumentsubstitutingreligionforeducationistoignoretheprinciplewhichI
understandtobeconcededthatnotallreligiouspurposesarecharitablepurposesUponthisfinal
argumentIwouldaddthisobservation.Ihavestressedtheempiricaldevelopmentofthelawofcharity
andyourLordshipsmaydetectsomeinconsistencyinanattempttorationaliseit.Butitappearsto
methatitwouldbeirrationaltothepointofabsurdityontheonehandtodenytoacommunityof
contemplativenunsthecharacterofacharitableinstitutionbutontheothertoacceptasacharitable
trustagiftwhichhadnootherobjectthantoenableittobemaintainedinperpetuitybyrecruitment
fromtheoutsideworld.
FinallyIwouldsaythis.Ihaveassumedforthepurposeoftestingthisargumentthatitisavalid
contentionthatagiftfortheadvancementofeducationisnecessarilycharitableifitisnotconfined
withintoonarrowlimits.Butthatassumptionisitselfdifficulttojustifyifitcanbeimaginedthatit
wasmadeaconditionofagiftfortheadvancementofeducationthatitsbeneficiariesshouldleada
cloisteredlifeandcommunicatetonoone,andleavenorecordof,thefruitsoftheirstudy,Idonot
thinkthatthecharitablecharacterofthegiftcouldbesustained.
(p.229) ThisdecisioncanusefullybecontrastedwithReHetherington,175 wherethetestatrixhadleftherestate

toaRomanCatholicChurchformassesforhersoul.Inholdingthatthiswasacharitablegift,SirNicolasBrowne
WilkinsonVCsaid:176
Thegroundsonwhichthetrustinthepresentcasecanbeattackedarethatthereisnoexpress
requirementthattheMassesforsoulswhicharetobecelebratedaretobecelebratedinpublic.The
evidenceshowsthatcelebrationinpublicistheinvariablepracticebutthereisnorequirementofCanonlaw
tothateffect.ThereforeitissaidthemoneycouldbeappliedtosayingMassesinprivatewhichwouldnot
becharitablesincetherewouldbenosufficientelementofpublicbenefit.
Inmyjudgmentthecasesestablishthefollowingpropositions
(2)Thecelebrationofareligiousriteinpublicdoesconferasufficientpublicbenefitbecauseoftheedifying
andimprovingeffectofsuchcelebrationonthemembersofthepublicwhoattend.AsLordReidsaid
inGilmourvCoatsat459:
Areligioncanberegardedasbeneficialwithoutitbeingnecessarytoassumethatallitsbeliefsare
true,andareligiousservicecanberegardedasbeneficialtoallthosewhoattenditwithoutitbeing
necessarytodeterminethespiritualefficacyofthatserviceortoacceptanyparticularbeliefabout
it.
(3)Thecelebrationofareligiousriteinprivatedoesnotcontainthenecessaryelementofpublicbenefit
sinceanybenefitbyprayerorexampleisincapableofproofinthelegalsense,andanyelementof
edificationislimitedtoaprivate,notpublic,classofthosepresentatthecelebration
Wherethereisagiftforareligiouspurposewhichcouldbecarriedoutinawaywhichisbeneficialtothe
public(i.e.bypublicMasses)butcouldalsobecarriedoutinawaywhichwouldnothavesufficient
elementofpublicbenefit(i.e.byprivatemasses)thegiftistobeconstruedasagifttobecarriedoutonly
bythemethodsthatarecharitable,allnoncharitablemethodsbeingexcluded
Applyingthoseprinciplestothepresentcase,agiftforthesayingofMassesisprimafaciecharitable,
beingforareligiouspurpose.Inpractice,thoseMasseswillbecelebratedinpublicwhichprovidesa
sufficientelementofpublicbenefit.TheprovisionofstipendsforpriestssayingtheMasses,byrelievingthe
RomanCatholicChurchprotantooftheliabilitytoprovidesuchstipends,isafurtherbenefit.Thegiftisto
beconstruedasagiftforpublicMassesprivateMassesnotbeingpermissiblesinceitwouldnotbea
charitableapplicationofthefundforareligiouspurpose.
Benefitwasalsoidentifiedinthatthepriestswhocelebratedthemassweretobepaidastipendthatwouldrelieve
theRomanCatholicChurchofpartofitsliabilitytopaypriests,sotherewasaclearfinancialbenefittothe
Churchthatwouldenableitsresourcestobeallocatedelsewhere.
TheinterpretationofpublicbenefitinGilmourvCoatsrequiringengagementofthereligiouswiththesurrounding
communitywasappliedinNevilleEstatesLtdvMadden.177 InholdingthatthetrusteesofaJewishsynagoguein
Catfordheldlandoncharitabletrusts,CrossJsaid:178
Iturnnowtotheargumentthatthisisaprivate,notapublictrustThetrustwithwhichIamconcerned
resemblesthatinGilmourvCoats[1949]AC426inthis,thatthepersonsimmediately(p.230) benefited
byitarenotasectionofthepublicbutthemembersofaprivatebody.AllpersonsoftheJewishfaithliving
inoraboutCatfordmightwellconstituteasectionofthepublic,butthemembersforthetimebeingofthe
CatfordSynagoguearenomoreasectionofthepublicthanthemembersforthetimebeingofaCarmelite
Priory.Thetwocases,however,differfromoneanotherinthatthemembersoftheCatfordSynagogue
spendtheirlivesintheworld,whereasthemembersofaCarmelitePriorylivesecludedfromtheworld.If
onceonerefusestopayanyregardasthecourtsrefusedtopayanyregardtotheinfluencewhich
thesenunslivinginseclusionmighthaveontheoutsideworld,thenitmustfollowthatnopublicbenefitis
involvedinatrusttosupportaCarmelitePriory.AsLordGreenesaidintheCourtofAppeal[1948]Ch340
at345:havingregardtothewayinwhichthelivesofthemembersarespent,thebenefitisapurelyprivate
one.Butthecourtis,Ithink,entitledtoassumethatsomebenefitaccruestothepublicfromthe
attendanceatplacesofworshipofpersonswholiveinthisworldandmixwiththeirfellowcitizens.As
betweendifferentreligionsthelawstandsneutral,butitassumesthatanyreligionisatleastlikelytobe
betterthannone.
Butthenitissaidanditisthispartoftheargumentthathascausedmethegreatestdifficulty:butthisis
acaseofselfhelp
Generallyspeaking,nodoubt,anassociationwhichissupportedbyitsmembersforthepurposesof
providingbenefitsforthemselveswillnotbeacharity.ButIdonotthinkthatthisprinciplecanapplywith
fullforceinthecaseoftrustsforreligiouspurposes.AsLordSimonds[inGilmourvCoats]pointedout,the
lawofcharityhasbeenbuiltupnotlogicallybutempirically,andthereisapoliticalbackgroundpeculiarto
religioustrustswhichmaywellhaveinfluencedthedevelopmentofthelawwithregardtothem.
Thesignificanceofthepublicbenefittotrustsfortheadvancementofreligionisespeciallywellillustratedbythe
decisionoftheCharityCommission179 torefusetoregistertheChurchofScientologyasacharity.The
Commissionfoundthatthepublicbenefitrequirementwasnotsatisfiedbecausepracticeofthereligionwas
essentiallyprivate,beinglimitedtoaprivateclassofindividualsandinvolvingprivateactivitiesofauditingand
training.
Itisclearfromthesecasesthatbothelementsofpublicbenefitneedtobeconsideredcarefully,buttheycan
oftenbeestablishedinthesameway.Somebenefitmustbeidentifiedfromtheadvancementofreligionthat
cannotbetoovagueorintangible.Thebenefitfromprayerorfromedificationbyexamplewillnotsufficethere
needstobesomedirectengagementwiththecommunity.Thiswillalsosatisfythepublicrequirement.So,for
example,inFunnellvStewart,180 itwasheldthatatrustforfaithhealingworkwasavalidcharitabletrustforthe
advancementofreligion.Publicbenefitwasestablishedbecause,althoughfaithhealingsessionswerenot
advertised,theywereopentothepublic.Potentialattendancebymembersofthepublicwassufficienttoshow
publicbenefit.Itwasthenassumedthatsuchattendancewouldbebeneficial,giventheoldpresumptionofbenefit
thatappliedundertheheadofcharityofreligiontherewasnoneedtoassesswhetherfaithhealingwaseffective.
Since,today,publicbenefitcannolongerbepresumed,itmightnowbenecessarytoassesstheefficacyoffaith
healingtodeterminewhetherthereisapublicbenefit,byconsideringboththenumberswhoattendedandhow
manyhadbeenhealed,orwhohadatleastobtainedsolacefromattendingthesessions.
(p.231) (d)AdvancementofHealthortheSavingofLives
CharitiesAct2011
3(2)(b)theadvancementofhealthincludesthepreventionorreliefofsickness,diseaseorhuman
suffering
Althoughadvancinghealthandsavinglivesisanewheadofcharitablepurpose,ithaslongbeenrecognizedas
charitable.Inparticular,trustsforhospitalshavebeencharitableforhundredsofyears.Thishasincludedtrustsfor
privatehospitals,eventhoughthepatientshadtopayfeesforadmissionandtreatment,aslongasthehospital
wasnotacommercial,profitmakingconcern.InReReschsWillTrusts,suchatrustwasheldbythePrivy
Counciltosatisfythepublicbenefittest.ThecaseconcernedagifttoStVincentsPrivateHospital,whichwasa
privatenonprofitmakinghospital.
ReReschsWillTrusts[1969]1AC514,539(LordWilberforce)
StVincentsPrivateHospitalwasestablishedandhassince1909beenconductedbytheSistersof
Charity,avoluntaryassociationorcongregationofwomen,governedbytheirconstitutionunderwhich
theydevotethemselveswithoutrewardtogoodworks.TheSistersalsoconductedin1909andstill
conducttheadjacentStVincentsHospitalwhichisapublichospitalTheevidenceshowsthatthe
reasonfortheestablishmentoftheprivatehospitalwastorelievethepressingdemandofthepublicfor
admissiontothegeneralhospitalwhichwasquiteinadequatetothedemanduponit.Anotherreason
wasthatthereweremanypersonswhoneededhospitalnursingandattentionwhowerenotwillingto
enterapublichospitalbutwerewillinganddesirousofhavinghospitalaccommodationwithmore
privacyandcomfortthanwouldbepossibleinthegeneralhospital.Theestablishmentofanadjacent
privatehospitalwouldenablethehonorarymedicalstaffinthegeneralhospitaltoadmitfortreatment
undertheircareintheprivatehospitalpatientswhowerereluctanttoenterthegeneralhospitaland
wereableandwillingtopayreasonableandproperfeesforadmissionandtreatmentinaprivate
hospital.Theprivatehospitalhas82bedsascomparedwithover500inthegeneralhospital.
Agiftforthepurposesofahospitalisprimafacieagoodcharitablegiftbecausetheprovisionof
medicalcareforthesickis,inmoderntimes,acceptedasapublicbenefitsuitabletoattractthe
privilegesgiventocharitableinstitutions
Inspiteofthisgeneralproposition,theremaybecertainhospitals,orcategoriesofhospitals,which
arenotcharitableinstitutionsDisqualifyingindiciamaybeeitherthatthehospitaliscarriedon
commercially,i.e.,withaviewtomakingprofitsforprivateindividuals,orthatthebenefitsitprovides
arenotforthepublic,orasufficientlylargeclassofthepublictosatisfythenecessarytestsofpublic
character.Eachclassofobjectionistakeninthepresentcase.Asregardsthefirst,itisaccepted
thattheprivatehospitalisnotrunfortheprofit,inanyordinarysense,ofindividuals.Moreover,ifthe
purposesofthehospitalareotherwisecharitable,theydonotlosethischaractermerelybecause
chargesaremadetotherecipientsofbenefitsButwhatissaidisthatsurplusesaremadeandare
usedforthegeneralpurposesoftheSistersofCharity.Thisassociation,whileinabroadsense
philanthropic,hasobjectswhichmaynotbecharitableinthelegalsense.
whatevertheSistersofCharitymaybeempoweredtodowithregardtotheirgeneralproperty,as
regardstheshareofincomeoftheresiduaryestate,giventothemastrustees,theyareboundbythe
trustsdeclaredinthewillunderwhichanymoneyreceivedbythemmustbeappliedexclusivelyfor
the(p.232) generalpurposesoftheprivatehospitalasabovedefined.Asregardsthesepurposes,it
appears,fromtheevidencealreadysummarised,thatthemakingofprofitsforthebenefitofindividuals
isnotamongthem.Themostthatisshownisthat,onacashbasis,andwithoutmakingsuch
adjustmentsaswouldberequiredforcommercialaccounting,anetsurplusisproducedovertheyears
whichinfacthasbeenappliedlargely,thoughnotexclusivelyforhospitalpurposes.Theshareof
incomegivenbythewillmustbedevotedentirelytothepurposesoftheprivatehospital.The
character,charitableorotherwise,ofthegeneralactivitiesoftheSisters,isnotthereforeamaterial
consideration
TheirLordshipsturntothesecondobjection.This,insubstance,isthattheprivatehospitalisnot
carriedonforpurposesbeneficialtothecommunitybecauseitprovidesonlyforpersonsofmeans
whoarecapableofpayingthesubstantialfeesrequiredasaconditionofadmission.
Indealingwiththisobjection,itisnecessaryfirsttodisposeofamisapprehension.Itisnotacondition
ofvalidityofatrustforthereliefofthesickthatitshouldbelimitedtothepoorsickAsearly
asIncomeTaxSpecialComrsvPemselLordHerschellwasabletosay[1891]AC531at571:
Iamunabletoagreewiththeviewthatthesenseinwhichcharitiesandcharitablepurpose
arepopularlyusedissorestrictedasthis.Icertainlycannotthinkthattheyarelimitedtothe
reliefofwantsoccasionedbylackofpecuniarymeans.Manyexamplesmay,Ithink,begiven
ofendowmentsforthereliefofhumannecessities,whichwouldbeasgenerallytermed
charitiesashospitalsoralmshouses,where,nevertheless,thenecessitiestoberelieveddonot
resultfrompovertyinitslimitedsenseofthelackofmoney.
SimilarlyinVergevSomerville[1924]AC496LordWrenbury,deliveringthejudgmentofthisBoardon
anappealfromNewSouthWales,pointedoutthattrustsforeducationandreligiondonotrequireany
qualificationofpovertytobeintroducedtogivethemvalidityandheldgenerallythatpovertyisnota
necessaryqualificationintrustsbeneficialtothecommunity[Theappellants]basedtheirargument
onthenarrowerpropositionthatatrustcouldnotbecharitablewhichexcludedthepoorfrom
participationinitsbenefits.Thepurposesoftheprivatehospitalwere,theysaid,toprovidefacilitiesfor
thewelltodo:animportantsectionofthecommunitywasexcluded:thetrustscouldnotthereforebe
saidtobeforthebenefitofthecommunity.Therewasnotsufficientpublicelement
Tosupportthis,theyappealedtosomewellknownauthorities.[HisLordshipreferredtoJonesv
Williams(1767)Amb651andReMacduff[1896]2Ch451.]
TheirLordshipsacceptthecorrectnessofwhathasbeensaidinthosecases,buttheymustberightly
understood.Itwouldbeawrongconclusionfromthemtostatethatatrustfortheprovisionofmedical
facilitieswouldnecessarilyfailtobecharitablemerelybecausebyreasonofexpensetheycouldonly
bemadeuseofbypersonsofsomemeans.Toprovide,inresponsetopublicneed,medicaltreatment
otherwiseinaccessiblebutinitsnatureexpensive,withoutanyprofitmotive,mightwellbecharitable:
ontheotherhandtolimitadmissiontoanursinghometotherichwouldnotbeso.Thetestis
essentiallyoneofpublicbenefit,andindirectaswellasdirectbenefitentersintotheaccount.Inthe
presentcase,theelementofpublicbenefitisstronglypresent.Itisnotdisputedthataneedexiststo
provideaccommodationandmedicaltreatmentinconditionsofgreaterprivacyandrelaxationthan
wouldbepossibleinageneralhospitalandasasupplementtothefacilitiesofageneralhospital.This
iswhattheprivatehospitaldoesanditdoessoat,approximately,costprice.Theserviceisneededby
all,notonlybythewelltodo.Sofarasitsnaturepermitsitisopentoall:thechargesarenotlow,but
theevidenceshowsthatitcannotbesaidthatthepoorareexcluded:suchexclusionasthereis,isof
someofthepoornamely,thosewhohave(a)notcontributedsufficientlytoamedicalbenefitscheme
or(b)needtostaylongerinthehospitalthantheirbenefitwillcoveror(c)cannotgetareductionofor
exemptionfromthecharges.Thegeneralbenefittothecommunityofsuchfacilitiesresultsfromthe
bedsandmedicalstaffofthegeneralhospital,theavailabilityofaparticulartypeofnursingand
treatmentwhichsupplementsthatprovidedbythegeneralhospitalandthebenefittothestandardof
medicalcareinthegeneralhospitalwhicharisesfromthejuxtapositionofthetwoinstitutions.
(p.233) ThisisconsistentwiththeCharityCommissionguidanceonPublicBenefit,181 whichemphasizesthat

anyprivatebenefitsmustbeincidentaltothefulfillmentofthecharitysaims.Itisalsoconsistentwiththe
analysisofincidentalbenefitsbytheUpperTribunalinTheIndependentSchoolsCouncilvTheCharity
CommissionforEnglandandWales.182
(e)AdvancementofCitizenshiporCommunityDevelopment
CharitiesAct2011
3(2)(c)[this]includes
(i)ruralorurbanregeneration,and
(ii)thepromotionofcivicresponsibility,volunteering,thevoluntarysectorortheeffectivenessor
efficiencyofcharities
AspectsofthisnewheadofcharitablepurposewerepreviouslyrecognizedatCommonLawwithreferencetothe
moregeneralheadofpurposesthatarebeneficialtothecommunity.But,asalways,itisimportanttosatisfythe
publicbenefitrequirementandtoensurethatthepurposesofthetrustareexclusivelycharitable.Thesignificance
oftheserequirementsisillustratedbyIRCvOldhamTrainingandEnterpriseCouncil.183 Theobjectsofthe
OldhamTrainingandEnterpriseCouncil(TEC)includedthepromotionofvocationaleducation,thetrainingand
retrainingofthepublic,andthepromotionofindustry,commerce,andenterpriseforthebenefitofthepublicinand
aroundOldham.LightmanJsaid:184
Itisamatterofgeneralpublicutilitythattheunemployedshouldbefoundgainfulactivityandthatthestate
shouldberelievedoftheburdenofprovidingthemwithunemploymentandsocialsecuritybenefits
OldhamTECisanaltruisticorganisation,inthesensethatnoprofitorbenefitcanbeconferredonits
members,anditsraisondtreistoassistothersitsobjectsclausesplacestressonitsoverallobjective
ofbenefitingthepublicorcommunityinoraroundOldhamanditissubstantiallypubliclyfunded,financed
bygovernmentgrants.Further,certainofitsobjectsareindisputablycharitable.Thequestionraisedis
whethertheremainingobjectsviewedinthiscontextcanandshouldbeconstruedassubjecttothe
implicitlimitationsofarascharitable.Thereisofcoursenosuchexpresslimitation.Inmyjudgmentona
carefulexaminationoftheobjectsclausesnosuchlimitationcanbeimpliedoriscompatiblewiththe
rangeofbenefitsandoftheeligiblerecipientsofsuchbenefitswhichitistheobjectofOldhamTECto
provide.
ToascertaintheobjectsofaninstitutionsuchasOldhamTEC,wheretheobjectsarecomprehensivelyset
outinadocument,itisnecessarytorefertothatdocument(inthiscasethememorandumofassociation)
andtothatalone.Itisirrelevanttoinquireintothemotivesofthefoundersorhowtheycontemplatedor
intendedthatOldhamTECshouldoperateorhowithasinfactoperated.Todetermine(p.234) whether
theobject,thescopeofwhichhasbeenascertainedbydueprocessofconstruction,isacharitable
purpose,itmaybenecessarytohaveregardtoevidencetodiscovertheconsequencesofpursuingthat
object(seeIncorporatedCouncilofLawReportingforEnglandandWalesvAG[1972]Ch73at99per
BuckleyLJ).Whatthebodyhasdoneinpursuanceofitsobjectsmayaffordgraphicevidenceofthe
potentialconsequencesofthepursuitofitsobjects.
Undertheunamendedobjectsclause,thesecondmainobject,namelypromotingtrade,commerceand
enterprise,andtheancillaryobject,ofprovidingsupportservicesandadvicetoandfornewbusinesses,on
anyfairreadingmustextendtoenablingOldhamTECtopromotetheinterestsofindividualsengagedin
trade,commerceorenterpriseandprovidebenefitsandservicestothemSucheffortsonthepartof
OldhamTECmaybeintendedtomaketherecipientsmoreprofitableandthereby,orotherwise,toimprove
employmentprospectsinOldham.Buttheexistenceoftheseobjects,insofarastheyconferfreedomto
providesuchprivatebenefits,regardlessofthemotiveorthelikelybeneficialconsequencesfor
employment,mustdisqualifyOldhamTECfromhavingcharitablestatus.Thebenefitstothecommunity
conferredbysuchactivitiesaretooremote.
Sincetheobjectsasawholewerenotexclusivelycharitable,185 itfollowedthattheCouncilwasnotacharity.
(f)AdvancementoftheArts,Culture,Heritage,orScience
BeforetheCharitiesAct2011recognizedthisdistinctheadofcharitablepurpose,trustsfortheadvancementof
thearts,culture,heritage,orsciencewouldbeupheldascharitableonlyiftheywereconsideredtobeforthe
advancementofeducationorforotherpurposesbeneficialtothecommunity.Today,suchpurposesdonotneed
tobesqueezedwithinthedefinitionofeducationandareexplicitlyrecognizedascharitablepurposesintheirown
right,buttheymuststillsatisfythepublicbenefittest.
Whenassessingthepublicbenefitoftrustsforsuchpurposes,theremustbesomeutilityforthepublicin
carryingouttheparticularpurpose.So,wherethetrustpurportstoadvancetheartsorculture,itisnecessaryto
considerwhetherthereisanyartisticmeritinthespecificpurpose.Forexample,inReDeliusatrustforthe
promotionoftheworkofthefamouscomposerDelius 186 wasconsideredtobeacharitabletrustforthe
advancementofeducation.RoxburghJsaid:187
Itseemstomethatinverytruththepurpose[ofthistrust]isthespreadingandestablishmentof
knowledgeandappreciationofDeliussworksamongstthepublicoftheworldandthequestionis
whetherthatpurposeischaritableintheeyeofthelaw?Icandonobetterinthisconnexionthantoread
certainpassagesfromthejudgmentofLordGreeneMRinRoyalChoralSocietyvIRC[1943]2AllER101.
Thereare,ofcourse,certainpointswhichnecessarilyoccurtothemindinconnexionwithamusical
composition.Itmightbesuggestedasregardssomemusic,atanyrate,thatitspurposewaslimitedto
givingpleasure,andasregardsallmusicitmustbesaidthatitgivespleasure.Thatisafeatureabout
music.WhenIsayallmusic,Imeanallthatcanbetrulycalledmusic.Indeed,alotofpleasureisderived
bysomefromsomethingwhichcanhardlybetrulycalledmusic,but,atanyrate,pleasureisa
circumstanceintimatelyconnectedwithmusic.Butthatinitselfdoesnotoperate(p.235) todestroythe
charitablecharacterofabequestfortheadvancementoftheartofmusic.Iadopt,withgreatsatisfaction,
thewordsofLordGreene[1943]2AllER101at104:
Curiouslyenough,somepeoplefindpleasureinprovidingeducation.Stillmorecuriously,some
peoplefindpleasureinbeingeducated:buttheelementofpleasureinthoseprocessesisnotthe
purposeofthem,butwhatmaybecalledabyproductwhichisnecessarilythere.
Thatseemstometobeallthatneedbesaidabouttheaspectofpleasureconnectedwiththemusicof
Delius
Idonotfinditnecessarytoconsiderwhatthepositionmightbeifthetrustswereforthepromotionofthe
worksofsomeinadequatecomposer.IthasbeensuggestedthatperhapsIshouldhavenooptionbutto
giveeffecteventosuchatrust.Idonotknow,butIneednotinvestigatethatproblem,becausecounsel
whohavearguedbeforemehavebeenunanimousintheviewthatthestandardofDeliussworkissohigh
thatthatquestiondoesnotariseinthepresentcase.
Thepointwhichhasbeenmadeanditisoneofinterestandimportanceis,thatfirstofallthistrustis
notatrustforthepromotionofmusicingeneralbutthemusicofaparticularindividualcomposer.That
couldnotofitselfvitiatethecharitablenatureofthetrust,because,afterall,aestheticappreciationof
musicinabroadsensecanonlybederivedfromaestheticappreciationoftheworksofalargenumberof
composers.Itistheaggregateoftheworkofalargenumberofcomposerswhichisthebasisofthe
aestheticappreciation,and,therefore,ifitischaritabletopromotemusicingeneralitmustbecharitableto
promotethemusicofaparticularcomposer,presupposing(asinthiscaseIcanassume)thatthe
composerisonewhosemusicisworthappreciating
IcannotconceivethatanybodywoulddoubtthatatrusttopromotetheworksofBeethovenwouldbe
charitable,buttherealstrengthofthepointputinthiscasearisesfromthefactthatthistrustwascreated
bythewidowofDelius,andnobodywoulddoubtthat,amongstthemanymotiveswhichactuatedher,
affectionforherdeceasedhusbandwastobefound.Butonemustbecarefultodistinguishmotivefrom
purpose,becausemotiveisnotrelevantinthesecasesexceptinsofarasitisincorporatedintothe
purpose.Consideringthepurposes,itispossibletoapproachthepurposesuponthehypothesisthattheir
intentionwastoenhanceherhusbandsreputation.
Thisis,ofcourse,rathersubtle.Itisaquestionwhichisthecartandwhichisthehorse,because,of
course,themoreaestheticappreciationofDeliussmusicisachievedthemoreDeliussreputationwill
necessarilybeenhanced.Thetwothingsfittogether,andthereisnodoubtwhateverthatbothobjectshave
infactalreadybeentoalargeextentachieved.But,inmyjudgment,itisnotfairtoapproachtheproblem
fromthatpointofview.Ithinkthatthereiseveryreasontosupposethatthetestatrixtooktheview,and
waswelladvisedtotakeit,thatiftheworkofDeliuswasbroughtbeforethepublicinanefficientmanner,
theaestheticappreciationofthepublicwouldgrowand,inherentinthatgrowth,wouldbetheenhancement
ofDeliussreputation,whichwasinitselfadesirablething,andIformypartrefusetodisentangleit.There
isnoreliableevidenceonwhichIcandisentangleit.Whatisquitecleartomeisthatthesepurposes
wouldplainlybecharitableifforthenameDeliusthenameBeethovenweresubstitutedand,inmy
judgment,theydonotceasetobecharitablebecauseinthiscontextthenameisDeliusandnot
Beethoven.
ThattheremaybecasesinwhichtheartorcultureisnotbeneficialisillustratedbyRePinion.188 Thetestator
hadprovidedinhiswillthathisstudioandcontents,whichincludedpictures,furniture,china,glass,andobjets
dartshouldbeofferedtotheNationalTrust,keptintactinthestudio,anddisplayedtothepublic.TheCourtof
Appealheldthatthetrustwasnotfortheadvancementofeducationandwasvoid.HarmanLJsaid:
(p.236) Itwouldappearthatagifttoanestablishedmuseumischaritable:seeBritishMuseumTrusteesv
White(1826)2Sim&St594.InReHolburne(1885)53LT212agifttotrusteesofobjectsofarttoforman
artmuseuminBathopentothepublicandafundtoendowitwasheldavalidcharitablegiftasbeingof
publicutilityorbenefit.Noquestionwasthereraisedastothemeritofthecollection.Itmusthavebeen
agreedthatsuchmeritexisted,foreveryoneassumedit,includingthejudge.Iconcludethatagifttofound
apublicmuseummaybeassumedtobecharitableasofpublicutilityifnoonequestionsitWherea
museumisconcernedandtheutilityofthegiftisbroughtinquestionitis,inmyopinion,andhereinIagree
withthejudge,essentialtoknowatleastsomethingofthequalityoftheproposedexhibitsinordertojudge
whethertheywillbeconducivetotheeducationofthepublic.SoIthinkwithapubliclibrary,suchaplaceif
foundtobedevotedentirelytoworksofpornographyorofacorruptingnature,wouldnotbeallowable.Here
itissuggestedthateducationinthefineartsistheobject.Formyselfareadingofthewillleadsmerather
totheviewthatthetestatorsobjectwasnottoeducateanyone,buttoperpetuatehisownnameandthe
reputeofhisfamily,henceperhapsthedirectionthatthecustodianshouldbeabloodrelationofhis.
Howeverthatmaybe,thereisastrongbodyofevidenceherethatasameansofeducationthiscollection
isworthless.Thetestatorsownpaintings,ofwhichthereareover50,aresaidbycompetentpersonstobe
inanacademicstyleandatrociouslybadandtheotherpictureswithoutexceptionworthless.Eventheso
calledLelyturnsouttobea20thcenturycopy.
Apartfrompicturesthereisahaphazardassemblyitdoesnotmeritthenamecollection,fornopurpose
emerges,notimenorstyleisillustratedoffurnitureandobjectsofsocalledartaboutwhichexpert
opinionisunanimousthatnothingbeyondthethirdrateistobefound.Indeedoneoftheexpertsexpresses
hissurprisethatsovoraciousacollectorshouldnotbyhazardhavepickedupevenonemeritoriousobject.
Themostthatskilfulcrossexaminationextractedfromtheexpertwitnesseswasthattherewereadozen
chairswhichmightperhapsbeacceptabletoaminorprovincialmuseumandperhapsanotherdozennot
altogetherworthless,buttwodozenchairsdonotmakeamuseumandtheymust,toaccordwiththewill,
beexhibitedstifledbyalargenumberofabsolutelyworthlesspicturesandobjects.
ItwassaidthatthisisamatteroftastebuthereIagreewiththejudgethatthereisanacceptedcanonof
tasteonwhichthecourtmustrely,forithasitselfnojudicialknowledgeofsuchmatters,andthe
unanimousverdictoftheexpertsisasIhavestated.Thejudgewithgreathesitationconcludedthatthere
wasthatscintillaofmeritwhichwassufficienttosavetherest.Ifindmyselfontheothersideoftheline.I
canconceiveofnousefulobjecttobeservedinfoistinguponthepublicthismassofjunk.Ithasneither
publicutilitynoreducativevalue.Iwouldholdthatthetestatorsprojectoughtnottobecarriedintoeffect
andthathisnextofkinisentitledtotheresidueofhisestate.
Todayitisprobablethatthesamedecisionwouldbereachedwithreferencetothecharitablepurposerelatingto
cultureandheritage,eitherbecauseitwouldnotmeetthedefinitionofthecharitablepurposeasamatteroflaw
or,morelikely,becauseitwouldnotsatisfythepublicbenefittestasamatteroffact.
Evenifthetrustdoespromotecultureorheritageandisregardedasbeneficial,itmuststillbeshownthatthe
benefitisavailableforasufficientsectionofthepublicandthatthepurposesareexclusivelycharitable.So,for
example,inWilliamsTrusteesvIRC,189 atrusttomaintainaninstituteandmeetingplaceforthebenefitof
WelshpeopleinLondon,withaviewtocreatingacentretopromotethemoral,social,spiritual,andeducational
welfareofWelshpeople,washeldbytheHouseofLordsnottobecharitable.LordSimondssaid:190
[A]trustinordertobecharitablemustbeofapubliccharacter.Itmustnotbemerelyforthebenefitof
particularprivateindividuals:ifitis,itwillnotbeinlawacharitythoughthebenefittakenbythose(p.
237) individualsisoftheverycharacterstatedinthepreambleImayhoweverrefertoarecentcasein
thisHousewhichinsomeaspectsresemblesthepresentcase.InKerenKayemethleJisroelLtdv
IRC[1932]AC650acompanyhadbeenformedwhichhadasitsmainobject(toputitshortly)the
purchaseoflandinPalestine,SyriaorotherpartsofTurkeyinAsiaandthepeninsulaofSinaiforthe
purposeofsettlingJewsonsuchlands.Initsmemorandumittooknumerousotherpowerswhichwereto
beexercisedonlyinsuchawayasshouldintheopinionofthecompanybeconducivetotheattainmentof
theprimaryobject.Nopartoftheincomeofthecompanywasdistributableamongitsmembers.Itwas
urgedthatthecompanywasestablishedforcharitablepurposesfornumerousreasons,withonlyoneof
whichIwilltroubleyourLordships,namely,thatitwasestablishedforthebenefitofthecommunityorofa
sectionofthecommunity,namely,Jews,whethertheassociationwasforthebenefitofJewsalloverthe
worldoroftheJewsrepatriatedinthePromisedLand.LordTomlindealingwiththeargumentthatIhave
justmentioneduponthefootingthat,ifbenefittoacommunitycouldbeestablishedthepurposemightbe
charitable,proceededtoexaminetheprobleminthataspectandsoughttoidentifythecommunity.He
failedtodoso,findingitneitherinthecommunityofallJewsthroughouttheworldnorinthatoftheJewsin
theregionprescribedforsettlement.Itisperhapsunnecessarytopursuethematter.Eachcasemustbe
judgedonitsownfactsandthedividinglineisnoteasilydrawn.Butthedifficultyoffindingthecommunity
inthepresentcase,whenthedefinitionofWelshpeopleinthefirstdeedisremembered,wouldnotIthink
belessthanthatoffindingthecommunityofJewsinKerenscase.
Ifthevalidityofthistrustasacharityweretobeconsideredtoday,thepublicbenefitmightbeidentifiedbecause
theclasswouldnot,presumably,benumericallysmallandwouldnotbedefinedwithreferencetoapersonal
nexus.191 Someofthepurposesofthecharitywouldalsofallwithinthenewheadofadvancingcultureorheritage,
especiallysincethetrustsoughttofosterthestudyoftheWelshlanguage,history,music,literature,andart.The
problem,however,wouldstillbethattherewereotherpurposesthatwerenoncharitable,includingprovidinga
meetingplaceforsocialintercourse,study,reading,rest,recreationandrefreshment.Sincethesepurposesare
notexclusivelycharitable,192 thetruststillcouldnotbetreatedascharitable.
(g)AdvancementofAmateurSport
BeforetheenactmentoftheCharitiesAct2011,trustsfortheprovisionofsportingfacilitiesortheencouragement
ofsportwerenotcharitableassuch.Butifthefacilitiesorsportingactivitieswereforpupilsofschoolsor
universities,193 orifthegamewasitselfofaneducationalnature,thetrustswouldbefortheadvancementof
education.Alternatively,ifthesportsfacilitieswereforthearmedforces,theymightberegardedasbeing
beneficialtothecommunitybycontributingtothesafetyandprotectionofthecountry.194 Withtherecognitionof
theadvancementofamateursportasacharitablepurposeinitsownright,suchartificialinterpretationofother
charitablepurposesisnotrequired.
TheCharitiesAct2011hasclarifiedthemeaningofsportasfollows:
CharitiesAct2011
3.(2)(d)sportmeanssportsorgameswhichpromotehealthbyinvolvingphysicalormentalskillor
exertion
(p.238) Thisencompassesteamsports,suchasfootball,andsolosports,suchasathletics,butitwouldalso
encompasschess,becauseofthementalskillinvolved.195 Othergameswillbemoreborderline,suchasdarts,
andthesewillinvolvecarefulassessmentoftheskillandexertioninvolved.
Thepublicbenefitrequirementwillapplyinthenormalway.
IRCvBaddeley[1955]AC572
PlayingfieldswereheldontrustfortherecreationofmembersofaparticularMethodistchurch.TheHouseof
Lordsheldthatthetrustfailedtomeetthepublicbenefitrequirement.ViscountSimondssaid:196
Supposethat,contrarytotheviewthatIhaveexpressed,thetrustwouldbeavalidcharitabletrust,if
thebeneficiarieswerethecommunityatlargeorasectionofthecommunitydefinedbysome
geographicallimits,isitthelessavalidtrustifitisconfinedtomembersorpotentialmembersofa
particularchurchwithinalimitedgeographicalarea?
Someconfusionhasarisenfromthefactthatatrustofgeneralpublicutility,howevergeneraland
howeverpublic,cannotbeofequalutilitytoallandmaybeofimmediateutilitytofew.Aseawall,the
prototypeofthisclassinthePreamble,isofremote,ifany,utilitytothosewholiveintheheartofthe
Midlands.Butthereisnodoubtthatatrustforthemaintenanceofseawallsgenerallyoralonga
particularstretchofcoastisagoodcharitabletrust.Nor,asitappearstome,isthevalidityofatrust
affectedbythefactthatbyitsverynatureonlyalimitednumberofpeoplearelikelytoavail
themselves,orareperhapsevencapableofavailingthemselves,ofitsbenefits.Itiseasy,forinstance,
toimagineacharitywhichhasforitsobjectsomeformofchildwelfare,ofwhichtheimmediate
beneficiariescouldonlybepersonsoftenderage.Yetthiswouldsatisfyanytestofgeneralpublic
utility.Itmaybesaidthatitwouldsatisfythetestbecausetheindirectbenefitofsuchacharitywould
extendfarbeyonditsdirectbeneficiaries,andthataspectofthematterhasprobablynotbeenoutof
sight.Indirectbenefitiscertainlyanaspectwhichmusthaveinfluencedthedecisionofthecrueltyto
animalscases.But,Idoubtwhetherthissortofrationalisationhelpstoexplainabranchofthelaw
whichhasdevelopedempiricallyandbyanalogyuponanalogy
Inthecaseunderappealtheintendedbeneficiariesareaclasswithinaclasstheyarethoseofthe
inhabitantsofaparticularareawhoaremembersofaparticularchurch:theareaiscomparativelylarge
andpopulousandthemembersmaybenumerous.But,ifthistrustischaritableforthem,doesit
ceasetobecharitableastheareanarrowsdownandthenumbersdiminish?Supposetheareais
confinedtoasinglestreetandthebeneficiariestothosewhosecreedcommandsfewadherents:or
supposetheclassisonethatisdeterminednotbyreligiousbeliefbutbymembershipofaparticular
professionorbypursuitofaparticulartrade
MorerelevantisthecaseofVergevSomerville[1924]AC496.Inthatcase,inwhichtheissuewasas
tothevalidityofagifttothetrusteesoftheRepatriationFundorothersimilarfundforthebenefitof
NewSouthWalesreturnedsoldiers,LordWrenbury,deliveringthejudgmentoftheJudicial
Committee,saidat499that,tobeacharity,atrustmustbeforthebenefitofthecommunityorofan
appreciablyimportantclassofthecommunity.Theinhabitants,hesaid,ofaparishortownorany
particularclassofsuchinhabitants,may,forinstance,betheobjectsofsuchagift,butprivate
individuals,orafluctuatingbodyofprivateindividuals,cannot.Here,myLords,aretwoexpressions:
anappreciablyimportantclassofthecommunityandanyparticularclassofsuchinhabitants,to
whichinanycaseitisnoteasytogiveaprecisequantitativeorqualitativemeaning.ButIthinkthatin
theconsiderationofthemthedifficultyhassometimesbeenincreasedbyfailingtoobservethe
distinction,atwhichIhintedearlierinthisopinion,betweenaformofreliefextendedtothewhole
communityyet(p.239) byitsverynatureadvantageousonlytothefewandaformofreliefaccordedto
aselectedfewoutofalargernumberequallywillingandabletotakeadvantageofit.Oftheformer
typerepatriatedNewSouthWalessoldierswouldserveasaclearexample.Tomeitwouldnotseem
arguablethattheydidnotformanadequateclassofthecommunityforthepurposeoftheparticular
charitythatwasbeingestablished.ItwaswiththistypeofcasethatLordWrenburywasdealing,and
hiswordsareapttodealwithit.Somewhatdifferentconsiderationsariseiftheform,whichthe
purportingcharitytakes,issomethingofgeneralutilitywhichisneverthelessmadeavailablenottothe
wholepublicbutonlytoaselectedbodyofthepublicanimportantclassofthepublicitmaybe.For
example,abridgewhichisavailableforallthepublicmayundoubtedlybeacharityanditisindifferent
howmanypeopleuseit.Butconfineitsusetoaselectednumberofpersons,howevernumerousand
important:itisthenclearlynotacharity.Itisnotofgeneralpublicutility:foritdoesnotservethe
publicpurposewhichitsnaturequalifiesittoserve.
Bearingthisdistinctioninmind,thoughIamwellawarethatinitsapplicationitmayoftenbevery
difficulttodrawthelinebetweenpublicandprivatepurposes,Ishouldinthepresentcaseconclude
thatatrustcannotqualifyasacharitywithinthefourthclassinIncomeTaxSpecialPurposesComrs
vPemsel[1891]AC531ifthebeneficiariesareaclassofpersonsnotonlyconfinedtoaparticulararea
butselectedfromwithinitbyreferencetoaparticularcreed.
Itfollowedthatthecharitywasnotvalidbecause,beingaclasswithinaclass,thepublicbenefittestwasnot
satisfied.Whetherthosewhoareentitledtobenefitcanbeconsideredtobeaclasswithinaclass,sothata
sufficientsectionofthepublicisnotbenefited,isamatterofdegreeandjudgment.
SpecificprovisionwasmadebytheRecreationalCharitiesAct1958totreattheprovisionofrecreationorleisure
facilitiesascharitableifthefacilitiesareprovidedintheinterestsofsocialwelfareandforthepublicbenefit.This
statutehasnowbeenconsolidatedintheCharitiesAct2011.
CharitiesAct2011
5Recreationalandsimilartrusts,etc.
(1)Itischaritable(andistobetreatedasalwayshavingbeencharitable)toprovide,orassistin
theprovisionof,facilitiesfor
(a)recreation,or
(b)otherleisuretimeoccupation,
ifthefacilitiesareprovidedintheinterestsofsocialwelfare.
(2)Therequirementthatthefacilitiesareprovidedintheinterestsofsocialwelfarecannotbe
satisfiedifthebasicconditionsarenotmet.
(3)Thebasicconditionsare
(a)thatthefacilitiesareprovidedwiththeobjectofimprovingtheconditionsoflifeforthe
personsforwhomthefacilitiesareprimarilyintended,and
(b)that
(i)thosepersonshaveneedofthefacilitiesbecauseoftheiryouth,age,infirmityor
disability,poverty,orsocialandeconomiccircumstances,or
(ii)thefacilitiesaretobeavailabletomembersofthepublicatlargeortomale,orto
female,membersofthepublicatlarge.
(p.240) (4)Subsection(1)appliesinparticularto
(a)theprovisionoffacilitiesatvillagehalls,communitycentresandwomensinstitutes,
and
(b)theprovisionandmaintenanceofgroundsandbuildingstobeusedforpurposesof
recreationorleisuretimeoccupation,
andextendstotheprovisionoffacilitiesforthosepurposesbytheorganisingofanyactivity.
Butthisissubjecttotherequirementthatthefacilitiesareprovidedintheinterestsofsocial
welfare.
(5)Nothinginthissectionistobetreatedasderogatingfromthepublicbenefitrequirement.
Thishasprovedsignificantintreatingcommunitycentresandchurchhallsascharitable.Someofthesewillnow
becharitablebyvirtueoftheformalrecognitionofthepromotionofamateursportasacharitablepurpose,but,to
theextentthatthesefacilitiesareintendedtobeusedfornonsportingactivities,theymightstillbecharitableby
virtueofsection5oftheCharitiesAct2011.
TheoperationofthisprovisionisillustratedbyGuildvIRC,197 wheretheHouseofLordsheldthatatownssports
centrewascharitable.Thekeyissuewaswhetherthefacilitiesmetthebasicconditionthattheywereprovided
withtheobjectofimprovingtheconditionsoflifeforthepersonsforwhomthefacilitiesareprimarilyintended.
LordKeithofKinkelsaid:198
Thereasonwhyitwassaidthatthisconditionwasnotmetwasthatonaproperconstructionitinvolved
thatthefacilitiesshouldbeprovidedwiththeobjectofmeetinganeedforsuchfacilitiesinpeoplewho
sufferedfromapositionofrelativesocialdisadvantage
Thefactisthatpersonsinallwalksoflifeandallkindsofcircumstancesmayhavetheirconditionsoflife
improvedbytheprovisionofrecreationalfacilitiesofsuitablecharacter.Theprovisorequiringpublicbenefit
excludesfacilitiesofanundesirablenatureIwouldthereforerejecttheargumentthatthefacilitiesare
notprovidedintheinterestsofsocialwelfareunlesstheyareprovidedwiththeobjectofimprovingthe
conditionsoflifeforpersonswhosufferfromsomeformofsocialdisadvantage.Itsufficesiftheyare
providedwiththeobjectofimprovingtheconditionsoflifeformembersofthecommunitygenerally.
(h)AdvancementofHumanRights
Thisnewcharitableheadincludesavarietyofcharitablepurposes.
CharitiesAct2011
3.(2)(h)theadvancementofhumanrights,conflictresolutionorreconciliationorthepromotionof
religiousorracialharmonyorequalityanddiversity
Someofthesepurposeshadpreviouslybeenrecognizedascharitableeitherbyvirtueofbeingforthe
advancementofeducationorforotherpurposesbeneficialtothecommunity.InReStrak osch,199 however,atrust
toappeaseracialfeelingsbetweentheDutchspeakingandEnglishspeakingsectionsoftheSouthAfrican
communitywasheldnottobecharitablebecausethescopeofthegiftwastoowideandvague.Thetestatorhad
providedafundforanypurposewhichin[thetrustees]opinion(p.241) isdesignedtostrengthenthebondsof
unitybetweentheUnionofSouthAfricaandtheMotherCountry,andwhichincidentallywillconducetothe
appeasementofracialfeelingbetweentheDutchandEnglishspeakingsectionsoftheSouthAfricancommunity.
LordGreenesaid:200
Werealizethetruthofthecontentionthattheobjectstowhichthegiftistobedevotedaremattersofgreat
publicconcernbothintheUnionofSouthAfricaandintheMotherCountry.Inparticulartheappeasement
ofracialfeelingintheUnioncannotbutbenefitallinhabitantsoftheUnion,notmerelythemembersofthe
twosectionsofthecommunityexpresslyreferredto.Buttheverywideandvaguescopeofthegiftandthe
unrestrictedlatitudeofapplicationwhichitslanguagepermitsmakeitimpossibleinouropiniontofindthat
itfallswithinthespiritandintendmentofthePreambletotheStatuteofElizabeth.
Ifthetrusthadbeendefinedmoreclearly,particularlywithreferencetoeducation,itmighthavebeenheldvalid.
Similarproblemsastothevaguenessofthegiftwouldariseinrespectofthenewcharitablepurposeunderthe
CharitiesAct2011.
Oneofthekeydifficultiesrelatingtoatrustfortheadvancementofhumanrightsisthatcharitieswithsucha
purposemustnotpursuepoliticalobjectives,especiallythosethatrelatetoseekingachangeinlaworpolicy
eitherofthiscountryorofacountryabroad.201 Thereisafinelinebetweenpursuingpoliticalactivitiesasa
meanstoacharitableendandpursuingpurposesthatarepoliticalintheirownright.Thisisillustrated
byMcGovernvAttorneyGeneral,202 whichconcernedwhetheratrustcreatedbyAmnestyInternationalwas
charitable.Thetrusthadvariousobjects,includingthereliefofprisonersofconscienceandprocuringtheabolition
oftorture.Inholdingthatthetrustwasnotcharitable,sinceitsmainpurposewaspolitical,SladeJsaid:203
Inowturntoconsiderthestatusofatrustofwhichamainobjectistosecurethealterationofthelawsofa
foreigncountry.Themerefactthatthetrustwasintendedtobecarriedoutabroadwouldnotbyitself
necessarilydepriveitofcharitablestatus
Iacceptthatthedangersofthecourtencroachingonthefunctionsofthelegislatureorofsubjectingits
politicalimpartialitytoquestionwouldnotbenearlysogreataswhensimilartrustsaretobeexecutedin
thiscountry.Ialsoacceptthatonoccasionsthecourtwillexamineandexpressanopinionuponthe
qualityofaforeignlawInmyjudgment,however,thereremainoverwhelmingreasonswhysuchatrust
stillcannotberegardedascharitableAfortiorithecourtwillhavenoadequatemeansofjudgingwhether
aproposedchangeinthelawofaforeigncountrywillorwillnotbeforthepublicbenefit.SirRaymond
EvershedMRinCamilleandHenryDreyfusFoundationIncvIRC[1954]Ch672,684expressedtheprima
facieviewthatthecommunitywhichhastobeconsideredinthiscontext,eveninthecaseofatrusttobe
executedabroad,isthecommunityoftheUnitedKingdom.Assumingthatthisistherighttest,thecourtin
applyingitwouldstillbeboundtotakeaccountoftheprobableeffectsofattemptstoprocuretheproposed
legislation,orofitsactualenactment,ontheinhabitantsofthecountryconcerned,whichwoulddoubtless
haveahistoryandsocialstructurequitedifferentfromthatoftheUnitedKingdom.Whatevermightbeits
viewastothecontentoftherelevantlawfromthestandpointofanEnglishlawyer,itwould,Ithink,haveno
satisfactorymeansofjudgingsuchprobableeffectsuponthelocalcommunity.
Furthermore,beforeascribingcharitablestatustoanEnglishtrustofwhichamainobjectwastosecure
thealterationofaforeignlaw,thecourtwouldalso,Iconceive,beboundtoconsidertheconsequences(p.
242) forthiscountryasamatterofpublicpolicy.Inanumberofsuchcasestherewouldarisea
substantialprimafacieriskthatsuchatrust,ifenforced,couldprejudicetherelationsofthiscountrywith
theforeigncountryconcerned:compareHabershonvVardon(1851)4DeG&Sm467.Thecourtwould
havenosatisfactorymeansofassessingtheextentofsuchrisk,whichwouldnotbecapableofbeing
readilydealtwithbyevidenceandwouldbeamattermoreforpoliticalthanforlegaljudgment.Forallthese
reasons,Iconcludethatatrustofwhichamainpurposeistoprocureachangeinthelawsofaforeign
countryisatrustfortheattainmentofpoliticalobjectsandisnoncharitable.
Thus,far,Ihavebeenconsideringtrustsofwhichamainpurposeistoachievechangesinthelawitselfor
whichareofapartypoliticalnature.Underanylegalsystem,however,thegovernmentanditsvarious
authorities,administrativeandjudicial,willhavewidediscretionarypowersvestedinthem,withinthe
frameworkoftheexistinglaw.Ifaprincipalpurposeofatrustistoprocureareversalofgovernmentpolicy
orofparticularadministrativedecisionsofgovernmentalauthorities,doesitconstituteatrustforpolitical
purposes?Inmyjudgmentitdoes.IfatrustofthisnatureistobeexecutedinEngland,thecourtwill
ordinarilyhavenosufficientmeansofdeterminingwhetherthedesiredreversalwouldbebeneficialtothe
public,andinanyeventcouldnotproperlyencroachonthefunctionsoftheexecutive,actingintravires,by
holdingthatitshouldbeactinginsomeothermanner.Ifitisatrustwhichistobeexecutedabroad,the
courtwillnothavesufficientmeansofsatisfactorilyjudging,asamatterofevidence,whethertheproposed
reversalwouldbebeneficialtothecommunityintherelevantsense,afterallitsconsequences,localand
international,hadbeentakenintoaccount
Ithereforesummarisemyconclusionsinrelationtotrustsforpoliticalpurposesasfollows.(1)Evenifit
otherwiseappearstofallwithinthespiritandintendmentofthePreambletotheStatuteofElizabeth,a
trustforpoliticalpurposescanneverberegardedasbeingforthepublicbenefitinthemannerwhichthe
lawregardsascharitable.(2)Trustsforpoliticalpurposesfallingwithinthespiritofthispronouncement
include,interalia,trustsofwhichadirectandprincipalpurposeiseither(i)tofurthertheinterestsofa
particularpoliticalpartyor(ii)toprocurechangesinthelawsofthiscountryor(iii)toprocurechangesin
thelawsofaforeigncountryor(iv)toprocureareversalofgovernmentpolicyorofparticulardecisionsof
governmentalauthoritiesinthiscountryor(v)toprocureareversalofgovernmentalpolicyorofparticular
decisionsofgovernmentalauthoritiesinaforeigncountry.
Seekingthereleaseofprisonersofconsciencewasconsideredtobeapoliticalpurpose,sinceitinvolved
demandingthereversalofadministrativedecisionsofgovernmentalauthorities,albeitabroad.Otherpurposes,
suchasrelievingthesufferingofneedyprisonersofconscience,wereheldtobecharitable,butsincethiswas
onepurposeamongstothersthatwerenotcharitable,thetrustwasnotwhollyandexclusivelycharitable.
AlthoughthiscasewasdecidedbeforewhatisnowtheCharitiesAct2011recognizedthenewcharitablepurpose
ofpromotinghumanrights,itwouldprobablybedecidedthesamewaytodaybecausethelawonthedefinitionof
politicalpurposeshasnotchanged.204 Thesignificanceoftherecognitionofthenewcharitablepurposeisthatit
isnowalegitimatecharitablepurposetomonitorhumanrightsabuses,toseekredressforvictimsofsuchabuse,
andtoraiseawarenessofhumanrightsissues,butacharitystillmustnotcrossthelineandactivelyseekto
procurechangesinlaworgovernmentalpolicyasregardshumanrightsissues.Aconsequenceofthestateofthe
lawisthatAmnestyInternationalhasbeendividedintoAmnestyInternational,whichisaregisteredcharitywith
nonpoliticalpurposes,andAmnestyInternationalLtd,whichisnotregisteredasacharityandwhichpursues
politicalobjectives.
(p.243) (i)AdvancementofEnvironmentalProtection
Thischaritablepurposeincludesactingbothfortheprotectionandimprovementoftheenvironment.205
(j)ReliefofThoseinNeed
Althoughthisisanewcharitablepurpose,reliefofthoseinneedusedtofallwithinthepurposeofreliefofpoverty.
Itfollowsfromthecreationofthisnewheadthatsomebodycanbeinneedeveniftheyarenotpoor.
CharitiesAct2011
3(1)(j)thereliefofthoseinneedbyreasonofyouth,age,illhealth,disability,financialhardshipor
otherdisadvantage.
(2)Insubsection(1)
(e)paragraph(j)includesreliefgivenbytheprovisionofaccommodationorcaretothe
personsmentionedinthatparagraph
Thecourtspreviouslyconsideredthemeaningofbeinginneedbyvirtueofage.
JosephRowntreeMemorialTrustHousingAssociationLtdvAttorneyGeneral[1983]Ch159
Aschemetobuildselfcontaineddwellingstobeletonlongleasestoelderlypeopleat70percentofthe
costofthepremises,withtheremainingexpensebeingmetbyaStatehousinggrant,washeldtobea
charitableschemeforthereliefofagedpeople,eventhoughbeneficiarieshadtomakeasubstantialfinancial
contributionand,iftheyweretoselltheirlease,theycouldmakeaprofit.Itwasheldthatthiswasavalid
charitableschemefortheaged.PeterGibsonJsaid:206
theplaintiffsdonotsubmitthattheproposedschemesarecharitablesimplybecausetheyareforthe
benefitoftheaged.Theplaintiffshaveidentifiedaparticularneedforspecialhousingtobeprovidedfor
theelderlyinthewaysproposedanditseemstomethatonanyviewofthematterthatisacharitable
purpose,unlessthefundamentalobjectionsoftheCharityCommissionerstowhichIhavereferredare
correct.TotheseInowturn.
Thefirstobjectionisthattheschememakesprovisionfortheagedonacontractualbasisasa
bargainratherthanbywayofbounty.Thisobjectionissometimesexpressedintheformthatreliefis
charitableonlywhereitisgivenbywayofbountyandnotbywayofbargain[This]doesnotmean
thatagiftcannotbecharitableifitprovidesforthebeneficiariestocontributetothecostofthebenefits
theyreceive.Therearenumerouscaseswherebeneficiariesonlyreceivebenefitsfromacharityby
wayofbargainAnotherclassofcasesrelatestofeepayingschools:seeforexampleAbbey
MalvernWellsLtdvMinistryofLocalGovernmentandPlanning[1951]Ch728Itisofcoursecrucial
inallthesecasesthattheservicesprovidedbythegiftarenotprovidedfortheprivateprofitofthe
individualsprovidingtheservices.
(p.244) Ifahousingassociationwereacooperativeunderwhichthepersonsrequiringthedwellings
providedbythehousingassociationhadbytheassociationsconstitutioncontractualrightstothe
dwellings,thatwouldnodoubtnotbecharitable,butthatisquitedifferentfrombodiessetuplikethe
trustandtheassociation.TheapplicantsfordwellingsundertheschemeswhichIamconsidering
wouldhavenorighttoanydwellingwhentheyapply.Thefactthatthebenefitgiventothemisinthe
formofacontractisimmaterialtothecharitablepurposeinmakingthebenefitavailable.Iseenothing
inthisobjectionoftheCharityCommissioners.
Thesecondobjectionwasthattheschemesdonotsatisfytherequirementthatthebenefitsthey
providemustbecapableofbeingwithdrawnatanytimeifthebeneficiaryceasestoqualify.Nodoubt
charitieswill,sofaraspracticalandcompatiblewiththeidentifiedneedwhichtheyseektoalleviate,
trytosecurethattheirhousingstockbecomesavailableifthecircumstancesofthepersons
occupyingthepremiseschange.Butitdoesnotseemtometobeanessentialpartofthecharitable
purposetosecurethatthisshouldalwaysbeso.Thenatureofsomebenefitsmaybesuchthatitwill
endureforsometime,ifbenefitsinthatformarerequiredtomeettheparticularneedthathasbeen
identified.ThusinReMonk [1927]2Ch197,atestatrixsetupaloanfundwherebyloansforupto
nineyearsweretobemadeavailabletothepoor.Thiswasheldtobecharitable.Nodoubtthe
circumstancesoftheborrowermightchangewhilsttheloanwasoutstanding.Ifthegrantofalong
termleaseholdinterestwiththeconcomitantsecurityoftenurethatsuchaninterestwouldgivetothe
elderlyisnecessarytomeettheidentifiedneedsoftheelderlytheninmyjudgmentthatisno
objectiontosuchagrant
Thethirdobjectionwasthattheschemeswereforthebenefitofprivateindividualsandnotfora
charitableclass.Icannotacceptthat.Theschemesareforthebenefitofacharitableclass,thatisto
saytheagedhavingcertainneedsrequiringrelieftherefrom.Thefactthat,oncetheassociationand
thetrusthaveselectedindividualstobenefitfromthehousing,thoseindividualsareidentifiedprivate
individualsdoesnotseemtometomakethepurposeinprovidingthehousinganoncharitableone
anymorethanatrustforthereliefofpovertyceasestobeacharitablepurposewhenindividualpoor
recipientsofbountyareselected.
Thefourthobjectionwasthattheschemeswereacommercialenterprisecapableofproducingaprofit
forthebeneficiary.Ihavealreadydiscussedthecaseswhichshowthatthechargingofaneconomic
considerationforacharitableservicethatisprovideddoesnotmakethepurposeinprovidingthe
servicenoncharitable,providedofcoursethatnoprofitsaccruetotheprovideroftheservice.Itistrue
thatatenantundertheschemesmayrecovermorethanheorshehasputin,butthatisatmost
incidentaltothecharitablepurpose.Itisnotaprimaryobjective.Theprofitifitberighttocallthe
increasedvalueoftheequityaprofitasdistinctfromamereincreaseavoidingtheeffectsofinflation,
aswasintendedisnotaprofitattheexpenseofthecharity,andindeeditmightbethought
improper,iftherebeaprofit,thatitshouldaccruetothecharitywhichhasprovidednocapitalandnot
tothetenantwhichhasprovidedmostifnotallthecapital.Again,Icannotseethatthisobjection
defeatsthecharitablecharacteroftheschemes
Inmyjudgmentthetrusteesmayprovideaccommodationintheformofsmallselfcontaineddwellings
foragedpersonsinneedofsuchaccommodationbygrantingittotheminconsiderationofthe
paymenttothetrusteesofthewholeorasubstantialpartofthecostormarketvalueofsuchdwellings
inaccordancewiththeschemes.
If,however,housingstockisprovidedbothtothoseinneedandotherswhoarenotinneed,thiswillnotbean
exclusivelycharitablepurpose.ThiswasrecognizedinHelenaHousingLtdvTheCommissionersforHer
MajestysRevenueandCustoms.207
HelenaHousingLtdvTheCommissionersforHerMajestysRevenueandCustoms
(p.245)
[2012]EWCACiv569[2012]4AllER111
Theclaimantwasacompanythatdidnottradeforprofitandthatwasaregisteredsociallandlord.Itsobject
wastoprovideaccommodationandassistancetohelphousepeopleforthebenefitofthecommunity,largely
throughtheacquisitionofaCouncilsformerhousingstock,whichitthenrefurbishedandlet.Sincesomeof
thehousingstockwaslettopeopleinneedbutsomewaslettopeoplewhowerenotinneed,itwasheld
thatthiswasnotexclusivelyacharitablepurpose.LloydLJsaid:208
Therealissueisastothebalancebetweenpublicbenefitandbenefittoindividualsarisingfromthe
undertakingofalloranyofHelenasobjects.Thistypeofissuehasariseninnumerousprevious
cases,ofwhichwewereshownseveral.Theargumentwasaboutwhetherornotthebenefitsafforded
toindividuals(oftenreferredtoasprivatebenefits)weresubordinatetothepublicbenefit,sothatthe
latterwastobeseenastherealobjectoftherelevantbody.
Mostcharitablepurposesprovideparticularbenefitstoindividuals,whethertothepoorpersoninneed
ofsupport,thestudentinneedofeducation,orthepatientinneedoftreatment,totakeafewobvious
examples.Thatisthewayinwhichthepublicbenefitisprovided.
Leavingasidetheanomalouscaseofpoorrelationsandpooremployeestrusts,publicbenefitisa
prerequisiteofcharity,buttheprovisionofparticularbenefitstoparticularindividualsisjustifiedasa
wayofprovidingbenefitstothepublicbyvirtueof,first,theavailabilityoftheprovisionand,secondly,
theselectionofthosewhoaretobenefitonanobjectivebasiswhichdoesnotdependonanyprivateor
particularnexusofthebeneficiarywiththetrust,thefounder,theotherbeneficiariesoranygiven
individualSo,inthecaseofHelena,theidentificationofthosewhoweretooccupyits
accommodationwouldbedecided(inmanycases)accordingtotheallocationpolicypreviouslyused
bytheCouncil.Thiswouldnotbelimitedtothoseinparticularneed,buttherewouldbeobjective
criteriaofselectioninvolvingnoprivateorpersonalelement.
Suchdecidedcasesastherehavebeenabouttheprovisionofhousingasacharitablepurposehave
proceededonthebasisthatitischaritableif,butnotunless,itisprovidedbywayofthereliefofneed,
whetherduetopoverty,tooldageortootherrelevantcircumstances.
Helenacouldnotsatisfytherequirementsofcharity.Therearetworeasonsforthis,whichare
separatebutrelated.
Firsttheprovisionofhousingwithoutregardtoarelevantcharitableneedisnotinitselfcharitable.
Analternativewaytothesameconclusionisthat,evenacceptingthatthereisanelement,anda
necessaryelement,ofbenefittothecommunityinthepursuitofHelenasobjects,thereisalsoa
substantialelementofbenefittoindividuals,whichcannotberegardedasonlysubordinatetothe
achievementofthebenefittothecommunity.Initsnature,thebenefitaffordedbytheprovisionof
housingtothepersonwhoistherebyhousedisofanaltogetherdifferentorder,asitseemstome,to
thebenefitaffordedbytheconstructionormaintenanceofaroad,abridgeoraseawall,orthe
maintenanceofafirebrigadeoralifeboatservice.Theformerprovidesdirectbenefitstotheoccupants
oftheaccommodationwhichfaroutweighthedegreeofindirectbenefitthatothermembersofthe
communitymayderivefromtheexistenceofthehousingstock.Acceptingthatitmaybeagoodthing
thatasubstantialhousingstockingoodconditionshouldexistintheareaofacommunitywhichis
availableforoccupationbytenants,andthatthereforeabenefittothecommunitycanbeseentobe
generatedbytheoperationsofabodysuchasHelena,Icannotacceptthattheprivatebenefitwhich
arisestothosewhooccupytheaccommodationismerelyincidentalorsubsidiarytothepublicbenefit
affordedbytheexistence(p.246) ofthehousingstock.Itisabenefitforitsownsake,not
incompatiblewithbenefittothecommunity,butnotsubordinatetoit.
Ofcoursesomecharitableoperationsconfersignificantbenefitsonindividuals.Hospitalsprovide
oneexample,forthebenefitofthosewhobyreasonofillness,accidentalinjuryorotherwise,need
medicaltreatmentIdonotunderestimatetheimportanceofsuchbenefitsfortheindividual
concerned.Butitseemstomethattheprovisionofhousingaccommodationforanindividualora
familyaffordsabenefittothatorthoseindividualsofakindwhichisquitedifferentinitsnatureand
importancefrom,forexample,thatofappropriatetreatmentinhospital.Itisnotbychancethatthe
significanceofhousingtothepersonhousedisrecognisedbythetermsofarticle8oftheEuropean
ConventiononHumanRights.Thatseemstometoconfirmmyviewthattheprovisionof
accommodationbywayofhousingconfersanespeciallysignificantbenefitonthepersonorpersons
sohoused,andthatthisgoesfarbeyondthedegreeofbenefitthatindividualsmayobtainfrom
charitableoperationswhicharejustifiedasbeingwithinthefourthheadofcharityonthebasisof
generalpublicutility
Iconcludethattheprovisionofhousingaccommodationis,andcanonlybe,acharitablepurposeifit
isjustifiedascharitableinrespectofthedirectbenefitprovided.Itcanonlybesojustifiedifitis
providedinordertomeetarelevantneedoftheclasseligibletooccupyit.
(k)AdvancementofAnimalWelfare
BeforetheenactmentoftheCharitiesAct2006,trustsfortheadvancementofanimalwelfarecouldbecharitable
onlywithinthefourthheadofPemselscase,beinganotherpurposebeneficialtothecommunity.Nowanimal
welfareisidentifiedasaspecificcharitablehead,209 althoughthishasnotsignificantlyalteredthelawasregards
thedefinitionofthecharitablepurpose.210
Animalwelfarehasbeenheldtoincludeprovidingforthewelfareofparticulartypesofanimal,suchascats,211 or
providingforthewelfareofallanimals,whichisthepurposeoftheRoyalSocietyforthePreventionofCrueltyto
Animals(RSPCA).212 Ithasevenincludedimprovingmethodsofslaughteringanimals.213 Itdoesnotinclude
providingforthewelfareofaparticularanimal,whichmightexceptionallybevalidasanoncharitablepurposetrust
ifatestamentarygift.214
Itwillstillbenecessarytoshowthatthereisapublicbenefitinadvancinganimalwelfare.Thebenefittothepublic
hasbeendescribedasindirect.215 InReWedgwood216 KennedyLJsaid:
Agiftforthebenefitandprotectionofanimalstendstopromoteandencouragekindnesstowardsthem,to
discouragecruelty,andtoamelioratetheconditionofthebrutecreation,andthustostimulatehumaneand
generoussentimentsinmantowardstheloweranimals,andbythesemeanspromotefeelingsofhumanity
andmoralitygenerally,repressbrutality,andthuselevatethehumanrace.
Eventhisindirectbenefittothepublicmightbedifficulttoestablish.So,forexample,inReGroveGrady,217 a
trusttobuylandtoprovideasanctuaryforallcreaturessothattheywouldbesafe(p.247) frommolestationor
destructionbyman,washeldnottobecharitablebecausetherewasnopublicbenefit.RussellLJsaid:218
SofarasIknowthereisnodecisionwhichupholdsatrustinperpetuityinfavourofanimalsuponanyother
groundthanthis,thattheexecutionofthetrustinthemannerdefinedbythecreatorofthetrustmust
producesomebenefittomankind
[Here]theresiduaryestatemaybeappliedinacquiringatractofland,inturningitintoananimal
sanctuary,andkeepingastaffofemployeestoensurethatnohumanbeingshallevermolestordestroy
anyoftheanimalsthere.Isthatagoodcharitabletrustwithintheauthorities?
Inmyopinionitisnot.Itismerelyatrusttosecurethatallanimalswithintheareashallbefreefrom
molestationordestructionbyman.Itisnotatrustdirectedtoensureabsenceordiminutionofpainor
crueltyinthedestructionofanimallife.Ifthistrustiscarriedoutaccordingtoitstenor,noanimalwithinthe
areamaybedestroyedbymannomatterhownecessarythatdestructionmaybeintheinterestsof
mankindorintheinterestsoftheotherdenizensoftheareaorintheinterestsoftheanimalitselfandno
matterhowpainlesslysuchdestructionmaybebroughtabout.Itseemstomeimpossibletosaythatthe
carryingoutofsuchatrustnecessarilyinvolvesbenefittothepublic.Beyondperhapshearingofthe
existenceoftheenclosurethepublicdoesnotcomeintothematteratall.Consistentlywiththetrustthe
publiccouldbeexcludedfromenteringtheareaorevenlookingintoit.Allthatthepublicneedknowabout
thematterwouldbethatoneormoreareasexistedinwhichallanimals(whethergoodorbadfrom
mankindspointofview)wereallowedtolivefreefromanyriskofbeingmolestedorkilledbymanthough
liabletobemolestedandkilledbyotherdenizensofthearea.FormyselfIfeelquiteunabletosaythatany
benefittothecommunitywillnecessarilyresultfromapplyingthetrustfundtothepurposesindicatedin
thefirstobject.
InNationalAntiVivisectionSocietyvIRC,219 asocietythatexistedtosuppressexperimentsonanimals,was
heldbytheHouseofLordsnolongertobecharitableduetodetrimenttothepublicoutweighingbenefit.Lord
Simondssaid:220
Thesecondpointisfundamental.ItisattheveryrootofthelawofcharityasadministeredbytheCourtof
Chanceryanditssuccessor,theChanceryDivisionoftheHighCourtofJustice.Itiswhetherthecourt,for
thepurposeofdeterminingwhethertheobjectofthesocietyischaritablemaydisregardthefindingoffact
thatanyassumedpublicbenefitinthedirectionoftheadvancementofmoralsandeducationwasfar
outweighedbythedetrimenttomedicalscienceandresearchandconsequentlytothepublichealthwhich
wouldresultifthesocietysucceededinachievingitsobject,andthatonbalance,theobjectofthesociety,
sofarfrombeingforthepublicbenefit,wasgravelyinjuriousthereto.Thesocietysaysthatthecourtmust
disregardthisfact,arguingthatevidenceofdisadvantagesorevilswhichwouldormightresultfromthe
stoppingofvivisectionisirrelevantandinadmissible.
Thesecondquestionraisedinthisappeal,whichIhavealreadytriedtoformulate,isofwiderimportance,
andImustsayatoncethatIcannotreconcileitwithmyconceptionofacourtofequitythatitshouldtake
underitscareandadministeratrust,howeverwellintentioneditscreator,ofwhichtheconsequencewould
becalamitoustothecommunity
Itistomeastrangeandbewilderingideathatthecourtmustlooksofarandnofarther,mustseea
charitablepurposeintheintentionofthesocietytobenefitanimalsandthuselevatethemoralcharacterof
menbutmustshutitseyestotheinjuriousresultstothewholehumanandanimalcreation.
(p.248) (l)PromotionofEfficiencyofPublicServices
Publicservices,forthepurposesofthischaritablehead,includethearmedforces,thepolice,fire,andrescue
services,andtheambulanceservices.221 Efficiencyhaspreviouslybeenheldtoincludephysicalefficiency.So,
inReGray222 itwasheldthatatrusttoestablishafundforthebenefitofaregimentofthearmyinorderto
223
promotesport,includingshooting,fishing,cricket,footballandpolo,wascharitable.RomerJsaid:223
inmyopinionitwasnottheobjectofthetestatorinthepresentcasetoencourageorpromoteeithersport
ingeneraloranysportinparticular.Ithinkitisreasonablyclearthatitwashisintentiontobenefitthe
officersandmenofthe[regiment]bygivingthemanopportunityofindulginginhealthysport.Itistobe
observedthattheparticularsportsspecifiedwereallhealthyoutdoorsports,indulgenceinwhichmight
reasonablybesupposedtoencouragephysicalefficiency
ButIamgladtofindthatthereisanestablishedprincipleenablingmetogiveeffecttothegiftsinthe
presentcase.ThisprinciplewasestablishedbyFarwellJinReGood[1905]2Ch60at66,67,acasethat
asfarasIknowhasneverbeenquestionedinanyway.Inthatcasethetestatorgavehisresiduary
personaltyupontrustfortheofficersmessofhisregiment,tobeinvestedandtheincometobeappliedin
maintainingalibraryfortheofficersmessforever,anysurplustobeexpendedinthepurchaseofplatefor
themess.Accordingtotheheadnoteofthereportofthatcaseitwasheldthatthegifttomaintainthe
libraryandtopurchaseplatefortheofficersmess,beingforageneralpublicpurposetendingtoincrease
theefficiencyofthearmyandaidtaxation,wasagoodcharitablebequest
InthecasebeforeFarwellJtheefficiencywasmentalefficiency,andtheonlydistinctionbetweenthat
caseandthepresentcaseisthatinthepresentcasetheefficiencyisphysicalasopposedtomental
efficiency.Butitisobviouslyforthebenefitofthepublicthatthoseentrustedwiththedefenceoftherealm
shouldbenotonlymentallybutalsophysicallyefficient,andIthinkIamjustifiedincomingtothe
conclusionthatthereisnodifferencebetweenmentalandphysicalefficiencyforthepresentpurpose.
(m)OtherBeneficialPurposes
Otherpurposeswillbeconsideredtobecharitableifthey:224
(1)havebeenrecognizedunderexistingcharitylaworundersection5oftheCharitiesAct2011
concerningrecreationaltrustsor
(2)theycanreasonablyberegardedasanalogousto,orwithinthespiritof,the12purposesidentified
bytheCharitiesAct2011,orwiththepurposesrecognizedunderexistingcharitylaworsection5
concerningrecreationaltrustsor
(3)theycanreasonablyberegardedasanalogousto,orwithinthespiritof,thepurposesthathave
beenrecognizedundercharitylawasfallingwithinparagraph(2)orthisone.
Thisheadoperatesasasafetynettoensurethatcharitablepurposescancontinuetobedevelopedbyanalogy
withtheexistinglawofcharityorwiththeheadsrecognizedundertheCharitiesActitself.Itisalongstanding
traditionofcharitylawtodevelopcharitablepurposesinthisway.Forexample,inIncorporatedCouncilofLaw
ReportingforEnglandandWalesvAttorneyGeneral,225 theCourtofAppeal(p.249) heldthattheIncorporated
Councilwascharitablebothasatrustfortheadvancementofeducation,butalsoundertheheadofforbeingfor
otherpurposesbeneficialtothecommunity.RussellLJsaid:226
Icomenowtothequestionwhether,ifthemainpurposeofthecouncilis,asIthinkitis,tofurtherthe
sounddevelopmentandadministrationofthelawinthiscountry,andif,asIthinkitis,thatisapurpose
beneficialtothecommunityorofgeneralpublicutility,thatpurposeischaritableaccordingtothelawof
EnglandandWales.
OnthispointthelawisrootedintheStatuteofElizabethI,astatutetheobjectofwhichwastheoversight
andreformofabusesintheadministrationofpropertydevotedbydonorstopurposeswhichwereregarded
asworthyofsuchprotectionasbeingcharitable.ThePreambletotheStatutelistedcertainexamplesof
purposesworthyofsuchprotection.Thesewerefromanearlystageregardedmerelyasexamples,and
havethroughthecenturiesbeenregardedasexamplesorguidepostsforthecourtsinthediffering
circumstancesofadevelopingcivilisationandeconomy.Sometimesrecoursehasbeenhadbythecourts
totheinstancesgiveninthePreambleinordertoseewhetherinagivencasesufficientanalogymaybe
foundwithsomethingspecificallystatedinthePreamble,orsufficientanalogywithsomedecidedcasein
whichalreadyaprevioussufficientanalogyhasbeenfound.Ofthisapproachperhapsthemostobvious
exampleistheprovisionofcrematoriabyanalogywiththeprovisionsofburialgroundsbyanalogywiththe
upkeepofchurchyardsbyanalogywiththerepairofchurches.Onotheroccasionsadecisioninfavouror
againstapurposebeingcharitablehasbeenbasedintermsuponamoregeneralquestionwhetherthe
purposeisorisnotwithinthespiritandintendmentoftheStatuteofElizabethIandinparticularits
Preamble.Again(andatanearlystageindevelopment)whetherthepurposeiswithintheequityorwithin
themischiefoftheStatute.Againwhetherthepurposeischaritableinthesamesenseaspurposes
withinthepreviewoftheStatute.Ihavemuchsympathywiththosewhosaythatthesephrasesdolittleof
themselvestoelucidateanyparticularproblem.Tellme,theysay,whatyoudefinewhenyouspeakof
spirit,intendment,equity,mischief,thesamesense,andIwilltellyouwhetherapurposeischaritable
accordingtolaw.Butyouneverdefine.Allyoudoissometimestosaythatapurposeisnoneofthese
things.Icanunderstanditwhenyousaythatthepreservationofseawallsisforthesafetyoflivesand
property,andthereforebyanalogythevoluntaryprovisionoflifeboatsandfirebrigadesarecharitable.Ican
evenfollowyouasfarascrematoria.Buttheseothergeneralitiesteachmenothing.
IsayIhavemuchsympathyforsuchapproach:butitseemstometobeundulyandimproperlyrestrictive.
TheStatuteofElizabethIwasastatutetoreformabuses:insuchcircumstancesandinthatagethe
courtsofthiscountrywerenotinclinedtoberestrictedintheirimplementationofParliamentsdesirefor
reformtoparticularexamplesgivenbytheStatuteandtheydeliberatelykeptopentheirabilitytointervene
whentheythoughtnecessaryincasesnotspecificallymentioned,byapplyingasthetestwhetherany
particularcaseofabuseoffundsorpropertywaswithinthemischiefortheequityoftheStatute.
FormyselfIbelievethatthisrathervagueandundefinedapproachisthecorrectone,withanalogyits
handmaid,andthatwhenconsideringLordMacnaghtensfourthcategoryinPemselscase[1891]AC531
at583ofotherpurposesbeneficialtothecommunitythecourts,inconsistentlysayingthatnotall
sucharenecessarilycharitableinlaw,areinsubstanceacceptingthatifapurposeisshowntobeso
beneficialorofsuchutilityitisprimafaciecharitableinlaw,buthaveleftopenalineofretreatbasedonthe
equityoftheStatuteincasetheyarefacedwithapurpose(e.g.,apoliticalpurpose)whichcouldnothave
beenwithinthecontemplationoftheStatuteevenifthethenlegislatorshadbeenendowedwiththegiftof
foresightintothecircumstancesoflatercenturies.
(p.250) Inacasesuchasthepresent,inwhichinmyviewtheobjectcannotbethoughtotherwisethan
beneficialtothecommunityandofgeneralpublicutility,Ibelievetheproperquestiontoaskiswhether
thereareanygroundsforholdingittobeoutsidetheequityoftheStatuteandIthinktheanswertothatis
hereinthenegative.Ihavealreadytoucheduponitsessentialimportancetoourruleoflaw.IfIlookatthe
somewhatrandomexamplesinthePreambletotheStatuteIfindintherepairofbridges,havens,
causeways,seabanksandhighwaysexamplesofmatterswhichifnotlookedafterbyprivateenterprise
mustbeaproperfunctionandresponsibilityofgovernment,whichwouldaffordstronggroundforastatutory
expressionbyParliamentofanxietytopreventmisappropriationoffundsvoluntarilydedicatedtosuch
matters.ItcannotIthinkbedoubtedthatiftherewerenotacompetentandreliablesetofreportsofjudicial
decisions,itwouldbeaproperfunctionandresponsibilityofgovernmenttosecuretheirprovisionforthe
dueadministrationofthelaw.ItwasarguedthatthespecifictopicsinthePreamblethatIhavementioned
areallconcernedwithconcretematters,andthatsoalsoisthejudiciallyacceptedopinionthatthe
provisionofacourthouseisacharitablepurpose.Butwhetherthesearchbeforanalogyorfortheequityof
theStatutethisseemstometobetoonarroworrefinedanapproach.Icannotacceptthattheprovision,in
ordertofacilitatetheproperadministrationofthelaw,ofthewallsandotherphysicalfacilitiesofacourt
houseisacharitablepurpose,butthatthedisseminationbyaccurateandselectivereportingofknowledge
ofamostimportantpartofthelawtobethereadministeredisnot.
Accordinglythepurposeforwhichtheassociationisestablishedisexclusivelycharitableinthesenseof
LordMacnaghtensfourthcategory.Iwouldnotholdthatthepurposeispurelytheadvancementof
education:butindeterminingthatthepurposeiswithintheequityoftheStatuteIbynomeansignorethe
functionofthepurposeinfurtheringknowledgeinlegalscience.
5.ExclusivelyCharitable
(a)InclusionofNonCharitablePurposes
Atrustcanberegardedascharitableonlyifallofitspurposesarecharitable.227 Thismeansthatthetrustcannot
haveamixtureofcharitableandnoncharitablepurposes.So,forexample,ifthepurposesofatrustaredescribed
asbeingcharitableorbenevolent,thiswillnotbeexclusivelycharitable,becauseabenevolentpurposecanbe
widerthanthelegaldefinitionofcharitablepurposes,whichwouldmeanthatthetrusteeswouldbeabletoapply
trustfundsforpurposesthatarenotnecessarilycharitable.If,however,thetrustprovidesforfundstobeapplied
forcharitableandbenevolentpurposes,thiswillbecharitable,becauseanypurposemustbecharitableevenifit
isbenevolentaswell.Consequently,thevalidityofsuchtrustsascharitieswilloftenturnonwhetherthewordsor
orandareused.Itfollowsthatgreatcaremustbetakenwhenseekingtodraftacharitabletrust.
TheleadingcasetoconsiderwhetheratrustspurposeswereexclusivelycharitableisChichesterDiocesanFund
andBoardofFinanceIncorporatedvSimpson.
ChichesterDiocesanFundandBoardofFinanceIncorporatedvSimpson[1944]AC341
CalebDiplock,inhiswill,directedhisexecutorstoapplytheresidueofhisestateforsuchcharitable
institutionsorbenevolentobjectorobjectsastheexecutorsintheirabsolutediscretionshouldselect.The
HouseofLordsheldthatthegiftwasvoid.LordSimondssaid:228
(p.251) MyLords,thewordsforyourconsiderationarecharitableorbenevolent.Thequestionis
whether,inthecontextinwhichtheyarefoundinthiswill,thesewordsgivetotheexecutorsachoice
ofobjectsextendingbeyondthatwhichthelawrecognizesascharitable.Iftheydonot,thatistheend
ofthematter.Thetrustisagoodcharitabletrust.Iftheydo,itappearstobeconcededbycounselfor
theappellantinstitutionthatthetrustisinvalidMyLords,ofthosethreewordsyourLordshipswill
havenodoubtwhatthefirst,charitable,means.Itisatermofartwithatechnicalmeaningandthatis
themeaningwhichthetestatormustbeassumedtohaveintended.Ifitwerenotso,ifinthiswill
charitableweretobegiven,notitslegal,butsomepopular,meaning,itwouldnotbepossibleto
establishthevalidityofthebequest.Thelastofthethreewordsbenevolentisnotatermofart.Inits
ordinarymeaningithasarangeinsomerespectsfarlesswidethanlegalcharity,inotherssomewhat
wider.Itis,atleast,clearthatthetwowords,theonehereusedinitstechnicalmeaning,theother
havingonly,and,accordingly,hereusedin,apopularmeaning,arebynomeanscoterminous.These
twowordsarejoinedorseparatedbythewordor,aparticle,ofwhichtheprimaryfunctionistoco
ordinatetwoormorewordsbetweenwhichthereisanalternative.Itis,Ithink,theonlywordinour
languageapttohavethiseffect.Itsprimaryandordinarymeaningisthesame,whetherornotthefirst
alternativeisprecededbythewordeither.
MyLords,avertingmymindfromthepossibleilleffectsofanalternativechoicebetweenobjects
charitableandobjectsbenevolent,Icannotdoubtthattheplainmeaningofthetestatorswordsis
thathehasgiventhischoice,andthat,ifheintendedtogiveit,hecouldhaveusednowordsmoreapt
todoso.Isthere,then,anythinginthecontextwhichnarrowstheareaofchoicebygivingtothe
wordsorbenevolentsomeothermeaningthanthatwhichtheyprimarilyandnaturallyhave?Andifso,
whatistheothermeaningwhichistobegiventothem?Letmeexaminethesecondquestionfirst.
Sincethetestofvaliditydependsontheareaofchoicenotbeingextendedbeyondtheboundsoflegal
charity,ameaningmustbegiventothewordsorbenevolentwhichretainsthemwithinthesebounds.
Thisresult,ithasbeencontended,maybereachedbygivingtothewordornotitsprimarydisjunctive
meaningbutasecondarymeaningwhichmay,perhaps,becalledexegeticalorexplanatory.
Undoubtedlyoriscapableofthismeaning.Soused,itisequivalenttoaliasorotherwisecalled.
Thedictionaryexamplesofthisusewillgenerallybefoundtobetopographical,asPapuaorNew
Guinea,but,myLords,thisuseofthewordorisonlypossibleifthewordsorphraseswhichitjoins
connotethesamethingandareinterchangeabletheonewiththeother.Inthiscasethetestatoris
assumedtousethewordcharitableinitslegalsense.Iseenopossiblegroundforsupposingthathe
proceedstoexplainitbyanotherwordwhichhasanothermeaningandbynomeanscanhavethat
meaning.Imustrejecttheexegeticalor.Thenitwassuggestedthatthewordsorbenevolentshould
beconstruedasequivalenttoprovidedsuchobjectsarealsoofabenevolentcharacter,thatistosay,
theobjectsmustbecharitablebutofthatorderofcharitywhichiscommonlycalledbenevolent.Ithink
thatthisisonlyaroundaboutwayofsayingthatorshouldbereadasand,thattheobjectsofchoice
musthavethetwocharacteristicsofcharitableandbenevolent.Itispossiblethatacontextmayjustify
sodrasticachangeasthatinvolvedinreadingthedisjunctiveasconjunctive.Iturnthentothecontext
toseewhatjustificationitaffordsforreadingtherelevantwordsinanybuttheirnaturalmeaning.
Readingandrereadingthem,asyourLordshipshavesooftendoneinthecourseofthiscase,Ican
findnothingwhichjustifiessuchadeparture.Itistruethatthewordotherintroducesthephrase
charitableorbenevolentobjectorobjectsandtothistheappellantsattachedsomeimportance,
suggestingthatsinceotherlookedbacktocharitableinstitutionorinstitutions,soallthatfollowed
mustbeofthegenuscharitable.Therecanbenosubstanceinthis,forinthephrasesointroducedthe
wordcharitableisitselfrepeatedandisfollowedbythealternativeorbenevolent.Apartfromthis
slenderpointitseemedthattheappellantsreliedonwhatiscalledageneral,adominant,an
overriding,charitableintention,givingcharitablecontenttoawordorphrasewhichmightotherwisenot
havethatquality.Thatsucharesultispossibletherearecasesinthebookstoshow.Someofthem
havebeencitedtoyourLordships,buthereagainIlookinvainforanysuchcontext.Ontheplain
readingofthiswillIcouldonlycometotheconclusionthatthetestatorintendedexclusivelytobenefit
charitableobjectsifIexcisedthewordsorbenevolentwhichhehasused.ThatIcannotdo.
(p.252) Similarly,atrustforcharitableorphilanthropicpurposeshasbeenheldnottobeexclusively
charitable,229 sincephilanthropicpurposesarenotinevitablycharitable.Atrustforacharitableinstitutionorone
operatingforthepublicgood,230 andatrustforworthypurposeshavebeenheldnottobecharitable.231 Atrust
forcharitableanddeservingobjectswas,however,heldtobeexclusivelycharitable,232 becausethedeserving
objectswouldalsobecharitable.Butitdoesnotnecessarilyfollowthattheidentificationoftwopurposesthatare
connectedbyandwillbevalid.233 Forexample,inAttorneyGeneraloftheBahamasvRoyalTrustCo.,234 agift
foranypurposesforand/orconnectedwiththeeducationandwelfareofBahamianchildrenandyoungpeople
washeldtobevoid.Welfarewasconsideredtoowidenecessarilytobeconfinedtoacharitablepurposeandthe
useofor,albeitaswellasand,meantthatthegiftcouldbeusedfornoncharitablepurposes.Theseareharsh
decisions,whichareinconsistentwiththegeneraljudicialattitudeofbenevolentconstructionofcharitabletrusts,
withaviewtointerpretthemascharitableifpossible.
Althoughatrustforthebenefitofaparticularlocality,includingatrustforthebenefitofGreatBritain,wouldnot
appeartobeexclusivelycharitable,suchtrustshavebeenheldtobevalidcharitabletrusts,235 becausetheyare
benevolentlyinterpretedasbeingconfinedtocharitablepurposeswithintheidentifiedlocality.InAttorneyGeneral
oftheCaymanIslandsvWahrHansen,236 LordBrowneWilkinsonsaidthatthelocalitycases:237
arecaseswherethegiftismade,forexample,toaparish(WestvKnight(1669)1CasinCh134)orfor
thegoodofaspecificcounty(AttorneyGeneralvLordLonsdale(1827)1Sim.105)orforcharitable,
beneficial,andpublicworks(MitfordvReynolds(1841)1Ph185)orforthebenefitandadvantageofGreat
Britain(NightingalevGoulbourn(1847)5Hare484)oruntomycountryEngland:ReSmith[1932]1Ch
153.Inallthesecasesthegiftswereheldtobevalidcharitabletrusts,eventhoughthebreadthofthe
wordsused,literallyconstrued,wouldcertainlyhaveauthorisedtheapplicationsofthefundsfornon
charitablepurposesinthespecifiedlocality.Thecourtshaveheldthatsuchpurposesaretobeimpliedly
limitedtocharitablepurposesinthespecifiedcommunity
Thereisalimitedclassofcaseswheregiftsingeneraltermsaremadeforthebenefitofanamedlocality
oritsinhabitants.Forreasonswhichareobscure,suchcaseshavebeenbenevolentlyconstrued.Theyare
nowsolongestablishedthatincasesfallingwithintheverycircumscribeddescriptionofgiftsforthebenefit
ofaspecifiedlocalitytheyremaingoodlaw.Buttheyhavebeenwidelycriticisedandindeedhavebeen
saidtobewronglydecided:see,forexample,MichaelAlbery,TrustsfortheBenefitoftheInhabitantsofa
Locality(1940)56LQR49.Toapplythesameprincipletoallcaseswheretherearegeneralstatementsof
benevolentorphilanthropicobjectssoastorestrictthemeaningofthegeneralwordstosuchobjectsas
areinlawcharitablewouldbeinconsistentwiththeoverwhelmingbodyofauthoritywhichdecidesthat
generalwordsarenottobeartificiallyconstruedsoastobeimpliedlylimitedtocharitablepurposesonly.
Althoughthesearehighlyanomalouscases,theydoexemplifytheprincipleofbenignconstructionofcharitable
gifts.238 Itisunfortunatethatthissamebenignconstructionisnotadoptedwherethegift(p.253) includesnon
charitablepurposessothatitcouldbeassumedthatthegiftwouldbeappliedonlyforthecharitablepurpose.
(b)ConsequencesofIncludingNonCharitablePurposes
Wherethepurposesofatrustarenotexclusivelycharitable,thecourtmay,onconstruingthelanguage,reach
oneofseveralpossiblesolutions.
(i)Voidtrust
Thetrustmaybedeclaredvoid,unlessitcanexceptionallyberegardedasavalidnoncharitablepurpose
trust.239 Ifthetrustisdeclaredvoid,thefundswillbeheldonresultingtrustforthesettlorortestators
estate.240 AconsequenceofthedecisioninChichesterDiocesanFundandBoardofFinanceIncorporatedv
Simpson,241 thatatestamentarygifttocharitableinstitutionsorbenevolentobjectswasvoidwasthatthe
testatorsnextofkincouldclaimthattheexecutorshouldhavegiventhepropertytothenextofkinratherthan
disposedofitinaccordancewiththepurportedtrusts,whichwerevoid.Thisprovidedthebasisofaclaimbythe
nextofkintothegiftsthathadbeenmadetovariouscharitiesbytheexecutor.Thenatureoftheseclaimswas
complexandcontroversial.242
(ii)Incidentalpurposes
Ifthenoncharitablepurposeisincidentalorsubsidiarytothemaincharitablepurpose,itwillnotpreventthetrust
frombeingcharitable.243 ThiswasrecognizedbyLordMillettinLatimervCIR,244 acaseconcerningthe
charitablestatusofatrustfundforMaoriclaimantstopursuelandclaims.LordMillettsaid:245
Butthetrusteesarenotobligedtoapplythewholeofthetrustincomeasitarises.Theymaycarryit
forwardandapplyitinfutureyearsandinsofarasitisnotwhollyexpendedwhenthetrustcomestoan
endanyremainingbalanceistobereturnedtotheCrown.Itfollowsthatitcannotbesaidofanysumof
incomeinthehandsofthetrusteesthatitwillbeappliedforcharitablepurposesitmayberetainedand
ultimatelybecomepayabletotheCrown.TheultimatetrustinfavouroftheCrownisasubstantialtrustin
itsownright,andunlesstheCrownisacharityorholdsoncharitabletrustsorthetrustinitsfavourcanbe
dismissedasmerelyancillaryorincidentaltotheprimarytrusttoassisttheMaoriclaimantsitsexistence
makesitimpossibletocontendthatthetrustincomeisapplicabletoexclusivelycharitablepurposes.
Trusteesofacharitabletrustmaybeauthorisedtochargetheirownfeesandexpensestothetrustwithout
causingthelossofthetrustscharitablestatus.Itcannotbesaidtobeapurposeofthetrusttoenablethe
trusteestochargefeesandexpensessuchexpendituremaybejustifiedonlyifithelpstofurtherthe
trustscharitablepurpose,andmayaccordinglybeclassifiedasancillarytothatpurpose.
(p.254) Again,sometrustsforcharitablepurposescannothelpbutconferincidentalbenefitson
individualstheydonottherebylosetheircharitablestatus:RoyalCollegeofSurgeonsofEnglandv
NationalProvincialBank Ltd[1952]AC631providesagoodexampleofthis.Thecollegewasestablished
topromoteandencouragethestudyandpracticeoftheartandscienceofsurgery.Theprofessional
protectionofmembersofthecollege(notacharitablepurpose)washeldtobeanincidentalthoughan
importantandperhapsnecessaryconsequenceoftheworkofthecollegeincarryingoutitsmainobject.
Thedistinctionisbetweenends,meansandconsequences.Theendsmustbeexclusivelycharitable.But
ifthenoncharitablebenefitsaremerelythemeansortheincidentalconsequencesofcarryingoutthe
charitablepurposesandarenotendsinthemselves,charitablestatusisnotlost.Theresidualtrustin
favouroftheCrowninthepresentcase,however,isneitherameansoffurtheringthetrustscharitable
purposenoranincidentalconsequenceofcarryingoutthatpurpose.Thetrustmaynevertakeeffect,butif
itdoesitwilldosoonlyaftertheprimarytrusthascometoanend.Itcannotbedismissedasmerely
ancillaryorincidentaltothetrustscharitablepurpose
Accordingly,thecriticalfeatureofthepresentcaseisthattheultimatetrustisinfavouroftheCrown.Their
LordshipscannotacceptthetrusteescontentionthattheCrownisitselfacharity,orthatitholdsallits
fundstobeappliedexclusivelyforcharitablepurposeslikeotherpublicauthoritiesitsmoneyis
applicableandisappliedfornumerousnoncharitablepurposes.Itistruethatthesearepublicpurposes
ratherthanprivatepurposesbutthismeansonlythatthegovernmentofthedayconsidersitexpedientto
makepublicfundsavailableforsuchpurposes.
Governmentscananddomakepublicmoneyavailableforavarietyofnoncharitablepurposes.All
charitablepurposes(withwellknownexceptions)arepublicpurposesbutnotallpublicpurposesare
charitablepurposes.
ThedistinctionbetweenendsandmeansisillustratedbyReCoxen,246 whereafundwasheldontrustformedical
charities,butprovisionwasmadeforthepaymentof100foradinnerforthosealdermenwhoattendedameeting
todiscussthebusinessofthetrustsuchpersonswouldalsoreceiveaguineaeachiftheyweretoattendthe
wholeofthemeeting.Thiswasheldtobeavalidcharitabletrustsincethedinnerandthepaymentswere
incidentaltothemainmedicalpurposeofthetrust,andmightevenberegardedasresultinginitsbetter
administration.InIncorporatedCouncilofLawReportingforEnglandandWalesvAttorneyGeneral,247 inholding
thattheactivitiesoftheCouncilwerecharitable,BuckleyLJsaid:248
Thesubsidiaryobjects,suchasprintingandpublishingstatutes,theprovisionofanotingupserviceandso
forth,areancillarytothisprimaryobject[ofpublishinglawreports]anddonotdetractfromitsexclusively
charitablecharacter.Indeed,thepublicationofthestatutesoftherealmisitself,Ithink,acharitable
purposeforreasonsanalogoustothoseapplicabletoreportingjudicialdecisions.
InAttorneyGeneralvRoss,249 astudentsunionwasheldtobeacharitabletrusteventhoughoneofitsobjects
relatedtoaffiliationtotheNationalUnionofStudents,anoncharitableorganization,sincethiswasanancillary
purposethathelpedthecharitablepurposeoffurtheringtheeducationalfunctionoftheinstitution.
(p.255) (iii)Severance
Exceptionally,whereatrustspurposesarenotexclusivelycharitable,itmaybepossibletodividethefundinto
parts,sothatsomeareappliedtocharitablepurposesandtherestwilleitherbeheldonavalidnoncharitable
purposetrustoronaresultingtrustforthesettlororthoseentitledtoatestatorsresiduaryestate.Thissolution
willonlybepossiblewherethelanguageofthetrustinstrumentcanbeconstruedasdirectingsuchadivision.For
example,inSalusburyvDenton,250 afundwastobeusedtofoundaschoolortoprovideforthepoor,andthe
remainderwastobeusedforthebenefitofthetestatorsrelatives.Itwasheldthatthefundwasdivisibleintotwo
equalparts,withthefirstpartbeingusedforthecharitablepurposesandtherestforthenextofkin.Severance
waspossiblebecausethewillcontemplateddivisionoftheestate.InReCoxen,251 JenkinsJrecognizedthat
severancewillbeappropriatewheretheamountapplicabletothenoncharitablepurposecanbequantified,but
wheresuchquantificationisnotpossible,thetrustwillfailcompletely.
(iv)Retrospectivevalidation
In1954,theCharitableTrusts(Validation)Actwasenactedtoprovidethatanycharitabletrustcreatedbefore16
December1952thatwasinvalidbecausethefundcouldbeusedfornoncharitableaswellascharitablepurposes,
shouldbetreatedasthoughalltheobjectswerecharitable.SincethisActonlyappliedretrospectively,itdoesnot
affectthegeneralprinciplerelatingtomoderntrustsneedingtohaveexclusivelycharitablepurposes.Butifthe
Actwasabletovalidateoldtrustsdespitetheinclusionofnoncharitablepurposes,whycoulditnotbeapplied
prospectively?Thefailuretodosohasbeendescribedaslogicallyindefensible:252 ifthelawisunjust,thenit
shouldhavebeenchangedforalltrusts.
6.CyPrs
Whereacharitablepurposefailsbecause,forexample,itisimpossibleorimpracticabletoapplyfundsforthe
identifiedcharitablepurposeorbecausethatpurposeceasestobecharitable,itisnecessarytoconsiderwhether
thetrustshouldfailandthefundsbereturnedtothecreatorofthetrustbymeansofaresultingtrust,orwhether
theymightbeappliedforaslightlydifferentcharitablepurposebyvirtueofthecyprsdoctrine.Wherethis
doctrineoperatesitmakespossibletheapplicationoffundstopurposesasnearaspossibletothoseselectedby
thedonor.Thedoctrineappliesdifferentlydependingonwhetherthefailureofthecharitablepurposeoccursbefore
thetrustcommencesorsubsequently.Essentially,wherethereisaninitialfailureofcharitablepurpose,the
propertywillbeappliedcyprsonlyifthedonorcanbeconsideredtohaveanintentionthatthepropertyshould
beusedforthebenefitofcharitygenerally,ratherthanconfinedtothespecific,particularcharitablepurposethat
hasfailed.Once,however,propertyhasbeenusedforcharitablepurposesandthereisasubsequentfailureof
thosepurposes,thepropertywillbeappliedcyprswhetherornotthedonorhadanintentiontobenefitcharity
generally.AsRomerLJrecognizedinReWright:253
Oncemoneyiseffectuallydedicatedtocharity,whetherinpursuanceofageneralorparticularcharitable
intent,thetestatorsnextofkinorresiduarylegateesareforeverexcluded.
(p.256) Itfollowsthatitisimportanttoworkoutwhethertherehasbeenafailureofcharitablepurposeand,if
therehas,whetheritisaninitialorasubsequentfailure.
Wherepropertyistobeappliedcyprs,thecourtsandtheCharityCommissionhavethepowertomake
schemessothatthepropertyisappliedforasimilarcharitablepurpose.
CharitiesAct2011
67Cyprsschemes
(1)ThepowerofthecourtortheCommissiontomakeschemesfortheapplicationofproperty
cyprsmustbeexercisedinaccordancewiththissection.
(2)Whereanypropertygivenforcharitablepurposesisapplicablecyprs,thecourtorthe
Commissionmaymakeaschemeprovidingforthepropertytobeapplied
(a)forsuchcharitablepurposes,and
(b)(iftheschemeprovidesforthepropertytobetransferredtoanothercharity)byoron
trustforsuchothercharity,
asitconsidersappropriate,havingregardtothematterssetoutinsubsection(3).
(3)Themattersare
(a)thespiritoftheoriginalgift,
(b)thedesirabilityofsecuringthatthepropertyisappliedforcharitablepurposeswhichare
closetotheoriginalpurposes,and
(c)theneedfortherelevantcharitytohavepurposeswhicharesuitableandeffectiveinthe
lightofcurrentsocialandeconomiccircumstances.
Therelevantcharitymeansthecharitybyoronbehalfofwhichthepropertyistobeappliedunderthe
scheme.
(a)InitialFailureofCharitablePurpose
(i)Initialfailure
Toestablishaninitialfailureofcharitablepurpose,itisnecessarytoconsiderwhether,atthetimethetrustisto
takeeffect,theidentifiedpurposeisimpossibleorimpracticabletofulfil.Eventhoughaparticularcharitynolonger
existsinitsoriginalform,thecourtmayfindthatthecharitablepurposecontinueselsewhere,sothatithasnot
254
failedandthecyprsdoctrinewillnotbeengaged.Forexample,inReFarak er,254 thetestatrixleft200toMrs
BaileysCharity,Rotherhithe.Acharity,knownasHannahBaylysCharity,hadbeenfoundedin1756byMrs
HannahBaylyforthebenefitofpoorwidowsinRotherhithe.In1905,theCharityCommissionershadconsolidated
variouslocalcharitieswiththeamalgamatedfundsbeingheldontrustforthebenefitofthepoorofRotherhithe,
butnospecificmentionwasmadeofwidows.ItwasadmittedthatthetestatrixhadintendedtorefertoHannah
BaylysCharity.Itwasheldthat,althoughHannahBaylyscharitynolongerexisted,itspurposecontinuedinthe
consolidatedcharities,sothepurposehadnotfailed.FarwellLJsaid:255
(p.257) Inthepresentcasethereisnoquestionofacyprsexecution.Nobodysuggeststhattherehas
beenafailureofpoorwidowsinRotherhithe,andunlessanduntilthathappyeventhappenstherewillbeno
caseforanycyprsadministration.Whatissaidisthis:theCommissionershaveinfactdestroyedthis
trustbecauseintheschemewhichtheyhaveissueddealingwiththeamalgamationoftheseveralcharities
theobjectsarestatedtobepoorpersonsofgoodcharacterresidentinRotherhithe,notmentioningwidows
inparticularnotofcourseexcludingthem,butnotgivingthemthatpreferencewhichIagreewiththe
MasteroftheRollsinthinkingoughttohavebeengiven.Buttosaythatthisomissionhasincidentally
destroyedtheBaylyTrustisaverystrainedconstructionofthelanguageandonethatentirelyfails,
becausetheCharityCommissionershadnojurisdictionwhatevertodestroythecharity.Supposethe
CharityCommissionersorthisCourtweretodeclarethataparticularexistingcharitabletrustwasatan
endandextinct,inmyopiniontheywouldgobeyondtheirjurisdictioninsodoing.Theycannottakean
existingcharityanddestroyittheyareobligedtoadministerit.Tosaythatthispardonableslip(Iusethe
wordwithallrespecttothedraftsman)hastheeffectofdestroyingthecharityappearstomeextravagant.
Inallthesecasesonehastoconsidernotsomuchthemeanstotheendasthecharitableendwhichisin
view,andsolongasthatcharitableendiswellestablishedthemeansareonlymachinery,andno
alterationofthemachinerycandestroythecharitabletrustforthebenefitofwhichthemachineryis
provided.
AsCozensHardyMRrecognized:HannahBaylysCharityisnotextinct,itisnotdeaditcannotdie.256
Acharitywill,however,beconsideredtohaveceasedtoexistifitsfundsnolongerremaininexistence.InRe
SlattersWillTrusts,257 atestatrixhadleftmoneyfortheworkofahospitalinAustraliatreatingtuberculosis,but
thehospitalhadcloseddownbeforethetestatrixsdeathbecausetuberculosishadbeencontrolledinthelocality.
Sincethehospitalhadnotleftanyfundstocontinuethispurpose,itfollowedthattherewasaninitialfailureofthe
gift.Martin258 hascriticizedthisdecisiononthegroundsthatthekeyquestionshouldnothavebeenthe
continuedexistenceoffunds,butthecontinuedexistenceofthecharitablepurpose,andpresumablythepurpose
ofeliminatingtuberculosiscontinuedelsewhere.Itmayhavebeensignificant,however,thatthetestatrixhadleft
herestatetotheparticularhospitalinAustraliawhereherdaughterhadbeentreatedforsomeyearsandhaddied,
sothatitcouldproperlybeinterpretedasagifttoaparticularinstitution.Whilstthejudgefoundthatherintention
hadnotbeentomakethegifttotheRedCrossSociety,whichranthehospital,shemayhaveintendedherestate
tobeusedonlyfortheworkoftheparticularhospitalatwhichherdaughterhadbeentreatedratherthanforthe
purposeoftreatingtuberculosisgenerally.Asalwaysincasesofthiskind,theintentionofthedonorisvitaland
mustbeconstruedverycarefully.
Whereabequestisintendedtobeforaparticularcharitableinstitution,ratherthanfortheinstitutionscharitable
purpose,andtheinstitutionhasceasedtoexistbeforethetestatorsdeath,therewillbeaninitialfailureofthe
gift.259 Thisdistinctionbetweenagifttoacharitablepurposeandagifttoaninstitutionisinfluencedbywhether
theintendedrecipientofthegiftisanunincorporatedoranincorporatedcharity.Thesignificanceofthisdistinction
wasrecognizedinReFingersWillTrusts.
ReFingersWillTrusts[1972]Ch286
Atestatrixleftherestatetoanumberofcharities.OneofthesewastheNationalRadiumCommission,which
wasanunincorporatedcharity,andanotherwastheNationalCouncilfor(p.258) MaternityandChild
Welfare,whichwasanincorporatedcharity.Beforethetestatrixsdeath,boththesecharitiesceasedtoexist.
Itwasheldthatthegifttotheunincorporatedassociationwasvalidasatrustforthepurposeratherthanthe
institution,whereasthegifttotheincorporatedcharityfailedsinceitwasagifttotheinstitutionratherthan
thepurpose.260 GoffJsaid:261
IfthematterwereresintegraIwouldhavethoughtthattherewouldbemuchtobesaidfortheviewthat
thestatusofthedonee,whethercorporateorunincorporate,canmakenodifferencetothequestion
whetherasamatterofconstructionagiftisabsoluteorontrustforpurposes.Certainlydrawingsucha
distinctionproducesanomalousresults.
Inmyjudgment,however,ontheauthoritiesadistinctionbetweenthetwoiswellestablished,atall
eventsinthiscourt.IreferfirsttoReVernonsWillTrusts[1972]Ch300nwhereBuckleyJsaidat303:
Everybequesttoanunincorporatedcharitybynamewithoutmoremusttakeeffectasagiftfor
acharitablepurpose.Noindividualoraggregateofindividualscouldclaimtotakesucha
bequestbeneficially.Ifthegiftistobepermittedtotakeeffectatall,itmustbeasabequestfor
apurpose,viz.,thatcharitablepurposewhichthenamedcharityexiststoserveAbequest
toanamedunincorporatedcharity,however,mayonitstrueinterpretationshowthatthe
testatorsintentiontomakethegiftatallwasdependentuponthenamedcharitable
organisationbeingavailableatthetimewhenthegifttakeseffecttoserveastheinstrumentfor
applyingthesubjectmatterofthegifttothecharitablepurposeforwhichitisbyinference
given.Ifsoandthenamedcharityceasestoexistinthelifetimeofthetestator,thegiftfails:Re
Ovey(1885)29ChD560.Abequesttoacorporatebody,ontheotherhand,takeseffect
simplyasagifttothatbodybeneficially,unlesstherearecircumstanceswhichshowthatthe
recipientistotakethegiftasatrustee.Thereisnoneedinsuchacasetoinferatrustforany
particularpurpose.Theobjectstowhichthecorporatebodycanproperlyapplyitsfundsmay
berestrictedbyitsconstitution,butthisdoesnotnecessitateinferringasamatterof
constructionofthetestatorswilladirectionthatthebequestistobeheldintrusttobeapplied
forthosepurposes:thenaturalconstructionisthatthebequestismadetothecorporatebody
aspartofitsgeneralfunds,thatistosay,beneficiallyandwithouttheimpositionofanytrust.
Thatthetestatorsmotiveinmakingthebequestmayhaveundoubtedlybeentoassistthework
oftheincorporatedbodywouldbeinsufficienttocreateatrust.
AsIreadthedictuminReVernonsWillTrusts,theviewofBuckleyJwasthatinthecaseofan
unincorporatedbodythegiftisperseapurposetrust,andprovidedthattheworkisstillbeingcarried
onwillhaveeffectgiventoitbywayofschemenotwithstandingthedisappearanceofthedoneeinthe
lifetimeofthetestator,unlessthereissomethingpositivetoshowthatthecontinuedexistenceofthe
doneewasessentialtothegift
AccordinglyIholdthatthebequesttotheNationalRadiumCommissionbeingagifttoan
unincorporatedcharityisapurposetrustfortheworkofthecommissionwhichdoesnotfailbutis
applicableunderascheme,provided(1)thereisnothinginthecontextofthewilltoshowandIquote
fromReVernonsWillTruststhatthetestatrixsintentiontomakeagiftatallwasdependentupon
thenamedcharitableorganisationbeingavailableatthetimewhenthegifttookeffecttoserveasthe
instrumentforapplyingthesubjectmatterofthegifttothecharitablepurposeforwhichitwasby
inferencegiven(2)thatcharitablepurposestillsurvivesbutthatthegifttotheNationalCouncilfor
MaternityandChildWelfarebeingagifttoacorporatebodyfails,notwithstandingthework
continues,unlessthereisa(p.259) contextinthewilltoshowthatthegiftwasintendedtobeon
trustforthatpurposeandnotanabsolutegifttothecorporation.
ItakefirsttheNationalRadiumCommissionandIfindinthiswillnocontextwhatevertomakethat
bodyoftheessenceofthegift.
Inmyjudgment,therefore,thisisavalidgiftforthepurposesoftheRadiumCommissionandI
directthataschemebesettledfortheadministrationofthegift.
IturntotheothergiftandhereIcanfindnocontextfromwhichtoimplyapurposetrust.Counselfor
theAttorneyGeneralreliedonReMeyers[1951]Ch534,buttherethecontextwasabsolutely
compelling.Thereweremanygiftstohospitalsandthecasedealtonlywiththehospitals,andwhilst
hospitalsarenotidentical,thisdidmeanthatallwereofthesametypeandcharacter.Moreover,not
onlywerethosegiftsbothtoincorporatedandunincorporatedhospitalsbutinsomeofthecorporate
casesthenameusedbythetestatorwasthatbywhichthehospitalwasgenerallyknowntothepublic
butwasnottheexacttitleofthecorporation.Inthepresentcasethereareatbestthreedifferent
groupsofcharitiesnotonetheyarenotinfactgroupedintheorderinwhichtheyappearinthewill,
andtheparticulardoneeswithintherespectivegroupsarenotallofthesametypeorcharacter.
Further,andworse,twodonotfitintoanygroupingatall,andforwhatitisworththeycomefirstinthe
list.Inmyjudgment,therefore,thiscaseisnotcomparablewithReMeyersandIcannotfindacontext
unlessIampreparedwhichIamnottosaythatthemerefactthatresidueisgiventoanumberof
charities,someofwhichareincorporatedandothersnot,isofitselfasufficientcontexttofastena
purposetrustonthecorporation.
Inmyjudgment,therefore,thebequesttotheNationalCouncilforMaternityandChildWelfarefails.262
Thereasonforthedistinctionbetweenincorporatedandunincorporatedcharitiesisthatthelatterdoesnothavea
separatelegalidentity,soagifttosuchacharitymustbeagiftforacharitablepurposeratherthantothe
institution.Ifthatpurposecanstillbefulfilledtherehasbeennoinitialfailure,unlessthecontinuedexistenceof
theinstitutionwasessentialtothegift.Where,however,agiftistoanincorporatedcharity,then,sincesucha
charityhasanindependentlegalexistence,thegiftwillbetothatbodybeneficially,savewhereitwasintendedto
takeasatrustee.263
Whereatestamentarygiftwasmadetoacharitablecompanythatenteredintoinsolventliquidationbeforethe
deathofthetestator,but,bythetimethetestatorhaddied,thecompanyhadnotbeenformallydissolved,there
wasnoinitialfailureandthetestamentarygiftbelongedtothecompanybeneficiallyandsocouldbedistributed
amongitscreditors.264
(ii)Generalcharitableintent
Wherethecharitablepurposefailsbeforethecommencementofthetrust,thefundscanbeappliedforasimilar
charitablepurposeonlyifthedonorhadageneralcharitableintent.Itmustbeshownthatthedonorwasmore
concernedthatthefundsshouldbeusedforcharitablepurposesgenerallyratherthanconcernedtobenefitonly
thespecificcharitablepurposeorinstitutionthatheorshehadidentified.Ifthereisageneralcharitableintentthe
fundwillbeappliedcyprs.Ifnot,thefundwillbeheldonresultingtrustforthedonor.
Identifyingwhethertherewasageneralcharitableintentrequirescarefulconstructionofthetrustdocumentsand
surroundingcircumstances.Forexample,inReRymer,265 thetestatorleftasumof(p.260) moneytotherector
ofStThomasSeminaryfortheeducationofpriestsinthedioceseofWestminsterinLondon.Whenhiswillwas
made,therewassuchaseminarythatdideducatepriestsinthatdiocese,butbythetimeofthetestatorsdeath,
theseminaryhadclosedanditsstudentshadbeentransferredtoadifferentseminarynearBirmingham.Itwas
heldthatthetestatordidnothaveageneralcharitableintent,andsothebequestlapsedandwenttotheresiduary
legatees.LindleyLJsaid:266
YoumustconstruethewillandseewhattherealobjectofthelanguagewhichyouhavetointerpretisI
cannotarriveattheconclusionatwhichtheAppellantscounselaskmetoarrive,thatthisisinsubstance
andintruthabequestof5,000fortheeducationofthepriestsinthedioceseofWestminster.Idonot
thinkitis.Itisagiftof5,000toaparticularseminaryforthepurposesthereof,andIdonotthinkitis
possibletogetoutofthat.Ithinkthecontextshewsit.Irefertothemasses,thechoiceofcandidates,and
soon.Ifonceyougetthusfarthequestionarises,doesthatseminaryexist?Theansweris,itdoesnot.
Thenyouarriveattheresultthatthereisalapseandifthereisalapse,isthereanythinginthedoctrineof
cyprstopreventtheordinarydoctrineoflapsefromapplying?Ithinknot.Onceyouarriveatthe
conclusionthatthereisalapse,thenalltheauthoritieswhichareofanyvalueshewthattheresiduary
legateetakesthelapsedgift.Weareaskedtooverrulethatdoctrine,laiddownbyViceChancellor
KindersleyinClark vTaylor(1853)1Drew642andfollowedinFisk vAG(1867)LR4Eq521.Ithinkthat
thedoctrineisperfectlyright.Theremaybeadifficultyinarrivingattheconclusionthatthereisalapse.
Butwhenonceyouarriveattheconclusionthatagifttoaparticularseminaryorinstitution,orwhatever
youmaycallit,isforthepurposesthereof,andfornootherpurposeifyouoncegettothat,anditis
provedthattheinstitutionorseminary,orwhateveritis,hasceasedtoexistinthelifetimeofthetestator,
youaredriventoarriveattheconclusionthatthereisalapse,andthenthedoctrineofcyprsis
inapplicable.Thatisinaccordancewiththelaw,andinaccordancewithallthecasesthatcanbecited.I
quiteagreethatincomingtothatconclusionyouhavetoconsiderwhetherthemodeofattainingtheobject
isonlymachinery,orwhetherthemodeisnotthesubstanceofthegift.Hereitappearstomethegiftto
theseminaryisthesubstanceofthewholething.Itistheobjectofthetestator.
AnexampleofacaseinwhichageneralcharitableintentionwasidentifiedisBiscoevJack son.267 10,000was

leftforcharitablepurposes,ofwhich4,000wastobeappliedtoestablishasoupkitchenfortheparishof
Shoreditchandacottagehospitaladjoiningit.Afterthetestatorsdeath,itwasnotpossibletoacquirethelandto
carryouttheprovisionsinthewill.Thewillwas,however,heldtoshowageneralcharitableintenttobenefitthe
poorofShoreditchandsothemoneywasappliedcyprsforthatpurpose.CottonLJsaid:268
Butthequestionwhichwehavenowtoconsideristhis,isthistobeconsideredasalegacytoaparticular
institutionwhichcannotbecarriedintoeffect,ordoweseehereanexpressedintentionbythetestatorto
benefitthepooroftheparishofShoreditch,pointingoutaparticularmodeinwhichhedesiresthatbenefit
tobeeffected?Forifthelatterbethetrueview,thenifthatparticularmodecannothaveeffectgiventoit,
theCourtwilltakeholdofthecharitableintentiontobenefitthepooroftheparishandwillapplythelegacy
inthebestwaycyprsfortheirbenefit.
Ithinkthereisthatgeneralintention.Itisverytruethatthetestatorleavescertainthingstobedoneby
thetrusteestowhomheisgivingthesumof10,000,andifthatistobeconsideredasagifttoanexisting
institution,orasagiftforthatpurposeonly,ithasfailed.Butthen,inmyopinion,lookingat(p.261) this
wholeclause,weseeanintentiononthepartofthetestatortogive10,000tothesickandpoorofthe
parishofShoreditch,pointingouthowhedesiresthattobeappliedandthatparticularmodehavingfailed,
aswemustforthepurposesofthisappealassumetobethecase,thentheintentiontobenefitthepoorof
Shoreditch,beingagoodcharitableobject,willhaveeffectgiventoitaccordingtothegeneralprinciplelaid
downlongagobythisCourt,byapplyingitcyprs.Ifthewillhadsaidthatthetrusteesmustbuildthe
particularbuildingwithintheparishofShoreditchtheremightbesomedifficulty,butwhatthetestator
desirestodoistoprovideaparticularkindofhospitalandasoupkitchenforthepooroftheparishof
Shoreditch.Tomymindthatshowsthatheintendsnotthatitistobelocatedinaparticularplace,though
thatwouldbeapropermodeofgivingeffecttotheparticulardirectionscontained,ifaplaceintheparish
couldbefoundbutthatitisforthebenefitoftheparish,thatisofthepoorintheparishofShoreditch.The
testatordirectsthatthisshallbedonebyprovidingthemwithsoupinthiskitchen,byprovidingthemwith
reliefinacottagehospital,andthenbyadirectionthatthereistobeawomanlivinginthehospitaltolook
aftertheinmatesinthehospital,andthatasumofmoneyistobepaidtoamedicalmantoattendto
themandthenhedirectshistrusteestoapplytheresidueofsuchannualincometowardsthenecessities
andforthebenefitthereof,andofthepatientswhoshallfromtimetotimebetakenintosuchhospitalin
suchmannerinallrespectsasmytrusteesortrusteeintheirorhisabsolutediscretionthinkfit.Ofcourse
wehavetodeterminewhatistheeffect,lookingfairlyatthewordsusedbythetestator,toseewhathis
intentionwas.Tomymindtheclearresultisthatheintendedheretoprovideforthebenefitofthepoor,
whichisagoodcharitablebequest,andtoprovideforthatprimarilyintheparticularwayhepointsout.
(iii)Defunctornonexistentcharity
Whetherpropertycanbeappliedcyprsfollowinganinitialfailureofpurposemayturnonwhethertheparticular
charitythathasbeenidentifiedbythedonorisdefunctorneverexisted,sincethismayaffectwhetherageneral
charitableintentcanbeidentified.ThesignificanceofthisdistinctionisillustratedbyReHarwood,269 inwhichthe
testatrixleftbequeststotheWisbechPeaceSocietyandthePeaceSocietyofBelfast.TheWisbechPeace
Societyhadexistedwhenthewillwasmade,butithadceasedtoexistbythetimeofherdeath.ThePeace
SocietyofBelfasthadneverexisted.ItwasheldthatthegifttotheWisbechPeaceSocietycouldnotbeapplied
cyprs,buttheothercould.FarwellJsaid:270
ThefirstquestionthatIhavetodetermineiswhetheragifttotheWisbechPeaceSociety,Cambridge
fails.Theevidenceisthatthisparticularsocietyceasedtoexistinthetestatrixslifetime.Itissaidthatitis
beingstillcarriedonaspartoftheworkofthePeaceCommitteeoftheSocietyofFriends.Theonusis
uponthemtoshowthattheyarethepersonsentitledtotake.Theevidenceinthiscaseisso
unsatisfactorythatIcannotsaythatthatonushasbeendischarged.
Thatleavesthequestionwhetherthereisanygeneralcharitableintent,soastoadmitoftheapplicationof
thecyprsdoctrine.Inthatwillthereisalonglistofvariouscharitablesocietiesincludingcharitieswhose
workisdevotedtopeace.Itissaidthatasthisisoneofalonglistofcharitablelegaciesthereisageneral
charitableintent.Ontheotherhand,itissaidthatwherethereisagifttoaparticularsociety,whichonce
existedbutceasedtoexistbeforethedeathofthetestatorortestatrix,thegiftlapsesandthereisnoroom
forthecyprsdoctrineIdonotproposetodecidethatitcanneverbepossiblefortheCourttoholdthat
thereisageneralcharitableintentinacasewherethecharitynamedinthewillonceexistedbutceased
toexistbeforethedeath.Withoutdecidingthat,itisenoughformetosaythat,wherethetestatorselects
astheobjectofhisbountyaparticularcharityandshowsinthewill(p.262) itselfsomecaretoidentify
theparticularsocietywhichhedesirestobenefit,thedifficultyoffindinganygeneralcharitableintentin
suchcaseifthenamedsocietyonceexisted,butceasedtoexistbeforethedeathofthetestator,isvery
great.Herethetestatrixhasgoneoutofherwaytoidentifytheobjectofherbounty.Inthisparticularcase
shehasidentifieditasbeingtheWisbechPeaceSocietyCambridge(whichisabranchoftheLondon
PeaceSociety).Underthosecircumstances,Idonotthinkitisopentometoholdthatthereisinthis
caseanysuchgeneralcharitableintentastoallowtheapplicationofthecyprsdoctrine
ThenthereisthegifttothePeaceSocietyofBelfast.
TheclaimantforthislegacyistheBelfastBranchoftheLeagueofNationsUnion.Iamquiteunableonthe
evidencetosaythatthatwasthesocietywhichthisladyintendedtobenefit,andIdoubtwhetherthelady
herselfknewexactlywhatsocietyshedidmeantobenefit.Ithinkshehadadesiretobenefitanysociety
whichwasformedforthepurposeofpromotingpeaceandwasconnectedwithBelfast.Beyondthat,Ido
notthinkthatshehadanyveryclearideainhermindAtanyrateIcannotsaythatbythedescription,
thePeaceSocietyofBelfast,theladymeanttheBelfastBranchoftheLeagueofNationsUnionbutthere
isenoughinthiscasetoenablemetosaythat,althoughthereisnogifttoanyexistingsociety,thegift
doesnotfail.Itisagoodcharitablegiftandmustbeappliedcyprs.Theevidencesuggeststhatatsome
timeorother,possiblybeforethelateWar,theremayhavebeenasocietycalledthePeaceSocietyof
Belfast.Itisallhearsayevidencethereisnothingintheleastdefiniteaboutit,anditdoesnotsatisfyme
thatthereeverwasanysocietyinexistencewhichexactlyfitsthedescriptioninthiscase,andtherebeing
aclearintentiononthepartofthelady,asexpressedinherwill,tobenefitsocietieswhoseobjectwasthe
promotionofpeace,andtherebeingnosuchsocietyasthatnamedinherwill,inthiscasethereisa
generalcharitableintent,and,accordingly,thedoctrineofcyprsapplies.
Indrawingadistinctionbetweendefunctandnonexistentcharities,thisdecisionhasbeendescribedas
remarkable.271 Itiscertainlydifficulttoseehowthetestatrixsintentioncanbedifferentiateddependingon
whetherornotthecharitythatshewishedtobenefithadorhadnotexisted,sinceinbothcasesshehad
apparentlyintendedtobenefitaparticularinstitution.Thereis,however,morelikelytobeaparticularintentionto
benefitaparticularinstitutioniftheinstitutiononceexisted.Thesignificanceofthedistinctionbetweenan
institutiononceexistingandneverexistingwasconsideredfurtherinReSpence,272 inwhichatestatrixhadleft
theresidueofherestateforthebenefitofthepatientsoftheOldFolksHomeatHillworthLodgeKeighley.The
homehadexistedbuthadclosedbythetimeofherdeath.Itwasheldthatthegiftcouldnotbeappliedcyprs.
MegarryVCsaid:273
[ReHarwoodwas]concernedwithgiftstoinstitutions,ratherthangiftsforpurposes.Thecasebeforeme,
ontheotherhand,isagiftforapurpose,namely,thebenefitofthepatientsataparticularOldFolks
Home.ItthereforeseemstomethatIoughttoconsiderthequestion,ofwhichlittleornothingwassaidin
argument,whethertheprincipleinReHarwood,oraparallelprinciple,hasanyapplicationtosuchcase.In
otherwords,isasimilardistinctiontobemadebetween,ontheonehand,acaseinwhichthetestatorhas
selectedaparticularcharitablepurpose,takingsomecaretoidentifyit,andbeforethetestatordiesthat
purposehasbecomeimpracticableorimpossibleofaccomplishment,andontheotherhandacasewhere
thecharitablepurposehasneverbeenpossibleorpracticable?
AsatpresentadvisedIwouldanswerYestothatquestion.IdonotthinkthatthereasoningoftheRe
Harwoodlineofcasesisdirectedtoanyfeatureofinstitutionsasdistinctfrompurposes.Instead,Ithink(p.
263) theessenceofthedistinctionisinthedifferencebetweenparticularityandgenerality.Ifaparticular
institutionorpurposeisspecified,thenitisthatinstitutionorpurpose,andnoother,thatistobetheobject
ofthebenefaction.Itisdifficulttoenvisageatestatorasbeingsuffusedwithageneralglowofbroadcharity
whenheislabouring,andlabouringsuccessfully,toidentifysomeparticularspecifiedinstitutionorpurpose
astheobjectofhisbounty.Thespecificdisplacesthegeneral.Itisotherwisewherethetestatorhasbeen
unabletospecifyanyparticularcharitableinstitutionorpracticablepurpose,andso,althoughhisintention
ofcharitycanbeseen,hehasfailedtoprovideanywayofgivingeffecttoit.There,theabsenceofthe
specificleavesthegeneralundisturbed
FromwhatIhavesaiditfollowsthatIhavebeenquiteunabletoextractfromthewill,construedinits
context,anyexpressionofageneralcharitableintentionwhichwouldsufficeforthemoietytobeapplied
cyprs.Instead,inmyjudgment,themoietywasgivenforaspecificcharitablepurposewhich,though
possiblewhenthewillwasmade,becameimpossiblebeforethetestatrixdied.Thegiftofthemoiety
accordinglyfails,anditpassesasonintestacy.
AlthoughMegarryVCappearedtoconfirmthedistinctionbetweendefunctandnonexistentcharities,his
emphasisontheidentificationofparticularandgeneralpurposesorinstitutionssuggeststhat,whereaninstitution
isspecificallyidentifiedtoreceiveabequest,thereislesslikelytobeageneralcharitableintenteventhoughthe
institutionneverexisted.Certainly,inReSpenceitself,theidentificationofaspecificcharitablepurposemeant
that,sincethatpurposehadfailed,thebequestcouldnotbeappliedcyprs,althoughthatwasacasewherethe
institutionhadonceexisted.
Therewill,however,sometimesbecircumstancesunderwhich,despitetheidentificationofaparticularcharitable
purposeorinstitutionthathasbecomedefunct,thecourtwillstillbeabletofindageneralcharitableintent.Thisis
illustratedbytheunusualfactsofReFingersWillTrust,274 inwhichthegifttotheNationalCouncilforMaternity
andChildWelfare,anincorporatedcharity,hadfailedbecausethecharityhadceasedtoexistbythetimeofthe
testatrixsdeath.Althoughitwasfoundthatthegiftwasintendedtobefortheinstitutionratherthanforits
charitablepurpose,ageneralcharitableintentwasstillidentified.GoffJsaid:275
FarwellJ[inReHarwood[1936]Ch285]didnotsaythatitwasimpossibletofindageneralcharitable
intentionwherethereisagifttoanidentifiablebodywhichhasceasedtoexistbutonlythatitwouldbe
verydifficult
Inthepresentcasethecircumstancesareveryspecial.First,ofcoursethewholeestateisdevotedto
charityandthatis,Ithink,somewhatemphasisedbythespecificdedicationtocharityinthepreface:
andafterpaymentofthesaidlegaciesmytrusteesshallholdthebalancethenremainingofmy
residuaryestateupontrusttodividethesameinequalsharesbetweenthefollowingcharitable
institutionsandfunds.
Again,IamIthinkentitledtotakeintoaccountthenatureofthecouncil,whichasIhavesaidwasmainly,
ifnotexclusively,acoordinatingbody.Icannotbelievethatthistestatrixmeanttobenefitthatorganisation
andthatalone.
Finally,IamentitledtoplacemyselfinthearmchairofthetestatrixandIhaveevidencethatsheregarded
herselfashavingnorelatives.
Takingallthesemattersintoaccount,inmyjudgmentIcanandoughttodistinguishReHarwoodandfind
asIdoageneralcharitableintention.
(p.264) Itisimportanttorememberthatthecourtisseekingtodeterminewhetherornottherewasageneral
charitableintentonthepartofthetestator.Whistthefactthatagiftwasintendedtobeforaparticularinstitution
isevidencethattherewasnogeneralcharitableintention,theremaybeotherfactors,suchasthoseidentifiedby
GoffJ,whichmayenablethecourttoidentifysuchanintention.
(iv)Charitybyassociation
Whereadonormakesanumberofgiftstocharitieswithsimilarpurposes,butoneofthosecharitiesdoesnot
exist,thecourtwillbemorewillingtofindageneralcharitableintentionbyvirtueofitsassociationwithgiftsto
existingcharities.So,forexample,inReSatterthwaitesWillTrusts,276 thetestatrixleftherestatetoseven
animalcharities,anantivivisectionistsociety,andtheLondonAnimalHospital.Nosuchhospitalexistedwhen
thewillwasmade.Itwasheldthatthegiftthatwaspurportedlymadetothehospitalcouldbeappliedcyprs
becausethetestatrixhadageneralcharitableintentinfavourofanimalwelfare.HarmanLJsaid:277
Ifaparticulardoneewereintendedwhichcannotbeidentified,nogeneralintentwouldfollow.Butwhenone
looksatthewholeoftheresiduarybequest,itseemsplainthateachshareisintendedtogotosome
objectconnectedwiththecareorthecureofanimals.ThattheAntiVivisectionhasbeendeclarednotto
beinlawacharitableobjectisirrelevant.Thesocietyexiststosaveanimalsfromsuffering.
InReJenk inssWillTrusts,278 however,thetestatrixbequeathedherresiduaryestatetoseveninstitutions,oneof

whichwastheBritishUnionfortheAbolitionofVivisection,whichwasnotacharitybecauseofitspolitical
purpose.279 Theothersixinstitutionswerecharitieswithpurposesrelatingtoanimalwelfare.Itwasheldthatthe
gifttotheantivivisectioninstitutionfailedbecauseitwasnotpossibletoidentifyanintentionthatthegiftforthe
noncharitablepurposeshouldtakeeffectasagiftforothercharitablepurposessimplybecausetherewereother
charitablegifts,eventhoughthenoncharitablegifthadacloserelationtothoseotherpurposes.BuckleyJ
said:280
Therearecasesinwhich,wherepropertyhasbeengiventosomecharitywhichcannotbeidentified,the
courthasfeltabletosaythatinthecontextinwhichthegiftisfounditisclearthatthetestatoror
testatrixhadacharitableintentioninmakingtheparticulargiftandintendedtobenefitnotaparticular
institutionbutacharitableactivityHowever,theprincipleofnosciturasociis[interpretationbyreference
tocontext]doesnotinmyjudgmententitleonetooverlookselfevidentfacts.Ifyoumeetsevenmenwith
blackhairandonewithredhairyouarenotentitledtosaythathereareeightmenwithblackhair.Finding
onegiftforanoncharitablepurposeamonganumberofgiftsforcharitablepurposesthecourtcannotinfer
thatthetestatorortestatrixmeantthenoncharitablegifttotakeeffectasacharitablegiftwheninthe
termsitisnotcharitable,eventhoughthenoncharitablegiftmayhaveacloserelationtothepurposesfor
whichthecharitablegiftsaremade.
Inmyjudgmentitisnotpossibleformeinthiscasetocometotheconclusionthatthetestatrix,whenshemade
thisgifttothefirstdefendantfortheexpresspurposeofdoingallthatwaspossibleto(p.265) promotethe
passageofanActofParliamentprohibitingvivisection,wasreallyactuatedbyacharitablepurposetowhichthe
courtcouldgiveeffectbywayofscheme.
Thedifferencebetweenthesecasesisthat,inReSatterthwaite,thetestatrixintendedtobenefitaninstitutionthat
didnotexist,butwouldprobablyhavebeencharitablehaditexistedinReJenk ins,theinstitutiondidexist,butit
wasnotpursuingacharitablepurpose.ThegeneralcharitableintentwasidentifiedinReSatterthwaitebecauseof
thecloseconnectionbetweenthedifferentcharitablepurposes.InReJenk ins,anoncharitablepurposecouldnot
havebeenrenderedcharitablesimplybyvirtueofitsassociationwithothercharitablepurposes.
TheprincipleofconstructionofcharitybyassociationwasanalysedfurtherinReSpence,281 wherethedoctrine
wasnotappliedwherethetestatrixhadmadeabequestforthebenefitofoldpeopleinaparticularhomethatno
longerexistedandanotherforblindpatientsinanotherhomethatdidexist.MegarryVCsaid:282
Thedoctrinemayforbrevitybedescribedascharitybyassociation.Ifthewillgivestheresidueamonga
numberofcharitieswithkindredobjects,butoneoftheapparentcharitiesdoesnotinfactexist,thecourt
willbereadytofindageneralcharitableintentionandsoapplytheshareofthenonexistentcharitycy
prs.Ihavenotbeenreferredtoanyexplicitstatementoftheunderlyingprinciple,butitseemstomethat
insuchcasesthecourttreatsthetestatorashavingshownthegeneralintentionofgivinghisresidueto
promotecharitieswiththattypeofkindredobjects,andthen,whenhecomestodividingtheresidue,as
castingaroundforparticularcharitieswiththattypeofobjectstonameasdonees.Ifoneormoreofthese
arenonexistent,thenthegeneralintentionwillsufficeforacyprsapplication.Itwillbeobservedthat,as
stated,thedoctrinedepends,atleasttosomeextent,uponthedetectionofkindredobjects(aphrase
whichcomesfromthejudgmentofLuxmooreJinInreKnox[1937]Ch109,113)inthecharitiestowhich
thesharesofresiduearegiven,inthisrespectthecharitiesmustinsomedegreebeejusdemgeneris[of
thesamekind]
Thecourtisfarlessreadytofindsuchanintentionwherethegiftistoabodywhichexistedatthedateof
thewillbutceasedtoexistbeforethetestatordied,or,asIhavealreadyheld,wherethegiftisfora
purposewhich,thoughpossibleandpracticableatthedateofthewill,hasceasedtobesobeforethe
testatorsdeath.Thecasebeforemeis,ofcourse,acaseinthislattercategory,sothat[counsel]hasto
overcomethisgreaterdifficultyinfindingageneralcharitableintention.
Notonlydoes[counsel]havethisgreaterdifficulty:healsohas,Ithink,lessmaterialwithwhichtomeetit.
Hehastoextractthegeneralcharitableintentionforthegiftwhichfailsfromonlyoneothergift:the
residue,ofcourse,wassimplydividedintotwo.InInreKnoxandInreHartleythegiftswhichfailedwere
eachamongthreeothergifts,andinInreSatterthwaitesWillTrusts[1966]1WLR277therewereseven
oreightothergifts.Idonotsaythatageneralcharitableintentionoragenuscannotbeextractedfroma
giftofresidueequallybetweentwo:butIdosaythatlargernumbersarelikelytoassistinconveyingtothe
courtasufficientconvictionbothofthegenusandofthegeneralityofthecharitableintention
Wherethedifficultyorimpossibilitynotonlyafflictsthemethodbutalsoinvadestheconceptofthealleged
generalcharitableintention,thenIthinkthatthedifficultyofestablishingthatthewilldisplaysanygeneral
charitableintentionbecomesalmostinsuperable.
(p.266) (b)SubsequentFailureofCharitablePurpose
Onceatrustfundhasbeendedicatedtoacharitablepurpose,thefactthatthepurposethenfailscannotdestroy
thecharitablenatureofthefund.Thecourtswillfindasimilarcharitablepurposeandthefundwillbetransferredto
it,regardlessofwhetherthedonorhadageneralorparticularcharitableintent.Theonlyexceptionsarewherethe
creatorofthetrusthasexpresslyprovidedforwhatshouldhappentothefundifthepurposesubsequentlyfails,for
examplebyprovidingthatthepropertyshouldbereturnedtothesettlor,ortothoseentitledtothetestators
residuaryestate,orpassedtoathirdparty.283
Whereatestatorhassoughttocreateacharitabletrust,thefailureofthecharitablepurposewillbesubsequentif
itoccursafterthetestatorsdeatheventhoughitoccurredbeforethegiftwasvestedinthecharity.So,for
example,inReSlevin,284 thetestatormadeagifttoanorphanagethatwasinexistenceathisdeath,butwhich
ceasedtoexistsoonafterwardsandbeforethelegacywaspaid.Itwasheldthatthegiftcouldbeappliedcyprs.
KayLJsaid:285
Inthecaseofalegacytoanindividual,ifhesurvivedthetestatoritcouldnotbearguedthatthelegacy
wouldfallintotheresidue.Evenifthelegateediedintestateandwithoutnextofkin,stillthemoneywas
his,andtheresiduarylegateewouldhavenorightwhateveragainsttheCrown.So,ifthelegateewerea
corporationwhichwasdissolvedafterthetestatorsdeath,theresiduarylegateewouldhavenoclaim.
Obviouslyitcanmakenodifferencethatthelegateeceasedtoexistimmediatelyafterthedeathofthe
testator.Thesamelawmustbeapplicablewhetheritwasaday,ormonth,oryear,or,asmightwell
happen,tenyearsafterthelegacynothavingbeenpaideitherfromdelayoccasionedbythe
administrationoftheestateorowingtopartoftheestatenothavingbeengotin.Thelegacybecamethe
propertyofthelegateeuponthedeathofthetestator,thoughhemightnot,forsomereason,obtainthe
receiptofittilllongafter.Whenonceitbecametheabsolutepropertyofthelegatee,thatisequivalentto
sayingthatitmustbeprovidedforandtheresidueisonlywhatremainsaftermakingsuchprovision.It
doesnotforallpurposesceasetobepartofthetestatorsestateuntiltheexecutorsadmitassetsand
appropriateandpayitoverbutthatismerelyfortheirconvenienceandthatoftheestate.Therightsas
betweentheparticularlegateeandtheresiduearefixedatthetestatorsdeath
InthepresentcasewethinkthattheAttorneyGeneralmustsucceed,notonthegroundthatthereissuch
ageneralcharitableintentionthatthefundshouldbeadministeredcyprsevenifthecharityhadfailedin
thetestatorslifetime,butbecause,asthecharityexistedatthetestatorsdeath,thislegacybecamethe
propertyofthatcharity,andonitsceasingtoexistitspropertyfallstobeadministeredbytheCrown,who
willapplyit,accordingtocustom,forsomeanalogouspurposeofcharity.
InReWright,286 thetestatrixleftherresiduaryestate,subjecttoalifeinterest,ontrustforaconvalescenthome.
Whenshediedin1933,theprovisionofsuchahomewascapableofbeingcarriedout,butwhenthelifetenant
diedin1942,itwasnolongerpracticable.TheCourtofAppealheldthatthetestofpracticabilityofcharitable
purposeshouldbeappliedatthedateofthetestatrixsdeathratherthanwhenthefundsbecameavailableonthe
deathofthelifetenant.Thiswasbecausetheformerdatewasthatonwhichtherightsofthecharityandthenext
ofkin,whowouldtakeitifthegifttothecharityfailed,wereascertained.Thiswasconsequentlyacaseof
subsequentfailureofthecharitable(p.267) purposebecausethepurposehadbeenpracticablewhenthe
testatrixdiedandsothefundscouldbeappliedcyprs.
InReTacon,287 thetimefordeterminingthepracticabilityoffulfillingthecharitablepurposewasclarified.Itwas
heldthat,wherethegiftisvestedbutliabletobedefeatedontheoccurrenceofaparticularevent,itisnot
sufficientmerelytoconsiderwhetherthepurposewaspracticableatthedateofthetestatorsdeathitisalso
necessarytoconsiderwhetheritwouldbepracticableatsomefuturedate.Inthatcase,thetestatorhadlefthis
residuaryestatetohisdaughterforlifewithremaindertoherchildren,but,ifshedidnothaveany,partofthe
residuaryestatewastobeusedtofoundaconvalescenthospital.Atthedateofthetestatorsdeath,thevalueof
theresiduaryestatewassufficienttoestablishsuchahospital.Hisdaughterdiedchildlessthirtyyearslater,by
whichtimethevalueoftheresiduarysharehadfallensignificantly,sothatthecharitablepurposewasnolonger
practicable.Itwasheldthat,wherethegiftforthecharitablepurposewasvestedbutdefeasible,itshouldbe
assumedthatthegiftwouldtakeeffectatsometimeinthefuture.Inthelightofthat,itwasconsideredthat,had
thequestionofpracticabilityinthefuturebeenassessedatthetimeofthetestatorsdeath,thepurposewould
havebeenconsideredtobepracticablebecauseitwouldnothavebeenanticipatedthatthevalueofmoneywould
havefalleninthemeantime.
Acharitablepurposewillalsobeconsideredtohavefailedsubsequentlywherethepurposehasbeenfulfilledand
thereremainsasurplusoftrustfunds.So,forexample,inReKing,288 thetestatrixlefttheresidueofherestatefor
astainedglasswindowtobeinstalledinachurch.Theresiduewasover1,000andthecostofthewindowwas
about700.Itwasheldthatthesurplusoftheestatecouldbeappliedcyprstowardstheinstallationofanother
windowinthechurch.
(c)AlterationofOriginalCharitablePurpose
AtCommonLaw,thecyprsdoctrinewasapplicableonlywheretheobjectsofthetrustbecameimpossibleor
inexpedientinwholeorinpart.Wherethepurposewassubjecttoaconditionthatmadeitimpossibleor
impracticabletoachievethemainpurpose,thecourtcould,aspartofitscyprsjurisdiction,removethecondition
sothatthemainpurposecouldbeachieved.So,forexample,inReLysaght,289 theRoyalCollegeofSurgeons
refusedtoacceptagenerousbenefactiontowardsmedicalstudentshipsbecauseitwassubjecttoacondition
thatmeantthatJewishorRomanCatholicstudentswerenoteligibletoreceivestudentships,aconditionthatthe
RoyalCollegeconsideredtobealientothespiritofitswork.Thisrenderedthefulfilmentofthecharitablepurpose
impossible,becausetheRoyalCollegerefusedtoacceptthegiftonthosetermsandthetestatrixwantedonlythe
RoyalCollegeofSurgeonstobethetrusteeofthefund.Itwasheldthat,sincetheconditionsrelatingtoreligious
disqualificationconcernedthemachineryofthetrustanddidnotformanessentialpartofherintentiontofound
medicalstudentships,aschemewasorderedwherebytheRoyalCollegeheldthebequestontrust,butwithout
theoffendingcondition.Theconditionthatwasremovedwasnotconsideredtobeessentialtothefulfilmentofthe
donorsdominantcharitableintent.
Alteringtheoriginalcharitablepurposewasnotavailable,however,atCommonLawwherethefulfilmentofthe
purposeremainedpossible,butthepurposewasnotusefulorconvenient.Examplesincludewherepropertyhad
beenleftforuseasahospitalbutforwhichpurposethesitewassimplynotsuitable,290 orwherethepurpose
wasoutmodedorwasprovidedforfromothersources.Thecyprs(p.268) doctrinecannowbeappliedinsuch
situationsbystatute,withtherelevantprovisionnowtobefoundintheCharitiesAct2011,whichrelaxedthe
requirementofimpracticabilityandimpossibility.
CharitiesAct2011
62Occasionsforapplyingpropertycyprs
(1)Subjecttosubsection(3),thecircumstancesinwhichtheoriginalpurposesofacharitable
giftcanbealteredtoallowthepropertygivenorpartofittobeappliedcyprsare
(a)wheretheoriginalpurposes,inwholeorinpart
(i)havebeenasfarasmaybefulfilled,or
(ii)cannotbecarriedout,ornotaccordingtothedirectionsgivenandtothespiritof
thegift,
(b)wheretheoriginalpurposesprovideauseforpartonlyofthepropertyavailablebyvirtue
ofthegift,291
(c)where
(i)thepropertyavailablebyvirtueofthegift,and
(ii)otherpropertyapplicableforsimilarpurposes,
canbemoreeffectivelyusedinconjunction,andtothatendcansuitably,regardbeinghad
totheappropriateconsiderations,bemadeapplicabletocommonpurposes,
(d)wheretheoriginalpurposeswerelaiddownbyreferenceto
(i)anareawhichthenwasbuthassinceceasedtobeaunitforsomeotherpurpose,
or
(ii)aclassofpersonsoranareawhichhasforanyreasonsinceceasedtobe
suitable,regardbeinghadtotheappropriateconsiderations,ortobepracticalin
administeringthegift,or
(e)wheretheoriginalpurposes,inwholeorinpart,have,sincetheywerelaiddown
(i)beenadequatelyprovidedforbyothermeans,
(ii)ceased,asbeinguselessorharmfultothecommunityorforotherreasons,tobe
inlawcharitable,or
(iii)ceasedinanyotherwaytoprovideasuitableandeffectivemethodofusingthe
propertyavailablebyvirtueofthegift,regardbeinghadtotheappropriate
considerations.
(2)Insubsection(1)theappropriateconsiderationsmeans
(a)(ontheonehand)thespiritofthegiftconcerned,and
(b)(ontheother)thesocialandeconomiccircumstancesprevailingatthetimeofthe
proposedalterationoftheoriginalpurposes.
Section62enablestheoriginalpurposesofacharitablegifttobealteredbytheCharityCommissionincertain
circumstancestoallowsome,orall,ofthedonatedpropertytobeappliedcyprs.Thejurisdictionissignificant,
sinceitinvolvesalteringtheoriginalpurposesofthegifttoenablepropertytobeappliedinadifferentwayfrom
thatintendedbythedonor.
Thesignificanceofsection62isespeciallywellillustratedbyVarsanivJesani.
VarsanivJesani[1999]Ch219
AHindureligioussecthadsplitintotwofactionsin1984oneofwhichrecognizedthedivinestatusofthe
successortothesectsfounderwhilsttheotherdidnot.Neithergroupcouldworship(p.269) togetherinthe
charitystemple.Bothfactionssoughtaschemetodividethecharitysfundsunderwhatisnowsection62,
butwasthensection13,oftheCharitiesAct1993,onthegroundthattheoriginalpurposeofthecharity,
namelytoworshipinthetemple,hadceasedtoprovideasuitableandeffectivemethodofusingtheproperty,
havingregardtothespiritofthegift.Itwasheldthatthestatutoryjurisdictionapplied,soaschemeforthe
divisionofthecharityspropertybetweenthetwogroupswouldbedirected,eventhoughtheoriginalpurposes
ofthecharitywereneitherimpossiblenorimpracticable.MorrittLJsaid:292
Nowthejurisdictiontomakeacyprsschemedependsonwhetherthecasefallswithinoneorother
oftheparagraphsofsection13(1).Therelevanttestinthiscaseisnowwhethertheoriginalpurpose
hasceasedtoprovideasuitableandeffectivemethodofusingtheproperty,regardbeinghadtothe
spiritofthegift.
Inmyviewthattestissatisfiedinthiscase.First,thereisnodoubtwhattheoriginalpurposeofthe
charitywasandis.ItwasandisthepromotionofthefaithofSwaminarayanaccordingtothe
teachingsandtenetsofMuktajivandasji.Second,untiltheproblemsdisclosedbytheeventsof1984
arosethoseoriginalpurposeswerebothsuitableandeffectiveasamethodofusingthepropertyfor
boththemajorityandminoritygroupwereagreedonallrelevantmattersandthereforeabletoworship
togetherinthetemplesprovidedbythecharity.Third,theexposureofdifferingbeliefsbytheeventsof
1984hasproducedasituationinwhichneithergroupisabletoworshipinthesametempleasthe
othersothattheminoritygrouphasbeenexcludedfromthefacilitiesfortheworshipthecharitywas
establishedtoprovide.Fourth,unlesstheimpassecanberesolvedasamatteroffaith,sothatboth
groupsreunitetoembracethefaiththecharitywasestablishedtopromote,theimpassewillremainso
longastheoriginalpurposeremains.Fifth,theimpassecannotberesolvedasamatteroffaith
becausetheteachingsandtenetsofMuktajivandasjididnotdealwithwhetherabeliefinaparticular
successortoMuktajivandasjiorinthedivineattributesofasuccessorwereorareessentialtenetsof
thefaithThustheimpasseandtheoriginalpurposeofthecharitygotogether.Iftheoriginalpurpose
leadsinthepresentcircumstancestosuchanimpassetheninmyviewitisselfevidentthatthe
originalpurposehasceasedtobeasuitableandeffectivemethodofusingtheavailableproperty.
Thecourtisenjoinedbysection13(1)(e)(iii)oftheCharitiesAct1993tohaveregardtothespiritofthe
giftthebasicintentionunderlyingthegiftorthesubstanceofthegiftratherthantheformofthe
wordsusedtoexpressitorconditionsimposedtoeffectit.Itisnoteworthythatthephraseisusedin
section13(1)onlyincontextswhichrequirethecourttomakeavaluejudgment.Thusitdoesnot
appearinparagraphs(a)(i),(b),(e)(i)or(ii).Moreover,whenitisused,ineachcaseexceptoneit
appearsinthecontextofsuitability.Theexception,paragraph(a)(ii),whilstnotactuallyusingtheword
suitable,requiresasimilarvaluejudgment.Thecourtisnotboundtofollowthespiritofthegiftbutit
mustpayregardtoitwhenmakingthevaluejudgmentsrequiredbysomeoftheprovisionsofsection
13(1).
FormypartIhavenohesitationinconcludingthatthespiritofthegiftsupportsthesubmissionthat
thecourtshouldacceptandexercisethejurisdictionconferredbysection13(1)(e)(iii),oftheCharities
Act1993bydirectingaschemeforthedivisionofthepropertyofthecharitybetweenthemajorityand
minoritygroups.Thechoiceliesbetweendirectingsuchaschemeforthebenefitofallthosewho
downto1984sharedthebeliefforthepromotionofwhichthecharitywasestablishedand,nodoubt,in
manycasessupportedthecharityfinanciallyaswell,eventhoughsomeofthemmaynolongerdoso,
andrequiringasubstantialproportionofthetrustpropertytobespentinlitigationwhichcannever
finallyresolvetheproblemswhichdividethetwogroups.Idonotminimisethestrengthoffeelingwhich
arisesinconnectionwithdisputessuchasthis.Insuchcaseseitherorbothgroupsoftenlitigatein
preferencetopermittingabenefittobeconferredontheother.Butthespiritofthegifttowhich(p.
270) thecourtistohaveregardisthatwhichprevailedatthetimeofthegiftwhenthetwogroupswere
inharmony.
AccordinglyIwouldrejectthesubmissionsofboththeminoritygroupandtheAttorneyGeneral.First,
itisnotnecessarytoascertainthepreciselimitsofthepurposeofthecharitybeforedecidingwhether
thecasecomeswithinsection13(1)oftheCharitiesAct1993.Thepurposeofthischarityisclearit
isthepromotionofthefaithofSwaminarayanaccordingtotheteachingandtenetsofMuktajivandasji.
Itistheexpressionofthatpurposeinthelightofsubsequenteventswhichhasgivenrisetothe
schismwiththeresultthattheoriginalpurposehasceasedtobeasuitableandeffectivemethodof
usingthetrustproperty.Second,itisnotanecessaryconditionfortheapplicationofthesectionthat
theoriginalpurposeshavebecomeimpossibleorimpractical,onlythatthecircumstancescomewithin
oneorotherparagraphofsection13(1).Thuseveniftheinquiriessoughtwereorderedandpursued
andultimatelydemonstratedthattheminoritygroupbutnotthemajoritygroupstillembracedthe
relevantfaiththatdoesnotnowprecludetheapplicationofthesectionfortheoutcomeoftheinquiries
wouldmerelydemonstratethattheoriginalpurposewasnotimpossibleorimpractical.
ChadwickLJsaid:293
IagreewithMorrittLJthat,iftheunderlyingquestionwhich,ifeither,oftheviewsnowheldbythemajority
groupandtheminoritygrouprespectivelydotrulyreflecttheteachingsandtenetsofMuktajivandasjiinthe
circumstanceswhichhavearisenweretoberesolvedinfavourofonegroupandagainsttheother,the
positionwouldbethattheoriginalpurposeshadceasedtoprovideasuitableandeffectivemethodofusing
thepropertyavailablebyvirtueofthegift.Itisnot,ofcourse,thecasethatthepropertycouldnotbeused
inaccordancewiththeoriginalpurposes.Clearlyitcouldbesousedbythegroupwhowerefound,onthis
hypothesis,tobethefollowersofthetruefaith.Buttoappropriatethepropertytothesoleuseofone
group,totheexclusionoftheother,wouldnotinacaselikethepresentbeasuitableandeffective
methodofusingthatproperty,regardbeinghadtothespiritofthegift.Theneedtohaveregardtothespirit
ofthegiftrequiresthecourttolookbeyondtheoriginalpurposesasdefinedbytheobjectsspecifiedinthe
declarationoftrustandtoseektoidentifythespiritinwhichthedonorsgavepropertyupontrustforthose
purposes.Thatcanbedone,asitseemstome,withtheassistanceofthedocumentasawholeandany
relevantevidenceastothecircumstancesinwhichthegiftwasmade.InthepresentcaseIhavenodoubt
thatthespiritinwhichpropertywasgivenin1967wasadesiretoprovidefacilitiesforasmallbutunited
communityofthefollowersofMuktajivandasjiinandaroundHendontoworshiptogetherinthefaithof
Swaminarayan.Theoriginalpurposesspecifiedinthedeclarationoftrustthatistosaythepromotionof
thefaithofSwaminarayanaspractisedinaccordancewiththeteachingsandtenetsofMuktajivandasji
arenolongerasuitableandeffectivemethodofusingthepropertygivenin1967,oraddedpropertyheld
uponthesametrusts,becausethecommunityisnowdividedandcannotworshiptogether.Nothingthat
thecourtmaydecidewillalterthat.Toholdthatonegrouphasadheredtothetruefaithandthattheother
grouphasnotwillnotalterthebeliefsofthatothergroup.Thepositionwillremainthatthecommunity
cannotworshiptogether.Toappropriatetheuseofthepropertytotheonegrouptotheexclusionofthe
otherwouldbecontrarytothespiritinwhichthegiftwasmade.Itfollowsthattherewouldbejurisdictionto
makeaschemecyprseveniftheunderlyingquestionwhich,ifeither,oftheviewsnowheldbythe
majoritygroupandtheminoritygrouprespectivelydotrulyreflecttheteachingsandtenetsof
Muktajivandasjiinthecircumstanceswhichhavearisenweretoberesolvedinfavourofonegroupand
againsttheother.Givenjurisdiction,itwouldplainlybeappropriatetomakeascheme.Torefusetodoso
wouldbetoperpetuateapositioninwhichthepropertyofthecharityisnolongerbeingusedinasuitable
andeffectivemanner.
(p.271) Thealternativetoacyprsschemewastoconductaninquirytodeterminewhichfactionfollowedthe
truefaiththatfactioncouldthenhaveexclusiveuseofthetemple.Thiswasnotconsideredtobeasuitableand
effectivemethodofusingtheproperty,havingregardtothespiritinwhichthedonorshadgivenpropertyontrust
forthepurposeofpromotingthefaithofthesectbythecommunityworshippingtogether.
Anotherexampleofthesignificantjurisdictioncreatedbysection62isReLeptonsCharity.
ReLeptonsCharity[1972]Ch276
In1715,thetestatorhadleftlandontrustwith3oftheincomeeachyeartobepaidtoaProtestant
dissentingministerinPudsey,andthesurpluswastobedistributedtothepoorandagedofthetown.The
landwassold.Thequestionforthecourtwaswhetherwhatisnowsection62couldbeusedtovarythewill
andraisetheannualpaymenttotheministerto100,inthelightofthefactthatwhenthetrustwas
establishedtheannualincomewas5andwhenthecasewasheardtheannualincomewasnearly800.A
schemewasorderedtovarythewillonthegroundthatregardshouldbehadtothecharitablepurposesinthe
trustasawhole,inparticulartherelativevalueofthepaymenttotheministerandtheresidue.PennycuickV
Csaid:294
Onemustnextconsiderwhetherinrelationtoatrustforpaymentofafixedannualsumoutofthe
incomeofafundtocharityAandpaymentoftheresidueofthatincometocharityBtheexpression
theoriginalpurposesofacharitablegiftinsection13(1)shouldbeconstruedasreferringtothetrusts
asawholeormustberelatedseverallytothetrustforpaymentofthefixedannualsumandthetrust
forpaymentofresiduaryincome
Itseemstomethatthewordstheoriginalpurposesofacharitablegiftareapttoapplytothetrusts
asawholeinsuchacase.Whereatestatororsettlordisposesoftheentireincomeofafundfor
charitablepurposes,itisnaturaltospeakofthedispositionasasinglecharitablegift,albeitthegiftis
formorethanonecharitablepurpose.Conversely,itwouldberatherunnaturaltospeakofthe
dispositionasconstitutingtwoormoreseveralcharitablegiftseachforasinglepurpose.Nor,Ithink,
isthereanyreasonwhyoneshouldputthisratherartificialconstructiononthewords.Thepointcan,
sofarasIcansee,onlyariseasapracticalissueinregardtoatrustofthepresentcharacter.Atrust
fordivisionofincomebetweencharitiesinaliquot[proportionate]shareswouldgiverisetodifferent
considerations,inasmuchasevenifonetreatsitasasinglegiftthepossibilityorotherwiseofcarrying
outthetrustsofoneshareaccordingtothespiritofthegiftcouldhardlyreactuponthepossibilityor
otherwiseofcarryingoutthetrustsoftheothershareaccordingtothespiritofthegift.Thesameis
true,mutatismutandis,oftrustsforcharitiesinsuccession.Butinatrustofthepresentcharacter
thereisanobviousinterrelationbetweenthetwotrustsinthatchangesintheamountoftheincome
andthevalueofmoneymaycompletelydistorttherelativebenefitstakenundertherespectivetrusts

OnceitisacceptedthatthewordstheoriginalpurposesofacharitablegiftbearthemeaningwhichI
haveputuponthemitistomymindclearthatinthecircumstancesofthepresentcasetheoriginal
purposesofthegiftof[theland]cannotbecarriedoutaccordingtothespiritofthegift,ortousethe
wordsofparagraph(e)(iii)haveceasedtoprovideasuitableandeffectivemethodofusingthe
propertyregardbeinghadtothespiritofthegift.Theintentionunderlyingthegiftwastodividea
sumwhich,accordingtothevaluesof1715,wasmodestbutnotnegligible,insuchamannerthatthe
ministertookwhatwasthenaclearthreefifthsofit.Thisintentionisplainlydefeatedwheninthe
conditionsoftodaytheministertakesaderisory3outofatotalof791.
(p.272) Theapplicationofwhatisnowsection62inthiscasesuggestsanexpansionofthestatutory
jurisdiction,sincetherewasnoalterationoftheoriginalcharitablepurposebutonlyoftheamountthatcouldbe
paidtotheminister.However,theamountthatwouldotherwisebeduewassoderisorythatthiscouldbe
regardedasdefeatingtheoriginalcharitablepurpose.
Section62willbeengagedonlyifthecasefallswithinoneoftherecognizedconditionsforthatprovisiontoapply.
But,evenifitdoesnot,thecourtcanstillrelyonitsinherentjurisdictiontoamendthetermsofthecharitable
trust.So,forexample,inReJWLaingTrust,295 in1922thesettlorhadtransferred15,000worthofsharestobe
heldoncharitabletrust,withthecapitalandincometobewhollydistributedwithintenyearsofhisdeath.The
settlordiedin1978.By1982,thecapitalhadnotbeendistributedandwasworth24million,withanannual
incomeof1.2million.Thetrusteeappliedforaschemetodischargeitfromtheobligationofdistributingwithin
tenyearsofthesettlorsdeath.Theapplicationwasrefusedunderwhatisnowsection62,becausetheobligation
todistributewasanadministrativeprovisionandwasnotanoriginalpurposeofthecharitablegiftthatrelatedto
thecharitableobjectsforwhichthegiftwastobeapplied.However,theschemewasapprovedintheexerciseof
thecourtsinherentjurisdictionatCommonLaw,becausetherequirementastodistributionwasconsideredtobe
inexpedientinthealteredcircumstancesofthecharitysince1922.PeterGibsonJsaid:296
Itisnecessarytoidentifytheoriginalpurposesofthegift.Iventuretosuggestthat,asamatterofordinary
language,thosepurposesinthepresentcaseshouldbeidentifiedasgeneralcharitablepurposesand
nothingfurther.Iwouldregarditasanabuseoflanguagetodescribetherequirementastodistributionasa
purposeofthegift.Ofcourse,thatrequirementwasoneoftheprovisionswhichthesettlorintendedto
applytothegift,butitwould,onanynaturaluseoflanguage,bewrongtoequatealltheexpressprovisions
ofagift,whichexhypothesithesettlorintendedtoapplytothegift,withthepurposesofagift.Tomymind
thepurposesofacharitablegiftwouldordinarilybeunderstoodasmeaningthosecharitableobjectson
whichthepropertygivenistobeapplied.Itisnotmeaningfultotalkoftherequirementastodistribution
beingeithercharitableornoncharitable.Thepurposesofacharitablegiftcorrespondtothebeneficiariesin
thecaseofagiftbywayofaprivatetrust.
IconfessthatfromtheoutsetIhavefounddifficultyinacceptingthatitismeaningfultotalkofacyprs
applicationofpropertythathasfromthedateofthegiftbeendevotedbothastocapitalandincometo
charitablepurposesgenerally,albeitsubjecttoadirectionastothetimingofthecapitaldistributions.No
caseremotelylikethepresenthadbeendrawntomyattention
Intheresult,despitealltheargumentsthathavebeenablyadvanced,Iremainunpersuadedthatsucha
giftiscapableofbeingappliedcyprsand,inparticular,Iamnotpersuadedthattherequirementasto
distributionisapurposewithinthemeaningofsection13.Rather,itseemstometofallonthe
administrativesideoftheline,going,asitdoes,tothemechanicsofhowthepropertydevotedtocharitable
purposesistobedistributed.Accordingly,Imustrefusetheapplicationsofarasitisbasedonsection13.
Inmyjudgment,theplaintiffhasmadeoutaverypowerfulcasefortheremovaloftherequirementasto
distribution,whichseemstometobeinexpedientintheveryalteredcircumstancesofthecharitysince
thatrequirementwaslaiddown60yearsago.Itakeparticularaccountofthefactthatthisapplicationis
onethathasthesupportoftheAttorneyGeneral.Althoughtheplaintiffisnotfetteredbytheexpressterms
ofthegiftastothecharitablepurposesforwhichthecharitysfundsaretobeapplied,itis,inmyview,
properfortheplaintifftowishtocontinuetosupportthecauseswhichthesettlorhimselfwishedthecharity
tosupportfromitsinception,andwhichwouldsufferifthatsupportwaswithdrawnasaconsequenceofthe
distributionofthecharitysassets.Ihavenohesitationinreachingtheconclusionthatthecourtshould,in
theexerciseofitsinherentjurisdiction,approveaschemeunderwhichthetrusteesforthetimebeingof
thecharitywillbedischargedfromtheobligationtodistributethecapitalwithintenyearsofthedeathofthe
settlor.
(p.273) Thisrelianceonthecourtsinherentjurisdictioncanbejustifiedonthebasisthattheconditiondidnot
affectthespiritofthegiftandsocanbedistinguishedfromReLeptonsCharity,inwhichthestatutoryjurisdiction
wasengagedbecausetheamounttobepaidtotheministerdidaffectthespiritofthegift.
AnotherexampleofthecontinuingsignificanceofthecourtsinherentjurisdictionisOldhamBoroughCouncilv
AttorneyGeneral.297 Inthatcase,landhadbeenconveyedin1962totheCouncilontrustforuseasplaying
fields.TheCouncilwishedtosellthelandtodevelopersforasubstantialsumofmoneyandtousetheproceeds
tobuyotherplayingfieldswithmuchbetterfacilities.Itwasheldthatthecourtcouldnotauthorizethesaleunder
whatisnowsection62,because,eventhoughtheretentionofthesitewaspartoftheoriginalpurposesofthe
charity,noneoftheidentifiedcircumstancesunderthestatuteapplied.Itwasrecognized,however,thatthecourt
hadaninherentjurisdictiontoauthorizeaschemetosellcharitablepropertyandtoreinvesttheproceedsonthe
samecharitabletrusts.DillonLJsaid:298
iftheretentionofaparticularpropertyispartoftheoriginalpurposesofacharitabletrust,saleofthat
propertywouldinvolveanalterationoftheoriginalpurposeseveniftheproceedsofthesalewereappliedin
acquiringanalternativepropertyforcarryingoutthesamecharitableactivities.Ifso,asaleoftheoriginal
propertycouldonlybeorderedaspartofacyprsscheme,andthenonlyifcircumstanceswithinoneor
otherofparagraphs(a)to(e)[ofwhatisnowsection62]aremadeout.Theparticularbearingofthatinthe
presentcaseisthatthecouncilaccepts,andtheAttorneyGeneralagrees,thatthecircumstancesofthis
charitydonotfallwithinanyoftheseparagraphs.If,therefore,onatrueappreciationofthedeedofgiftand
ofsection13,theretentionoftheexistingsiteispartoftheoriginalpurposesofthecharity,thecourt
cannotauthoriseanysaleIhavenodoubtatallthattheoriginalpurpose,inordinaryparlance,ofthe
donorwas,inonesense,thattheparticularlandconveyedshouldbeusedforeverasplayingfieldsforthe
benefitandenjoymentoftheinhabitantsofOldham
therearecaseswherethedonorhasimposedacondition,aspartofthetermsofhisgift,whichlimitsthe
mainpurposeofthecharityinawaywhich,withthepassageoftime,hascometomilitateagainstthe
achievementofthatmainpurpose.Theconditionistherepartofthepurpose,butthecourthasfounditself
ableonthefactstocutouttheconditionbywayofacyprsschemeunderthecyprsjurisdiction,onthe
groundthatthesubsistenceoftheconditionmadethemainpurposeimpossibleorimpracticableof
achievement:seeReDominionStudentsHallTrust[1947]Ch183,whereaconditionofatrustforthe
maintenanceofahostelformalestudentsoftheoverseasdominionsoftheBritishEmpirerestrictedthe
benefitstodominionstudentsofEuropeanoriginandsee,alsoReRobinson[1923]2Ch332,whereit
wasaconditionofthegiftofanendowmentforanevangelicalchurchthatthepreachershouldwearablack
gowninthepulpit.Butunlikethoseconditions,theintentionorpurposeinthepresentcasethattheactual
landgivenshouldbeusedasplayingfieldsisnotaconditionqualifyingtheuseofthatlandasplaying
fields
Thereare,ofcourse,somecaseswherethequalitiesofthepropertywhichisthesubjectmatterofthegift
arethemselvesthefactorswhichmakethepurposesofthegiftcharitable,e.g.wherethereisatrustto
retainforthepublicbenefitaparticularhouseonceownedbyaparticularhistoricalfigureoraparticular
buildingforitsarchitecturalmeritoraparticularareaoflandofoutstandingnaturalbeauty.Insuchcases,
saleofthehouse,buildingorlandwouldnecessitateanalterationoftheoriginalcharitablepurposesand,
therefore,acyprsschemebecauseafterasaletheproceedsoranypropertyacquiredwiththeproceeds
couldnotpossiblybyappliedfortheoriginalcharitablepurpose.Butthatisfarawayfromcasessuchas
thepresent,wherethecharitablepurposeplayingfieldsforthebenefitandenjoymentoftheinhabitantsof
thedistrictsoftheoriginaldonees,oritmightequallybeamuseum,schoolorclinicinaparticulartown
canbecarriedononotherland.
(p.274) Consequently,wheretheidentityofthetrustpropertywasessentialtothecharitablepurpose,thesaleof
thatpropertycouldonlybeachievedunderwhatisnowsection62,becausethesaleofthepropertywouldinvolve
thealterationofthecharitablepurpose.Wheretheidentityofthepropertywasnotessentialtothecharitys
purpose,itssalecouldbeauthorizedunderthecourtsinherentjurisdiction.
(d)CharityCollections
Wherepropertyhasbeengivenbyadonorforaspecificcharitablepurposethatfailsinitially,thatpropertywillbe
heldonresultingtrustforthedonor.299 Itcouldnotbeappliedcyprsbecause,beingforaspecificcharitable
purpose,nogeneralcharitableintentwouldbeidentifiable.Where,however,thedonorcannotbeidentifiedor
foundorhasformallydisclaimedhisorherrighttohavethepropertyreturned,thepropertyistreatedasifitwere
givenforcharitablepurposesgenerallyandcanbeappliedcyprs.
CharitiesAct2011
63.Applicationcyprs:donorunknownordisclaiming
(1)Propertygivenforspecificcharitablepurposeswhichfailisapplicablecyprsasifgivenfor
charitablepurposesgenerally,ifitbelongs
(a)toadonorwhoafter
(i)theprescribedadvertisementsandinquirieshavebeenpublishedandmade,and
(ii)theprescribedperiodbeginningwiththepublicationofthoseadvertisementshas
ended,
cannotbeidentifiedorcannotbefound,or
(b)toadonorwhohasexecutedadisclaimerintheprescribedformoftherighttohavethe
propertyreturned.
(2)Wheretheprescribedadvertisementsandinquirieshavebeenpublishedandmadeby
oronbehalfoftrusteeswithrespecttoanysuchproperty,thetrusteesarenotliabletoany
personinrespectofthepropertyifnoclaimbythatpersontobeinterestedinitisreceived
bythembeforetheendoftheperiodmentionedinsubsection(1)(a)(ii).
(3)Wherepropertyisappliedcyprsbyvirtueofthissection,allthedonorsinterestinit
istreatedashavingbeenrelinquishedwhenthegiftwasmade.
64Donorstreatedasunidentifiable
(1)Forthepurposesofsection63propertyisconclusivelypresumed(withoutanyadvertisement
orinquiry)tobelongtodonorswhocannotbeidentified,insofarasitconsistsof
(a)theproceedsofcashcollectionsmade
(i)bymeansofcollectingboxes,or
(ii)byothermeansnotadaptedfordistinguishingonegiftfromanother,or
(p.275) (b)theproceedsofanylottery,competition,entertainment,saleorsimilarmoney
raisingactivity,afterallowingforpropertygiventoprovideprizesorarticlesforsaleor
otherwisetoenabletheactivitytobeundertaken.
(2)ThecourtortheCommissionmaybyorderdirectthatpropertynotfallingwithinsubsection
(1)isforthepurposesofsection63tobetreated(withoutanyadvertisementorinquiry)as
belongingtodonorswhocannotbeidentifiedifitappearstothecourtortheCommission
(a)thatitwouldbeunreasonable,havingregardtotheamountslikelytobereturnedtothe
donors,toincurexpensewithaviewtoreturningtheproperty,or
(b)thatitwouldbeunreasonable,havingregardtothenature,circumstancesandamounts
ofthegifts,andtothelapseoftimesincethegiftsweremade,forthedonorstoexpectthe
propertytobereturned.
(e)CharitySolicitations
Wherepropertyisdonatedinresponsetoaparticularcharitablepurposethatfails,thedonorcanbetreatedas
disclaiminganyinterestinthepropertyifcertainconditionsaresatisfied.
CharitiesAct2011
65Donorstreatedasdisclaiming
(1)Thissectionappliestopropertygiven
(a)forspecificcharitablepurposes,and
(b)inresponsetoasolicitationwithinsubsection(2).
(2)Asolicitationiswithinthissubsectionif
(a)itismadeforspecificcharitablepurposes,and
(b)itisaccompaniedbyastatementtotheeffectthatpropertygiveninresponsetoitwill,
intheeventofthosepurposesfailing,beapplicablecyprsasifgivenforcharitable
purposesgenerally,unlessthedonormakesarelevantdeclarationatthetimeofmaking
thegift.
(3)Arelevantdeclarationisadeclarationinwritingbythedonortotheeffectthat,intheeventof
thespecificcharitablepurposesfailing,thedonorwishestobegiventheopportunitybythe
trusteesholdingthepropertytorequestthereturnofthepropertyinquestion(orasumequalto
itsvalueatthetimeofthemakingofthegift).
(4)Subsections(5)and(6)applyif
(a)apersonhasgivenpropertyasmentionedinsubsection(1),
(b)thespecificcharitablepurposesfail,and
(c)thedonorhasmadearelevantdeclaration.
(5)Thetrusteesholdingthepropertymusttaketheprescribedstepsforthepurposeof
(a)informingthedonorofthefailureofthepurposes,
(b)enquiringwhetherthedonorwishestorequestthereturnoftheproperty(orasumequal
toitsvalue),and
(p.276) (c)ifwithintheprescribedperiodthedonormakessucharequest,returningthe
property(orsuchasum)tothedonor.
(6)Ifthosetrusteeshavetakenallappropriateprescribedstepsbut
(a)theyhavefailedtofindthedonor,or
(b)thedonordoesnotwithintheprescribedperiodrequestthereturnoftheproperty(ora
sumequaltoitsvalue),
Section63(1)appliestothepropertyasifitbelongedtoadonorwithinsection63(1)(b)(applicationof
propertywheredonorhasdisclaimedrighttoreturnofproperty)
(f)SmallCharities
TheCharitiesAct2011makesspecificprovisiontoenabletrusteesofcertainsmallcharitiestodeterminetheir
owncyprsapplicationwiththeconcurrenceoftheCharityCommission,aslongasthecharityhasagross
incomeoflessthan10,000,doesnotholdlandontrustforcharitablepurposes,andisnotexemptora
charitablecompany.Thecyprsschememighttransferallthecharityspropertytoanothercharity,orreplace
someorallofthecharitysoriginalpurposes,wheretheyarenolongerconducivetoasuitableandeffective
applicationofthecharitysresources.300
(g)CritiqueoftheCyPrsDoctrine
Attheheartofthecyprsdoctrineisthedistinctionbetweeninitialandsubsequentfailureofpurpose.Onwhich
sideofthelineaparticularcasefallswillaffectwhetherageneralcharitableintentneedstobeidentified.The
recognitionthatnosuchintentisrequiredwherethereissubsequentfailureinvolvestheelevationofaruleof
evidenceintoaruleoflaw.301 Thisisbecause,incasesofsubsequentfailure,theoldrulewasthattherewasa
presumptionofgeneralcharitableintent,butthiswasapresumptionthatcouldberebutted.Luxtonhasadvocated
302
amorerationalapproachtothecyprsdoctrine:302
Ifthecharitablepurposefails:
(a)beforeithastakeneffect(i.e.beforethepropertyhasbeenappliedtothatpurpose)thereisa
presumptionofresultingtrustwhichcanberebuttedbyevidenceofageneralcharitableintentionorof
anintentioneffectuallytodedicatethepropertytocharity
(b)afterithastakeneffectbutbeforetheendoftheperpetuityperiodthereisapresumptionof
effectualdedicationtocharity,whichcanberebuttedbyevidencethatthetestatorhadnosuch
intentionnotanygeneralcharitableintention
Attheendoftheperpetuityperiodthepropertybecomeseffectuallydedicatedtocharityasamatterof
lawThecharitabledispositionisthereforeabsoluteandfreefromdeterminationthustherecanbeno
resultingtrustandnoclaimbythenextofkinaccordinglynogeneralcharitableintentionneedeverbe
soughtforcyprsapplication
Therewardstobegainedfromadoptingthisapproacharerichpublicpolicyissatisfiedbecausethe
intentionofthetestatorisimportantintheearlyyearsofthetrustslifebutnofurtherAllthatis(p.
277) requiredisarecognitionofthefactthatthemomentatwhichpropertybecomeseffectuallydedicated
tocharityasamatteroflawcannowbeshiftedforwardfromthedateofvestingininteresttotheendofthe
perpetuityperiod.
Question
Inhiswill,Brianleft100,000tobeheldontrustforthebenefitofanyoftheemployeesofBricoLtdwho(i)
sufferfinancialhardshipor(ii)wishtostudyforavocationalqualification.BrianisthechairmanofBricoLtd,a
companythathefoundedmanyyearsagoandthathasemployednomorethan20peopleatanyonetime.
Briandiedin2000.BricoLtdwaswoundupin2012.Thetrusteesofthefundseekyouradviceastowhat
shouldhappentothetrustfund.
FurtherReading
Dunn,AsColdasCharity?Property,EquityandtheCharitableTrust(2000)20LS222.
FindThisResource
Garton,NationalAntiVivisectionSocietyvInlandRevenueCommissionersLandmark CasesinEquity,(eds
MitchellandMitchell)(Oxford:Hart,2012)529.
FindThisResource
Getzler,MoricevBishopofDurham,Landmark CasesinEquity,(edsMitchellandMitchell)(Oxford:Hart,
2012)157.
FindThisResource
Gravells,CharitableTrustsandAncillaryPurposes[1978]Conv92.
FindThisResource
Luxton,CyprsandtheGhostofThingsthatMightHaveBeen[1983]Conv107.
FindThisResource
LuxtonandEvans,CogentandCohesive?TwoRecentCharityCommissionDecisionsontheAdvancement
ofReligion[2011]Conv144.
FindThisResource
MartinTheConstructionofCharitableGifts(1974)38Conv(NS)187.
FindThisResource
ForinformationabouttheCharityCommissionanddetailsofCommissionpublicationsincludingrecent
decisions,seethewebsite:http://www.charitycommission.gov.uk/.
Notes:
2 GaudiyaMissionvBrahmachary[1998]Ch341,350(MummeryLJ).
3
[1998]Ch341,349.
4
CharitiesAct1993.SeenowCharitiesAct2011,s.1.
5 SeenowCharitiesAct2011,s.11.
6 TheCharitiesAct2011,Part11,createsanewformofincorporationspecificallyforcharities,calledacharitable
incorporatedorganization.Thisisnotacompany,buthassomeofthehallmarksofacompany,suchaslimited
liability.
7
CharitiesAct2011,s.177.
8 SeeChapter5.3(c)(i),pp.18990.
9 SeeChapter5.3(c)(ii),pp.191201.
11
[2011]UKUT421(TCC)[2012]Ch214,[14].
13 ReLordStrathedenandCampbell[1894]3Ch265.Also,acharityspowertoaccumulateincomeisrestricted
to21years:PerpetuitiesandAccumulationsAct2009,s.14(4).
14 Ibid,s.5.SeeChapter3.7,p.114.
15 SeeChapter3.2,pp.6774Chapter3.4,pp.86109.
17
MoggridgevThack well(1802)7VesJun36.
19 IRCvOldhamTrainingandEnterpriseCouncil[1996]STC1218,1235(LightmanJ).
20 [1981]AC1,14.
21
[2011]UKUT421(TCC)[2012]Ch214,[14].
22 SeefurtherChapter5.4(b)(ii)(b),pp.21620.
23 SeeChapter8.3(c),pp.38491.
24
25 GaudiyaMissionvBrahmachary[1998]Ch341,350(MummeryLJ).
26
26
WethvAG[1999]1WLR686,691(NourseLJ).
27
28 HelenaPartnershipsLtdvTheCommissionersforHerMajestysRevenueandCustoms[2012]EWCACiv569,
[14](LloydLJ).
29
CharitiesAct2011,s.35(1).
30 Ibid,s.35(3).
31 Ibid,s.36.
32
Ibid,s.46.
33 Ibids.84.
34 Ibid,s.110.
35 Ibid,s.86.
36
Ibid,s.69(1).
37 Ibid,s.70(l).
38 Ibid,s.70(8).
39 CharitiesAct2011,Part17.
40
TheIndependentSchoolsCouncilvTheCharityCommissionforEnglandandWales[2011]UKUT421(TCC)
[2012]Ch214.SeeChapter5.4(b)(ii)(b),pp.21620.
41 ReHamptonFuelAllotmentCharity[1989]Ch484,494(NichollsLJ)(interpretingthesameprovisionasapplies
intheCharitiesAct2011).
42 [2000]1WLR299,305.
43 See,forexample,TheIndependentSchoolsCouncilvTheCharityCommissionforEnglandandWales[2011]
UKUT421(TCC)[2012]Ch214,Chapter5.3(c)(ii),pp.1936.
44 [1998]2AllER705.
45 Ibid,712.
46
[2002]1WLR448.
47 Ibid,458.
48 MumanvNagasena[2000]1WLR299,305.
49
Ibid.
50
[2011]UKUT421(TCC)[2012]Ch214,[14].
51 [2012]EWCACiv569,[22].
52 [1891]AC531,583.
53
[1968]AC138,154.
54 NationalAntiVivisectionSocietyvIRC[1948]AC31,56(ViscountSimonds).Thispresumptionhasbeen
abolishedbystatute.SeeChapter5.3(c)(ii),p.191.
55
55 Seee.g.GilmourvCoats[1949]AC426,discussedinChapter5.4(c)(ii),pp.2268.
56
SeeChapter5.4(g),pp.23940.
57 CharitiesandPublicBenefit(January2008),C2.
58 ItpublishedfurtherguidanceinDecember2008,concerningPublicBenefitandFeeChargingandThe
AdvancementofEducationforthePublicBenefit.
59 [2011]UKUT421(TCC)[2012]Ch214.
60 IncludingthewithdrawalofthewholeofPublicBenefitandFeecharging.
61 Thisprincipleoriginallycontinued:orbyabilitytopayanyfeescharged.Thiswaswithdrawnfollowingthe
decisionoftheUpperTribunalinTheIndependentSchoolsCouncilvTheCharityCommissionforEnglandand
Wales[2011]UKUT421(TCC)[2012]Ch214.SeefurtherChapter5.3(c)(ii)(a),p.197.
62
Thetextrelatingtothisprinciple,entitledRestrictionsbasedontheabilitytopayanyfeechargedwas
withdrawnfollowingthedecisionoftheUpperTribunalinTheIndependentSchoolscase,Ibid.
63 Ibid,[44].
64
Ibid,[48].
65 [1957]1WLR729.
66 [2011]UKUT421(TCC)[2012]Ch214,[106].
67 [1948]AC31.
68
Ibid,49.
69 ReFouveaux[1895]2Ch501.
70 [2011]UKUT421(TCC)[2012]Ch214,[37].
71
Ibid,[205].
72
OppenheimvTobaccoSecuritiesTrustCoLtd[1951]AC297.SeeChapter5.4(b)(ii)(a),pp.21115.
73 ReNiyazisWillTrusts[1978]1WLR910.
74 GaudiyaMissionvBrahmachary[1998]Ch341.
75
IndependentSchoolsCouncilvTheCharityCommissionforEnglandandWales[2011]UKUT421[2012]Ch
214(TCC).
76 ReReschsWillTrusts[1969]1AC514.
77
IRCvFalk irk TemperanceCafTrust1927SC261.
78 [1968]AC138,156.
79 TheIndependentSchoolsCouncilvTheCharityCommissionforEnglandandWales[2011]UKUT421(TCC),
[178][2012]Ch214.SeefurtherChapter5.4(b)(ii)(b),pp.21620.
80 [1917]AC406,442.
81 [2008]EWHC330(Ch)[2009]Ch173,[16].
82 McGovernvAttorneyGeneral[1982]Ch321,339(SladeJ).
83
83 CampaigningandPoliticalActivitiesbyCharitiesCC9(London:HMSO,2008).
84 Santow,CharityinitsPoliticalVoice:ATinklingCymboloraSoundingBrass?(1999)CLP255.Butnotethe
moreliberalapproachtotherecognitionoftheadvancementofhumanrightsasaspecificcharitablepurpose
followingtheenactmentoftheCharitiesAct2011.SeeChapter5.4(h),pp.2402.
85
[1968]AC138.
86 RvRadioAuthority,expBull[1998]QB294,306(LordWoolfMR).
87 [1948]AC31.
88 [2010]HCA42.SeeTurnerCharitableTrustswithPoliticalObjects(2011)CLJ504.
89
90 ReKoepplersWillTrusts[1986]Ch423,437(SladeLJ).
91 Garton,NationalAntiVivisectionSocietyvInlandRevenueCommissionersLandmark CasesinEquity,(ed.
MitchellandMitchell)(HartPublishing,2012)555.
92 IncomeTaxSpecialPurposesComrsvPemsel[1891]AC531.
93 SeeChapter5.4(j),pp.2436.
94
ReClark e[1923]2Ch407.
95 [2011]UKUT421(TCC)[2012]Ch214,[40].
96 [1951]Ch661.
97 [2005]WTLR1265.
98
[1996]STC1218,1233.SeefurtherChapter5.4(e),pp.2334.
99 [1933]Ch103.
100 [1954]Ch265.
101 [1978]1WLR910.
102
Ibid,915.
103 [1930]1Ch255.
104 Ibid,260.
105 TheEqualityAct2010,s.193(4)statesthataprovisioncontainedinanycharitableinstrumentwhichprovides
forconferringbenefitsonpeopleinaclassdefinedbyreferencetocolourshallbeinterpretedasconferringthe
benefitsontheclasswithouttherestrictionbyreferencetocolour.SeeGibbsvHarding[2007]EWHC3(Ch)
[2008]Ch235.
106 ReSegelman[1996]Ch171.
107 ReLucas[1922]2Ch52.
108
[1951]Ch622.
109 Ibid,650.
110 [1996]Ch171.
111
111 Ibid,190.
112 [1972]AC601.
113
SeeChapter5.4(b)(ii)(a),pp.21115.
114 20February2012,FTC/84/2011.
115 IncorporatedCouncilofLawReportingforEnglandandWalesvAG[1972]Ch73,102(BuckleyLJ).
116 SeeChapter5.4(f),pp.2347.
117
CaseofChristsCollege,Cambridge(1757)1WmBl90.
118 ManoogianvSonsino[2002]EWHC1304[2002]WTLR989.
119 IRCvOldhamTrainingandEnterpriseCouncil[1996]STC1218,1233(LightmanJ).
120 IRCvMcMullen[1981]AC1,15(LordHailsham).
121
[1965]Ch669.
122 Ibid,at675.
123 ReBestermansWillTrusts(1980)TheTimes,21January.
124
[1972]Ch73.
125
[1980]1WLR1565.
126 Ibid,1576.
127 [2007]WTLR683.
128
[1986]Ch423.
129 Ibid,436.
130 CharitiesAct2011,s.4(2).
131 [1951]AC297.
132
[1972]AC601.SeeChapter5.4(a)(ii),pp.2057.
133 [1951]AC297,314.
134 [1972]AC601.SeeChapter5.4(a)(ii),pp.2057.
135 Ibid,623.
136
ReportoftheRadcliffeCommission,Cmd9474(London:HMSO,1955),[54][60].
137 SeeChapter5.4(b)(ii)(a),p.215.
138 SimilardoubtswereexpressedbytheUpperTribunalinTheIndependentSchoolsCouncilvTheCharity
CommissionforEnglandandWales[2011]UKUT421(TCC)[2012]Ch214,[176].
139 Hayton,DinglevTurner[1972]36Conv209,212.
140 [1967]Ch993.
141
TheIndependentSchoolsCouncilvTheCharityCommissionforEnglandandWales[2011]UKUT421(TCC)
[2012]Ch214,[52]and[141].
142 ReHopk insWillTrust[1965]Ch669,681(WilberforceJ).SeeChapter5.4(b)(i),pp.2079.
143 ReHopk inson[1949]1AllER346,348(VaiseyJ).
144
SeeChapter5.3(c)(ii)(c),pp.197201.
145 [1949]1AllER346.
146 Ibid,348.
147 SouthwoodvAG[2000]3ITELR94.
148
Ibid,111.
149 [1986]Ch423.
150 Ibid,at437.
151
SeegenerallyChapter5.3(c)(ii)(c),pp.1989.
152 BaldryvFeintuck [1972]1WLR552.
153 WebbvODoherty(1991)TheTimes,11February.
154 See,e.g.,GilmourvCoats[1949]AC426.
155
PopularlyknownastheMoonies.
156 ThorntonvHowe(1862)31Beav14.
157 FunnellvStewart[1996]1WLR288.
158 SincetheReligiousDisabilitiesAct1846.
159
SeeChapter5.3(c)(i),p.190.
160 [1980]1WLR1565.
161 Intheend,theSocietywasheldtobecharitableasbeingfortheadvancementofeducationandforother
purposesbeneficialtothecommunity.
162 [1980]1WLR1565,1571.
163 ChurchofScientology(EnglandandWales),CharityCommissiondecision,17November1999.
164 ThisinvolvesaseriesofgradientstepsthatHubbard[thefounderofScientology]developedtoaddresspast
painfulexperiences.
165 Thisinvolvestheintensivestudyofscientologyscripture.
166 ChurchoftheNewFaithvCommissionerofPayRollTax(Victoria)(1982)154CLR120.
167
168 TheGnosticCentre,CharityCommissiondecision,16December2009.SeeLuxtonandEvans,Cogentand
Cohesive?TwoRecentCharityCommissionDecisionsontheAdvancementofReligion[2011]75Conv144.
169
SeeChapter5.2(c)(v),pp.1823.
170 TheDruidFoundation,CharityCommissiondecision,21September2010.
171
171
UnitedGrandLodgeofAncientFreeandAcceptedMasonsofEnglandvHolbornBoroughCouncil[1957]1
WLR1080,1090(DonovanJ).
172 GilmourvCoats[1949]AC426.
173
DinglevTurner[1972]AC601,625(LordCrossofChelsea).
174 [1949]AC426.
175 [1990]Ch1.
176
Ibid,12.
177 [1962]Ch832.
178 Ibid,852.
179 ApplicationforRegistrationasaCharitybytheChurchofScientology(EnglandandWales)(1999).
180
[1996]1WLR288.
181 SeeChapter5.3(c)(ii)(a),p.195.
182 [2011]UKUT421(TCC)[2012]Ch214,[37].SeeChapter5.4(b)(ii)(b),pp.21620.
183 [1996]STC1218.
184
Ibid,1234.
186 ReDelius[1957]Ch299.
187 Ibid,305.
188
[1965]Ch85.
189 [1947]AC447.
190 Ibid,457.
191
SeeChapter5.3(c)(ii)(b),pp.1967.
192
193 IRCvMcMullen[1981]AC1.
194 ReGray[1925]Ch362.
195
SeeReDupreesDeedTrusts[1945]Ch16,whichheldthatachesstournamentwaseducational.
196 [1955]AC572,589.
197 [1992]2AC310.
198 Ibid,318.
199
[1949]Ch529.
200 Ibid,536.
201 SeeChapter5.3(c)(ii)(c),pp.197201.
202
202
[1982]Ch321.
203 Ibid,336.
205 CharitiesAct2011,s.3(1)(i).
206
[1983]Ch159,174.
207 [2012]EWCACiv569[2012]4AllER111.
208 Ibid,[74].
209 CharitiesAct2011,s.3(1)(k).
210
HanchettStamfordvAttorneyGeneral[2008]EWHC330(Ch)[2009]Ch173.
211 ReMoss[1949]1AllER495.
212 TathamvDrummond(1864)4DeGJ&Sm484.
213
ReWedgwood[1915]1Ch113.
214
SeeChapter6.2(b)(i),pp.2856.
215 HanchettStamfordvAttorneyGeneral[2008]EWHC330(Ch)[2009]Ch173,[13](LewisonJ).
216 ReWedgwood[1915]1Ch113,122(KennedyLJ).
217
[1929]1Ch557.
218 Ibid,582.
219 [1948]AC31.SeeChapter5.3(c)(ii)(a),p.195.
220 Ibid,60.
221
CharitiesAct2011,s.3(1)(l).
222 [1925]Ch362.Seealsonowthepurposeofadvancingamateursport.SeeChapter5.4(g),pp.23740.
223 Ibid,365.
224 CharitiesAct2011,s.3(1)(m).SeeChapter5.3(c)(i),p.190.
225
[1972]Ch73.SeeChapter5.4(b)(i),p.209.
226 Ibid,at87.
227 CharitiesAct2011,s.1(1)(a)ands.11.
228 [1944]AC341,368.
229
ReMacduff[1896]2Ch451.
230 AGofCaymanIslandsvWahrHansen[2001]1AC75(PC).
231 ReAtk insonsWillTrusts[1978]1WLR586.
232
ReSutton(1885)28ChD464.
233 Seee.g.ReEades[1920]2Ch353(religious,charitableandphilanthropicobjectswasnotexclusively
charitable).
234
[1986]1WLR1001.
235 NightingalevGoulbourn(1847)5Hare484.
236 [2001]1AC75(PC).
237
Ibid,at81.
238
SeeChapter5.1(a),p.178.
241
[1944]AC341.
242 SeeChapter19.3(d)(i),pp.914.
243 SeegenerallyGravells,CharitableTrustsandAncillaryPurposes[1978]Conv92.
244 [2004]1WLR1466.
245
Ibid,[33].
246 [1948]Ch747.
247 [1972]Ch73.SeeChapter5.4(m),pp.24850.
248 [1972]Ch73,103.
249
[1986]1WLR252.
250 (1857)3K&J529.
251 [1948]Ch747,753.
252 Cross,SomeRecentDevelopmentsintheLawofCharity(1956)LQR187,203.
253
[1954]Ch347,362.
254 [1912]2Ch488.
255 Ibid,495.
256
Ibid,493.
257
[1964]Ch512.
258 TheConstructionofCharitableGifts(1974)38Conv(NS)187,191.
259 ReRymer[1895]1Ch19.SeefurtherChapter5.6(a)(ii),pp.25961.
260
Althoughitwasappliedforsimilarpurposesbyvirtueofthecyprsdoctrine.SeeChapter5.6(a)(iii),pp.263
4.
261 [1972]Ch286,294.
262
SeeChapter5.6(a)(iii),pp.2634,fortheoperationofthecyprsdoctrine.
263 SeeLiverpoolandDistrictHospitalforDiseasesoftheHeartvAG[1981]Ch193.
264
264 ReARMS(MultipleSclerosisResearch)Ltd[1997]1WLR877.
265
[1895]1Ch19.
266 Ibid,34.
267 (1887)35ChD460.
268 Ibid,468.
269
[1936]Ch285.
270 Ibid,286.
271 ReFingersWillTrusts[1972]Ch286,299(GoffJ).
272 [1979]Ch483.
273
Ibid,492.
274 [1972]Ch286.SeeChapter5.6(a)(i),pp.2589.
275 Ibid,299.
276 [1966]1WLR277.
277
Ibid,at284.
278 [1966]Ch249.
279 SeeChapter5.3(c)(ii)(c),p.198.
280
[1966]Ch249,256.
281
[1979]Ch483.SeeChapter5.6(a)(iii),pp.2623.
282 Ibid,494.
283 RePeelsRelease[1921]2Ch218.
284
[1891]2Ch236.
285 Ibid,240.
286 [1954]Ch347.
287 [1958]Ch447.
288
[1923]1Ch243.
289 [1966]Ch191.
290 ReWeirHospital[1910]2Ch124.
291 SeeReNorthDevonandWestSomersetReliefFund[1953]1WLR1260.
292
Ibid,233.
293 [1999]Ch219,238.
294 [1972]Ch276,285.
295
[1984]Ch143.
296
296 Ibid,149.
297 [1993]Ch210.
298
Ibid,219.
300 CharitiesAct2011,s.268.
301 Luxton,CyprsandtheGhostofThingsthatMightHaveBeen[1983]Conv107.
302
Ibid,117.
6.NonCharitablePurposeTrusts
Chapter: (p.278) 6.NonCharitablePurposeTrusts
DOI: 10.1093/he/9780199661480.003.0006
CentralIssues
1.Noncharitablepurposetrustsaregenerallyvoidbecausetherearenoascertainablebeneficiaries
whoareabletoenforcethetrust.
2.Noncharitablepurposetrustswillexceptionallybevalidifthepurposecanberegardedasdirectlyor
indirectlybenefitingascertainedindividuals.
3.Testamentarytrustsforcertainrecognizedpurposes,suchasforanimals,mayexceptionallybe
recognizedasvalid.Insuchcircumstancesthetrusteesarenotobligedtocarryoutthetrust,butcan
dosoiftheywish.
4.Thereareavarietyofmechanismsthatcanbeadoptedtoimplementanoncharitablepurpose,
includingtheuseoffiduciarypowersandtheappointmentofenforcerstoenforcethetrust.
5.Unincorporatedassociationslacklegalpersonalitytobeabletoholdtrustproperty,butpropertyis
oftengivenfortheassociationspurposes.Atrustforsuchanoncharitablepurposewillgenerallynot
bevalid,butinsteadthepropertywilltypicallybeheldbyanofficeroftheassociationontrustforthe
membersoftheassociationwiththetermsofthattrustderivingfromtheassociationsconstitution.This
isknownasthecontractholdingtheory.
6.Thecontractholdingexplanationofholdingpropertyforthebenefitofanassociationspurposesis
significantindeterminingwhatshouldhappentoanysurpluspropertyonthedissolutionofthe
association.
1.GeneralPrinciples
(a)NonCharitablePurposes
Noncharitablepurposetrustsaregenerallyvoidfortworeasons:(i)theneedtoestablishidentifiablebeneficiaries
and(ii)therequirementthatthepurposebecertain.
(i)Needforidentifiablebeneficiaries
Itisafundamentalprincipleofthelawoftruststhattheobjectsofthetrustarepeopleratherthanpurposes,
becausethereneedstobeascertainedorascertainablebeneficiarieswhoareinapositionto(p.279) enforcethe
trust.InMoricevBishopofDurham,1 SirWilliamGrantMRrecognizedthattheremustbesomebody,inwhose
favourthecourtcandecreeperformance.
ItfollowsthattrustsforpurposesratherthanpersonsaregenerallynotrecognizedinEnglishlawbecauseofthe
absenceofanascertainablebeneficiary.Therecognitionofcharitabletrusts,aswesawinChapter5,isa
significantqualificationtothisprinciple,sincethesearepurposetruststhatarevalid,butonlybecausetheyare
forthebenefitofthepublicorasectionofthepublic.Responsibilityforenforcingsuchtrustsformallylieswiththe
AttorneyGeneralandpracticallylieswiththeCharityCommission.Butwherethepurposeisnotcharitable,there
istypicallynobodywhocanrequestsuchatrusttobeenforced.
TheleadingcaseinwhichanoncharitablepurposetrustwasheldtobevoidisReAstorsSettlement
Trusts.2 Thisinvolvedasettlementtoholdthesharesofacompanyontrustforvariouspurposes,includingthe
maintenanceofgoodunderstanding,sympathy,andcooperationbetweennations,andthepreservationofthe
independenceandintegrityofnewspapers.Thetrustswerenotcharitable,eitherbecausetheydidnotfallwithin
anyoftherelevantheadsofcharityorbecausethepurposeswerepoliticalandsonotforthepublic
benefit.3 Consequently,beingfornoncharitablepurposes,thetrustswerevoid,sincetherewerenoidentifiable
beneficiaries.RoxburghJsaid:4
Thetypicalcaseofatrustisoneinwhichthelegalownerofpropertyisconstrainedbyacourtofequityso
todealwithitastogiveeffecttotheequitablerightsofanother.Theseequitablerightshavebeen
hammeredoutintheprocessoflitigationinwhichaclaimantonequitablegroundshassuccessfully
assertedrightsagainstalegalownerorotherpersonincontrolofproperty.Primafacietherefore,atrustee
wouldnotbeexpectedtobesubjecttoanequitableobligationunlesstherewassomebodywhocould
enforceacorrelativeequitableright,andthenatureandextentofthatobligationwouldbeworkedoutin
proceedingsforenforcement
Butifthepurposesarenotcharitable,greatdifficultiesarisebothintheoryandinpractice.Intheory,
becausehavingregardtothehistoricaloriginsofequityitisdifficulttovisualisethegrowthofequitable
obligationswhichnobodycanenforce,andinpractice,becauseitisnotpossibletocontemplatewith
equanimitythecreationoflargefundsdevotedtononcharitablepurposeswhichnocourtandno
departmentofstatecancontrol,orinthecaseofmaladministrationreform.nocasehasbeenfoundin
thereportsinwhichthecourthaseverdirectlyenforcedanoncharitablepurposeagainstatrustee.Indeed
where,asinthepresentcase,theonlybeneficiariesarepurposesandanatpresentunascertainable
person,itisdifficulttoseewhocouldinitiatesuchproceedings.Ifthepurposesarevalidtrusts,thesettlors
haveretainednobeneficialinterestandcouldnotinitiatethem.Itwassuggestedthatthetrusteesmight
proceedexpartetoenforcethetrustsagainstthemselves.Idoubtthat,butatanyratenobodycould
enforcethetrustsagainstthem.
Itfollowsthatatrusteewillnotbesubjecttoequitableobligationsunlessthereissomebodywhocouldenforcea
correlativeequitableright.Inotherwords,thereisnodutywithoutacorrespondingright,andifthereisno
equitableduty,therecanbenovalidtrust.
(p.280) (ii)Certaintyofpurpose
InReAstorsSettlementTrusts,5 thenoncharitablepurposetrustwasalsoheldtobevoidbecausetheidentified
purposeswereconsideredtobetoouncertain.RoxburghJsaid:6
Thesecondgrounduponwhichtherelevanttrustsarechallengedisuncertainty.If(contrarytomyview)an
enumerationofpurposesoutsidetherealmofcharitiescantaketheplaceofanenumerationof
beneficiaries,thepurposesmust,inmyjudgment,bestatedinphraseswhichembodydefiniteconcepts
andthemeansbywhichthetrusteesaretotrytoattainthemmustalsobeprescribedwithasufficient
degreeofcertainty.ThetesttobeappliedisstatedbyLordEldoninMoricevBishopofDurham(1805)10
Ves522at539asfollows:
Asitisamaxim,thattheexecutionofatrustshallbeunderthecontrolofthecourt,itmustbeof
suchanature,thatitcanbeunderthatcontrolsothattheadministrationofitcanbereviewedby
thecourtor,ifthetrusteedies,thecourtitselfcanexecutethetrust:atrusttherefore,which,in
caseofmaladministrationcouldbereformedandadueadministrationdirectedandthen,unless
thesubjectandtheobjectscanbeascertained,uponprinciples,familiarinothercases,itmustbe
decided,thatthecourtcanneitherreformmaladministration,nordirectadueadministration.
Applyingthistest,Ifindmanyuncertainphrasesintheenumerationofpurposes,forexample,different
sectionsofpeopleinanynationorcommunityinparagraph1ofthethirdschedule,constructivepolicies
inparagraph2,integrityofthepressinparagraph3,combinesinparagraph5,therestorationofthe
independenceofwritersinnewspapersinparagraph6,andbenevolentschemesinparagraph7.
[Counsel]suggestedthatinviewoftheunlimiteddiscretionbestoweduponthetrustees(subjectonlyto
directionsfromthesettlors)thetrusteeswouldbejustifiedinexcludingfromtheirpurviewpurposes
indicatedbythesettlorsbutinsufficientlydefinedbythem.ButIcannotacceptthisargument.The
purposesmustbesodefinedthatifthetrusteessurrenderedtheirdiscretion,thecourtcouldcarryoutthe
purposesdeclared,notaselectionofthemarrivedatbyeliminatingthosewhicharetoouncertaintobe
carriedout
ButhowinanycasecouldIdecreeinwhatmannerthetrustsapplicabletoincomeweretobeperformed?
Thesettlementgivesnoguidanceatall.[Counsel]suggestedthatthetrusteesmightapplytothecourtex
parteforascheme.Itisnot,Ithink,amerecoincidencethatnocasehasbeenfoundoutsidetherealmof
charityinwhichthecourthasyetdevisedaschemeofwaysandmeansforattainingenumeratedtrust
purposes.Ifitweretoassumethis(asIthink)noveljurisdictionoverpublicbutnotcharitabletrustsit
would,Ibelieve,necessarilyrequiretheassistanceofacustodianofthepublicinterestanalogoustothe
AttorneyGeneralincharitycases,whowouldnotonlyhelptoformulateschemesbutcouldbecharged
withthedutyofenforcingthemandpreventingmaladministration.Thereisnosuchperson.Accordingly,in
myjudgment,thetrustsfortheapplicationofincomeduringthespecifiedperiodarealsovoidfor
uncertainty.
ButwhileIhavereachedmydecisionontwoseparategrounds,both,Ithink,havetheirorigininasingleprinciple,
namely,thatacourtofequitydoesnotrecogniseasvalidatrustwhichitcannotbothenforceandcontrol.This
seemstometobegoodequityandgoodsense.
Similarly,inMoricevBishopofDurham,7 atrustforsuchobjectsofbenevolenceandliberalityastheBishopof
Durhaminhisowndiscretionshallmostapproveofwasheldtobevoidbecausetheobjectswereuncertainand
sothepurposewasnotclearlydefined.Whereas,forcharitabletrusts,(p.281) onceitisclearthatthesettloror
testatorhadacharitableintent,thecourtswillstrivetoresolveanyuncertaintyinfavourofthetrustsbeing
valid,8 suchbenevolentconstructionwillnotbeadoptedfornoncharitablepurposetrusts.Consequently,evenif
theabsenceofbeneficiariestoenforcethetrustdoesnotresultininvalidity,andaswillbeseenthisissometimes
thecase,9 thepurposemustbedefinedwithreferencetoclearconcepts,andthemeansbywhichthetrustees
aretoattainthepurposemustalsobeprescribedwithasufficientdegreeofcertainty.
(b)CharitablePurposes
Whenconsideringwhetherapurposetrustisvalid,itisalwaysimportanttoconsiderfirstwhetherthepurposeis
charitableandvalid.Suchtrustsaremorelikelytobevalidbecausethebeneficiaryprincipleisinapplicableto
themanduncertaintyinthedefinitionofthepurposeswillberesolved.Ifitisconcludedthattherequirementsfora
charitabletrustarenotsatisfied,itsnoncharitablestatuswillgenerallyrenderthetrustvoid.So,forexample,
inReShawsWillTrust,10 GeorgeBernardShawsresiduaryestatewaslefttobeappliedforthecreationofa
fortyletteralphabet.Thiswasheldnottobeacharitablepurpose11 andsothetrustwasvoidasanoncharitable
purposetrust.Similarly,inReEndacott,12 agiftofthetestatorsresiduaryestatetoaparishcounciltoprovide
someusefulmemorialtohim,wasnotcharitableduetotheabsenceofanypublicbenefit,eventhoughit
purportedtobeapublictrust.Thetrustwas,therefore,voidasbeingforanoncharitablepurpose.
Althoughthesecaseswouldprobablybedecidedinthesamewaytoday,itisimportanttorealizethatthegradual
expansionandclarificationofrecognizedcharitablepurposes,asconfirmedbytheCharitiesAct2011,meansthat
somepurposesthatwereonceregardedasnoncharitableandvoidwillnowbevalidunderthelawofcharity,as
longasthepublicbenefittestissatisfied.So,forexample,trustsforadultamateursportwereonceregardedas
noncharitableandvoid,buttodaythisisarecognizedcharitablepurpose.13
(c)CritiqueoftheGeneralInvalidityPrinciple
Althoughnoncharitablepurposetrustshavelongbeenregardedasgenerallyvoid,itisdifficulttoidentifyany
convincingrationaleastowhythisshouldbethecase.Ifthepurposeisdefinedclearly,theonlyobstacleto
validityistheabsenceofascertainablebeneficiariestoenforcethetrust.Butifthetrusteesarewillingtoperform
thetrust,thereisnoissueofenforceability.Thetrusteesmightstillfailtocomplywiththetermsofthetrustand
misapplythetrustproperty,butthosewhoareentitledtothetrustpropertyifthetrustweretofailcouldseekto
enforcethetrustiftheywishtodoso.ThiswasrecognizedbyHarmanJinReShaws(decd):14
TheprinciplehasbeenrecentlyrestatedbyRoxburghJinReAstorsSettlementTrusts[1952]Ch534,
wheretheauthoritiesareelaboratelyreviewed.Anobjectcannotcomplaintothecourt,whichtherefore
cannotcontrolthetrust,and,therefore,willnotallowittocontinue.ImustconfessthatIfeel(p.
282) somereluctancetocometothisconclusion.Iagreeatoncethat,ifthepersonstotakeinremainder
areunascertainable,thecourtisdeprivedofanymeansofcontrollingsuchatrust,butif,ashere,the
personstakingtheultimateresidueareascertained,Idonotfeeltheforceofthisobjection.Theyare
entitledtotheestateexceptinsofarasithasbeendevotedtotheindicatedpurposes,andinsofarasit
isnotdevotedtothosepurposes,themoneybeingspentisthemoneyoftheresiduarylegateesofthe
ultimateremaindermen,andtheycancometothecourtandsuetheexecutorforadevastavit,orthe
trusteeforabreachoftrust,andthus,thoughnotthemselvesinterestedinthepurposes,enablethecourt
indirectlytocontrolthem.Thislineofreasoningisnot,Ithink,opentome.
Alternativelythesettlorortestatorcouldprovidefortheappointmentofathirdpartytoenforcethetrustif
necessary.15
Hayton,DevelopingtheObligationCharacteristicoftheTrust(2001)LQR96,98
Theunderlyingprinciple,itissubmitted,isthatfortheretobeatrustobligationthereneedstobe
somepersonintendedbythesettlortohavelocusstanditoenforcethetrusteesdutiesWhat,
however,ifthesettlorinhistrustdeedexpresslyconferslocusstandionanenforcerinterestedinthe
furtheranceofthesettlorsspecificnoncharitablepurposetrust?Takethecaseofatrusttofurtherthe
interestsoftheUKConservativePartyexpressedtobeenforceablebytheLeaderfromtimetotimeof
theConservativeParty,oratrusttofurtherthepurposesofacontemplativeOrderofnunsexpressed
tobeenforceablebytheHeadoftheOrderfromtimetotime,oratrusttopressfortheabolitionof
vivisectionexpressedtobeenforceablebytheChairfromtimetotimeoftheunincorporatedNational
AntiVivisectionSocietyoratrusttofurthertheprofessionalinterestsofbarristersentitledtopractise
intheEnglishcourtsexpressedtobeenforceablebytheChairfromtimetotimeoftheBarCouncil.In
eachcaseatexpiryofavalidperpetuityperiodthecapitalpassestoadesignatedperson.Thetrust
deedclearlysuppliesamechanismforthepositiveenforcementofthetrustsothatthetrusteesare
underanobligationtoaccounttosomeoneinwhosefavourthecourtcandecreeperformance
Underlyingandunderpinningthetrustobligationisthefundamentalprinciplethatjustasacarneeds
anengine,soatrustneedsanenforcer(whethertheenforcerbeabeneficiaryortheAttorneyGeneral
ortheCharityCommissionersorsomepersonexpresslyappointedbythesettlortobeenforcer
withlocusstandipositivelytoenforcethetrust).IsitseriouslytobesuggestedthattheEnglishcourt
wouldinvoketheorthodoxbeneficiaryprincipletorefusetogiveeffecttoaforeignnoncharitable
purposetrustofEnglishassetswhereundertheforeigngoverninglawasaresultoflegislation(like
thatofJerseyorBermudaortheIsleofManortheCaymanIslandsortheBritishVirginIslands)such
atrustisvalidwherethetrustinstrumentexpresslyprovidesforanenforcer?WouldtheEnglishcourt
reallyholdtheassetstobesubjecttoaresultingtrustforthesettlor?Itissubmittedthat,becausethe
beneficiaryprincipleshouldberegardedastheenforcerprinciple,theEnglishcourtwouldregardthe
foreigntrustconceptneitherasrepugnanttotheEnglishtrustconceptnorcontrarytoEnglishpublic
policy,thetrustbeingonethattheEnglishcourtcanbothenforceandcontrol.[16 ]itshouldnot
matterthatthesettlorappointshimselfthefirstenforcerunderthetermsofhistrustdeedasthe
personbestfittedfortheenforcementtask,withprovisionforsubsequentenforcers.
(p.283) Matthews 17 has,however,arguedthatthebeneficiaryprincipleisnotsimplydependentonthe

beneficiariesbeinginapositiontoenforcethetrust.Rather,itisthefactthatthebeneficiaryhasaproprietary
rightandthetrusteeoweshimorherdutiesthatissignificant.Hehassaid:18
atrustrequiresabeneficiary.Buttheothersideofthisruleistheideathatthebeneficiary,beingthe
ownerinequityofthetrustproperty,mayrequirethelegalownertoconveytohimorathisdirection.
Ifthisiscorrect,itfollowsthatathirdpartyenforcerofthetrustwhodoesnothaveaproprietaryinterestintrust
propertywouldnotsatisfythebeneficiaryprinciplebecauseheorshecannotrequirethepropertytobeconveyed
tohimorher.Butathirdpartyenforcerofanoncharitablepurposetrustwhoisnotbeneficiallyentitledtothe
trustpropertycanstillberegardedashavingasufficientproprietaryinterestinthetrustpropertytoenforceit,
sinceheorshewouldbeabletotracethepropertyintothehandsofathirdpartyifithadbeenmisappropriated
andclaimit,albeitnotforhisorherownbenefit,butinsteadtoreturnthepropertytothetrustforuseforthe
identifiedpurpose.ThishasbeenrecognizedbyHayton:19
Suchtracingprocesswillthereforebeavailableiftrusteesofanoncharitablepurposetrustareregardedas
legalandbeneficialownersofthetrustproperty,subjecttofiduciaryandequitableobligationsenforceable
bytheenforcerdesignatedassuchinthetrustinstrument.Moreover,insuchcasesthetrustproperty
anditstraceableproductisnotavailableforclaimsofthetrusteesprivatecreditors,e.g.ontheinsolvency
ofthetrustee.
Sufficientproprietaryaspectsthereforeariseinrelationtononcharitablepurposetruststojustifytheir
existenceasenforceabletrustswhereanenforcerisexpresslyappointedintheEnglishorforeigntrust
instrument.Thebasisofthetrustistheunilateraltransferofassetsbyasettlortoapersonvoluntarily
undertakingtheofficeoftrusteewiththebenefitsandburdensattachingtosuchofficeItshouldmakeno
differencewhethertheburdensareenforceablebythebeneficiariesorbytheAttorneyGeneralorthe
CharityCommissionersorbythedesignatedenforcer.
2.ExceptionalCircumstancesinwhichNonCharitablePurposeTrustsareValid
Therearetwoexceptionalcategoriesofcaseinwhichnoncharitablepurposetrustshavebeenrecognizedas
valid.
(a)DirectorIndirectBenefittoIndividuals
Atrustthatappearstobefornoncharitablepurposesmightbevalidasatrustforpersonsifthepurposecanbe
regardedasdirectlyorindirectlybenefitingascertainedindividuals.Althoughtheseindividualswillnothavea
proprietaryinterestinthetrustproperty,thebenefitthattheyobtainfromthepurposemeansthatthey,in
practice,areinterestedinwhathappenstothetrustproperty,so(p.284) thattheyhavelocusstanditoenforce
thetrustifnecessary.ThiswasrecognizedinReDenleysTrustDeed.20 Inthatcase,trusteesheldlandasa
sportsgroundfortheuseandenjoymentofemployeesofaparticularcompanyfortwentyoneyears 21 fromthe
deathofthelastsurvivorofagroupofnamedindividuals.Thetrusteesalsohadthepowertoallowthefacilitiesto
beusedbyotherpeople.Itwasheldthat,althoughthetrustwasexpressedasapurpose,namelyuseand
enjoyment,itdirectlyorindirectlybenefitedindividualsandsowasvalid,sincesuchatrustdidnotfallwithinthe
mischiefofthebeneficiaryprinciple.GoffJsaid:22
Ithinktheremaybeapurposeorobjecttrust,thecarryingoutofwhichwouldbenefitanindividualor
individuals,wherethatbenefitissoindirectorintangibleorwhichisotherwisesoframedasnottogive
thosepersonsanylocusstanditoapplytothecourttoenforcethetrust,inwhichcasethebeneficiary
principlewould,asitseemstome,applytoinvalidatethetrust,quiteapartfromanyquestionof
uncertaintyorperpetuity.Suchcasescanbeconsideredifandwhentheyarise.Thepresentisnot,inmy
judgment,ofthatcharacter,anditwillbeseenthatthetrustdeedexpresslystatesthat,subjecttoany
rulesandregulationsmadebythetrustees,theemployeesofthecompanyshallbeentitledtotheuseand
enjoymentoftheland.Apartfromthispossibleexception,inmyjudgmentthebeneficiaryprincipleis
confinedtopurposeorobjecttrustswhichareabstractorimpersonal.Theobjectionisnotthatthetrustis
forapurposeorobjectperse,butthatthereisnobeneficiaryWhere,then,thetrust,thoughexpressed
asapurpose,isdirectlyorindirectlyforthebenefitofanindividualorindividuals,itseemstomethatitis
ingeneraloutsidethemischiefofthebeneficiaryprinciple.
Theobservationthatthetrustwouldnothavebeenvalidhadthepurposebeenabstractorimpersonalwouldbe
relevantwhere,forexample,thepurposehadbeentoseekachangeinthelaw,suchastheabolitionof
vivisection,whichhadnodirectorindirectbenefitforparticularpeople.
IfthefactsofReDenleyweretoarisetoday,thetrustmightpotentiallyberegardedasvalidasacharitabletrust,
sincethepurposewasfortheadvancementofsport.23 Butthevalidityofthistrustinthelawofcharitywouldturn
onwhetherthepublicbenefittestwassatisfied,andthismightbedifficulttoestablishbecausemostofthosewho
benefitedfromthepurposeweretheemployeesofthesamecompany,sothattherewasapersonalnexus.24 The
fact,however,thatthetrusteeshadadiscretiontoallowpeopleotherthanemployeestousethefacilitiesmight
havebeensufficienttorenderthetrustcharitable.Butifthepurposetrustisnotcharitable,theDenleyprinciple
mayenablethetrusttobetreatedasvalid,although,eventhoughReDenleyhasbeencitedsubsequently,25 it
hasneverbeenspecificallyreliedontoupholdanoncharitablepurposetrust.
(b)TestamentaryTrustsofanImperfectObligation
Therearesomeexceptionalcasesinwhichnoncharitablepurposetrustscreatedbywillshavebeenrecognized
asvalid.ThenatureofsuchatrusthasbeensummarizedbyBrown:26
(p.285) Ifproperlyestablishedwithinoneoftherelevantexceptions,suchatrustis,byitsnature,an
imperfectobligationtrust.Primafaciethetrusteecannotbecompelledtoperformthesameasthereisno
oneinwhosefavourthecourtcandecreeperformance.Conversely,thetrusteecannotbepreventedfrom
performingthetrustandwillbeabletomakeunimpeachableuseofthemoneyinapplyingitforoneofthe
acceptedpurposes.
Thesetrustsaredifficulttojustify,saveasbeingconcessionstohumanweaknessorsentiment.27
TheimperfectnatureoftheobligationwasrecognizedinTrimmervDanby,28 wherethetestatorhadleftmoneyto
erectamonumentinhismemoryinStPaulsCathedral.InupholdingthebequestKindersleyVCsaid:29
Idonotsupposethattherewouldbeanyonewhocouldcompeltheexecutorstocarryoutthisbequestand
raisethemonumentbutiftheresiduarylegateesorthetrusteesinsistuponthetrustbeingexecuted,my
opinionisthatthisCourtisboundtoseeitcarriedout.Ithink,therefore,thatasthetrusteesinsistupon
thesumbeinglaidoutaccordingtothedirectionsinthewill,thatsummustbesetapartforthe
purpose.
Suchtrustsareconsequentlypreferablyanalysedaspowersratherthanobligations.
Atestamentarytrustofimperfectobligationmustfallwithinoneoftherecognizedcategoriesofcaseinwhich
suchtrustshavebeentreatedasvalidandmustcomplywiththatpartoftheperpetuityrule,knownastherule
againstinalienability,30 whichoperatesinthiscontexttoensurethatpropertyisnotboundupfornoncharitable
purposesindefinitely.AlthoughthePerpetuitiesandAccumulationsAct2009hasreformedthelawon
perpetuity,31 thatActisconcernedwiththeremotenessofvestingofequitableinterestsintrustproperty.Since
noncharitablepurposetrustsdonotinvolvethevestingofequitableinterestsinpeople,the2009Actexpressly
doesnotaffecttheruleoflawwhichlimitsthedurationofnoncharitablepurposetrusts.32 Consequently,the
CommonLawruleonthedurationofsuchtrustsstillapplies,namelythatatrustcannotcontinueforlongerthan
thelifeofanidentifiedpersonorpersonsinbeingplustwentyoneyears.Ifnopersonisidentified,thetrustshould
lastforonlytwentyoneyears.33 Ifthetrustmightlastforalongerperiod,itwillbevoidfromtheoutset,34 save
wherethecourtiswillingtoconstrueitaslastingfornolongerthantheperpetuityperiod.Infact,noEnglishcase
hasupheldanoncharitablepurposetrustformorethantwentyoneyears.35
(i)Trustsforaparticularanimal
Atrustforthewelfareofanimalswillbeavalidcharitabletrust,36 butatrustforthecareofasingleanimalwillnot
becharitable,presumablybecausethepublicbenefitrequirementwillnothavebeensatisfiedsincetheonly
benefitistotheanimalsowner.Butsuchatrustwillbevalideventhoughitisforanoncharitablepurpose,as
longasitcomplieswiththeperpetuityrule.So,forexample,inRe(p.286) Dean,37 atrustforthemaintenanceof
thetestatorshorsesandhoundsforfiftyyearsiftheylivedthatlongwasheldtobevalid.NorthJsaid:38
Thefirstquestionisastothevalidityoftheprovisionmadebythetestatorinfavourofhishorsesanddogs.
Itissaidthatitisnotvalidbecause(forthisistheprincipalgrounduponwhichitisput)neitherahorse
noradogcouldenforcethetrustandthereisnopersonwhocouldenforceit.Itisobviouslynotacharity,
becauseitisintendedforthebenefitoftheparticularanimalsmentionedandnotforthebenefitofanimals
generallyInmyopinionthisprovisionfortheparticularhorsesandhoundsreferredtointhewillisnot,in
anysense,acharity,
Thenitissaid,thatthereisnocestuiquetrustwhocanenforcethetrust,andthattheCourtwillnot
recogniseatrustunlessitiscapableofbeingenforcedbysomeone.Idonotassenttothatview
Istherethenanythingillegalorobnoxioustothelawinthenatureoftheprovision,thatis,inthefactthatit
isnotforhumanbeings,butforhorsesanddogs?Itisclearlysettledbyauthoritythatacharitymaybe
establishedforthebenefitofhorsesanddogs,and,therefore,themakingofaprovisionforhorsesand
dogs,whichisnotacharity,cannotofitselfbeobnoxioustothelaw,provided,ofcourse,thatitisnotto
lastfortoolongaperiod.
Althoughthetrustwasheldtobevalid,itappearstohaveinfringedtheperpetuityrule,beingforfiftyyearsand
withoutreferencetothelifeofaspecifiedperson.Thecourtmay,however,haveassumedthatthehorsesand
houndswouldnothavelivedforlongerthantwentyoneyearsandsothetrustcouldbedeclaredvalid.Certainly,
theanimalscouldnotbeusedaslivesinbeingforthepurposesoftheperpetuityrule:asMeredithJsaidinRe
Kelly,39 Therecanbenodoubtthatlivesmeanslivesofhumanbeings,notanimalsortreesinCalifornia.
(ii)Truststoerectandmaintainmonumentsandgraves
Trustsfortheerectionormaintenanceoftombsormonumentshavelongbeenregardedasvalid,eventhoughthey
arenotcharitable,becauseoftheabsenceofanypublicbenefit,40 providedthattheysatisfytheperpetuityrule.
InMussettvBingle,41 itwasheldthatatestamentarybequesttoerectamonumentforthefirsthusbandofthe
testatorswifewasvalidsince,asHallVCrecognized,theexecutorswerereadytoperform,anditmustbe
performedaccordingly.Afurtherbequesttomaintainthemonumentwasheldtobevoidforperpetuity.InRe
Hooper,42 atrustforthecareandupkeepoffamilygravesandmonumentswasheldtobevalidfortwentyone
yearsonly.Afterthatperiod,itwasheldthatanysurplusmoneyshouldbegiventowhoeverwasentitledtothe
residueoftheestate.
(iii)Trustsforthesayingofprivatemasses
Trustsforthesayingofmassesthatthepublicareentitledtoattendwillbecharitable.43 Atrustforthesayingof
massesinprivatewillnotsatisfythepublicbenefitrequirementtobecharitable,butwillbevalidasanon
charitablepurposetrustiftheperpetuityruleisnotinfringed.44
(p.287) (iv)Trustsforotherpurposes
InReEndacott,[1960]Ch232itwasrecognizedbytheCourtofAppealthattheseanomalouscasesinwhich
testamentarypurposetrustshavebeenrecognizedshouldnotbeextended.Thetestatorhadlefthisestatetoa
parishcounciltoprovidesomeusefulmemorialtohimself.Thiswasconstruedtobeatrustforanoncharitable
purposethatwasnotvalid,eventhoughitmightberegardedasanalogoustotruststoerectandmaintain
monumentsandgraves.LordEvershedMRsaid:45
Iampreparedtoaccept,forthepurposesoftheargument,thatitdoesnotmatterthatthetrustshereare
attachedtoresidueandnottoalegacythatistosay,itdoesnotmatterthatthepersonswhowould
cometothecourtandeithercomplainifthetrustswerenotbeingcarriedout,orclaimthemoneyonthe
footingthattheyhadnotbeencarriedout,arenextofkinratherthanresiduarylegatees.Still,inmy
judgment,thescopeofthesecasesoughtnottobeextended.Sotodowouldbetovalidatealmost
limitlessheadsofnoncharitabletrusts,eventhoughtheywerenot(strictlyspeaking)publictrusts,solong
onlyasthequestionofperpetuitiesdidnotariseand,inmyjudgment,thatresultwouldbeoutofharmony
withtheprinciplesofourlaw.Noprincipleperhapshasgreatersanctionofauthoritybehinditthanthe
generalpropositionthatatrustbyEnglishlaw,notbeingacharitabletrust,inordertobeeffective,must
haveascertainedorascertainablebeneficiaries.Thesecasesconstituteanexceptiontothatgeneralrule.
Thegeneralrule,havingsuchauthorityasthatofLordEldon,LordParkerandmypredecessor,Lord
GreeneMR,behindit,wasmostrecentlyreferredtointhePrivyCouncilinLeahyvAGforNewSouth
Wales[1959]AC457.
HarmanLJsaid:46
Icannotthinkthatcharityhasanythingtodowiththisbequest.Asforestablishingitwithoutthecrutchof
charity,IapplaudtheorthodoxsentimentsexpressedbyRoxburghJintheAstorcase[1952]Ch534,and
Ithink,asIthinkhedid,thatthoughoneknowstherehavebeendecisionsattimeswhicharenotreallyto
besatisfactorilyclassified,butareperhapsmerelyoccasionswhenHomerhasnodded,atanyratethese
casesstandbythemselvesandoughtnottobeincreasedinnumber,norindeedfollowed,exceptwhere
theoneisexactlylikeanother.Whetheritwouldbebetterthatsomeauthoritynowshouldsaythose
caseswerewrong,thisperhapsisnotthemomenttoconsider.Atanyrate,Icannotthinkacaseofthis
kind,thecaseofprovidingoutsideachurchanunspecifiedandunidentifiedmemorial,isthekindof
instancewhichshouldbeallowedtoaddtothosetroublesome,anomalousandaberrantcases.
Reasoningbyanalogy,whichhasprovedtobesosignificanttothedevelopmentofthelawof
charity,47 therefore,appearstobeunavailablewhenconsideringthevalidityofnoncharitablepurpose
trusts.
Therehave,however,beenothertestamentarydispositionsthathavebeenheldtobevalideventhough
theyinvolvenoncharitablepurposes.So,forexample,inReThompson,48 alegacytopromoteandfurther
foxhuntingwasupheldasvalid.Cruciallythiswasonthebasisthattherecipientofthelegacyhadgiven
anundertakingtoapplythelegacywhenreceivedbyhimtowardstheobjectexpressedinthetestators
willandthat,incasethelegacyshouldbeappliedbyhimotherwisethantowardsthepromotionand
furtheringoffoxhunting,theresiduarylegateesaretobeatlibertytoapply.Althoughthiswasagiftrather
thanatrust,therequirementofthelegateegivinganundertakingastotheuseofthemoneyissignificant.
Suchundertakingsbytrusteescouldalsobegiveninsituationsoutsidetherecognizedcasesof
testamentarytrustsofimperfectobligation,suchasinthecircumstancesofReEndacott.There(p.
288) isconsequentlynoreasonwhytherecognitionofsuchtestamentarytrustsofanimperfectobligation
shouldbelimitedtotheseexceptionalcasesanynoncharitablepurposeinatestamentarytrustshouldbe
validiftheappropriateundertakingisgiven,thetrustsatisfiestheperpetuityruleandthepurposeis
sufficientlycertain.Ifthetrusteedoesnotgiveanundertakingtoapplythefundforthenoncharitable
purpose,thefundshouldbeheldonresultingtrustforthoseentitledtothetestatorsresiduaryestate.
3.OtherMechanismsforImplementingNonCharitablePurposes
Thereareavarietyofdifferentmechanismsthatcanbeemployedtoimplementanoncharitablepurpose,mostof
whichcanbeusedwithoutresortingtotheuseofatrust.
(a)FiduciaryPowerforNonCharitablePurposes
Itisafundamentalprinciplethatavalidpowercannotbespeltoutofaninvalidtrust,49 sothatwhatpurportsto
beanoncharitablepurposetrustcannotusuallybetreatedasapowerthatthetrusteemay,ratherthanmust,
exerciseforthenoncharitablepurpose.50 InReShaw,51 HarmanJsaid:
Ishouldhavewishedtoregardthisbequestasagifttotheultimateresiduarylegateessubjecttoa
conditionbywhichtheycannotcomplainofincomeduringthefirst21yearsafterthetestatorsdeathbeing
devotedtothealphabetproject.Thisapparentlymightbethewayinwhichthematterwouldbeviewedin
theUnitedStates,forIfindinMorrisandLeachsworkontheRuleagainstPerpetuities(1956),atp.308,
thefollowingpassagequotedfromtheAmericanLawInstitutesRestatementofTrusts.
Wheretheownerofpropertytransfersituponanintendedtrustforaspecificnoncharitablepurpose,and
thereisnodefiniteordefinitelyascertainablebeneficiarydesignated,notrustiscreatedbutthetransferee
haspowertoapplythepropertytothedesignatedpurpose,unlessheisauthorizedsotoapplythe
propertybeyondtheperiodoftheruleagainstperpetuities,orthepurposeiscapricious.
Astheauthorspointout,thisistotreatatrustofthissortasapower,forclearlythereisnoonewhocan
directlyenforcethetrust,andifthetrusteeschoosetopaythewholemoneystotheresiduarylegatees,no
onecancomplain.Allthatcanbedoneistocontrolthetrusteesindirectlyintheexerciseoftheirpower.In
myjudgment,Iamnotatlibertytovalidatethistrust,bytreatingitasapower.(SeeperJenkinsLJ
inSunnylandscase[1955]Ch20at36:Wedonotthinkthatavalidpoweristobespeltoutofan
invalidtrust).
Butitcanstillfollowthatitispossibletocreateavalidtrustsubjecttoapowerforanidentifiednon
charitablepurposetobeusedonlywithintheperpetuityperiod.Thetrusteewouldnotberequiredto
exercisethepowerand,ifheorshedidso,thiswouldnotbeabreachoftrust.Sincesuchapowerneed
notbeexercised,itmightbeconsiderednottobenecessarytoidentifybeneficiarieswhocouldenforceit.
Buttrusteesarestillrequiredtoconsidertheexerciseofthepower52 andmightexercisethepower
improperly,sothepreferableviewisthatafiduciarypowertoallowthepropertytobeappliedbyatrustee
foranoncharitablepurposewouldstillbecaughtbythebeneficiaryprincipleandcouldbevalidonlyifit
weretofallwithinoneoftherecognizedexceptionstothatprinciple.
(p.289) (b)PowerAttachedtoGiftwithGiftOver
Anoncharitablepurposemightalsobeachievedbygivingpropertytoapersonsubjecttoapowerthatitshould
beusedforanoncharitablepurpose,failingwhichagiftoverwouldtakeeffect.Thedoneewouldnotbeobligedto
usethepropertyforthatpurpose,butifheorsheweretofailtodoso,thegiftwouldlapseandthegiftoverwould
apply.Thishasbeenrecognizedaseffectiveasregardscharities,perhapsbecauseofgeneralbenevolence
towardscharities.53 Whereagiftismadetoacharity,subjecttoaconditionthatthecharityperformanon
charitablepurposeandwithagiftovertoanothercharityiftheconditionisnotfulfilled,thegiftwillnotbecaught
bytheperpetuityrulethatgenerallyappliestononcharitablepurposes.54 So,forexample,inReTyler,55 the
testatorleftmoneytoacharity,theLondonMissionarySociety.Healsocommittedtothecareofthetrusteesof
thecharitythekeysofhisfamilyvaulttokeepitingoodrepairiftheSocietyweretofailtosokeepit,themoney
wastobetransferredtoacharitablehospital.Eventhoughthegifthadbeenmadetoacharity,theupkeepofthe
familyvaultwasnotacharitablepurpose.Itwasheldthatboththegiftandthegiftoverwerevalidandwerenot
caughtbytheperpetuityrule.FryLJsaid:56
Inthiscasethetestatorhasgivenasumofmoneytoonecharitywithagiftovertoanothercharityupon
thehappeningofacertainevent.Thatevent,nodoubt,issuchastocreateaninducementormotiveonthe
partofthefirstdonee,theLondonMissionarySociety,torepairthefamilytombofthetestator.Inasmuch
asboththedoneesofthisfund,thefirstdoneeandthesecond,arecharitablebodies,andarecreatedfor
thepurposesofcharity,theruleoflawagainstperpetuitieshasnothingwhatevertodowiththedonees.
Doestheruleoflawagainstperpetuitiescreateanyobjectiontothenatureofthecondition?Ifthetestator
hadrequiredthefirstdonee,theLondonMissionarySociety,toapplyanyportionsofthefundtowardsthe
repairofthefamilytomb,thatwould,inallprobability,atanyrate,totheextentofthesumrequired,have
beenvoidasaperpetuitywhichwasnotcharity.Buthehasdonenothingofthesort.Hehasgiventhefirst
doneenopowertoapplyanypartofthemoney.Hehasonlycreatedaconditionthatthesumshallgoover
toChristsHospitaliftheLondonMissionarySocietydonotkeepthetombinrepair.Keepingthetombin
repairisnotanillegalobject.Ifitwere,theconditiontendingtobringaboutanillegalactwoulditselfbe
illegalbuttorepairthetombisaperfectlylawfulthing.Allthatcanbesaidisthatitisnotlawfultotieup
propertyforthatpurpose.Buttheruleoflawagainstperpetuitiesappliestoproperty,notmotivesandI
knowofnorulewhichsaysthatyoumaynottrytoenforceaconditioncreatingaperpetualinducementto
doathingwhichislawful.Thatisthiscase.
Thismightbejustifiedbecausetheconditionattachedtothegiftwasnotconsideredtohavecreatedanobligation
onthepartofthetrusteestomaintainthevault.Hadtherebeensuchanobligation,thiswouldhavebeena
testamentarytrustofanimperfectobligation,57 butitwouldhavebeenvalidonlyhadtheperpetuityrulebeen
satisfied.InReTyler,thecharitywasconsideredtohaveapowertousethefundtomaintainthevaultifitwished
todoso,ratherthantobeunderadutytodoso,andthiswasnotcaughtbytheperpetuityrulebecause,asFry
LJrecognized,thatruleappliestopropertyandnottomotives.Where,however,agifthasbeenmadetoa
charity,subjecttoadutytoapplythepropertyforanoncharitablepurpose,thishasbeenheldtobevoid,even
thoughprovisionwasmadeforthepropertytobetransferredtoanothercharityiftheconditionwasnotsatisfied,
albeitthatthegiftover(p.290) wassubjecttothesamecondition.Forexample,inReDalziel,58 thetestatrixhad
leftasumofmoneytoahospitalonconditionthattheincomeshouldbeusedfortherepairofherfamily
mausoleum,withagiftovertoanothercharityonthesameconditionsifthehospitalweretofailtosorepairit,but
thatgiftoverwassubjecttothesameconditions.Itwasheldthatthetestatrixhadpurportedtoimposeadutyon
thehospitaltomaintainthemausoleum,andthatthisandthegiftoverwerevoidasbeingcontrarytothe
perpetuityrule.
(c)MandateorAgency
Ithasbeenrecognizedthatagiftcanbetransferredtoadoneewhoisappointedasagentforthedonorandwith
authoritytoapplythegiftforanoncharitablepurpose.59 Iftheagentweretomisapplythegift,heorshewouldbe
liableforbreachoffiduciaryduty.60 Ifheorsheweretofailtoapplythegiftasheorshewasmandatedto,it
wouldbereturnedtothedonorexceptwhereitwasagreedthatthemoneywasnolongerrecoverable.
(d)AppointmentofanEnforcer
Toattracttrustbusinessanumberofoverseasjurisdictionshaveenactedstatutesthatprovideforthepossibility
ofcreatingnoncharitablepurposetrusts.61 Suchstatutoryprovisionisparticularlyimportantforinternationaltrust
planningandbusiness.Theuseofnoncharitablepurposetrustsisimportantbecause,sincethereareno
beneficiarieswithequitableproprietaryinterests,itispossibletostructuretransactionsandcompanieswithout
needingtoidentifyanybodywhohasbeneficialownership,whichhastheadvantageofavoidingtheimpositionof
taxliabilityonbeneficiariesandprotectingassetsfromcreditors.Forsuchpurposetruststobevalid,theyrequire
anenforcementmechanism,whichusuallyinvolvestheappointmentofaperson,typicallyknownastheenforcer
orprotector,toenforcethetrustbyapplicationtothecourtifthepurposeisnotbeingcarriedout.62
MatthewsinTrendsinContemporaryTrustLaw(ed.Oakley)(Oxford:ClarendonPress,
1996),p.19
Thecharacteristicofthetruenoncharitablepurposetrustisthatithasnobeneficiaries.Thismeans
thatthebeneficialownershipisnotinthetrusteesitisafterallatrust,notfortheirbenefitandthere
isnooneelseinwhomitcanbelocated.Soitissaidthepropertythesubjectofthetrustcannot,
instrictlaw,besaidtobelongbeneficiallytoanyone.Nowtherearemanyestateplanningexercises
andcommercialtransactionsthatcanmakegooduseofthisphenomenon.
Acuriosityisthatnoncharitablepurposetrustlegislationingeneralhasnotpurportedtoanswer
explicitlythequestionwherethebeneficialownershipofthetrustpropertylies.
Butsafetyinnumbersithastendedtofollowacertainmodel.Therearefivemainfeatures,although
itmustbeemphasizedthatnoteveryexampleofsuchlegislationmakesprovisionforeachofthese
features.
(p.291) Thefivefeaturesareasfollows:
1.Restrictionsonthepurposesforwhichthetrustcanbeestablishedtypicallythelegislation
saysthatthepurposesmustbebothworkable,i.e.specificorcertainandpossibletocarryout,
andbeneficial,i.e.notimmoralorcontrarytopublicpolicy.
2.Enforcementmechanism:typicallytheremustbeapersonwhosejobitistokeepaneyeon
thetrustandtoenforceit.Forthispurposehewillhaverightstoinformationaboutthetrust.He
maybecalledtheenforcerortheprotector,orsomethingelse,buthewillhavecertain
obligationstoblowthewhistle,applytotheCourt,ornotifyanofficial(typicallytheAttorney
General)ifhethinkssomethingwrongisgoingon,orifthereisnoenforcerinoffice.Sometimes
thesedutiesarebackedupbycriminalsanctions.63
3.Restrictionsonthetrustees:itiscommontoprovidethatatleastoneofthetrusteesmustbe
residentinthejurisdictionconcerned,and/ormustbeaprofessionallyqualifiedpersonorbody,
forexamplealawyeroraccountant.Also,usuallyatrusteemaynotbetheenforcer.
4.Restrictionsonthetrustproperty:oftensuchtrustsarenotallowedtoownlandinthe
jurisdictionconcerned.
5.Durationandterminationofthetrust:mostofthejurisdictionshaveperpetuityperiodsor
maximumdurationperiods,andprovisionforwhatistohappentothepropertyatthe
determinationofthetrust
Wemustseetrustsandthepurposetrustinparticularinthislight.Itisaproduct,servinga
commercialneed.Tosomeextent,likealllawandlegalinstitutions,itisaconjuringtrick.Itisaway
ofmakinganotherlegalinstitutionownershipdisappear,orhalfdisappear.Firstitisrefractedinto
legalownershipandbeneficialenjoyment,andthenbeneficialenjoymentseemstodissolveintothin
air.
Thereisnothingwronginanyofthis,providedthatweunderstandwhatwearedoing,andthatweare
doingitdeliberately.Unlikethelawsofphysics,thelawsofmanarefullymutable.Butwhatwemust
notdoandweareindangerofdoingitistomisunderstandandtomisuseadoctrine,tothinkwe
haveachievedanobjectwhenwehavenot.Thestatutorypurposetrustis,orcanbe,agoodthing.But
itisnottheentirelyautonomousvehiclethatitspromotersthink.ItisnottheHolyGrail.Thereare
obligationsnoonedoubtsthatbutalsotherearerights.Ifthetrusthasbackgroundbeneficiaries,
likeReDenley64 thentheyhaverights.Ifthetrustisasham,thenagaintherewillbereal
beneficiaries,abletoexerciserightsandmoreseriouslysaddledwiththebeneficialownership.
Evenifanditisabigifitisagenuine,substantivepurposestatutorynoncharitablepurposetrust,
theenforcerhasrights.Ifthereisatrust,thereisabenefit.And,likethedamnosahereditasofthe
classicalRomanlaw,thequestioncanstillbeasked,towhomdoesitbelongintheend?
IfthisenforcermechanismweretoberecognizedinEnglandandWales,itwouldenablenoncharitablepurpose
truststobetreatedasgenerallyvalid,sincetheexistenceoftheenforcerwouldensurethatthetrustisperformed
properly.
PawlowskiandSummers,Privatepurposetrusts:areformproposal[2007]Conv440,452
AnobviouswayforwardistheenactmentoflegislationvalidatingprivatepurposetrustsunderEnglish
law.Thekeyfeaturesofthenewlawshould,itissubmitted,comprisethefollowing:
(p.292) (a)Typeoftrustinstrument
Thenewlegislationshouldpermitthepurposetrusttobecreatedbyanintervivostrustdeedor
bywill.Toavoidanydifficultiesinthelattercase,thereshouldbenorequirementthatthe
enforcermustbeapartytothetrustinstrumentcreatingthepurposetrust.
(b)Definitionofpurposetrust
thesettlor/testator[shouldbegiven]theopportunitytochooseaspecifictrusttobesubjectto
thenewlegislation.Thechosentrustvehiclewouldhavetobestatedwithinthetrustinstrument.
Thiswouldalsoforcethesettlor/testatortoconsidercarefullythetypeoftrustbeingcreated.
(c)Perpetuityperiod
Theredoesnotappeartobeanyreasonforanoncharitablepurposetrusttobeexemptedfrom
theruleagainstperpetuities.Thenewlegislationcould,therefore,providefortheusual
perpetuityperiodtoapplytopurposetrusts,butwithnorestrictionontheaccumulationof
incomeduringthetrustperiod.
(d)Determinationevents
Theideaofanoncharitablepurposetrustbeingrequiredtohaveaspecifieddeterminationevent
appearssensible.Theperpetuityperiodof80yearsisalongstop.Theearlierdetermination
shouldbewhenthepurposehasbeenfulfilled,oriftheenforcerdeterminesthatthepurposeis
nolongerpossible.Thisrequiresthattheenforcerbeindependentofthetrusteesanddefault
beneficiariestoavoidconflictsofinterest.
(e)Purpose
Thepurposeshouldnotbecontrarytopublicpolicy,shouldbecertainandnotconflictwithany
existinglaw.Anobligationcouldbeimposedontheenforcertosatisfyhimselfthatthepurpose
islegitimateif,forexample,thepurposebecomesimpossibletofulfil,thiswouldbea
determinationeventtriggeringthedefaulttrustprovisions.
(f)Defaultbeneficiaries
Thetrustinstrumentwouldhavetospecifyhowthetrustassetsaretobedistributedon
determinationorattheendofthetrustperiodAttheendofthetrustperiodoron
determination,itshouldnotbepossibletopasstheassetsintoanewtrust,unlessitisa
charitabletrustthatisexemptfromtheruleagainstperpetuities.
(g)Disclosure
Shouldthedefaultbeneficiariesbeinformedoftheirinterestunderthetrust,soastoensurethey
canenforcetheirrights?Somejurisdictionshavetakentheviewthat,aslongasanenforcerhas
beenappointed,thereshouldbenoreasontoforcedisclosureontothedefaultbeneficiaries.
However,thedefaultbeneficiarieswouldhavetheright,underEnglishlaw,toseetrust
documentationandaccountsevenbeforetheywereentitledtobenefit.Itwould,therefore,seem
sensibletohaveanobligationtoinformallbeneficiariesoftheexistenceofthetrustandtheir
potentialinterests.Thelawinthisareaisnot,however,clear,anditishardtoseewhytrustees
ofapurposetrustshouldhaveanobligationtoinformbeneficiariesoftheirrights,iftrusteesof
nonpurposetrustsdonothavethesameobligation
(h)Enforcer
TheBermudianconceptofallowinganyonewithaninteresttoactasenforcerisattractive,but
thiscouldleadtonooneactingasenforcer.Anindependentperson(anindividualratherthana
company)should,itissubmitted,beappointedastheenforcer.Theenforcermustnotbeina
positionofconflictandmust,therefore,beindependentofthetrusteesandbeneficiaries.
Ideally,theenforcershouldbeappointedintheinitialtrustinstrument.Ifnot,theremustbea
mechanisminthetrustinstrumentfortheenforcertobeappointed,saybythesettlorduringhis
lifetimeorbythetrusteesunderhiswill.Theenforcershouldhaveapowertoappointa
replacement,againwiththe(p.293) trusteesbeingrequiredtoappointanewenforcerifthere
ceasestobeanenforcerinplaceatanytimeorforanyreason.Aswithmostjurisdictions,there
shouldbepenaltiestoensurethatthetrusteesacttoappointanenforcer.
Theroleoftheenforcershouldbeclearlydefinedasafiduciaryasopposedtopersonal)
obligation.Thecourtwould,therefore,havethepowertoremoveanenforcerintheeventofa
breachoffiduciaryduty,oriftheenforcerbecomesincapableoffulfillingtherole,inthesame
wayasthecourtscanremoveorappointtrusteesundertheTrusteeAct1925.Anapplicationto
thecourtscould,therefore,bemadeiftheenforcerlosescapacity,becomesbankrupt,oris
sentencedtoprison,butitmaybemorepracticalfortheenforcertobedeemedtoretire
automaticallyuponanysucheventoccurring.Thetrusteeswouldthenberequiredtoappointa
newenforcerifthereisnoreplacementenforcer.
(i)Trustees
Manyjurisdictionsstatethatonlydesignatedtrusteescanbeappointedastrusteesfora
purposetrust.ThemaindifficultywiththisisthatinEnglandthereisnoregistrationorlicensing
oftrustees.Thiscontrastssharplywithoffshorejurisdictionswherelicensingoftrusteesisnow
commonplace.Instead,thenewlegislationcouldfollowtheTrusteeAct1925approachthe
purposetrustmusthaveastrusteeatrustcorporationortwotrustees(thiscouldbeone
companyandoneindividual).Anunfitindividual(e.g.abankruptorpersonofunsoundmind)
wouldnotbeabletoactastrustee.
Hayton65 hasarguedthatthesortoflegislationenvisagedbyPawlowskiandSummersisunnecessary,onthe
basisthatthelawalreadyallowsanysettlortoidentifyexpresslyapersonwithlocusstanditoenforcethe
trusteesduties,whichhasthepracticaleffectofallowingnoncharitablepurposetruststobetreatedasvalidby
ensuringthatthebeneficiaryprincipleissatisfied.Butthisgoestoofar.ThetraditionalattitudeoftheEnglish
authorities,attheveryleast,requiresthebeneficiarytobeinapositiontoenforcethetrust,saveforthose
exceptionalcircumstancesunderwhichanoncharitablepurposetrustisrecognized.Ifnoncharitablepurpose
trustsaretobeexpandedbeyondthis,legislationisrequiredtoensurethattheambitofthetrustisclearly
defined,andthepowersandresponsibilitiesoftheprotectorclearlyidentified.
4.UnincorporatedAssociations
Thefactthattrustsfornoncharitablepurposesaregenerallynotvalid,causesparticularproblemswhenproperty
istransferredtoanunincorporatedassociation,whichisessentiallyanoncommercialcluborsociety.Such
associations,unlikeincorporatedassociations,66 lacklegalpersonalityandsocannotownproperty.Yetgiftsof
propertyareregularlymadetounincorporatedassociationsandtheyoftenarecolloquiallyconsideredtoown
propertysuchassportsgrounds.ThiscannotbetrueatLaw.Equitymighthelptoexplainhowsuchpropertycan
beownedandmanagedbymeansofthetrust.Butsinceunincorporatedassociationsexistforpurposesand
becausenoncharitablepurposetrustsaregenerallynotvalid,thetrustsolutionmaynotbe
available.67 Nevertheless,Equitycanexplainhowpropertycanbeheldforthepurposesofunincorporated
associations,althoughtheanalysisiscomplexandcontracthasasignificantroletoplayaswell.Thisquestionof
propertyholdingisnotonlyoftheoreticalsignificance.Itcanalsobeofrealpracticalimportance,especiallywhen
theunin(p.294) corporatedassociationisdissolved,forhowthepropertyhasbeenheldwillaffectwhoisentitled
toreceivethepropertyondissolution.
(a)TheDefinitionofUnincorporatedAssociations
AnunincorporatedassociationwasdefinedbyLawtonLJinConservativeandUnionistCentralOfficev
Burrell68 as:
twoormorepersonsboundtogetherforoneormorecommonpurposes,notbeingbusinesspurposes,by
mutualundertakingseachhavingmutualdutiesandobligations,inanorganisationwhichhasruleswhich
identifyinwhomcontrolofitanditsfundsrestsandonwhattermsandwhichcanbejoinedorleftatwill.
Thebondofunionbetweenthemembersofanunincorporatedassociationhastobecontractual.
Thekeyelementsofthisdefinitionarethattheassociationmustbenonprofitmakingandthatitisanan
associationofpersonsboundtogetherbyidentifiablerulesandhavinganidentifiablemembership.69 Theserules
typicallytaketheformofaconstitution.Agoodexampleofanunincorporatedassociationisanamateurfootball
club,whichisnotabusinessandwhichwilltypicallyhaveitsownconstitution.InBurrellitself,itwasheldthat
theConservativePartywasnotanunincorporatedassociationbecauseitconsistedofanumberofdifferent
components,namelylocalconstituencyparties,parliamentaryparties,andCentralOffice,whichwerenot
contractuallyboundtogetherasoneassociationbyasingleconstitution.
(b)PropertyHoldingforUnincorporatedAssociations
Thereareanumberofdifferentexplanationsastohowpropertycanbeheldforthebenefitofanunincorporated
association.InNevilleEstatesLtdvMadden,70 variousconstructionsofgiftstounincorporatedassociationswere
considered.CrossJsaid:71
Thequestionoftheconstructionandeffectofgiftstoorintrustforunincorporatedassociationswas
72
recentlyconsideredbythePrivyCouncilinLeahyvAGforNewSouthWales[1959]AC457.72 The
position,asIunderstandit,isasfollows.Suchagiftmaytakeeffectinoneorotherofthreequitedifferent
ways.Inthefirstplace,itmay,onitstrueconstruction,beagifttothemembersoftheassociationatthe
relevantdateasjointtenants,sothatanymembercanseverhisshareandclaimitwhetherornothe
continuestobeamemberoftheassociation.Secondly,itmaybeagifttotheexistingmembersnotas
jointtenants,butsubjecttotheirrespectivecontractualrightsandliabilitiestowardsoneanotheras
membersoftheassociation.Insuchacaseamembercannotseverhisshare.Itwillaccruetotheother
membersonhisdeathorresignation,eventhoughsuchmembersincludepersonswhobecamemembers
afterthegifttookeffect.Ifthisistheeffectofthegift,itwillnotbeopentoobjectiononthescoreof
perpetuityoruncertaintyunlessthereissomethinginitstermsorcircumstancesorintherulesofthe
associationwhichprecludesthemembersatanygiventimefromdividingthesubjectofthegiftbetween
themonthefootingthattheyaresolelyentitledtoitinequity.
(p.295) Thirdly,thetermsorcircumstancesofthegiftortherulesoftheassociationmayshowthatthe
propertyinquestionisnottobeatthedisposalofthemembersforthetimebeing,butistobeheldintrust
fororappliedforthepurposesoftheassociationasaquasicorporateentity.Inthiscasethegiftwillfail
unlesstheassociationisacharitablebody.Ifthegiftisofthesecondclass,i.e.,onewhichthemembers
oftheassociationforthetimebeingareentitledtodivideamongthemselves,then,eveniftheobjectsof
theassociationareinthemselvescharitable,thegiftwouldnot,Ithink,beacharitablegift.If,forexample,
anumberofpersonsformedthemselvesintoanassociationwithacharitableobjectsaythereliefof
povertyinsomedistrictbutitwaspartofthecontractbetweenthemthat,ifamajorityofthemembersso
desired,theassociationshouldbedissolvedanditspropertydividedbetweenthemembersatthedateof
dissolution,agifttotheassociationaspartofitsgeneralfundswouldnot,Iconceive,beacharitablegift.
Aparticularmethodofpropertyholdingmightbeexpresslychosenbythetransferorofproperty,butusuallyno
methodhasbeenchosenanditisnecessarytoconstruecarefullythenatureandcircumstancesofthe
transactiontodeterminewhichoneisapplicableonthefacts.Inpractice,incasesofdoubt,judgeshavea
tendencytoadoptthemechanismthatismostlikelytovalidatethetransferofproperty.
Inmostcasesinwhichpropertyistransferredtoanunincorporatedassociation,itwillbevestedinthetreasureror
otherofficersoftheassociation.Typically,thetransferorwillnotintendtheofficerstoreceivetheproperty
beneficially,butwillintendthepropertytobeusedforthebenefitoftheassociation.Thekeyquestioniswhether
thisisforthebenefitoftheassociationspurposesormembersand,ifforthemembers,whetheritisforthe
benefitofpresentorfuturemembers.
Fivedistinctmethodsofpropertyholdingrelatingtounincorporatedassociationscanbeidentified:(i)charitable
trust(ii)noncharitablepurposetrust(iii)formembersatthetimeofthetransfer(iv)ontrustforpresentand
futuremembersand(v)formemberssubjecttotheirexistingcontractualrights.
(i)Charitabletrust
Propertythatistobeusedforthebenefitoftheunincorporatedassociationcouldbeheldonacharitablepurpose
trust,butonlyifthereisarecognizedcharitablepurposeandifthetrustisforthepublicbenefit.73 Withthe
recognitionoftheadvancementofamateursportasadistinctcharitablepurpose,itwillbeeasiertotreatproperty
transferredtosportsclubsasbeingheldontrustforthecharitablepurposesofthatclub.But,asCrossJ
recognizedinNevilleEstatesLtdvMadden,iftheassociationhasarulethat,ondissolution,thepropertywillbe
dividedbetweenthemembersthemselves,thiswillnegatethecharitablepurpose,becausethiswilldefeatthe
applicationofthecyprsdoctrine.74
(ii)Noncharitablepurposetrust
Unincorporatedassociationswereonceconsideredtobeanexceptiontothegeneralprinciplethatnoncharitable
purposetrustsarevoid,butthisexceptionwasrejectedbythePrivyCouncilinLeahyvAttorneyGeneralforNew
SouthWales.75 Inthatcase,thetestatorlefthispropertytobeheldontrustforanorderofnuns,whichwasan
unincorporatedassociation.Thiswasheldtobevoidasanoncharitablepurposetrust.ViscountSimondssaid:76
Inlawagiftto[anunincorporatedassociation](i.e.,where,tousethewordsofLordParkerinBowmanv
SecularSocietyLtd[1917]AC406at437,neitherthecircumstancesofthegiftnorthedirections(p.
296) givennortheobjectsexpressedimposeonthedoneethecharacterofatrustee)isnothingelsethan
agifttoitsmembersatthedateofthegiftasjointtenantsortenantsincommon.Itisforthisreasonthat
theprudentconveyancerprovidesthatareceiptbythetreasurerorotherproperofficeroftherecipient
societyforalegacytothesocietyshallbeasufficientdischargetoexecutors.Ifitwerenotso,the
executorscouldonlygetavaliddischargebyobtainingareceiptfromeverymember.Thismustbe
qualifiedbysayingthatbytheirrulesthemembersmighthaveauthorisedoneofthemselvestoreceivea
giftonbehalfofthemall.
Itisinthelightofthisfundamentalpropositionthatthestatements,towhichreferencehasbeenmade,
mustbeexamined.Whatismeantwhenitissaidthatagiftismadetotheindividualscomprisingthe
communityandthewordsareaddeditisgiventothemforthebenefitofthecommunity?Ifitisagiftto
individuals,eachofthemisentitledtohisdistributiveshare(unlesshehaspreviouslyboundhimselfbythe
rulesofthesocietythatitshallbedevotedtosomeotherpurpose).Itisdifficulttoseewhatisaddedby
thewordsforthebenefitofthecommunity.Iftheyareintendedtoimportatrust,whoarethe
beneficiaries?Ifthepresentmembersarethebeneficiaries,thewordsaddnothingandaremeaningless.If
someotherpersonsorpurposesareintended,theconclusioncannotbeavoidedthatthegiftisvoid.Forit
isuncertain,andbeyonddoubttendstoaperpetuity.
Thequestionthenappearstobewhether,evenifthegifttoaselectedOrderofNunsisprimafacieagiftto
theindividualmembersofthatOrder,thereareotherconsiderationsarisingoutofthetermsofthewill,or
thenatureofthesociety,itsorganisationandrules,orthesubjectmatterofthegiftwhichshouldleadthe
courttoconcludethat,thoughprimafaciethegiftisanabsoluteone(absolutebothinqualityofestateand
infreedomfromrestriction)toindividualnuns,yetitisinvalidbecauseitisinthenatureofanendowment
andtendstoaperpetuityorforanyotherreason.Thisraisesaproblemwhichisnoteasytosolve
Theprimafacievalidityofsuchagiftisaconvenientstartingpointfortheexaminationoftherelevant
law.ForasLordTomlin(sittingatfirstinstanceintheChanceryDivision)saidinReOgden[1933]Ch678,
agifttoavoluntaryassociationofpersonsforthegeneralpurposesoftheassociationisanabsolutegift
andprimafacieagoodgift.HewasechoingthewordsofLordParkerinBowmanscase[1917]AC406at
442,thatagifttoanunincorporatedassociationfortheattainmentofitspurposesmaybeupheldasan
absolutegifttoitsmembers.Thesewordsmustreceivecarefulconsideration,foritistobenotedthatitis
becausethegiftcanbeupheldasagifttotheindividualmembersthatitisvalid,eventhoughitisgivenfor
thegeneralpurposesoftheassociation.Ifthewordsforthegeneralpurposesoftheassociationwereheld
toimportatrust,thequestionwouldhavetobeasked,whatisthetrustandwhoarethebeneficiaries?A
giftcanbemadetopersons(includingacorporation)butitcannotbemadetoapurposeortoanobject:
soalso,atrustmaybecreatedforthebenefitofpersonsascestuisquetrustbutnotforapurposeor
objectunlessthepurposeorobjectbecharitable
Itmustnowbeasked,then,whetherinthepresentcasetherearesufficientindicationstodisplace
theprimafacieconclusionthatthegiftmadebythewillistotheindividualmembersoftheselected
OrderofNunsatthedateofthetestatorsdeathsothattheycantogetherdisposeofitastheythinkfit.It
appearstotheirLordshipsthatsuchindicationsareample.
Inthefirstplace,itisnotaltogetherirrelevantthatthegiftisintermsupontrustforaselectedOrder.Itis
truethatthiscaninlawberegardedasatrustinfavourofeachandeverymemberoftheOrder.Butat
leasttheformofthegiftisnottothemembers,anditmaybequestionedwhetherthetestatorunderstood
thenicetiesofthelaw.Inthesecondplace,themembersoftheselectedOrdermaybenumerous,very
numerousperhaps,andtheymaybespreadovertheworld.Ifthegiftistotheindividualsitistoallthe
memberswhowerelivingatthedeathofthetestator,butonlytothem.Itisnoteasytobelievethatthe
testatorintendedanimmediatebeneficiallegacytosuchabodyofbeneficiaries.Inthethirdplace,the
subjectmatterofthegiftcannotbeignored.Itappearsfromtheevidencefiledinthesuitthat[theproperty]
isagrazingpropertyofabout730acres,withafurnishedhomestead(p.297) containing20roomsanda
numberofoutbuildings.Withthegreatestrespecttothosejudgeswhohavetakenadifferentview,their
LordshipsdonotfinditpossibletoregardalltheindividualmembersofanOrderasintendedtobecomethe
beneficialownersofsuchaproperty.Littleornoevidencehasbeengivenabouttheorganisationandrules
oftheseveralOrders,butitisatleastpermissibletodoubtwhetheritisacommonfeatureofthem,thatall
theirmembersregardthemselvesoraretoberegardedashavingthecapacitytoputanendtotheir
associationanddistributeitsassets.Onthecontrary,itseemsreasonablyclearthat,howeverlittlethe
testatorunderstoodtheeffectinlawofagifttoanunincorporatedbodyofpersonsbytheirsocietyname,
hisintentionwastocreateatrust,notmerelyforthebenefitoftheexistingmembersoftheselectedOrder,
butforitsbenefitasacontinuingsocietyandforthefurtheranceofitswork
Thedominantandsufficientlyexpressedintentionofthetestatoristhatthegiftistobeanendowment
ofthesocietytobeheldasanendowment,andthatasthesocietyisaccordingtoitsformperpetualthe
giftmust,ifitistoanoncharitablebody,fail.
Therewill,however,becircumstancesunderwhichapropertymightlegitimatelybeheldontrustforthepurposes
oftheunincorporatedassociation,eventhoughthosepurposesarenotcharitable,ifthetrustcanbeconsideredto
beforthedirectorindirectbenefitofthemembersofthatassociationwithintheDenleyprinciple.77 Insuch
circumstances,themembersoftheassociationwillbeinapositiontoenforcethetrustsincetheyfactually
benefitfromthepurpose.Suchatrust,beinganoncharitablepurposetrust,mustcomplywiththeCommonLaw
perpetuityrule.78 Thismechanismforpropertyholdingbytheclubmustbeintendedbythesettlor,inthatthe
settlormustintendthepropertytobeheldforthepurposesoftheclubratherthanforthemembersthemselves.
TheapplicationoftheDenleyprincipletounincorporatedassociationswas,however,doubtedbyVinelottJinRe
GrantsWillTrusts:79
Thatcaseonaproperanalysis,inmyjudgment,fallsaltogetheroutsidethecategoriesofgiftsto
unincorporatedassociationandpurposetrusts.Icanseenodistinctioninprinciplebetweenatrustto
permitaclassdefinedbyreferencetoemploymenttouseandenjoylandinaccordancewithrulestobe
madeatthediscretionoftrusteesontheonehand,and,ontheotherhand,atrusttodistributeincomeat
thediscretionoftrusteesamongstaclass,definedbyreferenceto,forexample,relationshiptothesettlor.
Inbothcasesthebenefittobetakenbyanymemberoftheclassisatthediscretionofthetrustees,but
anymemberoftheclasscanapplytothecourttocompelthetrusteestoadministerthetrustin
accordancewithitsterms.
ButthereisnoreasontoconfinetheDenleyprincipleinthisway.InReDenleyitself,thediscretionofthetrustees
wasnotconsideredtobesignificantandReDenleywasapplied,amongstothermechanisms,inReLipinsk is
WillTrust80 toexplainhowpropertycouldbeusedforthepurposesofanunincorporatedassociation.Despite
this,theReDenleyprinciplehasnotbeeninfluentialinexplainingpropertyholdingforthebenefitofunincorporated
associations,withotherexplanationsbeingmuchmoresignificantinexplainingbothpropertyholdingandthe
effectofdissolutiononwhoshouldbenefitfromtheproperty.
(p.298) (iii)Formembersatthetimeofthetransfer
Ratherthanintendingtobenefitthepurposesoftheassociation,thetransferorofpropertymaywishtobenefitthe
membersoftheassociationatthetimethepropertyistransferred.Thepropertymayeitherbetreatedas
belongingtothemembersabsolutely,oritwillbeheldontrustforthem,withlegaltitleinanofficersuchasthe
treasurer,81 sothatthemembershaveequitableinterestsintheproperty.
Regardlessofwhetherthemembersownthepropertyabsolutelyorbeneficiallyunderatrust,theirinterestwould
beasjointtenants,82 whichwouldmeanthattheycansevertheirinterestatwill.Theirinterestintheproperty
wouldarisebecausetheyweremembersatthetimeofthetransferoftheproperty,butthisinterestdoesnot
dependonthemcontinuingtobemembers.Consequently,theywouldretaintheirinterestinthepropertyeven
oncetheyhadceasedtobemembers.Theywouldbeabletosevertheirsharewhenevertheyliked,evenafterthe
expiryoftheirmembershipoftheassociation.Also,newmemberswhojointheassociationafterthepropertywas
acquiredwouldnothaveanyinterestintheproperty.
Thereareadvantagesofanalysingpropertyholdingbyunincorporatedassociationsinthisway.Forexample,
wherethepropertyisheldontrustforthemembers,thebeneficiaryprincipleissatisfied,sincethemembersat
thetimeoftheacquisitionarethebeneficiaries.Norwilltheperpetuityrulebeinfringed,becausethemembersare
freetodisposeoftheincomeandcapital.83 Butthistypeofmechanismisunlikelytobewhatthedonorofthe
propertyintends,becauseitdoesnotoperateforthebenefitoftheassociationspurposes,butonlyforthebenefit
ofthemembersatthetimeofthetransfer,eachofwhomcanseverhisorherowninterestforhisorherown
benefitatanytime.Consequently,thisisunlikelytobeamechanismthatwillbeadoptedbytransferors.Inany
event,itisamechanismthatcanbeexcludedbytherulesoftheassociationifthoserulespreventmembersfrom
severingtheirsharesinthepropertyheldforthebenefitoftheassociation.
Matthews,AProblemintheConstructionofGiftstoUnincorporatedAssociations[1995]
Conv302,308
Thegiftistothecurrentmembersoftheassociation.Butwhethertheymaysevertheirshares,or
whethertheymustretainthegiftinthefundsoftheassociationandsubjectittoitsrules,isinsteada
matterofconstructionoftherulesthemselves,andhasnothingtodowiththedonorsintentions.
(iv)Ontrustforpresentandfuturemembers
Toavoidtheunfortunateconsequencesofthepropertybeingtransferredforthebenefitofthemembersatthetime
ofthetransfer,thetransferormightinsteadwishthepropertytobeheldontrustforpresentandfuturemembers.
Thiswouldclearlysatisfythebeneficiaryprinciple,butsuchatrusthastraditionallybeenregardedasvoidfor
infringingtheperpetuityrule,sincethepropertywouldbeavailableindefinitelyforfuturemembers,whoseinterests
wouldvestoutsidetheperpetuityperiod.Butatrustforpresentandfuturememberswouldpresumablynotnowbe
caughtbytheperpetuityruleasithasbeenamendedbystatute.UnderthePerpetuitiesandAccumulationsAct
2009,theperpetuityperiodis125years,butthetrustwillremainvalidthroughoutthatperiodtoseeifitterminates
intime.84 Ifit(p.299) doesnot,thenthetrustwillterminateautomaticallyattheendoftheperiodandthe
propertywillbedistributedtothemembersatthattime.
Butatrustforpresentandfuturememberswouldstillbesubjecttothesignificantlimitationthateachmember
wouldretainaninterestinthetrustpropertyevenifheorshehasceasedtobeamember.Thisisunlikelyto
correspondtothedonorsintention.
(v)Formemberssubjecttotheirexistingcontractualrights
Thegenerallypreferableconstructiontoadoptistotreatthepropertyaseitherbeinggivenabsolutelytoanofficer
oftheassociation,suchasthetreasurer,orheldontrustforthemembersatthetimeofthetransfer,butsubject
totheircontractualrightsandliabilitiestowardsoneanotherasmembersoftheassociation.85 Thesecontractual
rightswillbederivedfromtheassociationsrulesorconstitution,sinceallunincorporatedassociationsmust,by
definition,haverulesthatbindthemembers 86 andthatformthebasisofanexpressorimpliedcontractbetween
them.87
Thismechanism,knownasthecontractholdingtheory,ensuresthatthepropertyisavailableforallmembers,
includingthosememberswhojointheassociationinthefuture.Theessenceofpropertyholdingaccordingtothis
theorywasidentifiedbyLewisonJinHanchettStamfordvAttorneyGeneral:88
Thethreadthatrunsthroughall[the]casesisthatthepropertyofanunincorporatedassociationisthe
propertyofitsmembers,butthattheyarecontractuallyprecludedfromseveringtheirshareexceptin
accordancewiththerulesoftheassociationandthat,onitsdissolution,thosewhoaremembersatthe
timeareentitledtotheassetsfreefromanysuchcontractualrestrictions.Itistruethatthisisnotajoint
tenancyaccordingtotheclassicalmodelbutsinceanycollectiveownershipofpropertymustbea
speciesofjointtenancyortenancyincommon,thiskindofcollectiveownershipmust,inmyjudgment,be
asubspeciesofjointtenancy,albeittakingeffectsubjecttoanycontractualrestrictionsapplicableas
betweenmembers.Insomecasesthosecontractualrestrictionsmaybesuchastoexcludeany
possibilityofafutureclaim.Inotherstheymaynot.
Thesignificanceofthiscontractualmodificationoftheclassicalmodelofjointtenancyisthatthemembers
cannotseverthejointtenancyatwill.Further,membersatthetimeofthetransferwhosubsequentlyresignfrom
theassociationwillnolongerhavecontractualrightsrelatingtothepropertythepropertywillbelongbeneficially
totheremainingmembers.Latermemberswhojointheassociationwillbeabletobenefitfromtheproperty
becausetheywillhavebeneficialrightsinthepropertyarisingfromtherulesoftheassociationthattheyhave
joined.
Thecontractholdingtheoryisthemechanismofpropertyholdingthatisnowmostusuallyrecognizedbythe
courts,butitwillnotbeavailableifthetransferorofthepropertyclearlyintendedthepropertytobeheldforthe
purposesoftheassociation,orforthemembersatthetimethepropertywastransferred,orforpresentandfuture
members.Butthoseconstructionsarenotusuallysatisfactory,becauseusuallyatrustforthepurposesofthe
associationwillbevoid,andtrustsforthemembers,eitheratthetimeofthetransferorpresentandfuture
members,willhavetheunfortunateconsequence,usuallyunintendedbythedonor,thatapersonwhoceasesto
beamemberwillstillhaveabeneficialinterestintheproperty.Consequently,thecontractholdingtheoryisbyfar
themostsatisfactoryandworkableexplanationofpropertyholdinginrespectofunincorporatedassociations.
(p.300) Whilstthemembersofanunincorporatedassociationcanownpropertywithouttheuseofatrust,in
practice,wherethereareasignificantnumberofmembers,propertywillmostconvenientlybeheldontrustforthe
membersbyanofficeroftheassociation.89 Thecontractholdingtheorywillremainsignificant,however,sincethe
termsofthecontractbetweenthemembers,intheformoftheassociationsconstitution,willbeincorporatedinto
thetrust.Typically,thetreasurerwillholdthepropertyonabaretrustinaccordancewiththerulesofthe
association.90 Eachmemberwillthenhaveabeneficialinterestinthepropertyandsothebeneficiaryprinciplewill
besatisfied,sinceeachmembercanensurethatthepropertyisappliedinaccordancewiththerulesofthe
association.Theperpetuityrule91 willalsobesatisfied,becauseitisarequirementofthecontractholdingtheory
thatitmustbepossibleforthememberstoagree,whetherunanimouslyorbymajoritydependingontherulesof
theassociationsconstitution,tovaryorterminatethecontractbetweenthem,sothattheycandisposeofthe
propertyordissolvethesociety.92 Beingabaretrustforpersons,namelythemembersatthattime,thestatutory
perpetuityrulewillapplyand,sincethetrustmightbeterminatedwithin125yearsofitscreation,itwillbevalid
untilthattime,93 withthewaitandseeruleapplying.94 Further,thefactthatfuturemembersmightbenefitafter
the125yearperiodwillnotinvalidatethetrust,sinceitispossibletoexcludethosepotentialmemberswhose
interestsmightvestoutsidetheperpetuityperiodbyapplyingtheclassclosingrule.95
ThatthecontractholdingtheorycanoperatewithinthelawoftrustswasrecognizedinReLipinsk isWill
Trusts.96 ThetestatorhadleftpartofhisestateontrustfortheHullJudeans(Maccabi)Association,an
unincorporatedassociation,tobuildandimprovenewbuildingsforthebenefitoftheassociation.Thiswasheldto
beavalidtrustforthemembersoftheAssociation.OliverJsaid:97
Atfirstsight,however,thereappearstobeadifficultyinarguingthatthegiftistomembersofthe
associationsubjecttotheircontractualrightsintersewhenthereisaspecificdirectionorlimitationsought
tobeimposeduponthosecontractualrightsastothemannerinwhichthesubjectmatterofthegiftisto
bedealtwith.This,says[counsel],isapurepurposetrustandisinvalidonthatground,quiteapartfrom
anyquestionofperpetuity.Iamnotsure,however,thatitissufficientmerelytodemonstratethatatrustis
apurposetrust
Ifavalidgiftmaybemadetoanunincorporatedbodyasasimpleaccretiontothefundswhicharethe
subjectmatterofthecontractwhichthemembershavemadeinterseIdonotreallyseewhysuchagift,
whichspecifiesapurposewhichiswithinthepowersoftheassociationandofwhichthemembersofthe
associationarethebeneficiaries,shouldfail.Whyarenotthebeneficiariesabletoenforcethetrustor,
indeed,intheexerciseoftheircontractualrights,toterminatethetrustfortheirownbenefit?Wherethe
doneeassociationisitselfthebeneficiaryoftheprescribedpurpose,thereseemstometobethe
strongestargumentincommonsenseforsayingthatthegiftshouldbeconstruedasanabsoluteone
withinthesecondcategory 98 themoresowhere,ifthepurposeiscarriedout,thememberscanby
appropriateactionvesttheresultingpropertyinthemselves,forherethetrusteesandthebeneficiariesare
thesamepersons.
Itfollowsthatthetermsoftheassociationsconstitutionwillbeincorporatedintothetrusttoenablethemembers
toenforcethetrustortoterminateit,byterminatingtheassociation,sothatthememberscanthentakethetrust
propertyforthemselves.
(p.301) Evenwherethepropertycannotbeconstruedasintendedtobeheldontrust,itwilltypicallybeheldby
thetreasurerinaccordancewiththecontractualrulesoftheassociationthatbindallmembers.99 Thisis
illustratedbyReRechersTrusts,100 inwhichatestamentarygiftwasmadetotheLondonandProvincialanti
vivisectionsociety,whichwasanunincorporatedassociationwithordinaryandlifemembersandaconstitution.
Sincethesocietyhadpoliticalobjectives,thegiftcouldnotbeheldforcharitablepurposes.101 Thegiftwas
construedasbeingtothemembersatthetimeofthetestatorsdeath,butsubjecttothecontractbetweenthem.
BrightmanJsaid:102
HavingreachedtheconclusionthatthegiftinquestionisnotagifttothemembersoftheLondon&
ProvincialSocietyatthedateofdeath,asjointtenantsortenantsincommon,soastoentitleamember
asofrighttoadistributiveshare,noranattemptedgifttopresentandfuturemembersbeneficially,andis
notagiftintrustforthepurposesofthesociety,Imustnowconsiderhowotherwise,ifatall,itiscapable
oftakingeffect.
AsIhavealreadymentioned,therulesoftheLondon&ProvincialSocietydonotpurporttocreateany
trustsexceptinsofarasthehonorarytrusteesarenotbeneficialownersoftheassetsofthesociety,but
aretrusteesupontrusttodealwithsuchassetsaccordingtothedirectionsofthecommittee.
Atrustfornoncharitablepurposes,asdistinctfromatrustforindividuals,isclearlyvoidbecausethereis
nobeneficiary.Itdoesnot,however,followthatpersonscannotbandthemselvestogetherasan
associationorsociety,paysubscriptionsandvalidlydevotetheirfundsinpursuitofsomelawfulnon
charitablepurpose.Anobviousexampleisamemberssocialclub.Butitisnotessentialthatthe
membersshouldonlyintendtosecuredirectpersonaladvantagestothemselves.Theassociationmaybe
oneinwhichpersonaladvantagestothemembersarecombinedwiththepursuitofsomeoutsidepurpose.
Ortheassociationmaybeonewhichoffersnopersonalbenefitatalltothemembers,thefundsofthe
associationbeingappliedexclusivelytothepursuitofsomeoutsidepurpose.Suchanassociationof
personsisbound,Iwouldthink,tohavesomesortofconstitutionthatistosay,therightsandliabilitiesof
themembersoftheassociationwillinevitablydependonsomeformofcontractinterse,usuallyevidenced
byasetofrules.Inthepresentcaseitappearstomeclearthatthelifemembers,theordinarymembers
andtheassociatemembersoftheLondon&ProvincialSocietywereboundtogetherbyacontractinterse.
Anysuchmemberwasentitledtotherightsandsubjecttotheliabilitiesdefinedbytherules.Ifthe
committeeactedcontrarytotherules,anindividualmemberwouldbeentitledtotakeproceedingsinthe
courtstocompelobservanceoftherulesortorecoverdamagesforanylosshehadsufferedasaresultof
thebreachofcontract.Asandwhenamemberpaidhissubscriptiontotheassociation,hewouldbe
subjectinghismoneytothedispositionandexpenditurethereoflaiddownbytherules.Thatistosay,the
memberwouldbeboundtopermit,andentitledtorequire,thehonorarytrusteesandothermembersofthe
societytodealwiththatsubscriptioninaccordancewiththelawfuldirectionsofthecommittee.Those
directionswouldincludetheexpenditureofthatsubscription,aspartofthegeneralfundsofthe
association,infurtheringtheobjectsoftheassociation.Theresultantsituation,onanalysis,isthatthe
London&Provincialsocietyrepresentedanorganisationofindividualsboundtogetherbyacontractunder
whichtheirsubscriptionsbecame,asitwere,mandatedtowardsacertaintypeofexpenditureas
adumbrated[bytheconstitution].Justasthetwopartiestoabipartitebargaincanvaryorterminatetheir
contractbymutualassent,soitmustfollowthatthelifemembers,ordinarymembersandassociated
membersoftheLondon&ProvincialSocietycould,atanymomentoftime,byunanimousagreement(or
bymajorityvote,iftherulessoprescribe),varyorterminatetheirmultipartitecontract.Therewouldbeno
limittothetypeofvariationorterminationtowhichallmight(p.302) agree.Thereisnoprivatetrustor
trustforcharitablepurposesorothertrusttohindertheprocess.Itfollowsthatifallmembersagreed,they
coulddecidetowinduptheLondon&ProvincialSocietyanddividethenetassetsamongthemselves
beneficially.Noonewouldhaveanylocusstanditostopthemsodoing.Thecontractisthesameasany
othercontractandconcernsonlythosewhoarepartiestoit,thatistosay,themembersofthesociety.
Thefundsofsuchanassociationmay,ofcourse,bederivednotonlyfromthesubscriptionsofthe
contractingpartiesbutalsofromdonationsfromnoncontractingpartiesandlegaciesfrompersonswho
havedied.Inthecaseofadonationwhichisnotaccompaniedbyanywordswhichpurporttoimposea
trust,itseemstomethatthegifttakeseffectinfavouroftheexistingmembersoftheassociationasan
accretiontothefundswhicharethesubjectmatterofthecontractwhichsuchmembershavemadeinter
se,andfallstobedealtwithinpreciselythesamewayasthefundswhichthemembersthemselveshave
subscribed.So,inthecaseofalegacy.Intheabsenceofwordswhichpurporttoimposeatrust,the
legacyisagifttothemembersbeneficially,notasjointtenantsorastenantsincommonsoastoentitle
eachmembertoanimmediatedistributiveshare,butasanaccretiontothefundswhicharethesubject
matterofthecontractwhichthemembershavemadeinterse.
Unincorporatedassociationsareofverydifferentsizes.Insmallerones,thereislikelytobeonlyoneclassof
member,soallmemberswillbetreatedalike.Consequently,ifthepropertythathasbeenreceivedforthe
purposesoftheassociationissold,thevalueofthatpropertywillbedistributedequallybetweenthemembers.
Butlarger,unincorporatedassociationsarelikelytohavedifferentclassesofmember,soifpropertyissold,itwill
benecessarytodeterminewhetherallmembersshouldshareintheproceedsofsale.103 Thiswasthekeyissue
inReHorleyTownFootballClub.
ReHorleyTownFootballClub[2006]EWHC2386(Ch),[2006]WTLR1817
Thiscaseconcernedthesaleofafootballgroundbyanamateurfootballclub.Thegroundwasheldontrust
forthemembersoftheclub,whoserightsweredeterminedbytheclubsconstitution.Therewere,however,a
numberofdifferentclassesofmember.Itwasheldthat,forthepurposesofthecontractholdingtheory,a
memberwassomebodywhocouldvotetohavetheassetssold.Consequently,itwasonlythecurrentfull
memberswhohadabeneficialinterestintheproperty.LawrenceCollinsJsaid:104
Thenextquestionistheidentityofthepersonswhoholdthebeneficialinterest.Iamsatisfiedthatthe
beneficialownershipisinthecurrentfullmembers(andnotthetemporaryorassociatemembers),and
isheldonbaretrustforthem.Themembersholdsubjecttothecurrentrules,andcouldunanimously
orbyAGMcallfortheassetstobetransferred.Adultandseniormembersareentitledtosharein
distributiononpercapitabasis.
InReGKNBolts&NutsLtdetcWork SportsandSocialClub[1982]1WLR774thequestionwas
whetherasocialclubformedforthebenefitofemployeeshadceasedtoexistin1975when,following
financialdifficulties,itresolvedtosellthesportsground,andthebasisonwhichthereshouldbe
distributionoftheassets.
SirRobertMegarryVCsaidat776:
Asiscommoninclubcases,therearemanyobscuritiesanduncertainties,andsomedifficulty
inthelaw.Insuchcases,thecourtusuallyhastotakeabroadswordtotheproblems,and
eschewanunduly(p.303) meticulousexaminationoftherulesandregulationsIthinkthat
thecourtshavetobereadytoallowgeneralconceptsofreasonableness,fairnessandcommon
sensetobegivenmorethantheirusualweightwhenconfrontedbyclaimstothecontrarywhich
appeartobebasedonanystrictinterpretationandrigidapplicationoftheletteroftherules.
Heheldthattheclubhadceasedtoexist.Itwasheldthatwhere,asinthatcase,therewasnothingin
therulesoranythingelsetoindicateadifferentbasis,distributionoftheassetsshouldbeonthebasis
ofequalityamongthemembers,irrespectiveofthelengthofmembershiportheamountof
subscriptionspaid.Therewasnopossiblenexusbetweenthelengthofmembershiportheamountof
subscriptionspaidandthepropertyrightsofmembersonadissolution.Eachmemberwasentitledto
oneequalshare.
Theclubsrulesprovidedthattheclubwouldconsistofordinaryandhonorarymembersand,in
specialcases,oftemporarymembersashereinafterprovided.Therulesalsoreferredtofullmembers
whowerethesameasordinarymembers,associates,temporarymembersandspousesand
childrenwhowereentitledtomembershipwithoutvotingrights.
Associateswereemployeesofagroupcompanyclubhavingsimilarobjectswho,iftheywrotetheir
nameinabookwiththenamesoftheirclubs,wouldhavethesamerightsasordinarymembers,
exceptthattheycouldnotvoteatmeetingsortakeawayalcoholicdrinks.
Temporarymemberswerethoseinvitedbythecommitteetoparticipateintheamenitiesoftheclub
onthedayofasportingorsocialevent.SpousesandchildrenofmemberswerethoughtbySirRobert
Megarrytofallwithinthesamecategoryasassociatesandtemporarymembers:Theobjectineach
casewastoconfertherighttousetheclubpremisesandfacilitieswithoutimposingthepowersand
responsibilitiesoffullmembers,forwhomalonetheruleprovidedforthepaymentofsubscriptions.
Theresultwasaholdingthatnomembersexceptthosewhowereproperlycalledfullmembers
orordinarymemberswereentitledtoanyinterestintheassetsoftheclub.
Iacceptthatincertainrespectsthedistinctionbetweenfullmembersandothertypesof
membershipwassomewhatclearerinReGKNthanitisinthepresentcase.Itappearsthat
(withtheexceptionofhonorarymembers,someofwhompaidasubscriptionbutnoneofwhom
wereentitledtovoteortoaninterestintheclubsassets)inReGKNtherewasa
correspondencebetweenmemberswhopaidsubscriptionsandmemberswhowereentitledto
vote.Inthepresentcase,thevotingrightsdonotcorrespondwiththeobligationtosubscribe.
ThereisasubscriptionforYouthMembership(under18)andforJuniorMembership(under16),
butJuniorandYouthMembersarenotentitledtovote
InmyjudgmentIshouldadoptthesameapproachasSirRobertMegarryintakingabroadswordand
applyingfairnessandcommonsense.Inmyjudgmentitdoesnotmakeadifferencethatinthe
presentcasetheRulessayinRule4thattheClubshallconsistofmembersandtemporary
membersorinRule5providethatAssociateMemberswillenjoythesamerightsasfullmembers
exceptthoserelatingtovotingrightsorthatRule15givesarighttovotetoindependentlyconstituted
clubsenjoyingAssociateMembership.Iwouldacceptthatamereinequalityinvotingrightswouldnot
meanthatacategoryofmembersisexcludedaltogetherfromanyentitlementtothesurplusassetsof
theassociationuponitsdissolution.Buttheassociatemembersinthepresentcasehavenoeffective
rightsanditwouldbewhollyunrealistictotreattheintroductionofAssociateMembersbyamendment
oftheRulesasatransferoftheClubspropertytothem.
Theconsequencewouldbethatthebeneficialownershipisheldonbaretrustforthemembers,
whocouldeitherunanimouslyoratanAGMcallfortheassetstobetransferred.
Asregardsthosememberswhodidhaveabeneficialinterest,itwasheldthattheproceedsofsaleshouldbe
distributedamongstthemequally.
(p.304) Itisanimportantfeatureofthecontractholdingtheorythatthemembersoftheassociationmustbeable
toaltertheirrulestoapplytheassociationsfundsforanewpurpose,sincethiswillshowthatitwasagiftfor
105
themratherthanforthenoncharitablepurpose.ThiswasrecognizedinReGrantsWillTrusts,105 inwhichthe
testatorlefthisestateforthebenefitoftheChertseyandWaltonConstituencyLabourParty(CLP).Itwasheld
thatthiswasnotavalidgift:thecontractholdingtheorycouldnotapplybecausethememberscouldnotchange
therules.VinelottJsaid:106
Itmust,asIseeit,beanecessarycharacteristicofanygiftwithinthesecondcategory 107 thatthe

membersoftheassociationcanbyanappropriatemajority,iftherulessoprovide,oractingunanimouslyif
theydonot,altertheirrulessoastoprovidethatthefunds,orpartofthem,shouldbeappliedforsome
newpurpose,orevendistributedamongstthemembersfortheirownbenefit.Forthevalidityofagiftwithin
thiscategoryrestsessentiallyuponthefactthatthetestatorhassetouttofurtherapurposebymakinga
gifttothemembersofanassociationformedforthefurtheranceofthatpurposeintheexpectationthat
althoughthemembersatthedatewhenthegifttakeseffectwillbefree,byamajorityiftherulessoprovide
oractingunanimouslyiftheydonot,todisposeofthefundinanywaytheymaythinkfit,theyandany
futuremembersoftheassociationwillnotinfactdosobutwillemploythepropertyinthefurtheranceof
thepurposeoftheassociationandwillhonouranyspecialconditionattachedtothegift
ReadingthegiftinthewillinthelightoftherulesgoverningtheChertseyandWaltonCLP,itis,inmy
judgment,impossibletoconstruethegiftasagiftmadetothemembersoftheChertseyandWaltonCLP
atthedateofthetestatorsdeathwiththeintentionthatitshouldbelongtothemasacollectionof
individuals,thoughintheexpectationthattheyandanyothermemberssubsequentlyadmittedwould
ensurethatitwasinfactusedforwhatinbroadtermshasbeenlabelledheadquarterspurposesofthe
ChertseyandWaltonCLP.
Ibasethisconclusionontwogrounds.First,themembersoftheChertseyandWaltonCLPdonotcontrol
theproperty,givenbysubscriptionorotherwise,totheCLP.TheruleswhichgoverntheCLParecapableof
beingalteredbyanoutsidebodywhichcoulddirectanalterationunderwhichthegeneralcommitteeofthe
CLPwouldbeboundtotransferanypropertyforthetimebeingheldforthebenefitoftheCLPtothe
NationalLabourPartyfornationalpurposes.ThemembersoftheChertseyandWaltonCLPcouldnotalter
therulessoastomakethepropertybequeathedbythetestatorapplicableforsomepurposeotherthan
thatprovidedbytherulesnorcouldtheydirectthatpropertytobedividedamongstthemselvesbeneficially

Theanswertothisapparentparadoxis,itseemstome,thatsubscriptionsbymembersoftheChertsey
andWaltonCLPmustbetakenasmadeupontermsthattheywillbeappliedbythegeneralcommitteein
accordancewiththerulesforthetimebeingincludinganymodificationsimposedbytheAnnualParty
ConferenceortheNationalExecutiveCommittee.IntheeventofthedissolutionoftheChertseyand
WaltonCLPanyremainingfundrepresentingsubscriptionswould(astherulesnowstand)beheldona
resultingtrustfortheoriginalsubscribers.Thus,althoughthemembersoftheCLPmaynotbeable
themselvestoalterthepurposesforwhichafundrepresentingsubscriptionsistobeusedortoalterthe
rulessoastomakesuchafunddivisibleamongstthemselves,theultimateproprietaryrightoftheoriginal
subscribersremains.Thereis,therefore,noperpetuityandnononcharitablepurposetrust.Butifthat
analysisofthetermsonwhichsubscriptionsareheldiscorrect,itisfataltotheargument(p.305) that
thegiftinthetestatorswillshouldbeconstruedasagifttothemembersoftheChertseyandWaltonCLP
atthetestatorsdeath,subjecttoadirectionnotamountingtoatrustthatitbeusedforheadquarters
purposes.Equallyitisinmyjudgmentimpossible,inparticularhavingregardtothegiftovertotheNational
LabourParty,toreadthegiftasagifttothemembersoftheNationalLabourPartyatthetestatorsdeath,
withadirectionnotamountingtoatrust,fortheNationalPartytopermitittobeusedbytheChertseyand
WaltonCLPforheadquarterspurposes.
Thatfirstgroundisofitselfconclusive,butthereisanothergroundwhichreinforcesthisconclusion.Thegift
isnotintermsagifttotheChertseyandWaltonCLP,buttotheLabourPartypropertycommittee,whoare
toholdthepropertyforthebenefitof,thatisintrustfor,theChertseyheadquartersoftheChertseyand
WaltonCLP.Thefactthatagiftisagifttotrusteesandnotintermsofanunincorporatedassociation,
militatesagainstconstruingitasagifttothemembersoftheassociationatthedatewhenthegifttakes
effect,andagainstconstruingthewordsindicatingthepurposesforwhichthepropertyistobeusedas
expressingthetestatorsintentionormotiveinmakingthegiftandnotasimposinganytrust.
Thecontractholdingtheorycanbeusedtoexplainhowagiftcanbemadeforthepurposesofanunincorporated
association,andcanbeheldontrustforpresentandfuturemembers.Buttheuseofthistheorywithinthelawof
trustsmightnotsiteasilywithfundamentalprinciplesofthelawofexpresstrusts.
Baughen,PerformingAnimalsandtheDissolutionofUnincorporatedAssociations:The
ContractholdingtheoryVindicated[2010]Conv216,225
Aproblemthathasyettobeaddressedbythejudiciaryistheshiftingnatureofthebeneficiariesunder
thejointtenancyonwhichanunincorporatedassociationspropertyisheld.Overtimememberswill
leavetheassociation.Itisanimpliedtermofanassociationsrulesthatamembersinterestwill
ceaseintheeventoftheirdeathortheirceasingtobeamemberoftheassociationandtheirsharewill
accruetotheremainingmembers.Newmemberswillalsojointheassociationandthiswilldiminish
theinterestoftheexistingmembers.Bothinstanceswillinvolvedispositionsofanequitableinterest
Section53(1)(c)oftheLawofPropertyAct1925(the1925Act)108 requiresthatsuchadisposition
beinwritingsignedbythepersondisposingoftheinterest.Thisisunlikelytooccurwhenanexisting
memberleavestheassociationorwhenanewmemberjoinsit.Thesolutionasregardsformer
memberscanbederivedfromCrossJsdictainNevilleEstatesthat,onthedeathorresignationofa
member,theinterestofthatmemberwouldaccruetotheremainingmembersbysurvivorship.As
regardstheadmissionofnewmembers,thesolutionprobablyliesins.53(2)ofthe1925Act,which
providesthat[t]hissectiondoesnotaffectthecreationoroperationofresulting,impliedor
constructivetrusts.Itislikelythatthecourtswouldtreatthealterationinthebeneficialinterestsof
existingmembersontheadmissionofnewmembersasarisingduetotheoperationofWalshv
Lonsdale,109 withconstructivetrustsarisingoutofthenetworkofcontractsbetweenthemembers.110
(p.306) Thepreferableview,however,isthatthedepartingmembersinterestisnottransferredtotheother
members.Rather,itisdestroyed,andthedestructionofsuchinterestsdoesnotrequirewritingtobeeffective.111
(vi)Agentforthetransferor
Ratherthantreatingagiftofpropertyasbeingagifttothepresentmembersorasbeingheldontrustforthe
membersorthepurposesoftheassociation,analternativeconstructionisforthepropertytobetransferredtoan
officeroftheassociationasagentforthetransferorwiththeauthoritytoapplythepropertyforthetransferors
intendedpurposes.Thisagencysolutionhasprovedsignificantwhereanassociationdoesnotsatisfythe
definitionofanunincorporatedassociation,sothatthecontractholdingmechanismisunavailable.
ConservativeandUnionistCentralOfficevBurrell[1982]1WLR552
TheConservativePartywasheldnottobeanunincorporatedassociationbecauseoftheabsenceofa
contractuallinkbetweenthedifferentcomponentsoftheparty.Itwasheldthatitsfundswerepaidtothe
treasureroftheParty,whohadtitletothemoneyasagentforthedonors,sothatthetreasurerwasonly
authorizedtousethemoneyforthepurposesoftheParty.BrightmanLJsaid:112
TheissueiswhetherornottheinvestmentincomeoftheConservativePartyCentralOfficefunds
duringtherelevantyearswastheincomeofanunincorporatedassociation.Theassertionisthat
CentralOfficefundsareheldforthepurposesofanorganisationknownastheConservativeParty,or
morefullyastheConservativeandUnionistParty,thatsuchorganisationhasallthenecessary
requirementsforqualifyingasanunincorporatedassociationandthattheSpecialCommissionerswere
justifiedinfindingthatitissuchanassociation.Themembersoftheassociationaresaidtobe(i)all
thepersonswhoaremembersofthelocalconstituencyassociations(whichlocalassociationsare
themselvesunincorporatedassociations)and(ii)themembersofbothHousesofParliamentwho
accepttheConservativePartywhip.Thecontractwhichisallegedtobindtogetherthemembersofthis
unincorporatedassociationknownastheConservativePartyissaidtoconsistoftherulesformingthe
constitutionoftheNationalUnionofConservativeandUnionistAssociations,therulesregulatingparty
meetingsatwhichthecandidatechosenbytheParliamentaryConservativePartyasleaderofthe
partyispresentedforelectionaspartyleaderandtherulesformingtherespectiveconstitutionsofthe
localconstituencyassociations.Iagreethatnosuchoverallunincorporatedassociationexists.113
Before,however,thatconclusionisaccepted,Ithinkthatacriticalobserverisentitledtoaskthe
questionwhat,onthathypothesis,wouldbethelegalrelationshipbetweenacontributortoCentral
Officefundsandtherecipientofthecontributionssomade.
Strictlyspeaking,thiscourtdoesnothavetoanswerthatquestionithasonlytodecidetheissue
whethertheSpecialCommissionerswereentitledtofindthattheConservativePartyisan
unincorporatedassociation.But,ifnorealisticlegalexplanationoftherelationshipisforthcoming
excepttheexistenceofanunincorporatedassociation,onemightjustifiablybegintoentertaindoubts
astothecredibilityofthehypothesisonwhichthequestionisasked.Iwillthereforeattemptan
answer
Iwillconsiderthehypothesisbystages.Nolegalproblemarisesifacontributor(asIwillcallhim)
handstoafriend(whomIwillcalltherecipient)asumofmoneytobeappliedbytherecipientfor
politicalpurposesindicatedbythecontributor,ortobechosenatthediscretionoftherecipient.That
wouldbe(p.307) asimplecaseofmandateoragency.Therecipientwouldhaveauthorityfromthe
contributortomakeuseofthemoney,intheindicatedway.Sofarasthemoneyisusedwithinthe
scopeofthemandate,therecipientdischargeshimselfvisvisthecontributor.Thecontributorcanat
anytimedemandthereturnofhismoneysofarasnotspent,unlessthemandateisirrevocable,asit
mightbeorbecomeincertaincircumstances.Butoncethemoneyisspent,thecontributorcan
demandnothingback,onlyanaccountofthemannerofexpenditure.Notrustarises,exceptthe
fiduciaryrelationshipinherentintherelationshipofprincipalandagent.If,however,therecipientwere
toapplythemoneyforsomepurposeoutsidethescopeofthemandate,clearlytherecipientwould
notbedischarged.Therecipientcouldberestrained,likeanyotheragent,fromathreatened
misapplicationofthemoneyentrustedtohim,andlikeanyotheragentcouldberequiredtoreplace
anymoneymisapplied.
Thenextstageistosupposethattherecipientisthetreasurerofanorganisationwhichreceivesand
appliesfundsfrommultifarioussourcesforcertainpoliticalpurposes.Ifthecontributorpaysmoneyto
thattreasurer,thetreasurerhasclearauthoritytoaddthecontributiontothemixedfund(asIwillcall
it)thatheholds.AtthatstageIthinkthemandatebecomesirrevocable.Thatistosay,thecontributor
hasnorighttodemandhiscontributionback,onceithasbeenmixedwithothermoneyunderthe
authorityofthecontributor.Thecontributorhasnolegalrighttorequirethemixedfundtobe
unscrambledforhisbenefit.Thisdoesnotmean,however,thatallcontributorsloseallrightsonce
theirchequesarecashed,withtheabsurdresultthatthetreasurerorotherofficerscanrunoffwiththe
mixedfundwithimpunity.Ihavenodoubtthatanycontributorhasaremedyagainsttherecipient(i.e.
thetreasurer,ortheofficialsatwhosedirectionthetreasureracts)torestrainormakegooda
misapplicationofthemixedfundexceptsofarasitmayappearonordinaryaccountingprinciplesthat
theplaintiffsowncontributionwasspentbeforethethreatenedoractualmisapplication.Inthelatter
eventthemandategivenbythecontributorwillnothavebeenbreached.Acomplainingcontributor
mightencounterproblemsunderthelawofcontractafterachangeoftheofficeholdertowhomhis
mandatewasoriginallygiven.Perhapsonlytheoriginalrecipientcanbesuedforthemalpracticesof
hissuccessors.Itisnotnecessarytoexploresuchproceduralintricacies.
SointhepresentcaseitseemstomethatthestatusofacontributiontotheConservativeParty
centralfundsisthis.Thecontributordrawsacheque(forexample)infavourof,orhandsitto,the
treasurers.Thetreasurersareimpliedlyauthorisedbythecontributortopresentthechequefor
encashmentandtoaddthecontributiontoCentralOfficefunds.CentralOfficefundsarethesubject
matterofamandatewhichpermitsthemtobeusedforthepurposesoftheConservativePartyas
directedbytheleaderoftheparty.Thecontributorcannotdemandhismoneybackonceithasbeen
addedtoCentralOfficefunds.HecouldobjectifCentralOfficefundswereusedorthreatenedtobe
usedotherwisethaninaccordancewiththeirdeclaredpurposes,unlessitiscorrecttosay,on
ordinaryaccountingprinciples,thathiscontributionhasalreadypassedoutofCentralOfficefunds.
Thisdiscussionofmandates,andcomplainingcontributors,isallveryremoteandtheoretical.No
contributortoCentralOfficefundswillviewhiscontributioninthisway,orcontemplateeventhe
remotestprospectoflegalactiononhispart.Hebelievesheismakinganoutandoutcontributionor
gifttoapoliticalparty.Andsoheisinpracticalterms.Theonlyjustificationforembarkingonaclose
analysisofthesituationisthechallenge,whichwasthrowndownbycounselfortheCrowninopening,
tosuggestanylegalframeworkwhichfitstheundoubtedfactthatfundsareheldbytheCentralOffice
andareadministeredfortheuseandbenefitoftheConservativeParty,exceptthesuppositionthatthe
ConservativePartyisanunincorporatedassociation.
Iseenolegaldifficultyinthemandatetheory.Itisnotnecessarytoinventanunincorporated
associationinordertoexplainthesituation.Theonlyproblemwhichmightariseinpracticeunderthe
mandatetheorywouldbethecaseofanattemptedbequesttoCentralOfficefunds,ortothe
treasurersthereof,ortotheConservativeParty,sincenoagencycouldbesetupatthemomentof
deathbetweenatestatorandhischosenagent.Adiscussionofthisproblemisoutsidethescopeof
thisappealand,althoughIthinkthattheanswerisnotdifficulttofind,Idonotwishtoprejudgeit.
(p.308) (vii)Estoppel
Analternativeapproachtotheproblemofbequestsfornoncharitablepurposes,oneinvolvingestoppel,hasbeen
suggestedbySmart:114
thefollowinganalysisissuggestedinordertogiveeffecttoabequesttoanorganisationforanon
charitablepurpose:(1)trusts,contractsandmandatesarenotrelevant(2)thereisanattempttomakea
gifttoanofficer(usuallythetreasurer)oftheorganisationsubjecttotheconditionsubsequentthatthegift
beusedonlyfortherelevantpurpose(3)thatconditionisvoidasrepugnant,althoughthegiftremains
valid,freefromthecondition(4)ifthetreasureroftheorganisationrepresentsthatthegiftistakentobe
usedfortherelevantpurpose,hewillthereafterbeestoppedfromdenyingthevalidityoftheconditionand
enforcinghisstrictrighttousethepropertyforhisownpurposes(5)shouldthetreasurermakeno
representationandseektotakethegiftforhimself,then(a)theorganisationmight,ofcourse,appointa
new(andwilling)treasurer,or(b)thegiftcouldbeconstruedinfavourofsomeotherofficerorindividual
willingtousethepropertyforthetestatorspurposeand(6)ifnoonecanbefoundwillingtousethegiftfor
theintendedpurpose,thenthegiftwillplainlyfail.
Thisisanattractiveexplanationofhowpropertycanbeheldforanorganizationthatpursuesnoncharitable
purposeswherethatorganizationdoesnotsatisfythedefinitionofbeinganunincorporatedassociation,primarily
becauseoftheabsenceofawrittenconstitution.115 Butwheretheassociationdoessatisfythatdefinition,the
contractholdingtheorycontinuestoprovidethemostsatisfactoryexplanationofpropertyholdingfornon
charitablepurposes.
(c)DissolutionofUnincorporatedAssociations
Whereanunincorporatedassociationisdissolved,thedisposalofanysurplusassetswilldependonwhich
constructionofpropertyholdinghasbeenrecognized.Manyofthedifficultiespreviouslyfacedcannowtypically
beavoidedthroughtheadoptionofthecontractholdingtheory.
(i)Determiningwhentheassociationisdissolved
Thedissolutionofanunincorporatedassociationmayoccurbycourtorder,byresolutionofthemembers
accordingtotherulesoftheconstitution,or,ifthereisnosuchprovision,byunanimousagreementofthe
members.Anunincorporatedassociationwillalsobebroughttoanendifthenumberofmembersfallsbelow
two.116 ThelatterpointwasrecognizedbyWaltonJinReBuck sConstabularyWidowsandOrphansFund
FriendlySociety(No.2):117
Itmaybethatitwillbesufficientforthesocietyscontinuedexistenceiftherearetwomembers,butif
thereisonlyonethesocietyassuchmustceasetoexist.Thereisnoassociation,sinceonecanhardly
associatewithoneselforenjoyonesownsociety.
Evenifthenumberofmembersoftheassociationhasnotfallenbelowtwo,theassociationwillbeconsideredto
havebeendissolvedifithasbecomemoribund.ThiswasrecognizedinReGKNBolts(p.309) &NutsLtdetc.
Work SportsandSocialClub,118 whichconcernedasocialclubforemployeesthatwasheldtohavegradually
becomeinactive.SirRobertMegarryVCsaid:119
Itisplainthatthereneverwasanagreementbytheentiremembershipthattheclubshouldbedissolved,
andofcoursetherehasbeennoexercisebythecourtofitsinherentjurisdictiontoorderadissolution.The
questionthereforeiswhethertherehasbeenwhatwascalledinargumentaspontaneousdissolutionofthe
club.
AsamatterofprincipleIwouldholdthatitisperfectlypossibleforaclubtobedissolvedspontaneously.I
donotthinkthatmereinactivityisenough:aclubmaydolittleornothingforalongperiod,andyet
continueinexistence.Acataleptictrancemaylooklikedeathwithoutbeingdeath.Butinactivitymaybe
soprolongedorsocircumstancedthattheonlyreasonableinferenceisthattheclubhasbecome
dissolved.Insuchcasestheremaybedifficultyindeterminingthepunctumtemporisofdissolution:the
lessactivitythereis,thegreaterthedifficultyoffasteningupononedateratherthananotherasthe
momentofdissolution.Insuchcasesthecourtmustdothebestitcanbypickingareasonabledate
somewherebetweenthetimewhentheclubcouldstillbesaidtoexist,andthetimewhenitsexistence
hadclearlycometoanend
ThequestioniswhetheronthefactsofthepresentcasethesocietyceasedtoexistonDecember18,
1975.
Onthatdate,thepositionwasthattheclubhadceasedtooperateasaclubforseveralmonths.The
picturewasnotoneofmereinactivityalonetherewerepositiveactstowardsthewindingupoftheclub.
Thesaleoftheclubsstockofdrinkswasoneinstance,andothersweretheendingoftheregistrationfor
VAT,andthedismissalofthesteward.Thecessationofanyclubactivities,theendingoftheuseofthe
sportsgroundandtheabandonmentofpreparingaccountsorissuingmembershipcardswereallinone
senseexamplesofinactivitybutIthinkthattherewasinallprobabilitysomeelementofdeliberationin
thesematters,andnotamereinertia.In[counsels]phrase,therewasasystematicdismantlingofthe
clubanditsactivities.
Howeverthatmaybe,theresolutiontosellthesportsgroundseemstometoconcludethematter.Having
takenallsteps,activeorpassive,requiredtoterminatetheactivitiesoftheclub,shortofpassingaformal
resolutiontowinditupordissolveit,thegeneralmeetingoftheclubresolvedtoselltheclubslastasset.
(ii)Distributionofsurplusasset
Whenanunincorporatedassociationisdissolved,itmayhavesurplusassetsthatderivefromthemembers
throughthepaymentofsubscriptions,orfromgiftsfrommembers,orfromthirdparties.Itisimportantto
determinewhatshouldhappentotheseassets.Therearethreepossibleconsequences:
(1)theassetsmaybereturnedtothepeoplewhoprovidedtheminthefirstplace
(2)theassetsmaybetransferredtotheCrownonthegroundthatnobodyownsthemthatis,they
becomebonavacantiaor
(3)theassetsmaybetransferredtothemembersatthetimeofthedissolution,typicallyaccordingtothe
rulesoftheassociationwhereprovisionismadeforthedestinationoftheassetsondissolution.
Whichconsequenceapplieswilldependonhowtheassetswereheldinthefirstplace.
(p.310) (a)Resultingtrustfortransferorsofproperty
Aresultingtrustcanarisewhenpropertyisheldonanexpresstrustthatfails.120 Insuchcircumstances,the
propertythatwasheldontheexpresstrustwillbeheldonaresultingtrustforthesettlor.Consequently,if
propertyhasbeenheldontrustforthepurposesoftheassociationandtheassociationisdissolved,theproperty
willbeheldonresultingtrustforthepeoplewhotransferredthepropertytothetrustinsharesproportionateto
theircontributions.121
Wheretheeffectofthedissolutionoftheassociationistoterminatetheexpresstrust,thepropertytransferredwill
notbeheldonresultingtrustforthetransferorsofthepropertyiftheycanbeconsideredtohavedivested
themselvesofalltheirrightstotheproperty.Thiswillbethecaseif,forexample,moneyhasbeenpaidtothe
associationbyamemberinreturnforcontractualbenefits.Ifthesocietyisthendissolved,themembercannot
thenclaimrecoveryofthemoney.ThisisillustratedbyCunnack vEdwards,122 inwhichafriendlysocietyhad
beenformedtoraisefundstoprovideannuitiesforwidowsofmembersofthesocietywhohaddied.Thelast
memberdiedin1879andthelastwidowdiedin1892,atwhichpointtherewasasurplusof1,250thatwas
claimedbythepersonalrepresentativesofthelastmembers.Thesocietywasheldtobemoribundandsowasno
longerinexistence.Itwasheldthattherewasnoroomforaresultingtrustbecauseeachmemberhadpaidtheir
contributionswithoutreservinganybeneficialinteresttohimself.ALSmithLJsaid:123
Asthememberpaidhismoneytothesociety,sohedivestedhimselfofallinterestinthismoneyforever,
withthisonereservation,thatifthememberleftawidowshewastobeprovidedforduringherwidowhood.
Exceptastothisheabandonedandgaveupthemoneyforever.124
ThisprinciplewasappliedinReWestSussexConstabularysWidows,ChildrenandBenevolent(1930)Fund
Trusts.
ReWestSussexConstabularysWidows,ChildrenandBenevolent(1930)FundTrusts[1971]
Ch1,9
Thiscaseconcernedafundthathadbeenestablishedtoprovideforthewidowsandchildrenofdeceased
membersoftheWestSussexpoliceforce.Thefundswerederivedfromsubscriptionsfrommembersand
variousdonationsandlegacies,aswellastheproceedsofentertainments,raffles,andcollectingboxes.The
policeforcewasamalgamatedwithotherforcesandthefundwasdissolved,withasurplus.Itwasheldthat,
whilstdonationsandlegacieswereheldonresultingtrust,thememberscouldnotrecovertheirsubscriptions
becausetheyhaddivestedthemselvesofanyinterestinthemoneyinreturnforcontractualbenefits.GoffJ
said:125
Thenitwasarguedthatthereisaresultingtrust,withseveralpossibleconsequences.Ifthisbethe
rightviewtheremustbeaprimarydivisionofthefundintothreeparts,onerepresentingcontributions
fromformermembers,anothercontributionsfromthesurvivingmembers,andthethirdmoneysraised
fromoutsidesources.Thesurvivingmembersthentakethesecond,andpossiblybyvirtueofrule10,
thefirstalso.Thatruleisasfollows:
(p.311) Anymemberwhovoluntarilyterminateshismembershipshallforfeitallclaimagainst
thefund,exceptinthecaseofamembertransferringtoasimilarfundofanotherforce,inwhich
instancethecontributionspaidbythemembertotheWestSussexConstabularysWidows,
ChildrenandBenevolent(1930)Fundmaybepaidintothefundoftheforcetowhichthe
membertransfers.
Alternatively,thefirstpartmaybelongtothepastmembersonthefootingthatrule10isoperativeso
longonlyasthefundisagoingconcern,ormaybebonavacantia.Thethirdisdistributableinwhole
orinpartbetweenthosewhoprovidedthemoney,oragainisbonavacantia.
Inmyjudgmentthedoctrineofresultingtrustisclearlyinapplicabletothecontributionsofboth
classes.Thosepersonswhoremainedmembersuntiltheirdeathsareinanyeventexcludedbecause
theyhavehadalltheycontractedfor,eitherbecausetheirwidowsanddependantshavereceivedorare
inreceiptoftheprescribedbenefits,orbecausetheydidnothaveawidowordependants.Inmyview
thatisinherentinallthespeechesintheCourtofAppealinCunnack vEdwards[1896]2Ch679.
Further,whatevertheeffectofthefundsrule10maybeuponthecontributionsofthosememberswho
leftprematurely,theyandthesurvivingmembersalikearealsoinmyjudgmentunabletoclaimunder
aresultingtrustbecausetheyputtheirmoneyonacontractualbasisandnotoneoftrust:seeper
HarmanJinReGillinghamBusDisasterFund[1958]Ch300at314.Theonlycasewhichhasgiven
medifficultyonthisaspectofthematterisReHobournAeroComponentsLtdsAirRaidDistress
Fund[1946]Ch86,whereinsomewhatsimilarcircumstancesitwasheldtherewasaresultingtrust.
Theargumentpostulated,Ithink,thedistinctionbetweencontractandtrustbutinanotherconnection,
namely,whetherthefundwascharitable:seeat89and90.Therewasinthatcasearesolutionto
windupbutthatwasnot,atalleventsasexpressed,theratiodecidendi:seeperCohenJat97,but,
asCohenJobserved,therewasnoargumentforbonavacantia.Moreover,norulesorregulationswere
evermadeandalthoughinfact1permonthwaspaidorsavedforeachmemberservingwiththe
forces,therewasnoprescribedcontractualbenefits.Inmyjudgmentthatcaseistherefore
distinguishable.
Accordingly,inmyjudgmentallthecontributionsofbothclassesarebonavacantia,butImustmake
areservationwithrespecttopossiblecontractualrights.InCunnack vEdwards[1895]1Ch489
andBraithwaitevAG[1909]1Ch510allthemembershadreceived,orprovisionhadbeenmadefor,
allthecontractualbenefits.Herethematterhasbeencutshort.Thosepersonswhodiedwhilststillin
membershipcannot,Iconceive,haveanyrightsbecauseintheircasethecontracthasbeenfully
workedout,andonacontractualbasisIwouldthinkthatmemberswhoretiredwouldbeprecluded
frommakinganyclaimbyrule10,althoughthatisperhapsmorearguable.Thesurvivingmembers,on
theotherhand,maywellhavearightincontractonthegroundoffrustrationortotalfailureof
consideration,andthatrightmayembracecontributionsmadebypastmembers,thoughIdonotsee
howitcouldapplytomoneysraisedfromoutsidesources
Imustnowturntothemoneysraisedfromoutsidesources.CounselfortheTreasurySolicitormade
anoverridinggeneralsubmissionthattherecannotbearesultingtrustofanyoftheoutsidemoneys
becauseinthecircumstancesitisimpossibletoidentifythetrustpropertynodoubtsomethingcould
beachievedbycomplicatedaccounting,butthis,hesubmitted,wouldnotbeidentificationbutnotional
reconstruction.Icannotacceptthatargument.Inmyjudgment,inacaselikethepresent,equitywill
cuttheGordianknotbysimplydividingtheultimatesurplusinproportiontothesourcesfromwhichit
hasarisen
Thencounseldividedtheoutsidemoneysintothreecategories,first,theproceedsofentertainments,
rafflesandsweepstakessecondly,theproceedsofcollectingboxesand,thirdly,donations,
includinglegaciesifany,andhetookparticularobjectionstoeach.
Iagreethattherecannotbeanyresultingtrustwithrespecttothefirstcategorywhatevermaybe
thetruepositionwithregardtocollectingboxes,itappearstometobeimpossibletoapplythe
doctrineofresultingtrusttotheproceedsofentertainmentsandsweepstakesandsuchlikemoney
raisingoperationsfortworeasons:first,therelationshipisoneofcontractandnotoftrustthe
purchaserofaticket(p.312) mayhavethemotiveofaidingthecauseorhemaynothemay
purchaseaticketmerelybecausehewishestoattendtheparticularentertainmentortotryforthe
prize,butwhicheveritbe,hepayshismoneyasthepriceofwhatisofferedandwhathereceives
secondly,thereisinsuchcasesnodirectcontributiontothefundatallitisonlytheprofit,ifany,
whichisultimatelyreceivedandtheremayevenbenone
AndImakethefollowingdeclarations:First,thattheportionattributabletodonationsandlegaciesis
heldonaresultingtrustforthedonorsortheirestatesandtheestatesoftherespectivetestators
secondly,thattheremainderofthefundisbonavacantia.
TheessentialfeatureofthetwodecisionsinCunnack andWestSussexisthatwherethepayerofmoney
receives,orexpectstoreceive,somecontractualbenefitinreturnforpayment,thepayerwillbeconsideredto
havegivenupanyrightstothereturnofthemoney.ThereasoningemployedinCunnack vEdwardshas,however,
beendoubtedonthegroundthatpropertycanbeheldonresultingtrusteventhoughthecontributorhadreceived
alloftheexpectedcontractualbenefits.126 Infact,theresultinCunnack canbejustifiedfortheexceptionalreason
thatarelevantstatuteatthetimerequiredtherulesoftheassociationtostateallthepossibleusesofthe
societysassetsandnousewasidentifiedinfavourofthemembers.Inotherwords,aresultingtrustwas
excludedbyastatutoryprovision.InAirJamaicavCharlton,127 itwasheldthatsurplusfundsarisingfromthe
discontinuanceofapensionschemeshouldbeheldonresultingtrustfortheemployerandtheemployeeswho
hadcontributedtothefund,inproportiontotheircontributionsandregardlessofanybenefitthattheyhadreceived
fromthefund.Thisisthebetterview:thefactthatamemberhadreceivedcontractualbenefitsfromthe
associationshouldnotpreventaresultingtrustfromarising.
(b)BonavacantiatotheCrown
Wherepropertyisownerless,itwillbeconsideredtobebonavacantiaandwillbetransferredtotheCrown.This
consequencemightarisewherepropertyhasbeenheldontrustforthepurposesofanunincorporatedassociation
oritspresentmembersand,oncetheassociationhasbeendissolved,itisnotpossibletoidentifywhotransferred
thepropertytotheassociation,suchaswhereamemberwhohadpaidsubscriptionscannolongerbe
identified.128
(c)Contractualentitlement
Thecontractholdingtheoryisthepreferableexplanationofhowpropertycanbeheldforthepurposesofan
unincorporatedassociation.Theadoptionofthistheoryhassignificantadvantagesfortheanalysisofwhatshould
happentothepropertyondissolutionoftheassociation,sincetheassetswillsimplybelongtothemembersat
thetimeofthedissolutionaccordingtotheircontractualrightsundertherulesoftheassociation.Thoserulesmay
provideforaparticularmethodofdistributionoftheassetsondissolution,whichwouldbebindingonthe
members.Butifnosuchprovisionismade,atermwillbeimpliedintotherulestotheeffectthatthesurplus
shouldbedistributedequallybetweenthemembersatthetimeofthedissolution.129
(p.313) ThiswasconsideredinReBuck sConstabularyWidowsandOrphansFundFriendlySociety(No.

2),130 whichconcernedanunincorporatedassociationthatprovidedforthereliefofwidowsandorphansof
deceasedmembersoftheBucksConstabulary.Itsfundswerederivedfromvoluntarycontributionsfromits
members.TheConstabularyamalgamatedwithothersandthesocietywasdissolved.Thesocietysrulesdidnot
providefordistributionoftheassetsondissolution,soatermwasimpliedintotherulesofthesocietythatthe
assetsshouldbedistributedinequalsharestothosepeoplewhoweremembersatthetimeofthedissolution.
WaltonJsaid:131
itisIthinkpertinenttoobservethatallunincorporatedsocietiesrestincontractbutthereisanimplied
contractbetweenallofthemembersintersegovernedbytherulesofthesociety.Indefaultofanyruleto
thecontraryanditwillseldom,ifever,bethatthereissucharulewhenamemberceasestobea
memberoftheassociationheipsofactoceasestohaveanyinterestinitsfunds
Finally,althoughthereisatanyrateonelatercase,forthepurposeofthisreviewtherecomesacase
whichgivesmegreatconcern,ReWestSussexConstabularysWidows,ChildrenandBenevolent(1930)
FundTrusts[1971]Ch1.Thecaseisindeedeasilydistinguishablefromthepresentcaseinthatwhatwas
thereunderconsiderationwasasimpleunincorporatedassociationandnotafriendlysocietyOtherwise
thefactsinthatcasepresentremarkableparallelstothefactsinthepresentcase.GoffJdecidedthatthe
surplusfundshadbecomebonavacantia
ItwillbeobservedthatthefirstreasongivenbyGoffJforhisdecisionisthathecouldnotacceptthe
principleofthemembersclubsasapplicableIfallthatGoffJmeantwasthatthepurposesofthefund
beforehimweretotallydifferentfromthoseofamembersclubthenofcourseonemustagree,butifhe
meanttoimplythattherewassometotallydifferentprincipleoflawapplicableonemustaskwhythat
shouldbe.Hissecondreasonisthatinallthecaseswherethesurvivingmembershadtaken,the
organisationexistedforthebenefitofthemembersforthetimebeingexclusively.Thismaybeso,sofar
asactualdecisionsgo,butwhatistheprinciple?Whyarethemembersnotincontrol,completecontrol,
saveastoanyexistingcontractualrights,oftheassetsbelongingtotheirorganisation?Onecould
understandthepositionbeingdifferentifvalidtrustshadbeendeclaredoftheassetsinfavourofthird
parties,forexamplecharities,butthatthiswasemphaticallynotthecasewasdemonstratedbythefact
thatGoffJrecognisedthatthememberscouldhavealteredtherulespriortodissolutionandputtheassets
intotheirownpockets.Iftherewasnoobstacletotheirdoingthis,itshowsinmyjudgmentquiteclearly
thatthemoneywastheirsallthetime
Theconclusionthereforeisthat,asondissolutionthereweremembersofthesocietyhereinquestionin
existence,itsassetsareheldontrustforsuchmemberstothetotalexclusionofanyclaimonbehalfof
theCrown.
Thesignificanceofthecontractholdingtheorytothedistributionofsurplusassetsonthedissolutionofthe
unincorporatedassociationisparticularlywellillustratedbyHanchettStamfordvAttorneyGeneral,132 which
concernedthePerformingandCaptiveAnimalsDefenceLeague,anunincorporatedassociationthatwasformed
in1914toprocureabanontheuseofperforminganimals.Eventually,themembershipdwindledtoahusband
andwife.Whenthehusbanddied,thereweresubstantialassets,includingapropertyworth675,000andstocks
andsharesworthover1.7million.Theassociationwasheldtohavedissolvedonthedeathofthepenultimate
member,thehusband,andthesurvivor,thewife,wasentitledtoalltheassets.LewisonJsaid:133
(p.314) themembersforthetimebeingofanunincorporatedassociationarebeneficiallyentitledtoits
assets,subjecttothecontractualarrangementsbetweenthemItisimportanttostressthatthisisa
formofbeneficialownershipthatistosaythatinsomesensethepropertybelongstothemembers
Thereis,Ithink,nodifficultyinacceptingWaltonJsultimateconclusion[inReBuck sConstabulary].Nor
isthereanydifficultyinacceptingthatthemembersrightsarecontractualratherthanequitable.Noris
thereanydifficultyinacceptingthatonamembersdeathheceasestohaveanyinterestintheassetsof
theunincorporatedassociation.Accretionondeathisinherentinthebeneficialinterestinanyassetbeing
heldbyjointtenantsinequityandisnodoubtreinforcedbycontractualrestrictionssuchastherulesofan
association.It,therefore,followsthattheestateofadeceasedmembercanhavenoclaimtotheassets.
InNevilleEstatesLtdvMadden[1962]Ch832CrossJappliedthesameprincipletocessationof
membershipthroughresignation.Thismustbeafacetofthecontractualrelationsbetweenmembers.
WaltonJalsosaidthatifthereisonlyonememberofanunincorporatedassociation,itmustceaseto
exist.That,too,mustIthinkberightbothforthereasonsthatWaltonJgaveandalsobecauseifthe
membersrightsarebasedincontract,acontractmustceasetobindoncethereisnootherpartywhocan
enforceit.
However,whatIfindmoredifficulttoacceptisthatamemberwhohasabeneficialinterestinanasset,
albeitsubjecttocontractualrestrictions,canhavethatbeneficialinterestdivestedfromhimonthedeathof
anothermember.Itleadstotheconclusionthatiftherearetwomembersofanassociationwhichhas
assetsof,say2m,theycanbyagreementdividethoseassetsbetweenthemandpocket1meach,butif
oneofthemdiesbeforetheyhavedividedtheassets,thewholepotgoestotheCrownasbonavacantia.
SinceWaltonJwasnotdealingwithacaseinwhichtherewasonlyonesurvivingmember,his
observationswereobiter
Thecasesareunitedinsayingthatonadissolutionthemembersofadissolvedassociationhavea
beneficialinterestinitsassets,andLordDenningMR[inAbbattvTreasurySolicitor[1969]1WLR1575,
1583]goesasfarastosaythatitisabeneficialequitablejointtenancy.Icannotseewhythelegal
principleshouldbeanydifferentifthereasonforthedissolutionisthepermanentcessationofthe
associationsactivitiesorthefallinitsmembershiptobelowtwo.Thesameprincipleoughtalsotoholdif
thecontractualrestrictionsareabrogatedorvariedbyagreementofthemembers.Idonotfindinthe
authoritiesconsideredbyWaltonJanythingthatbindsmetoholdthatwherethereisoneidentifiableand
livingmemberofanunincorporatedassociationthathasceasedtoexist,theassetsformerlyheldbyorfor
thatassociationpasstotheCrownasbonavacantia.Inaddition,article1oftheFirstProtocolofthe
EuropeanConventionfortheProtectionofHumanRightsandFundamentalFreedomsguaranteesthe
peacefulenjoymentofpossessions.Itsays:Nooneshallbedeprivedofhispossessionsexceptinthe
publicinterestandsubjecttotheconditionsprovidedforbylaw
Onthefaceofitforoneoftwomembersofanunincorporatedassociationtobedeprivedofhisshareinthe
assetsoftheassociationbyreasonofthedeathoftheotherofthem,andwithoutanycompensation,
appearstobeabreachofthisarticle.Itisalsodifficulttoseewhatpublicinterestisservedbythe
appropriationbythestateofthatmembersshareintheassociationsassets.This,inmyjudgment,
providesanotherreasonwhytheconclusionthatasolesurvivingmemberofanunincorporatedassociation,
whilestillalive,cannotclaimitsassetsisunacceptable.
IthereforerespectfullydeclinetofollowWaltonJsobiterdictumthatasolesurvivingmemberofan
unincorporatedassociationcannotclaimtheassetsoftheassociation,andthattheyvestintheCrown
asbonavacantia.
LewisonJsconclusionislogicalanddefensiblethedeathofthepenultimatemembershouldnotdivestthefinal
memberoftheirentitlementtothepropertythathadbeenusedforthepurposesoftheassociation.
Wheredistributionofassetsoccursbyreferencetothecontractholdingtheory,usuallytheassetswillbe
distributedequallybetweenthemembersatthetimeofthedissolution,regardlessofhow(p.315) longtheyhave
beenmembersortheamountofsubscriptionsthattheyhavepaid.134 InReBuck sConstabularyWidowsand
OrphansFundFriendlySociety(No.2)135 WaltonJsaid:
Theremainingquestionunderthisheadwhichfallsnowtobearguedis,ofcourse,whethertheyaresimply
heldpercapita,or,assuggestedinsomeofthecases,inproportiontothecontributionsmadebyeach
theinterestsandrightsofpersonswhoaremembersofanytypeofunincorporatedassociationare
governedexclusivelybycontractsthatistosaytherightsbetweenthemselvesandtheirrightstoany
surplusassets.IsaythattomakeitperfectlyclearthatIhavenotoverlookedthefactthattheassetsof
thesocietyareusuallyvestedintrusteesontrustforthemembers.Butthatisquiteaseparateand
distincttrustbearingnorelationtotheclaimsofthemembersinterseuponthesurplusfundssoheldupon
trustfortheirbenefit.
Thatbeingthecase,primafacietherecanbenodoubtatallbutthatthedistributionisonthebasisof
equality,because,asbetweenanumberofpeoplecontractuallyinterestedinafund,thereisnoother
methodofdistributionifnoothermethodisprovidedbythetermsofthecontract,anditisnotforone
momentsuggestedherethatthereisanyothermethodofdistributionprovidedbythecontract
Themembersarenotentitledinequitytothefund,theyareentitledatlaw.Itisamatter,sofarasthe
membersareconcerned,ofpurecontract,and,beingamatterofpurecontract,itis,inmyjudgment,as
farasdistributionisconcerned,completelydivorcedfromallquestionsofequitabledoctrines.Itisamatter
ofsimpleentitlement,andthatentitlement,inmyjudgment,atthistimeofdaymustbe,andcanonlybe,
inequalshares.
ThisprincipleofequaldistributionwasappliedbyLawrenceCollinsJinReHorleyTownFootballClub:136
TheRulesdonotspecifyhowtheClubsassetsaretobedistributedfollowingdissolution.Intheabsence
ofanyruletothecontrary,thereistobeimpliedintotherulesoftheClubaruletotheeffectthatthe
surplusfundsoftheClubshouldbedividedonadissolutionamongstthemembersoftheClub,andthis
distributionwillnormallybepercapitaamongthemembers(irrespectiveoflengthofmembershiporthe
amountofsubscriptionspaid)butmayreflectdifferentclassesofmembership.
Butsometimesthetermsofthecontractbetweenthememberswillresultinadifferentformofdistribution.For
example,inReSick andFuneralSocietyofStJohnsSundaySchool,Golcar,137 asocietyhadbeenformedata
Sundayschooltoprovideforsicknessanddeathbenefitsforitsmembers,whocouldbeteachersandchildren.
Juniormembersundertheageofthirteenpaidhalftheweeklysubscriptionandreceivedsicknessbenefitsathalf
therate.Followingdissolutionofthesociety,itwasheldthattheeffectoftheruleoftheassociationwasthat
juniormemberswereentitledtoonlyahalfshareofthesurplusassetsascomparedwiththeordinarymembers.
MegarryJsaid:138
Iseachmemberentitledtoanequalshare,oristheretobeadivisionintofullsharesandhalfshares,with
thosepayingd.aweekentitledonlytoahalfshare,andthosepaying1d.aweekafullshare?Oristhe
basisofdistributiontobeproportionatetotheamountsrespectivelycontributedbyeachmember?Thefirst
step,inmyview,istodecidebetweenthefirsttwocontentionsontheonehandandthethirdon(p.
316) theother:istheproperbasisthatofdivisionpercapita,whetherinfullorhalfshares,orthatof
divisioninproportiontotheamountscontributed?Indiscussingthis,Ispeak,ofcourse,ingeneralterms,
andsubjecttoanyotherbasisfordivisionthatistobediscernedintherulesoranyothersource
Itseemstome,withallrespect,thatmuchofthedifficultyarisesfromconfusingpropertywithcontract.A
resultingtrustisessentiallyapropertyconcept:anypropertythatamandoesnoteffectuallydisposeof
remainshisown.If,then,thereisatrueresultingtrustinrespectofanunexpendedbalanceofpayments
madetosomecluborassociation,therewillbearesultingtrustinrespectofthatunexpendedbalance,
andthebeneficiariesunderthattrustwillbethosewhomadethepayments.Ifanyaredead,thetrustswill
befortheirestatesdeathdoesnotdepriveamanofhisbeneficialinterest.YetinwhatImaycallthe
resultingtrustcases,thebeneficiarieswhowereheldtobeentitledwerethememberslivingatthetimeof
thedissolution,totheexclusionofthosewhodiedorotherwiseceasedtobemembers.If,then,therewere
anyresultingtrust,itmustbeatrustmodifiedinsomeway,perhapsbysomeunexplainedimpliedterm,
thatdistinguishesbetweenthequickandthedead.Itcannotbemerelyanordinaryresultingtrust.
Ontheotherhand,membershipofacluborassociationisprimarilyamatterofcontract.Themembers
maketheirpayments,andinreturntheybecomeentitledtothebenefitsofmembershipinaccordancewith
therules.Thesumstheypayceasetobetheirindividualproperty,andsoceasetobesubjecttoany
conceptofresultingtrust.Instead,theybecometheproperty,throughthetrusteesoftheclubor
association,ofallthemembersforthetimebeing,includingthemselves.Amemberwho,bydeathor
otherwise,ceasestobeamembertherebyceasestobethepartownerofanyoftheclubsproperty:those
whoremaincontinueowners.If,then,dissolutionensues,theremustbeadivisionofthepropertyofthe
cluborassociationamongthosealonewhoareownersofthatproperty,totheexclusionofformer
members.Inthatdivision,Icannotseewhatrelevancetherecanbeintherespectiveamountsofthe
contributions.Thenewestmember,whohasmadeasinglepaymentwhenhejoinedonlyayearago,isas
muchapartownerofthepropertyofthecluborassociationasamemberwhohasbeenmakingpayments
for50years.Eachhashadwhathehaspaidfor:thenewestmemberhashadthebenefitsofmembership
forayearorsoandtheoldestmemberfor50years.Whyshouldthelatter,whoforhismoneyhashadthe
benefitsofmembershipfor50timesaslongastheformer,getthefurtherbenefitofreceiving50timesas
muchinthewindingup?
Accordingly,Irejectthebasisofproportionatedivisioninfavourofequality,ordivisionpercapita.Butthen
thesecondquestionarises,namely,whethertheprincipleofequalityprevailsnotonlywhenthereisno
morethanoneclassofmembersbutwhentherearetwoormoreclasses.Istheproposeddivisioninto
sharesandhalfsharessound,oroughtittoberejectedinfavourofequalitythroughout?
Onthefootingthattherulesofacluborassociationformthebasisofthecontractbetweenallthe
members,Imustlookattherulesofthesocietytoseewhethertheyindicateanybasisotherthanthatof
equality.Itseemstomethattheydo.Thoseagedfrom5to12yearsoldpaycontributionsathalftherate
(rule9),andcorrespondinglytheirallowances(rule12)anddeathbenefit(rule14)arealsopaidathalfthe
rate.Wheretheruleshavewrittenintothemthebasisofinequalityamongdifferentclassesofmembersin
relationtotheprincipalcontractualburdensandbenefitsofmembership,itseemstometofollowthatthis
inequalityoughtalsotobeappliedtothesurpluspropertyofthesociety.Adistinctionbetweenclassesof
membersisquitedifferentfromadistinctionbetweenindividualmembersofthesameclassbasedonthe
amountscontributedbyeachmember.Atanygivenmomentonecansaythattherightsandliabilitiesof
allthemembersofoneclassdifferinthesamewayfromtherightsandliabilitiesofallthemembersofthe
otherclass,irrespectiveofthelengthofmembershiporanythingelse.Itwasindeedsuggestedthatthe
wordstwoclassesofsubscribersinrule9didnotmeanthatthereweretwoclassesofmembers,the
wordsubscribersbeingincontrastwiththewordmemberusedinthenextsentence.Buttherulesare
tooilldraftedforanysuchinferencestobedrawnandrule5,providingforspecialmeetingsofthe
committeewhenrequestedbythreesubscribers,andageneralmeetingifrequiredbytwentyofthe
members,stronglysuggeststhatthetermsareusedinterchangeably.Atanyrate,Ihaveheardno
sensibleexplanationsofthedistinction.
(p.317) Inaddition,itwasconfirmedthatmemberswhohadbeenexcludedfromtheassociationbyvirtueof
failingtopaytheirsubscriptionswerenotentitledtoshareinthedistributionofassets,eveniftheyhadpaidthe
arrearsoftheirsubscriptionsaftertheassociationhadbeendissolved.Theywould,however,havebeenableto
shareinthedistributionhadtheypaidthearrearsbeforedissolution,becausetheywouldthenhavebeen
membersatthetimeofthedissolution.
(iii)Conclusions
Theemphasisonthecontractholdingtheoryhashadabeneficialimpactontheexplanationofhowpropertycan
beheldforthebenefitofanunincorporatedassociationwhilstgivingeffecttothedonorsintention.Thecontract
holdingtheoryisalsousefulmoregenerallyasamechanismforcircumventingthetraditionalrestrictionsonthe
validityofnoncharitablepurposetrustsbyvirtueoftheidentificationofascertainablebeneficiaries.Anon
charitablepurposecan,ineffect,beachievedthroughtheuseofanunincorporatedassociation.
Question
Alan,inhiswill,left1milliontopurchaselandandbuildapavilionforthebenefitofcurrentandformer
employeesofAlendraLtd,afirmwhichAlanhadcreated.OnAlansdeathin1930,landwaspurchasedfor
useasasportsgroundandapavilionwasbuilt.ThiswasusedbyAlendraUnitedFC,afootballclub.
Accordingtotheconstitutionoftheclub,allemployeesofAlendraLtdareautomaticallymemberswithout
anyobligationtopayasubscription.Otherpeoplecanjointheclub,butonlyiftheypayanannual
subscription.Noprovisionismadefordistributionofassetsonthedissolutionoftheclub.Overtheyears,the
numberofpeopleemployedbyAlendraLtdhasshrunk.AlendraUnitedFChaselevenmembers,fiveofwhom
areemployeesorformeremployees.Theremainderareliabletopaysubscriptions,althoughoneofthem,
George,hasnotpaidhissubscriptionfortwoyears.Theclubhasreceivedanofferforthepurchaseofthe
sportsgroundandpavilionfor10millionforahousingdevelopment.Allelevenmembersvotetodissolvethe
club.Whatshouldhappentothe10millionpurchaseprice?
FurtherReading
Baughen,PerformingAnimalsandtheDissolutionofUnincorporatedAssociations:TheContractholding
TheoryVindicated[2010]Conv216.
FindThisResource
Hayton,DevelopingtheObligationCharacteristicoftheTrust(2001)LQR96.
FindThisResource
Luxton,GiftstoClubs:ContractHoldingisTrumps[2007]Conv274.
FindThisResource
Matthews,AProblemintheConstructionofGiftstoUnincorporatedAssociations[1995]Conv302.
FindThisResource
Matthews,TheNewTrust:ObligationswithoutRights?,inTrendsinContemporaryTrustLaw(ed.Oakley)
(Oxford:ClarendonPress,1996),ch.1.
FindThisResource
PawlowskiandSummers,PrivatePurposeTrusts:AReformProposal[2007]Conv440.
FindThisResource
Warburton,TheHoldingofPropertybyUnincorporatedAssociations[1985]Conv318.(p.318)
FindThisResource
Notes:
1
(1804)9Ves399,405.
2
[1952]Ch534.SeealsoBowmanvSecularSocietyLtd[1917]AC406,441(LordParker).
3
4
[1952]Ch534,541.
5 Ibid.
6 Ibid,547.
7 (1804)9Ves399affirmed(1805)10Ves522.
10 [1957]1WLR729.
11 SeeChapter5.3(c)(ii)(a),p.194.
12 [1960]Ch232.SeeChapter6.2(b)(iv),pp.2878.
14 [1957]1WLR729,745.
15 SeefurtherChapter6.3(d),pp.2903.
16 ReAstorsStatementTrusts[1952]Ch534,549(RoxburghJ).
17
TheNewTrust:ObligationsWithoutRights?,inTrendsinContemporaryTrustLaw(ed.Oakley)(Oxford:
ClarendonPress,1996),ch.1,p.3.
18
Ibid,at4.
19
DevelopingtheObligationCharacteristicoftheTrust(2001)LQR96,102.
20
[1969]1Ch373.
21
Sothatthetrustdidnotinfringetheperpetuityrule.SeeChapter6.2(b),p.285.
22 [1969]1Ch373,383.
23
24 SeeOppenheimvTobaccoSecuritiesTrustCo.Ltd[1951]AC297,discussedinChapter5.4(b)(ii)(a),pp.211
13.
25 Seee.g.ReLipinsk isWillTrust[1976]Ch235,248,whereOliverJconsideredReDenleytoaccordwith
authorityandcommonsense.
26 WhatareWetoDowithTestamentaryTrustsofImperfectObligation?[2007]Conv148,157.
27 ReAstorsSettlementTrusts[1952]Ch534,547(RoxburghJ).
28 (1856)LJCh424.
29 Ibid,417.
30 Dawson,TheRuleAgainstInalienabilityARuleWithoutaPurpose(2006)LS414.
32 PerpetuitiesandAccumulationsAct2009,s.18.
33 ReHooper[1932]1Ch38.
34 ThewaitandseeruleunderthePerpetuitiesandAccumulationsAct2009,s.7,willnotapply.See
Chapter3.7,p.115.
35 ReKhooChengTeow[1932]StraitsSettlementReports226.
36 SeeChapter5.4(k),pp.2467.
37 (1889)41ChD552.
38 Ibid,556.
39 [1932]IR255at2601.
40
TrimmervDanby(1856)25LJCh424MussettvBingle[1876]WN170.
41
[1876]WN170.
42
[1932]1Ch38.
43
44 ReEndacott[1960]Ch232,246(LordEvershedMR).
45 Ibid,246.
46 Ibid,250.
48 [1934]Ch342.
49 IRCvBroadwayCottagesTrust[1955]Ch20,36(JenkinsLJ).SeeChapter2.6(h),p.51.
50 ReEndacott[1960]Ch232,246(LordEvershedMR).
51 [1957]1WLR729,746.
52 SeeChapter13.2(a)(ii),p.612.
53
54 PerpetuitiesandAccumulationsAct2009,s.2(3).
55 [1891]3Ch252.
56 Ibid,259.
58 [1943]Ch277.
59
ConservativeandUnionistCentralOfficevBurrell[1982]1WLR522.
60
SeeChapter14,FiduciaryObligations.
61
Forexample,Bermuda,BritishVirginIslands,CaymanIslands,Cyprus,IsleofMan,andJersey.
62
SeeChapter6.1(a)(ii),p.282.
63 SeegenerallyWatersinTrendsinContemporaryTrustLaw(ed.Oakley)(Oxford:OxfordUniversityPress,
1996),pp.63122.
64
[1969]1Ch373seeChapter6.2(a),p.284.
65 DevelopingtheObligationCharacteristicoftheTrust(2001)117LQR96,98.
66 SalomonvSalomon&Co.Ltd[1897]AC22.
67 SeegenerallyLeahyvAGforNewSouthWales[1959]AC457,479.
68 [1982]1WLR522,525.
69 ReKoepplersWillTrust[1986]Ch423,431(SladeLJ).
70 [1962]Ch832.
71 Ibid,849.
72 SeeChapter6.4(b)(ii),pp.2957.
75 [1959]AC457.
76 Ibid,477.
77
[1969]1Ch373.SeeChapter6.2(a),p.284.
78
79
[1980]1WLR360,370.
80
[1976]Ch235,247(OliverJ).SeeChapter6.4(b)(v),p.300.
81 ReDrummond[1914]2Ch90.
82 NevilleEstatesLtdvMadden[1962]Ch832,849(CrossJ).SeeChapter6.4(b),p.294.
83 Warburton,TheHoldingofPropertybyUnincorporatedAssociations[1985]Conv318,321.
84
84
PerpetuitiesandAccumulationsAct2009,s.7(2).SeeChapter3.7,p.115.
85
NevilleEstatesLtdvMadden[1962]Ch832,849(CrossJ).
86
87
ReBuck sConstabularyWidowsandOrphansFundFriendlySociety(No.2)[1979]1WLR936,943(Walton
J).
88
[2008]EWHC330(Ch)[2009]Ch173,[47].
89
ReBuck sConstabularyWidowsandOrphansFundFriendlySociety(No.2)[1979]1WLR936,939(Walton
J).
90
ReHorleyTownFootballClub[2006]EWHC2386(Ch)[2006]WTLR1817,[118](LawrenceCollinsJ).
94 PerpetuitiesandAccumulationsAct2009,s.7.SeeChapter3.7,p.115.
95 Ibid,s.8.
96 [1976]Ch235.
97 Ibid,246.
98 SeeNevilleEstatesLtdvMadden[1962]Ch832,Chapter6.4(b),p.294.
99 Warburton,TheHoldingofPropertybyUnincorporatedAssociations[1985]Conv318,324.
100 [1972]Ch526.
102 [1972]Ch526,538.
103
Thiswillalsoberelevantwheretheunincorporatedassociationisdissolved.SeeChapter6.4(c),pp.30817.
104
[2006]EWHC2386(Ch),[2006]WTLR1817,[118].
105
[1980]1WLR360.
106
Ibid,368.
109 (1882)LR21ChD9,CA.
110 Theconstructivetrustwouldariseunderthemaximequityregardsasdonethatwhichoughttobedoneon
thebasisofaspecificallyenforceablecontract.SeeLordRadcliffeinOughtredvInlandRevenue
Commissioners[1960]AC206HLat227,whoseviewswereappliedbytheCourtofAppealinNevillev
Wilson[1997]Ch144,CA(CivDiv).
111
112 [1982]1WLR522,528.
113
114 HoldingPropertyforNoncharitablePurposes:Mandates,ConditionsandEstoppels[1987]Conv415,418
116 HanchettStamfordvAttorneyGeneral[2008]EWHC330(Ch)[2009]Ch173.
117 [1979]1WLR936,943.
118 [1982]1WLR774.
119 Ibid,779.
121 ReHobournAeroComponentsLtdsAirRaidDistressFund[1946]Ch194.
122 [1896]2Ch679.
123
Ibid,at683.
124
ConsequentlythesurpluspassedtotheCrownasbonavacantia.SeeChapter8.3(c)(ii),pp.3859.
125
[1971]Ch1,9.
126
DavisvRichardsandWallingtonIndustriesLtd[1990]1WLR1511,1542(ScottJ)AirJamaicaLtdv
Charlton[1999]1WLR1399,1412(LordMillett).SeeChapter8.3(c)(iii),pp.38991.
127
[1999]1WLR1399.
128
SeeCunnack vEdwards[1896]2Ch679andReWestSussexConstabularysWidows,Childrenand
Benevolent(1930)FundTrusts[1971]Ch1.
129
ReBuck sConstabularyWidowsandOrphansFundFriendlySociety(No.2)[1979]1WLR936.Thesame
approachwillbeadoptedasregardsdistributionoftheproceedsofsaleamongstmemberseventhoughthe
associationhasnotbeendissolved:ReHorleyTownFootballClub[2006]EWHC2386(Ch)[2006]WTLR1817.
SeeChapter6.4(b)(v),pp.3024.
130 [1979]1WLR936.
131
Ibid,at944.
132
[2008]EWHC330(Ch)[2009]Ch173,at[31].
133
Ibid,[31].
134
ReGKNBolts&NutsLtdetc.Work SportsandSocialClub[1982]1WLR774.
135 [1979]1WLR936,952.
136 [2006]EWHC2386(Ch)[2006]WTLR1817,[129].
137 [1973]Ch51.
138 Ibid,58.
7.ConstructiveTrusts
Chapter: (p.321) 7.ConstructiveTrusts
DOI: 10.1093/he/9780199661480.003.0007
CentralIssues
1.Aconstructivetrustarisesbyoperationoflawwithoutregardtotheintentionsoftheparties.
2.Mostconstructivetrustsaretriggeredbythedefendantsunconscionableconduct.Unconscionability
canbeinterpretedeitherinanarrowsubjectivesense,withreferencetotheconscienceoftheparticular
defendant,orawiderobjectivesense,withreferencetotheconscienceofareasonableobserver.
3.Exceptionally,aconstructivetrustwillberecognizedeventhoughthedefendanthasnotacted
unconscionably,suchastheconstructivetrustthatarisesonceacontracttoselllandhasbeenmade.
4.Somejurisdictionsrecognizearemedialconstructivetrust,wherebyequitableproprietaryrightsarise
throughtheexerciseofjudicialdiscretion,butsuchatrustisnotrecognizedinEnglandandWales.
5.Aswithexpresstrusts,titleoverparticularpropertythatisheldonconstructivetrustissplitbetween
trusteesandbeneficiaries.Butaconstructivetrusteeisnotsubjecttothesamedutiesasanexpress
trustee.
1.EssentialFeaturesofConstructiveTrusts
Aconstructivetrustisatruetrustlikeanyother,wheretheconstructivetrusteehaslegaltitletoidentifiable
propertythatisheldforthebenefitofthebeneficiaries.Butthedistinctivefeatureofaconstructivetrustisthatit
arisesbyoperationoflaw,withoutregardtotheintentionsoftheparties.1 Theconstructivetrustdiffers,therefore,
fromanexpresstrust,whichiscreatedbythesettlorintentionally,2 and,aswillbeseen,theresultingtrust,which
istriggeredbythepresumedorimputedintentionofthetransferorthatpropertyistobeheldontrustforhimor
her.3
Theconstructivetrustcanariseinawidevarietyofcircumstances,butthereislittleagreementamongstthe
judiciaryorcommentatorsastowhenandwhyitwillberecognized.Ithasevenbeensuggestedby
Swadling4 thattheconstructivetrustisafiction:5
(p.322) Theconstructivetrustisnotrustatall,merelyaninappropriatelabeltodescribetwospeciesof
courtorderthatadefendantpaytheclaimantasumofmoneyandthatthedefendantconveytohima
particularright.
Butwhilstthisisundoubtedlytrueinsomecontexts,wherethelabelofconstructivetrusthasbeenimproperly
used,6 thereisstillagenuinetrustwherelegaltitleisheldbyonepartyandequitabletitlebytheother,which
arisesbyoperationoflawandwhichshouldlegitimatelybecalledaconstructivetrusttodistinguishitfrom
expressandresultingtrusts.
Becauseconstructivetrustsarisebyoperationoflaw,thereisnorequirementthattheybeformallydeclared.Itis
forthisreasonthatconstructivetrustsoflanddonotneedtobeevidencedinwriting.7 Oncecreated,thetrust
functionsinthesamewayasanexpresstrust,savethattheconstructivetrusteeisnotsubjecttothesame
obligationsasanexpresstrustee.8 Butthefactthatthebeneficiaryofsuchatrusthasanequitableproprietary
interestinthetrustpropertymeansthat,ifthetrusteebecomesinsolvent,thebeneficiarysclaimtothetrust
propertywillrankabovetheclaimsofotherunsecuredcreditorsofthetrustee.
(a)TheTheoreticalFoundationsofConstructiveTrusts
Identifyingasingletheorytoexplainthedisparatecircumstancesinwhichconstructivetrustsarerecognizedis
controversial.SirTerenceEthertonhasrecognized:9
Thesearchforanacceptable,universallyacknowledged,principlefortheestablishmentofaconstructive
trust,whichgivescoherencetopastdecisionsandprovidesaclearguideforthefuture,willcertainlyprove
elusiveinrelationtothemanydifferentareasoflawandfactinwhichconstructivetrustsarise.
Similarly,LordScott10 hasrecognizedthatitisimpossibletoprescribeexhaustivelythecircumstancessufficient
tocreateaconstructivetrust.
Despitethis,ithassometimesbeensuggestedthattheconstructivetrustisaresponsetothedefendantsunjust
enrichment,11 butthebetterviewisthatthedoctrineofunjustenrichmenttriggersonlypersonalremediesandnot
thecreationofequitableproprietaryinterests.12 Inthe1970s,somejudges,ledbyLordDenningMR,usedthe
constructivetrustasamechanismwithwhichtocreateequitablepropertyrightswherejusticeandgood
consciencedemandedit.13 Butthisisunprincipledanduncertain.LordBrowneWilkinsonhasrecognizedthat
unconscionabilityonthepartofthedefendantisthegeneralprinciplethatunderpinstherecognitionofthe
constructivetrustinallcases.14 ThiswasalsorecognizedbyMillettLJinParagonFinanceplcvDBThak erar
andCo:15
(p.323) Aconstructivetrustarisesbyoperationoflawwheneverthecircumstancesaresuchthatitwould
beunconscionablefortheownerofpropertytoasserthisownbeneficialinterestinthepropertyand
denythebeneficialinterestofanotherInthesecasestheplaintiffdoesnotimpugnthetransactionby
whichthedefendantobtainedcontroloftheproperty.Heallegesthatthecircumstancesinwhichthe
defendantobtainedcontrolmakeitunconscionableforhimthereaftertoassertabeneficialinterestinthe
property.
Carefulanalysisofthedifferentcircumstancesunderwhichtheconstructivetrusthasbeenrecognizedreveals
thatunconscionabilityisindeedasignificanttriggerforthistrust,inthattheconstructivetrustisaresponsetothe
defendantsactualorpotentialunconscionableconduct.Unconscionabilitycanbeinterpretedinbothanarrow
andawidesense,dependingontheparticularcontext.Thenarrowsensefocusesontheconscienceofthe
defendantandinvolvesasubjectivetestrelatingtothedefendantsknowledgeorsuspicionofthecircumstances
ofreceipt.16 Thewidersenseinvolvesanobjectivetestofunconscionabilityandoperatestoensurethatthe
defendantdoesnotprofitfromwhatisconsideredbyareasonableobservertoamounttounconscionable
conduct.17
Unconscionabilitycannot,however,explainallcaseswherethelanguageoftheconstructivetrustisused,butthe
trustsarisingintheseothercasesmightbebetteranalysedsimplyasimpliedtrusts.18
Othertheorieshavebeensuggestedtoexplainconstructivetrusts.Forexample,Gardnerhassuggestedthat
certainconstructivetrusts,whichproduceanoutcomewhichsomeoneintendedandwhichwouldnototherwise
comeabout,19 operatetocorrectarelianceloss:20
specifically,thelossthatsomeonesufferswhen,actinginreasonablerelianceonanothersundertaking,
heforegoeshisopportunitytoachievethecontentoftheundertakinginsomeway.Ifthesetrustscan
indeedberegardedinthisway,itbecomesmucheasiertoseewhythelawshouldimposethem.
Thisthesisisusedtoexplaintheoperationofcertainconstructivetrusts,21 butitisnotconsideredtoexplainthe
recognitionofallconstructivetrusts.Whilstthethesisispersuasiveinitsownterms,itcanstillberegardedas
fallingwithinawidertheoryofunconscionability,forwhereapartyhasreasonablyreliedonanundertakingitis
unconscionableforthepartywhomadethatundertakingtothendenyit.
(b)TypesofConstructiveTrust
Muchofthecomplexityofthelawinthisareaarisesbecausethejudgesusethelanguageoftheconstructive
trustinfivedistinctways.
(i)Institutionalconstructivetrust
Theinstitutionalconstructivetrustistheorthodoxmodeofanalysingthesetrusts,whicharetreatedasarisingby
operationoflawontheoccurrenceofacertaineventinwhichaconstructivetrusthas(p.324) previouslybeen
recognized.22 Underthiscategoryoftheconstructivetrust,thecourtsimplyrecognizesthatthetrusthasalready
arisen,withouthavinganydiscretiontodootherwise.
(ii)Remedialconstructivetrust
Theremedialconstructivetrustwillberecognizedwhereajudge,intheexerciseofhisorherdiscretion,considers
thatitisappropriatethatthedefendantshouldholdpropertyontrustfortheclaimant.Aconsequenceisthatthe
creationoftheequitableproprietaryinterestinthepropertythatisheldontrustoccursbyvirtueoftheexerciseof
judicialdiscretionanditisthisthatdistinguishestheremedialfromtheinstitutionalconstructivetrust,aswas
recognizedbyLordBrowneWilkinsoninWestdeutscheLandesbank GirozentralevIslingtonLBC:23
Underaninstitutionalconstructivetrustthetrustarisesbyoperationoflawasfromthedateofthe
circumstanceswhichgiverisetoit:thefunctionofthecourtismerelytodeclarethatsuchtrusthasarisen
inthepast.Theconsequencesthatflowfromsuchatrusthavingarisen(includingthepotentiallyunfair
consequencestothirdpartieswhointheinterimhavereceivedthetrustproperty)arealsodeterminedby
rulesoflaw,notunderadiscretion.Aremedialconstructivetrust,asIunderstandit,isdifferent.Itisa
judicialremedygivingrisetoanenforceableobligation:theextenttowhichitoperatesretrospectivelytothe
prejudiceofthirdpartiesliesinthediscretionofthecourt.
ThisnotionoftheconstructivetrusthasbeenrecognizedinanumberofCommonwealthcountries,butithas
generallynotbeenrecognizedinEnglandandWales.24 Whetheritshouldberecognizedinthisjurisdictionwillbe
consideredlaterinthischapter.25
(iii)Constructivetrustasremedy
Whereadefendanthasreceivedpropertyinwhichtheclaimanthasanexistingequitableproprietaryinterest,itis
possibleforthecourttovindicatethatinterestbyrequiringthedefendanttoholdtheproperty,orashareofit,on
constructivetrustfortheclaimant,regardlessofwhetherthiswastheoriginalpropertytakenfromtheclaimantor
substitutepropertythatcanbeconsideredtorepresenttheoriginalproperty.26 Theclaimantcanthencallforthe
propertytobetransferredtohimorher.Thisisdifferentfromtheremedialconstructivetrust,becausethatinvolves
thecreationofanequitableproprietaryinterestthathadnotpreviouslyexisted.Wheretheconstructivetrustas
remedyisused,thereisalreadyanequitableproprietaryinterestinexistence,whichwilltypicallyhavebeen
createdbyanexpresstrusttheconstructivetrusteffectivelyoperatesasaconduitforthetransferofproperty
fromthedefendanttotheclaimant.Ithasbeensuggestedthat,iftheclaimantsoriginalequitableinterestactually
arisesunderanexpresstrust,(p.325) thedefendantwhohasreceivedthepropertyoritssubstituteshouldhold
thatpropertyonthesametrust.27 Butthisargumentisunconvincing.Thedefendantwhohasreceivedthe
propertywillnotbeunderthesametrustobligationsastheoriginalexpresstrustee:thedefendantwillnotbe
subjecttoanobligationtoinvestthetrustproperty,forexample.Thebetterview,therefore,isthattherecipient
doesindeedholdthepropertyunderadistincttrust,which,becauseitarisesbyoperationoflaw,shouldbe
characterizedasaconstructivetrust.
(iv)Liabilitytoaccountasaconstructivetrustee
Sometimesthelanguageoftheconstructivetrustisusedeventhoughthedefendantdoesnotholdpropertyon
trustatall,butthelabelconstructivetrustisusedsimplyasadevicetoholdthedefendantpersonallyliableto
theclaimant.So,forexample,wherethedefendanthasunconscionablyreceivedproperty,whichhasbeen
transferredinbreachoftrustorfiduciaryduty,28 orwherethedefendanthasdishonestlyassistedabreachoftrust
orfiduciaryduty,29 thedefendantwillbeheldliabletoaccountasthoughheorshewasaconstructivetrustee.
Butthelanguageoftheconstructivetrustinthiscontext,althoughstillused,isinappropriatebecausethereisno
propertytobeheldontrust.Thedefendantsliabilityforbothcausesofactionispersonal,eithertorestorethe
valueofanypropertyreceived,ortocompensatetheclaimantforlosssufferedasaresultofthedefendants
assistance.Thedefendantholdsnothingontrustforanybody.ThishasnowbeenrecognizedinDubaiAluminium
Co.LtdvSalaambyLordMillett,30 whoconcludedthatthedefendantsliabilityisbetterdescribedasanequitable
liabilitytoaccounttotheclaimant.
(v)Commonintentionconstructivetrust
Thisisadistinctformofconstructivetrust,whichistriggeredwithreferencetotheexpress,implied,orimputed
intentionoftheparties.31 Thistrustarisesfromanagreementorunderstandingofthepartiesastowhetherthey
haveabeneficialinterestinpropertyand,ifso,whattheextentofthatinterestmightbe.Thisisespecially
significantwhereacouplehavecohabitedandtheirhomeisregisteredeitherinthenameofthemboth32 orinthe
nameofoneofthemonly.33 Althoughthelanguageoftheconstructivetrustisusedinthesecases,thisisvery
differentfromtheordinaryconstructivetrust,becauseitrespondstotheimpliedintentionoftheparties,rather
thanarisingbyoperationoflaw,andsoisproperlydescribedasanimpliedratherthanaconstructivetrust.
(vi)Conclusions
Ofthefivetypesofconstructivetrust,itistheinstitutionalconstructivetrustthatismostsignificant.Theremedial
constructivetrustisnotrecognizedinEnglishlaw.Theconstructivetrustasremedyisrelevanttoequitable
proprietaryclaims,andsoisconsideredlater.34 Liabilityasaconstructivetrusteedoesnotactuallyinvolvethe
recognitionofaconstructivetrustofproperty,andthecommonintentionconstructivetrust,beingtriggeredbythe
intentionoftheparties,isclearlydistinctfromthecorecategoriesoftheconstructivetrust.
(p.326) 2.CategoriesofInstitutionalConstructiveTrust
(a)UnconscionableRetention
Whereitisunconscionableforthedefendanttoretainproperty,heorshewillholditonconstructivetrustforthe
claimant,whoistypicallythepersonfromwhomthepropertywastransferred.Thiscategoryofconstructivetrust
wasrecognizedinWestdeutscheLandesbank GirozentralevIslingtonLBC.
WestdeutscheLandesbankGironzentralevIslingtonLBC[1996]AC669
Theclaimantbankhadpaidmoneytothedefendantlocalauthoritypursuanttoaninterestrateswapcontract
thatwasnullandvoid.Thebanksoughtrestitutionofthemoney.Oneparticularquestion,thatwas
consideredbyLordBrowneWilkinson,waswhetherthedefendantheldthemoneyithadreceivedona
constructivetrust,whichwassignificantsinceitaffectedthetypeofinterestthatcouldbeawarded.35 His
Lordshipsaid:36
Thisisnotacasewherethebankhadanyequitableinterestwhichpredatedreceiptbythelocal
authorityoftheupfrontpayment.Therefore,inordertoshowthatthelocalauthoritybecameatrustee,
thebankmustdemonstratecircumstanceswhichraisedatrustforthefirsttimeeitheratthedateon
whichthelocalauthorityreceivedthemoneyoratthedateonwhichpaymentintothemixedaccount
wasmade.Counselforthebankspecificallydisavowedanyclaimbasedonaconstructivetrust.This
wasplainlyrightbecausethelocalauthorityhadnorelevantknowledgesufficienttoraisea
constructivetrustatanytimebeforethemoneys,uponthebankaccountgoingintooverdraft,became
untraceable.Oncethereceasedtobeanidentifiabletrustfund,thelocalauthoritycouldnotbecomea
trustee:ReGoldcorpExchangeLtd[1995]1AC74
In[ChaseManhattanBank NAvIsraelBritishBank (London)Ltd[1981]Ch105],aNewYorkbank

hadbymistakepaidthesamesumtwicetothecreditofthedefendant,aLondonbank.Shortly
thereafter,thedefendantbankwentintoinsolventliquidation.ThequestionwaswhetherChase
Manhattanhadaclaiminremagainsttheassetsofthedefendantbanktorecoverthesecond
payment.
GouldingJwasaskedtoassumethatthemoneyspaidunderamistakewerecapableofbeingtraced
intheassetsoftherecipientbank:hewasonlyconcernedwiththequestionwhethertherewasa
proprietarybaseonwhichthetracingremedycouldbefounded:at116.Heheldthat,wheremoney
waspaidunderamistake,thereceiptofsuchmoneywithoutmoreconstitutedtherecipientatrustee:
hesaidthatthepayerretainsanequitablepropertyinitandtheconscienceof[therecipient]is
subjectedtoafiduciarydutytorespecthisproprietaryright:at119.
ItwillbeapparentfromwhatIhavealreadysaidthatIcannotagreewiththisreasoning.First,itis
basedonaconceptofretaininganequitablepropertyinmoneywhere,priortothepaymenttothe
recipientbank,therewasnoexistingequitableinterest.Further,Icannotunderstandhowthe
recipientsconsciencecanbeaffectedatatimewhenheisnotawareofanymistake.Finally,the
judgefoundthatthelawofEnglandandthatofNewYorkwereinsubstancethesame.Ifindthisa
surprisingconclusionsincetheNewYorklawofconstructivetrustshasforalongtimebeeninfluenced
bytheconceptofaremedialconstructivetrust,whereashithertoEnglishlawhasforthemostpart
onlyrecognisedaninstitutionalconstructivetrust:seeMetallundRohstoffAGvDonaldsonLufk in&
JenretteInc[1990]1QB391at478480.Thus,forthelawofNewYorktoholdthatthereisa
remedialconstructivetrustwhereapaymenthasbeenmadeunderavoidcontractgivesriseto
differentconsequencesfromholdingthataninstitutionalconstructivetrustarisesinEnglishlaw.
(p.327) However,althoughIdonotacceptthereasoningofGouldingJ,ChaseManhattanmaywell
havebeenrightlydecided.Thedefendantbankknewofthemistakemadebythepayingbankwithin
twodaysofthereceiptofthemoneys:seeat115.Thejudgetreatedthisfactasirrelevant(at114)but
inmyjudgmentitmaywellprovideaproperfoundationforthedecision.Althoughthemerereceiptof
themoneys,inignoranceofthemistake,givesrisetonotrust,theretentionofthemoneysafterthe
recipientbanklearnedofthemistakemaywellhavegivenrisetoaconstructivetrust.
AlthoughGouldingJinChaseManhattanBank recognizedthattheclaimantwhohadpaidmoneybymistakehad
anequitableproprietaryinterestinit,hedidnotexplainhowthisinterestarose.InWestdeutscheLandesbank ,
LordBrowneWilkinsonjustifiedthisonthegroundthatthedefendanthadactedunconscionablyinnotrepaying
themoneyafterithaddiscoveredthemistake.Constructivetrustswillbetriggeredbythisprincipleof
unconscionableretentioninothercircumstances,suchaswherethedefendanthasobtainedpropertybyfraud.37
LordBrowneWilkinsonsanalysisofChaseManhattanBank has,however,beendescribedbyWardLJ
inMaqsoodvMahmood38 asnotformingpartoftheratioofthecaseandasbeingtentative.Whilstthisis
undoubtedlytrue,thesignificanceoftheconstructivetrustinsuchcircumstanceswasconfirmedinReFarepak
FoodandGiftsLtd,39 whichrecognizedthatclaimants,whohadpaidinadvanceforgoodsorservices,could,in
principle,claimthatthemoneywasheldforthemonconstructivetrustwherethedefendant,atthetimeof
receivingpayment,hadalreadydecidedthatthegoodsandserviceswouldnotbeprovidedbecauseitwould
ceasetrading,althoughthiswasnotestablishedonthefacts.Presumably,thedefendantsconscienceshould
onlybeconsideredtobeaffectedwhereheorshewasactuallyawareoftheclaimantsmistakeortheinvalidityof
thetransaction,40 foronlythencanthedefendantsconductbeproperlycharacterizedasunconscionable.
LordBrowneWilkinsoninWestdeutscheLandesbank wentontorecognizethatathiefwhostoleabagofcoins
wouldsimilarlyholdthatpropertyonaconstructivetrust:41
Theargumentforaresultingtrustwassaidtobesupportedbythecaseofathiefwhostealsabagof
coins.Atlawthosecoinsremaintraceableonlysolongastheyarekeptseparate:assoonastheyare
mixedwithothercoinsorpaidintoamixedbankaccounttheyceasetobetraceableatlaw.42 Canitreally
bethecase,itisasked,thatinsuchcircumstancesthethiefcannotberequiredtodisgorgetheproperty
which,inequity,representsthestolencoins?Moneyscanonlybetracedinequityiftherehasbeenat
somestageabreachoffiduciaryduty,i.e.ifeitherbeforethethefttherewasanequitableproprietary
interest(e.g.thecoinswerestolentrustmoneys)orsuchinterestarisesunderaresultingtrustatthetime
ofthetheftorthemixingofthemoneys.Therefore,itissaid,aresultingtrustmustariseeitheratthetime
ofthetheftorwhenthemoneysaresubsequentlymixed.Unlessthisisthelaw,therewillbenorightto
recovertheassetsrepresentingthestolenmoneysoncethemoneyshavebecomemixed.
Iagreethatthestolenmoneysaretraceableinequity.Buttheproprietaryinterestwhichequityisenforcing
insuchcircumstancesarisesunderaconstructive,notaresulting,trust.Althoughitisdifficulttofindclear
authorityfortheproposition,whenpropertyisobtainedbyfraudequityimposesaconstructivetrustonthe
fraudulentrecipient:thepropertyisrecoverableandtraceableinequity.Thus,aninfantwhohas(p.
328) obtainedpropertybyfraudisboundinequitytorestoreit:Stock svWilson[1913]2KB235at244R
LeslieLtdvSheill[1914]3KB607.Moneysstolenfromabankaccountcanbetracedinequity:Bank ers
TrustCovShapira[1980]1WLR1274at1282:seealsoMcCormick vGrogan(1869)LR4HL82at97.
ThisdictumwasconsideredbyRimerJinShalsonvRusso:43
Idonotfindthataneasypassage.Astothefirstparagraph,athiefordinarilyacquiresnopropertyinwhat
hestealsandcannotgiveatitletoiteventoagoodfaithpurchaser:boththethiefandthepurchaserare
vulnerabletoclaimsbythetrueownertorecoverhisproperty.Ifthethiefhasnotitleintheproperty,I
cannotseehowhecanbecomeatrusteeofitforthetrueowner:theownerretainsthelegalandbeneficial
title.Ifthethiefmixesstolenmoneywithothermoneyinabankaccount,thecommonlawcannottrace
intoit.Equityhastraditionallybeenregardedassimilarlyincompetentunlessitcouldfirstidentifya
relevantfiduciaryrelationship,44 butinmanycasesofthefttherewillbenone.Thefactthat,traditionally,
equitycanonlytraceintoamixedbankaccountifthatpreconditionisfirstsatisfiedprovidesan
unsatisfactoryjustificationforanyconclusionthatthestolenmoneymustnecessarilybetrustmoneyso
astoenablethepreconditiontobesatisfied.Itiseithertrustmoneyoritisnot.Ifitisnot,itisnot
legitimateartificiallytochangeitscharactersoastobringitwithinthesupposedlimitsofequityspowers
totrace:theansweristodevelopthosepowerssoastomeetthespecialproblemsraisedbystolen
money
AstoLordBrowneWilkinsonsmoregeneralpropositioninthesecondparagraphthatpropertyobtainedby
fraudisautomaticallyheldbytherecipientonaconstructivetrustforthepersondefrauded,Irespectfully
regardtheauthoritieshecitesasprovidinglessthanfullsupportforit.Atanyrate,theydonotinmyview
supportthepropositionthatpropertytransferredunderavoidablecontractinducedbyfraudwillimmediately
(andpriortoanyrescission)beheldontrustforthetransferor.
RimerJsrealconcernwithtreatingathiefasaconstructivetrusteeofthestolenpropertyisthatthevictimwill
typicallyhaveretainedlegaltitletothestolenpropertysothatthethiefcannotbeatrusteeofit,45 savewherethe
propertyismixedwithotherpropertysothatitlosesitsidentityatlaw.Despitethis,LordBrowneWilkinson
inWestdeutscheLandesbank ,andtheHighCourtofAustralia46 haverecognizedthatathiefwillindeedhold
propertyonconstructivetrustforthevictim.47 AnexplanationforthisresulthasbeensuggestedbyTarrant,
namelythatthethiefholdshisorherrightstopossessthestolenpropertyontrustforthevictim.48 Ithasbeen
recognizedthatathiefdoesindeedhaveapossessorytitletothestolenproperty,so,forexample,ifthatproperty
isunlawfullytakenfromathiefbyathirdparty,thethiefcanasserthisorherpossessoryrightsagainstthatthird
party.49 Ithasfurtherbeenrecognizedthatthethief,orthepersonwhoobtainsthestolenpropertyfromthethief,
hasagoodtitletothestolenpropertyagainstanybodyintheworld,exceptforthevictimofthetheft.50 Thevictim
oftheftshould,therefore,beconsideredtohavebotharesiduarylegaltitleinthestolenpropertyandanequitable
proprietaryinterestinthethiefspossessorytitlebyvirtueofthethiefsunconscionableretentionoftheproperty.
Thevictimthenhasachoiceastowhethertorelyonhisorherlegalpropertyrightor,instead,uponhisorher
equitablerighttotheproperty,whenassertinga(p.329) claimagainstthethieforasubsequentpossessorofthe
stolenproperty.TheadvantageofrelyingontheequitablepropertyrightisthattheremediesinEquitytovindicate
propertyrightsaremuchmoreextensivethanatlaw,51 andthattheclaimantisabletomakeaclaimtorecover
thestolenpropertyoritsproceedseventhoughithasbecomemixedwithotherproperty.52
InWestdeutscheitselfaconstructivetrustwasnotrecognizedbecause,oncethedefendanthaddiscoveredthat
thetransactionwasvoid,theclaimantsmoneyhadceasedtobeidentifiable.53 If,however,themoneywas
identifiablewhenthedefendantbecameawarethatithadbeenpaidpursuanttoavoidtransaction,itscontinued
retentionwouldhavebeenunconscionableanditwouldhavebeenheldonconstructivetrust.Ithasbeen
recognized,however,inMaqsoodvMahmood54 thattherecipientofmoneyunderacontractthatisvoidbecause
itisultraviresoneofthepartiesdoesnotholdthatmoneyonconstructivetrustforthepayer.WardLJsaid:55
[counsel]arguedthattherecipientofmoneyunderacontractunderwhichthereisatotalfailureof
consideration,therecipientbeingawareatthetimeofpaymentofthefactswhichgiverisetothefailureof
consideration,holdsthemoneyreceivedonaconstructivetrustforthepayer.Thisseemstometobe
inconsistentwiththepolicyrecognisedbytheHouseofLords,thatitisnotasageneralruledesirableto
introduceequitableproprietaryremediesintotherealmofcommercialcontracts,andtherebytogivethe
counterpartyundertheparticularcontracttheadditionalsecurityandpriorityofaproprietaryremedy.
Itfollowsthattheroleofunconscionableconductasatriggerforpropertytobeheldonconstructivetrustremains
amatterofsomeuncertaintyandcontroversy.But,ifunconscionableconductinnotreturningpropertytothe
transferorwhentherecipientsuspectsthatitshouldnothavebeentransferred,istotriggeraconstructivetrust,
thereisnoreasonwhythatshouldbeconfinedtotransferbymistakeandnotapplywheretheunderlying
transactionisnullandvoid,especiallybecause,aswillbeseennext,propertycanbeheldonconstructivetrust
whereitistransferredpursuanttoavoidablecontractthathasbeenrescinded.
(b)RescissionOfAContract
WhereacontracthasbeenrescindedinEquity,56 forexample,formisrepresentationorundueinfluence,any
propertytransferredtothedefendantunderthecontractwillbeheldonconstructivetrustfortheclaimant.This
wasrecognizedbyMillettJinLonrhoplcvFayed(No.2):57
Acontractobtainedbyfraudulentmisrepresentationisvoidable,notvoid,eveninequity.Therepresentee
mayelecttoavoidit,butuntilhedoesso,therepresentorisnotaconstructivetrusteeoftheproperty
transferredpursuanttothecontract,andnofiduciaryrelationshipexistsbetweenhimandtherepresentee,
seeDalyvSydneyStock ExchangeLtd(1986)160CLR371at387390perBrennanJ.Itmaywellbethat
iftherepresenteeelectstoavoidthecontractandsetasideatransferofpropertymadepursuanttoit,the
beneficialinterestinthepropertywillbetreatedashavingremainedvestedinhimthroughout,atleastto
theextentnecessarytosupportanytracingclaim.
(p.330) InElAjouvDollarLandHoldingsplc,58 however,althoughMillettJaffirmedthatwhenatransactionis

rescindedanequitabletitlecanvestintheclaimant,hecharacterizedthetrustthatarisesasanoldfashioned
institutionalresultingtrustratherthanaconstructivetrust.59 Characterizationofthetrustasresultingisnot,
however,consistentwiththekeyprinciplesrelatingtothelawofresultingtrusts,namelythatsuchatrustarises
eitherwheretherehasbeenafailureofanexpresstrustorwherethereisavoluntarytransfertothe
defendant.60 Consequently,thepreferableviewisthatthetrustarisingonrescissionisconstructive,andis
justifiedbythedefendantsunconscionableconductinnotreturningthepropertyfollowingrescissionofthe
underlyingtransaction.
Howeverthetrustischaracterized,untilthecontractisrescindedtheclaimantonlyhasamereequitytorescind
thetransaction,61 aweakerequitableinterest,andwillbebarredfromrescindingthecontractifathirdparty
acquiresanequitableinterestinthepropertyforvalueandwithoutnoticeoftheclaimantsrighttorescind.62
(c)VoluntaryTransactionsMadeByMistake
AlthoughitisnolongerpossibletorescindacontractformistakeinEquity,63 thereisanequitablejurisdictionto
setasidegiftsordispositionstotruststhathavebeenmadebymistake.Wherethisjurisdictionisexercised,the
propertythathasbeentransferredwillbeheldontrustforthetransferorandthisispreferablycharacterizedasa
constructivetrust,sinceunconscionabilityisarecognizedrequirementforthetransactiontobesetaside.
ThenatureofthisequitablejurisdictionwasexaminedbytheCourtofAppealinPittvHolt,64 whereLloydLJ
said:65
Itseemstomethat,asamatterofauthorityandofprinciple,thecorrecttestisinpartassetoutby
LindleyLJinOgilvievLittleboy13TLR399,400,endorsedbytheHouseofLords15TLR294That
identifiesthecriticalrelevanceofthecourtsviewoftheeffectofthemistake,onceidentified,uponthe
conscienceoftherecipient.Therebyitpointstoaneedtoprotecttherecipientinhispossessionand
enjoymentofthepropertygiven.Inthatrespectitsetsaveryhightestastothegravityofthemistake.
However,Idonotconsiderthatitcanbetakenasdefinitiveastothetypeofmistakethatmayberelevant,
soastoleavethatentirelyatlarge.Iwouldacceptthat,ingeneral,equitydoesnotdefinedogmaticallythe
categoriesofcaseinwhichitmayintervene.Nevertheless,itseemstomethat,withthebenefitofthe
reviewoftherelevantcasesoverthepast150yearsorso,itispossibleandrighttosayinwhatkindsof
casethejurisdictionisavailable,andinwhichitisnot.Idonotaimtosetoutahardandfastruleasifin
legislation,whichpermitsofnoexceptionsforunforeseencases,butinmyjudgmenttheauthoritiesdo
justifysettingdowncertaingeneralrules,astobothinclusionandexclusion
Iwouldthereforeholdthat,fortheequitablejurisdictiontosetasideavoluntarydispositionformistaketo
beinvoked,theremustbeamistakeonthepartofthedonoreitherastothelegaleffectofthedisposition
orastoanexistingfactwhichisbasictothetransactionMoreoverthemistakemustbeofsufficient
gravityastosatisfytheOgilvievLittleboytest13TLR399,400[thatitwouldbeunjustforthe(p.
331) doneetoretaintheproperty],whichprovidesprotectiontotherecipientagainsttooreadyanabilityof
thedonortoseektorecallhisgift.Thefactthatthetransactiongivesrisetounforeseenfiscalliabilitiesisa
consequence,notaneffect,forthispurpose,andisnotsufficienttobringthejurisdictionintoplay.
Amistakewillrelatetothelegaleffectofthetransactionwhere,forexample,theeffectofthetransactionwasto
destroyaninterestinpropertythatwasneitherintendednorcontemplated.66 Anillustrationofacaseinwhicha
mistakerelatedtoafactthatwasbasictothetransactionisLadyHoodofAvalonvMack innon.67 LadyHoodhad
madeappointmentstooneofhertwodaughtersin1888andtotheotherin1902and1904.Forgettingthatshe
hadmadetheappointmenttoherfirstdaughtermanyyearsearlier,shemadeanotherappointmenttoherto
ensurethatbothdaughtersreceivedthesame.Thissecondappointmentwassetasideonthegroundofmistake.
Thedonorhadmadeafundamentalerroroffactastoanassumptionunderlyingthegift.
ItwasrecognizedinPittvHoltthatamistakemustrelatetotheeffectofthetransaction.Amistakeastothe
consequenceofthetransactionwillnotbesufficienttovitiateagift.ThiswassignificantinPittvHoltitself.
PittvHolt[2011]EWCACiv197[2012]Ch132
MrPitthadbeeninvolvedinaseriousroadaccident,forwhichhereceivedcompensation.Hiswifewas
appointedhisreceiver.Shewasadvisedtosettlethecompensationontrustforherhusband.Onhisdeath,a
substantialinheritancetax(IHT)liabilitywasincurred.Thiscouldhavebeenavoidedbyasimplerestructuring
ofthesettlement,sothathalfofthefundwastobeappliedforhisbenefitduringhislifetime,whichwashow
thefundwasactuallyappliedanyway.MrsPittunsuccessfullysoughttosetthetrustasideonthegroundof
mistake.68 LloydLJsaid:69
Theclaimantsandthefirstdefendantneedtoshowthreethingsinordertosucceedfirst,thatthere
wasamistake,secondlythatitwasarelevanttypeofmistake,andthirdlythatitwassufficiently
serioustosatisfytheOgilvievLittleboytest
IfitwereonlyaquestionofsatisfyingtheOgilvievLittleboytestastogravity,itseemstomethat
therewouldbeagooddealofforcein[theargumentofcounselthatthetestwassatisfied].The
problemlieswiththefirsttwoaspectsofthetest:wasthereamistakeatall,andifsowasitasto
effectoronlyastoconsequences?
Ontheonehand,itseemsthatnorelevantpersonappliedhisorhermindtothequestionofwhether
andifsohowIHTmightaffectthetransaction.NeitherMrsPittnorheradvisersturnedtheirmindsto
thatquestion.Ontheotherhand,MrsPittwasadvisedthattherewerenoadversetaximplicationsof
whatwasproposed.Initself,abelieforassumptioningeneraltermswhichisfalseinonematerial
respect,evenifnotinothers,seemstometosufficeasamistakeforthesepurposes.Iwould
thereforeholdthattherewasabelief,notspecificallyastoIHTbutgenerallyastoadversetaxeffects,
whichwasmistakenasregardsIHT,andthatonthatbasisMrsPittwasunderamistakenbeliefatthe
timeofthetransaction.
Wasthisamistakeastoeffectorastoconsequence?AsIhavesaid,inprincipleIregardthe
treatmentfortaxpurposesofatransaction,orofanypersonorpropertyasaresultofit,asa
consequence,notaneffect,forthispurpose
(p.332) ThetaxliabilitywasimposedprimarilyonMrPittasdonor.Thetrusteesareundera
secondaryliability,andthisisbackedupbyachargeonthetrustproperty.Clearlytheseliabilities
haveamajorimpactontheeconomiceffectofthetransaction.ThefactthatMrPittcameundera
liabilitytopayIHTwasaconsequence,notaneffect,ofthetransaction.Equally,thefactthatthe
trusteescameunderasecondaryliabilitywasaconsequence
Accordingly,Iwouldholdthat,eventhoughMrsPittwasunderamistakenbeliefatthetimeofthe
disposition,anditwasamistakeofsufficientgravitytosatisfytheOgilvievLittleboytest,nevertheless
itwasnotamistakeastothelegaleffectofthedisposition,anditthereforedoesnotqualifyasa
basisforinvokingthejurisdictionofequitytosetasideavoluntarydispositionformistake.
Thisdistinctionbetweeneffectandconsequenceistheessentialfeatureoftheequitablejurisdictiontosetasidea
voluntarydisposition.Itfollowsthatthemistakemustrelatetotheprimaryeffectofthegiftratherthanthe
secondaryconsequences,suchastaxsaving.Thiscanbejustifiedbytheneedtorestrictthejurisdictiontoset
asidegifts.
Thisdistinctionbetweeneffectandconsequencewas,however,subsequentlyrejectedbytheJerseyRoyal
Court,70 whichheld,forthepurposesofJerseylaw,thatitissufficientthatthemistakewasabutforcauseof
thevoluntarydisposition71 regardlessofwhetheritrelatedtolegaleffect,abasicfactorconsequenceofthe
transaction.TheJerseyRoyalCourtalsoconsideredittobeunfairnottoallowamistakeastothetax
consequencesofadispositiontobeasufficientreasontosetthedispositionaside.72 ItfollowsthatinJerseythe
equitablejurisdictionisinterpretedliberallytoenablemistakengiftstobesetasideevenifthemistakerelatedto
thetaxconsequencesofthegift.InEngland,however,theequitablejurisdictiontosetasidevoluntarydispositions
formistakewillbeinterpretedrestrictively.Thiscanbejustifiedbytheneedtoavoidunderminingvoluntary
transferstooreadily,bypreventingatransferorfromhavingthegiftsetasidesimplybecauseheorshewas
mistakenastothecommercialeffectsofthegiftorhadsecondthoughtsaboutmakingthegift.
Wheretheequitablejurisdictionisinvokedsuccessfully,thepropertythathadbeentransferredwillbeheldon
trustforthetransferor.Thisisproperlycharacterizedasaconstructivetrustbecausethegravityofthemistake
mustbesoseriousthatitisunconscionableforthedoneetoretaintheproperty.Thisis,however,tobe
determinedobjectively,ratherthanwithreferencetothedoneesknowledgeorsuspicionofthemistake.Indeed,if
thedefendantisawareofthemistakethentheconstructivetrustwillbetriggeredbythegroundofunconscionable
retentionofproperty,whichcanapplywherepropertyhasbeentransferredbymistake.73
(d)FiduciariesDeSonTort
Whereapersonhasnotbeenproperlyappointedasafiduciarybutdoesactsthatarecharacteristicofthe
fiduciaryoffice,heorshemightbeconsideredtoholdpropertyonaconstructivetrust.Suchfiduciariesdeson
tort74 willbetreatedasthoughtheyhavebeenproperlyappointedtotherespectiveofficeandsowillbesubjectto
fiduciarydutiesintheordinaryway.75 Thepreferableviewisthata(p.333) personwhointermeddleswithatrust
isconsideredtobeanexpresstrusteeofthattrust,76 whereasapersonwhoactsasafiduciary,suchan
executor77 oragent,78 willbeaconstructivetrusteeofanypropertytheyhavereceivedbyactingasafiduciary,
becausetheycannotbeconsideredtohaveintendedtoactasatrusteebutactedunconscionably.Forexample,
inJamesvWilliams 79 amotherofthreechildrenhaddiedintestate.Thefamilyhomewastobeheldontrustfor
thechildrenequally.Althoughtheson,WilliamJunior,wasmeanttobetheadministratoroftheestate,hetook
possessionofthepropertyasifitwerehisown,eventhoughitwasestablishedthathewasawarethathewas
notsolelyentitledtotheproperty.Itwasheldthat,byvirtueofhisknowledge,hewasanexecutordesontort,
andsoheheldthepropertyonconstructivetrustforhimselfandhistwosiblings.AldousLJsaid:80
Asageneralruleaconstructivetrustattachesbylawtopropertywhichisheldbyapersonin
circumstanceswhereitwouldbeinequitabletoallowhimtoassertfullbeneficialownershipoftheproperty.
Isthissuchacase?
WilliamJuniorknewthathewasnotsolelyentitledtotheproperty.Hetookituponhimselftotake
possessionofthepropertyasifheowneditandassumedresponsibilityforitsupkeep.Inmyviewhewas
underanequitabledutytoholdthepropertyforhimselfandhissistersItwouldbeinequitabletoallow
WilliamJuniortotakeadvantageofhisdecisionnottotakeoutlettersofadministrationandtoactasif
hewastheownerwiththefullknowledgethathewasnot.Thisisanunusualcaseand,aswasmadeclear
byMr.Hinksinhisarticle,81 therearemanycaseswhereexecutorsdesontortcouldnotbeconstructive
trustees.Eachcasewilldependuponitsownfacts.But,inmyview,thisisacasewheretherewasa
constructivetrust.
(e)BreachofUndertaking
Wheretheclaimanthastransferredpropertytothedefendantfollowingalegallybindingundertakingfromthe
defendantthatheorshewoulddealwiththepropertyforthebenefitofaparticularperson,andthedefendant
breachesthatundertaking,Equitymayinterveneandrequirethedefendanttoholdthepropertyonconstructive
trustforthepersonwhomthedefendanthadagreedtobenefit.Theconstructivetrustcanbejustifiedbecauseof
thedefendantsunconscionableconductinrenegingontheundertakingaftertheclaimanthadreliedonitby
transferringthepropertytothedefendant.Thistypeofconstructivetrustmightariseinavarietyofdifferent
circumstances.
(i)Undertakingbypurchasers
Whereapurchaserhasboughtlandandhadmadeanundertakingthatheorshewouldrespecttherightsofa
thirdparty,thatpartysrightscanbeprotectedbymeansofaconstructivetrust.82 Thisconstructivetrusthas
provedtobeimportantinrespectoflicencesoverland.InAshburnAnstaltvArnold,83 theCourtofAppeal
recognizedthatapurchaserwouldnotnormallybeboundbytherightsofacontractuallicensee,savewherethe
purchaserhadundertakentorespecttherightsofthelicensee,suchthatthepurchaserwouldholdthelandon
constructivetrustforthebenefitofthelicensee.
(p.334) AshburnAnstaltvArnold[1989]Ch123(FoxLJ)
InBinionsvEvans[1972]Ch359thedefendantshusbandwasemployedbyanestateandlivedrent
freeinacottageownedbytheestate.Thehusbanddiedwhenthedefendantwas73.Thetrusteesof
theestatethenenteredintoanagreementwiththedefendantthatshecouldcontinuetoliveinthe
cottageduringherlifetimeastenantatwillrentfreesheundertooktokeepthecottageingood
conditionandrepair.Subsequentlytheestatesoldthecottagetotheplaintiffs.Thecontractprovided
thatthepropertywassoldsubjecttothetenancy.Inconsequenceofthatprovisiontheplaintiffspaida
reducedpriceforthecottage.Theplaintiffssoughttoejectthedefendant,claimingthatshewastenant
atwill.Thatclaimfailed.IntheCourtofAppealMegawandStephensonLJJdecidedthecaseonthe
groundthatthedefendantwasatenantforlifeundertheSettledLandAct1925.LordDenningMRdid
notagreewiththat.Heheldthattheplaintiffstookthepropertysubjecttoaconstructivetrustforthe
defendantsbenefit.Inourviewthatisalegitimateapplicationofthedoctrineofconstructivetrusts.
Theestatewouldcertainlyhaveallowedthedefendanttoliveinthehouseduringherlifeinaccordance
withtheiragreementwithher.Theyprovidedtheplaintiffswithacopyoftheagreementtheymade.The
agreementforsalewassubjecttotheagreement,andtheyacceptedalowerpurchasepricein
consequence.Inthecircumstancesitwasaproperinferencethatonthesaletotheplaintiffs,the
intentionoftheestateandtheplaintiffswasthattheplaintiffsshouldgiveeffecttothetenancy
agreement.Iftheyhadfailedtodoso,theestatewouldhavebeenliableindamagestothedefendant

Wecometothepresentcase.Itissaidthatwhenapersonsellslandandstipulatesthatthesale
shouldbesubjecttoacontractuallicence,thecourtwillimposeaconstructivetrustuponthe
purchasertogiveeffecttothelicence:seeBinionsvEvans[1972]Ch359at368,perLordDenning
MR.Wedonotfeelabletoacceptthatasageneralproposition.Weagreewiththeobservationsof
DillonJinLyusvProwsaDevelopmentsLtd[1982]1WLR1044at1051:
Bycontrast,therearemanycasesinwhichlandisexpresslyconveyedsubjecttopossible
incumbranceswhenthereisnothoughtatallofconferringanyfreshrightsonthirdpartieswho
maybeentitledtothebenefitoftheincumbrances.Thelandisexpressedtobesoldsubjectto
incumbrancestosatisfythevendorsdutytodiscloseallpossibleincumbrancesknowntohim,
andtoprotectthevendoragainstanypossibleclaimbythepurchaserSo,forinstance,land
maybecontractedtobesoldandmaybeexpressedtobeconveyedsubjecttotherestrictive
covenantscontainedinaconveyancesome60or90yearsold.Noonewouldsuggestthatby
acceptingsuchaformofcontractorconveyanceapurchaserisassuminganewliabilityin
favourofthirdpartiestoobservethecovenantsiftherewasforanyreasonbeforethecontractor
conveyancenoonewhocouldmakeoutatitleasagainstthepurchasertothebenefitofthe
covenants.
Thecourtwillnotimposeaconstructivetrustunlessitissatisfiedthattheconscienceoftheestate
ownerisaffected.Themerefactthatthatlandisexpressedtobeconveyedsubjecttoacontract
doesnotnecessarilyimplythatthegranteeistobeunderanobligation,nototherwiseexisting,togive
effecttotheprovisionsofthecontract.Thefactthattheconveyanceisexpressedtobesubjecttothe
contractmayoften,forthereasonsindicatedbyDillonJ,beatleastasconsistentwithanintention
merelytoprotectthegrantoragainstclaimsbythegranteeasanintentiontoimposeanobligationon
thegrantee.Thewordssubjecttowill,ofcourse,imposenotice.Butnoticeisnotenoughtoimpose
onsomebodyanobligationtogiveeffecttoacontractintowhichhedidnotenter.Thus,merenoticeof
arestrictivecovenantisnotenoughtoimposeupontheestateowneranobligationorequitytogive
effecttoit:LondonCountyCouncilvAllen[1914]3KB642
Inmattersrelatingtothetitletoland,certaintyisofprimeimportance.Wedonotthinkitdesirable
thatconstructivetrustsoflandshouldbeimposedinrelianceoninferencesfromslendermaterials.
(p.335) Thereareothercircumstancesinwhichapurchaserofpropertyhasgivenanoralundertakingtorespect
therightsofanotherwherethepurchasersattempttorenegeontheundertakingisfoundedonfactthatthe
informalityoftheundertakingmeansthatitdoesnotcomplywithstatutoryformalitiesthepurchasermaybe
preventedfromrenegingontheundertakingbyvirtueoftheprinciplethatEquitywillnotpermitastatutetobe
usedasaninstrumentoffraud.84 So,forexample,inLyusvProwsaDevelopmentsLtd,85 landhadbeen
purchasedbythedefendantsexpresslysubjecttothecontractualrightsoftheclaimant,butthedefendants
soughttodefeatthosecontractualrightsbyrelyingontheprovisionsoftheLandRegistrationAct1925,byvirtue
ofwhichsuchrightswerenotenforceableatlawbecausetheyhadnotbeenregistered.DillonJrecognizedthat
thelandwasheldonconstructivetrusttoensurethatthestatutewasnotusedasaninstrumentoffraud.He
said:86
Undersection20[oftheLandRegistrationAct1925],theeffectoftheregistrationofthetransfereeofa
freeholdtitleistoconferanabsolutetitlesubjecttoentriesontheregisterandoverridinginterests,but,
freefromallotherestatesandinterestswhatsoever,includingestatesandinterestsofHisMajesty
Itseemstomethatthefraudonthepartofthedefendantsinthepresentcaseliesnotjustinrelyingon
thelegalrightsconferredbyanActofParliament,butinthefirstdefendantrenegingonapositive
stipulationinfavouroftheplaintiffsinthebargainunderwhichthefirstdefendantacquiredtheland.That
makes,asitseemstome,allthedifference.Ithaslongsincebeenheld,forinstance,inRochefoucauldv
Boustead[1897]1Ch196,thattheprovisionsoftheStatuteofFrauds1677,nowincorporatedincertain
sectionsoftheLawofPropertyAct1925,cannotbeusedasaninstrumentoffraud,andthatitisfraudfor
apersontowhomlandisagreedtobeconveyedastrusteeforanothertodenythetrustandrelyingonthe
termsofthestatutetoclaimthelandforhimself.
Thisconstructivetrustwill,however,onlyberecognizedwherethedefendantcanbeconsideredtohave
undertakentorespecttherightsofthethirdparty.
ChaudharyvYaruz[2011]EWCACiv1314[2012]3WLR987
Thedefendanthadpurchasedapropertythatincludedametalstaircase.Theclaimantusedthisstaircaseto
gainaccesstotheupperfloorofhisproperty.Theclaimanthadarightofwayoverthestaircase,albeitone
thatwasnotregistered.Noexpressreferencewasmadetotheclaimantsrightinthedefendantscontractof
saleand,althoughitwasobviousthattheclaimantneededtousethestaircasetogainaccesstotheupper
floor,itwasheldthatitwasnotunconscionableforthedefendanttoobstructtheclaimantsuseofthe
staircase.LloydLJsaid:87
Essentially[thetrialjudge]regardeditasequallyunconscionablefortheDefendanttodenyaright
whoseexistencehecouldhaveascertainedmerelybyinspectingthepropertyasitwasinLyusv
Prowsatodenytherightwhichwasidentifiedinthecontract
Withrespecttothejudge,IdonotconsiderthathisconclusioniscorrectonthispointThereis
nothinginthecontractwhichseemstometoallowthecourttoconcludethatbythiscontractthe
purchaser(p.336) hasundertakenanewobligation,nototherwiseexisting,togiveeffecttothe
relevantencumbranceorpriorinterest.Inmyjudgmentthiscriterion,laiddowninLloydv
Dugdale[2001]EWCACiv1754,shouldbeappliedinacaseofthiskind,andifappliedtothesefacts
leadstotheconclusionthattheDefendantsconscienceisnotboundtogiveeffecttotheClaimants
assertedrights.
ItseemstomethatthedistinctionsbetweenthepresentcaseandLyusarerealandsignificant.In
thatcasethejudgesconclusionwasjustifiedbyreferencetoboththeexpressprovisioninthe
contractreferringintermstotheplaintiffscontractandthefactthatthatcontractwasnotbindingon
thebank,sothatthereferencetoitinthecontractbetweenthebankandthedefendantcouldnotbe
explainedbyaneedtoprotectthebank,norcouldtheplaintiffshavedoneanythingbywayof
registrationtoprotecttheircontractagainstapurchaserfromthebank.Here,bycontrast,the
referencetotheassertedrightwasonlyingeneralterms,withinthecategoryofincumbrances
discoverableoninspection,anditwasbindingonthevendorsothat,ifithadbeeneffectiveagainstthe
purchaser,thevendorneededtoensurethatthecontractwassubjecttoitinorderthatthepurchaser
couldnotcomplainaboutittohim.Conversely,theClaimantcouldhaveensuredtheprotectionofthe
rightbytheentryofanoticeontheregister.
Itmaybesaidthat,onthisbasis,LyusvProwsaisaveryunusualcase,andisnotlikelytobe
followedinmorethanafewothers.Thatisafaircomment,butnotafaircriticism.IknowofnoEnglish
caseinwhichtheprecedentofLyushasbeenusedsuccessfullytomakebindingonapurchaseran
interestwhichcouldbebutwasnotprotectedontheregisterasagainsthim,otherthanLloydv
Dugdaleatfirstinstance(overturnedonappeal)andthepresentcase,alsoatfirstinstance.
SincethebasisofLyusisshowingthattheconscienceofthepurchaserisaffected,itmightbeargued
thattheapparatusofregistrationhasnorelevancetothequestionarising.IntheLyuscaseitselfithad
none,becausenothingwhichtheplaintiffscouldhavedonecouldhaveprotectedtheirrightsagainst
thedefendants.Inadirectlycomparablecasethatmightagainbethecase.Butinacasesuchasthe
present,wheretherightsassertedarecapableofprotectionontheregisterandwheretheyarenot
referredtointhecontractinspecificbutonlyingeneralterms,thenitseemstomethatthe
registrationsystemisrelevant.Thatisforatleasttworeasons.Oneisthat,absentaspecific
referenceinthecontract,thepurchasermaybethoughttobeentitledtorelyonthirdpartiesprotecting
themselvesinthemannerprovidedforunderthelegislation.Theotheristhatthecontractprovisionwill
morereadilybeinterpretedasintendedtoprotectthevendoragainstapossibleclaimbythe
purchaserthanasimposinganewpersonalobligationonthepurchasertowardsthethirdparty.
Thecourtinvited[counselfortheClaimant]toformulateatestbywhichapotentialpurchasers
solicitorcouldadvisehimwhetherhisconsciencewouldbeboundbysomepotentialright,not
mentionedintermsinthecontract,ofwhichsignswerediscoverableoninspection,butwhich,ifit
existed,couldbeprotectedbyregistrationoranentryontheregister.Hesoughttodrawadistinction
placingononesidethecaseofanancientrestrictivecovenantproperlynotedontheregisterbutwhich
mightwellnotbeenforceablebythenforlackofanyoneentitledtorelevantlandwhohadthebenefitof
thecovenantOntheotherside,asaffectingtheconscienceofthepurchaser,hewouldplacerights
activelyenforceable,orincurrentuse,asagainstthevendor.ThethirdpartyrightinLyus,ofcourse,
wouldnothavesatisfiedthattest,sinceitwasnotenforceableagainstthevendor,butthelicence
inBinionsvEvanswassoenforceable.Itdoesnotseemtomethattherecouldbeasatisfactorytest
alongtheselines,noronanyotherbasis,whichwouldputtheClaimantsrightsoverthemetal
structureinaclearlydefinedcategoryofrightswhichwouldbebindingonthepurchasersconscience
byvirtueofbeingdiscoverableoninspection.
InmyjudgmentLyusisanexceptionalcase,anditisrightthatitshouldbe
itseemstomethat,intheabsenceofanyexpressreferenceinthecontracttotherightsassertedby
theClaimantandanexpressprovisionrequiringthepurchasertotakethepropertysubjecttothose
rights,itisnotsufficientthatthemetalstructurewasapparentoninspectionofthelandwhichwasto
bebought,andthatitwouldhavebeenapparentthatitservedasanaccessfortheupperfloorsofboth
properties.
(p.337) Theconstructivetrusthasbeenrecognizedwherethepurchasersundertakingrelatestothedeclaration
ofatrustoflandinfavourofthevendororathirdparty,wherethetrustisunenforceablebecauseithasnotbeen
evidencedinwriting.88 Insuchcases,itis,however,preferabletoanalysethetrustasbeingexpressratherthan
asarisingbyoperationoflaw,89 sinceavalidtrusthasbeendeclared,butitissimplyunenforceablebecauseof
theabsenceofwriting.
(ii)Secrettrusts
Ithasbeenseen90 thatatestatormightwishtoleavepropertytoapersonwithoutmakingthisexplicitontheface
ofhisorherwill.Thismightbeachievedbycreatingasecrettrustunderwhichthetrusteeisinformedoutsideof
thewillhowthepropertyshouldbedistributed.Oncethetestatorhasdiedandthetrusteehasreceivedthe
property,heorshemightdecidetokeepitforhimorherself.Accordingtothestricttermsofthewill,this
appearsperfectlylegitimate:thewillmaymakenoreferencetotherebeinganytrustatall,andsimplytoan
outrightgift.ButEquityisalsoconcernedwiththenatureofthedealingsbetweentheparties.Consequently,
Equitywillholdthetrusteetothetermsoftheundertakingandthepropertywillbeheldontrustforthosewhom
thetestatorintendedtobenefit.
Whetherthistrustisanalysedasconstructiveorexpresstrusthasprovedtobeamatterofsome
controversy.91 Theresolutionofthiscontroversymightbeconsideredtodependonthetypeofsecret.Afully
secrettrustisonethatisnotapparentfromthewillinanyway.Therecipientofthepropertywillholdtheproperty
ontrusttopreventhimorherfromprofitingfromfraud.92 Thisisconsistentwiththeconstructivetrustbeing
triggeredbyunconscionableconduct.Theothertypeofsecrettrustisthehalfsecrettrust,wherereferencetothe
trustismadeinthewillbutthedetailsofthetrustaretransmittedtothetrusteeseparately.Here,thetrust
appearstobeexpress.Theclassificationofthesecrettrustasconstructiveorexpressreallymattersonlywhen
thesubjectmatterofthetrustisland,forthen,ifitisanexpresstrust,itmustbeevidencedin
writing.93 InOttwawayvNorman,94 afullysecrettrustoflandwasupheldeventhoughitwasnotevidencedin
writing,whichsuggeststhatthiswasaconstructivetrust,althoughthisissuewasnotexpresslydiscussed.InRe
Baillie,95 ahalfsecrettrustoflandwasrequiredtobeevidencedinwriting,whichsuggeststhatitisanexpress
trust.But,despitethisapparentdistinction,bothfullysecretandhalfsecrettrustsarepreferablyanalysedas
beingexpresstrusts,sincetheyaremadewhenthetestatorcommunicatesthetermsofthetrusttothetrustee,
andsooperateoutsidethewill,albeitthattheyareconstitutedonlyonthetestatorsdeath.96
(iii)Mutualwills
Wheretwopeople,suchasahusbandandwife,agreetomakemutualwillsthatgivethepropertyofthefirstof
themtodietothesurvivorand,afterthesurvivorsdeath,toagreedlegatees,theconstructivetrustmayhavea
significantroletoplayinimplementingtheagreement.Thekeyproblemwithmutualwillsariseswhenthesurvivor
hasreceivedpropertyfromthefirsttodieandthenleavesitinhisorherwillinamannerinconsistentwithwhat
theyhadpreviouslyagreed.Insuchcircumstances,(p.338) canthepeoplewhoshouldhavebenefitedaccording
totheoriginalmutualwillsagreementdoanythingtoenforceit?
Onesolutioniscontractualinthat,followingtheenactmentoftheContracts(RightsofThirdParties)Act
1999,97 apersonwhoisnotpartytoacontractisabletoenforcethetermsofthatcontractinhisorherownright,
ifthecontractexpresslyprovidesthatthethirdpartycanenforceitorifthecontractpurportstoconferabenefiton
himorher,whichmaywellbethecasewhereithasbeenagreedthatthesurvivingpartyswillshouldleave
propertytoaparticularpersonorpeople.Analternativesolutionistorecognizethatthepropertyisheldontrust
forthosewhoshouldhavereceivedthepropertyunderthesurvivorswill.98 Thiscouldbeanexpresstrust,
dependingonthepartiesintent,butoftenitisbestanalysedasaconstructivetrustarisingbyoperationoflaw
thatrespondstothesurvivorsunconscionableconductinnotleavingthepropertyasthepartieshad
agreed.99 Thebeneficiaryofthistrustcanconsequentlyenforceiteventhoughheorshewasnotapartytothe
mutualwillscontract.
Thedoctrineofmutualwillsdependsontherebeingalegallybindingcontractbetweenthetwotestatorsnotto
revoketheirwills.100 Itdoesnotmatterthatthesurvivordoesnotreceiveanypropertyunderthefirsttestators
will,sinceitistheexistenceoftheagreementthatisvitaltothedoctrine:ifthesurvivorfailstocomplywiththe
originalundertakingastothedispositionofproperty,thedefendantsconsciencewillbeaffectedandthisis
sufficienttotriggertheconstructivetrust.ThiswasrecognizedinReDale.
ReDale[1994]Ch31
Ahusbandandwifehadagreedthateachwouldleavetheirestatetotheirsonanddaughterequally.The
husbanddiedfirst,leavinghisestateof18,500accordingly.Thewifemadeanewwillleaving300toher
daughterandtherestofherestateof19,000toherson.Itwasheldthattheson,asexecutor,heldthe
estateontrustforhimselfandhissisterequally,eventhoughthewifehadnotbenefitedunderherhusbands
will.MorrittJsaid:101
Thereisnodoubtthatforthedoctrine[ofmutualwills]toapplytheremustbeacontractatlaw.Itis
apparentfromallthecasestowhichIshallreferlater,butinparticularfromGrayvPerpetualTrustee
CoLtd[1928]AC391,thatitisnecessarytoestablishanagreementtomakeandnotrevokemutual
wills,someunderstandingorarrangementbeinginsufficientwithoutsuchadefiniteagreementthere
cannomorebeatrustinequitythanarighttodamagesatlaw:seeperViscountHaldane,at400.
Thus,asthedefendantsubmitted,itisnecessarytofindconsiderationsufficienttosupportacontract
atlaw.Thedefendantacceptedthatsuchconsiderationmaybeexecutoryifthepromisewhen
performedwouldconferabenefitonthepromiseeorconstituteadetrimenttothepromisor.But,itwas
submitted,thepromisetomakeandnotrevokeamutualwillcouldnotconstituteadetrimenttothe
firsttestatorbecausehewouldbeleavinghispropertyinthewaythathewishedandbecausehe
wouldbeable,ongivingnoticetothesecondtestator,torevokehiswillandmakeanotherifhe
changedhismind.Accordingly,itwasargued,considerationforthecontracthadtotaketheformofa
benefittothesecondtestator.
Idonotacceptthissubmission.Itistobeassumedthatthefirsttestatorandthesecondtestatorhad
agreedtomakeandnottorevokethemutualwillsinquestion.Theperformanceofthatpromisebythe
executionofthewillbythefirsttestatorisinmyjudgmentsufficientconsiderationbyitself.But,in
addition,todeterminewhetherapromisecanconstituteconsiderationitisnecessarytoconsider
whether(p.339) itsperformancewouldhavebeensoregarded.Thusitistobeassumedthatthe
firsttestatordidnotrevokethemutualwillnotwithstandinghislegalrighttodoso.Inmyjudgment,
thistooissufficientdetrimenttothefirsttestatortoconstituteconsideration.Thusmutualbenefitis
notnecessaryforthepurposeoftherequisitecontract.Whatisnecessarytoobtainadecreeof
specificperformanceofacontractinfavourofathirdpartyisnot,inmyjudgment,arelevantquestion
whenconsideringthedoctrineofmutualwills.Awillisbyitsverynaturerevocable:cf.ReHeys
Estate[1914]P192.Itseemstometobeinconceivablethatthecourtwouldorderthesecond
testatortoexecuteawillinaccordancewiththeagreementatthesuitofthepersonalrepresentatives
ofthefirsttestatorortograntaninjunctionrestrainingthesecondtestatorfromrevokingit.The
principlesonwhichthecourtactsinimposingthetrusttogiveeffecttotheagreementtomakeand
notrevokemutualwillsmustbefoundinthecasesdealingwiththattopic,notwiththosedealingwith
theavailabilityoftheremedyofspecificperformance.
Thedoctrineofmutualwillscausesanumberofconceptualanddoctrinalproblems,suchas:whendoesthe
constructivetrustarise,whatpropertyiscaughtbythetrust,andwhatcanthesurvivordowiththatproperty?The
natureandfunctionofthistrustwasanalysedinOttawayvNormanbyBrightmanJ,102 whosaid,obiter,thatif
propertyislefttoapersonontheunderstandingthatitwouldbedisposedofinhisorherwillinfavourofa
particularperson,atrustiscreatedinfavourofthatpersonthatisinsuspenseuntilthedeathofthetestator,at
whichpointthetrustcrystallizesonthesurvivorsestate,whichmustbedealtwithasthetwotestatorshad
agreed.103 ThisanalysiswasadoptedinReCleaver.
ReCleaver[1981]1WLR
Ahusbandandwifemadewillsineachothersfavour,withgiftstothehusbandschildren.Onhisdeath,the
widowchangedherwilltoleavethepropertytoonlyonechild.Itwasheldthatthewifeheldthispropertyon
constructivetrustforallthreechildren.Further,althoughthetrustattachedtoherassets,shewasableto
enjoythepropertysubjecttoafiduciarydutythatcrystallizedonherdeathanddisabledheronlyfrom
voluntarydispositionsthatwerecalculatedtodefeattheagreement.NourseJsaid:104
IdonotfinditnecessarytorefertoanyotherEnglishcase,butIhavederivedgreatassistancefrom
thedecisionoftheHighCourtofAustraliainBirminghamvRenfrew(1937)57CLR666.Thatwasa
casewheretheavailableextrinsicevidencewasheldtobesufficienttoestablishthenecessary
agreementbetweentwospouses.ItischieflyofinterestbecausebothSirJohnLathamCJandmore
especiallyDixonJexaminedwithsomecarethewholenatureofthelegaltheoryonwhichtheseand
othersimilarcasesproceed.IwouldliketoreadthreepassagesfromthejudgmentofDixonJwhich
state,withalltheclarityandlearningforwhichthejudgmentsofthatmosteminentjudgeare
renowned,whatIbelievetobeacorrectanalysisoftheprinciplesonwhichacaseofenforceable
mutualwillsdepends.Thefirstpassagereads,at682683:
Ithinkthelegalresultwasacontractbetweenhusbandandwife.Thecontractboundhim,I
think,duringherlifetimenottorevokehiswillwithoutnoticetoher.Ifshediedwithoutaltering
herwillthenhewasboundafterherdeathnottorevokehiswillatall.Sheonherpartafforded
theconsiderationforhispromisebymakingherwill.Hisobligationnottorevokehiswillduring
herlifewithoutnoticetoheristobeimplied.ForIthinktheexpresspromiseshouldbe
understoodasmeaningthatifshediedleavingherwillunrevokedthenhewouldnotrevoke(p.
340) his.Buttheagreementreallyassumesthatneitherpartywillalterhisorherwillwithout
theknowledgeoftheother.Ithaslongbeenestablishedthatacontractbetweenpersonsto
makecorrespondingwillsgivesrisetoequitableobligationswhenoneactsonthefaithofsuch
anagreementanddiesleavinghiswillunrevokedsothattheothertakespropertyunderits
dispositions.Itoperatestoimposeuponthesurvivoranobligationregardedasspecifically
enforceable.Itistruethathecannotbecompelledtomakeandleaveunrevokedatestamentary
documentandifhediesleavingalastwillcontainingprovisionsinconsistentwithhisagreement
itisneverthelessvalidasatestamentaryact.Butthedoctrinesofequityattachtheobligation
totheproperty.Theeffectis,Ithink,thatthesurvivorbecomesaconstructivetrusteeandthe
termsofthetrustarethoseofthewillwhichheundertookwouldbehislastwill.
Next,at689:
Thereisathirdelementwhichappearstometobeinherentinthenatureofsuchacontractor
agreement,althoughIdonotthinkithasbeenexpresslyconsidered.Thepurposeofan
agreementforcorrespondingwillsmustoftenbe,asinthiscase,toenablethesurvivorduring
hislifetodealasabsoluteownerwiththepropertypassingunderthewillofthepartyfirstdying.
Thatistosay,theobjectofthetransactionistoputthesurvivorinapositiontoenjoyforhis
ownbenefitthefullownershipsothat,forinstance,hemayconvertitandexpendtheproceeds
ifhechoose.Butwhenhediesheistobequeathwhatisleftinthemanneragreedupon.Itis
onlybythespecialdoctrinesofequitythatsuchafloatingobligation,suspended,sotospeak,
duringthelifetimeofthesurvivorcandescendupontheassetsathisdeathandcrystalliseinto
atrust.Nodoubtgiftsandsettlements,intervivos,ifcalculatedtodefeattheintentionofthe
compact,couldnotbemadebythesurvivorandhisrightofdisposition,intervivos,is,
therefore,notunqualified.But,substantially,thepurposeofthearrangementwilloftenbeto
allowfullenjoymentforthesurvivorsownbenefitandadvantageuponconditionthatathisdeath
theresidueshallpassasarranged.
Finally,at690:
InReOldham[1925]Ch75AstburyJpointedout,indealingwiththequestionwhetheran
agreementshouldbeinferred,thatinDufourvPereira(1769)1Dick419thecompactwasthat
thesurvivorshouldtakealifeestateonlyinthecombinedproperty.Itwastherefore,easytofix
thecorpuswithatrustasfromthedeathofthesurvivor.ButIdonotseeanydifficultyin
modernequityinattachingtotheassetsaconstructivetrustwhichallowedthesurvivortoenjoy
thepropertysubjecttoafiduciarydutywhich,sotospeak,crystallisedonhisdeathand
disabledhimfromvoluntarydispositionsintervivos.
IinterjecttosaythatDixonJwasthereclearlyreferringonlytovoluntarydispositionsintervivoswhich
arecalculatedtodefeattheintentionofthecompact.Noobjectioncouldnormallybetakentoordinary
giftsofsmallvalue.Hewenton:
Onthecontrary,asIhavesaid,itseemsrathertoprovideareasonfortheinterventionof
equity.Theobjectionthattheintendedbeneficiariescouldnotenforceacontractismetbythe
factthataconstructivetrustarisesfromthecontractandthefactthattestamentary
dispositionsmadeuponthefaithofithavetakeneffect.Itistheconstructivetrustandnotthe
contractthattheyareentitledtoenforce.
ItisalsoclearfromBirminghamvRenfrewthatthesecasesofmutualwillsareonlyoneexampleofa
widercategoryofcases,forexamplesecrettrustsTheprincipleofallthesecasesisthatacourtof
equitywillnotpermitapersontowhompropertyistransferredbywayofgift,butonthefaithofan
agreementorclearunderstandingthatitistobedealtwithinaparticularwayforthebenefitofathird
person,todealwiththepropertyinconsistentlywiththatagreementorunderstanding.Ifhe
attempts(p.341) todosoafterhavingreceivedthebenefitofthegift,equitywillintervenebyimposing
aconstructivetrustonthepropertywhichisthesubjectmatteroftheagreementorunderstanding
Iwouldemphasisethattheagreementorunderstandingmustbesuchastoimposeonthedoneea
legallybindingobligationtodealwiththepropertyintheparticularwayandthattheothertwo
certainties,namely,thoseastothesubjectmatterofthetrustandthepersonsintendedtobenefit
underit,areasessentialtothisspeciesoftrustastheyaretoanyotherIfindithardtoseehow
therecouldbeanydifficultyaboutthesecondorthirdcertaintiesinacaseofmutualwillsunlessit
wasinthetermsofthewillsthemselves.There,asinthiscase,theprincipaldifficultyisalways
whethertherewasalegallybindingobligationormerelywhatLordLoughboroughLCinLordWalpolev
LordOrford(1797)3Ves402at419,describedasanhonourableengagement.
TheCourtofAppealsubsequentlyrecognizedthattheconstructivetrustactuallyarisesonthedeathofthefirst
partytodieandthishassignificantimplicationsforthefunctionofthetrust.
OllinsvWalters[2008]EWCACiv782[2009]Ch212
MrWaltersandhiswifehadmadewillsinalmostidenticaltermsinwhichtheyeachlefttotheothertheir
entireresiduaryestate.Tenyearslater,codicilsweredraftedtoeachofthewills,inwhicheachagreednotto
changehisorherwillwithouttheothersconsent.Thewifediedandthehusbanddisputedtheexistenceofa
mutualwillscontract.Itwasheldonthefactsthatacontractformutualwillshadbeencreated,andthatthis
immediatelybecamebindingonthehusbandonthedeathofhiswife.MummeryJsaid:105
Theobligationonthesurvivingtestatorisequitable.Itisinthenatureofatrustofthepropertyaffected,
sotheconstructivetrustlabelisattachedtoit.Theequitableobligationisimposedforthebenefitof
thirdparties,whowereintendedbythepartiestobenefitfromit.Itarisesbyoperationoflawonthe
deathofthefirsttestatortodiesoastobindtheconscienceofthesurvivingtestatorinrelationtothe
propertyaffected.
Itisalegallysufficientconditiontoestablishwhatthejudgedescribedasitsirreduciblecore,
whichheanalysedasacontractbetweentwotestators,T1andT2:
thatinreturnforT1agreeingtomakeawillinformXandnottorevokeitwithoutnoticetoT2,
thenT2willmakeawillinformYandagreenottorevokeitwithoutnoticetoT1.Ifsuchfacts
areestablishedthenuponthedeathofT1equitywillimposeuponT2aformofconstructive
trust(shapedbytheexacttermsofthecontractthatT1andT2havemade).Theconstructive
trustisimposedbecauseT1hasmadeadispositionofpropertyonthefaithofT2spromiseto
makeawillinformY,andwiththeobjectofpreventingT1frombeingdefrauded.
Inmyjudgment,thatisanaccurateandclearstatementoftheequitableprinciplesMrWalters
wouldbeboundbyaconstructivetrust,butonlyifsufficienttermsofthecontractwereestablishedto
raiseone.
Theanswertothesufficiencypointis,Ithink,summedupinasinglesentenceinSnellsEquity,31st
ed(2005),para2231:Mutualwillsprovideaninstanceofatrustarisingbyoperationoflawtogive
effecttoanexpressintentionofthetwotestators.
TheintentionsofMrWaltersandthedeceasedweresufficientlyexpressedinthecontracttolaythe
foundationsfortheequitableobligationsthatbindtheconscienceofMrWalters,asthesurvivor,in
relationtothedeceasedsestate.Thejudgefoundallthatheneededtofindinordertoholdthat,
contrary(p.342) tothecontentionsofMrWalters,mutualwillsexisted.Possible,andasyet
unexplored,legalconsequencesoftheapplicationoftheequitableprinciplesdonotnegativethe
existenceofthefoundationcontractorpreventaconstructivetrustfromarisingbyoperationoflawon
thedeathofthedeceased.
IthadbeenacceptedonbehalfofMrWaltersinsubmissionstoNorrisJthat,iftherewasavalid
contractformutualwills,thedoctrineoperatedbyimposingaconstructivetrustonhimasthesurvivor,
becausethedeceasedhadperformedherpromisetoleaveherestatetohim.Inmyjudgment,the
trustisimmediatelybindingonhiminrelationtothedeceasedspropertylefttohimonthebasisof
thecontract.ItisnotpostponedtotakeeffectonlyafterthedeathofMrWalterswhentheproperty,or
whatmaybeleftofit,comesintothehandsofhispersonalrepresentatives.
Itfollowedthat,onthedeathofthewife,thehusbandsconsciencewasboundinrespectofhiswifesproperty,
whichwaslefttohim,ratherthanbeingatrustthatwaspostponeduntilthedeathofthehusband,whichwould
onlytakeeffectwhenthatproperty,orwhatwasleftofit,wasreceivedbyhisexecutors.
AnimportantimplicationofthedecisioninOllinsvWaltersisthat,iftheintendedthirdpartybeneficiarydiesafter
thedeathofthefirstpartytothemutualcontractsbutbeforethedeathofthesurvivingparty,then,sincethe
constructivetrustarisesimmediatelythedeceasedpartyspropertyhadbeenreceivedbythesurvivingparty,the
deathofthebeneficiaryofthistrustwillnotdefeathisorherbeneficialinterest.Consequently,thatinterestwould
passtothoseentitledtohisorherresiduaryestate,unlessthebeneficiarywasintendedonlytohavealife
interestthatwouldterminateondeath.
(iv)Perfectinganimperfectgift
Theconstructivetrusthasalsobeenusedtoperfectanimperfectgift,insituationswherethedonorhassoughtto
makeagiftofpropertytothedonee,buthasfailedtotransferlegaltitle.Ithasbeenrecognizedthatthedonor
mightholdthepropertyonconstructivetrustforthedoneewhereitwouldbeunconscionableforthedonorto
revokethegift.106 Thiswilltypicallyinvolveaconstructivetrustbeingrecognizedforbreachofanundertaking,
sincethedonorwillbeconsideredtohaveactedunconscionablyinseekingtorevokeagiftifheorshehad
representedtothedoneethatthegiftwouldbemadeandthedoneehadreliedonthisrepresentationinsome
way.
(f)ProceedsofCrime
Itisafundamentalprincipleofpublicpolicythatnocriminalshouldprofitfromhisorhercrime,eitherthroughthe
receiptofpropertyasaresultofthecrime,orbyenforcingrightsthatareacquiredthroughthecommissionofthe
crime.ThiswasrecognizedbyFryLJinCleavervMutualReserveFundLifeAssociation:107
Theprincipleofpublicpolicyinvokedisinmyopinionrightlyasserted.Itappearstomethatnosystemof
jurisprudencecanwithreasonincludeamongsttherightswhichitenforcesrightsdirectlyresultingtothe
personassertingthemfromthecrimeofthatperson.Ifnoactioncanarisefromfraud,itseemsimpossible
tosupposethatitcanarisefromfelonyormisdemeanour.Thisprincipleofpublicpolicy,likeallsuch
principles,mustbeappliedtoallcasestowhichitcanbeappliedwithoutreferencetotheparticular
characteroftherightassertedortheformofitsassertion.
(p.343) Theconstructivetrustisofpotentialsignificanceinensuringthatcriminalsdonotprofitfromtheircrimes.
Ashasalreadybeenseen,108 aconstructivetrustwillbetriggeredtodepriveafraudsterorthiefoftheproceedsof
crime,andtheconstructivetrustshouldberelevantwherethedefendanthasprofitedfromthecommissionofother
crimes,suchaswhereadefendanthasobtainedrightstopropertyastheresultofanunlawfulkilling.Insuch
circumstances,however,aparticularrule,knownastheForfeitureRule,operates,toforfeitrightsarisingfroman
unlawfulkilling.Thisruleisrecognizedbystatute.
ForfeitureAct1982
1(1)InthisAct,theforfeiturerulemeanstheruleofpublicpolicywhichincertaincircumstances
precludesapersonwhohasunlawfullykilledanotherfromacquiringabenefitinconsequenceofthe
killing.
MummeryLJdescribedtheForfeitureRuleinDunbarvPlant:109
thisisastatementofaprincipleofpublicpolicy,theapplicationofwhichmayproduceunfair
consequencesinsomecases:itisnotastatementofaprincipleofjusticedesignedtoproduceafair
resultinallcases:seetheobservationsofLordGoffofChieveleyontheprincipleofinpari
delictoinTinsleyvMilligan[1994]1AC340at355.(Thisprincipleofpublicpolicyisdifferentfrom,for
example,theequitablemaximthathewhocomestoequitymustcomewithcleanhands,whichisa
principleofjusticedesignedtopreventthoseguiltyofseriousmisconductfromsecuringadiscretionary
remedy,suchasaninjunction.)
ThefollowingpropositionsrelatingtothescopeoftheprincipleenunciatedbyFryLJinCleavervMutual
ReserveFundLifeAssociation[1892]1QB147maybestated.
(1)Theruleappliestoacasewherethebenefitresultsfromthecommissionofmurderbytheintended
beneficiary.Dr.H.H.Crippennotoriouslysurvivedhiswife.Betweenthedateofhisconvictionforhermurder
andthecarryingoutofthedeathsentencepassedonhim,Dr.CrippenmadeawillnamingEthelLeNeve
asthesoleexecutrixanduniversalbeneficiary.NotsurprisinglyEthelLeNevewaspassedoverona
motionforthegrantofanadministrationtoMrsCrippensintestateestate.Inholdingthattherewere
specialcircumstancesjustifyingthiscourseSirSamuelEvansPsaid:
Itisclearthatthelawis,thatnopersoncanobtain,orenforce,anyrightsresultingtohimfromhis
owncrimeneithercanhisrepresentative,claimingunderhim,obtainorenforceanysuchrights.
(SeeReCrippen[1911]P108at112.)
(2)Theprincipleisnotconfinedtomurdercases,aswasmadeclearbytheCourtofAppealinRe
Hall[1914]P1.Thecourtunanimouslyrejectedthecontentionthatadistinctionshouldbedrawnbetween
casesofmurderandmanslaughter
Inmyjudgment,however,thepresenceofactsorthreatsofviolenceisnotnecessaryfortheapplicationof
theforfeiturerule.Itissufficientthataseriouscrimehasbeencommitteddeliberatelyandintentionally.
Thereferencestoactsorthreatsofviolenceinthecasesareexplicablebythefactsofthosecases.Butin
noneofthosecaseswerethecourtslegislatingaprinciplecouchedinspecificstatutory(p.
344) language.Theessenceoftheprincipleofpublicpolicyisthat(a)nopersonshalltakeabenefit
resultingfromacrimecommittedbyhimorherresultinginthedeathofthevictimand(b)thenatureofthe
crimedeterminestheapplicationoftheprinciple.Onthatviewtheimportantpointisthatthecrimethathad
fatalconsequenceswascommittedwithaguiltymind(deliberatelyandintentionally).Theparticularmeans
usedtocommitthecrime(whetherviolentornonviolent)arenotanecessaryingredientoftherule.There
maybecasesinwhichviolencehasbeenuseddeliberatelywithoutanintentiontobringabouttheunlawful
fatalconsequences.Thosecaseswillattracttheapplicationoftheforfeiturerule.Itdoesnotfollow,
however,thatwhendeathhasbeenbroughtaboutbyadeliberateandintentional,butnonviolent,act(e.g.
poisonorgas)theruleisinapplicable.
ConsequentlyitwasheldthattheForfeitureRuleappliedwherethedefendantwasguiltyofaidingandabetting
suicide.
TheForfeitureRuleprecludessomebodywhohasunlawfullykilledapersonfromacquiringaninterestinproperty,
suchasabeneficialinterestarisingunderthedeceasedswillorontheterminationofthedeceasedslifeinterest
underatrust.TheRulemay,however,bemodifiedbythecourtifthejusticeofthecaserequiresit,110 savewhere
theunlawfulkillingwasmurder.111 WheretheForfeitureRuleapplieswithoutjudicialmodification,itwillusually
preventthekillerfromobtainingproperty,sothereisnothingthatcanbethesubjectmatterofaconstructivetrust.
Butifanypropertyhasbeenobtainedasaconsequenceofthekilling,itshouldbeheldonconstructivetrustfor
thebenefitofthosewhowouldotherwisebeentitledtothevictimsestate.
ThepotentialapplicationoftheconstructivetrustinthiscontextisillustratedbythefactsofReDWS,112 acase
inwhichtheconstructivetrustwasnotused,withconsequentinjustice.Inthatcase,asonhadmurderedhis
parents,whodiedintestate.Thevictimsgrandchildclaimedthathewasentitledtotheestate,sincehisfather
couldnotbenefitfromhiscrimebyvirtueoftheapplicationoftheForfeitureRule.Thecourtheld,however,that,by
virtueoftheAdministrationofEstatesAct1925,thegrandsonwasnotentitledtotheestate,sincethatAct
specificallypreventedhimfromsucceedingtotheestateifhisparentwasliving.Thecourtheldbya
majority 113 thatcollateralrelationsofthevictimswereconsequentlyentitledtotheestateratherthanthe
grandson.Thisisaparticularlyunfairresult,whichcouldhavebeenavoidedbyconcludingthat,ratherthanthe
ForfeitureRuleoperatingtopreventthefatherfromsucceedingtotheestateatall,itshouldonlyhaveprevented
himfromsucceedingtotheestatebeneficially,sothatheshouldhaveheldtheestateonconstructivetrustforhis
son.Thissolutionwouldbeconsistentwiththelegalrealitiesofthecaseandthewordsofthestatute:legaltitle
totheparentsestatepassedtothemurderer,but,becausehehadacquiredthoserightsunconscionably,he
shouldhaveheldthepropertyonconstructivetrustforhisson.Analternativesolutionhasnowbeenadoptedby
Parliament.BytheEstatesofDeceasedPersons(ForfeitureRuleandLawofSuccession)Act2011,the
AdministrationofEstatesAct1925andtheWillsAct1837areamended,sothatamurdererwhohas,for
example,killedaparentwillbedeemedtohavediedimmediatelybeforethedeathoftheparent.Itwouldfollow
thatthevictimsestateinacasesuchasReDWSwouldpasstothepersonnextentitledeitherunderthewillor
onanintestacy,namely,inthatcase,themurderersownchild,bypassingthemurderer.
(p.345) (g)ContractsfortheSaleofLand
Allthecircumstancesthathavebeenconsideredsofar,whereinstitutionalconstructivetrustsarerecognized,can
bejustifiedbyreferencetotheprinciplethatthedefendanthasactedunconscionably.However,aninstitutional
constructivetrustwillalsoberecognizedwhereavendorhasenteredintoacontracttosellland,andthiscannot
beexplainedbyreferencetounconscionableconduct,sinceitisrecognizedevenwherethevendorwishesto
carryouttheagreement.Oncethecontractofsalehasbeenconcluded,thevendorholdsthelandonconstructive
trustforthepurchaseruntilthesaleiscompleted,atwhichtimelegaltitlewillpasstothepurchaser.The
recognitionoftheconstructivetrustinthisinstancehasusuallybeenjustifiedbytheseparateprinciplethat
Equitytreatsasdonewhatoughttobedone.114 Contractsforthesaleoflandarespecificallyenforceablein
Equity,115 soEquityiswillingtotreatthecontractashavingbeenperformedimmediatelyitismade,sothatthe
vendorholdsthepropertyontrustforthepurchaserbyoperationoflaw.
Thisis,however,anunusualformoftrust.InLysaghtvEdwardsSirGeorgeJesselMRsaid:116
thepositionofthevendorissomethingbetweenwhathasbeencalledanakedorbaretrustee,oramere
trustee(thatis,apersonwithoutbeneficialinterest),andamortgageewhoisnot,inequity(anymorethan
thevendor),theowneroftheestate,butis,incertainevents,entitledtowhattheunpaidvendoris,
[namely]possessionoftheestateandachargeupontheestateforhispurchasemoney.
TheessentialnatureofthevendorpurchaserconstructivetrustwasrecognizedbyLordWalkerinJeromev
Kelly:117
beneficialownershipofthelandisinasensesplitbetweenthesellerandthebuyerontheprovisional
assumptionsthatspecificperformanceisavailableandthatthecontractwillinduecoursebecompleted
Theprovisionalassumptionsmaybefalsifiedbyevents,suchasrescissionofthecontractIfthebuyer
proceedstocompletiontheequitableinterestcanbeviewedaspassingtothebuyerinstages,astitleis
madeandacceptedandasthepurchasepriceispaidinfull.
TheunusualnatureofthisconstructivetrustwasrecognizedbyLordCairnsinShawvFoster,118 wherehe
observedthat,althoughthevendoristhetrusteeandthepurchaserhasabeneficialinterest,thetrusteealsohas
apersonalinterestintheproperty.Hesaidthat:119
Thevendorwasatrusteeofthepropertyforthepurchaserthepurchaserwastherealbeneficialownerin
theeyeofaCourtofEquityofthepropertysubjectonlytothisobservation,thatthevendor,whomIhave
calledthetrustee,wasnotameredormanttrustee,hewasatrusteehavingapersonalandsubstantial
interestintheproperty,arighttoprotectthatinterest,andanactiverighttoassertthatinterestifanything
shouldbedoneinderogationofit.Therelation,therefore,oftrusteeandcestuiquetrustsubsisted,but
subsistedsubjecttotheparamountrightofthevendorandtrusteetoprotecthisowninterestasvendorof
theproperty.
(p.346) Similarly,SirGeorgeJesselMRinLysaghtvEdwardsrecognizedthat:120
themomentyouhaveavalidcontractforsalethevendorbecomesinequityatrusteeforthepurchaserof
theestatesold,andthebeneficialownershippassestothepurchaser,thevendorhavingarighttothe
purchasemoney,achargeorlienontheestateforthesecurityofthatpurchasemoney,andarightto
retainpossessionoftheestateuntilthepurchasemoneyispaid,intheabsenceofexpresscontractasto
thetimeofdeliveringpossession.
ThelimitedrightsofthepurchaserunderthisconstructivetrustisillustratedbyRaynervPreston,121 inwhichthe
vendoragreedtosellahousethathehadinsured.Thecontractdidnotrefertotheinsurance.Afterthecontract
wasmade,butbeforethesalewascompleted,thehousewasdamagedbyfire.Theinsurerspaidinsurance
moneytothevendor,whichthepurchaserclaimed.Thisclaimfailed.122 CottonLJsaid:123
Itwassaidthatthevendoris,betweenthetimeofthecontractbeingmadeandbeingcompletedby
conveyance,atrusteeofthepropertyforthepurchaser,andthatas,butforthefactofthelegalownership
ofthebuildinginsuredbeingvestedinhim,hecouldnothaverecoveredonthepolicy,hemustbe
consideredatrusteeofthemoneyrecovered.Inmyopinion,thiscannotbemaintained.Anunpaidvendor
isatrusteeinaqualifiedsenseonly,andissoonlybecausehehasmadeacontractwhichaCourtof
Equitywillgiveeffecttobytransferringthepropertysoldtothepurchaser,andsofarasheisatrusteehe
issoonlyinrespectofthepropertycontractedtobesold.Ofthisthepolicyisnotapart.Avendorisinno
wayatrusteeforthepurchaserofrentsaccruingbeforethetimefixedforcompletion,andherethefire
occurredandtherighttorecoverthemoneyaccruedbeforethedayfixedforcompletion.Theargumentthat
themoneyisreceivedinrespectofpropertywhichistrustpropertyis,inmyopinion,fallacious.Themoney
isreceivedbyvirtueorinrespectofthecontractofinsurance,andthoughthefactthattheinsuredhad
partedwithallinterestinthepropertyinsuredwouldbeananswertotheclaim,ontheprinciplethatthe
contractisoneofindemnityonly,thisisverydifferentfromthepropositionthatthemoneyisreceivedby
reasonofhislegalinterestintheproperty.
Althoughtheconstructivetrustoflandfollowingacontractofsalehasbeencriticizedasfictional,124 thetrusthas
beenjustifiedbyTurner.
Turner,UnderstandingtheConstructiveTrustbetweenVendorandPurchaser(2012)LQR
582,602
Thepurposeandfunctionofthevendorpurchasertrustaretoprotecttheinterestthatthevendorand
purchasereachhaveinthedueperformanceofthecontract
thevendorpurchasertrustwidenstheclassofpersonsagainstwhomcourtorderswiththerelevant
protectiveeffectmaybemadeThevendorpurchasertrustcontainstwoequitiesthat(subjectto
defences)furtherthecontractsperformance.Oneistheinterestinlandthatapurchaseracquires
uponformationofacontractofsale.Thiscanbeenforcedtoseekspecificperformanceagainsta
transfereeofthelandfromthevendor,eventhoughthetransfereewasnotacontractparty.The
other(p.347) isthevendorslien.Thisequitableinterestbindstherelevantlandbothwhilethe
purchaserremainstheowner,andoncehehasconveyedittoathirdpartyByenforcingthelien,
thevendorprocuresthejudicialsaleoftherelevantland.Fromtheproceedsthevendorispaidthe
balanceoftheamountthepurchaserpromisedtopay.
Thepurchaserslienistheonlyequitycomprisedinthevendorpurchasertrustthatfurthersthe
protectionofneitherpartysperformanceinterest.Thepurchaserslienprotectsthepurchasersrightto
repaymentofthepurchasemoneywhenthecontractisnotperformed,providedheisnotatfault.
Otherwise,however,thepurposeandfunctionofthevendorpurchasertrustaretoprotecteachpartys
performanceinterest.Thisprotectionextendsbeyondtheprotectionofferedatcommonlaworby
simpleordersthatthepartiesperformtheirrespectivepromises.
Thisisasophisticateddefenceofthevendorpurchaserconstructivetrust,butitisadefencefoundedontherole
ofEquitytosupportthecontractualbargain,ratherthanbyreferencetounconscionability.Evenonthisanalysis,
therecognitionoftheconstructivetrustispeculiarandrestrictedtotheparticularcontextofaspecifically
enforceablecontract.Sincethetrustisnottriggeredbyunconscionability,andbecauseithaspeculiar
characteristics,perhapsitshouldnotanalysedasaconstructivetrustatall,butsimplyasanequitable
order.125 Inmostcasesthischaracterizationwillnotmatter,savewherethepropertyhasbeentransferredtoa
thirdparty,whowasnotabonafidepurchaserforvalue.Ifthepropertywasheldonaconstructivetrustforthe
purchaserofthepropertyheorshewouldbeabletobringaclaimagainstthethirdpartytorecovertheproperty
suchaclaimwouldnotbeavailableifthecontractwassimplyconsideredtotriggeranequitableorder.Asa
matterofpolicy,itmightbeconsideredtobeappropriatethatthepurchaserhastheprotectionofaproprietary
claimagainstathirdpartytransferee,whichwouldjustifytherecognitionofaconstructivetrust.
(h)BreachofFiduciaryDuty
AlthoughthePrivyCouncilinAttorneyGeneralforHongKongvReid126 recognizedthatafiduciarywhoprofits
frombreachofdutyholdsthatprofitonconstructivetrustfortheprincipal,thishasnowbeenrejectedbytheCourt
ofAppeal,atleastasageneralrule.InSinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd,127 Lord
NeubergerMRsaid:128
itseemstomethatthereisarealcaseforsayingthatthedecisionintheReidcase[1994]1AC324is
unsound.Incaseswhereafiduciarytakesforhimselfanassetwhich,ifhechosetotake,hewasundera
dutytotakeforthebeneficiary,itiseasytoseewhytheassetshouldbetreatedasthepropertyofthe
beneficiary.However,abribepaidtoafiduciarycouldnotpossiblybesaidtobeanassetwhichthe
fiduciarywasunderadutytotakeforthebeneficiary.Therecanthusbesaidtobeafundamental
distinctionbetween(i)afiduciaryenrichinghimselfbydeprivingaclaimantofanassetand(ii)afiduciary
enrichinghimselfbydoingawrongtotheclaimantabeneficiaryofafiduciarysdutiescannotclaima
proprietaryinterest,butisentitledtoanequitableaccount,inrespectofanymoneyorassetacquiredbya
fiduciaryinbreachofhisdutiestothebeneficiary,unlesstheassetormoneyisorhasbeenbeneficially
thepropertyofthebeneficiaryorthetrusteeacquiredtheassetormoneybytakingadvantageofan
opportunityorrightwhichwasproperlythatofthebeneficiary.
(p.348) Consequently,itdoesnotfollowthatnoprofitsobtainedbyafiduciaryinbreachoffiduciarydutywillbe
heldonconstructivetrustfortheprincipal.Thefiduciarywillholdpropertyonconstructivetrusteitherwherethe
propertyhasbeentakenfromtheprincipalorwherethefiduciaryhasexploitedanopportunityorrightofthe
principal.129 Whilstthefirstexceptionisacceptableasbeingconsistentwiththeprincipleofunconscionable
appropriationofpropertybeingheldonconstructivetrust,itismuchmoredifficulttojustifythesecondexception,
sincetheexploitationofanopportunityismoreakintoawrongagainstaprincipalthaninterferencewithproperty
rightsofaprincipal.
3.RemedialConstructiveTrusts
Whereasaninstitutionalconstructivetrustarisesbyoperationoflawfromthedateoftheeventthatgivesriseto
it,theremedialconstructivetrustarisesthroughtheexerciseofthejudgesdiscretionwheneveritisconsideredto
bejusttorecognizethattheclaimanthasanequitableproprietaryinterest.Theremedialconstructivetrustdoes
notinvolvethevindicationofsomepreexistingproprietaryrightoftheclaimant.Itmayoperateonlyfromthedate
ofthecourtorderand,thus,neednotaffectthirdparties.
TheremedialconstructivetrustisrecognizedinAustralia,130 NewZealand,131 andCanada,132 butithasnever

beenformallyrecognizedinEnglandandWales,wheretheorthodoxinterpretationisthatitis
institutional.133 However,somejudgeshaveexpressedwillingnesstorecognizeit.Forexample,LordBrowne
WilkinsoninWestdeutscheLandesbank GirozentralevIslingtonLondonBoroughCouncilsaid:134
Althoughtheresultingtrustisanunsuitablebasisfordevelopingproprietaryrestitutionaryremedies,the
remedialconstructivetrust,ifintroducedintoEnglishlaw,mayprovideamoresatisfactoryroadforward.
Thecourtbywayofremedymightimposeaconstructivetrustonadefendantwhoknowinglyretains
propertyofwhichtheplaintiffhasbeenunjustlydeprived.Sincetheremedycanbetailoredtothe
circumstancesoftheparticularcase,innocentthirdpartieswouldnotbeprejudicedandrestitutionary
defences,suchaschangeofposition,arecapableofbeinggiveneffect.However,whetherEnglishlaw
shouldfollowtheUnitedStatesandCanadabyadoptingtheremedialconstructivetrustwillhavetobe
decidedinsomefuturecasewhenthepointisdirectlyinissue.135
TheCourtofAppealhas,however,specificallyrefusedtorecognizetheremedialconstructivetrustwhenithadthe
opportunitytodoso.InRePollyPeck International(No.2),136 theissuewaswhetherthecourthadjurisdictionto
hearaclaimarisingfromtheoccupationoflandinCyprusbythesubsidiariesofacompany(PPI)thatwas
insolventandinadministration.Theclaimantssoughtrestitutionofasumreceivedbytheadministratorsthatthe
claimantsallegedrepresentedtheprofitsfromthecompanyswrongdoing.Theclaimantsclaimedthatthese
profitswereheldonaremedialconstructivetrust.Inrejectingthisclaim,MummeryLJsaid:137
(p.349) Inmyjudgment,theinterveninginsolvencyofPPImeansthatunderEnglishlawthereisno
seriouslyarguablecaseforgrantingtheapplicantsaremedialconstructivetrustonthebasisofthe
allegationsinthedraftstatementofclaim.PPIisamassivelyinsolventcompanysubjecttoan
administrationorder.TheadministratorsareboundtodistributetheassetsofPPIamongthecreditorson
thebasisofinsolvency.Parliamenthas,insuchaneventuality,sanctionedaschemeforpari
passudistributionofassetsdesignedtoachieveafairdistributionoftheinsolventcompanysproperty
amongtheunsecuredcreditors.Thisscheme,nowcontainedintheInsolvencyActof1986,wasdescribed
bySirDonaldNichollsViceChancellorinReParamountAirwaysLtd[1993]Ch223at230asacoherent,
modernisedandexpandedcode.
Theprovisionsofthatcodeapplybothtothecaseofaninsolventcompanywhichhasgoneintoformal
liquidationandtooneinrespectofwhichanadministrationorderhasbeenmade.Theessential
characteristicofthestatutoryschemeisthattheliquidatororadministratorisboundtodealwiththe
assetsofthecompanyasdirectedbystatuteforthebenefitofallcreditorswhocomeintoproveavalid
claim.ThereisastatutoryobligationontheadministratorsofPPItotreatthegeneralcreditorsina
particularway.Aquestionmayariseastowhetheraparticularassetwasorwasnotthebeneficial
propertyofthecompanyatthedateofthecommencementofthewindingup(oradministration).Ifitis
establishedinadisputethatitisnotanassetofthecompanythenitneverbecomessubjectofthe
statutoryinsolvencyscheme:seeChaseManhattanBank NAvIsraelBritishBank (London)Ltd[1981]Ch
105.If,ontheotherhand,theassetistheabsolutebeneficialpropertyofthecompanythereisnogeneral
powerintheliquidator,theadministratorsorthecourttoamendormodifythestatutoryschemesoasto
transferthatassetortodeclareittobeheldforthebenefitofanotherperson.Todothatwouldbetogivea
preferencetoanotherpersonwhoenjoysnopreferenceunderthestatutoryscheme.
Inbrief,thepositionisthatthereisnoprospectofthecourtinthiscasegrantingaremedialconstructive
trusttotheapplicantsinrespectoftheproceedsofsaleofthesharesheldbyPPIinitssubsidiaries,since
theeffectofthestatutoryschemeapplicableonaninsolvencyistoshutoutaremedywhichwould,if
available,havetheeffectofconferringaprioritynotaccordedbytheprovisionsofthestatutoryinsolvency
scheme.Inhereloquentaddress[counselfortheclaimants]submittedthatthelawmoves.Thatistrue.
ButitcannotbelegitimatelymovedbyjudicialdecisiondownaroadsignedNoEntrybyParliament.The
insolvencyroadisblockedofftoremedialconstructivetrusts,atleastwhenjudgedriveninavehicleof
discretion.
ForthosereasonsaloneIwouldrefuseleavetotheapplicantstocommencetheseproceedings.Toatrust
lawyerand,evenmoresotoaninsolvencylawyer,theprospectofacourtimposingsuchatrustis
inconceivableand,inmyjudgment,eventhemostenthusiasticstudentofthelawofrestitutionwouldbe
forcedtorecognisethattheschemeimposedbystatuteforafairdistributionoftheassetsofaninsolvent
companyprecludestheapplicationoftheequitableprinciplesmanifestedintheremedialconstructivetrust
developedbysuchcourtsastheSupremeCourtofCanada.
PotterLJagreed,butNourseLJwentfurtherandsaidthat,evenhadthedefendantbeensolvent,hewouldnot
haverecognizedaremedialconstructivetrust:138
AlthoughthiscourtinMetallundRohstoffAGvDonaldson,Lufk in&JenretteInc[1990]1QB391,
LordMustillinReGoldcorpExchangeLtd[1995]1AC74andLordBrowneWilkinsoninWestdeutsche
Landesbank GirozentralevIslingtonLondonBoroughCouncil[1996]AC669haveacceptedthepossibility
thattheremedialconstructivetrustmaybecomepartofEnglishlaw,suchobservations,beingbothobiter
andtentative,canonlybeoflimitedassistancewhenthequestionhastobedecided,asitdoeshere.
Therebeingnoearlierdecision,wemustturntoprinciple.Indoingso,wemustrecognisethattheremedial
constructivetrustgivesthecourtadiscretiontovaryproprietaryrights.Youcannot(p.350) granta
proprietaryrighttoA,whohasnothadonebeforehand,withouttakingsomeproprietaryrightawayfromB.
NoEnglishcourthaseverhadthepowertodothat,exceptwiththeauthorityofParliamentcf.Chapmanv
Chapman[1954]AC429.139 Butitissaidthat,althoughthatmaybethelawtoday,itmaynotbethelaw
tomorrow.IftheSupremeCourtofCanadacandevelopthelawsoastopermitthecourttovaryproprietary
rightswithoutlegislativeauthority,whycannottheHouseofLordsdolikewise?Atleast,itissaid,there
mustbearealprospectthattheywill,andsotheapplicantsoughttobeallowedtobringtheiraction.
IagreewithMummeryLJthatwhere,ashere,therewouldbenotsimplyavariationofproprietaryrightsbut
avariationofthemannerinwhichtheadministratorsaredirectedtodealwithPPIsassetsbythe
InsolvencyAct1986itisnotseriouslyarguable,evenatthehighestlevel,thataremedialconstructivetrust
wouldbeimposed.Formyself,Iwouldgofurtherandholdthatitwouldnotbeseriouslyarguableevenif
PPIwassolvent.ItisnotthatyouneedanActofParliamenttoprohibitavariationofproprietaryrights.You
needonetopermititseetheVariationofTrustsAct1958andtheMatrimonialCausesAct1973.
Despitethisdecision,thepotentialrelevanceoftheremedialconstructivetrustremainsaliveissue.InLondon
AlliedHoldingsvLee,140 EthertonJ,havingreferredtoBirksscriticismofthisformoftrustasanightmaretrying
tobeanobledreamandrightlessnessimplicitindiscretionaryremedialism,141 said:142
Anequitylawyermightobservethatsuchlanguageisoverlyemphatic,havingregard,forexample,tothe
strongdiscretionintheCourttodecideupontheappropriateformofreliefforproprietaryestoppel,including
whetheritshouldbepersonalorproprietaryandwhetheritshouldbetoprotecttheclaimantsexpectations
orcompensateforrelianceloss.Moreover,thereisnoEnglishauthority,includingPollyPeck International
plc(No2)(inwhichMummeryLJ,withwhomPotterLJagreed,concentratedonthefactofinsolvency),
whichisbindingauthorityagainsttheremedialconstructivetrustinprinciple.Nevertheless,itseems
realistictoassumethatanEnglishCourtwillbeveryslowindeedtoadopttheUSandCanadianmodel.On
theotherhand,therestillseemsscopeforrealdebateaboutamodelmoresuitedtoEnglishjurisprudence,
borrowingfromproprietaryestoppelnamelyaconstructivetrustbywayofdiscretionaryrestitutionaryrelief,
therighttowhichisamereequitypriortojudgment,butwhichwillhavepriorityovertheinterveningrights
ofthirdpartiesonestablishedprinciples,suchasthoserelatingtonotice,volunteersandthe
unconscionabilityonthefactsofaclaimbythethirdpartytopriority.
Althoughtherecognitionoftheremedialconstructivetrustwouldenablethejudicialcreationofequitable
proprietaryrights,whichwouldprejudicetherightsofthedefendantscreditors,beingadiscretionaryremedyit
neednotbeawardedifanyinnocentthirdpartywouldsufferunacceptably,143 oritcouldbedeterminedthatthe
remedyonlyoperatesforthetimeofthecourtorder.
Itisimportant,however,thatthereareclearrulesastowhetherornotequitableproprietaryrightshavebeen
created,andtheremedialconstructivetrustisantitheticaltosuchclarityandpredictability.144 Birksdescribedthe
remedialconstructivetrustasaremedythatisugly,repugnantaliketolegalcertainty,thesanctityofproperty
andtheruleoflaw.145 InSinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd,146 LordNeubergerMR
said:147
(p.351) Whetheraproprietaryinterestexistsornotisamatterofpropertylaw,andisnotamatterof
discretion:seeFosk ettvMcKeown[2001]1AC102,109,perLordBrowneWilkinson.Itfollowsthatthe
courtsofEnglandandWalesdonotrecognisearemedialconstructivetrustasopposedtoaninstitutional
constructivetrust.
AlthoughitseemsclearthattheremedialconstructivetrustisnotrecognizedinEnglishlaw,thereremainsscope
forarguingthatEthertonJsmodifiedformoftrustshouldberecognized.Indeed,inThornervMajors,148 Lord
Scottindicatedthattheremedialconstructivetrustshouldbeusedwherethedefendanthasrepresentedtothe
claimantthatheorshewouldreceivepropertyinthefuture,forexample,inthedefendantswill,inrelianceon
whichrepresentationtheclaimantactedtohisorherdetriment.Thisispresentlydealtwiththroughthedoctrineof
proprietaryestoppel.149 LordScottsaid:150
FormypartIwouldprefertokeepproprietaryestoppelandconstructivetrustasdistinctandseparate
remedies,toconfineproprietaryestoppeltocaseswheretherepresentation,whetherexpressorimplied,
onwhichtheclaimanthasactedisunconditionalandtoaddressthecaseswheretherepresentationsare
offuturebenefits,andsubjecttoqualificationonaccountofunforeseenfutureevents,viatheprinciplesof
remedialconstructivetrusts.
ButiftheremedialconstructivetrustistoberecognizedinEnglishlaw,itmustbetriggeredbyacauseofaction.
Whatmightthatcauseofactionbe?Itcouldbeequitablewrongdoingbut,ashasalreadybeenseen,the
constructivetrustthatisexceptionallyrecognizedwherethereisabreachoffiduciarydutyisinstitutionalinform,
arisingbyoperationoflawratherthanjudicialdiscretion.151 Similarly,unconscionableretentionofproperty
triggersaninstitutional,ratherthanaremedial,constructivetrust.Theremedialconstructivetrustmightbe
consideredtobeanappropriateresponsetothedefendantsunjustenrichmentindeed,EthertonJsreferenceto
discretionaryrestitutionaryreliefmightsuggestthatthisiswhathewascontemplatingbutthefactthatthe
defendanthasbeenunjustlyenrichedattheclaimantsexpenseisnotasufficientreasontorecognizean
equitableproprietaryinteresttheclaimantshouldinsteadbeconfinedtoapersonalclaimagainstthe
defendant.152 Aremedywithoutacauseofactionismeaninglessandforthatreason,aswellastheinherent
uncertaintyofthisunbridledjudicialdiscretion,theremedialconstructivetrustshouldnotberecognizedinEnglish
law.
4.TheNatureofConstructiveTrusteeship
Althoughtheinstitutionalconstructivetrustisarealtrust,itdoesnotfollowthataconstructivetrusteeisunderthe
sameobligationsasanyothertypeoftrustee.Aconstructivetrusteewillhavelegaltitletopropertythatisheldon
trustforthebenefitofothersandwillbeobligedtoconveythetrustpropertytothebeneficiary,butthedutiesof
thattrusteewillbelessonerousthanthoseofanexpresstrustee.153 Forexample,aconstructivetrusteeisunder
noobligationtoinvest154 andneitherisheorsherequiredtoobservetheusualdutyofcare.155 Sincea
constructivetrusteemaynotknowthatheor(p.352) sheisatrustee,156 itwouldbeunreasonabletoimpose
suchobligations,includingthefiduciarydutyofloyaltytothebeneficiaries.157
Smith,ConstructiveFiduciariesinPrivacyandLoyalty(ed.Birks)(Oxford:OxfordUniversity
Press,1997),p.267
Thereisanobligationonthe[constructive]trustee:toconveythetrustpropertytoortotheorderofthe
beneficiary.Abreachofthisobligationwouldcreateapersonalliability.Butthetrusteecannot,without
fiction,besaidtohaveassumedobligationsoftheutmostselflessness.Theonlywaytoreachthe
contraryconclusionwouldbetosaythatthisisthetechniqueofequity:tosubjecttrustees,even
unwillingones,tothefiduciarystandard,soastogeneratethecorrespondingliabilities.That,however,
wouldbeusingthefiduciaryrelationshipinawhollyinstrumentalway.
Question
Alanhasrecentlyestablishedabusinesssellingcustombuiltsportscars,whichheimportsfromChina.He
onlyentersintocontractstosellcarstocustomersiftheypayadepositofhalfthepurchaseprice,
amountingto10,000.Hisbusinesshasprovedtobeverypopular,somuchsothatdemandoutstrips
supply.Unfortunately,hissupplierbecomesinsolventandceasestradingandAlanisunabletosourcehis
carsfromanywhereelse.Despitethis,heacceptsadepositforacarfromBrenda.Beforethesupplier
ceasedtrading,AlanhadalsoreceivedadepositfromClare.Alanhasrecentlybeendeclaredbankrupt.He
owes30,000tohisunsecuredcreditors.Hehas20,000creditedtohisbankaccount.BrendaandClare
seekyouradviceastoanyclaimstheymighthaveinprioritytoAlansothercreditors.
FurtherReading
Gardner,ReliancebasedConstructiveTrustsinConstructiveandResultingTrusts(ed.Mitchell)(Oxford:
Hart,2010),ch2.
FindThisResource
Hopkins,Conscience,DiscretionandtheCreationofPropertyRights(2006)4LS475.
FindThisResource
McFarlane,ConstructiveTrustsArisingonaReceiptofPropertySubConditione(2004)120LQR667.
FindThisResource
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9.
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Notes:
1 AirJamaicavCharlton[1999]1WLR1399,1412(LordMillett).
2 SeeChapter3,TheRequirementsofaTrust.
4 TheFictionoftheConstructiveTrust(2011)CLP399.
5 Ibid,400.
6 SeefurtherChapter7.1(b)(iv),p.325.
7
LawofPropertyAct1925,s.53(2).
8
9
ConstructiveTrusts:ANewModelforEquityandUnjustEnrichment(2008)67CLJ265.
10
InCobbevYeomansRowManagementLtd[2008]UKHL55[2008]1WLR1752,[30].
11 SeeBirks,UnjustEnrichment(2ndedn)(Oxford:OxfordUniversityPress,2005),p.302.
12 SeeChapter9.2(d)(iii),pp.4435.
13 EvesvEves[1975]1WLR1338.
14 WestdeutscheLandesbank GirozentralevIslingtonLondonBoroughCouncil[1996]AC669,705.
15 [1999]1AllER400,408.
18 See,inparticular,thetrustarisingfromacontracttosellland,Chapter7.2(g),pp.3459,andthesocalled
commonintentionconstructivetrust,Chapter9.2,pp.4228.
19 ReliancebasedConstructiveTrustsinConstructiveandResultingTrusts(ed.Mitchell)(Oxford:Hart,2010),p.
63.
20 Ibid.
21 Includingsecrettrusts,Chapter7.2(e)(ii),p.337mutualwills,Chapter7.2(c)(iii),pp.33742andproprietary
estoppel,Chapter9.4,pp.45565.
22 SeeHalifaxBuildingSocietyvThomas[1996]Ch217,229(PeterGibsonLJ).
23 [1996]AC669,714.
24 RePollyPeck International(No.2)[1998]3AllER812,823(MummeryLJ)and830(NourseLJ).See
alsoMetallundRohstoffAGvDonaldson,Lufk inandJenretteInc.[1990]1QB391,47880(SladeLJ)Halifax
BuildingSocietyvThomas[1996]Ch217,229(PeterGibsonLJ).
25
27 LordMillett,ProprietaryRestitution,inEquityinCommercialLaw(edsDegelingandEdelman)(Sydney:Law
BookCo.,2005),ch.12,pp.31516.SeealsoFosk ettvMcKeown[2001]1AC102,108(LordBrowne
Wilkinson).
30 [2002]UKHL48[2003]2AC366,404.SeealsoParagonFinanceplcvDBThak erarandCo.[1999]1AllER
400,408(MillettLJ).
32 Stack vDowden[2007]UKHL17[2007]2AC432,discussedinChapter9.2(c)(ii),pp.43940,andJonesv
Kernott[2011]UKSC53[2012]1AC776,discussedinChapter9.2(c)(iii),pp.4401.
33 GearyvRank ine[2012]EWCACiv555discussedinChapter9.2(c)(i),pp.438.
36 [1996]AC669,707.
37 SinclairInvestmentHoldingsSAvVersaillesTradeFinanceLtd[2005]EWCACiv722CampdenHillLtdv
Chak rani[2005]EWHC911(Ch).
38 [2012]EWCACiv251,[37].
39
[2006]EWHC3272(Ch).
40
WestdeutscheLandesbank GirozentralevIslingtonLBC[1996]AC669,705(LordBrowneWilkinson).
41
[1996]AC669,716.
42
43 [2003]EWHC1637(Ch)[2005]Ch281,[110].
44 SeeChapter18.3(c)(ii)(a),pp.8314.
45 SeealsoBarkehallThomas,ThievesasTrustees:TheEnduringLegacyofBlack vSFreedmanandCo(2009)
3JoE52.
46 Black vFSFreedmanandCo.(1910)12CLR105.
47 SeealsoArmstrongGmbHvWinningtonNetwork sLtd[2012]EWHC10(Ch)[2012]3WLR835,[128]
(StephenMorrisQC).
48 PropertyRightstoStolenMoney(2005)32UWALR234,245Tarrant,ThievesasTrustees:InDefenceofthe
TheftPrinciple(2009)3JoE170,172.
49 CostellovChiefConstableofDerbyshire[2001]3AllER150.
50 IslamicRepublicofIranvBarak atGalleriesLtd[2009]QB22,[15](LordPhillips).
52
52
53
[1996]AC669,689(LordGoff)and707(LordBrowneWilkinson).
54
[2012]EWCACiv251.
55
Ibid,[38].
57 [1992]1WLR1,12.
58 [1993]3AllER717,734.
59 Ibid.
61 PhillipsvPhillips(1862)4DeGF&J208ShalsonvRusso[2003]EWHC1637(Ch)[2005]Ch281,[111]
(RimerJ).
62 WestminsterBank LtdvLee[1956]Ch7.SeefurtherChapter20.5,p.961.
63 GreatPeaceShippingLtdvTsalvirisSalvage(International)Ltd[2002]EWCACiv1407[2003]QB679.
64 [2011]EWCACiv197[2012]Ch132.AnappealtotheSupremeCourthasbeenheard.
65 Ibid,[203].
66 ReWaltonsSettlement[1922]2Ch509.
67 [1909]1Ch476.
68 Shealsosoughttosetthetrustasideonthegroundthatshehadbreachedherdutyasafiduciary.Thisalso
failed.SeeChapter11.7(g),pp.5603.
69 [2011]EWCACiv197[2012]Ch132,at[211].
70 RetheSTrust[2011]JRC117.
71 Thisbeingthetestofcausationformistakeinthelawofunjustenrichment:KleinwortBensonvLincolnCity
Council[1999]2AC349.
72 [2011]JRC117,[37](SirPhilipBailhache,Commissioner).
73
74
Perhapsbetterdescribedsimplyasdefactofiduciaries.SeeDubaiAluminiumCo.LtdvSalaam[2002]UKHL
48[2003]2AC366,403(LordMillett).
75
ReBarney[1892]2Ch265,273(KekewichJ).
76
SeeChapter11.2(i),pp.51819.
77
JamesvWilliams[2000]Ch1.
78
LyellvKennedy(1889)14AppCas437.
79 [2000]Ch1.
80 Ibid,10.
81
81 ExecutorsdesontortandtheLimitationofActions[1974]Conv176.
82 AlternativelythethirdpartymayhaveacauseofactionagainstthepurchaserbyvirtueoftheContracts(Rights
ofThirdParties)Act1999.SeeChapter4.3(d)(i),pp.1613.
83 [1989]Ch1.
85 [1982]1WLR1044.
86 Ibid,1054.
87 [2011]EWCACiv1314[2012]3WLR987,[57].
88 AsrequiredbytheLawofPropertyAct1925,s.53(1)(b)seeChapter4.2(b),p.120.SeeBannisterv
Bannister[1948]2AllER133.
89 RochefoucauldvBoustead[1897]1Ch196,208(LindleyLJ),discussedinChapter4.2(b),pp.1223.
90 SeeChapter4.2(c)(iii),pp.12745.
91 SeeChapter4.2(c)(iii)(a),pp.12831.
92 McCormick vGrogan(1869)LR4HL82.
93 LawofPropertyAct1925,s.53(1)(b).SeeChapter4.2(b),p.120.
94
[1972]Ch698.
95
(1886)2TLR660.
96
SeeChapter4.2(c)(iii)(g),pp.1445.
97
SeefurtherChapter4.39(d)(i),pp.1613.
98
DufourvPereira(1769)1Dick419ReHagger[1930]2Ch190.
99 OllinsvWalters[2008]EWCACiv782[2009]Ch212,[37](MummeryLJ).
100 ReGoodchild[1997]1WLR1216OllinsvWalters[2008]EWCACiv782[2009]Ch212.
101 [1994]Ch31,38.
102 [1972]Ch698.
103 SeeChapter4.2(c)(iii)(c)(i),pp.13740.
104 [1981]1WLR939,945.
105 [2008]EWCACiv782[2009]Ch212,[37].
106 PenningtonvWaine[2002]EWCACiv227[2002]1WLR2075.SeeChapter4.3(c)(ii),pp.1568.
107 [1892]1QB147,156.
109 [1998]Ch414,422.
110 ForfeitureAct1982,s.2.
111
111 Ibid,s.5.
112 [2001]Ch568.
113 SedleyLJheldthattheestateshouldpasstotheCrownasbonavacantiainthehopethattheCrownwould
transferallorsomeofittothegrandson.
115 Theprinciplealsoappliestopersonaltyifthecontractisspecificallyenforceable.SeefurtherLawCommission
Report:Risk ofDamageafterContractforSale(1990)(LawCom.No.191).
116 (1876)2ChD499,506.
117 [2004]UCHL25,[2004]1WLR1409,[32].
118
(1872)LR5HL321.
119
Ibid,338.
120
(1876)2ChD499,506.
121
(1881)18ChD1.SeealsoLak evBayliss[1974]1WLR1073FreevaleLtdvMetrostore(Holdings)
Ltd[1984]Ch199EnglewoodPropertiesLtdvPatel[2005]EWHC188(Ch)[2005]3AllER307.
122
ItwouldnowsucceedundertheLawofPropertyAct1925,s.47,whichenablesthepurchasertorecoversuch
sumsoncetheconveyancehasbeencompleted.
123
(1881)18ChD1.
124
Swadling,TheVendorPurchaserConstructiveTrust,inEquityinCommercialLaw(edsDegelingand
Edelman)(Sydney:LawbookCo.,2005),pp.4756and4878.
125
Swadling,TheFictionoftheConstructiveTrust(2011)CLP399.
126
[1994]1AC324.
127 [2011]EWCACiv347[2012]Ch453.SeealsoCadoganPetroleumplcvTolley[2011]EWHC2866Ch.See
furtherChapter14.5(b)(i),pp.6925.
128 [2011]EWCACiv347[2012]Ch453,[80].
129 SeeFHREuropeanVenturesLLPvMark arious[2013]EWCACiv17.
130 Muschinsk ivDodds(1985)160CLR583GrimaldivChameleonMiningNL(No.2)[2012]FCAFC6.
131 PowellvThompson[1991]1NZLR597.
132 Pettk usvBeck er(1980)117DLR(3d)257.
133 SeeReSharpe[1980]1WLR219.
134 [1996]AC669,716.
135 SeealsoMetallundRohstoffAGvDonaldsonLufk in&JenretteInc.[1990]1QB391,479ReGoldcorp
ExchangeLtd[1995]1AC74,104(LordMustill)LondonAlliedHoldingsvLee[2007]EWHC2061(Ch).
136 [1998]3AllER812.SeealsoCobboldvBak ewellManagementLtd[2003]EWHC2289(Ch),[17](Rimer
J)ReFarepak FoodandGiftsLtd[2006]EWHC3272(Ch),[38](MannJ)SinclairInvestments(UK)Ltdv
VersaillesTradeFinanceLtd[2011]EWCACiv347[2012]Ch453,[37](LordNeubergerMR).
137
137
[1998]3AllER812,826.
138
Ibid,830.
140 [2007]EWHC2061(Ch).
141 PropertyandUnjustEnrichment:CategoricalTruths[1997]NZLawRev623,641.
142 [2007]EWHC2061(Ch),[274].
143 GrimaldivChameleonMiningNL(No.2)[2012]FCAFC6,[510](FinnJ).
144 Millett,Equity:TheRoadAhead(1995)9TLI35,42.
145 PropertyandUnjustEnrichment:CategoricalTruths[1997]NZLawRev623,641.
146 [2011]EWCACiv347[2012]Ch453.
147 Ibid,[37].
148 [2009]UKHL18[2009]1WLR776.
150 [2009]UKHL18[2009]1WLR776,[20]
151
SeeChapter7.2(h),pp.3478.
152
SeefurtherChapter1.4(b),pp.1315.
153
Smith,ConstructiveFiduciaries,inPrivacyandLoyalty(ed.Birks)(Oxford:ClarendonPress,1997),ch.9,p.
267.
154
LonrhoplcvFayed(No.2)[1992]1WLR1,12(MillettJ).
155
156
CompareLordBrowneWilkinsonsassertioninWestdeutscheLandesbank GirozentralevIslingtonLondon
BoroughCouncil[1996]AC669,705,thatitisafundamentalprincipleofthelawoftruststhatatrusteemust
knowthatheorsheisatrustee.Suchaprinciplecanapplyonlytoexpresstrusts.SeeChapter2.3,p.28.
157
8.ResultingTrusts
Chapter: (p.353) 8.ResultingTrusts
DOI: 10.1093/he/9780199661480.003.0008
CentralIssues
1.Resultingtrustsarealimitedcategoryoftruststhatariseoncertainfactswhereneitheranexpress
trustnoraconstructivetrustexists.
2.Therearetwoprincipalcategoriesofresultingtrust:presumedresultingtrustsandautomatic
resultingtrusts.
3.Automaticresultingtrustsarisewhereanexpresstrustfailsinitiallyorsubsequently.Thepropertyis
thenheldbythetrusteeforthesettlor.
4.Presumedresultingtrustsarisewhereapersonvoluntarilytransferspropertyfornoconsiderationin
return,orcontributestothepurchaseofpropertyinthenameofanother.
5.However,thepresumptionofresultingtrustisreplacedbyapresumptionofadvancement,orgift,if
propertyistransferredfromafathertosonorfromhusbandtowife,forexample.Thepresumptionof
advancementiscontroversialanditsfutureuncertain.
6.Boththepresumptionofresultingtrustandthepresumptionofadvancementcanberebuttedbyany
evidencetothecontrary.However,apartycannotrelyuponevidenceofhisorherownillegalconduct,
sotheimportanceofthepresumptionsismostsignificantinthecontextofillegaltransactions.
7.Thebasisofresultingtrustsiscontroversial.Thebetterviewisthatresultingtrustsdonotrespondto
unjustenrichment,butreflectapresumedintentionofthetransferortohaveabeneficialinterestinthe
transferredproperty.
8.Wherepropertyistransferredforaparticularpurposeandthatpurposefails,thepropertymaybe
heldontrust,knownasaQuistclosetrust.Thismightbearesultingtrust,butitmayalsobean
expresstrustorconstructivetrust.Thecorrectclassificationofthetrustdependsupontheparticular
circumstancesofagivencase.
1.Introduction
Resultingtrustsoperateinthespacebetweenexpresstrustsandconstructivetrusts.Theroomforresultingtrusts
might,therefore,besqueezedbothbymorereadilyfindinganexpressintentiontocreateatrust,1 andbya
greaterwillingnesstoimposeconstructivetrusts,particularlyinthecontextof(p.354) thefamilyhome,2 butalso
inmorecommercialcontexts.3 Ifthescopeofexpresstrustsandconstructivetrustsbroadens,theroleof
resultingtrustswillcorrespondinglybemorelimited.Nevertheless,resultingtrustsarewellestablished,real
trusts,withtitletothepropertybeingdividedbetweentrusteesandbeneficiaries.
ResultingtrustsarisewhereAtransferspropertytoB,andBholdsthatpropertyontrustforA.Thisfactpatternis
notexclusivetoresultingtrusts:atrusteemayholdpropertyforthesettlorunderbothanexpresstrustanda
constructivetrustaswell.Butwhereasanexpresstrustarisesbecauseoftheexpressintentionofthesettlor,and
aconstructivetrustdoesnotgenerally 4 respondtointentionbutarisesbyoperationoflaw,5 aresultingtrustgives
effecttoanintentionofthesettlorthathasnotbeenmadeexpress.Amajordifficultyliesinascertainingthe
requisiteintentionofthesettlor.Therehasbeenimpetusfromsomecommentatorstoexpandtheroleofresulting
trusts,relyinglargelyonananalysisbaseduponunjustenrichment,baseduponthecontentionthatresulting
trustsrespondtothesettlorsabsenceofintentionthatthetrusteeshouldbenefitfromtheproperty.6 Themore
restrictive,orthodoxapproachstatesthatresultingtrustsreflectthepresumed,positiveintentofthesettlorto
7
retain7 thebeneficialinterestinthetransferredproperty.
Itisimportanttoappreciatethatthetwoapproacheswilloftenleadtosimilarresults:apositiveintentiontohave
thebeneficialinterestgenerallycorrespondstoanabsenceofintentionforanybodyelsetohaveit.Butthetwodo
notinevitablyconverge.So,ifAgivespropertytoB,underthemistakenbeliefthatsuchmoneyisdue,butinfact
AhadalreadypaiditsdebttoB,doesBholdthemoneyreceivedunderthesecondpaymentonresultingtrustfor
A?8 ItmightbethoughtthatthemistakevitiatesAsintentionthatBshouldbenefitfromtheproperty,sothe
absenceofintentionapproachcouldleadtoaresultingtrust.However,uponmakingthepaymentAdidnotintend
toretainanybeneficialinterestintheproperty,butratherintendedtotransferthebeneficialinteresttoBso,on
thepositiveintentionanalysisnoresultingtrustwouldarise.Theseapproacheswillbeexplainedmorefullyinthis
chapterthepreferableapproachcanbebestassessedoncetheleadingcaseshavebeenexaminedandthe
typesofsituationsinwhichresultingtrustsariseareunderstood.
(a)TheMeaningofResulting
ThetermresultingtrustcomesfromtheLatinverbresalire,whichmeanstojumpback:thebeneficialinterest
isthoughttojumpbacktoA.However,asBirkspointedout:9
thereisacontinuingdebateastowhethertheideaofjumpingbackintheLatinresalireisanythingmore
thanamisleadingmetaphor.Itmaybemoreaccuratetosaythattheinterestjumpsupintheperson
beneficiallyentitledratherthanbacktohim,orthatitisinhimfromthebeginningofthestoryandnever
leaves.
(p.355) Itmightbethatresultingtrustsconcernthetransferorsretainingthebeneficialinterestin
property.10 Nevertheless,thetransferorwillgenerallyhavelegaltitlebeforetransferringthepropertytothetrustee,
butanequitableinterestundertheresultingtrustitis,therefore,difficulttoconsiderhimtoberetainingan
interestthathedidnotenjoyattheoutset.11 Itmight,therefore,bebettertoviewaresultingtrustascreatinga
newequitableinterestinthepropertytransferred.Butinanyevent,asMegarryJpointedoutinReVandervell(No.
2):12
therehasbeenatransactionwhichhasdividedthebareownershipfromthebeneficialinterest,andwhether
Asbeneficialinterestissomethingthathekeepsback,orwhetheritissomethingthathegetsback,the
resultseemssubstantiallythesame.
(b)CategoriesofResultingTrust
Thetypesofresultingtrustareoftensplitintotwocategories.InVandervellvIRC,13 LordUpjohncommented
that:
WhereAtransfers,ordirectsatrusteeforhimtotransfer,thelegalestateinpropertytoBotherwisethan
forvaluableconsiderationitisaquestionoftheintentionofAinmakingthetransferwhetherBwastotake
beneficiallyorontrustand,ifthelatter,onwhattrusts.If,asamatterofconstructionofthedocument
transferringthelegalestate,itispossibletodiscernAsintentions,thatisanendofthematterandno
extraneousevidenceisadmissibletocorrectandqualifyhisintentionssoascertained.
Butif,asinthiscase(acommonformsharetransfer),14 thedocumentissilent,thenthereissaidtoarise
aresultingtrustinfavourofA.Butthisisonlyapresumptionandiseasilyrebutted.Alltherelevantfacts
andcircumstancescanbeconsideredinordertoascertainAsintentionswithaviewtorebuttingthis
presumption.
Butthedoctrineofresultingtrustplaysanotherveryimportantpartinourlawand,inmyopinion,is
decisiveofthiscase.
IfAintendstogiveawayallhisbeneficialinterestinapieceofpropertyandthinkshehasdonesobut,by
somemistakeoraccidentorfailuretocomplywiththerequirementsofthelaw,hehasfailedtodoso,
eitherwhollyorpartially,therewill,byoperationoflaw,bearesultingtrustforhimofthebeneficialinterest
ofwhichhehadfailedeffectuallytodispose.IfthebeneficialinterestwasinAandhefailstogiveitaway
effectivelytoanotherorothersoroncharitabletrustsitmustremaininhim.EarlyreferencestoEquity,like
Nature,abhorringavacuum,aredelightfulbutunnecessary.
(p.356) InReVandervell(No.2),15 MegarryJemphasizedthisdistinction:
Thedistinctionbetweenthetwocategoriesofresultingtrustsisimportantbecausetheyoperateindifferent
ways.Puttingitshortly,inthefirstcategory,subjecttoanyprovisionsintheinstrument,thematterisone
ofintention,withtherebuttablepresumptionofaresultingtrustapplyingiftheintentionisnotmade
manifest.Forthesecondcategory,thereisnomentionofanyexpressionofintentioninanyinstrument,or
ofanypresumptionofaresultingtrust:theresultingtrusttakeseffectbyoperationoflaw,andsoappears
tobeautomatic.Whatamanfailseffectuallytodisposeofremainsautomaticallyvestedinhim,andno
questionofanymerepresumptioncanarise.Thetwocategoriesarethusofpresumedresultingtrustsand
automaticresultingtrusts.
Foreaseofexposition,thecaseswillbepresentedinthesetwocategories.Itisimportant,however,toappreciate
thatthedividebetweenthetwoiscontroversial.InWestdeutscheLandesbank vIslingtonLBC,16 LordBrowne
Wilkinsonrecognizedthattherearetraditionallytwocategoriesofresultingtrust,butarguedthatbothcouldbe
explainedonthebasisofpresumedintentions.17
Underexistinglawaresultingtrustarisesintwosetsofcircumstances:(A)whereAmakesavoluntary
paymenttoBorpays(whollyorinpart)forthepurchaseofpropertywhichisvestedeitherinBaloneorin
thejointnamesofAandB,thereisapresumptionthatAdidnotintendtomakeagifttoB:themoneyor
propertyisheldontrustforA(ifheisthesoleproviderofthemoney)orinthecaseofajointpurchaseby
AandBinsharesproportionatetotheircontributions.Itisimportanttostressthatthisisonly
apresumption,whichpresumptioniseasilyrebuttedeitherbythecounterpresumptionof
advancement18 orbydirectevidenceofAsintentiontomakeanoutrighttransfer(B)WhereAtransfers
propertytoBonexpresstrusts,butthetrustsdeclareddonotexhaustthewholebeneficialinterest
Bothtypesofresultingtrustaretraditionallyregardedasexamplesoftrustsgivingeffecttothecommon
intentionoftheparties.Aresultingtrustisnotimposedbylawagainsttheintentionsofthetrustee(asisa
constructivetrust)butgiveseffecttohispresumedintention.MegarryJinInReVandervellsTrusts(No.
2)suggeststhataresultingtrustoftype(B)doesnotdependonintentionbutoperatesautomatically.Iam
notconvincedthatthisisright.Ifthesettlorhasexpressly,orbynecessaryimplication,abandonedany
beneficialinterestinthetrustproperty,thereisinmyviewnoresultingtrust:theundisposedofequitable
interestvestsintheCrownasbonavacantia.
Forpresentpurposes,itisimportanttonotethegeneralagreementthatresultingtrustsariseintwotypesof
circumstances:(i)uponavoluntaryconveyance,apresumedresultingtrustand(ii)whereanexpresstrustfails
ordoesnotexhaustthebeneficialinterest,anautomaticresultingtrust.Itisusefultoconsiderthecasesunder
thesetwoheadings.Nevertheless,itmaybethatthesamerationalethepresumedintentionofthetransferor
underpinsboththesecategoriesthiswillbeconsideredbelow.19 ButitisoddthatLordBrowneWilkinson
inWestdeutschereferredtotheintentionsofboththetransferorandthetrusteeinthiscontext.Itispreferableto
focusupontheintentionofthetransferoralonewhetherornotthetrusteeknewwhatthetransferorintended
shouldnotbe(p.357) determinative.Seekingacommonintentionbetweenthetransferorandtrusteeisbetter
suitedtoacommonintentionconstructivetrust.20 AsLordMilletthasobserved,21
Aresultingtrustcanalsoariseeveniftherecipientisunawareofthetransferorofthecircumstancesin
whichitwasmade.Indeed,thisisperhapsthecommonestcase.Theplaintiffmakesagratuitoustransfer
tothedefendant.Heafterwardsdemandsthereturnoftheproperty.Thedefendantrefuses,andclaimsthat
itwasagift.Theoutcomedependsontheplaintiffsintentionatthetimeofthetransfer,notonthe
defendantsunderstandingofhisintention.Thisshowsthattheresultingtrustisnotmerelyaconstructive
trustwhichhappenstobeinfavourofthepersonatwhoseexpensethepropertywasprovided.The
recipientisboundbythetrustevenifhehonestlybelievedhimselftobeabsolutelyandbeneficiallyentitled
topropertytransferredtohimbywayofoutrightgift.Hisconsciencemaybeclear.Theexistenceofa
resultingtrusthasneverbeenmadetodependonunconscionableconductornoticeonthepartofthe
recipient.
2.PresumedResultingTrusts
Equityisgenerallysuspiciousofgiftsmadefornoconsiderationinreturn,andwillpresumethatadoneewas
expectedtoholdthepropertyontrustforthedonorbyvirtueofthesocalledpresumptionofresultingtrust.In
somecircumstances,however,Equitywillpresumethatagiftwasintendedbecauseoftherelationshipbetween
theparties,asaresultofthesocalledpresumptionofadvancement.Theeffectofthesedifferentpresumptions
relatestotheallocationoftheburdenofproof:22 wherethepresumptionofadvancementarises,theburdenwillbe
onthetransfereetoshowatrustwasnotintended,andwherethepresumptionofadvancementapplies,the
burdenwillbeonthetransferortoshowthatheorshedidnotintendagiftbutintendedtohaveabeneficial
interestintheproperty.InStack vDowden,23 BaronessHalesaid:
Thepresumptionofresultingtrustisnotaruleoflaw.AccordingtoLordDiplockinPettitvPettit[1970]
AC777,823H,theequitablepresumptionsofintentionarenomorethanaconsensusofjudicialopinion
disclosedbyreportedcasesastothemostlikelyinferenceoffacttobedrawnintheabsenceofany
evidencetothecontrary.Equity,beingconcernedwithcommercialrealities,presumedagainstgiftsand
otherwindfalls(suchassurvivorship).Butevenequitywaspreparedtopresumeagiftwheretherecipient
wastheproviderswifeorchild.
Itissensiblefirsttoexaminethepresumptionofresultingtrust.Therearetwoprincipalcategories:(i)voluntary
conveyancesand(ii)resultingtrusts,whichariseduetoacontributionofmoneytothepurchaseofproperty.In
allevents,however,itisimportanttorememberthatthereisonlyscopeforthepresumptionstoapplywherean
expressintentionofthetransferorthatthepropertybeheldontrustcannotbefound.Moreover,these
presumptionscanberebuttedbyanyevidenceindicatingthataresultingtrustwasnotintended.24
(p.358) (a)VoluntaryConveyances
Wherepropertyistransferredfornoconsideration,arebuttablepresumptionarisesthatthetransfereeholdsona
resultingtrustforthetransferor.25 InReVinogradoff,26 MrsVinogradoffgratuitouslytransferredsharesworth800
intothejointnamesofherselfandhergranddaughter,whowasfouryearsold.OnMrsVinogradoffsdeath,Farwell
Jheldthatapresumptionofresultingtrustarose,suchthat:
Thestockwasnotthepropertyoftheinfant,butformedpartoftheestateofthetestatrix.
Thegranddaughterthereforeheldthesharesonresultingtrustforhergrandmothersestate.Thiscaseshowsthat
thecourtsarewillingtoapplythepresumptionofresultingtrusttoanygift.However,theresultinRe
Vinogradoffappearsstrange,sincethefactthatthegranddaughterwassoyoungwouldsuggestthatshewasnot
intendedtobeatrusteebuttherecipientofagift,sothepresumptionofresultingtrustmighthavebeen
rebutted.27
Thepresumptionofresultingtrustusedtoapplytolandinthesamemanneraspersonalty,butsection60(3)of
theLawofPropertyAct1925nowgovernstheformer.
60.Abolitionoftechnicalitiesinregardtoconveyancinganddeeds
(3)Inavoluntaryconveyancearesultingtrustforthegrantorshallnotbeimpliedmerelybyreasonthat
thepropertyisnotexpressedtobeconveyedfortheuseorbenefitofthegrantee.
Theeffectofthisprovisionisthatavoluntaryconveyanceoflandtakeseffectasexpressed,unlessthereis
evidenceofacontraryintentioninotherwords,thereisnopresumptionofaresultingtrustsimplybecausethe
conveyanceisnotexpresslymadeforthebenefitofthepersonwhoreceivestheland.Itisunclearwhethersucha
28
presumptionexistedpriorto1925,28 butsection60(3)hasbeeninterpretedsuchthatanypresumptionofresulting
trustthatmayoncehaveexisteddoessonolonger.So,althoughinHodgsonvMark s,29 RussellLJraised:
thedebatablequestionwhetheronavoluntarytransferoflandbyAtostrangerBthereisapresumptionof
aresultingtrust
inLohiavLohia,30 NicholasStraussQCsaidthat:
section60(3)providesineffectthatavoluntaryconveyancemeanswhatitsaysitisnotnecessarytouse
additionalwordstomakeiteffective.Itislikelythatby1925thesuspicionwithwhichgiftsofland(p.
359) wereformerlyviewed,whichwasatleastoneoftheunderlyingreasonsforthepresumption,wouldno
longerhavebeenregardedasmaterial,andthatthepurposeofsection60(3)wasaccordinglytodoaway
withthepresumptionofaresultingtrustinthecasesofvoluntaryconveyanceandtomakeitnecessaryfor
thepersonseekingtoestablisharesultingtrusttoproveit.
TheCourtofAppealinLohiadidnotneedtoconsiderthesecommentsofthetrialjudge,31 butinKhanv
Ali,32 MorrittVCcitedthefirstinstancedecisioninLohiawithapprovalandconcludedthat:
LohiavLohiaestablishesthatthepresumptionofaresultingtrustonavoluntaryconveyanceoflandhas
beenabolishedbys.60(3)LawofPropertyAct1925.Itwasnotsuggestedthatthispropositionprecludesa
partytotheconveyancefromrelyingonevidencefromwhicharesultingtrustmaybeinferred.
Wheretheconveyanceisofrealproperty,thereisnopresumptionofresultingtrustsimplybecausethe
conveyancedoesnotexplicitlystatethetransfertobefortheuseorbenefitofthetransferee.
(b)PurchaseMoneyResultingTrusts
Inasimilarmannertovoluntaryconveyances,whereapurchaserbuyspropertyinthenameofathirdparty,or
joinsinthepurchaseofpropertywithanotherpartybutinthenameofthatotherpartyonly,itispresumedthat
thepropertyisheldonresultingtrustforthepurchaser,proportionatetothepurchaserscontributiontothe
purchaseprice.Thepresumptionofresultingtrustoperatesinthesamemannerregardlessofwhetherthe
propertypurchasedisrealtyorpersonalty:section60(3)ofthe1925Acthasnoapplication,sincetheconveyance
isnotvoluntarybutgiveninreturnforthepurchaseofproperty.
Aslongagoas1788,EyreCJwasabletostateinDyervDyer33 that:
Theclearresultofallthecases,withoutasingleexception,is,thatthetrustofalegalestate,whether
freehold,copyhold,orleaseholdwhethertakeninthenamesofthepurchasersandothersjointly,orinthe
nameofotherswithoutthatofthepurchaserwhetherinonenameorseveralwhetherjointlyor
successive,resultstothemanwhoadvancesthepurchasemoney.Thisisageneralpropositionsupported
byallthecases,andthereisnothingtocontradictitanditgoesonastrictanalogytotheruleofthe
commonlaw,thatwhereafeoffmentismadewithoutconsideration,theuseresultstothefeoffor.
Thispresumptionofresultingtrustcanstillbeofpracticalsignificance.Forexample,inAbrahamsvTrusteein
Bank ruptcyofAbrahams,34 awifepaidbothherownshareandthatofherestrangedhusbandinpurchasinga
winningNationalLotteryticket.Itwasheldthattherewasnothingtorebutthepresumptionofresultingtrust,so
thewifewasentitledtoallthewinnings,whichwereattributabletobothshares.35
(p.360) Itisimportanttoappreciatethattheresultingtrustarisesatthemomentofpurchaseoftherelevant
property,andthatthebeneficialsharesofthepropertybecomefixedatthatpoint.Manycaseshaveconcerneda
partyscontributingtoapurchasepricebytakingoutamortgageinsuchcircumstances,thesizeofthe
mortgagefacilityrepresentsthepartyscontribution:sincethepartiessharesunderaresultingtrustcrystallizeon
themomentofacquisition,howthemortgageislaterfinancedisofnoconsequencetotheresultingtrust.So,
inCurleyvPark es,36 PeterGibsonLJstatedthat:
Therelevantprincipleisthattheresultingtrustofapropertypurchasedinthenameofanother,inthe
absenceofcontraryintention,arisesonceandforallatthedateonwhichthepropertyisacquired.
Becauseoftheliabilityassumedbythemortgagorinacasewheremoniesareborrowedbythemortgagor
tobeusedonthepurchase,themortgagoristreatedashavingprovidedtheproportionofthepurchase
priceattributabletothemoniessoborrowed.Subsequentpaymentsofthemortgageinstalmentsarenot
partofthepurchasepricealreadypaidtothevendor,butaresumspaidfordischargingthemortgagors
obligationsunderthemortgage
Byreasonofthatprincipleandthemodernrelianceonmortgagefinancetheimportanceoftheresulting
trusthasdiminished,andinsteadrelianceisgenerallyplacedonaconstructivetrustwhereanagreement
orcommonintentioncanbefoundorinferredfromthecircumstances.
Thisraisesanimportantpoint:resultingtrustswillonlyarisewhereaconstructivetrustcannotbefound.Inthe
domesticcontext,whereonepartycontributesmoneyforthepurchaseofpropertyinthesolenameofanother,
thecourtwillnowpreferananalysisbaseduponaconstructivetrusttoreflectthecommonintentionsofthe
parties,ratherthanaresultingtrust.37 Thesameisalsotrueregardingapurchaseinthenamesofbothparties.
InJonesvKernott,38 LordWalkerandBaronessHalerecognizedthat:
inthecaseofthepurchaseofahouseorflatinjointnamesforjointoccupationbyamarriedorunmarried
couple,wherebothareresponsibleforanymortgage,thereisnopresumptionofaresultingtrustarising
fromtheirhavingcontributedtothedeposit(orindeedtherestofthepurchase)inunequalshares.
Asaresultofthisshiftinapproach,manypreviouscaseswherearesultingtrustwasfoundinthedomestic
contextshouldnowbereanalysedasinstancesofaconstructivetrust.Butwherethepropertyispurchased
forcommercialpurposes,thereisstillscopetoarguethatapurchasemoneyresultingtrustshouldarise.An
exampleofthiscanbefoundinthedecisionoftheCourtofAppealinLask arvLask ar.39 Inthatcase,the
defendanthadboughthercouncilhousewithherdaughter.Theywerejointlyandseparatelyliableonthe
mortgage,thedaughterbeingincludedbecausethemothercouldnototherwisehaveobtainedthemortgage.The
propertywaspurchasedasaninvestment,ratherthanasthefamilyhome,andrentfromtenantswasusedtopay
themortgageinstalments.Adisputearoseaboutthebeneficialownershipoftheproperty.TheCourtofAppeal
recognizedthatthepresumptionofresultingtrustappliedand,sincebothmotheranddaughterwerejointlyliable
onthemortgage,itfollowedthattheyweredeemedtohavecontributedtheloanmoneyequallyeventhoughthere
wasnoexpectationthatthedaughterwouldactuallyhavetopayanything.LordNeubergerMRcommentedthat:40
(p.361) ItisbynomeanscleartomethattheapproachlaiddownbyBaronessHaleofRichmondin
[Stack vDowden]41 intendedtoapplyinacasesuchasthis.Inthiscase,althoughthepartieswere
motheranddaughterandnotinthatsenseinanarmslengthcommercialrelationship,theyhad
independentlives,and,asIhavealreadyindicated,thepurchaseofthepropertywasnotreallyforthe
purposeofprovidingahomeforthem.Thedaughterhardlylivedthereatthetimeitwaspurchased,anddid
notlivetheremuchifatallafterwards,andthemotherdidnotlivethereforlong.Thepropertywas
purchasedprimarilyasaninvestment.
Itwasarguedthatthiscasewasmidwaybetweenthecohabitationcasesofcoownershipwhereproperty
isboughtforlivingin,suchasStack ,andarmslengthcommercialcasesofcoownership,whereproperty
isboughtfordevelopmentorletting.Inthelattersortofcase,thereasoninginStack vDowdenwouldnot
beappropriateandtheresultingtrustpresumptionstillappearstoapply.Inthiscase,theprimarypurpose
ofthepurchaseofthepropertywasasaninvestment,notasahome.Inotherwordsthiswasapurchase
which,atleastprimarily,wasnotinthedomesticconsumercontextbutinacommercialcontext.Tomy
minditwouldnotberighttoapplythereasoninginStack vDowdentosuchacaseasthis,wherethe
partiesprimarilypurchasedthepropertyasaninvestmentforrentalincomeandcapitalappreciation,even
wheretheirrelationshipisafamilialone.
(c)PresumptionofAdvancement
InTinsleyvMilligan,42 LordBrowneWilkinsonstatedthat:
Onatransferfromamantohiswife,childrenorotherstowhomhestandsinlocoparentis,equity
presumesanintentiontomakeagift.
Anearlyexplanationofthispresumptionofgift,otherwiseknownasthepresumptionofadvancement,wasgiven
bySirGeorgeJesselMRinBennettvBennett,inwhichhesaid:43
Thedoctrineofequityasregardspresumptionofgiftsisthis,thatwhereonepersonstandsinsucha
relationtoanotherthatthereisanobligationonthatpersontomakeaprovisionfortheother,andwefind
eitherapurchaseorinvestmentinthenameoftheother,orinthejointnamesofthepersonandtheother,
ofanamountwhichwouldconstituteaprovisionfortheother,thepresumptionarisesofanintentiononthe
partofthepersontodischargetheobligationtotheotherandtherefore,intheabsenceofevidencetothe
contrary,thatpurchaseorinvestmentisheldtobeinitselfevidenceofagift.
Inotherwords,thepresumptionofgiftarisesfromthemoralobligationtogive.
Thatreconcilesallthecasesuponthesubjectbutone,becausenothingisbetterestablishedthanthis,
thatasregardsachild,apersonnotthefatherofthechildmayputhimselfinthepositionofoneinloco
parentistothechild,andsoincurtheobligationtomakeaprovisionforthechild
Apersoninlocoparentismeansapersontakinguponhimselfthedutyofafatherofachildtomakea
provisionforthatchild.Itisclearthatinthatcasethepresumptioncanonlyarisefromtheobligation,and
thereforeinthatcasethedoctrinecanonlyhavereferencetotheobligationofafathertoprovideforhis
child,andnothingelse.
(p.362) Butthefatherisunderthatobligationfromthemerefactofhisbeingthefather,andthereforeno
evidenceisnecessarytoshewtheobligationtoprovideforhischild,becausethatispartofhisduty.Inthe
caseofafather,youhaveonlytoprovethefactthatheisthefather,andwhenyouhavedonethatthe
obligationatoncearisesbutinthecaseofapersoninlocoparentisyoumustprovethathetookupon
himselftheobligation.
Thebasisofthispresumptioniseasilyunderstood:whenafathergivespropertytohischildorwife,inthe
absenceofanycontraryindications,itmightwellbepresumedthatheintendedagift,ratherthanforhimtohave
anybeneficialinterestintheproperty.Nevertheless,theexistenceofthispresumptionhasbeencriticized.For
example,inPettittvPettitt,44 LordReidcommentedthat:
Idonotknowhowthispresumptionfirstarose,butitwouldseemthatthejudgeswhofirstgaveeffecttoit
musthavethoughteitherthathusbandssocommonlyintendedtomakegiftsinthecircumstancesin
whichthepresumptionarisesthatitwaspropertoassumethiswheretherewasnoevidence,orthatwives
economicdependenceontheirhusbandsmadeitnecessaryasamatterofpublicpolicytogivethemthis
advantage.Icanseenootherreasonablebasisforthepresumption.Theseconsiderationshavelargelylost
theirforceunderpresentconditions,and,unlessthelawhaslostallflexibilitysothatthecourtscanno
longeradaptittochangingconditions,thestrengthofthepresumptionmusthavebeenmuchdiminished.
Althoughthenecessityofwivestodependupontheirhusbandsforeconomicsurvivalhasundoubtedlydiminished,
thisdoesnotnecessarilymeanthatapresumptionofgiftisinappropriate,giventhenatureoftherelationship
betweentheparties.Butthepresumptionofadvancementhasfurtherbeencriticizedbecauseofthedistinctionit
drawsbetweengiftsfromhusbandtowifeandfromwifetohusband,aswellasbetweengiftsfromfathertochild
andmothertochild.So,inAbrahamsvTrusteeinBank ruptcyofAbrahams,45 therewasapresumptionof
resultingtrustwhenawifeboughtalotteryticketforherhusband.But,ifthehusbandhadboughtalotteryticket
forhiswife,therewouldhavebeenthecontrarypresumptionofadvancement.Similarly,althoughatransferfroma
fathertohischildraisesthepresumptionofadvancement,ifthetransferisfrommothertochild,thenthecontrary
presumptionofresultingtrustarises.46
Suchresultshaverightlybeencriticizedasdiscriminatory.Whyshoulditmatterwhetherthetransferorwasmale
orfemale?Indeed,ithasevenbeensuggestedthattheveryexistenceofthepresumptionofadvancementis
contrarytohumanrights,47 althoughthebetterviewisthatthepresumptionofadvancementinitselfisprobably
notcontrarytotheUnitedKingdomsobligationsundertheEuropeanConventiononHumanRights.48 Inany
event,thedistinctionbetweenmaleandfemale(p.363) transferorsisunsatisfactory.Thereappeartobetwo
optionsforfuturereform:eitherabolishthepresumptionofadvancement,orextenditsothatitappliestotransfers
fromwifetohusbandandmothertochild,forexample.
TheformerpathwasfavouredintheEqualityAct2010,section199:
EqualityAct2010
199Abolitionofpresumptionofadvancement
(1)Thepresumptionofadvancement(bywhich,forexample,ahusbandispresumedtobe
makingagifttohiswifeifhetransferspropertytoher,orpurchasespropertyinhername)is
abolished.
(2)Theabolitionbysubsection(1)ofthepresumptionofadvancementdoesnothaveeffectin
relationto
(a)anythingdonebeforethecommencementofthissection,or
(b)anythingdonepursuanttoanyobligationincurredbeforethecommencementofthis
section.
However,despitemuchoftheEqualityActalreadybeingimplemented,section199isnotyetinforce,andthere
arenoindicationsthattheGovernmentintendstobringitintoforce.49 Moreover,evenifsection199isbroughtinto
force,itwouldnotaffectanythingdonepriortoitscommencement,andthecourtswouldstillneedtograpplewith
thepresumptionofadvancement.
Thereissomeindicationthatthecourtsmightbewillingtoremovethediscriminatorycharacterofthe
presumptionofadvancementbyextendingittotransfersmadebywomenaswell.Thus,inAntonivAntoni,50 Lord
Scott,givingtheadviceofthePrivyCouncil,employedgenderneutrallanguageindescribingthepresumptionof
advancementasapplying51
whenaparentplacesassetsinthenameofachildandassumesthattheparentintendstomakeagiftto
thechild.
Morerecently,inCloseInvoiceFinanceLtdvAbaowa,MrSimonPickenQC,sittingasaDeputyHighCourt
Judge,expressedasimilarview.
CloseInvoiceFinanceLtdvAbaowa[2010]EWHC1920(QB)[93][94](MrSimonPicken
QC)
Ishouldmakeitclearthat,had[counsel]chosentopressheroriginalsubmissionthatthe
presumptionofadvancementdoesnotariseinacasesuchasthepresentinvolvingamotheranda
daughter,Iwouldhavehadnohesitationindecidingthatinthemodernagethepresumptionof
advancementshould,indeed,betakenasapplyingbetweenamotherandadaughterinthesameway
thatitdoesasbetweenafatherandhischild.Thepropositionthatthepresumptiondoesnotapplyin
relationtoacontributionbyamotherderivesfromthedecisioninReDeVisme(1863)2DeGJ&SM
17,whichwasfollowedbyJesselMR(sittingasajudgeoffirstinstance)inBennetvBennet(1879)
10ChD474.(p.364) DeVisme,whichwasnot,inanyevent,followedbyStuartVCinSayrev
Hughes(1868)LR5Eq376,camebeforethecourtonanunopposedpetitioninlunacy.Itdoesnot
appeartohavebeenanappeal,althoughdecidedbyLordsJustices.Thequestioninthecasewas
whethersavingsbyadeceasedmotherinvestedinthejointnamesofherson(alunatic)andher
daughter(herexecutrix)shouldbetransferredtothedaughterasexecutrix.Itwasarguedthatthe
presumptionofadvancementdidnotapply,andthecourtmadetheordersought.Noreasonswere,
however,givenforthatdecision.ThejudgesinSayreandBennetcametodifferentconclusions
becausetheyhaddifferentviewsastothebasisforthepresumptionofadvancement.StuartVCtook
theviewthatthepresumptionwasbasedonaffectionasamotiveuponwhichaparentwillactin
advancingtheinterestsofachildand,accordingly,wasatleastasappositeinrelationtoamotheras
afather(ifnotmoreso).JesselMRwasoftheviewthatthepresumptionwasbasedonthemoral
obligation(recognisedasanequitableobligationbytheCourtsofEquity)ofafathertoprovideforhis
children,anobligationwhichhesaidamotherdidnothave.
AsIseeitthedistinctionbetweenafatherandamotherinrelationtothepresumptionof
advancementcannotstandtoday.Oursocietyrecognisesfathersandmothersashavingsimilar
obligationsinrelationtoprovisionfortheirchildrenandrecognisesthat,broadlyspeaking,fathersand
mothershavesimilardegreesofaffectionforthem.Transferstochildrenbymothersareinthisdayand
ageaslikelytobegiftsasaretransfersbyfathers.Moreover,legalpolicytowardstheownershipof
assets,bymarriedwomenatleast,haschangedsignificantlysincethetimewhenDe
VismeandBennetwerebeforethecourt.Thereisnowasmuchmoralobligationonthepartofa
motherwithmoneytobenefitherchildrenwithitasthereisinthecaseofafather,anditisequally
likelythatshewillintendtoconfersuchabenefitasafatheris.
Thisapproachseemssensible,andislikelytobeadoptedwhilstwaitingforsection199oftheEqualityAct2010
tobeimplemented.However,ifabolishingthepresumptionofadvancementwouldleaveapresumptionofresulting
trustinitsstead,itisquestionablewhethertheimplementationofsection199wouldbesatisfactory:wherea
fathertransferspropertytohisson,shoulditreallybepresumedthatagiftwasnotintended?
Inanyevent,itisimportanttorecognizethatthepresumptionofadvancementwillrarelybedeterminativeindeed,
itisclearthatitisnotasstrongasitoncewas.InStack vDowden,52 LordNeubergercommentedthat:
thepresumptionofadvancement,asbetweenmanandwife,whichwassoimportantinthe18thand19th
centuries,hasnowbecomemuchweakened,althoughnotquitetothepointofdisappearance.
Justlikethepresumptionofresultingtrust,thepresumptionofadvancementisreadilyrebuttedbycontrary
evidence.Itis,therefore,importanttoconsiderwhatsortofevidencemightrebutboththepresumptionofresulting
trustandthepresumptionofadvancement.
(d)RebuttingthePresumptions
Thepresumptionsareonlylongstopstobeusedintheabsenceofevidencetothecontrary.AsLordUpjohnput
itinVandervell:53
thesocalledpresumptionofaresultingtrustisnomorethanalongstoptoprovidetheanswerwhenthe
relevantfactsandcircumstancesfailtoyieldasolution.
(p.365) Thesameisundoubtedlytrueofthepresumptionofadvancement.InPettittvPettitt,54 LordHodson

said:
Inolddayswhenawifesrighttopropertywaslimited,thepresumption,nodoubt,hadgreatimportance
andtoday,whentherearenolivingwitnessestoatransactionandinferenceshavetobedrawn,theremay
benootherguidetoadecisionastopropertyrightsthanbyresorttothepresumptionofadvancement.Ido
notthinkitwouldoftenhappenthatwhenevidencehadbeengiven,thepresumptionwouldtodayhaveany
decisiveeffect.
Eitherpresumptioncanbedisplacedbysufficientevidencetothecontrary.Sowhereapresumptionofresulting
trustarises,evidencethatthetransferordidnotintendtohaveabeneficialinterestinthepropertycanbeusedto
rebutthepresumption.AsLordUpjohninsistedinVandervell:55
[thepresumptionofresultingtrust]isonlyapresumptionandiseasilyrebutted.Alltherelevantfactsand
circumstancescanbeconsideredinordertoascertain[thedonors]intentionswithaviewtorebuttingthis
presumption.
AgoodexampleofthepresumptionofresultingtrustbeingrebuttedisFowk esvPascoe.
FowkesvPascoe[1875]10ChApp343,3524
Amother,MrsBaker,hadpurchasedannuitiesinthejointnamesofherselfandherdaughterinlawsson,Mr
Pascoe.AlthoughitwaspresumedthatMrPascoeheldtheannuitiesonresultingtrust,thispresumption
waseasilyrebuttedinthelightofthecircumstancesofthecase,whichincludedthatMrsBakerwaswealthy,
hewaslivinginherhouse,andshewasalreadyprovidingforhimfinancially.Allofthissuggestedthatshe
hadintendedhimtohaveabeneficialinterestintheannuity.
MellishLJ:
Now,thepresumptionmust,beyondallquestion,beofverydifferentweightindifferentcases.Insome
casesitwouldbeverystrongindeed.If,forinstance,amaninvestedasumofstockinthenameof
himselfandhissolicitor,theinferencewouldbeverystrongindeedthatitwasintendedsolelyforthe
purposeoftrust,andtheCourtwouldrequireverystrongevidenceonthepartofthesolicitortoprove
thatitwasintendedasagiftandcertainlyhisownevidencewouldnotbesufficient.Ontheother
hand,amanmaymakeaninvestmentofstockinthenameofhimselfandsomeperson,althoughnot
achildorwife,yetinsuchapositiontohimastomakeitextremelyprobablethattheinvestmentwas
intendedasagift.Insuchacase,althoughtheruleoflaw,iftherewasnoevidenceatall,would
compeltheCourttosaythatthepresumptionoftrustmustprevail,eveniftheCourtmightnotbelieve
thatthefactwasinaccordancewiththepresumption,yet,ifthereisevidencetorebutthe
presumption,then,inmyopinion,theCourtmustgointotheactualfacts.Andifwearetogointothe
actualfacts,andlookatthecircumstancesofthisinvestment,itappearstomeutterlyimpossible,as
theLordJusticehassaid,tocometoanyotherconclusionthanthatthefirstinvestmentwasmadefor
thepurposeofgiftandnotforthepurposeoftrust.Itwaseitherforthepurposeoftrustorelseforthe
purposeofgiftsandthereforeevidencewhichshowsitwasnotforthepurposeoftrustisevidenceto
shewthatitwasforthepurposeofgifts.Wefindaladyofconsiderablefortune,havingnonearer
connectionsthan(p.366) Mr.Pascoe,whowasthenayoungmanlivinginherhouse,andforwhom
shewasproviding.Wefindher,manifestlyoutofhersavings,buyingasumof250stockinthejoint
namesofherselfandhim,andatthesametimebuyinganothersumof250stock,ontheverysame
day,inthejointnamesofherselfandaladywhowaslivingwithherasacompanion.Then,applying
onescommonsensetothattransaction,whatinferenceisitpossibletodraw,exceptthatthe
purchaseswereintendedforthepurposeofgifts?Iftheywereintendedforthepurposeoftrusts,what
possiblereasonwastherewhythetwosumswerenotinvestedinthesamenames?Besides,atthe
verysametimetheladyhadalargesumofstockinherownname,andcouldanythingbemore
absurdthantosupposethataladywith4,000or5,000inherownnameatthattimeinthesame
stock,andhavingasumof500toinvestoutofhersavings,shouldgoandinvest250inthenameof
herselfandayounggentlemanwhowaslivinginherhouse,andanother250inthenameofherself
andhercompanion,andyetintendthewholetobeforherself?Icannotcometoanyotherconclusion
thanthatitmusthavebeenintendedbythewayofapresentafterherdeath.
Then,whenwehaveoncearrivedattheconclusionthatthefirstinvestmentwasintendedasagift(and
thesecondwasexactlysimilar),andwhenwefindthattheaccountwasopenedforthepurposeofa
gift,thosefactsappeartometorebutthepresumptionaltogether,becausewhenanaccountisonce
foundtobeopenedforthepurposeofagiftthereisverystrongreasontosupposethateverything
addedtothataccountwasintendedforthepurposeofgiftalso.Assumingthetestarixtoknowthat
shehadmadeagift,andhadinvestedasumofmoneyinstockinthejointnamesofherselfand
Pascoeforthepurposeofmakingapresenttohim,itwouldcertainlybeaveryextraordinarythingthat
sheshouldgoandaddotherlargesumstothataccount,notforthepurposeofmakingapresentto
him,butforthepurposeofhisbeingatrustee.Icannothelpcomingtotheconclusionthat,asa
matteroffact,theseinvestmentswereintendedforthepurposeofgift.
Therewereoneortwofactsreliedonagainstthisconclusion.ItwassaidthatMr.Pascoekeptthe
mattersecretforagreatnumberofyears,andneverrevealedit.Idonotgreatlyrelyonthat.Everyone
whohasexperienceknowsthatsomepersonsareveryreticentabouttheiraffairs,andsomepersons
arealwaystalkingaboutthem.Youcannotformanyinferenceastothat.Ifhereallyandbonafide
believed,andhadnodoubtthatitwasintendedforagift,andforhisuse,Idonotseethattherewas
anythingextraordinaryinhisnotmentioningittothepersonswhonowsayitwasnotmentionedto
them.Theonlyfactthatintheleastdegree,inmyopinion,wentagainsthimwashisnotaccounting
forthedividendwhichwasdueatthedeathofthetestatrix.Ithinkitisnotatallimpossiblethathe
mighthavehonestlybelievedthatthatwashis,althoughIentirelyagreethatinpointoflawitwasnot
so.
Itneednotnecessarilybeshown,however,thatthetransferwasbywayofgiftinordertorebutthepresumptionof
resultingtrust.AsLordBrowneWilkinsonrecognizedinWestdeutsche:56
thepresumptionofresultingtrustisrebuttedbyevidenceofanyintentioninconsistentwithsuchatrust,
notonlybyevidenceofanintentiontomakeagift.
InWestdeutsche,57 anypresumptionofresultingtrustwasrebuttedbecausethepaymentsmade,pursuanttoa
contractthatwasvoid,wereintendedtodischargecontractualobligationsthiswasinconsistentwithany
presumedintentiontocreatearesultingtrust,andsuchaconclusionwasnotaffectedbythefactthatthe
contractualobligationwasmistakenlybelievedtobevalid.Inasimilarvein,ifthemoneyisadvancedbywayof
loan,thenthatisalsoinconsistentwiththeargumentthata(p.367) resultingtrustarises,sincethelenderdoes
notintendtohaveabeneficialinterestinthemoneylent.58 AsBrowneWilkinsonJcommentedinInreSharpe(a
bank rupt):59
ifmoneysareadvancedbywayofloantherecanbenoquestionofthelenderbeingentitledtoan
interestinthepropertyunderaresultingtrust.Ifheweretotakesuchaninterest,hewouldgethismoney
twice:onceonrepaymentoftheloanandonceontakinghisshareoftheproceedsofsaleoftheproperty.
Asimilarapproachistakentorebuttingthepresumptionofadvancement.Anyevidencethatagiftwasnot
intendedwillbesufficienttorebutthepresumption.However,althoughthispresumptioncanberebuttedby
comparativelyslightevidence,60 anydeclarationofacontraryintentionadducedasevidencewillonlybeadmitted
ifitwasmadebefore,during,orimmediatelyafterthetimethepropertywaspurchasedortransferred.Ifthe
declarationwasmadeafterthetransaction,evidenceofthedeclarationwillonlybeadmissibleeitherifit
constitutedpartofthetransaction,orifitoperatesagainsttheinterestsofthepersonwhomadethe
declaration.61 Ifsubsequentdeclarationswereadmittedinfavourofthepersonmakingthedeclaration,itmightbe
tooeasyforapartytomanufactureevidencetofurtherhisorherowninterests.ShephardvCartwrightisagood
illustrationofthis.
ShephardvCartwright[1955]AC431,44550
Afatherhadpurchasedsharesthatwereregisteredinthenamesofhischildren.Thesharesweresoldand
theproceedsdepositedforthebenefitofthechildren.Thepresumptionofadvancementwasconsequently
engaged.Fiveyearslater,thefatherprocuredthewrittenconsentofthechildrentoenablehimtowithdraw
moneyfromtheirdepositaccount.Thechildrenwerenotawareofwhattheyhadsigned.Thequestionforthe
courtwaswhetherthisdocumentwassufficienttorebutthepresumptionofadvancement.Sincethiswas
evidencethatdidnotformpartoftheoriginaltransaction,itcouldbeadmittedonlyifitwasevidenceofthe
childrenadmittingthattheirfatherhadnotintendedagift,suchthattheevidenceoperatedagainsttheir
interests.Butsincethechildrenwerenotawareofwhattheyhadsigned,itcouldnotbeusedinthisway.
ViscountSimonds:Itmustthenbeaskedbywhatevidencecanthepresumptionberebutted,andit
would,Ithink,beveryunfortunateifanydoubtwerecast(asIthinkithasbeenbycertainpassagesin
thejudgmentsunderreview)uponthewellsettledlawonthissubject.Itis,Ithink,correctlystatedin
substantiallythesametermsineverytextbookthatIhaveconsultedandsupportedbyauthority
extendingoveralongperiodoftime.Iwilltake,asanexample,apassagefromSnellsEquity(24th
edn),p.153,whichisasfollows:
Theactsanddeclarationsofthepartiesbeforeoratthetimeofthepurchase,orsoimmediatelyafter
itastoconstituteapartofthetransaction,areadmissibleinevidenceeitherfororagainsttheparty
whodidtheactormadethedeclarationButsubsequentdeclarationsareadmissibleasevidence
onlyagainstthepartywhomadethem,andnotinhisfavour.
Idonotthinkitnecessarytoreviewthenumerouscasesofhighauthorityuponwhichthisstatement
isfounded.Itispossibletofindinsomeearlierjudgmentsreferencetosubsequenteventswithout
the(p.368) qualificationscontainedinthetextbookstatement:itmayevenbepossibletowonderin
somecaseshowinthenarrationoffactscertaineventswereadmittedtoconsideration.Butthe
burdenofauthorityinfavourofthebroadpropositionasstatedinthepassageIhavecitedis
overwhelmingandshouldnotbedisturbed.
Butalthoughtheapplicablelawisnotindoubt,theapplicationofitisnotalwayseasy.Theremust
oftenberoomforargumentwhetherasubsequentactispartofthesametransactionastheoriginal
purchaseortransfer,andequallywhethersubsequentactswhichitissoughttoadduceinevidence
oughttoberegardedasadmissionsbythepartysoacting,andiftheyaresoadmitted,furtherfacts
shouldbeadmittedbywayofqualificationofthoseadmissions.
MyLords,attheoutsetofthisopinionIsaidthattheremustoftenberoomforargumentwhether
subsequenteventscanberegardedasformingpartoftheoriginaltransactionsoastobeadmissible
evidenceofintentionandinthiscaseithascertainlybeenvigorouslyarguedthattheycan.But,
thoughIknowofnouniversalcriterionbywhichalinkcanforthispurposebeestablishedbetweenone
eventandanother,hereIseeinsuperabledifficultyinfindinganylinkatall.Thetimefactoraloneof
nearlyfiveyearsisalmostdecisive,but,apartfromthat,theeventsof1934and1935,62 whethertaken
singlyorintheirsum,appeartometobewhollyindependentoftheoriginaltransaction.Itisinfactfair
tosaythat,sofarfromflowingnaturallyandinevitablyfromit,theyprobablyneverwouldhave
happenedbutforthephenomenalsuccessoftheenterprise.NorcanIgiveanyweighttotheargument
muchpresseduponusthatthedeceasedwasanhonourablemanandthereforecouldnothaveacted
ashedid,ifhehadin1929intendedtogivethesharesoutrighttohischildren.Iassumethathewas
anhonourablemanaswellinthedirectionsinregardtoincometaxthathegaveto[hisaccountant]as
otherwise,butIthinkthathemaywellhavedeemeditconsistentwithhonourableconductandwith
paternalbenevolencetotakebackpartofwhathehadgivenwhenthemagnitudeofthegiftsofar
surpassedhisexpectation.
If,then,theseeventscannotbeadmittedinevidenceaspartoftheoriginaltransaction,cantheybe
admittedtorebutthepresumptiononthegroundthattheyareadmissionsbytheappellantsagainst
interest?Iconceiveitpossible,andthisviewissupportedbyauthority,thattheremightbesucha
courseofconductbyachildafterapresumedadvancementastoconstituteanadmissionbyhimof
hisparentsoriginalintention,thoughsuchevidenceshouldberegardedjealously.Butitappearsto
metobeanindispensableconditionofsuchconductbeingadmissiblethatitshouldbeperformedwith
knowledgeofthematerialfacts.Inthepresentcasetheundisputedfactthattheappellantsundertheir
fathersguidancedidwhattheyweretoldwithoutinquiryorknowledgeprecludestheadmissionin
evidenceoftheirconductand,ifitwereadmitted,woulddepriveitofallprobativevalue.Itisotherwise,
however,withtheconductofthedeceased.Ihavealreadymadeitclearthattherespondentshave
failedtodischargetheburdenwhichrestsonthemofrebuttingthepresumptionofadvancement.The
appellants,therefore,inmyopinion,neednoreinforcementfromsubsequentevents.But,since
inevitablyinacomplexcaselikethis,eitheruponthefootingofbeingexamineddebeneesseor
becausetheyhavebeenadmittedforsomeotherpurposethantheproofofintention,allthefacts
relevantorirrelevanthavebeenreviewed,IdonothesitatetosaythattheonlyconclusionwhichIcan
formaboutthedeceasedsoriginalintentionisthathemeanttheprovisionhethenmadeforhis
childrentobefortheirpermanentadvancement.Hemaywellhavechangedhismindatalaterdate,
butitwastoolate.Hemayhavethoughtthat,havingmadeanabsolutegift,hecouldyetrevokeit.
Thisissomethingthatnoonewilleverknow.Thepresumptionwhichthelawmakesisnottobethus
rebutted.Ifitweremydutytospeculateuponthesematters,myfinalquestionwouldbewhythe
deceasedshouldhaveputtheseseveralparcelsofsharesinsixdifferentcompaniesintothenamesof
hiswifeandthreechildren(p.369) unlesshemeanttomakeprovisionforthem,andsincecounsel
havenotbeenabletosuggestany,muchlessanyplausible,reasonwhyheshouldhavedoneso,I
shallconcludethattheintentionwhichthelawimputestohimwasinfacthisintention.Thereasoning
whichmadesostronganappealtoMellishLJinFowk esvPascoe(1875)10ChApp343hasinthis
casealsoparticularweight.
FunghascriticizedtheruleinShephardvCartwright,pointingoutthat:63
thereshouldnotbeanabsolutebaragainsttheadmissibilityofapurchaserssubsequentactsor
declarationstosupportapresumptionofresultingtrustortorebutapresumptionofadvancement,
particularlyinviewoftheincreasingreadinessofthecourtstorebutanypresumptionofresultingtrustor
presumptionofadvancement,andthechangesinlegislationregardingtheadmissibilityofhearsay
evidenceincivilproceedings.Themoderntrendofcivillitigationistoplaceallrelevantevidencebeforethe
courtandtoletthecourtdecideontheweighttobeattachedtoit.
Thereismuchforceinthiscriticism.Thepresumptionofadvancementandthepresumptionofresultingtrustare
bothlongstopsanyvaluableevidencethatmightrebutthepresumptionshouldbeavailabletothecourt.The
courtisthenabletoassesstheprobativeweightofpotentiallyselfservingdeclarations.Thecurrentapproachof
thecourtswasdescribedbyLordPhillipsMRinLavellevLavelle:64
equitysearchesforthesubjectiveintentionofthetransferor.Itseemstomethatitisnotsatisfactoryto
applyrigidrulesoflawtotheevidencethatisadmissibletorebutthepresumptionofadvancement.Plainly,
selfservingstatementsorconductofatransferor,whomaylongafterthetransactionberegrettingearlier
generosity,carrylittleornoweight.Butwordsorconductmoreproximatetothetransactionitselfshould
begiventhesignificancethattheynaturallybearaspartoftheoverallpicture.Wherethetransfereeisan
adult,thewordsorconductofthetransferorwillcarrymoreweightifthetransfereeisawareofthemand
makesnoprotestorchallengetothem.
Inanyevent,wherecontemporaneousevidenceisavailable,thecourtshavenotbeenslowtorebutthe
presumptionofadvancement.SoinWarrenvGurney,65 afatherhadpurchasedahouseandconveyedittooneof
hisdaughters.Thepresumptionofadvancementwasrebuttedbydeclarationsofthefather,madeatthetimeof
thepurchase,thatagiftwasnotintended,andbythefactthathehadretainedthetitledeedstotheproperty.As
MortonLJcommented:66
therewasampleevidencetojustifythatconclusionofthejudge[thatthepresumptionofadvancementwas
rebutted].Inthefirstplace,thereisthefactthatthefatherretainedthetitledeedsfromthetimeof
purchasetothetimeofhisdeath.Ithinkthatisaverysignificantfact,becausetitledeeds,asitwassaid
inCok eonLittleton,aresinewsoftheland.Onewouldhaveexpectedthefathertohavehandedthem
over,eithertotheplaintifforherhusband,ifhehadintendedthegift.
Similarly,inMcGrathvWallis,67 afamilyhomewasacquiredandconveyedintothenameofthesonsince,
becausethefatherwasunemployed,onlythesonwasacceptableasthemortgagor.Atthetime(p.370) ofthe
transfer,adeclarationoftrusthadbeendraftedindicatingthatthefatherwastohavean80percentbeneficial
interestandtheson20percent.Thishadnotbeensignedandsoitwasnotavaliddeclarationoftrust,butitwas
sufficienttorebutthepresumptionofadvancement.
(i)Evidenceofillegality
Thereisonesignificantlimitationuponthetypeofevidencethatcanbeintroducedtorebuteitherthepresumption
ofresultingtrustorthepresumptionofadvancement:forreasonsofpublicpolicy,apersonisnotallowedtorely
uponevidenceofhisorherownillegalconduct.68 ThisruleiswellillustratedbytheleadingdecisionoftheHouse
ofLordsinTinsleyvMilligan.69
TinsleyvMilligan[1994]1AC340
MissTinsleyandMissMilliganwerelovers.Theypurchasedahousejointly,withbothcontributingtothe
purchaseprice,butagreedthatitshouldbeinthesolenameofMissTinsleyinordertofacilitatefalseclaims
tohousingbenefitbyMissMilligan.ThisfraudontheDepartmentofSocialSecuritywascarriedoutover
severalyears.Subsequently,MissTinsleyandMissMilliganfelloutandtheformermovedoutofthehouse.
ShebroughtanactionseekingpossessionandMissMilligancounterclaimedforadeclarationthatMiss
Tinsleyheldthehouseontrustforbothpartiesequally,byvirtueofthepresumptionofresultingtrust.A
majorityoftheHouseofLords(LordsJaunceyofTullichettle,Lowry,andBrowneWilkinson)upheldthe
counterclaim(LordsKeithofKinkelandGoffofChieveleydissented).Theprincipleupheldbythe
majoritywasthatatransferorwasentitledtosucceedifhecouldestablishhistitlewithoutrelyingonhisown
illegality.Theappellantcould,therefore,relyonthepresumptionofresultingtrust.
LordJauncey:
First,itistritelawthatthecourtwillnotgiveitsassistancetotheenforcementofexecutoryprovisions
ofanunlawfulcontractwhethertheillegalityisapparentexfaciethedocumentorwhethertheillegality
ofpurposeofwhatwouldotherwisebealawfulcontractemergesduringthecourseofthetrialHolman
vJohnson(1775)1Cowp341at343,perLordMansfieldCJ
Second,itiswellestablishedthatapartyisnotentitledtorelyonhisownfraudorillegalityinorderto
assistaclaimorrebutapresumption.Thuswhenmoneyorpropertyhasbeentransferredbyamanto
hiswifeorchildrenforthepurposeofdefraudingcreditorsandthetransfereeresistshisclaimfor
recoveryhecannotbeheardtorelyonhisillegalpurposeinordertorebutthepresumptionof
advancementGascoignevGascoigne[1918]1KB223at226Tink ervTink er[1970]P136at143,
perSalmonLJ.
Third,ithas,however,forsomeyearsbeenrecognisedthatacompletelyexecutedtransferofproperty
orofaninterestinpropertymadeinpursuanceofanunlawfulagreementisvalidandthecourtwill
assistthetransfereeintheprotectionofhisinterestprovidedthathedoesnotrequiretofoundonthe
unlawfulagreement:AlexandervRayson[1936]1KB169at184185SajanSinghvSardara
Ali[1960]AC167at176
IfindthisaverynarrowquestionbutIhavecometotheconclusionthatthetransactionwherebythe
claimedresultingtrustinfavouroftherespondentwascreatedwastheagreementbetweentheparties
that,althoughfundsweretobeprovidedbybothofthem,neverthelessthetitletothehousewastobe
inthesolenameoftheappellantfortheunlawfulpurposeofdefraudingtheDepartmentofSocial
Security.Solongasthatagreementremainedunperformed,neitherpartycouldhaveenforced(p.
371) itagainsttheother.However,assoonastheagreementwasimplementedbythesaletothe
appellantaloneshebecametrusteefortherespondentwhocannowrelyontheequitableproprietary
interestwhichhastherebybeenpresumedtohavebeencreatedinherfavourandhasnoneedtorely
ontheillegaltransactionwhichledtoitscreation.
Thepresumptionofaresultingtrustis,inmyview,crucialinconsideringtheauthorities.Onthat
presumption(andonthecontrarypresumptionofadvancement)hingestheanswertothecrucial
question:doesaplaintiffclaimingunderaresultingtrusthavetorelyontheunderlyingillegality?
Wherethepresumptionofresultingtrustapplies,theplaintiffdoesnothavetorelyontheillegality.If
heprovesthatthepropertyisvestedinthedefendantalonebutthattheplaintiffprovidedpartofthe
purchasemoney,orvoluntarilytransferredthepropertytothedefendant,theplaintiffestablisheshis
claimunderaresultingtrustunlesseitherthecontrarypresumptionofadvancementdisplacesthe
presumptionofresultingtrustorthedefendantleadsevidencetorebutthepresumptionofresulting
trust.Therefore,incaseswherethepresumptionofadvancementdoesnotapply,aplaintiffcan
establishhisequitableinterestinthepropertywithoutrelyinginanywayontheunderlyingillegal
transaction.Inthiscasetherespondentasdefendantsimplypleadedthecommonintentionthatthe
propertyshouldbelongtobothofthemandthatshecontributedtothepurchaseprice:sheclaimed
thatinconsequencethepropertybelongedtothemequally.Tothesameeffectwasherevidencein
chief.Thereforetherespondentwasnotforcedtorelyontheillegalitytoproveherequitableinterest.
Onlyinthereplyandthecourseoftherespondentscrossexaminationdidsuchillegalityemerge:it
wastheappellantwhohadtorelyonthatillegality.
Althoughthepresumptionofadvancementdoesnotdirectlyariseforconsiderationinthiscase,itis
importantwhenconsideringthedecidedcasestounderstanditsoperation.Onatransferfromaman
tohiswife,childrenorotherstowhomhestandsinlocoparentis,equitypresumesanintentionto
makeagift.Thereforeinsuchacase,unlikethecaseswherethepresumptionofresultingtrust
applies,inordertoestablishanyclaimtheplaintiffhashimselftoleadevidencesufficienttorebutthe
presumptionofgiftandinsodoingwillnormallyhavetoplead,andgiveevidenceof,theunderlying
illegalpurpose.
Themajorityofcaseshavebeenthoseinwhichthepresumptionofadvancementapplied:inthose
authoritiestherulehasbeenstatedasbeingthataplaintiffcannotrelyonevidenceofhisownillegality
torebutthepresumptionapplicableinsuchcasesthattheplaintiffintendedtomakeagiftofthe
propertytothetransferee.ThusinGascoignevGascoigne[1918]1KB223Chettiarv
Chettiar[1962]AC294andTink ervTink er[1970]P136at141142,thecrucialpointwassaidtobe
theinabilityoftheplaintifftoleadevidencerebuttingthepresumptionofadvancement.Ineachcase
theplaintiffwasclaimingtorecoverpropertyvoluntarilytransferredto,orpurchasedinthenameof,a
wifeorchild,foranillegalpurpose.AlthoughreferencewasmadetoLordEldonLCsprinciple,70 none
ofthosecaseswasdecidedonthesimpleground(ifitweregoodlaw)thatequitywouldnotinany
circumstancesenforcearesultingtrustinsuchcircumstances.Onthecontraryineachcasetherule
wasstatedtobethattheplaintiffcouldnotrecoverbecausehehadtorelyontheillegalitytorebutthe
presumptionofadvancement.
Inmyjudgment,theexplanationforthisdeparturefromLordEldonLCsabsoluteruleisthatthefusion
oftheadministrationoflawandequityhasledthecourtstoadoptasinglerule(applicablebothatlaw
andinequity)astothecircumstancesinwhichthecourtwillenforcepropertyinterestsacquiredin
pursuanceofanillegaltransaction,viz.theBowmak ersrule:[1945]KB65.Apartytoanillegalitycan
recoverbyvirtueofalegalorequitablepropertyinterestif,butonlyif,hecanestablishhistitlewithout
relyingonhisownillegality.Incaseswherethepresumptionofadvancementapplies,theplaintiffis
facedwiththepresumptionofgiftandthereforecannotclaimunderaresultingtrustunlessanduntilhe
hasrebuttedthatpresumptionofgift:forthosepurposestheplaintiffdoeshavetorelyonthe
underlyingillegalityandthereforefails.
(p.372) ThemajorityinTinsleyheldthatMissMilligancouldrelyuponherbeneficialinterestunderaresulting
trustbecauseshehadnoneedtorelyuponherillegalconduct:shehadcontributedtothepurchaseofthe
property,soaresultingtrustaroseinherfavour.ShedidnotneedtomentionherdefraudingtheDepartmentof
SocialSecuritytoraisethepresumption,sothecourtdidnotneedtobeinfluencedbyit.Butononlyslightly
differentfacts,theresultwouldhavebeenentirelydifferent.Ifthecasehadconcernedamarriedheterosexual
couple,andthehusbandhadcontributedtothepurchaseofahouseinthesolenameofhiswife,thentherewould
havebeenapresumptionofadvancement,ratherthanapresumptionofresultingtrust.Butthehusbandwouldnot
havebeenabletoclaimashareintheproperty,sincehewouldhaveneededtoleadevidenceofillegalityinorder
torebutthepresumptionofadvancement,andhewouldnotbeabletopleadsuchevidence.Yetthemeritsofthe
twocasesappearoverwhelminglysimilar.
Tinsleymakestherelianceprinciplecruciallyimportant:whetherornotapartyneedstorelyuponhisorher
illegalconductwilloftenbeoftheutmostsignificance.Yet,thisrelianceprinciplehasbeencriticizedastechnical
andarbitraryitmeansthatthepresumptionsofresultingtrustandadvancementareoftendeterminative,rather
thansimplylongstops.InTribevTribe,71 H.H.JudgeWeeksQCatfirstinstancefoundit:
difficulttoseewhytheoutcomeincasessuchasthepresentoneshoulddependtosuchalargeextenton
arbitraryfactors,suchaswhethertheclaimisbroughtbyafatheragainstason,oramotheragainsta
son,oragrandfatheragainstagrandson.
SuchconcernswerereiteratedintheCourtofAppeal,inwhichMillettLJcitedtheharshnessoftheillegality
defenceasinterpretedinTinsley.72 Morerecently,BlackJhaslamentedthat:73
[T]hecourtshaveplainlyfeltuncomfortableattimeswiththeresultsoftherules,whichcanseem
sometimestofavouroneofanumberofpartieswhoareallequallyimplicatedintheillegalpurposesimply
byvirtueoftheaccidentofhowacasehastobepleaded,butthatisthewayinwhichthelawoperates.
SuchuneasewiththeoperationoftherelianceprincipleseemstohavebeenattherootoftheCourtofAppeals
decisioninTribevTribe.74 InTribe,afathertransferredsharestohissontoconcealthemfromhiscreditors.This
wasanillegalpurpose.Oncethethreatfromhiscreditorshadpassed,thefatheraskedhissontoreturnthe
sharestohim.Thesonrefusedtodoso.Thesonarguedthat,sincetherehadbeenanapparentgiftfromfatherto
son,thepresumptionofadvancementappliedandthefatherwasunabletorebutthisbypleadinghisactual
unlawfulpurpose.ThisargumentwasconsistentwithTinsley:thesondidnotneedtoleadevidenceofany
illegalitytoestablishthepresumptionofadvancement,butthefatherwouldneedtorelyonhisillegalpurposein
ordertorebutthepresumption.TheCourtofAppealheldthat,sincenoneofthecreditorshadbeenawareofthe
transferofshares,nopartoftheillegalpurposehadbeencarriedintoeffect,sothefathercouldwithdrawfromthe
illegalschemeashewasstillwithinthelocuspoenitentiae,ortimeforrepentancethefathercould,therefore,
pleadhisillegalintentinordertorebutthepresumptionofadvancement.
(p.373) TribevTribe[1996]Ch107[132][135](MillettLJ)
Inmyopiniontheweightoftheauthoritiessupportstheviewthatapersonwhoseekstorecover
propertytransferredbyhimforanillegalpurposecanleadevidenceofhisdishonestintentionwhenever
itisnecessaryforhimtodosoprovidedthathehaswithdrawnfromthetransactionbeforetheillegal
purposehasbeencarriedout.Itisnotnecessaryifhecanrelyonanexpressorresultingtrustinhis
favourbutitisnecessary(i)ifhebringsanactionatlawand(ii)ifhebringsproceedingsinequityand
needstorebutthepresumptionofadvancement.
Atheartthequestionfordecisioninthepresentcaseisoneoflegalpolicy.Theprimaryrulewhich
precludesthecourtfromlendingitsassistancetoamanwhofoundshiscauseofactiononanillegal
orimmoralactoftenleadstoadenialofjustice.Thejustificationforthisisthattheruleisnota
principleofjusticebutaprincipleofpolicy(seethemuchquotedstatementofLordMansfieldCJ
inHolmanvJohnson(1775)1Cowp341at343).75 Thedoctrineofthelocuspoenitentiaeisan
exceptionwhichoperatestomitigatetheharshnessoftheprimaryrule.Itenablesthecourttodo
justicebetweenthepartieseventhough,inordertodoso,itmustallowaplaintifftogiveevidenceof
hisowndishonestintent.Buthemusthavewithdrawnfromthetransactionwhilehisdishonestystill
layinintentiononly.Thelawdrawsthelineoncetheintentionhasbeenwhollyorpartlycarriedinto
effect.
Seeninthislightthedoctrineofthelocuspoenitentiae,althoughanexceptiontotheprimaryrule,is
notinconsistentwiththepolicywhichunderliesit.Itis,ofcourse,artificialtothinkthatanyonewould
bedissuadedbytheprimaryrulefromenteringintoaproposedfraud,ifonlybecausesuchaperson
wouldbeunlikelytobeastudiousreaderofthelawreportsortoseekadvicefromalawyerwhomhe
hastakenfullyintohisconfidence.Butifthepolicywhichunderliestheprimaryruleistodiscourage
fraud,thepolicywhichunderliestheexceptionmustbetakentobetoencouragewithdrawalfroma
proposedfraudbeforeitisimplemented,anendwhichisnolessdesirable.Andiftheformerobjective
isofsuchoverridingimportancethattheprimaryrulemustbegiveneffectevenwhereitleadstoa
denialofjustice,theninmyopinionthelatterobjectivejustifiestheadoptionoftheexceptionwhere
thisenablesjusticetobedone.
TomymindtheseconsiderationsareevenmorecompellingsincethedecisioninTinsleyvMilligan.
Onemighthesitatebeforeallowinganovelexceptiontoaruleoflegalpolicy,particularlyarulebased
onmoralprinciples.Buttheprimaryrule,asithasemergedfromthatdecision,doesnotconformto
anydiscerniblemoralprinciple.Itisproceduralinnatureanddependsontheadventitiouslocationof
theburdenofproofinanygivencase.HadMr.Tribetransferredthesharestoastrangerordistant
relativewhomhetrusted,albeitforthesamedishonestpurpose,itcannotbedoubtedthathewould
havesucceededinhisclaim.Hewouldalsohavesucceededifhehadgiventhemtohissonand
procuredhimtosignadeclarationoftrustinhisfavour.Buthechosetotransferthemtoasonwhom
hetrustedtotheextentofdispensingwiththeprecautionofobtainingadeclarationoftrust.Ifthatis
fataltohisclaim,thenthegreaterthebetrayal,thelessthepowerofequitytogivearemedy.
Inmyopinionthefollowingpropositionsrepresentthepresentstateofthelaw.(1)Titletoproperty
passesbothatlawandinequityevenifthetransferismadeforanillegalpurpose.Thefactthattitle
haspassedtothetransfereedoesnotprecludethetransferorfrombringinganactionforrestitution.(2)
Thetransferorsactionwillfailifitwouldbeillegalforhimtoretainanyinterestintheproperty.(3)
Subjectto(2)thetransferorcanrecoverthepropertyifhecandosowithoutrelyingontheillegal
purpose.Thiswillnormallybethecasewherethepropertywastransferredwithoutconsiderationin
circumstanceswherethetransferorcanrelyonanexpressdeclarationoftrustoraresultingtrustin
hisfavour.(4)Itwillalmostinvariablybesowheretheillegalpurposehasnotbeencarriedout.Itmay
beotherwise(p.374) wheretheillegalpurposehasbeencarriedoutandthetransfereecanrelyon
thetransferorsconductasinconsistentwithhisretentionofabeneficialinterest.(5)Thetransferorcan
leadevidenceoftheillegalpurposewheneveritisnecessaryforhimtodosoprovidedthathehas
withdrawnfromthetransactionbeforetheillegalpurposehasbeenwhollyorpartlycarriedintoeffect.It
willbenecessaryforhimtodoso(i)ifhebringsanactionatlawor(ii)ifhebringsproceedingsin
equityandneedstorebutthepresumptionofadvancement.(6)Theonlywayinwhichamancan
protecthispropertyfromhiscreditorsisbydivestinghimselfofallbeneficialinterestinit.Evidence
thathetransferredthepropertyinordertoprotectitfromhiscreditors,therefore,doesnothingbyitself
torebutthepresumptionofadvancementitreinforcesit.Torebutthepresumptionitisnecessaryto
showthatheintendedtoretainabeneficialinterestandconcealitfromhiscreditors.(7)Thecourt
shouldnotconcludethatthiswashisintentionwithoutcompellingcircumstantialevidencetothis
effect.Theidentityofthetransfereeandthecircumstancesinwhichthetransferwasmadewouldbe
highlyrelevant.Itisunlikelythatthecourtwouldreachsuchaconclusionwherethetransferwas
madeintheabsenceofanimminentandperceivedthreatfromknowncreditors.
Thedoctrineofthelocuspoenitentiae
Iwouldholdthatgenuinerepentanceisnotrequired.Justiceisnotarewardformeritrestitution
shouldnotbeconfinedtothepenitent.Iwouldalsoholdthatvoluntarywithdrawalfromanillegal
transactionwhenithasceasedtobeneededissufficient.
Thisuseofthelocuspoenitentiaeiscontroversial.Itappearsthattheillegalpurposeofthefatherhadbeencarried
out,sincehisshareswerehiddenwithhissonforagivenperiod,exactlyasintended.76 Thus,itisnotclearthat
thefatherwaswithinthetimeperiodwithinwhichhecouldrepent,northathegenuinelyrepented.77 TheCourtof
Appealsuggestedthattherationaleofthelocuspoenitentiaewastodeterillegalityandencouragewithdrawal,but
itisveryhardtounderstandhowthiscouldpossiblyhaveledtotheresultofthecase.Tribeseemstofallfoulof
thewarninggivenbyLordDenninginChettiarvChettiar:78
[H]ecannotusetheprocessofthecourtstogetthebestofbothworldstoachievehisfraudulentpurpose
andalsotogethispropertyback.
Thelawonillegalityinthisareaismessy.Itproducesdistinctionsthatdonotseemtohavesolidjustifications.
However,TinsleyisbindingauthorityfromtheHouseofLords,andtherelianceprinciplefavouredinthecasehas
alsobeenappliedinthecontextofexpresstrusts,79 constructivetrusts,80 andotherareasofprivatelaw.81 It
wouldseemthat,shortofachangeinapproachbytheSupremeCourt,legislativereformisnecessary.TheLaw
Commissionhasconsideredreformingtheillegalitydefencegenerally,andultimatelyrecommendedstatutory
intervention.Itproposedastatutethatwouldabolishtherelianceprincipleasregardstrustsdisputesandreplace
itwithastructureddiscretion:82
(p.375) DraftTrusts(ConcealmentofInterests)BillClause5
(1)Inmakinganydeterminationsundersection4,83 thecourtmaytakeanythingwhichitthinks
relevantintoaccount,including(forexample)
(a)theconductofalltherelevantpersons
(b)theeffectwhichthedeclarationordeterminationwouldhaveonanyrelevantunlawful
actorpurpose
(c)thefactthatanoffencehas,orhasnot,beencommitted
(d)thevalueoftherelevantequitableinterest
(e)anydeterrenteffectonothers
(f)thepossibilitythatapersonfromwhomtherelevantequitableinterestwastobe
concealedmighthaveaninterestinthevalueofBs[thebeneficiarys]assets(forexample,
asacreditorofBorbecauseofproceedingsundertheMatrimonialCausesAct1973orthe
CivilPartnershipAct2004).
Suchastructureddiscretionmightbewelcome.84 Itwouldbalancethedesireforpredictabilityofresultswiththe
needtoensurethatthelawoftrustsisnotusedasamechanismwithwhichtoperpetratecriminaloffences.But,
regardlessofitsmerits,itappearsthatlegislativereformisnowunlikely:inMarch2012theGovernmentstated
thatithaddecidednottoimplementtheLawCommissionsproposals.85
(e)NoNeedforthePresumptions?
Chambershasarguedthatthepresumptionsofresultingtrustandadvancementarenotnecessary:eachcase
cansimplybedecidedontheevidenceavailable.
Chambers,IsThereaPresumptionofResultingTrust?inConstructiveandResulting
Trusts(ed.Mitchell)(Oxford:Hart,2010)p.270
Intheabsenceofdirectevidence,courtsarepreparedtodrawinferencesofintentionfromthenatureof
thetransactionandthenatureoftherelationshipbetweenthepartiestoit.Ifthepresumptionsdidnot
existandjudgeswererequiredtodetermineonthebalanceofprobabilitieswhetherornotagifthad
beenintended,therewouldbedifficultcases,butitseemslikelythatallofthemcouldbedecided
properly.Thelackofapresumptionwouldnotincreasethenumberofcasesorcostsoflitigation.In
otherwords,thepresumptionsdonotfillanecessaryfunction.
Notonlyarethepresumptionsalmostcompletelyunnecessary,theycanbeundesirableaswell.We
arenotentirelyhappywhenevertheapplicationofapresumptionactuallydeterminestheoutcomeofa
case.Thepointisthatwedonotwanttheoutcometobedeterminedbyapresumptionwhenever
thatwoulddifferfromtheoutcomebasedontheadmissibleevidence.Wedonotneedthe
presumptionsandwouldbebetteroffwithoutthem.
(p.376) Itisclearlythecasethatthepresumptionsarerarelydeterminative.Theirprincipalrolerelatestothe
allocationoftheburdenofproofbetweentheparties.Sothequestionis:whoshouldbeartheburdenofprovinga
trustwhenpropertyisvoluntarilytransferredfromonepersontoanother?Thepresumptionofresultingtrustrests
uponacynicalviewofhumanrelations.Thismaystillbeappropriatetoday.Butthereisastrongargumentthata
partydoesnotgenerallyintendtoretainabeneficialinterestinpropertyheorshetransferstoanother,andthat
suchanintentionshould,therefore,notbepresumedinstead,theclaimantshouldhavetoprovesuchanintention
ontheavailableevidence.86 However,eventhoughitmightbemoresatisfactorysimplytoabolishthe
presumptions,itshouldberememberedthattheyarereadilyrebutted,andtheirimportanceisinflatedonlyinthe
contextofillegaltransaction.Reformoftheillegalitydefencemightbeamoreachievablegoalthanwholesale
reformofthewellestablishedpresumptionsinthelawoftrusts,wherethosepresumptionsmaystillbe
consideredtoreflecttheintentionofthepartiesinmostcases.
3.AutomaticResultingTrusts
Ithasalreadybeenseenthatresultingtrustsarecommonlydividedintotwocategories:presumedresultingtrusts
andautomaticresultingtrusts.Thelatterarisesuponthefailureofanexpresstrust:whereasettlortransfers
propertytoatrusteetoholdontrust,andtheexpresstrustuponwhichthetrusteewassupposedtoholdthe
propertyfails,aresultingtrustwillariseautomatically.Therecognitionofaresultingtrustinsuchcircumstances
isasensibleoutcomeafterall,whoelseshouldhavethebeneficialinterestinthetransferredproperty?Notthe
trustees,whowereneverintendedtotakethepropertybeneficially.Northeintendedbeneficiariesunderthe
expresstrust,sincethattrusthasfailed.Thebestsolutionisthatthebeneficialinterestbelongstothesettlorof
thepropertyhimorherself.AsLordReidcommentedinVandervell:87
thebeneficialinterestmustbelongtoorbeheldforsomebodysoifitwasnottobelongtothedoneeorbe
heldbyhimintrustforsomebodyitmustremainwiththedonor.
Thereareanumberofdifferentwaysforanexpresstrusttofail.Therearethreeimportantcategories,whichwill
beexaminedinturn:initialfailureofthetrust,invalidityofthetrust,andfailureofavalidtrustfullytoexhaustthe
beneficialinterestoftrustproperty.
(a)InitialFailureofanExpressTrust
Whereanexpresstrustisintended,butfailstobeestablished,propertythathasbeentransferredtotheputative
trusteewillbeheldonresultingtrustforthesettlor.Thetrustthatfailsmusthavebeenanintervivostrust.Ifitisa
testamentarytrustthatfails,thepropertywillnotbeheldonresultingtrust,butwillsimplybedistributedaspartof
thetestatorsresiduaryestate.Ifpropertyistransferredtotrusteesforacharitablepurposethatfailsfromthe
outset,thatpropertymaybeappliedcyprsforothercharitablepurposesifageneralcharitableintentioncanbe
identified.88 Ifsuchanintentioncannotbeidentified,thenthepropertywillbeheldonresultingtrustforthesettlor.
(p.377) AgoodexampleofanautomaticresultingtrustarisingfromtheinitialfailureofanexpresstrustisRe
89
AmesSettlement.89 MrAmesandMissHamiltonmarriedin1908.Amesfathertransferred10,000totrustees
tobeheldontheusualtrustsofamarriagesettlement.ThepartieslivedtogetherforanumberofyearsinEngland
andKenya.In1926,theSupremeCourtofKenyadeclaredthemarriagenullandvoidonthegroundofnon
consummation.Thewifesurrenderedallherinterestsunderthesettlement,andtherewere,obviously,nochildren.
OnthedeathofMrAmesin1945,thequestionwaswhetherthe10,000shouldbepaidtothoseentitledunder
thesettlementindefaultoftherebeingchildren,ortotherepresentativesofthesettlor.Giventhatthefatherhad
transferredthemoneyonthebasisthattherewasavalidmarriage,butthatbasiswasvoidfromtheoutset,
VaiseyJheldthatthemoneywasheldonresultingtrustforthefathersestate.Heexplained:90
Iregardthecontestasmerelythis:theplaintiffsholdcertainfundsintheirhands,andtheyasktowhichof
thealternativeclaimantstheyoughttomakethosefundsover.Ithinkitwouldnotbeincorrecttosaythat
theproblemisreallywhichofthosepartieshasthebetterequity.Thepersonswhoconstitutethe
hypotheticalnextofkinsayLookatthedeedofsettlement.Wearethepersonstheredesignatedtotake
thefund,andthereisnoreasonwhyweshouldnotdoso,andthereforeclaimtohavethebetterequity.
Ontheotherhanditissaidbutthattrust,withtheothertrusts,wereallbasedontheconsiderationand
contemplationofavalidmarriage,andnowthatithasbeenjudiciallydecidedthatthereneverwasa
marriagethattrustcannotpossiblyformthefoundationofagoodequitableright.Thesettlors
representativessaythattheirsisthebetterequitybecausethemoneywasonlypartedwithbytheir
testatoronaconsiderationwhichwasexpressedbutwhichinfactcompletelyfailed.Itseemstomethat
theclaimoftheexecutorsofthesettlorinthiscasemustsucceed.Ithinkthatthecaseis,havingregard
tothewordingofthesettlement,asimplecaseofmoneypaidonaconsiderationwhichfailed.Idonot
thinkthatthathypotheticalclassofnextofkin(whowereonlybroughtin,sotospeak,andgivenan
interestinthefundonthebasisandfootingthattherewasgoingtobeavalidmarriagebetweenJohn
AmesandMissHamilton)havereallyanymeritsinequity,andIdonotseehowtheycanclaimunderthe
expresstermsofadocumentwhich,sofarasregardsthepersonswithwhomthemarriageconsideration
wasconcerned,hasutterlyandcompletelyfailed.Iftheirclaimbegood,itisdifficulttoseeatwhatprecise
periodoftimetheirinterestbecameaninterestinpossession.ButIholdthattheirclaimisnotgood,and
thattheyhavenotbeenabletoestablishit.
(b)InvalidityofExpressTrust
Atrustmightbeinvalidforavarietyofreasons.Acharitabletrustmightfailbecauseitisnotexclusivelycharitable
andcannottakeeffectasanoncharitablepurposetrust,inwhichcasethepropertytransferredtothetrusteewill
beheldonaresultingtrustforthesettlorortheestateofthetestator.91 Aprivateexpresstrustmightfailfor
uncertaintyofobjects,forexample.92 AnotherexampleisAirJamaicavCharlton,93 inwhichanexpresstrustfor
thesurplusfundsofapensionschemewasheldtobevoid,sinceitinfringedtheperpetuityrule.94 ThePrivy
Councilheldthatthesurplusshould,therefore,beheldonresultingtrustforthosewhohadcontributedtothe
fund.LordMillettsaid:95
(p.378) PensionschemesinJamaica,asinEngland,needtheapprovaloftheInlandRevenueiftheyare
tosecurethefiscaladvantagesthataremadeavailable.Thetaxlegislationinbothcountriesplacesalimit
ontheamountwhichcanbepaidtotheindividualemployee.Allowingtheemployeestoenjoyanypartof
thesurplusbywayofresultingtrustwouldprobablyexceedthoselimits.Thisfactisnot,however,intheir
Lordshipsviewapropergroundonwhichtorejecttheoperationofaresultingtrustinfavourofthe
employees.TheInlandRevenuehadanopportunitytoexaminethepensionplanandtowithholdapproval
onthegroundthatsomeofitsprovisionswerevoidforperpetuity.Theyfailedtodoso.Thereisnocallto
distortprincipleinordertomeettheirrequirements.Theresultingtrustarisesbyoperationofthegeneral
law,dehorsthepensionschemeandthescopeoftherelevanttaxlegislation.
ScottJ96 wasimpressedbythedifficultyofarrivingataworkableschemeforapportioningthesurplus
fundsamongthemembersandtheexecutorsofdeceasedmembers.Thiswasbecausehethoughtit
necessarytovaluethebenefitsthateachmemberhadreceivedinordertoascertainhisshareinthe
surplus.OntheseparatesettlementwithmutualinsuranceanalysiswhichtheirLordshipshaveadoptedin
thepresentcase,however,nosuchprocessisrequired.Themembersshareofthesurplusshouldbe
dividedprorataamongthemembersandtheestatesofdeceasedmembersinproportiontothe
contributionsmadebyeachmemberwithoutregardtothebenefitseachhasreceivedandirrespectiveof
thedatesonwhichthecontributionsweremade.
(i)TheVandervelllitigation
ProbablythemostnotoriousexampleofanautomaticresultingtrustaroseintheVandervelllitigation.97 Mr
VandervellwasawealthymanwhohaddecidedtomakeagifttotheRoyalCollegeofSurgeonstofoundachair
ofpharmacology,buthewantedtodothisinataxefficientwaybothfortheCollegeandforhimself.
Consequently,heplannedtotransferablockofsharesinhisownprivatecompany,VandervellProductsLtd,to
theRoyalCollege.Hewouldthenarrangefordividendstobedeclaredontheseshares,whichwouldprovidethe
moneytofoundthechair.VandervellTrusteesLtd,atrustcompanythatactedastrusteefortheVandervell
childrenstrustandotherprivatetrusts,wouldbegivenanoptiontobuythesesharesfor5,000.Theoptionwas
includedincaseitmightbedesirableinthefuturetoconvertthecompanyintoapubliccompany,sinceitwould
thenbepreferableforthesharestobeunderVandervellscontrolorthosewhowouldactashedirected.
Althoughcomplicated,thetransactionwasstructuredinthiswaytoensurethattheCollegecouldrecovertaxthat
hadbeendeductedfromthedividendsbeforetheywerepaidandthatVandervellwouldnotbepersonallyliableto
payanytaxonthedividendsbecausehewouldhavenointerestintheshares.Vandervelldirectedhisbank,
whichheldthesharesontrustforhim,totransferthesharestotheRoyalCollege,98 andthecompanydeclared
157,000dividends,whichwerepaidtotheCollege.Noexpressprovisionhadbeenmadeforthedeclarationof
trustsofthesharesthatweretobepurchasedbythetrusteecompanyonexercisingtheoption.Oneissuewas
whethertheoptiontopurchasetheshares,asapropertyright,washeldonresultingtrustforVandervell.Ifitwere,
thenhewouldbeliabletopaytaxonthedividendsreceivedbytheRoyalCollege,becausehehadabeneficial
interestinthesharesafterall.TheHouseofLordsconsideredthepositionpriortotheexerciseoftheoption,and
rejectedVandervellsargumentsthattheoptionwasheldeitherontrustforthechildrenssettlementorby
VandervellTrusteesLtdbeneficially.Instead,theirLordshipsheldthatVandervellhadgrantedtheoptiontothe
trustcompanytobeheldontrust,butthattheobjectsofthattrusthadnotbeenidentified,sotheexpresstrust
wasvoidforwantofobjectsandfailed.Asaresult,Vandervell(p.379) didindeedhaveabeneficialinterestinthe
optionunderaresultingtrustandwasliabletopaytaxonthedividends.
VandervellvInlandRevenueCommissioners[1967]2AC291,3279(LordWilberforce)
Onthesefindingsitwas,inmyopinion,atonceclearthattheappellantscontentionthattheoption
becamesubjecttothetrustsofthechildrenssettlementof1949mustfail,forthereasonthatitwas
nottheintentionofthesettlor,orofhisplenipotentiary,Mr.Robins,atthetimetheoptionwas
exercisedthatthisshouldbeso.IneednotelaboratethispointsinceIunderstandthatthereisno
disagreementaboutit.Thiswastheappellantsmain(ifnotthesole)contentionbeforethespecial
commissionersandPlowmanJanditremainedhisfirstcontentiononthisappeal.Thealternative
whichisexpressedintheprintedcaseasbeingthattheoptionwasheldbythetrusteecompanyin
equityaswellasinlawastheabsoluteownerthereofforthepurposesofitsbusiness,is,ofcourse,
onewhichtheappellantisentitledtoputforward,asacontentionoflaw,atanystage,providedthatit
isconsistentwiththefactsasfoundbythespecialcommissioners.Itisonthatcontentionthatthe
appellantultimatelyfellback.Formypart,Icannotfindthatitissoconsistent
Correspondingly,theevidencepointsclearlyawayfromanyconclusionthatthetrusteecompanyheld
beneficially,orforthepurposeofitsbusiness.Ithadnobusiness,nofunction,exceptasatrusteeno
assets,exceptasatrustee.The5,000tobepaidiftheoptionwastobeexercisedwas,asatermof
thearrangementbetweenMr.Vandervellandthecollege,partofthe150,000benefactionhowcould
thatcomefromthecompanysownresources?Toextractfromthefindingsaconclusionthatthe
trusteecompanywastoholdfreefromanytrustbutpossiblysubjecttosomeunderstandingor
gentlemansagreementseemstome,ratherthanevenabenevolentinterpretationoftheevidence,a
reconstructionofit.Imayaddthathadthiscontentionbeenputforwardatthehearingbeforethe
specialcommissionerstheRevenuemightwellhavebeentemptedtoexplore,bycrossexamination,
therealcontrolofthetrusteecompanyandtoarguethatthecasecamewithinsection415(2)ofthe
IncomeTaxAct1952.
If,then,asIthink,boththefirsttwoalternativesfail,thereremainsonlythethird,which,tomymind,
correspondsexactlywithMr.Robinsintentions,namely,thattheoptionwasheldbythetrustee
companyontrustswhichwereundefined,orintheair.
Astotheconsequences,therehasbeensomedifferenceandpossiblylackofclaritybelow.The
specialcommissionersheldthattheinitiallyundefinedtrustscouldbedefinedlaterinawaywhich
mightbenefittheappellant,andtheyfoundthebenefittotheappellantinthiscircumstance.TheCourt
ofAppeal,startingfromthefactthatthetrusteecompanytooktheoptionasavolunteer,thoughtthat
thiswasacasewherethepresumptionofaresultingtrustaroseandwasnotdisplaced.Formypart,I
preferaslightlydifferentandsimplerapproach.Thetransactionhasbeeninvestigatedontheevidence
ofthesettlorandhisagentandthefactshavebeenfound.Thereisnoneed,orroom,asIseeit,to
invokeapresumption.Theconclusion,onthefactsfound,issimplythattheoptionwasvestedinthe
trusteecompanyasatrusteeontrusts,notdefinedatthetime,possiblytobedefinedlater.Butthe
equitable,orbeneficialinterest,cannotremainintheair:theconsequenceinlawmustbethatit
remainsinthesettlor.Thereisnoneedtoconsidersomeofthemorerefinedintellectualitiesofthe
doctrineofresultingtrust,nortospeculatewhether,inpossiblecircumstances,thesharesmightbe
applicableforMr.Vandervellsbenefit:hehad,asthedirectresultoftheoptionandofthefailureto
placethebeneficialinterestinitsecurelyawayfromhim,notdivestedhimselfabsolutelyoftheshares
whichitcontrolled.
ThissomewhatpragmaticapproachofLordWilberforceisoftenencountered:thebeneficialinterestintheshares
musthavebelongedtosomeone,and,giventhatthetrusteeswereclearlynotsupposedtotaketheshares
beneficially,andthatVandervelldidnotmakeclearanyintentiontobenefitthechildrenstrusts,theinterestinthe
sharesmusthaveresultedtothesettlorunderaresultingtrust.The(p.380) resultingtrustarosealmostasa
processofelimination:intheabsenceofevidencetothecontrary,thebeneficialinterestintheshareswasheld
onaresultingtrustforthesettlor.99
However,theVandervelllitigationresurfacedafterthedecisionoftheHouseofLords.Vandervelllaterarrangedfor
thetrusteecompanytoexercisetheoptiontobuytheshares.Thetrustcompanyusedmoneyfromthechildrens
settlementtodoso.Itthentreatedthesharesasbeingheldontrustforthechildrenandpaidthedividendsto
theirsettlement.Vandervelleventuallyexecutedadeedtransferringanyinterestthathemighthavehadinthe
sharestothetrustsofhischildrenssettlement.Vandervellthendiedandafurtherdisputerelatedtowhetherthe
dividendsshouldbepaidtoVandervellsestateortothechildrenssettlement.ThiswasconsideredinRe
VandervellsTrusts(No.2)andturnedonwhethertheshareswereheldonresultingtrustforhim.100 Atfirst
instance,MegarryJ101 heldthatoncetheoptionhadbeenexercisedbythetrusteecompany,theshareswere
alsoheldonresultingtrustforVandervell,eventhoughthecompanyhadusedmoneyfromthechildrens
settlementtobuytheshares.Thiswasbecause,astheHouseofLordshadheld,theoptionbelongedto
Vandervellbeneficiallyandthepurchasepricesimplyenabledhimtoexercisehisrighttobuytheshares,which
alsobelongedtohimbeneficially.Thesourceofthepurchasepricewasconsideredtobeirrelevanttothe
beneficialownershipoftheshares,although,sincethemoneyderivedfromthechildrenssettlement,hisestate
wasliabletorepaythemoneytothesettlement.
ReVandervellsTrusts(No.2)[1974]Ch269,294300(MegarryJ)
Itseemstomethattherelevantpointsonresultingtrustsmaybeputinaseriesofpropositions
which,sofarasnotdirectlysupported,appearatleasttobeconsistentwithLordWilberforces
speech,andreconcilablewiththetrueintentofLordUpjohnsspeech,thoughitmaynotbewithallhis
wordsonaliteralreading.Thepropositionsarethebroadestofgeneralisations,anddonotpurportto
covertheexceptionsandqualificationsthatdoubtlessexist.Nevertheless,thesegeneralisationsat
leastprovideastartingpointfortheclassificationofacornerofequitywhichmightbenefitfromsome
attemptatclassification.Thepropositionsareasfollows.
(1)Ifatransactionfailstomakeanyeffectivedispositionofanyinterestitdoesnothing.Thisis
soatlawandinequity,andhasnothingtodowithresultingtrusts.(2)Normallythemere
existenceofsomeunexpressedintentioninthebreastoftheownerofthepropertydoesnothing:
theremustatleastbesomeexpressionofthatintentionbeforeitcaneffectanyresult.Toyearn
isnottotransfer.(3)Beforeanydoctrineofresultingtrustcancomeintoplay,theremustat
leastbesomeeffectivetransactionwhichtransfersorcreatessomeinterestinproperty.(4)
WhereAeffectuallytransferstoB(orcreatesinhisfavour)anyinterestinanyproperty,whether
legalorequitable,aresultingtrustforAmayariseintwodistinctclassesofcase.Forsimplicity,
IshallconfinemystatementtocasesinwhichthetransferorcreationismadewithoutB
providinganyvaluableconsideration,andwherenopresumptionofadvancementcanariseandI
shallstatethepositionfortransferswithoutspecificmentionofthecreationofnewinterests.
(a)ThefirstclassofcaseiswherethetransfertoBisnotmadeonanytrust.If,ofcourse,
itappearsfromthetransferthatBisintendedtoholdoncertaintrusts,thatwillbe
decisive,andthecase(p.381) isnotwithinthiscategoryandsimilarlyifitappearsthatB
isintendedtotakebeneficially.ButinothercasesthereisarebuttablepresumptionthatB
holdsonaresultingtrustforA.Thequestionisnotoneoftheautomaticconsequencesof
adispositivefailurebyA,butoneofpresumption:thepropertyhasbeencarriedtoB,and
fromtheabsenceofconsiderationandanypresumptionofadvancementBispresumednot
onlytoholdtheentireinterestontrust,butalsotoholdthebeneficialinterestforA
absolutely.ThepresumptionthusestablishesboththatBistotakeontrustandalsowhat
thattrustis.Suchresultingtrustsmaybecalledpresumedresultingtrusts.
(b)ThesecondclassofcaseiswherethetransfertoBismadeontrustswhichleave
someorallofthebeneficialinterestundisposedof.HereBautomaticallyholdsona
resultingtrustforAtotheextentthatthebeneficialinteresthasnotbeencarriedtohimor
others.Theresultingtrustheredoesnotdependonanyintentionsorpresumptions,butis
theautomaticconsequenceofAsfailuretodisposeofwhatisvestedinhim.Sinceex
hypothesithetransferisontrust,theresultingtrustdoesnotestablishthetrustbutmerely
carriesbacktoAthebeneficialinterestthathasnotbeendisposedof.Suchresulting
trustsmaybecalledautomaticresultingtrusts.
(5)WheretrusteesholdpropertyintrustforA,anditistheywho,atAsdirection,makethe
transfertoB,similarprinciplesapply,eventhoughonthefaceofthetransactionthetransferor
appearstobethetrusteesandnotA.IfthetransfertoBisontrust,Bwillholdanybeneficial
interestthathasnotbeeneffectuallydisposedofonanautomaticresultingtrustforthetrue
transferor,A.IfthetransfertoBisnotontrust,therewillbearebuttablepresumptionthatB
holdsonaresultingtrustforA.
Nowasitseemstomethispassage102 showsLordWilberforceasrejectingtheapplicationofwhatI
havecalledthepresumptionclassofresultingtrustandacceptingthatthecasefallsintowhatIhave
calledtheautomaticclass.Thegrantoftheoptiontothedefendantcompanywas,ashehadheld,on
trust.Therewasthusnoneed,nor,indeed,anyreasontoconsiderwhethertheoptionwasgrantedto
thedefendantcompanybeneficially,orwhethertherewasanypresumptionofaresultingtrust,forthat
questionhadbeenforeclosedbythedecisionthatthedefendantcompanydidnottakebeneficiallybut
heldontrust.TheonlyquestionwaswhetherMr.Vandervellhadevereffectuallydisposedofthe
beneficialinterestthatthedefendantcompany,holdingontrust,mustholdonaresultingtrustforhim
unlessanduntilaneffectivetrustforsomeotherbeneficiarywasconstituted.Thishadnotbeendone,
andsothedefendantcompanycontinuedtoholdonaresultingtrustforMr.Vandervell.
IfonebearsinmindLordWilberforcesspeechandtheprinciplesthatIhavetriedtostateitseemsto
methatwhenonelooksagainatLordUpjohnsspeechitisatleastpossibletoreaditassupporting
whatseemstometobetherightanalysisofthecase,namely,thatthetruegrantoroftheoptionwas
Mr.Vandervell,thattheoptionwasgrantedtothedefendantcompanyontrust,thatnoeffectivetrusts
wereeverdeclared,andsothedefendantcompanyheldtheoptiononanautomaticresultingtrustfor
Mr.Vandervell.Indeed,thatiswhatIthinkhewaslayingdown.Thequestioniswhether,onthe
evidencebeforeme,Ioughttoreachanyotherconclusion.
Myconclusionisthatthereisnothingintheevidencebeforemethatwarrantsanyconclusiondifferent
fromthatreachedinVandervellNo.1,namely,thattheoptionwasgrantedtothedefendantcompany
ontrust,butthatnoeffectivetrustswereeverestablishedandsothedefendantcompanyheldthe
optiononaresultingtrustforMr.Vandervell.
(3)Effectofchildrens5,000
Thethirdissueisthatoftheeffectofexercisingtheoptionwith5,000ofthemoneysheldbythe
defendantcompanyonthetrustsofthechildrenssettlement.Thatissueis,inessence,whether
trusteeswhoholdanoptionontrustforXwillholdthesharesobtainedbyexercisingthatoptionon(p.
382) trustforYmerelybecausetheyusedYsmoneyinexercisingtheoption.Authorityapart,my
answerwouldbeanunhesitatingNo.TheoptionbelongstoXbeneficially,andthemoneymerely
exercisesrightswhichbelongtoX.Letthesharesbeworth50,000,sothatanoptiontopurchase
thosesharesfor5,000isworth45,000,anditwillatoncebeseenwhatamonstrousresultwould
beproducedbyallowingtrusteestodivertfromtheirbeneficiaryXthebenefitsofwhattheyholdintrust
forhimmerelybecausetheyusedYsmoneyinsteadofXs
Ineedonlysaythattheconsequencesofrecognisinganyruletotheeffectthattrusteesofmorethan
onetrustcanineffecttransfertheassetsofonetrusttoanothertrustsimplybyexpendingthemoney
ofthatothertrustonimprovingtheassetsseemstometobeincalculableImerelyaddthat,asI
havealreadymentioned,Mr.Balcombehasthroughoutacceptedwhathehaspleaded,namely,that
theplaintiffsrighttothesharesissubjecttoalieninfavourofthechildrenssettlementforthe5,000
paidforexercisingtheoptionwithinterest.Thisineffectwillrestorethestatusquoanteasregards
thispayment.
Thispassageisasensibleapproachtothedifficultfactsofthecase,andappearstobeconsistentwiththe
previousjudgmentoftheHouseofLords.However,thedecisionofMegarryJwasoverturnedbytheCourtof
Appeal,whichheldthateventhoughtheoptionhadbeenheldonresultingtrustforVandervell,theshareswere
notalsoheldonresultingtrust.LordDenningMRthoughtthattheshareswereinsteadheldonanexpresstrust
forthechildrenssettlement,sothatthedividendswereproperlypaidtothechildrenssettlement:103
InOctoberandNovember1961,thetrusteecompanyexercisedtheoption.Theypaid5,000outofthe
childrenssettlement.TheRoyalCollegeofSurgeonstransferredthelegalestateinthe100,000Ashares
tothetrusteecompany.Thereuponthetrusteecompanybecamethelegalowneroftheshares.Thiswasa
differentkindofpropertyaltogether.Whereaspreviouslythetrusteecompanyhadonlyachoseinactionof
onekindanoptionitnowhadachoseinactionofadifferentkindtheactualshares.Thistrust
propertywasnotheldbythetrusteecompanybeneficially.Itwasheldbythemontrust.Onthisoccasion
avalidtrustwascreatedatthetimeofthetransfer.Itwasmanifestedinclearandunmistakablefashion.It
waspreciselydefined.Thesharesweretobeheldonthetrustsofthechildrenssettlement.Theevidence
ofintentionisindisputable:
(i)Thetrusteecompanyusedthechildrensmoney5,000withwhichtoacquiretheshares.This
wouldbeabreachoftrustunlesstheyintendedthesharestobeanadditiontothechildrens
settlement.
(ii)ThetrusteecompanywrotetotheRevenueauthoritiestheletterof2November,1961,declaring
expresslythattheshareswillhenceforthbeheldbythemuponthetrustsofthe[childrens]
settlement.
(iii)Thenceforwardallthedividendsreceivedbythetrusteeswerepaidbythemtothechildrens
settlementandtreatedaspartofthefundsofthesettlement.Thiswasalldonewiththefullassentof
Mr.Vandervell.Suchbeingtheintention,clearandmanifest,atthetimewhentheshareswere
conveyedtothetrusteecompany,itissufficienttocreateatrust.
Mr.BalcombefortheexecutorsadmittedthattheintentionofMr.Vandervellandthetrusteecompanywas
thatthesharesshouldbeheldontrustforthechildrenssettlement.Buthesaidthatthisintentionwasof
noavail.Hesaidthatduringthefirstperiod,Mr.Vandervellhadanequitableinterestintheproperty,
namely,aresultingtrustthatheneverdisposedofthisequitableinterest(becauseheneverknewhehad
it):andthatinanycaseitwasthedispositionofanequitableinterestwhich,undersection53oftheLawof
PropertyAct1925,hadtobeinwriting,signedbyhimorhisagent,lawfullyauthorisedbyhiminwriting
(andtherewasnosuchwritingproduced).
(p.383) Thereisacompletefallacyinthatargument.Aresultingtrustforthesettlorisbornanddies
withoutanywritingatall.Itcomesintoexistencewheneverthereisagapinthebeneficialownership.It
ceasestoexistwheneverthatgapisfilledbysomeonebecomingbeneficiallyentitled.Assoonasthegap
isfilledbythecreationordeclarationofavalidtrust,theresultingtrustcomestoanend.Inthiscase,
beforetheoptionwasexercised,therewasagapinthebeneficialownership.Sotherewasaresultingtrust
forMr.Vandervell.But,assoonastheoptionwasexercisedandthesharesregisteredinthetrustees
name,therewascreatedavalidtrustofthesharesinfavourofthechildrenssettlement.Notbeingatrust
ofland,itcouldbecreatedwithoutanywriting.Atrustofpersonaltycanbecreatedwithoutanywriting.
BothMr.Vandervellandthetrusteecompanyhaddoneeverythingwhichneededtobedonetomakethe
settlementofthesesharesbindingonthem.Sotherewasavalidtrust:seeMilroyvLord(1862)4DeGF&
J264at274,104 perTurnerLJ.
LordDenningMRidentifiedanintentionthatthetrustcompanyshouldholdthesharesonexpresstrustforthe
childrenssettlementfromthefollowingfacts:themoneytoexercisetheoptionhadbeenderivedfromthat
settlement,andthiswouldhaveconstitutedabreachoftrusthadthetrusteesnotintendedthesharestobe
addedtothesettlementthetrustcompanyhadwrittentotheInlandRevenuedeclaringthattheshareswereheld
forthechildrenandthedividendshadbeenpaidtothesettlement.AllthiswasdonewithVandervellsassent.
Onemajorproblemwiththisanalysisisthat,sincetheHouseofLordshadrecognizedthatVandervellhadan
equitableinterestintheoptionandthechildrenendedupwithanequitableinterestintheshares,thereappeared
tohavebeenatransferofasubsistingequitableinterestfromVandervelltothechildren,andsuchadispositionof
anequitableinterestcanbevalidonlyifitiseffectedbywriting.105
FurthercriticismmightbemadeofsomeofthereasoningofLordDenningMR.Forexample,therewasno
resolutionoftheboardofdirectorsofthetrustcompany,whichwouldhavebeennecessarytodeclareanexpress
trustoftheshares.Itmayalsobemisleadingtotreattheoptionandthesharesastwodistinctpiecesofproperty
asBattersby 106 hasexplained:
Theoptiontopurchaseisnotapieceofpropertydistinctfromtheshares,itismerelyalimitedrightcarved
outofthebundleofrightsnormallyinherentintheshares.Thetrusteecompany,asowneroftheoption,
hadtherighttobecomeowneroftheshares.Sinceitneverhadtherighttoexercisetheoptionforitsown
benefit,boththeoption,priortoitsexercise,andtheshares,afteritsexercise,mustbeheldonaresulting
trustforthegrantor,Vandervell,unlessanduntilhisbeneficialinterestisdisplacedbyavalidcreationof
newtrusts.
ThebetterviewisthatboththeoptionandshareswereheldonresultingtrustforVandervell,andthattheCourtof
AppealoughtnottohaveoverturnedthedecisionofMegarryJ.Indeed,oneofthejudgesintheCourtofAppeal,
StephensonLJ,expressedhisreservationsaboutthedecision:107
IhavehadmoredoubtthanLordDenningMRandLawtonLJwhetherwecanoverturnthejudgmentof
MegarryJinwhatIhavenotfoundaneasycase.Indeed,treadinga(tome)darkandunfamiliarpath,Ihad
partedfrombothmyfellowtravellersandfollowingthewindingsof[Counsels]argumenthad(p.
384) nearlyreachedadifferentterminusbeforethelightwhichtheythrewuponthejourneyenabledmeto
jointhematthesameconclusion.
Toexpoundmydoubtswouldservenousefulpurposetostatethemshortlymaydonoharm.Thecauseof
allthetroubleiswhatthejudgecalled[1974]Ch269at298thisillfatedoptionanditsincorporationina
deedwhichwastooshortandsimpletoridMr.Vandervellofthebeneficialinterestinthedisputedshares,
asabaremajorityoftheHouseofLordsheld,notwithoutfluctuationofmindonthepartofoneofthem
(LordUpjohn),inVandervellvIRC[1967]2AC291at314317.TheoperationoflaworequitykeptforMr.
Vandervellorgavehimbackanequitableinterestwhichhedidnotwantandwouldhavethoughthehad
disposedofifhehadeverknownitexisted.Itisthereforedifficulttoinferthatheintendedtodisposeorever
diddisposeofsomethinghedidnotknowhehaduntilthejudgmentofPlowmanJinVandervellv
IRC[1966]Ch261at273,whichledtothedeedof1965,enlightenedhim,ortofindadispositionofitin
theexercisebythetrusteecompanyin1961ofitsoptiontopurchasetheshares.Andevenifhehad
disposedofhisinterest,hedidnotdisposeofitbyanywritingsufficienttocomplywithsection53(1)(c)of
theLawofPropertyAct1925.
ButLordDenningMRandLawtonLJareabletoholdthatnosuchdispositionisneededbecause(1)the
optionwasheldonsuchtrustsasmightthereafterbedeclaredbythetrusteecompanyorMr.Vandervell
himself,and(2)thetrusteecompanyhasdeclaredthatitholdsthesharesinthechildrenssettlement.Ido
notdoubtthefirst,becauseitwasapparentlytheviewofthemajorityoftheHouseofLordsinVandervellv
IRC[1967]2AC291.Ishouldbemoreconfidentofthesecondifithadbeenpleadedorarguedeitherhere
orbelowandwehadhadthebenefitofMegarryJsviewsuponit.Ifcounselforthetrusteecompanyinthe
courtbelowhadthoughtthattheevidencesupportedit,hewouldnot,Ithink,havesoughtandobtainedthe
amendmentofthedefencewhichhedidtoallegewhatthejudgerejectedasanunusualandimprobable
formoftrustwhichwasnotsupportedbytheevidence.Ifcounselforthetrusteecompanyinthiscourthad
acceptedit,Idonotthinkthathewouldhaveopenedthisappealashedidwithreferencestoperfectingor
completingthetrustbutnonetodeclaringit.Isee,asperhapsdidcounsel,difficultiesinthewayofa
limitedcompanydeclaringatrustbyparoleorconductandwithoutresolutionoftheboardofdirectors,and
difficultiesalsointhewayoffindinganydeclarationoftrustbyMr.VandervellhimselfinOctoberor
November1961,oranyconductthenorlaterwhichwouldinlaworequityestophimfromdenyingthathe
madeone.
However,LordDenningMRandLawtonLJareoftheopinionthatthesedifficulties,ifnotimaginary,arenot
insuperableandthattheseshareswentintothechildrenssettlementin1961inaccordancewiththe
intentionofMr.VandervellandthetrusteecompanyaresultwithwhichIamhappytoagreeasitseems
tometobeinaccordancewiththejusticeandtherealityofthecase.
(c)SubsequentFailureofTrust
Atrustmightsubsequentlyfail,eventhoughinitiallyvalid,becausethetrustbecomesimpossibletoperform.This
mostcommonlyariseswherethetrustisforavalidpurpose,whichcannolongerbefulfilled.Whereasurplus
remainsinthetrustfund,suchthattheexpresstrusthasfailedfullytoexhaustthebeneficialinterestinthe
subjectmatterofthetrust,itneedstobedeterminedtowhomthatsurplusbelongs.Ifthefailedtrustwasa
charitabletrust,thepropertywillbeappliedcyprs.108 Ifaprivatetrustisatissue,thenthepropertymightbe
heldonresultingtrust,butalsoasanabsolutegift,orasbonavacantia.109 Theselasttwoalternativeswillbe
consideredfirst,beforeexaminingsituationsinwhicharesultingtrustmightarise.
(p.385) (i)Absolutegift
Asamatterofconstruction,itmightbepossiblethatagiftforaparticularpurposeonlydoesnotgiverisetoa
trustifthepurposefails,butisratheranabsolutegift,andtheexpressedpurposewasmerelyamotiveforthegift.
Forexample,inReOsoba110 thetestatorleftpropertytohiswidowontrusttobeusedforhermaintenanceand
forthetrainingofmydaughteruptouniversitygradeandforthemaintenanceofmyagedmother.Themother
predeceasedthetestator,whodiedin1965.Hiswidowdiedin1970,andthedaughtercompletedheruniversity
educationin1975.Therewasasurplusleftinthefund.Thiswasclaimedbythetestatorschildrenfromaprevious
marriage.TheCourtofAppealrejectedtheirclaim,andheldthatthetestatorsintentionwastomakeabsolute
giftstothebeneficiaries:thereferencestomaintenanceandeducationwereonlyexpressionsofmotive,not
requirementsthatthepropertybeusedforthosepurposes.BuckleyLJsaid:111
Ifatestatorhasgiventhewholeofafund,whetherofcapitalorincome,toabeneficiary,whetherdirectlyor
throughthemediumofatrustee,heisregarded,intheabsenceofanycontraindication,ashaving
manifestedanintentiontobenefitthatpersontothefullextentofthesubjectmatter,notwithstandingthat
hemayhaveexpresslystatedthatthegiftismadeforaparticularpurpose,whichmayprovetobe
impossibleofperformanceorwhichmaynotexhaustthesubjectmatter.Thisisbecausethetestatorhas
giventhewholefundhehasnotgivensomuchofthefundasatrusteeoranyoneelseshoulddetermine,
butthewholefund.Thismustbereconciledwiththetestatorshavingspecifiedthepurposeforwhichthe
giftismade.Thisreconciliationisachievedbytreatingthereferencetothepurposeasmerelyastatement
ofthetestatorsmotiveinmakingthegift.Anyotherinterpretationofthegiftwouldfrustratethetestators
expressedintentionthatthewholesubjectmattershallbeappliedforthebenefitofthebeneficiary.These
considerationshave,Ithink,addedforcewherethesubjectmatteristhetestatorsresidue,sothatany
failureofthegiftwouldresultinintestacy.Thespecifiedpurposeisregardedasoflesssignificancethan
thedispositiveactofthetestator,whichsetsthemeasureoftheextenttowhichthetestatorintendsto
benefitthebeneficiary.
(ii)Bonavacantia
Ifpropertyisbonavacantia,itmeansthatithasnoownerandwillbetransferredtotheCrown.Insomeinstances,
ithasbeenrecognizedthatthesurplusofagiftshouldproperlybeconsideredtobeownerless.112 Thiswas
consideredinthecontextofgiftstounincorporatedassociationsinChapter6,113 whereitwasconcludedthat
moneywhichinitiallybelongedtosomebodyshouldnotreadilybecomeownerless.114 However,thesuggestion
thatthesurplusofagiftshouldbeheldasbonavacantiahasresurfacedinthecontextofpensionfundtrusts.
InDavisvRichardsandWallingtonIndustriesLtd,115 apensionfundwaswoundupwithasurplusof3million.
Thefundhadbeenderivedfromcontributionsfromemployersandemployees,andfromfundstransferredfrom
otherpensionschemes.Itwasrecognizedthatusually,insuchcircumstances,thesurpluswouldbeheldon
resultingtrustfortheemployersandemployeeswhohadcontributedtothefund,eventhoughtheemployees
wouldhavereceivedallthattheyhadbargainedforundertheiremploymentcontract.116 Onthefacts,itwasheld
thattheemployeralonewasentitledtothesurplus,sinceexpressprovisionhadbeenmadeforthisin(p.
386) thetrustdeed.ScottJheldthataresultingtrustcouldbeexcludedbyanexpressoranimpliedtermina
contract,andalsowentontoconsiderwhatwouldhavebeentheresulthadthetrustdeedbeeninvalid.Although
normallythesurpluswouldthenhavebeenheldonresultingtrustforthecontributors,heconcludedthatitwould
havebeenpaidtotheCrownasbonavacantia,sinceitwouldnothavebeenpossibletofindanintentionofthe
employeesthatanysurplusshouldbeheldonresultingtrustforthem.
DavisvRichardsandWallingtonIndustriesLtd[1990]1WLR1511,153844(ScottJ)
FinallyImustaddressmyselftotheargumentsonresultingtrust.Theseargumentsariseonlyifthe
definitivedeedwasineffectiveanditsinefficacycannotberemediedbytheexecutionoftheexecutory
trust.
Mr.Charles,arguingforbonavacantia,hasdrawnadistinctionbetweenpaymentsmadeunder
contractandpaymentsmadeunderatrust.Hesuggestedthatrightsarisingunderpensionschemes
were,basically,rightsofacontractualcharacterratherthanequitablerightsarisingunderatrust.AsI
understoodtheargument,ifthecontextinwhichtherightsariseismainlyorexclusivelycontractual,
thenaresultingtrustwillbeexcludedbut,ifthecontextismainlyorexclusivelythatoftrust,a
resultingtrustmayapply.Unincorporatedassociations,hesaid,werebasedincontract,apension
schemewasaspeciesofunincorporatedassociation,thecontributionstopensionschemesby
employeesandemployersalikeweremadeundercontractwithoneanothersotherewasnoroomfor
anyresultingtrusttoapplytothesurplusproducedbythecontributions.
Inmyopinion,thecontractualoriginofrightsunderapensionscheme,althoughrelevanttothe
questionwhetheraresultingtrustappliestosurplus,isnotconclusive.Thereareanumberof
authoritieswherethecourtshavehadtodealwiththequestionwhethertheassetsofadefunct
associationorthesurplusassetsofapensionschemehadbecomebonavacantiaorwereheldon
resultingtrustsforthesubscribersormembers.
[HisLordshipreferredtoReWestSussexConstabularysWidows,ChildrenandBenevolent(1930)
FundTrustsandJonesvWilliams(15March1988,unreported),whereKnoxJheldthataresulting
trustcouldbeexcludedbyaclauseinthetrustdeed,andcontinued:]
IrespectfullyagreewithKnoxJsapproach.Iwould,however,ventureonequalification.Theprovision
inatrustdeednecessarytoexcludearesultingtrustneednot,inmyopinion,beexpress.Inthe
absenceofanexpressprovisionitwould,Ithink,oftenbeverydifficultforasufficientlyclearintention
toexcludearesultingtrusttobeestablished.But,ingeneral,anytermthatcanbeexpressedcan
also,insuitablecircumstances,beimplied.Inmyopinion,aresultingtrustwillbeexcludednotonly
byanexpressprovisionbutalsoifitsexclusionistobeimplied.Iftheintentionofacontributorthata
resultingtrustshouldnotapplyistheproperconclusion,itwouldnotberight,inmyopinion,forthe
lawtocontradictthatintention.
Inmyjudgment,therefore,thefactthatapaymenttoafundhasbeenmadeundercontractandthat
thepayerhasobtainedallthatheorshebargainedforunderthecontractisnotnecessarilyadecisive
argumentagainstaresultingtrust.
thereisaveryimportantdifferencebetweenthecontractualobligationoftheemployeesandthatof
theemployers.Theemployeescontractualobligationwasspecificinamount,5percentofsalary.
Theemployerscontractualobligationwasconceptuallycertainbuttheamountwasinherently
uncertain.Theobligationwastopaywhateverwasnecessarytofundthescheme.Thetermsofrule3
ofPartIIofthe1975rulesdescribeaccurately,inmyopinion,thecontractualobligationofthe
employers:
Theemployerwillpaytothetrusteessuchamountsasmayfromtimetotimeberequiredtoenable
thetrusteestomaintainthebenefits
(p.387) Inpractice,theamountoftheemployerscontributionsinrespectofeachemployeewas
actuariallycalculated.Thecalculationswerebasedonassumptionsastothetimewhenthebenefits
wouldbecomepayableandastotheamountoftheemployeesfinalsalaryatthattime.Ifthescheme
shouldterminatebeforethattime,theamountpaidwouldbeboundtohavebeenmorethanneededto
havebeenpaidinordertofundtheemployeesbenefitsasatthedateoftermination.
Twoseparatequestionsseemtometorequiretobeanswered.First,towhatextentshouldthe
surplus,the3millionodd,beregardedasderivedfromeachofthesethreesources?117 Onepossible
answeristhatthereshouldbeacalculationofthetotalamountofemployeescontributions,thetotal
amountoffundstransferredfromothercompaniespensionschemesandthetotalamountof
employerscontributions,andthatthesurplusshouldberegardedasderivedfromthesethreesources
inthesameproportionsasthethreetotalsbeartooneanother.
Idonotacceptthatthisisright.Itignoresthedifferentbasesonwhichthesecontributionswerepaid.
Sincetheemployersobligationwastopaywhateverwasfromtimetotimenecessarytofundthe
variousschemebenefitsandsincetheemployees5percentcontributionsandtheamountofthe
transferredfundsconstitutedthebasefromwhichtheamountoftheemployerscontributionswould
fromtimetotimehavetobeassessed,itislogical,inmyjudgment,totreattheschemebenefitsas
fundedfirstbytheemployeescontributionsandthetransferredfunds,andonlysecondarilybythe
employerscontributions,and,correspondingly,totreatthesurplusasprovidedfirstbytheemployers
contributionsandonlysecondarilybytheemployeescontributionsandthetransferredfunds.
Therearetwopossiblefactualsituationstobeconsidered.Itispossible(although,Ithink,very
unlikely)thattheemployeescontributionsandthefundstransferredfromthepensionschemesof
othercompanieswould,withouttherehavingbeenanycontributionatallfromtheemployers,have
beensufficienttoprovideinfullforalltheschemebenefitsand,perhaps,stilltohaveleftsomesurplus.
Ifthatistheposition,itwouldfollowthat,withtheadvantageofhindsight,theemployersneednothave
madeanycontributionsatallinordertohavefundedthebenefits.Thissituationwould,inmy
judgment,requirethatthatsurplus(whichwouldbebound,Ithink,tobeverysmall)shouldbe
regardedasderivedfromtheemployeescontributionsandthetransferredfundsandthatthebalance
ofthesurplusshouldberegardedasderivedfromtheemployerscontributions.
Themuchmorelikelysituationisthatsomecontributionatleastwasrequiredfromtheemployersin
ordertoproduceassetssufficienttoprovidealltheschemebenefitstowhichemployeesbecame
entitledon31July,1982.Inthateventthewholeofthesurplus,inmyjudgment,shouldberegarded
asderivedfromtheemployerscontributions.Thisconclusionis,tomymind,inaccordancebothwith
logicandwithequity.Theactuarialcalculationsonwhichtheemployersactualcontributionswere
basedwerethemselvesbaseduponaseriesofassumptions.Theterminationofthescheme
invalidatedtheassumptions.Theemployershad,intheevent,madepaymentsexceedingtheamount
necessarytodischargetheirobligationtofundthebenefitstowhichtheemployeeseventuallybecame
entitled.Thereisawellestablishedequitythatenablesaccountsdrawnupunderamistaketobe
reopened(seeGoffandJones,TheLawofRestitution(3rdedn,1986),p.199).Incasessuchasthe
presenttherewasnomistakeatthetimethecontributionswereassessedandpaid.Theactuarial
calculationswere,Iamsure,impeccable.Butsubsequenteventshavinginvalidatedsomeofthe
assumptionsunderlyingthecalculations,thecaseis,inmyopinion,stronglyanalogoustothatofan
accountdrawnupunderamistake.Inmyopinion,equityshouldtreattheemployersasentitledto
claimthesurplus,orsomuchofitasderivedfromtheoverpayments.
Thesecondquestioniswhetheraresultingtrustappliestothesurplus,ortosomuchofthesurplus
aswasderivedfromeachofthethreesourcestowhichIhavereferred.Astothesurplusderivedfrom
theemployerscontributions,Icanseenobasisonwhicharesultingtrustcanbeexcluded.The
equity(p.388) towhichIreferredinthepreviousparagraphdemands,inmyjudgment,theconclusion
thatthetrusteesholdthesurplusderivedfromtheemployerscontributionsupontrustforthe
employers.Thereisnoexpressprovisionexcludingaresultingtrustandnocircumstancesfromwhich,
inmyopinion,animplicationtothateffectcouldbedrawn.Ontheotherhand,inmyjudgment,the
circumstancesofthecaseseemtometopointfirmlyandclearlytotheconclusionthataresulting
trustinfavouroftheemployeesisexcluded.
Thecircumstancesarethese.
(i)Eachemployeepaidhisorhercontributionsinreturnforspecificfinancialbenefitsfromthe
fund.Thevalueofthesebenefitswouldbedifferentforeachemployee,dependingonhowlonghe
hadserved,howoldhewaswhenhejoinedandhowoldhewaswhenheleft.Twoemployees
mighthavepaididenticalsumsincontributionsbuthavebecomeentitledtobenefitsofavery
differentvalue.Thepointisparticularlystrikinginrespectoftheemployees,(andtherewere
severalofthem),whoexercisedtheiroptiontoarefundofcontributions.Howcanaresulting
trustworkasbetweenthevariousemployeesinterse?IdonotthinkitcanandIdonotseewhy
equityshouldimputetothemanintentionthatwouldleadtoanunworkableresult.
(ii)Theschemewasestablishedtotakeadvantageofthelegislationrelevanttoanexempt
approvedschemeandacontractedoutscheme.Thelegislativerequirementsplacedamaximum
onthefinancialreturnfromthefundtowhicheachemployeewouldbecomeentitled.The
proposedruleswouldhavepreservedthestatutoryrequirements.Aresultingtrustcannotdoso.
Inmyjudgment,therelevantlegislativerequirementspreventimputingtotheemployeesan
intentionthatthesurplusofthefundderivedfromtheircontributionsshouldbereturnedtothem
underaresultingtrust.
Accordingly,inmyjudgment,ifanypartofthesurplushasderivedfromemployeescontributionsor
fromthefundstransferredfromthepensionschemesofothercompanies,thatpartofthesurplus
devolvesasbonavacantia.Subjectthereto,thesurplusis,inmyjudgment,heldupontrustforthe
employercontributors.
ScottJconsideredthattheemployeescontributionwouldbeheldasbonavacantiaratherthanonresultingtrust,
becauseitwouldnothavebeenpracticabletoapportionthesurpluswithreferencetothevalueofthebenefitthat
eachmemberhadreceived,andherefusedtofindanintentionthatwouldleadtoanunworkableresult.
ThisapproachinDavishasbeencriticized.Forexample,itisunclearwhyasettlors(presumed)intentionto
retainabeneficialinterestshouldbedefeatedsimplybecauseitisdifficulttodeterminehowmuchthe
contributorsshouldreceiveunderresultingtrusts.TheCourtshouldstrivetoapportionthesurplusinproportionto
thecontributorscontributiontothefund.Indeed,inAirJamaicavCharlton,118 LordMillett,givingtheadviceofthe
PrivyCouncil,said:
InDavisvRichardsandWallingtonIndustriesLtd[1990]1WLR1511ScottJheldthatthefactthataparty
hasreceivedallthathebargainedforisnotnecessarilyadecisiveargumentagainstaresultingtrust,but
thatinthecircumstancesofthecasebeforehimaresultingtrustinfavouroftheemployeeswasexcluded.
Thecircumstancesthatimpressedhimweretwofold.Heconsideredthatitwasimpossibletoarriveata
workableschemeforapportioningtheemployeessurplusamongthedifferentclassesofemployeesand
hedeclined,at1544,toimputetothemanintentionthatwouldleadtoanunworkableresult.Healso
consideredthathewasprecludedbystatutefromimputingtotheemployeesanintentionthattheyshould
receivebymeansofaresultingtrustsumsinexcessofthemaximumpermittedbytherelevanttax
legislation.
(p.389) TheseformulationsalsoadopttheapproachtointentionthattheirLordshipshavealready
consideredtobeerroneous.119 TheirLordshipswouldobservethat,evenintheordinarycaseofan
actuarialsurplus,itisnotobviousthat,whenemployeesarepromisedcertainbenefitsunderaschemeto
whichtheyhavecontributedmorethanwasnecessarytofundthem,theyshouldnotexpecttoobtaina
returnoftheirexcesscontributions.
LordMillettconsideredtheresultingtrusttobethepreferablesolution:whereaclaimanthascontributedtothe
surplusofanexpresstrustthathasfailed,theamountofthatcontributiontothesurplusfundshouldbeheldon
resultingtrustfortheclaimant.However,ifthevalueofthefundhasfallen,theamountheldontrustforthe
claimantshouldbereducedproportionately.Butwherethevalueofthefundhasincreased,thisincreaseshould
besharedamongstthecontributorsinproportiontotheamountthattheycontributed.
Inanyevent,itmaybethatthecontractholdingtheory,whichissoprevalentinthecontextofunincorporated
associations,120 shouldalsoapplytopensiontrusts:whereasunderaresultingtrustacontributorwillonlyreceive
aproportionatesharerelativetohiscontributions,underthecontractholdingtheorythesurplusfundswouldbe
distributedinfullamongthemembersatthetimeinaccordancewiththetermsofthecontract.
LordBrowneWilkinson,EquityanditsRelevancetoSuperannuationSchemesToday
(1992)62TLI119,124
themonieshavebeenpaidtothetrusteesbythemembersandtheemployerasamatterof
contractualobligationsbetweenthemthedoctrineofresultingtrusthasneverbeenappliedto
contractualobligation.Iwouldhavethoughtthatthebetteranalysiswasnotundertrustlawbutin
contract.Theemployer,beingrequiredtopayonlythebalanceofcost,contractedtopaytheamount
requiredthem[sic]timetotimebytheactuaryontheimpliedtermthatifthepaymentsareexcessive
heistorecovertheamountoverpaid.
(iii)Resultingtrusts
Anysurplusofanexpresstrustthatfailsmayalsobeheldonresultingtrustforthesettlor.Thisisgenerallytobe
preferredtobonavacantia:propertyshouldnotreadilybecomeownerless.
TheresultingtrustsolutionwasclearlyfavouredbyLordMillettinAirJamaicavCharlton121 inthecontextof
pensiontrusts.ItwasalsoappliedinReGillinghamBusDisasterFund.122 Afundwasestablishedforthecareof
thoseinjuredfollowingabuscrash,andthenforotherworthycauses.Thepubliccontributed9,000tothefund,
partlyfromidentifiedsubscribers,butlargelyfromstreetcollections.Therewasasurplus,whichHarmanJfound
washeldonresultingtrustforthedonors:123
Therearisesnowafurtherquestion,namely,whether,astheTreasurySolicitorclaims,thissurplusshould
bepaidtotheCrownasbonavacantia,orwhetherthereisaresultingtrustinfavourofthesubscribers,
whoarehererepresentedbytheOfficialSolicitor.Thegeneralprinciplemustbethatwheremoneyisheld
upontrustandthetrustsdeclareddonotexhaustthefunditwillreverttothedonoror(p.390) settlor
underwhatiscalledaresultingtrust.Thereasoningbehindthisisthatthesettlorordonordidnotpartwith
hismoneyabsolutelyoutandoutbutonlysubmodototheintentthathiswishesasdeclaredbythe
declarationoftrustshouldbecarriedintoeffect.When,therefore,thishasbeendoneanysurplusstill
belongstohim.Thisdoctrinedoesnot,inmyjudgment,restonanyevidenceofthestateofmindofthe
settlor,forinthevastmajorityofcasesnodoubthedoesnotexpecttoseehismoneyback:hehas
createdatrustwhichsofarashecanseewillabsorbthewholeofit.Theresultingtrustariseswherethat
expectationisforsomeunforeseenreasoncheatedoffruition,andisaninferenceoflawbasedonafter
knowledgeoftheevent.
CounselfortheCrownadmittedthatitwasforhimtoshowthatthisprincipledidnotapplytothepresent
case.
Iwasreferredtotwocaseswhereaclaimwasmadetobonavacantiaandsucceeded.Thefirstofthese
wasCunnack vEdwards[1896]2Ch679.Thiswasacaseofasocietyformedtoraiseafundby
subscriptionsandsoforthfromthememberstoprovideforwidowsofdeceasedmembers.Uponthedeath
ofthelastwidowofamemberitwasfoundthattherewasasurplus.ItwasheldbytheCourtofAppealthat
noquestionofcharityarose,thattherewasnoresultingtrustinfavourofthesubscribers,butthatthe
surpluspassedtotheCrownasbonavacantia.
Theratiodecidendiseemstohavebeenthathavingregardtotheconstitutionofthefundnointerestcould
possiblybeheldtoremaininthecontributorwhohadpartedwithhismoneyonceandforallundera
contractforthebenefitofhiswidow.Whenthiscontracthadbeencarriedintoeffectthecontributorhad
receivedallthathecontractedtogetforhismoneyandcouldnotaskforanymore.
ItwasarguedfortheCrownthatthesubscriberstothisfundmustbetakentohavepartedwiththeirmoney
outandout,andthattherewashere,asinCunnack vEdwards[1896]2Ch679andBraithwaitevA
G[1909]1Ch510,noroomforaresultingtrust.Butthereisadifferencebetweenthosecasesandthisin
thattheywerecasesofcontractandthisisnot.
InmyjudgmenttheCrownhasfailedtoshowthatthiscaseshouldnotfollowtheordinaryrulemerely
becausetherewasanumberofdonorswho,Iwillassume,areunascertainable.Iseenoreasonmyselfto
supposethatthesmallgiverwhoisanonymoushasanywiderintentionthanthelargegiverwhocanbe
named.Theyallgivefortheoneobject.Iftheycanbefoundbyinquirytheresultingtrustcanbeexecuted
intheirfavour.IftheycannotIdonotseehowthemoneycouldthen,withallrespecttoJenkinsLJ,
changeitsdestinationandbecomebonavacantia.Itwillbemerelymoneyhelduponatrustforwhichno
beneficiarycanbefound.Suchcasesarecommonandwhereitisknownthattherearebeneficiariesthe
factthattheycannotbeascertaineddoesnotentitletheCrowntocomeinandclaim.Thetrusteesmust
paythemoneyintocourtlikeanyothertrusteewhocannotfindhisbeneficiary.Iconclude,therefore,that
theremustbeaninquiryforthesubscriberstothisfund.
HarmanJthoughtthatthedonorspartedwiththeirmoneyonlyforthepurposesofthetrustand,ifthosepurposes
werefulfilled,thesurplusmoneyshouldbeheldonresultingtrustforthem.124 Thisappliedbothasregardsthe
identifiedandanonymousdonorsofmoney.Thelatterwerestillconsideredtobebeneficiariesoftheresulting
trusteventhoughtheywereunascertained,andtheCrowncouldnotclaimtheirmoneyasbonavacantia.Whilst
consistentwiththegeneralapplicationofresultingtrusts,thisoutcomedidnotprovetobeveryhelpfultothe
settlorbeneficiaries:money(p.391) waspaidintocourt,whereitwasneverclaimed.However,nearlytwenty
yearslater,itwaseventuallyusedtopayforamemorialtothevictimsofthecrash.125
HarmanJreliedonearliercaseswhichhadalsofoundaresultingtrust,includingRetheTrustsoftheAbbott
Fund,126 inwhichmoneywascollectedforthesupportoftwosisterswhoweredeafanddumbandhadbeen
defraudedoftheirinheritance.Themoneythathadbeencollectedforthemwasheldontrustfortheirbenefit,but
noprovisionwasmadeinthetrustinstrumentforthedisposalofthefundonthedeathofthesurvivor.Whenthis
occurred,therewasasignificantsurplus.Itwasheldthatthisshouldbeheldonresultingtrustforthecontributors
tothefund.StirlingJsaid:
Theladiesarebothdead,andthequestioniswhethersofarasthisfundhasnotbeenappliedfortheir
benefit,thereisaresultingtrustofitforthesubscribers.Icannotbelievethatitwaseverintendedto
becometheabsolutepropertyoftheladiessothattheyshouldbeinapositiontodemandatransferofitto
themselves,orsothatiftheybecamebankruptthetrusteeinthebankruptcyshouldbeabletoclaimit.I
believeitwasintendedthatitshouldbeadministeredbyMr.Smith,127 orthetrusteeswhohadbeen
nominatedinpursuanceofthecircular.Idonotthinktheladieseverbecameabsoluteownersofthis
fund.128 Ithinkthatthetrusteeortrusteeswereintendedtohaveawidediscretionastowhetherany,and
ifanywhat,partofthefundshouldbeappliedforthebenefitoftheladiesandhowtheapplicationshouldbe
made.Thatviewwouldnotdeprivethemofallrightinthefund,becauseifthetrusteeshadnotdonetheir
dutyiftheyeitherfailedtoexercisetheirdiscretionorexerciseditimproperlytheladiesmight
successfullyhaveappliedtothecourttohavethefundadministeredaccordingtothetermsofthecircular.
Intheresult,therefore,theremustbeadeclarationthatthereisaresultingtrustofthemoneysremaining
unappliedforthebenefitofthesubscriberstotheAbbottfund.
4.ExplainingResultingTrusts
Theprecedingdiscussioninthischapterprovidesadescriptiveaccountofresultingtrusts,inthesensethatit
describeswhenresultingtrustsarise.Butitdoesnotexplainwhytheydoso.Thisisadifficultissue,andtosome
extentcanbeavoidedbyjudges,whoaregenerallyrequiredonlytoapplywellestablishedcategoriesofresulting
trusttoparticularcases.However,understandingthetheoreticaljustificationforresultingtrustsisimportantto
establishthereasonsfortheirexistence,andishelpfulwhenseekingtopredicttheoutcomeoffuturecasesthat
concernparticularlytroublesomefacts.
Ithasalreadybeenseenthatthereissomecontroversyaboutwhetherthereasonsforpresumedresultingtrusts
arethesameasthoseunderpinningautomaticresultingtrusts.Thisisanimportantissue,butcanbestbe
consideredoncethereasonsforpresumedresultingtrustsareestablished.
(a)PresumedResultingTrusts
Itisimportanttoappreciatethegeneralroleofpresumptions.Swadling129 hasexplainedthat:
(p.392) Presumptionsproperlysocalledformpartofthelawofproof.Generallyspeaking,factscanbe
provedbyadmission,judicialnotice,orevidence.Intheabsenceofadmissionandjudicialnotice,the
generalruleisthatfactsmustbeprovedbyevidence,theburdenofprovingthosefactslyingontheparty
allegingthemtohaveoccurred.Veryoccasionally,however,proofbyevidenceofonefact,thebasicor
primaryfact,givesthatpartytothelitigationthebenefitofanotherfact,thesecondaryfact,withoutany
needtoadduceevidenceinproof.Insuchcases,thefactisprovedbypresumption.Theburdenthenlies
ontheotherpartytoadduceevidencetorebutthepresumption.Iftheydonot,thetribunaloffactmustfind
thesecondaryfactproved.
Thusitisnotthecasethataresultingtrustispresumedsimplybecauseaconveyancewasvoluntary,for
example.Whatispresumedisanintentionofthesettlor.Itisthisintentionthatthenleadstotheconclusionthat
thereisaresultingtrust.
Beforeconsideringpreciselywhatsortofintentionispresumed,itisimportanttodistinguishpresumedintention
fromaninferredintention,whichwouldgiverisetoanexpresstrust.AsLordNeubergerhassaid:130
Aninferredintentionisonewhichisobjectivelydeducedtobethesubjectiveactualintentionoftheparties
inthelightoftheiractionsandstatementsitinvolvesconcludingwhatapartyintended.
Norisapresumedintentionthesameasanimputedintention,whichinvolvesattributing131 anintentiontothe
parties.InJonesvKernott,132 LadyHaleandLordWalkersaidthat:
if[acourt]cannotdeduceexactlywhatshareswereintended,itmayhavenoalternativebuttoaskwhat
theirintentionsasreasonableandjustpeoplewouldhavebeenhadtheythoughtaboutitatthetime.
Thus,animputedintentionisimposeduponthesettloronthebasisthatthatiswhatreasonablepeoplewould
haveintended.Itisdifferentfromapresumedintentionbecauseitarisesbyoperationoflawitisonlyemployed
whereothertypesofintentionfailtodeliveracredibleresult.Beingimposedbythecourts,itseemsthatan
imputedintentioncannotberebutted.Itdoesnot,therefore,correspondtotheinstancesofpresumedresulting
trustspreviouslyidentifiedinthischapter.
Presumedresultingtrustsrestupontruepresumptions:thenatureofthetransactiongivesrisetoapresumption
regardingthetransferorsintention,andthisintentiontriggerstheresultingtrust.However,thecontentofthis
presumptioniscontroversial.Therearetwoprincipalapproaches:eitherthesettlorispresumedtohavepositively
intendedtocreateatrustinhisorherfavour,orthesettlorispresumednottohaveanyintentiontobenefit
anybodyelse.
Earlyinstancesofresultingtrustsclearlyfavouredtheformerapproach:apresumedintentiontocreateatrust
wasatissue.ThishasbeendemonstratedbySwadling,whoconcludedthat:133
thepresumptionofuseinthecaseofaconveyancewithoutvaluableconsiderationarosesoastoreflect
whatwasthoughttobetheactualintentionsofthepartiesconcerned.Inotherwords,thefact(p.393) ofa
conveyancewithoutvaluableconsiderationgaverisetoapresumptionthatthetransferorhadinfact
conveyedthelandtothetransfereeonexpresstrustforthetransferor.
However,withthedevelopmentofthelawofunjustenrichment,134 thenotionthatwhatisreallybeingpresumedis
anabsenceofintentiontobenefittherecipientbegantoevolve.Birksarguedthat:135
thepresumptionofresultingtrustisapresumptionofnonbeneficialtransferor,inotherwords,a
presumptionthatthetransferordidnotintendthetransfereetoreceiveforhisownbenefit.Thiswayof
expressingthematterallowsareasonabledegreeofintegrationofthepresumptionintothelistofunjust
factorsuponwhichrestitutionaryplaintiffshabituallyrely,suchasmistake,compulsionorinequality.
Thetensionbetweenapresumedpositiveintentiontocreatearesultingtrustandapresumedabsenceofintention
togivethebenefitofthepropertytotherecipientwasresolved,atleastasamatterofauthority,bytheHouseof
LordsinWestdeutsche.
WestdeutscheLandesbankGirozentralevIslingtonLondonBoroughCouncil[1996]AC
669
Alocalauthorityenteredintoaninterestrateswapsagreementwithabank.Thistransactioninvolvedan
agreementbetweenthepartiesbywhicheachagreedtopaytotheotheranamountthatwascalculatedby
referencetotheinterestthatwouldhaveaccruedoveratenyearperiodfrom1987,onanotionalprincipal
sumof25million.Therateofinteresttobepaidbyeachpartywasdifferent.Thebanksratewasfixedand
theotherwasvariable,beingdependentonanidentifiedfluctuatinginterestrate.Thepartythatowedthe
highestamountofmoneypaidthenetdifferencetotheotherpartyeverysixmonths.Ineffect,thiswasaform
ofgamblingonchangesintheinterestrate.Inseparateproceedingsin1990theHouseofLordsheldthat
localauthoritieslackedthecapacitytomakesuchcontracts,whichwereconsequentlyultraviresandnull
andvoid.136 Inthepresentcase,WestdeutscheLandesbankGirozentralehadpaidmoretothelocal
authoritythanithadreceivedandsoitsoughtrestitutionfromthelocalauthorityofthenetdifference.Thekey
questionfortheHouseofLordswaswhetheranyinterestthatwasduewastobeassessedassimpleoras
compoundinterest.
TheHouseofLordsheldthatthelocalauthoritywasliabletomakerestitutionbyvirtueofitsunjust
enrichmentonthegroundoffailureofconsideration.Itwasliabletopayinteresttothebankbutthiswas
assessedassimpleinterestbecause,otherthanwherethereisfraud,compoundinterestwasonlyavailable
inequityagainstafiduciarywhowasaccountableforprofitsmadefrombreachofthefiduciaryduty.137 Itwas
notpossibletocharacterisethelocalauthorityasafiduciarysinceitdidnotholdthebanksmoneyontrust.
LordBrowneWilkinsonsaid:
Althoughtheactualquestioninissueontheappealisanarrowone,ontheargumentspresenteditis
necessarytoconsiderfundamentalprinciplesoftrustlaw.Doestherecipientofmoneyundera(p.
394) contractsubsequentlyfoundtobevoidformistakeorasbeingultraviresholdthemoneys
receivedontrustevenwherehehadnoknowledgeatanyrelevanttimethatthecontractwasvoid?If
hedoesholdontrust,suchtrustmustariseatthedateofreceiptor,atthelatest,atthedatethelegal
titleofthepayerisextinguishedbymixingmoneysinabankaccount:138 inthepresentcaseitdoes
notmatteratwhichofthosedatesthelegaltitlewasextinguished.Ifthereisatrusttwo
consequencesfollow:(a)therecipientwillbepersonallyliable,regardlessoffault,foranysubsequent
paymentawayofthemoneystothirdpartieseventhough,atthedateofsuchpayment,thetrustee
wasstillignorantoftheexistenceofanytrust:seeBurrows,SwapsandtheFrictionbetween
CommonLawandEquity[1995]RestitutionLawReview15(b)asfromthedateoftheestablishment
ofthetrust(i.e.receiptormixingofthemoneysbythetrustee)theoriginalpayerwillhavean
equitableproprietaryinterestinthemoneyssolongastheyaretraceableintowhomsoevershands
theycomeotherthanapurchaserforvalueofthelegalinterestwithoutnotice.Therefore,althoughin
thepresentcasetheonlyquestiondirectlyinissueisthepersonalliabilityofthelocalauthorityasa
trustee,itisnotpossibletoholdthelocalauthorityliablewithoutimposingatrustwhich,inother
cases,willcreatepropertyrightsaffectingthirdpartiesbecausemoneysreceivedunderavoidcontract
aretrustproperty.
Thepracticalconsequencesofthebanksargument
Beforeconsideringthelegalmeritsofthesubmission,itisimportanttoappreciatethepractical
consequenceswhichensueifthebanksargumentsarecorrect.Thosewhosuggestthataresulting
trustshouldariseinthesecircumstancesacceptthatthecreationofanequitableproprietaryinterest
underthetrustcanhaveunfortunate,andadverse,effectsiftheoriginalrecipientofthemoneys
becomesinsolvent:themoneys,iftraceableinthehandsoftherecipient,aretrustmoneysandnot
availableforthecreditorsoftherecipient.However,thecreationofanequitableproprietaryinterestin
moneysreceivedunderavoidcontractiscapableofhavingadverseeffectsquiteapartfrominsolvency.
Theproprietaryinterestundertheunknowntrustwill,quiteapartfrominsolvency,beenforceable
againstanyrecipientofthepropertyotherthanthepurchaserforvalueofalegalinterestwithout
notice.
Takethefollowingexample.T(thetransferor)hasenteredintoacommercialcontractwithR1(thefirst
recipient).Bothpartiesbelievethecontracttobevalidbutitisinfactvoid.Pursuanttothatcontract:
(i)Tpays1milliontoR1whopaysitintoamixedbankaccount(ii)Ttransfers100sharesinX
companytoR1,whoisregisteredasashareholder.ThereafterR1dealswiththemoneyandshares
asfollows:(iii)R1pays50,000outofthemixedaccounttoR2otherwisethanforvalueR2then
becomesinsolvent,havingtradecreditorswhohavepaidforgoodsnotdeliveredatthetimeofthe
insolvency(iv)R1chargesthesharesinXcompanytoR3bywayofequitablesecurityforaloanfrom
R3.
Ifthebanksargumentsarecorrect,R1holdsthe1millionontrustforToncethemoneyhasbecome
mixedinR1sbankaccount.SimilarlyR1becomesthelegalownerofthesharesinXcompanyas
fromthedateofhisregistrationasashareholderbutholdssuchsharesonaresultingtrustforT.T
thereforehasanequitableproprietaryinterestinthemoneysinthemixedaccountandintheshares.
TsequitableinterestwillenjoyabsolutepriorityasagainstthecreditorsintheinsolvencyofR2(who
wasnotapurchaserforvalue)providedthatthe50,000canbetracedintheassetsofR2atthedate
ofitsinsolvency.Moreover,iftheseparationoftitleargumentiscorrect,sincetheequitableinterestis
inTandthelegalinterestisvestedinR2,R2alsoholdsastrusteeforT.Intracingthe50,000inthe
bankaccountofR2,R2astrusteewillbetreatedashavingdrawnouthisownmoneys
first,139 therebybenefitingTattheexpenseofthesecuredandunsecuredcreditorsofR2.Thereforein
practiceonemaywellreachthe(p.395) positionwherethemoneysinthebankaccountofR2in
realityreflectthepricepaidbycreditorsforgoodsnotdeliveredbyR2:yet,underthetracingrules,
thosemoneysaretobetreatedasbelonginginequitytoT.
SofarasthesharesintheXcompanyareconcerned,Tcantracehisequitableinterestintothe
sharesandwilltakeinprioritytoR3,whoseequitablechargetosecurehisloaneventhoughgranted
forvaluewillprotantobedefeated.
Allthiswillhaveoccurredwhennoonewasaware,orcouldhavebeenaware,ofthesupposedtrust
becausenooneknewthatthecontractwasvoid.
IcanseenomoralorlegaljustificationforgivingsuchprioritytotherightofTtoobtainrestitutionover
thirdpartieswhohavethemselvesnotbeenenriched,inanyrealsense,atTsexpenseandindeed
havehadnodealingswithT.Tpaidoverhismoneyandtransferredthesharesunderasupposedvalid
contract.Ifthecontracthadbeenvalid,hewouldhavehadpurelypersonalrightsagainstR1.Why
shouldhebebetteroffbecausethecontractisvoid?
MyLords,wisejudgeshaveoftenwarnedagainstthewholesaleimportationintocommerciallawof
equitableprinciplesinconsistentwiththecertaintyandspeedwhichareessentialrequirementsforthe
orderlyconductofbusinessaffairs:seeBarnesvAddy(1874)LR9ChApp244at251and
255ScandinavianTradingTank erCoABvFlotaPetroleraEcuatoriana[1983]2AC694at703704.
Ifthebanksargumentsarecorrect,abusinessmanwhohasenteredintotransactionsrelatingtoor
dependentuponpropertyrightscouldfindthatassetswhichapparentlybelongtoonepersoninfact
belongtoanotherthatthereareoffbalancesheetliabilitiesofwhichhecannotbeawarethatthese
propertyrightsandliabilitiesarisefromcircumstancesunknownnotonlytohimselfbutalsotoanyone
elsewhohasbeeninvolvedinthetransactions.Anewareaofunmanageableriskwillbeintroduced
intocommercialdealings.Ifthedueapplicationofequitableprinciplesforcedaconclusionleadingto
theseresults,yourLordshipswouldbepresentedwithaformidabletaskinreconcilinglegalprinciple
withcommercialcommonsense.Butinmyjudgmentnosuchconflictoccurs.Theresultingtrustfor
whichthebankcontendsisinconsistentnotonlywiththelawasitstandsbutwithanyprincipled
developmentofit.
Therelevantprinciplesoftrustlaw
(i)Equityoperatesontheconscienceoftheownerofthelegalinterest.Inthecaseofatrust,the
conscienceofthelegalownerrequireshimtocarryoutthepurposesforwhichthepropertywas
vestedinhim(expressorimpliedtrust)orwhichthelawimposesonhimbyreasonofhis
unconscionableconduct(constructivetrust).
(ii)Sincetheequitablejurisdictiontoenforcetrustsdependsupontheconscienceoftheholder
ofthelegalinterestbeingaffected,hecannotbeatrusteeofthepropertyifandsolongasheis
ignorantofthefactsallegedtoaffecthisconscience,i.e.untilheisawarethatheisintendedto
holdthepropertyforthebenefitofothersinthecaseofanexpressorimpliedtrust,or,inthe
caseofaconstructivetrust,ofthefactorswhichareallegedtoaffecthisconscience.
(iii)Inordertoestablishatrusttheremustbeidentifiabletrustproperty.Theonlyapparent
exceptiontothisruleisaconstructivetrustimposedonapersonwhodishonestlyassistsina
breachoftrustwhomaycomeunderfiduciarydutiesevenifhedoesnotreceiveidentifiabletrust
property.140
(iv)Onceatrustisestablished,asfromthedateofitsestablishmentthebeneficiaryhas,in
equity,aproprietaryinterestinthetrustproperty,whichproprietaryinterestwillbeenforceablein
equityagainstanysubsequentholderoftheproperty(whethertheoriginalpropertyorsubstituted
propertyintowhichitcanbetraced)otherthanapurchaserforvalueofthelegalinterestwithout
notice.
ThesepropositionsarefundamentaltothelawoftrustsandIwouldhavethoughtuncontroversial.
However,proposition(ii)maycallforsomeexpansion.Therearecaseswherepropertyhasbeenput
intothenameofXwithoutXsknowledgebutincircumstanceswherenogifttoXwasintended.It
has(p.396) beenheldthatsuchpropertyisrecoverableunderaresultingtrust:Birchv
Blagrave(1755)Amb264ChildersvChilders(1857)1DeG&J482ReVinogradoff[1935]WN
68ReMuller[1953]NZLR879.Thesecasesareexplicableonthegroundthat,bythetimeactionwas
brought,Xorhissuccessorsintitlehavebecomeawareofthefactswhichgaverisetoaresulting
trusthisconsciencewasaffectedasfromthetimeofsuchdiscoveryandthereafterheheldona
resultingtrustunderwhichthepropertywasrecoveredfromhim.Thereis,sofarasIamaware,no
authoritywhichdecidesthatXwasatrustee,andthereforeaccountableforhisdeeds,atanytime
beforehewasawareofthecircumstanceswhichgaverisetoaresultingtrust.
Thosebasicprinciplesareinconsistentwiththecasebeingadvancedbythebank.Thelatesttimeat
whichtherewasanypossibilityofidentifyingthetrustpropertywasthedateonwhichthemoneysin
themixedbankaccountofthelocalauthorityceasedtobetraceablewhenthelocalauthoritys
accountwentintooverdraftinJune1987.Atthatdate,thelocalauthorityhadnoknowledgeofthe
invalidityofthecontractbutregardedthemoneysasitsowntospendasitthoughtfit.Therewas
thereforeneveratimeatwhichboth(a)therewasdefinedtrustpropertyand(b)theconscienceofthe
localauthorityinrelationtosuchdefinedtrustpropertywasaffected.Thebasicrequirementsofatrust
wereneversatisfied.
Iturnthentoconsiderthebanksargumentsindetail.Theywerebasedprimarilyonprinciplerather
thanonauthority?
Theretentionoftitlepoint
Itissaidthat,sincethebankonlyintendedtopartwithitsbeneficialownershipofthemoneysin
performanceofavalidcontract,neitherthelegalnortheequitabletitlepassedtothelocalauthorityat
thedateofpayment.Thelegaltitlevestedinthelocalauthoritybyoperationoflawwhenthemoneys
becamemixedinthebankaccountbut,itissaid,thebankretaineditsequitabletitle.
Ithinkthisargumentisfallacious.Apersonsolelyentitledtothefullbeneficialownershipofmoneyor
property,bothatlawandinequity,doesnotenjoyanequitableinterestinthatproperty.Thelegaltitle
carrieswithitallrights.Unlessanduntilthereisaseparationofthelegalandequitableestates,there
isnoseparateequitabletitle.Thereforetotalkaboutthebankretainingitsequitableinterestis
meaningless.Theonlyquestioniswhetherthecircumstancesunderwhichthemoneywaspaidwere
suchas,inequity,toimposeatrustonthelocalauthority.Ifso,anequitableinterestaroseforthe
firsttimeunderthattrust.
[LordBrowneWilkinsonthenconsideredwhetherthebankhadapreexistingequitableinterestby
virtueofwhichthelocalauthoritywouldbeatrusteeandconcludedthatnosuchinterestcouldbe
identified.Hecontinued:]
Resultingtrust
Thisisnotacasewherethebankhadanyequitableinterestwhichpredatedreceiptbythelocal
authorityoftheupfrontpayment.Therefore,inordertoshowthatthelocalauthoritybecameatrustee,
thebankmustdemonstratecircumstanceswhichraisedatrustforthefirsttimeeitheratthedateon
whichthelocalauthorityreceivedthemoneyoratthedateonwhichpaymentintothemixedaccount
wasmade.Counselforthebankspecificallydisavowedanyclaimbasedonaconstructivetrust.This
wasplainlyrightbecausethelocalauthorityhadnorelevantknowledgesufficienttoraisea
constructivetrustatanytimebeforethemoneys,uponthebankaccountgoingintooverdraft,became
untraceable.Oncethereceasedtobeanidentifiabletrustfund,thelocalauthoritycouldnotbecomea
trustee:ReGoldcorpExchangeLtd[1995]1AC74.Therefore,astheargumentforthebank
recognised,theonlypossibletrustwhichcouldbeestablishedwasaresultingtrustarisingfromthe
circumstancesinwhichthelocalauthorityreceivedtheupfrontpayment.(p.397) Underexistinglawa
resultingtrustarisesintwosetsofcircumstances:
(A)WhereAmakesavoluntarypaymenttoBorpays(whollyorinpart)forthepurchaseof
propertywhichisvestedeitherinBaloneorinthejointnamesofAandB,thereisa
presumptionthatAdidnotintendtomakeagifttoB:themoneyorpropertyisheldontrustfor
A(ifheisthesoleproviderofthemoney)orinthecaseofajointpurchasebyAandBinshares
proportionatetotheircontributions.Itisimportanttostressthatthisisonlyapresumption,
whichpresumptioniseasilyrebuttedeitherbythecounterpresumptionofadvancementorby
directevidenceofAsintentiontomakeanoutrighttransfer:seeUnderhillandHayton,Lawof
TrustsandTrustees,pp.317etseq.VandervellvInlandRevenueCommissioners[1967]2AC
291at312etseqReVandervellsTrusts(No.2)[1974]Ch269at288etseq.
(B)WhereAtransferspropertytoBonexpresstrusts,butthetrustsdeclareddonotexhaust
thewholebeneficialinterest:Ibid.andQuistcloseInvestmentsLtdvRollsRazorLtd[1970]AC
567.Bothtypesofresultingtrustaretraditionallyregardedasexamplesoftrustsgivingeffectto
thecommonintentionoftheparties.Aresultingtrustisnotimposedbylawagainstthe
intentionsofthetrustee(asisaconstructivetrust)butgiveseffecttohispresumed
intention.MegarryJinReVandervellsTrusts(No.2)[1974]Ch269at289suggeststhata
resultingtrustoftype(B)doesnotdependonintentionbutoperatesautomatically.Iamnot
convincedthatthisisright.Ifthesettlorhasexpressly,orbynecessaryimplication,abandoned
anybeneficialinterestinthetrustproperty,thereisinmyviewnoresultingtrust:the
undisposedofequitableinterestvestsintheCrownasbonavacantia:seeReWestSussex
ConstabularysWidows,ChildrenandBenevolent(1930)FundTrusts[1971]Ch1.
Applyingtheseconventionalprinciplesofresultingtrusttothepresentcase,thebanksclaimmust
fail.Therewasnotransferofmoneytothelocalauthorityonexpresstrusts:thereforearesultingtrust
oftype(B)abovecouldnotarise.Astotype(A)above,anypresumptionofresultingtrustisrebutted
sinceitisdemonstratedthatthebankpaid,andthelocalauthorityreceived,theupfrontpaymentwith
theintentionthatthemoneyssopaidshouldbecometheabsolutepropertyofthelocalauthority.Itis
truethatthepartieswereunderamisapprehensionthatthepaymentwasmadeinpursuanceofavalid
contract.Butthatdoesnotaltertheactualintentionsofthepartiesatthedatethepaymentwasmade
orthemoneysweremixedinthebankaccount.AsthearticlebyWilliamSwadling,Anewrolefor
resultingtrusts?(1996)16LS133demonstratesthepresumptionofresultingtrustisrebuttedby
evidenceofanyintentioninconsistentwithsuchatrust,notonlybyevidenceofanintentiontomakea
gift.
ProfessorBirks,RestitutionandResultingTrusts(seeEquity:ContemporaryLegal
Developments,141 p.335atp.360),whilstacceptingthattheprinciplesIhavestatedrepresentavery
conservativeformofdefinitionofaresultingtrust,arguesfromrestitutionaryprinciplesthatthe
definitionshouldbeextendedsoastocoveraperceivedgapinthelawofsubtractiveunjust
enrichment(atp.368)soastogiveaplaintiffaproprietaryremedywhenhehastransferredvalue
underamistakeorunderacontracttheconsiderationforwhichwhollyfails.Hesuggeststhata
resultingtrustshouldarisewhereverthemoneyispaidunderamistake(becausesuchmistake
vitiatestheactualintention)orwhenmoneyispaidonaconditionwhichisnotsubsequentlysatisfied.
Asonewouldexpect,theargumentistightlyreasonedbutIamnotpersuaded.Thesearchfora
perceivedneedtostrengthentheremediesofaplaintiffclaiminginrestitutioninvolves,tomymind,a
distortionoftrustprinciples.First,theargumentelidesrightsinproperty(whichistheonlyproper
subjectmatterofatrust)intorightsinthevaluetransferred:seep.361.Atrustcanonlyarisewhere
thereisdefinedtrustproperty:itisthereforenotconsistentwithtrustprinciplestosaythatapersonis
atrusteeofpropertywhichcannotbedefined.Second,ProfessorBirkssapproachappearstoassume
(forexampleinthecaseofatransferofvaluemadeunderacontracttheconsiderationforwhich(p.
398) subsequentlyfails)thattherecipientwillbedeemedtohavebeenatrusteefromthedateofhis
originalreceiptofmoney,i.e.thetrustarisesatatimewhenthetrusteedoesnot,andcannot,know
thatthereisgoingtobeatotalfailureofconsideration.Thisresultisincompatiblewiththebasic
premiseonwhichalltrustlawisbuilt,viz.thattheconscienceofthetrusteeisaffected.Unlessand
untilthetrusteeisawareofthefactorswhichgiverisetothesupposedtrust,thereisnothingwhich
canaffecthisconscience.Thusneitherinthecaseofasubsequentfailureofconsiderationnorinthe
caseofapaymentunderacontractsubsequentlyfoundtobevoidformistakeorfailureofcondition
willtherebecircumstances,atthedateofreceipt,whichcanimpingeontheconscienceofthe
recipient,therebymakinghimatrustee.Thirdly,ProfessorBirkshastoimposeonhiswiderviewan
arbitraryandadmittedlyunprincipledmodificationsoastoensurethataresultingtrustdoesnotarise
whentherehasonlybeenafailuretoperformacontract,asopposedtototalfailureofconsideration:
seepp.356359and362.Sucharbitraryexclusionisdesignedtopreservetherightsofcreditorsin
theinsolvencyoftherecipient.Thefactthatitisnecessarytoexcludeartificiallyonetypeofcase
whichwouldlogicallyfallwithinthewiderconceptcastsdoubtonthevalidityoftheconcept.
Ifadopted,ProfessorBirksswiderconceptswouldgiverisetoallthepracticalconsequencesand
injusticestowhichIhavereferred.Idonotthinkitrighttomakeanunprincipledalterationtothelawof
property(i.e.thelawoftrusts)soastoproduceinthelawofunjustenrichmenttheinjusticestothird
partieswhichIhavementionedandtheconsequentialcommercialuncertaintywhichanyextensionof
proprietaryinterestsinpersonalpropertyisboundtoproduce.
Inthisspeech,LordBrowneWilkinsonclearlyfavoursthepositiveintentanalysisofthepresumedresultingtrust,
ratherthantheabsenceofintentionapproachfavouredbyBirks.However,ashasalreadybeen
mentioned,142 LordBrowneWilkinsonsreferencestothecommonintentionsofthepartiesismisleading
resultingtrustsmaywellarisebeforethetrusteerealizesthatthereisatrust.Theintentionofthe
settloronlyshouldberelevant.Moreover,atrusteesconsciencedoesnotneedtobeaffectedforaresultingtrust
asopposedtoaconstructivetrust143 toarise.Nevertheless,ifthetrusteeisunawareofthetrust,itisunlikely
thatheorshewillbeunderanyfiduciaryobligations.144
LordBrowneWilkinsonspreferenceforthepositiveintentexplanationofthepresumedresultingtrustsisentirely
appropriate.Itexplainsallthecasesconsideredalreadyunderthecategoryofpresumedresultingtrusts.Any
evidencethatwouldcontradictthepresumedintentionthattherebeatrustcanbeintroducedtorebutthat
presumption.Significantly,thisapproachensuresthattheambitofpresumedresultingtrustsremainslimited.
Bycontrast,theabsenceofintentionapproachmighthaveledtoamuchmoreexpansiveroleforresultingtrusts.
Forexample,adonorwhotransferredpropertywhilstlabouringunderamistakemighthaveobtainedaproprietary
interestunderaresultingtrust:thetransferorsintentionmayhavebeenvitiatedbythemistakesuchthathedid
nottrulyintendthetransfereetoreceivethepropertybeneficially.Althoughitiswellestablishedthataclaimant
mighthaveapersonalclaiminunjustenrichmentasaresultofhisorhermistakeifthatmistakecausedthe
relevanttransfer,145 recognizingaresultingtrustinsuchcircumstanceswouldextendfarbeyondtheinstancesof
presumedresultingtrustsexaminedabove.Nevertheless,Chambershaswrittenthat:146
Althoughthemistakecannotsupportaninferencethattheplaintiffintendedtocreateatrustofthatright,it
doesprovealackofintentiontobenefitthedefendant.
(p.399) Onecaseuponwhichproponentsoftheabsenceofintentanalysisoftenrelyasanexampleoftheir
approachbeingappliedbythecourtsisChaseManhattanBank NAvIsraelBritishBank (London)Ltd.147 Inthat
case,theclaimantbankmistakenlymadethesamepaymenttwicetothedefendant.GouldingJsaidthat:148
apersonwhopaysmoneytoanotherunderafactualmistakeretainsanequitablepropertyinitandthe
conscienceofthatotherissubjectedtoafiduciarydutytorespecthisproprietaryright.
Chambershaspointedoutthat:
AlthoughGouldingJdidnotclassifythetrustinthissituation,hereachedthisconclusioninrelianceon
ViscountHaldaneLCsspeechinSinclairvBrougham,149 whereitwasdescribedasaresultingtrust.150
However,theargumentthat,becauseofamistake,theclaimantshouldbepresumednottointendtherecipientto
holdthepropertybeneficiallyisunconvincing.Infact,thereisnoroomforanysuchpresumptiontooperateinthe
contextofamistakentransfer.AsSwadlinghasexplained:151
Thereasonwhysuchapresumptionofintentionisinappropriateinthecaseofamistakengiftisthatwe
areheredealingwithasituationinwhichtheactualstateofmindofthetransferorisknowntothecourt
thereisconsequentlynoroomfortheoperationofanypresumption.152 AsDeaneJsaidinMuschinsk iv
Dodds,thepresumption[ofresultingtrust]cannotprevailovertheactualintentionofthatpartyas
establishedbytheoverallevidence153
thefactthatonepartyhasbeenoperatingondefectivedatacaninnowayleadustoconcludethathe
orsheintendedthetransfereetobeatrusteeforthetransferor.Ananalogymightbedrawnwiththelaw
relatingtoimperfectgifts.Inthesamewaythatevidenceofafailedattempttomakeanoutrightgiftis
inconsistentwithanassertionthatthedonorintendedtomakehimselfatrusteeforthedonee,154 sotoo
thefactthatagiftwasmistakenlymotivatedwillcontradictanyinferencethatthedoneewasintendedto
holdontrustforthedonor.
Thismustberight:thedonordidintendthedoneetotakethepropertybeneficiallyatthemomentoftransfer.This
issufficienttorebutanypresumptionofresultingtrust.Thefactthatthedonorwasmistakenisirrelevanttoa
proprietaryclaim,155 althoughitmaystillfoundapersonalclaiminunjustenrichment.Moreover,itwouldbe
unsatisfactoryforapartywhohasmadeamistakethentoobtainaproprietaryrightunderaresultingtrustfor
example,whyshouldapersonwhohasmadeamistake(p.400) beprotectedintheeventofthedonees
insolvency,tothedetrimentofthedoneesotherunsecuredcreditors?
InWestdeutsche,LordBrowneWilkinsonendorsedSwadlingsanalysis,andcriticizedthereasoningofGoulding
JinChaseManhattansince:156
itisbasedonaconceptofretaininganequitablepropertyinmoneywhere,priortothepaymenttothe
recipientbank,therewasnoexistingequitableinterest.
However,althoughIdonotacceptthereasoningofGouldingJ.,ChaseManhattanmaywellhavebeen
rightlydecided.Thedefendantbankknewofthemistakemadebythepayingbankwithintwodaysofthe
receiptofthemoneys:seeatp.115A.Thejudgetreatedthisfactasirrelevant(p.114F)butinmy
judgmentitmaywellprovideaproperfoundationforthedecision.Althoughthemerereceiptofthemoneys,
inignoranceofthemistake,givesrisetonotrust,theretentionofthemoneysaftertherecipientbank
learnedofthemistakemaywellhavegivenrisetoaconstructivetrust.
ThediscussionoftheconstructivetrustinWestdeutscheisconsideredinChapter7.Significantly,theemphasis
placeduponunconscionabilityandtheapparentexpansionoftheconstructivetrustmeansthatwhereproperty
hasbeentransferredtothedefendantpursuanttoacontractthatisvoidable,andtheclaimantcantherefore
rescindthecontractinEquity,thetrustonwhichthedefendantholdsthepropertyisbestanalysedasa
constructivetrust,ratherthanaresultingtrust.Thisfurtheremphasizesthelimitedresidualnatureofresulting
trusts.LordBrowneWilkinsoninWestdeutschewasadamantthatresultingtrustsshouldnotbeallowedto
157
expandbeyondtheirproperscope:157
Thoseconcernedwithdevelopingthelawofrestitutionareanxioustoensurethat,incertain
circumstances,theplaintiffshouldhavetherighttorecoverpropertywhichhehasunjustlylost.Forthat
purposetheyhavesoughttodevelopthelawofresultingtrustssoastogivetheplaintiffaproprietary
interest.ForthereasonsthatIhavegiven,inmyviewsuchdevelopmentisnotbasedonsoundprinciple
andinthenameofunjustenrichmentiscapableofproducingmostunjustresults.Thelawofresulting
trustswouldconferontheplaintiffarighttorecoverpropertyfrom,orattheexpenseof,thosewhohavenot
beenunjustlyenrichedathisexpenseatall,e.g.thelenderwhosedebtissecuredbyafloatingcharge
andallotherthirdpartieswhohavepurchasedanequitableinterestonly,albeitinallinnocenceandfor
value.
(b)AutomaticResultingTrusts
Itwassuggestedinabovethatpresumedresultingtrustsarebestexplainedonthebasisthatthetransferoris
presumedpositivelytohaveintendedtoretainabeneficialinterestunderatrustinhisorherownfavour.But
shouldautomaticresultingtrustsbeexplainedinthesameway?InWestdeutsche,LordBrowneWilkinson
clearlythoughtso.However,amajordifficultyfacingthisapproachisVandervellvIRC:158 Vandervelldidnotwant
tohaveanybeneficialinterestunderanytrust,yetthecourtsinsistedthataresultingtrustaroseautomatically.
ThisprovidessupporttothosewhoarguethattheresultingtrustinVandervellarosebecauseVandervelldidnot
intendtherecipienttotakethepropertybeneficially.159 Indeed,despiteitsrejectionbyLordBrowneWilkinson
inWestdeutsche,the(p.401) absenceofintentionapproachhascontinuedtogarnersupportamongboth
academicsandjudges.Forexample,Chambershaswrittenthat:160
Theroleofintentioninresultingtrustsisanegativeone.Theprimaryquestionisalwayswhetherthe
providerintendedtobenefittherecipientandnotwhetherheorsheintendedtocreateatrust.Thelatter
questionisrelevant,ofcourse,towhethertheproviderhassucceededincreatinganexpresstrust,butits
relevancetotheresultingtrustisonlyasanindicationofalackofintentiontobenefittherecipient.
AndinAirJamaicaLtdvCharlton,LordMillett,givingtheadviceofthePrivyCouncil,said:161
Likeaconstructivetrust,aresultingtrustarisesbyoperationoflaw,thoughunlikeaconstructivetrustit
giveseffecttointention.Butitariseswhetherornotthetransferorintendedtoretainabeneficialinterest
healmostalwaysdoesnotsinceitrespondstotheabsenceofanyintentiononhisparttopassa
beneficialinteresttotherecipient.Itmayariseevenwherethetransferorpositivelywishedtopartwiththe
beneficialinterest,asinVandervellvInlandRevenueCommissioners[1967]2AC291.Inthatcasethe
retentionofabeneficialinterestbythetransferordestroyedtheeffectivenessofataxavoidancescheme
whichthetransferorwasseekingtoimplement.TheHouseofLordsaffirmedtheprinciplethataresulting
trustisnotdefeatedbyevidencethatthetransferorintendedtopartwiththebeneficialinterestifhehasnot
infactsucceededindoingso.AsPlowmanJhadsaidinthesamecaseatfirstinstance[1966]Ch261at
275,AsIseeit,amandoesnotceasetoownpropertysimplybysayingIdontwantit.Ifhetriestogive
itawaythequestionmustalwaysbe,hashesucceededindoingsoornot?LordUpjohn[1967]2AC291
at314expresslyapprovedthis.
However,ultimatelythisanalysisremainsunconvincing.AsSwadlinghasnoted:162
eveniftransferwithnointentiontobenefitwasafactsusceptibleofproof,thereisnocompellingreason
whythelawshouldrespondtoitsproofbyraisingatrust.[I]fouronlydesireistostripoutthe
transfereesenrichment,aresponseinthenatureofapersonalclaimforthevaluereceivedservesthat
purposeperfectlywell.Indeed,becauseitensuresequalityoftreatmentbetweencreditorsintheeventof
thetransfereesinsolvency,itmightbethoughttodoitbetter.
Swadlingthenreachedtheconclusionthatthefailureofboththepositiveintentandabsenceofintentapproaches
toexplaintheautomaticresultingtrust,whicharisesincasessuchasVandervell,meansthat:163
theautomaticresultingtruststilldefieslegalanalysis.
Itmaybethatautomaticresultingtrustsariseonpurelypragmaticgrounds.Butitissuggestedthattheycanbe
explained,andthatsuchanexplanationdoesnotneedtodrawadistinctionwithpresumedresultingtrusts.
Whereanexpresstrustfails,thelawhastosaywhathappenstotheproperty.(p.402) Itisnotunreasonableto
presume,asastartingpoint,thatthesettlorwouldintendthatthetrusteeholdthepropertyonaresultingtrust.
AsMeehasargued:164
Lookingatthequestionfromtheviewpointofthesettlor,aruleunderwhichhebecomesentitledundera
resultingtrustseemsanentirelyappropriateresponsetoafailureinhisattempttoallocatethebeneficial
interestssucharulepreservesthepossibilityofhismakingarenewedattempttodisposeofthebeneficial
interest.Itseemsplausibletosuggestthatsucharulewouldreflectthelegalresponsewhichsettlorsas
anabstractclasswouldbelikelytoprefer.
Similarly,RickettandGranthamhavearguedthat:165
Withoutevidenceofactualintention,therefore,thelawmustfillthisevidentiallacunawithapresumptionas
towhatwasmostlikelytohavebeenintendedbythetransferor.Equitysassessmentisthatthetransferor
wouldhaveintendedtoretainthebeneficialinterest.Thatpresumption,sensiblewhenitwasformulatedin
the16thcentury,remainseminentlysensibletoday.Thealternativepresumption,thatthepropertyisto
passtotheCrown,seemsmuchlesssensibleinthecontextofourparticularpoliticaleconomy.Sothe
intentiontowhicharesultingtrustrespondsisthispresumedintention,providedinthatlimitedsenseby
operationoflaw.Butthisisnotlegalmakebelieve.Itisajudiciousapproachtodeterminingtheintention
ofthetransferororsettlor.Anditwillgivewaytoclearevidenceofadifferentintention.
ItmightbearguedthatthisisneverthelessinconsistentwithVandervell,sincetherewasevidencethatVandervell
didnotintendtohaveanybeneficialinterestinthetransferredproperty,becausehewantedtostructurethe
transactiontoavoidhispersonalliabilitytopaytax.Indeed,inVandervell,LordWilberforcesaid:166
Thereisnoneed,orroom,asIseeit,toinvokeapresumption.Theconclusion,onthefactsfound,is
simplythattheoptionwasvestedinthetrusteecompanyasatrusteeontrusts,notdefinedatthetime,
possiblytobedefinedlater.
However,suchreluctancetofindscopeforapresumedintentionmayseemtobeinconsistentwithLordBrowne
WilkinsonslaterapproachinWestdeutsche.Infact,apresumedpositiveintentiontocreatearesultingtrust
mightstillexplainVandervell.ItmayjustbethatsuchapresumptionwasnotrebuttedbyVandervellsdesireto
reducehistaxliability.Thepresumptionisparticularlystronginthecontextofanautomaticresultingtrust,given
thatitishighlyunlikelythatthetransferorwouldhaveevenconsideredthepossibilityoftheexpresstrustfailing.
InVandervell,therewasclearlynoevidenceregardingwhoshouldtakethepropertyintheeventoftheexpress
trustfailing,anditmustsensiblybepresumedthatadonorwouldratherretainabeneficialinterestintransferred
propertythanseeitbecomebonavacantia.Vandervellmighthavesoughttorebutthepresumptionbyprovingthat
heintendedtheoptiontobeheldbythetrustcompanyforthebenefitofhischildren,167 butitmaybethatthe
evidencewasinsufficienttorebutthepresumption.Nevertheless,insomeinstances(p.403) theremaybea
clearintentionthataresultingtrustshouldnotapply,andthepresumptionwillberebutted.168 Thisaccountof
automaticresultingtrustsbeingbaseduponthepresumedintentionofthesettloristheoreticallyjustifiable,
consistentwithauthority,andshouldbemaintained.
5.QuistcloseTrusts
(a)IdentifyingaQuistcloseTrust
Wherepropertyhasbeentransferredforaspecificpurpose,andthatpurposethenfails,itmaybethatthe
propertyisheldontrustfortheoriginaltransferor.Thissituationmostcommonlyariseswhereonepartylends
moneytoaborrowerontheunderstandingthattheborrowercanonlyusethemoneyforaspecifiedpurpose.Ifit
becomesimpossibletofulfilthatpurpose,andthemoneyhasnotbeenspent,thenthelendermightbeableto
enforceaproprietaryinterestinthemoney.Ineffect,thisenablesthelendertoconvertwhatwouldotherwisebea
debtintoatrust,therebyescapingtheconsequencesofbeinganunsecuredcreditoriftheborrowerbecomes
insolvent.ThetruststhatarisearegenerallyknownasQuistclosetrustsafterthenameofcaseinwhichthe
HouseofLordsfirstrecognizedthistypeoftrust.169 ThemostrecentanalysisofQuistclosetrustsintheHouseof
LordsinTwinsectraLtdvYardley170 classifiedthesetrustsasresultingtrusts,whichiswhytheyareconsidered
inthischapter.However,aswillbeseenhere,Quistclosetrustsarenotnecessarilyresultingtrusts.
TheessenceoftheQuistclosetrustwasexplainedbyLordMillettinTwinsectraLtdvYardley.
TwinsectraLtdvYardley[2002]UKHL12,[2002]2AC164,[68][76](LordMillett)
Moneyadvancedbywayofloannormallybecomesthepropertyoftheborrower.Heisfreetoapplythe
moneyashechooses,andsavetotheextenttowhichhemayhavetakensecurityforrepaymentthe
lendertakestheriskoftheborrowersinsolvency.Butitiswellestablishedthataloantoaborrower
foraspecificpurposewheretheborrowerisnotfreetoapplythemoneyforanyotherpurposegives
risetofiduciaryobligationsonthepartoftheborrowerwhichacourtofequitywillenforce.Intheearlier
casesthepurposewastoenabletheborrowertopayhiscreditorsorsomeofthem,buttheprinciple
isnotlimitedtosuchcases.
SucharrangementsarecommonlydescribedascreatingaQuistclosetrust,afterthewellknown
decisionoftheHouseinQuistcloseInvestmentLtdvRollsRazorLtd[1970]AC567inwhichLord
Wilberforceconfirmedthevalidityofsucharrangementsandexplainedtheirlegalconsequences.
Whenthemoneyisadvanced,thelenderacquiresaright,enforceableinequity,toseethatitis
appliedforthestatedpurpose,ormoreaccuratelytopreventitsapplicationforanyotherpurpose.This
preventstheborrowerfromobtaininganybeneficialinterestinthemoney,atleastwhilethedesignated
purposeisstillcapableofbeingcarriedout.Oncethepurposehasbeencarriedout,thelenderhashis
normalremedyindebt.Ifforanyreasonthepurposecannotbecarriedout,thequestionarises
whetherthemoneyfallswithinthegeneralfundoftheborrowersassets,inwhichcaseitpassesto
histrusteeinbankruptcyintheeventofhisinsolvencyandthelenderismerelyaloancreditoror
whether(p.404) itisheldonaresultingtrustforthelender.Thisdependsontheintentionofthe
partiescollectedfromthetermsofthearrangementandthecircumstancesofthecase.
Itisunconscionableforamantoobtainmoneyontermsastoitsapplicationandthendisregardthe
termsonwhichhereceivedit.Suchconductgoesbeyondamerebreachofcontract.AsNorthJ
explainedinGilbertvGonard(1884)54LJCh439at440:
Itisverywellknownlawthatifonepersonmakesapaymenttoanotherforacertainpurpose,and
thatpersontakesthemoneyknowingthatitisforthatpurpose,hemustapplyittothepurposefor
whichitwasgiven.Hemaydeclinetotakeitifhelikesbutifhechoosestoacceptthemoney
tenderedforaparticularpurpose,itishisduty,andthereisalegalobligationonhim,toapplyitfor
thatpurpose.
Thedutyisnotcontractualbutfiduciary.Itmayexistdespitetheabsenceofanycontractatall
betweentheparties,asinRosevRose(1986)7NSWLR679anditbindsthirdpartiesasin
theQuistclosecaseitself.Thedutyisfiduciaryincharacterbecauseapersonwhomakesmoney
availableontermsthatitistobeusedforaparticularpurposeonlyandnotforanyotherpurpose
therebyplaceshistrustandconfidenceintherecipienttoensurethatitisproperlyapplied.Thisisa
classicsituationinwhichafiduciaryrelationshiparises,andsinceitarisesinrespectofaspecific
funditgivesrisetoatrust.
Thisconclusionthatpropertytransferredforaspecificpurposemightbeheldontrustwasfirstrecognizedbythe
HouseofLordsinBarclaysBank LtdvQuistcloseInvestmentsLtd.
BarclaysBankLtdvQuistloveInvestmentsLtd[1970]AC567
RollsRazorLtdhaddeclaredadividendupontheirordinaryshares.Theywereinseriousfinancial
difficultiesandwereunabletopaythedividendwithoutaloanof209,7198s.6d.,whichQuistclose
InvestmentsLtdagreedtomakeontheconditionthatitisusedtopaytheforthcomingdividenddue
on24Julynext.ThechequeforthisamountwaspaidintoaseparateaccountatBarclaysBankLtd,
withwhichitwasagreedthattheaccountwouldonlybeusedtomeetthedividenddueon24July,
1964.Beforethedividendwaspaid,RollsRazorLtdwentintoliquidation.Thequestionwaswhether
BarclaysBankLtdcouldsetthatsumagainstRollsRazorsoverdraft,orwhetherithelditontrustfor
Quistclose.TheHouseofLordsheldthatBarclaysBankheldthemoneyontrustforQuistclose:the
factthatthetransactionwasaloandidnotpreventtherebeingalsoatrust.LordWilberforcesaid:
Twoquestionsarise,bothofwhichmustbeansweredfavourablytotherespondentsiftheyare
torecoverthemoneyfromthebank.ThefirstiswhetherasbetweentherespondentsandRolls
RazorLtdthetermsuponwhichtheloanwasmadeweresuchastoimpressuponthesumof
209,7198s.6d.atrustintheirfavourintheeventofthedividendnotbeingpaid.Thesecondis
whether,inthatevent,thebankhadsuchnoticeofthetrustorofthecircumstancesgivingrise
toitastomakethetrustbindinguponthem.
Itisnotdifficulttoestablishpreciselyuponwhattermsthemoneywasadvancedbythe
respondentstoRollsRazorLtd.Thereisnodoubtthattheloanwasmadespecificallyinorder
toenableRollsRazorLtdtopaythedividend.Thereisequally,inmyopinion,nodoubtthatthe
loanwasmadeonlysoastoenableRollsRazorLtdtopaythedividendandfornoother
purpose.ThisfollowsquiteclearlyfromthetermsoftheletterofRollsRazorLtdtothebankof
15July,1964,whichletter,beforetransmissiontothebank,wassenttotherespondentsunder
opencoverinorderthatthechequemightbe(asitwas)enclosedinit.Themutualintentionof
therespondentsandofRollsRazorLtd,andtheessenceof(p.405) thebargain,wasthatthe
sumadvancedshouldnotbecomepartoftheassetsofRollsRazorLtd,butshouldbeused
exclusivelyforpaymentofaparticularclassofitscreditors,namely,thoseentitledtothe
dividend.Anecessaryconsequencefromthis,byprocesssimplyofinterpretation,mustbethat
if,foranyreason,thedividendcouldnotbepaid,themoneywastobereturnedtothe
respondents:thewordonlyorexclusivelycanhavenoothermeaningoreffect.
Thatarrangementsofthischaracterforthepaymentofapersonscreditorsbyathirdperson,
giverisetoarelationshipofafiduciarycharacterortrust,infavour,asaprimarytrust,ofthe
creditors,andsecondarily,iftheprimarytrustfails,ofthethirdperson,hasbeenrecognisedin
aseriesofcasesoversome150years.
InTooveyvMilne(1819)2B&Ald683partofthemoneyadvancedwas,onthefailureofthe
purposeforwhichitwaslent(viz.topaycertaindebts),repaidbythebankrupttotheperson
whohadadvancedit.Onactionbeingbroughtbytheassigneeofthebankrupttorecoverit,the
plaintiffwasnonsuitedandthenonsuitwasupheldonamotionforaretrial.Inhisjudgment
AbbotCJsaid,at684:
Ithoughtatthetrial,andstillthink,thatthefairinferencefromthefactsprovedwasthatthis
moneywasadvancedforaspecialpurpose,andthatbeingsoclothedwithaspecifictrust,no
propertyinitpassedtotheassigneeofthebankrupt.Thenthepurposehavingfailed,thereis
animpliedstipulationthatthemoneyshallberepaid.Thathasbeendoneinthepresentcase
andIamofopinionthattherepaymentwaslawful,andthatthenonsuitwasright.
Thebasisforthedecisionwasthusclearlystated,viz.thatthemoneyadvancedforthespecific
purposedidnotbecomepartofthebankruptsestate.Thiscasehasbeenrepeatedlyfollowed
andapplied:seeEdwardsvGlyn(1859)2E&E29ReRogers,expHollandand
Hannen(1891)8Morr243ReDruck er[1902]2KB237ReHooley,expTrustee[1915]HBR
181.ReRogers(1891)8Morr243wasadecisionofastrongCourtofAppeal.Inthatcase,the
moneyprovidedbythethirdpartyhadbeenpaidtothecreditorsbeforethebankruptcy.
Afterwardsthetrusteeinbankruptcysoughttorecoverit.Itwasheldthatthemoneywas
advancedtothebankruptforthespecialpurposeofenablinghiscreditorstobepaid,was
impressedwithatrustforthepurposeandneverbecamethepropertyofthebankrupt.Lindley
LJdecidedthecaseonprinciplebutsaid,at248,thatifauthoritywasneededitwouldbefound
inTooveyvMilne(1819)2B&Ald683andothercases.BowenLJsaidat248thatthemoney
cametothebankruptshandsimpressedwithatrustanddidnotbecomethepropertyofthe
bankruptdivisibleamongsthiscreditors,andthejudgmentofKayLJat249wastoasimilar
effect.
Thesecaseshavethesupportoflongevity,authority,consistencyand,Iwouldadd,good
sense.ButtheyarenotbindingonyourLordshipsanditisnecessarytoconsidersuch
argumentsashavebeenputwhytheyshouldbedepartedfromordistinguished?
Thesecond,andmain,argumentfortheappellantwasofamoresophisticatedcharacter.The
transaction,itwassaid,betweentherespondentsandRollsRazorLtd,wasoneofloan,giving
risetoalegalactionofdebt.Thisnecessarilyexcludedtheimplicationofanytrust,enforceable
inequity,intherespondentsfavour:atransactionmayattractoneactionortheother,itcould
notadmitofboth.
MyLords,ImustsaythatIfindthisargumentunattractive.Letusseewhatitinvolves.Itmeans
thatthelawdoesnotpermitanarrangementtobemadebywhichonepersonagreesto
advancemoneytoanother,ontermsthatthemoneyistobeusedexclusivelytopaydebtsof
thelatter,andif,andsofarasnotsoused,ratherthanbecomingageneralassetofthelatter
availabletohiscreditorsatlarge,istobereturnedtothelender.Thelenderisobliged,insuch
acase,becauseheisalender,toaccept,whateverthemutualwishesoflenderandborrower
maybe,thatthemoneyhewaswillingtomakeavailableforonepurposeonlyshallbefreely
availableforothersoftheborrowerscreditorsforwhomhehasnottheslightestdesireto
provide.
Ishouldbesurprisedifanargumentofthiskindsoconceptualistincharacterhadeverbeen
accepted.Intruthithasplainlybeenrejectedbytheeminentjudgeswhofrom1819onwards
havepermittedarrangementsofthistypetobeenforced,andhaveapprovedthemasbeingfor
thebenefitofcreditorsandallconcerned.Thereissurelynodifficultyinrecognisingtheco
existenceinone(p.406) transactionoflegalandequitablerightsandremedies:whenthe
moneyisadvanced,thelenderacquiresanequitablerighttoseethatitisappliedforthe
primarydesignatedpurpose(seeReRogers(1891)8Morr243wherebothLindleyLJandKay
LJrecognisedthis):whenthepurposehasbeencarriedout(i.e.thedebtpaid)thelenderhas
hisremedyagainsttheborrowerindebtiftheprimarypurposecannotbecarriedout,the
questionarisesifasecondarypurpose(i.e.repaymenttothelender)hasbeenagreed,
expresslyorbyimplication:ifithas,theremediesofequitymaybeinvokedtogiveeffecttoit,if
ithasnot(andthemoneyisintendedtofallwithinthegeneralfundofthedebtorsassets)then
thereistheappropriateremedyforrecoveryofaloan.Icanappreciatenoreasonwhythe
flexibleinterplayoflawandequitycannotletinthesepracticalarrangements,andother
variationsifdesired:itwouldbetothediscreditofbothsystemsiftheycouldnot.Inthepresent
casetheintentiontocreateasecondarytrustforthebenefitofthelender,toariseiftheprimary
trust,topaythedividend,couldnotbecarriedout,isclearandIcanfindnoreasonwhythelaw
shouldnotgiveeffecttoit.
Ipasstothesecondquestion,thatofnotice.IcandealwiththisbrieflybecauseIamin
agreementwiththemannerinwhichithasbeendisposedofbyallthreemembersoftheCourt
ofAppeal.Iamprepared,forthispurpose,toaccept,bywayofassumption,thepositionmost
favourabletothebank,i.e.thatitisnecessarytoshowthatthebankhadnoticeofthetrustor
ofthecircumstancesgivingrisetothetrust,atthetimewhentheyreceivedthemoney,viz.on
15July,1964,andthatnoticeonalaterdate,eventhoughtheyhadnotinanyrealsensegiven
valuewhentheyreceivedthemoneyorthereafterchangedtheirposition,willnotdo.Itis
commonground,andIthinkright,thatamererequesttoputthemoneyintoaseparate
accountisnotsufficienttoconstitutenotice.Buton15July,1964,thebank,whenitreceived
thecheque,alsoreceivedthecoveringletterofthatdatewhichIhavesetoutabovepreviously
therehadbeenthetelephoneconversationbetweenMr.GoldbartandMr.Parker,towhichI
havealsoreferred.Fromthesethereisnodoubtthatthebankwastoldthatthemoneyhad
beenprovidedonloanbyathirdpersonandwastobeusedonlyforthepurposeofpayingthe
dividend.ThiswassufficienttogivethemnoticethatitwastrustmoneyandnotassetsofRolls
RazorLtd:thefact,ifitbeso,thattheywereunawareofthelendersidentity(thoughthe
respondentsnameasdrawerwasonthecheque)isofnosignificance.Imayaddtothis,as
havingsomebearingonthemeritsofthecase,thatitisquiteapparentfromearlierdocuments
thatthebankwereawarethatRollsRazorLtdcouldnotprovidethemoneyforthedividendand
thatthiswouldhavetocomefromanoutsidesourceandthattheynevercontemplatedthatthe
moneysoprovidedcouldbeusedtoreducetheexistingoverdraft.Theywereinfactinsisting
thatotheroradditionalarrangementsshouldbemadeforthatpurpose.Aswasappropriately
saidbyRussellLJ,[1968]Ch540at563F,itwouldbegivingacompletewindfalltothebankif
theyhadestablishedarighttoretainthemoney.
LordWilberforceheldthatwheretheprimarypurposefailed,asecondarytrustofthemoneymightariseifthishad
beenagreedeitherexpresslyorimpliedly.HisLordshipemphasizedthatmoneythathadbeenpaidforaparticular
purposeshouldnotbeavailablefortheborrowersgeneralcreditorswhomthelenderhadnotintendedtobenefit.
However,itmightseemsomewhatgeneroustoallowalenderaproprietaryinterestunderatrust,ratherthan
limitingthelendertohisorherusualpersonalactionindebt.InReEVTR,BinghamLJeventuallyagreedthat
aQuistclosetrustaroseonthefactsofthecase,171 butsaid:172
MydoubthasbeenwhetherthelawasitstandsenableseffecttobegiventowhatIcanseeasthe
commonfairnessofthesituation.
(p.407) Swadlinghasalsoquestionedwhetherthelendershouldbenefitfromproprietaryprotection.
Swadling,OrthodoxyinTheQuistcloseTrust:CriticalEssays(ed.Swadling)(Oxford:Hart,
2004),pp.389
WhatseemstohaveworriedLordWilberforceinQuistclosewasthethoughtthatBarclayscould
exerciseitsrightofsetoffandtherebyevadeaPariPassudistributionoftheloanmonies.Thiswould
certainlynothavebeenpossiblehadRollsRazoropenedaspecialaccountwithadifferentbanker,
andtherealquestion,whichwillnotbepursuedhere,iswhetheritiscorrecttosaythatsetoffrights
operateinaninsolvencyinthesamewayaswhenallpartiesaresolvent.Butinseekingtoavoidthe
applicationofsetoffbythefindingofatrust,LordWilberforcedepartedfromorthodoxprinciplesof
trustlaw.Itisimpossibletosaythatthetransferwasatransferontrustbecausetherestrictiononly
referredtohowtherightsweretobeapplied,notforwhomtheywereheld.Andevenwereweableto
saythatatrustwasintended,gravedifficultiesariseinidentifyingtheobjectsofthattrust.Itcouldnot
bethecreditorsforanumberofreasons,themostprominentofwhichisthatitwouldallowthemtobe
paidtwiceover.Foralmostidenticalreasons,itcouldnotbethelender.Norcoulditbethepurpose,
forthepurposewasaprivatepurposeandEnglishlawdoesnotcountenancetrustsforprivate
173
purposes.AndtheargumentofChambers,thatthereneedbenoprimarytrust,173 doesnotsucceed
either,becauseitfailstoexplainhowapersonalrighttoseethatthefundisnotmisappliedcanbinda
stranger,includingtheborrowerstrusteeinbankruptcy,tothecontractwhichcreatesthatright.And
giventhatLordWilberforcessecondarytrustdependsonthevalidityoftheprimarytrust,theargument
thattherewasaconsensualtrustoftheloanmoniesinfavourofthelenderonthefailureofthe
purposecannotbesustained.Forthesamereasons,asecondarytrustarisingbynotconsentonthe
subsequentfailureoftheprimarytrustisnotarguableeither.Inshort,theHouseofLordswaswrong
inQuistclosetofindatrustandtherebygiveprioritytothelender.Thefundsshouldhavebeenheldto
bepartofRollsRazorsgeneralassetsandtreatedaccordingly.
TheQuistclosemechanismadvocatedbyLordWilberforcemightnonethelessbedefendedonpolicygrounds.The
lendersintentionthattheborrowernotbenefitgenerallyfromthetransactionshouldberespected,andthe
particularpurposeimposedtakenseriously.Onequalmmightbethatrecognizingthatthelenderhasabeneficial
interestunderatrustmaybetantamounttoanunlawfulpreferenceforonecreditoroveranother.174 Butinthe
contextofacompanyonthebrinkofinsolvency,whichneedsaloanforaparticularpurposesuchastopay
dividendsaffordingthelenderproprietaryprotectionmightcauselittleprejudice,sincewithoutsuchprotection
underatrustthelendermightnotlendthemoneyatall,whichwouldincreasethechancesofthecompany
becomingbankruptthisbeingclearlydisadvantageousforboththecompanyanditsunsecuredcreditors.
Whereasifthelenderweretoenjoyaproprietaryinterestunderatrust,thelendermightconsequentlybemore
readytolendmoneytoacompanysufferingfromfinancialdifficulties,whichwouldincreasethechancesofthe
companysurvivinganditscreditorsbeingpaidinfull.Thissuggeststhattheotherunsecuredcreditorsofthe
companyarenotreallyworseoffthroughtheavailabilityofQuistclosetrusts,andfearsaboutunlawfullypreferring
onecreditoroveranothermightbesomewhatallayed.Admittedly,asLordMillettrecognizedinTwinsectraLtdv
Yardley,175 thepurposenecessaryforaQuistclosetrustisnotnecessarilylimitedtoalendersenablinga
borrowertopayhisorhercreditors,buttheQuistclosemechanismofprovidingproprietaryprotectionisclearly
mostnecessaryinthecontextofinsolvency.
(p.408) InTwinsectra,LordMillettwaskeenlyawareoftheneedtodistinguishbetweenapurelypersonal
contractualobligationandaproprietaryrelationship.Inthatcase,theclaimantlentmoneytoYardleyforthe
purchaseofproperty.Sims,asolicitor,hadgivenapersonalundertakingtotheclaimantthathewouldretainthe
moneythathadbeenlentuntilitwasappliedforthepurchaseoftheproperty,andthatthemoneywouldnotbe
usedforanyotherpurpose.ThemoneywasinfactusedtodischargeadebtowedbySimstoYardley.Sims
becamebankruptandtheclaimantwantedtorecovertheproperty.TheonlyclaimbeforetheHouseofLordswas
whetherLeach,anothersolicitoractingforYardley,wasliablefordishonestassistanceinabreachof
trust.176 LiabilitydependedfirstonidentifyingthatthemoneywasheldbySimsontrust.Inconsidering
theQuistclosetrust,LordMillettsaid:177
AQuistclosetrustdoesnotnecessarilyarisemerelybecausemoneyispaidforaparticularpurpose.A
lenderwillofteninquireintothepurposeforwhichaloanissoughtinordertodecidewhetherhewouldbe
justifiedinmakingit.Hemaybesaidtolendthemoneyforthepurposeinquestion,butthisisnotenough
tocreateatrustoncelentthemoneyisatthefreedisposaloftheborrower.Similarlypaymentsin
advanceforgoodsorservicesarepaidforaparticularpurpose,butsuchpaymentsdonotordinarilycreate
atrust.Themoneyisintendedtobeatthefreedisposalofthesupplierandmaybeusedaspartofhis
cashflow.Commerciallifewouldbeimpossibleifthiswerenotthecase.
Thequestionineverycaseiswhetherthepartiesintendedthemoneytobeatthefreedisposalofthe
recipient:ReGoldcorpExchangeLtd[1995]1AC74,100,perLordMustill.Hisfreedomtodisposeofthe
moneyisnecessarilyexcludedbyanarrangementthatthemoneyshallbeusedexclusivelyforthestated
purpose,forasLordWilberforceobservedintheQuistclosecase[1970]AC567,580:
anecessaryconsequencefromthis,byaprocesssimplyofinterpretation,mustbethatif,foranyreason,
[thepurposecouldnotbecarriedout,]themoneywastobereturnedto[thelender]:thewordonlyor
exclusivelycanhavenoothermeaningoreffect.
[HisLordshipconsideredthefactsoftheQuistclosecaseandcontinued:]
Inthepresentcaseparagraphs1and2oftheundertakingarecrystalclear.Mr.Simsundertookthatthe
moneywouldbeusedsolelyfortheacquisitionofpropertyandfornootherpurposeandwastobe
retainedbyhisfirmuntilsoapplied.ItwouldnotbeheldbyMr.SimssimplytoMr.Yardleysorderandit
wouldnotbeatMr.Yardleysfreedisposition.AnypaymentbyMr.Simsofthemoney,whethertoMr.
Yardleyoranyoneelse,otherwisethanfortheacquisitionofpropertywouldconstituteabreachoftrust.
InmyopiniontheCourtofAppealwerecorrecttofindthatthetermsofparagraphs1and2ofthe
undertakingcreatedaQuistclosetrust.ThemoneywasneveratMr.Yardleysfreedisposal.Itwasnever
heldtohisorderbyMr.Sims.ThemoneybelongedthroughouttoTwinsectra,subjectonlytoMr.Yardleys
righttoapplyitfortheacquisitionofproperty.TwinsectrapartedwiththemoneytoMr.Sims,relyingon
himtoensurethatthemoneywasproperlyappliedorreturnedtoit.
ForaQuistclosetrusttoarise,theremustbeaclearpurpose,andthepropertymustbetransferredtobeused
exclusivelyforthatpurpose.Itiscrucialthatthepropertyisnotatthefreedisposaloftherecipient.Thismightbe
evidencedbytherecipientsbeingrequiredtokeepthepropertysegregatedfromhisorhergeneral
assets.178 Equallyimportantly,thepurposemustfail.Itisgenerallyassumedthatthepowerfailsoninsolvency:
sinceoneofthereasonsforlendingthepropertyiscommonlyto(p.409) avoidtheborrowersinsolvency,onthe
occurrenceofthiseventtheentirepurposeofthetransactioncannolongerbefulfilled.However,failureofthe
purposemustclearlybeshown.InReEVTR,179 theclaimantdeposited60,000forthesolepurposeofenabling
thecompanytobuyequipment.Themoneywasusedforthispurpose,but,beforetheequipmentwasdelivered,
thecompanywentintoreceivershipandthepurchasewasterminated.Alargepartofthepurchasepricewas
repaidtothecompany.Itwasheldthat,althoughtheequipmenthadbeenpurchased,thepurposehadultimately
failedbecausetheequipmenthadnotbeendelivered,andsothemoneythathadbeenrepaidwasheldontrustfor
theclaimant.AsBinghamLJobserved:180
Whileitisliterallytruethatthefundwhichheprovidedwasappliedtothestipulatedpurpose,theobjectof
thepaymentwasnotachievedandthatwaswhythebalancewasrepaidtothereceivers.
(b)TheNatureoftheQuistcloseTrust
ThecommonfactpatternofQuistclosetrustsisrelativelyclear:moneyislentforaparticularpurpose,whichno
longerbecomespossibletofulfil,usuallybecauseoftheborrowersinsolvencythemoneycouldonlybespenton
thatparticularpurpose,andonthefailureofthatpurpose,thebeneficialinterestinthemoneylentisrecognizedto
belongtothelenderunderatrust.Butwhythisshouldbesoisdifficulttoexplain.181 TheresultinQuistclosemay
havebeencommerciallydesirable,butthereasonwhythereisatrusthasprovokedmuchdebate.
InQuistcloseitself,theHouseofLordsheldthattherewere,ineffect,twotrusts:theprimaryexpresstrustfora
purpose,andthenthesecondarytrustforthelender,whicharoseuponthefailureofthepurpose.However,this
reasoningisproblematic.Aprimarytrustforidentifiedbeneficiarieswouldallowthebeneficiariestoterminatethe
trustandtransferthepropertytothemselves,182 whichisunlikelytocorrespondtothepartiesintentions.Onthe
otherhand,atrustforaspecifiedpurposeisunlikelytobevalid,sincetherearenoobjectstoenforcethe
trust.183 Andevenifthepurposetrustisvalidasessentiallyforidentifiablebeneficiaries,184 thiswouldmeanthat
thebeneficialinterestinthepropertyisinsuspenseuntilthegivenpurposewaseitherfulfilledorfailed.Inthe
CourtofAppealinTwinsectra,PotterLJsaidthat:185
Thecasesproceedontheassumptionthattheprimarypurposetrustcomestoanendeitherwhenthe
expressedpurposeisperformed,inwhicheventnoquestionofasecondarytrustarises(saveinrespectof
anybalanceremaininginthehandsoftheborrower),or,whenthepurposebecomesimpossibletoperform
(atwhichpointthesecondarytrustcomesintoeffect).Thus,inthesense,andtotheextentthatthelender
hasanequitablerighttopreventthemoneybeingappliedforanybutitsdesignatedpurpose,solongas
theprimarypurposetrustcontinues,thebeneficialinterestinthemonieslentisinsuspenseuntilapplied
forthatpurpose.
(p.410) However,thisapproachwascriticizedbyPeterMillettbeforehebecameajudgeasunconventional,
186
since:186
ToimputetoAanintentiontoconferonCarighttocallforpropertyenforceableinequitybutnotan
equitableinterestinthepropertyistoattributetohimthemotivationofanantiquarian.
Subsequently,inTwinsectra,LordMillettmaintainedthattherewasnoneedtoconcludethatthebeneficial
interestinthepropertywasinsuspense:hepreferredananalysisbasedupontherebeingaresultingtrust,which
wouldaccountforthebeneficialinterestinthepropertyatalltimes:thebeneficialinterestwouldremainwiththe
transferorunlessanduntilthepurposeisfulfilled.HisLordshipalsorejectedotherattemptstoexplainthe
operationoftheQuistclosetrust.
TwinsectraLtdvYardley[2002]UKHL12,[2002]2AC164(LordMillett)
Thesepassages[fromLordWilberforcesspeechinQuistclose]suggestthattherearetwosuccessive
trusts,aprimarytrustforpaymenttoidentifiablebeneficiaries,suchascreditorsorshareholders,and
asecondarytrustinfavourofthelenderarisingonthefailureoftheprimarytrust.Butthereare
formidabledifficultiesinthisanalysis,whichhaslittleacademicsupport.Whatiftheprimarytrustis
notforidentifiablepersons,butasinthepresentcasetocarryoutanabstractpurpose?Wherein
suchacaseisthebeneficialinterestpendingtheapplicationofthemoneyforthestatedpurposeor
thefailureofthepurpose?Therearefourpossibilities:(i)inthelender(ii)intheborrower(iii)inthe
contemplatedbeneficiaryor(iv)insuspense.
(i)Thelender
InTheQuistcloseTrust:WhoCanEnforceIt?(1985)101LQR269,Iarguedthatthebeneficial
interestremainedthroughoutinthelender.Thisanalysishasreceivedconsiderablethoughnot
universalacademicsupport:seeforexamplePriestleyJTheRomalpaClauseand
theQuistcloseTrustinEquityandCommercialTransactions,ed.Finn(1987)217,237andProfessor
MBridgeTheQuistcloseTrustinaWorldofSecuredTransactions(1992)12OJLS333,352and
others.ItwasadoptedbytheNewZealandCourtofAppealinGeneralCommunicationsLtdv
DevelopmentFinanceCorporationofNewZealandLtd[1990]3NZLR406andreferredtowithapparent
approvalbyGummowJinReAustralianElizabethanTheatreTrust(1991)102ALR681.GummowJ
sawnothingspecialintheQuistclosetrust,regardingitasessentiallyasecuritydevicetoprotectthe
lenderagainstothercreditorsoftheborrowerpendingtheapplicationofthemoneyforthestated
purpose.
Onthisanalysis,theQuistclosetrustisasimplecommercialarrangementakin(asProfessorBridge
observes)toaretentionoftitleclause(thoughwithadifferentobject)whichenablestheborrowerto
haverecoursetothelendersmoneyforaparticularpurposewithoutentrenchingonthelenders
propertyrightsmorethannecessarytoenablethepurposetobeachieved.Themoneyremainsthe
propertyofthelenderunlessanduntilitisappliedinaccordancewithhisdirections,andinsofarasit
isnotsoapplieditmustbereturnedtohim.Iamdisposed,perhapspredisposed,tothinkthatthisis
theonlyanalysiswhichisconsistentbothwithorthodoxtrustlawandwithcommercialreality.Before
reachingaconcludedviewthatitshouldbeadopted,however,Imustconsiderthealternatives.
(ii)Theborrower
Itisplainthatthebeneficialinterestisnotvestedunconditionallyintheborrowersoastoleavethe
moneyathisfreedisposal.Thatwoulddefeatthewholepurposeofthearrangements,whichisto(p.
411) preventthemoneyfrompassingtotheborrowerstrusteeinbankruptcyintheeventofhis
insolvency.Itwouldalsobeinconsistentwithallthedecidedcaseswherethecontestwasbetween
thelenderandtheborrowerstrusteeinbankruptcy,aswellaswiththeQuistclosecaseitself:seein
particularTooveyvMilne(1819)2B&Ald683ReRogers(1891)8Morr243.
Theborrowersinterestpendingtheapplicationofthemoneyforthestatedpurposeoritsreturntothe
lenderisminimal.Hemustkeepthemoneyseparatehecannotapplyitexceptforthestated
purposeunlessthetermsoftheloanotherwiseprovidehemustreturnittothelenderifdemandedhe
cannotrefusetoreturnitifthestatedpurposecannotbeachievedandifhebecomesbankruptitdoes
notvestinhistrusteeinbankruptcy.Ifthereisanycontenttobeneficialownershipatall,thelenderis
thebeneficialownerandtheborrowerisnot
(iii)Inthecontemplatedbeneficiary
IntheQuistclosecaseitself[1970]AC567,asinallthereportedcaseswhichprecededit,eitherthe
primarypurposehadbeencarriedoutandthecontestwasbetweentheborrowerstrusteein
bankruptcyorliquidatorandthepersonorpersonstowhomtheborrowerhadpaidthemoneyorit
wastreatedashavingfailed,andthecontestwasbetweentheborrowerstrusteeinbankruptcyand
thelender.Itwasnotnecessarytoexplorethepositionwhiletheprimarypurposewasstillcapableof
beingcarriedoutandLordWilberforcesobservationsmustbereadinthatlight.
Thequestionwhethertheprimarytrustisaccuratelydescribedasatrustforthecreditorsfirstarose
inReNorthernDevelopmentsHoldingsLtd(unreported)6October1978,wherethecontestwas
betweenthelenderandthecreditors.Theborrower,whichwasnotinliquidationandmadenoclaimto
themoney,wastheparentcompanyofagrouponeofwhosesubsidiarieswasinfinancialdifficulty.
Therewasadangerthatifitwerewounduporceasedtradingitwouldbringdownthewholegroup.A
consortiumofthegroupsbanksagreedtoputupafundofmorethan500,000inanattemptto
rescuethesubsidiary.Theypaidthemoneyintoaspecialaccountinthenameoftheparentcompany
fortheexpresspurposeofprovidingmoneyforthesubsidiarysunsecuredcreditorsovertheensuing
weeksandfornootherpurpose.Thebanksobjectwastoenablethesubsidiarytocontinuetrading,
thoughonareducedscaleitfailedwhenthesubsidiarywasputintoreceivershipatatimewhen
some350,000remainedunexpended.RelyingonLordWilberforcesobservationsinthepassages
citedabove,SirRobertMegarryVCheldthattheprimarytrustwasapurposetrustenforceable(inter
alios)bythesubsidiariescreditorsasthepersonsforwhosebenefitthetrustwascreated.
Thereareseveraldifficultieswiththisanalysis.Inthefirstplace,LordWilberforcesreferencetoRe
Rogers(1891)8Morr243makesitplainthattheequitablerighthehadinmindwasnotamandatory
ordertocompelperformance,butanegativeinjunctiontorestrainimproperapplicationofthemoney
forneitherLindleyLJnorKayLJrecognisedmorethanthis.Inthesecondplace,theobjectofthe
arrangementswastoenablethesubsidiarytocontinuetrading,andthiswouldnecessarilyinvolveitin
incurringfurtherliabilitiestotradecreditors.Accordinglytheapplicationofthefundwasnotconfinedto
existingcreditorsatthedatewhenthefundwasestablished.Thecompanysecretarywasgivento
understandthatthepurposeofthearrangementswastokeepthesubsidiarytrading,andthatthefund
wasasgoodassharecapital.Thusthepurposeofthearrangementswasnot,asinothercases,to
enablethedebtortoavoidbankruptcybypayingoffexistingcreditors,buttoenablethedebtorto
continuetradingbyprovidingitwithworkingcapitalwithwhichtoincurfreshliabilities.Thereisa
powerfulargumentforsayingthattheresultofthearrangementswastovestabeneficialinterestinthe
subsidiaryfromthestart.Ifso,thenthiswasnotaQuistclosetrustatall.
Inthethirdplace,itseemsunlikelythatthebanksobjectwastobenefitthecreditors(whoincluded
theInlandRevenue)exceptindirectly.Thebankshadtheirowncommercialintereststoprotectby
enablingthesubsidiarytotradeoutofitsdifficulties.Ifso,thentheprimarytrustcannotbesupported
asavalidnoncharitablepurposetrust:seeReGrantsWillTrusts[1980]1WLR360andcfRe
DenleysTrustDeed[1969]1Ch373.
(p.412) Themostseriousobjectiontothisapproachisexemplifiedbythefactsofthepresentcase.
Inseveralofthecasestheprimarytrustwasforanabstractpurposewithnoonebutthelenderto
enforceperformanceorrestrainmisapplicationofthemoney.InEdwardsvGlyn(1859)2E&Ethe
moneywasadvancedtoabanktoenablethebanktomeetarun.InReEVTR[1987]BCLC646,it
wasadvancedforthesolepurposeofbuyingnewequipment.InGeneralCommunicationsLtdv
DevelopmentFinanceCorporationofNewZealandLtd[1990]3NZLR406themoneywaspaidtothe
borrowerssolicitorsfortheexpresspurposeofpurchasingnewequipment.Thepresentcaseis
anotherexample.Itissimplynotpossibletoholdmoneyontrusttoacquireunspecifiedpropertyfrom
anunspecifiedvendoratanunspecifiedtime.Thereisnoreasontomakeanarbitrarydistinction
betweenmoneypaidforanabstractpurposeandmoneypaidforapurposewhichcanbesaidto
benefitanascertainedclassofbeneficiaries,andthecasesrightlydrawnosuchdistinction.Any
analysisoftheQuistclosetrustmustbeabletoaccommodategiftsandloansforanabstractpurpose.
(iv)Insuspense
AsPeterGibsonJpointedoutinCarrerasRothmansLtdvFreemanMathewsTreasureLtd[1985]Ch
207at223theeffectofadoptingSirRobertMegarryVCsanalysisistoleavethebeneficialinterestin
suspenseuntilthestatedpurposeiscarriedoutorfails.Thedifficultywiththis(apartfromits
unorthodoxy)isthatitfailstohaveregardtotherolewhichtheresultingtrustplaysinequitysscheme
ofthings,ortoexplainwhythemoneyisnotsimplyheldonaresultingtrustforthelender.
LordBrowneWilkinsongaveanauthoritativeexplanationoftheresultingtrustinWestdeutsche
Landesbank GirozentralevIslingtonBoroughCouncil[1996]AC669at708anditsbasishasbeen
furtherilluminatedbyDrRChambersinhisbookResultingTrustspublishedin1997.LordBrowne
Wilkinsonexplainedthataresultingtrustarisesintwosetsofcircumstances.Hedescribedthe
secondasfollows:
WhereAtransferspropertytoBonexpresstrusts,butthetrustsdeclareddonotexhaustthe
wholebeneficialinterest.
TheQuistclosecase[1970]AC567wasamongthecaseshecitedasexamples.Herejected
theargumentthattherewasaresultingtrustinthecasebeforehimbecause,unlikethe
situationinthepresentcase,therewasnotransferofmoneyonexpresstrusts.Buthealso
rejectedtheargumentonawiderand,inmyrespectfulopinion,surergroundthatthemoney
waspaidandreceivedwiththeintentionthatitshouldbecometheabsolutepropertyofthe
recipient.
ThecentralthesisofDrChambersbookisthataresultingtrustariseswheneverthereisa
transferofpropertyincircumstancesinwhichthetransferor(ormoreaccuratelythepersonat
whoseexpensethepropertywasprovided)didnotintendtobenefittherecipient.Itrespondsto
theabsenceofanintentiononthepartofthetransferortopasstheentirebeneficialinterest,
nottoapositiveintentiontoretainit.Insofarasthetransferdoesnotexhausttheentire
beneficialinterest,theresultingtrustisadefaulttrustwhichfillsthegapandleavesnoroomfor
anyparttobeinsuspense.AnanalysisoftheQuistclosetrustasaresultingtrustforthe
transferorwithamandatetothetransfereetoapplythemoneyforthestatedpurposesits
comfortablywithDrChambersthesis,anditmightbethoughtsurprisingthathedoesnotadopt
it.
(v)TheCourtofAppealsanalysis
TheCourtofAppealwerecontenttotreatthebeneficialinterestasinsuspense,or(followingDr
Chambersanalysis)toholdthatitwasintheborrower,thelenderhavingmerelyacontractual
rightenforceablebyinjunctiontopreventmisapplication.PotterLJputitintheseterms[1999]
LloydsRep438at456,para75:
Thepurposeimposedatthetimeoftheadvancecreatesanenforceablerestrictiononthe
borrowersuseofthemoney.Althoughthelendersrighttoenforcetherestrictionistreatedas
arisingonthebasisofatrust,theuseofthatworddoesnotenlargethelendersinterest(p.
413) inthefund.Theborrowerisentitledtothebeneficialuseofthemoney,subjecttothe
lendersrighttopreventitsmisusethelenderslimitedinterestinthefundissufficientto
preventitsuseforotherthanthespecialpurposeforwhichitwasadvanced.
Thisanalysis,withrespect,isdifficulttoreconcilewiththecourtsactualdecisioninsofarasitgranted
TwinsectraaproprietaryremedyagainstMr.Yardleyscompaniesasrecipientsofthemisapplied
funds.UnlessthemoneybelongedtoTwinsectraimmediatelybeforeitsmisapplication,thereisno
basisonwhichaproprietaryremedyagainstthirdpartyrecipientscanbejustified.
DrChambersnovelview(asithasbeendescribed)isthatthearrangementsdonotcreateatrustat
alltheborrowerreceivestheentirebeneficialownershipinthemoneysubjectonlytoacontractual
rightinthelendertopreventthemoneybeingusedotherwisethanforthestatedpurpose.Ifthe
purposefails,aresultingtrustinthelenderspringsintobeing.Infact,hearguesforakindofrestrictive
covenantenforceablebynegativeinjunctionyetcreatingpropertyrightsinthemoney.Butrestrictive
covenants,whichbeganlifeasnegativeeasements,arepartofourlandlaw.Contractualobligations
donotrunwithmoneyorachoseinactionlikemoneyinabankaccount.
DrChambersanalysishasattractedacademiccomment,bothfavourableandunfavourable.Formy
ownpart,IdonotthinkthatitcansurvivethecriticismlevelledagainstitbyLusinaHoandPStJ
Smart:ReinterpretingtheQuistcloseTrust:aCritiqueofChambersAnalysis(2001)21OJLS267.It
providesnosolutiontocasesofnoncontractualpaymentisinconsistentwithLordWilberforces
descriptionoftheborrowersobligationasfiduciaryandnotmerelycontractualfailstoexplainthe
evidentialsignificanceofarequirementthatthemoneyshouldbekeptinaseparateaccountcannot
easilybereconciledwiththeavailabilityofproprietaryremediesagainstthirdpartiesandwhilethe
existenceofamereequitytopreventmisapplicationwouldbesufficienttopreventthemoneyfrom
beingavailablefordistributiontothecreditorsontheborrowersinsolvency(becausethetrusteein
bankruptcyhasnogreaterrightsthanhisbankrupt)itwouldnotprevailoversecuredcreditors.Ifthe
bankintheQuistclosecase[1970]AC567hadheldafloatingcharge(asitprobablydid)andhad
appointedareceiver,theadoptionofDrChambersanalysisshouldhaveledtoadifferentoutcome.
Thusallthealternativesolutionshavetheirdifficulties.Buttherearetwoproblemswhichtheyfailto
solve,butwhichareeasilysolvedifthebeneficialinterestremainsthroughoutinthelender.Onearises
fromthefact,wellestablishedbytheauthorities,thattheprimarytrustisenforceablebythelender.
Butonwhatbasiscanheenforceit?Hecannotdosoasthebeneficiaryunderthesecondarytrust,for
iftheprimarypurposeisfulfilledthereisnosecondarytrust:thepreconditionofhisclaimis
destructiveofhisstandingtomakeit.Hecannotdosoassettlor,forasettlorwhoretainsno
beneficialinterestcannotenforcethetrustwhichhehascreated.
DrChambersinsiststhatthelenderhasmerelyarighttopreventthemisapplicationofthemoney,and
attributesthistohiscontractualrighttospecificperformanceofaconditionofthecontractofloan.AsI
havealreadypointedout,thisprovidesnosolutionwherethearrangementisnoncontractual.ButLord
Wilberforceclearlybasedtheborrowersobligationonanequitableorfiduciarybasisandnota
contractualone.Hewasconcernedtojustifythecoexistenceofequitysexclusivejurisdictionwith
thecommonlawactionfordebt.Basingequitysinterventiononitsauxiliaryjurisdictiontorestraina
breachofcontractwouldnothaveenabledthelendertosucceedagainstthebank,whichwasathird
partytothecontract.Thereisonlyoneexplanationofthelendersfiduciaryrighttoenforcetheprimary
trustwhichcanbereconciledwithbasicprinciple:hecandosobecauseheisthebeneficiary.
Theotherproblemisconcernedwiththebasisonwhichtheprimarytrustissaidtohavefailedin
severalofthecases,particularlyTooveyvMilne2B&A683andtheQuistclosecaseitself[1970]AC
567.Giventhatthemoneydidnotbelongtotheborrowerineithercase,theborrowersinsolvency
shouldnothavepreventedthemoneyfrombeingpaidinthemannercontemplated.Amancannotpay
someonlyofhiscreditorsoncehehasbeenadjudicatedbankrupt,butathirdpartycan.Acompany
cannot(p.414) payadividendonceithasgoneintoliquidation,butthereisnothingtostopathird
partyfrompayingthedisappointedshareholders.Thereasonwhythepurposefailedineachcase
mustbebecausethelendersobjectinmakingthemoneyavailablewastosavetheborrowerfrom
bankruptcyintheonecaseandcollapseintheother.Butthisinitselfisnotenough.atrustdoesnot
failmerelybecausethesettlorspurposeincreatingithasbeenfrustrated:thetrustmustbecome
illegalorimpossibletoperform.Thesettlorsmotivesmustnotbeconfusedwiththepurposeofthe
trustthefrustrationoftheformerdoesnotbyitselfcausethefailureofthelatter.Butiftheborroweris
treatedasholdingthemoneyonaresultingtrustforthelenderbutwithpower(orinsomecasesa
duty)tocarryoutthelendersrevocablemandate,andthelendersobjectingivingthemandateis
frustrated,heisentitledtorevokethemandateanddemandthereturnofmoneywhichneverceasedto
behisbeneficially
AsSherlockHolmesremindedDrWatson,whenyouhaveeliminatedtheimpossible,whatever
remains,howeverimprobable,mustbethetruth.Iwouldrejectallthealternativeanalyses,whichIfind
unconvincingforthereasonsIhaveendeavouredtoexplain,andholdtheQuistclosetrusttobean
entirelyorthodoxexampleofthekindofdefaulttrustknownasaresultingtrust.Thelenderpaysthe
moneytotheborrowerbywayofloan,buthedoesnotpartwiththeentirebeneficialinterestinthe
money,andinsofarashedoesnotitisheldonaresultingtrustforthelenderfromtheoutset.
ContrarytotheopinionoftheCourtofAppeal,itistheborrowerwhohasaverylimiteduseofthe
money,beingobligedtoapplyitforthestatedpurposeorreturnit.Hehasnobeneficialinterestinthe
money,whichremainsthroughoutinthelendersubjectonlytotheborrowerspowerordutytoapply
themoneyinaccordancewiththelendersinstructions.Whenthepurposefails,themoneyis
returnabletothelender,notundersomenewtrustinhisfavourwhichonlycomesintobeingonthe
failureofthepurpose,butbecausetheresultingtrustinhisfavourisnolongersubjecttoanypoweron
thepartoftheborrowertomakeuseofthemoney.Whethertheborrowerisobligedtoapplythe
moneyforthestatedpurposeormerelyatlibertytodoso,andwhetherthelendercancountermand
theborrowersmandatewhileitisstillcapableofbeingcarriedout,mustdependonthe
circumstancesoftheparticularcase
Whenthetrustinfavourofthelenderarises
Likeallresultingtrusts,thetrustinfavourofthelenderariseswhenthelenderpartswiththemoneyon
termswhichdonotexhaustthebeneficialinterest.Itisnotacontingentreversionaryorfutureinterest.
Itdoesnotsuddenlycomeintobeinglikeaneighteenthcenturyuseonlywhenthestatedpurpose
fails.Itisadefaulttrustwhichfillsthegapwhensomepartofthebeneficialinterestisundisposedof
andpreventsitfrombeinginsuspense.
LordMillettthereforeconcludedthatQuistclosetrustsareresultingtrusts.Butwhatsortofresultingtrust?Lord
Millettinsistedthatthereisonlyeveronetrusttheresultingtrustwhichsuggeststhattherewasnoexpress
trustthathasfailed.DoesthismeanthataQuistclosetrustisaresultingtrustwhichrespondstothesettlors
presumedintention?Possibly,butdifficultiesmightarisewhereitistheborrowerwhosegregatesthelenders
propertyfromhisorherowngeneralfundswithoutbeinginstructedtodoso.IftheQuistclosetrustisaresulting
trust,itmightbebestexplainedasarisinguponthefailureofanexpresstrust:thetransferoristakentointendto
createapurposetrust,whichisinvalidasitisnotcharitable,187 sotherecipientinsteadholdstheproperty
transferredonresultingtrustforthetransferor.However,therecipientstillhasapowertousethepropertyforthe
purposeforwhichthepropertywastransferredattheoutset,giventhatthetransferorhasconsentedtothis.
(p.415) Inanyevent,itmightbebetternottotrytoexplainallinstancesofQuistclosetrustsinthesameway.
AsLordMilletthimselfwroteintheForewordtoabookontheQuistclosetrust:188
ThesocalledQuistclosetrustprobablyrepresentsthesinglemostimportantapplicationofequitable
principlesincommerciallife.Ithasbeenwellestablishedforsometwohundredyears,atleastinrelation
toinsolvency,thoughitisnowseentobeofmoregeneralapplication.Yetithasresistedattemptsby
academiclawyerstoanalyseitintermsofconventionalequitabledoctrine.Eventhatmodernmasterof
equitySirRobertMegarryVCwasinclinedtothinkthatitwasanaberrantcreationofcommonlawjudges.
ItwastoomuchtohopethatasingledecisionoftheHouseofLordswouldputanendtocontroversy.The
natureofthetrustandthelocationofthebeneficialinterestremainelusiveandcontinuetobedebatedby
distinguishedacademiclawyers.TheydemandtoknowwhethertheQuistclosetrustisaformofexpress,
implied,constructiveorresultingtrust.Ifthemereauthorofaforewordmayventuretointrudeinaprivate
dispute(attheriskofexposinghimselftoderisivecommentfromallsides),Iwouldsaythatitmaybeany
ofthem,dependingonthefactsoftheparticularcaseandtheboundariesbetweenthesevariousformsof
trust,onwhichnoteveryoneisagreed.
Fromacommercialpointofview,however,thetrustissimplyamechanismbywhichonepersonmay
allowtheuseofhismoneybyanotherforastatedpurposewithoutlosinghisrighttothemoneymorethan
necessarytoachievethepurpose.Thecommercialneedforsuchamechanismisobvious.Theproblems
whichwillfacethecourtsarenotlikelytoderivefromanydifficultyinanalysingthenatureofthetrust,but
fromtheneedtodistinguishthecasewhereitarisesfromtheordinarycaseofthelenderwhonaturally
wishestoknowwhytheborrowerwantsthemoney.
ThenatureofaQuistclosetrustmightdependuponthefactsofanygivencase.However,itisimportantto
appreciatethatwellestablishedprinciplesofexpress,resulting,andconstructivetrustsshouldbeapplied.
Thereisapowerfulargumentthatifalenderwishestobeprotectedintheeventoftheborrowersinsolvency,that
lendershouldmakehisorherintentionsexpress.Ifheorshedoesso,thenanexpresstrustinthelendersfavour
couldarise.EvenafterTwinsectra,thispossibilityhasbeenrecognizedjudiciallybyLordMillettinLatimerv
CommissionerofInlandRevenue.189 Infact,themajorityoftheHouseofLordsinTwinsectrathoughtthatthe
trustwhicharosewasanexpresstrust.AsLordHoffmanncommented:190
ThetermsofthetrustuponwhichSimsheldthemoneymustbefoundintheundertakingwhichtheygave
toTwinsectraasaconditionofpayment.Clauses1and2ofthatundertakingmadeitclearthatthemoney
wasnottobeatthefreedisposalofMrYardley.SimswerenottopartwiththemoneytoMrYardleyor
anyoneelseexceptforthepurposeofenablinghimtoacquireproperty.
InmyopiniontheeffectoftheundertakingwastoprovidethatthemoneyintheSimsclientaccountshould
remainTwinsectrasmoneyuntilsuchtimeasitwasappliedfortheacquisitionofpropertyinaccordance
withtheundertaking.Forexample,ifMrYardleywentbankruptbeforethemoneyhadbeensoapplied,it
wouldnothaveformedpartofhisestate,asitwouldhavedoneifSimshadheldit(p.416) intrustforhim
absolutely.TheundertakingwouldhaveensuredthatTwinsectracouldgetitback.ItfollowsthatSimsheld
themoneyintrustforTwinsectra,butsubjecttoapowertoapplyitbywayofloantoMrYardleyin
accordancewiththeundertaking.NodoubtSimsalsoowedfiduciaryobligationstoMrYardleyinrespect
oftheexerciseofthepower,butweneednotconcernourselveswiththoseobligationsbecauseinfactthe
moneywasappliedwhollyforMrYardleysbenefit.
SuchanexpresstrustisfactuallysimilartotheresultingtrustfavouredbyLordMillett:underbothapproaches,
thebeneficialinterestremainsinthelender.Often,thedividinglinebetweenrelyingonexpressintentionsand
presumedorinferredintentionswillbeverythin,andnotmuchmayturnonthedistinction.191 However,itmaybe
moresatisfactorytopointtoasettlorsexpressintentioninordertojustifythelendershavingpriorityoverother
unsecuredcreditorsintheeventoftheborrowersinsolvency.Butforanexpresstrusttobefound,theremustbe
sufficientcertaintyofintentiontocreateatrust,anditshouldbenotedthataconsequenceofthisanalysisisthat
thelenderwouldbeabletocompeltheuseofthemoneyforthepromisedpurpose,ortorevoketheloanand
requirepaymentimmediatelyeventhoughthepurposewasstillcapableofbeingfulfilled,oreventorequirethe
borrowertousethemoneyforanotherpurpose,whichmightseeminconsistentwiththenatureofwhathas
commonlybeenunderstoodasaQuistclosetrust.Thissolutionis,therefore,notfreefromdifficulty.AsPayne
hasremarked,whenconsideringwhetherthisapproachcouldexplainQuistcloseitself:192
[If]thelendertakesafullbeneficialinterestinthetrustpropertyfromthestartthenQuistcloseoughttobe
abletowieldalloftherightsnormallyattachedtofullbeneficialownership(heldbyapersonoffullageand
soundmindandsoon)suchastherighttocompelRollsRazortousethemoneyforthepaymentofthe
dividend,ortorevoketheloanandrequireimmediaterepaymentofthemoney,topreventthepaymentof
thedividendbyRollsRazortotheshareholderswhilethepurposeremainscapableoffulfilment,orto
requiretheborrowertousethemoneyforsomeotherpurpose.Quistclosedoesnotseemtohavehad
theserights.
AlthoughQuistclosemightnotappeartohavehadthoserights,itmightnotbeimproperforthemtoenjoysuch
rights,193 particularlyiftherewassufficientcertaintyofintentionforanexpresstrusttoarise:suchanexpress
trustshouldnotoperatedifferentlyfromotherexpresstrustssimplybecauseitfallswithinthebroadumbrellaof
theQuistclosefactpattern.Butifthereisnosuchexpressintentiontocreateatrust,thenitmaybethatthereis
onlyapersonal,contractualrelationshipbetweenthepartiesandnotrustrelationshipatall,unlesssomesortof
resultingtrustcanbefound.
(c)Summary
InBiebervTeathersLtd(InLiquidation),194 questionsagainaroseconcerningtheQuistclosetrust.IntheCourtof
Appeal,PattenLJrightlyemphasizedthatthestructureofthepartiesarrangementsandthecontractual
mechanismsinvolvedneededtobeexaminedclosely.HisLordshipalsoaccepted(p.417) theutilityofthe
summaryofthekeyprinciplesunderpinningthecurrentstateoflawregardingtheQuistclosetrust,whichwas
providedbyNorrisJatfirstinstance:195
First,thequestionineverycaseiswhetherthepayerandtherecipientintendedthatthemoneypassing
betweenthemwastobeatthefreedisposaloftherecipient:ReGoldcorpExchange[1995]1AC74
andTwinsectraat[74].
Second,themerefactthatthepayerhaspaidthemoneytotherecipientfortherecipienttouseitina
particularwayisnotofitselfenough.Therecipientmayhaverepresentedorwarrantedthatheintendsto
useitinaparticularwayorhavepromisedtouseitinaparticularway.Suchanarrangementwouldgive
risetopersonalobligationsbutwouldnotofitselfnecessarilycreatefiduciaryobligationsora
trust:Twinsectraat[73].
So,thirdly,itmustbeclearfromtheexpresstermsofthetransaction(properlyconstrued)ormustbe
objectivelyascertainedfromthecircumstancesofthetransactionthatthemutualintentionofpayerand
recipient(andtheessenceoftheirbargain)isthatthefundstransferredshouldnotbepartofthegeneral
assetsoftherecipientbutshouldbeusedexclusivelytoeffectparticularidentifiedpayments,sothatifthe
moneycannotbesousedthenitistobereturnedtothepayer:TooveyvMilne(1819)2B&A683
andQuistcloseInvestmentsat580B.
Fourth,themechanismbywhichthisisachievedisatrustgivingrisetofiduciaryobligationsonthepartof
therecipientwhichacourtofequitywillenforce:Twinsectraat[69].Equityintervenesbecauseitis
unconscionablefortherecipienttoobtainmoneyontermsastoitsapplicationandthentodisregardthe
termsonwhichhereceiveditfromapayerwhohadplacedtrustandconfidenceintherecipienttoensure
theproperapplicationofthemoneypaid:Twinsectraat[76].
Fifth,suchatrustisakintoaretentionoftitleclause,enablingtherecipienttohaverecoursetothe
payersmoneyfortheparticularpurposespecifiedbutwithoutentrenchingonthepayerspropertyrights
morethannecessarytoenablethepurposetobeachieved.Itisnotassuchapurposetrustofwhichthe
recipientisatrustee,thebeneficialinterestinthemoneyrevertingtothepayerifthepurposeisincapable
ofachievement.Itisaresultingtrustinfavourofthepayerwithamandategrantedtotherecipienttoapply
themoneypaidforthepurposestated.Thekeyfeatureofthearrangementisthattherecipientisprecluded
frommisapplyingthemoneypaidtohim.Therecipienthasnobeneficialinterestinthemoney:generally
thebeneficialinterestremainsvestedinthepayersubjectonlytotherecipientspowertoapplythemoney
inaccordancewiththestatedpurpose.Ifthestatedpurposecannotbeachievedthenthemandateceases
tobeeffective,therecipientsimplyholdsthemoneypaidonresultingtrustforthepayer,andtherecipient
mustrepayit:Twinsectraat[81],[87],[92]and[100].
Sixth,thesubjectiveintentionsofpayerandrecipientastothecreationofatrustareirrelevant.Ifthe
properlyconstruedtermsuponwhich(ortheobjectivelyascertainedcircumstancesinwhich)payerand
recipiententerintoanarrangementhavetheeffectofcreatingatrust,thenitisnotnecessarythateither
payerorrecipientshouldintendtocreateatrust:itissufficientthattheyintendtoenterintotherelevant
arrangement:Twinsectraat[71].
Seventh,theparticularpurposemustbespecifiedintermswhichenableacourttosaywhetheragiven
applicationofthemoneydoesordoesnotfallwithinitsterms:Twinsectraat[16].
Itisinmyjudgmentimplicitinthedoctrinesodescribedintheauthoritiesthatthespecifiedpurposeis
fulfilledbyandatthetimeoftheapplicationofthemoney.Thepayer,therecipientandtheultimate
beneficiaryofthepayment(thatis,thepersonwhobenefitsfromtheapplicationbytherecipientofthe
moneyfortheparticularpurpose)needtoknowwhetherpropertyhaspassed.
(p.418) Question
Fredwasworriedaboutbeingsuedbyhiscreditors.Inordertohidehisassets,hetransferredhissharesin
CompanyFirstLtdtohisson,Steve,andgavehisholidayhometohisbrother,Bob.BothSteveandBob
knewwhyFredwasgivingthemthesharesandhouse.Fredscreditorsarenolongerlookingintohisaffairs,
butneitherStevenorBobarewillingtotransferthepropertybacktoFred.
Fortifiedbythetransferofsharestohisname,Steveloanedmoneytohissistersstrugglingbusiness,Flower
PowerLtd,inordertoenablehertopaydividendstohershareholders.FlowerPowerLtdbecameinsolvent
beforethedividendswerepaid.
AdviseSteveandBob.
FurtherReading
Birks,RestitutionandResultingTrustsinEquity:ContemporaryLegalDevelopments(ed.Goldstein)
(Jerusalem:HebrewUniversityofJerusalem,1992).
FindThisResource
Chambers,ResultingTrusts(Oxford:ClarendonPress,1997),especiallychapters12.
FindThisResource
Chambers,IsThereaPresumptionofResultingTrust?,inConstructiveandResultingTrusts(ed.Mitchell)
(Oxford:Hart,2010).
FindThisResource
Mee,AutomaticResultingTrusts:Retention,Restitution,orReposingTrust?inConstructiveandResulting
Trusts(ed.Mitchell)(Oxford:Hart,2010).
FindThisResource
Mee,ResultingTrustsandVoluntaryConveyancesofLand[2012]Conv307.
FindThisResource
Penner,ResultingTrustsandUnjustEnrichment:ThreeControversies,inConstructiveandResulting
Trusts(ed.Mitchell)(Oxford:Hart,2010).
FindThisResource
RickettandGrantham,ResultingTrusts:ARatherLimitedDoctrine,inRestitutionandEquity,Vol.1(eds
BirksandRose)(Oxford:MansfieldPress,2000).
FindThisResource
Swadling,ANewRoleforResultingTrusts?(1996)LS110.
FindThisResource
Swadling,Orthodoxy,inTheQuistcloseTrustCriticalEssays(ed.Swadling)(Oxford:Hart,2004).
FindThisResource
Swadling,ExplainingResultingTrusts(2008)124LQR72.
FindThisResource
Notes:
1
SeeChapter3.
2
SeeChapter9,InformalArrangementsRelatingtoProperty.
3
SeeChapter7,ConstructiveTrusts.
4
Althoughseethecommonintentionconstructivetrust:Chapter9.
6
SeeinparticularBirks,RestitutionandResultingTrustsinEquity:ContemporaryLegal
Developments(Jerusalem:HebrewUniversityofJerusalem,1992)andChambers,ResultingTrusts(ed.Goldstein)
(Oxford:ClarendonPress,1997)seefurtherChapter8.4,p.391.
7 Forfurtherdiscussionofwhetherretentionistheappropriatetermhere,seeChapter8.1(c),pp.3545.
8
CfChaseManhattanBank NAvIsraelBritishBank (London)Ltd[1981]Ch105.SeefurtherChapter8.4(c),pp.
399400.
9 Birks,RestitutionandResultingTrustsinEquity:ContemporaryLegalDevelopments(ed.Goldstein)
(Jerusalem:HebrewUniversityofJerusalem,1992),360.
10
E.g.GodboldvFreestone(1695)3Lev406,407(HoltCJ).
11 E.g.Mee,AutomaticResultingTrusts:Retention,Restitution,orReposingTrust?inConstructiveand
ResultingTrusts(ed.Mitchell)(Oxford:Hart,2010).
12
[1974]Ch269,291.
13 [1967]2AC291,31213.
14
ForthefactsofVandervell,seeChapter8.3(b)(i),pp.384.SeealsoChapter4,CreationofExpressTrusts.
15 [1974]Ch269,289.
16
[1996]AC669.
17 [1996]AC669,708.Onbonavacantia,seeChapter8.3(c)(ii),pp.3859.
18
20
SeeChapter9.
21 Millett,RestitutionandConstructiveTrusts(1998)114LQR399,401.
22
RussellvScott(1936)55CLR440,451(DixonandEvattJJ).
23 [2007]UKHL17[2007]2AC432,[60].
24
SeeChapter8.2(d),p.364.
25
25
Unlesstherelationshipissuchthatapresumptionofadvancementarises:seeChapter8.2(c),pp.3614.
26
[1935]WN68.
27
Forrebuttingthepresumption,seeChapter8.2(d),p.364.
28
Forfulldiscussion,seeMee,ResultingTrustsandVoluntaryConveyancesofLand[2012]Conv307.
29 [1971]Ch.892,933.
30
[2001]WTLR101,113.
31 [2001]EWCACiv1691,[24].SeetooSwadling,AHardLookatHodgsonvMark s,inRestitutionandEquity,
Vol1:ResultingTrustsandEquitableCompensation(edsBirksandRose)(London:MansfieldPress,2000),ch.
4,p.74.
32
[2002]EWCACiv974,[24].
33 DyervDyer(1788)2CoxEqCas92,93.
34
(1999)31LSGazR38[1999]BPIR637.
35 Theticketwasactuallypurchasedonbehalfofalargersyndicate.Ifthepartiesinthecasewerereversedso
thatthehusbandhadpaidforhiswifesshare,thepresumptionofadvancementwouldhavebeenapplicable.See
Chapter8.2(c),p.362.
36
[2004]EWCACiv1515,[14][15].
37 Stack vDowden[2007]UKHL17[2007]2AC432.SeeChapter9,InformalArrangementsRelatingto
Property.
38
JonesvKernott[2011]UKSC53[2011]3WLR1121,[25].
39 [2008]EWCACiv347[2008]1WLR2695.
40
Ibid,[15][17].
41 SeeChapter9.2(b)(iv)(c),pp.4278.
42
[1994]1AC340,372.
43 (1879)10ChD474,476.
44
[1970]AC777,793.
45 [2000]WTLR593.SeeChapter8.2(c),p.359.
46
Seee.g.Sek honvAlissa[1989]2FLR94(HoffmannJ).CpNelsonvNelson(1995)132ALR133,inwhichthe
AustralianHighCourtrecognizedapresumptionofadvancementbetweenmotherandchild.
47 Seee.g.Andrews,ThePresumptionofAdvancement:Equity,EqualityandHumanRights[2007]Conv340,
whoconsidersthepresumptiontobeinconsistentwithArticle14oftheEuropeanConventiononHumanRights,
whichprohibitsdiscriminationonthegroundsofsex,aswellasArticle5ofProtocol7oftheConvention,which
providesthatSpousesshallenjoyequalityofrightsandresponsibilitiesofaprivatelawcharacterbetweenthem,
andintheirrelationswiththeirchildren,astomarriage,duringmarriageandintheeventofitsdissolution.
48
Seee.g.Glister,Section199oftheEqualityAct2010:HowNottoAbolishthePresumptionofAdvancement
(2010)73MLR807,whoarguesthatArticle5ofProtocol7islimitedtorelationsbetweenspousesandtheir
childreninthecontextofmarriage,andthatthepresumptionofadvancementisnotarightwithinthescopeof
Article5.TheUnitedKingdomhasnot(yet)ratifiedProtocol7.
49
49
Forcriticismofthisprovision,seeGlister,Section199oftheEqualityAct2010:HowNottoAbolishthe
PresumptionofAdvancement(2010)73MLR807.
50 [2007]UKPC10[2007]WTLR1335.
51
Ibid,[20].
52 [2007]UKHL17[2007]2AC432,[101].
53
[1967]2AC291,313.
54 [1970]AC777,811.
55
[1967]2AC291,312.
56 [1996]AC669,708.
57
SeefurtherChapter8.4(c),p.393.
58 UnlessaQuistclosetrustarises:seeChapter8.5,p.403.
59
[1980]1WLR219,223.
60
PettitvPettit[1970]AC777,814(LordUpjohn)McGrathvWallis[1995]2FLR114.
61
ShephardvCartwright[1955]AC431.
62
Whenthewrittenconsentofthechildrentoenablethefathertowithdrawmoneyfromtheirdepositaccountwas
obtained.
63
Fung,TheScopeoftheRuleinShepherdvCartwright(2006)122LQR651,653.
64
[2004]EWCACiv223[2004]2FCR418,[19].
65
[1944]2AllER472.
66
Ibid,at473.
67 [1995]2FLR114.
68
HolmanvJohnson(1775)1Cowp341,343(LordMansfield).
69 [1994]1AC340.
70
ToafraudulentplaintiffseekingreliefthecourtwouldsayLettheestateliewhereitfalls,Muck lestonv
Brown[1801]6Ves52,689.
71 CitedbyNourseLJinTribevTribe[1996]Ch107,118.
72
[1996]Ch107,133.
73 QvQ[2008]EWHC1874(Fam)[2009]FamLaw17,[138].
74
[1996]Ch107.
75 NoCourtwilllenditsaidtoamanwhofoundshiscauseofactionuponanimmoralorillegalact.
76
RoseGratuitoustransfersandillegalpurposes(1996)112LQR386.
77 CfBigosvBousted[1951]1AllER92.SeeSamet,Locuspoenitentiae:Repentance,WithdrawalandLuck,
inConstructiveandResultingTrusts(ed.Mitchell)(Oxford:Hart,2010).
78
78 [1962]AC294,302.
79
ColliervCollier[2002]EWCACiv1095[2002]BPIR1057.
80 BarrettvBarrett[2008]EWHC1061(Ch)[2008]2P&CR17.
81
SeegenerallyDavies,TheIllegalityDefenceTwoStepsForward,OneStepBack?[2009]Conv182.
82
DraftTrusts(ConcealmentofInterests)Bill,attachedtoTheIllegalityDefenceLawCom.No320(2010).
83
Thisconcernsthecourtsdiscretionregardingtheenforceabilityofanequitableinterest.
84
Davies,TheIllegalityDefence:TurningBacktheClock[2010]Conv282Sheehan,TheLawCommissionon
Illegality:TheEnd(atLast)oftheSaga[2010]LMCLQ543.Cf.VirgoandOsullivan,RestitutionandEquity
VolumeOne:ResultingTrustsandEquitableCompensation(edsBirksandRose)(Oxford:MansfieldPress,
2000).
85
ReportontheImplementationofLawCommissionProposalsHC1900,paras512.
86
CfWSwadling,ExplainingResultingTrusts(2008)124LQR72,84.
87
[1967]2AC291,308.
88
89
[1946]Ch217.SeetooEsseryvCowlard(1884)26ChD191.
90
[1947]Ch217,2223.
91 MoricevBishopofDurham(1804)9Ves399onappeal(1805)10Ves522ChichesterDiocesanFundand
BoardofFinanceInc.vSimpson[1944]AC341.SeeChapter5.5,p.250.
92
EgInreLeek [1969]1Ch563.SeeChapter3.4,p.86.
93 [1999]1WLR1399.
94
95 [1999]1WLR1399,1413.
96
InDavisvRichardsandWallingtonIndustriesLtd[1990]1WLR151seeChapter8.3(c)(ii),pp.3868.
97 SeefurtheralsoChapter10.2,pp.9889.
98
Thiswasavalidtransaction.SeeChapter10.2(c),pp.48891.
99 ForfurtherdiscussionoftheimportanceofVandervelltothetheoreticaljustificationsforresultingtrusts,see
e.g.Chapter8.4(b),pp.4003.
100
Iftheywere,thenVandervellsestatewouldhavebeenliabletopaytaxonthedividends.
101 [1974]Ch269.
102
FromVandervellvInlandRevenueCommissioners[1967]2AC291,329,whichisthefinalparagraphinthe
extractatChapter8.3(b)(i),p.379.
103 [1974]Ch269,31920.
104
SeeChapter4.3(b)(i),p.150.
105 LawofPropertyAct1925,s.53(1)(c).SeeChapter10.2(d),pp.4913.
106
106
Battersby,SomeThoughtsontheStatuteofFraudsinRelationtoTrusts(1975)7OttawaLR483,500.
107
[1974]Ch269,3223.
109
Ownerlessgoods.
110 [1979]1WLR24.
111
Ibid,at257.
112 ReWestSussexConstabularysWidows,ChildrenandBenevolent(1930)FundTrusts[1971]Ch1.
113
114 E.g.HanchettStamfordvAttorneyGeneral[2008]EWHC330(Ch)[2009]Ch173.
115
[1990]1WLR1511.
116 ContradictingthereasoninginCunnack vEdwards[1896]2Ch679.
117
Employeescontributions,transfersfromotherpensionschemes,andemployerscontributions.
118 [1999]1WLR1399,1412.
119
120
SeeChapter6.4(b)(v),p.299.
121
[1999]1WLR1399seeChapter8.3(c)(ii),pp.3889.
122
[1958]Ch300,affirmed[1959]Ch62.SeealsoReHobournAeroComponentsAirRaidDistressFund[1946]
Ch86.
123
[1958]Ch300,31013.
124
Cfthecontractholdingtheory,whichisnowmorecommonlyemployedinthecontextofunincorporated
associations:Chapter6.4(b)(v),p.299.
125
Thiscanbecomparedwithatrustforcharitablepurposeswheresurplusmoneyprovidedbyunknowndonors
canbeappliedcyprs:CharitiesAct2011s.63.SeeChapter5.6,p.255.
126
[1900]2Ch326.
127
Oneoftheladiesfriendswhohelpedtoraisethecontributions.
128
ButthetrustwasvalidbyvirtueofwhatisnowrecognizedastheDenleyprinciple:ReDenleysTrust
Deed[1969]1Ch373.SeeChapter6.2(c),p.284.
129
Swadling,ExplainingResultingTrusts(2008)124LQR72,74.
130
Stack vDowden[2007]UKHL17[2007]2AC432,[126].SeealsoJonesvKernott[2011]UKSC53[2011]
3WLR1121,[51](3)(LadyHaleandLordWalker).
131 JonesvKernott[2011]UKSC53[2011]3WLR1121,[73](LordKerr).
132
Ibid,[47].
133 ANewRoleforResultingTrusts?[1996]LS110,114.Seee.g.Cook vFountain(1676)3Swanst585,591.
134
135
135
Birks,RestitutionandResultingTrustsinEquity:ContemporaryLegalDevelopments(ed.Goldstein)
(Jerusalem:HebrewUniversityofJerusalem,1992),346.
136 HazellvHammersmithandFulhamLondonBoroughCouncil[1992]2AC1.
137
SeenowSempraMetalsLtdvIRC[2007]UKHL34[2008]1AC561,whereitwasrecognizedthatcompound
interestwasgenerallyavailableeveniftheclaimwasnotequitable.Despitethis,Westdeutscheremainsrelevant
fortheanalysisoftheresultingtrust.
138 Thelegaltitlewillbeextinguishedbecauseitisnotpossibletotraceatlawintoamixedbankaccount.See
139
ByvirtueoftheruleinClaytonscase(1816)1Mer572:seeChapter18.3(c)(ii),p.839.
141
Goldstein(ed.)Equity:ContemporaryLegalDevelopments(Jerusalem:HebrewUniversityofJerusalem,
1992.)
143
145
E.g.BarclaysBank LtdvWJSimmsSonandCook e(Southern)Ltd[1979]3AllER522seeChapter1.4(b),
pp.1415.
146 ResultingTrusts(Oxford:ClarendonPress,1997),245.
147
[1981]Ch105.SeeChapter7.2(a),pp.3267.
148 [1981]Ch105,119.
149
[1914]AC398.Thiscaserecognizedthatpropertywhichwastransferredpursuanttoavoidtransactionwould
beheldonresultingtrustforthetransferor.However,itwasoverruledbytheHouseofLordsinWestdeutsche.
150 ResultingTrusts(Oxford:ClarendonPress,1997),129.
151
ANewRoleforResultingTrusts?[1996]LS110,116(somereferencesomitted).
152 aresultingtrustonlyariseswherethereisnootherexplanationofthetransactionperLordCairnsLC
inBatstonevSalter(1875)LR10ChApp431,433.
153
(1985)160CLR583,612.
154 MilroyvLord(1862)4DeGF&J264seeChapter4.3(a),p.145.
155
Savewherethemistakewassuchthattheclaimantretainedtitletotheproperty(e.g.RvRussell(1885)16
QBD190)orwherethedefendantwasawareofthemistakeandactedunconscionably(seeChapter7.2(c),pp.
3267).
156 [1996]AC669,714715.
157
Ibid,716.
158
159
E.g.Chambers,ResultingTrusts(Oxford:ClarendonPress,1997),ch.2.
160
Ibid,222.
161
161 [1999]1WLR1399,1412.
162
(2008)LQR72,101.
163
Ibid,102.
164
AutomaticResultingTrusts:Retention,RestitutionorReposingTrust?,inConstructiveandResulting
Trusts(ed.Mitchell)(Oxford:Hart,2010),p.211.
165
ResultingTrusts:TheTrueNatureoftheFailingTrustCases(2000)116LQR15,17.
166
[1967]2AC291,329.
167
Althoughhischildrenssettlementwouldthenhavebornethetaxliability,whichwaswhathewastryingto
avoid.
168
ThiswasrecognizedbyScottJinDavisvRichardsandWallington[1991]1WLR1511,1541,quotedin
169
BarclaysBank LtdvQuistcloseInvestmentsLtd[1970]AC567.
170
[2002]UKHL12[2002]2AC164(LordMillett).
171
SeeChapter8.5(c),p.409.
172 [1987]BCLC646,652.
173
SeeespeciallyChambers,ResultingTrusts(Oxford:ClarendonPress,1997),chapter3.
174 Cf.Chapter3.2(c),pp.734
175
FromTwinsectraLtdvYardley[2002]UKHL12[2002]2AC164,[68],citedatp.403.
177
[2002]UKHL12,[2002]2AC164,[73][103].
178 AswasthecaseinQuistcloseitself.SeetooHenryvHammond[1913]2KB515,521(Channell
J)TwinsectraLtdvYardley[2002]UKHL12[2002]2AC164,[95](LordMillett).However,segregationisnot
inevitablyrequired:CoopervPRGPowerhouse[2008]EWHC498(Ch)[2008]2AllER(Comm)964.
179
[1987]BCLC646.
180 Ibid,652.
181
CfSwadling,OrthodoxyinTheQuistcloseTrust(ed.Swadling)(Oxford:Hart,2004):seeChapter8.5(a),p.
407.
182 SaundersvVautier(1841)4Beav115.SeeChapter10.3(a),p.503.
183
SeeChapter5,CharitablePurposeTrusts.
185
[1999]LloydsRepBank438,456[75].SeetooCarrerasRothmansLtdvFreemanMathewsTreasure
Ltd[1985]Ch207.
186 TheQuistcloseTrust:WhoCanEnforceIt?(1985)101LQR269,282.
187
SeeChapter6,NoncharitablePurposeTrusts.
188
188 LordMillett,Foreword,inTheQuistcloseTrust:CriticalEssays(ed.Swadling)(Oxford:Hart,2004).Seetoo
thechapterbyChambersinthesamebook,RestrictionsontheUseofMoney,aswellasGlister,Thenature
ofQuistclosetrusts:classificationandreconciliation(2004)63CLJ632.CompareMillett(1985)101LQR269,
290,whosuggestedthatQuistclosetrustsmightbeauniqueformoftrust.
189
[2004]UKPC13,[41].
190
TwinsectraLtdvYardley[2002]UKHL12[2002]2AC164,[12][13]
191
Althoughifthepropertyconcernedisland,onlyanexpresstrustwouldrequiresignedwriting:seeLPA1925
s.53(1)(b)and(2).
192
QuistcloseandResultingTrustsRestitutionandEquity,Volume1:ResultingTrustsandEquitable
Compensation(edsBirksandRose)(Oxford:MansfieldPress,2000),p.89.
193
Andpresumablythelenderwouldhavesuchrightsunderaresultingtrustaswell.
194
[2012]EWCACiv1466.
195
[2012]EWHC190(Ch)14ITELR814,[16][23],citedat[2012]EWCACiv1466,[14].
9.InformalArrangementsRelatingtoProperty
Chapter: (p.419) 9.InformalArrangementsRelatingtoProperty
DOI: 10.1093/he/9780199661480.003.0009
CentralIssues
1.Propertytransactionsrelatingtolandwhichfailtocomplywithstatutoryformalityrequirementsmay
berenderedeffectivebyvariousequitablemechanisms.
2.Wherepropertyisregisteredinthenameofoneparty,anotherpartymayhaveanequitableinterest
inthepropertywherethereisacommonintentionthattheotherpartyshouldhavesuchaninterest.
3.Wherepropertyisregisteredinthenameoftwoparties,itwillbepresumedthattheyhaveajoint
beneficialinterestintheproperty.Thispresumptionwillberebuttedbyacommonintentionthatthe
beneficialinterestshouldbedifferent.
4.Wheretwopartieshaveenteredintoajointventureinvolvingtheacquisitionofpropertybyoneof
them,thatpartymayberequiredtoholdthepropertyonconstructivetrustforbothofthemifitis
unconscionableforthepartyacquiringthepropertytodenythattheotherhasanybeneficialinterestin
theproperty.
5.Wherethedefendanthasmadearepresentationtotheclaimantthattheclaimantwillacquirean
interestinspecifiedproperty,andtheclaimanthasdetrimentallyreliedonthatrepresentation,one
responseofEquityisthatthecourtmay,intheexerciseofitsdiscretion,determinethatthedefendant
holdspropertyontrustfortheclaimant.Thisinvolvesthecreationofanequitableproprietaryrightby
meansofthedoctrineofproprietaryestoppel.
1.GeneralConsiderations
(a)Formalities
Trustsoflandmustbeevidencedbysignedwritingtobeenforceable.1 Therearealsootherformalityrequirements
relatingtothedispositionofland.
(p.420) LawofProperty(MiscellaneousProvisions)Act1989
2.Contractsforsaleetc.oflandtobemadebysignedwriting.
(1)Acontractforthesaleorotherdispositionofaninterestinlandcanonlybemadeinwriting
andonlybyincorporatingallthetermswhichthepartieshaveexpresslyagreedinonedocument
or,wherecontractsareexchanged,ineach.
(2)Thetermsmaybeincorporatedinadocumenteitherbybeingsetoutinitorbyreferenceto
someotherdocument.
(3)Thedocumentincorporatingthetermsor,wherecontractsareexchanged,oneofthe
documentsincorporatingthem(butnotnecessarilythesameone)mustbesignedbyoron
behalfofeachpartytothecontract.
Itfollowsthatoralcontractsforthesaleoflandarevoid.
Wherepartieshaveenteredintoinformalarrangementsrelatingtoproperty,Equitymayhavearoletoplayin
renderingthetransactioneffective.Thishasbeenrecognizedexplicitlybystatute,sincetheformality
requirementsforthecreationoftrustsofland2 andcontractsforthesaleofland3 donotapplytothecreationor
operationofresulting,constructive,orimpliedtrusts.Consequently,thesetrustshaveasignificantroletoplayin
validatinginformalarrangementsrelatingtoproperty,asdoesthedoctrineofproprietaryestoppel.Theuseofsuch
equitabledoctrinestovalidateinformalpropertytransactionsis,however,controversial.Forexample,asregards
estoppel,Dixonhassaid:4
Ifstatuterequirestheclaimantsallegedpropertyrighttohavebeencreatedwithacertaintypeofformality,
why,intheabsenceofsuchformality,cantheclaimantruntothebackdoor,breakinusingestoppelasa
jemmy,andrunoffwithsomeorallofthelandownersproprietaryvaluables?
Thisisanimportantquestion,whichisequallyapplicabletotheroleoftrustsinthisarea.Thereisatension
betweenrequiredformalitiesandconsiderationsoffairness,whichwillbeapparentthroughoutthischapter.
(b)EquitableIntervention
Difficultissuesarisingfrominformalpropertyarrangementstypicallyoccurwherepropertyispurchasedbya
coupleandisregisteredinthenameofoneofthemonly,eventhoughtheybothcontributetothepurchaseprice,
eitherdirectlybypaymenttothevendororindirectlybymakingmortgagepayments.Similarproblemsarisewhere
thepropertyisregisteredintheirjointnames,buttheyhavemadedifferentfinancialcontributionstoitspurchase.
Ineithersituation,issueswillariseconcerningtheidentificationofeachpartysrightsinthepropertyifthe
relationshipbreaksdown.Ifthecouplearemarried,theirrightswillbedeterminedbythecourtsdiscretionary
powerstogrant(p.421) ancillaryrelief.5 Butiftheyareunmarried,thereisnostatutoryjurisdictiontodetermine
theirpropertyrights.ThisiswhereEquitymayhaveasignificantroletoplayindeterminingtheirproprietary
interests.Therearesixdifferentequitablemechanisms,whichmayassistinthedeterminationoftheseinterests.
(i)Expresstrust
Wherelandhasbeenregisteredatlawinthenameofoneorbothoftheparties,thebeneficialinterestsinthat
propertymayhavebeendeterminedbyanexpressdeclarationoftrust.6 Suchatrustwillneedtobeevidencedin
signedwritingtobeenforceable.7 Butwheretherelationshipbetweenthepartiesisdomestic,ratherthan
commercial,itisunlikelythattheywillhaveconsideredwhattheirrespectivebeneficialinterestsintheproperty
mightbe,letalonepreparedanywrittendocumenttoidentifythoseinterests.Consequently,resultingand
constructivetrustsarelikelytobemuchmoresignificantindeterminingwhattheirbeneficialinterestsare,since
theydonotneedtobeevidencedinwriting.8
(ii)Theresultingtrust
Aresultingtrustmayarisewhereonepartyhascontributedtothepurchasepriceofpropertythatisregisteredin
thenameofanother,9 sinceitwillbepresumedthatthepayerintendedthepropertytobeheldbytheotherparty
ontrustforhimorher.Thepayersbeneficialinterestwillbelimitedtothevalueofhisorherfinancialcontribution.
Theresultingtrustcannotreflectothercontributions,whethertheyareindirectfinancialcontributionstothe
mortgageornonfinancialcontributionsrelatingtotherunningofthehome.10 Ithasbeenrecognized,atleastin
thecontextofacohabitingcouplewhopurchaseapropertyintheirjointnamesfortheirjointoccupation,thatthe
resultingtrustwillhavenoroletoplayindeterminingtheirbeneficialinterestsinthefamilyhome,regardlessof
whethertheyhavemadeafinancialcontributiontotheacquisitionoftheproperty.11 Thisispartlyjustifiedfor
policyreasons,sinceinflationinpropertypricesmeansthatthedivisionofpropertywithreferencetoinitial
financialcontributionswouldproduceanunjustresult.12
(iii)Theremedialconstructivetrust
Atonetime,aconstructivetrustofthehomewasrecognizedsimplyonthegroundsofjusticeandgood
conscience13 thiscanbecharacterizedasaremedialconstructivetrust.14 Suchatrustwassubsequently
15
rejected15 onthegroundthattherecognitionofinterestsinpropertyneedstobeprincipledandnotsimply
determinedbyreferencetotheexerciseofjudicialdiscretion.
(p.422) (iv)Theinstitutionalconstructivetrust
Aninstitutionalconstructivetrust,whicharisesbyoperationoflawwherethedefendantacted
unconscionably,16 mayberelevantwherethepropertyhasbeenacquiredbyonepartyandanotherassertsa
beneficialinterestinit.Thisisparticularlysignificantinthecommercialcontext,wherethepropertyhasbeen
acquiredtobedevelopedbybothpartiesasajointventureandthedefendantwhohaslegaltitletoitwishesto
excludetheotherfromthearrangement.17
(v)Thecommonintentionconstructivetrust
Thetrustthathasbeenofparticularsignificanceindeterminingbeneficialinterestsinthefamilyhomehasbeen
thesocalledcommonintentionconstructivetrust.Thisarisesfromanagreementorunderstandingoftheparties
astobeneficialinterestsinthepropertyandwhattheextentofthoseinterestsmightbe.Beingaconstructive
trust,theagreementorunderstandingisenforceableeventhoughitisnotevidencedbywriting.Since,however,
thetrustisconstructedbyreferencetothepartiescommonintentionsratherthanunconscionableconduct,this
trustisdistinctfromaninstitutionalconstructivetrust.Itispreferablyanalysedasanimpliedtrust.18
(vi)Proprietaryestoppel
Thisisanotherequitabledoctrine,whichmayberelevanttoidentifyabeneficialinterestinpropertyownedatlaw
byanotherparty.Theessenceofthisdoctrineisthat,wheretheclaimanthasrelied,tohisorherdetriment,onan
assurancefromthedefendantthat,theclaimantwillacquireaninterestinthedefendantsproperty,thecourtmay
recognizethattheclaimanthasabeneficialinterestinthatproperty.
2.CommonIntentionConstructiveTrusts
(a)TheBackground
Thecommonintentionconstructivetrusthasprovedtobeespeciallysignificantindeterminingthebeneficial
interestsinahouseboughtbyacohabitingcoupleasthefamilyhome.Iftheirrelationshipendsitwillbe
necessarytoconsidertheextentoftheirrespectiveinterestsintheproperty.Iftherehasbeenanexpress
declarationoftrustinwriting,thiswillbestraightforward,butinmostcasesthiswillnothaveoccurredandsothe
commonintentionconstructivetrustwillbecomerelevant.
Thereasonswhythereareparticularlyacutedifficultiesindealingwiththeproblemsarisingfromthebreakdownof
anunmarriedcouplesrelationshipwereidentifiedbyLordCollinsinJonesvKernottasrelatingto:19
theincreasingnumberofcohabitingcoupleswithjointinterestsintheirhomes,andtothefactthatcouples
(whethermarriedorunmarried)rarelymakeagreementsabouttheirrespectivesharesintheirhomes,and
totheenormousinflationinpropertypriceswhichhasmadethedivisionofownershipbyreferencetoinitial
financialcontributionsartificialandpotentiallyproductiveofinjustice.
(p.423) TheoriginsofthecommonintentionconstructivetrustcanbetracedbacktothedecisionsoftheHouse
ofLordsinPettitvPettit20 andGissingvGissing.21 Therequirementsofthecommonintentionconstructivetrust
wereidentifiedbyLordBridgeinLloydsBank plcvRosset,acasewherethepropertyhadbeenregisteredinthe
nameofoneofthepartiesonly.
LloydsBankplcvRosset[1991]1AC107,132(LordBridge)
Thefirstandfundamentalquestionwhichmustalwaysberesolvediswhether,independentlyofany
inferencetobedrawnfromtheconductofthepartiesinthecourseofsharingthehouseastheirhome
andmanagingthejointaffairs,therehasatanytimepriortoacquisition,orexceptionallyatsomelater
date,beenanyagreement,arrangementorunderstandingreachedbetweenthemthatthepropertyis
tobesharedbeneficially.Thefindingofanagreementorarrangementtoshareinthissensecanonly,I
think,bebasedonevidenceofexpressdiscussionsbetweenpartners,howeverimperfectly
rememberedandhoweverimprecisetheirtermsmayhavebeen.Onceafindingtothiseffectismadeit
willonlybenecessaryforthepartnerassertingaclaimtoabeneficialinterestagainstthepartner
entitledtothelegalestatetoshowthatheorshehasactedtohisorherdetrimentorsignificantly
alteredhisorherpositioninrelianceontheagreementinordertogiverisetoaconstructivetrustor
proprietaryestoppel.
Insharpcontrastwiththissituationistheverydifferentonewherethereisnoevidencetosupporta
findingofanagreementorarrangementtoshare,howeverreasonableitmighthavebeenfortheparties
toreachsuchanarrangementiftheyhadappliedtheirmindstothequestion,andwherethecourt
mustrelyentirelyontheconductofthepartiesbothasthebasisfromwhichtoinferacommon
intentiontosharethepropertybeneficiallyandastheconductreliedontogiverisetoaconstructive
trust.Inthissituationdirectcontributionstothepurchasepricebythepartnerwhoisnotthelegal
owner,whetherinitiallyorbypaymentofmortgageinstalments,willreadilyjustifytheinference
necessarytothecreationofaconstructivetrust.But,asIreadtheauthorities,itisatleastextremely
doubtfulwhetheranythinglesswilldo.
TheleadingcasesinyourLordshipsHousearePettittvPettitt[1970]AC777andGissingv
Gissing[1971]AC886.BothdemonstratesituationsinthesecondcategorytowhichIhavereferred
andtheirLordshipsdiscussatgreatlengththedifficultiestowhichthesesituationsgiverise
Outstandingexamplesontheotherhandofcasesgivingrisetosituationsinthefirstcategory
areEvesvEves[1975]1WLR1338andGrantvEdwards[1986]Ch638.Inboththesecases,where
thepartieswhohadcohabitedwereunmarried,thefemalepartnerhadbeenclearlyledbythemale
partnertobelieve,whentheysetuphometogether,thatthepropertywouldbelongtothemjointly.
InEvesvEvesthemalepartnerhadtoldthefemalepartnerthattheonlyreasonwhythepropertywas
tobeacquiredinhisnamealonewasbecauseshewasunder21andthat,butforherage,hewould
havehadthehouseputintotheirjointnames.Headmittedinevidencethatthiswassimplyan
excuse.Similarly,inGrantvEdwardsthefemalepartnerwastoldbythemalepartnerthattheonly
reasonfornotacquiringthepropertyinjointnameswasbecauseshewasinvolvedindivorce
proceedingsandthat,ifthepropertywereacquiredjointly,thismightoperatetoherprejudiceinthose
proceedings.AsNourseLJputit[1986]Ch638at649:
JustasinEvesvEves,thesefactsappeartometoraiseaclearinferencethattherewasan
understandingbetweenplaintiffanddefendant,oracommonintention,thattheplaintiffwas(p.
424) tohavesomesortofproprietaryinterestinthehouseotherwisenoexcusefornotputting
hernameontothetitlewouldhavebeenneeded.
Thesubsequentconductofthefemalepartnerineachofthesecases,whichthecourtrightlyheld
sufficienttogiverisetoaconstructivetrustorproprietaryestoppelsupportingherclaimtoaninterest
intheproperty,fellfarshortofsuchconductaswouldbyitselfhavesupportedtheclaiminthe
absenceofanexpressrepresentationbythemalepartnerthatshewastohavesuchaninterest.Itis
significanttonotethatthesharetowhichthefemalepartnersinEvesvEvesandGrantv
Edwardswereheldentitledwereonequarterandonehalfrespectively.Innosensecouldtheseshares
havebeenregardedasproportionatetowhatthejudgeintheinstantcasedescribedasaqualifying
contributionintermsoftheindirectcontributionstotheacquisitionorenhancementofthevalueofthe
housesmadebythefemalepartners.
Wheretherewasanexpresscommonintentiontosharethebeneficialinterest,itwastheclaimantsdetrimental
relianceonthatintentionthatwasconsideredtomakeitunconscionableforthedefendanttodenytheclaimants
beneficialinterestintheproperty.Thealternativeapproach,ofinferringacommonintentionfromcontributionsto
thepurchaseprice,wascriticizedbecauseitfailedtotakeintoaccountnonfinancialcontributions,suchastothe
runningofthehome.InStack vDowden,LadyHalesaid:22
Thereisundoubtedlyanargumentforsaying,asdidtheLawCommissioninSharingHomes,ADiscussion
Paper,[2002,No.278]para4.23,thattheobservations,whichwerestrictlyobiterdicta,ofLordBridgeof
HarwichinLloydsBank plcvRossett[1991]1AC107havesetthathurdlerathertoohighincertain
respects.
Intheabsenceofanyexpressevidenceofacommonintention,therewasatendencyforthecourtstodetermine
theextentoftheclaimantsbeneficialinterestbyreferencetowhatthecourtconsideredtobefairinthelightof
thewholecourseofdealingbetweenthepartiesinrelationtotheproperty.InOxleyvHiscock ,ChadwickLJ
said:23
But,inacasewherethereisnoevidenceofanydiscussionbetween[theparties]astotheamountofthe
sharewhicheachwastohaveandeveninacasewheretheevidenceisthattherewasnodiscussionon
thatpointthequestionstillrequiresananswer.Itmustnowbeacceptedthat(atleastinthiscourtand
below)theansweristhateachisentitledtothatsharewhichthecourtconsidersfairhavingregardtothe
wholecourseofdealingbetweentheminrelationtotheproperty.And,inthatcontext,thewholecourseof
dealingbetweentheminrelationtothepropertyincludesthearrangementswhichtheymakefromtimeto
timeinordertomeettheoutgoings(forexample,mortgagecontributions,counciltaxandutilities,repairs,
insuranceandhousekeeping)whichhavetobemetiftheyaretoliveinthepropertyastheirhome.
Thiscameveryclosetoresurrectingthediscreditedremedialconstructivetrustsolution.24
(p.425) TheHouseofLordsreconsideredtherequirementsforthecommonintentionconstructivetrustinStack v
Dowden.25 Whilstpurportingtobuildontheoldauthorities,thisdecisionhasputthistrustonanewfooting,such
thattherequirementsderivefromthatdecisionandsubsequentauthorities.AllfivejudgesinStack vDowdengave
reasonedjudgments,buttheleadingjudgmentwasthatofLadyHale,withwhichthreeoftheotherjudgesagreed.
AlthoughLordNeubergeragreedwiththeresult,headoptedverydifferentreasoning.26 ThedecisioninStack v
DowdenwassubsequentlyclarifiedbytheSupremeCourtinJonesvKernott.27
(b)TheKeyPrinciples
Whendeterminingthenatureandextentofthebeneficialinterestsofacohabitingcoupleinthefamilyhome,the
relevantprinciplesareasfollows.
(i)Expressdeclarationoftrust
Regardlessofwhetherthepropertyhasbeenconveyedintothenamesofonepartyorbothofthem,thebeneficial
interestmayhavebeenallocatedbythepartiesexpresslyinwriting,sothatitwillbeheldonanexpresstrust.28
(ii)Thepresumptions
Wherethereisnoexpresstrust,itistobepresumedthatthebeneficialinterestinthepropertymirrorsthelegal
interest.ThisisconsistentwithmaximthatEquityfollowstheLaw.29 Itfollowsthatitisnecessarytodistinguish
betweencasesofsoleandjointlegalownership.30
(1)Wherethepropertyisregisteredinthenameofonepartyonly,itistobepresumedthatthatpartyhas
thesolebeneficialinterestinthepropertyandtheotherpartyhasnone.
Althoughtheremighthavebeenacontinuingroleforaresultingtrusttobepresumedwherethepropertyhas
beenregisteredinthenameofonepartyonlyandtheotherhascontributedtothepurchaseprice,31 the
PrivyCouncilinAbbottvAbbott32 subsequentlyrejectedtheresultingtrusteveninthatcontext,because
thelawhasmovedoninresponsetochangingsocialandeconomicconditions.33
(2)Wherethepropertyisregisteredinthenamesofbothparties,theybothhaveabeneficialinterestinit
anditispresumedthattheirbeneficialinterestsaredividedequally.AsLordNeubergersaidinStack v
Dowden:34
(p.426) Intheabsenceofanyrelevantevidenceotherthanthefactthattheproperty,whetherahouseora
flat,acquiredasahomeforthelegalcoownersisinjointnames,thebeneficialownershipwillalsobe
joint,sothatitisheldinequalshares.Thiscanbesaidtoresultfromthemaximsthatequityfollowsthe
lawandequalityisequity.Onalesstechnical,andsomemightsaymorepractical,approach,itcanalso
bejustifiedonthebasisthatanyothersolutionwouldbearbitraryorcapricious.
Thishasbeendescribedasthedefaultoption.35 Thereisnoneedtoproveanyfinancialcontributiontothe
acquisitionofthepropertyforabeneficialinteresttobepresumed,sincethissimplyfollowsfromtheproperty
beingconveyedintothenamesofbothparties.Itfollowsthatthishasnothingtodowiththepresumptionofa
resultingtrust,sincethatpresumptiondependsonapartycontributingtothepurchasepriceoftheproperty.36
(iii)Thepresumptionsarerebuttable
Bothpresumptionscanberebutted.InStack vDowden37 LadyHalesaid:
Theonusisuponthepersonseekingtoshowthatthebeneficialownershipisdifferentfromthelegal
ownership.Soinsoleownershipcasesitisuponthenonownertoshowthathehasanyinterestatall.In
jointownershipcases,itisuponthejointownerwhoclaimstohaveotherthanajointbeneficialinterest.
(1)Wherethepropertyisregisteredinthenameofonepartyonly,theotherwillfirstneedtoestablishthat
heorshewasintendedtohaveabeneficialinterestinthepropertyand,havingdoneso,whatproportionof
thebeneficialinterestheorshewasintendedtohave.38 Theburdenofprovingabeneficialinterestisa
heavyone.
(2)Wherethepropertyisregisteredinthenamesofbothparties,thepartywhoclaimsthatthebeneficialinterest
isapportionedotherwisethanequallybearstheburdenofprovingthatadifferentapportionmentwasintended.But
thepresumptionofequalbeneficialownershipisnotrebuttedeasily.InJonesvKernott,39 LadyHaleandLord
Walkersaid:
achallengetothepresumptionofbeneficialjointtenancyisnottobelightlyembarkedonIfacouplein
anintimaterelationship(whethermarriedorunmarried)decidetobuyahouseorflatinwhichtolive
together,almostalwayswiththehelpofamortgageforwhichtheyarejointlyandseverallyliable,thatison
thefaceofthingsastrongindicationofemotionalandeconomiccommitmenttoajointenterprise.Thatis
soeveniftheparties,forwhateverreason,failtomakethatclearbyanyovertdeclarationoragreement.
Theexistenceofthisjointenterprisestronglysupportsthepresumptionofequalbeneficialinterestsinthe
property.
(p.427) (iv)Rebuttingthepresumptions
Thetestforrebuttingthepresumptionsrelatestotheidentificationofthecommonintentionofthepartiesasto
whetherapartyhasabeneficialinterestand,ifheorshedoes,whatthesizeofthatinterestis.Thiscommon
intentionwasdescribedbyLadyHaleinStack vDowden40 asfollows:
Thelawhasindeedmovedoninresponsetochangingsocialandeconomicconditions.Thesearchisto
ascertainthepartiessharedintentions,actual,inferredorimputed,withrespecttothepropertyinthelight
oftheirwholecourseofconductinrelationtoit
TheviewoftheLawCommissioninSharingHomes(2002,No.278,para4.27)onthequantificationof
beneficialentitlement[is]:
Ifthequestionreallyisoneofthepartiescommonintention,webelievethatthereismuchtobe
saidforadoptingwhathasbeencalledaholisticapproachtoquantification,undertakingasurvey
ofthewholecourseofdealingbetweenthepartiesandtakingaccountofallconductwhichthrows
lightonthequestionwhatshareswereintended.
Thatmaybethepreferablewayofexpressingwhatisessentiallythesamethought,fortworeasons.First,
itemphasisesthatthesearchisstillfortheresultwhichreflectswhatthepartiesmust,inthelightoftheir
conduct,betakentohaveintended.Second,therefore,itdoesnotenablethecourttoabandonthatsearch
infavouroftheresultwhichthecourtitselfconsidersfair.
(a)Relevantfactors
ThefollowingfactorswereidentifiedbyLadyHaleinStack vDowdenasbeingsignificantwhendetermining
whetherthepresumptionshadbeenrebutted:41
Inlaw,contextiseverythingandthedomesticcontextisverydifferentfromthecommercialworld.Each
casewillturnonitsownfacts.Manymorefactorsthanfinancialcontributionsmayberelevanttodivining
thepartiestrueintentions.Theseinclude:anyadviceordiscussionsatthetimeofthetransferwhichcast
lightupontheirintentionsthenthereasonswhythehomewasacquiredintheirjointnamesthereasons
why(ifitbethecase)thesurvivorwasauthorisedtogiveareceiptforthecapitalmoneysthepurposefor
whichthehomewasacquiredthenatureofthepartiesrelationshipwhethertheyhadchildrenforwhom
theybothhadresponsibilitytoprovideahomehowthepurchasewasfinanced,bothinitiallyand
subsequentlyhowthepartiesarrangedtheirfinances,whetherseparatelyortogetherorabitofbothhow
theydischargedtheoutgoingsonthepropertyandtheirotherhouseholdexpenses.Whenacoupleare
jointownersofthehomeandjointlyliableforthemortgage,theinferencestobedrawnfromwhopaysfor
whatmaybeverydifferentfromtheinferencestobedrawnwhenonlyoneisownerofthehome.The
arithmeticalcalculationofhowmuchwaspaidbyeachisalsolikelytobelessimportant.Itwillbeeasier
todrawtheinferencethattheyintendedthateachshouldcontributeasmuchtothehouseholdasthey
reasonablycouldandthattheywouldsharetheeventualbenefitorburdenequally.Thepartiesindividual
charactersandpersonalitiesmayalsobeafactorindecidingwheretheirtrueintentionslay.Inthe
cohabitationcontext,mercenaryconsiderationsmaybemoretotheforethantheywouldbeinmarriage,
butitshouldnotbeassumedthattheyalwaystakeprideofplaceovernaturalloveandaffection.Atthe
endoftheday,havingtakenallthisintoaccount,casesinwhichthejointlegalownersaretobetakento
haveintendedthattheirbeneficialinterestsshouldbedifferentfromtheirlegalinterestswillbevery
unusual.
(p.428) Thisisnot,ofcourse,anexhaustivelist.Theremayalsobereasontoconcludethat,whateverthe
partiesintentionsattheoutset,thesehavenowchanged.Anexamplemightbewhereonepartyhas
financed(orconstructedhimself)anextensionorsubstantialimprovementtotheproperty,sothatwhat
theyhavenowissignificantlydifferentfromwhattheyhadthen.
Thesefactorsareverywideand,thelistprovidedbyBaronessHaleisnotexhaustive:ineffect,theCourtcantake
intoaccountanythingitconsidersrelevantwhendecidingwhetherthepresumptionshavebeenrebutted.Itis
importanttonotethatthesefactorsarenotbeingconsideredtoshowthattheclaimanthaddetrimentallyreliedon
anyunderstandingthatheorshewouldacquireabeneficialinterest,sothisisasignificantdeparturefromthe
approachadoptedinLloydsBank plcvRosset,42 butonlyasevidencetodeterminewhatbothintended.Itis
unclearwhysomeofthesefactorsarerelevantindeducingacommonintentionrelatingtobeneficial
interests,43 suchasthefactthattheyhavehadchildren.Althoughthefactorspurporttobeofevidential
significance,theycouldeasilybecomeasmokescreenbehindwhichthecourtcanexerciseitsdiscretionto
determineanallocationofthebeneficialinterestthatisfairandjust,eventhoughthecourtisnotmeanttoreason
inthisway.44
(b)Expresscommonintention
Ifitcanbeshownthatthepartieshadanexpressunderstandingoragreementastotheapportionmentofthe
beneficialinterestintheproperty,thiswillrebuttherelevantpresumption,eventhoughthisapportionmentdoes
notcorrespondwiththeallocationoflegaltitletothepropertyanddoesnotcomplywiththerelevantformalities
requiredtocreateanenforceableexpresstrust.Thisexpresscommonintentionwillbeestablishedonthefacts,
withouttheneedtoconsiderthefactorsidentifiedbyLadyHale.
(c)Inferredcommonintention
Ifanexpresscommonintentionastotheallocationofthebeneficialinterestscannotbeestablished,thenitis
necessarytoconsiderwhethersuchanintentioncanbeinferred.Aninferredintentisanactualintent,albeitone
thatcanbededucedobjectivelyfromthepartiesconduct.45 ThefactorsidentifiedbyLadyHalewillbeof
particularsignificanceininferringacommonintention.
(d)Imputedcommonintention
ThemostcontroversialaspectofLadyHalesanalysisofcommonintentionisheracceptancethatthisintention
mightbeimputed.ThedifferencebetweeninferenceandimputationofintentionwasidentifiedbyLordNeuberger
inStack vDowden:46
Animputedintentionisonewhichisattributedtotheparties,eventhoughnosuchactualintentioncanbe
deducedfromtheiractionsandstatements,andeventhoughtheyhadnosuchintention.Imputation
involvesconcludingwhatthepartieswouldhaveintended,whereasinferenceinvolvesconcludingwhatthey
didintend.
(p.429) Theprocessofrecognizinganimputedcommonintentioncoulddisintegrateintoadeterminationofan
allocationofthebeneficialinterestthatthecourtconsiderstobefair.Indeed,SirTerenceEthertonhassaidthat
thereisnowahairsbreadthbetweenthe[commonintentionconstructivetrust]andaremedialconstructive
trust.47
TheroleofimputedintentionwascriticizedbyLordNeuberger,inStack vDowden:48
Whileanintentionmaybeinferredaswellasexpress,itmaynot,atleastinmyopinion,beimputed.That
appearstometobeconsistentbothwithnormalprinciplesandwiththemajorityviewofthisHouse
inPettitvPettit[1970]AC777Thedistinctionbetweeninferenceandimputationmayappearafineone
butitisimportant
IamunhappywiththeformulationofChadwickLJinOxleyvHiscock [2005]Fam211atparagraph69
thatthebeneficialownershipshouldbeapportionedbyreferencetowhatisfairhavingregardtothewhole
courseofdealingbetween[theparties]inrelationtotheproperty.First,fairnessisnottheappropriate
yardstick.Secondly,theformulationappearstocontemplateanimputedintention.Thirdly,thewhole
courseofdealinginrelationtothepropertyistooimprecise,asitgivesinsufficientguidanceastowhat
isprimarilyrelevant,namelydealingswhichcastlightonthebeneficialownershipoftheproperty,andtoo
limited,asallaspectsoftherelationshipcouldberelevantinprovidingthecontextbyreferencetowhich
anyallegeddiscussion,statementandactionsmustbeassessed.Asalreadyexplained,Ialsodisagree
withChadwickLJsimplicitsuggestioninthesameparagraphthatthearrangementswhich[theparties]
makewithregardtotheoutgoings(otherthanmortgagerepayments)arelikelytobeofprimaryrelevance
totheissueoftheownershipofthebeneficialinterestinthehome.
IamrathermorecomfortablewiththeformulationoftheLawCommissioninSharingHomes,ADiscussion
Paper(LawCom.No.278),para4.27,alsoquotedinpara61ofBaronessHalesopinion,thatthecourt
shouldundertak[e]asurveyofthewholecourseofdealingbetweenthepartiestakingaccountofall
conductwhichthrowslightonthequestionwhatshareswereintended.Itisperhapsinevitablethatthis
formulationbegsthedifficultquestionsofwhatconductthrowslight,andwhatlightitthrows,asthose
questionsaresofactsensitive.Undertakingasurveyofthewholecourseofdealingsbetweentheparties
shouldnot,Ithink,atleastnormally,requiremuchdetailedorcontroversialevidence.Thatisnotmerelyfor
reasonsofpracticalityandcertainty.Asalreadyindicated,Iwouldexpectalmostallofthewholecourseof
dealingtoberelevantonlyasbackground:itiswithactionsdiscussionsandstatementswhichrelateto
thepartiesagreementandunderstandingastotheownershipofthebeneficialinterestinthehomewith
whichthecourtshould,atleastnormally,primarilybeconcerned.Otherwise,theenquiryislikelytobe
trespassingintowhatIregardastheforbiddenterritoriesofimputedintentionandfairness.
Itwasbecauseofthecontinueduncertaintyaboutthedifferencebetweeninferredandimputedintentionthatthe
judgesintheSupremeCourtreconsideredtheprinciplesunderlyingthecommonintentionconstructivetrust
inJonesvKernott.49 LadyHaleandLordWalkersaid:50
Itisalwayssalutarytobeconfrontedwiththeambiguitieswhichlateremergeinwhatseemedatthetime
tobecomparativelyclearlanguage.Theprimarysearchmustalwaysbeforwhatthepartiesactually
intended,tobededucedobjectivelyfromtheirwordsandtheiractions.Ifthatcanbediscovered,thenit
isnotopentoacourttoimposeasolutionuponthemincontradictiontothoseintentions,merelybecause
thecourtconsidersitfairtodoso.
(p.430) Themajorityinthatcase,consistingofLadyHale,LordWalker,andLordCollins,consideredthatthe
courtshouldprimarilybeconcernedwithsearchingforthepartiesactualsharedintentions,subjecttotwo
exceptionswhereanintentionwouldbeimputed:first,wherethepresumptionofresultingtrustmightapply
(althoughthiswillbeextremelyrareinthedomesticcontext)secondly,whereitisclearthatpartiesintendeach
tohaveabeneficialinterest(althoughthepartiesactualintentionsregardingthesizeofthoseinterestscannotbe
determined).LadyHaleandLordWalker,inajointjudgment,said:51
weacceptthatthesearchisprimarilytoascertainthepartiesactualsharedintentions,whetherexpressed
ortobeinferredfromtheirconduct.However,thereareatleasttwoexceptions.Thefirst,whichisnotthis
case,iswheretheclassicresultingtrustpresumptionapplies.Indeed,thiswouldberareinadomestic
context,butmightperhapsarisewheredomesticpartnerswerealsobusinesspartnersThesecond,
whichforreasonswhichwillappearlaterisinourviewalsonotthiscasebutwillarisemuchmore
frequently,iswhereitisclearthatthebeneficialinterestsaretobeshared,butitisimpossibletodivinea
commonintentionastotheproportionsinwhichtheyaretobeshared.Inthosetwosituations,thecourtis
driventoimputeanintentiontothepartieswhichtheymayneverhavehad.
LordDiplock,inGissingvGissing[1971]AC886,903,pointedoutthat,oncethecourtwassatisfiedthatit
wasthepartiescommonintentionthatthebeneficialinterestwastobesharedinsomeproportionorother,
thecourtmighthavetogiveeffecttothatcommonintentionbydeterminingwhatinallthecircumstances
wasafairshare.Anditisthatthoughtwhichispickedupinthesubsequentcases,culminatinginthe
judgmentofChadwickLJinOxleyvHiscock [2005]Fam211inparticularthepassageinpara69which
wasgivenqualifiedapprovalinStack vDowden:theansweristhateachisentitledtothatsharewhichthe
courtconsidersfairhavingregardtothewholecourseofdealingbetweentheminrelationtotheproperty.
ChadwickLJwasnottheresayingthatfairnesswasthecriterionfordeterminingwhetherornotthe
propertyshouldbeshared,buthewassayingthatthecourtmighthavetoimputeanintentiontothe
partiesastotheproportionsinwhichthepropertywouldbeshared.Indeducingwhattheparties,as
reasonablepeople,wouldhavethoughtattherelevanttime,regardwouldobviouslybehadtotheirwhole
courseofdealinginrelationtotheproperty.
However,whiletheconceptualdifferencebetweeninferringandimputingisclear,thedifferenceinpractice
maynotbesogreat.Inthisarea,asinmanyothers,thescopeforinferenceiswide.Thelawrecognizes
thatalegitimateinferencemaynotcorrespondtoanindividualssubjectivestateofmind.AsLordDiplock
alsoputitinGissingvGissing[1971]AC886,906:
AsinsomanybranchesofEnglishlawinwhichlegalrightsandobligationsdependuponthe
intentionsofthepartiestoatransaction,therelevantintentionofeachpartyistheintentionwhich
wasreasonablyunderstoodbytheotherpartytobemanifestedbythatpartyswordsorconduct
notwithstandingthathedidnotconsciouslyformulatethatintentioninhisownmindorevenacted
withsomedifferentintentionwhichhedidnotcommunicatetotheotherparty.
ThispointhasbeendevelopedbyNickPiska,Intention,FairnessandthePresumptionofResultingTrust
afterStackvDowden(2008)71MLR120.Heobserves,atpp127128:
Subjectiveintentionscanneverbeaccesseddirectly,sothecourtmustalwaysdirectitselftoa
considerationofthepartiesobjectiveintentionsthroughacarefulconsiderationoftherelevantfacts.
Thepointisthattheimputation/inferencedistinctionmaywellbeadistinctionwithoutadifference
withregardtotheprocessofdeterminingpartiesintentions.Itisnotthatthepartiessubjective
intentionsareirrelevantbutratherthatafindingastosubjectiveintentioncanonlybemadeonan
objectivebasis.
(p.431) Whereimputationofanintentionisrequired,thecourtmustconsiderwhatisfairhavingregardtothe
wholecourseofdealinginrespectoftheproperty,52 whichwillincludethefinancialcontributionsmadebythe
partiesbutotherfactorsaswell,includingthefactorsidentifiedbyLadyHaleinStack vDowden.Crucially,as
LadyHaleandLordWalkerrecognized:53
Inacasesuchasthis,wherethepartiesalreadysharethebeneficialinterest,andthequestioniswhat
theirinterestsareandwhethertheirinterestshavechanged,thecourtwilltrytodeducewhattheiractual
intentionswereattherelevanttime.Itcannotimposeasolutionuponthemwhichiscontrarytowhatthe
evidenceshowsthattheyactuallyintended.Butifitcannotdeduceexactlywhatshareswereintended,it
mayhavenoalternativebuttoaskwhattheirintentionsasreasonableandjustpeoplewouldhavebeen
hadtheythoughtaboutitatthetime.Thisisafallbackpositionwhichsomecourtsmaynotwelcome,but
thecourthasadutytocometoaconclusiononthedisputeputbeforeit.
Butsuchanapproachremovesanyrationaldifferencebetweeninferenceandimputation.ThatiswhyLords
WilsonandKerr,whilstagreeingwiththeresultinJonesvKernott,disagreedwiththeapproachoftheotherthree
judges.LordKerrsaid:54
Whileitmaywellbethattheoutcomeinmanycaseswillbethesame,whetheroneinfersanintentionor
imputesit,thatdoesnotmeanthattheprocessbywhichtheresultisarrivedatismoreorlessthesame.
Indeed,itseemstomethatamarkedlyandobviouslydifferentmodeofanalysiswillgenerallyberequired

Itishardlycontroversialtosuggestthatthepartiesintentionshouldbegiveneffecttowhereitcanbe
ascertainedandthat,althoughdiscussionsbetweenthemwillalwaysbethemostreliablebasisonwhich
todrawaninferenceastothatintention,thesearenottheonlycircumstancesinwhichthatexercisewill
bepossible.Thereisanaturalinclinationtopreferinferringanintentiontoimputingone.Iftheparties
intentioncanbeinferred,thecourtisnotimposingasolution.Itis,instead,decidingwhatthepartiesmust
betakentohaveintendedandwherethatispossibleitisobviouslypreferabletothecourtsenforcinga
resolution.Buttheconscientiousquesttodiscoverthepartiesactualintentionshouldceasewhenit
becomescleareitherthatthisissimplynotdeduciblefromtheevidenceorthatnocommonintention
exists.Itwouldbeunfortunateiftheconceptofinferringweretobestrainedsoastoavoidtheless
immediatelyattractiveoptionofimputation.Insummary,therefore,Ibelievethatthecourtshouldanxiously
examinethecircumstancesinorder,wherepossible,toascertainthepartiesintentionbutitshouldnotbe
reluctanttorecognise,whenitisappropriatetodoso,thatinferenceofanintentionisnotpossibleandthat
imputationofanintentionistheonlycoursetofollow.
Inthiscontext,itisimportanttounderstandwhatismeantbyimputinganintention.Therearereasonsto
questiontheappropriatenessofthenotionofimputationinthisareabut,ifitiscorrecttousethisasa
concept,IstronglyfavourthewayinwhichitwasdescribedbyLordNeubergerinStack vDowden[2007]2
AC431,wherehesaidthatanimputedintentionwasonewhichwasattributedtotheparties,eventhough
nosuchactualintentioncouldbededucedfromtheiractionsandstatements,andeventhoughtheyhadno
suchintention.Thisexpositiondrawsthenecessarystrongdemarcationlinebetweenattributingan
intentiontothepartiesandinferringwhattheirintentionwasinfact.
ThereasonthatIquestiontheaptnessofthenotionofimputinganintentionisthat,inthefinalanalysis,
theexerciseiswhollyunrelatedtoascertainmentofthepartiesviews.Itinvolvesthecourtdecidingwhatis
fairinlightofthewholecourseofdealingwiththeproperty.Thatdecisionhasnothingtodowithwhatthe
partiesintended,orwhatmightbesupposedwouldhavebeentheirintentionhadthey(p.432) addressed
thatquestion.Inmanyways,itwouldbepreferabletohaveastarkchoicebetweendecidingwhetheritis
possibletodeducewhattheirintentionwasand,whereitisnot,decidingwhatisfair,withoutelliptical
referencestowhattheirintentionmighthaveorshouldhavebeen.Butimputingintentionhasentered
thelexiconofthisareaoflawanditisprobablyimpossibletodiscarditnow.
Whilethedichotomybetweeninferringandimputinganintentionremains,however,itseemstomethatit
isnecessarythattherebeawellmarkeddividinglinebetweenthetwo.Assoonasitisclearthatinferring
anintentionisnotpossible,thefocusofthecourtsattentionshouldbesquarelyonwhatisfairand,asI
havesaid,thatisanobviouslydifferentexaminationthanisinvolvedindecidingwhatthepartiesactually
intended.
Similarly,LordWilsonsaid:55
InthelightofthecontinuedfailureofParliamenttoconferuponthecourtslimitedredistributivepowersin
relationtothepropertyofeachpartyuponthebreakdownofanonmaritalrelationship,Iwarmlyapplaud
thedevelopmentofthelawofequity,spearheadedbyBaronessHaleofRichmondandLordWalkerof
GestingthorpeintheirspeechesinStack vDowden[2007]2AC432,andreiteratedintheirjudgmentin
thepresentappeal,thatthecommonintentionwhichimpressesaconstructivetrustuponthelegal
ownershipofthefamilyhomecanbeimputedtothepartiestotherelationship
Whereequityisdriventoimputethecommonintention,howcanitdosootherthanbysearchfortheresult
whichthecourtitselfconsidersfair?
Unlikethemajority,theminorityconsideredthattheimputationofanintentionhadnothingtodowithwhatthe
partiesdidintendorcouldbeconsideredtohaveintendedhadtheythoughtaboutit,andthekeyconsideration
wasoneoffairness.
Theeffectofthedecisionofthemajorityisthatthereshouldbeaclearconceptualdivisionbetweeninferringand
imputingacommonintention.Aninferredcommonintentionisanactualintention,whichcanonlybeestablished
ontheevidence.Ifsuchanintentioncannotbeestablishedthenthecourtshouldseektoimputeanintention.This
isanobjectivetestwhichshouldbeassessedbyreferencetowhatreasonablepeoplewouldhaveintendedhad
theybeeninthepositionoftheparties.Awidevarietyoffactorsshouldbeconsideredinestablishingthis,butitis
dangeroustoresorttouncertainnotionsoffairness.Ifacommonintentioncannotbeimputedthentherelevant
presumption,suchasapresumptionofjointtenancywherethepropertyisregisteredinbothnames,willnothave
beenrebuttedsothepartieswillsharethevalueofthepropertyequally.
(e)Ambulatoryintention
Thecommonintentionofthepartiesastotheallocationofthebeneficialinterestmightchangeovertime.Thishas
beencalledanambulatoryintention.InStack vDowden56 LadyHalesaid:
althoughthepartiesintentionsmaychangeoverthecourseoftime,producingwhatmynobleandlearned
friend,LordHoffmann,referredtointhecourseofargumentasanambulatoryconstructivetrust,atany
onetimetheirinterestsmustbethesameforallpurposes.Theycannotatoneandthesametimeintend,
forexample,ajointtenancywithsurvivorshipshouldoneofthemdiewhiletheyarestilltogether,atenancy
incommoninequalsharesshouldtheyseparateonamicabletermsafterthechildrenhavegrownup,and
atenancyincommoninunequalsharesshouldtheyseparateonacrimonioustermswhilethechildrenare
stillwiththem.
(p.433) Compellingevidencewillberequiredtoestablishachangeofintentionrelatingtothebeneficial
ownership.InStack vDowden57 LordNeubergersaid:
Itseemstomethatcompellingevidenceisrequiredbeforeonecaninferthat,subsequenttothe
acquisitionofthehome,thepartiesintendedachangeinthesharesinwhichthebeneficialownershipis
held.Suchevidencewouldnormallyinvolvediscussions,statementsoractions,subsequenttothe
acquisition,fromwhichanagreementorcommonunderstandingastosuchachangecanproperlybe
inferred.
Relevantevidencemightincludesignificantcapitalexpenditureonthepropertytoextendorimproveit,orthe
separationofthepartiesforasubstantialperiodoftime.58
(v)Acontinuingrolefortheresultingtrust?
InStack vDowden,59 LordNeubergerreachedthesameresultastheotherjudges,butbyadifferentroute,which

placedmoreemphasisonthepresumptionofaresultingtrust:
whilethedomesticcontextcangiverisetoverydifferentfactualconsiderationsfromthecommercial
context,Iamunconvincedthatthisjustifiesadifferentapproachinprincipletotheissueoftheownershipof
thebeneficialinterestinpropertyheldinjointnames.Intheabsenceofstatutoryprovisionstothecontrary,
thesameprinciplesshouldapplytoassesstheapportionmentofthebeneficialinterestasbetweenlegal
coowners,whetherinasexual,platonic,familial,amicableorcommercialrelationship.Ineachtypeof
case,oneisconcernedwiththeissueoftheownershipofthebeneficialinterestinpropertyheldinthe
namesoftwopeople,whohavecontributedtoitsacquisition,retentionorvalue
Wheretheonlyadditionalrelevantevidencetothefactthatthepropertyhasbeenacquiredinjointnames
istheextentofeachpartyscontributiontothepurchaseprice,thebeneficialownershipatthetimeof
acquisitionwillbeheld,inmyview,inthesameproportionsasthecontributionstothepurchaseprice.
Thatistheresultingtrustsolution.Theonlyrealisticalternativeinsuchacasewouldbetoadheretothe
jointownershipsolution.Thereisanargumenttosupporttheviewthatequalsharesshouldstillbetherule
incohabitationcases,onthebasisthatitmaybewhatmanypartiesmayexpectiftheypurchaseahome
injointnames,evenwithdifferentcontributions.However,Iconsiderthattheresultingtrustsolutionis
correctinsuchcircumstances
Therearealsopracticalreasonsforrejectingequalityandsupportingtheresultingtrustsolution.The
propertymaybeboughtinjointnamesforreasonswhichcastnolightonthepartiesintentionswithregard
tobeneficialownership.Itmaybethesolicitorsdecisionorassumption,thelenderspreferenceforthe
securityoftwoborrowers,orthehappenstanceofhowtheinitialcontactwiththesolicitorwasmade
Thereisalsoanimportantpointaboutconsistencyofapproachwithacasewherethepurchaseofahome
isinthenameofoneoftheparties.AsBaronessHaleobserves,wherethereisnoevidenceof
contributions,jointlegalownershipisreflectedinapresumptionofjointbeneficialownershipjustassole
legalownershipisreflectedinapresumptionofsolebeneficialownership.Wherethereis(p.
434) evidenceofthepartiesrespectivecontributionstothepurchaseprice(andnootherrelevantevidence)
andoneofthepartieshascontributedX%,thefactthatthepurchaseisinthesolenameoftheotherdoes
notpreventtheformerowningX%ofthebeneficialinterestonaresultingtrustbasis.Indeed,itisbecause
oftheresultingtrustpresumptionthatsuchownershiparises.Itseemstomethatconsistencysuggests
thatthepartywhocontributedX%ofthepurchasepriceshouldbeentitledtoX%(nomoreandnoless)of
thebeneficialinterestinthesamewayifheisacopurchaser.Theresultingtrustpresumptionarises
becauseitisassumedthatneitherpartyintendedagiftofanypartofhisowncontributiontotheother
party.Thatwouldseemtometoapplytocontributionsirrespectiveofthenameornamesinwhichthe
propertyconcernedisacquiredandheld,asamatterofbothprincipleandlogic
Accordingly,inmyjudgment,wherethereareunequalcontributions,theresultingtrustsolutionistheone
tobeadopted.However,itisnomorethanapresumption,albeitanimportantone
Inmanycases,therewill,inadditiontothecontributions,beotherrelevantevidenceasatthetimeof
acquisition.Suchevidencewouldoftenenablethecourttodeduceanagreementorunderstanding
amountingtoanintentionastothebasisonwhichthebeneficialinterestswouldbeheld.Suchanintention
maybeexpress(althoughnotcomplyingwiththerequisiteformalities)orinferred,andmustnormallybe
supportedbysomedetriment,tojustifyinterventionbyequity.Itwouldbeinthiswaythattheresulting
trustwouldbecomerebuttedandreplaced,or(conceivably)supplemented,byaconstructivetrust
Forinstance,thefactthatthepartiesareinacloseandlovingrelationshipwouldrenderiteasier,thanina
normalcontractualcontext,todisplacetheresultingtrustsolutionwith,say,anequaldivisionofthe
beneficialownership.Thatisbecauseadeparturefromtheresultingtrustsolutionnormallyinvolvesa
gratuitoustransferofvaluefromonepartytotheother
Inotherwords,wheretheresultingtrustpresumption(orindeedanyotherbasisofapportionment)applies
atthedateofacquisition,Iamunpersuadedthat(saveperhapsinamostunusualcase)anythingother
thansubsequentdiscussions,statementsoractions,whichcanfairlybesaidtoimplyapositiveintention
todepartfromthatapportionment,willdotojustifyachangeinthewayinwhichthebeneficialinterestis
owned.Tosaythatfactorssuchasalongrelationship,children,ajointbankaccount,andsharingdaily
outgoingsofthemselvesareenough,orevenofpotentialcentralimportance,appearstomenotmerely
wronginprinciple,butarecipeforuncertainty,subjectivity,andalongandexpensiveexaminationoffacts.
Itcouldalsobesaidtobearbitrary,as,ifsuchfactorsofthemselvesjustifyadeparturefromtheoriginal
apportionment,Ifindithardtoseehowitcouldbetoanythingotherthanequality.Ifadeparturefromthe
originalapportionmentwassolelybasedonsuchfactors,itseemstomethatthejudgewouldalmost
alwayshavetoreachanallornothingdecisionSubject,perhaps,toexceptionalcases,whose
possibilityitwouldbeunrealisticnottoacknowledge,anargumentforanalterationinthewayinwhichthe
beneficialinterestisheldcannot,inmyopinion,succeed,unlessitcanbeshownthattherewasa
discussion,statementoractionwhich,viewedinitscontext,namelythepartiesrelationship,impliedan
actualagreementorunderstandingtoeffectsuchanalteration.
So,accordingtoLordNeuberger,wherethepartieshavemadefinancialcontributionstothepurchaseprice,their
beneficialinterestsshouldbepresumedtobeheldinthesameproportionsastheirfinancialcontributionsthrough
theapplicationofthepresumedresultingtrust.Thispresumptioncanberebuttedbyacommonintentionthatthe
beneficialinterestsweredifferent,butthiscouldonlybeestablishedexpresslyorimpliedlyandcouldnotbe
imputed.
WhilstLordNeubergersapproachisattractive,asbeingconsistentwiththeprinciplesthatunderlietheresulting
trustandasproducingamorecoherentlegalregime,itisanapproach(p.435) thatisclearlyinconsistentwith
theapproachoftheotherjudgesinStack vDowden.LordHopesaid:60
Wherethepartieshavedealtwitheachotheratarmslengthitmakessensetostartfromthepositionthat
thereisaresultingtrustaccordingtohowmucheachpartycontributedButcohabitingcouplesareina
differentkindofrelationship.Theplacewheretheylivetogetheristheirhome.Livingtogetherisanexercise
ingiveandtake,mutualcooperationandcompromise.Whopaysforwhatinregardtothehomehastobe
seeninthewidercontextoftheiroverallrelationship.Amorepractical,downtoearth,factbasedapproach
iscalledforintheircase.Theframeworkwhichthelawprovidesshouldbesimple,anditshouldbe
accessible.
Similarly,LordWalkersaid:61
Inacaseaboutbeneficialownershipofamatrimonialorquasimatrimonialhome(whetherregisteredinthe
nameofoneortwolegalowners)theresultingtrustshouldnotinmyopinionoperateasalegal
presumption,althoughitmay(inanupdatedformwhichtakesaccountofallsignificantcontributions,direct
orindirect,incashorinkind)happentobereflectedinthepartiescommonintention.
TheresultingtrustapproachwasspecificallyrejectedbyLadyHaleandLordWalkerinJonesvKernott:62
Itisnotpossibleatoneandthesametimetohaveapresumptionorstartingpointofjointbeneficial
interestsandapresumption(letalonearule)thatthepartiesbeneficialinterestsareinproportiontotheir
respectivefinancialcontributions.
Inthecontextoftheacquisitionofafamilyhome,thepresumptionofaresultingtrustmadeagreatdeal
moresensewhensocialandeconomicconditionsweredifferentandwhenitwastemperedbythe
presumptionofadvancement.Thebreadwinnerhusbandwhoprovidedthemoneytobuyahouseinhis
wifesname,orintheirjointnames,waspresumedtobemakingheragiftofit,orofajointinterestinit.
Thatsimpleassumptionwhichwasitselfanexerciseinimputinganintentionwhichthepartiesmaynever
havehadwasthoughtunrealisticinthemodernworldbythreeoftheirLordshipsinPettitvPettit[1970]
AC777.Itwasalsodiscriminatoryasbetweenmenandwomenandmarriedandunmarriedcouples.That
problemmighthavebeensolvedhadequitybeenabletoextendthepresumptionofadvancementto
unmarriedcouplesandremovethesexdiscrimination.Instead,thetoolwhichequityhaschosentodevelop
lawisthecommonintentionconstructivetrust
Thetimehascometomakeitclear,inlinewithStack vDowden[2008]1FLR1451(seealsoAbbottv
Abbott[2008]1FLR1451),thatinthecaseofthepurchaseofahouseorflatinjointnamesforjoint
occupationbyamarriedorunmarriedcouple,wherebothareresponsibleforanymortgage,thereisno
presumptionofaresultingtrustarisingfromtheirhavingcontributedtothedeposit(orindeedtherestofthe
purchase)inunequalshares.Thepresumptionisthatthepartiesintendedajointtenancybothinlawand
inequity.Butthatpresumptioncanofcourseberebuttedbyevidenceofacontraryintention,whichmay
morereadilybeshownwherethepartiesdidnotsharetheirfinancialresources.
LordNeubergersprincipledresultingtrustapproachconsequentlydoesnotreflectEnglishlawalthoughit
remainsthepreferableapproachtothatwhichhasbeenadoptedbythecourts.63
(p.436) (vi)Summaryofprinciples
ThekeyprinciplesrelatingtocommonintentionconstructivetrustsweresummarizedbyLadyHaleandLord
WalkerinJonesvKernottasfollows:64
Insummary,therefore,thefollowingaretheprinciplesapplicableinacasesuchasthis,whereafamily
homeisboughtinthejointnamesofacohabitingcouplewhoarebothresponsibleforanymortgage,but
withoutanyexpressdeclarationoftheirbeneficialinterests.(1)Thestartingpointisthatequityfollowsthe
lawandtheyarejointtenantsbothinlawandinequity.(2)Thatpresumptioncanbedisplacedbyshowing
(a)thatthepartieshadadifferentcommonintentionatthetimewhentheyacquiredthehome,or(b)that
theylaterformedthecommonintentionthattheirrespectiveshareswouldchange.(3)Theircommon
intentionistobededucedobjectivelyfromtheirconduct:therelevantintentionofeachpartyisthe
intentionwhichwasreasonablyunderstoodbytheotherpartytobemanifestedbythatpartyswordsand
conductnotwithstandingthathedidnotconsciouslyformulatethatintentioninhisownmindorevenacted
withsomedifferentintentionwhichhedidnotcommunicatetotheotherparty:LordDiplockinGissingv
Gissing[1971]AC886,906(4)Inthosecaseswhereitiscleareither(a)thatthepartiesdidnotintend
jointtenancyattheoutset,or(b)hadchangedtheiroriginalintention,butitisnotpossibletoascertainby
directevidenceorbyinferencewhattheiractualintentionwasastothesharesinwhichtheywouldown
theproperty,theansweristhateachisentitledtothatsharewhichthecourtconsidersfairhavingregard
tothewholecourseofdealingbetweentheminrelationtotheproperty:ChadwickLJinOxleyv
Hiscock [2005]Fam211,para69.Inourjudgment,thewholecourseofdealinginrelationtothe
propertyshouldbegivenabroadmeaning,enablingasimilarrangeoffactorstobetakenintoaccountas
mayberelevanttoascertainingthepartiesactualintentions.(5)Eachcasewillturnonitsownfacts.
Financialcontributionsarerelevantbuttherearemanyotherfactorswhichmayenablethecourttodecide
whatshareswereeitherintended(asincase(3))orfair(asincase(4)).
Thiscaseisnotconcernedwithafamilyhomewhichisputintothenameofonepartyonly.Thestarting
pointisdifferent.Thefirstissueiswhetheritwasintendedthattheotherpartyhaveanybeneficialinterest
inthepropertyatall.Ifhedoes,thesecondissueiswhatthatinterestis.Thereisnopresumptionofjoint
beneficialownership.Buttheircommonintentionhasonceagaintobededucedobjectivelyfromtheir
conduct.Iftheevidenceshowsacommonintentiontosharebeneficialownershipbutdoesnotshowwhat
shareswereintended,thecourtwillhavetoproceedasat(4)and(5)above.
(c)ApplicationofthePrinciples
Whenconsideringtheoperationoftheprinciplesrelatingtothecommonintentionconstructivetrustitisstill
usefultodistinguishbetweencaseswherethepropertyisregisteredinthenameofonepartyandwhereitis
registeredinthenameofboth.
(i)Singleownershipcases
Asingleownershipcase,whichappliedtheprinciplesidentifiedinStack vDowden,isAbbottv
Abbott.65 AlthoughthiswasadecisionofthePrivyCouncil,thepanelincludedthreeofthejudgeswhohadsat
inStack ,includingLadyHaleandLordNeuberger.Thecaseconcernedahousethathadbeenregisteredinthe
nameofthehusbandonly,butbothhusbandandwifewereliableforthemortgage(p.437) loan,whichhadbeen
obtainedtopurchasetheproperty.Followingtheirdivorce,thewifesoughttoestablishabeneficialinterestinthe
property.ThedisputearoseinAntiguaandBarbuda,whichdoesnothavepropertyadjustmentlegislationfor
divorcingcouples,unlikeEnglandandWales,sothecommonintentionconstructivetrustwaspotentially
applicable.Beingasoleownershipcase,thestartingpointwasthatthewifedidnothaveabeneficialinterestin
theproperty,butthispresumptionwasrebuttedandacommonintentionthatshewastohaveanequalbeneficial
interestwasinferred.LadyHaledeliveredtheopinionoftheBoardandsaid:66
Furthermore,[thecommonintentionofsharedbeneficialownership]wassupportedbythebehaviourofboth
partiesthroughoutthemarriageuntilitbrokedown.Notonlydidtheyorganisetheirfinancesentirelyjointly,
havingonlyajointbankaccountintowhicheverythingwaspaidandfromwhicheverythingwaspaid.They
alsoundertookjointliabilityfortherepaymentofthemortgageloanandinterest.Thishasalwaysbeen
regardedasasignificantfactor
Finally,itmustbeborneinmindthatthehusbandacceptedinthecourseofhisevidencethatthewifedid
haveabeneficialinterestinthehome,althoughhedisputedtheamount.TheCourtofAppealappearsto
haveattachedunduesignificancetothedictumofLordBridgeinLloydsBank plcvRosset,inparticularas
towhatconductistobetakenintoaccountinquantifyinganacknowledgedbeneficialinterest.Thelawhas
indeedmovedonsincethen.Thepartieswholecourseofconductinrelationtothepropertymustbetaken
intoaccountindeterminingtheirsharedintentionsastoitsownership.
Itwasheldthatthehusbandheldthehouseintrustforbothoftheminequalshares.Thesignificanceofthis
decisionisthatLadyHaleapparentlyappliedtheholisticapproach,havingregardtothewholecourseofconduct,
toboththeidentificationandquantificationstagesofthebeneficialinterestinquiry.Leehassaid:67
NordidherLadyshipdifferentiateclearlybetweenthetwostagesofinquiryinheranalysisitispossible
thatfuturejudgesmayconsidertheholisticapproachtobealsoapplicabletotheprimaryinquiryof
acquisitionsuchthatthepartiescontribution,whetherdirectorindirect,andwhetherincashorinkind,
canbetakenintoaccountindecidingwhetherthenonlegalownerhasacquiredaninterestintheproperty.
ThiswouldseemtocontrastsharplywithherLadyshipsstanceinStack vDowden.There,BaronessHale
wasemphaticabouttheprimafacieinferencetobedrawnfromthelegaltitle:thestartingpointwhere
thereissolelegalownershipissolebeneficialownership(at[56])andhencetheheavyburdenonthenon
legalownertoprovethecontrary:thisisnotatasktobelightlyembarkedupon(at[68]).
NotwithstandingAbbottvAbbottbeingacaseinvolvingsolelegalownershipandsothequestionofwhat
amountedtosufficientfactstodisplacetheprimafacieinferencearisingdirectly,thePrivyCouncilgave
littleguidanceonwhatjustifiesadeparturefromtheprimafacieinference.Iftheholisticapproachis
thought(ormeant)tobeapplicabletotheprimaryinquiry,theprimafacieinferencemaybedisplacedmore
readily,sincethewholecourseofconductofthepartiescanbetakenintoaccount.Consequently,Abbott
vAbbottmayhavetheunintendedeffectofunderminingherLadyshipsownexhortationnottodisplacethe
primafacieinferencesaveinexceptionalcases.
WhatisparticularlysignificantaboutAbbottvAbbottisthatthepresumptionthatthepartywiththelegaltitlehad
thewholebeneficialinterestwasrebuttedincircumstancesthatwerenotparticularlyunusual.AbbottvAbbottis
especiallysignificantsinceitappearsthatthereisnoparticulardifferencebetweencasesofsoleandjointlegal
ownership,savethat,intheformercase,itisnecessary(p.438) toestablishacommonintentionthattheparty
withoutthelegalownershipwasintendedtoacquireabeneficialinterestintheproperty.
ThishasnowbeenconfirmedbytheCourtofAppealinGearyvRank ine.68 Thedefendant,MrRankine,had

purchasedaguesthouse,CastleView,withhisownmoneyasacommercialinvestment.Thedefendantranthe
businesshimself.Theclaimant,MrsGeary,withwhomthedefendanthadcohabitedinadifferentproperty,later
assistedthedefendantwiththebusiness,largelybydealingwithcookingandpaperwork.Aftertheirrelationship
ended,theclaimantclaimedashareofthebusiness.Sheassertedthat,althoughtherewasnocommonintention
thatsheshouldhaveabeneficialinterestinthepropertywhenitwaspurchasedbythedefendant,thisintention
changedonceshehadmovedintohelphimrunthebusiness.HerclaimwasrejectedbytheCourtofAppeal.In
holdingthatthecommonintentionneverchanged,LewisonLJsaid:69
Inasinglenamecaseofwhichthisisonethefirstissueiswhetheritwasintendedthattheclaimant
shouldhaveanybeneficialinterestinthepropertyatall.Ifthatissueisdeterminedintheclaimantsfavour,
thesecondissueiswhatthatinterestis.Thereisnopresumptionofjointbeneficialownership.Butthe
commonintentionhastobededucedobjectivelyfromtheirconduct.
HavingrejectedtheclaimMrs.GearyandMr.Rankinehadacommonintentionatthetimeofthepurchase
thatMrs.GearyshouldhaveabeneficialinterestinCastleView,thejudgewentontoconsiderwhether
thatcommoninterestsubsequentlychanged.Itisimportanttostressthattheobjectofthesearchisa
commonintentionthatis,anintentioncommontobothparties.SoMrs.Gearyhadtoestablishthat
despitethefactthatthelegaltitletothepropertyremainedinMr.Rankinessolename,heactually
intendedthatsheshouldhaveabeneficialinterestinit.AsIhavesaidthatactualintentionmayhavebeen
expresslymanifested,ormaybeinferredfromconductbutactualintentionitremains.Thejudgefound
thattherewasnochangeinMr.Rankinesintention.HealsosaidthattherewasnoevidencethatMrs.
GearyhadtakenanystepstochangeherownpositioninrelianceonanyassertionbyMr.Rankinethat
shewouldhaveaninterestinthepropertyorinrelianceonanystepstakenbyMr.Rankinefromwhichshe
couldhaveinferredthathisintentionhadchanged
inmyjudgmentitisanimpermissibleleaptogofromacommonintentionthatthepartieswouldruna
businesstogethertoaconclusionthatitwastheircommonintentionthatthepropertyinwhichthe
businesswasrun,andwhichwasboughtentirelywithmoneyprovidedbyoneofthem,wouldbelongto
bothofthem.Inaddition,Mrs.GearysownevidencemakesitcleartomymindthatMr.Rankinehadno
intentionthatsheshouldhaveaninterestinthepropertyitself.
ThesignificanceofthisdecisionhasbeenemphasizedbyLees:70
GearyvRank ineprovidesthefirstpostKernottconsiderationbyahighercourtoftheapplicabilityof
theKernottprinciplestosolenamecasesandconfirms,asanumberoffirstinstancejudgeshavealready,
thattheyareequallyapplicabletoboththeacquisitionandquantificationstages.Therecanbelittledoubt
nowthatinsolenamecasesthereisthefollowingtwostageprocessfordiscerningcommonintention:
(1)theacquisitionstage
whethertherewasanexpressedorinferredactualcommonintentiontosharethebeneficialinterest
oftheproperty,and
(2)thequantificationstage
ifso,whethertherewasanexpressedorinferredactualcommonintention,orfailingthat,an
imputedintentionastothequantificationofthatshare.
(p.439) Itfollowsthattheonlysignificanceofcharacterizingacaseasinvolvingsoleownershipisthatitis
necessarytodeterminewhethertheotherpartyhasacquiredabeneficialinterestintheproperty,butthisis
dependentontheidentificationofacommonintention,albeitwithoutregardtoanyimputedintent.
(ii)Jointownershipcases
StackvDowden[2007]UKHL17,[2007]2AC432
Thefamilyhomehadbeenconveyedintothenamesofbothparties.Twothirdsofthepurchasepricewas
contributedbytheclaimant,andonethirdfromamortgageloanintheirjointnames,towhichtheyhadboth
contributed.Onthebreakdownoftheirrelationship,theissueforthecourtconcernedthequantificationofthe
claimantsbeneficialinterest.Sincethepropertywasregisteredintheirjointnames,itwaspresumedthat
theysharedthebeneficialinterest.LadyHalesaid:71
Theapproachtoquantificationincaseswherethehomeisconveyedintojointnamesshouldcertainly
benostricterthantheapproachtoquantificationincaseswhereithasbeenconveyedintothename
ofoneonlyButthequestionsinajointnamescasearenotsimplywhatistheextentofthe
partiesbeneficialinterests?butdidthepartiesintendtheirbeneficialintereststobedifferentfrom
theirlegalinterests?andiftheydid,inwhatwayandtowhatextent?Therearedifferencesbetween
soleandjointnamescaseswhentryingtodivinethecommonintentionsorunderstandingbetweenthe
parties.Iknowofnocaseinwhichasolelegalowner(therebeingnodeclarationoftrust)hasbeen
heldtoholdthepropertyonabeneficialjointtenancy.Butacourtmaywellholdthatjointlegalowners
(therebeingnodeclarationoftrust)arealsobeneficialjointtenants.Anotherdifferenceisthatitwill
almostalwayshavebeenaconsciousdecisiontoputthehouseintojointnames.Eveniftheparties
havenotexecutedthetransfer,theywillusually,ifnotinvariably,haveexecutedthecontractwhich
precedesit.Committingoneselftospendlargesumsofmoneyonaplacetoliveisnotnormallydone
byaccidentorwithoutgivingitamomentsthought
Theburdenwillthereforebeonthepersonseekingtoshowthatthepartiesdidintendtheirbeneficial
intereststobedifferentfromtheirlegalinterests,andinwhatway.Thisisnotatasktobelightly
embarkedupon.Infamilydisputes,strongfeelingsarearousedwhencouplessplitup.Theseoften
leadtheparties,honestlybutmistakenly,toreinterpretthepastinselfexculpatoryorvengefulterms.
Theyalsoleadpeopletospendfarmoreonthelegalbattlethaniswarrantedbythesumsactuallyat
stake.Afullexaminationofthefactsislikelytoinvolvedisproportionatecosts.Injointnamescasesit
isalsounlikelytoleadtoadifferentresultunlessthefactsareveryunusual.Normaydisputesbe
confinedtothepartiesthemselves.Peoplewithaninterestinthedeceasedsestatemaywellwishto
assertthathehadabeneficialtenancyincommon.Itcannotbethecasethatallthehundredsof
thousands,ifnotmillions,oftransfersintojointnamesusingtheoldformsarevulnerabletochallenge
inthecourtssimplybecauseitislikelythattheownerscontributedunequallytotheirpurchase.
Itwasheldthatthiswasoneoftheexceptionalcasesinwhichtheproportionofthebeneficialinterestwas
intendedtobedifferentfromthelegalinterest,sothattheclaimanthada65percentinterestandthedefendant
35percent.LordHopesaid:72
Inacasesuchasthis,wherethepartieshadalreadybeenlivingtogetherforabouteighteenyearsandhad
fourchildrenwhen[theproperty]waspurchasedinjointnamesandpaymentsonthemortgage(p.
440) securedonthatpropertywereineffectcontributedtobyeachofthemequally,therewouldhavebeen
muchtobesaidforadheringtothepresumptionofEnglishlawthatthebeneficialinterestsweredivided
betweenthemequally.ButIdonotthinkthatitispossibletoignorethefactthatthecontributionswhich
theymadetothepurchaseofthatpropertywerenotequal.Therelativeextentofthosecontributions
providesthebestguideastowheretheirbeneficialinterestslay,intheabsenceofcompellingevidence
thatbytheendoftheirrelationshiptheydidindeedintendtosharethebeneficialinterestsequally.The
evidencedoesnotgothatfar.Onthecontrary,whiletheypooledtheirresourcesintherunningofthe
household,inlargermatterstheymaintainedtheirfinancialindependencefromeachotherthroughouttheir
relationship
Ithinkthatindirectcontributions,suchasmakingimprovementswhichaddedsignificantvaluetothe
property,oracompletepoolingofresourcesinbothtimeandmoneysothatitdidnotmatterwhopaidfor
whatduringtheirrelationship,oughttobetakenintoaccountaswellasfinancialcontributionsmade
directlytowardsthepurchaseoftheproperty.IwouldendorseChadwickLJsviewinOxleyv
Hiscock [2005]Fam211,para69thatregardshouldbehadtothewholecourseofdealingbetweenthem
inrelationtotheproperty.Buttheevidenceinthiscaseshowsthatthereneverwasastagewhenboth
partiesintendedthattheirbeneficialinterestsinthepropertyshouldbesharedequally.Takingabroadview
ofthematter,therefore,IagreethattheorderthattheCourtofAppealprovidesthefairestresultthatcanbe
achievedinthecircumstances.
ItisnotclearwhethertheHouseofLordsheldthatthecommonintentionwasimpliedorimputed,althoughthe
natureofthefactorsidentifiedmightsuggestanimputedintent.Subsequently,however,inJonesv
73
Kernott,73 LadyHaleandLordWalkeremphasizedthattherelevantintentioninStack vDowdenhadbeen
inferred.Infact,thesameresultcouldhavebeenachievedbythestraightforwardapplicationofthepresumptionof
resultingtrust,whichwashowLordNeubergerreachedthesameresult.Theclaimanthadcontributed65percent
ofthepurchasepriceandonthatbasis,hesaid,shewasentitledtoa65percentshareofthebeneficialinterest.
(iii)Ambulatoryintent
Whetheraninitialcommonintentionasregardstheallocationofthebeneficialinterestcanbeconsideredtohave
changedovertimewasconsideredinJonesvKernott.
JonesvKernott[2011]UKSC53[2012]1AC776
Acouplehadpurchasedahousein1985,whichwasconveyedintotheirjointnames.Theyseparatedin
1993.Itwasacceptedthat,atthattime,theyheldthepropertybeneficiallyinequalshares,therebeing
insufficientevidencetorebutthepresumptionthattheirbeneficialinterestsfollowedthelegaltitle.The
claimantcontinuedtoliveinthehousewiththeirchildren,whilstthedefendanthadacquiredalternative
accommodationandmadenofurthercontributiontowardstheacquisitionoftheproperty.Theclaimant
assumedsoleresponsibilityforpayingthemortgage,andforrepairsandimprovementstotheproperty.The
defendantseveredthejointtenancyin2008,atwhichpointtheclaimantassertedthattheirbeneficial
interestswerenolongerequal.TheSupremeCourtheldthat,aftertheirseparation,thecommonintentionof
thepartieshadchanged.LadyHaleandLordWalkersaid:74
Inthiscase,thereisnoneedtoimputeanintentionthatthepartiesbeneficialinterestswouldchange,
becausethejudgemadeafindingthattheintentionsofthepartiesdidinfactchange.Atthe
outset,(p.441) theirintentionwastoprovideahomeforthemselvesandtheirprogeny.Butthereafter
theirintentionsdidchangesignificantly
TheyseparatedinOctober1993.Nodoubtinmanysuchcases,thereisaperiodofuncertainty
aboutwherethepartieswillliveandwhattheywilldoaboutthehomewhichtheyusedtoshare.This
homewasputonthemarketinlate1995butfailedtosell.Aroundthattimeanewplanwasformed.
Thelifeinsurancepolicywascashedinand[thedefendant]wasabletobuyanewhomeforhimself.
Hewouldnothavebeenabletodothishadhestillhadtocontributetowardsthemortgage,
endowmentpolicyandotheroutgoingson[thefamilyhome].Thelogicalinferenceisthatthey
intendedthathisinterestin[thefamilyhome]shouldcrystallisethen.Justashewouldhavethesole
benefitofanycapitalgaininhisownhome,[theclaimant]wouldhavethesolebenefitofanycapital
gainin[thefamilyhome].Insofarasthejudgedidnotinsomanywordsinferthatthiswastheir
intention,itisclearlytheintentionwhichreasonablepeoplewouldhavehadhadtheythoughtaboutit
atthetime.Butinourviewitisanintentionwhichhebothcouldandshouldhaveinferredfromtheir
conduct.
Whilstallthejudgesrecognizedthatthepartiesinitialcommonintentionastotheallocationofthebeneficial
interesthadchangedovertime,therewasacleardivisionofopinionastohowthisambulatoryintentionwastobe
ascertained.LadyHaleandLordsWalkerandCollinsacceptedthattheintentioncouldbeinferred,becausethe
trialjudgehadfoundthatthecommonintentionofthepartiesastotheextentoftheirbeneficialinteresthad
changedontheirseparation.Thiswassupportedbythefactthatthedefendantnolongercontributedtopayment
ofthemortgageloanbutacquiredanewpropertyforhimself.LordsKerrandWilson,ontheotherhand,
consideredthatachangedcommonintentioncouldnotbeinferredonthefacts,butcouldonlybeimputed.They
agreedwiththeotherjudgesastotheappropriatedivisionofthevalueoftheproperty,butonlybecausethiswas
thefairsolution.LordCollinsrecognizedthatthisdistinctionbetweeninferenceandimputationisafineone:75
Iagree,therefore,thatauthorityjustifiestheconceptualapproachofLordWalkerandBaronessHaleJJSC
that,injointnamescases,thecommonintentiontodisplacethepresumptionofequalitycan,inthe
absenceofexpressagreement,beinferred(ratherthanimputed)fromtheirconduct,andwhere,insuch
acase,itisnotpossibletoascertainorinferwhatsharewasintended,eachwillbeentitledtoafairshare
inthelightofthewholecourseofdealingbetweentheminrelationtotheproperty.
Thatsaid,itismyviewthatinthepresentcontextthedifferencebetweeninferenceandimputationwill
hardlyevermatter(asLordWalkerandBaronessHaleJJSCrecognise),andthatwhatisonepersons
inferencewillbeanotherpersonsimputation
Norwillitmatterinpracticethatatthefirststage,ofascertainingthecommonintentionastothebeneficial
ownership,thesearchisnot,atleastintheory,forwhatisfair.Itwouldbedifficult(and,perhaps,absurd)
toimagineascenarioinvolvingcircumstancesfromwhich,intheabsenceofexpressagreement,thecourt
willinferasharedorcommonintentionwhichisunfair.Thecourtsarecourtsoflaw,buttheyarealso
courtsofjustice.
Itfollowsthat,howeverthecommonintentionisassessedandwhicheverprinciplesareidentified,ultimatelythe
courtisconcernedwithreachingadecisionthatcanbeconsideredtobefair.
(iv)Applicationbeyondcohabitatingcouplecases
Thecommonintentionconstructivetrusthasbeenextendedbeyondcohabitingcouplestootherpersonal
relationshipsinwhichthepurchasedpropertyisthepartieshome,describedasthedomesticconsumer
context.76 So,forexample,ithasbeenappliedwhereahousewaspurchased(p.442) byamotherandsonin
jointnamesasahomeforthemboth.77 But,becauseoftheveryunusualcircumstancesofthecase,itwasheld
thattheydidnotsharethebeneficialinterestequally.Thesecircumstancesincludedthatthepropertyhadbeen
purchasedbythemotherfromalocalauthorityatasubstantialdiscount,andshecouldnothavefundedthe
mortgagewithouttheassistanceofherson,whoalsolivedintheproperty.Thatexplainedwhythepropertywas
purchasedintheirjointnames.However,theprimarypurposeoftheacquisitionwastoprovideahomeforthe
motherandthejudgeconcludedthattherewasnointentthattheirinterestsinthepropertyshouldbeequal.The
discountobtainedbythemotherwasmorethan50percentofthepurchasepriceandthesonsfinancial
contributionwassignificantlyless.Consequently,thesonwasheldtohaveaonethirdshareofthebeneficial
interest.
Thecommonintentionconstructivetrustwillnot,however,beengagedwherethepropertyispurchasedasan
investmentratherthanasafamilyhome.So,forexample,inLask arvLask ar,78 thedefendantwasacouncil
tenantwhohadboughtherhousefromthecouncilasaninvestment.Sheusedherrighttobuydiscountasa
statutorytenant,whichreducedthepurchasepriceofthepropertyof79,000by29,000.Thedefendantneeded
toborrowtheremainingamountfromherbank.Legaltitletothepropertywasregisteredinthenameofthe
defendantandherdaughter,theclaimant.Theywerejointlyliableonthemortgage,butpaymentswereactually
derivedfromrentobtainedbylettingtheproperty.Theclaimantandthedefendantpaidtheremainingbalanceof
7,000betweenthem.Theirrelationshipbrokedownandthedaughterclaimedanequalshareofthebeneficial
interest,reflectingherjointlegalinterestwithhermother.ItwasheldthattheStack vDowdenpresumptionwas
notapplicablebecausethepropertyhadbeenpurchasedprimarilyasaninvestment.LordNeubergerpreferredto
employthepresumptionofresultingtrustandsaid:79
ItisbynomeanscleartomethattheapproachlaiddownbyBaronessHaleofRichmondin[Stack v
Dowden]wasintendedtoapplyinacasesuchasthis.Inthiscase,althoughthepartiesweremotherand
daughterandnotinthatsenseinanarmslengthcommercialrelationship,theyhadindependentlives,
and,asIhavealreadyindicated,thepurchaseofthepropertywasnotreallyforthepurposeofprovidinga
homeforthem.Thedaughterhardlylivedthereatthetimeitwaspurchased,anddidnotlivetheremuchif
atallafterwards,andthemotherdidnotlivethereforlong.Thepropertywaspurchasedprimarilyasan
investment.
Itwasarguedthatthiscasewasmidwaybetweenthecohabitationcasesofcoownershipwhereproperty
isboughtforlivingin,suchasStack ,andarmslengthcommercialcasesofcoownership,whereproperty
isboughtfordevelopmentorletting.Inthelattersortofcase,thereasoninginStack vDowdenwouldnot
beappropriateandtheresultingtrustpresumptionstillappearstoapply.Inthiscase,theprimarypurpose
ofthepurchaseofthepropertywasasaninvestment,notasahome.Inotherwordsthiswasapurchase
which,atleastprimarily,wasnotinthedomesticconsumercontextbutinacommercialcontext.Tomy
minditwouldnotberighttoapplythereasoninginStack vDowdentosuchacaseasthis,wherethe
partiesprimarilypurchasedthepropertyasaninvestmentforrentalincomeandcapitalappreciation,even
wheretheirrelationshipisafamilialone.
If,however,thepresumptioninStack wouldapplyhere,thenIconsiderthatitwouldhavebeenrebutted
anyway.OnthefactsinStack therewasadeparturefromthepresumptionofequality,andtheoutcome
wasthatthesharesofthebeneficialinterestweresubstantiallyproportionatetothefinancialcontributions
oftheparties.This,inmyopinion,wouldbeastrongercasefordepartingfromthepresumptionofequality
evenifitdoesapply.
(p.443) Consequently,becauseofthedaughterscontributiontotheacquisitionofthepropertythroughher
liabilityonthemortgageanddirectcontributiontothepurchaseprice,shewasentitledtoaonethirdbeneficial
interest.Thisrelianceonthepresumptionoftheresultingtrustisdefensibleandconsistentwithfundamental
principlesofthelawoftrusts.
(d)DoctrinalFoundations
ThedifficultywiththelawfollowingStack vDowdenandJonesvKernottconcernstherecognitionthatitis
possibletoimputeacommonintentiontothepartiesconcerningthequantificationoftheirbeneficialinterest.This
doesnotpurporttobearealintentionontheirpart,butonethatisimposedonthebasisthat,hadtheparties
consideredthematter,thisiswhatthecourtconsiderstheywouldhaveintended,andwithreferencetoavariety
offactorsthesignificanceofwhichisdifficulttoassess.Canthisresorttoimputedintentionbejustified?Various
doctrinalmechanismscanbeidentifiedtoexplainwhyacommonintentionconstructivetrustisrecognizedand
whyanimputedintentmightbesufficienttoestablishacommonintent.
(i)Discretionaryremedialism
Iftheimputedcommonintentionissimplyasmokescreentoenablethecourttoachievewhatitconsiderstobea
fairresult,itwouldbepreferabletostatethisexplicitly,asLordsKerrandWilsondidinJonesvKernott,80 andit
wouldnotthenbenecessarytosearchforanydoctrinalfoundationforthetrust,sinceitwouldbeblatantly
remedialanddiscretionary.ButthisdiscretionaryapproachtoimputedintentionwasexplicitlyrejectedinStack v
DowdenandisinconsistentwiththeapproachofthemajorityinJonesvKernott.81
(ii)Unconscionability
Theimputationofintentionmightinsteadrespondtothedefendantsunconscionableconduct,82 sothattheso
calledcommonintentionconstructivetrustwouldbeproperlycharacterizedasanorthodoxinstitutional
constructivetrust.83 Butithasneverbeenarequirementofthecommonintentionconstructivetrustthatthe
defendantsconductcanbecharacterizedasunconscionable.Thekeyprinciplesunderpinningthecommon
intentionconstructivetrustfocusontheidentificationofanagreementorunderstandingastotheallocationofthe
beneficialinterestbetweentheparties.
(iii)Unjustenrichment
Analternativewaytojustifytheimputedintentionisbyreferencetothelawofunjustenrichment.Indeed,all
aspectsofthecommonintentionconstructivetrustmightbeanalysedinthisway.84 Ifitcanbeshownthatthe
defendanthasbeenunjustlyenrichedattheexpenseoftheclaimant,thedefendantwillbeliabletomake
restitutiontotheclaimanttotheextentofthatenrichment.85 (p.444) SirTerenceEthertonhassuggestedthat
thedefendantsunjustenrichmentwouldjustifytherecognitionofabeneficialinterestinthefamilyhome.86
Myconclusionwillbethat,althoughnotpresentedassuchinthespeeches,Stack is,onanalysis,a
radicaldeparturefrompreviousauthorityinitsuseoftheconstructivetrustasproprietaryrestitutionary
reliefforunjustenrichmentratherthanthedeclarationofapreexistingtrustontraditionallines.Itisan
exampleofthegrantofdiscretionaryreliefbywayofaremedialconstructivetrust,anditmarksthe
creation,forpolicyreasons,ofanewgroundofrestitutionforautonomousorsubtractiveunjustenrichment.
Iwillalsoconcludethatthisanalysishelpsustounderstandthecleardifferencebetweentherolesand
spheresofthecommonintentionconstructivetrusttobefoundinthecohabitationcases,ontheonehand,
andproprietaryestoppel,ontheotherhand.Further,itprovidesabasisforidentifyingthepolicygroundfor
notextendingtheStack approachtootherareasofjointacquisitionofproperty,especiallyinthe
commercialfield.
HeexplainedtheresultinStack vDowdenwithreferencetounjustenrichmentasfollows:87
IsuggestthatthereliefinStack wasinresponsetounjustenrichment.TherewasanenrichmentofMr.
Stack,attheexpenseofMs.Dowdensincehewasthejointownerofthepropertybutshecontributed
financiallymorethanhalfofthepurchasepriceoftheproperty.OnthelaterapproachofProfessorBirks,
thatistosay,allenrichmentsareunjustunlessthereissomejuristicreasonfortheretentionofthe
enrichment,theenrichmentofMr.Stackwasplainlyunjust.Onthefacts,Ms.Dowdendidnotintendto
makeagifttoMr.Stackofthebenefitofhercontributions.Ontheother,moretraditionalapproachthe
followingspecificunjustfactororfactorsmaybeidentifiedfromthePettitttoStack caselaw.Mr.Stack,
relyingonhisjointlegaltitle,soughttoretainthefinancialbenefitofthedisproportionatelylarge
contributionsbyMs.Dowdenwhichsheneverintendedshouldenureforhisfinancialbenefitonsale.Mr.
Stackreliedontheabsenceofavalidandenforceablecontractoravalidexpresstrustadjustingthe
partiesbeneficialintereststoreflectthedisproportionatecontributionsofMs.Dowden.Mr.Stackthereby
actedunconscionablysincetheintimatenatureoftheirrelationshipwasboththecauseofMs.
Dowdenscontributionsandthereasonwhysheneversoughtoractedonlegaladviceinrelationtothemto
protectherinterests.Thekeytothedecision,therefore,istheintimacyofthepersonalrelationship
betweentheparties
Itisatthispointthatissuesofpolicyintervene.Itiswellestablishedthatthecategoriesofunjust
enrichmentarenotclosed
TheconstructivetrustimposedinStack ,notbeinganinstitutionaltrust,isadiscretionaryremedialtrust.It
neednotbeseen,anditshouldnotbeseen,however,asthefullblownretrospectiveremedialconstructive
trustoftheUSandCanadianmodelThatwouldbeinconsistentwithourjurisprudenceand,inparticular,
oursettledrulesdefiningprioritiesbetweenpropertyinterests.Thereisnodifficulty,however,inamodel
analogoustothepowerofthecourttoawardapropertyinterestforproprietaryestoppel.Inthatcase,the
righttothereliefisamereequitypriortojudgment,whichwilltakeitspriorityinrelationtootherproperty
interestsinaccordancewithsettledlawandstatute.
Ifthisexplanationofthecommonintentionconstructivetrustisaccepteditwouldmeanthat,ifthefamilyhomeof
acohabitingcoupleisregisteredinthenameofthedefendantandtheclaimanthascontributedtothepurchase
price,paidforutilities,andhasdecoratedtheproperty,theclaimant(p.445) wouldhaveabeneficialinterestin
thehousetotheextentthatthedefendanthasbeenenrichedbyhisorhercontributions,includingtheservices
thattheclaimanthasprovided.
Thisrelianceonthelawofunjustenrichmenttoexplainthecommonintentionconstructivetrustisinappropriate
fortworeasons.First,toestablishunjustenrichment,itmustbeshownthatthecasefallswithinoneofthe
recognizedgroundsofrestitution,suchasmistakeortotalfailureofconsideration.88 Butwhereacohabitingparty
hascontributedtothepurchaseprice,forexample,itwillbedifficulttoestablishthatheorshehasbeen
mistakenorexpectedtoreceivesomethinginreturnthatisnotforthcoming.SirTerenceEthertonsuggestthata
newgroundofrestitutionshouldberecognizedforpolicyreasons,namelyunconscionability.Butthereisno
authorityforthisandunconscionabilityistoovaguetoberecognizedasagroundofrestitutioninitsownright.
Gardnerhasarguedthatitissufficientthattherewasanabsenceofbasisfortheenrichment.89 Butthistooisnot
supportedbyauthority.Secondly,thelawofunjustenrichmentcannotbeusedtocreateproprietaryinterests.90 It
followsthatunjustenrichmentcannotbeusedtoexplainthecommonintentionconstructivetrust.
(iv)Proprietaryestoppel
91
BeforeStack vDowden,91 thegenerallyacceptedviewwasthatproprietaryestoppelandthecommonintention
constructivetrustweresimilar,ifnotidentical,92 becausebothdependedontheclaimantsdetrimentalreliance.
But,afterStack vDowden,itisclearthatthecommonintentionconstructivetrustnolongerdependson
detrimentalreliance.AsLordWalkerrecognizedinthatcase,proprietaryestoppelandthecommonintention
constructivetrusthave,therefore,notbeenassimilated:93
Iaddabriefcommentastoproprietaryestoppel.Inparagraphs70and71ofhisjudgmentinOxleyv
Hiscock [2005]Fam211ChadwickLJconsideredtheconceptualbasisofthedevelopinglawinthisarea,
andbrieflydiscussedproprietaryestoppel,asuggestionfirstputforwardbySirNicolasBrowneWilkinson
VCinGrantvEdwards[1986]Ch638,656.Ihavemyselfgivensomeencouragementtothisapproach
(YaxleyvGotts[2000]Ch162,177)butIhavetosaythatIamnowratherlessenthusiasticaboutthe
notionthatproprietaryestoppelandcommoninterestconstructivetrustscanorshouldbecompletely
assimilated.Proprietaryestoppeltypicallyconsistsofassertinganequitableclaimagainsttheconscience
ofthetrueowner.Theclaimisamereequity.Itistobesatisfiedbytheminimumawardnecessarytodo
justice(CrabbvArunDistrictCouncil[1976]Ch179,198),whichmaysometimesleadtonomorethana
monetaryaward.Acommonintentionconstructivetrust,bycontrast,isidentifyingthetruebeneficial
ownerorowners,andthesizeoftheirbeneficialinterests.
Infact,evenwhendetrimentalreliancedidconstitutearequirementofthecommonintentionconstructivetrust,
thistrustcouldnothavebeenassimilatedwithproprietaryestoppelbecausetheyhavedifferentfunctionsand
requirements.94
(p.446) (v)Therelationshipoftheparties
Gardnerhassuggestedthattheoperationofthecommonintentionconstructivetrustwillturnonwhetherthe
partieshaveamateriallycommunalrelationship:95
Essentially,thecommonintentionimputedtopartieshavingamateriallycommunalrelationshipwillgive
themequalsharesinthehouse,asinAbbottvAbbottwhilethatimputedtopartiesnothavingsucha
relationship,asinStack vDowden,willgivethemsharesproportionatetotheirindividualcontributionsto
theacquisitionofthehouse,thoughindirectcontributionswillcountasmuchasdirectones.
AmateriallycommunalrelationshipisoneinwhichCandDinpracticaltermspoolalltheirmaterial
resources(includingmoney,otherassets,andlabour),ratherthankeepingseparatetallies.Thepresence
ofajointbankaccountwillstrongly,almostconclusively,suggestamateriallycommunalrelationship,but
itsabsencewillnotparticularlyprovetheopposite.Thepartieshaving,ornothaving,asexualrelationship
willprovenothingeitherwaylikewiseeventheirhavingchildrentogether,thoughinthiseventitisprobably
commonerfortheirrelationshiptobemateriallycommunal.Iftheyaremarriedorcivilpartners,their
relationshipwillnecessarilyberegardedasmateriallycommunal,regardlessofthenatureandscaleof
theircontributionstothefamilyeconomyButanunmarriedcouplecouldoperatelikewise,onceagain
regardlessoftheircontributionstothefamilyeconomythoughifDisthesolewageearner,whileCkeeps
houseandperhapslooksaftertheirchildren,itishardtoseetheirrelationshipotherwisethanasmaterially
communal
Anonmateriallycommunalrelationshipisonewithoutthisprofile.Thatisnottosaythatitmaynotbe
closeinotherrespectsthepartiesmayevenpooltheirmaterialresourcesinoneormoreareas,aswhere
acouplebothshopforgroceriesormaybeevenbuyacartogetherbutitlacksthekeycharacteristicofa
practicalpoolingoftheirmaterialresourcesacrosstheboardForpresentpurposes,however,theparties
mustatleastbothcontributetotheacquisitionofthehouse(albeitthattheircontributionsmaybeindirect,
aswhereCmeetsthehouseholdbillswhileDpaysoffthemortgage):forinthecaseofanonmaterially
communalrelationship,itisthesecontributionsthatgeneratetheimputedcommonintention,givingthe
partiessharesinthehouseinproportiontothem.
ThisanalysisisconsistentwithAbbottvAbbott,96 inwhichequalbeneficialinterestswererecognizedwherethe
partiessharedabankaccount,andStack vDowden,97 inwhichdifferingbeneficialinterestswererecognized
wherethecouplesfinancialaffairswerekeptseparate.ItisalsoconsistentwithJonesvKernott,98 wherethe
earlierseparationofthepartiesmeantthatitwasappropriatefordifferentialbeneficialintereststoberecognized.
ButGardnersanalysiscannotbeusedtoexplaintherelevanceoftheholisticapproach,byvirtueofwhichall
factorsaretobetakenintoaccountwhenassessingthecommonintention,suchaswhetherthecouplehad
children.Further,ifsuchatestwereappliedtodeterminetheoperationofthecommonintentionconstructive
trust,thiswouldproduceunacceptableuncertainty,especiallyasregardsthestructureofnegotiationsbetween
thepartiesfollowingthebreakdownoftheirrelationship.Thereisaneedforcertaintyofprincipleandlawtoenable
legaladviserstoadvisetheirclientsclearlyandtopreventthedisputefrombeinglitigated.
(vi)Rejectionofimputedintention
Thecontinuedrelevanceofimputedintentionmakesamockeryofthepurportedaimofseekingoutthecommon
intentionoftheparties.Thequesttoidentifyacommonintentionhaspreviously(p.447) beendescribedasa
myth,99 anditcontinuestobesoafterthedecisionsinStack vDowdenandJonesvKernott.Therealdangerof
thewillingnesstoimputeacommonintentionisthatthecourtsareactuallyseekingtoredistributethebeneficial
interestsinpropertytoachieveajustresult,butwithoutthebenefitofanyclearprinciples.Thejustificationfor
imputingacommonintentioncannotbesatisfactorilyexplainedandshouldberejected.Ifitisappropriateto
recognizethecommonintentionconstructivetrust,thenthatcommonintentionshouldbeestablishedonlyby
referencetoanexpressorinferredagreementorunderstandingastotheexistenceandquantificationofbeneficial
intereststhereshouldbenoroleforanimputedintent.
Thepreferablesolution,however,wouldbetobringthepresumptionoftheresultingtrustbackintothepicture,as
advocatedbyLordNeubergerinStack vDowden.Beneficialinterestsinthefamilyhomeshould,first,be
presumedtofollowthelegalinterest,or,secondly,bepresumedtobedeterminedbythefinancialcontributionto
theacquisitionoftheproperty.Inbothcases,thepresumptioncouldberebuttedbythepartiesexpressor
inferredcommonintention,butonlywheresuchanintentioncanbeclearlyproved.Beyondthis,thelawoftrusts
shouldnotgo.Thistrustsapproachwouldhavetheaddedadvantageofremovingthedistinctionthathas
emergedbetweenallocationofthebeneficialinterestindomesticandcommercialcontexts.Eveninthe
commercialcontext,itwouldbeappropriateforthepresumptionofresultingtrusttoberebuttedbythecommon
intentionofthepartiesthatthebeneficialinterestshouldbeapportioneddifferently,althoughitwouldbemore
likelythatthepresumptionwouldberebuttedinthedomesticcontext.
(e)ReformoftheLaw
DespitethebesteffortsofthejudgesintheHouseofLordsandSupremeCourt,thereremainsmuchuncertainty
astowhenthepresumptionthatthebeneficialinterestsshouldfollowthelegalinterestswillberebutted.Although
thepresumptionismeanttoberebuttedonlyinexceptionalcircumstances,thishasoccurredinasignificant
numberofthereportedcases,includingStack vDowdenandJonesvKernott.Butitisunclearwhatmakesa
caseexceptionalandsopermitstheapplicationoftheholisticinquirybyreferencetoamyriadoffactors,the
significanceofthosefactorsbeinguncertain.
Therealproblemwiththeuseofthecommonintentionconstructivetrusttodeterminebeneficialinterestsinthe
familyhomeisthatthecourtshaveessentiallybeenseekingtoredistributethebeneficialinterestinproperty,but
arerestrictedbytheuseofthetrustdevicethatoperateswithinthelawofproperty.Thelawofpropertydemands
certaintyofprinciple,anddoesnotcommenditselftotheexerciseofpoorlydefineddiscretionandmanipulationof
thelawandevidencetoobtainwhatisconsideredtobeafairresult.AsDeaneJrecognizedintheAustralian
caseofMuschink sivDodds:100
proprietaryrightsfalltobegovernedbyprinciplesoflawandnotbysomemixofjudicialdiscretion,
subjectiveviewsaboutwhichpartyoughttowinandtheformlessvoidofindividualmoralopinion.
Ifthetrustlawsolutionisconsideredtobetoorestrictivetheonlyalternativesolutionisastatutoryone,togive
thecourtsexplicitdiscretiontoredistributethebeneficialinterestinthefamilyhometoachievefairerresults.
Suchstatutoryinterventionhasoccurredinotherjurisdictions.101 IthasbeenrecommendedbytheEnglishLaw
Commission,102 andisavailablewherethepartiesare(p.448) married.Afterconductingacomprehensivereview
ofthelawanditsapplicationinpractice,theLawCommissionrecommendedthatanewstatutoryschemeshould
becreated,whichwouldapplytocohabitingcoupleswhoseparate.Theschemewouldapply,unlessitwas
specificallydisappliedbythecouple,wheretwokeyconditionsweresatisfied:
(1)thecouplehadachildtogetherorhadlivedtogetherasacoupleinajointhouseholdforaspecified
minimumperiod(possiblybetweentwoandfiveyears)and
(2)thepartywhowasseekingreliefhadmadequalifyingcontributionstotherelationshipgivingriseto
certainenduringconsequencesatthepointofseparation.103
Iftheseconditionsweresatisfied,thecourtwouldbegivenastructureddiscretiontoorderadjustmentofthe
beneficialinterestsintheproperty.
LawCommission,Cohabitation:TheFinancialConsequencesofRelationship
Breakdown(LawCom.No.307,2007),1.19
Inbroadterms,theschemewouldseektoensurethattheplusesandminusesoftherelationshipwere
sharedbetweenthecouple.Theapplicantwouldhavetoshowthattherespondentretainedabenefit,
orthattheapplicanthadacontinuingeconomicdisadvantage,asaresultofcontributionsmadetothe
relationship.Thevalueofanyawardwoulddependontheextentoftheretainedbenefitorcontinuing
economicdisadvantage.Thecourtwouldhavediscretiontograntsuchfinancialreliefasmightbe
appropriatetodealwiththesematters,andindoingsowouldberequiredtogivefirstconsiderationto
thewelfareofanydependentchildren.
Thecourtwouldbegivenwidepowerstoensurethatthereliefwasappropriate,suchasbymakingafinancial
award,transferringproperty,orcreatingasettlementoftheproperty.Ifthisschemeweretoapply,thelawof
impliedtrusts,estoppels,andcontractwouldbeexcluded.
Suchaschemewouldbeexplicitlyredistributiveinapproach,andwouldenablethejudgetoobtainwhatis
consideredtobethejustandfairresult.Buttheschemewouldnotbecomprehensive:itcouldbeexcludedbythe
partiesitwouldnotcovercohabitantswhoserelationshipwasnotintimate,suchasparentandchildanditwould
notdealwithdisputesinvolvingathirdparty,suchasabank,claiminganinterestinthefamilyhome.Itfollows
that,evenifthisstatutoryschemewereadopted,therewouldbeacontinuingroleforthecommonintention
constructivetrust.TheGovernmentrespondedcautiouslytotheLawCommissionsrecommendationsandstated
thattheywouldnotbeimplementedduringthecurrentParliament.Thisisunfortunate,andmayleadtofurther
distortionofthelawofpropertyinordertosatisfywiderconcernsoffairness.Butjudgescannotsimplyjettison
thelawoftrustsinfavourofabroaddiscretionwithouttheauthorityofParliament.Legislativereformisrequired.
3.JointVentureConstructiveTrusts
Wheretwopartieshaveenteredintoanarrangementinvolvingtheacquisitionofpropertybyoneofthem,that
partymayberequiredtoholdthepropertyonconstructivetrustforbothofthemifitisunconscionableforthe
partyacquiringthepropertytodenythattheotherhasanybeneficialinterestintheproperty.Thisissometimes
describedasthePallantvMorganequityafteracaseofthat(p.449) namewhichrecognizedthisformof
trust.104 InPallantvMorgan,105 theagentsoftwoneighbouringlandownersagreedinanauctionroomjustbefore
anauctionoflandthattheclaimantsagentwouldrefrainfrombiddingandthat,ifthedefendantsagentwere
successfulinhisbid,thelandwouldbedividedbetweenthem.Thedefendantsbidwassuccessful,buthethen
deniedthattheclaimanthadanyinterestintheproperty.Theagreementwasnotsufficientlycertaintobe
specificallyenforceable,butthecourtdecidedthatthedefendantheldthepropertyontrustforbothofthemin
equalshares,becausetheclaimanthadbeenkeptoutofthebiddingprocessbyapromise,thatiftheclaimant
didnotbid,anagreementastothedivisionofthepropertywouldbereached.
(a)RequirementsfortheJointVentureConstructiveTrust
TherequirementsforthejointventureconstructivetrustwereidentifiedbyChadwickLJinBannerHomesGroup
plcvLuffDevelopmentsLtd.
BannerHomesGroupplcvLuffDevelopmentsLtd[2000]Ch371(ChadwickLJ)
Thepresentappealprovidesthefirstopportunity,sofarasIamaware,forthiscourttoconsiderthe
basisandscopeofwhatmaybecalledthePallantvMorganequityinacaseinwhichreliancehasto
beplaceduponitbytheappellant.Inmyviewthereisnodoubtthatsuchanequitydoesexistandis
firmlybased.ItisanexampleofthewiderequitytowhichMillettJreferredinLonrhoplcvFayed(No
2)[1992]1WLR1at910:
Equitywillintervenebywayofconstructivetrust,notonlytocompelthedefendanttorestore
theplaintiffspropertytohim,butalsotorequirethedefendanttodisgorgepropertywhichhe
shouldhaveacquired,ifatall,fortheplaintiff.Inthelattercategoryofcase,thedefendants
wrongliesnotintheacquisitionoftheproperty,whichmayormaynothavebeenlawful,butin
hissubsequentdenialoftheplaintiffsbeneficialinterest.Forsuchtobethecase,however,the
defendantmusteitherhaveacquiredpropertywhichbutforhiswrongdoingwouldhavebelonged
totheplaintiff,orhemusthaveacquiredpropertyincircumstancesinwhichhecannot
conscientiouslyretainitasagainsttheplaintiff.
Or,asthesamejudgewastosayinthiscourt,inthepassageinParagonFinanceplcvDBThak erar
&Co[1999]1AllER400at408409.:
His[thedefendants]possessionofthepropertyiscolouredfromthefirstbythetrustand
confidencebymeansofwhichheobtainedit,andhissubsequentappropriationoftheproperty
tohisownuseisabreachofthattrust.
Itisimportant,however,toidentifythefeatureswhichwillgiverisetoaPallantvMorganequityandto
defineitsscopewhilekeepinginmindthatitisundesirabletoattemptanythinginthenatureofan
exhaustiveclassification.AsMillettJpointedoutinLonrhoplcvFayed(No2)[1992]1WLR1at9,in
areferencetotheworkofdistinguishedAustraliancommentators,equitymustretainitsinherent
flexibilityandcapacitytoadjusttonewsituationsbyreferencetomainspringsoftheequitable
jurisdiction.(p.450) Equitymustneverbedeterredbytheabsenceofapreciseanalogy,provided
thattheprincipleinvokedissound.Mindfulofthiscaution,itis,nevertheless,possibletoadvancethe
followingpropositions.
(1)APallantvMorganequitymayarisewherethearrangementorunderstandingonwhichitis
basedprecedestheacquisitionoftherelevantpropertybyoneofthosepartiestothat
arrangement.Itisthepreacquisitionarrangementwhichcoloursthesubsequentacquisitionby
thedefendantandleadstohisbeingtreatedasatrusteeifheseekstoactinconsistentlywithit.
Wherethearrangementorunderstandingisreachedinrelationtopropertyalreadyownedbyone
oftheparties,hemay(ifthearrangementisofsufficientcertaintytobeenforcedspecifically)
therebyconstitutehimselftrusteeonthebasisthatequitylooksonthatasdonewhichoughtto
bedoneoranequitymayariseundertheprinciplesdevelopedintheproprietaryestoppelcases

(2)Itisunnecessarythatthearrangementorunderstandingshouldbecontractuallyenforceable.
Indeed,ifthereisanagreementwhichisenforceableasacontract,thereisunlikelytobeany
needtoinvokethePallantvMorganequityequitycanactthroughtheremedyofspecific
performanceandwillrecognisetheexistenceofacorrespondingtrust.Inparticular,itisno
bartoaPallantvMorganequitythatthepreacquisitionarrangementistoouncertaintobe
enforcedasacontractseePallantvMorganitself
(3)Itisnecessarythatthepreacquisitionarrangementorunderstandingshouldcontemplate
thatoneparty(theacquiringparty)willtakestepstoacquiretherelevantpropertyandthat,ifhe
doesso,theotherparty(thenonacquiringparty)willobtainsomeinterestinthatproperty.
Further,itisnecessarythat(whateverprivatereservationstheacquiringpartymayhave)hehas
notinformedthenonacquiringpartybeforetheacquisition(or,moreaccurately,beforeitistoo
lateforthepartiestoberestoredtoapositionofnoadvantage/nodetriment)thathenolonger
intendstohonourthearrangementorunderstanding.
(4)Itisnecessarythat,inrelianceonthearrangementorunderstanding,thenonacquiringparty
shoulddo(oromittodo)somethingwhichconfersanadvantageontheacquiringpartyinrelation
totheacquisitionofthepropertyorisdetrimentaltotheabilityofthenonacquiringpartyto
acquirethepropertyonequalterms.Itistheexistenceoftheadvantagetotheone,ordetriment
totheother,gainedorsufferedasaconsequenceofthearrangementorunderstanding,which
leadstotheconclusionthatitwouldbeinequitableorunconscionabletoallowtheacquiring
partytoretainthepropertyforhimself,inamannerinconsistentwiththearrangementor
understandingwhichenabledhimtoacquireit.Inmanycasestheadvantage/detrimentwillbe
foundintheagreementofthenonacquiringpartytokeepoutofthemarket.Thatwillusuallybe
bothtotheadvantageoftheacquiringpartyinthathecanbidwithoutcompetitionfromthenon
acquiringpartyandtothedetrimentofthenonacquiringpartyinthathelosestheopportunity
toacquirethepropertyforhimself.Buttheremaybeadvantagetotheonewithoutcorresponding
detrimenttotheother.
(5)Thatleads,Ithink,tothefurtherconclusions:(i)that,although,inmanycases,the
advantage/detrimentwillbefoundintheagreementofthenonacquiringpartytokeepoutofthe
market,thatisnotanecessaryfeatureand(ii)that,althoughtherewillusuallybeadvantageto
theoneandcorelativedisadvantagetotheother,theexistenceofbothadvantageanddetriment
isnotessentialeitherwilldo.Whatisessentialisthatthecircumstancesmakeitinequitable
fortheacquiringpartytoretainthepropertyforhimselfinamannerinconsistentwiththe
arrangementorunderstandingonwhichthenonacquiringpartyhasacted.Thosecircumstances
mayarisewherethenonacquiringpartywasneverinthemarketforthewholeofthepropertyto
beacquiredbut(onthefaithofanarrangementorunderstandingthatheshallhaveapartofthat
property)providessupportinrelationtotheacquisitionofthewholewhichisofadvantagetothe
acquiringparty.Theymayarisewheretheassistanceprovidedtotheacquiringparty(in
pursuanceofthearrangementorunderstanding)involvesnodetrimenttothenonacquiringparty
orwherethenonacquiringpartyactstohisdetriment(inpursuanceofthearrangementor
understanding)withouttheacquiringpartyobtaininganyadvantagetherefrom.
(p.451) Thefactthattheclaimantsrelianceonthejointventureneednotbedetrimentalisonefactorthat
distinguishesthejointventureconstructivetrustfromproprietaryestoppel.106
TherequirementsofthejointventureconstructivetrustwereelegantlysummarizedbyLordScottinCobbev
YeomansRowManagementLtd:107
Aparticularfactualsituationwhereaconstructivetrusthasbeenheldtohavebeencreatedarisesoutof
jointventuresrelatingtoproperty,typicallyland.Iftwoormorepersonsagreetoembarkonajointventure
whichinvolvestheacquisitionofanidentifiedpieceoflandandasubsequentexploitationof,ordealing
with,thelandforthepurposesofthejointventure,andoneofthejointventurers,withtheagreementofthe
otherswhobelievehimtobeactingfortheirjointpurposes,makestheacquisitioninhisownnamebut
subsequentlyseekstoretainthelandforhisownbenefit,thecourtwillregardhimasholdingthelandon
trustforthejointventurers.Thiswouldbeeitheranimpliedtrustoraconstructivetrustarisingfromthe
circumstancesandif,aswouldbelikelyfromthefactsasdescribed,thejointventurershavenotagreed
andcannotagreeaboutwhatistobedonewiththeland,thelandwouldhavetoberesoldand,after
dischargingtheexpensesofitspurchaseandanyothernecessaryexpensesoftheabortivejointventure,
thenetproceedsofsaledividedequallybetweenthejointventurers.
(b)TheNatureoftheJointVentureConstructiveTrust
Sincethisisatrustthatrespondstothedefendantsunconscionability,itfollowsthatthetrustshouldproperlybe
characterizedasaninstitutionalconstructivetrustratherthanacommonintentionconstructivetrust,andproperly
formspartofthecategoryofunconscionabilityarisingfrombreachofanundertaking.108 However,inCrosscoNo.
4UnlimitedvJolanLtd109 amajorityoftheCourtofAppealcharacterizedthejointventureconstructivetrustasa
commonintentionconstructivetrust.Thecasearosefromademergerofafamilyownedgroupofcompanies
involvingasplitintotradingandpropertybusinesses.Itappearedtohavebeenagreedthataparticularbuilding
wouldbetransferredtothepropertycompany,butthetradingcompanywouldbeabletotradefromtheground
floor.Thetradingcompanyassertedanequitytohavealeaseofthegroundfloor.Thiswasrejected.ArdenLJ,
withwhomMcFarlaneLJagreed,characterizedthetrustasaformofcommonintentionconstructivetrust.She
said:110
thereasoninginBannerHomesvLuffDevelopmentsLtd[2000]Ch372makesitclearthattheratioof
thatcaseisfirmlybasedonacommonintentionconstructivetrust.Bycommonintentionconstructive
trust,ImeanaconstructivetrustofthekindenunciatedinGissingvGissing[1971]Ch162.[This]
analysisofBannerHomeswasacceptedbyLordScottinCobbevYeomansRowManagement
Ltd[2008]1WLR1752.ThespeechofLordWalkerinStack vDowden[2077]2AC432andthejoint
judgmentofLadyHaleandLordWalkerinJonesvKernott[2011]UKSC53maymeanthatcommon
intentionconstructivetrustsmaybelimitedinthefuturetofamilycases,butIdonotconsiderthatthat
positionissoclearastomakeitpossibleatthisstageforthiscourttoholdthatBannerHomescannot
standwithdecisionsoftheHouseofLordsandSupremeCourt,andtotreattheratioofBannerHomesas
notbindingonit.
(p.452) Inthosecircumstances,itisnotopentothecourttodeterminethisappealonthebasisthatthe
casecanbetreatedashavingsomeotherratio.Applyingtherequirementsforaconstructivetrustofthis
kindthecriticalquestionintheconstructivetrustclaimonthisappealis,therefore,whethertheconduct
ofthe[defendant]wasunconscionable.
Acommonintentionconstructivetrustwasnotrecognizedonthefactsbecausethedefendantwasnot
consideredtohaveactedunconscionablyrather,theclaimanthadactedunderamistakeofwhichthedefendant
wasnotaware.ButArdenLJsemphasisontheneedtoestablishunconscionabilitysuggeststhatthis
constructivetrustisverydifferentfromthatrecognizedinStack vDowden,whereunconscionabilityisnot
required.EthertonLJwasnotconvincedthatthejointventureconstructivetrustisacommonintention
constructivetrust.Hesuggestedanalternativeexplanation:111
Thepassageoftimeanddevelopmentsinthelawhave,inmyjudgment,showntheconnectionbetween
thecommonintentionconstructivetrustandthePallantvMorganequityasexplainedandapplied
inBannerHomestobeuntenable.Inacommercialcontext,itistobeexpectedthatthepartieswill
normallytakelegaladviceabouttheirrespectiverightsandinterestsandwillnormallyreducetheir
agreementstowritingandwillnotexpecttobebounduntilacontracthasbeenmadeTheydonot
expecttheirrightstobedeterminedinanambulatorymannerbyretrospectiveexaminationoftheir
conductandwordsovertheentireperiodoftheirrelationship.Theydonotexpectthecourttodetermine
theirrespectivepropertyrightsandinterestsbytheimputationofintentionswhichtheydidnothavebut
whichthecourtconsiderstheywouldhavehadiftheyhadactedjustlyandreasonablyandthoughtabout
thepoint.
Itisnotnecessarytoresorttothecommonintentionconstructivetrusttoprovideanexplanationforthe
casesinwhichthePallantvMorganequitywas,orissaidtohavebeen,applied.Theycanallbe
explained,and,inmyjudgment,oughttobeexplainedinwhollyconventionaltermsbytheexistenceand
breachoffiduciaryduty.Intheabsenceofagencyorpartnership,itwouldrequireparticularandspecial
featuresforsuchfiduciarydutiestoarisebetweencommercialcoventurers.Itisclear,however,thatin
specialcircumstancestheycanarise.
IfthecasesinwhichthePallantvMorganequityhasbeenappliedareinterpretedasIsuggest,thenthey
canbeseenascasesinwhichtheCourtis,pursuanttotheconstructivetrust,deprivingthedefendantof
theadvantageobtainedinbreachoftrust.Theirrelevanceoflackofcompleteagreement,whether
documentedornot,istheneasilyexplained,asisthelatitudewithwhichtheCourtdevisesthebestwayto
deprivethedefendantoftheunconscionableadvantage.
EthertonLJconcludedthat,sincethetrialjudgehadheldthatthedefendantdidnotowetheclaimantany
fiduciaryduty,theclaimmustfail.
AlthoughArdenLJdidnotendorseEthertonLJsanalysisofthejointventureconstructivetrustforreasonsof
precedent,shewasattractedbyhisanalysis,ifonlybecauseitwouldrestricttheoperationofthejointventure
constructivetrust.ButEthertonLJscharacterizationofthetrustappearstobeinconsistentwiththedecisionof
theCourtofAppealinSinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd112 thatprofitsobtainedfrom
breachoffiduciarydutywillnotbeheldonconstructivetrust,savewherethatpropertyisobtainedfromthe
claimantorfromtheexploitationofanopportunitywhichwasavailabletotheclaimant.Whilsttherequirementsfor
thejointventureconstructivetrustmightbeanalysedbyreferencetothedefendantexploitinganopportunitythat
wasavailabletotheclaimant,therecognitionofaconstructivetrustforanysuchexploitationofan(p.
453) opportunityisdifficulttoexplain113 andisanuncertainfoundationforexplainingthejointventure
constructivetrust.
Thepreferableanalysisofthejointventureconstructivetrustisthatitariseswherepropertyhasbeenobtainedby
thedefendantunderanarrangementwiththeclaimantthatitisunconscionableforthedefendanttoignore
followingtheclaimantsrelianceonthearrangement.AsLordNeubergersaidextrajudicially:114
Buttheessentialpointseemstometobethat,inordertogiverisetoaconstructivetrust,thepropertyin
questionmusthavebeenacquiredbyonepartyunderanagreementwiththeotherparty,sothatitcanbe
saidthatequityissimplygivingeffecttoanunderlyingagreement.
Thisarrangementrelatestothesaleoflandandsoshouldbeinwriting,115 butitisappropriatetogiveeffectto
thearrangementinEquitybecauseofthedefendantsunconscionableconductandtheclaimantsreliance,even
thoughthatrelianceisnotnecessarilydetrimental.
(c)OperationoftheJointVentureConstructiveTrust
ThesignificanceofthejointventureconstructivetrustisparticularlywellillustratedbyBannerHomesGroupplcv
LuffDevelopmentsLtd.
BannerHomesGroupplcvLuffDevelopmentLtd[2000]Ch372
Theclaimant,Banner,andthedefendant,Luff,hadformedajointventuretopurchaseasitefordevelopment.
Theyreachedanagreementinprincipletoacquireasitethroughacompany,whichtheywouldincorporate
andownequally.Thedefendantincorporatedthecompanyandownedallitsshares.Thecompanythen
acquiredthesitewithfundsprovidedbythedefendant.Thedefendanthadsecondthoughtsaboutpursuing
thejointventurewiththeclaimantand,withoutinformingtheclaimant,startedtolookforanotherpartner.The
defendantdidnotinformtheclaimantbecauseitfearedthattheclaimantmightacquirethesiteforitself.The
defendantthentoldtheclaimantthatitwaswithdrawingfromthejointventure.Itwasheldthatthedefendant
heldthesharesinthecompanyonconstructivetrustfortheclaimantandthedefendantequally.ChadwickLJ
said:116
Thejudgewasreferredaswehavebeentoanumberofcasesatfirstinstancewhichillustratethe
circumstancesinwhichequitywillimposeaconstructivetrustonpropertyacquiredbyoneperson,
sayA,infurtheranceofsomepreacquisitionarrangementorunderstandingwithanother,sayB,that,
upontheacquisitionofthepropertybyAincircumstancesinwhichBkeptoutofthemarket,Bwould
begrantedsomeinterestinthepropertynotwithstandingthatthearrangementorunderstandingfalls
shortofcreatingcontractualobligationsenforceableatlaw
Inmyviewthejudgemisunderstoodtheprinciplesuponwhichequityintervenesincasesofthisnature
whenheheldthatBannershopeandexpectation,howevermuchLuffmayhaveencouragedit,thata
formalagreementwouldbeenteredintofollowingwhichBannerwoulddischargetheobligationsand
takethebenefitsarisingunderthejointventurecouldnotgiverisetothecommonarrangementor
understandingwhichisanecessaryfoundationfortheestablishmentoftheequity.Hewaswrongto
rejecttheconstructivetrustclaimonthegroundsthatBannerwasseekingtoinvokethe
assistance(p.454) ofequityinordertoturnacommonarrangementorunderstanding,whichis
implicitlyqualifiedbytherightofeithersidetowithdraw,intoanunqualifiedarrangementor
undertakingwhichdeniedanysuchright.ThePallantvMorganequitydoesnotseektogiveeffectto
thepartiesbargainstilllesstomakeforthemsomebargainwhichtheyhavenotthemselvesmade
asthecasestowhichIhavereferredmakeclear.Theequityisinvokedwherethedefendanthas
acquiredpropertyincircumstanceswhereitwouldbeinequitabletoallowhimtotreatitashisown
andwhere,becauseitwouldbeinequitabletoallowhimtotreatthepropertyashisown,itis
necessarytoimposeonhimtheobligationsofatrusteeinrelationtoit.Itisinvokedbecausethereis
nobargainwhichiscapableofbeingenforced.Iftherewereanenforceablebargaintherewouldhave
beennoneedforequitytointerveneinthewaythatithasdoneinthecasestowhichIhavereferred.
Iamsatisfied,also,thatthejudgewaswrongtorejecttheconstructivetrustclaimonthegroundsthat
Bannerhadfailedtoshowthatithadactedtoitsdetrimentinrelianceonthearrangementagreedon
14July,1995.Therewasevidence,towhichIhavereferred,thattheexistenceofthearrangementled
Bannertoregardthesiteasoutofplaythatistosay,theexistenceofthearrangementmadeit
unnecessary,andinappropriate,forBannertoconsiderthesiteasapotentialacquisitionforitsown
commercialportfolio.But,asthejudgehimselfrecognised,oneofthereasonswhyLuffwantedBanner
keptonboardandsodidnotdiscloseitsowndoubtsastothefutureofthejointventurewasthat,
ifdropped,Bannermightemergeasarivalforthesite.Inotherwords,Luffsawitasanadvantage
thatBannersbeliefthatthesitewasoutofplayshouldbemaintained.LuffwantedtokeepBannerout
ofthemarket.Inthosecircumstances,itdoesnotlieeasilyinLuffsmouthtosaythatBannersuffered
nodetriment.ButwhetherornotBannersuffereddetrimentfromthefactthatitneverregardeditselfas
freetoconsiderthesiteasapotentialacquisitionofitsowndoesnotseemtomeconclusive.Luff
obtainedtheadvantagewhichitsought.Further,Luffobtainedtheadvantageofknowingthatithad
Bannerssupport,asapotentialjointventurerwhosecommitmentwasnotindoubt,inanacquisition
onwhichithadnotbeenwillingtoembarkonitsown.
AsIhavesoughttoshow,thePallantvMorganequityisinvokedwhereitwouldbeinequitabletoallow
thedefendanttotreatthepropertyacquiredinfurtheranceofthearrangementorunderstandingashis
own.Itmaybejustasinequitabletoallowthedefendanttotreatthepropertyashisownwhenithas
beenacquiredbytheuseofsomeadvantagewhichhehasobtainedunderthearrangementor
understandingasitistoallowhimtotreatthepropertyashisownwhentheplaintiffhassufferedsome
detrimentunderthearrangementorunderstanding.That,asitseemstome,isthiscase.
AsignificantlimitationontheoperationofthejointventureconstructivetrustwasrecognizedbytheHouseof
LordsinCobbevYeomansRowManagementLtd.117 Inthatcasetheclaimanthadenteredintoanoral
agreementwithMrsLisleMainwaring,onbehalfofthedefendant,topurchaseflatsthatbelongedtothedefendant,
andwithaviewtoredevelopingthepropertyandsharingtheprofitsbetweentheclaimantandthedefendant,the
claimanthavingobtainedplanningpermissionforthedevelopmentathisownexpense.Relyinguponthisoral
agreementthatthepropertywouldbesoldtohimtheclaimantobtainedthenecessaryplanningpermission,but
thedefendantthenwithdrewfromtheagreement.Theclaimantwasnotabletosueontheagreementbecauseit
wasnotinwriting.118 However,sincewritingisnotrequiredifthepropertyisheldonconstructivetrust,the
claimantarguedthatitwasheldonajointventureconstructivetrust.Thisargumentfailedbecausethedefendant
alreadyownedtheproperty.LordScottsaid:119
(p.455) Theconstructivetrustinthesefailedjointventurecasescannot,inmyopinion,berecognisedor
imposedinthepresentcase.TheYeomansRowpropertywasownedbythedefendantcompanysome
yearsbeforeMrs.LisleMainwaringbeganherjointventurediscussions(forsuchineffecttheywere)with
Mr.Cobbe.IntheBannerHomescase[2000]Ch372,397ChadwickLJcommentedonhowthesituation
mightappearinsuchacase:
Wherethearrangementorunderstandingisreachedinrelationtopropertyalreadyownedbyoneof
theparties,hemay(ifthearrangementisofsufficientcertaintytobeenforcedspecifically)thereby
constitutehimselftrusteeonthebasisthatequitylooksonthatasdonewhichoughttobe
done.
ifthearrangementisofsufficientcertaintytobeenforcedspecificallytherewouldbeastraightforward
contractualremedy,withnoneedtoresorttotrusts.ButthepointunderlyingChadwickLJscommentisa
validone.Ifthepropertythatistobethesubjectofthejointventureisownedbyoneofthepartiesbefore
thejointventurehasbeenembarkedupon(asopposedtobeingacquiredaspartofthejointventureitself),
onwhatbasis,shortofacontractuallycompleteagreementforthejointventure,canitberighttoregard
theownerashavingsubjectedthepropertytoatrustandgrantedabeneficialinteresttotheotherjoint
venturers?AsChadwickLJobservedintheBannerHomescase,atp400:The[PallantvMorgan]equityis
invokedwherethedefendanthasacquiredpropertyincircumstanceswhereitwouldbeinequitabletoallow
himtotreatitashisown.
Thecircumstancesofthepresentcasearethatthepropertyinquestionwasownedbythedefendant
companybeforeanynegotiationsforajointventureagreementhadcommenced.Theinterestinthe
propertythatMr.Cobbewasexpectingtoacquirewasaninterestpursuanttoaformalwrittenagreement
someofthetermsofwhichremainedstilltobeagreedandthatnevercameintoexistence.Mr.Cobbe
expendedhistimeandmoneyinmakingtheplanningapplicationintheknowledgethatthedefendant
companywasnotlegallybound.Despitetheunconscionabilityofthedefendantcompanysbehaviourin
withdrawingfromtheinchoateagreementimmediatelyplanningpermissionhadbeenobtained,thisseems
tomeawhollyinadequatebasisforimposingaconstructivetrustoverthepropertyinordertoprovideMr.
Cobbewitharemedyforhisdisappointedexpectations.ThispropertywasneverjointventurepropertyandI
canseenojustificationfortreatingitasthoughitwas.
Instead,apersonalclaimfoundedonunjustenrichmentsucceededasregardsthevalueoftheclaimantsservices
inobtainingplanningpermissionforthebenefitofthedefendant.
4.ProprietaryEstoppel
Proprietaryestoppelisanindependentcauseofactionwhichenablesthecourttocreatepropertyrightsinland.
TheessenceofproprietaryestoppelwasrecognizedbyLordScottinCobbevYeomansRowManagement
Ltd:120
Anestoppelbarstheobjectofitfromassertingsomefactorfacts,or,sometimes,somethingthatisa
mixtureoffactandlaw,thatstandsinthewayofsomerightclaimedbythepersonentitledtothebenefitof
theestoppel.Theestoppelbecomesaproprietaryestoppelsiftherightclaimedisaproprietaryright,
usuallyarighttooroverlandbut,inprinciple,equallyavailableinrelationtochattelsorchosesinaction.
(p.456) Wherethedefendanthasmadearepresentationthattheclaimantwillacquireaninterestinspecified
propertyandtheclaimanthasdetrimentallyreliedonthatrepresentation,theclaimantmayhaveamereequity
entitlinghimorhertoequitablerelief.Thisequityissatisfiedbytheminimumnecessarytodojustice,whichmay
benomorethanamonetaryaward,121 butmightinvolvethecourt,intheexerciseofitsdiscretion,decidingthat
thedefendantholdspropertyontrustfortheclaimant.Thistrustcanbecharacterizedasconstructive,because
unconscionabilityisakeycomponentofproprietaryestoppel.However,thetrustistrulyremedialandexistsonly
fromthedateofthecourtorder.
Proprietaryestoppelhasoperatedinawiderangeofcircumstances.Examplesincludewhereagiftofproperty
wasmadeimperfectly,122 wheretherewasacommonexpectationthatpropertywouldbeacquiredbythe
claimant,123 orwheretheclaimantmadeaunilateralmistakethatthepropertybelongedtohimorherin
circumstanceswherethedefendantwasawareofthemistakeanddidnothingtoexplainthetruesituation.124
(a)RequirementsforProprietaryEstoppel
InThornervMajors,LordWalkeridentifiedtherequirementsforproprietaryestoppelasfollows:125
mostscholarsagreethatthedoctrineisbasedonthreemainelements,althoughtheyexpressthemin
slightlydifferentterms:arepresentationorassurancemadetotheclaimantrelianceonitbytheclaimant
anddetrimenttotheclaimantinconsequenceofhis(reasonable)reliance.
Therepresentationmadetotheclaimantmustbeapromiseorassurancethattheclaimanthas,orwillhave,a
proprietaryinterestinidentifiedproperty.126 Therepresentationmustbesufficientlyclearandunequivocalinits
context.127 Thismeansthat,wheretherepresentationrelatestotheacquisitionofaproprietaryinterestinthe
future,itcanbereasonablyunderstoodbytheclaimanttoconstituteacommitmentorassurancebythe
defendantastothedefendantsfutureconduct.128 Itisnotnecessarytoshowthatthedefendantactually
intendedtherepresentationtobereliedon.129
Theoperationofthedoctrineofproprietaryestoppelasamechanismfortheinformalcreationofpropertyrightsis
illustratedbyThornervMajorsitself.
ThornervMajors[2009]UKHL18,[2009]1WLR776
Theclaimant,David,hadworkedonthefarmofPeter,arelative,fornearlythirtyyearswithoutpayment,but
withtheexpectation,encouragedbyPeter,thatDavidwouldinheritthefarmonPetersdeath.Peterdied
intestate.TheHouseofLordsheldthatDavidsestatewasestoppedfromdenyingthattheclaimanthad
acquiredabeneficialinterestinthefarm.LordHoffmannsaid:130
Adistinctivefeatureofthiscase,asLloydLJremarkedintheCourtofAppealwasthatthe
representationwasnevermadeexpresslybutwasamatterofimplicationandinferencefrom
indirect(p.457) statementsandconduct.ItconsistedofsuchmattersashandingovertoDavidin
1990aninsurancepolicybonusnoticewiththewordsthatsformydeathdutiesandotheroblique
remarksonsubsequentoccasionswhichindicatedthatPeterintendedDavidtoinheritthefarm.As
LloydLJobservedsuchconductandlanguagemighthavebeenconsistentwithacurrentintention
ratherthanadefiniteassurance.Butthejudgefoundasafactthatthesewordsandactswere
reasonablyunderstoodbyDavidasanassurancethathewouldinheritthefarmandthatPeter
intendedthemtobesounderstood.
TheCourtofAppealsaid,correctly,thatthefactthatPeterhadactuallyintendedDavidtoinheritthe
farmwasirrelevant.Thequestionwaswhetherhiswordsandactswouldreasonablyhaveconveyedto
Davidanassurancethathewoulddoso.ButLloydLJacceptedthatthefindingastowhatPeter
wouldreasonablyhavebeenunderstoodtomeanbyhiswordsandactswasafindingoffactwhich
wasnotopentochallenge.Thatmustberight.Thefactthathespokeinobliqueandallusiveterms
doesnotmatterifitwasreasonableforDavid,givenhisknowledgeofPeterandthebackground
circumstances,tohaveunderstoodhimtomeannotmerelythathispresentintentionwastoleave
Davidthefarmbutthathedefinitelywoulddoso.
However,theCourtofAppealallowedtheappealonthegroundthatthejudgehadnotfoundthatthe
assurancewasintendedtoberelieduponandthattherewasnomaterialuponwhichhecouldhave
madesuchafinding.ThejudgehadfoundthatDavidhadreliedupontheassurancebynotpursuing
otheropportunitiesbutnot,saidLloydLJ,thatPeterhadknownabouttheseopportunitiesorintended
todiscourageDavidfrompursuingthem.
Atthatpoint,itseemstome,theCourtofAppealdepartedfromtheirpreviouslyobjectiveexamination
ofthemeaningwhichPeterswordsandactswouldreasonablyhaveconveyedandrequiredproofof
hissubjectiveunderstandingoftheeffectwhichthosewordswouldhaveuponDavid.Inmyopinionit
didnotmatterwhetherPeterknewofanyspecificalternativeswhichDavidmightbecontemplating.It
wasenoughthatthemeaningheconveyedwouldreasonablyhavebeenunderstoodasintendedtobe
takenseriouslyasanassurancewhichcouldbereliedupon.IfDaviddidthenrelyuponittohis
detriment,thenecessaryelementoftheestoppelisinmyopinionestablished.Itisnotnecessarythat
Petershouldhaveknownorforeseentheparticularactofreliance.
ThejudgefoundnotonlythatitwasreasonableforDavidtohaveunderstoodPeterswordsand
actstomeanthathewouldbePeterssuccessorto[thefarm]butthatitwasreasonableforhimto
relyuponthem.Thesefindingsoffactwereinmyopinionsufficienttosupportthejudgesdecision.
Itwasirrelevantthatwhatconstitutedthefarmvariedovertime,asthefarmerhadboughtandsoldland,sincethe
assuranceclearlyrelatedtothefarmasitexistedatthefarmersdeath.
Althoughtherearethreerequirementstoestablishproprietaryestoppel,thereisafurtherconsideration,namely
thatofunconscionability.TheroleofunconscionabilitywasidentifiedbyLordWalkerinCobbevYeomansRow
ManagementLtd:131
Here[unconscionability]isbeingused(asinmyopinionitshouldalwaysbeused)asanobjectivevalue
judgmentonbehaviour(regardlessofthestateofmindoftheindividualinquestion).Assuchitdoesinmy
opinionplayaveryimportantpartinthedoctrineofequitableestoppel,inunifyingandconfirming,asit
were,theotherelements.Iftheotherelementsappeartobepresentbuttheresultdoesnotshockthe
conscienceofthecourt,theanalysisneedstobelookedatagain.InthiscaseMrs.LisleMainwarings
conductwasunattractive.Shechosetostandonherrightsratherthanrespectinghernonbinding
assurances,whileMr.Cobbecontinuedtospendtimeandeffort,betweenChristmas2003andMarch
2004,inobtainingplanningpermission.ButMr.Cobbeknewthatshewasboundinhonouronly,andsoin
theeyesofequityherconduct,althoughunattractive,wasnotunconscionable.
(p.458) Unconscionability,therefore,involvesanobjectivevaluejudgementofthenatureofthedefendants
conductinthelightofhisorherrepresentationandtheclaimantsdetrimentalreliance.Itfollowsthatproprietary
estoppelwillnotbeestablishedjustbecausethedefendantsconductisunattractivesomethingmorewillbe
required.
Therequirementsforproprietaryestoppel,followingthedecisioninThornervMajors,havebeenusefully
summarizedbyMcFarlaneandRobertson:132
Astothedetailsofthetestforproprietaryestoppel,thespeechesinThornerdirectattentiontothree
questions:(1)whetherAcanreasonablybeunderstoodtohavemadeacommitmentorpromise(as
opposedtoamereexpressionofintention)(2)whetherreliancebyBcouldreasonablybetakentohave
beenintendedbyAand(3)whetherBsactualreliancecanberegardedasreasonableinthe
circumstances.Thornersuggeststhatthesequestionsareverycloselyconnected,andindeedthata
positiveanswertothethirdquestionassumespositiveanswerstothefirstandsecond.Itmustbe
emphasisedthatanobjectivetestappliestoeachofthequestions:forexample,inacasewhereBcares
forAfollowingAspromisethatshewillleaveherlandtoB,itmaybethatAhadnoactualintentionof
leavingherlandtoB,noreventoinfluenceBsconductbymakingthepromise.Nonetheless,Aspromise
willamounttoanassurancesufficienttofoundaproprietaryestoppelclaimasitcanreasonablybe
understoodbyBtohaveconstitutedacommitmentbyAastoAsfutureconduct.ThetestlookstoBs
reasonableunderstandingofAsconduct,notthatofahypotheticalstranger,andisthussensitivetothe
particularcontextofAandBsrelationship.
(b)TheNatureoftheRelief
Oncetherequirementsofproprietaryestoppelhavebeensatisfied,thecourthasadiscretiontoawardthe
claimantappropriatereliefinthelightofallrelevantcircumstances.Forexample,thismaymeanthatthecourt
decidesthattheclaimantshouldnotobtainanyrelief,orthatthebenefitsthatheorshehadalreadyreceivedare
sufficienttosatisfytheestoppel.133 Oritmaybethattheclaimantshouldreceiveonlysomeoftheassets
promisedbythedefendant,134 orthattheclaimantshouldacquireabeneficialinterestintheproperty,whichwill
beheldonconstructivetrustfortheclaimant.135
Ifthedefendanthasmadearepresentationthattheclaimantreliesontohisorherdetrimentandthenthe
defendantchangeshisorhermind,thisshouldbetakenintoaccountbythecourtwhendeterminingthe
appropriaterelief.Buttherewillbecircumstancesunderwhichthenatureoftheclaimantsdetrimentalrelianceis
suchthatthedefendantshouldnotbeabletorevoketherepresentationorassurance.So,forexample,inThorner
vMajors,wherePeterhadassuredDavidthathewouldleavehisfarmtoDavidinhiswill,ifPeterhad
subsequentlychangedhismindandlefthisfarmtosomebodyelse,thecourtmighthaveconcludedthat,because
ofDavidsdetrimentalrelianceonPetersassurance,thefarmcouldnotbelefttoanybodyelse,unlessPeters
alterationofhiswillwasjustifiedbyachangeincircumstances.AsLordNeubergerrecognized:136
evenifPetersimplicitstatementmayhavebeenrevocable,astheCourtofAppealthought,Ishouldnot
betakenasacceptingthatitwouldnecessarilyfollowthat,oncethestatementhadbeenmaintainedby
PeterandactedonbyDavidforasubstantialperiod,itwouldhavebeenopentoPeter(p.459) freelytogo
backonit.Itmaybethathecouldnothavedoneso,atleastwithoutpayingDavidappropriate
compensation,unlessthechangeofmindwasattributableto,andcouldbejustifiedby,achangeof
circumstances.Itseemstomethatitwouldbearguablethat,evenassumingthattheimplicitstatement
wasnotirrevocable,if,sayin2004,Peterhadchangedhismind,Davidwouldnonethelesshavebeen
entitledtoequitablerelief,inthelightofhisfourteenormoreyearsofunpaidworkonthefarm.
LordScottwouldhavedealtwiththisproblemofthedefendantactingcontrarytohisrepresentationbyrestricting
proprietaryestoppeltorepresentationsaboutpresentpropertyinterestsandleavingrepresentationsaboutfuture
propertyintereststobedealtwithbymeansofaremedialconstructivetrust:137
Thesereflectionsinvitesomethoughtabouttherelationshipbetweenproprietaryestoppelandconstructive
trustandtheirrespectiverolesinprovidingremedieswhererepresentationsaboutfuturepropertyinterests
havebeenmadeandreliedon.Therearemanycasesinwhichtherepresentationsreliedonrelatetothe
acquisitionbytherepresenteeofanimmediate,ormoreorlessimmediate,interestinthepropertyin
question.Inthesecasesaproprietaryestoppelistheobviousremedy.Therepresentorisestoppedfrom
denyingthattherepresenteehastheproprietaryinterestthatwaspromisedbytherepresentationin
question.CrabbvArunDistrictCouncil[1976]Ch179]seemstomeaclearexampleofsuchacase.The
CouncilhadrepresentedthatMr.CrabbwouldbeentitledtohaveaccesstotheprivateroadatgatewayB
andhadconfirmedthatrepresentationbyerectinggatepostsandagateacrossthegateway.OnceMr.
Crabb,inrelianceonthatrepresentation,hadactedtohisdetrimentinsellingoffaportionofhislandso
thathisonlymeansofaccesstoandegressfromhisretainedlandwasviagatewayB,itwastoolatefor
theCounciltochangeitsmind.TheCouncilwasestoppedfromdenyingthatMr.Crabbhadthenecessary
accessrightsIncaseswheretheowneroflandstandsbyandallowsaneighbourtobuildoverthe
mutualboundary,representingeitherexpresslyorimpliedlythatthebuildingownerisentitledtodoso,the
ownermaybeestoppedfromsubsequentlyassertinghistitletotheencroacheduponland.This,too,
seemstomestraightforwardproprietaryestoppel.Therearemanyotherexamplesofdecidedcaseswhere
representationsactedonbytherepresenteehaveledtotherepresentorbeingestoppedfromdenyingthat
therepresenteehadtheproprietaryinterestintherepresentorslandthattherepresentationhad
suggested.Constructivetrust,inmyopinion,hasnothingtooffertocasesofthissort.Butcaseswhere
therelevantrepresentationhasrelatedtoinheritanceprospectsseemtomedifficult,forthereasonsIhave
given,tosquarewiththeprinciplesofproprietaryestoppelestablishedbytheCrabbvArunDistrict
Councillineofcasesand,formypart,Ifindthemmadeeasiertounderstandasconstructivetrustcases.
Thepossibilityofaremedialconstructivetrustoverproperty,createdbythecommonintentionor
understandingofthepartiesregardingthepropertyonthebasisofwhichtheclaimanthasactedtohis
detriment,hasbeenrecognisedatleastsinceGissingvGissing[1971]AC886Theinheritance
casesare,tomymind,morecomfortablyviewedasconstructivetrustcasesFormypartIwould
prefertokeepproprietaryestoppelandconstructivetrustasdistinctandseparateremedies,toconfine
proprietaryestoppeltocaseswheretherepresentation,whetherexpressorimplied,onwhichtheclaimant
hasactedisunconditionalandtoaddressthecaseswheretherepresentationsareoffuturebenefits,and
subjecttoqualificationonaccountofunforeseenfutureevents,viatheprinciplesofremedialconstructive
trusts.
But,bearinginmindthediscretionjudgeshaveindeterminingthereliefforproprietaryestoppel,nothingistobe
gainedbydistinguishingbetweenproprietaryestoppelandtheremedialconstructive(p.460) trustinthisway.In
eithercase,thecourtwillhaveadiscretiontodeterminetheappropriaterelief,butitisfarbettertodothishaving
satisfiedtherequirementsofproprietaryestoppel,ratherthantoleavetheclaimandremedytobedeterminedby
theexerciseofjudicialdiscretioninimposingaremedialconstructivetrust.
Eventhoughtheclaimforproprietaryestoppelisstructured,thediscretiontodeterminetheappropriatereliefcan
becriticized.Theoperationofthisdiscretionlackstransparencyinprovidingreasonsforthechosenoutcomeand
failstotakeintoaccounttheaimofproprietaryestoppel,whichistoredresstheunconscionabilitythatarises
wheretheclaimantdetrimentallyreliesonanexpectationinducedbythedefendant.AsGardnerhassaid:138
overall,thisdiscretioncannotbesufficientlyreconciledwiththeRuleofLaw:itinvolvesanunacceptable
degreeofrulebymen(theindividualjudges),notlaws.Thereasonsforthisare,however,fullycapableof
repair.Aclearerperceptionofthejurisdictionsaimisreadilyattainable,asisapracticeofgreater
transparencyinthejustificationofchosenoutcomes,andasharperfocusinappraisingtheaptnessof
thesejustifications.
Gardnercorrectlyconcludesthattheaimofthejurisdictionistorespondtothedefendantsunconscionabilityand
considersthat,ifthefocusofthediscretionisonthataim,itisdefensible.
(c)LimitationsonProprietaryEstoppel
FollowingthedecisionoftheHouseofLordsinCobbevYeomansRowManagementLtd,139 therearethree
potentiallysignificantrestrictionsontheapplicationofthedoctrineofproprietaryestoppel.InCobbe,althoughthe
claimantwasawarethatthesaleofthepropertydependedonaformalagreementbeingmade,andthe
negotiationsrelatingtothatagreementwerestillcontinuing,hewasencouragedbythedefendants
representative,MrsLisleMainwaring,tobelievethataformal,writtencontractwouldbeforthcoming.Inrelianceon
suchrepresentationsbyMrsLisleMainwaring,theclaimantspenttimeandmoneyobtainingplanningpermission.
Onceplanningpermissionhadbeenobtainedthedefendantwithdrewfromthenegotiations.Theclaimantwas
unabletosuethedefendantforbreachofcontractbecausetheoralcontractwasunenforceable.Hesoughtto
assertarightinthepropertybyvirtueofproprietaryestoppel,butwasunabletodoso.LordsScott140 and
Walker141 suggesteddifferentreasonsforthis.
(i)Evidentialfunctionofestoppel
LordScottsaid:142
Thetermsthathadalreadybeenagreedwereregardedbythepartiesasbeingbindinginhonour,butit
followsthatthepartiesknewtheywerenotlegallybinding.Sowhatisitthatthedefendantcompanyis
estoppedfromassertingorfromdenying?Itcannotbesaidtobeestoppedfromassertingthatthesecond
agreementwasunenforceableforwantofwriting,forMr.Cobbedoesnotclaimthatitwas(p.
461) enforceablenorfromdenyingthatthesecondagreementcoveredallthetermsthatneededtobe
agreedbetweentheparties,forMr.Cobbedoesnotclaimthatitdidnorfromdenyingthat,pre18March
2004,Mr.Cobbehadacquiredanyproprietaryinterestintheproperty,forhehasneverallegedthathehad.
AndwhatproprietaryclaimwasMr.Cobbemakingthatanestoppelwasnecessarytoprotect?His
originallypleadedclaimtospecificperformanceofthesecondagreementwasabandonedataveryearly
stageinthetrialandtheproprietaryclaimsthatremainedwereclaimsthatthedefendantcompanyheld
thepropertyontrustforitselfandMr.Cobbe.Theseremainingproprietaryclaimswerepresumablybased
onthepropositionthataconstructivetrustoftheproperty,withappropriatebeneficialinterestsforthe
defendantcompanyandMr.Cobbe,should,byreasonoftheunconscionableconductofMrs.Lisle
Mainwaring,beimposedontheproperty.Imustexaminethatpropositionwhendealingwithconstructive
trustasapossiblemeansofprovidingMr.Cobbewitharemedy,butthepropositionisnotonethat
requiresordependsuponanyestoppels
unconscionabilityofconductmaywellleadtoaremedybut,inmyopinion,proprietaryestoppelcannotbe
theroutetoitunlesstheingredientsforaproprietaryestoppelarepresent.Theseingredientsshould
include,inprinciple,aproprietaryclaimmadebyaclaimantandananswertothatclaimbasedonsome
fact,orsomepointofmixedfactandlaw,thatthepersonagainstwhomtheclaimismadecanbe
estoppedfromasserting.Totreataproprietaryestoppelequityasrequiringneitheraproprietaryclaimby
theclaimantnoranestoppelagainstthedefendantbutsimplyunconscionablebehaviouris,inmy
respectfulopinion,arecipeforconfusion.
Theproblemisthatwhen[Mr.Cobbe]madetheplanningapplicationhisexpectationwas,forproprietary
estoppelpurposes,thewrongsortofexpectation.Itwasnotanexpectationthathewould,iftheplanning
applicationsucceeded,becomeentitledtoacertaininterestinland.HisexpectationwasthatheandMrs.
LisleMainwaring,ortheirrespectivelegaladvisers,wouldsitdownandagreetheoutstandingcontractual
termstobeincorporatedintotheformalwrittenagreement,whichhejustifiablybelievedwouldincludethe
alreadyagreedcorefinancialterms,andthathispurchase,andsubsequentlyhisdevelopmentofthe
property,inaccordancewiththatwrittenagreementwouldfollow
LetitbesupposedthatMrs.LisleMainwaringweretobeheldestoppedfromdenyingthatthecore
financialtermsofthesecondagreementwerethefinancialtermsonwhichMr.Cobbewasentitledto
purchasetheproperty.HowwouldthathelpMr.Cobbe?Hestillwouldnothaveacompleteagreement.
SupposeMrs.LisleMainwaringhadsimplysaidshehadchangedhermindanddidnotwanttheproperty
tobesoldafterall.Whatwouldshebeestoppedfromdenying?Proprietaryestoppelrequires,inmy
opinion,clarityastowhatitisthattheobjectoftheestoppelistobeestoppedfromdenying,orasserting,
andclarityastotheinterestinthepropertyinquestionthatthatdenial,orassertion,wouldotherwise
defeat.Iftheserequirementsarenotrecognised,proprietaryestoppelwilllosecontactwithitsrootsand
riskbecomingunprincipledandthereforeunpredictable,ifithasnotalreadybecomeso.Thisisnot,inmy
opinion,acaseinwhicharemedycanbegrantedtoMr.Cobbeonthebasisofproprietaryestoppel.
LordScottwascorrecttoassertthatthedefendantcouldnotbeestoppedfromassertingthattheoralcontract
wasunenforceableforwantofwriting,becausetheclaimanthadnotclaimedthatthecontractwasenforceable.
Buttheconclusionthatthedefendantcouldnotbeestoppedfromassertingthattheclaimantdidnothavea
proprietaryinterest,isincorrect,andbetraysamisundertsandingabouttheroleofproprietaryestoppel.That
doctrinedoesnotsimplyhaveanevidentialfunctiontopreventthedefendantfromassertingthetruth.Rather,
proprietaryestoppelisacauseofactioninitsownrightthatcangeneratepropertyrights.Thishasbeen
recognizedbyMcFarlaneandRobertson:143
(p.462) acurtailment[ofproprietaryestoppel]wouldbeinconsistentwiththeresultsofanumberofCourt
ofAppealdecisionsinwhichaproprietaryestoppelclaimhasbeensuccessfullybasedonanassurance
thatlandwillbelefttoBonthedeathofA(see,e.g.GillettvHolt[2001]Ch.210CAandJenningsv
Rice[2002]EWCACiv159[2003]1FCR501).ItseemsLordScottretainsthatnarrowviewofproprietary
estoppelforthatreason,hisLordshipspreferredexplanationoftheresultinThorneristhatDavidacquired
arightunderacommonintentionconstructivetrust,ratherthanthroughproprietaryestoppel(at[20]).
However,thereasoningoftheothermembersofthepanelinThornerdoesrestonproprietaryestoppeland
soisconsistentonlywiththerejectionofLordScottsnarrowinterpretationofthedoctrine.Indeed,ina
postscripttohisspeechinThorner(at[67]),LordWalkeradmittedtohavingsomedifficultywithLord
ScottscharacterisationofproprietaryestoppelinYeomansRow.
(ii)Commercialordomesticcontext
LordWalkerinCobbe,withwhosejudgmentLordsScottandBrownagreed,rejectedtheoperationofproprietary
estoppelforadifferentreason.Hesaid:144
Mr.Cobbescaseseemstometofailonthesimplebutfundamentalpointthat,aspersonsexperiencedin
thepropertyworld,bothpartiesknewthattherewasnolegallybindingcontract,andthateitherwas
thereforefreetodiscontinuethenegotiationswithoutlegalliabilitythatis,liabilityinequityaswellasat
lawMr.Cobbewasthereforerunningarisk,buthestoodtomakeahandsomeprofitifthedealwent
ahead,andthemarketstayedfavourable.HemayhavethoughtthatanyattempttogetMrs.Lisle
Mainwaringtoenterintoawrittencontractbeforethegrantofplanningpermissionwouldbecounter
productive.Whateverhisreasonsfordoingso,thefactisthatheranacommercialrisk,withhiseyes
open,andtheoutcomehasprovedunfortunateforhim.
Itfollowsthatproprietaryestoppelcouldbeestablishedonlywheretheclaimantbelievedthatthedefendantwas
legallyboundtotransfertheproprietaryinteresttotheclaimant.Thisisamoreconvincingexplanationastowhy
proprietaryestoppelfailedonthefactsofCobbe,butitdoesnotexplainmanyoftheearliercaseswhere
proprietaryestoppelsucceededeventhoughtheclaimantwasnotledtobelievethatthedefendantwaslegally
boundtotransferpropertytotheclaimant,suchaswherethedefendantrepresentedthathewouldleaveproperty
totheclaimantinhiswill.
LordWalkersapproachtoproprietaryestoppelappearstobeinconsistentwiththelaterdecisionoftheHouseof
LordsinThornervMajors,145 whereLordWalkergavetheleadingspeech.InThorner,Davidsclaimsucceeded
eventhoughhehadnotbeennotledtobelievethathehadalegallyenforceableclaimforthefarm.Thereasonfor
thedifferencebetweenCobbeandThornerwasidentifiedbyLordNeubergerinThorneritself:146
Therearetwofundamentaldifferencesbetween[Cobbe]andthiscase.First,thenatureoftheuncertainty
inthetwocasesisentirelydifferentInthatcase,therewasnodoubtaboutthephysicalidentityofthe
property.However,therewastotaluncertaintyastothenatureortermsofanybenefit(propertyinterest,
contractualright,ormoney),and,ifapropertyinterest,astothenatureofthatinterest(freehold,leasehold,
orcharge),tobeaccordedtoMr.Cobbe.
(p.463) Inthiscase,theextentofthefarmmightchange,but,ontheDeputyJudgesanalysis,thereis,
asIseeit,nodoubtastowhatwasthesubjectoftheassurance,namelythefarmasitexistedfromtime
totime.Accordingly,thenatureoftheinteresttobereceivedbyDavidwasclear:itwasthefarmasit
existedonPetersdeath.Asinthecaseofaverydifferentequitableconcept,namelyafloatingcharge,the
propertythesubjectoftheequitycouldbeconceptuallyidentifiedfromthemomenttheequitycameinto
existence,butitspreciseextentfelltobedeterminedwhentheequitycrystallised,namelyonPeters
death.
Secondly,theanalysisofthelawinCobbewasagainstthebackgroundofverydifferentfacts.The
relationshipbetweenthepartiesinthatcasewasentirelyarmslengthandcommercial,andtheperson
raisingtheestoppelwasahighlyexperiencedbusinessman.Thecircumstancesweresuchthattheparties
couldwellhavebeenexpectedtoenterintoacontract,however,althoughtheydiscussedcontractual
terms,theyhadconsciouslychosennottodoso.Theyhadintentionallylefttheirlegalrelationshiptobe
negotiated,andeachofthemknewthatneitherofthemwaslegallybound
Inthiscase,bycontrast,therelationshipbetweenPeterandDavidwasfamilialandpersonal,andneither
ofthem,leastofallDavid,hadmuchcommercialexperience.Further,atnotimehadeitherofthemeven
startedtocontemplateenteringintoaformalcontractastotheownershipofthefarmafterPetersdeath.
Norcouldsuchacontracthavebeenreasonablyexpectedeventobediscussedbetweenthem.Onthe
DeputyJudgesfindings,itwasarelativelystraightforwardcase:Petermadewhatwere,inthe
circumstances,clearandunambiguousassurancesthathewouldleavehisfarmtoDavid,andDavid
reasonablyreliedon,andreasonablyactedtohisdetrimentonthebasisof,thoseassurances,overalong
period.
Itfollowsthat,inthecommercialcontext,iftheclaimanttakestheriskthatacontracttoselllandwillbemade,
thisshouldbesufficienttodefeatproprietaryestoppel.Inthedomesticcontext,however,thepartieswouldnot
normallyenterintoacontract,sothereisaroleforEquitytoassisttheclaimant.Thisdistinctionwasadvocated
extrajudiciallybyLordNeuberger:147
Isuggestthat,beforehecanestablishaproprietaryestoppelclaim,aclaimantmustshowthatheactedin
thebeliefthathehassomethingwhichcanbecharacterisedasalegalrightatleastinacommercial
armslengthcontext.
Iaddthatqualification,becauseitisperhapsinthisconnectionthatthedifferencebetweencommercial
anddomesticcases(whichLordWalkerdiscussedinCobbeatparagraphs668,andwhichIalsotouched
oninThornerv.Majoratparagraphs967)comesintofocus.Thenotionthataclaimanttakeshischance,
whereheknowsthathehasnolegallyenforceableright,iseasiertoacceptinthecontextofacommercial
andarmslengthrelationshipthaninadomesticorfamilialcontext.Inacommercialsituation,theabsence
ofacontractualrelationshipnormallyarisesfromtheparties,witheasyaccesstolegaladvice,considering
themselvesbetteroff,oratleastchoosingtotakearisk,ratherthanbeingbound.MaybeMr.Cobbe
wantedtobefreetowalkaway,ratherthanbeingcommittedtopaying12m.anddevelopingtheproperty,
ifthemarketwentthewrongway.Maybehethoughtthathemightbeabletonegotiateabetterdealonce
planningpermissionwasobtained.But,whateverhisreasonfornothavingacontract,hefacedno
emotionalorsocialimpedimenttoinsistingonsomeformoflegallybindingprotectionbeforehewent
aheadwithseekingplanningpermission.Whyshouldequityassisthim,when[thedefendant]decidedto
negotiateabetterdeal?
ButitismucheasiertoseewhyDavidThornershouldhavebeenabletoinvokeproprietaryestoppel.His
older,gruffandtaciturncousinledhimtobelievethat,ifhecontinuedtoprovideworkandcompanionship,
hewouldinheritthefarm.ThenotionthatDavidcouldorshouldhaveaskedforacommitment(p.464) in
writing,inthecontextofaninformalfamilyrelationship,seemssomewhatunreal.Itwouldhaverisked
harmingtherelationshipwithPeter,andtheonlysolicitorheknewwouldnodoubthavebeenadvising
Peter.UnlikeinCobbe,formalcontractualrightsandobligationsweresimplynotthestuffofthe
relationshipbetweenPeterandDavidThorner
atleastinmanydomesticcases,itwouldbeinappropriatetorequirestrictadherencetoarulethatthe
claimantmusthavebelievedthathehadalegallyenforceableright.Butthatisnotinconsistentwiththe
decisioninacommercialcasesuchasCobbe.Wherepartiescanreasonablybeexpectedtoregulate
theirrelationshipbyabindingcontractiftheywanttodoso,equityshouldfeartotread.Notsowherethe
relationshipbetweenthepartiesissuchthattheycannotbeexpectedtohaverecoursetocontracts.
ThelimitedroleofproprietaryestoppelinthecommercialcontextwasemphasizedbyArdenLJinCrosscoNo.4
UnlimitedvJolanLtd:148
TheHouseofLordsmadeitclearthatwherepartieshavebeendealingonthebasisthattheirnegotiations
aresubjecttocontract,proprietaryestoppelwillnotordinarilybeavailable:seeCobbevYeomansRow
ManagementLtd[2008]1WLR1752.Theresultisnotunconscionablebecausethedisappointedpartywill
alwayshaveknownthatthatwastheposition.Thismaybecontrastedwiththedecisionofthiscourt
inHerbertvDoyle[2010]EWCACiv1095,wherethetrialjudgehadmadeaclearfindingthattheparties
hadagreedtotheadjustmentoftheirinterestsinasiteonabasisthatwasnotsubjecttocontract.Forthe
lawingeneraltoprovidescopeforclaimsinrespectofunsuccessfulnegotiationsthatdonotresultin
legallyenforceablecontractswould,inmyjudgment,belikelytoinhibittheefficientpursuitofcommercial
negotiations,whichisanecessarypartofproperentrepreneurialactivity.
(iii)Enforcingavoidcontract
InCobbevYeomansRowManagementLtdtheoralcontractofsalewasvoidbecauseitdidnotcomplywiththe
requisiteformalities.149 Aninterestinthepropertycould,however,beobtainedifitwereheldonimplied,resulting,
orconstructivetrustfortheclaimant.150 Thisexceptiondoesnotmentionproprietaryestoppel,soLordScott
inCobbeheldthatproprietaryestoppelcannotrenderenforceableanagreementthatthestatutehasalready
151
declaredtobevoid:151
Thequestionarises,therefore,whetheracompleteagreementfortheacquisitionofaninterestinlandthat
doesnotcomplywiththesection2prescribedformalities,butwouldbespecificallyenforceableifitdidcan
becomeenforceableviatherouteofproprietaryestoppel.Itisnotnecessaryinthepresentcasetoanswer
thisquestion,forthesecondagreementwasnotacompleteagreementand,forthatreason,wouldnot
havebeenspecificallyenforceablesolongasitremainedincomplete.Mypresentview,however,isthat
proprietaryestoppelcannotbeprayedinaidinordertorenderenforceableanagreementthatstatutehas
declaredtobevoid.Thepropositionthatanowneroflandcanbeestoppedfromassertingthatan
agreementisvoidforwantofcompliancewiththerequirementsofsection2is,inmyopinion,
unacceptable.Theassertionisnomorethanthestatuteprovides.Equitycansurelynotcontradictthe
statute.
(p.465) Ifthisiscorrect,itconstitutesasignificantlimitationontheoperationofproprietaryestoppel,sinceit
wouldmeanthatthereisnoscopeforthedoctrinetocreatebeneficialinterestsinpropertybymeansofinformal
arrangements.LordScottsconclusioncanbeavoidedbytwodifferentarguments.First,wherethereliefawarded
bythecourtistorecognizethattheclaimanthasabeneficialinterestintherelevantproperty,thatproperty
shouldbeconsideredtobeheldonconstructivetrustfortheclaimantandthisconstructivetrustwillfallwithinthe
statutoryexception.Secondly,proprietaryestoppeldoesnotenforcethevoidcontractbetweentheclaimantand
thedefendant,sothepolicybehindtherelevantstatutoryformalityisnotengaged.ThiswasrecognizedbyLord
Neuberger,extrajudicially:152
ConsiderthefactsinThornervMajor.Asinthegreatmajorityofproprietaryestoppelcases,the
defendantmadeastatementorgaveanindication,whichwasreliedonbytheclaimantasmeaningthathe
wouldbegrantedaninterestinland.IfLordScottsapproachisright,therearetwopossibilities.First,as
section2[oftheLawofPropertyMiscellaneousProvisionsAct1989]wouldpreventtheclaimantfrom
mountingaclaimincontract,everyproprietaryestoppelclaimmustfail,asthestatutoryformalitieswere
notcompliedwith.Alternatively,section2presentsnoproblemwherethestatementorindicationisso
imprecisethatwearenotnearcontractualterritory.Eitheralternativeisunpalatable.Thefirstwouldmean
thatanyproprietaryestoppelclaimbasedonanindicationorpromisethattheclaimantwillgetaninterest
inlandwillfallfoulofsection2,unlesstheclaimanthappenstobeabletoerectaconstructivetrustoutof
thearrangementThesecondwouldmeanthattheclearerandmoreprecisethedefendantsindicationor
promise,andthereforethestrongertheclaimantscaseinprinciple,themorelikelyitisthatsection2will
scotchanyproprietaryestoppelclaim
Isuggestthatsection2hasnothingtodowiththematter.IncasessuchasThornerv.Major,the
estoppelrestsonthefindingthatitwouldbeinequitableforthedefendanttoinsistonhisstrictlegalrights.
Sothefactthat,iftherewasacontract,itwouldbevoidisirrelevant:indeedtheveryreasonformounting
theproprietaryestoppelclaimisthatthereisnoenforceablecontract.Iacceptofcoursethatitisnotopen
toaclaimanttotaketheunvarnishedpointthatitisinequitableforadefendanttorelyontheargumentthat
anapparentcontractisvoidfornotcomplyingwiththerequirementsofsection2.Butwherethereisthe
superaddedfactthattheclaimant,withtheconsciousencouragementofthedefendant,hasactedinthe
beliefthatthereisavalidcontract,Isuggestthatsection2offersnobartoaclaimbasedinequity.
Crucially,proprietaryestoppelisadistinctcauseofactioninitsownright,sothatanyproprietaryrightsthatarise
derivefromtheestoppelratherthanthecontract.153
Question
AlanandBrendaareanunmarriedcouplewho,beforetheymet,eachownedtheirownhouse.In1990,they
decidedtolivetogetherandagreedtoselltheirhousesandpooltheirresourcestobuyanewhouseasthe
familyhome.Theysoldtheirhousesfor200,000each.Theydecidedtobuyanewhouse,Blackacre,for
400,000.Havingobtainedfinancialadvice,theydecidedtocontribute100,000eachtothepurchaseof
Blackacreandobtainamortgageloanfromabankfortheremainderofthepurchaseprice.Blackacrewas
registeredinthenameofbothAlanandBrendaandbecamethefamilyhome.Theyeachcontributedafurther
100,000topurchaseWhiteacreasaninvestmentopportunity.Whiteacrewaspurchasedfor400,000and
theyobtainedamortgage(p.466) loanof200,000topurchasethatproperty.Whiteacrewasregisteredin
thenameofAlanonly.MonthlyrentfromWhiteacrewasusedtopaythemortgage.AlanandBrendajointly
mademonthlymortgagepaymentsinrespectofBlackacre.In2000,Alanwasinjuredatworkandlosthis
job.Brendathenbecamesolelyresponsibleforthemortgagepayments.In2010,AlanandBrendaseparated.
AlanmovedoutofBlackacre.BothpropertieshavesignificantlyincreasedinvalueandAlanseeksyour
adviceastothebeneficialownershipofbothWhiteacreandBlackacre.
FurtherReading
Dixon,TheNeverEndingStoryCoownershipAfterStack vDowden[2007]Conv456.
FindThisResource
Dixon,ConfiningandDefiningProprietaryEstoppels:TheRoleofUnconscionability(2010)LS408.
FindThisResource
Etherton,ConstructiveTrustsandProprietaryEstoppel:TheSearchforClarityandPrinciple[2009]Conv
104.
FindThisResource
Gardner,TheRemedialDiscretioninProprietaryEstoppel:Again(2006)112LQR492.
FindThisResource
Gardner,FamilyPropertyToday(2008)124LQR422.
FindThisResource
Hopkins,ThePallantvMorganEquity[2002]Conv35.
FindThisResource
Hopkins,ThePallantvMorganEquityAgain[2012]Conv327.
FindThisResource
Lees,GearyvRank ine:MoneyIsntEverything[2012]Conv412.
FindThisResource
LordNeuberger,TheStuffingofMinervasOwl?TaxonomyandTaxidermyinEquity(2009)68CLJ537.
FindThisResource
McFarlaneandRobertson,ApocalypseAverted:ProprietaryEstoppelintheHouseofLords(2009)LQR535.
FindThisResource
Swadling,TheCommonIntentionConstructiveTrustintheHouseofLords:AnOpportunityMissed(2007)
123LQR511.
FindThisResource
Notes:
1
LawofPropertyAct1925,s.53(1)(b).SeeChapter4.2(b),p.120.
2
Ibid,s.53(2).
3 LawofProperty(MiscellaneousProvisions)Act1989,s.2(5).
4
4
ConfiningandDefiningProprietaryEstoppels:TheRoleofUnconscionability(2010)LS408,409.
5
ByvirtueoftheMatrimonialCausesAct1973.AsimilarschemeappliesforcivilpartnersundertheCivil
PartnershipAct2004,Sched.5.
6
Stack vDowden[2007]UKHL17[2007]2AC432,[49](LadyHale).
7
LawofPropertyAct1925,s.53(1)(b).
8 Ibid,s.53(2).
10 GissingvGissing[1971]AC886.
11 JonesvKernott[2011]UKSC53[2012]1AC776,[53](LadyHaleandLordWalker).
12 Ibid,at[56](LordCollins).
13 HeseltinevHeseltine[1971]1WLR342HusseyvPalmer[1972]1WLR1286EvesvEves[1975]1WLR
1338.
15 SeeBurnsvBurns[1984]Ch317,342(MayLJ)Stack vDowden[2007]UKHL17[2007]2AC432.
16 Stack vDowden[2007]UKHL17[2007]2AC432,[128](LordNeuberger).
19 Ibid,at[56].
20 [1970]AC777.
21
[1971]AC886.
22
[2007]UKHL17[2007]2AC432,[63].
23
[2004]EWCACiv546[2005]Fam211,[69].
24
SeeChapter9.1(b)(iii),pp.4212.
25 [2007]UKHL17[2007]2AC432.
26 SeeChapter9.2(b)(v),pp.4334.
27 [2011]UKSC53[2012]1AC776.
28 GoodmanvGallant[1986]Fam106.
29 SeeChapter1.5(d),pp.1920.
30 JonesvKernott[2011]UKSC53[2012]1AC776,[16](LadyHaleandLordWalker),[68](LordKerr).
31 Stack vDowden[2007]UKHL17[2007]2AC432,[114](LordNeuberger).
32 [2007]UKPC53[2008]1FLR1451.SeeChapter9.2(c)(i),pp.4369.
33 SeealsoStack vDowden[2007]UKHL17[2007]2AC432,[60](LadyHale).
34
34 Ibid,[109].
36 Ibid,at[53](LadyHaleandLordWalker).
37 [2007]UKHL17[2007]2AC432,[56].
38 SeeAbbottvAbbott[2007]UKPC53[2008]1FLR1451,[4](LadyHale).
39 [2011]UKSC53[2012]1AC776,[19].
40 [2007]UKHL17[2007]AC432,[59].
41 Ibid,[69].
42
[1991]1AC107.SeeChapter9.2(a),pp.4235.
43
Stack vDowden[2007]UKHL17[2007]AC432,[106](LordNeuberger).
44
SeefurtherChapter9.2(e),p.447.
45
JonesvKernott[2011]UKSC53[2012]1AC776,[51](3)(LadyHaleandLordWalker).Cp.LordWilsonat
[88].SeefurtherChapter9.2(b)(iv)(e),pp.4312.
46
[2007]UKHL17[2007]AC432,[126].
47
ConstructiveTrustsandProprietaryEstoppel:TheSearchforClarityandPrinciple[2009]Conv104,125.
48 [2007]UKHL17[2007]AC432,[125].
49 [2011]UKSC53[2012]1AC776.
50 Ibid,[46].
51 Ibid,[31].
52 Ibid,[51](4)(LadyHaleandLordWalker),[64](LordCollins).
53 Ibid,[47].
54 Ibid,[67].
55 Ibid,[78]
56 [2007]UKHL17[2007]AC432,[62].
57 Ibid,[138].
58 JonesvKernott[2011]UKSC53[2012]1AC776.SeeChapter9.2(c)(iii),pp.4401.
59 [2007]UKHL17,[2007]AC432,[107].
60
[2007]UKHL17[2007]AC432,[3].
61
Ibid,[31].
62
[2011]UKSC53[2012]1AC776,[23].
63
SeefurtherChapter9.2(e),p.447.
64 [2011]UKSC53[2012]1AC776,[51].
65
65 [2007]UKPC53[2008]1FLR1451.
66 Ibid,[18].
67
Stack vDowden:ASequel(2008)124LQR209,210.
68
[2012]EWCACiv555,[2012]2FLR1409.
69
Ibid,[20].
70
GearyvRank ine:MoneyisntEverything[2012]Conv412.
71 [2007]UKHL17,[2007]2AC432,[66].
72 Ibid,[11].
73 [2011]UKSC53[2012]1AC776,[30].
74 Ibid,[48].
75 Ibid,[64].
76 Stack vDowden[2007]UKHL17[2007]AC432,[58](LadyHale).
77 Adek unlevRitchie[2007]WTLR1505.
78 [2008]EWCACiv347,[2008]1WLR2695.SeeChapter8.2(b),pp.3601.
79 Ibid,[15].
80 SeeChapter9.2(b)(iv)(d),pp.4312.
81 Itis,however,consistentwithreformproposalsoftheLawCommission.SeeChapter9.2(e),pp.4478.
82 AsinAustralia:Muschinsk ivDodds(1985)160CLR583.
83
84
AsoccursinCanada:KerrvBaranow2011SCC10(2011)328DLR(4th)577.SeeMcInnes,Cohabitation,
TrustsandUnjustEnrichmentintheSupremeCourtofCanada(2011)127LQR339.AlsoinScotland:
seeSatchwellvMcIntosh2006SLT117McKensievNutter2007SLT17.
86
ConstructiveTrusts:ANewModelforEquityandUnjustEnrichment(2008)CLJ265,266.SeealsoGardner,
FamilyPropertyToday(2008)LQR422,437.
87 (2008)CLJ265,280.
88
89 Gardner,FamilyPropertyToday(2008)LQR422,438.
90
Fosk ettvMcKeown[2001]1AC102.
91 [2007]UKHL17,[2007]AC432.
92
YaxleyvGotts[2000]Ch162,177(RobertWalkerLJ)OxleyvHiscock [2004]EWCACiv546,[2005]Fam
211,[66](ChadwickLJ).
93 [2007]UKHL17,[2007]AC432,[37].
94
95
FamilyPropertyToday(2008)LQR422,431.SeealsoGardner,RethinkingFamilyProperty(1993)109LQR
263.
96 [2007]UKPC53,[2008]1FLR1451.SeeChapter9.2(c)(i),pp.4368.
97
[2007]UKHL17,[2007]2AC432.SeeChapter9.2(c)(ii),pp.43940.
98 JonesvKernott[2011]UKSC53[2012]1AC776:seeChapter9.2(c)(iii),pp.4401.
99
GloverandTodd,TheMythofCommonIntention(1996)16LS325.
100
(1985)160CLR583,616.
101
See,e.g,theNewSouthWalesDeFactoRelationshipsAct1984.
102
Cohabitation:TheFinancialConsequencesofRelationshipBreak down,LawCom.No.307(London:HMSO,
2007).
103
Ibid,3.
104
ButnoteHopkins,ThePallantvMorganEquity[2002]Conv35,whoconsidersthisdoctrinetohavebeen
createdbytheCourtofAppealinBannerHomesGroupplcvLuffDevelopmentsLtd[2000]Ch371,discussedin
Chapter9.3(a),pp.44950,becausePallantvMorganturnedontheapplicationofthelawofagency.See
alsoCrosscoNo.4UnlimitedvJolanLtd[2011]EWCACiv1619,[2012]1PandCR16,[88](EthertonLJ),[128]
(ArdenLJ).
105
[1953]Ch43.
107
[2008]UKHL55,[2008]1WLR1752,[30].
108
McFarlane,ConstructiveTrustsonaReceiptofPropertySubCoditione(2004)LQR667.SeeChapter7.2(c),
pp.33342.SeealsoGardner,RelianceBasedConstructiveTrustsinConstructiveandResultingTrusts(ed.
Mitchell)(2010),pp.724.
109
[2011]EWCACiv1619,[2012]1PandCR16.SeeHopkins,ThePallantvMorganEquityAgain[2012]
Conv327.SeealsoCobbevYeomansRowManagementLtd[2008]UKHL55,[2008]1WLR1752,[31](Lord
Scott).
110 Ibid,[129].
111
Ibid,[87].
112 [2011]EWCACiv347,[2012]Ch453.SeeChapter14.5(b),pp.6925.
113
114
LordNeuberger,TheStuffingofMinervasOwl?TaxonomyandTaxidermyinEquity(2009)68CLJ537,549.
115
LawofProperty(MiscellaneousProvisions)Act1989,s.2(1).
116
[2000]Ch372,[8].
117 [2008]UKHL55,[2008]1WLR1752.
118
LawofProperty(MiscellaneousProvisions)Act1989,s.2(1).
119 [2008]UKHL55,[2008]1WLR1752,[33].
120
120
[2008]UKHL55,[2008]1WLR1752,[14].
121
CrabbvArunDistrictCouncil[1976]Ch179,198(ScarmanLJ).
122 DillwynvLlewellyn(1862)4DeGFandJ517.
123
PlimmervWellingtonCorporation(1884)9AppCas669.
124 WillmotvBarber(1880)15ChD96.
125
[2009]UKHL18,[2009]1WLR776,[29].
126 Ibid,at[2](LordHoffmann).
127
Ibid,at[56](LordWalker).
128 Ibid,at[5](LordHoffmann),[17](LordScott),[60](LordWalker),[77](LordNeuberger).
129
ThornervMajors[2009]UKHL18,[2009]1WLR776.
130 Ibid,[2].
131
[2008]UKHL55,[2008]1WLR1752,[92].Forthefacts,seeChapter9.4(c),p.460.
132 Apocalypseaverted:proprietaryestoppelintheHouseofLords(2009)LQR535,539.
133
SledmorevDalby(1996)72P&CR196.
134
JenningsvRice[2002]EWCACiv159,[2003]1P&CR100.
135
ThornervMajors[2009]UKHL18,[2009]1WLR776.
136
[2009]UKHL18,[2009]1WLR776,[89](LordNeuberger).
137
Ibid,[20].
138
TheRemedialDiscretioninProprietaryEstoppel:Again(2006)112LQR492,512.
139 [2008]UKHL55,[2008]1WLR1752.
140
WithwhosejudgmentLordsHoffmann,Brown,andManceagreed.
141 WithwhosejudgmentLordBrownagreed.
142
[2008]UKHL55,[2008],1WLR1752[15].
143 ApocalypseAverted:ProprietaryEstoppelintheHouseofLords(2009)LQR535,537.
144
[2008]UKHL55,[2008]1WLR1752,[91].
145 [2009]UKHL18,[2009]1WLR776.
146
Ibid,[92].
147 TheStuffingofMinervasOwl?TaxonomyandTaxidermyinEquity(2009)68CLJ537,542.
148
[2011]EWCACiv1619,[2012]1PandCR16,[133].
149 LawofProperty(MiscellaneousProvisions)Act1989,s.2(1).
150
Ibid,s.2(5).
151
[2008]UKHL55,[2008]1WLR1752,[29].InPearsonvLehmanBrothersFinanceSA[2010]EWHC2914
(Ch),BriggsJleftopenwhetherthedictumofLordScottextendedtotheneedtousewritingtodisposeofan
equitablebeneficialinterestunders.53(1)(c)oftheLawofPropertyAct1925.SeeChapter10.2,p.485.
152 TheStuffingofMinervasOwl?TaxonomyandtaxidermyinEquity(2009)68CLJ537,546.
153
McFarlane,ProprietaryEstoppelandFailedContractualNegotiations[2005]Conv501.
10.Beneficiaries
Chapter: (p.469) 10.Beneficiaries
DOI: 10.1093/he/9780199661480.003.0010
CentralIssues
1.Thebeneficiaryofatrusthasavarietyofequitablerightsarisingfromthetrust.Thenatureofthese
rightswilldependonthetypeoftrustthathasbeencreated.
2.Beneficiariesofafixedtrusthaveproprietaryrightsinthetrustpropertyandalsoavarietyofpersonal
rights,includingtherighttoensuretheproperadministrationofthetrustandtherighttobeinformedof
anentitlementtotrustproperty.
3.Objectsofadiscretionarytrustdonothaveanyproprietaryrightstotrustpropertybuttheyhavea
varietyofpersonalrights,includingtherighttoensuretheproperadministrationofthetrust.
4.Beneficiariesdonothavearighttoinspecttrustdocuments,butdisclosureofsuchdocumentscan
beorderedthroughtheexerciseofjudicialdiscretion.
5.Thedispositionofsubsistingequitableinterestsmustbeeffectedbysignedwriting.
6.Adultbeneficiariescanunanimouslyagreetoterminatethetrustifbetweenthemtheyareabsolutely
entitledtothebeneficialinterest.
1.NatureOfABeneficiarysRights
Onceaprivatetrusthasbeenvalidlycreatedandconstituted,thebeneficiaryacquiresequitablerights,whichmay
bebothproprietaryandpersonal.Allbeneficiariescanenforcetheserightsagainstthetrustee.InArmitagev
Nurse,1 MillettLJsaid:
thereisanirreduciblecoreofobligationsowedbythetrusteestothebeneficiariesandenforceablebythem
whichisfundamentaltotheconceptofatrust.Ifthebeneficiarieshavenorightsenforceableagainstthe
trusteestherearenotrusts.
Thenatureoftherightthatisenforceablebythebeneficiarywilldependonthenatureofthetrustthathasbeen
established,althoughsomerightsarecommontoallbeneficiaries,namelytherightto(p.470) havetrustees
performthetrustshonestlyandingoodfaithforthebenefitofthebeneficiaries.2 Inparticular,therightsof
beneficiariesunderresultingandconstructivetrustsarelimited,byvirtueofthelimitedresponsibilitiesofthe
trusteesofsuchtrusts.3
Thebeneficiariescandisclaimtheirbeneficialinterestbydecliningthatinterest.4 Therighttodisclaimexists
becausenobodyisrequiredtoacceptagiftifheorshedoesnotwishtodoso.Butitispresumedthat,oncea
beneficiaryisawareofhisorherinterest,heorshewillnotwishtodisclaimitsilenceistreatedastacit
acceptance.5 Ifabeneficiarydoeswishtodisclaimhisorherinterest,heorshemustdosoactively,withina
reasonabletime,andshowunequivocallythatheorsherejectsit.6 InLadyNaasvWestminsterBank Ltd,7 Lord
Wrightrecognizedthat:
Disclaimerofadeedhasbeenrightlydescribedasasolemnirrevocableact.Ifitisalleged,thecourtmust
besatisfiedthatitisfullyprovedbythepartyallegingit,whomustalsoestablishthatitwasmadewithfull
knowledgeandwithfullintention.Inthiscase,Icanfindnoevidencethatthefirstappellanteverintendedor
desiredtodisclaim.
8
Adisclaimeroperatesretrospectivelyandtheinterestdisclaimedpassestotheotherbeneficiaries.8
(a)FixedTrusts
(i)Proprietaryrights
InWestdeutscheLandesbank GirozentralevIslingtonLBC,9 LordBrowneWilkinsonrecognizedthat:
Onceatrustisestablished,asfromthedateofitsestablishmentthebeneficiaryhas,inequity,a
proprietaryinterestinthetrustproperty,whichproprietaryinterestwillbeenforceableinequityagainstany
subsequentholderoftheproperty(whethertheoriginalpropertyorsubstitutedpropertyintowhichitcanbe
traced)otherthanapurchaserforvalueofthelegalinterestwithoutnotice.
ThenatureofabeneficiarysproprietaryrightshasbeenidentifiedbyNolan:10
Abeneficiarysproprietaryrightsunderatrustconsistprincipallyinthebeneficiarysprimary,negative,
righttoexcludenonbeneficiariesfromtheenjoymentoftrustassets.Infringementofthisprimaryrightwill
generatesecondaryrightsbywhichabeneficiarymayalsoprevent(oratleastrestrict)accesstoassets
bynonbeneficiaries.Inshort,thesesecondaryrightsaretoclaimmisappliedtrustassets(togetherwith
theirfruits,andanyotherassetstotheextenttheycanbetreatedasrepresentingoriginaltrustassets),
subjecttoapplicabledefences,andtohavetheassetsresultingfromthatclaim(ortheirproceeds)vested
intheirproperowner.Inshort,equitableproprietaryinterestsunderatrustarecharacterisedby
consistentexclusionaryrights,enforceableagainstawidecategoryofpeople,coupled(p.471) withhighly
variablepositiverights,enforceableagainstaverylimitednumberofpersons.Thismeansthatthekey
proprietaryfeaturesofabeneficiarysinterestunderatrustarehisprimarynegativerighttoexcludenon
beneficiariesfromenjoymentoftrustassetsandsecondaryrightstovindicatethatprimaryrightifitis
infringed.
Oneconsequenceofthebeneficiaryhavingaproprietaryinterestinthetrustpropertyisthat,ifthetrustee
becomesinsolvent,thepropertywillnotbeavailabletothetrusteescreditors,butwillcontinuetobeheldontrust
forthebeneficiaries,whoseproprietaryrightswillconsequentlyprevailoverthoseofthetrusteescreditorseven
thoughthetrusteeownsthefundatlaw.Further,iftrustpropertyismisappropriatedbythetrusteeandis
transferredtoathirdparty,thebeneficiarieswillbeabletobringaproprietaryclaimtorecovertheproperty.11
Thebeneficiarysequitableproprietaryinterestmightbeoverreached,12 andsoextinguished,ifthepropertyis
transferredfromthetrustpursuanttoanauthorizedtransaction.
LordMillettinEquityinCommercialLaw(edsDegelingandEdelman)(Sydney:Lawbook
Co.,2005),p.315
Thebeneficiariesinterestsinatrustfundareproprietaryinterestsintheassetsfromtimetotime
comprisedinthefundsubjecttothetrusteesoverridingpowersofmanagingandalienatingthetrust
assetsandsubstitutingothers.Onanauthorisedsaleofatrustinvestment,thebeneficiaries
proprietaryinterestsintheinvestmentareoverreachedthatistosay,theyareautomatically
transferredfromtheinvestmentwhichissoldtotheproceedsofsaleandanynewinvestmentacquired
withthem.Thisisthefictionofpersistence,exceptthatitisnotafiction.Thebeneficiariesinterests
inthenewinvestmentareexactlythesameastheirinterestintheold.Theyhaveacontinuing
beneficialinterestwhichpersistsinthesubstitute.
Nowsupposethatthedisposalisunauthorised.Thetrusteesellsatrustinvestmentinbreachoftrust
andusestheproceedstobuysharesforhimself.Thebeneficiarieshaveacontinuingproprietary
interestintheoriginalinvestmentbuttheycannotrecoveritfromthepurchaserifheisabonafide
purchaserofthelegaltitlewithoutnoticeofthebreach.Buttheycaninsteadclaimaproprietary
interestintheshareswhichthetrusteeboughtforhimself
Theonlydifferencebetweenanunauthorisedsubstitutionoftrustpropertyandanauthorisedoneis
oneoftiming.Ifthesubstitutionisauthorisedthebeneficiariesinterestinthesubstitutedpropertyis
automaticallyandfullyvestedatthemomentofacquisition.Ifthesubstitutionisunauthorised,their
interestisinchoate,fortheymayrejectit.Theirinterestinthesubstitutedoesnotcrystallisefullyuntil
theyelecttoacceptit.Theirrighttoacceptitisarightgiventothembythelawofproperty.Itisan
incidentoftheirpropertyrightsintheoriginalasset.Unjustenrichmentdoesnotcomeintoit.
Whetheranequitableproprietaryinteresthasbeenoverreachedwilldependonwhetherthetransactionwas
authorized.Ifitwasnotauthorized,thebeneficiarywillretainhisorherequitableproprietaryinterests,savewhere
theproperty,oritssubstitute,hasbeenacquiredbyabonafidepurchaserforvalue.
Thepeculiarpositionoftestamentarytrustsneedstobeemphasizedasregardswhenequitableproprietaryrights
arise.Onthedeathofthetestator,hisorherestatepassestotheexecutor,whohasfullownershipofit.The
executorowesfiduciarydutiestothebeneficiariestoadministertheestate(p.472) andtoimplementanytrusts
createdbythewill,whichcanbeenforcedbythebeneficiaries.Butuntiltheestatehasbeenadministeredbythe
executor,theintendedbeneficiariesdonothaveaproprietaryinterestintheproperty.13
(ii)Personalrights
Beneficiariesoffixedtrustsalsohaveavarietyofpersonalrights.
(a)Rightstoensureproperadministrationofthetrust
Thebeneficiarieshavearighttocompelthetrusteestoadministerthetrustproperly.Beneficiariescanapplyto
thecourtifthetrusteesfailtotakethenecessaryactiontopreservetrustproperty.14 Thecourtcandirectthe
trusteestoenforceaclaimagainstthirdpartiesorallowthebeneficiarytosueathirdpartyforthebenefitofthe
trust.15 Beneficiariescannot,however,orderatrusteetodepartfromthetermsofthetrust.16
(b)Righttobeinformed
Thebeneficiarieshavearighttobeinformedthattheyhavearighttothetrustpropertyoncetheyhavebecome
entitledtotheproperty,suchasonattainingaspecifiedage.17
(c)Rightsfollowingbreachoftrust
Ifthetrusteeshavebreachedthetrust,thebeneficiariescansuethemforthatbreach.18 Ifthetrustisstill
subsisting,thentheeffectoftheremedywillbetorestorevaluetothetrust.Butwherethetrustisnolonger
subsisting,theremedywillbeawardedtothebeneficiariesdirectly.ThiswasrecognizedbyLordBrowne
WilkinsoninTargetHoldingsLtdvRedferns:19
Theequitablerulesofcompensationforbreachoftrusthavebeenlargelydevelopedinrelationtosuch
traditionaltrusts,wheretheonlywayinwhichallthebeneficiariesrightscanbeprotectedistorestoreto
thetrustfundwhatoughttobethere.Insuchacasethebasicruleisthatatrusteeinbreachoftrustmust
restoreorpaytothetrustestateeithertheassetswhichhavebeenlosttotheestatebyreasonofthe
breachorcompensationforsuchloss.Ifspecificrestitutionofthetrustpropertyisnotpossible,thenthe
liabilityofthetrusteeistopaysufficientcompensationtothetrustestatetoputitbacktowhatitwould
havebeenhadthebreachnotbeencommittedHithertoIhavebeenconsideringtherightsof
beneficiariesundertraditionaltrustswherethetrustsarestillsubsistingandthereforetherightofeach
beneficiary,andhisonlyright,istohavethetrustfundreconstitutedasitshouldbe.Butwhatifatthetime
oftheactionclaimingcompensationforbreachoftrustthosetrustshavecometoanend?Takeasan
exampleagainthetrustforAforlifewithremaindertoB.DuringAslifetimeBsonlyrightistohavethe
trustdulyadministeredand,intheeventofabreach,tohavethetrustfundrestored.AfterAsdeath,B
becomesabsolutelyentitled.Heofcoursehastherighttohavethetrustassetsretainedbythetrustees
untiltheyhavefullyaccountedforthemtohim.Butifthetrusteescommitabreachof(p.473) trust,there
isnoreasonforcompensatingthebreachoftrustbywayofanorderforrestitutionandcompensationto
thetrustfundasopposedtothebeneficiaryhimself.Thebeneficiarysrightisnolongersimplytohavethe
trustdulyadministered:heis,inequity,thesoleownerofthetrustestate.Nor,forthesamereason,is
restitutiontothetrustfundnecessarytoprotectotherbeneficiaries.Therefore,althoughIdonotwhollyrule
outthepossibilitythateveninthosecircumstancesanordertoreconstitutethefundmaybeappropriate,
intheordinarycasewhereabeneficiarybecomesabsolutelyentitledtothetrustfundthecourtorders,not
restitutiontothetrustestate,butthepaymentofcompensationdirectlytothebeneficiary.
(d)Rightsagainstthirdparties
Ifathirdpartyhasreceivedpropertyinwhichthebeneficiarieshaveaproprietaryinterest,butthethirdpartyno
longerhasthatproperty,thebeneficiariesmayhaveapersonalclaimagainstthethirdpartyintheactionknown
asunconscionablereceipt.20 Beneficiariesalsohaverightsagainstthirdpartieswhodishonestlyassistabreach
oftrust.21
(e)Tortiousrights
Wherethetrustpropertyhasbeenstolen,thebeneficiaryusuallyhasnodirectpersonalclaiminconversion
againstthethief,becauseconversioncannotbeusedtoprotectthebeneficiarysequitablepropertyrights.22 If,
however,thebeneficiarywasinpossessionofthetrustpropertyatthetimeofthetheft,heorshewouldhavea
claiminconversion,butbasedonhisorherpossessoryrightratherthananequitablepropertyright.23 Similar
principlesunderpinclaimsinnegligence.Whereathirdpartyhasnegligentlydamagedthetrustproperty,the
beneficiaryhasnodirectclaimagainstthetortfeasorforeconomiclosssincethebeneficiaryhasnolegalor
possessorytitletotheproperty.24 Thetrusteeswillhaveadirectclaimagainstthetortfeasor,althoughany
damageswillbeheldontrustforthebeneficiary.25 Ifthetrusteerefusestosuethetortfeasor,thebeneficiary
couldsuethetrusteeforbreachoftrust,orsuethetortfeasorhimorherself,butonlybymakingthetrusteea
partytotheproceedings,26 sincethetrusteeslegaltitletothepropertycanbeusedtoestablishthepropertytort
claimsastheseareCommonLawclaimsthatarebasedoninterferencewithlegalpropertyrights.Thisabilityto
namethetrusteeasadefendanttoenablethebeneficiarytobringproceedingsagainstathirdpartyisknownas
theVandepitteprocedure,27 anditsapplicationisnotconfinedtotortclaims,buthasbeenrecognizedas
regardsclaimsforlossessustainedbythebeneficiariesconsequentuponathirdpartybreachingacontractwith
thetrustee.28 Thisisashortcutproceduretoavoidtwoclaims,oneinvolvingthebeneficiaryapplyingtothecourt
torequirethetrusteetosueandtheotherinvolvingthetrusteesuingthethirdparty.29
JustificationsforthisprocedurewereprovidedbyLordCollinsinRobertsvGillandCo.:30 (p.474)
Consequentlyithasbeentheconsistentpracticeforalmost300yearsthat,whereabeneficiarybrings
anactioninhisownnametorecovertrustproperty,thetrusteesshouldbejoinedasdefendants.Daniells
ChanceryPractice,7thed1901,p.176states:.suchanactioncannot,however,bemaintainedwithout
thepersonalrepresentativebeingaparty.Toputitdifferently,itwouldbeprocedurallyimproperto
continuewithouttheadditionwhichisproposed:McGee,LimitationPeriods,5thed2006,para23.025.
Thepurposeofjoinderhasbeensaidtoensurethattheyareboundbyanyjudgmentandtoavoidtherisk
ofmultiplicityofactions:Lewin,Trusts,18thed2008,para4305.Butjoinderalsohasasubstantivebasis,
sincethebeneficiaryhasnopersonalrighttosue,andissuingonbehalfoftheestate,ormoreaccurately,
thetrustee.
(f)Rightstoinspecttrustdocuments
Ifthebeneficiariesaretomonitorthetrusteesperformanceoftheirduties,itisimportantthattheyhaveaccessto
documentsrelatingtothemanagementandadministrationofthetrust,andthepowersofthetrusteetodistribute
trustassets.Whetherthebeneficiarieshaverightstosuchdocumentshasprovedcontroversial.Itwasatone
timethoughtthatthebeneficiarieshadaproprietaryrighttotrustdocumentsbecausetheybelongedtothetrust
andsobelongedinEquitytothebeneficiarieswhoconsequentlyhadarighttoseeallsuchdocuments.
InORourk evDarbishire,31 LordWrenburysaid:
Thebeneficiaryisentitledtoseealltrustdocumentsbecausetheyaretrustdocumentsandbecauseheis
abeneficiary.Theyareinthissensehisown.Actionornoaction,heisentitledtoaccesstothem.This
hasnothingtodowithdiscovery.Therighttodiscoveryisarighttoseesomeoneelsesdocuments.The
proprietaryrightisarighttoaccesstodocumentswhichareyourown.
Ithassincebeenrecognizedthatthebeneficiarieshavenorighttoinspecttrustdocumentsbutthecourthas
discretiontodisclosesuchdocumentsaspartofitssupervisoryjurisdictiontoadministertrusts.32
SchmidtvRosewoodTrustLtd[2003]UKPC[2003]2AC709
Thepetitionersoughtthedisclosureofdocumentsrelatingtotwotrustsofwhichhisfatherhadbeenco
settlor.Thepetitionerclaimeddiscretionaryinterestsunderthetrusts.Hewasalsotheadministratorofhis
fathersestate.Thetrusteesopposeddisclosurebecausethepetitionerwasnotabeneficiaryunderthetrust
andhisfatherwasonlyanobjectofapowerandsohadnoentitlementtogainaccesstotrustdocuments.
ThePrivyCouncilheldthatthecourtcouldorderthedocumentstobedisclosed,butthisdidnotdependon
whetherthebeneficiaryhadaproprietaryrighttodisclosure.
LordWalker:
MuchofthedebatebeforetheBoardaddressedthequestionwhetherabeneficiarysrightorclaimto
disclosureoftrustdocumentsshouldberegardedasaproprietaryright.[Counselforthetrustees]
arguedthatitshouldbeclassifiedinthatway,andfromthatstartingpointhearguedthatnoobjectof
amerepowercouldhaveanyrightorclaimtodisclosure,becausehehadnoproprietaryinterestin
the(p.475) trustproperty.[CounselfortheTrustees]submittedthatthispointhasbeenconclusively
settledbythedecisionoftheHouseofLordsinORourk evDarbishire[1920]AC581
TheBoarddoesnotfinditsurprisingthatLordWrenburysobservations[inORourk e]havebeenso
oftencited,sincetheyareavividexpressionofthebasicdistinctionbetweentherightofabeneficiary
arisingunderthelawoftrusts(whichmostwouldregardaspartofthelawofproperty)andtherightof
alitiganttodisclosureofhisopponentsdocuments(whichispartofthelawofprocedureand
evidence).ButtheBoardcannotregarditasareasonedorbindingdecisionthatabeneficiarysrightor
claimtodisclosureoftrustdocumentsorinformationmustalwayshavetheproprietarybasisofa
transmissibleinterestintrustproperty.ThatwasnotanissueinORourk evDarbishire.
TheirLordshipsconsiderthatthemoreprincipledandcorrectapproachistoregardtherightto
seekdisclosureoftrustdocumentsasoneaspectofthecourtsinherentjurisdictionto
supervise,andifnecessarytointervenein,theadministrationoftrusts.Therighttoseekthe
courtsinterventiondoesnotdependonentitlementtoafixedandtransmissiblebeneficial
interest.Theobjectofadiscretion(includingamerepower)mayalsobeentitledtoprotection
fromacourtofequity,althoughthecircumstancesinwhichhemayseekprotection,andthe
natureoftheprotectionhemayexpecttoobtain,willdependonthecourtsdiscretion
[CounselfortheTrustees]submissiontothecontraryeffecttendstoprovetoomuch,sincehe
wouldregardtheobjectofadiscretionarytrustashavingaproprietaryinteresteventhoughitis
nottransmissible(exceptinthespecialcaseofcollectiveactiontakenunanimouslybyallthe
membersofaclosedclass).
TheirLordshipsarethereforeingeneralagreementwiththeapproachadoptedinthejudgmentsof
KirbyPandShellerJAintheCourtofAppealofNewSouthWalesinHartiganNomineesPtyLtdv
Rydge[1992]29NSWLR405.Thatwasacaseconcernedwithdisclosureofamemorandumof
wishesaddressedtothetrusteesbySirNormanRydge(whowasinsubstance,butnotnominally,the
settlor).KirbyPsaid,atpp421422:
Idonotconsiderthatitisimperativetodeterminewhetherthatdocumentisatrustdocument
(asIthinkitis)orwhethertherespondent,asabeneficiary,hasaproprietaryinterestinit(asI
amalsoinclinedtothinkhedoes).Muchofthelawonthesubjectofaccesstodocumentshas
conventionallybeenexpressedintermsoftheproprietaryinterestinthedocumentoftheparty
seekingaccesstoit.Thus,ithasbeenheldthatacestuiquetrusthasaproprietaryrightto
seekalldocumentsrelatingtothetrust:seeORourk evDarbishire[1920]AC581,601,603.
Thisapproachisunsatisfactory.Accessshouldnotbelimitedtodocumentsinwhicha
proprietaryrightmaybeestablished.Suchrightsmaybesufficientbuttheyarenotnecessary
toarightofaccesswhichthecourtswillenforcetoupholdthecestuiquetrustsentitlementto
areasonableassuranceofthemanifestintegrityoftheadministrationofthetrustbythe
trustees.IagreewithProfessorHAJFordscomment,inhisbook(withMrWALee)Principles
oftheLawofTrusts,2nded(1990)Sydney,LawBookCo,p425,thattheequationofrightsof
inspectionoftrustdocumentswiththebeneficiariesequitablerightsofpropertyinthetrust
assetsgivesrisetofarmoreproblemsthanitsolves(atp425):Thelegaltitleandrightsto
possessionareinthetrustees:allthebeneficiaryhasareequitablerightsagainstthetrustees
Thebeneficiarysrightstoinspecttrustdocumentsarefoundedthereforenotuponany
equitableproprietaryrightwhichheorshemayhaveinrespectofthosedocumentsbutupon
thetrusteesfiduciarydutytokeepthebeneficiaryinformedandtorenderaccounts.Itisthe
extentofthatdutythatisinissue.Theequationoftherighttoinspecttrustdocumentswiththe
beneficiarysequitableproprietaryrightsgivesrisetounnecessaryandundesirable
consequences.Itresultsinthedrawingofvirtuallyincomprehensibledistinctionsbetween
documentswhicharetrustdocumentsandthosewhicharenotitcastsdoubtsupontherights
ofbeneficiarieswhocannotclaimtohaveanequitableproprietaryinterestinthetrustassets,
suchasthebeneficiariesofdiscretionarytrustsanditmaygivetrusteestoo(p.476) greata
degreeofprotectioninthecaseofdocuments,artificiallyclassifiedasnotbeingtrust
documents,andbeneficiariestoogreatarighttoinspecttheactivitiesoftrusteesinthecaseof
documentswhichare,equallyartificially,classifiedastrustdocuments.
MahoneyJA,atp435,favouredtheproprietarybasisbutrecognisedthatitextendedtoinformationof
anondocumentarykind.ShellerJA,atp444,consideredthatinquiryastoanapplicantsproprietary
interestwasifnotafalse,anunhelpfultrail.Allthreemembersofthecourtexpressedreservations
aboutthereasoningandconclusionsinReLondonderrysSettlement[1965]Ch918.
ItwillbeobservedthatKirbyPsaidthatforanapplicanttohaveaproprietaryrightmightbesufficient,
butwasnotnecessary.IntheBoardsviewitisneithersufficientnornecessary.SinceReCowin33
ChD179welloveracenturyagothecourthasmadeclearthattheremaybecircumstances
(especiallyofconfidentiality)inwhichevenavestedandtransmissiblebeneficialinterestisnota
sufficientbasisforrequiringdisclosureoftrustdocumentsandReLondonderrysSettlementandmore
recentcaseshavebeguntoworkoutinsomedetailthewayinwhichthecourtshouldexerciseits
discretioninsuchcases.Therearethreesuchareasinwhichthecourtmayhavetoforma
discretionaryjudgment:whetheradiscretionaryobject(orsomeotherbeneficiarywithonlyaremoteor
whollydefeasibleinterest)shouldbegrantedreliefatallwhatclassesofdocumentsshouldbe
disclosed,eithercompletelyorinaredactedformandwhatsafeguardsshouldbeimposed(whether
byundertakingstothecourt,arrangementsforprofessionalinspection,orotherwise)tolimittheuse
whichmaybemadeofdocumentsorinformationdisclosedundertheorderofthecourt.
TheirLordshipshavealreadyindicatedtheirviewthatabeneficiarysrighttoseekdisclosureoftrust
documents,althoughsometimesnotinappropriatelydescribedasaproprietaryright,isbest
approachedasoneaspectofthecourtsinherentjurisdictiontosupervise,andwhereappropriate
intervenein,theadministrationoftrusts.ThereisthereforeintheirLordshipsviewnoreasontodraw
anybrightdividinglineeitherbetweentransmissibleandnontransmissible(thatis,discretionary)
interests,orbetweentherightsofanobjectofadiscretionarytrustandthoseoftheobjectofamere
power(ofafiduciarycharacter).Thedifferencesinthiscontextbetweentrustsandpowersare(asLord
WilberforcedemonstratedinReBaden[1971]AC424,448449)agooddeallesssignificantthanthe
similarities.ThetideofCommonwealthauthority,althoughnotentirelyuniform,appearstobeflowing
inthatdirection.
However,therecentcasesalsoconfirm(ashadbeenstatedaslongagoasReCowin33ChD179in
1886)thatnobeneficiary(andleastofalladiscretionaryobject)hasanyentitlementasofrightto
disclosureofanythingwhichcanplausiblybedescribedasatrustdocument.Especiallywhenthere
areissuesastopersonalorcommercialconfidentiality,thecourtmayhavetobalancethecompeting
interestsofdifferentbeneficiaries,thetrusteesthemselves,andthirdparties.Disclosuremayhaveto
belimitedandsafeguardsmayhavetobeputinplace.Evaluationoftheclaimsofabeneficiary(and
especiallyofadiscretionaryobject)maybeanimportantpartofthebalancingexercisewhichthe
courthastoperformonthematerialsplacedbeforeit.Inmanycasesthecourtmayhavenodifficulty
inconcludingthatanapplicantwithnomorethanatheoreticalpossibilityofbenefitoughtnottobe
grantedanyrelief.
Whilstreplacingtheoldtestofaproprietaryrighttodisclosureoftrustdocumentswithajudicialdiscretionto
disclosemightbeconsideredtointroducetoomuchuncertainty,themodernapproachtodisclosureisclearerand
moreprincipled,becausethecourtisnolongerrequiredtospeculateastowhetheraparticulardocumentisoris
notatrustdocument.Rather,thejudgehasadiscretiontodetermine,inthelightofallrelevantcircumstances,
whetheritisappropriatetoauthorizedisclosure.
(p.477) (b)DiscretionaryTrusts
Adiscretionarytrustisatrustfordistributionamongstmembersofaclassofobjectsthatthetrusteeshavea
discretiontoselect.Theobjectsofsuchtrustsdonothaveaproprietaryright.ThiswasmadeclearbyLord
WilberforceinGartsidevIRC,33 whenconsideringwhethertheinterestsofobjectsisproprietaryandsotaxable:
Nodoubtinacertainsenseabeneficiaryunderadiscretionarytrusthasaninterest:thenatureofitmay,
sufficientlyforthepurpose,bespeltoutbysayingthathehasarighttobeconsideredasapotential
recipientofbenefitbythetrusteesandarighttohavehisinterestprotectedbyacourtofequity.Certainly
thatisso,andwhenitissaidthathehasarighttohavethetrusteesexercisetheirdiscretionfairlyor
reasonablyorproperlythatindicatesclearlyenoughthatsomeobjectiveconsideration(notstated
explicitlyindeclaringthediscretionarytrust,butlatentinit)mustbeappliedbythetrusteesandthatthe
rightismorethanamerespes[ahope].Butthatdoesnotmeanthathehasaninterestwhichiscapable
ofbeingtaxedbyreferencetoitsextentinthetrustfundsincome:itmaybearight,withsomedegreeof
concretenessorsolidity,onewhichattractstheprotectionofacourtofequity,yetitmaystilllackthe
necessaryqualityofdefinableextentwhichmustexistbeforeitcanbetaxed.
Itfollowsthattheobjectshavenoproprietaryinterestinthetrustfunditself,becausenobodyknowswhetheran
objectwillbenefitunderthetrustuntilthetrusteeshaveexercisedtheirdiscretiontodistributethetrustpropertyto
membersoftheclass.AsUngoedThomasJrecognizedinSainsburyvIRC:34
Theonlyrightwhichanyobjecthasinanexhaustive,asinanonexhaustive,trustistohavethetrustees
exercisetheirdiscretionandtobeprotectedbythecourtinthatright.True,thetrusteesdiscretiondoes
notextendinthecaseofanexhaustivetrust,asinanonexhaustivetrust,todecidingwhethertomake
distributionstoobjects,butonlywhetherthedistributionthatmustbemadeshallbemadetooneormore
ofthemandifmorethanone,inwhatproportion.But,since,inanexhaustiveasinanonexhaustivetrust,
itcannotbesaidbeforedistributionthatanobjectisentitledtoanydefinedpartoftheincome,this
differencebetweenthemdoesnotmaketherightofanyindividualobjectquantifiable.
Althoughobjectsofadiscretionarytrustdohaverights,thesearenotproprietarybecausetheyarenot
transmissibleinterests,35 althoughtheobjectscanclaimagainstthirdpartieswhohavemisappropriatedtrust
assets,whichisoneofthecharacteristicsofaproprietaryright.36 Theycan,however,seekonlythereturnofthe
misappropriatedpropertytothetrustandcannotobtainthemisappropriatedpropertyforthemselves,sincethe
distributionofthepropertywillstillbedeterminedbytheexerciseofthetrusteesdiscretion.
(p.478) (ii)Personalrights
Objectsunderadiscretionarytrusthaveafundamentalrighttoensurethatthetrustisadministeredproperly,in
thesensethatthetrusteesconsidertheexerciseoftheirpowerofappointmentandexercisethatpowerina
reasonabletime.Beneficiarieshaveanumberofspecificpersonalrightsrelatingtothisfundamentalrightto
ensureproperadministrationofthetrust.
(a)Applicationtocourt
Ifthetrusteesfailtoexercisetheirdiscretion,theobjectscanapplytothecourt.Thecourthasavarietyofoptions
opentoit,37 includingdirectingthetrusteestoexercisetheirdiscretion,appointingnewtrustees,authorizinga
schemeofdistribution,ordirectingthetrusteestodistributethetrustassets.
(b)Rightsarisingfrombreachoftrust
Ifthetrusteespowerofappointmentisexercisedinbreachoftrust,thebeneficiariescanapplytothecourtto
havetheappointmentsetaside.
(c)Righttobeinformed
Sincetheobjectshavearighttoputtheircasetothetrusteesfortheexerciseoftheirdiscretion,38 itfollowsthat
theobjectsshouldhavearighttobeinformedthattheyareobjects.39
(d)Rightstotrustdocuments
Inthesamewayasbeneficiariesofafixedtrustcanrequesttoseetrustdocuments,40 sotoocantheobjectsof
adiscretionarytrust.Undertheoldtheoryofproprietaryrightsintrustdocuments,theobjectswouldnothave
beenabletoseethedocuments,sincetheywerenotconsideredtohaveanyproprietaryrightsintrustproperty.
ButwiththerecognitionbythePrivyCouncilinSchmidtvRosewoodTrustLtd41 thatthecourthasadiscretionto
disclosedocumentstobeneficiaries,andthatthisdoesnotdependontheassertionofanyproprietaryrightsbut
followsinsteadfromtheshiftofemphasistothecourtsinherentjurisdictiontosupervisetheproperadministration
ofthetrust,itfollowsthatobjectsofadiscretionarytrustcanrequestdisclosureoftrustdocuments.Thiswas
specificallyrecognizedinSchmidtitself.Butthecourtwillbelesslikelytoexerciseitsdiscretiontodisclosetrust
documentsinfavourofanobjectunderadiscretionarytrust,42 sincetheobjectshaveonlyatheoreticalpossibility
ofbenefitingunderthetrust.Theoperationofthisjudicialdiscretiontodiscretionarytrustswasconsidered
inBreak spearvAck land.
BreakspearvAckland[2008]EWHC220(Ch)[2009]Ch32,36
Thebeneficiariessoughtthedisclosureofawishletter,whichhadbeenwrittentothetrusteesbyBasil,the
settlor,aswellasdisclosureoforalcommunicationsfromBasiltothetrustees.
(p.479) BriggsJ:
Theessentialcharacteristicofawishletter(towhichBasilsisnoexception)isthatitisamechanism
forthecommunicationbyasettlortotrusteesofthesettlementofnonbindingrequestsbyhimtotake
statedmattersintoaccountwhenexercisingtheirdiscretionarypowers.Typically,wishlettersare
concernedwiththeexerciseofdispositivediscretions,buttheymayincludewishesinrelationtothe
exerciseofpowersofinvestment,orofotherpurelyadministrativepowers.ForpresentpurposesIam
concernedwithawishletterwhichissubstantiallycontemporaneouswiththesettlementitself.The
questionwhetherlaterwishlettershavethesamestatusisbeyondthescopeofthisjudgment.
Thelargeincreaseintheuseofwishlettershasgonehandinhandwiththeriseinthepopularityof
discretionarytrusts,inpreferencetothemoredetailedfixedinteresttrust.Thecombinationofabroad
discretionarytrustaccompaniedbyawishlettermaybesaidtohavetwoparticularadvantages.The
first,anadvantagewhichitenjoysovertheoldfashionedfixedinteresttrust,isthatitpreserves
flexibilityforthetrusteesinrespondingtochangesinthebeneficiariescircumstanceswhicharenotor
cannotbeforeseenbythesettlor.Thesecondadvantage,whichstemsfromtheplacingofthetrusts
affectingthepropertyandthesettlorsnonbindingwishesintoseparatedocuments,isthatthesettlor
maymakeuseofaconfidentialwishletterasthemediumforthewrittenexpressionoffacts,beliefs,
expectations,concernsand(occasionally)prejudicesaboutthebeneficiarieswhichitwouldormight
behurtful,impoliticorsimplyundesirableforhimtoincludeinadocumentwhichthebeneficiarieshad
arighttoinspect.Thatadvantagemaybesummarisedinthewordconfidentiality,solongasitis
appreciatedthatthewordhasbothasubjectiveandanobjectiveconnotation.Confidentialitymay
serveapurelyselfishdesireofthesettlortokeephiswishes,beliefsandthecommunicationofcertain
factssecretfromthefamily.Objectivelyspeaking,thatsecrecymayinmanycasesbethoroughly
beneficial,sinceitmaytendtopreservefamilyharmonyandmutualrespect,whileenablingtrusteesto
bebriefedastomattersrelevanttotheexerciseoftheirdiscretionarypowers,ratherthankeptin
ignoranceofthem.
Theuseandadvantagesofwishlettersinconjunctionwithbroaddiscretionarytrustsisnotconfinedto
familytrusts.Forexample,theadvantageofflexibilitymaybeequallyapplicabletoanemployeetrust.
Nonetheless,theadvantageofconfidentialityisatitsmostobviousinrelationtoafamilytrust,andit
isintheeffectuponthatadvantagewhichanyuncertaintyorchangeinthelawrelatingtodisclosureof
wishlettersattherequestofbeneficiariesisatitsmostacute.Plainly,ifthelawisthat,generally,
wishlettersarenotdisclosable,settlorswillbeencouragedtousethemasthemediumforthe
communicationofvaluablebutconfidentialinformationrelevanttotheexerciseofthetrustees
discretionarypowers.Ifbycontrastwishlettersaregenerallydisclosable,thatpotentialadvantageis
likelytobewhollyclosedoffforthefuture,andthedisclosureofgenuinelyconfidentialinformationin
existingwishlettersattherequestofbeneficiariesislikelytoriskcausingpreciselytheharmwhich
ledtothatinformationbeingincludedinawishletterinthefirstplace,andtodefeatwhatmaytodate
havebeenrealexpectationsofconfidentialityinthemindsbothofsettlorsandtrustees.
Sincefewwouldarguethatclearlyandrationallyexpressedwishesandrelevantinformationincluded
bysettlorsinwishletterscouldbetreatedbytrusteesaswhollyirrelevanttotheexerciseoftheir
discretionarypowers,itisinescapablethattheircontentwillpotentiallyberelevant,bothto
beneficiariesinmonitoringtheperformancebytrusteesoftheirfiduciaryobligations,andtothecourtin
enforcingthatperformancewherenecessaryandappropriate.Furthermore,thecontentsofarelevant
wishlettermaymakeallthedifferencetoabeneficiaryinunderstanding,inthecontextofanotherwise
broadlydrafteddiscretionarytrust,whatareormaybehisorherexpectationsofbenefitfromthe
assetsofafamilysettlement.Whilesuchexpectationsmayonoccasionbedamaging,inparticularto
youngbeneficiaries,abroadknowledgeoftheirprospectsmaybeofsignificantadvantagetothemin
planning(p.480) boththeirownlives,andtheeducationandmaintenanceoftheirchildrenandother
dependants.Itisincidentallyforthislatterpurposethattheclaimantssaythattheyhavemadetheir
claimtodisclosure.
Thereisthereforeaninevitabletensionbetweenontheonehandtheadvantagesofconfidentiality,and
ontheotherhand,theadvantagesofdisclosure,inrelationtowishletters.Itistemptingtosaythat
theinfinitelyvariableweighttobegiventothosecompetingconsiderationsinanyparticularcaseis
bestresolvedbytheexerciseofdiscretionbythejudgeresortedtofortheresolutionoftheimpasse,
ratherthanbythelayingdownofrulesorevenguidelines.Butinmyjudgmentthissuperficially
attractivesolutionhasrealdisadvantages.Thefirstisthatunlesstheprinciplesaregenerally
understood,settlorsarelikelytotreattheuncertaintyastothegeneralconfidentialityofwishletters
asadisincentivetotheirbeneficialuse.Thesecondisthattheuncertaintyislikelytoleadtomore
ratherthanlessapplicationstocourttoresolvequestionsofdisclosure,andwillthereforebearecipe
forlitigation.Inthecontextofthelikelyassetbaseofevenwealthyfamilies,theattendantcostshould
beavoidedifatallpossible
ThefirstquestioniswhetheritiseitherpermissibleorappropriateinthelightofORourk ev
Darbishire[1920]AC581andtheLondonderrycase[1965]Ch918formetodecideatfirstinstance
thatthebasisuponwhichtrusteesandthecourtshouldapproacharequestfordisclosureofawish
letter(orofanyotherdocumentinthepossessionoftrusteesintheircapacityassuch)isonecalling
fortheexerciseofdiscretionratherthantheadjudicationuponaproprietaryright.Inmyjudgmentitis
bothpermissibleandappropriatetoanswerthatquestionintheaffirmativeFurthermore,eventhe
CourtofAppealintheLondonderrycaseitselffoundtheproprietaryanalysistobebothinconclusive
andunsatisfactory,bycomparisonwiththerecognitionofaclear,principledbasisforrefusing
disclosureevenincaseswherethereappearedtobeaprimafacieproprietaryrighttodisclosure.
Onthatbasis,thesecondquestioniswhethertheLondonderryprinciple43 remainsgoodlaw,atleast
inEngland.Inmyopinion,itisstillgoodlawand,inanyevent,lawbywhichafirstinstancejudge
remainsbound,unlessanduntilreleasedbysomehigherjudicialorparliamentaryauthority.
AttheheartoftheLondonderryprincipleistheunanimousconclusion(mostclearlyexpressedby
DanckwertsLJ)thatitisintheinterestsofbeneficiariesoffamilydiscretionarytrusts,and
advantageoustothedueadministrationofsuchtrusts,thattheexercisebytrusteesoftheirdispositive
discretionarypowersberegarded,fromstarttofinish,asanessentiallyconfidentialprocess.Itisin
theinterestsofthebeneficiariesbecauseitenablesthetrusteestomakediscreetbutthorough
inquiriesastotheircompetingclaimsforconsiderationforbenefitwithoutfearorriskthatthose
inquirieswillcometothebeneficiariesknowledge.Theymayinclude,forexample,inquiriesastothe
existenceofsomelifethreateningillnessofwhichitisappropriatethatthebeneficiaryinquestionbe
keptignorant.Suchconfidentialityservesthedueadministrationoffamilytrustsbothbecauseittends
toreducethescopeforlitigationabouttherationalityoftheexercisebytrusteesoftheirdiscretions,
andbecauseitislikelytoencouragesuitabletrusteestoacceptoffice,undeterredbyaperception
thattheirdiscretionarydeliberationswillbesubjectedtoscrutinybydisappointedorhostile
beneficiaries,andtopotentiallyexpensivelitigationinthecourts.
Irecognisetheforceofthecontrarypropositionthattheconferralofageneralconfidentialityupon
theexercisebytrusteesoftheirdiscretionarypowersmayinparticularcasesreducethepractical
extenttowhichtheycanbeheldtoaccount.Trusteesundoubtedlyareaccountablefortheexerciseof
thosepowers,butitseemstomequitewrongtosupposethatthecourtshavebeenmindlessofthe
existenceofthatcoreprincipleofaccountability,duringtheperiodofmorethan150yearswhenthe
lawhasbeenthatitisbetterforconfidentialitytobeafforded.
NorcanIseeanypersuasivebasisforthinkingthatthereasoningwhichledtheEnglishcourtstothink
itappropriateintheinterestsofbeneficiaries,andintheadministrationoftrusts,toconfer
confidentialityontheexercisebyfamilytrusteesoftheirdiscretionarydispositivepowershasceased
tohold(p.481) good.Itisnotobviousthatthepotentiallydisastrousconsequencesofaresorttocivil
litigationabouttheadministrationoffamilytrustproperty,intermsoftheexpenditureoftimeandcost,
aremuchlessofapotentialevilthantheywereinthe19thcentury.Noristhereanylessneedtoday
thantherealwayshasbeentoavoiddeterringsuitablefamilytrusteesfromacceptinganarduous
unpaidoffice.Ofcoursethereisariskthattheconferralofsuchconfidentialitymayenableunworthy
trusteestouseitasashieldfortheconcealmentoftheirculpableinadequacies,butthisriskcannot
havebeenignoredinthe19thcentury,andnowthatitisrecognisedthatthegeneralprincipleof
confidentialityissubjecttobeingoverriddenasamatterofdiscretionbythecourt,itmayfairlybe
supposedthattheriskhasifanythingbecomemoreratherthanlessmanageable.
Myreasonforconcludingthat,regardlessofmyownopinion,Iamboundtocontinuetotreat
theLondonderryprincipleasstillbeinggoodlawissimplybecauseitformedpartoftheratioofthat
decision,ithasneverbeenoverruled,andbecause,ifanything,itreceivedageneralendorsement
ratherthancriticisminSchmidtvRosewoodTrustLtd[2003]2AC709.
Iturnthereforetothequestionwhether,andifsoinwhatway,theLondonderryprincipleappliesto
wishletters.InthatcontextIamcontenttolimitmyselftowishlettersarisinginthecontextoffamily
discretionarytrusts,ratherthanemployeetrusts,pensiontrustsorotherbusinesstrusts,leavingfor
anotheroccasionthemannerinwhichtheLondonderryprincipleisapplicabletothem.Thedefining
characteristicofawishletteristhatitcontainsmaterialwhichthesettlordesiresthatthetrustees
shouldtakeintoaccountwhenexercisingtheir(usuallydispositive)discretionarypowers.Itistherefore
broughtintoexistenceforthesolepurposeofservingandfacilitatinganinherentlyconfidential
process.Itseemstomeaxiomaticthatadocumentbroughtintoexistenceforthesoleorpredominant
purposeofbeingusedinfurtheranceofaninherentlyconfidentialprocessisitselfproperlytobe
regardedasconfidential,tosubstantiallythesameextentandeffectastheprocesswhichitis
intendedtoserve
Whileinasenseawishletteristhecompanionofthetrustdeed,itbynomeansfollowsthatit
thereforeneedsoroughttobeaffordedsimilartreatmentinthehandsofthetrustees.Thetrustdeedis
adocumentwhichconfersandidentifiesthetrusteespowers.Thereisinprinciplenothingconfidential
abouttheexistenceandpreciseboundariesofthosepowers.Bycontrast,thewishletter,operating
exclusivelywithinthoseboundariesandpurelyinfurtheranceofthetrusteesconfidentialexerciseof
discretionarypowers,mayproperlybeaffordedastatusofconfidentialitywhichthetrustdeeditself
entirelylacks
Generally,theconfidencewhichordinarilyattachestoawishletterissuchthat,forthebetter
dischargeoftheirconfidentialfunctions,thetrusteesneednotdiscloseittobeneficiariesmerely
becausetheyrequestitunless,intheirview,disclosureisintheinterestsofthesoundadministration
ofthetrust,andthedischargeoftheirpowersanddiscretions
Beforeapplyingthoseprinciplestothefactsofthepresentcase,IshallbrieflysummarisewhatI
considertobetheirpracticaleffectinrelationtofamilydiscretionarytrusts,separatelyinrelationto
eachofthethreestagesinwhichtheissuemaytypicallyarise.First,trusteesshouldingeneral
regardawishletter(thatisadocumentfromthesettlorthesoleorpredominantpurposeofwhichisor
appearstobetoassistthemintheexerciseoftheirdiscretionarypowers)asinvestedwitha
confidentialitydesignedtobemaintained,relaxed,orifnecessaryabandoned,astheyjudgebest
servestheinterestsofthebeneficiariesandthedueadministrationofthetrust.Thisdiscretionto
maintain,relaxorabandonconfidencearisesregardlessofarequestfordisclosurebyabeneficiary,
andpersistsregardlessoftheincapacity,deathorchangeofheartonthepartofthesettlor.
Whereabeneficiarymakesarequestfordisclosure,thatinmyjudgmentmerelytriggersanoccasion
uponwhichthetrusteesneedtoexercise(orreconsidertheexerciseof)thatdiscretion,giving
such(p.482) weighttothemakingofandreasonsforthatrequestastheythinkfit.Havingmadetheir
decisionthetrusteesarenotobligedtogivereasonsforit,44 anymorethaninrelationtoanyother
exerciseoftheirdiscretionarypowers.Inadifficultcasethetrusteesmay,asalways,seekthe
directionsofthecourtonthequestionwhethertodisclosebut,bearinginmindtheinevitablecost
associatedwithdoingso,thetrusteeswillneedtothinktwicebeforeconcludingthatthedifficultyof
thequestionjustifiestheexpenditure.Itisbynomeansamatterforcriticism(ofthetypelevelled
againstthetrusteesinthiscase)thattrusteesdonoteithergivereasonsorapplytothecourtfor
directions,ifmindednottoaccedetoabeneficiarysrequestfordisclosure
Beforeleavingthisgenerallegalanalysis,IemphasisethattheapplicationoftheLondonderryprinciple
towishlettersinthewayinwhichIhavesoughttoexplainthemisnottobetakenassomethingakin
toastatutorycode.Thequestionbeginsandends,bothfortrusteesandforthecourt,aquestionof
discretion,orofthereviewoftheexerciseofdiscretion.Therearenofixedrules,andthetrusteesneed
notapproachthequestionwithanypredispositiontowardsdisclosureornondisclosure.Allrelevant
circumstancesmustbetakenintoaccount,andinallcasesotherthanthoselimitedtoastrictreview
ofthenegativeexerciseofadiscretion,boththetrusteesandthecourthavearangeofalternative
responses,notlimitedtotheblackandwhitequestionofdisclosureornondisclosure.Theresponses
mayinclude,inanappropriatecase,aprivatereadingofthewishletterbythejudgetohimself.
BriggsJdecidedthatthewishlettershouldbedisclosed.Thiswasbecausetheriskoffamilydivisionfollowing
disclosurewasoutweighedbythefactthatthetrusteeswouldbeseekingtheapprovalofthecourttoaschemeof
distributionofthetrustfund.Inseekingthisapprovalthetrusteeswouldhavesurrenderedtheprotectionof
confidentialitysince,inordertosanctionthescheme,itwouldbenecessaryforthecourttoconsiderthereasons
fortheexerciseofthetrusteesdiscretion,whichwould,inturn,requirethecourttoseethewishletter.Hadthe
trusteesnotbeenseekingcourtsanctionofthescheme,theletterwouldnothavebeendisclosed.
(e)Accesstoinformation
Theobjectsofadiscretionarytrustmayaskthesettlorsandtrusteesforinformationaboutvariousmatters
relatingtothetrust.ThiswasrecognizedinMurphyvMurphy.45 Theclaimantsoughtdisclosureofthenamesand
addressesofthetrusteesofadiscretionarytrust,knownasthe1965settlement,fromthedefendant,hisfather,
whowasthesettlorofthetrust.NeubergerJsaid:46
Ifallthediscretionarybeneficiarieswished,forgoodreasons,toknowtheidentityofthetrusteesofa
settlement,andthesettlor(whoreservedthepowerofappointmentoftrustees)refusedtotellthem,it
wouldbesurprisingindeed,Isuggest,remarkableifthecourthadnopowertocompelhimtodoso.
Similarly,ifallbutoneortwoofthebeneficiarieswishedtoknow,particularlyiftheoneortwowere
receivingalltheincome.Ifthatisright,itwouldseemtofollowthatonewouldexpectthecourtatleastto
havejurisdictiontorequireasettlorinsuchcircumstancestogivetheinformationtoasinglediscretionary
beneficiary.
Itappearsontheplaintiffsevidence(notdeniedbythedefendantinhisaffidavit)thatthereisasettlement
withassets,inrespectofwhichtheplaintiffiswithintheclassofdiscretionarybeneficiaries.Theplaintiff
says,throughhiscounsel,thatheisseekingbothtofindoutwhathashappenedtothetrustfunds,andto
makeoutacaseastowhyheshouldreceivesomeofthosefunds.Hisbonafidesisnotchallengedinthis
regard.Whilethereisnoquestionofanywrongdoingsofarasthedefendant(p.483) orthetrusteesofhis
1965settlementareconcerned,Iwould,inlightoftheabovediscussionsrequireauthorityorestablished
principletosupportthepropositionthatadiscretionarybeneficiarywasneverentitledtoseeksuch
informationbeforeIwaspreparedsotohold.
Thequestionwhichthereforehastobeconsideredinrelationtothedefendants1965settlementiswhether
itisappropriatetograntthereliefsoughtbytheplaintiffinallthecircumstances.Inthisconnection,it
shouldbeemphasisedthatthemerefactthatthecourthasjurisdictiontomaketheordercannotinmy
viewmeanthatthecourthasnodiscretionastowhethertomakesuchanorder.Theveryreasoningwhich
leadsmetotheconclusionthatthereispowertomakesuchanorder,namelythewideandflexible
jurisdictionofthecourtofequity,mustcarrywithitabroaddiscretion
That,then,bringsmetothequestionofwhether,inallthecircumstances,Ishouldorderthedefendantto
disclosethenamesandaddressesofthe[trusteesofthe]defendants1965settlementtotheplaintiff.I
havereachedtheconclusionthatsuchanorderoughttobemade,subjecttothequestionofwhetherthe
defendantshouldhavealimitedopportunityofputtinginanyfurtherfactsonwhichhewishestorely.First,
itisnotasiftheplaintiffis,asitwere,somethingofaremotebeneficiary,oronebeneficiaryamongagreat
many.Thenumberofpotentialdiscretionarybeneficiariesisprettylimited
Itappearstomethatitwouldbemostundesirableforthiscourttomakeorderswhichwouldbelikelyto
resultintrusteesofdiscretionaryprivatetrustsbeingbadgeredwithclaimsbymanybeneficiariesfor
considerationtobegiventotheirclaimsfortrustmoneys,orforaccountsastohowtrustmoneyshave
beenspent:thedutiesofatrusteeare,itmayfairlybesaid,quiteonerousenoughwithoutsuchadded
problems.Ontheotherhand,whenacceptingtheappointmentasatrusteeofadiscretionarytrust,a
personmustappreciatethathewillhaveduties,aboutwhichheshouldhavebeenadvisedAboveall,
eachcasemustbejudgedonitsmerits.BearinginmindthespecificfactorstowhichIhavemade
reference,Idonotseehowitcouldseriouslybearguedthatdiscretionarytrusteeswouldrunariskofa
floodofapplicationsofthissort,ifIallowedtheplaintiffthereliefheseekssofarasthetrusteesofthe
defendants1965settlementareconcerned.
Thecourtexerciseditsdiscretiontodisclosetheidentityofthetrusteesbothbecausethebeneficiarywasoneof
thesettlorschildrenandsonotaremoteobjectandbecausehewasnotwelloff,suggestingthathewasmore
likelytoreceiveadistributionfromthetrustfund.
(c)FiduciaryPower
Whereatrusteehasafiduciarypowertodistributetrustpropertytotheobjects,heorsheisnotobligedto
exerciseitbutneedonlyconsideritsexercise.47 Itfollowsthattheobjectswhomightbenefitfromtheexerciseof
thepowercannotbeconsideredtohaveanyproprietaryinterestinthetrustfund,becausetheydonotknow
whethertheywillreceiveanypartofthatfund.Theydonotevenhavearighttobeconsidered.Untilthepoweris
exercised,thosewhotakethepropertyindefaultofitsexercisehaveanequitableproprietaryinterestinthe
property.Ifthepowerisexercisedinfavourofcertainobjects,thenthiswilldefeattheequitableinterestofthose
whotakeindefault.
(ii)Personalrights
(a)Releaseofthepower
Anobjectofapowercanreleasethepowerbeforeitisexercised.Thismeansthattheobjectcannolonger
receivepropertyintheexerciseofthetrusteespowerofappointment.
(p.484) (b)Applicationtocourt
Whethertheobjectsofafiduciarypowercanapplytothecourttoensuretheproperoperationofthepowerwas
consideredinReManistysSettlement.48 TemplemanJsaid:49
Thecourtcannotinsistonanyparticularconsiderationbeinggivenbythetrusteestotheexerciseofthe
power.Ifasettlorcreatesapowerexercisableinfavourofhisissue,hisrelationsandtheemployeesofhis
company,thetrusteesmayinpracticeformanyyearsholdregularmeetings,studythetermsofthepower
andtheotherprovisionsofthesettlement,examinetheaccountsandeitherdecidenottoexercisethe
powerortoexerciseitonlyinfavour,forexample,ofthechildrenofthesettlor.Duringthatperiodthe
existenceofthepowermaynotbedisclosedtoanyrelationoremployeeandthetrusteesmaynotseekor
receiveanyinformationconcerningthecircumstancesofanyrelationoremployee.Inmyjudgmentit
cannotbesaidthatthetrusteesinthosecircumstanceshavecommittedabreachoftrustandthatthey
oughttohaveadvertisedthepowerorlookedbeyondthepersonswhoaremostlikelytobetheobjectsof
thebountyofthesettlor.Thetrusteesare,ofcourse,atlibertytomakefurtherinquiries,butcannotbe
compelledtodosoatthebehestofanybeneficiary.Thecourtcannotjudgetheadequacyofthe
considerationgivenbythetrusteestotheexerciseofthepower,anditcannotinsistonthetrustees
applyingaparticularprincipleoranyprincipleinreachingadecision.
Ifapersonwithintheambitofthepowerisawareofitsexistencehecanrequirethetrusteestoconsider
exercisingthepowerandinparticulartoconsiderarequestonhispartforthepowertobeexercisedinhis
favour.Thetrusteesmustconsiderthisrequest,andiftheydeclinetodosoorcanbeprovedtohave
omittedtodoso,thentheaggrievedpersonmayapplytothecourtwhichmayremovethetrusteesand
appointothersintheirplace.This,asIunderstandit,istheonlyrightandonlyremedyofanyobjectofthe
power.
InMettoyPensionTrusteesLtdvEvans,50 however,itwasrecognizedthatthecourthassimilarpowersof
interventioninrespectoffiduciarypowersasthosethatexistfordiscretionarytrusts.51 Butsincethedoneesof
fiduciarypowersarerequiredonlytoconsidertheexerciseofthepowerandarenotrequiredtoexerciseit,itis
difficulttoseewhyitisappropriatethatalltheweaponsinthejudicialarmourythatareavailableregarding
discretionarytrusts,shouldbeequallyavailablewhereatrusteehasnotconsideredexercisingthepower,which
heisnotobligatedactuallytoexercise,withinareasonabletime.Forexample,failuretoexerciseafiduciary
powershouldnotresultinthecreationofaschemeofarrangementoranorderdirectingthetrusteestodistribute
trustassets.Itshouldbesufficienteitherforthecourttodirectthetrusteestoconsiderwhetherthepowershould
beexercisedortoreplacethetrusteesiftheyrefusetoconsidertheexerciseofthepower.
(c)Trustdocuments
Thecourthasadiscretiontoorderthereleaseoftrustdocumentstotheobjectofafiduciarypower,aswas
specificallyrecognizedbythePrivyCouncilinSchmidtvRosewoodTrustLtd,52 whichconcernedinpartaclaim
bytheobjectofafiduciarypowertoseeatrustdocument.
(p.485) (d)Righttoinformation
ThereisnoreasonwhythediscretionofthecourtrecognizedinMurphyvMurphy53 toreleaseinformationabout
thetrustandtrusteescannotbeexercisedinfavourofobjectsofafiduciarypower,especiallysincetrust
documentsmightbereleasedtothem.
2.DispositionofanEquitableInterest
Whereabeneficiaryseekstodisposeofasubsistingequitableinterest,section53(1)(c)oftheLawofProperty
Act1925applies,suchthatsignedwritingisrequired.
53.Instrumentsrequiredtobeinwriting
(1)Subjecttotheprovisionshereinaftercontainedwithrespecttothecreationofinterestsinlandby
parol
(c)adispositionofanequitableinterestortrustsubsistingatthetimeofthedisposition,mustbein
writingsignedbythepersondisposingofthesame,orbyhisagentthereuntolawfullyauthorisedin
writingorbywill.
Forsection53(1)(c)tobeapplicabletheremustbeanequitableinterestortrustthatisalreadysubsistingatthe
timeofthedisposition.54 Consequently,theprovisionwillnotapplytoadeclarationoftrustthatcreatesan
equitableinterest.
TherationalebehindthisprovisionwasencapsulatedbyLordUpjohninVandervellvIRC,55 whostatedthat:
theobjectofthesection,aswastheobjectoftheoldStatuteofFrauds,istopreventhiddenoral
transactionsinequitableinterestsinfraudofthosetrulyentitled,andmakingitdifficult,ifnotimpossible,
forthetrusteestoascertainwhoareintruthhisbeneficiaries.
Thussection53(1)(c)ensuresthereisevidencethatcanbereliedupontoprovevariousdealingswithsubsisting
equitableinterests.Thisisimportantbecausetheeasewithwhichequitableinterestscanbehiddenbehinda
trustmeansthattheyareparticularlyvulnerabletoinstancesoffraud.
Inthissection,varioustypesoftransactionwillbeconsidered.Ineachsituation,itmustbedecidedwhetheror
notsection53(1)(c)isengagedsuchthatsignedwritingisrequired.Essentially,thereseemstobeadistinction
betweenthedispositionofasubsistingequitableinterestanditsdissipation.Signedwritingisrequiredforthe
former,butnotthelatter.ItishelpfultocompareFigures10.1and10.2.
SignedwritingisrequiredinFigure10.1butnotinFigure10.2.ThisisbecauseinFigure10.1thereisa
subsistingequitableinterestatthestartandattheend.Therehas,therefore,beenadispositionofasubsisting
equitableinterestandsosignedwritingisrequired.Ontheotherhand,inFigure10.2(p.486)
Viewfullsizedfigure
DownloadfigureasPowerPointslide
Figure10.1
Signedwritingrequiredundersection53(1)(c)
Viewfullsizedfigure
Figure10.2
Signedwritingnotrequiredundersection53(1)(c)
thereisasubsistingequitableinterestatthestartbutthereisnosubsistingequitableinterestattheend.That
interesthasbeendissipatedinthetransferofthepropertytoathirdpartyabsolutely,whichdoesnotcountasa
dispositionforthepurposesofsection53(1)(c),sosignedwritingisnotrequired.Thereasonswhy,andhowthis
hasbeendevelopedbythecaselaw,willbediscussedfurther.
(a)AssignmentofEquitableInterest
Anassignmentofanequitableinterestclearlyfallswithinthescopeofsection53(1)(c)sothatwritingisrequired
toeffecttheassignment.AnassignmentcanberepresentedbyFigure10.3givenontheoppositepage.
ThisisthesamestructureasinFigure10.1.Signedwritingisrequired.ThiswastheresultreachedinReDanish
BaconCo.LtdStaffPensionFundTrusts.56 Inthatcase,anemployeehadtherighttonominateapersonto
receivebenefitsdueunderthecompanyspensionfund.Theemployeehadnominatedhiswifeintheapproved
form,whichwasdulysignedandwitnessed.Hethenchangedthenominationbylettertothecompany.Sincethe
employeehadasubsistingequitableinterestasregardspaymentofthepension,section53(1)(c)wasengaged
andsowritingwasrequiredtoeffecttheassignment.MegarryJfoundthatthesignedwritingrequirementmightbe
fulfilledacrosstwoormoredocuments,ratherthannecessarilyinonlyonedocument.57
Ihavebeenreferredtonoauthorityonthepointrelatingtothewordsinsection53(1)(c)whichruna
dispositionmustbeinwritingindeed,despitetherichesofauthorityonthispointundersection
40,58 section53(1)(c)appearstobewhollybarren.However,ifastatutoryrequirementthata
memorandumshallbeinwritingmaybesatisfiedbytwoormoredocuments,Idonotseewhytwoor
moredocumentsshouldnotsatisfytherequirementthatadispositionshallbeinwriting.True,section
40(1)ismerelydirectedtoprovidingwrittenevidenceofatransaction,whereasundersection53(1)(c)(p.
487)
Viewfullsizedfigure
Figure10.3
Assignmentofanequitableinterest
(unlikesection53(1)(b))59 thematterisonenotmerelyofevidencebutofthedispositionitself.Yettwo
documentsareusedinconstitutingastrictsettlementoflandorestablishingatrustforsaleofland,and
therearewellestablishedrulesfortheincorporationofdocumentsinawillandiftwoormoredocuments,
whenreadtogether,disposeofanequitableinterest,Idonotseewhythecourtshouldinsistonseparating
themandsubjectingeachseparatelytothetestofsection53(1)(c).
(b)DirectiontoTrusteetoHoldonTrustforAnother
Theleadingcaseonwhetheraninstructionbyabeneficiarytothetrusteestoholdupondifferenttrustswasa
dispositionofasubsistingequitableinterestwithinsection53(1)(c)isthedecisionoftheHouseofLordinGreyv
InlandRevenueCommissioners.
GreyvInlandRevenueCommissioners[1960]AC1
Thesettlor,MrHunter,hadmadesixsettlementsinfavourofhisgrandchildren.Helatertransferred
substantialblocksofsharestothetrustees,whichtheyheldontrustforhim.Thenheorallyinstructedthe
trusteestoholdthesharesuponthetrustsofthesixsettlements.Finally,documentswereexecutedin
confirmationoftheoraldeclaration,andthesewereexecutedbyMrHunter.Thequestionwaswhetherthe
trustsoftheshareshadbeencreatedbytheoraldeclarationorbythelaterdocuments.
TheHouseofLordsheldthattherehadbeenadispositionofsubsistingequitableinterests,whichwas
effectedbysignedwriting.
ViscountSimmonds:
Iftheworddisposition[insection53(1)(c)]isgivenitsnaturalmeaning,itcannot,Ithink,bedenied
thatadirectiongivenbyMr.Hunter,wherebythebeneficialinterestinthesharestheretoforevestedin
himbecamevestedinanotherorothers,isadisposition.Butitiscontendedbytheappellantsthatthe
worddispositionistobegivenanarrowermeaningand(sofarasrelatestointervivostransactions)
bereadasifitweresynonymouswithgrantsandassignmentsandthat,giventhismeaning,itdoes
notcoversuchadirectionaswasgiveninthiscase.AsIamclearlyoftheopinion,whichIunderstand
tobesharedbyyourLordships,thatthereisnojustificationforgivingtheworddispositionanarrower
meaningthanitordinarilybears,itwillbeunnecessarytodiscusstheinterestingproblemthatwould
otherwisearise.
ViscountSimmondswasconcernedwithgrantsandassignmentsasthiswasthelanguageusedinsection9of
theStatuteofFrauds1677.However,theHouseofLordswasclearthattheLawofPropertyAct1925hadthe
sameeffectastheStatuteofFrauds1677.
(p.488)
Viewfullsizedfigure
Figure10.4
GreyvIRC
Whetherthetrustoftheshareswascreatedbytheoralinstructionorwrittendocumentsmatteredbecauseit
affectedliabilitytopaystampduty.Stampdutywaspayableadvalorem60 uponaconveyanceonsale,which
includedeveryinstrumentwherebyanyproperty,oranyestateorinterestinanyproperty,uponthesale
thereofistransferredtoorvestedinapurchaser,oranyotherpersononhisbehalforbyhisdirection.61 Thus
inIRCvAngus,62 LordEshersaid:
thethingwhichismadeliabletothedutyisaninstrument.Ifacontractofpurchaseandsale,or
conveyancebywayofpurchaseandsale,canbe,oriscarriedoutwithoutaninstrument,thecaseisnot
withinthesection,andnotaxisimposed.Itisnotthetransactionofpurchaseandsalewhichisstruckat
itistheinstrumentwherebythepurchaseandsaleareeffectedwhichisstruckat.
WhetherthetrustsofthesharesinGreyvIRCwereeffectedbytheoraldirectionorbythelaterdocuments
dependedonwhethertheoraldeclarationwasvalid.Hadtheoraldeclarationcreatedatrustoftheshares,itwould
havebeenvalid.However,theHouseofLordsheldthatthetrustswerealreadyinexistenceandMrHunterwas
seekingtotransferhissubsistingequitableinteresttothebeneficiaries.Thisinvolvedadispositionandsothe
passingoftheinterestcouldonlybeeffectedbyaninstrumentinwriting,andthatdocumentwasliabletostamp
duty.63
ThetransactioninGreycanbeillustratedbyFigure10.4,whichisthesameasFigure10.1.
(c)ConveyanceofLegalEstatebyNominee
GreyvIRCwasdistinguishedinVandervellvInlandRevenueCommissioners,64 wherethetransferwasnotofthe
beneficialinterestonly,butratherofthelegalestateabsolutely.Asaresult,theHouseofLordsheldthatsigned
writinginaccordancewithsection53(1)(c)wasnotrequired.ThereasonsgivenbytheLawLordsare
unsatisfactory,butthedecisioniscommerciallysensibleandprinciplesnotconsideredbytheHouseofLordscan
beusedtoexplaintheresult.
VandervellvInlandRevenueCommissioners[1967]2AC291,311
VandervelldecidedtogivetotheRoyalCollegeofSurgeonssufficientmoneytoendowaChairof
Pharmacology.ThiswastobedonebytransferringaholdingofsharesinVandervellProductsLtd,which
werevestedintheNationalProvincialBankLtdontrustforVandervell,totheRoyal(p.489) College,and
thendeclaringdividendsontheshares,forwhichtheRoyalCollegewouldbefreeofliabilitytopaytax
becauseitisacharity.Anoptiontorepurchasethesharesfor5,000wasgiventoVandervellTrusteesLtd,a
companythatactedastrusteefortheVandervellfamilytrusts.ThebanktransferredthesharestotheRoyal
College,andthedividendsweredeclared.
TheRevenueassessedVandervelltoSurtaxonthedividendsonthegroundthathehadnotdivestedhimself
absolutelyofallhisinterestintheshares.ThiswasupheldbytheHouseofLordsbecauseVandervell
TrusteesLtdheldtheoptiononaresultingtrustforVandervell.65 OneargumentfortheRevenuewasthatthe
bankhadconveyedonlythelegalestateinthesharestotheRoyalCollegeofSurgeonstheequitable
interestremainedinVandervellbecausehehadfailedtoeffectitsdispositioninwritingasrequiredbysection
53(1)(c).Thisargumentwasrejected.
LordUpjohn:
[Section53(1)(c)was]appliedinGrey66 andOughtred67 tocaseswherethelegalestateremained

outstandinginatrusteeandthebeneficialownerwasdealinganddealingonlywiththeequitable
estate.Thatisunderstandabletheobjectofthesection,aswastheobjectoftheoldStatuteof
Frauds,istopreventhiddenoraltransactionsinequitableinterestsinfraudofthosetrulyentitled,and
makingitdifficult,ifnotimpossible,forthetrusteestoascertainwhoareintruthhisbeneficiaries.But
whenthebeneficialownerownsthewholebeneficialestateandisinapositiontogivedirectionstohis
baretrusteewithregardtothelegalaswellastheequitableestatetherecanbenopossiblegroundfor
invokingthesectionwherethebeneficialownerwantstodealwiththelegalestateaswellasthe
equitableestate
[I]ftheintentionofthebeneficialownerindirectingthetrusteetotransferthelegalestatetoXisthatX
shouldbethebeneficialownerIcanseenoreasonforanyfurtherdocumentorfurtherwordsinthe
documentassigningthelegalestatealsoexpresslytransferringthebeneficialinterestthegreater
includestheless.
CounselfortheCrownadmittedthatwherethelegalandbeneficialestatewasvestedinthelegal
ownerandhedesiredtotransferthewholelegalandbeneficialestatetoanotherhedidnothavetodo
morethantransferthelegalestateandhedidnothavetocomplywithsection53(1)(c)andIcansee
norelevantdifferencebetweenthatcaseandthis.
ThereisnodoubtthattheresultinVandervellwascommerciallydesirable.Sharesareoftenboughtandsoldby
nomineesontheoralinstructionsofbeneficiaries,anditwouldbeveryinconvenienttodemandsignedwriting
beforenomineescouldact,particularlygiventhatsharesarenowoftentransferredelectronicallyundertheCREST
system.However,thereasoningintheHouseofLordsisproblematic.AlthoughLordUpjohnstatedthatatransfer
ofthegreaterlegalestateincludesatransferofthelesserequitableestate,thisdoesnotexplainwhethersection
53(1)(c)isengagedsuchthatsignedwritingisrequired.68 Nevertheless,thereasoningofLordUpjohnispreferable
tothatoftheotherjudges.Forexample,LordWilberforcestated:69
Thecaseshouldthenberegardedasoneinwhichtheappellanthimselfhas,withtheintentiontomakea
gift,putthecollegeinapositiontobecomethelegalowneroftheshares,whichthecollegeinfact
became.
(p.490) Iftheappellanthaddiedbeforethecollegehadobtainedregistrationitisclearontheprinciple
ofInreRose70 thatthegiftwouldhavebeencomplete,onthebasisthathehaddoneeverythinginhis
powertotransferthelegalinterest,withanintentiontogive,tothecollege.
Suchreasoningisunsatisfactoryandcircular.Vandervellhadonlydoneeverythinginhispowertogivetheshares
tothecollegeifsignedwritingwasnotrequired.ButthiswastheveryissuetheHouseofLordswassupposedto
bedeciding.
Figure10.5illustratesthefactsofVandervell.
ThisisthesameasFigure10.2.TheresultofVandervellmaybethatsignedwritingisunnecessary.Butthismay
besurprising.Afterall,Vandervellhadasubsistingequitableinterestatthebeginning,whichnolongerexistedat
theend,soitmightbethoughtthathehaddisposedofthatsubsistingequitableinterestandsection53(1)(c)
shouldapply.AnexplanationastowhywritingwasnotrequiredhasbeenprovidedbyNolan,writingoverthirty
yearsafterthecasewasdecided.
Nolan,VandervellvIRC:acaseofoverreaching(2002)61CLJ169,188
ThedoctrineofoverreachingcanbeusedtoexplainandjustifytheirLordshipsdecision
inVandervellthattheRoyalCollegeofSurgeonsgotgoodlegaltitleto100,000Asharesin
VandervellProductsLtd.,freeofVandervellspriorequitableinterestinthem,eventhoughVandervell
hadnottransferredthatinteresttotheRoyalCollegeinaccordancewithsection53(l)(c)oftheLawof
PropertyAct1925.Vandervell,withoutanyneedforformality,instructedNationalProvincialBankLtd.
togiveawayitslegaltitletotheshares,freeofhisequitableinterestinthem.Theshareswere
transferredtotheRoyalCollege,andreregisteredinitsname,soitacquiredgoodlegaltitletothem.
ThegiftofthesharesalsooverreachedVandervellsequitableinterestinthem.Consequently,the
RoyalCollegeacquiredthesharesfreeofthatinterest.Noaspectofthesetransactionsamountedto
thedispositionofasubsistingequitableinterest,withinsection53(1)(c).
ThisexplanationoftheirLordshipsdecisionreliesonawellunderstoodandwellaccepteddoctrine,
overreaching,whichisverycommonlyencounteredintheadministrationoftrusts:itdoesnotrelegate
acasesopracticallyimportantasVandervelltothestatusofausefulanomalyorexception.
UnderstandingtheirLordshipsdecisionintermsofsuchafamiliar,wellknown,doctrinehasanother
majorbenefit.Thesubstantialbodyoflawrelatingtooverreachingcanbeusedtoestablishthelimits
withinwhichVandervellshouldproperlybeapplied:itcanbeusedtoestablishtheconsequences
whichmayfollowinavarietyofcircumstanceswhenanominee,actingoninstructionsfromhis
beneficiary,dealswithanassetheholdsforthatbeneficiary.
Viewfullsizedfigure
Figure10.5
VandervellvIRC
(p.491) WhilstthisoverreachinganalysiswasnotemployedbytheHouseofLords,itisconsistentwiththe
result.Itwascrucialthatthetrusteeswerenotactinginbreachoftrust.Iftheywere,overreachingcouldnothave
occurred.
Nolanconsidershowananalysisbaseduponoverreachingmightworkinavarietyofsituations.Themostdifficult
scenarioisperhapswherethebeneficiaryinstructshistrusteetotransferlegaltitletosharestoanotherpersonto
holdontrustforadifferentparty.
Nolan,VandervellvIRC:ACaseofOverreaching(2002)61CLJ169,1867
Thenextsetoffactstobeconsideredis,perhaps,themostdifficult.WhatiftheBank,atVandervells
direction,hadgiventhesharestothetrusteesofanothersettlementwhichVandervellhimselfhad
established?Thereisnosingleanswertothisquestion.
SolongasthecourtwassatisfiedthatVandervellhaddonetwodistinctthingsthathehadfirst
createdasettlement,andthathehadthendirectedtheBanktotransferthesharestothetrusteesof
thatsettlementtheresultshouldbe[thattherewasnodisposition].Vandervellsinitialestablishment
ofonesettlementshouldnotaffectthecorrectlegalinterpretationofhissubsequent,andindependent,
directiontotheBankastrusteeofanothersettlement.
Thequestionwouldbemoredifficulttoanswerhadthetwoeventstakenplaceatthesametime.In
suchacase,theprecisefactsatissuewouldbevitallyimportant,becausethecourtcouldreachone
oftwoverydifferentconclusions.Ontheonehand,thecourtcouldtaketheviewthattherewerestill
twoseparatetransactions,atransferofthesharescoupledwithadeclarationofnewtrustsoverthem,
neitherofwhichamountedtoadispositionofVandervellssubsistingequitableinterest,withinsection
53(1)(c)oftheLawofPropertyAct1925.Ontheotherhand,thecourtmightholdthatthecreationof
thenewsettlement,andthedirectiontotransferthesharestothetrusteesofthatsettlement,were
merelypartsofasinglescheme,bywhichVandervelltriedtosubstituteanotherpersonforhimselfas
beneficiaryofthesharesandinthelightofGreyvIRC,thatschemewouldsurelyinvolveadisposition
ofVandervellsequitableinterestintheshares.Suchadispositionwouldfallsquarelywithinsection
53(1)(c)oftheLawofPropertyAct1925andwouldthereforeonlybevalidifembodiedindulysigned
writing.ThelimitsoftheVandervellprinciplewouldhavebeencrossed.
(d)ConstitutionofTrustFollowingResultingTrust
VandervellsproblemsdidnotendwiththedecisionoftheHouseofLords.Thisisbecausewhenthetrusteeslater
exercisedtheoption,thequestionaroseastowho,ifanyone,hadanequitableinterestintheoptionandshares,
andwhethertherehadbeenadispositionofasubsistingequitableinterest.
ReVandervellsTrusts(No.2)[1974]Ch269
In1961VandervellTrusteesLtdexercisedtheoption,taking5,000fromtheVandervellchildrenssettlement
forthepurpose.TheRoyalCollegeofSurgeonstransferredthesharestoVandervellTrusteesLtd.The
RevenuemadeafurtherclaimthattaxwasdueonthegroundthatVandervellTrusteesLtdhadheldthe
sharesontrustforVandervell.In1965,Vandervellexecutedadeed,formallytransferringtothechildrens
settlementanyrightorinterestthathemightstillhaveintheshares.Vandervelldiedandhisestatesued
VandervellTrusteesLtdforthereturnofthedividendspaidonthesharessince1961.Theysucceededbefore
MegarryJ,butfailedintheCourtofAppeal.
(p.492) LordDenningaddressedthequestionofthewayinwhichtheequitableinterest,whichVandervell
hadpreviouslyenjoyedintheoption,hadleftVandervell:71
Mr.BalcombefortheexecutorsadmittedthattheintentionofMr.Vandervellandthetrusteecompany
wasthatthesharesshouldbeheldontrustforthechildrenssettlement.Buthesaidthatthis
intentionwasofnoavail.Hesaidthatduringthefirstperiod,Mr.Vandervellhadanequitableinterestin
theproperty,namely,aresultingtrustthatheneverdisposedofthisequitableinterest(becausehe
neverknewhehadit):andthatinanycaseitwasthedispositionofanequitableinterestwhich,under
section53oftheLawofPropertyAct1925,hadtobeinwriting,signedbyhimorhisagent,lawfully
authorisedbyhiminwriting(andtherewasnosuchwritingproduced).HecitedGreyvIRC[1960]AC
1andOughtredvIRC[1960]AC206.
Thereisacompletefallacyinthatargument.Aresultingtrustforthesettlorisbornanddieswithout
anywritingatall.Itcomesintoexistencewheneverthereisagapinthebeneficialownership.It
ceasestoexistwheneverthatgapisfilledbysomeonebecomingbeneficiallyentitled.Assoonasthe
gapisfilledbythecreationordeclarationofavalidtrust,theresultingtrustcomestoanend.Inthis
case,beforetheoptionwasexercised,therewasagapinthebeneficialownership.Sotherewasa
resultingtrustforMr.Vandervell.But,assoonastheoptionwasexercisedandthesharesregistered
inthetrusteesname,therewascreatedavalidtrustofthesharesinfavourofthechildrens
settlement.Notbeingatrustofland,itcouldbecreatedwithoutanywriting.Atrustofpersonaltycan
becreatedwithoutwriting.BothMr.Vandervellandthetrusteecompanyhaddoneeverythingwhich
neededtobedonetomakethesettlementofthesesharesbindingonthem.So,therewasavalid
trust:seeMilroyvLord(1862)4DeGF&J264at274,72 perTurnerLJ.
ThereasoningofLordDenningMRisdifficulttofollow.Whilstitisclearfromsection53(2)oftheLawofProperty
Act1925thataresultingtrustisbornwithouttheneedforanyformalities,itisnotclearwhyitshouldbethought
todieinthesamemanner.Oncetheresultingtrustexisted,Vandervellhadareal,subsistingequitableinterest
underthetrust.Assuch,todisposeofitneededsignedwritinginaccordancewithsection53(1)(c).Thispoint
wasrecognizedbyStephensonLJintheCourtofAppeal,althoughultimatelyhedidnotdissent:73
Toexpoundmydoubtswouldservenousefulpurposetostatethemshortlymaydonoharm.Thecauseof
allthetroubleiswhatthejudgecalled[1974]Ch269at298,thisillfatedoptionanditsincorporationina
deedwhichwastooshortandsimpletoridMr.Vandervellofthebeneficialinterestinthedisputedshares,
asabaremajorityoftheHouseofLordsheld,notwithoutfluctuationofmindonthepartofoneofthem
(LordUpjohn),inVandervellvIRC[1967]2AC291at314317.TheoperationoflaworequitykeptforMr.
Vandervellorgavehimbackanequitableinterestwhichhedidnotwantandwouldhavethoughthehad
disposedofifhehadeverknownitexisted.Itisthereforedifficulttoinferthatheintendedtodisposeorever
diddisposeofsomethinghedidnotknowhehaduntilthejudgmentofPlowmanJinVandervellv
IRC[1966]Ch261at273,whichledtothedeedof1965,enlightenedhim,ortofindadispositionofitin
theexercisebythetrusteecompanyin1961ofitsoptiontopurchasetheshares.Andevenifhehad
disposedofhisinterest,hedidnotdisposeofitbyanywritingsufficienttocomplywithsection53(1)(c)of
theLawofPropertyAct1925.
TheanalysisofStephensonLJseemsconvincing.ThetransactioncanberepresentedinFigure10.6.
ThislooksremarkablylikeFigure10.1.Itisdifficulttoexplainwhytherewasnotadispositionofasubsisting
equitableinterestfromVandervelltotheChildrensSettlement.LordDenning(p.493)
Viewfullsizedfigure
Figure10.6
ReVandervellsTrusts(No.2)
thoughtthattheresultingtrustsimplydiedwhentheexpresstrustinfavourofthechildrenwascreated.Butwhy?
Perhapsitwasimportantthatthesubjectmatteroftheresultingtrustwastheoption,andthesubjectmatterof
thedifferentexpresstrustwasshares.Butitisnotclearwhythiswouldbeso.
Ultimately,Vandervell(No.2)isaveryharddecisiontoexplain.ItisnotablethatNolansexplanation
ofGreyandVandervelldoesnotencompassVandervell(No.2).ThismightbebecausethejudgesinVandervell
(No.2)weresimplyconfused.However,itisdifficultnottohavesympathywiththeresultontheparticularfactsof
thecase:Vandervellhadsoughttohavenothingtodowiththeoptionortheshares,andhadalreadysuffereda
heavyfinancialblowbythepreviousdecisionoftheHouseofLordsthatheenjoyedanequitableinterestundera
resultingtrust,despitethatbeingnotatallwhathewanted.Indeed,thisiswhyStephensonLJdeclinedto
dissent,findingthatthecasereached:74
aresultwithwhichIamhappytoagreeasitseemstometobeinaccordancewiththejusticeandthe
realityofthecase.
(e)DeclarationbyBeneficiaryasTrustee
Thebeneficiarymightdeclarehimorherselftobeatrustee.Thiscreatesasubtrust,asitoperatesbelowthe
maintrust.So,ifAholdsharesontrustforB,whothendeclareshim,orherselftobeholdingontrustforC,B
becomesthetrusteeofasubtrustandCthebeneficiaryofthatsubtrust(seeFigure10.7).
Viewfullsizedfigure
Figure10.7
Subtrust
(p.494) Itisimportanttoconsiderwhetherthecreationofthesubtrustrequiressignedwritinginaccordancewith
section53(1)(c).Adistinctionbetweenpassiveandactivesubtrustsisoftendrawn.Underanactivesubtrust,
Bwouldberequiredtoperformcertaindutiesofatrustee,suchasexercisingadiscretiontoselectbeneficiaries,
andsocouldnotsimplydropoutofthepicture.75 Asaresult,Csinterestmightbeconsideredtobedifferent
fromBsinterest.ThusB,indeclaringthesubtrustoftheequitableinterestwouldbecreatinganewinterestin
favourofC,andthiswouldfalloutsidethescopeofsection53(1)(c),sinceitwouldnotinvolvethedispositionofan
existinginterest.
However,ifBdoesnothaveanyactiveduties,thesubtrustmightbeconsideredtobepassive.Forexample,A
mightbeholdingsharesonbaretrustforB,whothendeclareshimorherselftobeholdingallthoseshareson
baretrustforC.Insuchanevent,Bwouldsimplydropoutofthepicture.ThiswastheresultinGraingev
Wilberforce,76 inwhichChittyJheldthat:
whereAwastrusteeforB,whowastrusteeforC,AheldintrustforC,andmustconveyasCdirected.B
mightthereforebeleftout.
ThisanalysisderivesfurthersupportfromReLashmar,77 inwhichLindleyLJheldthatitwouldbepossibletolook
through[B]asnobody.SuchasituationmightberepresentedbyFigure10.8.
IfBdoesdropoutofthepicture,itwouldleaveAholdingforC.Figure10.8mightberedrawnasinFigure10.9.
Viewfullsizedfigure
Figure10.8
Passivesubtrusts:thesubtrusteedropsoutofthepicture
Viewfullsizedfigure
Figure10.9
Theeffectofthesubtrusteedroppingout
(p.495) ThisisthesameasFigure10.1.Signedwritinginaccordancewithsection53(1)(c)isrequired,sincethe
effectofthetransactionistodisposeofanexistingequitableinterest.
However,thisanalysisbaseduponasubtrusteedroppingoutofthepicturehasbeenquestionedbytheCourtof
AppealinNelsonvGreeningandSyk es(Builders)Ltd.78 Thecaseitselfconcernedthevalidityofachargingorder,
ratherthanformalities,butCollinsLJsaid:
[Thereisanargumenton]theprinciplethatifAholdsabeneficialinterestupontrustforBwhointurnholds
itontrustforMrNelson,BfallsoutoftheequationandAholdsthebeneficialinterestdirectlyupontrustfor
MrNelson
Inmyjudgment,theargumentfails.
ItisalsotruethatinGreyvIRC[1958]Ch690(affirmed[1960]AC1)at715,LordEvershedMR
(dissenting,butnotonthispoint)saidthatwhereapersonwhoistheownerbeneficiallyofproperty(and
thelegalestateisvestedinanotherastrusteeforhim)makesadeclarationoftrustthepracticaleffect
wouldseem,incommonsense,toamount,orbecapableofamounting,tothegettingridofatrustor
equitableinterestthensubsisting.ItissaidinSnell,Equity(31sted.McGhee,2005),para1911that
wherepropertyistransferredtoTontrustforBabsolutely[i]fBinturnbecomesabaretrusteeofhis
equitableinterestforC,TwillholddirectlyintrustforC,citingHeadvLordTeynham(1783)1CoxEq.
57(whichonlyholdsthatwheretrusteesandthebeneficiaryarebeforethecourt,anintermediatetrusteeof
theequitableinterestneednotbemadeaparty).
Theseauthoritiesdonotbindthiscourttoholdthatasamatteroflawanintermediatetrusteeceasestobe
atrustee.IacceptthesubmissionforG&Sthatsaying(asLordEvershedMRsaid)thatthepracticaleffect
wouldseemtoamounttoorbecapableofamountingtothegettingridofthetrustoftheequitableinterest
thensubsisting,isnotthesameassayingthatasamatteroflawitdoesgetridoftheintermediatetrust.
Whathewassayingwasthatinthecaseofatrustandsubtrustofpersonalpropertythetrusteesmay
decidethatasamatterofpracticalityitismoreconvenienttodealdirectlywiththebeneficiaryofthesub
trust.
OnthisapproachofCollinsLJ,Bsequitableinterestis,asamatteroflaw,notinevitablylost,evenifthesubtrust
ispassive.Thismightsuggestthatdeclarationsofsubtrustswillneverrequiresignedwritinginaccordancewith
section53(1)(c),sinceanewinterestwillalwaysbecreatedunderthesubtrust.However,thisapproachmightbe
consideredtobelessthansatisfactory.Afterall,ifthepurposeofsection53(1)(c)istorequirewrittenevidenceof
whathappenstoequitableinterests,whichmightbehiddenbeneaththelegaltitleandsusceptibletofraudulent
activities,itwouldbepreferabletoinsistuponsignedwritingandtherequirementsofsection53(1)(c)foranysub
trust,activeorpassive.ThisargumenthasbeenmadebyGreen.
Green,Grey,OughtredandVandervell:AContextualReappraisal(1984)47MLR385,
3989
Ifoneabandonsthenotionofdeclarantswhohaveconstitutedthemselvesbaretrusteesofsubsisting
equitableinterestsdroppingoutofthepicture,thequestionofwhetheradeclarationoftrustovera
subsistingequitableinterestneedstocomplywithsection53(1)(c)admitsofauniformanswer
whateverthecomplexitiesofthetrustsdeclared.Theorthodoxyisthatsuchdeclarationsareoutside
section53(1)(c),butthereisnoauthoritywhichdirectlysupportsthatview,andinitsabsencethis
writerwouldmakethefollowingpleaonbehalfofthecontraryposition.Ithasalreadybeennotedthat
the(p.496) characteristicwhichmakesasubsistingequitableinterestworthyofprotectionisthe
beneficialinterestattachedtoit.Whenlookedatinthisway,itwillreadilybeseenthatassignments
anddeclarationsoftrust,bothofwhichhavetheeffectofextinguishingthebeneficialinterestinthe
ownerofahithertosubsistingequitableinterest,areequallydeservingofformalprotection.Andboth
shouldbecaughtbysection53(1)(c)byadoptingthenotionofadeclarationoftrustworkingapart
disposalofasubsistingequitableinterest,adisposalofthebeneficialpartofhithertosubsisting
equitablerights.(Inthisconnection,onemightenlistViscountSimmondsjudgmentinGreyas
supportiveoftheviewthatitistodispositionsofbeneficialintereststhatsection53(1)(c)is
addressed.)Adoptingthisview,onewouldescapetheabsurdsuggestionthatadeclarationoftrust
shiftingbeneficialownershipliesoutsidesection53(1)(c),whilstasubsequentassignmentofthe
declarantsoutstandingvaluelessequitablerightfallswithinitandonewouldhavethesatisfactionof
treatingliketransactionsinalikemanner,finallyjettisoningtheincoherentformaldistinctionadopted
bythedraftsmanin1677.
(f)OralContractfortheSaleofShares
Anagreementtosellsharesinaprivatecompanymaybespecificallyenforceable.Thisisbecausedamagesmay
notbeanadequateremedyiftheagreementtosellthesharesisbreachedunlikeapubliccompany,damages
cannotenablethepurchasertoacquireequivalentshares.Asthecontractisspecificallyenforceable,a
constructivetrustmayarise:sinceEquitywillspecificallyenforcetheagreement,Equitywilltreatasdonethat
whichoughttobedone,79 andfindthatequitabletitlehasalreadypassedtothepurchaser.80 However,legaltitle
wouldremainwiththevendor,whowouldholdthesharesonconstructivetrust.Suchatrustmayarisewithout
requiringsignedwriting.81 Where,however,thevendorissellingasubsistingequitableinterest,ithasbeen
suggestedthatsignedwritinginaccordancewithsection53(1)(c)isrequired.Indeed,thiswasthedecisionofa
majorityoftheHouseofLordsinOughtredvIRC.82
OughtredvInlandRevenueCommissioners[1960]AC206
100,000preferencesharesand100,000ordinarysharesinWilliamJacksonandSonLtdwereheldontrust
forMrsOughtredforlifeandafterherdeathontrustforhersonPeterabsolutely.MrsOughtredalsoheld
72,700sharesabsolutely.OnMrsOughtredsdeath,estatedutywouldbepayableonthesettledproperty
andherownfreeestate.Inordertoreducethetaxliability,MrsOughtredandPeterorallyagreedthatshe
wouldtransfertohimher72,700shares,andPeterwouldreleasetohismotherhisremainderinterestinthe
200,000preferenceandordinaryshares.Subsequently,documentscoveringthesetransferswereexecuted.
TheRevenueclaimedstampdutyonthetransferofPetersinterestinthe200,000shares.Thekeyissuefor
thecourtwaswhethertheoralcontracthadbeeneffectivetotransferthepropertyintheshares.Ifithadbeen
effective,thenstampdutywasnotpayable.
TheHouseofLordsheldthattheoralcontracthadnotbeeneffective.Thesharesweretransferredbythe
documentsandsostampdutywaspayable.
(p.497) LordJenkins:
Itissaidfurtherthatinthepresentcasethedisputedtransfertransferrednothingbeyondabarelegal
estate,because,inaccordancewiththewellsettledprincipleapplicabletocontractsofsale,between
contractandcompletiontheappellantbecameundertheoralagreementbeneficiallyentitledinequity
tothesettledshares,subjecttotheduesatisfactionbyherofthepurchaseconsideration,and
accordinglytheentirebeneficialinterestinthesettledshareshadalreadypassedtoheratthetimeof
theexecutionofthedisputedtransfer,andtherewasnothingleftuponwhichthedisputedtransfer
couldoperateexceptthebarelegalestate.
TheCommissionersofInlandRevenueseektomeetthisargumentbyreferencetosection53(1)(c)of
theLawofPropertyAct,1925.Theycontendthatastheagreementof18June,1956,wasanoral
agreementitcouldnot,inviewofsection53(1)(c),effectadispositionofasubsistingequitableinterest
ortrust,andaccordinglythatPeterssubsistingequitableinterestunderthetrustsofthesettlement,in
theshapeofhisreversionaryinterest,remainedvestedinhimuntiltheexecutionofthedisputed
transfer,whichinthesecircumstancesoperatedasatransferonsaletotheappellantofPeters
reversionaryinterestandadditionallyasatransfernotonsaletotheappellantofthelegalinterestin
thesettledshares.ItwasbythisprocessofreasoningthattheCommissionersarrivedattheopinion
expressedinthecasestatedthatthedisputedtransferattractedboththeadvaloremdutyexigibleon
atransferonsaleofthereversionaryinterestandalsothefixeddutyof10s
Ifinditunnecessarytodecidewhethersection53(2)hastheeffectofexcludingthepresent
transactionfromtheoperationofsection53(1)(c),for,assumingintheappellantsfavourthattheoral
contractdidhavetheeffectinequityofraisingaconstructivetrustofthesettledsharesforher
untouchedbysection53(1)(c),Iamunabletoaccepttheconclusionthatthedisputedtransferwas
preventedfrombeingatransferofthesharestotheappellantonsalebecausetheentirebeneficial
interestinthesettledshareswasalreadyvestedintheappellantundertheconstructivetrust,and
therewasaccordinglynothingleftforthedisputedtransfertopasstotheappellantexceptthebare
legalestate.Theconstructivetrustinfavourofapurchaserwhicharisesontheconclusionofa
contractforsaleisfoundeduponthepurchasersrighttoenforcethecontractinproceedingsfor
specificperformance.Inotherwords,heistreatedinequityasentitledbyvirtueofthecontracttothe
propertywhichthevendorisboundunderthecontracttoconveytohim.Thisinterestunderthe
contractisnodoubtaproprietaryinterestofasort,whicharises,sotospeak,inanticipationofthe
executionofthetransferforwhichthepurchaserisentitledtocall.Butitsexistencehasnever(sofar
asIknow)beenheldtopreventasubsequenttransfer,inperformanceofthecontract,oftheproperty
contractedtobesoldfromconstitutingforStampDutypurposesatransferonsaleofthepropertyin
question.Takethesimplecaseofacontractforthesaleofland.Insuchacaseaconstructivetrustin
favourofthepurchaserarisesontheconclusionofthecontractforsale,but(sofarasIknow)ithas
neverbeenheldonthisaccountthataconveyancesubsequentlyexecutedinperformanceofthe
contractisnotstampableadvaloremasatransferonsale.Similarly,inacaselikethepresentone,
butuncomplicatedbytheexistenceofsuccessiveinterests,atransfertoapurchaserofthe
investmentscomprisedinatrustfundcouldnot,inmyjudgment,bepreventedfromconstitutinga
transferonsaleforthepurposesofStampDutybyreasonofthefactthattheactualtransferhadbeen
precededbyanoralagreementforsale.
Intruth,thetitlesecuredbyapurchaserbymeansofanactualtransferisdifferentinkindfrom,and
maywellbefarsuperiorto,thespecialformofproprietaryinterestwhichequityconfersonapurchaser
inanticipationofsuchtransfer.
Thisdifferenceisofparticularimportanceinthecaseofpropertysuchassharesinalimitedcompany.
Underthecontractthepurchaserisnodoubtentitledinequityasbetweenhimselfandthevendorto
thebeneficialinterestintheshares,and(subjecttoduepaymentofthepurchaseconsideration)to
callforatransferofthemfromthevendorastrusteeforhim.Butitisonlyontheexecutionofthe
actualtransferthathebecomesentitledtoberegisteredasamember,toattendandvoteatmeetings,
toeffecttransfersontheregister,ortoreceivedividendsotherwisethanthroughthevendorashis
trustee.
(p.498) Thisapproachreceivedthesupportofamajorityofthejudges.Sincethetransactionwasconcludedby
meansofawrittendocument,stampdutybecamepayableonthatdocument.However,ViscountRadcliffe,
dissenting,waspersuadedthattheoralcontractcreatedaconstructivetrust,andsection53(1)(c),therefore,did
notapply.Hesaid:
ViscountRadcliffe(dissenting):
Thereasonofthewholematter,asIseeit,isasfollows:On18June,1956,thesonownedanequitable
reversionaryinterestinthesettledshares:byhisoralagreementofthatdatehecreatedinhismotheran
equitableinterestinhisreversion,sincethesubjectmatteroftheagreementwaspropertyofwhichspecific
performancewouldnormallybedecreedbythecourt.Hethusbecameatrusteeforherofthatinterestsub
modo:83 havingregardtosubsection(2)ofsection53oftheLawofPropertyAct,1925,subsection(1)of
thatsectiondidnotoperatetopreventthattrusteeshiparisingbyoperationoflaw.On26JuneMrs.
Oughtredtransferredtohersontheshareswhichweretheconsiderationforheracquisitionofhisequitable
interest:uponthistransferhebecameinafullsenseandwithoutmorethetrusteeofhisinterestforher.
Shewastheeffectiveownerofalloutstandingequitableinterests.Itwasthuscorrecttoreciteinthedeed
ofreleasetothetrusteesofthesettlement,whichwastowinduptheirtrust,thatthetrustfundwasby
thenheldupontrustforherabsolutely.Therewas,infact,noequitytothesharesthatcouldbeasserted
againsther,anditwasopentoher,ifshesowished,toletthematterrestwithoutcallingforawritten
assignmentfromherson.Giventhatthetrusteeswereapprisedofthemakingoftheoralagreementandof
Mrs.Oughtredssatisfactionoftheconsiderationtobegivenbyher,thetrusteeshadnomoretodothanto
transfertheirlegaltitletoherorasshemightdirect.Thisandnomoreiswhattheydid.
Itfollowsthat,inmyview,thistransfercannotbetreatedasaconveyanceofthesonsequitablereversion
atall.Thetrusteeshadnotgotit:henevertransferredorreleasedittothem:howthencouldtheyconvey
it?Withallrespecttothosewhothinkotherwise,itisincorrecttosaythatthetrusteestransferwasmade
eitherwithhisauthorityorathisdiscretion.IftherecitalastoMrs.Oughtredsrightswascorrect,asI
thinkthatitwas,hehadnoremainingauthoritytogiveordirectiontoissue.Areleaseis,afterall,the
normalinstrumentforwindingupatrustwhenalltheequitablerightsarevestedandthelegalestateis
calledforfromthetrusteeswhoholdit.Whatthereleasegavethetrusteesfromhimwasacquittancefor
thetrustadministrationandaccountstodate,andthefactthathegaveitinconsiderationofthelegal
interestinthesharesbeingvestedinhismotheraddsnothingonthispoint.Nordoesit,withrespect,
advancethemattertosay,correctly,thatattheendofthedayMrs.Oughtredwastheabsoluteownerof
theshares,legalandequitable.Ithinkthatshewas:butthatisdescription,notanalysis.Thequestionthat
isrelevantforthepurposeofthisappealishowshecametooccupythatpositionapositionwhich,under
Englishlaw,couldbereachedbymorethanoneroad.
ViscountRadcliffeheldthat,duetotheconstructivetrustarisingunderaspecificallyenforceableagreement,
albeitanoralagreement,theequitableinterestintheshareshadalreadypassedfromPetertoMrsOughtred.
Thus,whenthewrittendocumentwasexecuted,Peternolongerhadasubsistingequitableinterest,sinceithad
alreadybeentransferredtohismother,andsection53(1)(c)wasnotengaged.
ThespeechesinOughtredarenoteasytointerpret,anddonotdealwithmanyofthedifficultpointsheadon.The
CourtofAppealinNevillevWilson,84 therefore,feltabletolookatthisareaintheround.Ultimately,the
dissentingsentimentsofViscountRadcliffewereapproved.
(p.499) NevillevWilson[1997]Ch144(NourseLJ)
Shareholdersofacompany(J.E.N.)hadenteredintoanoralagreementwithoneanotherin1969forthe
informalliquidationofthecompany.Partofthisagreementwastotheeffectthatthecompanysequitable
interestinthesharesofanothercompanyshouldbedividedamongsttheshareholdersaccordingtotheir
existingshareholdings.Theissueforthecourtwaswhetherthisagreementwaseffectivetodisposeofthe
companysinterestinitsshares.
TheHouseofLordsheldthattheeffectoftheagreementwastoconstituteeachshareholderaconstructive
trusteeofthesharessothatsection53(2)LPA1925applied.
NourseLJ:
Theeffectoftheagreement,morecloselyanalysed,wasthateachshareholderagreedtoassignhis
interestintheothersharesofJ.E.N.sequitableinterestinexchangefortheassignmentbytheother
shareholdersoftheirinterestsinhisownaliquotshare.85 Eachindividualagreementhavingbeena
dispositionofasubsistingequitableinterestnotmadeinwriting,therethenarisesthequestion
whetheritwasrenderedineffectualbysection53oftheLawofPropertyAct1925
Thesimpleviewofthepresentcaseisthattheeffectofeachindividualagreementwastoconstitute
theshareholderanimpliedorconstructivetrusteefortheothershareholders,sothattherequirement
forwritingcontainedinsubsection(1)(c)ofsection53wasdispensedwithbysubsection(2).Thatwas
theviewtakenbyUpjohnJ[1958]Ch383atfirstinstanceandbyLordRadcliffeintheHouseofLords
inOughtredvInlandRevenueCommissioners.Inordertoseewhetheritisopentoustoadoptitin
thiscourt,wemustgivecarefulconsiderationtothoseviewsandtotheotherspeechesintheHouse
ofLords
TheviewsoftheirLordshipsastotheeffectofsection53canbesummarisedasfollows.Lord
Radcliffe,agreeingwithUpjohnJ,thoughtthatsubsection(2)applied.Hegavereasonsforthatview.
LordCohenandLordDenningthoughtthatitdidnot.Althoughneitherofthemgavereasons,theymay
betakentohaveacceptedthesubmissionsofMr.Wilberforceat220222.LordKeithandLord
Jenkinsexpressednovieweitherway.WeshouldaddthatwhenthecasewasinthiscourtLord
EvershedMR,indeliveringthejudgmentofhimself,MorrisandOrmerodLJJsaid[1958]Ch678at
687:
InthiscourtthecasefortheCrownhas,wethink,beensomewhatdifferentlypresented,andin
theendofall,thequestionundersection53oftheLawofPropertyAct1925,doesnot,inour
judgment,strictlycallforadecision.Wearenot,however,withallrespecttothejudge,
preparedtoaccept,asweunderstandit,hisconclusionsupontheeffectofsection53ofthe
LawofPropertyAct1925.
ThebasisofthiscourtsdecisionwasthesameasthatadoptedbythemajorityoftheHouseofLords.
WedonotthinkthatthereisanythinginthespeechesintheHouseofLordswhichpreventsusfrom
holdingthattheeffectofeachindividualagreementwastoconstitutetheshareholderanimpliedor
constructivetrusteefortheothershareholders.Inthisrespectweareoftheopinionthattheanalysisof
LordRadcliffe,basedonthepropositionthataspecificallyenforceableagreementtoassignaninterest
inpropertycreatesanequitableinterestintheassignee,wasunquestionablycorrectcf.Londonand
SouthWesternRailwayCovGomm(1882)20ChD562,581,perSirGeorgeJesselMR.Agreater
difficultyiscausedbyLordDenningsoutrightrejectionoftheapplicationofsection53(2),withwhich
LordCohenappearstohaveagreed.
(p.500) Sofarasitismaterialtothepresentcase,whatsubsection(2)saysisthatsubsection(1)(c)
doesnotaffectthecreationoroperationofimpliedorconstructivetrusts.JustasinOughtredvInland
RevenueCommissionersthesonsoralagreementcreatedaconstructivetrustinfavourofthemother,
sohereeachshareholdersoralorimpliedagreementcreatedanimpliedorconstructivetrustinfavour
oftheothershareholders.Whythenshouldsubsection(2)notapply?Noconvincingreasonwas
suggestedinargumentandnonehasoccurredtoussince.Moreover,todenyitsapplicationinthis
casewouldbetorestricttheeffectofgeneralwordswhennorestrictioniscalledfor,andtolaythe
groundforfinedistinctionsinthefuture.Withalltherespectwhichisduetothosewhohavethoughtto
thecontrary,weholdthatsubsection(2)appliestoanagreementsuchaswehaveinthiscase.
Forthesereasonswehavecometotheconclusionthattheagreemententeredintobythe
shareholdersofJ.E.N.inaboutApril1969wasnotrenderedineffectualbysection53oftheActof
1925.
ThedecisioninNevilleappearstodecidethataconstructivetrustdoesariseunderaspecificallyenforceable
contractwithouttheneedforsignedwriting.ThisapproachisconsistentwithChinnvCollins,86 inwhichLord
Wilberforcerecognized,inthecontextofataxavoidancescheme,that,wherelegaltitletoshareswasheldbya
nominee,anagreementtoselltheshareswouldbeeffectivetopasstheequitableinterestinthemoncethe
purchasepricehadbeenpaidwithouttheneedtosatisfyanyformalities,regardlessofwhethertheagreement
wasspecificallyenforceable.
However,thatsuchtransactionsfalloutsidethescopeofsection53(1)(c)hasnotbeenwelcomedbyall.For
example,inUnitedBank ofKuwaitplcvSahib,ChadwickJsaid:87
Ishould,perhaps,add(withoutseekingtodecidethepoint)thatIamfarfrompersuadedthatsection53(2)
oftheLawofPropertyAct1925canhaveanyapplicationinacasewhereitissoughttoavoidtheeffectof
section53(1)(c)byrelyingonanoralcontracttomakethedispositionwhichsection53(1)(c)requirestobe
inwriting.ThepointaroseinOughtredvInlandRevenueCommissioners[1960]AC206.Itwasput,
succinctly,bycounselfortheInlandRevenue(Mr.WilberforceQC)inargument,at221:itcannotberight
thatanoralcontractcantransferpropertywhenanoraldispositioncannot.LordDenning,at233accepted
thepoint.Soalso,Ithink,didLordCohen,at230.LordRadcliffedidnotacceptit,at227.LordJenkins,
withwhosejudgmentLordKeithofAvonholmagreed,founditunnecessarytodecidethepoint,at239.Iam
happytobeabletotakethesamecourse.Itisunnecessarytodecidethatpointinthepresentcase.88
Suchcriticismhasbeenechoedbyacademics.
Nolan,TheTriumphofTechnicality(1996)55CLJ436,438
[NevillevWilson]illustratestheextremetechnicalityandartificialityofthecaselawwhichhasgrown
uparoundtheLawofPropertyAct1925section53(1)(c).Ifapersondirectshistrusteesthatthe
assetstheyholdforhimarenowtobeheldforsomeoneelse,thenthisamountstoadispositionof
thatpersonssubsistingequitableinterest,withinsection53(1)(c)(GreyvIRC[1960]AC1).Yet
accordingtoNevillevWilson,ifapersondoesnotunilaterallytellhistrusteeswhattodo,butinstead
contractsforvaluetodisposeofhisbeneficialinterest,thatisnotadispositionofasubsisting
equitableinterest(p.501) withinsection53(1)(c),becausetechnicallywhatisinvolvedisthecreation
ofanewequitableinterestinthepurchaser,coupledwithdestructionoftheoldequitableinterestin
thehandsofthevendorandthisisso,eventhoughthatnewinterestislogicallyidenticaltotheold
(cp.GreyvIRC[1958]Ch375at382,perUpjohnJ[1958]Ch690at715,perLordEvershedMR).
Suchcriticismshavesomeforce.AnditmightbethatthemaximEquitytreatsasdonethatwhichoughttobe
doneshouldnolongerbeusedsoreadilytocreateproprietaryrights.89 Itmight,therefore,bethattheapproach
ofthemajorityinOughtredwillcomebackintofashion,butfornowthelawseemstobethatwhichwassetout
inNeville.90 Itmight,however,bepossibletoreconcilethetwocasesonthebasisthattheformerinvolvedan
executorytransaction,whereasthelatterinvolvedanexecutedtransaction.
Thompson,Mereformalities[1996]Conv366,3701
Perhapsthewayofrationalisingthecasesdealingwiththisdifficultareaistoconsiderthetypesof
contractinvolvedand,particularly,whethertheyareexecutoryorexecuted.Ifonetakesthecaseofa
contractforthesaleofland,itisgenerallyacceptedthatbecauseitisspecificallyenforceable,the
purchaserbecomesthebeneficialowneroftheproperty.Nevertheless,untilthepurchasepricehas
beenpaid,itisequallyclearthatthevendoralsoretainsavaluableinterestintheproperty.Hewould
onlybecomeabaretrusteeforthepurchaseroncethepurchasepriceispaidinfull.This,ofcourse,
doesnotnormallyhappenuntilcompletionofthepurchase.Consequentlytheconveyanceand
paymentofthepurchasepricedoesoperatetotransfertothepurchaseratleastsomeequitable
interestinthepropertyinadditiontothelegalestate.ApplyingthistoOughtred,whenthecontract
wasstillexecutory,itcouldbearguedthat,despitetheacquisitionofabeneficialinterestundera
constructivetrust,thenatureofthistrustissounusualthatmotherandsonstillretainedabeneficial
interestintheirrespectivesharespendingcompletionofthetransaction.Asaresultwritingwas
necessarytotransferthatinterest.InNevillev.Wilson,ontheotherhand,theconsiderationinvolved
wastheagreementtoliquidateacompany.Thishadbeendonesothat,ononeside,thecontracthad
beencompleted.Inprinciple,therefore,itwouldseemrighttosaythattheentirebeneficialinterestin
theshareshadpassedwithouttheneedforseparatewriting.
Thisreasoningmaynot,ofcourse,befoundtobetotallyconvincing.Theproblemsthatoccurinareas
suchasthisariseprincipallywhencontractswhicharespecificallyenforceablearestilltobe
completed.Thiscausessomekindofequitableinteresttovestinthepurchaserwithalltheattendant
problemsthatthiscreates.Oncethecontracthasbeencompletedononeside,thereshouldbeno
furtherdifficultyinholdingthevendortobeatrusteeoftheproperty,thenatureofthattrustbeing
entirelyorthodox.ThedecisionoftheCourtofAppealinNevillevWilsonseemstherefore,with
respect,tobeentirelyright.
(g)NominationofFutureBenefits
Whereapersonnominatesanothertoreceiveabenefitinthefuture,section53(1)(c)cannotapply.Thisis
becauseafutureequitableinterestisinvolved.Atthetimeofthenomination,therewasnosubsistingequitable
interestsufficienttoengagetherequirementofsignedwriting.Thisapproachwas(p.502) favoured,albeit
tentativelyandobiter,byMegarryJinReDanishBaconCo.LtdStaffPensionFundTrusts:91
Whethersection53(1)(c)doesapplyisamatteruponwhichIambynomeansclearWhatIam
concernedwithisatransactionwherebythedeceaseddealtwithsomethingwhichexhypothesicould
neverbehis.Hewasnotdisposingofhispension,norofhisrighttothecontributionsandinterestifheleft
thecompanysservice.Hewasdealingmerelywithastateofaffairsthatwouldariseifhediedwhileinthe
companyspensionableservice,orafterhehadleftitwithoutbecomingentitledtoapension.Ifhedidthis,
thenthecontributionsandinterestwould,byforceoftherules,goeithertohisnominee,ifhehadmadea
validnomination,ortohispersonalrepresentatives,ifhehadnot.Ifhemadeanomination,itwasrevocable
atanytimebeforehisdeath.
Thequestionisthuswhetheraninstrumentwiththisselective,contingentanddefeasiblequality,which
takeseffectonlyonthedeathofthepersonsigningit,canfairlybesaidtobeadispositionofanequitable
interestortrustsubsistingatthetimeofthedisposition.
[Counsel]putmuchemphasisonthewordsubsisting:howeverwidetheworddispositionmightbeinits
meaning,therewasnodispositionofasubsistingequity,hesaid.Ishouldhesitatetodescribean
instrumentwhichhasamerepossibilityofbecomingadispositionasbeinginitselfadispositionabinitio
andIagreethatthewordsubsistingalsoseemstopointagainstthenominationfallingwithinsection
53(1)(c)Iverymuchdoubtwhetherthenominationfallswithinsection53(1)(c)butasIhaveindicated,I
donothavetodecidethatpoint,andIdonotdoso.
StrongersupportforthisapproachmaybefoundinGoldvHill,92 inwhichthedeceasedhadnominatedasolicitor
asthebeneficiaryofalifeinsurancepolicy.Duringaninformalconversationthedeceasedhadinformedthe
solicitorofthenominationandofhisdesirethatthesolicitorshouldusetheproceedsofthepolicyforthebenefit
ofthewomanwithwhomthedeceasedwasliving.OnequestionconsideredbyCarnwathJwaswhetherthis
nominationintheformofatrustwasvalid,sinceithadnotbeenmadeinwriting.HisLordshipreferredtoRe
DanishBaconandheldthatthenominationdidnothavetobemadeinwritingbecauseitdidnotinvolvethe
dispositionofasubsistingequitableinterest,anditwasirrelevantthatthenominationwasmadeintheformofa
trust.Hesaid:93
Thetrueviewisthatthetrustdidnotcrystalliseuntilthesumbecamepayableupondeath.Untilthen,
thereisnosubsistingequitableinterestcapableofbeingdisposedofwithinthemeaningofsection53.
(h)DisclaimerofBeneficialInterest
Ithasbeenheldthatadisclaimerdoesnotneedtosatisfytherequirementsofsection53(1)(c):afteradisclaimer
anysubsistingequitableinterestdissipatesordisappears,soitdoesnotinvolveadispositionofaninterestfrom
onepartytoanothersothattheinterestcontinues.ThiswasrecognizedbyDanckwertsLJinReParadiseMotor
Co.Ltd:94
Theargumentwasthattherecouldherebenodisclaimerofthebeneficialinterestintheshares
becauseadisclaimerwould,byretransfer,beadispositionofanequitableinterestinproperty,and(p.
503) neitherofthesuggesteddisclaimerswasinwritingsignedby[thedisclaimant]:seetheLawof
PropertyAct,1925,section53(2).Wethinkthattheshortanswertothisisthatadisclaimeroperatesby
wayofavoidanceandnotbywayofdisposition.
3.TerminationoftheTrustbytheBeneficiaries
(a)TheRuleinSaundersvVautier
TheruleinSaundersvVautier95 statesthatanadultbeneficiaryofatrust,whoisofsoundmindandisentitledto
thewholebeneficialinterest,candirectthetrusteestotransferthetrustpropertytohimorher.Theconsequence
ofthistransferwillbetheterminationofthetrust.
SaundersvVautier(1841)4Beav115
AtestatorleftsharesinhiswilltotrusteesontrusttoaccumulatethedividendsuntilVautiershouldattainthe
ageof25,andthentotransferthecapitalandaccumulateddividendstohim.Vautier,havingattainedtheage
of21,96 successfullyclaimedthathewasentitledtohavethewholefundtransferredtohim.
LordLangdaleMR:
Ithinkthatprinciplehasbeenrepeatedlyacteduponandwherealegacyisdirectedtoaccumulatefor
acertainperiod,orwherethepaymentispostponed,thelegatee,ifhehasanabsoluteindefeasible
interestinthelegacy,isnotboundtowaituntiltheexpirationofthatperiod,butmayrequirepayment
themomentheiscompetenttogiveavaliddischarge.
OnasubsequenthearingbeforeLordCottenhamLC,97 itwasarguedonbehalfofthetestatorsresiduarylegatees
thatVautiersinterestwascontingentonhisattainingtheageoftwentyfiveand,therefore,thisruledidnotapply.
TheLordChancellorheldthattheinterestwasvested,98 butthattheenjoymentofitwasmerelypostponed,so
thattheenjoymentoftheinterestwasnotcontingentuponhimattainingtheageoftwentyfive.Itfollowsthatthe
trustmustbecarefullyconstruedtodeterminewhetherthebeneficiarysinterestisvestedoriscontingentupona
particularcondition.Ifitiscontingent,thentheruleinSaundersvVautierwillnotbeapplicable99 becauseifthe
contingencyisnotsubsequentlysatisfied,somebodyelsewouldbeentitledtotheproperty,anditwouldnotbe
appropriateforthepersonwiththecontingentinteresttoterminatethetrustandobtainthebenefitofthetrust
propertyabsolutely.So,forexample,ifVautiersinterestwascontingentonthedeathofapersonwithalife
interest,itwouldnothavebeenpossibleforVautierbyhimselftodemandthetransferofthefunduntiltheperson
withthelifeinteresthaddied.
Therulehasbeenextendedtoincludecaseswheretherearetwoormorebeneficiaries,100 andevenwherethere
arebeneficiariesentitledinsuccession,101 suchaswherethereistrustforAforlifewith(p.504) remaindertoB.
Inboththesecasesallthebeneficiariesmustbeoffullageandofsoundmindandmusttogetherbeentitledto
thewholebeneficialinterest.Also,allthebeneficiariesmustunanimouslyconcurinthedirectiontothetrustees.
TheessenceoftheruleinSaundersvVautieristhatallthosewhoareentitledtothewholeofthebeneficial
interestcandirectthetrusteesinhowthetrustfundshouldbedealtwith,aslongastheyarealloffullcapacity
andaslongastheyallagree.Althoughtheruleappliesevenifthesettlorpurportstoexcludeit,102 itisnot
possibletorelyontheruleinSaundersvVautiertooverridethetermsofanexistingtrustandstillkeepthattrust
inoperation.InStephensonvBarclaysBank TrustCo.Ltd,103 WaltonJsaid:
Nowitistritelawthatthepersonswhobetweenthemholdtheentiretyofthebeneficialinterestsinany
particulartrustfundareasabodyentitledtodirectthetrusteeshowthattrustfundistobedealtwith
However,inviewoftheargumentsadvancedtomebyMr.Lawton,andmoreparticularlythatadvancedby
himonthebasisofthedecisionofVaiseyJinReBrock bank [1948]Ch206,Ithinkitmaybedesirableto
statewhatIconceivetobecertainelementaryprinciples.
(1)Inacasewherethepersonswhobetweenthemholdtheentiretyofthebeneficialinterestsinany
particulartrustfundareallsuijurisandactingtogether,(thebeneficialinterestholders),theyare
entitledtodirectthetrusteeshowthetrustfundmaybedealtwith.
(2)Thisdoesnotmean,however,thattheycanatoneandthesametimeoverridethepreexisting
trustsandkeeptheminexistence.Thus,inReBrock bank itselfthebeneficialinterestholderswere
entitledtooverridethepreexistingtrustsby,forexample,directingthetrusteestotransferthetrust
fundtoXandY,whetherXandYwerethetrusteesofsomeothertrustornot,buttheywerenot
entitledtodirecttheexistingtrusteetoappointtheirownnomineeasanewtrusteeoftheexisting
trust.Bysodoingtheywouldbepursuinginconsistentrights.
(3)Nor,Ithink,arethebeneficialinterestholdersentitledtodirectthetrusteesastotheparticular
investmenttheyshouldmakeofthetrustfund.Ithinkthisfollowsforthesamereasonsastheabove.
Moreover,itappearstomethatoncethebeneficialinterestholdershavedeterminedtoendthetrust
theyarenotentitled,unlessbyagreement,tothefurtherservicesofthetrustees.Thosetrusteescan
ofcoursebecompelledtohandovertheentiretrustassetstoanypersonorpersonsselectedbythe
beneficiariesagainstaproperdischarge,buttheycannotbecompelled,unlesstheyareinfactwilling
tocomplywiththedirections,todoanythingelsewiththetrustfundwhichtheyarenotinfactwilling
todo.
TheeffectoftheruleinStephensonisthattheoperationoftheruleinSaundersvVautieralwaysresultsinthe
terminationofthetrust,andcannotbeusedtovarythetrust.Ifthebeneficiariesdowishtovarythetrust,theywill
needtoterminatethetrustundertheruleinSaundersvVautiersothatlegaltitlewillbetransferredtothem.They
canresettlethepropertyonanewtrustiftheywish.104 Thiswillnotrequirewriting,becauseitwillnotinvolvethe
dispositionofanequitableinterest,sincetheequitableinterestwillbedestroyedontheterminationofthe
trust.105
TheruleinSaundersvVautierisofvitalsignificancetothelawoftrusts,sinceitimplicitlyacknowledgesthatthe
propertythatisheldontrustforthebeneficiariesistheirpropertyinEquity.Asaresult,thebeneficiariesshould
beabletodecidewhattheydowithit.
Matthews,ThecomparativeimportanceoftheruleinSaundersvVautier(2006)122
(p.505)
LQR266,273
Whydoesthisrulematter?First,itillustratesandexemplifiestheideaofbeneficial(orequitable)
ownershiporproperty.Butwemustbecarefulwhatwemeanbythis.Itistruethattherightsoftrust
beneficiariesaregoodagainstmanyifnotinpracticemostthirdparties.Theyfailonlywhenthe
assetconcernedreachesthehandsofabonafidepurchaserforvaluewithoutnotice
However,itisnotthisaspectofpropertythattheruleinSaundersvVautierillustratesInstead,itis
theideaofexclusivedecisionmak ing.IfIgivesomethingtoyou,thenthepropertyideashouldmean
thatitisyourstodealwithasyouplease.Propertymeansindeed,etymologically,hastomean
thatyoudecide.Ishouldnotbeable,consistentlywiththeideaofproperty,tomakesomethingyour
property,andthentellyouhowtodealwithitSaundersvVautierisinonesensemerelyan
applicationofthesameprinciple:ifthereisonlyonebeneficiaryofaparticulartrust,thatbeneficiary
mustbeentitledtotakethepropertysubjecttothetrustanddecidewhathewishestodowithit
Thesameistrueiftwoormorepersonsareinterested,andtheyareagreedonwhatshould
happen.106 InEnglishlawthesettlorcannotoustthisprincipleevenbyexpressdeclaration.107
Whateverthesubjectmatterofthetrust,itnolongerbelongstothesettloror(obviously)thetestator,
andthedecisionwhethertoenjoyitordestroyitisnolongeroneforhim.Insteaditisultimatelya
decisionforthosewhobenefitfromthetrust
ThestrongestargumentagainsttheruleinSaundersvVautieristhattheoperationoftherulemeansthatthe
settlorsortestatorsintentioncanbedefeated,asoccurredinSaundersvVautieritself,sincethebeneficiary
obtainedthebenefitofthetrustpropertybeforeheattainedtheageoftwentyfive.Butwhyshouldthewillofthe
creatorofthetrustprevailoncethetrusthasbeenvalidlycreated?Giventhatthepropertybelongstothe
beneficiaryinEquity,andtherulerequiresthatthebeneficiarymustbeoffullcapacitysothatheorshedoesnot
needtobeprotectedbyEquitybyvirtueofageormentalincapacity,itissuggestedthatitisrightthatthe
beneficiarybefreetocontrolwhathappenstothepropertytowhichheorsheisbeneficiallyentitled.
(b)DiscretionaryTrusts
Althoughtheobjectsofadiscretionarytrustdonothaveaproprietaryinterestinthetrustfund,108 therule
inSaundersvVautierisalsoapplicabletosuchtrusts.109
ReSmith[1928]Ch915
AfundwasheldbytrusteesontrusttoapplyincomeandcapitalforthemaintenanceandbenefitofLilian
Aspinall.Provisionwasmadefortheaccumulationofanysurplus.Theaccumulationsandremainderafterher
deathweretobeheldontrustforanyofhersonswhoattainedtheageoftwentyoneandanyofher
daughterswhoattainedthatageorwhoweremarried.Shehadthreechildren.Allreachedtheageoftwenty
one,butonesubsequentlydied.Atthispoint,LillianAspinallwaspasttheageofchildbearing.Shejoined
togetherwithhertwosurvivingchildrenandthelegalrepresentativesofherdeceasedchild,andtheyall
mortgagedtheirintereststothe(p.506) LegalandGeneralAssuranceCo.Theissueforthecourtwas
whetherthemortgagewasvalid.Inholdingthatitwas,RomerJsaid:110
ThequestionIhavetodetermineiswhethertheLegalandGeneralAssuranceCompanyarenow
entitledtocalluponthetrusteestopaythewholeoftheincometothem.Itwillbeobservedfromwhat
Ihavesaidthatthewholeofthisshareisnowheldbythetrusteesupontrustsunderwhichtheyare
boundtoapplythewholeincomeandeventuallypayoverorapplythewholecapitaltoMrs.Aspinall
andthethreechildrenorsomeoroneofthem.Sofarastheincomeisconcernedtheyareobligedto
payitorapplyitforherbenefitortopayitorapplyitforthebenefitofthechildren.Sofarasregards
thecapitaltheyhaveadiscretiontopayitandtoapplyitforherbenefitandsubjecttothat,theymust
holditupontrustforthechildren.Mrs.Aspinall,thetwosurvivingchildrenandtherepresentativesof
thedeceasedchildarebetweenthementitledtothewholefund.Inthosecircumstancesitappearsto
me,notwithstandingthediscretionwhichisreposedinthetrustees,underwhichdiscretiontheycould
selectoneormoreofthepeopleIhavementionedasrecipientsoftheincome,andmightapplypartof
thecapitalforthebenefitofMrs.Aspinallandsotakeitawayfromthechildren,thatthefourofthem,if
theywereallliving,couldcometotheCourtandsaytothetrustees:handoverthefundtous.It
appearstomethatthatisinaccordancewiththedecisionoftheCourtofAppealinacaseofRe
Nelson[1928]Ch920n,ofwhichatranscriptofthejudgmentshasbeenhandedtome,andisin
accordancewithprinciple.Whatistheprinciple?AsIunderstanditisthis.Wherethereisatrust
underwhichtrusteeshaveadiscretionastoapplyingthewholeorpartofafundtoorforthebenefitof
aparticularperson,thatparticularpersoncannotcometothetrusteesanddemandthefundforthe
wholefundhasnotbeengiventohimbutonlysomuchasthetrusteesthinkfittolethimhave.But
whenthetrusteeshavenodiscretionastotheamountofthefundtobeapplied,thefactthatthe
trusteeshaveadiscretionastothemethodinwhichthewholeofthefundshallbeappliedforthe
benefitoftheparticularpersondoesnotpreventthatparticularpersonfromcomingandsaying:hand
overthefundtome.Thatappearstobetheresultofthetwocaseswhichwerecitedtome:Greenv
Spicer(1830)1Russ&M395andYounghusbandvGisborne(1844)1Coll400.
Nowthisthirdcasearises.Whatistohappenwherethetrusteeshaveadiscretionwhethertheywill
applythewholeoronlyaportionofthefundforthebenefitofoneperson,butareobligedtoapplythe
restofthefund,sofarasnotappliedforthebenefitofthefirstnamedperson,toorforthebenefitofa
secondnamedperson?There,twopeopletogetherarethesoleobjectsofthediscretionarytrustand,
betweenthem,areentitledtohavethewholefundappliedtothemorfortheirbenefit.Ithasbeenlaid
downbytheCourtofAppealinthecasetowhichIhavereferredthat,insuchacaseasthatyoutreat
allthepeopleputtogetherjustasthoughtheyformedoneperson,forwhosebenefitthetrusteeswere
directedtoapplythewholeofaparticularfund.ThecasebeforetheCourtofAppealwasthis:a
testatorhaddirectedhistrusteestostandpossessedofonethirdofhisresiduaryestateupontrust
duringthelifetimeofthetestatorssonArthurHectorNelson:toapplytheincomethereofforthe
benefitofhimselfandhiswifeandchildorchildrenorofanysuchpersonstotheexclusionofthe
othersorotherofthemasmytrusteesshallthinkfit.Whathappenedwassomethingverysimilarto
whathappenedinthecasebeforeme.HectorNelson,hiswifeandtheonlyexistingchildofthe
marriagejoinedtogetherinaskingthetrusteestohandovertheincometothem,anditwasheldby
theCourtofAppealthatthetrusteeswereobligedtocomplywiththerequest,inotherwords,totreat
allthosepersonswhoweretheonlymembersoftheclassforwhosebenefittheincomecouldbe
appliedasformingtogetheranindividualforwhosebenefitafundhastobeappliedbythetrustees
withoutanydiscretionastotheamountsotobeapplied.
Itfollowsthat,wherethetrusteesarerequiredtodistributethewholeofthefund,buttheyhaveadiscretionasto
whichobjectwillbenefitandbyhowmuch,itispossibletotreatalloftheobjectsas(p.507) thoughtheywere
oneperson,111 whoarethenabletorequestthetrusteestotransferthepropertytothem.Thiswillwork,however,
onlyifalltheobjectshavecapacitytodoso,namelyiftheyareadultsandofsoundmind,iftheyallagree,and
alsoonlywherealltheobjectsarereadilyidentifiable.
(c)FiduciaryPowers
TheruleinSaundersvVautierextendstoobjectsofafiduciarypowerofappointment.
Matthews,ThecomparativeimportanceoftheruleinSaundersvVautier(2006)122LQR
266,269
Evenifthetrustonlycreatespowersofappointmentwithagiftoverindefaultofappointment,therule
stillapplies.SupposethatthereisatrustforsuchofA,B,CandD,asthetrusteemayselect,butin
defaultofappointmentforEabsolutely.A,B,CandDbetweenthemdonothavetheentirebeneficial
interest,forthepropertywillgotoEifnoappointmentismade.NordoesEhavetheentirebeneficial
ownership,foritwouldbeperfectlylawfulforthepropertytobeappointedtooneofA,BCand
D.112 But,ifallofAtoEjointogether,theymustallaccountfortheentireequitableinterest.Soeach
ofthepossibleobjects,eventheobjectsofthepower,AtoD,mustjoininfortheruleinSaundersv
Vautiertoapply.113 Thusevenamodernpensiontrustmaybeterminatedbytheexerciseof
theSaundersvVautierpower,providedallthepossiblepersonstobenefitjoininthedirectiontothe
trustee.114
Question
Byhiswill,Fred,whodiedin2012,left10,000tobeheldondiscretionarytrustbyAlanandBrendafor
Fredsthreechildrenfromhissecondmarriage,Charles,Debbie,andEric,toassistwiththecostsoftheir
education.FredmadenoprovisionforGeorgina,achildofhisfirstmarriage.AlanandBrendahavefailedto
makeanypaymentstoCharles,Debbie,andEric,despiterepeatedrequestsforfinancialassistancewith
theireducation.Charles,Debbie,andFred,whoarenowagedtwenty,eighteen,andseventeenrespectively,
seekyouradviceaboutthefollowingmatters:
(i)Theywishtobepaid1,000eachforthebenefitoftheireducation.
(ii)TheysuspectthatFredwrotetoAlanandBrendagivingtheminstructionsaboutpaymentsfromthe
trustfund.DespiterepeatedattemptstogetinformationfromAlanandBrenda,theyhaveheardnothing.
(iii)TheywouldlikefinancialassistancefromthetrustfundtobegiventoGeorginatohelpherwiththe
costsofhereducation.
Green,Grey,OughtredandVandervell:AContextualReappraisal(1984)47MLR385.
FindThisResource
Fox,Overreaching,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),ch.4.
FindThisResource
Ho,TrusteesDutiestoProvideInformation,inExploringPrivateLaw(edsBantandHarding)(Cambridge:
CambridgeUniversityPress,2010),ch.15.
FindThisResource
Honor,Trusts:TheInessentialsinRationalizingProperty,EquityandTrusts:EssaysinHonourofEdward
Burn(ed.Getzler)(Oxford:OxfordUniversityPress,2003)pp.1720.
FindThisResource
Matthews,TheComparativeImportanceoftheRuleinSaundersvVautier(2006)122LQR266.
FindThisResource
Nolan,VandervellvIRC:ACaseofOverreaching(2002)61CLJ169.
FindThisResource
Nolan,EquitableProperty(2006)122LQR232.
FindThisResource
Nolan,UnderstandingtheLimitsofEquitableProperty(2006)1JoE18.
FindThisResource
Thompson,MereFormalities[1996]Conv366.
FindThisResource
Waters,TheNatureoftheTrustBeneficiarysInterest(1967)45CanadianBarReview219.
FindThisResource
Notes:
1
[1998]Ch241,253.
2 ArmitagevNurse[1998]Ch241,253(MillettLJ).
3 SeeChapter7.4,pp.3512Chapter14.1(c),p.645.
4 Adisclaimercanbemadeverballyratherthanbywriting:ReParadiseMotorCo.Ltd[1968]1WLR1125.See
Chapter10.2(h),pp.5023.
5 StandingvBowring(1885)31ChD282.
6 ReParadiseMotorCo.[1968]1WLR1125,1141(DanckwertsLJ).
7 [1940]AC366,396.
8 JWBroomhead(Vic)PtyLtdvJWBroomheadPtyLtd[1985]VR891,934(McGarvieJ).
9 [1996]AC669,705.
10 Equitableproperty(2006)122LQR232,236.
12 Fox,Overreaching,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),ch.4.Seefurther
Chapter2.7(d),p.56.
13
13 CommissionerforStampDutiesvLivingston[1965]AC694.SeeChapter2.6(g),pp.4950.
14 FletchervFletcher(1844)4Hare67.
15 SeeFoleyvBurnell(1783)1BroCC274.
16 ReBrock bank [1948]Ch206.
17 Hawk esleyvMay[1956]1QB304,322(HaversJ).SeefurtherChapter13.3(a),pp.61920.
19
[1996]AC421,435.SeefurtherChapter17.3,pp.786802.
20
21
22
MCCProceedsInc.vLehmanBrosInternational(Europe)[1994]4AllER675.
23 HealeyvHealey[1915]1KB938.
24 LeighandSillivanLtdvAliak monShippingCo.Ltd[1986]AC785,812(LordBrandon).
25 Similarly,wherethetrusteehasadirectclaimagainstathirdpartyforbreachofcontractthatcausedlossto
thebeneficiary:PanAtlanticInsuranceCo.LtdvPineTopInsuranceCo.Ltd[1989]2LloydsRep568.
26 ShellUKLtdvTotalUKLtd[2010]EWCACiv180[2011]QB86.SeeChapter2.7(e)(i),pp.578.
27 AfterVandepittevPreferredAccidentInsuranceCorporationofNewYork [1933]AC70,79(PC)(LordWright).
28 VandepittevPreferredAccidentInsuranceCorporationofNewYork ,IbidTheAlabzero[1977]AC744.
29 BarbadosTrustCo.LtdvBank ofZambia[2007]EWCACiv148[2007]2AllER(Comm)445,[45](Waller
LJ).
30 [2010]UKSC22[2011]1AC240,[62](LordCollins).
31 [1920]AC581,626.SeealsoReLondonderrysSettlement[1965]Ch918.
32 SchmidtvRosewoodTrustLtd[2003]UKPC26[2003]2AC709Break spearvAck land[2008]EWHC220
(Ch)[2009]Ch32.
33 [1968]AC553,617.
34 [1970]Ch712,724.
35 SchmidtvRosewoodTrustLtd[2003]UKPC26[2003]2AC709,[51]and[54].
36 SeefurtherChapter1.4(a),pp.1113.SeeNolan,EquitableProperty(2006)LQR232,257.
37 McPhailvDoulton[1971]AC424,4567(LordWilberforce).SeeChapter2(b)(i),pp.61315.
38 MurphyvMurphy[1999]1WLR282.
39 Hayton,TheIrreducibleCoreContentofTrusteeship,inTrendsinContemporaryTrustLaw(ed.Oakley)
(Oxford:ClarendonPress,1996),p.49.
40 SeeChapter10.1(a)(ii)(f),pp.4746.
41
[2003]UKPC26[2003]2AC709.SeeChapter10.1(a)(ii)(f),pp.4746.
42
42
Ibid,[54].
43
Whichheldthattrusteesneednotdisclosereasonsfortheirdecision.SeeChapter11.7(b),pp.54951.
44
45
[1999]1WLR282.
46 Ibid,290.
47 SeeChapter13.2(a)(ii),pp.61213.
48 [1974]Ch17.
49 Ibid,25.
50 [1990]1WLR1587.SeeChapter13.2(b)(ii),pp.61516.
51 SeeChapter13.2(b)(i),pp.61315.
52 [2003]UKPC26[2003]2AC709.
53 [1999]1WLR282,290(NeubergerJ).SeeChapter10.2(b)(ii)(e),pp.4823.
54 KinanevMack ieConteh[2005]EWCACiv45.
55 [1967]2AC291,311.
56 [1971]1WLR248.
57 Ibid,254.SeetooCrowdenvAldridge[1993]1WLR433.
58
LawofPropertyAct1925,s.40,whichrequiredcontractsforthesaleorotherdispositionoflandtobemadein
writing.SeenowLawofProperty(MiscellaneousProvisions)Act1989,s.2.
60
Meaningataxassessedbythevalueoftheland.
61
StampAct1891,s.54,nowrepealedbyFinanceAct(FA)1999,s.139,Sch.20,PtV(2).
62
(1889)23QBD579,589.
63
SeetooBairdvBaird[1990]2AC548(PC).
64 [1967]2AC291.
66 [1960]AC1seeChapter10.2(b),pp.4878.
67 [1960]AC206seeChapter2(f),pp.4968.
68 NorisitobviousthattherewasreallyscopeforLordUpjohntorelyuponthepurposeofsection53(1)(c)when
thewordsofthestatuteseemrelativelyclearandunambiguous.
69 [1967]2AC291,330.
70 [1949]Ch78.SeeChapter4.3(c)(i),pp.1524.
71 [1974]Ch269,320.
72
72 SeeChapter4.3(b)(i),p.150.
73 [1974]Ch269,332.
74 [1974]Ch269,323.
75 ReLashmar[1891]1Ch258,269(FryLJ).
76 (1889)5TLR436,437.
77 [1891]1Ch258,268.
78 [2007]EWCACiv1358[2008]8EG158.
80 Forfurtherdiscussionconcerningtheconstructivetrustthatarisesupontheconclusionofaspecifically
enforceablecontractforthesaleofproperty,seeChapter7.2(g),pp.3457.
82 FollowedinParinv(Hatfield)LtdvInlandRevenueCommissioners[1998]STC305.
83 Meaningwithinlimits.
84
[1997]Ch144.
85
Meaningapartofalargerholding.
86
[1981]AC533,548.
87
[1997]Ch107,129.
88 ThisaspectofthecasewasnotconsideredonappealtotheCourtofAppeal:[1997]Ch107.
89 See,inaverydifferentcontext,SinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd[2011]EWCACiv
347[2011]3WLR1153,discussedinChapter14.5(b)(i),pp.6925.
90 ItwasfollowedinSlatervSimm[2007]EWHC951(Ch)[2007]WTLR143,[24].SeealsoHalloranvMinister
AdministeringNationalPark sandWildlifeAct1974[2006]HCA3,notedbyTurner[2006]Conv390.
91 [1971]1WLR248,255.
92 [1999]1FLR54.
93 Ibid,65.
94 [1968]1WLR1125,1143.
95 (1841)4Beav115.
96 Whichwasthentheageofmajority.Itisnow18:FamilyLawReformAct1969,s.1.
97 (1841)Cr&Ph240.
98 SeeChapter1.4(a)(iv),pp.1213.
99 ReCouturier[1907]1Ch470,473(JoyceJ).
100 ReSandemansWillTrusts[1937]1AllER368LloydsBank plcvDuk er[1987]1WLR1324.
101 AnsonvPotter(1879)13ChD141ReWhite[1901]1Ch570.
102
102 Stok esvCheek (1860)28Beav620.
103 [1975]1WLR882,889.
104 SeefurtherChapter15.1,p.704.
106
BartonvBriscoe(1822)Jac603ReBowes[1896]1Ch507.
107
Stok esvCheek (1860)28Beav620.
108
109
ReSmith[1928]Ch915.SeealsoSchmidtvRosewoodTrustLtd[2003]UKPC26[2003]2AC709,[40].
110 [1928]Ch915,917.
111 ReNelson[1928]Ch920n.
112 ReSharpsST[1973]Ch331,338.
113 SchmidtvRosewoodTrust[2003]UKPC26[2003]2AC709,[41].
114 BuschauvRogersCommunicationsInc(2004)236DLR(4th)186ITELR919at[11],[41][55].
11.GeneralPrinciplesRelatingtoTrustees
Chapter: (p.511) 11.GeneralPrinciplesRelatingtoTrustees
DOI: 10.1093/he/9780199661480.003.0011
CentralIssues
1.Alltrustsneedtrustees,butthenatureoftrusteeshipvariesaccordingtothetypeoftrust.
2.Thereareanumberofdifferenttypesoftrusteeandavarietyofrulesrelatingtotheirappointment,
retirement,andremoval.
3.Althoughtrusteesarenotgenerallypaidforfulfillingtheirresponsibilitiesinadministeringthetrust,in
somecircumstancestheycanreceivepaymenttoreimbursethemforexpensesortopayfortheir
services.
4.Onceappointed,trusteeshaveawidevarietyofpowers.Misuseofthesepowerswillconstitute
breachoftrust,butthedeterminationofwhentheexerciseofpowerscanbecharacterizedasinvalid
andtheconsequencesofmisusingapowerraisemanysignificantandcontroversialissues.
1.TheEssenceofTrusteeship
Atrusteeholdsanofficethatinvolvessignificantresponsibilityandonerousduties.ThiswasrecognizedbyLord
HardwickeLCinKnightvEarlofPlymouth:1
atrustisanofficenecessaryintheconcernsbetweenmanandmanandiffaithfullydischarged,
attendedwithnosmalldegreeoftroubleandanxietyitisanactofgreatkindnessinanyonetoaccept
it.
Theofficeoftrusteehasanumberofsignificantfeatures.
(a)HoldingPropertyforAnother
Trusteeshavetheprimaryrightsofownershipintrustproperty,butarenotabletoexploitthebeneficialincidents
ofthisownershipforthemselvesintheircapacityastrustees.Itispossibleforatrusteealsotobeabeneficiaryof
thetrust,buttheremustbeatleastoneotherbeneficiarythetrusteecannot(p.512) holdthepropertyforhim
orherselfalone.Usually,thetrusteeswillhavelegaltitletothepropertyvestedinthem,althoughitispossibleto
declareatrustoveranequitableinterest,whichmeansthatthetrusteeswillhaveequitabletitletothepropertybut
stillholditforatleastoneotherpersononasubtrust.2 Ifatrusteedoesnothavelegalorequitabletitletothe
propertyvestedinhimorher,ithasbeenrecognizedthattheycanstillbeconsideredtobeatrusteeiftheyhave
sufficientcontrolofthepropertysothattheycansimplyrequirethepropertybevestedinthem.3
(b)JointTenancy
Wherethereismorethanonetrustee,thetrusteesholdthepropertyasjointtenants.Itfollowsthatnoneofthem
hasadistinctinterestorshareintheproperty.Consequently,ifoneofthetrusteesdies,nopartofthetrust
propertywillpasstothedeceasedtrusteesestate,butitwillremainvestedinthesurvivingtrustees.4 Ifasole
trusteedies,thetrustpropertywillpasstohisorherpersonalrepresentative,butsubjecttothetrust,sothe
personalrepresentativewillberesponsibleastrusteefortheproperty 5 untilnewtrusteescanbeappointed.
TrusteeAct1925
18.Devolutionofpowersoftrusts
(1)Whereapowerortrustisgiventoorimposedontwoormoretrusteesjointly,thesamemay
beexercisedorperformedbythesurvivorsorsurvivorofthemforthetimebeing.
(2)Untiltheappointmentofnewtrustees,thepersonalrepresentativesorrepresentativeforthe
timebeingofasoletrustee,or,wherethereweretwoormoretrusteesofthelastsurvivingor
continuingtrustee,shallbecapableofexercisingorperforminganypowerortrustwhichwas
givento,orcapableofbeingexercisedby,thesoleorlastsurvivingorcontinuingtrustee,or
othertrusteesortrusteeforthetimebeingofthetrust.
(c)IrreducibleCoreofTrustObligations
Atrusteeowesanirreduciblecoreofobligationstothebeneficiariesthatareenforceablebythebeneficiaries
againstthetrustee.6 Thefundamentaldutyofalltrusteesistoperformthetrusthonestlyandingoodfaithforthe
benefitofthebeneficiaries.
(d)VoluntaryAssumptionofResponsibility
Itisgenerallynotpossibletoimposetrusteeshiponapersonwithouthisorherconsentatrusteemustaccept
thedemandsoftheofficevoluntarily.7 InWestdeutscheLandesbank GirozentralevIslingtonLBC,8 LordBrowne
Wilkinsonsaid:(p.513)
Theequitablejurisdictiontoenforcetrustsdependsupontheconscienceoftheholderofthelegalinterest
beingaffected.Hecannotbeatrusteeuntilheisawarethatheisintendedtoholdthepropertyforthe
benefitofothersinthecaseofanexpressorimpliedtrustor,inthecaseofaconstructivetrust,ofthe
factorswhichareallegedtoaffecthisconscience.
Thisiscorrectanduncontroversialasregardsexpresstrustees.Asregardsconstructivetrusts,suchtrustscan
berecognizedeventhoughthedefendantwasunawareoffactorsthataffecthisorherconscience.9 Butitisas
regardstheresultingtrust,whichLordBrowneWilkinsoncalledanimpliedtrust,thatLordBrowneWilkinsons
statementismostcontroversialinsuggestingthataresultingtrusteemustbeawarethatheorsheisintendedto
holdthepropertyforthebenefitofsomebodyelse.Thisisnotconsistentwiththepreferableanalysisofthe
resultingtrust,namelythatsuchatrustarisesbyoperationoflawwheretheclaimantcanbepresumedtohave
intendedthatthepropertywasheldontrustforhimorher,10 andthisdoesnotrequirethedefendantsconscience
tobeaffectedinanywayorthedefendanttohaveanyawarenessthataresultingtrusthasbeenpresumed.11 The
preferableviewisthatthenotionofvoluntaryassumptionofresponsibilityiskeytotheimpositionoffiduciary
obligationsandthepersonalliabilityoftrustees,butnottoaswhetherornotatrustexists.
(e)TrustWillGenerallynotFailforWantofaTrustee
Ifnotrusteeacceptsappointment,thetrustwillnotfailforwantofatrusteeandthecourtwillmakeanappropriate
appointment,unlessthesettlorortestatormadethevalidityofthetrustdependentontheacceptanceof
appointmentbyaparticulartrustee.12 InReLysaght,13 forexample,thetestatrixhadleftmoneytotheRoyal
CollegeofSurgeonstoestablishacharitabletrustfortheprovisionofstudentshipsfortraineesurgeons,exceptfor
thoseofJewishorRomanCatholicfaiths.TheRoyalCollegesaidthatitwasunabletoacceptsuchagift,since
thereligiousdiscriminationwasinvidiousandalientoitswork.Itwasheldthat,normally,ifatrusteefeltunableto
acceptthetrust,heorsheshouldsimplymakewayforonewhowouldacceptit.BuckleyJsaid:14
Obviouslyatrusteewillnotnormallybepermittedtomodifythetermsofhistrustonthegroundthathis
ownopinionsorconvictionsconflictwiththem.Ifhisconsciencewillnotallowhimtocarryoutthetrust
faithfullyinaccordancewithitsterms,hemustmakewayforatrusteewhocanandwilldoso.
Where,asinReLysaghtitself,theidentityofthetrusteeisessentialtothetestator,thetrustmightfailforwantof
atrustee.But,onthefacts,thetrustwassavedbydeletingtheoffendingtermbecausethiswasconsideredtobe
aninessentialpartofthetestatrixsparamountcharitableintenttoestablishthestudentships.
(p.514) 2.TypesofTrustee
Wehavealreadyseenthreedifferenttypesoftrustee,namelytheexpresstrusteeappointedbyasettlorora
testator,15 theresultingtrustee,16 andtheconstructivetrustee.17 Thereareanumberofothercategoriesand
typesoftrustee,someofwhichoverlap.
(a)AmateurTrustee
Althoughthisisnotaspecificlegalcategoryoftrustee,18 iftrusteesarenotpaidthenlesswillbeexpectedof
theminfulfillingtheirdutieswhencomparedtoprofessionaltrustees.Amateurtrusteesaremorelikelytobe
relievedofliabilityforbreachoftrust.19
(b)ProfessionalTrustee
AprofessionaltrusteehasbeendefinedforthepurposesoftheTrusteeAct2000assomebodywhoactsinthe
courseofaprofessionorabusinesswhichconsistsoforincludestheprovisionofservicesinconnectionwiththe
managementoradministrationoftrusts.20 Professionaltrusteesarelikelytobebanksorsolicitors.Higher
standardsofcarewillbeexpectedfromthemthanfromamateurtrustees.21
(c)PensionTrustee
Trusteesofpensionfundsaresubjecttotheusualresponsibilitiesoftrusteesofprivatetrusts,butprovisionis
madeforadditionalresponsibilitiesbythePensionsAct1995asregards,forexample,powersofinvestmentand
delegation.22 Thedutiesofsuchtrusteesmaysometimesdifferfromthoseofatrusteeofaprivatetrust.So,for
example,trusteesofapensiontrustcannotdelegateanyoftheirinvestmentfunctions.23
(d)CharityTrustee
Charitytrusteeshavethegeneralcontrolandmanagementoftheadministrationofacharity.24 Itdoesnotfollow
thatsuchpeoplearenecessarilytrusteesofacharity,becausethevehicleforthecreationofacharityneednot
beatrustitcouldbeacompany.Insuchacase,thedirectorsofthecompanyarecharitytrusteesforpurposes
oftheCharitiesAct2011,butarenottrusteesofthecharity.25 This(p.515) isgenerallyadistinctionofonly
technicalsignificance,sincecharitytrusteesarestillsubjecttofiduciarydutiesandhaveadministrative
responsibilitiesinjustthesamewayastheywouldiftheyweretrusteesofatrust.
(e)JudicialTrustee
Wheretheadministrationofatrustbythetrusteeshasbrokendown,thesettlor,trustees,orbeneficiariesmay
applytothecourttohaveajudicialtrusteeappointedundertheJudicialTrusteesAct1896,eithertohelpthe
existingtrusteestoadministerthetrust,ortoreplacethetrusteesandtakesoleresponsibilityforthe
administrationofthetrust.
JudicialTrusteesAct1896
1.Powerofcourtonapplicationtoappointjudicialtrustee
(1)Whereapplicationismadetothecourtbyoronbehalfofthepersoncreatingorintendingto
createatrust,orbyoronbehalfofatrusteeorbeneficiary,thecourtmay,initsdiscretion,
appointaperson(inthisActcalledajudicialtrustee)tobeatrusteeofthattrust,eitherjointly
withanyotherpersonorassoletrustee,and,ifsufficientcauseisshown,inplaceofallorany
existingtrustees.
(2)Theadministrationofthepropertyofadeceasedperson,whetheratestatororintestate,shall
beatrust,andtheexecutororadministratoratrustee,withinthemeaningofthisAct.
(3)Anyfitandproperpersonnominatedforthepurposeintheapplicationmaybeappointeda
judicialtrustee,and,intheabsenceofsuchnomination,orifthecourtisnotsatisfiedofthe
fitnessofapersonsonominated,anofficialofthecourtmaybeappointed,andinanycasea
judicialtrusteeshallbesubjecttothecontrolandsupervisionofthecourtasanofficerthereof.
(4)Thecourtmay,eitheronrequestorwithoutrequest,givetoajudicialtrusteeanygeneralor
specialdirectionsinregardtothetrustortheadministrationthereof.
(5)Theremaybepaidtoajudicialtrusteeoutofthetrustpropertysuchremuneration,not
exceedingtheprescribedlimits,asthecourtmayassignineachcase,subjecttoanyrules
underthisActrespectingtheapplicationofsuchremunerationwherethejudicialtrusteeisan
officialofthecourt,andtheremunerationsoassignedtoanyjudicialtrusteeshall,saveasthe
courtmayforspecialreasonsotherwiseorder,coverallhisworkandpersonaloutlay.
(6)Inanycasewherethecourtshallsodirect,aninquiryintotheadministrationbyajudicial
trusteeofanytrust,orintoanydealingortransactionofajudicialtrustee,shallbemadeinthe
prescribedmanner.
Thejudicialtrusteeisabletoexercisethediscretionarypowersofatrustee,suchasthepowertocompromise
disputes,withoutobtainingdirectionsfromthecourt.ThiswasrecognizedinReRidsdel.
ReRidsdel[1947]Ch597,605(JenkinsJ)
theobjectoftheJudicialTrusteesAct1896,asIunderstandit,wastoprovideamiddlecoursein
caseswheretheadministrationoftheestatebytheordinarytrusteeshadbrokendownanditwasnot
desired(p.516) toputtheestatetotheexpenseofafulladministration.Inthosecircumstances,a
solutionwasfoundintheappointmentofajudicialtrustee,whoactsincloseconcertwiththecourt
andunderconditionsenablingthecourttosupervisehistransactions.Icannotthinkthatitwas
intendedtocomplicatethematterbyprohibitingsuchatrusteefromexercisinganydiscretionwithout
firstgoingtothecourtandaskingfordirections.Thatinvolvesthis,thatwheneverthetrustee
wantedtoexercisesomediscretion,suchasthepowerofcompromiseundersection15oftheTrustee
Act1925,26 hewouldperforcehavetocometothecourtfordirectionsbut(togiveonlyoneinstance)
thecourtwouldgivenodirectionswithoutsummoningbeforeitallpersonsinterestedintheexerciseof
thediscretioninorderthatthemattermightbearguedanddecidedinthepresenceofallparties.One
wouldthusreducetheadministrationofanestatebyajudicialtrusteetoverymuchthesameposition
aswhereanestateisbeingadministeredbythecourtandeverystephastobetakeninpursuanceof
thecourtsdirections.ItdoesnotseemtometoberightornecessarytoconstruetheJudicialTrustee
Rules1897,27 ashavinganysucheffect.
(f)CustodianTrustee
Acustodiantrusteeisacorporatetrusteethatisauthorizedbystatutetobeappointedtohavecustodyoftrust
propertyandrelateddocuments.28 Suchatrusteedoesnothavegeneralresponsibilityfortheadministrationof
thetrust,sinceithasnodiscretionastowhattodowiththetrustpropertyandmustgiveeffecttothedecisionsof
theothertrustees(knownasmanagingtrustees)relating,forexample,totheinvestmentoftrustproperty.But
custodiantrusteesarerealtrustees,sincetheyholdthetrustpropertyandincomederivedfromitontrustforthe
beneficiariesaccordingtothetermsofthetrustinstrument,theycannotbenefitfromthepropertythemselves,and
theyowedutiestothebeneficiariesnottomisapplythetrustpropertyandtoavoidaconflictbetweenpersonal
interestandduty29 theyaresubjecttotheirreduciblecoreoftrustobligationsthatareaprerequisitetoestablish
trusteeship.
ReBrookeBond&Co.LtdsTrustDeed[1963]Ch35730
TheWelfareInsuranceCo.Ltdwasacustodiantrusteeunderatrustdeedthatsecuredthepensionfundof
theemployeesofBrookeBond&Co.Ltd.Thefundsmanagingtrusteeshadpowerstotakeoutagroup
insurancepolicyandtheydesiredtotakeitoutwithWelfareInsuranceCo.Ltd.Thequestionwaswhether,
withoutleaveofthecourt,thecustodiantrusteecouldenterintothepolicywiththemanagingtrustees,and
retainfortheirownbenefitanyprofitthattheymightmake.CrossJheldthattheycouldnot:31
Itisapparentthatthedutiesofacustodiantrusteediffersubstantiallyfromthoseofanordinary
trustee.Ifthetrustinstrumentorthegenerallawgivesthetrusteepowertodothis,thatortheother,it
isnotforthecustodiantrusteetoconsiderwhetheritshouldbedone.Theexerciseofpowersor
discretionsisamatterforthemanagingtrusteeswithwhichthecustodiantrusteehasnoconcern,
andheisbound(p.517) todealwiththetrustpropertysoastogiveeffecttothedecisionsand
actionstakenbythemanagingtrusteesunlesswhatheisrequestedtodobythemwouldbeabreach
oftrustorwouldinvolvehiminpersonalliability.Ontheotherhand,itisplainthatheisatrustee
holdingthetrustpropertyanditsincomeontrustforthebeneficiariesaccordingtothetermsofthe
trustinstrumentandheisprimafacieliabletothebeneficiariesforanydealingwithcapitalorincome
whichisabreachoftrust.Inpracticethisliabilitymaybeconsiderablyqualifiedasregardsincomeby
theprovisionsof[thePublicTrusteeAct1906,s.2]subsection(2)(e)andasregardscapitalorincome
bytheprovisionsofsubsection(2)(h)butsubjecttotheprotectionprovidedbythosesubsectionsthe
custodiantrustee,asIunderstandthematter,isasliableasanordinarytrusteetobesuedbya
beneficiaryforthemisapplicationofthetrustproperty.Hispositionisquiteunlikethatofathirdparty
abaileeofthetrustproperty,forinstancewhoisincontractualrelationshipwiththetrusteebut
owesnodutytothebeneficiaries.
Itis,however,arguedthatthefactthatacustodiantrusteeisnotconcernedwiththemanagementof
thetrustmakestherulethatatrusteemaynotmakeaprofitoutofhistrustinapplicabletohim.If
trusteeshavepowertosellorleasethetrustpropertyortoinvestitinsomeway,thecustodian
trusteeisnotconcernedwiththequestionwhetherthepowershouldbeexercisedandisnot
concernedwithanynegotiationswhichtakeplacebetweenthemanagingtrusteesandtheother
contractingparties.Allthecustodiantrusteeisconcernedtodoistobesatisfiedthatthemanaging
trusteeshavethepowertoenterintothetransactionwhichtheycallonhimtocarryout.
Thatbeingtheposition,itissaidhowcantherebeanyconflictbetweenhisinterestanddutyifhe
himselfistheothercontractingparty?Hemustindeedsatisfyhimselfthattheproposedtransactionis
onewhichthemanagingtrusteeshavepowertoenterintojustashewouldhavetodoiftheyhad
contractedwithathirdparty,butonceheissatisfiedastothat,hisdutyinthematterisatanendand
hecanproperlylookonlytohisowninterestsinnegotiatingthetermsofthecontractinquestionwith
themanagingtrustees.
Thisargumentisingeniousbutinmyjudgmentitisunsound.Inthefirstplace,itpresupposesthata
hardandfastlinecanalwaysbedrawnbetweenthepowertoenterintoacontractofacertain
characterandthetermsofthecontract.Idonotthinkthatthisisalwaysthecase.Forexample,the
managingtrusteesmayhavepowertoleasethetrustpropertybutonlyonthetermsthattheyobtain
thebestrentreasonablyobtainable.Insuchacaseiftheproposalwastograntaleasetoanominee
ofthecustodiantrustee,thecustodiantrusteewouldbeunderadutytoseethatthebestrentwas
obtainedsothatnobreachoftrustwascommitted,butitwouldbetohisinterestastheprospective
lesseetohavetherentfixedataslowafigureaspossible.Againitisprimafaciethedutyofatrustee
toplaceatthedisposalofthebeneficiariesanyspecialknowledgehehasofthevalueofthetrust
propertyorofanyadvantagesordisadvantagesofanycontractwhichisincontemplationwithregard
toit.Itmaybethatifthecontractisbeingmadebythemanagingtrusteeswithathirdparty,a
custodiantrusteeisundernopositivedutytocommunicateanysuchknowledgewhichhemayhave
tothemanagingtrustees.Idonotsaywhetherthatissoornot,butassumingitissoitdoesnot
followbyanymeansthatifthecustodiantrusteewashimselftheothercontractingpartyhecould
properlyrefrainfromdisclosinganysuchspecialknowledgetothemanagingtrusteesasathirdparty
wouldbeentitledtorefrainfromdisclosingit.Iappreciatethatitmaywellbethatthechancesofthere
beingaconflictbetweeninterestanddutyarelessinthecaseoftransactionsbetweenacustodian
trusteeandmanagingtrusteesthantheyareinthecaseoftransactionsbetweenanordinarytrustee
andhiscotrustees.Butthepossibilityofconflictisstillthereandtherule,asLordHerschellpointed
outinBrayvFord[1896]AC44,isaninflexibleoneunlessthetrustinstrumentprovidesforaprofit
beingmadebythetrusteesorthecourtmakesaspecialorderinaparticularcase.
ForthereasonsIhavetriedtogive,Icanseenosoundreasonforsayingthattheruledoesnotapply
toacustodiantrusteeasmuchastoanordinarytrustee.
(p.518) Thereareanumberofadvantagesinappointingacustodiantrustee,whicharemoresignificantwhere
thetrustfundislargeandthetrustisexpectedtolastforsometime.32 First,wherethetrustpropertyisvestedin
acustodiantrustee,itisnotnecessarytovestthepropertyinthemanagingtrusteeseachtimeanewoneis
appointed.Ifthereareanumberoftrusteeswhoarelikelytochangeovertime,thisisasignificantadvantage.
Secondly,havingthepropertyvestedinacustodiantrusteealsomakestheselectionandreviewofinvestments
easiertoimplement.Finally,havingaprofessionaltrusteetomanagethetrustpropertymayreducethepossibility
ofabreachoftrust.
(g)PublicTrustee
ThePublicTrusteeisacorporationthatisanofficerappointedbytheLordChancellorunderthePublicTrustee
Act1906.ThefunctionsofthePublicTrusteearemuchmorelimitedtodaythantheyusedtobeand,essentially,
theofficehasaresiduaryfunctiontoactasatrusteewherenobodyelseissuitable,able,andwillingtoact.
(h)TrustCorporation
Atrustcorporationisaspecialkindoftrustee,whichisthePublicTrustee,isspecificallyappointedbythecourt
tobeatrustee,orisentitledtobeacustodiantrustee.33 Havingatrustcorporationissignificanttothe
administrationofthetrust,sinceitcanoftenactalonewhentwotrusteeswouldotherwiseberequired.So,for
example,atrustcorporationalonecangiveavalidreceiptfortheproceedsofsaleunderatrustforland,whereas
atleasttwoindividualtrusteeswouldberequiredtogiveavalidreceipt.34
(i)Trusteedesontort
Insomecircumstances,apersonwhohasnotbeenappointedasatrusteewillbetreatedasthoughheorshe
wereanactualtrustee,35 wherethatpersontookituponhimorherselftodoactsthatarecharacteristicofa
trustee.36 Thisiscalledatrusteedesontort,meaningatrusteeofhisownwrong.Thekeyfeatureofa
trusteedesontortwasrecognizedinMaravBrowne37 asbeingthatthetrusteehasintermeddledwiththetrustin
somewayandbecomesresponsibleasatrusteeforthatintermeddling.
Apersonwillbetreatedasatrusteedesontortintwosituations:
(1)wheretheyassumedthepositionofatrusteeinfact,eventhoughtheyhadnotbeenproperlyappointed,
andtheyintendedtoactastrustee38
(2)whereapersonhasobtainedsuchcommandorcontroloftrustpropertythatheorshecancallfortitleto
thepropertytobevestedinhimorher.39
(p.519) Ineachcasethetrusteeisproperlycharacterizedasanexpresstrustee,40 becauseheorshehas

intermeddledwithanexistingtrustandissimplydeemedtohavebeenappointedasatrusteetothattrust.
InDubaiAluminiumCo.LtdvSalaam,41 LordMillettconsideredMaravBrowne.42
Thecaseconcernedamarriagesettlement.Thefirstdefendant,whomIshallcallHB,wasasolicitor.He
advisedthepersonswhowereactingastrustees,thoughnotyetformallyappointedassuch.He
suggestedaseriesofinvestmentsforthetrustfunds.Theywerenotproperinvestmentsfortrusteesto
make.Themoneywastobelentonbuildingpropertyofaspeculativecharacterandthemarginwas
unsatisfactory.Theinvestmentsweremadeandthemoneywaslost.LordHerschellconsideredthat,ifthe
claimantshadchargedHBwithnegligenceasasolicitorandbroughttheactionintime,theymightwell
havesucceeded,inwhichcasebothHBandhispartnerwouldhavebeenliable.Butanysuchactionwas
barredbytheStatuteofLimitations.AccordinglytheclaimantsallegedthatHBhadintermeddledwiththe
trustandwasliableasatrusteedesontort.Theyallegedthathehadlaidoutthetrustmoneysatatime
whentherewerenotrustees,andthereforemustbetakentohaveactedasaprincipalinthematterand
notasamereagentforthetrustees.Suchaclaimwasnotstatutebarred.Thejudgeagreedwiththis
analysisandheldthatbothHBandhispartnerwereliable.
TheCourtofAppealtookadifferentviewofthefacts.Theyheldthatitwasnotcorrecttosaythatatthe
relevantdatestherewerenotrustees.ButeveniftherehadbeennoneHBwouldnothavebeenliable.He
didnotintendorpurporttoactasatrustee,andnoonesupposedthathewassoacting.Hepurportedto
actthroughoutonlyassolicitortothetrusteesandwasunderstoodbyallconcernedtobeactingassuch.
ThissummaryissufficienttoshowwhatLordHerschellandRigbyLJinMaravBrownemeantby
constructivetrustee.Theymeanttrusteedesontortthatistosay,apersonwho,thoughnotappointed
tobeatrustee,neverthelesstakesituponhimselftoactassuchandtodischargethedutiesofatrustee
onbehalfofothers.InTaylorvDavies[1920]AC636,651,ViscountCavedescribedsuchpersonsas
follows:
thoughnotoriginallytrustees,[they]hadtakenuponthemselvesthecustodyandadministrationof
propertyonbehalfofothersandthoughsometimesreferredtoasconstructivetrustees,theywere,
infact,actualtrustees,thoughnotsonamed.
SubstitutingdogLatinforbastardFrench,wewoulddobettertodaytodescribesuchpersonsasde
factotrustees.Intheirrelationswiththebeneficiariestheyaretreatedineveryrespectasiftheyhadbeen
dulyappointed.Theyaretruetrusteesandarefullysubjecttofiduciaryobligations.Theirliabilityisstrictit
doesnotdependondishonesty.LikeexpresstrusteestheycouldnotpleadtheLimitationActsasa
defencetoaclaimforbreachoftrust.Indeed,forthepurposesoftherelevantprovision(section25(3)ofthe
SupremeCourtofJudicatureAct1873),whichdistinguishedbetweenpropertyheldonexpresstrusts
andothertrusts,theyweretreatedbythecourtsasexpresstrustees.ThatiswhytheactioninMarav
Brownewasnotstatutebarred.
(p.520) 3.AppointmentofTrustees
(a)NumberofTrustees
Foralltrusts,itissufficienttohaveonlyonetrustee.Theonesignificantrestrictiononthemaximumnumberof
trusteesappointedariseswherethesubjectmatterofthetrustislandandthetrustisnotcharitable:forsucha
trust,themaximumnumberoftrusteesislimitedtofour.
TrusteeAct1925
34.Limitationofthenumberoftrustees
(2)Inthecaseofsettlementsanddispositionscreatingtrustsoflandmadeorcominginto
operationafterthecommencementofthisAct
(a)thenumberoftrusteesthereofshallnotinanycaseexceedfour,andwheremorethan
fourpersonsarenamedassuchtrustees,thefourfirstnamed(whoareableandwillingto
act)shallalonebethetrustees,andtheotherpersonsnamedshallnotbetrusteesunless
appointedontheoccurrenceofavacancy
(b)thenumberofthetrusteesshallnotbeincreasedbeyondfour.
(3)Thissectiononlyappliestosettlementsanddispositionsofland,andtherestrictions
imposedonthenumberoftrusteesdonotapply
(a)inthecaseoflandvestedintrusteesforcharitable,ecclesiastical,orpublicpurposes
or
(b)wherethenetproceedsofthesaleofthelandareheldforlikepurposesor
(c)tothetrusteesofatermofyearsabsolutelimitedbyasettlementontrustsforraising
money,orofaliketermcreatedunderthestatutoryremediesrelatingtoannualsums
chargedonland.
(b)BytheSettlor
Thesettlorcanchooseanybodywhomheorshelikestobeatrustee,exceptthatachildcannotactastrusteeof
anytrust.43 Itisevenpossibleforasettlortoappointhimorherselfasatrustee.Wherethishappens,andthe
settloralreadyownsthepropertytobeheldontrust,thetrustwillbeimmediatelyconstituted,sincethesettlor
willalreadyhavethelegaltitlevested.44 Ifanotherpersonisappointedastrusteethetrustwillonlybeproperly
constitutedoncetitletothepropertyisvestedinthetrustee.45
Theselectionoftherighttrusteesisamatterofthegreatestimportance.Modernsettlementsusuallygivemany
discretionarypowerstothetrustees.Inselectingtheoriginaltrustees,thesettlorwillselectpersonswhocanbe
reliedontoexercisethesepowersinamannerofwhichheorshewouldhimorherselfapprove.Thesettlor
cannot,however,controlthetrusteesintheexerciseoftheirpowersanddiscretions.Oncethesettlorhas
appointedtrusteesoncreatingthetrust,heorshecannotdeterminesubsequentappointmentsoftrustees,save
wherethesettlorhasreservedthepowerinthetrustinstrumenttomakesuchappointments.46
(p.521) (c)BytheTestator
Similarrulesabouttheappointmentoftrusteesapplywhereatrustisdeclaredinawill.Thetestatorcanchoose
whomeverheorshelikestobethetrustee,otherthanachild.Itispossibleforthetestatortochoosethesame
persontobebothexecutorandtrustee.Ifdifferentpeoplearechosenastrusteeandexecutor,theexecutorswill
holdthepropertyinthetestatorsestateimmediatelyonthetestatorsdeathuntilthepropertyisvestedinthe
trusteesappointedbythewill.Ifallthetrusteeschosenbythetestatorhavepredeceasedthetestator,the
testatorspersonalrepresentativeswillholdthepropertyontrustuntiltrusteesareappointed.47
(d)ByTrusteesorThosewithPowertoAppoint
Thetrustinstrumentmaygiveanexpresspowertoaparticularpersontoappointnewtrustees.Additionally,there
arespecificstatutorypowerstoappointnewtrustees,althoughthesepowersmaybeexcludedbythetrust
instrument.48
(i)Generalstatutorypowerofappointment
TrusteeAct1925
36.Powerofappointingneworadditionaltrustees
(1)Whereatrustee,eitheroriginalorsubstituted,andwhetherappointedbyacourtorotherwise,is
dead,orremainsoutoftheUnitedKingdomformorethantwelvemonths,ordesirestobedischarged
fromalloranyofthetrustsorpowersreposedinorconferredonhim,orrefusesorisunfittoact
therein,orisincapableofactingtherein,orisaninfant,then,subjecttotherestrictionsimposedby
thisActonthenumberoftrustees,
(a)thepersonorpersonsnominatedforthepurposeofappointingnewtrusteesbythe
instrument,ifany,creatingthetrustor
(b)ifthereisnosuchperson,ornosuchpersonableandwillingtoact,thenthesurvivingor
continuingtrusteesortrusteeforthetimebeing,orthepersonalrepresentativesofthelast
survivingorcontinuingtrustee,49
may,bywriting,appointoneormoreotherpersons(whetherornotbeingthepersonsexercisingthe
power)tobeatrusteeortrusteesintheplaceofthetrusteesodeceased,remainingoutoftheUnited
Kingdom,desiringtobedischarged,refusing,orbeingunfitorbeingincapable,orbeinganinfant,as
aforesaid.
(7)Everynewtrusteeappointedunderthissectionaswellbeforeasafterallthetrustproperty
becomesbylaw,orbyassurance,orotherwise,vestedinhim,shallhavethesamepowers,
authorities,anddiscretions,andmayinallrespectsactasifhehadbeenoriginallyappointeda
trusteebytheinstrument,ifany,creatingthetrust.
(p.522) Thisgeneralstatutorypowerofappointmentapplieswherethetrustinstrumentnominatesparticular
peopletoappointtrustees.Italsoappliesifnosuchpeoplehavebeenidentified,oriftheyhavebeenidentified,
butarenotableandwillingtoact,sincethesurvivingorcontinuingtrusteesmayappointanewtrustee.50 The
nominatedpeopleortrusteescanappointanewtrusteebywriting,butonlyintheparticularcircumstances
identifiedinsection36.
Thequestionofwhetherapersonhasbeennominatedtomakeanappointmentmayraisesomesubtleissuesof
interpretation.Forexample,inReWheelerandDeRochow51 amarriagesettlementgavetothehusbandandwife,
orthesurvivorofthem,thepowertoappointnewtrusteesincertainspecifiedcircumstances,includingthatofa
trusteebecomingincapableofacting.Oneofthetrusteesbecamebankruptandabsconded.Thisrenderedhim
unfitbutnotincapable.Thequestionwaswhetheranewtrusteeshouldbeappointedbythehusband(asthe
survivor),underparagraph(a)ofsection36(1),orbythecontinuingtrusteesunderparagraph(b).KekewichJheld
thatthehusbandandwife(orthesurvivor)werethepersonsnominatedforthepurposeofappointingnewtrustees
bytheinstrumentonlyinthecircumstancesspecifiedinthesettlement.Nosuchcircumstanceshadoccurred,
sothenewtrusteeneededtobeappointedbythecontinuingtrusteeswithreferencetothegeneralstatutory
powertomakeanappointmentonthegroundthatoneoftheexistingtrusteeswasunfit.
(ii)Replacementoftrustees
TrusteeAct1925
36(2)Whereatrusteehasbeenremovedunderapowercontainedintheinstrumentcreatingthetrust,
anewtrusteeornewtrusteesmaybeappointedintheplaceofthetrusteewhoisremoved,asifhe
weredead,or,inthecaseofacorporation,asifthecorporationdesiredtobedischargedfromthe
trust,andtheprovisionsofthissectionshallapplyaccordingly,butsubjecttotherestrictionsimposed
bythisActonthenumberoftrustees.
Whereatrusteehasbeenremovedunderapowerinthetrustinstrument,52 thenominatedpeoplewiththepower
toappointorthetrusteeswillbeabletoexercisetheirgeneralstatutorypowerofappointment.If,onceatrustee
hasbeenremoved,thereisasingletrusteeleftwhoisnotatrustcorporation,53 thetrusteewhohadbeen
removedmustbereplaced,savewhereonlyonetrusteewasoriginallyappointed.54
(iii)Additionaltrustees
TrusteeAct1925
36(6)Where,inthecaseofanytrust,therearenotmorethanthreetrustees
(a)thepersonorpersonsnominatedforthepurposeofappointingnewtrusteesbythe
instrument,ifany,creatingthetrustor
(p.523) (b)ifthereisnosuchperson,ornosuchpersonableandwillingtoact,thenthetrustee
ortrusteesforthetimebeing
may,bywritingappointanotherpersonorotherpersonstobeanadditionaltrusteeoradditional
trustees,butitshallnotbeobligatorytoappointanyadditionaltrustee,unlesstheinstrument,ifany,
creatingthetrust,oranystatutoryenactmentprovidestothecontrary,norshallthenumberof
trusteesbeincreasedbeyondfourbyvirtueofanysuchappointment.
Underthisprovision,unlikethegeneralstatutorypowerofappointment,thepersonwiththepowerofappointment
cannotappointhimorherselfastrustee.
(iv)Selectingtrustees
Thepeopleexercisingthestatutorypowerofappointmenthaveafreechoiceastowhomtheycanappoint.They
canoftenevenappointthemselves.55 Theycanalsochoosetoappointforeigntrusteestoadministerthetrust.56
RichardvTheHonA.B.Mackay[2008]WTLR1667
TheEnglishtrusteesofasettlementmadein1965byLordTanlaw,ontrustsgovernedbyEnglishlaw,sought
adeclarationthattransferofpartofthetrustfundtoanewsettlementtobeestablishedinBermudawas
valid.ThebeneficiariesundertheproposednewsettlementweretheinfantchildrenofLordTanlaw,and,
althoughthefamilyhadinternationalconnections,LordTanlawwasdomiciledandresidentintheUnited
Kingdom.MillettJheldthatthetransferwasvalid.
InReWhiteheadsWillTrusts[1971]1WLR833SirJohnPennycuick,theViceChancellor,was
askedtodeclarethatanappointmentofforeigntrusteesofanEnglishtrustwaseffectivetodischarge
theEnglishtrustees.
At837,hesaid:
thelawhasbeenquitewellestablishedforupwardsofacenturythatthereisnoabsolute
bartotheappointmentofpersonsresidentabroadastrusteesofanEnglishtrust.Isayno
absolutebar,inthesensethatsuchanappointmentwouldbeprohibitedbylawandwould
consequentlybeinvalid.Ontheotherhand,apartfromexceptionalcircumstances,itisnot
propertomakesuchanappointment,thatistosay,thecourtwouldnot,apartfromexceptional
circumstances,makesuchanappointmentnorwoulditberightforthedoneesofthepowerto
makesuchanappointmentoutofcourt.Iftheydid,presumablythecourtwouldbelikelyto
interfereattheinstanceofthebeneficiaries.Theredo,however,existexceptional
circumstancesinwhichsuchanappointmentcanproperlybemade.Themostobvious
exceptionalcircumstancesarethoseinwhichthebeneficiarieshavesettledpermanentlyin
somecountryoutsidetheUnitedKingdomandwhatisproposedtobedoneistoappointnew
trusteesinthatcountry.Inthoseexceptionalcircumstancesithas,Ibelieve,almostuniformly
beenacceptedasthelawthattrusteesinthecountrywherethebeneficiarieshavesettledcan
properlybeappointed.
(p.524) At838,thelearnedViceChancelloradded:
Itcannot,Ithink,makeanydifferencewhetherthecourtisaskedundertheVariationofTrustsAct
1958totransferafundtoanewsettlementinaforeigncountryorwhetheroneisconcernedmerely
withtheappointmentofnewtrusteesoftheexistingsettlement.
Thisisnotacasewherethefamilyconcernedorthebeneficiarieshavebecomeresidentabroad.The
settlorandhistwochildrenliveinEngland.Norisitacasewheretheproposednewsettlementisto
beformedinthecountrywherethebeneficiariesresideormaybeexpectedtoresideinthefuture.The
possibilitywhichisenvisagedisthattheymaywellwishtoliveintheFarEast,whereastheseatof
theproposedsettlementistobeBermuda.
ButinmyjudgmentthelanguageofSirJohnPennycuick,whichisnarrowlydrawn,istoorestrictivefor
thecircumstancesofthepresentdayif,atleast,itisintendedtolaydownanyruleofpractice.Norin
myviewisitaccuratetoequatetheapproachthatthecourtadoptstoexerciseitsowndiscretionwith
theapproachitadoptswhenaskedtoauthorisethetrusteestoexercisetheirs.
Wherethecourtisinvitedtoexerciseanoriginaldiscretionofitsown,whetherbyappointingtrustees
undertheTrusteeAct1925orbyapprovingaschemeundertheVariationofTrustAct1958,57 or
wherethetrusteessurrendertheirdiscretiontothecourt,thecourtwillrequiretobesatisfiedthatthe
discretionshouldbeexercisedinthemannerproposed.Theapplicantsmustmakeoutapositivecase
fortheexerciseofthediscretion,andthecourtisunlikelytoassistthemwheretheschemeisnothing
morethanadevicetoavoidtaxandhasnootheradvantagesofanykind.
Where,however,thetransactionisproposedtobecarriedoutbythetrusteesinexerciseoftheirown
discretion,entirelyoutofcourt,thetrusteesretainingtheirdiscretionandmerelyseekingthe
authorisationofthecourtfortheirownprotection,theninmyjudgmentthequestionthatthecourt
asksitselfisquitedifferent.Itisconcernedtoensurethattheproposedexerciseofthetrusteespower
islawfulandwithinthepowerandthatitdoesnotinfringethetrusteesdutytoactasordinary,
reasonableandprudenttrusteesmightact,butitrequiresonlytobesatisfiedthatthetrusteescan
properlyformtheviewthattheproposedtransactionisforthebenefitofbeneficiariesorthetrustestate

Certainlyintheconditionsoftoday,whenonecanhaveaninternationalfamilywithinternational
interests,andwheretheyareaslikelytomaketheirhomeinonecountryasinanotherandaslikely
tochooseonejurisdictionasanotherfortheinvestmentoftheircapital,IdoubtthatthelanguageofSir
JohnPennycuickisreallyintunewiththetimes.Inmyjudgment,wherethetrusteesretaintheir
discretion,astheydointhepresentcase,thecourtshouldneedtobesatisfiedonlythattheproposed
transactionisnotsoinappropriatethatnoreasonabletrusteecouldentertainit.
IhaveevidencebeforemethattheproposedtrusteeistheleadingtrusteecorporationinBermuda,that
thetrustlawofBermudaissimilartoandbaseduponandderivedfromEnglishlaw,andthatthereare
norestrictionsuponthefreemovementofcapital.IthinkIcantakejudicialnoticeofthefactthat
BermudahasastableregimewithintheUnitedStatessphereofinfluenceandthatmanywealthy
families,actingintheirowninterestsandinabusinesslikeway,havebeeninthehabitinrecentyears
ofentrustingsubstantialportionsoftheirfortunestotrusteesinthatjurisdiction.
Thereareobviouspotentialadvantagesindiversification.Whatisproposedisonlytheremovalfromthe
jurisdictionof25percentofaverysubstantialfund.Thereisgreatforceinthesubmissionthatwhatis
proposedispositivelyaprudentstep,andIhavenodoubtatallthatitcannotpossiblybestigmatised
asimprudentorunreasonable
(p.525) AccordinglyIconsiderthatthereisnoreasonwhythetrusteesshouldnottaketheviewthat
theproposedtransactionisforthebenefitoftheprincipalbeneficiaries,andIwillgivethedirection
sought.
Theremaybeavarietyofreasonswhytrusteeswouldwishtoappointforeigntrustees,includingthatthe
beneficiariesliveabroadpermanently,thetrustpropertyislocatedabroad,orthetrustshouldberelocatedto
avoidataxliability.58 InReBeattysWT(No.2),59 executorsandtrusteeswishedtoappointJerseyresident
trustees,sincehavingoverseastrusteeswouldavoidcapitalgainstaxonatrustestatethathadincludedVan
GoghsSunflowers,whichhadjustbeensoldatauctionforthethenrecordpriceof22.5million.Therewerethree
principalbeneficiariesofthetrust.OnewasresidentinAustralia,onewasabouttoemigratetoSpain,andthe
thirdwasresidentintheUnitedKingdom.VinelottJsaid:60
Turningagaintotheinstantcase,thereare,inmyjudgment,clearlycircumstanceswhichtheexecutors
canproperlyregardasjustifyingtheappointmentoftheproposednewtrusteesastrusteesofthewill.Lord
BrookeisandLadyCharlotteisabouttobecomeresidentoutsidetheUnitedKingdom.Itisimpracticalto
appropriatethewholeresiduaryestateintoonethirdsharesandimpractical,therefore,toappointtrustees
residentinandtoadministerthetrustsinasinglejurisdictionwhereallthebeneficiariesaredomiciledand
resident.Mrs.ThompsonJonesisherselfwillingthattrusteesresidentoutsidetheUnitedKingdomshould
beappointed,andsheistheonlybeneficiarynowascertainablewhoisresidentintheUnitedKingdom.It
would,Ithink,beunjusttothenonresidentbeneficiariesthatbecauseMrs.ThompsonJonesisresident
heretheyshouldbeexposedtoheavyfiscalliabilitieswhichwillnotariseifnonresidenttrusteesare
appointed.
Therecanbenoquestionbutthattheproposedindividualnewtrusteesareresponsiblepersonsandthe
proposedcorporatetrusteeisawellestablishedandwellknowntrustcorporation.
ThetrusteesallresideinastablejurisdictioninwhichmanyEnglishtrustsarenowadministeredandin
whichtheassetsandthefutureadministrationofthetrustswillbefullysafeguarded.
Inthesecircumstances,Ihavenohesitationingivingthedirectionandmakingtheordersought.
(v)Continuingtrustees
Thegeneralstatutorypowerofappointmentoftrusteesmaybeexercisedbyacontinuingtrustee.Thisisdefined
toincludearefusingorretiringtrustee,ifwillingtoactintheexecutionoftheprovisionsofsection36ofthe
TrusteeAct1925.61 Itfollowsthataretiringsoletrusteeorgroupoftrusteesisabletoappointsuccessors.Butit
hasbeenheldthataretiringorrefusingtrusteecanparticipateintheexerciseofthepowerofappointmentonlyif
heorsheiscompetent,andreadyandwillingtoact.Forexample,inReCoatestoParsons 62 thetitletoachapel
wasvestedineleventrustees.Onedied,andanother,WRDearlove,remainedoutoftheUnitedKingdomfor
twelvemonths.Thenineremainingtrusteespurportedtoreplacehim,actingunderthestatutorypower.A
purchaserunderacontractforsaleofthelandbythetrusteesobjectedtothetitle,oneofthegroundsbeingthat
WRDearlovehadnotparticipatedintheappointmentofnewtrustees.NorthJneverthelessupheldthe
appointment,saying:63
(p.526) Ihold,therefore,thatunderthetermsoftheActtheninetrustees,whowereclearlycontinuing
trusteeswerecompetenttomaketheappointment,unlessitwasshewnthatthepersonwhohadbeen
absentforsolong,andinwhoseplacetherewasaclearrighttosubstituteanewtrustee,waswillingand
competenttoact.Thishasnotbeenshewn,anditseemstome,therefore,thatthefirstobjection,viz.that
WRDearloveoughttohaveconcurredinmakingtheappointment,isnotestablished.
Wheretwotrusteeswishtoretire,itisnotpossibleforthemtoappointonetrusteetoreplacethemunlessitisa
trustcorporation,because,wheretherewereoriginallytwotrustees,itisnotpossibletoreducetheoverallnumber
oftrustees.64 Further,whenreplacingatrusteewhohasbeenabroadforoverayear,itisnotnecessaryforthat
trusteetoparticipateintheexerciseofthepowerofappointment,becausethattrusteeisbeingremovedrather
thanretiringorrefusingtoact.ThiswasrecognizedinReStonehamsST65 inwhichonetrustee,Stoneham,had
absentedhimselffromtheUnitedKingdomforovertwelvemonths.Hiscotrustee,intendingtoretire,appointed
twoothersinplaceofStonehamandhimself.Stonehamwishedtocontinuetoactasatrustee.DanckwertsJ
neverthelessheldthattheappointmentsmadebythecotrusteeasaretiringtrusteewerevalidandthat
Stonehamsparticipationwasnotnecessary:
Icometotheconclusionquiteplainlythatatrusteewhoisremovedagainsthiswillisnotarefusingor
retiringtrustee,not,atanyrate,inthecaseofatrusteeremovedbecauseofhisabsenceoutsidethe
UnitedKingdomforconsecutiveperiodsofmorethan12months.
(e)AtTheDirectionoftheBeneficiaries
TheruleinSaundersvVautier66 givesapowertotheadultbeneficiariesofatrustwhoarebetweenthem
absolutelyentitledtothebeneficialinterestinthetrustpropertytoterminatethetrust,andtodirectthetrusteesto
transferthepropertytothemiftheyareoffullcapacityandagreetotheterminationofthetrust.Ithasbeenheld,
however,thatthisisanallornothingpower:itdoesnotenablethebeneficiariestointerferewiththeadministration
ofthetrust,whilstkeepingthetrustonfoot.
ReBrockbank[1948]Ch206,209(VaiseyJ)
Itseemstomethatthebeneficiariesmustchoosebetweentwoalternatives:Eithertheymustkeep
thetrustsofthewillonfoot,inwhichcasethosetrustsmustcontinuetobeexecutedbytrusteesduly
appointedpursuanteithertotheoriginalinstrumentortothepowersofs.36oftheTrusteeAct1925,
andnotbytrusteesarbitrarilyselectedbythemselvesortheymust,bymutualagreement,extinguish
andputanendtothetrusts
Theclaimofthebeneficiariestocontroltheexerciseofthedefendantsfiduciarypowerofmakingor
compellinganappointmentofthetrusteesis,inmyjudgment,untenable.Thecourtitselfregardssuch
apowerasdeservingofthegreatestrespectandasonewithwhichitwillnotinterfere
Ifthecourt,asamatterofpracticeandprinciple,refusestointerferewiththelegalpowerof
appointmentofnewtrustees,itis,inmyjudgment,afortiorinotopentothebeneficiariestodoso.As
Ihavesaid,theycanputanendtothetrustiftheylikenobodydoubtsthatbuttheyarenotentitled,
inmyjudgment,toarrogatetothemselvesapowerwhichthecourtitselfdisclaimspossessing,and
to(p.527) changetrusteeswhenevertheythinkfitattheirwhimorfancyforitfollowsfromMr.
Crossargumentforthepresentplaintiffsthatwheneverthebeneficiarieschoosetosaythattheydo
notliketheirtrustee,theycanorderhimtoretireandorderhimtoappointanyonetheyliketosucceed
him.Thatseemstometoshowacompletedisregardofthetrueposition.AsIhavesaid,aslongas
thetrustsubsists,thetrustmustbeexecutedbypersonsduly,properlyandregularlyappointedtothe
office.
Thereis,however,astatutorymechanismthatenablesthebeneficiariestosecuretheappointmentoftheir
nominatedtrusteeswithoutterminatingthetrust.
19.Appointmentandretirementoftrusteeatinstanceofbeneficiaries67
(1)Thissectionappliesinthecaseofatrustwhere
(a)thereisnopersonnominatedforthepurposeofappointingnewtrusteesbythe
instrument,ifany,creatingthetrust,and
(b)thebeneficiariesunderthetrustareoffullageandcapacityand(takentogether)are
absolutelyentitledtothepropertysubjecttothetrust.
(2)Thebeneficiariesmaygiveadirectionordirectionsofeitherorbothofthefollowing
descriptions
(a)awrittendirectiontoatrusteeortrusteestoretirefromthetrust,and
(b)awrittendirectiontothetrusteesortrusteeforthetimebeing,(or,iftherearenone,to
thepersonalrepresentativeofthelastpersonwhowasatrustee)toappointbywritingtobe
atrusteeortrusteesthepersonorpersonsspecifiedinthedirection.68
(5)ThissectionhaseffectsubjecttotherestrictionsimposedbytheTrusteeAct1925onthe
numberoftrustees.
TheexistenceofthisstatutorypowerhasbeencriticizedbyKeppelPalmer69 onthegroundthat:
Toallowbeneficiariesthewhiphandovertrustees,bythreateningtoandreplacingthemonawhim,surely
underminesthebasisoftrusteeship,especiallyinitsstakeholdingbetweentheinterestsofthe
beneficiaries.Withsomanyofthepowersoftrusteesbeingdiscretionary,arewegoingtodiscoverthatthe
conceptoftrusteeshipisunderattack.AsVaiseyJarticulated:70 adiscretionarypowerinmyopinion
isnolongerexercisableand,indeed,cannolongerexistifithasbecomeoneofwhichtheexercisecanbe
dictatedbyothers.
Againstthis,theexistenceofthispowerofthebeneficiariestoappointtrusteescanbeconsideredtobean
importantpowertogivethebeneficiariessignificantindirectinfluenceoverthemanagementofthetrustproperty,
sincetheyarenotrestrictedinthechoiceofpeoplewhomtheycandirectthetrusteestoappointandcan,
therefore,choosepeoplewhomtheymightconsiderwilllookaftertheirowninterestsmoreappropriately.
(p.528) (f)BytheCourt
Atrustwillnotfailforwantofatrustee.71 Consequently,ifthetrusteesorotherpeoplewiththepowertoappointa
trusteefailtodoso,thecourtwillinterveneandappointatrustee.
TrusteeAct1925
41.Powerofcourttoappointnewtrustees72
(1)Thecourtmay,wheneveritisexpedienttoappointanewtrusteeornewtrustees,anditis
foundinexpedientdifficultorimpracticablesotodowithouttheassistanceofthecourt,makean
orderappointinganewtrusteeornewtrusteeseitherinsubstitutionfororinadditiontoany
existingtrusteeortrustees,oralthoughthereisnoexistingtrustee.
Inparticularandwithoutprejudicetothegeneralityoftheforegoingprovision,thecourtmay
makeanorderappointinganewtrusteeinsubstitutionforatrusteewholackscapacityto
exercisehisfunctionsastrusteeorisabankrupt,orisacorporationwhichisinliquidationor
hasbeendissolved.
43.Powersofnewtrusteeappointedbythecourt
Everytrusteeappointedbyacourtofcompetentjurisdictionshall,aswellbeforeasafterthetrust
propertybecomesbylaw,orbyassurance,orotherwise,vestedinhim,havethesamepowers,
authorities,anddiscretions,andmayinallrespectsactasifhehadbeenoriginallyappointeda
trusteebytheinstrument,ifany,creatingthetrust.
Thispowerofthecourttomakeanappointmentmayberelevantinawidevarietyofcircumstances,including
whereasoletrusteehasdiedintestateorwherethedoneeofapowertoappointcannotexerciseitbecauseheor
sheisunderage.73 Thispowerofappointmentwillberelevantonlywherethereisnootherauthorizedpersonwho
iswillingandabletomakeanappointment.74 So,forexample,inReMaysWillTrusts,75 althoughoneofthe
trusteeswasinBelgiumatthetimeoftheGermaninvasionofthatcountryduringtheSecondWorldWar,there
wasnoevidencethatshewasincapableofexercisingthepowerofappointment,andsothecourtwasunableto
exerciseitsstatutorypowerofappointment.
Whenthecourtisselectinganappropriatetrustee,itshouldhaveregardtoanumberofprinciplesthatwere
identifiedintheimportantcaseofReTempest.
ReTempest[1866]1ChApp485(CAinCh)
AfamilysettlementwascreatedbythewillofSirCharlesTempest,appointingtheHon.TEStonerandMrJ
Flemingastrustees.Stonerpredeceasedthetestator.Thepersonstowhomthepowerofappointingnew
trusteeswasgivenwereunabletoagreeuponaselection.Apetitionwaspresented,askingthecourtto
appointtheHon.EdwardPetre.Onebeneficiaryopposedthis,on(p.529) thegroundthatPetrewas
connectedwith,andproposedby,abranchofthefamilywithwhichthetestatorwasnotonfriendlyterms,
andwhichhehadexcludedfromparticipationinthemanagementofhisproperty.TheMasteroftheRolls
appointedPetreandLordCamoyshopingtosatisfybothparties.
ItwasheldthatPetrewasnotapersonwhomtheCourtwouldappoint.
TurnerLJ:
Therearetwoquestionsraisedbythisappeal.First,whethertheorderoftheMasteroftheRollsought
tobereversedinsofarasitappointsMr.Petretobeatrusteeofthetestatorswillandsecondly,
whetherassumingthattheorderoughttobereversedinthisrespect,LordCamoysoughttobe
appointedthetrustee.Thefirstofthesequestionshasnotseemedtometobealtogetherfreefrom
difficulty,andinmyviewofthiscaseitisbynomeansanunimportantquestion.Itinvolves,asIthink,
tonoinconsiderableextenttheprinciplesonwhichthisCourtoughttoactintheappointmentofnew
trustees.
Itwassaidinargument,andhasbeenfrequentlysaid,thatinmakingsuchappointmentstheCourt
actsuponandexercisesitsdiscretionandthis,nodoubt,isgenerallytruebutthediscretionwhich
theCourthasandexercisesinmakingsuchappointments,isnot,asIconceive,amerearbitrary
discretion,butadiscretionintheexerciseofwhichtheCourtis,andoughttobe,guidedbysome
generalrulesandprinciples,and,inmyopinion,thedifficultywhichtheCourthastoencounterin
thesecasesliesnotsomuchinascertainingtherulesandprinciplesbywhichitoughttobeguided,
asinapplyingthoserulesandprinciplestothevaryingcircumstancesofeachparticularcase.The
followingrulesandprinciplesmay,Ithink,safelybelaiddownasapplyingtoallcasesof
appointmentsbytheCourtofnewtrustees.
First,theCourtwillhaveregardtothewishesofthepersonsbywhomthetrusthasbeencreated,if
expressedintheinstrumentcreatingthetrust,orclearlytobecollectedfromit.Ithinkthisrulemay
besafelylaiddown,becauseiftheauthorofthetrusthasintermsdeclaredthataparticularperson,or
apersonfillingaparticularcharacter,shouldnotbeatrusteeoftheinstrument,therecannot,asI
apprehend,betheleastdoubtthattheCourtwouldnotappointtotheofficeapersonwhose
appointmentwassoprohibited,andIdonotthinkthatuponaquestionofthisdescriptionany
distinctioncanbedrawnbetweenexpressdeclarationsanddemonstratedintention.Theanalogyofthe
coursewhichtheCourtpursuesintheappointmentofguardiansaffords,Ithink,somesupporttothis
rule.TheCourtinthosecasesattendstothewishesoftheparents,howeverinformallytheymaybe
expressed.
Anotherrulewhichmay,Ithink,safelybelaiddownisthisthattheCourtwillnotappointapersonto
betrusteewithaviewtotheinterestofsomeofthepersonsinterestedunderthetrust,inopposition
eithertothewishesofthetestatorortotheinterestsofothersofthecestuiquetrusts.Ithinksofor
thisreason,thatitisoftheessenceofthedutyofeverytrusteetoholdanevenhandbetweenthe
partiesinterestedunderthetrust.Everytrusteeisindutyboundtolooktotheinterestsofall,andnot
ofanyparticularmemberorclassofmembersofhiscestuiquetrusts.
Athirdrulewhich,Ithink,maysafelybelaiddownis,thattheCourtinappointingatrusteewillhave
regardtothequestion,whetherhisappointmentwillpromoteorimpedetheexecutionofthetrust,for
theverypurposeoftheappointmentisthatthetrustmaybebettercarriedintoexecution.
Thesearetheprinciplesbywhich,inmyjudgment,weoughttobeguidedindeterminingwhetherMr.
Petreoughttobeappointedtobeatrusteeofthiswill,and,inmyopinion,therearesubstantial
objectionstohisappointmentoneachofthethreegroundstowhichIhavereferred.Thereisnot,of
course,andcannotbe,anypossibleobjectiontoMr.Petreinpointofcharacter,position,orability,
andIdesiremostanxiouslytobeunderstoodasnotintending,indisapprovinghisappointment,to
casttheslightestpossiblereflectionuponhim.Ihavenotforonemomentdoubtedthatheisa
gentlemanofmost(p.530) unexceptionablecharacter,andwellqualifiedineveryrespecttofillthe
officeoftrusteebutIthinkthattheprinciplestowhichIhavereferredareopposedtohisappointment.
First,astothewishesofthistestator,itisimpossible,Ithink,toreadthiswillwithoutbeingfully
satisfiedthatthegreatobjectandpurposeofthetestatorwastoexcludeMr.CharlesHenryTempest
notonlyfromallinterestin,butfromallconnectionwithhisestate.Amorecompleteexclusionofhim,
bothfromanyinterestinandfromanypowerovertheestate,couldnot,asitseemstome,havebeen
devised.Isitthenconsistentwiththispurposeofthetestatorthatatrusteeshouldbeappointedwho,
upontheevidencebeforeus,IcannotdoubtisthenomineeofMr.CharlesHenryTempest,andis
proposedforthepurposeofcarryingintoeffecthiswishesandintentions?Thefacts,Ithink,provethat
thisisthepositionofMr.Petre.HeisproposedbyMr.WashingtonHibbert,thefatherinlawofMr.CH
Tempest,andtheverypersontheconnectionwithwhomledtothemakingofthiswill,bywhichhe
wasexcluded.Heissupported,andIdesirenottobeunderstoodassaying,inanyotherthanalegal
sense,improperly,byMr.ACTempesthisbrother,whoitappearsupontheevidencedeclinedto
attendthetestatorsfuneralonaccountofthedispositionsofthewillandoneoftheprincipal
witnessesinsupportofhisappointment,andthepersonmostactiveintheseproceedingsisMr.
Broadbent,thesolicitorofSirCHTempest,underwhoseadvicewefindthatMr.Petreadoptedthat
mostunfortunateand,Imustsay,illadvisedstepofdecliningtomeethiscotrustees.Lookingtoall
thesecircumstances,andtothewholeoftheevidencebeforeus,Ihaveaslittledoubtastowhatled
totheproposalofMr.PetreasIhaveastotheintentionsofthistestator,anduponthisground,
therefore,IthinkthatMr.Petreoughtnottobeappointedtobeatrusteeofthiswill.
Itwassaidfortherespondents,thatthetestatorsdispositionswerecaptiousandabsurd,andought
notthereforetoberegarded,butmuchaswemayregretthatsuchdispositionsweremade,wecannot
disregardthem.
Then,astothesecondground,theobjectiontotheappointmentofMr.Petreseemstometobestill
moredecisive.Theevidence,inmyopinion,veryplainlyshewsthatMr.Petrehasbeenproposedasa
trustee,andhasacceptedthatoffice,withaviewtohisactinginthetrustintheinterestsofsomeonly
oftheobjectsofit,andinoppositiontothewishesofthetestator,andnotwithaviewtohisactingas
anindependenttrusteeforthebenefitofalltheobjectsofthetrusts,andIdonothesitatetosaythat,
inmyopinion,thisfactisalonesufficienttopreventusfromconfirminghisappointment.Itwas
objectedonthepartoftherespondents,thattheproofofthisfactrestsuponevidenceofwhathas
occurredsincetheorderunderappealwaspronounced,andoughtnot,therefore,tobeattendedto
butthisisarehearingofthePetitionunderwhichMr.Petrehasbeenappointed.Thequestionbefore
us,therefore,is,whetherheoughtnowtobeappointedornotaquestionofhispresentfitnessor
unfitnessandIamawareofnorulewhichprecludesusfromreceivinguponsuchaquestionevidence
ofwhathasoccurredsincetheoriginalhearing.Supposing,however,thattherewasanydifficultyupon
thatpoint,Iapprehendtherecanbenodoubtthattheevidenceofwhathassooccurredoughttobe
lookedatasshewingthepurposeforwhichhewasproposed,andthatitwasnotproperthathe
shouldbeappointedatthetimewhentheorderappointinghimwasmade.
Itwasalsoarguedonthepartoftherespondents,thattheirinterestsoughttobeconsideredinthe
appointmenttobemadebytheCourt,andtherewouldhavebeengreatforceinthisargument,ifit
couldhavebeenconsideredthatMr.Petrewasproposedasanindependenttrusteetoactonbehalf
of,andwithaviewto,theinterestsofallthecestuiquetrustsbutwhenthepurposeforwhichheis
proposedisseen,thisargumentlosesallweightandcannotbeattendedto.Itistheappointmentofa
trusteeforthebenefitofall,andnotwithaviewtotheinterestsofsome,thatthewishesofcestuique
trustsaretobeconsulted,forthetrusteetobeappointedmustrepresentandconsulttheinterestsof
all,andnotofsomeonlyofthecestuiquetrusts.Itwasindeedwiththisview,thatinthecourseofthe
argumentIsuggestedtothepartiestheexpediencyoftheiragreeingupontheappointmentofan
independenttrustee.
(p.531) ThethirdandremaininggroundofobjectiontotheappointmentofMr.Petreis,Ithink,open
tomoredifficulty.Ontheonehand,therecannot,Ithink,beanydoubtthattheCourtoughtnotto
appointatrusteewhoseappointmentwillimpedethedueexecutionofthetrustbut,ontheother
hand,ifthecontinuingorsurvivingtrusteerefusestoactwithatrusteewhomaybeproposedtobe
appointedandImakethisobservationwithreferencetowhatappearstohavebeensaidbyMr.
Fleming,astoMr.PetrehavingcomeforwardinoppositiontohiswishesIthinkitwouldbegoingtoo
fartosaythattheCourtought,onthatgroundalone,torefusetoappointtheproposedtrusteeforthis
would,assuggestedintheargument,betogivethecontinuingorsurvivingtrusteeavetouponthe
appointmentofthenewtrustee.Insuchacase,IthinkitmustbethedutyoftheCourttoinquireand
ascertainwhethertheobjectionofthesurvivingorcontinuingtrusteeiswellfoundedornot,andtoact
orrefusetoactuponitaccordingly.Ifthesurvivingorcontinuingtrusteehasimproperlyrefusedtoact
withtheproposedtrustee,itmightbeagroundforremovinghimfromthetrust.Uponthefactsofthis
case,however,itseemstomethattheobjectionstakenbyMr.FlemingtotheappointmentofMr.
Petrewereandarewellfounded,anduponthewholecase,therefore,myopinionis,thattheorder
underappeal,sofarasitappointsMr.Petre,oughttobedischarged.
Theorderuponthisappealshould,Ithink,betodischargetheorderattheRolls,toappointLord
CamoystobethetrusteeintheplaceofMr.Stoner,andtovesttheestateinhimandMr.Fleming.
Itfollowsthattherearethreekeyconsiderationsthatthecourtshouldbearinmindwhendetermininghowit
shouldexerciseitsdiscretioninselectingtrustees:(1)thewishesofthesettlorortestator(2)thewishesof
beneficiariesand(3)theproperadministrationofthetrust.InPollyPeck InternationalplcvHenry,76 BuckleyJ
refusedtoappointanewtrusteetoapensiontrustundersection41becausetheproposedtrusteelacked
expertiseandtheappointmentwouldnothavebeencosteffectiveforthetrust.
Positivereasonsmustbeidentifiedforthecourttoappointforeigntrustees.Acommonreasonforwishingto
appointsuchtrusteesistoavoidtax,butthisisunlikelytoberegardedasalegitimatereasonforthecourtto
makesuchanappointment.77
(g)BytheCharityCommission
Incharitabletrusts,theCharityCommissioncanappointapersontoactasatrusteeforavarietyofreasons,
includingtheneedtoreplaceatrusteeremovedbytheCommissionorbecauseoneormoreexistingtrusteesis
unfit,incapable,orabsent.78
4.RetirementofTrustees
(a)VoluntaryRetirement
Atrusteecanvoluntarilyretirefromthetrustbydeed.
(p.532) TrusteeAct1925
39.Retirementoftrusteewithoutanewappointment
(1)Whereatrusteeisdesirousofbeingdischargedfromthetrust,andafterhisdischargethere
willbeeitheratrustcorporationoratleasttwopersonstoactastrusteestoperformthetrust,
then,ifsuchtrusteeasaforesaidbydeeddeclaresthatheisdesirousofbeingdischargedfrom
thetrust,andifhiscotrusteesandsuchotherperson,ifany,asisempoweredtoappoint
trustees,bydeedconsenttothedischargeofthetrustee,andtothevestinginthecotrustees
aloneofthetrustproperty,thetrusteedesirousofbeingdischargedshallbedeemedtohave
retiredfromthetrust,andshall,bythedeed,bedischargedtherefromunderthisAct,without
anynewtrusteebeingappointedinhisplace.
Atrusteewhoretiresfromthetrustshould,normally,obtainaformaldischargeofliabilityfromthebeneficiaries.
Butevenifsuchadischargeisnotobtained,theretiredtrusteewillnotbeliableforbreachesoftrustthatoccur
afterhisorherretirement,exceptwherethetrusteeresignedinordertofacilitateabreachoftrust.79 Atrustee
whohasresignedwill,however,remainliableforbreachesoftrustthatoccurredbeforetheresignation.Atrustee
whopurportstoretire,butfailstocomplywiththestatutoryrequirements,willcontinueinoffice.80
(b)ByDirectionoftheBeneficiaries
Thebeneficiariescanunanimouslycompelatrusteetoretirefromoffice.
19(3)Where
(a)atrusteehasbeengivenadirectionundersubsection(2)(a),81
(b)reasonablearrangementshavebeenmadefortheprotectionofanyrightsofhisinconnection
withthetrust,
(c)afterhehasretiredtherewillbeeitheratrustcorporationoratleasttwopersonstoactas
trusteestoperformthetrust,and
(d)eitheranotherpersonistobeappointedtobeanewtrusteeonhisretirement(whetherin
compliancewithadirectionundersubsection(2)(b)orotherwise)orthecontinuingtrusteesby
deedconsenttohisretirement,
heshallmakeadeeddeclaringhisretirementandshallbedeemedtohaveretiredandbedischarged
fromthetrust.82
(4)Whereatrusteeretiresundersubsection(3)heandthecontinuingtrustees(togetherwithanynew
trustee)shall(subjecttoanyarrangementsfortheprotectionofhisrights)doanythingnecessaryto
vestthetrustpropertyinthecontinuingtrustees(orthecontinuingandnewtrustees).
(p.533) Thispowerwillnotbeavailableiftheinstrumentnominatessomebodytomaketrusteeappointments.
Thispowerofthebeneficiariestocompelretirementisasignificantone,especiallywhencoupledwiththepower
toforceanappointmentofaneworreplacementtrustee.83 Butitcanberegardedasalogicalextensionofthe
beneficiariespowertoterminateatrustundertheruleinSaundersvVautieranditisapowerthathasanumber
ofsafeguardsagainstabuse,includingtheneedforreasonablearrangementstobeinplacetoprotecttheretiring
trusteesrights.Itcertainlyhasthepotentialtoaffectthedynamicsbetweenthetrusteesandbeneficiariesina
smalltrustwherethebeneficiariesareabsolutelyentitledtotrustproperty.
5.RemovalofTrustees
(a)BytheTrustInstrument
Thetrustinstrumentmayprovidefortheremovalofatrustee.Wheresuchapowertoremovehasbeenexercised,
thetrusteewillbetreatedashavingdied,sothateitherapersonwiththepowertoappointtrusteesorthe
remainingtrusteesmayappointanewtrustee.84
(b)GeneralStatutoryPower
Thedoneeofapowertoappointtrusteesorthetrusteesthemselvesmayremoveonetrusteeandreplacehimor
herwithanewtrusteeonthespecificgroundsrecognizedbytheTrusteeAct1925,85 suchaswherethetrustee
hasbeenabroadforoverayear,isachild,orisincapableorunwillingtoactasatrustee.
(c)BytheCharityCommission
WheretheCharityCommissionhasconductedaninquirywithregardtoacharity 86 andconcludesthattherehas
beenmisconductormismanagementintheadministrationofthecharity,theCommissioncanremoveanycharity
trusteewhohasbeeninvolvedinthemisconductormismanagement.87 TheCommissionalsohasthepowerto
removeacharitytrusteewhohasbeendeclaredbankruptinthelastfiveyears,isincapableofactingbecauseofa
mentaldisorder,orisabsentorrefusestoactandthisisimpedingtheproperadministrationofthecharity.88
(d)BytheCourt
89
Thecourthasastatutorypowertoremoveatrusteeandappointanewtrusteeinhisorherplace.89 Inparticular,
thecourtcanappointanewtrusteeinsubstitutionforanexistingoneonthegroundsofincapacitytoexercisethe
functionsofatrustee,bankruptcy,orinsolvency.90
(p.534) Thecourtalsohasaninherentjurisdictiontoremoveatrusteefromthetrust,butonlywherecogent
groundsareestablished.91
LetterstedtvBroers[1894]9AppCas371
ThePrivyCouncilhadtoconsiderwhether,independentlyofstatute,itshouldremovetheBoardofExecutors
ofCapeTown,thesolesurvivingexecutorsandtrusteesofthewillofMrLetterstedt,againstwhoma
beneficiaryhadmadeallegationsofmisconductintheadministrationofthetrust.TheBoardwasremoved
buttheallegationswerenotsubstantiated,andnocostswereawarded.LordBlackburn92 describedthe
principlesuponwhichthecourtsdiscretionshouldbeexercised:
Thewholecasehasbeenarguedhere,and,asfarastheirLordshipscanperceive,intheCourtbelow,
asdependingontheprincipleswhichshouldguideanEnglishCourtofEquitywhencalleduponto
removeoldtrusteesandsubstitutenewones.Itisnotdisputedthatthereisajurisdictionincases
requiringsucharemedy,asissaidinStorysEquityJurisprudence,s.1287,butthereisverylittleto
befoundtoguideusinsayingwhatarethecasesrequiringsucharemedysolittlethattheir
Lordshipsarecompelledtohaverecoursetogeneralprinciples.
Storysays,s.1289,Butincasesofpositivemisconduct,CourtsofEquityhavenodifficultyin
interposingtoremovetrusteeswhohaveabusedtheirtrustitisnotindeedeverymistakeorneglectof
duty,orinaccuracyofconductoftrustees,whichwillinduceCourtsofEquitytoadoptsuchacourse.
Buttheactsoromissionsmustbesuchastoendangerthetrustpropertyortoshewawantof
honesty,orawantofpropercapacitytoexecutetheduties,orawantofreasonablefidelity.
ItseemstotheirLordshipsthatthejurisdictionwhichaCourtofEquityhasnodifficultyinexercising
underthecircumstancesindicatedbyStoryismerelyancillarytoitsprincipalduty,toseethatthe
trustsareproperlyexecuted.Thisdutyisconstantlybeingperformedbythesubstitutionofnew
trusteesintheplaceoforiginaltrusteesforavarietyofreasonsinnoncontentiouscases.And
therefore,thoughitshouldappearthatthechargesofmisconductwereeithernotmadeout,orwere
greatlyexaggerated,sothatthetrusteewasjustifiedinresistingthem,andtheCourtmightconsider
thatinawardingcosts,yetifsatisfiedthatthecontinuanceofthetrusteewouldpreventthetrusts
beingproperlyexecuted,thetrusteemightberemoved.Itmustalwaysbeborneinmindthattrustees
existforthebenefitofthosetowhomthecreatorofthetrusthasgiventhetrustestate.
Thereasonwhythereissolittletobefoundinthebooksonthissubjectisprobablythatsuggestedby
Mr.Daveyinhisargument.Assoonasallquestionsofcharacterareasfarsettledasthenatureofthe
caseadmits,ifitappearsclearthatthecontinuanceofthetrusteewouldbedetrimentaltothe
executionofthetrusts,eveniffornootherreasonthanthathumaninfirmitywouldpreventthose
beneficiallyinterested,orthosewhoactforthem,fromworkinginharmonywiththetrustee,andif
thereisnoreasontothecontraryfromtheintentionsoftheframerofthetrusttogivethistrusteea
benefitorotherwise,thetrusteeisalwaysadvisedbyhisowncounseltoresign,anddoesso.If,
withoutanyreasonableground,herefusedtodoso,itseemstotheirLordshipsthattheCourtmight
thinkitpropertoremovehimbutcasesinvolvingthenecessityofdecidingthis,iftheyeverarise,do
sowithoutgettingreported.Itistobelamentedthatthecasewasnotconsideredinthislightbythe
partiesintheCourtbelow,for,asfarastheirLordshipscansee,theBoardwouldhavelittleornoprofit
fromcontinuingtobetrustees,andassuchcomingintocontinualconflictwiththeappellantandher
legaladvisers,and(p.535) wouldprobablyhavebeengladtoresign,andgetoutofanonerousand
disagreeableposition.Butthecasewasnotsotreated.
Inexercisingsodelicateajurisdictionasthatofremovingtrustees,theirLordshipsdonotventureto
laydownanygeneralrulebeyondtheverybroadprincipleaboveenunciated,thattheirmainguide
mustbethewelfareofthebeneficiaries.Probablyitisnotpossibletolaydownanymoredefiniterule
inamattersoessentiallydependentondetailsoftenofgreatnicety.Buttheyproceedtolookcarefully
intothecircumstancesofthecase
Itisquitetruethatfrictionorhostilitybetweentrusteesandtheimmediatepossessorofthetrust
estateisnotofitselfareasonfortheremovalofthetrustees.Butwherethehostilityisgroundedon
themodeinwhichthetrusthasbeenadministered,whereithasbeencausedwhollyorpartiallyby
substantialoverchargesagainstthetrustestate,itiscertainlynottobedisregarded.
Lookingthereforeatthewholecircumstancesofthisverypeculiarcase,thecompletechangeof
position,theunfortunatehostilitythathasarisen,andthedifficultanddelicatedutiesthatmayyet
havetobeperformed,theirLordshipscancometonootherconclusionthanthatitisnecessary,for
thewelfareofthebeneficiaries,thattheBoardshouldnolongerbetrustees.
Probablyifithadbeenputinthiswaybelowtheywouldhaveconsented.Butforthebenefitofthetrust
theyshouldceasetobetrustees,whethertheyconsentornot.
TheirLordshipsthinkthereforethattheportionofthefinaljudgmentwhichis,thattheprayerfor
removaloftheexecutorsberefused,shouldbereversed,andthatinlieuofittheCourtbelowshould
bedirectedtoremovetheBoardfromthefurtherexecutionofthetrustscreatedbythewill,andtotake
allnecessaryandproperproceedingsfortheappointmentofotherandproperpersonstoexecutesuch
trustsinfuture,andtotransfertothemthetrustpropertyinsofarasitremainsvestedintheBoard.
Therestofthejudgmentshouldstand.
Thefundamentalprinciplerelatingtotheexerciseofthecourtsjurisdictiontoremovetrusteesconcernsthe
welfareofthebeneficiariesandthepreservationofthetrustproperty.Theapplicationofthisprinciplewas
consideredinReWrightson,93 wherethetrusteeshadcommittedabreachoftrustandthecourthadtoconsider
whetherthetrusteesshouldberemoved.WarringtonJsaid:94
[Counselfortheplaintiffs]asoneargument,orasonereasonfortheremovalofthetrustees,said,ineffect,
wedonotliketohavethesepersonswhohavebeenchargedwithabreachoftrustandhaveadmittedit,
andwhohavemadethatstatementwhichissetoutinthepleadings,incustodyofourtrustestate.Thatis
notenough,especiallywhenthereareothercestuisquetrustentitled.Asomewhatsimilarquestionarose
inthecaseofForstervDavies(1861)4DeGF&J133at139,inwhichTurnerLJexpressedtheview,
whichIhavejustexpressed,thatdisagreementbetweenthecestuisquetrustandthetrustees,orthe
disinclinationonthepartofthecestuisquetrusttohavethetrustpropertyremaininthehandsofa
particularindividual,isnotasufficientgroundfortheremovalofthetrustees.Youmustfindsomething
whichinducesthecourttothinkeitherthatthetrustpropertywillnotbesafe,orthatthetrustwillnotbe
properlyexecutedintheinterestsofthebeneficiaries.Isthatsohere,andisitforthewelfareofthetrust
generally,andnotmerelyoftheplaintiffs,thatthesetrusteesshouldberemoved?Ithinkitisnot.The
trusteeswereundoubtedlyguiltyofabreachoftrust,andtheyundoubtedlyinthestatementtowhichI
havereferredexpressedviewswhichhaveoccasionedtheblamewhichhasbeenattachedtothetrustees
bothbyBuckleyJandmyself,but,havingregardtothefactthattheCourthasnowthepowerofseeing
thatthetrustisproperlyexecuted,tothefactthatalargeproportionofthe(p.536) beneficiariesdonot
requirethetrusteestoberemoved,andfurther(andthisisofgreatimportance),totheextraexpenseand
losstothetrustestatewhichmustbeoccasionedbythechangeoftrustees,Ithinkitwouldnotbeforthe
welfareofthecestuisquetrustgenerally,ornecessaryfortheprotectionofthetrustestate,thatthese
trusteesshouldberemoved.Imustthereforerefusetheapplicationfortheirremovalaswellasthe
applicationforthefurtheraccountsandinquiries.
OneofthemostextremeexamplesoftheapplicationoftheseprinciplesisinThomasandAgnesCarvel
FoundationvCarvelwhich,althoughitconcernedtheremovalofanexecutor,involvedexactlythesameprinciples
asforremovalofatrustee.
AgnesCarvelFoundationvCarvel[2007]EWHC1314[2008]Ch395
AnAmericanbusinessman,whomadehismoneyasoneofthebiggestsellersoficecreamintheUnited
States,andhiswife,Agnes,mademutualwills 95 wherebytheymutuallyagreedthatthefirsttodiewould
leavehisorhermoneytotheotherand,onthedeathofthatperson,toanamedfoundation.Thehusband
diedfirst.Afewyearslater,Agneschangedherwilltoleaveherestatetoacorporationthatwasincorporated
inherownnameandthatofherniece,Pamela,whowasalsotheexecutor.OnthedeathofAgnes,Pamela
soughttotransfertheestatetothecorporation.Itwasheldthat,sincePamelahadaclearconflictofinterest
andwaseitherdishonest,orattheveryleastdidnotunderstandherresponsibilitiesasanexecutor,she
shouldberemoved.LewisonJsaid:96
ThefoundationsapplicationtoremovePamelaismainlybasedonherconductofproceedingsthus
far.Itisastrikingfactthatafterthesurrogate[CourtinNewYork]hadruledthatthefoundationwas
entitledtoreceiveAgnessresiduaryestate(adecisionthatPamelaknewabout)sheissued
proceedingsintheHighCourtinEnglandinwhichshewasbothclaimantanddefendant,seeking
paymentofmoneysfromtheestatewithoutnotifyingthefoundation.Shepursuedthoseproceedings
untiltheChanceryorderwasmade,stillwithoutnotifyingthefoundation.AsIhavesaid,theclaimwas
basedonthreecategoriesofexpense:(i)sumswhichPamelasaidshehadincurredonbehalfof
Agnesduringherlifetime(ii)debtswhichAgneshadcontractedbuthadnotpaidand(iii)sumswhich
PamelahadincurredasAgnesspersonalrepresentativeandinrespectofwhichsheclaimedtobe
entitledtoindemnityfromtheestate.
Thefirstofthesecategorieswasaclaimascreditoroftheestateagainsttheestate.Inotherwords,
thiswasPamelaspersonalclaimagainsttheestate.Thesecondcategoryismoreobscure,but
seemsalsotohavebeenPamelaspersonalclaimagainsttheestate.Thethirdwasaclaiminher
representativecapacity(ineffectagainstthebeneficiaries).Apauseforthoughtoughttohaveled
Pamelatorealisethattherewasanobviousconflictofinterestbetweenherpersonalclaimsandher
dutiesaspersonalrepresentative.Theproceduralnonsenseofaclaimtowhichshewasbothclaimant
andsoledefendantoughttohavebeenobvioustoo.Mr.Gibbon[CounselforPamela]pointedoutthat
Pamelawasactingasalitigantinperson.However,Pamelaisanexperiencedlitigant.Idonotregard
thefactthatshewasalitigantinpersonasanexcuse.Ifanything,itcountsagainsther,becausea
responsiblepersonalrepresentative,withtheinterestsoftheestateatheart,wouldhaveconsulteda
lawyer
EvenafterallthecriticismthathasbeenlevelledatPamelafortakingthiscourse,bothbythe
foundationandJudgeAndrews,shestillsaysthatshebelievesthatitwasappropriateforhertohave
obtainedtheChanceryorderandthattherewasnoneedtoinformthefoundationeitherthatshehad
appliedforitorthatithadbeengranted.Mr.Gibbonsubmitted,andIagree,thatIshouldnotona
summary(p.537) applicationinferthatPamelahasacteddishonestlyorwithdeliberatedisregardof
herduties.ButifIdonotdrawthatinference,whatisleft?TheonlyalternativeconclusionthatIcan
drawfromthisisthatPameladoesnotunderstandherresponsibilities,andisnotwillingtolearnthem.
ThereisnoprospectofPamelaspositionbeinganybetterafteratrial
ItisplainthatthereisintensehostilitybetweenPamelaandthefoundation.Pamelaispartisanas
betweenthefoundationontheonehandandCarvelFloridaontheother.Sofarasthefoundationis
concerned,thehostilityis,inmyjudgment,groundedonthewayinwhichthetrustshavebeen
administered.
LordBlackburn[inLetterstedtvBroers]citedastheguidingprincipletothejurisdictiontoremove
trusteesasbeingthewelfareofthebeneficiaries.Mr.Barlowsubmitted:
Pamelahaswhollydisregardedthisprinciple.Hereveryacthasbeencalculatedtopromote
herownpersonalinterestsandtoprejudicethoseofthefoundation.Sheisinapositionof
irreconcilableconflictwiththeprincipalbeneficiaryofAgnessestateandherhostilitytothe
foundationrendersitquiteimpossibleforhertofulfilherfiduciaryduties.Herpositionas
personalrepresentativeisuntenable.Sheshouldberemoved.
Iagree.IwillorderPamelatoberemovedaspersonalrepresentative.
6.PaymenttoTrustees
Theofficeoftrusteeisvoluntaryandgenerallygratuitous,97 meaningthatatrusteeshouldnotbepaidfor
administeringthetrust98 asLordHardwickeLCrecognizedinKnightvEarlofPlymouth,99 itisanactofgreat
kindnessforanyonetobecomeatrustee.Thisisconsistentwithoneofthecoredutiesoftrustees,whichisthat
theyshouldnotprofitfromtheirpositionastrustees.100 Thereare,however,certainsituationsinwhichtrustees
haveeitherarightoralegitimateexpectationtoreceivepaymentinrespectoftheiradministrationofthetrust.
(a)ReimbursementofExpenses
Wheretrusteeshaveincurredreasonableexpenditureinadministeringthetrust,theyhavearighttobe
reimbursedeitherfromthetrustfundor,sometimes,fromthebeneficiariesthemselves.
(i)Fromthetrust
TrusteeAct2000
31.Trusteesexpenses
(1)Atrustee
(a)isentitledtobereimbursedfromthetrustfunds,or
(p.538) (b)maypayoutofthetrustfunds,
expensesproperlyincurredbyhimwhenactingonbehalfofthetrust.
(2)ThissectionappliestoatrusteewhohasbeenauthorisedunderapowerconferredbyPart
IV101 oranyotherenactmentoranyprovisionofsubordinatelegislation,orbythetrust
instrument
(a)toexercisefunctionsasanagentofthetrustees,or
(b)toactasanomineeorcustodian,
asitappliestoanyothertrustee.
Thetrusteesarenotboundtomakeanypaymenttothebeneficiariesuntiltheirexpenseshavebeen
reimbursed102 andtheyhavealienonthetrustpropertytosecuretheirrighttobereimbursed.103
WhetherexpenseswereproperlyincurredwasconsideredinReChapman,104 whereabarristertrusteehadbeen
payingincomefromthetrusttoalifetenant.Hebegantothinkthatthelifetenantwasdeadandhehadbeen
payingtheincometoanimposter.Heincurredexpenseininvestigatingwhetherthiswasthecase.Thecourtheld
thattherewasnofoundationforhissuspicionsandnobodyelsewouldhavedisplayedsuchphenomenal
scepticism.AsLordHerschellrecognized:105
Ithinkthatatrusteeisboundtoactreasonably.Idonotdissentfromthedefendantspropositionthatwhat
isreasonablemustbemeasuredbytheresponsibilitywhichthelawimposesonatrustee.Idonotthink
thatatrusteeisboundtorunanyrisks.Ithinkthatheisentitledtosatisfyhimselfbyallreasonableinquiry
andinvestigation,because,ifhepaysmoneytoanypersonwhoisnotproperlyentitledtoreceiveit,he
maybeheldliable.Butifheseesriskwherenoneinfactexists,andifherefusestobesatisfiedby
evidencewhichwouldsatisfyallreasonablemen,thenIthinkthathemustbearalltheexpenseswhichhis
conductcauses,andcannotthrowthatexpenseuponanyparticularbeneficiaryorthetrustestate.
Consequently,theexpenseswereconsideredtobesounreasonableastobevexatious,oppressive,andwholly
unjustifiable.Hisclaimforreimbursementfailed.InFostervSpencer,106 however,itwasrecognizedthat
businessclassairtravelfromMalaysiatoattendtotrustmattersinEnglandwasareasonableexpenseonthe
particularfactsofthecase.
Iftrusteesareuncertainwhethertheyhavearighttobereimbursedfromthetrust,theyshouldapplytothecourt
fordirections.Ithasbeenheldthattherighttobereimbursedfromthetrustfundenablesthetrusteesimplyto
retainpartofthatfundsothattheydonothaveacauseofactionindebtorfordamagesagainstthefund.107 This
issignificantbecauseitmeansthatthetrusteesareunabletoclaiminterestonthereimbursementthatthey
retain.AsJudgePaulBakerQCrecognizedinFostervSpencer:108
Theseproceedingsarenotproceedingsfortherecoveryofadebtordamages.Nopartycanbeorderedto
paythem.Thetrusteesareentitledtotheexpensesoutofthetrustestate,andonlyoutofthetrustestate.
Theycometocourtsimplytogainapprovaloftheirexerciseoftheirrightofretainersoastoforestallany
futureallegationsofbreachoftrust.
(p.539) (ii)Fromthebeneficiaries
Ifthetrustfundisnotsufficienttoreimbursethetrustee,heorshemaylooktothebeneficiariesfor
reimbursementofexpenses.Ifthetrusteehasincurredexpensesbyvirtueofholdingthetrustproperty,heorshe
canbeindemnifiedbythebeneficiarieswhoarebetweenthemabsolutelyentitledtotheproperty.InHardoonv
Belilios,109 theclaimantwasemployedbyafirmofsharebrokers.Inordertoassistasyndicatespeculatingin
shares,sharesinabankwereplacedinhisname.Thedefendantwastheabsolutebeneficialowneroftheshares.
Ontheliquidationofthebank,theliquidatorclaimed400fromtheclaimant.ThePrivyCouncilheldthatthe
defendantwaspersonallyliabletoreimbursetheclaimantsexpenses.LordLindleysaid:110
Wheretheonlycestuiquetrustisapersonsuijuris,therightofthetrusteetoindemnitybyhimagainst
liabilitiesincurredbythetrusteebyhisretentionofthetrustpropertyhasneverbeenlimitedtothetrust
propertyitextendsfurther,andimposesuponthecestuiquetrustapersonalobligationenforceablein
equitytoindemnifyhistrustee.Thisisnonewprinciple,butisasoldastruststhemselves.
Itfollowsthatthebeneficiariescanbeliabletoindemnifythetrusteeseveniftheexpenseexceedsthevalueofthe
trustproperty.Thisisbecause,asLordLindleyrecognized:111
[t]heplainestprinciplesofjusticerequirethatthe[beneficiary]whogetsallthebenefitoftheproperty
shouldbearitsburdenunlesshecanshowsomegoodreasonwhyhistrusteeshouldbearthemhimself.
TheliabilityofbeneficiariestoindemnifythetrusteeisconsistentwiththeruleinSaundersvVautier.112 Asa
resulttherewillbenosuchliabilitytoindemnifythetrusteeiftheconditionsforthatrulearenotsatisfied.113 This
willbethecaseifoneofthebeneficiariesisachild,sincetheyarenotthenalloffullcapacity.
Ifatrusteehasincurredliabilitywhennotactingonbehalfofthetrust,thebeneficiariesmaystillbeliableto
indemnifythetrustee,iftheyrequestedthatthisliabilitybeincurred.So,inBushvHigham,114 atrusteewas
entitledtobeindemnifiedbythebeneficiaryforinterestpaymentswhenhehadborrowedmoneyatthe
beneficiarysrequest.
(b)ReimbursementoftheCostsofLitigation
Arelatedproblemiswhetherthetrusteescanrecoverthecostsoflitigation.Wheretrusteeshaveincurreda
liabilitytopayforthecostsoflitigationrelatingtothetrust,thiswillconstituteanexpensethatmightbe
reimbursedfromthetrustfundundersection31oftheTrusteeAct2000.Trusteesmayincurlitigationcostseither
insuingsomebodyorindefendingproceedings.Ineithercase,itisnecessarytoconsiderwhetherthecostswere
properlyincurredforthebenefitofthetrust.115
(p.540) ReBeddoe[1893]1Ch547,562(BowenLJ)
Theprincipleoflawtobeappliedappearsunmistakablyclear.Atrusteecanonlybeindemnifiedoutof
thepocketsofhiscestuisquetrustagainstcosts,charges,andexpensesproperlyincurredforthe
benefitofthetrustapropositioninwhichthewordpropertymeansreasonablyaswellashonestly
incurred.WhileIagreethatthetrusteesoughtnottobevisitedwithpersonallossonaccountofmere
errorsinjudgment,whichfallshortofnegligenceorunreasonableness,itisontheotherhand
essentialtorecollectthatmerebonafidesisnotthetest,andthatitisnoanswerinthemouthofa
trusteewhohasembarkedinidlelitigationtosaythathehonestlybelievedwhathissolicitortoldhim,
ifhissolicitorhasbeenwrongheadedandperverse.Costs,charges,andexpenseswhichinfacthave
beenunreasonablyincurred,donotassumeintheeyeofthelawthecharacterofreasonableness
simplybecausethesolicitoristhepersonwhowasinfault.Nomoredisastrousordelusivedoctrine
couldbeinventedinaCourtofEquitythanthedangerousideathatatrusteehimselfmightrecover
overfromhisowncestuisquetrustcostswhichhisownsolicitorhasunreasonablyandperversely
incurredmerelybecausehehadactedashissolicitortoldhim.
Iftherebeoneconsiderationagainmorethananotherwhichoughttobepresenttothemindofa
trustee,especiallythetrusteeofasmallandeasilydissipatedfund,itisthatalllitigationshouldbe
avoided,unlessthereissuchachanceofsuccessastorenderitdesirableintheinterestsofthe
estatethatthenecessaryriskshouldbeincurred.
Inassessingwhetherthecostsoflitigationwereproperlyincurred,itisusefultodistinguishbetweenthreetypes
ofdisputeinvolvingthetrust,116 whichwereidentifiedbyLightmanJinAlsopWilk inson(afirm)vNeary.
AlsopWilkinson(afirm)vNeary[1996]1WLR1220,1223(LightmanJ)
Trusteesmaybeinvolvedinthreekindsofdispute.
(1)Thefirst(whichIshallcallatrustdispute)isadisputeastothetrustsonwhichtheyhold
thesubjectmatterofthesettlement.Thismaybefriendlylitigationinvolvinge.g.thetrue
constructionofthetrustinstrumentorsomeotherquestionarisinginthecourseofthe
administrationofthetrust:orhostilelitigatione.g.achallengeinwholeorinparttothevalidity
ofthesettlementbythesettlorongroundsofundueinfluenceorbyatrusteeinbankruptcyora
defraudedcreditorofthesettlor,inwhichcasetheclaimisthatthetrusteesholdthetrustfunds
astrusteesforthesettlor,thetrusteeinbankruptcyorcreditorinplaceoforinadditiontothe
beneficiariesspecifiedinthesettlement.Thelinebetweenfriendlyandhostilelitigation,whichis
relevantastotheincidenceofcosts,isnotalwayseasytodraw:seeReBuck ton[1907]2Ch
406.
(2)Thesecond(whichIshallcallabeneficiariesdispute)isadisputewithoneormoreofthe
beneficiariesastotheproprietyofanyactionwhichthetrusteeshavetakenoromittedtotakeor
mayormaynottakeinthefuture.Thismaytaketheformofproceedingsbyabeneficiary
allegingbreachoftrustbythetrusteesandseekingremovalofthetrusteesand/ordamagesfor
breachoftrust.
(p.541) (3)Thethird(whichIshallcallathirdpartydispute)isadisputewithpersons,
otherwisethaninthecapacityofbeneficiaries,inrespectofrightsandliabilitiese.g.incontract
ortortassumedbythetrusteesassuchinthecourseofadministrationofthetrust.
Trustees(expressandconstructive)areentitledtoanindemnityagainstallcosts,expensesand
liabilitiesproperlyincurredinadministeringthetrustandhavealienonthetrustassetstosecuresuch
indemnity.Trusteeshaveadutytoprotectandpreservethetrustestateforthebenefitofthe
beneficiariesandaccordinglytorepresentthetrustinathirdpartydispute.Accordinglytheirrightto
anindemnityandlienextendsinthecaseofathirdpartydisputetothecostsofproceedingsproperly
broughtordefendedforthebenefitofthetrustestate.Viewsmayvarywhetherproceedingsare
properlybroughtordefended,andtoavoidtheriskofachallengetotheirentitlementtotheindemnity,
(abeneficiarydispute),trusteesarewelladvisedtoseekcourtauthorisationbeforetheysueordefend.
Therighttoanindemnityandlienwillordinarilyextendtothecostsofsuchanapplication.Theformof
applicationisaseparateactiontowhichallthebeneficiariesareparties(eitherinpersonorbya
representativedefendant).Withthebenefitoftheirviewsthejudgethereuponexercisinghisdiscretion
determineswhatcoursetheinterestsofjusticerequiretobetakenintheproceedings:seeEvansv
Evans[1986]1WLR101,consideredbyHoffmannLJinMcDonaldvHorn[1995]ICR685.Solongas
thetrusteesmakefulldisclosureofthestrengthsandweaknessesoftheircase,ifthetrusteesactas
authorisedbythecourt,theirentitlementtoanindemnityandlienissecure.
Abeneficiariesdisputeisregardedasordinaryhostilelitigationinwhichcostsfollowtheeventanddo
notcomeoutofthetrustestate:seeperHoffmannLJinMcDonaldvHorn[1995]ICR685at696.
TheroleoftrusteesincaseofatrustdisputewasconsideredbyKekewichJintwocases.
[HisLordshipconsideredMerryvPownall[1898]1Ch306andIdealBeddingCoLtdvHolland[1907]2
Ch157,andcontinued:]IdonotthinkthattheviewexpressedbyKekewichJintheIdeal
Beddingcasethatincaseofatrustdispute(aswasthedisputeinthatcase)atrusteehasadutyto
defendthetrustiscorrectorinaccordancewithmodernauthority.Inacasewherethedisputeis
betweenrivalclaimantstoabeneficialinterestinthesubjectmatterofthetrust,ratherthedutyofthe
trusteeistoremainneutraland(intheabsenceofanycourtdirectiontothecontraryandsubstantially
ashappenedinMerryscase[1898]1Ch306)offertosubmittothecourtsdirectionsleavingittothe
rivalstofighttheirbattles.Ifthisstanceisadopted,inrespectofthecostsnecessarilyandproperly
incurrede.g.inservingadefenceagreeingtosubmittothecourtsdirectionandinmakingdiscovery,
thetrusteeswillbeentitledtoanindemnityandlien.Ifthetrusteesdoactivelydefendthetrustand
succeed,e.g.inchallengingaclaimbythesettlortosetasideforundueinfluence,theymaybe
entitledtotheircostsoutofthetrust,fortheyhavepreservedtheinterestsofthebeneficiariesunder
thetrust:considerReHolden,expOfficialReceiver(1887)20QBD43.Butiftheyfail,thenin
particularinthecaseofhostilelitigationalthoughinanexceptionalcasethecourtmayconsiderthat
thetrusteesshouldhavetheircosts(seeBullock vLloydsBank Ltd[1955]Ch317)ordinarilythe
trusteeswillnotbeentitledtoanyindemnity,fortheyhaveincurredexpenditureandliabilitiesinan
unsuccessfulefforttopreferoneclassofbeneficiariese.g.theexpressbeneficiariesspecifiedinthe
trustinstrument,overanothere.g.thetrusteesinbankruptcyorcreditors,andsohaveacted
unreasonablyandotherwisethanforthebenefitofthetrustestate:considerRSCOrd.62,r.6and
seeNationalAntiVivisectionSocietyvDuddington(1989)TheTimes,23NovemberandSnells
Equity:(29thedn,1990),p.258.
Sinceitmaynotbeclearwhethertheproceedingsareproperinaparticularcase,itispreferablefortrusteesto
seekcourtauthorizationbeforetheysueordefendproceedings,especiallyinrespectofthirdpartydisputes,and
thetrusteewillbeindemnifiedthecostofthisapplication.117 Thedirections(p.542) givenbythecourtarecalled
aBeddoeorder.Ifthecourtdirectstheactiontobetaken,thetrusteeswillbereimbursedtheircostsevenifthey
lose,unlessthetrusteesfailedtomakefullandproperdisclosuretothecourtwhenseekingdirections.118 There
119
isnobreachoftrustsimplyincommencinglitigationwithoutfirstobtainingaBeddoeorder,119 butthefailureto
obtainsuchanordermeansthatthetrusteeswilltaketheriskofhavingtopaythecostsofthelitigation
personallyiftheyloseanditcannotbeshownthatbringingordefendingtheproceedingswasreasonable.
(c)RemunerationforServicesProvided
Although,generally,trusteeswillnotbepaidforservicesprovidedtothetrust,therearesomeparticularsituations
inwhichatrusteecanberemuneratedforwhatheorshehasdoneforthetrust.
(i)Authorizedbytrustinstrument
Thetrustinstrumentcanprovideforpaymentoutofthetrustfundfortheservicesofatrustee.
TrusteeAct2000
28.Trusteesentitlementtopaymentundertrustinstrument
(1)Excepttotheextent(ifany)towhichthetrustinstrumentmakesinconsistentprovisions,
subsections(2)to(4)applytoatrusteeif
(a)thereisaprovisioninthetrustinstrumententitlinghimtoreceivepaymentoutoftrust
fundsinrespectofservicesprovidedbyhimtooronbehalfofthetrust,and
(b)thetrusteeisatrustcorporationorisactinginaprofessionalcapacity.
(2)Thetrusteeistobetreatedasentitledunderthetrustinstrumenttoreceivepaymentin
respectofserviceseveniftheyareserviceswhicharecapableofbeingprovidedbyalaytrustee.
(3)Subsection(2)appliestoatrusteeofacharitabletrustwhoisnotatrustcorporationonly
(a)ifheisnotasoletrustee,and
(b)totheextentthatamajorityoftheothertrusteeshaveagreedthatitshouldapplyto
him.
(4)ForthepurposesofthisPart,atrusteeactsinaprofessionalcapacityifheactsinthe
courseofaprofessionorbusinesswhichconsistsoforincludestheprovisionofservicesin
connectionwith
(a)themanagementoradministrationoftrustsgenerallyoraparticularkindoftrust,or
(b)anyparticularaspectofthemanagementoradministrationoftrustsgenerallyora
particularkindoftrust,
andtheservicesheprovidestooronbehalfofthetrustfallwithinthatdescription.

(6)ForthepurposesofthisPart,apersonactsasalaytrusteeifhe
(a)isnotatrustcorporation,and
(b)doesnotactinaprofessionalcapacity.
(p.543) TheprovisionforpaymentinthetrustinstrumentmaytaketheformgiveninEncyclopediaofFormsand
Precedents.
EncyclopediaofFormsandPrecedents(5thedn)(ed.LordMillett)(London:LexisNexis)vol.
40(1),p.443
Anytrusteeotherthanthesettlorandanyspouseofthesettlorbeingasolicitororotherperson
engagedinanyprofessionorbusinessshallbeentitledtochargeandbepaidallusualprofessionalor
otherchargesforbusinessdonebyhimorhisfirminrelationtothetrustsofthissettlementandalso
hisreasonablechargesinadditiontodisbursementsforallotherworkandbusinessdoneandalltime
spentbyhimorhisfirminconnectionwithmattersarisinginthepremisesincludingmatterswhich
mightorshouldhavebeenattendedtoinpersonbyatrusteenotbeingasolicitororotherpersonso
engagedbutwhichsuchaTrusteemightreasonablyrequiretobedonebyasolicitororotherperson
soengaged.
(ii)Authorizedbystatute
Wherenoprovisionismadebythetrustinstrumentoranyotherstatuteforremuneration,theTrusteeAct2000
authorizesreasonableremunerationtobemadefromthetrustfundforservicesprovidedbycertaintrustees.
TrusteeAct2000
29.Remunerationofcertaintrustees
(1)Subjecttosubsection(5),atrusteewho
(a)isatrustcorporation,but
(b)isnotatrusteeofacharitabletrust,
isentitledtoreceivereasonableremunerationoutofthetrustfundsforanyservicesthatthetrust
corporationprovidestooronbehalfofthetrust.
(a)actsinaprofessionalcapacity,but
(b)isnotatrustcorporation,atrusteeofacharitabletrustorasoletrustee,
isentitledtoreceivereasonableremunerationoutofthetrustfundsforanyservicesthathe
providestooronbehalfofthetrustifeachothertrusteehasagreedinwritingthathemaybe
remuneratedfortheservices.
(3)Reasonableremunerationmeans,inrelationtotheprovisionofservicesbyatrustee,such
remunerationasisreasonableinthecircumstancesfortheprovisionofthoseservicestooron
behalfofthattrustbythattrusteeandforthepurposesofsubsection(1)includes,inrelationto
theprovisionofservicesbyatrusteewhoisanauthorisedinstitutionundertheBankingAct1987
andprovidestheservicesinthatcapacity,theinstitutionsreasonablechargesfortheprovision
ofsuchservices.
(4)Atrusteeisentitledtoremunerationunderthissectioneveniftheservicesinquestionare
capableofbeingprovidedbyalaytrustee.
(5)Atrusteeisnotentitledtoremunerationunderthissectionifanyprovisionabouthis
entitlementtoremunerationhasbeenmade
(a)bythetrustinstrument,or
(b)byanyenactmentoranyprovisionofsubordinatelegislation.
(p.544) (6)Thissectionappliestoatrusteewhohasbeenauthorisedunderapowerconferred
byPartIV120 orthetrustinstrument
(a)toexercisefunctionsasanagentofthetrustees,or
(b)toactasanomineeorcustodian,
asitappliestoanyothertrustee.
32.Remunerationandexpensesofagents,nomineesand
custodians
(1)Thissectionappliesif,underapowerconferredbyPartIV121 oranyotherenactmentorany
provisionofsubordinatelegislation,orbythetrustinstrument,apersonotherthanatrusteehas
been
(a)authorisedtoexercisefunctionsasanagentofthetrustees,or
(b)appointedtoactasanomineeorcustodian.
(2)Thetrusteesmayremuneratetheagent,nomineeorcustodianoutofthetrustfundsfor
servicesif
(a)heisengagedontermsentitlinghimtoberemuneratedforthoseservices,and
(b)theamountdoesnotexceedsuchremunerationasisreasonableinthecircumstances
fortheprovisionofthoseservicesbyhimtooronbehalfofthattrust.
(3)Thetrusteesmayreimbursetheagent,nomineeorcustodianoutofthetrustfundsforany
expensesproperlyincurredbyhiminexercisingfunctionsasanagent,nomineeorcustodian.
Specificprovisionismadefortheremunerationofcharitytrusteesfromcharityfundswhereservicesareprovided
tothecharity.122 Suchremunerationistightlycontrolledandsubjecttoanumberofconditions,includingthatthe
maximumamountofremunerationissetoutinawrittenagreementandisnomorethanisreasonableforthe
provisionoftheservicebythetrustee.Also,theothercharitytrusteesmustbesatisfiedthattheprovisionofthe
servicebythatpersonisinthebestinterestsofthecharity.
(iii)Authorizedbythecourt
Thecourthasaresidualjurisdictiontoauthorizepaymenttoberetainedbyatrusteeforservicesprovidedtothe
trust.Therearetwoparticularsituationsinwhichthisjurisdictionmightbeexercised.First,whereatrusteehas
beenfoundliableforbreachoffiduciaryduty,itispossibleforthecourttoawardwhatisknownastheequitable
allowancetoreflectthevalueoftheworkdonebythetrusteedespitethebreachofduty.123
Secondly,thecourthasaresidualjurisdictiontoauthorizeremuneration,whichwillberelevantwherenoprovision
hasbeenmadeinthetrustinstrumentforpaymentandthestatutorypowerisnotengaged,suchaswherethe
trusteeisnotaprofessional.
(p.545) ReDukeofNorfolksSettlementTrusts[1982]Ch61
Atrusteecompanywasentitledunderasettlementmadein1958toremunerationinaccordancewithits
usualscaleoffeestheninforce.In1966furtherpropertywasaddedtothesettlement,involvingthetrustee
companyinexceptionallyburdensomeworkinconnectionwithitsdevelopmentthiswasentirelyoutside
anythingthatcouldreasonablyhavebeenforeseenwhenthetrusteecompanyacceptedoffice.The
introductionofCapitalTransferTaxin1975alsoinvolvedfurtherwork.Thetrusteecompanysoughtextra
remunerationforthisadditionalworkdone,andalsoageneralreviewofitsfeesforthefuture.
Atfirstinstance,124 WaltonJawardedthecompanyadditionalremunerationinrespectofthedevelopment,
butnotinrespectofCapitalTransferTax.Hefurtherheldthatthecourthadnoinherentjurisdictionto
authorizeanygeneralincreaseinfeesforthefuture.TheCourtofAppealreversedthelatterpartofWaltonJs
decision.BrightmanLJsaid:125
InthisappealweareconcernedwiththepoweroftheHighCourttoauthoriseatrustcorporation,
whichhasbeeninofficeforsome20years,tochargefeesforitsfutureservicesinexcessofthose
laiddowninthetrustinstrument.Inhisadmirablesubmissionsintheunwelcomeroleofadvocatus
diaboli[Devilsadvocate]whichthiscourtimposeduponhim,Mr.Romerconfinedhimselftothat
narrowissue.HedidnotdisputethattheHighCourtcan,intheexerciseofitsinherentjurisdiction,
authoriseatrusteetoretainremunerationwherenoneisprovidedbythetermsofthetrust.Whatthe
courthasnojurisdictiontodo,hesubmitted,wastoauthoriseanincreaseinthegenerallevelof
remunerationofapaidtrusteebywayofadditiontotheremunerationwhichisallowedbythetrust,
oncethetrusthasbeenunconditionallyaccepted.
Wherethecourtappointsatrustcorporationtobeatrustee,ithasastatutorypowertoauthoriseitto
chargeremuneration:TrusteeAct1925,section42.Theinherentpowerofthecourttoauthorisea
prospectivetrusteetochargeremunerationisexemplifiedbysuchcasesasReFreemansSettlement
Trusts(1887)37ChD148.Theinherentpowertoauthoriseanunpaidtrusteetochargeremuneration,
notwithstandingprioracceptanceoftheunpaidoffice,wasregardedbyLordLangdaleMR
inBainbriggevBlair(1845)8Beav588asundoubted.
Ifthecourthasaninherentpowertoauthoriseaprospectivetrusteetotakeremunerationforfuture
services,andhasasimilarpowerinrelationtoanunpaidtrusteewhohasalreadyacceptedofficeand
embarkeduponhisfiduciarydutiesonavoluntarybasis,Ihavesomedifficultyinappreciatingthelogic
oftheprinciplethatthecourthasnopowertoincreaseorotherwisevarythefutureremunerationofa
trusteewhohasalreadyacceptedoffice.Itwouldmeanthat,iftheremunerationspecifiedinthetrust
instrumentwerelowerthanwasacceptabletotheincumbenttrusteeoranysubstitutewhocouldbe
found,thecourtwouldhavejurisdictiontoauthoriseasubstitutetochargeanacceptablelevelof
remuneration,butwouldhavenojurisdictiontoauthorisetheincumbenttochargepreciselythesame
levelofremuneration.Sucharesultappearstomebizarre,andtocallinquestionthevalidityofthe
principleuponwhichitissupposedlybased.
Twofoundationsfortheprinciplearesuggested.Oneisthattherighttoremunerationisbasedupon
contract,andthecourthasnopowertovarythetermsofacontract.Thecontractualconception
suffersfromthedifficultiesexplainedinthejudgmentofFoxLJ.126 Italsoseemstome,inthecontext
ofthepresentdebate,togivelittleweighttothefactthatatrustee,whetherpaidorunpaid,isunderno
obligation,contractualorotherwise,toprovidefutureservicestothetrust.Hecanatanytime
express(p.546) hisdesiretobedischargedfromthetrustandinthatcaseanewtrusteewillindue
coursebeappointedundersection36orsection41oftheTrusteeAct1925.127 Thepracticaleffect
thereforeofincreasingtheremunerationofthetrustee(ifthecontractualconceptioniscorrect)will
merelybetoamendforthefuture,infavourofatrustee,thetermsofacontractwhichthetrusteehas
aunilateralrighttodetermine.Theinterferenceofthecourtinsuchcircumstancescanhardlybesaid,
inanyrealsense,toderogatefromthecontractualrightsofthesettlororthebeneficiariesifheorthey
aretoberegardedasentitledtothebenefitofthecontract.
Theotherfoundationsuggestedforthesupposedprincipleisthattheremunerationallowedtoatrustee
underthetermsofthetrustisabeneficialinterest,andthecourthasnoinherentjurisdictiontovary
thatbeneficialinterestsaveinspecialcircumstancesnotherematerial:seeChapmanv
Chapman[1954]AC429.128 Iagreethattheremunerationgiventoatrusteebyawillisaninterest
withinthemeaningofsection15oftheWillsAct1837thatitisagiftuponaconditionforthe
purposesofthelegislationwhichformerlychargedlegacydutyupontestamentarygiftsandthatan
executorortrusteeremuneratedbythewillcannotretainsuchremunerationagainstcreditorsifthe
estateturnsouttobeinsolvent.Thereareobviousargumentswhyatestatorshouldnotbeableto
circumventtheprovisionsoftheWillsAct,oravoidlegacyduty,ordefeathiscreditors,bytheawardof
remunerationtohisexecutorsortrustees.Itdoesnotfollowthataremuneratedtrusteeistobe
consideredasacestuiquetrustforthepurposesoftheprincipleslaiddownintheChapmancase.If
hewereitisdifficult,asFoxLJsays,toseewhatrightthecourtwouldhavetoauthoriseremuneration
tobechargedbyaprospectivetrustee,sincesuchauthoritywillhavetheinevitableeffectofaddinga
newbeneficiarytothetrustattheexpenseoftheexistingbeneficiaries.
129
TheseprincipleswereconsideredfurtherinFostervSpencer,129 whereremunerationwasawardedtothetrustees
ofacricketclubfortheirpast,butnotfuture,services.130 PaulBakerQCsaid:131
Where,asinthiscase,therewerenofundsoutofwhichtopayremunerationatthetimeoftheir
appointment,norwasatrueappreciationoftheextentofthetaskpossible,aprospectiveapplicationwould
beimpracticable,ifnotimpossible.Therefusalofremunerationwouldresultinthebeneficiariesbeing
unjustlyenrichedattheexpenseofthetrustees.
Therightofthetrusteetoremunerationforpastservicescannotdependuponthecircumstancesthatatthe
timeheseeksit,hisservicesarefurtherrequiredsothatheisinapositiontodemandremunerationforthe
pastasaconditionofcontinuinginoffice.
Theservicesrenderedbythetrusteeswerewhollyoutsidetheircontemplationwhenappointed.Theywere
appointedastrusteesofacricketclubwhichhaditsownground.Theyfoundthemselvesobligedby
unforeseencircumstancestodisposeoftheground.Thisprovedfarmoredifficultthanwouldnormallybe
expectedandmadegreatdemandsontheexpertiseofMr.SealyandofMr.Foster[thetrustees],andon
thetimeofallofthem.Ihavenodoubtthatiftheyhadrealisedwhattheywereinfor,theywouldhave
declinedtoactunlessremuneratedinsomeway.
Theauthoritiesprovidelittleornoguidanceontheissueofquantum.Asmightbeexpected,itislefttothe
discretionofthecourt.Thesizeofthetrustfundisoneobviousfactor.Thecostofengagingoutside(p.
547) professionalhelp,theamountoftimespentareallrelevant.Intheend,however,thejudgemusttryto
assesswhatisreasonableinallthecircumstances
FinallyIcometotheapplicationforfutureremuneration,whichissoughtonbehalfofallthreetrustees.The
suggestionhereisthatIshouldmakeanorderintheformofthenormalwideprofessionalchargingclause.
Iamunabletodothat.Thepresentpositionisthatowingtotheeffortsofthetrustees,thetrustassetsare
nowintheformofcashanddeposits.Thetasksremainingarequitedifferentfromthoseleadingtothe
disposaloftheground.Theyconsistofrestoringtheoriginatingsummonstodeterminethebeneficial
interests.Idonotseethatthatcallsforanyspecialexpertiseonthepartofthetrustees.Theyhavesaid
thattheyarenotwillingtocontinueifnotallowedtocharge.Itwassubmittedinreplythattheexperienceof
thetrusteesisveryimportantanddifficulttoreplacewithanybodywhowouldnotcharge.Iamnot
persuadedofthis.Itmaybethattheknowledgeofthetrusteesisimportantforthepurposeofplacing
evidencebeforethecourtindeterminingthebeneficialinterest,butthedutiesofthetrusteesatthisstage
wouldnotappeartobeonerous.Theburdenwillfallonsolicitorswhowillbepaid.Theremaybeother
beneficiarieswhocouldbepersuadedtotakeoveriftheplaintiffsinsistonresigning.Idonotsaythatifthe
burdenprovestooonerousthanatpresentseemslikely,afurtherapplicationwouldbeexcluded.Butas
thingsstand,Icannotsaythatthecontinuedservicesofthesetrusteesisnecessaryforthegood
administrationofthetrusts,whetherthesetaketheformofadistributionamongthecontributorsorthe
refoundingofthecricketclubelsewhere.
JudgeBakerQCsanalysisofthecourtsjurisdictiontoawardremunerationwithreferencetounjustenrichmentis
opentotwopossibleobjections.
(1)Theassessmentofthevalueoftheservicesshouldnotlieinthediscretionofthecourt,ashesuggested.The
focusshouldsimplybeonwhatthebeneficiariessavedbynothavingtoemploysomebodytoprovidetheservice.
Theadditionalfactorstowhichhereferred,suchasthesizeofthetrustfundandtheamountoftimethetrustees
actuallyspentonthework,arenotrelevanttoaclaiminunjustenrichment,sincethefocusoftheclaimshouldbe
placedonlyonthevalueofthebenefittothedefendant.
(2)Aclaiminunjustenrichmentcreatesarighttobepaidiftheelementsoftheclaimaresatisfied,132 whereas
thetraditionalapproachtothecourtsjurisdictionisthattheavailabilityandamountofanyremunerationlies
completelywithinthecourtsdiscretion.FostervSpencerillustratesstarklytheconsequencesofshiftinglegal
analysisfromajudicialdiscretiontoalegalrighttopayment.Equitylawyersmightprefertheformeranalysisas
beingconsistentwiththedistinctandancientequitablejurisdictionthatisfoundedonthecourtsresponsibilityfor
133 134
ensuringthegoodadministrationoftrusts.133 But,aswehavealreadyseen,134 thedividebetweenCommonLaw
andEquityisnarrowing.ThelawofunjustenrichmentexplainsnumerouslongstandingCommonLawclaims,so
thereisnoreasonwhyitshouldnotbeusedtoexplainclaimsinEquitytoo.Andsurelytheunjustenrichment
analysisispreferable.Itmeansthataclaimtoremunerationismuchclearerandpredictableandthat,where
unjustenrichmentcanbeestablished,theremedyreflectsthevalueofthedefendantsenrichment.Wherethe
servicesarenecessary,asinFostervSpencer,trusteeswillbeabletoobtainremunerationforservicesprovided
tothetrustwithouttheneedtoseekauthorizationfromthecourt.But,ifindoubt,trusteesshouldstillapplyto
courttoseekauthorizationforthemoneytobepaid.
(p.548) 7.ExerciseofPowers
Trusteestypicallyhaveanumberofpowersthattheymayexerciserelatingtotheadministrationofthetrust135 or
thedispositionofthetrustestatetobeneficiaries.136 Anumberofrulesandprinciplesofgeneralapplicationhave
beendevelopedrelatingtotheexerciseofthesepowers.
(a)UnanimityofDecisionMaking
Asageneralrule,trusteesmustbeunanimousinexercisinganypowersvestedinthem.InReAllenMeyrick s
WillTrusts,137 BuckleyJsaid:
Itistruethatthereasonwhytheyhaveaccumulatedthatfundisthattheyhavenotbeenabletoagreehow
theirdiscretionshouldbeexercisedbutthatdiscretionifexercisedatallmustbeexercisedbythe
trusteesunanimously.Iftheyhavenotsucceededinbeingunanimous,theyhavenotsucceededin
exercisingtheirdiscretion.
Consequentlyadecisionofamajoritybindsneithertheminoritynorthetrustestate.138 Trusteesof
charities 139 andpensiontrusts 140 can,however,actbyamajority.Forallothertrusts,amajoritydecisionwillbe
effectiveonlyifitisauthorizedbythetrustinstrument.141
ThesignificanceofthegeneralrulerequiringunanimityofdecisionmakingisillustratedbyReMayo,142 inwhich
thetrusteeswereunderadutytosellthetrustproperty,buthadapowertopostponesaleiftheysowished.One
ofthethreetrusteeswishedtosell,buttheothertwowishedtopostpone.Sincetherewasnounanimityof
decision,itwasheldthatthedutytrumpedthepowerandtheywereobligedtosell.Theycouldhavepostponed
thesaleonlyiftheyhadallagreedtodoso.
Thefactthattrusteesofmostprivatetrustsmustmaketheirdecisionsunanimously,whereastrusteesof
charitableandpensiontrustsareboundbyamajoritydecision,isinconsistentanddifficulttojustify.143 One
possibleexplanationisthatcharitabletrustsaremorelikelytohavealargernumberoftrustees,makinga
unanimityrequirementmoredifficulttoimplement.Butthefactthatcharitytrusteesdohavealargernumberof
trusteesmay,infact,beaconsequenceoftherulethatmajoritydecisionmakingissufficientincharities.Ifthe
unanimityrulewereabolishedforprivatetrusts,theremightbeagreaterincentivetoincreasethenumberof
trusteesappointedinprivatetrusts.Thepreferableviewisthatthemajorityruleshouldbeextendedtoalltrusts.
Thestrongestargumentagainstthisisthatitwouldmeanthataminoritytrusteewouldbeboundbythedecision
ofthemajority.Sincetheliabilityoftrusteesisjointandseveral,144 itwouldfollowthatifthedecisionofthe
majorityinvolvesthetrusteesincommittingabreachoftrust,anytrusteecouldbeliableforthis,eventheminority
trusteewhodidnotvoteinfavour.Butthiscouldbedealtwithsensiblybytheexerciseof(p.549) thecourts
statutorydiscretiontorelieveatrusteeofliabilitywhereheorshehadactedhonestlyandreasonably.145
Jaconelli,DecisiontakingbyPrivateandCharitableTrustees[1991]Conv30,34
Rulebymajorityisthepracticeinregardtothedaytodayoperationaldecisionsofmanydifferent
typesofbodies,incontrasttoorganicorconstitutionaldecisionswhichtendtorequiretheattainment
ofahigherfigure(unanimity,forexample).Indicationsofsuchadichotomyarealreadytobefoundin
aspectsoftrustlaw.Attheoneextremeisthedutyoftrusteesforsaletoconsultthosebeneficially
entitledinpossessionwithaviewtothepossibleexecutionofthetrustandtogiveeffecttothe
wishesofsuchpersons,or,inthecaseofdispute,ofthemajority(accordingtothevalueoftheir
combinedinterests)ofsuchpersons.146 Attheotheristheunanimousdecisionrequiredofthe
beneficiariesbeforetheymayterminatethetrustundertheruleinSaundersv.Vautier.147 Itis
suggestedthatthisapproachbetakenfurtherandthatdecisiontakingbymajoritybeestablishedas
thenorminthemanagementofprivatetrusts.148 Sucharulemightbeconsideredundulyharsh,in
thatatrusteecouldbeheldliabletogetherwithhiscolleaguesinrespectofatrustmanagement
decisiontowhichhehasvoicedareasoneddissent.However,thereexistmeansofdealingwiththis
difficulty.TheU.S.UniformTrusteesPowersAct1964exemptsfromliabilitythedissentingtrustee
whohascommunicatedhisdissentinwritingtohisfellowtrustees.149 Andthereissurelyscopefor
relievinghisEnglishequivalentfromliabilitybyvirtueoftheprovisionsoftheTrusteeAct1925,s.61,on
thegroundthathehasactedhonestlyandreasonably,andoughtfairlytobeexcusedforthebreach
oftrust.
(b)ProvisionofReasons
Trusteesarenotrequiredtogivereasonstothebeneficiariesfortheirdecisionsastowhetherornottoexercisea
power.150 InReLondonderrysSettlement,SalmonLJjustifiedthisruleasfollows:151
Thesettlementgavetheabsolutediscretiontoappointtothetrusteesandnottothecourts.Solongasthe
trusteesexercisethispowerwiththeconsentofpersonscalledappointorsunderthesettlementand
exerciseitbonafidewithnoimpropermotive,theirexerciseofthepowercannotbechallengedinthe
courtsandtheirreasonsforactingastheydidare,accordingly,immaterial.Thisisoneofthegroundsfor
therulethattrusteesarenotobligedtodisclosetobeneficiariestheirreasonsforexercisingadiscretionary
power.Anothergroundforthisruleisthatitwouldnotbeforthegoodofthebeneficiariesasawhole,and
yetanotherthatitmightmakethelivesoftrusteesintolerableshouldsuchanobligationrestuponthem
Nothingwouldbemorelikelytoembitterfamilyfeelingsandtherelationship(p.550) betweenthetrustees
andmembersofthefamily,weretrusteesobligedtostatetheirreasonsfortheexerciseofthepowers
entrustedtothem.Itmightindeedwellbedifficulttopersuadeanypersonstoactastrusteeswereaduty
todisclosetheirreasons,withalltheembarrassment,argumentsandquarrelsthatmightensue,addedto
theirpresentnotinconsiderableburdens.
TheoperationofthisruleisillustratedbyReBelovedWilk esCharity.
ReBelovedWilkesCharity(1851)3MacandG440
TrusteesofacharitabletrustweretoselectaboytobeeducatedatOxfordinpreparationforhimtobecome
anAnglicanpriest.Preferencewastobegiventoboysfromfournamedparishesif,inthejudgmentofthe
trustees,afitandpropercandidatefromoneofthoseparishescouldbefound.In1848,thetrusteesselected
CharlesJoyce,whodidnotcomefromoneofthefourparishes.Theygavenoreasonsfortheirchoice,but
statedthattheyhadconsideredthecandidatesimpartially.Itappeared,however,thatJoycesbrotherwasa
Minister,whohadsoughttoinfluencethetrustees.Thecourtwasaskedtosetasidetheselection,andto
selectWilliamGale,whosefatherwasarespectablefarmerresidinginoneofthespecifiedparishes.
TheCourtheldthat,intheabsenceofevidencethatthetrusteeshadexercisedtheirdiscretionunfairlyor
dishonestly,itwouldnotinterfere.
LordTruroLC:Thequestion,therefore,is,whetheritwasthedutyofthetrusteestoenterinto
particulars,orwhetherthelawisnot,thattrusteeswhoareappointedtoexecuteatrustaccordingto
discretion,thatdiscretiontobeinfluencedbyavarietyofcircumstances(as,inthisinstance,bythose
particularcircumstanceswhichshouldbeconnectedwiththefitnessofaladtobebroughtupasa
ministeroftheChurchofEngland),arenotboundtogointoadetailofthegroundsuponwhichthey
cometotheirconclusion,theirdutybeingsatisfiedbyshewingthattheyhaveconsideredthe
circumstancesofthecase,andhavecometotheirconclusionaccordingly.Withoutoccupyingtimeby
goingintoalengthenedexaminationofthedecisions,theresultofthemappearstomesoclearand
reasonable,thatitwillbesufficienttostatemyconclusioninpointoflawtobe,thatinsuchcasesasI
havementioneditistothediscretionofthetrusteesthattheexecutionofthetrustisconfided,that
discretionbeingexercisedwithanentireabsenceofindirectmotive,withhonestyofintention,andwith
afairconsiderationofthesubject.ThedutyofsupervisiononthepartofthisCourtwillthusbe
confinedtothequestionofthehonesty,integrity,andfairnesswithwhichthedeliberationhasbeen
conducted,andwillnotbeextendedtotheaccuracyoftheconclusionarrivedat,exceptinparticular
cases.If,however,asstatedbyLordEllenboroughinTheKingvArchbishopofCanterbury(1812)15
East117,trusteesthinkfittostateareason,andthereasonisonewhichdoesnotjustifytheir
conclusion,thentheCourtmaysaythattheyhaveactedbymistakeandinerror,andthatitwill
correcttheirdecisionbutif,withoutenteringintodetails,theysimplystate,asinmanycasesitwould
bemostprudentandjudiciousforthemtodo,thattheyhavemetandconsideredandcometoa
conclusion,theCourthasthennomeansofsayingthattheyhavefailedintheirduty,ortoconsider
theaccuracyoftheirconclusion.Itseems,therefore,tome,thathavinginthepresentcasetolookto
themotivesofthetrusteesasdevelopedintheaffidavits,nogroundexistsforimputingbadmotives.
ThePetitioners,indeed,candidlystate,onthefaceoftheirpetition,thattheydonotimputesuch
motives,theymerelychargethetrusteeswithamiscarriageasregardsthedutywhichtheyhadto
perform.Icannot,therefore,dealwiththecaseasifthepetitionhadcontainedastatementofa
differentkind,andifIcould,stillIshouldsay,havingreadtheaffidavits,thatIseenothingwhatever
whichcanlaythefoundationforanyjudicialconclusionthatthetrusteesintentionallyandfrombad
motivesfailedintheirduty,iftheyfailedatall.
(p.551) Itisimportant,therefore,forthecourtstodeterminewhetherthetrusteeshadexercisedtheirdiscretion
honestyandfairlyiftheyhave,thecourtwillnotintervene.Iftrusteesdogivereasonsfortheirdecision,thecourt
willlookattheadequacyofthosereasonsiftheyarefoundwanting,thismayresultinthedecisionbeingset
aside.152 Consequently,itispreferableforthetrusteessimplytostatethattheyhavemetandreacheda
decision,withoutprovidingreasons,sinceitisnotthenpossibletochallengetheirdecision153 unlessthereis
additionalevidenceofbadfaithorerrorinmakingthedecision.
Thejustificationforthegeneralrulethatthereisnodutytoprovidereasonsisthattheeffectiveadministrationof
thetrustwouldbeunderminedifthetrusteesweresubjecttoinvestigationastowhethertheyhadexercisedtheir
powersorfulfilledtheirdutiesinthebestpossiblemanner.Further,theruleismeanttoavoidlitigationand
disputeswithinthefamily,154 althoughitisjustaslikelythatitcreatesanatmosphereofsuspicionthatcouldbe
resolvedsimplybythetrusteesprovidingsomeexplanationfortheirdecisions.155 Crucially,however,asHayton
hasrecognized:thebeneficiariesrightstoenforcethetrustandmakethetrusteesaccountfortheirconductwith
thecorrelativedutiesofthetrusteestothebeneficiariesareatthecoreofthetrust.156 Buttheenforcementof
theseirreduciblecoredutiesbecomesmuchmoredifficultiftrusteesdonotgivereasonsfortheirdecisions,soif
thefocusisplacedontheirreduciblecoreoftrustdutiesthenadutytogivereasonsshouldberecognized.
(c)SurrenderofPowerstoCourt
Thecourtwillbewillingtogivedirectionsonspecificmattersrelatingtotheexerciseofapower,butitisnot
possiblefortrusteestosurrendertheirpowerstothecourtcompletelyintheexpectationthatthecourtwillmake
allsubsequentdecisionsonbehalfofthetrustees.ThisprincipleisillustratedbyReAllenMeyrick sWill
Trusts,157 inwhichtrusteesheldpropertyontrust,withapowertoapplytheincomeforthemaintenanceofthe
testatorshusbandasthey,intheirabsolutediscretion,thoughtfit.Thetrusteeshadmadesomepaymentstothe
husband,buthadnotbeenabletoagreeonmakinganymoreoncehehadbecomebankrupt.Onceithad
becomeclearthattheywerenotabletoreachagreementastowhetheranyfurtherpaymentsshouldbemadeto
thehusband,theysoughttosurrendertheirdiscretioncompletelytothecourt.Itwasheldthatthecourtwouldnot
acceptthesurrenderofsuchadiscretionarypowerprospectivelyandabsolutelywherethatpowerwastobe
exercisedoveraperiodoftime.AsBuckleyJsaid:158
Iseegreatforceinthesubmissionthatthecourtoughtnottoacceptasurrenderofsuchadiscretionas
thisofakindwhichwouldrelievethetrusteesoftheirobligationstoconsiderfromtimetotimehowthe
poweroughttobeexercised.AndIdonotthinkthatitwouldberightforthecourttoacceptanysortof
surrenderofadiscretionwhichwouldrelievethetrusteesoftheirobligationfromtimetotimetoapplytheir
mindstotheproblemandtoinformthecourt,iftheycannotthemselvesarriveatasatisfactoryanswer,of
therelevantcircumstancesandseekthecourtsdirectionfromtimetotime.Thisisadiscretionofakind
whichessentiallydependsuponcircumstanceswhichwillchangeormaychangefromyeartoyearorfrom
periodtoperiod,andifthecourtweretoattempttoundertaketheexerciseofthis(p.552) discretion,the
courtitselfwouldhavetobeinformedfromtimetotimeofthechangingcircumstancesButthatdoesnot
meanthattheyarenotentitledtocometothecourtandsay:
Weareindoubtastohowweoughttoexercisethisdiscretioninrespectofaparticularfundof
incomewhichwehavenowgotinhand,andintheparticularcircumstanceswhichatpresentexist.
Itseemstometobeimmaterialwhether,inapproachingthecourt,theyplacebeforethecourtaparticular
proposalasabasisfordiscussion.Iftheydesiredtosurrendertheirexistingdiscretioninrespectof
existingfundsinrelationtoexistingcircumstances,Iseenoreasonwhytheyshouldnotbepermittedto
doso,orwhythecourtshouldnot,inthelightoftheinformationplacedbeforeitbytrustees,saywhatthe
courtconsiderstobetherightthingtodoinrelationtothatfundandtothosecircumstances.
Wherethetrusteeslegitimatelysurrendertheirdiscretion,thecourthasanunfettereddiscretiontodetermine
whatshouldbedoneinthebestinterestsofthetrustandofthebeneficiaries.Toenablethecourttoassessthis,
thepartiesareobligedtoputbeforethecourtalloftheavailablematerialtoenablethediscretiontobeexercised.
RSPCAvAttorneyGeneral[2002]1WLR448,462(LightmanJ)
Thereisastreamofauthoritytotheeffectthereisadistinctionbetweencaseswheretrusteesseek
theapprovalbythecourtofaproposedexercisebythemoftheirdiscretionandwheretheysurrender
theirdiscretiontothecourt(seee.g.ReAllenMeyrick sWillTrusts,[1966]1WLR499at503).In
caseswherethereisasurrender,thecourtstartswithacleansheetandhasanunfettereddiscretion
todecidewhatitconsidersshouldbedoneinthebestinterestsofthetrust.Incaseswherethereis
nosurrender,theprimaryfocusofthecourtsattentionmustbeontheviewsofthetrusteesandthe
exerciseofdiscretionproposedbythetrustees.Thoughnotfetteredbythoseviews,thecourtisbound
tolendweighttothemunlesstestedandfoundwantinganditwillnot,withoutgoodreason,substitute
itsownviewforthoseofthetrustees.Mr.Henderson,fortheAttorneyGeneral,however,submitted
thatthereisnodifferencebetweenthetwosituationsandthat,inbothcases,thecourtisvestedwith
thediscretionpreviouslyvestedinthetrustees.Insupportofthispropositionhereliesonthespeechof
LordOliverinMarleyvMutualSecurityMerchantBank andTrustCoLtd[1991]3AllER198.Inthat
casethetrusteesenteredintoacontractforsalewhosebindingeffectwasmadeconditionalupon
obtainingthepriorapprovalofthecourt.Thequestionraisedforjudicialguidancewas,rather,the
questionoffactwhetherthepriceagreedwasthebestpricereasonablyobtainablethanhowa
discretionshouldbeexercised.LordOliver(givingtheopinionofthePrivyCouncil)heldthat,inthat
case,thetrusteeshadsurrenderedtheirdiscretiontothecourtandthatthecourtinsuchasituation
wasengagedsolelyinconsideringwhatoughttobedoneinthebestinterestsofthetrustandthe
beneficiaries,andthatforthatpurposethepartieswereobligedtoputbeforethecourtallthematerial
appropriatetoenableittoexercisethatdiscretion.Bythetermsofthecontract,thetrusteesreposed
inthecourtthedecisionwhetherthepricewassuchthatthecontractshouldbecomeunconditional
andbecompleted.Noquestionaroseastothedistinctionbetweenacasewheretherewasa
surrenderofdiscretion(aswasheldtohaveoccurredinthatcase)andacasewherethereisnosuch
surrender.MyviewthatLordOliversspeechlendsnosupporttoMr.Hendersonspropositionaccords
withthatexpressedbyHartJinPublicTrusteesvCooper.
Ratherthanseekingdirectionsfromthecourtastohowthediscretionshouldbeexercised,thetrusteesmay
insteadsimplyseektheapprovalofthecourtastotheproposedexerciseoftheirpowersorask(p.553) the
courttoconstruetheambitofthepowers.159 Wherethetrusteesseekcourtapprovalofaproposedexerciseofa
power,thecourtisconcernedonlytodeterminewhethertheproposedexerciseislawful,iswithinthescopeof
thepower,andisadecisionthatwouldbemadebyareasonabletrustee.160 Aconsequenceofthecourt
authorizingtheexerciseofapoweristhatthebeneficiariescannotthenallegeabreachoftrustandseeka
remedyforlosssufferedasaresultofthepowerbeingexercised.
Asalastresort,trusteesorbeneficiariescanapplyforthecourttoadministerthetrust,butthecourtwillmakean
administrationorderonlyiftheissuescannotberesolvedinanyotherway,161 suchasbysurrenderinga
discretiononaoneoffbasis,seekingdirections,orreplacingthetrustees.162
(d)SurrenderofPowerstoaThirdParty
Althoughitmightbeconsideredtobepartoftheirreduciblecoreofatrusteesobligations 163 thatheorshe

shouldexerciseadiscretionforhimorherself,itwasrecognizedinCitibank vMBIAAssurance164 thatathird
partycanlegitimatelyinstructthetrusteesastotheexerciseoftheirdiscretionandthatthetrusteeswillnotbe
liableforbreachoftrustiftheyfollowthoseinstructions.Thiswasregardedaslegitimatebecausethetrustees
remainedsubjecttoadutyofgoodfaithandcontinuedtohavearealdiscretiontoexercise.165 Thebetterview,
however,isthatsuchasurrenderofadiscretiontoathirdpartycontravenesfundamentalprinciplesofthelawof
trusts,especiallytheobligationofthetrusteestoexercisetheirpowersforthebenefitofthebeneficiariesrather
thanforthebenefitofthetrusteesorthethirdparty.166
(e)ReleaseofPowers
Wheretrusteesareobligedtoexercisethepower,suchasapowerofappointmentunderadiscretionarytrust,it
cannotbereleased,inthesenseofthetrusteedeterminingnottoexercisethepower,becauseotherwisethe
trusteewouldcommitabreachoftrust.167 Evenwherethetrusteehasafiduciarypower,whichheorsheneed
notexercise,buttheexerciseofwhichheorshemustconsider,168 thatpowercannotbereleasedbythetrustee
determiningnottoconsidertheexerciseofthepower.169
(f)InvalidExerciseofPowers
Althoughthecourtwillcompelatrusteetocarryoutaspecificduty,wherethetrusteeshaveagreedtothe
exerciseofadiscretionarypower,thecourtswillnotinterfereaslongasthepowerisexercisedingoodfaithand
withinthelimitswithwhichithasbeengiventothem.170
(p.554) TempestvLordCamoys[1882]21ChD571
UnderthewillofSirCharlesRobertTempest,thetrustees,MrJamesFlemingandMrWilfredTempest,had
thepowertoraisemoneybymortagetopurchasepropertyforthetrust.
SomeofthefamilywishedtopurchaseBracewellHallfor60,000,using30,000ofavailablemoney,and
raisingthebalancebymortgage.Tempestsupportedthepurchase,butFlemingwasopposedtoit.Tempest
askedthatthepurchaseshouldbeordered.
TheCourtheldthatitwouldnotinterferewiththebonafideexerciseofhisdiscretionbyatrustee,andsince
thetrusteesneededtoactunanimouslyornotatall,Tempestalonecouldnotsanctionthepurchase.
JesselMR:
ItisveryimportantthatthelawoftheCourtonthissubjectshouldbeunderstood.Itissettledlawthat
whenatestatorhasgivenapurediscretiontotrusteesastotheexerciseofapower,theCourtdoes
notenforcetheexerciseofthepoweragainstthewishofthetrustees,butitdoespreventthemfrom
exercisingitimproperly.TheCourtsaysthatthepower,ifexercisedatall,istobeproperlyexercised.
Thismaybeillustratedbythecaseofpersonshavingapowerofappointingnewtrustees.Evenaftera
decreeinasuitforadministeringthetrustshasbeenmadetheymaystillexercisethepower,butthe
Courtwillseethattheydonotappointimproperpersons.
ButinallcaseswherethereisatrustordutycoupledwiththepowertheCourtwillthencompelthe
trusteestocarryitoutinapropermannerandwithinareasonabletime.Inthepresentcasetherewas
apowerwhichamountstoatrusttoinvestthefundinquestioninthepurchaseofland.Thetrustees
wouldnotbeallowedbytheCourttodisregardthattrust,andifMr.Fleminghadrefusedtoinvestthe
moneyinlandatalltheCourtwouldhavefoundnodifficultyininterfering.Butthatisaverydifferent
thingfromsayingthattheCourtoughttotakefromthetrusteestheiruncontrolleddiscretionastothe
particulartimefortheinvestmentandtheparticularpropertywhichshouldbepurchased.Inthis
particularcaseitappearstomethatthetestatorinhiswillhascarefullydistinguishedbetweenwhatis
tobeatthediscretionofhistrusteesandwhatisobligatoryonthem.
Thereisanotherdifficultyinthiscase.Theestateproposedtobepurchasedwillcost60,000,and
only30,000isavailableforthepurchase,andthetrusteeswillhavetoborrowtheremaining30,000.
Thereispowertoraisemoneybymortgageattheabsolutediscretionofthetrustees,andassuming
thatsuchatransactionasthisiswithinthepower,andthatthetrusteescanmortgagetheestate
beforetheyhaveactuallyboughtit,thereisnotrusttomortgage,itispurelydiscretionary.TheCourt
cannotforceMr.Flemingtotaketheviewthatitispropertomortgagetheestateinthiswayhemay
verywellhaveadifferentopinionfromtheothertrustee.HereagaintheCourtcannotinterferewithhis
discretion.
Therewill,however,becertaincircumstancesunderwhichtheexerciseofadiscretionarypowerbytrusteeswill
beheldtobeinvalidandvoid.Theunderlyingprinciplesrelatingtosuchinvalidexerciseofpowerswasidentified
byLloydLJinPittvHolt.171
Thepurportedexerciseofadiscretionarypoweronthepartoftrusteeswillbevoidifwhatisdoneisnot
withinthescopeofthepower.Theremaybeaproceduraldefect,suchastheuseofthewrongkindof
document,orthefailuretoobtainanecessarypriorconsent.Theremaybeasubstantivedefect,suchas
anunauthoriseddelegationoranappointmenttosomeonewhoisnotwithintheclassofobjectsInthat
casetheadvancementwillbevoid,sincethepowercanonlybeusedforthebenefitoftherelevantperson
andthepurportedexercisewasnotforhisorherbenefit.Thatisanexampleofanexerciseoutsidethe
scopeofthepower.
(p.555) Actingoutsidethescopeofthepowermayoccurforanumberofdifferentreasons.
(i)Formaldefects
Ifthereareformalorproceduraldefects,theexerciseofthepowerwillbeineffective,forexampleifthetrusteesfail
tousearequiredformality,suchasadeed,ortoobtainarequiredconsentforatransaction.
(ii)Unauthorizedexercise
172
Wherethetrusteespurporttoexercisethepowerinawaythatisnotauthorized,172 suchaswheretheyseekto
delegatetoanagentwherethepowerofdelegationhasbeenexcludedbythetrustinstrument173 orseektomake
anappointmenttosomebodywhodoesnotfallwithintheclassofobjectsinadiscretionarytrust,theexerciseof
thepowerwillbeinvalid.
(iii)Unlawfulexerciseofthepower
Theexerciseofthepowermaybeinvalidbecauseitinfringesthelaw,suchastheruleagainst
perpetuities.174 ThisisillustratedbyReHastingsBass,175 inwhichfundsfromatrustinwhichCaptainHastings
Basshadaprotectedlifeinterestwereadvanced176 tohissontobeheldonothertrustsinanattempttosave
estateduty.Butthesetrustswerevoidforperpetuity.ThequestionfortheCourtofAppealwaswhetherthe
trusteeshadvalidlyexercisedtheirdiscretiontoexercisethepowerofadvancement.Itwasheldthatthe
advancementwaseffectivetocreatealifeinterestinfavouroftheson,sincethatwasnotcaughtbytheperpetuity
rule,butthebeneficialinterestsinthecapitalwerevoidbecauseoftheperpetuityrule.Therefore,asregardsthe
capital,theexerciseofthepowerofadvancementwasinvalid.TheratioofthecasewassummarizedbyLloydLJ
inPittvHolt:177
Trusteesconsideringanadvancementbywayofsubsettlementmustapplytheirmindstothequestion
whetherthesubsettlementasawholewilloperateforthebenefitofthepersontobeadvanced.Ifoneor
moreaspectsoftheprovisionsintendedtobecreatedcannottakeeffect,itdoesnotfollowthatthose
whichcantakeeffectshouldnotberegardedashavingbeenbroughtintobeingbyanexerciseofthe
discretion.Thatfact,andthemisapprehensiononthepartofthetrusteesastotheeffectthatitwould
have,isnotbyitselffataltotheeffectivenessoftheadvancementIftheprovisionsthatcanandwould
takeeffectcannotreasonablyberegardedasbeingforthebenefitofthepersontobeadvanced,thenthe
exercisefailsasnotbeingwithinthescopeofthepowerofadvancement.Otherwiseittakeseffecttothe
extentthatitcan
Iftheproblemtoberesolvediswhatistheeffectonanoperationsuchasanadvancementofthefailureof
someoftheintendedprovisions,becauseofexternalfactorssuchasperpetuity,itisnotusefultoaskwhat
thetrusteeswouldhavethoughtanddoneiftheyhadknownabouttheproblem.Theanswertothat
questionisalmostcertainlythattheywouldhavedonesomethingdifferent,whichwouldnothaveruninto
theperpetuityorotherdifficulty.Itisforthatreasonthatthetesthastobeobjective,by(p.556) reference
towhetherthatwhichwasdone,withallitsdefectsandconsequentlimitations,iscapableofbeing
regardedasbeneficialtotheintendedobject,ornot.Ifitissocapable,thenitsatisfiestherequirementof
thepowerthatitshouldbeforthatpersonsbenefit.Otherwiseitdoesnotsatisfythatrequirement.Inthe
lattercaseitwouldfollowthatitisoutsidethescopeofthepower,itisnotanexerciseofthepoweratall,
anditcannottakeeffectunderthatpower.
InReHastingsBasstheissuewaswhethertheadvancementwasvalidorwasvoidhadtherebeenan
advancementatall?TheRevenuecouldonlysucceedbyshowingthatnoadvancementhadtaken
place,andthatthereforetherehadbeennochangeinthebeneficialinterestsintherelevantproperty.It
wasirrelevanttoconsiderwhethertheexerciseofthetrusteespowermighthavebeenvitiatedbysome
faultwhichrendereditvoidableattheinstanceofapersonaffected,i.e.abeneficiary,ratherthanentirely
void.Insuchacasetheexercisewouldbevalidandeffectiveunlessanduntilavoided,andnopartyhad
soughttohavetheadvancementavoided.
(iv)Excessiveexercise
Whereanappointmentispartlygoodandpartlybad,thecourtwillseektoseverthegoodfromthebadsothatthe
goodexerciseremainsvalid.178 So,forexample,ifthetrusteeweretoexerciseapowerofappointmentinfavour
oftwopeople,oneofwhomwasanobjectwithinthepowerandtheothernot,theappointmenttotheformercould
besevered179 andwillbevalid.Similarly,inReHastingsBass,180 theexerciseofthepowerofadvancementwas
validtotheextentthatitdidnotinfringetheperpetuityrule.Thecasesimplyinvolvedtheseveranceofgoodfrom
bad,181 sotheexerciseofthepowerwasvalidtotheextentthatitwascapableoftakingeffect.Itwillnotbe
possible,however,toseverthevalidfromtheinvalidexerciseofthepowerwherethevalidpartthatwouldremain
isnotreasonablycapableofbeingconsideredtobeforthebenefitofthepersoninwhosefavourthepowerwas
exercised.182
(v)Failuretoexercisediscretion
Thetrusteesmayhavebeenunawarethattheyhadanydiscretiontoexercisebeforeactingandsowillnotbe
consideredtohavemadeadecision.ThisisillustratedbytheexceptionalcaseofTurnervTurner,183 inwhich
appointmentsmadeunderfiduciarypowerswereheldtobevoidbecausethetrusteeshadfailedtoapplytheir
mindstotheexerciseofthediscretionthathadbeenentrustedtothem.Theyweredescribedasciphers,who
simplysignedthedeedsofappointmentastheywererequestedtodobythesettlor,whowasnotatrustee,
withoutrealizingthattheyhadanydiscretiontoexerciseandwithoutreadingorunderstandingthedocuments.
Thisvitiatedtheexerciseofthepowerofappointmentandsothepurportedappointmentwasanullity.
(vi)Badfaith
Whereapowerisexercisedinbadfaith,theexercisewillbevoid.Badfaithhasbeenequatedwithequitablefraud
anddishonesty.184 InArmitagevNurse,185 MillettLJdefineddishonestysubjectivelyasconnoting:
(p.557) attheminimumanintentiononthepartofthetrusteetopursueaparticularcourseofaction,
eitherknowingthatitiscontrarytotheinterestsofthebeneficiariesorbeingrecklesslyindifferentwhether
itiscontrarytotheirinterestsornot.
Itisthedutyofatrusteetomanagethetrustpropertyanddealwithitintheinterestsofthebeneficiaries.If
heactsinawaywhichhedoesnothonestlybelieveisintheirintereststhenheisactingdishonestly.It
doesnotmatterwhetherhestandsorthinkshestandstogainpersonallyfromhisactions.Atrusteewho
actswiththeintentionofbenefitingpersonswhoarenottheobjectsofthetrustisnotthelessdishonest
becausehedoesnotintendtobenefithimself.
Trusteeswouldnotbeactinginbadfaithiftheybelievedthemselvestobeactinginthebestinterestsofthe
beneficiaries,eveniftheexerciseofthepowerhadadverseconsequencesforthebeneficiaries.If,however,the
trusteesareprofessionaltrustees,theywouldbeconsideredtohaveacteddishonestly,andsopresumablyinbad
faith,eveniftheyconsideredthattheexerciseofthepowerwasinthebestinterestsofthebeneficiaries,ifthe
beliefwassounreasonablethatnoreasonabletrusteeinthatprofessionwouldhavesharedthatbelief.
InWalk ervStones,186 SirChristopherSladerecognizedthat:
Atleastinthecaseofasolicitortrustee,aqualificationmustinmyopinionbenecessarytotakeaccount
ofthecasewherethetrusteessocalledhonestbelief,thoughactuallyheld,issounreasonablethat,by
anyobjectivestandard,noreasonablesolicitortrusteecouldhavethoughtthatwhathedidoragreedtodo
wasforthebenefitofthebeneficiaries.
Althoughthiswasdecidedinthecontextoftheoperationofexemptionclausestoexcludetrusteesliabilityfor
breachofduty,andSirChristopherSladelimitedhisdecisiontosolicitortrustees,thereisnoreasonwhythis
testshouldnotbeappliedgenerallytodeterminewhethertheactualexerciseofapowerbyaprofessionaltrustee
wasvalid.InFattalvWalbrook Trustees(Jersey)Ltd,187 LewisonJsaid:
AlthoughSirChristopherlimitedhisobservationstothecaseofasolicitortrustee,Ididnotunderstand
[counsel]toarguethatadifferentprinciplewasapplicabletoaprofessionaltrustee.Basedonthiscommon
ground,therefore,whatisrequiredtoshowdishonestyinthecaseofaprofessionaltrusteeis:
i)Adeliberatebreachoftrust
ii)Committedbyaprofessionaltrustee:
a)Whoknowsthatthedeliberatebreachiscontrarytotheinterestsofthebeneficiariesor
b)Whoisrecklesslyindifferentwhetherthedeliberatebreachiscontrarytotheirinterestsor
notor
c)Whosebeliefthatthedeliberatebreachisnotcontrarytotheinterestsofthebeneficiariesis
sounreasonablethat,byanyobjectivestandard,noreasonableprofessionaltrusteecouldhave
thoughtthatwhathedidoragreedtodowasforthebenefitofthebeneficiaries.
Itfollowsthatbadfaithmaybedeterminedobjectivelywherethetrusteeisaprofessional.Thiscanbejustifiedby
theneedtoholdprofessionaltrusteestoahigherstandardofacceptableconduct.
(p.558) (vii)Fraudonthepower
Ifthepowerisexercisedforanimproperpurpose,itwillbeinvalidbyvirtueofthedoctrineoffraudonthe
power.188 TheessenceofthisdoctrinewasrecognizedbyLloydLJinPittvHolt.189
Imustsaysomethingatthispointaboutcasesoffraudonapower,astowhichthereisCourtofAppeal
authoritythatthedefectrenderstheappointmentvoid,notmerelyvoidable:seeClouttevStorey[1911]1
Ch18.Theprincipleisnottobestatednarrowly,butanintentiontobenefitsomeonewhoisnotanobject
ofthepowerisgenerallyoftheessence.InVatchervPaull[1915]AC372,LordParkerofWaddington,
givingtheopinionofthePrivyCouncil,saidthisatpage378:
Thetermfraudinconnectionwithfraudsonapowerdoesnotnecessarilydenoteanyconducton
thepartoftheappointoramountingtofraudinthecommonlawmeaningofthetermoranyconduct
whichcouldbeproperlytermeddishonestorimmoral.Itmerelymeansthatthepowerhasbeen
exercisedforapurpose,orwithanintention,beyondthescopeofornotjustifiedbytheinstrument
creatingthepower.Perhapsthemostcommoninstanceofthisiswheretheexerciseisdueto
somebargainbetweentheappointorandappointee,wherebytheappointor,orsomeotherperson
notanobjectofthepower,istoderiveabenefit.Butsuchabargainisnotessential.Itisenough
thattheappointorspurposeandintentionistosecureabenefitforhimself,orsomeotherperson
notanobjectofthepower.Insuchacasetheappointmentisinvalid,unlesstheCourtcanclearly
distinguishbetweenthequantumofthebenefitbonafideintendedtobeconferredontheappointee
andthequantumofthebenefitintendedtobederivedbytheappointorortobeconferredona
stranger.
Inthatcasetheappointmentwasheldnottobedefectiveonthisground.InClouttevStorey,ontheother
hand,itwasclearthatappointmentsmadetoonebeneficiaryweremadeunderabargainbywhichhepaid
thefundsreceivedovertohisparentswhowerenotobjectsofthepower.Toaddacomplication,thefunds
hereceiveddidnotcomedirectlyfromthetrustfundbutwereobtainedbymortgaginghisinterestunderthe
appointmentassecurityforloansfromaninsurancesociety.Itwasnotindispute,intheend,thatthe
appointmentswerevitiatedasfraudsonthepower.Theissuewaswhetherthelenderssecuritytookeffect,
ithavinghadnonoticeofthefraud.NevilleJheldthattheeffectofthefraudwasthattheappointmentwas
void,asitwouldhavebeenifithadbeendirectlyinfavourofanonobject.TheCourtofAppealupheldthis
decision,FarwellLJgivingthesubstantivejudgment.Heobservedthat,sincethecompetinginterestswere
onlyequitable,thedifferencebetweenvoidandvoidableisoflittleifanyimportance(page30).Iconfess
thatIdonotfindeverythinginFarwellLJsjudgmentonthispointascogentasthatjudgesdecisionsso
oftenareItisnotnecessarytogointothepointinmoredetailforpresentpurposes,butalthoughweare
boundtoholdthattheeffectofanappointmentbeingfoundtohavebeenmadeinfraudoftherelevant
poweristhatitisvoid,notmerelyvoidable,Iamnotwillingtoapplythatdecisionmoreextensively,by
analogy,tocasestowhichitdoesnotrelatedirectlyasamatterofdecision.
Althoughitfollowsthatthedoctrineoffraudonthepowerrenderstheexerciseofthepowervoid,LloydsLJs
reservationsarewellfounded,sinceaconsequenceoftheexercisebeingvoidisthatinterveninginterestsofthird
partieswillnotbeprotected.Theadvantageofthedoctrinerenderingtheexerciseofthepowervoidable,atleast
fromtheperspectiveofthethirdparty,isthatthebarson(p.559) rescindingtransactionswillapply,190 oneof
whichisthatrescissionwillbebarredifathirdpartyhasacquiredalegalinterestinpropertytransferredforvalue
andwithoutnoticeofthedefectthatrendersthetransactionvoidable.Ifthedoctrineoffraudonthepoweristo
renderatransactionvoidableratherthanvoid,thetrusteemustbeconsideredtohaveactedwithinthescopeof
thepowerbutinbreachofdutyindoingso.191 Thatisconsistentwiththeinterpretationoffraudforthepurposes
ofthedoctrine,sinceitsimplyinvolvesthepowerbeingexercisedforanimproperpurpose.192 Thisencompasses
193
anexercisingofapowerforapurposethatiscollateraltothepurposeforwhichthepowerwascreated,193 orthe
exerciseofthepowerwantonlyorcapriciously.194 Acapriciousdecisionhasbeendescribedasonethatis
irrational,perverseorirrelevanttoanysensibleexpectationsofthesettlor.195 But,sincetrusteesarenotrequired
togivereasonsfortheexerciseoftheirdiscretion,196 itwillbedifficulttoshowthattheexercisewascapricious.
InHillsdownHoldingsplcvPensionsOmbudsman,197 apensionfundhadasurplus,butitsrulespreventedthe
trusteesfrompayingthistotheemployer.Thetrusteestransferredthefundtoanotherpensionscheme,which
wasabletopaythesurplustotheemployer.Eventhoughtheemployerhadagreedtoincreasethemembers
benefitsunderthenewpensionschemeinreturnforreceivingthesurplus,itwasheldthatthetransferofthefunds
tothisotherpensionschemeconstitutedfraudonthepower,becausethetransferwasmotivatedbythecollateral
purposeofbenefitingtheemployerandsowasheldtobevoid.But,ratherthantreatingtheexerciseofthepower
tobevoid,itwouldhavebeenpreferabletoconsiderthetrusteesashavingactedwithinthescopeofthepower
butinbreachofduty,sothattheexerciseofthepowerwasvoidable.
Itisnot,however,necessarilyfraudonthepowerthatthetrusteeorathirdpartybenefitsindirectlyfromthe
exerciseofthepower.198 So,forexample,ifafatherexercisesapowerofappointmentinfavourofhisinfantchild
andthatchilddiesbeforeattainingtheageofmajority,thefatherwillreceivethepropertyasnextofkin,butthis
willnotinvalidatetheexerciseofthepower,exceptifthetrusteeintendedtobenefitfromtheappointment.In
short,atrusteeorthirdpartycanbenefitfromtheexerciseofapowerwithoutthedoctrineoffraudonthepower
beingengaged,ifthepurposeofthetrusteeinexercisingthepowerisnotconsideredtobeimproper.
(g)VoidableExerciseofPowers
Wheretrusteesmakeadecisionthathasanadverseeffectonthetrustorthebeneficiaries,thetrusteesmay
applytothecourttohavethedecisionsetasideonthegroundthattheyhavetakenintoaccountanirrelevant
considerationorignoredarelevantconsideration.ThisbecameknownastheruleinHastingsBass.199 Butthe
socalledrulehasbeenrejectedbytheCourtofAppealinPittvHolt,200 inwhichLongmoreLJrecognized201 that
therulewasanexampleof:
(p.560) thatcomparativelyrareinstanceofthelawtakingaseriouslywrongturn,ofthatwrongturnbeing
notinfrequentlyactedonoveratwentyyearperiodbutthiscourtbeingabletoreversethaterrorandput
thelawbackontherightcourse.
Aswehavealreadyseen,202 ReHastingsBassitselfactuallyinvolvedtheexerciseofapowerthatwaspartially
voidbecauseitinfringedtheperpetuityrule.Inthatcase,BuckleyLJstatedthatthecourtwouldnotinterferewith
thediscretionofatrusteeunlessheorshewouldnothaveactedasheorshedidhadheorshenottakeninto
accountconsiderationsthatheorsheshouldnothavetakenintoaccountorhadignoredconsiderationsthatheor
sheoughttohavetakenintoaccount.ThisdictumwastakenoutofcontextinMettoyPensionTrusteesLtdv
Evans,203 inwhichitwasformulatedinpositivetermsastheruleinHastingsBass.Itwassubsequentlyinvoked
inaseriesoffirstinstancecases,includingadecisionofLloydLJ204 inSieffvFox,inwhichitwasformulatedas
follows:205
Wheretrusteesactunderadiscretiongiventothembythetermsofthetrust,incircumstancesinwhich
theyarefreetodecidewhetherornottoexercisethatdiscretion,buttheeffectoftheexerciseisdifferent
fromthatwhichtheyintended,thecourtwillinterferewiththeiractionifitisclearthattheywouldnothave
actedastheydidhadtheynotfailedtotakeintoaccountconsiderationswhichtheyoughttohavetaken
intoaccount,ortakenintoaccountconsiderationswhichtheyoughtnothavetakenintoaccount.
Inthatcase,trusteesofasettlement,havingreceivedprofessionaladviceconcerningpotentialtaxliability,
exercisedtheirpowerofappointmentinfavourofabeneficiary.Thetaxadvicewasincorrectandthebeneficiary
wasliabletopayover1millionofcapitalgainstax.Thetrusteessuccessfullyappliedtohavetheappointment
setasideonthegroundthat,hadtheyknownofthetruetaxposition,theywouldnothavemadetheappointment.
ThisrulehasnowbeenreformulatedbyLloydLJ,thistimesittingintheCourtofAppealinPittvHolt.Although
thisisthesamejudgewhoaffirmedtheformulationoftheruleinSieffvFox,hewastheresittingasatrialjudge
andboundbyprecedent.SittingasajudgeintheCourtofAppealinPittvHolt,hewasabletoreviewthe
authoritiesandformulatedanewrule.
PittvHoltFuttervFutter[2011]EWCACiv197[2012]Ch132206
MrPittwasinjuredinaroadaccidentforwhichhereceivedsignificantcompensation.Hiswife,whowashis
appointedreceiver,obtainedprofessionalfinancialadviceandputthecompensationintoadiscretionarytrust
forthebenefitofherhusband,herself,andtheirchildren.OnMrPittsdeath,hisestatewasliableto
inheritancetaxonthesumheldontrust.Thistaxliabilitycouldhavebeenavoidedbytheinclusionofa
clauseinthetrustthathalfofthefundwastobeappliedforhisbenefitduringhislifetime.MrsPittsoughta
declarationthatthesettlementcouldbesetaside,bothonthegroundthatarelevantcomnsiderationhad
beenignoredandbyreasonofmistake.Inthesecondappeal,FuttervFutter,thetrusteeshadexercised
powersofadvancement(p.561) undertwodiscretionarytrustsinordertoavoidcapitalgainstax.The
trusteessolicitorsignoredaprovisionwhichmeantthatthetaxwasnotavoided.Thetrusteessoughta
declarationthattheexerciseofthepowerwasineffectiveonthegroundthatarelevantconsiderationhadbeen
ignored.Inbothcasesthetrialjudgeshadgrantedthereliefsoughtbythetrustees.Itwasheldthatneither
settlementcouldbesetaside.
LloydLJ:
BycontrastwiththetypesofcasetowhichIhavereferred207 ,ifanexercisebytrusteesofa
discretionarypoweriswithinthetermsofthepower,butthetrusteeshaveinsomewaybreachedtheir
dutiesinrespectofthatexercise,then(unlessitisacaseofafraudonthepower)thetrusteesactis
notvoidbutitmaybevoidableattheinstanceofabeneficiarywhoisadverselyaffected.Theinterest
ofabeneficiaryinthetrustpropertycontinuesuntilitisbroughttoanendbyanactofthetrustees
doneinaccordancewiththetermsofthetrust(orthegenerallaw).Thisisanincidentofthe
beneficiarysrighttohavethetrustdulyadministeredinaccordancewiththeprovisionsofthetrust
instrumentandthegenerallaw:seeTargetHoldingsvRedfern[1996]AC421at434.Iftheactofthe
trusteeswhichpurportstoalterorbringtoanendtheinterestofabeneficiaryisaffectedbyabreach
offiduciaryduty,thenthebeneficiaryisentitledtorestrainthetrusteesfromactingonit,andtohaveit
setaside,subjectalwaystoequitabledefencesanddiscretionaryfactors.Ofcourseifathirdparty
purchaserhasacquiredsomerelevanttrustpropertyasaresult,hemayhaveanindefeasibletitle,if
hegavevaluewithoutnoticeofthebreachoffiduciaryduty,butinsuchacasethebeneficiarys
interestwouldattachtotheproceedsofthesale.Astothisproposition,seeFosk ettv
McKeown[2001]1AC102at127FG(LordMillett)
Ifnorelevantpersontakesanystepstohavesuchanactbythetrusteessetaside,thenitisasvalid
andeffectiveasiftherehadbeennovitiatingfactor.Inthatrespectthepositionisthesameasifa
transactionisprocuredbymisrepresentation,undueinfluenceorfraud.Theaggrievedpartymayseek
toavoidthetransactionbut,first,avoidanceisnotamatterofrightbutissubjecttoadiscretiononthe
partofthecourt,andsecondlyifthereisnoattempt,ornosuccessfulattempt,toavoidthe
transaction,itremainsvalidandeffectiveasregardsallconcerned.Thisisalsothepositionifatrustee
entersintoatransactionaffectedbytheruleagainstselfdealing,forexamplebuyinganassetfromthe
trust.Thatalsoinvolvesabreachoffiduciaryduty:seeGwembeValleyDevelopmentCoLtdv
Koshy[2003]EWCACiv1048,[2004]1BCLC131.Thetransactionisnotvoid,butitisvoidableatthe
suitofabeneficiary.
Inprinciple,caseswhereanactdonebytrusteeswhichappearstobewithintheirpowerscanbeheld
tobevoidoughtinmyjudgmenttobekepttoaminimum,justasatcommonlawthecaseswherea
transactionisvoid,ratherthanvoidable,arefewandfarbetween.Bycontrast,ifthedefectrenders
theactvoidable,theavailabilityofequitabledefencesandthecourtsdiscretionastotheremedy
makeiteasiertoreachajustoutcomewhilerecognisingthedefectinthetransaction
Thedecidedcasesdonotgiveagreatdealofguidanceindetailastowhatthetrusteesoughttotake
intoaccount,inthecaseofaprivatediscretionarytrust.(Pensiontrustsandcharitiesmaywelleach
bedifferentinsomerespects,asmaybediscretionarytrustsforaverylargeclass,suchasthatat
issueinReBadensDeedTrusts,208 andIdonotdealwithsuchtrustsforthepresent.)Oldercases
tendedtofocusonwhatoughtnotbetotakenintoaccount,suchaspersonaldisapproval:seeKlugv
Klug[1918]2Ch67andReLofthouse(1885)29ChD921at9256(bothbeingcaseswherethe
trusteesdeclinedtoexercisetheirdiscretion).AbacusvBarr209 showsthatthewishesofasettlor
maywellbeonethingthattrusteesshouldtakeintoaccount.Thewishes,circumstancesandneeds
ofbeneficiaries,sofarasmadeknowntothetrustees,mayalsoberelevant.
(p.562) InSieffvFox210 IsaidthatIwasinnodoubtthatfiscalconsequencesmayberelevant

considerationswhichthetrusteesoughttotakeintoaccount:seeparagraphs85and86.Iremainof
thatview.Althoughitisoftensaidthatdecisionsasregardsthecreationandoperationoftrustsought
nottobedictatedbyconsiderationsoftax,thestructureanddevelopmentofpersonaltaxationinthe
UKoverthepastdecades,theuseoftrustsinordertodeflectordefertheimpactoftaxation,andin
turnthedevelopmentoftaxationasitappliestopropertyheldbytrustees,havebeensuchthatthere
canbefewinstancesinwhichtrusteesofaprivatediscretionarytrustwithassets,trusteesor
beneficiariesinEnglandandWalescouldproperlyconcludethatitwasnotrelevantforthemto
addresstheimpactoftaxationthatwouldormightresultfromapossibleexerciseoftheirdiscretionary
dispositivepowers
AsCounselpointedout,theextentoftheproperconsiderationonthepartofthetrusteeswouldbe
affectedbythenatureandcircumstancesofwhatwasproposed.Itmightbedifferentifwhatwas
proposedwasthereleasefromthetrustofarelativelymodestsumofcapitaltomeetanextremely
urgentneedofoneofseveralbeneficiaries.Insuchacaseitmightnotbenecessarytoundertakethe
samedegreeofenquiryandexaminationasitwouldbeiftheproposedtransactionaffectedavery
largeproportionofthetrustfund,orwasnotrequiredasamatterofextremeurgency.
Itisnotpossibletolaydownanyclearruleastothematterswhichtrusteesoughttotakeinto
accountwhenconsideringtheexerciseofapowerofadvancementorsomeotherdispositive
discretionarypower.Circumstanceswilldifferagreatdealfromonetrusttoanother,andevenwithin
onetrusttheymaychangefromtimetotimeoraccordingtothenatureoftheparticularexercise
whichisunderconsideration.
Professionaladvice
Wheretaxmattersarerelevant(astheyoftenwillbe),itislikelytobethedutyofthetrustees,under
theirdutyofskillandcare,totakeproperadviceastothosematters
Suppose,then,thatthetrustees,beingawarethatwhattheyarethinkingofdoingcouldhavetax
consequences,takeadvicefromappropriateandreputableadvisersandaregivenwhatappearstobe
clearandpertinentadvicethatiftheyproceedinaparticularway,taxliabilitieswillnotbeincurred,
whetherbythemorbythebeneficiaries,oratanyratethattheliabilitiesincurredwillbeassmallas
canbehopedfor.Supposealsothatthetrusteesfollowthatadviceandproceedinthewaysuggested,
butthatitthenturnsoutthattheadvicewaswrong,forexamplebecause(asinFuttervFutterandas
inSieffvFox)aparticularsectionwasoverlooked,andliabilitiesareincurred,whethertheycould
easilyhavebeenavoided(asinPittvHolt)ornot.Thetrusteeshavedischargedproperlytheirdutyto
takeadvice,asamatterofskillandcare.Itcouldbesaid,however,thatinpreparingtoexercisetheir
discretionarypowertheyfailedtotakeintoaccountarelevantmatter,namelythetruefiscal
consequencesoftheiraction.Canitbesaidthatthosetrusteeswereactinginbreachoftrustwhen,
onthatadvice,theymadetheparticularadvancementorappointment?
Accordingly,inmyjudgment,inacasewherethetrusteesactiswithintheirpowers,butissaidtobe
vitiatedbyabreachoftrustsoastobevoidable,ifthebreachoftrustassertedisthatthetrustees
failedtohaveregardtoarelevantmatter,andifthereasonthattheydidnothaveregardtoitisthat
theyobtainedandactedonadvicefromapparentlycompetentadvisers,whichturnedouttobe
incorrect,thenthechargeofbreachoftrustcannotbemadeout.
ThecaseswhichIamnowconsideringconcernactswhicharewithinthepowersofthetrusteesbut
aresaidtobevitiatedbythefailureofthetrusteestotakeintoaccountarelevantfactortowhichthey
shouldhavehadregardusuallytaxconsequencesorbytheirtakingintoaccountsomeirrelevant
matter.(p.563) Itseemstomethattheprincipledandcorrectapproachtothesecasesis,first,that
thetrusteesactisnotvoid,butthatitmaybevoidable.Itwillbevoidableif,andonlyif,itcanbe
showntohavebeendoneinbreachoffiduciarydutyonthepartofthetrustees.Ifitisvoidable,thenit
maybecapableofbeingsetasideatthesuitofabeneficiary,butthiswouldbesubjecttoequitable
defencesandtothecourtsdiscretion.Thetrusteesdutytotakerelevantmattersintoaccountisa
fiduciaryduty,soanactdoneasaresultofabreachofthatdutyisvoidable.Fiscalconsiderationswill
oftenbeamongtherelevantmatterswhichoughttobetakenintoaccount.However,ifthetrustees
seekadvice(ingeneralorinspecificterms)fromapparentlycompetentadvisersastotheimplications
ofthecoursetheyareconsideringtaking,andfollowtheadvicesoobtained,then,intheabsenceof
anyotherbasisforachallenge,Iwouldholdthatthetrusteesarenotinbreachoftheirfiduciaryduty
forfailuretohaveregardtorelevantmattersifthefailureoccursbecauseitturnsoutthattheadvice
giventothemwasmateriallywrong.Accordingly,insuchacaseIwouldnotregardthetrusteesact,
doneinrelianceonthatadvice,asbeingvitiatedbytheerrorandthereforevoidable.
Itcanbesaidthatthisdistinctionmakespotentiallyvulnerableanactdonebytrusteeswhofailtotake
anyadvice,whereasthesameactdoneinthesamecircumstancesbytrusteeswhotakeadvice
whichprovestobeincorrectisnotvulnerable.Thatissaidtoreducesignificantlytheprotection
affordedtobeneficiariesbytheHastingsBassrule.Iacceptthatthepointoftheprincipleistoprotect
beneficiariesratherthantrustees.Ialsoacceptthataclaimbybeneficiariesagainstthetrustees
themselvesmayoftenbeprecludedbyanexonerationclauseinthetrustdeed.Itmayalsobe,aswas
submittedtousinparticularby[Counsel],thataclaimagainsttheprofessionaladvisersofthe
trusteeswouldfaceproblemsevenifliabilitycanbeestablished,becausedifferentlossmaybe
sufferedbydifferentpeople,notallofwhommayhaveaclaimagainsttheadvisers.Recognisingthose
points,neverthelessIseenoanomalyinthedistinctionthatIhavedrawn.Itarisesfromtheneedto
findabreachoftrustinordertosetasideanactofthetrusteeswhichiswithintheirpowers
Twokindsofcaseneedtobedistinguished.
i)Ontheonehandtheremaybeacaseinwhich,forexamplebecauseofaninadvertent
misunderstandingoftheposition,anactdonebytrusteesintheexerciseofadispositive
discretionisnotwithinthescopeoftherelevantpower.Ifsoitisvoid.ThatwasthecaseinRe
AbrahamsWillTrusts,asitwasinterpretedinReHastingsBass.Itwouldhavebeenthecase
inReHastingsBassbutfortheCourtofAppealhavingallowedtheappealbythetrustees.
ii)Ontheotherhand,thecasemaybeoneinwhichthetrusteesactinexerciseoftheir
discretioniswithinthetermsoftheirpower,butissaidtohavebeenvitiatedbytheirfailureto
takeintoaccountarelevantmatter,ortheirtakingsomethingirrelevantintoaccount,when
decidingtoexercise,andexercising,thediscretion.Thecorrectapproachtosuchcasesisdealt
withatparagraph[127]above.211 Thetrusteesactisnotvoiditmaybevoidable.Tobevoidable
itmustbeshowntohavebeendoneinbreachofafiduciarydutyofthetrustees.Thedutyto
takerelevant,andnoirrelevant,mattersintoaccountisafiduciaryduty.Relevantmattersmay
includefiscalconsequencesoftheactinquestion.However,ifthetrusteesfulfiltheirdutyofskill
andcarebyseekingprofessionaladvice(whetheringeneralorinspecificterms)fromaproper
source,andactontheadvicesoobtained,then(intheabsenceofanyotherbasisfora
challenge)theydonotcommitabreachoftrustevenif,becauseofinadequaciesoftheadvice
given,theyactunderamistakeastoarelevantmatter,suchastaxconsequences.Inthe
absenceofabreachoftrust,thetrusteesactisnotvoidable.Evenifitisvoidable,itcannotbe
avoidedunlessabeneficiaryseekstohaveitavoided,andaclaimtothateffectwillbesubjectto
thediscretionofthecourtandtotheusualrangeofequitabledefences.
iii)Thesameprinciplesmayapplytoactsonthepartofotherpersonsinafiduciaryposition,of
whomareceiverappointedundertheMentalHealthAct1983isanexample.
(p.564) HisLordshipappliedtheseprinciplestothefactsofthetwocases.InFutter,theCourtofAppeal
concludedthatthetransactionswerevalidbecause,althoughthetrusteeshadignoredarelevantconsiderationas
regardsthefiscalconsequencesofthetransactionsincetheyhadbeengiventhewrongadvicebythesolicitors,
thetrusteeshadnotbreachedtheirfiduciarydutyinfollowingthatadvice.InPitttootheCourtofAppealheldthat
thesettlementcouldnotbeavoided,because,althoughMrsPittasreceiverwasinafiduciarypositionalbeitnota
trustee,shehadnotbreachedherdutyincreatingthetrust,sinceshehadreasonablyreliedontheadviceofher
advisers.Consequently,theonlyappropriateclaim212 wasfornegligenceagainsttheprofessionaladvisers.
Whetheraparticularmatterthathasbeentakenintoaccountorthathasbeenignoredcanbeconsideredtobea
relevantmattersoastoamounttoabreachofdutywilldependoncarefulconsiderationofthefactsofthecase.
Particularmattersthatshouldbetakenintoaccountmightincludethewishesofthesettlor,213 andthewishes,
circumstances,andneedsofthebeneficiaries.214 Thetrusteespersonaldisapprovalofabeneficiaryshouldnot
betakenintoaccount,suchaswhereatrusteedeclinedtomakeanappointmenttoherdaughterbecausethe
daughterhadmarriedwithouthermothersconsent.215
Thefactthattrusteesfailedtotakeintoaccountthefiscalconsequencesoftheirpowerbeingexercisedmay
constituteabreachofduty,butnotifthetrusteessoughtandactedonprofessionaladvicefromapropersource,
sincethentheywillhavecompliedwiththeirdutytoactwithreasonableskillandcare.216 Itfollowsthatifthe
trusteesdidactreasonablyinobtainingandrelyingonprofessionaladvice,itismuchlesslikelythatthe
transactionwillbesetasidewhereithasadversefiscalconsequences,whereasifthetrusteesacted
unreasonablyinnotobtainingorrelyingonprofessionaladvice,thetransactionmightbesetasidebecausethe
trusteeswillhavebreachedtheirduty.217 ThisisaninevitableconsequenceoftheruleinPittvHoltrequiringproof
ofbreachofduty,218 butitdoesnotfollowthatthetrusteesandbeneficiariesarewithoutremedywherethe
trusteesreasonablyreliedontheprofessionaladvice,becauseifthatadvicewasnegligent,thetrusteesand
beneficiarieswillhaveaclaimintortagainsttheadvisers.OneresultofthedecisioninPittvHoltwillbetoshift
potentialliabilityontothenegligentadvisers,whichisentirelyappropriate.
TherationalizationofthesocalledruleinReHastingsBassbyrecognizingthattherearetwodistinctrules,
whichdependonwhetherthetrusteehasactedoutsideorwithinthescopeofthepower,istobewelcomed.As
NolanandClohertyhavesaid:219
Sothereformulatedrule,whichperhapsnow(forbrevity)maybecalledtheruleinPittvHolt,stillis
concernedwithflaweddecisionmakingbutitnowonlyrequirestherightquestionstoberaised,and
properlyconsidered,beforeactionistaken.Aflawedanswertosuchaquestionisnotofitselfreasonto
setasideactiontakenpursuanttothatanswer:takingbadadviceintoaccountisnolongerregardedas
takinganirrelevantmatterintoaccount.
Whethertheexerciseofadiscretionarypowerbyatrusteeoranotherfiduciaryisvoid,voidable,orvalidwill
dependonthecircumstancesinwhichthepowerisexercised.Ifthetrusteeactsoutsidethescopeofthepower,
theexerciseofthepowerwillbevoid.Ifthetrusteeactswithinthescopeofthe(p.565) power,itisvalid,unless
thetrusteecanbeconsideredtohaveactedinbreachofdutyindoingso.Buttheexerciseofadiscretionary
powercanonlybeconsideredtobeinappropriatewhereitinvolvesabreachofduty.AsMummeryLJrecognized
inPittvHolt:220
Thefactthatadispositionbyafiduciarypursuanttoadiscretionarypowerhadunintendedtax
consequencesanddidnotachievethedesiredeffect,butwithoutinvolvingadeparturefromthetermsofthe
trustorabreachofduty,isneitheroutsidethescopeofthepowernorisitagroundforsettingthe
dispositionaside.221
Question
AlanandBrendahold10,000ondiscretionarytrustforthebenefitofCharlesandDebbie.Alanhasnever
beeninterestedinthetrustandleavesalltheadministrationtoBrenda.CharlesinformsBrendathathehas
justlosthisjobandthatheisveryshortofmoney.BrendaisunabletocontactAlan,whoistravellingabroad,
andsoshedecidestotransfer9,000fromthetrustfundtoCharles,withoutcheckingonCharlessfinancial
circumstances.Infact,hehadquicklyobtainedanother,betterpaidjob.BrendacannotstandDebbieand
wouldneverhavegivenherapennyfromthetrustfund.
Brendaseeksyouradviceastowhetherthe9,000canberecoveredfromCharles.Brendaalsoseeksyour
adviceaboutwhatshecandoaboutAlanslackofinterestinthetrust.
FurtherReading
Barlow,TheAppointmentofTrustees:ADisappointingDecision[2003]Conv15.
FindThisResource
Davies,CorrectingMistakes:WithertheRuleinHastingsBass[2011]Conv406.
FindThisResource
Hayton,TheIrreducibleCoreContentofTrusteeshipinTrendsinContemporaryTrustLaw(ed.Oakley),
(Oxford:ClarendonPress,1996)ch.3.
FindThisResource
Jaconelli,DecisiontakingbyPrivateandCharitableTrustees[1991]Conv30.
FindThisResource
Nolan,ControllingFiduciaryPower(2009)68CLJ293.
FindThisResource
Trukhantov,TheIrreducibleCoreofTrustObligations(2007)123LQR342.
FindThisResource
Notes:
1 (1747)Dick120,126.
2
SeeChapter10.2(e),pp.4934.
3
ReBarney[1892]2Ch265,273(KekewichJ).
4
TrusteeAct1925,s.18(1).
5
Ibid,s.18(2).Ifthetrusteediesintestate,thetrustpropertywillvestinthePublicTrusteeuntilthegrantof
administration:AdministrationofEstatesAct1925,s.9.SeeChapter11.2(g),p.518.
6
ArmitagevNurse[1998]Ch241,253(MillettLJ).SeeChapter16.2,p.726.
7
Aswithanyfiduciary.SeeChapter14.1,pp.6425.
8 [1996]AC669,705.
9
11
Althoughwhereanautomaticresultingtrustarisesfollowingtheinitialorsubsequentfailureofanexpresstrust,
thetrusteewillhavebeenawarethatheorshewasexpectedtoholdthepropertyforthebenefitofothers,albeit
notnecessarilyforthesettlorofthetrust.SeeChapter8.3,pp.37691.
12 ReLysaght[1966]Ch191.
13
13 Ibid.
14
Ibid,2067.
15 SeeChapter3,TheRequirementsofanExpressTrust.
16
SeeChapter8,ResultingTrusts.
18
Althoughthelaytrusteeisrecognizedinthecontextofremunerationforservices:TrusteeAct2000,s.28(2).
SeeChapter11.6(c)(i),p.542.Thefactthatatrusteeisaprofessionalratherthananamateurisalsorelevant
whendeterminingthedutyofcaretobeexpectedoftrustees:Ibid,s.1.SeeChapter12.2(b),p.570.
19 SeeChapter16.2(b)(iii),pp.7314.
20
21 ReWatermansWillTrusts[1952]2AllER1054,1055(HarmanJ).SeealsotheTrusteeAct2000,s.1(1),
discussedinChapter12.2(b),p.510.
22
PensionsAct1995,s.34.
23 TrusteeAct2000,s.36(5).SeefurtherChapter12.4,pp.57391.
24
CharitiesAct2011,s.177.
25 ReFrenchProtestantHospital[1951]Ch567.
26
27 WhichsupplementtheJudicialTrusteesAct1896.
28
PublicTrusteeAct1906,s.4.
29 ReBrook eBondandCo.LtdsTrustDeed[1963]Ch357.
30
SeealsoForstervWilliamsDeaconsBank Ltd[1935]Ch359(bankmaynotbeappointedbothmanaging
trusteeandcustodiantrusteeinordertoallowittochargefeesascustodiantrustee).
31
[1963]Ch357,363.
32
Maurice,TheOfficeofCustodianTrustee(1960)24Conv196.
33
TrusteeAct1925,s.68(18).SeealsoLawofProperty(Amendment)Act1926,s.3.
34
35
TaylorvDavies[1920]AC636,651(ViscountCave).
36 DubaiAluminiumCo.LtdvSalaam[2002]UKHL48[2003]2AC366,[138](LordMillett).
37
[1896]1Ch199,209(ALSmithLJ).
38 Ibid.
39
ReBarney[1892]2Ch265,273(KekewichJ)SoarvAshwell[1893]2QB390,394(LordEsherMR).
40 SoarvAshwell[1893]2QB390,394(LordEsherMR).CompareKayLJ,405,whodescribedthetrusteede
sontortasaconstructivetrustee.
41
[2002]UKHL48[2003]2AC36,[136].
42
42
[1896]1Ch199.
43 LawofPropertyAct1925,s.20.Althoughithasbeenrecognizedthatachildcanholdpersonaltyona
resultingtrust:ReVinogradoff[1935]WN68.SeeChapter8.2(a),p.358.
44
46
SeeChapter11.3(d)(i),pp.5212.
47 ReSmirthwaitesTrust(1871)LR11Eq251.
48
49
Ortheexecutorofadeceasedsoletrustee:ReShaftosTrusts(1885)29ChD247.Apersonalrepresentative
mayexercisethepowerwithouthavingobtainedprobate:ReCrowhurstPark [1974]1WLR583butatrusteeso
appointedwillbeunabletoprovehisorhertitleunlessagrantisobtained.Apartfromthecircumstancescovered
bythesubparagraph,executorsdonothavepowertoappointnewtrusteesseeReKingsWillTrusts[1964]Ch
542.
50
51 [1896]1Ch315.
52
53 JasmineTrusteesLtdvWellsandHind[2007]EWHC38(Ch)[2008]Ch194.
54
TrusteeAct1925,s.37(1)(c).InMettoyPensionTrusteesLtdvEvans[1990]1WLR1587,1607,WarnerJ
doubtedwhethertheexpresstermsofthesettlementcanoverridetheseprovisions.
55 TrusteeAct1925,s.36(1).CpIbid,s.36(6).
56
ReSmithsTrusts(1872)26LT820RichardvTheHonABMack ay[2008]WTLR1667.
57
58
ReBeattysWT(No.2)(4March1987)(1997)11TLI77.
59
Ibid.
60
Ibid,80.
61
62 (1886)34ChD370.
63
Ibid,377.
64 TrusteeAct1925,s.37(1)(c).SeeAdamandCo.InternationalTrusteesLtdvTheodoreGoddard[2000]WTLR
349.
65
[1953]Ch59.
66 (1841)4Beav115.SeeChapter10.3,pp.5037.
67
Asimilarpowerofdirectionisavailabletothebeneficiarieswherethetrusteeisincapableofactingbecausehe
orshelackscapacitytoact:TrustsofLandandAppointmentofTrusteesAct1996,s.20.
68 Forsubss(3)and(4)seeChapter11.4(b),p.532.
69
69
(1996)146NLJ1779,1786.
70
ReBrock bank [1948]Ch206,208.SeeChapter11.3(e),pp.5267.
71
ReLysaght[1966]Ch191.SeeChapter11.1(2),p.513.
72
TrusteeAct1925,s.41(1).ThispowerextendstotheCharityCommissiontoappointcharitytrustees:
CharitiesAct2011,s.69(1)(b).
73
ReParsons[1940]Ch973.
74 ReGibbonsTrusts(1882)30WR287.
75
[1941]Ch109.
76 [1999]1BCLC407.
77
ReBeattysWT(No.2)(4March1987)(1997)11TLI77.Comparewherethetrusteeswishthecourttoapprove
theexerciseoftheirdiscretioninfavourofsuchanappointment:seeChapter11.3(b)(iv),pp.5235.
78 CharitiesAct2011,s.80(2).
79
HeadvGould[1898]2Ch250,272.SeefurtherChapter16.8,p.758.
80 JasmineTrusteesLtdvWellsandHind(afirm)[2008]Ch194.
81
Awrittendirectionbythebeneficiariestoatrusteeortrusteestoretirefromthetrust.SeeChapter11.3(e),p.
527.
82 Itisnotclearwhatwouldhappenifthetrusteerefusedtoretire.Oneconsequencemaybethatthe
beneficiarieswouldterminatethetrustundertheruleinSaundersvVautier(1841)4Beav115,see
Chapter10.3(a),pp.5034.
83
84 TrusteeAct1925,s.36(2).SeeChapter11.3(d)(ii),p.522.
85
Ibid,s.36(1).SeeChapter11.3(d)(i),pp.5212.
86 ByvirtueofCharitiesAct2011,s.46.SeeChapter5.2(b)(iii),p.182.
87
Ibid,s.18(2).
88 Ibid,s.18(4).
89
TrusteeAct1925,s.41(1).SeeChapter11.3(e),p.528.ThispowerextendstotheCharityCommissionto
removecharitytrustees:CharitiesAct2011,s.69(1)(b).
90 TrusteeAct1925,s.41(1).
91
ReEdwardsWillTrusts[1982]Ch30,42(BuckleyJ).
92 [1884]9AppCas371,385.
93
[1908]1Ch789.
94
Ibid,800.
95
SeeChapter7.2(e)(iii),pp.33742.
96
[2007]EWHC1314(Ch)[2008]Ch395,409.
97
97 ReDuk eofNorfolk sSettlementTrust[1982]Ch61,79(FoxLJ).
98
RobinsonvPett(1724)3PWms249,250(LordTalbotLC).
99 (1747)Dick120,126.SeeChapter11.1,p.511.
100
102
StottvMilne(1884)25ChD710.
103 AlsopWilk inson(afirm)vNeary[1996]1WLR1220,1224(LightmanJ).
104
(1894)72LT66.
105 Ibid,at67.
106
[1996]2AllER672.
107
FostervSpencer,[1996]2AllER672.
108
Ibid,678.
109
[1901]AC118.
110
Ibid,124.
111
Ibid,123.
112 (1841)Cr&Ph240.SeeChapter10.3(a),pp.5034.
113
SeeHughes,TheRightofaTrusteetoaPersonalIndemnityfromBeneficiaries(1990)64ALJ567.
114 (1728)2PWms453.
115
TrusteeAct2000,s.31.SeealsoHoldingandManagementLtdvPropertyHoldingandInvestmentTrust
plc[1989]1WLR1313,1324(NichollsLJ).
116 ReBuck ton[1907]2Ch406,41415(KekewichJ).
117
ReBeddoe[1893]1Ch547.
118 McDonaldvHorn[1995]1AllER961.
119
BonhamvBlak eLapthornLinnell[2007]WTLR189.
121
Ibid.
122 CharitiesAct2011,s.185.SeeCharityCommission,PaymentofCharityTrustees,CC11(London:HMSO,
2008),forpublishedguidanceonbestpracticeasregardspayingcharitytrustees.
123
SeeChapter14.4(d)(iv),p.679.
124 [1979]Ch37.
125
[1982]Ch61,80.
126
FoxLJconsideredthecontractualanalysistobeartificialsinceitwouldoftenbeunclearwithwhomthe
trusteewascontractingandoftenthetrusteeknowsnothingofthetermsofthesettlementuntilthesettloris
dead:[1982]Ch61,76.
127 SeeChapter11.3(d)(i),p.520Chapter11.3(f),p.528.
128
129 [1996]2AllER672.
130
Thetrusteeswerealsoreimbursedforpastexpenses.SeeChapter11.6(a),p.538.
131
[1996]2AllER672,681.
132
SeeChapter1.4(b),pp.1415.
133
ReDuk eofNorfolk sSettlementTrusts[1982]Ch61,79(FoxLJ).
135
SeefurtherChapter12,TheAdministrationofTrusts.
136 SeefurtherChapter13,DispositivePowersandDuties.
137
[1966]1WLR499,505.
138 Luk evSouthKensingtonHotelCo(1879)11ChD121.
139
ReWhiteley[1910]1Ch600,608(EveJ).
140 PensionAct1995,s.32(1).
141
ReButlinsWT[1976]Ch251,inwhichthetrustinstrumentwasrectifiedtoallowformajoritydecisionmaking
asregardsalldecisionsofthetrustees.SeefurtherChapter20.4,pp.95961.
142 [1943]Ch302.
143
SeeJaconelli,DecisiontakingbyPrivateandCharitableTrustees[1991]Conv30.
145
TrusteeAct1925,s.61.SeeChapter16.3,pp.7427.
147
(1841)4Beav115.
148
Suchachangewouldnecessitateasubruletodealwiththepossibilityofatieinthetrusteesvotes.Itis
suggested,inlinewiththegeneralpractice,thatinsuchasituationtheexistingstateofaffairsinregardtothe
trustshouldremainunchanged.
149
Thetextofsection6(a)reads:Anypowervestedinthreeormoretrusteesmaybeexercisedbyamajority,
butatrusteewhohasnotjoinedinexercisingapowerisnotliabletothebeneficiariesortoothersforthe
consequencesoftheexerciseandadissentingtrusteeisnotliablefortheconsequencesofanactinwhichhe
joinsatthedirectionofthemajorityofthetrustees,ifheexpressedhisdissentinwritingtoanyofhiscotrustees
atorbeforethetimeofthejoinder.
150 ReLondonderrysSettlement[1965]Ch918.Thesameruleappliestotrusteesofapensiontrust:Wilsonv
LawDebentureTrustCourtplc[1995]2AllER337.
151
[1965]Ch918,936.
152 KlugvKlug[1918]2Ch67.
153
153
SeeReLondonderrysSettlement[1965]Ch918.
154
HartiganNomineesPtyLtdvRidge(1992)29NSWLR405.
155
Ibid,420(KirbyP).
156 TheIrreducibleCoreContentofTrusteeshipinTrendsinContemporaryTrustLaw(ed.Oakley),p.47.
157
[1966]1WLR499.
158 Ibid,503.
159
SeePublicTrusteevCooper[2001]WTLR901,924(HartJ).
160 RSPCAvAttorneyGeneral[2002]1WLR448.
161
CivilProcedureRules1998,Pt64.
162 SeeChapter11.3(f),pp.52831.
163
SeeArmitagevNurse[1998]Ch241,253(MillettLJ).
164 [2007]EWCACiv11[2007]1AllER(Comm)475.
165
Ibid,[82](ArdenLJ).
166 Trukhtanov,TheIrreducibleCoreofTrustObligations(2007)123LQR342,344.Failuretoexerciseapower
forthebenefitofthebeneficiariescouldalsoconstitutefraudonthepower.SeeChapter11.7(f)(vii),pp.5589.
167
ReMills[1930]1Ch654,661(LordHanworthMR).
168
SeeChapter13.2(ii),pp.61213.
169
MettoyPensionTrusteesLtdvEvans[1990]1WLR1587.
170
ReBelovedWilk esCharity(1851)3Mac&G440,seeChapter11.7(b),pp.5501.SeegenerallyNolan,
Controllingfiduciarypower(2009)68CLJ293.
171
[2011]EWCACiv197[2012]Ch132,[96].
172
ReHastingsBass[1975]Ch25,41(BuckleyLJ).
173
SeefurtherChapter12.1,p.567.
174
175 [1975]Ch25.
176
SeeChapter13.5,pp.63341,forconsiderationofthepowerofadvancement.
177 [2011]EWCACiv197[2012]Ch132,[64].
178
ReOliphant(1917)86LJCh452.
179 PricevWilliamsWynn[2006]WTLR1633.
180
[1975]Ch25.
181 LordWalker,TheLimitsofthePrincipalsinReHastingsBass(2002)13KingsCollegeLJ173,176.
182
PittvHolt[2011]EWCACiv197[2012]Ch132,[96](LloydLJ).
183
183 [1984]Ch100.
184
ArmitagevNurse[1998]Ch241,254(MillettLJ).
185 Ibid,251.
186
[2001]QB902,939,discussedinChapter16.2(b)(ii)(a),pp.7323.SeealsoBarnesvTomlinson[2006]
EWHC3115(Ch),[79](KitchinJ).
187 [2010]EWHC2767(Ch),[81]
188
BallsvStrutt(1841)1Hare146,149(SirJamesWigramVC).
189 [2011]EWCACiv197[2012]Ch132,[97].
190
191 SeefurtherChapter11.7(g),pp.55965.
192
VatchervPaull[1915]AC372,378(LordParkerofWaddington).
193
HillsdownHoldingsplcvPensionsOmbudsman[1997]1AllER862,883(KnoxJ).
194
Pilk ingtonvIRC[1964]AC612,641(ViscountRadcliffe).
195
ReManisty[1974]1Ch17,23(TemplemanJ).SeefurtherChapter3.4(c),p.107.
197
[1997]1AllER862.
198 VatchervPaull[1915]AC372,379(LordParkerofWaddington).
199
[1975]Ch25.
200 [2011]EWCACiv197[2012]Ch132.
201
Ibid,[227].
202 SeeChapter11.7(f)(ii),pp.5556.
203
[1990]1WLR1587.
204 Sittingasafirstinstancejudge.
205
[2005]EWHC1312(Ch)[2005]1WLR3811,[119].
206 NolanandCloherty,TheRuleinPittvHolt(2011)127LQR499Davies,CorrectingMistakes:Witherthe
RuleinHastingsBass[2011]Conv406.
207
SeeChapter11.7(f),p.554.
208 [1971]AC424.SeeChapter13.2(a)(i),pp.61112.
209
[2003]EWHC114(Ch)[2003]Ch409.
210
[2005]EWHC1312[2005]1WLR3811.SeeChapter11.7(g),p.560.
211
SeeChapter11.7(g),p.562.
212
Anattempttosetasidethedispositiononthegroundofmistakealsofailed.SeeChapter7.2(c),pp.3312.
213
213
AbacusTrustCo.(IsleofMan)vBarr[2003]EWHC114[2003]Ch409.
214 PittvHolt[2011]EWCACiv197[2012]Ch132,[114](LloydLJ).
215
KlugvKlug[1918]2Ch67.
216
217
See,forexampleTrusteeAct2000,s.5,Chapter12.4(b)(iii),p.577.
218
[2011]EWCACiv197[2012]Ch132,[124](LloydLJ).
219 TheruleinPittvHolt?(2011)LQR499,501.
220
[2011]EWCACiv197[2011]3WLR19,[238].
221 LeavehasbeengrantedtoappealbothPittvHoltandFuttervFuttertotheSupremeCourt.
12.TheAdministrationofTrusts
Chapter: (p.566) 12.TheAdministrationofTrusts
DOI: 10.1093/he/9780199661480.003.0012
CentralIssues
1.Trusteesareresponsiblefortheadministrationofthetrust.Theyaresubjecttocertainduties,which
mustbeperformed,andhaveanumberofpowers,whichmaybeexercised,relatingtotrust
administration.
2.Trusteesarerequiredtoperformtheiradministrativeresponsibilitiesdiligently,andaresubjecttoa
dutytocomplywiththestandardofskillandcareexpectedofalltrustees.
3.Trusteesareresponsibleforsafeguardingthetrustassetsforthebenefitofthebeneficiaries.
4.Trusteeshaveadutytoinvesttrustassetsinthebestinterestsofpresentandfuturebeneficiaries.
5.Itisthedutyofatrusteetoactintheinterestsofallthebeneficiaries.Itfollowsthattrusteesare
underadutytomaintainafairbalancebetweenbeneficiariesandnottopreferonebeneficiaryorclass
ofbeneficiaryoveranother.
6.Trusteeshaveavarietyofsignificantpowersanddutiesrelatingtothemanagementoftrustproperty.
7.Toassistwiththeadministrationofthetrust,itispossiblefortrusteescollectivelyandindividuallyto
delegatecertainfunctionstoothers.
8.Trusteesmustkeepaccountsofthetrustandarerequiredtodisclosethemtobeneficiariesiftheyso
request.
9.Trusteeshavevariouspowerstosettleanyclaimsrelatingtothetrustortoenterintoacompromise
agreement.
1.DutiesandPowers
Trusteesareresponsiblefortheadministrationofthetrust.Theyaresubjecttocertainduties,whichmustbe
performed,andhaveanumberofpowers,whichmaybeexercised,relatingtotrustadministration.Thenatureof
thesedutiesandpowersareexaminedinthischapter.
TrusteesdutiesareimperativeEquityrequiresstrictcompliance.Failuretocomplywiththeirdutiesmayrender
trusteesliableforbreachoftrust,1 eventhoughtheythoughtthatwhattheyweredoingorfailingtodowasinthe
bestinterestsofthetrustandwouldbenefitthebeneficiaries.However(p.567) onerousthedutiesofatrustee
maybe,aclausecanbeinsertedinthetrustinstrumentthatmaybeeffectivetoexemptatrusteefrom
liability,2 andsection61oftheTrusteeAct1925givesthecourtadiscretiontoexcuseatrusteefromliabilityfor
breachoftrustwherethetrusteehasactedhonestlyandreasonablyandoughtfairlytobeexcusedfromliability.3
Trusteeshavesuchpowersasaregiventothembystatuteorbythetrustinstrument.Mostofthedutiesor
powerscanbeexpanded,modified,orevenexcludedbythetrustinstrument,asregardsthestatutorypowers
conferredbytheTrusteeAct1925:
TrusteeAct1925
69.ApplicationofAct
(2)ThepowersconferredbythisActontrusteesareinadditiontothepowersconferredbythe
instrument,ifany,creatingthetrust,butthosepowers,unlessotherwisestated,applyifandsofar
onlyasacontraryintentionisnotexpressedintheinstrument,ifany,creatingthetrust,andhave
effectsubjecttothetermsofthatinstrument.
Similarly,asregardsthepowersconferredbytheTrusteeAct2000:
TrusteeAct2000
Sched1,para.7Exclusionofdutyofcare
Thedutyofcaredoesnotapplyiforinsofarasitappearsfromthetrustinstrumentthatthedutyis
notmeanttoapply.
Itfollowsthatthecreatorofatrusthassignificantdiscretionastothenatureandextentofthetrustees
administrativedutiesandpowers.ThejudgemaderulesofEquity,togetherwiththevariousstatutes,providea
menuastowhatdutiesandpowersmightbeavailable.Ifthecreatorofthetrustdoesnotwantthetrusteetobe
subjecttothesedutiesorhavethesepowers,theycanbeexcludedormodifiedalternatively,thecreatorofthe
trustmaywishtoexpandthem,saveexceptionallyifthestatutesaysthatthedutyorpowerappliesregardlessof
whatthetrustinstrumentstates.4
Inwhatfollows,itwillbeassumedthatthetrusteewhoseadministrativedutiesandpowersarebeingconsidered
isanexpresstrustee.TheTrusteeAct1925does,however,defineatrusteetoincludeimpliedandconstructive
trustees,5 andsothestatutorypowersanddutiesareconsideredtobeofgeneralapplicationtoalltrustees,
althoughitisunclearwhetherthesameistrueofpowersanddutiescreatedbytheTrusteeAct2000,sincethat
statutedoesnotdefinewhatismeantbytrustee.
(p.568) 2.TheDutyofCare
Trusteesarerequiredtoperformtheiradministrativeresponsibilitiesdiligently,andaresubjecttoadutytocomply
withthestandardofskillandcareexpectedofalltrustees.Therearetwodistincttestsofthedutyofcare:oneat
CommonLawandtheotherstatutory.
(a)CommonLawDutyofCare
AtCommonLaw,trusteesareexpectedtoexercisethesamestandardofdiligenceandcareasanordinary
prudentpersonofbusinesswouldexerciseinthemanagementofhisorherownaffairs.6 AsLordBlackburnsaid
inSpeightvGaunt:7
asageneralruleatrusteesufficientlydischargeshisdutyifhetakesinmanagingtrustaffairsallthose
precautionswhichanordinaryprudentmanofbusinesswouldtakeinmanagingsimilaraffairsofhisown.
Whatconstitutestheownaffairsofabusinesspersonhassometimesbeeninterpretedtomeanhisorherprivate
affairs,8 orhisorherownbusiness.9 Inmanycases,therewillbenodifferencebetweenthestandardadoptedfor
onesprivateaffairsandonesbusinessaffairs,althoughahigherstandardofcaremightsometimesbeexpected
whenactinginbusinessthaninprivatematters.
TheapplicationoftheCommonLawtestisparticularlywellillustratedbySpeightvGaunt.
SpeightvGaunt(1883)9AppCas1
Atrusteewasinstructedbythebeneficiariesofthetrusttoinvestthebulkofthetrustassetsinsecurities.
Ontheadviceofthebeneficiaries,thetrusteeselectedastockbroker,notrealizingthathewasnearly
insolvent.Thestockbrokershowedthetrusteeaforgednoteasevidencethatthesecuritieshadbeen
purchased.Thetrusteetransferredthetrustfundstohimandthestockbrokerthenabscondedwiththe
money.Thebeneficiariessuedthetrusteeforimprudentlychoosingandrelyingonadishonestagent.Itwas
heldthatthetrusteehadnotbreachedhisdutyofcarebecausehehadcompliedwiththestandardsof
businesspracticeatthetime,namelytotransferthepaymentbeforethesecuritieswereexecuted.AsLord
Blackburnsaid:10
Judgesandlawyerswhoseebroughtbeforethemthecasesinwhichlosseshavebeenincurred,and
donotseetheinfinitelymorenumerouscasesinwhichexpenseandtroubleandinconvenienceare
avoided,areapttothinkmenofbusinessrash.Ithinkthattheprincipleisthat,whilethecourseis
usual,atrusteeisnottobeblamedifhehonestly,andwithoutknowinganythingthatmakesit
exceptionallyriskyinhiscase,pursuesthatusualcourse.Itwouldbebothunreasonableand
inexpedienttomakeatrusteeresponsiblefornotbeingmoreprudentthanordinarymenofbusiness
are.
Thisstandardoftheordinaryprudentbusinesspersonisanobjectivetestthatpaysnoregardtotheabsenceof
skillsorexperienceofthetrusteetolowerthestandardofcare.Thisisillustratedby(p.569) ReVick ery,11 in
whichthedefendanttrustee,whohadbeenamissionaryinLondonandwhowascompletelyignorantofbusiness
affairs,wasjudgedagainstthestandardofthereasonabletrustee,ratherthanthereasonablemissionary.The
trusteewas,however,stillfoundnottohavebreachedhisdutyofcarewhenhechosealocalsolicitorto
administerthetrust,eventhoughthatsolicitor,MrJennens,hadinfactpreviouslybeensuspendedfrompractice
andlaterabscondedwiththetrustproperty.AsMaughamJemphasized:12
Itisessentialinthiscasetoguardoneselfagainstjudgingtheconductofthedefendantinthelightof
subsequentevents.TohaveemployedanewsolicitorassoonasthedefendantbecameawarethatHH
Jennenswasapersonwithatarnishedreputationforhonestywouldcertainlyhavemeantfurthercosts.It
mighthaveprovedquiteunnecessaryevenonthesuppositionthatJennenswasarogue.Evenamanofthe
worldmighthavethoughtthatthesuminvolvedthesumof[300].orthereaboutswasfartoosmallto
makeitprobablethatthesolicitorwouldbelikelyunless,indeed,inthecaseofseternnecessityfor
suchasumtoexposehimselftotheordersoftheCourtandtotheactionoftheLawSociety.
If,however,thetrusteeisapaidprofessional,thestandardofcarewillberaisedtothestandardthatsucha
professionalwouldbeexpectedtoexhibit.InBartlettvBarclaysBank TrustCo.Ltd,13 BrightmanJsaid:
Sofar,Ihaveappliedthetestoftheordinaryprudentmanofbusiness.AlthoughIamnotawarethatthe
pointhaspreviouslybeenconsidered,exceptbrieflyinInreWatermansWillTrusts[1952]2AllER1054,I
amofopinionthatahigherdutyofcareisplainlyduefromsomeonelikeatrustcorporationwhichcarries
onaspecialisedbusinessoftrustmanagement.Atrustcorporationholdsitselfoutinitsadvertising
literatureasbeingaboveordinarymortals.Withaspecialiststaffoftrainedtrustofficersandmanagers,
withreadyaccesstofinancialinformationandprofessionaladvice,dealingwithandsolvingtrustproblems
dayafterday,thetrustcorporationholdsitselfout,andrightly,ascapableofprovidinganexpertisewhichit
wouldbeunrealistictoexpectandunjusttodemandfromtheordinaryprudentmanorwomanwho
accepts,probablyunpaidandsometimesreluctantlyfromasenseoffamilyduty,theburdensofa
trusteeship.Justas,underthelawofcontract,aprofessionalpersonpossessedofaparticularskillis
liableforbreachofcontractifheneglectstousetheskillandexperiencewhichheprofesses,soIthink
thataprofessionalcorporatetrusteeisliableforbreachoftrustiflossiscausedtothetrustfundbecause
itneglectstoexercisethespecialcareandskillwhichitprofessestohave.
Theprudentbusinesspersontestinvolvesahypotheticalfigureagainstwhichthestandardofthetrustees
performancecanbeobjectivelymeasured.Thisisanequivalentstandardtothatwhichisadoptedforthetortof
negligenceinfact,theequitabledutyofcarecanberegardedashavingnowbeenassimilatedintotheCommon
LawtortofnegligenceandoutsidetheexclusivejurisdictionofEquity.14 Itfollowsthatliabilityforbreachofthis
dutyofcareissubjecttothesamerulesandremediesasthetortofnegligence,including,forexample,thatthe
trusteesliabilitywillbesubjecttothedefenceofcontributorynegligence.15
Evenifthetrusteeshaveapparentlynotsatisfiedthestandardofskillandcare,itdoesnotfollowthattheywillbe
liabletothebeneficiaries,sincethebeneficiariesalsoneedtoshowthat,hadthe(p.570) trusteescompliedwith
therelevantstandardofskillandcare,theywouldhaveacteddifferently.16 Thisisadifficultburdentosatisfy.So,
forexample,inNestlvNationalWestminsterBank plc,17 thetrusteebankbreacheditsdutyofcareinits
managementofthetrustsinvestments,butitwasnotliabletothebeneficiariesbecauseitcouldnotbeshown
thatthetrustwouldhavebenefitedfinanciallyhadtherebeenbettermanagementoftheinvestments.
(b)StatutoryDutyofCare
TheTrusteeAct2000createdastatutorydutyofcare,whichisapplicabletotheexerciseofthosepowersand
dutiesthatareprovidedforunderthe2000Act,otherstatutoryprovisions,andmanypowerscreatedbythetrust
instrument.TheCommonLawdutyofcareremainsrelevantinrespectofotherpowersandduties,mostnotably
tothedispositivepowersofappointmentoftrustpropertytobeneficiaries 18 andthepowersofmaintenance19 and
advancement.20 Itappears,however,thatthereisnodifferencebetweentheCommonLawandstatutorydutiesof
care.21
TrusteeAct2000
1.Thedutyofcare
(1)Wheneverthedutyunderthissubsectionappliestoatrustee,hemustexercisesuchcare
andskillasisreasonableinthecircumstances,havingregardinparticular
(a)toanyspecialknowledgeorexperiencethathehasorholdshimselfoutashaving,and
(b)ifheactsastrusteeinthecourseofabusinessorprofession,toanyspecial
knowledgeorexperiencethatitisreasonabletoexpectofapersonactinginthecourseof
thatkindofbusinessorprofession.
(2)InthisActthedutyundersubsection(1)iscalledthedutyofcare.
2.Applicationofdutyofcare
Schedule1makesprovisionaboutwhenthedutyofcareappliestoatrustee.
Thisscheduleappliesthestatutorydutyofcaretoallpowersofinvestment,whetherconferredbystatute22 orthe
trustinstrument23 anypowertoacquireland,howeverconferred24 whenappointingagents,nominees,or
custodians,25 howeverconferredanypowertocompoundliability 26 (p.571) andanypowertoinsure
property.27 Butinallcasesthedutyofcarecanbeexcludedbythetrustinstrument.28
Thestatutorydutyofcarerequiresalltrusteestocomplywiththestandardofthereasonabletrustee,eventhose
trusteeswhoareplainlyincompetentandunsuitedtothetask.Althoughreasonablenessisassessedwithregard
towhatisreasonableinthecircumstances,thedefendantscircumstancesshouldnotbetakenintoaccountto
reducethestandardofcarebelowthatofthereasonabletrustee.29 Butthestandardofcareexpectedoftrustees
canberaisedifthetrusteepossessesparticularknowledgeorexperienceorisactinginthecourseofabusiness
orprofession.Whatisreasonableinthecircumstancesshouldbeinfluencedbyfactorssuchasthesizeofthe
trustfundandthecomplexityofthetrust.
Breachofthestatutorydutyofcareshouldberegardedasatortofbreachofdutyratherthanbreachoftrust.This
issignificant,sinceitwillaffecttheapplicationofparticularrulessuchasthoserelatingtocausation,remoteness,
remedies,andlimitationperiods.30
(c)TheRelationshipBetweentheCommonLawandStatutoryTests
Thecreationofastatutorydutyofcarebasedonreasonablenessinthecircumstanceshadbeenproposedbythe
LawCommission,31 whichrejectedtheCommonLawlanguageoftheprudentpersonofbusiness.Anumberof
reasonswereidentifiedforthisdecision,includingthatadoptingaprudentbusinesspersontestwouldsimply
involvearestatementoftheCommonLawtest,thatthestatutorystandardhasexplicitregardtotheparticular
skillsofthetrustee,thatthestandardofcaremustberobustanddemanding,andthattheremay,infact,belittle
differencebetweenthetwoalternatives.Indeed,theLawCommissionstatedthatthe:32
statutorydutyofcareprobablyrepresentsnomorethanacodificationoftheexistingcommonlawduty.
Thisisthepreferableview,andhasbeenendorsedbyLloydLJinPittvHolt:33
trusteesareunderadutyofcare,obligingthemtoexercisesuchskillandcareasisreasonableinthe
circumstances,undersection1oftheTrusteeAct2000.Thisputsintostatutoryform(inrelationto
specificfunctionsofthetrustees)thedutyrecognisedinSpeightvGaunt(1883)22ChD727and(1883)9
AppCas1,whichcontinuestoapplytocaseswherethestatutorydutydoesnot.
BoththeCommonLawandstatutorytestsinvolveanobjectivecore,whetherthatisdescribedwithreferenceto
theprudentbusinesspersonorthereasonableperson.Thestandardofcareforbothtests(p.572) ishigher
wheretheparticulartrusteeisaprofessional.Althoughthestatutorytestqualifiestheobjectivetestwherethe
trusteehasparticularskillsorexperience,thiswouldpresumablybetrueoftheCommonLawtesttoo,sincethe
justificationforraisingthestandardofcareexpectedfromprofessionaltrusteesisthattheyholdthemselvesout
ashavingspecificskillsorexperience.Presumablyanytrusteewithparticularskillsorexperienceshouldcomply
withahigherstandardofcareatCommonLaw,evenifheorshewerenotaprofessional.Consequently,itshould
notmatterwhethertheCommonLaworstatutorytestappliesthesamerulesondeterminingthestandardofcare
willoperate.
3.DutytoSafeguardTrustAssets
Thetrusteesareresponsibleforsafeguardingthetrustassetsforthebenefitofthebeneficiaries.Thismeans,for
example,that,onappointment,atrusteemustensurethatthetrustfundsareproperlyinvestedandthattrust
assets,suchassecuritiesandchattels,arekeptsecurely.34 Thisdutyalsomeansthatifmoneyisowedtothe
trust,thetrusteesmusttakeallreasonablestepstoensurethatthedebtisdischarged.
ReBrogden[1888]38ChD546
Byhiswill,MrBrogdencovenantedtopay10,000tothetrusteesofhisdaughtersmarriagesettlement
withinfiveyearsofhisdeath.Thismoneywastobepaidfromhispartnershipwithhissons.Budgettwasone
ofthetrusteesofthemarriagesettlement.HepressedBrogdenssonsonmanyoccasionsforpaymentofthe
money,bothbeforeandaftertheexpiryofthefiveyearperiod.Onseveraloccasionssecurityforthepayment
wasgiven,oneofthesebeinginresponsetoanactionstartedbyBudgettfortheadministrationoftheestate.
Throughout,Budgettwastryingtoavoiddisturbancewithinthefamily,andanycrisisthatwouldupsetthe
solvencyofthefirmsincetheBrogdenpartnershipwasbecominglessprosperous.Eventuallythepartnership
becameinsolventandthesecuritiesworthless.ThequestionwaswhetherBudgettwasliabletothe
beneficiaryofthemarriagesettlementforbreachoftrust.
TheCourtofAppealheldthatBudgettwasliable,ashehadnottakenallpossiblestepstoobtainpaymentof
the10,000.
CottonLJ:Nowwhatwasthedutyofthetrustee,Mr.Budgett?Itwashisduty,inmyopinion,atthe
expirationoffiveyears,tocallforpaymentandtotakereasonablemeansofenforcingpaymentifthe
executorsdidnotpaythedebtandthelegacy.Andtherehavingbeenapostponedperiodduringwhich
nostepsweretobetakenagainstthepartnersoragainsttheexecutors,itwasthemorehisdutyat
theexpirationofthatperiodtoassumethattheexecutorshaddonewhatitwastheirdutytodoby
preparingforpayingthedebtsandpayingthelegaciesofthetestator.And,inmyopinion,inthe
casehere,itbecamethedutyofMr.Budgetttotakeactivemeasuresimmediatelyaftertheexpiration
ofthefiveyearsthatisimmediatelythelegacybecamepayableandimmediatelythedebtbecame
payable.
Wemustthereforeconsiderwhathedid.ThefiveyearsexpiredinthebeginningofDecember,1874.I
donotsuggestthatduringtheremainderofthatmonthofDecemberheshouldhavetakenanylegal
proceedings.Thatwouldhardlybeexpected,butwhatinmyopinionheoughttohavedone,ifnotin
December,1874,earlyintheyear1875,wastohavedemandedpayment,andifpaymentwasnot(p.
573) made,thenheoughttohavetakeneffectualproceedingsinordertorecoverpaymentbothofthe
legacyandofthedebt.Idonotsayitwashisdutytorecoverthem,becausethatassumesthathe
couldhavedoneso:butinmyopinionitwashisdutytodemandpaymentofthem,andtotake
effectualproceedingsforthepurposeofrecoveringthem
Inmyopinionitisnotforthecestuisquetrustseekingtomakethetrusteeliable,toshewthatifhe
haddonehisdutyhewouldhavegotthemoneyforwhichtheyareseekingtomakehimanswerable.It
isthetrusteewhoisseekingtoexcusehimselffortheconsequencesofhisbreachofduty.Itwashis
dutytotakeactiveproceedingsifnecessaryearliertotakeactiveproceedingsbywayofactionat
law,ifnecessaryandifthetrusteeistoexcusehimself,itisforhimtoshewthatifhehadtaken
proceedingsnogoodwouldhaveresultedfromit
IhavethereforecometotheconclusionthatthedecisionofMr.JusticeNorthmustbeaffirmed.Itisan
unfortunatepositionnodoubtforMr.Budgett,andIquitethinkthathebelievedthatthefirmwere
perfectlysolvent,andthathewasincurringnoriskinlettingthemoneyremainwiththem.Heought
nottohavetrustedthemashedidthatandhisexpectationsandthoseofthefamilyhaveturnedout
tobewrong,andhehasnotshewnthatnogoodwouldhaveresultedfromhisperforminghisdutyby
pressingforpayment,andifnecessarybytakingproceedingstoenforcepayment,hemustbeheld
liable.
Itdoesnotnecessarilyfollowthattrusteesmustsueformoneythatisowedtothetrustineverycase.Other
coursesofactionmightbemoreappropriate.Forexample,inReEzek ielsSettlementTrust,35 itwasheldtobe
appropriateforatrusteetoenterintoacompromise36 asregardsmoneythatwasowedtothetrust,eventhough
thebeneficiarywantedthefullamountduetoberecoveredthroughlitigation.Resortingtolitigationwasnota
reasonablecourseofactionsincetherewasanunacceptableriskthatthetrustmightsufferalossastheresultof
bearingthecostsofthelitigation.Similarly,inWardvWard,37 atrusteewasheldnottohavecommittedabreach
oftrustbyfailingtocallformoneyowedtothetrustbyabeneficiary,sincethiswouldhaveresultedinthe
bankruptcyofthebeneficiary.
4.DutytoInvest
38
Trusteeshaveadutytoinvesttrustassetsinthebestinterestsofpresentandfuturebeneficiaries.38 Thereare
twosignificant,andpotentiallyconflicting,principlesthatarisefromthisduty.39
(1)Trusteesmustsafeguardthetrustfundbypreservingthecapitalvalueofthattrustfund.Thisprinciple
encouragestrusteestoadoptaconservativeinvestmentpolicy,whichseekstoavoidtakingsignificantrisks
withtheinvestmentbyspeculatingwiththetrustfunds.40 InNestlvNationalWestminsterBank
plc,41 LeggattLJsaid:
WhentrustscameintotheirowninVictoriantimestheywerenodoubtintendedtopreservecapital
whileassuringbeneficiariesofasteady,ifconservative,income.Littlewasdemandedofatrustee(p.
574) beyondthesafeguardingofthetrustfundbyrefrainingfromimprovidentinvestment.This
processwasnodoubtalsointendedtosavebeneficiariesfromtroubleandanxiety,orwhatisnow
calledhassleTheimportanceofpreservationofatrustfundwillalwaysoutweighsuccessinits
advancement.Inevitably,atrusteeinthebankspositionwearsacomplacentair,becausethevirtue
ofsafetywillinpracticeputapremiumoninactivity.Untilthe1950sactivemanagementofthe
portfoliomighthavebeenseenasspeculative,andeveninthesedayssuchdealingwouldhavetobe
notablysuccessfulbeforetheexpensewouldbejustified.
(2)Amoremodernapproachtoinvestmentpolicyistorecognizethattrusteesmustmaximizereturnsfor
thebenefitofthebeneficiaries.InReWragg,42 POLawrenceJdefinedinvestmentasmeaning:
toapplymoneyinthepurchaseofsomepropertyfromwhichinterestorprofitisexpectedandwhich
propertyispurchasedinordertobeheldforthesakeoftheincomewhichitwillyield.
Thisprincipleencouragestrusteestospeculatewiththetrustfund,soastoobtainagoodincomefrom
investmentsandtoensurethatthecapitalvalueofthefundincreases.Thisprinciplerequirestrusteestohavethe
widestpossibleinvestmentpowers,sothattheycaninvestthetrustassetsinthemostappropriatewayforthe
benefitofthetrust.
Usuallytrusteesaregivenwidepowersofinvestmentinthetrustinstrument.Otherwisethosepowersarederived
fromPartIIoftheTrusteeAct2000.ThepurposeofthisPartoftheActwastocreatewideinvestmentpowersfor
trusteesthrougharegimethatisconsistentwithmoderninvestmentpractice,knownasportfoliotheory,byvirtue
ofwhichtrusteesshouldhaveregardtothecompositionoftheirinvestmentsasawhole,knownastheportfolio,
todeterminewhethertheyarebalancedandsuittheneedsoftheparticulartrust.
Thornton,EthicalInvestments:ACaseofDisjointedThinking(2008)CLJ396,399
However,investorsdonotconsiderindividualassetsinisolation.Byholdingacombinationofassets
knownasaportfoliotheyareabletospread,andthusminimise,therisktowhichthefundisexposed.
Thiscanbedemonstratedstatistically,sincethevarianceofagroupofassetswilltendtobelessthan
theaverageofthevarianceoftheindividualassetsthemselves.AsLordNichollsofBirkenheadhas
pointedout,thetraditionalprohibitionuponselectinginvestmentsattendedwithhazardmustberead
inthecontextofastrategywherebyriskismanagedacrossabalancedportfolio,incorporatinga
prudentmixtureoflowandhigherriskassets.43 Diversificationcannot,ofcourse,eliminateallriskit
cannotremovesystematicormarketriskbutonlynonsystematicorfirmspecificrisk.44
Somecombinationsofassetswillbemoreeffectivethanothersinreducingtheoverallriskonthe
portfolio.Totakeaverysimpleexample,iftwoassetsarelikelytoperformwellunderoppositemarket
conditionsoratdifferenttimes,thendividingthefundbetweenthesetwowouldsubstantiallyreduce
thedegreeofriskontheotherhand,dividingthefundbetweentwoinvestmentswhichwilltendto
trackeachotherandperformwellundersimilarconditionswouldbelesseffectiveatreducing
overall(p.575) risk.ToadoptEmmaFordscolourfulexample,theriskinowningstockinan
45
umbrellamanufacturerisloweriftheinvestoralsoownsstockinasuntanlotionmanufacturer.45
Intheory,ifaportfoliocontainsasufficientnumberofindependentassetsthen,whateverthevariance
oftheindividualassetswithintheportfolio,theaveragevarianceoftheportfolioasawholealways
approacheszero.Inreallife,unfortunately,thingsarenotthatsimple.Inmostmarkets,assetstend
nottoperformindependently,buttomoveupanddowninaninterrelatedmanner.Thusbyincreasing
thenumberofassetsintheinvestmentportfolioandbyensuringthattheyareasindependentas
possible,thevarianceorriskcanbeminimisedbutneverreducedentirelytozero.Asthesizeofthe
portfolioincreases,theadditionofanynewassetwillhaveasmallerandsmallereffectthough
always,intheory,someeffectintermsofthereductionofoverallrisk.
Thesignificanceofportfoliotheorytothemanagementofriskisthattheemphasisisplacedontherisklevelof
theentireportfolioratherthantheriskbeingattachedtoeachinvestmentinisolation.46 Consequently,ahighrisk
investmentmightbejustifiedwhenconsideredinconjunctionwithotherlessriskyinvestments,eventhoughsuch
aninvestmentmighthavebeenconsideredtobetooriskyforthetrustand,therefore,abreachoftrustif
consideredinisolation.
(b)InvestmentPowers
(i)Generalpowerofinvestment
TrusteeAct2000
3.Generalpowerofinvestment
(1)SubjecttotheprovisionsofthisPart,atrusteemaymakeanykindofinvestmentthathe
couldmakeifhewereabsolutelyentitledtotheassetsofthetrust.
(2)InthisActthepowerundersubsection(1)iscalledthegeneralpowerofinvestment.
(3)Thegeneralpowerofinvestmentdoesnotpermitatrusteetomakeinvestmentsinlandother
thaninloanssecuredonland(butseealsosection8).47
(4)Apersoninvestsinaloansecuredonlandifhehasrightsunderanycontractunderwhich
(a)onepersonprovidesanotherwithcredit,and
(b)theobligationoftheborrowertorepayissecuredonland.
(5)Creditincludesanycashloanorotherfinancialaccommodation.
(6)Cashincludesmoneyinanyform.
6.RestrictionorexclusionofthisPartetc.
(1)Thegeneralpowerofinvestmentis
(a)inadditiontopowersconferredontrusteesotherwisethanbythisAct,but
(b)subjecttoanyrestrictionorexclusionimposedbythetrustinstrumentorbyany
enactmentoranyprovisionofsubordinatelegislation.
(p.576) Schedule1
1Thedutyofcare48 appliestoatrustee
(a)whenexercisingthegeneralpowerofinvestmentoranyotherpowerofinvestment,
howeverconferred
(b)whencarryingoutadutytowhichheissubjectundersection4or549 (dutiesrelating
totheexerciseofapowerofinvestmentortothereviewofinvestments).
ThenotestotheTrusteeAct2000,whicharenotbinding,indicatethattrusteesarepermittedtoinvestinassets
thatareexpectedtoproduceeitheranincomereturnoracapitalreturn,soinvestmentinassetsthatwillnotyield
anincomecanstillcountaslegitimateinvestment.
Thegeneralpowerofinvestmentappliestomosttrusts,eventhosethatweresettledbefore2001whenthe
TrusteeActcameintoforce,50 althoughthegeneralpowercanbeexpanded,restricted,orexcludedbythetrust
instrument.51 Thegeneralpowerofinvestmentdoesnotapplytotrusteesofpensionschemes,52 orauthorized
unittrusts,53 ortocharitabletrusteeswhoaremanagingcommoninvestment,54 sincealternativestatutory
provisionismadeforthesetrustees.
(ii)Standardinvestmentcriteria
Inexercisingthegeneralpowerofinvestmentoranypowerofinvestment,suchasonecreatedbythetrust
instrument,orwhenreviewingtheinvestments,thetrusteeisunderadutytohaveregardtothestandard
investmentcriteria.
TrusteeAct2000
4.Standardinvestmentcriteria
(1)Inexercisinganypowerofinvestment,whetherarisingunderthisPartorotherwise,atrustee
musthaveregardtothestandardinvestmentcriteria.
(2)Atrusteemustfromtimetotimereviewtheinvestmentsofthetrustandconsiderwhether,
havingregardtothestandardinvestmentcriteria,theyshouldbevaried.
(3)Thestandardinvestmentcriteria,inrelationtoatrust,are
(a)thesuitabilitytothetrustofinvestmentsofthesamekindasanyparticularinvestment
proposedtobemadeorretainedandofthatparticularinvestmentasaninvestmentofthat
kind,and
(b)theneedfordiversificationofinvestmentsofthetrust,insofarasisappropriatetothe
circumstancesofthetrust.
(p.577) Thesetwocriteriareflectportfoliotheory.Asregardsthesecondcriterionofdiversification,inCowanv
Scargill55 MegarryVCfoundthat:
circumstancesofthetrustplaintlyincludesmatterssuchasthesizeofthetrustfunds:thedegreeof
diversificationthatispracticableanddesirableforalargefundmayplainlybeimpracticableorundesirable
(orboth)inthecaseofasmallfund.
(iii)Dutytoobtainadvice
TrusteeAct2000
5.Advice
(1)Beforeexercisinganypowerofinvestment,whetherarisingunderthisPartorotherwise,a
trusteemust(unlesstheexceptionapplies)obtainandconsiderproperadviceaboutthewayin
which,havingregardtothestandardinvestmentcriteria,thepowershouldbeexercised.
(2)Whenreviewingtheinvestmentsofthetrust,atrusteemust(unlesstheexceptionapplies)
obtainandconsiderproperadviceaboutwhether,havingregardtothestandardinvestment
criteria,theinvestmentsshouldbevaried.
(3)Theexceptionisthatatrusteeneednotobtainsuchadviceifhereasonablyconcludesthatin
allthecircumstancesitisunnecessaryorinappropriatetodoso.
(4)Properadviceistheadviceofapersonwhoisreasonablybelievedbythetrusteetobe
qualifiedtogiveitbyhisabilityinandpracticalexperienceoffinancialandothermattersrelating
totheproposedinvestment.
Atrusteemightreasonablyconcludethatitisnotnecessarytoobtainsuchadvicewhere,forexample,thefundis
relativelysmallsothatthecostofobtainingtheadvicemightbemorethanthevalueofthefund.Thetrusteeisnot
requiredtofollowtheadviceobtained,butitmustbereasonabletodecidenottodoso.AsMegarryVC
commentedinCowanvScargill:56
althoughatrusteewhotakesadviceoninvestmentsisnotboundtoacceptandactonthatadvice,heis
notentitledtorejectitmerelybecausehesincerelydisagreeswithit,unlessinadditiontobeingsincerehe
isactingasanordinaryprudentmanwouldact.
(iv)Delegationofinvestmentpowers
Investmentpowerscanbedelegatedtoanagent,57 whowillbeboundbyanyrestrictionsontheexerciseofthose
powersinthesamewayaswouldthetrustee.58 So,forexample,anagentwhoisauthorizedtoexercisethe
generalpowerofinvestmentmustalsohaveregardtothestandardinvestmentcriteria.(p.578) Anagentisnot,
however,requiredtoobtaininvestmentadviceifheorsheisthekindofpersonfromwhomitwouldhavebeen
properforthetrusteestoobtainsuchadvice,59 suchasafinancialadviser.
(v)Purchaseofland
PartIIIoftheTrusteeAct2000providesforpowerstoacquireland.
TrusteeAct2000
8.Powertoacquirefreeholdandleaseholdland
(1)AtrusteemayacquirefreeholdorleaseholdlandintheUnitedKingdom
(a)asaninvestment,
(b)foroccupationbyabeneficiary,or
(c)foranyotherreason.
(2)Freeholdorleaseholdlandmeans
(a)inrelationtoEnglandandWales,alegalestateinland
(3)Forthepurposeofexercisinghisfunctionsasatrustee,atrusteewhoacquireslandunder
thissectionhasallthepowersofanabsoluteownerinrelationtotheland.
9.RestrictionorexclusionofthisPartetc.
ThepowersconferredbythisPartare
(a)inadditiontopowersconferredontrusteesotherwisethanbythisPart,but
(b)subjecttoanyrestrictionorexclusionimposedbythetrustinstrumentorbyanyenactment
oranyprovisionofsubordinatelegislation.
Schedule1
2Thedutyofcare60 appliestoatrustee
(a)whenexercisingthepowerundersection8toacquireland
(b)whenexercisinganyotherpowertoacquireland,howeverconferred
(c)whenexercisinganypowerinrelationtolandacquiredunderapowermentionedinsub
paragraph(a)or(b).
ThestatutorypoweronlyrelatestotheacquisitionoflandintheUnitedKingdom,sotrusteesdonothavea
statutorypowertoacquirelandabroad,althoughsuchapowercanbeincludedinthetrustinstrument.Adefault
powertobuylandabroadwasnotincludedintheTrusteeAct2000becausetrustsarenotuniversallyrecognized
abroadandthepurchaseoflandforatrustinacountrythatdoesnotrecognizethetrustmightcausedifficulties.
(p.579) (vi)Commoninvestmentfundsforcharities
Provisionismadefortheestablishmentofcommoninvestmentschemesforcharities,whichprovideauseful
mechanismforparticipatingcharitabletrustscollectivelytogetthebenefitofexpertinvestmentexperience.
CharitiesAct2011
96.Schemestoestablishcommoninvestmentfunds
(1)ThecourtortheCommissionmaybyordermakeandbringintoeffectschemes(inthis
sectionreferredtoascommoninvestmentschemes)fortheestablishmentofcommon
investmentfundsundertrustswhichprovide
(a)forpropertytransferredtothefundbyoronbehalfofacharityparticipatinginthe
schemetobeinvestedunderthecontroloftrusteesappointedtomanagethefundand
(b)fortheparticipatingcharitiestobeentitled(subjecttotheprovisionsofthescheme)to
thecapitalandincomeofthefundinsharesdeterminedbyreferencetotheamountor
valueofthepropertytransferredtoitbyoronbehalfofeachofthemandtothevalueofthe
fundatthetimeofthetransfers.
(2)ThecourtortheCommissionmaymakeacommoninvestmentschemeontheapplicationof
anytwoormorecharities.
(3)Acommoninvestmentschememaybemadeintermsadmittinganycharitytoparticipate,or
theschememayrestricttherighttoparticipateinanymanner.
(vii)Dutytoobtainthebestprice
Whentrusteesarebuyingorsellingtrustproperty,theyareunderadutytoobtainthebestpriceandmustnotbe
influencedbyethicalormoralconsiderations.Therewillevenbecircumstancesunderwhichtrusteesmayhaveto
actdishonourablyforthebenefitofthetrust.61 So,evenwheretrusteeshaveacceptedanoffertosellproperty
subjecttocontract,iftheysubsequentlyreceiveabetteroffer,theyshouldtypicallyrenegeonthefirstofferand
acceptthesecond.Inotherwords,thereisadutytogazump.Buteachcasewillturnonitsfactsinassessing
whetheritisreasonabletogazump:ifthereisariskthatthehigherofferwillnotresultinasale,oraspeedy
transactionisoftheessence,itmightthenbereasonabletoproceedwiththesaleasinitiallyagreed.
ButtlevSaunders[1950]2AllER193
TrusteeshadorallyagreedtoselltrustlandtoMrsSimpsonfor6,142.Afterallthedocumentshadbeen
preparedforthesaletoMrsSimpson,butbeforethecontractwassigned,oneofthebeneficiaries,Canon
Buttle,offered6,500sincehewishedtopurchasethelandforacharity.Thetrusteesfeltthattheyhad
reachedastageinthenegotiationswithMrsSimpsonfromwhichtheycouldnothonourablywithdraw.Canon
Buttlebroughtanactiontorestrainthetrusteesfromsellingforanypricebelowthatwhichhehadoffered.
WynnParryJheldthatthetrusteesmustacceptCanonButtlesoffer:62
(p.580) Ithasbeenarguedonbehalfofthetrusteesthattheywerejustifiedinthecircumstancesin
notpursuingtheoffermadebyCanonButtleandindecidingtogoforwardwiththetransactionwith
Mrs.Simpson.Itistruethatpersonswhoarenotinthepositionoftrusteesareentitled,iftheyso
desire,toacceptalesserpricethanthatwhichtheymightobtainonthesaleofproperty,andnot
infrequentlyavendor,whohasgonesomelengthsinnegotiatingwithaprospectivepurchaser,decides
toclosethedealwiththatpurchaser,notwithstandingthatheispresentedwithahigheroffer.It
redoundstothecreditofamanwhoactslikethatinsuchcircumstances.Trustees,however,arenot
vestedwithsuchcompletefreedom.Theyhaveanoverridingdutytoobtainthebestpricewhichthey
canfortheirbeneficiaries.Itwould,however,beanunfortunatesimplificationoftheproblemifonewere
totaketheviewthatthemereproductionofanincreasedofferatanystage,howeverlateinthe
negotiations,shouldthrowonthetrusteesadutytoacceptthehigherofferandresilefromtheexisting
offer.Formyself,Ithinkthattrusteeshavesuchadiscretioninthematteraswillallowthemtoact
withproperprudence.Icanseenoreasonwhytrusteesshouldnotprayinaidthecommonsenserule
underlyingtheoldproverb:abirdinthehandisworthtwointhebush.Icanimaginecaseswhere
trusteescouldproperlyrefuseahigherofferandproceedwithaloweroffer.Eachcasemust,of
necessity,dependonitsownfacts.Inregardtothecasenowbeforeme,myviewisthatthetrustees
andtheirsolicitorsactedonanincorrectprinciple.Theonlyconsiderationwhichwaspresenttotheir
mindswasthattheyhadgonesofarinthenegotiationswithMrs.Simpsonthattheycouldnot
properly,fromthepointofviewofcommercialmorality,resilefromthosenegotiations.Thatbeingso,
theydidnot,toanyextent,probeCanonButtlesofferas,inmyview,theyshouldhavedone.Itwas
urgedonmethat,bypausingtoprobehisoffer,theyrantheriskoflosingthecontractwithMrs.
Simpson.OntheviewofthefactswhichItake,Idonotconsiderthatthatwasmuchofarisk.Mrs.
Simpsonhadboughttheleaseholdterm,whichwasnearingitsend,andshewasaveryanxious
purchaser.Equally,CanonButtlehaddemonstratedbeyondaperadventurethathewasaveryanxious
buyer,and,asitseemstome,theleastthetrusteesshouldhavedonewouldhavebeentohavesaid
tohim:Youhavecomeonthesceneatalatestage.Youhavemadethisofferwellpasttheeleventh
hour.WehaveadvancednegotiationswithMrs.Simpsonwhichcanbeconcludedwithinamatterof
hours.Ifyouarereallyseriousinyouroffer,youmustsubmitinthecircumstancestosomewhat
stringentterms,andyoumustbepreparedtobindyourselfatoncetopurchasethepropertyforthe
sumof6,500ontheterms,sofarasapplicable,ofthedraftcontractwhichotherwisewouldbe
enteredintowithMrs.Simpson.IhavenottheslightestdoubtbutthatinthecircumstancesCanon
Buttlewouldhaveagreedtothosestringenttermsandthatthematterwouldhavebeencarriedout.63
(c)SelectingInvestments
(i)Generalduty
Whentrusteesselectinvestments,theymusthaveregardtotheprinciplesofportfoliotheory,asembodiedinthe
standardinvestmentcriteria.64 Anumberofdistinctprinciplescanbeidentifiedtoassistintheselectionof
investments.
(1)Trusteesmustensurethattheinvestmentschosenarepermittedbythetermsofthetrust.65
(2)Theinvestmentsshouldbediversified,sothatthetrusteesdonot,forexample,investallthefundsinthe
sharesofoneparticularcompany.
(3)Trusteesshouldavoidinvestmentsthatareparticularlyrisky,66 althoughthisisnowsubjecttomodern
investmentpracticeinthelightoftherecognitionoftheportfoliotheory.
(p.581) InCowanvScargill,67 MegarryVCrecognizedthat:
Thestartingpointisthedutyofthetrusteestoexercisetheirpowersinthebestinterestsofthepresent
andfuturebeneficiariesofthetrust,holdingthescalesimpartiallybetweendifferentclassesof
beneficiaries.Thisdutyofthetrusteestowardstheirbeneficiariesisparamount.Theymust,ofcourse,
obeythelawbutsubjecttothat,theymustputtheinterestsoftheirbeneficiariesfirst.Whenthepurpose
ofthetrustsistoprovidefinancialbenefitsforthebeneficiaries,asisusuallythecase,thebestinterestsof
thebeneficiariesarenormallytheirbestfinancialinterests.Inthecaseofapowerofinvestment,asinthe
presentcase,thepowermustbeexercisedsoastoyieldthebestreturnforthebeneficiaries,judgedin
relationtotherisksoftheinvestmentsinquestionandtheprospectsoftheyieldofincomeandcapital
appreciationbothhavetobeconsideredinjudgingthereturnfromtheinvestment.
(4)Trusteesshouldmaintainafairbalancebetweenbeneficiarieswhenselectinginvestments,sincedifferent
beneficiarieswillbenefitfromdifferenttypesofinvestment.68 Forexample,abeneficiarywithalifeinterest
willbenefitfrominvestmentswithstrongerincomereturns,whereasabeneficiaryentitledtotheremainder
wouldbenefitfrominvestmentswithgreatercapitalgrowth.Theoperationofthisobligationisconsidered
laterinrespectofthedistinctdutytomaintainbalance.69
(5)Trusteesarenotgenerallyrequiredtoconsultthebeneficiariesontheselectionofinvestments,unless
thisisrequiredbythetrustinstrument,andarenotboundtoactonthewishesofbeneficiaries.Where,
however,thebeneficiariesdomakecomments,thetrusteesshouldconsiderthem.InXvA,70 ArdenLJ
said:
Counseltoldmethat,inthiscase,thetrusteewasnothappyattheideaofputtingitselfinaposition
whereitwasobligedtodowhatthebeneficiariesaskedunlessitcouldthinkofagoodreasonnottodoso.
Theinvestmentdecisionsmightbecomplex,thebeneficiariesmightdisagreeandintheimmediatefuture
thetrusteeslienwouldtakepriority.Iacceptthetrusteeshouldnotbeboundinanywaytoactonthe
wishesofthebeneficiaries.Ontheotherhand,Iregarditasimplicitinthedirectionsoughtthatthe
trusteeshouldconsideranycommentswhichthebeneficiariesmake,andtakethemintoaccounttothe
extentappropriate.
(ii)Ethicalconsiderations
Theextenttowhichtrusteescantakeintoaccountethicalconsiderationswhenselectinginvestmentshasproved
tobeamatterofparticularcontroversy.
CowanvScargill[1985]Ch270
Amineworkerspensionfund,withassetsofover3,000millionandverywidepowersofinvestment,was
managedbyacommitteeoftentrustees,ofwhomfivewereappointedbytheNationalCoalBoard(NCB)and
five,includingthedefendant,bytheNationalUnionofMineworkers(NUM).Priorto1982theplanfor
investmentincludedoverseasinvestmentandinvestmentinoilandgas.In1982,whenarevisedplanwas
considered,thefiveuniontrustees,onthebasisofunionpolicydeterminedattheannualconference,refused
toaccepttherevised(p.582) plan,unlessitwasamendedsothattherewouldbenoincreaseinoverseas
investment,overseasinvestmentalreadymadewouldbewithdrawnatanopportunetime,andtherewouldbe
noinvestmentinenergiescompetingwithcoal.TheNCBtrusteesappliedtothecourtfordirectionsasto
whetheritwasappropriatetotakeethicalconsiderationsintoaccountwhenselectinginvestments.
TheCourtheldthattheNUMtrusteescommittedabreachoftrustinrefusingtoconcurinadoptingthe
revisedplanforinvestmentduetotakingintoaccountethicalconsiderations.
SirRobertMegarryVC:
Inconsideringwhatinvestmentstomaketrusteesmustputononesidetheirownpersonalinterests
andviews.Trusteesmayhavestronglyheldsocialorpoliticalviews.Theymaybefirmlyopposedto
anyinvestmentinSouthAfrica71 orothercountries,ortheymayobjecttoanyformofinvestmentin
companiesconcernedwithalcohol,tobacco,armamentsormanyotherthings.Intheconductoftheir
ownaffairs,ofcourse,theyarefreetoabstainfrommakinganysuchinvestments.Yetunderatrust,if
investmentsofthistypewouldbemorebeneficialtothebeneficiariesthanotherinvestments,the
trusteesmustnotrefrainfrommakingtheinvestmentsbyreasonoftheviewsthattheyhold.
Trusteesmayevenhavetoactdishonourably(thoughnotillegally)iftheinterestsoftheirbeneficiaries
requireit.Thuswheretrusteesforsalehadstruckabargainforthesaleoftrustpropertybuthadnot
boundthemselvesbyalegallyenforceablecontract,theywereheldtobeunderadutytoconsiderand
exploreabetterofferthattheyreceived,andnottocarrythroughthebargaintowhichtheyfeltin
honourbound:ButtlevSaunders[1950]2AllER193.72 Inotherwords,thedutyoftrusteestotheir
beneficiariesmayincludeadutytogazump,howeverhonourablethetrustees.AsWynnParryJsaid
at195,trusteeshaveanoverridingdutytoobtainthebestpricewhichtheycanfortheirbeneficiaries.
InapplyingthistoanofficialreceiverinReWyvernDevelopmentsLtd[1974]1WLR1097at1106,
TemplemanJsaidthathemustdohisbestbyhiscreditorsandcontributories.Heisinafiduciary
capacityandcannotmakemoralgestures,norcanthecourtauthorisehimtodoso.Inthewordsof
SirJamesWigramVCinBallsvStrutt(1841)1Hare146at149:
Itisaprincipleinthiscourt,thatatrusteeshallnotbepermittedtousethepowerswhichthe
trustmayconferuponhimatlaw,exceptforthelegitimatepurposesofhistrust
Powersmustbeexercisedfairlyandhonestlyforthepurposesforwhichtheyaregivenandnotsoas
toaccomplishanyulteriorpurpose,whetherforthebenefitofthetrusteesorotherwise:seeDuk eof
PortlandvLadyTopham(1864)11HLCas32,acaseonapowerofappointmentthatmustapplya
fortioritoapowertotrusteesassuch.
Thirdly,bywayofcaveatIshouldsaythatIamnotassertingthatthebenefitofthebeneficiarieswhich
atrusteemustmakehisparamountconcerninevitablyandsolelymeanstheirfinancialbenefit,evenif
theonlyobjectofthetrustistoprovidefinancialbenefits.Thusiftheonlyactualorpotential
beneficiariesofatrustarealladultswithverystrictviewsonmoralandsocialmatters,condemningall
formsofalcohol,tobaccoandpopularentertainment,aswellasarmaments,Icanwellunderstandthat
itmightnotbeforthebenefitofsuchbeneficiariestoknowthattheyareobtainingratherlarger
financialreturnsunderthetrustbyreasonofinvestmentsinthoseactivitiesthantheywouldhave
receivedifthetrusteeshadinvestedthetrustfundsinotherinvestments.Thebeneficiariesmightwell
considerthatitwasfarbettertoreceivelessthantoreceivemoremoneyfromwhattheyconsiderto
beevilandtaintedsources.Benefitisawordwithaverywidemeaning,andtherearecircumstances
inwhich(p.583) arrangementswhichworktothefinancialdisadvantageofabeneficiarymayyetbe
forhisbenefit:see,forexample,ReTsSettlementTrusts[1964]Ch158andReCL[1969]1Ch
587.73 ButIwouldemphasisethatsuchcasesarelikelytobeveryrare,andinanycaseIthinkthat
underatrustfortheprovisionoffinancialbenefitstheburdenwouldrest,andrestheavily,onhimwho
assertsthatitisforthebenefitofthebeneficiariesasawholetoreceivelessbyreasonofthe
exclusionofsomeofthepossiblymoreprofitableformsofinvestment.Plainlythepresentcaseisnot
oneofthisraretypeofcases.Subjecttosuchmatters,underatrustfortheprovisionoffinancial
benefits,theparamountdutyofthetrusteesistoprovidethegreatestfinancialbenefitsforthepresent
andfuturebeneficiaries.
Fourth,thestandardrequiredofatrusteeinexercisinghispowersofinvestmentisthathemust
takesuchcareasanordinaryprudentmanwouldtakeifheweremindedtomakean
investmentforthebenefitofotherpeopleforwhomhefeltmorallyboundtoprovide:
perLindleyLJinReWhiteley(1886)33ChD347at355seealsoat350,358andseeLearoydv
Whiteley(1887)12AppCas727.74 Thatdutyincludesthedutytoseekadviceonmatterswhichthe
trusteedoesnotunderstand,suchasthemakingofinvestments,andonreceivingthatadvicetoact
withthesamedegreeofprudence.Thisrequirementisnotdischargedmerelybyshowingthatthe
trusteehasactedingoodfaithandwithsincerity.Honestyandsincerityarenotthesameasprudence
andreasonableness.SomeofthemostsincerepeoplearethemostunreasonableandMr.Scargill
toldmethathehadmetquiteafewofthem.Accordingly,althoughatrusteewhotakesadviceon
investmentsisnotboundtoacceptandactonthatadvice,heisnotentitledtorejectitmerely
becausehesincerelydisagreeswithit,unlessinadditiontobeingsincereheisactingasanordinary
prudentmanwouldact.
Fifth,trusteeshaveadutytoconsidertheneedfordiversificationofinvestments.Inthecasebefore
me,itisnotinissuethatthereoughttobediversificationoftheinvestmentsheldbythefund.The
contentionofthedefendants,putveryshortly,isthattherecanbeasufficientdegreeofdiversification
withoutanyinvestmentoverseasorinoil,andthatinanycasethereisnoneedtoincreasethelevelof
overseasinvestmentsbeyondtheexistinglevel.Otherpensionfundsgotonwellenoughwithout
overseasinvestments,itwassaid,andinparticulartheNUMsownschemehad,in1982,produced
betterresultsthantheschemehereinquestion.Thiswasnotso,saidMr.Jenkins,ifyoucompared
likewithlike,andexcludedinvestmentsinproperty,whichfiguresubstantiallyinthemineworkers
schemebutnotatallintheNUMscheme:andinanycasethelatterschemewasmuchsmaller,
beingoftheorderof7million.
Ishallnotpursuethismatter.Evenifotherfundsinoneparticularyear,orinmanyyears,haddone
betterthantheschemewhichisbeforeme,thatdoesnotbegintoshowthatitisbeneficialtothis
schemetobeshornoftheabilitytoinvestoverseas.
Sixth,thereisthequestionwhethertheprinciplesthatIhavebeenstatingapply,withorwithout
modification,totrustsofpensionfundsIcanseenoreasonforholdingthatdifferentprinciplesapply
topensionfundtrustsfromthosewhichapplytoothertrusts.Ofcourse,therearemanyprovisionsin
pensionschemeswhicharenottobefoundinprivatetrusts,andtothesethegenerallawoftrustswill
besubordinated.Butsubjecttothat,Ithinkthatthetrustsofpensionfundsaresubjecttothesame
rulesasothertrusts.Thelargesizeofpensionfundsemphasisestheneedfordiversification,rather
thanlesseningit,andthefactthatmuchofthefundhasbeencontributedbythemembersofthe
schemeseemstometomakeevenmoreimportantthatthetrusteesshouldexercisetheirpowersin
thebestinterestsofthebeneficiaries.Inaprivatetrust,most,ifnotall,ofthebeneficiariesarethe
recipientsofthebountyofthesettlor,whereasunderthetrustsofapensionfundmany(thoughnotall)
ofthebeneficiariesarethosewho,asmembers,contributedtothefundssothatinduetimethey
wouldreceive(p.584) pensions.Itisthusallthemoreimportantthattheinterestsofthebeneficiaries
shouldbeparamount,sothattheymayreceivethebenefitswhichinparttheyhavepaidfor.Icansee
nojustificationforholdingthatthebenefitstothemshouldruntheriskofbeinglessenedbecausethe
trusteeswerepursuinganinvestmentpolicyintendedtoassisttheindustrythatthepensionershave
left,ortheirunion
IcanseenoescapefromtheconclusionthattheNUMtrusteeswereattemptingtoimposethe
prohibitionsinordertocarryoutunionpolicyandmereassertionsthattheirsoleconsiderationwas
thebenefitofthebeneficiariesdonotalterthatconclusion.IftheNUMtrusteeswerethinkingonlyof
thebenefitofthebeneficiaries,whyallthereferencestounionpolicyinsteadofproperexplanationsof
howandwhytheprohibitionswouldbringbenefitstothebeneficiaries?Nodoubtsometrusteeswith
strongfeelingsfinditirksometobeforcedtosubmergethosefeelingsandgenuinelyputtheinterests
ofthebeneficiariesfirst.Indeed,therearesomewhoaretemperamentallyunsuitedtobeingtrustees,
andaremorefittedforcampaigningforchangesinthelaw.This,ofcourse,theyarefreetodobutif
theychoosetobecometrusteestheymustacceptthattherulesofequitywillbindtheminalltheydo
astrustees.
Itfollowsthattrusteesshouldputasidetheirpersonalinterestsandviewswhenselectinginvestments.So,for
example,ifatrusteeispersonallyopposedtothetobaccoindustryorthetradeinarmaments,thetrustshould
stillinvestinsuchindustriesiftheygiveabetterfinancialreturn.
Theoperationofthisprinciplewhenselectinginvestmentsisparticularlywellillustratedbyadecisionofthe
ScottishcourtsinMartinvCityofEdinburghDC,75 wheretheDistrictCouncilwasatrusteethathadwithdrawn
trustinvestmentsinSouthAfricaasaprotestagainstthatcountrysapartheidpolicy.Itwasheldthatthis
constitutedabreachoftrust,sincethecouncillorshadnotconsideredtheeffectoftheinvestmentpolicyonthe
interestsofthetrust.LordMurraysaid:76
Atrusteecannotbeexpectedtodivesthimselfofpoliticalbeliefsorallmoral,religiousorother
conscientiouslyheldprinciples.Heshouldrecognisethathehaspreferencesanddohisbesttoexercise
fairandimpartialjudgmentontheissuesbeforehim.
SirRobertMegarryVC77 suggestedinCowanvScargillthat,wherethebeneficiariesarealladultswithfulllegal
capacitywhoareabsolutelyentitledtothetrustproperty,itislegitimateforthetrusteestohaveregardtoethical
considerationswhenselectinginvestmentsifallofthebeneficiarieshavestrictviewsonsuchmatters,effectively
involvinganapplicationoftheprincipleinSaundersvVautier.78 But,whereasthatprinciplenormallyoperatesto
terminatethetrust,79 hereitapparentlyoperatestoqualifythenormalrulesonselectinginvestments.
Thesettlorortestatorcanexcludecertaininvestmentsfromthepowerofinvestmentonethicalgroundsormay
explicitlyrequirethetrusteestohaveregardtoethicalconsiderationswhenselectinginvestments.80 Thiswill
involveareductionofthegeneralinvestmentpowersoftrustees,butitispossibletodothisbythetrust
instrument.81 Ifapensiontrusthasanethicalinvestmentpolicy,thismustbeexplicit.82
(p.585) Thegeneralprinciplesrelatingtotheselectionofinvestmentsapplytocharitytrusteesaswell,butthere
isgreaterscopeforsuchtrusteestohaveregardtoethicalconsiderations.
HarriesvChurchCommissionersforEngland[1992]1WLR1241
TheBishopofOxfordclaimedthattheChurchCommissioners,whosepurposeistopromotetheChristian
faiththroughtheChurchofEngland,shouldnotselectinvestmentsinamannerincompatiblewiththat
purpose,evenifthisinvolvedariskofsignificantfinancialdetriment.SirDonaldNichollsVCheldthatethical
considerationscouldbetakenintoaccountonlyinsofarastheprofitabilityofinvestmentswasnot
jeopardized.83
ForsometimetherehavebeenvoicesintheChurchofEnglandexpressingdisquietattheinvestment
policyoftheCommissioners.Theydonotquestioneitherthegoodfaithortheinvestmentexpertiseof
theCommissioners.TheirconcernisnotthattheCommissionershavefailedtogetthebestfinancial
returnfromtheirpropertyandinvestments.Theirconcernisthat,inmakinginvestmentdecisions,the
Commissionersareguidedtoorigorouslybypurelyfinancialconsiderations,andthatthe
Commissionersgiveinsufficientweighttowhatarenowcalledethicalconsiderations.Theycontend,
moreover,thattheCommissionershavefallenintolegalerror.TheCommissionersattachoverriding
importancetofinancialconsiderations,andthatisamisapprehensionoftheapproachtheyought
properlytoadoptwhenmakinginvestmentdecisions.TheCommissionersoughttohaveinmindthat
theunderlyingpurposeforwhichtheyholdtheirassetsisthepromotionoftheChristianfaiththrough
theChurchofEngland.TheCommissionersshouldnotexercisetheirinvestmentfunctionsinamanner
whichwouldbeincompatiblewiththatpurposeevenifthatinvolvesariskofincurringsignificant
financialdetriment.
BeforegoingfurtherintothecriticismmadeoftheCommissionersIwillconsiderthegeneralprinciples
applicabletotheexerciseofpowersofinvestmentbycharitytrustees.Itisaxiomaticthatcharity
trustees,incommonwithallothertrustees,areconcernedtofurtherthepurposesofthetrustofwhich
theyhaveacceptedtheofficeoftrustee.Thatistheirduty.Toenablethemthebettertodischargethat
duty,trusteeshavepowersvestedinthem.Thosepowersmustbeexercisedforthepurposeforwhich
theyhavebeengiven:tofurtherthepurposesofthetrust.Thatistheguidingprincipleapplicabletothe
issuesintheseproceedings.Everythingwhichfollowsisnomorethanthereasonedapplicationofthat
principleinparticularcontexts.
Broadlyspeaking,propertyheldbycharitabletrusteesfallsintotwocategories.First,thereisproperty
heldbytrusteesforwhatmaybecalledfunctionalpurposes.TheNationalTrustownshistorichouses
andopenspaces.TheSalvationArmyownshostelsforthedestitute.Andmanycharitiesneedoffice
accommodationinwhichtocarryoutessentialadministrativework.Second,thereispropertyheldby
trusteesforthepurposeofgeneratingmoney,whetherfromincomeorcapitalgrowth,withwhichto
furthertheworkofthetrust.Inotherwords,propertyheldbytrusteesasaninvestment.Where
propertyissoheld,primafaciethepurposesofthetrustwillbebestservedbythetrusteesseekingto
obtaintherefromthemaximumreturn,whetherbywayofincomeorcapitalgrowth,whichisconsistent
withcommercialprudence.Thatisthestartingpointforallcharitytrusteeswhenconsideringthe
exerciseoftheirinvestmentpowers.Mostcharitiesneedmoneyandthemoreofitthereisavailable,
themorethetrusteescanseektoaccomplish.
Inmostcasesthisprimafaciepositionwillgovernthetrusteesconduct.Inmostcasesthebest
interestsofthecharityrequirethatthetrusteeschoiceofinvestmentsshouldbemadesolelyonthe
basis(p.586) ofwellestablishedinvestmentcriteria,havingtakenexpertadvicewhereappropriate
andhavingdueregardtosuchmattersastheneedtodiversify,theneedtobalanceincomeagainst
capitalgrowth,andtheneedtobalanceriskagainstreturn.
Inaminorityofcasesthepositionwillnotbesostraightforward.Therewillbesomecases,Isuspect
comparativelyrare,whentheobjectsofthecharityaresuchthatinvestmentsofaparticulartypewould
conflictwiththeaimsofthecharity.Muchcitedexamplesarethoseofcancerresearchcompanies
andtobaccoshares,trusteesoftemperancecharitiesandbreweryanddistilleryshares,andtrustees
ofcharitiesoftheSocietyofFriendsandsharesincompaniesengagedinproductionofarmaments.If,
aswouldbelikelyinthoseexamples,trusteesweresatisfiedthatinvestinginacompanyengagedina
particulartypeofbusinesswouldconflictwiththeveryobjectstheircharityisseekingtoachieve,they
shouldnotsoinvest.Carriedtoitslogicalconclusionthetrusteesshouldtakethiscourseevenifit
wouldbelikelytoresultinsignificantfinancialdetrimenttothecharity.Thelogicalconclusion,whilst
soundasamatteroflegalanalysis,isunlikelytoariseinpractice.Itisnoteasytothinkofan
instancewhereinpracticetheexclusionforthisreasonofoneormorecompaniesorsectorsfromthe
wholerangeofinvestmentsopentotrusteeswouldbelikelytoleavethemwithoutanadequatelywide
rangeofinvestmentsfromwhichtochooseaproperlydiversifiedportfolio.
Therewillalsobesomecases,againIsuspectcomparativelyrare,whentrusteesholdingsof
particularinvestmentsmighthamperacharitysworkeitherbymakingpotentialrecipientsofaid
unwillingtobehelpedbecauseofthesourceofthecharitysmoney,orbyalienatingsomeofthose
whosupportthecharityfinancially.Inthesecases,thetrusteeswillneedtobalancethedifficulties
theywouldencounter,orlikelyfinanciallosstheywouldsustain,iftheyweretoholdtheinvestments
againsttheriskoffinancialdetrimentifthoseinvestmentswereexcludedfromtheirportfolio.The
greatertheriskoffinancialdetriment,themorecertainthetrusteesshouldbeofcountervailing
disadvantagestothecharitybeforetheyincurthatrisk.Anothercircumstancewheretrusteeswould
beentitled,orevenrequired,totakeintoaccountnonfinancialcriteriawouldbewherethetrustdeed
soprovides.
Nodoubttherewillbeothercaseswheretrusteesarejustifiedindepartingfromwhatshouldalwaysbe
theirstartingpoint.TheinstancesIhavegivenarenotcomprehensive.ButImustemphasisethatof
theirverynature,andbydefinition,investmentsareheldbytrusteestoaidtheworkofthecharityina
particularway:bygeneratingmoney.Thatisthepurposeforwhichtheyareheld.Thatistheirraison
dtre.Trusteescannotproperlyuseassetsheldasaninvestmentforother,viz.,noninvestment,
purposes.Totheextentthattheydotheyarenotproperlyexercisingtheirpowersofinvestment.This
isnottosaythattrusteeswhoownlandmaynotactasresponsiblelandlordsorthosewhoown
sharesmaynotactasresponsibleshareholders.Theymay.Thelawisnotsocynicalastorequire
trusteestobehaveinafashionwhichwouldbringthemortheircharityintodisrepute(althoughtheir
consciencesmustnotbetootender:seeButtlevSaunders[1950]2AllER193).Ontheotherhand,
trusteesmustactprudently.Theymustnotusepropertyheldbythemforinvestmentpurposesasa
meansformakingmoralstatementsattheexpenseofthecharityofwhichtheyaretrustees.Those
whowishmaydosowiththeirownproperty,butthatisnotaproperfunctionoftrusteeswithtrust
assetsheldasaninvestment.
Ishouldmentiononeotherparticularsituation.Therewillbeinstancestodaywhenthosewhosupport
orbenefitfromacharitytakewidelydifferentviewsonaparticulartypeofinvestment,somesaying
thatonmoralgroundsitconflictswiththeaimsofthecharity,otherssayingtheopposite.One
exampleistheholdingofarmsindustrysharesbyareligiouscharity.Thereisarealdifficultyhere.To
manyquestionsraisingmoralissuestherearenocertainanswers.Onmoralquestionswidelydiffering
viewsareheldbywellmeaning,responsiblepeople.Thisisnotalwaysso.Butfrequently,when
questionsofthemoralityofconductarebeingcanvassed,thereisnoidentifiableyardstickwhichcan
beappliedtoasetoffactssoastoyieldoneanswerwhichcanbeseentoberightandtheother
wrong.Ifthatsituation(p.587) confrontstrusteesofacharity,thelawdoesnotrequirethemtofind
ananswertotheunanswerable.Trusteesmay,iftheywish,accommodatetheviewsofthosewho
considerthatonmoralgroundsaparticularinvestmentwouldbeinconflictwiththeobjectsofthe
charity,solongasthetrusteesaresatisfiedthatcoursewouldnotinvolveariskofsignificantfinancial
detriment.Butwhentheyarenotsosatisfiedtrusteesshouldnotmakeinvestmentdecisionsonthe
basisofpreferringoneviewofwhetheronmoralgroundsaninvestmentconflictswiththeobjectsofthe
charityoveranother.Thisissoevenwhenoneviewismorewidelysupportedthantheother.
Ihavesoughtabovetoconsidercharitytrusteesdutiesinrelationtoinvestmentasamatterofbasic
principle.Iwasreferredtonoauthoritybearingdirectlyonthesematters.Myattentionwasdrawn
toCowanvScargill[1985]Ch270,acaseconcerningapensionfund.IbelievetheviewsIhavesetout
accordwiththoseexpressedbySirRobertMegarryVCinthatcase,bearinginmindthathewas
consideringtrustsfortheprovisionoffinancialbenefitsforindividuals.InthiscaseIamconcernedwith
trustsofcharities,whosepurposesaremultifarious.
[HisLordshipconsideredtheCommissionersobjectsandtheirinvestmentpolicy,andcontinued:]The
statementofpolicyrecordsthattheCommissionersdonotinvestincompanieswhosemainbusiness
isinarmaments,gambling,alcohol,tobaccoornewspapers.Ofthese,newspapersfallintoacategory
oftheirown.TheCommissionerspolicyregardingnewspapersisbasedonthefactthatmany
newspapersareassociated,toagreaterorlesserextent,withaparticularpoliticalpartyorpolitical
view.Leavingasidenewspapers,theunderlyingrationaleoftheCommissionerspolicyontheseitems
isthatthereisabodyofmembersoftheChurchofEnglandopposedtothebusinessesinquestionon
religiousormoralgrounds.Therearememberswhobelievethesebusinessactivitiesaremorally
wrong,andthattheyareinconflictwithChristianteachinganditsmoralvalues.Butthislisthasonly
tobereadforittobeobviousthatmanycommittedmembersoftheChurchofEnglandtakethe
contraryview.TosaythatnotallmembersoftheChurchofEnglandeschewgambling,alcoholor
tobaccowouldbeanunderstatement.Astoarmaments,themoralityofwar,andtheconceptsofa
justwar,areissueswhichhavebeendebatedforcenturies.Thesearemoralquestionsonwhichno
singleviewcanbeshowntoberightandtheotherswrong.AsIunderstandtheposition,the
Commissionershavefeltabletoexcludetheseitemsfromtheirinvestmentsdespitetheconflicting
viewsonthemoralityofholdingtheseitemsasinvestmentsbecausetherehasremainedopentothe
Commissionersanadequatewidthofalternativeinvestments.
IhavealreadyindicatedthatattheheartoftheplaintiffscaseisacontentionthattheCommissioners
policyiserroneousinlawinthattheCommissionersareonlypreparedtotakenonfinancial
considerationsintoaccounttotheextentthatsuchconsiderationsdonotsignificantlyjeopardiseor
interferewithacceptedinvestmentprinciples.Ithinkitisimplicit,ifnotexplicit,intheCommissioners
evidencethattheydoregardthemselvesasconstrainedinthisway.SofarasIhavebeenabletosee,
thisistheonlyissueidentifiableasanissueoflawraisedintheseproceedings.Inmyviewthisself
constraintappliedbytheCommissionersisnotonewhichinpracticehasledtoanyerroroflawon
theirpart,norisitlikelytodoso.Ihavealreadyindicatedthatthecircumstancesinwhichcharity
trusteesareboundorentitledtomakeafinanciallydisadvantageousinvestmentdecisionforethical
reasonsareextremelylimited.Ihavenotedthatitisnoteasytothinkofapracticalexampleofsucha
circumstance.Thereisnoevidencebeforemetosuggestthatanysuchcircumstanceexistshere.
Iaddonlythis.InbringingtheseproceedingstheBishopofOxfordandhiscolleaguesareactuatedby
thehighestmoralconcern.But,asIhavesoughttoshow,theapproachtheywishtheCommissioners
toadopttoinvestmentdecisionswouldinvolveadeparturebytheCommissionersfromtheirlegal
obligations.Whethersuchadeparturewouldorwouldnotbedesirableis,ofcourse,notanissuein
theseproceedings.Thatisamattertobepursued,ifatall,elsewherethaninthiscourt.
Thisdecisionhasbeencriticizedforbeingunnecessarilyrestrictiveoncharityinvestment.
(p.588) Nobles,CharitiesandEthicalInvestment[1992]Conv115,116
Thisdecisionseemsverypeculiar.Charitabletrusteescangivemoneyawayinpursuitoftheir
charityspurposes.Insodoing,theyarenotrequiredtolimittheirbountytosuchasallpersonswould
agreewerewithintheirobjects.Charitiescanbesomewhatmorecontroversialandradicalthanthis.
Theycanundertakeanyworkwhichcanreasonablycomewithintheirobjectsand,bythesame
token,mustavoidactivitieswhichcannotreasonablybesaidtocomewithintheirobjects.Whatcan
reasonablycomewithinacharityspurposesandwhatmustbeconsideredtoconflictwithacharitys
purposes,isultimatelyamatterforthecourts.Therehasneverbeenanysuggestionthatthecourts
couldnotcontrolcharitieswithinthesebroadlimits,andthereisnosuggestioninthiscasethatthe
bountyofacharityshouldbecontrolledonanyotherbasis.Whyshouldinvestmentbemadesubject
tostrictercontrols?Theordinarybusinessofapensionschemeistoprovidefinancialbenefitsto
individualsand,intheordinarycourseofevents,thebestwaytoachievethisistohavethelargest
possiblefund.Thesamelogicappliestoprivatefamilytrusts.Ifthecourtsabandonthecriteriaofbest
financialintereststheyhavenostandardbywhichtocontrolthetrusteesinvestmentpoliciesother
thanthepurelysubjectiveoneofwhethertheyagreewiththemoralsorpoliticsofthetrustees.But
charitabletrustsdoprovidecriteria,otherthanfinancialinterests,bywhichtoassesstheirinvestment
policies.Theyexisttofurthercharitablepurposes.Thegrantofbountyhastobeassessedby
referencetosuchpurposes,andsoshouldtheinvestmentpolicy.Iftrusteescannotmake,orcannot
beallowedtomake,controversialmoraljudgmentsontheextenttowhichtheirinvestmentsgiveeffect
totheircharityspurposesthentheyshouldnotbeabletomakethesamejudgmentswhengiving
awayitsproperty.Conversely,iftheycanbetrustedtomakethesejudgmentswhengivingawaythe
charitysproperty,theycanbetrustedtomakeitsinvestmentsonthesamebasis.
However,adistinctionneedstobedrawnbetweendirectandindirectfulfilmentofthecharityspurposes.When
makingdistributions,trusteesaredirectlybenefitingtheobjectsandhaveafreediscretionastowhomorwhat
theywillbenefit,subjecttotherestrictionsofthetrustinstrument.Butwhenmakinginvestmentdecisionsthat
haveindirecteffectsonthefulfilmentofthecharitysobjectives,theultimateaimistomaximizethefinancial
returnforthefurtheranceofthosepurposes,andsorestrictionsareproperlyimposedonwhatthetrusteescan
andcannottakeintoaccountwhendeterminingtheirinvestmentpolicies.Inotherwords,thedistinctionis
betweenadministrativeanddispositivedecisions,adistinctionthatisjustasrelevanttocharitabletrustsasitis
toprivatetrusts.Determininginvestmentpolicyisanadministrativematterandraisesdifferentconsiderationsfrom
makingappointmentsoftrustproperty.
(d)TrusteesHoldingControllingInterestinaCompany
Wherethetrusteesownsufficientsharesinacompanytogivethemacontrollinginterestofthatcompany,they
willbesubjecttoadditionalobligationstosafeguardthetrustsinvestmentinthecompanybecause,throughtheir
majoritycontrol,theyareabletobecomeactivelyinvolvedinthemanagementofthecompany.
BartlettvBarclaysBankTrustCo.Ltd(No.1)[1980]Ch515
BarclaysBankwastrusteeoftheBartlettTrust,ofwhichthesoleassetwasaholdingof99.8percentof
sharesinaprivatepropertycompany.Thebeneficiarieswerethesettlorsfamily.No(p.589) beneficiarywas
ontheboardofthecompany,andnoneofthedirectorswasanomineeofthebank.Theboardwishedthe
companytoinvestinpropertydevelopment.Thebankagreedtothissolongasthebeneficiarieswerenotleft
shortofincome.Thecompanyinvestedintwoprojectswithoutconsultingthebank,oneatGuildford,which
wassuccessful,andtheother,oppositetheOldBailey,whichwasnotbecauseplanningpermissioncould
notbeobtained.Asubstantiallosswassuffered.Thebankhadbeencontentsimplytorelyuponinformation
issuedatannualgeneralmeetings,whichwouldhavebeenavailabletoanyordinaryshareholder.Thebank
wasnotawareofthehazardousnatureoftheprojectsanddidnotintervenetopreventthem.Thebeneficiaries
suedthebankforbreachoftrust.
Itwasheldthatthebankhadbreachedthetrustandwasliablefortheloss.
BrightmanJ:
Iturntothequestion,whatwasthedutyofthebankastheholderofshares?Thebank,astrustee,
wasboundtoactinrelationtothesharesandtothecontrollingpositionwhichtheyconferred,inthe
samemannerasaprudentmanofbusiness.Theprudentmanofbusinesswillactinsuchmanneras
isnecessarytosafeguardhisinvestment.Hewilldothisintwoways.Iffactscometohisknowledge
whichtellhimthatthecompanysaffairsarenotbeingconductedastheyshouldbe,orwhichputhim
oninquiry,hewilltakeappropriateaction.Appropriateactionwillnodoubtconsistinthefirstinstance
ofinquiryofandconsultationwiththedirectors,andinthelastbutmostunlikelyresort,theconvening
ofageneralmeetingtoreplaceoneormoredirectors.Whattheprudentmanofbusinesswillnotdois
tocontenthimselfwiththereceiptofsuchinformationontheaffairsofthecompanyasashareholder
ordinarilyreceivesatannualgeneralmeetings.Sincehehasthepowertodoso,hewillgofurtherand
seethathehassufficientinformationtoenablehimtomakearesponsibledecisionfromtimetotime
eithertoletmattersproceedastheyareproceeding,ortointerveneifheisdissatisfied.Thistopicwas
consideredbyCrossJinReLuck ingsWillTrusts[1967]3AllER726.Inthatcasenearly70per
centofthesharesinthecompanywereheldbytwotrustees,LandB,aspartoftheestateofa
deceasedabout29percentbelongedtoLinhisownright,and1percentbelongedtoLswife.The
directorsin1954wereMr.andMrs.LandD,whowasthemanagerofthebusiness.In1956Bwas
appointedtrusteetoactjointlywithL.Thecompanywasengagedinthemanufactureandsaleofshoe
accessories.Ithadasmallfactoryemployingabouttwentypeople,andoneortwotravellers.Italso
hadanagencyinFrance.Dwrongfullydrewsome15,000fromthecompanysbankaccountin
excessofhisremuneration,andlaterbecamebankrupt.Themoneywaslost.CrossJsaid,at874:
Theconductofthedefendanttrusteesis,Ithink,tobejudgedbythestandardapplied
inSpeightvGaunt(1883)9AppCas1,namely,thatatrusteeisonlyboundtoconductthe
businessofthetrustinsuchawayasanordinaryprudentmanwouldconductabusinessof
hisown.Nowwhatsteps,ifany,doesareasonablyprudentmanwhofindshimselfamajority
shareholderinaprivatecompanytakewithregardtothemanagementofthecompanysaffairs?
Hedoesnot,Ithink,contenthimselfwithsuchinformationastothemanagementofthe
companysaffairsasheisentitledtoasshareholder,butensuresthatheisrepresentedonthe
board.Hemaybepreparedtorunthebusinesshimselfasmanagingdirectoror,atleast,to
becomeanonexecutivedirectorwhilehavingthebusinessmanagedbysomeoneelse.
Alternatively,hemayfindsomeonewhowillactashisnomineeontheboardandreporttohim
fromtimetotimeastothecompanysaffairs.Inthesameway,asitseemstome,trustees
holdingacontrollinginterestoughttoensuresofarastheycanthattheyhavesuchinformation
astotheprogressofthecompanysaffairsasdirectorswouldhave.Iftheysitbackandallow
thecompanytoberunbytheminorityshareholderandreceivenomoreinformationthan
shareholdersareentitledto,theydosoattheirriskifthingsgowrong.
(p.590) IdonotunderstandCrossJtohavebeensayingthatineverycasewheretrusteeshavea
controllinginterestinacompanyitistheirdutytoensurethatoneoftheirnumberisadirectororthat
theyhaveanomineeontheboardwhowillreportfromtimetotimeontheaffairsofthecompany.He
wasmerelyoutliningconvenientmethodsbywhichaprudentmanofbusiness(asalsoatrustee)with
acontrollinginterestinaprivatecompany,canplacehimselfinapositiontomakeaninformed
decisionwhetheranyactionisappropriatetobetakenfortheprotectionofhisasset.Othermethods
maybeequallysatisfactoryandconvenient,dependinguponthecircumstancesoftheindividualcase.
Alternativeswhichspringtomindarethereceiptofcopiesoftheagendaandminutesofboard
meetingsifregularlyheld,thereceiptofmonthlymanagementaccountsinthecaseofatrading
concern,orquarterlyreports.Everycasewilldependonitsownfacts.Thepossibilitiesareendless.It
wouldbeuseless,indeedmisleading,toseektolaydownageneralrule.Thepurposetobeachieved
isnotthatofmonitoringeverymoveofthedirectors,butofmakingitreasonablyprobable,sofaras
circumstancespermit,thatthetrusteeor(asintheLuck ingcase)oneofthemwillreceivean
adequateflowofinformationintimetoenablethetrusteestomakeuseoftheircontrollinginterest
shouldthisbenecessaryfortheprotectionoftheirtrustasset,namely,theshareholding.The
obtainingofinformationisnotanendinitself,butmerelyameansofenablingthetrusteesto
safeguardtheinterestsoftheirbeneficiaries.
Itwasnotproperforthebanktoconfineitselftothereceiptoftheannualbalancesheetandprofitand
lossaccount,detailedannualfinancialstatementsandthechairmansreportandstatement,andto
attendanceattheannualgeneralmeetingsandtheluncheonsthatfollowed,whichwerethelimitsof
thebanksregularsourcesofinformation.Hadthebankbeeninreceiptofmorefrequentinformationit
wouldhavebeenabletostepinandstop,andoughttohavestopped,theboardembarkingontheOld
Baileyproject.Thatprojectwasimprudentandhazardousandwhollyunsuitableforatrustwhether
undertakenbythebankdirectorthroughthemediumofitswhollyownedcompany.Evenwithoutthe
regularflowofinformationwhichthebankoughttohavehad,itknewenoughtoputituponinquiry.
Therewereenoughobviouspointsatwhichthebankshouldhaveintervenedandaskedquestions.
Thebankhadbreachedthetrustbecauseitfailedtosafeguardtheinvestmentinthecompany.Asacontrolling
shareholderitshouldhaveensuredthatitreceivedsufficientinformationtoenableittomakeaninformeddecision
astowhatactionwasnecessarytoprotecttheinvestment,anditshouldthenhavetakenthataction.Options
opentothetrusteewhoisacontrollingshareholdermightincludeconveningageneralmeetingtoremoveand
replaceoneormoreofthedirectors,84 eitherwithanomineeorwiththetrusteeitself.
(e)EnlargementofInvestmentPowersbytheCourt
Althoughthestatutorypowersofinvestmentarewide,theremaybeexceptionalcircumstanceswherethe
trusteeswishtohavethepowerswidenedbythecourtseitherundertheTrusteeAct192585 ortheVariationof
TrustsAct1958.86 Similarly,thepowersofinvestmentunderthetrustinstrumentmayberestrictiveandthe
trusteesmightwishtohavetherestrictionremoved.
Thecourtswere,atonestage,willingtoextendinvestmentpowersonlyinspecialcircumstances,87 but
inTrusteesoftheBritishMuseumvAttorneyGeneral,88 thecourtbroadenedtherangeofcircumstancesunder
whichitwaswillingtowideninvestmentpowers,primarilybecauseinvestmentpowersatthetimewere
consideredtobetoorestrictiveandoutdated.Inthatcase,thecourtapprovedaschemetogivethetrusteesofthe
BritishMuseumwidepowersofinvestmentofcharitablefundsto(p.591) enableinvestmentabroad.Thecourt
wasinfluencedbyanumberoffactorsinreachingthisdecision,includingthecommonpracticeatthetimefor
trustinstrumentstogivewiderinvestmentpowersthanthestatutorypowersofinvestment,thefactthatthe
trusteeswereeminent,responsible,andwillingtoobtainindependentfinancialadvice,andthatthefundwaslarge,
beingworthover5million,andsowasmorelikeapensiontrustwithwiderpowersofinvestment.SirRobert
MegarryVCsaid:89
Thesizeofthefundinquestionmaybeverymaterial.Afundthatisverylargemaywelljustifyalatitudeof
investmentthatwouldbedeniedtoamoremodestfundforthespreadofinvestmentspossibleforalarger
fundmayjustifythegreaterrisksthatwiderpowerswillpermittobetaken.
Theobjectofthetrustmaybeverymaterial.Inthepresentcase,thedesirabilityofhavinganincreaseof
capitalvaluewhichwillmakepossiblethepurchaseofdesirableacquisitionsforthemuseumdespite
soaringpricesdoessomethingtojustifythegreaterriskswherebycapitalappreciationmaybeobtained.
Sincethatdecision,statutorypowersofinvestmenthavebeenmodernizedandexpandedthroughthe
enactmentoftheTrusteeAct2000.Consequently,therewillbemuchlessneedforapplicationstobe
madetocourttowideninvestmentpowers,althoughtherewillstillbesituationsinwhichtrusteesmight
wishtohavetheirinvestmentpowersenlarged,suchaswherethetrusteeswishtoinvestinlandabroad,
whichisnotpermittedbythegeneralstatutorypowersofinvestment,ortoremoverestrictionson
investmentpowersinthetrustinstrumentthatarenowoutoflinewiththewideinvestmentpowersunder
theTrusteeAct2000.Thiswillinvolveoverturningthewishesofthesettlorortestatorand,therefore,raise
sensitiveissuesthatwillbeexaminedinChapter15.
5.DutytoMaintainaFairBalanceBetweenBeneficiaries
Itisthedutyofatrusteetoactintheinterestsofallthebeneficiaries.Itfollowsthattrusteesareunderadutyto
maintainafairbalancebetweenbeneficiariesandnottopreferonebeneficiaryorclassofbeneficiaryover
another.90 Thedutytomaintainafairbalancebetweendifferentclassesofbeneficiaryisparticularlyimportant
wheretherearebeneficiarieswithalifeinterestandotherswithaninterestinremainder,sincethoseinterestswill
potentiallyconflict.Thelifetenantisentitledtoreceiveincomereceiptsandtheremaindermanwilleventuallyget
thebenefitofcapitalreceipts.Thebeneficiarywithalifeinterest(theincomebeneficiary)willpreferinvestments
thatwillproducethehighestpossibleincome,butwillnotbeespeciallyconcernedbypoorcapitalgrowth.The
beneficiarywiththeremainderinterest(thecapitalbeneficiary)willpreferinvestmentsthatwillpreservethe
capitalvalueofthetrustpropertyandwillhaveagoodprospectofsubstantialfuturegrowth.
NestlvNationalWestminsterBankplc[1993]1WLR1261
Theclaimantsgrandfatherdiedin1922andappointedwhatbecametheNationalWestminsterBankplcas
hisexecutorandtrustee.Underhiswill,hiswidowhadalifeinterestinthefamily(p.592) home.Onher
death,theirtwosons,GeorgeandJohn(theclaimantsuncleandfather),eachhadahalfinterestinthe
residue.Whentheydied,theirshareswenttotheirchildren.In1986theclaimant,whohadbecome
absolutelyentitledtothecapital,claimedthatthetrustfund,whichwasthenvaluedat269,203,shouldhave
beenworth1.8million.Shebroughtanactionagainstthetrusteebankfordefaultinthemanagementofthe
fund.
Itwasheldthatalthoughthebankhadfailedtomaintainbalancebetweenbeneficiaries,itcouldnotbe
establishedthatthishadcausedlosstotheclaimant.
LeggattLJ:
duringthe64yearsforwhichthetrustsetupbytheplaintiffsgrandfatherendured,thecontentment
ofhisdescendantsdeclined.Theplaintiffsuncleandfatherconductedwiththerespondentbank
vigorouscampaignsdesignedtoimprovetheirrespectiveincomes,which,ifthebankhadnotresisted
them,wouldhaveworkedtotheultimatedetrimentoftheplaintiff,whiletheplaintiffherselfisnow
lockedinmortalfinancialcombatwiththebank.
GeorgeandJohnNestlsawthebank,orsaidtheysawthebank,asunfairlylookingoutforthe
plaintiffattheirexpense.InfactJohnturnsouttohavehadafortuneofhisown,whichwasinvestedin
equities.Sototheextentthathewassuccessfulingettingthebanktoinvestingiltshewasachieving
abalancebetweenhisfunds.Theplaintiff,ontheotherhand,withwhomherfatherwaslatterlyat
odds,hasbecomeobsessedwiththeideathatthebankovertheyearshasfailedtolookafterher
interests.Sheclaimsthatthesumof269,203whichsheinheritedshouldhavebeenlargerthanit
was.
Theplaintiffallegesthatthebankisinbreachoftrustbecauseovertheyearssincehergrandfatherset
upthetrustthebankhassupposedthatitspowerofinvestmentwasmorelimitedthanitwashas
failedtocarryoutperiodicreviewsoftheportfolio,andtomaintainaproperbalancebetweenequities
andgilts,andtodiversifytheequityinvestmentsandhasundulyfavouredtheinterestsofherfather
andheruncleaslifetenantsattheexpenseofherowninterestasremainderman.Shesaysthatin
consequencethetrustfundwasworthlessin1986thanitshouldhavebeen.
Theessenceofthebanksdutywastotakesuchstepsasaprudentbusinessmanwouldhavetaken
tomaintainandincreasethevalueofthetrustfund.Unlessitfailedtodoso,itwasnotinbreachof
trust.Abreachofdutywillnotbeactionable,andthereforewillbeimmaterial,ifitdoesnotcauseloss.
InthiscontextIwouldendorsetheconcessionofMr.Nugeeforthebankthatlosswillbeincurredby
atrustfundwhenitmakesagainlessthanwouldhavebeenmadebyaprudentbusinessman.A
claimantwillthereforefailwhocannotprovealossinthissensecausedbybreachofduty.Soherein
ordertomakeacaseforaninquiry,theplaintiffmustshowthatlosswascausedbybreachofdutyon
thepartofthebank.
OntheplaintiffsbehalfMr.LyndonStanfordseekstorelyonapresumptionagainstawrongdoing
trustee.HeinvokesBrightmanJsdictuminBartlettvBarclaysBank TrustCoLtd(No2)[1980]Ch
515at545that:thetrusteesobligationistorestoretothetrustestatetheassetsofwhichhehas
deprivedit.Butthatpresupposesdeprivation.
Theplaintiffalleges,andIamcontenttoassume,thatthebankwasatallmaterialtimesundera
misapprehensionaboutthemeaningoftheinvestmentclauseinthewill,withtheresultthatthebank
believedthatthescopeofitspowersofinvestmentwasmoreconfinedthanitwas.Ialsoregarditas
unlikelythatthebankconductedanyreviewsoftheportfoliobetween1922and1959.Ifanywere
conducted,theywereunplanned,sporadicandindecisive.Mr.LyndonStanfordarguesthatitshould
bepresumedthat,hadtherebeenabetterbalancebetweengiltsandequitiesandhadtheequity
investmentbeenmorediversified,thefundwouldultimatelyhavebeenworthmorethanitwas.The
fallacy(p.593) isthatitdoesnotfollowfromthefactthatawiderpowerofinvestmentwasavailableto
thebankthanitrealisedeitherthatitwouldhavebeenexercisedorthat,ifithadbeen,theexerciseof
itwouldhaveproducedaresultmorebeneficialtothebankthanactuallywasproduced.Losscannot
bepresumed,ifnonewouldnecessarilyhaveresulted.Untilitwasprovedthattherewasaloss,no
attemptcouldbemadetoassesstheamountofit
Inmyjudgmenteithertherewasalossinthepresentcaseortherewasnot.Unlesstherewasaloss,
therewasnocauseofaction.Itwasfortheplaintifftoproveonbalanceofprobabilitiesthattherewas,
ormusthavebeen,aloss.Ifproved,thecourtwouldthenhavehadtoassesstheamountofit,andfor
thepurposeofdoingsomighthavehadrecoursetopresumptionsagainstthebank.Inshort,ifitwere
shownthatalosswascausedbybreachoftrust,suchapresumptionmightavailtheplaintiffin
quantifyingtheloss.Theplaintiffsdifficultyisinreachingthatstage
Notestator,inthelightofthisexample,wouldchoosethisbankfortheeffectivemanagementofhis
investment.Butthebanksengagementwasasatrusteeandassuch,itistobejudgednotsomuch
bysuccessasbyabsenceofprovendefaultTheveryprocessofattemptingtoachieveabalance,
or(ifthatbeoldfashioned)fairness,asbetweentheinterestsoflifetenantsandthoseofa
remaindermaninevitablymeansthateachcancomplainofbeinglesswellservedthanheorsheought
tohavebeen.Butbytheundemandingstandardofprudencethebankisnotshowntohavecommitted
anybreachoftrustresultinginloss.
Althoughtheclaimantfailedtorecoveranycompensation,thiswasonlybecauseshewasunabletoprovethat
shehadsufferedlossasaresultofthebanksinvestmentpolicy.Ifitcouldhavebeenshownthathadthetrustees
adoptedadifferentinvestmentpolicy,thevalueofthefundwouldhaveincreased,thetrusteebankmighthave
beenliabletocompensatethefund.
ThenatureofthedutytomaintainafairbalancebetweenbeneficiarieswasconsideredfurtherbyStaughtonLJ:91
Theobligationofatrusteeistoadministerthetrustfundimpartially,orfairly(Icanseenosignificant
difference),havingregardtothedifferentinterestsofbeneficiaries.WilberforceJsaidinRePaulings
SettlementTrusts(No2)[1963]Ch576,586:
Thenewtrusteeswouldbeunderthenormaldutyofpreservinganequitablebalance,andifatany
timeitwasshowntheywereincliningonewayortheother,itwouldnotbeadifficultmattertobring
themtoaccount.
Attimesitwillnotbeeasytodecidewhatisanequitablebalance.Alifetenantmaybeanxioustoreceive
thehighestpossibleincome,whilsttheremaindermanwillwishtherealvalueofthetrustfundtobe
preserved.Ifthelifetenantislivinginpenuryandtheremaindermanalreadyhasamplewealth,common
sensesuggeststhatatrusteeshouldbeabletotakethatintoaccount,notnecessarilybyseekingthe
highestpossibleincomeattheexpenseofcapitalbutbyinclininginthatdirection.However,before
adoptingthatcourseatrusteeshould,Ithink,requiresomeverificationofthefacts
SimilarlyIwouldnotregarditasabreachoftrustforthetrusteestopaysomeregardtotherelationship
betweenMr.GeorgeNestlandtheplaintiff.Hewasmerelyheruncle,andshewouldhavereceived
nothingfromhisshareofthefundifhehadfatheredachildwhosurvivedhim.Thetrusteeswouldbe
entitled,inmyview,toinclinetowardsincomeduringhislifetenancyandthatofhiswidow,onthatground.
Againcommonsensesuggeststomethatsuchacoursemightbeappropriate,andIdonotthinkthatit
wouldbeabreachofthedutytoactfairly,orimpartially
(p.594) Atrusteeshouldalsobearinmind,asthetrusteesdid,thatEstateDutyorCapitalTransferTax
islikelytobereducedinsuchacaseifpartofthefundisinvestedintaxexemptgilts.Thatmayprovidea
compensatingbenefitfortheremainderman.Ofcourseitisbynomeanscertainthatthebenefitwill
materialisethelifetenantmayreturntothiscountry,ashappenedinthecaseofMrs.ElsieNestl.Ithas
beensaidthatnothinginthisworldiscertainexceptdeathandtaxes.Buteventhetaxbenefitwas
imponderable,sinceitcouldnotbeforecastwhatrateoftaxwouldbeapplicableonthedeathofalife
tenant.
Itfollowsthatwhentrusteesareadministeringthetrust,theyshouldhaveregardtotheeffectsoftheirdecisions
onbothlifetenantsandremaindermen,andensurethatthesearetreatedevenhandedly.So,forexample,
inNestl,arelevantconsiderationwhenselectinginvestmentsconcernedtheadversetaxconsequencesof
focusingoncapitalorincomereturns,whichmightjustifythetrusteesinshiftingthebalancetowardswhicheverof
incomeorcapitalwouldresultinalowertaxliability.
Thedutytoensurebalancehasbeendescribedaspreservinganequitablebalance92 betweenthedifferent
classesofbeneficiary.ButHoffmannJinNestlvNationalWestminsterBank plc,93 hadpreferredthelanguage
offairnesstothatofbalance:
thetrusteemustactfairlyinmakinginvestmentdecisionswhichmayhavedifferentconsequencesfor
differentclassesofbeneficiaries.TherearetworeasonswhyIpreferthisformulationtothetraditional
imageofholdingthescalesequallybetweentenantforlifeandremainderman.Thefirstisthattheimageof
thescalessuggestsaweighingofknownquantitieswhereasinvestmentdecisionsareconcernedwith
predictionsofthefuture.Investmentswillcarrycurrentexpectationsoftheirfutureincomeyieldandcapital
appreciationandtheseexpectationswillbereflectedintheircurrentmarketprice,butthereisalwaysa
greaterorlesserriskthattheoutcomewilldeviatefromthoseexpectations.Ajudgmentonthefairnessof
thechoicesmadebythetrusteesmusthaveregardtotheseimponderables.Thesecondreasonisthatthe
imageofthescalessuggestsamoremechanisticprocessthanIbelievethelawrequires.Thetrustees
haveinmyjudgmentawidediscretion.Theyareforexampleentitledtotakeintoaccounttheincome
needsofthetenantforlifeorthefactthatthetenantforlifewasapersonknowntothesettlororastranger.
Ofcoursethesecannotbeallowedtobecometheoverridingconsiderationsbuttheconceptoffairness
betweenclassesofbeneficiariesdoesnotrequirethemtobeexcluded.Itwouldbeaninhumanlawwhich
requiredtrusteestoadheretosomemechanicalruleforpreservingtherealvalueofthecapitalwhenthe
tenantforlifewasthetestatorswidowwhohadfallenuponhardtimesandtheremaindermanwasyoung
andwelloff.
Whethertheemphasisisplacedonfairnessormaintaininganequitablebalanceprobablymakesnodifferencein
practicethedutyisessentiallyonetomaintainafairbalancebetweenbeneficiaries.Thisdutycanbeexpressly
orimplicitlyexcludedbythetrustinstrument,aswillbethecasewherethetrusteesaregivenapowertochoose
betweendifferentbeneficiariesorclassesofbeneficiarywhenexercisingapowerofappointment.94
(b)ClassificationofIncomeandCapital
Animportantfeatureofthedutytomaintainbalancebetweenbeneficiariesconcernstheallocationofreceiptsand
expensestoincomeandcapital.
(p.595) (i)Receipts
Theclassificationandallocationofreceiptsasincomeorcapitalissignificanttothedutytomaintainafair
balanceindeterminingwhichreceiptsbenefitbeneficiarieswithalifeinterestandwhichbenefitthebeneficiaries
entitledtotheremainder.Ausefulmetaphortoapplyisthatoftreesandfruit,withthegrowthofatree
representingcapitalandthefruitsrepresentingincome.Inmanycases,thefruitsofpropertywillbetreatedas
income,whereasothergainswillbecapital.So,forexample,ifatrusthasaleaseholdinterestinaproperty,the
rentthatthetrusteesreceivewillbeincomeandmoneyreceivedonsellingtheleasetoathirdpartywillbe
capital.Inothercases,areceiptwillsimplybeapportionedfairlybetweenthelifetenantandremainderman.
InJaffrayvMarshall,95 NicholasStewartQCconsideredtheclassificationofinterestoncompensationpayableto
atrustfund:
TheonlyremainingissueisapportionmentofthatinterestasbetweenthelifeandremainderinterestsIt
isacceptedthatthehighratesofinterestinmoderntimescontainalargeelementwhichmerelypreserves
capitalvalues.InprinciplethatelementshouldbelongtothecapitalorremainderbeneficiariesItake
accountofthefactthattheperiodsince1989hasnotbeenaperiodoftheveryhighlevelofinflationthat
hasbeenseenattimesinfairlyrecentyears.Accordingly,therateofreturnneededtopreservecapitalis
notashighasithasbeeninthepast,whichisonlyanotherwayofsayingthesamething.Istressthe
broadnessofthatviewandnoexpertevidencehasbeenadducedonthesematters.Inmyviewafair
apportionmentoftheinterestinthiscaseisthathalfshouldgotoincomeandhalftocapital.
Classificationofincomeandcapitalisnot,however,intuitiveasregardsdistributionsfromcompanies.Although
dividendspaidonshareswillbetreatedasincomeandthedistributionofbonusshareswillbetreatedas
capital,96 inmorecomplicatedtransactionstheclassificationofincomeandcapitalincompanylawhasbeen
appliedintrustlaw,suchthatalldistributionswillbetreatedasincomeunlessthedistributionisbonusshares,a
paymentinreductionofcapital,oradistributioninaliquidation.97 So,forexample,thedistributionofsharesina
newcompanyunderademergerwouldbetreatedasincome.Thisrulewillbechangedbysection2oftheTrusts
(CapitalandIncome)Act2012,byvirtueofwhichdistributionsofcorporateassetstoatrustaretobetreatedasa
receiptofcapital,subjecttoanycontraryintentioninthetrustinstrument.Thisreformmakesclassificationof
incomeandcapitalmoreintuitiveandlessartificial.
(ii)Expenses
Classificationisalsosignificantasregardstrustexpenses,sinceitisnecessarytoascertainwhethertheseare
tobechargedtoincomeortocapital.Atrustexpensemayrelatetoadministrativematters,suchaspayingfor
professionalfeesorremuneratingthetrustees,98 ormayrelatetothemaintenanceofthetrustproperty,suchas
thecostofrepairingahouse.
Expressprovisionmaybemadefortheclassificationoftrustexpensesinthetrustinstrument,orthetrustees
maybegivenanexpresspowertoallocateexpensestoincomeorcapital.Butifnosuch(p.596) provisionis
made,thelawoftrustsprovidesadefaultrule,asrecognizedbyLordTemplemaninCarvervDuncan:99
Trusteesareentitledtobeindemnifiedoutofthecapitalandincomeoftheirtrustfundagainstall
obligationsincurredbythetrusteesinthedueperformanceoftheirdutiesandthedueexerciseoftheir
powers.Thetrusteesmustthendebiteachitemofexpenditureeitheragainstincomeoragainstcapital.
Thegeneralruleisthatincomemustbearallordinaryoutgoingsofarecurrentnature,suchasratesand
taxes,andinterestonchargesandincumbrances.Capitalmustbearallcosts,chargesandexpenses
incurredforthebenefitofthewholeestate.
ThemeaningofexpensesbeingincurredforthebenefitofthewholeestatewasconsideredbySirJohnChadwick
inRevenueandCustomsCommissionersvTrusteesofthePeterClayDiscretionaryTrust:100
itis,Ithink,beyondargumentthatanexpenseisincurredforthebenefitofthewholeestateinthepresent
contextwhenthepurposeorobjectforwhichthatexpenseisincurredistoconferbenefitbothonthe
incomebeneficiariesandonthoseentitledtocapitalonthedeterminationoftheincometrusts.
expenseswhichareofthatnaturearetobechargedagainstcapital.underthegenerallaw,expenses
incurredforthebenefitofboththeincomeandcapitalbeneficiariesmustbechargedagainstcapital.Itis
onlythoseexpenseswhichareincurredexclusivelyforthebenefitoftheincomebeneficiariesthatmaybe
chargedagainstincome.
So,forexample,thecostofrepairingtrustproperty,insurancepremiums,andpaymentstoprofessionaladvisers,
areclassifiedascapital.Itis,however,possibletoapportionanexpensebetweenincomeandcapitalifpartofthe
expensecanbeshowntorelatetoworkcarriedoutforthebenefitoftheincomebeneficiaryalone.Whilstthis
apportionmentmustbebasedonevidenceratherthanonthetrusteesviewofwhatisafairbalanceasbetween
incomeandcapitalbeneficiaries,itcanstillberegardedasfoundedontheprincipleofensuringafairbalance
betweenbeneficiaries,sinceitisfairthattheburdenoftheexpenseshouldbebornebythebeneficiarywho
benefitsfromit.101 ThispartofthelawisnotreformedbytheTrusts(CapitalandIncome)Act2013.
(c)TotalReturnInvestmentPolicy
Onemethodforimplementingthedutytoensureabalancebetweenbeneficiariesinrespectoftheselectionof
investmentswouldbetoadoptwhatisknownasatotalreturninvestmentpolicy,whichenablestrusteesto
selectinvestmentsonthebasisofexpectedreturnsfromtheinvestmentregardlessofwhetherthereturnis
classifiedasincomeorcapital.Trusteeswouldthenhavethediscretiontoallocatetheinvestmentreturnstothe
beneficiariesentitledtothelifeinterestandtheremainderaccordingtowhattheymightexpecttoenjoyinthe
lightoftheirrespectiveinterestsinthefund,andinthatwaythetrusteesmightmaintainabalancebetweenthe
twointerests.Theessenceofatotalreturninvestmentpolicyisthatthetrusteescanselecttheirinvestments
withoutregardtothedutytobalancetheinterestsofincomeandcapitalbeneficiariesthedutytobalancearises
onlysubsequently,whenreceiptsarereceivedthatcanthenbeallocatedtoincomeorcapital.Theaimofsuchan
investmentpolicyissimplytoincreasetheinvestmentreturnacrossthewholeoftheinvestmentportfolio.
(p.597) Althoughatotalinvestmentreturnpolicywouldbenefittrustsandbeneficiaries,generallyitcannotbe
adoptedbecauseitisinconsistentwiththedutytomaintainbalancebetweentheinterestsofbeneficiarieswhen
selectinginvestments.Inotherwords,theeffectofthepresentlawistoconcentratethetrusteesmindsonthe
formofthereturn,whetheritisincomeorcapital,ratherthanthesubstantiveissueofmaximizingthereturnofthe
wholeportfolioregardlessofhowthefruitsoftheinvestmentsareclassified.Inprivatetrusts,trusteesareableto
adoptsuchaninvestmentpolicyonlyifthetermsofthetrustenablethemtoselectinvestmentswithoutregardto
theformoflikelyreceipts,andthenallocatereceiptstoincomeandcapitalsubsequently.
TheLawCommissionhasconsideredwhethertrusteesshouldbegivenapowertoallocatereceipts,andalso
expenses,tocapitalorincomeasthetrusteesconsiderappropriate.InitsConsultationPaperonthe
classificationofcapitalandincomeintrusts,theLawCommissionprovisionallyrecommendedcreatinga
statutorypowerofallocation:102
Thepowerwouldallowtrusteestoovercomeinappropriateclassificationsthatcausedanimbalance,to
restoreabalancewhereinvestmentsmadewithaviewtoaparticularformofreturnhadnotperformedas
expected,andtoallocatetheglobalreceiptsfromaninvestmentportfolioselectedonatotalreturnbasis.
Thedutytobalancewouldplaceanactivedutyontrusteestoconsiderwhetherornottoexercisethe
powerofallocation.103
However,initsfinalreport,104 theLawCommissionreluctantlyadmittedthatitwasunabletomaintainthis
recommendationbecauseofthesignificanttaximplicationsofgivingtrusteesdiscretiontoclassifyreceipts.But,
sincecharitiesusuallydonotpaytax,105 section104AoftheCharitiesAct2011106 willcreateageneralstatutory
powerforcharitieswithanendowmentfund(underwhichnotallpropertyisavailabletobeexpendedforcharitable
purposes)toadoptatotalreturninvestmentpolicy,withoutrequiringpriorsanctionoftheCharityCommission.
CharitiesAct2011
104AInvestmentofendowmentfundontotalreturnbasis
(1)Thissectionappliestoanyavailableendowmentfundofacharity.
(2)Iftheconditioninsubsection(3)ismetinrelationtothecharity,thecharitytrusteesmay
resolvethatthefund,oraportionofit
(a)shouldbeinvestedwithouttheneedtomaintainabalancebetweencapitalandincome
returns,and
(b)accordingly,shouldbefreedfromtherestrictionswithrespecttoexpenditureofcapital
thatapplytoit.
(3)Theconditionisthatthecharitytrusteesaresatisfiedthatitisintheinterestsofthecharity
thatregulationsundersection104B(1)(b)shouldapplyinplaceoftherestrictionsmentionedin
subsection2(b).
(p.598) (d)RulestoRestoreBalance
VariousrulesweredevelopedinEquitytomaintainorrestorebalancebetweenincomeandcapitalbeneficiaries,
involvingadutyeithertosellandreinvestunauthorizedtrustproperty,calledconversion,ortoapportioncapitalor
incomebetweenbeneficiaries.Mostoftheseruleswerebasedonthepresumedintentionofthesettlorortestator
thattheincomeandcapitalbeneficiariesshouldenjoythebenefitsofthetrustequally.107 Forexample,ifpersonal
propertywasleftbywilltoonepersonforlife,withremaindertoanotherperson,andtherewasasignificantrisk
thatthepropertywouldfallinvalue,thiswouldaffecttheinterestofthepersonentitledtotheremainder,sincethe
capitalvalueofthepropertywouldhavefallenbythetimeheorshewasentitledtotheproperty.Consequently,
thetrusteeswouldbeunderadutytoconvertsuchpropertyintoauthorizedinvestments,108 whichwouldgivethe
lifetenantanincome,forexampleintheformofdividends,andthebeneficiaryentitledtotheremainderwould
obtainthebenefitofthecapitalvalueoftheinvestment.Thesecomplexrulestorestorebalancebecame
increasinglyinsignificantinpractice,bothbecausetheruleswereusuallyexcludedbythetrustinstrumentand
becauseaninvestmentishighlyunlikelytobeunauthorizedtodayduetothewideinvestmentpowersunderthe
TrusteeAct2000.109 Withtherecognitionofportfoliotheory,wastingorhazardousinvestmentsaremorelikelyto
beappropriatebecausetheycanbebalancedbypurchasinglessriskyinvestmentsandalsobecausethe
obligationtoselectandreviewinvestmentsaccordingtothestandardinvestmentcriteria110 willprovidesufficient
protectiontoallclassesofbeneficiaryagainsttheeffectofsuchinvestments.Consequently,therulestorestore
balancewillbeabolishedfornewtrustsbysection1(2)oftheTrusts(CapitalandIncome)Act2013,saveifthe
trustinstrumentmakesspecificprovisionfortheoperationoftherule.
(e)DutytoAccumulateIncome
Wherethetrusteeshaveapowerordutytoaccumulateincomebyaddingittocapitalratherthandistributingitto
thebeneficiaries,thereusedtobestatutoryrestrictionsonthelengthoftimeofsuchaccumulation.111 Section13
ofthePerpetuitiesandAccumulationsAct2009removedtheserestrictionsforalltrustsotherthanforcharitable
trusts,underwhichincomecanbeaccumulatedfornomorethantwentyoneyears.112 Theexceptionforcharities
issensible,sincemoneyheldbyacharitabletrustshouldregularlybespentinordertofurtherthetrusts
charitablepurposes.
6.PowersandDutiesRelatingtoProperty
Trusteeshaveavarietyofpowersanddutiesrelatingtotheadministrationoftrustproperty.
(a)PowersOverLand
Trusteesoflandhaveallofthepowersofanabsoluteownerinrespectoftheland,113 buttheymusthaveregard
totherightsofthebeneficiaries114 theyhaveadutytoconsultadultbeneficiarieswhohave(p.599) aninterest
inpossession,115 andtheyaresubjecttothestatutorydutyofcare.116 Trusteescanconveylandtothe
beneficiarieswhoareoffullageandcapacity,andwhoareabsolutelyentitledtotheproperty,evenifthe
beneficiarieshavenotrequestedtheconveyance.117
Themostsignificantpowerarisingfromtrusteesbeinginthepositionofabsoluteownersofthelandisthatthey
haveapowertoselltheland.Wheretrusteesselllandthathasbeenheldontrust,theyareabletogiveavalid
writtenreceiptonlyifthepurchasemoneyisreceivedbytwotrusteesoratrustcorporation118 ifitisnot,thenthe
purchasermightbeliableforlossormisapplicationofthepurchasemoneyandtheinterestsofthebeneficiaries
willnotbeoverreached.
(b)PowersRelatingtoPersonalProperty
Wherepropertyotherthanland,suchaschattelsorshares,isheldontrust,theremaybeanexpresspowerto
selltheproperty.Writtenreceiptofpaymentbyonetrusteeissufficienttodischargethepurchaser,sothatheor
shewillnotbeliableforlossormisapplicationofthepurchasemoney.119
(c)PowertoRaiseCapitalMoney
Wheretrustees,otherthancharitabletrustees,areauthorizedtopayorapplycapitalmoneyforanypurpose,they
havethepowertoraisethemoneybymortgagingproperty.
TrusteeAct1925
16.Powertoraisemoneybysale,mortgage,&c
(1)Wheretrusteesareauthorisedbytheinstrument,ifany,creatingthetrustorbylawtopayor
applycapitalmoneysubjecttothetrustforanypurposeorinanymanner,theyshallhaveand
shallbedeemedalwaystohavehadpowertoraisethemoneyrequiredbysale,conversion,
callingin,ormortgageofalloranypartofthetrustpropertyforthetimebeinginpossession.
(2)Thissectionappliesnotwithstandinganythingtothecontrarycontainedintheinstrument,if
any,creatingthetrust,butdoesnotapplytotrusteesofpropertyheldforcharitablepurposes,or
totrusteesofasettlementforthepurposesoftheSettledLandAct,1925,notbeingalsothe
statutoryowners.
Butthisdoesnotauthorizetrusteestoraisemoneybychargingexistinginvestmentsinordertopurchase
others.120
(d)PowertoInsure
Trusteesmayinsuretrustpropertyandpaythepremiumsfromtrustfunds.
TrusteeAct1925
(p.600) 19.Powertoinsure
(1)Atrusteemay
(a)insureanypropertywhichissubjecttothetrustagainstrisksoflossordamagedueto
anyevent,and
(b)paythepremiumsoutofthetrustfunds.
(2)Inthecaseofpropertyheldonabaretrust,thepowertoinsureissubjecttoanydirection
givenbythebeneficiaryoreachofthebeneficiaries
(a)thatanypropertyspecifiedinthedirectionisnottobeinsured
(b)thatanypropertyspecifiedinthedirectionisnottobeinsuredexceptonsuch
conditionsasmaybesospecified.
(3)Propertyisheldonabaretrustifitisheldontrustfor
(a)abeneficiarywhoisoffullageandcapacityandabsolutelyentitledtotheproperty
subjecttothetrust,or
(b)beneficiarieseachofwhomisoffullageandcapacityandwho(takentogether)are
absolutelyentitledtothepropertysubjecttothetrust.
(5)Inthissectiontrustfundsmeansanyincomeorcapitalfundsofthetrust.
Anyinsurancemoneythatispaidinrespectoflossordamagetothepropertyshouldbetreatedascapitalmoney
121 122
underthetrustratherthanincome,121 anditmaybeusedtoreinstatetheproperty.122
(e)PowerofCourttoAuthorizeDealingsWithTrustProperty
Wherethetrustinstrumentoranystatutedoesnotcreateapowerforthetrusteestodealwithtrustproperty,
suchasapowertoselltheproperty,itispossibleforthetrusteesorbeneficiariestoapplytothecourtforthe
powertobeconferredonthetrustees,eitherforaspecifictransactionorgenerally.
TrusteeAct1925
57.Powerofcourttoauthorisedealingswithtrustproperty
Whereinthemanagementoradministrationofanypropertyvestedintrustees,anysale,lease,
mortgage,surrender,release,orotherdisposition,oranypurchase,investment,acquisition,
expenditure,orothertransaction,isintheopinionofthecourtexpedient,butthesamecannotbe
effectedbyreasonoftheabsenceofanypowerforthatpurposevestedinthetrusteesbythetrust
instrument,ifany,orbylaw,thecourtmaybyorderconferuponthetrustees,eithergenerallyorin
anyparticularinstance,thenecessarypowerforthepurpose,onsuchterms,andsubjecttosuch
provisionsandconditions,ifany,(p.601) asthecourtmaythinkfitandmaydirectinwhatmanner
anymoneyauthorisedtobeexpended,andthecostsofanytransaction,aretobepaidorborneas
betweencapitalandincome.
(1)Thecourtmay,fromtimetotime,rescindorvaryanyordermadeunderthissection,ormay
makeanyneworfurtherorder.
(2)Anapplicationtothecourtunderthissectionmaybemadebythetrustees,orbyanyof
them,orbyanypersonbeneficiallyinterestedunderthetrust.
7.PowersofDelegation
Originally,atrusteewasexpectedtoperformallofhisorherdutiespersonally.Inreality,thishasprovedtobe
impracticable,especiallyasthesizeoftrustfundshaveincreased,andovertheyearsithasbecomepossiblefor
trusteescollectivelytodelegatecertainfunctionstootherpeople.Initiallythiswastheresultofjudicial
development,butthereisnowarelevantstatutoryregimetobefoundinPartIVoftheTrusteeAct2000.
(a)DelegationtoAgents
Trusteeshaveastatutorypowercollectivelytoappointanagentwiththeauthoritytoexerciseanyorallofthe
trusteesdelegablefunctions.
(i)Powertoappointagents
TrusteeAct2000
11.Powertoemployagents
(1)SubjecttotheprovisionsofthisPart,thetrusteesofatrustmayauthoriseanypersonto
exerciseanyoralloftheirdelegablefunctionsastheiragent.
(2)Inthecaseofatrustotherthanacharitabletrust,thetrusteesdelegablefunctionsconsistof
anyfunctionotherthan
(a)anyfunctionrelatingtowhetherorinwhatwayanyassetsofthetrustshouldbe
distributed,123
(b)anypowertodecidewhetheranyfeesorotherpaymentduetobemadeoutofthetrust
fundsshouldbemadeoutofincomeorcapital,124
(c)anypowertoappointapersontobeatrusteeofthetrust,125 or
(d)anypowerconferredbyanyotherenactmentorthetrustinstrumentwhichpermitsthe
trusteestodelegateanyoftheirfunctionsortoappointapersontoactasanomineeor
custodian.126
(3)Inthecaseofacharitabletrust,thetrusteesdelegablefunctionsare
(a)anyfunctionconsistingofcarryingoutadecisionthatthetrusteeshavetaken
(p.602) (b)anyfunctionrelatingtotheinvestmentofassetssubjecttothetrust(including,
inthecaseoflandheldasaninvestment,managingthelandandcreatingordisposingof
aninterestintheland)
(c)anyfunctionrelatingtotheraisingoffundsforthetrustotherwisethanbymeansof
profitsofatradewhichisanintegralpartofcarryingoutthetrustscharitablepurpose
(d)anyotherfunctionprescribedbyanordermadebytheSecretaryofState.127
(4)Forthepurposesofsubsection(3)(c)atradeisanintegralpartofcarryingoutatrusts
charitablepurposeif,whethercarriedonintheUnitedKingdomorelsewhere,theprofitsare
appliedsolelytothepurposesofthetrustandeither
(a)thetradeisexercisedinthecourseoftheactualcarryingoutofaprimarypurposeof
thetrust,or
(b)theworkinconnectionwiththetradeismainlycarriedoutbybeneficiariesofthetrust.
(ii)Peoplewhomayactasagents
Trusteesmayauthorizeoneormoreoftheirnumbertoexercisedelegablefunctionsasanagentonbehalfofallof
thetrustees,128 buttheycannotappointabeneficiaryasanagentevenifthebeneficiaryisalsoatrustee.129 The
powerstoappointagentscanberestrictedorexcludedbythetrustinstrument.130
(iii)Linkedfunctions
Thepersonwhoisappointedasanagenttoexerciseaparticularfunctionissubjecttothespecificdutiesor
restrictionsthatattachtothatfunction.131 So,forexample,anagentwhoisauthorizedtoexercisethegeneral
powerofinvestmentisboundtoconsiderthestandardinvestmentcriteria.132
(iv)Termsofappointment
Theappointmentofanagentcangenerallybeonsuchtermsasthetrusteesdetermine.
TrusteeAct2000
14.Termsofagency
(1)Subjecttosubsection(2)andsections15(2)133 and29to32,134 thetrusteesmayauthorise

apersontoexercisefunctionsastheiragentonsuchtermsastoremunerationandother
mattersastheymaydetermine.
(2)Thetrusteesmaynotauthoriseapersontoexercisefunctionsastheiragentonanyofthe
termsmentionedinsubsection(3)unlessitisreasonablynecessaryforthemtodoso.
(p.603) (3)Thetermsare
(a)atermpermittingtheagenttoappointasubstitute
(b)atermrestrictingtheliabilityoftheagentorhissubstitutetothetrusteesorany
beneficiary
(c)atermpermittingtheagenttoactincircumstancescapableofgivingrisetoaconflictof
interest.
Ifanagentincursexpenseswhenactingonbehalfofthetrust135 orexercisingthefunctionsofanagent,136 heor

shecanbereimbursedfromthetrustfund.Thereisalsoastatutorypowertoremunerateagentsforservices
providedtothetrustiftheagentwasengagedontermsthatentitledhimorhertoberemuneratedandtheamount
paiddoesnotexceedwhatisreasonableinthecircumstancesfortheprovisionofthatparticularservice.137
Thereareparticularrestrictionsonthedelegationoftrusteesassetmanagementfunctions,whichinclude
investingtrustassets,andacquiringandmanagingtrustproperty.138 Suchfunctionsmustbedelegatedbyan
agreementthatisinwritingorisevidencedinwriting139 awrittenpolicystatementmustbepreparedthatgives
guidanceastohowthedelegatedfunctionsshouldbeexercisedinthebestinterestsofthetrust,suchasany
ethicalconsiderationsthatshouldbeborneinmindandtheagreementmustincludeatermthattheagentwill
complywiththepolicystatement.140 Trusteeshaveadutytoassesswhetherthepolicystatementisbeing
compliedwithandadutytoconsiderwhetheritneedstoberevisedorreplaced,and,iftheydecidethatitdoes,
theyareunderadutytosoreviseorreplaceit.141
(b)AppointmentofNomineesandCustodians
Trusteesalsohavethepowertoappointanomineeinrespectofparticulartrustassets,suchasshares,which
arethenvestedinthenominatedpersonwhocanexerciserightsonbehalfofthetrustees,suchastherightto
vote.Trusteesalsohavethepowertoappointacustodianofparticulartrustassetstomanagethoseassets.
Appointmentsofnomineesorcustodiansmustbemadeinwritingorbeevidencedinwriting.
TrusteeAct2000
16.Powertoappointnominees
(1)SubjecttotheprovisionsofthisPart,thetrusteesofatrustmay
(a)appointapersontoactastheirnomineeinrelationtosuchoftheassetsofthetrustas
theydetermine(otherthansettledland),and
(b)takesuchstepsasarenecessarytosecurethatthoseassetsarevestedinaperson
soappointed.
(p.604) 17.Powertoappointcustodians
(1)SubjecttotheprovisionsofthisPart,thetrusteesofatrustmayappointapersontoactasa
custodianinrelationtosuchoftheassetsofthetrustastheymaydetermine.
(2)ForthepurposesofthisActapersonisacustodianinrelationtoassetsifheundertakesthe
safecustodyoftheassetsorofanydocumentsorrecordsconcerningtheassets.
Apersoncanbeappointedasanomineeorcustodianonlyifheorsheisaprofessionalnomineeorcustodian,or
isacompanycontrolledbythetrustees.142 Thepowerstoappointnomineesorcustodianscanberestrictedor
143 144
excludedbythetrustinstrument.143 Thenomineeorcustodiancanbereimbursedexpenses 144 andcanbe
remuneratedforreasonableservicesprovided.145
Thepowertoappointnomineesmightbeconsideredtobecontroversial,sinceitappearstocontradictoneofthe
keycharacteristicsofatrustee,namelythattrustpropertyisvestedinthetrusteewhohascontrolofit.146 Where
anomineeisappointed,thetrustpropertywillbevestedinthenominee,whothenacquireslegaltitletoit.But
thisisforthebetteradministrationofthetrustandis,therefore,anappropriatepower,especiallybecausethe
trusteeremainsresponsibleforreviewingthearrangements,socanstillberegardedasretainingcontroloverthe
property.
(c)ReviewingDelegationArrangements
Wheretrusteeshaveappointedanagent,custodian,ornominee,thetrusteesareunderadutytokeepthe
arrangementsunderreview.
TrusteeAct2000
22.Reviewofagents,nomineesandcustodiansetc.
(1)Whiletheagent,nomineeorcustodiancontinuestoactforthetrust,thetrustees
(a)mustkeepunderreviewthearrangementsunderwhichtheagent,nomineeorcustodian
actsandhowthosearrangementsarebeingputintoeffect,
(b)ifcircumstancesmakeitappropriatetodoso,mustconsiderwhetherthereisaneedto
exerciseanypowerofinterventionthattheyhave,and
(c)iftheyconsiderthatthereisaneedtoexercisesuchapower,mustdoso.
(4)Powerofinterventionincludes
(a)apowertogivedirectionstotheagent,nomineeorcustodian
(b)apowertorevoketheauthorisationorappointment.
(p.605) (d)LiabilityofTrustees
TrusteeAct2000
23.Liabilityforagents,nomineesandcustodiansetc.
(1)Atrusteeisnotliableforanyactordefaultoftheagent,nomineeorcustodianunlesshehas
failedtocomplywiththedutyofcareapplicabletohim,underparagraph3ofSchedule1147
(a)whenenteringintothearrangementsunderwhichthepersonactsasagent,nomineeor
custodian,or
(b)whencarryingouthisdutiesundersection22.
(2)Ifatrusteehasagreedatermunderwhichtheagent,nomineeorcustodianispermittedto
appointasubstitute,thetrusteeisnotliableforanyactordefaultofthesubstituteunlesshehas
failedtocomplywiththedutyofcareapplicabletohim,underparagraph3ofSchedule1
(a)whenagreeingthatterm,or
(b)whencarryingouthisdutiesundersection22insofarastheyrelatetotheuseofthe
substitute.
Theeffectofthisprovisionisthat,ifthetrusteeshaveexercisedsuchskillandcareasisreasonableinthe
circumstancesasregardstheappointmentoftheagent,nominee,orcustodian,andreviewingthearrangements,
theywillnotbevicariouslyliableiftheagent,nomineeorcustodianhascausedlossbyactingnegligently.
Ifatrusteeexceedsthestatutorypowersinauthorizingapersontoexercisefunctionsasanagentorin
appointinganomineeorcustodian,theauthorizationorappointmentisnotinvalidated.148 Consequently,any
actionoftheagent,nominee,orcustodianthatiswithinthescopeofhisorherownauthoritywillbeeffectiveand
bindingonthetrust.
ThestatutorydutyofcareundertheTrusteeAct2000appliestotrusteesasregardsappointmentandreviewing
arrangements.
TrusteeAct2000
Schedule1
(1)Thedutyofcareappliestoatrustee
(a)whenenteringintoarrangementsunderwhichapersonisauthorisedundersection11
toexercisefunctionsasanagent
(b)whenenteringintoarrangementsunderwhichapersonisappointedundersection16to
actasanominee
(c)whenenteringintoarrangementsunderwhichapersonisappointedundersection17or
18toactasacustodian
(p.606) (d)whenenteringintoarrangementsunderwhich,underanyotherpower,however
conferred,apersonisauthorisedtoexercisefunctionsasanagentorisappointedtoact
asanomineeorcustodian
(e)whencarryingouthisdutiesundersection22(reviewofagent,nomineeorcustodian,
etc).
(2)Forthepurposesofsubparagraph(1),enteringintoarrangementsunderwhichapersonis
authorisedtoexercisefunctionsorisappointedtoactasanomineeorcustodianincludes,in
particular
(a)selectingthepersonwhoistoact,
(b)determininganytermsonwhichheistoact,and
(c)ifthepersonisbeingauthorisedtoexerciseassetmanagementfunctions,the
preparationofapolicystatementundersection15.
(e)SpecificPowersofDelegation
Variousstatutesmakeprovisionforspecificpowersofdelegation.So,forexample,itispossibleforanindividual
trusteetodelegatetheexecutionorexerciseoftrusts,powers,ordiscretions.
TrusteeAct1925
25.Delegationoftrusteesfunctionsbypowerofattorney.
(1)Notwithstandinganyruleoflaworequitytothecontrary,atrusteemay,bypowerofattorney,
delegatetheexecutionorexerciseofalloranyofthetrusts,powersanddiscretionsvestedin
himastrusteeeitheraloneorjointlywithanyotherpersonorpersons.
(2)Adelegationunderthissection
(a)commencesasprovidedbytheinstrumentcreatingthepoweror,iftheinstrument
makesnoprovisionastothecommencementofthedelegation,withthedateofthe
executionoftheinstrumentbythedonorand
(b)continuesforaperiodoftwelvemonthsoranyshorterperiodprovidedbytheinstrument
creatingthepower.
(4)Beforeorwithinsevendaysaftergivingapowerofattorneyunderthissectionthedonorshall
givewrittennoticeofit(specifyingthedateonwhichthepowercomesintooperationandits
duration,thedoneeofthepower,thereasonwhythepowerisgivenand,wheresomeonlyare
delegated,thetrusts,powersanddiscretionsdelegated)to
(a)eachperson(otherthanhimself),ifany,whounderanyinstrumentcreatingthetrust
haspower(whetheraloneorjointly)toappointanewtrusteeand
(b)eachoftheothertrustees,ifany
butfailuretocomplywiththissubsectionshallnot,infavourofapersondealingwiththedonee
ofthepower,invalidateanyactdoneorinstrumentexecutedbythedonee.
(7)Thedonorofapowerofattorneygivenunderthissectionshallbeliablefortheactsor
defaultsofthedoneeinthesamemannerasiftheyweretheactsordefaultsofthedonor.
ThisprovisionoperatesdifferentlyfromthepowersofdelegationundertheTrusteeAct2000,sincethatAct
concernsdelegationoffunctionsbythetrusteescollectively,whereasthepowerunderthe(p.607) 1925Act
enablesanindividualtrusteetodelegatehisorherfunctionsforalimitedperiodoftime.Underthe1925Actitis
possibleforatrusteetodelegatefunctionstoabeneficiary,incontrasttotheregimeunderthe2000Act.
Moreover,thetrusteewhoappointsanagentunderthe1925Actremainsliablefortheactsandomissionsofthe
agentasiftheyweretheactsandomissionsofthetrustee,whereastrusteeswhohavedelegatedunderthe2000
Actarenotvicariouslyliable,butarepersonallyliableonlyforfailingtocomplywiththestatutorydutyofskilland
care.
Anotherspecificpowerofdelegationrelatestotrusteesoflandwhocancollectivelydelegatetooneormore
beneficiary,whoisoffullageandbeneficiallyentitledtoaninterestinpossessioninlandthatissubjecttothe
trust,anyofthetrusteesfunctionsrelatingtothatlandforanyperiodorindefinitely.149
8.DutytoKeepAccounts
Trusteesmustkeepaccountsofthetrustandarerequiredtodisclosethemtobeneficiariesiftheyso
request.150 Trusteeshavethepower,ratherthanaduty,tohavethetrustaccountsaudited.
TrusteeAct1925
22.
(4)Trusteesmay,intheirabsolutediscretion,fromtimetotime,butnotmorethanonceinevery
threeyearsunlessthenatureofthetrustoranyspecialdealingswiththetrustpropertymakea
morefrequentexerciseoftherightreasonable,causetheaccountsofthetrustpropertytobe
examinedorauditedbyanindependentaccountant,andshall,forthatpurpose,producesuch
vouchersandgivesuchinformationtohimashemayrequireandthecostsofsuchexamination
oraudit,includingthefeeoftheauditor,shallbepaidoutofthecapitalorincomeofthetrust
property,orpartlyinonewayandpartlyintheother,asthetrustees,intheirabsolutediscretion,
thinkfit,but,indefaultofanydirectionbythetrusteestothecontraryinanyspecialcase,costs
attributabletocapitalshallbebornebycapitalandthoseattributabletoincomebyincome.
9.PowerstoCompoundLiabilitiesandtoSettleClaims
Trusteeshavevariouspowerstosettleanyclaimsrelatingtothetrustortoenterintoacompromise,151 orthey
canextendthetimeofpaymentofmoneyowedtothetrust.152 Thetrusteesarenotliableforanylossesthat
arisefromtheexerciseofthesepowersiftheyhavecompliedwiththestatutorydutyofcare.153
15.Powertocompoundliabilities
Apersonalrepresentative,ortwoormoretrusteesactingtogether,or,subjecttotherestrictions
imposedinregardtoreceiptsbyasoletrusteenotbeingatrustcorporation,asoleactingtrustee
wherebytheinstrument,ifany,creatingthetrust,orbystatute,asoletrusteeisauthorisedto
executethetrustsandpowersreposedinhim,mayifandasheortheythinkfit
(a)acceptanyproperty,realorpersonal,beforethetimeatwhichitismadetransferableor
payableor
(b)severandapportionanyblendedtrustfundsorpropertyor
(c)payorallowanydebtorclaimonanyevidencethatheortheythinksufficientor
(d)acceptanycompositionoranysecurity,realorpersonal,foranydebtorforanyproperty,
realorpersonal,claimedor
(e)allowanytimeofpaymentofanydebtor
(f)compromise,compound,abandon,submittoarbitration,orotherwisesettleanydebt,
account,claim,orthingwhateverrelatingtothetestatorsorintestatesestateortothetrust
andforanyofthosepurposesmayenterinto,give,execute,anddosuchagreements,instrumentsof
compositionorarrangement,releases,andotherthingsastohimorthemseemexpedient,without
beingresponsibleforanylossoccasionedbyanyactorthingsodonebyhimorthemifhehasor
theyhavedischargedthedutyofcaresetoutinsection1(1)oftheTrusteeAct2000.154
InAlsopWilk insonvNeary,155 itwasheldthatatrustee,againstwhomhostilelitigationhadbeenbrought

challengingthevalidityofasettlement,wasnotunderadutytodefendthetrust,butshouldremainneutral,
leavingittotherivalclaimantstothebeneficialinteresttofighttheirownbattles.
Question
AlanandBrendahold100,000ondiscretionarytrustforCharlesandDebbie,whoarebotheighteenyears
old.AlanandBrendahavenoexperienceoffinancialmatters.Brendaspeakstohernextdoorneighbour,
Edward,aboutthebestwaytoinvestthetrustfund.Edward,whoisasolicitor,advisesBrendatoinvesthalf
themoneyinanewhightechcompany,ITLtd,whichheishelpingtosetup,andtheremainderofthemoney
inFagLtd,ahighlyprofitablecompany,whichmanufacturesandsellscigarettes.Knowingthatthe
grandmotherofCharlesandDebbiediedfromlungcancer,AlanandBrendadecidenottoinvestinFagLtd,
buttheydoinvest50,000ofthetrustfundinITLtd.AlanandBrendadonotknowwhattodowiththe
remaining50,000ofthetrustfund,sotheygivethemoneytoEdward,tellinghimtoinvestitwisely.Edward
investsthemoneyinITLtd.ITLtdhasbeenanunmitigatedfailure.Itssharesarenowworthless.
ConsiderthepotentialliabilityofAlanandBrenda.
Ford,TrusteeInvestmentandModernPortfolioTheory(1996)10(4)TLI102.
FindThisResource
Getzler,DutyofCareinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.41.
FindThisResource
NichollsofBirkenhead,Lord,TrusteesandTheirBroaderCommunity:WhereDuty,MoralityandEthics
Converge(1995)9(3)TLI71.
FindThisResource
Nobles,CharitiesandEthicalInvestment[1992]Conv115.
FindThisResource
Thornton,EthicalInvestments:ACaseofDisjointedThinking(2008)CLJ396.
FindThisResource
Notes:
1 SeeChapter16,LiabilityforBreach.
2
3
4
See,e.g.thepowertoraisemoneybysellingormortgagingtrustproperty:TrusteeAct1925,s.16(2).See
5
6
Getzler,DutyofCareinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.41.
7
(1883)9AppCas1,19.
8 LearoydvWhiteley(1887)12AppCas727,733(LordWatson).
9 SpeightvGaunt(1883)22ChD727,730(JesselMR).
10 (1883)9AppCas1,20.
11 [1931]1Ch572.
12 Ibid,584.
13 [1980]Ch515,534.
14 HendersonvMerrettSyndicatesLtd[1995]2AC145BristolandWestBuildingSocietyvMothew[1998]Ch
1SwindlevHarrison[1997]4AllER705.SeeGetzler,DutyofCareinBreachofTrust(edsBirksandPretto)
(2002),p.71.
15 SeeChapter17.3(c)(ii)(b),pp.7967.
16
16 Itmustalsobeshownthatthelossarosefromthebreachofduty.SeeChapter17.3(c)(ii)(a),pp.7956.
17 [1993]1WLR1260.SeefurtherChapter12.5(a),pp.5934.
21 [2011]EWCACiv197[2012]Ch132,[107](LloydLJ).SeeChapter12.2(c),p.571.
23 SeeChapter12.4(b)(i),p.576.
24 SeeChapter12.4(b)(v),p.578.
26
27
SeeChapter12.6(d),pp.599600.
28
TrusteeAct2000,Sched.1(7).ButnotethePensionAct1995,s.33,whichpreventstheexclusionor
restrictionofthedutyofcareasregardstheexerciseofinvestmentpowersinpensiontrusts.
29
Althoughthedefendantscircumstancesmayberelevantwhendeterminingwhetherthetrusteesbreachmight
beexcused.SeeChapter16.3(c),pp.7446.
30
31
LawCommission,TrusteesPowersandDuties,LawCom.No.260(1999).
32
Ibid,25.
33 [2011]EWCACiv197[2012]Ch132,[107].
34 ReMillersDeedTrust(1978)75LSGaz454.
35 [1942]Ch230.
36 ByvirtueofthepowertocompoundliabilitiesundertheTrusteeAct1925,s.15.SeeChapter12.9,pp.6078.
37 (1843)2HLCas777n.
38 CowanvScargill[1985]Ch270,2867(SirRobertMegarryVC).
39 SeeLawCommission,TrusteesPowersandDuties(LawCom.No.260,1999),p.18.
40 LearoydvWhiteley(1887)12AppCas727,733(LordWatson).
41 [1993]1WLR1260,1281.
42 [1919]2Ch58,65.
43 TrusteesandtheirBroaderCommunity:WhereDuty,MoralityandEthicsConverge(1995)9(3)TrustLaw
International71,76.
44 Bodie,Kane,andMarcus,Investments(6thedn)(Boston,2005),p.224.
45 TrusteeInvestmentandModernPortfolioTheory(1996)10(4)TrustLawInternational.
46
46 NestlvNationalWestminsterBank plc(1996)10TLI113,115(HoffmannJ).
47 SeeChapter12.4(b)(v),p.578.
49 SeeChapter12.4(b)(ii),p.576.
50
TrusteeAct2000,s.7.
51
Ibid,s.6(1).
52
Ibid,s.36(3).
53
Ibid,s.37(1).
54 Ibid,s.38.SeeChapter12.4(b)(v),p.579.
55 [1985]Ch270,289.
56 Ibid.
57 TrusteeAct2000,PtIV.SeeChapter12.7,pp.6013.
58 Ibid,s.13(1).
59 Ibid,s.13(2).
60 Ibid,s.1.SeeChapter12.2(b),p.570.
61 CowanvScargill[1985]Ch270,288(SirRobertMegarryVC).
62 [1950]2AllER193,195.
63 ThepropertywassubsequentlyorderedtobesoldtoMrsSimpsonfor6,600.
64 SeeChapter12.4(b)(ii),pp.5767.
65 SpeightvGaunt(1883)9AppCas1,19(LordBlackburn).
66
LearoydvWhiteley(1887)12AppCas727,733(LordWatson).
67
[1985]Ch270,287.
68
NestlvNationalWestminsterBank plc[1993]1WLR1261.SeeChapter12.5(a),pp.5924.
69
70 [2000]1AllER490,496.
71 ThiswasduringtheperiodofApartheidinSouthAfrica.
72 SeeChapter12.4(b)(vii),pp.57980.
73 SeeChapter15.3(b)(iii)(c),pp.71315.
74 Nowseethestatutorydutyofcare,Chapter12.2(b),p.570.
75 [1988]SLT329.
76 Ibid,334.
77 [1985]Ch270,288.
78
78
(1841)Cr&Ph240.SeeChapter10.3(a),pp.5034.
79
80 HarriesvChurchCommissionersforEngland[1992]1WLR1241,1247(SirDonaldNichollsVC).
81 TrusteeAct2000,s.6(1).SeeChapter12.4(b)(i),p.575.
82 PensionAct1995,s.35.
83 [1992]1WLR1241,1244.
84 CompaniesAct2006,s.168.
85 Section57.SeeChapter15.3(a),p.705.
87 ReKolbsWillTrusts[1962]Ch531MasonvFarbrother[1983]2AllER1078.
88 [1984]1WLR418.SeealsoSteelvWellcomeCustodianTrusteesLtd[1988]1WLR167.
89 [1984]1WLR418,424.
90 NestlvNationalWestminsterBank plc[1993]1WLR1261.
91 NestlvNationalWestminsterBank plc[1993]1WLR1260,1279.
92
RePaulingsSettlementTrusts(No.2)[1963]Ch576,586(WilberforceJ).SeealsoCowanvScargill[1985]
Ch270,286(SirRobertMegarryVC),Chapter12.4(c)(ii),pp.5824.
93 29June,1988[2000]WTLR795,803.
94
EdgevPensionsOmbudsman[2000]Ch602.
95
[1993]1WLR1285,1294.
96
BouchvSproule(1887)LR12AppCas385.
97
Rae(InspectorofTaxes)vLazardInvestmentCo.Ltd[1963]1WLR555,565(LordReid).
99 [1985]AC1082,1120.
100 [2008]EWCACiv1441[2009]Ch296,[28].
101 LawCom.No.315,CapitalandIncomeinTrusts:ClassificationandApportionment(2009),para.7.53.
102 CapitalandIncomeinTrusts:ClassificationandApportionment,CPNo.175(2004).
103 LawCom.No.315,op.cit.,para.4.25.
104 Ibid.
106 InsertedbyTrusts(CapitalandIncome)Act2013,s.4.
107 LawCom.No.315,CapitalandIncomeinTrusts:ClassificationandApportionment(2009),para.6.10.
108 ThiswascalledthefirstruleinHowevLordDartmouth(1802)7Ves137.
109
110 TrusteeAct2000,s.3(1).SeeChapter12.4(b)(ii),p.576.
111 LawofPropertyAct1925,s.164.
112 PerpetuitiesandAccumulationsAct2009,s.14.
113 TrustsofLandandAppointmentofTrusteesAct1996,s.6.
114 Ibid,s.6(5).
115 Ibid,s.11(1).
116 Ibid,s.6(9).
117
Ibid,s.6(2).
118
119
120
ReSuensonTaylorsSettlementTrusts[1974]1WLR1280.
121 TrusteeAct1925,s.20(1).Fortherelevanceofthisclassification,seeChapter12.5(b),pp.5946.
122 Ibid,s.20(4).
125 SeeChapter11.3(d),pp.5216.
127 TheSecretaryofStatehasnotdonesoandtherearenoplanstodoso.
129 Ibid,s.12(3).
130 Ibid,s.26.
131 Ibid,s.13(1).
133
Relegationofassetmanagementfunctions.SeeChapter12.7(a),p.603.
134
135
136
Ibid,s.32(3).
137 Ibid,s.32(1).
138 Ibid,s.15(5).
139 Ibid,s.15(1).
140 Ibid,s.15(2).
141
141 Ibid.s.22(2).
142 Ibid,s.19(2).
143
Ibid,s.26.
144
Ibid,s.32(3).
145
Ibid,s.32(1).
146
WebbvJonas(1888)39ChD660.SeeChapter11.1(a),pp.51112.
147 SeeChapter12.2(b),p.570Chapter12.7(d),p.605.
148 TreatiseAct2000,s.24.
149 TrustsofLandandAppointmentofTrusteesAct1996,s.9(1)and(5).UndertheTrusteeDelegationAct1999,
s.1,trusteesoflandwhoarealsobeneficiariescandelegatealltrusteefunctionsrelatingtotheland.
150 PearsevGreen(1819)1Jac&W135,140(PlumerMR).
151 SeeReEarlofStrafford[1980]Ch28.
152 TrusteeAct1925,s.15.
155 [1996]1WLR220.SeeChapter11.6(b),pp.5401.
13.DispositivePowersandDuties
Chapter: (p.610) 13.DispositivePowersandDuties
DOI: 10.1093/he/9780199661480.003.0013
CentralIssues
1.Dispositivepowersanddutiesrelatetothedistributionoftrustpropertytobeneficiariesorobjects.
2.Trusteesmayhavevariouspowersrelatingtotheappointmentoftrustpropertytobeneficiaries.
Thesepowersrelatetowhetheranappointmentshouldbemadeand,ifso,inwhosefavouritshouldbe
exercisedandwhatshouldbeappointed.
3.Therearevariousconsequencesofadispositivepowernotbeingexercised,includingliabilityfor
breachoftrustandthecourtsexercisingthepowerinstead.Sometimesthetrusteesmaybe
authorizedbythecourttoexercisethepowerlate.
4.Wherebeneficiariesofanexpresstrusthavearighttoreceiveadistribution,thetrusteesareundera
dutytofindthebeneficiariesandtomakedistributions,withoutanydemandforpaymentfirstbeing
requiredfromthebeneficiaries.
5.Wherethereisdoubtastoabeneficiarysentitlement,ortheidentityorlocationofpossible
beneficiaries,therearevariousmechanismstoenabledistributionstobemadewithoutthetrustees
incurringliabilityforbreachoftrust.
6.Trusteeshaveastatutorypowerofmaintenancetopayincometothebeneficiaryeventhoughheor
sheisnotyetentitledtoreceiveitunderthetermsofthetrustinstrument.
7.Trusteeshaveastatutorypowerofadvancementtopaycapitalfromthetrustfortheadvancementor
benefitofabeneficiarybeforethebeneficiaryhasarighttoreceivethecapital.
1.NatureofDispositivePowersandDuties
Dispositivepowersanddutiesrelatetothedistributionoftrustpropertytobeneficiariesorobjects.Theyare
sometimesknownasbeneficialpowersandduties.Thedistinctionbetweenadministrativeanddispositivepowers
anddutiesmaybedifficulttodraw,1 butitisadistinctionthatneedstobemadebecausedifferentrulesrelateto
administrativeanddispositivepowersandduties.
(1)Thedecisionwhethertoexerciseadispositivepowerisamatterforthetrusteestodetermineandisnot
subjecttothedutyofcare,2 eitheratCommonLaworundertheTrusteeAct2000.But,once(p.
611) trusteeshavedecidedtoexerciseadiscretionarypower,themannerinwhichtheyexercisethatpower
orexerciseanydispositivedutywillbeassessedagainstthereasonablestandardofcare.Thestatutory
dutyofcareundertheTrusteeAct2000appliesonlytoadministrativefunctions,soonlytheCommonLaw
dutyofcarewillapplytotheexerciseofdispositivefunctions,although,aswasseeninChapter12,3 the
preferableviewisthatthereisnodifferencebetweenstatutoryandCommonLawdutiesofcare.
(2)Whereasmanyadministrativefunctionscanbedelegated,itisnotpossibletodelegateanydispositive
functionthatrelatestowhetherandinwhatwayanyofthetrustassetsshouldbedistributed.4 Inother
words,alldecisionsabouttheexerciseofdispositivefunctionsmustbemadebythetrusteesratherthan
delegatedtoanagent.
(3)Trusteesarenotpermittedtoreleasetheirdispositivepowers.5 Trusteesmustexercisetheirdispositive
powersvalidly,so,forexample,thepowersmustbeexercisedforaproperpurposeandnotcapriciously.In
otherwords,thedoctrineoffraudonthepowerapplies.6 Ifthetrusteesbreachadutyintheexerciseofthe
powerbyactingunreasonablyintakingintoaccountanirrelevantconsiderationorignoringarelevant
7
consideration,theexerciseofthepowerisvoidablebyvirtueoftheruleinPittvHolt.7
2.PowersofAppointment
Trusteesmayhavevariouspowersrelatingtotheappointmentoftrustpropertytobeneficiaries,includingthe
powertodecidewhethertomakeanappointmentoftrustpropertyatalland,ifanappointmentistobemade,to
whomitistobemadeandinwhatproportion.Thenatureofapowerofappointmentwillturnonwhetheritisa
trustpower,whichmustbeexercised,orafiduciarypower,whichmaybeexercised.8
(a)ExercisingPowersofAppointment
(i)Trustpower
ThemethodofexercisingatrustpowerofappointmentwasconsideredbyLordWilberforceinMcPhailvDoulton:9
atrusteewithadutytodistribute,particularlyamongapotentiallyverylargeclass,wouldsurelynever
requirethepreparationofacompletelistofnames,whichanyhowwouldtellhimlittlethatheneedsto
know.Hewouldexaminethefield,byclassandcategorymightindeedmakediligentandcarefulinquiries,
dependingonhowmuchmoneyhehadtogiveawayandthemeansathisdisposal,astothecomposition
andneedsofparticularcategoriesandofindividualswithinthemdecideuponcertainprioritiesor
proportions,andthenselectindividualsaccordingtotheirneedsorqualifications.Ifheactsinthismanner,
canitreallybesaidthatheisnotcarryingoutthetrust?
(p.612) Then,astothetrusteesdutyofinquiryorascertainment,ineachcasethetrusteesoughtto
makesuchasurveyoftherangeofobjectsorpossiblebeneficiariesaswillenablethemtocarryouttheir
fiduciarydutyAwiderandmorecomprehensiverangeofinquiryiscalledforinthecaseoftrustpowers
thaninthecaseofpowers.
Ithasbeenrecognizedthat,inverylargediscretionarytrusts,thetrusteemustassessthesizeoftheclassina
businesslikeway,10 thisbeingthelanguageoftheCommonLawdutyofcare,whichstillappliestotheexercise
ofpowersofappointment.11 Ifthetrusteesmakeadistributiontotheobjectswithoutconductingareasonable
surveyoftheclass,andoftheneedsofparticularcategoriesandindividuals,thetrusteeswillbeliableforbreach
oftrust.
Ifatrusteeexercisesthetrustpowerimproperly,forexample,bydistributingoutsidetherangeofobjectsas
definedbythetrustinstrument,orbyexercisingthepowercapriciously,12 theexerciseofthepowerwillbevoid.13
(ii)Fiduciarypower
Wherethetrusteeshaveafiduciarypowerofappointment,theyaresubjecttoadutytoconsidertheexerciseof
thepowerperiodically,buttheyarenotrequiredtoexerciseit.
ReHaysSettlementTrusts[1982]1WLR202,209(MegarryVC)
Inthecaseofatrust,ofcourse,thetrusteeisboundtoexecuteit,andifhedoesnot,thecourtwill
seetoitsexecution.Amerepowerisverydifferent.Normallythetrusteeisnotboundtoexerciseit,
andthecourtwillnotcompelhimtodoso.That,however,doesnotmeanthathecansimplyfoldhis
handsandignoreit,fornormallyhemustfromtimetotimeconsiderwhetherornottoexercisethe
power,andthecourtmaydirecthimtodothis.
Whenhedoesexercisethepower,hemust,ofcourse(asinthecaseofalltrustsandpowers)confine
himselftowhatisauthorised,andnotgobeyondit.Butthatisnottheonlyrestriction.Whereasa
personwhoisnotinafiduciarypositionisfreetoexercisethepowerinanywaythathewishes,
unhamperedbyanyfiduciaryduties,atrusteetowhom,assuch,apowerisgivenisboundbythe
dutiesofhisofficeinexercisingthatpowertodosoinaresponsiblemanneraccordingtoitspurpose.
Itisnotenoughforhimtorefrainfromactingcapriciouslyhemustdomore.Hemustmakesucha
surveyoftherangeofobjectsorpossiblebeneficiariesaswillenablehimtocarryouthisfiduciary
duty.Hemustfindoutthepermissibleareaofselectionandthenconsiderresponsibly,inindividual
cases,whetheracontemplatedbeneficiarywaswithinthepowerandwhether,inrelationtoother
possibleclaimants,aparticulargrantwasappropriate:InreBaden(No.1)[1971]AC424,449,
457perLordWilberforceThelastproposition,relatingtothesurveyandconsideration,atfirstsight
givesrisetosomedifficulty.Itisnowwellsettledthatnomerepowerisinvalidatedbyitbeing
impossibletoascertaineveryobjectofthepowerprovidedthelanguageisclearenoughtomakeit
possibletosaywhetheranygivenindividualisanobjectofthepower,itneednotbepossibleto
compileacompletelistofeveryobject:seeInreGestetnerSettlement[1953]Ch672,688Inre
Gulbenk iansSettlements(p.613) [1970]AC508InreBaden(No.1)[1971]AC424.AsHarmanJ
saidintheGestetnercase[1953]1Ch672,688,thetrusteesneednotworrytheirheadstosurvey
theworldfromChinatoPeru,whenthereareperfectlygoodobjectsoftheclassinEngland.
Thatbringsmetothethirdpoint.Howisthedutyofmakingaresponsiblesurveyandselectiontobe
carriedoutintheabsenceofanycompletelistofobjects?ThisquestionwasconsideredbytheCourt
ofAppealinInreBaden(No.2)[1973]Ch9.Thetrusteemustnotsimplyproceedtoexercisethe
powerinfavourofsuchoftheobjectsashappentobeathandorclaimhisattention.Hemustfirst
considerwhatpersonsorclassesofpersonsareobjectsofthepowerwithinthedefinitioninthe
settlementorwill.Indoingthis,thereisnoneedtocompileacompletelistoftheobjects,orevento
makeanaccurateassessmentofthenumberofthem:whatisneededisanappreciationofthewidth
ofthefield,andthuswhetheraselectionistobemademerelyfromadozenor,instead,from
thousandsormillionsOnlywhenthetrusteehasappliedhismindtothesizeoftheproblemshould
hethenconsiderinindividualcaseswhether,inrelationtootherpossibleclaimants,aparticulargrant
isappropriate.Indoingthis,nodoubtheshouldnotprefertheundeservingtothedeservingbutheis
notrequiredtomakeanexactcalculationwhether,asbetweendeservingclaimants,Aismore
deservingthanB:seeInreGestetnerSettlement[1953]Ch672,688,approvedinInreBaden(No.1)
[1971]AC424,453.
IfIamrightintheseviews,thedutiesofatrusteewhicharespecifictoamerepowerseemtobe
threefold.Apartfromtheobviousdutyofobeyingthetrustinstrument,andinparticularofmakingno
appointmentthatisnotauthorisedbyit,thetrusteemust,first,considerperiodicallywhetherornothe
shouldexercisethepowersecond,considertherangeofobjectsofthepowerandthird,considerthe
appropriatenessofindividualappointments.Idonotassertthatthislistisexhaustivebutasthe
authoritiesstanditseemstometoincludetheessentials,sofarasrelevanttothecasebeforeme.
Itfollowsthat,whilstafiduciarypowerneednotbeexercised,thetrusteesmustatleastconsideritsexercise.
(b)ConsequencesofaFailuretoExerciseaDispositivePower
Whereatrusteefailstoexerciseatrustpowerwithinareasonabletime,heorshewillbeliableforbreachoftrust
byvirtueoffailingtomakeanappointment.Similarly,thetrusteeswillbeliableforbreachoftrustiftheyfailto
considerwhetherornottoexerciseafiduciarypowerinareasonabletime.Butwheretrusteesfailtomakean
appointmentunderafiduciarypower,theywillnotbeliable,sincetheyarenotunderanydutytomakean
appointment.
Inadditiontopotentialliabilityforbreachoftrust,theremaybeotherconsequencesshouldtrusteesfailto
exerciseapowerofappointment.
(i)Trustpower
Ifatrusteefailstoexerciseatrustpower,thecourtwillendeavourtofulfilthesettlorsortestatorsintentby
securingexecutionofthepower.InMcPhailvDoulton,14 LordWilberforcesaid:
Butinthecaseofatrustpower,ifthetrusteesdonotexerciseit,thecourtwillIwouldventureto
amplifythisbysayingthatthecourt,ifcalledupontoexecutethetrustpower,willdosointhemanner(p.
614) bestcalculatedtogiveeffecttothesettlorsortestatorsintentions.Itmaydosobyappointingnew
trustees,15 orbyauthorisingordirectingrepresentativepersonsoftheclassesofbeneficiariestopreparea
schemeofdistribution,oreven,shouldtheproperbasisfordistributionappearbyitselfdirectingthe
trusteessotodistribute.
Inaddition,thecourtmaydirectthetrusteestoexercisetheirdiscretion.InTempestvLordCamoys,16 JesselMR
recognizedthat:
inallcaseswherethereisatrustordutycoupledwiththepowertheCourtwillthencompelthetrusteesto
carryitoutinapropermannerandwithinareasonabletime.
ReLockersSettlement[1977]1WLR1323
Trusteesheldpropertyonadiscretionarytrustwithadutytoapplyalltheincometotheobjectsofthetrust,
buttheyaccumulatedtheincomeforanumberofyears.GouldingJheldthat,sincetheyhadfailedto
distributetheincomewithinareasonabletime,thetrusteeshadbreachedtheirtrust,butthetrusteeswere
authorizedtoexercisetheirdiscretionoutoftime.17
Acourtofequity,wheretrusteeshavefailedtodischargetheirdutyofpromptdiscretionarydistribution
ofincome,isconcernedtomakethemasownersofthetrustassetsatlawdisposeofthemin
accordancewiththerequirementsofconsciencethatis,togivebenefitstothecestuisquetrustin
accordancewiththeconfidencethatthesettlorreposedinthem,thetrustees.Inacasesuchasthe
present,wherethetrusteesdesiretorepairtheirbreachofduty,andtomakerestitutionbydoinglate
whattheyoughttohavedoneearly,andwheretheyareinnowaydisabledfromdoingso,thecourt
should,inmyjudgment,permitandencouragethemtotakethatcourse.Atardydistributionatthe
discretionofthetrusteesis,afterall,nearertopromptdistributionatthediscretionofthetrustees,
whichiswhatthesettlorintended,thantardydistributionbythetrusteesatthediscretionofsomeone
else.Thereare,nodoubt,caseswhereamanifestationofobstinacyorbiasonthepartofthetrustees,
orofhostilityandsuspicion(evenunjustifiedhostilityandsuspicion)onthepartofthepotentialcestuis
quetrust,orsomeothercircumstance,mustmakesuchasolutionoftheprobleminadvisable.The
courtmayreadilylistentothemisgivingsofpotentialbeneficiarieswhohavebeenunabletogetthe
trusteestoexercisetheirdiscretionafterrepeatedrequestsandarehopingthemselves,iftheyhave
thelocusstanditodoso,toinvokethecourtsjurisdiction.TheothersolutionsrecommendedbyLord
Wilberforce[inMcPhailvDoulton]18 arethenavailabletothecourt.
IthasbeenarguedbyMr.Blackburne,onbehalfofsomeoftheobjectsofthetrust,thatoncea
reasonabletimeforthedistributionofaparticularitemofincomehaselapsed,thetrusteesdiscretion
overthatincomeisextinguishedandeithercannotberevived,oroughtnottoberevived,bythecourt.
ThatsubmissionisfoundedonInreAllenMeyrick sWillTrusts[1966]1WLR49919 andInre
Gulbenk iansSettlements(No2)[1970]Ch408.They,however,concernedpermissive,asdistinct
fromobligatory,discretionarypowers,andineachcasethetrustinstrumentcontainedasubsisting
trusttotakeeffect(p.615) indefaultofexerciseofthepower.Thediscretionofthetrusteesoughtto
beexercisedpromptly,ifatall,whereitsexerciseisoptional,justasitoughttobeexercisedpromptly
ineverycasewhereitsexerciseisobligatory.Buttheconsequencesofnonexercisearetomymind
quitedifferentinthetwosituations.Inthecasescited,failuretoexercisethepermissivepowerwithin
theproperlimitsoftimeleftthedefaulttruststanding.Inthecaseofanobligatorypower(inother
words,acompellingtrusttodistribute),thefailuretoexecutethetrustpromptlyisanunfulfilledduty
stillinexistence.Therefore,asitseemstome,theAllenMeyrick andGulbenk iancasesdonotcarry
meanyfurther.ItfollowsfromLordWilberforcesobservationsin[McPhailvDoulton],thatifthecourt
appointsnewtrusteestoremedytheirpredecessorsdefault,they,thenewtrustees,canexecutethe
neglecteddiscretionarytrust(beingoneofamandatorycharacter).Afortiori,itseemstome,thecourt
canpermittheexistingtrustees,ifwillingandcompetenttodoso,torepairtheirowninaction.
Thislateexerciseofthepowerofappointmentbythetrusteesispreferabletothediscretionbeingexercisedby
somebodyelse,becausethesettlorhadintendedthetrusteestoexercisethediscretion20 anditisbetterthatthe
discretionbeexercisedlateratherthanneverexercisedatall.
(ii)Fiduciarypower
Ithasbeenassumedthatifatrusteefailstoexerciseafiduciarypowerofappointmentwithinareasonabletime,
thepowerwillsimplylapseandthecourtwillnotcompelperformance,21 unlesstherewasanimproperpurpose
behindthefailuretoexercisethepower,22 althoughthecourtmightstillbewillingtocompelthetrusteeto
considerwhetherornotthepowershouldbeexercised.23 However,inMettoyPensionTrusteesLtdvEvans,24 it
wasrecognizedthatthecourthassimilarpowersofinterventionforfailuretoexerciseafiduciarypowerasapply
tothefailuretoexerciseatrustpowerofappointment,includingappointingreplacementtrustees,orderinga
schemeofdistributiontobepreparedbytheobjectsofthepower,orevendirectingtheexerciseofthepower
itself.
MettoyPensionTrusteesLtdvEvans[1990]1WLR1587
MettoyCo.plchadbeenwoundupwithasurplusinitspensionfund.Thecompanyhadapowerof
appointmentinfavourofthepensioners,withanysurplusnotappointedtothemgoingtothecompany.The
liquidatorwishedtoreleasethecompanyspowerofappointmentandpaythesurplusfromthepensionfund
tothecompanyscreditors.Thecompanyspowerofappointmentwascharacterizedasafiduciarypower.
Beingsuchitwasheldthatthepowercouldnotsimplybereleasedthedoneeofthepowerhadadutyto
consideritsexercise.Buttheoriginaldoneeofthepowerwasthecompany,whichcouldnotexerciseit
becauseithadgoneintoliquidation.Theliquidatorcouldnotproperlyexercisethepower,becausehehada
conflictofinterestbetweenhisdutytothecreditorsofthecompanyandhisdutytothepensionersto
considerwhetheritwasappropriatetoconsidertheexerciseofthepower.WarnerJsaid:25
Thequestionthenarises,ifthediscretionisafiduciarypowerwhichcannotbeexercisedeitherbythe
receiversorbytheliquidator,whoistoexerciseit?Thediscretioncannotbeexercisedbythe(p.
616) directorsofthecompany,becauseontheappointmentoftheliquidatorallthepowersofthe
directorsceased.Iwasreferredtoanumberofauthoritiesonthecircumstancesinwhichthecourt
mayinterferewithorgivedirectionsastotheexerciseofdiscretionsvestedintrustees,
namelyGisbornevGisborne(1877)2App.Cas.300InreHodges(1878)7Ch.D754Taborv
Brook s(1878)10ChD273KlugvKlug[1918]2Ch67InreAllenMeyrick sWillTrusts[1966]1
WLR499InreBadensDeedTrusts[1971]AC424InreManistysSettlement[1974]Ch17,2526
andInreLock ersSettlement[1977]1WLR1323.Noneofthosecasesdealsdirectlywithasituation
inwhichafiduciarypowerisleftwithnoonetoexerciseit.Theypointhowevertotheconclusionthat
inthatsituationthecourtmuststepin.[HavingquotedfromthejudgmentofLordWilberforce
inMcPhailvDoulton,26 hecontinued:]Inthatlatterparthewasindicatinghowthecourtmightgive
effecttoadiscretionarytrustwhencalledontoexecuteit.Itseemstomehoweverthatthemethods
heindicatedcouldbeequallyappropriateinacasewherethecourtwascalledontointerveneinthe
exerciseofadiscretionincategory2[fiduciarypower].Insayingthat,Idonotoverlookthat,inInre
ManistysSettlement[1974]Ch17,25,TemplemanJexpressedtheviewthattheonlyrightandthe
onlyremedyofanobjectofthepowerwhowasaggrievedbythetrusteesconductwouldbetoapply
tothecourttoremovethetrusteesandappointothersintheirplace.However,theearlierauthoritiesto
whichIwasreferred,suchasInreHodges,(1878)7ChD754andKlugvKlug[1918]2Ch67,had
notbeencitedtoTemplemanJIconcludethat,inasituationsuchasthis,itisopentothecourtto
adoptwhicheverofthemethodsindicatedbyLordWilberforceappearsmostappropriateinthe
circumstances.
Sincetherewasnobodyelsewhocouldexercisethepower,itwasheldthatthecourtwouldbewillingtoexercise
thepoweraccordingtoaschemeofdistributionthatwouldneedtobeapprovedsubsequently.
ThedecisioninMettoyPensionTrusteesispotentiallysignificantinitsapparentassimilationofthejudicial
responseswherethereisafailuretoexerciseatrustpowerandafiduciarypower,althoughitmightbeconfinedin
itsoperationtotheparticularcontextofpensiontrusts.27
Gardner,FiduciaryPowersinToytown(1991)107LQR214,216
Foralongtime,however,thefactthatapowermightbefiduciarywaslargelyacademic,becausethe
remediesavailabletotheobjectsforactuallysecuringtheperformanceofthedoneesdutytoconsider
itwereveryundeveloped.InReWillsTrustDeeds[1964]Ch219atp.236,itwassaidthattheonly
remedyforbreachofthedutytotheobjectsistoactivatethegiftovertothetakersindefault.A
pyrrhicvictoryindeed.ReHaysSettlementTrusts[1982]1WLR202atp.209didalittlebetterfor
objectsbystatingthatthecourtmightdirectdoneestocarryouttheirduty,andReGestetner[1953]
Ch672atp.688andReManistysSettlement[1974]Ch17atp.25saidthatnewtrusteesmightbe
appointedtodoso.Eventhisresponse,however,wasonlypossiblewherethetimeallowedfor
exercisingthepowerhadnotyetexpired(TurnervTurner[1984]Ch100)whereithadbeenallowedto
expire,evenbythewrongfulinactivityofthedonees,thegiftoverautomaticallytookeffect(ReAllen
Meyrick sWillTrusts[1966]1WLR499atp.505).Bycontrast,indiscretionarytrusts,aswellas
orderingthetrusteesthemselvestocarryouttheirdutyandappointingnewonestodosoevenwhen
thediscretionisoutoftime(ReLock ersSettlementTrusts[1977]1WLR1323)itispossibleto
approveaschemedevisedbythebeneficiariesthemselves,or,inthelastresort,forthejudgeto
exercisethediscretion(McPhailvDoulton[1971]AC424atpp.456457).Butgiventhatpowersof
appointmentmayinvolveadutytotheobjects,thereseemstobenoessentialdifferencesofarasthe
natureofthatdutyisconcernedbetweenthemanddiscretionarytrusts.Thefactthatsuchpowers
haveagiftoverindefaultsimply(p.617) meansthatthereisanadditionaloptioninthediscretion,
ratherthanaffectingitsnature.Inprinciple,then,theremedialneedsoffullyfiduciarypowersof
appointmentarethesameasthoseofdiscretionarytrusts.Thefactthattheauthoritiesonpowers
laggedinthiswaybehindthoseondiscretionarytrustsseemedtoindicatethatthecourtswerestill
findingitdifficultentirelytofreethemselvesofthenotionthatsuchpowerscannotbetrulyfiduciary.
IntheMettoycase,however,theestablishedremediesforpowersofappointmentwereofnohelp.It
wouldhavebeenimpossibletoleavetheexistingdoneetoexercisethediscretion,becausethatwas
theMettoycompanyitself,whichwasnowrepresentedbyitsliquidators.Asdonee,theliquidators
wouldhavebeenunderadutytogiveproperconsiderationtoexercisingthepowerinfavourofthe
pensionersbutthisconflictedwiththedutytheyinherentlyowedthecompanyscreditors,which
wouldhaveimpelledthemtoexercisethepowerinthecompanysownfavourastakerindefault.Nor
(perhapsslightlypuzzlingly)hadtherebeenarequestfornewtrustees.Soontheauthoritiesasthey
stoodforpowers,therewasanimpasse.ButWarnerJnowdecidedthatalltheremediesavailable
indiscretionarytrustsareequallyavailableinfullyfiduciarypowers.Hewasthereforeabletoapprove
ordictateaschemehimself
Thisadoptionofdiscretionarytrustremediesforfullyfiduciarypowersofappointmentisof
28
considerabledoctrinalimportance.Ubiremedium,ibijus.28 Theideaofsuchpowersinvolvingdutiesto
theirobjectsnolongerrestsevenpartlyonstatementsaboutthesedutiesintheabstract:thenew
positiononremediesmeansthattheyhavenowbeengiventhemostcomprehensiveavailable
concreteform.
Despitethis,itremainsnecessarytodistinguishbetweentrustpowersandfiduciarypowers,wherethepowerof
appointmentisnotexercised.Ifafiduciarypowerisnotexercisedwithinareasonabletime,thenthatpowerwill
lapseifthetrustinstrumentprovidesforagiftovertoanotherpersontotakeeffectinsuchcircumstances.InRe
AllenMeyrick sWillTrust,29 thetrusteeshadapowertodistributeincomeforthemaintenanceofthetestatrixs
husbandintheirabsolutediscretion,and,subjecttothatpower,toholdthetrustpropertyontrustforher
godchildreninequalsharesabsolutely.Thetrusteesfailedtoreachadecisionastowhethertoexercisethe
powerforthebenefitofthehusband(thefirstdefendant),whowasanunderchargedbankrupt.Itwasheldthat,
afterareasonabletimehadelapsedfromthereceiptoftheincome,theirdiscretiontoapplyitforthebenefitofthe
husbandterminated,andtheincomewasheldforthegodchildren(thesecondandthirddefendants).BuckleyJ
said:30
itisincumbentuponthetrusteestomakeuptheirmindsasincomebecomesdistributablefromtimeto
timetowhatextenttheywillapplyitforthemaintenanceofthefirstdefendant,andtotheextentthatthey
donotdecidesotoapplyitthetrustforthebenefitofthesecondandthirddefendantsattachestothefund
anditbecomestheirs.
AsIhavesaid,thetrusteeshavebeenmakingcertainpaymentsforthebenefitofthefirstdefendantand
haveaccumulatedintheirhandsacertainfundofundistributedincome.Sofarasareasonableperiodafter
receiptofanypartofthataccumulatedfundhaselapsed,Ithinkthatthetrusteesdiscretioninrespect
thereofmustbetreatedasbeingatanend.Itistruethatthereasonwhytheyhaveaccumulatedthatfund
isthattheyhavenotbeenabletoagreehowtheirdiscretionshouldbeexercisedbutthatdiscretionif
exercisedatallmustbeexercisedbythetrusteesunanimously.Iftheyhavenotsucceededinbeing
unanimous,theyhavenotsucceededinexercisingtheirdiscretion.
(p.618) Anotherkeydifferencebetweentrustpowersandfiduciarypowersthathavenotbeenexercisedisthat,
wheretheexerciseofthepowerisspecificallytimelimited,then,asregardstrustpowers,thecourtmaybe
willingtoallowtrusteestoexercisethepowerlate,31 butithasbeenheldthatafiduciarypowercannotbe
exercisedlate.
BreadnervGranvilleGrossman[2001]Ch523
Afixedtrusthadbeenestablishedforthetestatorscousins,subjecttothetrusteesexercisingafiduciary
powerofappointmentbeforeaparticulardate.Thetrusteesexercisedthepowerofappointmentadaylate
andsoughttheconfirmationofthecourtthattheexerciseofthepowerwasvalid.ParkJheldthatthepower
couldnotbeexercisedlate.32
The1976powerexpiredatmidnighton1August1989andhadnotbeenexercised.Untilthenthe
cousinsbeneficialpropertyrights,whichhadbeenvestedinthembythe1976appointment,were
defeasiblebyanexerciseofthe1976power.Attheprecisepointintimewhenthe1976powerexpired
thepossibilityofthecousinspropertyrightsbeingdefeateddisappeared.Theirrightswerenolonger
vestedbutdefeasible.Theywerevestedindefeasibly.[Counsels]argumentamountstosayingthatI
haveanequitablejurisdictiontodeprivetrustbeneficiariesofindefeasiblyvestedinterests.Thatwould
beaverystrongthingforacourttodoandIdonotacceptthatIhavethepowertodoit.
AtthetimewhenIamwritingthisjudgmentthereexistsafundofmoneyandinvestments,thelegal
ownershipofwhichisvestedinthetrustees.Whoownsthefundbeneficially?Certainlynotthe
trustees,sohowdoIfindoutwhodoes?Theansweris:fromthetermsofthetrustinstruments
Itistritelawthatthereisadistinctionbetweentwokindsofdispositivediscretionwhichmaybevested
intrustees.Therearediscretionswhichthetrusteeshaveadutytoexercise(sometimescalledtrust
powers)anddiscretionswhichthetrusteesmayexercisebuthavenodutytoexercise(sometimes
calledmerepowers).Thedistinctionismostfamiliarinthecontextofdiscretionstodistribute
income.Incasesoftrustpowersthetrusteesareboundtodistributetheincome,buthaveadiscretion
astohowitshouldbedividedbetweenthebeneficiaries.Incasesofmerepowersthetrusteeshave
twodiscretions:first,adiscretionwhethertodistributetheincomeornotandsecond,iftheydecide
thattheywillexercisethefirstdiscretion,afurtherdiscretionastohowtodividetheincomebetween
thebeneficiaries.Inthelatterkindofcasetherewillusuallybeadefaulttrustwhichdealswiththe
incomeifthetrusteesdonotexercisetheirdiscretiontodistributeit.Typicallythedefaulttrustwill
providefortheundistributedincometobeaccumulatedortobepaidasofrighttoabeneficiarywhose
interestinitisvestedbutdefeasiblebythetrusteesexercisingtheirdiscretiontodistribute.
Sometimesthedistinctiondoesnotmatter,butthereisanimportantdifferencebetweenthetwokinds
ofcaseifthetrusteesdonotexercisethediscretiontodistributeincomewithinthenormaltimefor
exercisingit.Thattimeisusuallyareasonabletime.Ifthereisatrustpowerand,althoughthe
trusteesarerequiredtoexerciseitwithinareasonabletime,theydonotdoso,thediscretionstill
exists.Ifthetrusteesarewillingtoexerciseit,albeitlaterthantheyshouldhavedone,thecourtwill
permitthemtodoso.ThatiswhathappenedinInreLock ersSettlement.33 Alternativelythecourtwill
exercisethediscretionitself.Butifthediscretiontodistributeisamerepower,andthetrusteesdo
notexerciseitwithinareasonabletimeofthereceiptofanitemofincome,thediscretionnolonger
existsasrespectsthatincome.Thedefaulttruststakeeffectindefeasibly.ThatiswhathappenedinIn
reAllenMeyrick sWillTrusts.
(p.619) Thedistinctionbetweentrustpowersandmerepowersis,asIhavesaid,mostcommonly
encounteredinconnectionwithpowerstodistributeincome.Butthedistinctionalsoexistsin
connectionwithotherkindsofdispositivepowers,includingpowersofappointment
Giventhatthe1976powerwasamerepowerwhichthetrusteesdidnothavetoexercise,itceasedto
beexercisableon1August1989,andthefactthatthetrusteeshadfailedtoperformtheirdutyto
considerwhetherornottoexerciseitcannotmeanthatitcontinuedtobeexercisableafterall.The
powerhadstillexpired,anditdidnotexiston2August1989,whenthetrusteespurportedtoexercise
it.[Counsel]saysthatthedutytoconsiderwhethertoexercisethepowerwasancillarytothepower,
andcannothaveanindependentandcontinuingexistenceapartfromthepoweritself.Iagreewithhim.
Thetrusteesfailuretoconsiderwhethertoexercisethepowermaygiverisetoconsequences
betweenthemselvesandJonathan,butitcannotmeanthattheinterestsofthecousinsunderthe1976
appointmentcontinuedtobedefeasibleafter1August1989
IthinkthecousinsarefortunateinthewaythatthingsworkedoutforthemandIamsorryforJonathan
[thesettlorsson,butmyconsciencedoesnotimpelmetosaythatthecousinsmustnotbeallowed
toretaintheinterestswhichthedeliberateactionsofthesettlorandthetrusteeshaveconferredupon
them.Jonathanmayormaynotbeabletorecoverwhathehaseffectivelylostthroughanaction
againstthetrustees.Iacceptthatitwillnotbeplainsailingforhim,sinceapartfromanythingelse
thereisatrusteeexonerationclauseinthesettlement.ButanypossibilityofredressforJonathanlies,
ifatall,inaclaimagainstthetrustees,andnotinanattempttotakethecousinspropertyrightsaway
fromthem.
ThegeneraltenorofBreadnervGranvilleGrossmanisinconsistentwiththeapproachofthecourtinReLock ers
Settlement,34 inwhichthecourtauthorizedatardyexerciseofatrustpower,andwithMettoyPensionFund,in
whichjudicialresponsestofailuretoexerciseatrustpowerandafiduciarypowerwereassimilated,althoughthat
decisionmightbeconfinedinitsapplicationtopensionfundtrusts.Perhapstheexplanationfortheapproach
inBreadnerwasthatthepowerwasspecificallytimelimited,sothatthepowerhadlapsedbythepassageoftime
accordingtotheclearwordsofthetrustinstrument,whereasinReLock ersSettlementthetermsofthetrust
instrumentdidnotexpresslylimitthetimeforperformance.Orperhapsthedistinctionsimplyreflectsthe
essentialnatureoftrustpowersandfiduciarypowers:atrustpowerdoesnotlapseevenifithasnotbeen
exercisedwithinareasonabletime,whereasfiduciarypowersdo.Itisalsosignificantthat,inBreadner,the
defaulttrustcameintoeffectanditwouldnothavebeenappropriatetodeprivethetrustbeneficiariesoftheirrights
byresurrectingthelapsedfiduciarypower.Itfollowsthat,althoughtheapproachseemsBreadnerseems
inconsistentwiththatofLock erandMettoy,itispossibletoreconcilethedecisions.
3.DutytoDistribute
(a)DutytoInformBeneficiariesandObjectsofTheirRights
Wherebeneficiariesofanexpresstrusthavearighttoreceivepaymentofincomeorcapital,orboth,thetrustees
areunderadutytofindthebeneficiariesandtomakedistributionstothemasthemoneybecomesdue,without
anydemandforpaymentfirstbeingrequiredfromthebeneficiaries.
(p.620) HawkesleyvMay[1956]1QB305,322(HaversJ)
Sofarasanexecutorisconcerned,IamboundbythedecisionoftheCourtofAppealinInre
Lewis 35 toholdthatthereisnolegaldutyuponhimtogivenoticeofthetermsofthelegacytothe
legatee.Iseenoreason,however,toextendthisdoctrine,whichhasnoattractionformeonthe
merits,toatrusteeunderanexpresstrust.Thepositionofanexecutorandatrustee,althoughnow,
formanypurposes,assimilatedundertheLawofPropertyAct,1925,isstillnotidentical,andthereis
adistinctionbetweenawill,whichisapublicdocumentinthesensethatanybodycangoto
SomersetHouseandseeit,andatrustdeed,whichisaprivatedocumenttowhichthecestuique
trusthasnoaccess.IntheabsenceofanyauthoritytothecontraryIdeclinetoextendthisdoctrineto
trusteesunderanexpresstrust.
Ihold,therefore,thattherewasadutyuponthedefendantsTidyandCollins,astrusteesofthe
Musgravesettlement,toinformtheplaintiffonattaining21thathehadaninterestinthecapitaland
incomeofthetrustfundsoftheMusgravesettlement.Afortiori,ifthetrusteesdidnothandovertothe
plaintiffonattaining21incometowhichhewasentitled,itwouldbetheirdutytoexplaintohimthathe
wasentitledtocallforandhavetheinterestpaidtohim
Iholdthattherewasnodutyonthetrusteestogivetheplaintifflegaladviceortoinformhimofhisright
tosever,thoughtheywouldbebound,inmyopinion,todiscloseondemandanydocumentrelatingto
thetrust
Astothethirdquestion,noauthoritywascitedtomebyanyofthedefendantsinsupportoftheir
propositionthattheobligationonthetrusteeswastopayincome,ifincomewaspayabletotheplaintiff
onattaining21(asIholditwas),onlyondemand.ItseemstomethatthepassagewhichIhavecited
inLowvBouverie36 iscontrarytothatview,andnoauthorityhasbeencitedinsupportofthe
defendantspropositionIholdthatitwasthedutyofthetrusteestopaytheincomeofhisshareto
theplaintiffonattainingtheageof21withoutanydemandbyhimandalsotopaythecapitaltothe
plaintiffandhissisterasjointtenantsuponthesisterattaining21withoutanydemandbythem
Theobligationoftrusteestoinformbeneficiariesoftheirrightsisaproductofthefundamentalprincipleoftrustee
accountability:trusteescannotbeheldaccountableifbeneficiariesareunawareoftheirrightstoreceivetrust
property.37
Asregardstheobjectsofadiscretionarytrust,sincetheyhavearighttoputtheircasetothetrusteesforthe
exerciseoftheirdiscretion,38 itfollowsthatthetrusteesshouldbeunderadutytotakereasonablestepstodraw
thisrighttotheobjectsattention.39 Whatconstitutesreasonablestepswilldependonthesizeoftheclass:
trusteeswillnotbeexpectedtosearchforallpossibleobjectswheretheclassisverylarge.40
Asregardsfiduciarypowersofappointment,theobjectsofthepowerhavenorighttobeinformedthattheyare
objects.41
(p.621) (b)TrusteeProtectionAgainstLiabilityforOverpayment
Wherethereisdoubtastothebeneficiarysentitlement,orknownorsuspectedbeneficiariescannotbefound,
therearevariousstepsthatthetrusteescantaketoensurethatthedutytodistributeisfulfilledwithoutbreachof
trust.Thisisparticularlysignificantwherethetrusteeswishtodistributeallthetrustassetssothattherewould
benotrustpropertylefttomeettheclaimsofbeneficiarieswhosubsequentlycomeforward.
(i)Directionsfromthecourt
Thetrusteescanapplytothecourtfordirections 42 astotheclaimsofthebeneficiariesandwhattheyshoulddoif
anidentifiedbeneficiarycannotbefound.Ifthetrusteescomplywiththedirectionsofthecourt,theycannotbe
liabletothebeneficiarywhodidnotreceiveanydistributionortocreditorswhocomeforwardsubsequently.43
(ii)Advertisementforbeneficiaries
Trusteesmayadvertiseforunknownbeneficiaries.
TrusteeAct1925
27.Protectionbymeansofadvertisements
(1)Withaviewtotheconveyancetoordistributionamongthepersonsentitledtoanyrealor
personalproperty,thetrusteesofasettlement,trusteesofland,trusteesforsaleofpersonal
propertyorpersonalrepresentativesmaygivenoticebyadvertisementintheGazette,44 andina
newspapercirculatinginthedistrictinwhichthelandissituated,andsuchotherlikenotices,
includingnoticeselsewherethaninEnglandandWales,aswould,inanyspecialcase,have
beendirectedbyacourtofcompetentjurisdictioninanactionforadministration,oftheir
intentiontomakesuchconveyanceordistributionasaforesaid,andrequiringanyperson
interestedtosendtothetrusteesorpersonalrepresentativeswithinthetime,notbeinglessthan
twomonths,fixedinthenoticeor,wheremorethanonenoticeisgiven,inthelastofthenotices,
particularsofhisclaiminrespectofthepropertyoranypartthereoftowhichthenoticerelates.
(2)Attheexpirationofthetimefixedbythenoticethetrusteesorpersonalrepresentativesmay
conveyordistributethepropertyoranypartthereoftowhichthenoticerelates,tooramongthe
personsentitledthereto,havingregardonlytotheclaims,whetherformalornot,ofwhichthe
trusteesorpersonalrepresentativesthenhadnoticeandshallnot,asrespectsthepropertyso
conveyedordistributed,beliabletoanypersonofwhoseclaimthetrusteesorpersonal
representativeshavenothadnoticeatthetimeofconveyanceordistributionbutnothinginthis
section
(a)prejudicestherightofanypersontofollowtheproperty,oranypropertyrepresenting
thesame,intothehandsofanyperson,otherthanapurchaser,whomayhavereceivedit
or
(p.622) (b)freesthetrusteesorpersonalrepresentativesfromanyobligationtomake
searchesorobtainofficialcertificatesofsearchsimilartothosewhichanintending
purchaserwouldbeadvisedtomakeorobtain.
(3)Thissectionappliesnotwithstandinganythingtothecontraryinthewillorotherinstrument,if
any,creatingthetrust.
Theeffectofthisprovisionisthat,aftertheexpirationofthetimefixedbytheadvertisement,thetrusteescan
makethedistributiontothosepeoplewhohaveclaimsofwhichthetrusteeshadnoticeandthetrusteeswillnot
bepersonallyliabletoanybodyofwhoseclaimtheydidnothavenotice.Butthisprovisiondoesnotpreventthose
whowereentitled,butwhodidnotcomeforward,frombringingaproprietaryclaimagainstthepersonwhohas
receivedthepropertytowhichtheywereentitled,savewherethatpropertywasreceivedbyabonafidepurchaser
forvalue.45
Theadvertisementwillprotectthetrusteesfromliabilityonlyiftheyhavenonoticeofthebeneficiariesclaims.
MCPPensionTrusteesLtdvAonPensionTrusteesLtd[2010]EWCACiv377[2012]Ch1
Apensionschemewasadministeredbythedefendantonbehalfoftheclaimanttrustee.Theclaimantknew
thatsomenewmembers,knownastheDandRtransferees,hadbeentransferredintotheschemefroma
differentscheme.Thedefendantfailedtomaintaintheschemerecordsproperly,sothatthenamesofthenew
memberswereremovedfromtherelevantdocuments.Theclaimantsoughttowinduptheschemeandplaced
anadvertrequestinganybodywithclaimsagainsttheassetstomakecontact.Nobodycameforward.The
claimantdistributedtheassets,andthenbecameawareoftheclaimsofthenewmembers,havingforgotten
aboutthem,andsettledanumberofthem.Theclaimantsuedthedefendantfordamagesfornegligently
maintainingtherecords.Thedefendantsliabilityturnedonwhethertheclaimantwasprotectedfromliability
byplacingtheadvert:ifitwereprotected,theclaimantwouldnothavesufferedanylossforwhichthe
defendantwouldbeliable.Inotherwords,theclaimantwasarguingthatitwasnotprotectedfromliabilityby
placingtheadvertbecauseitdidhavenoticeoftheclaimsofthenewmembers.Itwasheldthat,althoughthe
claimanthadforgottenaboutthenewmembers,itstillhadnoticeoftheclaimsandsoitwasnotprotectedby
theadvertisement.EliasJsaid:46
Iturntoconsiderthesection.Thepurposeisclear.Iftherewasthepossibilitythatbeneficiariesor
potentialbeneficiariesmayemergefromthewoodworkandmakeclaimsonthefundsofatrustafter
thedistribution,trusteeswouldbeunwillingtodistributebecauseoftheriskofpersonalliabilityto
suchclaimants.Thissectionthereforesetsoutaprocedurewhich,ifproperlyfollowed,relieves
trusteesofthatrisk.
Therearethreepointstonoteaboutthedraftingofthesectionandtheyarenotindispute.First,the
sectionrelievesthetrusteesfromliabilityonlywithrespecttoclaimsofwhichtheydidnothavenotice
atthetimeofdistribution.Iftheydidhavenoticetheymusthonourtheclaim,eventhoughtheclaimant
doesnotreplytotheadvertisementmadeinpursuanceofsection27
Second,thereisnodefinitioninthesectionorindeedelsewhereintheActofwhatconstitutesnotice.
Third,havingregardtogeneralconceptsofequity,noticemeansactualorconstructivenoticeandthe
trusteemayhaveconstructivenoticeofaclaimeventhoughhedoesnothaveactualknowledgeofit.
AsLordEsherMRobservedinEnglishandScottishMercantileInvestmentCoLtdvBrunton[1892]
2(p.623) QB700,708,constructivenoticeiswhollyfoundedontheassumptionthatamandoesnot
knowthefacts.
Inmyjudgment,thiscasecanberesolvedsimplybyfocusingontheconceptofactualnotice
SincetheassumptionforthepurposesofthepreliminaryhearingisthattheD&Rtransfereesdid
transfertotheworksscheme,itisconceded,forthepurposesatleastinthepreliminaryissue,that
thetrusteesdidknowofthetransfersatthetimeoftransferanddidaccordinglyhaveactualnoticeat
thattimethattheD&Rtransfereeswerebeneficiariesofthescheme.However,thedefendantalleges
thatthisdoesnotconstituteeffectivenoticewithinthemeaningofsection27becausethetrustees
hadgenuinelyforgottenthattheywerebeneficiariesbythetimethefundsweredistributed.The
submissionisthatoncetheyhadforgottenthisfacttheyceasedtohaveknowledgeofitandthat
oncetheyceasedtohaveknowledgeofit,theyceasedtohavenoticeofit.Itfollowsinmyviewthat
theonlyrealissuewhichthecourthastodecideiswhetheratrusteewhooncehadactualknowledge
for[sic]theparticularpersonasabeneficiarybutwhobythetimeofdistributionofthefundshas
genuinelyforgottenthatfactcanescapeliabilitytothatbeneficiarybyvirtueofsection27.
Thefundamentalpremiseunderlyingthedefendantsargumentisthat,atleastforthepurposeof
identifyingactualnotice,knowledgeandnoticearethesamething.Onceknowledgeislostnotice
ceases.Thisislinkedwiththesubmissionthatthereisatemporaldimensiontothequestionwhether
thetrusteeshavenotice.Section27(2)providesintermsthatthetrusteesarenotliabletoanyperson
ofwhoseclaimthetrusteeshavenothadnoticeatthetimeofdistribution.Theargumentisthat
thetrusteesdonothavenoticeatthetimeofdistributionthatsomeoneisabeneficiaryofthetrustif
theygenuinelyforgetthatfact,eventhoughtheyhadsuchnoticeatanearliertime.Itissaidthatthis
doesnotcreateanyinjusticebecausethetrusteeshavetoprove,theonusbeingonthem,thatthey
havegenuinelyforgottenthatfactandthiswouldinpracticebedifficulttoestablish.However,ifthey
canproveit,itissubmittedthatitisjustthattheyshouldnotbeliablesimplybecausetheirmemory
hasfailedthem
JeremyCousinsQC,sittingasadeputyjudgeoftheChanceryDivisionheldthatsection27merely
requiresthatnoticemusthavebeengivenbythetimeofdistribution.However,noticeisnottobe
equatedwithknowledgeand,evenifthetrusteesforgetthatnoticehasbeengiven,thatdoesnot
causethenoticetolapseorotherwisenegatethenotice.
Iagreewiththeconclusionreachedbythejudge.Thetrusteeshadactualnoticeoftheinterestsofthe
beneficiaries,notwithstandingthatthetransfereesdidnotreplytotheadvertisementThefactthat
thetrusteeshadforgottenthattheyhadnoticeisimmaterial.Iagreewiththejudgethatknowledge
andnoticearedifferentthingsandthat,evenontheassumptionthatforgettingsomethinginvolvesno
longerhavingknowledgeofit(itselfaninterestingphilosophicalpoint),thefactthatthetrusteesmay
haveforgottenthattheyhadreceivednoticebythetimeofdistributionisquiteirrelevant.Section27is
onlyconcernedwithwhetherthenoticehasbeenreceivedbythetimefundsaredistributed.Once
actualnoticeisgiven,theningeneralitwillpersistandremainnoticeatthetimeofdistribution.
(iii)Benjaminorder
ABenjaminorderismadebyacourttoauthorizethetrusteestodistributeallofthetrustpropertyorallofthe
assetsofadeceasedsestateeventhough,afterallpracticalinquirieshavetakenplace,thewhereabouts,oreven
thecontinuedexistence,ofallofthebeneficiariesisnotknown.
InReBenjamin,47 PhilipBenjaminwasentitled,ifstillaliveonthedateofhisfathersdeath,toashareinhis
fathersestate.HisfatherdiedinJune1893,butPhiliphaddisappearedinSeptember1892,andenquirieshad
failedtotracehim.JoyceJsaid:48
(p.624) IthinkinthiscasethatPhilipDavidBenjaminmustbepresumedtobedeadThequestionis
astowhenhedied.Ifheistobepresumedtobedead,IthinkthecaseofReWalk er(1871)7ChApp120
distinctlyapplies,andtheonusofproofisonhisadministrator.Hehasfailedtoadduceanyevidenceto
shewthatPDBenjaminsurvivedthetestator.Imyselfconsiderithighlyprobablethathediedon1
September,1892,oratalleventsshortlyafter.Iamclearlyofopinionthattheonusisonthoseclaiming
underhimtoprovethathesurvivedthetestator.Inmyopinion,therefore,thetrusteesareatlibertyto
distribute.Iamanxious,however,nottodoanythingwhichwouldpreventhisrepresentativefrommaking
anyclaimifevidenceofhisdeathatanyothertimeshouldbesubsequentlyforthcoming.Ishallnot,
therefore,declarethatheisdead,butIwillmakeanorderinthefollowingform:
IntheabsenceofanyevidencethatthesaidPDBenjaminsurvivedthetestator,letthetrusteesofthe
testatorswillbeatlibertytodividetheshareofthetestatorsestatedevisedandbequeathedinfavourof
thesaidPDBenjamin,hiswifeandchildren,uponthefootingthatPDBenjaminwasunmarriedanddidnot
survivethetestator.
ThepurposeoftheBenjaminorderistoprotectthetrusteesfromliabilityifthosebeneficiarieswhodidnotreceive
anythingunderthedistributionsubsequentlycomeforward.
ThepotentialreachofaBenjaminorderwasexpandedinReGreensWillTrusts.49 Thetestatrix,MrsGreen,
madeherwillin1972andleftallherpropertytoherson,Barry,withitgoingtocharityifhedidnotclaimitby
2020.Barryhadnotbeenheardofsince1943,whenhewasinaplanethatdisappearedoverBerlinonawartime
bombingraid.Neithertheplanenorthecrewwereeverfound.TheAirMinistrycertifiedthatallmembersofthe
crewwerepresumeddead.Barrysmotherwasconvincedthathersonhadsurvived.Shediedin1976.Itwasheld
that,sinceitwasvirtuallycertainthatBarrywasdead(andtheevidenceofdeathinthiscasewasconsideredto
bemuchstrongerthaninReBenjamin),aBenjaminorderwouldbemadesothattheexecutorsofthewillcould
distributetheestateonthatassumption,eventhoughthisorderconflictedwiththetestatrixsclearintentionas
expressedinthewill.NourseJ50 justifiedthisdecisionasfollows:
ThetrueviewisthataReBenjaminorderdoesnotvaryordestroybeneficialinterests.Itmerelyenables
trustpropertytobedistributedinaccordancewiththepracticalprobabilities,anditmustbeopentothe
courttotakeaviewofthoseprobabilitiesentirelydifferentfromthatentertainedbythetestator.
Theresultofthiscasehasbeencriticizedduetothelackofrespectaffordedtothetestatorswishes.
Luxton,EludingtheDeadHand:ALiveIssue?[1986]Conv138
Thedecisionisdisturbingbecausethetestatrixsexpressdirectionswereavowedlydisregarded.
NourseJdidnotacceptthatMrs.Greensintentionwasdeterminativeofwhatthecourtoughttodo.
Hesaidhecouldseeemotionalforceinsuchsubmission,buthedidnotthinkitcouldwithstandthe
testofrationalanalysis.Thisis,withrespect,asomewhatpaternalisticattitudeandgiventhefact
thatthecourtmadeanorderignoringherexpressdirections,thetributetoMrs.Greensmarvellous
andenduringfaithsoundshollow,evenpatronising.Why,itmustbeasked,wasadherencetothose
directionsnotapracticalprobability?Compliancewiththeexpresstermsofthetrustwassurely(p.
625) perfectlypracticable.Furthermore,initsuseofaBenjaminorder,ReGreendoesnotextend,but
onthecontraryrunscounterto,theprinciple(establishedinpreviouscases)underlyingtheuseof
suchorders.Thisprinciplecanbedescribedasfidelitytotestatorsintentions.Thus,innoneofthe
previousreportedcasesinwhichaBenjaminorderhasbeenmade,hastherebeenanyconflictwith
thetermsofthetrustratherthecourthasbeenfacedwithasituationwhichthetestatoreithernever
envisagedoratleastdidnotprovidefor.Whatthepreviouscasesrevealinsteadisthat,infacilitating
theearlierdistributionoftheestate,theBenjaminorderisattheveryleastnotinconsistentwiththe
testatorsintentions(orwhatitmaybepresumedthetestatorwouldhaveintendediffacedwiththe
particularcircumstancesbeforethecourt).
TheprinciplethataBenjaminordershouldnotrunroughshodovertestatorsintentionsisseenmost
clearlyincaseswheretheeventualityisnotevenforeseen,asinReBenjaminitself,wherethe
executionofthewillprecededPhillipsdisappearance.Buttheprincipleisequallyapplicabletocases
inwhichtheeventualityismerelynotprovidedfor,aswherethewillismadeafterthebeneficiarys
disappearancebutcontainsnospecificprovisiondealingwiththeconsequentproblemofthe
beneficiarysremaininghiddenatthetimetheestatefallstobedistributed
DeparturefromthetermsofMrs.GreenswillmightnotbeofgreatsignificanceifNourseJsstatement
thattheBenjaminorderdidnotdestroybeneficialinterestscouldbeacceptedfully.Yetwhilstthis
statementistrueintheory,inpracticeabeneficiarytracingassetsatalaterdatemightwellfindhis
actionoflimited(orofno)value:theequitabletracingrulesrequirethepropertytobeidentifiable,and
thereisnorighttotraceagainstabonafidepurchaser.51 Arecipientoftrustpropertydistributedunder
aBenjaminorderispresumablyaninnocentvolunteerand,whilstarecipientofpropertywrongly
distributedunderawillisliableinapersonalactiontothebeneficiary(ReDiplock ),52 thereisno
precedentforholdingpersonallyliableaninnocentvolunteerwhohasreceivedpropertydistributed
underaBenjaminorder.Theorderitself,ofcourse,exemptsthetrusteesfromanyliability.Nocomfort
herethen,forthemissingbeneficiaryunabletotrace.
ItisdifficulttoresisttheconclusionthatthemakingoftheBenjaminorderinReGreenreflectsabasic
hostilitytodispositionswhichthecourtdoesnotconsiderthatareasonabletestatorwouldmake
Giventhealreadystringentlimitationsonprivatetrusts,itwouldbemostregrettableifthecourtswere
nowtofacilitate,bythesubterfugeofaBenjaminorder,distributionsthatcouldeffectivelydestroyboth
thetestatorsexpressdirectionsandabeneficiarysinterestunderaperfectlyvalidtrust.Supportedby
theprincipleoffidelitytotestatorsintentions,thejuridicalbasisoftheBenjaminorderisstrong:setin
conflictwiththoseintentions,thejuridicalbasis(nowthemereconvenienceoffacilitatingan
immediatedistribution)isnotmerelyweak,itisoverthrown.Initsdisregardoftestamentaryintentions,
thedecisioninReGreenis,inthefinalanalysis,indefensible.
Althoughthedecisiondoesunderminethetestatorswishes,sinceitwastolerablyclearthatthesonwasdead,
thiscouldbeconsideredtobeacasewheredelayingthedistributionoftheestatewouldhaveservednouseful
purpose.
Ifthebeneficiarydoeseventuallycomeforward,heorshecannotsuethetrusteeforbreachoftrust,becausethe
trusteewillbeprotectedbytheBenjaminorder.Thebeneficiarywillinsteadneedtobringaproprietaryclaimin
respectofthepropertythatwastransferredorapersonalclaimagainsttherecipientofthetrustproperty,
although,asLuxtonpointedout,thismaywellbefruitless.ButthekeybenefitoftheBenjaminorderisthatit
allowstrustpropertytobedistributedwhilstleavingopenthe(p.626) possibilityofthelostbeneficiarycoming
forwardandclaimingwhatisrightfullyhisorhersifallthetrustpropertyhasnotyetbeendistributed.
(iv)Insurance
Anothersolutiontotheproblemofabeneficiaryappearingafterthetrustfundhasbeendistributedistotakeouta
missingbeneficiaryinsurancepolicy,whichprovidesafundtomeettheclaimofamissingbeneficiarywithout
imposingliabilityonthetrusteeordeprivingtheoverpaidbeneficiaryofwhatheorshehasreceived.
InReEvans,53 thedefendanthadbeenappointedtheadministratorofherdeceasedfathersestate,whichwas
heldontrustforherselfandherbrother,theclaimant.Thedefendanthadnotheardfromherbrotherforthirtyyears
andassumedthathewasdead.Sheconsequentlydistributedtheestatetoherselfonceshehadtakenouta
missingbeneficiaryinsurancepolicy.Herbrotherreappearedandissuedproceedingsinrespectofcertainmatters
concerningtheadministrationoftheestate,includingthepurchaseoftheinsurancepolicy.RichardMcCombeQC
said:54
Inmyview,personalrepresentatives,particularlyofsmallestates,shouldnotbediscouragedfromseeking
practicalsolutionstodifficultadministrationproblems,withouttheexpenseofresorttothecourt.Further,
insmallintestateadministrations,wherefrequentlytherepresentativewillhaveapersonalinterest,
sizeablesumsshouldnothavetobetiedupindefinitelyforfearofthereemergenceofalonglost
beneficiary.Themissingbeneficiarypolicydoesprovide,atrelativelysmallcost,apracticalanswertosuch
problems.Suchapolicyprovidesafundtomeettheclaimofsuchabeneficiaryinexonerationofthe
representativeandoftheoverpaidbeneficiary.Thepolicyistotheadvantageofallandistosomeextent
moreeffectivethanthelimitedprotectionprovidedbythemorecostlyapplicationtocourtfor
aBenjaminorder.Iamdisinclined,therefore,todrawadistinctioninthiscasebetweencaseswherethe
personalrepresentativeisbeneficiallyentitledandthosewhereheorsheisnot.Itmaybethat
circumstanceswilldifferinfuturecases,butinmyviewthedefendantwasadvisedtotakeapractical
courseincircumstanceswherethebeneficiaryhadbeenunheardoffornearlythirtyyearsandtomymind
thepremiumwasasensibleandproperexpenseofthisadministration.
(v)Retentionofafund
Thetrusteesmaydecidetomakeadistributiontothebeneficiaries,butsetasideasumofmoneyinafundtobe
usedtodischargeanysubsequentliabilitiesarisingfromoverpayingbeneficiaries.Thisfundmaybeusedto
satisfyclaimsfromunpaidbeneficiariesorcreditorswhosubsequentlycomeforward.55 Specificprovisionismade
bystatuteforthecreationofsuchafundtomeetliabilitiesarisingunderaleaseandthenforthetrusteesto
distributetherestofthetrustassetstothosewhoareentitledtothem.56
(vi)Paymentintocourt
Trusteesmaypaythetrustmoneyintocourtiftheycanestablishgenuinedoubtastotheidentityandlocationof
thebeneficiaries,forexample.
63.Paymentintocourtbytrustees
(1)Trustees,orthemajorityoftrustees,havingintheirhandsorundertheircontrolmoneyor
securitiesbelongingtoatrust,maypaythesameintocourt.
(2)Thereceiptorcertificateoftheproperofficershallbeasufficientdischargetotrusteesforthe
moneyorsecuritiessopaidintocourt.
(3)Wheremoneyorsecuritiesarevestedinanypersonsastrustees,andthemajorityare
desirousofpayingthesameintocourt,buttheconcurrenceoftheotherorotherscannotbe
obtained,thecourtmayorderthepaymentintocourttobemadebythemajoritywithoutthe
concurrenceoftheotherorothers.
(4)Whereanysuchmoneyorsecuritiesaredepositedwithanybanker,broker,orother
depositary,thecourtmayorderpaymentordeliveryofthemoneyorsecuritiestothemajorityof
thetrusteesforthepurposeofpaymentintocourt.
(5)Everytransferpaymentanddeliverymadeinpursuanceofanysuchordershallbevalidand
takeeffectasifthesamehadbeenmadeontheauthorityorbytheactofallthepersons
entitledtothemoneyandsecuritiessotransferred,paid,ordelivered.
Theeffectofsuchpaymentintocourtisthatthetrusteesretirefromthetrust.57 Thetrusteeswillbedischarged
fromtheirobligationstoadministerthefunds 58 andtheirdiscretionarypowerswillbeterminated.59 Theywill,
however,remainliableforpastbreaches 60 andresponsibleforanymoneyintendedforthemastrusteesthat
comesintotheirhandssubsequently,buttheywillnotbeliableotherwiseforanythingthathappensafterthey
havepaidmoneyintothecourt.
(vii)Lawyersopinion
Distributioninrelianceontheopinionofanappropriatelyqualifiedlawyermayabsolvetrusteesfromliabilityin
respectofthedistribution,butonlyiftheopinionispresentedtotheHighCourtandajudgeagreestosanction
thedistribution.
48.PowerofHighCourttoauthoriseactiontobetakeninrelianceoncounselsopinion
(1)Where
(a)anyquestionofconstructionhasarisenoutofthetermsofawilloratrustand
(b)anopinioninwritinggivenbyapersonwhohasa10yearHighCourtqualificationhas
beenobtainedonthatquestionbythepersonalrepresentativesortrusteesunderthewillor
trust,
(p.628)
theHighCourtmay,ontheapplicationofthepersonalrepresentativesortrusteesand
withouthearingargument,makeanorderauthorisingthosepersonstotakesuchstepsin
relianceonthesaidopinionasarespecifiedintheorder.
(2)TheHighCourtshallnotmakeanorderundersubsection(1)ifitappearstothecourtthata
disputeexistswhichwouldmakeitinappropriateforthecourttomaketheorderwithouthearing
argument.
(c)WrongfulDistribution
Wheretrusteeshavetransferredtrustpropertytothewrongbeneficiaryorhavetransferredtoomuchpropertyto
onebeneficiary,thetrusteescouldbringarestitutionaryclaimagainsttherecipientoftheproperty.Therearetwo
potentialclaimsthatareopentothetrusteesinsuchcircumstances.
(i)Proprietaryclaim
Thetrusteemayseektorecovertheproperty,oritsidentifiablesubstitute,thathasbeenmistakenlytransferredto
thebeneficiary,onthegroundthatthetrusteehasacontinuingproprietaryinterestinthatproperty.61 Thiscanbe
establishedbyresortingtotheequitablejurisdictiontosetasidevoluntarydispositionsformistake.62
(ii)Personalclaim
Alternatively,thetrusteemayhaveapersonalclaimtorecoverthevalueofthepropertythathasbeentransferred
tothewrongperson.Suchaclaimwouldarisewithinthelawofunjustenrichment63 andwouldprobablybe
foundedonmistake.64 Sincetheexerciseofatrusteesdispositivepowersinvolvesavoluntarydispositionof
property,theequitablejurisdictionforsettingasidemistakenvoluntarydispositionswouldbeengaged,sothat
restitutionwillonlybeawardedwherethemistakewasofsuchgravitythatitwouldbeunjustfortherecipientto
retaintheproperty.65
4.PowerofMaintenance
(a)NatureofthePower
Whereabeneficiaryisaminor,heorshewilltypicallynotbeentitledtoreceiveanyincomefromthetrustuntil
attainingtheageofmajorityateighteen.Butitmaybeusefulfortheminortoreceiveincomefromthetrustbefore
thatage,topayforhisorhereducation,forexample,ratherthanhavetowaituntilheorsheisoldenoughtohave
arighttoreceiveit.Similarly,anadultbeneficiarymaynotyetbeentitledtoincomeunderthetrust,sinceheor
shehasacontingentinterest,butmightbenefitfromreceivingsomeincomenow.Inbothcircumstancesthe
trusteesmightwishtoexercisetheirstatutorypowerofmaintenancetopayincometothebeneficiary,even
thoughthatbeneficiaryisnotyetentitledtoreceiveitunderthetermsofthetrustinstrument.
31.Powertoapplyincomeformaintenanceandtoaccumulatesurplusincomeduringa
minority
(1)Whereanypropertyisheldbytrusteesintrustforanypersonforanyinterestwhatsoever,
whethervestedorcontingent,then,subjecttoanypriorinterestsorchargesaffectingthat
property
(i)duringtheinfancyofanysuchperson,ifhisinterestsolongcontinues,thetrustees
may,attheirsolediscretion,paytohisparentorguardian,ifany,orotherwiseapplyforor
towardshismaintenance,education,orbenefit,thewholeorsuchpart,ifany,ofthe
incomeofthatpropertyasmay,inallthecircumstances,bereasonable,whetherornot
thereis
(a)anyotherfundapplicabletothesamepurposeor
(b)anypersonboundbylawtoprovideforhismaintenanceoreducationand
(ii)ifsuchpersononattainingtheageofeighteenyearshasnotavestedinterestinsuch
income,thetrusteesshallthenceforthpaytheincomeofthatpropertyandofanyaccretion
theretoundersubsection(2)ofthissectiontohim,untilheeitherattainsavestedinterest
thereinordies,oruntilfailureofhisinterest:
Providedthat,indecidingwhetherthewholeoranypartoftheincomeofthepropertyisduringa
minoritytobepaidorappliedforthepurposesaforesaid,thetrusteesshallhaveregardtotheageof
theinfantandhisrequirementsandgenerallytothecircumstancesofthecase,andinparticularto
whatotherincome,ifany,isapplicableforthesamepurposesandwheretrusteeshavenoticethat
theincomeofmorethanonefundisapplicableforthosepurposes,then,sofaraspracticable,unless
theentireincomeofthefundsispaidorappliedasaforesaidorthecourtotherwisedirects,a
proportionatepartonlyoftheincomeofeachfundshallbesopaidorapplied.
Theeffectofthispoweristhat,asregardsminors,thetrusteescanapplyincomefromthetrustfortheir
maintenance,education,andbenefit.Asregardsadultbeneficiarieswhoarecontingentlyentitledtothecapitalon
thehappeningofafutureevent,thetrusteeshavethepowertoapplyincomefortheirbenefitbeforetheoccurrence
oftheevent.Thestatutorypoweristobereadintoeverytrustinstrumentintheabsenceofcontraryintention
eithertomodifyorexcludeit.66
InReVesteysSettlement,67 SirRaymondEvershedMRsaid:
Thelanguageofs.31isbynomeanseasytofollow,nordoesitseemtomethatthesectionhasbeenput
togetherinamannertomakethetaskofapprehendingitseffecteasy.
TheLawCommissionhasrecommendedreformofthisprovision.68
(b)Minors
Asregardsminors,thetrusteeshavethepowertopayincomefromthepropertytothechildsparentorguardian,
ortoapplyincomeforthechildsmaintenance,education,orbenefit,asisreasonableinallthecircumstances.
Thispowercanbeexercisedeventhoughthereisanotherfundavailablefor(p.630) thesamepurposeandeven
thoughsomebodyelseisboundbylawtoprovideforthemaintenanceoreducationofthechild.Inexercisingtheir
discretion,thetrusteesshouldhaveregardtotheageofthechild,hisorherrequirements,andthegeneral
circumstancesofthecase,includingwhatotherincomeisapplicableforthesamepurposes.Thetrusteescan
legitimatelyexercisethepowereventhoughthisindirectlybenefitsoneoftheparentsofthechild,buttheycannot
setouttobenefittheparent.69 Ifthetrusteeshavenoticethatanotherfundisavailable,thengenerallyonlya
proportionatepartoftheincomefromthetrustfundshouldbeappliedforthemaintenance,education,orbenefitof
thechild.
TheLawCommissionhasrecommendedthatthewordsasmay,inallthecircumstances,bereasonableshould
beremovedandreplacedwithasthetrusteesthinkfit.70 TheLawCommissionnotedthatthereferenceto
reasonablenessisperceivedasimposinganadditionalrequirementthattheexerciseofthetrusteesdiscretion
mustbeobjectivelyreasonable,andstandardprecedentssubstituteareferencesimplytothetrustees
absolutediscretion.71
LawCommission,IntestacyandFamilyProvisionClaimsonDeath(LawCom.No.331,
2011)4.85
Consulteesalsoexpressedconcernthatthecurrentcriterionmayfettertrusteesintheexerciseof
theirdiscretion,andencourageswhattheTrustsLawCommitteedescribedassomewhatfruitless
disputes.Theyarguedthatthereisariskthatthecurrentwordingnolongersimplyexpressedthe
trusteesgeneraldutybutisperceivedassettingafurtherrestrictionandthataredraftwouldmake
thepositionclearerandsimpler.
Itwasnotedthatthereformwouldnotgivethetrusteesthefreedomortheencouragementtoact
unreasonably.TheSocietyofTrustandEstatePractitionersnotedthattrusteeswillstillbeexercising
afiduciarypowerandbeneficiarieswillhaveredressifthepowerisexercisedimproperly.
Further,theLawCommissionrecommendedthattheprovisotosection31(1)becompletelyremoved,becauseit
isoftenexcludedinpracticeandissuperfluous.72
2011)4.894.94
Thesecondpartoftheprovisorestrictstrusteestopayingonlyaproportionateamountoftheincome
wherethereismorethanonefundavailableforthebeneficiarysmaintenance,educationorbenefit.
Manyconsulteesconsideredthattherequirementistoorigid,andanimpracticalandpotentiallycostly
administrativeburdenwhichisoutofstepwithmodernpracticesandrequirements.Itwasnotedthat
settlorsortestatorswillretaintheoptiontointroducesuchrestrictionsexpresslyiftheywish,usually
aftertakingadvicebutseveralconsulteesconfirmedthatitisverycommonpractice(Societyfor
TrustandEstatePractitioners)forprofessionaldrafterstoexcludeit.
Consulteespointedtothetrusteesexistingdutytoactinthebestinterestsofthebeneficiariesand
takeallcircumstancesintoaccounttheymustthereforeconsidertheinformationtheyhaveabout
othersourcesofincomeinanycase
(p.631) wehavedecidedthatitwouldbeappropriatetoremovetherestrictionwhichlimitsthe
trusteestopayingonlyaproportionateamountoftheincomewheretherearetwoormorefunds
applicableforthebeneficiarysmaintenance,educationorbenefit.Thisleavesthefirstpartofthe
proviso
[Otherconsultees]consideredthatitisnotappropriatetolistfactorstowhichtrusteesshouldhave
regardTheSocietyofTrustandEstatePractitionerscommentedthatthewordsareunlikelytobe
ofanygreatassistancetotrustees,consideringthatthecircumstancesspecifiedwouldinany
casebeinthemindofatrusteewhowasconsideringexercisingthepower.Indeeditwassuggested
thattheprovisocouldactuallybeconfusing,sinceitdoesnotlistallpossiblefactors.
Wefindtheseargumentsconvincing.
AlthoughtheGovernmenthasnotyetrespondedtotheLawCommissionsrecommendations,theadoptionofthis
reformwouldbebeneficial,althoughitisunlikelytomakemuchdifferenceinpractice.
(c)TruststhatCarrytheIntermediateIncome
Thepowerofmaintenanceappliestoallminorswithavested73 interest,namelyaninterestthatdoesnotdepend
onapriorconditionbeingsatisfied,suchasreachingaspecifiedage.Iftheminorhasacontingentinterest,the
powerwillapplyonlyifthetrustcarriestheintermediateincome.74 Theprecisemeaningofthisphraseis
obscure.Essentiallysuchtrustsarisewherethebeneficiaryisentitledtotheincomefromthedateofthegift,
suchasonthedeathofthetestator,untilthepropertyvests.Thephrasegenerallyappliestoalltestamentary
giftsexceptforcontingentpecuniarylegaciesorwheresuchtrustsareexcludedbythewill.75 Thepowercannot
beexercisedinfavourofanobjectofadiscretionarytrustbecauseheorshehasnorighttotheincome.76
Thepowerofmaintenancecanalsobeexercisedforthebenefitofadultbeneficiarieswhohaveacontingent
interestintrustproperty,butagainonlyifthetrustcarriestheintermediateincome.77 Whereanadultbeneficiary
hasavestedinterestintrustproperty,thereisnoneedforthepowerofmaintenancetobeexercised,sinceheor
sheisalreadyentitledtotheincome.
(d)DutytoAccumulateIncome
TrusteeAct1925
31(2)Duringtheinfancyofanysuchperson,ifhisinterestsolongcontinues,thetrusteesshall
accumulatealltheresidueofthatincomebyinvestingit,andanyprofitsfromsoinvestingitfromtime
totimeinauthorisedinvestments,andshallholdthoseaccumulationsasfollows:
(i)Ifanysuchperson
(a)attainstheageofeighteenyears,ormarriesunderthatageorformsacivilpartnership
underthatage,andhisinterestinsuchincomeduringhisinfancyoruntilhismarriageor
hisformationofacivilpartnershipisavestedinterestor
(p.632) (b)onattainingtheageofeighteenyearsoronmarriageorformationofacivil
partnershipunderthatagebecomesentitledtothepropertyfromwhichsuchincomearose
infeesimple,absoluteordeterminable,orabsolutely,orforanentailedinterest
thetrusteesshallholdtheaccumulationsintrustforsuchpersonabsolutely,butwithoutprejudiceto
anyprovisionwithrespecttheretocontainedinanysettlementbyhimmadeunderanystatutory
powersduringhisinfancy,andsothatthereceiptofsuchpersonaftermarriageortheformationofa
civilpartnership,andthoughstillaninfant,shallbeagooddischargeand
(ii)Inanyothercasethetrusteesshall,notwithstandingthatsuchpersonhadavestedinterestinsuch
income,holdtheaccumulationsasanaccretiontothecapitalofthepropertyfromwhichsuch
accumulationsarose,andasonefundwithsuchcapitalforallpurposes,andsothat,ifsuchproperty
issettledland,suchaccumulationsshallbehelduponthesametrustsasifthesamewerecapital
moneyarisingtherefrombutthetrusteesmay,atanytimeduringtheinfancyofsuchpersonifhis
interestsolongcontinues,applythoseaccumulations,oranypartthereof,asiftheywereincome
arisinginthethencurrentyear.
Duringtheinfancyofthechild,anysurplusoftheincomethathasnotbeenappliedforthemaintenanceofthat
childmustbeaccumulatedbyinvestingit,andtheaccumulatedincomeistreatedasanaccretiontothecapital
ofthetrustpropertytowhichthechildisentitledwhenheorshereachestheageofeighteen.Theincomefrom
theseinvestmentscanbeusedforthemaintenanceofthechild.
(e)ExclusionoftheStatutoryPower
Thepowerofmaintenancewillbeexcludedifacontraryintentionisexpressedinthetrustinstrument.78 The
significanceofthisisillustratedbyReTurnersWillTrust,79 inwhichthetestatorhadcreatedatrustforthoseof
hisgrandchildrenwhoattainedtheageoftwentyeight.Thewillcontainedanexpresspowerofmaintenanceand
instructedthetrusteestoaccumulatethesurplusincome.Itwasheldthatthedirectiontoaccumulateexcluded
thestatutorypowerofmaintenance.RomerLJsaid:80
Thefactthatsection31containsprovisionsthataredirectoryisimmaterial.Powersofmaintenance,inthe
comprehensivemeaningofthatterm,usuallydo.Nothingismorecommon,forinstance,thanadirectionto
trusteestoaccumulateduringtheminorityincomenotappliedinmaintenance.Suchadirectionismerely
ancillarytothepowerofmaintenancestrictlysocalled,andmaywellberegardedasapartofthepowerof
maintenanceinitscomprehensivesense.Suchadirectionisindeedcontainedinsubsection2ofsection
31oftheTrusteeAct,1925,andisanessentialpartofthestatutorypowerofmaintenanceconferredupon
trusteesbythesection.Inthesamewaythedirectioncontainedincl.(ii)ofsubsection1canberegarded
asbeingmerelyanessentialpartofthenewstatutorypower.Thisstatutorypowerofmaintenance,thatis
tosay,thetotalityoftheprovisionstobefoundinsection31oftheAct,is,inouropinion,oneofthe
powersconferredbythisActwithinthemeaningofsection69,subsection2,andthereforeonlyappliesif
andsofarasacontraryintentionisnotexpressedintheinstrumentcreatingthetrustandhaseffect
subjecttothetermsofthatinstrument.Forthesereasonsweareofopinionthattheaccumulationsofthe
incomeofthepresumptiveshareofGeoffreyHeapTurnermadebythetrusteesdidnotformpartofhis
estate.
(p.633) Thedutytoaccumulateincomecanalsobeexcludedbyacontraryintentioninthetrust
instrument.81 So,inReDelameresSettlementTrust,82 thetrusteeshadappointedincometothebeneficiaries
absolutely.Thiswasheldtoexcludethedutytoaccumulate.
5.PowerofAdvancement
(a)NatureofthePower
Whereasthepowerofmaintenancerelatestoincome,thestatutorypowerofadvancementrelatestothepayment
ofcapitalfromthetrustfortheadvancementorbenefitofabeneficiarywhoseinterestisonlycontingentonthe
occurrenceofaparticularevent,sodoesnotyethavearighttoreceivethecapital.
TrusteeAct1925
32.Powerofadvancement
(1)Trusteesmayatanytimeortimespayorapplyanycapitalmoneysubjecttoatrust,forthe
advancementorbenefit,insuchmannerastheymay,intheirabsolutediscretion,thinkfit,of
anypersonentitledtothecapitalofthetrustpropertyorofanysharethereof,whetherabsolutely
orcontingentlyonhisattaininganyspecifiedageorontheoccurrenceofanyotherevent,or
subjecttoagiftoveronhisdeathunderanyspecifiedageorontheoccurrenceofanyother
event,andwhetherinpossessionorinremainderorreversion,andsuchpaymentorapplication
maybemadenotwithstandingthattheinterestofsuchpersonisliabletobedefeatedbythe
exerciseofapowerofappointmentorrevocation,ortobediminishedbytheincreaseofthe
classtowhichhebelongs:
Providedthat
(a)themoneysopaidorappliedfortheadvancementorbenefitofanypersonshallnot
exceedaltogetherinamountonehalfofthepresumptiveorvestedshareorinterestofthat
personinthetrustpropertyand
(b)ifthatpersonisorbecomesabsolutelyandindefeasiblyentitledtoashareinthetrust
propertythemoneysopaidorappliedshallbebroughtintoaccountaspartofsuchshare
and
(c)nosuchpaymentorapplicationshallbemadesoastoprejudiceanypersonentitledto
anypriorlifeorotherinterest,whethervestedorcontingent,in
(d)themoneypaidorappliedunlesssuchpersonisinexistenceandoffullageand
consentsinwritingtosuchpaymentorapplication.
Thestatutorypowerofadvancementistobereadintoeverytrustinstrumentintheabsenceofacontrary
intention.83 Itgivesthetrusteesapowertopaycapitaleithertothebeneficiarydirectly,ortoapplythemoneyfor
theadvancementorbenefitofthebeneficiary.
(b)RestrictionsontheExerciseofthePower
Assection32makesclear,theexerciseofthepowerofadvancementissubjecttocertainrestrictions.
(p.634) (i)Amountpaid
Themoneypaidshouldnotexceedonehalfofthepresumptiveorvestedshareofthebeneficiary.84 So,for
example,ifthebeneficiarysshareisvaluedat500,000,heorshecanbepaidupto250,000,butnomorethan
this,evenifthetrustfundsubsequentlyincreasesinvalue.85 Ifthetrusteeswishtotakeadvantageofanexpected
increaseinthevalueofthetrustfund,theyshouldensurethattheydonotpaythewholeamounttothe
beneficiaryinonego.ThislimitationontheamountthatcanbepaidhasbeencriticizedandtheLawCommission
hasrecommendedthatthepowershouldbeextendedtoenablethewholeofthebeneficiaryssharetobepaidto
himorher.86
2011)[4.69]
section32shouldbeupdated,foralltrusts,toreflectcurrentdraftingpracticeinremovingtheonehalf
limit.Thiswouldgivetrusteesflexibilitytoestablishthemostappropriatedecisionsforbeneficiaries
withintheparametersestablishedbythegenerallawontrusteedecisionmaking.
TheLawCommissionhasalsorecommendedthatthepresentlimitationofsection32toanycapitalmoney
shouldbeamended,sothatthetrusteeshavethepowertotransferallcapitalassetstoorfortheadvancementor
benefitofabeneficiary.87
(ii)Subsequentabsoluteentitlement
Ifthepersontowhommoneyhasbeenpaidbecomesabsolutelyandindefeasiblyentitledtoashareinthe
property,themoneythathasbeenpaidmustbetakenintoaccountaspartofhisorhershare.88
(iii)Avoidingprejudicetoothers
Thepaymentshouldnotbemadeifitprejudicesanypersonwhoisentitledtoanotherinterestinthemoney,such
asalifeinterest,unlessthatpersonisoffullageandconsentsinwritingtotheadvancement.89
(iv)Exclusionofthepower
Thepowermaybeexcludedbyexpressorimpliedcontraryintentinthetrustinstrumentthatitisnot
applicable.90 Theexistenceofanexpresspowerofadvancementinthetrustinstrumentdoesnotnecessarily
excludethestatutorypower,savewheretheyareincompatible,suchaswherethetrustinstrumentlimitsthe
amountofmoneythatcanbepaid.91 Inpractice,thepowerisrarelyexcludedandismuchmorelikelytobe
expandedbythetrustinstrument,92 typicallybyallowingthetrusteestoadvancethewholeofthecapital.
(p.635) (v)Properexercise
Thepowerofadvancement,likeanypower,mustbeexercisedfortheproperpurposeandnotcapriciously.So,for
example,inKlugvKlug,93 oneofthetrusteeswaswillingtoexercisethepowerofadvancementinfavourofthe
beneficiary,buttheothertrustee,whowasthebeneficiarysmother,refusedtoexercisethepowerbecausethe
claimanthadmarriedwithoutherapproval.Itwasheldthatthemotherhadfailedtoexerciseherdiscretionatall
andthecourtdirectedthatthepowerofadvancementoutofcapitalshouldbemade.Itwouldhavebeendifferent
hadthemotherdeterminedthatthepowershouldnotbeexercisedbecause,forexample,itwouldnothavebeen
intheclaimantsbestinterestfortheadvancementtobemadeoutofcapital.
(c)AdvancementorBenefit
Thekeyconsiderationwhendecidingwhetherthepowershouldbeexercisediswhetheritisfortheadvancement
orbenefitofthebeneficiary.Theuseofthewordadvancementconcernstheimprovementofthebeneficiarys
condition,anddoesnotrelatetotheactofadvancingmoneyfromthetrust.Advancementorbenefithas
traditionallyencompassedthemakingofpaymentsthatcontributetotheestablishmentinlifeofthebeneficiary,
suchasbyassistinghimorherintraining,orobtainingaprofessionalqualification.94 Theuseofthepowerhas
sincebeenexpandedtoencompassprovidingamoreimmediatefinancialbenefittobeneficiaries.
PilkingtonvInlandRevenueCommissioners[1964]AC612
MrPilkingtondiedinFebruary1935.Inhiswill,dated14December1934,helefttheincomeofhisresiduary
estateontrustforhisnephewsandniecesinequalshares.Thecapitalwastobeheldupontrustforthe
childrenofeachbeneficiaryinsuchsharesasthetrusteesshouldappoint,andindefaultofappointmentin
equalshares.RichardPilkingtonwasoneofthebeneficiaries.Hewasmarriedandhadthreechildren,oneof
whom,Penelope,wastwoyearsold.Thetrusteesdecided,withRichardsconsent,toadvanceonehalfof
Penelopesexpectantshareinthetrust,andtopayittothetrusteesofanewtrustthatwasbeingsetupfor
Penelopesbenefit.Themainobjectofthetrusteeswastoavoidataxliability,whichwouldbepayableon
thatpartofthefundonRichardsdeath.Thetermsofthenewtrustwerethattheincomeshouldbeappliedfor
Penelopesmaintenance,education,andbenefituntilsheattainedtheageoftwentyoneandthesurplus
shouldbeaccumulatedonPenelopesattainingtheageoftwentyone,theincomeshouldbepaidtoherand
thecapitalshouldbepaidtoheronattainingtheageofthirty.ThequestionfortheHouseofLordswas
whetherthetrusteescouldproperlyexercisethepowerofadvancementinthisway.
Held:ThisexercisewaswithinthetermsofthestatutorypowerasbeingforPenelopesbenefit,butthe
particularexercisewasvoidforperpetuity.Thetransferofpropertytothenewtrustwasanexerciseofa
powerundertheoriginaltrust,sotheperiodofvestingstartedwiththecreationofthefirsttrust:sincethe
daughterwasnotabletotakeunderthenewtrustuntilsheattainedtheageof30,thiswasheldtobetoo
remoteasaperiodofvesting.95
(p.636) ViscountRadcliffe:Thewordadvancementitselfmeantinthiscontexttheestablishmentin
lifeofthebeneficiarywhowastheobjectofthepoweroratanyratesomestepthatwouldcontribute
tothefurtheranceofhisestablishmentTypicalinstancesofexpenditureforsuchpurposesunder
thesocialconditionsofthenineteenthcenturywereanapprenticeshiporthepurchaseofa
commissioninthearmyorofaninterestinbusiness.Inthecaseofagirltherecouldbeadvancement
onmarriage(LloydvCock er(1860)27Beav645).Advancementhad,however,tosomeextenta
limitedrangeofmeaning,sinceitwasthoughttoconveytheideaofsomestepinlifeofpermanent
significance,andaccordingly,topreventuncertaintiesaboutthepermittedrangeofobjectsforwhich
moneyscouldberaisedandmadeavailable,suchwordsasorotherwiseforhisorherbenefitwere
oftenaddedtothewordadvancement.Thiswideconstructionoftherangeofthepower,which
evidentlydidnotstanduponnicetiesofdistinctionprovidedthattheproposedapplicationcouldfairly
beregardedasforthebenefitofthebeneficiarywhowastheobjectofthepower,musthavebeen
carriedintothestatutorypowercreatedbysection32,sinceitadoptswithoutqualificationthe
accustomedwordingfortheadvancementorbenefitinsuchmannerastheymayintheirabsolute
discretionthinkfit.
Somuchforadvancement,whichInowuseforbrevitytocoverthecombinedphraseadvancementor
benefit.Itmeansanyuseofthemoneywhichwillimprovethematerialsituationofthebeneficiary.Itis
important,however,nottoconfusetheideaofadvancementwiththeideaofadvancingthemoneyout
ofthebeneficiarysexpectantinterest.Thetwothingshaveonlyacasualconnectionwitheachother.
Theonereferstotheoperationoffindingmoneybywayofanticipationofaninterestnotyetabsolutely
vestedinpossessionor,ifsovested,belongingtoaninfant:theotherreferstothestatusofthe
beneficiaryandtheimprovementofhissituation.Thepowertocarryouttheoperationofanticipating
aninterestisnotconferredbythewordadvancementbutbythoseotherwordsofthesectionwhich
expresslyauthorisethepaymentorapplicationofcapitalmoneyforthebenefitofapersonentitled
Ithink,withallrespecttotheCommissioners[whowerecontestingtheexerciseofthepower],agood
dealoftheirargumentisinfectedwithsomeofthisconfusion.Tosay,forinstance,thattherecannot
beavalidexerciseofapowerofadvancementthatresultsinadefermentofthevestingofthe
beneficiarysabsolutetitle(MissPenelope,itwillberemembered,istotakeat30undertheproposed
settlementinsteadofat21underthewill)isinmyopiniontoplayuponwords.Theelementof
anticipationconsistsintheraisingofmoneyforhernowbeforeshehasanyrighttoreceiveanything
undertheexistingtrusts:theadvancementconsistsintheapplicationofthatmoneytoformatrust
fund,theprovisionsofwhicharethoughttobeforherbenefit
Ihavenotbeenabletofindinthewordsofsection32,towhichIhavenowreferred,anythingwhichin
termsorbyimplicationrestrictsthewidthofthemannerorpurposeofadvancement.Itistruethat,if
thissettlementismade,MissPenelopeschildren,whoarenotobjectsofthepower,aregivena
possibleinterestintheeventofherdyingunder30leavingsurvivingissue.Butifthedispositionitself,
bywhichImeanthewholeprovisionmade,isforherbenefit,itisnoobjectiontotheexerciseofthe
powerthatotherpersonsbenefitincidentallyasaresultoftheexercise.Thusamanscreditorsmayin
certaincasesgetthemostimmediateadvantagefromanadvancementmadeforthepurposeofpaying
themoff,asinLowthervBentinck (1874)LR19Eq166,andapowertoraisemoneyforthe
advancementofawifemaycoverapaymentmadedirecttoherhusbandinordertosethimupin
business:ReKershawsTrusts(1868)LR6Eq322.Theexercisewillnotbebadthereforeonthis
ground.
Norinmyopinionwillitbebadmerelybecausethemoneysaretobetiedupintheproposed
settlement.Ifitcouldbesaidthatthepaymentorapplicationpermittedbysection32cannottakethe
formofasettlementinanyformbutmustsomehowpassdirectintoorthroughthehandsoftheobject
ofthepower,IcouldappreciatetheprincipleuponwhichtheCommissionersobjectionwasfounded.
Butcanthatprinciplebeasserted?Anyonecansee,Ithink,thattherecanbecircumstancesin
which,whileitisverydesirablethatsomemoneyshouldberaisedatonceforthebenefitofanowner
ofanexpectantorcontingentinterest,itwouldbeveryundesirablethatthemoneyshouldnotbe
secured(p.637) tohimundersomearrangementthatwillpreventhimhavingtheabsolutedisposition
ofit.Ifinditverydifficulttothinkthatthereissomethingatthebackofsection32whichmakesan
advancementimpossible.CertainlyneitherDanckwertsJnorthemembersoftheCourtofAppealin
thiscasetookthatview.BothLordEvershedMRandUpjohnLJ[1961]Ch466at481,486
explicitlyacceptthepossibilityofasettlementbeingmadeinexerciseofapowerofadvancement.
TheCommissionersobjectionsseemtobeconcentrateduponsuchpropositionsasthattheproposed
transactionisnothinglessthanaresettlementandthatapowerofadvancementcannotbeusedso
astoalterorvarythetrustscreatedbythesettlementfromwhichitisderived.Suchatransaction,
theysay,amountstousingthepowerofadvancementasawayofappointingordeclaringnewtrusts
differentfromthoseofthesettlement.ThereasonwhyIdonotfindthatthesepropositionshaveany
compulsiveeffectuponmymindisthattheyseemtomemerelyvividwaysofdescribingthe
substantialeffectofthatwhichisproposedtobedoneandtheydonotinthemselvesamountto
convincingargumentsagainstdoingit.Ofcourse,whenevermoneyisraisedforadvancementonterms
thatitistobesettledonthebeneficiary,themoneyonlypassesfromonesettlementtobecaughtup
intheother.Itisthereforethesamethingasaresettlement.But,unlessoneistosaythatsuch
moneyscanneverbeappliedbywayofsettlement,anargumentwhich,asIhaveshown,hasfew
supportersandiscontrarytoauthority,itmerelydescribestheinevitableeffectofsuchan
advancementtosaythatitisnothinglessthanaresettlement.Similarly,ifitispartofthetrustsand
powerscreatedbyonesettlementthatthetrusteesofitshouldhavepowertoraisemoneyandmake
itavailableforabeneficiaryuponnewtrustsapprovedbythem,thentheyareinsubstancegivenpower
tofreethemoneyfromonetrustandtosubjectittoanother.Sobeit:but,unlesstheycannotrequire
asettlementofitatall,thetransactiontheycarryoutisthesamethingineffectasanappointmentof
newtrusts.
InthesamewayIamunconvincedbytheargumentthatthetrusteeswouldbeimproperlydelegating
theirtrustbyallowingthemoneyraisedtopassovertonewtrusteesunderasettlementconferring
newpowersonthelatter.InfactIthinkthatthewholeissueofdelegationisherebesidethemark.The
lawisnotthattrusteescannotdelegate:itisthattrusteescannotdelegateunlesstheyhaveauthority
todoso.Ifthepowerofadvancementwhichtheypossessissoreadastoallowthemtoraisemoney
forthepurposeofhavingitsettled,thentheydohavethenecessaryauthoritytoletthemoneypass
outoftheoldsettlementintothenewtrusts.Noquestionofdelegationoftheirpowersortrustsarises
Ioughttonotefortherecord(1)thatthetransactionenvisageddoesnotactuallyinvolvetheraisingof
money,sincethetrusteesproposetoappropriateablockofsharesinthefamilysprivatelimited
companyasthetrustinvestment,and(2)therewillnotbeanyactualtransfer,sincethetrusteesofthe
proposedsettlementandthewilltrusteesarethesamepersons.AsIhavealreadysaid,Idonot
attachanyimportancetothesefactorsnor,Ithink,dotheCommissioners.Totransferorappropriate
outrightisonlytodobyshortcutwhatcouldbedoneinamoreroundaboutwaybysellingtheshares
toaconsentingparty,payingthemoneyovertothenewsettlementwithappropriateinstructionsand
arrangingforittobeusedinbuyingbackthesharesasthetrustinvestment.Itcannotmakeany
differencetofollowthecoursetakeninReCollardsWillTrusts[1961]Ch293anddealwiththe
propertydirect.Ontheotherpoint,solongasthereareseparatetrusts,thepropertyeffectually
passesoutoftheoldsettlementintothenewone,anditisofnorelevancethat,atanyrateforthe
timebeing,thepersonsadministeringthenewtrustarethesameindividuals.
IhavenotyetreferredtothegroundwhichwastakenbytheCourtofAppealastheirreasonforsaying
thattheproposedsettlementwasnotpermissible.Toputitshortly,theyheldthatthestatutorypower
ofadvancementcouldnotbeexercisedunlessthebenefittobeconferredwaspersonaltotheperson
concerned,inthesenseofbeingrelatedtohisorherownrealorpersonalneeds[1961]Ch466at
481.Or,touseotherwordsofthelearnedMasteroftheRollsat484,theexerciseofthepowermust
beanexercisedonetomeetthecircumstancesastheypresentthemselvesinregardtoaperson
withinthescopeofthesection,whosecircumstancescallforthattobedonewhichthetrusteesthink
fittodo.UpjohnLJat487expressedhimselfinvirtuallythesameterms.
(p.638) MyLords,Idifferwithreluctancefromtheviewsofjudgessolearnedandexperiencedin
mattersofthissort:butIdonotfinditpossibletoimportsuchrestrictionsintothewordsofthe
statutorypowerwhichitselfdoesnotcontainthem.First,thesuggestedqualification,thatthe
considerationsorcircumstancesmustbepersonaltothebeneficiary,seemstomeuncontrollably
vagueasaguidetogeneraladministration.Whatdistinguishesapersonalneedfromanyotherneed
towhichthetrusteesintheirdiscretionthinkitrighttoattendinthebeneficiarysinterest?And,ifthe
advantageofpreservingthefundsofabeneficiaryfromtheincidenceofdeathdutyisnotanadvantage
personaltothatbeneficiary,Idonotseewhatis.Deathdutyisapresentriskthatattachestothe
settledpropertyinwhichMissPenelopehasherexpectantinterest,andevenacceptingthevalidityof
thesupposedlimitation,Iwouldnothavesupposedthattherewasanythingeitherimpersonalor
undulyremoteintheadvantagetobeconferreduponherofsomeexemptionfromthatrisk.Idonot
think,therefore,thatIcansupporttheinterpretationofthepowerofadvancementthathascommended
itselftotheCourtofAppeal,and,withgreatrespect,Ithinkthatthejudgmentsreallyamounttolittle
morethanadecisionthatintheopinionofthemembersofthatcourtthiswasnotacaseinwhich
therewasanyoccasiontoexercisethepower.Thatwouldbeaproperanswerfromacourttowhich
trusteeshadreferredtheirdiscretionwitharequestforitsdirectionsbutitdoesnotreallysolveany
questionwhere,ashere,theyretaintheirdiscretionandmerelyaskwhetheritisimpossibleforthem
toexerciseit.
Toconclude,therefore,onthisissue,Iamofopinionthatthereisnomaintainablereasonfor
introducingintothestatutorypowerofadvancementaqualificationthatwouldexcludetheexercisein
thecasenowbeforeus.Itwouldnotbecandidtoomittosaythat,thoughIthinkthatthatiswhatthe
lawrequires,Iamuneasyatsomeofthepossibleapplicationsofthisliberty,whenadvancementsare
madeforthepurposesofsettlementorontermsthatthereistobeasettlement.Itisquitetrue,asthe
Commissionershavepointedout,thatyoumighthavereallyextravagantcasesofresettlementsbeing
forcedonbeneficiariesinthenameofadvancement,evenafewmonthsbeforeanabsolutevestingin
possessionwouldhavedestroyedthepower.Ihavetriedtogivedueweighttosuchpossibilities,but
whenallissaidIdonotthinkthattheyoughttocompelustointroducealimitationofwhichnoone,
withallrespect,canproduceasatisfactorydefinition.First,Idonotbelievethatitiswisetotrytocut
downanadmittedlywideanddiscretionarypower,enactedforgeneraluse,throughfearofitsbeing
abusedincertainhypotheticalinstances.Andmoreover,asregardsthisfear,Ithinkthatitmustbe
rememberedthatwearespeakingofapowerintendedtobeinthehandsoftrusteeschosenbya
settlorbecauseofhisconfidenceintheirdiscretionandgoodsenseandsubjecttotheexternalcheck
thatnoexercisecantakeplacewithouttheconsentofapriorlifetenantandthattheredoesremainat
alltimesaresidualpowerinthecourttorestrainorcorrectanypurportedexercisethatcanbeshown
tobemerelywantonorcapriciousandnottobeattributabletoagenuinediscretion.Ithink,therefore,
that,althoughextravagantpossibilitiesexist,theymaybemoremenacinginargumentthaninreallife.
Theotherissueonwhichthiscasedepends,thatrelatingtotheapplicationoftheruleagainst
perpetuities,doesnotseemtometopresentmuchdifficulty.Itisnotindisputethat,ifthelimitations
oftheproposedsettlementaretobetreatedasiftheyhadbeenmadebythetestatorswillandas
comingintooperationatthedateofhisdeath,therearetrustsinitwhichwouldbevoidabinitioas
violatingtheperpetuityrule.Theypostponefinalvestingbytoolongadate.Itisalsoafamiliarruleof
lawinthisfieldthat,whereasappointmentsmadeunderageneralpowerofappointmentconferredby
willordeedareheldastakingeffectfromthedateoftheexerciseofthepower,trustsdeclaredbya
specialpowerofappointment,thedistinguishingfeatureofwhichisthatitcanallocatepropertyamong
alimitedclassofpersonsonly,aretreatedascomingintooperationatthedateoftheinstrumentthat
createsthepower.Thequestionthereforeresolvesitselfintoaskingwhethertheexerciseofapowerof
advancementwhichtakestheformofasettlementshouldbelookeduponasmorecloselyanalogous
toageneralortoaspecialpowerofappointment.
OnthisissueIaminfullagreementwiththeviewsofUpjohnLJintheCourtofAppeal[1961]Ch466
at488.Indeed,muchofthereasoningthathasledmetomyconclusiononthefirstissuethatI
have(p.639) beenconsideringleadsmetothinkthatforthispurposethereisaneffectiveanalogy
betweenpowersofadvancementandspecialpowersofappointment.Whenoneaskswhatpersoncan
beregardedasthesettlorofMissPenelopesproposedsettlement,Idonotseehowitispossibleto
saythatsheisherselforthatthetrusteesare.Sheisthepassiverecipientofthebenefitextractedfor
herfromtheoriginaltruststhetrusteesaremerelyexercisingafiduciarypowerinarrangingforthe
desiredlimitations.ItisnottheirpropertythatconstitutesthefundsofMissPenelopessettlementit
isthepropertysubjectedtotrustsbythewillofthetestatorandpassedoverintothenewsettlement
throughtheinstrumentalityofapowerwhichbystatuteismadeappendanttothosetrusts.Idonot
think,therefore,thatitisimportanttothisissuethatmoneyraisedunderapowerofadvancement
passesentirelyoutofthereachoftheexistingtrustsandmakes,asitwere,anewstartunderfresh
limitations,thekindofthingthathappenedundertheoldformoffamilyresettlementwhenthetenantin
tailinremainderbarredtheentailwiththeconsentoftheprotectorofthesettlement.Ithinkthatthe
importantpointforthepurposeoftheruleagainstperpetuitiesisthatthenewsettlementisonly
effectedbytheoperationofafiduciarypowerwhichitselfbelongstotheoldsettlement.
Intheconclusion,therefore,therearelegalobjectionstotheproposedsettlementwhichthetrustees
haveplacedbeforethecourt.
InReCloresSettlementTrusts,96 thecourtheldthattheexerciseofthepowerofadvancementtoenable
paymenttobemadetoaspecificcharitycouldbeconsideredtobeforthematerialbenefitofarichminorwhofelt
thathehadamoralobligationtomakeappropriatedonationstocharity.Thisisanevenmoreextreme
interpretationofbenefit,sinceitactuallyinvolvesafinanciallossbeingcausedtothebeneficiary,albeitwiththe
advantageofanimprovedmoralwellbeing.
AmorerestrictiveinterpretationofbenefitwasadoptedinXvA,97 inwhichitwasheldthatapurportedexercise
ofthepowertopaycapitaltothebeneficiarytospendoncharitablepurposesdidnotimprovehermaterial
situation.
XvA[2005]EWHC2706(Ch)[2006]1WLR741,752
Thetrusthadbeensettledbyavicar,whohadinheritedhiswealthfromthefamilycompany.Hisstrongly
heldview,sharedbyhiswife,wasthatinheritedwealthbroughtwithitmanydisadvantages.Hiswifehadalife
interestinthepropertyandsheaskedhertrusteestotransfercapitalfromthetrustfundforhertouseitfor
charitablepurposes.HartJdirectedthetrusteesnottoexercisethepowerofadvancementinthisway:
[Counsel]submittedthattheonlyquestionstobeansweredwerewhetherthewifewasreasonably
entitledtoregardherselfasbeingunderamoralobligationtomakeorprocurethemakingofthe
proposedgifttocharityandwhethershedidinfactrecognisetheobligation.Astothelatteritwas
plainontheevidence(hesubmitted)thatshedidrecognisetheobligationand,astotheformer,thatit
wasnotforthetrusteesorthecourttodecidewhethertheywouldtakethesameview.Itwasenough,
hesubmitted,thatthewifesviewwasoneshecouldreasonablytake.Itcouldnotbesaidthather
viewofhermoralobligationswasunreasonable.Accordingly,theproposedtransactionwascapableof
beingviewedasbeingforherbenefitwithinthemeaningoftheauthorities,andthepreconditionsfor
theexerciseofthepowerwerethereforefulfilled.Thequestionofthequantumoftheproposedexercise
ofthepoweronlyarose,onthissubmission,atthesecondstageoftheinquiry,namelyastowhether
thecourtshouldgiveitsblessingtotheparticularexerciseofthepowerwhichwasproposed.
(p.640) Inmyjudgmentthesesubmissionsplaceagreaterweightonthepersonalviewsofthe
beneficiarythanisjustifiedbytheauthorities.InInreCloresSettlementTrustsitselfthereferences
madeinthejudgmenttothesenseofobligationfeltbythebeneficiaryhimselfaremadewiththeview
ofimposingarequirementadditionaltotheinitialrequirementthatthereshouldbeanexistingmoral
obligationcapableofbeingrecognisedbythecourt.InInreCloresSettlementTruststhecourt
acknowledgedthatearlierexamplesofcharitablegiftshadbeenonaverydifferentscalefromthat
proposedbeforeitbutsaidthatthequestionofthesizeoftheparticulargiftmustdependonallthe
circumstances,includingthepositioninlifeofthebeneficiary,theamountofthefundandtheamount
ofhisotherresourcesandadded[1966]1WLR955,958:
Iftheobligationisnottobemetoutofthecapitalofthetrustfund,hewouldhavetomeetitoutofhis
ownpocket,ifatall.Accordingly,thedischargeoftheobligationoutofthecapitalofthetrustfund
doesimprovehismaterialsituation.
Thatpassageemphasisedthepotentiallylimitingeffectoftherequirement(fromwhichnoneofthe
authoritieshavedeparted)thattherebesomesenseinwhichthebeneficiarysmaterialsituationcan
besaidtobeimprovedbythesituationInthepresentcaseIfinditimpossibletoseehowthis
requirementcanbesatisfied.Itcannotbesaidthattheproposedadvanceisrelievingthewifeofan
obligationshewouldotherwisehavetodischargeoutofherownresourcesifonlybecausetheamount
proposedtobeadvancedexceedstheamountofherownfreeresources.Inanyeventthecourthasno
reasontosupposethat,inrelationtoherfreeassets,shewillregardtheadvanceashavingdischarged
hermoralobligation.Themoralimperativeinformingherrequesttothetrusteesmightlogicallybe
thoughttoapplytoherownassetsregardlessofwhetherornotanadvanceismadeoutofthetrust
fund.
Ientirelyacceptthatindistinguishingbetweentheobjectiveexistenceofamoralobligationontheone
handandthebeneficiarysownrecognitionofitontheotherthereisadangerofthecourtbeingcast
adriftinanopensea.How,as[counsel]askedrhetorically,canthecourtassessthevalidityand
natureofamoralobligationotherwisethanbyreferencetothebeneficiarysownviewsonthesubject?
Thatiscertainlynotaquestiontowhichthecourtcangiveanabstractanswer,whetherbyreference
totheBibleortoBentham,toKantortheKoran.Theanswerhastobefoundintheconcrete
examplesprovidedbythedecidedcasesandtherelianceplacedinthemongenerallyacceptednorms
applicableinthecontextofdealingswithsettledwealth.Nosuchcasegoesanywherenear
recognisingtheexistenceofamoralobligationoftheextentinquestionhere.
ForthosereasonsIdonotthinkthatIcanconcludethatitisopentothetrusteestomakethe
proposedadvance.Lesttherebeanydoubtonthesubjectmyanswertothequestionwhetherthe
powercaninprinciple(ieasamatterofconstruction)beexercisedbyadvancingmoneytoorforthe
benefitofthewifesothatshemaydischargeamoralobligationtocharitymyanswerisaffirmative.To
thequestionwhethertheexerciseactuallyproposedcanproperlybesaidtobeforherbenefitthe
answerisnegative.
Itfollowsthat,whilstthebeneficiarysbeliefastobenefitisrelevant,ultimatelythequestionofbenefitistobe
assessedobjectively,andthesizeoftheproposedgiftisaparticularlysignificantfactor.
(d)ApplicationoftheMoney
InRePaulingsSettlementTrusts,98 itwasrecognizedthatoncethepowerofadvancementhadbeenexercised,
thetrusteeswereobligedtocheckthatthemoneyhadbeenappliedforthepurposeforwhichitwasadvanced.
WillmerJsaid:99
(p.641) Furthermore,itisclearthatthepowermaybeexercised,ifthecircumstanceswarrantit,either
bymakinganoutandoutpaymenttothepersontobeadvanced,orforaparticularpurposespecifiedby
thetrustees.ThusinargumentanexamplewasgiventhatwhenGeorge[oneofthebeneficiaries]was
calledtotheBarthetrusteesmighthavequiteproperlyadvancedtohimasumofcapitalquitegenerallyfor
hislivingexpensestosupporthimwhilestartingtopractice,providedtheythoughtthatthiswasa
reasonablethingtodo,andthathewasatypeofpersonwhocouldreasonablybetrustedtomakeproper
useofthemoney.Ontheotherhand,ifthetrusteesmaketheadvanceforaparticularpurposewhichthey
state,theycanquiteproperlypayitovertotheadvanceeiftheyreasonablythinktheycantrusthimorher
tocarryouttheprescribedpurpose.Whattheycannotdoistoprescribeaparticularpurpose,andthen
raiseandpaythemoneyovertotheadvanceeleavinghimorherentirelyfree,legallyandmorally,toapply
itforthatpurposeortospenditinanywayheorshechooses,withoutanyresponsibilityonthetrustees
eventoinquireastoitsapplication.
Question
AlanandBrendaholdpropertyondiscretionarytrustforCharles,Debbie,andEdward.Accordingtotheterms
ofthetrustCharles,Debbie,andEdwardareentitledtothecapitalinequalshareswhentheyattaintheage
oftwentyfive.Charlesisthirty,Debbieistwentysix,andEdwardisseventeen.Charleswenttravellingten
yearsagoandhasnotbeenheardfromsince.Debbiewantsmoneytopayadepositonahouse.Edward
wouldlikesomemoneyfromthetrusttobuyacarandtopayforpianolessons.AlanandBrendaseekyour
adviceastotheirdispositivepowers.
FurtherReading
Gardner,FiduciaryPowersinToytown(1991)107LQR214.
FindThisResource
Ker,TrusteesPowerofMaintenance[1953]Conv273.
FindThisResource
LawCommission,IntestacyandFamilyProvisionClaimsonDeath(LawCom.No.331,2011),pp.808.
FindThisResource
Luxton,EludingtheDeadHand:ALiveIssue?[1986]Conv138.
FindThisResource
Notes:
1 ReButlinsWillTrust[1976]Ch251,263(BrightmanJ).
3
4
TrusteeAct2000,s.11(2).Ageneralnonfiduciarypowerofappointmentcanbedelegated,butsuchapoweris,
bydefinition,notheldbyatrustee:ReTriffittsSettlement[1958]Ch852,861(UpjohnJ).
5
6
SeeChapter11.7(f)(vii),pp.5589.
7
[2011]EWCACiv197[2012]ChX.SeeChapter11.7(g),pp.5603.
8
9 [1971]AC424,457.
10 ReBadensDeedTrusts(No.2)[1973]Ch9,20(SachsLJ).
12 ReManistysSettlement[1974]Ch17.SeeChapter3.4(c),p.107.
13
13
SeeChapter11.7(f),pp.5539.
14
[1971]AC424,457.
15
Underthecourtsinherentjurisdiction.SeeChapter11.3(e),pp.52831.
16
(1882)21ChD571,578.
17 [1977]1WLR1323,1325.
18 [1971]AC424.
20 Ibid,1325(GouldingJ).
21 McPhailvDoulton[1971]AC424,456(LordWilberforce).
22 KlugvKlug[1908]2Ch67.
23 ReHaysST[1982]1WLR202,209(SirRobertMegarryVC).
24 [1990]1WLR1587.
25 Ibid,1617.
26 SeeChapter13.2(b)(i),pp.61314.
27 SeeChapter2.4(b)(iv),pp.336.
28 Wherethereisaremedy,thereisaright.
29 [1966]1WLR499.
30
Ibid,505.
31
32
[2001]Ch523,540.
33
34 [1977]1WLR1323.
35 [1904]2Ch646.
36 [1891]3Ch82,99.
37 Fox,TheIrreducibleCoreforaValidTrust(2011)17T&T16,20.
38 MurphyvMurphy[1999]1WLR282.
39 Hayton,TheIrreducibleCoreContentofTrusteeship,inTrendsinContemporaryTrustLaw(ed.Oakley)
(Oxford:ClarendonPress,1996),ch.3.
40 HartiganNomineesPtyLtdvRydge(1992)29NSWLR405,432(MahoneyJA).
41 ReManistysSettlement[1974]Ch17,25(TemplemanJ).
42 UndertheCivilProcedureRules,Pt64andPracticeDirection64A.
43 ReYork e[1997]4AllER907,921(LindsayJ).
44
44 TheOfficialNewspaperofRecord,knownastheLondonGazette.Itwasfirstpublishedin1665andclaimsto
bethefirstnewspaperinEnglish.
45 SeefurtherChapter18.6(a),pp.8646.
46 [2010]EWCACiv377[2012]Ch1,26.
47 [1902]1Ch723.
48 Ibid,725.
49 [1985]3AllER455.
50 Ibid,462.
51 SeeMCPPensionTrusteesLtdvAonPensionTrusteesLtd.
52 [1948]Ch465,affd.sub.no.MinistryofHealthvSimpson[1951]AC251.
53 [1999]2AllER777.
54 Ibid,785.
55 SeeReYork e[1997]4AllER907,921(LindsayJ).
56
57
ReWilliamsSettlement(1858)4K&J87.
58
ReLloydsTrust(1854)2WR371.
59
ReNettlefoldsTrusts(1888)59LT315.
60 Bark ervPeile(1865)2Drew&Sm340.
61 SeefurtherChapter18.5(b),pp.85461.
62 PittvHolt[2011]EWCACiv197[2012]Ch132.SeeChapter7.2(c),pp.3302.
65 PittvHolt[2011]EWCACiv197[2012]Ch132.SeeChapter7.2(c),pp.3312.
66 TrusteeAct1925,s.69(2).SeefurtherChapter12.1,p.567.
67 [1951]Ch209,216.
68 IntestacyandFamilyProvisionClaimsonDeath(LawCom.No.331,2011).SeeChapter13.4(b),pp.6301.
69 FullervEvans[2000]1AllER636.
70 IntestacyandFamilyProvisionClaimsonDeath(LawCom.No.331,2011),4.95.
71 Ibid,at4.80.
72
Ibid,at4.93.
73
SeeChapter4(a)(iv),p.13.
74
75
75 Ker,TrusteesPowerofMaintenance(1953)17Conv273,2759.
76 ReVesteysSettlement[1951]Ch209.
77 Ibid.
79
[1937]Ch15.
80
Ibid,27.
81
82
[1984]1WLR813.
84 Ibid,s.32(1)(a).
85 ReMarquessofAbergavennysEstateActTrusts[1981]1WLR843.
86 LawCommission,IntestacyandFamilyProvisionClaimsonDeath(LawCom.No.331,2011),4.72.
87 Ibid,at4.76.
88 TrusteeAct1925,s.32(1)(b).
89 Ibid,s.32(1)(c).
90 Ibid,s.69(2).
91 ReEvansSettlement[1967]1WLR1294.
92 Inglewood(Lord)vIRC[1983]1WLR366,373(FoxLJ).
93 [1918]2Ch67.
94 RePaulingsSettlementTrusts[1964]Ch303.
95 SeenowthePerpetuitiesandAccumulationsAct2009,discussedininChapter3.7,pp.11216.
96
[1966]1WLR955.
97
[2005]EWHC2706(Ch)[2006]1WLR741.
98
[1964]Ch303.
99
Ibid,334.
LawTrove
Equity&Trusts:Text,Cases,andMaterials
PaulS.DaviesandGrahamVirgo
Publisher: OxfordUniversityPress PrintPublicationDate: May2013

PrintISBN13: 9780199661480 Publishedonline: Sep2013
DOI: 10.1093/he/9780199661480.001.0001
14.FiduciaryObligations
Chapter: (p.642) 14.FiduciaryObligations
DOI: 10.1093/he/9780199661480.003.0014
CentralIssues
1.Afiduciaryowesadutyofloyaltytohisorherprincipal.Thefiduciarymustalwaysactinthebest
interestsoftheprincipal.
2.Fiduciaryrelationshipsarevoluntary.Somerelationships,suchassolicitorclient,arewellrecognized
asfiduciaryinnature,butfiduciaryrelationshipscanariseinawidevarietyofsituations.
3.Noteverybreachofdutybyafiduciaryisabreachoffiduciaryduty:thedutybreachedmaybe
contractualortortious,forexample.However,onlyafiduciarycanbreachafiduciaryduty.
4.Fiduciarydutiesareproscriptive:theytellthefiduciarywhatheorshemustnotdo.Thefiduciarymust
notprofitfromhisorherpositionasafiduciaryorplacehimorherselfinapositionwherethefiduciarys
personalinterestsmightconflictwiththedutiesowedtohisorherprincipal,unlessheorshehasobtained
thepriorfullyinformedconsentoftheprincipal.
5.Fiduciaryobligationsarestrict,andanyprofitsmadebythefiduciaryinbreachmustbedisgorgedtohis
orherprincipal.Wheretheprofitsaremadefrompropertythatrightfullybelongedtothetrust,a
constructivetrustmaybeimposedupontheprofits.
1.FiduciaryRelationships
FiduciaryrelationshipshavebeendescribedbySirAnthonyMason,aretiredjudgeoftheHighCourtofAustralia,as
aconceptinsearchofaprinciple.1 Itremainsdifficulttostateexactlywhatafiduciaryrelationshipis,andwhena
personwillbeconsideredtobeafiduciary.
(a)WhatisaFiduciaryRelationship?
InBristolandWestBuildingSocietyvMothew,MillettLJidentifiedtheessentialcharacteristicsofafiduciaryas
follows:2 (p.643)
Afiduciaryissomeonewhohasundertakentoactfororonbehalfofanotherinaparticularmatterin
circumstanceswhichgiverisetoarelationshipoftrustandconfidence.Thedistinguishingobligationofa
fiduciaryistheobligationofloyalty.Theprincipalisentitledtothesinglemindedloyaltyofhisfiduciary.This
coreliabilityhasseveralfacets.Afiduciarymustactingoodfaithhemustnotmakeaprofitoutofhistrust
hemustnotplacehimselfinapositionwherehisdutyandhisinterestmayconflicthemaynotactforhis
ownbenefitorthebenefitofathirdpersonwithouttheinformedconsentofhisprincipal.Thisisnotintended
tobeanexhaustivelist,butitissufficienttoindicatethenatureoffiduciaryobligations.Theyarethedefining
characteristicsofthefiduciary.AsDr.FinnpointedoutinhisclassicworkFiduciaryObligations(1977),p.2,
heisnotsubjecttofiduciaryobligationsbecauseheisafiduciaryitisbecauseheissubjecttothemthathe
isafiduciary.
TherelianceonFinnsworkisimportant:apersonisonlyafiduciaryiffiduciaryobligationsareowed.Finnlater
wrotethat:3
Apersonwillbeafiduciaryinhisrelationshipwithanotherwhenandinsofarasthatotherisentitledto
expectthathewillactinthatothersinterestsor(asinapartnership)intheirjointinterests,totheexclusion
ofhisownseveralinterest.
Putcrudely,thecentralideaisserviceofanothersinterests.Andtheconsequentialobligationafiduciary
findingattractsisitselfonedesignedessentiallytoprocureloyaltyinservice.
Theseextractssuggestthatthecrucialelementisloyaltyowedbythefiduciarytohisorherprincipal.Thisrequires
thefiduciarytoprioritizetheinterestsoftheprincipaloverhisorherown.AssuggestedbyMillettLJ,thismeans
thatthefiduciarymustnotprofitfromhisorherpositionasafiduciary,andnotplacehimorherselfinaposition
wherethefiduciarysowninterestsordutiesconflictwiththoseofhisorherprincipal.Suchdutiesmaybeonerous,
andrequireafiduciarytoforsakeanopportunitythatcouldbeexploitedbyallothers.Itisthereforeimportantto
considerexactlywhenapersonwillbesubjecttosuchduties.
(b)WhendoFiduciaryRelationshipsArise?
Atrusteebeneficiaryrelationshipunderanexpresstrustisoftensaidtobetheepitomeofafiduciaryrelationship
thetypesofrelationshipsthathavebeenclassifiedasfiduciaryhavegrownincrementallybyanalogywithtrusteesof
anexpresstrust.4 Forexample,itisnowclearthatagents,5 solicitors,6 companydirectors,7 andpartners 8 owe
fiduciaryduties:ineachcasetheprincipalisentitledtoexpectthatthefiduciarywillactintheprincipalsbest
interests.
(p.644) Itisalsopossibleforfiduciaryrelationshipstoariseinthecontextofother,specificrelationships.Itisnot
alwayseasytodeterminewhensuchanadhocfiduciaryrelationshipexists.Birkshascommentedthat:9
Itismanifestlyimpossibletopredictwhetherarelationshipwillorwillnotbeaccountedfiduciarywhenacase
comestocourt.Inmanyoftheleadingcasesdistinguishedjudgeshavebeenalmostequallydividedasto
whetherornotarelationshipwasfiduciary.Thenecessaryelementscanbespelledout:afiduciaryisone
whohasdiscretion,andtherefore,power,inthemanagementofanothersaffairs,incircumstancesinwhich
thatonecannotreasonablybeexpectedtomonitorhimortakeotherprecautionstoprotecthisowninterests.
Butitturnsoutthatthishasaverylowpredictiveyield.
Itisundoubtedlytruethatissuesaboutwhetherornotarelationshipshouldbeclassifiedasfiduciarycanbemuch
disputed.ButthepessimismofBirksmightbeallayedsomewhatbyemphasizingthatfiduciaryrelationshipsshould
beconsideredtobevoluntaryinnature.Asaresult,fiduciaryobligationsshouldonlyarisewherethefiduciaryhas
expresslyorimpliedlyagreedtobeboundbythoseobligations.AsCromwellJobservedinGalambosvPerez,a
decisionoftheCanadianSupremeCourt:10
InotethatthisCourt[haspreviously]consideredcompetingbasesfortheimpositionofadhocfiduciary
duties,opposingtoacertainextentmutualunderstandingandreasonableexpectationsofthealleged
beneficiary[W]hatisrequiredinallcasesofadhocfiduciaryobligationsisthattherebeanundertakingon
thepartofthefiduciarytoexerciseadiscretionarypowerintheinterestsofthatotherparty.Torepeatwhat
wassaidbyMcLachlinJ.inNorberg,fiduciaryrelationshipsarealwaysdependentonthefiduciarys
undertakingtoactinthebeneficiarysinterests.11 AsDicksonJ.putitinGuerin,fiduciarydutiesmayarise
wherebystatute,agreement,orperhapsbyunilateralundertaking,onepartyhasanobligationtoactforthe
benefitofanother.12
Thefiduciarysundertakingmaybetheresultoftheexerciseofstatutorypowers,theexpressorimplied
termsofanagreementor,perhaps,simplyanundertakingtoactinthisway.Incasesofpersefiduciary
relationships,thisundertakingwillbefoundinthenatureofthecategoryofrelationshipinissue.Thecritical
pointisthatinbothperseandadhocfiduciaryrelationships,therewillbesomeundertakingonthepartof
thefiduciarytoactwithloyalty.
Thisanalysisprovidesasatisfactorybasisforfiduciaryrelationships.Thecloseconnectionwithcontractual
relationshipsinthiscontexthasbeenpointedoutbyEdelman:13
ifwepersistinseeingfiduciaryobligationsasimposedbylaw,anddependentuponconceptionsofstatus,
thequesttounderstandandexplainwhydifferentfiduciariesowedifferentdutieswillremainanimpossible
task.Incontrast,byunderstandingfiduciarydutiesastermswhichareexpressedorimpliedintomanifested
undertakingstoanother,itismucheasiertounderstandwhythenatureoffiduciarydutieswillalwaysdepend
uponthecircumstances.Thisexplanationilluminatesthereasonwhyexactlythesameanalysisis
undertakenbycourtswhendetermining,ontheonehand,whetherfiduciarydutieshavearisenand,onthe
otherhand,indeterminingwhethersuchdutiesshouldbeimpliedintocontractsorothervoluntary
undertakings.Theanalysesarethesamebecausefiduciarydutiesaretermsexpressedorimpliedin
voluntaryundertakings.
(p.645) Thestrictandsometimesonerousnatureoffiduciaryobligationscanbemorereadilyacceptedifitis
understoodthatthefiduciaryhasvoluntarilyacceptedtheseobligations.Moreover,thisstrengthenstheabilityto
predictwhetherarelationshipshouldbecharacterizedasfiduciary,sincethefocusofinquiryisuponwhethera
personvoluntarilyundertookfiduciaryobligations.Evenifthereisnoexpressundertaking,principlesgoverning
impliedtermsarewellknown,14 andcanbeusedinthisarea.
(c)DoAllTrusteesOweFiduciaryObligations?
Consideringfiduciaryobligationstobevoluntarilyassumedalsohelpsustodecidewhetheralltrusteesshouldbe
thoughttobeinafiduciaryrelationship.Clearly,expresstrusteeshavevoluntarilyundertakenfiduciaryobligations,
butthesameisnotclearlythecasefortrustsimposedbylaw.Aconstructivetrusteehasnotvoluntarilyassumed
anyfiduciaryobligationsevenifaconstructivetrustarisesduetounconscionability,fiduciaryobligationscannot
necessarilybeimplied,becausetheconstructivetrusteewillnothaveknowinglysubjectedhimorherselftofiduciary
obligations.15 Similarly,aresultingtrusteemayhavenoideathatheorsheisatrustee,anditmight,therefore,be
undulyintrusivetoimposefiduciaryobligationsuponhimorher.Butiftheresultingtrustarisesbecauseofafailure
ofanexpresstrust,thenthetrusteewouldhaveassumedapositionasafiduciaryundertheintendedexpresstrust,
andfiduciaryobligationsshouldfollow.16
2.NatureofFiduciaryDuties
Fiduciarydutiesareoftensaidtobeproscriptive:theyarenegativeinthesensethattheytellafiduciarywhatheor
shemustnotdo.InBrayvFord,LordHerschellinsistedthat:17
ItisaninflexibleruleofaCourtofEquitythatapersoninafiduciarypositionisnot,unlessotherwise
expresslyprovided,entitledtomakeaprofitheisnotallowedtoputhimselfinapositionwherehisinterest
anddutyconflict.
Itisnottotallyclearwhetherthenoprofitandnoconflictrulesaredistinct.Ithasbeensuggestedthattheformeris
merelyanexampleofthelatter.Forexample,inBoardmanvPhipps,LordUpjohncommentedthattherulethata
fiduciary:18
mustnotmakeaprofitoutofhistrustispartofthewiderrulethatatrusteemustnotplacehimselfina
positionwherehisdutyandhisinterestmayconflict.
Bycontrast,inChanvZachariaDeaneJreviewedBoardmanvPhippsandconcludedthat:19
thetwothemes,whileoverlapping,aredistinct.
(p.646) ThelatterapproachmightbetterreflectthecurrentstateofEnglishlaw.DecisionssuchasRegal
(Hastings)vGulliver,20 andindeedBoardmanvPhipps,21 whicharediscussedindetailbelow,22 seemtosuggest
thatafiduciarymayhavetoaccountfortheprofitsgainedfromhisorherpositionevenwhereitmaybedifficultto
establishabreachofthenoconflictrule.Conaglenhasjustifiedtheseparateexistenceofthenoprofitrulesince:23
theprofitprincipleisaprophylacticapplicationoftheconflictprinciple:thelikelihoodoftherebeingaconflict
insuchcircumstancesistreatedassufficientjustificationforequitytoprohibitallunauthorisedprofits,without
requiringstrictproofineverycasethattherewasaconflict.
Althoughthischapterwillconsiderthecasesundertwodiscreteheadingsofnoconflictandnoprofit,itshouldbe
rememberedthatthereisalargedegreeofoverlapbetweenthetwo,andadecisionwhichinfringesthenoprofitrule
mightequallybeanalysedasanoconflictcase.
(a)BeyondProscriptiveDuties?
Thenoconflictandnoprofitprinciplesareveryclearlyproscriptiveandinaccordancewithtraditionalunderstanding
ofthenatureoffiduciaryduties.However,itissometimessuggestedthatafiduciarymaybeunderapositivedutyto
discloseinformationtohisorherprincipal.24 Insomesituations,thisisundoubtedlytrue:forexample,ifafiduciary
actsfortwoprincipalswhoseinterestsconflict,thenifthefiduciaryreceivesinformationfromoneprincipalthatwould
bebeneficialtotheother,thefiduciarymustdisclosethatinformation.25 Butthisisentirelyconsistentwiththe
proscriptivenatureoffiduciaryduties:thefiduciarymustnotplacehimorherselfinapositionwherehisorherduty
tooneprincipalmightconflictwithhisorherdutytoanotherprincipal,sothefiduciarymustdiscloseinformationto
avoidsuchaconflict.Inordertoactfortwoprincipalswhoseinterestsmightconflict,thefullyinformedconsentof
bothshouldbeobtained.Obtainingpriorauthorizationfromaprincipalisoftencrucialforafiduciarytoavoid
breachingaduty.26
ItemSoftwareUKLtdvFassihi27 issometimesconsideredtobeanexampleofafiduciarybeingunderapositive
obligationtodiscloseinformation,suchthatnondisclosureitselfmightbeabreachoffiduciaryduty.28 Inthatcase,
ArdenLJheldthatadirectorhadtodiscloseanintentiontocompetewithhisprincipalfailuretodosowouldbe
evidenceofdisloyalty.29 Yet,eventhisdecisiondoesnotseemtoalterradicallythenatureoffiduciaryduties.In
ShepherdsInvestmentsLtdvWalters,EthertonJanalysedFassihiandinsistedthat:30
Thereisnoseparateandindependentdutyofdisclosure.Thereisabreachbecausethedirectorsconflict
betweenhispersonalinterestandhisdutytothecompanyhasnotbeenauthorisedafterfull(p.647)
disclosureto,andinformedconsentby,thecompany.Thosearestraightforwardapplicationsofordinary
principlesofequityconcerningfiduciaryduties.
EthertonJsinterpretationofFassihimaintainstheideathatfiduciarydutiesareproscriptiveonly.Admittedly,the
CourtofAppealinFassihididnotclearlyadoptthisanalysis,butitisthepreferableapproachandconsistentwith
logicandorthodoxy.
(b)NotallDutiesOwedbyaFiduciaryareFiduciaryDuties
Fassihialsoraisestheissueofwhetherapositivedutyonadirectortodisclosemisconductshouldbeanalysedas
fiduciaryinnatureatall.Noteverybreachbyafiduciaryisabreachoffiduciaryduty.Thispointwasclearlymadeby
MillettLJinMothew:31
Theexpressionfiduciarydutyisproperlyconfinedtothosedutieswhicharepeculiartofiduciariesandthe
breachofwhichattractslegalconsequencesdifferingfromthoseconsequentuponbreachofotherduties.
Unlesstheexpressionissolimiteditislackinginpracticalutility.Inthissenseitisobviousthatnotevery
breachofdutybyafiduciaryisabreachoffiduciaryduty.
Thisisanimportantpassage.Afiduciarywillonlybreachafiduciarydutyifthatdutywasowedbyafiduciaryalone.
Thus,ifasolicitoractsincompetently,heorshemightbesuedinnegligence:thiswouldnotbeabreachoffiduciary
dutysinceallsuchprofessionalsoweadutytoactwithreasonableskillandcare,andthisisnotpeculiartoa
fiduciaryrelationship.32 Thereisnobreachoftheobligationofloyalty.Suchananalysismighthelptoexplain
Fassihi:thedutytodisclosemisconductiscommontoallemployees 33 andisnotparticulartofiduciaries.Itshould
notbeanalysedasafiduciaryduty.
InFassihi,itwasnotcrucialtotheoutcomeofthecasewhetherthedutytodisclosewasclassifiedasfiduciary.But
inmanysituationsitwillbe.Thisisbecause,asMillettLJobserved,theremediesavailableforbreachoffiduciary
dutyaredifferentandoftenmoreextensivethanthoseavailableforotherbreaches.
(c)TheStrictnessofFiduciaryDoctrine
TheremediesavailableforbreachoffiduciarydutyareconsideredingreaterdetailinSectionX.Butitisimportantto
appreciatethattheprimafacieremedyforbreachoffiduciarydutyisanaccountofprofits.Bythismeasure,the
fiduciarywillhavetogiveupanygainsmadeasaresultofthebreach,regardlessofwhetherornottheprincipal
sufferedanyloss,andevenifheorsheactedingoodfaith.34 Insomesituations,aconstructivetrustwillbeimposed
upontheprofitsmade.35 Suchgainbased,or(p.648) restitutionary,remediesarelargelyjustifiedonthebasisthat
theydeterthefiduciaryfrombreachinghisorherfiduciaryduties.36 Thereisnoincentivetobreachafiduciarydutyif
thefiduciarywillnotbeabletogainfromthebreach.37
Conaglen,TheNatureandFunctionofFiduciaryLoyalty(2005)121LQR452,453
[F]iduciarydutiesserveafunctionwhichdiffersfromthatservedbyotherlegalduties.Theconceptof
fiduciaryloyaltyisanencapsulationofasubsidiaryandprophylacticformofprotectionfornonfiduciary
dutieswhichenhancesthechancethatthosenonfiduciarydutieswillbeproperlyperformed.Theprimary
meansbywhichthisnotionofloyaltyisgiveneffectisarangeoffiduciarydutieswhichseektoinsulate
fiduciariesfrominfluencesthatarelikelytodistractfromsuchproperperformance.Itisoftenobserved
thatfiduciarydoctrineisappliedinaprophylacticmanner,althoughfrequentlywithoutmuchclarification
of[what]thatmeansfiduciarydoctrinesprophylacticaspectismorethanmerelythestrictnessofits
applicationtheargumentpresentedhereisthatfiduciarydoctrineisprophylacticinitsverynature,asit
isdesignedtoavertbreachesofnonfiduciarydutiesbyseekingtoneutraliseinfluenceslikelytosway
thefiduciaryawayfromproperlyperformingthosenonfiduciaryduties.Thisunderstandingoffiduciary
loyaltyprovidesatheoreticalunderpinningforanumberoftenetsoffiduciarydoctrinethatare
acknowledgedinthecaselawbutareotherwiseunexplained.
Fiduciarydoctrineisfrequentlyconceptualisedasexhortingmoremoralbehaviourfromfiduciaries.
Properlyunderstood,thedoctrineisfarmorecynical,functionalandinstrumentalistinoutlook,focusing
onlesseningthedangerthatafiduciarysundertakingwillnotbeproperlyperformed.
Thisprophylacticapproachexplainswhytheremediesavailablearesostrict:itisimperativethatfiduciarydutiesare
carriedoutproperly.Thismightbethoughttobemoreimportantintheequitablecontextthanthepurelycontractual,
forexample,sinceacontractingpartywouldgenerallybeawareofaneedtoprotecthisorherowninterests,
whereasaprincipalinafiduciaryrelationshipmightexpecttobeabletotrustandrelyuponhisorherprincipal
withouttakinganyfurtheraction.
(d)ScopeofFiduciaryDuties
Beforeconsideringthecontentofthenoconflictandnoprofitrules,itisimportanttoappreciatethatfiduciaryduties
arenotofunlimitedscope.AsLordUpjohncommentedinBoardmanvPhipps:38
Onceitisestablishedthatthereis[afiduciary]relationship,thatrelationshipmustbeexaminedtoseewhat
dutiesaretherebyimposedupontheagent,toseewhatisthescopeandambitofthedutieschargedupon
him.Havingdefinedthescopeofthosedutiesonemustseewhetherhehascommittedsomebreachthereof.
Differentfiduciaryrelationshipsareofdifferentscope.39 Careneedstobetakeninassessingtheextentofthe
voluntarilyundertakenfiduciaryduties.40
(p.649) Inthecommercialcontext,thecourtsareespeciallywaryaboutimposingfiduciaryduties,asthismight
disturbthenormalcommercialallocationofrisk.Forexample,inReGoldcorpExchangeLtd41 theclaimantsargued
thatthedefendantshadbreachedfiduciarydutiesinnotallocatingpurchasedgoldbulliontothem.Butthiswas
readilyrejectedbythePrivyCouncil,whocouldonlyidentifycontractualobligations.LordMustillpointedlyremarked
that:42
highexpectationsdonotnecessarilyleadtoequitableremedies.
Inasimilarvein,LordMilletthaswarnedthat:43
Itisofthefirstimportancenottoimposefiduciaryobligationsonpartiestoapurelycommercialrelationship
whodealwitheachotheratarmslengthandcanbeexpectedtolookaftertheirowninterests.
Itisclearlyimportantthatfiduciaryrelationshipsdonotintrudeexcessivelyintheaffairsofcommercialparties.
Sometimesafiduciaryrelationshipwillgenuinelyexist,butthismustbejustifiedbyreferencetothevoluntary
undertakingsoftheparties.
(e)FiduciaryRelationshipscanEnd:InstancesofRetirement
Fiduciaryobligationsdonotnecessarilycontinueforever.Arelationshipcanbeterminatedbyagreement.Some
difficultieshavearisenregardingtheretirementoffiduciaries.Ifafiduciaryresignsorretiresingoodfaith,andan
opportunityonlylaterarisesthatmighthaveconflictedwiththefiduciaryrelationshipthathasended,thentherewill
benobreachoffiduciaryduty.InAttorneyGeneralvBlak e,ScottVCrecognizedthat:44
Thelawwouldnotimposeadutythatrepresentedanunreasonablerestraintontheabilityoftheex[fiduciary]
toearnhislivingbyexploitingtheexperienceandknowledgeacquiredduringhisyearsofservice.
ScottVCconsequentlyheldthataspywhohadlefttheintelligenceservicesnolongerowedfiduciarydutiesnotto
exploittheexpertiseheorshehadgained.45 Inasimilarvein,inIslandExportFinanceLtdvUmunna,HutchinsonJ
saidthat:46
Itwould,itseemstome,besurprisingtofindthatdirectorsalone,becauseofthefiduciarynatureoftheir
relationshipwiththecompany,wererestrainedfromexploitingaftertheyhadceasedtobesuchany
opportunityofwhichtheyhadacquiredknowledgewhiledirectors.Directors,nolessthanemployees,acquire
ageneralfundofknowledgeandexpertiseinthecourseoftheirwork,anditisplainlyinthepublicinterest
thattheyshouldbefreetoexploititinanewposition.
(p.650) BecauseinUmunnathedefendanthadconsistentlyactedingoodfaithandhadnotbeendisloyal,hewas
allowedtoexploitanopportunityafterhehadresigned,whichhewouldnothavebeenabletoexploithadhestill
beenadirectorofthecompany.
However,afiduciarycannotsimplyretireinordertoexploitanopportunitywhichwouldplacehimorherinconflict
47
withhisorherfiduciaryobligations.ThiswasmadeclearinIndustrialDevelopmentConsultantsvCooley.47 Inthat
case,thedefendant,whowasthemanagingdirectorofacompany,hadbeennegotiatingforanewbusiness
opportunityonbehalfofthecompany.Hethenresignedinordertoexploitthatopportunityhimself.RoskillJhadno
difficultyindecidingthathehadbreachedhisfiduciaryobligations,despitenolongerbeingadirectoratthetimehe
madetheprofit.Similarconclusionshavebeenreachedinothercaseswheretheresignationofafiduciarywasin
badfaith.48 AgoodexplanationofthisapproachhasbeengiveninFosterBryantSurveyingLtdvBryantbyRixLJ,
whothoughtthatthesecasesare:49
notsayingthatthefiduciarydutysurvivedtheendoftherelationshipasdirector,butthatthelackofgoodfaith
withwhichthefutureexploitationwasplannedwhilestilladirector,andtheresignationwhichwaspartofthat
dishonestplan,meantthattherewasalreadythenabreachoffiduciaryduty,whichresultedintheliabilityto
accountfortheprofitswhich,albeitsubsequently,butcausallyconnectedwiththatearlierfiduciarybreach,
wereobtainedfromthediversionofthecompanysbusinesspropertytothedefendantsnewenterprise.
Thus,itisnotthecasethatthefiduciaryobligationcontinuesafterresignation,althoughsomeotherdutiesnotably
confidentialitymaywelldoso.Rather,thefiduciaryobligationisbreachedwhilstthepersonisstillafiduciary,
sincethedisloyaltyoccurspriortoresignation.
Therationalehereappearstobestraightforward:onlybadfaithwhilststillafiduciaryshouldbesanctioned.But
ultimately,asRixLJconcludedinFosterBryant:50
Thejurisprudencealsodemonstrates,tomymind,thatinthepresentcontextofretiringdirectors,wherethe
criticallinebetweenadefendantbeingornotbeingadirectorbecomeshardtopolice,thecourtshave
adoptedpragmaticsolutionsbasedonacommonsenseandmeritsbasedapproach.
(f)LimitingtheCommonLawofFiduciaryObligations:AStatutoryFrameworkforCompany
Directors
FiduciaryobligationsgenerallyariseatCommonLaw.However,cautionshouldbeexercisedwhendealingwith
companydirectors:thedutiesofsuchdirectorsarenowtobefoundintheCompaniesAct2006,sections1701.
Referenceshouldthereforebemadetothestatutoryduties,ratherthantheCommonLaw,althoughthesestatutory
dutiesarederivedfromthosethathavebeendevelopedbythecourts.
(p.651) CompaniesAct2006
170Scopeandnatureofgeneralduties
(1)Thegeneraldutiesspecifiedinsections171to177areowedbyadirectorofacompanytothe
company.
(2)Apersonwhoceasestobeadirectorcontinuestobesubject
(a)tothedutyinsection175(dutytoavoidconflictsofinterest)asregardstheexploitationof
anyproperty,informationoropportunityofwhichhebecameawareatatimewhenhewasa
director,and
(b)tothedutyinsection176(dutynottoacceptbenefitsfromthirdparties)asregardsthings
doneoromittedbyhimbeforeheceasedtobeadirector.
Tothatextentthosedutiesapplytoaformerdirectorastoadirector,subjecttoanynecessary
adaptations.
(3)Thegeneraldutiesarebasedoncertaincommonlawrulesandequitableprinciplesasthey
applyinrelationtodirectorsandhaveeffectinplaceofthoserulesandprinciplesasregardsthe
dutiesowedtoacompanybyadirector.
(4)Thegeneraldutiesshallbeinterpretedandappliedinthesamewayascommonlawrulesor
equitableprinciples,andregardshallbehadtothecorrespondingcommonlawrulesandequitable
principlesininterpretingandapplyingthegeneralduties.
(5)Thegeneraldutiesapplytoshadowdirectorswhere,andtotheextentthat,thecorresponding
commonlawrulesorequitableprinciplessoapply.
Thegeneralduties
171Dutytoactwithinpowers
Adirectorofacompanymust
(a)actinaccordancewiththecompanysconstitution,and
(b)onlyexercisepowersforthepurposesforwhichtheyareconferred.
172Dutytopromotethesuccessofthecompany
(1)Adirectorofacompanymustactinthewayheconsiders,ingoodfaith,wouldbemostlikelyto
promotethesuccessofthecompanyforthebenefitofitsmembersasawhole
173Dutytoexerciseindependentjudgment
(1)Adirectorofacompanymustexerciseindependentjudgment
174Dutytoexercisereasonablecare,skillanddiligence
(1)Adirectorofacompanymustexercisereasonablecare,skillanddiligence.
(2)Thismeansthecare,skillanddiligencethatwouldbeexercisedbyareasonablydiligentperson
with
(a)thegeneralknowledge,skillandexperiencethatmayreasonablybeexpectedofaperson
carryingoutthefunctionscarriedoutbythedirectorinrelationtothecompany,and
(b)thegeneralknowledge,skillandexperiencethatthedirectorhas.
175Dutytoavoidconflictsofinterest
(1)Adirectorofacompanymustavoidasituationinwhichhehas,orcanhave,adirectorindirect
interestthatconflicts,orpossiblymayconflict,withtheinterestsofthecompany.
(p.652) (2)Thisappliesinparticulartotheexploitationofanyproperty,informationoropportunity
(anditisimmaterialwhetherthecompanycouldtakeadvantageoftheproperty,informationor
opportunity).
(3)Thisdutydoesnotapplytoaconflictofinterestarisinginrelationtoatransactionor
arrangementwiththecompany.
(4)Thisdutyisnotinfringed
(a)ifthesituationcannotreasonablyberegardedaslikelytogiverisetoaconflictofinterest
or
(b)ifthematterhasbeenauthorisedbythedirectors.
(5)Authorisationmaybegivenbythedirectors
(a)wherethecompanyisaprivatecompanyandnothinginthecompanysconstitution
invalidatessuchauthorisation,bythematterbeingproposedtoandauthorisedbythe
directorsor
(b)wherethecompanyisapubliccompanyanditsconstitutionincludesprovisionenabling
thedirectorstoauthorisethematter,bythematterbeingproposedtoandauthorisedbythem
inaccordancewiththeconstitution.
(6)Theauthorisationiseffectiveonlyif
(a)anyrequirementastothequorumatthemeetingatwhichthematterisconsideredismet
withoutcountingthedirectorinquestionoranyotherinteresteddirector,and
(b)thematterwasagreedtowithouttheirvotingorwouldhavebeenagreedtoiftheirvotes
hadnotbeencounted.
(7)Anyreferenceinthissectiontoaconflictofinterestincludesaconflictofinterestanddutyand
aconflictofduties.
176Dutynottoacceptbenefitsfromthirdparties
(1)Adirectorofacompanymustnotacceptabenefitfromathirdpartyconferredbyreasonof
(a)hisbeingadirector,or
(b)hisdoing(ornotdoing)anythingasdirector.
(2)Athirdpartymeansapersonotherthanthecompany,anassociatedbodycorporateora
personactingonbehalfofthecompanyoranassociatedbodycorporate.
(3)Benefitsreceivedbyadirectorfromapersonbywhomhisservices(asadirectororotherwise)
areprovidedtothecompanyarenotregardedasconferredbyathirdparty.
(4)Thisdutyisnotinfringediftheacceptanceofthebenefitcannotreasonablyberegardedas
likelytogiverisetoaconflictofinterest.
(5)Anyreferenceinthissectiontoaconflictofinterestincludesaconflictofinterestanddutyand
aconflictofduties.
177Dutytodeclareinterestinproposedtransactionorarrangement
(1)Ifadirectorofacompanyisinanyway,directlyorindirectly,interestedinaproposed
transactionorarrangementwiththecompany,hemustdeclarethenatureandextentofthat
interesttotheotherdirectors.

(5)Thissectiondoesnotrequireadeclarationofaninterestofwhichthedirectorisnotawareor
wherethedirectorisnotawareofthetransactionorarrangementinquestion.
Forthispurposeadirectoristreatedasbeingawareofmattersofwhichheoughtreasonablytobe
aware.
(p.653) (6)Adirectorneednotdeclareaninterest
(a)ifitcannotreasonablyberegardedaslikelytogiverisetoaconflictofinterest
(b)if,ortotheextentthat,theotherdirectorsarealreadyawareofit(andforthispurposethe
otherdirectorsaretreatedasawareofanythingofwhichtheyoughtreasonablytobeaware)
or
(c)if,ortotheextentthat,itconcernstermsofhisservicecontractthathavebeenorareto
beconsidered
(i)byameetingofthedirectors,or
(ii)byacommitteeofthedirectorsappointedforthepurposeunderthecompanys
constitution.
Supplementaryprovisions
178Civilconsequencesofbreachofgeneralduties
(1)Theconsequencesofbreach(orthreatenedbreach)ofsections171to177arethesameas
wouldapplyifthecorrespondingcommonlawruleorequitableprincipleapplied.
(2)Thedutiesinthosesections(withtheexceptionofsection174(dutytoexercisereasonable
care,skillanddiligence))are,accordingly,enforceableinthesamewayasanyotherfiduciaryduty
owedtoacompanybyitsdirectors.
179Caseswithinmorethanoneofthegeneralduties
Exceptasotherwiseprovided,morethanoneofthegeneraldutiesmayapplyinanygivencase.
180Consent,approvalorauthorisationbymembers
(1)Inacasewhere
(a)section175(dutytoavoidconflictsofinterest)iscompliedwithbyauthorisationbythe
directors,or
(b)section177(dutytodeclareinterestinproposedtransactionorarrangement)iscomplied
with,
thetransactionorarrangementisnotliabletobesetasidebyvirtueofanycommonlawruleor
equitableprinciplerequiringtheconsentorapprovalofthemembersofthecompany.
Thisiswithoutprejudicetoanyenactment,orprovisionofthecompanysconstitution,requiring
suchconsentorapproval.
TheseprovisionsshowthatthestatutoryprovisionsreplacetheCommonLawregardingcompanydirectors,butitis
clearthatdirectorsdutiesarebasedupontheCommonLawandhowthelawhasdevelopedatCommonLawis
clearlyrelevanttointerpretingthestatutoryduties.TheremediesforbreachofdutyarethesameasatCommon
Law,51 andthenoconflict52 andnoprofit53 rulesarealsoincludedinthestatute.Thegeneralprinciplesunderpinning
fiduciaries,therefore,remainimportantinthecontextofdirectors,althoughathoroughinvestigationofthestatutory
dutiesisbeyondthescopeofthisbook.54
(p.654) 3.TheNoConflictPrinciple
Ithasalreadybeenseenthatthenoconflictprincipleisafundamentalaspectoffiduciaryobligations.Consistent
withtheprophylacticnatureoffiduciarydoctrine,itonlyneedstobeshownthatthereisapotentialforconflict,rather
thanactualconflict.InconsideringthisaspectofthenoconflictprincipleinBoardmanvPhipps,LordUpjohnsaid:55
Inmyviewitmeansthatthereasonablemanlookingattherelevantfactsandcircumstancesoftheparticular
casewouldthinkthattherewasarealsensiblepossibilityofconflictnotthatyoucouldimaginesome
situationarisingwhichmight,insomeconceivablepossibilityineventsnotcontemplatedasrealsensible
possibilitiesbyanyreasonableperson,resultinaconflict.
Therearevariouswaysinwhichthenoconflictrulecanbeengaged.Forexample,afiduciaryspersonalinterests
mightconflictwithhisorherdutytohisorherprincipal,orthefiduciarysdutytooneprincipalmightconflictwithhis
orherdutytoanotherprincipal.Thesesituationswillbeconsideredinturn.
(a)ConflictBetweenInterestandDuty
(i)Thedealingrules
Duringtheadministrationofatrust,atrusteemaywishtopurchaseeitherthetrustpropertyitselforabeneficiarys
interestunderthetrust.Equityhasevolvedtworulestoresolvetheconflictwhichmayariseinsuchcircumstances
betweenthetrusteesdutytothebeneficiariesandhisorherpersonalinterest.Thefirst,calledtheselfdealingrule,
providesthatatrusteemaynotselltrustpropertytohimorherself,andrendersthetransactionvoidableatthe
optionofthebeneficiaries,regardlessofhowfairthetransactionis.Thesecond,knownasthefairdealingrule,is
thatifatrusteepurchasesabeneficiarysinterest,thetransactionwillgenerallybevoidableasaresultofthebreach
ofthenoconflictrule,butthetransactionisnotvoidableasofrightbythebeneficiary,andwillnotbesetasideif
thetrusteehasbehavedfairly.However,thereissomedebateaboutwhetherthetworulesshouldbeconsideredto
bedistinct,andthiswillbeconsideredoncetheapplicationofthetworuleshasbeenillustrated.56
(a)Selfdealing
Therationalebehindtheselfdealingruleisclear:ifafiduciarydealsonbehalfofhimorherselfandtheprincipalin
thesametransaction,thereisaclearconflictbetweentheinterestsofthefiduciaryandtheprincipal.57 So,ifa
fiduciaryseekstopurchasepropertybelongingtotheprincipaltowhichthefiduciaryhaslegaltitle,theprincipals
interestingainingthehighestpricepossibleconflictswiththefiduciarysinterestinpayingthelowestpricepossible.
Suchconflictrendersthetransactionvoidable,(p.655) andtheprincipalcanrescinditwithouthavingtoproveitwas
unfair.AsMegarryVCsaidinTitovWaddell(No.2):58
Theselfdealingruleis(toputitveryshortly)thatifatrusteesellsthetrustpropertytohimself,thesaleis
voidablebyanybeneficiaryexdebitojustitiae,59 howeverfairthetransaction.
InWrightvMorgan,60 atestatorleftlandontrustforsale,andprovidedthatitshouldbeofferedtooneofhissonsat
apricetobefixedbyvaluers.Althoughthesonwasalsoatrustee,hewasclearlyabletopurchasetheland
becausethiswasexplicitlyprovidedforinthewill.61 Thatsondidnotpurchasethelandbutinsteadassignedthe
optiontopurchasetohisbrother,wholaterbecameatrusteebutwasnotexplicitlyauthorizedtobuythelandbythe
termsofthewill.Thebrotherdidsubsequentlypurchasetheland,butthecourtheldthatthistransactioncouldbe
setasidebecauseoftheselfdealingrule:thebrothersdutiesasatrusteeconflictedwithhisinterestsasa
purchaser.Thecourtinsistedthatthetransactionwasvoidableeventhoughthepricewasfair,havingbeensetbyan
independentvaluer.
Amoredifficultapplicationoftheselfdealingrulecanbefoundinthefollowingcase.
HoldervHolder[1968]Ch353(CA)
ThetestatorwastheowneroftwofarmsinGloucestershire.Histhirdson,Victor,thedefendant,wastenantof
partofonefarm.Ashisfatherbecameadvancedinyears,Victoralsoundertookresponsibilityforthefarmingof
theremainderoftheland,makingannualpaymentstohisfather.
Thetestatordied,havingappointedhiswidow,adaughter,andVictorhisexecutors.Hiswillprovidedthatthe
estateshouldbedividedequallybetweenthewidowandallthechildren.Theexecutorstookpreliminarysteps
towardstheadministrationoftheestate.Victorsubsequentlypurchasedthefarmsatafairpriceatanauction,
andthemoneywaspaidtothebeneficiariesunderthewill.Oneofthechildren,Frank,latersoughttosetthe
transactionaside.
TheCourtofAppealheldthat(i)Inthespecialcircumstancesofthecase,Victor,althoughanexecutor,wasnot
precludedfrompurchasing(ii)Frank,byreceivinghisshareofthepurchasemoney,hadprecludedhimselffrom
relief.
HarmanLJ:Thecrossappealraisesfarmoredifficultquestionsandtheyarebroadlythree.First,
whethertheactionsofVictorbeforeprobatemadehisrenunciationineffective.Secondly,whetheronthat
footinghewasdisentitledfrombiddingatthesale.Thirdly,whethertheplaintiffisdisentitledfromtaking
thispointbecauseofhisacquiescence.
ItwasadmittedatthebarinthecourtbelowthattheactsofVictorwereenoughtoconstitute
intermeddlingwiththeestateandthathisrenunciationwasineffective.Onthisfootingheremaineda
personalrepresentative,evenafterprobatehadbeengrantedtohiscoexecutors,andcouldhavebeen
obligedbyacreditororabeneficiarytoreassumethedutiesofanexecutor.Thejudgedecidedinfavour
oftheplaintiffonthispointbecauseVictoratthetimeofthesalewashimselfstillinafiduciaryposition
andlikeanyothertrusteecouldnotpurchasethetrustproperty.Ifeeltheforceofthisargument,but
doubtitsvalidityintheveryspecialcircumstancesofthiscase.Thereasonfortheruleisthatamanmay
notbebothvendorandpurchaserbutVictorwasneverinthatpositionhere.Hetooknopartin
instructingthevaluerwhofixedthereservesorinthepreparationsfortheauction.Everyoneinthefamily
knew(p.656) thathewasnotasellerbutabuyer.InthiscaseVictorneverassumedthedutiesofan
executor.Itistruethatheconcurredinsigningafewchequesfortrivialsumsandendorsingafew
insurancepolicies,buthenever,sofarasappears,interferedinanywaywiththeadministrationofthe
estate.Itistruehemanagedthefarms,buthedidthatastenantandnotasexecutor.Heacquiredno
specialknowledgeasexecutor.Whatheknewheknewastenantofthefarms.
Anotherreasonlyingbehindtheruleisthattheremustneverbeaconflictofdutyandinterest,butinfact
therewasnonehereinthecaseofVictor,whomadenosecretthroughoutthatheintendedtobuy.
[Victors]interferencewiththeadministrationoftheestatewasofaminimalcharacterandthelast
chequehesignedwasinAugustbeforeheexecutedthedeedofrenunciation.Hetooknopartinthe
instructionsforprobate,norinthevaluationsorfixingofthereserves.Everyoneconcernedknewofthe
renunciationandofthereasonforit,namely,thathewishedtobeapurchaser.Equally,everyone,
includingthethreefirmsofsolicitorsengaged,assumedthattherenunciationwaseffectiveandentitled
Victortobid.Ifeelgreatdoubtwhethertheadmissionmadeatthebarwascorrect,asdidthejudge,but
assumingitwasright,theactswereonlytechnicallyactsofintermeddlingandIfindnocasewherethe
circumstancesareparallel.Ofcourse,IfeeltheforceofthejudgesreasoningthatifVictorremainedan
executorheiswithintherule,butinacasewherethereasonsbehindtheruledonotexistIdonotfeel
boundtoapplyit.MyreasonsarethatthebeneficiariesneverlookedtoVictortoprotecttheirinterests.
Theyallknewhewasinthemarketaspurchaserthatthepricepaidwasagoodoneandprobablyhigher
thananyonenotasittingtenantwouldgive.Further,thefirsttwodefendantsaloneactedasexecutors
andsellerstheyalonecouldconvey:theywerenotinfluencedbyVictorinconnectionwiththesales.
Ihold,therefore,thattheruledoesnotapplyinordertodisentitleVictortobidattheauction,ashedid.If
IbewrongonthispointandtheruleappliessoastodisentitleVictortopurchase,therearisesafurther
defence,namely,thatofacquiescence
OnthewholeIamofopinionthatinthecircumstancesofthiscaseitwouldnotberighttoallowthe
plaintifftoasserthisright(assuminghehasone)becausewithfullknowledgeofthefactsheaffirmedthe
sale.Hehashad2,000asaresult.Hehascaused[Victor]toembarkonliabilitieswhichhecannot
recoup.Therecaninfactbenorestitutioinintegrum,whichisanecessaryelementinrescission.62
Someofthereasoninghereisverydifficulttoexplain.Victorwasanexecutor,andassuchowedfiduciaryduties,
whichclearlyconflictedwithhispersonalinterestinpurchasingpropertyfromtheestatehewasadministering.This
wouldseemtobeaclearbreachoftheselfdealingrule.ItmaybethattheconcessionthatVictorhadfailed
effectivelytorenouncehisexecutorshipwasimproperlymade,andthecourtmighthavebeeninfluencedbythisin
seekingtoavoidthestrictnatureoftheselfdealingrule.Butfiduciaryobligationsarestrictanditissuggestedthat
theselfdealingruleshouldhaveappliedgiventhatVictorcontinuedtobeafiduciary.
However,upholdingthetransactionbecausetheclaimanthadaffirmedthesaleseemsentirelyorthodoxand
principled.Afterall,theselfdealingruleonlyrendersatransactionvoidableratherthanvoid,anditiswellestablished
thataffirmationcanbararighttorescind.63
TheresultinHolderhasalsobeendefendedbyVinelottJinReThompsonsSettlement,64 onthebasisthatVictor
neveracceptedadutytoactintheinterestsofthebeneficiariesthroughhislimitedactsasanexecutor.Re
ThompsonsSettlementconcernednotthesaleofproperty,buttheassignmentofleases.Theselfdealingrule
appliedbecausetheassigneesoftheleaseswerealsotrusteesoftheland(p.657) thatwasleased,andthe
consentofallthetrusteeswasnecessaryfortheassignment.Ineffectivelyassigningtheleasestothemselves,
therewasaclearconflictofinterestandduty.65
ReThompsonsSettlement[1986]Ch99(VinelottJ)
[Counsels]otherandmoreradicalsubmissionfoundeduponHoldervHolder[1968]Ch353wasthatthe
selfdealingruleonlyappliestoasalebytrusteestooneoftheirnumber,aloneorjointlywithothers,or
toapurchasebytrusteesfromoneoftheirnumber,aloneorjointlywithothers,andtoanalogous
dealingswithtrustpropertyortrustmoneyssuchasthegrantofaleasebyortotrustees.Hefounded
thatsubmissionuponthestatementbyHarmanLJ,atp.391,thatthereasonfortheruleisthataman
maynotbebothvendorandpurchaserHesubmittedthatintheinstantcasetheonlydealings
analogoustothesaleofpropertyweretheassignmentsorpurportedassignmentsoftheleaseswhich
wereneverthemselvestrustproperty.Hesubmittedthatinsuchacasethefairdealingruleapplies
(becauseitisfoundedontheprinciplethatamanmustnotputhimselfinapositionwherehisdutyand
interestconflictandbecauseinrelationtothetrusteesitwastheirdutytoconsiderwhethertoconsentto
theassignments)butnottheselfdealingrulewhichonlyappliesifthereisasaleorpurchasebytrustees
orsomethinganalogoustoit.Idonotthinkthattheselfdealingrulecanbesoconfined.Theprinciple
isappliedstringentlyincaseswhereatrusteeconcursinatransactionwhichcannotbecarriedinto
effectwithouthisconcurrenceandwhoalsohasaninterestinorowesafiduciarydutytoanotherin
relationtothesametransaction.
ThedecisionoftheCourtofAppealinHoldervHolderdoesnotinmyjudgmentassist[Counsel].The
reasonwhy,inthewordsofHarmanLJ,theruledidnotapplywasthatVictor,thoughhemight
technicallyhavebeenmadeanexecutornotwithstandingthepurportedrenunciation,hadneveractedas
executorinawaywhichcouldbetakentoamounttoacceptanceofadutytoactintheinterestsofthe
beneficiariesunderhisfatherswill.
Itissensiblefortheselfdealingrulenottobelimitedtothesaleandpurchaseoftrustproperty.Indeed,inKanev
RadleyKane66 itwasheldthattheselfdealingruleappliedtoapersonalrepresentativewhohadappropriated
propertytosatisfyalegacytoherselfwithoutthesanctionofthecourtortheconsentofthebeneficiaries.Itfollowed
thattheappropriationwasvoidableatthesuitofabeneficiary.
OnefinalaspectofHoldershouldbementioned,namelythefollowingsuggestionofDanckwertsLJ:67
Itissaidthatitmakesnodifference[totheapplicationoftheselfdealingrule],eventhoughthesalemaybe
fairandhonestandmaybemadeatapublicauction:seeSnellsEquity,26thEdn,1966p.260.Butthecourt
maysanctionsuchapurchase,andifthecourtcandothat(seeSnellsEquity,p.219),therecanbenomore
thanapracticethatthecourtshouldnotallowatrusteetobid.Inmyviewitisamatterforthediscretionof
thejudge.
Thatthecourtmayhaveadiscretiontosanctionatransactionthatwouldotherwisebevoidableduetotheself
dealingrulehasreceivedsomejudicialsupport.68 Nevertheless,itshouldbetreatedwithgreat(p.658) caution:
recognizingjudicialdiscretioninthisarearisksunderminingthestrictnatureoffiduciaryobligations,andseemsout
ofkilterwiththeconsistentlystrictapplicationoffiduciarydoctrineinotherareas.69
(b)Fairdealing
Ifthefiduciarydoesnotalsocontrolthepropertyheorshepurchases,thenthetransactionwillnotinevitablybe
voidable.So,ifthefiduciarypurchaseshisorherbeneficiarysinterestintrustproperty,thenthetransactionwillnot
alwaysbesetaside.AsMegarryVCputitinTitovWaddell(No.2):
Thefairdealingruleisthatifatrusteepurchasesthebeneficialinterestofanyofhisbeneficiaries,the
transactionisnotvoidableexdebitojustitiae,70 butcanbesetasidebythebeneficiaryunlessthetrusteecan
showthathehastakennoadvantageofhispositionandhasmadefulldisclosuretothebeneficiary,andthat
thetransactionisfairandhonest.71
ThisechoeswhatLordEldonLChadsaidinColesvTecothick :72
Astotheobjectiontoapurchasebythetrustee,theansweris,thatatrusteemaybuyfromthecestuique
trust,providedthereisadistinctandclearcontract,ascertainedtobesuchafterajealousandscrupulous
examinationofallthecircumstances,proving,thatthecestuiquetrustintended,thetrusteeshouldbuyand
thereisnofraud,noconcealment,noadvantagetaken,bythetrusteeofinformation,acquiredbyhiminthe
characteroftrustee.Iadmit,itisadifficultcasetomakeout,whereveritiscontended,thattheexception
prevails.
Thelastlineofthispassageundoubtedlystillholdstrue.TheCourtwillnotbeeasilypersuadedthatthetransaction
issubstantivelyfair,andafiduciaryshouldalwaysremainwaryabouttheconsequencesofdealingwithhisorher
principal.Itisimportanttonotethatthisruleappliestofiduciarieswhoarenottrustees.Forexample,asolicitormay
notpurchasepropertyfromhisorherclientiftheirrelationshipconcernsthatproperty,unlesstheclientprovideshis
orherfullyinformedconsent.73
However,Conaglenhasarguedthatsubstantivefairnessisnotreallyatissueinthecontextofthefairdealingrule,
andthatthecrucialissueiswhethertheprincipalhasgivenhisorherfullyinformedconsent.
Conaglen,AReappraisaloftheFiduciarySelfdealingandFairdealingRules(2006)64CLJ
366,3801,384
thefundamentalconcernatwhichthefairdealingruleseekstostrikeistheneedtoensurethatthe
principalgavefullyinformedconsentwhenagreeingtoenterintoatransactionwithhisfiduciary.Such
consentisrequiredbecauseoftheconflictwhichariseswhenafiduciaryentersintoatransactionwith
hisclientwherethesubjectmatterofthetransactionisthesubjectofthefiduciaryrelationship:insuch
(p.659) asituationthefiduciarynormallyowesdutiestohisprincipalinrespectofthesubjectmatterof
thetransactionandthosedutieswillgenerallybeinconflictwithhispersonalinterestinthetransaction.
Thefairnessofatransactioncanberelevantinapplyingthefairdealingruleasitprovidesevidenceasto
whetherthefiduciarymadefulldisclosureofallmaterialfacts.Inotherwords,thefairnessorotherwiseof
thetransactionassiststhecourtindeterminingwhethertheprincipalsapparentconsenttothe
transactionwasfullyinformed,becausethesubstantivecontentofthetransactioncansupportinferences
aboutwhetherthefiduciarydisclosedallmaterialinformationtotheprincipal.
(c)Arethedealingrulesdistinct?
Thefairdealingandselfdealingruleshaveoftenbeenconsideredtobedistinct.Forexample,inTitovWaddell,
MegarryVCinsistedthat:74
Icanwellseethatbothrules,orbothlimbs,haveacommonorigininthatequityisastutetopreventatrustee
fromabusinghispositionorprofitingfromhistrust:theshepherdmustnotbecomeawolf.Butsubjecttothat,
itseemstomethatforallpracticalpurposestherearetworules:theconsequencesaredifferent,andthe
propertyandthetransactionswhichinvoketherulesaredifferent.Iseenomeritinattemptingaforcedunion
whichhastobeexpressedintermsofdisunity.Ishallaccordinglytreattherulesasbeinginessencetwo
distinctthoughalliedrules.
Adesiretokeepthetworulesseparateisunderstandable.Wheretheselfdealingruleapplies,thereisonlyreally
onepartytothetransaction,sincethefiduciaryisdealingwithhimorherself.Bycontrast,wherethefairdealing
ruleapplies,therearetwopartiestothetransaction,sincethefiduciaryisdealingwiththeprincipal.Giventhatthe
principalisanindependentpartyinthelattertransaction,itmightseemappropriatetobelessstringentandtoallow
thefiduciarytoprovethatthetransactionisfairandshouldnotbesetaside.
However,regardlessofwhichruleapplies,itislikelythatthefiduciaryisinastrongerpositionthantheprincipal,and
thatthefundamentalconcerninbothscenariosisthepreventionofaconflictofinterestandduty.
Conaglen,AReappraisaloftheFiduciarySelfdealingandFairdealingRules(2006)64CLJ
366,392
Itissuggestedthatthefiduciarydealingrulescanjustaswellbeunderstoodasasingledoctrine,
emanatingdirectlyfromthefundamentalfiduciaryconflictprinciple,whichrequiresthefiduciarytoprove
twothingsbeforehecanmaintainatransactionwhichfallswithineitherofthetwofiduciarydealingrules:
(a)theexistenceoftheprincipalsconsenttothefiduciarysinvolvementinthetransactionand(b)that
theconsentwasofahighquality,whichrequiresfulldisclosureofthenatureofthefiduciarysinterestin
thetransactionandwhichcaninvolvereferencetothefairness(orotherwise)ofthetransactionas
evidencefromwhichfulldisclosure(oralackthereof)canpotentiallybeinferred.
Thisapproachshouldbepreferred.Conaglensdetailedanalysisshowsthat,traditionally,thecourtsaremuchmore
concernedwiththefullyinformedconsentoftheprincipalthanthesubstantive(p.660) fairnessofthetransaction.It
seemsbetterforthecourttofocusontheformer,giventheinevitabledifficultiesinvolvedinanalysingthesubstantive
fairnessoftransactionsbetweenautonomousparties.75 Consideringthefairdealingandselfdealingrulestobe
alignedinthiswayavoidsanartificialdistinctionbetweensometransactions,whicharefairandstillvoidable,and
others,whicharefairandcannotbesetasidethiswouldbetheconsequenceofarigidandsubstantivedivide
betweenselfdealingandfairdealing.
(ii)Remuneration
Itisgenerallyexpectedthatatrusteewillnotreceiveremunerationunlessthishasbeenexplicitlyauthorizedbythe
trustdeed.ThiswaswellrecognizedatCommonLaw,andLordHerschellscommentsinBrayvFordthata
fiduciaryisnot,unlessotherwiseexpresslyprovided,entitledtomakeaprofit76 wereoftencited.Thisapproach
hasnowbeenrecognizedbysection28oftheTrusteeAct2000.Moreover,undercertaincircumstancesatrustee
willbeabletoclaimreasonableremunerationundertheauthorityofsection29notablyifthetrusteeisatrust
corporationoraprofessionaltrustee.
TheTrusteeAct,2000
28Trusteesentitlementtopaymentundertrustinstrument
(1)Excepttotheextent(ifany)towhichthetrustinstrumentmakesinconsistentprovision,
subsections(2)to(4)applytoatrusteeif
(a)thereisaprovisioninthetrustinstrumententitlinghimtoreceivepaymentoutoftrust
fundsinrespectofservicesprovidedbyhimtooronbehalfofthetrust,and
(b)thetrusteeisatrustcorporationorisactinginaprofessionalcapacity.
(2)Thetrusteeistobetreatedasentitledunderthetrustinstrumenttoreceivepaymentinrespect
ofserviceseveniftheyareserviceswhicharecapableofbeingprovidedbyalaytrustee.

(5)ForthepurposesofthisPart,atrusteeactsinaprofessionalcapacityifheactsinthecourseof
aprofessionorbusinesswhichconsistsoforincludestheprovisionofservicesinconnectionwith
(a)themanagementoradministrationoftrustsgenerallyoraparticularkindoftrust,or
(b)anyparticularaspectofthemanagementoradministrationoftrustsgenerallyora
particularkindoftrust,
andtheservicesheprovidestooronbehalfofthetrustfallwithinthatdescription.
(6)ForthepurposesofthisPart,apersonactsasalaytrusteeifhe
(a)isnotatrustcorporation,and
(b)doesnotactinaprofessionalcapacity.
29Remunerationofcertaintrustees
(a)isatrustcorporation,but
(p.661) (b)isnotatrusteeofacharitabletrust,
isentitledtoreceivereasonableremunerationoutofthetrustfundsforanyservicesthatthetrust
corporationprovidestooronbehalfofthetrust.
(a)actsinaprofessionalcapacity,but
(b)isnotatrustcorporation,atrusteeofacharitabletrustorasoletrustee,
isentitledtoreceivereasonableremunerationoutofthetrustfundsforanyservicesthatheprovides
tooronbehalfofthetrustifeachothertrusteehasagreedinwritingthathemayberemunerated
fortheservices.

(5)Atrusteeisnotentitledtoremunerationunderthissectionifanyprovisionabouthisentitlement
toremunerationhasbeenmade
(a)bythetrustinstrument,or
(b)byanyenactmentoranyprovisionofsubordinatelegislation.

Similarprinciplesapplytodirectors.InGuinnessplcvSaunders,LordGoffobservedthat:77
thedirectorsofacompany,likeotherfiduciaries,mustnotputthemselvesinapositionwherethereisa
conflictbetweentheirpersonalinterestsandtheirdutiesasfiduciaries,andareforthatreasonprecludedfrom
contractingwiththecompanyfortheirservicesexceptincircumstancesauthorisedbythearticlesof
association.
Thebasisofthisprohibitionisclear:ifafiduciaryispaid,thereisapotentialconflictbetweenhisorherfinancial
interestandtheinterestsoftheprincipal.78 Butifpaymenthasbeenauthorizedbytheprincipalbeforehandeither
expresslyorimpliedlythenanyobjectiontheprincipalmayhavehadringshollow.Indeed,thecourtmay,insome
circumstances,holdthatthefiduciaryshouldberemuneratedevenwherethiswasnotexplicitlyauthorized
beforehand.Forexample,inReDuk eofNorfolk sSettlementTrusts,79 trusteeswereallowedtokeeptheir
remunerationsincetheyhadshownexceptionalskillandexpertiseinadministeringatrustandcarryingout
substantial,unforeseenworkonaredevelopmentprojectforthetrust.IntheCourtofAppeal,FoxLJcommented
that:80
thecourthasaninherentjurisdictiontoauthorisethepaymentofremunerationoftrusteesandthatthat
jurisdictionextendstoincreasingtheremunerationauthorisedbythetrustinstrument.Inexercisingthat
jurisdictionthecourthastobalancetwoinfluenceswhicharetosomeextentinconflict.Thefirstisthatthe
officeoftrusteeis,assuch,gratuitousthecourtwillaccordinglybecarefultoprotecttheinterestsofthe
beneficiariesagainstclaimsbythetrustees.Thesecondisthatitisofgreatimportancetothebeneficiaries
thatthetrustshouldbewelladministered.Ifthereforethecourtconcludes,havingregardtothenatureofthe
trust,theexperienceandskillofaparticulartrusteeandtotheamountswhichheseekstochargewhen
comparedwithwhatothertrusteesmightrequiretobepaid(p.662) fortheirservicesandtoalltheother
circumstancesofthecase,thatitwouldbeintheinterestsofthebeneficiariestoincreasetheremuneration,
thenthecourtmayproperlydoso.
Asimilardiscretionappliestootherfiduciariesinthecontextofcompanydirectors,LordGoffobservedinGuinness
vSaundersthat:81
theexerciseofthejurisdictionisrestrictedtothosecaseswhereitcannothavetheeffectofencouraging
trusteesinanywaytoputthemselvesinapositionwheretheirinterestsconflictwiththeirdutiesastrustees.
82
InReMacadam,82 thearticlesofacompanyprovidedthatthetrusteesofthetestatorswillmayappointtwo
personstobedirectorsofthecompanyinwhichthetrustownedshares.Thetrusteesappointedthemselves.It
washeldthattheywereaccountabletothetrustforthefeesreceivedasdirectorsbecauseoftheconflictthatarose
betweentheirpersonalinterestsandthoseofthetrust.However,hadthetrusteesbeenexplicitlyauthorizedbythe
will,thentheirappointmentastrusteeswouldhavebeenvalidandtheywouldhavebeenabletokeepthe
remuneration.83
(b)ConflictBetweenDutyandDuty
Thenoconflictprinciplemightbeengagednotonlybyaconflictbetweenthefiduciaryspersonalinterestandhisor
herdutytohisprincipal,butalsobyaconflictbetweenhisorherdutytooneprincipalandaconflictingdutyowedto
anotherprincipal.84 Thismighthappenwhereafiduciarysuchasasolicitororagentactsforbothpartiestoa
transactionforexample,theremaybeapotentialconflictbetweenthedutyowedtothepurchaserandtheduty
owedtothevendor.AsLordCozensHardyMRobservedinMoodyvCox:85
Asolicitormayhaveadutyononesideandadutyontheother,butifhechoosestoputhimselfinthat
positionitdoesnotlieinhismouthtosaytotheclient,Ihavenotdischargedthatwhichthelawsaysismy
dutytowardsyou,myclient,becauseIoweadutytothebeneficiariesontheotherside.Theansweristhatif
asolicitorinvolveshimselfinthatdilemmaitishisownfault.Heoughtbeforeputtinghimselfinthatposition
toinformtheclientofhisconflictingduties,andeitherobtainfromthatclientanagreementthatheshouldnot
performhisfulldutiesofdisclosureorsaywhichwouldbemuchbetterIcannotacceptthisbusiness.
However,suchsituationsarenotuncommon,andLordCozensHardyssuggestionthatsolicitorsshouldrefuse
businessisoftencircumventedbytheconsentofbothopposingprincipals.Aslongasbothprincipalsarefully
informedofthesituationandagreetothefiduciarysactingforbothsides,thenitseemssensibletoallowthe
fiduciarytodoso.Indeed,insomecircumstancesitisoftenquickerandmoreefficientforbothpartiestoinstructa
solesolicitorratherthanbothpartiestohaveseparatesolicitorsagoodexamplemightbearoutineconveyancein
whichonesolicitoractsnotonlyforthe(p.663) purchaser,butalsoforthebankprovidingamortgage.However,it
isimportantthattheconsentofbothpartiesbegenuine.InClark eBoycevMouat,LordJaunceysaid:86
Informedconsentmeansconsentgivenintheknowledgethatthereisaconflictbetweenthepartiesandthat
asaresultthesolicitormaybedisabledfromdisclosingtoeachpartythefullknowledgewhichhepossesses
astothetransactionormaybedisabledfromgivingadvicetoonepartywhichconflictswiththeinterestsof
theother.Ifthepartiesarecontenttoproceeduponthisbasisthesolicitormayproperlyact.
ThisissuereturnedtotheHouseofLordsinHiltonvBark erBoothandEastwood(afirm).87 Inthatcase,Bromage

hadpersuadedHiltontopurchaseaproperty,developit,andthensellitbacktoBromage.Bromagepaidadeposit
butthenfailedtocompletethesale,soHiltonrescindedthetransaction.ThesamefirmBarkerBoothand
Eastwoodhadactedforbothpartiesinthetransaction.HiltonsuedthefirmbecauseithadmadeBromageseem
creditworthywheninfacthehadbeenmadebankruptandconvictedforfraud.ThefailuretodiscloseBromages
backgroundwasabreachofduty.TheHouseofLordsactuallyheldthattherehadbeenabreachofcontract,butthe
sameresultcouldhavebeenreachedonthebasisofbreachoffiduciaryduty.88 ThefiduciarysdutytoBromage
clearlyconflictedwiththedutyowedtoHilton,andHiltonhadnotgivenitsfullyinformedconsenttothefiduciarys
actingforbothparties:indeed,haditbeenfullyinformedofallthematerialfacts,itishighlyunlikelythatHiltonwould
haveallowedthefiduciarysotoact.LordWalkerrecognizedthat:89
thefactthat[asolicitor]haschosentoputhimselfinanimpossiblepositiondoesnotexoneratehimfrom
liability.
Ithasbeensuggestedthatevenifafiduciaryhasthefullyinformedconsentofbothprincipals,heorshemay
commitabreachoffiduciarydutyifheorsheintentionallyfavoursoneprincipaloveranother.Thiswouldbeevidence
ofdisloyalty.ThisargumentwasformulatedbyMillettLJinMothew,asfollows:90
Evenifafiduciaryisproperlyactingfortwoprincipalswithpotentiallyconflictinginterestshemustactingood
faithintheinterestsofeachandmustnotactwiththeintentionoffurtheringtheinterestsofoneprincipalto
theprejudiceofthoseoftheotherIshallcallthisthedutyofgoodfaith.Butitgoesfurtherthanthis.He
mustnotallowtheperformanceofhisobligationstooneprincipaltobeinfluencedbyhisrelationshipwiththe
other.Hemustserveeachasfaithfullyandloyallyasifhewerehisonlyprincipal.
4.TheNoProfitPrinciple
Afiduciarymustnotprofitfromhisorherpositionasafiduciarywithoutthefullyinformedpriorconsentofhisorher
principal.Thereisacloserelationshipwiththenoconflictrule,andthenoprofitprincipleisbestexplainedonthe
basisthattheveryfactofprofitingfromafiduciarypositionissolikelytoinvolveaconflictofinterestanddutythat
thecourtwillnotdemandstrictproofofaconflict.(p.664) Whetherthisrationaleissufficienttomerititsseparate
existenceandapplicationcanbeconsideredoncetheleadingcaseshavebeenhighlighted.
Itisimpossibletodiscusseverysituationinwhichthenoprofitrulecanapply.AsLordYoungobservedin
HuntingtonCopperandSulphurCoLtdvHenderson:91
Wheneveritcanbeshewnthatthetrusteehassoarrangedmattersastoobtainanadvantage,whetherin
moneyormoneysworth,tohimselfpersonallythroughtheexecutionofhistrust,hewillnotbepermittedto
retainit,butbecompelledtomakeitovertohisconstituent.
Thereisavastarrayofpossibilitiesthroughwhichafiduciarymayprofitfromhisorherpositionasafiduciary.The
crucialprinciplescanbegleanedfromtheleadingcases.
(a)LeasesHeldonTrust
(i)Renewalofalease
Thenoprofitruleisoftenthoughttoderivefromthefollowingcase.
KeechvSandford(1726)SelCasCh61
ThelesseeoftheprofitsofRomfordmarketlefthisestatetoatrustee(Sandford)ontrustforaninfant(Keech).
Priortotheexpirationofthelease,Sandfordappliedtothelessorforarenewaloftheleaseforthebenefitofthe
infant.Thelessorrefused:becausetheleasewasoftheprofitsonlyandnotoftheland,iftherentwasnotpaid
thelessordidnothavetheremedyofdistressavailable,sowouldhavebeenforcedtosueuponthecontract,by
whichaninfantwouldnotbebound.AfterSandfordfailedtorenewtheleaseforthebenefitoftheinfant,
Sandfordtooktheleaseforhimself.KeechlatersuedSandfordfortheprofitshehadmadefromthelease.His
claimsucceeded:theCourtheldthattheleaseshouldbeassignedtoKeech,andthatSandfordwasholdingthe
profitsmadefromtheleaseonaconstructivetrustforKeech.
KingLC:
ImustconsiderthisasatrustfortheinfantforIverywellsee,ifatrustee,ontherefusaltorenew,might
havealeasetohimself,fewtrustestateswouldberenewedtocestuiqueusethoughIdonotsaythere
isafraudinthiscase,yetheshouldratherhaveletitrunout,thantohavehadtheleasetohimself.This
mayseemhard,thatthetrusteeistheonlypersonofallmankindwhomightnothavetheleasebutitis
veryproperthattheruleshouldbestrictlypursued,andnotintheleastrelaxedforitisveryobviouswhat
wouldbetheconsequencesoflettingtrusteeshavethelease,onrefusaltorenewtocestuiqueuse.
TheresultinthiscasewasveryhardonSandford.Thelessorwouldabsolutelynothaveallowedthebeneficiaryof
thetrusttotakethelease,sowhypreventSandfordfromrenewingtheleasehimself?Whyforcehimsimplytoletit
runout?Clearly,beingafiduciaryrequiressacrifice:afiduciarymaybetheonlypersoninthewholeworldunableto
exploitanopportunity.InKeech,thepotentialriskofconflictbetweenSandfordspersonalinterestsanddutyto
KeechwassufficientforthecourttoimpugnthetransactioneventhoughKeechwasnevergoingtobeableto
renewtheleaseandhisinterestinthetransactionmight,therefore,beconsideredtohavelapsed.92
(p.665) TheruleinKeechvSandfordwasconsideredinReBiss.93 MrBisshadcarriedonaprofitablebusinessas

acommonlodginghousekeeperonpremiseslettohimunderasevenyearlease.Onitsexpiry,hecontinuedasa
yearlytenant.Hedied,leavingawidowandthreechildren,oneofwhomwasaninfant.Thewidow,whowashis
administratrix,andanadultsoncontinuedthebusiness,andtheyappliedforarenewalofthelease.Thiswas
refused,butanewthreeyearleasewasthengrantedtotheadultson.Thequestionwaswhetherheshouldbe
compelledtoholdtheleaseupontrust.TheCourtofAppealdecidedthathecouldholditbeneficially.Theson,in
obtainingthelease,wasnotinbreachofanyfiduciaryduty.
COLLINSMR:Inthepresentcasetheappellantissimplyoneofthenextofkinoftheformertenant,andhad,
assuch,apossibleinterestintheterm.Hewasnot,assuch,atrusteefortheothersinterested,norwashe
inpossession.Theadministratrixrepresentedtheestateandalonehadtherighttorenewincidentthereto,
andsheunquestionablycouldrenewonlyforthebenefitoftheestate.Butistheappellantinthesame
category?Orisheentitledtogointothefactstoshewthathehasnot,inpointoffact,abusedhisposition,or
inanysenseinterceptedanadvantagecomingbywayofaccretiontotheestate?Hedidnottakeunderawill
orasettlementwithinterestscomingafterhisown,butsimplygotapossibleshareuponanintestacyincase
therewasasurplusofassetsoverdebts.Itseemstomethathisobligationcannotbeputhigherthanthatof
anyothertenantincommonagainstwhomitwouldhavetobeestablished,notasapresumptionoflawbut
asaninferenceoffact,thathehadabusedhisposition.Ifheisnotunderapersonalincapacitytotakea
benefit,heisentitledtoshewthattherenewalwasnotinfactanaccretiontotheoriginalterm,andthatitwas
notuntiltherehadbeenanabsoluterefusalonthepartofthelessor,andafterfullopportunitytothe
administratrixtoprocureitfortheestateifshecould,thatheacceptedaproposalofrenewalmadetohimby
thelessor.Thesequestionscannotbeconsideredordiscussedwhenthepartyisbyhispositiondebarred
fromkeepingapersonaladvantagederiveddirectlyorindirectlyoutofhisfiduciaryorquasifiduciaryposition
butwhenheisnotsodebarredIthinkitbecomesaquestionoffactwhetherthatwhichhehasreceivedwas
inhishandsanaccretiontotheinterestofthedeceased,orwhethertheconnectionbetweentheestateand
therenewalhadnotbeenwhollyseveredbytheactionofthelessorbeforetheappellantacceptedanew
lease.Thisconsiderationseemstogetridofanydifficultythatoneofthenextofkinwasaninfant.Theright
orhopeofrenewalincidenttotheestatewasdeterminedbeforetheplaintiffintervened.
Thisresultseemsstraightforwardandsatisfactory.Thesonwasnotafiduciary,andthereforefelloutsidethescope
oftheprincipleinKeech.Moreover,hehadnotabusedhisposition,sotherewasnoreasontointerferewiththe
completedtransaction.However,theMasteroftheRollsconsideredthatwhereastrusteessuchasinKeech
couldneverrenewaleasefortheirownbenefit,giventheirclearstatusasfiduciaries,therewasonlyarebuttable
presumptionoffactformortgagees,jointtenants,andpartners.94 Thelastcategoryisodd:partnersarefiduciaries
andthereforedifferentfrommortgageesandjointtenants,whoarenot.Butitisnotobviousthatanydistinction
shouldbedrawnbetweendifferentclassesoffiduciaryatall.Indeed,Cretneyhasarguedthatitwouldbesensiblefor
allpersonsnottobesubjecttoanautomatic,absoluteexclusionaryrule:95
Itisdifficulttoseethelogicofthisdistinction[betweenpersonsinafiduciarycapacityandothers]Itmay
bejustifiabletohaveaspecialonusfortrustees,butwhyshoulditbecontrarytopublicpolicytoallowa
trusteetorebutapresumptionofmisbehaviour?
(p.666) CretneyarguedagainstthedecisioninKeech,andfortheambitofitsapplicationtobenarrowed:a
fiduciaryshouldbeabletoshowthathealwaysactedloyallyandinthebestinterestsofhisprincipal,andthereby
avoidliability.However,thisargumenthasfailedtoconvinceEnglishcourts.Infact,theprincipleofKeechhaseven
beenextendedtoapplytothepurchaseofthereversionofalease.
(ii)Purchaseofthereversion
SanctioningtherenewaloftheleaseitselfinKeechmightperhapsbejustifiedonthebasisthatthetrusteeisdealing
withtrustproperty.However,thesameisnottruewherethetrusteemerelypurchasesthereversionofthelease:96
thisneverbelongedtothetrust,and,wheretheleasewasnotrenewablebycustom,97 thetrustneverhadany
expectationofobtainingthereversionandwouldnotbeprejudicedbythetrusteespurchaseofit.Thusatfirst
instanceinBoardmanvPhippsWilberforceJwasabletostate:98
whereasinthecaseofarenewalthetrusteeisineffectbuyingapartofthetrustproperty,inthecaseofa
reversionthisisnotsoitisaseparateitemaltogether,andthereforethetrusteemaypurchaseitunless,in
sodoing,heisineffectdestroyingpartofthetrustproperty.
However,theprincipleofKeechwasthoughttoapplytothepurchaseofthereversionofaleasebytheCourtof
AppealinProtheroevProtheroe.99 Ahusbandheldaleaseontrustforhimselfandhiswife.Aftertheyseparated,
thehusbandpurchasedthereversion.Thecourtheldthatthefreeholdwasalsopurchasedontrustforthehusband
andwife.LordDenningMRboldlystatedthat:100
ThereisalongestablishedruleofequityfromKeechv.Sandford,downwardsthatifatrustee,whoownsthe
leasehold,getsinthefreehold,thatfreeholdbelongstothetrustandhecannottakethepropertyforhimself.
Onthatprinciplewhenthehusbandgotinthefreehold,itattachedtoandbecamepartofthetrustproperty.
Thisassertionissurprising:theprinciplegivenbyLordDenningdoesnotaccordwithKeech,ortheclear
understandingofthelawasillustratedbyWilberforceJinBoardman.Itisunclearwhyafiduciaryshouldbeunable
topurchasethereversionofaleaseheldontrustwherethereisnoconflictwiththeinterestsofthetrust.
Nevertheless,thereislittledoubtthatProtheroeisgoodlaw.InThompsonsTrusteeinBank ruptcyvHeaton,
PennycuickVCcitedProtheroeandheldthat:101
thisdecision,liketheruleinKeechvSandford,isreallyinmoderntermsanapplicationofthebroadprinciple
thatatrusteemustnotmakeaprofitoutofthetrustestate.
ThisapproachhasreceivedthesupportoftheCourtofAppealinDonKingProductionsInc.vWarren.102 Both
ThompsonandDonKingconcernedpartnershipsratherthantrusts.However,the(p.667) courtsweresatisfiedthat
thesameprinciplesappliedtopartnersgiventheirpositionasfiduciaries.InThompson,thejudgeinsistedthat:103
Thefiduciaryrelationherearisesnotfromatrustofpropertybutfromthedutyofgoodfaithwhicheachpartner
owestotheother.Itisimmaterialforthispurposeinwhichpartnerthelegalestateintheleaseholdinterest
concernedisvested.
This,atleast,isasensibleapproach,whichemphasizesthatalthoughKeechisconcernedwithabreachoftrust,
thebreachwasofafiduciaryduty.Assuch,theprinciplesfromthecaseoughttoapplytoallfiduciaries.Thisstands
incontrasttowhatwassaidinReBiss,104 butismuchtobepreferred.
(b)ProfitingFromthePrincipalsProperty
Itisstraightforwardthatifafiduciarymakesaprofitfromtheprincipalsproperty,thenheorshewillhavetogiveup
thegainsmade.ThisprinciplewassuccinctlystatedbyLordReidinBrownvInlandRevenueCommissioners:105
Thegeneralprincipleiswellsettled.Asolicitorhasafiduciarydutytohisclientsandanypersonwhohas
suchadutyshallnottakeanysecretremunerationoranyfinancialbenefitnotauthorizedbythelaw,orby
hiscontract,orbythetrustdeedunderwhichheacts,asthecasemaybe(perLordNormandinDalev.
InlandRevenueCommissioners).106 Ifthepersoninafiduciarypositiondoesgainorreceiveanyfinancial
benefitarisingoutoftheuseofthepropertyofthebeneficiaryhecannotkeepitunlesshecanshowsuch
authority.
Thisissensible:afiduciarymustnotbeallowedtousehisorherprincipalspropertywithoutpriorauthorization.The
conflictbetweenthefiduciarysinterestanddutyisobvious.Infact,thismightprovidethebestexplanationofKeech.
InSinclairvVersailles,107 LordNeubergerMRobservedthat:108
itispossibletoregardKeechasanexampleofatrusteeacquiringanassetthroughseizingforhisown
benefitanopportunitywhichwaseffectivelyownedbythetrust.AsexplainedbyHicks 109 theopportunity
torenewatenancy,althoughnotstrictlyalegalright,waseffectivelyrecognisedassuchbythecourtsinthe
18thcentury.Thus,KingLChimselfinAddisvClement110 referredtoachurchleaseasbeingalways
renewableandthereforepossibletoregardasaperpetualestate.Viewedinthisway,Keechcanbesaid
tobeanorthodox,ifratherstrict,applicationoftheprinciplethatwhereatrusteetakesadvantageofan
opportunity,whichisreallyownedbythebeneficiary,heholdstheconsequentproceedsforthebeneficiary.
Thisprincipleappearstoextendtosituationswherethefiduciarymakesaprofitusingpropertythatdidnotactually
belongtotheprincipal,butwouldhavebelongedtotheprincipalhadthefiduciary(p.668) notactedasheorshe
did.Inotherwords,ifthefiduciaryinterceptspropertythatwasdestinedfortheprincipal,suchpropertywillbe
consideredproperlytobelongtotheprincipal.Thisseemssatisfactory:afiduciarywhodeprivestheprincipalof
propertycannotcomplainiftheprincipalarguesthatthepropertyrightfullybelongstohimorher.Thus,inCook v
Deek s,111 thePrivyCouncilinsistedthatdirectorscouldnotexploittheirmajorityshareholdingtodivertacontract
originallynegotiatedforthebenefitofthecompanytothedirectorsownprivateshareholding.Thecontractwasa
corporateasset,andallprofitsmadeonthecontractweretobelongtothecompany.Thedirectorscouldnotkeep
theprofitsforthemselvesgiventhebreachoffiduciarydutyinusingtheprincipalspropertyfortheirpersonalgain.
Theremediesavailableforbreachoffiduciaryarediscussedindetailbelow,112 butitseemsclearthatifthefiduciary
usesthepropertyoftheprincipal,thenthatpropertyandanyprofitswillbeheldonaconstructivetrust.Butwhether
aproprietaryremedyshouldstillbeavailabletotheprincipalwhentheprofitsmadewerenotderivedfromthe
principalspropertyisacontroversialquestion.Ithasrecentlybeensuggestedthataconstructivetrustmaystillbe
recognizedwhereafiduciaryhasprofitedbytakingadvantageofanopportunityorrightthatwasproperlythatofthe
beneficiary.113 Theremayinthefuturebeseriousattemptsbyclaimantstofitmorecaseswithinthiscategory.114
(c)Bribes
Itisclearthatafiduciaryshouldnotbeallowedtoprofitfromhisorherpositionbyacceptingabribetoactdisloyally
towardshisorherprincipal.115 Thisisclearlyprejudicialtotheprincipalsinterests.Sincethefiduciarywouldnot
havebeenofferedabribeifheorshewerenotafiduciary,itissensibleforthefiduciarytohavetoaccountforthe
profitsmadethroughacceptingthebribe.AgoodexampleisReadingvAttorneyGeneral,116 inwhichthedefendant,
whowasasergeantintheBritishArmyservinginEgypt,receivedbribestositonlorrieswhilstwearingmilitary
uniform,sothatthepolicewouldnotstopthelorries,whichwereillegallytransportingalcohol.LordPorterinsisted
that:117
heisnotactinginthecourseofhisemployment,heistakingadvantageofthepositionwhichhisemployment
giveshimandforrewardsogainedheisanswerabletohismasternonethelessthoughtheobtainingof
themoneyisacriminalact.
ThustheCrownwasabletostripthesergeantoftheprofitshereceivedinbreachoffiduciaryduty.Therationaleis
clear:acceptingbribesisacriminalactandcorruptsthefiduciary.Thisshouldbedeterred.Requiringrestitutionof
thegainhelpstoachievethisgoal.
Itshouldbenotedthattheprinciplesthatapplytobribesareequallypertinentwhenconsideringsecret
commissions.So,inDaryadanHoldingsLtdvSollandInternationalLtd,118 whereanagentreceivedasecret
commissionof10percentofthecontractpriceinexchangeforcontractsbetweenhisprincipalandathirdparty,
LawrenceCollinsJrelieduponcasesconcerningbriberyandsaid:119
(p.669) Anagentorotherfiduciarywhomakesasecretprofitisaccountabletohisorherprincipalorcestui
quetrust.
Anysurreptitiousdealingbetweenoneprincipaltoatransactionandtheagentoftheotherisafraudonthe
otherprincipal.
Thattheprincipalshouldhavearemedyagainstthefiduciarywhoreceivesabribeorsecretcommissionis
uncontroversial,butthenatureofthatclaimiscontroversial:istheprincipalentitledtoaproprietary,oronlypersonal,
remedy?Thisdifficultquestionwillbefullyexaminedinbelow.120
(d)ExploitationofOpportunities
Afiduciarycannotexploitanopportunitythatarisesbecauseofhisorherpositionasafiduciary.121 However,care
mustbetakentoensurethatthefiduciarydoesindeedowefiduciarydutiesinrespectoftheopportunityoffered.As
notedalready,itisimportanttoconsiderpreciselywhatfiduciaryobligationsareowedtowhomwhenconsidering
whethersomeoneisafiduciary.122
Manyoftheleadingcasesconcerningexploitationofopportunitiesinvolvedirectors.Suchcasesmusttodaybe
consideredusingtheCompaniesAct2006,whichinsistsontheneedforaconflictofinterestbeforeabreachof
fiduciarydutywillbefound.123 Cautionshouldbeexercisedbeforeapplyingpreviousdecisionstocasesarising
sincetheCompaniesAct2006.Nevertheless,previouscasesareclearlystillhelpful:theActdoesnotalterthe
fiduciaryprinciplesforanyfiduciaryotherthandirectors.
FollowingKeechvSandford,thecourtshaveconsistentlyheldthattheprinciplethatfiduciariesshouldnotprofitfrom
theirpositionisstrict.Itcan,therefore,applyevenwhenthefiduciaryhasactedingoodfaith,andtheprincipalisnot
disadvantagedinanywayindeed,insomeofthecasestheprincipalspositionhasactuallybeenimprovedbythe
actionsofthewrongdoingfiduciary.Agoodexampleofthisisthefollowingcase.
Regal(Hastings)vGulliver[1967]2AC134n(1942)HL124
RegalownedacinemainHastings,andsetupasubsidiarycompany,knownasAmalgamated,inorderto
acquiretheleasesoftwofurthercinemas.Amalgamatedhadasharecapitalof5,000madeupof5,0001
shares.TheownerofthecinemaswasonlywillingtoleasethemifthesharesofAmalgamatedwerecompletely
subscribedfor.ThisposedaproblemforRegal,whichhadresourcestosubscribeforonly2,000ofthe5,000
shares.Inordertomakesuretheacquisitionstillwentahead,fourofthedirectorsandthecompanysolicitor
subscribedfor500shareseach,andthefifthdirectorfoundotherstosubscribefortheremaining500shares.
Thisenabledtheleasestobepurchased.ThesharesinAmalgamatedwerelatersoldforasubstantialprofit,
andanewboardofdirectorsofRegalbroughtaclaimagainstthesolicitoranddirectorsfortheprofitstheyhad
madefromtheirpositionsasfiduciaries.
AllmembersoftheHouseofLordsagreedthatthedirectorswhohadbenefitedfrompurchasingthesharesin
Amalgamatedwouldhavetogiveupthosegains.ThereasoningwassquarelybaseduponKeechvSandford.
Forexample,LordRussellsaid:
(p.670) Theruleofequitywhichinsistsonthose,whobyuseofafiduciarypositionmakeaprofit,being
liabletoaccountforthatprofit,innowaydependsonfraud,orabsenceofbonafidesoruponsuch
questionsorconsiderationsaswhethertheprofitwouldorshouldotherwisehavegonetotheplaintiff,or
whethertheprofiteerwasunderadutytoobtainthesourceoftheprofitfortheplaintiff,orwhetherhetook
ariskoractedashedidforthebenefitoftheplaintiff,orwhethertheplaintiffhasinfactbeendamagedor
benefitedbyhisaction.Theliabilityarisesfromthemerefactofaprofithaving,inthestated
circumstances,beenmade.Theprofiteer,howeverhonestandwellintentioned,cannotescapetheriskof
beingcalledupontoaccount.
TheleadingcaseofKeechv.Sandfordisanillustrationofthestrictnessofthisruleofequityinthis
regard,andofhowfartheruleisindependentoftheseoutsideconsiderations.
IamofopinionthatthedirectorsstandinginafiduciaryrelationshiptoRegalinregardtotheexerciseof
theirpowersasdirectors,andhavingobtainedthesesharesbyreasonandonlybyreasonofthefactthat
theyweredirectorsofRegalandinthecourseoftheexecutionofthatoffice,areaccountableforthe
profitswhichtheyhavemadeoutofthem.TheequitablerulelaiddowninKeechv.SandfordandExparte
James 125 andsimilarauthoritiesappliestotheminfullforce.Itwascontendedthatthesecaseswere
distinguishablebyreasonofthefactthatitwasimpossibleforRegaltogetthesharesowingtolackof
funds,andthatthedirectorsintakingtheshareswerereallyactingasmembersofthepublic.Icannot
acceptthisargument.ItwasimpossibleforthecestuiquetrustinKeechv.Sandfordtoobtainthelease,
neverthelessthetrusteewasaccountable.Thesuggestionthatthedirectorswereapplyingsimplyas
126
membersofthepublicisatravestyofthefacts.126
Theclaimagainstthedirectorwhohadnotsubscribedforanysharesfailed:hehadnotmadeanyprofittodisgorge.
Theclaimagainstthesolicitoralsofailed,sincetheboardofdirectorsofRegalhadconsentedtohispurchasingthe
shares:giventhefullyinformedconsentofhisprincipal,thesolicitorcouldnotlaterbesuedforbreachoffiduciary
duty.
Thattheotherdirectorshadtoaccountfortheirprofitsmayseemharsh.Afterall,withoutthecontributionsofthose
directors,Amalgamatedwouldhavebeenunabletoacquiretheleasesandthecompanywouldhavemadenomoney
atall.Tothatextent,itmayseemasifRegalreceivedanunexpectedwindfall127 fromsuingitsformerdirectors.128
Sowhatshouldthedirectorshavedone?ViscountSankeythoughtthatliabilitywasappropriatebecause:
Atallmaterialtimestheyweredirectorsandinafiduciaryposition,andtheyusedandactedupontheir
exclusiveknowledgeacquiredassuchdirectors.Theyframedresolutionsbywhichtheymadeaprofitfor
themselves.Theysoughtnoauthorityfromthecompanytodoso.
Butwhatifthedirectorshadsoughtauthoritytopurchasethesharesthemselves?Whocouldhavegivensuch
authority?Theconsentoftheboardofdirectorswassufficienttoabsolvethesolicitorofliability,butshouldtheboard
beabletoconsenttothedirectorsactions?Thisisobviouslymoretrickybecausetheboardwascontrolledbythe
wrongdoingdirectors.Itseemsoddtosaythatthedirectorsasboardmemberscouldhaveconsentedtothe
directorsasindividualspurchasingsharesinthecompanyssubsidiary.LordRussellstatedthat:129
(p.671) Theycould,hadtheywished,haveprotectedthemselvesbyaresolution(eitherantecedentor
subsequent)oftheRegalshareholdersingeneralmeeting.Indefaultofsuchapproval,theliabilitytoaccount
mustremain.
Requiringaresolutionoftheshareholdersmayappearlogical.Afterall,itisultimatelytheshareholderswhowill
sufferifthedirectorsactbadly,sotheshareholdersfullyinformedauthorizationshouldnegateanyliabilitythatmay
falluponthefiduciaries.However,inCook vDeek ssuchresolutionoftheshareholderswasthoughttobe
ineffective.130 ThatdecisionmightbedistinguishedonthebasisthatthefiduciariesinCook clearlyactedbadly,131
whereasinRegaltheydidnot.132 Morepersuasively,perhaps,inPrudentialAssuranceCo.vNewmanIndustries
(No.2)VinelottJreconciledthetwocasesonthebasisthatinCook thedirectorscontrolledthemajority
shareholding,whereasthiswasnotthecaseinRegal.133 Thus,iftheshareholdershadsanctionedtheactsofthe
directorsinRegal,therewouldhavebeennoclaimforbreachoffiduciaryduty.
Thereisanimportantquestiontoberaisedaboutwhenafiduciarysexploitationofanopportunityisproperly
sanctionedbyhisorherprincipal.Thiswillbeconsideredfurtherwhenanalysingwhethertheapproachofthe
Englishcourtsistoostrict.However,itissignificanttonotethatinRegal,thedecisionthatRegaldidnothavethe
necessaryfinancialresourcestosubscribeforallthesharesinAmalgamatedwasmadebythedirectors,whowere
theverypersonswhobenefitedfromthisdecision.Itmight,therefore,bethoughtthattherewasaconflictbetween
theinterestsofthedirectorsandthecompany,andthatthedirectorsshouldrightlybestrippedoftheirprofits.
ThestrictnatureoftheEnglishapproachisperhapsbestnowexemplifiedbythedecisionoftheHouseofLordsin
thefollowingcase.
BoardmanvPhipps[1967]2AC46(HL,ViscountDilhorne,LordCohen,LordHodson,Lord
Guest,andLordUpjohn)134
MrPhippslefthisresiduaryestate,whichincluded27percentofthesharesinLesterandHarrisLtd,ontrust
forhiswidowforlifeandafterherdeathforhisfourchildren.Thetrusteesin1955werehiswidow(thelife
tenant),MrsNoble(hisdaughter),andMrFox(aprofessionaltrusteeandanaccountant).
In1956,TomPhipps,asonofthetestatorandoneofthebeneficiaries,andMrBoardman,thesolicitortothe
trust,weredissatisfiedwiththewayinwhichthebusinessofLesterandHarrisLtdwasconducted.They
unsuccessfullysoughttoeffectchangeatthecompanysannualgeneralmeeting,andthenencouragedthe
trusttoinvestinthecompanyinordertoimproveitsperformance.MrsNobleandMrFoxinsistedthatthetrust
wasinnopositiontobuytheremainingsharesinthecompany,andwouldnotconsiderdoingsounderany
circumstances.Thetrusteeswerenotauthorizedtopurchasethesharesandwouldhavehadtoapplytothe
courtforpermissiontodosotheactivetrusteesrefusedtodothis.Thethirdtrustee,thetestatorswidow,was
senileandnotconsulted.Whilstactingonbehalfofthetrustindealingwiththecompany,MrBoardman
obtainedvaluableinformation,whichhethoughthecouldexploittomakethebusinessmoreprofitable.Hewrote
tothe(p.672) testatorsfourchildrentoaskfortheirconsenttohisnegotiatingforhisownpersonalinterest,
andassumedthatsilencemeantthatconsenthadtacitlybeengiven.Ultimately,MrBoardmanandTomPhipps
purchasedallthesharesinLesterandHarrisLtdotherthanthoseownedbythetrust.Theyreorganizedthe
business,andgreatlyimprovedthefortunesofthecompany.ThisclearlybenefitedBoardman,Phipps,and
indeedthetrust,whichmaintainedalargeshareholdinginthecompany.
Onthissummaryitwouldappearasifeverybodywasawinner:thefortunesofthecompanyimproved,the
trustsshareholdingimproved,andBoardmanandPhippsalsomadeaprofit.Nevertheless,JohnPhipps,oneof
thetestatorssonsandoneofthebeneficiariesunderthetrust,suedBoardmanforbreachoffiduciaryduty,as
wellasTomPhipps.
Theresultofthecaseisclear:bya3:2majority,theHouseofLordsinsistedthatthedefendantshadbreached
theirfiduciarydutiesandhadtoaccountfortheirprofits.However,Boardmanwasgrantedaliberalallowancefor
theworkhehaddonetoturnaroundthefortunesofthecompany.Thisequitableallowancewillbeanalysed
further.135 ButofgreaterinterestatpresentiswhyBoardmanandPhippswereliabletoaccountfortheirprofits
atall.
Thereasoningofthemajorityisdifficulttopindown.Indeed,therearemanydifficultaspectsofthecase.The
moreimportantfactorswillbeconsideredinturn.
(i)Whatfiduciaryobligationswereatissue?
Ashasalreadybeenshown,itisinsufficientsimplytoassertthatbecauseBoardmanwasasolicitorhewasa
fiduciary.Itiscrucialtodeterminetowhomheowedsuchduties:tothetrustees,ortothebeneficiaries?Asa
solicitoradvisingthetrust,itmightbeexpectedthatheowedfiduciaryobligationstothetrusteesasprincipals.This
wastheviewofthedissentingjudges,ViscountDilhorne136 andLordUpjohnthelatterexpressedhisuneasewith
theideaofasolicitorpermanently,orconstantly,owingfiduciaryduties:137
Asolicitorwhoactsforaclientfromtimetotimeisnodoubtrightlydescribedthroughoutasbeingina
fiduciarycapacitytohimbutthatmeansfundamentallynomorethanthis,thatifhehasdealingswithhis
client,e.g.acceptsapresentfromhimorbuyspropertyfromhim,thereisapresumptionofundueinfluence
andtheonusisonthesolicitortojustifythepresentorpurchaseThatprinciplehasnorelevancetothe
presentcase.ThereisnosuchthingasanofficeofbeingsolicitortoatrustItisperfectlyclearthata
solicitorcanifhesodesiresactagainsthisclientsinanymatterinwhichhehasnotbeenretainedbythem
provided,ofcourse,thatinactingforthemgenerallyhehasnotlearntinformationorplacedhimselfina
positionwhichwouldmakeitimproperforhimtoactagainstthem.Thisisanobviousapplicationoftherule
thathemustnotplacehimselfinapositionwherehisdutyandhisinterestconflict.Soingeneralasolicitor
candealinsharesinacompanyinwhichtheclientisashareholder,subjectalwaystothegeneralrulethat
thesolicitormustneverplacehimselfinapositionwherehisinterestandhisdutyconflict.
LordUpjohnscommentsareareminderthatthescopeoffiduciaryobligationsmustalwaysbeestablished.Buthis
conclusionthatBoardmanowedfiduciaryobligationschimeswellwithLordGuestinthemajority,whosaid:138
ItaketheviewthatfromfirsttolastBoardmanwasactinginafiduciarycapacitytothetrustees.
(p.673) Thisapproachisodd:ifBoardmanowedfiduciaryobligationstothetrustees,whywasJohnPhippsa
beneficiaryunderthetrustabletosueBoardmanforbreachoffiduciaryduty?Surelytheclaimshouldhavebeen
broughtbythetrusteesasprincipals?ThisimportantquestionisnotwelladdressedintheirLordshipsspeeches.
Forexample,LordUpjohncommentedthat:139
Whether[Boardman]waseverinafiduciarycapacitytotherespondentwasnotdebatedbeforeyour
LordshipsandIdonotthinkitmatters.
Butclearlyitdoesmatter.Itisimperativetodeterminetowhomfiduciaryobligationsareowedandthuswhether
JohnPhippsasabeneficiaryunderthetrusthadavalidclaimonthefacts.Thereissomesuggestionthatfiduciary
obligationswereproperlyowedtoJohnPhipps.Forexample,LordHodsonsaidthat:140
therewasapotentialconflictbetweenBoardmanspositionassolicitortothetrusteesandhisowninterestin
applyingfortheshares.Hewasinafiduciarypositionvisavisthetrusteesandthroughthemvisavisthe
beneficiaries.
However,itisnotclearwhyowingfiduciaryobligationstothetrusteesextendstothebeneficiariesofthetrust.
Perhapsthisisbecausetheobligationsowedtothetrusteesareheldforthebenefitofthebeneficiaries.Inany
event,LordCohenalsoappearedtoapproachthequestiononsimilarlines,sinceheinsistedthat:
theappellantscouldnotpurchasethesharesontheirownbehalfwithouttheinformedconsentofthe
beneficiaries:itisnowadmittedthattheydidnotobtainthatconsent.Theyaretherefore,inmyopinion,
accountabletotherespondentforhisshareofthenetprofitstheyderivedfromthetransaction.141
IfBoardmanhadneededtoobtaintheinformedconsentofthebeneficiariesofthetrust,thiswouldsuggestthat
fiduciaryobligationswereowedtothem.Butwhy?Althoughnotarticulatedinthecaseitself,itmightbethatby
participatinginthenegotiationswiththecompany,andactingasanagentofthetrust,Boardmansomehowowed
fiduciaryobligationsnotonlytothetrustees,butalsotothebeneficiariesofthetrust.Inanyevent,thispointdoes
notseemtohavebeenarguedorcausedmuchconcern.
Anotherdifficultissue,whichwasnotfullyargued,waswhetherTomPhippsowedthesamefiduciaryobligationsas
Boardman.ThiswasbecauseTomPhippsacceptedthathedid,andrefusedtheCourtofAppealsoffertosever
himselffromBoardman.142 However,LordCohendidsay:143
TomPhippswasonlyabeneficiaryandwasnotassuchdebarredfrombiddingfortheshares,butnoattempt
wasmadeinthecourtsbelowtodifferentiatebetweenthem.Hadsuchanattemptbeenmadeitwouldvery
likelyhavefailedasTomPhippsleftthenegotiationslargelytoMr.Boardmananditmightwellbeheldthatif
Mr.BoardmanwasdisqualifiedfrombiddingTomPhippscouldnotbeinabetterposition.
(p.674) Thismightbebecauseundertakingthenegotiationsasanagentofthetrustgivesrisetoafiduciary
relationshiptothetrustandthebeneficiariesontheparticularfactsatissue.ThepreferableviewisthatTomPhipps
wasanintermeddlerwhoassumedtheauthorityofanagentthathedidnothave,suchthathewasanagentdeson
tort144 and,therefore,accountableasafiduciarytothoseforwhomhepurportedtoact.145 Inanyevent,thejudges
werehappytoassociateTomPhippswithBoardmantosimplifyourdiscussionwewillfocusonBoardmans
liability,althoughonthefactsofthecasethisalsomeantthatTomPhippswasliable.
(ii)Informationasproperty
ItwouldobviouslybeappropriateforBoardmantohavetoaccountforhisgainsifhehadexploitedtrustproperty:the
profitsmadefromtrustpropertyclearlybelongtothetrust.Butwhatpropertyofthetrusthadheusedinorderto
makehisprofits?ThereissomesuggestioninthejudgmentsthattheinformationBoardmanobtainedwhilst
negotiatingwiththecompanyonbehalfofthetrustshouldbeconsideredtobetrustproperty.Thisviewwasput
forwardbybothLordHodsonandLordGuest,inthemajority:
LordHodson:
Astothisitissaidonbehalfoftheappellantsthatinformationassuchisnotnecessarilypropertyanditis
onlytrustpropertywhichisrelevant.Iagree,butitisnothingtothepointtosaythatinthesetimescorporate
trustees,e.g.,thePublicTrusteeandothers,necessarilyacquireamassofinformationintheircapacityof
trusteesforaparticulartrustandcannotbeheldliabletoaccountifknowledgesoacquiredenablesthemto
operatetotheirownadvantage,ortothatofothertrusts.EachcasemustdependonitsownfactsandI
dissentfromtheviewthatinformationisofitsnaturesomethingwhichisnotproperlytobedescribedas
property.Weareawarethatwhatiscalledknowhowinthecommercialsenseispropertywhichmaybevery
valuableasanasset.IagreewiththelearnedjudgeandwiththeCourtofAppealthattheconfidential
informationacquiredinthiscasewhichwascapableofbeingandwasturnedtoaccountcanbeproperly
regardedasthepropertyofthetrust.ItwasobtainedbyMr.Boardmanbyreasonoftheopportunitywhichhe
wasgivenassolicitoractingforthetrusteesinthenegotiationswiththechairmanofthecompany,asthe
correspondencedemonstrates.Theendresultwasthatoutofthespecialpositioninwhichtheywere
standinginthecourseofthenegotiationstheappellantsgottheopportunitytomakeaprofitandthe
knowledgethatitwastheretobemade.146
LordGuest:
IfBoardmanwasactingonbehalfofthetrust,thenalltheinformationheobtainedbecametrustproperty.
TheweaponwhichheusedtoobtainthisinformationwasthetrustholdingandIseenoreasonwhy
informationandknowledgecannotbetrustproperty.147
However,thethirdmemberofthemajority,LordCohen,wasmorecautiousaboutsuchreasoning:148
theappellantsobtainedboththeinformationwhichsatisfiedthemthatthepurchaseoftheshareswouldbea
goodinvestmentandtheopportunityofacquiringthemasaresultofactingforcertainpurposesonbehalfof
thetrustees.Informationis,ofcourse,notpropertyinthestrictsenseofthatword(p.675) and,asIhave
alreadystated,itdoesnotnecessarilyfollowthatbecauseanagentacquiredinformationandopportunity
whileactinginafiduciarycapacityheisaccountabletohisprincipalsforanyprofitthatcomeshiswayasthe
resultoftheusehemakesofthatinformationandopportunity.Hisliabilitytoaccountmustdependonthe
factsofthecase.InthepresentcasemuchoftheinformationcametheappellantswaywhenMr.Boardman
wasactingonbehalfofthetrusteesontheinstructionsofMr.Foxandtheopportunityofbiddingforthe
sharescamebecausehepurportedforallpurposesexceptformakingthebidtobeactingonbehalfofthe
ownersofthe8,000sharesinthecompany.Inthesecircumstancesitseemstomethattheprincipleofthe
Regalcaseappliesandthatthecourtsbelowcametotherightconclusion.
LordCohensapproachreliesuponBoardmansprofitingfromhispositionasafiduciary,andheconsideredthisto
beconsistentwithRegal.ThisaspectofthedecisionwillbediscussedinSection(ii)below,butitissuggestedthat
hewascorrectinrejectingthepropositionthattheinformationgainedwasthepropertyofthetrust.Thiswas
certainlytheviewofthetwominorityjudgesaswell.ThereasonforthiswaswellexpressedbyLordUpjohn:149
Ingeneral,informationisnotpropertyatall.Itisnormallyopentoallwhohaveeyestoreadandearstohear.
Thetruetestistodetermineinwhatcircumstancestheinformationhasbeenacquired.Ifithasbeenacquired
insuchcircumstancesthatitwouldbeabreachofconfidencetodiscloseittoanotherthencourtsofequity
willrestraintherecipientfromcommunicatingittoanother.Insuchcasessuchconfidentialinformationis
oftenandformanyyearshasbeendescribedasthepropertyofthedonor,thebooksofauthorityarefullof
suchreferencesknowledgeofsecretprocesses,knowhow,confidentialinformationastotheprospectsofa
companyorofsomeonesintentionortheexpectedresultsofsomehorseracebasedonstableorother
confidentialinformation.Butintheendtherealtruthisthatitisnotpropertyinanynormalsensebutequity
willrestrainitstransmissiontoanotherifinbreachofsomeconfidentialrelationship.
Thereis,inmyview,andIknowofnoauthoritytothecontrary,nogeneralrulethatinformationlearntbya
trusteeduringthecourseofhisdutiesispropertyofthetrustandcannotbeusedbyhim.Ifthatweretobe
theruleitwouldputthePublicTrusteeandothercorporatetrusteesoutofbusinessandmakeitdifficultfor
privatetrusteestobetrusteesofmorethanonetrust.Thiswouldbethegreatestpossiblepityforcorporate
trusteesandothersmayhavemuchinformationwhichtheymayinitiallyacquireinconnectionwithsome
particulartrustbutwithoutprejudicetothattrustcanmakeitreadilyavailabletoothertruststothegreat
advantageofthoseothertrusts.
Therealruleis,inmyview,thatknowledgelearntbyatrusteeinthecourseofhisdutiesassuchisnotinthe
leastpropertyofthetrustandingeneralmaybeusedbyhimforhisownbenefitorforthebenefitofother
trustsunlessitisconfidentialinformationwhichisgiventohim(1)incircumstanceswhich,regardlessofhis
positionasatrustee,wouldmakeitabreachofconfidenceforhimtocommunicatetoanyoneforithasbeen
giventohimexpresslyorimpliedlyasconfidential,or(2)inafiduciarycapacity,anditsusewouldplacehim
inapositionwherehisdutyandhisinterestmightpossiblyconflict.
AsimilarapproachwastakenbyViscountDilhorne.150 ThusLordCohen,inthemajority,andthetwodissenting
judgesdidnotagreethattheinformationconstitutedtrustproperty.GiventhatonlytwojudgesintheHouseofLords
consideredinformationtobetrustproperty,thisshouldberejected(p.676) asthebasisofthedecision.Information
isbestprotectedbytheequitabledoctrineofbreachofarelationshipofconfidence.Itisconsequentlyunnecessary
toconsiderinformationtobeproprietary.Nevertheless,somereferencestoinformationaspropertycanstillbe
found.151 Theseshouldnotbefollowed.
(iii)Profitfromposition
Themajoritydecisionisbetterexplainedonthebasisofastrictapplicationoftheprinciplethatafiduciaryshouldnot
profitfromhisorherpositionasafiduciary.Indeed,allmembersofthemajorityreliedonthepreviousdecisionofthe
HouseofLordsinRegal.Infact,RegalwasonlyreportedintheofficialreportsafterBoardmanvPhipps,becauseit
wassoheavilyrelieduponinthelatercase!
LordCohensrelianceonRegalhasalreadybeenshown.Onthisissue,hewasjoinedbybothLordHodsonand
LordGuest.
LordHodson:
AsKeechvSandfordshows,theinabilityofthetrusttopurchasemakesnodifferencetotheliabilityofthe
appellants,ifliabilityotherwiseexists.Thedistinctiononthefactsastointentiontopurchasesharesbetween
thiscaseandRegal(Hastings)LtdvGulliverisnotrelevant.Thecompany(Regal)hadnotthemoneyto
applyforthesharesuponwhichtheprofitwasmade.Thedirectorstooktheopportunitywhichtheyhad
presentedtothemtobuytheshareswiththeirownmoneyandwereheldaccountable.Mr.Foxsrefusalas
oneofthetrustees[inPhipps]totakeanypartinthematteronbehalfofthetrust,sofarashewas
concerned,canmakenodifference.Nothingshortoffullyinformedconsentwhichthelearnedjudgefoundnot
tohavebeenobtainedcouldenabletheappellantsinthepositionwhichtheyoccupiedhavingtakenthe
opportunityprovidedbythatpositiontomakeaprofitforthemselves.152
LordGuest:
BoardmanandTomPhippsplacedthemselvesinaspecialpositionwhichwasofafiduciarycharacterin
relationtothenegotiationswiththedirectorsofLester&Harrisrelatingtothetrustshares.Outofsuch
specialpositionandinthecourseofsuchnegotiationstheyobtainedtheopportunitytomakeaprofitoutof
thesharesandknowledgethattheprofitwastheretobemade.Aprofitwasmadeandtheyareaccountable
accordingly.153
Thisisastrictversionofthenoprofitprinciplesinceitappearsallencompassing:anyprofitsderivedfromthe
positionofbeingafiduciarymustbeaccountedfor.Thisappearedharshtotheminority,whothoughtthattheno
profitrulewassimplypartofthewidernoconflictprinciple,andthattherewasnorealconflictofinteresthere,given
thatthetrustwasnevergoingtoinvestinthecompany.Thisisacrucialandcontroversialissue,anddeservesfull
consideration.
(iv)Noconflict
Theminoritysviewthatnoconflictexistedcanbefoundinthefollowingextracts:
ViscountDilhorne:
Onthefactsofthiscasetherewasnot,inmyopinion,anyconflictorpossibilityofaconflictbetweenthe
personalinterestsoftheappellantsandthoseofthetrust.Therewasnopossibilitysolongas(p.677) Mr.
Foxwasopposedtothetrustbuyinganyofthesharesofanyconflictofinterestarisingthroughthepurchase
ofthesharesbytheappellants.154
LordUpjohn:
ItisperhapsstatedmosthighlyagainsttrusteesordirectorsinthecelebratedspeechofLordCranworthL.C.
inAberdeenRailwayv.Blaik ie,wherehesaid:
Anditisaruleofuniversalapplication,thatnoone,havingsuchdutiestodischarge,shallbeallowed
toenterintoengagementsinwhichhehas,orcanhave,apersonalinterestconflicting,orwhich
possiblymayconflict,withtheinterestsofthosewhomheisboundtoprotect.
Thephrasepossiblymayconflictrequiresconsideration.Inmyviewitmeansthatthereasonableman
lookingattherelevantfactsandcircumstancesoftheparticularcasewouldthinkthattherewasareal
sensiblepossibilityofconflictnotthatyoucouldimaginesomesituationarisingwhichmight,insome
conceivablepossibilityineventsnotcontemplatedasrealsensiblepossibilitiesbyanyreasonableperson,
resultinaconflict.
MyLords,Ibelievetheonlyconflictbetweenthedutyandinterestoftheappellantsthatcanbesuggestedis
thathavinglearntsomuchaboutthecompanyandrealisedthatinthehandsofexpertslikeTomtheshares
wereagoodbuyatmorethan3asharetheyshouldhavecommunicatedthisfacttothetrusteesand
suggestedthattheyoughttoconsiderapurchaseandanapplicationtothecourtforthatpurpose.
This,sofarasIcanascertain,wassuggestedforthefirsttimeinthejudgmentofLordDenningM.R[inthe
CourtofAppeal].
Hadthisbeenanissueintheactionthismighthavebeenaverydifficultmatter,butitneverwas.Thereisno
signofanysuchcasemadeinthepleadingsbutwhatismuchmoreimportantisthatfromstarttofinishin
allthreecourtstherewasnosuggestionofthisinargumentonbehalfoftherespondentandwhatismost
importantofall,thereisnosuggestionincrossexaminationofeitherofthetrusteesoroftheappellantsthat
thelatterwereunderanysuchobligation.155
ThislastpointofLordUpjohnwasofpotentialimportancebutsimplynotargued.OnceBoardmanandTomPhipps
knewthattheywouldbebuyingthesharesataveryadvantageous,lowprice,perhapstheyoughttohaveinformed
thetrustofthisandallowedthetrusttheoptionofmakingthemostofthisopportunity.However,itisnotclearhow
realisticitistoexpectpartiestodothisduringthecourseofconfidentialandprotractednegotiations.156
ThetestidentifiedbyLordUpjohnhasbeencitedwithapprovalmanytimessince.157 Itiscrucialtoidentifywhether
thereasonablemanlookingattherelevantfactsandcircumstancesoftheparticularcasewouldthinkthattherewas
arealsensiblepossibilityofconflict.However,LordUpjohnsapproachmightbecontrastedwiththeopinionofLord
Cohen:158
Mr.BoardmanandTomPhippswerenotgeneralagentsofthetrusteesbuttheyweretheiragentsforcertain
limitedpurposes.Theinformationtheyhadobtainedandtheopportunitytopurchasethe21,986shares
affordedthembytheirrelationswiththedirectorsofthecompanyanopportunitythey(p.678) gotasthe
resultoftheirintroductiontothedirectorsbyMr.Foxwerenotpropertyinthestrictsensebutthat
informationandthatopportunitytheyowedtotheirrepresentingthemselvesasagentsfortheholdersofthe
8,000sharesheldbythetrustees.Inthesecircumstancestheycouldnot,Ithink,usethatinformationand
thatopportunitytopurchasethesharesforthemselvesiftherewasanypossibilitythatthetrusteesmight
wishtoacquirethemforthetrust.Mr.Boardmanwasthesolicitorwhomthetrusteeswereinthehabitof
consultingiftheywantedlegaladvice.Grantedthathewouldnotbeboundtoadviseonanypointunlessheis
consulted,hewouldstillbethepersontheywouldconsultiftheywantedadvice.Hewouldclearlyhave
advisedthemthattheyhadnopowertoinvestinsharesofthecompanywithoutthesanctionofthecourt.In
thefirstphasehewouldalsohavehadtoadviseontheevidencethenavailablethatthecourtwouldbe
unlikelytogivesuchsanction:buttheappellantslearntmuchmoreduringthe[negotiations]Itmaywellbe
thattheanswerofthecourtwouldhavebeenthesamebut,inmyopinion,Mr.Boardmanwouldnothave
beenabletogiveunprejudicedadviceifhehadbeenconsultedbythetrusteesandwasatthesametime
negotiatingforthepurchaseofthesharesonbehalfofhimselfandTomPhipps.Inotherwords,therewas,in
myopinion,atthecrucialdate,apossibilityofaconflictbetweenhisinterestandhisduty.
Mr.Boardmansfiduciarypositionarosefromthefactthathewasatallmaterialtimessolicitortothetrustees
ofthewillofMr.Phippssenior.Thisisadmitted,althoughcounselfortheappellantshasargued,andargued
correctly,thatthereisnosuchpostassolicitortotrustees.Thetrusteeseitheremployasolicitorortheydo
notinaparticularcaseandthereisnosuggestionthattheywereunderanycontractualorotherdutyto
employMr.Boardmanorhisfirm.Neverthelessasahistoricalfacttheydidemployhimandlooktohimfor
adviceatallmaterialtimesandthisisadmitted.Itwasassolicitortothetrusteesthatheobtainedthe
information.
NodoubtitwasbutaremotepossibilitythatMr.Boardmanwouldeverbeaskedbythetrusteestoadviseon
thedesirabilityofanapplicationtothecourtinorderthatthetrusteesmightavailthemselvesofthe
informationobtained.Nevertheless,evenifthepossibilityofconflictispresentbetweenpersonalinterestand
thefiduciarypositiontheruleofequitymustbeapplied.
therewasapotentialconflictbetweenBoardmanspositionassolicitortothetrusteesandhisowninterest
inapplyingfortheshares.Hewasinafiduciarypositionvisavisthetrusteesandthroughthemvisavisthe
beneficiaries.
LordCohenwasoftheviewthatevenaremotepossibilityofconflictwassufficienttoengagethenoconflictprinciple.
Itisnotclearwhetherthisalsoconstitutesarealsensiblepossibility:itmightbesuggestedthatevenaremote
possibilitycanberealandsensible.GiventhefrequencywithwhichLordUpjohnstestiscitedandapplied,itmight
bebesttoconcludethatLordUpjohnwasnotdissentingonthenatureofthelegaltesttobeemployed,butonlyon
theapplicationofthetesttothefactsofthecase.159 Whereasthemajoritythoughtthattherewasaconflict,the
minoritydidnot.
ThedecisioninPhippsisveryhardonBoardman,whomightreasonablyhavethoughtnoconflictexisted.Astrict
rulemightbejustifiedonthebasisthatitisalwayspossibleforthefiduciaryinsuchasituationtoobtainthefully
informedconsentofhisprincipal.AsLordGuestinsisted:160
(p.679) Theonlydefenceavailabletoapersoninsuchafiduciarypositionisthathemadetheprofitswith
theknowledgeandassentofthetrustees.Itisnotcontendedthatthetrusteeshadsuchknowledgeorgave
suchconsent.
However,oneofthetrusteeswassenile,andinthemidstofimportantnegotiations,obtainingtheconsentofallthe
trusteesmayhavebeendifficultandtimeconsuming.Theconsentofalltheactivetrusteesmayhaveseemed
sufficient.Yet,asdiscussedaboveitmightbethatBoardmanshouldalsohaveobtainedtheconsentofthe
beneficiaries,notonlythatofthetrustees.161
TheactualimpactofthedecisiononBoardmanwasmitigatedbyallowinghimtokeepanequitableallowanceforhis
skillandwork,whichwasassessedonaliberalscale.162 Thisaspectofthedecisionwillbeexaminedfurther,163
butsuchanallowancewouldbeunnecessaryiftherulesofEquitywererelaxedalittletoallowafiduciarytoactand
retainanyprofitsmadewherehisprincipalclearlywillnotexploittheopportunityandhassufferednoloss.InPhipps,
thesolicitorhadriskedlosinghisownmoneybyattemptingtorevivethefortunesofthecompany,soitmightseem
fairforhimtokeepthoseprofitsifheprovedtobesuccessfulandtherebyalsoincreasedthewealthofthetrustfund.
ItisimportanttoconsiderwhetherEnglishlawistoostrictinthisarea.
(e)AMoreRelaxedApproach?
AssoonasPhippswasdecided,itwasthesubjectofacademiccriticism.Forexample,ProfessorJoneswrote:
Tosaythatthefiduciariesprofitwasmadesolelythroughtheuseofproperty(theinformation)receivedqua
fiduciaries,whenthetrustcouldnothaveutiliseditandwhenthenegotiationswouldhavefailedbutfor
BoardmansbusinessacumenandBoardmanandPhippsfinancialintervention,offendslegalaswellas
commonsense.
ThemaingroundofthedecisionwasthattherewasaconflictbetweenBoardmanandPhippsselfinterest
andtheirfiduciarydutytheyhadmadeaprofitoutoftheirspecialpositionoftrust.Itisdifficulttoaccept,
however,thatanyreasonablepersoncouldconcludeonthesefactsthattherewasanyreal(asdistinctfroma
hypothetical)conflictofinterest.Inourviewthereasoningofthedissentinglawlordsisconvincing.Lord
Upjohnsrealistic,commonsenseapproachisthatofJusticeClarkintheBeck ercase.164 Bothjudges
refusedtoapplyblindlyaruleofequity.InneitherBeck erscasenorPhippsvBoardmanhadtheprofitbeen
madeattheexpenseofthefiduciarysprincipal.Inbothcasesthefiduciarysactionshadbenefitedthe
principal:thepurchaseofthedebenturesintheBeckercaseencouragedpublicconfidenceinacompany
whichwasinaparlousfinancialpositioninPhippsvBoardmanthelongnegotiationsconductedwith
considerableskillbyBoardman,andthepurchaseoftheoutstandingsharesbyBoardmanandTomPhipps,
hadresultedingreatfinancialbenefittothetrust.165
ItisinterestingtonoteProfessorJonesreferencetotheAmericancaseofBeck er.Therehavebeenstrongcallsfor
reformofthestrictapplicationofthenoprofitruleincasessuchasPhippsbysome(p.680) Americanscholars,
partlyinfluencedbyreasoningfromaneconomicperspective.Forexample,hadBoardmansoughtbutfailedtoobtain
theconsentofhisprincipals,thenhewouldnothavebeenabletoinvestinthecompany,sothecompanywould
probablyhavecontinuedtobeunprofitable,andasaresulttheshareholdingofthetrustfundwouldnothavemade
thegainsitdid.Itmightseemoddforthelawtodemandthis:thestultificationofeconomicallyadvantageous
conductwouldappeartobetheresult.ThissortofreasoninghaspromptedProfessorLangbeintoargue:166
Theunderlyingpurposeofthedutyofloyaltyistoadvancethebestinterestofthebeneficiaries.a
transactionprudentlyundertakentoadvancethebestinterestofthebeneficiariesbestservesthepurposeof
thedutyofloyalty,evenifthetrusteealsodoesormightderivesomebenefit.Atransactioninwhichtherehas
beenconflictoroverlapofinterestshouldbesustainedifthetrusteecanprovethatthetransactionwas
prudentlyundertakeninthebestinterestofthebeneficiaries.Insuchacase,inquiryintothemeritsisbetter
thannofurtherinquiry.
InBoardmanv.Phippsthesoleinterestrulewasappliedinamannerthatcreatedratherthanprevented
unjustenrichment,bytransferringtothebeneficiariesofthetrustagainthatthedefendantfiduciariesearned
ontheirownpropertyinthecourseofmaximizingtheinterestsofthetrust.
TheHouseofLordssmessagetotrusteesis:Thoushaltnotcreatevalueforthytrustbeneficiaryin
circumstancesinwhichtheremaybeactualorpotentialbenefittothyself.Insuchcases,thedeterrenteffect
ofthesoleinterestrulecontravenesthepurposeoftherule,whichistobenefitthebeneficiary.
Itwouldcertainlybepossibletoadoptamorerelaxedapproachtobreachoffiduciaryduty,andallowafiduciaryto
justifyhisactionswhereheactedprudentlyandintheprincipalsbestinterests.Suchconductcouldstillbe
consideredtobeloyal.Infact,someotherjurisdictionsdonotseemtotakeasstrictanapproachastheEnglish
courts.Forexample,inPesoSilverMinesLtdvCropper,167 theSupremeCourtofCanadaheldthatanaccountof
profitswouldnotbeawardedwherethefiduciaryexploitedanopportunitythathadpreviouslybeendeclinedbythe
principal.168 CartwrightJconsideredRegalbutultimatelyconcludedthatthefiduciarycouldkeeptheprofitsmade,
observingthat:
Thereareaffirmativefindingsoffactthat[thefiduciary]andhiscodirectorsactedingoodfaith,solelyinthe
interestsoftheappellantandwithsoundbusinessreasonsinrejectingtheoffer.Thereisnosuggestioninthe
evidencethattheoffertotheappellantwasaccompaniedbyanyconfidentialinformationunavailabletoany
prospectivepurchaserorthattherespondentasdirectorhadaccesstoanysuchinformationbyreasonofhis
office.
Inthatcasethefactthattheboardrejectedtheopportunitymeantthatthefiduciarywasfreetoexploitit.Itis
importanttonotethatthefiduciarydisclosedallrelevantinformation,sotheprincipalsconsentcouldbeconsidered
tobefullyinformed.However,giventhatthefiduciarywasalsoontheboardofthecompany,thismightcause
uneaseamongstsome.169 ButtheCourtconsideredthatanunequivocalrejectionoftheopportunitybytheprincipal
meantthatthefiduciarywasnot(p.681) subsequentlyunderadutytoseekpermissiontoexploittheopportunityat
alaterdate.Itcouldreasonablybeassumedthatsuchpermissionwouldbegranted.
ThePrivyCouncildecisionintheAustraliancaseofQueenslandMinesvHudson170 isinasimilarvein.The
managingdirectorofacompany(MrHudson)obtainedlicencestodevelopamine.Hedidthisforthebenefitofthe
company(QueenslandMines),butthecompanywasunabletocarryoutfurtherworkontheprojectduetofinancial
difficulties.Withthefullconsentoftheboardofthecompany,themanagingdirectorresignedandexploitedthemine
himself.ThePrivyCouncilheldthathewasabletokeeptheprofitsgained.LordScarmaninsistedthattherewas:171
noreal,sensiblepossibilityofaconflictofinterestbetweenMrHudsonandQueenslandMines,andthat
QueenslandMineswerefullyinformedofthefactsandassentedtoMrHudsonsexploitationofthemining
explorationlicenceinhisownname,forhisowngain,andathisownriskandexpense.
theopportunitytoearntheseroyaltiesaroseinitiallyfromtheusemadebyMrHudsonofhispositionas
managingdirectorHemust,therefore,accounttothatcompanyunlesshecanshowthat,fullyinformedas
tothecircumstances,QueenslandMinesrenounceditsinterestandassentedtoMrHudsongoingitalone,
ieathisownandexpenseandforhisownbenefit.
Theboardofthecompanyknewthefacts,decidedtorenouncethecompanysinterestandassentedtoMr
Hudsondoingwhathecouldwiththelicencesathisownriskandforhisownbenefit.
RepeatedreferencestoMrHudsonspersonallytakingontheriskclearlyemphasizewherethePrivyCouncilthought
themeritslay.MrHudsonwasnotspeculatingwiththepropertyofhisprincipal,butwithhisownmoney.Insuch
ventures,itwouldhavebeenverypossibletoloseeverything.Indeed,theprincipalcompanycouldnotgetfinancing
forthisventure,partlybecauseoftherisksinvolved.Hudsonmightshowareluctancetosanctionafiduciarywho
takesonsuchrisksingoodfaithwhentheprincipalwillnotavailitselfoftheopportunity.
However,decisionssuchasPesoandHudsonarecontroversial:canaboardofdirectorsreallyauthorizeand
consenttoafellowdirectorsexploitinganopportunity?172 Eveniftheotherdirectorsgenuinelyhavenointerestina
particularcase,itmightbeadvantageousforthemtoensurethatconsenttothattypeofventureisreadilygiven,in
ordertofacilitateanyfutureopportunitythattheymightmakethemostof.AsSullivanhasconcluded:173
QueenslandMinesvHudsonsuggeststhatmanybreachescannowbeforestalledorcondonedbythe
simpleexpedientofobtainingtheconsentofboardroomcolleagueswhoareoftenlittlemorethanciphers.
Thisisanunwelcomeprospect.
However,Englishlawhasnowclearlydecidedthatdirectorsareabletoauthorizesuchconductbysection175of
theCompaniesAct2006.174
(p.682) SuggestionsthatEnglishlawshouldperhapsstepbackfromthegenerallyapplicablestrictapproach
showninBoardmanvPhippshavebeenmadejudicially.Forexample,inMuradvAlSaraj175 thedefendant
breachedhisfiduciarydutiesbyfailingtodisclosetohispartnersinajointventurehowhewasfinancinghis
contributiontothepurchaseofapropertyandthecommissionhewastoreceive.ArdenLJwentoutofherwayto
suggestthatamoreliberalapproachwaspossible,citingasexamplesPesoSilverMinesandHudson.
MuradvAlSaraj[2005]EWCACiv959[2005]WTLR1573(ArdenLJ)
Now,inacaseliketheRegalcase,iftheruleofequityunderwhichthedefendantswereheldliableto
accountforsecretprofitswerenotinflexible,thecrucialissueoffactwouldbe:whatthecompanywould
havedoneiftheopportunitytosubscribeforsharesinitssubsidiaryhadbeenofferedtoit?Inthe
passagejustcited,176 asIhavesaid,LordWrightmakesthepointthatitisverydifficulttoinvestigate
thatissue.However,whilethatmayhavebeensointhepastinthedaysofLordEldonandLordKing,
thatwouldnotbethecasetoday.ThecourthasveryextensivepowersundertheCivilProcedureRules
forinstancetorequireinformationtobegivenastoapartyscase.Itmaybethatthetimehascome
whenthecourtshouldrevisittheoperationoftheinflexibleruleofequityinharshcircumstances,as
wherethetrusteehasactedinperfectgoodfaithandwithoutanydeceptionorconcealment,andinthe
beliefthathewasactinginthebestinterestsofthebeneficiary.Ineedonlysaythis:itwouldnotbein
theleastimpossibleforacourtinafuturecase,todetermineasaquestionoffactwhetherthe
beneficiarywouldnothavewantedtoexploittheprofithimself,orwouldhavewantedthetrusteetohave
actedotherthaninthewaythatthetrusteeinfactdidact.Moreover,itwouldnotbeimpossiblefora
moderncourttoconcludeasamatterofpolicythat,withoutlosingthedeterrenteffectoftherule,the
harshnessofitshouldbetemperedinsomecircumstances.Inaddition,insuchcases,thecourtscan
provideasignificantmeasureofprotectionforthebeneficiariesbyimposingonthedefaultingtrusteethe
affirmativeburdenofshowingthatthosecircumstancesprevailed.CertainlytheCanadiancourtshave
modifiedtheeffectofequitysinflexiblerule(seePesoSilverMinesLtdvCropper(1966)58DLR(2d)1
seealsothedecisionofthePrivyCouncilonappealfromAustraliainQueenslandMinesvHudson
(1978)52AJLR399),thoughIexpressnoviewastothecircumstancesinwhichthereshouldbeany
relaxationoftheruleinthisjurisdiction.Thatsortofquestionmustbelefttoanothercourt.
Inshort,itmaybeappropriateforahighercourtonedaytorevisittheruleonsecretprofitsandtomakeit
lessinflexibleinappropriatecircumstances,wheretheunqualifiedoperationoftheruleoperates
particularlyharshlyandwheretheresultisnotcompatiblewiththedesireofmoderncourtstoensurethat
remediesareproportionatetothejusticeofthecasewherethisdoesnotconflictwithsomeother
overridingpolicyobjectiveoftheruleinquestion.177
ThesecommentswerealsosupportedbyParkerLJ,whoobservedthat:178
therecanbelittledoubtthattheinflexibilityofthenoconflictrulemay,dependingonthefactsofanygiven
case,workharshlysofarasthefiduciaryisconcerned.Itmaybesaidwithforcethatthatistheinevitable
andintendedconsequenceofthedeterrentnatureoftherule.Ontheotherhand,itmaybe(p.683) saidthat
commercialconductwhichin1874wasthoughttoimperilthesafetyofmankindmaynotnecessarilybe
regardednowadayswiththesamedepthofconcern.
However,theCourtofAppealrecognizedthatthestrictapplicationoftheruleshouldnotberelaxedinMurad:the
fiduciaryhadactedinbadfaithbyfraudulentlymisrepresentinghispositiontohispartners.Heclearlydidnotmerit
lenienttreatment.GiventhattherewaslittlechanceoftheCourtshowingabenevolentapproachinMurad,itis,
perhaps,evenmoresignificantthattwomembersoftheCourtofAppealsawfittosuggestachangeofapproach,
eventhoughnochangewasactuallymade.
Nevertheless,theEnglishcourtshaveconsistentlytakenastrictapproachtobreachoffiduciaryobligations,
stretchingbacktoKeechvSandfordandCaffreyvDarby179 thelatter,asArdenLJnotedinMurad:180
makesitclearthatequityimposesstringentliabilityonafiduciaryasadeterrentpourencouragerles
autres.
Indeed,astrictapproachistheratioofbothMuradandtheslightlyearlierdecisionoftheCourtofAppealinBhullarv
181
Bhullar.181 Adirectorofacompanywasheldliabletothecompanyfortheprofitsthatheobtainedfromthe
acquisitionofapropertythatwassituatednexttothatofthecompany,eventhoughthedirectordiscoveredthe
propertyasapasserbyratherthanasdirector.Theopportunitydidnotcometohiminafiduciaryposition,yethe
wasstillliabletoaccountforhisprofits.Thiscasemightbestbeexplainedonthebasisthattherewasaconflictof
interest:thedirectorsinterestinpurchasingthepropertyforhimselfconflictedwiththecompanysinterestin
purchasingtheproperty.Thissuggeststhataconflictmightarisenotonlywhereanopportunityisproximitetothe
commercialinterestsofaprincipal,butalsowheretheproximityisgeographic.182
Ultimately,thereistensionbetweenallowingafiduciarytoactprudentlyinthebestinterestsofaprincipal,even
wherethiswouldplacethefiduciaryinbreach,andadoptingaconsistentlystrictapproachinorderalwaystoprotect
thedutiesafiduciaryowes.ThelatterisclearlyEnglishlawgiventhatthecourtsmightgrantanequitableallowance
topreventfulldisgorgementofprofits,andthatafiduciarycouldhaveobtainedthepriorfullyinformedconsentofhis
principal,thisapproachseemssettobemaintainedforsometimetocome.
Conaglen,StrictLiabilityandAccountofProfits(2005)CLJ278,2801183
Langbeinarguesthatthefiduciaryconflictprincipleimposestoohighacostasitprohibitstransactions
whicharebeneficialtothefiduciarysprincipalaswellasnonbeneficialtransactions.
Thisargumentisnotcompellingandshouldberejectedinfavourofthelongstandingorthodoxy.Fiduciary
doctrineisprophylactic,bothinnatureandinmethodology,becausehumannaturebeing(p.684) what
itis,thereisdangerofthepersonholdingthefiduciarypositionbeingswayedbyinterestratherthan
byduty:Brayv.Ford[1896]A.C.44atp.51Incostbenefitterms,therefore,thebenefitisthe
protectionagainsttemptationthatfiduciarydoctrineprovides.Thecourtsrefusetoconsiderwhetherthe
transactionhascausedanyloss,orwhethertheprincipalcouldhaveearnedtheprofitforitself,or
whethertheprincipalwouldhaveconsentedtotheprofitbeingmade,becausethepossibilitythat
courtsmightcountenancesuchargumentscandonothingtoreducethefiduciarystemptation.
Tounderstandthecostsideofthecostbenefitanalysis,itmustbeborneinmindthatfiduciarydoctrine
isnotpunitiveintheprotectionitaffords.Afiduciaryisliabletoaccountonlyforprofitsacquiredin
consequenceofthefiduciarysbreachofduty:WarmanInternationalLtd.v.Dwyer(1995)182C.L.R.544
atp.565Muradat[85],[112],[115][116].Thecourtcangrantthefiduciaryanallowancetoreflecthis
skillandeffortinobtainingtheprofitAndcrucially,intermsofacostbenefitanalysis,thefiduciary
canimmunisehimselfagainstanyliabilitytoaccountbyseekingauthorisationfortheprofitmaking,in
thetrustinstrumentorequivalent,fromacourt,orbyobtainingthefullyinformedconsentofhisprincipal.
Thecourtsriskunderminingtheinternallogicandtheprotectivefunctionoffiduciarydoctrineiftheyallow
afiduciarytoseektoavoidliabilitybyarguingthattheimpugnedtransactionwasnonethelessinthebest
interestsofthebeneficiaries.Inparticular,theveryfactthatafiduciaryperceivesatransactioninvolvinga
conflicttobejustified,buthasnonethelesschosennottoseekauthorisationeitherfromthecourtorfrom
hisprincipal,raisesseriousquestionsastothewisdomofsustainingitalltoooften[s]ecrecyisthe
badgeoffraud:Agip(Africa)Ltd.v.Jack son[1990]Ch.265atp.294Onlyinaminusculenumberof
caseswillobtainingoneorotherofthoseformsofauthorisationpresentanyformofdifficultyforan
honestfiduciary,inwhichcasesallthefiduciaryneeddoisabstain.Thecostinvolvedinabstentionin
thatsmallnumberofcasesisminutewhencomparedwiththebenefitoftheprophylacticprotectionthat
fiduciarydoctrinehassuccessfullyprovidedforhundredsofyears.
5.Remedies
Variousremediesmaybeavailablefollowingabreachoffiduciaryduty.Thetransactionitselfwillbevoidablewhere
thenoconflictornoprofitprinciplehasbeenbreached,andcan,therefore,berescindedbytheprincipal.However,
rescissionwillnotbeavailablewheretheprincipalhasaffirmedthetransaction,oritisimpossibletoputtheparties
backintotheiroriginalpositions.Aninjunctionmayalsobeavailabletorestrainfuturebreaches.184 Suchgeneral
equitableremedieswillbediscussedinChapter20.Inthischapter,wewillconcentrateuponsituationswhere
neitherofthoseremediesisavailableordesired.Instead,theprincipalwillseekeitheranaccountofprofits,ora
constructivetrust,orequitablecompensation.Theprincipalmightsueforalltheabove,butultimatelymayhaveto
choosethemostadvantageous.185
(a)PersonalLiabilityAccountofProfits
Makingafiduciarygiveupthevalueofthegainshehasmadefromthebreachistheprimafacieremedyforbreach
offiduciaryduty.Becausethefiduciarydoesnothavetoaccountforthespecificprofits,butonlytheirvalue,thisisa
personalremedy.Theprocessoftakinganaccountinvolvesdetermining(p.685) theprofitsmadeandthen
deductingexpensesproperlyincurredinordertoreachanetfigurefortheprofitsmade.InCMSDolphinLtdv
Simonet,LawrenceCollinsJputitasfollows:186
Thefiduciaryisliableforthewholeoftheprofit.Therearenofirmrulesfordeterminingwhichistherelevant
profitthefiduciaryshouldbeaccountablefortheprofitsproperlyattributabletothebreachoffiduciaryduty,
takingintoaccounttheexpensesconnectedwiththoseprofitsandareasonableallowanceforoverheads(but
notnecessarilysalaryforthewrongdoer),togetherwithasumtotakeaccountofotherbenefitsderivedfrom
thosecontracts.Forexample,othercontractsmightnothavebeenwon,orprofitsmadeonthem,without
(e.g.)theopportunityorcashflowbenefitwhichflowedfromcontractsunlawfullyobtained.Theremust,
however,besomereasonableconnectionbetweenthebreachofdutyandtheprofitsforwhichthefiduciaryis
accountable.
Itissensibletodemandareasonableconnectionbetweenthebreachandtheprofitsmade.However,abutfor
causallinkdoesnotseemtoberequired.ThiscanbeseenfromMurad,thefactsofwhichhavealreadybeen
outlined.187 Thewrongdoingfiduciarysoughttoreducetheamountofprofitsforwhichhehadtoaccountonthe
basisthathewouldhavemadesomeofthoseprofitsevenifhehadnotcommittedanybreach,sotherewasno
causallinkbetweenalltheprofitsandhisbreach:butforhisbreach,hewouldstillhavemadesomeofhisprofits.
Thiswasacceptedbyhisprincipals,whoagreedthatevenifAlSarajhadnotliedaboutthetransaction,theywould
stillhavecontinuedwiththejointventure,althoughtheywouldhavedemandedagreatershareoftheprofits.
Nevertheless,ArdenLJwasclearthatAlSarajhadtoaccountforallhisprofits:
Totest[counsels]argumentontheextentoftheliabilitytoaccount,inmyjudgmentitisnecessarytogo
backtofirstprinciple.Ithaslongbeenthelawthatequitableremediesforthewrongfulconductofafiduciary
differfromthoseavailableatcommonlaw.Equityrecognisesthattherearelegalwrongsforwhich
damagesarenottheappropriateremedy.Insomesituationstherefore,asinthiscase,acourtofequity
insteadawardsanaccountofprofits.Aswithanawardofinterest(astowhichseeWallersteinervMoir(No2)
[1975]QB373),188 thepurposeoftheaccountistostripadefaultingfiduciaryofhisprofit.
Furthermore,alosstothepersontowhomafiduciarydutyisowedisnottheothersideofthecoinfromthe
profitwhichthepersonhavingthefiduciarydutyhasmade:thatpersonmayhavetoaccountforaprofitevenif
thebeneficiaryhassufferednoloss.
Iwouldhighlighttwowellestablishedpointsaboutthereachoftheequitableremedies:
(1)theliabilityofafiduciarytoaccountdoesnotdependonwhetherthepersontowhomthefiduciary
dutywasowedcouldhimselfhavemadetheprofit.
(2)whenawardingequitablecompensation,thecourtdoesnotapplythecommonlawprinciplesof
causation.
Thefactthatthefiduciarycanshowthatthatpartywouldnothavemadealossis,ontheauthorityofthe
Regalcase,anirrelevantconsiderationsofarasanaccountofprofitsisconcerned.Likewise,itfollowsinmy
judgmentfromtheRegalcasethatitisnodefenceforafiduciarytosaythathewouldhavemadetheprofit
eveniftherehadbeennobreachoffiduciaryduty.
(p.686) Inmyjudgmentitisnotenoughforthewrongdoertoshowthat,ifhehadnotbeenfraudulent,he
couldhavegottheconsentofthepartytowhomheowedthefiduciarydutytoallowhimtoretaintheprofit.
Thepointisthattheprofitherewasinfactwhollyunauthorisedatthetimeitwasmadeandhassoremained.
Toobtainavalidconsent,therewouldhavetohavebeenfullandfrankdisclosurebyMr.AlSarajtothe
Muradsofallrelevantmatters.Itisonlyactualconsentwhichobviatestheliabilitytoaccount.
intheinterestsofefficiencyandtoprovideanincentivetofiduciariestoresistthetemptationtomisconduct
themselves,thelawimposesexactingstandardsonfiduciariesandanextensiveliabilitytoaccount.
Forpolicyreasons,thecourtsdeclinetoinvestigatehypotheticalsituationsastowhatwouldhavehappenedif
thefiduciaryhadperformedhisduty
Again,forthepolicyreasons,onthetakingofanaccount,thecourtlaystheburdenonthedefaultingfiduciary
toshowthattheprofitisnotoneforwhichheshouldaccount:see,forexample,ManleyvSartori[1927]Ch
157.Thisshiftingoftheonusofproofisconsistentwiththedeterrentnatureofthefiduciarysliability.The
liabilityofthefiduciarybecomesthedefaultrule.189
Thisdecisionistoughonthefiduciary.OnthefactsofMurad,thedefendantwasadeliberatewrongdoer,andmay
garnerlittlesympathy.Butnotallwrongdoingfiduciarieswillelicitsuchcondemnation.Althoughitisunderstandable
thattheclaimantshouldbeabletostripawrongdoingfiduciaryofprofitsmadeinbreachofduty,whyshouldthe
claimanthaveanyclaimoverprofitswhichthefiduciarywouldhavereceivedregardlessofhisorherbreachofduty?
Itmaybepreferabletorequireabutforcausallinkbetweenthebreachofdutyandgainmadeinordertoensure
thatthedeterminationoftheprofitsforwhichthedefendantshouldbeaccountableisbothstraightforwardandclear.
Suchabutfortestofcausationisemployedinthecontextofequitablecompensation,190 andhasbeenfavouredas
regardsgainbasedremediesinthecontextofdishonestassistance,191 andcouldbegenerallyappliedtothe
remedyofanaccountofprofits.192
(b)ProprietaryClaims
Aclaimantmightpreferaproprietaryclaimtoapersonalclaimwherethewrongdoingfiduciaryisinsolventorwhere
heorshewishestotracethroughtheprofitsintootherproperty.193 Ifthefiduciaryreceivesassetsfromhisorher
wrongdoing,which(arelikelyto)riseinvalue,thenaproprietaryclaimcouldalsobeadvantageous.194
Decidingwhenaproprietaryclaimarisesafterabreachoffiduciarydutyhaslongbeenavexedissue.Itisclearthat
iftheprofitsofthefiduciaryaremadewithpropertythatinitiallybelongedtothetrust,thentheprofitswillbeheldon
constructivetrust.Thefruitsoftheprincipalspropertymustalsobelongtotheprincipal.Similarly,inacasesuchas
Cook vDeek s,195 wherethefiduciaryexploitsanopportunitythatwouldhavebeenthatofhisprincipal,a
constructivetrustisappropriate:the(p.687) fiduciarystillprofitsfromproperty,whichcanproperlybeconsidered
rightfullytobelongtotheprincipal.
InSinclairvVersailles,LordNeubergerMRthoughtthat:196
previousdecisionsofthiscourtestablishthataclaimantcannotclaimproprietaryownershipofanasset
purchasedbythedefaultingfiduciarywithfundswhich,althoughtheycouldnothavebeenobtainedifhehad
notenjoyedhisfiduciarystatus,werenotbeneficiallyownedbytheclaimantorderivedfromopportunities
beneficiallyownedbytheclaimant.However,thosecasesalsoestablishthat,insuchacase,aclaimant
doeshaveapersonalclaiminequitytothefunds.
ThiswouldsuggestthatinacasesuchasBoardmanvPhipps,aconstructivetrustwasnottheappropriateremedy,
sinceBoardmandidnotusetrustproperty,197 norwastheopportunityevertobeexploitedbytheprincipal.198 In
Sinclair,LordNeubergercommentedthatinPhipps:
TheprecisenatureoftheremedywasnotatissueintheCourtofAppealortheHouseofLords,asthe
argumentcentredonthequestionofliabilityLewisonJsanalysis 199 ofBoardmansuggeststhatitis
unclearwhethertheremedygrantedatfirstinstancewasproprietaryorpersonal,andIagreewithhisview
thatitseemstobeclearthatthequestionwasneverargued,andapparentlydidnotmatter.200
InPhipps,theclaimantbeneficiarydidnotmindwhethertheremedygrantedwaspersonalorproprietary:the
fiduciarywassolvent,theprofitseasytoascertain,andtherewasnoquestionoftracingintosubsequentlyacquired
assets.ButWilberforceJimposedaconstructivetrustontheprofitsmadebyBoardman.201 Suchaproprietary
remedyhasreceivedthesupportofmany:ifthefiduciaryisonlyabletoactinthebestinterestsofthetrust,why
shouldhenotbedeemedtobeholdinganyprofitsforhisprincipalratherthanhimself?InPhipps,theissuewasnot
fullyconsidered,sincethecaseturneduponwhethertherewasanyliabilityinthefirstplaceandtherewasno
questionofinsolvency.Thepossibleavailabilityofaproprietaryremedyhasbeenparticularlycontroversialinthe
contextofbribesandsecretcommissions.
(i)Bribesandsecretcommissions
AtypicalexampleofabribecanberepresentedinFigure14.1.
Viewfullsizedfigure
Figure14.1
Exampleofabribe
(p.688) Clearly,thebribeoriginateswiththebriber.Itthereforebelongstothebriber,andnottotheprincipal,atthe
outset.Sohowcantheprincipalobtainanyproprietaryinterestinthebribeitself?Explanationstendtofocusupon
themisconductofthefiduciaryinacceptingabribetotheprejudiceofhisprincipalwhenhewassupposedto
forsakeallpersonalinterestsinfavourofthatverysameprincipal.Giventhatafiduciaryactingingoodfaithwho
exploitssomethingthatbelongedtohisprincipalisthoughttoholdtheprofitsmadeonconstructivetrust,why
shouldthesameremedynotbeimposeduponafiduciarywhoactsinbadfaithanddeliberatelybreacheshisorher
obligations,eveniftheprincipalspropertyisnotinvolved?
ThetraditionalapproachoftheEnglishcourtswasnottoawardaproprietaryremedybutonlyapersonalremedy.In
ListerandCo.vStubbs,202 theclaimantcompany(Lister)employedthedefendant(Stubbs)topurchasesuppliesfor
thefirm.Stubbsboughtgoodsfromanothercompany,Varley&Co.,havingreceivedsecretcommissionsofover
5,000toinducehimtoplaceorderswiththatcompany.Stubbsusedthesecretprofitstoinvestinland,andLister
soughttoestablishthatStubbsheldtheprofitsonconstructivetrustforLister,whichgaveListeraproprietarybase
totraceintothepurchasedland.203 TheCourtofAppealemphaticallyheldthatthebribeswerenotheldon
constructivetrust.204
LindleyLJ:
Thencomesthequestion,asbetweenLister&Co.andStubbs,whetherStubbscankeepthemoneyhehas
receivedwithoutaccountingforit?Obviouslynot.Iapprehendthatheisliabletoaccountforitthemoment
thathegetsit.ItisanobligationtopayandaccounttoMessrs.Lister&Co.,withorwithoutinterest,asthe
casemaybe.Isaynothingatallaboutthat.Buttherelationbetweenthemisthatofdebtorandcreditoritis
notthatoftrusteeandcestuiquetrust.Weareaskedtoholdthatitiswhichwouldinvolveconsequences
which,Iconfess,startleme.Oneconsequence,ofcourse,wouldbethat,ifStubbsweretobecomebankrupt,
thispropertyacquiredbyhimwiththemoneypaidtohimbyMessrs.Varleywouldbewithdrawnfromthe
massofhiscreditorsandbehandedoverbodilytoLister&Co.Canthatberight?Anotherconsequence
wouldbethat,iftheAppellantsareright,Lister&Co.couldcompelStubbstoaccounttothem,notonlyfor
themoneywithinterest,butforalltheprofitswhichhemighthavemadebyembarkingintradewithit.Can
thatberight?Itappearstomethatthoseconsequencesshewthatthereissomeflawintheargument.Ifby
logicalreasoningfromthepremisesconclusionsarearrivedatwhichareopposedtogoodsense,itis
necessarytogobackandlookagainatthepremisesandseeiftheyaresound.Iamsatisfiedthattheyare
notsoundtheunsoundnessconsistinginconfoundingownershipwithobligation.Itappearstomethatwe
shouldbedoingwhatIconceivetobeverygreatmischiefifweweretostretchasoundprincipletotheextent
towhichtheAppellantsaskustostretchit,temptingasitistodosoasbetweenthePlaintiffsandStubbs.
LindleyLJwasconcernedwiththeimpactaconstructivetrustwouldhaveuponcreditors.Affordingtheprincipala
proprietaryinterestintheprofitswouldmeanthattheprofitswouldnotbeavailabletothemassofcreditorson
insolvency.205 However,notallcommentatorswereconvincedbytheCourtofAppealsdecisioninListervStubbs.
(p.689) Millett,BribesandSecretCommission(1993)RLR7,1617
thefundamentalquestioncanbesquarelyfaced:shouldaproprietaryremedybeavailableatalltoa
plaintiffwhoisnotmerelyseekingtorecoverhisownproperty?Itisthewriterscontentionthatthe
relevantpolicyissuehasbeensettledforovertwohundredyears.Theruleofequityisthatafiduciary
mustnotplacehimselfinapositionwherehisinterestmayconflictwithhisduty,andmustnotmakea
profitforhimselfoutofhispositionwithouthisprincipalsconsentandafiduciarywillnotbeallowedto
retainanyadvantageacquiredinviolationoftherule.206 Theruleislaiddownpourencouragerles
autres.207 Theprincipalisgivenaremedybecausethisisconsiderednecessarytoenforcethehigh
standardswhichequitydemandsofafiduciary.Afiduciarywhofailstoobservethemmustbestrippedof
everyadvantagewhichhehasobtainedtherebybetterthattheprincipalshouldreceiveawindfallthan
thatthefiduciary(orhiscreditors)shouldbenefit.208 Thisappliestoeverysecretprofitmadebythe
fiduciaryabribeisafortiori.
However,thisrequiresthataproprietaryremedyshouldbeavailableifnecessary.Intheabsenceofsuch
aremedy,afiduciarywhoreceivesabribeandinvestsitataprofitwillretainanadvantage.
Considerationsofpolicyleadtothesameresultwherethefiduciaryisinsolvent.Unlessaproprietary
remedyisavailable,thecreditorsofaninsolventfiduciarywhohasreceivedabribewillbenefit.Sympathy
fortheirplightismisplaced.Allowingaproprietaryremedymerelywithdrawsfromtheinsolventsestate
anassetwhichitwasnevermeanttohave.Neitherthefiduciaryhimselfnorhiscreditorscanbe
allowedtoderiveanyadvantagefromhisviolationofhisfiduciaryduty.Betterthattheprincipalreceivea
windfallthanthatthecreditorsshouldobtainanybenefitfromanassetwhichoughtnevertohaveformed
partoftheirdebtorsestate.
SirPeterMillettscommentsweremadeinanattempttoinfluencethedecisionofthePrivyCouncilinacasethat
wasabouttobeheard.Hisattemptwassuccessful:
AttorneyGeneralforHongKongvReid[1994]1AC324(PC,LordsTempleman,Goffof
Chieveley,Lowry,LloydofBerwick,andSirThomasEichelbaum)
MrReid,aNewZealander,wasActingDirectorofPublicProsecutionsinHongKong.Inbreachofhisfiduciary
dutytotheCrown,heacceptedbribesofNZ$2.5millionasaninducementtoexploithisofficialpositionby
obstructingtheprosecutionofcertaincriminals.Hewasconvicted,sentencedtoeightyearsimprisonment,and
orderedtopaytheCrownHK$12.4million,theequivalentofNZ$2.5million.MrReidusedthebribestopurchase
threefreeholdpropertiesinNewZealand,twoforhimselfandhiswife,andoneforhissolicitor.Neitherhiswife
norhissolicitorcouldestablishthattheywerebonafidepurchasersforvaluewithoutnotice.
TheAttorneyGeneralforHongKonglodgedacaveatagainstthetitlestotheproperties,inordertopreventany
dealingwiththempendingafullhearing.MrReidarguedthattheCrownwasentitledonlytoapersonalclaimfor
thevalueoftheinitialbribeandhadnoequitableinterest(p.690) intheproperties.TheCourtofAppealofNew
Zealand,followingListervStubbs,foundforMrReid.
ThePrivyCouncilreversedtheCourtofAppeal:theCrownhadanequitableinterestunderaconstructivetrust.
LordTempleman:
Briberyisanevilpracticewhichthreatensthefoundationsofanycivilisedsociety.Inparticularbriberyof
policemenandprosecutorsbringstheadministrationofjusticeintodisrepute.Wherebribesareaccepted
byatrustee,servant,agentorotherfiduciary,lossanddamagearecausedtothebeneficiaries,master
orprincipalwhoseinterestshavebeenbetrayed.Theamountoflossordamageresultingfromthe
acceptanceofabribemayormaynotbequantifiable.Inthepresentcasetheamountofharmcausedto
theadministrationofjusticeinHongKongbythefirstrespondentinreturnforbribescannotbequantified.
Whenabribeisofferedandacceptedinmoneyorinkind,themoneyorpropertyconstitutingthebribe
belongsinlawtotherecipient.Moneypaidtothefalsefiduciarybelongstohim.Thelegalestatein
freeholdpropertyconveyedtothefalsefiduciarybywayofbribevestsinhim.Equity,however,whichacts
inpersonam,insiststhatitisunconscionableforafiduciarytoobtainandretainabenefitinbreachof
duty.Theproviderofabribecannotrecoveritbecausehecommittedacriminaloffencewhenhepaidthe
bribe.Thefalsefiduciarywhoreceivedthebribeinbreachofdutymustpayandaccountforthebribeto
thepersontowhomthatdutywasowed.Inthepresentcase,assoonasthefirstrespondentreceiveda
bribeinbreachofthedutiesheowedtotheGovernmentofHongKong,hebecameadebtorinequityto
theCrownfortheamountofthatbribe.Somuchisadmitted.Butifthebribeconsistsofpropertywhich
increasesinvalueorifacashbribeisinvestedadvantageously,thefalsefiduciarywillreceiveabenefit
fromhisbreachofdutyunlessheisaccountablenotonlyfortheoriginalamountorvalueofthebribebut
alsofortheincreasedvalueofthepropertyrepresentingthebribe.Assoonasthebribewasreceivedit
shouldhavebeenpaidortransferredinstantertothepersonwhosufferedfromthebreachofduty.Equity
considersasdonethatwhichoughttohavebeendone.Assoonasthebribewasreceived,whetherin
cashorinkind,thefalsefiduciaryheldthebribeonaconstructivetrustforthepersoninjured.Two
objectionshavebeenraisedtothisanalysis.Firstitissaidthatifthefiduciaryisinequityadebtortothe
personinjured,hecannotalsobeatrusteeofthebribe.Butthereisnoreasonwhyequityshouldnot
providetworemedies,solongastheydonotresultindoublerecovery.Ifthepropertyrepresentingthe
bribeexceedstheoriginalbribeinvalue,thefiduciarycannotretainthebenefitoftheincreaseinthevalue
whichheobtainedsolelyasaresultofhisbreachofduty.Secondly,itissaidthatifthefalsefiduciary
holdspropertyrepresentingthebribeintrustforthepersoninjured,andifthefalsefiduciaryisor
becomesinsolvent,theunsecuredcreditorsofthefalsefiduciarywillbedeprivedoftheirrighttosharein
theproceedsofthatproperty.Buttheunsecuredcreditorscannotbeinabetterpositionthantheir
debtor.Theauthoritiesshowthatpropertyacquiredbyatrusteeinnocentlybutinbreachoftrustandthe
propertyfromtimetotimerepresentingthesamebelonginequitytothecestuiquetrustandnottothe
trusteepersonallywhetherheissolventorinsolvent.Propertyacquiredbyatrusteeasaresultofa
criminalbreachoftrustandthepropertyfromtimetotimerepresentingthesamemustalsobelongin
equitytohiscestuiquetrustandnottothetrusteewhetherheissolventorinsolvent.
Whenabribeisacceptedbyafiduciaryinbreachofhisdutythenheholdsthatbribeintrustforthe
persontowhomthedutywasowed.Ifthepropertyrepresentingthebribedecreasesinvaluethefiduciary
mustpaythedifferencebetweenthevalueandtheinitialamountofthebribebecauseheshouldnothave
acceptedthebribeorincurredtheriskofloss.Ifthepropertyincreasesinvalue,thefiduciary(p.691) is
notentitledtoanysurplusinexcessoftheinitialvalueofthebribebecauseheisnotallowedbyany
meanstomakeaprofitoutofabreachofduty.
InKeechvSandford(1726)SelCasCh61alandlordrefusedtorenewaleasetoatrusteeforthe
benefitofaninfant.Thetrusteethentookanewleaseforhisownbenefit.Thenewleasehadnotformed
partoftheoriginaltrustproperty,theinfantcouldnothaveacquiredthenewleasefromthelandlordand
thetrusteeactedinnocently,believingthathecommittednobreachoftrustandthatthenewleasedid
notbelonginequitytohiscestuiquetrust.LordKingLCheldnevertheless,atp.62,thatthetrusteeis
theonlypersonofallmankindwhomightnothavetheleasethetrusteewasobligedtoassignthenew
leasetotheinfantandaccountfortheprofitshehadreceived.Therulemustbethatpropertywhicha
trusteeobtainsbyuseofknowledgeacquiredastrusteebecomestrustproperty.Therulemust,afortiori,
applytoabribeacceptedbyatrusteeforaguiltycriminalpurposewhichinjuresthecestuiquetrust.The
trusteeisonlyoneexampleofafiduciaryandthesameruleappliestoallotherfiduciarieswhoaccept
bribes.
[Theargument]wasputforwardbycounselinthepresentcasethatthereisadistinctionbetweena
profitwhichatrusteetakesoutofatrustandaprofitsuchasabribewhichatrusteereceivesfromathird
party.Ifinlawatrustee,whoinbreachoftrustinveststrustmoneysinhisownname,holdsthe
investmentastrustproperty,itisdifficulttoseewhyatrusteewhoinbreachoftrustreceivesandinvests
abribeinhisownnamedoesnotholdthoseinvestmentsalsoastrustproperty.
Ithasalwaysbeenassumedandassertedthatthelawonthesubjectofbribeswasdefinitivelysettled
bythedecisionoftheCourtofAppealinLister&CovStubbs(1890)45ChD1.
ThedecisioninLister&CovStubbsisnotconsistentwiththeprinciplesthatafiduciarymustnotbe
allowedtobenefitfromhisownbreachofduty,thatthefiduciaryshouldaccountforthebribeassoonas
hereceivesitandthatequityregardsasdonethatwhichoughttobedone.Fromtheseprinciplesit
wouldappeartofollowthatthebribeandthepropertyfromtimetotimerepresentingthebribeareheldon
aconstructivetrustforthepersoninjured.Afiduciaryremainspersonallyliablefortheamountofthebribe
if,intheevent,thevalueofthepropertythenrecoveredbytheinjuredpersonprovedtobelessthanthat
amount.
TheauthoritieswhichfollowedLister&CovStubbsdonotcastanynewlightonthatdecision.Their
LordshipsaremoreimpressedwiththedecisionofLaiKewChaiJinSumitomoBank LtdvKartik a
RatnaThahir[1993]1SLR735AfterconsideringindetailalltherelevantauthoritiesLaiKewChaiJ
determinedrobustly,atp.810,thatLister&CovStubbs(1890)45ChD1,waswrongandthatits
undesirableandunjustconsequencesshouldnotbeimportedandperpetuatedaspartofthelawof
Singapore.TheirLordshipsarealsomuchindebtedforthefruitsofresearchandthecarefuldiscussionof
thepresenttopicintheaddressentitledBribesandSecretCommissions[1993]RestitutionLawReview
7deliveredbySirPeterMilletttoameetingoftheSocietyofPublicTeachersofLawatOxfordin1993.
Thefollowingpassage,atp.20,elegantlysumsuptheviewsofSirPeterMillett:
[Thefiduciary]mustnotplacehimselfinapositionwherehisinterestmayconflictwithhisduty.Ifhehas
doneso,equityinsistsontreatinghimashavingactedinaccordancewithhisdutyhewillnotbe
allowedtosaythathepreferredhisowninteresttothatofhisprincipal.Hemustnotobtainaprofitfor
himselfoutofhisfiduciaryposition.Ifhehasdoneso,equityinsistsontreatinghimashavingobtainedit
forhisprincipalhewillnotbeallowedtosaythatheobtaineditforhimself.Hemustnotacceptabribe.
Ifhehasdoneso,equityinsistsontreatingitasalegitimatepaymentintendedforthebenefitofthe
principal:hewillnotbeallowedtosaythatitwasabribe.
(p.692) Ifafiduciaryactinghonestlyandingoodfaithandmakingaprofitwhichhisprincipalcould
notmakeforhimselfbecomesaconstructivetrusteeofthatprofitthenitseemstotheirLordshipsthata
fiduciaryactingdishonestlyandcriminallywhoacceptsabribeandtherebycauseslossanddamageto
hisprincipalmustalsobeaconstructivetrusteeandmustnotbeallowedbyanymeanstomakeany
profitfromhiswrongdoing.ForthereasonsindicatedtheirLordshipsconsiderthatthethreepropertiesso
farastheyrepresentbribesacceptedbythefirstrespondentareheldintrustfortheCrown.
ReidclearlydepartedfromLister.Imposingaconstructivetrusthelpstoensurethatthefiduciarycangainnobenefit
fromthebribe,andstrengthensEquitysprotectionaffordedtotheprincipal.ThePrivyCouncilexplainedawaythe
adverseimpactthatthiswouldhaveoncreditorsinthesamewaythatLordMilletthaddonepreviously:thecreditors
couldnotbeinabetterpositionthanthefiduciary,andthefiduciaryshouldneverbeabletosaythatthemoney
rightfullybelongstohim.
However,ReidisadecisionofthePrivyCouncil,andListeradecisionoftheEnglishCourtofAppeal.Giventhatthe
adviceofthePrivyCouncilisnotstrictlybindinginEnglishcourts,butonlypersuasiveguidance,forsometimeit
wasnotclearwhetherReidwouldbefollowedinEngland.Thequestionwasnotpurelyoneofprecedentsomeofthe
reasoninginReidmightalsobecriticized.Forexample,LordTemplemanrelieduponthemaxim,Equityregardsas
donethatwhichoughttobedone,andconcludedthatbecauseatthemomentofreceiptofthebribe,thefiduciary
shouldaccounttohisprincipal,Equitywillassumethatthishasalreadybeendoneandthatthereforethebribe
belongstotheprincipal:itwouldbeunconscionableforthefiduciarytodenythis,andaconstructivetrustis
appropriate.Buttheproblemwithsuchreasoningisthatitdoesnottelluspreciselywhatoughttobedone:isthe
fiduciaryunderanobligationtogivethatparticularbribeinspecietohisprincipal,orishemerelyunderapersonal
obligationtoaccountforthevalueofthebribereceived?Listerclearlysuggeststhelatter,inwhichcaseonlya
personalremedywouldbeappropriate.
Nevertheless,forsometimeitwasconsideredthatReidwasagoodstatementofEnglishlaw.209 ButtheCourtof
AppealinSinclairvVersaillesrecentlydecidedthatLister,notReid,representsEnglishlawunlessanduntilthe
SupremeCourtdecidesotherwise.
SinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd(inadministrative
receivership)[2011]EWCACiv347[2012]Ch453
Variouspartieshadinvestedinacompany,TradingPartnersLtd,(TPL),whichfundedthedefendantcompany
(Versailles).Theclaimant,Sinclair,wasoneoftheinvestorsandhesuedasanassigneeofTPL.210 Sinclair
arguedthatMrCushnie,adirectorofTPL,hadbreachedhisfiduciarydutiesbyusingthemoneyinvested
fraudulentlytooperateaPonzischemebycirculatingmoneyaroundvariousconnectedcompanies.Thisgave
theappearancethatVersailleswastradingprofitably,whenitwasnotreallytradingatall.Theappearanceof
profitabletradingallowedMrCushnietosellhissharesinTPLatthepeakofthemarket,makingaprofitof
28.6million.
Mr.Cushniemadethisprofitbysellingsharesthathealreadyownedbeforethebreachoffiduciaryduty.Hehad
notmadetheprofitfromhisprincipalsproperty.TheCourtofAppealconsideredthatthiscasewasanalogous
tocasesconcerningbribesandsecretcommissions,211 andheldthat(p.693) theruleinListervStubbs
shouldapply:Sinclaironlyhadapersonalclaimtotheprofits,andnoproprietaryclaim.Sinclaircouldnothave
priorityoverMrCushniesothercreditorstotheprofitsmade.
LordNeubergerMR:
TheproprietaryclaimisthusneithertothefundsinrespectofwhichMrCushnieowedtherelevant
fiduciarydutiestoTPL,nortoanyasset,orproceedsofanyasset,purchasedwiththosefundsnoris
theclaimtotheproceedsofanyrightoropportunitywhichbelongedtoTPL.Further,MrCushniedidnot
acquiretheShareswithfundsbeneficiallyownedbyTPL,orwithmoneyderivedfromthosefunds
indeed,hedidnotevenacquirethosesharesasanindirectconsequenceofhismisuseofthosefunds.
Havingsaidthat,therewasundoubtedlyaclosecommercialcausalconnectionbetweenMrCushnies
misuseofthefundsinrespectofwhichheowedfiduciarydutiestoTPL,andthemoneywhichhemade
onthesaleoftheShares.Accordingly,onthebasisthatthemisuseofthefundsbyMrCushniein
breachofhisfiduciarydutywasintendedto,anddid,enablehimtomakeaprofit,thereissomecommon
senseattractioninthenotionthattheprofitshouldbebeneficiallyownedbythosetowhomheowedthe
duty.
However,thereisobviousforceinthecontentionthatthemerefactthatthebreachofdutyenabledMr
Cushnietomakeaprofitshouldnot,ofitself,beenoughtogiveTPLaproprietaryinterestinthatprofit.
Why,itmaybeasked,shouldthefactthatafiduciaryisabletomakeaprofitasaresultofthebreachof
hisdutiestoabeneficiary,withoutmore,givethebeneficiaryaproprietaryinterestintheprofit?Afterall,
aproprietaryclaimisbasedonpropertylaw,anditisnotentirelyeasytoseeconceptuallyhowthe
proprietaryrightsofthebeneficiaryinthemisusedfundsshouldfollowintotheprofitmadeonthesaleof
theShares.
WeshouldnotfollowthePrivyCouncildecisioninReidinpreferencetodecisionsofthiscourt,
unlesstherearedomesticauthoritieswhichshowthatthedecisionsofthiscourtwereperincuriam,orat
leastofdoubtfulreliability.Savewheretherearepowerfulreasonstothecontrary,theCourtofAppeal
shouldfollowitsownpreviousdecisions,andinthisinstancetherearefivesuchpreviousdecisions.212 It
istruethatthereisapowerfulsubsequentdecisionofthePrivyCouncilwhichgoestheotherway,but
thatofitselfisnotenoughtojustifydepartingfromtheearlierdecisionsofthiscourt
thegeneralruleisthatwefollowourpreviousdecisions,leavingittotheSupremeCourttooverrule
thosedecisionsifitisappropriatetodoso.
AlthoughitispossiblethattheSupremeCourtwouldfollowReid[1994]1AC324ratherthanHeiron5Ex
D319andLister45ChD1,Iamfarfromsatisfiedthattheywoulddoso.Inanyeventitdoesnotseem
tomerighttofollowReid[1994]1AC324.
First,therearefivedecisionsofthiscourt([MetropolitanBank v]Heiron5ExD319,Lister45ChD1,
Archerscase[1892]1Ch322,[Powell&ThomasvEvansJones&Co][1905]1KB11,and,AGs
Reference[(No1of1985)][1986]1QB491)spreadover95years,allofwhichhavereachedthesame
conclusiononthepoint,andthereisthereasoningoftheHouseofLordsinTyrrell[vBank ofLondon]10
HLCas26.
Secondly,muchofthereasoningofLordTemplemaninReid[1994]1AC324seemstometobegthe
question,ortoassumewhatitasserts(althoughIsupposethatthesamecanbesaidabouttheviews(p.
694) expressedinHeiron5ExD319andLister45ChD1).Thus,beforesettingouttoexplainhis
reasoning,LordTemplemanassertsat[1994]1AC324,331Bthatabribepaidtoafalsefiduciaryvests
inthepersontowhomthedutyisowed.Butthatistheveryissuehethenpurportstodecide.
Thirdly,theconcernwhichLordTemplemanexpressed..[thatifthebribeconsistsofpropertywhich
increasesinvalueorifacashbribeisinvestedadvantageously,thefalsefiduciarywillreceiveabenefit
fromhisbreachofdutyunlessheisaccountablenotonlyfortheoriginalamountorvalueofthebribebut
alsofortheincreasedvalueofthepropertyrepresentingthebribe,]mightwellbemetbyorderingan
equitableaccount:therewasapparentlynoargumentbeforethePrivyCounciltothateffect.
Fourthly,itseemstomethatthereisarealcaseforsayingthatthedecisioninReid[1994]1AC324is
unsound.Incaseswhereafiduciarytakesforhimselfanassetwhich,ifhechosetotake,hewasunder
adutytotakeforthebeneficiary,itiseasytoseewhytheassetshouldbetreatedasthepropertyofthe
beneficiary.However,abribepaidtoafiduciarycouldnotpossiblybesaidtobeanassetwhichthe
fiduciarywasunderadutytotakeforthebeneficiary.Therecanthusbesaidtobeafundamental
distinctionbetween(i)afiduciaryenrichinghimselfbydeprivingaclaimantofanassetand(ii)afiduciary
enrichinghimselfbydoingawrongtotheclaimant.Havingsaidthat,Icanseearealpolicyreasoninits
favour(ifequitableaccountingisnotavailable),butthefactthatitmaynotaccordwithprincipleis
obviouslyagoodreasonfornotfollowingitinpreferencetodecisionsofthiscourt.
Fifthly,notonlyhastherebeenmuchacademiccommentarysinceReid[1994]1AC324whichsupports
theapproachinHeiron5ExD319andLister45ChD1,but,atleastfromwhatIhaveseen,thereis
significantlymoresupportfortheapproachforthosecasesinscholarlyarticlesthanthereisforReid
[1994]1AC324.
Sixthly,itseemstomethatLordTemplemanmayhavegiveninsufficientweighttothepotentiallyunfair
consequencestotheinterestsofothercreditors,ifhisconclusionwasright.Hisdismissaloftheir
concernsonthebasisthattheyshouldbeinnobetterpositionthanthedefaultingfiduciaryat[1994]1
AC324,331FHstandsinratherstarkcontrastwithwhatwassaidinLister45ChD1,15,andin
Archerscase[1892]1Ch322,338,aswellas,morerecently,inWestdeutscheLandesbank
GirozentralevIslingtonLBC[1996]AC669,716E.
ForthereasonsIhavegiven,previousdecisionsofthiscourtestablishthataclaimantcannotclaim
proprietaryownershipofanassetpurchasedbythedefaultingfiduciarywithfundswhich,althoughthey
couldnothavebeenobtainedifhehadnotenjoyedhisfiduciarystatus,werenotbeneficiallyownedby
theclaimantorderivedfromopportunitiesbeneficiallyownedbytheclaimant.However,thosecasesalso
establishthat,insuchacase,aclaimantdoeshaveapersonalclaiminequitytothefunds.Thereisno
casewhichappearstosupportthenotionthatsuchapersonalclaimentitlestheclaimanttoclaimthe
valueoftheasset(ifitisgreaterthantheamountofthefundstogetherwithinterest),andthereare
judicialindicationswhichtendtomilitateagainstthatnotion.
[Counsel]suggested(withLordMillettsextrajudicialsupport)that,essentiallyasamatterofequitable
policy,afiduciaryshouldnotbeallowedtoprofitfromhisbreachofduties,eventotheextentofretaining
anyprofitfromsuchanassetaftercompensatingaclaimantinfull.Ifthatisindeedcorrect(as[Counsel
forMrCushnie]appearedtoaccept),thenitseemstomethatthisshouldbedealtwithbyextending,or
adjusting,therulesrelatingtoequitablecompensationratherthanthoserelatingtoproprietaryinterests.
Suchacourse,asIseeit,woulddolessviolencetothelawasconsistentlylaiddown(whereithasbeen
specificallyaddressed)inanumberofdomesticcasesofhighauthority,whereasitwouldinvolvelittle
interferencewithestablishedauthorityrelatingtoequitablecompensation.Inaddition,thelawrelatingto
proprietaryinterests,beingwithinthelawofproperty,isinherentlyrather(p.695) lessflexiblethanthe
lawrelatingtoequitablecompensation.Furthermore,extendingthelawrelatingtoequitable
compensationinsuchacasewouldinterferefarlesswiththelegitimateinterestsofothercreditorsthan
extendingthelawrelatingtoproprietaryinterests.
(Itmayevenbethattracingcanbeinvokedtosupportsuchapersonalclaim.Ifinditalittlehardtosee
howthatcouldwork,savewherethetracingexerciseisbeingpursuedinrespectofadefendants
proprietaryinterestbyaclaimantwithapersonalclaimagainstthedefendant.213
LordNeubergerrejectedReidongroundsofprecedent,principle,andpolicy.Hefavouredgreaterflexibilityinthe
personalremedyinordertoensurethatthefiduciaryobtainednobenefitfromhiswrongdoing.But,ashisLordship
admitted,itisdifficulttoseehowapersonalremedycouldevergiverisetoanabilitytotrace:aproprietarybaseis
neededforthetracingexercise,andthisisonlyavailablewheretheprincipalhasaproprietaryinterestinthesecret
profitsunderaconstructivetrust.
SinclairvVersaillesprobablysettlesmattersattheleveloftheCourtofAppeal.Certainly,itwasfollowedbyNewey
JatfirstinstanceinCadoganPetroleumplcvTolly,214 acaseconcerningbribes,anditislikelythatadecisionof
theSupremeCourtwouldbeneededtodepartfromListerandfollowReid.Yet,thisareaoflawremains
controversial,andthedecisioninSinclairhasbeenbothcriticizedandsupported.Forexample,therearetwo
contrastingnotesonthedecisionintheLawQuarterlyReviewHaytoniscritical,butGoodesupportive.
Hayton,ProprietaryLiabilityforSecretProfits(2011)127LQR487
InSinclairInvestmentsLordNeubergerMRinhisjudgment,withwhichRichardsandHughesLJJ
simplyagreed,hassurprisedmanyequitylawyers.Equityisbaseduponapersonbeingagoodperson,
withtheresultthatevenifthepersonbehavesbadlytheclaimantcaninsistthathebeforcedtobehave
asagoodpersonor,ifheisafiduciary,thathecannotdenythathebehavedlikeagoodfiduciaryin
accordancewithhiscorefiduciaryobligationtoactinthebestinterestsofhisbeneficiariestothe
exclusionofhisown.
InSinclairInvestmentsthegoodmanphilosophydescribedabovewasignored,thedefendantbeing
treatedasawrongdoerwhohadcommittedabreachoftrust.
Ultimately,theSupremeCourtwillhavetodecidewhatisessentialtotheintegrityoftrusteeshipor
directorshiporotherfiduciaryrelationships,includingoneinwhichthefiduciaryhasnoroletoplayin
respectofproperty,e.g.theDirectorofPublicProsecutionsoraChiefSuperintendentofPolice.
WhenapersoniselevatedtobecomeDPPoraChiefSuperintendentitwouldseemthat,iftherewasno
expresscontractualtermagainsttakingbribes,theanswertotheofficiousbystanderwhoasksCanyou
takebribesforyourself?willbeOfcourse,not.Illdomyjobproperly.Reidregardssuchafiduciaryas
disabledfromtakinganybribetotheextentthat,ifhedoesso,hecanonlyholditforhisemployerin
accordancewithhisdutytodohisjobproperlybyactingexclusivelyinhisemployersbestinterests.
(p.696) IftheSupremeCourtdoesnotfollowthisapproach,onecanexpecttoseeintrustdeedsandin
contractstermsprovidingthatthetrusteeorthefiduciarycontractingpartyisunabletoreceiveanybribe
orothersecretprofitforhimselfbeneficially,andthatassoonashedoesactuallyreceivesuchbribeor
profititwillbeheldontrustfortherelevantbeneficiariesortheothercontractingparty.WhileLord
Neuberger(at[52])insiststhataproprietaryclaimisbasedonpropertylaw,equitypermitspropertyto
bederivedfromanobligationaffectingproperty,whetherexistingorafteracquiredproperty.
Goode,ProprietaryLiabilityforSecretProfitsAReply(2011)127LQR493
Ifaclaimantwithnopreexistingproprietarybaseandnoentitlementbasedonreceiptofpropertyforhis
accountseekstohavehisclaimcharacterisedasproprietary,thatrequiresjustification.Thisisnot
furnishedbyquestionbeggingappealstothemaximthatequitytreatsasdonethatwhichoughttobe
doneortheequallyquestionbeggingassertionthatthedefendantscreditorsstandinhisshoes.Atthe
endofthedaytheissueisoneofpolicy.
Whenweturntothepolicyassertedasfavouringaproprietaryrightwefindanappealtomoral
indignation,nevermoreferventlyexpressedthanbyLordTemplemaninReid(at[330][331])inrelationto
bribes:
Briberyisanevilpracticewhichthreatensthefoundationsofanycivilisedsociety.
Wecanonlyagreewiththesentiments,butwhydoesitfollowfromthecorrosivenatureofbriberythat
theclaimantshouldbepreferredtothedefendantsgeneralcreditors?Theamountofthebribecanbe
recoveredinapersonalclaim,andanytransactionconcludedastheresultofthebribecanbesetaside.
Theonlyrealriskfortheclaimantisthatthedefendantbecomesinsolvent,butthatisariskborneby
othercreditorsaswell.Theyarenotpartiesstandingintheshoesofthedefendantbutindependentthird
partieswithclaimsoftheirownbasedonvaluetheyhavegiven.Whyshouldtheybesubordinatedtoa
claimantwhohadnoexistingproprietaryinterest,whohasgivennovalue,whomayhavesufferednoloss
andwhocannoteveninvokearelianceinterest?Thepolicyofdeterrenceagainstwrongdoinghasno
relevancetothecreditors,fortheirownconductcannotbeaffectedbyit.Theyhavenocontroloverthe
defendantsbehaviour,norcantheirdeprivationbeconducivetoproperstandardsofbehaviourbyfuture
bribees.Thesameappliestoothertypesofbenefitderivedfromfraudulentbreachofduty.
Inshort,thedecisionofthePrivyCouncilinReidcannotbejustifiedeitherintermsoflegalprincipleorin
termsofpolicy,andtheCourtofAppealinSinclairInvestmentswasrighttorejectitandtofollowListerv
StubbsandMetropolitanBank vHeiron,notonlybecausethosedecisionswerebindingbutalso
becausetheywereplainlycorrect.
Thepolicydebatessurroundingproprietaryremediesaredifficultandboundtoexercisethecourtsagaininthefuture.
Aproprietaryremedyismosteffectiveinprovidingacivilremedyforbribery,asitallowsawrongedprincipaltotrace
andensurethereisnoprospectatallofafiduciarygaininganyadvantagefromreceivingabribe.Itmightbenoted
thatinAustralia,SinclairhasbeenrejectedinfavourofReid.215
However,theneedtoaffordappropriateprotectiontocreditorsisimportant.Whyshouldaprincipal,whomayhave
sufferednoloss,receiveproprietaryprotectionandtherebydisadvantage(p.697) innocentcreditorswhohave
sufferedlossandprovidedvalue?ThisargumenthasbeenconsistentlymadebyGoode(amongothers)andseems
tohaveconvincedtheCourtofAppealinSinclair.216
PostSinclair,itislikelythatattentionwillbefocusseduponwhetherornottheprincipalhadaproprietaryinterestat
theoutset.Ifthefiduciaryobtainedsecretprofitsbyreceivingpropertyfromtheprincipal,thenaconstructivetrustwill
rightfullybeavailable.AgoodexampleofthisisDaraydanHoldingsLtdvSollandInternationalLtd.217 Theclaimants
claimedthatcommissionspaidtothedefendant,aformeremployee,inrespectofcontractsfortherefurbishmentof
theclaimantsproperties,werebribesandthataconstructivetrustarose.LawrenceCollinsJagreed,sincethe
bribesderiveddirectlyfromtheclaimantsproperty:thecontractpricehadbeenincreasedbytheamountofthe
bribe,andthebribemoneywaspaidfromthemoneythathadbeenpaidbytheclaimantsunderthecontract.
However,Sinclairalsosuggeststhatifafiduciarymakessecretprofitsbydivertinganopportunitythat(wouldhave)
belongedtotheprincipal,218 thenaconstructivetrustwillalsobeavailable.Thisseemsappropriate,eventhoughthe
claimanthadnoproprietaryinterestintheprofitsattheoutsetGoodeexplainedthataconstructivetrustisjustified
ininstancesofdeemedagencygains,whichare:219
gainswhichderivenotfromappropriationofpropertypreviouslyheldbyPbutfromactivityundertakenbyDfor
hisownbenefitwhichhewasunderanequitableduty,ifheundertookitatall,topursueforP,sothatDin
effectactedasPsconstructiveagentandtheresultinggainswillbetreatedinequityasiftheyhadinfact
beenprocuredforP.
Thisanalysisisconvincing,butitmightbeexpectedthat,afterSinclair,claimantsseekingaconstructivetrustwill
pushtheboundariesofwhatcanreasonablybedescribedasanopportunityopentothebeneficiary.220
(c)EquitableCompensation
Itshouldbenotedthatthefactthatanaccountofprofitsisavailabledoesnotmeanthatacompensatoryremedyis
unavailable.AsPrenticeandNolanhaveobserved:221
anawardoflossescausedbythebreachmaybenecessarytoachievetheseobjectives[ofdeterringand
controllingdisloyalty]ifthefiduciarymakesnoprofitthroughthebreach,ortheprofitissmall,orisdifficultto
ascertain:insuchcircumstances,strippingprofitswilldolittletodeterorcontroldisloyalty.Moreimportantly
still,oncedeterrenceandcontrolhavefailed,anddisloyaltyhascausedharm,thereshouldbecompensation
forthatharm.
InSwindlevHarrison,222 theCourtofAppealclearlyacceptedthatasolicitorwhobreachedhisorherfiduciaryduty
mighthavetocompensatetheprincipalforlosssuffered.Swindleconcernedaloan(p.698) fromthefiduciarytothe
principal,buttheformerbreachedhisfiduciaryobligationsbyfailingtodisclosethathepersonallywouldmakea
profitfromtheloan.Theprincipalsuedthesolicitor(calledMrSwindle!)forcompensationforherloss.TheCourtheld
thatacompensatoryawardwasavailableinprinciple,butnosuchremedywasavailableonthefacts,becauseeven
ifthefiduciaryhadnotbreachedhisdutyandhaddisclosedhisprofits,theprincipalwouldstillhavetakentheloan.
Swindle,therefore,highlightsthatacausallinkbetweenthebreachandthelossisrequired.223
(d)ChoosingBetweenAlternativeRemedies
Althoughequitablecompensationisavailabletoaprincipal,heorshecannotrecoverbothforhisorherlossandfor
thefiduciarysgainwherethiswouldleadtodoublerecovery.AsLordNichollsobservedinthePrivyCouncilcaseof
TangManSitvCapaciousInvestmentsLtd:224
Sometimesthetworemediesarealternativeandinconsistent.Theclassicexample,indeed,is(1)anaccount
ofprofitsmadebyadefendantinbreachofhisfiduciaryobligationsand(2)damagesforthelosssufferedby
theplaintiffbyreasonofthesamebreach.Theformerismeasuredbythewrongdoersgain,thelatterbythe
injuredpartysloss.[]
Facedwithalternativeandinconsistentremediesaplaintiffmustchoose,orelect,betweenthem.Hecannot
haveboth.
Thisprincipleofelectionhelpstopreventdoublerecovery.Yet,itshouldbeobservedthatthetworemedieswillnot
inevitablybeinconsistent.Aprincipalmaysueforanaccountofprofitsevenwhenheorshesuffersnoloss.Soif
theprincipalhasalsosufferedloss,itwouldseemlogicalforhimorhertobeabletorecoverthatlossinadditionto
thefiduciarysgains,whichwouldhavebeenavailableinanyevent.225 Claimingoneshouldnotnecessarilypreclude
theother.SuchargumentsledtheLawCommissiontoconcludethat:226
ultimatelythelawisrequiringanelectionwhereitisnotreallynecessarythetworemediesarenotinevitably
inconsistent.Theprincipledapproachwouldbetorecognizethis,toremoveanymandatoryrequirementof
election,toallowaplaintifftoclaimcompensationandrestitution,andforthecourttoresolvetheproblemof
doublerecoveryatthestageofassessingquantum.
However,thelanguageofelectioncontinuestobeused.IntherecentdecisionofRamzanvBrook wideLtd,theCourt
ofAppealcitedTangManSitandheldthattheclaimanthadtoelectbetweenaclaimfordamagesforbreachoftrust
andaclaimforlossofprofit,becauseotherwisedamagesforthesamewrongwouldbemeasuredbothbythe
claimantslossandbythedefendantsgain.Insuchcircumstances,ArdenLJinsistedthat:227
Thecourtmusttreat[theclaimant]ashavingelectedtoreceivethelargeraward.
(p.699) (e)EquitableAllowance
Thecourtmay,inappropriatecases,authorizeremunerationinfavouroffiduciarieswhohavebreachedtheirfiduciary
duty,eventhoughtheywouldordinarilyhavetoaccountforallprofitsmade.Agoodexampleofthiscanbefoundin
BoardmanvPhipps,inwhichallmembersoftheHouseofLordswereinagreementthatthesolicitor,Boardman,
shouldreceiveanallowancecalculatedonaliberalscaleforhisskillandworkinmakingprofitsbyimprovingthe
fortunesofthepurchasedcompany.228 Thisallowanceisoflongstanding.229 InOSullivanvManagementAgency
andMusicLtd,230 theCourtofAppealthoughtthatanelementofprofitmightevenbeincludedintheallowance.
However,theawardofanequitableallowanceisnotautomaticforexample,inGuinnessplcvSaunders,231 the
HouseofLordsrefusedremunerationtoacompanydirectorwhowasassumedtohaveactedbonafidebutin
circumstancesthatinvolvedaclearconflictofinterestandduty.LordGoffsaid:
Itwillbeobservedthatthedecision[inBoardmanvPhipps]tomaketheallowancewasfoundeduponthe
simplepropositionthatitwouldbeinequitablenowforthebeneficiariestostepinandtaketheprofitwithout
payingfortheskillandlabourwhichhasproducedit.Theinequitywasfoundinthesimplepropositionthat
thebeneficiariesweretakingtheprofitalthough,ifMr.Boardman(thesolicitor)hadnotdonethework,they
wouldhavehadtoemployanexperttodotheworkfortheminordertoearnthatprofit.
Thedecisionhastobereconciledwiththefundamentalprinciplethatatrusteeisnotentitledtoremuneration
forservicesrenderedbyhimtothetrustexceptasexpresslyprovidedinthetrustdeed.Strictlyspeaking,itis
irreconcilablewiththeruleassostated.Itseemstomethereforethatitcanonlybereconciledwithittothe
extentthattheexerciseoftheequitablejurisdictiondoesnotconflictwiththepolicyunderlyingtherule.And,
asIseeit,suchaconflictwillonlybeavoidediftheexerciseofthejurisdictionisrestrictedtothosecases
whereitcannothavetheeffectofencouragingtrusteesinanywaytoputthemselvesinapositionwheretheir
interestsconflictwiththeirdutiesastrustees.
NotonlywastheequityunderlyingMr.BoardmansclaiminBoardmanvPhippsclearand,indeed,
overwhelmingbuttheexerciseofthejurisdictiontoawardanallowanceintheunusualcircumstancesofthat
casecouldnotprovideanyencouragementtotrusteestoputthemselvesinapositionwheretheirdutiesas
trusteesconflictedwiththeirinterests.
Clearly,acourtmustbesatisfiedthatawardinganallowancewillnotreducethedeterrencefunctionofthe
restitutionaryremedyofstrippingafiduciaryofwronglyobtainedprofits.YetLordGoffdidrecognizethatsometimes
theallowancemustbegranted,becausewithouttheworkofthefiduciarytheprofitwouldneverhavebeenmade.
Thismightbeexplainedonthebasisthatnotalltheprofitswerecausedbythebreachoffiduciaryduty,butrather
bytheworkofthefiduciary.AstheHighCourtofAustraliacommentedinWarmanInternationalLtdvDwyer:232
whenitappearsthatasignificantproportionofanincreaseinprofitshasbeengeneratedbytheskill,efforts,
propertyandresourcesofthefiduciary,thecapitalwhichhehasintroducedandtheriskshehastaken,so
longastheyarenotriskstowhichtheprincipalspropertyhasbeenexposed.Thenitmaybesaidthatthe
relevantproportionoftheincreasedprofitsisnottheproductorconsequenceoftheplaintiffspropertybutthe
productofthefiduciarysskill,efforts,propertyandresources.
(p.700) WarmanisalsoimportantsincetheHighCourtofAustraliasuggestedthatadefendantmayonlybeliable
toaccountforprofitsoveraspecifiedperiodoftime,ratherthaninperpetuity.Thisrecognitionofaprincipleof
remotenessissensible,and,receivedthesupportofJonathanParkerLJinMurad.233
Question
Petewantedtoexpandhisbusiness.HeappointedFredashisagenttofindanearbypropertyforPetes
company.BrianthenofferedFred50,000topersuadePetetobuyBrianspropertyfor50,000morethanits
fairmarketvalue.Fredagreed,anddischargedamortgageonhisownhousewiththemoneyBrianpaidhim.
PeteboughtBriansproperty,butisnowdisappointedwiththepremisesFredhadencouragedhimtobuy.Pete
therefore,hiresSandytoactashisagentinpurchasingnewoffices.DragonLtdapproachSandyandofferhim
theopportunitytobuynearbyoffices,whichwouldbeperfectforbothSandyandPete.SandytellsPeteabout
thepropositionfromDragonLtd,butPetedoesnotwanttoberushedintoadecisionandasksSandytokeep
lookingforotheralternatives.Sandythenfallsill,andPeteandSandyagreetoendtheirworkingrelationship.
Soonafter,DragonLtdoffertheofficestoSandyoncemore,andthistimeSandyacceptstheoffer.Ithasproved
tobeagoodinvestment,andthevalueofthepropertyhasrisenby25percentinoneyear.
PeteseeksyouradviceregardinganyclaimshemayhaveagainstFredandSandy.
FurtherReading
Bryan,BoardmanvPhipps(1967)inLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:Hart,
2012).
FindThisResource
Conaglen,FiduciaryLoyalty(Oxford:Hart,2010).
FindThisResource
Conaglen,TheExtentofFiduciaryAccountingandtheImportanceofAuthorisationMechanisms(2011)CLJ
548.
FindThisResource
Edelman,WhenDoFiduciaryDutiesArise?(2010)LQR302.
FindThisResource
Finn,FiduciaryObligations(Sydney:LawBookCompany,1977).
FindThisResource
Goode,ProprietaryRestitutionClaims,inRestitution:PastPresentandFuture(edsCornishetal.)(Oxford:
Hart,1998).
FindThisResource
Hicks,TheRemedialPrincipleinKeechvSandfordreconsidered(2010)69CLJ285.
FindThisResource
Langbein,QuestioningtheTrustLawDutyofLoyalty:SoleInterestorBestInterest?(2005)114YaleLJ929.
FindThisResource
Lee,RethinkingtheContentoftheFiduciaryObligation[2009]Conv236.
FindThisResource
Millett,BribesandSecretCommission(1993)RLR7.
FindThisResource
Nolan,Regal(Hastings)LtdvGulliver(1942)inLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:
Hart,2012).
FindThisResource
Notes:
1
ThemesandProspects,inEssaysinEquity(ed.Finn)(Sydney:LawBookCo.,1985),ch.12,p.246.
2
[1998]Ch1,18.
3
FiduciaryLawandtheModernCommercialWorldinCommercialAspectsofTrustsandFiduciaryObligations(ed.
McKendrick)(Oxford:ClarendonPress,1992),p.9.
4
Forsomeattemptstostatewhenafiduciaryrelationshipwillarise,seee.g.Scott,TheFiduciaryPrinciple(1949)
37CaliforniaLawReview539Sealy,FiduciaryRelationships(1962)20CLJ69Weinrib,TheFiduciaryObligation
(1975)25UniversityofTorontoLawJournal1.
5
DeBusschevAlt(1878)8ChD286.
6
BrownvIRC[1965]AC244HiltonvBark erBoothandEastwood(afirm)[2005]UKHL8[2005]1WLR567.
7
Regal(Hastings)LtdvGulliver[1967]2AC134n.Thedutyisowedtothecompanyandnottotheshareholders:
PercivalvWright[1902]2Ch421.ButnotePesk invAnderson[2001]1BCLC372,379(MummeryLJ)
(exceptionallyaseparatefiduciarydutymightbeowedtoshareholders).Directorsdutiesmustnowbeconsideredin
lightoftheCompaniesAct2006:seeChapter14.2(f),pp.6503.
8
FeatherstonhaughvFenwick (1810)17Ves298CleggvFishwick (1849)1Mac&G294.
9
EquityintheModernLaw:AnExerciseinTaxonomy(1996)26UniversityofWesternAustraliaLawReview1,18.
10
GalambosvPerez2009SCR48[2009]3SCR247,[76][77].
11
11
NorbergvWynrib[1992]2SCR226,273.
12
GuerinvTheQueen,[1984]2SCR335,384.
13
WhenDoFiduciaryDutiesArise?(2010)LQR302,326.
14
Seee.g.McKendrick,ContractLaw:Text,CasesandMaterials(5thedn)(Oxford:OxfordUniversityPress,2012),
33769.
15
Millett,RestitutionandConstructiveTrusts(1998)114LQR399,405.CfIndependentTrusteeServicesLtdvGP
NobleTrusteesLtd[2012]EWCACiv195[2012]3AllER210,[80](LloydLJ).
16
SeeChambers,ResultingTrusts(Oxford:ClarendonPress,1997),pp.196200.
17
[1896]AC44,50.
18
[1967]2AC46,123.
19
[1984]HCA36(1984)154CLR178,[24].
20
[1967]2AC134n.
21
[1967]2AC46.
22
23
FiduciaryLoyalty(Oxford:Hart,2010),pp.1201.
24
Seee.g.Lee,RethinkingtheContentoftheFiduciaryObligation[2009]Conv236.
25
HiltonvBark erBoothandEastwood[2005]1WLR567thefiduciarycanonlyactinthismannerwiththefully
informedconsentofbothprincipals:thisissueisdiscussedfurtherinChapter8.3(b),pp.6623.
26
27
[2004]EWCA(Civ)1244[2005]2BCLC91.
28
Seee.g.Lee,RethinkingtheContentoftheFiduciaryObligation[2009]Conv236.
29
[2004]EWCA(Civ)1244[2005]2BCLC91,[63][68].
30
[2006]EWHC836(Ch)[2007]2BCLC202,[132].SeetooCustomerSystemsplcvRanson[2012]EWCACiv
841[2012]IRLR769.
31
Bristol&WestBuildingSocietyvMothew[1998]Ch1,16.
32
Bristol&WestBuildingSocietyvMothew[1998]Ch1HiltonvBark er,BoothandEastwood[2005]UKHL8
[2005]1WLR567.
33
Fassihi[2004]EWCA(Civ)1244[2005]2BCLC91,[55][60].
34
E.g.BoardmanvPhipps[1967]2AC46,seefurtherChapter14.4(d),pp.6719.
35
36
Seee.g.Edelman,GainBasedDamages(Oxford:Hart,2002),p.216.
37
Althoughheorshemaybeentitledtoanallowanceforhisorhercontributionstothegainmade:seeChapter
14.5(e),p.699.
38
BoardmanvPhipps[1967]2AC46,127.
39
39
Millett,EquitysPlaceintheLawofCommerce(1998)114LQR214.
40
IntheAmericancaseofSecuritiesandExchangeCommissionvCheneryCorporation(1943)318US80at856,
FrankfurterJsaid:Tosaythatamanisafiduciaryonlybeginstheanalysis:itgivesdirectiontofurtherinquiry.To
whomisheafiduciary?Whatobligationdoesheoweasafiduciary?Inwhatrespectshashefailedtodischarge
theseobligations?Andwhataretheconsequencesofhisdeviationfromduty?(1943)318US80,856.
41
[1995]1AC74(PC):seeChapter3.3(c),pp.7784.
42
Ibid,98.
43
Millett,EquitysPlaceintheLawofCommerce(1998)114LQR214,21718.
44
[1997]Ch84,93.
45
Andalthoughadutyofconfidencemightcontinue,theinformationatissuewasnolongerconfidential.
46
[1986]BCLC460,482.
47
[1972]1WLR443.
48
CMSDolphinLtdvSimonet[2001]EWHC415(Ch)[2001]2BCLC704InPlusGroupLtdvPyk e[2002]EWCA
Civ370[2002]2BCLC201.
49
[2007]EWCACiv200[2007]2BCLC239,[69].
50
Ibid,[76].
51
s.178.
52
s.175.
53
s.176,althoughaconflictmuststillbelikely:s.176(4).
54
Seee.g.DaviesandWorthington,GowerandDaviesPrinciplesofModernCompanyLaw(9thedn)(London:
Sweet&Maxwell,2012),ch.16.
55
[1967]2AC46,124.LordUpjohnwasconsideringthepreviouscommentsofLordCranworthLCinAberdeenRail
Co.vBlaik ieBrothers(1854)1Macq461,471:Anditisaruleofuniversalapplication,thatnoone,havingsuch
dutiestodischarge,shallbeallowedtoenterintoengagementsinwhichhehas,orcanhave,apersonalinterest
conflicting,orwhichpossiblymayconflictwiththeinterestsofthosewhomheisboundtoprotect.
56
SeeChapter6.3(a)(i)(c),pp.65960.
57
WrightvMorgan[1926]AC788,797(LordDunedin).
58
TitovWaddell(No.2)[1977]Ch106,241.
59
asofright.
60
[1926]AC788.
61
CfSargeantvNationalWestminsterBank plc(1990)61P&CR518.
62
[1968]Ch353,3915.
63
PeymanvLanjani[1985]Ch457seeChapter20.5,p.961.
64
[1986]Ch99.
65
[1986]Ch99,11516.
66
66
[1999]Ch274(SirRichardScottVC).
67
[1968]Ch353,398.
68
HillsdownHoldingsplcvPensionsOmbudsman[1997]1AllER862,895(KnoxJ).
69
Seee.g.Chapter14.4(d),pp.66979.
70
Asamatterofright.
71
[1977]Ch106,241.
72
(1804)9Ves234,247.
73
GibsonvJeyes(1801)6Ves266(31E.R.1044)MoodyvCox&Hatt[1917]2Ch71DemeraraBauxiteCo.Ltd
vHubbard[1923]AC673.
74
[1977]Ch106,241.
75
Courtsaretraditionallyreluctanttoexaminethesubstantivefairnessofatransactionforexample,thecourtwill
notenquireastotheadequacyofconsiderationprovidedtocreateabindingcontract:e.g.BainbridgevFirmstone
(1838)8A&E743.
76
[1896]AC44at51,quotedinChapter14.2,p.645.
77
GuinnessplcvSaunders[1990]2AC663,700.
78
Thismayalsobeseenasbreachofthenoprofitrule:seeChapter14.4,p.663.
79
[1982]1Ch61.
80
[1982]1Ch61,79(FoxLJ).
81
GuinnessplcvSaunders[1990]2AC663,701.
82
[1946]Ch73(ChD,CohenJ).
83
ReKeelersSettlementTrusts[1981]Ch156.
84
SeeConaglen,FiduciaryRegulationofConflictsbetweenDuties(2009)125LQR111.
85
[1971]2Ch71,81.
86
Clark BoycevMouat[1994]1AC428,435.
87
HiltonvBark er,BoothandEastwood[2005]UKHL8[2005]1WLR567.
88
SeeConaglen,ConflictingDutiesOwedbySolicitorsActingforMultipleClients(2005)64CLJ291.
89
[2005]UKHL8[2005]1WLR567,[44].
90
[1998]Ch1,19.
91
(1877)4R294,308.
92
SeeHicks,TheRemedialPrincipleinKeechvSandfordReconsidered(2010)69CLJ285.
93
[1903]2Ch40.
94
ReBiss[1903]2Ch40,56.
95
Cretney,TheRationaleofKeechvSandford[1969]Conv161,176.
96
96
Generallythefreeholdinterestheldbytheowneroftheproperty.
97
PhillipsvPhillips(1885)29ChD673.
98
[1964]1WLR993at1009.
99
[1968]1WLR519.
100
Ibid,521.
101
[1974]1WLR605,606.
102
[2000]Ch291,340.Thiscasedidnotconcerntherenewalofaleasebutofmanagementandpromotion
agreementsenteredintobyapartnerforthebenefitofapartnership,towhichsimilarprinciplesapplied.
103
ThompsonsTrusteeinBank ruptcyvHeaton[1974]1WLR605,613.
104
Chapter14.4(c)(i),p.665.
105
[1965]AC244,256.
106
[1954]AC11.
107
DiscussedinmoredetailinChapter14.5(b)(i),pp.6927.
108
[58].
109
Hicks,TheRemedialPrincipleinKeechvSandfordReconsidered(2010)69CLJ285,2958.
110
(1728)2PWms456,459.
111
[1916]1AC554.
112
113
SeeSinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd[2011]EWCACiv347[2012]Ch453
discussedinChapter14.5(b)(i),pp.6927.
114
Cf.FMREuropeanVenturesLLPvMank arious[2013]EWCACiv17seealsoChapter14.5(b)(i),p.697.
115
Acceptingabribealsoclearlybreachesthenoconflictprinciple.
116
[1951]AC507.
117
Ibid,516.
118
[2004]EWHC622(Ch)[2005]Ch119.
119
Ibid,at[51][52].
120
121
Atleastnotwithoutthefullyinformedconsentofhisprincipal.
122
123
s.176(4):seeChapter14.2(f),pp.6503.
124
Nolan,Regal(Hastings)LtdvGulliver(1942)inLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:
Hart,2012).
125
(1803)8Ves337.
126
126
[1967]2AC134n,1445,and14950.Seetooe.g.ViscountSankey(1378),LordWright(155),LordPorter
(1580).
127
[1967]2AC134n,157(LordPorter).
128
SeePrentice,CorporateOpportunityWindfallProfits(1979)42MLR215.
129
[1967]2AC134n,150.SeetooLordWrightat157.
130
See[1916]1AC554seeChapter14.4(b),p.668.
131
Perhapstherebynegatingfullyinformedconsent.
132
ButseeNolan,Regal(Hastings)LtdvGulliver(1942)inLandmark CasesinEquity(edsMitchellandMitchell)
(Oxford:Hart,2012).
133
[1981]Ch257,308.AlthoughtheEditorialNoteofRegalat[1942]1AllER378,379appearstoassumethatthe
directorsinRegalalsocontrolledthemajorityoftheshareholdinginthecompany,VinelottJthoughtdifferently.
134
SeeBryan,BoardmanvPhipps(1967)inLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:Hart,
2012).
135
136
[1967]2AC46,87,94.
137
Ibid,126.
138
Ibid,115.
139
Ibid,at1256.
140
Ibid,at112.
141
Ibid,104.
142
Ibid,at1256(LordUpjohn)106(LordHodson).
143
Ibid,at104.
144
SeeChapter11.2(h)(i),pp.51819.
145
SeeBryan,BoardmanvPhipps(1967)inLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:Hart,
2012),pp.5869.
146
[1967]2AC46,107.
147
Ibid,at115.
148
Ibid,at1023.
149
Ibid,at1279.
150
Ibid,at89,91.
151
E.g.QuarterMasterUKLtdvPyk e[2005]1BCLC245,[71](PaulMorganQC).
152
[1967]2AC46,109.
153
Ibid,118.
154
Ibid,at88.
155
155
Ibid,at124,131.
156
Particularlysincethetrustwouldstillhaveneededtoapplytothecourtinordertoobtainpermissiontopurchase
sharesinthecompany.
157
E.g.QueenslandMinesvHudson(1978)18ALR1,3(LordScarman)BhullarvBhullar[2003]EWCACiv424
[2003]2BCLC241,[272].
158
[1967]2AC46,1034,106,111,112.
159
E.g.LordScarmaninQueenslandMinesvHudson(1978)18ALR1,3:LordUpjohn,whodissentedonthefacts
butnotonthelaw.
160
[1967]2AC46,117.
161
Chapter14.4(d)(i),pp.6724.
162
[1967]2AC46,104(Cohen)112(Hodson).
163
Chapter14.5(e),p.699.
164
ManufacturersTrustCo.vBeck er338US304,70SupCt127(1949).
165
UnjustEnrichmentandtheFiduciarysDutyofLoyalty(1968)84LQR472,483502.
166
QuestioningtheTrustLawDutyofLoyalty:SoleInterestorBestInterest?(2005)114YaleLJ929,932,955.
167
[1966]SCR673.
168
ForasimilarapproachinAustralia,seeConsulDevelopmentvDPCEstates(1975)132CLR373.
169
Cf.CompaniesAct2006,s.175.SeeChapter14.2(f),pp.6503.
170
[1978]52ALJR379.
171
Ibid,at5,8,910.
172
Cf.Regal(Hastings)LtdvGulliver[1967]2AC134n.
173
Sullivan,GoingItAloneQueenslandMinesvHudson(1979)42MLR711,715.
174
SeeChapter14.2(f),pp.6503.
175
[2005]EWCACiv959[2005]WTLR1573.
176
Regal(Hastings)LtdvGulliver,[1967]2AC134n,154.
177
[2005]EWCACiv959[2005]WTLR1573,[82][83].
178
Ibid,[121].
179
(1801)6Ves488.
180
[2005]EWCACiv959[2005]WTLR1573,[74].
181
[2003]EWCACiv424[2003]2BCLC241.
182
Armour,Corporateopportunities:ifindoubt,disclose(buthow?)(2004)CLJ33.
183
ThisisanextractfromanoteonMurad.ForfullerdiscussionofLangbeinsapproach,seeConaglen,TheExtent
ofFiduciaryAccountingandtheImportanceofAuthorisationMechanisms(2011)CLJ548seetooLeslie,In
DefenseoftheNoFurtherInquiryRule:AResponsetoProfessorLangbein(2005)47WilliamandMaryLRev541
Flannigan,TheStrictCharacterofFiduciaryLiability[2006]NZLRev209.
184
Mark sandSpencerplcvFreshfieldsBruck hausDeringer(afirm)[2004]EWHC1337(Ch)[2004]1WLR2331,
[26](LawrenceCollinsJ).
185
186
CMSDolphinLtd.vSimonet[2001]2BCLC704,[97].
187
Chapter6.4(e),p.682.
188
Chapter17.5,p.806.
189
[2005]EWCACiv.959[2005]WTLR1573,[56][77].
190
SwindlevHarrison[1997]4AllER705seeChapter14.5(c),pp.6978.
191
FyffesGroupLtdvTempleman[2002]LloydsLawRep643.
192
Cf.WarmanInternationalLtdvDwyer(1995)182CLR544,[40].
193
Seee.g.AGforHongKongvReid[1994]1AC324,discussedbelow.Ontracing,seeChapter18.
194
SeeChapter1.4(c)(i),pp.1112andChapter18.
195
[1916]1AC554seeChapter14.4(b),p.668.
196
[2011]EWCACiv347[2011]3WLR1121,[89].
197
SincemostofthemembersoftheHouseofLordsthoughtthatinformationwasnotproperty:seeChapter
14.4(ii),pp.6746.
198
Chapter14.4(d),p.671.
199
AtfirstinstanceinSinclar:[2010]EWHC1614(Ch),[41][47].
200
[2011]EWCACiv347[2011]3WLR1121,[70].
201
PhippsvBoardman[1964]2AllER187at208.Theofficialreportisnotquitesoclear([1964]1WLR993at
1018)butintheCourtofAppealPearsonLJthoughtthataproprietaryremedywasawarded([1965]1Ch992at
1021),asdidLordCohen([1967]2AC46,99)andLordGuest([1967]2AC46,112)intheHouseofLords.
202
(1890)45ChD1.
203
Fortracing,seeChapter18.
204
(1890)45ChsD1,1516.
205
206
HamiltonvWright(1842)9Cl&F111,124.
207
Voltaire,Candide,ch.23
208
SeethejudgmentofDenningJinReadingvAG[1948]1KB268,275,citedwithapprovalbyLordPorter[1951]
AC[515]:Itismoneywhichtheservantoughtnottobeallowedtokeep,andthelawsaysitshallbetakenfromhim
andgiventohismaster.
209
DaraydanHoldingsLtdvSollandInternationalLtd[2004]EWHC622(Ch)[2005]Ch119.SeealsoOcular
SciencesLtdvAspectVisionCareLtd[1997]RPC289,41213(LaddieJ)FyffesGroupLtdvTempleman[2002]2
LloydsRep643.
210
210
Adifferentclaimwasbroughtbythedefraudedbanks.
211
[2011]EWCACiv347[2012]Ch453,[56].
212
Seeimmediatelybelow.
213
[50][91].Ontracing,seeChapter18,ProprietaryClaimsandRemedies.
214
[2011]EWHC2286(Ch).SeetooFHREuropeanVenturesLLPvMank arious[2011]EWCACiv17.
215
GrimaldivChameleonMiningNL(No.2)[2012]FCAFC6,[569][584].However,inAustraliatheconstructive
trustisdiscretionary:seeChapter7.3,pp.34851.
216
Firstinstancedecisions,boundbytherulesofprecedent,haveunsurprisinglyfollowedthedecisionoftheCourt
ofAppealinSinclair:e.g.CadoganPetroleumplcvTolly[2011]EWHC2286(Ch)[2012]1P&CRDG5seetoo
FHREuropeanVenturesLLPvMank arious[2013]EWCACiv17.
217
[2004]EWHC622(Ch)[2005]Ch119.
218
Cook vDeek s[1916]1AC554.
219
PropertyandUnjustEnrichmentinEssaysontheLawofRestitution(ed.Burrows)(Oxford:ClarendonPress
1991),p.219
220
Cf.FHREuropeanVenturesLLPvMank arious[2013]EWCACiv17.
221
TheIssueofSharesCompensatingtheCompanyforLoss(2002)118LQR180,185.
222
[1997]4AllER705.SeealsoNoctonvLordAshburton[1914]AC932,9567.
223
SeefurtherConaglen,EquitableCompensationforBreachofFiduciaryFairDealingRules(2003)119LQR46,
2679.
224
[1996]1AC514,521.
225
Birks,InconsistencyBetweenCompensationandRestitution(1996)112LQR375.
226
LawCom.No.247,Aggravated,ExemplaryandRestitutionaryDamages(1997),[3.71].
227
[2011]EWCACiv985,[60].
228
229
EgBrownvLitton(1711)1PWms140.
230
[1985]QB428.
231
[1990]2AC663.
232
(1995)182CLR544,[33].CitedinMurad[2005]EWCACiv959[2005]WTLR1573,[114](JonathanParkerLJ).
233
[2005]EWCACiv959[2005]WTLR1573,[115].SeefurtherVirgo,RestitutionaryRemediesforWrongs:
CausationandRemotenessinJustifyingPrivateLawRemedies(ed.Rickett)(Oxford:Hart,2008).
LawTrove

DOI: 10.1093/he/9780199661480.001.0001
15.VariationofTrusts
Chapter: (p.703) 15.VariationofTrusts
DOI: 10.1093/he/9780199661480.003.0015
CentralIssues
1.Whereallthebeneficiariesofatrustareoffullage,undernodisability,andallagree,theycan
terminatethetrustandresettlethetrustpropertyonanewtrust.Thishasthepracticaleffectofvaryingthe
originaltrust.
2.Thecourthasanexceptionalinherentjurisdictiontovaryatrustincasesofnecessity.
3.Wherethecourtconsidersaparticulartransactiontobeexpedientinthemanagementoradministration
oftrustproperty,butthetrustinstrumentorthelawdoesnotgivethetrusteethepowertoundertakethat
transaction,thecourtcanconferthepoweronthetrustee.
4.TheVariationofTrustsAct1958enablesthecourttoconsenttothevariationofatrustonbehalfof
certainactualorpotentialbeneficiarieswhoareunabletoconsenttothevariation.
5.Inmostcases,thecourtwillonlyconsenttoavariationofthetrustwhereitisforthebenefitofthe
beneficiariesonwhosebehalfthecourtisconsenting.Benefitcanincludenonfinancialbenefit.
6.Itisamatterofsomecontroversyastowhethertheintentionofthesettlorortestatorinestablishingthe
trustcanbetakenintoaccountwhenthecourtdetermineswhethertoapprovethevariationoftrust.
7.TheActenablestherevocationofanexistingtrustandestablishmentofanewtrust,butonlywherethe
newtrustcanberegardedinsubstanceassimilartotheoldtrust.
1
Atrusteemustadministerthetrustinaccordancewithitsterms,otherwiseheorshewillcommitabreachoftrust.1
Sometimes,however,theobservanceofthetermsofthetrustwillbedetrimentaltotheinterestsofthebeneficiaries.
Inparticular,thestructureofthetrustmayhaveadversetaxconsequencesforthebeneficiaries.Thequestionthen
arisesastowhetheritispossibletovarythetermsofthetrust.Thereareavarietyofmechanismsfordoingso.One
oftheseiswherethetrustinstrumentmakesspecificprovisionforvariationofthetermsofthetrustbythetrustees.2
Ifnosuchprovisionismadetherearethreeothermechanismsfortrustvariation.
(p.704) 1.TerminationoftheTrust
Whereallthebeneficiariesofthetrustareoffullage,undernodisability,andallagree,theycanterminatethetrust
byvirtueoftheruleinSaundersvVautier.3 Thisenablesthebeneficiarieseithertodistributethetrustassets
amongstthemselvesortoagreetoresettlethetrustpropertyonothertrusts.Resettlementwillhavethepractical
effectofvaryingtheoriginaltrust,althoughtechnicallythatoriginaltrustwillhavebeendestroyedandreplacedbya
newone.ButterminationofthetrustundertheruleinSaundersvVautierwillnotbeavailablewherethereare
beneficiarieswhoareminors,whoarenotyetborn,wholackcapacity,orwhoarenotascertained.
2.InherentJurisdictionoftheCourt
Thecourthasaninherentjurisdictiontoauthorizetrusteestodocertainadministrativeactsthatarebeyondtheir
powers,withtheconsequenceofvaryingthetrusttemporarilyandadhoc,eventhoughnotallthebeneficiariescan
consenttoitbecauseofincapacityorbecausetheyarenotyetborn.Theexerciseofthisjurisdictionisexceptional
andmustclearlybeforthebenefitofallofthebeneficiaries.Theexerciseofthejurisdictionisconfinedtocasesof
necessity,suchaswherethereisaneedtopostponethesaleofpropertyforareasonabletime,anddoesnot
operatesimplybecauseaparticularactionwouldbeofbenefittothebeneficiaries.4 Thecourtdoesnototherwise
haveaninherentjurisdictiontovarytrusts.5 Theonenarrowexceptiontothisariseswherethereisadispute
betweenthebeneficiaries,whichthebeneficiariesarepreparedtocompromise.Insuchcircumstancesthecourtcan
sanctionthecompromiseonbehalfofchildandunbornbeneficiaries.6 Thisinherentjurisdictioncannotbeinvoked
wheretheadministrationofthetrustisnotindispute.
3.StatutoryProvisions
Therearetwostatutoryprovisionsthatgivethecourtsthepowertovarythetrust.Althoughthemostsignificantof
theseisVariationofTrustsAct1958,theother,theTrusteeAct1925,willbeconsideredbrieflyfirst.
(a)PowertoAuthorizeDealingswithTrustProperty
Wherethecourtconsidersaparticulartransactiontobeexpedientinthemanagementoradministrationoftrust
property,butthetrustinstrumentorthelawdoesnotgivethetrusteethepowertoundertakethattransaction,the
courtcanconferthepoweronthetrustee.
57.Powerofcourttoauthorisedealingswithtrustproperty
(1)Whereinthemanagementoradministrationofanypropertyvestedintrustees,anysale,lease,
mortgage,surrender,release,orotherdisposition,oranypurchase,investment,acquisition,
expenditureorothertransaction,isintheopinionofthecourtexpedient,butthesamecannotbe
effectedbyreasonoftheabsenceofanypowerforthatpurposevestedinthetrusteesbythetrust
instrument,ifany,orbylaw,thecourtmaybyorderconferuponthetrustees,eithergenerallyorin
anyparticularinstance,thenecessarypowerforthepurpose,onsuchterms,andsubjecttosuch
provisionsandconditions,ifany,asthecourtmaythinkfitandmaydirectinwhatmannerany
moneyauthorizedtobeexpended,andthecostsofanytransaction,aretobepaidorborneas
betweencapitalandincome.
(2)Thecourtmay,fromtimetotime,rescindorvaryanyordermadeunderthissection,ormay
makeanyneworfurtherorder.
(3)Anapplicationtothecourtunderthissectionmaybemadebythetrustees,orbyanyofthem,
orbyanypersonbeneficiallyinterestedunderthetrust.
Thisprovisioncanbeusedtogivethetrusteesthepowertosell,lease,orpurchasetrustproperty,ortoexpandthe
trusteespowersofinvestment,7 althoughthisislesssignificantfollowingtheexpansionofinvestmentpowersbythe
TrusteeAct2000.8 Itmayremainuseful,however,wherethestatutorypowersofinvestmenthavebeenrestrictedby
thetrustdeed,althoughitisunclearwhen,ifever,thecourtswouldconsiderittobeexpedienttovarythepowersof
investment.
Section57oftheTrusteeAct1925onlyconcernstheconferralofpowersrelatingtotheadministrationor
managementoftrustpropertyandcannotbeusedtoalterbeneficialinterestsunderthetrust.Theconferralofsuch
administrativepowersonthetrusteescanalsobeundertakenundertheVariationofTrustsAct1958,9 butsection57
hascertainadvantages,includingthatitisnotnecessarytoobtaintheconsentofalladultbeneficiariesforthe
variationtotakeeffect.ThiswasrecognizedinAnk erPetersenvAnk erPetersen,10 whereitwasheldthatboth
section57oftheTrusteeAct1925andtheVariationofTrustsAct1958couldbeusedtoextendinvestmentpowers
but,wheretherewasnoalterationofthebeneficialinterests,section57waspreferable.JudgePaulBakerQC
said:11
Where,however,noalterationofthebeneficialinterests[is]contemplateditappearstomemoreconvenient
tousesection57.InthefirstplacetheTrusteesarethenaturalpersonstomaketheapplicationsandthey
arethenormalapplicantsundersection57(seesubsection(3))butonlyexceptionallyaretheyapplicants
undertheActof1958:seeReDrucesSettlementTrusts[1962]1WLR363.Secondly,itisnotessentialto
obtaintheconsentofeveryadultbeneficiaryundersection57asitisundertheVariationofTrustsAct1958.
Thirdly,thecourtisnotrequiredtogiveconsentonbehalfofeverycategoryof(p.706) beneficiaryseparately
but,morerealistically,wouldconsidertheirinterestscollectivelyinincomeontheonehandandincapitalon
theother.
Thesepointsleadtoalesscostlyapplicationwithout,inmyjudgment,imperillingthelegitimateinterestsof
thebeneficiaries.Itisalsoclaimedthatsection57applicationsarecheaperandmoreconvenientbecause
theyaretakeninchamberswhereasapplicationsundertheActof1958aretakeninopencourt.Thisisnot
somethingwhichisdictatedbythestatutoryprovisions,butrestsinthepracticeofthecourt.
(b)VariationofTrustsAct1958
WhilsttheruleinSaundersvVautierenablesbeneficiariestoterminateatrustandresettletrustproperty,itonly
applieswherethebeneficiariesareadults,offullcapacity,fullyentitledtothetrustproperty,andallconsent.Ifanyof
thebeneficiariesareincapableofconsentingbecause,forexample,theyareinfantsornotyetborn,therulein
SaundersvVautierwillnotapply.ThisiswhytheVariationofTrustsAct1958wasneeded:itgivesthecourtthe
powertoapproveavariationonbehalfofparticularcategoriesofpeoplewhoarenotinapositiontoconsenttoit.
Thisfunctionofthe1958ActwasidentifiedbyMummeryLJinGouldingvJames.12
First,whatvariesthetrustisnotthecourt,buttheagreementorconsensusofthebeneficiaries.Secondly,
thereisnorealdifferenceinprincipleintherearrangementofthetrustsbetweenthecasewherethecourtis
exercisingitsjurisdictiononbehalfofthespecifiedclassunderthe1958Actandthecasewherethe
resettlementismadebyvirtueofthedoctrineinSaundersvVautier(1841)4Beav115,andbyalltheadult
beneficiariesjoiningtogether.Thirdly,thecourtismerelycontributingonbehalfofinfantsandunbornand
unascertainedpersonsthebindingassentstothearrangementwhichthey,unlikeanadultbeneficiary,cannot
give.The1958Acthasthusbeenviewedbythecourtsasastatutoryextensionoftheconsentprinciple
embodiedintheruleinSaundersvVautier.Theprinciplerecognisestherightsofbeneficiaries,whoaresui
jurisandtogetherabsolutelyentitledtothetrustproperty,toexercisetheirproprietaryrightstooverbearand
defeattheintentionofatestatororsettlortosubjectpropertytothecontinuingtrusts,powersandlimitations
ofawillortrustinstrument.
Whenthecourtapprovesthevariationonbehalfofthesebeneficiaries,theapprovalbindsthebeneficiaries.13 Itdoes
not,however,bindtheadultbeneficiarieswhoarecapableofconsentingandwhomustconsentintheirownrightfor
thevariationtobeeffective.Inthesamewaythatsettlorsortestatorscannotexcludetheoperationoftherulein
SaundersvVautier,sotootheycannotexcludetheapplicationoftheVariationofTrustsAct1958.14
TheVariationofTrustsAct1958givesthecourtthepowertoapproveanarrangementthatrevokesorvariesatrustor
enlargesthepowersofthetrusteestomanageoradministerthetrustproperty.15 (p.707) AlthoughtheActcovers
someofthegroundprovidedforbysection57oftheTrusteeAct1925,andhasalsobeenusedtovaryinvestment
powers,16 itissignificantlywidersinceitalsoenablesbeneficialintereststobevaried.
VariationofTrustsAct1958
1.Jurisdictionofcourtstovarytrusts
(1)Whereproperty,whetherrealorpersonal,isheldontrustsarising,whetherbeforeorafterthe
passingofthisAct,underanywill,settlementorotherdisposition,thecourtmayifitthinksfitby
orderapproveonbehalfof
(a)anypersonhaving,directlyorindirectly,aninterest,whethervestedorcontingent,under
thetrustswhobyreasonofinfancyorotherincapacityisincapableofassenting,or
(b)anyperson(whetherascertainedornot)whomaybecomeentitled,directlyorindirectly,to
aninterestunderthetrustsasbeingatafuturedateoronthehappeningofafutureeventa
personofanyspecifieddescriptionoramemberofanyspecifiedclassofpersons,so
howeverthatthisparagraphshallnotincludeanypersonwhowouldbeofthatdescription,or
amemberofthatclass,asthecasemaybe,ifthesaiddatehadfallenorthesaideventhad
happenedatthedateoftheapplicationtothecourt,or
(c)anypersonunborn,or
(d)anypersoninrespectofanydiscretionaryinterestofhisunderprotectivetrustswherethe
interestoftheprincipalbeneficiaryhasnotfailedordetermined.
anyarrangement(bywhomsoeverproposed,andwhetherornotthereisanyotherperson
beneficiallyinterestedwhoiscapableofassentingthereto)varyingorrevokingalloranyofthe
trusts,orenlargingthepowersofthetrusteesofmanagingoradministeringanyoftheproperty
subjecttothetrusts:
Providedthatexceptbyvirtueofparagraph(d)ofthissubsectionthecourtshallnotapprovean
arrangementonbehalfofanypersonunlessthecarryingoutthereofwouldbeforthebenefitofthat
person.
Therehavebeenveryfewreportedcasesontheinterpretationofthislegislation.Evanshassuggestedareasonfor
this:17
OneofthereasonswhyreportedcasesontheVTA[VariationofTrustsAct]1958havecomealongrelatively
infrequentlyis,itissuggested,becausesuchapplicationsareexpensive.TheprocedureisinvariablyHigh
Court,alladultswithabeneficialinterestmustbeapartytotheapplicationandseparatelyrepresented,and
thehearingisusuallyinopencourt.WhilsttherehavebeenapplicationsundertheActwhichhaveconsidered
moralandsocialbenefits,andthegeneralwelfareofbeneficiariesinpracticethemajorityofapplications
whichhavebeenmadetothecourtunderVTA1958haveinvolvedrestructuringofbeneficialinterestsor
administrativeprovisionswhichhavetheeffectofsavingsignificantamountsoftax.Thisfinancialincentiveis
themaininducementtoincurtheexpenseofanapplication.
(p.708) (i)Variationandresettlement
The1958Actonlymakesspecificreferencetothecourtapprovalofanarrangementthatvariesorrevokesatrustor
enlargestheadministrativepowersofthetrusteesnoreferenceismadetoapowertoauthorizetherevocationand
thenresettlementofthetrust.Thiswouldsuggestthat,ifbeneficiariesweretowanttorevokeandresettlethetrust,
theycouldnotdosounderthestatute18 theywouldhavetoresorttotheruleinSaundersvVautier,whichwouldbe
inapplicableifanyofthebeneficiarieslackedcapacityorwereunascertained.The1958Acthas,however,been
interpretedasextendingtotheauthorizationofanarrangementthatrevokesanexistingtrustandestablishesanew
trust,butonlywherethenewtrustcanberegardedinsubstanceassimilartotheoldtrust.19 Consequently,
althoughtheformadoptedisrevocationandresettlement,thisiseffectivelyavariationunderwhichthenewtrustis
recognizableastheold.Whetherthecourtwillauthorizesuchrevocationoftheoriginaltrustandresettlementona
newtrustwilldependonwhetherthesubstratumoftheoriginaltrustcanbeidentifiedinthenewtrust.Thisappears
tobeaveryeasytesttosatisfy.
ReBallsSettlementTrusts[1968]1WLR899,903(MegarryJ)
whilethereisplainlyjurisdictiontoapprovethearrangementinsofarasitrevokesthetrusts,inmyview
thereisequallyplainlynojurisdictiontoapprovethearrangementasregardsresettlingtheproperty,at
anyrateeonomine[bythatname].Inthisconnection,IbearinmindthewordsofWilberforceJinRe
TsSettlementTrusts[1964]Ch158.Hetheresaidat162:
IhavenodesiretocutdowntheveryusefuljurisdictionwhichthisActhasconferreduponthe
court.ButIamsatisfiedthattheproposalasoriginallymadetomefallsoutsideit.Though
presentedasavariationitisintruthacompletenewresettlement.Theformertrustfundswereto
begotinfromtheformertrusteesandhelduponwhollynewtrustssuchasmightbemadebyan
absoluteownerofthefunds.Idonotthinkthatthecourtcanapprovethis.
Butitdoesnotfollowthatmerelybecauseanarrangementcancorrectlybedescribedaseffectinga
revocationandresettlement,itcannotalsobecorrectlydescribedaseffectingavariationofthetrusts.
Thequestiontheniswhetherthearrangementinthiscasecanbesodescribed.Inthecourseof
argumentIindicatedthatitseemeddesirableforthesummonstobeamendedbysubstitutingthewords
varyingforthewordrevokinganddeletingthereferencetoresettling,andthatIwouldgiveleaveforthis
amendmenttobemade.Onthesummonsassoamendedthequestionisthuswhetherthearrangement
canfairlybesaidtobecoveredbythewordvaryingsothatthecourthaspowertoapproveit.
TherewassomediscussionoftheambitofthiswordinReHoltsSettlement[1969]1Ch100.Itwas
thereheldthatifinsubstancethenewtrustswererecognizableastheformertrusts,thoughwith
variations,thechangewascomprehendedwithinthewordvarying,evenifithadbeenachievedbya
processofrevocationandnewdeclaration.Inthatcase,thenewtrustswereplainlyrecognizableasthe
oldtrustswithvariations.Inthepresentcase,thenewtrustsareverydifferentfromtheold.Thesettlors
lifeinterestvanishessodoesthepowerofappointment,thoughthatwillnowbereleased.Inplaceofthe
provisionindefaultofappointmentforabsoluteinterestsforthetwosonsiftheysurvivethesettlor,andif
not,fortheirissuestirpitally,20 thereisnowalifeinterestforeachson,andvested(p.709) absolute
interestsforthechildrenofthesonsbornbefore1October,1977.Thereisacleansweepofthe
somewhatexiguousadministrativeprovisionsandanequallyexiguousnewsetintheirplace.Allthat
remainsoftheoldtrustsarewhatImaycallthegeneraldriftorpurport,namely,thatamoietyofthetrust
fundistobeheldoncertaintrustsforeachsonandcertainofhisissue.Isthewordvaryingwideenough
toembracesocategoricalachange?
Ifanarrangementchangesthewholesubstratumofthetrust,thenitmaywellbethatitcannotbe
regardedmerelyasvaryingthattrust.Butifanarrangement,whileleavingthesubstratum,effectuatesthe
purposeoftheoriginaltrustbyothermeans,itmaystillbepossibletoregardthatarrangementasmerely
varyingtheoriginaltrusts,eventhoughthemeansemployedarewhollydifferentandeventhoughtheform
iscompletelychanged.
Iam,ofcourse,wellawarethatthisviewcarriesmeagooddealfartherthanIwentinReHolts
Settlement[1969]1Ch100.Ihavefeltsomehesitationinthematter,butonthewholeIconsiderthat
thisisapropersteptotake.ThejurisdictionoftheActisbeneficialand,inmyjudgment,thecourt
shouldconstrueitwidelyandnotbeastutetoconfineitsbeneficentoperation.Imustrememberthatin
essencethecourtismerelycontributingonbehalfofinfantsandunbornandunascertainedpersonsthe
bindingassentstothearrangementwhichthey,unlikeanadultbeneficiary,cannotgive.Sofarasis
proper,thepowerofthecourttogivethatassentshouldbeassimilatedtothewidepowerswhichthe
ascertainedadultshave.
Inthiscase,itseemstomethatthesubstratumoftheoriginaltrustsremains.True,thesettlorslife
interestdisappearsbuttheremainingtrustsarestillinessencetrustsofhalfofthefundforeachofthe
twonamedsonsandtheirfamilies,withdefinedinterestsforthesonsandtheirchildreninplaceofthe
formerprovisionsforapowerofappointmentamongthesonsandtheirchildrenandgrandchildrenandfor
thesonstotakeabsolutelyindefaultofappointment.Intheeventswhicharelikelytooccur,the
differencesbetweentheoldprovisionandthenewmay,Ithink,fairlybesaidtolieindetailratherthanin
substance.Accordingly,inmyjudgment,thearrangementhereproposed,withthevariousrevisionstoit
madeinthecourseofargument,canproperlybedescribedasvaryingthetrustsofthesettlement.
Thiswideconstructionofthe1958Actisconsistentwiththecourtsgeneralattitudetothelegislation,namelythat
thejurisdictionisbeneficialandthecourtisonlyprovidingconsentonbehalfofthosewhocannotgiveit,sothereis
noharminadoptingawideinterpretation.
(ii)Peopleonwhosebehalfapprovalmaybegiven
The1958Actidentifiesfourcategoriesofpeoplewhoareunabletoconsenttothevariationoftrustandonwhose
behalfthecourtisabletoconsent:thosewhoareunabletoconsentduetoinfancyorincapacity,whichincludes
mentalincapacity21 anypersonunbornanybodywithadiscretionaryinterestunderaprotectivetrust22 and
anybodywhomaybecomeentitledtoaninterestunderthetrustinthefuture.
Therationalebehindthislastcategoryisthatthecourtisabletoconsenttoavariationonbehalfofpeoplewho
cannotconsentbecausetheybelongtoaclassthatisonlyascertainableinthefuture,andsotheirmembershipof
thatclasscannotbeascertainedatthetimewhenconsenttothevariationisrequired.23 Thiscategoryonlyincludes
thosewhohaveahopeofaninterestinthefuture,suchasthenextofkinofalifetenantorapossiblespouse,and
doesnotincludesomebodywhoisalready(p.710) entitledtoaninterestunderthetrust.So,inKnock ervYoule,24
incomewasheldontrustforthesettlorsdaughterforlifewithremaindertothoseappointedunderherwill.Indefault
ofappointmenttherewasagiftovertothesettlorssonor,ifhewasdead,tothesettlorsfoursistersor,iftheywere
dead,totheirissuewhohadattainedtheageof21(thecousinsofthesettlorssonanddaughter).Thesettlorsson
anddaughtersoughtavariationofthetrust.Theissueforthecourtwaswhether,sincethesettlorsfoursisterswere
dead,thecourthadjurisdictiontoconsenttothevariationonbehalfofthesisterschildrenundersection(1)(1)(b),on
thegroundthattheymightbeentitledtoaninterestunderthetrustinthefuture.Inholdingthatthecourtdidnothave
jurisdictiontoapprovethevariationontheirbehalf,WarnerJsaid:25
itisnotstrictlyaccuratetodescribethecousinsaspersonswhomaybecomeentitledtoaninterest
underthetrusts.Thereisnodoubtofcoursethattheyaremembersofaspecifiedclass.Eachofthemis,
however,entitlednowtoaninterestunderthetrusts,albeitacontingentoneandalbeitalsothatitisan
interestthatisdefeasibleontheexerciseofthegeneraltestamentarypowersofappointmentvestedin[the
settlorssonanddaughter].Nonetheless,itisproperlydescribedinlegallanguageasaninterest,andit
seemstomeplainthatinthisActthewordinterestisusedinitstechnical,legalsense.Otherwise,the
wordswhethervestedorcontingentinsection1(1)(a)wouldbeoutofplace.
Whatcounselinvitedmetodowasineffecttointerpretthewordinterestinsection1(1)loosely,asalayman
might,soasnottoincludeaninterestthatwasremote.Iwasreferredtotwoauthorities:ReMoncrieffs
SettlementTrusts(PracticeNote)[1962]1WLR1344,andtheearliercase,ReSuffertsSettlement[1961]
Ch1.Inboththosecases,however,theclassinquestionwasaclassofprospectivenextofkin,andof
courseitistritelawthattheprospectiveorpresumptivenextofkinofalivingpersondonothaveaninterest.
Theyhaveonlyaspessuccessionis,ahopeofsucceeding,andquitecertainlytheyarethetypicalcategory
ofpersonswhofallwithinsection1(1)(b).Anotherfamiliarexampleofapersonfallingwithinthatprovisionisa
potentialfuturespouse.Itseemstome,however,thatapersonwhohasanactualinterestdirectlyconferred
uponhimorherbyasettlement,albeitaremoteinterest,cannotproperlybedescribedasonewhomay
becomeentitledtoaninterest.
Section1(1)(b)issubjecttoaproviso,theeffectofwhichisthatthecourtcannotconsentonbehalfofapersonwho
wouldbecomeentitledtoaninterestunderthetrusteitherif:(i)hisorherentitlementdependedonafuturedateor
(ii)aneventthathadhappenedatthetimeoftheapplicationtothecourttoapprovethevariationofthetrust.This
provisoaimstodrawadistinctionbetweenapersonwhoisnowhereinsight,suchasafuturespouse,andsomeone
whoiseasilyidentifiable,suchasanextofkin.26 Thecourtcanapprovethevariationonbehalfoftheformer,butnot
thelatter.
ThisisillustratedbyReSuffertsSettlement,27 wherethebeneficiarysoughtavariationofatrustsothatthebulkof
thefundwastransferredtoher.Shehadalifeinterestinthefund,andifsheweretodiewithoutleavinganychildren,
thefundwouldbeheldontrustforherstatutorynextofkin.Whentheapplicationforapprovalofthevariationwas
made,shewasunmarriedandhernearestrelativeswerethreeadultcousins.Itwasheldthatthecourtcouldapprove
thevariationonbehalfofherunbornchildren,28 butnotonbehalfofthecousins.Thiswasbecausetheirprospective
interestunderthetrustwasconditionalontheoccurrenceofaparticularevent,namelythebeneficiarysdeath.Ifit
wasassumedthatshehaddiedbythetimetheapplicationforapprovalofthevariationwasmade,thecousinswould
bemembersofthespecifiedclass.Consequently,thecousinsneededtodecidefor(p.711) themselveswhetheror
nottoagreetothevariationthecourtcouldnotagreetothevariationontheirbehalf.
ThiswasconfirmedinKnock ervYoulewheresomeofthecousinshadattainedtheageoftwentyone.
KnockervYoule[1986]1WLR934,937(WarnerJ)
Theseconddifficultyisthatthereare17cousinswho,ifthefailureordeterminationoftheearlier
trustsdeclaredbythesettlementhadoccurredatthedateoftheapplicationtothecourt,wouldhave
beenmembersofthespecifiedclass,inthattheywerethenlivingandover21.Therefore,theyareprima
facieexcludedfromsection1(1)(b)bywhathasbeenconvenientlycalledtheprovisotoit,thatistosay
thepartbeginningsohoweverthatthisparagraphshallnotincludeTheyareinthesameboat,ifImay
expressitinthatway,asthefirstcousinsinReSuffertsSettlementandtheadoptedsoninRe
MoncrieffsSettlementTrusts(PracticeNote).Thecourtcannotapprovethearrangementontheirbehalf
onlytheythemselvescandoso.
[Counsel]suggestedthatIcoulddistinguishReSuffertsSettlementandReMoncrieffsSettlement
Trusts(PracticeNote)inthatrespectfortworeasons.First,hesuggested,thattheprovisoappliedonlyif
therewasasingleeventonthehappeningofwhichonecouldascertaintheclass.Here,hesaid,both
[thesettlorssonanddaughter]mustdiewithoutexercisingtheirgeneraltestamentarypowersof
appointmenttothefullbeforeanyofthecousinscouldtakeanything.Butitseemstomethatwhatthe
provisoisreferringtoistheeventonwhichtheclassbecomesascertainable,andthatthatisasingle
event.Itis,inthiscase,thedeathofthesurvivorof[thesettlorssonanddaughter],neitherofthem
havingexercisedthepowertothefull
Thesecondreasonsuggestedby[counsel]whyIshoulddistinguishtheearlierauthoritieswasthatthe
eventhypothesisedintheprovisowasthedeathofthesurvivorof[thesettlorssonanddaughter]onthe
datewhentheoriginatingsummonseswereissued,thatistosayon6January,1984.Thereisevidence
thatonthatdaytherewereinexistencewillsofbothofthemexercisingtheirtestamentarypowerstothe
full.Thedifficultyaboutthatisthattheprovisodoesnotsaysohoweverthatthisparagraphshallnot
includeanypersonwhowouldhavebecomeentitledifthesaideventhadhappenedatthedateofthe
applicationtothecourt.Itsayssohoweverthatthisparagraphshallnotincludeanypersonwhowould
beofthatdescription,oramemberofthatclass,asthecasemaybe,ifthesaiddatehadfallenorthe
saideventhadhappenedatthedateoftheapplicationtothecourt.Sotheprovisoisdesignedtoidentify
thepresumptivemembersoftheclassatthedateoftheapplicationtothecourtanddoesnotadvertto
thequestionwhetheratthatdatetheywouldorwouldnothavebecomeentitled.
IwasremindedbycounseloftheprinciplethatonemustconstrueActsofParliamenthavingregardto
theirpurpose,anditwassuggestedthatthepurposeherewastoexcludetheneedtojoinaspartiesto
applicationsundertheVariationofTrustsAct1958peoplewhoseinterestswereremote.Inmyview,
however,thatprincipledoesnotenablemetotakethesortoflibertywiththelanguageofthisstatutethat
Iwasinvitedtotake.Itisnoteworthythatremotenessdoesnotseemtobethetestifonethinksinterms
ofpresumptivestatutorynextofkin.Thehealthyissueofanelderlywidowwhoisonherdeathbed,and
whohasnotmadeawill,haveanexpectationofsucceedingtoherestatethatcouldhardlybedescribed
asremote.Yettheyareacategoryofpersonsonwhosebehalfthecourtcould,subjectofcoursetothe
proviso,approveanarrangementunderthisAct.Ontheotherhand,peopleinthepositionofthecousins
inthiscasehaveaninterestthatisextremelyremote.Nonetheless,itisaninterest,and(p.712) the
distinctionbetweenanexpectationandaninterestisonewhichIdonotthinkthatIamentitledtoblur.
So,withregret,havingregardtotheparticularcircumstancesofthiscase,IhavetosaythatIdonot
thinkthatIhavejurisdictiontoapprovethesearrangementsonbehalfofthecousins.
Thenotionofaninterestunderatrustinsection1(1)(a)oftheVariationofTrustsAct1958hasbeeninterpretedto
includeinterestsunderadiscretionarytrustoranimpliedtrustarisingonthedeathofatestator.InBernsteinv
Jacobson,29 BlackburneJsaid:
thefactthatduringtheperiodofadministrationofanestatethebeneficiaries,whetherlegateesorotherwise,
havenolegalorequitableinterestintheassetscomprisedintheestate,buthavenomorethanarightto
requirethedeceasedsestatetobedulyadministered,doesnotmeanthatevenifitcanbesaidthatthe
propertycomprisedintheestateisheldontrustsarisingunderawill,settlementorotherdisposition,the
legateescannotestablishaninterestunderthosetrustssoastocomewithinsection1(1)(a).Itisclearthat
thereferencetointerestinthatparagraphisnotsoconfined.Itisnotindisputethatthe1958Actauthorises
thecourttogiveitsapprovalonbehalfofbeneficiariesofadiscretionarytrust,notwithstandingthattheyhave
nofixedproprietaryentitlementbutonlyarighttobeconsidered.Thatsection1(1)(a)extendstosuchan
interestisconfirmedbythefactthatsection1(1)(d)appliestoanypersoninrespectofanydiscretionary
interestofhisunderprotectivetrustswheretheinterestoftheprincipalbeneficiaryhasnotfailedor
determined.ItwouldbeperverseiftheActextendedtothebeneficiariesofadiscretionarytrustunder
protectivetrustswheretheinteresttotheprincipalbeneficiaryhadnotyetfailedordetermined,butnotto
thosebeneficiarieswheretheprincipalbeneficiarysinteresthadfailedordetermined.
(iii)Principlesapplicabletotheexerciseofthecourtsdiscretion
Thecourthasadiscretiontoapprovethevariationofthetrustifitthinksfit.30 Whereapprovalissoughtonbehalfof
apersonwholackscapacity,whoisunborn,orwhoisnotyetascertained,thecourtcanapprovethevariationonlyif
itisforthebenefitofthatperson.Theonlyexceptiontothisprincipleiswherethepersononwhosebehalfthe
approvalisgivenisapersonwhowouldbeentitledunderaprotectivetrustifitthattrusthadfailedordetermined.
Variousprinciplescanbeidentifiedtoassistthedeterminationofwhetherthevariationisforthebenefitofthosewho
areunabletoconsenttothevariation.
(a)Taxsaving
Thecourtmaybewillingtoapprovethevariationofatrustevenifitssoleobjectiveistomakeasignificantsavingof
tax.InBernsteinvJacobson,31 approvalofavariationoftrustonbehalfofinfantgrandchildrenwassoughtinorderto
reducetheburdenofinheritancetax,whichwouldtherebyincreasethevalueofthelegaciesgiventothe
grandchildrensignificantly.Thispecuniaryadvantagewasconsideredtooutweighanypotentialdisadvantages,such
asthechildrenobtainingabenefitofsubstantialsumsofmoneyatanearlyage,whichmightnotnecessarilybe
consideredtobefortheirbenefit.ThesignificanceofthishasbeenrecognizedbyEvans:32
(p.713) BlackburneJ[inBernstein]wascompletelyhappythataschemewhichhadasitssoleobjectivea
significantsavingof[inheritancetax]wasforthebenefitofthestepgrandchildren.Thisofitselfwasnot
groundbreaking.Considerableauthorityhadbuiltupforvariationshavingbeenauthorisedpurelytoeffect
[savingsofinheritancetaxandcapitalgainstax]andsavingsofincometaxitemergesfromthedecision
thatthebenefittobegainedbysavingsof[inheritancetax]canoutweightheperceiveddisadvantagesof
youngpersonsbecomingentitledtoabsolutevestedinterestsinsubstantialsumsofmoneyattooyoungan
age.Therehadpreviouslybeenoccasionswherecourtshadregardedincreasingtheageatwhichyoung
personsreceivetheirfundsasfortheirbenefitinthebeliefthattheyarelikelytobemoreresponsibleat,for
example,theageof25.33
(b)Risktaking
Indeterminingwhetherthevariationislikelytobenefitthepeoplewhoareunabletoconsentthemselves,thecourt
shouldbewillingtotakethesameriskasareasonableadultwouldtakeinapprovingthescheme.34 Consequently,
theschemeshouldbeapprovedifitishighlylikelytobenefittherelevantpeople,eventhoughtheremightbeasmall
chancethattheschememightprovetobeprejudicial.ThiswasrecognizedbyMegarryJinReHoltsSettlement,35
inrespectoftheapprovalofanarrangementonbehalfofanunbornchild,whichwoulddisadvantagethechildifthe
childsmotherdiedinchildbirthorshortlythereafter.Heacceptedthat:
althoughtherewasthechancethatitsmotherwoulddieimmediatelyafterwards,therewasalsothe
alternativechancethatitsmotherwouldsurviveitsbirthforasubstantialperiodoftime.Inthelatterevent,
whichwasthemoreprobable,theadvantagesofthearrangementwouldaccruetotheinfantSuchan
unbornpersonfallsintothecategoryofunbornpersonsonwhosebehalfthecourtshouldbepreparedto
takeariskifthearrangementappearsonthewholetobefortheirbenefit.
(c)Nonpecuniarybenefit
InReHoltsSettlement,36 MegarryJrecognizedthat:
Thewordbenefitis,Ithink,plainlynotconfinedtofinancialbenefit,butmayextendtomoralorsocialbenefit.
Therehaveevenbeencasesinwhichthevariationwastotheclearfinancialdetrimentofthebeneficiary,butthe
variationwasstillapprovedbecausethebeneficiarywouldhaveconsentedtothevariationifheorshehadhadthe
capacitytodoso.Forexample,inReCL,37 thecourtapprovedavariationwherebythebeneficiarygaveupherlife
interestinatrustfundtoheradopteddaughtersthebeneficiarylackedthementalcapacitytoconsenttothe
transaction,butshewouldhavedonesohadshenotbeenincapacitated.
(p.714) ThesignificanceofnonpecuniaryconsiderationswasemphasizedinReWestonsSettlements,which
concernedanapplicationtovarytwosettlementsthatthesettlorhadmadeinfavourofhissons.
ReWestonsSettlements[1969]1Ch223,245
ThesettlorandhissonshadmovedtoJersey,andthesettlorappliedtothecourttoapproveanarrangement
underthe1958ActtoinsertapowerforthetrusteestodischargethepropertyfromthetrustsoftheEnglish
settlementsandtosubjectittoidenticaltrustsofaJerseysettlement.Thiswastoavoidcapitalgainstaxandto
saveestateduty,sotherewasanobviousfinancialbenefittothesons.Despitethis,thevariationwasnot
38
consideredtobeforthebenefitofthesons.LordDenningsaid:38
Twopropositionsareclear:(i)inexercisingitsdiscretion,thefunctionofthecourtistoprotectthosewho
cannotprotectthemselves.Itmustdowhatistrulyfortheirbenefit.(ii)Itcangiveitsconsenttoa
schemetoavoiddeathdutiesorothertaxes.Nearlyeveryvariationthathascomebeforethecourthas
taxavoidanceforitsprincipalobject:andnoonehaseversuggestedthatthisisundesirableorcontrary
topublicpolicy.
ButIthinkitnecessarytoaddthisthirdproposition:(iii)thecourtshouldnotconsidermerelythe
financialbenefittotheinfantsorunbornchildren,butalsotheireducationalandsocialbenefit.Thereare
manythingsinlifemoreworthwhilethanmoney.Oneofthesethingsistobebroughtupinthisour
England,whichisstilltheenvyoflesshappierlands.Idonotbelieveitisforthebenefitofchildrentobe
uprootedfromEnglandandtransportedtoanothercountrysimplytoavoidtaxherethefamilyhadonly
beeninJerseythreemonthswhentheypresentedthisschemetothecourt.Theinferenceisirresistible:
theunderlyingpurposewastogothereinordertoavoidtax.Idonotthinkthatthiswillbealltothegood
forthechildren.Ishouldimaginethat,eveniftheyhadstayedinthiscountry,theywouldhavehadavery
considerablefortuneattheirdisposal,evenafterpayingtax.TheonlythingthatJerseycandoforthemis
togivethemanevengreaterfortune.Manyachildhasbeenruinedbybeinggiventoomuch.The
avoidanceoftaxmaybelawful,butitisnotyetavirtue.TheCourtofChanceryshouldnotencourageor
supportititshouldnotgiveitsapprovaltoitifbysodoingitwouldimperilthetruewelfareofthe
children,alreadybornoryettobeborn.
Thereisonethingmore.IcannothelpwonderinghowlongtheseyoungpeoplewillstayinJersey.Itmay
betotheirfinancialinterestatpresenttomaketheirhometherepermanently.Butwilltheyremainthere
oncethecapitalgainsaresafelyinhand,clearoftax?Theymaywellchangetheirmindsandcomeback
toenjoytheiruntaxedgains.Issuchaprospectreallyforthebenefitofthechildren?Aretheytobe
wanderersoverthefaceoftheearth,movingfromthiscountrytothat,accordingtowheretheycanbest
avoidtax?Icannotbelievethattoberight.Childrenareliketrees:theygrowstrongerwithfirmroots.
Thelongandshortofitis,asthejudgesaid,thattheexodusofthisfamilytoJerseyisdonetoavoid
Britishtaxation.Havingmadegreatwealthhere,theywanttoquitwithoutpayingthetaxesandduties
whichareimposedonthosewhostay.Sobeit.Ifitreallybeforthebenefitofthechildren,letitbedone.
Letthemgo,takingtheirmoneywiththem.But,ifitbenottrulyfortheirbenefit,thecourtshouldnot
countenanceit.Itshouldnotgivetheschemeitsblessing.Thejudgerefusedhisapproval.SowouldI.I
woulddismissthisappeal.
(p.715) Itdoesnot,however,followthatthe1958Actcannotbeusedtovaryatrusttoenableittobemovedtoa
foreigncountry,butthisisonlylikelytobeauthorizedwherethereisagenuineandpermanentconnectionwiththat
country.39
(d)Familyharmony
Anotherformofnonpecuniarybenefitthatmightarisefromthevariationoftrustisthatthevariationmaycontributeto
familyharmony.
ReRemnantsSettlementTrust[1970]Ch560
Afamilytrustfundwassubjecttoforfeitureinrespectofanyoneofthechildrenoftwosisterswhopractised
RomanCatholicismorwhowasmarriedtoaRomanCatholic,withtheforfeitedportionaccruinginfavourofthe
otherbeneficiaries.Onesister,MrsHooper,andherchildrenwereProtestants,andtheothersister,Mrs
Crosthwaite,andherchildrenwereRomanCatholics.Bothsistersmadeanapplicationtothecourttoapprove
anarrangementthatdeletedtheforfeitureprovision.Thiswasapproved,eventhoughitwasnotforthefinancial
benefitofthechildrenoftheProtestantsister,whowouldhavebenefitedfromtheforfeitureoftheinterestsofthe
othersisterandherchildren.PennycuickJsaid:40
ThethreeconsiderationssetoutbyMrs.Crosthwaite,andelaboratedbycounsel,arethese:first,that
theforfeitureprovisionsrepresentadeterrenttoeachoftheHooperchildrenfromadoptingtheRoman
Catholicfaithshouldshebemindedtodososecondly,thattheyoperateasadeterrenttoeachofthe
Hooperchildrenintheselectionofahusbandwhenthetimecomesandthirdly,thattheforfeiture
provisionsrepresentasourceofpossiblefamilydissension.Iamnotsurethatthereisverymuchweight
inthefirstofthoseconsiderationsbecausethereisnoreasontosupposethatanyofthesechildrenhas
anyparticularconcernwiththeRomanCatholicfaith.Ontheotherhand,Idothinkthereisveryreal
weightinthesecondandinthethirdconsiderations.Obviouslyaforfeitureprovisionofthiskindmight
wellcauseveryseriousdissensionbetweenthefamiliesofthetwosisters.OnthebestconsiderationI
cangiveitIthinkthatthedeletionoftheforfeitureprovisionsonthetermscontainedinthearrangement
shouldberegardedasforthebenefitofthethreeHooperchildren.
Ihavenotfoundthisaneasypoint,butIthinkIamentitledtotakeabroadviewofwhatismeantby
benefit,andsotakingit,Ithinkthisarrangementcanfairlybesaidtobefortheirbenefit
Itremainstoconsiderwhetherthearrangementisafairandproperone.AsfarasIcansee,thereisno
reasonforsayingotherwise,exceptthatthearrangementdefeatsthistestatorsintention.Thatisa
seriousbutbynomeansconclusiveconsideration.Ihavereachedtheclearconclusionthatthese
forfeitureprovisionsareundesirableinthemselvesinthecircumstancesofthiscaseandthatan
arrangementinvolvingtheirdeletionisafairandproperone.Iproposeaccordinglytoapprovethe
arrangementwithoneortwomodificationswhicharenotmaterialtothisjudgment.
Iwouldonlyliketoaddthiswordofcaution.Theeffectofanyparticularforfeitureprovisionmustdepend
onthenatureoftheprovisionitselfanduponthecircumstancesinwhichitislikelytooperate.Aforfeiture
provisionisbynomeansalwaysintrinsicallyundesirable.Again,youmayhavethepositionthata
forfeitureprovisionbenefitsexclusivelyoneortheotherpartyconcerned,andinthatcaseitmightbevery
difficulttosaythatthedeletionoftheprovisionwasforthebenefitofthatparty,unlesstherewasthe
fullestfinancialcompensation.However,Iamnotconcernedtogofurtherintothose(p.716) matters.It
issufficientformetosaythatonthefactsofthisparticularcasethedeletionoftheforfeitureprovisions,
uponthetermsofthearrangement,isforthebenefitofeveryoneconcernedandthatthearrangementisa
fairandproperone.
Thepreventionofconflictanddissensionwithinthefamilyis,however,onlyonefactortobetakenintoaccountwhen
consideringwhetherornottoapproveaschemeofvariationandtheschememightnotbeapprovedeventhoughit
wouldremoveasourceofconflictifotherfactorsoutweighthisconsideration.41
(e)Considerationsotherthanbenefit
Evenifthevariationisforthebenefitofthebeneficiariesonwhosebehalfthecourtisaskedtoconsent,itdoesnot
followthatthecourtwillapprovetheschemeofvariation.42 Ithasbeenrecognizedthat,becausethecourtwill
approvethevariationonlyifitthinksitfit,itisappropriatetoconsiderthearrangementasawholetodetermine
whetheritisinitsnaturefairandproper.43 Thisinvolvesapracticalandbusinesslikeconsiderationofthe
arrangement,includingthetotalamountsoftheadvantageswhichthevariouspartiesobtain,andtheirbargaining
strength.44
Onefactorthatwillpreventthecourtfromapprovingavariationisfraudonthepower.AsSirRalphGibsonsaidin
GouldingvJames:45
If,ofcourse,itcanbeshownthatthearrangementputforwardconstitutes,forexample,adishonestor
inequitableorotherwiseimproperactonthepartofoneormoreofthebeneficiaries,thensuchevidencewould
clearlyberelevanttothequestionwhetherthecourtwouldthinkfittoapproveitonbehalfofminororunborn
persons.
Anothermorecontroversialconsiderationrelatestotherelevanceoftheintentionofthesettlorortestatorwhenthe
trustwasestablished.
GouldingvJames[1997]2AllER239
MrsFroudhadcreatedatrustunderherwillinwhichherdaughterhadalifeinterestandhergrandsonwould
takeabsolutelyonattainingtheageofforty.Thereasonwhythetestatrixstructuredthetrustinthiswaywas
becauseshedidnotwantherdaughter,June,tohaveaccesstothecapitalofthefund,sinceshedidnottrust
herdaughtershusband,andsheconsideredhergrandson,Marcus,tobeafreespiritandlikelytowastethe
moneywhilsthewasyoung.JuneandMarcussoughttovarythetrust,sothateachhad45percentofthe
residuaryestate,withtheremaining10percentheldontrustsforthebenefitoftheunborngreatgrandchildrenof
thetestatrix.Thecourtwasrequiredtoapprovetheschemeofvariationonlyonbehalfoftheunborngreat
grandchildren,undersection1(1)(c).Thetrialjudgehadrefusedtovarythetrust,sinceitwasconsideredtobe
contrarytotheintentionofthetestatrix.TheCourtofAppealreversedthisdecisionbecausetheschemewould
benefittheunborngreatgrandchildren.MummeryJsaid:46
(p.717) Theroleofthecourtisnottostandinas,orfor,asettlorinvaryingthetruststhecourtacts
onbehalfofthespecifiedclassand,inappropriatecases,suppliesconsentforpersonsincapableof
consenting.Thecourtdoesnotsimplyapproveanarrangementitapprovesanarrangementonbehalf
ofaspecifiedclass.insoacting,thecourthasadiscretion.Thecourtmay,ifitthinksfit,byorder,
approveonbehalfofthespecifiedbeneficiaries.[Counsel]pointed,however,totheprovisoinsection1(1)
ofthe1958Act,whichhighlightsbenefitasamandatoryfactorintheexerciseofdiscretionAlthough
[counsel]acceptedthatinsomecases,suchasReSteedsWillTrusts,47 theintentions,wishesand
motivesofthesettlorortestatormayberelevantandweighty,inthiscasehecontendedthattheyarenot
relevant,becausetheydonotrelatetotheclassofpersonsforwhomthecourtapprovesthe
arrangement.Alternatively,iftheyarerelevant,itisnotaproperexerciseofthediscretioninthiscaseto
allowextrinsicevidenceofMrs.Fraudswishestooutweightheundoubtedbenefittobeconferredonher
greatgrandchildren,onwhosebehalfthecourtisempoweredtoact
Inmyjudgment,thelegalpositionisasfollows.
(1)Thecourthasadiscretionwhetherornottoapproveaproposedarrangement.
(2)Thatdiscretionisfetteredbyonlyoneexpressrestriction.Theprovisotosection1prohibitsthe
courtfromapprovinganarrangementwhichisnotforthebenefitoftheclassesreferredtoin(a),(b)
or(c).Theapprovalofthisarrangementisnotpreventedbythatproviso,sinceitisplainlythecase
thatitisgreatlyforthebenefitoftheclassspecifiedinsection1(1)(c).
(3)Itdoesnotfollowfromthefactofbenefittounbornsthatthearrangementmustbeapproved.In
ReVanGruisensWillTrusts[1964]1WLR449at450,UngoedThomasJsaid:
Itisshownthatactuariallytheprovisionsfortheinfantsandunbornpersonsaremore
beneficialforthemunderthearrangementthanunderthepresenttrustsofthewill.That,
however,doesnotconcludethecase.Thecourtisnotmerelyconcernedwiththisactuarial
calculation,evenassumingthatitsatisfiesthestatutoryrequirementthatthearrangement
mustbeforthebenefitoftheinfantsandunbornpersons.Thecourtisalsoconcerned
whetherthearrangementasawhole,inallthecircumstances,issuchthatitisproperto
approveit.Thecourtsconcerninvolves,interalia,apracticalandbusinesslike
considerationofthearrangement,includingthetotalamountsoftheadvantageswhichthe
variouspartiesobtain,andtheirbargainingstrength.
(4)ThatoveralldiscretiondescribedbyUngoedThomasJistobeexercisedwithregardtoall
relevantfactorsproperlyconsideredinthestatutorycontext.Thecontextisthatthecourtis
empoweredtoapproveanarrangementonbehalfofthemembersofaspecifiedclass.AsLord
DenningMRsaidinReWestonsSettlements[1969]1Ch223at245,inexercisingitsdiscretion,
thefunctionofthecourtistoprotectthosewhocannotprotectthemselves
(5)Viewedinthatcontext,animportantfactorinthiscaseisthatMrs.JuneGouldingandMr.
MarcusGouldingaresuijurisandMrs.Froudsintentionsandwishesrelatedtotheirbeneficial
interestsunderthetestamentarytrustsratherthantothecontingentinterestsofherunborngreat
grandchildrenwhomthecourtisconcernedtoprotect.[Counsel]didnotdisputethatMrs.June
GouldingandMr.MarcusGouldingarelegallyentitledtodowhattheywantwiththeirbeneficial
interestsintheresiduaryestate.Mrs.JuneGoulding,forexample,isentitled,contrarytothe
firmestofintentionsexpressedbyherlatemother,toassignherlifeinteresttoherhusbandorto
disposeofitforacapitalsumandgivethatcapitalsumtoherhusband.Mrs.Froudscontrarynon
testamentarywishes(p.718) couldnotinhibitMrs.JuneGouldingsproprietaryrights,asaperson
beneficiallyentitledtothelifeinterestinresidue.
(6)Inthesecircumstancesthecriticalquestioniswhatrelevance,ifany,canMrs.Frouds
intentionsandwisheswithregardtotheinterestsinresiduetakenunderthewillbyherdaughter
andgrandsonandwithregardtotheexclusionofhersoninlawfromdirectorindirectbenefit,have
totheexerciseofthecourtsjurisdictiononbehalfofunborngreatgrandchildrenofMrs.Froud?On
thiscrucialquestionthejudgewasimpressedby[counsels]submissionthatMrs.Frouds
intentionsandwishesareimportantandshouldbetakenintoaccountontheauthorityoftheCourt
ofAppealdecisioninReSteedsWillTrusts.Idonotaccept[counsels]submissionthattheCourt
ofAppealinthatcaselaiddownanyrule,principleorguidelineofgeneralapplicationonthe
importanceoftheintentionsandwishesofasettlorortestatortoapplicationstoapprove
arrangementsunderthe1958Act
Tosumup.Theflawinthejudgesrefusaltoapprovethearrangementisthat,inrelianceonthe
supposedscopeofthedecisioninReSteedsWillTrusts,heallowedextrinsicevidenceofthe
subjectivewishesofMrs.Froudasregardsherdaughter,soninlawandgrandsontooutweigh
considerationsofobjectiveandsubstantialbenefittotheclassonwhosebehalfthecourtis
empoweredtoact.Ifthejudgehadadoptedthecorrectapproachtotheexerciseofhisdiscretion,
hecouldonlyhavecometotheconclusionthattheintentionsandwishesofMrs.Froud,expressed
externallytoherwillinrelationtotheadultbeneficiariesandanadultnonbeneficiary,hadlittle,if
any,relevanceorweighttotheissueofapprovalonbehalfofthefutureunborngreatgrandchildren,
whoseinterestinresiduewasmultipliedfivefoldundertheproposedarrangement.
ThisdecisionhasbeencriticizedbyLuxtononthegroundthatitinterferesunacceptablywiththeexerciseofjudicial
discretion.
Luxton,VariationofTrusts:SettlorsIntentionandtheConsentPrincipleinSaundersvVautier
(1997)60MLR719,725
Althoughseveralearliercaseshave,indiscussingtheVariationofTrustsAct1958,drawnananalogy
withthedoctrineofSaundersvVautier,theyhavealldonesointhecontextofananalysiseitherof
jurisdiction,oroftheeffectofavariation(sothatanarrangementundertheActistreatedassubstituting
newtrustsforold).Itdoesnotfollowfromsuchcasesthattheanalogyshouldbepressedintoserviceto
restrictthemannerinwhichthecourtmayexercisethediscretionwhichthestatuteconfersuponit.This
is,however,preciselywhattheCourtofAppealhasdoneinGouldingvJames.Itdidnot,however,draw
suchanalogytoitslogicalconclusion,whichwouldhaveresultedinthecourt,intheexerciseofits
overalldiscretion,havingtoexcludeanyconsiderationofthesettlorsintentions,eveniftheyrelatedto
thepersononwhosebehalfthecourtwasaskedtogiveitsconsent.Asitwasboundbyitsearlier
decisioninReSteed,theCourtofAppealchosetosteeramiddlecoursebutithasinsodoingsought
tolaydownrulesinanareawhichisessentiallyoneofdiscretion.Theessenceofitsreasoningcan,
perhaps,beexpressedinthewordsofLaddieJ48 atfirstinstance,summinguptheapplicantsargument
thathewentontoreject:namely,thattheintentionsofthesettlorshouldalwaysbetakenintoaccount
andthenalwaysdismissedasbeinginsufficientlyweighty.Earliercaseshaveindicatedthatthe
discretionisawideone,andjudgeshavepreviouslyavoidedlayingdownrulesoflawrespectingits
exercise,nodoubtbecausetheyfeltthatsuchruleswouldundesirablyfetterthejudicialdiscretion(p.
719) inwaysnotlaiddownintheActitself.ItistobehopedthatGouldingvJamesdoesnotrepresent
thebeginningofatrendintheoppositedirection.
InGouldingvJames,repeatedreferencewasmadetotheearlierdecisionoftheCourtofAppealinReSteedsWill
Trusts,49 wherethecourtdidexplicitlyconsidertheintentionofthetestatortodeterminewhethertoapprovea
schemeofvariation.Inthatcase,afarmwasheldonaprotectivetrust50 forthetestatorshousekeeperforlife.The
testatorhadexpressedawishthatthehousekeepershouldhavetheuseandenjoymentofthecapitalvalueduring
herlife,andthatifthepropertywassold,thecapitalvalueshouldbeappliedforherbenefit.Thetrusteeswishedto
sellthefarm,andthehousekeepersoughttorestrainthesale.Shebroughtasummonsunderthe1958Actasking
thecourttoapproveanarrangementunderwhichthetrusteeswouldholdthefarmontrustforherabsolutelyrather
thanonaprotectivetrust.Thecourtrefusedtoapprovethevariationonbehalfofafuturehusbandofthe
housekeeper,particularlybecauseitwouldunderminethetestatorsintentionthatthehousekeepershouldbe
providedforthroughoutherlifeandwouldnotbetemptedtopartwiththemoneyinfavourofherbrother,whothe
testatorthoughtmightspongeoffhissister.LordEvershedMRsaid:51
thecourtmustregardtheproposalasawhole,andsoregardingit,thenaskitselfwhetherintheexerciseof
itsjurisdictionitshouldapprovethatproposalonbehalfofthepersonwhocannotgiveaconsent,becausehe
isnotinapositiontodoso.Ifthatisarightpremise,thenitfollowsthatthecourtisboundtolookatthe
schemeasawhole,andwhenitdoesso,toconsider,assurelyitmust,whatreallywastheintentionofthe
benefactorthecourtmust,albeitthatitisperformingitsdutyonbehalfofsomepersonwhocannot
consentonhisorherownpart,regardtheproposalinthelightofthepurposeofthetrustasshownbythe
evidenceofthewillorsettlementitself,andofanyotherrelevantevidenceavailable.
Butalthoughthetestatorsintentionwasdecisiveinthatcase,itwasaverydifferentcasefromthatofGouldingv
James,asMummeryLJidentified:52
AcloseexaminationofthefactsandreasoninginReSteedsWillTrustsrevealstwosignificantspecial
featuresofthatcase.
Theapplicantinthatcase,unlikeMrs.JuneGoulding,hadonlyaprotectedlifeinterestheldontheprotective
trustsinsection33oftheTrusteeAct1925.Afterexercisingapowerofappointmenttheprotectedlifetenant
appliedtothecourttolifttheprotectivetrusts,sothatshewouldbecomeabsolutelyentitledtoafarmand
legacysettledonthosetrusts.TheapplicantinthatcasedidnothavethesamebeneficialrightsasMrs.June
Gouldinghasinrelationtoherlifeinterest.VerydifferentconsiderationsaffectedthecourtsdiscretioninRe
SteedsWillTrusts.Thecourtwasaskedtoapprovethearrangementproposedbytheprotectedlifetenanton
behalfofthepersonorpersonsspecifiedinsection1(1)(d)ofthe1958Act,thatisanypersoninrespectof
anydiscretionaryinterestofhisunderprotectivetrustswheretheinterestoftheprincipalbeneficiaryhasnot
failedordetermined.Theprovisoasregardsbenefitdoesnotapplytothatparagraph,sothatthecourtmay
approveanarrangement,thecarryingoutofwhichwouldnotbeforthebenefitofthatperson.Thecourtmay
considerwhetherornotthereisbenefitasadiscretionaryfactor,butlackofbenefitforsuchapersonisno
barriertothe(p.720) approvalofthecourt.Therelevantparagraph(d)personinReSteedsWillTrusts,
wheretheapplicantwasunmarriedandpasttheageofchildbearing,wastheapplicantsspectralhusband,
ashewasdescribed.Indecidingwhetherornottoapproveonhisbehalf,thecourtwasnotintheposition
(whichexistshere)ofhavingtobalancemandatorybenefittoaspecifiedparagraph(c)classagainstother
discretionaryfactors,suchastheintentionsandwishesofthetestator.
Itfollowsthat,whilsttheintentionofthesettlorortestatorincreatingthetrustcannotbedismissedasirrelevant,itis
morelikelytoberelevantinaprotectivetrustscase,wherebenefitofthevariationtothoseonwhosebehalfthecourt
isconsentingisnotrelevant.Inallothercases,benefitisessentialandthisisunlikelytobetrumpedbythecourt
respectingtheoriginalintentionofthetestatororsettlor.
Moregenerally,sincethecourtisconsentingonlyonbehalfofthosebeneficiarieswhoareincapableofconsenting
tothevariation,itisdifficulttoseewhyconsiderationsotherthanthebenefittothosebeneficiariesshouldbe
relevant,savewherethereisevidencethatthoseseekingthevariationarewishingtoperpetrateafraudonthepower,
inwhichcasethecourtshouldnotassociateitselfwithsuchunconscionableconduct.Ifthebeneficiarieswere
capableofconsentingtothevariation,theironlyconcernwouldbethebenefitarisingtothemfromthevariation,
whetheritbepecuniaryornonpecuniary.Similarly,thisshouldbetheprimeconsiderationforthecourtwhen
determiningwhetherthevariationshouldbeapproved.SuchanapproachwasadvocatedbySirRalphGibsonin
GouldingvJames:53
Wherethereisanapplicationunderthe[1958Act]forapprovalofanarrangementagreedbythebeneficiaries,
capableofgivingassent,itisnotcleartomewhyevidenceoftheintentionofthetestatorcanbeofany
relevancewhateverifitdoesnomorethanexplainwhythetestatorgavetheinterestssetoutinthewilland
thenatureanddegreeoffeelingwithwhichsuchprovisionswereselected.Ifthearrangementagreedbythe
beneficiariesistodonomorewiththeirintereststhanthebeneficiariesareableinlawtodoinaccordance
withtheprovisionsofthewill,Icanseenorelevanceinevidencewhichshowsnomorethantheoriginal
intentionormotivationofthetestator.Thefactthatatestatorwouldnothaveapprovedorwouldhave
disapprovedverystronglydoesnotalterthefactthatthebeneficiariesareentitledinlawtodoitand,ifitbe
proved,thatthearrangementisforthebenefitoftheunborn.
(iv)Effectofcourtapproval
Sincethefunctionofthecourtsapprovaloftheschemeofvariationismerelytoprovideconsentonbehalfofthose
whocannotconsentthemselves,itfollowsthattheapprovaloftheschemebythecourtdoesnotmakeiteffective
automatically.Rather,theschemeonlybecomeseffectivethroughtheagreementorconsensusofallofthe
beneficiaries.54 ThiswasrecognizedbyLordReidinIRCvHolmden:55
Eachbeneficiaryisboundbecausehehasconsentedtothevariation.Ifhewasnotoffullagewhenthe
arrangementwasmadeheisboundbecausethecourtwasauthorisedbytheActtoapproveitonhisbehalf
anddidsobymakinganorderSothearrangementmustberegardedasanarrangementmadebythe
beneficiariesthemselves.Thecourtmerelyactedonbehalfoforasrepresentingthosebeneficiarieswhowere
notinapositiontogivetheirownconsentandapproval.
(p.721) Thisissignificantwhereaconsequenceoftheschemeisthedisposalofabeneficialinterestinproperty,
sincesuchadispositionrequiressignedwriting.56 Suchwritingcanbeprovidedbythoseadultbeneficiarieswho
consenttotheschemeofvariation.Itisnotrequiredasregardstheconsentprovidedbythecourt.ItwasheldinRe
HoltsSettlement57 thatthe1958Actconstitutesanexceptionfromtheneedforwritingtodisposeofanequitable
interest.
ReHoltsSettlement[1969]Ch100,109(MegarryJ)
thebasicissueiswhetheranorderundertheActof1958byitselfvariesthetermsofthetrust.Putrather
differently,thequestioniswhethertheActdoesnomorethanempowerthecourttosupplyonbehalfof
theinfants,unbornpersonsandothersmentionedinsection1(1)thatbindingapprovalwhichtheycannot
give,leavingtheotherbeneficiariestoprovidetheirownapprovalsinsomeotherdocumentwhichwillbind
them
[Counsel]forthetrustees,wentbacktothewordsofsection1(1),andemphasizedthatthepowerofthe
courtwasapowerexercisablebyorderandthatthatpowerwasapowertoapproveanarrangement
varyingorrevokingalloranyofthetrusts.Inemphasizingthosephrases,hesaidthattherightwayto
readthesectionwastosaythatthepowerofthecourtwasmerelyapowertomakeanorderapproving
anarrangementwhichinfactvariedorrevokedthetrusts,andnotanarrangementwhichfailedtodoany
suchthing.Whentheadultsbytheircounselassentedtothearrangement,andthecourtonbehalfofthe
infantsbyorderapprovedthearrangement,thentherewasanarrangementwhichvariedorrevokedthe
trusts.Sotheorderofthecourtbothconferredjurisdictionandexercisedit.Hisescapefromsection
53(1)(c)hadasimilardexterityaboutit:byconferringanexpresspoweronthecourttodosomethingby
order,ParliamentintheActof1958hadprovidedbynecessaryimplicationanexceptionfromsection
53(1)(c).RatherthanreadintotheActwordsthatarenotthereoneshouldconstruetheActas
authorizinganorderwhichisefficacioustoachieveitsavowedobject.[Counsel]pointedtothelongtitle
oftheActwhichreads:AnActtoextendthejurisdictionofcourtsoflawtovarytrustsintheinterestsof
beneficiariesandsanctiondealingswithtrustproperty.
Ididnotfindhisargumentcompelling.Indeed,attimesIthinkittendedtocircularity.ButIfindit
temptingandIyield.ItisnotaconstructionwhichIthinkthemostnatural.Butitisnotanimpossible
constructionitaccordswiththelongtitleitaccordswiththepracticewhichhasbeenrelieduponfor
manyyearsinsomethousandsofcasesanditaccordswithconsiderationsofconvenience.Thepointis
technical,andIdonotthinkthatIamdoingmorethanstrainingalittleatthewordingintheinterestsof
legislativeefficacy.
Bearinginmindthatthecourtdoesnotamendorvarythetrustsoftheoriginalsettlementthisoccurringinsteadby
theconsentofthebeneficiariestheconclusioninReHoltsSettlement,thatwritingisnotrequiredtodisposeofan
equitableinterestwhereitiseffectedbycourtorder,isdifficulttodefendasamatterofprinciple.Analternativeroute
toeffectadispositionoftheequitableinterestwithoutsignedwritingisavailablewhereanagreementtovarythetrust
isspecificallyenforceable,forthenaconstructivetrustarisesassoonastheagreementismade,whichwilleffect
thedispositionoftheequitableinterestwithouttheneedforwriting.58
(p.722) Question
Inhiswill,Alanleft10,000forBrendaandColintoholdonadiscretionarytrustforthebenefitofAlans
children,DebbieandElizabeth,andAlansgrandchildren,exceptforElizabethsson,Fred,whoAlandescribed
asadrugaddledidiot.Alandiedin2012.Debbiehasonechild,George,whoisfouryearsold,andsheis
expectinganotherchildnextyear.Elizabethhastwochildren:Fred,whoistwenty,andHarriet,whoissixteen.
Fredhasbeenaddictedtodrugsforsometime,buthasrecentlybeentoarehabilitationclinicandisnowclean.
DebbieandElizabethbothwantthetrusttobevariedtoremovethedisqualificationofFredasanobjectofthe
trust.Theyseekyouradvice.
FurtherReading
Evans,VariationClarification[2011]Conv151.
FindThisResource
Harris,TenYearsofVariationofTrusts[1969]33Conv113.
FindThisResource
Harris,VariationofTrusts(London:SweetandMaxwell,1975).
FindThisResource
Luxton,VariationofTrusts:SettlorsIntentionandtheConsentPrincipleinSaundersvVautier(1997)60MLR
719.
FindThisResource
Notes:
1
2
SocietyofLloydsvRobinson[1999]1WLR756.
3
(1841)4Beav115.SeeChapter10.3(a),p.503.
4
ReNew[1901]2Ch534ReTollemache[1903]1Ch955.
5
ChapmanvChapman[1954]AC429.
6
Ibid.
7
MasonvFarbrother[1983]2AllER1078.
8
9
10
(1990)6December,reported(1998)12TLI166.
11
Ibid,170.
12
[1997]2AllER239,247.
13
InlandRevenueCommissionersvHolmden[1968]AC685,701(LordReid).
14
GouldingvJames[1997]2AllER239,251(MummeryLJ).
15
VariationofTrustsAct1958,s.1(1).Ithasalsobeenappliedtotrustsarisingonthedeathofatestator:Re
Bernstein[2008]EWHC3454(Ch)[2010]WTLR559.
16
BritishMuseum(Trustees)vAttorneyGeneral[1984]1AllER337.SeeChapter12.4(e),pp.5901.
17
VariationClarification[2011]Conv151,152.
18
SeeReTowlersSettlementTrust[1964]Ch158,162(WilberforceJ).
19
ReHoltsSettlement[1969]1Ch100.
20
Meaningalineofdescendantsfromanancestor.
21
ReCL[1969]1Ch587.
22
UndertheTrusteeAct1925,s.33.SeeChapter2.4(b)(viii),pp.313.
23
Harris,TenYearsofVariationTrusts[1969]33Conv113,116.
24
[1986]1WLR934.
25
Ibid,937.
26
Ibid.
27
[1961]Ch1.
28
ByvirtueoftheVariationofTrustsAct1958,s.1(1)(c).
29
29
[2008]EWHC3454(Ch)[2010]WTLR559,[29].
30
VariationofTrustsAct1958,s.1(1).
31
[2008]EWHC3454(Ch)[2010]WTLR559.
32
VariationClarification[2011]Conv151,154.
33
SeeTowlersSettlementTrusts,Re[1964]Ch158,wherethecontingencyagewasincreasedfromtwentyoneto
twentyfive.
34
ReCohensSettlementTrust[1959]1WLR965.
35
[1969]1Ch100,121.
36
Ibid,at121.Notealsothemeaningofbenefitforthepurposesoftheexerciseofthepowerofadvancement:
37
[1969]1Ch587.
38
[1969]1Ch223,245.
39
ReWindeattsWillTrusts[1969]1WLR692.
40
[1970]Ch560,566.
41
ReTink ersSettlement[1960]1WLR1011.
42
43
ReRemnantsSettlementTrusts[1970]Ch560,565(PennycuickJ).
44
ReVanGruisensWillTrusts[1964]1WLR449,450(UngoedThomasJ).
45
[1997]2AllER239,252.
46
[1997]2AllER239,247.
47
[1960]Ch407.SeeChapter15.3(b)(iii)(e),p.719.
48
[1996]4AllER865,869.
49
[1960]Ch407.
50
TrusteeAct1925,s.33.SeeChapter2.4(b)(viii),pp.313.
51
[1960]Ch407,421.
52
[1997]2AllER239,250.
53
[1997]2AllER239,252.
54
55
[1968]AC685,701.
56
LawofPropertyAct1925,s.53(1)(c).SeeChapter10.2,p.485.
57
[1969]1Ch100.
58
LawofPropertyAct1925,s.53(2).SeeChapter10.2(f),pp.496501.
LawTrove

DOI: 10.1093/he/9780199661480.001.0001
16.LiabilityforBreach
Chapter: (p.725) 16.LiabilityforBreach
DOI: 10.1093/he/9780199661480.003.0016
CentralIssues
1.Atrusteeispersonallyliableforabreachoftrust.Suchliabilityisstrict.
2.Trusteesmayseektoescapeliabilitybyrelyingonanexclusionclauseinthetrustinstrument.Such
clausesmightexcludecertaindutiesowedbythetrustees,orexemptthetrusteesfromliabilityfora
breachoftrust.
3.Exemptionclausesmustnotinfringetheirreduciblecoreofobligationsowedbyatrustee,which
consistsofthedutytoperformthetrusthonestlyandingoodfaithforthebenefitofthebeneficiaries.
4.Thecourtmightexcuseabreachoftrustwheretrusteeshaveactedhonestly,reasonably,anditisfair
todoso.
5.Abeneficiarywhohasconsentedtoabreachoftrustmaybepreventedfrombringingaclaimagainst
thetrustee.
6.Theliabilityoftrusteesforabreachoftrustisjointandseveral:abeneficiarymaysueonlyonetrustee
forallthelosssuffered.Thattrusteemaythenseekcontributionfromotherswhoareresponsibleforthe
samedamage.
7.Claimsforbreachoftrustmaybebarredifalimitationperiodhasexpired.
1.TheNatureofBreachofTrust
ThedutiesoftrusteeswereexplainedinPartVI.Failuretocomplywiththosedutieswillconstituteabreachoftrust.
Thereisawidevarietyofdifferenttypesofbreachoftrust.InArmitagevNurse,MillettLJsaid:1
Breachesoftrustareofmanydifferentkinds.Abreachoftrustmaybedeliberateorinadvertentitmay
consistofanactualmisappropriationormisapplicationofthetrustpropertyormerelyofaninvestmentor
otherdealingwhichisoutsidethetrusteespowersitmayconsistofafailuretocarryoutapositiveobligation
ofthetrusteesormerelyofawantofskillandcareontheirpartinthemanagementofthetrustpropertyit
maybeinjurioustotheinterestsofthebeneficiariesorbeactuallytotheirbenefit.
Generally,abreachoftrustwillinvolvethetrusteesdoingwhattheywerenotauthorizedtodo,notdoingwhatthey
wereunderadutytodo,orcarryingouttheirdutiesbadly.ThechaptersinthisPart(p.726) willconsiderthe
remediesthatmightflowfromabreachoftrust,orfromabreachoffiduciaryduty,thenatureofwhichwas
consideredinChapter14.Thischapterwillconcentrateuponwhetherthetrusteemightbeabletoescapeorreduce
anyliability,primarilybyvirtueofadefence.
2.ExemptionClauses
Theliabilityoftrusteesmightbeexcludedorlimitedbyaclauseinthetrustinstrument.Suchclauseshavebeen
consideredunderavarietyofnames,includingexemptionclauses,exonerationclauses,exclusionclauses,and
exculpatoryclauses.Thereislittlesignificantdifferencebetweentheseterms.However,thereareessentiallytwo
principaltypesofexemptionclause.ThesehavebeenidentifiedbyMatthews:2
Themostcommonisthatwhichexcludesliabilities,e.g.thatatrusteeisnottobeliableforlossesoccurring
suchandsuchaway.Often,butnotalways,suchliabilitiesareexpressedtobeliabilitiesforbreachoftrust
Aquitedifferenttypeofprovisionisthatwhichexcludesduties,e.g.thatatrusteeistobeundernodutyto
superviseactivitiesofanycompanyinwhichitholdsshares.Thistypemayoperateeitherbynegating
positivedutiesthatwouldotherwiseariseorbypermittingactsthatwouldotherwisebeprohibited.
Thesetwotypesofexclusionclauseoperateinasimilarmanner,butaredistinct.Thelatterindicatesthatthe
trusteedoesnothingwronginfailingtocomplywithanordinarilyapplicabledutyifithasbeenexcludedinthetrust
instrument.Theformerprovidesthat,althoughthetrusteeisconsideredtohavebreachedanapplicableduty,heor
shemightberelievedfromtheconsequencesorliabilitiesthatflowfromthatbreach.However,theoperationofboth
typesofclausehasbeengreatlyinfluencedbythedecisionoftheCourtofAppealinArmitagevNurse.Thisdecision
willbediscussedinmoredetaillater,3 butofparticularsignificancewastheidentificationbyMillettLJofan
irreduciblecoreofatrust:4
thereisanirreduciblecoreofobligationsowedbythetrusteestothebeneficiariesandenforceablebythem
whichisfundamentaltotheconceptofatrust.Ifthebeneficiarieshavenorightsenforceableagainstthe
trusteestherearenotrusts.ButIdonotacceptthefurthersubmissionthatthesecoreobligationsincludethe
dutiesofskillandcare,prudenceanddiligence.Thedutyofthetrusteestoperformthetrustshonestlyandin
goodfaithforthebenefitofthebeneficiariesistheminimumnecessarytogivesubstancetothetrusts.
Thispassagesetsouttheirreduciblecoreofobligationsnecessaryfortheretobeatrust.Itsmeaningandambitis
significantforbothtypesofexemptionclauses.Itmightalsobenotedthatsimilarprinciplesapplyinsituations
concerningfiduciarieswhoarenottrustees:althoughliabilitycangenerallybeexcluded,therearesomecoreduties
offiduciariesthataresofundamentaltothefiduciaryrelationshipthatitwouldnotbeappropriatetoexcludeliability
forbreachofsuchduties.5
(p.727) (a)ExcludingDuties
TheirreduciblecorehighlightedbyMillettLJclearlysuggeststhatitisimpossibletoexclude:
thedutyofthetrusteestoperformthetrustshonestlyandingoodfaithforthebenefitofthebeneficiaries.
6
However,thedecisionoftheCourtofAppealinCitibank vMBIAAssurance6 doesnotfitcomfortablywiththis
approach.InCitibank ,thetrustdeedstatedthataguarantor,MBIA,hadtherighttoinstructthetrusteesastothe
exerciseoftheirdiscretionandthatthetrusteeswouldnotbeliableforbreachoftrustiftheyfollowedthese
instructions.ArdenLJheldthatsuchatermcouldlegitimatelyoperatetoexemptthetrusteefromanyliabilityifhe
orshedidfollowtheguarantorsinstructions:7
[Counsel]submitsthattheeffectofthestructurewhichenablesadirectiontobegiventothetrusteebyMBIA
istoreducethetrusteesobligationsbelowtheirreducibleminimumidentifiedbyMilletLJinArmitagev
Nurse.Inmyjudgmentthisisnotcorrect.Thetrusteecontinuesatalltimestohaveanobligationofgood
faith,andinadditionthereareotherclausesinthetrustdeedwherethetrusteehasarealdiscretionto
exercise,forexampleinclause8ofthetrustdeedwhichalsoconfersadiscretiononthetrusteetogive
authorisationsorwaivers.Inmyjudgment,whileitiscorrectthatitwouldbeasurprisinginterpretationofthe
documentation,againstwhichthecourtshouldlean,ifthepowersofthetrusteeweresoreducedthatit
ceasestobeatrusteeatall,thatpointhasnotbeenreachedinthepresentcaseandthereforethereisno
riskofrecharacterisingtheofficeoftrusteeassomethingelse.
Thisconclusionis,perhaps,surprising.Theeffectoftheclausewasthat,whentheguarantortoldthetrusteewhatto
do,thetrusteesimplyhadtodoit,regardlessoftheinterestsofthebeneficiaries.Thisseemstocontradictacore
elementofatrustasMillettLJhighlightedinArmitagevNurse,thetrusteesdutiesmustbeperformedforthe
benefitofthebeneficiaries.AsTrukhtanovhaspointedout:
theArmitagetestdoesnotbegintobemetsincethereisnoonewhocouldbesubjecttothecoreduties.8
Actingforthebenefitoftheguarantor,withoutconsideringtheinterestsofthebeneficiaries,seemsunsatisfactory.
Indeed,ananalogymightbemadebetweenthetypeofcontroltheguarantorhadoverthetrusteeinCitibank and
thatofasettlorofatrustwhoretainseffectivecontroloverhistrustee.Insuchinstances,thetrustmaywellbe
declaredtobeashamandnotenforced.9 ItissuggestedthatthepreferableapproachinCitibank wouldhavebeen
eithernottorecognizethevalidityofsuchaclauseinthecontextofatrustrelationship,ortoconcludethatwhat
wascreatedwasnotatrust.AsKennyhasarguedinaslightlydifferentcontext:10
Insteadofanalysingtheissuewithinthecontextofthetrustrelationship,amoresatisfactoryapproachwould
havebeentoconsiderwhetherthetrustrelationshipistheappropriatevehicleforconducting(p.728) what,in
thecaseofpaidtrustees,isabusinessactivity.Itistimetoreconsiderandlookatthispurelyinthecontext
ofwhatispermissiblewithinabusinessrelationship,andtodefinethepartiesrightsandobligations
accordingly.
Itmaybethattherelationshipsinwhichtrusteesdonothavetoconsiderthebestinterestsoftheirbeneficiaries
couldbetterbeanalysedusingdoctrinessuchasagency,forexample,ratherthantrust.However,casessuchas
Citibank servetohighlight:11
thepracticalrealitywhichisthattheonlyelementofthetraditionalconceptoftrustthatcommercialproviders
offinancereallycareaboutisthebeneficialproprietaryinterestinthefundwhichsecurestheircreditrisk
rulesgoverningthetrustee/beneficiaryrelationshipthatwouldotherwisearisewherethedeviceoftrustis
employedarediscardedandreplacedbypurelycontractualarrangements.
Nevertheless,thereismoretoatrustthanmerelylocatingthebeneficialproprietaryinterestinassetsthe
willingnessinCitibank torecognizeabroaderrangeofdutiesthatmaybeexcludedbythetrustdeedisunfortunate.
Butinanyevent,exemptionclausesshouldnotbepermittedtoextendtoexcludethefiduciaryobligationsofan
expresstrusteetoactloyally,inthebestinterestsofthebeneficiariesandwithoutregardtohisorherownpersonal
interesttheseareofparamountimportanceandmustinvariablybefulfilled.Onlythenonfiduciarydutiesofatrustee
canbeexcludedbythetrustinstrument.Thatitmustbepossibletoexcludesomesuchdutieshasbeenrecognized
intheTrusteeAct2000,whichpermitstheexclusionofthenonfiduciarydutyofcareowedbytrustees.
TrusteeAct2000
Schedule1,paragraph7
Thedutyofcaredoesnotapplyiforinsofarasitappearsfromthetrustinstrumentthatthedutyisnot
meanttoapply.
(b)ExcludingLiabilities
Itiswellestablishedthatthesettlorcanexemptthetrusteefromliabilityinthecaseofsomebreachesoftrust.This
seemstohavedevelopedfromadesirenottodeterpeoplefrombecomingtrustees.However,thenatureandscope
ofsuchclauseshaveprovedtobesomewhatcontroversial.
(i)Noexclusionofliability?
Itisworthcontemplatingwhyclausesthatrelievetrusteesfrompersonalliabilityininstanceswheretheyhave
committedabreachoftrusthavebeenallowedbythecourts.Suchclausesareregularlyupheldbythecourts,so
theissueislargelyresolvedasamatterofprecedent.Butonastrongpropri(p.729) etarymodelofthetrust,it
mightbethoughtanomalousforpersonalpromisesmadebythesettlortobindsubsequentproperty.
Penner,Exemptions,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),2623
becausethetrusttermsarenotamatterofagreementbetweenasettlorandanyparticularindividual,
butarerathertermswhichrunwiththepropertybindingsuccessorsintitleandbecauserelieffrom
liabilitycanonlybegiventoparticularindividualsquaindividuals,atrusteeexemptionclausecannot
operatetorelieveatrusteeofliability.Trusteeexemptionclausesarenotexactlyrepugnanttothetrust
theyareineffectivebecausetheypurporttodothatwhichissimplyconceptuallyimpossible.
fromtheproprietaryperspective,thetrusteeisnotlikeacontractingparty,butisratherthegranteeof
apropertywhichisburdenedinaparticularway,andsotheincidentsofthepropertyheisgrantedmust
beincidentswhichcanrunwiththeproperty,andpersonalrightslikethebenefitofanexclusionclause
cannot.
Bytakingtitletotrustproperty,atrusteedoesnotundertakeanypersonalcommitmentstoasettlor
heundertakespersonalcommitmentstothebeneficiaries,whomheneedneverpersonallyhavemet,
muchlesscometoanyagreementswithbywhichtheymighthaveconferredpersonalrightsuponhim.
Hispersonalobligationstothebeneficiariesflowentirelyfromthefactthathetakestitletopropertywhich
isbeneficiallytheirs.Alloftheobligationsofthetrust,fromkeepingthepropertyseparateandkeeping
thetrustaccountstodisposingofthepropertyaccordingtothetrusttermsandthegeneralfiduciary
obligationareallobligationsimposedbythelaw,ie,aredefaultterms,whichoverthehistoryofthetrust
thelawhasfoundimportanttoimpose,butimposepurelyasafunctionofgivingeffecttothefactthatthe
propertybelongbeneficiallynottothetrustee,buttothebeneficiaries.
Thismightsuggestthattrusteesshouldonlybeabletorelyontermsintrustinstrumentsagainsttheirbeneficiaries
iftheirrighttodosoisitselfproprietary.However,thebenefitofanexclusionclausemightbeconsideredtobea
personalright,andassuchmaynotextendtothirdparties,includingthebeneficiaries.Suchanapproachhas
recentlybeenidentifiedbyLordClarkeinthePrivyCouncildecisioninSpreadTrusteeCo.LtdvHutcheson:12
If,asiscommonground,theessentialobligationistoactasaprudenttrusteewouldact,namelywith
reasonablecareandskill,itcanbesaidwithforcethatthecoreobligationofapersonactingenbonprede
13
famille13 includesadutytoactwithreasonablecareandskillandthuswithoutnegligence.Inthese
circumstancestheremightbemuchtobesaidforsaying,asamatterofpolicy,thatitisnotpermissibleto
excludeliabilityforanybreachofthatduty.
Admittedly,LordClarkewasconsideringthelawofGuernsey,buttherequirementofactingenbonpredefamille
broadlyequatestoactingasafiduciary.Itmaybearguedthatgivenhowimportantitistoensurethattrusteesact
reasonably,itwouldbeperversetoexcludethedutytoactreasonably.However,asLordClarkeimmediatelywent
ontorecognizeinSpreadTrustee:14 (p.730)
Yetitiscommongroundthatordinarynegligence,thatisafailuretoactwithreasonablecareandskill,can
lawfullybeexcludedunderbothGuernseycustomarylawandEnglishlaw.
Thestrongproprietarymodeldoesnotrepresenttheapproachofthecourtstotrustsingeneral,andcertainlynotto
exclusionclauses.Settlorsclearlyareabletoexcludetheliabilityoftrustees,andthismayderivetheoretical
supportfromtheobligationaltheoryoftrusts.15
(ii)Developmentofexclusionclauses
Aninabilitytoprotecttrusteesfromtheconsequencesoftheirownactionsmayhavemademanysettlors
uncomfortableinchoosingfriendsandrelativestoactastheirtrustees.And,conversely,manypotentialtrustees
mayhavebeenunwillingtoactforfearofincurringheavyliabilitiesiftheyperformedtheirtasksbadly.Inserting
appropriateexclusionclausesintothetrustinstrumentbecameastraightforwardwaytocircumventtheseproblems
andensurethattheofficeoftrusteewasnottooburdensome.
However,itmightbenotedthatthedutiesofatrusteearenotinevitablyasonerousasissometimesportrayed.After
all,theprincipaldutyofatrusteeinvolvesactingreasonablyandhonestly.Thisdoesnotseemtobetooonerous,
althoughattimestrusteeshipmightbetimeconsuming.Moreover,apersoncannotbeforcedtoassumethe
functionsofatrusteeofanexpresstrustagainsthisorherwill.16
Nevertheless,thedevelopmentofexclusionclauseswasalargelypragmaticdevelopment,whichenabledfamily
truststothrive.Infact,recognizingthepossibilityofrelievingtrusteesfromtheconsequencesoftheirbreachofduty
inthetrustinstrumentmightparallelthecourtsabilitytoexcusesuchbreaches.Forexample,section61ofthe
TrusteeAct1925allowsthecourttoexcuseatrusteesbreachofdutyifthetrusteeactedhonestlyandreasonably
anditwouldbefairtodoso.17 Ifsuchreliefcanbeobtainedexpostfacto,thenitseemsappropriateforitalsotobe
availableexanteinthetrustinstrument,ifthataccordswiththewishesofthesettlor.Indeed,thisisamoreefficient
andlessexpensivewaytoensurethattrusteesdonotincurliabilityforhonestandreasonablebreachesoftheir
duty,andavoidssomeofthehazardsinherentinrelyingupontheequitablediscretionofacourt.
Recognizingthevalidityofsuchexclusionclausesisconsistentwiththenotionthatsomebreachesofdutymight
actuallybeagoodthing.InArmitagevNurse,MillettLJcited:18
theremarkfamouslyattributedtoSelwynLJbySirNathanielLindleyMRinthecourseofargumentinPerrins
vBellamy[1899]1Ch.797,798:Myoldmaster,thelateSelwynLJ,usedtosay,Themaindutyofatrustee
istocommitjudiciousbreachesoftrust.
Forexample,aterminthetrustdeedmighthavebecomeantiquated,andperhapslimitstherangeofpossible
investmentsatrusteemightmake.19 Wherethetrusteeiscertainthatsuchaninvestmentwouldbeinthebest
interestsofthebeneficiaries,thenitmightbeunderstoodwhyatrusteewouldmakesuchaninvestment.Butifthe
trusteehastorelyonthecourtsequitablediscretionsubsequently(p.731) toexcusethebreachofduty,the
trusteemaybelesswillingtotakeactionsthat,althoughclearlyadvantageousforthebeneficiaries,wouldrepresent
abreachofduty.However,themeaningofajudiciousbreachisnotoriouslyunclear,anditwouldseempreferable
fortrusteesnottocommitadeliberatebreachoftrustwithoutthepriorconsentofthebeneficiaries 20 orapprovalof
thecourt.21 Admittedly,thisispotentiallyexpensiveandtimeconsuming,soitmightseemeasierandmore
straightforwardforthetrustinstrumenttoexcludeliability,ifthiscorrespondswiththewishesofthesettlor.
(iii)Settingtheleveloffault
22
Inprinciple,excludingliabilityforsometypesofbreachoftrustseemsacceptable.ButinArmitagevNurse,22 the
CourtofAppealinsistedthattheirreduciblecoreofatrustneededtoberespected,soitisnotpossibleforthetrust
instrumenttoexcludeliabilityforallbreachesoftrust,regardlessofthenatureofthetrusteesleveloffault.In
ArmitagevNurse,abeneficiaryofthetrust,Paula,broughtaclaimagainstthetrusteeforbreachoftrust.The
trusteerelieduponClause15ofthetrustinstrument,whichprovidedthat:
NotrusteeshallbeliableforanylossordamagewhichmayhappentoPaulasfundoranypartthereoforthe
incomethereofatanytimeorfromanycausewhatsoeverunlesssuchlossordamageshallbecausedbyhis
ownactualfraud.
Oneofthequestionsforthecourttoconsiderwasthevalidityofthisexemptionclause.MillettLJsaid:23
Inmyjudgment,themeaningoftheclauseisplainandunambiguous.Notrusteecanbemadeliableforloss
ordamagetothecapitalorincomeofthetrustpropertycausedotherwisethanbyhisownactualfraud.
Actualfraudmeanswhatitsays.Itdoesnotmeanconstructivefraudorequitablefraud.Thewordactual
isdeliberatelychosentoexcludethem
Theexpressionactualfraudinclause15isnotusedtodescribethecommonlawtortofdeceit.Asthejudge
appreciateditsimplymeansdishonesty.Iaccepttheformulationputforwardby[counsel]onbehalfofthe
respondentswhich(asIhaveslightlymodifiedit)isthatit:
connotesattheminimumanintentiononthepartofthetrusteetopursueaparticularcourseofaction,
eitherknowingthatitiscontrarytotheinterestsofthebeneficiariesorbeingrecklesslyindifferent
whetheritiscontrarytotheirinterestsornot.
Itisthedutyofatrusteetomanagethetrustpropertyanddealwithitintheinterestsofthebeneficiaries.If
heactsinawaywhichhedoesnothonestlybelieveisintheirintereststhenheisactingdishonestly.Itdoes
notmatterwhetherhestandsorthinkshestandstogainpersonallyfromhisactions.Atrusteewhoactswith
theintentionofbenefitingpersonswhoarenottheobjectsofthetrustisnotthelessdishonestbecausehe
doesnotintendtobenefithimself.
Inmyjudgmentclause15exemptsthetrusteefromliabilityforlossordamagetothetrustpropertynomatter
howindolent,imprudent,lackingindiligence,negligentorwilfulhemayhavebeen,solongashehasnot
acteddishonestly.
(p.732) Thisismoreextensivethantherelatedjurisdictiontoexcuseabreachoftrustundersection61ofthe
TrusteeAct1925:forthatprovisiontoapply,atrusteemusthaveactednotonlyhonestlybutalsoreasonably.24 But
thispassageshowsthatatrusteemighthavebeenindolentandwilful,andyetstillbeabletorelyuponanexclusion
clause.MillettLJheldthat,onceitisrecognizedthatliabilityfornegligentactionscanbeexcludedbythetrust
deed,thismustalsoextendtogrosslynegligentacts,sinceEnglishlawdoesnotdrawasharpdistinctionbetween
typesofnegligence:25
Itis,ofcourse,fartoolatetosuggestthattheexclusioninacontractofliabilityforordinarynegligenceor
wantofcareiscontrarytopublicpolicy.Whatistrueofacontractmustbeequallytrueofasettlement.It
wouldbeverysurprisingifourlawdrewthelinebetweenliabilityforordinarynegligenceandliabilityforgross
negligence.InthisrespectEnglishlawdiffersfromcivillawsystems,forithasalwaysdrawnasharp
distinctionbetweennegligence,howevergross,ontheonehandandfraud,badfaithandwilfulmisconducton
theother.Thedoctrineofthecommonlawisthat:Grossnegligencemaybeevidenceofmalafides,butitis
notthesamething:seeGoodmanvHarvey(1836)4Ad&El870at876,perLordDenmanCJ.Butwhilewe
regardthedifferencebetweenfraudontheonehandandmerenegligence,howevergross,ontheotherasa
differenceinkind,weregardthedifferencebetweennegligenceandgrossnegligenceasmerelyoneof
degree.Englishlawyershavealwayshadahealthydisrespectforthelatterdistinction.InHintonvDibbin
(1842)2QB646LordDenmanCJdoubtedwhetheranyintelligibledistinctionexistswhileinGrillvGeneral
IronScrewCollierCo(1866)LR1CP600at612WillesJfamouslyobservedthatgrossnegligenceisordinary
negligencewithavituperativeepithet.
Excludingliabilityforgrossnegligencemaybepalatablewherethetrusteeisalaypersonactingentirely
gratuitously.Butitseemsmoredifficulttodefendwherethetrusteeisapaidprofessional.Thisaspectofthe
decisioninArmitageisverycontroversial,andwillbeanalysedbelow.However,itisimportantfirsttoappreciate
that,asregardsprofessionaltrustees,aslightlydifferentstandardoffaultmightapply.
(a)Professionaltrustees
InArmitagevNurse,theCourtofAppealheldthattheirreduciblecoremeantthatanytrusteecouldnotrelyonan
exemptionclauseifheorshehadacteddishonestly.ThemeaningofdishonestywasexaminedagaininWalk erv
Stones.26 Theprofessionaltrusteesofadiscretionarytrustwerealsopartnersinafirmofsolicitors.Clause15ofthe
socalledBacchustrustdeedexemptedtrusteesfromallliabilityotherthanwilfulfraudordishonesty.TheCourtof
AppealconsideredtheretobenomaterialdifferencebetweentheexemptionclauseinthiscaseandthatinArmitage
vNurse.Thebeneficiariesofthetrustallegedthatthetrusteeshadactedinbreachoftrustbyactingforthebenefit
ofpeoplewhowerenotobjectsofthetrust,andthetrusteessoughttorelyupontheexclusionclause.Inconsidering
theappropriatetestfordishonesty,SirChristopherSladesaid:27
Atleastinthecaseofasolicitortrustee,aqualificationmustinmyopinionbenecessarytotakeaccountof
thecasewherethetrusteessocalledhonestbelief,thoughactuallyheld,issounreasonablethat,byany
objectivestandard,noreasonablesolicitortrusteecouldhavethoughtthatwhathedidoragreedtodowasfor
thebenefitofthebeneficiaries.Ilimitthispropositiontothecaseofasolicitortrustee,(p.733) first,because
onthefactsbeforeusweareconcernedonlywithsolicitortrusteesand,secondly,becauseIacceptthatthe
testofhonestymayvaryfromcasetocase,dependingon,amongotherthings,theroleandcallingofthe
trustee:compareTwinsectraLtdvYardley[1999]LloydsRepBank438,at464,perPotterLJ.28
Thewordhonestatfirstsightpointsexclusivelytoastateofmind.But,astheTwinsectracaseillustrates,
itsscopecannotbesolimited.Apersonmayinsomecasesactdishonestly,accordingtotheordinaryuse
oflanguage,eventhoughhegenuinelybelievesthathisactionismorallyjustified.Thepennilessthief,for
example,whopicksthepocketofthemultimillionaireisdishonesteventhoughhegenuinelyconsidersthe
theftismorallyjustifiedasafairredistributionofwealthandthatheisnotthereforebeingdishonest.
ThisobjectiveapproachtodishonestyinWalk ervStonesdoesnotseemtocorrespondpreciselywiththemore
subjectivestanceadoptedinArmitagevNurse,inwhichMillettLJsaid:29
Byconsciouslyactingbeyondtheirpowers(as,forexample,bymakinganinvestmentwhichtheyknowtobe
unauthorised)thetrusteesmaydeliberatelycommitabreachoftrustbutiftheydosoingoodfaithandinthe
honestbeliefthattheyareactingintheinterestofthebeneficiariestheirconductisnotfraudulent.
ThispassagedoesnotsitwellwithSirChristopherSladesconclusioninWalk ervStones 30 thattheexemption

clause:
wouldnotexemptthetrusteesfromliabilityforbreachesoftrust,evenifcommittedinthegenuinebeliefthat
thecoursetakenbythemwasintheinterestsofthebeneficiaries,ifsuchbeliefwassounreasonablethatno
reasonablesolicitortrusteecouldhaveheldthatbelief.
PerhapsthedifferentapproachescanbeexplainedbySirChristopherSladesexclusivefocusuponprofessional
trustees.HejustifiedanobjectiveapproachbyreferringtothetestofdishonestyemployedbythePrivyCouncilin
RoyalBruneiAirlinesSdnBhdvTan31 inthecontextofaccessoryliability,whichisdiscussedinChapter19.32
Essentially,thistestprovidesthatdishonestyistobeassessedatthestandardofareasonablepersoninlightof
whatthedefendantknew.Havingoutlinedthistest,SirChristopherSladewentontosay:33
ThereisanobviousdifferenceofemphasisbetweenthejudgmentsinRoyalBruneiAirlinesSdnBhdvTan
andArmitagevNurse[1998]Ch241sofarastheyrelatetotheconceptofdishonestyandithasbeen
suggestedthattheymaybeirreconcilable.Idonotthinktheyare.ThedecisioninRoyalBruneiAirlinesSdn
BhdvTanwascitedtotheCourtofAppealinArmitagevNurse.MillettLJdidnotpurporttodistinguishRoyal
BruneiAirlinesSdnBhdvTan,eitheronthegroundsthatitrelatedtotheliabilityofaccessoriesoronany
othergrounds.Asalreadystated,Icanseenogroundsforapplyingadifferenttestofhonestyinthecontext
ofatrusteeexemptionclause,suchasclause15oftheBacchustrust(p.734) deed,fromthatapplicableto
theliabilityofanaccessoryinabreachoftrust.ItwouldbesurprisingifthecourtinArmitagevNursehad
regardeditselfasdifferingfromRoyalBruneiAirlinesSdnBhdvTanwithoutsayingsoorexplainingwhy.I
thinkthatintherelevantpassagefromhisjudgmentquotedaboveat25025134 andinparticularinsaying
thatiftrusteesdeliberatelycommitabreachoftrusttheyarenotdishonestprovidedthattheymaydosoin
goodfaithandinthehonestbeliefthattheyareactingintheinterestsofthebeneficiariesMillettLJwas
directinghismindtothenotuncommoncaseofwhatSelwynLJhadoncedescribedasjudiciousbreachesof
trust.Ithinkitmostunlikelythathewouldhaveintendedthisdictumtoapplyinacasewhereasolicitor
trusteesperceptionoftheinterestsofthebeneficiarieswassounreasonablethatnoreasonablesolicitor
trusteecouldhaveheldsuchbelief.Indeedinmyopinionsuchaconstructionoftheclausecouldwellrender
itinconsistentwiththeveryexistenceofaneffectivetrust.
Thisdecisioniswelcome:itwouldbeoddforatrusteewhoiswellremuneratedforhisworknottobeliablefora
breachofdutythatnoreasonabletrusteewouldhavemade.However,thisistantamounttofindingthata
professionaltrusteewhoisgrosslynegligentwillnotbeabletorelyupontheprotectionaffordedbyanexemption
clause.35 YetinArmitage,theCourtofAppealwasexplicitindecidingthataterminthetrustinstrumentcan
legitimatelyexcludeliabilityforallnegligentactsofthetrustee,includingthosethataregrosslynegligent.
So,canArmitageandWalk erbereconciled?Ontheirfacts,theycertainlycan.Walk erconcernedasolicitor

trustee,anditsimpactmightnotextendbeyondthatparticularcontext.Theremaybesoundpolicyreasonsfor
holdingsolicitortrusteestoahigherstandard.However,itissuggestedthatthelogicunderpinningWalk ermaybe
equallyapplicabletoallprofessionaltrusteeswhoarepaidtoundertakethedutiesoftrusteesrelievingsuch
trusteesfromliabilityforbreachesofduty,whichnoreasonabletrusteewouldhavemade,couldbeconsideredtobe
inappropriate.Nevertheless,incorporatingthisapproachwithindishonestyexpandsthescopeoftheirreduciblecore
identifiedbyMillettLJ,andlimitsthepotentialeffectivenessofexclusionclauses.ThedecisioninArmitagewas,
therefore,moretrusteefriendly.36
(iv)Assessingexclusionclausesandpotentialreform
Theappropriaterangeofbreachesofdutyforwhichliabilitymightbeexcludedisacontroversialissue.Thefocusof
attentionlargelyconcernstheleveloffaultdisplayedbyaprofessionaltrustee:canliabilityfor(gross)negligencebe
legitimatelyexcluded?TheleadingdecisionremainsArmitagevNurse,37 whichdecidedthatonlyliabilityfor
fraudulentactscannotbeexcluded.
AlthoughArmitageisbindingattheleveloftheCourtofAppeal,thepersuasivenessofsomeofthereasoninghas
beendoubted.Forexample,althoughMillettLJthoughtthatthedifferencebetweennegligenceandgrossnegligence
issimplyamatterofdegreeinEnglishlaw,insomeareasgrossnegligencehasbeenconsideredtobeadifferent
typeoffault.Grossnegligence,butnotmerenegligence,canleadtoliabilityforthecriminaloffenceof
manslaughter.38 Andinthecontextofbailment,agratuitousbaileeisonlyliableforgrossnegligence.AsLord
ClarkesaidinSpreadTrusteevHutcheson:39
(p.735) Englishlawdoesdistinguishbetweensimplenegligenceandgrossnegligence.Someexampleswill
suffice.Agratuitousbaileeisonlyliableforgrossnegligence.Theconceptofgrossnegligencealso
appearsinsection2oftheLibelAct1843.Finally,grossnegligenceisoneofthebasesuponwhichaperson
canbeconvictedofmanslaughter:RvAdomak o[1995]1AC171.
ThoseexamplessimplyshowthatEnglishlawdoesrecognisegrossnegligenceinsomecontexts.Theyalso
showthatEnglishlawrecognisesthedifferenceinlegalprinciplebetweennegligenceandgrossnegligence
andbetweenthosetypesofnegligenceandfraud.Todescribenegligenceasgrossdoesnotchangeits
naturesoastomakeitfraudulentorwilfulmisconduct.
Similarly,MillettLJsanalysisofScotslawinArmitagefailsentirelytoconvince.LordClarkeobservedinSpread
Trusteethat:40
MillettLJconsideredtherelevantScotslawinsomedetail.Heanalysedanumberofcasesandconcluded
thattheywerealldecidedasamatterofconstructionoftheparticularclause.TheBoardhasalready
indicatedthat,atanyrateforthepurposesofthisappeal,itacceptsthesubmissionmadeonbehalfofthe
partiesthatScotslawwasnotbasedsolelyontheconstructionofparticularclausesbutthatthereisaruleof
ScotslaworpolicytotheeffectthatgrossnegligencecannotbeexcludedbecauseinScotslawculpalata
doloaequiparatur.41 ItfollowsthatMillettLJwaswrongtosaythatthesubmissionthatitiscontrarytopublic
policytoexcludetheliabilityofatrusteeforgrossnegligenceisnotsupportedbyanyScottishauthority.
Indeed,priortoArmitage,theEnglishauthoritiesregardingwhattypesofbreachwereexcludablewerefarfromclear.
AsMillettLJhimselfrecognizedinArmitage,42 theLawCommissionhadconsideredthisissueinaConsultation
PaperentitledFiduciaryDutiesandRegulatory43 andconcludedthat:
trusteesandfiduciariescannotexemptthemselvesfromliabilityforfraud,badfaithandwilfuldefault.Itisnot,
however,clearwhethertheprohibitiononexclusionofliabilityforfraudinthiscontextonlyprohibitsthe
exclusionofcommonlawfraudorextendstothemuchbroaderdoctrineofequitablefraud.Itisalsonot
altogetherclearwhethertheprohibitionontheexclusionofliabilityforwilfuldefaultalsoprohibitsexclusionof
liabilityforgrossnegligencealthoughweinclinetotheviewthatitdoes.44
AlthoughthedecisioninArmitagevNursehassomepotentialweaknesses,thisdoesnotmeanthatitisnecessarily
unsatisfactoryforgrosslynegligentbreachesoftrusttobeexcludedinthetrustinstrument.Whetherornotsuch
breachesshouldbeexcludableisaquestionofpolicy.MillettLJwasnotaversetothenotionthatreformofthisarea
mightbedesirable,andsaid:45
Atthesametime,itmustbeacknowledgedthattheviewiswidelyheldthatthese[exemption]clauseshave
gonetoofar,andthattrusteeswhochargefortheirservicesandwho,asprofessionalmen,wouldnotdream
ofexcludingliabilityforordinaryprofessionalnegligenceshouldnotbeabletorely(p.736) onatrustee
exemptionclauseexcludingliabilityforgrossnegligence.Jerseyintroducedalawin1989whichdenieseffect
toatrusteeexemptionclausewhichpurportstoabsolveatrusteefromliabilityforhisownfraud,wilful
misconductorgrossnegligence.ThesubjectispresentlyunderconsiderationinthiscountrybytheTrust
LawCommitteeIfclausessuchasclause15ofthesettlementaretobedeniedeffect,theninmyopinion
thisshouldbedonebyParliament,whichwillhavetheadvantageofwideconsultationwithinterestedbodies
andtheadviceoftheTrustLawCommittee.
Thesecommentsdidpromptacloserlookatexclusionclauses.TheTrustLawCommitteewasfirsttopublisha
ConsultationPaper,inwhichitprovisionallyfavouredastatutoryprovisiontotheeffectthat:46
atrusteeremuneratedforhisservicesastrustee(butnotanexecutortrusteewhoreceivedalegacyasa
tokenofthetestatorsaffectionoresteem,beingofasignificantlesservaluethantheamountofremuneration
thatmightreasonablybeexpectedtobepaidfortheservicesasexecutortrustee)maynotrelyonan
exemptionclauseexcludingliabilityforbreachoftrustarisingfromnegligence.
Soonafter,theLawCommissionwastaskedwithinvestigatingthisarea.ThiswaslargelybecausetheGovernment
waschallengedabouttheinclusionofaprovisionintheTrusteeAct2000,whichwouldallowthetrustinstrumentto
excludethestatutorydutyofcare.47 AstheBillwaspassingthroughParliament,LordGoodhartarguedthatpaid
professionaltrustees,andtrustcompaniesprovidingtrusteeservicesaspartoftheirbusiness,shouldonlybe
entitledtorelyonanexemptionclauseifitwerereasonableinallthecircumstancessotodo.48 Initsinitial
ConsultationPaper,theLawCommissionagreedandprovisionallyrecommendedreformsimilartothatproposedby
theTrustLawCommittee.
LawCommission,ExecutiveSummarytoTrusteeExemptionClauses:AConsultationPaper
(2003)LawCom.CPNo.171,pp.iiiiv
TheLawCommissiondoesnotbelievethatanabsoluteprohibitiononalltrusteeexemptionclausesis
justifiableatpresent.Oneoftheadvantagesofthetrustisitsflexibilityanditsadaptabilitytodifferent
factualcircumstancesandtodifferentkindsofrelationship.Todenysettlorsallpowertomodifyorto
restricttheextentoftheobligationsandliabilitiesofthetrusteewouldhaveaverysignificantimpacton
thenatureofthetrustrelationship.Thetrustwouldinevitablybecomemoreinflexible.Weareparticularly
concernedthatexcessiveregulationoftrusteeexemptionclausesmaydeterlaytrusteesfromassuming
theresponsibilityoftrusteeshipinthefirstplace.
Atthesametime,theLawCommissiondoesbelievethatthereisaverystrongcaseforsomeregulation
oftrusteeexemptionclauses.Theirincreaseduseinrecentyearshaswithoutdoubtreducedthe
protectionaffordedtobeneficiariesintheeventofbreachoftrust.Whilethereisaneedtomaintaina
balancebetweentherespectiveinterestsofsettlor,trusteeandbeneficiary,webelievethatthecurrent
lawistoodeferentialtotrustees,inparticularprofessionaltrusteeswhoholdthemselvesoutashaving
specialknowledgeskillsandexperience,chargefortheservicestheyprovideandinsurethemselves
againsttheriskofliabilityforbreachoftrust.
(p.737) Wethereforeproposetodrawadistinctionbetweentheprofessionaltrusteeandthelaytrustee.
Professionaltrusteeswouldcomprisetrustcorporationsandanyothertrusteesactinginaprofessional
capacity.Allotherswouldbelaytrustees.Asamatterofgoodpractice,thedraftsmanofatrustshould
alwaysbringthepresenceofatrusteeexemptionclausetotheattentionofthesettlor,explainclearlyits
implicationsanddiscussthealternativeswhichmaybeavailablefortheprotectionofthosewhomaybe
actingastrustees.
Wemakeseveralprovisionalproposalswhichwouldrequirelegislation:
Alltrusteesshouldbegivenpowertomakepaymentsoutofthetrustfundtopurchaseindemnity
insurancetocovertheirliabilityforbreachoftrust.
Professionaltrusteesshouldnotbeabletorelyonclauseswhichexcludetheirliabilityforbreachof
trustarisingfromnegligence.
Insofarasprofessionaltrusteesmaynotexcludeliabilityforbreachoftrusttheyshouldnotbe
permittedtoclaimindemnityfromthetrustfund.
Indeterminingwhetherprofessionaltrusteeshavebeennegligent,thecourtshouldhavepowerto
disapplydutyexclusionclausesorextendedpowersclauseswhererelianceonsuchclauseswould
beinconsistentwiththeoverallpurposesofthetrustanditwouldbeunreasonableinthe
circumstancesforthetrusteetobeexemptedfromliability.
TheseproposalsoftheLawCommissionaresensible.Afterall,themainreasonwhyaprofessionalischosentoact
astrusteeistoensureacertainlevelofskillandexpertise.Thesettlorispreparedtopayforthetrusteesskillsand
experience,butthatdecisionisunderminedifthetrusteeisabletoactnegligentlywithoutfearofincurringany
liability.Moreover,professionaltrusteesmaywellbeexpectedtohaveliabilityinsurancethisstrengthensthe
contentionthatanylossessufferedbyaprofessionaltrusteesnegligentlycarryingouthisorherdutiesoughttobe
bornebythatnegligenttrusteeratherthanabeneficiary,giventhatonlytheformerbutnotthelatterislikelytobe
insured.However,wheretrusteesarenotatfaultinbreachingtheirduties,itisunobjectionableforthemtorelyupon
avalidexclusionclause.
Suchreformwouldhavebeensimilarto,butnotthesameas,thatwhichhasoccurredinthecontractualsphere.The
UnfairContractTermsAct1977allowsthecourttostrikedowncertaintypesofexclusionclausesinacontractif
theyareunreasonable.49 However,theproposalsoftheLawCommissionregardingtrustinstrumentswouldnot
assessthereasonablenessoftheclauseitself,butratherthereasonablenessofthetrusteesactions.Thedifference
canbeexplainedduetotheimportanceofprotectingthebeneficiariesproprietaryinterestinthetrustfund,whichis
irrelevantinthecontractualcontext,andthefactthatatrustmayoftenbeexpectedtolastformuchlongerthana
contractualrelationship.AstheLawCommissionobserved:50
whileitmustbeconcededthattherearesomesimilaritiesbetweenacontractandatrust,thecontract
derivesitsenforceabilityfromthevitalfactorsofagreementandconsideration,whereasthetrustisbased
firmlyonthegrantofproperty.Althoughthetermsofthetrustmayincertaincircumstancesbenegotiated
andagreedbetweenthesettlorandthetrustees,andthetrusteesmayberemuneratedfortheserviceswhich
theyprovide,thesearenotnecessarycomponentsofthetrustrelationship.
Moreover,thetrusthasaproprietaryimpactwhichtranscendstheordinaryprinciplesofcontractlaw.Thiscan
indeedbeexemplifiedbyreferencetothetrusteeexemptionclausewhichisintendedtobenefitnotonly
thosepersonswhoassumetheobligationoftrusteeshipimmediatelyfollowingexecutionofthetrust,butalso
theirsuccessors.
(p.738) TheUnfairContractTermsAct1977isinapplicableinthetrustcontext.51 Anyagreementthattheremaybe

ismadebetweenthesettlorandtrustee,52 butitisnotthesettlorwhocansuethetrusteeforbreachoftrust.Any
claimisbroughtbythebeneficiary.Evenwherethesettlorisalsothebeneficiaryunderthetrustthatiscreated,itis
uncertainwhetherheorsheshouldbeabletorelyuponthe1977Actsincethepositionsofsettlorandbeneficiary
aredistinctandshouldremainseparate.
However,theproposalsoftheLawCommissionmetstrongopposition.Mostsignificantly,professionaltrusteeswere
unhappytoseeanypossibleextensionregardingtheirpossibleliabilities,andfearedtheirinsurancepremiumsbeing
raised.Theyhighlightedthepossibilityofmanytrustsbeingtakenoffshoretosupposedlymoregenerous
jurisdictions,whichdidnotsubjectexemptionclausestosuchtightscrutinyandrestrictions.Thislatterargument
wasunconvincingtotheLawCommissioninitially,andmaycontinuetofailtopersuadein1989Jerseyrecognized
thatliabilityforfraud,wilfulmisconduct,andgrossnegligencecouldnotbeexcluded,53 asdidGuernseyin1990,54
andthisseemstobelessgeneroustotrusteesthanArmitagevNurse.Nevertheless,initsfinalreporttheLaw
Commissionthoughtlegislativereformtobeinappropriate.
LawCommission,ExecutiveSummarytoTrusteeExemptionClauses(2006)LawCom.No.
301,pp.34
Itisclearthatrestrictingtheuseofexemptionclausesinthemannerprovisionallyproposedbythe
[ConsultationPaper]wouldhaveasignificantimpactonthetrustssystemasawhole.Exemption
clausesoperatetocontrolriskandtokeepcostsdown,therebyencouragingasufficientnumberof
trusteestooperateinthemarket.Thereisnoclearalternativeprotectionavailabletotrustees.Weaccept
inthelightofconsultationresponsesthattrusteeindemnityinsuranceisnotcapableoffillingtherole.
Consultationhasshownthatthereis,amongreputabletrustees,astronglyheldbeliefthattrustee
exemptionclausesshouldnotbeincludedinatrustwithoutthefullknowledgeandconsentofthesettlor.
Weconsiderthecurrentstateofaffairsinwhichmanysettlorsappeartobeunawareoftheexistenceor
theeffectoftrusteeexemptionclausesunacceptable.Itunderminestheargumentthatsettlorsmay
autonomouslydecidetogranttheirtrusteestheprotectionofexemption.Italsochallengestheviewthat
exemptionclausesoperateinaproperlyfunctioningmarkettheasymmetryofinformationbetweenthe
trusteeandthesettlorhastheeffectofconferringontheformerthebenefitofaprotectionnotappreciated
bythelatter.
Weareoftheviewthattrusteesshouldberequiredtoensurethatthesettlorsareawareofanytrustee
exemptionclausesintheirtrustdeeds.
Wehaveconsideredtheoption,discussedinthe[ConsultationPaper],ofintroducingastatutory
requirementthattrusteesmustdisclosetothesettloranyexemptionclauseonwhichtheywishtobe
abletorely.Wehaverejectedthisapproachonthegroundsthatitwouldbelikelytogiverisetodelay
andadditionalcostwhensettingupatrustandtouncertaintyastothevalidityoftheclausethereafter.It
isalsounclearhowsuchastatutoryrequirementcouldadequatelyframetheregulationofduty
modificationclauses.
Wehaveconcludedthatapracticebasedapproach,ratherthanlegislation,isthebettermeanstobring
aboutreformoftheconductoftrustees.TheReportthereforerecommendsaruleofpracticethat:
(p.739) Anypaidtrusteewhocausesasettlortoincludeaclauseinatrustinstrumentwhichhas
theeffectofexcludingorlimitingliabilityfornegligencemustbeforethecreationofthetrusttake
suchstepsasarereasonabletoensurethatthesettlorisawareofthemeaningandeffectofthe
clause.
Fromthis,itcanbeseenthatasoftlawapproachwasultimatelypreferredbytheLawCommission:aslongas
professionaltrusteesensurethatsettlorshavefullyunderstoodtheimportandeffectofanexclusionclauseatthe
timethetrustinstrumentiscreated,trusteeswhohavenotcommittedfraudwilllaterbeabletorelyuponthat
exclusionclause,eveniftheyhavebeengrosslynegligent.
ThisaboutturnfromtheLawCommissionwasverywarmlywelcomedbyprofessionaltrustees,andprofessional
bodiessensiblybegantoimplementcodesofconduct.55 Butprofessionalbodiesregulatingtheconductoftheir
membersclearlylackthesanctionsthatareavailabletocourtsoflaw,andmaybeoflittlehelptobeneficiaries
seekingredress.Indeed,itwillnotinevitablybethecasethatatrusteeisamemberofaregulatorybody,oreven
thatallregulatorybodieswillhaveacode.Andevenifacodeisinplace,thestrengthoftherelevantorganizationwill
determinehoweffectiveanysanctionsitcanimposemaybe.
ThestancetakeninArmitageand,ultimately,bytheLawCommissionplacesgreatstressuponthesettlors
freedomtochoosethetermsonwhichhecreatesatrust.Suchsettlorautonomyemphasizestheimportanceofthe
obligationsunderpinningatrust.Ifthetrustisseenasamechanismbywhichthesettlorcangivepropertytoothers,
thenthebeneficiariesasvolunteersandrecipientsofthatgiftsimplyhavetoacceptthegiftwiththestringsthe
settlorattachestoit.Ifthesettlordeliberatelychoosesnottograntthebeneficiariesanyremedyifthetrusteesact
negligently,thatwishshouldberespected.
However,suchreasoningwaspreviouslycriticizedbyPenner,56 whoobservedthatArmitagevNurse:
endorsesastrongversionoffreedomoftrust,akintoastrongversionoffreedomofcontract:solongasthe
legalarrangementofrightsanddutiesvoluntarilyundertakenbythepartieshassomekindofworkablelegal
effect,thelawshouldgiveeffecttoititisnottheroleofthelawtorequirepartiestoalegalarrangementto
acceptastandardpackageofterms,unlessthereissomesufficientlyweightycountervailingpublicpolicy
consideration.Distinguishedfromanystrandlinkingittothenotionoffiduciaryobligationsperse,MillettLJs
essentialcoredutyofloyaltyandgoodfaithreducestotheirremovabledutyofthetrusteenottocommita
fraudonthebeneficiaries,whereinfraudencompasseseitherintentionalwrongdoingorrecklessdisregardof
thebeneficiariesinterests,thusdishonestytosomesubstantialdegree.Thusthecoredutyofatrusteeis
determinedaccordingtoastandardoffault,notakindofduty.Theessenceoftrusteeshipaccordingly
concernsthewayinwhichatrusteeacquitsorfailstoacquitwhateverdutiesthetrusttermsimpose,
dishonestlyratherthannegligentlyorinnocently,notsomeminimumoressentialk indsofdutywhichgivethe
trustsubstance,suchasthedutytokeepthetrustpropertyseparatefromhiswon,orthekeepthetrust
accounts,etc.Withrespect,itissubmittedthatthisismisguided,andconfusesthenatureofdutywiththe
natureofliability.
Inanyevent,theexistenceofsomecodesofconductclearlydoesnoteliminatethepossibilitythatsettlorswill
continuetoagreetosuchclauseswithoutbeingfullyawareoftheireffects.Itisunsurprising(p.740) tofindthatthe
LawCommissionreceivedmuchcriticismforitscompletereversalbetweentheconsultationpaperandreport.
Kenny 57 describeditasan:
astonishingresultItisincomprehensiblethatitisstillpermissibletohavepaidtrustees,chosenfortheir
reliabilityandexpertise,whodonothavetoassumeresponsibilityfortheirownmisconduct,andinfactwill
stillbeentitledtopayment.Thepossibilityofnoncomplianceremains,andthereisnosanctionforthis.
Yearslater,whenaclauseisbeingreliedon,howwillitbepossibletoknowwhatthesettlorwastoldor
understood?Farmorefundamentally,thequestionofwhyaprofessionalshouldbeabletorelyonsuch
clauseshasnotbeenanswered.Theconsultationprocesshasproducedanexplanationbutthisexplanation
isfarfromconvincing.
BehindsuchmisgivingsliesasuspicionthatthewealthymightofprofessionaltrusteesintheCityofLondon
managedtoforcetheLawCommissiontobackawayfromreform.However,reformwasalwayslikelytobe
controversialanylegislativeprovisionwouldnodoubthavebeendifficulttodraft,andthereisasoundargumentthat
theautonomyofthesettlordeservestoberespected.
Giventhelackoflegislativereform,somesolaceforcriticsoftheLawCommissionmightbefoundinthebroader
definitionofdishonestyenunciatedinWalk ervStones.Afterall,ifprofessionaltrusteescannotrelyuponexclusion
clausesiftheyactedinamannerinwhichnoothertrusteewouldhaveacted,thatcomesclosetoremovingthe
possibilityofexcludingliabilityforgrossnegligence.58 However,somemayfeelthatthisstillgivestrusteestoomuch
leeway:theyarestillabletorelyuponexclusionclausesifmerelynegligent,andcourtsmaybesomewhathesitant
tousethelabelofdishonestysincebrandingaprofessionalpersondishonestcanhaveseriouslydeleterious
effects,andmayseeminappropriatewhereheorshedidnotactuallyrealizethatheorshewascommittingabreach
ofduty.59 Negligenceisthemoreappropriatenomenclature.
Inanyevent,itisnotunlikelythatthisissuewillberevisitedbythecourts.Indeed,itreachedthePrivyCouncilin
SpreadTrusteeCo.LtdvHutcheson,butthatdecisioncannotbethefinalword:theactualdecisionconcernsthe
previouscustomarylawinGuernsey,notEnglishlaw,andtherewasnofulldiscussionofargumentsconcerning
principleandpolicy.However,someofthedictainthecasemaybesignificant.Forexample,LordClarke60 said
that:
ThecriticalpointisthatArmitagevNursecorrectlystatesEnglishlawasitstandsatpresent.
Armitageis,therefore,consideredcurrentlytobeauthoritative,butitonlyhasthatstatusatpresent.Itmaywellbe
subjecttoreview.Indeed,BaronessHale61 expresslypointedoutthat:
theSupremeCourtoftheUnitedKingdomhasneverhadanopportunitytoconsiderwhetherthatcasewas
rightlydecided.
HerLadyshipwentontocastdoubtuponEnglishlawsallowingthetrustdeedtoexcludeliabilityforgross
negligence,andsaid:62
(p.741) IsuspectthatevenanEnglishlawyerwouldregarditasunacceptablethataguardianoftheestate
ofaminormightbeexcusedliabilityforgrossnegligence.
Inasimilarvein,LordKerrrevealedsomediscomfortwithArmitage,concludingwiththefollowingcomments:63
If,asIsuggestedatthebeginningofthisjudgment,theplacingofrelianceonaresponsiblepersontomanage
propertysoastopromotetheinterestsofthebeneficiariesofatrustiscentraltotheconceptoftrusteeship,
denyingtrusteestheopportunitytoavoidliabilityfortheirgrossnegligenceseemstobeentirelyinkeeping
withthatessentialaim.
Suchcommentsaresuretofuelfuturelitigation.ThefactthattwomembersoftheSupremeCourtBaronessHale
andLordKerrexpresseddoubtsaboutArmitageanddissentedinthePrivyCouncilsuggeststhatadefinitive
pronouncementfromtheSupremeCourtwouldbedesirable.ItmaywellbethattheSupremeCourtwouldwelcome
suchacase:leavetoappealinWalk ervStoneswasgranted,butthecasewascompromisedbeforetheappealwas
heard.Anyreformnowseemstobedependentuponthejudiciary.
(c)InterpretingExclusionClauses
Evenintheabsenceofreform,courtshavesoughttorestrictthereliefthatmightbeavailabletoaprofessional
trusteethroughinterpretingexclusionclausesnarrowly.Forexample,inWalk ervStones,SirChristopherSlade
commentedthat:64
MillettLJanalysedthepermittedscopeoftrusteeexemptionclausesinArmitagevNurseat251256.His
analysisinmyjudgmentclearlyillustratestheneed,asamatterofpolicy,forthecourtstoconstrueclauses
ofthisnaturenomorewidelythantheirlanguageonafairreadingrequires.Icannotbelieveitwouldbethe
intentionofthedraftsmenofclausessuchasclause15oftheBacchustrustdeedtoexempttrusteesfrom
liabilityforabreachoftrustinacasesuchasthatpostulatedattheendoftheimmediatelypreceding
paragraph.
Thus,asamatterofinterpretation,therelevantexclusionclausemaynotcoverthenatureoftheparticularbreachin
question.Indeed,inSpreadTrustee,LordMance65 statedthat:
Englishlawwillconstrueexemptingprovisionsstrictly.inachapterinTrendsinContemporaryTrustLaw
edAJOakley(1996),TheIrreducibleCoreContentofTrusteeship,ProfessorDavidHaytonendorsedthe
sameview,referringinafootnotetoKnoxvMack innonandRaevMeek withthecommentthatincontextthe
wordingofsomeexemptionclausesmaybeconstruedcontraproferentemasnotextendingtoomissions
consideredtobegrossnegligence.
(p.742) Thisisasensibleapproachforthecourtstoadopt.Wheretheexclusionclauseclearlyandunambiguously
coversthesituationatissue,thentheclausemustbegiveneffecttotheextentthatitdoesnotinterferewiththe
irreduciblecore.Butwheretheclauseisnotsoclear,andcompetinginterpretationsofthetrustinstrumentare
equallyviable,thecourtshouldprefertheinterpretationthatfavoursthebeneficiaries,ratherthanprofessional
trusteeswhoseektorelyonaclausethattheyprobablydrafted.Restrictingtheambitofexclusionclausesinthis
wayhelpstoensurethattheirreduciblecoreisnotunderminedandthattheprotectionofthebeneficiariesrightsis
strengthened.
InWightvOlswang,66 theCourtofAppealheldthataclausethatexemptedsolicitortrusteesofliabilityhadtobe
interpretedrestrictively.Consequently,whenoneclauseexemptedthemfromallliabilityandanotherexemptedonly
theliabilityofunpaidtrustees,itwasheldthatthelatterprevailed.Thisnarrowapproachtoconstructionshouldbe
appliedtoalltypesofexclusionclause.67 InCitibank vMBIA,ArdenLJrecognizedthataclausewhichrestrictsthe
dutiesowedbyatrusteemightbeinterpretednarrowlyinordertoensuretheintegrityoftheirreduciblecoreof
obligationsatrusteeowes:68
itiscorrectthatitwouldbeasurprisinginterpretationofthedocumentation,againstwhichthecourtshould
lean,ifthepowersofthetrusteeweresoreducedthatitceasestobeatrusteeatall.
(d)EffectofExclusionClauses
Itisclearthatatrusteecannotrelyuponanexclusionclauseifheorshehasbeenfraudulent.Butwhatifthetrustee
hasonlybeennegligent,andseekstorelyuponanexclusionclausethatpurportsalsotoexcludeanyliabilityfor
thetrusteesfraudulentconduct:doestheclausefailinitsentirety,andnotexcludeliabilityforthetrustees
negligentacts,oristheclauseonlyinvalidtotheextentthatitunderminedtheirreduciblecoreoftheobligations
owedbyatrustee,andcanberelieduponbyatrusteewhohasonlybeennegligent?Thereisnoclearanswerto
thisquestion,andtheappropriatesolutionmightdependupontheprecisefactsofacase.Generalprinciplesof
severancemightapply.Ifthesettlorsintentiontorelievethetrusteeofliabilityforanybreachofdutycanbeclearly
established,thenitseemssensibletoallowthetrusteetorelyupontheclauseifhehasbeennegligentandthis
doesnotoffendtheirreduciblecore.Theoffensivewordscouldbeseveredfromtheotherwisevalidexclusionclause.
Butifthesettlorfailedtoappreciatetheclauseseffect,thenitisnotsoobviousthatseveringtheinvalidpartofthe
clausewouldhelptopromotethesettlorstrueintentions,andasaresultthecourtmightdecidethattheentire
clauseshouldfail.
3.ReliefbytheCourt
Atrusteemightescapepersonalliabilityforbreachoftrustnotonlythroughanexclusionclauseinthetrust
instrument,butalsothroughsection61oftheTrusteeAct1925.
61.Powertorelievetrusteefrompersonalliability
Ifitappearstothecourtthatatrustee,whetherappointedbythecourtorotherwise,isormaybe
personallyliableforanybreachoftrust,whetherthetransactionallegedtobeabreachoftrustoccurred
beforeorafterthecommencementofthisAct,buthasactedhonestlyandreasonably,andoughtfairlyto
beexcusedforthebreachoftrustandforomittingtoobtainthedirectionsofthecourtinthematterin
whichhecommittedsuchbreach,thenthecourtmayrelievehimeitherwhollyorpartlyfrompersonal
liabilityforthesame.
Clearly,therearethreerequirementsthatneedtobesatisfiedforthecourttograntanyrelief:honesty,
reasonableness,andfairness.Thesewillbeexaminedinturn.Itisimportanttonotethatthisprovisionispotentially
applicableinrespectofanybreachoftrust,includingwherethetrusteemakesanunauthorizedinvestmentor
distributesassetstothewrongobjects.69 However,section61appliesonlyonceabreachoftrusthasbeen
established,foronlythenwilltherebeanyliabilitytoberelieved.Theburdenofproofnaturallyliesonthewrongdoing
trustee,whomustshowthatheorshedeservesthedubiousprerogativeofmercy70 vestedinthecourt.
(a)Honesty
Forthepurposesofsection61,honestyessentiallyequatestogoodfaith.Theappropriatetestfordishonestly
probablymirrorsthatadoptedinthecontextoftrusteeexclusionclauses.Ifthetrusteeisalaytrustee,asubjective
standardisused,71 whereas,foraprofessionaltrustee,anobjectivetestispreferred.72 So,ifthetrusteegenuinely
believedheorshewasactinginthebestinterestsofthebeneficiary,thenthecourtmightstilldecidethatthetrustee
wasdishonestifthetrusteewasaprofessionalandnoreasonableprofessionaltrusteewouldhaveheldthatbelief.
(b)Reasonableness
Reasonablenessisassessedobjectively.Animportantfactoriswhetherornotthetrusteestooklegaladvice.This
maybeparticularlysignificantgiventhatitwouldalsohavebeenpossibleforthetrusteestoseekdirectionsfromthe
courtbeforebreachingtheirduties.73 However,evenifatrusteefollowslegaladvice,itseemsthatthecourtwillnot
necessarilyrelievethetrusteefromliability:iftheadvicewaswrong,thetrusteecouldsuetheadvisorfornegligence,
andtherebyensurethatthetrustsuffersnolossfailingtotakesuchstepsisunlikelytobeexcused.74 However,the
claimagainsttheadvisorwillsucceedonlyiftheadvisorwasnegligent,andthepossibilityofaclaimdoesnot
necessarilyensureasatisfactoryremedy.Itissuggestedthatonlyinveryrarecasesshouldthecourtdecidethat
anhonesttrusteewhohasfollowedlegaladvicehasnotactedreasonably:whatelsewasthetrusteesupposedto
do?
(p.744) Althoughitmightbethoughtthattherequirementofreasonablenessmeansthatatrusteewhohas
breachedthedutyofcarehasinevitablyfailedtoactreasonably,thecourtmaystillbepreparedtoapplysection61.
So,inReSmith,75 thetrusteewasawidowwholivedinthecountryandemployedafirmofsolicitorstoactasher
agents.Thesolicitorsclerkfraudulentlyobtainedthetrusteessignatureoncertainchequesandinducedherto
initialalterationstothecheques.Hethenabscondedwiththemoney.Thetrusteewasheldtohavebreachedthe
trust,butherliabilitywasexcusedbecauseshehadactedhonestlyandreasonably,eventhoughshehadnottaken
alltheprecautionsagainstfraudthatareasonabletrusteewouldhavetaken.Itdoesnotfollow,however,that
trusteeswillberelievedofliabilityinallcasesofnegligence.Infact,whereatrusteefallsbelowtheexpected
standardofprudence,heorshewillgenerallynotberelievedofliability.ReSmithmightbedistinguishedbecauseof
thepeculiarpositionofthetrustee,whohadcommittedwhatmightbeconsideredtobeamorallyinnocentbreachof
trust.
InReStuart,bycontrast,StirlingJrefusedtograntreliefundersection61wherethetrusteehadbreachedhisduty
inmakingimproperinvestments.
ReStuart[1897]Ch583,590(StirlingJ)
ajurisdictionisgiventotheCourtunderspecialcircumstances,theCourtbeingsatisfiedastothe
severalmattersmentionedinthesection,torelievethetrusteeoftheconsequencesofabreachoftrust
asregardshispersonalliability.ButtheCourtmustfirstbesatisfiedthatthetrusteehasactedhonestly
andreasonably.Astothehonestyofthetrusteeinthiscasethereisnoquestionbutthatisnottheonly
conditiontobesatisfied,andthequestionariseswhethertheotherconditionsaresatisfied.Iquiteagree
thatthissectionappliestoatrusteemakinganimproperinvestmentofthetrustfundsaswellastoany
otherbreachoftrust.ThismatterhasbeenconsideredbyByrneJinReTurner[1897]1Ch536at542,
wherehesaysthis:
Ithinkthatthesectionreliedonismeanttobeacteduponfreelyandfairlyintheexerciseof
judicialdiscretion,butIthinkthattheCourtoughttobesatisfied,beforeexercisingtheverylarge
powersconferreduponit,bysufficientevidence,thatthetrusteeactedreasonably.Idonotthink
thatIhavesufficientevidenceinthiscasethathesoactedinfact,itdoesnotappearfromthe
lettersthatMr.Turneractedinrespectofthismortgageashewouldprobablyhaveactedhadit
beenatransactionofhisown.Ithinkthatifhewasandhewellmayhavebeenabusinesslike
man,hewouldnot,beforelendinghismoney,havebeensatisfiedwithoutsomefurtherinquiryas
tothemeansofthemortgagorandastothenatureandvalueofthepropertyuponwhichhewas
abouttoadvancehismoney.
ThathassincebeenapprovedbytheCourtofAppealandIwillinglyadoptwhatistherelaiddownasa
guidetomeinthismatter.InmyopiniontheburdenliesonthetrusteewhoaskstheCourttoexercise
thejurisdictionconferredbythissectiontoshewthathehasactedreasonablyand,certainly,itisfairin
dealingwithsuchaquestiontoconsiderwhether[thetrustee]wouldhaveactedwithreferencetothese
investmentsashedidifhehadbeenlendingmoneyofhisown.
(c)Fairness
Wherethetrusteehasactedhonestlyandreasonablythenitwillgenerallybefairtoexcusethetrusteeforhis
breachofduty.However,fairnessdoesnotinevitablyfollowfromthefirsttworequirements.
(p.745) PerrinsvBellamy[1898]2Ch521,5279
Trusteesheldcertainpropertiesontrust.Theywereadvisedbysolicitorsthattheyhadapowerofsaleoverthe
properties,andasurveyorrecommendedthatthepropertiesbesold.Thetrustees,therefore,soldtheproperties,
butittranspiredthatthiswasinbreachoftrustandthattheadvicereceivedfromtheirsolicitorswasincorrect.
Thebeneficiariesarguedthatitwouldnotbefairtorelievethetrusteesfromliabilityforthebreach,becausethe
trusteeshadfailedtoseekthedirectionsofthecourt.Thisargumentwasrejected.
KekewichJ:TheLegislaturehasmadetheabsenceofalldishonestyaconditionprecedenttothereliefof
thetrusteefromliability.Butthatisnotthegritofthesection.Thegritisinthewordsreasonably,and
oughtfairlytobeexcusedforthebreachoftrust.Howmuchthelatterwordsaddtotheforceoftheword
reasonablyIamnotatpresentpreparedtosay.Isuppose,however,thatintheviewoftheLegislature
theremightbecasesinwhichatrustee,thoughhehadactedreasonably,oughtnotfairlytobeexcused
forthebreachoftrust.Indeed,Iamnotsurethatsomeoftheevidenceadducedinthiscasewasnot
addressedtoaviewofthatkind,as,forinstance,theevidencebywhichitwasattemptedtoshewthat
thesetrustees,thoughtheyactedreasonablyinsellingtheproperty,oughtnotfairlytobeexcused
becausetheplaintiffMrs.Perrinsobjectedtotheirselling,andherobjectionwasbroughttotheirnotice.
Inthesectionthecopulativeandisused,anditmaywellbearguedthatinordertobringacasewithin
thesectionitmustbeshewnnotmerelythatthetrusteehasactedreasonably,butalsothatheought
fairlytobeexcusedforthebreachoftrust.Iventure,however,tothinkthat,ingeneralandinthe
absenceofspecialcircumstances,atrusteewhohasactedreasonablyoughttoberelieved,andthatit
isnotincumbentontheCourttoconsiderwhetherheoughtfairlytobeexcused,unlessthereis
evidenceofaspecialcharactershewingthattheprovisionsofthesectionoughtnottobeappliedinhis
favour.Ineednotpursuethatsubjectfurther,becauseinthepresentcaseIfindnogroundwhateverfor
sayingthatthesetrustees,iftheyactedreasonably,oughtnottobeexcused.Thequestion,andtheonly
question,iswhethertheyactedreasonably.Insayingthat,Iamnotunmindfulofthewordsofthesection
whichfollow,andwhichrequirethatitshouldbeshewnthatthetrusteeoughtfairlytobeexcused,not
onlyforthebreachoftrust,butalsoforomittingtoobtainthedirectionsoftheCourtinthematterin
whichhecommittedsuchbreachoftrust.Ifinditdifficulttofollowthat.Idonotseehowthetrusteecan
beexcusedforthebreachoftrustwithoutbeingalsoexcusedfortheomissionreferredto,orhowhecan
beexcusedfortheomissionwithoutalsobeingexcusedforthebreachoftrust.IfIamatlibertytoguess,
Ishouldsupposethatthesewordswereaddedbywayofamendment,andcreptintothestatutewithout
dueregardbeinghadtothemeaningofthecontext.Thefactthatatrusteehasomittedtoobtainthe
directionsoftheCourthasneverbeenheldtobeagroundforholdinghimpersonallyliable,thoughitmay
beareasonguidingtheCourtinthematterofcosts,orindecidingwhetherhehasactedreasonablyor
otherwise,andespeciallysointhesedayswhenquestionsofdifficulty,evenasregardsthelegalestate,
canbedecidedeconomicallyandexpeditiouslyonoriginatingsummons.ButiftheCourtcomestothe
conclusionthatatrusteehasactedreasonably,Icannotseehowitcanusefullyproceedtoconsider,as
anindependentmatter,thequestionwhetherhehasorhasnotomittedtoobtainthedirectionsofthe
Court.
KekewichJemphasizedthat,althoughthewordingofthestatuteclearlycontemplatesasituationwherethetrustees
haveactedreasonablybutstillmightnotfairlybeexcused,inpractice,fairnessaddslittletoreasonablenessinthe
vastmajorityofcases.
(p.746) However,theaboveanalysismightbelimitedtosituationsinvolvinglaytrustees.Thecourtsaremuchmore
reluctanttofindthatprofessionaltrusteesoughtfairlytobeexcused.AsLowryandEdmunds 76 haveobserved,the
primaryconcernoftheVictoriandraftersofsection61anditspredecessorswasnottojeopardizethesupplyof
competentlaytrusteesbyexposingthemtotheriskofliabilityforhonestandreasonablebreaches.Thesame
rationaledoesnotnecessarilyapplytoprofessionaltrustees:77
Throughoutthetwentieth,andintothepresentcentury,therehasbeenadiscernibleshifttowardsan
increasingprofessionalisationoftrusteeship.Section61maycontinuetoprovidearesidualsafeguardforthe
honestandreasonablelaytrustee.However,itdoesnotautomaticallyfollowthatsuchrelieffulfilsany
valuableroleinrespectofaprofessionaltrusteeofacommercialtrust.
Indeed,courtsseemmorereluctanttorelieveprofessionaltrusteesfromliabilityusingsection61.Forexample,in
RePaulingsSettlementTrusts,78 apowerofadvancementhadbeenexercisedimproperlybythetrustee,whichwas
abank.Thebreachoftrustarosefromthebankbeingimproperlyadvisedbyitssolicitors.Itwasheldthatmoreis
expectedfromprofessionaltrusteesthanamateursand,withoutmore,itwouldnotbepossibletorelievethemof
liability,eventhoughtheyhadactedhonestlyandreasonably.WillmerLJexplainedthat:79
Thebankalsorelyforrelieffromtheconsequencesofanybreachoftrustuponsection61oftheTrusteeAct,
1925.Atthisstageallweproposetosayisthatitwouldbeamisconstructionofthesectiontosayitdoes
notapplytoprofessionaltrustees,but,aswaspointedoutintheJudicialCommitteeofthePrivyCouncilin
NationalTrusteesCompanyofAustralasiaLtdvGeneralFinanceCompanyofAustralasiaLtd[1905]AC373
at381withoutsayingthattheremedialprovisionsofthesectionshouldneverbeappliedtoatrusteein
thepositionoftheappellants,theirLordshipsthinkitisacircumstancetobetakenintoaccountWherea
bankerundertakestoactasapaidtrusteeofasettlementcreatedbyacustomer,andsodeliberatelyplaces
itselfinapositionwhereitsdutyastrusteeconflictswithitsinterestasabanker,wethinkthatthecourt
shouldbeveryslowtorelievesuchatrusteeundertheprovisionsofthesection.
Nevertheless,thecourtultimatelydidrelievethebankofliabilitybecauseanadditionalfactorwasidentifiedthat
madeitfairtoexcusethebank:thebeneficiarieshadconsentedinwritingtotheexerciseofthepower.80
(d)AssessingSection61
Section61remainsausefulprovision:itseemsappropriateforthecourttobeabletoexcusesomebreachesof
trust.Sometrustsarecomplex,andtrustdutiesmaybestrictanddifficulttocomplywithtechnicalbreachesof
trustcanbecommittedentirelyinnocently.Thesignificanceofsection61isparticularlypronouncedinsituations
wherethereisnoexclusionclauseinthetrustinstrument.Butgiventheprevalenceofsuchclausesinmodernday
trusts,fewcasesonsection61nowarise,andtheguidanceprovidedbythecasesregardingtheapplicationofthe
provisionisnotentirelyclear.(p.747) Nevertheless,thecourtsappeartobemorewillingtoapplysection61where
thebreachoftrusthasbeencommittedbyalaytrusteeratherthanaprofessionaltrustee.Thisdistinctionbetween
layandprofessionaltrusteeshasbeendrawninthecontextofexemptionclauses,andseemsequallysensiblein
thiscontext:settlorsandbeneficiariesareentitledtoexpectprofessional,paidtrusteestocomplywiththeduties
imposedbythetrust,andveryrarelywillsuchpersonshaveactedreasonablyinbreachingtheirdutiesanditbefair
toexcusethatbreach.
4.Consent
Abeneficiarywhoconsentstoabreachofdutycannotthencomplainifthetrusteecommitsthebreachofdutyfor
whichconsentwasobtained.InWalk ervSymonds,81 LordEldonexplained:
Itisestablishedbyallthecases,thatifthecestuiquetrustjoinswiththetrusteesinthatwhichisabreachof
trust,knowingthecircumstances,suchacestuiquetrustcannevercomplainofsuchabreachoftrust.Igo
further,andagreethateitherconcurrenceintheact,oracquiescencewithoutoriginalconcurrence,will
releasethetrustees:butthatisonlyageneralrule,andtheCourtmustinquireintothecircumstanceswhich
inducedconcurrenceoracquiescencerecollectingintheconductofthatinquiry,howimportantitisonthe
onehand,tosecurethepropertyofthecestuiquetrustandontheother,nottodetermenfromundertaking
trusts,fromtheperformanceofwhichtheyseldomobtaineithersatisfactionorgratitude.
Abeneficiarywhoconsentstoactswhichinvolveabreachoftrustisconsideredtojoinwiththetrusteesandcannot
thencomplainaboutthebreach.However,theconsentofonebeneficiarywillnotprovideatrusteewithadefenceto
claimsbyotherbeneficiaries:consentoperatestobaronlytheclaimoftheparticularclaimantwhoconsents.
AtfirstinstanceinRePaulingsSettlementTrusts,WilberforceJsaid:82
thecourthastoconsiderallthecircumstancesinwhichtheconcurrenceofthecestuiquetrustwasgiven
withaviewtoseeingwhetheritisfairandequitablethat,havinggivenhisconcurrence,heshouldafterwards
turnroundandsuethetrustees:that,subjecttothis,itisnotnecessarythatheshouldknowthatwhatheis
concurringinisabreachoftrust,providedthathefullyunderstandswhatheisconcurringin,andthatitisnot
necessarythatheshouldhimselfhavedirectlybenefitedbythebreachoftrust.
Theequitablediscretionisthereforebroad.Theconsentingbeneficiarymustbeoffullageandsoundmind,andthe
consentfreelygiven.Thebeneficiarymustbefullyinformed,inthatheorshemustknowofallthekeyfactsand
relevantsurroundingcircumstancesconcerningwhatthetrusteeseekstodo.Itisnotalwaysnecessaryforthe
claimanttorealizethattherewouldbeabreachoftrustorfortheclaimanttobenefitfromthebreach,butasPayne
hascommented:83
Theissueofthebeneficiarysstateofknowledgeshouldbeappliedflexiblyinthelightofthefactsofeach
caseandoftheoverarchingconceptsoffairnessandequity.Insomecasestheindividualought(p.748)
nottobedeniedasubsequentremedyagainstthewrongdoerwithoutbeingshowntohaveknownnotonlyof
thecircumstanceswhichgiverisetothebreach,butalsothatthosecircumstancesdo,infact,amounttoa
breachoftrustorfiduciaryduty.
Preciselywhatlevelofknowledgewillbesufficienttoestablishconsentwilldependupontheprecisefactsofthe
case.TherewasfurtherdiscussionofthisissueinRePaulingsSettlementTrusts.
RePaulingsSettlementTrusts[1964]Ch303,3478
CommanderandMrsYounghusbandweremarriedin1919clause11oftheirmarriagesettlementcontaineda
powerofadvancementforthetrustee,whichwasabank,Coutts&Co.,toadvancepropertytothechildrenof
themarriage.Between1948and1954thetrusteesmadeanumberofadvancementstothechildren,who
sometimesreceivedindependentlegaladviceastotheirrightsunderthesettlement,butnotoneveryoccasion.
In1954,asaresultofaschemeofonesonsforavoidingestatedutyonhismothersdeath,thechildrenfirst
becameawarethattheadvancementsmighthavebeeninbreachoftrust.In1958theybroughtanactionagainst
thetrusteesclaiming29,160,onthegroundthatthissumhadbeenimproperlypaidoutbywayof
advancementtobeneficiarieswhowerepresumedtobesubjecttoundueinfluenceandwhowerenot
emancipatedfromparentalcontrol.Otheraspectsofthisdecisionwillbeconsideredbelow,84 butontheissue
ofconsent,UpjohnLJwasclear:
AtthetimeofthisadvancethesonGeorgewas23yearsold.Hehaddonehismilitaryservice,andwas
upatCambridge.Thejudgethoughthimanexceptionallyableyoungman,wellacquaintedwithhis
rights,andabletotakecareofhimself.Hehadnoseparateadviceaboutthis2,000advance,buthehad
beenadvisedabouttheHodsonloantransaction,andinthecourseofreceivingtheexplanationsthen
offeredhemusthaverealisedwhatthepowerwaswhichthetrusteeswerepurportingtoexercise.Indeed,
thefatalopinionofcounseladvisingonthepossibilityofusingclause11topurchaseahouseintheIsle
ofManwas,ontheevidence,familiarnotonlytoGeorge,buttoAnn[hissister].Thejudgeheldthathe
wasemancipatedfromparentalcontrol,andwellenoughacquaintedwithhispositiontomakehis
consenttothisadvancebindinguponhim,andthiscourtcannotreversethatfinding,depending,asit
does,somuchuponthedemeanourofthewitness.
Thecaseoftheotherson,Francis,isquitedifferent.Hewasatthistime28yearsold,andwas
apparentlylivingforthemostpartwithhisgrandmother,sothathewasremovedfromimmediateparental
control.Ontheotherhand,wenowknowthathewasaschizophrenic.Thisdiagnosishadbeenmadein
1940whenhefoundonedayoflifeintheRoyalAirForcealtogethertoomuchforhim,andwasrepeated
byadoctorwhosawhimin1951.Hewasnotcalledbyeitherside,itbeingagreedthathismemorywas
notatalltobetrusted.Consenttothis,astoothertransactionsinwhichhewasinvolved,waswrittenout
andsenttohimbyhisfather.Thereisnoletterfromhimanywhereinthecorrespondence.No
representativeofthebankeversawhim.Hewasobviouslyleftpurposelyinthebackground.Ontheother
hand,hewascapableofteachinginaboysschool,whichhedidfortwoyearstowardstheendofthe
war,andwasacceptedforentrytoEdinburghUniversityafterthewar,wherealsohecontinuedfortwo
yearsasastudent.Further,whenhewentwithhisbrothertobeadvisedovertheHodsonloan,the
partnerinFarrer&Cowhosawhimthoughthimcapableofunderstandingthetransaction.(p.749)
Moreover,ithasneverbeenallegedthathewasatanymaterialtimeincapacitatedfromcontractingor
conductingbusinessaffairsbyreasonofhismentalhealth,thoughwecannotthinkthatifthebankhad
knownofhishistoryofillhealththeywouldhaveactedontheconsentshereturnedsignedtohisfather.
Butthebankdidnotknowthefacts.Wehaveconsideredanxiouslywhether,beforemakinganadvance,
theyshouldhavemadesomeinquiryintohiscircumstances.Itisallegedintheparticularsofthe
statementofclaim(paragraph10)thatthelawpresumesundueinfluencetoexistbetweenaperson
sufferingfrommentalillhealthandthepersonwithwhomheresidesbutintheend[counsel]rightly
abandonedthisplea,forthereisnosuchpresumptionthoughactualundueinfluencemaynotbedifficult
toprove.Thepresumptionexistsonlyastothemedicaladviser.Onthewhole,wedonotfeelabletosay
thatthepresumptionofundueinfluencemustbeheldtoexistbetweenFrancisandhisparentshaving
regardtohisageandhisabsencefromhome,andweconcludethatthebankwerenotboundtomake
inquiriesastohisstateofmindorfitnessasanobjectofthepowertheywereaffectingtoexercise.
Accordingly,thoughthiswastheplainestbreachoftrust,weagreewiththejudgethatthebankhavea
gooddefence,fortheyobtainedconsentsfromthetwochildrenconcerned,andtheywereemancipated.
Clearly,arangeoffactorswillbeconsideredwhendeterminingwhetherornottheconsentprovidedbythe
beneficiaryissufficienttobaraclaimagainstthetrustee.Whetherornotsuchconsentwasprovidedinthecontext
ofarelationshipofundueinfluencemightbeparticularlyimportantindeed,theconsentofthedaughterinRe
PaulingsSettlementTrustswasineffectiveforthisveryreason.
Consentmightbefurtherjustifiedasabartothebeneficiarysclaimagainstthetrusteeonthebasisofanagreement
betweenthepartiesthatnoclaimwillbebroughtforthatbreachofduty.However,thisrationaleisbestplacedto
explainconsentgivenpriortothebreachoftrust.Consentmaybegivenafterthebreachoftrusthasoccurredin
ordertoreleasethetrusteefromliability,butthiswouldcreateacompromiseagreementsoshouldonlybeeffective
ifconsiderationhasbeenprovidedfortherelease.85 Adifferentexplanationforthedefenceofconsentisbasedupon
estoppel,whichshouldbeavailabletoatrusteewhohasdetrimentallyreliedontherepresentationnottosue.
(b)ImpoundingaBeneficiarysInterest
Theconsentofabeneficiarytoatrusteesbreachofdutymaynotonlybaraclaim,butalsoresultinthe
beneficiaryslosinghisorherbeneficialinterest.
TrusteeAct1925
62.Powertomakebeneficiaryindemnifyforbreachoftrust
Whereatrusteecommitsabreachoftrustattheinstigationorrequestorwiththeconsentinwritingofa
beneficiary,thecourtmay,ifitthinksfit,makesuchorderastothecourtseemsjust,forimpoundingall
oranypartoftheinterestofthebeneficiaryinthetrustestatebywayofindemnitytothetrusteeor
personsclaimingthroughhim.
(p.750) Theeffectofsection62istoindemnifythetrustee:compensationforbreachoftrustwillbeprovidedfrom
thebeneficiarysshareofthetrustfundratherthanbythetrustee.Obviously,themostthatcanbeimpoundedisthe
valueofthebeneficiarysinterestbeyondthat,section62canoffernorelief.Thenatureofthisprovisionwas
discussedbyWilberforceJinRePaulingsSettlementTrusts(No.2).86
RePaulingsSettlementTrusts(No.2)[1963]Ch576,583
CouttsandCo.,thetrusteesofafamilytrust,wereheldliableforbreachoftrustinrespectofanumberof
advancesofcapitalmadetothechildrenofthelifetenant,MrsYounghusband.Thebankclaimedtobeentitled
toimpoundthelifeinterestofMrsYounghusband.Thebeneficiariesinstitutedproceedingsbecausetheysought
theappointmentoftwonewtrusteesintheplaceofthebank,whichopposedthisonthegroundthatsuchan
appointmentmightnegatetheirrighttoimpound.WilberforceJagreedtoappointnewtrustees,butheldthatthis
wouldnotimperilthedefendantsrighttoimpoundundersection62.
WilberforceJ:
NextIcometoaseparateseriesofobjectionswhichraisesomedifficultquestionsoflaw.The
defendants,asIhavealreadymentioned,haveaclaimtoimpoundthelifeinterestofMrs.Younghusband
nowvestedintheGuardianAssuranceCoLtdinordertorecoupthemselvesagainstanymoneywhich
theymaybeorderedtorepay.Whatissaidbythedefendantsisthatthatrighttoimpoundwouldbe
prejudicedifnewtrusteeswereappointednowandthetrustfundhandedovertothem.Thatinvolvesa
considerationastowhatisthenatureoftherighttoimpoundwhichexistsinfavourofatrusteewhohas
committedabreachoftrustattheinstigationofabeneficiary.Ihavetoconsiderboththeordinaryright
whichexistsinequityapartfromstatuteandalsothefurtherstatutoryrightwhichhasbeenconferredby
section62oftheTrusteeAct,1925,bothofwhichareinvokedbythedefendantsasplaintiffsinthe
Chanceryactionnowpending.Itseemstomethatitisnotpossibletomaintain,asisthedefendants
contentionhere,thatatrustee,havingcommittedabreachoftrust,isentitledtoremainasatrusteeuntil
ithasexerciseditsrighttoimpoundtheincomeofthebeneficiaryinordertorecoupitself.Thatseemsto
meanimpossibleproposition.Itisquitetruethat,inthereportedauthorities,thereisnocasewherethe
righttoimpoundhasbeenexercisedbyaformertrusteeasdistinctfromanexistingtrustee,butitseems
tomeinprinciplethatitisimpossibletocontendthattherighttoimpoundislimitedtothecasewhere
thetrusteeseekingtherightisanactualtrustee.Thenatureoftherighttoimpoundseemstometoturn
ontwothings:first,thatthemoneypaidbacktocapitalisinitsoriginthemoneyofthetrustee,andthat
whenitcomestoconsideringwhoshouldgettheincomeofit,thetrusteewhohasprovidedthemoney
hasabetterrighttoitthanthetenantforlifewhohasinstigatedthebreachoftrust.Thealternativewayof
puttingthematteristhatthetrusteeinbreachoftrustisinsomewaysubrogatedtotherightsofthe
beneficiary.Hestandsinhispositioninorderthathemaybeindemnified.Thatseemstomethewayin
whichitwasputbytheLordsJusticesinRabyvRidehalgh(1855)7DeGM&G104.Itdoesnotseem
tomethatthereisanysupportinauthorityorinprincipleforsayingthattherightdependsuponthe
actualpossessionofthetrustfund,anditappearstomethattheanalogywhichhasbeensoughttobe
drawnwiththeexecutorsrighttoretainisafalseoneanddoesnotapplytothiscase.Somuchforthe
equitablerighttoimpoundasopposedtothestatutoryright.
Asregardsthestatutoryright,thatdependsonthelanguageofsection62oftheTrusteeAct,1925,and
atfirstsightitmightlookasifthatrightonlyexistsinfavourofapersonwhoisactuallyatrustee.But,
(p.751) onconsideration,thatseemstometobeamisconstructionofthesection.Inthefirstplace,the
sameobjectionagainstlimitingtherightinthatwayappliestothestatutoryjurisdiction.Itseemstome
anabsurditythatitisrequiredasaconditionofexercisingtherighttoobtainanimpoundingorder,that
thetrusteewho,exhypothesi,isinbreachoftrust,mustremainthetrusteeinordertoacquirearightof
indemnity.Further,itseemstomeontheauthorities,and,indeed,ontheverytermsofthesection,that
thesectionisgivinganadditionalright,amongotherthings,todealwiththecaseofamarriedwoman
beneficiarythatthestatutoryrightisextendingtheequitablerightandnotlimitingit,andthatitisnot
righttoreadthesectionsoastoapplyonlytoapersonwhowasformerlyatrustee.Thesectionbegins
withthewords:whereatrusteecommitsabreachoftrust,therebyindicatingthatatthetimethebreach
oftrustiscommittedthepersoninquestionmustbeatrustee.Thenfurtherdowninthesectionthereisa
referencetoatrusteeandthatappearstometobemerelyareferencebacktothesamepersonasthe
personwhocommittedthebreachoftrustandnotasanindicationthatthepersoninquestionmustbea
trusteeatthedateoftheorder.Iwouldaddtothat,thatherethewritwhichhasbeenissuedinthe
ChanceryDivisionwasissuedatatimewhenthedefendantsweretrustees,and,therefore,atthedateof
thewrittherequirementofbeingatrusteewasfulfilled.Sothat,althoughIentirelyappreciatethatthe
defendantsmaybeanxiousnottolosetheirrighttoimpoundtheincomeofthetenantforlife,thatright
couldnot,inmyview,beprejudicedbyappointingnewtrusteesatthisstage.
Importantly,thecourthasabroaddiscretionwhendecidingwhetherornottoimpoundabeneficialinterest.However,
absentaninstigationorrequestfromthebeneficiary,thetrusteewillneedtohavethebeneficiarysconsentinsigned
writinginordernotonlytohaveadefencetothatbeneficiarysclaim,butalsotogofurtherandimpoundhisorher
interest.
AgoodexampleofthecourtsexercisingitsdiscretioncanbefoundinReSomerset.87 Thetrusteesofamarriage
settlementlentanexcessivesumuponmortgage.Theylentthemoneyattheinstigation,request,andconsentin
writingofthetenantforlife,MrSomerset.Whenthesecurityprovedtobeinadequate,MrSomersetandhisinfant
childrensuedthetrusteesforbreachoftrust.Liabilitytothechildrenwasadmitted,butthedefendanttrustees
claimedthattheywereentitledtoimpoundSomersetslifeinterestforthepurposesofmeetingtheclaim.However,
theCourtofAppealrefusedtoimpoundthebeneficiarysinterest.AlthoughMrSomersetapprovedtheinvestment,he
hadnotintendedtobeapartytoabreachoftrust,andineffectleftthetrusteestodeterminewhethertheinvestment
wasaproperoneforthesumadvanced.LindleyMRsaid:88
Didthetrusteescommitthebreachoftrustforwhichtheyhavebeenmadeliableattheinstigationorrequest,
orwiththeconsentinwritingoftheAppellant?Thesectionisintendedtoprotecttrustees,andoughttobe
construedsoastocarryoutthatintention.Butthesectionoughtnot,inmyopinion,tobeconstruedasifthe
wordinvestmenthadbeeninsertedinsteadofbreachoftrust.Anenactmenttothateffectwouldproduce
greatinjusticeinmanycases.Inordertobringacasewithinthissectionthecestuiquetrustmustinstigate,
orrequest,orconsentinwritingtosomeactoromissionwhichisitselfabreachoftrust,andnottosomeact
oromissionwhichonlybecomesabreachoftrustbyreasonofwantofcareonthepartofthetrustees.Ifa
cestuiquetrustinstigates,requests,orconsentsinwritingtoaninvestmentnotintermsauthorizedbythe
powerofinvestment,heclearlyfallswithinthesectionandinsuchacasehisignoranceorforgetfulnessof
thetermsofthepowerwouldnot,Ithink,protecthimatallevents,notunlesshecouldgivesomegood
reasonwhyitshould,e.g.,thatitwascausedbythetrustee.Butifallthatacestuiquetrustdoesisto
instigate,request,orconsentinwritingtoaninvestmentwhichisauthorizedbythetermsofthepower,the
caseis,Ithink,verydifferent.Hehasarighttoexpectthatthetrusteeswillactwithpropercareinmakingthe
investment,andiftheydonot(p.752) theycannotthrowtheconsequencesonhimunlesstheycanshew
thatheinstigated,requested,orconsentedinwritingtotheirnonperformanceoftheirdutyinthisrespect.
Sincethebeneficiaryhadonlyconsentedtoanauthorizedloan,butnottoitsexceedingtheauthorizedlimit,the
courtdecideditwouldbeinappropriatetoimpoundthebeneficiarysinterest.Beneficiariesareentitledtoassume
thattrusteescarryoutrequestsinaccordancewiththetermsofthetrust.
(c)RuleinReDacre
Relatedtosection62isthesocalledruleinReDacre.Thisruleisengagedwhereatrusteeisalsobeneficially
entitledtotrustpropertyandmisappropriatespartofthetrustproperty.Insuchcircumstances,thetrusteeis
consideredtohaveactedproperlyandalreadytohavereceivedhisorhershareofthetrustpropertyasbeneficiary,
sothatthetrustee,oranybodyclaimingthroughthetrustee,isnotentitledtoreceiveanymorepropertywhenthe
trustassetsaredistributed.
ReDacre[1916]1Ch344,3467(LordCozensHardyMR)
Ithasbeensettledbyalongseriesofauthorities,whicharebindinguponus,thatadefaultingtrustee
cannotclaimashareintheestateunlessanduntilhehasmadegoodhisdefault,andthetrueprinciple,I
think,isthatwhichislaiddownbySirGeorgeJesselinJacubsv.Rylance,89 andwhichisagainaffirmed
byStirlingJ.inthecaseofDoeringv.Doering,90 andlastlyemphaticallyaffirmedbyParkerJ.inInre
Towndrow,91 whereduringthecourseoftheargumenthesaidthis:Therealprincipleisthatwherethere
isanaggregatefundinwhichthetrusteeisbeneficiallyinterestedandtowhichheowessomething,he
mustbetakentohavepaidhimselfthatamountonaccountofhisshare.Thatprinciplehelaysdown
againinthesamejudgment,where,quotingthewordsofStirlingJ.,hesays:Thetheoryonwhichthat
ruleisbasedisthattheCourttreatsthetrusteeashavingreceivedhissharebyanticipation,andthe
answertoanyclaimmadebythetrusteeisthis:Youhavealreadyreceivedyourshareyouhaveitin
yourownhands.Thatdoctrinehasbeenappliednotmerelyasagainstthedefaultingtrustee,butagainst
hisassigneesforvalue.Ithasbeenappliedagainstthedefaultingtrusteeandhisassigneesalthoughthe
defaultwasafterthedateoftheassignment.Icannotseeanygroundforholdingthatthepersons
claiminginrightoftheinsolventestateofHenryDacrecanbeinanybetterpositionthantheassigneefor
valueofthisparticularproperty.
5.LiabilityBetweenTrustees
(a)NatureOfLiability
Atrusteesliabilitytocompensateabeneficiaryforlosssufferedfromabreachoftrustispersonal.Itisimportantto
appreciatethatitisnotvicarious:atrusteeisnotvicariouslyliablefortheactsofhisorhercotrustees.92 But
trusteesarerequiredtoactjointly:onetrusteecannotescapeliabilitybyleaving(p.753) hisorhercotrusteesto
doallthework.93 Alltrusteesneedtoparticipateinthedecisionmakingprocess.Giventhepersonalnatureof
liability,itiscommonforprofessionaltrusteestoseektoinsertanexclusionclauseintothetrustinstrument,94 and
toprotectthemselvesbytakingoutindemnityinsurancetocovertheirliabilityforbreachoftrust,eithertothe
beneficiariesorthirdpartiesitispossibleforinsurancepremiumstobepaidfromthetrustfund.95
(b)JointandSeveralLiability
Thepersonalliabilityoftrusteesisjointandseveral.Thismeansthataclaimantcansuethetrusteeseithertogether
(jointly)orseparately(severally).Ifonlyonetrusteeissued,thattrusteewillbeliabletocompensateinfullforthe
losssufferedduetothebreachoftrust.Theclaimantschoicewhethertosuethetrusteestogetherorseparatelywill
beinfluencedbyhoweasyitistoissueproceedingagainstthetrustees,andparticularlybytheirabilitytopayand
satisfytheclaim.
Atrusteewhohasbeensuedbyaclaimantmaylegitimatelyseektopassonanyliabilitytohisorhercotrustees.
Therearetwomechanismsforensuringthisdistributionofliability:contributionandindemnity.
(i)Contribution
Whereatrusteeisliableforabreachoftrust,itispossibleforthattrusteetoapplytothecourttorequireother
trusteeswhowereliableforthesamebreachtomakeacontributiontowardstheremedy.Before1979,theequitable
rulesofcontributionprovidedthattheliabilitywastobesharedequallybetweencotrustees,evenwhereoneofthem
wasmoretoblamethananother.96 TheserulesweresupersededbytheCivilLiability(Contribution)Act1978.
CivilLiability(Contribution)Act1978
1.Entitlementtocontribution
(1)Subjecttothefollowingprovisionsofthissection,anypersonliableinrespectofanydamage
sufferedbyanotherpersonmayrecovercontributionfromanyotherpersonliableinrespectofthe
samedamage(whetherjointlywithhimorotherwise).
2.Assessmentofcontribution
(1)Subjecttosubsection(3)below,97 inanyproceedingsforcontributionundersection1abovethe
amountofthecontributionrecoverablefromanypersonshallbesuchasmaybefoundbythecourt
tobejustandequitablehavingregardtotheextentofthatpersonsresponsibilityforthedamagein
question.
(p.754) (2)Subjecttosubsection(3)below,thecourtshallhavepowerinanysuchproceedingsto
exemptanypersonfromliabilitytomakecontribution,ortodirectthatthecontributiontobe
recoveredfromanypersonshallamounttoacompleteindemnity.
6.Interpretation
(1)ApersonisliableinrespectofanydamageforthepurposesofthisActifthepersonwho
sufferedit(oranyonerepresentinghisestateordependants)isentitledtorecovercompensation
fromhiminrespectofthatdamage(whateverthelegalbasisofhisliability,whethertort,breachof
contract,breachoftrustorotherwise).
Thestatutorycontributionregimeclearlydepartsfrompreviousauthority,sincethecourtnowhasabroaddiscretion
whendetermininghowtoapportionliabilitybetweentheparties.Thecourtsimplyhastoachieveajustand
equitableresult.Assessingtheappropriatecontributioneachpartyshouldmakeisthereforeadifficultexercisethe
courthastoformaviewabouthowmuchresponsibilityforthelosseseachpartyshouldbear,andattributeliability
accordingly.
Determiningwhetherthepartiesareliableforthesamedamagehasraisedsomeinterestingissues.Whereboth
partiesarecotrusteesandsuedbyabeneficiaryforlossescausedbyasinglebreachoftrust,establishingthe
samedamageisstraightforward.ButtheActcanapplyinmorecomplicatedscenarios,andisclearlynotlimitedto
claimsinvolvingtwotrustees.Forexample,inFriendsProvidentLifeOfficevHillierPark erMayandRowden,98
HillierParkerhadrecommendedthatFriendsProvidentmakepaymentsofinteresttodevelopers.ButduetoHillier
Parkersadvice,FriendsProvidentactuallyoverpaid.FriendsProvidentsuedHillierParkerfornegligenceandbreach
ofcontract.HillierParkerthenclaimedacontributionfromthedevelopers:HillerParkerarguedthatthedevelopers
hadreceivedthemoneyasaresultofamistake,andshouldthereforebeholdingthemoneyontrust.99 Inspending
themoney,ratherthanmakingrestitutionofthemoneytoFriendsProvident,HillierParkerclaimedthatthe
developershadcommittedabreachoftrust,andcontributedtothesamedamagesufferedbyFriendsProvidentas
thatcausedbyHillierParkersbreachofduty.TheCourtofAppealheldthatthisclaimwasarguable,andthat
contributionmightbepayable.AuldLJsaid:100
Here,HillierParkerscaseisthatthedeveloperswereinbreachoftrustindissipatingthemoney,infailingto
payitbackwhenaskedtodoso,andindenyingFriendsProvidentsentitlementtorepayment.Inmyview,
andinthelightofmyconstructionofsections1(1)and6(1)oftheActof1978undertheheadingofquasi
contract,whateverthepreciseformofremedyFriendsProvidentmighthaveinrespectofthatmoney,whether
restitutionaryorindamages,itisforcompensationfordamageithassufferedbyitslossinthesensereferred
tobyViscountHaldaneLCinNoctonvLordAshburton[1914]AC932andinthewordsoftheAct.
Accordingly,assumingthatthedevelopersaretrusteesforFriendsProvidentofallorsomeofthenotional
interestthesubjectofthisactionandareinbreachofthattrustbypayingthemoneyawayfortheirownuse,
orinnotrepayingitondemandbyFriendsProvidentorinassertingthatthey,notFriendsProvident,were
entitledtoit,then,subjecttoanysuccessfuldefenceofestoppel,Iwouldholdthatsection1(1)oftheActof
1978appliestoaclaimforrestitutionarycompensationbasedonsuchliability.
(p.755) Thismightappearstrangeatfirstsightrestitutioninvolvesgainbasedremedies,whereascompensation
concernslosses,soAuldLJsreferencetorestitutionarycompensationseemsodd.However,inthecontextofa
claimincontribution,itseemsdefensibleonpolicygrounds:bothrestitutionaryandcompensatoryclaimsmightbe
squeezedintotheActslanguageofsamedamageinordertoensurethatneitherthepersonwhowronglymakes
thegain,northepersonwhoinflictstheloss,isnecessarilyliabletotheclaimantinfull.101 However,aliabilityto
makecontributionshouldoperateonlytotheextentthatthevalueoftheclaimantslosscorrespondstothevalueof
thedefendantsgain,102 foronlythencanthepartiesbeconsideredtobeliableforthesamedamage.
(ii)Indemnity
AlthoughtheCivilLiability(Contribution)Act1978excludedthecourtsinherentequitablejurisdictiontoordera
contribution,itdoesnotexcludeanyrighttoanindemnity.Onetrusteewillberequiredtoindemnifyanotherwhere
theformerbearsthefullliabilityforthebreachoftrust.Theliabilityofonetrusteefullytoindemnifyanotheris
recognizedonlyinveryexceptionalcircumstances.
(a)Benefitofbreach
Wheretwotrusteeshavebreachedthetrust,butoneofthemobtainedthebenefitofthebreach,thattrusteewillbe
liabletoindemnifytheother.Thismaytypicallyarisewherethetrusteeisalsoabeneficiaryofthetrust.For
example,inChillingworthvChambers,103 theclaimant,Chillingworth,anddefendant,Chambers,weretrusteesofa
testamentarytrust.Chillingworthwasmarriedtooneofthebeneficiaries,and,onherdeath,becamehimselfa
beneficiary.Thetrusteesmadeanunauthorizedinvestmentinmortgagesofleaseholdproperty,andthelosses
sufferedbythetrustweremadegoodoutofChillingworthsinterestasabeneficiary.Chillingworththensought
contributionfromhiscotrustee,Chambers,butthecourtrefusedtogranthimanyrelief.KayLJsaid:104
Onthewhole,Ithinkthattheweightofauthorityisinfavourofholdingthatatrusteewho,beingalsocestui
quetrust,hasreceived,asbetweenhimselfandhiscotrustee,anexclusivebenefitbythebreachoftrust,
mustindemnifyhiscotrusteetotheextentofhisinterestinthetrustfund,andnotmerelytotheextentofthe
benefitwhichhehasreceived.Ithinkthattheplaintiffmustbetreatedashavingreceivedsuchanexclusive
benefit.
ALSmithLJagreed,observingthat:105
Idonotdoubt,hadtheplaintiffinthepresentcasenotbeenacotrusteewiththedefendant,butonlyacestui
quetrustoftheestateofwhichthedefendantwastrustee,that,inasmuchastheplaintiffhadauthorizedand
consentedtothebreachoftrustwhichisnowcomplainedof,hecouldnothaveclaimedcontributionfromthe
defendanttomakegoodthelosshehadsustainedand,whatismore,thatthedefendantwouldhavebeen
entitledtoimpoundtheplaintiffsinterestinhisonefifth(p.756) sharetoexoneratehimfromanylosshe
mighthavebeencalledupontomakegoodbyreasonofthebreachoftrust.
Thisapproachhelpstoensurethatatrusteebeneficiarycannotbenefitfromhisorherbreachofduty,andthatthe
trusteesbeneficialinterestisfirstexhaustedinsatisfyingaclaim.
Theprinciplethatatrusteemaybeindemnifiedbyanotherwhenonlythelatterhasbenefitedfromthebreachisnot
limitedtosituationswherethetrusteeisalsoabeneficiary.InBahinvHughes,CottonLJsaid:106
NowIthinkitwrongtolaydownanylimitationofthecircumstancesunderwhichonetrusteewouldbeheld
liabletotheotherforindemnity,bothhavingbeenheldliabletothecestuiquetrustbutsofarascaseshave
goneatpresent,reliefhasonlybeengrantedagainstatrusteewhohashimselfgotthebenefitofthebreach
oftrust,orbetweenwhomandhiscotrusteestherehasexistedarelation,whichwilljustifytheCourtin
treatinghimassolelyliableforthebreachoftrust.
(b)Soleresponsibilityofonetrustee
Whereonlyonetrusteewasresponsibleforthebreachoftrust,thattrusteewillbeliabletoindemnifytheother
trustees.ThiscanbeseenfromthedictaofCottonLJquotedimmediatelyabove:ifthereisacertainrelationship
betweenthetrustees,thenthatrelationshipmightjustifyonetrusteesindemnifyingtheotheriftheinfluenceofthe
formerwassuchthatthelatterwaseffectivelyunabletoexerciseanindependentjudgment.So,whereoneofthe
trusteesisasolicitor,andanonlawyerreliesuponthesolicitorcotrusteeforguidance,thesolicitorwillgenerally
havetoindemnifyhislaycotrusteeforanybreachoftrust.
AgoodillustrationofthisisRePartington.107 ThetrusteesofafundwereMrAllen,asolicitor,andMrsPartington,
thewidowofthetestator.MrAllenundertookthewholeadministrationofthetrust.Abreachoftrustwascommitted,
andthewidowwasentitledtoafullindemnityfromthesolicitor.StirlingJheldthatMrAllenhadnotcommunicated
sufficientlytoMrsPartingtonconcerningtheaffairsofthetrust.Asaresult,MrsPartingtonwasunabletoexercise
ajudgmentupontheunauthorizedinvestment.StanleyJsaid:
Thetrustee,Mrs.Partington,appearstometohavebeenmisledbyhercotrusteebyreasonofhisnotgiving
herfullinformationastothenatureoftheinvestmentswhichhewasaskinghertoadvancethemoneyupon,
andIthinkhehasbeenguiltyofnegligencealsoinhisdutyasasolicitor.
Thisresultseemsappropriate:givenMrAllensactions,thewidowsrelianceonhisskillandexpertisewas
reasonable.However,itshouldnotbethoughtthatanindemnitywillinevitablybeawardedagainstsolicitortrustees.
Itstillneedstobeestablishedthatthesolicitortrusteeactuallyhadacontrollinginfluenceovertheothertrustees.In
HeadvGould,108 forexample,anattempttoobtainanindemnityagainstasolicitortrusteefailed.KekewichJ
said:109
(p.757) TrueitisthatthedefendantGouldisasolicitor,andthathewasappointedtrusteeforthatvery
reason.Truenodoubt,also,thatthelegalbusinesswasmanagedbyhim,andIdonotproposetoabsolve
himfromanyresponsibilityattachingtohimonthatgroundbutIdonotmyselfthinkthatByrneJ,110 orany
otherjudgeeverintendedtoholdthatamanisboundtoindemnifyhiscotrusteeagainstlossmerelybecause
hewasasolicitor,whenthatcotrusteewasanactiveparticipatorinthebreachoftrustcomplainedof,andis
notprovedtohaveparticipatedmerelyinconsequenceoftheadviceandcontrolofthesolicitor
Moreover,notallsolicitorsshouldinevitablybetreatedthesameway.Asolicitorpractisingexclusivelyincriminal
lawwouldnotbeexpectedtobringthesamesortofexpertisetotheofficeoftrusteeaswouldapractitioner
specializinginchancerywork.
6.LiabilityofTrusteestoCreditors
Whereatrusteeisliabletoathirdpartycreditor,eitherforbreachofacontractenteredintoonbehalfofthetrustor
intortarisingfromtheoperationofthetrust,thetrusteewillbepersonallyliabletothethirdpartycreditor.111
However,thetrusteemaybeindemnifiedfromthetrustfund:
TrusteeAct2000
Section31
(1)Atrustee
(a)isentitledtobereimbursedfromthetrustfunds,or
(b)maypayoutofthetrustfunds,
expensesproperlyincurredbyhimwhenactingonbehalfofthetrust.
Butinsomesituationsthetrusteewillnotbeabletobeindemnifiedfromthetrustfund.Forexample,thetrustfund
maybeinsufficient,orthetrusteemayhaveactedinbreachofduty.Ifthetrusteedoesnothavesufficientfundsto
dischargehisorherliability,thecreditorsmaybeleftunsatisfied:eventhoughthecreditorsmaybesubrogatedtoa
trusteesrighttoanindemnityfromthetrustfund,ifthetrusteewouldnotbeindemnifiedduetohisorherbreachof
duty,thenthesubrogatedcreditorswillfindthemselvesfacingthesameproblem.112 Norcanthecreditorsseek
paymentfromthetrustassets:thetrustisnotalegalentityinitsownrightsocannotbesued.AstheTrustLaw
Committeehasobserved:113
Becauseatrustisnotalegalentitylikeacompany,itcannotbeaprincipalandsocannothaveanagent.
Moreover,sinceitisnotanartificialpersonlikeacompany,noultraviresrulescanapplytoitnorcan(p.
758) rulesanalogoustocompanylawrulesenablingthirdpartiestoassumethatinternalprocedureshave
beencompliedwithorthatparticularpersonshaveostensibleorapparentauthority.
Instead,theindividualorcompanythatistrusteeispersonallyliabletothefullextentofhis,heroritsprivate
wealthunlessinthecontractwiththecreditorthereisaprovisionlimitingliabilitye.g.totheextentthatthere
aretrustassetsoutofwhichthetrusteecanbeindemnified.Thecontractcannotbeultraviresanindividual
whoistrusteebecauseindividualshavethefullcapacityofnaturalpersonstoenterintocontracts.
TheTrustLawCommitteewentontoconcludethatsuchrulesareunfair.Afterall,thetrusteewillhavebeenacting
forthebenefitofthebeneficiariesand,asbetweenthebeneficiariesandthecreditor,isitreallyappropriatethatthe
creditorbeartheriskofthetrusteesinsolvency?TheTrustLawCommitteesuggestedthecreditorshouldstillhavea
rightofindemnityoutofthetrustfundevenwherethetrusteewasinbreachofhisorequitableduties,themajor
exceptionbeingwherethetrusteehadacteddishonestly.However,reforminthisareaisnolongerontheLaw
Commissionsagenda,soanychangeinapproachwillhavetobedevelopedbythecourts.Thisdoesnotappearto
beimminent,especiallybecausesensibleargumentscanbemadeinfavourofthestatusquo.Forexample,ifthe
creditorhadenteredintoacontracttosellgoodstoatrusteewhowasnotactinginhiscapacityastrustee,the
creditorwouldtaketheriskofinsolvencyinthenormalway.Thisdoesnotseeminappropriate,andanyreforms
wouldhavetobecarefulnottounderminethisresult.Indeed,sincethetrustfundcannotbeusedtocompensatethe
thirdpartycreditor,thecurrentlawcanbeconsideredtostrengthentheprotectionaffordedtobeneficiariesinthe
eventofabreachoftrust.Thisisalsoconsistentwiththefundamentalprinciplethattrustpropertyisnotregardedas
belongingtothetrusteeabsolutely,sothatheorshecannotuseittodefrayallliabilities.Nevertheless,favouringthe
beneficiariesoverthetrusteescreditorswherethetrusteewasactingforthebeneficiariesisverygenerousto
beneficiaries,andparticularlyhardoninnocentcreditorswhoprovidedvaluefortheirrights.
7.LiabilityPriortoAppointment
Atrusteewillnotbeliableforbreachoftrustwherethebreachoccurredbeforethetrusteewasappointed.114 On
appointment,ifatrusteediscoversthatabreachoftrustpreviouslyoccurred,heorsheshouldcommence
proceedingsagainsttheformertrusteeifthenewtrusteefailstodoso,heorshemaybeliableforthisbreachof
trustinhisorherownright.
8.LiabilityafterRetirement
Atrusteeremainsliableforbreachesoftrustcommittedwhilstatrustee,eventhoughheorshehasretiredfromthe
trust.Butatrusteewillnotbeliableforbreachesoftrustthatoccurredafterthetrusteeretired,exceptifthetrustee
retiredinordertofacilitateabreachoftrust,115 orifthetrusteeinretiringpartswiththetrustpropertywithoutdue
regardtoit,sothatlossissufferedinthetransferofthepropertytothenewtrustees.116 Thiscanbeexplainedon
thebasisthatthetrusteecommitsa(p.759) breachofdutywhilststillatrustee,andisexaminedmorefullyinthe
contextoffiduciaryobligationsinChapter14.117
9.Limitation
Ifaclaimisnotbroughtwithinacertainperiod,thedefendantmaybeabletorelyuponthedefenceoflimitation.
Imposinglimitationperiodsmeansthat,afteragivenlengthoftime,potentialdefendantscancontinuetheiraffairs
withoutfearofaclaimfromthepastdisruptingthem.Limitationperiodsprovidefinalityandcertainty.AsBestCJ
notedinACourtvCross:118
Longdormantclaimshaveoftenmoreofcrueltythanofjusticeinthem.
Thereisageneralpublicinterestinthespectreoflitigationnothoveringoverthepartiesforanundulylongperiodof
time.Moreover,ifaclaimisbroughtlongaftertheeventsinquestion,theevidenceproducedislikelytobe
unreliable.InBirk ettvJames,LordSalmonsaidthat:119
Whencases(astheyoftendo)dependpredominantlyontherecollectionofwitnessesdelaycanoftenbe
mostprejudicialtodefendantsandtoplaintiffsalso.Witnessesrecollectionsgrowdimwiththepassageof
timeandtheevidenceofhonestmendifferssharplyontherelevantfacts.Insomecasesitissometimes
impossibleforjusticetobedonebecauseoftheextremedifficultyindecidingwhichversionofthefactsisto
bepreferred.
Limitationperiodsareimportantthroughoutthelaw,andEquityisnodifferent.Swadlinghasstatedthat:120
todiscoverwhetherinanygivencaseaclaiminequityistimebarred,athreestageprocessmustbegone
through,inwhichitisasked:
i)Isthisanactiontowhichthereisanexpressstatutorytimelimitonthebringingofclaims?
ii)Ifnot,isthisanactiontowhichacourtwillapplyastatutorylimitbyanalogy?
iii)Ifnot,isthisanactionneverthelessbarredbythedoctrineoflaches?
Thismethodicalapproachshouldensurethatquestionsoflimitationareaddressedinacomprehensivemanner.All
threequestionsneedtobeanalysedinturn,althoughthereissomedebateabouthowdistinctthelattertwo
questionsare.121 Inanyevent,thesecondquestionhighlightsEquityssensibletendencytofollowtheCommonLaw
guidelines.AsLordRedesdalecommentedinHovendenvLordAnnesley:122
(p.760) CourtsofEquityhaveconstantlyguidedthemselvesbytheprinciplethat,whereverthelegislature
haslimitedaperiodforlawproceedings,equitywill,inanalogouscases,considertheequitablerightsas
boundbythesamelimitation.
(a)StatutoryLimitationPeriods
TheLimitationAct1980establisheslimitationperiodsforvarioustypesofclaim.
LimitationAct1980
2.Timelimitforactionsfoundedontort
Anactionfoundedontortshallnotbebroughtaftertheexpirationofsixyearsfromthedateonwhichthe
causeofactionaccrued.
5.Timelimitforactionsfoundedonsimplecontract
Anactionfoundedonsimplecontractshallnotbebroughtaftertheexpirationofsixyearsfromthedate
onwhichthecauseofactionaccrued.
21.Timelimitforactionsinrespectoftrustproperty
(1)NoperiodoflimitationprescribedbythisActshallapplytoanactionbyabeneficiaryundera
trust,beinganaction
(a)inrespectofanyfraudorfraudulentbreachoftrusttowhichthetrusteewasapartyor
privyor
(b)torecoverfromthetrusteetrustpropertyortheproceedsoftrustpropertyinthe
possessionofthetrustee,orpreviouslyreceivedbythetrusteeandconvertedtohisuse.
(2)Whereatrusteewhoisalsoabeneficiaryunderthetrustreceivesorretainstrustpropertyorits
proceedsashisshareonadistributionoftrustpropertyunderthetrust,hisliabilityinanyaction
broughtbyvirtueofsubsection(1)(b)abovetorecoverthatpropertyoritsproceedsafterthe
expirationoftheperiodoflimitationprescribedbythisActforbringinganactiontorecovertrust
propertyshallbelimitedtotheexcessoverhispropershare.
Thissubsectiononlyappliesifthetrusteeactedhonestlyandreasonablyinmakingthedistribution.
(3)Subjecttotheprecedingprovisionsofthissection,anactionbyabeneficiarytorecovertrust
propertyorinrespectofanybreachoftrust,notbeinganactionforwhichaperiodoflimitationis
prescribedbyanyotherprovisionofthisAct,shallnotbebroughtaftertheexpirationofsixyears
fromthedateonwhichtherightofactionaccrued.
Forthepurposesofthissubsection,therightofactionshallnotbetreatedashavingaccruedto
anybeneficiaryentitledtoafutureinterestinthetrustpropertyuntiltheinterestfellinto
possession.
(4)NobeneficiaryasagainstwhomtherewouldbeagooddefenceunderthisActshallderiveany
greaterorotherbenefitfromajudgmentororderobtainedbyanyotherbeneficiarythanhecould
haveobtainedifhehadbroughttheactionandthisActhadbeenpleadedindefence.
(p.761) Thegenerallimitationperiodissixyearsforbreachofcontract,tort,andalsoforaclaimbyabeneficiary 123

torecovertrustpropertyorforbreachoftrust.ForthepurposesoftheLimitationAct1980,thetermtrusteeextends
totrusteesofimpliedandconstructivetrusts,aswellaspersonalrepresentatives.124
However,assection21itselfmakesclear,thegeneralperiodofsixyearsmaynotapplyinsomeinstances.For
example,section21(3)providesthatwhereabeneficiaryisentitledtoafutureinterestinproperty,thecauseof
actionwillnotaccrueuntiltheinteresthasfallenintopossession.AsMillettLJexplainedinArmitagevNurse:125
Therationaleofsection21(3)isnotthatabeneficiarywithafutureinteresthasnotthemeansofdiscovery,
butthatheshouldnotbecompelledtolitigate(atconsiderablepersonalexpense)inrespectofaninjurytoan
interestwhichhemayneverlivetoenjoy.Similarreasoningwouldapplytoexcludeapersonwhoismerely
theobjectofadiscretionarytrustorpowerwhichmayneverbeexercisedinhisfavour.
Thenormallimitationperiodofsixyearswillalsobedisplacedwherethebreachoftrustwasfraudulent:afraudulent
trusteeshouldnotbeabletodefeatabeneficiarysclaimsimplythroughthelapseoftime.Similarly,notimelimitis
prescribedbytheActforclaimstorecovertrustpropertyortheproceedsofsuchpropertythatisinthepossession
ofatrustee.Nordoessection21applytoanactionbroughtbytheAttorneyGeneraltoenforceacharitabletrust:the
AttorneyGeneralsuesonbehalfofthepublicatlarge,whocannotbeconsideredtobebeneficiariesbecausethey
donothavearighttopropertyeitherpresentorfuture.126
Thenormallimitationperiodofsixyearsisalsoqualifiedbyotherprovisionsinthe1980Act.Forexample,claims
relatingtothepersonalestateofadeceasedpersonaresubjecttoatwelveyearlimitationperiod.127
LimitationAct1980
22.Timelimitforactionsclaimingpersonalestateofadeceasedperson
Subjecttosection21(1)and(2)ofthisAct
(a)noactioninrespectofanyclaimtothepersonalestateofadeceasedpersonortoanyshareor
interestinanysuchestate(whetherunderawilloronintestacy)shallbebroughtafterthe
expirationoftwelveyearsfromthedateonwhichtherighttoreceivetheshareorinterestaccrued
and
(b)noactiontorecoverarrearsofinterestinrespectofanylegacy,ordamagesinrespectofsuch
arrears,shallbebroughtaftertheexpirationofsixyearsfromthedateonwhichtheinterest
becamedue.
However,wheretheclaimisforanaccountthelimitationperiodwillbethesameasthatfortheclaimitself.
(p.762) LimitationAct1980
23.Timelimitinrespectofactionsforanaccount
AnactionforanaccountshallnotbebroughtaftertheexpirationofanytimelimitundertheActwhichis
applicabletotheclaimwhichisthebasisofthedutytoaccount.
So,forexample,wheretheliabilityofanagenttoaccountiscontractual,thecontractuallimitationperiodofsix
yearsapplies.Andwheretheliabilitytoaccountisnotreferabletoacontract,thecourtwilldeterminethelimitation
periodbyanalogywiththestatuteandwillapplyasixyearlimitationperiod.Butwheretheliabilitytoaccountarises
fromatrust,suchaswhereanagentholdspropertyastrustee,nostatutorylimitationperiodwillapply,andno
analogywithcontactisappropriate.
Itshouldalsobenotedthatthegeneralstatutorylimitationperioddoesnotapplytoclaimsforequitablerelief.
LimitationAct1980
36.Equitablejurisdictionandremedies
(1)ThefollowingtimelimitsunderthisAct,thatistosay
(a)thetimelimitundersection2foractionsfoundedontort
(b)thetimelimitundersection5foractionsfoundedonsimplecontract
shallnotapplytoanyclaimforspecificperformanceofacontractorforaninjunctionorforany
otherequitablerelief,exceptinsofarasanysuchtimelimitmaybeappliedbythecourtby
analogyinlikemannerasthecorrespondingtimelimitunderanyenactmentrepealedbythe
LimitationAct1939wasappliedbefore1stJuly1940.
(2)NothinginthisActshallaffectanyequitablejurisdictiontorefusereliefonthegroundof
acquiescenceorotherwise.
Thisprovisioniscontroversial:itisunclearwhyequitablereliefshouldnotbegovernedbyastatutorylimitationperiod
andonlybesubjecttotheequitabledoctrineoflaches.Possiblereformofthisprovision,andofthelawoflimitation
moregenerally,willbeconsideredfurther.128
(b)AmbitoftheStatutoryProvisions
Thescopeofthestatutoryprovisionshasprovedtobeparticularlycontroversialregardingclaimsinvolving
constructivetrustsandbreachoffiduciaryduty.
(i)Constructivetrusts
Partofthedifficultyindeterminingthelimitationperiodapplicabletoconstructivetrustsarisesfromthefactthatthe
labelconstructivetrustisusedtodescribeawidevarietyofsituations,andthat(p.763) thislabelissometimes
inaccurateandunhelpful.129 InParagonFinancevDBThak erarandCo.,130 MillettLJhelpfullydistinguished
betweentwotypesofconstructivetrust.Thefirstariseswherethedefendant,althoughnotexpresslyappointedasa
trustee,assumedthedutiesofone.Inthisinstance,thedefendantwouldbearealtrustee,albeitundera
constructivetrust,andwouldbetreatedlikeanexpresstrustee.Thesecondcategoryofconstructivetrustarises
wherethedefendantispersonallyliableforbeingimplicatedinwrongdoing,suchaswhereheorshehas
131
unconscionablyreceivedpropertyinbreachoftrustorfiduciaryduty.131 Butherethelanguageofconstructive
trusteeissimplyaformulaforreliefandthereisnotrustatissue.132
ParagonFinancevDBThakerar&Co.[1999]1AllER400,40814
Thedefendantsolicitoractedforboththeclaimantmortgagelenderandtheborrower.Thedefendantwas
requiredtoinformtheclaimantofanysubsalebutfailedtodoso,eventhoughthedefendantwasawarethatthe
borrowersweresubpurchaserswhowereinvolvedinamortgagefraudandpurportedtobuypropertiesatprices
thatweremuchhigherthanthatforwhichtheyhadbeensoldtotheoriginalpurchasers.Theclaimantssuedthe
defendantinteraliaforfraudulentbreachofduty.Oneoftheissuesbeforethecourtconcernedtheappropriate
limitationperiodforthistypeofclaim.
MillettLJ:
Theplaintiffssubmitthatsection21(1)(a)ofthe1980Acttakenwiththeextendeddefinitionofthewords
trustandtrusteehastheeffectofexcludingtheapplicationofanyperiodoflimitationtotheirclaimfor
breachofthisconstructivetrust.Theysaythatitisirrelevantthatthetrustinquestionhadno
independentexistenceapartfromthefraudbutisratherequitysresponsetothefraud.Theysubmitthat,
ifsuchafactwaseverrelevant,itceasedtobesoafterthepassingofthe1939Act.Thismakesit
necessarytoconsidertheantecedentlawandtheeffectofthe1939Act.
Before1890,whentheTrusteeAct1888cameintooperation,aclaimagainstanexpresstrusteewas
neverbarredbylapseoftime.TheCourtofChanceryhaddevelopedtherulethat,intheabsenceof
lachesoracquiescence,suchatrusteewasaccountablewithoutlimitoftime.Therulewasconfirmedby
section25(3)oftheSupremeCourtofJudicatureAct1873,whichprovidedthatnoclaimbyacestuique
trustagainsthistrusteeforanypropertyheldonanexpresstrust,orinrespectofanybreachofsuch
trust,shouldbeheldtobebarredbyanystatuteoflimitation.
Theexplanationfortherulewasthatthepossessionofanexpresstrusteeisneverinvirtueofanyrightof
hisownbutistakenfromthefirstforandonbehalfofthebeneficiaries.Hispossessionwas
consequentlytreatedasthepossessionofthebeneficiaries,withtheresultthattimedidnotruninhis
favouragainstthem:seetheclassicjudgmentofLordRedesdaleinHovendenvLordAnnesley(1806)2
Sch&Lef607at633634.
Theruledidnotdependuponthenatureofthetrusteesappointment,anditwasappliedtotrusteesde
sontortandtodirectorsandotherfiduciarieswhothoughnotstrictlytrustees,wereinananalogous
positionandwhoabusedthetrustandconfidencereposedinthemtoobtaintheirprincipalspropertyfor
themselves.Suchpersonsareproperlydescribedasconstructivetrustees.
(p.764) Regrettably,however,theexpressionsconstructivetrustandconstructivetrusteehavebeen
usedbyequitylawyerstodescribetwoentirelydifferentsituations.Thefirstcoversthosecasesalready
mentioned,wherethedefendant,thoughnotexpresslyappointedastrustee,hasassumedthedutiesofa
trusteebyalawfultransactionwhichwasindependentofandprecededthebreachoftrustandisnot
impeachedbytheplaintiff.Thesecondcoversthosecaseswherethetrustobligationarisesasadirect
consequenceoftheunlawfultransactionwhichisimpeachedbytheplaintiff.
Theconstructivetrustonwhichtheplaintiffsseektorelyisofthesecondkind.Thedefendantswere
fiduciaries,andheldtheplaintiffsmoneyonaresultingtrustforthempendingcompletionofthesub
purchase.Buttheplaintiffscannotestablishanddonotrelyuponabreachofthistrust.Theyallegethat
themoneywhichwasobtainedfromthemandwhichwouldotherwisehavebeensubjecttoitwas
obtainedbyfraudandtheyseektoraiseaconstructivetrustintheirownfavourinitsplace.
Theimportanceofthedistinctionbetweenthetwocategoriesofconstructivetrustliesintheapplicationof
thestatutesoflimitation.Before1890constructivetrustsofthefirstkindweretreatedinthesamewayas
expresstrustsandwereoftenconfusinglydescribedassuchclaimsagainstthetrusteewerenotbarred
bythepassageoftime.Constructivetrustsofthesecondkindhoweverweretreateddifferently.They
werenotinrealitytrustsatall,butmerelyaremedialmechanismbywhichequitygavereliefforfraud.
TheCourtofChancery,whichappliedthestatutesoflimitationbyanalogy,wasnotmisledbyitsown
terminologyitgaveeffecttotherealityofthesituationbyapplyingthestatutetothefraudwhichgave
risetothedefendantsliability:seeSoarvAshwell[1893]2QB390at393perLordEsherMR:
Ifthebreachofthelegalrelationreliedonmakes,intheviewofaCourtofEquity,the
defendantatrusteefortheplaintiff,theCourtofEquitytreatsthedefendantasatrusteeby
construction,andthetrustiscalledaconstructivetrustandagainstthebreachwhichby
constructioncreatesthetrusttheCourtofEquityallowsStatutesofLimitationtobevouched.
LordEsherMRsreferencetothebreachofthelegalrelationshowsthatwhilethefirstkindof
constructivetrustwasacreatureofequitysexclusivejurisdictionthesecondaroseintheexerciseofits
concurrentjurisdiction.Thatiswhythestatutewasappliedbyanalogy.
Itwasevidentlyconsideredundulyharshthattrusteesshouldremainliableindefinitelyforinnocent
breachesoftrustwhenevencommonlawactionsforfraudwerebarredaftersixyears,andsection8of
the1888Actintroducedaperiodoflimitation(effectivelysixyears)forsuchclaims.Itspurposewasto
provideprotectionfortrusteeswhowouldotherwisebeliablewithoutlimitationoftime(lachesand
acquiescenceapart)wherethebreachoftrustwascommittedinnocently:seeReRichardson[1920]1
Ch423at440.Itexceptedtwocasesfromitsprovisions:(i)wheretheclaimwasfoundeduponanyfraud
orfraudulentbreachoftrusttowhichthetrusteewaspartorprivy,and(ii)wheretheproceedswerestill
retainedbythetrusteeorhadpreviouslybeenreceivedbythetrusteeandconvertedtohisuse.The
sameschemewasadoptedbysection19ofthe1939Actandsection21ofthe1980Act.
Hadthepresentcaseoccurredbefore1940,therefore,thedefendantscouldhavepleadedalimitation
defencetotheclaimbasedonconstructivetrust.Thequestioniswhetherthedistinctionbetweenthetwo
kindsofconstructivetrustsurvivedthepassingofthe1939Act,section19ofwhichwasinvirtuallythe
sametermsassection21ofthe1980Act,andbothofwhichadoptedthedefinitionoftrustandtrustee
inthe1925Act.
Iquestionwhethersomanydifferentremediesshouldcontinuetobeavailableforthesame
misapplicationofproperty.Theymakeproceedingsofthepresentkindunnecessarilycomplex.But
whatevertheanswertothisquestion,thepresentproblemisasemanticone.Thedefendantscannot
sensiblybedescribedasconstructivetrusteesatall.Theexpressionisusedinitsremedialsense,
thoughnotinthesenseinwhichitisusedintheUnitedStatesandCanada,whereitisthebasisofa
discretionaryproprietaryremedyincaseslikethepresentaplaintiffisnecessarilyconfinedtoapersonal
remedy.BeforetheSupremeCourtofJudicatureAct1873theexpressionwasacatchphrasewhichwas
employed(p.765) bytheCourtofChancerytojustifytheexerciseofequitysconcurrentjurisdictionin
casesoffraud.125yearslateritissurelytimetodiscardit.Ifwecannotbringourselvestodiscardit,at
leastwecanresolvenottotakeitliterally.
MillettLJthoughtthatsection21(1)(a)oftheLimitationAct1980onlyappliedtofraudulentbreachesofalready
existingtrusts,includingthefirstcategoryofconstructivetrusts.Thisisarealtrust,becausethetrusteeholds
propertyontrustforabeneficiary.However,thesecondcategoryofconstructivetrustdoesnotreallyinvolveatrue
trust:thedefendantdoesnotholdanypropertyforthebenefitofanother.Thusadefendantliableasaconstructive
trusteeforunconscionablereceiptmaynolongerstillhavethepropertyreceivedinbreachoftrust,andaperson
liableasaconstructivetrusteefordishonestassistanceinabreachoftrustmayneverreceiveanytrustpropertyat
all.133 MillettLJconsideredthatsection21(1)(a)wouldnotpreventsuchdefendantsfromrelyinguponastatutory
limitationperiod.134 Thisdistinctionbetweenthetwocategoriesofconstructivetrustshasreceivedsubsequent
135
support.135
However,inCentralBank ofNigeriavWilliams,136 theCourtofAppealthoughtthatabeneficiarysuinga

constructivetrusteeinthesecondcategorymightbeabletoexploitsection21(1)(a)oftheLimitationAct1980in
ordertoavoidtheusuallimitationperiod.Inthatcase,anEnglishsolicitorheldmoneyontrustforDrWilliams,a
NigeriannationalresidentinEngland.Thesolicitorfraudulentlypaid,inbreachoftrust,someofthemoneyintoan
EnglishaccountoftheCentralBankofNigeria.ItwasheldthattheCentralBankofNigeriahaddishonestlyassisted
thesolicitorsfraudulentbreachoftrust.Butalltheseeventshappenedin1986,andDrWilliamscommenced
proceedingsin2010.TheCourtofAppealthereforehadtodecidewhetherDrWilliamsclaimwastimebarred.Earlier
casessuggestedthat.Sincethereisnorealconstructivetrustimposeduponapartyliablefordishonest
assistance,ananalogymightbemadetotheCommonLawclaimsforthetortofdeceitorinducingabreachof
contract,forwhichtheusuallimitationperiodofsixyearswouldapply.137 ButtheCourtofAppealrejectedsuch
reasoning,andinsistedthatDrWilliamscouldexploitsection21(1)(a)oftheLimitationAct1980inordertoavoidthe
usuallimitationperiod.TheChancellorsaid:138
Iconcludethatanactionbyabeneficiaryunderatrustmaybebroughtinrespectofanyfraudorfraudulent
breachoftrusttowhichthetrusteewaspartyorprivyagainstboththattrusteeandanyotherpersonwho
dishonestlyassistedhiminsuchfraudorfraudulentbreachoftrust,ineithercase,aftertheexpirationofthe
periodforwhichs.21(3)provides.
Thisisanimportantandcontroversialdecision.139 Butgiventhatthedefendantbankdishonestlyparticipatedina
fraudulentscheme,itisunderstandablewhytheCourtofAppealwasreluctanttoallowittoexploitadefenceof
limitation.Therationaleunderpinningsection21(1)(a)mightextendtocoversuchclaims.However,theeffectof
Williamsmaybethat,whenconsideringtheeffectoftheLimitation(p.766) Actuponclaimsagainstthirdparties,a
divideiscreatedbetweenfraudulentandnonfraudulentbreachesoftrustbytheactualtrustee.So,wherea
defendantdishonestlyassistsafraudulentbreachoftrust,theratioofWilliamsmeansthatsection21(1)(a)dictates
thatnostatutorylimitationapplies.Butwhereadefendantdishonestlyassistsanonfraudulentbreachoftrust,
section21(1)(a)isnotengaged.Insuchcircumstances,ananalogyshouldstillbemadetoinducingabreachof
contract,andthestandardlimitationperiodofsixyearsshouldapply.AlthoughWilliamsconcernedaclaimin
dishonestassistance,similarreasoningmaybeappliedtoclaimsinunconscionablereceipt.Thiswouldmeanthat
whereadefendantunconscionablyreceivespropertythathasbeenfraudulentlydisposedofinbreachoftrust,
section21(1)(a)mayapply.Butwherethebreachoftrustwasnotfraudulent,section21(1)(a)cannotbeinvoked.In
thelattersituation,ananalogywithCommonLawtortclaimsforfraudremainsappropriateandthestandard
limitationperiodofsixyearsshouldapply.140
(ii)Breachoffiduciaryduty
Wherethedefendantisliableforbreachoffiduciaryduty,theappropriatelimitationperioddependsuponthenature
oftheclaim.Ifitisaclaimtorecoverpropertythatthefiduciaryholdsastrustee,theusualconsiderations
concerningtrusteeswillapply,andtherewillbenostatutorylimitationperiod.Bycontrast,ifthefiduciaryhas
breachedanonfiduciaryduty,thenheorshemightbesuedincontractortort,sothenormalsixyearlimitation
periodwouldapply.
Ifthefiduciaryisliableforadeliberateanddishonestbreachoffiduciaryduty,thennostatutorylimitationperiodwill
apply.Buttheappropriatelimitationperiodwillstillbesixyears,byanalogywiththeCommonLawtortofdeceit.
Thispointwasalsomadeinthefollowingcase.
CoulthardvDiscoMixClubLtd[2000]1WLR(JulesSherQC)
[Theissueis]whetherthetimelimitsunderthe1980Actwouldbeappliedbyanalogybyvirtueofsection
36ofthe1980Acttotheclaimsinbreachoffiduciarydutypleadedinthiscase.Thatsectionprovides
thatthestatutorytimelimits(forexample,thesixyearsforbreachofcontract)shallnotapplyto
equitablereliefexceptinsofarastheymaybeappliedbythecourtbyanalogyinlikemannerasthe
correspondingtimelimitunderanyenactmentrepealedbytheLimitationAct1939wasappliedbefore1st
July1940.
Thebestdescriptionofthecircumstancesinwhichthecourtofequityactedbyanalogytothestatuteis,
Ithink,containedinthespeechofLordWestburyinKnoxvGye(1872)LR5HL656at674675:
ThegeneralprinciplewaslaiddownasearlyasthecaseofLock eyvLock ey(1719)PrecCh518,

whereitwasheldthatwhereaCourtofEquityassumesaconcurrentjurisdictionwithCourtsof
Lawnoaccountwillbegivenafterthelegallimitofsixyears,ifthestatutebepleaded.Ifitcould
bedoubtedwhethertheexecutorofadeceasedpartnercan,atCommonLaw,haveanactionof
accountagainstthesurvivingpartner,theresultwillstillbethesamebecauseaCourtofEquity,in
affordingsucharemedyandgivingsuchanaccount,wouldactbyanalogytotheStatuteof
Limitations.ForwheretheremedyinEquityiscorrespondenttotheremedyatLaw,andthelatter
issubjecttoalimitinpointoftimebytheStatuteofLimitations,aCourtofEquityactsbyanalogy
tothestatute,andimposesontheremedyitaffordsthesamelimitation.Thisisthemeaningof
thecommonphrase,thataCourtofEquityactsbyanalogytotheStatuteofLimitations,the
meaningbeing,thatwherethesuitinEquitycorresponds(p.767) withanactionatLawwhichis
includedinthewordsofthestatute,aCourtofEquityadoptstheenactmentofthestatuteasits
ownruleofprocedure.ButifanyproceedinginEquitybeincludedwithinthewordsofthestatute,
thereaCourtofEquity,likeaCourtofLaw,actsinobediencetothestatuteWhereaCourtof
EquityframesitsremedyuponthebasisoftheCommonLaw,andsupplementstheCommonLaw
byextendingtheremedytopartieswhocannothaveanactionatCommonLaw,theretheCourtof
Equityactsinanalogytothestatutethatis,itadoptsthestatuteastheruleofprocedure
regulatingtheremedyitaffords.
Twothingsemergefromthesepassages.First,wherethecourtofequitywassimplyexercisinga
concurrentjurisdictiongivingthesamereliefaswasavailableinacourtoflawthestatuteoflimitation
wouldbeapplied.But,secondly,evenifthereliefaffordedbythecourtofequitywaswiderthanthat
availableatlawthecourtofequitywouldapplythestatutebyanalogywheretherewascorrespondence
betweentheremediesavailableatlaworinequity.
Now,inmyjudgment,thetruebreachesoffiduciaryduty,i.e.theallegationsofdeliberateanddishonest
underaccounting,arebasedonthesamefactualallegationsasthecommonlawclaimsoffraud.The
breachesoffiduciarydutyarethusnomorethantheequitablecounterpartsoftheclaimsatCommon
Law.Thecourtofequity,ingrantingreliefforsuchbreacheswouldbeexercisingaconcurrentjurisdiction
withthatofthecommonlaw.Ihavelittledoubtbutthattosuchaclaimthestatutewouldhavebeen
applied.
onecouldscarcelyimagineamorecorrespondentsetofremediesasdamagesforfraudulentbreach
ofcontractandequitablecompensationforbreachoffiduciarydutyinrelationtothesamefactual
situation,namely,thedeliberatewithholdingofmoneyduebyamanagertohisartist.Itwouldhavebeen
ablotonourjurisprudenceifthoseselfsamefactsgaverisetoatimebarinthecommonlawcourtsbut
noneinthecourtofequity.
Ishouldnoteinclosingonthisaspectthat,ofcourse,iftherewasanyallegationoffraudordeliberate
concealmentwhichhadnotbeendiscoveredbyMr.Coulthardbeforetheinceptionoftheperiodofsix
yearsbeforeaction,thematterwouldbewhollydifferent.Thereisnosuchallegationhere.Onhisown
evidenceMr.Coulthardhaddiscovered,morethansixyearsbeforeaction,thefactsgivingrisetothe
allegeddishonesty.
Similarly,wherethereliefsoughtisequitablecompensationforafiduciarysfailuretoactinthebestinterestsofthe
principal,ithasbeenheldthatthesixyearstatutorylimitationperiodthatappliestotortclaimswillapplyby
analogy.ThiswastheresultinCiadeSegurosImperiovHealth(REBX)Ltd.
CiadeSegurosImperiovHeath(REBX)Ltd[2001]1WLR112,124(ClarkeLJ)
theoutcomeoftheappealturnsonthecorrectapplicationofsection36(1)oftheLimitationAct1980to
thefactsofthiscase.Thetimelimitsinsections2and5oftheActdonotapplydirectly.Theclaimwith
whichtheappealisconcernedisbasedonallegedbreachesoffiduciarydutyonthepartofthedefendant
toactinwhatithonestlybelievedtobethebestinterestsoftheplaintiff.Itwasoriginallydescribedinthe
prayertothepointsofclaimasaclaimfordamages.Detailedanalysisofthepositionhasrevealedthat
thebasisoftheclaimisequitableandthattheclaimisoneforcompensation.Itwas,however,nodoubt
describedasaclaimfordamagesbecausethatiswhat,intruth,itis.AsWallerLJhasputit,thereality
oftheclaimisthatitisaclaimfordamageswhichwouldbeassessedinthesamewayasaclaim(p.
768) fordamagesatcommonlaw.AsIseeit,itisaclaimforequitablecompensation,butnotthekind
ofequitablecompensationwhichmaybeawardedinlieuofrescissionorspecificrestitution.
Asaclaimforequitablerelief,itfallswithintheexpressionotherequitablereliefinsection36(1)ofthe
1980Act,whichthusprovides,sofarasrelevant,thatthetimelimitsinsections2and5shallnotapply
exceptinsofarasanysuchtimelimitmaybeappliedbythecourtbyanalogyinlikemannerasthe
correspondingtimelimitunderanyenactmentrepealedbytheLimitationAct1939wasappliedbefore1
July1940.
ItisnotindisputethattheLimitationAct1939repealedstatuteswhichcontainedsimilarprovisionsto
sections2and5oftheActof1980.Itfollows,asIseeit,thatthosetimelimitsmaybeappliedby
analogyinlikemannerasthosetimelimitswereapplied.
IagreewithWallerLJthatthatcannotmeanthatitisnecessarytofindanidenticalcasedecidedbefore
1940inwhichacourtofequityinfactappliedapreviousstatutebyanalogy.Thesectioncannot,tomy
mind,havebeenintendedtobereadsonarrowly.Itmustmeanthatthecourtistohavepowertoapply
sections2and5byanalogyinthekindofcaseinwhichequitywouldhavedonethesame.Insucha
casethecourtwillbeapplyingtheprovisionbyanalogyinlikemannerasthecorrespondingtimelimit
wasappliedbefore1July,1940.Thecorrectapproachistoidentifyifpossibletheprinciplewhichthe
courtsofequityadoptedandtoapplyasimilarprinciplenow.
Iwouldcertainlyhaveexpectedacourtofequitytoapplythecommonlawtimelimitsbyanalogyonthe
factsofthiscase.AsWallerLJhaspointedout,andasthejudgedemonstratedbyadetailedanalysisof
thepointsofclaim,theessentialnatureofthepleadedcaseisthesamewhetheritisputasdamagesfor
breachofcontract,damagesforbreachofdutyordamages(orcompensation)forbreachoffiduciary
duty.Theonlyadditionalelementisthedefendantsallegedintention,whichonthefactshereadds
nothingofsubstancetotheclaimfordamages.Indeeditwouldbequiteunnecessarytoincludethis
claimifitwerenotthoughtnecessarytodosoinordertoadvancethetimebarargument
thereisasufficientclosesimilaritybetweentheexclusiveequitablerightinquestion,namelytheclaim
forcompensationforbreachoffiduciaryduty,andthelegalrightstowhichthestatuteappliesnamely
theclaimfordamagesforbreachofcontractfoundedonsimplecontractandtheclaimintortfor
damagesforbreachofdutythatacourtofequitywould(andwill)ordinarilyactonthestatuteof
limitationbyanalogy.Thereisnothingintheparticularcircumstancesofthecasetomakeitunjusttodo
so.Onthecontrary,itisjusttodosobecausethereisnoreasonwhy,iftheclaimsfordamagesfor
breachofcontractandtortaretimebarred,theclaimfordamagesforbreachoffiduciarydutyshouldnot
betimebarredalso.
Alimitationperiodofsixyearsisappropriate,butthereasoningofClarkeLJmightnotbeentirelyconvincing.A
fiduciarysdutytoactintheprincipalsbestinterestsisnotobviouslyafiduciaryduty141 asaresult,thecontractual
andtortiouslimitationperiodsmighthaveapplieddirectlyratherthanmerelybyanalogy.Bycontrast,wherethereis
liabilityforbreachingthefundamental,proscriptive,fiduciaryobligationofloyalty,asillustratedinparticularbytheno
conflictandnoprofitrules,differentconsiderationsapply.SuchclaimsarenotanalogoustoanyclaimatCommon
Law,sonostatutorylimitationperiodwillapply,evenbyanalogy.142 Claimsmightbebarredduetolapseoftime
onlyiflachesisestablished.143
(p.769) (c)ExtensionofLimitationPeriod
Thelimitationperiodmaybeextendedifthepersonwhohasarightofactionisunderadisability:thatperson
generallyhassixyearstobringaclaim,butthetimeonlybeginstorunoncethepersonceasestobeundera
disabilityordies.
LimitationAct1980
28.Extensionoflimitationperiodincaseofdisability
(1)Subjecttothefollowingprovisionsofthissection,ifonthedatewhenanyrightofactionaccrued
forwhichaperiodoflimitationisprescribedbythisAct,thepersontowhomitaccruedwasundera
disability,theactionmaybebroughtatanytimebeforetheexpirationofsixyearsfromthedate
whenheceasedtobeunderadisabilityordied(whicheverfirstoccurred)notwithstandingthatthe
periodoflimitationhasexpired.
(2)Thissectionshallnotaffectanycasewheretherightofactionfirstaccruedtosomeperson(not
underadisability)throughwhomthepersonunderadisabilityclaims.
(3)Whenarightofactionwhichhasaccruedtoapersonunderadisabilityaccrues,onthedeathof
thatpersonwhilestillunderadisability,toanotherpersonunderadisability,nofurtherextensionof
timeshallbeallowedbyreasonofthedisabilityofthesecondperson.
(4)Noactiontorecoverlandormoneychargedonlandshallbebroughtbyvirtueofthissectionby
anypersonaftertheexpirationofthirtyyearsfromthedateonwhichtherightofactionaccruedto
thatpersonorsomepersonthroughwhomheclaims.
(d)PostponementofLimitationPeriod
Thelimitationperiodmaybepostponedintheeventoffraud,concealment,ormistake.
LimitationAct1980
32.Postponementoflimitationperiodincaseoffraud,concealmentormistake
(1)Subjecttosubsection(3)below,whereinthecaseofanyactionforwhichaperiodoflimitation
isprescribedbythisAct,either
(a)theactionisbaseduponthefraudofthedefendant144 or
(b)anyfactrelevanttotheplaintiffsrightofactionhasbeendeliberatelyconcealedfromhim
bythedefendant145 or
(c)theactionisforrelieffromtheconsequencesofamistake
(p.770) theperiodoflimitationshallnotbegintorununtiltheplaintiffhasdiscoveredthefraud,
concealmentormistake(asthecasemaybe)orcouldwithreasonablediligencehavediscovered
it.146
Referencesinthissubsectiontothedefendantincludereferencestothedefendantsagentandto
anypersonthroughwhomthedefendantclaimsandhisagent.
(2)Forthepurposesofsubsection(1)above,deliberatecommissionofabreachofdutyin
circumstancesinwhichitisunlikelytobediscoveredforsometimeamountstodeliberate
concealmentofthefactsinvolvedinthatbreachofduty.
(3)Nothinginthissectionshallenableanyaction
(a)torecover,orrecoverthevalueof,anyproperty,or
(b)toenforceanychargeagainst,orsetasideanytransactionaffecting,anyproperty
tobebroughtagainstthepurchaserofthepropertyoranypersonclaimingthroughhiminanycase
wherethepropertyhasbeenpurchasedforvaluableconsiderationbyaninnocentthirdpartysince
thefraudorconcealmentor(asthecasemaybe)thetransactioninwhichthemistakewasmade
tookplace.
(4)Apurchaserisaninnocentthirdpartyforthepurposesofthissection
(a)inthecaseoffraudorconcealmentofanyfactrelevanttotheplaintiffsrightofaction,ifhe
wasnotapartytothefraudor(asthecasemaybe)totheconcealmentofthatfactanddid
notatthetimeofthepurchaseknoworhavereasontobelievethatthefraudorconcealment
hadtakenplaceand
(b)inthecaseofmistake,ifhedidnotatthetimeofthepurchaseknoworhavereasonto
believethatthemistakehadbeenmade.
Thisprovisionmakesitclearthatthelimitationperiodmightbepostponedsuchthattimedoesnotstarttorununtil
theclaimanthasdiscoveredthefraud,concealment,ormistake,oratleastcouldhavediscovereditwithreasonable
diligence.ThemeaningofthislatterrequirementwasconsideredbyMillettLJinParagonFinancevDBThak erar&
Co.:147
Thequestionisnotwhethertheplaintiffsshouldhavediscoveredthefraudsoonerbutwhethertheycouldwith
reasonablediligencehavedoneso.Theburdenofproofisonthem.Theymustestablishthattheycouldnot
havediscoveredthefraudwithoutexceptionalmeasureswhichtheycouldnotreasonablyhavebeenexpected
totake.Inthiscontextthelengthoftheapplicableperiodoflimitationisirrelevant.Inthecourseofargument
MayLJobservedthatreasonablediligencemustbemeasuredagainstsomestandard,butthatthesixyear
limitationperioddidnotprovidetherelevantstandard.Hesuggestedthatthetestwashowapersoncarrying
onabusinessoftherelevantkindwouldactifhehadadequatebutnotunlimitedstaffandresourcesandwere
motivatedbyareasonablebutnotexcessivesenseofurgency.Irespectfullyagree.
(e)Reform
Thelawoflimitationhasbeencriticizedasbeingunnecessarilycomplex,unfair,andoutdated.Forexample,inCia
deSegurosImperiovHeath(REBX)Ltd,SirChristopherStaughtoncomplained:148
(p.771) Itseemstomeunfortunatethattheclaimant,aninsurancecompanyinPortugal,shouldhaveto
endureaprolongedandexpensivecontestastotherulesofequityastheywere60yearsagoandmore.And
allthatforthepurposeofdeterminingwhetherclaimsthatarosebeforeSeptember1989aretimebarred.
Itisnotobvioustomewhyitisstillnecessarytohavespecialrulesforthelimitationofclaimsforspecific
performance,oraninjunction,orotherequitablerelief.Andifitisstillnecessarytodoso,Idonotseeany
meritincontinuingtodefinethecircumstanceswhereaparticularclaimwillbetimebarredbyreferenceto
whathappened,ormighthavehappened,morethan60yearsago.Ifadistinctionstillhastobedrawn
betweencommonlawandequitableclaimsforlimitationpurposes,Iwouldhopethatarevisedstatutewill
enactwithsomeprecisionwherethatdistinctionshouldbedrawn,ratherthanleaveittotheproductof
researchesintocasesdecidedlongago.
Suchcomplaintsseemwellfounded,particularlyasregardsthedistinctionbetweentheapproachesatCommonLaw
andEquity.TheLawCommissionconsideredreformofthelawonlimitationperiods,andrecommendedthatthere
shouldbeaprimarylimitationperiodthatwouldrunfromthedateoftheclaimantsactualorconstructiveknowledge
ofthefactsgivingrisetotheclaim,ratherthanfromthedateonwhichthecauseofactionaccrued.Thisprimary
limitationperiodwouldbethreeyears,butwouldbesubjecttoanabsolutemaximumoftenyears.Suchareform
wouldspecificallyapplytoclaimsforbreachoftrust.Thiswouldbeawelcomedevelopment,andmakethelawin
thisareamoreconsistent,clear,andeasytounderstand.However,althoughtheGovernmenthasacceptedtheLaw
Commissionsproposals,legislativereformdoesnotappeartobeforthcoming.
LawCommission,LimitationofActions(2001)No.270,pp.20112
(1)Theprimarylimitationperiodshouldstarttorunfromthedateofknowledgeratherthan,for
example,thedatethecauseofactionaccrues.
(2)Thedateofknowledge(whichiswhentheprimarylimitationperiodshouldstarttorun)shouldbe
thedatewhentheclaimanthas(actualorconstructive)knowledgeofthefollowingfacts:
(a)thefactswhichgiverisetothecauseofaction
(b)theidentityofthedefendantand
(c)whereinjury,lossordamagehasoccurredorabenefithasbeenreceived,thattheinjury,
loss,damageorbenefitaresignificant.
(3)Forthepurposesofthedefinitionofthedateofknowledge,aclaimantwillbedeemedtoknow
thattheinjury,loss,damageorbenefitissignificantif
(a)theclaimantknowsthefullextentoftheinjury,loss,damagesufferedbytheclaimant(or
anyotherrelevantperson),or(inrelationtoaclaimforrestitution)ofanybenefitobtainedby
thedefendant(oranyotherrelevantperson)or
(b)areasonablepersonwouldthinkthat,ontheassumptionthatthedefendantdoesnot
disputeliabilityandisabletosatisfyajudgment,acivilclaimwasworthmakinginrespectof
theinjury,loss,damageorbenefitconcerned.
(5)Actualknowledgeshouldnotbedefinedintheproposedlegislationandshouldbetreatedasa
straightforwardissueoffactwhichdoesnotrequireelaboration.
(6)Theclaimantshouldbeconsideredtohaveconstructiveknowledgeoftherelevantfactswhen
theclaimantinhisorhercircumstancesandwithhisorherabilitiesoughtreasonablytohave
knownoftherelevantfacts.
(p.772) (7)Unlesstheclaimanthasactedunreasonablyinnotseekingadvicefromanexpert,the
claimantshouldnotbetreatedashavingconstructiveknowledgeofanyfactwhichanexpertmight
haveacquired.Whereanexperthasbeenconsulted,theclaimantwillnotbedeemedtohave
constructiveknowledgeofanyinformationwhichtheexperteitheracquired,butfailedto
communicatetotheclaimant,orfailedtoacquire.
(15)Theprimarylimitationperiodapplyingunderthecoreregimeshouldbethreeyears.
(16)Aclaim,otherthaninrespectofapersonalinjury,shouldbesubjecttoalongstoplimitation
periodoftenyears.
(54)Subjecttoourrecommendationsinparagraph56belowallclaimsforbreachoftrustshouldbe
subjecttothecoreregime.
(55)Claimstorecovertrustpropertyshouldbesubjecttothecoreregimebutinthecaseofa
claimfortherecoveryoftrustpropertyheldonabaretrust,thecauseofactionshallnotaccrue
unlessanduntilthetrusteeactsinbreachoftrust.
(56)Legislationshouldprovidethatwhereaclaimbyonebeneficiaryhasbecometimebarred,that
beneficiaryshouldnotbepermittedtobenefitfromasuccessfulclaimbyanotherbeneficiarywhose
claimisnottimebarred.
Pursuanttotheapplicationofthecoreregime,thereisnoneedtoprovideatrusteewithprotection
149
equivalenttothatwhichiscurrentlyfoundinLimitationAct1980,section21(2).149
Neithertheprimarylimitationperiodnorthelongstoplimitationperiodshouldapplytoclaimsfor
breachoftrustortorecovertrustpropertywhicharebroughtbyeithertheAttorneyGeneralorthe
CharityCommissioners.
(57)Neithertheprimarylimitationperiodnorthelongstoplimitationperiodinrespectofaclaimfor
breachoftrustortorecovertrustpropertybyabeneficiarywithafutureorcontingentinterestwill
startuntilthatinteresthasfallenintopossession.
(58)Thecoreregimeshouldapplytoclaimsinrespectofthepersonalestateofadeceasedperson
(includinganyclaimsinrespectofaclaimtoarrearsofinterestonlegacies).
10.LachesandAcquiescence150
LimitationAct1980
36.Acquiescence
NothinginthisActshallaffectanyequitablejurisdictiontorefusereliefonthegroundofacquiescenceor
otherwise.
Thisprovisionexplicitlypreservestheequitabledoctrineofacquiescence.Thetermotherwisehasbeeninterpreted
toencompasslaches.151
(p.773) (a)Laches
Lachesisajudgemadeequitabledoctrinethatdefeatsaclaimwheretherehasbeenanunreasonabledelaybefore
theclaimisbrought.LacheswillbeavailablewherethereisnoprescribedlimitationperiodundertheLimitationAct
1980,suchaswherethetrusteeissuedforafraudulentbreachoftrust,orwheretheclaimantseekstorecovertrust
property.152 However,thereisnoscopeforlachesifthestatutedoesprescribealimitationperiodtogovernthe
claim.153
TherationaleunderpinninglachesisthatEquitywillnotassistaclaimantwhohasactedunreasonablyinfailingto
bringaclaimpromptly.InLindsayPetroleumCo.vHurd,SirBarnesPeacockcommentedthat:154
thedoctrineoflachesinCourtsofEquityisnotanarbitraryoratechnicaldoctrine.Whereitwouldbe
practicallyunjusttogivearemedy,eitherbecausethepartyhas,byhisconduct,donethatwhichmightfairly
beregardedasequivalenttoawaiverofit,orwherebyhisconductandneglecthehas,thoughperhapsnot
waivingthatremedy,yetputtheotherpartyinasituationinwhichitwouldnotbereasonabletoplacehimif
theremedywereafterwardstobeasserted,ineitherofthesecases,lapseoftimeanddelayaremost
material.Butineverycase,ifanargumentagainstrelief,whichotherwisewouldbejust,isfoundeduponmere
delay,thatdelayofcoursenotamountingtoabarbyanystatuteoflimitations,thevalidityofthatdefence
mustbetrieduponprinciplessubstantiallyequitable.Twocircumstances,alwaysimportantinsuchcases,
are,thelengthofthedelayandthenatureoftheactsdoneduringtheinterval,whichmightaffecteitherparty
andcauseabalanceofjusticeorinjusticeintakingtheonecourseortheother,sofarasrelatestothe
remedy.
Thesefactorsundoubtedlyremainimportant.However,themodernapproachtendstoframetheinquiryasoneof
unconscionability.So,inFrawleyvNeill,AldousLJsaid:155
Inmyviewthemoremodernapproachshouldnotrequireaninquiryastowhetherthecircumstancescanbe
fittedwithintheconfinesofapreconceivedformuladerivedfromearliercases.Theinquiryshouldrequirea
broadapproach,directedtoascertainingwhetheritwouldinallthecircumstancesbeunconscionablefora
partytobepermittedtoasserthisbeneficialright.Nodoubtthecircumstanceswhichgaverisetoaparticular
resultinthedecidedcasesarerelevanttothequestionwhetherornotitwouldbeconscionableor
unconscionablefortherelieftobeasserted,buteachcasehastobedecidedonitsfactsapplyingthebroad
approach.
TheoperationofthedefenceoflachescanbeseeninNelsonvRye.156 Theclaimantinthatcasewasamusician,
whoclaimedthathismanagerhadbreachedhisfiduciarydutyinreceivingmoneyonbehalfoftheclaimant,butnot
accountingtotheclaimantforit.LaddieJsaid:157
(p.774) Itcanbemisleadingtoapproachtheequitabledefencesoflachesandacquiescenceasifthey
consistedofaseriesofpreciselydefinedhurdlesovereachofwhichalitigantmuststrugglebeforethe
defenceismadeout.
Sohere,thesedefencesarenottechnicalorarbitrary.Thecourtshaveindicatedovertheyearssomeof
thefactorswhichmustbetakenintoconsiderationindecidingwhetherthedefenceruns.Thosefactors
includetheperiodofthedelay,theextenttowhichthedefendantspositionhasbeenprejudicedbythedelay,
andtheextenttowhichthatprejudicewascausedbytheactionsoftheplaintiff.Iacceptthatmeredelay
alonewillalmostneversuffice,butthecourthastolookatallthecircumstances,includinginparticularthose
factorssetoutabove,andthendecidewhetherthebalanceofjusticeorinjusticeisinfavourofgrantingthe
remedyorwithholdingit.Ifsubstantialprejudicewillbesufferedbythedefendant,itisnotnecessaryforthe
defendanttoprovethatitwascausedbythedelay.Ontheotherhand,theplaintiffsknowledgethatthedelay
willcausesuchprejudiceisafactortobetakenintoaccount.Withtheseconsiderationsinmind,Iturntothe
facts.
Onthefacts,hisLordshipheldthatthedefencessucceeded,largelyduetotheclaimantswilfulrefusaltoinvolve
himselfinhisfinancialaffairs.Inaddition,thedefendanthaddestroyedmostoftherelevantpaperwork,andtheoral
evidencewasunreliablethedelayhadcausedprejudicetothedefendant.
(b)Acquiescence
AscanbeseenfromLaddieJsremarksinNelsonvRye,acquiescenceandlachesarecloselyrelated.However,
thetwoaredistinct.Acquiescencerequiresconductthatshowstheclaimanthaswaivedhisorherrightsandis
therebyestoppedfromlaterassertingthoserights,butdoesnotinevitablyinvolveanydelay.158 Laches,ontheother
hand,simplyrequiresdelayandnotnecessarilyacquiescence.159 Acquiescencecanalsobedistinguishedfrom
consent:theformermaybepassive,whereasactivestepsarerequiredtoestablishthelatter.
Foracquiescencetobeestablished,theclaimantmustknow,oroughttoknow,ofhisorherrightsagainstthe
defendant.Thus,inRePaulingsSettlement160 thedefenceofacquiescencefailedbecausetheclaimant
beneficiarieswereonlyinformedoftheirrightsregardingabreachoftrustafteranypurportedacquiescence.Upjohn
LJsaid:161
Astoacquiescence,wethinkthatthismustbelookedatratherbroadly.Wewere,ofcourse,pressedwith
theleadingcaseofAllcardvSk inner(1887)36ChD145,butinthatcasetheplaintiffhadherrightsfully
explainedtoherbyabrother,whowasabarrister,andbyhersolicitor,andyetshetooknostepsuntilfiveor
sixyearslater.EventhatgaverisetoadifferenceofopinioninaverystrongCourtofAppeal.Inthiscaseit
wouldbewrong,wefeel,toplaceanydisabilityuponthebeneficiariesbecauseitsohappenedthatGeorge[,
oneofthebeneficiaries,]wasamemberoftheBar,andhadbeeninwellknownchambers.Hehadnotbeen
inChancerychamberswhereitmaybesaidthatthesethingsarebetterunderstoodbuttherealtruthofthe
matteristhatapartycannotbeheldtohaveacquiescedunlessheknew,oroughttohaveknown,whathis
rightswere.Onthefactsofthiscasewecannotcriticiseanyoftheplaintiffsforfailingtoappreciatetheir
rightsuntilanotherjuniorcounsel,whomtheyconsulted(p.775) onafarfetchedandfutileschemeof
GeorgesforavoidingEstateDutyonhismothersdeath,advisedthattheadvancesmightbeimproper.That
wasin1954,andthereuponthefamily,headed,ofcourse,byGeorge,tookimmediatestepstoexplorethis
matter.Thisisamostcomplicatedaction,andmanymattershadtobeexploredbeforeanactionforbreach
oftrustcouldproperlybemounted.Thewritwasissuedin1958,andwedonotthinkitrighttoholdthatthe
plaintiffsweredebarredbyacquiescencefrombringinganactionwhichotherwise,totheextentwehave
indicated,isjustified.
Question
Stevecreatedatrustinfavourofhischildren,Alan,Brian,andCharles.ThetrusteesofthetrustwerePeter,
Leona,andCharles.Peterisasolicitor,Leonaadentist,andCharlesastrugglingmusician.Thetermsofthe
trustinstrumentprohibitinvestmentinland:however,Alanwantedthetrusttopurchaseafreeholdproperty,
whichhewassurewouldbeanexcellentrentalinvestment.Charlesagreed,whilstPeterandLeonawerehappy
simplytofollowtheleadofAlanandCharles.Thepropertywaspurchasedin2006.However,theprevious
ownersofthepropertyarenowknowntohavecommittedaseriesofmurdersintheproperty,anditis
impossibletofindtenantstolivethere.Moreover,acrashinthepropertymarketmeansthatthevalueofthe
propertyislessthanhalfwhatthetrusteespaid.
Advisethebeneficiariesofanyclaimstheymayhaveagainstthetrustees.
FurtherReading
Kenny,TheGood,theBadandtheLawCommission[2007]Conv103.
FindThisResource
LawCommission,LimitationofActions(2001)No.270,particularlypp.12735.
FindThisResource
LawCommission,TrusteeExemptionClauses:AConsultationPaper(2003)LawCom.CPNo.171,particularly
pp.931.
FindThisResource
LawCommission,TrusteeExemptionClauses(2006)LawCom.No.301,particularlypp.934.
FindThisResource
LowryandEdmunds,Excuses,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
Payne,Consent,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
Penner,Exemptions,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
Swadling,LimitationinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
Trukhantov,TheIrreducibleCoreofTrustObligations(2007)123LQR342.
FindThisResource
Watt,Laches,EstoppelandElectioninBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
Notes:
1
[1998]Ch241.
2
2
TheEfficacyofTrusteeExemptionClausesinEnglishLaw[1989]Conv42,43.
3
E.g.Chapter16.2(b)(iii),pp.7312.
4
[1998]Ch241,253.
5
SeeEdelman,FourFiduciaryPuzzles,inExploringPrivateLaw(edsBantandHarding)(Cambridge:Cambridge
UniversityPress,2010),ch.13,p.305,whorecognizesthatthosefiduciarydutiesthatareimposedbylaw,suchas
thedutyofhonesty,cannotbeexcluded.
6
[2007]EWCACiv11[2007]1AllER(Comm)475.
7
Ibid,[82].
8
TheIrreducibleCoreofTrustObligations(2007)123LQR342,344.
9
10
TheGood,theBadandtheLawCommission[2007]Conv103,108(consideringtheLawCommissionsreporton
exclusionclauses,discussedfurtherinChapter16.2(b)(iv),pp.73540).
11
Trukhantov,TheIrreducibleCoreofTrustObligations(2007)123LQR342,346.
12
[2011]UKPC13[2012]2AC194.
13
Literally,asagoodfatherthisisthestandardexpectedoftrusteesinGuernseylaw.
14
[2011]UKPC13[2012]2AC194[63].
15
Cf.Chapter2.7(e),pp.5761.
16
17
18
[1998]Ch241,251.
19
Althoughitmaybepossibletovarythatterm:seeChapter15,VariationofTrusts.
20
Whichinsomecircumstancesmaynotbestraightforward:seeChapter16.4(d),p.679.
21
22
[1998]Ch241.
23
Ibid,2501.
24
25
[1998]Ch241,254.
26
[2001]QB902.
27
Ibid,939.
28
SeenowTwinsectraLtdvYardley[2002]2AC164seeChapter19.2(c),pp.88690.
29
[1998]Ch241,251.
30
[2001]QB902,941.
31
[1995]2AC378.
32
32
33
[2001]QB902,941.
34
35
Althoughitmaybethatatrusteewhodidnotevenrealisethatheorshewascommittingabreachoftrustcould
notbecharacterizedasdishonest:forfurtherdiscussionofdishonesty,seeChapter19.2(c),p.882.
36
InArmitage,atthematerialtimethetrusteesconsistedofoneprofessionalmanandtwodistantrelatives:see
[1998]Ch241,263.
37
E.g.SpreadTrusteevHutcheson[2011]UKPC13[2012]2AC194,[52](LordClarke).
38
SimesterandSullivansCriminalLaw:TheoryandDoctrine(4thedn)(edsSimester,Spencer,Sullivan,andVirgo)
(Oxford:Hart,2010),p.409.
39
[2011]UKPC13[2012]2AC,194,[50][51].
40
Ibid,[48].
41
Grossnegligenceisequaltofraud.
42
[1998]Ch241,252.
43
LawCom.CPNo.124(1992).
44
Ibid,[3.3.41].
45
[1998]Ch241,256.
46
TrustLawCommittee,ConsultationPaperonTrusteeExemptionClauses(1999)[7.7].
47
Schedule1,para7:seeChapter16.2(c),p.728.
48
AsdescribedbyBaronessHaleinSpreadTrusteevHutcheson[2011]UKPC13[2012]2AC194,[136].
49
Seee.g.s.3.Forfurtherdiscussion,seeMcKendrick,ContractLaw:Text,CasesandMaterials,(5thedn)
(Oxford:OxfordUniversityPress,2012),pp.42156.
50
TrusteeExemptionClauses:AConsultationPaper(2003)LawCom.CPNo.171,[2.60][2.61].
51
Bak ervJEClark andCo.[2006]EWCACiv464.
52
But,typically,thetrustisavoluntaryinstrument:cf.ReButlinsSettlementTrusts[1976]Ch251,360(Brightman
J).
53
Trusts(Jersey)Law1984,art.26(9),asamendedbyTrusts(Amendment)(Jersey)Law1989,art.8.
54
SeenowTrusts(Guernsey)Law2007,s.39(7)(a).
55
E.g.theSocietyofTrustandEstatePractitioners,forexample,issuedaPracticeRulethatitsmembersshould
discloseclausesexemptingtrusteesandexecutorsfromliability:TrusteeExemptionClauses:STEPPracticeRule
(2006).
56
Exemptions,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.250.
57
TheGood,theBadandtheLawCommission[2007]Conv103.
58
AlthoughitisunclearwhetheratrusteewouldbedishonestunderthedefinitioninWalk ervStonesifthetrustee
didnotknowthatheorshewascommittingabreachoftrust:seeChapter17.2(b)(iii)(c),pp.7324.
59
59
Cf.TwinsectraLtdvYardley[2002]2AC164(LordHutton),Chapter19.2(c),pp.8868.
60
[2011]UKPC13[2012]2AC194,[52].
61
Ibid,[129].
62
Ibid,[139].
63
Ibid,[180].
64
[2001]QB902,941.Theimmediatelypreceedingparagraphconcernedthetestofdishonestyandisquotedin
Chapter16.2(b)(iii)(c),pp.7334.
65
[2011]UKPC13[2012]2AC194,[106].
66
[1999]1ITELR783.
67
InBoggvRaper[1998]EWCACiv661[1998]1ITELR267theCourtofAppealhadtoconstrueanexemption
clauseinsertedintoatrustdeedbyasolicitortrustee.Thecourtheldthattheinterpretationcouldcovertheactsof
thetrustee,butthathecouldonlyrelyonitifhehaddrawnthetestatorsattentiontotheclauseandexplainedits
effect.
68
[2007]EWCACiv11[2007]1AllER(Comm)475,[82].
69
ReStuart[1897]2Ch583.
70
Maugham,ExcusableBreachesofTrust(1898)14LQR159.
71
CfArmitagevNurse[1998]Ch241:seeChapter16.2(b)(iii),pp.7312.
72
CfWalk ervStones[2001]QB902:seeChapter16.2(b)(iii)(c),pp.7324.
73
SeeChapter11,GeneralPrinciplesRelatingtoTrustees.
74
NationalTrusteesCompanyofAustralasiaLtdvGeneralFinanceCompanyofAustralasiaLtd[1905]AC373.
75
(1902)86LT401.
76
Excuses,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
77
Ibid,p.271.
78
[1964]Ch303.
79
[1964]Ch303,3389.
80
Forconsent,seeChapter16.4,pp.74752.
81
(1818)3Swans1,64.
82
[1962]1WLR86,108.ThiswasacceptedbycounselintheCourtofAppeal:[1964]Ch303,339.
83
Consent,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.319.
84
85
Stack housevBarnston(1805)10Ves453,466(SirWilliamGrantMR)DeBusschevAlt(1878)8ChD286,314
(ThesigerLJ).Actualconsentisneededitisinsufficientthatabeneficiaryonlywouldhaveconsentedtothe
trusteesactionsifawareofthecircumstances:cfMuradvAlSaraj[2005]EWCACiv959,discussedinChapter
14.5(a),pp.6856.
86
86
Forthefirststageofthislitigation,seeChapter16.3(d),pp.7489.
87
[1894]1Ch231.
88
Ibid,265.
89
LR17Eq.341.
90
42ChD203.
91
[1911]1Ch662,666,668.
92
E.g.TownleyvSherborne(1633)JBridg35,[37][38].
93
BahinvHughes(1886)31ChD390.
94
95
Specificprovisionismadeforsuchinsurancecoverbeingobtainedbycharitytrustees:CharitiesAct2011,s.189.
96
Seee.g.BahinvHughes(1886)31ChD390.
97
Subsection(3)limitsliabilitytomakeacontributionwheretherehasbeenprioragreementforanupperlimitor
statutoryreductionofdamages.
98
[1997]QB85.
99
Forconsiderationofwhenatrustmightariseinresponsetoamistakenpayment,seeWestdeutsche
Landesbank GirozentralevIslingtonLondonBoroughCouncil[1996]AC669,discussedinChapter7.2(a),pp.326
7.
100
[1997]QB85,108.
101
AsimilarapproachwasadoptedinCityIndexLtdvGawler[2007]EWCACiv1382[2008]Ch313,inwhichthe
CourtofAppealheldthatreceiptbasedrestitutionaryliabilitycouldinvolvethesamedamageasliabilityforbreach
oftrust.ThisisdiscussedinfurtherdetailinChapter19.3(e),pp.91819.
102
Goymour,Acontributiontoknowingreceiptliability?(CityIndexvGawler)[2008]RLR113,118.Seefurther
Chapter19,ThirdPartyLiability.
103
[1896]1Ch685.
104
Ibid,at707.
105
Ibid,at709.
106
(1886)31ChD390,3956.
107
(1887)57LT654.
108
[1898]2Ch250.
109
Ibid,265.
110
InReTurner[1897]1Ch536.SeealsoLock hartvReilly(1856)25LJCh697.
111
Seee.g.PerringvDraper[1997]EGCS109.
112
ReJohnson(1880)15ChD548.Onsubrogationgenerally,seeChapter18.5(c),pp.8624.
113
RightsofCreditorsagainstTrusteesandTrustFunds(London:HMSO,1999),[2.2][2.3].
114
114
ReStrahan[1856]8DeGM&G291.
115
HeadvGould[1898]2Ch250,272(KekewichJ).
116
Ibid,269(KekewichJ).
117
Chapter14.2(e),pp.64950.
118
(1825)3Bing329,3323.
119
[1978]AC297,327.
120
LimitationinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),pp.31920.
121
Seee.g.Watt,Laches,EstoppelandElectioninBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
122
(1806)2Sch&Lef607,632.SeealsoKnoxvGye,quotedinCoulthardvDiscoMixClubLtd:seeChapter
16.9(b)(ii),pp.7667.
123
Orbyatrusteeonbehalfofabeneficiary:CattleyvPollard[2006]EWHC3130(Ch)[2007]Ch353,377(Richard
SheldonQC).
124
LimitationAct1980,s.38(1).
125
[1998]Ch241,251.
126
AGvCock e[1988]Ch414(HarmanJ).
127
Seee.g.ReLoftus[2005]2AllER700.
128
129
130
[1999]1AllER400.
131
132
133
134
SeesimilarlySoarvAshwell[1893]2QB390,393(LordEsherMR).SeealsoPeconicIndustrialDevelopment
LtdvLauKwok Fai[2009]HKCFA17,[24](LordHoffmannNPJ).
135
E.g.CoulthardvDiscoMixClubLtd[2000]1WLR707
136
[2012]EWCACiv415[2012]3AllER579.
137
E.g.CattleyvPollard[2006]EWHC3130(Ch)[2007]Ch353seealsoPeconicIndustrialDevelopmentLtdv
LauKwok Fai[2009]HKCFA17.
138
[2012]EWCACiv415[2012]3AllER579,[37].
139
BlackLJadmittedtomuchhesitationbeforeagreeingintheresult:[2012]EWCACiv415[2012]3AllER579,
[61].TheSupremeCourthasgrantedpermissiontoappeal.Forfurtherdiscussionofthisarea,seeMitchell,
DishonestAssistance,KnowingReceipt,andtheLawofLimitation[2008]Conv226.
140
ParagonFinancevDBThak erarandCo.[1999]1AllER400,416(MillettLJ).
141
Itmaybeconsideredtoimposeapositivedutytoact:seefurtherChapter14.2(a),pp.6467.
142
142
TitovWaddell(No.2)[1977]Ch106,24850(MegarryVC)AGvCock e[1988]Ch414,421(HarmanJ).
143
144
CattleyvPollard[2006]EWHC3130(Ch)[2007]Ch353.
145
InBartlettvBarclaysBank TrustCo.Ltd[1980]Ch515,thetrusteeunsuccessfullypleadedtheforerunnerof
paragraph(b)(LimitationAct1939,s.26(b))BrightmanJfound,at537,thattherewasnocoverupbythebank.The
bankhadnoinklingthatitwasactinginbreachoftrust.
146
SeePecoArtsIncvHazlittGalleryLtd[1983]1WLR1315.
147
[1999]1AllER400,[418].
148
[2001]1WLR112,124.
149
150
Seee.g.Watt,Laches,EstoppelandElectioninBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),
pp.35377.
151
ReLoftus(deceased)[2006]EWCACiv1124[2007]1WLR591,[33](ChadwickLJ).
152
Ibid,at[41](ChadwickLJ).
153
RePaulingsSettlementTrusts[1964]Ch303.
154
(1874)LR5PC221,23940.SeetooErlangervNewSombreroPhosphateCo.(1878)3AppCas1218,1279
(LordBlackburn).
155
[2000]CPReports20,butotherwiseunreported,1March1999citedwithapprovalbyChadwickLJinReLoftus
(deceased)[2006]EWCACiv1124[2007]1WLR591,[42].
156
[1996]1WLR1378.ThisdecisionwassubsequentlyoverruledinParagonFinancevDBThak erar&Co.[1999]
1AllER400butonlyonthedifferentpointregardingwhethertheLimitationAct1980appliedtoaclaimfoundedona
breachoffiduciaryduty.ThediscussionoflachesinNelsonremainsapposite.
157
[1996]1WLR1378,1382.
158
Duk eofLeedsvEarlofAmherst(1846)2Ph.117,123.
159
Forfurtherconsiderationoftherelationshipbetweenthetwodoctrines,seeLestervWoodgate[2010]EWCACiv
199[2010]2P&CRDG14,quotedinChapter20.1(c),pp.9267.
160
[1964]Ch303.Forasummaryofthefacts,seeChapter16.4(a),p.748.
161
[1964]Ch303,353.
LawTrove

DOI: 10.1093/he/9780199661480.001.0001
17.PersonalClaimsandRemedies
Chapter: (p.776) 17.PersonalClaimsandRemedies
DOI: 10.1093/he/9780199661480.003.0017
CentralIssues
1.Beneficiariesmayalwaystakeanaccountofthestateofthetrustfund.Thisisconsistentwiththeduty
ofthetrusteestoprovideinformationtothebeneficiaries.
2.Anunauthorizeddisbursementmaybefalsifiedthetrusteesthenneedtorestorethemisapplied
propertyoritsequivalentvalue.
3.Wheretrusteeshavefailedproperlytosafeguardthevalueofthefund,theaccountmaybesurcharged
andthetrusteesrequiredtocompensatethetrustfundforlossessuffered.
4.Considerationsofremotenessarerelevantwhentheaccountissurcharged,butnotaftera
disbursementhasbeenfalsified.
5.Abreachoftrustdoesnotstoptheclock,andthewrongdoingtrusteecontinuestoholdtheofficeof
trusteeship.Thevaluationofanyclaimagainstthetrusteeoccursatthedateofjudgment.
6.Atrusteecannotsetoffanygainsmadefromoneunauthorizedinvestmentagainstlossessufferedfrom
another,unlessbothinvestmentswerepartofasingletransactionorscheme.
7.Trusteesmayhavetopayinterestuponanymonetaryawardmadeagainstthem.Thecourthasa
discretiontoawardcompoundinterest.
8.Trusteesmayalsohavetoaccountforanyprofitsmadefromtheirbreachofduty.
9.Punitivedamagesforequitablewrongdoingarenotavailable.
1.Introduction
Thischapterconsidersthepersonalliabilityoftrusteesforbreachoftrust.Proprietaryclaimsandremediesare
examinedinChapter18.Proprietaryremediesinvolvetheclaimantsrecoveringparticularpropertyfromthe
defendant,orobtainingasecurityinterestinthedefendantsproperty.Acrucialadvantageofproprietaryremediesis
thattheyprovidetheclaimantwithpriorityoverothercreditorsintheeventofthedefendantsinsolvency.1 Personal
claims,bycontrast,donotenjoysuchpriorityovertheclaimsofothers.However,wherethedefendantissolventand
thepropertyinquestionhasfalleninvalue,apersonalremedyforthevalueoftheclaimantslossordefendantsgain
may(p.777) bepreferabletoaproprietaryremedy.Personalremediesarealsotobepreferredwhenthepropertyin
whichtheclaimanthadaproprietaryinteresthasbeendissipated,becauseinsuchcircumstancesnoproprietary
remedywillbepossible.2
(a)PrimaryandSecondaryObligationsDistinguished
Whenconsideringliabilityforbreachoftrust,itishelpfultodistinguishprimaryandsecondaryobligations.Primary
obligationsconcernthedutiesimposeddirectlybythelawoftrusts.Abreachofaprimaryobligationcangiveriseto
asecondaryobligation,suchastheobligationtocompensatetheclaimantforlosssufferedortoaccountforany
profitsmade.Thedifferenceispotentiallyimportant:forexample,whereasconsiderationssuchasremotenessmay
berelevanttosecondaryobligations,andaffectthemonetaryremedyawardedtotheclaimant,theenforcementof
theprimaryobligationsowedbytrusteeswillnotbeaffectedbysuchconcerns.Itcanneverbetooremotetoenforce
theprimaryobligationsthatatrusteehasundertaken.
Chambershaswrittenthat:3
Thedirectenforcementoftrustdutiesisdifferentfromallotherconsequencesofbreachoftrust.Theduties
enforced(andcorrespondingrightstoenforcethoseduties)aretheprimaryduties(andrights)thatarose
whenthetrustwascreated.Althoughabreachoftrustisthereasonforseekingthecourtshelptoenforcea
particularduty,thedutyexistsindependentlyofthebreach.Incontrast,theotherconsequencesofbreachof
trustaresecondaryduties(andrights)createdbythebreach.
EquityismorewillingtoenforceprimarydutiesthantheCommonLaw.ThisstemsfromEquitysinsistencethatthe
trusteeactsasagoodpersonwhomustbetakentoobservethehigheststandardsofbehaviour,whichcontrasts
withtheCommonLawsgeneraltoleranceofbreachofcontract,forexample,assimplyacommonincidentof
commerciallife.4 Indeed,inTargetHoldingsLtdvRedferns,5 LordBrowneWilkinsonexplainedthat:6
Thebasicrightofabeneficiaryistohavethetrustdulyadministeredinaccordancewiththeprovisionsofthe
trustinstrument,ifany,andthegenerallaw.
Thecourtmightenforcethetrusteesprimarydutiesinanumberofways,suchasbycompellingdistributionoftrust
propertytothebeneficiaries,7 preventingtrusteesfromdistributingtrustpropertyimproperly,8 orrequiringthesaleof
unauthorizedinvestmentsandreinvestmentinauthorizedones.Thecourtmightalsoissueadeclarationthata
trusteeshouldnotactinaparticularway.Forexample,inCowanvScargill,9 thecourtclarifiedthelawonthe
considerationsthattrusteescantakeintoaccountwhenobjectingtothetrustsinvestmentpolicy.Therewas
disagreementamongthetrustees(p.778) aboutwhatcourseofactiontotake,andwhatconsiderationswere
relevantonegroupoftrusteessoughtdirectionsfromthecourt.MegarryVCsaid:10
ThesummonsiscastintheformofaskingthecourttogivedirectionsbutIdoubtwhetherthisisthemost
appropriateremedy.Ithinkthatatthisstageitwouldbemoreappropriateformetomakedeclarations,and
leaveittothedefendantstocarryouttheirdutiesastrusteesinaccordancewiththosedeclarations.Iam
readytoassumethattheywillcomplywiththelawoncethecourthasdeclaredwhatitis.Ishallnot
assumethatthedefendantsintendtodemonstratetheirunfitnesstocontinueastrusteesbyrefusingto
complywiththelawasdeclaredbythecourt.Accordingly,subjecttowhatmaybesaidwhenIhave
concludedthisjudgment,Iproposetomakesuitabledeclarations,andtogivelibertytoapplyfordirectionsor
otherappropriatereliefifthedeclarationsarenotdulyactedupon.Itisimportanttogetthislargetrustback
ontherailsanditmayhelptodothisifatthisstagethecourtrefrainsfromgivingdirectionsormakingany
coerciveorders,whetherundertheinherentjurisdictionorotherwise,andremainsinthebackgroundwhilethe
normaloperationoftheschemeisbeingreestablished.Itisverymuchtobehopedthattherewillbenoneed
toconsidertheexerciseofthecourtsinherentpowertoremovetrustees.
Althoughadeclarationismuchlesscoercivethanotheroptionsavailabletoacourt,havingconfidencethattrustees
willcomplywithdeclarationsofthecourtisbothappropriateandrealistic.Thetrusteesarebetterplacedthanthe
courtstorunthetrust,soadeclarationmightwellbepreferredtothecourtsissuingdirectionsandeffectively
usurpingthepowersofthetrustees:thecourtsjurisdictionismainlysupervisory.
Anotherpossibility,raisedbythequotationfromCowanvScargill,isforthecourttoreplacetrustees.Itisdifficultto
ascertainwhethersuchreplacementarisesinresponsetoaprimaryorsecondaryobligation.Aswasseenin
Chapter1111 ,thereisnoneedforabreachoftrustbeforetrusteescanbereplaced,butoftenthereasonwhya
trusteeisreplacedisbecauseheorshehasnotcarriedoutthedutiesofatrusteesatisfactorily.Chambershas
notedthedifficultyofclassifyingthisoptionofthecourts:12
Whenusedasaresponsetobreachoftrust,thereplacementoftrusteesisdesignedtopreventfuture
breaches.Decisionstoreplacetrusteesinbreacharebasedonthelikelihoodthattheywillbreachtheirtrusts
inthefuture.Inthiscontext,thegoalofreplacementislinkeddirectlytothebreach.
Thegoalofreplacingtrusteesinbreachistheproperperformanceofthetrust.Althoughreplacementisnota
formofdirectenforcement(sinceitisnotoneofthetrusteesprimaryduties),itisusedtoincreasethe
likelihoodthattheprimarytrustdutieswillbeperformed.Ontheotherhand,replacementoftrusteesisnota
formofsubstituteperformance(sincethenewtrusteeswillcarryouttheoriginaltrust).However,inone
sense,thepurposeofreplacingatrustee(whichisproperperformanceofthetrustbyanotherperson)is
similartothepurposeofpayingdamagesforbreachofcontract(whichenablestheclaimanttomakeanew
contractandtherebyobtaintheexpectedbenefitsofthebrokencontractfromanotherperson).
Thereplacementoftrusteesillustratestheproblemofidentifying(oratleastlabelling)thegoalsofthe
miscellaneousconsequencesofbreachoftrust.Itisneitherdirectenforcementofaprimarydutynor
substitutiveperformance,butsomethinginbetweenneededbecauseofthenatureofthetrustrelationship.It
servestwopurposes:first,theremovalofactualorpotentialimpedimentstotheproperperformanceofthe
trustand,secondly,thepreservationoftrustassetsfromlossthroughmisuse.
(p.779) Thereplacementoftrusteesisgovernedbystatute.Anotherdifficultarea,theclassificationofwhichmight
havegreaterpracticalsignificance,concernsthetakingofanaccount.AsChambershasobserved:13
Normally,itisfairlyeasytotellwhetheratrustdutyisaprimarydutycreatedbythesettlororasecondary
dutycreatedasaconsequenceofanunexcusedbreachoftrust.However,thisdistinctioncanbedifficultto
make,especiallyinrelationtothetrusteesdutytoaccount.
Thedutytoaccountneedstobeanalysedcarefully.Whetherprimaryorsecondaryobligationsareinvolved,andwhy
thismaybeimportant,canbebetterexplainedoncethevariousaspectsoftheaccounthavebeenintroduced.
2.TakinganAccount
Thetakingofanaccountisnotreallyaremedyatall.14 Itissimplyaprocessthatcanbeemployedinorderto
assessthestateofthetrustfund.15 Inthisrespect,thetakingofanaccountcanenforcethetrusteesprimaryduty
toprovideinformationtothebeneficiariesandkeepaccurateaccountsofthetrust.Allexpresstrusteesowea
primarydutytoaccountfortheiradministrationofthetrustfund,includingallreceipts,investments,anddistributions.
Takinganaccountmayleadtotheenforcementofprimaryorsecondaryobligations,bothofwhichwillbeexamined
further.
Anaccountwillalsobeavailablewhereafiduciarywhoisnotatrusteeisresponsibleformanagingtheprincipals
propertyasastewardofit,suchaswhereafiduciaryholdspropertyasanexecutororreceiver.16 Butnotall
fiduciariesareresponsibleforpropertyinsuchcircumstances,noaccountcanbetaken.Giventhatthevast
majorityoffiduciarieswhoholdpropertyfortheirprincipalwillbetrustees,thischapterwillfocusupontrustees.
Wheretheaccountshowsthatthetrustfundhassufferedaloss,aclaimmaybebroughtagainstthetrusteesto
restorethefundtothepositionitwouldhavebeeninhadtherebeennobreachofduty.Suchaclaimismost
commonlybroughtbyabeneficiary,butothertrusteeswhoarenotresponsibleforthebreachoftrustmayalsosue
onbehalfofthetrust.Ifthetrustisacharitabletrust,theCharityCommissionandAttorneyGeneralbothhave
standingtosue.17
Whenanaccountistaken,twoprincipalproblemsmayberevealed:thetrusteesmayhavemisappropriatedassets
fromthetrustfund,forexamplebymakingunauthorizedinvestmentsor,alternatively,thetrusteesmayhave
breachedtheirdutyinfailingappropriatelytosafeguardthevalueofthefund,whichwillbethecase,forexample,
wheretheyhavenegligentlyfailedtodiversifythetypesofassetsheldbythetrust.18 Inthefirstsituation,a
beneficiarymightfalsifytheunauthorizeddisbursementinthesecond,theaccountmightbesurchargedtobringits
valueuptotheappropriatelevel.Significantly,thetrusteewillbeliabletocompensatethetrustfundfromhisorher
ownresourceswhetherthe(p.780) accountisfalsifiedorsurcharged.Thesetwofacetsoftakinganaccountwill
nowbeexaminedinturn,inorderthattheleadingcaseofTargetHoldingsLtdvRedferns 19 canthenbebetter
understood.
(a)Falsification
Whereadisbursementoftrustassetshasbeenmadeinbreachoftrust,thatdisbursementcanbefalsifiedwhen
takinganaccount.TheoperationoffalsificationwasexplainedbyLordMillett.
Millett,EquitysPlaceintheLawofCommerce(1998)114LQR214,2267
Wherethebeneficiarycomplainsthatthetrusteehasmisappliedtrustmoney,hefalsifiestheaccount,
thatistosay,heasksforthedisbursementtobedisallowed.If,forexample,thetrusteelaysouttrust
moneyinanunauthorisedinvestmentwhichfallsinvalue,thebeneficiarywillfalsifytheaccountby
askingthecourttodisallowboththedisbursementandthecorrespondingassetontheothersideofthe
account.Theunauthorisedinvestmentwillthenbetreatedashavingbeenboughtwiththetrusteesown
moneyandonhisownbehalf.Hewillberequiredtoaccounttothetrustestateforthefullamountofthe
disbursementnotfortheamountoftheloss.Thatiswhatismeantbysayingthatthetrusteeisliableto
restorethetrustpropertyandwhycommonlawrulesofcausationandremotenessofdamageareoutof
place.
Wherethebeneficiaryelectstofalsifytheaccount,theunauthorisedinvestmentisnotshownasan
asset,thedisbursementisdisallowed,andthetrusteeisaccountableineveryrespectasifhehadnot
disbursedthemoney.Heisliabletorestorethemoneytothetrustestateasnotionallyrestoredit
remainssubjecttoallthetrustspowersandprovisionsofthetrustasifithadneverbeendisbursedand
theaccountistakenaccordingly.
So,ifthetrustinstrumentpreventsthetrusteesfrominvestinginland,butthetrusteesinbreachoftrustpurchase
landforthetrust,thebeneficiarieswouldbeentitledtofalsifythatinvestmentupontakinganaccountofthetrust.As
aresult,thetrusteeswouldbeassumedtohavepurchasedthelandwiththeirownmoney,andwouldhavetouse
theirownresourcestorestorethemoneymissingfromthetrustfund,whichwasusedtopurchasetheland.This
processisindependentofconsiderationsofremoteness:evenifthelossessufferedwereunforeseeable,forexample,
theycouldstillberecoveredthroughtheprocessoffalsification.Thetrusteesaresimplyliabletoreconstitutethe
fund,whichwillneverbetooremotethatis,therelevantlosscanneverbetooremote.20
Falsificationisparticularlyimportantfollowingthepurchaseofunauthorizedinvestmentsortheimpropersaleof
authorizedinvestments.Boththesesituationswillbeanalysedinturn.
(i)Purchaseofunauthorizedinvestments
InKnottvCottee,21 thetestator,whodiedin1844,bequeathedhispersonalestatetobeheldontrustandinvested
inthepublicorGovernmentStocksorFundsofGreatBritain,oruponrealsecurityinEnglandorWales.Inbreach
oftrust,theexecutorinvestedinforeignstocksandExchequerbills.Inasuitbythebeneficiaries,hewasrequiredto
deposittheExchequerbillsincourt,andin1846theyweresold,underanorderofthecourt,ataloss.Thecourt
madeadecreein1848declaringthe(p.781) investmentstobeunauthorized.Bythattime,thepriceofthebillshad
riseniftheyhadbeensoldthen,therewouldhavebeenaprofit.
Theunauthorizedinvestmentscouldbefalsifiedtheexecutorwaspersonallyliableforthebreachoftrust.Oneissue
forthecourtwaswhethertheexecutorshouldbecreditedwiththeproceedsoftheExchequerbillsassoldin1846,
orwiththeir(increased)valuein1848,whentheyweredeclaredtobeunauthorized.RomillyMRheldthatthe
executorshouldbechargedwiththeamountimproperlyinvested,andcreditedwiththeproceedsactuallyreceived
ontheirsale:22
AstothemodeofchargingtheexecutorinrespectoftheExchequerbills,ItreatthelayingoutinExchequer
billsinthisway:thepersonsinterestedwereentitledtoearmarkthem,asbeingboughtwiththetestators
assets,inthesamemannerasiftheexecutorhadboughtahousewiththetrustfundsandthoughtheydo
notrecognizetheinvestment,theyhadarighttomakeitavailableforwhatwasdueandthoughpartofthe
propertyoftheexecutor,itwasspecificallyapplicabletothepayment.WhentheExchequerbillsweresold
andproduced3,955,theCourtmustconsidertheproduceasasumofmoneyrefundedbytheexecutorto
thetestatorsestateonthatdayandontakingtheaccount,theMastermustgivecreditforthisamountas
onthedayonwhichtheExchequerbillsweresold.
Thisapproachissensible:tofailtogivecreditfortheamountactuallyraisedthroughthesaleofthebillswouldhave
beentoignoretherealityofthestateofthetrustfund.However,theaccountmustbetakenwithregardtowhat
actuallyhappenedtherewasthereforenoscopetocontemplatewhatthebillswouldhavebeenworthifsoldlater.
(ii)Impropersaleofauthorizedinvestments
InReMassingberdsSettlement,23 thetrusteesofasettlementhadthepowertoinvestinConsols.24 In1875they

soldConsolsandreinvestedincertainunauthorizedmortgages.Themortgageswerecalledinandthewholeofthe
moneyinvestedwasrecovered.Proceedingslaterbeganin1887,atwhichtimeConsolsstoodhigherthantheyhad
donein1875.TheunauthorizedsaleoftheConsolswasfalsified,andtheCourtofAppealheldthatthetrustees
mustproduceeithertheConsolssoldortheirpresentmoneyequivalent.Thevalueofassetssoldinbreachoftrust
shouldbeassessedatthedateofjudgment,or,exceptionally,atthelaterdatewhentheywouldhavebeenproperly
sold.25 Butsuchvaluationdoesnotoccuronthedateatwhichtheclaimisbrought.
Thissuggeststhattrusteesmustrestore26 thetrustfundtothepositionitwouldhavebeeninhadtheunauthorized
investmentsinthemortgagesnotoccurred:thetrustfundwould,atthedateofjudgment,stillhavehadtheConsols,
soitwasincumbentuponthetrusteeseithertopurchasetheConsulsforthetrustortogivethetrustsufficient
moneytopurchasetheConsols.AsStreetJheldinInreDawson(decd):27
Increasesinmarketvaluesbetweenthedateofthebreachandthedateofrecoupmentareforthetrustees
account:theeffectofsuchincreaseswould,atcommonlaw,beexcludedfromthecomputation(p.782) of
damagesbutinequityadefaultingtrusteemustmakegoodthelossbyrestoringtotheestatetheassetsof
whichhedepriveditnotwithstandingthatmarketvaluesmayhaveincreasedinthemeantime.Theobligation
torestoretotheestatetheassetsofwhichhedepriveditnecessarilyconnotesthat,whereamonetary
compensationistobepaidinlieuofrestoringassets,thatcompensationistobeassessedbyreferenceto
thevalueoftheassetsatthedateofrestorationandnotatthedateofdeprivation.
(iii)Adoption
Themerefactthataninvestmentisunauthorizeddoesnotmeanthatthebeneficiarynecessarilyhastofalsifythe
relevantdisbursement.Thetrusteemighthavecommittedwhatissometimescalledajudiciousbreachoftrust,28
andtheunauthorizedinvestmentmayhaveincreasedinvalue.Insuchcircumstances,itisoftensaidthatthe
beneficiarycanchoosetoadopttheunauthorizedinvestment.However,asMilletthasexplained,thismaybe
29
somethingofamisnomer:29
Iftheunauthorisedinvestmenthasappreciatedinvalue,thenthebeneficiarywillbecontentwithit.Heisnot
obligedtofalsifytheaccountwhichthetrusteerendershecanalwaysacceptit.Wherethebeneficiary
acceptstheunauthorisedinvestment,heisoftensaidtoaffirmoradoptthetransaction.Thatisnotwholly
accurate.Thebeneficiaryhasarighttoelect,butitismerelyarighttodecidewhethertocomplainornot.
Butwhilstthisapproachmayappropriatelycoverinstanceswherethebeneficiaryseekseithertoacceptorfalsifythe
investmentabsolutely,thesituationismorecomplicatedwherethebeneficiarywantstoadoptanunauthorized
investmentaspartialsatisfactionofanyclaimheorshemayhave:ifthevalueoftheunauthorizedinvestmentisstill
lessthanthepurchaseprice,shouldthebeneficiarybeablebothtoaccepttheinvestmentaspartofthetrusts
assetsandsuethetrusteesforthedifferencebetweenthevalueoftheinvestmentandthevaluethatthetrustfund
shouldhave?
InThorntonvStok ill,30 thecourtheldthatabeneficiaryhadastarkchoicebetweenadoptingtheinvestmentor

falsifyingthedisbursement.Inthatcase,400oftrustmoneyhadbeeninvestedinhousesinbreachoftrust.The
courtinsistedthatthebeneficiariescouldnotclaimthehousesandthedifferenceinvaluebetweenthehousesand
themisapplied400.
Ontheotherhand,inReLak e31 thecontraryapproachwasfavoured.Solicitorsactingforatrustinvested5,500in

acontributorymortgage.Themortgagorlatersoughttosetasidethemortgageforfraud,andthetrusteesagreedto
compromisetheclaiminreturnforapaymentof500.WrightJheldthatbyenteringintothecompromise
agreement,thetrusteeshadadoptedthemortgages.However,healsofoundthatitwasstillpossibletorecoverthe
differencebetweenthe5,500lostthroughtheunauthorizedinvestmentandthe500recoveredbyadoptingthe
mortgage.
Whichapproachistobepreferred?ThorntonvStok illismoreconsistentwiththeproprietarynatureofthe
beneficiarysinterest.AsPennerhaswritten:32 (p.783)
abeneficiarycannotlogicallyadoptanassetastrustpropertyandatthesametimefalsifytheaccountsoas
tomakethetrusteepersonallyliable.Thebeneficiaryhasanelectioneithertoadoptthetransactioninany
formhechoosesortofalsifytheaccount,butelecthemusthecannothaveitbothways.
Thisisrigidlylogical:ifthebeneficiaryadoptstheinvestmentastrustproperty,thenthereisnothingtofalsifyandno
furtherclaimagainstthetrustee.However,itseemsverygeneroustoatrustee,andleavesthebeneficiaryinan
unenviableposition.Falsificationleadsonlytoapersonalremedyagainstthetrusteeiftheinvestmentisadoptedas
partialsatisfactioninrespectoftheshortfallinthetrustfund,thepositionofthebeneficiariesisnotquiteso
precarious,andthevalueofthetrustfundisnecessarilyhigherthanitwouldotherwisebewhenapersonalclaim
againstthetrusteeislaunched.33 Butobviously,thebeneficiarieswouldstillbeinaworsepositionthanifthe
investmenthadsimplynotbeenmade.Itisthereforeunderstandablewhyacourtmightwishtoallowabeneficiaryto
adoptaninvestmentaspartialsatisfactionofthepersonalliabilityofatrustee.
(iv)Terminology
Arecurringprobleminthisareaisthatdifferentlanguagehasbeenusedtodescribetheliabilityofthetrustees.It
hasbeensaidalreadythatthetrusteeshavetorestorethetrustfundforexample,inInreDawson(decd),StreetJ
saidthat:34
Theformofreliefiscouchedintermsappropriatetorequirethedefaultingtrusteetorestoretotheestatethe
assetsofwhichhedeprivedit.
However,StreetJalsousedthelanguageofrestitution:35
Theobligationofadefaultingtrusteeisessentiallyoneofeffectingarestitutiontotheestate.
Boththelanguageofrestitutionandrestorationhavebeenusedinsubsequentcases.36 Provideditisclearthat
thetrusteeshavetoputthetrustfundinthepositionitwouldhavebeeninhadtherenotbeenabreachoftrust,no
37
difficultiesmayarise.However,ithasbeenarguedthatsuchlanguagemaybeliabletoconfuse.37 Certainly,the
trusteesarenotrequiredtomakerestitutioninthesenseofgivingbackthegainstheyhavemade:thetrustees
mightnothavemadeanygains.Asaresultoffalsification,thetrusteessimplyhavetocompensatethetrustfund.It
might,therefore,bepreferabletospeakofthetrusteesrestoringthefundtoitsoriginalposition,eventhoughthe
trusteesdonotgenerallyrestorewhattheyinitiallytookbutratherreplaceitwithmoneyinstead.Thismightalsobe
consideredtorepresentareconstitutionofthefund.38 Nevertheless,EdelmanandElliottconsiderthelanguageof
substitutivecompensationtobemoreaccurate,sincethecompensationisgivenasasubstitutefortheproperty
thetrusteewasboundtomaintainandapply.39
(p.784) Regardlessofthechoiceoflanguageused,itiscrucialtoappreciatethat,althoughfalsificationisgenerally
aresponsetoabreachoftrust,theremedythatarisesisnotsecondaryanddifferentfromtheprimaryobligationof
thetrustee.Falsificationcompelstheperformanceoftheprimaryobligationtomaintaintheproperstateofthetrust
fund,essentiallythroughrestoringthetrusttoitspreviousposition.Ifpropertyhasbeendisposedofinbreachof
trust,thenthetrusteemusteitherreturntheverypropertydisbursedoritsmonetaryequivalent,bothofwhich
correspondtotheprimaryobligationsimposedupontrustees.
(b)Surcharge
Ifthetrusteehasfailedproperlytosafeguardthevalueofthetrustfund,thenthetrustfundwillhavesufferedloss
throughnotbeingworthasmuchasitoughttobeworth.Thismaysimplybethroughfailingproperlytodiversifythe
assetsheldontrust.40 Insuchcircumstances,thereisnodisbursementtofalsify.However,thebeneficiaryisable
tosurchargetheaccounttobringituptoitsappropriatevalue.ThiswasexplainedbyLordMillettasfollows:41
Ifthebeneficiaryisdissatisfiedwiththewayinwhichthetrusteehascarriedouthistrustif,forexample,he
considersthatthetrusteehasnegligentlyfailedtoobtainallthatheshouldhavedoneforthebenefitofthe
trustestate,thenhemaysurchargetheaccount.Hedoesthisbyrequiringtheaccounttobetakenonthe
footingofwilfuldefault.Inthiscontextwilfuldefaultbearsaspecialandunusualmeaningitmeansmerely
lackofordinaryprudenceorduediligence.42 Thetrusteeismadetoaccount,notonlyforwhathehasinfact
received,butalsoforwhathemightwithduediligencehavereceived.Sincethetrusteeis,ineffect,charged
withnegligence,andtheamountbywhichtheaccountissurchargedismeasuredbythelossoccasionedby
hiswantofskillandcare,theanalogywithcommonlawdamagesfornegligenceisalmostexact.43 Although
heisafiduciary,hisdutyofcareisnotafiduciaryduty.44 Inthiscontextitmustberighttoadoptthe
commonlawrulesofcausationandremotenessofdamagetotheirfullestextent.Thetrusteesliabilityis
enforcedinthecourseoftakingthetrustaccountratherthanbyanactionfordamages,buttheobligationof
skillandcareisidenticaltothecommonlawdutyofcare.
Surchargingtheaccountdoesnotreconstitutethefundinthesamewaythatfalsificationdoes:thereisnothingto
reconstitute,sincenothinghasbeentakenoutofthefund.EdelmanandElliotthaveexplainedthat:45
Thisremedyisnotgivenbywayofsubstitutivelyenforcingtheperformanceofthetrusteesprimaryduties.
Rather,compensatorydamagesrequirethetrusteetomakegoodlossesoccasionedbyhisbreachoftrust.
Thecompensationisreparativeratherthansubstitutiveinnature.
Itissensiblethatsuchreparativecompensation,unlikesubstitutivecompensation,besubjecttorulesofcausation
andremotenessthegoalofremedyingthelosssufferedbythefundiscomparable(p.785) totheobjectof
compensationatCommonLaw.Theappropriaterulesofremotenessmaydependuponthenatureofthebreach.
Elliotthasarguedthat:46
Theprogressofthelawistowardstreatingreparationclaimsforbreachoftrustintwobroadcompartments
thatcorrespondtothetwomajorcompartmentsdiscernableintortlaw.Thefirstincludesclaimsarisingfrom
unintentionalandjudiciousbreachesoftrustheretheprincipalremotenesstestshouldbereasonable
foreseeabilityofthekindofloss.Thesecondincludesclaimsarisingfromintentionaldisloyaltyhere
unforeseeablelossesshouldberecoverablesolongastheyarethedirectresultofthebreach.
AgoodexampleofsurchargingtheaccountisprovidedbyFryvFry.47 Atestator,whodiedin1834,providedbyhis
willthattheLangfordInnshouldbesoldassoonasconvenientafter[his]deceaseeitherbyauctionorprivate
sale,andforthemostmoneythatcouldbereasonablyobtainedforthesame.However,thetrusteeshadsome
difficultyinselling.In1836theyadvertisedandofferedtosellfor1,000.Theyrefusedanofferof900.In1843,a
newrailwaylineopened,whichdeprivedtheInnofmuchofitspassingbusinessandmadeitdifficulttosell.Itwas
againadvertisedin1854,butnoofferwasreceived.RomillyMRheldthetrusteesliableforbreachoftrustin
consequenceoftheirnegligenceforsomanyyearsinnotsellingtheproperty.Thetrusteeswouldthereforebeliable
forthedifferencebetweentheamounteventuallyreceivedand900.
Whenassessingthelosssufferedbythetrustfund,itisimportanttoestablishwhatvaluethefundshouldhaveat
thedateofjudgmentratherthanatthedateofbreach48 theburdenrestsupontheclaimantstoestablishwhat
wouldbethevalueofthefundhadtherebeennobreachoftrust.Forexample,inNestlvNationalWestminster
Bank plc,49 abankhadactedinbreachoftrustinfailingeithertoreviewthetrustinvestmentsortotakelegaladvice
onthescopeofitspowers,andwasalsoinbreachoftrustbecauseitdidnotproperlydiversifytheinvestmentsof
thefund.Whenthebeneficiarytookanaccountofthetrust,shewasthereforeentitledtosurchargetheaccount.
However,thebeneficiarysclaimforreparativecompensationfailedbecauseshehadnotshowntheextentofthe
trustsloss,andtheonuswasuponhertodoso.AsDillonLJremarked:50
Thestartingpointmust,inmyjudgment,bethat,astheplaintiffisclaimingcompensation,theonusisonher
toprovethatshehassufferedlossbecausefrom1922to1960theequitiesintheannuityfundwerenot
diversifiedinthepresentcase,iftheannuityfundhadbeeninvestedwhollyinfixedinterestsecurities,it
wouldhavebeenrelativelyeasytoprove,eventhoughtheeventneverhappened,thattheannuityfundwould
havebeenworthmuchmoreifasubstantialparthadbeeninvestedinequities.Consequentlyfair
compensationcouldhavebeenassessed.Equallyitwouldhavebeenpossible,eventhoughmoredifficultand
muchmoreexpensive,toprove,ifitbethefact,thattheequitiesintheannuityfundwouldhaveperformed
evenbetterifdiversifiedthantheydidasconcentratedinbankandinsuranceshares.Buttheplaintiffhasnot
providedanysuchproof.Shehasnotevenprovidedanymaterialwhichwouldenablethecourttoassessthe
strengthof,orvalue,thechancewhichsheclaimsshehaslost.Thereforeherclaimforcompensationor
damagesinrespectoftheinvestmentoftheannuityfundfrom1922to1960must,inmyjudgment,fail.
(p.786) Hadstepsbeentakentoestablishtheshortfallinthefund,theclaimantshouldhavesoughttoascertain
thedifferencebetweenthefundscurrentvalueandwhatitwouldhavebeenworthhaditbeenhandledbyaprudent
trustee.AsStaughtonLJsaid:51
Iwouldbeinclinedtopreferacomparisonwithwhataprudenttrusteewaslikelytohaveachievedinother
words,theaverageperformanceofordinarysharesduringtheperiod.
(c)ClassifyingtheAccount
Theredoesnotneedtobeanybreachoftrustforanaccounttobetaken.Itispossibletoinsistthatthepurposeof
theaccountistoenforcetheprimaryobligationofatrusteetoaccountfortheadministrationofthetrust.
LordMillett,EquitysPlaceintheLawofCommerce(1998)114LQR214,225
LordDiplockhassaidthatacontractingpartyisunderaprimaryobligationtoperformhiscontractanda
secondaryobligationtopaydamagesifhedoesnot.Itistempting,butwrong,toassumethatatrustee
islikewiseunderaprimaryobligationtoperformthetrustandasecondaryobligationtopayequitable
compensationifhedoesnot.Theprimaryobligationofatrusteeistoaccountforhisstewardship.The
primaryremedyofthebeneficiaryanybeneficiarynomatterhowlimitedhisinterestistohavethe
accounttaken,tosurchargeandfalsifytheaccount,andtorequirethetrusteetorestoretothetrust
estateanydeficiencywhichmayappearwhentheaccountistaken.Theliabilityisstrict.
However,abreachoftrustwilloftenbethereasonthebeneficiaryseeksanaccount,andexplainswhythetrustee
hastomakeupforanyshortfallinthetrustfund.Itmightthereforebepossibletoviewthebreachoftrustas
triggeringasecondaryobligationtoremedythewrong,albeithiddenbehindthebeneficiariesprimaryrighttoensure
thatthetrusteeisaccountablefortheadministrationofthetrust.Butashasbeenseenalready,EdelmanandElliott
havearguedthatadistinctionmightbedrawnbetweenfalsification,orsubstitutivecompensation,whichconcerns
theenforcementofprimaryduties,andsurcharging,orreparativecompensation,whichinvolvestheenforcementofa
secondaryobligationflowingfromthebreachoftrust.52 Thisdistinctionmightalsohelptoexplainwhytherulesof
remoteness,forexample,arerelevantonlytothelatter,andnottotheformer.53
3.AnalysingaLeadingCase:TargetHoldingsLtdvRedfernS
Havinganalysedthetraditionalapproachconcerningthetakingofanaccount,theimportantdecisionoftheHouseof
LordsinTargetHoldingsLtdvRedferns 54 regardingtrusteespersonalliabilityforbreachoftrustcannowbe
considered.ThecaseconcernedMiragePropertiesLtd,theownersofacommercialpropertyinBirmingham,which
agreedtosellittoCrowngateDevelopmentsLtdfor(p.787) 775,000.CrowngateappliedforaloanfromTarget
HoldingsLtdtheloanapplicationformstatedthatthepropertywasvaluedat2million.Onthisbasis,Targetagreed
tolendCrowngateatotalof1,706,000onthesecurityoftheproperty.Thiswasallpartofamortgagefraud
perpetratedbyCrowngateandMirageinordertoinflatethepriceofthepropertyartificially.Targetwasunawareof
thisfraudulentscheme.
RedfernswasafirmofsolicitorsactingforbothCrowngateandTarget.Redfernsheldthemortgageadvanceona
baretrustforTarget,withauthoritytoreleasethemoneytoCrowngateonlyuponreceiptoftheexecuted
conveyancesandmortgageoftheproperty.However,Redfernsreleasedthemoneybeforethedocumentswere
executed.Itwasadmittedthatthiswasabreachoftrust.Thepropertywasinduecoursefoundtobeworthonly
500,000.
ItisapparentfromthejudgmentsatalllevelsinthecasethatRedfernswasprobablyinvolvedinthefraudulent
scheme,andcouldthereforehavebeensuedbyTargetinthetortofdeceit.However,thiswouldhaverequiredTarget
toestablishalltheelementsnecessaryforsuchaclaim,includinganintentionalrepresentationthatRedfernsknew
tobefalse,oratleastthatRedfernswasrecklesslyindifferentregardingthetruthoftherepresentationmade.55
Targetinsteadsoughtsummaryjudgmentforbreachoftrust,whichitperceivedtobemuchmorestraightforward.
TargetaskedRedfernstoreconstitutethetrustfundbypayingthedifferencebetweenthevalueofthepropertyand
themoneyadvancedtoCrowngate.ThisargumentsucceededinCourtofAppeal,56 whichheldthat,assoonasthe
moneyhadbeentransferredinbreachoftrust,theclaimanthadarighttohavethetrustfundreconstituted,even
thoughtheclaimanthadlaterreceivedthesecuritythatitwasintendingtoobtainandregardlessofthefactthatthat
securitywasworthmuchlessthananticipated,sinceCommonLawprinciplesofcausationdidnotapplytoaclaim
forbreachoftrust.
ThedecisionoftheCourtofAppealwasunanimouslyoverturnedbytheHouseofLords.LordBrowneWilkinsongave
theleadingspeech,withwhichalltheothermembersoftheHouseofLordsagreed.Theresultinthecaseis
generallyacceptedassensible.However,someofthereasoninganddictainLordBrowneWilkinsonsspeechhave
provedtobemuchmorecontroversial.Itis,therefore,usefultohighlightsomecrucialelementsofLordBrowne
Wilkinsonsspeech,beforeassessingthedifferentapproachesthatmightinformhowsituationssuchasthat
presentedinTargetmightbedealtwith.
(a)GeneralApproach
LordBrowneWilkinsonprovidedageneraloverviewofhisapproachtothecaseinthefollowingpassage:57
TargetHoldingsLtdvRedferns[1996]AC421,431(LordBrowneWilkinson)
Beforeconsideringthetechnicalissuesoflawwhicharise,itisappropriatetolookatthecasemore
generally.Targetallege,anditisprobablythecase,thattheyweredefraudedbythirdparties(Mr.Kohli
andMr.Musafirandpossiblytheirassociates)toadvancemoneyonthesecurityoftheproperty.Ifthere
hadbeennobreachbyRedfernsoftheirinstructionsandthetransactionhadgonethrough,Targetwould
havesufferedalossinroundfiguresof1.2million(i.e.1.7millionadvancedless500,000(p.788)
recoveredontherealisationofthesecurity).Suchlosswouldhavebeenwhollycausedbythefraudofthe
thirdparties.ThebreachoftrustcommittedbyRedfernsleftTargetinexactlythesamepositionasit
wouldhavebeeniftherehadbeennosuchbreach:Targetadvancedthesameamountofmoney,
obtainedthesamesecurityandreceivedthesameamountontherealisationofthatsecurity.Inany
ordinaryuseofwords,thebreachoftrustbyRedfernscannotbesaidtohavecausedtheactualloss
ultimatelysufferedbyTargetunlessitcanbeshownthat,butforthebreachoftrust,thetransaction
wouldnothavegonethrough,ifthetransactionhadnotgonethrough,Targetwouldnothaveadvanced
themoneyatallandthereforeTargetwouldnothavesufferedanyloss.ButtheCourtofAppeal58 decided
(seeRalphGibsonLJat1100PeterGibsonLJat1104)anditiscommongroundbeforeyourLordships
thatthereisatriableissueastowhether,haditnotbeenforthebreachoftrust,thetransactionwould
havegonethrough.ThereforethedecisionoftheCourtofAppealinthiscasecanonlybemaintainedon
thebasisthat,evenifthereisnocausallinkbetweenthebreachoftrustandtheactuallosseventually
sufferedbyTarget(i.e.thesumadvancedlessthesumrecovered)thetrusteeinbreachisliabletobear
(atleastinpart)thelosssufferedbyTarget.
Thetransactioninthepresentcaseisredolentoffraudandnegligence.But,inconsideringtheprinciples
involved,suspicionsofsuchwrongdoingmustbeputononeside.IfthelawasstatedbytheCourtof
Appealiscorrect,itappliestocaseswherethebreachoftrustinvolvesnosuspicionoffraudor
negligence.Forexample,sayanadvanceismadebyalendertoanhonestborrowerinrelianceonan
entirelyhonestandaccuratevaluation.Thesumtobeadvancedispaidintotheclientaccountofthe
lenderssolicitors.Duetoanhonestandnonnegligenterror(e.g.anunforeseeablefailureinthe
solicitorscomputer)themoneysinclientaccountaretransferredbythesolicitorstotheborrowerone
daybeforethemortgageisexecuted.Thatisabreachoftrust.Thenthepropertymarketcollapsesand
whenthelenderrealiseshissecuritybysaleherecoversonlyhalfthesumadvanced.AsIunderstand
theCourtofAppealdecision,thesolicitorswouldbearthelossflowingfromthecollapseinthemarket
value:subjecttothecourtsdiscretionarypowertorelieveatrusteefromliabilityundersection61ofthe
TrusteeAct1925,59 thesolicitorswouldbeboundtorepaythetotalamountwronglypaidoutoftheclient
accountinbreachoftrustreceivingcreditonlyforthesumreceivedonthesaleofthesecurity.
Tomymindinthecaseofanunimpeachabletransactionthiswouldbeanunjustandsurprising
conclusion.
[ThisapproachclearlyledLordBrowneWilkinsontofocusuponwhetherTargetshouldbeabletobecompensated
foranylosssuffered,andtohisultimateconclusionthat:]60
onthefactswhichmustcurrentlybeassumed,Targethasnotdemonstratedthatitisentitledtoany
compensationforbreachoftrust.Assumingthatmoneyswouldhavebeenforthcomingfromsomeother
sourcetocompletethepurchasefromMirageifthemoneyshadnotbeenwronglyprovidedbyRedfernsin
breachoftrust,Targetobtainedexactlywhatitwouldhaveobtainedhadnobreachoccurred,i.e.avalid
securityforthesumadvanced.Therefore,ontheassumptionmade,Targethassufferednocompensatable
loss.Redfernsareentitledtoleavetodefendthebreachoftrustclaim.
TheheartofthedecisioninTargetthusliesverymuchwithintherealmofcompensation.Muchofthefocusofthe
discussionofTargetherewillthereforeconcentrateuponissuessurroundingcompensation.However,itshouldbe
notedattheoutsetthatTargetscasecouldhavesimplybeenfoundedupontakinganaccountandseekingtofalsify
theunauthorizedreleaseofthemoney(p.789) withouthavingreceivedtherelevantmortgagedocuments.This
mighthaverenderedmuchofthediscussionaboutcausationandlossredundant.61 Nevertheless,itshouldalsobe
appreciatedthatthetakingofanaccountwouldnotnecessarilyleadtoadifferentresult:afterall,thestateandvalue
ofthetrustfundmustbeassessedatthedateofjudgment,notthedateofbreach.62 Thiswillbeexploredfurther
below.
(b)TraditionalandCommercialTrusts
LordBrowneWilkinsondistinguishedtraditionaltrustsandcommercialtrustsinhisspeech.HisLordshipsawthe
forceinrequiringthetrusteestorestorethefundofatraditionaltrustwherethereareanumberofbeneficiariesand
thetrustcontinuestoexist.Butforbaretrustsarisinginacommercialcontext,LordBrowneWilkinsondidnotthink
thatthesameapproachshouldnecessarilyapply:oncetheunderlyingcommercialtransactionhasbeencompleted,
thereisnolongeranyneedtoreconstitutethetrustfundbecausethetrusthasended,andthetrusteeisonlyunder
anobligationtocompensatethebeneficiaryforanylossessuffered.63
TargetHoldingsLtdvRedferns[1996]AC421,434(LordBrowneWilkinson)
Thebasicrightofabeneficiaryistohavethetrustdulyadministeredinaccordancewiththeprovisionsof
thetrustinstrument,ifany,andthegenerallaw.Thus,inrelationtoatraditionaltrustwherethefundis
heldintrustforanumberofbeneficiarieshavingdifferent,usuallysuccessive,equitableinterests,(e.g.A
forlifewithremaindertoB),therightofeachbeneficiaryistohavethewholefundvestedinthetrustees
soastobeavailabletosatisfyhisequitableinterestwhen,andif,itfallsintopossession.Accordingly,in
thecaseofabreachofsuchatrustinvolvingthewrongfulpayingawayoftrustassets,theliabilityofthe
trusteeistorestoretothetrustfund,oftencalledthetrustestate,whatoughttohavebeenthere.
Theequitablerulesofcompensationforbreachoftrusthavebeenlargelydevelopedinrelationtosuch
traditionaltrusts,wheretheonlywayinwhichallthebeneficiariesrightscanbeprotectedistorestoreto
thetrustfundwhatoughttobethere.Insuchacasethebasicruleisthatatrusteeinbreachoftrust
mustrestoreorpaytothetrustestateeithertheassetswhichhavebeenlosttotheestatebyreasonof
thebreachorcompensationforsuchloss.CourtsofEquitydidnotawarddamagesbut,actingin
personam,orderedthedefaultingtrusteetorestorethetrustestate:seeNoctonvLordAshburton[1914]
AC932at952,958,perViscountHaldaneLC.Ifspecificrestitutionofthetrustpropertyisnotpossible,
thentheliabilityofthetrusteeistopaysufficientcompensationtothetrustestatetoputitbacktowhat
itwouldhavebeenhadthebreachnotbeencommitted:CaffreyvDarby(1801)6Ves488CloughvBond
(1838)3My&Cr490.Eveniftheimmediatecauseofthelossisthedishonestyorfailureofathirdparty,
thetrusteeisliabletomakegoodthatlosstothetrustestateif,butforthebreach,suchlosswouldnot
haveoccurred:seeReDawson[1966]2NSWLR211BartlettvBarclaysBank TrustCoLtd(Nos1
and2)[1980]Ch515.
HithertoIhavebeenconsideringtherightsofbeneficiariesundertraditionaltrustswherethetrustsare
stillsubsistingandthereforetherightofeachbeneficiary,andhisonlyright,istohavethetrustfund(p.
790) reconstitutedasitshouldbe.Butwhatifatthetimeoftheactionclaimingcompensationforbreach
oftrustthosetrustshavecometoanend?TakeasanexampleagainthetrustforAforlifewith
remaindertoB.DuringAslifetimeBsonlyrightistohavethetrustdulyadministeredand,intheevent
ofabreach,tohavethetrustfundrestored.AfterAsdeath,Bbecomesabsolutelyentitled.Heofcourse
hastherighttohavethetrustassetsretainedbythetrusteesuntiltheyhavefullyaccountedforthemto
him.Butifthetrusteescommitabreachoftrust,thereisnoreasonforcompensatingthebreachoftrust
bywayofanorderforrestitutionandcompensationtothetrustfundasopposedtothebeneficiary
himself.Thebeneficiarysrightisnolongersimplytohavethetrustdulyadministered:heis,inequity,
thesoleownerofthetrustestate.Nor,forthesamereason,isrestitutiontothetrustfundnecessaryto
protectotherbeneficiaries.Therefore,althoughIdonotwhollyruleoutthepossibilitythateveninthose
circumstancesanordertoreconstitutethefundmaybeappropriate,intheordinarycasewherea
beneficiarybecomesabsolutelyentitledtothetrustfundthecourtorders,notrestitutiontothetrust
estate,butthepaymentofcompensationdirectlytothebeneficiary.Themeasureofsuchcompensation
isthesame,i.e.thedifferencebetweenwhatthebeneficiaryhasinfactreceivedandtheamounthe
wouldhavereceivedbutforthebreachoftrust.
64
ThusinBartlettvBarclaysBank TrustCoLtd(Nos1and2)[1980]Ch51564 bythedateofjudgment
someofthesharessettledbythetrustdeedhadbecomeabsolutelyvestedinpossession:seeat543.
Thecompensationforbreachoftrust,thoughquantifiedbyreferencetowhatthefundwouldhavebeen
butforthebreachoftrust,waspayabledirectlytothepersonswhowereabsolutelyentitledtotheir
sharesofthetrustfund:seeat544.Accordingly,intraditionaltrustsforpersonsbywayofsuccession,
inmyjudgmentoncethosetrustshavebeenexhaustedandthefundhasbecomeabsolutelyvestedin
possession,thebeneficiaryisnotnormallyentitledtohavetheexhaustedtrustreconstituted.Hisrightis
tobecompensatedforthelosshehassufferedbyreasonofthebreach.
Eveniftheequitablerulesdevelopedinrelationtotraditionaltrustsweredirectlyapplicabletosucha
caseasthis,asIhavesoughttoshowabeneficiarybecomingabsolutelyentitledtoatrustfundhasno
automaticrighttohavethefundreconstitutedinallcircumstances.Thus,evenapplyingthestrictrulesso
developedinrelationtotraditionaltrusts,itseemstomeverydoubtfulwhetherTargetisnowentitledto
havethetrustfundreconstituted.Butinmyjudgmentitisinanyeventwrongtoliftwholesalethedetailed
rulesdevelopedinthecontextoftraditionaltrustsandthenseektoapplythemtotrustsofquitea
differentkind.Inthemodernworldthetrusthasbecomeavaluabledeviceincommercialandfinancial
dealings.Thefundamentalprinciplesofequityapplyasmuchtosuchtrustsastheydotothetraditional
trustsinrelationtowhichthoseprincipleswereoriginallyformulated.Butinmyjudgmentitisimportant,
ifthetrustisnottoberenderedcommerciallyuseless,todistinguishbetweenthebasicprinciplesof
trustlawandthosespecialistrulesdevelopedinrelationtotraditionaltrustswhichareapplicableonlyto
suchtrustsandtherationaleofwhichhasnoapplicationtotrustsofquiteadifferentkind.
Thiscaseisconcernedwithatrustwhichhasatalltimesbeenabaretrust.Baretrustsariseina
numberofdifferentcontexts:e.g.bytheultimatevestingofthepropertyunderatraditionaltrust,nominee
shareholdingsand,asinthepresentcase,asbutoneincidentofawidercommercialtransaction
involvingagency.Inthecaseofmoneyspaidtoasolicitorbyaclientaspartofaconveyancing
transaction,thepurposeofthattransactionistoachievethecommercialobjectiveoftheclient,beitthe
acquisitionofpropertyorthelendingofmoneyonsecurity.Thedepositingofmoneywiththesolicitoris
butoneaspectofthearrangementsbetweentheparties,sucharrangementsbeingforthemostpart
contractual.Thus,thecircumstancesunderwhichthesolicitorcanpartwithmoneyfromclientaccount
areregulatedbytheinstructionsgivenbytheclient:theyarenotpartofthetrustsonwhichtheproperty
isheld.Idonotintendtocastanydoubtonthefactthatmoneysheldbysolicitorsonclientaccountare
trustmoneysorthatthebasicequitableprinciplesapplytoanybreachofsuch(p.791) trustby
solicitors.Butthebasicequitableprincipleapplicabletobreachoftrustisthatthebeneficiaryisentitled
tobecompensatedforanylosshewouldnothavesufferedbutforthebreach.Ihavenodoubtthat,until
theunderlyingcommercialtransactionhasbeencompleted,thesolicitorcanberequiredtorestoreto
clientaccountmoneyswronglypaidaway.Buttoimportintosuchtrustanobligationtorestorethetrust
fundoncethetransactionhasbeencompletedwouldbeentirelyartificial.Theobligationtoreconstitute
thetrustfundapplicableinthecaseoftraditionaltrustsreflectsthefactthatnoonebeneficiaryisentitled
tothetrustpropertyandtheneedtocompensateallbeneficiariesforthebreach.Thatrationalehasno
applicationtoacasesuchasthepresent.Toimposesuchanobligationinordertoenablethe
beneficiarysolelyentitled(i.e.theclient)torecoverfromthesolicitormorethantheclienthasinfactlost
fliesinthefaceofcommonsenseandisindirectconflictwiththebasicprinciplesofequitable
compensation.Inmyjudgment,onceaconveyancingtransactionhasbeencompletedtheclienthasno
righttohavethesolicitorsclientaccountreconstitutedasatrustfund.
ThisdistinctionbetweentraditionalandcommercialtrustswasdescribedbyNolanas:65
novel,thoughnotunreasonable:thereareargumentsforandagainst.Onemightsaythatthoseengagedin
commerce,whovestpropertyinanomineesothatthenomineecandealwithitonbehalfofthebeneficial
owner,shouldnotnecessarilybeabletolooktothenomineeas,ineffect,aguarantoroftheintegrityofthe
fund.Ifthenomineeandhisbeneficiaryactuallyintendsuchonerousdutiestofallonthenominee,thereisno
reasonwhythelawshouldnotgiveeffecttotheirwishes.If,though,thearrangementbetweenthepartiesis
silentonthematter,thenthelawisnotsowrongtotreatthearrangementasbeinginsubstance,ifnotin
form,moreakintoagencythantootherinstancesoftrusteeship,sothatthedutiesofanomineearemore
likethoseofanagentthanthoseofanactivetrustee.Inreply,however,itmightbearguedthat,ifaperson
hasseenfittovestanassetinanominee,heshouldhavethesameprotectionasanyotherbeneficiaryofa
trust.Furthermore,wherethetrustsofasettlementhavebecomeexhausted,leavingonepersonbeneficially
entitledtoatrustfund,whyshouldhisrights,andsoalsothedutiesofhistrustee,suddenlybecomedifferent
fromthosesubsistingbeforethefundvestedinhimabsolutely?
Thislastpointraisedis,perhaps,telling.Indeed,LordMilletthas,extrajudicially,beenemphaticthatthedistinction
drawnbetweentraditionalandcommercialtrustsisunhelpful.
LordMillett,EquitysPlaceintheLawofCommerce(1998)114LQR224,225
Itisimpossibletodissentfromthepropositionthatequityisflexibleandthatcircumstancesaltercases.
Itisalsotruethat,asLordBrowneWilkinsonpointedout,thecircumstancesinwhichthesolicitorwas
entitledtopartwithhisclientsmoneywereregulatedbytheclientsinstructionsandwerenotpartofthe
trustsonwhichthemoneywasheld.Thisisplainlycorrect.Theonlytrustwasabaretrustfortheclient
itsinstructionsweresuperimposedonthattrust.ItwasaformofQuistclosetrust.66 Butnothingturnson
this,exceptthatitmadetheinstructionsrevocable.Applicationoftrustmoneyinsuchcircumstances
otherwisethaninaccordancewiththeunrevokedinstructionsofthebeneficialownerisstillabreachof
trust.Likewisetrusteeinvestmentpowersarenotpartofthetrustsonwhichtrustmoneyisheld,butan
unauthorisedinvestmentoftrustmoneyisstillabreachoftrust.
(p.792) Butwhatisthespecialistruleapplicableonlytofamilytrustswhichexcludestheprinciple
limitingtheamountofrecoverablecompensationtothelossactuallyoccasionedbythebreach?Ifthere
issucharuleitmustbeofgeneralapplication.IsitseriouslytobesupposedthattheresultinTarget
HoldingsLtdvRedfernswouldhavebeendifferentifthetrustinquestionhadbeenatraditionaltrust?
Supposetrusteesofafamilysettlementwithpowertoinvestonmortgagedecidetodoso,but
negligentlypartwiththetrustmoneywithoutobtainingtheexecutedmortgageandtitledeedsin
exchange.Suppose,too,thatafewdayslatertheydoobtainthenecessarydocuments.Andsuppose
thatthepropertyhasbeenovervaluedandtheinvestmentprovestobeabadone.Isitseriously
suggestedthatthetrusteesaretobeheldliableforanythingmorethanafewdayslossofinterest?
Itisunclearwhytheequitableprinciplesshoulddiffertoanysignificantdegreebetweensocalledtraditionaltrusts
andcommercialtrusts.Itissuggestedthatthisdistinctionisartificialandunhelpful.Indeed,inYouyangPtyLtdv
MinterEllisonMorrisFletcher,67 theHighCourtofAustraliasuggestedthatsuchadividewasunnecessary.The
casewassimilartoTarget:MintersweresolicitorswhoheldmoneyontrustforYouyang,butinbreachoftrust
releasedmoneytoacompanycalledECCCLbeforeobtainingthestipulatedbearerdepositcertificate.TheHigh
Courtsaidthat:68
thecreationofthetrustinfavourofYouyangwasnotanendinitselfthetermsofthetrustwhichbound
Minterswereconcernedwiththeapplicationofthetrustmoneysincompletionofalargercommercial
transactionwithYouyangandMintersclient,ECCCL,astheprincipalactors.Toacknowledgethatsituation
isnotnecessarilytoembraceanytheoryofreductionismwhereby,notwithstandingtherigouroftherule
requiringobservanceofthetermsofthetrust,incertaineventscommercialtrustsdonotprovidefortheir
beneficiariesthefullpanoplyofpersonalandproprietaryrightsandremediesdesignedbyequity:cfAustin,
MouldingtheContentofFiduciaryDuties,inOakley(ed),TrendsinContemporaryTrustLaw,(1996)153at
167168.Rather,itemphasisesthat,intheadministrationofthepecuniaryremedyYouyangseeksfor
misapplicationofitsfundsbyMinters,regardshouldbehadtothescopeandpurposeofthetrustwhich
boundMinters.
Itisrightnottodepriveallbeneficiariesundercommercialtrustsofthefullrangeofrightsandremediesaffordedby
Equityinthecontextoftrustrelationships.Concentratinguponthescopeandpurposeofthetrustseemspreferable.
Onthisbasis,ifacommercialtrustcontinuestoexistandthefundisheldforthebenefitofbeneficiaries,thenthe
factthatitiscommercialratherthantraditionalshouldnotpreventthebeneficiariesfromseekingthereconstitution
ofthetrustfund.Andconversely,whereatraditionaltrusthascometoanendforexample,becausethe
beneficiaryisabsolutelyentitledtothepropertyandthetrusteeceasestomanagethefundthesame
consequencesshouldensueaswhereacommercialtrustceasestoexistbecausethecommercialtransactionhas
occurred.
Inthislatterscenario,thedecisioninTargetsuggeststhattheappropriateclaimisforequitablecompensation:the
trusteeshouldcompensatethebeneficiaryforanylosssuffered.Thisisbecausetherenolongerexistsatrustthe
fundofwhichcanbereconstituted.However,thefactthatthereisnolongerpropertyinatrustfundmightnot
necessarilymeanthatthetakingofanaccountshouldbeimpossible.Afterall,itseemssensibleforabeneficiaryto
beabletotakeanaccountofatrustthatpreviouslyexistedinordertoascertainthattherewasnoimpropriety
regardingthemanagementofthetrustfundpastbreachesshouldnotberemediedanydifferentlysimplybecause
thetrusteesnolonger(p.793) havestewardshipoverthefund.Subsequentfalsification(orsurcharge)might,
therefore,ensurethat,ineffect,thetrustwasalwaysadministeredproperly.Thiswillbeexaminedfurtherbelow.69
(c)CompensationforBreachOfTrust
InTarget,LordBrowneWilkinsonsaid:70
Atcommonlawtherearetwoprinciplesfundamentaltotheawardofdamages.First,thatthedefendants
wrongfulactmustcausethedamagecomplainedof.Second,thattheplaintiffistobeputinthesame
positionashewouldhavebeeninifhehadnotsustainedthewrongforwhichheisnowgettinghis
compensationorreparation:LivingstonevRawyardsCoalCo(1880)5AppCas25at39,perLordBlackburn.
Although,aswillappear,inmanywaysequityapproachesliabilityformakinggoodabreachoftrustfroma
differentstartingpoint,inmyjudgmentthosetwoprinciplesareapplicableasmuchinequityasatcommon
law.Underbothsystemsliabilityisfaultbased:thedefendantisonlyliablefortheconsequencesofthelegal
wronghehasdonetotheplaintiffandtomakegoodthedamagecausedbysuchwrong.Heisnot
responsiblefordamagenotcausedbyhiswrongortopaybywayofcompensationmorethantheloss
sufferedfromsuchwrong.
MuchmoreattentionhasbeenpaidtoissuesconcerningcompensationatCommonLawthaninEquity.Comparing
thetwoareas,therefore,seemsintuitiveandsensible.Butcautionshouldbeexercisedifseekingtoassimilatethe
twoareas:importantdifferencesexist.Thesewillbediscussedbelow.
(i)Effectofbreach
InTarget,theHouseofLordsdisagreedwiththeCourtofAppealsconclusionthatwhereatrusteecommitsabreach
ofdutytheclaimforcompensationcrystallizesandcanbequantifiedstraightaway.LordBrowneWilkinson
explainedthat:71
itseemedtoPeterGibsonLJ[1994]1WLR1089at1103obviousthatinsuchacasethereisanimmediate
lossplacingthetrusteeunderanimmediatedutytorestorethemoneystothetrustfund.Themajorityofthe
CourtofAppealthereforeconsideredthatsubsequenteventswhichdiminishedthelossinfactsufferedwere
irrelevant,saveforimposingonthecompensatedbeneficiaryanobligationtogivecreditforanybenefithe
subsequentlyreceived.Ineffect,intheviewoftheCourtofAppealonestopstheclockatthedatethe
moneysarepaidaway:eventswhichoccurbetweenthedateofbreachandthedateoftrialareirrelevantin
assessingthelosssufferedbyreasonofthebreach.
Atrusteewhowronglypaysawaytrustmoney,likeatrusteewhomakesanunauthorisedinvestment,
commitsabreachoftrustandcomesunderanimmediatedutytoremedysuchbreach.Ifimmediate
proceedingsarebrought,thecourtwillmakeanimmediateorderrequiringrestorationtothetrustfundofthe
assetswronglydistributedor,inthecaseofanunauthorisedinvestment,willorderthesaleofthe
unauthorisedinvestmentandthepaymentofcompensationforanylosssuffered.Butthefactthatthereisan
accruedcauseofactionassoonasthebreachiscommitteddoesnotinmyjudgmentmeanthatthe
quantumofthecompensationpayableisultimatelyfixedasatthedatewhenthebreach(p.794) occurred.
Thequantumisfixedatthedateofjudgmentatwhichdate,accordingtothecircumstancesthenpertaining,
thecompensationisassessedatthefigurethennecessarytoputthetrustestateorthebeneficiarybackinto
thepositionitwouldhavebeeninhadtherebeennobreach.Icanseenojustificationforstoppingtheclock
immediatelyinsomecasesbutnotinothers:todosomay,asinthiscase,leadtocompensatingthetrust
estateorthebeneficiaryforalosswhich,onthefactsknownattrial,ithasneversuffered.
Itisentirelyappropriatethattherebenostoppingtheclockuponabreachoftrust.Infact,thisisanimportant
differencebetweenthegeneralapproachadoptedatCommonLaw:damagesatCommonLawaregenerally
assessedatthedateofbreach.72 Moreover,whilstabreachofcontractmaywellterminateacontractualrelationship
betweentheparties,73 abreachoftrustcannotsimplyputanendtothedefendantsroleastrustee.Equityinsists
thatthetrusteeactsasagoodpersonandinthebestinterestsofthebeneficiaries.Sincethetrusteecannotwalk
awayfromthetrust,thereisnoreasontostoptheclockatthedateofbreach.
Thefactthattheclockdoesnotstophastwoveryimportantconsequences.First,itmeansthatthedefendant
continuestoexercisethepowersanddutiesofatrustee.So,inTarget,thismeantthatwhenRedfernslaterreceived
themortgagedocuments,itwasabletoacceptthemonbehalfofandforthebenefitofthebeneficiary,Target.
However,suchananalysissuggeststhatthetrustdidnotsimplyendupontheadvancementofthemortgagemonies
andmaybeinconsistentwithpartsofLordBrowneWilkinsonsanalysis.Secondly,itmeansthatanylossesthat
formthesubjectofaclaimneedtobeassessedatthedateofjudgmentratherthanthedateofbreach.
(ii)Establishingloss
Sincethevalueoftheclaimisassessedatthedateofjudgment,itisatthatpointthattheclaimantmustbeableto
establishloss.Iftheclaimantisunabletoshowanyloss,thenheorshewillnotbeabletorecoverequitable
compensation.AsLordBrowneWilkinsonsaid:74
TheargumentbothbeforetheCourtofAppealandyourLordshipsconcentratedontheequitablerules
establishingtheextentandquantificationofthecompensationpayablebyatrusteewhoisinbreachoftrust.
Inmyjudgmentthisapproachisliabletoleadtothewrongconclusionsinthepresentcasebecauseit
ignoresanearlierandcrucialquestion,viz.,isthetrusteewhohascommittedabreachunderanyliabilityat
alltothebeneficiarycomplainingofthebreach?Therecanbecaseswhere,althoughthereisanundoubted
breachoftrust,thetrusteeisundernoliabilityatalltoabeneficiary.Forexample,ifatrusteecommitsa
breachoftrustwiththeacquiescenceofonebeneficiary,thatbeneficiaryhasnorighttocomplainandan
actionforbreachoftrustbroughtbyhimwouldfailcompletely.Againtheremaybecaseswherethebreach
givesrisetonorighttocompensation.Say,asoftenoccurs,atrusteecommitsajudiciousbreachoftrustby
investinginanunauthorisedinvestmentwhichprovestobeveryprofitabletothetrust.Acarpingbeneficiary
couldinsistthattheunauthorisedinvestmentbesoldandtheproceedsinvestedinauthorisedinvestments:
butthetrusteewouldbeundernoliabilitytopaycompensationeithertothetrustfundortothebeneficiary
becausethebreachhascausednolossto(p.795) thetrustfund.Therefore,ineachcasethefirstquestion
istoaskwhataretherightsofthebeneficiary:onlyifsomerelevantrighthasbeeninfringedsoastogiverise
toalossisitnecessarytoconsidertheextentofthetrusteesliabilitytocompensateforsuchloss.
Thispassageisconsistentwiththeanalysisalreadypresented75 inthecontextofthetakingofanaccount:where
theunauthorizedinvestmenthasnotcausedanyloss,thereisnoreasonforthebeneficiarytocomplainaboutthe
stateofthetrustfund.However,itshouldberememberedthatevenifthebeneficiaryhassufferednoloss,agains
basedremedymaystillbeavailableagainstatrusteewhohaspersonallyprofitedfromabreachofduty.76 Butthe
focusofthepresentdiscussionisuponcompensatoryawards.
(a)Causationandremoteness
InTarget,LordBrowneWilkinsonrecognizedthat:77
thisappealraisesanovelpointontheliabilityofatrusteewhocommitsabreachoftrusttocompensate
beneficiariesforsuchbreach.Isthetrusteeliabletocompensatethebeneficiarynotonlyforlossescaused
bythebreachbutalsoforlosseswhichthebeneficiarywould,inanyevent,havesufferedeveniftherehad
beennosuchbreach?
ThiswasanovelpointinEquity,butnotatCommonLaw.AtCommonLaw,aclaimantcannotgenerallyrecoverfor
lossesthatheorshewouldhavesufferedinanyevent.78 However,inconsideringtheequitablejurisdiction,Lord
BrowneWilkinsonsaid:79
Thedetailedrulesofequityastocausationandthequantificationoflossdiffer,atleastostensibly,fromthose
applicableatcommonlaw.Buttheprinciplesunderlyingbothsystemsarethesame.
Theprinciplesarethesameinthesensethatlossesareonlyrecoverableiftheyflowfromthewrongthathasbeen
committed.So,ifatrusteemakesaninvestmentinbreachoftrustthatfallsinvalue,thatdropinvaluemightbe
recoverable,sinceitarisesfromthebreach,butanylossessufferedthroughanentirelyindependentinvestment
madebythetrusteeinaccordancewithhisorherdutieswillnotberecoverable,becausesuchlosseswouldnotflow
fromanybreachofduty.Somesortofbutforcausationisthereforerequired.InTargetHoldings,LordBrowne
Wilkinsonexplainedthat:80
Eveniftheimmediatecauseofthelossisthedishonestyorfailureofathirdparty,thetrusteeisliableto
makegoodthatlosstothetrustestateif,butforthebreach,suchlosswouldnothaveoccurredThusthe
commonlawrulesofremotenessofdamageandcausationdonotapply.Howevertheredoeshavetobe
somecausalconnectionbetweenthebreachoftrustandthelosstothetrustestateforwhichcompensation
isrecoverable,viz.thefactthatthelosswouldnothaveoccurredbutforthebreach:seealsoReMillersDeed
Trusts[1978]LSGazR454NestlvNationalWestminsterBank Plc[1993]1WLR1260.
(p.796) JustasatCommonLaw,theonusisontheclaimanttoproveacausallinktotheloss.Butonsimilarfacts
toTarget,forexample,aCommonLawclaiminnegligencewouldnothaveprovidedreliefforthefallintheproperty
market,becausethiswasbeyondthescopeofthedutyowedbythedefendant.81 However,amoreflexibleapproach
inEquitymayhaveallowedtheclaimantstorecoverforthefallinvalueoftheproperty:remotenessconsiderations
donotaffectfalsification.82 Thisis,infact,consistentwiththeCommonLawapproachtofraud,inwhichallthe
lossesflowingdirectlyfromthefraudarerecoverable.83
TheapproachadoptedbyLordBrowneWilkinsoninTargethasbeennotablycriticizedbyLordMillett,who
commentedthatLordBrowneWilkinson:84
proceedstospeakexclusivelyintermsofcausation,introducingthebutfortestwhileatthesametime
rejectingothertestsofcausationandremotenessofdamagewhichhavebeenadoptedbythecommonlaw.
Thisfailstoexplainwhythetrusteesliabilityisstrict,orwhyequityshouldnotadoptthecommonlawrules
ofcausationandremotenessintoto.
Indeed,wherethetrusteehasbreachedanonfiduciarydutyofcareandtheclaimantsseektorecoverlossesflowing
fromthebreach,itdoesseemsensibletoadopttheCommonLawrulesoncausationandremotenessintheir
entirety.However,thedistinctionaboveinthecontextofthetakingofanaccountshouldbeborneinmind:wherethe
beneficiaryseekstoenforcetheperformanceofthetrusteesprimarydutiesthroughfalsification,issuesof
remotenesssimplydonotarisebutremotenessisrelevanttoclaimsforsurcharge.85
(b)Mitigationandcontributoryfault
IfcompensationinEquityweretooperatealongsimilarlinestocompensationatCommonLaw,thenitmightbe
expectedthattheclaimantsfailuretoactreasonablyinmitigatinghisorherlossesshouldreducetheamountthe
claimantcouldrecover.Moreover,iftheclaimantwasatfaultincausinghisorherownloss,thenthetrusteemight
haveadefenceofcontributorynegligence.YethereagainEquitydiffersfromtheCommonLaw.Forexample,in
CorporacinNacionaldelCobredeChilevSogeminMetalsLtd,86 CarnwathJsaid:
AlsoofassistanceinthiscontextisthedecisionoftheCanadianSupremeCourtinCansonEnterprisesLtd.
vBoughton&Co.(1991)85DLR(4th)129.ThejudgmentofMcLachlinJ.inthatcasewascitedwithapproval
byLordBrowneWilkinsoninTargetHoldingsLtd.vRedferns[1996]AC421.McLachlinJ.wentontosay,
atpp.161162:
Thethrustofthesedictaisthatwhiletheplaintiffwillnotberequiredtoactinasreasonableand
prudentamannerasmightberequiredinnegligenceorcontract,lossesstemmingfromtheplaintiffs
unreasonableactionswillbebarred.Thisisalsosoundpolicyinthelawoffiduciaryduty.Innegligence
andcontractthelawlimitstheactionsofthepartieswhoareexpectedtopursuetheirownbest
interest.Eachisexpectedtocontinuetolookaftertheirowninterests(p.797) afterabreachoftort,
andsoadutyofmitigationisimposed.Incontrast,thehallmarkoffiduciaryrelationshipisthatthe
fiduciary,atleastwithinacertainscope,isexpectedtopursuethebestinterestoftheclient.Itmay
notbefairtoallowthefiduciarytocomplainwhentheclientfailsforthwithtoshoulderthefiduciarys
burden.Thisapproachtomitigationaccordswiththebasicruleofequitablecompensationthatthe
injuredpartywillbereimbursedforalllossesflowingdirectlyfromabreach.Whenaplaintiff,afterdue
noticeandopportunity,failstotakethemostobviousstepstoalleviatehisorherlosses,thenwemay
rightlysaythattheplaintiffhasbeentheauthorofhisownmisfortune.Atthispointtheplaintiffs
failuretomitigatemaybecomesoegregiousthatitisnolongersensibletosaythatthelosseswhich
followedwerecausedbythefiduciarysbreach.Butuntilthatpoint,mitigationwillnotberequired.
Thisseemssensible.Beneficiariesunderatrustdonotexpecttohavetoprotectthemselvesagainstbreachoftrust,
andnorshouldthey.AnycontraryapproachwouldbeinconsistentwithEquitysinsistencethatthetrusteesactas
goodpersons.So,unlesstheactsofthebeneficiariesaresoextremethattheycanbesaidtobethecauseofthe
losssuffered,thetrusteeshouldnotbeabletousethebeneficiarysconductasadefencetoreducehisorher
liability.Thisthresholdseemstobeveryhigh:inMagnusvQueenslandNationalBank ,87 itwasheldthatatrustee
bankwasliablewhereithadpaidmoneytothewrongperson,eventhoughthebeneficiarieswereawareofthisand
hadnottakenstepstorecoveritfromtherecipient.88 Thisfailuretointervenedidnotbreakthechainofcausation.
Suchanapproachmay,admittedly,sometimesseemsomewhatharshonatrustee,butitshouldberemembered
thatthereisastronginterestintrusteesbeingheldtoaveryhighstandard,andifthetrusteehasactedhonestly
andreasonablythecourtmightexcusehisorherliabilityifitwouldbefairtodoso.89
(d)ExplainingtargetHoldings
TheprecedingdiscussionhighlightstheapproachadoptedbyLordBrowneWilkinsonandtheHouseofLordsin
TargetHoldings.Theratioofthedecisionisnoteasytoestablish,butappearstobethatwhereabarecommercial
trusthasterminatedasaresultoftheunderlyingcommercialtransactionbeingcompleted,thetrusteewillbeliable
tocompensatetheformerbeneficiaryonlyifitcanbeshownthat,butforthebreachoftrust,anylosswouldnothave
beensuffered.Thisissomewhatnarrow,andisnotsatisfactorytomany.Thedecisionhasraisedanumberof
issues,andvariousexplanationsofthecasehavebeenprovided.
(i)Fusion
OnepossibilityisthatthedecisioninTargethaspavedthewayforgreaterconsistencybetweentheCommonLaw
andEquity,sincethesamecompensatorygoalsandprinciplesunderpineach.Forexample,Rickett90 hopedthat
thedecision:
maywellheraldagreaterprominenceinEnglishlawfortheremedyofequitablecompensation.
Itshouldoccasionnosurprisethat,onceatrulycompensatoryapproachisadoptedandthatapproachis
appliedtobreachesofnontraditionaltrusts(andotherformsofequitableobligations),issuesofcausation,
remotenessandforeseeabilitycometothefore.Tortlaw,withitsgreaterlearningonthese(p.798) matters,
isatemptingmodel.ThishasbeentheexperienceofAustralia,NewZealandandCanada.IfEnglandfollows
thetrend,andthegiantofequitablecompensationdoesmorethanturnoverinbed,thesamewillsurelybe
theresult.TargetHoldingsisasignthatthatmaywellhappen,althoughthecontroversialnatureofthematter
inEnglandmayslowthejourney.
However,althoughdifferencesbetweentheCommonLawandEquityshouldonlyexistwherejustifiable,andthere
mightbesomescopeforEquitysfollowingtheleadoftheCommonLawintheremedialsphere,91 anyassimilation
toprovideasinglesystemseemsdifficulttoachieve.AsLordMilletthaspointedout:92
Ifatrusteeorfiduciaryhascommittedabreachoftrustorfiduciaryduty,Equitymakeshimaccountasifhe
hadnotdonesoThisisaradicallydifferentapproach[totheCommonLaw]indeeditistheconverse
approach.Itdoesnottreatthedefendantasawrongdoeritdisregardshiswrongdoing,makeshimaccount
asifhehasactedproperlythroughout,anddoesnotpermithimtodenythathehasdoneso.
Admittedly,thisapproachofLordMillettmightbearmoreofthehallmarksofhisownapproach,examinedbelow,93
ratherthanthatofLordBrowneWilkinsoninTarget,butthedifferencesregardingcausation,remoteness,mitigation,
andcontributorynegligencehighlightedabovemaywellbejustifiableandarenottobeeliminatedlightly.Anyfusion
inthisareamightnecessarilybepartialatbest.
However,whereatrusteedoeshavetopaymoneytomakeupforalosscausedbyhisorherbreachofduty,
continuingtoemploydifferentlabelsatCommonLawandEquityseemslessobvious.Nevertheless,LordMilletthas
said:94
Itismisleadingtospeakofbreachoftrustasifitweretheequitablecounterpartofbreachofcontractat
commonlawortospeakofequitablecompensationforbreachoffiduciarydutyasifitwerecommonlaw
damagesmasqueradingunderafancyname.Fortyyearsago,theChanceryJudgesboredownheavilyon
suchsolecisms.WoebetideaChanceryJuniorwhospokeofdamagesforbreachoftrustordamagesfor
breachoffiduciaryduty.Thejudgesknewthatmisuseoflanguageoftenconcealsaconfusionofthought.
Nowadaysthesemisleadingexpressionsareincommonuse.Itistimethattheusagewasstampedout.
Butitisnotatallclearwhydamagesisaninappropriatelabel,especiallyifdamagesisunderstoodtomeana
monetaryremedyawardedinresponsetoawrong,andnottocarryanyadditionalbaggageparticulartoone
jurisdictionoranother.AsEdelmanandElliotthaveputit:95
weshouldcallaspadeaspadeWheretheclaimisoneseekingthereparationoflossbyapaymentof
money,itisoneseekingcompensatorydamagesirrespectiveofitsjurisdictionalprovenance.Thatlanguage
shouldbeused.
(p.799) (ii)Equitablecompensation
EdelmanandElliottsinsistenceuponaconsistentuseofdamagesisappropriate.However,theywouldnot
considerTargettobeanexampleofcompensatorydamages,sinceitwasnotaninstanceofreparative
compensation(orsurcharge)butrathersubstitutivecompensation(orfalsification).96 Isthereanymeritinkeeping
thesetwotypesofcompensationdistinct,orwouldthelawbebetterservedbyamalgamatingthetwo?
Slidingtowardsasingleconceptofequitablecompensationseemsunsatisfactory:asillustratedabove,97
substitutivecompensationandreparativecompensationdonotfunctioninthesameway.Moreover,althoughLord
BrowneWilkinsoncitedthedecisionoftheSupremeCourtofCanadainCansonEnterprisesLtdvBoughtonand
Co.98 insupportofasingleconceptofequitablecompensation,thismayhavebeenbaseduponamisreadingof
Canson.EdelmanandElliott99 haveshownthat:
boththemajorityandconcurringjudgesinCansonEnterprisesbeganwiththeideathatequitable
compensationinacaseofmisappliedtrustpropertyissubstitutiveinnature,butdifferedintheir
characterisationofequitablecompensationinacasethatdoesnotinvolvetrustproperty.Itisforthisreason
anironyofLordBrowneWilkinsonsspeechinTargetHoldingsLtdvRedfernsthathetookCanson
Enterprisesashisauthorityforthepropositionthatequitablecompensationinacaseofmisappliedtrust
propertyisreparativeinnature.
SopartofthebasisuponwhichLordBrowneWilkinsonjustifiedhisreasoningseemsshaky.Butthatdoesnotin
itselfmeanthatequitablecompensationshouldbejettisoned.However,giventheimportantdifferencesbetweenthe
twoforms,thelabelequitablecompensationmightbebestavoidedasanallencompassingterm,sinceit:
hasbeenthesourceofconsiderabletroublebecause[it]elide[s]ideasthatclearthinkingrequiresbekept
apart.Judgesandcommentatorsslidebackandforthbetweenusingthewordcompensationinitsreparative
andsubstitutivesensesTheresultisaconfusionofideas.100
Itissuggestedthatthetermequitablecompensationmightbebestemployedinsituationswhereitisnotpossible
totakeanaccountforexample,asaresultofabreachoffiduciarydutywherethefiduciaryisnotastewardofany
property.101
(iii)Account
WhichtypeofcompensationwasatissueinTarget?Thetrusteehadpaidmoneyoutofthetrustfundinbreachof
trust,sosubstitutivecompensationwasappropriate.Thiscanreadilybeobtainedthroughfalsificationoftheaccount.
Thereissimplynoneedtoinvoketroubledconceptssuchasequitablecompensation.
(p.800) ThisappearstohavebeenrecognizedbythemajorityoftheCourtofAppealinTarget.Forexample,Peter
GibsonLJsaid:102
Itisnotindisputeorindoubtthattheobligationofatrusteewhocommitsabreachoftrustistoaccountfor
andrestoretothetrustfundthatwhichhastherebybeenlosttoit.Theremedyaffordedtothebeneficiaryby
equityiscompensationintheformofrestitutionofthatwhichhasbeenlosttothetrustestate,notdamages.
However,themajorityoftheCourtofAppealusedthisapproachtojustifythebeneficiarysrecoveringover1million,
becauseitdecidedthatthevalueoftheclaimcrystallizedatthedateofbreach.Ithasbeenseenthatthiswas
incorrect,andthatthevalueofaclaimshouldonlybeassessedatthedateofjudgment.103 Atthislaterdate,it
couldnotbeestablishedthatanylosshadarisenfromthebreach.Thetakingofanaccountmaythereforestill
provideanentirelysatisfactoryroutetotheresultachievedbytheHouseofLordsinTarget.AsLordMilletthas
explainedsubsequently:104
Thesolicitorheldtheplaintiffsmoneyintrustfortheplaintiffbutwithitsauthoritytolayitoutinexchangefor
anexecutedmortgageandthedocumentsoftitle.Hepaiditawaywithoutobtainingthesedocuments.This
wasanunauthorisedapplicationoftrustmoneywhichentitledtheplaintifftofalsifytheaccount.The
disbursementmustbedisallowedandthesolicitortreatedasaccountableasifthemoneywerestillinhis
clientaccountandavailabletobelaidoutinthemannerdirected.Itwaslatersolaidout.Theplaintiffcould
notobjecttotheacquisitionofthemortgageorthedisbursementbywhichitwasobtaineditwasan
authorisedapplicationofwhatmustbetreatedastrustmoneynotionallyrestoredtothetrustestateonthe
takingoftheaccount.Toputthepointanotherwaythetrusteesobligationtorestorethetrustpropertyisnot
anobligationtorestoreitintheveryforminwhichhedisbursedit,butanobligationtorestoreitinanyform
authorisedbythetrust.
Thisanalysisisbothimportantandconvincing.Giventhattherewasnostoppingoftheclock,Redfernscontinuedto
beabletoactonbehalfofTarget.So,whenRedfernsreceivedthemortgagedocuments,itdidsoforthebenefitof
Targetasbeneficiaryofthetrust.ThismeantthatwhenTargetlatercametotakeanaccount,therewasnothingthat
couldmeaningfullybefalsified:atthedateofjudgment,theaccountshowedthetrustfundtobeinitsintended
position.Thisisbecausethefundwouldbeexpectedtocontaineitherthemoneytobeloaned,orthemortgage
documents.TargethadauthorizedRedfernstoholdeither.TargethadnoclaimagainstRedferns,becausethelatter
hadalreadylegitimatelyrestoredthetrustfundtoitsappropriateposition,and,sinceTargethadnotrevokedits
instructions,itcouldnotdemandthatthetrustcompriseofthemoneyitselfratherthanthemortgagedocuments.
ThisreasoningistobepreferredtoalternativeexplanationsofTarget:itisconsistentwiththeorthodoxapproachto
thetakingofanaccountandprovidesanintuitivelysatisfactoryresult.However,EdelmanhascriticizedsomeofLord
Millettsanalysis:105
LordMillettsrationalisationisnotasatisfactorybasisforjustifyingtheresultinTargetHoldingsonequitys
traditionalapproach.Thetrustmoneywaspaidoutinanunauthorisedmanner.Whenthemortgagewaslater
acquiredthisdidnotretrospectivelyturnanunauthorisedapplicationoffundsinto(p.801) anauthorisedone.
Atleast,itcouldnotdosowithoutratificationorwaiverbyTargetHoldings.ThemomentRedfernspaidout
themoneywithouthavingfirstobtainedthemortgagetheycameunderadutytoreimbursethetrustfund.
Whentheylaterobtainedthemortgage,TargetHoldingscouldhaverefusedtoacceptthemortgage.Any
explanationoftheresultinTargetneedstoacknowledgethattheunauthorisedtransactionhadnotbeen
immediatelycured.
However,itissuggestedthatsuchcriticismisinsufficienttoundermineLordMillettsreasoning.Edelmanfocuses
onlyontheinitialdisbursementofthemoneyinbreachofduty,andnotonthesubsequentreceiptofthemortgage
documentsforwhichthetrusteestillhadauthority.AsConaglenhasexplainedindefenceofLordMilletts
explanationforTarget,andinresponsetoEdelmansobjections:106
Theoriginaldisbursementwasunauthorisedwhenitwasmade,andremainedsowhenthepartiescameto
court.Thepointisnotthatthedisbursementwaseverauthorised,butratherthatthetrusteesconduct
subsequenttothatunauthoriseddisbursementwasitselfauthorisedandthereforeneededtobereflectedin
theaccounts.Thetrustaccountsareanaccountofthetrusteesstewardshipoftheentirefund,ratherthan
thetaleofaspecificbreachoftrust.Theearlierdisbursementoffundswithoutreceiptofthemortgage
documentscouldstillbefalsifiedwhentheaccountsweretaken,becauseitwasmadewithoutauthority.But
theimportantpointisthatthereceiptofthemortgagechargescouldnotbefalsifiedunlessittoowasmade
withoutauthority,whichwasnotthecaseinTargetHoldings.Further,therewasnobasisonwhichthe
beneficiarycouldexpectthetrusteetoreceivethemortgageswithoutreleasingthemortgagefundstothe
mortgagor.Thus,ifthereceiptofthemortgagescouldnotbefalsified,thenthetrustbeneficiarieswouldhave
toacceptthetrustaccountsbeingdrawnasifthemortgagefundshadbeenreleasedtothemortgagoratthe
timewhenthemortgageswerereceived.
Thustheinitialdisbursementwasneveranythingotherthanunauthorized,butitseffectwasneutralizedbythe
subsequent,authorizedreceiptofthemortgagecertificates.
Nevertheless,favouringtheapproachofLordMillettdoesnotnecessarilymeanthatotherinterpretationsmightnot
leadtothesameresult.Forexample,assuggestedintheshortextractgivenabove,Edelmanhasarguedthat
waivermightexplaintheresultinTarget.ItmaybethatTargetwaiveditsstrictrightsagainstRedferns,andwas
therebypreventedfromlaterchangingitsmindandseekingsubstantialrelief.However,thisexplanationwasnot
raisedbytheHouseofLordsinthecaseitself,anditisunclearwhetherTargetreallywaiveditsrightsonceitknew
ofthebreachoftrust.107 Nevertheless,itiscertainlyappropriatetoconsiderwaiverwhereveritarises.
(iv)Thewayahead:movingonfromTargetHoldings
Givensomeofthedifficultiesinherentinasweepingconceptofequitablecompensation,thepreferablecourseto
adoptwouldbethatexplainedbyLordMilletttheresultinTargetcanbeseenasanexampleoftheorthodox,
traditionaltakingofanaccount.Theaccountwasinanappropriatestateatthedateofjudgment.Thisexplainswhy
Targetsclaimfailed.
(p.802) However,thereisclearlysometensionbetweenthisapproachandthemorenovelapproach,basedupon
causation,whichwastakenbytheHouseofLordsinthecaseitself.Itmaybethatsubsequentcourtswouldbe
receptivetofurtherargumentconcerningthetruebasisofthedecisioninTarget.108 Thismightbeparticularly
appropriatesincetheHighCourtofAustraliainYouyangrejectedtheneedtoidentifyacompensableloss.109 As
outlinedabove,110 YouyangconcernedsimilarfactstoTarget,buttheAustraliancourteffectivelyconsideredthecase
tobeoneofsubstitutivereparation,orfalsification,andnotreparativecompensation,orsurcharge,comparabletothe
CommonLawdoctrines.Thisseemssensible.AlthoughtheHighCourtinYouyangactuallyreachedtheopposite
resulttothatinTarget,thiscaneasilybeexplained,sincethetrusteeinYouyangneverreceivedthesecurityin
returnforwhichthemoneywassupposedtobereleased.Asaresult,theclaimantbeneficiarycouldsucceedin
falsifyingtheunauthorizeddisbursement.Commentinguponthedecision,EdelmanandElliotthaveremarked
that:111
theonlyrelevantlossistheliterallossofthepropertythatoccurredwhenitpassedintounauthorisedhands
andcausationoflossisonlyappositeinsofarasitestablishesthetrusteesresponsibilityforthatdisposition
(TargetHoldingsLtdvRedferns[1994]1W.L.R.1089atp.1102perPeterGibsonL.J.PellysCase(1882)21
Ch.D.492atp.506perBrettL.J.).Remotenessandmitigationoflossdonotfitwiththisconcept.Indeed,the
termlossmaybebetteravoidedaltogetherinthisconnection.
4.SetOff
Uponthetakingofanaccountthebeneficiarymightbeabletofalsifyorsurchargeandtherebydemandthatthe
trusteepaymoneytothetrustfund.However,thetrusteemayseektorelyupongainsmadethroughanother
investmententeredintoonbehalfofthetrustinordertoreducetheamountheorshehastopay.Whetherornotthe
trusteeisabletosetoffsuchgainsagainstlossessufferedhasraisedsomedifficultissues.
Thereislongstandingauthoritythatthereisnorighttosetoffwherethegainsmadeareentirelydistinctfromthe
lossescaused.Forexample,inDimesvScott,112 atestator,whodiedin1802,lefthisestateupontrustforhis
widowforherlife,andafterherdeathupontrustfortheclaimant.TheestateincludedaninvestmentinanEastIndia
Companyloanbearinginterestat10percent.Theretentionofthisinvestmentwasnotauthorizedbythewill.Instead
ofsellingthisunauthorizedinvestmentwithinayearofthetestatorsdeath,thetrusteesretainedit,andpaidthe
wholeincometothewidow.Thiswasabreachoftrust.However,in1813theloanwasrepaid,andtheproceedswere
investedinConsolswithayieldof3percent.ThepriceofConsolswaslowerthanithadbeenayearafterthe
testatorsdeath,andthetrusteeswereabletopurchasemoreConsolsthantheywouldhavebeenabletopurchase
iftheyhadmadetheswitchayearafterthetestatorsdeath.
LordLyndhurstLCheldthatthetrusteeswereliableforbreachoftrustinpayingthewholeincometothewidow,and
thattheycouldnotsetoffagainstthatliabilitytheextraConsols,whichthedelayhadenabledthemtopurchase.
(p.803) DimesvScott[1828]4Russ195(LordLyndhurstLC)
Thistestatorlefthispropertytotrustees,whoweredirectedtoconvertitintomoney,andtoinvestthe
proceedsingovernmentorrealsecuritiesandhegavetheinterestofthemoneysotobeinvestedtohis
widowforlife,withremaindertotheladywhoisoneofthepresentPlaintiffs.Partofhisproperty
consistedofasumwhichhehadsubscribedtowhatiscalledthedecennialloan.Thetrusteesdidnot
converthisshareofthisloanintomoneybut,sufferingittoremainastheyfoundit,paidtheinterest,
whichwas10percent,tothetenantforlife.Wasthataproperperformanceoftheirduty?
Thedirectionsofthewillweremostdistinctand,accordingtothecaseofHowevLordDartmouth(1802)
7Ves137andtheprinciplesofthisCourt,itwasthedutyofthetrusteestohavesoldthepropertywithin
theusualperiodafterthetestatorsdeath.
Iftheyneglectedtosellit,still,sofarasregardedthetenantforlife,thepropertywastobeconsideredas
ifithadbeendulyconverted.Hadtheconversiontakenplace,andtheproceedsbeeninvestedinthat
whichisconsideredinthisCourtasthefitandpropersecurity,namely,3percentstock,thetenantfor
lifewouldnothavebeenentitledtomorethantheinterestwhichwouldhaveresultedfromsuchstock.
Theexecutoristhereforechargeablewiththedifferencebetweentheinterestwhichthefund,ifso
converted,wouldhaveyielded,andthe10percentwhichwasactuallyproducedbythefund,andwas
paidoverbyhimtothetenantforlife.
Itissaid,that,ifthesubscriptiontothedecennialloanhadbeensold,andtheproduceinvestedinstock
attheendofayearfromthetestatorsdeath,thesalewouldhavebeenmuchlessadvantageoustothe
estatethanthecoursewhichhasbeenactuallyfollowedandthat,iftheexecutoristobechargedfornot
havingmadetheconversionatthepropertime,heoughtontheotherhand,tohavethebenefitofthe
advantagewhichhasaccruedfromhiscourseofconduct.Theansweristhis:withrespecttotheprincipal
sum,atwhateverperiodthesubscriptiontothedecennialloanwassold,theestatemusthavethewhole
amountofthestockthatwasboughtandifitwassoldatalaterperiodthantherulesoftheCourt
require,theexecutorisnotentitledtoanyaccidentaladvantagethencearising.Astothepaymentsto
thetenantforlife,theexecutorsareentitledtohavecreditonlyforsumsIhaveadvertedto,namely,the
dividendsonsomuch3percentstockaswouldhavebeenpurchasedwiththeproceedsofthe
subscriptiontothedecennialloan,iftheconversionhadtakenplaceatthepropertime.Ontheother
hand,heischargeablewiththewholeofthedifferencebetweentheamountofthosedividendsandthe
amountofthesumswhichhavebeenreceivedinrespectofinterestonthemoneywhichwascontinued
inthedecennialloan.Ithink,therefore,thatthejudgmentoftheMasteroftheRollsmustbeaffirmed.
Where,however,againismadeandalosssufferedinthecourseofthesametransaction,thegaincanbesetoff
againsttheloss.So,inFletchervGreen,113 trusteesmadeasecuredloantoafirmofwhichoneofthetrusteeswas
apartner.Thesecuritywassoldataloss,andtheproceedswerepaidintocourtandinvestedinsharesthat
increasedinvalue.Itwasheldthatthisgaincouldbesetoffagainstthelosssufferedfromthesaleofthesecurity,
presumablybecausethisallformedpartofthesametransaction.
Itmaysometimesbedifficulttoidentifywhetherthegainandlossarisefromonesingleortwodistincttransactions.
AhelpfulexampleisBartlettvBarclaysBank TrustCo.Ltd(Nos1and2).114 Thetrusteewasabankthathadfailed
tooverseetheactionsofacompanyinwhichthetrustheldamajorityoftheshares.Thedirectorsofthatcompany
investedintwobuildingdevelopments,oneofwhich,inGuildford,wasprofitable,buttheother,aroundtheOldBailey
inLondon,causedahugelossto(p.804) thecompany.BrightmanJallowedthegainsmadefromtheGuildford
projecttobesetoffagainstthelossessufferedthroughtheOldBaileyprojectandsaid:115
Thegeneralruleasstatedinallthetextbooks,withsomereservations,isthatwhereatrusteeisliablein
respectofdistinctbreachesoftrust,oneofwhichhasresultedinalossandtheotherinagain,heisnot
entitledtosetoffthegainagainsttheloss,unlesstheyariseinthesametransaction.Therelevantcasesare,
however,notaltogethereasytoreconcile.Allarecentenariansandnoneisquitelikethepresent.The
Guildforddevelopmentstemmedfromexactlythesamepolicyand(toalesserdegreebecauseitproceeded
lessfar)exemplifiedthesamefollyastheOldBaileyproject.Partoftheprofitwasinfactusedtofinancethe
OldBaileydisaster.Bysheerluckthegamblepaidoffhandsomely,oncapitalaccount.Ithinkitwouldbe
unjusttodeprivethebankofthiselementofsalvageinthecourseofassessingthecostoftheshipwreck.My
orderwillthereforereflectthebanksrighttoanappropriatesetoff.
Thetwoprojectsmayatfirstappeartobedistinct,butinfacttheycanbeconsideredtobepartofasinglebreachof
failingtosupervisespeculativepropertydevelopments.Thesamebreachresultedinbothprojects,soitwasonlyfair
tosetthegainsofoneoffagainstthelossesoftheother.
Twoprincipalreasonsareinvokedtojustifythegeneralrulethatgainscannotbesetoffagainstlosses.First,
trusteesshouldnotbeallowedtobenefitfromthegoodluckthatagainmightcounteractaloss:otherwise,trustees
mightbetemptedtospeculateinriskyinvestmentsinordertoseekfuturegainstooffsetanylosses,andthe
principlethatweexpectthehigheststandardsfromtrusteesmaybeundermined.Secondly,andmoreconvincingly,
thegeneralruleseemslogicalasamatterofcausation.Wherethegainandthelossarisefromthesame
transaction,theycanbeconsideredtobecausallyconnectedtoasinglebreach,andsoitisappropriatetosetoff
thegainagainsttheloss.Butwherethelossandgainarisefromtwodistinctdecisionsmadebythetrustee,they
cannotbeconsideredtobecausallyconnectedtothesamebreachoftrust,andsonorighttosetoffshouldexist.
5.Interest
Itisclearthatthedefendanttrusteemayhavetopayinterestonanymoneyawardmadeagainsthimorher.116 The
reasonsforthepaymentofinterestwereidentifiedbyLordCranworthinAttorneyGeneralvAlford:117
WhattheCourtoughttodo,Ithink,istochargehimonlywiththeinterestwhichhehasreceived,orwhichit
isjustlyentitledtosayheoughttohavereceived,orwhichitissofairlytobepresumedthathedidreceive
thatheisestoppedfromsayingthathedidnotreceiveit.
ThefirsttwosituationsidentifiedbyLordCranwortheffectivelymeanthatdefendantshavetogiveupanygainsthey
made,oroughttohavemade,fromthebreachofduty.Thethirdsituation,ontheotherhandmaybeseenas
compensatory.AsElliotthasexplained:118
(p.805) Trusteesandcertainotherfiduciariesareoftenrequiredtoinvestthemoneyproductively,andifthey
failtodosothentheymaybechargedwiththeinterestthefundwouldhaveearnediftheyhaddonetheir
duty.Interestofthisthirdtypeisgivenbywayofcompensation.
InAlforditself,thecourtheldthatinterestshouldbechargedattheordinary,simplerate.Judgeshaveadiscretionto
awardsimpleinterestbyvirtueoftheSupremeCourtAct1981,section35A.Butthereisalsoanequitable
jurisdictiontoawardcompoundinterest.
WestdeutscheLandesbankGirozentralevIslingtonLondonBoroughCouncil[1996]AC
669(LordGoff)
Incasesofmisconductwhichbenefitstheexecutor,however,thecourtmayfairlyinferthatheusedthe
moneyinspeculation,andmay,ontheprincipleinodiumspoliatorisomniapraesumuntur,119 assume
thathemadeahigherrate,ifthatwasareasonableconclusion.
LikewiseinBurdick vGarrick (1870)5ChApp233,whereafiduciaryagentheldmoneyofhisprincipal

andsimplypaiditintohisbankaccount,itwasheldthatheshouldbechargedwithsimpleinterestonly.
LordHatherleyLC,at241242,appliedtheprinciplelaiddowninAGvAlford,namelythat:
thecourtdoesnotproceedagainstanaccountingpartybywayofpunishinghimformakinguse
oftheplaintiffsmoneybydirectingrests,orpaymentofcompoundinterest,butproceedsupon
thisprinciple,eitherthathehasmade,orhasputhimselfinsuchapositionthatheistobe
presumedtohavemade,5percent,orcompoundinterest,asthecasemaybe.Ifthecourtfinds
thatthemoneyreceivedhasbeeninvestedinanordinarytrade,thewholecourseofdecision
hastendedtothis,thatthecourtpresumesthatthepartyagainstwhomreliefissoughthasmade
thatamountofprofitwhichpersonsordinarilydomakeintrade,andinthosecasesthecourt
directsreststobemade.
Foramorerecentcaseinwhichtheequitablejurisdictionwasinvoked,seeWallersteinervMoir(No2)
[1975]QB373.
Fromthesecasesitcanbeseenthatcompoundinterestmaybeawardedincaseswherethedefendant
haswrongfullyprofited,ormaybepresumedtohavesoprofited,fromhavingtheuseofanotherpersons
money.Thepowertoawardcompoundinterestisthereforeavailabletoachievejusticeinalimitedareaof
whatisnowseenasthelawofrestitution,viz.wherethedefendanthasacquiredabenefitthroughhis
wrongfulact.
Compoundinterestdiffersfromsimpleinterestsinceitiscalculatednotonlywithreferencetothesumowedbythe
defendant,butalsowithreferencetotheinterestthathasalreadyaccrued.Asaresult,compoundinterestwill
increasethevalueoftheremedyaffordedtotheclaimant.Itisimportanttonotethat,sincethedecisionoftheHouse
ofLordsinSempraMetalsvIRC,120 compoundinterestisnowgenerallyavailableregardlessofwhethertheclaimis
broughtinEquityoratCommonLaw.Compoundinterestmayoftenbeappropriatewheretheclaimantwouldhave
earnedinterestonalreadyaccruedinteresthadthemoneybeenintheclaimantsaccountfromtheoutset.
However,astheabovepassagefromWestdeutscheindicates,compoundinterestwillnotbeawardedsimplyto
punishadefendant.Nevertheless,therecanbelittledoubtthat,inpractice,theconductofthedefendantmaywell
influencethecourtwhendecidingwhetherornottoawardcompoundinterest.Infact,notawardingcompound
interestmayactuallyallowadefendanttoprofitfromhisorher(p.806) wrong,sointerestawardsmayhavea
disgorgement,ratherthanapenal,function.Certainly,wherethedefendantisinbusinessandwouldbeexpectedto
investmoneyandactuallytomakeuseoftheinterestaccruing,compoundinterestwillgenerallybeawarded.For
example,inWallersteinervMoir(No.2),121 thedefendantwasacompanydirectorandinternationalfinancierwho
wasshowntohaveimproperlyusedcompanyfundsforhisownbenefitinbreachoffiduciaryduty.Hewasheldliable
122
topaycompoundinterestattherateof1percentovertheminimumlendingrate.ScarmanLJsaid:122
Dr.Wallersteinerwasatallmaterialtimesengagedinthebusinessoffinance.Throughacomplexstructureof
companiesheconductedfinancialoperationswithaviewtoprofit.Thequartermillionpoundsassistance
whichheobtainedfromthetwocompaniesinordertofinancetheacquisitionofthesharesmeantthathewas
inapositiontoemploythemoneyoritscapitalequivalentinthoseoperations.Thoughthetruthisunlikely
evertobefullyknown,shroudedasitisbytheelaboratecorporatestructurewithinwhichDr.Wallersteiner
chosetooperate,onemaysafelypresumethattheuseofthemoney(orthecapitalitenabledhimtoacquire)
wasworthtohimtheequivalentofcompoundinterestatcommercialrateswithyearlyrests,ifnotmore.I,
therefore,agreethatheshouldbeorderedtopaycompoundinterestattherates,andwiththerests,
proposedbyLordDenningMRandBuckleyLJ.
Thecourtsalsoenjoysomediscretionregardingtherateatwhichinterestistobeawarded.InBartlettvBarclays
Bank TrustCo.Ltd(No.2),BrightmanLJsaid:123
Inmyjudgment,aproperrateofinteresttobeawarded,intheabsenceofspecialcircumstances,to
compensatebeneficiariesandtrustfundsfornonreceiptfromatrusteeofmoneythatoughttohavebeen
receivedisthatallowedfromtimetotimeonthecourtsshortterminvestmentaccount,establishedunder
section6(1)oftheAdministrationofJusticeAct1965.124 Tosomeextentthehighinterestratespayableon
moneylentreflectandcompensateforthecontinualerosioninthevalueofmoneybyreasonofgalloping
inflation.Itseemstomearguable,therefore,thatifahighrateofinterestispayableinsuchcircumstances,a
proportionofthatinterestshouldbeaddedtocapitalinordertohelpmaintainthevalueofthecorpusofthe
trustestate.Itmaybe,therefore,thattherewillhavetobesomeadjustmentasbetweenlifetenantand
remaindermen.IdonotdecidethispointandIexpressnoviewuponit.
6.GainBasedRemedies
Mosttrusteeswillowefiduciaryduties.125 Significantly,thismeansthatatrusteemayhavetodisgorgeanyprofits
heorshemakesfromabreachoffiduciaryduty.TheremedyofanaccountofprofitswasdiscussedinChapter
14.126 Itdetersfiduciariesfrombreachingtheirobligations,andoperatestoensurethattheycannotprofitfromtheir
breach.Indeed,whereatrusteebreachesanonfiduciaryduty,heorsheshouldstillhavetogiveupanygainsmade
fromhisorherbreachofduty:127 atrusteeisalwaystoactinthebestinterestsofthetrust,soitshouldbe
assumedthatanyprofitsflowingfromthebreachofdutyaremadeforthebenefitofthetrust.However,thetrusts
losswilloftencorrespond(p.807) tothetrusteesgain,sothechoicebetweentheappropriatemeasureofthe
remedyisunlikelyoftentobesignificant.Nevertheless,theclaimantshouldnotbeabletorecoverforboththetrusts
lossandthetrusteesgainwherethiswouldleadtodoublerecovery.128
7.PunitiveAwards
Anaccountofprofitsmightdeteratrusteefrombreachinghisorherobligations:ifthetrusteehastogiveupany
gainsheorshemightmaketothebeneficiary,thenthereisnorealincentivetocommitthebreach.However,the
trusteewouldbenoworseoffiftheonlyremedyawardedweregainbased.AsLordDiplockobservedinCassellv
Broome,129 albeitinthetortiouscontext:130
torestrictthedamagesrecoverabletotheactualgainmadebythedefendantifitexceededthelosscaused
totheplaintiff,wouldleaveadefendantcontemplatinganunlawfulactwiththecertaintythathehadnothingto
losetobalanceagainstthechancethattheplaintiffmightneversuehimor,ifhedid,mightfailinthehazards
oflitigation.Itisonlyifthereisaprospectthatthedamagesmayexceedthedefendantsgainthatthesocial
purposeofthiscategoryisachievedtoteachawrongdoerthattortdoesnotpay.
Damagesthatexceedthedefendantsgainandclaimantslossaregenerallyknownaspunitivedamages,or
exemplarydamages.131 Theseareabletoworkintandemwithrestitutionaryawardsinordertoensurenotonlythat
thedefendantdoesnotprofitfromhisorherwrong,butalsothatheorsheispunishedforthewrongdoing.
However,asLordDiplockmadeclear,punitivedamageswillonlybeappropriateintherareinstanceswhereitis
necessarytoteachawrongdoerthatthewrongwillnotpay.Punitivedamagesmaybeawardedinresponsetoany
tort,132 butnot,apparently,tobreachesofcontract.133 Orthodoxysuggeststhatpunitiveawardsarenotavailablein
Englandforequitablewrongdoingeither.Forexample,inVysevFoster,134 JamesLJsaid:
ThisCourt[ofEquity]isnotaCourtofpenaljurisdiction.Itcompelsrestitutionofpropertyunconscientiously
withhelditgivesfullcompensationforanylossordamagethroughfailureofsomeequitabledutybutithas
nopowerofpunishinganyone.
However,thisapproachhasnotbeenmirroredinCanada135 andNewZealand,136 wherepunitiveawardsare

possible.Indeed,theLawCommissionofEnglandandWaleshasrecommendedthatpunitivedamagesforequitable
wrongdoingshouldbeavailablewherethedefendanthasdeliberatelyandoutrageouslydisregardedtheclaimants
rightsandotherremediesareinadequate:137
(p.808) wecanultimatelyseenoreasonofprincipleorpracticalityforexcludingequitablewrongsfromany
rationalstatutoryexpansionofthelawofexemplarydamages.Weconsideritunsatisfactorytoperpetuatethe
historicaldividebetweencommonlawandequity,unlessthereisverygoodreasontodoso.Professor
Waddamsargues,
theavailabilityofexemplarydamagesshouldnotbedeterminedbyclassificationofthewrongasa
commonlawtortorasabreachofanequitableobligation138
Indeed,wecanseegoodreasonforallowingpunitivedamagestoberecoveredagainst,forexample,the
dishonesttrusteewhoactsinbreachofhisfiduciarydutyorthepersonwhodishonestlyabusesanothers
confidence.Thusif,aswepropose,punitivedamagesareawardableinrespectofthe(commonlaw)tortof
deceit,itwouldbeanomalousifanalogouslywrongfulconductcouldnotalsogiverisetoanaward,just
becausethecauseofactionoriginatedinequity.Moreover,deterrenceisanaimthatisnotalientocourtsof
equity.Forexample,itisaclearaimofthecommonplaceequitableremedyofanaccountofprofitsawarded
forbreachoffiduciarydutyorbreachofconfidence.Totheextentthatsuchremediesalreadyachievethe
aimsofapunitivedamagesawardinfullorinpart,andintentionallyorincidentally,thiswillbealegitimate
reasonforrefusingtomakeanawardunderthelastresorttest,orformakingalowerawardthanwould
otherwisebenecessary.
AllowingpunitivedamagesinEquitywouldbeconsistentwiththeiravailabilityintort.However,ithasbeencountered
thatitmightproduceadividebetweenEquityandContract,sincepunitiveawardsarenotclearlyavailableforthe
latter.139
ThisissuewasconsideredbytheNewSouthWalesCourtofAppealinHarrisvDigitalPulsePtyLtd.140 Thecase
actuallyconcernedabreachofdutybytwoemployeesofacompanywhodivertedtheiremployersbusinesstotheir
own,rivalcompany.ButmuchoftheCourtsdecisionconcentrateduponwhetherpunitiveawardsareavailablein
Equity.SpigelmanCJandHeydonJA,inthemajority,ruledthatapunitiveawardwasinappropriate.Theformer
largelyrestrictedhisjudgmenttotheparticularnatureofthecaseatissue,butthelatterwasmoreexpansiveand
said:141
Thatexemplarydamagesshouldberecoverableintortisnotsurprising,forasWindeyerJpointedoutinUren
vJohnFairfax&SonsPtyLtd(1966)117CLR118at149inapassagereferredtowithapprovalbytheHigh
CourtinGrayvMotorAccidentCommission(1998)196CLR1at[16],therootsoftortandcrimearegreatly
intermingled.Commonlawcrimesareusuallycrimesinvolvingmensrea,andinapracticalsenseissuesof
motivation,intentiontoinjure,andmalignpurposessuchasdishonestycommonlyarise.Thesementalstates
overlapwiththoserelevanttothegrantofexemplarydamages.Butequitabledutiesdonot,instandardforms
oftheiroperation,turnonthosementalstates.Thereisnostrongreasontoimportexemplarydamagesfrom
onefieldintosodifferentafield.
Bycontrast,MasonPdissentedandsupportedthedecisionofthetrialjudgetoawardpunitivedamages:142
(p.809) PalmerJwascorrectinholdingthatitwasillogicalandunprincipledtoconfinetheremedyof
exemplarydamagestotortiouscausesofaction.AshisHonourobserved,theavailabilityofexemplary
damagesshouldbecoextensivewiththerationaleoftheremedy.Thatrationaleisthecompositegoalof
punishing,deterringandvindicatingapersonwhoisthevictimofwrongdoingclearlyproscribed.Inthat
context,itis,asPalmerJobserved,absurdtothinkthataplaintiffwhoselifesavingswerestolenbya
solicitorwouldhaveanydifferentsenseofoutragedependinguponwhetherthedefendantwassuedat
commonlawfordeceitorinequityforbreachoffiduciaryduty.Thedefendantwillhavebeengivenadvance
particularsofthebasisoftheclaim(seeSupremeCourtRulesPart15r5A).Assumingthattheplaintiffisable
toestablishthebreachoffiduciarydutyplustheadditionalelementsofconsciouswrongdoingnecessaryto
triggeranawardofexemplarydamages,adisinterestedobserverwouldbebemusedtolearnthatthelaw
wouldsaythatexemplarydamagesshouldbewithheld,whereastheywouldhavebeenawardedifthe
identicalfactswereestablishedhadthecasebeenpleadedintort.
Initsauxiliaryjurisdiction,equityhasembracedtheroleofsupplementingtheinadequaciesofcommonlaw
remedies.Ithasalwaysclaimedarightofinterventionifappropriatetoachieveajustresult.Discretionand
flexibilityensurethatequitywillnotbeforcedtoactwhereproprietaryremediessuchasaconstructivetrust
orlienwouldbeinappropriateordisproportionate.Howstrangethereforethatequityshouldstandbackcoyly,
keepingitshandscleanbywashingthemlikeCaesar,evenifthecriteriafortheexceptional,discretionary
remedyofexemplarydamagesaremet.
Inanyevent,eveniftheavailabilityofpunitivedamagesweretoberecognizedinprinciple,theywouldneverbe
availableasofright,andthecourtwouldalwayshaveadiscretionwhetherornottoawardapunitiveremedy.Itmight
beexpectedthatpunitivedamageswouldonlybegrantedinresponsetoexceptionalinstancesofparticularly
egregiouswrongdoing.
Question
Bobdiedin1980,andinhiswillleft20,000toColinandAnnatoholdontrustforhischildren.ColinandAnna
haveneversoughtprofessionaladviceregardingtherangeofinvestmentsheldbythetrust.Thefundisnow
worth22,000.Ifithadbeenproperlymanaged,thechildrenthinkthevalueofthetrustfundwouldbearound
75,000.
Thetermsofthetrustdeedpreventthetrusteesfrominvestinginforeigncurrencyfunds.Nevertheless,in2010
ColinandAnnainvested1,000inJapaneseYenand1,000inSwissFrancs.TheinvestmentinJapaneseYen
isnowworthonly500,buttheinvestmentinSwissFrancsisworth2,000.
ColinandAnnaalsodecidedtoinvestsomeofthetrustfundinafilmprojectrunbyLikelyPictures.Forthis
purpose,ColinandAnnatransferred8,000totheirsolicitor,Barry.Barrywasunderinstructionstoholdthis
moneyontrustforColinandAnna,andtoreleasethemoneytoLikelyPicturesonlyuponreceivingwritten
confirmationfromSteve,anawardwinningdirector,thathehadagreedtoworkontheproject.Barrytransferred
themoneytoLikelyPicturesbeforereceivingthisconfirmation.Soonafterreceivingthemoney,LikelyPictures
wentintoinsolventliquidation.BarryreceivedwrittenconfirmationfromStevethathehadagreedtoworkonthe
projectafterhehadpaidthemoneytoLikelyPictures,butbeforeLikelyPicturesbecameinsolvent.
AdviseBobschildren.
Burrows,RemedialCoherenceandPunitiveDamagesinEquity,inEquityinCommercialLaw(edsDegeling
andEdelman)(Sydney:LawbookCo.,2005).
FindThisResource
Chambers,Liability,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
Conaglen,ExplainingTargetHoldingsvRedferns(2010)4JoE288.
FindThisResource
Edelman,MoneyAwardsoftheCostofPerformance(2010)4JoE122.
FindThisResource
EdelmanandElliott,MoneyRemediesAgainstTrustees(2004)18TLI116.
FindThisResource
Elliott,RethinkingInterestonWithheldandMisappliedTrustMoney[2001]Conv313.
FindThisResource
Elliott,RemotenessCriteriainEquity(2002)65MLR588.
FindThisResource
Millett,EquitysPlaceintheLawofCommerce(1998)114LQR214.
FindThisResource
Notes:
1
SeeChapter1.4(a)(i),pp.1112.Theremayalsobeotheradvantagesofproprietaryremediese.g.theclaimant
mightbeabletogainthebeneftofanincreaseinthevalueoftheproperty.
2
E.g.Chapter18.1(a)(i),p.813.
3
Liability,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.5.
4
Albeitonethatcantriggersecondaryobligations:seeegPhotoProductionLtdvSecuricorTransportLtd[1980]1
AllER556,5678(LordDiplock).
5
[1996]1AC421.
6
Ibid,434.
7
ReLock ersSettlementTrust[1977]1WLR1323.
8
FoxvFox(1870)LR11Eq142.
9
[1985]Ch270.SeeChapter12.4(c)(ii),pp.5814.
10
[1985]Ch270,2967.
11
SeeChapter11.5,pp.5337
12
Liability,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),pp.389.
13
Chambers,Liability,inBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.6.
14
ForthedevelopmentofthetrusteesdutytoaccountfromtheCommonLawtakingofanaccount,seeStoljar,
TheTransformationsofAccount(1964)80LQR203.
15
Getzler,EquitableCompensationandtheRegulationofFiduciaryRelationshipsinRestitutionandEquity:
ResultingTrustsandEquitableCompensation,volumeone(edsBirksandRose)(Oxford:MansfieldPress,2000),p.
250.
16
Ibid,250.
17
17
18
Seee.g.NestlvNationalWestminsterBank plc[1993]1WLR1260seeChapter12.5(i),pp.5914.
19
[1996]AC421.
20
SeeElliott,RemotenessCriteriainEquity(2002)65MLR588.
21
(1852)16Beav77.
22
Ibid,81.
23
(1890)63LT296.
24
Consolsareaformofgovernmentbondsthenameconsolwasoriginallyshortforconsolidatedannuities.
25
ReBellsIndenture[1980]1WLR1217at1233.
26
Forfurtherconsiderationofappropriatelanguageinthisarea,seeChapter17.2(a)(iv),pp.7834.
27
[1966]NSWR211,216.
28
E.g.TargetHoldingsLtdvRedferns[1996]AC421,433seefurtherChapter17.3(c)(ii),pp.7945.
29
Millett,EquitysPlaceintheLawofCommerce(1998)114LQR214,226:
30
(1855)1Jur(NS)751.
31
[1903]1KB439.
32
DutyandLiabilityinRespectofFundsinCommercialLaw:PerspectivesandPractice(edsLowryandMistelis)
(London:LexisNexisButterworths,2006),p.219.
33
SeeFox,OverreachinginBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002)p.108.
34
[1966]NSWR211,216.
35
Ibid,214.
36
E.g.Target,HoldingsLtdvRedferns[1996]AC421:seeChapter17.3,p.786.
37
EdelmanandElliott,MoneyRemediesagainstTrustees(2004)18TLI116,11718.
38
Seee.g.Target,HoldingsLtdvRedferns[1996]AC421,433:seeChapter17.3(b),p.790.
39
MoneyRemediesagainstTrustees(2004)18TLI116,118.
40
E.g.NestlvNationalWestminsterBank plc[1993]1WLR1260.SeeChapter17.5(a),pp.5914.
41
EquitysPlaceintheLawofCommerce(1998)114LQR214,2256.
42
See,e.g.ReChapman[1896]2Ch763.
43
SeeHendersonvMerrettSyndicatesLtd[1995]2AC145,p.205,(LordBrowneWilkinson).
44
SeePermanentBuildingSocietyvWheeler(1994)14ACSR109,1578,(IppJ)approvedinBristol&West
BuildingSocietyvMothew[1997]2WLR436,4489.
45
MoneyRemediesagainstTrustees(2004)18TLI116,118.
46
RemotenessCriteriainEquity(2002)65MLR588,597.
47
47
(1859)27Beav144.
48
49
[1993]1WLR1260.SeeChapter12.5(a),pp.5914.
50
Ibid,1269.
51
Ibid,at1280.
52
MoneyRemediesagainstTrustees(2004)18TLI116.
53
SeefurtherElliott,RemotenessCriteriainEquity(2002)65MLR588.
54
[1996]AC421.
55
DerryvPeek (1888)LR14AppCas337.
56
[1994]1WLR1089.
57
[1996]AC421,431.
58
[1994]1WLR1089.
59
60
[1996]AC421,440.
61
62
63
[1996]AC421,434.
64
65
ATargetedDegreeofLiability[1996]LMCLQ161,162.
66
SeeChapter8,ResultingTrusts.
67
(2003)196ALR482.
68
Ibid,[49].
69
SeeChapter17.3(d)(iii),pp.798801.
70
[1996]AC421,432.
71
[1996]AC421,437.
72
Withsomeexceptions:seethediscussioninGoldenStraitCorporationvNipponYusenKK(TheGoldenVictory)
[2007]UKHL12[2007]2AC353.
73
Fortermination,seegenerallyMcKendrick,ContractLaw:Text,CasesandMaterials(5thedn)(Oxford:Oxford
UniversityPress,2012),ch.22.
74
[1996]AC421,433.
75
SeeChapter17.2(a)(iii),p.782.
76
77
77
[1996]AC421,428.
78
Forfurtherdiscussionofcausationintortlaw,seee.g.Steele,TortLaw:Text,CasesandMaterials(2ndedn)
(Oxford:OxfordUniversityPress,2010),pp.173219.
79
[1996]AC421,432.
80
Ibid,434.
81
Cf.BanqueBruxellesLambertSAvEagleStarInsuranceCo.Ltd[1997]AC191.
82
Chapter17.2(a),p.780.
83
SmithNewCourtSecuritiesLtdvScrimgeourVick ers(AssetManagement)Ltd[1997]AC254.
84
85
Seee.g.Elliott,RemotenessCriteriainEquity(2002)65MLR588.
86
[1997]1WLR1396,1403.
87
(1888)37ChD466.
88
Althoughnotethatthedefenceofacquiescencemaybeavailable:seeChapter20.1(a),pp.9267.
89
TrusteeAct1925,s.61seeChapter16.3,p.742.
90
EquitableCompensation:TheGiantStirs(1996)112LQR27,29.
91
Particularlyasregardssurcharging:seeChapter17.2(b),pp.7846.
92
ProprietaryRestitutioninEquityinCommercialLaw(edsDegelingandEdelman)(Sydney:LawbookCo.,2005)
309,310.
93
Chapter17.3(d)(iii),pp.799801.
94
95
MoneyRemediesAgainstTrustees(2004)18TLI116,1202.
96
MoneyRemediesAgainstTrustees(2004)18TLJ116.
97
98
(1991)85DLR(4th)129.
99
MoneyRemediesAgainstTrustees(2004)18TLI116,124.
100
Ibid,123.
101
102
[1994]1WLR1089,1101.Admittedly,thelanguageofcompensationintheformofrestitutionisdifficult:see
Chapter1.4(b),p.14.
103
104
105
MoneyAwardsoftheCostofPerformance(2010)4JoE122,128.
106
ExplainingTargetHoldingsvRedferns(2010)4JoE288,300.
107
107
Theredoesnotseemtohavebeenanydelayafterthebeneficiarybecameawareofthebreachoftrust,which
wouldhavebeennecessaryforanyequitabledoctrineofdelaytobaraclaim.SeefurtherChapter16.10,p.772.
108
CfBairstowvQueensMoatHousesplc[2001]2BCLC531.
109
YouyangPtyLtdvMinterEllisonMorrisFletcher(2003)196ALR482,[69].
110
Chapter17.3(b),p.792.
111
TargetHoldingsConsideredinAustralia(2003)LQR545,548.
112
(1828)4Russ195.
113
(1864)33Beav426.
114
[1980]Ch515.
115
Ibid,538.
116
SeegenerallyElliott,RethinkingInterestonWithheldandMisappliedTrustMoney[2001]Conv313.
117
(1855)4DeGM&G843,851.
118
Elliott,RethinkingInterestonWithheldandMisappliedTrustMoney[2001]Conv313,317.
119
Everythingcanbepresumedagainstawrongdoer.
120
[2007]UKHL34[2008]1AC561.SeeRidge,PrejudgmentCompoundInterest(2010)LQR279.
121
[1975]atQB373.
122
Ibid,406.
123
[1980]Ch515,547.
124
SeenowCourtFundsRules1987,r.26.
125
Seegenerally,Chapter14,FiduciaryObligations.
126
127
Unlessthereisadefence,suchasconsent:seeChapter16,LiabilityforBreach.
128
SeeTangManSitvCapaciousInvestmentsLtd[1996]1AC514seefurtherChapter14.5(d),p.698.
129
[1972]AC1027.
130
Ibid,1130.
131
Forthisuseofthetermdamages,seeChapter17.3(d)(i),p.798.
132
KuddusvChiefConstableofLeicestershireConstabulary[2001]UKHL29[2002]2AC122.
133
AddisvGramophoneCo.Ltd[1909]AC488.
134
(1872)8ChApp309,333.
135
HuffvPrice[1990]76DLR(4th)138WhitenvPilotInsuranceCo.[2002]1SCR595(SupremeCourtof
Canada).
136
AqualcultureCorporationvNewZealandGreenMusselsLtd[1990]3NZLR299.
137
137
Aggravated,ExemplaryandRestitutionaryDamages,LawCom.No.247(London:HMSO,1997),[5.55].
138
Waddams,TheLawofDamages(2ndedn)(Toronto:CanadaLawBook,1990)[11.240],criticizinganOntario
CourtofAppealdecisionthatexemplarydamagesshouldnotbeavailableforbreachoffiduciaryduty,becausethe
actionwasequitable,nottortious.
139
AlthoughtheCanadianSupremeCourthasawardedpunitivedamagesforbreachofcontract:seee.g.Whitenv
PilotInsuranceCo.[2002]1SCR595(SupremeCourtofCanada).
140
(2003)197ALR626.SeeEdelman,Afusionfallacyfallacy?(2003)119LQR375andBurrows,Remedial
CoherenceandPunitiveDamagesinEquity,inEquityinCommercialLaw(edsDegelingandEdelman)(Sydney:
LawbookCo.,2005).
141
(2003)197ALR626,[399].
142
Ibid,[195],[199].
LawTrove

DOI: 10.1093/he/9780199661480.001.0001
18.ProprietaryClaimsandRemedies
Chapter: (p.811) 18.ProprietaryClaimsandRemedies
DOI: 10.1093/he/9780199661480.003.0018
CentralIssues
1.Proprietaryclaimsarebaseduponaclaimantspropertyrights.Proprietaryclaimsmightleadto
personalremedies,consideredinChapter17,orproprietaryremedies,consideredinthischapter.
2.ProprietaryclaimsmaybebroughtatCommonLaworinEquity,dependingonwhethertheproperty
rightuponwhichtheclaimisbasedisrecognizedatCommonLaworinEquity.Thesourceoftheright
mayaffecttheremedythatisawardedandthedefencesavailable.
3.Proprietaryclaimsrequiretheclaimanttohavearightthatcanbeidentifiedinpropertyinthe
defendantshandseitherthroughtheprocessoffollowingorthatoftracing.
4.Followingistheprocessbywhichtheoriginalitemofpropertyisidentifiedinthehandsofanother.
Tracingistheprocessbywhichaclaimantspropertyrightisidentifiedinasubstituteofthatoriginalitem
ofproperty.
5.WhereasEquitycantraceintoandthroughamixtureofpropertyfromdifferentsources,orthodoxy
suggeststhattheCommonLawcannot.
6.Wherepropertyinwhichtheclaimanthasanequitableproprietaryinteresthasbeenmixedwith
propertybelongingtoanotherperson,variouspresumptionsapplyrelatingtowhomthemixedfundandany
subsequentlyacquiredassetsbelong.Generally,everythingispresumedagainstawrongdoingfiduciary
andinfavourofaninnocentclaimant.Butwheretheclaimantanddefendantarebothinnocent,they
usuallysharethemixedfundinproportiontotheiroriginalcontributions.
7.Equitableproprietaryremediesincludetheconstructivetrust,achargeorlien,andsubrogation.
8.Aclaimantcangenerallyelectbetweenavailableproprietaryremedies.However,thedefendantmaybe
abletoestablishthedefenceofbonafidepurchaserforvaluewithoutnotice,or,possibly,changeof
position.
(p.812) 1.Introduction
Whereabreachoftrustorfiduciarydutyhasinvolvedthetransferofpropertyinwhichthebeneficiaryorprincipalhas
anequitableproprietaryinterest,thebeneficiaryorprincipalmaywishtobringaclaimtoasserthisorherproprietary
interestinassetsthatarenowinthehandsofanotherperson.Suchclaimsarefoundedonthebeneficiarys
equitableinterestintheproperty,andsoareproperlycharacterizedasproprietaryclaims.But,althoughtheclaimis
foundedonthebeneficiarysproprietaryrights,theremedyawardedisnotnecessarilyaproprietaryone.Thereare
twodifferenttypesofremedywhichareavailableinrespectofequitableproprietaryclaims:
a)Proprietaryremedies,whichenableclaimantstoassertrightsagainstparticularpropertywhichisstillinthe
handsofthedefendant.
b)Personalremedies,whichenableclaimantstosuethedefendantpersonallyforthevalueoftheproperty
whichhasbeenreceivedbythedefendantbuthasnotnecessarilybeenretained.
ThisdistinctionbetweenclaimsandremedieshasbeenconsistentlyemphasizedbyLordMillett.Forexample,in
TrusteeofthePropertyofFCJonesandSons(afirm)vJones,acaseconsideredmorefullybelow,1 hesaidthat
theclaimant:2
hasnoproprietaryremedy.Butitdoesnotfollowthathehasnoproprietaryclaim.
Theessenceofanequitableproprietaryclaimliesinestablishingthatanotherpersonhasreceivedpropertyinwhich
theclaimanthasaproprietaryinterestrecognizedinEquity.Thepropertyreceivedmaybetheoriginalproperty,in
whichcasetheclaimantcanfollowhispropertyintothehandsofanother,orsubstituteproperty,inwhichcasethe
claimantwillneedtotracethevalueofhispropertyintothesubstituteasset.Therulesoftracingwillbeconsidered
indetailbelow,3 butitisimportanttoappreciatethattracingissimplyanevidentialprocesstosupportaproprietary
claim,butisneitheraclaimnoraremedyinitself.
BoscawenvBajwa[1996]1WLR328,334(MillettLJ)
Equitylawyershabituallyusetheexpressionsthetracingclaimandthetracingremedytodescribethe
proprietaryclaimandtheproprietaryremedywhichequitymakesavailabletothebeneficialownerwho
seekstorecoverhispropertyinspeciefromthoseintowhosehandsithascome.Tracingproperlyso
called,however,isneitheraclaimnoraremedybutaprocess.Moreover,itisnotconfinedtothecase
wheretheplaintiffseeksaproprietaryremedyitisequallynecessarywhereheseeksapersonalremedy
againsttheknowingrecipientorknowingassistant.4 Itistheprocessbywhichtheplaintifftraceswhat
hashappenedtohisproperty,identifiesthepersonswhohavehandledorreceivedit,andjustifieshis
claimthatthemoneywhichtheyhandledorreceived(and,ifnecessary,whichtheystillretain)can
properlyberegardedasrepresentinghisproperty.
(p.813) Thischapterwillfocusuponproprietaryclaimsandproprietaryremedies.Personalremedies,themost
significantofwhichisunconscionablereceipt,willbeconsideredinChapter19.However,itisimportantto
understandhowthetwotypesofremedyoverlapandinterrelate.
(a)TypesofProprietaryRemedy
Therearetwoprincipalcategoriesofproprietaryremedy:
i)Allowingtheclaimanttorecoverthepropertytransferredorsubstituteproperty.Thisisofteneffectedby
imposingaconstructivetrustuponthedefendanttoholdthepropertyfortheclaimant.Dependingonthe
circumstances,aclaimantmightonlyrecoverashareofthepropertyratherthanthepropertyinitsentirety.
ii)Recognizingthevalueoftheclaimantsproprietaryinterestthroughasecurityinterestintheproperty,
normallyachargeorlien,whichgivestheclaimantpriorityoverunsecuredcreditorsofthedefendant.
Thefirsttypeofremedywillbepreferredbyaclaimantifthepropertyinquestionhasriseninvalue,sincethe
claimantwillbenefitfromanappropriateshareoftheincreaseinvalue.Butifthepropertyhasfalleninvalue,thena
chargeorlienwillbepreferred,asthiswillsecurethevalueoftheclaimantsoriginalproprietaryinterestifthe
defendantbecomesinsolvent,andisunaffectedbyanyfluctuatingvalueoftheproperty.5
(i)Advantagesofpersonalremedyoverproprietaryremedy
Ifthepropertyinthedefendantshandshasfalleninvaluebelowtheleveloftheclaimantsoriginalinterest,a
proprietaryremedymaynotbeadvantageous.Forexample,ifadefendanthas10,000oftheclaimantsmoney,but
spendsitallonaluxuriousholiday,therewillbenopropertyleftuponwhichaproprietaryremedycanattach.By
contrast,apersonalclaimforthefull10,000mightstillsucceed.
BoscawenvBajwa[1996]1WLR328,334(MillettLJ)
Theplaintiffwillgenerallybeentitledtoapersonalremedyifheseeksaproprietaryremedyhemust
usuallyprovethatthepropertytowhichhelaysclaimisstillintheownershipofthedefendant.
(b)AdvantagesofProprietaryRemedyoverPersonalRemedy
Wherethepropertystillexistsandisofsufficientvaluetosatisfytheclaim,aproprietaryremedywilloftenbe
preferred.Thisisbecauseitaffordstheclaimantprotectionuponthedefendantsinsolvency:theclaimisagainstthe
propertyitself,ratherthanonlyagainstthedefendantpersonally.Moreover,(p.814) thepersonalclaimisnot
usuallyabletogivetheclaimantthebenefitofanyincreaseinthevalueoftheproperty.6
(c)AnalysingProprietaryClaims
Proprietaryclaimscanseemverycomplicatedatfirst.However,identifyingaclearframeworkwillbeusefulwhen
analysingdifficultcases.Thepreferableframeworkrequiresthefollowingelementstobeidentifiedinturn,eachof
whichwillbeconsideredmorefullyintherestofthechapter.
(i)Theproprietarybase
Theclaimantmustshowthatheorshehasalegaloranequitableproprietaryinterestinthemisappropiated
property.
(ii)Followingandtracing
Theclaimantmustbeableeithertofollowthatpropertyintothehandsofthedefendant,ortraceitsvalueintoa
substituteassetreceivedandretainedbythedefendant.Thisestablishestheclaimantsproprietaryinterestinthe
relevantpropertyheldbythedefendant.Thenatureofthetracingruleswilldependonwhethertheclaimanthasa
legaloranequitableproprietaryinterest.
(iii)Claiming
Oncetheclaimanthasidentifiedassetsinwhichheorshehasaproprietaryinterest,theclaimantcanthenassert
hisorherrightsinthoseassets.Thenatureoftheclaimantsclaimwillbeinfluencedbythenatureofhisorher
proprietarybase.Alegalpropertyrightattheoutsetwillleadtoalegalclaimanequitablerighttoanequitable
claim.Thenatureoftheclaimcannotexceedtheoriginalinterest:iftheclaimanthadasecurityinterestinthe
originalproperty,heorshewillonlybeabletoassertasecurityinterestinthesubsequentproperty.7
(iv)Identificationoftheremedy
Oncetheclaimisestablished,aremedyshouldbegrantedtovindicatetheclaimantsproprietaryright.Thismaybe
proprietaryorpersonal,andtheclaimantisabletochoosebetweenthetwo.AsLordMillettsaidofanequitable
proprietaryclaiminFosk ettvMcKeown:8
Insuchacasethebeneficiaryisentitledathisoptioneithertoasserthisbeneficialownershiportobringa
personalclaimHewillnormallyexercisetheoptioninthewaymostadvantageoustohimself.
(v)Defences
Themostsignificantdefenceisthataclaimantsequitablerightwillbedefeatedifthedefendantpurchasedthe
propertyforvalueingoodfaithandwithoutnoticeoftheclaimantsright.Whetheradefendantwhohasreliedupon
hisorherreceiptofthepropertybydoingsomethingheorshewouldnotordinarilyhavedoneisabletoavailhimor
herselfofadefenceofchangeofpositionismorecontroversial.
(p.815) 2.TheProprietaryBase
ChristopherClarkeJhasreiteratedthat:9
Inordertobeablesuccessfullytotracepropertyitisnecessaryfortheclaimant,firstly,toidentifypropertyof
his,whichhasbeenunlawfullytakenfromhim(aproprietarybase).
Theclaimantmayhaveretainedlegaltitletotheproperty.Insuchcircumstances,heorshewillbeabletopursuea
legalproprietaryclaim,andfollowortracethepropertyoritsvalueatCommonLaw.However,aswillbeexploredin
thischapter,10 equitableclaimsareoftenpreferredastheyaremoreflexiblethantheirCommonLawcounterparts:if
theclaimantspropertyhasbeenmixedwithanotherspropertythenitmightloseitsidentityatLaw,makingit
impossibletotracethroughamixtureatCommonLaw,11 butnotnecessarilyinEquity.Also,proprietaryremedies
aregenerallynotavailableatCommonLaw.
Inordertogroundanequitableproprietaryclaim,anequitableproprietarybaseisrequired.Abeneficiaryunderan
express,12 resulting,13 orconstructive14 trustclearlyhasanequitableproprietaryright.Butanequitableproprietary
basemayalsoariseunderothercircumstances,suchasproprietaryestoppel.15
Difficultsituationsarisewheretheclaimantspropertyhasbeenstolen.Athiefdoesnotobtainlegaltitletoproperty
simplybystealingit.So,forexample,Idonotloselegaltitletomywatchifyoustealitfromme.Icansueyouin
thetortofconversion,andifyouswapmywatchforanecklace,thenIcaneithertracemyproprietaryinterestat
CommonLawintothenecklace,orfollowmywatchintothehandsofathirdparty.Inbothscenarios,Iwouldbe
relyinguponlegaltitle.Indeed,inthelatterinstance,alegalclaimmightbepreferabletoanequitableclaim:ifthe
thirdpartywasabonafidepurchaserforvaluewithoutnoticethatwoulddefeatanequitableclaimbutnotalegal
claim,sincetheruleofnemodatquodnonhabetoperatesatCommonLawandmeansthatthethiefcannotgive
bettertitlethanheorshehad.Sincethethiefdidnotobtaintitle,thethirdpartycannotgetgoodtitleeither.
However,thevictimisunlikelytorecoverthewatchitselfalthoughsection3oftheTorts(InterferencewithGoods)
Act1977allowsforthispossibility,thisprovisionhasbeeninterpretedsuchthatanorderfordeliveryofthewatch
itselfwillonlybemadeatthecourtsdiscretionwheredamageswouldbeaninadequateremedy.
Torts(InterferencewithGoods)Act1977
Section3
(1)Inproceedingsforwrongfulinterferenceagainstapersonwhoisinpossessionorincontrolof
thegoodsreliefmaybegiveninaccordancewiththissection,sofarasappropriate.
(p.816) (2)Thereliefis
(a)anorderfordeliveryofthegoods,andforpaymentofanyconsequentialdamages,or
(b)anorderfordeliveryofthegoods,butgivingthedefendantthealternativeofpaying
damagesbyreferencetothevalueofthegoods,togetherineitheralternativewithpaymentof
anyconsequentialdamages,or
(c)damages.
(3)Subjecttorulesofcourt
(a)reliefshallbegivenunderonlyoneofparagraphs(a),(b)and(c)ofsubsection(2),
(b)reliefunderparagraph(a)ofsubsection(2)isatthediscretionofthecourt,andthe
claimantmaychoosebetweentheothers.
TheexampleofathiefwasdiscussedbyLordBrowneWilkinsoninWestdeutscheLandesbank Girozentralev
IslingtonLondonBoroughCouncil.16 HisLordshipthoughtthat:17
Althoughitisdifficulttofindclearauthorityfortheproposition,whenpropertyisobtainedbyfraudequity
imposesaconstructivetrustonthefraudulentrecipient:thepropertyisrecoverableandtraceableinequity.
Thisstatementseemscontrarytotheanalysisprovidedabove.Indeed,inShalsonvRusso,RimerJinsistedthat:18
athiefordinarilyacquiresnopropertyinwhathestealsandcannotgiveatitletoiteventoagoodfaith
purchaser:boththethiefandthepurchaserarevulnerabletoclaimsbythetrueownertorecoverhisproperty.
Ifthethiefhasnotitleintheproperty,Icannotseehowhecanbecomeatrusteeofitforthetrueowner:the
ownerretainsthelegalandbeneficialtitle.
Thetwostatementsmightbereconciledinsituationswheretheclaimantspropertyismixedwithotherproperty.For
example,ifthethiefweretostealmywatch,sellit,andthenputtheproceedsofthesaleinhisbankaccountin
whichhealreadyhadmoney,themixingoffundswouldbesufficienttodefeatmylegalclaim.Butinsuch
circumstancesIwouldobtainanequitableproprietarybase:legaltitletothemoneywouldpasstothethief,butit
wouldbeunconscionableforhimtodenythataproportionofthemoneyinhisaccountproperlybelongstome,sohe
willbefoundtoholdthemoneyonconstructivetrust.19
Themoredifficultscenariodoesnotinvolvemixing.Whatifmysolicitorstealsmymoneyfrommybankaccount,
anddoesnotmixthemoneywithhisownfunds?Theinitialanalysis,supportedbyRimerJinShalsonvRusso,
suggeststhatlegaltitleremainswithmeandthatIshouldpursuealegalclaim.Bycontrast,LordBrowne
Wilkinsonsapproachwouldallowanequitableclaim.Establishingwhichclaimistobepreferredmightbeimportant:
ifthefiduciaryhasbecomeinsolvent,onlytheequitableclaimmightfullyprotectmyproprietaryinterest,byvirtueof
thestrongerequitableproprietaryremedies.Perhapsthebesttheoreticalexplanationfortheexistenceofa
constructivetrustinsuchcircumstanceshasbeenprovidedbyTarant:20
(p.817) afteratheftstolenmoneyissubjecttotwolegalpropertyrights.Thefirstpropertyrightisthetrue
ownersrighttopossession.Thesecondpropertyrightisthethiefsnewlyacquiredpropertyrightof
possession.Thetrustpropertyisthethiefslegalpropertyrightofpossessionofthemoneythemoney
itselfisnottrustproperty.
Onthisbasis,thethiefisnotholdinglegaltitleontrust.Rather,heisholdingpossessorytitletothemoneyontrust.
Thismayseemodd,sinceitmeansthatthelegalownerofthemoneyisalsothebeneficiaryundertheconstructive
trust.Butitisexplicableonceitisunderstoodthattherearemanydifferenttypesofproprietaryrights,andthattitles
topropertyarerelativetooneanother.SothethiefobtainsaCommonLawpossessorytitle,whichisgoodagainst
thirdpartieswhocannotproveastrongertitletothemoneythanthatofthethief,andthethiefholdsthistitleontrust
forthebeneficiary.21
Nevertheless,somemightremainuncomfortablewiththelegalownerofpropertybeingthebeneficiaryofatrustwhen
legaltitletothepropertyremainswithhimself,notthethief.ButasFoxhasobserved:22
Thereasonforrecognizingthetrustisentirelypragmatic:itisanomalousthatapersonwhohasadistinct
equitabletitletothemoneybeforeitismisapplied,suchastheprincipalinafiduciaryrelationship,should
havestandingtofollowortracethemoneyinequity,whereasapersonwithanundividedlegalandbeneficial
titleshouldbelefttorelyonthevagariesofthecommonlawrulesofidentificationtorecoverit.
Thisisundoubtedlyrightitisimportantthattheclaimantbeabletotraceafterathiefmisappropriateshisproperty.
Butitisunclearwhy,ifsuchintricaciesarenecessarytoestablishanequitablepropertybaseinordertoprotectthe
claimantintheeventofthethiefsinsolvency,thesamepriorityshouldnotsimplybeaffordedtoalegalownerwhose
propertyhasbeenstolen.23
Thedifficultiesinherentinthecomplicatedcaselawhighlighttheartificialityofhavingdistinctrulesfortracingat
CommonLawandEquity.24 Inthefightagainstmodern,largescalefraud,itwouldbepreferabletohaveonlyoneset
oftracingrules,andthemoregenerousequitablejurisdictionshouldbepreferred.Indeed,stepsmaybebeingtaken
tomoveinthisdirection.25
3.FollowingandTracing
Bothfollowingandtracingarethatwhichareemployedinordertoidentifytheclaimantsproprietaryrightsinassets
heldbythedefendant.However,thetwoprocessesaredistinct.InFosk ettvMcKeown,LordMillettsaid:26
(p.818) Theprocessofascertainingwhathappenedtotheplaintiffsmoneyinvolvesbothtracingand
following.Thesearebothexercisesinlocatingassetswhichareormaybetakentorepresentanasset
belongingtotheplaintiffsandtowhichtheyassertownership.Theprocessesoffollowingandtracingare,
however,distinct.Followingistheprocessoffollowingthesameassetasitmovesfromhandtohand.Tracing
istheprocessofidentifyinganewassetasthesubstitutefortheold.Whereoneassetisexchangedfor
another,aclaimantcanelectwhethertofollowtheoriginalassetintothehandsofthenewownerortotrace
itsvalueintothenewassetinthehandsofthesameowner.Inpracticehischoiceisoftendictatedbythe
circumstances.
Thusifacarisstolenbyafiduciaryandsoldtoathirdparty,thentheclaimantwillhaveachoicebetweenfollowing
thecarintothehandsofthethirdparty,ortracingintothemoneyreceivedbythefiduciary.Itissensibletoallowthe
innocentclaimantwhoisthevictimofthemisappropriationtochoosebetweenfollowingandtracing.Ifthecaris
worthmorethanthepurchasemoneyreceivedbythefiduciary,theclaimantwouldprefertofollowthecar.Butifthe
carhasfalleninvalueandthefiduciaryreceivedmorethanthecariscurrentlyworth,itwouldbeadvantageousfor
theclaimanttotraceinstead.
Thiselectionanalysisexplainswhytheclaimantcannotassertaproprietaryinterestagainstboththeoriginalasset
andasubstituteasset.However,itisunclearpreciselywhenarightinthesubstituteassetarises.Iftheoriginal
assetisdissipated,itseemssensibleforarightinthesubstituteassettoariseautomatically.Thesituationismore
complicatedwhereboththeoriginalassetandsubstituteassetstillexist:thereisauthorityforthepropositionthat
theclaimantimmediatelyobtainsaproprietaryinterestinthenewassetuponthewrongfulmisappropriation,27 but
alsoforthepropositionthattheclaimanthasapowertocrystallizehisorherinterestinthatnewasset.28 Thelatter
seemsmoreconsistentwithanapproachbasedonelection,butmayleadtothedifficultconclusionthataclaimant
willnolongerbeabletocrystallizehisorherproprietaryinterestoncethedefendantwhoholdsthesubstituteasset
isinsolventthiswouldmeanthattheclaimantwillnothavepriorityoverthedefendantsothercreditors,whose
interestsalsoneedprotection.
(a)Following
Followinggenerallyrelatestotheidentificationoftangiblethingsandinvolvesapracticalinvestigationofwhathas
happenedtoaphysicalobject.Itisfocussedupontheoriginalthingheldbytheclaimant,andfollowsthatthinginto
thehandsofanewperson.Bycontrast,tracingisconcernedwithnewsubstituteassets.
Whentryingtofollowsomethingintothehandsofanother,difficultiesmightarisewhereitisdisputedwhetherornot
thethingstillexists.Forexample,sometimestheoriginalthingmightbefollowedintoamixture.Wherethemixture
isreadilydivisible,suchthattheoriginalthingcaneasilybeseparated,thenfollowingisstraightforward.Butthiswill
notalwaysbethecase:forexample,inSpencevUnionMarineInsuranceCo.,29 theclaimantscottonwasmixed
withothercotton.BovillCJsaid:30
whengoodsofdifferentownersbecomebyaccidentsomixedtogetherastobeundistinguishable,theowners
ofthegoodssomixedbecometenantsincommonofthewhole,intheproportionswhichtheyhaveseverally
contributedtoit.
(p.819) Thegoodsbeingbeforetheyaremixedtheseparatepropertyoftheseveralowners,unless,whichis
absurd,theyceasetobepropertybyreasonoftheaccidentalmixture,whentheywouldnotsoceaseifthe
mixtureweredesigned,mustcontinuetobethepropertyoftheoriginalownersand,astherewouldbeno
meansofdistinguishingthegoodsofeach,theseveralownersseemnecessarilytobecomejointlyinterested,
astenantsincommon,inthebulk.
Findingatenancyincommonallowseachownertotakebacktheiroriginalshare,butwhereasnormallytheconsent
ofalltenants,oracourtorder,isnecessarytoseveratenancyincommon,BovillCJsuggestedthateach
contributorhasarighttotakehisorherportionfromthemixture.Smithhascalledthisatenancyincommonofan
unusualsort,31 butinanyeventitappearspossibletofollowintosuchamixtureandforthecontentsofthemixture
tobeattributedtotheoriginalownersrateably,inproportiontotheircontributions.32
BovillCJlimitedhiscommentstoaccidentalmixing.Hethoughtadifferentapproachistakenwhereoneparty
wrongfullymixeshispropertywithpropertybelongingtoanother.ThisfollowstheviewsofBlackstone,whowrote
that:33
ifonewilfullyintermixeshismoney,cornorhay,withthatofanotherman,withouthisapprobationor
knowledge,ourlaw,toguardagainstfraud,givestheentireproperty,withoutanyaccount,tohimwhose
originaldominionisinvaded,andendeavouredtoberendereduncertain,withouthisownconsent.
InJonesvDeMarchant,34 ahusbandmadeafurcoatoutoftwentytwobeaverskins,eighteenofwhichwerehisand
fourofwhichbelongedtohiswifebutweremisappropriatedbythehusband.Hegavethecoattohismistress.The
Canadiancourtinsistedthatthecoatbelongedtohiswife.ThisresultwassupportedbyLordMillettinFosk ettv
McKeown,whoemphasizedthat:35
Thedeterminativefactorwasthatthemixingwastheactofthewrongdoerthroughwhomthemistress
acquiredthecoatotherwisethanforvalue.
SoinJonesvDeMarchantitappearsthatthewifecouldfollowherskinsintothecoat,eventhoughthecoatwasa
newasset,anditwasimpossibletoseparateandidentifytheoriginalthing.36 Itseemsrightthatthenewproduct
belongedtotheinnocentparty(thewife)ratherthanthewrongdoer(thehusband).Asaresult,thehusbanddidnot
enjoygoodtitletopassontohismistress,athirdpartydonee.
However,itmaybethatJoneswillnolongerbefollowedwherethepropertyinquestionisfungible.IndianOil
CorporationvGreenstoneShippingCo.concernedthemixingofcrudeoil.StaughtonJheldthat:37
whereBwrongfullymixesthegoodsofAwithgoodsofhisown,whicharesubstantiallyofthesamenature
andquality,andtheycannotinpracticebeseparated,themixtureisheldincommonandA(p.820) is
entitledtoreceiveoutofitaquantityequaltothatofhisgoodswhichwentintothemixture,anydoubtasto
thatquantitybeingresolvedinfavourofA.HeisalsoentitledtoclaimdamagesfromBinrespectofanyloss
hemayhavesuffered,inrespectofqualityorotherwise,byreasonoftheadmixture.
WhetherthesamerulewouldapplywhenthegoodsofAandBarenotsubstantiallyofthesamenatureand
qualitymustbelefttoanothercase.Itdoesnotarisehere.
Itmayattimesbedifficulttodecidewhetherornottheoriginalthingstillexistssuchthatitcanbefollowed.
Obviously,whereithasbeendestroyed,thereisnolongeranythingtofollow.Butthereareotherwaysforthething
toloseitsoriginalidentity.Forexample,itmightbecomeinextricablyattachedtosomethingelse,andtherebylose
itsseparateidentity.Oritmaybesoalteredthatitbecomesadifferenttypeofthing.Boththeseexamplesinvolve
difficultquestionsofjudgmentanddegree.
Whereonethingbecomesattachedtoanothersuchthatitisimpossibletoseparate,thenitisoftensaidthatthe
subsidiarythingaccedestotheprincipalitem.38 Determiningwhichistheprincipalitemmaysometimesbe
difficult,butgenerallyitwillbethemoredominantthing.Soalinkwouldaccedetoachain,forexample39 thechain
wouldcontinuetoexist,butthelinkwouldbesubmergedinthechain.However,insomesituationsneitheritemmay
besubsidiarytotheotherindeedbothmightbeidentical.Forexample,twofloatingdocksmightbejoinedtogether
toformanewentity.40 Inthatevent,thepreferableviewisthatneitherdockcanbefollowed,andthatbothare
submergedinthenew,largerdock.Itisnolongerpossibletoidentifytheoriginalthing.
Wheretheoriginalthingisonlyslightlyaltered,itmightstillbeidentifiedandfollowedbutifithaschangedso
radicallythatitisadifferentthingthenthatwillpreventfollowing.Thisisknownasspecification.Thisagaininvolves
difficultquestionsofdegree.Whereacarhasbeenscrappedandthemetalusedtomakevarioustools,itis
impossibletofollowthecar.41 Butwhereacarhassimplybeenpainted,itwillnothaveradicallychangedandisstill
identifiable.
Perhapsthemostcommonformofmisappropriatedpropertyismoney.Althoughmoneyisathingwhich,in
principle,canbefollowed,thedifficultyisthatmoneyhasnoearmark:itisoftenimpossibletoidentifycertaincoins
orbanknotesasoriginallybelongingtotheclaimant.42 Forexample,itwouldrequiretheclaimanttomakeanoteof
theseriesnumbersofbanknotesinordertofollowthem.Wheremoneyismixed,tracingistobepreferredto
following.
(b)Tracing
InShalsonvRusso,RimerJdescribedtracing:43
astheprocessbywhichaclaimantseekstoshowthataninteresthehadinanassethasbecome
representedbyaninterestinadifferentasset.
(p.821) Itisaprocessinthesamemannerasfollowing,butwhereasfollowingconcernsthephysicalthing,tracing
isfocusseduponthevalueinherentinproperty.Thisvaluecanpassfromoneassettoanother,asdeterminedbythe
rulesoftracing.InFosk ettvMcKeown,LordMillettsaid:44
Wealsospeakoftracingoneassetintoanother,butthistooisinaccurate.Theoriginalassetstillexistsin
thehandsofthenewowner,oritmayhavebecomeuntraceable.Theclaimantclaimsthenewassetbecause
itwasacquiredinwholeorinpartwiththeoriginalasset.Whathetraces,therefore,isnotthephysicalasset
itselfbutthevalueinherentinit.
Fosk ettvMcKeownisnowtheleadingauthorityoftheHouseofLordsonthissubject,andprovidesclearguidance
onthetracingprocess.
FoskettvMcKeown[2001]1AC102(HL)
In1986,MrMurphyenteredintoawholelifeinsurancepolicy.Thesumassuredwas1millionandtheannual
premiumwas10,200.ThepolicystatedthatonMurphysdeathaspecifieddeathbenefitbecamepayable,
whichwouldbethegreaterof(1)thesumassuredand(2)theaggregatevalueofunitsnotionallyallocatedto
thepolicyunderitstermsattheirbidpriceonthedayofthereceiptbytheinsurersofawrittennoticeofdeath
(theinvestmentelement).Oneofthefunctionsofthisinvestmentelementwastopayforthecostoflifecover.
Onthereceiptofapremiumanotionalallocationofunitswouldtakeplaceandtheinsurerswouldcancelunits
tomeetthecostoflifecoverforthenextyear.Ifpremiumsceasedtobepaid,thepolicywouldbeconvertedinto
apaiduppolicyandunitswouldcontinuetobecancelleduntiltherewerenounitsleft.Oncetherewerenounits
leftthepolicywouldlapse,sothatdeathbenefitorsurrendervaluewouldnolongerbeavailable.
ThepolicyandmoneypaidunderitwereheldonanexpresstrustforMurphyswifeandchildren.Murphypaid
fivepremiums.Thefirstthreewerepaidfromhisownmoney,buthethenpaidtwootherpremiumsfromanother
trust,onein1989andtheotherin1990.ThemoneyinthistrusthadbeenpaidbypurchaserstoaMrDeasyin
respectofthepossibledevelopmentoflandinPortugal.MrDeasyheldthismoneyontrustforthepurchasers.
Murphycommittedsuicideandtheinsurerspaidjustover1milliontotworemainingtrusteesoftheinsurance
policyforthebenefitofMurphyschildren.Thepurchasersclaimedthat,sinceatleasttwoofthefivepremiums
hadbeenpaidfrommoneythathadbeenheldontrustforthem,theyshouldrecoveratleasttwofifthsofthe1
million,withtheremainingamountbeingpaidtoMurphyschildren.
AmajorityoftheCourtofAppeal[1998]Ch265heldthatthepurchaserscouldrecoverthevalueoftwoofthe
premiumsplusinterestbutcouldnotreceiveanyshareoftheproceedsofthepolicy.TheHouseofLords,bya
baremajority,disagreed,andinsistedthatthepurchaserswereentitledtorecovertwofifthsofthe1millionthat
washeldontrustforthechildren.
Thecaseraisesimportantissuesregardingclaimsandremedies,whichwillbeconsideredbelowthefollowing
extractsprincipallyconcernthenatureoftheproprietaryclaimandtheprocessoftracing.
Thecrucialfactorinthiscaseistoappreciatethatthepurchasersareclaimingaproprietaryinterestin
thepolicymoneysandthatsuchproprietaryinterestisnotdependentonanydiscretionvestedin(p.
822) thecourt.Noristhepurchasersclaimbasedonunjustenrichment.Itisbasedontheassertionby
thepurchasersoftheirequitableproprietaryinterestinidentifiedproperty.
Thefirststepistoidentifytheinterestofthepurchasers:itistheirabsoluteequitableinterestinthe
moneysoriginallyheldbyMr.Deasyontheexpresstrustsofthepurchaserstrustdeed.Likeany
otherequitableproprietaryinterest,thoseequitableproprietaryinterestsunderthepurchaserstrustdeed
whichoriginallyexistedinthemoneyspaidtoMr.Deasynowexistinanyotherpropertywhich,inlaw,
nowrepresentstheoriginaltrustassets.thecriticalquestioniswhethertheassetsnowsubjecttothe
expresstrustsofthepurchaserstrustdeedcompriseanypartofthepolicymoneys,aquestionwhich
dependsontherulesoftracing.If,asaresultoftracing,itcanbesaidthatcertainofthepolicymoneys
arewhatnowrepresentpartoftheassetssubjecttothetrustsofthepurchaserstrustdeed,thenasa
matterofEnglishpropertylawthepurchasershaveanabsoluteinterestinsuchmoneys.Thereisno
discretionvestedinthecourt.Thereisnoroomforanyconsiderationwhether,inthecircumstancesof
thisparticularcase,itisinamoralsenseequitableforthepurchaserstobesoentitled.Therules
establishingequitableproprietaryinterestsandtheirenforceabilityagainstcertainpartieshavebeen
developedoverthecenturiesandareanintegralpartofthepropertylawofEngland.Itisafundamental
errortothinkthat,becausecertainpropertyrightsareequitableratherthanlegal,suchrightsareinsome
waydiscretionary.Thiscasedoesnotdependonwhetheritisfair,justandreasonabletogivethe
purchasersaninterestasaresultofwhichthecourtinitsdiscretionprovidesaremedy.Itisacaseof
hardnosedpropertyrights.
LordMillett:MyLords,thisisatextbookexampleoftracingthroughmixedsubstitutions.Atthe
beginningofthestorytheplaintiffswerebeneficiallyentitledunderanexpresstrusttoasumstandingin
thenameofMr.Murphyinabankaccount.Fromtherethemoneymovedintoandoutofvariousbank
accountswhereinbreachoftrustitwasinextricablymixedbyMr.Murphywithhisownmoney.After
eachtransactionwascompletedtheplaintiffsmoneyformedanindistinguishablepartofthebalance
standingtoMr.Murphyscreditinhisbankaccount.Theamountofthatbalancerepresentedadebtdue
fromthebanktoMr.Murphy,thatistosayachoseinaction.Atthepenultimatestagetheplaintiffs
moneywasrepresentedbyanindistinguishablepartofadifferentchoseinaction,viz.thedebt
prospectivelyandcontingentlyduefromaninsurancecompanytoitspolicyholders,beingthetrusteesof
asettlementmadebyMr.Murphyforthebenefitofhischildren.Atthepresentandfinalstageitformsan
indistinguishablepartofthebalancestandingtothecreditoftherespondenttrusteesintheirbank
account.
Inthepresentcasetheplaintiffsdonotseektofollowthemoneyanyfurtheronceitreachedthebankor
insurancecompany,sinceitsidentitywaslostinthehandsoftherecipient(whichinanycaseobtained
anunassailabletitleasabonafidepurchaserforvaluewithoutnoticeoftheplaintiffsbeneficialinterest).
Insteadtheplaintiffshavechosenateachstagetotracethemoneyintoitsproceeds,viz.thedebt
presentlyduefromthebanktotheaccountholderorthedebtprospectivelyandcontingentlyduefromthe
insurancecompanytothepolicyholders.
Abeneficiaryofatrustisentitledtoacontinuingbeneficialinterestnotmerelyinthetrustpropertybutin
itstraceableproceedsalso,andhisinterestbindseveryonewhotakesthepropertyoritstraceable
proceedsexceptabonafidepurchaserforvaluewithoutnotice.Inthepresentcasetheplaintiffs
beneficialinterestplainlyboundMr.Murphy,atrusteewhowrongfullymixedthetrustmoneywithhisown
andwhoseeverydealingwiththemoney(includingthepaymentofthepremiums)wasinbreachoftrust.
Itsimilarlybindshissuccessors,thetrusteesofthechildrenssettlement,whoclaimnobeneficial
interestoftheirown,andMr.Murphyschildren,whoarevolunteers.Theygavenovalueforwhatthey
receivedandderivetheirinterestfromMr.Murphybywayofgift.
Abeneficiarysclaimagainstatrusteeforbreachoftrustisapersonalclaim.Itdoesnotentitlehimto
priorityoverthetrusteesgeneralcreditorsunlesshecantracethetrustpropertyintoitsproductand
establishaproprietaryinterestintheproceeds.Ifthebeneficiaryisunabletotracethetrustproperty(p.
823) intoitsproceeds,hestillhasapersonalclaimagainstthetrustee,buthisclaimwillbeunsecured.
Thebeneficiarysproprietaryclaimstothetrustpropertyoritstraceableproceedscanbemaintained
againstthewrongdoerandanyonewhoderivestitlefromhimexceptabonafidepurchaserforvalue
withoutnoticeofthebreachoftrust.Thesamerulesapplyevenwheretherehavebeennumerous
successivetransactions,solongasthetracingexerciseissuccessfulandnobonafidepurchaserfor
valuewithoutnoticehasintervened.
Inthepresentcasethebenefitsspecifiedinthepolicyareexpressedtobepayableinconsideration
ofthepaymentofthefirstpremiumalreadymadeandofthefurtherpremiumspayable.Thepremiums
arestatedtobe10,220payableatannualintervalsfrom6November,1985throughoutthelifetimeofthe
lifeassured.Itisbeyondargumentthatthedeathbenefitof1millionpaidonMr.Murphysdeathwas
paidinconsiderationforallthepremiumswhichhadbeenpaidbeforethatdate,includingthosepaidwith
theplaintiffsmoney,andnotjustsomeofthem.Partofthatsum,therefore,representedthetraceable
proceedsoftheplaintiffsmoney.
Itis,however,ofcriticalimportanceinthepresentcasetoappreciatethattheplaintiffsdonottracethe
premiumsdirectlyintotheinsurancemoney.Theytracethemfirstintothepolicyandthenceintothe
proceedsofthepolicy.Itisessentialnottoelidethetwosteps.Inthiscontext,ofcourse,theword
policydoesnotmeanthecontractofinsurance.Youdonottracethepaymentofapremiumintothe
insurancecontractanymorethanyoutraceapaymentintoabankaccountintothebankingcontract.
Thewordpolicyishereusedtodescribethebundleofrightstowhichthepolicyholderisentitledin
returnforthepremiums.Theserights,whichmaybeverycomplex,togetherconstituteachoseinaction,
viz.therighttopaymentofadebtpayableonafutureeventandcontingentuponthecontinuedpayment
offurtherpremiumsuntilthehappeningoftheevent.Thatchoseinactionrepresentsthetraceable
proceedsofthepremiumsitscurrentvaluefluctuatesfromtimetotime.Whenthepolicymatures,the
insurancemoneyrepresentsthetraceableproceedsofthepolicyandhenceindirectlyofthepremiums.
Inmyopinionthereisnoreasontodifferentiatebetweenthefirstpremiumorpremiumsandlater
premiums.Suchadistinctionisnotbasedonanyprinciple.Whyshouldthepolicybelongtotheparty
whopaidthefirstpremium,withoutwhichtherewouldhavebeennopolicy,ratherthantothepartywho
paidthelastpremium,withoutwhichitwouldnormallyhavelapsed?Moreover,anysuchdistinction
wouldleadtothemostcapriciousresults.Ifonlyfourannualpremiumsarepaid,whyshoulditmatter
whetherApaidthefirsttwopremiumsandBthesecondtwo,orBpaidthefirsttwoandAthesecond
two,ortheyeachpaidhalfofeachofthefourpremiums?Whyshouldthechildrenobtainthewholeofthe
sumassuredifMr.Murphyusedhisownmoneybeforehebegantousetheplaintiffsmoney,andonlya
returnofthepremiumsifMr.Murphyhappenedtousetheplaintiffsmoneyfirst?Whyshouldthe
proceedsofthepolicybeattributedtothefirstpremiumwhenthepolicyitselfisexpressedtobein
considerationofallthepremiums?Thereisnoanalogywiththecasewheretrustmoneyisusedto
maintainorimprovepropertyofathirdparty.Thenearestanalogyiswithaninstalmentpurchase.
HobhouseLJadoptedadifferentapproach.Heconcentratedonthedetailedtermsofthepolicy,andin
particularonthefactthatintheeventthepaymentofthefourthandfifthpremiumswiththeplaintiffs
moneymadenodifferencetotheamountofthedeathbenefit.Oncethethirdpremiumhadbeenpaid,
therewassufficientsurrendervalueinthepolicy,builtupbytheuseofMr.Murphysownmoney,tokeep
thepolicyonfootforthenextfewyears,andasithappenedMr.Murphysdeathoccurredduringthose
fewyears.Butthiswasadventitiousandunpredictableatthetimethepremiumswerepaid.The
argumentisbasedoncausationandasIhaveexplainedisacategorymistakederivedfromthelawof
unjustenrichment.Itisanexampleofthesamefallacythatgivesrisetotheideathattheproceedsofan
ordinarylifepolicybelongtothepartywhopaidthelastpremiumwithoutwhichthepolicywouldhave
lapsed.Butthequestionisoneofattributionnotcausation.Thequestionisnotwhetherthesamedeath
benefitwouldhavebeenpayableifthelastpremiumorlastfewpremiumshadnotbeenpaid.It(p.824)
iswhetherthedeathbenefitisattributabletoallthepremiumsoronlytosomeofthem.Theansweris
thatdeathbenefitisattributabletoallofthembecauseitrepresentstheproceedsofrealisingthepolicy,
andthepolicyinturnrepresentstheproductofallthepremiums.
Inanycase,HobhouseLJsanalysisofthetermsofthepolicydoesnotgofarenough.Itisnotcorrect
thatthelasttwopremiumscontributednothingtothesumpayableonMr.Murphysdeathbutmerely
reducedthecosttotheinsurersofprovidingit.Lifecoverwasprovidedinreturnforaseriesofinternal
premiumspaidforbythecancellationofunitspreviouslyallocatedtothepolicy.Unitswereallocatedto
thepolicyinreturnfortheannualpremiums.Priortotheircancellationthecancelledunitsformedpartof
amixedfundofunitswhichwastheproductofallthepremiumspaidbyMr.Murphy,includingthosepaid
withtheplaintiffsmoney.Onordinaryprinciples,theplaintiffscantracethelasttwopremiumsintoand
outofthemixedfundandintotheinternalpremiumsusedtoprovidethedeathbenefit.
Itistruethatthelasttwopremiumswerenotneededtoprovidethedeathbenefitinthesensethatinthe
eventswhichhappenedthesameamountwouldhavebeenpayableevenifthosepremiumshadnotbeen
paid.Inotherwords,withthebenefitofhindsightitcanbeseenthatMr.Murphymadeabadinvestment
whenhepaidthelasttwopremiums.Itis,therefore,superficiallyattractivetosaythattheplaintiffs
moneycontributednothingofvalue.Buttheargumentprovestoomuch,foriftheplaintiffscannottrace
theirmoneyintotheproceedsofthepolicy,theyshouldhavenoproprietaryremedyatall,notevenalien
forthereturnoftheirmoney.ButthefactisthatMr.Murphy,whocouldnotforeseethefuture,didchoose
topaythelasttwopremiums,andtopaythemwiththeplaintiffsmoneyandtheywereappliedbythe
insurertowardsthepaymentoftheinternalpremiumsneededtofundthedeathbenefit.Itshouldnotavail
hisdoneesthatheneednothavepaidthepremiums,andthatifhehadnotthen(intheeventswhich
happened)theinsurerswouldhaveprovidedthesamedeathbenefitandfundeditdifferently.
Fosk ettisacomplicatedcase,butthesespeechesfromtwojudgesinthemajorityshowthattheclaimantscould
tracetheirequitableproprietaryinterestintotheinsurancepremiumsandthenintothepayoutfromthepolicy.
TracingisamatterforpropertylawLordBrowneWilkinsonsinsistenceuponhardnosedpropertyrights
emphasizesthatthereisnoroomfordiscretionorconsiderationsoffairnessinthisexercise.Instead,thefocusis
uponwhetherthevalueinherentintheoriginalproprietaryinterestcanbeattributedtothevaluepresentin
subsequentproperty,andwhetherthevariousstagesoftheprocessaretransactionallylinked.
Themajorityjudgeswereadamantthattheclaimantscouldtraceintothepayoutfromthedeathbenefit,althoughthe
payoutwouldhaveoccurredeveniftheclaimantsmoneyhadnotbeenusedtopaythefourthandfifthpayment.This
wasbecausethepayoutcouldbeattributedtoallthepremiums.Thisconclusionwasconsistentwiththetermsof
thelifeinsurancepolicyitself,butwaschallengedbytheminorityjudges.LordSteynthoughtthelackofacausal
linkbetweenthedeathbenefitandpaymentofthefinalpaymentswasproblematicfortracing:45
Thereisinprinciplenodifficultyaboutallowingaproprietaryclaiminrespectoftheproceedsofaninsurance
policy.Ifinthecircumstancesofthepresentcasethestolenmoneyshadbeenwhollyorpartlycausativeof
theproductionofthedeathbenefitreceivedbythechildrentherewouldhavebeennoobstacletoadmitting
suchaproprietaryclaim.Butthosearenotthematerialfactsofthecase.Iamnotinfluencedbyhindsight.
Thefactisthattherightsofthechildrenhadcrystallisedby1989beforeanymoneywasstolenandusedto
paythe1989and1990premiums.Indeed[intheCourtofAppeal]MorrittLJexpresslyacceptsthatinthe
event,thepolicymoneyswouldhavebeenthesameifthelaterpremiumshadnotbeenpaid.Counselforthe
purchasersacceptedthatasamatterofprimary(p.825) factthiswasacorrectstatement.Butheargued
thattherewasneverthelessacausallinkbetweenthepremiumspaidwithstolenmoneysandthedeath
benefit.Icannotacceptthisargument.Itwouldbeartificialtosaythatallfivepremiumsproducedthepolicy
moneys.Thepurchasersmoneydidnotbuyanypartofthedeathbenefit.Onthecontrary,thestolen
moneyswerenotcausallyrelevanttoanybenefitreceivedbythechildren.The1989and1990premiumsdid
notcontributetoamixedfundinwhichthepurchasershaveanequitableinterestentitlingthemtoarateable
division.Itwouldbeaninnovationtocreateaproprietaryremedyinrespectofanasset(thedeathbenefit)
whichhadalreadybeenacquiredatthedateoftheuseofthestolenmoneys.
Onaslightlydifferentnote,theotherdissentient,LordHope,challengedtheconclusionthatthepayoutcouldbe
attributedtothefourthandfifthpremiums:46
Theeffectofthepaymentofthefirstpremiumwastoconferarightonthetrusteesofthepolicyasagainstthe
insurerstothepaymentof1monthedeathofthelifeassured.Theeffectofthepaymentofthefour
remainingpremiumsuptothedateofthelifeassuredssuicidewastoreducetheamountwhichtheinsured
hadtoprovidetomeetthisliabilityoutbyreinsuranceorofitsownfunds.Buttheyhadnoeffectontheright
ofthetrusteestothepaymentofthesumassuredunderthetermsofthepolicy,astheydidnotincreasethe
amountpayableonthedeath.
Idonotthinkthatthepurchaserscandemonstrateonthesefactsthattheyhaveaproprietaryrighttoa
proportionateshareoftheproceeds.Theycannotshowthattheirmoneycontributedtoanyextentto,or
increasedthevalueof,theamountpaidtothetrusteesofthepolicy.Asubstantiallygreatersumwaspaidout
bytheinsurersasdeathbenefitthanthetotalofthesumswhichtheyreceivedbywayofpremium.Aprofit
wasmadeontheinvestment.Butthetermsofthepolicyshowthattheamountwhichproducedthisprofithad
beenfixedfromtheoutsetwhenthefirstpremiumwaspaid.Itwasattributabletotherightsobtainedbythe
lifeassuredwhenhepaidthefirstpremiumfromhisownmoney.Nopartofthatsumwasattributabletovalue
ofthemoneytakenfromthepurchaserstopaytheadditionalpremiums.
Fosk ettvMcKeownwasnotaneasycasetodecide.Theminorityapproachisdefensible:tracingisamatterof
evidence,soitmightseemoddtoignoreevidenceofwhatactuallyhappenedandthefactthatthepremiumspaid
withthebeneficiariesmoneywerenotnecessaryforthedeathbenefitpayout.Thusitmightappearlegitimateto
traceintothefourthandfifthpremiums,butmoredifficulttotracefromthatintothepayoutbecausethepremiums
werenotnecessaryforthepayout.However,theseargumentswereclearlyrejectedbythemajorityoftheHouseof
Lords.Causationisirrelevant,andthetermsoftheinsurancepolicymadeitclearthatthepayoutfromthepolicy
wasnotlinkedtoaparticularpremium,butwasinconsiderationofallthepremiums.
(c)TracingatCommonLawandinEquity
Itisimportanttoappreciatethat,althoughthefundamentalprocessoftracingissimilaratCommonLawandEquity,
thereareimportantdifferencesbetweenthetwo.InReDiplock ,LordGreeneMRhighlighted:47
thematerialisticapproachofthecommonlawEquityadoptedamoremetaphysicalapproach.
(p.826) Crucially,themoremetaphysicalapproachofEquityallowstracingintoamixtureofmoney,whereasthe
morerigid,physicalstanceoftheCommonLawdoesnot.48 TheconstraintsoftheCommonLawwillbeconsidered
first,beforeconsideringwhetherthisisanareawherefusion49 oftracingrulesshouldoccur.
(i)TracingatCommonLaw
Wheretheclaimanthasanexistinglegalinterestinproperty,whichhasbeenmisappropriatedortransferredto
another,heorshewillneedtorelyontheCommonLawtracingrulestoestablishthattheinterestsubsistsin
substitutepropertyheldbythedefendant.ItisestablishedorthodoxythattheCommonLawcannottraceintoa
mixture.However,ithasbeenpersuasivelyarguedthattheCommonLawhasnottraditionallybeensorestricted.50
Forexample,theoldcaseofTaylorvPlumerhasoftenbeenthoughttodecidethattheCommonLawcouldnottrace
intoamixture,onthebasisofthefollowingpassagefromLordEllenboroughCJ:51
Itmakesnodifferenceinreasonorlawintowhatotherform,differentfromtheoriginal,thechangemayhave
beenmade,fortheproductoforsubstitutefortheoriginalthingstillfollowsthenatureofthethingitself,as
longasitcanbeascertainedtobesuch,andtherightonlyceaseswhenthemeansofascertainmentfail,
whichisthecasewhenthesubjectisturnedintomoney,andmixedandconfoundedinageneralmassofthe
samedescription.Thedifficultywhicharisesinsuchacaseisadifficultyoffactandnotoflaw,andthe
dictumthatmoneyhasnoearmarkmustbeunderstoodinthesamewayi.e.aspredicatedonlyofan
undividedandundistinguishablemassofcurrentmoney.
Thisdictummightbethoughttosupporttheargumentthatwhenanassetissoldandthemoneydepositedinan
account,itbecomesimpossibletotracealegalproprietaryinterest.However,thisreadingofTaylorvPlumerhas
beenshowntobeflawed,sincethecaseitselfactuallyconcernedequitableproprietaryrights.52 MillettLJ
recognizedthissubsequentlyinTrusteeofthePropertyofFCJones&SonsvJones:53
InAgip(Africa)LtdvJack son[1990]Ch265at285Isaidthattheabilityofthecommonlawtotraceanasset
intoachangedforminthesamehandswasestablishedinTaylorvPlumer(1815)3M&S562.
[MillettJcitedLordEllenboroughCJandcontinued:]
InthisitappearsthatIfellintoacommonerror,forithassincebeenconvincinglydemonstratedthat,
althoughTaylorvPlumerwasdecidedbyacommonlawcourt,thecourtwasinfactapplyingtherulesof
equity:seeLionelSmith,TracinginTaylorvPlumer:EquityintheCourtofKingsBench[1995]LMCLQ240.
(p.827) However,MillettLJdidnotdepartfromhisreasoninginAgip.Rather,heemphasizedthatthecase
involved:54
nofactualdifficultiesofthekindwhichprovedfatalinthiscourttothecommonlawclaiminAgip(Africa)Ltd.
v.Jack son[1991]Ch.547.
ThissuggeststhattheinsistenceinAgipthatitisimpossibleatCommonLawtotracethroughamixtureremains
goodlaw.55
Agip(Africa)LtdvJackson[1990]Ch265[1991]Ch547
TheclaimanthadcarriedoutoilexplorationsinTunisiainthe1970sandearly1980s,andheldanaccountwith
theBanqueduSudinTunistopayoverseassuppliers.Theplaintiffdiscoveredthattheyhadbeendefraudedof
largesumsofmoneybyitschiefaccountant,MrZdiri.Thisactionconcernedonepaymentof$518,822,which
wasmadetoBakerOilServicesLtd(BakerOil),ashellcompanythatimmediatelybeforethetransferofthe
moneytoithadnothingstandingtoitscreditintheaccount.Shortlyafterreceivingthemoneythewhole
balancewastransferredtotheaccountofJackson&Co.,anaccountancyfirmthepartnersofwhichwerethe
firstandseconddefendants.TheywerealsothedirectorsandshareholdersofBakerOil.Thethirddefendant
wasanemployeeofthepartnership.Themoneywasonlyheldinthepartnershipaccountforthebenefitofthe
partnershipclients.Fromthereitwasthentransferredtoanothercompany,whichheldanaccountatthesame
branchofLloydsBank,beforebeingtransferredoverseastotheultimaterecipientsandorganisersofthefrauds.
Theclaimantbroughtanumberofclaimsagainstthedefendants.56 Theclaimatissueinthispassageinvolved
relianceontracingatCommonLaw.57
MillettJ:
Thecommonlawhasalwaysbeenabletofollowaphysicalassetfromonerecipienttoanother.Butit
canonlyfollowaphysicalasset,suchasachequeoritsproceeds,fromonepersontoanother.Itcan
followmoneybutnotachoseinaction.Moneycanbefollowedatcommonlawintoandoutofabank
accountandintothehandsofasubsequenttransferee,providedthatitdoesnotceasetobeidentifiable
bybeingmixedwithothermoneyinthebankaccountderivedfromsomeothersource:BanqueBelge
pourlEtrangervHambrouck [1921]1KB321.Applyingtheseprinciples,theplaintiffsclaimtofollow
theirmoneythroughBakerOilsaccountwhereitwasnotmixedwithanyothermoneyandintoJackson
&CosaccountatLloydsBank.
Thedefendantsdenythis.Theycontendthattracingisnotpossibleatcommonlawbecausethemoney
wasmixed,firstwhenitwashandledinNewYork,andsecondlyinJackson&Cosownaccountat
LloydsBank.
Thelatterobjectioniseasilydisposedof.itcanbenodefencefor[thedefendant]toshowthathehas
somixeditwithhisownmoneythathecannottellwhetherhestillhasitornot.Mixingbythedefendant
himselfmust,therefore,bedistinguishedfrommixingbyapriorrecipient.Theformerisirrelevant,butthe
latterwilldestroytheclaim,foritwillpreventproofthatthemoneyreceivedbythedefendantwasthe
moneypaidbytheplaintiff.
(p.828) Inmyjudgment,however,theformerobjectionisinsuperable.Themoneycannotbefollowedby
treatingitastheproceedsofachequepresentedbythecollectingbankinexchangeforpaymentbythe
payingbank.Themoneywastransmittedbytelegraphictransfer.Therewasnochequeoranyequivalent.
Thepaymentorderwasnotachequeoritsequivalent.Itremainedthroughoutinthepossessionofthe
BanqueduSud.NocopywassenttoLloydsBankorBakerOilorpresentedtotheBanqueduSudin
exchangeforthemoney.Itwasnormallytheplaintiffspracticetoforwardacopyofthepaymentorderto
thesupplierwhenpayinganinvoicebutthiswasforinformationonly.Itdidnotauthoriseorenablethe
suppliertoobtainpayment.Thereisnoevidencethatthispracticewasfollowedinthecaseofforged
paymentordersanditisexceedinglyunlikelythatitwas.
NothingpassedbetweenTunisiaandLondonbutastreamofelectrons.Itisnotpossibletotreatthe
moneyreceivedbyLloydsBankinLondonoritscorrespondentbankinNewYorkasrepresentingthe
proceedsofthepaymentorderorofanyotherphysicalassetpreviouslyinitshandsanddeliveredbyitin
exchangeforthemoney.58
TheinabilityoftheCommonLawtotraceintoamixtureisparticularlyunfortunateinthecontextofmoderndayfraud.
Itisnotuncommonforsomeonewhomisappropriatespropertytosellitanddeposittheproceedsinabankaccount
mixedwithotherfunds.Agip(Africa)LtdvJack sonmakesitclearthatitisimpossibletotraceatCommonLaw
throughtheelectronsinvolvedinbanktransferstheCommonLawisunabletoidentifyalegalproprietaryinterestin
themoneyinthebankaccount.Thisstandsinstarkcontrasttothemoreflexiblepossibilitiesaffordedbytracingin
Equity,anddrivesmanyclaimsintotheequitablearena.Thisbifurcationisunnecessarilycomplicatedanda
potentialsourceofconfusion.59 Theproblemsinvolvedwouldbegreatlyalleviatedweretheretobeonlyonesetof
tracingrules.
Thereissomesuggestionthatsubstantivefusionofthetracingruleswilloccurinthefuture.
FoskettvMcKeown[2001]1AC102,113(LordSteyn)
Intruthtracingisaprocessofidentifyingassets:itbelongstotherealmofevidence.Ittellsusnothing
aboutlegalorequitablerightstotheassetstraced.InacrystallineanalysisProfessorBirks(The
NecessityofaUnitaryLawofTracing,essayinMak ingCommercialLaw,EssaysinHonourofRoy
Goode(1997),pp.239258)explained,atp.257,thatthereisaunifiedregimefortracingandthatit
allowstracingtobecleanlyseparatedfromthebusinessofassertingrightsinorinrelationtoassets
successfullytraced.ApplyingthisreasoningProfessorBirksconcludes,atp.258:
thatthemodernlawisequippedwithvariousmeansofcopingwiththeevidentialdifficultieswhicha
tracingexerciseisboundtoencounter.Theprocessofidentificationthusceasestobeeitherlegalor
equitableandbecomes,asisfitting,genuinelyneutralastotherightsexigibleinrespectoftheassets
intowhichthevalueinquestionistraced.Thetracingexerciseoncesuccessfullycompleted,itcanthen
beaskedwhatrights,ifany,theplaintiffcan,onhisparticularfacts,assert.Itisatthatpointthatit
becomesrelevanttorecallthatonsomefactsthoserightswillbepersonal,onothersproprietary,on
somelegal,andonothersequitable.
(p.829) Iregardthisexplanationascorrect.Itisconsistentwithorthodoxprinciple.Itclarifiesthe
correctapproachtosocalledtracingclaims.Itexplainswhattracingisaboutwithoutprovidinganswers
tocontroversiesaboutlegalorequitablerightstoassetssotraced.
Inasimilarvein,LordMillettobserved:60
Givenitsnature,thereisnothinginherentlylegalorequitableaboutthetracingexercise.Thereisthusno
senseinmaintainingdifferentrulesfortracingatlawandinequity.Onesetoftracingrulesisenough.The
existenceoftwohasneverformedpartofthelawintheUnitedStates:seeScottonTrusts,4thed(1989),
section515,atpp605609.Thereiscertainlynologicaljustificationforallowinganydistinctionbetweenthem
toproducecapriciousresults.
SuchinfluentialdictafromtheHouseofLordsmightgivesomeencouragementthattheCommonLaw/Equitydivide
regardingtracingwillbeeliminated.ButFosk ettvMcKeownclearlyinvolvedtracinganequitableproprietaryinterest,
andsoissuesofCommonLawtracingsimplydidnotarise,sothatthedictaherewereobiter.Thus,inShalsonv
RussoRimerJwasabletostatethat:61
itcannotbesaidthatFosk etthassweptawaythelongrecogniseddifferencebetweencommonlawand
equitabletracing.
Inthisregard,Englandappearstobebehindsomeotherjurisdictions.LordMillettmentionedAmericanlaw,and
evenmorerecentlytheSupremeCourtofCanada,inBMPGlobalDistributionInc.vBank ofNovaScotia,62 has
recognizedthepossibilityoftracingatCommonLawthroughaclearingsystem.DeschampsJ,givingthejudgment
ofthecourt,acceptedtheviewadvancedbyLordMillettinFosk ett,givenabove,andsaid:63
theclearingsystemshouldbeaneutralfactor:P.Birks,Overview:Tracing,ClaimingandDefences,inP.
Birks,ed.,LaunderingandTracing(2003),289,atpp.3025.Indeed,Iprefertoassessthetraceabilityofthe
assetaftertheclearingprocessandnotseethatprocessasasystematicbreakinthechainofpossessionof
thefunds.Justasthecollectingbankreceivesthefundsasthepayeesagent,theclearingsystemisonlya
paymentprocess.Payingthroughtheclearingsystemamountstonomorethanchannellingthefunds.
Thisisasensibleapproach,whichcanbecontrastedwiththattakeninAgip(Africa)LtdvJack son.Itbetterequips
thecourtstodealwiththeconsequencesofcommercialfraud,sothatitshouldbepossibletotraceatlawintoa
mixture.
Inanyevent,itisnotthecasethattracingatLawrequiresthepropertytostayinitsoriginalform.Itispossibleto
tracethroughabankaccountaslongastheaccountintowhichmoneyisdepositeddoesnotcontainanyother
money,sothatthereisnomixing.64 ItisevenpossibletotraceatLawintoprofitsmadefromtheoriginalproperty,
aslongasthereisnomixing.ThisisillustratedbyTrusteeofthePropertyofFCJones&SonsvJones.
(p.830) TrusteeofthePropertyofFCJones&SonsvJones[1997]Ch15965
Thedefendant,thewifeofabankrupt,paid11,700intoanaccountwithafirmofcommoditybrokers.This
moneywasdrawnfromabankaccountwithMidlandBank,whichwasjointlyinherhusbandsnameandinthe
nameofanotherbankrupt.Sheusedthismoneytodealinpotatofuturesandpaid50,760obtainedfromher
dealsintoabankdepositaccountwithRaphaels.Thetrusteeinbankruptcyclaimedthismoney.TheCourtof
Appealheldthatthemoneyinthehusbandsbankaccountbelongedtothetrusteeinbankruptcy,andthatthe
trusteecouldtracethismoneyintothebankaccount.
MillettLJ:
Inthepresentcaseequityhasnoroletoplay.Thetrusteemustbringhisclaimatcommonlaw.Itfollows
that,ifhehastotracehismoney,hemustrelyoncommonlawtracingrules,andthathehasno
proprietaryremedy.Butitdoesnotfollowthathehasnoproprietaryclaim.Hisclaimisexclusively
proprietary.Heclaimsthemoneybecauseitbelongstohimatlaworrepresentsprofitsmadebytheuse
ofmoneywhichbelongedtohimatlaw.
Thetrusteesubmitsthathehasnoneedtotrace,sincethefactsareclearandundisputed.The
defendantdidnotmixthemoneywithherown.Thetrusteesmoneyremainedidentifiableassuch
throughout.But,ofcourse,hedoeshavetotraceitinordertoestablishthatthemoneywhichheclaims
representshismoney.Counselforthedefendantacknowledgesthatthetrusteecansuccessfullytrace
hismoneyintoheraccountatRaphaels,forhisconcessioninrespectofthe11,700acknowledgesthis.

inmyjudgmenttheconcessionthatthetrusteecantracethemoneyatcommonlawisrightlymade.
Therearenofactualdifficultiesofthekindwhichprovedfatalinthiscourttothecommonlawclaimin
AgipItisnotnecessarytotracethepassageofthemoneythroughtheclearingsystemortheLondon
potatofuturesmarket.Themoneywhichthedefendantpaidintoheraccountwiththecommoditybrokers
representedtheproceedsofchequeswhichshereceivedfromherhusband.Thosechequesrepresented
moneyinthebankruptsjointaccountatMidlandBankwhichbelongedtothetrustee.
InLipk inGormanvKarpnaleLtd[1991]2AC548at573LordGoffofChieveleyheldthattheplaintiffs
couldtraceorfollowtheirpropertyintoitsproductforthisinvolvesadecisionbytheowneroftheoriginal
propertytoasserthistitletotheproductinplaceofhisoriginalproperty.Inthatcasetheoriginal
propertywastheplaintiffschoseinaction,adebtowedbythebanktotheplaintiffs.LordGoffheld,at
574,thattheplaintiffscouldtracetheirpropertyatcommonlawinthatchoseinaction,orinanypartof
it,intoitsproduct,i.e.cashdrawnbyCassfromtheirclientaccountatthebank.
Accordingly,thetrusteecanfollowthemoneyinthejointaccountatMidlandBank,whichhadbeen
vestedbystatuteinhim,intotheproceedsofthethreechequeswhichthedefendantreceivedfromher
husband.Thetrusteedoesnotneedtofollowthemoneyfromonerecipienttoanotherorfollowitthrough
theclearingsystemhecanfollowthechequesastheypassfromhandtohand.Itissufficientforhimto
beabletotracethemoneyintothechequesandthechequesintotheirproceeds.
GiventhatthetrusteecantracehismoneyatMidlandBankintothemoneyinthedefendantsaccount
withthecommoditybrokers,canhesuccessfullyassertaclaimtothatpartofthemoneywhich
representstheprofitmadebytheuseofhismoney?Ihavenodoubtthat,intheparticularcircumstances
ofthiscase,hecan.ThereisnoneedtotracethroughthedealingsontheLondonpotatofuturesmarket.
Ifthedefendant,asthenominalaccountholder,hadanyentitlementtodemandpaymentfromthe
brokers,thiswasbecauseofthetermsofthecontractwhichshemadewiththem.Underthetermsof
thatcontractitisreasonabletoinferthatthebrokerswereauthorisedtodealinpotatofuturesonher(p.
831) account,todebitheraccountwithlossesandtocredititwithprofits,andtopayheronlythe
balancestandingtoheraccount.Itis,inmyopinion,impossibletoseparatethechoseinaction
constitutedbythedepositofthetrusteesmoneyonthosetermsfromthetermsuponwhichitwas
deposited.Thechoseinaction,whichwasvestedinthedefendantsnamebutwhichinrealitybelonged
tothetrustee,wasnotarighttopaymentfromthebrokersoftheoriginalamountdepositedbutarightto
claimthebalance,whethergreaterorlessthantheamounteddepositedanditistothatchoseinaction
thatthetrusteenowlaysclaim.
Becausetherewasachainofstraightsubstitutionsfromthemoneyinthepartnershipaccounttothechoseinaction
representingthefundsdepositedatthewifesbankaccount,itdidnotmatterthattheoriginalmoneypaidfromthe
partnershipbankaccounthadnearlyquintupledinvalue:thetrusteeinbankruptcywasentitledtoclaimthisprofit
simplybecauseitderivedfromtheoriginalmoneywithoutbeingmixedwithanyothermoneyofthewife.
(ii)TracinginEquity
Ashasalreadybeenseen,tracinginEquityisoftentobepreferredtotracingatCommonLawbecauseofEquitys
abilitytofocusnotonthephysicalthingbutthemetaphysicalnatureofproperty.Equitycantracethevalueof
misappropriatedassetsthroughamixture,whichisparticularlyimportantwhenmoneyisplacedinacurrentaccount
andmixedwithfundsfromothersources.However,therearetwoprincipaldisadvantagestotheequitable
jurisdiction,whichmightfavourseekingtotraceatCommonLaw.First,equitableclaimsaresusceptibletothebona
fidepurchaserdefence,whichdoesnotaffectclaimstolegaltitle.66 Secondly,andmorerelevanttotheprocessof
tracing,orthodoxydemandsthatthepropertyinwhichtheclaimanthadanequitableproprietaryinterestmusthave
passedtothedefendantthroughthehandsofafiduciaryinbreachofduty.Thisrestrictionwillbeexaminedfirst.
(a)Thefiduciaryrequirement
ThefiduciaryrequirementfortracinginEquitywillbesatisfiedwhere,asisusuallythecase,thepropertyhadbeen
heldbyatrusteeoranyothertypeoffiduciary.Importantly,thefiduciarythroughwhosehandsthepropertymust
havepassedinbreachofdutyneednotbethedefendanthimorherself.
ReDiplock[1948]Ch46567
Byhiswill,MrDiplockdirectedhisexecutorstoapplyhisresiduaryestateforsuchcharitableinstitutionsor
othercharitableorbenevolentobjectorobjectsinEnglandastheyshouldintheirabsolutediscretion
select.Itwasassumedthatthewillcreatedavalidcharitabletrustandtheexecutorsdistributedsome
203,000among139differentcharitiesbeforeitsvaliditywaschallengedbythenextofkin.TheHouseofLords
heldthebequestvoidinChichesterDiocesanFundandBoardofFinanceInc.vSimpson.68 Thenextofkinof
thetestator,havingexhaustedtheirremedyagainsttheexecutors,madeclaimstorecoverthemoneyfromthe
charities.
(p.832) Itwasheldthatthenextofkinsucceeded,bothinrespectofpersonalclaims 69 andproprietary

claims.70 Therighttotraceintoamixedfundwasnotrestrictedtocaseswherethedefendantwastheperson
whohadmixedthemoneys,orwherethefiduciaryrelationshipexistedbetweenthepartiestotheaction.
LordGreeneMR:
71
Firstofall,itappearstoustobewrongtotreattheprinciplewhichunderliesHallettscase71 ascoming
intooperationonlywherethepersonwhodoesthemixingisnotonlyinafiduciarypositionbutisalsoa
partytothetracingaction.Ifheisapartytotheactionheis,ofcourse,precludedfromsettingupacase
inconsistentwiththeobligationsofhisfiduciaryposition.Butsupposingthatheisnotaparty?Theresult
cannotsurelydependonwhatequitywouldorwouldnothaveallowedhimtosayifhehadbeenaparty.
Supposethatthesoletrusteeof(say)fiveseparatetrustsdraws1001.outofeachofthetrustbanking
accounts,paystheresulting5001.intoanaccountwhichheopensinhisownname,drawsachequefor
5001.onthataccountandgivesitasapresenttohisson.Aclaimbythefivesetsofbeneficiariesto
followthemoneyoftheirrespectivetrustswouldbeaclaimagainsttheson.Hewouldstandinno
fiduciaryrelationshiptoanyofthem.Werecoilfromtheconclusionthatallfivebeneficiarieswouldbe
dismissedemptyhandedbyacourtofequityandthesonlefttoenjoywhatinequitywasoriginallytheir
money.
..
Thestartingpointoftheclaimofthedepositorswastheexistenceofafiduciaryrelationshipasbetween
themselvesandthedirectors:thatrelationshiparosefromthefactthatthedepositorshadentrustedtheir
moneytothedirectorsforthepurposeofabusinesswhichcouldnotlawfullybecarriedon,sothatthe
directorsmustbetreatedasholdingthemoneyonbehalfofthedepositors.Ifthedirectorshadpaidthe
moneyofadepositorintotheirownbankingaccounthewouldhavehadanactionagainstthemexactly
similartotheactioninHallettscaseanditwouldhavebeencorrectlysaidthatthedirectorscouldnotbe
heardtosetupatitleoftheirowntothemoneystandingintheaccountadversetotheclaimofthe
depositor.Butnothingofthesortcouldbesaidifthedirectorspaidthemoneyintotheaccountofthe
societyatitsbankers.Neithertheconscienceofthesocietynorofitsliquidator(ifitwentintoliquidation)
couldevercomeintothepictureonthebasisofafiduciaryrelationshipsincetheonlypartiestothat
relationshipwerethedirectorsandthedepositors.Thesocietycouldnothavebeenapartytoit,sinceit
hadnopowertoacceptthedepositorsmoney.If,therefore,insuchacase,thedepositorcouldclaima
chargeonthesocietysaccountwithitsbankerstheclaimmusthavebeenbasedonsomewider
principle.
Whatcanthatprinciplebe?InourjudgmentitmustbetheprincipleclearlyindicatedbyLordParker,72
thatequitymayoperateontheconsciencenotmerelyofthosewhoacquirealegaltitleinbreachof
sometrust,expressorconstructive,orofsomeotherfiduciaryobligation,butofvolunteersprovidedthat
asaresultofwhathasgonebeforesomeequitableproprietaryinteresthasbeencreatedandattachedto
thepropertyinthehandsofthevolunteer.
Itissensibletorequiremisappropriationofthepropertyinordertotrace:ifthepropertywasproperlytransferredto
another,thenthereisnoreasonwhythetracingexerciseshouldbegin.73 However,(p.833) therequirementofa
fiduciaryrelationshipcanposedifficulties.Theexampleofathiefstealingmoneyhasalreadybeenraised74 itis
clearthatthevictimcantraceinEquity,butcanathiefreallybesaidtobeinafiduciaryrelationshipwiththevictim
ofhiscrime?Todosoissomewhatartificialitissuggestedthatitwouldbebettertojettisontherequirementfora
breachoffiduciaryduty.ThishasbeendoneinNewZealandinEldersPastoralLtdvBank ofNewZealand,75 both
CookeP76 andSomersJ77 citedwithapprovalthefollowingpassagefromthethirdeditionofGoffandJones,The
LawofRestitution:78
Equitystraditionalrulessuggestthatitisnecessarytodiscoverafiduciaryrelationshipbeforeaplaintiffcan
tracehisproperty.Nowthatlawandequityarefusedthisrequirementmakeslittlesense,andithasbeen
recentlyacceptedthatthereceivingofmoneywhichconsistentlywithconsciencecannotberetainedis,in
equity,sufficienttoraiseatrustinfavourofthepartyforwhomorinwhoseaccountitwasreceived.
ThisstephasnotyetbeentakeninEngland.However,itmaynotbetoofaraway.InAgip,MillettJrecognizedthe
forceofcriticisms 79 ofthefiduciaryrequirement:80
Theonlyrestrictionontheabilityofequitytofollowassetsistherequirementthattheremustbesome
fiduciaryrelationshipwhichpermitstheassistanceofequitytobeinvoked.Therequirementhasbeenwidely
condemnedanddependsonauthorityratherthanprinciple,butthelawwassettledbyReDiplock [1948]Ch
465.Itmayneedtobereconsideredbutnot,Iventuretothink,atfirstinstance.Therequirementmaybe
circumventedsinceitisnotnecessarythatthefundtobetracedshouldhavebeenthesubjectoffiduciary
obligationsbeforeitgotintothewronghandsitissufficientthatthepaymenttothedefendantitselfgivesrise
toafiduciaryrelationship:ChaseManhattanBank NAvIsraelBritishBank (London)Ltd[1981]Ch105.In
thatcase,however,equitysassistancewasnotneededinordertotracetheplaintiffsmoneyintothehands
ofthedefendantitwasneededinordertoascertainwhetherithadanyoftheplaintiffsmoneyleft.Thecase
cannot,therefore,beusedtocircumventtherequirementthatthereshouldbeaninitialfiduciaryrelationshipin
ordertostartthetracingprocessinequity.
Therequirementis,however,readilysatisfiedinmostcasesofcommercialfraud,sincetheembezzlementof
acompanysfundsalmostinevitablyinvolvesabreachoffiduciarydutyonthepartofoneofthecompanys
employeesoragents.Thatwassoin[the]presentcase.Therewasclearlyafiduciaryrelationshipbetween
Mr.Zdiriandtheplaintiffs.Mr.Zdiriwasnotadirectornorasignatoryontheplaintiffsbankaccount,buthe
wasaseniorandresponsibleofficer.Assuchhewasentrustedwithpossessionofthesignedpayment
orderstohavethemtakentothebankandimplemented.Hetookadvantageofhispossessionofthemto
divertthemoneyandcausetheseparationbetweenitslegalownershipwhichpassedtothepayeesandits
beneficialownershipwhichremainedintheplaintiffs.Thereisclearauthoritythatthereisareceiptoftrust
propertywhenacompanysfundsaremisappliedbyadirectorand,inmyjudgment,thisisequallythecase
whenacompanysfundsaremisappliedbyanypersonwhosefiduciarypositiongavehimcontrolofthemor
enabledhimtomisapplythem.
(p.834) MillettJissurelyrighttosuggestthatthelawneedstobereconsidered.Forexample,inChaseManhattan,
adecisionhementionedandwhichiscriticallydiscussedmorefullyinChapter7,81 GouldingJconcludedthata
fiduciaryrelationshipexistedbetweentwobankswhenonebankhadmadeapaymenttoanotherbankbymistake.
Butthisisalsoveryartificial:whywouldonebankhavetoactinthebestinterestsofanother,sacrificingitsown
personalinterests,simplybecausetheotherbankmadeamistake?
LordMillettwasrightinFosk etttosaythat:82
Thereiscertainlynologicaljustificationforallowinganydistinctionbetween[tracingatlawandinequity]to
producecapriciousresultsincasesofmixedsubstitutionsbyinsistingontheexistenceofafiduciary
relationshipasapreconditionforapplyingequitystracingrules.Theexistenceofsucharelationshipmaybe
relevanttothenatureoftheclaimwhichtheplaintiffcanmaintain,whetherpersonalorproprietary,butthatis
adifferentmatter.
AlthoughnoEnglishcaseunambiguouslyabolishesthisrequirementforafiduciaryrelationship,itseemsthatit
mighteasilybesidestepped.InCampdenHillLtdvChak rani,HartJsaid:83
Accordingtoauthoritywhichisbindingonmetheclaimantmustfirstestablishafiduciaryrelationshiparising
eitherfromadivisionofthelegalandbeneficialownershipinthemoniessoughttobetracedorfromthevery
natureoftherelationship.
Ifallthatisrequiredisadivisionofthelegalandbeneficialownership,thenthefiduciaryrequirementaddsnothing
andwillalwaysbesatisfiedwherethereisanequitablepropertybase.Thisiswelcome:oncetheclaimanthas
establishedanequitablepropertyrightandthereforenecessarilyadivisionoflegalandequitabletitle,thereshould
benofurtherneedtoestablishafiduciaryrelationshipinordertotrace.84
(b)Unmixedfunds
TracinginEquityintounmixedfundsisrelativelystraightforward.Forexample,ifatrusteeholdslandontrust,andin
breachoftrustsellsthelandanddepositstheproceedsofthesaleintoanewaccountwithnootherfundsinit,the
beneficiarywillhavenoproblemsintracingintothebankaccount.Therehasbeennomixing:nooneelsesproperty
canbeidentifiedinthebankaccount.Themoneyinthebankaccountcanbeattributedtothebeneficiarysoriginal
proprietaryinterest.
(c)Mixedfunds
Tracingintomixedfundsismoreproblematic.So,iftheexampleintheprecedingparagraphismodifiedsuchthat
thetrusteedepositedtheproceedsofthesaleoflandintoanaccountthatcontainedsomeofthetrusteesown
money,thenthataccountwouldconstituteamixedfund.Theequitabletracingrulesdifferaccordingtowhose
interestsarepresentinthefund.Threeprincipalsituationscanbediscerned:mixingthewrongdoerspropertywith
theinnocentbeneficiaryspropertymixingtwoormoreinnocentbeneficiariesassetsandmixingawrongdoers
propertywithpropertybelonging(p.835) totwoormoreinnocentbeneficiaries.Eachscenariowillbeconsideredin
turn,butitisimportanttonotethatEquityhasnoqualmsinprincipleabouttracingintoandthroughamixedfund.
AsMillettJrecognizedinElAjouvDollarLandHolding:85
Thevictimsofafraudcanfollow86 theirmoneyinequitythroughabankaccountwhereithasbeenmixedwith
othermoneysbecauseequitytreatsthemoneyinsuchaccountsaschargedwiththerepaymentoftheir
money.Ifthemoneyintheaccountsubjecttothechargeisafterwardspaidoutoftheaccountandintoa
numberofdifferentaccounts,thevictimscanclaimasimilarchargeofeachoftherecipientaccounts.They
arenotboundtochoosebetweenthemEquityspowertochargeamixedfundwiththerepaymentoftrust
moneysenablestheclaimanttofollowthemoneynotbecauseitistheirs,butbecauseitisderivedfroma
fundwhichistreatedasifitweresubjecttoachargeintheirfavour.
MixingoftheBeneficiarysMoneywiththatoftheWrongdoer
Ifatrusteewronglytakesmoneyoutofthetrustfundanddepositsitinhisorherbankaccountinwhichthetrustee
alreadyhashisorherownmoney,therewillbeamixedfundintheaccount.Thebeneficiaryisabletotraceintothe
account:thevalueofhisorheroriginalequitableproprietaryinterestcanreadilybefoundinthemixtureproduced.
Butwhatifthetrusteespendssomeofthisfundonpurchasinganewasset:hasthetrusteespenthisorherown
moneyorthatofthebeneficiary?Thelogicoftracingasanevidentialprocessdoesnotreallyhelp:wecouldsaythat
thevalueinherentinthebeneficiarysoriginalinterestisnowpresentinthesubsequentlyacquiredassetfromthe
mixedfund,butthereisnoreasonwhywemustsayit.Thebeneficiarysinterestmaystillbepresentinthe
remainingmoneyintheaccount.However,Equityhassensiblydevelopedrulestodealwithsuchsituations:given
thattheclaimantbeneficiaryisentirelyinnocent,andthetrusteeawrongdoer,everythingispresumedagainstthe
trustee.Thisisparticularlyappropriatesincethewrongdoingtrusteehascreatedtheevidentialdifficultyofidentifying
whosepropertyhasbeenusedtoacquirethenewasset.InReTilley,UngoedThomasJobservedthat:87
Ifatrusteemixestrustassetswithhisown,theonusisonthetrusteetodistinguishtheseparateassets,and
totheextentthathefailstodosotheybelongtothetrust.
Atrusteeispresumedtoactinthebestinterestsofhisorherbeneficiary,soitisnosurprisethatthebeneficiary
canchooseeithertotracehisorherownproprietaryinterestintoanassetpurchasedfromamixedfund,ortoinsist
thattheassetwaspurchasedwiththetrusteesownmoney,dependingonwhicheveristhemoreadvantageousto
himorher.88 InReTilley,thejudgecitedReHallettsEstate89 asauthorityforallowingthebeneficiarytopresume
thatthetrusteespentthetrusteesownmoneyfirst,anddescribedReOatway90 astheconverseofthedecisionin
ReHallettsEstate,91 sinceitallowsthebeneficiarytopresumethatthetrustmoneywasspentfirst.
(p.836) ReHallettsEstate[1880]13ChD69692
MrHallettwasasolicitor.Hewastrusteeofhisownmarriagesettlement,andhadpaidsomemoneyfromthat
trustintohisownbankaccount.HewasalsosolicitortoMrsCotterill,andimproperlypaidsomeofhisclients
moneyintohispersonalbankaccountaswell.Hallettmadevariouspaymentsfrom,andinto,theaccount,and
alsoincurredfurtherdebts.Atthedateofhisdeath,theaccountheldsufficientfundstomeettheclaimsofthe
trusteesofthemarriagesettlementandofMrsCotterill,butnothispersonaldebtsaswell.Inanactionforthe
administrationofHallettsestate,themainquestionwaswhetherthetrustandMrsCotterillcouldclaimin
prioritytothecreditors.
TheCourtofAppealheldthatboththetrustandMrsCotterillwereentitledtoachargeuponthemoneysinthe
bankaccountinprioritytothegeneralcreditorsthevariouspaymentsbyHallettoutoftheaccountshouldbe
presumedtobepaymentsofhisownmoneyandnotthatofthetrust,norofMrsCotterill.
JesselMR:
Now,firstuponprinciple,nothingcanbebettersettled,eitherinourownlaw,or,Isuppose,thelawofall
civilisedcountries,thanthis,thatwhereamandoesanactwhichmayberightfullyperformed,hecannot
saythatthatactwasintentionallyandinfactdonewrongly.Amanwhohasarightofentrycannotsay
hecommittedatrespassinentering.Amanwhosellsthegoodsofanotherasagentfortheowner
cannotpreventtheowneradoptingthesale,anddenythatheactedasagentfortheowner.Itruns
throughoutourlaw,andwearefamiliarwithnumerousinstancesinthelawofrealproperty.Amanwho
grantsaleasebelievinghehassufficientestatetograntit,althoughitturnsoutthathehasnot,buthas
apowerwhichenableshimtograntit,isnotallowedtosayhedidnotgrantitunderthepower.Wherever
itcanbedonerightfully,heisnotallowedtosay,againstthepersonentitledtothepropertyortheright,
thathehasdoneitwrongfully.Thatistheuniversallaw.
Whenwecometoapplythatprincipletothecaseofatrusteewhohasblendedtrustmoneyswithhis
own,itseemstomeperfectlyplainthathecannotbeheardtosaythathetookawaythetrustmoney
whenhehadarighttotakeawayhisownmoney.Thesimplestcaseputistheminglingoftrustmoneys
inabagwithmoneyofthetrusteesown.Supposehehasahundredsovereignsinabag,andheaddsto
themanotherhundredsovereignsofhisown,sothattheyarecommingledinsuchawaythatthey
cannotbedistinguished,andthenextdayhedrawsoutforhisownpurposes100,isittolerablefor
anybodytoallegethatwhathedrewoutwasthefirst100,thetrustmoney,andthathemisappropriated
it,andlefthisown100inthebag?Itisobvioushemusthavetakenawaythatwhichhehadarightto
takeaway,hisown100.Whatdifferencedoesitmakeif,insteadofbeinginabag,hedepositsitwith
hisbanker,andthenpaysinothermoneyofhisown,anddrawsoutsomemoneyforhisownpurpose?
Couldhesaythathehadactuallydrawnoutanythingbuthisownmoney?Hismoneywasthere,andhe
hadarighttodrawitout,andwhyshouldthenaturalactofsimplydrawingoutthemoneybeattributedto
anythingexcepttohisownershipofmoneywhichwasatthebankers[?]
ReOatway[1903]2Ch356
Thetrustee,MrOatway,paidtrustmoneyintohisownbankaccount,whichalreadycontainedhisownmoney.
HethenpurchasedsharesinOceana,whichhepaidforbyachequeonhisbankaccount,anddissipatedthe
restofthemoney.Itwasheldthatthebeneficiarycouldtraceintotheshares,eventhough,whentheshares
werepurchased,thebalancetothecreditofthebankaccountexceededthevalueoftheshares,sothatthere
wouldstillhavebeensomemoneycredited(p.837) totheaccountthatcouldmeettheclaimantsclaim,before
thatamountwasthendissipated.Thetrusteewasnotentitledtowithdrawanythingfromthebankaccountuntil
thetrustmoneyhadbeenrestoredtothetrust.
JoyceJ:
Trustmoneymaybefollowedintolandoranyotherpropertyinwhichithasbeeninvestedandwhena
trusteehas,inmakinganypurchaseorinvestment,appliedtrustmoneytogetherwithhisown,the
cestuisquetrustareentitledtoachargeonthepropertypurchasedfortheamountofthetrustmoney
laidoutinthepurchaseorinvestment.Similarly,ifmoneyheldbyanypersoninafiduciarycapacitybe
paidintohisownbankingaccount,itmaybefollowedbytheequitableowner,who,asagainstthe
trustee,willhaveachargeforwhatbelongstohimuponthebalancetothecreditoftheaccount.Itis,
inmyopinion,equallyclearthatwhenanyofthemoneydrawnouthasbeeninvested,andtheinvestment
remainsinthenameorunderthecontrolofthetrustee,therestofthebalancehavingbeenafterwards
dissipatedbyhim,hecannotmaintainthattheinvestmentwhichremainsrepresentshisownmoney
alone,andthatwhathasbeenspentandcannolongerbetracedandrecoveredwasthemoney
belongingtothetrust.Inotherwords,whentheprivatemoneyofthetrusteeandthatwhichheheldina
fiduciarycapacityhavebeenmixedinthesamebankingaccount,fromwhichvariouspaymentshavefrom
timetotimebeenmade,then,inordertodeterminetowhomanyremainingbalanceoranyinvestment
thatmayhavebeenpaidforoutoftheaccountoughttobedeemedtobelong,thetrusteemustbe
debitedwithallthesumsthathavebeenwithdrawnandappliedtohisownusesoastobenolonger
recoverable,andthetrustmoneyinlikemannerbedebitedwithanysumstakenoutanddulyinvestedin
thenamesofthepropertrustees.Theorderofpriorityinwhichthevariouswithdrawalsandinvestments
mayhavebeenrespectivelymadeiswhollyimmaterial.Ihavebeenreferring,ofcourse,tocaseswhere
thereisonlyonefiduciaryownerorsetofcestuisquetrustclaimingwhatevermaybeleftasagainstthe
trustee.Inthepresentcasethereisnobalanceleft.Theonlyinvestmentorpropertyremainingwhich
representsanypartofthemixedmoneyspaidintothebankingaccountistheOceanasharespurchased
for2,137.Uponthese,therefore,thetrusthadachargeforthe3,000trustmoneypaidintothe
account.Thatistosay,thosesharesandtheproceedsthereofbelongtothetrust.Itwasobjectedthat
theinvestmentintheOceanashareswasmadeatatimewhenOatwaysownshareofthebalancetothe
creditoftheaccount(ifthewholehadbeenthenjustlydistributed)wouldhaveexceeded2,137,the
priceofthesharesthathewasthereforeentitledtowithdrawthatsum,andmightrightlyapplyitforhis
ownpurposesandthatconsequentlythesharesshouldbeheldtobelongtohisestate.TothisIanswer
thatheneverwasentitledtowithdrawthe2,137fromtheaccount,or,atallevents,thathecouldnotbe
entitledtotakethesumfromtheaccountandholditortheinvestmentmadetherewith,freedfromthe
chargeinfavourofthetrust,unlessoruntilthetrustmoneypaidintotheaccounthadbeenfirstrestored,
andthetrustfundreinstatedbydueinvestmentofthemoneyinthejointnamesofthepropertrustees,
whichneverwasdone.TheinvestmentbyOatway,inhisownname,ofthe2,137inOceanasharesno
moregotridoftheclaimorchargeofthetrustuponthemoneysoinvested,thanwouldhavebeenthe
caseifhehaddrawnachequefor2,137andsimplyplacedandretainedtheamountinadrawerwithout
furtherdisposingofthemoneyinanyway.TheproceedsoftheOceanasharesmustbeheldtobelongto
thetrustfundsunderthewillofwhichOatwayandMaxwellSkipperwerethetrustees.
HallettandOatwayworkintandemtoprotectaninnocentbeneficiaryagainstawrongdoingfiduciary:abeneficiary
canchoosewhetherornottotraceintoanassetacquiredfromafundcontainingamixtureofhisorherownproperty
andthatofhisorherfiduciary.93
MixingtheBeneficiarysMoneywiththatofAnotherInnocentParty
TheHallettandOatwaypresumptionsareinappropriatewherethepropertyinthefundisamixtureoftheproperty(p.
838) ofinnocentparties:thereisnopolicyreasontofavouronepartyovertheother.Thissortofmixturemightarise
whereatrusteetakesmoneyfromtwoseparatetrustsandputsitinthesame,emptybankaccount,orthetrustee
givesmisappropriatedtrustmoneytoaninnocentthirdpartywhodepositsthemoneyinhisorherownbankaccount
whichalreadycontainshisorherownmoney,forexample.Insuchsituations,thewrongdoerhasnoclaimtoanyof
theproperty,andthosewhodohaveaclaimareequallyinnocent.
Thegeneralruleisthatthemixturebelongstotheinnocentpartiesintheproportionsbywhichtheycontributedto
thefund.ThisapproachwasadoptedbyLordParkerinSinclairvBrougham:94
Supposethepropertyisacquiredbymeansofmoney,partofwhichbelongstooneownerandpartto
another,thepurchaserbeinginafiduciaryrelationshiptoboth.Clearlyeachownerhasanequalequity.Each
isentitledtoachargeonthepropertyforhisownmoney,andneithercanclaimpriorityovertheother.It
followsthattheirchargesmustrankparipassuaccordingtotheirrespectiveamounts.Further,Ithinkthatas
againstthefiduciaryagenttheycouldbyagreementclaimtotakethepropertyitself,inwhichcasethey
wouldbecometenantsincommoninsharesproportionedtoamountsforwhicheithercouldclaimacharge.
Suppose,again,thatthefiduciaryagentpartswiththemoneytoathirdpartywhocannotpleadpurchasefor
valuewithoutnotice,andthatthethirdpartyinvestsitwithmoneyofhisowninthepurchaseofproperty.Ifthe
thirdpartyhadnoticethatthemoneywasheldinafiduciarycapacity,hewouldbeinexactlythesame
positionasthefiduciaryagent,andcouldnot,therefore,assertanyinterestinthepropertyuntilthemoney
misappliedhadbeenrefunded.Butifhehadnosuchnoticethiswouldnotbethecase.Therewouldonhis
partbenomisconductatall.Ontheotherhand,Icannotatpresentseewhyheshouldhaveanypriorityas
againstthepropertyovertheownerofthemoneywhichhad,infact,beenmisapplied.95
AlthoughmuchofthereasoninginSinclairhassincebeendepartedfrom,96 thisanalysisoftracingremainsvalid.97
InReDiplock LordGreeneMRcitedLordParkersspeechinconcludingthat:98
Whereaninnocentvolunteer(asdistinctfromapurchaserforvaluewithoutnotice)mixesmoneyofhisown
withmoneywhichinequitybelongstoanotherperson,orisfoundinpossessionofsuchamixture,although
thatotherpersoncannotclaimachargeonthemasssuperiortotheclaimofthevolunteerheisentitled,
nevertheless,toachargerankingparipassuwiththeclaimofthevolunteer.Justasavolunteerisnot
allowedbyequityinthecase,e.g.,ofaconveyanceofthelegalestateinland,tosetuphislegaltitle
adverselytotheclaimofapersonhavinganequitableinterestintheland,sointhecaseofamixedfundof
moneythevolunteermustgivesuchrecognitionasequityconsidershiminconscience(asavolunteer)bound
togivetotheinterestoftheequitableownerofthemoneywhichhasbeenmixedwiththevolunteersown.But
thisburdenontheconscienceofthevolunteerisnotsuchastocompelhimtotreattheclaimoftheequitable
ownerasparamount.Thatwouldbetotreatthevolunteerasstrictlyasifhehimselfstoodinafiduciary
relationshiptotheequitableownerwhichexhypothesihedoesnot.Thevolunteerisundernogreaterdutyof
consciencetorecognizetheinterestoftheequitableownerthanthatwhichliesuponapersonhavingan
equitableinterestinoneoftwotrustfundsofmoneywhichhavebecomemixedtowardstheequitableowner
oftheother.Suchapersonisnotinconscienceboundtogiveprecedencetotheequitableowneroftheother
ofthetwofunds.
(p.839) Treatingtheinnocentpartiesequallyisthefairestsolution.However,somecareneedstobetakenwhen
themixedfundisinacurrentbankaccount(ratherthanadepositaccount)andmoneyisusedfromthataccount.
Intuitively,itwouldseemsensibleforallinnocentclaimantstobeabletotraceintoanyassetsacquiredwithmoney
fromtheaccount,andidentifyaproprietaryinterestinthatpropertyinthesameproportionsaswerepresentinthe
accountimmediatelybeforethetransaction.Thiswouldmaintainparitybetweenequallyinnocentparties.
Nevertheless,thisisnotthetraditionalapproachofthelaw.InClaytonscase,SirWilliamGrantMRsaid:99
Butthisisthecaseofabankingaccount,whereallthesumspaidinformoneblendedfund,thepartsof
whichhavenolongeranydistinctexistence.Neitherbankernorcustomereverthinksofsaying,thisdraftisto
beplacedtotheaccountofthe500paidinonMonday,andthisothertotheaccountofthe500paidinon
Tuesday.Thereisafundof1000todrawupon,andthatisenough.Insuchacase,thereisnoroomforany
otherappropriationthanthatwhicharisesfromtheorderinwhichthereceiptsandpaymentstakeplace,and
arecarriedintotheaccount.Presumably,itisthesumfirstpaidin,thatisfirstdrawnout.Itisthefirstitem
onthedebitsideoftheaccount,thatisdischarged,orreduced,bythefirstitemonthecreditside.The
appropriationismadebytheveryactofsettingthetwoitemsagainsteachother.Uponthatprinciple,all
accountscurrentaresettled,andparticularlycashaccounts.Whentherehasbeenacontinuationof
dealings,inwhatwaycanitbeascertainedwhetherthespecificbalancedueonagivendayhas,orhasnot,
beendischarged,butbyexaminingwhetherpaymentstotheamountofthatbalanceappearbytheaccountto
havebeenmade?Youarenottotaketheaccountbackwards,andstrikethebalanceatthehead,insteadof
thefoot,ofit.
ThispassagehasledtotheruleinClaytonscasethatthefirstpaymentintotheaccountispresumedtobethe
firstpaymentoutoftheaccount.Giventhefrequencyoftransactionsthroughacurrentaccount,thispresumption
hassometimesbeenthoughttobehelpful.
However,thisfirstin,firstoutruleisnotobviouslyfair.Ifatrusteetakes500ofAsmoneyanddepositsitinan
emptycurrentaccount,andthenthefollowingdaytakes500ofBsmoneyinthesamewayandimmediatelybuys
a500bike,itisunclearwhythelawshouldpresumethatAsmoneyalonehasbeenusedtobuythebike.Indeed,
thebikewasonlyboughtafterBsmoneywasreceived,soitmightbepreferabletothinkthatBsmoneywasused.
Butthisisalsoartificial.Thereisnoreasonwhyonlyonepartyshouldbeabletotraceintothebike.BothAandB
shouldbeabletotraceintothebikeinequalshares.ThisapproachwaspreferredbytheCourtofAppealinBarlow
ClowesInternationalLtdvVaughan.
BarlowClowesInternationalLtdvVaughan[1992]4AllER22
BarlowClowesInternational(BCI)operatedanumberofinvestmentportfolios,towhichvariousinvestors
contributed.BCIwronglydissipatedmuchoftheinvestorsmoneys,butsomemoneyremainedinitsaccount.
Thequestionconsideredinthepassagebelowwaswhethertheremainingmoneyshouldbeheldrateablyforall
investorsorwhethertheruleinClaytonscaseapplied.TheCourtofAppealrefusedtoapplyClaytonscase.
DillonLJsaid:
Thatrulewillapplytotheappropriationofpaymentsbetweenanytraderandhiscustomerwherethereis
anaccountcurrentorrunningaccount.Butitwillnotapplyunlessthereisarunningaccountsee(p.
840) perLordHalsburyLCinTheMecca[1897]AC286atpage291andeveninrelationtothe
appropriationofpaymentsitisnot,asLordHalsburysaidatpage290,aninvariablerule,the
circumstancesofacasemayaffordgroundforinferringthattransactionsofthepartieswerenotso
intendedastocomeunderthisgeneralrule.
[Counsels]widersubmissionistotheeffectthat,whiletheruleinClaytonsCaseisvalidanduseful,
subjecttotheobservationsinTheMecca,wherewhatisinquestionistheappropriationofpaymentsas
betweenthepartiestoarunningaccount,itisillogicalandunfairtotheearliercontributorstoapplythe
ruleasbetweeninnocentbeneficiaries,whosepaymentstoathirdparty,BCI,havebeenpaidbythat
thirdpartyintoabankaccountinwhich,attheendoftheday,thereareforwhateverreasonnot
enoughmoneyslefttomeetallclaims.
[Counsel]submitsthatitmightbemorefairtoapplytheNorthAmericanmethodoutlinedabove,100 but
asthatisnotpracticableinthecircumstancesofthiscase,thecourtshouldfallbackonadistribution
paripassubetweenallinvestorsintheproportionsoftheamountsrespectivelyduetothem.
Formypart,sofarasfairnessisconcerned,Ihavedifficultyinseeingthefairnesstoalaterinvestor
whosecontributionwasinalllikelihoodstillincludedintheuninvestedmoneysintheScheduleA
accounts,ofholdingthatallthosemoneysmustbesharedparipassubyallinvestorsearlyorlateif
therewasnocommoninvestmentfund.InadditionofcoursetheordermadebytheHouseofLordsin
SinclairvBrougham,onwhichtheorderwhich[counsel]seeksinthepresentcaseismodelled,was
expresslysubjecttoanytracingapplicationbyanyindividualdepositororshareholder.Iftheapplication
ofClaytonsCaseisunfairtoearlyinvestorsparipassudistributionamongallseemsunfairtolate
investors.
thedecisionsofthiscourt,inmyjudgment,establishandrecogniseageneralruleofpracticethat
ClaytonsCaseistobeappliedwhenseveralbeneficiariesmoneyshavebeenblendedinonebank
accountandthereisadeficiency.Itisnot,inmyjudgment,forthiscourttorejectthatlongestablished
generalpractice.
WoolfLJ:[Counsel]referstothedictaofJudgeLearnedHandInreWalterJSchmidt&Co.(1923)298S
314atpage316:
Whenthelawturnstofiction,itis,oratleastitshouldbe,forsomepurposeofjustice.Toadopt
thefictionoffirstin,firstoutistoapportionacommonmisfortunetoatestwhichhasno
relationwhatevertothejusticeofthecase.
InmyjudgmentthiscommentofJudgeLearnedHandaccuratelydescribestheresultofapplyingtherule
inClaytonsCasetothecommonmisfortunewhichwassharedbytheinvestorsinBCI.Howeveritisto
benotedthatthejudgeinthatcase(wearetold)laterfeltcompelledbyauthoritytoapplytherule.Inthis
casethecapriciousconsequencesofapplyingtheruleareunderlinedbythefactthatthedatesupon
whichinvestmentswerereceivedbyBCIoftendependeduponagents,suchasthe4thand5th
defendants,combiningtheinvestmentsofanumberofclientsandthenforwardingalumpsumtoBCI.
Inadditiontorelyinguponthearbitraryresultswhichfollowfromthemechanisticapplicationoftherule
[counsel]reliesupontheexpenseandtimewhichwillbeinvolvedinhavingtoapplytherule.Withthe
adventofcomputertechnologyitcannotbesaidthetaskisimpossiblebutitisclearlycomplex.The
costsinvolvedwillresultinadepletionoftheassetsavailabletotheinvestors.Indeterminingthe
appropriatenessofthemachineryusedforresolvingtheclaimsoftheinvestorsamongthemselves,surely
thisshouldbearelevantconsideration.
Thesecondsolutionforresolvingtheclaimsoftheinvestorsamongthemselvesistherollingchargeor
NorthAmericansolution(NorthAmericanbecauseitisthesolutionadoptedorfavouredinpreferenceto
theruleinClaytonsCaseincertaindecisionsofthecourtsintheUnitedStatesandCanadabecause(p.
841) itisregardedasbeingmanifestlyfairer).Thissolutioninvolvestreatingcreditstoabankaccount
madeatdifferenttimesandfromdifferentsourcesasablendorcocktailwiththeresultthatwhena
withdrawalismadefromtheaccountitistreatedasawithdrawalinthesameproportionsasthedifferent
interestsintheaccount(hereoftheinvestors)beartoeachotheratthemomentbeforethewithdrawalis
made.Thissolutionshouldproducethemostjustresult,butinthiscase,ascounselacceptitisnota
livecontender,sincewhileitmightjustbepossibletoperformtheexercisethecostsinvolvedwouldbe
outofallproportioneventothesizeablesumswhicharehereinvolved.
Thethirdsolution(andtheonlyothersolutioncanvassedinargument)istheparipassuexpostfacto
solution.Thisinvolvesestablishingthetotalquantumoftheassetsavailableandsharingthemona
proportionatebasisamongalltheinvestorswhocouldbesaidtohavecontributedtotheacquisitionof
thoseassets,ignoringthedatesonwhichtheymadetheirinvestment.[Counsel]submitsthisisthe
solutionwhichisappropriateinthiscase.Ithasthevirtueofrelativesimplicityandthereforerelative
economyandalsothevirtueofbeinginthiscasemorejustthanthefirstsolution.Itwouldhavetheeffect
ofsharingthepoolofassetsavailableproportionatelyamongthethousandsofinvestorsinawaywhich
reflectedthefactthattheywereallthevictimsofacommonmisfortune.
Ontheevidencewhichisavailabletothiscourtastothecircumstancesofthiscase,Ihavenodoubtthat
if,asamatterofprinciple,thiscourtisinapositiontoadoptthethirdsolution,thenthatisthesolution
whichisthemostappropriate.Itisthereforenecessarytoturntotheauthoritiestoseewhetherthey
preventthiscourtadoptingwhatIwouldseeasbeingthecorrectresult.
itissettledlawthattheruleinClaytonsCaseneedonlybeappliedwhenitisconvenienttodoso
andwhenitsapplicationcanbesaidtodobroadjusticehavingregardtothenatureofthecompeting
claims.Hallettscaseshowsthattheruleisdisplacedwhereitsapplicationwouldunjustlyassistthe
trusteetothedisadvantageofthebeneficiaries.InReDiplock ,therulewouldhavebeendisplacedbythe
trusteesubsequentlyearmarkingthebeneficiarysfunds.Itisnotappliedifthisistheintentionor
presumedintentionofthebeneficiaries.Theruleissensiblynotappliedwhenthecostofapplyingitis
likelytoexhaustthefundavailableforthebeneficiaries.
[WoolfLJultimatelyconcluded:]
1.WhiletheruleinClaytonsCaseisprimafacieavailabletodeterminetheinterestsofinvestorsin
afundintowhichtheirinvestmentshavebeenpaid,theuseoftheruleisamatterofconvenience
andifitsapplicationinparticularcircumstanceswouldbeimpracticableorresultininjustice
betweentheinvestorsitwillnotbeappliedifthereisapreferablealternative.
2.Heretherulewillnotbeappliedbecausethiswouldbecontrarytoeithertheexpressorinferred
orpresumedintentionoftheinvestors.Iftheinvestmentswererequiredbythetermsofthe
investmentcontracttobepaidintoacommonpoolthisindicatesthattheinvestorsdidnotintendto
applytherule.Iftheinvestmentswereintendedtobeseparatelyinvested,asaresultofthe
investmentsbeingcollectivelymisappliedbyBCIacommonpooloftheinvestmentswascreated.
Becauseoftheirsharedmisfortune,theinvestorswillbepresumedtohaveintendedtherulenotto
apply.
3.Astheruleisinapplicabletheapproachwhichshouldbeadoptedbythecourtdependsonwhich
ofthepossiblealternativesolutionsisthemostsatisfactoryinthecircumstances.IftheNorth
Americansolutionispracticalthiswouldprobablyhaveadvantagesovertheparipassusolution.
HoweverthecomplicationsofapplyingtheNorthAmericansolutioninthiscasemakethethird
solutionthemostsatisfactory.
4.Itmusthoweverberememberedthatanysolutiondependsontheabilitytotraceandifthefund
hadbeenexhausted(ie.theaccountbecameoverdrawn)theinvestorswhosemonieswereinthe
fundpriortothefundbeingexhaustedwillnotbeabletoclaimagainstmonieswhichwere
subsequentlypaidintothefund.Theirclaimswillbelimitedtofollowing,ifthisispossible,anyof
themoniespaidoutofthefundintootherassetsbeforeitwasexhausted.
(p.842) BarlowClowesInternationalvVaughanhighlightsthatitwilloftenbeinappropriatetoapplytherulein
Claytonscase.Infact,theruleoffirstin,firstoutisonlyapresumption,whichwilloftenberebuttedeither
becausetheintentionsofthepartiespointtoadifferentresult,orbecauseitisimpracticable.Therollingcharge
solutionshouldbepreferred.ThisNorthAmericanapproachinvolvescalculatingateachstagewhatproportionofthe
fundbelongstoeachcontributor.Wherethereareanumberofcomplicatedtransactions,thissolutionmightitselfbe
impracticableasitwasinBarlowClowesand,therefore,thesimplerparipassuprinciplemaybeemployed.This
requiresthefundtobedistributedtothepartiesintheproportionsbywhichtheycontributedtothefund,regardless
ofexactlywhentheirmoneyappearedinthemixedfund.Asaresult,theparipassusolutionisclearlynotas
preciseinachievingjusticebetweenthepartiesastherollingcharge,whichshouldbeadoptedwhereverpossible.101
ItmustalsoberememberedthatClaytonscasewillnotapplywherethemoneyhasbeenmixedbyawrongdoerwith
hisorherownmoneyReHallettandReOatwaybothexplicitlyrejectedthefirstin,firstoutrule,sinceeverything
shouldbepresumedagainstthewrongdoingtrustee.
TheerosionintheapplicationofClaytonscaseledLindsayJinRussellCook eTrustCovPrentistoobserve
that:102
ItisplainfromallthreeofthejudgmentsinBarlowClowesthattherulecanbedisplacedbyevenaslight
counterweight.Indeed,intermsofitsactualapplicationbetweenbeneficiarieswhohaveinanysensemeta
sharedmisfortune,itmightbemoreaccuratetorefertotheexceptionthatis,ratherthantherulein,Claytons
case.
Nevertheless,authoritydictatesthatClaytonscaseisthestartingpointofanalysis,103 eventhoughitrarelyaccords
withthejusticeofanyparticularcase,andthepresumptionoffirstin,firstoutwillinvariablyberebutted.
MixingtheWrongdoersMoneywiththatofTwoorMoreInnocentParties
Theanalysisofthisthirdsituationfollowslogicallyfromtheanalysisofthefirsttwo.Ifawrongdoingfiduciarytakes
100frombeneficiaryA,andanother100frombeneficiaryB,andputsthemoneyintohisorherownaccount,
whichhas100ofhisorherownmoneyinit,thenitwouldbepossibleforAandBeachtotraceintothemixedfund
andidentifyanequitableproprietaryrighteithertoonethirdofthefund,orto100,whichwillbethesameunlessthe
valueofthefundhasincreasedordecreased.Ifthefiduciarythenspends100topurchaseanassetfromthatfund,
thenbothAandBwillhavetheopportunitytoelectwhethertotraceintotheacquiredasset,ortoinsistthatthe
fiduciaryspenthisorherownmoneyontheasset,applyingtheHallettandOatwaypresumptions.Ineitherevent,A
andBrankasequals,andbetweenthemtherollingchargeanalysisfavouredinBarlowClowesshouldapply.
(iii)Limitationsontracing
(a)Dissipation
Wheretheassetinwhichtheclaimantcanidentifyhisorherequitableproprietaryinteresthasbeendissipated,
therewillbenospecificpropertyintowhichtheclaimantcantrace.Soifatrustee(p.843) misappropriatesthe
beneficiarysmoneytobuyaboat,whichburnsinafireandisdestroyed,thereisnoremainingassetintowhichthe
beneficiarycantrace.InReDiplock ,LordGreeneMRsaid:104
Theequitableremediespresupposethecontinuedexistenceofthemoneyeitherasaseparatefundoras
partofamixedfundoraslatentinpropertyacquiredbymeansofsuchafund.If,onthefactsofanyindividual
case,suchcontinuedexistenceisnotestablished,equityisashelplessasthecommonlawitself.Ifthefund,
mixedorunmixed,isspentuponadinner,equity,whichdealtonlyinspecificreliefandnotindamages,could
donothing.
(b)Lowestintermediatebalancerule
Itisimportantthattheclaimantbeabletoestablishthatthevalueofhisorheroriginalinterestcanbeattributedto
particularsubstituteproperty.Thelowestintermediatebalancerulemayplacealimitonthevaluethattheclaimant
cantrace.Forexample,ifatrusteetakes100oftheclaimantsmoneyandmixesitwith100ofhisorherown
money,andthenspends150fromthisorherfundonaholiday,theclaimantwouldbeabletotraceintothemixed
fund,employtheHallettpresumption,andidentifytheremaining50intheaccountasbelongingtohimorherin
Equity.Butifthetrusteethenlaterputsanother50ofhisorherownmoneyintotheaccount,suchthatthereis
now100intheaccount,thentheclaimantisunabletotraceintothatextra50,sinceitclearlydidnotderivefrom
thevalueinhisorheroriginalequitableproprietaryinterestbutpatentlycamefromthetrustee.Theamountinto
whichtheclaimantcouldtracedippedto50fromthatpointonwards,thevalueoftheclaimantsinterestinthefund
couldnotincrease:105 thisisknownasthelowestintermediatebalancerule.
RoscoevWinder[1915]1Ch62(SargantJ)106
Anagreementforthesaleofthegoodwillofabusinessprovidedthatthepurchaser,Wigham,shouldcollect
certainofthebookdebtsandpaythatmoneyovertothevendor.Wighamcollectedthedebtsandpaidpartof
themoney,45518s.11d.,intohisprivateaccount.Afewdayslaterthebalanceintheaccountwasreducedto
2518s.AtthedateofWighamsdeath,thebalancehadrisento3585s.5d.Thequestionwastheextentto
whichtheplaintiffscouldclaimachargeundertherulesinHallettscase.Thecourtheldthatthechargewas
limitedto2518s.,thelowestintermediatebalancesubsequenttotheappropriation.
SargentJ:
Butthereisafurthercircumstanceinthepresentcasewhichseemstometobeconclusiveinfavourof
thedefendantasregardsthegreaterpartofthebalanceof3581.ss.5d.Itappearsthatafterthepayment
inbythedebtorofaportionofthebookdebtswhichhehadreceivedthebalanceatthebankon19May,
1913,wasreducedbyhisdrawingstoasumof251.18s.onlyon21May.Sothat,althoughtheultimate
balanceatthedebtorsdeathwasabout3581.,therehadbeenanintermediatebalanceofonly251.18s.
Theresultofthatseemstometobethatthetrustmoneyscannotpossiblybetracedintothiscommon
fund,whichwasstandingtothedebtorscreditathisdeath,toanextentofmorethan251.18s.,
because,althoughprimafacieunderthesecondruleinReHallettsEstate(1880)13ChD696any(p.
844) drawingsoutbythedebtoroughttobeattributedtotheprivatemoneyswhichhehadatthebank
andnottothetrustmoneys,yet,whenthedrawingsouthadreachedsuchanamountthatthewholeof
hisprivatemoneyparthadbeenexhausted,itnecessarilyfollowedthattherestofthedrawingsmust
havebeenagainsttrustmoneys.Therebeingon21May,1913,only251.18s.,inall,standingtothe
creditofthedebtorsaccount,itisquiteclearthatonthatdayhemusthavedenudedhisaccountofall
thetrustmoneystherethewhole4551.18s.11d.excepttotheextentof251.18s.
Youmust,forthepurposeoftracingputyourfingeronsomedefinitefundwhicheitherremainsin
itsoriginalstateorcanbefoundinanothershape.Thatistracing,andtracing,bytheveryfactsofthis
case,seemstobeabsolutelyexcludedexceptastothe251.18s.
Then,apartfromtracing,itseemstomepossibletoestablishthisclaimagainsttheultimatebalanceof
3581.5s.5d.onlybysayingthatsomethingwasdone,withregardtotheadditionalmoneyswhichare
neededtomakeupthatbalance,bythepersontowhomthosemoneysbelonged,thedebtor,to
substitutethosemoneysforthepurposeof,ortoimposeuponthosemoneysatrustequivalentto,the
trustwhichrestedonthepreviousbalance.Ofcourse,iftherewasanythinglikeaseparatetrustaccount,
thepaymentofthefurthermoneysintothataccountwould,initself,havebeenquiteasufficient
indicationoftheintentionofthedebtortosubstitutethoseadditionalmoneysfortheoriginaltrust
moneys,andaccordinglytoimpose,bywayofsubstitution,theoldtrustsuponthoseadditionalmoneys.
But,inacasewheretheaccountintowhichthemoneysarepaidisthegeneraltradingaccountofthe
debtoronwhichhehasbeenaccustomedtodrawbothintheordinarycourseandinbreachoftrustwhen
thereweretrustfundsstandingtothecreditofthataccountwhichwereconvenientforthatpurpose,I
thinkitisimpossibletoattributetohimthatbythemerepaymentintotheaccountoffurthermoneys,
whichtoalargeextenthesubsequentlyusedforpurposesofhisown,heintendedtoclothethose
moneyswithatrustinfavouroftheplaintiffs.
Certainly,afterhavingheardReHallettsEstate(1880)13ChD696statedoverandoveragain,Ishould
havethoughtthatthegeneralviewofthatdecisionwasthatitonlyappliedtosuchanamountofthe
balanceultimatelystandingtothecreditofthetrusteeasdidnotexceedthelowestbalanceofthe
accountduringtheinterveningperiod.
Roscoeisagoodillustrationofthelowestintermediatebalancerule.However,thelastpartofthispassageis
controversial.Whenthetrusteelaterpaidmoremoneyintotheaccount,thecourtrejectedthecontentionthatitwas
trustmoneybecauseitwasnotclearthatthatwaswhatthetrusteeintended.Butthisappearstobeinconsistent
withthegeneralthrustofthepresumptionsfavouredinReHallett:ifeverythingispresumedagainstthewrongdoing
trusteebutinfavouroftheinnocentbeneficiary,itmightbethoughtthatwhenthetrusteepaysmoremoneyintothe
accountheorshedoessotoreturnthetrustfundtotheappropriatelevel.Thiswouldseemconsistentwiththe
generalpolicyconcernsofEquity,butcouldonlybeemployedagainstawrongdoer.However,suchanargument
mightberejectedinanyeventonthebasisthattheextramoneyputintotheaccountclearlydidnotderivefromthe
claimantsequitableproprietaryinterest.107 ThereisonlyroomfortheevidentialpresumptionsofHallettandOatway
tooperatewheretheevidencedoesnotclearlyestablishtowhomthepropertybelongs.
(c)Tracingthroughadebt
Itisgenerallysaidtobeimpossibletotracethroughadebt.AsRimerJobservedinShalsonvRusso:108
(p.845) itisnotpossibletotraceintoandthroughanoverdrawnaccount,becausesuchanaccountisnotan
assetatall:itisaliability.Theconsequenceisthattheclaimantcannotshowthathismoneyhasbecome
representedbyanassetintowhichitispossibletotrace:allhismoneyhasdoneistoreducealiability,and
sohasceasedtoexist.
ItispossibletoquibblewithRimerJscontentionthataclaimantcannottraceintoadebt.Thisispossibleinorderto
revivethedebtthroughtheremedyofsubrogation.109 However,itisentirelyorthodoxtostatethatitisimpossibleto
tracethroughadebtintoanotherassetacquiredbythatdebt.Itmightbearguedthattheclaimantsproprietary
interestinmoneyusedtodischargeadebtcouldbetracedintothefundsnowheldbythecreditor,butthisis
unlikelytobeofmuchassistance:thecreditorhasnecessarilygivenvalueforthepropertyreceivedinbecominga
creditorinthefirstplace.Providedheorshehasnotactedinbadfaithorwithnoticethatthemoneyrightfully
belongedtotheclaimant,heorsheshouldbeabletoavailhimorherselfofthebonafidepurchaserdefence.110
Againstcurrentorthodoxy,ithasbeensuggestedthatitshouldbepossibletotracethroughadebt.Thisargument
hasbeenforcefullymadebySmith.
Smith,TracingThroughaDebt(1995)54CLJ290,2924
Thesimplestcaseoftracingisthecleansubstitution,whereanewassetisacquiredsolelywiththe
valuebeingtraced.Forexample,wemightbetracingthevalueinherentin500whichwasstolenfrom
theplaintiff.Ifthethiefusesittobuyacar,thenownershipofthe500canbetracedintoownershipof
thecar.Nowchangethefactsslightly,sothatthethiefbuysthecaroncredithetakesownershipofthe
car,butheisthesellersdebtorinrespectofthepurchaseprice.Adaylater,thethiefpaysthedebtwith
thestolenmoney.Canwetracefromthemoneyintothecar?Itisdifficulttoseewhynot.Thereisno
substantialchangeinthetransactiontheperiodofcreditmightbereducedtoaminuteorasecondthe
bettertomakethispoint.Ifthatisright,thenwhenmoneyisusedtopayadebt,itistraceableintowhat
wasacquiredinexchangefortheincurringofthedebt.
Howeverthematterisanalysed,itseemsclearthatmoneywhichisusedtopayadebtcanbetraced
intowhatwasacquiredinexchangefortheassumptionofthatdebt.Theincurringofthedebtisthe
meansofacquisitionofthatitem,andthemoneybeingtracedisthemeansofacquisitionor
extinguishmentofthedebt.Thisisevenclearerinacaseinwhichthetransferoftheacquiredassetis
delayed.Assumethatthethiefbuysthecarfromthesellerunderaconditionalsalescontract.Thethief
becomesliableforthefullpriceheowesadebtbuthedoesnotyetownthecar.Onlywhenhehaspaid
allofthepricedoesownershippass.Thiscaseisperfectlyclearofcoursethemoneycanbetracedinto
thecar.Itshowsthatthedebtisaredherringinthetracingexerciseitisjustthemeansbywhichthe
priceispaid,withsomedelay.Butthepriceispaidfortheassetbought,andsothepriceistraceable
intothatasset.
ThisapproachtotracingmightbethoughttogainsomesupportfromtheinsistenceoftheHouseofLordsinFosk ett
vMcKeownthattracingisnotbaseduponcausation,andsodoesnotnecessarilyrequirecausallinksbetweenthe
contributionofvalueandtheacquisition.Rather,tracingdependsuponbeingabletoattributevalueinoneassetto
another.Thisprocessofattributioncouldinvolvegoingbackwardsintime,throughadebt,andattributingthevalue
inthepropertyusedtodischargeadebtasnowsubsistinginwhateverwaspreviouslyacquiredthroughincurringthat
debt.
(p.846) Thereissomelimitedjudicialsupportfortracingbackwards.Forexample,inBishopsgatevHoman,Dillon
LJsaidthat:111
whereanassetwasacquiredbythe[defendantcompany]withmoneysborrowedfromanoverdrawnorloan
accountandtherewasaninferencethatwhentheborrowingwasincurreditwastheintentionthatitshouldbe
repaidbymisappropriationsof[theplaintiffsmoney].Anotherpossibilitywasthatmoneysmisappropriated
from[theplaintiffs]werepaidintoanoverdrawnaccountof[thedefendantcompany]inordertoreducethe
overdraftandsomakefinanceavailablewithintheoverdraftlimitsfor[thedefendantcompany]topurchase
someparticularasset.
itisatleastarguable,dependingonthefacts,thatthereoughttobeanequitablechargeinfavourof[the
plaintiffs]ontheassetinquestionof[thedefendantcompany].
DillonLJscommentswereobiter,butheraisedthepotentiallysignificantissuethatwhetherornotthedefendant
intendedtopayoffthedebtwithmisappropriatedfundsmightbeimportant.Thisapproachcanbediscernedinother
dicta.Forexample,intheCourtofAppealinFosk ett,ScottVCstatedthat:112
itdoesnotseemtomeatallobviousthatthecircumstancethatthepaymentintotheaccountofthe
purchasersmoneywasmadeveryshortlyafterthepaymentofthepremium,ratherthanbeforeoratthe
sametimeasthepayment,shouldberegardedasfataltothepurchasersequitabletracingclaim.The
availabilityofequitableremediesought,inmyview,todependuponthesubstanceofthetransactionin
questionandnotuponthestrictorderinwhichassociatedeventshappen.Iregardthepointasstillopen
and,inparticular,Idonotregardthefactthatanassetispaidforoutofborrowedmoneywiththe
borrowingsubsequentlyrepaidoutoftrustmoneyasbeingnecessarilyfataltoanequitabletracingclaimby
thetrustbeneficiaries.If,insuchacase,itcanbeshownthatitwasalwaystheintentiontousethetrust
moneytoacquiretheasset,Idonotseewhytheorderinwhichtheeventshappenshouldberegardedas
criticaltotheclaim.
ScottVCcitedSmithsarticle,quotedabove,withapproval.However,hisLordshipscommentsabovewereagain
obiter,notsharedbytheotherjudges,andthepointremainsopen:thereisnocaseinwhichbackwardstracinghas
beenexplicitlyacceptedorrejectedaspartoftheratiodecidendi.
Indeed,thedictaarenotuniformlyinfavourofbackwardstracing:bothDillonLJinBishopsgateandScottVCin
Fosk ettwereisolatedintheirapproach.InBishopsgate,forexample,LegattLJwasadamantthat:113
therecanbenoequitableremedyagainstanassetacquiredbeforemisappropriationofmoneytakesplace,
sinceexhypothesiitcannotbefollowedintosomethingwhichexistedandsohadbeenacquiredbeforethe
moneywasreceivedandthereforewithoutitsaid.
Similarly,inFosk ett,HobhouseLJinsistedthat:114
Thedoctrineoftracingdoesnotextendtofollowingvalueintoapreviouslyacquiredasset.
(p.847) NordoestheacademiccommentaryexclusivelyadoptSmithsapproach.Conaglenhasarguedthatthelaw
doesnot,andshouldnot,recognizebackwardstracing.
Conaglen,DifficultieswithTracingBackwards(2011)12754LQR432,44855
Whentrustmoneyisusedtopaythedebt,thereisnovalueinherentinthedebtwhichiscapableof
beingacquiredbecausethedebtisaliability.
Theprimaryjustification,intermsoflegalpolicy,forrecognisingthepossibilityoftracingbackwardsis
thatitinvolvestheuse[ordevelopmentof]tracingrulestosecurewhatisperceivedtobeajust
result.115 Thejustice,orfairness,ofthecaseisstrongestonthesideofthetrustbeneficiarieswhoseek
totracethetrustassetsthroughthepaymentofadebtintotheassetthatwasacquiredbyincurringthe
debt.Onecanreadilyunderstandtheintuitiveimpulsetosaythatthetrustbeneficiariesmoneyhasbeen
usedtoacquireanassetwhenitisusedtopayoffthedebtinreturnforwhichtheassetwasfirst
acquired.Inasense,thetrustbeneficiariesmoneyhasbeenusedtopaythepriceoftheasset.
However,thatintuitiveimpulsecanprovidenomorethanaveryroughguideastohowthelawoughtto
approachthequestionofattribution,becauseitignoresthelegalmechanismbywhichthetrustee
acquiredtheassetoverwhichthetrustbeneficiariesnowseektomakeaclaim.Whenthetrusteeuses
trustfundstopaythedebt,thebeneficiariesmoneyhasbeenusedtopaythepriceoftheassetonlyin
aloosesense.Inreturnfortheasset,thevendoracceptedthedebtorsobligationtopaythedebt:the
vendordeterminedthatthepurchaserwassufficientlycreditworthythatthevendorwaspreparedtoagree
topasstitleinreturnforacquiringthebenefitofadebtobligationratherthancash.Theassetthatthe
vendoracceptedinreturnforagreeingtopasstitleinthegoodstothepurchaserwasthebenefitofthe
debt,notcash.Thedebtmaylaterberealisedbythepaymentofcash,butthatcashmaynotcome
directlyfromthepurchaser,aswherethevendorfactorsthedebt.Andevenwherethecashdoescome
fromthepurchaser,thatissatisfactionofthedebtratherthanpaymentoftheconsiderationforwhichthe
assetwasacquired.

Whenthealreadyprecariouspositionofunsecuredcreditorsisweighedagainsttheconcomitantlyfar
betterprotectedpositionoftrustbeneficiaries,itissuggestedthatthelawoughtnottorecognisethe
possibilityoftracingbackwards.Theunsecuredcreditorsshouldnothavetheirpositionworsenedfurther
byeffectivelymakingtheminsurersforthebeneficiariesagainsttrusteedefalcations.Trustbeneficiaries
whosemoneyhasbeenwronglyappliedinsatisfactionofadebtcanstandinthepositionofthesatisfied
creditor(bysubrogation),116 butitisasteptoofar,inpolicyterms,toallowthemtostandintheposition
ofthedebtorandactasownersofpropertythatthetrusteeacquiredbeforethedebtwaspaid.
Itremainstobeseenwhatdirectionthelawwilltakeinthisarea.Therearedecisionsthatareconsistentwith
backwardstracing,butthesecanalsobeexplainedonothergrounds.117 Situationswhereawrongdoerincurreda
debttoacquireanasset,andalwaysplannedtodischargethedebtwithabeneficiarysproperty,maybemost
amenabletobackwardstracing:allowingtheclaimanttoassertaproprietaryinterestintheacquiredassetmightnot
unfairlyprejudicethewrongdoeror(p.848) othercreditorssincetheassetwouldneverhavebeenacquiredbythe
wrongdoerhadheorshenotknownthatheorshewouldbeabletoexploitthebeneficiarysproperty.However,the
situationmightbeconsideredtobedifferentwherethetrusteeunwittinglymisappropriatedabeneficiarysmoneyin
breachofduty,anddischargedadebtthatheorshehadacquiredlongbefore.So,forexample,ifthetrusteepaidoff
theentiretyofamortgagetakenmanyyearsagotopurchaseahouse,itmightseemunsatisfactorytoallowthe
claimanttotracebackwardsthroughthedebt,intothehouse,andthenassertbeneficialownershipofthehouse.
Thisisbecause,ifthehousehasriseninvalue,theclaimantwould,fortuitously,receiveallthebenefitofthis
increase.118 Suchanoutcomemightbeconsideredtobeharshonthetrusteewhomadethesoundinvestment
decisiontopurchasethehouselongbefore,andwhomighthavebeenabletopayoffthemortgagewithotherfunds
anyway.119 Itmayyetbethecasethatbackwardstracingcouldbemorereadilyacceptediftheremedyawarded
werenotaconstructivetrust,underwhichtheclaimantwouldbenefitfromanyupliftinvalueofthepreviously
acquiredproperty,butthepotentiallylessintrusiveremedyofsubrogation.120 However,restrictingbackwardstracing
mightbethoughttobeinconsistentwiththegeneralapproachofEquitytopresumeeverythingagainstthetrustee
andfavourtheprotectionoftheclaimantspropertyrights.Inanyevent,itistobehopedthatanappellatecourtwill
soonprovideclearguidanceaboutwhatapproachthelawshouldanddoestaketobackwardstracingthecurrent
stateofspeculationisunsatisfactory.
(iv)Theswollenassetstheory
Ithasbeenseenthatthetracingexerciserequirestheclaimanttoidentifyhisproprietaryinterestinspecific
substituteassets.Itissometimessuggestedthatthisrequirementofspecificityistoorigid.Forexample,asituation
mightarisewheretheclaimantcantracehisorhermoneyintothehandsofadefendant,butthedefendantspends
thatmoneyonthingsheorshewouldhavehadtopayanyway,suchasbillsortax.Sincethepropertyhasbeen
dissipated,theclaimantcannottraceintoanyspecificassetandwillnothaveaproprietaryclaim.Yethadthe
defendantpaidthebillswithhisorherownmoneyandwhetherornotheorshedidsomightsimplybeamatterof
chancetheclaimantwouldbeabletotraceandassertaproprietaryclaim.Wherethereisnoproprietaryclaim,the
defendantmaybeinabetterpositionasaresultofthemisappropriationoftheclaimantsproperty,sincethe
defendantsassetswillbegreaterthantheyotherwisewouldhavebeen.
Asaresult,ithassometimesbeensuggestedthattheclaimantshouldbeabletotraceintothedefendantsswollen
assetsgenerally,withouthavingtoidentifyparticularassetsintowhichvaluecanbetraced.Thiswouldensurethat
thedefendantdoesnotbenefitfromhisorherwrong,andfurtherprotectstheclaimant.Thisiscruciallyimportantin
theeventofthedefendantsinsolvencyifthedefendantissolvent,theclaimantmayobtainsatisfactionthrougha
personalclaim.Thecorollaryofthisisthattheswollenassetstheoryoftracingwouldadverselyaffecttheposition
oftheinsolventdefendantscreditors.
TheswollenassetstheoryreceivedthesupportofLordTemplemaninthePrivyCouncilinSpaceInvestmentsLtdv
CanadianImperialBank ofCommerceTrustCo.(Bahamas)Ltd:121
Abankinfactusesalldepositmoneysforthegeneralpurposesofthebank.Whetherabanktrusteelawfully
receivesdepositsorwronglytreatstrustmoneyasondepositfromtrusts,allthemoneysarein(p.849) fact
dealtwithandexpendedbythebankforthegeneralpurposesofthebank.Inthesecircumstancesitis
impossibleforthebeneficiariesinterestedintrustmoneymisappropriatedfromtheirtrusttotracetheirmoney
toanyparticularassetbelongingtothetrusteebank.Butequityallowsthebeneficiaries,oranewtrustee
appointedinplaceofaninsolventbanktrusteetoprotecttheinterestsofthebeneficiaries,totracethetrust
moneytoalltheassetsofthebankandtorecoverthetrustmoneybytheexerciseofanequitablecharge
overalltheassetsofthebank.Whereaninsolventbankgoesintoliquidationthatequitablechargesecures
forthebeneficiariesandthetrustpriorityovertheclaimsofthecustomersinrespectoftheirdepositsandover
theclaimsofallotherunsecuredcreditors.Thispriorityisconferredbecausethecustomersandother
unsecuredcreditorsvoluntarilyaccepttheriskthatthetrusteebankmightbecomeinsolventandunableto
dischargeitsobligationsinfull.Ontheotherhand,thesettlorofthetrustandthebeneficiariesinterested
underthetrust,neveracceptanyrisksinvolvedinthepossibleinsolvencyofthetrusteebank.Onthe
contrary,thesettlorcouldbecertainthatifthetrustswerelawfullyadministered,thetrusteebankcouldnever
makeuseoftrustmoneyforitsownpurposesandwouldalwaysbeobligedtosegregatetrustmoneyand
trustpropertyinthemannerauthorisedbylawandbythetrustinstrumentfreefromanyrisksinvolvedinthe
possibleinsolvencyofthetrusteebank.Itisthereforeequitablethatwherethetrusteebankhasunlawfully
misappropriatedtrustmoneybytreatingthetrustmoneyasthoughitbelongedtothebankbeneficially,
merelyacknowledgingandrecordingtheamountinatrustdepositaccountwiththebank,thentheclaimsof,
thebeneficiariesshouldbepaidinfulloutoftheassetsofthetrusteebankinprioritytotheclaimsofthe
customersandotherunsecuredcreditorsofthebank.
Butthisseemsverygeneroustotheclaimant,andcontrarytogeneralprinciplesofpropertylaw.Theclaimantis
unabletoidentifyhisorherproprietaryrightinanyparticularsubstituteasset,soshouldbelimitedtopersonal
claims.Indeed,Englishlawhasrefusedtoadopttheswollenassetstheory.InalaterdecisionofthePrivyCouncil,
ReGoldcorpExchangeLtd,LordMustillinsistedthatSpaceInvestmentsshouldnotbefollowedonthispoint,122
andthiswasacceptedbytheEnglishCourtofAppealinBishopsgatevHoman,inwhichDillonLJsaid:123
AsIreadthejudgmentofthePrivyCouncilinInreGoldcorpExchangeLtd.deliveredbyLordMustill,it
makesitclearthatLordTemplemansobservationsintheSpaceInvestmentscase[1986]1W.L.R.1072
werenotconcernedatallwiththesituationwehaveinthepresentcasewheretrustmoneyshavebeenpaid
intoanoverdrawnbankaccount,oranaccountwhichhasbecomeoverdrawn.LordMustillsaidintheclearest
terms,[1995]1A.C.74,104105:
TheirLordshipsshould,however,saythattheyfinditdifficulttounderstandhowthejudgmentoftheBoardin
SpaceInvestmentsLtd.v.CanadianImperialBank ofCommerceTrustCo.(Bahamas)Ltd.[1986]1WLR
1072,onwhichtheclaimantsleanedheavilyinargument,wouldenablethemtoovercomethedifficultythat
themoneyssaidtobeimpressedwiththetrustwerepaidintoanoverdrawnaccountandthereuponceasedto
exist:see,forexample,InreDiplock [1948]Ch.465.TheobservationsoftheBoardintheSpace
Investmentscasewereconcernedwithamixed,notanonexistent,fund.
InsteadthedecisionoftheCourtofAppealinInreDiplock Diplock v.Wintle[1948]Ch.465isendorsed.

Thereitwassaid,atp.521:
Theequitableremediespresupposethecontinuedexistenceofthemoneyeitherasaseparatefundoras
partofamixedfundoraslatentinpropertyacquiredbymeansofsuchafund.If,onthefactsofanyindividual
case,suchcontinuedexistenceisnotestablished,equityisashelplessasthecommonlawitself.
(p.850) Nevertheless,theswollenassetstheoryreceivedsomeacademicsupport.Forexample,Evanshasargued
that:124
thenormativesupportforsucharequirementofspecificityistenuous.Thesupposedrequirementappearsto
bedrivenbytheideathataproprietaryremedyisinsomesenseacontinuationorrerepresentationofthe
claimantsproprietaryinterestinanassetofwhichheorshehasbeendeprived.Justastheclaimants
proprietaryinterestisaninterestinsomespecificasset,sotoomustbeitsrerepresentationinthe
defendantshands.ThusLionelSmitharguesthatitisinthenatureofproprietaryrightsthattheyareheldin
specificassetsandthattracing,whichnevercreatesproprietaryrights,cannotaltertheirspecificnatureand
thus,aproprietaryremedymaybeawardedonlywhenthereissomespecificallysurvivingenrichmentinthe
handsofthedefendantandnotwherethereismerelyagenerallysurvivingenrichment.Butitisnotthe
tracingprocessthatcreatesremedialproprietaryrights.Itistheclaimingrulesor(ifoneacceptsthe
possibilityofatrulyremedialconstructivetrust)theorderofacourtinupholdingtheclaimantsclaimand
awardingaproprietaryremedy.Itisthereforenottothepointthatthetracingprocesscannotcreatean
interestingenerallysurvivingenrichment,thatis,enrichmentnotrepresentedbyaspecificassetwitha
transactionalconnectiontotheclaimantswealth.Thequestioniswhethercourtscanrecogniseorcreate
suchanentitlementasaproprietaryremedyinresponsetotheclaimantsclaim.
Thereisgoodreasontosupposethattheycan.
Theswollenassetstheoryoftracingisafurtherlogicaldevelopmentoftherestitutionaryorcausalapproach
totracing.Itdependsonthesameassertionastherestitutionaryapproach,thatitispossibletotracethe
claimantsvalueintothedefendantsassetsevenwhereitisnotpossibletotracetheclaimantsvalueinto
anyspecificasset,solongasthereisacausalconnectionbetweenthevaluereceivedandthesurviving
enrichment.Itisimportanttonotethat,asatheoryofthelawoftracing,theswollenassetstheorymakesno
assertionsabouttheclaimantsentitlementtoaproprietaryremedy.Thepowerofthecourttoawarda
proprietaryremedy,remainsbasedontheantecedentcircumstancesgivingrisetothedefendants
enrichment.Theswollenassetstheoryisconcernedsolelywiththesubjectmatterofanyclaimorremedy.
Thisprovidesasophisticatedjustificationfortheswollenassetsapproach,butitmustberejectedasinconsistent
withcaselawandprinciplesofthelawofproperty.SinceEvansarticle,Fosk etthasmadeitclearthattracingisnot
baseduponcausation,andhasnothingtodowithunjustenrichment.Fosk ettsetsoutaclear,logicalapproach,
whichshouldbepreferredtothatofEvans.ThishasbeenemphasizedmorerecentlybyKeeneLJinSeriousFraud
OfficevLexiHoldingsplc(inadministration):125
Fortheequitablechargetoattachitmustattachtoassetsinexistencewhichderivefromthemisappropriated
trustfunds.Theremustbeanexus.Wereitotherwisetheprinciplesoffollowingandtracingcouldbecome
otiose.Onthecontrary,tracinginthisareaisavitalprocess:justbecauseitisbythatprocessthatthe
necessarynexusisestablishedandtheproprietaryremedy,beitbywayofconstructivetrustorequitable
charge,madeeffectual.Itisforthatreasonthatifallthemisappropriatedtrustfundsinanygivencaseare
paidintoanaccountwhichwasandremainsoverdrawnthentheproprietaryremedyislost:forthereareno
identifiableassetsleftinexistence,derivingfromthemisappropriatedtrustfunds,towhichaconstructivetrust
oranequitablechargecouldattach.Insuchasituationitisnotopentoabeneficiarytoseektoshiftthe
claimforanequitablechargetootherassetswhichdonotderivefromthemisappropriatedtrustfunds.
(p.851) 4.Claiming
Claimingshouldbeseparatedfromtracing.AsLordMillettexplainedinFosk ett:126
Tracingisalsodistinctfromclaiming.Itidentifiesthetraceableproceedsoftheclaimantsproperty.Itenables
theclaimanttosubstitutethetraceableproceedsfortheoriginalassetasthesubjectmatterofhisclaim.But
itdoesnotaffectorestablishhisclaim.Thatwilldependonanumberoffactorsincludingthenatureofhis
interestintheoriginalasset.Hewillnormallybeabletomaintainthesameclaimtothesubstitutedassetas
hecouldhavemaintainedtotheoriginalasset.Ifheheldonlyasecurityinterestintheoriginalasset,he
cannotclaimmorethanasecurityinterestinitsproceeds.Buthisclaimmayalsobeexposedtopotential
defencesasaresultofinterveningtransactions.Eveniftheplaintiffscoulddemonstratewhatthebankhad
donewiththeirmoney,forexample,andcouldthusidentifyitstraceableproceedsinthehandsofthebank,
anyclaimbythemtoassertownershipofthoseproceedswouldbedefeatedbythebonafidepurchaser
defence.Thesuccessfulcompletionofatracingexercisemaybepreliminarytoapersonalclaim(asinEl
AjouvDollarLandHoldingplc[1993]3AllER717)oraproprietaryone,totheenforcementofalegalright(as
inTrusteesofthePropertyofFCJones&SonsvJones[1997]Ch159)oranequitableone.
Tracingistheprocessthatcanbeusedtosupportaclaim.Buttracing(orfollowing)doesnotnecessarilydetermine
thenatureofaclaim:tracingmayleadtobothproprietaryandpersonalclaims.Thelatterwillbeconsideredin
Chapter19.
LordMillettwasclearthatthenatureofaproprietaryclaimcorrespondstothenatureoftheoriginalproprietaryright.
Alegalproprietaryrightwillleadtoalegalclaimanequitablerighttoanequitableclaimalimitedright,suchasa
securityinterest,cannotleadtoaclaimforanythingmorethanasecurityinterest.Butevenifaclaimantcantrace
intoasubstituteasset,aclaimmayfailbecausethedefendantmightbeabonafidepurchaser,forexample.The
defencestoproprietaryclaimswillbeconsideredbelow.127
Itisusefulheretoconsiderthenatureofproprietaryclaims.Thereissomedisputeamongstcommentatorsabout
whetherproprietaryclaimsaresimplyaquestionofproperty,orwhethertheyarebaseduponunjustenrichment.The
HouseofLordsinFosk ettvMcKeownexplicitlyaddressedthispointandconcludedthatproprietaryclaimsdidnot
fallwithinthescopeofunjustenrichment.128
FoskettvMcKeown[2001]1AC102
LordBrowneWilkinson:129
Thecrucialfactorinthiscaseistoappreciatethatthepurchasersareclaimingaproprietaryinterestin
thepolicymoneysandthatsuchproprietaryinterestisnotdependentonanydiscretionvestedinthe
court.Noristhepurchasersclaimbasedonunjustenrichment.Itisbasedontheassertionbythe
purchasersoftheirequitableproprietaryinterestinidentifiedproperty.
LordHoffmann:130
thisisastraightforwardcaseofmixedsubstitution.Thisisnotbaseduponunjustenrichment
exceptinthemosttrivialsenseofthatexpression.Itis,asmynobleandlearnedfriendsays,a
vindicationofproprietaryright.
(p.852) LordHope(dissenting):131
Theargumentforaclaimagainsttheminunjustenrichmentfailsoncausation.Thechildrenwerenot
enrichedbythepaymentofthesepremiums.Onthecontrary,theywouldbeworseoffiftheyweretobe
requiredtosharetheproceedsofthepolicywiththepurchasers.Itisaswellthatthepurchasersremedy
inrespectofthepremiumsandinterestdoesnotdependuponunjustenrichment,otherwisetheywould
havehadtohavebeendeniedaremedyinrespectofthatpartoftheirclaimalso.
LordMillett:132
Thetransmissionofaclaimantspropertyrightsfromoneassettoitstraceableproceedsispartofour
lawofproperty,notofthelawofunjustenrichment.Thereisnounjustfactortojustifyrestitution(unless
wantoftitlebeone,whichmakesthepoint).Theclaimantsucceedsifatallbyvirtueofhisowntitle,not
toreverseunjustenrichment.Propertyrightsaredeterminedbyfixedrulesandsettledprinciples.They
arenotdiscretionary.Theydonotdependuponideasofwhatisfair,justandreasonable.Such
concepts,whichinrealitymaskdecisionsoflegalpolicy,havenoplaceinthelawofproperty.
theplaintiffsseektovindicatetheirpropertyrights,nottoreverseunjustenrichment.
GiventheclarityofthesespassagesfromtheHouseofLords,itmightseemsurprisingthatthereremainsmuch
discussionaboutthenatureofproprietaryclaims.TheirLordshipswereagreedthattheclaimexistedtovindicatethe
claimantsproprietaryinterestidentifiedinanassetthroughtheprocessoftracing.
Nevertheless,criticismhasbeendirectedatthisapproachforfailingtoexplainwhytheclaimanthasaclaimtoan
assetinwhichheorsheneverhadaninterestattheoutset.Birksinsistedthatthereneededtobeaneventto
createaproprietaryrightinasubstituteasset,andthattheonlypossibleeventwouldbeunjustenrichment.
Birks,UnjustEnrichment(2ndedn)(Oxford:OxfordUniversityPress,2005)p.35
Incontrastingthecategoriesofpropertyacategoryofresponseandunjustenrichmentacategoryof
causativeeventtheirLordships,inthegripoffiction,mustreallyhaveintendedtocontrastcausative
events.Theymusthaveintendedtosaythatthepropertyrightinthesubstitutearosefromtheoriginal
declarationoftrust,notfromanyothereventandinparticularnotfromunjustenrichment.
Theelementoffictionisevident.Itisoddtosaythatarightina[substituteassetofa]caraboutwhichat
thetimenobodyknewanythingarosefromadeclarationoftrustofmoney.Itisevenmoreoddwhenthe
rightitselfmutates.Theclaimanthasachoiceinrelationtothesubstitutewhethertotakeabeneficial
interestproportionatetohisinvoluntarycontributionorasecurityinterestfortheamountofthat
contribution.
However,evenifweacceptthataneventisrequiredtocreateapropertyrightinasubstituteasset,thiscould
beaccommodatedbyviewingtheactionsofthedefendantasinterferingwiththeclaimantspropertyright.
GranthamandRickett,TracingandPropertyRights:TheCategoricalTruth(2000)63MLR
905,909
whilepropertyrightsstartasaresponsetosomeotherlegallysignificantevent,onceinexistence,they
becomeaneventinthemselves.Whereapersonretainsapropertyright,thelawwill(andmust,(p.853)
ifpropertylawistomaintainanyindependentdoctrinalcredibilitybeyondbeingafactortobetakeninto
account)respondtoanyinterferencewiththatright.
Itis,therefore,doctrinallypossibleforpropertyrightsintheoriginalassettobetheeventorsourceofthe
propertyrightsinthetraceableproduct.Thisaloneissufficienttodenythepropositionthatrightsinthe
traceableproductarealwaysaresponsetounjustenrichment.Ifpropertyrightsmaygeneratefurther
rights,thenitisentirelyplausiblethattherightsinthetraceableproductariseasaresponsetothe
plaintiffspersistingpropertyrightsintheoriginalassetandtheinterferencewiththoserights.
Nevertheless,BurrowsmaintainsthatthevindicationofpropertyrightsapproachfavouredbytheHouseofLordsin
Fosk ettvMcKeownisflawedandthatanunjustenrichmentanalysisistobepreferred.
Burrows,TheLawofResitution(3rdedn)(Oxford:OxfordUniversityPress,2011),p.170
Thereisadifferencebetweenfollowingandtracing.Oneisconcernedwiththecreationofnewproprietary
rightsoverpropertythatdoesnotalreadybelongtotheclaimantbutisratherasubstitutionofproperty
previouslyownedinequitybytheclaimant.So,inanunauthorisedsubstitutioncase,ifoneisentitledto
tracefromapigtoahorsetoacar,onecannotsay,withoutinvokingfiction,thatonehasproprietary
rightsinthecarmerelybecauseoneownedthepigthatisnowrepresentedbythecar.Thetruthisthat
onesproprietaryrightsinthepigentitleonetonewproprietaryrightsinthecarbecausetheholderofthe
carhasbeenunjustlyenrichedatonesexpense.
TheabovepassageisclearlyinconsistentwithFosk ett.Andinourview,theHouseofLordswascorrecttorejectan
analysisbaseduponunjustenrichment.Inordertoestablishaclaiminunjustenrichment,thedefendantmustbe
enrichedattheclaimantsexpense,andtheremustbeanunjustfactorprovidingagroundofrestitution.133 Itis
unclearwhatthegroundofrestitutionisinthesecases.AsLordMillettpointedout,ifitissimplywantoftitle,then
thatonlyhighlightsthatwearehereconcernedwiththelawofproperty.Courtsdonotrefertounjustenrichmentin
thisarea,andarecontenttorelyuponthevindicationofpropertyrights.Weshouldfeelconfidentindoingthesame.
Onthatbasis,itwouldseemthataproprietaryinterestcanbeattributedfromoneassettoanothersimplyasan
incidentofthelawofproperty.Thisexplainshowclaimstosubstituteassetscanarise,andwhyanyanalysisbased
uponunjustenrichmentisredundant.
Itisimportanttounderstandthedebatebetweenthecompetingapproaches,particularlyasitisprominentinmuch
oftheliterature.Buthowsignificanttotheoutcomeofanygivencaseischoosingbetweenthetwoanalyses?In
Fosk ett,LordMillettthoughtthecorrectanalysismightbecrucial:134
Thecorrectclassificationoftheplaintiffscauseofactionmayappeartobeacademic,butithasimportant
consequences.Thetwocausesofactionhavedifferentrequirementsandmayattractdifferentdefences.
Aplaintiffwhobringsanactioninunjustenrichmentmustshowthatthedefendanthasbeenenrichedatthe
plaintiffsexpense,forhecannothavebeenunjustlyenrichedifhehasnotbeenenrichedatall.Butthe
plaintiffisnotconcernedtoshowthatthedefendantisinreceiptofpropertybelonging(p.854) beneficiallyto
theplaintifforitstraceableproceeds.Thefactthatthebeneficialownershipofthepropertyhaspassedtothe
defendantprovidesnodefenceindeed,itisusuallytheveryfactwhichfoundstheclaim.Conversely,a
plaintiffwhobringsanactionlikethepresentmustshowthatthedefendantisinreceiptofpropertywhich
belongsbeneficiallytohimoritstraceableproceeds,butheneednotshowthatthedefendanthasbeen
enrichedbyitsreceipt.Hemay,forexample,havepaidfullvaluefortheproperty,butheisstillrequiredto
disgorgeitifhereceiveditwithnoticeoftheplaintiffsinterest.
Furthermore,aclaiminunjustenrichmentissubjecttoachangeofpositiondefence,whichusuallyoperates
byreducingorextinguishingtheelementofenrichment.Anactionlikethepresentissubjecttothebonafide
purchaserforvaluedefence,whichoperatestoclearthedefendantstitle.
Thislastparagraphisoftenconsideredtobethecrucialdifferencebetweentheapproachesbaseduponvindicationof
propertyrightsandunjustenrichment.Admittedly,thisparagraphisambiguous,butitmightbetakentosuggest
thatthedefenceofchangeofpositionshouldonlybeavailabletoclaimsbaseduponunjustenrichment,notthe
vindicationofpropertyrights.135 Thiswillbeconsideredfullybelow,136 butitmightbenotedherethatthereisno
reasoninprinciplewhyclaimsbasedonpropertylawshouldnotalsobesubjecttothedefenceofchangeof
position.GiventheclearguidancefromtheHouseofLordsinFosk ettthattheseclaimsdonotfallwithinthe
umbrellaofunjustenrichment,itmightnowbebettertofocusonwhetherthisdefenceshouldapplytothe
restitutionaryclaim,ratherthanonwhetherthelabelofunjustenrichmentshouldbegiventotheclaim.
5.RemediesforProprietaryClaims
(a)CommonLaw
WheretheclaimanthasbroughtaproprietaryclaimatCommonLaw,forexample,inthetortofconversion,the
remedywillusuallybeapersonaloneforthevalueoftheproperty.ThisisbecausetheCommonLawdoesnot
generallyrecognizeproprietaryremedies.137 Itwillbesufficientfortheclaimanttoestablishthatthedefendanthas
receivedpropertyinwhichtheclaimanthasalegalproprietaryinterest,withoutneedingtoshowthatthedefendant
hasretainedthisproperty.
(b)EquitableProprietaryRemedies
Variousproprietaryremediesareavailabletovindicateaclaimantsequitableproprietaryright.Therearethree
principalremediesthatneedtobeconsidered:beneficialownershipunderaconstructivetrustanequitablechargeor
lienandsubrogation.Choosingtheappropriateremedydependsonthetypeofcaseatissue.
(i)Purchaseofsubstituteassetwiththebeneficiaryspropertyalone
Ifatrusteemisappropriatesabeneficiarysmoneyfromatrustfundandusesonlythatmoneytoacquireanew
asset,thenthebeneficiaryshouldbeabletoassertbeneficialownershipofthatsubstituteasset.138 Thebeneficiary
ownedtheoriginalmoneyinEquity,soshouldownanyassetsubsequently(p.855) acquiredwithhisproperty.A
constructivetrustarisesbyoperationoflawthedefendantcanbeforcedtotransferthepropertytotheclaimant.In
BoscawenvBajwa,MillettLJrecognizedthat:139
Theplaintiffwillgenerallybeentitledtoapersonalremedyifheseeksaproprietaryremedyhemustusually
provethatthepropertytowhichhelaysclaimisstillintheownershipofthedefendant.Ifhesucceedsin
doingthisthecourtwilltreatthedefendantasholdingthepropertyonaconstructivetrustfortheplaintiffand
willorderthedefendanttotransferitinspecietotheplaintiff.
Thiscanleadtocontroversialresults:forexample,ifatrusteemisappropriates1ofthebeneficiarysmoneyinorder
tobuyalotteryticket,whichwins1million,thenitappearstoberelativelystraightforwardforthebeneficiarytotrace
intothe1millionwinnings.AsLordMillettexplainedinFosk ett:140
Sincethemannerinwhichanassetisrealiseddoesnotaffectitsownership,andsinceitcannotmatter
whethertheclaimantdiscoverswhathashappenedbeforeorafteritisrealised,thequestionofownershipcan
beansweredbyascertainingthesharesinwhichitisownedimmediatelybeforeitisrealised.WhereA
misappropriatesBsmoneyandusesittobuyawinningticketinthelottery,Bisentitledtothewinnings.
SinceAisawrongdoer,itisirrelevantthathecouldhaveusedhisownmoneyifinfactheusedBs.Thismay
seemtogiveBanundeservedwindfall,buttheresultisnotunjust.HadBdiscoveredthefraudbeforethe
draw,hecouldhavedecidedwhethertokeeptheticketordemandhismoneyback.Healonehastherightto
decidewhethertogamblewithhisownmoney.IfAkeepshiminignoranceuntilafterthedraw,hesuffersthe
consequence.HecannotdepriveBofhisrighttochoosewhattodowithhisownmoneybuthecangivehim
aninformedchoice.
Infact,theclaimantmightbeabletotraceintoalltheproceedsevenifthedefendantwasentirelyinnocent:ifitcould
beestablishedthattherewasnomixingofpropertyandthatthe1usedtopurchasetheticketindisputably
belongedtotheclaimant,thenallthewinningsshouldequallybelongtotheclaimantinEquity.Itisunclearwhether
aconstructivetrustovertheentiretyofthewinningsissatisfactoryifthedefendantwouldotherwisesimplyhaveused
hisownmoneytobuytheticket.Althoughthetracingrulesmeanthattheclaimantcanidentifyaproprietaryinterest
inthelotterywinnings,thatdoesnotmeanthattheremedyawardedshouldnecessarilyallowtheclaimanttorecover
theentireamount.Althoughtheclaimantmighthavearemedyoverthewholeamount,thismaybesubjecttoany
defencethatthedefendantmighthavethiswillbeconsideredbelow.141
Suchcleansubstitutionsmightbedistinguishedfromsituationswheretheclaimantspropertyismixedwithother
property.
(ii)Purchaseofsubstituteassetwithmixedfunds
Aswiththetracingrules,itishelpfultoconsiderseparatelysituationswheretheclaimantsmoneyismixedwith
thatofawrongdoingfiduciary,aswasthecaseinFosk ett,andinstanceswheretheclaimantsmoneyismixedwith
thatofaninnocentvolunteer.
(a)Defendantisafiduciary
InReHallett,JessellMRsuggestedthatwherethefiduciaryheldanassetthathehadpurchasedwithmoneyfroma
mixedfundcontainingbothhisownpropertyandthatoftheclaimant,theclaimant(p.856) wouldbelimitedto
claiminganequitablechargeorlienoverthefund,andwouldnotbeabletoassertbeneficialownership:142
whereatrusteehasmixedthemoneywithhisown,thereisthisdistinction,thatthecestuiquetrust,or
beneficialowner,cannolongerelecttotaketheproperty,becauseitisnolongerboughtwiththetrustmoney
simplyandpurely,butwithamixedfund.Heis,however,stillentitledtoachargeonthepropertypurchased,
fortheamountofthetrustmoneylaidoutinthepurchaseandthatchargeisquiteindependentofthefactof
theamountlaidoutbythetrustee.
However,thesecommentswereobiterandunsatisfactory.Afiduciarywouldbeabletoavoidtheimpositionofa
constructivetrustsimplybymixingtheclaimantsmoneywithhisown,therebyreducingtheclaimantsremedytoa
chargeoverthefund,whichwouldclearlybedisadvantageoustotheinnocentclaimantifthepurchasedasset
increasedinvalue.Itwouldbeoddforthelawtofavourafiduciaryinthisway,giventhatthepresumptionsgenerally
operateagainstthewrongdoingfiduciary.ItwasthereforenosurprisethatmanycasesrefusedtofollowHallett,143
andinFosk etttheHouseofLordsclearlydepartedfromHallettonthispoint.LordMillettsaid:144
AnyauthoritythatthisdictummightotherwisehaveisweakenedbythefactthatSirGeorgeJesselMRgave
noreasonfortheexistenceofanysuchrule,andnoneisreadilyapparent.Thedictumwasplainlyobiter,for
thefundwasdeficientandtheplaintiffwasonlyclaimingalien.Ithasusuallybeencitedonlytobeexplained
away:seeforexampleInreTilleysWillTrusts[1967]Ch1179,1186,perUngoedThomasJItwas
rejectedbytheHighCourtofAustraliainScottvScott(1963)109CLR649Ithasnotbeenadoptedinthe
UnitedStatesInFrimeauvGranfield(1911)184F480,482LearnedHandJexpressedhimselfinforthright
terms:Onprincipletherecanbenoexcuseforsucharule.
InmyviewthetimehascometostateunequivocallythatEnglishlawhasnosuchrule.Itconflictswiththe
rulethatatrusteemustnotbenefitfromhistrust.IagreewithBurrows 145 thatthebeneficiarysrighttoelect
tohaveaproportionateshareofamixedsubstitutionnecessarilyfollowsonceoneaccepts,asEnglishlaw
does,(i)thataclaimantcantraceinequityintoamixedfundand(ii)thathecantraceunmixedmoneyinto
itsproceedsandassertownershipoftheproceeds.
However,theappropriateremedyinFosk ettwasdifficulttodetermine.Themajorityinsistedthattheclaimants
propertyhadbeenusedtoacquirethelifeinsurancepolicyandthereforethepayout,sotheclaimantsshouldobtain
aproportionateshareofthepayoutunderaconstructivetrust.
FoskettvMcKeown[2001]1AC102,10911(LordBrowneWilkinson)
Intheformercase(mixingoffunds)itisestablishedlawthatthemixedfundbelongsproportionatelyto
thosewhosemoneysweremixed.Inthelattercaseitisequallyclearthatmoneyexpendedon
maintainingorimprovingthepropertyofanothernormallygivesrise,atthemost,toaproprietaryliento
recoverthemoneyssoexpended.Incertaincasestherulesoftracinginsuchacasemaygiveriseto(p.
857) noproprietaryinterestatalliftogivesuchinterestwouldbeunfair:seeInreDiplock Diplock v
Wintle[1948]Ch465,548.146
BothSirRichardScottVCandHobhouseLJ147 consideredthatthepaymentofapremiumonsomeone
elsespolicywasmoreakintoanimprovementtolandthantothemixingofseparatetrustmoneysin
oneaccount.HobhouseLJwasadditionallyinfluencedbythefactthatthepaymentofthefourthandfifth
premiumsoutofthepurchasersmoneysconferrednobenefitonthechildren:thepolicywastheirsand,
sincethefirsttwopremiumshadalreadybeenpaid,thepolicywouldnothavelapsedevenifthefourth
andfifthpremiumshadnotbeenpaid.
Caseswherethemoneyofonepersonhasbeenexpendedonimprovingormaintainingthephysical
propertyofanotherraisespecialproblems.Thepropertyleftattheendofthedayisincapableofbeing
physicallydividedintoitsseparateconstituentassets,i.e.thelandandthemoneyspentonit.Norcan
therulesfortracingmoneysthroughamixedfundapply:theessenceoftracingthroughamixedfundis
theabilitytoredividethemixedfundintoitsconstituentpartsprorataaccordingtothevalueofthe
contributionsmadetoit.Thequestionwhicharisesinthiscaseiswhether,fortracingpurposes,the
paymentsofthefourthandfifthpremiumsonapolicywhich,uptothatdate,hadbeenthesoleproperty
ofthechildrenfortracingpurposesfalltobetreatedasanalogoustotheexpenditureofcashonthe
physicalpropertyofanotherorasanalogoustothemixtureofmoneysinabankaccount.Iftheformer
analogyistobepreferred,themaximumamountrecoverablebythepurchaserswillbetheamountofthe
fourthandfifthpremiumsplusinterest:ifthelatteranalogyispreferredthechildrenandtheother
purchaserswillsharethepolicymoneysprorata.
Thespeechofmynobleandlearnedfriend,LordMillett,demonstrateswhytheanalogywithmoneys
mixedinanaccountisthecorrectone.Whereatrusteeinbreachoftrustmixesmoneyinhisownbank
accountwithtrustmoneys,themoneysintheaccountbelongtothetrusteepersonallyandtothe
beneficiariesunderthetrustrateablyaccordingtotheamountsrespectivelyprovided.Onaproper
analysis,therearenomoneysintheaccountinthesenseofphysicalcash.Immediatelybeforethe
impropermixture,thetrusteehadachoseinactionbeinghisrightagainstthebanktodemanda
paymentofthecreditbalanceonhisaccount.Immediatelyafterthemixture,thetrusteehadthesame
choseinaction(ietherightofactionagainstthebank)butitsvaluereflectedinparttheamountofthe
beneficiariesmoneyswronglypaidin.Thereisnodoubtthatinsuchacaseofmoneysmixedinabank
accountthecreditbalanceontheaccountbelongstothetrusteeandthebeneficiariesrateablyaccording
totheirrespectivecontributions.
Sointhepresentcase.Immediatelybeforethepaymentofthefourthpremium,thetrustpropertyheldin
trustforthechildrenwasachoseinaction,i.e.thebundleofrightsenforceableunderthepolicyagainst
theinsurers.Thetrustee,bypayingthefourthpremiumoutofthemoneyssubjecttothepurchaserstrust
deed,wronglymixedthevalueofthepremiumwiththevalueofthepolicy.Thereafter,thetrusteeforthe
childrenheldthesamechoseinaction(iethepolicy)butitreflectedthevalueofbothcontributions.The
case,therefore,iswhollyanalogoustothatwheremoneysaremixedinabankaccount.Itfollowsthat,in
myjudgment,boththepolicyandthepolicymoneysbelongtothechildrenandthetrustfundsubjectto
thepurchaserstrustdeedrateablyaccordingtotheirrespectivecontributionstothepremiumspaid.
Thecontraryviewappearstobebasedprimarilyonthegroundthattogivethepurchasersarateable
shareofthepolicymoneysisnottoreverseanunjustenrichmentbuttogivethepurchasersawholly
unwarrantedwindfall.Idonotmyselfquibbleatthedescriptionofitbeingawindfallonthefactsofthis
case.Butthiswindfallisenjoyedbecauseoftherightswhichthepurchasersenjoyunderthelawof
property.Amanunderwhoselandoilisdiscoveredenjoysaveryvaluablewindfallbutnoonesuggests
(p.858) thathe,asowneroftheproperty,isnotentitledtothewindfallwhichgoeswithhisproperty
right.Wearenotdealingwithaclaiminunjustenrichment.
Moreovertheargumentbasedonwindfallcanbe,andis,muchoverstated.Itissaidthatthefourthand
fifthpremiumspaidoutofthepurchasersmoneysdidnotincreasethevalueofthepolicyinanyway:the
firstandsecondpremiumswere,bythemselves,sufficientundertheunusualtermsofthepolicytopay
allthepremiumsfallingduewithoutanyassistancefromthefourthandfifthpremiums:evenifthefourth
andfifthpremiumshadnotbeenpaidthepolicywouldhavebeeninforceatthetimeofMr.Murphys
death.Therefore,itisasked,whatvaluehasbeenderivedfromthefourthandfifthpremiumswhichcan
justifygivingthepurchasersaproratashare.Inmyjudgmentthisargumentdoesnotreflectthetrue
position.Itistruethat,intheeventswhichhavehappened,thefourthandfifthpremiumswerenot
requiredtokeepthepolicyonfootuntilthedeathofMr.Murphy.Butatthetimesthefourthandfifth
premiumswerepaid(whichmustbethedatesatwhichthebeneficialinterestsinthepolicywere
established)itwaswhollyuncertainwhatthefuturewouldbring.WhatifMr.Murphyhadnotdiedwhen
hedid?Sayhehadsurvivedforanotherfiveyears?Thepremiumspaidinthefourthandfifthyearswould
inthoseeventshavebeendirectlyresponsibleforkeepingthepolicyinforceuntilhisdeathsincethefirst
andsecondpremiumswouldlongsincehavebeenexhaustedinkeepingthepolicyonfoot.Inthose
circumstances,woulditbesaidthatthepurchaserswereentitledto100percentofthepolicymoneys?
Inmyjudgment,thebeneficialownershipofthepolicy,andthereforethepolicymoneys,cannotdepend
uponhoweventsturnout.Therightsofthepartiesinthepolicy,onewayoranother,werefixedwhenthe
relevantpremiumswerepaidwhenthefuturewasunknown.
LordBrowneWilkinsonhighlightedthechoiceavailabletotheCourtindecidinghowtovindicatetheclaimants
equitableproprietaryinterestinthepayoutfromthedeathbenefit.Aproportionateshareunderaconstructivetrust
wasbestjustifiedbyanalogytotheacquisitionofanasset.Achargewasmoreappropriateiftheanalogywasmade
tomaintaining,orperhapsimproving,alreadyacquiredproperty.Decidingwhichapproachbettersuitedthefactswas
noteasy.Indeed,LordBrowneWilkinsonsaidthat:148
attheconclusionofthehearingIconsideredthatthemajorityoftheCourtofAppealwerecorrectandwould
havedismissedtheappeal.However,havingreadthedraftspeechofLordMillettIhavechangedmymindand
forthereasonswhichhegivesIwouldallowtheappeal.
LordMillettsspeechprovedtobedecisivelypersuasive.Thethrustofhisreasoningappearsinmanyoftheextracts
givenalreadyultimately,hewasadamantthat:149
incaseswherethewrongdoerhasmisappropriatedtheclaimantsmoneyandusedittoacquireotherformsof
propertywhichhavegreatlyincreasedinvaluethecourtshaveconsistentlyrefusedtolimittheclaimanttoan
equitablelien.
Theminority,bycontrast,agreedwiththeCourtofAppealandconsideredthebetteranalogywasthatofmaintaining
orimprovingthedefendantsproperty.
(p.859) FoskettvMcKeown[2001]1AC102,112
LordSteyn:
therelativemoralclaimsofthepurchasersandthechildrenmustbeconsidered.
Giventhatthemoneysstolenfromthepurchasersdidnotcontributeoraddtowhatthechildrenreceived,
inaccordancewiththeirrightsestablishedbeforethetheftbyMrMurphy,theproprietaryclaimofthe
purchasersisnotinmyviewunderpinnedbyanyconsiderationsoffairnessorjustice.And,ifthisviewis
correct,thereisnojustificationforcreatingbyanalogywithcasesonequitableinterestsinmixedfundsa
newproprietaryrighttothepolicymoneysinthespecialcircumstancesofthepresentcase.
LordHope:
Thefirstquestionissimplyoneofevidence.Thisiswhether,ifthepurchaserscanshowthattheirmoney
wasusedtopayanyofthepremiums,theycantracetheirmoneyintotheproceedsobtainedbythe
trusteesfromtheinsurersinvirtueoftheirrightsunderthepolicy.Thesecondquestionismoredifficult,
andIthinkthatitisthecrucialquestioninthiscase.AsIunderstandthequestion,itiswhetheritis
equitable,inallthecircumstances,thatthepurchasersshouldrecoverfromthetrusteesashareofthe
proceedscalculatedbyreferencetothecontributionwhichtheirmoneymadetothetotalamountpaidto
theinsurersbywayofpremium.
Buttheresultofthetracingexercisecannotsolvetheremainingquestion,whichrelatestotheextentof
thepurchasersentitlement.Itisthefactthatthisisacaseofmixedsubstitutionwhichcreatesthe
difficulty.Ifthepurchasersmoneyhadbeenusedtopayallthepremiumstherewouldhavebeenno
mixtureofvaluewiththatcontributedbyothers.Theirclaimwouldhavebeentothewholeoftheproceeds
ofthepolicy.Asitis,therearecompetingclaimsonthesamefund.Intheabsenceofanyotherbasisfor
divisioninprincipleoronauthorityandnootherbasishasbeensuggesteditmustbedividedbetween
thecompetitorsinsuchproportionsascanbeshowntobeequitable.Inmyopiniontheanswertothe
questionastowhatisequitabledoesnotdependsolelyonthetermsofthepolicy.Theequitiesaffecting
eachpartymustbeexamined.Theymustbebalancedagainsteachother.Theconductofthepartiesso
farasthismayberelevant,andtheconsequencestothemofallowingandrejectingthepurchasers
claim,mustbeanalysedandweighedup.Itmaybehelpfultorefertowhatwouldbedoneinother
situationsbywayofanalogy.Butitseemstomethatintheendajudgmentrequirestobemadeasto
whatisfair,justandreasonable.
Oftheotheranalogieswhichweresuggestedinthecourseoftheargumenttoillustratetheextentofthe
equitableremedy,theclosesttothecircumstancesofthiscaseseemedtometobethoserelatingtothe
expenditurebyatrusteeofmoneyheldontrustontheimprovementofhisownpropertysuchashis
dwellinghouse.ThiswastheanalogydiscussedbySirRichardScottVCandbyHobhouseLJ[1998]Ch
265,282and289290.Thereisnodoubtthatanequitablerightwillbeavailabletothebeneficiariesto
havebackthemoneywhichwasmisappropriatedforhisownbenefitbythetrustee.Butthatrightdoes
notextendtogivingthemanequitablerighttoaproratashareinthevalueofthehouse.Ifthevalueofthe
propertyisincreasedbytheimprovementswhichwerepaidforinwholeorinpartoutofthemoneywhich
thetrusteemisappropriated,hemustaccounttothetrustforthevalueoftheimprovements.Thisisby
theapplicationoftheprinciplethatatrusteemustnotbeallowedtoprofitfromhisownbreachoftrust.
Butunlessitcanbedemonstratedthathehasobtainedaprofitasaresultoftheexpenditure,hisliability
istopaybackthemoneywhichhehasmisapplied.
Inthepresentcasethepurchasersare,inmyopinion,unabletodemonstratethatthevalueofthe
entitlementofthetrusteesofthepolicytodeathbenefitwasincreasedtoanyextentatallasaresultof
theuseoftheirmoneytokeepthepolicyonfoot,astheentitlementhadalreadybeenfixedbeforetheir
(p.860) moneywasmisappropriated.Inthesecircumstancestheequitiesliewiththechildrenandnot
withthepurchasers.Idonotneedtoattachanyweighttothefactthatthepurchasershavealreadybeen
compensatedbythesuccessfulpursuitofotherremedies.EvenwithoutthatfactIwouldholdthatitis
fair,justandreasonablethatthechildrenshouldbeallowedtoreceivethewholeofthesumnowinthe
handsofthetrusteesafterthepurchasershavebeenreimbursed,withinterest,fortheamountoftheir
moneywhichwasusedtopaythepremiums.
LordHoperightlymakesacleardistinctionbetweentheclaimandtheremedy.Hefavouredtheanalogyof
maintainingorimproving,ratherthanacquiring,property.Choosingwhethertheviewoftheminorityorthemajorityin
decidingtheappropriateremedyinFosk ettispreferableislargelyamatterofjudgement.However,themajority
approachwasconsistentwiththetermsofthepolicyitself,whichsaidthatanypayoutwouldbeinconsiderationof
thepaymentofallthepremiums:theclaimantsmoneywasusedtopaythepremiumsthatledtothepayout,soit
mightbesaidthattheclaimantsmoneyacquiredthepayout.
Inanyevent,theminoritysinvocationofconceptsofjustice,fairness,andevencommonsense150 wereclearly
rejected.Proprietaryremediesdonotdependuponsuchvagueconsiderations.Indeed,itisdifficulttoknowhowLord
Hopeenvisagedthebalancingexercisebetweenvariousrightsshouldbeundertaken,andhowusefulanyguidance
providedtothelowercourtscouldbe.Itisbetterthatproprietaryremediesrestuponclearandcertainprinciples.Of
course,adesireforfairnessisentirelyappropriate,andtoorigidanapproachmightleadtoinjustice.However,the
betterwaytointroducesomeflexibilityprobablyliesintherealmofdefences.151
ThedissentientsinFosk ettthoughtthattheremedyawardedwastoohardonthedefendants.Butithasalsobeen
suggestedthattheremedywasnothardenough.BerghasarguedthatMrMurphywasawrongdoingtrustee,and
thattheclaimantsshouldhavebeenabletostriphimofalltheprofitshemadefromhisbreachoffiduciaryduty.
Berg,PermittingaTrusteetoRetainaProfit(2001)117LQR366,371
InFosk ettv.McKeownitshouldhavebeenheld:First,thatatrusteewhohasinvestedbothhisown
moneyandmisappropriatedtrustfundsinaparticularassetholdstheentireprofitonaconstructivetrust
andsecondly,thatitmakesnodifferenceifeventseventuallyturnedoutsothattheprofitwasobtained
onthatpartoftheinvestmentthatwasmadewiththetrusteesownmoney.Atmost,amodestextension
andarguablynoneatallwouldhavebeenrequiredtotherule,aspresentlyapplied,thatatrusteeis
accountableforanybenefitorgainobtainedorreceivedincircumstancesinwhichthereexistedaconflict
betweenhisfiduciarydutyandhispersonalinterest152
ItisthereforesubmittedthatthecorrectresponseinFosk ettv.McKeownwouldhavebeentoorder
repaymenttoMschildrenofthe30,660ofMsownmoneyusedforthefirstthreepremiumsandto
declarethattheremaining969,340washeldonaconstructivetrustforthetrustbeneficiaries.
ThisapproachofBergmighthavebeenpossibleonthefactsofFosk ett,butitisaverydifferenttypeofclaim.It
doesnotrestuponthevindicationofpropertyrights,butisfoundeduponthewrongof(p.861) breachoffiduciary
duty.Althoughthismightleadtoafullaccountofprofits,itisimportanttonotethatthecourthasaflexible
discretiontoawardanequitableallowancetothefiduciary.153
EquitableCharge
ThemajorityinFosk ettmadeitclearthattheclaimantisabletoelectbetweenanequitablechargeanda
proportionateshareofownershipofanassetthathasbeenacquiredfromamixedfundbyawrongdoingfiduciary.
Butthisabilitytoelectpresumablydoesnotexistinsituationswheretheclaimantsmoneyhasonlybeenusedto
maintainorimproveanasset,inwhichcasetheclaimantshouldbelimitedtoacharge.So,ifafiduciary
misappropriatestheclaimantsmoney,placesitinhisorherownaccount,andthenspendsmoneyfromthat
accountonrepairinghisorherhouse,itwouldbetoogeneroustotheclaimantandtooharshonthefiduciaryto
allowtheclaimantaproportionateshareofthehouse:althoughtheclaimantsequitableinterestmaybeidentifiable
inthehouse,itwasnotusedtoacquireitnorownit.Achargeisthemoreappropriateremedy.Thisapproachis
logical,supportedbypreviousauthority,154 andconsistentwiththethrustofthereasoningoftheHouseofLordsin
Fosk ett.Indeed,LordMillettexpresslyleftroomforthisconclusion:155
Itisnotnecessarytoconsiderwhetherthereareanycircumstancesinwhichthebeneficiaryisconfinedtoa
lienincaseswherethefundismorethansufficienttorepaythecontributionsofallparties.Itissufficientto
saythatheisnotsoconfinedinacaselikethepresent.
(b)Defendantisaninnocentvolunteer
Ifthedefendantisaninnocentvolunteerandholdsanassetthathasbeenpurchasedfromafundcontainingboththe
claimantsandthedefendantsmoney,thenthesubstituteassetshouldbeheldfortheclaimantanddefendantinthe
appropriateproportions.ThiswasrecognizedbyLordMillettinFosk ettwhenhesaidthat:156
Innocentcontributors,however,mustbetreatedequallyinterse.Wherethebeneficiarysclaimisin
competitionwiththeclaimsofotherinnocentcontributors,thereisnobasisuponwhichanyoftheclaimscan
besubordinatedtoanyoftheothers.Wherethefundisdeficient,thebeneficiaryisnotentitledtoenforcea
lienforhiscontributionsallmustsharerateablyinthefund.
Theprimaryruleinregardtoamixedfund,therefore,isthatgainsandlossesarebornebythecontributors
rateably.Thebeneficiarysrighttoelectinsteadtoenforcealientoobtainrepaymentisanexceptiontothe
primaryrule,exercisablewherethefundisdeficientandtheclaimismadeagainstthewrongdoerandthose
claimingthroughhim.
Theclaimanthasnochoicebuttoacceptaproportionateshareinanyassetacquiredfromamixedfundwherethe
defendantisequallyinnocent,andcannotelecttoseekachargeifthepurchasedpropertyhasfalleninvalue.
(p.862) (c)Subrogation
InOrak povMansonInvestmentsLtd,LordDiplockdescribedsubrogationas:157
aconvenientwayofdescribingatransferofrightsfromonepersontoanother,withoutassignmentorassent
ofthepersonfromwhomtherightsaretransferredandwhichtakesplacebyoperationoflawinawhole
varietyofwidelydifferentcircumstances.
Mostrelevantforpresentpurposesarecaseswheretheclaimantcantracehisorherproprietaryinterestintoadebt
whichthedefendantdischarged.Subrogationoperatestokeepthechargealive,and,ineffect,putstheclaimant
intotheshoesofthethirdpartycreditorwhosedebthasbeendischarged.Sowheretheclaimantsmoneyisused
bythedefendanttodischargeadebtowedtoasecuredcreditor,typicallyabankasmortgagee,theclaimantcanbe
subrogatedtothebankschargeandenjoyexactlythesamerightsasthebankpreviouslyhad.158 Ineffect,the
benefitofthechargeistreatedasthoughithadbeenassignedtotheclaimant.159
BoscawenvBajwa[1996]1WLR328,335
AbbeyNationallentmoneytothepurchaserofahouse,withtheloanbeingsecuredbyalegalcharge.This
moneywaspaidtothepurchaserssolicitors.Inbreachoftrust,thatfirmofsolicitorstransferredthemoneyto
thevendorssolicitorsbeforecompletionandthemoneywasusedtodischargethevendorsmortgagewiththe
Halifax.Thesaleofthehousefellthrough.Thecreditorsofthevendorhadobtainedachargingorderagainstthe
propertythatwassold,withtheproceedsofsalepaidintocourt.Thecreditorsclaimedtheproceedsofsale,but
AbbeyNationalclaimedthatitwasentitledbysubrogationtothesecurityrightoftheHalifax,beingthevendors
formermortgagee,andsoitwasentitledtoachargeontheproceedsofsalethatrankedabovethevendors
creditors.
TheCourtofAppealfoundforAbbeyNational.
MillettLJ:
Subrogation,therefore,isaremedy,notacauseofactionItisavailableinawidevarietyofdifferent
factualsituationsinwhichitisrequiredinordertoreversethedefendantsunjustenrichment.Equity
lawyersspeakofarightofsubrogation,orofanequityofsubrogation,butthismerelyreflectsthefact
thatitisnotaremedywhichthecourthasageneraldiscretiontoimposewheneveritthinksitjusttodo
so.Theequityarisesfromtheconductofthepartiesonwellsettledprinciplesandindefined
circumstanceswhichmakeitunconscionableforthedefendanttodenytheproprietaryinterestclaimed
bytheplaintiff.Aconstructivetrustarisesinthesameway.Oncetheequityisestablishedthecourt
satisfiesitbydeclaringthatthepropertyinquestionissubjecttoachargebythewayofsubrogationin
theonecaseoraconstructivetrustintheother.
Accordingly,therewasnothingillegitimateinthedeputyjudgesinvocationofthetwodoctrinesoftracing
andsubrogationinthesamecase.Theyaroseatdifferentstagesoftheproceedings.Tracingwasthe
processbywhichtheAbbeyNationalsoughttoestablishthatitsmoneywasappliedinthedischargeof
theHalifaxschargesubrogationwastheremedywhichitsoughtinordertodeprive(p.863) Mr.Bajwa
(throughwhomtheappellantsclaim)oftheunjustenrichmentwhichhewouldtherebyotherwiseobtainat
theAbbeyNationalsexpense.
Theappellantssubmitthatthemerefactthattheclaimantsmoneyisusedtodischargesomeoneelses
debtdoesnotentitlehimtobesubrogatedtothecreditorwhosedebtispaid.Theremustbesomething
more:Paulv.SpeirwayLtd.[1976]Ch220,230,perOliverJ.andseeOrak povMansonInvestments
Ltd.[1978]AC95,105,whereLordDiplocksaid:
Themerefactthatmoneylenthasbeenexpendedupondischargingasecuredliabilityofthe
borrowerdoesnotgiverisetoanyimplicationofsubrogationunlessthecontractunderwhichthe
moneywasborrowedprovidesthatthemoneyistobeappliedforthispurpose:WylievCarlyon
[1922]1Ch51.
InButlervRice[1910]2Ch277thefactthatthedebtorhadnotrequestedtheclaimanttomakethe
paymentanddidnotknowofthetransactionwasheldtobeimmaterial.Thisisnottosaythatintention
isnecessarilyirrelevantinacaseofthepresentkinditistosayonlythatwherethepaymentwasmade
byathirdpartyandtheclaimanthadnointentiontomakeanypaymenttoorforthebenefitofthe
recipienttherelevantintentionmustbethatofthethirdparty.
IfButlervRiceandsimilarcasesarereliedupontosupportthepropositionthattherecanbeno
subrogationunlesstheclaimantintendedtokeeptheoriginalsecurityaliveforitsownbenefitsaveinso
farasitwasreplacedbyanewandeffectivesecurity,withtheresultthattheremedyisnotavailable
wheretheclaimanthadnodirectdealingswiththecreditoranddidnotintendhismoneytobeusedat
all,thenIrespectfullydissentfromthatproposition.IprefertheviewofSladeLJinInreTHKnitwear
(Wholesale)Ltd[1988]Ch275thatinsomesituationsthedoctrineofsubrogationiscapableofapplying
eventhoughitisimpossibletoinferamutualintentiontothiseffectonthepartofthecreditorandthe
personclaimingtobesubrogatedtothecreditorssecurity.Inthepresentcasethepaymentwasmade
by[thesolicitors],anditistheirintentionwhichmatters.Asfiduciaries,theycouldnotbeheardtosay
thattheyhadpaidouttheirprincipalsmoneyotherwisethanforthebenefitoftheirprincipal.Accordingly,
theirintentionmustbetakentohavebeentokeeptheHalifaxschargealiveforthebenefitoftheAbbey
Nationalpendingcompletion.Inmyjudgmentthisissufficienttobringthedoctrineofsubrogationinto
play.
Thispassageshowsthatsubrogationdoesnotdependuponanymutualintentionoftheparties,andcanputthe
claimantinthesamebutnobetterpositionasthecreditorwhosedebthasbeendischarged.
MillettLJclearlyreferstosubrogationbeingbaseduponunjustenrichment.Otherjudgeshavesubsequentlyfollowed
thisapproach.160 But,forsimilarreasonstothosegivenalready,161 thisisinappropriate,andLordMilletts
subsequentapproachinFosk ettshouldbepreferred.162 Subrogationoperatestovindicateaclaimantsproperty
right,asestablishedthroughtracing.Itisnotaclaiminunjustenrichment.However,thisdoesnotnecessarily
excludethepossibilityofadefenceofchangeofposition.163
(p.864) 6.Defences
(a)BonaFidePurchaser
InFosk ett,LordMillettsaidthatthebonafidepurchaserdefenceoperatestocleartitle,164 suchthatitgivesthe

defendantgoodtitleanddefeatstheclaimantsequitableproprietaryinterest.Forthedefencetosucceed,the
defendantmusthavepurchasedlegaltitletothepropertyforvalue,ingoodfaith,andwithoutnoticeoftheclaimants
equitableinterest.Ifthedefendanthasonlypurchasedequitabletitle,thenthebonafidepurchaserdefencewillnot
applyandthedisputewillinsteadberesolvedaccordingtothenormalequitablepriorityrules:generally,theinterest
thatwasfirstintimewilltakepriorityandthereforetheclaimantwillstillbeabletoassertanequitableinterestinthe
property.165
MacmillanInc.vBishopsgateInvestmentTrustplc[1995]1WLR978,9991000(MillettJ)
InEnglishlawtheorderofprioritybetweentwocompetinginterestsinthesamepropertydepends
primarilyonwhethertheyarelegalormerelyequitableinterests.Wherebothinterestsareequitableor
bothlegal,forthatmatterthebasicruleisthatthetwointerestsrankintheorderoftheircreation.Inthe
caseofequitableintereststheorderofprioritymaybereversedinspecialcircumstances,butwherethe
equitiesareequal,thefirstintimeprevails.Theabsenceofnoticeoftheearlierinterestbythepartywho
acquiredthelaterinterestisirrelevant,evenifhegavevalue.Hecannotgainpriorityasabonafide
purchaserofthelegalestatewithoutnoticeifhehasnotacquiredthelegalestate.
Where,however,thefirstisequitableandthesecondislegalthepositionisdifferent.Abonafide
purchaserforvaluewhoobtainsthelegalestateatthetimeofhispurchasewithoutnoticeactualor
constructiveofapriorequitablerightisentitledtopriorityinequityaswellasatlaw:seePilcherv.
Rawlins(1872)L.R.7Ch.App.259.Buthemusthaveobtainedthelegalestate,andthequestionof
noticeisnormallytestedatthetimewhenheobtainedit.
InEnglishlawnoticeinthepresentcontextincludesnotonlyactualnotice(includingwilfulblindnessor
contrivedignorance,wherethepurchaserdeliberatelyabstainsfromaninquiryinordertoavoidlearning
thetruth)butalsoconstructivenotice,thatistosaynoticeofsuchfactsashewouldhavediscoveredif
hehadtakenpropermeasurestoinvestigatethem.Thedoctrineofconstructivenoticehasdevelopedin
relationtoland,wherethereisarecognisedprocedureforinvestigatingthetitleofthetransferor.Thereis
noroomforthedoctrineofnoticeinthestrictconveyancingsenseinasituationinwhichitisnotthe
customandpracticetoinvestigatethetransferorstitle.Butinthewidersenseitisnotsolimited.In
BarclaysBank Plc.v.OBrien[1994]1A.C.180(acaseconcernedwithland,butinwhichthedefectin
titlethepresenceofundueinfluencecouldnotbediscoveredbytheroutineinvestigationoftitle)Lord
BrowneWilkinsonsaid,atpp.195196:
Thedoctrineofnoticeliesattheheartofequity.Giventhattherearetwoinnocentparties,each
enjoyingrights,theearlierrightprevailsagainstthelaterrightiftheacquirerofthelaterright
knowsoftheearlierright(actualnotice)orwouldhavediscoveredithadhetakenpropersteps
(constructivenotice).Inparticular,ifthepartyassertingthathetakesfreeoftheearlierrightsof
anotherknowsofcertainfactswhichputhimoninquiryastothepossibleexistenceoftherights
ofthatotherandhefailstomakesuchinquiryortakesuchotherstepsasarereasonabletoverify
whethersuchearlierrightdoesordoesnotexist,hewillhaveconstructivenoticeoftheearlier
rightandtakesubjecttoit.
Inthisformulationthedoctrineisinmyjudgmentofgeneralapplication.
(p.865) Thispassagehighlightsthatthedefendantwillnothaveactedingoodfaithifheorshehadactualor
constructivenoticeoftheclaimantsbeneficialinterestintheproperty.Thedefendantmustalsohavegivensome
value,althoughthisneednotnecessarilybeadequate.166 Thevalueprovidedmightbethedischargeofadebt,and
insuchcircumstancesthedefendantwillnotusuallybeboundtoinquireintothemannerinwhichthepayeracquired
themoney.167 Theonusisonthedefendanttoprovethisdefenceonthebalanceofprobabilities.168
Itis,however,possiblethat,althoughthedefendantmaybeabletoavailhimorherselfofthedefenceofbonafide
purchaseratthedateofreceiptoftheproperty,thedefendantmaylaterlosetheprotectionaffordedbythisdefence.
ThisisillustratedbythedecisionoftheCourtofAppealinIndependentTrusteeServicesLtdvGPNobleTrustees
Ltd.169
IndependentTrusteeServicesLtdvGPNobleTrusteesLtd[2012]EWCACiv195[2013]Ch
91
Inthecourseofdivorceproceedings,MrMorrisagreedtopaycertainsumsofmoneytoMrsMorris,andthe
latterpromised,inreturn,toacceptthosepaymentsasfullandfinalsatisfactionofherclaimsagainstMrMorris.
ThisagreementwasthesubjectofajudicialconsentorderundertheMatrimonialCausesAct1973pursuantto
theorder,MrMorrispaidMrsMorrisnearly1.5millionin2008.Inthemeantime,however,MrsMorris
suspectedthatMrMorrishadfailedtodiscloseallhisassets,sosoughttosetasidetheconsentorder.The
orderwassetasidein2009.MrsMorriswasallowedtokeepthemoneyalreadyreceivedfromMrMorris,since
itwasexpectedthatshewouldreceiveevenmoremoneyunderalaterconsentorder,giventhatthevalueofMr
Morrisassetswasfarinexcessofwhathadpreviouslybeenthought.
However,amajorproblemforMrsMorrislaterarose:ittranspiredthatMrMorrishadbeeninvolvedin
fraudulentlymisappropriatingassetsfromvariousoccupationalpensionschemes.ThemoneypaidtoMrsMorris
originallybelongedtothepensionfunds,andIndependentTrusteeServices(ITS),whoweretrusteesofa
pensionschemedefraudedbyMrNorris,soughttotraceitsmoneyintoMrsMorrishands.Itwasaccepted
that,atthetimeofreceipt,MrsMorriswouldhavethedefenceofbonafidepurchaser:shehadnonoticeofthe
fraudperpetratedbyherhusband,andhadprovidedvaluableconsiderationunderthejudicialconsentorder.170
However,atthedateoftheclaim,thatorderhadbeensetaside,socoulditstillbesaidthatshehadprovided
valueforthemoneyreceived?TheCourtofAppealheldthatMrsMorriscouldnolongerrelyuponthebonafide
purchaserdefence.
LloydLJ:
Undoubtedlythegivingofvaluewouldnormallybedetermined,onewayortheother,asatthemomentof
acquisitionofthelegaltitle.Thatisbecause,normally,oncevaluehasbeengivenitisnottakenawayor
givenback.Transactionsbywhichvaluepassesarenotnormallysetasideatalaterstage.However,
therearecircumstancesinwhichatransactioncanbesetaside,eithertorecognisethatitwasvoidfrom
thestart,orifitisvoidableforsomereasonandanaggrievedpartywiththenecessarystanding(p.866)
choosestoavoidit.Whatwehavetoaddressonthisappealistheeffectoftheavoidanceofarelevant
transaction,wheretheearliersubsistenceofthetransactionwaswhatenabledarecipienttoshowthat
valuewasgivenforthereceipt.
Inrelationtotheargumentthattoallowthesettingasideofthetransactiontobetakenintoaccount
mightrendertitlesprecariousevenafteralongtime,itis,ofcourse,possiblethatabreachoftrustmight
cometolightonlyaftersomeconsiderabletime,sothattherightsoftheaggrievedbeneficiariesmightbe
assertedonlyafteragooddealoftimehadelapsed.Thatmight,therefore,leadtoatransfereestitle
beingchallengedaftersomeyears.However,ifthetransfereewasinnocent,inthesenseofhavingno
noticeofthebreachoftrustatthetimeofacquiringthelegaltitle,interveningdealingswiththeproperty
beforethetimewhennoticewasgivenwouldnotgiverisetoanyclaimagainstthetransferee,exceptto
anytraceableproceedsofthedisposition,andanypersonwhohadinthemeantimeacquiredlegaltitleto
anypartofthepropertyforvaluewithoutnoticewouldhimselfbesafeinhispossessionbecausehe
himselfwouldhavethedefence.
Asitseemstome,ifthedefenceofbonafidepurchaserforvaluewithoutnoticedepends,asregards
value,onatransactionwhichhasbeensetasidebythetimethedefencefallstoberaised,thefactofthe
settingasideshouldbecapableofbeingrelevanttowhetherthedefencecanbemadeout.Idonot
accept[thatcounselis]correcttospeakoftheequitabletitletothebeneficiariesintheoriginaltrust
beingrevivedorrevested.Rather,thattitlehascontinuedtosubsistinthemeantimeanditisnolonger
capableofbeingdefeatedbythebonafidepurchaserdefence,anymorethanitwouldbeiftheproperty
wereagaininthehandsofthepersonguiltyoftheoriginalbreachoftrust.Neitherinprinciplenorin
practicecanIseeanysoundreasonforthecourtbeingrequiredtoshutitseyestothefactthat,bythe
timethepointarises,thetransactiononwhichtherecipientofthepropertydependstoshowthatheor
sheisabonafidepurchaserforvaluewithoutnoticehasbeensetaside,attheinstanceofwhichever
party,ongroundssuchasmisrepresentation,nondisclosureoranyothersuchvitiatingfactor,sothatit
istobetreated,asfaraspossible,asifithadneverhappened,oratanyratehadneverhadanylegal
effect.
If,onthefactsofthegivencase,thesettingasideofthetransactiondoesdeprivetheholderoftheassets
ofthedefenceofbonafidepurchaserforvaluewithoutnotice,thenIacceptthataclaimsuchasthat
madebyITSinthepresentcasewouldhaveadifferentoutcomeaccordingtowhetheritisasserted
beforeorafterthesettingasideofthetransactionbywhichvaluewasgivenfortheacquisitionofthelegal
title.Idonotseethisasavalidobjectiontotheprinciplethatthesettingasideofsuchatransactioncan
berelevant.Itiscommonlythecasethatsimilarproceedingsbroughtatonetimeoratanothermayhave
differentoutcomesbecauseofchangesincircumstancesinthemeantime.Ifthebeneficiariesclaimis
assertedbeforethetransactionissetaside,presumablytherecipientwillnottakeanystepstohaveit
setaside,oratanyratethepossibilityofsuchaclaimbeingsuccessfullyassertedwillbetakeninto
accountindecidingwhethertoseektohaveitsetaside.Iassumethatitisrelativelyunlikelyinpractice
thattheotherpartytothetransactionwouldseektohaveitsetaside,butifthereisaproperbasisfor
thattohappen,Iwouldhavelesssympathywiththepositionoftherecipient,beingatriskinthiswayas
well.
Inthosecircumstances,itseemstomethatthesettingasideof[theconsent]orderwasrelevantbothin
principleandinpracticetothepositionasbetweenMrsMorrisandITSthereafter.Beforetheordershe
wasabletoassertandestablishthatshewasabonafidepurchaserforvaluewithoutnotice.Afterwards
shecouldnotdoso,becausethetransactionunderwhichshehadgivenvaluehadbeensetasideand
wasofnoeffectasbetweenherandtheotherparty,MrMorris,itwasasifithadnothappened.
(p.867) Thisapproachtothebonafidepurchaserdefenceseemsappropriate:theorderhavingbeensetaside,Mrs
Morriscouldnotinsistthatshehadprovidedvalueforthemoneyreceived.Butitisimportanttonotethat,although
theclaimantsmighthaveaproprietaryclaimtoanyofthemoneyMrsMorrisstillpossessed,andtoitstraceable
proceeds,anyofthemoneythathadalreadybeendissipatedbyMrsMorris,orwhichhadpassedintothehandsof
athirdpartybonafidepurchaserforvaluewithoutnotice,wouldbebeyondthereachoftheclaimants.Theclaimants
couldnothaveaproprietaryrightinpropertywhichnolongerexisted,norcouldtheyexercisesucharightagainsta
bonafidepurchaser.
Bysettingasidethejudicialconsentorder,MrsMorrisclearlybecameexposedtoclaimsfrombeneficialownersof
theproperty.However,itisclearthatdefendantswhodosetasidesuchordersruncertainotherrisksaswell,
includingthatoftheirspousesbankruptcy.171 Significantly,evenifMrsMorrisweretobeawardedmoremoney
underaneworder,shewouldnolongerbeabletomakeuseofthebonafidepurchaserdefence,sinceshehad
acquirednoticeofMrMorrisfraudulentschemeandthefactthatthemoneytrulybelongedtosomeoneelse.
IndependentTrusteeServicesLtdvGPNobleTrusteesLtdisanimportantcase,whichhighlightssomedifficult
issuesregardingthebonafidepurchaserdefencethathadnotpreviouslybeenaddressed.Theimpactofthedecision
goesbeyondthenarrowconfinesofsettingasideajudicialconsentorder:thesameprinciplesshouldapplywherea
contracthasbeenrescindedabinitio,andadefendantcannolongerbesaidtohaveprovidedvaluefortheproperty
received.172
(b)ChangeofPosition
Thedefenceofchangeofpositionmightalsobeavailabletodefeataproprietaryclaim.Thisdefencewasrecognized
inLipk inGormanvKarpnaleLtd,inwhichLordGoffsaid:173
whereaninnocentdefendantspositionissochangedthathewillsufferaninjusticeifcalledupontorepayor
torepayinfull,theinjusticeofrequiringhimsotorepayoutweighstheinjusticeofdenyingtheplaintiff
restitution.
Itis,ofcourse,plainthatthedefenceisnotopentoonewhohaschangedhispositioninbadfaith,as
wherethedefendanthaspaidawaythemoneywithknowledgeofthefactsentitlingtheplaintifftorestitution
anditiscommonlyacceptedthatthedefenceshouldnotbeopentoawrongdoer.themerefactthatthe
defendanthasspentthemoney,inwholeorinpart,doesnotofitselfrenderitinequitablethatheshouldbe
calledupontorepay,becausetheexpendituremightinanyeventhavebeenincurredbyhimintheordinary
courseofthings.
Thusthisdefencewouldnotbeavailabletoadefendantwhohassimplyrelieduponreceiptofthepropertytomake
paymentsheorshewouldhavehadtohavemadeanyway:itwouldnotbeunfairforthedefendanttomake
restitutionifallheorshehasdoneispaybillsthatheorshewouldnecessarilyhavehadtopay,forexample.Noris
thedefenceavailabletosomeonewhoactsinbadfaith,whichincludesthosewhoundertakecommerciallysharp
practice,174 butnotthosewhoaremerely(p.868) negligent.175 Thedefenceofchangeofpositionwillnotinevitably
defeataproprietaryclaiminitsentirety:thedefencewillonlybeavailabletotheextenttowhichthedefendant
actuallychangedhisorherposition.
Thisdefencecouldhaveanimportantroletoplayregardingequitableproprietaryremedies,especiallyforaninnocent
defendantwhohasreceivedpropertyinwhichtheclaimantcanidentifyanequitableinterest.Ofcourse,ifthe
defendantspendsthatmoney,thenitwouldbedissipatedandaproprietaryclaimwouldnolongerlie.Butitmightbe
thatthedefendant,relyinguponthereceiptoftheclaimantsproperty,spendshisorherownmoney,whichheorshe
alreadyhad.Insuchascenario,theclaimantcouldstillhaveaclaimtothepropertyinthepossessionofthe
defendant,butthedefendantorhiscreditors,ifinsolventmightarguethatitwouldbeunfairtoforcehimtotransfer
thepropertytotheclaimant,giventhedefendantschangeofposition.
Thereissomejudicialsupportforchangeofpositionoperatingasadefencetoproprietaryclaims.InReDiplock ,for
example,theexecutorsofthetestatorsestatemistakenlypaidmoneytotheLeafHomeopathicHospitalforthe
specificpurposeofpayingoffasecuredbankloan.Althoughitwouldseemthattheclaimantscouldtracetheir
equitableproprietaryinterestintothedischargeddebtandseeksubrogation,theCourtofAppealheldthatthe
claimantshadnoproprietaryclaimagainstthehospital.LordGreeneMRsaid:176
wethinkthattheeffectofthepaymenttothebankwastoextinguishthedebtandthechargeheldbythe
bankceasedtoexist.Thecasecannot,wethink,beregardedasoneofsubrogation,andiftheappellants
wereentitledtoachargeitwouldhavetobeanewchargecreatedbythecourt.Thepositioninthisrespect
doesnotappeartoustobeaffectedbythefactthatthepaymentoffofthisdebtwasoneoftheobjectsfor
whichthegrantwasmade.Theeffectofthepaymentoffwasthatthecharity,whichhadpreviouslyheldonly
anequityofredemption,becametheownersofunincumberedproperty.Thatunincumberedpropertyderived
fromacombinationoftwothings,theequityofredemptioncontributedbythecharityandtheeffectofthe
Diplockmoneyingettingridoftheincumbrance.Ifequityisnowtocreateacharge(andwesaycreate
becausethereisnosurvivaloftheoriginalcharge)infavourofthejudicialtrustee,itwillbeplacinghimina
positiontoinsistuponasaleofwhatwascontributedbythecharity.Thecase,asitappearstous,isineffect
analogoustothecaseswhereDiplockmoneyisexpendedonimprovementsoncharityland.Themoneywas
inthiscaseusedtoremoveablotonthetitletogivethejudicialtrusteeachargeinrespectofthemoneyso
usedwould,wethink,beequallyunjusttothecharitywho,astheresultofsuchacharge,wouldhaveto
submittoasaleoftheinterestinthepropertywhichitbroughtin.Wemaypointoutthatifthereliefclaimed
weretobeacceptedasacorrectapplicationoftheequitableprinciple,insolubleproblemsmightariseina
casewhereinthemeanwhilefreshchargesonthepropertyhadbeencreatedormoneyhadbeenexpended
uponit.
Theclaimfailed,eventhoughontheordinaryprinciplesdiscussedabove177 subrogationwouldappearpossible.It
maybethattheclaimfailedonamatterofevidence:theevidencecouldnotconclusivelyshowthattheclaimants
moneyhadbeenusedtodischargethemortgage.However,inBoscawenvBojwa,MillettLJcitedtheabovepassage
fromDiplock andcontinued:178
Thepassageisnotwithoutitsdifficultiesandisinneedofreappraisalinthelightofthesignificant
developmentsinthelawofrestitutionwhichhavetakenplaceinthelast50years.Thesecondsentenceis
puzzling.Thedischargeofthecreditorssecurityatlawiscertainlynotabartosubrogationin(p.869)
equityitisratheraprecondition.Butthecourtwasprobablydoingnomorethanequatetheremedytothe
creationofanewchargeforthepurposeofconsideringwhetherthiswasjustified.
Takenasawhole,however,thepassagecitedisanexplanationofthereasonswhy,intheparticular
circumstancesofthatcase,itwasconsideredunjusttogranttheremedyofsubrogation.Thehospitalhad
changeditspositiontoitsdetriment.Ithadinallinnocenceusedthemoneytoredeemamortgageheldbyits
bank,which,nodoubt,waswillingtoallowitsadvancetoremainoutstandingindefinitelysolongasitwas
wellsecuredandtheinterestwaspaidpunctually.Thenextofkinwereseekingtobesubrogatedtothe
bankssecurityinordertoenforceitandenableaproperdistributionoftheestatetobemade.Thiswould
havebeenunjusttothehospital.Itmaybedoubtedwhetherinitsanxietytoavoidinjusticetothehospitalthe
courtmaynothavedoneanevengreaterinjusticetothenextofkin,whoweredeniedeventheintereston
theirmoney.Justicedidnotrequirethewithholdingofanyremedy,butonlythatthechargebysubrogation
shouldnotbeenforceableuntilthehospitalhadhadareasonableopportunitytoobtainafreshadvanceon
suitabletermsfromawillinglender,perhapsfromthebankwhichhadheldtheoriginal.
Today,considerationsofthiskindwouldberegardedasrelevanttoachangeofpositiondefenceratherthan
asgoingtoliability.Theydonotcallforfurtherconsiderationinthepresentcase.
MillettLJviewedthedefenceofchangeofpositionasbeingavailable.Asamatterofpolicy,thisviewmightbe
supported.Consider,forexample,atrusteewhowronglytakes5,000outofatrustfund,andgivesittohisnieceas
abirthdaypresent.Theniecemightbeastrugglingstudentwhoopensanew,highinterestbankaccountinwhich
shedepositsthe5,000.Butfeelingbetteraboutherfinancialsituation,andencouragedtosaveabit,spendabit
byherparents,shedecidestospend1,000ofherownmoneyonaholiday,whichshewouldnototherwisehave
done.Thebeneficiariesofthetrustarenaturallyaggrievedatthetrusteetaking5,000andareabletotraceintothe
5,000inthehighinterestaccount.Insuchasituation,shouldthelawimposeaconstructivetrustonthepropertyin
favourofthebeneficiaries?
Theanswertothisquestionisnotobvious,butitmightbethoughtunfairfortheniecetohavetogivebackthe
money.Afterall,thatmightleaveherunabletopayherrent,andforcehertomakeunexpectedsacrificesbeyond
thoseshehadpreviouslycontemplated.Moreover,iftheniecedoeshavetogivebackthemoney,shewillbeunable
toseekredressfromanyoneelse,whereasthebeneficiaries,bycontrast,couldbringaclaimagainstthetrusteefor
breachoftrust.Admittedly,thereisarealriskthatthatclaimmightbeworthlessifthetrusteeisinsolvent.
Ontheotherhand,itmaybethatthepropertyrightsofthebeneficiariesaresufficientlystrongtodefeatthenieces
claimtothemoney.Afterall,theniecehashadaholiday,atleast,whereasthebeneficiarieshaveonlysuffereda
losswithnobenefitsatall.Thisstanceissometimesthoughttofollowfromthehardnosedapproachtoproperty
rightsshownbytheHouseofLordsinFosk ettvMcKeown.
However,inFosk etttheHouseofLordsdidnotclearlyrejectchangeofpositionasadefencetoproprietaryclaims.
Thediscussionwasobiter,andthesignificantstatementfromLordMillet,quotedalready 179 ambiguous.
Nevertheless,inArmstrongDLWGmbhvWinningtonNetwork sLtd,StephenMorrisQCsaid:180
Asregardschangeofposition,whilstbothcounselappeartoacceptthatthistooisadefencetoaproprietary
restitutionaryclaim,Iamlesssure.Changeofpositionisessentiallyadefencetoaclaim(p.870) for
restitutionbasedonunjustenrichment.Changeofpositionwascertainlydiscussed,andacceptedin
principle,asadefenceinLipk inGorman.HoweverLordGoffsconsiderationofthedefencewasinthecontext
ofhisviewthatthecasewastobeanalysedasoneofunjustenrichment.IfLipk inGormanisinsubstanceto
beanalysedasaproprietaryrestitutionaryclaim,thenitdoesnotfollow,asamatterofprinciple,thatchange
ofpositionisorshouldbeadefencetothelatterformofclaim.LordMillettsanalysisinFosk ettvMcKeown
(at129H)andChitty,29175supportthisconclusion.Itishardtoseewhy,ifthedefendantpurchaseswith
notice,heshouldstillbeabletorelyonchangeofpositiontodefeattheclaimantslegaltitle.
Thisrejectionofthechangeofpositiondefenceissometimesthoughttoresultfromtherejectionofunjust
enrichmentasbeingattherootoftheseclaims.Butitisfarfromcertainthatchangeofpositionisadefence
particulartounjustenrichment.Amajorrationaleforthedefenceistoprotectthedefendantsreceiptofproperty,and
thatseemsequallyapplicableinthisareaasinthecontextofunjustenrichment.InKuwaitAirwaysCorpvIraqi
AirwaysCo.(No.6),LordNichollssuggestedthatthedefenceofchangeofpositionshouldberecognizedwherea
claimforrestitutionarydamagesisfoundeduponthetortofconversion,notunjustenrichment.181 Thismightsupport
theargumentthatthereisnoreasoninprinciplewhychangeofpositionhastobeexclusivelylinkedwithunjust
enrichmentchangeofpositionmighthaveabroaderscope.Indeed,if,asthejudgesuggestedinWinnington
Network s,theHouseofLordsdecisioninLipk inGormanisaproprietaryrestitutionaryclaim,182 thenitwouldseem
oddtodenytheavailabilityofadefenceofchangeofposition:Lipk inGormanisoftenthoughttobetheleading
decisiononchangeofposition,andtheHouseofLordsclearlythoughtthatchangeofpositionwasinprinciple
availabletothetypeofclaimatissueinthatcase.Moreover,ifchangeofpositionwererecognizedtobeavailable
beyondthecontextofunjustenrichment,thismightalleviateanypressurethatmayexistartificiallytosqueeze
someclaimsoutofthelawofpropertyandintounjustenrichment.
(c)EquitableAllowance
Justasafiduciarymightbeallowedtoretainsomeoftheprofitsheorshehasmadefromabreachoffiduciaryduty,
toreflectthevalueoftheskillandworkofthefiduciaryinachievingthatprofit,183 somightasimilarequitable
allowancebegrantedinthecontextofproprietaryclaims.Thishasreceivedlittlediscussioninthecases,butLord
Millett,writingextrajudicially,hassuggestedthatitmighthelptodealwiththescenariowhereaninnocentvolunteer
usestheclaimantsmoneytobuyawinninglotteryticket.
LordMillett,ProprietaryRestitutioninEquityinCommercialLaw(edsDegelingandEdelman)
(Sydney:TheLawBookCo.,2005),pp.31617
Butsupposethedefendantorhispredecessorintitleisinnocent?SupposeAdidnotrealisethatthe
moneybelongstoB,thathehadsufficientresourcesofhistobuytheticket,andbeinganhonestman
wouldhaveusedhisownmoneyifhehadappreciatedthatthemoneyhedidusedidnotbelongtohim?
Insuchacaseitismerechancethatheusedtheclaimantsmoneyandnothisown.Itisanaffrontto
(p.871) ournotionsofjusticethattheclaimantshouldrecoverthewinningsifheusedtheclaimants
moneybutnotifheusedhisown.Itmakesthelawitselfalottery.
Theproblemiswellknown,andstillunsolved.Thereareseveralpossiblesolutions:(i)wecouldentitle
theinnocentrecipienttoalljustallowancesforhisinput,whetherlabour,skillorluckintheextreme
caseofthelotteryticketboughtforanominalsum,thatarguablyamountstothewholeofthewinnings,
forthecontributionmadebythemoneyisnegligibleor(ii)wecouldconfinetheclaimantanequitable
lienonthewinningstorecoverhisstake.But,asProfessorWorthingtonhasobserved,184 abandoning
thepropertyanalysisandsubstitutingunjustenrichmentdoesnotsolvetheproblem.Theunjustelement
isunjustenrichmenthasnothingtodowithfault.Itiseitheralwaysunjusttouseanothersproperty
withouthisconsentoritisnot.Iprefertorecognisetheflexibilitywithwhichequityiscapableof
manipulatingourconceptsofproperty.Whendeterminingthenatureandextentoftheproprietaryremedy
whichitwillmakeavailable,equitycaneasilydistinguishbetweenwrongfulandinnocentmisapplication
offunds.
Althoughitistruethattheclaimantsmoneywasusedtobuytheticket,thedefendantstillneededtopurchasethe
ticketandchoosethewinningnumbers.Itmaythereforebereasonabletorecognizethatthedefendantcontributed
significantlytothepayout.Admittedly,thismeansthatthevalueofthedefendantscontributioncanonlybejudged
oncethewinningnumbersareknown:choosingasetoflosingnumbersisworthless,sothepurchaseoftheticket
anddefendantschoiceofnumbersisonlyvaluableifthosenumbersactuallywin.Butassessingthevalueofthe
defendantscontributionatalaterdatedoesnotseemtobeundulyproblematic,andmightleadtothedefendants
receivingaverygenerousallowancealongthelinessuggestedbyLordMillett.Areluctancetograntasimilar
allowancetodefendantswhoarewrongdoersisunderstandable,butinsomecircumstancesitmightstillbe
appropriategiventhesignificantinputofthedefendanttothepayout.185 However,itisclearthatLordMillettviews
wrongdoersasundeservingofanyallowance,giventhatEquityconsistentlyfavourstheinnocentclaimantover
wrongdoingdefendant.186
Itisimportanttoappreciatethatanypotentialallowancedoesnotalterthenatureoftheremedyawardeda
constructivetrustandonlyallowsthedefendanttoretainanypropertytotheextenttowhichheorshehas
contributedtoitsexistence.ItsbasisisthesameastheequitableallowanceexaminedinChapter14:ifthe
defendantwerenottoberecompensedforthevalueofhisorhercontribution,thatwouldleavetheclaimantunjustly
enriched.Thedefendantscausalcontributiontothegainsmadeshouldberecognized.However,itshouldalsobe
emphasizedthatitisunclearwhetherthecourtswillbepreparedtofollowLordMillettssuggestionandawardthe
defendantanequitableallowanceinthecontextofproprietaryclaimsandremedies.Itclearlyintroducesadegreeof
flexibilityanddiscretionthatmightunderminethehighlevelofcertaintyconsideredtobesoimportantwhendealing
withpropertyrights.Nevertheless,inBoardmanvPhippsallthejudgeswereagreedthatanequitableallowancewas
available,187 eventhoughtheremedyatissueappearedtobethatofaproprietaryconstructivetrust.188 Soitmaybe
thatthecourtswillbepreparedtoawardanequitableallowancetolimittheeffectaconstructivetrustwould
otherwisehave.
(p.872) (d)DefencesinReDiplock
IthasalreadybeenseenthatinReDiplock theCourtofAppealhadgreatsympathyforinnocentdefendants,
particularlycharities,whohadreceivedmisappliedproperty.TheCourtofAppealrefusedtoallowsomeofthe
proprietaryclaims.Thereasonsgivenaretosomeextentunclear,buttheresultsinReDiplock mightbeexplained
duetoalackofevidencetoestablishtheclaimsonthebalanceofprobabilities,orchangeofposition.189 However,
twootherpossibledefenceswereraisedinReDiplock .First,itwassuggestedthatitmightsometimesbe
inequitabletoallowtheclaimanttotraceintopropertyheldbythedefendant.190 So,forexample,oneofthecharities
thatreceivedthemistakenpaymentwasGuysHospital,whichspent14,000onreconstructingtwochildrens
wards.Itwasheldthatitwasnotequitabletoallowtheclaimanttotraceintothisproperty.Buttracingissimplya
processandshouldnotbesubjecttodiscretionaryfactors.Instead,thedefenceofchangeofpositionandthe
possibilityofanequitableallowancemightbeusedtoensurethatrestitutionbedeniedtotheextentitwouldbe
inequitable.Secondly,thereisasuggestionthatproprietaryclaimsshouldbesubsidiarytoclaimsagainst
wrongdoingfiduciaries,whichshouldbepursuedfirst.191 However,Englishlawdoesnotgenerallyimposerules
regardingpriorityofsuits,anditwouldbeunusualtoinsistthatapersonalclaimshouldsubordinateaproprietary
claim.ThissuggestioninDiplock shouldnotbefollowed,andhasbeenrejectedinAustralia.192
Question
Tomsteals10,000fromAlanand10,000fromBob.Tomputsthemoneyinhisbankaccount,whichwas
overdrawnby2,000.Tomlaterdeposits1,000ofhisownmoneyintotheaccount.
Tomthengives10,000fromhisaccounttohisdaughter,Debbie,asabirthdaypresent.Debbiespends5,000
ofthatmoneyonanewcarshehasbeendreamingaboutforyears,butneverhadthemoneytobuy.Sheopens
anewaccountatthebankwiththeremaining5,000.Feelingfinanciallysecure,Debbietreatsallherfriendsto
anexpensivemealattherestaurant,whichcosts2,000.
Tomsubsequentlytakesanother3,000fromhisaccounttodischargeinfullamortgagehehadtakenoutwith
LocalBanktwoyearsago,inordertobuysomefieldsclosetohishouse.Hehadpurchasedthelandfor
6,000,withtheassistanceofamortgageof3,000fromLocalBank.Hehassinceacquiredplanning
permissiontobuildflatsontheland,whichisnowworth18,000.
Tomalsogives5fromtheaccounttohisfriend,Luke,tosaythankyouforhiskindnessinhelpingTomtostop
smoking.Lukeusesthat5notetobuyfivelotterytickets.Lukealwaysbuysfivelotteryticketseveryweek,
andalwayschoosesthesamenumbers.Oneofthelotteryticketswinsthejackpotof17million.
AdviseAlanandBob.
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Evans,RethinkingTracingandtheLawofRestitution(1999)115LQR469.
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LordMillet,ProprietaryRestitutioninEquityinCommercialLaw(edsDegelingandEdelman)(Sydney:Law
BookCo.,2005).
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Smith,TheLawofTracing(Oxford:OxfordUniversityPress,1997).
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Smith,TracingThroughaDebt(1995)54CLJ290.
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Virgo,VindicatingVindication:FoskettvMcKeownReviewedinNewPerspectivesonPropertyLaw,Obligations
andRestitution(ed.Hudson)(London:CavendishPublishing,2004).
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Virgo,ReHallettsEstateinLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:Hart,2012).
FindThisResource
Notes:
1
2
JonesvJones[1997]Ch159,168(asMillettLJ).Seealsoe.g.Fosk ettvMcKeown[2001]1AC102,128(Lord
Millett).
3
4
TheseclaimsareconsideredinChapter19,ThirdPartyLiability.
5
Althoughifthevalueofthepropertyfallsbelowthevalueoftheclaimantssecurityinterest,theclaimantwillonly
haveaproprietaryremedytotheextentofthecurrentvalueoftheproperty,andwillneedtopursueapersonalclaim
againstthedefendantforthedeficit.
6
SeeChapter1.4(a)(i),pp.1112.
7
Fosk ettvMcKeown[2001]AC102,127.SeeChapter18.4,p.851.
8
Ibid,130.
9
OJSCOilCompanyYugraneft(inliquidation)vAbramovich[2008]EWHC2613(Comm)[349].
10
10
11
Atleast,thisisthetraditionalapproach.Forcriticismandrecentdevelopments,seeChapter18.3(c)(i),p.826.
12
Chapter3,TheRequirementsofAnExpressTrust.
13
Chapter8,ResultingTrusts.
14
Chapter7,ConstructiveTrustsandChapter8ResultingTrusts.
15
ThornervMajors[2009]UKHL18[2009]1WLR776.SeeChapter9.4,p.455.
16
[1996]AC669,715.
17
[1996]AC669,716.
18
[2003]EWHC1637(Ch)[2005]Ch281,[110].
19
FordiscussionofconstructivetrustsandthedecisioninWestdeutsche,seeChapter7.2(c),p.326.
20
PropertyRightstoStolenMoney(2005)32UWALR234,245.SeetooTarant,ThievesasTrustees:InDefence
oftheTheftPrinciple(2009)3JoE170.CompareSBarkehallThomas,ThievesasTrustees:TheEnduringLegacy
ofBlack vSFreedman&CoLtd(2009)3JoE52.
21
ThisanalysisseemstoaccordwiththatinArmstrongDLWGmbHvWinningtonNetwork sLtd
[2012]EWHC10(Ch)[2012]3WLR835,[127](StephenMorrisQC).
22
Fox,PropertyRightsinMoney(Oxford:OxfordUniversityPress,2008)p.140.
23
InTransferofthePropertyofJones&SonsvJones[1997]CL159,168,MillettLJsuggestedthatprioritymight
begiventotheowner.Forfurtherconsiderationoftheperceivedhistoricalrestrictionsoftracingandproprietary
remediesatCommonLaw,seee.g.Chapter18.3(c),p.825.
24
Difficultiesdonotonlyariseatthestageofestablishingtheproprietarybase.Anothersupposedrequirementfor
tracinginEquityisthattherebeafiduciaryrelationship,whichisalsodifficulttofindinthecaseofathief:see
Chapter18.3(c)(ii)(a),pp.8314.Butanimportantdifferencearisesregardingtheremedy:proprietaryremediesare
notwellrecognizedatCommonLaw.SeeChapter18.5,p.854.
25
SeeChapter18.3(c)(i),p.826.
26
[2001]1AC102,127.
27
CavevCave(1880)15ChD639(FryJ)ReDiplock sEstate[1948]Ch465Fosk ett134(LordMillett).
28
Fosk ettvMcKeown[2001]1AC102,127(LordMillett,quotedimmediatelyabove)seealsoLipk inGormanv
KarpnaleLtd[1991]2AC548,573(LordGoff).
29
(1868)LR3CP427.
30
Ibid,at4378.
31
Smith,TheLawofTracing,(Oxford:ClarendonPress,1987),p.75.
32
Forfurtherdiscussionofaccidentalmixing,seeHickey,DazedandConfused:AccidentalMixturesofGoodsand
theTheoryofAcquisitionofTitle(2003)66MLR368.
33
CommentariesontheLawsofEngland(Oxford:ClarendonPress,1766)Vol.2,405.
34
(1916)28DLR561.
35
35
[2001]1AC102,133.
36
AlthoughtracingmighthavebeenaviablealternativeseeChapter18.3(b),p.820.
37
[1988]QB345,3701.ThispassagereceivedthesupportofMooreBickJinGlencoreInternationalAGvMetro
TradingInternationalInc.(formerlyMetroBunk eringandTradingCo.)vOrs[2001]1AllER(Comm)103[158][159].
38
SeegenerallySmith,TheLawofTracing,(Oxford:ClarendonPress,1987),pp.104ff.
39
PulcifervPage(1851)32Me404.
40
Smith,TheLawofTracing,(Oxford:ClarendonPress,1987),p.106,basedonWylievMitchell(1870)8M552(Ct
Sess).
41
AlthoughtracingmightbepossibleseeChapter18.3(b),p.820.
42
SeeCorescase(1537)1Dyer20aIsaacvClark (1615)2Bulst306.Cf.Fox,IdentificationofMoneyat
CommonLaw(2010)69CLJ28.
43
[2003]EWHC1637(Ch),[2005]Ch281,[102].
44
[2001]1AC102,128.
45
[2001]1AC102,114.SeealsoEvans,RethinkingTracingandtheLawofRestitution(1999)115LQR469.
46
[2001]1AC102,122.
47
[1948]Ch465,520.
48
AndatCommonLaw,theclaimantisableonlytoclaimthevalueofthepropertyreceivedbythedefendantrather
thantorecoverthepropertyitself:seeTorts(InterferencewithGoodsAct)1977,s.3,providedatChapter18.2,p.
815.
49
50
Smith,TracinginTaylorvPlumer:EquityintheCourtofKingsBench[1995]LMCLQ240Smith,LawofTracing
ch.5.
51
(1815)3M&S562,575.
52
Smith,TracinginTaylorvPlumer:EquityintheCourtofKingsBench[1995]LMCLQ240.
53
[1997]Ch159,16970.
54
[1997]Ch159,168.
55
Seealsoe.g.ReDiplock [1948]Ch465,518BanqueBelgepourlEtrangervHambrouck [1921]1KB321,330.
56
Forconscionablereceiptanddishonestassistance,seeChapter19,ThirdPartyLiability.
57
[1990]Ch265,285.
58
SeealsoElAjouvDollarLandHoldingsplc[1993]3AllER717Bank ofAmericavArnell[1999]LloydsRep
Bank399.
59
Cf.thediscussionofthethiefinWestdeutscheLandesbank GirozentralevIslingtonLBC[1996]AC669:see
Chapter18.2,pp.81617.
60
[2001]1AC102,128.
61
[2005]Ch281,[104].
62
62
[2005]SCC15.
63
Ibid,[83]DFox(2010)68CLJ28.
64
BanqueBelgePourLEtrangervHambrouck [1921]1KB321.
65
SeeLordMillett,JonesvJones:PropertyorUnjustEnrichment?inMappingtheLaw(edsBurrowsandRodger)
(Oxford:OxfordUniversityPress,2006).
66
67
ApprovedbytheHouseofLordsinWestdeutscheLandesbank GirozentralevIslingtonLondonBoroughCouncil
[1996]AC669.
68
[1944]AC341:seeChapter5.5(a),pp.2501.
69
ThisaspectofthecasewaslateraffirmedonappealtotheHouseofLordsinMinistryofHealthvSimpson[1951]
AC251seefurtherChapter19.3(d)(i),p.914.
70
Forfurtherdiscussion,seeChapter18.3(c)(ii)(c),p.838andChapter18.6,pp.868,872.
71
ReHallettsEstate(1880)13ChD696,seeChapter18.3(c)(ii)(c),p.836.
72
InSinclairvBrougham[1914]AC398.AlthoughthisdecisionwasoverruledbytheHouseofLordsin
WestdeutscheLandesbank GirozentralevIslingtonLondonBoroughCouncil[1996]AC669,itwasnotbecauseof
theanalysisoftracing,butratherbecauseoftheconclusionthattheplaintiffsinSinclairvBroughamhadhadan
equitableproprietaryinterest.SeeChapter18.3(c)(ii)(c),p.838.
73
Noequitabletitlewouldhavebeenretained,byvirtueofoverreaching:seeChapter2.7(d),p.56.
74
75
[1989]2NZLR180.
76
Ibid,185.
77
Ibid,193.
78
TheLawofRestitution(3rdedn)(London:Sweet&Maxwell,1986),p.77,citingBinghamJinNesteOyvLloyds
Bank plc[1983]2LloydsRep658,6656.
79
Includingbyhimself:TracingtheProceedsofFraud(1991)107LQR71.
80
[1990]CL265,290.Forthetextofthiscase,seeChapter18.3(c)(i),p.827.
81
82
[2001]1AC102,128.
83
[2005]EWHC911(Ch)[74].
84
Cf.Virgo,ReHallettsEstateinLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:Hart2012),pp.
3812.Forthedifficultiesthatariseinestablishingafiduciaryrelationship,seeChapter14,FiduciaryObligations.
85
[1993]BCLC735,753.
86
Despiteusingthelanguageoffollowing,MillettJisactuallyreferringtotracing.
87
[1967]1Ch1179,1183.SeealsoLuptonvWhite(1805)15VesJun432SinclairInvestments(UK)Ltdv
VersaillesTradeFinanceLtd[2011]EWCACiv347[2011]3WLR1153,[100](LordNeubergerMR).
88
88
Subjecttodoctrinessuchasthelowestintermediatebalancerule:seeChapter18.3(c)(iii)(b),pp.8434.
89
(1880)13CLD669.
90
[1903]2CL356.
91
[1967]1Ch1179,1183.
92
Virgo,ReHallettsEstateinLandmark CasesinEquity(edsMitchellandMitchell)(Oxford:Hart2012).
93
Suchflexiblerulesarewelcomeandconsistentwiththeevidentialnatureofthetracingprocessthesuggestion
bytheHouseofLordsinFosk ettvMcKeown[2001]1AC102thatproprietaryrightsbecomevestedatonceanddo
notdependonlatereventsshouldnotbefollowed.
94
[1914]AC398,4423.
95
Rankingequally.
96
Thiscaserecognizedthatpropertywhichwastransferredpursuanttoavoidtransactionwouldbeheldonresulting
trustforthetransferor.However,itwasoverruledbytheHouseofLords,Westdeutsche[1996]AC669.
97
InWestdeutsche,LordBrowneWilkinsonsaidthattheHouseofLordsshouldnotbetakentobecastingany
doubtontheprinciplesoftracingasestablishedinReDiplock :[1996]AC669,714.
98
[1948]Ch465,524.
99
DevaynesvNoble,Claytonscase(1816)1Mer572,6089.
100
SeethespeechofWoolfLJ,immediatelybelow.
101
Seee.g.ShalsonvRusso[2003]EWHC1637(Ch)[2005]Ch281.
102
[2002]EWHC2227(Ch)[2003]2AllER478[55].
103
Conaglen,ContestsbetweenRivalTrustBeneficiaries(2005)CLJ45.
104
[1948]Ch465,521.
105
Unlessthat50wasinvested,madeaprofit,andthoseprofitsdepositedintheaccount.Butinthatsituation,it
iscrucialthattheprofitismadefromthe50attributabletotheclaimantsoriginalproprietaryinterest,andnotfrom
anymoneyappearinglateronfromextraneoussources.
106
[1915]1Ch62,679.
107
Cfthediscussionoftheswollenassetstheory,atChapter18.3(c)(iv),pp.84850.
108
[2005]Ch281,[140].SeetooDiplock ,521JamesRoscoe(Bolton)LtdvWinder[1915]1Ch62ReGoldcorp
ExchangeLtd[1995]1AC74BishopsgateInvestmentManagementLtdvHoman[1995]Ch211SeriousFraud
OfficevLexiHoldingsplc[2009]EWCACrim1443[2009]QB376,[50](KeeneJ)ReBAPetersLtd[2008]EWCA
Civ1604[2010]1BCLC142,[15](LordNeuberger).
109
110
111
BishopsgateInvestmentManagementLtdvHoman[1995]Ch211,216.
112
[1998]Ch265,2834.
113
[1995]Ch.211,221.
114
114
[1998]Ch265,289.SeealsoMorrittLJat296.
115
Virgo,PrinciplesoftheLawofRestitution(2ndedn)(Oxford:OxfordUniversityPress,2006),p.634.
116
117
E.g.ReDiplock sEstate[1948]1Ch465LawSocietyvHaider[2003]EWHC2486(Ch).Seegenerally
Conaglen,DifficultieswithTracingBackwards(2011)12754LQR432,43443.
118
Subjecttodefences:seeChapter18.6,p.864.
119
Thismaybeespeciallyimportantsinceitisnotclearwhetherchangeofpositionisadefencetoproprietary
claims:seeChapter18.6(b),p.867.
120
121
[1986]1WLR1072,1074.
122
[1995]1AC74,105.
123
BishopsgateInvestmentManagementLtdvHoman[1995]Ch211,21819.
124
RethinkingTracingandtheLawofRestitution(1999)115LQR469.
125
[2008]EWCACrim1443[2009]QB376,[50].
126
[2001]1AC102,128.
127
128
Forconsiderationofunjustenrichment,seeChapter1.4(b),pp.1415.
129
[2001]1AC102,108.
130
Ibid,115.
131
Ibid,126.
132
Ibid,1279.
133
BanqueFinanciredelaCitvParc(Battersea)Ltd[1999]1AC221,227(LordSteyn).
134
[2001]1AC102,129.
135
LordMilletthas,extrajudicially,confirmedthatheprefersthisapproach:LordMillett,ProprietaryRestitution,in
EquityinCommercialLaw(edsDegelingandEdelman)(Sydney:LawBookCo.,2005),pp.315,325.
136
137
Savefortheactionforejectmenttorecoverlandandthediscretionaryremedyofdeliveryupofgoodsunders.
3(3)oftheTorts(InterferencewithGoods)Act1977,quotedinChapter18.2,pp.81516.
138
Subjecttoanydefences:seeChapter18.6,p.864.
139
[1996]1WLR328,334.
140
[2001]1AC102,134.
141
142
ReHallettsEstate(1879)13ChD606,709.
143
143
E.g.ReTilleysWillTrusts[1967]Ch1179,11859(UngoedThomasJ).
144
[2001]1AC102,131.
145
TheLawofRestitution(London:Butterworth,1993),p.368.
146
147
IntheCourtofAppeal:[1998]Ch265.
148
[2001]1AC102,108.
149
Ibid,135.
150
[2001]1AC102,124(LordHope).
151
152
153
154
CfthedecisionoftheCourtofAppealinFosk ett:[1998]Ch265.
155
[2001]1AC102,132.
156
Ibid.
157
[1978]AC95,104(LordDiplock).
158
CfCheltenhamandGloucesterplcvAppleyard[2004]EWCACiv291FilbyvMortgageExpress(No.2)Ltd
[2004]EWCACiv759.
159
BanqueFinanciredelaCitvParc(Battersea)Ltd[1999]1AC221,236(LordHoffmann).SeealsoBoscawen
vBajwa[1996]1WLR328,333(MillettLJ).
160
E.g.Anfield(UK)LtdvBank ofScotlandplc[2010]EWHC2374(Ch)[2011]1WLR2414.
161
162
HalifaxplcvOmar[2002]EWCACiv121[2002]2P&CR377[71]BofingervKingswayGroupLtd[2009]HCA
44.
163
164
[2001]1AC102,129,quotedinChapter18.4,p.854.
165
166
Justasconsiderationtosupportacontractualpromisemustbesufficientbutadequate:e.g.Chappell&Co.Ltd
vNestlCo.Ltd[1960]AC87.
167
ThomsonvClydesdaleBank [1893]AC282,287(LordHerschell).
168
ReNisbetandPottsContract[1906]1Ch386.
169
[2012]EWCACiv195[2013]Ch91.
170
Seee.g.HillvHaines[2007]EWCACiv1284[2008]Ch412.
171
Ibid,[123][128].
172
172
SeeHcker,TheEffectofRescissiononBonaFidePurchase(2012)128LQR493.
173
Lipk inGorman(afirm)vKarpnaleLtd[1991]2AC548,57980.
174
NiruBatteryManufacturingCo.vMilestoneTradingLtd[2002]EWHC1425(Comm)[2002]2AllER(Comm)
705,741.ThiswasendorsedintheCourtofAppeal:[2003]EWCA1446(Civ)AbouRahmahvAbacha[2006]
EWCACiv1492[2007]1AllER(Comm)827.
175
Maersk AirLtdvExpeditorsInternational(UK)Ltd[2003]1LloydsRep491,499.
176
[1948]Ch465,54950.
177
178
[1996]1WLR328,3401.
179
180
[2012]EWHC10(Ch),[103].
181
[2002]UKHL19[2002]2AC883,[79].
182
Cf.thediscussionofMillettLJinTrusteeofthePropertyofFCJonesandSons(afirm)vJones[1997]Ch159,
giveninChapter18.3(c)(i),pp.8301.
183
184
Worthington,Equity(Oxford:OxfordUniversityPress,2003),pp.1001.
185
SeefurtherChapter14.5(e),pp.699700.
186
Fosk ettvMcKeown[2001]1AC102,134,quotedatChapter18.5(b)(i),p.855.
187
See[1967]2AC46seefurtherChapter14.4(d),p.671.
188
Albeittriggeredbyabreachoffiduciaryduty,ratherthanresultingfromaproprietaryclaim.
189
190
[1998]Ch465,5468.
191
Ibid,556.
192
HaganvWaterhouse(1991)34NSWLR308,36970(NSWSC).
LawTrove

DOI: 10.1093/he/9780199661480.001.0001
19.ThirdPartyLiability
Chapter: (p.874) 19.ThirdPartyLiability
DOI: 10.1093/he/9780199661480.003.0019
CentralIssues
1.Therearetwoprincipalpersonalclaimsthatabeneficiaryorprincipalmightbringagainstathirdparty
arisingfromabreachoftrustorfiduciaryduty:dishonestassistanceandunconscionablereceipt.
2.Dishonestassistanceisaformofaccessoryliability.Itisparasitictoabreachoftrustorfiduciaryduty.
Thethirdpartymusthaveassisted,encouragedorprocuredthebreachdishonestly.
3.Dishonestyisanobjectivestandardoffault,baseduponwhatthedefendantknew.Whetherdishonesty
isasatisfactoryfaultelementiscontroversial.
4.Unconscionablereceiptrequiresthedefendanttohavereceivedpropertyforhisorherownbenefitasa
resultofabreachoftrustorfiduciarydutyincircumstanceswhereitwouldbeunconscionableforthe
recipienttoretaintheproperty.
5.Unconscionabilityrequirestherecipienttoknowthattheassetsreceivedderivefrommisapplied
property.Itisaflexibleconcept,theboundariesofwhicharenotyetfullyclear.
6.Thereisanimportantdebateaboutwhetherornotanyleveloffaultshouldberequiredbeforemakinga
thirdpartyrecipientgiveupthevalueofpropertyreceived.Thereissomestrongsupportinfavourofastrict
liabilityreceiptbasedclaim.
1.Introduction
Therearemanyreasonswhyabeneficiarymightwishtosuesomeoneotherthanatrustee,orwhyaprincipalina
fiduciaryrelationshipmaywishtosueathirdpartyratherthanthewrongdoingfiduciaryhimorherself.Most
significantly,ifthefiduciaryisinsolventandwouldbeunabletosatisfyanyclaim,theclaimantmightsearchforthird
partiestosueinordertoobtainsatisfactoryredress.Typically,thismeansthataclaimantwillseekasolvent
defendantwiththemeanstopay.Thethirdpartydefendantsinthischapterareoften,butnotnecessarily,financial
institutionsorprofessionals,suchassolicitors,whoarebackedbyinsurerswiththemeanstopay.
Chapter18consideredproprietaryclaimsthischapterconsiderspersonalclaimsonly:theclaimantseeksasumof
moneyfromthedefendant,butdoesnotassertanyrighttoanyparticularproperty.Butevenwherethedefendantis
solventandcouldsatisfyapersonalclaim,aproprietaryclaimmight(p.875) oftenbemoredesirable:iftheproperty
hasriseninvalue,thenthatupliftinvaluewillnecessarilybenefittheclaimantiftheclaimisproprietary,butnotifthe
claimispersonal.1 However,apersonalclaimforthevalueofthepropertyatthetimeofthethirdpartyswrongmight
bepreferredwherethepropertyhasfalleninvalue.Moreover,apersonalclaimwillbetheonlypossibletypeofclaim
availabletotheclaimantifthepropertyinquestionhasbeendissipatedandnolongerexists.Insuchcircumstances,
aproprietaryclaimisimpossibleandapersonalclaimalonecanbepursued.
ThirdpartyliabilityinEquityhasbeengreatlyinfluencedbythefollowingpassagefromthespeechofLordSelbourne
LCintheimportantcaseofBarnesvAddy:2
inthiscasewehavetodealwithcertainpersonswhoaretrustees,andwithcertainotherpersonswhoarenot
trustees.Thatisadistinctiontobeborneinmindthroughoutthecase.Thosewhocreateatrustclothethe
trusteewithalegalpowerandcontroloverthetrustproperty,imposingonhimacorrespondingresponsibility.
Thatresponsibilitymaynodoubtbeextendedinequitytootherswhoarenotproperlytrustees,iftheyare
foundeithermakingthemselvestrusteesdesontort,oractuallyparticipatinginanyfraudulentconductofthe
trusteetotheinjuryofthecestuiquetrust.But,ontheotherhand,strangersarenottobemadeconstructive
trusteesmerelybecausetheyactastheagentsoftrusteesintransactionswithintheirlegalpowers,
transactions,perhapsofwhichaCourtofEquitymaydisapprove,unlessthoseagentsreceiveandbecome
chargeablewithsomepartofthetrustproperty,orunlesstheyassistwithknowledgeinadishonestand
fraudulentdesignonthepartofthetrustees.
Thishighlightsthreemajorcausesofaction.Thefirstconcernsapartywhointermeddleswithtrustaffairsand
therebybecomesatrusteedesontort.Butsincesuchanintermeddlerisineffectatrusteeandnotathirdparty,
trusteeshipdesontortwasexaminedinChapter11.3 Thisisprobablytheleastimportantandcontroversialofthe
three.
Thelasttwocausesofactionhighlightthatdifficultandsignificantclaimsmayexisteitheronthebasisofthethird
partysreceiptoftrustproperty,orbecausethethirdpartyhasassistedabreachoftrust.However,careshouldbe
takenifusingBarnesvAddyasaspringboardforanalysis.Thatcasemaybeconsideredtoshowtheoriginsof
theseclaims,butthepresentlawhasevolvedgreatlyfromthepositioninBarnesvAddy,suchthatitisnolongeran
accuratestatementofthelaw.Howthelawhasdevelopedwillbeexploredinthischapter.
Nevertheless,threegeneralissuesmightbepointedoutatthisinitialstage:(i)athirdpartywillnotincuranyliability
unlessheorsheisatfault(ii)athirdpartymightbeliablepursuanttoanybreachoffiduciaryduty,notonlybreach
oftrust(iii)theremedyisapersonalliabilitytoaccountortocompensateforlosssuffered,andreferencestoa
constructivetrustareunfortunate.
(a)Fault
Itisclearthatthelawgenerallyrequiresathirdpartytobeatfaultbeforeliabilitywillbeimposed,4 butthe
appropriatefaultelementsaredifficulttoestablish.Crucially,itneedstobedeterminedwhetherliabilityshouldbe
assessedsubjectively,withreferencetothedefendantsownthoughtprocess,orobjectively,byreferencetoa
reasonableperson.InBarnesvAddy,referencewasmadetoknowledge,andin(p.876) BadenDelvauxvSocit
GnralePourFavoriserleDveloppementduCommerceetdelIndustrieenFranceSA,PeterGibsonJsetoutthe
followingscaleofknowledge:5
(i)actualknowledge(ii)wilfullyshuttingoneseyestotheobvious(iii)wilfullyandrecklesslyfailingtomake
suchinquiriesasanhonestandreasonablemanwouldmake(iv)knowledgeofcircumstanceswhichwould
indicatethefactstoanhonestandreasonableman(v)knowledgeofcircumstanceswhichwouldputan
honestandreasonablemanoninquiry.
Points(ii)(v)onthisscaleareexamplesofconstructiveknowledge:althoughthedefendantdidnotactuallyhave
knowledgeofthegivenfacts,suchknowledgeisattributedtohim.ThisBadenscaleofknowledgewasvery
influentialtobothreceiptandassistancebasedclaims.However,distinguishingbetweenthedifferentpointsonthe
scalewasverydifficult,andjudgesdisagreedaboutthelowestpointonthescalerequiredforthirdpartyliability.
Ultimately,knowledgehasbeenjettisonedasthefaultelementinbothareas:theclaimsarenowknownas
dishonestassistanceandunconscionablereceipt,respectively.Nevertheless,discussionofknowledgeandthe
Badenscaleremainsimportant,aswillbeseenbelow.
(b)BreachOfFiduciaryDuty
InBarnesvAddy,LordSelborneLCclearlyreferredtothirdpartiestoabreachoftrust.Butthelawhasnow
developedsuchthatathirdpartycanbeliablefollowinganybreachoffiduciaryduty.Earliercasesthatreferto
breachoftrustaloneshouldnowbereadsuchthattheprincipleincludesbreachesoffiduciarydutybeyondthe
contextofatrust.Thereisnoneedfortrustpropertytobeinvolved.InRoyalBruneiAirlinesSdnBhdvTan,Lord
Nichollssaid:6
accessoryliabilityisconcernedwiththeliabilityofapersonwhohasnotyetreceivedanyproperty.His
liabilityisnotpropertybased.Hisonlysinisthatheinterferedwiththedueperformancebythetrusteeofthe
fiduciaryobligationsundertakenbythetrustee.Thesearepersonalobligations.Theyare,inthisrespect,
analogoustothepersonalobligationsundertakenbythepartiestoacontract.
Thisissensible.Itisunclearwhyaclaimshouldlieagainstathirdpartywhodishonestlyassistsabreachoftrust,
butnotagainstathirdpartywhodishonestlyassistsabreachoffiduciarydutynotinvolvingatrust.Trusteesare
clearlynottheonlypersonswhoundertakefiduciaryobligations.Ifathirdpartydeliberatelyparticipatesina
solicitorsbreachoffiduciaryduty,theclientofthesolicitormightlegitimatelyseekredressfromthepartytothe
corruption.
Althoughthisisthepreferableapproach,notallcaseshavefollowedthispath.Forexample,inSatnamInvestments
LtdvDunlopHeywood&Co.LtdNourseLJsaidthatforassistanceliabilitytheremustbetrustproperty.7
Nevertheless,inBrownvBennettMorrittLJwasmindednottofindarequirementforproperty,8 andthecomments
ofNourseLJinSatnamhavenotbeenaffirmedintheCourtofAppeal.Rather,subsequentdecisionshavebeenwary
ofanypropertyrequirementinGoosevWilsonMorrittLJappearedtoacceptthattheremarksofNourseLJwereno
morethanapassingreferenceandnotbinding.HisLordshippointedoutthat[t]heformulationofthe(p.877)
principle[ofdishonestassistance]byLordNichollsdoesnotembracesucharequirement.9 Mostrecently,inJD
WetherspoonplcvVandeBerg&Co.LtdPeterSmithJreviewedtheauthoritiesandconcluded:10
Inmyviewinacaseforaccessoryliabilitythereisnorequirementfortheretobetrustproperty.Sucha
requirementwronglyassociatesaccessoryliabilitywithtrustconcepts.Accessoryliabilitydoesnotinvolve
atrust.Itinvolvesprovidingdishonestassistancetosomebodyelsewhoisinafiduciarycapacity[and]has
committedabreachofhisfiduciaryduties.
Intherealmofreceiptbasedclaims,itisperhapsnotobviousthatliabilitybeimposeduponthirdpartiesifthe
relevantpropertyhasnotbeenreceivedfollowingabreachoftrustbutonlyabreachoffiduciaryduty.Theclaimant
islikelytobeabletotracebecauseheisabeneficiaryunderatrustandtherehasbeenabreachofthattrust.
Nevertheless,thecasessuggestthateveninthecontextofreceiptbasedclaims,referencestobreachoftrust
shouldbeexpandedtoincludebreachoffiduciaryduty.Forexample,inElAjouvDollarLandHoldingsplc,
HoffmannLJsaid:11
theplaintiffmustshow,first,adisposalofhisassetsinbreachoffiduciaryduty.
So,ifadirectormisapplieshiscompanyspropertyinbreachofhisfiduciaryduty,thecompanymightbeableto
12
bringareceiptbasedclaim.12 However,itmightbepossibletoexplainthisonthebasisthatthecompanyacquires
anequitableproprietarybaseunderaconstructivetrustfollowingthebreachofdutyofthedirector.13 ButinArthurv
AttorneyGeneraloftheTurk sandCaicosIslands,14 thePrivyCouncilheldthatnobreachoftrustwasrequiredfora
receiptbasedclaimtolie.AMinisteroftheTurksandCaicosIslandstransferredfreeholdpropertybelongingtothe
CrowntoMrArthur.Aclaimwasbroughtagainstthelatterforunconscionablereceiptoftheproperty.TheMinister
whowronglytransferredthepropertydidnotactinbreachoftrustbutinbreachoffiduciaryduty.Nevertheless,this
didnotpreventareceiptbasedclaim.SirTerenceEtherton,givingtheadviceoftheBoard,said:15
Liabilityforknowingreceiptcanalsobeincurredwhenpropertyistransferredinbreachofafiduciaryduty
otherthanabreachoftrust.Anobviousexamplewouldbethetransferofacompanyspropertyinbreachof
thedirectorsfiduciaryduties,adirectornotbeingatrusteeofthecompanysassets.Thatisalsothebasisof
theclaiminthepresentcasesinceitisnotallegedthatthePropertywasheldbyorfortheCrownontrust,
butratherthattheMinisteractedinbreachoffiduciarydutytotheCrowninauthorisingthetransfertothe
appellant.
(p.878) (c)NatureofLiability
AscanbeseenfromtheextractfromBarnesvAddy,thethirdpartyissaidtobeliableasaconstructivetrustee.16
Thisis,however,misleading:thethirdpartydoesnotnecessarilyhaveanypropertythatbelongstothebeneficiary,
sonoproprietaryremedycanbeawarded.Evenifathirdpartyrecipientdoeshavepropertyintowhichtheclaimant
cantraceforareceiptbasedclaim,aconstructivetrustwouldbetheappropriateresponsetoaproprietaryclaim,not
thepersonalclaim.Asregardstheclaimsunderpresentconsideration,thethirdpartysliabilityisnotproprietarybut
personal.Forareceiptbasedclaim,thereisnorequirementthatthedefendantretaintheproperty.Andforaclaim
baseduponassistance,thereisnoneedforthedefendanteventohavereceivedtheproperty.
DubaiAluminiumCoLtdvSalaam[2002]UKHL48[2003]2AC366,[141][142](Lord
Millett)
Equitygivesreliefagainstfraudbymakinganypersonsufficientlyimplicatedinthefraudaccountablein
equity.Insuchacaseheistraditionally(andIhavesuggestedunfortunately)describedasaconstructive
trusteeandissaidtobeliabletoaccountasaconstructivetrustee.Butheisnotinfactatrusteeatall,
eventhoughhemaybeliabletoaccountasifhewere.Heneverclaimstoassumethepositionoftrustee
onbehalfofothers,andhemaybeliablewithouteverreceivingorhandlingthetrustproperty.Ifhe
receivesthetrustpropertyatallhereceivesitadverselytotheclaimantandbyanunlawfultransaction
whichisimpugnedbytheclaimant.Heisnotafiduciaryorsubjecttofiduciaryobligationsandhecould
pleadtheLimitationActsasadefencetotheclaim.
Inthissecondclassofcasetheexpressionsconstructivetrustandconstructivetrusteecreateatrap.
AsthecourtrecentlyobservedinCoulthardvDiscoMixClubLtd[2000]1WLR707,731thistypeof
constructivetrustismerelythecreationbythecourttomeetthewrongdoingalleged:thereisnoreal
trustandusuallynochanceofaproprietaryremedy.Theexpressionsarenothingmorethanaformula
forequitablerelief:SelangorUnitedRubberEstatesLtdvCradock (No3)[1968]1WLR1555,1582,per
UngoedThomasJ.Ithinkthatweshouldnowdiscardthewordsaccountableasconstructivetrusteein
thiscontextandsubstitutethewordsaccountableinequity.
Giventhatthereisnotnecessarilyanypropertybelongingtotheclaimantuponwhichtrustobligationscanbite,it
seemsappropriatetofollowLordMillettsleadandabandonthelanguageofconstructivetrust.However,considering
thedefendanttobeliableasifhewereatrusteemightbehelpfulwhenconsideringthepersonalremediesavailable
againstathirdparty.17
2.DishonestAssistance
Dishonestassistanceisaformofaccessoryliability:theliabilityoftheassisterisparasitictothecommissionofa
primarybreachofdutybythetrusteeorfiduciary.Thissortofliabilityisalsosometimescalledsecondaryliability,
andformostpurposesreferencestoaccessoryandsecondaryliabilityareinterchangeable.However,sometimes
thelanguageofsecondaryliabilityisusedtosuggest(p.879) thattheremediesavailableagainsttheassister
shouldinevitablyduplicatethoseavailableagainstthewrongdoingfiduciary.Thisisnotnecessarilythecase,andwill
beexaminedinmoredetailbelow.18
Consistentwithgeneralprinciplesofaccessoryliability,thefollowingmustbeestablished:
i)aprimarywrong
ii)aconductelement
iii)amentalelement.
(a)PrimaryWrong
Asillustratedalready,apersonmightbeliableasanaccessorynotonlytoabreachoftrust,butalsotoabreachof
fiduciaryduty.InBarnesvAddy,19 itwasheldthatthebreachoftrustitselfmustbedishonest.Thismeantthatno
matterhowculpableanaccessorywas,ifthetrusteedidnotrealizethatabreachoftrustwasbeingcommitted,
thentheaccessorycouldnotbeliable.Thiswasclearlyunsatisfactory,andtherequirementthatthebreachoftrust
orfiduciarydutyitselfbedishonestwasrightlyjettisonedbythePrivyCouncilinTan:20
Takethesimpleexampleofanhonesttrusteeandadishonestthirdparty.Takeacasewhereadishonest
solicitorpersuadesatrusteetoapplytrustpropertyinawaythetrusteehonestlybelievesispermissiblebut
whichthesolicitorknowsfullwellisaclearbreachoftrust.Thesolicitordeliberatelyconcealsthisfromthe
trustee.Inconsequence,thebeneficiariessufferasubstantialloss.Itcannotberightthatinsuchacasethe
accessoryliabilityprinciplewouldbeinapplicablebecauseoftheinnocenceofthetrustee.Inordinary
parlance,thebeneficiarieshavebeendefraudedbythesolicitor.Ifthereistobeanaccessoryliability
principleatall,wherebyinappropriatecircumstancesbeneficiariesmayhavedirectrecourseagainstathird
party,theprinciplemustsurelybeapplicableinsuchacase,justasmuchasinacasewhereboththe
trusteeandthethirdpartyhavebeendishonest.Indeed,ifanything,thecaseforliabilityofthedishonestthird
partyseemsstrongerwherethetrusteeisinnocent,becauseinsuchacasethethirdpartyalonewas
dishonestandthatwasthecauseofthesubsequentmisapplicationofthetrustproperty.
(b)ConductElement
Theconductelementofaccessoryliabilityisoftensaidtobeassistanceindeed,thecauseofactionisnow
commonlycalleddishonestassistance.Assistanceisbroadlydefined,andincludesanythingthathelpsthe
commissionofthebreachofduty.However,thiscanbedistinguishedfromprocuring,orinducingabreachof
duty.21 HartandHonorwrotethataninducementwould:22
makeagivencourseofactionmoreeligibleordesirableintheeyesoftheotherthanitwouldotherwisehave
been,orseemmoreeligibleordesirablethanitreallyis.
(p.880) Itmightalsobeaddedthataprocurementtendstogiveanotherpersonanideahewouldnototherwisehave
had,incontrasttomostinstancesofassistance.
Liabilityforinducingabreachoftrustiswellestablished.23 AsHarpumwroteinacomprehensivesurveyofthisarea
ofthelawin1986:24
Astrangerwhoknowinglyinducesatrusteetocommitabreachoftrustwillbeliableasaconstructive
trustee.Themotivefortheinducementisirrelevant.Itisalsoimmaterialwhetherthetrusteecommitsthe
breachoftrustinnocentlyorforsomeulteriorpurpose.Itisnotnecessarythatthetrustpropertyshouldhave
passedthroughthehandsofthestrangerorthatheshouldhavebenefitedfromthebreach.
Thus,beforethePrivyCouncilinTandepartedfromtheapproachinBarnesvAddy,thelawrequiredthattheprimary
breachitselfbedishonestforassistanceliability,butnotforinducementliability.Therewasthereforeadivide
betweenthesetwoconductelements.But,inTan,LordNichollsfollowedonfromthequotationgivenabove25 by
saying:26
Thepositionwouldbethesameif,insteadofprocuringthebreach,thethirdpartydishonestlyassistedinthe
breach.Changethefactsslightly.Atrusteeisproposingtomakeapaymentoutofthetrustfundtoa
particularperson.Hehonestlybelievesheisauthorisedtodosobythetermsofthetrustdeed.Heasksa
solicitortocarrythroughthetransaction.Thesolicitorwellknowsthattheproposedpaymentwouldbeaplain
breachoftrust.Healsowellknowsthatthetrusteemistakenlybelievesotherwise.Dishonestlyheleavesthe
trusteeunderhismisapprehensionandpreparesthenecessarydocumentation.Again,iftheaccessory
principleisnottobeartificiallyconstricted,itoughttobeapplicableinsuchacase.
Nowthattheprimarywrongneednotbedishonest,anydividebetweeninducementandassistanceinthelaw
regardingaccessoryliabilityinEquitymightwelldisappeartheuseofdishonestassistanceoftenseemstoinclude
instancesofdishonestinducement.27 Thewidedefinitionoftheconductelementmeansthatdishonest
encouragementshouldalsoleadtoliability.Encouragementmayconstituteeitherinducementorassistance.For
example,ifapersonencouragesafiduciarytobreachhisobligationsandtakepartinafraudulentschemeofwhich
thefiduciarywasnotpreviouslyaware,thismaybecharacterizedasinducement.Butifthefiduciaryhad
approachedthedefendanttoexplainhisorherintentiontotakepartinthefraudulentscheme,andthedefendant
onlysubsequentlyencouragedthefiduciarytogoaheadwithsuchplans,thiswouldnotbeinducement.Such
conductmight,however,beconsideredtoamounttoassistance,sinceitmightemboldenthefiduciaryby,fortifying
thefiduciarysresolvetocommitthebreachofduty,butthereisnorealneedtostretchthelanguageofassistance
thisfar:encouragement,coupledwiththerequisitementalelement,shouldbesufficientforaccessoryliability.28
(p.881) InBaden,PeterGibsonJsaid:29
itseemstometobeasimplequestionoffact,whetherornottherehasbeenassistance.theassistance
mustnotbeofminimalimportance.
Soassistanceistobegivenitsnaturalmeaningandisaquestionoffact.PeterGibsonJsuggeststhatthereis
somesortofdeminimisexceptiontoaccessoryliability:theactsoftheaccessorymusthavehadamorethan
minimalimpactupontheprimarywrong.Thisimpliesthattheremustbesomecausativelinkbetweentheassistance
andtheinfringementoftheprincipalsrights:withoutanysuchconnection,thereisnoreasonforthatparticular
claimanttosuetheparticulardefendant.Admittedly,thecausallinkisnecessarilyweak,giventhattheprimary
breachoffiduciarydutywasnotcommittedbytheassister,andthatsuchabreachoffiduciarydutymayultimately
haveoccurredeveniftherehadbeennoassistancefromathirdparty.Astrictbutfortestofcausationmay
thereforeyieldtoabroaderapproachtoidentifyingcausalfactors.30 ManceLJhassaidthat:31
itisinappropriatetobecomeinvolvedinattemptstoassesstheprecisecausativesignificanceofthe
dishonestassistanceinrespectofeitherthebreachoftrustorfiduciarydutyortheresultinglossitis
necessarytoidentifywhatbreachoftrustordutywasassistedandwhatlossmaybesaidtohaveresulted
fromthatbreachoftrustorduty.
Nevertheless,somecausallinkisrequired:therewillbenoliabilityunlessthebreachoftrustactuallyoccurs,
suggestingsomelinkwiththeresultreachedisnecessary.Norwilltherebeliabilityforassistancewhenthe
relevantactsofthethirdpartyoccurredaftertheprimarybreachofduty.ThiswasthecaseinBrownvBennett,in
whichMorrittLJcommentedthat:32
ifthereisnocausativeeffectandthereforenoassistancegivenbythepersononwhomissoughtto
establishtheliabilityasaconstructivetrustee,formypartIcannotseethattherequirementsofconscience
requireanyremedyatall.
Inanyevent,assistanceisdefinedsowidelythatitisrareforclaimsindishonestassistancetofailforlackofthe
necessaryconductelement.ButoneoftcitedexampleisBrink sLtdvAbuSaleh(No.3).33 RimerJheldthatawife
simplyaccompanyingherhusbandonlongcarjourneysdidnotfulfiltherequisiteconductelementforaccessory
liability,evenifsuchjourneyswereforthepurposeofcommittingabreachoftrustbylaunderingtheproceedsofa
robberythroughaSwissbank.ThisresulthasbeencriticizedastoogenerousbyMitchell.
(p.882) Mitchell,AssistanceinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.
176
Ineffect,RimerJabsolvedherfromliabilityonthegroundthatshehadpassivelyacquiescedinher
husbandsactivities.Thismayhavebeenagenerousinterpretationofherbehavior,giventhatshehad
activelyaccompaniedhimonhistripsandinsodoinghadlentauthenticitytothecoverstoryhehad
offeredtoSwisscustomsofficials,thatthepairwereantiquedealersenteringSwitzerlandonbusiness.
(c)MentalElement
Foralongtime,therequisitementalelementforaccessoryliabilityinEquitywasknowledge,andtheBadenscaleof
knowledge,quotedalready,wasused.34 Somecasesdecidedthatconstructiveknowledgedowntopoint(v)35 was
sufficientforaccessoryliability.36 Othersheldthatonlypoints(i)to(iii)wouldleadtoliability,sincethiswould
ensureactualknowledgeorwantofprobitytantamounttosubjectivebadfaith.37 Theweightofauthoritytendedto
favourthelatterapproach,butinTanthePrivyCouncilrejectedknowledgeasthementalelement,insteadfavouring
dishonesty.
RoyalBruneiAirlinesSdnBhdvTan[1995]2AC378(PC)
TheclaimantairlineappointedBorneoLeisureTravelSdnBhd(BLT)toactasitsgeneraltravelagent.BLTwas
requiredtoaccounttotheclaimantfortheproceedsofticketsales,afterdeductingcommission.Thetermsof
theagreementconstitutedBLTatrusteeofthemoneyfortheclaimant.Themoneywasnotpaidintoaseparate
bankaccount,butwasusedinthebusinessofBLT,whichwasconcededtobeabreachoftrust.BLTfellinto
arrearsinaccountingtotheclaimantandtheagreementwasterminated.AsBLTwasinsolvent,theclaimant
soughtaremedyagainstMrTan,whowastheprincipalshareholderanddirectorofBLT.Itwasconcededthat
Tanhadassistedinthebreachoftrustwithactualknowledge.TheCourtofAppealofBruneiDarussalamheld
himnotliableonthegroundthatthebreachoftrustinwhichhehadassistedhadnotbeenshowntobea
dishonestandfraudulentdesignonthepartofBLT,whichwasconsideredessentialtoaccessoryliability.38 The
PrivyCouncilheldthatTanwaspersonallyliablefordishonestlyassistinginBLTsbreachoftrust.Therewasno
furtherrequirementofdishonestyonthepartofBLT.LordNichollssaid:
whatmattersisthestateofmindofthethirdpartysoughttobemadeliable,notthestateofmindof
thetrustee.Thetrusteewillbeliableinanyeventforthebreachoftrust,evenifheactedinnocently,
unlessexcusedbyanexemptionclauseinthetrustinstrument39 orrelievedbythe(p.883) court.40 But
hisstateofmindisessentiallyirrelevanttothequestionwhetherthethirdpartyshouldbemadeliableto
thebeneficiariesforthebreachoftrust.Iftheliabilityofthethirdpartyisfaultbased,whatmattersisthe
natureofhisfault,notthatofthetrustee.Inthisregarddishonestyonthepartofthethirdpartywould
seemtobeasufficientbasisforhisliability,irrespectiveofthestateofmindofthetrusteewhoisin
breachoftrust.Itisdifficulttoseewhy,ifthethirdpartydishonestlyassistedinabreach,thereshould
beafurtherprerequisitetohisliability,namely,thatthetrusteealsomusthavebeenactingdishonestly.
Thealternativeviewwouldmeanthatadishonestthirdpartyisliableifthetrusteeisdishonest,butifthe
trusteedidnotactdishonestlythatofitselfwouldexcuseadishonestthirdpartyfromliability.Thatwould
makenosense.

Noliability
Thestartingpointforanyanalysismustbetoconsidertheextremepossibility:thatathirdpartywho
doesnotreceivetrustpropertyoughtnevertobeliabledirectlytothebeneficiariesmerelybecausehe
assistedthetrusteetocommitabreachoftrustorprocuredhimtodoso.Thispossibilitycanbe
dismissedsummarily.Onthisthepositionwhichthelawhaslongadoptedisclearandmakesgood
sense.Statedinthesimplestterms,atrustisarelationshipwhichexistswhenonepersonholds
propertyonbehalfofanother.If,forhisownpurposes,athirdpartydeliberatelyinterferesinthat
relationshipbyassistingthetrusteeindeprivingthebeneficiaryofthepropertyheldforhimbythe
trustee,thebeneficiaryshouldbeabletolookforrecompensetothethirdpartyaswellasthetrustee.
Affordingthebeneficiaryaremedyagainstthethirdpartyservesthedualpurposeofmakinggoodthe
beneficiaryslossshouldthetrusteelackfinancialmeansandimposingaliabilitywhichwilldiscourage
othersfrombehavinginasimilarfashion.
Therationaleisnotfartoseek.Beneficiariesareentitledtoexpectthatthosewhobecometrusteeswill
fulfiltheirobligations.Theyarealsoentitledtoexpect,andthisisonlyashortstepfurther,thatthose
whobecometrusteeswillbepermittedtofulfiltheirobligationswithoutdeliberateinterventionfromthird
parties.Theyareentitledtoexpectthatthirdpartieswillrefrainfromintentionallyintrudinginthetrustee
beneficiaryrelationshipandtherebyhinderingabeneficiaryfromreceivinghisentitlementinaccordance
withthetermsofthetrustinstrument.Thereishereacloseanalogywithbreachofcontract.Aperson
whoknowinglyprocuresabreachofcontract,orknowinglyinterfereswiththedueperformanceofa
contract,isliabletotheinnocentparty.Theunderlyingrationaleisthesame.
Strictliability
Theotherextremepossibilitycanalsoberejectedoutofhand.Thisisthecasewhereathirdpartydeals
withatrusteewithoutknowing,orhavinganyreasontosuspect,thatheisatrustee.Orthecasewhere
athirdpartyisawareheisdealingwithatrusteebuthasnoreasontoknoworsuspectthattheir
transactionisinconsistentwiththetermsofthetrust.Thelawhasnevergonesofarastogivea
beneficiaryaremedyagainstanonrecipientthirdpartyinsuchcircumstances.Withindefinedlimits,
proprietaryrights,whetherlegalorequitable,endureagainstthirdpartieswhowereunawareoftheir
existence.Butaccessoryliabilityisconcernedwiththeliabilityofapersonwhohasnotreceivedany
property.Hisliabilityisnotpropertybased.Hisonlysinisthatheinterferedwiththedueperformanceby
thetrusteeofthefiduciaryobligationsundertakenbythetrustee.Thesearepersonalobligations.They
are,inthisrespect,analogoustothepersonalobligationsundertakenbythepartiestoacontract.But
ordinary,everydaybusinesswouldbecomeimpossibleifthirdpartiesweretobeheldliablefor
unknowinglyinterferinginthedueperformanceofsuchpersonalobligations.Beneficiariescouldnot
reasonablyexpectthatthirdpartiesshoulddealwithtrusteesattheirperil,totheextentthattheyshould
becomeliabletothebeneficiariesevenwhentheyreceivednotrustpropertyandevenwhentheywere
unawareandhadnoreasontosupposethattheyweredealingwithtrustees.
(p.884) Faultbasedliability
Given,then,thatinsomecircumstancesathirdpartymaybeliabledirectlytoabeneficiary,butgiven
alsothattheliabilityisnotsostrictthattherewouldbeliabilityevenwhenthethirdpartywaswholly
unawareoftheexistenceofthetrust,thenextstepistoseektoidentifythetouchstoneofliability.By
commonaccorddishonestyfulfilsthisrole.Whether,inaddition,negligencewillsufficeisanissueon
whichtherehasbeenawellknowndifferenceofjudicialopinion.TheSelangordecision[1968]1WLR
1555in1968wasthefirstmoderndecisiononthispoint.UngoedThomasJat1590,heldthatthe
touchstonewaswhetherthethirdpartyhadknowledgeofcircumstanceswhichwouldindicatetoan
honest,reasonablemanthatthebreachinquestionwasbeingcommittedorwouldputhimoninquiry.
BrightmanJreachedthesameconclusioninKarak RubberCoLtdvBurden(No2)[1972]1WLR602.
SodidPeterGibsonJin1983intheBadencase[1993]1WLR509n.Inthatcasethejudgeaccepteda
fivepointscaleofknowledgewhichhadbeenformulatedbycounsel.
MeanwhiledoubtshadbeenexpressedaboutthistestbyBuckleyLJandGoffLJintheBelmontcase
[1979]Ch250at267,275.SimilardoubtswereexpressedinAustraliabyJacobsPinDPCEstatesPty
LtdvGrey[1974]1NSWLR443at459.WhenthatdecisionreachedtheHighCourtofAustralia,the
doubtswereechoedbyBarwickCJ,GibbsJandStephenJ:seeConsulDevelopmentPtyLtdvDPC
EstatesPtyLtd(1975)132CLR373at376,398,and412.
SincethenthetideinEnglandhasflowedstronglyinfavourofthetestbeingoneofdishonesty:see,for
instance,SirRobertMegarryVCinReMontagusSettlementTrusts[1987]Ch264at285,andMillett
JinAgip(Africa)LtdvJack son[1990]Ch265at293.InEagleTrustplcvSBCSecuritiesLtd[1993]1
WLR484at495,VinelottJstatedthatitcouldbetakenassettledlawthatwantofprobitywasa
prerequisitetoliability.ThisreceivedtheimprimaturoftheCourtofAppealinPollyPeck Internationalplc
vNadir(No2)[1992]4AllER769at777,perScottLJ.[HisLordshipthenconsideredthedivergent
judicialviewsinNewZealandandcontinued:]
Dishonesty
Beforeconsideringthisissuefurtheritwillbehelpfultodefinethetermsbeingusedbylookingmore
closelyatwhatdishonestymeansinthiscontext.Whatevermaybethepositioninsomecriminalor
othercontexts(see,forinstance,RvGhosh[1982]QB1053),inthecontextoftheaccessoryliability
principleactingdishonestly,orwithalackofprobity,whichissynonymous,meanssimplynotactingas
anhonestpersonwouldinthecircumstances.Thisisanobjectivestandard.Atfirstsightthismayseem
surprising.Honestyhasaconnotationofsubjectivity,asdistinctfromtheobjectivityofnegligence.
Honesty,indeed,doeshaveastrongsubjectiveelementinthatitisadescriptionofatypeofconduct
assessedinthelightofwhatapersonactuallyknewatthetime,asdistinctfromwhatareasonable
personwouldhaveknownorappreciated.Further,honestyanditscounterpartdishonestyaremostly
concernedwithadvertentconduct,notinadvertentconduct.Carelessnessisnotdishonesty.Thusforthe
mostpartdishonestyistobeequatedwithconsciousimpropriety.
However,thesesubjectivecharacteristicsofhonestydonotmeanthatindividualsarefreetosettheirown
standardsofhonestyinparticularcircumstances.Thestandardofwhatconstituteshonestconductisnot
subjective.Honestyisnotanoptionalscale,withhigherorlowervaluesaccordingtothemoralstandards
ofeachindividual.Ifapersonknowinglyappropriatesanothersproperty,hewillnotescapeafindingof
dishonestysimplybecauseheseesnothingwronginsuchbehaviour
Negligence
Itisagainstthisbackgroundthatthequestionofnegligenceistobeaddressed.Thisquestion,itshould
beremembered,isdirectedatwhetheranhonestthirdpartywhoreceivesnotrustpropertyshouldbe
liableifheprocuresorassistsinabreachoftrustofwhichhewouldhavebecomeawarehadhe
exercisedreasonablediligence.Shouldhebeliabletothebeneficiariesforthelosstheysufferfromthe
breachoftrust?
(p.885) Themajorityofpersonsfallingintothiscategorywillbethehostsofpeoplewhoactfortrustees
invariousways:asadvisers,consultants,bankers,andagentsofmanykinds.Thiscategoryalso
includesofficersandemployeesofcompanies,inrespectoftheapplicationofcompanyfunds.Allthese
peoplewillbeaccountabletothetrusteesfortheirconduct.Forthemostparttheywillowetothe
trusteesadutytoexercisereasonableskillandcare.Whenthatisso,therightsflowingfromthatduty
formpartofthetrustproperty.Assuchtheycanbeenforcedbythebeneficiariesinasuitablecaseifthe
trusteesareunableorunwillingtodoso.Thatbeingso,itisdifficulttoidentifyacompellingreasonwhy,
inadditiontothedutyofskillandcarevisvisthetrusteeswhichthethirdpartieshaveaccepted,or
whichthelawhasimposeduponthem,thirdpartiesshouldalsooweadutyofcaredirectlytothe
beneficiaries.Theyhaveundertakenworkforthetrustees.Theymustcarryoutthatworkproperly.Ifthey
failtodoso,theywillbeliabletomakegoodthelosssufferedbythetrusteesinconsequence.Thiswill
include,whereappropriate,thelosssufferedbythetrusteesbeingexposedtoclaimsforbreachoftrust.
Outsidethiscategoryofpersonswhoowedutiesofskillandcaretothetrustees,thereareotherswho
willdealwithtrustees.Iftheyhavenotaccepted,andthelawhasnotimposeduponthem,anysuch
dutiesinfavourofthetrustees,itisdifficulttodiscernagoodreasonwhytheyshouldneverthelessowe
suchdutiestothebeneficiaries.
Thereremainstobeconsideredthepositionwherethirdpartiesareactingfor,ordealingwith,dishonest
trustees.Insuchcasesthetrusteeswouldhavenoclaimsagainstthethirdparty.Thetrusteeswould
suffernolossbyreasonofthethirdpartysfailuretodiscoverwhatwasgoingon.Thequestioniswhether
inthistypeofsituationthethirdpartyowesadutyofcaretothebeneficiariesto,ineffect,checkthata
trusteeisnotmisbehaving.Thethirdpartymustacthonestly.Thequestioniswhetherthatisenough.
Inagreementwiththepreponderantview,theirLordshipsconsiderthatdishonestyisanessential
ingredienthere.Theremaybecaseswhere,inthelightoftheparticularfacts,athirdpartywillowea
dutyofcaretothebeneficiaries.Asageneralproposition,however,beneficiariescannotreasonably
expectthatalltheworlddealingwiththeirtrusteesshouldowethemadutytotakecarelestthetrustees
arebehavingdishonestly.
Unconscionableconduct
Mention,finally,mustbemadeofthesuggestionthatthetestforliabilityisthatofunconscionable
conduct.Unconscionableisawordofimmediateappealtoanequitylawyer.Equityisrootedhistorically
intheconceptoftheLordChancellor,asthekeeperoftheRoyalConscience,concerninghimselfwith
conductwhichwascontrarytogoodconscience.Itmustberecognised,however,thatunconscionableis
notawordineverydayusebynonlawyers.Ifitistobeusedinthiscontext,andifitistobethe
touchstoneforliabilityasanaccessory,itisessentialtobeclearonwhat,inthiscontext,
unconscionablemeans.Ifunconscionablemeansnomorethandishonesty,thendishonestyisthe
preferablelabel.Ifunconscionablemeanssomethingdifferent,itmustbesaidthatitisnotclearwhatthat
somethingdifferentis.Eitherway,therefore,thetermisbetteravoidedinthiscontext.
Theaccessoryliabilityprinciple
Drawingthethreadstogether,theirLordshipsoverallconclusionisthatdishonestyisanecessary
ingredientofaccessoryliability.Itisalsoasufficientingredient.Aliabilityinequitytomakegood
resultinglossattachestoapersonwhodishonestlyprocuresorassistsinabreachoftrustorfiduciary
obligation.Itisnotnecessarythat,inaddition,thetrusteeorfiduciarywasactingdishonestly,although
thiswillusuallybesowherethethirdpartywhoisassistinghimisactingdishonestly.Knowinglyis
betteravoidedasadefiningingredientoftheprinciple,andinthecontextofthisprincipletheBadenscale
ofknowledgeisbestforgotten.
Inthispassage,LordNichollssetsoutaclearvisionofaccessoryliability,consistingofawideconductelementbut
narrowmentalelementofdishonesty.Importantly,thestandardofdishonestyis(p.886) setobjectivelybya
reasonableperson.However,itremainsimportanttoestablishwhatthedefendantknew,asadefendantwhowas
genuinelyunawarethatanybreachmightbeassistedshouldnotincuraccessoryliability.Thustheessenceofthe
testiswhetherareasonablepersonwouldconsiderthatthedefendantsconductwasdishonest,givenwhatthe
defendantknew.Oneadvantageofthisapproachisthattheobjectivestandardofhonestymaybevariedin
accordancewiththeattributesofthedefendant:adefendantwhoisasolicitor,forexample,wouldbeexpectedto
meetahigherstandardofhonestythanothers.
TanwasadecisionofthePrivyCouncilandthereforenotstrictlybindingonEnglishcourts.However,itwasadopted
asagoodstatementofEnglishlawbytheHouseofLordsinTwinsectravYardley.41 Yet,inacceptingLordNicholls
approach,themajority,ledbyLordHutton,seemedtodepartfromthetestinTanandintroducedafurthersubjective
element:thedefendantmusthaverealizedthatwhathedidwouldbeconsideredtobedishonestbyreasonable
people.
TwinsectraLtdvYardley[2002]UKHL12[2002]2AC164(HL)
Yardleyborrowedmoneyfromtheclaimanttopurchaseproperty.Ithadbeenagreedthatthemoneywouldbe
heldbyasolicitor,Sims,whoundertookthatitwouldonlybeusedforthepurchaseofproperty.Yardley
borrowedthesameamountofmoneyfromBarclaysBankwithouttellingtheclaimant.Yardleyssolicitor,
Leach,wasawareofthearrangement.Inbreachoftheundertaking,SimspaidmostoftheloantoYardleyin
dischargeofdebtsheowedtoYardley.Theclaimantbroughtanumberofclaimstorecoveritsmoney,oneof
whichwasaclaimfordishonestassistanceagainstLeach,whohadbeenpaidthemoneybySimsandwho
paiditoutuponYardleysinstructions.Asubstantialsumofthismoneywasusedforpurposesotherthanthe
acquisitionofproperty.Thetrialjudgeheldthat,althoughLeachhadshuthiseyestothedetailsofthe
transaction,hehadnotacteddishonestlybecausehebelievedthatthemoneywasatthedisposalofYardley.
TheCourtofAppealsubstitutedafindingofdishonesty.TheHouseofLords(LordMillettdissenting)heldthat
Leachhadnotacteddishonestly.42 LordHuttonsaid:43
Whilstindiscussingthetermdishonestythecourtsoftendrawadistinctionbetweensubjective
dishonestyandobjectivedishonesty,therearethreepossiblestandardswhichcanbeappliedto
determinewhetherapersonhasacteddishonestly.Thereisapurelysubjectivestandard,wherebya
personisonlyregardedasdishonestifhetransgresseshisownstandardofhonesty,evenifthat
standardiscontrarytothatofreasonableandhonestpeople.ThishasbeentermedtheRobinHoodtest
andhasbeenrejectedbythecourts.AsSirChristopherSladestatedinWalk ervStones[2001]QB
902,939:
Apersonmayinsomecasesactdishonestly,accordingtotheordinaryuseoflanguage,even
thoughhegenuinelybelievesthathisactionismorallyjustified.Thepennilessthief,forexample,
whopicksthepocketofthemultimillionaireisdishonesteventhoughhegenuinelyconsidersthat
theftismorallyjustifiedasafairredistributionofwealthandthatheisnotthereforebeing
dishonest.
(p.887) Secondly,thereisapurelyobjectivestandardwherebyapersonactsdishonestlyifhis
conductisdishonestbytheordinarystandardsofreasonableandhonestpeople,evenifhedoes
notrealisethis.Thirdly,thereisastandardwhichcombinesanobjectivetestandasubjective
test,andwhichrequiresthatbeforetherecanbeafindingofdishonestyitmustbeestablished
thatthedefendantsconductwasdishonestbytheordinarystandardsofreasonableandhonest
peopleandthathehimselfrealisedthatbythosestandardshisconductwasdishonest.Iwillterm
thisthecombinedtest.
ThereisapassageintheearlierpartofthejudgmentinRoyalBruneiwhichsuggeststhatLord
Nichollsconsideredthatdishonestyhasasubjectiveelement.Thusindiscussingthehonest
trusteeandthedishonestthirdpartyat[1995]2AC378at385hestated:
Theseexamplessuggestthatwhatmattersisthestateofmindofthethirdparty.But[the
trustees]stateofmindisessentiallyirrelevanttothequestionwhetherthethirdpartyshouldbe
madeliabletothebeneficiariesforbreachoftrust.
However,afterstating,at387,thatthetouchstoneofliabilityisdishonesty,LordNichollswentonat389
todiscussthemeaningofdishonesty:
Beforeconsideringthisissuefurtheritwillbehelpfultodefinethetermsbeingusedbylookingmore
closelyatwhatdishonestymeansinthiscontext.Whatevermaybethepositioninsomecriminalor
othercontexts(see,forinstance,RvGhosh[1982]QB1053),inthecontextoftheaccessoryliability
principleactingdishonestly,orwithalackofprobity,whichissynonymous,meanssimplynotactingas
anhonestpersonwouldinthecircumstances.Thisisanobjectivestandard.
MynobleandlearnedfriendLordMilletthassubjectedthispassageandsubsequentpassagesinthe
judgmenttodetailedanalysisandisoftheopinionthatLordNichollsusedthetermdishonestyina
purelyobjectivesensesothatinthisareaofthelawapersoncanbeheldtobedishonesteventhough
hedoesnotrealisethatwhatheisdoingisdishonestbytheordinarystandardsofhonestpeople.This
leadsLordMillettontotheconclusionthatindeterminingtheliabilityofanaccessorydishonestyisnot
necessaryandthatliabilitydependsonknowledge.
InRvGhosh[1982]QB1053LordLaneCJheldthatinthelawoftheftdishonestyrequiredthatthe
defendanthimselfmusthaverealisedthatwhathewasdoingwasdishonestbytheordinarystandardsof
reasonableandhonestpeople.ThethreesentencesinLordNichollsjudgment,at389,44 whichappear
todrawadistinctionbetweenthepositionincriminallawandthepositioninequity,dogivesupportto
LordMillettsview.Butconsideringthosesentencesinthecontextoftheremainderoftheparagraph
andtakingaccountofotherpassagesinthejudgment,Ithinkthatinreferringtoanobjectivestandard
LordNichollswascontrastingitwiththepurelysubjectivestandardwherebyamansetshisown
standardofhonestyanddoesnotregardasdishonestwhatuprightandresponsiblepeoplewouldregard
asdishonest.
[LordHuttoncitedpassagesfromTanandcontinued:]
Theuseofthewordknowing[byLordNicholls]wouldbesuperfluousifthedefendantdidnothavetobe
awarethatwhathewasdoingwouldoffendthenormallyacceptedstandardsofhonestconduct,andthe
needtolookattheexperienceandintelligenceofthedefendantwouldalsoappearsuperfluousifallthat
wasrequiredwasapurelyobjectivestandardofdishonesty.ThereforeIdonotthinkthatLordNicholls
wasstatingthatinthissphereofequityamancanbedishonestevenifhedoesnotknowthatwhatheis
doingwouldberegardedasdishonestbyhonestpeople.
(p.888) At387LordNichollsstatedthatthereisacloseanalogybetweenknowinglyinterferingwith
thedueperformanceofacontractandinterferingwiththerelationshipbetweenatrusteeanda
beneficiary.Butthisobservationwasmadeinconsideringandrejectingthepossibilitythatathirdparty
whodidnotreceivetrustpropertyshouldneverbeliableforassistinginabreachoftrust.Idonotthink
thatinreferringtoknowinglyprocuringabreachofcontractLordNichollswassuggestingthat
knowinglyassistinginabreachoftrustwassufficienttogiverisetoliability.Suchaviewwouldbe
contrarytothelaterpassage,at392,dealingdirectlywiththispoint.
Thereis,inmyopinion,afurtherconsiderationwhichsupportstheviewthatforliabilityasanaccessory
toarisethedefendantmusthimselfappreciatethatwhathewasdoingwasdishonestbythestandardsof
honestandreasonablemen.Afindingbyajudgethatadefendanthasbeendishonestisagravefinding,
anditisparticularlygraveagainstaprofessionalman,suchasasolicitor.Notwithstandingthattheissue
arisesinequitylawandnotinacriminalcontext,Ithinkthatitwouldbelessthanjustforthelawto
permitafindingthatadefendanthadbeendishonestinassistinginabreachoftrustwhereheknewof
thefactswhichcreatedthetrustanditsbreachbuthadnotbeenawarethatwhathewasdoingwouldbe
regardedbyhonestmenasbeingdishonest.
ItwouldbeopentoyourLordshipstodepartfromtheprinciplestatedbyLordNichollsthatdishonesty
isanecessaryingredientofaccessoryliabilityandtoholdthatknowledgeisasufficientingredient.But
thestatementofthatprinciplebyLordNichollshasbeenwidelyregardedasclarifyingthisareaofthe
lawand,asheobserved,thetideofauthorityinEnglandhasflowedstronglyinfavourofthetestof
dishonesty.ThereforeIconsiderthatthecourtsshouldcontinuetoapplythattestandthatyour
Lordshipsshouldstatethatdishonestyrequiresknowledgebythedefendantthatwhathewasdoing
wouldberegardedasdishonestbyhonestpeople,althoughheshouldnotescapeafindingofdishonesty
becausehesetshisownstandardsofhonestyanddoesnotregardasdishonestwhatheknowswould
offendthenormallyacceptedstandardsofhonestconduct.
[HisLordshipconsideredthefactsandconcluded:]
Itisonlyinexceptionalcircumstancesthatanappellatecourtshouldreverseafindingbyatrialjudgeon
aquestionoffact(andparticularlyonthestateofmindofaparty)whenthejudgehashadtheadvantage
ofseeingthepartygivingevidenceinthewitnessbox.ThereforeIdonotthinkthatitwouldhavebeen
rightfortheCourtofAppealinthiscasetohavecometoadifferentconclusionfromthejudgeandtohave
heldthatMr.LeachwasdishonestinthatwhenhetransferredthemoniestoMr.Yardleyheknewthat
hisconductwasdishonestbythestandardsofresponsibleandhonestsolicitors.
LordHuttonsspeechseemstosetoutaverydifferenttestfordishonestyfromthatenvisagedbyLordNicholls.
DespiteLordNichollsinsistingthatthetestinEquitywasnotthesameasthecriminaltestinGhosh,LordHutton
indicatestheopposite.Despitehiscontrarysuggestionintheabovepassage,thisdoesnotavoidtheRobinHood
problemmentioned:LordHuttonsadditionalsubjectivelimbthatthedefendantmustrealizeanobjective,
reasonableobserverwouldconsiderhimdishonestallowsanescaperoutefordefendantssuchasRobinHood,who
maynothaveactuallythoughtthatreasonablepeoplewouldhaveconsidereditdishonesttorobfromtherichtogive
tothepoor.
TheinconsistencybetweenLordNichollsandLordHuttonwasclearlyshowninLordMillettspowerfuldissentin
Twinsectra.
TwinsectraLtdvYardley[2002]UKHL12[2002]2AC164,[114][117]
Intakingdishonestytobetheconditionofliability,however,LordNichollsusedthewordinanobjective
sense.Hedidnotemploytheconceptofdishonestyasitisunderstoodincriminalcases.
(p.889) [HisLordshipcitedLordNichollsinTanandcontinued:]
Dishonestyasastateofmindorasacourseofconduct?
InRvGhosh[1982]QB1053LordLaneCJdrewadistinctionbetweendishonestyasastateofmind
anddishonestyasacourseofconduct,andheldthatdishonestyinsection1oftheTheftAct1968
referredtodishonestyasastateofmind.Thequestionwasnotwhethertheaccusedhadinfactacted
dishonestlybutwhetherhewasawarethathewasactingdishonestly.Thejurymustfirstofalldecide
whethertheconductoftheaccusedwasdishonestaccordingtotheordinarystandardsofreasonableand
honestpeople.Thatwasanobjectivetest.Ifhewasnotdishonestbythosestandards,thatwasanend
ofthematterandtheprosecutionfailed.Ifitwasdishonestbythosestandards,thejuryhadsecondlyto
considerwhethertheaccusedwasawarethatwhathewasdoingwasdishonestbythosestandards.
Thatwasasubjectivetest.Givenhisactual(subjective)knowledgetheaccusedmusthavefallenbelow
ordinary(objective)standardsofhonestyand(subjectively)havebeenawarethathewasdoingso.
Thesametestofdishonestyisapplicableincivilcaseswhere,forexample,liabilitydependsuponintent
todefraud,forthisconnotesadishoneststateofmind.Ak tieselsk abetDansk Sk ibsfinansieringv
Bothers[2001]2BCLC324wasacaseofthiskind(tradingwithintenttodefraudcreditors).Butitisnot
generallyanappropriateconditionofcivilliability,whichdoesnotordinarilyrequireaguiltymind.Civil
liabilityisusuallypredicatedonthedefendantsconductratherthanhisstateofminditresultsfromhis
negligentorunreasonablebehaviouror,wherethisisnotsufficient,fromintentionalwrongdoing.
Adishoneststateofmindmightlogicallyhavebeenrequiredwhenitwasthoughtthattheaccessorywas
liableonlyiftheprincipalwasguiltyofafraudulentbreachoftrust,forthentheclaimcouldhavebeen
regardedastheequitablecounterpartofthecommonlawconspiracytodefraud.Butthisrequirement
wasdiscardedinRoyalBruneiAirlinesSdnBhdvTan[1995]2AC378.
Itis,therefore,notsurprisingthatLordNichollsrejectedadishoneststateofmindasanappropriate
conditionofliability.
Inmyopinion,inrejectingthetestofdishonestyadoptedinRvGhosh[1982]QB1053,LordNicholls
wasusingthewordtocharacterisethedefendantsconduct,nothisstateofmind.
LordNichollsdealtwiththedifficultcasewheretheproprietyofthetransactionisdoubtful.Anhonest
man,heconsidered,wouldmakeappropriateenquiriesbeforegoingahead.Thisassumesthatanhonest
manisonewhowouldnotknowinglyparticipateinatransactionwhichcausedthemisapplicationof
funds
InmyopinionLordNichollswasadoptinganobjectivestandardofdishonestybywhichthedefendantis
expectedtoattainthestandardwhichwouldbeobservedbyanhonestpersonplacedinsimilar
circumstances.Accountmustbetakenofsubjectiveconsiderationssuchasthedefendantsexperience
andintelligenceandhisactualstateofknowledgeattherelevanttime.Butitisnotnecessarythathe
shouldactuallyhaveappreciatedthathewasactingdishonestlyitissufficientthathewas.
Themoderntendencyistodeprecatetheuseofwordslikefraudanddishonestyassynonymsfor
moralturpitudeorconductwhichismorallyreprehensible.Thereismuchtobesaidforsemanticreform,
thatistosayforchangingthelanguagewhileretainingtheincidentsofequitableliabilitybutthereis
nothingtobesaidforretainingthelanguageandgivingitthemeaningithasincriminalcasessoasto
altertheincidentsofequitableliability.
Shouldsubjectivedishonestyberequired?
ThequestionforyourLordshipsisnotwhetherLordNichollswasusingtheworddishonestyina
subjectiveorobjectivesenseinRoyalBruneiAirlinesSdnBhdvTan[1995]2AC378.Thequestionis(p.
890) whetheraplaintiffshouldberequiredtoestablishthatanaccessorytoabreachoftrusthada
dishoneststateofmind(sothathewassubjectivelydishonestintheRvGhoshsense)orwhetherit
shouldbesufficienttoestablishthatheactedwiththerequisiteknowledge(sothathisconductwas
objectivelydishonest).Thisquestionisatlargeforus,andwearefreetoresolveiteitherway.
Iwouldresolveitbyadoptingtheobjectiveapproach.Iwoulddosobecause:
(1)Consciousnessofwrongdoingisanaspectofmensreaandanappropriateconditionofcriminal
liability:itisnotanappropriateconditionofcivilliability.Thisgenerallyresultsfromnegligentor
intentionalconduct.Forthepurposeofcivilliability,itshouldnotbenecessarythatthedefendant
realisedthathisconductwasdishonestitshouldbesufficientthatitconstitutedintentional
wrongdoing.
(2)TheobjectivetestisinaccordancewithLordSelbornesstatementinBarnesvAddy(1874)
LR9ChApp244andtraditionaldoctrine.Thistaughtthatapersonwhoknowinglyparticipatesin
themisdirectionofmoneyisliabletocompensatetheinjuredparty.Whilenegligenceisnota
sufficientconditionofliability,intentionalwrongdoingis.Suchconductisculpableandfallsbelow
theobjectivestandardsofhonestyadoptedbyordinarypeople.
(3)Theclaimforknowingassistanceistheequitablecounterpartoftheeconomictorts.Theseare
intentionaltortsnegligenceisnotsufficientanddishonestyisnotnecessary.Liabilitydependson
knowledge.Arequirementofsubjectivedishonestyintroducesanunnecessaryandunjustified
distinctionbetweentheelementsoftheequitableclaimandthoseofthetortofwrongfulinterference
withtheperformanceofacontract.
Twinsectraleftthelawinanuncertainstate:thePrivyCouncilrejectedGhosh,buttheHouseofLords,inpurporting
toadopttheadviceofthePrivyCouncilrevivedthehybridtestandthefinalsubjectivelimbofGhoshinamanner
inconsistentwithTan.Ontherulesofprecedent,thedecisionoftheHouseofLordswastheauthoritative
pronouncementofthelaw,butthiswasweakenedtosomeextentbyLordMillettsclearrejectionoftheGhoshtest,
andhisluciddemonstrationofwhyTanandTwinsectrawereinconsistentonthispoint.Commentingonthedecision
oftheHouseofLords,TjioandYeowrote:45
ThemajorityholdinginthepresentcaserequiresallpreviousdecisionsapplyingtheRoyalBruneitestof
dishonestytobescrutinisedwithgreatcaretheyceasetohaveprecedentialvalueunlesstheycanbesaidto
haveactuallyappliedthecombinedtest.Thiswillnotbeaneasytask.Moreover,whilethemajorityviewmay
havedispelledthecloudofconfusionsurroundingthedefinitionofthetestofdishonesty,inpracticalterms,
theguidanceitprovidesforfuturedecisionmakingissomewhatmurky.Onedifficultyisthattheapplicationof
apurelyobjectivetestinthefirstlimbofthecombinedtestcanbecounterintuitive.Judgesmayfinditdifficult
toassesswhetherthedefendantsconducthasbreachedtheobjectivestandardofdishonestywithoutregard
tohisknowledgeandpersonalattributesyetLordHuttonwoulddealwithsuchmattersonlyinthesecond
limb.Thelargerdifficultymaybethat,if,beforeTwinsectra,courtsatfirstinstanceweretornbetween
measuringthedefendantsconductagainstobjectiveorsubjectivestandards,itcannotbesaidwith
confidencethatthistensionwillvanishasaresultofTwinsectra.Theuncertaintysurroundingtheroleof
Nelsoniancognitionwithinthecombinedteststillallowsdifferentjudgestotakeapproachesofvarying
objectivityorsubjectivity,oratleastcreatesthatperceptionfromthevantageofappellatejudges,andthe
objective/subjectivedebateislikely,withfurtherprotractedlitigation,tocomefullcircle.
(p.891) Thelawondishonestywascertainlymurky,anditwasnosurprisetofindthattheissueroseagaininthe
PrivyCouncilinBarlowClowesvEurotrust.
BarlowClowesInternationalLtdvEurotrustInternationalLtd[2005]UKPC37[2006]1
WLR1476(PC),[10][18]46
Theappellanthadbeenusedtooperateafraudulentoffshoreinvestmentscheme.Clowes,theperpetratorofthe
scheme,wasconvictedoffraud.Someoftheinvestorsmoneyhadbeenpaidthroughbankaccounts
maintainedbythedefendantcompany,whichwasadministeredfromtheIsleofMan.Theappellantclaimedthat
thedefendantanditsdirectors,includingHenwood,haddishonestlyassistedClowestomisappropriatethe
money.
ThePrivyCouncilheldthatthedefendantswereliable.Thetestofdishonestywaswhether,inthelightofthe
defendantsknowledge,hisassistancewascontrarytoordinarystandardsofhonestbehaviour.Theevidenced
supportedafindingthatHenwoodhadacteddishonestly.LordHoffmannsaid:
ThejudgestatedthelawintermslargelyderivedfromtheadviceoftheBoardgivenbyLordNichollsof
BirkenheadinRoyalBruneiAirlinesSdnBhdvTan[1995]2AC378.Insummary,shesaidthatliability
fordishonestassistancerequiresadishoneststateofmindonthepartofthepersonwhoassistsina
breachoftrust.Suchastateofmindmayconsistinknowledgethatthetransactionisoneinwhichhe
cannothonestlyparticipate(forexample,amisappropriationofotherpeoplesmoney),oritmayconsist
insuspicioncombinedwithaconsciousdecisionnottomakeinquirieswhichmightresultinknowledge:
seeManifestShippingCoLtdvUniPolarisInsuranceCoLtd[2003]1AC469.Althoughadishonest
stateofmindisasubjectivementalstate,thestandardbywhichthelawdetermineswhetheritis
dishonestisobjective.Ifbyordinarystandardsadefendantsmentalstatewouldbecharacterisedas
dishonest,itisirrelevantthatthedefendantjudgesbydifferentstandards.TheCourtofAppealheldthis
tobeacorrectstateofthelawandtheirLordshipsagree.
ThejudgefoundthatduringandafterJune1987Mr.Henwoodstronglysuspectedthatthefundspassing
throughhishandsweremoneyswhichBarlowCloweshadreceivedfrommembersofthepublicwho
thoughtthattheyweresubscribingtoaschemeofinvestmentingiltedgedsecurities.Ifthosesuspicions
werecorrect,nohonestpersoncouldhaveassistedMr.ClowesandMr.Cramertodisposeofthefunds
fortheirpersonaluse.ButMr.Henwoodconsciouslydecidednottomakeinquiriesbecausehepreferred
inhisowninterestnottoruntheriskofdiscoveringthetruth.
TheirLordshipsconsiderthatbyordinarystandardssuchastateofmindisdishonest.Thejudgefound
thatMr.Henwoodmaywellhavelivedbydifferentstandardsandseennothingwronginwhathewas
doing.Hehadan
exaggeratednotionofdutifulservicetoclients,whichproducedawarpedmoralapproachthatit
wasnotimpropertotreatcarryingoutclientsinstructionsasbeingallimportant.Mr.Henwood
maywellhavethoughtthistobeanhonestattitude,but,ifso,hewaswrong.
LordNeillofBladen,whoappearedforMr.Henwood,submittedtotheirLordshipsthatsuchastateof
mindwasnotdishonestunlessMr.Henwoodwasawarethatitwouldbyordinarystandardsberegarded
asdishonest.Onlyinsuchacasecouldhebesaidtobeconsciouslydishonest.Butthejudgemadeno
findingaboutMr.Henwoodsopinionsaboutnormalstandardsofhonesty.Theonlyfindingwasthatby
normalstandardshehadbeendishonestbutthathisownstandardwasdifferent.
(p.892) Insubmittingthataninquiryintothedefendantsviewsaboutstandardsofhonestyisrequired,
LordNeillrelieduponastatementbyLordHuttoninTwinsectraLtdvYardley[2002]AC164,174,with
whichthemajorityoftheirLordshipsagreed.[TheirLordshipsquotedfromLordHutton47 andcontinued:]
TheirLordshipsacceptthatthereisanelementofambiguityintheseremarkswhichmayhave
encouragedabelief,expressedinsomeacademicwriting,thattheTwinsectracasehaddepartedfrom
thelawaspreviouslyunderstoodandinvitedinquirynotmerelyintothedefendantsmentalstateabout
thenatureofthetransactioninwhichhewasparticipatingbutalsointohisviewsaboutgenerally
acceptablestandardsofhonesty.ButtheydonotconsiderthatthisiswhatLordHuttonmeant.The
referencetowhatheknowswouldoffendnormallyacceptedstandardsofhonestconductmeantonly
thathisknowledgeofthetransactionhadtobesuchastorenderhisparticipationcontrarytonormally
acceptablestandardsofhonestconduct.Itdidnotrequirethatheshouldhavehadreflectionsaboutwhat
thosenormallyacceptablestandardswere.
SimilarlyinthespeechofLordHoffmann,thestatement(inpara20)thatadishoneststateofmind
meantconsciousnessthatoneistransgressingordinarystandardsofhonestbehaviourwasintheir
Lordshipsviewintendedtorequireconsciousnessofthoseelementsofthetransactionwhichmake
participationtransgressordinarystandardsofhonestbehaviour.Itdidnotalsorequirehimtohavethought
aboutwhatthosestandardswere.
OnthefactsoftheTwinsectracase,neitherthejudgewhoacquittedMr.Leachofdishonestynorthe
Houseundertookanyinquiryintotheviewsofthedefendantsolicitor,Mr.Leach,aboutordinary
standardsofhonestbehaviour.Hehadreceivedonbehalfofhisclientapaymentfromanothersolicitor
whomheknewhadgivenanundertakingtopayittoMr.Leachsclientonlyforaparticularuse.Butthe
othersolicitorhadpaidthemoneytoMr.Leachwithoutrequiringanyundertaking.Thejudgefoundthat
hewasnotdishonestbecausehehonestlybelievedthattheundertakingdidnot,sotospeak,runwith
themoneyandthat,asbetweenhimandhisclient,hehelditforhisclientunconditionally.Hewas
thereforeboundtopayituponhisclientsinstructionswithoutrestrictiononitsuse.Themajorityinthe
HouseofLordsconsideredthatasolicitorwhoheldthisviewofthelaw,eventhoughheknewallthe
facts,wasnotbynormalstandardsdishonest.
TheirLordshipsthereforerejectLordNeillssubmissionthatthejudgefailedtoapplytheprinciplesof
liabilityfordishonestassistancewhichhadbeenlaiddownintheTwinsectracase.Intheiropinionthey
werenodifferentfromtheprinciplesstatedinRoyalBruneiAirlinesSdnBhdvTan[1995]2AC378which
werecorrectlysummarisedbythejudge.
TheresultinBarlowClowesseemssatisfactory.Anobjectiveapproachtodishonestyistaken,akintothatadopted
byLordNichollsinTan.Butsomeofthereasoningissurprising.ThemajorityinTwinsectradidnotsaythesame
thingasLordNicholls,andLordHoffmannsspeechinthePrivyCouncilinBarlowClowesmightbeconsidered
particularlyunexpectedgiventhathisLordshipagreedwithLordHuttoninTwinsectraitself.AsYeonoted:48
Inasurprisingtwist,thePrivyCouncilinBarlowClowesInternationalLtd(inliquidation)vEurotrust
InternationalLtd[2005]UKPC37[2006]1AllE.R.333,PC(IsleofMan)hasdeclaredthatthemajorityin
TwinsectrahadnotdifferedfromRoyalBrunei.OfthemembersoftheJudicialCommittee,LordHoffmann,
whodelivereditsunanimousopinion,hadauthoredoneoftheleadingmajorityspeechesinTwinsectraand
LordSteynwasalsopartofthemajority.LordHoffmannstatedthatliabilityfordishonestassistance
requiredadishoneststateofmind,whichmayconsistinknowledgethatthetransactionwasoneinwhichhe
shouldnotparticipate,orinsuspicioncombinedwithaconscious(p.893) decisionnottomakeinquiries
whichmightresultinknowledge.Therewasnofurthertestwhetherthedefendanthimselfrealisedwhat
ordinarystandardsofhonestywere.Thesecondlimbofthecombinedtest,whichhasbeenmisconstruedby
academics,merelyrequiredthatthedefendantshouldhavesufficientsubjectiveknowledgesuchthathis
conductwouldberegardedasdishonestbyordinaryhonestpeople.
However,thisclarificationofTwinsectrais,withrespect,unconvincing.Itisdifficulttounderstandtheroleof
acombinedtestifthetwolimbsaretestingforthesamethingandonelimbdoesnotmakesensewithoutthe
other.Itisalsodifficulttoseehowthequestionwhetherapersonhasrealisedthathehasbreachedordinary
standardsofhonestbehaviourcanbeansweredwithoutconsideringhisviewonwhatthosestandardsare.
ThedistinctionbetweenthemajorityandminoritypositionsinTwinsectrawasexplainedawayasadifference
ofviewonthestandardsofobjectivehonesty.Ifthisisright,itwasunsportingofthemajoritytohavelet
LordMillettwastesomanypagesarguingagainstastrawman.
YetitmaybethatLordHoffmannsapproachisdefensiblepragmatically.BarlowCloweswasadecisionofthePrivy
Council.ThePrivyCouncilisunabletooverruledecisionsoftheHouseofLordsandtherebychangeEnglishlaw.But
byinterpretingthedecisioninTwinsectra,ratherthanoverrulingit,thePrivyCouncilinBarlowClowesmayhave
madethetaskmucheasierforEnglishcourtsinthefuture.Forexample,itisnowpossibleforjudgesinlowercourts
tosaythattheyareboundbythedecisionoftheHouseofLordsinTwinsectra,butwillinterpretthatdecisioninthe
samewayasthePrivyCouncildidinBarlowClowes.
ThissleightofhandhasbeenadoptedbytheCourtsandrevivedLordNichollsapproachinTan.Forexample,in
AbouRahmahvAbacha,49 theCourtofAppealconsidered,obiter,thetestofdishonestyfordishonestassistance.
Forexample,ArdenLJsaid:50
ThedecisioninTwinsectraisofcoursebindingonthiscourtandthejudge.ButtheBarlowClowesdecision
doesnotinvolveadeparturefrom,orrefusaltofollow,theTwinsectracase.Rather,theBarlowClowescase
givesguidanceastotheproperinterpretationtobeplacedonitasamatterofEnglishlaw.Itshowshowthe
RoyalBruneicaseandtheTwinsectracasecanbereadtogethertoformaconsistentcorpusoflaw.
ThemeaningofdishonestyintheTwinsectracaseappearedtoinvolveanadditionalsubjectiveelement,
namelyanawarenessonthepartoftheaccessorythathisconductwasdishonest.Thedecisionunder
appealintheBarlowClowescasewasanappealfromtheIsleofManbutnodistinctionwasdrawnbetween
thelawof[the]IsleofManandthelawofEnglandandWales.ItwouldappearthereforethatthePrivyCouncil
wasalsointendingtoclarifyEnglishlawsincethatistheonlylogicalimplicationfromthemethodologyof
interpretationofanEnglishauthority.Thatinterpretationcouldhardlyhavebeenaninterpretationwhichonly
appliedintheIsleofManbutnotinEnglandandWales.TheapproachofthePrivyCouncilwasbothstriking
andbold:onewriterhasreferredtoitastakingjudicialreinterpretationtonewheights(Virgo,Mappingthe
Law,EssaysinmemoryofPeterBirks,edBurrowsandRodger(2006)(Oxford)chapter5,page86).The
decisionintheBarlowClowescasecouldprobablyhavebeenreachedwithoutconsiderationoftheTwinsectra
decisionforthepurposeofEnglishlaw,anditissignificantthatthePrivyCounciltookanothercourse.
(p.894) Similarly,RixLJreferredtodishonesty:51
intheTwinsectrasense,asclarifiedinBarlowClowes.
ThereislittledoubtthattheobjectiveapproachtodishonestyrepresentsthecurrentapproachtoEnglishlaw.For
example,inStargladePropertiesLtdvNash,theChancellorinsistedthat:52
Therelevantstandardistheordinarystandardofhonestbehaviour.Justasthesubjectiveunderstandingof
thepersonconcernedastowhetherhisconductisdishonestisirrelevantsoalsoisitirrelevantthatthere
maybeabodyofopinionwhichregardstheordinarystandardofhonestbehaviourasbeingsettoohigh.
Ultimately,incivilproceedings,itisforthecourttodeterminewhatthatstandardisandtoapplyittothefacts
ofthecase.
Thisobjectiveapproachismuchtobepreferred.Thereisnoreasonwhyadefendantshouldbeabletoavoidliability
simplybecauseheorsheisofdubiousmoralcharacterorawareness,andwouldnothaverealizedthatheorshe
wouldbeconsideredtobedishonestbyreasonablepeople.TheRobinHooddefenceshouldnotapply.However,
althoughtheobjectivetestofdishonestyistobepreferredtothemoresubjectiveapproachtakenbyLordHuttonin
Twinsectra,itisnotatallclearthatdishonestyistheappropriatetouchstoneforliabilityinthisarea.
(i)Isdishonestytherightmentalelement?
TheTantestofdishonestyimmediatelyreceivedawarmreceptionasthefaultelementforaccessoryliability.53 But
dishonestyhasclearlycauseddifficultiesatthehighestlevelofthejudiciary.Itisworthconsideringwhetheritisthe
rightmentalelementforaccessoryliability.Indeed,apersonwillonlybeconsideredtobedishonestonthebasisof
whatheorsheactuallyknew,54 sowhyaddanextralayerofcomplexitywiththelabelofdishonesttotherequisite
levelofknowing?Escapingtheneedtoestablishknowledgeisimpossible:HirstLJhasstatedthat:55
dishonestyandknowledge(ofsomesort)areratherlikethechickenandtheegg.
Dishonestyisclearlyaconceptwithitsrootsinthecriminallaw,whereitisajuryquestionthatgoestothe
culpabilityoftheaccused.Buteveninthecontextofaccessoryliabilityinthecriminallaw,therequisitemental
elementisnotdishonestybutknowledgeoftheessentialmattersthatconstitutetheprimaryoffence.56 SoEquity
hasborrowedaconceptfromthecriminallawinacontextinwhichitisnotemployedbythecriminalcourts.Yet,
counterintuitively,itseemsasiftheadoptionofdishonesty(p.895) inthecivillawmightactuallyhaveanimpact
uponthecriminallaw.InStargladePropertiesLtdvNash,LevesonLJsaid:57
Iwouldaddanoteofconcerniftheconceptofdishonestyforthepurposesofcivilliabilitydifferedtoany
markedextentfromtheconceptofdishonestyasunderstoodinthecriminallaw.
theanalysiswhichhasgovernedtheapproachofthecriminallawmayfitmorereadilyintothelanguageofthe
HouseofLordsinTwinsectrapriortotheexplanationoftheremarksinthatcaseinBarlowClowesinthePrivy
CouncilandAbuRahman[sic.]intheCourtofAppeal.Itisallthemoreimportant,therefore,thatatsome
stagetheopportunitytorevisitthisissueshouldbetakenbytheCourtofAppeal(CriminalDivision).
Itissomewhatoddforthecivillawtoseektoinfluencethecriminallawonanissuethatshouldreallybeajury
question.Ratherthanborrowingamentalelement58 fromthecriminallaw,itmayhavebeenwisertolooktothe
privatelawandaccessoryliabilityinthecontractualrealm.AsLordMillettpointedoutinTwinsectra,59 abetter
analogymightbemadewiththeCommonLawtortofinducingabreachofcontractand,inAbouRahmahvAbacha,
RixLJevencalledtheequitableactionanequitabletort.60 TheCommonLawdoesnotrequiredishonesty,only
intentionorknowledge.
LordMillettdevelopedthisthemeinTwinsectra:61
Itwouldbemostundesirableifweweretointroduceadistinctionbetweentheequitableclaimandthetort,
therebyinducingtheclaimanttoattempttospellacontractualobligationoutofafiduciaryrelationshipinorder
toavoidtheneedtoestablishthatthedefendanthadadishoneststateofmind.Itwould,moreover,bestrange
ifequitymadeliabilitydependonsubjectivedishonestywheninacomparablesituationthecommonlawdid
not.Thiswouldbeareversalofthegeneralrulethatequitydemandshigherstandardsofbehaviourthanthe
commonlaw.
Ifweweretorejectsubjectivedishonestyasarequirementofcivilliabilityinthisbranchofthelaw,the
remainingquestionismerelyasemanticone.Shouldwereturntothetraditionaldescriptionoftheclaimas
knowingassistance,remindingourselvesthatnothinglessthanactualknowledgeissufficientorshouldwe
adoptLordNichollsdescriptionoftheclaimasdishonestassistance,remindingourselvesthatthetestisan
objectiveone?
Formyownpart,Ihavenodifficultyinequatingtheknowingmishandlingofmoneywithdishonestconduct.
Buttheintroductionofdishonestyisanunnecessarydistraction,andconducivetoerror.Manyjudgeswould
bereluctanttobrandaprofessionalmanasdishonestwherehewasunawarethathonestpeoplewould
considerhisconducttobeso.Iftheconditionofliabilityisintentionalwrongdoingandnotconscious
dishonestyasunderstoodinthecriminalcourts,Ithinkthatweshouldreturntothetraditionaldescriptionof
thisheadofequitableliabilityasarisingfromknowingassistance.
LordMillettbrandsdishonestyasanunnecessarydistractionandconducivetoerror.Onepotentialdistorting
featureofdishonestyisthegravityofthelabel.ThiswasalsoreferredtobyLordHutton:62 (p.896) itisveryserious
tocallaprofessional,suchasasolicitor,dishonest,andthecourtsmayshyawayfromthisincircumstances
whereknowingassistancewouldbesemanticallylessproblematic.
Dishonestyisnot,therefore,anentirelysatisfactorymentalelement,andLordMillett,atleast,wouldpreferareturn
toknowledge.However,dishonestydoesseemtorequiresomethingmorethanknowledge,sinceevenifanassister
knowsthattheiractionswillassistabreachoffiduciaryduty,theymightnotbeconsideredtobedishonestifthey
hadagoodreasonforthis.Butifthatisallthatdishonestyadds,thenitwouldbesimplerandmoretransparent
explicitlytorecognizeadefenceofjustification.Indeed,suchadefencewasperhapshintedatbyLordNichollsin
Tanwhenheacknowledgedthat:63
Unlessthereisaverygoodandcompellingreason,anhonestpersondoesnotparticipateinatransactionif
heknowsitinvolvesamisapplicationoftrustassetstothedetrimentofthebeneficiaries.
Thisapproachsuggeststhatapersonshouldbeliableasanaccessoryifheorsheknowsthathisorheractswill
induceorassistabreachoffiduciaryduty.Butthisisonlygenerallytrue:insomecases,suchactionswillbe
justifiedandnoliabilityshouldlie.64 ThisistheapproachthelawhasadoptedatCommonLaw,65 anditmaybethat
thisisanareawhereEquityandtheCommonLawcouldbefused.66
Inanyevent,itisnotablethatLordNichollsdidnotsubjectknowledgetorigorousexaminationasapotentialfault
elementinTan,incontrasttohisanalysisofotherpossibletestsoffault.Yet,sincedishonestycanonlybe
assessedinlightofwhatthedefendantknew,someexaminationofthisrequirementofknowledgeseems
necessary.
(ii)Whatlevelofknowledgemusttheaccessorypossess?
Thedefendantmustactuallyknowsomethingconcerningthewrongcommittedbythefiduciaryinordertobe
considereddishonest:suchknowledgeisrequiredtoestablishalackofprobity.However,itseemsthatNelsonian
knowledge,orturningablindeye,alsosuffices.Inadifferentcontext,LordScottstatedthat:67
Blindeyeknowledgeapproximatestoknowledge.animputationofblindeyeknowledgerequiresan
amalgamofsuspicionthatcertainfactsmayexistandadecisiontorefrainfromtakinganysteptoconfirm
theirexistence.
Thisshouldbemorethanjustavaguesuspicion,68 andmustbeactuallyheld:itisnotenoughthatareasonable
personwouldhavebeensuspiciousofwrongdoingbeinginvolved.Theinclusionofsuchblindeyeknowledgeis
appropriate:adefendantshouldnotbeabletoescapeliabilitybydeliberatelynotthinkingaboutfactsofwhichhe
waswellaware.
(p.897) (a)Contentofknowledge
Anaccessorymustknowthathisorheractswillassist,encourage,orinduceabreachoftrustorbreachoffiduciary
obligation.Buthowspecificdoestheaccessorysknowledgehavetoberegardingthatprimarybreachofduty?In
Brink sLtdvAbuSaleh,RimerJexpressedtheviewthatadefendantmustknowoftheexistenceofthefiduciary
relationship,orthefactsgivingrisetoit,beforeheorshecouldbemadeliableasanaccessory.69 Bycontrast,Lord
MillettinTwinsectrathoughtitsufficientthatthedefendantbeawarethatthesubjectmatterofthetrust,whichwas
atissueinthecase,isnotatthefreedisposaloftheprincipal.70 Itissuggestedthatadefendantneednotknow
theprecisenatureoftherelationshipbetweentheprimarywrongdoerandclaimantbeforebecomingliableasan
accessory.Forthisreason,theapproachofLordMillettistobepreferred,andthiswasadoptedbythePrivyCouncil
inBarlowClowes.
BarloweClowesInternationalLtdvEurotrustInternationalLtd[2005]UKPC37[2006]1
WLR1476[19][28](LordHoffmann)
TheirLordshipsnowaddressthegroundsuponwhichtheStaffofGovernmentDivisionallowedMr.
Henwoodsappeal.HavingsetouttheActingDeemstersfindingsatsomelength,theysaidthatshe
couldnothaveheldMr.Henwoodliableunlessshecouldfindthathehadsolidgroundsforsuspicion,
whichheconsciouslyignored,thatthedisposalsinwhichMr.Henwoodparticipatedinvolveddealings
withmisappropriatedtrustfunds.
TheirLordshipsthinkthat,onthefactsofthiscase,thiswasasubstantiallyaccuratewayofputtingthe
matter,althoughtheywillreturntothequestionofwhetherMr.Henwoodneededtohavehadany
knowledgeorsuspicionsabouttheprecisetermsonwhichthemisappropriatedmoneyswereheld.The
questionfortheStaffofGovernmentDivisionwasthereforewhethertherewasevidenceuponwhichthe
ActingDeemstercouldmakeherfindingthathehadthenecessarystateofmind.
[TheirLordshipsconsideredthattherewassuchevidence,andcontinued:]
TheappellatecourtthenwentontosaythatbecauseMr.Henwoodknewthegeneralnatureofthe
businessesofthemembersoftheBarlowClowesgroup,itwasnotanecessaryinferencethathewould
haveconcludedthatthedisposalswereofmoneysheldintrust.Thatwasbecausetherewasno
evidencethatMr.Henwoodknewanythingabout,forexample,theactualconductofthebusinessesof
membersoftheBarlowClowesgroup,thecontractualarrangementsmadewithinvestors,the
mechanismsformanagementoffundsunderthegroupscontrol,theinvestmentanddistributionpolicies
andthepreciseinvolvementofMr.Cramerinthegroupsaffairs.
TheirLordshipsconsiderthatthispassagedisplaystwoerrorsoflaw.First,itwasnotnecessarythat
Mr.Henwoodshouldhaveconcludedthatthedisposalswereofmoneysheldintrust.Itwassufficient
thatheshouldhaveentertainedaclearsuspicionthatthiswasthecase.Secondly,itisquiteunrealto
supposethatMr.Henwoodneededtoknowallthedetailstowhichthecourtreferredbeforehehad
groundstosuspectthatMr.ClowesandMr.Cramerweremisappropriatingtheirinvestorsmoney.The
moneyinBarlowCloweswaseitherheldontrustfortheinvestorsorelsebelongedtothecompanyand
wassubjecttofiduciarydutiesonthepartofthedirectors.Ineithercase,Mr.ClowesandMr.Cramer
couldnothavebeenentitledtomakefreewithitastheypleased.InBrink sLtdvAbuSaleh[1996]CLC
133,155RimerJexpressedtheopinionthatapersoncannotbeliablefordishonestassistanceina
breachoftrustunlessheknowsoftheexistenceofthetrustoratleastthefactsgivingrisetothetrust.
(p.898) ButtheirLordshipsdonotagree.Someonecanknow,andcancertainlysuspect,thatheis
assistinginamisappropriationofmoneywithoutknowingthatthemoneyisheldontrustorwhatatrust
means:seetheTwinsectracase[2002]2AC164,para19(LordHoffmann)andpara135(Lord
Millett).AnditwasnotnecessarytoknowthepreciseinvolvementofMr.Cramerinthegroupsaffairs
inordertosuspectthatneitherhenoranyoneelsehadtherighttouseBarlowClowesmoneyfor
speculativeinvestmentsoftheirown.
(d)Remedies
Afundamentalreasonwhyaclaimantmightbringaclaimagainstathirdpartyratherthanthewrongdoingfiduciaryis
thepossibilityofsubstantialredressfromtheaccessoryinsituationswherethefiduciarymaynotbeworthsuing.
Identifyingtheremediesavailableisthereforeofcrucialimportance.Butthelawinthisareaisdifficult.Thisispartly
duetotheassisterbeingconsideredtobeliableasaconstructivetrusteeyetsincetheassistermaynothaveany
propertyatalltoholdontrust,thisuseoflanguageisinappropriateandmisleading.71 However,itisdifficulttoknow
exactlyhowtheassistersliabilityshouldbeexpressed,andsomeconfusionexistsbecausethenatureofthethird
partysliabilityisunclear.
Arangeofdifferentscenariosmightarise,themostimportantbeingthefollowingfour:
i)Theclaimantsuffersloss,butneitherthefiduciarynortheaccessorymakesanyprofit.Neitherthefiduciary
northeaccessoryhasanydefencetotheclaim.
ii)Asini),butthefiduciaryisabletopointtoanexemptionclauseintheinstrumentcreatingthe
relationship.72
iii)Theclaimantsuffersnoloss,andonlythefiduciary,butnottheaccessory,makesasubstantialprofitfrom
thebreachofduty.
iv)Theclaimantsuffersnoloss,andonlytheaccessory,butnotthefiduciary,makesasubstantialprofit.
Insomeofthesesituationsitmightseemunsatisfactorytoawardexactlythesameremedyagainstboththe
accessoryandthewrongdoingfiduciary.Nevertheless,theargumentthataccessoryliabilityduplicatestheliabilityof
thefiduciaryhasgainedstrongsupport.Perhapsoneoftheconsequencesoflabellingtheaccessoryaconstructive
trusteewasthatitsuggestedthattheaccessorywasliableasifhewereatrusteeandtothesameextent.Thisis
sometimesthoughttobeconsistentwithconsideringaccessoryliabilitytobesecondaryinnature.Suchlanguage
issometimesusedjudicially,73 butdoesitaffecttheavailableremedies?ElliottandMitchellhavearguedthatit
does.
ElliottandMitchell,RemediesforDishonestAssistance(2004)67MLR16,1617
adishonestassistantiscommonlyfixedwithjointandseveralliabilitywiththefiduciarywhose
misconducthehasassisted.Weshallexplainthatthereasonforthisisthatliabilityfordishonest
assistanceisacivilsecondaryliability,analogoustothecriminalsecondaryliabilityofthosewhoassist
inthecommissionofacrime.Weshallarguethatthischaracterizationofliabilityfordishonest
assistanceissignificantforseveralreasons:itexplainswhyadishonestassistantmightbeliableto
compensateaclaimanteventhoughhisactionshavenotcausedtheclaimantaloss74 itexplainswhya
dishonest(p.899) assistantmightbeliabletopayaclaimanttheamountofgainsrealizedbythe
wrongdoingfiduciaryeventhoughthedishonestassistanthasnotsharedintheseitexplainswhy
dishonestassistantsaresaidtobeaccountableinequityasthoughtheyweretrusteesanditexplains
whytheprincipalliabilitiesincurredbydishonestassistantsduplicatetheliabilitiesofthefiduciaries
whosebreachesofdutytheyhaveassistedinotherwords,itexplainswhyadishonestassistantis
commonlyorderedtopayanamountthatiscalculatedbyquantifyingtheliabilityofthewrongdoing
fiduciary.
ElliottandMitchellviewtheduplicativeapproachasbeingconsistentwithhowsecondaryliabilityhasdevelopedin
criminallaw.Buteveninthecriminallaw,liabilityisnotnecessarilyduplicative:theaccessorymayreceiveamore
severeormorelenientsentencethantheprincipal.75 Nevertheless,insituation(i),whichisperhapsthemost
commonscenario,itdoesnotseeminappropriatefortheassistertobeliabletocompensatetheclaimantinthe
samemannerasthewrongdoingfiduciary.Giventhattheassisterisculpableandhascontributedtotheloss,
whereastheclaimantisinnocent,itisunderstandablewhythelawshouldinsistthattheaccessoryshoulderthe
loss.Theaccessorymightthenseekcontributionfromthefiduciarytoreducehisorherliability.76
However,inthesubsequentscenariositisnotsoclearthatthefiduciarysliabilityshouldbereplicated.Indeed,
whenconsideringascenariosuchas(iii),ElliottandMitchellbaulkedatduplicativeliability:77
Holdingthedishonestassistantliabletoaccountforprofitsmadebyawrongdoingfiduciarymaycertainly
serveasapowerfuldisincentivetodeterthirdpartiesfrommeddlinginthefiduciaryrelationship,butitisopen
toquestionwhetheritisneededinadditiontothecompensatoryliabilitieswhichdishonestassistantsalso
owe.Ifnot,thenitbeginstolooklikeapunitivemeasure.
Apunitivemeasureisnotinevitablyappropriateinthecontextofaccessoryliability.Theremedyofanaccountof
profitsshouldbepersonaltothepartywhohasmadethoseprofitsapartywhohasnotactuallymadeanygainshas
nothingtodisgorge.
Thecasesseemtosuggestthataccessoryliabilityisnotinevitablyduplicative.Forexample,whenconsidering
scenario(iv),theaccessorydoeshavetogiveupanygainspersonallymade,evenifthefiduciarymadeno
comparablegains.InFyffesGroupLtdvTempleman,78 ToulsonJcitedwithapprovalthefollowingpassageofGibbs
JinConsulDevelopmentPtyLtdvDPCEstatesPtyLtd:79
Thestrictruleofequitythatforbidsapersoninafiduciarypositiontoprofitfromhispositionappearstobe
designedtodeterpersonsholdingsuchapositionfrombeingswayedbyinterestratherthanbyduty.Ifthe
maintenanceofaveryhighstandardofconductonthepartoffiduciariesisthepurposeoftheruleitwould
seemequallynecessarytodeterotherpersonsfromknowinglyassistingthoseinafiduciarypositionto
violatetheirduties.If,ontheotherhand,theruleistobeexplainedsimplybecause(p.900) itwouldbe
contrarytoequitableprinciplestoallowapersontoretainabenefitthathehadgainedfromabreachofhis
fiduciaryduty,itwouldappearequallyinequitablethatonewhoknowinglytookpartinthebreachshould
retainabenefitthatresultedtherefrom.Ithereforeconclude,onprinciple,thatapersonwhoknowingly
participatesinabreachoffiduciarydutyisliabletoaccounttothepersontowhomthedutywasowedforany
benefithehasreceivedasaresultofsuchparticipation.
Thus,inscenarios(iii)and(iv)theliabilityofthefiduciaryandaccessorymaylegitimatelydiffer.Thisisasensible
resultofapartyonlybeingabletoaccountforprofitsheorshehasactuallymade.InUltraframeLtdvFielding,
LewisonJstated:80
Icanseethatitmakessenseforadishonestassistanttobejointlyandseverallyliableforanylosswhichthe
beneficiarysuffersasaresultofabreachoftrust.Icanseealsothatitmakessenseforadishonest
assistanttobeliabletodisgorgeanyprofitwhichhehimselfhasmadeasaresultofassistinginthebreach.
However,Icannottakethenextsteptotheconclusionthatadishonestassistantisalsoliabletopaytothe
beneficiaryanamountequaltoaprofitwhichhedidnotmakeandwhichhasproducednocorrespondingloss
tothebeneficiary.AsJamesLJpointedoutinVysev.Foster(1872)LR8ChApp309:
ThisCourtisnotaCourtofpenaljurisdiction.Itcompelsrestitutionofpropertyunconscientiously
withhelditgivesfullcompensationforanylossordamagethroughfailureofsomeequitabledutybutit
hasnopowerofpunishinganyone.Infact,itisnotbywayofpunishmentthattheCourtevercharges
atrusteewithmorethanheactuallyreceived,oroughttohavereceived,andtheappropriateinterest
thereon.ItissimplyonthegroundthattheCourtfindsthatheactuallymademore,constituting
moneysinhishandshadandreceivedtotheuseofthecestuiquetrust.
Thisapproachwouldleadtojointandseveralliabilityinscenario(i).Yeteventhismaynotbeappropriateifthe
accessoryisthoughttobeliableforhisorherownwrong.Iftheaccessorybearsprimaryliabilityforhisorherown
wrong,thenitwouldbemoreaccuratetosaythatboththefiduciaryandaccessoryareliabletocompensatethe
claimantforhisorherloss,andthatthefiduciaryandaccessorycansueeachotherincontribution.Generally,this
willleadtothesameresultandhavelittleimpactuponclaimants.Butthereclearlyneedstobealinkbetweenthe
assistanceandthelosssuffered,andtheaccessorymaynothavecontributedtoallthelossesinflictedbya
wrongdoingfiduciary.
Ridgehasarguedthat:81
dishonestassistanceisbestseenasaprimaryliabilitybasedupon[theaccessory]Dsexploitationof[the
claimant]CsvulnerabilityThenatureofDswrongdoingisdistinctfromthatof[thefiduciary]whobreaches
anobligationofloyalty.Therationalefordishonestassistanceliabilityhasbothpragmaticandprincipled
featuresthesesupporttheavailabilityofgainbasedremediesaswellaslossbasedremedies.
Suchprimaryliabilityisnotentirelyfreestanding,however,andisderivativeandparasitictothebreachoffiduciary
duty.Itmaybepreferabletoviewaccessoryliabilityasstraddlingprimaryandsecondary(p.901) liability.82 But
ultimatelythequestionofwhethertheaccessorysliabilityshouldbeclassedasprimaryorsecondaryisless
importantthantheconsequencesthatflowfromliability.Thegainbasedremedyshouldnotbeduplicativeandcan
standalone.Inscenario(i),bothpartiesareliableforthelosssufferedbytheclaimantfromthebreachinwhichthe
accessoryparticipated.
Butwhatshouldhappeninscenario(ii),wherethefiduciaryhasthebenefitofanexemptionclause?Thisisadifficult
question,andthereisnoclearanswer.Theweightofopinionseemstobethattheaccessorysliabilityisprimary,
andthattheprotectionaffordedbyanexclusionclauseispersonaltothefiduciaryanddoesnotextendtoprotect
thirdparties.Thisargumentseemstobestrengthenedbythefactthatthedefendantmeritslittlesympathyifheor
sheisdishonest.83 However,toallowtheclaimanttorecoverallhisorherlossesagainstathirdpartywhenheor
shewouldnothavebeenabletodosoagainstthefiduciarymightseemgenerous:theparticipationofthethirdparty
fortuitouslyimprovestheclaimantsposition.84 Theclaimantmighthavelimitedhisorherexpectationsinallevents
byagreeingtotheexemptionclause.Indeed,theunsatisfactorylanguageofconstructivetrusteemightatleasthave
signifiedthattheaccessorywasliableasifheorshewerethetrustee,perhapswiththebenefitoftheexemption
clause.Forexample,whenconsideringlimitationinReLandsAllotmentCo.,WrightJstated:85
Ifthey[accessories]aretreatedastrusteesmerelyonthegroundthat,althoughtheyarenottrustees,they
oughttobetreatedlikethem,itseemstofollowthattheyoughttobeentitledtoatleastthesameprotection,
inthematteroflimitation,asrealtrustees.
Conclusion
Thelawregardingtheremediesavailableagainstdishonestassistersisdifficult.Itisimportanttorememberthat
accessoriesareliablefortheirownactions.Althoughanaccessorysobligationtocompensateclaimantsforloss
sufferedgenerallycorrespondswiththatofthewrongdoingfiduciary,gainbasedremediesstripaparticularpersonof
profitsheorshehasactuallymade,soarepersonaltothepartywhomadethegainthismightbethefiduciary,the
accessory,orbothofthem.Viewingaccessoriesasliablefortheirindependentactsmaymeanthattheyshouldbe
unabletotakeadvantageofanexemptionclauseinthesamemannerasthewrongdoingfiduciary.
3.UnconscionableReceipt
LiabilityinEquityforreceiving,butnotnecessarilyretaining,propertyinbreachoftrustorfiduciarydutyisalso
consideredtobewrongbased:therecipientmustbeatfaultbeforeliabilitywillbeimposed.However,thisisinitself
controversial,thesuggestionthatliabilityshouldbestrict,inaccordancewiththeapproachatCommonLaw,has
gainedinfluentialsupportandwillbeexaminedfurther.86
(p.902) Theclassificationofrecipientliabilityisnotaltogetherstraightforward.Giventhenecessityoffault,some
haveconsideredunconscionablereceipttobeanotherexampleofaccessoryliability,whichisparasiticuponthe
primarybreachoffiduciaryduty.87 ButasLordNichollsinsistedinTan:88
Differentconsiderationsapplytothetwoheadsofliability.Recipientliabilityisrestitutionbased,accessory
liabilityisnot.
Sheehanhasarguedthatreceiptandassistancemustbedisentangled,andthatonlythelattersanctions
participationinawrongcommittedbyanother.
Sheehan,DisentanglingEquitablePersonalRemediesforReceiptandAssistance(2008)
RLR41,58
Knowingreceipt,however,isadifferenttypeofwrongfromdishonestassistance.Itappearstobea
hybrid,possiblyuniqueinbeingparasitic,butnonparticipatoryinanysense.Thishascausedtrouble.
Somecommentatorsfavoursuggestingthatitistheanalogueofconversion,andsomesuggest
mergerwithassistance.Thelattercommentatorsdonotappreciatethedifferencebetweenaparasitic
andaparticipatorywrongandtheformerdonotappreciatetheimportanceoftheparasitism.
Itseemssensibletodifferentiatebetweenrecipientandassistanceliability.Theelementsnecessaryforeachare
different,andmerelyreceivingpropertyisnotasactivearoleinthefiduciarysbreachasdeliberateassistance.
Indeed,inAgip(Africa)LtdvJack son,MillettJsaidthatknowingreceiptisconcernedwithrightsofpriorityin
relationtoproperty.89 Thisproprietarybasisofareceiptbasedclaimdistinguishesitfromassistancebasedliability.
ConaglenandGoymourhavewrittenthat:90
Thesourceoftheclaiminknowingreceiptisreceiptofpropertythatdoesnotbelongbeneficiallytothe
recipientandthewrongliesintreatingpropertythatheknowsisnotbeneficiallyhisownasifitwere,
whetherbydissipatingitorotherwiseputtingitbeyondthereachofthosetowhomitbelongsbeneficially.
Althoughunconscionablereceiptanddishonestassistanceshouldbeconsideredseparately,itshouldbe
appreciatedthatbothclaimsmightariseonthesamesetoffacts:apartywhoassiststhebreachoffiduciaryduty
mightthenreceivethemisappliedproperty.Aclaimantmaywellbeabletosuethesamethirdpartyforboth
dishonestassistanceandunconscionablereceipt.91
Inordertoestablishreceiptbasedliabilitytheclaimantmustestablish:
i)aproprietarybase
ii)abreachoftrustorfiduciaryduty
(p.903) iii)beneficialreceiptoftheproperty
iv)fault.
Theseelementswillbeconsideredinturn.
(a)ProprietaryBase
Theclaimantshouldhaveanequitableproprietaryinterestinthepropertyreceivedinordertohaveanyclaiminthe
firstplace.Inordertoestablishsuchaproprietarybase,thecriteriaoutlinedintheChapter18arerelevant.92 The
claimantmustbeabletofollowortracehisorherinterestintothehandsoftherecipientinthesamewayaswas
analysedinChapter18,93 butwearehereconsideringthepersonalclaimagainsttherecipienthimorherself,rather
thantheproprietaryclaimagainsttheasset.
(b)BreachofTrustorFiduciaryDuty
Thepropertymusthavebeenmisappliedinbreachofduty.Ifthepropertywaslawfullysoldtothethirdparty,the
claimantsinterestinthepropertywillhavebeenoverreachedandheorshewillhavenofurtherclaim,eitherpersonal
orproprietary.94 However,theclaimantwillbeabletofollowthepropertyoritstraceableproductpursuanttoany
breachoftrust:thereisnoneedtoestablishafraudulentbreachofduty.
Clearly,thevastmajorityofcasesinthecontextofunconscionablereceiptwillconcernabreachoftrust,butitis
equallypossiblethatclaimantscansueinunconscionablereceiptwheretheywerenotthebeneficiariesundera
trustbutprincipalsinafiduciaryrelationship.Forexample,acompanydirectormaytransferthecompanysproperty
toadefendantinbreachofduty.Thecompanymightbeabletosuetherecipientforunconscionablereceipteven
95
thoughthedirectorwasnotatrustee.95 Itisunclearwhetherthedutybreachedbythedirectormusthavebeena
fiduciaryduty,oranyduty.96 Itmaybepreferabletorequirethatthedutybreachedbefiduciary,asthiswould
restrictthepotentialimpactofabreachuponthirdpartyrecipients.However,giventhattherecipientmustbeat
fault,97 itisperhapsartificialtorestrictaclaimtobreachesoffiduciarydutyalone.98
Sometimestheissueofwhetherornottherehasactuallybeenabreachhasbeenobscuredwithunfortunateresults.
InCriterionPropertiesplcvStratfordUKPropertiesLLC,99 theclaimant,CriterionPropertiesplc,anddefendant,
Oaktree,formedalimitedpartnership.Fearingthattheclaimantmightbetakenoverbyanothercompany,the
managingdirectorandanotherdirectoroftheclaimantsignedasocalledpoisonpillagreementwiththedefendant.
Thisgavethedefendanttherighttohaveitsinterestinthepartnershipboughtoutonfavourabletermsifanother
companygainedcontroloftheclaimantorifthechairmanormanagingdirectorceasedtobeinvolvedinits
management.Themanagingdirectorwasdismissedandthedefendantsoughttoexerciseitsoptiontobebought
out.Theissuewaswhetherthepoisonpillagreementwasvalid.IntheHouseofLords,LordNichollssaid:100
(p.904) Unfortunately,inthecourtsbelowthiswantofauthorityissuewasapproachedonthebasisthatthe
outcometurnedonwhetherOaktreesconductwasunconscionable.Thisseemstohavebeenthetestapplied
bytheCourtofAppealinBank ofCreditandCommerceInternational(Overseas)LtdvAk indele[2001]Ch
437101 bothtoquestionsofwantofauthorityandtoliabilityforwhattraditionallyhasbeenlabelledknowing
receipt.
IrespectfullyconsidertheCourtofAppealinAkindelescasefellintoerroronthispoint.Ifacompany(A)
entersintoanagreementwithBunderwhichBacquiresbenefitsfromA,Asabilitytorecoverthesebenefits
fromBdependsessentiallyonwhethertheagreementisbindingonA.IfthedirectorsofAwereactingforan
improperpurposewhentheyenteredintotheagreement,Asabilitytohavetheagreementsetasidedepends
upontheapplicationoffamiliarprinciplesofagencyandcompanylaw.If,applyingtheseprinciples,the
agreementisfoundtobevalidandisthereforenotsetaside,questionsofknowingreceiptbyBdonotarise.
SofarasBisconcernedtherecanbenoquestionofAsassetshavingbeenmisapplied.Bacquiredthe
assetsfromA,thelegalandbeneficialowneroftheassets,underavalidagreementmadebetweenhimand
A.
(c)BeneficialReceipt
Adefendantcanonlybeliableforunconscionablereceiptifheorshereceivesthepropertybeneficially,forhisorher
ownbenefit.Thusapartywhoreceivespropertyasanagentcannotbesuedforhisorherreceipt,sinceheorshe
onlyholdsthepropertyministerially,forthebenefitofanother.
InAgipAfricaLtdvJack son,MillettJsaid:102
Theessentialfeatureisthattherecipientmusthavereceivedthepropertyforhisownuseandbenefit.That
iswhyneitherthepayingnorthecollectingbankcannormallybebroughtwithinit.Inpayingorcollecting
moneyforacustomerthebankactsonlyashisagent.Itisotherwise,however,ifthecollectingbankuses
themoneytoreduceordischargethecustomersoverdraft.Indoingsoitreceivesthemoneyforitsown
benefit.
However,thisraisestwosignificantissues.First,whyisbeneficialreceiptrequired?And,secondly,whyarebanks
notconsideredtoreceivepropertybeneficially?
Intuitively,itmightseemobviousthatadefendantshouldnotbesuedinunconscionablereceiptifheorshederives
nopersonalbenefitfromthepropertyreceived.Afterall,thisclaimisnotagainstthepropertyitself,buttherecipient.
Butwhyshouldtherecipientnecessarilybeimmuneifheorsheholdsthepropertyforthebenefitofanother?Ifthe
recipienthasactedunconscionably,thenperhapshisorherculpabilityshouldleadtoliabilityevenifhewerenotthe
beneficialowneroftheproperty.Ifmadeliable,therecipientmightthenbeaffordedadefencetoanyclaimbrought
bythepersonforwhomthepropertywasreceived:thelattershouldnotbeinabetterpositionwheretheproperty
wasreceivedunconscionably.Hiebendaalhasarguedthat:103
Itwouldbeartificialtotreattheagentasnothavingreceivedpropertywhentheagenthasreceivedtitletothe
property.Whilethelawdoespermitfictions,itshouldonlydosowhereisaprincipledbasisforthefiction.
Thereisnoobviousandsufficientreasoninprinciplewhyequitywouldnotintervenewhentheagents
conscienceisaffected.
(p.905) receiptissimplyafactualquestion,anddoesnotinherentlydependonwhatcontractual(orother)
obligationstherecipienthas.therequirementforbeneficialreceiptisinapt.
Thisapproachwouldplacegreateronusonthefaultelement.Thismaywellseemappropriateatpresent,butmight
buckleifthestrainexercisedbyargumentsinfavourofeliminatingfaultinthecontextofreceiptbasedclaimswere
toproveoverwhelming.104
Inanyevent,itisclearthatbeneficialreceiptisstillanecessaryelementofunconscionablereceipt.InAttorney
GeneralofZambiavMeerCare&Desai,PeterSmithJinsistedthat:105
Intermediarieswhopassonpropertyhaveneverbeenliableforknowingreceipt.
Therequirementforbeneficialreceiptisverywellestablished.However,itisimportanttonotethatevenifaparty
doesnotreceivebeneficiallyandthereforecannotbeliableforunconscionablereceipt,thatthirdpartymightbeliable
indishonestassistance.
ThesecondissueraisedbyMillettJinAgip(Africa)LtdvJack sonconcernsbanksreceiptofmoney.HisLordship
suggestedthatsincebanksreceivemoneyforthebenefitoftheircustomers,theydonotreceivepropertybeneficially
butonlyministerially.Seeminglytheonlyexceptiontothisanalysisiswherethebankreceivesmoneythatisused
topayaclientsoverdraft,asthenthemoneyclearlydoesgotothebankbeneficiallybecausethebankdoesnot
havetoaccountforthemoneytoanyoneelse.Butthisapproachseemsundulynarrow.Banksdonotgenerallyhold
moneyministeriallyforclientstherelationshipbetweenaclientandbankisthatofcreditordebtor,nottrustee
beneficiary.Bankscananddoinvestthemoneytheyhaveastheirown,andinparallelacceptthatthereisaliability
topaytheclientthemoneyowedupondemand.
Gleeson,TheInvoluntaryLaunderer:TheBankersLiabilityforDepositsoftheProceedsof
Crime,inLaunderingandTracing(ed.Birks)(Oxford:ClarendonPress,1995),pp.1267
ThelocusclassicusoftherelationshipbetweenbankerandcustomerisFoleyvHill,whereLord
CottenhamsaidthatMoney,whenpaidintoabank,casesaltogethertobethemoneyoftheprincipalit
isthenthemoneyofthebankertodoashepleases.106
Tosaythatabankreceivesmerelyasministeristomisunderstandfundamentallythenatureofbanking.
Abankdoesnotmerelyholdmoneyspaidintoanaccountwithit.Ittakesthosemoneysanddealswith
theminthecapitalmarkets,lendingthematinterestorpurchasinginvestments,andtakescreditforthe
profitmadeonthoseinvestmentsforitself.Thereisnolegalconnectionbetweenthemoneyofthe
depositorandtheprofitmadebythebankthroughitsuse.Nowunderthesecircumstances,tospeakof
thebankholdingthesemoneysmerelyasministerisnonsense.
(p.906) ThequalmsofGleesoninthisextracthavebeenvoicedjudicially.Indeed,intheHouseofLordsinFosk ett

vMcKeown,LordMilletthimselfseemedtodifferfromhisearlierstanceinAgipwhenhesaid:107
Moneypaidintoabankaccountbelongslegallyandbeneficiallytothebankandnottotheaccountholder.
Itmaybethattheapproachofthecourtsinthisareaisevolving.InUzinterimpexJSCvStandardBank plc,Moore
BickLJsaid:108
apersonwhoreceivespropertymerelyasanagenthasnointerestofanykindinithimselfandmustsimply
accounttohisprincipalforit.Receiptbyhimistheequivalentofreceiptbytheprincipal.Whenaperson
opensacurrentaccountatabankheauthorisesthebanktoreceivepaymentsfromthirdpartiesonhisbehalf
andthereforepaymentbyathirdpartytothecustomersaccountatthebankispaymenttothecustomer.
However,ithaslongbeenestablishedthattherelationshipbetweenbankerandcustomerisoneofcreditor
anddebtor:seeFoleyvHill(1848)11H.L.C.28.Thecustomerwhoseaccountisincreditlendsthemoneyto
thebankforusebyitinitsbusiness.ThedistinctiondrawninAgipvJack sonbetweenreceiptbyabankinto
anaccountthatisincreditandreceiptintoanaccountthatisoverdrawnhasbeencriticisedonthegrounds
thatthenatureoftherelationshipbetweenbankerandcustomerissuchthatthebankalwayshasthebenefit
ofusingthecustomersmoneyforitsownpurposesuntilsuchtimeasitiscalledupontorepaythedebt:see
inparticularBryan,RecoveringMisdirectedMoneyfromBank s:MinisterialReceiptatLawandinEquity
publishedinRestitutionandBankingLaw(1998),ed.Rose.
InmyviewthereisagooddealofforceinDr.BryanscriticismofthedecisioninAgipvJack son,butitis
unnecessaryforthepurposesofthisappealtodecidewhetheritiswellfounded
ThesecommentsinUzinterimpexwereclearlyobiter.Butthetidemaybeshifting,andclaimsforunconscionable
receiptagainstbanksmightsoonbeupheldmoregenerally.Thismightleadtobankshavingtodefendagreater
numberofreceiptbasedclaims.Suchadevelopmentmaybecriticizedasplacingadrainonthebankstimeand
resources,butitshouldbeemphasizedthatabankwillonlybeliableifithasactedunconscionably.Thefault
elementiswellplacedtorestrictthescopeofliability.
Althoughthefocustendstobeuponthereceiptofbanks,itisworthemphasizingthatthisproblemofreceiptcan
arisemoregenerally.Forexample,inTrustorvABSmallbone(No.2),109 theCourthadtoconsiderthenatureofa
companysreceivingproperty.Generally,acompanysreceiptwould,byitself,onlyleadtothecompanybeingsued
forreceipt,giventhecompanysseparatelegalpersonality.Butwherethecompanyhasbeenexploitedtoconceal
anotherpersonsownreceipt,thecorporateveilmightbepierced.SirAndrewMorrittVCremarkedthat:110
receiptbyasubsidiarycompanywillnotcountasareceiptbytheparentifthesubsidiaryisactinginitsown
right,notasagentornominee,atanyrateintheabsenceofawantofprobityordishonesty.
Inmyjudgmentthecourtisentitledtopiercethecorporateveilandrecognisethereceiptofthecompanyas
thatoftheindividual(s)incontrolofitifthecompanywasusedasadeviceorfaadetoconcealthetruefacts
therebyavoidingorconcealinganyliabilityofthoseindividual(s).
(p.907) Onedifficultissueconcernsthereceiptofregisteredlandwhichwastransferredinbreachoftrust.For
example,apurchasermaypayvaluableconsiderationtoacquirearegisteredestate.Ifthelandwaspreviouslyheld
bythevendorontrust,andthesaleofthelandwasinbreachoftrust,shouldthebeneficiariesbeabletosuethe
purchaserforareceiptbasedclaimifthepurchaserhadtherequisitedegreeofknowledge?Thisisparticularly
importantsincethebeneficiarieswillnolongerhaveaproprietaryclaimtothelanditself:theirbeneficialinterestswill
havebeenoverreached.111 However,thepersonal,receiptbasedclaimalsodependsuponthebeneficiariesbeing
abletoidentifyaproprietaryinterestinthepropertyreceivedbythedefendantthebetterview112 appearstobethat
section29oftheLandRegistrationAct2002willpreventclaimsagainstthepurchaserinunconscionablereceipt,
sincethatsectionensuresthatoncetitletothelandhasbeenregistered,thepurchasertakesfreeofthe
beneficiariesunregisteredinterestunderthetrust.113 Sucharesulthelpstofurthertheprotectionoftheintegrityof
theLandRegister,suchthatpurchasersdonothavetoworryaboutpersonalclaimsfrombeneficiariesiftheyprovide
valuableconsiderationforthetransfer.ThisisalsoconsistentwiththeapproachoftheHighCourtofAustraliatothe
AustralianlegislationinFarahConstructionsPtyLtdvSayDeePtyLtd.114 However,inArthurvAttorneyGeneralof
theTurk sandCaicosIslands,115 thePrivyCouncilheldthatthelegislationintheTurksandCaicosIslandsdidallow
apersonalclaiminunconscionablereceipttobebroughtagainstapurchaserofregisteredtitle.ButthePrivyCouncil
recognizedthatspecialcareshouldbetakenwhenconsideringtherelevanceandusefulnessofjudgmentsbased
116
onotherjurisdictions.116 Itissuggestedthatthesameapproachshouldnotbeadoptedinthisjurisdiction.
(d)Fault
ItiswellestablishedthatrecipientswillonlybeliableinEquityiftheyareatfault.Indeed,thefaultelementiscrucial
tolimitingthescopeofreceiptbasedliability.However,itscontentiscontroversial.Previously,thecauseofaction
wascalledknowingreceipt,andthefocuswasupontherecipientsknowledgecasesdifferedbetweenan
objective117 andsubjective118 testoffault.
WehavealreadyseenthatLordNichollsinTansaidthattheBadenscaleofknowledgewasbestforgotten,119 and
itwasalwaysunlikelythatthesecommentswouldbelimitedtoassistanceandnotaffectreceiptbasedclaims.That
thecourtshavegenerallyfeltunabletocontinuetoapplyafaultelementofknowledgeinthefaceofsuchstrong
criticismsisthereforeunsurprising.Yetadividebetweenclaimsbaseduponreceiptandassistanceremains:despite
LordNichollsspeechinTan,thecourtshavefavouredunconscionabilityratherthandishonestyasthefaultelement
forrecipientliability.
(p.908) BankofCreditandCommerceInternational(Overseas)LtdvAkindele[2001]Ch437(CA)
Employeesofacompany,actinginfraudulentbreachoftheirfiduciaryduties,procuredthecompanysentryintoan
artificialloanagreementwiththedefendant,pursuanttowhichthedefendantpaidUS$10milliontothecompanyin
exchangefor250,000sharesinitsholdingcompany,onthebasisthatthecompanywouldarrangeforthesharesto
besoldatapricewhichgavethedefendanta15percentannualreturnonhisinvestment.Thepurposeofthis
schemewastomakeitappearthatthecorporategrouphadmoremoneythanwasinfactthecase.Inpursuanceof
thisagreement,thedefendantreceivedUS$16.679millionfromthecompany.Theclaimants,whowereliquidatorsof
thecompany,claimedthatthedefendantwasliabletoaccountforthissumbecausehehadreceivedthemoney
knowingofthebreachoffiduciaryduty.120
TheCourtofAppealheldthattobeliableforareceiptbasedclaimitwasnotnecessarytoshowthatthedefendant
hadacteddishonestly.Itwassufficientthatthedefendantsknowledgeoftheprovenanceofthefundswhichhehad
receivedmadeitunconscionableforhimtoretainthebenefitofthereceipt.Inthiscasetherewasinsufficient
evidencetoconcludethatthedefendantsknowledgewassuchthatitwasunconscionableforhimtoretainthe
benefitofthemoneyhehadreceivedandsothedefendantwasheldnotliable.
NourseLJ:
therearetwoquestionswhich,thoughcloselyrelated,aredistinct:first,what,inthiscontext,ismeantby
knowledgesecond,isitnecessaryfortherecipienttoactdishonestly?Becausetheanswertoitisthe
simpler,theconvenientcourseistodealwiththesecondofthosequestionsfirst.
Knowingreceiptdishonesty
Asappearsfromthepenultimatesentenceofhisjudgment,CarnwathJ[inthecourtbelow]proceededonan
assumptionthatdishonestyinoneformoranotherwastheessentialfoundationoftheclaimantscase,
whetherinknowingassistanceorknowingreceipt.Thatwasnodoubtcausedbytheacceptancebeforehim
(thoughnotatanyhigherlevel)thatthethrustoftherecentauthoritiesatfirstinstancewasthatthe
recipientsstateofknowledgemustfallintooneofthefirstthreecategorieslistedbyPeterGibsonJinBaden
vSocitGnralepourFavoriserleDveloppementduCommerceetdelIndustrieenFranceSA[1993]1
WLR509at575576,onwhichbasis,saidCarnwathJ,itwasdoubtfulwhetherthetestdifferedmateriallyin
practicefromthatforknowingassistance.However,theassumptiononwhichthejudgeproceeded,derivedas
Ibelievefromanomissiontodistinguishbetweenthequestionsofknowledgeanddishonesty,wasincorrect
inlaw.Whileaknowingrecipientwilloftenbefoundtohaveacteddishonestly,ithasneverbeena
prerequisiteoftheliabilitythatheshould.
ThepointwasmademostclearlybyVinelottJinEagleTrustplcvSBCSecuritiesLtd[1993]1WLR484at
497:
WhatthedecisioninBelmont(No2)[1980]1AllER393showsisthatinaknowingreceiptcaseit
isonlynecessarytoshowthatthedefendantknewthatthemoneyspaidtohimweretrustmoneys
andofcircumstanceswhichmadethepaymentamisapplicationofthem.Unlikeaknowing
assistancecaseitisnotnecessary,andneverhasbeennecessary,toshowthatthedefendantwas
inanysenseaparticipatorinafraud.
(p.909) Knowingreceipttheauthoritiesonk nowledge
Withtheproliferationinthelasttwentyyearsorsoofcasesinwhichthemisappliedassetsofcompanies
havecomeintothehandsofthirdparties,therehasbeenasustainedjudicialandextrajudicialdebateasto
theknowledgeonthepartoftherecipientwhichisrequiredinordertofoundliabilityinknowingreceipt.
Expressedinitssimplestterms,thequestioniswhethertherecipientmusthaveactualknowledge(orthe
equivalent)thattheassetsreceivedaretraceabletoabreachoftrustorwhetherconstructiveknowledgeis
enough.Theinstinctiveapproachofmostequityjudges,especiallyinthiscourt,hasbeentoassumethat
constructiveknowledgeisenough.Butthereisnowaseriesofdecisionsofeminentfirstinstancejudges
who,afterconsideringthequestioningreaterdepth,havecometothecontraryconclusion,atalleventswhen
commercialtransactionsareinpoint.IntheCommonwealth,ontheotherhand,thepreponderanceof
authorityhasbeeninfavouroftheviewthatconstructiveknowledgeisenough.121
Collectively,thoseobservationsmightbethoughttoprovidestrongsupportfortheviewthatconstructive
knowledgeisenough.Butitmustatoncebesaidthatineachofthethreecasesinthiscourt(including,
despitesomeapparentuncertaintyinthejudgmentofGoffLJinBelmontFinanceCorpnLtdvWilliams
FurnitureLtd(No2)[1980]1AllER393at412)actualknowledgewasfoundand,further,thatthedecisionsin
Karak RubberCoLtdvBurden(No2)[1972]1WLR602andAgip(Africa)LtdvJack son[1990]Ch265were
basedonknowingassistance,notknowingreceipt.Thusinnoneofthefivecases 122 wasitnecessaryforthe
questiontobeexaminedinanydepthandthereappearstobenocaseinwhichsuchanexaminationhas
beenconductedinthiscourt.Thegroundworkhasbeendoneinothercasesatfirstinstance..
Theseminaljudgment,characteristicallypenetrativeinitstreatmentofauthorityand,inthebestsense,
argumentative,isthatofSirRobertMegarryVCinReMontagusSettlementTrusts[1987]Ch264.Itwas
hewhofirstplumbedthedistinctionbetweennoticeandknowledge.Itwashewho,buildingonapassagein
thejudgmentofthiscourtinReDiplock [1948]Ch465at478479firstemphasisedthefundamental
differencebetweenthequestionswhichariseinrespectofthedoctrineofpurchaserwithoutnoticeontheone
handandthedoctrineofconstructivetrustsontheother.Readingfromhisearlierjudgmentinthesamecase,
hesaid[1987]Ch264at278:
Theformerisconcernedwiththequestionwhetherapersontakespropertysubjecttoorfreefrom
someequity.Thelatterisconcernedwithwhetherornotapersonistohaveimposeduponhimthe
personalburdensandobligationsoftrusteeship.Idonotseewhyoneofthetouchstonesfor
determiningtheburdensonpropertyshouldbethesameasthatfordecidingwhethertoimposea
personalobligationona[person].Thecoldcalculusofconstructiveandimputednoticedoesnotseem
tometobeanappropriateinstrumentfordecidingwhethera[persons]conscienceissufficiently
affectedforittoberighttobindhimbytheobligationsofaconstructivetrustee.
Headdedthatthereismoretobeingmadeatrusteethanmerelytakingpropertysubjecttoanequity.
(p.910) SirRobertMegarryVCsummarisedhisconclusionsineightsubparagraphs,at285.Ireadthe
firstthree:
(1)Theequitabledoctrineoftracingandtheimpositionofaconstructivetrustbyreasonoftheknowing
receiptoftrustpropertyaregovernedbydifferentrulesandmustbekeptdistinct.Tracingisprimarilya
meansofdeterminingtherightsofproperty,whereastheimpositionofaconstructivetrustcreates
personalobligationsthatgobeyondmerepropertyrights.
(2)Inconsideringwhetheraconstructivetrusthasariseninacaseoftheknowingreceiptoftrust
property,thebasicquestioniswhethertheconscienceoftherecipientissufficientlyaffectedtojustify
theimpositionofsuchatrust.
(3)Whetheraconstructivetrustarisesinsuchacaseprimarilydependsontheknowledgeofthe
recipient,andnotonnoticetohimandforclarityitisdesirabletousethewordknowledgeandavoid
thewordnoticeinsuchcases.
TheeffectofSirRobertMegarryVCsdecision,broadlystated,wasthat,inordertoestablishliabilityin
knowingreceipt,therecipientmusthaveactualknowledge(ortheequivalent)thattheassetsreceivedare
traceabletoabreachoftrustandthatconstructiveknowledgeisnotenough.
TheBadencase
ItwillhavebeenobservedthatuptothisstageIhavemadenomorethanapassingreferencetothefivefold
categorisationofknowledgeacceptedbyPeterGibsonJinBaden[see123
ReferencetothecategorisationhasbeenmadeinmostoftheknowingreceiptcasestowhichIhavereferred
fromReMontagusSettlementTrusts[1987]Ch264onwards.Inmanyofthemithasbeeninfluentialinthe
decision.Ingeneral,thefirstthreecategorieshavebeentakentoconstituteactualknowledge(orits
equivalent)andthelasttwoconstructiveknowledge.
TwoimportantpointsmustbemadeabouttheBadencategorisation.First,itappearstohavebeen
propoundedbycounselfortheplaintiffs,acceptedbycounselforthedefendantandthenputtothejudgeon
anagreedbasis.Secondly,thoughbothcounselacceptedthatallfivecategoriesofknowledgewererelevant
andneithersoughttosubmitthattherewasanydistinctionforthatpurposebetweenknowingreceiptand
knowingassistance(aviewwithwhichthejudgeexpressedhisagreement:see[1993]1WLR509at582),
theclaiminconstructivetrustwasbasedsquarelyonknowingassistanceandnotonknowingreceipt:seeat
572.Inthecircumstances,whatevermayhavebeenagreedbetweencounsel,itisnaturaltoassumethatthe
categorisationwasnotformulatedwithknowingreceiptprimarilyinmind.This,Ithink,maybeconfirmedby
thereferencestoanhonestandreasonablemanincategories(iv)and(v).Moreover,inAgip(Africa)Ltdv
Jack son[1990]Ch265at293,MillettJwarnedagainstoverrefinementoratooreadyassumptionthat
categories(iv)and(v)arenecessarilycasesofconstructiveknowledgeonly,reservationswhichwereshared
byKnoxJinCowandeGrootPropertiesLtdvEagleTrustplc[1992]4AllER700at761.
Knowingreceipttherecipientsstateofk nowledge
InRoyalBruneiAirlinesSdnBhdvTan[1995]2AC378,whichisnowtheleadingauthorityonknowing
assistance,LordNichollsofBirkenhead,indeliveringthejudgmentofthePrivyCouncil,said,at392,that
knowinglywasbetteravoidedasadefiningingredientoftheliability,andthatinthatcontexttheBaden
categorisationwasbestforgotten.Althoughmyownviewisthatthecategorisationisoftenhelpfulin
identifyingdifferentstatesofknowledgewhichmayormaynotresultinafindingofdishonestyforthe
purposesofknowingassistance,Ihavegravedoubtsaboutitsutilityincasesofknowingreceipt.Quiteapart
fromitsoriginsinacontextofknowingassistanceandthereservationsofKnoxandMillettJJ,any
categorisationisoflittlevalueunlessthepurposeitistoserveisadequatelydefined,whether(p.911) itbe
fivefold,asintheBadencase[1993]1WLR509,ortwofold,asintheclassicaldivisionbetweenactualand
constructiveknowledge,adivisionwhichhasitselfbecomeblurredinrecentauthorities.
Whatthen,inthecontextofknowingreceipt,isthepurposetobeservedbyacategorisationofknowledge?It
canonlybetoenablethecourttodeterminewhether,inthewordsofBuckleyLJinBelmontFinanceCorpn
LtdvWilliamsFurnitureLtd(No2)[1980]1AllER393at405,therecipientcanconscientiouslyretain[the]
fundsagainstthecompanyor,inthewordsofSirRobertMegarryVCinReMontagusSettlementTrusts
[1987]Ch264at273,[therecipients]conscienceissufficientlyaffectedforittoberighttobindhimbythe
obligationsofaconstructivetrustee.But,ifthatisthepurpose,thereisnoneedforcategorisation.Allthatis
necessaryisthattherecipientsstateofknowledgeshouldbesuchastomakeitunconscionableforhimto
retainthebenefitofthereceipt.
ForthesereasonsIhavecometotheviewthat,justasthereisnowasingletestofdishonestyforknowing
assistance,sooughttheretobeasingletestofknowledgeforknowingreceipt.Therecipientsstateof
knowledgemustbesuchastomakeitunconscionableforhimtoretainthebenefitofthereceipt.Atestin
thatform,thoughitcannot,anymorethananyother,avoiddifficultiesofapplication,oughttoavoidthoseof
definitionandallocationtowhichthepreviouscategorisationshaveled.Moreover,itshouldbetterenablethe
courtstogivecommonsensedecisionsinthecommercialcontextinwhichclaimsinknowingreceiptarenow
frequentlymade.
ThisjudgmentfromNourseLJhasbeenveryinfluential,andrecastthefaultelementasrequiringunconscionability.
TheextenttowhichtheapproachinAk indelediffersfromTanisrevealing.Forexample,NourseLJwasofthe
opinionthattheBadenscaleofknowledgecanstillbeausefultoolwhenassessingfault,incontrasttoLord
Nicholls.Ashasalreadybeenexplainedinthecontextofassistanceliability,itisimpossibletobrandsomebody
dishonestorunconscionablewithoutestablishingwhatthedefendantknew,and,althoughsomewhatcrude,the
Badencategoriesmightbeausefulaidtohelptoachievethis.
Morefundamentally,despiteabandoningknowledgeinasimilarveintoTan,NourseLJrejecteddishonestyand
favouredunconscionabilityasthefaultelement.ThisisincontrasttoTan.Itisworthrepeatingthefollowingpassage
fromTan:124
unconscionableisnotawordineverydayusebynonlawyers.Ifitistobeusedinthiscontext,andifitisto
bethetouchstoneforliabilityasanaccessory,itisessentialtobeclearonwhat,inthiscontext,
unconscionablemeans.Ifunconscionablemeansnomorethandishonesty,thendishonestyisthepreferable
label.Ifunconscionablemeanssomethingdifferent,itmustbesaidthatitisnotclearwhatthatsomething
differentis.
Clearly,NourseLJthoughtunconscionabilitymeantsomethingdifferentfromdishonesty,buthedidnotexplain
preciselywhatthatdifferenceis.Admittedly,unconscionabilityisamoretraditionalconceptinEquitythan
dishonesty,butitscontentmustbemadeclear.However,itshouldalsobenotedthatthereasoningofLord
NichollsinTanpersuadedsomejudgestoemployatestofdishonestyinreceiptbasedclaimsaswell,125 evenafter
Ak indele:forexample,inDubaiAluminiumCo.LtdvSalaamLordMillettstatedthatthe:126
caseinknowingreceipt,likethatindishonestassistance,wasfoundedontheallegationsofdishonesty,and
wasthusalsofaultbased.Dishonestreceiptcanbebasedonthedefendantsdishonesty.
(p.912) Nevertheless,referencestodishonestyinthiscontextarerare,andtheAk indeletestofunconscionability

hasestablisheditselfasthecurrentlaw.Forexample,inArthurvAttorneyGeneraloftheTurk sandCaicos
Islands,127 SirTerenceEtherton,givingtheadviceofthePrivyCouncil,saidthat:128
KnowingreceiptintheAkindelesenseis,as[counsel]accepted,notmerelyabsenceofnoticebut
unconscionableconductamountingtoequitablefraud.Itisaclassicexampleoflackofbonafides.
Butdifficultquestionsremain.Inparticular,isunconscionabilitytobeassessedsubjectivelyorobjectively?Itis
suggestedthatthethrustofNourseLJsapproachinAk indeletendstowardsasubjectivetest:129 therecipients
consciencemustactuallybeaffectedforaclaimtosucceed.Hisconsciencewillbetaintedwhereheorsheactually
knewof,orturnedablindeyeto,thewrongfulcircumstancesinwhichthepropertywasreceived.Itissuggestedthat
generalsuspicionisinsufficient,andthatthedefendantmustturnablindeyetoaparticularsuspicionabouta
particulartransaction.130
Bycontrast,Birksthoughtthatunconscionabilityshouldbeobjectivelyassessed:131
Theunconscionablepersonasidentifiedbyhereconomiccriteriaturnsouttobethepersonwhocould,inthe
circumstances,havereasonablybeenexpectedtodiscoverthetrustorfiduciaryprovenanceoftheassets
received.132
Atestofunconscionabilitymightbecriticizedastoovague.Itisaslipperyconcept,whichmaybemanipulatedby
judgestoreachadesiredresult.Thisdoeslittletofurtherlegalcertaintyorallowpartiestoplantheiraffairsand
predictwhetherornottheiractionswillleadtotheirbeingliable.
Unconscionablegivesnoguidance.Unconscionableindicatesunanalyzeddisapprobation,thus
embraceseverypositioninthecontroversy.133
Birksevendescribedunconscionabilityasafifthwheelonthecoach,andsoirrelevant,giventhatknowledgestill
needstobeassessed.
Againstthis,itmightbearguedthatadegreeofflexibilityallowscourtstoachievejusticeontheparticularfactsof
anygivencase.Andifunconscionabilitydependsuponsubjectiveknowledge,thentheabilityofpotential
defendantstopredicttheoutcomeofacaseimproves:adefendantwhodidnotknowofanywrongdoing,orhaveany
suspicions,willnotbeliable.TherequirementofunconscionabilitywasrobustlydefendedbytheCourtofAppealin
CriterionPropertiesplcvStratfordUKPropertiesLLC.134 However,theCourtdidnotunambiguouslyfavoura
subjectivetest.135
CriterionPropertiesplcvStratfordUKPropertiesLLC[2003]EWCACiv1783
(p.913)
[2003]1WLR2108,[31][38](CarnwathLJ)136
Thepurposeofthenewformulation[inAkindele]wastogivegreaterflexibilityfortheapplicationof
commonsenseincommercialsituations.
InconsideringtheapplicationinAk indeleofthedistinctionbetweendishonestyandunconscionability,
itisimportanttokeepinmindthefactualcontext,inparticularthatitwasacaseofactualfraudbythe
BCCIofficers.If,atthetimeoftheoriginaloffer,theChiefhadknownoftheunderlyingfraud,itwouldhave
beenclearlydishonestforhimtoenterintotheagreementhewouldhavebeenacoconspirator.If,on
theotherhand,havingenteredintotheagreementingoodfaith,andhavinglearntsubsequentlyofthe
fraud,hehadthensoughttoenforcetheagreement,hisconductwouldnotnecessarilyhavebeen
dishonest.Thereneedhavebeennothingunderhandaboutithewouldsimplyhavebeenseekingto
enforcehiscontract.However,itwouldhavebeencontrarytoconscienceforhimtodoso,atleastfor
morethanthereturnofhisinvestment,becausehewouldhavebeenseekingtotakeadvantageof
someoneelsesfraud.Onecannotnecessarilyapplythesameanalysistoasimplewantofauthority.A
thirdpartysrighttorelyontheapparentauthorityoftheagentisnotlost,merelybecause,aftercontract
andbeforeaction,hebecomesawareofthelackofauthority.Nor,intheabsenceoffraudorthelike,isit
necessarilyunconscionableforhimtoholdtheprincipaltoabadbargain.
Althoughthatdiscussionwaspresentedasoneofconstructiveasopposedtoactualknowledge,itis
clearthatNourseLJwasnotproposingarigiddivisionofanykind.
Idonotseehowonecanconsidertheconscionabilityoftheactionsofonepartytotheagreement
withoutconsideringthepositionoftheother.Itiswhollyartificial,inthecontextofthiscase,toconsider
theactionsandmotivationsofthedirectorsofOaktree,andtoignorethoseofthedirectorsofCriterion,
particularlyifitwasthey,throughtheChairmanMrNordstrm,whoweretheprincipalinstigatorsofthe
SSA.
TheCourtofAppeal137 suggestedthatunconscionabilitydependedonfactorssuchasthefaultofbothpartiesand
theactionsandknowledgeofthedefendantinthecontextofthecommercialrelationshipasawhole.Further
guidancemightbegleanedfromcasesonthedefenceofchangeofposition,138 whichisbarredwherethedefendant
hasactedunconscionably.Thisincludesafailuretoactinacommerciallyacceptableway,139 andwilfullyand
recklesslyfailingtomakesuchinquiriesasanhonestandreasonablepersonwouldmake,140 butnotnegligence.141
However,somecautionshouldbeexercisedaboutusingchangeofpositioncasesinthiscontext:whenbarringa
defence,unconscionabilityplaysadifferentrolethanthatrequiredwhengroundingaclaim.
(p.914) (i)Shouldreceiptbasedliabilitybestrict?
Decidingwhatshapereceiptbasedliabilityshouldtakeisfurthercomplicatedbythefactthatdisagreementsappear
notonlyregardingtheappropriatefaultelement,butalsoregardingwhetherthereshouldbeanyfaultelementatall.
Therearepowerfulcallsforstrictliabilitybaseduponadefendantsreceipt.
Astrictliabilityapproachwouldnotbewithoutprecedent.LookingacrosstotheCommonLaw,forexample,itis
wellestablishedthatwherethedefendanthasreceivedpropertybelongingtotheclaimant,butthedefendantno
longerretainsthatpropertyoritstraceableproceeds,theclaimantcanbringapersonalrestitutionaryclaimfor
moneyhadandreceived,whichdoesnotdependuponthedefendantsfaultatall.142 Thedefendantsliabilityis
strict.Consequently,thefactthatthedefendantwasunawareoftheclaimantsproprietaryrightsisirrelevant,save
wherethedefendantprovidedconsiderationforthepropertyandcanclaimadefenceofbonafidepurchase.The
defendantmayalsohaveadefenceofchangeofposition.Thisdefenceisavailablewherethedefendantsposition
haschangedinrelianceonthereceiptofthebenefitsuchthatitisinequitabletorequirehimorhertomake
restitutiontotheclaimant.143
IftheCommonLawclaimforrestitutionofthevalueoftheclaimantspropertyreceivedbythedefendantisastrict
liabilityclaim,whydoesthesimilarequitableclaimofunconscionablereceiptrequireproofoffault?Bothclaimsare
groundedonthedefendantsreceiptofpropertybelongingtotheclaimant.Infact,Equitydoesrecognizeonetypeof
strictliabilityrestitutionaryclaim.Thisiswherethedefendantmistakenlyreceivedpropertybelongingtoanotherin
theadministrationofanestate,asinMinistryofHealthvSimpson.144 Whyshouldsuchastrictliabilityclaimnotbe
availablemoregenerallyinEquitytomirrortheequivalentCommonLawclaim?
Whatfollowsinthissectionconcernssuggestionsforhowthelawmightdevelopregardingstrictliability.Itmustbe
rememberedthattheauthoritiesclearlydorequirefault,whichispresentlyexpressedasunconscionability.The
casesdonotrecognizestrictliabilityforinnocentvolunteersinEquityapartfrominrare,particularsituations,notably
theadministrationofestates.145
LordNichollswritingextrajudicially,hasinfluentiallysupportedastrictliabilityclaim.
LordNichollsofBirkenhead,KnowingReceipt:TheNeedforaNewLandmarkinRestitution:
Past,PresentandFuture(edsCornish,Nolan,OSullivan,andVirgo)(Oxford:Hart1998),pp.
23844
equityshouldnowfollowthelaw.Restitutionaryliability,applicableregardlessoffaultbutsubjecttoa
defenceofchangeofposition,wouldbeabettertailoredresponsetotheunderlyingmischiefof
misappliedpropertythanpersonalliabilitywhichisexclusivelyfaultbased.Personalliabilitywouldflow
fromhavingreceivedthepropertyofanother,fromhavingbeenunjustlyenrichedattheexpenseof
another.Itwouldbetriggeredbythemerefactofreceipt,thusrecognisingtheenduranceofproperty
rights.Butfairnesswouldbeensuredbytheneedtoidentifyagain,andbymakingchangeofposition
availableasadefenceinsuitablecaseswhen,forinstance,therecipienthadchangedhispositionin
relianceonthereceipt.
(p.915) .
Ifrecipientliabilityistohaveafirmerbasisforthefuture,theattempttoformulateonesingleprincipleof
personalliabilityshouldbeabandoned.Instead,personalliabilityshouldbebasedonthecombinationof
twoseparateprinciplesofliability.First,aprincipleofstrictliabilitywouldbeconfinedtorestoring
anunjustgain.Secondly,dishonestrecipientsshouldbepersonallyliabletomakegoodlossesaswell
asaccountingforallbenefits.
Birkshasexpressedsimilarviews.
Birks,ReceiptinBreachofTrust(eds.BirksandPretto)(Oxford:Hart,2002)p.239
whileapersonswealthremainsunjustlyswollentheliabilitytomakerestitutionisutterlyindependentof
fault.Thereisnoargumentforkeepingwhatonewasneverintendedtohave.Afteranhonestchangeof
positionthingsbegintolookdifferent
Astrictliabilityclaimwouldenablefusion146 inthisareaofthelaw:neithertheCommonLawnorEquitywould
demandthattherecipientbeatfault.Thismayseemharshontherecipient,whowouldexpecttobeabletokeep
anygiftreceived.147 Theneedtoprotectandfurthertheimportantprincipleofthedefendantssecurityofreceipt
mightsensiblybeemphasized.ButLordNichollsandBirksbelievethatsecurityofreceiptissufficientlyprotectedby
theavailabilityofthedefenceofchangeofposition:ifdefendantshavenotchangedtheirposition,thenthereisno
reasontostrengthenthesecurityoftheirreceipt,sincetheyhavenotyetrelieduponthereceiptbychangingtheir
position.
However,thismaybetooquick.ChangeofpositionisnotallthateasytoestablishinLipk inGorman,theleading
case,theHouseofLordsinsistedthatthechangeofpositionmustbeextraordinary,andsomerecipientsmaynot
yethavedoneenoughtoavailthemselvesofthechangeofpositiondefence.Moreover,itmightseembetterforthe
lawtorequiretheclaimanttohavetoprovefaultasanelementoftheclaimotherwise,itmightbetooeasyfor
claimantstopickadefendanttosue,andthenputthedefendanttothetroubleofhavingtodefendaclaimandprove
achangeofposition.Faultmaywellbecomerelevantatthedefencestageanyway,sincechangeofpositioncannot
bepleadedbyapersonwhohasactedinbadfaith.Itappearsthatshiftingtoastrictliabilityregimewouldstillcatch
wrongdoers,butwouldalsomaketheinnocentrecipientpersonallyliable.So,forexample,thecharitiesinRe
Diplock ,148 whichreceivedpropertyinbreachoftrustbutdidnotchangetheirposition,wouldbeliablefortheir
receiptoftheproperty,despitenotbeingatfaultatall.Theappropriatenessofsucharesultmightbedoubted:as
betweentheinnocentrecipientandtheinnocentclaimant,thelawmightfavourtheformertoprotecttheimportant
principlesofsecurityofreceiptandfinalityoftransactions.Afterall,theclaimantwillbeabletosuesomebodyelse:
thewrongdoingfiduciary.
Therehasthusbeenmuchresistancetoabandoningfaultinthisarea.Manyhavepointedtothefactthatequitable
liabilityoftenrequiresfault,andthatequitablepropertyrightsarenotaswellprotectedascommonlawproperty
rights,makingfusioninappropriate:thebonafidepurchaserdefencegenerallyappliesthroughoutEquity,for
example,butnotatCommonLaw.
(p.916) Smith,UnjustEnrichment,Property,andtheStructureofTrusts(2000)116LQR412,
149
4304
Theargumentwhichsuggeststhatpersonalclaimsbasedonreceiptoftrustpropertymustlineupwith
thestrictliabilityinLipk inGormanseemstoignoreaverybasictruth:abeneficiarysinterestundera
trustisnotlegalownership.Equitableproprietaryrightsarenotprotectedinthesamewayaslegalones.
Ingeneral,theyareprotectedlesswell.Theyarealwayssubjecttodestructionbybonafidepurchaseof
alegalinterestoroverreaching,andwrongfulinterferencewiththemisdependentonfault.Beneficiaries
cannotgenerallysueinconversionwhenadefendantinterfereswiththetrustpropertynoraretheyowed
thedutiesofcarewhichareowedtothelegalowner.Theargumentforstrictliabilitywouldmakethe
mostsenseaspartofanagendawhichsoughttheabolitionofthetrust,andthereturntoaregimein
whichonlyonepersoncanclaimtobetheownerofagivenasset.Thatwouldbeanoddagendato
pursue,whenciviliansystemsallovertheworld,awareoftheflexibilitywhichthetrustdeviceoffers,are
introducingitinvariousforms.Certainlyasthelawisnow,thebeneficiarysinterestunderatrustattracts
incidentsdifferentfromlegalownership.Itisnotclearthatitwouldmakesensetoabolishsomeofthe
characteristicsofequitableproprietaryrightswhileleavingothersintact.Ifliabilityforreceivingtrust
propertyisstrict,whyshouldequitableinterestsbesubjecttodestructionbythedefenceofbonafide
purchaseofalegalinterest?
Thestrictliabilityapproachwouldcontemplatethataplaintiffneedonlyallegethatabankreceivedtrust
property,notthatthebankkneworshouldhaveknownofthetrustwithnomorethanthat,thebank
wouldberequiredtoproveitsgoodfaithasadefence,ortoaccountforwhatithaddonewiththismoney.
Inotherwords,thereisnoprocedurewhichabank,beiteversohonest,canadoptinordertoensure
thatitisnotprimafacieliableforthereceiptoftrustfunds.Primafacieliabilityimpliespotentially
extendedperiodsofexpenseanduncertaintywhenlitigationispendingandofcourseitthrowsonthe
defendanttheriskthateventhoughtheelementsofsomedefencearepresent,theycannotbeprovedto
thesatisfactionofthetrieroffact.Althoughtheremaybenodifferenceintheclassroombetweenfault
basedliabilityandstrictliabilitywithdefences,thereisagreatdifferenceinthecourtroom.
Thebetterviewisthatstrictliabilityshouldnotbeadoptedinthisarea.ThishasbeenstronglysupportedbytheHigh
CourtofAustralia.150 Nevertheless,thecontrarysuggestionhasbeenmadejudicially.Forexample,inTwinsectra
LtdvYardley,LordMillettsaid,obiter:151
Liabilityforknowingreceiptisreceiptbased.Itdoesnotdependonfault.Thecauseofactionisrestitutionary
andisavailableonlywherethedefendantreceivedorappliedthemoneyinbreachoftrustforhisownuseand
benefitThereispowerfulacademicsupportforthepropositionthattheliabilityoftherecipientisthesame
asinothercasesofrestitution,thatistosaystrictbutsubjecttoachangeofpositiondefence.
InCriterionPropertiesplcvStratfordUKPropertiesLLC,LordNichollsvoicedsimilarviewsaftertheextractgiven
already:152
(p.917) If,however,theagreementissetaside,Bwillbeaccountableforanybenefitshemayhavereceived
fromAundertheagreement.Awillhaveaproprietaryclaim,ifBstillhastheassets.Additionally,and
irrespectiveofwhetherBstillhastheassetsinquestion,AwillhaveapersonalclaimagainstBforunjust
enrichment,subjectalwaystoadefenceofchangeofposition.Bspersonalaccountabilitywillnotbe
dependentuponproofoffaultorunconscionableconductonhispart.Bsaccountability,inthisregard,will
bestrict.
ForLordNichollstoadoptthisapproachisunsurprising,givenhisearlierextrajudicialcomments.Suchcomments
fromtheHouseofLordsclearlyneedtobetakenseriously,butitmustalsoberememberedtheywereobiter,given
thattheHousewasnotpersuadedthattherehadbeenabreachofdutythatwouldgiverisetoaclaim.Thecurrent
approachiswellstatedbyNourseLJinAk indele,whoconsideredLordNichollsextrajudicialwritingandsaid:153
NoargumentbeforeuswasbasedonthesuggestionsmadeinLordNichollssessay.Indeed,atthislevelof
decision,itwouldhavebeenafruitlessexercise.Wemustcontinuetodoourbestwiththeaccepted
formulationoftheliabilityinknowingreceipt,seekingtosimplifyandimproveitwherewemay.Whilein
generalitmaybepossibletosympathisewithatendencytosubsumeafurtherpartofourlawofrestitution
undertheprinciplesofunjustenrichment,Ibegleavetodoubtwhetherstrictliabilitycoupledwithachangeof
positiondefencewouldbepreferabletofaultbasedliabilityinmanycommercialtransactions,forexample
where,ashere,thereceiptisofacompanysfundswhichhavebeenmisappliedbyitsdirectors.Without
havingheardargumentitisunwisetobedogmatic,butinsuchacaseitwouldappeartobecommercially
unworkableandcontrarytothespiritoftheruleinRoyalBritishBank vTurquand(1856)6E&B327that,
simplyonproofofaninternalmisapplicationofthecompanysfunds,theburdenshouldshifttotherecipient
todefendthereceipteitherbyachangeofpositionorperhapsinsomeotherway.Moreover,ifthe
circumstancesofthereceiptaresuchastomakeitunconscionablefortherecipienttoretainthebenefitofit,
thereisanobviousdifficultyinsayingthatitisequitableforachangeofpositiontoaffordhimadefence.
NourseLJwasrighttorejectthepossibilityofachangeofpositiondefencetounconscionablereceipt:sincethe
recipientisawrongdoer,therecipientcannothavechangedhisorherpositioningoodfaith.154 Thispassagealso
showsthattheinterventionoftheSupremeCourtorParliamentwillberequiredifthelawistodevelopalongstrict
liabilitylinesthisseemsunlikelytohappenforquitesometime,ifatall.
Nevertheless,giventheweightofsupportinfavourofstrictliability,twofurtherpointsdeservetoberaised.First,even
ifastrictliabilityclaimisrecognized,aconcurrentfaultbasedclaimfordishonestassistancewouldstillexist.The
latterwouldenableclaimantstorecovertheirlossesandwouldnotbedefeatedbythedefenceofchangeofposition,
andtheformerwouldfocusonthedefendantsreceiptbutwouldbesubjecttothechangeofpositiondefence.The
claimantmightthenbeabletochoosebetweenthecompensatoryandrestitutionarymeasure,andmaynotbe
disadvantagedbythestrictliabilityclaim.
Secondly,manyoftheproponentsofstrictliabilityinthisareausethelanguageofunjustenrichment.Thisis
controversial.Admittedly,Lipk inGorman,theleadingcaseatCommonLaw,wassaidbytheHouseofLordstobea
caseofunjustenrichment,butitmightalsobeanalysedasanexampleofthevindicationoflegalpropertyrights.155
Choosingtheappropriatemeansofanalyzingtheseclaimswasconsideredinthepreviouschapterandisequally
relevanthere.
(p.918) (a)Defences
Iftheclaimantmanagestoestablishthekeyelementsofunconscionablereceipt,itwillbeverydifficultforthe
defendanttoescapeliability.Itwillnotmatterifthedefendantpaidfortheproperty,sincethedefendantwillnot,ex
hypothesi,beactingbonafides.Andevenifachangeofpositiondefencewereavailable,forthereasonsgiven
alreadyitwouldnotassistadefendantinbadfaith.Inordertoevadetheconsequencesofequitableliability,a
defendantwouldbebestadvisedtodisputeoneofthenecessaryelementsofaclaim.However,itmaybethatthe
thirdpartywillnotbeliableifthelimitationperiodhasexpiredthedefenceoflimitationwasconsideredinChapter
16.156
(e)Remedies
Themostcommonremedyforunconscionablereceiptisapersonalrestitutionaryremedyforthevalueofthe
propertyreceived.InCrownDilmunvSutton,PeterSmithJsaidthatthedefendantis:157
liabletoaccountfortheprofitsithasreceived,orwillmake,byreasonoftheacquisitionofpropertywith
noticethatitwasacquiredinbreachoffiduciaryduty.
Generally,thevalueoftheprofitswillbeassessedatthedateofreceipt.ButEquityissufficientlyflexibletovalue
thegainsmadebythedefendantatalaterdate.158 Indeed,thelanguageofliableasaconstructivetrusteemight
suggestthatthedefendantshouldbeliableforanysubsequentgainsasifheorshewereatrustee.However,ifthe
claimantslossesexceedthedefendantsgains,thenacompensatoryremedyshouldbeavailableafterall,the
defendanthascommittedawrongandshouldnotbeabletodenyadutytocompensate.
Anunconscionablerecipientwilloftenhavetobeartheclaimantslossesalone:acommonreasonforbringinga
claimagainstathirdpartyratherthanawrongdoingfiduciaryisthatthethirdpartyismorelikelytoprovideadequate
redress.Thefiduciarymaybeinsolvent.Nevertheless,insomesituationsthefiduciarymayalsobeabletosatisfy
theclaim,andinsuchsituationstherecipientisabletoseekcontributionfromthatfiduciary.
ContributionwasexaminedinChapter16.159 Asareminder,theCivilLiability(Contribution)Act1978provides:
s.1(1)Subjecttothefollowingprovisionsofthissection,anypersonliableinrespectofanydamagesuffered
byanotherpersonmayrecovercontributionfromanyotherpersonliableinrespectofthesamedamage
(whetherjointlywithhimorotherwise).
s.6(1)ApersonisliableinrespectofanydamageforthepurposesofthisActifthepersonwhosufferedit(or
anyonerepresentinghisestateordependants)isentitledtorecovercompensationfromhiminrespectofthat
damage(whateverthelegalbasisofhisliability,whethertort,breachofcontract,breachoftrustorotherwise).
Contributioniseasywherebothpartiesareliablefortheclaimantsloss.Butinthesortsofsituationunderpresent
consideration,theremedyforunconscionablereceiptwillgenerallybearestitutionary(p.919) remedyforthegains
madebythedefendantsreceipt.Canthe1978Actstillapply?TheCourtofAppealinCityIndexLtdvGawler160
answeredaffirmatively.TheCourtheldthateventhoughtheremedyforunconscionablereceiptwasrestitutionary,it
couldalsobecharacterizedascompensatory,sincethedefendantwasliabletomakegoodthelosssufferedbythe
trustorprincipaltotheextentofthevaluethatthedefendanthadreceived.Itfollowedthatadefendantwhowasliable
forunconscionablereceiptcouldbeconsideredtobeliableforthesamedamageasadefendantwhowasliablefor
negligenceandsoaclaimforcontributionmightlie.CarnwathLJobserved:161
IhavesomesympathywiththeobservationofBrightmanJinBartlettvBarclaysBank TrustCoLtd(No2)
[1980]Ch515,545B,quotedbySirAndrewMorrittC,that:thesocalledrestitutionwhichthe[trustee]must
nowmaketotheplaintiffsisinrealitycompensationforlosssufferedbytheplaintiffsnotreadily
distinguishablefromdamagesexceptwiththeaidofapowerfullegalmicroscope.Itseemsunlikelythatthe
draftsmanofthe1978Actintendeditsapplicationtodependonsuchsubtledistinctionsofnomenclature.
Theresultisclearlysensible:thereisnoreasontoforcearecipienttobeartheentirecostsofthebreachoftrust.
Butsqueezingarestitutionaryremedywithindamageisdifficultandunconvincing.However,itissuggestedthat
anydiscomfortwiththereasoningmustbeovercomeonpolicygrounds.162
Evenifcontributionisavailableinprinciple,itstillneedstobeascertainedtowhatextentcontributionshouldbe
allowed.TheCourtofAppealinGawlerconsideredthisissue,andhighlighteditsbroaddiscretiontodowhatisjust
andequitableasbetweentheparties.Clearly,therelativelevelsoffaultofthepartiesmustbeascertained:ifthe
fiduciarywasnegligentbuttherecipientunconscionable,itmightbesensiblefortherecipienttopaythegreater
share.Thesamemightwellbetrueiftherecipientstillhasthepropertyinquestion.However,itseemsthatany
liabilitytomakecontributionshouldoperateonlytotheextentthatthevalueoftheclaimantslosscorrespondsto
thevalueofthedefendantsgain,163 foronlythencanthepartiesbeconsideredtobeliableforthesamedamage.
4.LiabilityofPartners
Anotherquestionthatarisesconcernsthevicariousliabilityofpartnersinapartnershipforoneoftheirnumberwhois
heldliableforawrong.Thisisrelevanttothetwoprincipalheadsofliabilityconsideredinthischapter:dishonest
assistanceandunconscionablereceiptarebothwrongs.
PartnershipAct1890
s.10Liabilityofthefirmforwrongs
Where,byanywrongfulactoromissionofanypartneractingintheordinarycourseofthebusinessof
thefirm,orwiththeauthorityofhiscopartners,lossorinjuryiscausedtoanypersonnotbeingapartner
inthefirm,oranypenaltyisincurred,thefirmisliabletherefortothesameextentasthepartnerso
actingoromittingtoact.
(p.920) TheleadingdiscussioncanbefoundinthedecisionoftheHouseofLordsinDubaiAluminiumCo.Ltdv
Salaam,164 whereapartnerinafirmofsolicitorswasheldliablefordishonestlyassistingafraudulentscheme.In
holdingthatthefirmwasliablefortheactsofthesolicitoreventhoughthesewereunauthorized,becausethe
fraudulentschemewascloselyconnectedwiththeactsthatthedishonestsolicitorwasauthorizedtodo,Lord
Nichollsconsideredtheinterpretationofsection10ofthePartnershipAct.165
Thereisnothinginthelanguageofsection10tosuggestthatthephraseanywrongfulactoromissionis
intendedtobeconfinedtocommonlawtorts.Onthecontrary,thereferencetoincurringapenaltypoints
awayfromsuchanarrowinterpretationofthephrase.Theliabilityofcopartnersforpenaltiesincurred,for
instance,forbreachofrevenuelawswaswellestablishedwhenthe1890Actwaspassed:seeLindleyon
Partnership,6thed(1893),p160,andAttorneyGeneralvStannyforth(1721)Bunb97.
Inadditiontothelanguagethestatutorycontextpointsinthesamedirection.Section10appliesonlytothe
conductofapartneractingintheordinarycourseofthefirmsbusinessorwiththeauthorityofhisco
partners.Itwouldberemarkableifafirmwereliableforfraudulentmisrepresentationsmadebyapartnerso
acting,butnotliablefordishonestparticipationbyapartnerinconductdirectedatthemisappropriationof
anothersproperty.Inbothcasestheliabilityofthewrongdoingpartnerarisesfromdishonesty.Intermsofthe
firmsliabilitytherecanbenorationalbasisfordistinguishingonecasefromtheother.Bothfallnaturally
withinthedescriptionofawrongfulact.
Vicariousliabilityisconcernedwiththeresponsibilityofthefirmtootherpersonsforwrongfulactsdonebya
partnerwhileactingintheordinarycourseofthepartnershipbusinessorwiththeauthorityofhiscopartners.
Atfirstsightthismightseemsomethingofacontradictioninterms.Partnersdonotusuallyagreewitheach
othertocommitwrongfulacts.Partnersarenotnormallyauthorisedtoengageinwrongfulconduct.Indeed,if
vicariousliabilityofafirmforactsdonebyapartneractingintheordinarycourseofthebusinessofthefirm
wereconfinedtoactsauthorisedineveryparticular,thereachofvicariousliabilitywouldbeshortindeed.
Especiallywouldthisbesowithdishonestyandotherintentionalwrongdoing,asdistinctfromnegligence.
Similarlyrestrictedwouldbethevicariousresponsibilityofemployersforwrongfulactsdonebyemployeesin
thecourseoftheiremployment.Likeconsiderationsapplytovicariousliabilityforemployees.
liabilityforagentsshouldnotbestrictlyconfinedtoactsdonewiththeemployersauthority.Negligence
canbeexpectedtooccurfromtimetotime.Everyonemakesmistakesattimes.Additionally,itisafactof
life,andthereforetobeexpectedbythosewhocarryonbusinesses,thatsometimestheiragentsmay
exceedtheboundsoftheirauthorityorevendefyexpressinstructions.Itisfairtoallocateriskoflossesthus
arisingtothebusinessesratherthanleavethosewrongedwiththesoleremedy,ofdoubtfulvalue,againstthe
individualemployeewhocommittedthewrong.Tothisend,thelawhasgiventheconceptofordinarycourse
ofemploymentanextendedscope.
ThescopeofthereasoninginSalaamisnot,however,aswideasitmightatfirstappear:afirmofsolicitorswillnot
bevicariouslyliableforasolicitorwhohascommittedawrongasanexpresstrustee166 orasatrusteedesontort,
becauseitisnotwithintheordinaryscopeofasolicitorspracticetoactasatrustee.167
(p.921) Question
Trevoristhetrusteeofafamilytrustforhistwonieces,HelenandRebecca.Trevoraskshissolicitor,Sam,for
adviceabouthowtomanagethetrustfund.SamencouragesTrevortopurchaseRobslandasaninvestmentfor
thetrustfor1million.Trevorthoughtthismightbeagoodinvestmentbecauseitwaspossibletobuildablock
offlatsontheland.Planningpermissionforsuchdevelopmenthassincebeenrefused,andthelandisonly
worth200,000.
Thereisaclauseinthetrustdeedthatpreventsthetrusteefrompurchasinglandforthetrust.Trevorhad
forgottenaboutthis.Samsuspectedthattheremightbesuchaclauseinthetrustinstrument,butdidnot
bothertocheck.However,SamdidtellRob,whowasafriendofhis,thathewasworriedaboutwhetherornot
Trevorcouldpurchasethelandwithtrustmonies.RobdecidedtoignoreSamsfears,andcelebratedthesaleof
hislandbyinvestingallthemoneyinastartupventurewhichhascompletelyfailed.
Trevoralsotook1,000fromthetrustmoneyandgaveittohissister,Jenna,asabirthdaypresent.Thiswas
clearlyinbreachoftrust.JennaknewthatTrevorwasthetrusteeofthesettlementforHelenandRebecca,and
thoughtitsurprisingthatherusuallystingybrotherwassogeneroustoher.
AdviseHelenandRebecca.
FurtherReading
Birks,ReceiptinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
ElliottandMitchell,RemediesforDishonestAssistance(2004)67MLR16.
FindThisResource
Harpum,TheStrangerasConstructiveTrustee(1986)102LQR114and267.
FindThisResource
Harpum,TheBasisofEquitableLiabilityinTheFrontiersofLiability,Vol1.(ed.Birks)(Oxford:Oxford
UniversityPress,1994).
FindThisResource
Low,RecipientLiabilityinEquity:ResistingtheSirensLure(2008)RLR96.
FindThisResource
Mitchell,AssistanceinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002).
FindThisResource
MitchellandWatterson,RemediesforKnowingReceipt,inConstructiveandResultingTrusts(ed.Mitchell)
(Oxford:Hart,2010).
FindThisResource
LordNichollsofBirkenhead,KnowingReceipt:TheNeedforaNewLandmarkinRestitution:Past,Presentand
Future(edsCornish,Nolan,OSullivan,andVirgo)(Oxford:Hart,1998),pp.231.
FindThisResource
Ridge,JustifyingtheRemediesforDishonestAssistance(2008)124LQR445.
FindThisResource
Ridge,ParticipatoryLiabilityforBreachofTrustorFiduciaryDutyinFaultLinesinEquity(edsGlisterand
Ridge)(Oxford:Hart,2012).
FindThisResource
Smith,UnjustEnrichment,Property,andtheStructureofTrusts(2000)116LQR412.
FindThisResource
LordWalker,DishonestyandUnconscionableCnductinCommercialLifeSomeReflectionsonAccessory
LiabilityandKnowingReceipt(2005)27SydneyLR187.(p.922)
FindThisResource
Notes:
1
AlthoughLordNeubergerhasrecentlysuggestedthattherulesonpersonalliabilityshouldbemoreflexibleto
catchupliftsinvalue:SinclairvVersailles[2011]EWCACiv347[2012]Ch453[90]:seeChapter14.5(b)(i),pp.
6925.
2
(1874)9ChApp244,2512.
3
Chapter11.2(h)(i),pp.51819.
4
Forconsiderationofthesuggestionthatreceiptbasedliabilityshouldbestrict,seeChapter19.3(d)(i),pp.91417.
5
[1993]1WLR509,5756.
6
[1995]2AC378,387.
7
[1999]3AllER652,671.SeetooPetrotradeInc.vSmith[2000]1LloydsRep486,[25][28].
8
[1999]BCC525,533.However,thepointdidnotneedtobedecided.
9
GoosevWilsonSandford&Co.(afirm)[2001]LloydsRepPN189,[88](althoughadmittedlythecasewas
concernedwithtrustproperty).RimerJinGencorACPLtdvDalby[2000]2BCLC734,[87]alsoconcludedthatthe
pointconcerningarequirementforpropertyremainsopen.
10
[2009]EWHC639(Ch),[518].
11
[1994]2AllER685,700.ThesameapproachhasbeenadoptedinAustralia:KallsEnterprisesPtyLtd(inliq)v
Baloglow[2007]NSWCA191(2007)63ACSR557.
12
Cf.RussellvWak efieldWaterwork sCo.(1875)LR20Eq474,479CMSDolphinLtdvSimonet[2001]BCLC
704,[104].
13
14
[2012]UKPC30.
15
Ibid,[31].
16
WestdeutscheLandesbank GirozentralevIslingtonLondonBoroughCouncil[1996]AC669,[705](LordBrowne
Wilkinson).
17
Cf.MitchellandWatterson,RemediesforKnowingReceiptinConstructiveandResultingTrusts(ed.Mitchell)
(Oxford:Hart,2010),esp.pp.12831.SeeChapter19.3(e),pp.91819.
18
19
20
[1995]2AC378,384.
21
Procuringandinducingtendtobeusedsynonymously.
22
HartandHonor,CausationintheLaw(2ndedn)(Oxford:OxfordUniversityPress,1985),pp.1878.
23
SeegenerallyHarpum,TheStrangerasConstructiveTrustee(1986)102LQR114,267.
24
24
Ibid,115
25
26
[1995]2AC378,3845.
27
E.g.BCCI(Overseas)LtdvAk indele[1999]BCC669,676(CarnwathJthiswasnotconsideredonappeal:
[2001]Ch437).InWatsonvDolmark [1992]3NZLR311,316,CookePconsideredinstancesofinducementtobe
perhapstheclearestpossiblecaseofknowingassistance.
28
Thismirrorsaccessoryliabilityinthecriminallaw:seee.g.RvGnango[2011]UKSC59[2012]1AC827.
29
BadenvSocitGnralepourFavoriserleDveloppementduCommerceetdelIndustrieenFranceSA[1993]1
WLR509,574.ThispassagewascitedwithapprovalinBrink sLtdvAbuSaleh(No.3)[1996]CLC133.
30
Forfurtherdiscussionofcausation,seeSteele,TortLaw:Text,CasesandMaterials(2ndedn)(Oxford:Oxford
UniversityPress,2010),ch.4.
31
GrupoTorrasSAvAlSabah[1999]CLC1469,1667.ManceLJwashearingthecaseatfirstinstance,andno
adversecommentwasmaderegardingthispointonappeal:[2001]CLC221.SeealsoCasioComputerCo.Ltdv
Sayo(No.3)[2001]EWCACiv661,[15](TuckeyLJ).
32
[1999]BCC525,533.
33
[1996]CLC133.
34
35
Knowledgeofcircumstancesthatwouldputanhonestandreasonablepersononinquiry.
36
SelangorUnitedRubberEstatesLtdvCradock (No.3)[1968]1WLR1555,1590Karak RubberCo.Ltdv
Burden(No.2)[1972]1WLR602BadenvSocitGnralepourFavoriserleDveloppementduCommerceetde
lIndustrieenFranceSA[1993]1WLR509n.
37
CarlZeissStiftungvHerbertSmith&Co.(No.2)[1969]2Ch276BelmontFinanceCorpnLtdvWilliams
FurnitureLtd[1979]Ch250Agip(Africa)LtdvJack son[1991]Ch547PollyPeck InternationalplcvNadir(No.2)
[1992]4AllER769EagleTrustplcvSBCSecuritiesLtd[1993]1WLR263,293.
38
SeeBarnesvAddy,(1874)9ChApp244Chapter19.1,p.875.
39
40
TrusteeAct1925,s.61.SeeChapter17.3,p.742.
41
AlltheLawLordsappearedtoacceptthis:[2002]UKHL12[2002]2AC164,[3](LordSlynn),[7](LordSteyn),
[11](LordHoffmann),[26](LordHutton),and[113](LordMillett).
42
ItwasheldunanimouslythatthemoneyinSimskeepingwasheldontrustfortheclaimant.SeeChapter5.
43
[2002]UKHL12[2002]2AC164,[27][43].
44
QuotedinChapter19.2(c),p.884.
45
KnowingWhatisDishonesty(2002)LQR502,507.
46
LordNichollsofBirkenhead,LordSteyn,LordHoffmann,LordWalkerofGestingthorpe,andLordCarswell.
47
48
DishonestAssistance:RestatementfromthePrivyCouncil(2006)LQR171,1723.
49
49
[2006]EWCACiv1492[2007]1AllER(Comm)827.
50
Ibid,[68].
51
Ibid,[40].
52
[2010]EWCACiv1314,[32].
53
E.g.Nolan,FromKnowingAssistancetoDishonestFacilitation(1995)CLJ505,505:averywelcome
developmentandclarificationofthelaw.SeealsoHarpum,AccessoryLiabilityforProcuringorAssistingaBreach
ofTrust(1995)111LQR545.CompareBerg,AccessoryLiabilityforBreachofTort(1996)59MLR443,andsee
alsoBirks,AccessoryLiability[1996]LMCLQ1.
54
Seee.g.HeinlvJysk eBank (Gibraltar)[1999]LloydsBankRep511(NourseLJ).
55
ThreeRiversDCvGovernorandCompanyoftheBank ofEngland(No.3)[2000]2WLR15,62(inthedifferent
contextofmisfeasanceinpublicoffice).
56
JohnsonvYouden[1950]1KB544,546.
57
[2010]EWCACiv1314,[42][44].
58
AlthoughLordMillett,suggesteddishonestyrelatedtoconduct(TwinsectraLtdvYardley[2002]UKHL12[2002]
2AC164,[134],quotedimmediatelybelow),thisisdifficulttoexplain.LordHoffmannsapproachinBarlowClowes,
clearlyestablishesdishonestyconcernsthementalelement,whichseemsmuchmoresatisfactory.
59
[2002]UKHL12[2002]2AC164,[127].
60
[2006]EWCACiv1492[2007]1AllER(Comm)827,[2].
61
[2002]UKHL12[2002]2AC164,[132][134].
62
[2002]UKHL12[2002]2AC164,[35],quotedinChapter19.2(c),p.888.
63
[1995]AC378,389.
64
Seee.g.Gardner,KnowingAssistanceandKnowingReceipt:TakingStock(1996)LQR56,66.
65
E.g.OBGvAllan[2007]UKHL21[2008]1AC1,[193](LordNicholls),citingEdwinHillandPartnersvFirst
NationalFinanceCorpn.plc.[1989]1WLR225.
66
Chapter1.2,p.8.Seealsothecommentsofe.g.LordNichollsinRoyalBruneiAirlinesvTan[1995]2AC378,
387andOBGvAllan[2007]UKHL21[2008]1AC1,[189]LordMillettinTwinsectravYardley[2002]UKHL12
[2002]2AC164,[127].
67
ManifestShippingCo.LtdvUniPolarisInsuranceCo.Ltd(TheStarSea)[2001]UKHL1[2003]1AC469,[112].
68
AbouRahmahvAbacha[2006]EWCACiv1492[2007]1AllER(Comm)827.Cf.Lee,ChangingPositionon
ChangeofPosition[2007]RLR135.
69
[1996]CLC133,151.
70
[2002]UKHL12[2002]2AC164,[135].
71
SeeChapter19.1(c)p.878.
72
73
E.g.LordNichollsinRoyalBruneiAirlinesSdnBhdvTan[1995]2AC378.
74
AlthoughseeChapter18.2(b),p.881forconsiderationofanelementofcausation.
75
75
RvBroadbridge(1983)5CrAppR(S)269Richardson(ed.)ArchboldCriminalPleading,EvidenceandPractice
(London:Sweet&Maxwell,2013),paras5154to5159.Theexceptionconcernsmurder,forwhichalifesentenceis
mandatory(althoughdifferenttariffsfortheprincipalandaccessorymaybeset).
76
Forcontribution,seeChapter16.5(b)(i),pp.7535.Ofcourse,anyclaimincontributionmightbeworthlessifthe
fiduciaryisinsolvent.
77
RemediesforDishonestAssistance(2004)67MLR16,41.
78
[2000]2LloydsRep643.
79
[1975]132CLR373,397.
80
[2005]EWHC1638[2006]FSR17,[1600].
81
JustifyingtheRemediesforDishonestAssistance(2008)124LQR445,467.
82
AswassubsequentlyacknowledgedbyMitchellwithWatterson,RemediesforKnowingReceiptinConstructive
andResultingTrusts(ed.Mitchell)(Oxford:Hart,2010).
83
Seee.g.LewinonTrusts(18thedn)(edsMowbrayetal.)(London:Sweet&Maxwell,2008)[40.20]Gardner,
KnowingAssistanceandKnowingReceipt:TakingStock(1996)112LQR56Ridge,JustifyingtheRemediesfor
DishonestAssistance(2008)124LQR445,450.
84
Andcanbecontrastedwithscenario(iv),sincethelatteralsoengagesthefurtherprinciplethatapartyshouldnot
profitfromhiswrong.
85
[1894]1Ch616,625seealso631(LindleyLJ),638(KayLJ).Forfurtherdiscussionofthedefenceoflimitationin
thecontextofdishonestassistance,seeChapter16.9(b)(i),pp.7626.
86
87
Cf.Finn,TheLiabilityofThirdPartiesforKnowingReceiptorAssistanceinEquity,FiduciariesandTrusts(ed.
Walters)(Toronto:Carswell,1993).
88
Tan[1995]2AC378,386.SeesimilarlyLordMillettinTwinsectra[2002]UKHL12[2002]2AC164,[107].For
furtherconsiderationofrestitution,seeChapter1.4(b),pp.1415.
89
[1990]Ch265,292.
90
KnowingReceiptandRegisteredLandinConstructiveandResultingTrusts(ed.Mitchell)(Oxford:Hart,2010),p.
172.
91
Seee.g.AbouRahmahvAbacha[2006]EWCACiv1492[2007]1AllER(Comm)827.
92
93
94
Seee.g.Nolan,EquitableProperty(2006)122LQR232.
95
96
97
Ifastrictliabilityregimeweretobeadopted,thisreasoningmaynotbesatisfactory.
98
Conaglen,TheNatureandFunctionofFiduciaryLoyalty(2005)121LQR452,4789.
99
[2004]UKHL28[2004]1WLR1856.
100
100
Ibid,[3][4].
101
102
[1990]Ch265,1390.
103
TheRecipientHasNoClothes:Conscience,ConduitsandKnowingReceipt(2011)5JournalofEquity43,538.
104
105
[2007]EWHC952(Ch),[683].
106
(1848)2HLCas28,367.
107
[2001]1AC102,128.
108
[2008]EWCACiv819,[39][40].
109
[2001]1WLR1177.
110
Ibid,at[19][23].
111
112
ConaglenandGoymour,KnowingReceiptandRegisteredLandinConstructiveandResultingTrusts(ed.
Mitchell)(Oxford:Hart,2010),p.172.
113
Unlessthebeneficiarieswereinactualoccupationatthetimeofthedispositiontothepurchaser:s.29(2)and
Schedule3,[2].
114
[2007]HCA222,[193][198].
115
[2012]UKPC30.SeeChapter191.(b),p.877.
116
Ibid,at[15].
117
Seee.g.Karak RubberCo.LtdvBurden(No.2)[1972]1WLR602BelmontFinanceCorpnLtdvWilliams
FurnitureLtd(No.2)[1980]1AllER393PollyPeck InternationalplcvNadir(No.2)[1992]4AllER769.
118
E.g.ReMontagusSettlementTrusts[1987]Ch264EagleTrustplcvSBCSecuritiesLtd[1993]1WLR484
CowandeGrootPropertyLtdvEagleTrustplc[1992]4AllER700EagleTrustplcvSBCSecuritiesLtd(No.2)
[1996]1BCLC121.
119
[1995]2AC378,392,quotedinChapter18.2(c),p.885.
120
Theclaimantsalsocontendedthatthedefendantwasliablefordishonestassistance,buttheCourtofAppeal
rejectedthisclaimbecausethetrialjudgehadcorrectlyconcludedthatthedefendanthadactedhonestly.
121
HisLordshipconsideredKarak RubberCo.LtdvBurden(No.2)[1972]1WLR602,[632](BrightmanJ)
BelmontFinanceCorpnLtdvWilliamsFurnitureLtd(No.2)[1980]1AllER393,[405](BuckleyLJ),at412(GoffLJ)
RolledSteelProducts(Holdings)LtdvBritishSteelCorpn[1986]Ch246,[306][307](BrowneWilkinsonLJ)Agip
(Africa)LtdvJack son[1990]Ch265,[291](MillettJ)HoughtonvFayers[2000]1BCLC511,[516](NourseLJ).
122
Seethecasesinfootnote121.
123
124
[1995]2AC378,392.
125
Seee.g.AikensJinBank ofAmericavArnell[1999]LloydsRepBank399,[15].
126
126
[2002]UKHL48[2003]2AC366,391.
127
[2012]UKPC30.SeeChapter19.1(b),p.877.
128
Ibid,at[40].
129
AsdoestheapproachinArthurvAttorneyGeneraloftheTurk sandCaicosIslands:[2012]UKPC30.
130
CfAbouRahmahvAbacha[2006]EWCACiv1492[2007]1AllER(Comm)827.
131
Birks,ReceiptinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002)p.227.
132
Thepossibilityofanobjectiveapproachwasalsoleftopen,obiter,byLordNeubergerMRinSinclairTrade
FinanceLtdvVersaillesGroupplc[2011]EWCACiv347,[2011]3WLR1121,[107].
133
Birks,ReceiptinBreachofTrust(edsBirksandPretto)(Oxford:Hart,2002),p.226.
134
SeealsoArmstrongDLWGmbHvWinningtonNetwork sLtd[2012]EWHC10(Ch)[2012]3WLR835,[132].
135
[2003]EWCACiv1783[2003]1WLR2108.
136
137
ThisaspectofthecasewasunaffectedbythedecisionoftheHouseofLords:see[2004]UKHL28[2004]1
WLR1856.
138
139
NiruBatteryManufacturingCo.vMilestoneTradingLtd[2002]EWHC1425,Comm[2002]2AllER(Comm)
705,741endorsedbytheCourtofAppeal[2003]EWCACiv1446(Civ)AbouRahmahvAbacha[2006]EWCACiv
1492,[2007]1AllER(Comm)827.
140
PapamichaelvNationalWestminsterBank [2003]LloydsRep341,369(JudgeChambersQC).
141
Maersk AirLtdvExpeditorsInternational(UK)Ltd[2003]1LloydsRep491,499.Althoughcompare,obiter,
ArmstrongDLWGmbHvWinningtonNetwork sLtd[2012]EWHC10(Ch)[2012]3WLR835[123].
142
Lipk inGormanvKarpnaleLtd[1991]2AC548seeChapter1.4(b),pp.1315.
143
144
[1951]AC251(theDiplock litigation).
145
Bak er(GL)LtdvMedwayBuildingandSuppliesLtd[1958]1WLR1216recognizedastrictliabilityequitable
claimwhereassetsweredistributedfromanintervivostrust.Thisseemsanomalous.
146
Chapter1.2,p.8.
147
Ofcourse,iftherecipientpaidfortheproperty,thenheorshemayavailhimorherselfofthedefenceofbona
fidepurchaserforvaluewithoutnotice.
148
[1948]Ch465:seeChapter18.3(c)(ii),pp.8312.
149
SeealsoLow,RecipientLiabilityinEquity:ResistingtheSirensLure(2008)RLR96.
150
FarahConstructionsPtyLtdvSayDeePtyLtd[2007]HCA292,[155].
151
[2002]UKHL12[2002]2AC164,[105].SeealsoDubaiAluminiumCo.LtdvSalaam[2002]UKHL448[2003]
2AC366,391(LordMillett).
152
[2004]UKHL28[2004]1WLR1856thisextractfollowsonfromthatgivenatChapter19.3(b),p.904.
153
153
[2001]Ch437,456.
154
155
156
157
[2004]EWHC52[2004]1BCLC468,[204].
158
Cf.SinclairInvestments(UK)LtdvVersaillesTradeFinanceLtd[2011]EWCACiv347[2011]3WLR115see
Chapter14.5(b)(i),p.692.
159
160
[2007]EWCACiv1382[2008]Ch313.
161
Ibid,[27].
162
Cf.Gardner,MomentofTrustforKnowingReceipt?(2009)125LQR20,23.
163
Goymour,AContributiontoKnowingReceiptLiability?(CityIndexvGawler)[2008]RLR113,118.
164
[2002]UKHL48[2003]2AC366.
165
Ibid,[10][22].
166
Walk ervStones[2001]QB902.
167
DubaiAluminiumCo.LtdvSalaam[2002]UKHL48[2003]2AC366,[143](LordMillett).
LawTrove

DOI: 10.1093/he/9780199661480.001.0001
20.EquitableOrders
Chapter: (p.925) 20.EquitableOrders
DOI: 10.1093/he/9780199661480.003.0020
CentralIssues
1.Equitableorderscanbegrantedinsupportofbothlegalandequitablerights.
2.EquitableremediesareonlyavailablewhereCommonLawremedies(oftendamages)areinadequate.
3.Failuretocomplywithequitableordersconstitutescontemptofcourt,whichcanbepunishedby
imprisonmentandfines.
4.Thecourtmayrefusetograntequitablereliefifinnocentthirdpartieswouldbeprejudicedbythe
equitableorder,oriftherehasbeenlachesoracquiescence.
5.Injunctionsdirectpartieseithertodosomething(mandatoryinjunctions)ornottodosomething
(prohibitoryinjunctions).Thelattermaybegrantedmorereadilythantheformer.
6.Thejurisdictiontograntinjunctivereliefincludestheabilitytoawardinteriminjunctionswhilstwaitingfor
thesubstantivetrial.
7.Twoparticularlyimportanttypesofinteriminjunctionarefreezingorders,bywhichthecourtcanprevent
apartyfromdealingwithhisorherassets,andsearchorders,whichforcethedefendanttoallowthe
claimanttosearchhisorherpremisesforrelevantmaterial.
8.Specificperformanceisanequitableremedy,whichrequiresapartytoperformaparticularpositive
obligation.
9.TheCourthasadiscretiontoawarddamagesinlieuofaninjunctionorspecificperformanceifjusticeso
requires.
10.Theremedyofrectificationenablesmistakesindocumentstobecorrectedandensuresthatthe
documentcorrespondswiththeintentionofthosewhoenteredintotheinstrument.
11.Rescissionisaremedythatenablesatransactiontobetreatedasthoughithadnevercomeinto
existence,andthepartiesarerestoredtotheirpositionpriortothetransaction.
1.GeneralPrinciples
ItwasseeninChapter1thatEquityhasacreativefunctiontoprovideremediestomoderatetherigoursofthe
CommonLaw.Thecreativefunctionisillustratedmosteffectivelybythelawrelatingtotrustsandtrustees,ashas
beenseenthroughthechaptersinthisbook.Butthiscreativityisalsoexemplifiedbyanumberofequitableorders,
thesignificanceofwhichisnotlimitedtothelawoftrustsandtrustees.Thischapterwillfocusuponthe
commerciallysignificantremediesofinjunctions,specific(p.926) performance,rectification,andrescission.Given
thatthelatterthreeareoftenconsideredindepthoncontractcoursesandincontracttextbooks,1 wewill
concentratepredominantlyuponinjunctions.
AlthoughitistruethatdamagesforthebreachofCommonLawobligationsareavailableasofright,andthat
equitableremediesareinevitablydiscretionary,itisimportanttorecognizethatsuchdiscretionisinformedbya
numberofkeyprinciples.Importantly,equitableremediesareonlyavailablewhereCommonLawremediesare
inadequate:EquitycanonlyintervenewheretheCommonLawfailstodojustice.However,equitableorderscanbe
madeinsupportofbothlegalandequitablerights.Failuretocomplywithanequitableorderconstitutesthecrimeof
contempt,thepunishmentforwhichmaybeimprisonment,sequestrationofthedefendantsassets,orafineora
combinationofthesesentences.
(a)BarstoEquitableOrders
Factorsthatmayleadtoparticulartypesofequitableordersnotbeinggrantedwillbeconsideredbelow.However,
Equityhasdevelopedsomegeneralbarstoequitablerelief.Forexample,echoingthemaxim,Equitywillnotactin
vain,LordHatherleyLChasinsistedthatthecourtwillnotmake:2
anidleandineffectualorder.Thesimplestillustrationofthisisthecaseofcuttingdowntimber.Itwouldbe
idlewhenthetreeshavebeencutdowntomakeanordernottoallowthetreestoremainprostrate,andall
thatcanbedoneinsuchacaseistoleavethepartiestotheirremedyfordamages.
ThemaximthatHewhocomestoEquitymustcomewithcleanhands3 issimilarlyapplicablethecourtisunlikely
tograntanorderinfavourofaclaimantwhohasmisledthecourt.4 Noristhecourtlikelytograntequitablereliefifto
dosowouldprejudiceanythirdpartyinterestsacquiredforvalueandingoodfaith,5 oriftheclaimantisestopped
fromrelyinguponhisorherright.6 Acquiescenceandlapseoftimemayalsobarequitablerelief.Acquiescence
requiresconductthatshowstheclaimanthaswaivedhisorherrightsandistherebyestoppedfromlaterasserting
thoserights,butdoesnotinevitablyinvolveanydelay.7 Laches,ontheotherhand,simplyrequiresdelayandnot
necessarilyacquiescence.InLestervWoodgate,PattenLJdistinguishedthetwo.
LestervWoodgate[2010]EWCACiv199[2010]2P&CRDG14,[20][22]
Althoughthejudgebelowmentionslachesandestoppeltogetherinhisjudgment,theyareseparate
defenceswithdifferentanddistinctconsequences.Lachesisageneralequitabledefencewhichbarsthe
grantofequitablereliefwhentheclaimanthasbeenguiltyofunduedelayinassertinghisrights:seethe
judgmentofSirBarnesPeacockinLindsayPetroleumCompanyvHurd(1874)LR(p.927) 5PC221at
page239(recentlyendorsedbytheHouseofLordsinFishervBrook er[2009]UKHL41)wherehesaid:

NowthedoctrineoflachesinCourtsofEquityisnotanarbitraryoratechnicaldoctrine.Whereit
wouldbepracticallyunjusttogivearemedy,eitherbecauseapartyhas,byhisconduct,done
thatwhichmightfairlyberegardedasequivalenttoawaiverofit,orwherebyhisconductand
neglecthehas,thoughperhapsnotwaivingthatremedy,yetputtheotherpartyinasituationin
whichitwouldnotbereasonabletoplacehimiftheremedywereafterwardstobeasserted,in
eitherofthesecaseslapseoftimeanddelayaremostmaterial.Butineverycase,ifanargument
againstrelief,whichotherwisewouldbejust,isfoundeduponmeredelay,thatdelayofcoursenot
amountingtoabarbyanystatuteoflimitations,thevalidityofthatdefencemustbetriedupon
principlessubstantiallyequitable.Twocircumstances,alwaysimportantinsuchcases,arethe
lengthofthedelayandthenatureoftheactsdoneduringtheinterval,whichmightaffecteither
partyandcauseabalanceofjusticeorinjusticeintakingtheonecourseortheother,sofaras
relatestotheremedy.
Thewordlachesisalsosometimesusedtodenotethetypeofpassiveconductwhichcanamountto
acquiescenceandsofoundanestoppelwhenitcanbeshownthatthepartystandingbyhasinducedthe
wouldbedefendanttobelievethathisrightswillnotbeenforcedandthatotherpartyhas,asa
consequence,actedinawaywhichwouldmakethesubsequentenforcementofthoserights
unconscionable.
Butwheretheconductreliedonconsistsofnomorethanunduedelay,itoperatesonlytobarthegrantof
equitablereliefsuchasaninjunction.Itdoesnotextinguishtheclaimantslegalrightorbarits
enforcementby,forexample,theawardofcommonlawdamages.
2.Injunctions
(a)TypesofInjunction
Aninjunctionisanorderofthecourtdirectingapartyeithertodosomething(mandatoryinjunction)ortorefrainfrom
doingsomething(prohibitoryornegativeinjunction).Aninjunctionnottostopprovidingaservicemightlooknegative
onthesurface,butinsubstanceitisamandatoryinjunctiontocontinuetoprovidetheservice.
Aninjunctiongrantedbeforethesubstantivetrialofanactioniscalledaninterlocutory,orinterim,injunction.Final
injunctionsaregrantedafterthecourthastriedthesubstanceofaclaim.Finalinjunctionsaresometimescalled
perpetualinjunctions,buttheydonotnecessarilylastforeverafinalinjunctionmightbegrantedonlyuntiltheendof
alease.8
Aninjunctionmaybegrantedeventhoughtheclaimantsrightshavenotyetbeeninfringed.Suchquiatimet9
injunctionscanbegrantedwhereinterferencewiththeclaimantsrightsisthreatenedorfearedbuthasnotyet
occurred.However,thecourtwillnoteasilygrantsuchinjunctionsasLordDunedincommentedinAGforthe
DominionofCanadavRitchieContractingandSupplyCoLtd:10
noonecanobtainaquiatimetorderbymerelysayingTimeo11 hemustaverandprovethatwhatisgoingon
iscalculatedtoinfringehisrights.
(p.928) InFletchervBealey,PearsonJsetoutfurthercriteria:12
IdonotthinkthatIshallbeveryfarwrongifIlayitdownthatthereareatleasttwonecessaryingredients
foraquiatimetaction.Theremust,ifnoactualdamageisproved,beproofofimminentdanger,andthere
mustalsobeproofthattheapprehendeddamagewill,ifitcomes,beverysubstantial.Ishouldalmostsayit
mustbeprovedthatitwillbeirreparable,because,ifthedangerisnotprovedtobesoimminentthatnoone
candoubtthat,iftheremedyisdelayed,thedamagewillbesuffered,Ithinkitmustbeshewnthat,ifthe
damagedoesoccuratanytime,itwillcomeinsuchawayandundersuchcircumstancesthatitwillbe
impossibleforthePlaintifftoprotecthimselfagainstitifreliefisdeniedtohiminaquiatimetaction.
Thisraisesapointofmoregeneralimportance:aninjunctionwillnotbegrantedwheredamageswouldbean
adequateremedy.ThiswasclearlyexpressedbyLindleyLJinLondonandBlack wallRyvCross:13
Theveryfirstprincipleofinjunctionlawisthatprimafacieyoudonotobtaininjunctionstorestrainactionable
wrongsforwhichdamagesaretheproperremedy.
(b)Jurisdiction
Thejurisdictionofthecourtstograntinjunctionsisoflongstanding,andhasnowbeenrecognizedbystatute.
SeniorCourtsAct1981
37.PowersofHighCourtwithrespecttoinjunctionsandreceivers
TheHighCourtmaybyorder(whetherinterlocutoryorfinal)grantaninjunction.inallcasesinwhichit
appearstothecourttobejustandconvenienttodoso.
(1)Anysuchordermaybemadeeitherunconditionallyoronsuchtermsandconditionsasthecourt
thinksjust.
(c)MandatoryInjunctions
Itisclearlywithinthecourtspowertograntaninjunctiontoforcesomebodytotakepositiveactionwheretheyhave
anobligationtodoso.AgoodexampleisRedlandBrick sLtdvMorris.14
RedlandBricksLtdvMorris[1970]AC652,6656
Theappellantsexcavationofclayhadleftapitintowhichtherespondentslandwasslipping.Therespondent
obtainedaninjunction,whichrequiredtheappellanttorestoresupporttotherespondentslandwithinsix
months.TheappellantappealedtotheHouseofLordsonthegrounds(p.929) thatdamageswereanadequate
remedy.Inallowingtheappeal,theHouseofLordsconsideredbroaderissuesconcerningthenatureofthe
jurisdictiontograntamandatoryinjunction.
LordUpjohn:
[T]hecasewhichisbeforeyourLordshipsHouseistypical,wherethedefendanthaswithdrawn
supportfromhisneighbourslandorwherehehassoactedindepositinghissoilfromhismining
operationsastoconstituteamenacetotheplaintiffsland.Itisinthisfieldthattheundoubtedjurisdiction
ofequitytograntamandatoryinjunction,thatisaninjunctionorderingthedefendanttocarryoutpositive
works,findsitsmainexpression,thoughofcourseitisequallyapplicabletomanyothercases.Thus,to
takethesimplestexample,ifthedefendant,theownerofland,includingametalledroadoverwhichthe
plaintiffhasarightofway,ploughsupthatlandsothatitisnolongerusable,nodoubtamandatory
injunctionwillgotorestoreitdamagesarenotasufficientremedy,fortheplaintiffhasnorighttogo
uponthedefendantslandtoremakehisrightofway.
Thegrantofamandatoryinjunctionis,ofcourse,entirelydiscretionaryandunlikeanegativeinjunction
canneverbeasofcourse.Everycasemustdependessentiallyuponitsownparticularcircumstances.
Anygeneralprinciplesforitsapplicationcanonlybelaiddowninthemostgeneralterms:
1.Amandatoryinjunctioncanonlybegrantedwheretheplaintiffshowsaverystrongprobability
uponthefactsthatgravedamagewillaccruetohiminthefuture.Itisajurisdictiontobe
exercisedsparinglyandwithcautionbutinthepropercaseunhesitatingly.
2.Damageswillnotbeasufficientoradequateremedyifsuchdamagedoeshappen.Thisisonly
theapplicationofageneralprincipleofequity
3.Unlikethecasewhereanegativeinjunctionisgrantedtopreventthecontinuanceorrecurrence
ofawrongfulactthequestionofthecosttothedefendanttodoworkstopreventorlessenthe
likelihoodofafutureapprehendedwrongmustbeanelementtobetakenintoaccount:
(a)wherethedefendanthasactedwithoutregardtohisneighboursrights,orhastriedto
stealamarchonhimorhastriedtoevadethejurisdictionofthecourtor,tosumitup,has
actedwantonlyandquiteunreasonablyinrelationtohisneighbourhemaybeorderedto
repairhiswantonandunreasonableactsbydoingpositiveworktorestorethestatusquoeven
iftheexpensetohimisoutofallproportiontotheadvantagetherebyaccruingtotheplaintiff

(b)butwherethedefendanthasactedreasonably,thoughintheeventwrongly,thecostof
remedyingbypositiveactionhisearlieractivitiesismostimportantfortworeasons.First,
becausenolegalwronghasyetoccurred(forwhichhehasnotbeenrecompensedatlawand
inequity)and,inspiteofgloomyexpertopinion,mayneveroccurorpossiblyonlyupona
muchsmallerscalethananticipated.Secondly,becauseifultimatelyheavydamagedoes
occurtheplaintiffisinnowayprejudicedforhehashisactionatlawandallhisconsequential
remediesinequity.
Sotheamounttobeexpendedunderamandatoryorderbythedefendantmustbebalancedwith
theseconsiderationsinmindagainsttheanticipatedpossibledamagetotheplaintiffandif,onsuch
balance,itseemsunreasonabletoinflictsuchexpenditureupononewhoforthispurposeisno
morethanapotentialwrongdoerthenthecourtmustexerciseitsjurisdictionaccordingly.Of
course,thecourtdoesnothavetoordersuchworksasupontheevidencebeforeitwillremedythe
wrongbutmaythinkitpropertoimposeuponthedefendanttheobligationofdoingcertainworks
whichmayuponexpertopinionmerelylessenthelikelihoodofanyfurtherinjurytotheplaintiffs
land.
4.Ifintheexerciseofitsdiscretionthecourtdecidesthatitisapropercasetograntamandatory
injunction,thenthecourtmustbecarefultoseethatthedefendantknowsexactlyinfactwhathe
hastodoandthismeansnotasamatteroflawbutasamatteroffact,sothatincarryingoutan
orderhecangivehiscontractorstheproperinstructions.
(p.930) LordUpjohnsreasoningclearlysetsoutthetypesoffactorscourtsmustconsiderbeforegrantinga
mandatoryinjunction.However,cautionshouldbeexercisedwhenconsideringhissuggestionthatnegative
injunctionsareavailableasofcourse.Negativeinjunctionsarealsonecessarilydiscretionary,andneveravailable
asofright.Indeed,inNationalCommercialBank JamaicaLtdvOlintCorpnLtdLordHoffmanninsistedthat:15
argumentsoverwhethertheinjunctionshouldbeclassifiedasprohibitiveormandatoryarebarren.
Thisisbecausethesameprinciplesunderpinthediscretiontograntbothmandatoryandprohibitiveinjunctions.
Nevertheless,asLordUpjohnindicated,itwilloftenbethecasethatmandatoryinjunctionsaremoreintrusivethan
prohibitiveinjunctions,andthereislittledoubtthatprohibitiveinjunctionsaremorecommon.
(d)ProhibitoryInjunctions
Aprohibitoryinjunctiondoesnotforceapersontodoanything,onlytorefrainfromdoingsomething.Forthisreason,
prohibitoryinjunctionsarenotthoughttointerferewiththedefendantsfreedomofactiontosuchanobjectionable
degreeasmandatoryinjunctions.Manyexamplesofprohibitoryinjunctionscouldbegiven.Forexample,wherea
privatenuisanceisestablished,aninjunctionwilloftenbeusedtopreventthenuisancefromcontinuinginjunctive
reliefavoidstheinconvenientalternativeofnumerousactionsfordamagesfromdifferentclaimantsaffectedbythe
nuisance.Similarly,injunctionscanbeparticularlyhelpfulinrestraininginfringementsofintellectualpropertyrights.16
(i)Breachofcontract
Ofparticularcommercialsignificanceareinjunctionsgrantedtorestrainabreachofcontract.Ingeneral,an
injunctionismostappropriatewheretheobligationisnegative.Iftheobligationispositive,specificperformance,
consideredbelow,17 willnormallybetheappropriateremedy.Admittedly,mandatoryinjunctionsarealsoavailableto
enforcepositiveobligations,butsuchinjunctionswillnotbegrantediftheresultwouldbetantamounttoanorderof
specificperformanceincircumstancesinwhichspecificperformancewouldnotbegranted.18
Prohibitoryinjunctionsareparticularlyimportantintheemploymentcontext.Restrictivecovenantsinanemployment
contractmightbeveryvaluable:anemployermaywellseektoenforceanemployeescontractualobligationnotto
workforacompetitororinaparticularareaduringacertainperiodaftertheterminationofhisorheremployment.
Prohibitoryinjunctionsareoftengrantedinsupportofsuchrestrictivecovenants:thereisnoquestionofsuch
injunctionsbeingtantamounttospecificperformanceofapositiveobligation.Butcourtsarewaryaboutgranting
injunctionsthatwould,ineffect,forceapersontoperformhiscontract.AsFryLJsaidinDeFrancescovBarnum:19
(p.931) IthinktheCourtsareboundtobejealous,lesttheyshouldturncontractsofserviceintocontractsof
slavery.
Whetherornotpositiveperformanceoftheagreementwouldbecompelledbyanegativeinjunctionpreventingthe
defendantfrombreachinghisorhercontractinaparticularwaycanbedifficulttodecidethecourtwillconsider
factorssuchastheneedforthedefendanttousehisorhercompetenciestoearnaliving,thelengthoftimethe
negativecovenantistobeenforced,andhowmanyotheropportunitiesarerealisticallyopentothedefendant.In
LumleyvWagner,20 MissJohannaWagner,anoperasinger,contractedtosingforthreemonthsatMrLumleys
theatre.MissWagnerthenmadeaconflictingagreementtosingatMrGyestheatre,andMrLumleysuccessfully
soughtaninjunctiontoenforceMissWagnersnegativecontractualobligationnottosingforanyoneelseinthat
period.TheLordChancellorcommentedthat:21
Itwasobjectedthattheoperationoftheinjunctioninthepresentcasewasmischievous,excludingthe
DefendantJ.WagnerfromperformingatanyothertheatrewhilethisCourthadnopowertocompelherto
performat[MrLumleys]HerMajestysTheatre.ItistruethatIhavenotthemeansofcompellinghertosing,
butshehasnocauseofcomplaintifIcompelhertoabstainfromthecommissionofanactwhichshehas
boundherselfnottodo,andthuspossiblycausehertofulfilherengagement.ThejurisdictionwhichInow
exerciseiswhollywithinthepoweroftheCourt,andbeingofopinionthatitisapropercaseforinterfering,I
shallleavenothingunsatisfiedbythejudgmentIpronounce.Theeffect,too,oftheinjunctioninrestrainingJ.
Wagnerfromsingingelsewheremay,intheeventofanactionbeingbroughtagainstherbythePlaintiff,
preventanysuchamountofvindictivedamagesbeinggivenagainstherasajurymightprobablybeinclinedto
giveifshehadcarriedhertalentsandexercisedthemattherivaltheatre:theinjunctionmayalso,asIhave
said,tendtothefulfilmentofherengagementthough,incontinuingtheinjunction,Idisclaimdoingindirectly
whatIcannotdodirectly.
AstheLordChancellorrecognized,apossibleeffectofthisinjunctionwasthatMissWagnerwouldsingforMr
Lumleyathistheatre.ButMissWagnerwasnotcompelledtodothis.Instead,shemighthavedonesomethingelse
duringthatperiodthreemonthsisnotanespeciallylongperiodoftime.InWarrenvMendy,22 bycontrast,a
negativeinjunctionwasrefusedwhereitsdurationwouldhavebeentwoyears.ThatcaseconcernedFrankWarren,a
boxingpromoter,whohadenteredintoacontractexclusivelytomanageafighter,NigelBenn.Bennbecame
unhappywithWarren,andenteredintoanagreementwithAmbroseMendyconcerningtheintroductionof
commercialopportunities.WarrensoughtaninjunctiontopreventMendyfrominducingBennsbreachofcontract
withWarrenandtopreventMendyfromactingasBennsmanager.TheCourtofAppealupheldthedecisionofthe
trialjudgetorefuseaninjunction:giventheshortcareeraboxerhas,aninjunctionoveratwoyearperiodwouldhave
effectivelycompelledBenntoworkwithWarren.Thiswasparticularlyinappropriategiventhebreakdowninmutual
trustandconfidencebetweentheparties.NourseLJreviewedtheauthoritiesandsaid:23
considerationoftheauthoritieshasledustobelievethatthefollowinggeneralprinciplesareapplicabletothe
grantorrefusalofaninjunctiontoenforceperformanceoftheservantsnegativeobligationsina(p.932)
contractforpersonalservicesinseparablefromtheexerciseofsomespecialskillortalent.(Weusethe
expressionsmasterandservantforeaseofreferenceandnotoutofanyregardfortherealityofthe
relationshipinmanyofthesecases.)Insuchacasethecourtoughtnottoenforcetheperformanceofthe
negativeobligationsiftheirenforcementwilleffectivelycompeltheservanttoperformhispositiveobligations
underthecontract.Compulsionisaquestiontobedecidedonthefactsofeachcase,witharealisticregard
fortheprobablereactionofaninjunctiononthepsychologicalandmaterial,andsometimesthephysical,
needoftheservanttomaintaintheskillortalent.Thelongerthetermforwhichaninjunctionissought,the
morereadilywillcompulsionbeinferred.Compulsionmaybeinferredwheretheinjunctionissoughtnot
againsttheservantbutagainstathirdpartyifeitherthethirdpartyistheonlyotheravailablemasterorifitis
likelythatthemasterwillseekreliefagainstanyonewhoattemptstoreplacehim.Aninjunctionwillless
readilybegrantedwherethereareobligationsofmutualtrustandconfidence,moreespeciallywherethe
servantstrustinthemastermayhavebeenbetrayedorhisconfidenceinhimhasgenuinelygone.
Ultimately,asNourseLJindicatesinthispassage,whetherornotaninjunctionshouldbegrantedisaquestionof
fact.Butcourtsareparticularlywaryaboutforcingapersontoworkagainsthisorherwill:thedangersinherentin
compellingsomeonetoworkforanothermightoutweighthefearthatdamagesareaninadequateremedy.
Nevertheless,wherethecalculationofdamagesisimpossibleorinadequate,andnoinjusticewillbedone,theCourt
mayfavourinjunctiverelief.InAracivFallon,24 aleadingjockey,KieronFallon,signedanagreementtoridea
particularhorse,NativeKhan,wheneverrequested,andnottoridearivalhorseinanyraceinwhichhehadbeen
askedtorideNativeKhan.TheownersofNativeKhanaskedFallontoridethehorseintheEpsomDerby,butFallon
refusedandpromisedtoridearivalhorseinstead.TheCourtofAppealheldthatthelossesthattheownersofNative
KhanmightsufferwereFallontopipNativeKhantothetitleonanotherhorsewouldbetremendouslydifficultto
quantify,andthatdamageswouldbeaninadequateremedytheCourtofAppealthereforegrantedaninjunction,
eventhoughitmighthavetheeffectofdeprivingFallonofracingintheDerbysomethingthatthefirstinstancejudge
hadrefusedtosanction.25
However,itwouldseemthatthereluctanceofthecourtsindirectlytocompelapartytoworkforothersisgreatly
reducedifthedefendantisacompany.InLadyNavigationInc.vLauritzencoolAB,26 acharterermanagedapoolof
ships.Theownersoftwoofthosevesselsarguedthatthechartererhadmismanagedtheirshipsandthreatenedto
removetheirvesselsfromthepoolofshipsmanagedbythecharterer.Thiswouldhavebeenabreachofcontract.
Thecharterersoughtaninjunctiontopreventtheownersfromremovingtheirships.TheCourtofAppealgrantedthis
injunction.ManceLJinsistedthatthiswasnottantamounttospecificperformance,observingthattheywere
juristicallydistinct.27 Forexample,theownerscouldcomplywiththeirobligationsbysimplyallowingthevesselsto
layidle.ManceLJcitedcasessuchasLumleyvWagnerandWarrenvMendy,andexpressedtheopinionthat:28
Evenifoneisconsideringacontractforservicesfarmoreeasilydescribedaspersonalinnaturethanthe
present,thereisnoinflexibleprincipleprecludingnegativeinjunctivereliefwhichpreventsactivityoutsidethe
contractcontrarytoitsterms.
(p.933) Thepresentrelationshipsarebetweenbusinessconcernswho,intheeventofsuchrelief,canbe
expectedtocontinuetomakethemworkintheirowninterests,andtosortoutanycomplaintsinarbitrationif
necessaryhereafter.
Inconclusion,neitherthefactthatthecontractsinvolvedwereforservicesintheformofatimecharternorthe
existenceundersuchcontractsofafiduciaryrelationshipofmutualtrustandconfidencerepresentsinlaw
anynecessaryorgeneralobjectioninprincipletothegrantofinjunctivereliefprecludingthe[owners]from
employingtheirvesselsoutsidethepoolpendingtheoutcomeofthecurrentarbitration.Nordoesitaffordany
suchobjectiontothegrantofsuchreliefthattheonlyrealisticcommercialcoursewhichitlefttothe
appellantswas,asIampreparedtoassume,todowhattheyhavedone,namelytocontinuetoprovidethe
vesselstothepoolandtoperformthecharters.
Thisapproachmightbemoregeneroustoclaimantsthanthattakenwherethedefendantisaparticularindividual.
Butifpreventingacompanyfrombreachinganobligationwouldsimplyinvolvethecompanysaskingitsemployees
orcontractortocomplywithonesetofobligationsratherthananother,thisdoesnotseemsoobjectionable.Clearly,
itisfarremovedfromthespectreofslavery,whichissometimesraisedbythecourts.
(ii)Breachofconfidenceandprivacy
Injunctionsarealsoregularlygrantedinordertoprotectconfidentialinformation.Detailedconsiderationofconfidence
isoutsidethescopeofthisbook,29 butthisareahasgainedmuchattentionrecently,particularlysinceithasbeen
usedtoprotectapersonsrighttoprivacy.Injunctionsmightbeparticularlyimportantinthiscontextbecause
confidence,oncelost,islostforever.DamagesatCommonLawarepatentlyunabletokeepsomethingconfidential.
Theequitablejurisdictionhasthereforebeenmuchreliedupon,andthisjurisdictioncontinuestoevolve.For
example,manyinjunctionsgrantedinthisareahavebeenanonymized,whichisasensiblewaytoensurethat
informationremainsconfidential.TherearemanyreasonsforanonymityEadyJhasrecentlyobservedthat:30
Itisimportantalwaystorememberthatthemodernlawofprivacyisnotconcernedsolelywithsecrets:itis
alsoconcernedimportantlywithintrusion.
Afurtherstephasbeentopreventeventheveryreportingofaninjunction.Suchsuperinjunctionsaregranted
becausedisclosurewouldhavetheeffectofrenderingtheinjunctionnugatory:evenreportingthataninjunctionhas
beengrantedwouldallowtheconfidentialinformationtoseepout.Thesesuperinjunctionshaveunsurprisingly
receivedmuchattentioninthepress,giventheonerousrestrictionsonfreedomofexpressionthattheyimpose.In
JIHvNewsgroupNewspapersLtd,31 LordNeubergerMRsetoutthefollowingprincipleswhendecidingwhetherto
granttheclaimantananonymityorderorotherrestraintonpublicationofdetailsofacasethatwouldnormallybein
thepublicdomain:
JIHvNewsgroupNewspapersLtd[2011]EWCACiv42[2011]1WLR1645,[21]
(p.934)
(NeubergerMR)
(1)Thegeneralruleisthatthenamesofthepartiestoanactionareincludedinordersand
judgmentsofthecourt.
(2)Thereisnogeneralexceptionforcaseswhereprivatemattersareinissue.
(3)Anorderforanonymityoranyotherorderrestrainingthepublicationofthenormallyreportable
detailsofacaseisaderogationfromtheprincipleofopenjusticeandaninterferencewiththe
Article1032 rightsofthepublicatlarge.
(4)Accordingly,wherethecourtisaskedtomakeanysuchorder,itshouldonlydosoafterclosely
scrutinisingtheapplication,andconsideringwhetheradegreeofrestraintonpublicationis
necessary,and,ifitis,whetherthereisanylessrestrictiveormoreacceptablealternativethanthat
whichissought.
(5)Wherethecourtisaskedtorestrainthepublicationofthenamesofthepartiesand/orthe
subjectmatteroftheclaim,onthegroundthatsuchrestraintisnecessaryunderArticle8,33 the
questioniswhetherthereissufficientgeneral,publicinterestinpublishingareportofthe
proceedingswhichidentifiesapartyand/orthenormallyreportabledetailstojustifyanyresulting
curtailmentofhisrightandhisfamilysrighttorespectfortheirprivateandfamilylife.
(6)Onanysuchapplication,nospecialtreatmentshouldbeaccordedtopublicfiguresor
celebrities:inprinciple,theyareentitledtothesameprotectionasothers,nomoreandnoless.
(7)Anorderforanonymityorforreportingrestrictionsshouldnotbemadesimplybecausethe
partiesconsent:partiescannotwaivetherightsofthepublic.
(8)AnanonymityorderoranyotherorderrestrainingpublicationmadebyaJudgeatan
interlocutorystageofaninjunctionapplicationdoesnotlastforthedurationoftheproceedingsbut
mustbereviewedatthereturndate.
(9)Whetherornotananonymityorderoranorderrestrainingpublicationofnormallyreportable
detailsismade,then,atleastwhereajudgmentisorwouldnormallybegiven,apubliclyavailable
judgmentshouldnormallybegiven,andacopyoftheconsequentialcourtordershouldalsobe
publiclyavailable,althoughsomeeditingofthejudgmentorordermaybenecessary.
(10)Noticeofanyhearingshouldbegiventothedefendantunlessthereisagoodreasonnottodo
so,inwhichcasethecourtshouldbetoldoftheabsenceofnoticeandthereasonforit,andshould
besatisfiedthatthereasonisagoodone.
Inanygivencase,theequitablejurisdictionissufficientlyflexibletograntasuperinjunctionornoinjunctionatall,
andarangeofoptionsliebetweenthesetwoextremes.Injunctionsareapowerfulweaponinsafeguardingapersons
righttoprivacy,butgrantinganinjunctionmighthaveanadverseimpactuponanothers(oftenanewspapers)
freedomofexpression.Balancingtheserightsisadifficultexerciseforthecourts,34 butthecourtswillstriveto
provideaproportionateresponse.35 Consistent(p.935) withthegeneralprinciplesunderpinningtheequitable
jurisdiction,anappellatecourtwillgenerallybereluctanttointerferewiththeproperlyexerciseddiscretionofatrial
judge.36
(e)InterimInjunctions
Acourtcangrantaninjunctionbeforeafulltrialtakesplace.Suchinterim,orinterlocutory,injunctionsnormally
operateuntilthetrialoranearlierspecifieddate.Interiminjunctionshavebeenexplainedonvariousbases.InJones
vPacayaRubberandProduceCo.Ltd,BuckleyLJsaid:37
Inallcasesofapplicationsforinterlocutoryinjunctionsthegoverningprincipleisthatpendingthesettlement
ofthedisputebetweenthepartiestheCourtwillasfaraspossiblekeepmattersinstatuquo.
WhereasinSmithvPeters,SirGeorgeJesselMRhad:38
nohesitationinsayingthatthereisnolimittothepracticeoftheCourtwithregardtointerlocutory
applicationssofarastheyarenecessaryandreasonableapplicationsancillarytothedueperformanceofits
functions,namely,theadministrationofjusticeatthehearingofthecause.Iknowofnootherlimit.
Giventhelapseoftimethatmayoccurbeforeafulltrial,itisappropriatethatinsomesituationsthecourtsareable
tograntaninteriminjunctiontopreventinjustice.However,itisclearthatthecourtwillonlygrantsuchinjunctionsin
limitedcircumstances.InFourievLeRoux,LordScottobservedthat:39
withouttheissueofsubstantiveproceedingsoranundertakingtodoso,theproprietyofthegrantofan
interlocutoryinjunctionwouldbedifficulttodefend.Aninterlocutoryinjunction,likeanyotherinterimorder,is
intendedtobeoftemporaryduration,dependentontheinstitutionandprogressofsomeproceedingsfor
substantiverelief.
Wheneveraninterlocutoryinjunctionisappliedfor,thejudge,ifotherwisemindedtomaketheorder,should,
asamatterofgoodpractice,paycarefulattentiontothesubstantivereliefthatis,orwillbe,sought.The
interlocutoryinjunctioninaidofthesubstantivereliefshouldnotplaceagreaterburdenontherespondent
thanisnecessary.Theyardstickinsection37(1)ofthe1981Act,40 justandconvenient,mustbeapplied
havingregardtotheinterestsnotonlyoftheclaimantbutalsoofthedefendant.
InFourie,theinteriminjunctionsought41 wasnotgrantedbytheHouseofLords,becausetherewasnoclaimfor
substantivereliefthattheinjunctionwouldsupport.Itisinappropriatetograntaninteriminjunctioniftheclaimanthas
nosubstantiverightthatheorsheseekstoprotect.
(i)Prohibitoryinjunctions
ThepreviousapproachofEnglishlawattheinterimstagewasforthecourttoinvestigatethelikelihoodthatafinal
injunctionwouldbegrantedattrial.Thisledtoaminitrialatwhichtheclaimantneededtoshowastrongprimafacie
case.42 However,in1975theHouseofLordsrejectedthisapproach,andinsisted(p.936) thattheclaimantneed
onlyestablisharealpossibilityofsuccess,loweringtheinitialhurdleintheclaimantspath.
AmericanCyanamidCovEthiconLtd[1975]AC396
ThedefendantswereabouttolaunchontheBritishmarketasurgicialsuturewhichtheplaintiffallegedinfringed
itspatent.Theplaintiffsoughtaninterlocutoryinjunctiontorestraintheproductlaunch.Thiswasgrantedbythe
trialjudgebutreversedbytheCourtofAppealonthegroundthatnoprimafaciecaseofinfringementofthe
patenthadbeenestablished.TheHouseofLordsallowedtheappeal,andconsideredwhenaninterlocutory
injunctionshouldbegranted.
LordDiplock:
MyLords,whenanapplicationforaninterlocutoryinjunctiontorestrainadefendantfromdoingacts
allegedtobeinviolationoftheplaintiffslegalrightismadeuponcontestedfacts,thedecisionwhetheror
nottograntaninterlocutoryinjunctionhastobetakenatatimewhenexhypothesitheexistenceofthe
rightortheviolationofit,orboth,isuncertainandwillremainuncertainuntilfinaljudgmentisgiveninthe
action.Itwastomitigatetheriskofinjusticetotheplaintiffduringtheperiodbeforethatuncertaintycould
beresolvedthatthepracticearoseofgrantinghimreliefbywayofinterlocutoryinjunctionbutsincethe
middleofthe19thcenturythishasbeenmadesubjecttohisundertakingtopaydamagestothe
defendantforanylosssustainedbyreasonoftheinjunctionifitshouldbeheldatthetrialthattheplaintiff
hadnotbeenentitledtorestrainthedefendantfromdoingwhathewasthreateningtodo.Theobjectof
theinterlocutoryinjunctionistoprotecttheplaintiffagainstinjurybyviolationofhisrightforwhichhe
couldnotbeadequatelycompensatedindamagesrecoverableintheactioniftheuncertaintywere
resolvedinhisfavouratthetrialbuttheplaintiffsneedforsuchprotectionmustbeweighedagainstthe
correspondingneedofthedefendanttobeprotectedagainstinjuryresultingfromhishavingbeen
preventedfromexercisinghisownlegalrightsforwhichhecouldnotbeadequatelycompensatedunder
theplaintiffsundertakingindamagesiftheuncertaintywereresolvedinthedefendantsfavouratthetrial.
Thecourtmustweighoneneedagainstanotheranddeterminewherethebalanceofconveniencelies.
Inthosecaseswherethelegalrightsofthepartiesdependuponfactsthatareindisputebetweenthem,
theevidenceavailabletothecourtatthehearingoftheapplicationforaninterlocutoryinjunctionis
incomplete.Itisgivenonaffidavitandhasnotbeentestedbyoralcrossexamination.Thepurpose
soughttobeachievedbygivingtothecourtdiscretiontograntsuchinjunctionswouldbestultifiedifthe
discretionwerecloggedbyatechnicalruleforbiddingitsexerciseifuponthatincompleteuntested
evidencethecourtevaluatedthechancesoftheplaintiffsultimatesuccessintheactionat50percentor
less,butpermittingitsexerciseifthecourtevaluatedhischancesatmorethan50percent.
Theuseofsuchexpressionsasaprobability,aprimafaciecase,orastrongprimafaciecaseinthe
contextoftheexerciseofadiscretionarypowertograntaninterlocutoryinjunctionleadstoconfusionas
totheobjectsoughttobeachievedbythisformoftemporaryrelief.Thecourtnodoubtmustbesatisfied
thattheclaimisnotfrivolousorvexatious,inotherwords,thatthereisaseriousquestiontobetried.
Itisnopartofthecourtsfunctionatthisstageofthelitigationtotrytoresolveconflictsofevidenceon
affidavitastofactsonwhichtheclaimsofeitherpartymayultimatelydependnortodecidedifficult
questionsoflawwhichcallfordetailedargumentandmatureconsiderations.Thesearematterstobe
dealtwithatthetrial.Oneofthereasonsfortheintroductionofthepracticeofrequiringanundertakingas
todamagesuponthegrantofaninterlocutoryinjunctionwasthatitaidedthecourtindoingthatwhich
wasitsgreatobject,viz.abstainingfromexpressinganyopinionuponthemeritsofthecaseuntilthe
hearing:Wak efieldvDuk eofBuccleugh(1865)12LT628,629.Sounlessthematerialavailabletothe
courtatthehearingoftheapplicationforaninterlocutoryinjunctionfailstodisclosethattheplaintiff(p.
937) hasanyrealprospectofsucceedinginhisclaimforapermanentinjunctionatthetrial,thecourt
shouldgoontoconsiderwhetherthebalanceofconvenienceliesinfavourofgrantingorrefusingthe
interlocutoryreliefthatissought.
Astothat,thegoverningprincipleisthatthecourtshouldfirstconsiderwhether,iftheplaintiffwereto
succeedatthetrialinestablishinghisrighttoapermanentinjunction,hewouldbeadequately
compensatedbyanawardofdamagesforthelosshewouldhavesustainedasaresultofthedefendants
continuingtodowhatwassoughttobeenjoinedbetweenthetimeoftheapplicationandthetimeofthe
trial.Ifdamagesinthemeasurerecoverableatcommonlawwouldbeadequateremedyandthe
defendantwouldbeinafinancialpositiontopaythem,nointerlocutoryinjunctionshouldnormallybe
granted,howeverstrongtheplaintiffsclaimappearedtobeatthatstage.If,ontheotherhand,damages
wouldnotprovideanadequateremedyfortheplaintiffintheeventofhissucceedingatthetrial,thecourt
shouldthenconsiderwhether,onthecontraryhypothesisthatthedefendantweretosucceedatthetrial
inestablishinghisrighttodothatwhichwassoughttobeenjoined,hewouldbeadequately
compensatedundertheplaintiffsundertakingastodamagesforthelosshewouldhavesustainedby
beingpreventedfromdoingsobetweenthetimeoftheapplicationandthetimeofthetrial.Ifdamagesin
themeasurerecoverableundersuchanundertakingwouldbeanadequateremedyandtheplaintiffwould
beinafinancialpositiontopaythem,therewouldbenoreasonuponthisgroundtorefusean
interlocutoryinjunction.
Itiswherethereisdoubtastotheadequacyoftherespectiveremediesindamagesavailabletoeither
partyortoboth,thatthequestionofbalanceofconveniencearises.Itwouldbeunwisetoattemptevento
listallthevariousmatterswhichmayneedtobetakenintoconsiderationindecidingwherethebalance
lies,letalonetosuggesttherelativeweighttobeattachedtothem.Thesewillvaryfromcasetocase.
Whereotherfactorsappeartobeevenlybalanceditisacounselofprudencetotakesuchmeasuresas
arecalculatedtopreservethestatusquo.Ifthedefendantisenjoinedtemporarilyfromdoingsomething
thathehasnotdonebefore,theonlyeffectoftheinterlocutoryinjunctionintheeventofhissucceedingat
thetrialistopostponethedateatwhichheisabletoembarkuponacourseofactionwhichhehasnot
previouslyfounditnecessarytoundertakewhereastointerrupthimintheconductofanestablished
enterprisewouldcausemuchgreaterinconveniencetohimsincehewouldhavetostartagainto
establishitintheeventofhissucceedingatthetrial.
Saveinthesimplestcases,thedecisiontograntortorefuseaninterlocutoryinjunctionwillcauseto
whicheverpartyisunsuccessfulontheapplicationsomedisadvantageswhichhisultimatesuccessat
thetrialmayshowheoughttohavebeensparedandthedisadvantagesmaybesuchthattherecoveryof
damagestowhichhewouldthenbeentitledeitherintheactionorundertheplaintiffsundertakingwould
notbesufficienttocompensatehimfullyforallofthem.Theextenttowhichthedisadvantagestoeach
partywouldbeincapableofbeingcompensatedindamagesintheeventofhissucceedingatthetrialis
alwaysasignificantfactorinassessingwherethebalanceofconveniencelies,andiftheextentofthe
uncompensatabledisadvantagetoeachpartywouldnotdifferwidely,itmaynotbeimpropertotakeinto
accountintippingthebalancetherelativestrengthofeachpartyscaseasrevealedbytheaffidavit
evidenceadducedonthehearingoftheapplication.This,however,shouldbedoneonlywhereitis
apparentuponthefactsdisclosedbyevidenceastowhichthereisnocredibledisputethatthestrength
ofonepartyscaseisdisproportionatetothatoftheotherparty.Thecourtisnotjustifiedinembarking
uponanythingresemblingatrialoftheactionuponconflictingaffidavitsinordertoevaluatethestrengthof
eitherpartyscase.
Thisisaveryimportantpassage,whichisattheheartofdecisionsconcerninginteriminjunctions.Itessentially
establishesaseriesofissuesthathavetobeconsidered.First,theremustbeaseriousquestiontobetried.Thisis
notasonerousashavingtoshowaprimafaciecase,butrequirestheclaimantto(p.938) showthatheorshehas
acauseofactionthatwouldnotbestruckoutasfrivolousorvexatious.43 Iftheclaimantfailstoshowthatheorshe
hasasensiblecauseofaction,theoutcomeofwhichisuncertain,thenaninteriminjunctionshouldnotbe
granted.44
Itisonlyifthereisaseriousquestiontobetriedthatacourtwillconsiderthebalanceofconvenience.Thelanguage
inthisareahasbeencriticized:forexample,inFrancomevMirrorGroupNewspapersLtd,SirJohnDonaldsonMR
thoughtittobe:45
anunfortunateexpression.Ourbusinessisjustice,notconvenience.
Regardlessofthisquestionofsemantics,itisclearthatLordDiplockthoughtawiderangeoffactorsmightbe
relevantatthisstage.Butheconsideredittobecrucialthatiftheclaimantcouldbeadequatelycompensatedby
damagesifheorsheweretosucceedattrial,thenaninjunctionshouldnotbegranted,nomatterhowstronghisor
herclaim.46 LordDiplockalsohighlightedtheflipsideofthis:ifthedefendantweretosucceedattrialhavingbeen
subjectedtoaninteriminjunction,buttheclaimantsundertakingindamages 47 wouldadequatelycompensatethe
defendant,itwouldseemsensibletogranttheinjunction.48 Inbothsituations,thebalanceofconvenienceisclear:
giventhatdamageswillprovideasatisfactoryremedyifitislaterestablishedthataninjunctionwasorwasnot
appropriate,thecourtshouldrefuseorgranttheinteriminjunctionandallowmatterstoproceedtotrial.
Ifdamagesmaynotbeadequate,thenotherfactorsassumeincreasedimportance.Significantly,LordDiplock
suggestedthatthecourtmightgenerallyfavourpreservingthestatusquo.InGardenCottageFoodsLtdvMilk
Mark etingBoard,49 LordDiplockmadeitclearwhatwasmeantbythis:
Thestatusquoistheexistingstateofaffairsbutsincestatesofaffairsdonotremainstaticthisraisesthe
query:existingwhen?Inmyopinion,therelevantstatusquotowhichreferencewasmadeinAmerican
Cyanamidisthestateofaffairsexistingduringtheperiodimmediatelyprecedingtheissueofthewritclaiming
thepermanentinjunctionor,iftherebeunreasonabledelaybetweentheissueofthewritandthemotionforan
interlocutoryinjunction,theperiodimmediatelyprecedingthemotion.Thedurationofthatperiodsincethe
stateofaffairslastchangedmustbemorethanminimal,havingregardtothetotallengthoftherelationship
betweenthepartiesinrespectofwhichtheinjunctionisgrantedotherwisethestateofaffairsbeforethelast
changewouldbetherelevantstatusquo.
InAmericanCyanamid,LordDiplockalsoindicatedthatthecourtshouldnotembarkonaminitrialofconflicting
evidence,butwhereonepartyscaseisclearlyfarstrongerthantheothers,thismighthelptotipthebalance.50 A
robustinterpretationofthispointwasprovidedbyLaddieJinSeries5SoftwarevClark e:51
(p.939) InmyviewLordDiplockdidnotintendtoexcludeconsiderationofthestrengthofthecasesin
mostapplicationsforinterlocutoryrelief.Itappearstomethatwhatisintendedisthatthecourtshouldnot
attempttoresolvedifficultissuesoffactorlawonanapplicationforinterlocutoryrelief.If,ontheotherhand,
thecourtisabletocometoaviewastothestrengthofthepartiescasesonthecredibleevidencethenitcan
doso.Infact,asanylawyerwhohasexperienceofinterlocutoryproceedingswillknow,itisfrequentlythe
casethatitiseasytodeterminewhoismostlikelytowinthetrialonthebasisoftheaffidavitevidenceand
anyexhibitedcontemporaneousdocuments.Ifitisapparentfromthatmaterialthatonepartyscaseismuch
strongerthantheothersthenthatisamatterthecourtshouldnotignore.Tosuggestotherwisewouldbeto
excludefromconsiderationanimportantfactorandsuchexclusionwouldflyinthefaceoftheflexibility
advocatedearlierinAmericanCyanamid.
InAmericanCyanamid,LordDiplockalsonotedthat:52
Theremaybemanyotherspecialfactorstobetakenintoconsiderationintheparticularcircumstancesof
individualcases.
TherewassucharelevantfactorinAmericanCyanamiditself:thedefendantsmedicalproductwasnotyetonthe
market,butifdoctorsandpatientsbeganusingtheproduct,thenitmightbecomecommerciallyimpracticableforthe
claimantlatertoinsistonapermanentinjunctiontoprotectitspatentattrial:todosowouldclearlyhavea
deleteriouseffectonitsgoodwillinthepharmaceuticalmarket.
(ii)LimitsofAmericanCyanamid
AlthoughtheAmericanCyanamidprinciplesaregenerallyapplicabletointeriminjunctions,MayLJ,inCaynev
GlobalNaturalResourcesplc,pointedoutthat53
ajudgmentoughtnot,howevereminentthejudge,tobeconstruedasiftheywereanActofParliament.I
thinkthatonemustbeverycarefultoapplytherelevantpassagesfromLordDiplocksfamiliarspeechinthe
Cyanamidcasenotasrulesbutonlyasguidelines.
ThecourtsshouldnotbetoorigidintheirapproachtotheCyanamidguidelines.Afterall,thejurisdictiontogrant
injunctionsundertheSeniorCourtsAct1981istodowhatisjustandconvenient,andthischimeswellwiththe
54
CivilProcedureRules:54
overridingobjectiveofenablingthecourttodealwithcasesjustly.
However,somesituationswheretheCyanamidguidelinesareoftensidelinedcanbehighlighted.Ifitisclearthatthe
claimantisintheright,andtheissueisnotreallyarguable,thenaninjunctionshouldbegrantedandthebalanceof
convenienceisirrelevant.55 ThecourtmightalsonotusetheCyanamidguidelinesifthecaserevolvesarounda
simplequestionofconstructionofadocument,whichcaneasilybedoneattheinterlocutorystage.56 Ifthegrantor
refusalofaninteriminjunctionwillhavethe(p.940) practicaleffectofputtinganendtotheaction,thenthecourtwill
beveryconsciousofthefactthataninjunctionmighteffectivelydenythedefendanttherighttotrial.Insuchcases,
thecourtwilltakeintoaccountthelikelihoodoftheclaimantsucceedingattrial.57
ParticularareasofthelawhavealsodevelopedparticularrulesthatdriftawayfromtheCyanamidguidance.For
example,statutehasintervenedinthecontextoflabourdisputes,58 andwherefreedomofexpressionmightbe
infringed.Section12(3)oftheHumanRightsAct1998providesthat:
Noreliefistobegrantedsoastorestrainpublicationbeforetrialunlessthecourtissatisfiedthatthe
applicantislikelytoestablishthatpublicationshouldnotbeallowed.
Thisistopreservetheimportanthumanrightoffreedomofexpression,andclearlyrequirestheclaimanttoshow
morethansimplyaseriousissuetobetried.InCreamHoldingsLtdvBanerjee,59 LordNichollssaid:
thegeneralapproachshouldbethatcourtswillbeexceedinglyslowtomakeinterimrestraintorderswhere
theapplicanthasnotsatisfiedthecourthewillprobably(morelikelythannot)succeedatthetrial.
Thisisamorechallengingthresholdthanthatusuallyrequiredforinteriminjunctions.However,itisimportantto
appreciatethatevenifthisthresholdismet,thecourtsretainadiscretiontorefuseinjunctiverelief.60
(iii)Mandatoryinteriminjunctions
Thecourtisparticularlywaryaboutgrantinginterimmandatoryinjunctions,beingconsciousofthepotentialwaste
andneedlessexpenditurethatmightresultfromawronglygrantedinterimmandatoryinjunction.However,wherethe
defendanthasactedbadlyinsomeway,thecourtmightbemorewillingtograntsuchaninjunction.So,wherea
defendantspeededupbuildingworksafterbeingservedwithnoticeoftheclaimantsproceedingstoprotecthisright
oflight,thecourtdidorderaninterimmandatoryinjunction.61
Beforethecourtgrantssuchinjunctions,itgenerallyneedstobesatisfiedthataninjunctionwouldbegrantedat
trial.TheapproachofthecourtswassummarizedbyChadwickJinNottinghamBuildingSocietyvEurodynamics
Systemsplcasfollows:62
Inmyviewtheprinciplestobeappliedarethese.First,thisbeinganinterlocutorymatter,theoverriding
considerationiswhichcourseislikelytoinvolvetheleastriskofinjusticeifitturnsouttobewrong
Secondly,inconsideringwhethertograntamandatoryinjunction,thecourtmustkeepinmindthatanorder
whichrequiresapartytotakesomepositivestepataninterlocutorystage,maywellcarrya(p.941) greater
riskofinjusticeifitturnsouttohavebeenwronglymadethananorderwhichmerelyprohibitsaction,thereby
preservingthestatusquo.
Thirdly,itislegitimate,whereamandatoryinjunctionissought,toconsiderwhetherthecourtdoesfeelahigh
degreeofassurancethattheplaintiffwillbeabletoestablishhisrightatatrial.Thatisbecausethegreater
thedegreeofassurancetheplaintiffwillultimatelyestablishhisright,thelesswillbetheriskofinjusticeifthe
injunctionisgranted.
But,finally,evenwherethecourtisunabletofeelanyhighdegreeofassurancethattheplaintiffwillestablish
hisright,theremaystillbecircumstancesinwhichitisappropriatetograntamandatoryinjunctionatan
interlocutorystage.Thosecircumstanceswillexistwheretheriskofinjusticeifthisinjunctionisrefused
sufficientlyoutweightheriskofinjusticeifitisgranted.
(iv)Barstointeriminjunctions
Thesamebars 63 thatapplytofinalinjunctionsandequitableinjunctionsarerelevanttointeriminjunctions.However,
alesserdegreeofdelaymightbarinterlocutoryrelief,sinceanydelaymightshowalackoftheurgencyrequiredfor
interimorders.64
Ofsignificantimportanceistherequirementthattheclaimantgiveanundertakingindamagestopaythedefendantif
attrialitisdecidedthataninjunctionshouldnotbegranted.65 Thedefendantshouldclearlybecompensatedforthe
claimantshavingwronglypreventedthedefendantsactivity.Althoughthecourtwillgenerallyaskforevidencethat
theclaimantisabletomeettheundertakingindamages,66 insomecircumstancesthecourtmightgrantaninterim
injunctiondespitetheclaimantslackoffundstomeethisorherpotentialliabilitiessatisfactorily.InAllenvJambo
HoldingsLtd,LordDenningMRsaid:67
Idonotseewhyapoorplaintiffshouldbedenied[an]injunctionjustbecauseheispoor,whereasarich
plaintiffwouldgetit.Onehastolookatthesemattersbroadly.Asamatterofconvenience,balancingone
sideagainsttheother,itseemstomethataninjunctionshouldgotorestrain[theallegedbreach].
(f)FreezingInjunctions
ThecreativefunctionofEquityisparticularlywellillustratedbyanimportantremedydevelopedinthe1970stodeal
withtheproblemofadefendantwhoseekstohidehisorherassetsortakethemoutofthejurisdictiontopreventthe
claimantfromenforcingajudgmentfordamagesagainsthimorher.Toavoidthisproblem,Equitywasrelieduponto
createanewformofinteriminjunction,knownthenasaMarevainjunction(afterone68 oftheearlycasesthatfirst
recognizedit,involvingashipofthatname)69 andnowknownasafreezinginjunction.Thisisaninjunctionthatcan
beusedbyjudgestofreezesomeorallofthedefendantsassetstopreventthedefendantfromremovingthemfrom
thejurisdiction,ordissipatingthem,andsoensurethatanyjudgmentcanbeenforcedagainst(p.942) the
defendant.However,itiscrucialtorememberthattheorderoperatesinpersonamtopreventthedefendantfrom
dealingwithhisorherassets:forexample,theordermightprohibitthedefendantfromaccessingmoneycreditedto
hisorherbankaccount.Buttheorderdoesnotgivetheclaimantanyproprietaryinterestsinthedefendants
assets.70 InInvestmentandPensionsAdvisoryServicevGray,MorrittJrightlyemphasizedthat:71
ItiswellestablishedthatitisnotthepurposeorthefunctionofaMarevaordertogivethecreditorwho
obtainsitsecurityoveranyparticularassetofthedefendantorapriorityoverothercreditorsofthedefendant.
Freezingorderscanbegrantedeitherbeforeorafter72 judgmenthasbeenobtained.Suchinjunctionshaveprovedto
beasignificantfeatureoftheEnglishlawofcivilprocedure.LordDenninghasdescribedfreezinginjunctionsas:73
Thegreatestpieceofjudiciallawreforminmytime.
(i)Thejurisdictiontograntafreezinginjunction
Thejurisdictiontograntafreezinginjunctionisnowstatutory.
SeniorCourtsAct1981
37(3)ThepoweroftheHighCourtundersubsection(1)74 tograntaninterlocutoryinjunctionrestraininga
partytoanyproceedingsfromremovingfromthejurisdictionoftheHighCourt,orotherwisedealingwith,
assetslocatedwithinthatjurisdictionshallbeexercisableincaseswherethatpartyis,aswellasin
caseswhereheisnot,domiciled,residentorpresentwithinthatjurisdiction.
SuchinjunctionsarenowappropriatelycalledfreezinginjunctionsunderCivilProcedureRuler25,1(1):
Thecourtmaygrantthefollowinginterimremedies:
(f)anorder(referredtoasafreezinginjunction)
(i)restrainingapartyfromremovingfromthejurisdictionassetslocatedthereor
(ii)restrainingapartyfromdealingwithanyassetswhetherlocatedwithinthejurisdictionornot.
Theseprovisionsembodythecommonlawprinciples,whichwereencapsulatedinthecasethat,foratime,gave
theseinjunctionstheirname.
MarevaCompaniaNavieraSAvInternationalBulkcarriersSA[1975]2Lloyds
(p.943)
Rep509
ShipownerssuedthecharterersoftheMarevaforrecoveryofhirepaymentsandsoughtaninjunctiontorestrain
themfromtakinganyofthemoneytheyhadreceivedunderthecharterfromaLondonbankandoutofthe
jurisdiction.ThetrialjudgegrantedtheinjunctionuntilthematterwasheardbytheCourtofAppeal.The
shipownersappealedonthebasisthattheinjunctionshouldcontinueuntiljudgmentwasobtained.Thisappeal
wassuccessful.
LordDenningMR:
[Theshipowners]haveappliedforaninjunctiontorestrainthedisposalofthosemoneyswhicharenowin
thebank.TheyrelyontherecentcaseofNipponYusenKaishavKarageorgis[1975]1WLR1093.
Now[counselfortheshipowners]hasbeenveryhelpful.Hehasdrawnourattentiontosection45of
theJudicatureAct,1925,whichrepeatssection25(8)oftheJudicatureAct,1875.Itsays:
Amandamusoraninjunctionmaybegrantedorareceiverappointedbyaninterlocutoryorderof
thecourtinallcasesinwhichitshallappeartothecourttobejustorconvenient.
InBeddowvBeddow(1878)9ChD89,SirGeorgeJessel,thethenMasteroftheRolls,gaveavery
wideinterpretationtothatsection.Hesaid:
Ihaveunlimitedpowertograntaninjunctioninanycasewhereitwouldberightorjusttodoso.
Thereisonlyonequalificationtobemade.TheCourtwillnotgrantaninjunctiontoprotectapersonwho
hasnolegalorequitablerightwhatever.ThatappearsfromNorthLondonRailwayCovGreatNorthern
RailwayCo(1883)11QBD30.But,subjecttothatqualification,thestatutegivesawidegeneralpowerto
theCourts.ItiswellsummarizedinHalsburysLawsofEngland,vol.21,3rded.,p.348,para.729:
now,therefore,wheneveraright,whichcanbeassertedeitheratlaworinequity,doesexist,
then,whateverthepreviouspracticemayhavebeen,theCourtisenabledbyvirtueofthis
provision,inapropercase,tograntaninjunctiontoprotectthatright.
Inmyopinionthatprincipleappliestoacreditorwhohasarighttobepaidthedebtowingtohim,even
beforehehasestablishedhisrightbygettingjudgmentforit.Ifitappearsthatthedebtisdueandowing
andthereisadangerthatthedebtormaydisposeofhisassetssoastodefeatitbeforejudgmentthe
Courthasjurisdictioninapropercasetograntaninterlocutoryjudgmentsoastopreventhimdisposing
ofthoseassets.Itseemstomethatthisisapropercasefortheexerciseofthisjurisdiction.Thereis
moneyinabankinLondonwhichstandsinthenameofthesetimecharterers.Thetimecharterershave
controlofit.Theymayatanytimedisposeofitorremoveitoutofthiscountry.Iftheydoso,the
shipownersmaynevergettheircharterhire.Theshipisnowonthehighseas.IthaspassedCapeTown
onitswaytoIndia.Itwillcompletethevoyageandthecargodischargedandtheshipownersmaynotget
theircharterhireatall.Infaceofthisdanger,IthinkthisCourtoughttograntaninjunctiontorestrainthe
defendantsfromdisposingofthesemoneysnowinthebankinLondonuntilthetrialorjudgmentinthis
action.Ifthedefendantshaveanygrievanceaboutitwhentheyhearofit,theycanapplytodischargeit.
Butmeanwhiletheplaintiffsshouldbeprotected.ItisonlyjustandrightthatthisCourtshouldgrantan
injunction.Iwouldthereforecontinuetheinjunction.
AsLordDenningMRrecognized,thepowerenjoyedbythecourtstograntafreezinginjunctionisverywideindeed.
Thesolequalificationmadeinthiscasewasthesensiblerequirementthatthe(p.944) claimantneedstohavea
substantivelegalorequitablerightthatrequiresprotection.75 However,giventhewidescopeofthecourtsdiscretion
todojustice,anordermightbegrantedagainstarangeofpossibledefendants.Forexample,inH.M.Revenue&
CustomsvEgleton,BriggsJacknowledgedthat:76
Althoughintheoverwhelmingmajorityofcasesfreezingordersaresoughtandobtainedagainstthevery
defendantsfromwhomtheclaimantseeksmonetarycompensationinhisexistingoranticipatedproceedings,
itisnowwellestablishedthatsuchordersmayalsobemadeagainstpersonsinrelationtowhomthe
claimantassertsnocauseofactionandseeksnomoneyjudgment,butinrelationtowhomthereisan
arguablecasethatassetsheldintheirnameorundertheircontrolareintruthbeneficiallyownedbythe
defendantagainstwhomtheclaimismade:seeTSBPrivateBank InternationalS.A.vChabra[1992]1
WLR231,andtheothercasescitedinparagraph37ofthejudgmentofAikensJ.inCInc.vL.77
Indeed,BriggsJwentontoconsiderthatinsomesituationsaninjunctionmightbegrantedagainstathirdparty,
evenifheorshewasnotholdingpropertyfortheclaimantbeneficially.HisLordshipcitedwithapprovalthedecision
oftheHighCourtofAustraliainCardilevLEDBuildersPTYLtd,inwhichthemajoritysaid:78
WhatthenistheprincipletoguidethecourtsindeterminingwhethertograntMarevareliefinacasesuchas
thepresentwheretheactivitiesofthirdpartiesaretheobjectsoughttoberestrained?Inouropinionsuchan
ordermay,andweemphasisethewordmay,beappropriate,assumingtheexistenceofotherrelevant
criteriaanddiscretionaryfactors,incircumstancesinwhich:
(i)thethirdpartyholds,isusing,orhasexercisedorisexercisingapowerofdispositionover,oris
otherwiseinpossessionof,assets,includingclaimsandexpectancies[89],ofthejudgmentdebtoror
potentialjudgmentdebtoror
(ii)someprocess,ultimatelyenforceablebythecourts,isormaybeavailabletothejudgmentcreditor
asaconsequenceofajudgmentagainstthatactualorpotentialjudgmentdebtor,pursuanttowhich,
whetherbyappointmentofaliquidator,trusteeinbankruptcy,receiverorotherwise,thethirdpartymay
beobligedtodisgorgepropertyorotherwisecontributetothefundsorpropertyofthejudgmentdebtorto
helpsatisfythejudgmentagainstthejudgmentdebtor.
(ii)Factorsrelevanttothegrantingofafreezinginjunction
Afreezinginjunctionisaninteriminjunction,soitmightbethoughtthattheusualrequirementsrecognizedin
AmericanCyanamidCovEthiconLtd79 shouldbesatisfied,namelytherebeaseriousissuetobetriedandthatthe
balanceofconveniencefavourthegrantoftheinjunction.However,furtherguidelineshavebeenidentifiedbyLord
DenningMR.
ThirdChandrisShippingCorporationvUnimarineSA[1979]QB645,6669(Lord
(p.945)
DenningMR)
ItisjustfouryearsagonowsinceweintroducedheretheprocedureknownasMarevainjunctions.Allthe
otherlegalsystemsoftheworldhaveasimilarprocedure.Itiscalledinthecivillawsaisieconservatoire.
IthasbeenwelcomedintheCityofLondonandhasprovedextremelybeneficial.Itenablesacreditorina
propercasetostophisdebtorfrompartingwithhisassetspendingtrial
MuchasIaminfavouroftheMarevainjunction,itmustnotbestretchedtoofarlestitbeendangered.In
endeavouringtosetoutsomeguidelines,Ihavehadrecoursetothepracticeofmanyothercountries
whichha[s]beenputbeforeus.Theyhavebeenmosthelpful.Thesearethepointswhichthosewho
applyforitshouldbearinmind:
(i)Theplaintiffshouldmakefullandfrankdisclosureofallmattersinhisknowledgewhichare
materialforthejudgetoknow
(ii)Theplaintiffshouldgiveparticularsofhisclaimagainstthedefendant,statingthegroundofhis
claimandtheamountthereof,andfairlystatingthepointsmadeagainstitbythedefendant.
(iii)TheplaintiffshouldgivesomegroundsforbelievingthatthedefendanthasassetshereThe
existenceofabankaccountinEnglandisenough,whetheritisinoverdraftornot.
(iv)Theplaintiffshouldgivesomegroundsforbelievingthatthereisariskoftheassetsbeing
removedbeforethejudgmentorawardissatisfied.Themerefactthatthedefendantisabroadisnot
byitselfsufficient
(v)Theplaintiffmust,ofcourse,giveanundertakingindamagesincasehefailsinhisclaimor
theinjunctionturnsouttobeunjustified.Inasuitablecasethisshouldbesupportedbyabondor
security:andtheinjunctiononlygrantedonitbeinggiven,orundertakentobegiven.
Insettingoutthoseguidelines,Ihopeweshalldonothingtoreducetheefficacyofthepresentpractice.
Initspeedisoftheessence.Exparteisoftheessence.Ifthereisdelay,orifadvancewarningisgiven,
theassetsmaywellberemovedbeforetheinjunctioncanbite.
Theseconsiderationsaresensibleandsignificant.Thefirstfullandfrankdisclosureisobviouslyimportantsince
theinjunctionisgrantedwithoutnoticetothedefendant.Iftherehasbeennondisclosureofmaterialfacts,the
injunctionmightbedischargedregardlessofthemeritsofthecase,80 andthedefendantmaybeentitledto
damages.81
Thesecondconsiderationessentiallyrequiresagoodarguablecase.Thisishigherthantheseriousquestiontobe
triedthresholdofAmericanCyanamid,whichisappropriategiventhestringentnatureoffreezingordersgranted
withoutnotice.However,thecourtneednotdecidewhetherornotthesubstantiveclaimwillsucceed,82 andthe
claimantmustproceedwithhissubstantiveclaimasquicklyashecan.83 Itisnowpossibletograntfreezingorders
inrelationtoproceedingsthathavebeenorareabouttobecommencedabroad.84
(p.946) ThethirdguidelinegivenhererepresentstheinitialapproachofEnglishcourts.Indeed,inBarclayJohnsonv
Yuill,MegarryVCcommentedthat:85
theheartandcoreoftheMarevainjunctionistheriskofthedefendantremovinghisassetsfromthe
jurisdictionandsostultifyinganyjudgmentgivenbythecourtsintheaction.
ItisundoubtedlyrightthatthepresenceofassetsinEnglandwillstillbeaverygoodreasontograntafreezingorder.
Butthejurisdictionofthecourtshasnowbeenextendedandworldwidefreezingorderscannowbegranted.These
willbeconsideredbelow.86
MegarryVCscommentsinYuillemphasizethefourthconsiderationtheriskoftheassetsbeingremovedfromthe
jurisdiction,ordissipated,mustbereal.Afreezingorderwillnotbegrantedsimplytoprovideaclaimantwithpeace
ofmindthatheorshewillbeabletogainsatisfactionfromthedefendantinNinemiaMaritimeCorpvTrave
SchiffahrtsgesellschaftmbHundCo.KG,KerrLJobserved:87
ThemachineryoftheMarevainjunctionisextremelyusefulinappropriatecases.But,asthelawstands,this
jurisdictioncannotbeinvokedforthepurposeofprovidingplaintiffswithsecurityforclaims,evenwhenthese
appearlikelytosucceedwearespeakinggenerallyandnotwithreferencetothiscaseandevenwhen
thereisnoreasontosupposethatanorderforaninjunction,ortheprovisionofsomesubstitutesecurityby
thedefendants,wouldcauseanyrealhardshiptothedefendants.
Thenormalundertakingindamagesmustalsobegiven.Thismightbeextendedtocoverlossessufferedbythird
partiesinappropriatecircumstances.88 However,noinjunctionwillbegrantediftheclaimantalreadyenjoys
sufficientsecurityforhisorherclaim.89
Itisimportanttoappreciatethatalthoughfreezingorderswereoriginallygrantedtorestrainforeigndefendantsfrom
removingtheirassetsfromthejurisdiction,theycannowbegrantedagainstEnglishdefendants 90 topreventthe
dissipationofassetswithinthisjurisdiction.91 Freezingordersmightrelatetoparticularassetsordescribethe
propertyingeneralterms.Suchinjunctionsnormallyrestrictthedefendantfromdealingwithhispropertyuptoa
specifiedmaximumamount.Itisnormalforthedefendanttobegrantedanallowanceforlivingexpenses 92 andlegal
expenses,93 althoughalimitshouldordinarilybeimposed.
(iii)Worldwidefreezinginjunctions
CivilProcedureRuler25,1(1)(f)94 makesitclearthatfreezingorderscanbegrantedtorestrainthedissipationof
assetsabroad.Thisisalogicalconsequenceofthenatureoffreezinginjunctions:sincetheinjunctionactsin
personamuponthedefendant,andnotinremontheassetsthemselves,only(p.947) thedefendant,andnotthe
assets,mustbesubjecttothejurisdictionofthecourt.Ifthatdefendantbreachestheinjunction,theEnglishcourts
canholdhimorherincontempt.GiventheemphasisupondefendantsbeingwithinthejurisdictionoftheEnglish
courts,caremustbeexercisedwhenlabellingthistypeofinjunctionworldwide.
However,thelanguageofworldwideishelpfulinthatitemphasizestheunusualnatureoftheorder:ithasthe
potentialtobeconsideredoppressiveandtoconflictwithprinciplesofcomity.
MasrivConsolidatedContractorsInternational(UK)Ltd(No.2)[2008]EWCACiv303
[2009]QB450,[35][39](LawrenceCollinsLJ)
Consequentlythemerefactthatanorderisinpersonamandisdirectedtowardssomeonewhoissubject
tothepersonaljurisdictionoftheEnglishcourtdoesnotexcludethepossibilitythatthemakingofthe
orderwouldbecontrarytointernationallaworcomity,andoutsidethesubjectmatterjurisdictionofthe
Englishcourt.
ThatwaswhyLordDonaldsonofLymingtonMRconfirmedthattheMarevainjunctionshouldnot
conflictwiththeordinaryprinciplesofinternationallawandthatconsiderationsofcomityrequirethe
courtsofthiscountrytorefrainfrommakingorderswhichinfringetheexclusivejurisdictionofthecourts
ofothercountries:Derby&CoLtdvWeldon(Nos3and4)[1990]Ch65,82.Itwasforthisreasonalso
thatithasbeensuggestedthattheextensionoftheMarevajurisdictiontoassetsabroadwasjustifiable
intermsofinternationallawandcomityprovidedthatthecasehadsomeappropriateconnectionwith
England,thatthecourtdidnotpurporttoaffecttitletopropertyabroad,andthatthecourtdidnotseekto
controltheactivitiesabroadofforeignerswhowerenotsubjecttothepersonaljurisdictionoftheEnglish
court:Collins,TheTerritorialReachofMarevaInjunctions(1989)105LQR262,299.
InBabanaftInternationalCoSAvBassatne[1990]Ch13,46NichollsLJemphasised,inrelationtothe
postjudgmentworldwideMarevainjunctiongrantedinthatcase:
Theenforcementofthejudgmentinothercountries,byattachmentorlikeprocess,inrespectof
assetswhicharesituatedthereisnotaffectedbytheorderTheEnglishcourtisnotattempting
inanywaytointerferewithorcontroltheenforcementprocessinrespectofthoseassets.
ItwasconcernsofinternationalcomitywhichledtheCourtofAppealinBabanaftInternationalCoSAv
BassatnetolimittheeffectoftheMarevainjunctiononthirdpartiesabroadwhomayhavenoticeofthe
injunction,bywhatbecameknownastheBabanaftproviso,whichKerrLJdescribed,atp37,asthe
internationallyappropriatecourseandwhichLordDonaldsonMRindicatedwasdesignedtoavoidan
excessofjurisdiction:Derby&CoLtdvWeldon(Nos3and4)[1990]Ch65,8283.Thereason,as
NichollsLJsaidinBabanaftInternationalCoSAvBassatne[1990]Ch13,44,wasthat
ItwouldbewrongforanEnglishcourt,bymakinganorderinrespectofoverseasassetsagainst
adefendantamenabletoitsjurisdiction,toimposeorattempttoimposeobligationsonpersons
notbeforethecourtinrespectofactstobedonebythemabroadregardingpropertyoutsidethe
jurisdiction.That,selfevidently,wouldbefortheEnglishcourttoclaimanaltogetherexorbitant,
extraterritorialjurisdiction.
EvenifthethirdpartywithnoticeoftheorderissubjecttotheinpersonamjurisdictionoftheEnglish
court,theremaystillbeconcernsrelatingtointernationalcomity,forexamplewherethedefendanthas
anaccountabroadataforeignbranchofanEnglishbank,oranaccountattheheadofficeorforeign
branchofaforeignbankwithabranchinEngland:BalticShippingCovTranslink ShippingLtd[1995]1
LloydsRep673.
(p.948) LawrenceCollinsLJreferstotheBabanaftproviso,whichprovidesthatworldwidefreezinginjunctionsare
notintendedtobindthirdpartieswhoarenotsubjecttothecourtsjurisdiction.Partiesarealsoabletoapplyfora
Balticproviso,namedafterBalticShippingCo.vTranslink ShippingLtd,95 whichprovidesthatnothinginanorder
preventspartiesfromcomplyingwiththeirobligationsunderthelawsofotherstates.
Giventheextremenatureofworldwidefreezingorders(WFO),theyareonlygrantedonthebasisofcogent
evidence.Thecourtwilltakeintoaccountvariousfactorswhenapplyingitsdiscretion.InDadourianGroup
InternationalInc.vSimms,theCourtofAppeallaiddowntheDadourianguidelines:96
Guideline1:TheprincipleapplyingtothegrantofpermissiontoenforceaWFOabroadisthatthegrantof
thatpermissionshouldbejustandconvenientforthepurposeofensuringtheeffectivenessoftheWFO,and
inadditionthatitisnotoppressivetothepartiestotheEnglishproceedingsortothirdpartieswhomaybe
joinedtotheforeignproceedings.
Guideline2:Alltherelevantcircumstancesandoptionsneedtobeconsidered.Inparticularconsideration
shouldbegiventograntingreliefonterms,forexampletermsastotheextensiontothirdpartiesofthe
undertakingtocompensateforcostsincurredasaresultoftheWFOandastothetypeofproceedingsthat
maybecommencedabroad.Considerationshouldalsobegiventotheproportionalityofthestepsproposed
tobetakenabroad,andinadditiontotheformofanyorder.
Guideline3:Theinterestsoftheapplicantshouldbebalancedagainsttheinterestsoftheotherpartiestothe
proceedingsandanynewpartylikelytobejoinedtotheforeignproceedings.
Guideline4:Permissionshouldnotnormallybegivenintermsthatwouldenabletheapplicanttoobtainrelief
intheforeignproceedingswhichissuperiortothereliefgivenbytheWFO.
Guideline5:Theevidenceinsupportoftheapplicationforpermissionshouldcontainalltheinformation(sofar
asitcanreasonablybeobtainedinthetimeavailable)necessarytomakethejudgetoreachaninformed
decision,includingevidenceastotheapplicablelawandpracticeintheforeigncourt,evidenceastothe
natureoftheproposedproceedingstobecommencedandevidenceastotheassetsbelievedtobelocatedin
thejurisdictionoftheforeigncourtandthenamesofthepartiesbywhomsuchassetsareheld.
Guideline6:ThestandardofproofastotheexistenceofassetsthatarebothwithintheWFOandwithinthe
jurisdictionoftheforeigncourtisarealprospect,thatistheapplicantmustshowthatthereisarealprospect
thatsuchassetsarelocatedwithinthejurisdictionoftheforeigncourtinquestion.
Guideline7:Theremustbeevidenceofariskofdissipationoftheassetsinquestion.
Guideline8:Normallytheapplicationshouldbemadeonnoticetotherespondent,butincasesofurgency,
whereitisjusttodoso,thepermissionmaybegivenwithoutnoticetothepartyagainstwhomreliefwillbe
soughtintheforeignproceedingsbutthatpartyshouldhavetheearliestpracticableopportunityofhavingthe
matterreconsideredbythecourtatahearingofwhichheisgivennotice.
(iv)Effectonthirdparties
Amatterofparticularsignificanceconcernstheeffectoffreezingordersonthirdparties.Thiswasconsideredbythe
HouseofLordsinCustomsandExciseCommissionersvBarclaysBank plc.
CustomsandExciseCommissionersvBarclaysBankplc[2006]UKHL28,[2007]
(p.949)
1AC181
TheCustomsandExciseCommissionersweretryingtorecoveroutstandingpaymentsofVATfromtwo
companiesandobtainedafreezingorderinrespectoffundsheldbythecompaniesinthedefendantbank.The
bankwasinformedoftheordersbutfailedtopreventpaymentoutoftheaccounts.Theclaimantsuedthebank
fornegligence.Inholdingthatthebankdidnotoweadutyofcaretotheclaimant,theHouseofLords
consideredthenatureofthecourtsjurisdictiontograntinjunctions.
LordBingham:97 Theprescribedstandardformcontainsapenalnotice:
Ifyou[]disobeythisorderyoumaybeheldtobeincontemptofcourtandmaybeimprisoned,finedor
haveyourassetsseized.
Anyotherpersonwhoknowsofthisorderanddoesanythingwhichhelpsorpermitstherespondentto
breachthetermsofthisordermayalsobeheldtobeincontemptofcourtandmaybeimprisoned,fined
orhavetheirassetsseized.
Thefirstofthesewarningsisaddressedtothesubjectoftheorder,thesecondtoanyparty(suchasa
bank)whoknowsofit.Theformprovidesthatanyoneservedwithornotifiedoftheordermayapplytothe
courttovaryordischargeitonnoticetotheapplicantssolicitor.Theeffectoftheorderasitaffects
partiesotherthantheapplicantandthesubjectoftheorderisagainstated:
Itisacontemptofcourtforanypersonnotifiedofthisorderknowinglytoassistinorpermita
breachofthisorder.Anypersondoingsomaybeimprisoned,finedorhavetheirassetsseized.
Theformrecordsanundertakingbytheapplicanttopaythereasonablecostsofanypersonotherthan
thesubjectoftheorder:
whichhavebeenincurredasaresultofthisorderincludingthecostsoffindingoutwhetherthat
personholdsanyoftherespondentsassetsandifthecourtfindsthatthisorderhascausedsuch
personloss,anddecidesthatsuchpersonshouldbecompensatedforthatloss,theapplicantwill
complywithanyorderthecourtmaymake.
Itisverywellestablishedthatthepurposeofafreezinginjunctionistorestrainadefendantorprospective
defendantfromdisposingofordealingwithassetssoastodefeat,whollyorinpart,alikelyjudgment
againstit.Thepurposeisnottogiveaclaimantsecurityforhisclaimorgivehimanyproprietaryinterest
intheassetsrestrained:GangwayLtdvCaledonianPark Investments(Jersey)Ltd[2001]2LloydsRep
715,para14,perColmanJ.Theownershipoftheassetsdoesnotchange.Allthatchangesistheright
todealwiththem.
Thecourtwillpunishapartywhobreachesoneofitsordersifthebreachissufficientlyseriousandthe
requiredstandardofknowledgeandintentionissufficientlyproved.Thisruleappliestofreezing
injunctions,astheprescribedformandthenoticesgiventothebankinthiscasemakeclear.Theleading
authorityonMarevainjunctionsleavesnoroomfordoubt.InZLtdvAZandAALL[1982]QB558,572,
LordDenningMRsaid:Everypersonwhohasknowledgeof[theorder]mustdowhathereasonably
cantopreservetheasset.Hemustnotassistinanywayinthedisposalofit.Otherwiseheisguiltyofa
contemptofcourt.Herepeatedthispointatpp573574and575.EveleighLJdevotedhisjudgmentin
thecasewhollytotherequirementsofcontemptinthiscontext.Thatthepowertopunishforcontemptis
notamerepapertigeriswellillustratedbythejudgmentofColmanJinZBank vD1[1994]1Lloyds
Rep656
(p.950) In1981RobertGoffJobservedthatthebanksinthiscountryhavereceivednumerousnotices
of[Mareva]injunctionswhichhavebeengranted(SearoseLtdvSeatrainUKLtd[1981]1WLR894,
895),andthereisnoreasontothinkthatthepacehasslackenedsince.Thusreceivingnoticeofsuch
injunctionsis,literally,aneverydayevent.AndtheCommissionersarerightthattheywerenotclaiming
substantivereliefagainstthebankasaclaimantseeksitagainstadefendant.ButIthinkthebankis
righttosaythatthatisnotthewholestory,forthreemainreasons.First,theeffectofnotificationofthe
orderistooverridetheordinarycontractualdutieswhichgoverntherelationshipofbankerandcustomer.
Thisisnotsomethingofwhichabankcancomplainorofwhichthebankdoescomplain.Abanks
relationshipwithitscustomersissubjecttothelawoftheland,whichprovidesforthegrantoffreezing
injunctions.Buttheeffectisnonethelesstoobligethebanktoactinawaywhichbutfortheorder
wouldbeagrossbreachofcontract.Suchasituationmustnecessarilybeveryunwelcometoanybank
whichvaluesitsrelationshipwithitscustomer.Secondly,theorderexposesthebanktotheriskthatits
employeesmaybeimprisoned,thebankfinedanditsassetssequestrated.Ofcourse,thisisonlyarisk
ifthebankbreachestheorderinasufficientlyculpableway.Butitisnotariskwhichexists
independentlyoftheorder,andnotarisktowhichanyonewouldwishtobeexposed.
TheMarevajurisdictionhasdevelopedasoneexercisedbycourtorderenforceableonlybythecourts
powertopunishthosewhobreakitsorders.Thedocumentationissuedbythecourtdoesnothintatthe
existenceofanyotherremedy.Thisregimemakesperfectsenseontheassumptionthattheonlyduty
owedbyanotifiedpartyistothecourt.
Inasimilarvein,LordHoffmannsaid:98
Afreezingorderisaninjunctionmadeagainsttheputativedebtortowhichthebankisnotaparty.Butthe
existenceoftheinjunctionmayhaveaneffectuponthirdpartiesintwoways.First,itisacontemptofcourtto
aidandabetabreachofaninjunctionbythepartyagainstwhomtheorderwasmade.Secondly,itisan
independentcontemptofcourttodoanactwhichdeliberatelyinterfereswiththecourseofjusticeby
frustratingthepurposeforwhichtheorderwasmade:seeAttorneyGeneralvTimesNewspapersLtd[1992]1
AC191andAttorneyGeneralvPunchLtd[2003]1AC1046forthegeneralprincipleandZLtdvAZand
AALL[1982]QB558,578foranexplanationbyEveleighLJofitsapplicationtoMarevainjunctions.The
purposeofservingthebankwiththeorderisthereforetogivethebanknoticethatpaymentoutoftheaccount
willfrustrateitspurposeand,ifdonedeliberately,willbeacontemptofcourt.However,asLordHopeof
CraigheadsaidinAttorneyGeneralvPunchLtd[2003]1AC1046,1066,forthethirdpartytobeliablefor
contempt:
ithastobeshowntherewasanintentiononhisparttointerferewithorimpedetheadministration
ofjustice.Thisisanessentialingredient,andithastobeestablishedtothecriminalstandardofproof.
TherestrictiveapproachshownbytheHouseofLordsinthiscaseisclearlyappropriate.Itwouldbevery
inconvenientforabanktobeguiltyofcontemptofcourtinsituationswhereithadnoknowledgeof,andassumedno
responsibilityfor,theneedtoprotecttheclaimantsassets.Thirdpartiesowenodutyofcaretotheclaimantwhois
grantedafreezingorder.Freezingordersarepersonalandoperateonthedefendantalone.Tobeliableasan
accessory,athirdpartymustknowthatitisassistingthebreachoftheorder.
(v)Ancillaryorders
Itiscommonforafreezingordertobeaccompaniedbyanancillaryorderfordisclosure.Forexample,Civil
ProcedureRule25.1(1)(g)providesthatthecourtmaymake:
(p.951) anorderdirectingapartytoprovideinformationaboutthelocationofassetswhichareormaybethe
subjectofanapplicationforafreezinginjunction.
Thisissensible:ifaclaimantdoesnotknowwhatassetsthedefendanthas,anyfreezingorderwouldbemuchless
effective.Ancillaryordersfordisclosuremaybemadeagainstthedefendantsbankorotherthirdparties.99 However,
thegrantingofsuchancillaryordersisamatterforthecourtsdiscretiongenerally,anorderfordisclosurewillnotbe
madeunlessitisnecessary.Iftherelevantinformationcouldbeobtainedmoreeasilyandlessintrusivelyfromthe
defendantforexample,byorderingthatthedefendantappearforcrossexaminationonaffidavitsswornbyhim
thenthecourtwillpreferthatcourseofaction.100
(g)SearchOrders
Anothersignificantapplicationoftheequitablejurisdictiontosupplementdomesticandinternationallitigationisthe
searchorder,sometimesknownastheAntonPillerorderafteroneofthefirstcases 101 torecognizethelegitimacy
oftheorder.Thisorderis:102
somethingofahybridbetweendisclosureandaninjunction.
Itmightbethoughtofasaninterimmandatoryinjunction.Itallowstheclaimant,accompaniedbyhisorherlawyer,
toenterthedefendantspremisesandforcethedefendanttoallowtheclaimanttoinspectdocuments,andremove
thosespecifiedintheorder.103
TheabilityofthecourtstoawardsuchinjunctionsevolvedatCommonLaw,buthassincebeenplacedonastatutory
footing.
CivilProcedureAct1997
7.Powerofcourtstomakeordersforpreservingevidence,etc.
(1)Thecourtmaymakeanorderunderthissectionforthepurposeofsecuring,inthecaseofany
existingorproposedproceedingsinthecourt
(a)thepreservationofevidencewhichisormayberelevant,or
(b)thepreservationofpropertywhichisormaybethesubjectmatteroftheproceedingsoras
towhichanyquestionarisesormayariseintheproceedings.
(2)Apersonwhois,orappearstothecourtlikelytobe,apartytoproceedingsinthecourtmay
makeanapplicationforsuchanorder.
(3)Suchanordermaydirectanypersontopermitanypersondescribedintheorder,orsecurethat
anypersonsodescribedispermitted
(a)toenterpremisesinEnglandandWales,and
(b)whileonthepremises,totakeinaccordancewiththetermsoftheorderanyofthe
followingsteps.
(p.952) (4)Thosestepsare
(a)tocarryoutasearchfororinspectionofanythingdescribedintheorder,and
(b)tomakeorobtainacopy,photograph,sampleorotherrecordofanythingsodescribed.
(5)Theordermayalsodirectthepersonconcerned
(a)toprovideanypersondescribedintheorder,orsecurethatanypersonsodescribedis
provided,withanyinformationorarticledescribedintheorder,and
(b)toallowanypersondescribedintheorder,orsecurethatanypersonsodescribedis
allowed,toretainforsafekeepinganythingdescribedintheorder,and
(6)Anorderunderthissectionistohaveeffectsubjecttosuchconditionsasarespecifiedinthe
order.
(7)Thissectiondoesnotaffectanyrightofapersontorefusetodoanythingonthegroundthatto
dosomighttendtoexposehimorhisspouseorcivilpartnertoproceedingsforanoffenceorforthe
recoveryofapenalty.
(8)Inthissection
courtmeanstheHighCourt,andpremisesincludesanyvehicle
andanorderunderthissectionmaydescribeanythinggenerally,whetherbyreferencetoaclassor
otherwise.
TheprocedureforgrantingsearchordersandotherrelatedordersisgovernedbytheCivilProcedureRules.104
CivilProcedureRuler25.1
Thecourtmaygrantthefollowinginterimremedies:
(c)anorder
(i)forthedetention,custodyorpreservationofrelevantproperty
(ii)fortheinspectionofrelevantproperty
(iii)forthetakingofasampleofrelevantproperty
(iv)forthecarryingoutofanexperimentonorwithrelevantproperty
(v)forthesaleofrelevantpropertywhichisofaperishablenatureorwhichforanyothergood
reasonitisdesirabletosellquicklyand
(vi)forthepaymentofincomefromrelevantpropertyuntilaclaimisdecided
(d)anorderauthorisingapersontoenteranylandorbuildinginthepossessionofapartytothe
proceedingsforthepurposesofcarryingoutanorderundersubparagraph(c)

(h)anorder(referredtoasasearchorder)undersection7oftheCivilProcedureAct1997(order
requiringapartytoadmitanotherpartytopremisesforthepurposeofpreservingevidenceetc)
(i)anorderundersection33oftheSupremeCourtAct1981orsection52oftheCountyCourtsAct
1984(orderfordisclosureofdocumentsorinspectionofpropertybeforeaclaimhasbeenmade).
(p.953) Clearly,suchordersareveryintrusiveandthecourtsarerightlycautiousaboutexercisingtheirjurisdiction
tograntsearchorders.ThiscautioncanbediscernedinthejudgmentsinAntonPilleritself.
AntonPillerKGvManufacturingProcessLtd[1976]Ch55
Theclaimantarguedthatthedefendantcompanyhadgivenconfidentialinformationtomanufacturersthatwas
damagingtotheclaimantsbusiness.Theclaimantappliedforanorderforpermissiontoenterthedefendants
premisesandtoremovedocumentsintothecustodyoftheclaimantssolicitor.TheCourtofAppealgrantedthe
order.
LordDenningMR:
Duringthelast18monthsthejudgesoftheChanceryDivisionhavebeenmakingordersofakindnot
knownbefore.Theyhavesomeresemblancetosearchwarrants.Undertheseorders,theplaintiffandhis
solicitorsareauthorisedtoenterthedefendantspremisessoastoinspectpapers,providedthe
defendantgivespermission.
Nowthisistheimportantpoint:thecourtordersthedefendanttogivethempermission.Thejudgeshave
beenmakingtheseordersonexparteapplicationswithoutpriornoticetothedefendantitisobvious
thatsuchanordercanonlybejustifiedinthemostexceptionalcircumstances
Letmesayatoncethatnocourtinthislandhasanypowertoissueasearchwarranttoenteramans
housesoastoseeiftherearepapersordocumentstherewhichareofanincriminatingnature,whether
libelsorinfringementsofcopyrightoranythingelseofthekind.Noconstableorbailiffcanknockatthe
dooranddemandentrysoastoinspectpapersordocuments.Thehouseholdercanshutthedoorinhis
faceandsayGetout.Thatwasestablishedintheleadingca65)2WilsKB275.Noneofuswouldwish
towhittledownthatprincipleintheslightest.Buttheordersoughtinthiscaseisnotasearchwarrant.It
doesnotauthorisetheplaintiffssolicitorsoranyoneelsetoenterthedefendantspremisesagainsttheir
will.Itdoesnotauthorisethebreakingdownofanydoors,northeslippinginbyabackdoor,norgetting
inbyanopendoororwindow.Itonlyauthorisesentryandinspectionbythepermissionofthe
defendants.Theplaintiffsmustgetthedefendantspermission.Butitdoesdothis:itbringspressureon
thedefendantstogivepermission.Itdoesmore.Itactuallyordersthemtogivepermissionwith,I
suppose,theresultthatiftheydonotgivepermission,theyareguiltyofcontemptofcourt.
Thismayseemtobeasearchwarrantindisguise.ButitwasfullyconsideredintheHouseofLords150
yearsagoandheldtobelegitimate.ThecaseisUnitedCompanyofMerchantsofEngland,Tradingto
theEastIndiesvKynaston(1821)3Bli(OS)153.LordRedesdalesaid,atpp.163164:
TheargumentsurgedfortheappellantsattheBararefoundeduponthesupposition,thatthe
courthasdirectedaforcibleinspection.Thisisanerroneousviewofthecase.Theorderisto
permitandiftheEastIndiaCompanyshouldrefusetopermitinspection,theywillbeguiltyofa
contemptofthecourt.Itisanorderoperatingonthepersonrequiringthedefendantstopermit
inspection,notgivingauthorityofforce,ortobreakopenthedoorsoftheirwarehouse.
Thatcasewasnot,however,concernedwithpapersorthings.Itwasonlyastothevalueofawarehouse
andthatcouldnotbeobtainedwithoutaninspection.ButthedistinctiondrawnbyLordRedesdale
affordsgroundforthinkingthatthereisjurisdictiontomakeanorderthatthedefendantdopermitwhenit
isnecessaryintheinterestsofjustice
Itseemstomethatsuchanordercanbemadebyajudgeexparte,butitshouldonlybemadewhereit
isessentialthattheplaintiffshouldhaveinspectionsothatjusticecanbedonebetweentheparties:and
(p.954) when,ifthedefendantwereforewarned,thereisagravedangerthatvitalevidencewillbe
destroyed,thatpaperswillbeburntorlostorhidden,ortakenbeyondthejurisdiction,andsotheendsof
justicebedefeated:andwhentheinspectionwoulddonorealharmtothedefendantorhiscase.
Nevertheless,intheenforcementofthisorder,theplaintiffsmustactwithduecircumspection.Onthe
serviceofit,theplaintiffsshouldbeattendedbytheirsolicitor,whoisanofficerofthecourt.Theyshould
givethedefendantsanopportunityofconsideringitandofconsultingtheirownsolicitor.Ifthedefendants
wishtoapplytodischargetheorderashavingbeenimproperlyobtained,theymustbeallow[ed]todoso.
Ifthedefendantsrefusepermissiontoenterortoinspect,theplaintiffsmustnotforcetheirwayin.They
mustaccepttherefusal,andbringittothenoticeofthecourtafterwards,ifneedbeonanapplicationto
commit.
Youmightthinkthatwithallthesesafeguardsagainstabuse,itwouldbeoflittleusetomakesuchan
order.Butitcanbeeffectiveinthisway:itservestotellthedefendantsthat,ontheevidenceputbefore
it,thecourtisofopinionthattheyoughttopermitinspectionnay,itordersthemtopermitandthat
theyrefuseattheirperil.Itputstheminperilnotonlyofproceedingsforcontempt,butalsoofadverse
inferencesbeingdrawnagainstthemsomuchsothattheirownsolicitormayoftenadvisethemto
comply.Wearetoldthatintwoatleastofthecasessuchanorderhasbeeneffective.Weareprepared,
therefore,tosanctionitscontinuance,butonlyinanextremecasewherethereisgravedangerof
propertybeingsmuggledawayorofvitalevidencebeingdestroyed.
OrmrodLJ:
IagreewithallthatLordDenningMRhassaid.Theproposedorderisattheextremityofthiscourts
powers.Suchorders,therefore,willrarelybemade,andonlywhenthereisnoalternativewayofensuring
thatjusticeisdonetotheapplicant.
Therearethreeessentialpreconditionsforthemakingofsuchanorder,inmyjudgment.First,there
mustbeanextremelystrongprimafaciecase.Secondly,thedamage,potentialoractual,mustbevery
seriousfortheapplicant.Thirdly,theremustbeclearevidencethatthedefendantshaveintheir
possessionincriminatingdocumentsorthings,andthatthereisarealpossibilitythattheymaydestroy
suchmaterialbeforeanyapplicationinterpartescanbemade.
Theformoftheordermakesitplainthatthecourtisnotorderingorgrantinganythingequivalenttoa
searchwarrant.Theorderisanorderonthedefendantinpersonamtopermitinspection.Itistherefore
opentohimtorefusetocomplywithsuchanorder,butathisperileitheroffurtherproceedingsfor
contemptofcourtinwhichcase,ofcourse,thecourtwillhavethewidestdiscretionastohowtodeal
withit,andifitturnsoutthattheorderwasmadeimproperlyinthefirstplace,thecontemptwillbedealt
withaccordinglybutmoreimportant,ofcourse,therefusaltocomplymaybethemostdamning
evidenceagainstthedefendantatthesubsequenttrial.Greatresponsibilityclearlyrestsonthesolicitors
fortheapplicanttoensurethatthecarryingoutofsuchanorderismeticulouslycarefullydonewiththe
fullestrespectforthedefendantsrights,asLordDenningMRhassaid,ofapplyingtothecourt,should
hefeelitnecessarytodoso,beforepermittingtheinspection.
Clearly,thedefendantisleftwithlittlepracticaloptionbuttocomplywiththeorder,eventhoughthefirstheorshe
willknowaboutitiswhentheclaimantturnsupathisorherproperty.Giventheinvasionofthedefendantsprivacy
andproperty,thissortoforderhasbeendescribedasoneof:105
thelawstwonuclearweapons.
TherestrictionshighlightedbyOrmrodLJarecrucial.Theclaimantsprimafaciecasemustbeextremelystronghe
orshemustbefacingveryseriousdamageitmustbeclearlyestablishedthatthe(p.955) defendantdoesactually
possessincriminatingevidenceandthatthereisarealriskthatsuchmaterialwillbedestroyed.Iftheseconditions
arenotmet,thenawithoutnoticeinjunctiontointerferewiththedefendantsfreedomshouldnotbegranted.The
existenceofthesehighhurdlestothegrantingofasearchordermeansthatsearchordersarenotnecessarily
unjustifiableviolationsofapersonsrighttoprivacyunderArticle8oftheEuropeanConventiononHumanRights,
althoughinanextremecasetheviolationmightbeunjustifiable.106
Searchordershavebeenparticularlyusefulinintellectualpropertydisputes,107 butarenotlimitedintheir
application,andhaveevenbeengrantedinproceedingsforfinancialrelieffollowingthepresentationofapetitionfor
divorce,forexample.108 Sincetheapplicationismadewithoutnoticetothedefendant,itisimperativethatthe
applicantdiscloseallrelevantinformationtothecourt,andbeabletoissuetheusualundertakingindamages.This
isparticularlyimportantbecause,eventhoughtheinjunctionisinterlocutory,itisclearthatitseffectscannotbe
undone.Iftheclaimantorhissolicitorsactoppressivelyorimproperlyintheexecutionoftheorder,thenaggravated
damagesmaybeawarded.109
InUniversalThermosensorsLtdvHibben,NichollsVChighlightedsomeoftheproceduralsafeguardsthatexist.
UniversalThermosensorsLtdvHibben[1992]1WLR840,8601(NichollsVC)
(1)AntonPillerordersnormallycontainatermthatbeforecomplyingwiththeorderthedefendant
mayobtainlegaladvice,providedthisisdoneforthwith.Thisisanimportantsafeguardfor
defendants,notleastbecauseAntonPillerorderstendtobelongandcomplicated,andmany
defendantscannotbeexpectedtounderstandmuchofwhattheyaretoldbythesolicitorserving
theorder.Butsuchaterm,ifitistobeofuse,requiresthatingeneralAntonPillerordersshouldbe
permittedtobeexecutedonlyonworkingdaysinofficehours,whenasolicitorcanbeexpectedto
beavailable.
(2)Iftheorderistobeexecutedataprivatehouse,anditisatalllikelythatawomanmaybein
thehousealone,thesolicitorservingtheordermustbe,ormustbeaccompaniedby,awoman.
(3)Understandably,thosewhoexecutetheseordersareconcernedtosearchandseizeand
thengetawayasquicklyaspossiblesoastominimisetheriskofconfrontationandphysical
violence.Nevertheless,ingeneralAntonPillerordersshouldexpresslyprovidethat,unlessthisis
seriouslyimpracticable,adetailedlistoftheitemsbeingremovedshouldbepreparedatthe
premisesbeforetheyareremoved,andthatthedefendantshouldbegivenanopportunitytocheck
thislistatthetime.
(4)AntonPillerordersfrequentlycontainaninjunctionrestrainingthoseonwhomtheyareserved
frominformingothersoftheexistenceoftheorderforalimitedperiod.Thisistopreventone
defendantfromalertingotherstowhatishappening.Thereisanexceptionforcommunicationwitha
lawyerforthepurposeofseekinglegaladvice.Inthepresentcasethatinjunctionwasexpressedto
lastforawholeweek.Thatisfartoolong.Isuspectsomethingwentawrywiththedraftingofthe
orderinthiscase.
(p.956) (5)Ordersshouldprovidethat,unlessthereisgoodreasonfordoingotherwise,the
ordershouldnotbeexecutedatbusinesspremisessaveinthepresenceofaresponsibleofficeror
representativeofthecompanyortraderinquestion.
(6)[theclaimantinthiscase]carriedoutathoroughsearchofallthedocumentsofacompetitor
company.Thisismostunsatisfactory.WhenAntonPillerordersaremadeconsiderationshould
begiventodevisingsomemeans,appropriatetothefactsofthecase,bywhichthissituationcan
beavoided.110
(7)AntonPillerordersinvariablyprovideforservicetobeeffectedbyasolicitor.Thecourtrelies
heavilyonthesolicitor,asanofficerofthecourt,toseethattheorderisproperlyexecuted.
Unhappily,thehistoryinthepresentcase,andwhathashappenedinothercases,showthatthis
safeguardisinadequate.ThesolicitormaybeyoungandhavelittleornoexperienceofAntonPiller
orders.Frequentlyheisthesolicitoractingfortheplaintiffintheaction,andhoweverdiligentand
fairmindedhemaybe,heisnottherightpersontobegivenataskwhichtosomeextentinvolves
protectingtheinterestsofthedefendant.Ithinkthereisforceinsomeofthecriticismssetoutin
theinvaluablearticlebyProfessorDockrayandMr.HughLaddieQ.C.onPillerProblems(1990)
106L.Q.R.601.Itseemstomethatthewayaheadhere,pursuingoneofthesuggestionsmadein
thatarticle,isthatwhenmakingAntonPillerordersjudgesshouldgiveseriousconsiderationtothe
desirabilityofproviding,bysuitableundertakingsandotherwise,(a)thattheordershouldbeserved,
anditsexecutionshouldbesupervised,byasolicitorotherthanamemberofthefirmofsolicitors
actingfortheplaintiffintheaction(b)thatheorsheshouldbeanexperiencedsolicitorhaving
somefamiliaritywiththeworkingsofAntonPillerorders,andwithjudicialobservationsonthis
subject(c)thatthesolicitorshouldprepareawrittenreportonwhatoccurredwhentheorder
wasexecuted(d)thatacopyofthereportshouldbeservedonthedefendantsand(e)thatinany
eventandwithinthenextfewdaystheplaintiffmustreturntothecourtandpresentthatreportatan
interparteshearing,preferablytothejudgewhomadetheorder.Asto(b),Icanseeadvantagesin
theplaintiffbeingrequiredtoincludeinhisevidence,puttothejudgeinsupportofhisapplicationfor
anAntonPillerorder,detailsofthenameofthesolicitorandofhisexperience.
Adifficultissueconcernstheprivilegeagainstselfincrimination.111 InRank FilmDistributorsLtdvVideoInformation

Centre,theHouseofLordsheldthatthisprivilegeshouldgenerallybealegitimatereasonforrefusingtocomplywith
asearchorder,112 butstatutemeansthatthisprivilegeisnolongeravailableinthecontextofintellectualproperty
disputes.113 However,itmaystillbepleadedinothercontextswheretheexecutionofthesearchordermayassist
withacriminalprosecution.114 ButinCplcvP,115 itwasheldthattheprivilegedidnotextendtodocumentsor
thingsthathaveanexistenceindependentofthewillofthepersonwhosoughttopleadit.Itfollowedinthatcase
thattheprivilegewasnotavailabletoadefendantwhohadbeenrequired,pursuanttoasearchorder,tohandovera
computertoanindependentexpert,wheretheharddriveofthecomputercontainedindecentimagesofchildren.
(p.957) 3.SpecificPerformance
Unlikesomeotherjurisdictions,theprimaryremedyforbreachofcontractinEnglishlawisdamages.Specific
performancewillonlybeawardedifdamagesareaninadequateremedy.Thisismostlikelytobethecasewherethe
subjectmatterofthecontractisuniqueinsomeway.116 Thus,specificperformanceisregularlygrantedinsupportof
agreementsforthetransferoflandorsharesinprivatecompanies.117
However,inCooperativeInsuranceSocietyvArgyllStores(Holdings)Ltd118 theHouseofLordswascautiousabout
increasingthefrequencyofawardsofspecificperformance.LordHoffmannsspeech,givenhere,mustbeheeded
whenseekingthistypeofequitablerelief.VariousreasonsforthereluctanceofEnglishlawtograntspecific
performancemightbegiven,buttwoseemparticularlyimportant:specificperformanceavoidstheusualrequirement
thatthevictimofabreachmitigatehisorherloss,andspecificperformancelikeallequitableremediesis
enforcedbythethreatofcontemptofcourt.Thismeansthatapersonwhobreacheshisorhercontractanda
subsequentorderforspecificperformancemightbefinedorsenttoprison.Judgestendtofindthislargely
unpalatableinthecontextofcommercialcontracts.
CooperativeInsuranceSocietyvArgyllStores(Holdings)Ltd[1998]AC1(HL)
TheclaimantgrantedthedefendantaleaseofaunitinashoppingcentreinSheffield.Thedefendantcovenanted
tokeepthepremisesopenforretailtradeduringusualbusinesshours.Afterabusinessreview,thedefendant
announcedthatitwouldclosetheshop.Theclaimantsoughtspecificperformanceofthecovenant.Thetrial
judgegrantedanorderfordamagesbutnotspecificperformance.ThiswasreversedbytheCourtofAppeal.The
defendantsuccessfullyappealedtotheHouseofLords.
Thecourtwouldnotgrantspecificperformanceoramandatoryinjunctiontorequirethebusinesstobecarried
on.
LordHoffmann:
AdecreeofspecificperformanceisofcourseadiscretionaryremedyandthequestionforyourLordships
iswhethertheCourtofAppealwasentitledtosetasidetheexerciseofthejudgesdiscretion.Thereare
wellestablishedprincipleswhichgoverntheexerciseofthediscretionbutthese,likeallequitable
principles,areflexibleandadaptabletoachievetheendsofequity,whichis,asLordSelborneLConce
remarked,todomoreperfectandcompletejusticethanwouldbetheresultofleavingthepartiestotheir
remediesatcommonlaw:WilsonvNorthamptonandBanburyJunctionRailwayCo.(1874)LR9ChApp
279,284.
Thepracticeofnotorderingadefendanttocarryonabusinessisnotentirelydependentupondamages
beinganadequateremedy.InDowtyBoultonPaulLtdvWolverhamptonCorporation[1971]1WLR204
SirJohnPennycuickVCrefusedtoorderthecorporationtomaintainanairfieldasagoingconcern
because:itisverywellestablishedthatthecourtwillnotorderspecificperformanceofanobligationto
carryonabusiness:seep.211.Headded:itisunnecessaryinthecircumstancestodiscusswhether
damageswouldbeanadequateremedytothecompany:seep.212.Thusthereasonswhichunderlie
theestablishedpracticemayjustifyarefusalofspecificperformanceevenwhendamagesarenotan
adequateremedy.
(p.958) Themostfrequentreasongiveninthecasesfordecliningtoordersomeonetocarryona
businessisthatitwouldrequireconstantsupervisionbythecourt.InJCWilliamsonLtdvLuk eyand
Mulholland(1931)45CLR282,297298,DixonJsaidflatly:specificperformanceisinapplicablewhen
thecontinuedsupervisionofthecourtisnecessaryinordertoensurethefulfilmentofthecontract.
[S]upervisionwouldinpracticetaketheformofrulingsbythecourt,onapplicationsmadeby
theparties,astowhethertherehadbeenabreachoftheorder.Itisthepossibilityofthecourt
havingtogiveanindefiniteseriesofsuchrulingsinordertoensuretheexecutionoftheorder
whichhasbeenregardedasundesirable.
Whyshouldthisbeso?Aprincipalreasonisthattheonlymeansavailabletothecourtto
enforceitsorderisthequasicriminalprocedureofpunishmentforcontempt.Thisisapowerful
weaponsopowerful,infact,asoftentobeunsuitableasaninstrumentforadjudicatinguponthe
disputeswhichmayariseoverwhetherabusinessisbeingruninaccordancewiththetermsof
thecourtsorder.Theheavyhandednatureoftheenforcementmechanismisaconsideration
whichmaygototheexerciseofthecourtsdiscretioninothercasesaswell,butitsuseto
compeltherunningofabusinessisperhapstheparadigmcaseofitsdisadvantagesanditisin
thiscontextthatIshalldiscussthem.
Theprospectofcommittalorevenafine,withthedamagetocommercialreputationwhichwillbe
causedbyafindingofcontemptofcourt,islikelytohaveatleasttwoundesirableconsequences.
First,thedefendant,whoexhypothesididnotthinkthatitwasinhiseconomicinteresttorunthe
businessatall,nowhastomakedecisionsunderaswordofDamocleswhichmaydescendifthe
waythebusinessisrundoesnotconformtothetermsoftheorder.Thisis,asonemightsay,no
waytorunabusiness.
Secondly,theseriousnessofafindingofcontemptforthedefendantmeansthatanyapplicationto
enforcetheorderislikelytobeaheavyandexpensivepieceoflitigation.Thepossibilityof
repeatedapplicationsoveraperiodoftimemeansthat,incomparisonwithaonceandforall
inquiryastodamages,theenforcementoftheremedyislikelytobeexpensiveintermsofcostto
thepartiesandtheresourcesofthejudicialsystem.
Thisisaconvenientpointatwhichtodistinguishbetweenorderswhichrequireadefendantto
carryonanactivity,suchasrunningabusinessoveramoreorlessextendedperiodoftime,and
orderswhichrequirehimtoachievearesult.Thepossibilityofrepeatedapplicationsforrulingson
compliancewiththeorderwhicharisesintheformercasedoesnotexisttoanythinglikethe
sameextentinthelatter.Eveniftheachievementoftheresultisacomplicatedmatterwhichwill
takesometime,thecourt,ifcalledupontorule,onlyhastoexaminethefinishedworkandsay
whetheritcomplieswiththeorder
Ifthetermsofthecourtsorder,reflectingthetermsoftheobligation,cannotbeprecisely
drawn,thepossibilityofwastefullitigationovercomplianceisincreased.Soistheoppression
causedbythedefendanthavingtodothingsunderthreatofproceedingsforcontempt.Theless
precisetheorder,thefewerthesignpoststotheforensicminefieldwhichhehastotraverse.
Fromawiderperspective,itcannotbeinthepublicinterestforthecourtstorequiresomeoneto
carryonbusinessatalossifthereisanyplausiblealternativebywhichtheotherpartycanbe
givencompensation.Itisnotonlyawasteofresourcesbutyokesthepartiestogetherina
continuinghostilerelationship.Theorderforspecificperformanceprolongsthebattle.Ifthe
defendantisorderedtorunabusiness,itsconductbecomesthesubjectofaflowof(p.959)
complaints,solicitorslettersandaffidavits.Thisiswastefulforbothpartiesandthelegalsystem.
Anawardofdamages,ontheotherhand,bringsthelitigationtoanend.Thedefendantpays
damages,theforensiclinkbetweenthemissevered,theygotheirseparatewaysandthewounds
ofconflictcanheal.
4.Rectification
Bytheremedyofrectification,courtsareabletocorrectmistakesinaninstrumentsothatitaccordswiththetrue
intentionsoftheparty(inaunilateralinstrument,suchasawill)119 orparties(inthecaseofbilateralinstruments,
suchascontracts)whomadeit.Itisimportanttorememberthatthisdoctrinecannotbeexploitedtoimprovea
bargainmadebytheparties:onlyamistakeregardingthelanguageusedtorecordtheagreementcanbe
rectified.120
Beinganequitableremedy,itisdiscretionaryandtheusualbarstoequitablereliefapply.121 Giventheviolence
rectificationeffectsupondocumentsvoluntarilyexecuted,theclaimantmustshowconvincingproofthatthe
documentneedstoberectified.122 Althoughthescopeofrectificationmightbeconsideredtobeincreasinglylimited
asaresultofamoreliberalapproachtotheinterpretationofdocuments,123 itisclearthatrectificationisstilla
necessaryremedy.Forexample,rectificationisbestabletoinsertabsentclauses,removeerroneousclauses,rely
uponprecontractualnegotiationsandevidenceofthepartiessubjectiveintentionsinordertoestablishtheactual
substanceofacontract,andrectificationisalsowellequippedtoprotectthirdpartyrights.124
Therearetwodistincttypesofmistakethatmightleadtorectification:commonmistakeandunilateralmistake.The
currentapproachtocommonmistakerectificationwasencapsulatedbyEthertonLJinDaventryDCvDaventry&
DistrictHousingLtd:
125
(1)thepartieshadacommoncontinuingintention,whetherornotamountingtoanagreement,in
respectofaparticularmatterintheinstrumenttoberectified(2)whichexistedatthetimeofexecution
oftheinstrumentsoughttoberectified(3)suchcommoncontinuingintentiontobeestablished
objectively,thatistosaybyreferencetowhatanobjectiveobserverwouldhavethoughttheintentionsof
thepartiestobeand(4)bymistake,theinstrumentdidnotreflectthatcommonintention.
Inthispassage,EthertonLJsynthesizedtherequirementsofGibsonLJinSwainlandBuildersLimitedvFreehold
PropertiesLimited126 withtheapproachofLordHoffmanninChartbrook LtdvPersimmonHomesLtd.127 Thelatters
commentsaffectedthethirdrequirement:LordHoffmannthoughtthatthecommonintentionofthepartiesshouldbe
judgedobjectivelybyareasonableobserver.Admittedly,(p.960) hiscommentswereobiter,buttheywere
acceptedbycounselinDaventry.128 Itcontrastswiththemoretraditionalapproach,whichlookedtotheparties
actualintentions:itneededtobeshownthatbothpartieswereactuallylabouringunderamistakeforcommon
mistakerectificationtobeavailable.129 Itissuggestedthatthissubjectiveapproachisbyfarthemorepreferable
approach.Afterall,thebestobjectiveevidenceofthepartiesintentionsisthewritteninstrumentitself.Theonly
justificationforinterferingwithaformal,writteninstrumentshouldbeinordertoaccordwithpartiesactual
intentions.130
Afurtherdifficultywiththeobjectiveapproachtodeterminingacommonmistakeisthatacommonmistakemightbe
objectivelyfound,eventhoughonlyonepartywasactuallylabouringunderanymistake.Suchcaseswouldbebetter
consideredunderadoctrineofunilateralmistakerectification.InDaventry,theCourtofAppealrecognizedthatLord
Hoffmannsapproachhadblurredtheboundarybetweenunilateralmistakeandcommonmistake.LordNeuberger
MRsaid:131
(i)thereismuchtobesaidfortheviewthatmanyrectificationclaimswhichmightpreviouslyhavebeen
regardedasbasedonunilateralmistakemaynowbebettertreatedasbeingbasedoncommonmistake,and
(ii)ifweweredecidingthisappealwithoutthebenefitofLordHoffmannsanalysis,Imightnothavethoughtit
righttoallowtheappealonthegroundofcommonmistake,althoughImayhavedonesoonthegroundof
unilateralmistake.
Unilateralmistakerectificationismoreonerousthancommonmistakerectificationasregardsbilateralinstruments:
sinceonlyonepartywasmistaken,rectifyingthedocumentwillimposeuponhimabargaintowhichhedidnot
agree.Averygoodreasontodothismustbeestablished.AstringofCourtofAppealdecisionsmakesitclearthat
forthedefendantsconsciencetobeaffectedandequitablereliefjustified,thedefendantmustactuallyknowof,orat
leastrecklesslyturnablindeyeto,theclaimantsmistake,andthenfailtoinformtheclaimantofthatmistakeatthe
dateofexecution.132 Itisabsolutelyrightthatthethresholdforreliefbesodemanding,giventhedrastic133 nature
ofrelief.
However,inDaventry,ToulsonLJwasapparentlypersuaded134 byMcLauchlanssuggestionthatunilateralmistake
rectificationshouldbeawardedwherethedefendantoughttohavebeenawareofthemistake,andtheclaimantwas
ledreasonablytobelievethatthedefendantwasagreeingtotheclaimantsinterpretationofthebargain.135 Buthere
again,anobjectiveapproachtointentionisunsatisfactory.AsHodgehasobserved,thetraditional,subjective
approachoughttobemaintained:136
(p.961) Goodreasonmustbedemonstratedbeforeholdingacontractingpartytotermswhichdiffer,notonly
fromthosewhichhesubjectivelyintended,butalsofromthosetowhichheobjectivelyassentedbyhis
conductinsigningadocumentwhichrecordsthoseterms.
Rectificationforaunilateralmistakeshouldnotbereadilygranted.Theinterventionofequitycanonlybejustifiedif
theactualintentionsofthepartiesaresuchthattosticktothewrittenagreementwouldbeunconscionable.
5.Rescission
Ifatransactionisrescinded,thenitistreatedasifithadnevercomeintoexistenceandthepartiesarerestoredto
theiroriginalpositions.Acontractwillbevoidableandthereforeliabletoberescindedwheretheconsentofoneof
thepartieswasimpaired,forexampleduetomisrepresentation,duress,orundueinfluence.Butothertransactions
canalsoberescinded,suchasdeedsofgiftandvoluntarysettlementsanydispositionmadeinbreachoffiduciary
dutymightberescindedinEquity.137
Unlessanduntilatransactionisrescinded,itisvalidandenforceable.Rescissionwillnolongerbepossiblewhereit
isimpossibletorestorethepartiestotheiroriginalpositionsbeforethecontractwasmade(restitutioin
integrum).138 Aclaimantwillalsolosetherighttorescindifheorsheaffirmsthecontract.However,affirmationonly
occursoncetheclaimantknewofthecircumstancesgivingrisetotherightofrescission,andthathehadthelegal
righttorescind.139 Itisalsopossiblethatrescissionwillbebarredthroughlapseoftime,140 apparentlybecauseitis
141
unreasonabletoallowaclaimanttospeculatewhetheritisbeneficialtorescindthecontract.141 However,thisbarto
rescissionisunclear,andverymuchdependsonthefactsofanygivencase.Itisoftenalsosaidthatthirdparty
rightsmightbarrescissionalthoughrescissionwillnotbeallowedwherethatwouldprejudicetherightsofthird
parties,itwouldseemthatrescissionmightbeeffectedbyallowingthirdpartypurchaserstokeeptheassetthat
wasthesubjectmatterofthecontract,butrequiringthedefendanttohandovertheproceedsofsale,142 for
example.143
RescissionisalsopossibleatCommonLawiftherehasbeenfraudulentmisrepresentation,duress,incapacity,or
nondisclosureofamaterialfactforcertaintypesofcontract.RescissionatCommonLawisaselfhelpremedy,
whichtakeseffectbytheactofthepartyseekingrescission,144 whichisusuallyeffectedbycommunicationtothe
otherpartytothecontractanddoesnotrequireacourtorder.145 Bycontrast,rescissioninEquityiseffectedbythe
court,146 andisavailableinawiderrangeofcircumstances.Theequitablejurisdictionisbroaderandmoreflexible,
butsomecommentators(p.962) favourmaintainingrescissionatCommonLawbecauseaselfhelpremedyis
usefulandappropriateincasesoffraud,forexample.147 Nevertheless,thereisalsosupportforfusioninthisarea.In
thisvein,CarnwathLJcommentedinHalpernvHalpernthat:148
130yearsafterthefusionoflawandequitybytheJudicatureAct1873,anargumentbasedonamaterial
differenceinthetwosystemswouldhavefacedanuphilltask.Section49ofthe[Senior]CourtAct1981
reproducestheeffectofsection25(11)ofthe1873Actitstates:
whereverthereisanyconflictorvariancebetweentherulesofequityandthecommonlawwith
referencetothesamematter,therulesofequityshallprevail.
6.DamagesinLieuofEquitableOrders
Thejurisdictiontograntdamagesinlieuoforderinginjunctionsorspecificperformancewasavailableundersection2
oftheChanceryAmendmentAct1858,commonlyknownasLordCairnsAct.Thishasnowbeenreplacedby
section50oftheSupremeCourtAct1981:
WheretheCourtofAppealortheHighCourthasjurisdictiontoentertainanapplicationforaninjunctionor
specificperformance,itmayawarddamagesinadditionto,orinsubstitutionfor,aninjunctionorspecific
performance.
Thecourtisempoweredtograntdamagesinadditiontoanequitableorderifthecircumstancesrequire,butof
particularimportancearetheprinciplesthatunderpinthecourtsdiscretiontoawarddamagesinsubstitutionfor
suchorders.149 TheleadingdecisionremainsthatoftheCourtofAppealinShelfervCityofLondonElectricLighting
Co.
ShelfervCityofLondonElectricLightingCo.[1985]1Ch287
Anuisancewasacausedbythedefendantscarryingoutnoisyanddisruptivework.Theclaimantssoughtan
injunctiontopreventfurtherworkcontinuingthenuisance.KekewichJ,atfirstinstance,thoughtthatan
injunctionwasinappropriateandawardeddamagesinsubstitutionfortheinjunction(suchdamagesare
sometimesknownasdamagesinlieuofaninjunction,orsimplydamagesinlieu).TheCourtofAppeal
disagreed,insistingthatthethresholdforthecourtsexercisingitsdiscretiontoawarddamagesinlieuwasvery
high.Eventhoughthedefendantshadstatutoryauthoritytocarryoutthework,aninjunctionwastheappropriate
remedy.
LordHalsbury:
150
150
ButthereisnothinginthiscasewhichtomymindcanjustifytheCourtinrefusingtoaidthelegalrights
established,byaninjunctionpreventingthecontinuanceofthenuisance.Onthecontrary,theeffectof
sucharefusalinacaselikethepresentwouldnecessarilyoperatetoenableacompanywhocould(p.
963) affordittodriveaneighbouringproprietortosell,whetherhewouldorno,bycontinuinganuisance,
andsimplypayingdamagesforitscontinuance.
LindleyLJ:151
eversinceLordCairnsActwaspassedtheCourtofChanceryhasrepudiatedthenotionthatthe
LegislatureintendedtoturnthatCourtintoatribunalforlegalizingwrongfulactsorinotherwords,the
Courthasalwaysprotestedagainstthenotionthatitoughttoallowawrongtocontinuesimplybecause
thewrongdoerisableandwillingtopayfortheinjuryhemayinflict.Neitherhasthecircumstancethat
thewrongdoerisinsomesenseapublicbenefactor(e.g.,agasorwatercompanyorasewerauthority)
everbeenconsideredasufficientreasonforrefusingtoprotectbyinjunctionanindividualwhoserightsare
beingpersistentlyinfringed.Expropriation,evenforamoneyconsideration,isonlyjustifiablewhen
Parliamenthassanctionedit.CourtsofJusticearenotlikeParliament,whichconsiderswhether
proposedworkswillbesobeneficialtothepublicastojustifyexceptionallegislation,andthedeprivation
ofpeopleoftheirrightswithorwithoutcompensation.LordCairnsActwasnotpassedinorderto
supersedelegislationforpublicpurposes,buttoenabletheCourtofChancerytoadministerjustice
betweenlitigantsmoreeffectuallythanitcouldbeforetheAct.
Withoutdenyingthejurisdictiontoawarddamagesinsteadofaninjunction,evenincasesofcontinuing
actionablenuisances,suchjurisdictionoughtnottobeexercisedinsuchcasesexceptundervery
exceptionalcircumstances.Iwillnotattempttospecifythem,ortolaydownrulesfortheexerciseof
judicialdiscretion.Itissufficienttorefer,bywayofexample,totrivialandoccasionalnuisances:casesin
whichaplaintiffhasshewnthatheonlywantsmoneyvexatiousandoppressivecasesandcaseswhere
theplaintiffhassoconductedhimselfastorenderitunjusttogivehimmorethanpecuniaryrelief.Inall
suchcasesasthese,andinallotherswhereanactionfordamagesisreallyanadequateremedyas
wheretheactscomplainedofarealreadyfinishedaninjunctioncanbeproperlyrefused.
ALSmithLJ:152
ManyJudgeshavestated,andIemphaticallyagreewiththem,thatapersonbycommittingawrongful
act(whetheritbeapubliccompanyforpublicpurposesoraprivateindividual)isnottherebyentitledto
asktheCourttosanctionhisdoingsobypurchasinghisneighboursrights,byassessingdamagesin
thatbehalf,leavinghisneighbourwiththenuisance,orhislightsdimmed,asthecasemaybe.
Insuchcasesthewellknownruleisnottoaccedetotheapplication,buttogranttheinjunctionsought,
fortheplaintiffslegalrighthasbeeninvaded,andheisprimafacieentitledtoaninjunction.
Thereare,however,casesinwhichthisrulemayberelaxed,andinwhichdamagesmaybeawardedin
substitutionforaninjunctionasauthorizedbythissection.
Inanyinstanceinwhichacaseforaninjunctionhasbeenmadeout,iftheplaintiffbyhisactsorlaches
hasdisentitledhimselftoaninjunctiontheCourtmayawarddamagesinitsplace.Soagain,whetherthe
casebeforamandatoryinjunctionortorestrainacontinuingnuisance,theappropriateremedymaybe
damagesinlieuofaninjunction,assumingacaseforaninjunctiontobemadeout.
Inmyopinion,itmaybestatedasagoodworkingrulethat
(1)Iftheinjurytotheplaintiffslegalrightsissmall,
(2)Andisonewhichiscapableofbeingestimatedinmoney,
(3)Andisonewhichcanbeadequatelycompensatedbyasmallmoneypayment,
(4)Andthecaseisoneinwhichitwouldbeoppressivetothedefendanttograntaninjunction:
thendamagesinsubstitutionforaninjunctionmaybegiven.
(p.964) Theremayalsobecasesinwhich,thoughthefourabovementionedrequirementsexist,the
defendantbyhisconduct,as,forinstance,hurryinguphisbuildingssoasifpossibletoavoidan
injunction,orotherwiseactingwitharecklessdisregardtotheplaintiffsrights,hasdisentitledhimself
fromaskingthatdamagesmaybeassessedinsubstitutionforaninjunction.
Thiscasecontinuestobepivotaltojudgesdecisionwhetherornottoawarddamagesinsubstitutionforan
injunction.Significantly,thestartingpointisverystronglyinfavourofaninjunction.Thegoodworkingrule
highlightedbyALSmithLJsuggeststhatitwillonlybeinextremecircumstancesthataninjunctionshouldbe
replacedwithdamages.Thisseemsappropriate:afterall,thedefendantwillgenerallyhavebreachedtheclaimants
propertyrightsandtherebydeprivedtheclaimantofthechoicewhetherornottosellhisrights.Itisonlyinextreme
circumstancesthatacourtshouldexerciseitsdiscretionbyforcingtheclaimanttosellhisrights,ratherthangrant
aninjunctionandtherebyencouragethedefendanttonegotiatewiththeclaimanttoagreeafeeforthereleaseofthe
injunction.
CommentingonLordCairnsAct,Jolowiczwrotethat:153
whilethejurisdictiontoawardsuchdamagesmustbeexercisedwithcareandwithdueregardtothe
plaintiffslegalrights,itsexistencemustnotbeoverlooked,stilllessdenied.
Greaterwillingnesstograntdamagesinlieuofaninjunctioncanbediscernedinsomeofthecases.Agood
exampleistheCourtofAppealdecisioninJaggardvSawyer.154
JaggardvSawyer[1995]1WLR269
Thedefendantbuiltahouseinaprivateculdesac,theaccesstowhichinvolvedbreachofarestrictivecovenant.
Theclaimant,oneofnineresidentswhohadenteredintothecovenantwiththedefendant,soughtaninjunction
torestrainthedefendantscontinuingbreachofcovenantandtrespass.BoththetrialjudgeandtheCourtof
Appealconsideredthatitwouldbeoppressivetogranttheorder,butdamageswereawardedinlieuofthe
injunction.
MillettLJ:
TheprincipalobjectofLordCairnssActiswellknown.ItwasdescribedbyTurnerLJinFergusonv
Wilson(1866)LR2ChApp77,88.ItwastoenabletheCourtofChancery,whendecliningtogrant
equitablereliefandleavingtheplaintifftohisremedyatlaw,toawardtheplaintiffdamagesitselfinstead
ofsendinghimtothecommonlawcourtstoobtainthem.Fromtheveryfirst,however,itwasrecognised
thattheActdidmorethanthis.ThejurisdictionoftheCourtofChancerywaswiderthanthatofthe
commonlawcourts,foritcouldgivereliefwheretherewasnocauseofactionatlaw.Damagesin
substitutionforaninjunctionrelatetothefuture,notthepast.Theyinevitablyextendbeyondthe
damagestowhichtheplaintiffmaybeentitledatlaw.InLeedsIndustrialCooperativeSocietyLtdv
Slack [1924]AC851theHouseofLordsconfirmedthejurisdictionofthecourtstoawarddamagesunder
theActinrespectofaninjurywhichwasthreatenedbuthadnotyetoccurred.Nosuchdamagescould
havebeenawardedatcommonlaw.
(p.965) Equitablerelief,whetherbywayofinjunctionordamagesunderLordCairnssAct,is
availablebecausethecommonlawremedyisinadequatebutthecommonlawremedyofdamagesin
casesofcontinuingtrespassisinadequatenotbecausethedamagesarelikelytobesmallornominal
butbecausetheycoverthepastonlyandnotthefuture.
InAnchorBrewhouseDevelopmentsLtd.vBerk leyHouse(Dock landsDevelopments)Ltd(1987)38

BLR87ScottJgrantedaninjunctiontorestrainacontinuingtrespass.Inthecourseofhisjudgment,
however,hecastdoubtonthepowerofthecourttoawarddamagesforfuturetrespassesbymeansof
whathedescribedasaonceandforallpayment.Thiswasbecause,asheputit,thecourtcouldnotby
anawardofdamagesputthedefendantinthepositionofapersonentitledtoaneasementwhetheror
notaninjunctionweregranted,thedefendantsconductwouldstillconstituteatrespassanda
successionoffurtheractionsfordamagescouldaccordinglystillbebrought.Thisreasoningstrikesatthe
veryheartofthestatutoryjurisdictionitisinmarkedcontrasttotheattitudeofthemanyjudgeswho
fromtheveryfirsthaverecognisedthat,whiletheActdoesnotenablethecourttolicensefuturewrongs,
thismaybethepracticalresultofwithholdinginjunctivereliefanditisinconsistentwiththeexistenceof
thejurisdiction,confirmedinLeedsIndustrialCooperativeSocietyLtdvSlack [1924]AC851,toaward
damagesundertheActinaquiatimetaction.Itisinmyviewfallaciousbecauseitisnottheawardof
damageswhichhasthepracticaleffectoflicensingthedefendanttocommitthewrong,buttherefusalof
injunctiverelief.Thereafterthedefendantmayhavenorighttoactinthemannercomplainedof,buthe
cannotbepreventedfromdoingso.Thecourtcaninmyjudgmentproperlyawarddamagesonceandfor
allinrespectoffuturewrongsbecauseitawardstheminsubstitutionforaninjunctionandto
compensateforthosefuturewrongswhichaninjunctionwouldhaveprevented.Thedoctrineofres
judicataoperatestopreventtheplaintiffandhissuccessorsintitlefrombringingproceedingsthereafterto
recoverevennominaldamagesinrespectoffurtherwrongsforwhichtheplaintiffhasbeenfully
compensated.
Ithasalwaysbeenrecognisedthatthepracticalconsequenceofwithholdinginjunctivereliefisto
authorisethecontinuanceofanunlawfulstateofaffairs.If,forexample,thedefendantthreatenstobuild
insuchawaythattheplaintiffslightwillbeobstructedandheisnotrestrained,thentheplaintiffwill
inevitablybedeprivedofhislegalright.Thiswastheverybasisuponwhichbefore1858theCourtof
Chanceryhadmadetheremedyofinjunctionavailableinsuchcases.AfterthepassingofLordCairnss
Actmanyofthejudgeswarnedthatthejurisdictiontoawarddamagesinsteadofaninjunctionshouldnot
beexercisedasamatterofcoursesoastolegalisethecommissionofatortbyanydefendantwhowas
willingandabletopaycompensation.
MillettLJcitedShelferandconcluded:
Theplaintiffis,therefore,ingoodcompanywhenshesaysinherskeletonargument(preparedwhenshe
wasactinginperson):
WhatJudgeJackhasineffectdoneinhisjudgmentistograntMr.andMrs.Sawyerarightof
wayinperpetuityovermylandforaonceandforallpayment.Idonotunderstandhowthecourt
canhavepowertoproducesucharesultasiteffectivelyexpropriatesmypropertyAshleigh
AvenueisaprivateroadwayandJudgeJackhasturneditintoapublichighway.Surelyhedoes
nothavethejurisdictiontodothis?
Itwillbeofsmallcomforttohertobetoldthatthejurisdictionisundoubted,thoughitistobeexercised
withcaution.Whatdoesneedtobestressed,however,isthattheconsequencestowhichtheplaintiff
refersdonotresultfromthejudgesexerciseofthestatutoryjurisdictiontoawarddamagesinsteadofan
injunction,butfromhisrefusaltograntaninjunction.LordCairnssActdidnotworsentheplaintiffs
positionbutimprovedit.Thenceforth,ifinjunctivereliefwaswithheld,theplaintiffwasnotcompelledto
waituntilfurtherwrongswerecommittedandthenbringsuccessiveactionsfordamageshecouldbe
compensatedbyaonceandforallpaymenttocoverfutureaswellaspastwrongs.Ofcourse,theability
todocompletejusticeinthiswaymadeiteasierforthecourtstowithholdtheremedyofan(p.966)
injunction,anditwasthereforenecessaryforthejudgestoremindthemselvesfromtimetotimethatthe
discretiontowithholdit,whichhadexistedaswellbefore1858asafterit,wastobeexercisedin
accordancewithsettledprinciplesthataplaintiffwhohadestablishedbothalegalrightandathreatto
infringeitwasprimafacieentitledtoaninjunctiontoprotectitandthatspecialcircumstanceswere
neededtojustifywithholdingtheinjunction.
Neverthelessreferencestotheexpropriationoftheplaintiffspropertyaresomewhatoverdone,not
becausethatisnotthepracticaleffectofwithholdinganinjunction,butbecausethegrantofan
injunction,likeallequitableremedies,isdiscretionary.Manyproprietaryrightscannotbeprotectedatall
bythecommonlaw.Theownermustsubmittounlawfulinterferencewithhisrightsandbecontentwith
damages.Ifhewantstobeprotectedhemustseekequitablerelief,andhehasnoabsoluterighttothat.
Inmanycases,itistrue,aninjunctionwillbegrantedalmostasofcoursebutthisisnotalwaysthe
case,anditwillneverbegrantedifthiswouldcauseinjusticetothedefendant.Citationofpassagesin
thecaseswarningofthedangerofexpropriatingtheplaintiffneedstobebalancedbyreferenceto
statementslikethatofLordWestburyLCinIsenbergvEastIndiaHouseEstateCoLtd(1863)3DeGJ
&S263,273whereheheldthatitwasthedutyofthecourtnot
bygrantingamandatoryinjunction,todeliveroverthedefendantstotheplaintiffboundhandand
foot,inordertobemadesubjecttoanyextortionatedemandthathemaybypossibilitymake,but
tosubstituteforsuchmandatoryinjunctionaninquirybeforeitself,inordertoascertainthe
measureofdamagethathasbeenactuallysustained.
MillettLJcitedALSmithLJsgoodworkingruleinShelferandcontinued:
Laiddownjust100yearsago,ALSmithLJschecklisthasstoodthetestoftimebutitneedstobe
rememberedthatitisonlyaworkingruleanddoesnotpurporttobeanexhaustivestatementofthe
circumstancesinwhichdamagesmaybeawardedinsteadofaninjunction.
Reportedcasesaremerelyillustrationsofcircumstancesinwhichparticularjudgeshaveexercisedtheir
discretion,insomecasesbygrantinganinjunction,andinothersbyawardingdamagesinstead.Since
theyareallcasesontheexerciseofadiscretion,noneofthemisabindingauthorityonhowthe
discretionshouldbeexercised.Themostthatanyofthemcandemonstrateisthatinsimilar
circumstancesitwouldnotbewrongtoexercisethediscretioninthesameway.Butitdoesnotfollow
thatitwouldbewrongtoexerciseitdifferently.Theoutcomeofanyparticularcaseusuallyturnsonthe
question:woulditinallthecircumstancesbeoppressivetothedefendanttogranttheinjunctiontowhich
theplaintiffisprimafacieentitled?Mostofthecasesinwhichtheinjunctionhasbeenrefusedarecases
wheretheplaintiffhassoughtamandatoryinjunctiontopulldownabuildingwhichinfringeshisrightto
lightorwhichhasbeenbuiltinbreachofarestrictivecovenant.Insuchcasesthecourtisfacedwitha
faitaccompli.Thejurisdictiontograntamandatoryinjunctioninthosecircumstancescannotbedoubted,
buttograntitwouldsubjectthedefendanttoalossoutofallproportiontothatwhichwouldbesuffered
bytheplaintiffifitwererefused,andwouldindeeddeliverhimtotheplaintiffboundhandandfoottobe
subjectedtoanyextortionatedemandstheplaintiffmightmake.Inthepresentcase,asintheclosely
similarcaseofBracewellvAppleby[1975]Ch408,theplaintiffsoughtaprohibitoryinjunctiontorestrain
theuseofaroadgivingaccesstothedefendantshouse.Theresultofgrantingtheinjunctionwouldbe
muchthesamethehousewouldnothavetobepulleddown,butitwouldberenderedlandlockedand
incapableofbeneficialenjoyment.Inconsideringwhetherthegrantofaninjunctionwouldbeoppressive
tothedefendant,allthecircumstancesofthecasehavetobeconsidered.Atoneextreme,thedefendant
mayhaveactedopenlyandingoodfaithandinignoranceoftheplaintiffsrights,andthereby
inadvertentlyplacedhimselfinapositionwherethegrantofaninjunctionwouldeitherforcehimtoyield
totheplaintiffsextortionatedemandsorexposehimtosubstantialloss.(p.967) Attheotherextreme,
thedefendantmayhaveactedwithhiseyesopenandinfullknowledgethathewasinvadingtheplaintiffs
rights,andhurriedonhisworkinthehopethatbypresentingthecourtwithafaitaccomplihecould
compeltheplaintifftoacceptmonetarycompensation.Mostcases,likethepresent,fallsomewherein
between.
InJaggard,theCourtofAppealwasclearthatdamagesshouldbeawardedinsubstitutionforaninjunction.As
MillettLJrecognized,eachcaseturnsonitsownfacts,soitmightbeunwisetomaketoomuchofpreviouscases
asprecedents.However,toreturntotheShelferguidelines,itisoftenthoughtthatthefourthfactorconcerning
oppressionisthekeyquestion155 inJaggard,SirThomasBinghamMRinsistedthat:156
Itisimportanttobearinmindthatthetestisoneofoppression,andthecourtshouldnotslideintoapplication
ofageneralbalanceofconveniencetest.
DespitethelongevityoftheShelferguidelines,somedissatisfactionhassometimesbeenexpressed.Forexample,
inMidtownLtdvCityofLondonRealPropertyCoLtd,157 theclaimantwasacompanywhobenefitedfroman
easementoflight.Itsoughtaninjunctiontoprotectthisproprietaryrightfrombeinginfringed,butPeterSmithJ
refusedtograntaninjunction,sincetheclaimantsonlyrealinterestinthatrightwasmonetary:aninjunctionwould
havegreatlystrengtheneditsbargainingpositionagainstthedefendantdeveloper.Thejudgesaid:158
Inmyviewthejudgments[inJaggard]establishawillingnessonthepartofthecourtstodepartfromthestrict
requirementsofthefourrequirementssetoutinShelferinanappropriatecase.
However,theShelferprincipleshavesincebeensupportedintheCourtofAppeal,andthestrongpresumptionisthat
damagesshouldnotbesubstitutedforaninjunction.Forexample,inReganvPaulPropertiesLtd,anotherrightsto
lightcase,MummeryLJsaid:159
Shelferisthebestknowncase.ItisadecisionoftheCourtofAppeal.Ithasneverbeenoverruledanditis
bindingonthiscourt.
Shelferhas,foroveracentury,beentheleadingcaseonthepowerofthecourttoawarddamagesinsteadof
aninjunction.
InRegan,theCourtofAppealoverturnedthedecisionofthetrialjudgeandinsistedthatamandatoryinjunction
shouldbeawardedandnotsubstitutedforamonetaryremedy.ThemembersoftheCourtofAppealwereconcerned
thattheapproachofthecourtbelowaffordedtoolittleprotectiontotheclaimantseasementoflight,andemphasized
thattheonusshouldbeonthedefendanttoshowthatdamagesshouldbeawardedinlieuofaninjunction,andnot
theotherwayaround(asthetrialjudgehadsuggested).
(p.968) Thisdecisionisrevealing:althoughthefourthcriterionofShelferisundoubtedlyimportant,theflipsideis
oftenignored:itmightbeoppressivetotheclaimantstodeprivethemoftheirchoicewhetherornottoselltheir
propertyright.160 Indeed,therefusalofaclaimanttoreleasehisorherrightforafeeindicatesthatheorshevalues
theprotectionofthisrightveryhighly,161 andthismightbeaffordedgreaterrespect.Althoughitissometimes
suggestedthatanunwillingnesstograntdamagesinlieumightpreventworksbeneficialtothepublicfrombeing
carriedout,andthatthecourtsshouldtherefore,takeintoaccountthepublicinterestinthedefendantsinfringingthe
claimantsright,thiswasclearlyrejectedbytheCourtofAppealinShelferitself.LindleyLJcommentedthat:162
Expropriation,evenforamoneyconsideration,isonlyjustifiablewhenParliamenthassanctionedit.Courtsof
JusticearenotlikeParliament,whichconsiderswhetherproposedworkswillbesobeneficialtothepublicas
tojustifyexceptionallegislation,andthedeprivationofpeopleoftheirrightswithorwithoutcompensation.
InWatsonvCroftPromoSport,theCourtofAppealthoughtthat:163
InamarginalcasewherethedamagetotheclaimantisminimalIcanacceptthat,consistentwiththe
principlesofShelfer,theeffectonthepublicofthegrantofaninjunctionisproperlytobetakenintoaccount.
Butthefactthatthepublicbenefitmightberelevantinthosecircumstancesdoesnotmeanthatitsexistence
can,alone,negatetherequirementofexceptionalcircumstancesoroppressionofthedefendant.
Itissuggestedthatthereissomemeritininsistingthatdefendantswhoseektorelyuponthepublicinterestin
justifyingtheinfringementofaclaimantspropertyrightsshouldnotavailthemselvesofLordCairnsAct,164 but
rathershouldengagethesupportoflocalauthoritiesandseektomakethemostofthecompulsorypurchase
regime.165 Thisshouldnotbetoodifficult:Governmenthasencouragedlocalauthoritiestoexploittheopportunities
affordedbycompulsorypurchase,166 andtheHouseofLordshasrecognizedthelegalityofbacktoback
agreements,underwhichapublicbodycanagreetoexerciseitspowersofcompulsorypurchaseinordertoensure
thatthelandcanbedeveloped,andthenlatergivethelandbacktothedeveloper,inreturnforthedevelopers
undertakingtoindemnifythepublicauthorityforthecostsincurredintheprocess.167
(p.969) (a)QuantifyingDamagesAwardedinLieu
Oneoftheverydifficultissuesthatacourtfaceswhenexercisingitsdiscretiontoawarddamagesinlieuofan
injunctionisquantifyingthemonetaryremedy.NeitherLordCairnsActnoritssuccessorprovidesmuchguidance.In
WrothamPark EstateCo.LtdvPark sideHomesLtd,168 adeveloperbreachedarestrictivecovenantbybuildingtoo
manyflatswithouttheclaimantsconsent.BrightmanJthoughtthatitwouldbean:169
unpardonablewasteofmuchneededhousestodirectthattheynowbepulleddownandIhaveneverhada
momentsdoubtduringthehearingofthiscasethatsuchanorderoughttoberefused.
BrightmanJwasclearthatdamagesoughttobeawardedinlieu.Whenassessingthesumtobeawarded,he
said:170
Ithinkthatinacasesuchasthepresentalandownerfacedwitharequestfromadeveloperwhich,itmustbe
assumed,hefeelsreluctantlyobligedtogrant,wouldhavefirstaskedthedeveloperwhatprofitheexpectedto
makefromhisoperations.Withthebenefitofforesightthedeveloperwould,inthepresentcase,havesaid
about50,000,forthatistheprofitwhichParksideconcedesitmadefromthedevelopment.Ithinkthatthe
landownerwouldthenreasonablyhaverequiredacertainpercentageofthatanticipatedprofitasapriceforthe
relaxationofthecovenant,assuming,asImust,thathefeelsobligedtorelaxit.Inassessingwhatwouldbea
fairpercentageIthinkthatthecourtought,ontheparticularfactsofthiscase,toactwithgreatmoderation.
Ithinkthatdamagesmustbeassessedinsuchacaseonabasiswhichisfairand,inallthe
circumstances,inmyjudgmentasumequalto5percentofParksidesanticipatedprofitisthemostthatis
fair.
Thisapproachissensibleandwellestablished.Essentially,thecourtmusttrytodecidewhatpriceforthereleaseof
therightwouldhavebeenagreedbythepartiesiftheyhadnegotiatedasreasonablepartieswillingtoreachan
agreement.Clearly,thisbargainishypotheticalandfictional:inmanyinstances,theclaimantsimplywouldnothave
beenwillingtoenterintosuchnegotiations.Indeed,inWrothamitselftheclaimantswouldnothavebeenwillingto
countenancerelaxingtheirrestrictivecovenants.Giventheartificialnatureofthisbargain,itisunsurprisingthat
courtshavestruggledtoestablishclearprinciplestounderpinthequantificationofthissortofmonetaryaward.
Therehasbeenmuchdebateaboutwhetherthisremedyshouldbecharacterizedascompensatoryorrestitutionary
forexample,inSurreyCCvBrederoHomes,SteynLJthoughttheawardinWrothamPark wasrestitutionary,171
whereasinJaggardvSawyer,bothSirThomasBinghamMR172 andMillettLJ173 werecriticalofthisandthoughtthe
awardwascompensatory.Butitisimportantnottogettooboggeddowninthisdebateanybargainbetweenthe
partiesshouldtakeintoaccountboththedefendantsgainandtheclaimantsloss:itwouldbeunrealisticforthe
claimanttoreleasehisorherrightforanythinglessthanthevalueofthelossheorshewouldsuffer,andthemost
thedefendantwouldpayfortherightwouldbeaproportionoftheprofitsheorshewouldexpecttomake.The
bargainreached(p.970) ismostlikelytoproduceafiguresomewherebetweentheclaimantslossanddefendants
gain.AsLordLloydcommentedinInverugieInvestmentsvHack ett:174
Theprincipleneednotbecharacterisedasexclusivelycompensatory,orexclusivelyrestitutionaryit
combineselementsofboth.
Inanyevent,squeezingtheawardinWrothamPark underacompensatoryorrestitutionarybannerismuchless
importantthantryingtodecidehowthecourtsreachtheawardstheydo.Ahelpfulattempttoestablishsome
guidelineswasprovidedbyGabrielMossQCinTamares(VincentSquare)vFairpointProperties(No.2):
175
(1)Theoverallprincipleisthatthecourtmustattempttofindwhatwouldbeafairresultofa
hypotheticalnegotiationbetweentheparties.
(2)Thecontext,includingthenatureandseriousnessofthebreach,mustbekeptinmind.
(3)Therighttopreventadevelopment(orpart)givestheowneroftherightasignificantbargaining
position.
(4)Theowneroftherightwithsuchabargainingpositionwillnormallybeexpectedtoreceivesomepart
ofthelikelyprofitfromthedevelopment(orrelevantpart).
(5)Ifthereisnoevidenceofthelikelysizeoftheprofit,thecourtcandoitsbestbyawardingasuitable
multipleofthedamagesforlossofamenity.
(6)Ifthereisevidenceofthelikelysizeoftheprofit,thecourtshouldnormallyawardasumwhichtakes
intoaccountafairpercentageoftheprofit.
(7)Thesizeoftheawardshouldnotinanyeventbesolargethatthedevelopment(orrelevantpart)
wouldnothavetakenplacehadsuchasumbeenpayable.
(8)Afterarrivingatafigurewhichtakesintoconsiderationalltheaboveandanyotherrelevantfactors,
thecourtneedstoconsiderwhetherthedealfeelsright[cf.AmecDevelopmentsLtdv.JurysHotel
Management(UK)Ltd[2001]1EGLR81,87.]
Thelastfactorindicateshowuncertainthisareais.Butsomeuncertaintyisinevitablegiventhecontrivednatureof
thebargainbeingimposedupontheparties.TheprinciplessetoutinTamaresaresensibleandhavebeenadopted
subsequently.176 InPellFrischmannEngineeringLtdvBowValleyIranLtd,LordWalkeralsodealtwiththeissueof
whateventscanbetakenintoaccount.
PellFrischmannEngineeringLtdvBowValleyIranLtd[2009]UKPC45,[50][51](Lord
Walker)
Anotherissueishowfarthecourtisentitled,initsassessmentofWrothamPark damages,totake
accountofeventsoccurringafterthetimeatwhichthehypotheticalnegotiationtakesplace(andin
particular,totakeaccountofhowprofitabletheoutcomehasbeenforthecontractbreaker).Thisissue
sometimestendstogetconfusedwiththewiderissueofwhetherthecourtisawardingcompensatoryor
restitutionarydamages.TheirLordshipsconsiderthattherightapproachisthatoftheCourtof(p.971)
AppealinLunnPoly[2006]2EGLR29inwhichNeubergerLJobserved,atparas2729,aftercitingthe
judgmentofMrAnthonyMannQCinAmecDevelopmentsLtdvJurysHotelManagement(UK)Ltd
[2001]1EGLR81,paras1113:
27.Itisobviouslyunwisetotrytolaydownanyfirmgeneralguidanceastothecircumstancesin
which,andthedegreetowhich,itispossibletotakeintoaccountfactsandeventsthathave
takenplaceafterthedateofthehypotheticalnegotiations,whendecidingthefigureatwhichthose
negotiationswouldarrive.Quiteapartfromanythingelse,itisalmostinevitablethateachcasewill
turnonitsownparticularfacts.
28.itshouldnot,inmyopinion,betreatedasbeinggenerally[righttohaveregard]toevents
afterthedateofbreachwherethecourtdecidestoawarddamagesinlieuonanegotiatingbasis
asatthedateofbreach.Afterall,oncethecourthasdecidedonaparticularvaluationdatefor
assessingnegotiatingdamages,consistency,fairness,andprinciplecanbesaidtosuggestthat
ajudgeshouldbecarefulbeforeagreeingthatafactorthatexistedatthatdateshouldbeignored,
orthatafactorthatoccurredafterthatdateshouldbetakenintoaccount,asaffectingthe
negotiatingstanceofthepartieswhendecidingthefigureatwhichtheywouldarrive.
29.Inmyview,theproperanalysisisasfollows.GiventhatnegotiatingdamagesundertheAct
aremeanttobecompensatory,andarenormallytobeassessedorvaluedatthedateofbreach,
principleandconsistencyindicatethatpostvaluationeventsarenormallyirrelevant.However,
giventhequasiequitablenatureofsuchdamages,thejudgemay,wheretherearegoodreasons,
directadeparturefromthenorm,eitherbyselectingadifferentvaluationdateorbydirectingthata
specificpostvaluationdateeventbetakenintoaccount.
Inacase(suchasWrothamPark [1974]1WLR798itself)wheretherehasbeennothinglikeanactual
negotiationbetweenthepartiesitisnodoubtreasonableforthecourttolookattheeventualoutcome
andtoconsiderwhetherornotthatisausefulguidetowhatthepartieswouldhavethoughtatthetimeof
theirhypotheticalbargain.Butinthiscasethepartiesclearlyexpected,asisapparentfromtheir
negotiations,thatthecontractwouldbemuchmoreprofitablethanitturnedouttobe.Forthatreason,
itisunnecessarytogiveadetailedaccountoftheactualoutcome.
Question
RansomLtd(Ransom)isatechnologycompany.Ithasbeendevelopingnewantivirussoftwareforcomputers
inconjunctionwithCompsciLtd(Compsci).CompsciisanAmericanCompanywithaverysmallofficeand
limitedassetsinthisjurisdiction.RansomsuspectsthatCompsci,inbreachofcontract,hasdivulgedsensitive
informationtoitscompetitor,SnoopLtd.CompscihasnotrepliedtotheemailsorcallsofRansomforovera
month.
TheofficesofRansomarenexttolandthathasbeensoldtoBuildersLtd(Builders)fordevelopment.Inorderto
facilitatethedevelopment,Buildershaspulleddownafence,whichwasactuallyonthepropertyofRansom.
RansomwantsBuilderstoputbackthefence.RansomalsowantstopreventBuildersfromcarryingoutany
furtherworkonthelandsincetheproposeddevelopmentwillinfringeRansomseasementoflight.
Lastyear,RansomlicensedoneofitsproductstoQuickbuckLtd(Quickbuck).Thenegotiatorsforboth
companieshadagreedthatRansomwouldreceive15percentofanysubsequentprofitsmadebyQuickbuck
fromsellingtheproduct,butthefinalwrittencontract,signedbythemanagingdirectorsofbothcompanies,
statedthatRansomwouldreceive10percentoftheprofits.The(p.972) managingdirectorofQuickbuckhad
assuredhiscounterpartatRansomthatthecontractwasexactlywhathadbeenagreedduringthenegotiations.
AdviseRansom.
FurtherReading
Davies,RectifyingtheCourseofRectification(2012)75MLR412.
FindThisResource
Devonshire,MarevaInjunctionsandThirdParties:ExposingtheSubtext(1999)62MLR539.
FindThisResource
DockrayandLaddie,PillerProblems(1990)106LQR601.
FindThisResource
Gee,TheUndertakinginDamages(2006)LMCLQ181.
FindThisResource
Jolowicz,DamagesinEquityaStudyofLordCairnsAct(1975)CLJ224.
FindThisResource
McGrath,TheFreezingOrder:AConstantlyEvolvingJurisdiction(2012)CJQ12.
FindThisResource
Thefollowingtextsareaimedmainlyatpractitioners,butcontainmuchthatisuseful:
Andrews,Clarke,Tettenborn,andVirgo,ContractualDuties:Performance,Breach,TerminationandRemedies
(London:Sweet&Maxwell,2011)(PartI,chs27and28).
FindThisResource
Gee,CommercialInjunctions(5thedn)(London:Sweet&Maxwell,2005)(especiallychs1,3,and6).
FindThisResource
HodgeQC,Rectification:TheModernLawandPracticeGoverningClaimsforRectificationforMistak e(London:
Sweet&Maxwell,2010)(especiallych.1)
FindThisResource
JonesandGoodhart,SpecificPerformance(2ndedn)(LondonButterworths,1996)(especiallychs1and2).
FindThisResource
OSullivan,Elliott,andZakrzewski,TheLawofRescission(Oxford:OxfordUniversityPress,2008)(especially
chs1,10,and15).
FindThisResource
Notes:
1
Seee.g.McKendrick,ContractLaw:Text,CasesandMaterials(5thedn)(Oxford:OxfordUniversityPress,
forthcoming).
2
AttorneyGeneralvColneyHatchLunaticAsylum(1868)4ChApp146,154perLordHatherleyLC.
3
4
ArmstrongvSheppard&ShortLtd[1959]2QB384.SeealsoGonthiervOrangeContractScaffoldingLtd[2003]
EWCACiv873RichardsonvBlack more[2005]EWCACiv1356[2006]BCC276.
5
6
7
Duk eofLeedsvEarlofAmherst[1846]2Ph117,123.
8
MoorevUllcoatsMiningCo.Ltd[1908]1Ch575,585.
9
TheLatinmightbetranslatedas:becausehefears.
10
[1919]AC999,1005.
11
TheLatinmightbetranslatedas:Ifear.
12
(1885)28ChD688,698.
13
(1886)31ChD354,[369].
14
[1970]AC652.
15
[2009]UKPC16[2009]1WLR1405,[20].
16
E.g.TradeMarksAct1994,s.14.
17
18
SeeCooperativeInsurancevArgyllStores[1998]AC1,consideredatChapter20.3,pp.9579.Thesamebars
thatapplytothespecificperformanceofacontractalsoapplytoinjunctions.
19
19
(1890)45ChD430,438.
20
(1852)1DeGM&G604.SeealsoWarnerBrothersPicturesInc.vNelson[1937]1KB209.
21
Ibid,61920.
22
[1989]1WLR853.
23
Ibid,8658.
24
[2011]EWCACiv668.
25
Intheevent,FallondidnotrideintheDerby,andNativeKhanfinished5th,oneplacehigherthanthehorseFallon
wasduetoride.
26
[2005]EWCACiv579[2005]2LloydsRep.63.
27
Ibid,at[10].
28
Ibid,at[20],[32][33].
29
Forfullconsideration,seeAplin,Bently,Johnson,andMalynicz,GurryonBreachofConfidence(2ndedn)
30
CTBvNGN[2011]EWHC1326(QB).
31
[2011]EWCACiv42.SeealsoReportoftheCommitteeonSuperInjunctions:SuperInjunctions,Anonymised
InjunctionsandOpenJustice,May20,2011(MRReport2011)(London:HMSO).
32
EuropeanConventiononHumanRights,Article10protectstherighttofreedomofexpression,subjecttocertain
restrictions,whichareprescribedbylawandnecessaryinademocraticsociety.
33
EuropeanConventiononHumanRights,Article8providesarighttorespectforonesprivateandfamilylife,
subjecttocertainrestrictionsthatareinaccordancewithlawandnecessaryinademocraticsociety.
34
Seee.g.LondonRegionalTransportvMayorofLondon[2001]EWCACiv1491[2003]EMLR4CampbellvMGN
[2004]UKHL22[2004]2AC457HRHPrinceofWalesvAssociatedNewspapersLtd[2006]EWCACiv1776
[2007]2AllER139McKennittvAsh[2006]EWCACiv1714[2008]QB73.
35
S(AChild)(Identification:restrictiononPublication)[2004]UKHL47[2005]1AC593,[17].
36
Seee.g.McKennittvAsh[2006]EWCACiv1714[2008]QB73.
37
[1911]1KB455,457.
38
(1875)LR20Eq511,513.
39
[2007]UKHL1[2007]1WLR320,[32][33].
40
41
Afreezingorder:seeChapter20.2(f),p.941.
42
Seee.g.HarmanPicturesN.V.vOsborne[1967]1WLR723.
43
E.g.MothercareLtdvRobsonBrook sLtd[1979]FSR466.
44
E.g.ReLordCable[1977]1WLR7.
45
[1984]1WLR892,898.
46
46
GardenCottageFoodsLtdvMilk Mark etingBoard[1984]AC130.
47
SeeChapter20.2(e)(iv),p.941.
48
E.g.FosecoInternationalLtdvFordathLtd[1975]FSR507.
49
GardenCottageFoodsLtdvMilk Mark etingBoard[1984]AC130,140,disapprovingonthispointTexacoLtdv
MulberryFillingStationLtd[1972]1WLR814,831.
50
Seee.g.TheQuak erOatsCo.vAlltradesDistributorsLtd[1981]FSR9.
51
[1996]1AllER853,865.
52
AmericanCyanamidCo.vEthiconLtd[1975]AC396,409.
53
[1984]1AllER225,237.
54
CPR1998r1.1.
55
PatelvWHSmith(Eziot)Ltd[1987]1WLR853TexacoLtdvMulberryFillingStationLtd[1972]1WLR814.
56
Fellowes&SonvFisher[1976]QB122,141.
57
NWLLtdvWoods[1979]1WLR1294,1307(LordDiplock).
58
Seee.g.TradeUnionandLabourRelations(Consolidation)Act1992,s.221.
59
[2004]UKHL44[2005]1AC253,[22].
60
DouglasvHello!Ltd[2001]QB967,[153](KeeneLJ).
61
DanielvFerguson[1891]2Ch27.
62
[1993]FSR468,474.
63
Cf.Chapter20.1(a),p.926.
64
SelbitvColdwynLtd(1923)58LJNews,305.
65
SeeGee,TheUndertakinginDamages[2006]LMCLQ181.
66
BrigidFoleyLtdvEllott[1982]RPC433e.
67
[1980]1WLR1252,1257.
68
ThefirstcasetorecognizethisinjunctionwasNipponYusenKaishavKarageorgis[1975]1WLR1093.
69
70
CretanorMaritimeCo.LtdvIrishMarineMaritimeLtd[1978]3AllER164FlightlineLtdvEdwards[2003]EWCA
Civ63[2003]1WLR1200.
71
[1990]BCLC38,43.SeealsoCamdexInternationalLtdvBank ofZambia(No.2)[1997]1WLR632,638
(AldousLJ).
72
BabanaftInternationalCo.SAvBassatne[1990]Ch13.
73
LordDenning,TheDueProcessofLaw(London:Butterworths,1980),p.134.
74
75
Thismustbeclearlyformulatedatleast:seeFourievLeRoux[2007]UKHL1[2007]1WLR320:seeChapter
20.2(e).p.935.
76
[2006]EWHC2313(Ch)[2007]1AllER606,[12].
77
[2001]2LloydsLawReports459.
78
[1999]HCA18,[57].SeealsoYuk osCapitalSarlvOJSCRosneftOilCompany[2010]EWHC784(Comm).
79
[1975]AC396.
80
LloydsBowmak erLtdvBritanniaArrowHoldingsplc[1988]1WLR1337SwiftFortuneLTdvMagnificaMarine
SA(TheCapazDuck ling)[2007]EWHC1630(Comm)[2008]1LloydsRep54.However,ifthenondisclosureis
unimportant,thecourtisunlikelytosettheorderaside:MemoryCorporationvSidhu[2000]1WLR1443.
81
AliandFahdShobok shiGroupLtdvMoneim[1989]1WLR710,722.
82
Derby&Co.LtdvWeldon[1990]Ch48.
83
LloydsBowmark erLtdvBritanniaArrowHoldingsplc[1988]1WLR1337FourievLeRoux[2007]UKHL1[2007]
1WLR320.
84
CivilJurisdictionandJudgmentsAct1982,s.25(1)FourievLeRoux[2007]UKHL1[2007]1WLR320.
85
1980]1WLR1259,1262.
86
SeeChapter18.2(f)(iii),p.946.
87
[1983]1WLR1412,1422.
88
ClipperMaritimeCo.LtdofMonraviavMineralimportexport[1981]1WLR1262.
89
RefcoInc.vEasternTradingCo.[1999]1LloydsRep159.
90
BarclayJohnsonvYuill[1980]1WLR1259.
91
ZLtdvA[1982]1AllER556.
92
A.J.Bek hor&Co.vBilton[1981]QB923.
93
AvC(No.2)[1981]QB961nPCW(UnderwritingAgencies)LtdvDixon[1983]2AllER158,697n.
94
SeeChapter20.29(f)(i),p.942.
95
[1995]1LloydsRep.673.
96
[2006]EWCACiv399[2006]1WLR2499,[25].
97
[2006]UKHL28[2007]1AC181,[9][17].
98
Ibid,[29].
99
Bank ersTrustCo.vShapira[1980]1WLR1274.
100
A.J.Bek hor&Co.LtdvBilton[1981]QB923.
101
ThefirstreportedcasetomakesuchanorderwasEMILtdvPandit[1975]1WLR302(TemplemanJ).
102
McGhee(ed.),SnellsEquity(32ndedn)(London:Sweet&Maxwell),pp.1890.
103
However,ifcopiescanbemade,thentheoriginaldocumentsshouldbereturnedtothedefendantassoonas
possible:ColumbiaPictureIndustriesIncvRobinson[1987]Ch38,76.
104
104
SeealsoCPRPracticeDirection25,paras7and8.
105
Bank MellatvNik pour[1985]FSR87,92(DonaldsonLJ).Theotherisafreezinginjunction.
106
ChappellvUnitedKingdom(1990)12EHHR1.
107
E.g.ExpIslandRecordsLtd[1978]Ch122.
108
E.g.TchenguizvImerman[2010]EWCACiv908[2011]Fam116.
109
ColumbiaPictureIndustriesIncvRobinson[1987]Ch38.
110
Searchordersshouldnotbeusedtofacilitateafishingexpedition.
111
CivilEvidenceAct1968,s.14(1).
112
[1982]AC380.
113
SupremeCourtAct1981,s.72.SeetooTheftAct1968,s.31.
114
E.g.AT&TIstelLtdvTully[1993]AC45.
115
[2007]EWCACiv493[2007]3WLR437.
116
SeeJonesandGoodhart,SpecificPerformance(2ndedn)(WestSussex:TottelPublishing,1996),pp.14354.
117
Althoughtheusualbarstoequitableordersapply:seeChapter20.1(a),p.926.
118
[1998]AC1.
119
Seee.g.AdministrationofJusticeAct1982,s.20(1).
120
Frederick ERoseLtdvWilliamHPim&Co.Ltd[1953]2QB450.
121
Cf.Chapter20.1(a),p.926.
122
CountessofShelburnevEarlofInchiquin(1784)1BroCC338,341JamesHayPensionTrusteesLtdvKean
Hirdetal.[2005]EWHC(Ch)1093,[81].
123
ParticularlyafterjudgmentssuchasInvestorsCompensationSchemeLtdvWestBromwichBuildingSociety
[1998]1WLR896andChartbrook LtdvPersimmonHomesLtd[2009]UKHL38[2009]1AC1101.SeeBuxton,
ConstructionandRectificationafterChartbrook(2010)CLJ253.
124
Cf.CherryTreeInvestmentsLtdvLandmainLtd[2012]EWCACiv736.
125
[2011]EWCACiv1153[2012]1WLR1333,[80].
126
[2002]EWCACiv560[2002]EGLR71,[33].
127
[2009]UKHL38[2009]1AC1101notedDavies,FindingtheLimitsofContractualInterpretation[2009]LMCLQ
420.
128
ToulsonLJthoughtitwouldbeaboldcoursefortheCourtofAppealnottofollowaunanimousopinionofthe
HouseofLords,evenifthepointunderdiscussionwasobiter:Daventry[2011]EWCACiv1153[2012]1WLR1333,
[108].
129
SeeBromley,RectificationinEquity(1971)87LQR532,whowasevencriticaloftheneedforanoutward
expressionofaccordasasubstantiveelementofaclaimforrectification.SeetooAgipSpAvNavgazioneAltaItalia
SpA[1984]1LloydsRep353MuntvBeasley[2006]EWCACiv370.
130
SeefurtherDavies,RectifyingtheCourseofRectification(2012)75MLR412.CpSmith,Rectificationof
ContractsforCommonMistake,JoscelynevNissen,andSubjectiveStatesofMind(2007)123LQR116Burrows,
ConstructionandRectificationinContractTerms(edsABurrowsandEPeel)(Oxford:OxfordUniversityPress,
2007).
131
[2011]EWCACiv1153[2012]1WLR1333,[226].
132
ARoberts&Co.LtdvLeicestershireCC[1961]Ch555ThomasBatesvWyndhams[1981]1AllER1077
CommissionforNewTownsvCooper[1995]Ch259.
133
AgipSpAvNavigazioneAltaItaliaSpA,TheNaiGenova[1984]1LloydsRep353,365(SladeLJ).Blackburne
Jhascommentedthat[i]tisdrasticbecauserectificationforunilateralmistakehastheresultofimposingonthe
defendantacontractwhichhedidnot,anddidnotintendto,makeandrelievingtheclaimantfromacontractwhich
hedid,albeitdidnotintendto,make:GeorgeWimpeyUKLtdvVIConstructionLtd[2005]EWCACiv77[2005]
BLR135,[75].
134
[2011]EWCACiv1153[2012]1WLR1333,[173][178].
135
McLauchlan,TheDrasticRemedyofRectificationforUnilateralMistake(2008)124LQR608.
136
HodgeQC,Rectification:TheModernLawandPracticeGoverningClaimsforRectificationforMistak e(London:
Sweet&Maxwell,para422).
137
Seee.g.PittvHolt[2011]EWCACiv197[2011]3WLRseeChapter11.7(g),pp.5603.
138
Clark evDick son(1858)ElBl&El148.
139
EvansvBartlam[1937]AC473,479(LordAtkin).
140
LeafvInternationalGalleries[1950]2KB86.
141
ErlangervTheNewSombrerpPhsophateCo.(1878)3AppCas1218,1279(LordBlackburn).
142
FoxvMack reth(1788)2BroCC44.
143
SeegenerallyOSullivan,Elliott,andZakrzewski,TheLawofRescission(Oxford:OxfordUniversityPress,
2008),[20.23][20.27].
144
HalpernvHalpern(No.2)[2006]EWHC1728(Comm)[2007]QB88,[26](NigelTeareQC).
145
BrothertonvAseguradoraCobeguros(No.2)[2003]EWCACiv705[2003]3AllER(Comm)298,[27](Mance
LJ),[45](BuxtonLJ).SeetooCar&UniversalFinanceCo.LtdvCaldwell[1965]1QB525.
146
ErlangervNewSombreroPhosphateCo.(1878)3AppCas1218.
147
Seee.g.OSullivan,ElliottandZakrzewski,TheLawofRescission(Oxford:OxfordUniversityPress,2008),ch.
10.
148
[2007]EWCACiv291[2008]QB195,[70].
149
TheCourtalsohasastatutorydiscretiontoawarddamagesinlieuofrescissionunderMisrepresentationAct
1967,s.2(2).Fordiscussionofthisprovision,seeMcKendrick,ContractLaw:Text,CasesandMaterials(5thedn)
150
[1895]1Ch287,311.
151
Ibid,31516.
152
Ibid,3223.
153
DamagesinEquityaStudyofLordCairnsAct(1975)CLJ224,252.
154
154
SeealsoBracewellvAppleby[1975]Ch408.
155
SiteDevelopments(Ferndown)LtdvBarrattHomesLtd[2007]EWHC415(Ch),[64](RichardArnoldQC).
156
[1995]1WLR269,283.
157
[2005]EWHC33(Ch)[2005]1EGLR65.
158
Ibid,[73].
159
[2006]EWCCiv1391,[35][36].
160
Davies,LightingtheWayAhead:TheUseandAbuseofPropertyRightsinModernStudiesinPropertyLaw
Volume6(ed.Bright)(Oxford:Hart,2011),p.48.
161
Althoughawillingnesstoselldoesnotnecessarilymeanthatinjunctivereliefshouldberefused.
162
[1895]1Ch287,316.
163
[2009]EWCACiv15,[51].
164
Unlessthepublicinterestisoverwhelminglystrongandconcernsthedefenceoftherealm:seee.g.Dennisv
MinistryofDefence[2003]EWHC793(QB)[2003]EnvLR34.ForamuchmorerelaxedapproachseeMillerv
Jack son[1977]QB966,whichhassincebeendoubted:KennawayvThompson[1981]QB88.
165
Particularlygiventheenlargedpowersundertherevisedsection237oftheTownandCountryPlanningAct1990.
166
DepartmentofCommunitiesandLocalGovernment,CompulsoryPurchaseandtheCrichelDownRules(Office
oftheDeputyPrimeMinisterCircular06/2004,31October2004).
167
StandardCommercialPropertySecuritiesLtdvGlasgowCC[2006]UKHL50[2007]SC(HL)33.
168
[1974]1WLR798.
169
Ibid,811.
170
Ibid,81516.
171
[1993]1WLR1361,136970.
172
[1995]1WLR269,2812.
173
Ibid,291.
174
[1995]1WLR713,71718.
175
Tamares(VincentSquare)vFairpointProperties(No.2)[2007]EWHC212(Ch)[2007]1WLR2167,[22].
176
E.g.HKRUKII(CHC)LimitedvMarcusAlexanderHeaney[2010]EWHC2245(Ch),[81][89].
LawTrove

DOI: 10.1093/he/9780199661480.001.0001
Index
Account
adoptionofunauthorizedinvestment7823
charitabletrusts179
classification786
falsification7804
impropersaleofauthorizedinvestments7812
meaning77980
problemsrevealedby77980
purchaseofunauthorizedinvestments7801
setoff8024
surcharge7846
trusteespowersandduties607
Accountofprofits
fiduciaryduties646
gainbasedremedies8067
Accumulations
maintenance629
minors629,6312
Acquiescence
breachoftrust772
AdministrationoftrustsseealsoDispositivepowersanddutiesTrusteespowersanddutiesVariationoftrusts
accounts607
accumulations598
actingininterestsofallbeneficiaries5914
authorizingdealingswithtrustproperty6001
classificationofincomeandcapital5948
dutyofcare
commonlaw5689
relationshipbetweencommonlawandstatutoryduty5712
statutoryduty5701
TrusteeAct20005701
insurance599600
investment
dutytoinvest5734
powerofinvestment57580
selectionofinvestments58091
totalreturninvestmentpolicy5967
land5989
overview5667
restoringbalance598
safeguardingtrustassets5723
settlementofclaims6078
Advancement
amountpaid634
avoidingprejudicetoothers634
exclusionofthepower634
natureofpower633
ofamateursport
charitabletrusts23740
ofanimalwelfare
ofeducation
ofenvironmentalprotection
charitabletrusts243
ofhealth
ofhumanrights
ofreligion
ofthearts,culture,heritage,orscience
orbenefitofthebeneficiary63541
presumptionof
abolition3634
basis362
criticisms3623
generally3613
illegality3705
meaning3612
rebuttal36470
whetherneedforpresumption3756
properexercise635
restrictionsonexerciseofpower6335
subsequentabsoluteentitlement634
Advertisements,beneficiariesfor6213
Advice,investment577
Agency
noncharitablepurposetrusts290,3067
trustsdistinguished425
unincorporatedassociations3067
Agents
delegationoftrusteespowersto6013
fiduciaryrelationships643
linkedfunctions602
personsactingas602
termsofagency6023
Amateursport,charitabletrustsandadvancementof23740
Animals
charitabletrustsforanimalwelfare2467
noncharitablepurposetrusts2856
trustforparticularanimal2856
Annualaccounts,charitabletrusts179
Appointmentoftrustees
acceptance51213
additionaltrustees5223
CharityCommission531
continuingtrustees5256
court,by52831
directionofbeneficiaries5267
(p.974) notrusteeacceptingappointment51314
numberoftrustees520
replacementoftrustees522
selectionoftrustees5235
settlor,by520
statutorypowertoappoint5216
testator,by521
trustees,by521
AppointmentpowersseePowersofappointment
Arts,charitabletrustsandadvancementof2347
Assets
dutyoftrusteestosafeguardassets5723
expresstrusts
partitioningassets37
segregationofassets37
Assignment
equitableinterest,beneficiaries4867
Attestation,wills1256
AttorneyGeneral,charitabletrusts179
Australia,unconscionability8
AutomaticresultingtrustseealsoResultingtrusts
absolutegifts385
bonavacantia3859
categoryoftrusts3556
initialfailureofexpresstrust3767
invalidityofexpresstrust37784
operationoftrust376
rationale4003
subsequentfailureoftrust38491
Badfaith,trustees556
Bailment,trustsdistinguished412
Baretrusts,classification31
Beneficialinterests,proprietaryrights12
Beneficiaries
advertisementsfor6213
assignmentofequitableinterests4867
beneficiaryprinciple11012
breachoftrust,fixedtrusts4723
declarationbybeneficiaryastrustee4936
directiontoholdontrustforanother4878
disclaimer
generally470
operation470
discretionarytrusts
applicationstocourt478
breachoftrust478
informationrights478,4823
personalrights47882
proprietaryrights477
terminationoftrust5056
trustdocuments478
dispositionofequitableinterests
assignment4867
conveyancebynominee48891
nominationoffuturebenefits5013
oralcontractforthesaleofshares496501
resultingtrusts4913
writingrequirement4856
fiduciarypowers
applicationtocourt484
informationrights485
personalrights4835
releaseofthepower483
trustdocuments484
fixedtrusts
breachoftrust4723
inspectionoftrustdocuments4746
personalrights4726
properadministrationofthetrust472
thirdparties473
tortiousrights4734
informationrights
discretionarytrusts478,4823
fixedtrusts4746
meaning10,25
natureofrights
enforceability46970
equitablerights469
generally57
personalrights589
oralcontractforthesaleofshares496501
personalrights589
discretionarytrusts47882
fiduciarypowers4835
fixedtrusts4726
fiduciarypowers483
fixedtrusts4702
resultingtrusts4913
rightsagainstrights5961
SaundersvVautier,rulein5035,507
terminationoftrust
fiduciarypowers507
thirdparties473
tortiousrights4734
trustee,as511
unknownbeneficiaries6213
Beneficiaryprinciple
charitabletrusts111,175
rationale11011
Benjaminorders6236
Bonafidepurchaser,proprietaryclaims8647
Bonavacantia
automaticresultingtrust3859
(p.975) Breach,fiduciaryduties
proprietaryclaims68697
secretcommission68797
Breachofconfidence,prohibitoryinjunctions9335
Breachofcontract,prohibitoryinjunctions9303
Breachoffiduciaryduty
bribes68797
constructivetrusts3478
equitablecompensation6978
remedies684700
thirdpartyliability8767
unconscionability9034
BreachoftrustseealsoPersonalliabilityoftrusteesProprietaryclaims
acquiescence772,7745
consent
generalprinciples7479
impoundingabeneficiarysinterest74952
ruleinReDacre752
contribution7535
creditors,liabilityto7578
exemptionclauses
development7301
duties726,7278
effect742
interpretation7412
liabilities726,72830
settingleveloffault73141
types726
fairness7446
honesty743
indemnities7557
jointandseveralliability7537
laches7724
liabilitybetweentrustees
contribution7535
indemnities7557
jointandseveralliability7537
natureofliability7523
limitation
breachoffiduciaryduty7668
extensionoflimitationperiod7689
scopeofstatutoryprovisions7626
statutorylimitationperiods7602
natureofbreach7234
personalrights14
preappointmentliability758
reasonableness7434
reliefbythecourt
assessmentofstatutoryprovisions7467
fairness7446
honesty743
powerofcourt7423
reasonableness7434
retirement758
ruleinReDacre752
types7256
unjustenrichment14
Breachofundertakings
generally333
imperfectgifts342
mutualwills33742
purchasers3337
secrettrusts337
Bribes
fiduciaryduties6689,68797
noprofitprinciple6689
Certaintyofintention
absence10910
capacity67
imperativewords67
InsolvencyAct1986734
interpretation68
powers37
precatorywords67
shamtrusts6973
thresholdofcertainty68
unfairprejudice734
useofwordtrust67
Certaintyofobjects
absence10910
administrativeworkability86
ascertainability86
capriciousness107
conceptualcertainty86
discretionarytrusts
addingbeneficiariestosmallclass98
administrativeunworkability1025
completelisttest91
delegation99102
dependants948
discretionoftrustees901
drafting98
evidentialcertainty98
givenpostulanttest91,948
isorisnottest91,98
relatives948
tests914
drafting,discretionarytrusts98
elements867
fiduciarypowers1059
fixedtrusts8790
importance86
powers87
terminology87
Certaintyofsubjectmatter
absence10910
bulkofestate756
definitionofproperty74
generally74
identifiableproperty7684
interpretation756
milkquotas745
objectiveclarity756
reasonableness76
whateverislefttrusts846
Changeofposition,proprietaryclaims86770
Charitabletrusts
administration1789
advancementof
amateursport23740
animalwelfare2467
citizenship2334
education20723
environmentalprotection243
health2313
humanrights2402
religion22330
thearts,culture,heritage,orscience2347
(p.976) advantages1778
alterationofcharitablepurpose26774
amateursport,advancementof23740
animalwelfare2467
annualaccounts179
arts,advancementof2347
beneficiaryprinciple111,175
certainties110,1778
charitablepurposes
advancementof
amateursport23740
animalwelfare2467
citizenship2334
education20723
health2313
humanrights2402
religion22330
thearts,culture,heritage,orscience2347
alteration26774
amateursport,advancementof23740
animalwelfare2467
citizenship,advancementof2334
communitydevelopment2334
education20723
exclusivelycharitable2505
health,advancementof2313
humanrights2402
otherbeneficialpurposes24850
poverty,preventionorreliefof2017
promotionofefficiencyofpublicservices248
reliefofthoseinneed2436
religion,advancementof22330
subsequentfailureofcharitablepurpose2667
CharitableUsesAct1601preamble1878
Charitycollections2745
CharityCommission
administrationofcharities179
appointmentoftrustees531
charityproceedings1834
citizenship,advancementof2334
communitydevelopment2334
culture,advancementof2347
cyprsdoctrine25565
definitionofcharity
background186
CharitableUsesAct1601preamble1878
CharitiesAct2006189
CharitiesAct2011189201
headsofcharity18890
politicalobjectives197201
publicbenefit1917
disadvantages1789
education20723
essentialcharacteristicsofacharity1757
establishmentofcharity176
exclusivelycharitable2505
functions17980
heritage,advancementof2347
humanrights2402
importance111
institution176
judicialreview1846
meaning176
noncharitablepurposes,inclusionof
consequences2535
generally2503
incidentalpurposes2534
retrospectivevalidation255
severance255
voidtrusts253
objectives17980
operation176
otherbeneficialpurposes24850
perpetuityrules177
politicalactivity197201,22023
poverty,preventionorreliefof2017
promotionofefficiencyofpublicservices248
publicbenefit1917
publicschools21620
publictrusts175
purposes,charitable176
register1801
registeredcharities176
registration1802
regulation
AttorneyGeneral179
courts1836
judicialreview1846
tribunals1836
reliefofthoseinneed2436
religion,advancementof22330
resultingtrusts178
role176
science,advancementof2347
severance110
smallcharities276
solicitations2756
supervision
AttorneyGeneral179
courts1836
judicialreview1846
tribunals1836
taxation178
trustees177,51415
Citizenship,charitabletrustsandadvancementof2334
Classificationoftrusts
baretrusts31
context,by306
event,by2930
expresstrusts30
fixedtrusts30
(p.977) intervivostrusts31
pensionfundtrusts336
privatetrusts31
protectivetrusts313
publictrusts31
resultingtrusts36
specialtrusts31
testamentarytrusts31
Cleanhands
conduct1618
maximsofequity1618,926
Commercialtrusts,origins25
Commonintentionconstructivetrusts325
trustsofland
ambulatoryintention4323
applicationofprinciples43643
background4225
domesticconsumers4413
expresscommonintention428
foundationsofdoctrine4437
generally422
imputedcommonintention42832,42833,4437
inferredcommonintention428
jointownershipcases43941
lawreform4478
presumptions42533
proprietaryestoppel445
rebuttingpresumptions42733
rejectionofimputedintention4467
relationshipofparties446
relevantfactors4278
roleofresultingtrusts4335
scopeofprinciples4413
singleownershipcases4369
summaryofprinciples436
unjustenrichment4435
CommonLaw
assimilation810
conflictwithEquity4
covenantstosettle1636
fusingadministration5
legalownership10
meaning3
origins3
ownership10
Communitydevelopment,charitabletrusts2334
Companydirectors,fiduciaryrelationships643
Compromises,trusteespowersandduties6078
Concurrentadministration,LawandEquity56
Conduct,cleanhands1618
Conflictofinterest,fiduciaryduties646
ConscienceseeUnconscionability
Consent,breachoftrust
ruleinReDacre752
Constitutionoftrusts
declarationofselfastrustee1459
failedgifts15161
ReRose,rulein1525
requirement145
selfdeclaration1459
transferoftrustpropertytotrustee14951
Constructivetrustees,constructivetrusts3512
Constructivetrusts
breachofundertakings
generally333
mutualwills337
purchasers3337
secrettrusts337
classificationoftrusts36
commonintentionconstructivetrusts325
background4225
imputedcommonintention42832,4437
lawreform4478
presumptions42533
relevantfactors4278
singleownershipcases4369
trustsofland42248
constructivetrustees3512
contractsforsaleofland3457
declaration,norequirementfor322
essentialfeatures3212
fiduciariesdesontort3323
foundations3223
gifts342
institutionalconstructivetrust
breachofundertakings33342
contractsforthesaleofland3457
imperfectgifts342
mistake3302
proceedsofcrime3424
rescission32930
typeofconstructivetrust3234
(p.978) unconscionableretention3269
intention321
jointventureconstructivetrusts
generally4489
natureofthetrust4513
operation4535
requirements44951
liabilitytoaccountasconstructivetrustee325
meaning3212
mistake3302
mutualwills33742
natureoftrusteeship3512
operation322
operationoflaw3212
proceedsofcrime3424
ReRose,rulein155
remedialconstructivetrusts324,34851
remedy,as3245
rescission32930
secrettrusts131,337
theoreticalbasis3223
trustee
natureoftrusteeship3512
obligations322,513
trustsofland42148
types
generally325
institutionalconstructivetrusts3234,32648
liabilitytoaccountasconstructivetrustee325
remedialconstructivetrusts324
remedy,constructivetrustsas3245
unconscionability3269,443
useoflabel322
Contract,trustsdistinguished389
Contractsforthesaleofland
oralcontracts420
Contracts(RightsofThirdParties)Act1999,covenantstosettle1613
Contribution,breachoftrust7535
CourtofChancery,establishment3
Covenantstosettle
CommonLaw1636
meaning161
CreationoftrustsseealsoFormalities
Equitylookstosubstanceratherthanform22
Creditors,breachoftrustandtrusteesliabilityto7578
Culture,advancementof
Custodiantrustees51618
Custodians,delegationoftrusteespowersandduties604
Cyprsdoctrine25565
alterationoforiginalcharitablepurpose26774
association,charityby2645
collectionsforcharity2746
critiqueofdoctrine2767
defunctcharities2614
generalcharitableintent25961
nonexistentcharities2634
smallcharities276
solicitationsforcharity2756
subsequentfailureofcharitablepurpose2667
Damages
injunctions928
inlieuofequitableorders96271
Deathbedgifts1689
Debts
tracing8448
Declarationsoftrusts
functionofformalities11920
intervivosdeclarations1205
secrettrusts131
wills,formalities1256
writing120
Delegation
trusteespowersandduties
agents6013
custodians604
liabilityoftrustees6056
nominees603
powerofattorney6067
reviewingdelegation604
Delegationofpowers,investment5778
Disclaimer,beneficiaries
generally470
operation470
Discretion
Equity67
shamtrusts73
Discretionarytrusts
beneficiaries
applicationstocourt478
breachoftrust478
personalrights47882
(p.979) terminationoftrust5056
trustdocuments478
certaintyofobjects
addingbeneficiariestosmallclass98
administrativeunworkability1025
completelisttest91
delegation99102
dependants948
discretionoftrustees901
drafting98
givenpostulanttest91,948
isorisnottest91,98
relatives948
tests914
drafting,certaintyofobjects98
fiduciarypowerscompared1079
Dishonestassistance
conduct87982
dishonesty8946
knowledge8968
meaning8789
mentalelement88294
primarywrong879
secondaryliability8789
Dishonesty,shamtrusts70
Disposition
equitableinterests
assignment4867
conveyanceoflegalestatebynominee48891
nominationoffuturebenefits5013
resultingtrusts4913
shares496501
shares496501
DispositivepowersanddutiesseealsoPowersofappointment
advancement
advancementorbenefitofthebeneficiary63541
amountpaid634
avoidingprejudicetoothers634
exclusionofthepower634
natureofpower633
properexercise635
restrictionsonexerciseofpower6335
subsequentabsoluteentitlement634
distributions
advertisementsforbeneficiaries6213
Benjaminorders6236
directionsfromcourt621
dutytoinformbeneficiariesandobjectsoftheirrights61920
insurance626
opinionoflawyer6278
overpayments6218
paymentintocourt6267
retentionofafraud626
wrongfuldistribution628
maintenance
accumulations629
natureofpower6289
powertoapplyincome629
minors
accumulations6312
benefittoparents630
discretion630
intermediateincome631
lawreform6301
maintenance6289
paymentofincome62930
nature61011
Dissolution,unincorporatedassociations
bonavacantia312
contractualentitlement31217
determinationoftime3089
generally308
resultingtrusts31012
surplusassets309
Distributions
advertisementforbeneficiaries6213
Benjaminorders6236
directionsfromcourt621
dutytoinformbeneficiariesandobjectsoftheirrights61920
insurance626
opinionoflawyer6278
overpayments6218
paymentintocourt6267
retentionofafraud626
wrongfuldistribution628
Donatiomortiscausa
formalities1689
meaning168
Drafting
discretionarytrusts,certaintyofobjects98
expresstrusts
mistakes67
threecertainties667
Dutyofcare,trustees
commonlaw56870
statutoryduty5701
TrusteeAct20005701
Education,charitabletrusts20723
Environmentalprotection,charitabletrusts243
Equality,maximsofEquity202
EquitableinterestsseealsoPersonalrightsProprietaryrights
creation545
eventcreating545
mergeroflegalinterests55
overreaching56
ranking22
trustees55
EquitableprinciplesseeMaximsofequity
EquitableremediesseealsoFreezinginjunctionsInjunctions
damagesinlieu96271
overview9256
rectification95961
rescission9612
searchorders9516
specificperformance9579
EquityseealsoPersonalrightsProprietaryrights
assimilation810
characteristics3,68
contemporarycontribution1011
development4
discretion67
function4
fusingadministration5
historicalfoundations3
importance1011
justice4
meaning3
modernrelevance1011
morality4
nineteenthcentury5
origins3
ownership10
perception45
prevailingoverCommonLaw5
seventeenthcentury4
(p.980) unconscionability78
uses1011
Equityfollowsthelaw,maximsofEquity1920
Equitylookstosubstanceratherthanform,maximsofEquity22
Equitytreatsasdonethatwhichoughttobedone
maximsofEquity1819
Equitywillnotassistavolunteer
imperfectgifts151
maximsofEquity20
Estoppel
Ethicalinvestment58191
ExclusionclausesseeExemptionclauses
Exemplarydamages,personalliabilityoftrustees8079
Exemptionclauses
development7301
duties726,7278
effect742
interpretation7412
liabilities726,72830
settingleveloffault73141
types726
Expensesoftrustees
paymentfrombeneficiaries539
paymentfromtrust5378
reimbursement5379
ExpresstrustsseealsoCharitabletrustsFormalitiesValidityofexpresstrusts
assets
partioning37
consensualtrusts30
creationofequitableinterests12
managementofproperty37
partioningassets37
perpetuityrules11216
reasonsforcreating
generally36
managementofproperty37
partioningassets37
taxavoidance378
requirementsseealsoCertaintyofintentionCertaintyofobjectsCertaintyofsubjectmatterFormalities
Validityofexpresstrusts
generally657
shamtrusts6973
threecertainties66110
resultingtrusts3534
taxavoidance378
threecertaintiesseealsoCertaintyofintentionCertaintyofobjectsCertaintyofsubjectmatter
absence10910
drafting667
generally66
intentiontocreateatrust66,6774
language,useof66
objectsoftrust66,86109
shamtrusts6973
subjectmatter66,7486
trustsofland421,425
Failedgifts,incompletelyconstitutedtrusts1515
FamilyhomeseeCommonintentionconstructivetrustsTrustsofland
Fault
breachoftrust73141
exemptionclauses73141
thirdpartyliability8756,90718
Fiduciariesdesontort
meaning332
FiduciarydutiesseealsoFiduciaryrelationships
accountofprofits646,6846
breach
accountofprofits6846
bribes68797
choiceofremedy698
equitableallowance699700
(p.981) proprietaryclaims68697
remedies684700
bribes6689,68797
conflictofinterest646
dealingrules
distinctrules65960
fairdealing6589
overview654
selfdealing6548
fairdealing6589
leases6647
limitation7668
nature64553
noconflictprinciple
conflictbetweenduties6623
dealingrules65460
fairdealing6589
generally645
importance654
potentialconflict654
remuneration6602
selfdealing6548
noprofitprinciple
bribes6689
exploitationofopportunities66976
generally645
leases6647
meaning6634
position,profitfrom676
principalsproperty6678
relaxedapproach67984
renewaloflease6646
reversions6667
situationswherenoconflict6769
personalliability6846
positiveduties6467
proscriptivenature6456
remedies
bribes68797
choiceofremedy698
generally684
remuneration6602
retirement64953
scope6489
selfdealing6548
strictnessofdoctrine6478
termination64953
Fiduciarypowers
applicationtocourt,beneficiaries484
beneficiaries
applicationtocourt484
personalrights4835
releaseofthepower483
trustdocuments484
capriciousexercise107
certaintyofobjects1059
discretionarytrustscompared1079
noncharitablepurposes288
release483
FiduciaryrelationshipsseealsoFiduciaryduties
adhocrelationships644
agents643
breachofotherduties647
classification6435
companydirectors643
essentialcharacteristics6423
expresstrusts643
fiduciaryobligations643
loyalty643
meaning6423
partnerships643
solicitors643
strictnessofdoctrine6478
trustees645
voluntarynature644
Finalinjunctions927
Fixedtrusts
beneficiaries
breachoftrust4723
personalrights4726
thirdparties473
tortiousrights4734
certaintyofobjects8790
Following
disputedexistenceofthing81820
generally814
meaning818
use81718
Forfeiturerule
proceedsofcrime3434
unlawfulkilling3434
FormalitiesseealsoHalfsecrettrustsFullysecrettrustsSecrettrusts
constitutionoftrusts
failedgifts15161
imperfectgifts1456
requirement145
selfdeclaration1459
transferoftrustpropertytotrustee14951
covenantstosettle
commonlaw1636
meaning161
deathbedgifts1689
declarationsoftrusts
functionofformalities11920
intervivosdeclarations1205
wills12545
writing120
donatiomortiscausa1689
failedgifts15161
functionofrules11920
promise,trustsofa1668
secrettrusts128
signatures,wills1256
StrongvBird,rulein16970
wills
attestation1256
identificationoflegatees127
incorporationofinformaldocuments126
independentlegalsignificance,factsof127
modificationofrequirements1267
secrettrusts12745
signatures1256
writing1201
Fraudonthepower,trustees5589
Freezinginjunctions
ancillaryorders9501
development9412
factorsrelevanttogrant9446
grantoforder942
jurisdiction9424
Marevainjunctions941
operation942
purpose9412
thirdparties94850
worldwideinjunctions9468
FullysecrettrustsseealsoSecrettrusts
acceptancebylegatee1401
communicationoftrusttolegatee140
failuretoestablishrequirements144
intentionoftestator13740
meaning128
nontestamentaryapplications144
operation1367
standardofproof1414
(p.982) Gainbasedremedies8067
accountofprofits8067
Gifts
Equitywillnotassistavolunteer151
Equitywillnotstriveofficiouslytodefeatagift1512
failedgifts15161
imperfectgifts14570,342
Graves,noncharitablepurposetrusts286
HagueConventionontheLawApplicabletoTrustsandtheirRecognition,trusts257
HalfsecrettrustsseealsoSecrettrusts
deathoftrustee130
meaning127
operation1315
Heritage,charitabletrustsandadvancementof2347
HighCourt,establishment5
Humanrights,charitabletrusts2402
Illegality
advancement,presumptionof3705
shamtrusts72
ImpliedtrustsseeConstructivetrustsResultingtrusts
Inalienability,ruleagainst116
Incorporation,charities176
Indemnities,breachoftrust7557
Informationrights
discretionarytrusts1823,478
fiduciarypowers485
fixedtrusts4746
Inherentjurisdictionofthecourt,variationoftrusts704
Injunctions
breachofconfidentiality9335
breachofcontract9303
damages928
duration927
finalinjunctions927
freezinginjunctions94151
interiminjunctions927,93541
interlocutoryinjunctions927
jurisdiction928
mandatoryinjunctions927,92830
meaning927
negativeinjunctions927
privacy9335
prohibitoryinjunctions927,9305
quiatimetinjunctions9278
searchorders9516
types9278
InsolvencyAct1986,certaintyofintention734
Inspectionoftrustdocuments,beneficiaries4746
InstitutionalconstructivetrustsseealsoConstructivetrusts
breachofundertaking
generally333
imperfectgifts342
mutualwills33742
purchasers3337
secrettrusts337
contractsforthesaleofland3457
mistake3302
mutualwills33742
proceedsofcrime3424
secrettrusts337
trustsofland422
typeofconstructivetrust3234
unconscionableretention3269
Insurance
distributions626
Intention,certaintyseeCertaintyofintention
Intervivostrusts,classification31
Interest,personalliabilityoftrustees8046
Interiminjunctions927,93541
Interlocutoryinjunctions927
Intestacy,interestsdistinguishedfromtrusts4751
Investment
advice577
delegationofpowers5778
ethicalinvestment58191
personalliabilityoftrustees
trusteespowersandduties
advice,dutytoobtain577
commoninvestmentfundsforcharities579
duty5735
dutytoobtainthebestprice57980
powers57580
purchaseofland578
standardinvestmentcriteria5767
Jointandseveralliability,breachoftrust7537
Jointtenancies
devolutionofpowersoftrusts512
sharedownership13
trustees512
Jointventureconstructivetrusts,trustsofland
generally4489
operation4535
requirements44951
(p.983) Judicialreview,charitabletrusts1846
Judicialtrustees51516
KeechvSandford,rulein6646
Laches
barstoequitablerelief9267
breachoftrust7724
Land,trustsofseeProprietaryestoppelTrustsofland
Leases
fiduciaryduties6647
KeechvSandford,rulein6646
noprofitprinciple6647
renewal6646
reversions6667
Legalhistory
Equity3
trusts245
Limitation
breachoftrust
extensionoflimitationperiod769
postponementofperiod7692
scopeofstatutoryprovisions7626
statutorylimitationperiods7602
fiduciaryduties7668
Litigation,reimbursementofcoststotrustee53942
LordChancellor,petitions3
Mandatoryinjunctions927,92830
MaximsofEquity
abolitionproposals15
application1516
cleanhands1618,926
Equality2022
Equityfollowsthelaw1920
Equitylookstosubstanceratherthanform22
Equitytreatsasdonethatwhichoughttobedone1819
Equitywillnotactinvain926
Equitywillnotassistavolunteer20,151
Equitywillnotstriveofficiouslytodefeatagift1512
mantra,as15
overview1516
purpose16
thosewhoseekEquitymustdoEquity16
use15
whereequitiesareequalthefirstintimeshallprevail223
Milkquotas,certaintyofsubjectmatter745
Minors
accumulations629,6312
dispositivepowersandduties
benefittoparents630
discretion630
exclusionofstatutorypower6323
intermediateincome631
lawreform6301
maintenance6289
paymentofincome62930
maintenance
accumulations629
natureofpower6289
powertoapplyincome629
Mistake,institutionalconstructivetrusts3302
Mixedfunds,tracing83442
Monuments,noncharitablepurposetrusts286
Morality,Equity4
Mutualwills
institutionalconstructivetrusts33742
Noconflictprinciple
conflictbetweenduties6623
dealingrules
distinctrules65960
fairdealing6589
overview654
selfdealing6548
fairdealing6589
generally645
importance654
potentialconflict654
remuneration6602
selfdealing6548
Noprofitprinciple
bribes6689
exploitationofopportunities66976
generally645
leases6647
meaning6634
position,profitfrom676
principalsproperty6678
relaxedapproach67984
renewaloflease6646
reversions6667
situationswherenoconflict6769
Nominees
conveyanceoflegalestate48891
trusteespowersandduties,delegationof603
Noncharitablepurposetrusts
agency290,3067
appointmentofenforcer2903
certaintyofpurpose2801
charitablepurposes281
critiqueofinvalidityprinciple2813
directorindirectbenefittoindividuals2834
enforcers2903
estoppel308
fiduciarypowerfornoncharitablepurposes288
giftovers28990
graves286
mechanismsforimplementation
agency290
appointmentofenforcer2903
fiduciarypowerfornoncharitablepurposes288
mandates290
(p.984) powerattachedtogiftwithgiftover28990
monuments286
powerattachedtogiftwithgiftover28990
privatemasses,trustsforsayingof286
reasonsforinvalidity27883
recognition111
testamentarytrustsofimperfectobligation2845
unincorporatedassociations
agency3067
contractholdingtheory299306
definitions294
dissolutionofassociation30817
estoppel308
existingcontractualrightsofmembers299306
generalrule2937
holdingproperty294
members,forbenefitof298
presentandfuturemembers,trustfor2989
validtrusts
animal,trustsforparticular2856
anomalouscases2878
directorindirectbenefittoindividuals2834
exceptionalcircumstances2838
graves286
monuments286
privatemasses,trustsforsayingof286
testamentarytrustsofimperfectobligation2845
Oralcontracts
saleofland420
saleofshares496501
Overpayments,trustees6218
Overreaching,equitableinterests56
Ownership
CommonLaw10
Equity10
Partnerships
thirdpartyliability91920
Paymentintocourt,distributions6267
Pensionfundtrusts,classificationoftrusts336
Perpetuityrules
alienability112
charitabletrusts177
durationoftrust116
inalienability116
meaning112
noncompliance112
perpetuityperiod114
purposeofrules112
rationale112
remotenessofvesting11316
waitandseerule115
Personalliabilityoftrustees
advantagesofpersonalremedy813
exemplarydamages8079
generally7767
interest8046
investments
primaryandsecondaryobligationsdistinguished7779
proprietaryremediesdistinguished7767
punitiveawards8079
surcharge7846
takinganaccount
classification786
falsification7804
meaning77980
problemsrevealedby77980
setoff8024
surcharge7846
TargetHoldingsLtdvRedfern786802
terminology7834
Personalrights
beneficiaries589
breachoftrust14
creation1314
importance1314
priority223
proprietaryrights14
Politicalactivity,charitabletrusts197201,2203
Poverty,charitabletrustsandpreventionorreliefof2017
Powerofattorney,trusteespowersandduties6007
Powers
certaintyofintention37
coupledwithatrust534
determiningcreation523
Powersofappointment
exercisingpowers
fiduciarypowers61213
trustpowers61112
failuretoexercisepower
fiduciarypower61519
trustpower61315
generally611
Precatorywords,certaintyofintention67
PresumedresultingtrustsseealsoResultingtrusts
approach354
categoriesofpresumption357
operation357
presumptionofadvancement36176
purchasemoney357,35961
rationale391400
voluntaryconveyances357,3589
(p.985) PresumptionofadvancementseeAdvancement,presumptionof
Priorityofinterests,whereequitiesareequalthefirstintimeshallprevail223
Privacy,prohibitoryinjunctions9335
Privatemasses,trustsforsayingof286
Privatetrusts,classification31
Proceedsofcrime
forfeiturerule3434
publicpolicy3423
Professionaltrustees514
Prohibitoryinjunctions927,9305
breachofconfidence9335
breachofcontract9303
privacy9335
Promises,trusts1668
Property,definition745
Proprietaryclaims
advantages81314
bonafidepurchaser8647
categories813
changeofposition86770
claiming814,8514
defences814
bonafidepurchaser8647
changeofposition86770
equitableallowances8701
ReDiplock 872
equitableallowances8701
essence812
following
disputedexistenceofthing81820
generally814
meaning818
use81718
generally812
identificationofremedy814
proprietarybase814,81517
ReDiplock 872
remedies
CommonLaw854
defendantisafiduciary,where85561
identification814
innocentvolunteers861
personalremedies812
proprietaryremedies812
subrogation8624
types813
subrogation8624
tracing
CommonLaw82531
debts8448
dissipationofassets8424
Equity83150
fiduciaryrequirement8314
limitations8428
meaning81216,8205
mixedfunds83442
swollenassetstheory84850
unmixedfunds834
use81718
types813
Proprietaryestoppel
commercialcontext4624
domesticcontext4624
enforcementofvoidcontracts4645
evidentialfunction4602
limitations4605
meaning4556
natureofrelief45860
operation456
requirements4568
secrettrusts130
trustsofland422
Proprietaryrights
advantages1112
beneficialinterests12
creation12
personalrights14
priority223
sharedownership13
successiverights1213
Protectivetrusts,classificationoftrusts313
Publicbenefit,charitabletrusts1917
Publicpolicy
proceedsofcrime3423
Quistclosetrusts4078
Publicschools,charitabletrusts21620
Publictrustees518
Publictrusts,classification31
Punitivedamages,personalliabilityoftrustees8079
Purchasers,breachofundertakings3337
PurposetrustsseealsoCharitabletrustsNoncharitablepurposetrusts
recognition111
validity111
Quiatimetinjunctions9278
Quistclosetrusts
identification4039
natureoftrust40917
origins403,4046
publicpolicy4078
rationale4067
resultingtrusts,as4034
ReRose,rulein1525
Rectification,equitylookstosubstanceratherthanform22
Registration,charitabletrusts1802
Reliefofthoseinneed,charitabletrusts2436
Religion,charitabletrustsforadvancementof22330
Remedialconstructivetrusts324,34851,421
Remedies
CommonLaw926
EquitableseealsoFreezinginjunctionsInjunctions
barstoorders9267
damagesinlieu96271
laches9267
overview9256
rectification95961
rescission9612
searchorders9516
(p.986) fiduciaryduties
bribes68797
choiceofremedy698
proprietaryclaims
commonlaw854
defendantisafiduciary,where85561
equitableproprietaryremedies85481
identification814
innocentvolunteers861
personalremedies812
proprietaryremedies812
subrogation8624
substituteassetspurchased85461
types813
Remotenessofvesting,perpetuityrules11316
Removaloftrustees
court5337
generalstatutorypower533
trustinstrument533
Remuneration
fiduciaryduties6602
noconflictprinciple6602
trustees
authorizedbythecourt5447
authorizedbystatute5434
authorizedbytrustinstrument5423
Rescission
equitableremedies9612
Resettlement,variationoftrusts7089
ResultingtrustsseealsoQuistclosetrusts
absenceofintention354
advancement,presumptionof36176
automaticresultingtrust
initialfailureofexpresstrust3767
invalidityofexpresstrust37784
operationoftrust376
rationale4003
subsequentfailureoftrust38491
beneficiaries4913
categories3557
charitabletrusts178
expresstrusts3534
futureofmechanism354
intention,difficultyinascertaining354
meaning3545
operation3534
presumedresultingtrusts
approach354
categoriesofpresumption357
operation357
purchasemoney357,35961
rationale391400
voluntaryconveyances357
rationale
automaticresultingtrust4003
presumedresultingtrusts391400
trustees513
trustsofland421
types3557
whetherneedfor3756
Retirementoftrustees
breachoftrust758
fiduciaryduties64953
voluntaryretirement5312
Revocation,secrettrusts130
Science,advancementofbycharitabletrusts2347
Secretcommission,fiduciaryduties68797
Secrettrusts
changingtermsoftrust12930
constructivetrusts131,337
deathofbeneficiary1301
deathoftrusteebeforetestator130
declarationoftrusts131
evidenceofdeclarationoftrust131
formalities128
fullysecrettrusts
acceptancebylegatee1401
communicationoftrusttolegatee140
failuretoestablishrequirements144
meaning128
nontestamentaryapplications144
operation1367
standardofproof1414
halfsecrettrusts
deathoftrustee130
meaning1278
operation1315
institutionalconstructivetrusts337
justificationforrecognition128
outsidethewilltheory1289
reasonsforusing127
revocation130
unifiedtheory1445
WillsAct1837128
Segregationofassets,expresstrusts37
(p.987) Selfdealing,noconflictprinciple6548
SeniorCourtsAct1981
concurrentadministrationofLawandEquity56
EquityprevailsoverCommonLaw56
Setoff
account8024
personalliabilityoftrustees8024
Settlementofclaims,trusteespowersandduties6078
Settlors
meaning25
Severance
jointtenancies13
tenanciesincommon13
Shamtrusts
certaintyofintention6973
commonintention702
deceivingcreditors72
discretion73
dishonesty70
effect72
illegality72
innocentthirdparties723
legitimatetrusts70
powertoadministertrust69
recklessindifference702
settlorsintention702
standardofproof70
subjectiveintentionofparties69
thirdparties723
trusteesintention702
validityofexpresstrusts6973
voidtrusts72
Sharedownership
forms13
jointtenancies13
proprietaryrights13
tenanciesincommon13
Shares,oralcontractforsale496501
Signatures
formalities,wills1256
halfsecrettrusts,meaning127
wills1256
Solicitors,fiduciaryrelationships643
Specialtrusts,classification31
Specificperformance9579
Equitytreatsasdonethatwhichoughttobedone1819
Standardofproof
fullysecrettrusts1414
shamtrusts70
Subrogation8624
Surcharge,personalliabilityoftrustees7846
Swollenassetstheory84850
TakinganaccountseeAccount
Taxavoidance,expresstrusts378
Taxation
charitabletrusts178
variationoftrusts703
Tenanciesincommon
severance13
sharedownership13
Terminationoftrust
beneficiaries
fiduciarypowers507
TestamentarytrustsseealsoWills
Thirdpartyliability
causesofaction875
dishonestassistance
conduct8792
knowledge8968
meaning8789
mentalelement88294
primarywrong879
secondaryliability8789
fault8756,90718
natureofliability878
partnerships91920
reasonstosuethirdparty8745
remedies898901
shamtrusts723
unconscionability
beneficialreceipt9047
breachoftrust9034
fault90718
generally9013
proprietarybase903
remedies91819
ThosewhoseekEquitymustdoEquity16
Tracing
CommonLaw82531
debts8448
dissipationofassets8424
Equity83150
fiduciaryrequirement8314
limitations8428
meaning81213,8205
mixedfunds83442
swollenassetstheory84850
unmixedfunds834
use81718
Transferoftrustproperty
constitutionoftrusts14951
donor/settlordoneallnecessarytotransfertitle1525
equitableinterests151
imperfectgifts15161
legalinterests14951
ReRose,rulein1525
Trustcorporations,trustees518
Trusteedesontort51819
TrusteesseealsoDispositivepowersanddutiesPersonalliabilityoftrusteesProprietaryclaimsTrusteespowers
andduties
amateurtrustees514
appointment
acceptance51213
court,by52831
(p.988) notrusteeacceptingappointment51314
numberoftrustees520
settlor,by520
testator,by521
trustees,by521
badfaith5567
beneficiary,as511
charitabletrusts177,51415
consenttoact51213
constructivetrusts,natureofobligations322,3512,513
coreofobligations512
courtappointment52831
custodiantrustees51618
decisionmaking
reasonsfordecisions54951
surrenderofpowertocourt5513
unanimousdecisionmaking5489
definition567
directionofbeneficiaries,appointmentat5267
dutyofcare
commonlaw56870
statutoryduty5701
equitableinterests55
declarationoftrust512
essenceoftrusteeship51113
excessiveexerciseofpowers556
exerciseofpowers
badfaith5567
excessiveexercise556
failuretoexercisediscretion556
formaldefects5559
fraudonthepower5589
generally548
invalidexerciseofpowers5535
reasons54951
releaseofpowers553
surrenderofpowertocourt5513
surrenderofpowerstothirdparty553
unauthorizedexercise555
unlawfulexerciseofpowers5556
voidableexercise55965
expenses
paymentfrombeneficiaries539
paymentfromtrust5378
reimbursement5379
failuretoexercisediscretion556
formaldefects555
fraudonthepower5589
holdingpropertyforanother51112
identification513
invalidexerciseofpowers5535
jointtenancies512
judicialtrustees51516
litigationcosts53942
meaning25
numberoftrustees520
overpayments6218
payments
costsoflitigation53942
expenses5379
generally537
remuneration5427
pensiontrustees514
professionaltrustees514
publictrustees518
reasonsfordecisions54951
releaseofpowers553
removal
court5337
generalstatutorypower533
trustinstrument533
remuneration
authorizedbythecourt5447
authorizedbystatute5434
authorizedbytrustinstrument5423
resultingtrusts513
retirementdirectionofbeneficiaries5323
surrenderofpowers
court,to5513
thirdparty,to553
trustcorporations518
trustwillnotfailforwantoftrustee51314
trusteedesontort51819
types
amateurtrustees514
charitytrustees51415
custodiantrustees51618
generally514
judicialtrustees51516
pensiontrustees514
professionaltrustees514
publictrustees518
trustcorporations518
trusteedesontort51819
unauthorizedexerciseofpowers555
unlawfulexerciseofpowers5556
unpaidtrustees514
vestingoflegaltitle512
voidableexerciseofpowers55965
voluntaryassumptionofresponsibility51213
(p.989) TrusteespowersanddutiesseealsoDispositivepowersanddutiesFiduciaryrelationshipsPowersof
appointment
accounts607
accumulations598
actingininterestsofallbeneficiaries5914
classificationofincomeandcapital5948
compoundingliabilities6078
compromises6078
delegation
agents6013
custodians604
liabilityoftrustees6056
nominees603
powerofattorney6067
reviewingdelegation604
dutyofcare
commonlaw56870
statutoryduty5701
TrusteeAct20005701
exclusionofdutyofcare567
expenses5956
insurance599600
investment
advice,dutytoobtain577
commoninvestmentfundsforcharities579
duty5735
dutytoobtainthebestprice57980
purchaseofland578
standardinvestmentcriteria5767
maintainingfairbalancebetweenbeneficiaries5914
natureofduties5667
nominees603
overview5667
powerofattorney6067
property
capitalmoney599
insurance599600
personalproperty599
powersoverland5989
receipts595
settlementofclaims6078
TrusteeAct1925567
TrusteeAct2000567
Trustor,meaning25
Trustsseealsovarioustypesoftruste.g.DiscretionarytrustsExpresstrusts
agencydistinguished425
assignmentdistinguished456
bailmentdistinguished412
basis27
classification
baretrusts31
context,by306
event,by2930
expresstrusts30
fixedtrusts30
intervivostrusts31
pensionfundtrusts336
privatetrusts31
protectivetrusts313
publictrusts31
resultingtrusts36
specialtrusts31
testamentarytrusts31
commercialtrusts,origins25
contractsdistinguished389
debtsdistinguished3940
definition258
development25
essenceoftrusts289
giftsdistinguished467
HagueConventionontheLawApplicabletoTrustsandtheirRecognition257
historicalbackground245
importance1011
interestsunderwillsdistinguished4751
mergeroflegalandequitableinterests55
origins245
powersdistinguished514
rightsandinterestsunder
eventcreatingequitableinterests545
mergeroflegalandequitableinterests55
overreachingequitableinterests56
trusteesinterests55
tripartitestructure25
Trustsofland
commonintentionconstructivetrusts
background4225
domesticconsumers4413
expresstrusts425
generally422
imputedcommonintention42833,4437
lawreform4478
presumptions42533
(p.990) singleownershipcases4369
expresstrusts421,425
formalities41920
institutionalconstructivetrust422
jointventureconstructivetrusts
generally4489
operation4535
requirements44951
purchaseofpropertyinonenamebycouple4202
resultingtrusts421
Unconscionability
applicationofconcept8
Australia8
breachoftrust9034
constitutionoftrusts15661
Equity78
fault90718
gifts15661
imperfectgifts15661
importance7
interpretation78
natureofprinciple78
principle78
relevance8
remedies91819
role78
substantivedoctrine8
thirdpartyliability
breachoftrust9034
fault90718
generally9013
proprietarybase903
remedies91819
Unincorporatedassociations
agency3067
bonavacantia312
charitabletrusts295
definition294
dissolution
bonavacantia312
contractualentitlement31217
determinationoftime3089
generally308
resultingtrusts31012
surplusassets309
distributionofsurplusassetsondissolution309
estoppel308
holdingproperty294
agency3067
contractholdingtheory299306
definitions294
dissolutionofassociation30817
estoppel308
existingcontractualrightsofmembers299306
generalrule2957
generally2934
holdingproperty294
members,forbenefitof298
presentandfuturemembers,trustfor2989
resultingtrusts310
Unjustenrichment
breachoftrust14
developmentoflaw14
issues14
personalrights1415
scopeofdefence1415
strictliability15
Unknownbeneficiaries,advertisements6213
Unlawfulkilling,forfeiturerule3434
Use,purposeofdevice245
ValidityofexpresstrustsseealsoCertaintyofintentionCertaintyofobjectsCertaintyofsubjectmatterFormalities
overview657
perpetuityrules11216
shamtrusts6973
threecertaintiesseealsoCertaintyofintentionCertaintyofobjectsCertaintyofsubjectmatter
absence10910
drafting66
generally66
intentiontocreatetrust66
language,useof66
objectsoftrust66
subjectmatteroftrust66
Variationoftrusts
inherentjurisdictionofthecourt704
reasons7034
resettlement7089
statutoryvariation
categoriesofpeopleunabletoconsent70913
effectofcourtapproval7201
familyharmony71516
fraudonthepower716
generally704
intentionofsettlor71620
jurisdictionofcourts707
nonpecuniarybenefit71315
resettlement7089
risktaking713
roleofcourt71720
VariationofTrustsAct195870621
taxation703
(p.991) terminationoftrust704
Voidtrusts,shamtrusts72
Volunteers
equitywillnotassistavolunteer20
maximsofequity20
Waitandseerule,perpetuityrules115
Whereequitiesareequalthefirstintimeshallprevail,maximofequity223
WillsseealsoSecrettrusts
attestation1256
formalities
attestation1256
identificationoflegatees127
independentlegalsignificance,factsof127
modificationofrequirements1267
secrettrusts12745
signatures1256
interestsunderwillsdistinguishedfromtrusts4751
modificationofformalityrequirements1267
mutualwills33742
secrettrusts12745
signatures1256

Paul S. Davies Graham Virgo Edward Burn Equity Trusts Text Cases and Materials Oxford University Press 2013

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Paul S. Davies Graham Virgo Edward Burn Equity Trusts Text Cases and Materials Oxford University Press 2013

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Contents Gotopage:

InPark invThorold,96 LordRomillyMRrecognizedthat:

InWestdeutscheLandesbank GirozentralevIslingtonLBC,17 LordBrowneWilkinsonidentifiedfourfundamental

(p.47) ThiscanbecomparedwithReFrame,87 inwhichpropertywasbequeathedtoahousekeeper,MrsTaylor,

ThisisillustratedbyReCook ,125 inwhichlandwasheldontrustbyahusbandandwifeforthemselves.Since

McFarlaneandStevens 142 treatthebeneficiarysequitablerightasbeingarightagainstrights,namelythe

100 ReDiplock sEstate[1948]Ch465.

111 ReGulbenk ian[1970]AC508,525(LordUpjohn).

130 ThomsonvClydesdaleBank Ltd[1893]AC282.

140 AfterVandepittevPreferredAccidentInsuranceCorporationofNewYork [1933]AC70,79(PC)(Lord

143 See,e.g.WestdeutscheLandesbank GirozentralevIslingtonLBC[1996]AC699,705(LordBrowne

(p.67) InReGulbenk iansSettlementsLordUpjohninsistedthatmistakesindraftingwouldnotnecessarily

25 JonesvLock (1865)1ChApp25,Chapter4.3(a),p.146SwissBank CorpnvLloydsBank Ltd[1982]AC

Thefirstisthedoctrineofincorporationbyreference.46 Therequirementsforthisdoctrine47 doappeartobe

(p.166) ThispassagefromCook highlightsvariousissues.Oneisthesuggestionthatthetrusteesshouldbe

50 Black wellvBlack well[1929]AC318.

52 Black wellvBlack well[1929]AC318.

110 ReCole[1964]Ch175ThomasvTimesBook CoLtd[1966]1WLR911.

(p.195) So,forexample,inNationalAntiVivisectionSocietyvIRC,67 itwasheldthatthepublicbenefittestwas

(p.227) IneednotgobeyondthecaseofCock svManners(1871)LR12Eq574whichwasdecided

(p.229) ThisdecisioncanusefullybecontrastedwithReHetherington,175 wherethetestatrixhadleftherestate

(p.233) ThisisconsistentwiththeCharityCommissionguidanceonPublicBenefit,181 whichemphasizesthat

AnexampleofacaseinwhichageneralcharitableintentionwasidentifiedisBiscoevJack son.267 10,000was

InReJenk inssWillTrusts,278 however,thetestatrixbequeathedherresiduaryestatetoseveninstitutions,oneof

142 ReHopk insWillTrust[1965]Ch669,681(WilberforceJ).SeeChapter5.4(b)(i),pp.2079.

143 ReHopk inson[1949]1AllER346,348(VaiseyJ).

231 ReAtk insonsWillTrusts[1978]1WLR586.

(p.283) Matthews 17 has,however,arguedthatthebeneficiaryprincipleisnotsimplydependentonthe

Itmust,asIseeit,beanecessarycharacteristicofanygiftwithinthesecondcategory 107 thatthe

(p.313) ThiswasconsideredinReBuck sConstabularyWidowsandOrphansFundFriendlySociety(No.

In[ChaseManhattanBank NAvIsraelBritishBank (London)Ltd[1981]Ch105],aNewYorkbank

(p.330) InElAjouvDollarLandHoldingsplc,58 however,althoughMillettJaffirmedthatwhenatransactionis

TheremedialconstructivetrustisrecognizedinAustralia,130 NewZealand,131 andCanada,132 butithasnever

129 SeeFHREuropeanVenturesLLPvMark arious[2013]EWCACiv17.

130 Muschinsk ivDodds(1985)160CLR583GrimaldivChameleonMiningNL(No.2)[2012]FCAFC6.

132 Pettk usvBeck er(1980)117DLR(3d)257.

135 SeealsoMetallundRohstoffAGvDonaldsonLufk in&JenretteInc.[1990]1QB391,479ReGoldcorp

136 [1998]3AllER812.SeealsoCobboldvBak ewellManagementLtd[2003]EWHC2289(Ch),[17](Rimer

(p.356) InReVandervell(No.2),15 MegarryJemphasizedthisdistinction:

(p.365) Thesameisundoubtedlytrueofthepresumptionofadvancement.InPettittvPettitt,54 LordHodson

116 ContradictingthereasoninginCunnack vEdwards[1896]2Ch679.

133 ANewRoleforResultingTrusts?[1996]LS110,114.Seee.g.Cook vFountain(1676)3Swanst585,591.

Bothpresumptionscanberebutted.InStack vDowden37 LadyHalesaid:

InStack vDowden,59 LordNeubergerreachedthesameresultastheotherjudges,butbyadifferentroute,which

ThishasnowbeenconfirmedbytheCourtofAppealinGearyvRank ine.68 Thedefendant,MrRankine,had

InWestdeutscheLandesbank GirozentralevIslingtonLBC,9 LordBrowneWilkinsonrecognizedthat:

[Section53(1)(c)was]appliedinGrey66 andOughtred67 tocaseswherethelegalestateremained

16 ReBrock bank [1948]Ch206.

32 SchmidtvRosewoodTrustLtd[2003]UKPC26[2003]2AC709Break spearvAck land[2008]EWHC220

100 ReSandemansWillTrusts[1937]1AllER368LloydsBank plcvDuk er[1987]1WLR1324.

(p.519) Ineachcasethetrusteeisproperlycharacterizedasanexpresstrustee,40 becauseheorshehas

Althoughitmightbeconsideredtobepartoftheirreduciblecoreofatrusteesobligations 163 thatheorshe

InWalk ervStones,186 SirChristopherSladerecognizedthat:

(p.562) InSieffvFox210 IsaidthatIwasinnodoubtthatfiscalconsequencesmayberelevant

103 AlsopWilk inson(afirm)vNeary[1996]1WLR1220,1224(LightmanJ).

116 ReBuck ton[1907]2Ch406,41415(KekewichJ).

138 Luk evSouthKensingtonHotelCo(1879)11ChD121.

(p.581) InCowanvScargill,67 MegarryVCrecognizedthat:

(1)Subjecttosubsection(2)andsections15(2)133 and29to32,134 thetrusteesmayauthorise

Ifanagentincursexpenseswhenactingonbehalfofthetrust135 orexercisingthefunctionsofanagent,136 heor

InAlsopWilk insonvNeary,155 itwasheldthatatrustee,againstwhomhostilelitigationhadbeenbrought

Publisher: OxfordUniversityPress PrintPublicationDate: May2013

ThisissuereturnedtotheHouseofLordsinHiltonvBark erBoothandEastwood(afirm).87 Inthatcase,Bromage

(p.665) TheruleinKeechvSandfordwasconsideredinReBiss.93 MrBisshadcarriedonaprofitablebusinessas