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rights on a purported beneficiary to count as a declaration of express trust, and here there was none. How were those arguments dealt with by the Court of Appeal? The Court of Appeal held (1), that there was no question of a direct gift in this case which had failed, as in Jones v Lock, and that, given the unsophisticated nature of the parties, Mr Constances expression that the money was as much the plaintiffs as his own on numerous occasions was sufficient as a declaration of trust. An express trust was therefore found to have been created. It may be questioned whether the court in Paul v Constance, was fully alive to the dangers of discovering an intention to declare a trust where a gift of legal title is a more plausible interpretation of the words used by the settlor. Re Goldcorp Exchange Ltd (1995) An intention to create a trust of property normally requires indications that the alleged trustee must keep the specific trust property separate from his own. R v Clowes (No.2) [1994] After all if a recipient of money: is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it a she pleases, when called upon to hand over an equivalent sum of money, then he is not a trustee of the money but merely a debtor. Recent cases: Azam v Iqbal (2008) The defendant operated a hawala, or money transfer facility, taking sterling payments from customers in the UK, and crediting their relatives in Pakistan with rupees at an agreed exchange rate. The claimant paid him 12,000 had been held on trust for him, but this was rejected, the judge holding that the defendant had never been required to segregate the money from his other funds, and that the parties relationship, like that between a banker and customer, had simply been that of debtor and creditor. Palmer v Simmonds (1854) Originally, the court was only too ready to treat such precatory words as creating a trust. As James LJ said in Lamb v Eames (1871): the officious kindness of Court of Chancery in interposing trusts where in many cases the father of the family never meant to create trusts must have been a very cruel kindness instead. Since 1870s, however, the courts have not allowed precatory words to create a trust unless on consideration of the will as a whole it was clearly the testators intention to create a trust. Administration of Justice Act 1982, s.21; s. 22. Please refer to statute book.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 2
2. Shams Trusts
Sham trusts, in the context of our interest in the certainty of intention, are equitable property transactions the written terms of which purport to divest the settlor of his interest in the trust property, but in reality do not, because he had no intention to create a trust of the kind that the written terms represent.
Twinsectra Ltd v Yardley (2002) However, it is possible for money to be lent for a particular purpose, on the basis that the money will be held on trust for the lender from the outset, subject to a power vested in the borrower to apply the money to the purpose, the exercise of which power will terminate the trust and turn the parties relationship into one of creditor and debtor. Equitable charges and reservation of the title clauses Clough Mill Ltd v Martin (1984) o Under which legal title to the materials remains with A until (1) they are sold by B after they are incorporated in to his manufactured products, whereupon the title to them passes to the buyer of the products, or (2) B has paid off all outstanding debts to A, whereupon the title passes to B himself. If B becomes insolvent, A can reclaim all of the materials B has on hand. There is no trust here; the legal title to the goods simply remains with A until either (1) or (2) occurs. o However, if A only had an equitable charge then this would be void against Bs liquidator unless it were registered in accordance with the Companies Act 2006, s.874. o Because A is legal and beneficial owner, he cannot obtain separate equitable interest until full ownership is vested in another party: Westdeutsche Landesbank Girozentrale v Islington LBC (1996) Prepayments Re Kayford Ltd (1975) A mail order company unilaterally decided to place all of the money it received as prepayments for goods in a special account, only drawing upon the account when it filled in order. It was held that, upon the companys liquidation, the money in the account was held in trust for the customers even though they were unaware of the arrangement. Neste Oy v Lloyds Bank plc (1983); extreme case. o An agent for ship owners received money from them to pay various liabilities they incurred, for example, to ports where their ships were berthed. One final payment by a ship owner was received by the agent later it had ceased trading. o It was held that this last payment was held on constructive trust (in others words, the court imposed a trust despite the actual intentions of the both parties, on the basis that any honest recipient of the payment in these circumstances would have understood that the sum ought to be repaid immediately. o It seems wrong; however, simply to find a kind of Kayford-type prepayment trust rather than the ordinary debtor-creditor relationship when neither party makes the slightest gesture to declare a trust, simply because someone is unlucky given the timing of someones insolvent.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 4
Japan Leasing (Europe) plc (2000); follow Neste Oy case. o A purchase payment was received by one co-vendor, who under the contract with the other co-vendor specifically did not hold any payments received on trust for them. At the time of the receipt of the payment, the recipient co-vendor had gone into administration and, following Neste Oy, the court held that the payment was held by the recipient vendor on constructive trust for all the co-vendors. Possibilities of construction for testamentary gifts (If a testator by will leaves property to B and requires B to make some payment for C or perform some obligation in favour of C, there are five possible constructions open to a court.) Re Brace (1954) o Merely indicating his motive, so that B takes an absolute beneficial interest. o To my wife, B, so that she may support herself and children according to their needs or to my daughter, B, on condition she provides a home for my handicapped daughter, C. Re Oliver (1890) o Creating a charge on property given to B, so that B takes the property beneficially subject to the charge for securing payment of money to C. o my office block, Demeter House, to my son, B, subject to paying thereout 10, 000 p.a to my widow, C. Irvine v Sullivan (1869) o Creating a trust in favour of C. o my office block, Demeter House, to B absolutely but so that he must pay an amount equal to the income therefrom to my widow C for the rest of her life. Re Lester (1942) o Creating a personal obligation binding B to C so that if B accepts the property he must perform the obligation in Cs favour. o my leasehold cottage currently subleased to X I hereby devise to B absolutely on condition that he agrees to pay my widow C 15,000 p.a (per annum) for the rest of her life. Re Oliver (1890) o Creating a condition subsequent that affects the property in Bs hands making B liable to forfeit the property if the condition is broken. o my 500, 000 1 shares ICI Plc to B charity Co on condition that it pays my widow, C, an annuity of 10, 000 for her life and properly maintains my family burial vault, and upon any failure to observe this condition the RSPCA shall become entitled to the shares.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 5
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 6
Brightman J opined that there was a valid trust of the house and contents (the latter being subject to normal wastage and wear and tear), which he was content to assume was in suspense during housekeepers lifetime, attaching the property only upon her death.
Hunter v Moss (1994) Unfortunately, before the decision in Re Goldcorp was given, court of appeal delivered its decision in Hunter v Moss (1994), which throws this area of law into some turmoil. Mr. Moss was the owner of 950 shares of a private company. In order to place his finance director, Mr. Hunter, on the same footing as his managing director in respect of their interests in the company, he purported to declare a trust of 50 of those shares. He later sold the 950 shares when the company was taken over by a larger concern, keeping all the proceeds for himself. Hunter claimed a proportionate share of the proceeds of sale, i.e. the proportion that would be his in equity if the declaration of trust was valid. There was a problem, however, in that Moss had never done anything to segregate or identify any particular lot of 50 shares out of the whole 950 he was to hold on trust for Hunter. Dillon LJ in the court of appeal distinguished London Wine on the ground that shares were intangible whereas bottles of wine were not. He held that trust was valid because, as each share carried identical rights, it did not matter which 50 were held on trust. 3. Trust of residue Id certum est quod potest reddi certum, which translate into:That is certain which can readily be made certain
2. Discretionary trusts
Is or Is not test (any given postulant test): Since the power holder has no duty to distribute the property, all that matters is misfeasance. For example: if he appoints property at all, he must be sure to appoint only to those within the class of objects and not those outside it; all he need know with certainty is whether any particular person is within the class or not; in particular he does not need a complete list of all objects who are eligible to receive.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 8
adherent, substantial numbers would fall within the class (e.g. all those who are members of the clergy, regular atttenders, etc.) and so this trust may pass Megaw LJs test. We should note again, however, that Megaw LJs comments were made in the context of a conceptually certain trust. Explain the difference between conceptual uncertainty and evidential uncertainty. Conceptual uncertainty arises from the settlors use of imprecise or vague language in expressing his intensions. Vagueness can be understood as the problem of the uncertain boundaries which arise when we try to apply words to things in the world. For example, the word tall appears to have very uncertain boundaries; tall is not a synonym for 5'10" and over; it is not that precise. As a consequence, the use of the word tall in a trust would result in the declaration of trust being void for conceptual uncertainty. Evidential uncertainty arises when there is insufficient evidence to conclude that an object is within the specified class of objects. The terms of a trust may be conceptually clear, but actually providing evidence to meet them may be impossible What is the effect of evidential uncertainty on (a) a fixed trust, (b) a discretionary trust, and (c) a power of appointment? Evidential uncertainty defeats a fixed trust entirely. The reason is straightforward: if the settlor expresses his gift in such a way that evidence must be adduced to identify the rights or person and that evidence is not available, the trust cannot be executed according to its terms. Evidential uncertainty as regards any particular object will not invalidate a discretionary trust, nor a power of appointment. As long as there are objects who can provide sufficient evidence to prove that they are within the class, there will be valid objects under the trust, and it will not fail. If, however, there is no possibility of adducing evidence to prove that anyone falls within the class, then the trust will fail just as in the case of a fixed trust, even if perfectly conceptually certain. Examples of this sort of trust are likely to be fanciful (e.g. a trust for all those persons who had male ancestors in the sixteenth century with an extra Y chromosome).
On what basis does Megarry J suggest that intermediate trusts are administratively unworkable? While Megarry J held that intermediate powers are valid when held by fiduciaries, not being subject to the administrative workability test, which he held applied only to discretionary trusts, nor being capricious, he said that he would probably hold an intermediate trust invalid, on the basis that the duties of a discretionary trustee are more stringent than a fiduciary power holder and that the beneficiaries of a discretionary trust have more rights of enforcement than objects of fiduciary powers. It is not clear how these differences lead to the invalidity of intermediate trusts, for the enhanced duties of the discretionary trustee are clearly a matter of degree, following McPhail v Doulton, and the objects rights of enforcement do not seem to have anything to do with whether a trustee or donee of a power can carry out a sensible survey of objects and distribute rights responsibly.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 11