EQUITY & TRUSTS

Sweet & Maxwell's Textbook Series

3rd edition

Professor Michael Haley

School of Law, Keele University

and

Dr Lara McMurtrySchool of Law, Keele University

SWEET & MAXWELL & & THOMSON REUTERS

TABLE OF CONTENTS

pageDedication viiPreface ixContents xiGlossary xxviiAbbreviations xxxixTable of Cases xliTable of Statutes lxxxiiiTable of Statutory Instruments lxxxixTable of National Legislation xci

paragraphAN INTRODUCTION TO EQUITY AND TRUSTS

The history of equity—a shortened version 1.02The Judicature Acts and the fusion debate 1.04The maxims of equity 1.05

Equity will not suffer a wrong to be without a remedy 1.06Equity follows the law 1.07He who seeks equity must do equity 1.08He who comes to equity must come with clean hands 1.09Equity is equality 1.10Where the equities are equal the first in time prevails 1.11Equity imputes an intention to fulfil an obligation 1.12Equity regards as done that which ought to be done 1.13Equity looks to substance rather than form 1.14Delay defeats equity 1.15Equity acts in personam 1.16

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Equity will not allow a statute to be used as an instrument offraud 1.17

Equity will not assist a volunteer 1.18Equity will not perfect an imperfect gift 1.19

Key equitable remedies 1.20Specific performance 1.21Injunctions 1.22Rectification 1.24Rescission 1.25Subrogation 1.26

Remedies in the context of a breach of trust 1.27The Trust and its Origins 1.28

Key characteristics of a trust 1.31Types of Trust 1.33

The express trust 1.34Bare trusts 1.35Fixed trusts 1.36Executed and executory trusts 1.37Discretionary trusts 1.38Public trusts 1-39Secret trusts 1-40Statutory trusts 1-41Employee trusts 1-42Pension trusts 1-43Protective trusts 1-44

Implied resulting and constructive trusts 1.45Distinguishing a Trust from Other Legal Concepts 1.47

Debt 1.48Bailment 1-50Agency 1-51Gifts 152Powers of appointment 1.53

Distinguishing a power from a discretionary trust 1.54Overseas Trusts 1-56

Tax havens 1-57Judicial concerns 1-58

THE THREE CERTAINTIES

Initial Observations 2.02And gifts? 2.03Consequences of a lack of certainty 2.04

Certainty of Intention 2.06Gift, trust or both? 2.07Precatory words 2.08Fictitious intentions 2.11Inferred intention 2.12

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Inferred intention and family context 2.13Inferred intention and commercial context 2.15Inference from mutual intentions and segregation 2.17Inference from restrictions imposed without segregation 2.19Inference from a unilateral act: the pre-payment cases 2.21Understanding the Quistclose-style trust 2.22

Certainty of Subject Matter 2.24Trust property 2.25In search of meaning 2.27A trust of "whatever is left" 2.28A trust of part of property: tangibles 2.30A trust of part of property: intangibles 2.32Certainty of beneficial share 2.36

Equity is equality 2.37An objective calculus 2.38

Certainty of Objects 2.40Conceptual uncertainty? 2.41

Examples of conceptual uncertainty 2.42Relatives, dependants and children 2.43

Fixed trusts: the complete list rule 2.44Untraceable beneficiaries 2.46

Fixed trusts: evidential certainty 2.47Rendering the evidentially uncertain certain? 2.48Discretionary trusts: the class test 2.49

The class test in operation 2.51Administratively unworkable trusts 2.52Capriciousness 2.53

CONSTITUTION OF TRUSTS

Methods of Constitution 3.03Transfer of legal title 3.04

Ineffective transfers 3.05Self-declaration as trustee 3.07

The Every Effort Rule 3.09The Role of Unconscionability 3.13

The settlor as one of several trustees 3.14Donationes Mortis Causa 3.15

In contemplation of death 3.17Conditional on death 3.18Delivery 3.20

The Rule in Strong v Bird 3.21Re Ralli's Will Trusts 3.25Imperfect Constitution and Contractual Rights 3.27Enforcement of Covenants to Settle 3.29A Trust of the Benefit of the Covenant? 3.32Proprietary Estoppel 3.34

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FORMALITIES AND THE PERPETUITY RULES

The function of formalities 4.02The disadvantage of formalities 4.03

Lifetime Trusts of Land 4.04Section 53(2): An exception 4.07

Dealing with an Existing Trust Interest 4.09Disposition of a subsisting equitable interest? 4.10

Section 53(l)(c): Four Seminal Cases 4.12Case 1: Grey v IRC 4.12Case 2: Oughtred v IRC 4.14Case 3: Vandervell v IRC 4.18

Was the transfer caught by s.53(l)(c)? 4.19What of the option to purchase? 4.22

Case 4: Re Vandervell Trusts (No.2) 4.24The reasoning of Megarry J 4.25The divination of a new trust 4.27So what about s.53(l)(c)? 4.28The role of estoppel 4.29Is Re Vandervell (No.2) correctly decided? 4.30

Section 53(l)(c): A Synopsis 4.31The Rules Against Perpetuity 4.32Remoteness of Vesting 4.33

A vested interest 4.35The common law perpetuity period 4.37The wait and see rule 4.38

Statutory lives in being 4.40The 1964 Act 4.41The 2009 Act 4.42

The Rule Against Inalienability 4.44The Rule Against Excessive Accumulations 4.46

Effect of excessive accumulation 4.48Accumulations and the 2009 Act 4.49

POST-MORTEM TRUSTS: MUTUAL WILLS AND SECRET TRUSTS

The Doctrine of Mutual Wills 5.03A binding agreement 5.04Acting on the agreement? 5.06A summary of the rules 5.08

Secret Trusts 5.09Origins 5.11Types of secret trust 5.12Intestacy 5.15Are secret trusts express or constructive trusts? 5.16Proving a secret trust 5.18

The Creation of a Secret Trust 5.19

TABLE OF CONTENTS XV

Stage 1: intention 5.20Stage 2: communication 5.21

Communication and the fully secret trust 5.22Communication and the half-secret trust 5.25

Stage 3: acceptance 5.28Revoking acceptance 5.29

Variations on a theme 5.31Predeceasing the testator 5.32Changes to trust property 5.33

The Theoretical Basis of Secret Trusts 5.34Fraud 5.35Dehors the will 5.36Incorporation by reference 5.37

NON-CHARITABLE PURPOSE TRUSTS

The Beneficiary Principle 6.02Perpetuity 6.04Certainty 6.06Excessive delegation of testamentary power 6.07Capriciousness 6.08Administrative workability 6.09

The Anomalous Exceptions 6.10Monuments and graves 6.11Saying of masses 6.14Care of specific animals 6.15Miscellaneous cases 6.17The modern stance 6.18

Trusts for Persons and Trusts for Purposes 6.19The Approach in Re Denley 6.22

Re Denley interpreted: Re Grant's WT 6.25Re Denley interpreted: Re Lipinski's WT 6.28

Gifts to Unincorporated Associations 6.30Definition 6.31Inherent difficulties 6.32The contract holding theory 6.34

Adopting the contract holding theory 6.35The attachment of conditions to the gift 6.36Control of the association's assets 6.37Dissolution 6.39

Further possible constructions 6.42Charitable purposes 6.43Gifts to present individual members 6.44Gifts to present and future members 6.45Mandate or agency 6.46

Alternative Means of Pursuing Non-Charitable Purposes 6.48Using corporations 6.49

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Use of powers 6.50Employing conveyancing devices 6.51Off-shore trusts 6.52By appointment of an enforcer 6.53

CHARITABLE TRUSTS

The Advantages of Charitable Status 7.03Purpose Trusts 7.04Certainty of objects 7.05Perpetuity 7.06Tax advantages 7.07

The Definition of Charity 7.08Legal meaning 7.08The historical development of charitable purposes 7.09Proceeding by analogy 7.11The Charities Act 2006 7.13The role of the Charity Commission 7.14

Appealing Commission decisions 7.15Public Benefit 7.16

Statutory requirements 7.16The approach of the courts 7.17

The personal nexus test 7.18The "class within a class" test 7.19

The Charity Commission guidance 7.20Exclusivity of Charitable Purpose 7.22

Conjunctive/disjunctive construction 7.23Severing charitable and non-charitable parts 7.25Incidental non-charitable purposes 7.26Charitable Trusts (Validation) Act 1954 7.27

The Statutory Descriptions of Charitable Purposes 7.28(a) The Prevention or Relief of Poverty 7.29

The meaning of poverty 7.30Poverty inferred from the nature of the gift 7.31Public benefit 7.32Distinguishing a class of objects 7.34Exclusivity 7.36

(b) Advancement of Education 7.37The meaning of education 7.37Knowledge and research 7.38Formal teaching or study 7.40Public services or facilities 7.41Artistic and aesthetic education 7.42Sports, activities and educational institutions 7.45Public benefit 7.47A preference to a private class 7.49Public benefit and fee-charging 7.50

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Political objects 7.51(c) Advancement of Religion 7.52

Meaning of religion 7.53Belief in a supreme being 7.54The act of worship 7.55Churches and the clergy 7.56Advancement of religion 7.57Public benefit 7.58Enclosed orders 7.59Retreat houses 7.60Religious masses 7.61

(d) The Advancement of Health or the Saving of Lives 7.62Public benefit 7.64

(e) The Advancement of Citizenship or Community Development 7.65(f) The Advancement of the Arts, Culture, Heritage or Science 7.66(g) The Advancement of Amateur Sport 7.68(h) The Advancement of Human Rights, Conflict Resolution, or

Reconciliation, or the Promotion of Religious or Racial Harmonyor Equality and Diversity 7.70

(i) The Advancement of Environmental Protection or Improvement. . . 7.72(j) The Relief of those in Need by Reason of Youth, Age, Ill-health,

Disability, Financial Hardship, or other Disadvantage 7.73(k) The Advancement of Animal Welfare 7.74(1) The Promotion of the Efficiency of the Armed Forces of the Crown. 7.76(m) Any Other Purposes 7.77

Public Benefit 7.78The Recreational Charities Act 1958 7.79Political purposes 7.81

Changing the law 7.82Campaigning 7.84Education and politics 7.85

Charitable Purposes Overseas 7.87

CY-PRES

The Court's Inherent Jurisdiction 8.02Impossibility and impracticability 8.02General charitable intention 8.03

Initial Failure 8.04Gifts for charitable purposes 8.05Institutions that cease to exist 8.07Continuation in another form 8.08Gifts to incorporated and unincorporated associations 8.09Gifts subject to a condition 8.11Non-existent institutions 8.13Groups of objects 8.14

Subsequent failure 8.16

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Timing 8.17Surplus 8.18

Altering Charitable Purposes 8.19The statutory widening of cy-pres 8.21Paragraph (a): fulfilment or failure 8.24Paragraph (b): a use provided for part only 8.26Paragraph (c): more effective use in conjunction with other property 8.27Paragraph (d): the area or class has ceased to be suitable 8.28Paragraph (e): where purposes have been adequately provided for,

ceased to be charitable or ceased to be suitable or effective. . 8.29Charities Act 1993 S.13(2) 8.31

Charity Collections and Appeals 8.32Unknown or disclaiming donors 8.33Solicitations, statements and relevant declarations 8.35

RESULTING TRUSTS

Classification of Resulting Trusts 9.04Failure of Trust Cases 9.09

Failure to declare a trust 9.10Failure of the trust 9.12

Excluding the resulting trust 9.14The failure of a specific purpose 9.15Unexhausted beneficial interests 9.18

Maintenance cases 9.19Disaster appeals 9.22Unincorporated associations 9.26(a) Resulting trust 9.27(b) Bona vacantia 9.28(c) Contract holding theory 9.30Resulting trusts and pension funds 9.33

The "Apparent Gift" Cases 9.35Purchase in the name of another 9.36Voluntary conveyance or transfer 9.37

Land 9.38Personalty 9.40

Displacing the presumption of resulting trust 9.41The presumption of advancement 9.42

Husband and wife 9.44Parent and child 9.45In Loco Parentis 9.46

Rebutting the Presumption of Advancement 9.47The illegality defence 9.48The reliance principle: Tinsley v Milligan 9.49The withdrawal exception 9.53Existing problems 9.54Statutory discretion 9.56

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CONSTRUCTIVE TRUSTS

Institutional or remedial? 10.03Personal or proprietary? 10.06Constructive trusts proper 10.07Categories of constructive trusts 10.09

Unauthorised Fiduciary Gains 10.10The problem with bribes 10.12

Liability Imposed on Strangers to the Trust 10.16Trusteeship de son tort 10.17The dishonest assistant in a breach of trust 10.18

The test for dishonesty 10.20Twinsectra considered 10.24Barlow Clowes considered 10.26

Knowing receipt of trust property 10.28Imputed knowledge 10.30Forgotten knowledge 10.31Towards a single test of knowledge? 10.32

Unconscionability Generally 10.35Acquisition of property by killing 10.36Absence of statutory formalities 10.38Property acquired expressly subject to personal rights 10.39Property acquired by joint venture 10.40

Enforcement of Agreements 10.44Specifically enforceable contracts 10.45Informal trusts of the family home 10.46Mutual wills 10.47Secret trusts 10.48

TRUSTS OF THE FAMILY HOME

The relevance of legal title: Stack v Dowden 11.021.031.041.061.081.101.111.141.181.191.211.221.261.271.281.29

A dissentient voiceRebutting the Stack presumption.

An Express Declaration of TrustJoint legal ownersIn search of a declarationDeparting from the declared terms of an express trust.A change of entitlement: equitable accountingUnexpressed beneficial ownership

The Purchase Money Resulting Trust.QuantificationRebutting the presumption.What payments suffice?. . .

The right to buy discount under the Housing Act 1985. . .Mortgage repaymentsPayment of conveyancing and other expenses

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Domestic labour and payment of rent 11.30Employer relocation packages and informal agreements. . . . 11.31

Doctrinal divergence 11.32Distinguishing a constructive trust 11.34

Constructive Trusts and the Family Home 11.37Rule 1: express bargain constructive trusts 11.38

Discussion and shared intention 11.39Other examples of informal arrangements 11.43Rule 1: change of position 11.44Rule 1: quantification 11.47A role for proprietary estoppel? 11.51

Rule 2: the implied bargain constructive trust 11.53Common intention 11.54Change of position 11.55A special provision 11.56Quantification 11.57Scope for proprietary estoppel 11.59

Reform 11.60The rejected property approach 11.61A relationship approach 11.63The Law Commission's new scheme 11.64

THE APPOINTMENT, RETIREMENT AND REMOVAL OF TRUSTEES

Types of Trustee 12.02Ordinary trustees 12.02Trust corporations 12.04Judicial trustees 12.06The Public Trustee 12.07Custodian trustees 12.08

Appointment of Trustees 12.09The original trustees 12.10Disclaimer 12.12New trustees 12.14Method 1: s.36(l) of the Trustee Act 1925 12.16Appointment of additional trustees 12.19Method 2: the Trusts of Land and Appointment of Trustees Act

1996 12.20Method 3: appointment by the court 12.22Vesting of trust property 12.24

Retirement and Removal of Trustees 12.27Voluntary retirement 12.28Compulsory removal 12.29

Removal under the 1996 Act 12.30Removal under the court's inherent jurisdiction 12.32

Delegation of Trusteeship 12.34Section 25 of the Trustee Act 1925 12.35

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Section 1 of the Trustee Delegation Act 1999 12.36Section 9 of the Trusts of Land and Appointment of Trustees

Act 1996 12.38

THE DUTIES OF A TRUSTEE

The Trustee's Duty of Care 13.02Exoneration clauses 13.05

Administrative Duties 13.07Duties on appointment 13.08

Safeguarding trust property 13.10Calling in loans 13.11Joint control 13.12

The duty to provide accounts 13.13The duty to provide information 13.15The duty to act jointly 13.20The duty to consult 13.21

The General Fiduciary Duty 13.22What is a fiduciary? 13.22What is a fiduciary duty and how is it breached? 13.23Trustees' remuneration 13.24

By virtue of contract 13.25By order of the court 13.26Special treatment of solicitors' profit costs in litigation work 13.28Overseas property 13.29Statutory authority 13.30

Director's fees 13.32Out of pocket expenses 13.33Purchase of trust property 13.34

The self-dealing rule 13.35The insider dealing (fair dealing) rule 13.38

Incidental profit 13.40Sale of property to the trust 13.41Competing with the trust 13.42Renewal of trust lease 13.44Abuse of position: bad faith 13.45Abuse of position: good faith 13.46

Dispositive Duties 13.51

TRUSTEES' POWERS: INVESTMENT, MAINTENANCE ANDADVANCEMENT

The Power to Invest 14.02Express powers 14.03Statutory regulation 14.04The Trustee Act 2000 14.07

Standard investment criteria and reviews 14.08

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Taking advice 14.09Delegation 14.10Investment in land 14.11Investing in mortgages of land 14.12

The trustee's duty of care 14.13Dog Leg Claims 14.15Consecutive interests 14.16Non-financial considerations 14.18

Investment and charitable trusts 14.19Maintenance of Minor Beneficiaries from Income 14.20

The court's inherent jurisdiction 14.21Express powers 14.22The statutory power 14.24A contrary intention? 14.25Entitlement to income 14.26Maintenance, education or benefit 14.29Decision making 14.30Ceasing to be a minor 14.31Entitlement to accumulated income 14.33

Advancement from Capital 14.34Benefit? 14.36

Express powers 14.38The statutory power 14.39Limitations to s.32 of the Trustee Act of 1925 14.40

Discretion 14.43Continuing supervision 14.44

Setting Aside the Exercise of a Dispositive Decision 14.45

VARIATION OF TRUSTS

Consensual Variation 15.03The Court's Inherent Jurisdiction 15.08

Salvage and emergency 15.09Compromise 15.11Maintenance 15.13

Statutory Jurisdiction: Miscellaneous Provisions 15.14Section 53 of the Trustee Act 1925 15.15Section 57(1) of the Trustee Act 1925 15.16Section 64 of the Settled Land Act of 1925 15.18Section 24 of the Matrimonial Causes Act 1973 15.20Section 16 of the Mental Capacity Act 2005 15.21

The Variation of Trusts Act 1958 15.22The discretionary power 15.23Types of variation 15.25An arrangement? 15.26On whose behalf? 15.28The four classes 15.29

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Deconstructing para.(b) 15.31Benefit 15.33

No benefit? 15.36

SETTING TRUSTS ASIDE

Public Policy and Illegality 16.02Trusts for illegitimate children 16.03Trusts in restraint of marriage 16.04Conditions violating marital harmony 16.06Conditions undermining parental duties 16.09

Name and Arms Clauses 16.11Illegality 16.12Sham and Illusory Trusts 16.15

Illusory trusts 16.16Trusts to Defeat Creditors 16.20

Transactions defrauding creditors 16.21What can the court do? 16.22And third parties? 16.23Purpose and motive 16.24What is an undervalue? 16.25Who may apply? 16.27

Additional provisions on bankruptcy 16.28Undervalue and creditor's preference 16.29Timing of the transaction: undervalue cases 16.30Timing of the transaction: giving a preference 16.31Transactions by companies 16.32

Family Claims 16.34Section 37 of the Matrimonial Causes Act 1973 16.35The Inheritance (Provision for Family and Dependants) Act 1975 16.37

BREACH OF TRUST AND ASSOCIATED REMEDIES

Breach of Trust 17.01An introduction to trustee liability 17.02Liability of trustees to account 17.03

Equitable Compensation 17.05Measure of equitable damages 17.06The trustee who acts without due care 17.10Unauthorised investments 17.11Authorised investments 17.12Profit 17.13Interest 17.14Set-off of profit against loss 17.15

Liability of Trustees Inter Se 17.16Criminal Liability 17.18Protection of Trustees 17.19

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Exemption clauses 17.20Consent to a course of dealing 17.22Breach at the beneficiary's instigation 17.24Statutory relief. 17.25Limitation 17.27The Limitation Act 1980 17.28

Exclusions 17.28General cases 17.31

Laches 17.32Associated Remedies 17.33

The advantages of a proprietary claim 17.34Following or tracing? 17.35Towards a unified process of tracing 17.36

Tracing at Common Law 17.39Loss of the right to trace at common law 17.42

Tracing in Equity 17.43The requirement of a fiduciary relationship 17.43Equitable tracing rules in operation 17.45Physical mixtures 17.46Trustee's own money mixed with misappropriated trust money. . . 17.47

Lowest intermediate balance 17.50Overdrawn bank accounts 17.51Backwards tracing 17.52Swollen assets theory 17.53

Mixed funds consisting of two trust funds or trust moneys withmoneys of an innocent volunteer 17.54Innocent volunteers and other claimants 17.55First in, first out 17.56Proportionality 17.58Rolling charge 17.59

The limits to tracing and equitable proprietary claims 17.61In Personam Claims 17.62

INJUNCTIONS

General Issues 18.02Jurisdiction 18.02The protection of rights 18.03The scope of an injunction 18.06Failure to comply with an injunction 18.08

The Award of Damages in Equity 18.10Damages in lieu of injunction 18.12Measure of damages in lieu 18.16

Wrotham Park Damages 18.17Types of Injunctions 18.19

Prohibitory or mandatory? 18.20Perpetual or interim? 18.21

TABLE OF CONTENTS XXV

Mandatory injunction? 18.22Without notice injunctions 18.23Quia timet injunctions 18.25

Principles Governing the Grant of Final Injunctions 18.26Adequacy of damages and other legal remedies 18.27Conduct of the claimant 18.28Equity will not act in vain 18.29Delay and acquiescence 18.30Hardship 18.32Public interest 18.33

Principles Governing the Grant of Interim Injunctions 18.35The undertaking in damages 18.36The American Cyanamid principles 18.38The American Cyanamid approach considered 18.40Qualifications to Cyanamid 18.43

No arguable defence 18.44Final resolution of case 18.45Interim mandatory injunctions 18.46

Exceptions to Cyanamid 18.47Trade disputes 18.48Restraining the presentation of a winding-up petition 18.49The Human Rights Act 1998 18.50The protection of privacy 18.51

Applying S.12(3) 18.55

Freedom of expression and defamation 18.57Principles Governing the Grant of Injunctions in Specific Situations. . . 18.60

The search order 18.60Use and abuse 18.62Pre-conditions 18.63Evidencing a real possibility 18.64Executing the order 18.65The privilege against self-incrimination 18.66

The freezing order 18.67General guidelines 18.68Third parties 18.70Trust assets 18.71Worldwide freezing orders 18.72

SPECIFIC PERFORMANCE

Preconditions 19.02The effect of an order 19.03Enforcement 19.04Damages in addition to or in substitution for specific performance 19.05

Inadequacy of Common Law Damages 19.06Contracts for the sale or other disposition of interests in land. . . 19.07Contracts for the sale of personalty 19.08

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Contracts for transient interests 19.11Contracts to pay money 19.12

Grounds for Refusal 19.14Constant supervision of the court 19.15

Running a business 19.16Building contracts 19.19Specific performance of a landlord's covenant 19.22Specific performance of a tenant's covenant 19.23

Contracts for personal services 19.24The conduct of the claimant 19.25Want of mutuality 19.26Impossibility and futility 19.29Part of a contract 19.30Illegality and public policy 19.31Hardship and prejudice to third parties 19.32Laches and delay 19.34Mistake, misdescription and misrepresentation 19.36

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