Week 1 lecture

A. Aristotle
a. Equity is a kind of justice- ‘not the legally just but a correction of legal justice’
(Nicomachean Ethics)
i. Equity is a response to failure of the legal system
b. The nature of the equitable is a correction of law where it is defective owing to its
universality
i. Every law has to be general, is a rule that applies to many situations
ii. This generates some problems, and the correction is equity, there are two
possible sources of failure
1. Failure on part of the legislator,
a. The general rule works out most of the time except for a certain
exception that breaks the rule.
b. equity does the part of the legislator to correct the exception.
2. Failure that comes from the nature of the matter of practical affairs
which can be so complex that law can’t account for all the possibilities
so it must employ a general term that its extension can’t be precisely
designated
a. Impractical to create laws that account for every possible way
to commit a crime, what a weapon is classified as, etc. etc.
b. THe real solution: design clever laws
i. ‘when the thing is indefinite the rule is also indefinite,
like the lead rule used in making the Lesbian moulding;
the rule adapts itself to the shape of the stone and is
not rigid, and so too the decree is adapted to the facts’
B. The justice of common law
a. Common=universally applied
i. Based on a system of writs- standardised format of suits.
b. The justice of ‘formalism’
i. One format that applies uniformly across the country regardless of class,
gender, skin colour
ii. Ensured clarity and certainty.
c. Problem with formalism
i. Medieval England took it more to an obsession- system of the writs became
closed and rigid.
1. Writs wouldn’t be changed to fit reality.
2. Eg. Case- Courtman v Convers, C 33/99 f.628 17 June 1601.
a. Background: structure of medieval mortgage; the foreclosure of
a property is profitable for the lender.
b. Facts: lender has exploited a rule to gain an unconscientious
advantage. Exploited ‘pay on the day agreed or lose the
house/land’, lender refused to make himself available to make
money and thus gained title to the land.
 c. Result in equity: court held the behaviour of lender was very
unconscionable and the borrower should be relieved in equity.
3. Court of Chancery was formed as an equitable court to correct the
mistakes the common law was making.
d. The vocation of equity
i. Realigning law and justice where over-formalism creates a gap between legal
and moral responsibility of the claimant.
ii. Is the law of equity similar to aristotle’s equity? Yes or no
1. Yes- over generality is a common defect in hyper-formalistic systems.
2. No- it is NOT applied randomly by the judge according to his/her
personal sense of justice. Rather it is carefully crafted with rules and
principles that come in precise doctrines.
e. Some Maxims of Equity (catchprases of equity)
i. Equity looks to the substance (intention) rather than the form
ii. Equity follows the law
1. Equity is a correction of the law, first you need to see the actual law and
see the problem, then you can correct on top.
iii. Where both parties equities are equal the first in time prevails
1. the conscience of one party cant be decided to be cleaner than the
others, the only way to decide is first come first serve.
iv. He who comes into equity must come with clean hands
1. If a contract is false in essence: illegal, the court throws out the
claim. Equity works the same way
v. Equity looks on as done that which ought to be done
1. Explains some moves in the different areas of law, looks at substance
rather than what the formality of the matter would mean in the case
vi. Equity acts in personam
1. Evokes history of equity in the sense that equity worked in the way that
it would have a defendant do something: such as transfer land back to
the borrower, or else they would put that person in jail.
2. In common law: it was only about compensation: person would just
get a judge to seize the land. Equity acted on the person.
vii. Equity will not assist a volunteer
1. Equity does not help the person that did not pay good money for the
rights they claim they have.
f. From Aristotelian Equitas to the English law of equity
i. From mid-14th century the categories of writs and procedures are sealed.
1. The common law becomes a rigid system of rules.
2. The Lord chancellor is called on to do justice.
a. His authority is based on ‘conscience’-objective moral
judgement on the facts.
3. Stark difference from common law: equity is a set of unrecored, in
personam, ex post decisions.
 a. Every case is different details, equity doesn’t work on
precedence. They look into special circumstances of each case.
b. Over time, The law of equity becomes more and more attached
to a court and precedence will be adhered to. But the raw form
of equity is not based in precedent.
C. How equity works
a. Remedy is seen as in personam: the defendant’s right in Common Law remains in place,
but the Court of Equity will not allow the defendant to insist on her right, as doing so
would be unconscionable.
i. If the equitable claim cannot stand, the defendant can enjoy her common law
rights. This can happen for example where there are defences in equity like
‘clean hands’ or ‘laches’ that the defendant can make.
1. Laches: undue delay in asserting a legal right or privilege.
ii. THe same right can be “silenced” by equity through one claimant but stand
through a different claimant if the former, but not the latter unconscionable in
insisting on it.
D. Perceived cons of equity-conscience is dangerous
a. 17th Century jurist John Selden:
i. For law there is a measure but equity is “according to the conscience of him that
is Chancellor, as larger or narrower, so is equity”, different chancellors different
foot length analogy.
1. Equity undermines the rule of law in its ex-post, in personam
discretionary adjudication
2. Conscience is dangerous to use as a standard in law.
E. The judicature acts: equity wins out over common law
a. Over the years, courts of Common Law and Chancery Court (equity court) compete but
also learn from each other to attract more litigants and court fees.
i. Court of equity starts to introduce precedent, and it turns out to be more
formalistic and rigid than the courts of common law.
b. The great reform of 19th century meant to tackle, “the evils of this double system of
judicature, and the confusion and conflict of jurisdiction to which it has led (Judicature
Commission, First report of the Commissioners)
i. Fusion of the different courts.
c. The old higher courts were abolished and a new supreme court of judicature was
created consisting of the High Court of Justice and the Court of Appeal.
d. Today: Senior Courts Act 1981 s. 49
i. (1) [E]very court exercising jurisdiction in England or Wales in any civil cause or
matter shall continue to administer law and equity on the basis that, wherever
there is any conflict or variance between the rules of equity and the rules of the
common law with reference to the same matter, the rules of equity shall
prevail
F. From fission to Fusion (and Back?)
a. What is the relationship between common law and equity today?
i. What should it be?
 b. The Judicature Acts: administrative fusion
i. The courts are fused but the answers are different and equity prevails over
common law.
ii. Should we continue fusion forward: substantive fusion?
1. Bring together the answers that law and equity give us.
c. Different jurisdictions take different positions
i. US
1. Equity and law are quite strongly fused, people can’t tell you which
answers come from common law or equity, its all just under one roof.
ii. Australia
1. Administrative fusion: equity and common law answers are very
strongly defined.
iii. England and Wales: more complicated. Mixed.

Week 1 Part 2

Equitable remedies

A. What do we mean by ‘equitable’ remedies

a. Historical label that tells the origin of the remedy
B. Themes
a. Equity v common law
i. Extent to which we have fusion
b. Creativity
i. Appropriateness of courts today to recognize novel remedies of their own minds
or should parliament make them.
c. Discretion
i. All remedies awarded as a matter of discretion
ii. You cant insist on a particular remedy, up to the court to decide.
d. Principles
e. Use of authority
f. Continuity and transition.

Remedy of specific performance

Specific performance the performance of a contractual duty, as ordered in cases where damages would
not be adequate remedy.

A. Cooperative insurance society v argyll stores ltd

a. Lord Hoffman said
i. The principles upon which English judges exercise the discretion to grant specific
performance are reasonably well settled and depend upon a number of
considerations, mostly of a practical nature, which are of very general
application”
B. Cavendish Square v talal EL Makdessi
 a. Specific performance of contractual obligations should ordinarily be refused where
damages would be an adequate remedy.
b. Contract for the sale of unique property where the property exists are specifically
enforceable.
C. Specific performance
a. Remedy in personam
b. Damages inadequate
i. Lord Upjohn in Beswick at 102: ‘Equity will grant specific performance when
damages are inadequate to meet the justice of the case’
c. Damages are inadequate for the sale of unique property.
i. Land contracts
ii. Sale of private company shares
iii. Sale of goods.
d. Periodic payments
D. Penn v Lord Baltimore
a. Parties entered an agreement to fix the boundary between Pennsylvania and Maryland.
Client sued the defendant for specific performance of this agreement in England.
Defendant said they were arguing over specific property in America, should happen
there?
b. However, no, Equity operates in personam
i. Lord Hardwicke at 447
1. Conscience of the party was bound by the agreement and being within
the jurisdiction of the court, remedy worked.
E. VTB Commodities Trading DAC
a. A contract to sell oil from an oil refinery to some other oil thingy. Claimants sought
specific performance of the contract to supply oil and injunction to stop them from
providing a third party
b. Lord Justice Philips refused to grant remedy because it was the contract for the sale of
future ascertained goods.
i. He said damages would be an easy remedy,
c. You cannot have specific performance of a contract for the sale of future ascertained
goods.
i. Philips LJ
1. “a strong presumption that specific performance will be limited to cases
of specific or ascertained goods.
F. Beswick v Beswick
a. Man sold his coal business to nephew. Purchase price to be paid in instalments: 6
pounds and 10 shillings per week to uncle for his life then 5 quid per week to aunt for
her life.
b. Nephew made the payments to the uncle, but after he died, the nephew stopped
making those payments. Could the aunt enforce the contract?
i. As a matter of privity in contract law, she was not a party to the contract and
could not enforce it. The aunt was the administrator of the estate, and
therefore could enforce it in that capacity,
 1. She can’t claim specific performance because she isn’t a party to the
contract, there is no objection to stand in the shoes of her husband and
seek this order. Lord Hodson
2. There was an unconscionable breach of faith, the equitable remedy
sought is apt. THe appellant has had the full benefit of the contract and
the court will be ready to see that he performs his part.
G. Cooperative Insurance Society Ltd v Argyll Stores
a. Shopping centre had a covenant with a supermarket inside their centre which attracted
customers. Supermarket was trading at a loss and the operators wanted to shut it down,
but the lease still had 19 years to go. Landlord sough specific performance requiring the
supermarket to keep running at a loss. Can you get the courts to require the
supermarket to do so
b. Lord Hoffman: specific performance should not be granted in this case even though
damages would be hard to work out. If the court has to constantly supervise the action
for specific performance, in this case running the business, the court will be reluctant to
give such an action.
H. Other factors bearing on discretion
a. Claimant’s conduct- he who comes to equity must come with clean hands
b. Laches (not the same as limitation period)
i. Delay of seeking remedy. Not a fixed period, assessed by the courts.
c. Unnecessary hardship.

Remedy of Injunctions

A. Injunctions
a. Court order that requires someone not to do something (prohibitive) or it requires
someone to do something (mandatory)
b. They can be either perpetual (awarded after trial) or interim (between claim being
lodged and the actual trial)
i. Interim injunction example: privacy cases.
1. Famous person is getting a story run about them, they argue that it
violates their privacy, they may seek a interim injunction to get the
information silenced temporarily before trial.
B. Interim injunctions- American Cyanamid v Ethicon
a. Claimant AC alleged E violated a patent to an “absorbable surgical suture”
i. Should there be an interim injunction: judges made a test for it: the balance of
convenience
1. Damages would be inadequate for AC because it would damage share of
the market in America. If ethicon was barred, nothing would really
happen to them.
ii. Lord Diplock
1. where there is doubt as to the adequacy of the respective remedy in
damages available to either parties that the balance of convenience
question arises.
C. Freezing Injunction (formerly Mareva Injunction)
 a. Mareva case: ship owners let out a ship to charterers and the ship was sunk. A dispute
arose over the payments and the charter needed to repudiate charter. Ship owners
claimed damages but did not want charterers to transfer money from London, so they
wanted a temporary injunction.
b. Lord Denning 215
i. You can award a freezing injunction
ii. “if it appears that the debt is due and owing, and there is a danger that the
debtor may dispose of his assets so as to defeat it before judgement, the court
has jurisdiction in a proper case to grant an interlocutory judgement so as to
prevent him disposing of those assets”

Damages in lieu of an injunction

A. Lord Carin’s Act (Chancery Amendment act 1858)

a. It was possible for a court to award damages in lieu of an injunction
b. If the courts of chancery have jurisdiction to look at an application for an injunction for a
number of reasons, the same court can award damages to the party injured in addition
or in substitution for such injunction or specific performance.
B. Senior Courts Act 1981 s. 50
a. ‘where the court of appeal or the high court has jurisidciton to entertain an application
for an injunction or specific performance, it may award damages in addition to or or in
substitution for injunction or specific performance.
C. What principles apply
a. Shelfer v City of London Electric
i. AL Smith at 322-3
1. Test for damages in lieu of injunction
a. If the injury to the plaintiff’s legal rights is small
b. Is one which is capable of being estimated in money
c. Can be adequately compensated by a small money payment
d. And the case is one in which it would be oppressive to the
defendant to grant an injunction
2. Then damages in substitution for an injunction may be given.
b. Lawrence v Fen Tiger
i. People moved to a house that was near a stadium. Number of racing events:
banger cars. Claimants wanted an injunction to stop them from creating so
much noise.
ii. Lord Neuberger
1. 120: ‘the court’s power to award damages in lieu of an injunction
involves a classic exercise of discretion which should not as a matter of
principle be fettered’
2. 123; the application of AL Smith’s test cannot be mechanical
a. Application of 4 principle test must not fetter the exercise the
court’s discretion
 b. Secondly, in the absence of additional relevant circumstances
pointing the other way, it’s okay to refuse an injunction if those
tests not satisfied
c. Thirdly: the fact that those tests are not all satisfied does not
mean that an injunction should be granted.
c. Jaggard v Sawyer
i. House built in breach of a restrictive covenant. Claimant threatened to obtain
an injunction before building the house. The claimants applied for an injunction
after the house was built. Damages appropriate or injunction?
ii. Millet LJ
1. 287: the grant of an injunction like all equitable remedies, is
discretionary.
2. 288: all previous cases are on the basis of discretion, none of them is a
binding authority on how the discretion should be exercised.
d. Common law remedies available by right while equitable remedies are given by
discretion.

Tutorial Readings

A. Book reading
a. Back in the day, the courts of chancery and the common law courts were very distinct
yet parallel to each other. Equity was where people went when the common law didn’t
work or a special reason. Chancellor would decide cases.
i. ‘Equity is a roguish thing. For law we have a measure… equity is according to the
conscience of him that is Chancellor….tis all one if they should make the
standard for the measure a chancellor’s foot.
ii. The chancellor’s were in personam and directed at a single individual.
b. The ‘Use’
i. When all the beneficial interest in the land could be given to B compelling A to
keep the legal title only and to give all the benefit of the land to B.
1. Chancellor would enforce B’s rights against A and other persons who
took the land from A.
2. A was owner at law and B owner at equity.
ii. Advantages
1. Some mideival land loopholes that allowed for tax breaks.
c. The statute of uses

Week 2 Lectures

A. Rescission
a. Setting aside a contract/transaction
b. The right to rescind means a contract is voidable until it is set aside.
i. Rescission is sometimes used more loosely to deal with repudiation or other
forms of termination or void contracts. -not the area we are talking about.
ii. Johnson v Agnew at 392: ‘a fertile source of confusion’
1. Only talking about right to rescind in this module.
B. When does it apply
a. Between parties to a contract
b. Apply in the case of a gift or creation of a trust (voluntary dispositions)
c. A Principal may also rescind a transaction into which their fiduciary has entered in
breach of fiduciary duty
i. Fiduciary= someone who owes particular obligations in equity
C. Restitutio in integrum
a. Latin for ‘putting everything back’ (counter restitution)
b. If we rescind something, we have to make sure the parties are in the same position as
before.
A. Rectification
c. Correcting written documents for legal transactions.
A. Correction of mistakes in written documents
a. Common mistake-document does not accurately record agreement.
b. Unilateral mistake-other party is aware of mistake, unilateral transaction (will, deed of
gift, trust)
B. In equity
a. Is different from rectification of land register
b. Rectification of register to remove document registered by mistake is like rescission.
C. Rescission complete walkthrough
a. You need to be able to point to a ground for rescission
b. Mistake
i. Need to distinguish between voluntary dispositions (unilateral transactions)
with contracts
ii. Voluntary Dispositions (gifts, also trusts (usually))
1. The other party has not given consideration
2. One reason why somebody might be seeking to set aside a voluntary
disposition is if there were tax complications/implications that they did
not want. Tax reasons are the background for many cases.
a. Pitt v Holt; Futter v Futter v HMRC
i. Pitt: equitable mistake point
1. Mrs. Pitt’s husband was involved in an accident
that wasn’t his fault and there was personal
injury awarded in his favour. Mrs. pitt took
advice about tax consequences of a particular
arrangement (a certain trust) which turned out
be incorrect and exposed her to a large liability.
She sought to have trust set aside so she can
make a new trust without inheritance tax. Court
reconsidered the law on the equitable
jurisdiction to set aside a transaction on the
basis of mistake.
2. Old cases had suggested that jurisdiction
depended upon whether the mistake was as to
 the legal ‘effect’ of the transaction or its
‘consequences’
a. Early on tax as a consequence meant
you couldn’t set it aside.
3. Lord Walker Mistake Test
a. ‘the gravity of the mistake must be
assessed by a close examination of the
facts, whether or not they are tested by
cross-examination, including the
circumstances of the mistake and its
consequences for the person who had
made the vitiated disposition’
b. The injustice
(unfairness/unconscionableness) of
leaving a mistaken disposition
uncorrected must be evaluated
objectively but with an intense focus on
the facts of the case.
c. Donor had made a causative mistake
of sufficient gravity and sufficient
centrality to the transaction that it
would be unconscionable to leave it
uncorrected.
i. Broad test.
ii. Potential issue: why should we
help people get out of paying
tax? In this case, the claimant
was just wrongly advised. IN
some cases of tax avoidance,
court might refuse relief where
some schemes are simply
ineffective or refused on
grounds of public policy.
b. Applying Pitt, Wright v National Westminster Bank Norris J
i. Mr. wright set up a trust, bank was trustee, it was to be
in favour of the settled widow and family. Possible to
add more people but there was a clause that excluded
the settlor and his wife from being added to the trust.
Trust set up and an element was included from Mrs.
Wright, the way the trust set up, Mrs. wright was
precluded from the trust. So they asked for it to be set
aside. Norris gave his go ahead for a case where
rescission should be ordered
 1. 22: explicit and apparent mistake as to the
nature of transaction. Mistake has serious
consequences and thus should be rescinded.
c. Applying pitt, Freedman v Freedman Proudman J
i. A father and daughter, daughter entered into a
settlement at the advice of father and legal adviser.
Father died. It was meant to protect her rights in
particular properties at the risk of fraud and so on.
Unfortunately, she made a mistake about the tax
implications she would have to pay. Exposed her to a
very significant tax liability
ii. Proudman held that rescission should be provided.
1. Considering size of liability and whole point of
relevant arrangement, transaction should be set
aside.
2. ‘it would be unconscionable for the donees to
profit from that mistake and insist on their
rights under the settlement’
iii. Contracts
1. Equitable ‘common mistake’ (discredited)
a. Rescission on ground of mistake does not operate in contract.
IN contract law there was a debate whether there was a
separate doctrine to allow equity to intervene for common
mistake
b. Lord Denning in Solle v Butcher: suggestion of equitable
jurisdiction where contract valid at common law.
c. Great peace shipping v tsalviris Salvage LTD
i. Rejects Solle
ii. Phillips L
1. ‘an equitable jurisdiction to grant rescission on
terms where a common fundamental mistake
has induced a contract gives greater flexibility
than a doctrine of common law which holds the
contract void in such circumstances….there is
scope for legislation to give greater flexibility to
our law of mistake than the common law
allows.’
d. Green v Betfred Foster J
i. A gambling company operated online gaming, Mr.
Green sought to get winnings of 1.7 million pounds
after jackpot in blackjack. Betfred said there was a
mistake and they should be able to avoid the contract
ii. Court rejected, foster said
 1. 187: the contract was performed regardless of
the profitability to Betfred. Cannot be said that
State of affairs was not the fault of Betfred.
Mistake should not apply. Referencing Great
peace, mistake did not render the contract
incapable of performance, just less
advantageous to one party.
iv. Misrepresentation
1. MR act 1967 s 2(2) ‘damages in lieu of rescission’
a. The court or arbitrator may declare the contract subsisting and
award damages in lieu of rescission, if of opinion that it would
be equitable to do so.
b. Salt v Stratsone Specialist Ltd Longmore LJ
i. Car was sold to C and alleged to be brand new for 22k
pounds. Turns out it was 2 years old, and had been in
accident.
ii. Could he set aside contract or simply get damages.
iii. Longmore LJ
1. In order to say that you are awarding damages
instead of setting contract aside, you can only
do that when you have rescission but choose to
get damages. Damages not available to
something you cannot rescind.
v. Losing the right to rescind
1. Affirmation
a. Knowing the facts, but nonetheless proceeding with the
transaction
b. Amounts to waiver of the right
c. Also subject to the doctrine of laches (delay)
i. Lindsay Petroleum Co v Hurd Lord Selborne
1. Laches are when you take too long to bring your
claim of a particular remedy.
2. 239-40: if it really disadvantages the other party
because lack of time, that may be a bar towards
rescission.
2. Where restitutio in integrum cannot occur.
a. If you can’t put the parties back into the position they were at
before the contract, you can’t rescind it. Can’t have it set aside
for one and not the other.
b. Halpern v Halpern
i. Compromise was reached between 2 parties of a family.
Argument between them. Could the court put the
parties back in their original positions since the parties
destroyed all documents related to the transaction.
 ii. Carnwatch LJ
1. Practical effect of counter-resittution will
depend on the circumstances of the particular
case
iii. Not an exact science, but a question of ‘practical justice’
Smith v Cooper per Lloyd LJ at 110.
c. Rogge v Rogge
i. Trust arrangement where the question was whether the
original payment could be set aside.
ii. Judge imposed conditions on the party exercising their
right.
1. 175; restitutio in integrum is not an absolute
requirement for mistake under the principle in
Pitt v Holt.However any terms and conditions
imposed on an order for rescission should go so
far as possible at putting the parties against
whom rescission is ordered substantially in the
positions they would have been in if the
mistaken transaction had not taken place.
3. Third party acquires right
a. Bona fide purchase (good faith purchaser for value)
b. If you can’t set aside a contract because TP acquired a right, you
may still have other rights against the original party to the
transaction instead of rescission.
D. Rectification walkthrough
a. You must distinguish between two different categories: kind of mistake and kind of
documents.
i. Common v unilateral
b. Day v Day
i. Sir terench etherton C: 25:
1. ‘the doctrine of rectification is concerned with intention or rather the
mistaken implementation of intention, rather than the power and
authority to effect a particular transaction. In the case of a voluntary
settlement, rectification hinges on whether the settlor executed the
settlement in the mistaken belief that it is implemented his or her
intention’
c. Persimmon homes ltd v hillier
i. Plot of land in west sussex, people wanted to develop the land. Concerned a
property development agreement and a disclosure letter did not record the
terms agreed between the parties or their common intention.
1. Could both the bilateral agreement and the unilateral letter be
rectified?
ii. David Richards LJ 44
1. Held that both could be rectified.
 2. Unilateral documents may be rectified if they do not give effect to the
intention of the maker.
d. Rectification on contractual context
i. FSHC Group Holdings v Glas Trust Corp Leggat LJ
1. Deeds were executed to provide security for a specific corporate
transaction. It was discovered that there was some missing security. An
attempt to put the security in the right place. THe way in which the
deeds were set up was that the parent company in question ended up
being a party to two existing security agreement. Company took on
additional erroneous obligations, the way in which they tried to correct
it exposed the company to new obligations.
2. Leggat said that rectification should be granted to put the missing
security in the right place.
a. 146: The basis for rectification is entirely concerned with the
parties’ subjective states of mind
b. 176
i. Before a written contract may be rectified on basis of a
common mistake is necessary to show either
1. Document fails to give effect to a prior
concluded contract or
2. That when they executed the document, the
parties had a common intention in respect of a
particular matter which, by mistake, the
document did not accurately record.
e. Unilateral mistake in contractual situations
i. Riverlate Properties v Paul
ii. 99 year lease of a living property above a shop. Landlord was to be responsible
for various repairs, but tenant did not have any obligations to help pay for
things. Landlord made a mistake: tenancy agreement did not reflect true
intentions and tenant wasn’t aware.
iii. Russel LJ
1. 141: at the time the other party was making a mistake, there is no
obligation on you to agree to undo that particular mistake: may be nice
but don’t have to grant rectification of those circumstances.
2. Only when taking advantage of the unilateral mistake in the agreement,
is rectification required.
iv. Wills act 1837 s.9
1. No will shall be valid unless
a. It is in writing, and signed by testator or by some other person
in his presence and by his direction
b. It appears that the testator intended by his signature to give
effect to the will
c. The signature is made or acknowledged by the testator in the
presence of 2 or more witnesses at the same time
 d. Each witness either
i. Attests and signs the will
ii. Or acknowledges his signature in the presence of the
testator (not necessarily in presence of any other
witness.
e. But no form of attestation shall be necessary .
v. Administration of Justice act 1982, s. 20 (when you fuck up a will)
1. If a court is satisfied that a will is so expressed that it fails to carry out
the testator’s intentions in consequcnes
a. Of a clerical error
b. Or of a failure to understand his instructions
2. It may order that the will shall be rectified so as to carry out his
intentions.
vi. Marley v rawlings
1. Entire estate was to go to other spouse r), if the other one had already
died or survived the deceased for less than a month- estate would go to
marley even though they weren’t biologically related.
2. Difficulty was that solicitor made a mistake in presenting the will to the
rawlings, both signed each other’s will. Mistake was only noticed after
Mr. Rawlings died. They had two biological sons and challenged the will.
3. Neuberger
a. Is this a question of interpretation or rectification
i. Its possible to correct documents to interpretation (the
document always had the desired meaning) vs
rectification (where the document does not realize the
desired wills.
b. Clerical error. The error was office work of routine nature.
Susceptible to rectification.
vii. Kelly v Brennan
1. Will provided that one son would share inheritance evenly with the
other siblings. One sibling died and thus the money would go to their
kids. Did not provide effect to the original will. The original will was
everybody gets a 6th not everybody gets a 10th (including the kids)
2. Master shuman
a. The effect of the clerical error will receive an unintended
windfall from the estate
b. Necessary to correct the will to make sure the shares were
divided the properly way.
viii. Eade v Hogg
1. The existing will was that a couple would get 26% shares when a guy
died. Was this a question of 26 each or in total between the 2
2. Clerical error: not each, but in total.
ix. Lord briggs in his lectures
 1. Recent decisions have widened equity’s scope in the commercial
environment but this has created many unintended consequences in
terms of reducing business certainty.

Tutorial reading

A. Senior courts act 1981 s.49

a. If common law and equity are at odds, the rule of equity prevail
B. Penn v lord Baltimore 1750
a. Court compelled L Baltimore to comply with obligations from the Penn family, by setting
the Mason Dixon line, making distinct boundaries between Maryland, PA, and Delaware.
Court did not claim to interfere with the land laws of colonial North America: those
were the exclusive province of the local judges. It did have a right in personam against
Lord Baltimore.

Lecture week 3

Introduction to trusts: why they matter and distinctions

A. Introduction to trusts
a. Maitland, selected essays
i. The idea of a trust is so familiar that we never wonder about it. Yet they are one
of English law’s greatest and most distinctive achievement.
b. Property in 3D
i. Legal owner is only person who owns the thing in common law
ii. Equity recognises another character who is the equitable owner of the same
thing. (species of ownership which the common law cannot see)
1. Then there is a question about relationship between the legal and
equitable owners.
iii. The common law only sees relationship between legal owner and thing while
equity allows you to see the more complex picture.
iv. the legal owner is the trustee and the equitable owner is the beneficiary
1. if you are a trustee of the property, your legal ownership is limited by
that trust, you are bound to act in favour of the beneficiary when
exercising your rights as a legal owner
c. role of the court
i. chapman v chapman Lord Simonds LC
1. it is the function of the court to execute a trust, to see that the trustees
do their duty and to protect them if they do it, to direct them if they are
in doubt and, if they do wrong, to penalize them’
ii. A TRUST IS A BIG DEAL
iii. RE Snowden
1. Was a trust created when an elderly lady couldn’t decide what to do
with her property in her will and left it all to her brother thinking that he
would do right by the family. Was her intention sufficient of a trust?
2. Sir Robert Megarry
 a. ‘a trust, of course, is a concept which imposes important
obligations and confers important rights’
d. Who is it a big deal for
i. Trustee
ii. Beneficiary
1. Many times are volunteers, haven’t given consideration. Only have
rights if trust was validly created.
iii. Settlor
1. The person who sets up the trust
2. Can be the trustee, beneficiary, or drop out entirely.
iv. Revenue and customs
1. Tax regimes: who was ownership in property and who has what claim in
the property.
v. Creditors
1. Eg. Mortgage brokers, If there’s a trust creditors ability to access
property will be limited.
vi. ‘strangers to the trust’
1. Sometimes imposes liability on people who assist a breach of trust
dishonestly or knowingly receive trust property embezzled away.
vii. Other third parties.
1. Does somebody benefit from a will, house, rights of property, etc.
B. Why trusts matter and history
a. Priority in insolvency: proprietary claims (creditors)
i. If somebody has gone bankrupt and they owe you money, you share in the pool
of assets as creditors
1. you could ask for just money but if you say a person was holding
property in a trust for you, you get priority in insolvency because the
legal owner of the property wasn’t the exclusive owner but holding it
for you.
2. Beneficiary gets first go at property held in trust.
ii. Mills v sportsdirect.com retail
1. Global financial crisis of late 2000s. Was sports direct able to claim a
proprietary interest in shares. Said that shares they wanted were held in
trust for them. Sportsidrect wanted to avoid possibility that shares may
be owned by Icelandic bank without them having any claim on them.
2. It was held that shares were held in trust for Sports Direct.
3. Language does not use language of trust but there becomes a trust
relationship during negotiations
a. “ringfence and secure”
b. Fiduciary relationships
i. Equity recognises that particular relationships give rise to certain negative
obligations- things which the fiduciary is not allowed to do.
ii. Fiduciary duties apply to, but are not limited to trustees
1. Trustees are a subcategory of fiduciary
 iii. The potential scope for a breach of fiduciary duty is therefore wider than that
for a breach of trust.
iv. Children’s investment fund foundation v AG
1. Lady arden 44: there has been considerable debate as to how to define
a fiduciary…. A fiduciary acts for and only for another. Owes essentially
the duty of single-minded loyalty to his beneficiary, meaning that he
cannot exercise any power so as to benefit himself’
c. Necessarily fiduciary relationships (Fiduciary and principal)
i. Trustee and beneficiary
ii. Guardian and word
iii. Agent and principal
iv. Partner and co-partner
v. Solicitor and client
vi. Director and company
vii. Gov employee and crown
d. General rule
i. A fiduciary must not profit from her position or have conflicting interests or
duties, unless……. The principal has given informed consent (or it is otherwise
authorized, by statute or the court.
C. History of the trust
a. ‘the use’
i. Predecessor of the trust, enabled somebody to transfer property to somebody
else but the property was to be held for the use of somebody else
1. Originally done for tax stuff. Also monasteries, monks had to take an
oath of poverty.
ii. Statute of uses 1535 developed to limit their scope
iii. ‘a use upon a use’ became the trust.
1. Loophole of statute, wasn’t just a single use, but process was essentially
repeated in the same set.
b. Hague convention (recognition of trusts act 1987)
i. Not English law definition, international law type thing.
ii. A trust has the following characteristics.
1. Assets constitute a separate fund and are not a part of the trustee’s
own estate
2. Title to the trust assets stands in the name of the trustee or in the name
of another person on behalf of the trustee
3. The trustee has the power and the duty, in respect of which he is
accountable, to manage, employ, or dispose of the assets in accordance
with the terms of the trust and the special duties imposed upon him by
law
D. Nature of the trust
a. Structure of the trust: the beneficiary principle
i. Re Endacott, Lord Evershed MK
 1. 246: no principle perhaps has greater sanction or authority behind it
than the general proposition that a trust by English law, not being a
charitable trust, in order to be effective must have ascertained or
ascertainable beneficiaries.
a. You need to have obligations to somebody.
b. Charities are an exception
i. Charitable trusts are trusts for a purpose not for a
person.
b. The rule in Saunders v Vautier Lord Langdale MR
i. Testator set up in his will that trustees should have stock in a certain company.
There was stock left on trust to accumulate dividends until some kid reached
the age of 25 and then transfer that to him. Did he have to wait till he was 25?
1. If you are the person that is solely entitled to property under the trust,
you don’t have to wait
ii. 116: I think that principle has been repeatedly acted upon , and where a legacy
is directed to accumulate for a certain period, or where the payment is
postponed, the legatee, if he has an absolute indefeasible interest in the legacy,
is not bound to wait until the expiration of that period, but may require
payment the moment he is competent to give a valid discharge.
iii. A beneficiary of a full age and capacity may direct the trustee to wind up the
trust and convey the property to them
c. What is a trust
i. A trust exists when
1. A person (the trustee)
2. Holds the right (the subject) and
3. Is required by equity to use that right for the benefit of
4. Another person (the beneficiary) or
5. A particular purpose (the objects)
d. Objects of the trust
i. Trust for persons
1. Objects are beneficiaries
2. Enforced by beneficiaries
ii. Trust for charitable purposes
1. Objects are purposes
2. Enforced by crown (charity commission)
e. Trustees and beneficiaries
i. Trustee can also be beneficiary
ii. Sole trustee cannot be sole beneficiary
1. Otherwise no separation of legal and beneficial ownership which is
fundamental to the nature of the trust.
f. In personam or in rem
i. Webb v Webb
1. Beautiful town in the Mediterranean. Father bought a flat here and
because of currency exchange rules, the flat was bought in his son’s
 name. father and son ended up falling out and father sued trying to get
legal title to the flat.
2. Father argued saying son holds this property on trust for him and he is
sole entitled beneficiary
a. Entitled to the property
b. Saunders v Vautier rights
3. Art 16(1) Brussels Convention 1968
a. Courts shall have exclusive jurisdiction
i. In proceedings which have as their object rights in rem
ii. Or tenancies of immovable property the courts of the
contracting state in which the property is situated.
4. Judge Paul Baker QC
a. 23: article 16 is couched in the concepts of the civil law systems
of the original member states. It does not readily fit in with the
system of legal and equitable interests in property obtaining in
England and wales and in both parts of Ireland’
b.
5. ECJ said that the son is under a duty to convey ownership of the flat to
the father. Father is only trying to enforce his rights against his son.
g. Types of trust
i. Express trusts
1. Bare trusts
2. Fixed trusts
3. Discretionary trusts-mcPhail v Doulton
ii. Resulting trusts
iii. Constructive trusts
1. Both resulting and constructive arise by operation
iv. Charitable trusts are a special example of express trust.
h. Creation of kinds of trusts
i. Most trusts are created by intention
1. Express trusts
2. Settlor manifests intention to create trust
3. Trustees undertake to perform trust
ii. Trusts also arise by operation of law
1. Constructive trusts
2. Resulting trusts
i. Standard duties of express trustees
i. Obey the trust
ii. Account to the beneficiaries
iii. Take care of trust assets
iv. Exercise powers for proper purposes
v. Avoid conflicts of interest or duty
E. Utility of trusts
a. Law commission
 i. Trusts are so mainstream in the fact that they regulate so many financial
arrangements that many people have no idea they are the trustees or the
beneficiaries of trusts.
b. common uses for trusts
i. family settlements Testamentary Trusts in wills
ii. pension funds
1. for working people. Pension system uses trust structure. Trustees are
the companies that people work for. You store up money with the
trustee’s and they invest it for the beneficiaries.
iii. Charities
1. Trust for a purpose rather than for an individual.
iv. corporate finance
1. allows for more complex transactions.
v. mortgage lending
vi. tax planning
vii. ownership and family home
c. the utility of trusts, varieties of ownership
i. complex ownership of property
ii. co-ownership
iii. successive ownership
d. property management
i. conferral of management powers over property
ii. pooled investments
iii. pension funds
iv. purposes (esp. charitable ones)
F. distinguishing the trust from other legal concepts
a. other legal concepts
i. contract
ii. debt
iii. agency
iv. bailment
v. administration of an estate
vi. security interests
b. contract- benefits for third parties
i. A-B-C (contract between A and B-problem of privity)
1. Can C enforce contract between A and B (Beswick v Beswick)
2. Contracts (Rights of Third Parties) Act 1999
3. Can A and B vary or terminate contract?
a. No, contract is more restrictive because of privity.
ii. Settlor-trustee-beneficiary (trust for B)
1. S not party to trust relationship
2. B can enforce trust
3. Variation or termination possible with B’s consent.
c. Contract
 i. Contract and trust may co-exist
ii. Contract to make trust
1. Eg. Pension fund trust: employer contributes to pension fund for
employees and their dependants
iii. trust may arise to perfect contract
1. .eg contract of sale: vendor holds land on constructive trust for parties
pending completion.
d. Don King Productions v Frank Warren
i. Lightman J (affirmed on appeal) at 311
1. Contract can also be relevant in seeing if there is a trust
ii. ‘the essential task in construction is to deduce, if this is possible, from the two
agreements construed as a whole against their commercial background the
commercial purpose which the businessmen and entities who were parties to
them must as a matter of business common sense have intended to achieve by
entering into them…’
1. Contract serves to show the requirements of the trust in question
e. Debt
i. Debt
1. Creditor has right in personam vs debtor
2. No rights in rem (unless debt is secured)
ii. Trust
1. Beneficiary’s rights
2. Enforceable vs trustee and potentially vs others.
3. Trust relates to specific assets.
f. Cont.
i. One guy had a trust in the will of a claimant and a settlement in the will of the
defendant. He misappropriated funds from the trust with the defendant and
also took funds from the will and bought money in stock with the will.
Transferred it back to himself and the defendant.
ii. Claimant (the guy with the will) could not get his money from the defendant
because by accepting (facts very unclear here
iii. Taylor v blakelock Bowen LJ
1. ‘the man who has a debt due to him, when he is paid the debt has
converted the right to be paid, into actual possession of the money. In
taking payment he relinquishes the right for the fruition of the right. In
such a case the transaction is completed; and to invalidate that
transaction would be to lull creditors into a false security and to unsettle
business’
iv. This case seems super weird to me.
g. Concl.
i. A debt and a trust may co-exist
ii. Quistclose trust
1. Barclays Bank Ltd v Quistclose Investments Ltd
2. Twinsectra Ltd v Yardley
 iii. Loan of money to be used for specific purpose
1. Borrower owes debt to lender
2. Borrower holds money in trust for lender with power to use money for
specific purpose.
h. Barclays bank v quistclose
i. A company was in financial difficulty and borrowed money to pay dividends.
Borrowed on terms only to be used for that prpose. If nothing had gone wrong
they would just have 20k in unsecured debt. However, company got into
financial difficulty before them, and quistclose was trying to see if they could be
higher priority than Barclays for the money.
ii. Held that money was held in trust for quistclose to be used for a specific
purpose otherwise return to lender.
iii. Commercial utility
1. Incentivizes lending
2. Lord Wilberforce at 582
a. The intention to create a secondary trust for the benefit of the
lender, to arise if the primary trust, to pay the dividend, could
not be carried out, is clear and I can find no reason why the law
should not give effect to it.
i. Agency
i. Agent has power to affect Principal’s legal relations with others
1. Eg. Director or officer/company, business partners, solicitor/client,
power of attorney
ii. Principal<-agent-> other
1. A makes contract with O on P’s behalf
2. A is not party to contract between O and P
3.
j. Cont. Bailey v Angove
i. Lord Sumption
1. ‘an agent has a duty to account to his principal for money received on
his behalf. It is however, well established that the duty does not
necessarily give rise to a trust of the money in the agent’s hands’
k. Agency v trust
i. agent
1. agent obeys principal instructions
2. many agents are fudiciaries
3. most agencies revocable
a. irrevocable power of attorney
4. ends if agent or principal dies or loses capacity
a. lasting power of attorney
5. principal liable to others, agent is not
ii. trust
1. trustee obeys trust
2. most trustees are fiduciaries
 3. most trusts irrevocable
a. termination or variation
4. continues regardless of death or incapacity
a. life interests
5. trustee liable to others, beneficiary is not.
iii. Agency and trust may coexist
1. Agent holds assets in trust for principal
2. Bare trust, with agent/trustee following instruction of
principal/beneficiary
l. Bailment
i. Bailee holds property on behalf of the bailor.
ii. Ashley v tolhurst
1. Owner of a car parked in a private car, paid and got a ticket. The ticket
contained provisions that there is no provision for safety. All cars left
entirely at owners risk. Comes back and attendant gave it to his friend.
The man who had taken the car was a thief and drove off. Claimant sued
the proprietors of the carpark.
2. Admitted that it had been negligent of the attendant but the ticket
disclaimer meant they did not have to take legal responsibility for it.
3. Bailment does not entail transfer of legal title.
4. Sir Wilfred Greene MR at 248
a. First thing to do is to examine nature of the relationship
between the parties.
5. Romer LJ at 255
a. ‘it is perfectly plain in this case that the car was not delivered to
the defendants for safe custody. You cannot infer a contract by
A to perform a certain act out of circumstances in which A has
made it perfectly plain that he declines to be under any
contractual liability to perform that act’
m. Cont.
i. Bailee has possession of tangible personal property (goods, documents, cash)
for a limited time or purpose
ii. Bailor has right to possession when bailment ends
iii. Bailee owes duty of care to bailor
iv. Bailee has possession but they do not have legal title.
n. deceased person’s estate
i. executors and administrators appointed as personal representatives of estate
ii. estate assets vest in personal reps, who have duty to distribute it according to
law
1. pay taxes
2. pay creditors
3. distribute to beneficiaries
iii. personal reps may also be appointed trustees of trusts created by will.
o. Administration of an estate- commission of stamp duties (queensland) v Livingston (PC)
 i. Testator died while living in new south wales and gave the residue of his estate
to his executors and trustees on trust to hold 1/3 for his window. Widow died
interstate and will wasn’t executed. No clear residue was determined, so
distributed among rest of beneficiaries. Commissioner argued that widow and
her estate was liable to pay tax. Privy council rejected because estate hadn’t
been administered. Didn’t have any interest in the relevant assets
ii. Residual legatees do not have a beneficial interest in the assets in the executor’s
hands.
p. Security interests
i. A security interest is property right that secures payment of debt or other
obligation
ii. Creditor with security=secured creditor
iii. Secured assets can be used to pay debt
1. Debt can be paid using other assets
2. Anything left belongs to debtor
iv. Debtor is beneficial owner of secured assets.
v. Secured creditor is not a fiduciary but uses secured assets for own benefit to
pay debt subject to duty of good faith
vi. If creditor has legal title
1. Debtor has equity of redemption
vii. If debtor has legal title
1. Creditor has equitable charge or lien.

Tutorial 2reading

A. Modern equity ch. 29

a. rescission; right to have a contract set aside and parties restored to their former
positions.
i. Not a judicial remedy but the assistance of the court is often invoked
ii. Equity has traditionally been more flexible than the common law in restoring
the parties but line is becoming blurred.
b. Grounds for rescission
i. Mistake
1. Voluntary dispositions (gift or settlement)
a. May be set aside in equity on the ground of mistake.
b. Pitt v Holt
i. Frost welcome in offshore jurisdictions.
2. Contracts
a.
B. Pitt v Holt
a. Settlor who had a personal injury award, created a ‘special needs’ discretionary trust
where he was primary beneficiary, professional advisers did not appreciate that
inheritance tax would be payable. If a different trust was used this could have been
avoided. Application was made to set aside the settlement for mistake.
 b. Focus is on the gravity of the causative mistake and the unconscionability of the
situation.
c. Lord Walker: court must consider the existence of the mistake, degree of centrality and
seriousness. Applying this test, Walker held tha the settlement should be set aside
because tax gravity of mistake.
C. Wright v National Westminster bank
a. Norris J was satisfied that a husband and wife had made ‘grave mistakes’ in
misunderstanding the arrangement under a trust declared by husband. Mrs. Wright had
contributed directly but under terms of the trust, she was deprive of income both
before and after Mr. Wright’s death.
b. Explicit and apparent mistake with serious consequences. Norris J
c. Don’t forget that courts can refuse tax situations like this where D had appreciated the
risk or on public policy.
D. Lord briggs Equity in business

Week 4 lectures

A. Trusts and Powers

a. A trust is a duty owed by a trustee to do something or refrain from doing something.
b. A power is something that a trustee or another may choose to exercise.
c. Most express trusts consist of both duties and powers
B. Mandatoriness
a. Duty under a trust is mandatory.
b. What right does the object of the power have?
C. Construction
a. ‘the task of construction is to consider objectively what the purpose is for which the
power has been conferred. Puttin git another way, the question is: for whose benefit, as
a matter of construction of the trust deed, has the power been given
i. Birss J in Pugachev.
D. ‘Equity looks to substance rather than form’
E. Variety of powers (powers=simply permission for someone to do something)
a. Bare v fiduciary
b. Administrative v dispositive
c. Objects of dispositive powers
i. General
ii. Special
iii. Hybrid or intermediate.
F. Bare v Fiduciary
a. Bare power
i. Held in personal capacity
ii. No duty to consider whether to exercise
iii. .e.g. power of appointment in will
b. Fiduciary power
 i. Held in official capacity for particular purpose
ii. Must consider whether to exercise it
iii. E.g. trustees, agents
G. Administrative v dispositive
a. Administrative
i. Invest, sell, lease, insure
b. Dispositive
i. Maintenance, advancement, appointment.
ii. Applying money to particular objects of the power: transferring money to the
objects in different ways
H. Power of appointment
a. Power to dispose of assets
i. May be given to trustees
ii. May be given to beneficiaries or others
b. No duty to exercise power
i. Fiduciaries have duty to consider exercise
ii. Others are free to do nothing
iii. Gift over in default of appointment
iv. Release of power
c. Language
i. Donor of power-person who gives the power to appoint
ii. Donee of power-person who is given the power to appoint
iii. Objects of power- person in whose favour the power is exercised.
d. Different types of power
i. General (unlimited)-anyone
ii. Special (defined list or class)- to anyone within this group
iii. ‘hybrid’ or intermediate (excluded list or class) to anyone except…
I. Powers, discretionary trusts, and fixed trusts
a. Powers are always optional. Trusts are a duty: mandatory to exercise duties under a
trust.
i. What rights does the object of the power have?
1. No property right in relevant property
2. No right to compel payment
3. No right to compel exercise of the power
4. Can invite court’s intervention to ensure trustees consider the exercise
of the power
5. Can prevent invalid exercise of the power.

May distribute Must distribute

Choice of object Powers of appointment, Discretionary trust
maintenance or
advancement
Fixed objects Same as above Fixed trust
b. Mcphail v Doulton
i. Trust for benefit of staff at a company, their relatives and dependants.
 1. Wording was ‘trustees shall apply the net income of the fund in making
at their absolute discretion grants to or for the benefit of’
2. ‘trustees shall not be bound to exhaust the income of any year
ii. Trust or power?
1. Prior authority had suggested that if it is a discretionary trust, you have
to say with certainty, everybody who is in that class
a. Because power of appointment is permissive, you do not need a
full list
2. Re Gulbenkian’s ST 1968 HL
a. Power does not require complete list of objects
b. Discretionary and fixed trusts require complete list
3. Mcphail v Doulton
a. Discretionary trust is treated like a power
b. Fixed trusts require complete list
iii. Lord Wilberforce
1. Essence of discretionary trust is its up to you who you appoint.
Significance of McPhail is considering similarities between what is
expected of people practically while still recognising the fundamental
distinction between powers and trust: there is a duty to distribute with
a discretionary trust that doesn’t apply with power of appointment.
(paraphrased)
c. How do we work out if the powers are or are not valid
i. Re Hay’s settlement
1. Very wide class: hybrid class
2. Power to appoint anybody apart from limited category. Is this too wide
a power or not?
3. Court said it was not too wide.
4. Sir Robert Megarry 209:
a. The obligations that come with being a fiduciary and the powers
that come with that, you have to consider whether to exercise
it. You can’t just fold your hands and ignore it.
ii. Turner v turner
1. Trustees: lay people in a family context. Trustees did not understand the
obligations on them as trustees. They left all the decision making to the
settlor and signed off and whatever he asked them to do. That was a
breach of duty as trustee, did not consider the powers of a trustee.
J. Making sense of the arrangement.
a. Construction
i. ‘when considering what powers a person actually has as a result of a trust deed,
the court is entitled to construe the powers and duties as a whole and work out
what is going on, as a matter of substance
1. Birss J in Pugachev
ii. Armitage v Nurse Millet LJ
 1. 253: there is an irreducible core of obligations owed by the trustees to
the beneficiaries have no rights enforceable against the trustees, there
are no trusts.
b. Making sense of the arrangement
i. Genuineness of the arrangement
1. Was the trust actually intended or was it made to look like a trust for
shady situations
a. Sham doctrine- shady trusts
2. Tantamount to ownership
a. Is there one guy that acts like the owner with the trust and is
essentially the owner.
3. Successful disposition of property
c. JSC Bank v Pugachev
i. Pugachev is a Russian oligarch. Owned various assets and there was a family law
dispute. There were 5 discretionary trustees in which pugachev was a
discretionary trustee. Also appointed as a protector: somebody who is given
various powers to be consulted by the trustees. Was the true effect of these
discretionary trusts that pugachev was the complete owner of the property
within the trusts.
ii. Birss J
1. ‘the claimatns case is that the beneficial interest in the assets held by all
the trusts belongs to Mr. Pugachev. They seek an order requiring the
assets to be vested in the claimants or alternatively in such persons or a
receiver as the court thinks fit’
iii. What is a protector?
1. A person other than the trustee who, as the holder of an office created
by the terms of the trust, is authorised or required to play a part in the
administration of the trust
a. Duckworth
2. The settlor pugachev appointed himself the protector.
3. May have very extensive powers: remove or approve trustees.
a. However always has to be acting in fiduciary (non-selfish)
capacity
iv. It was held that pugachev should be considered the owner and that the trust
was a shams thing.
d. Webb v webb
i. Dispute between husband and wife at end of relationship
ii. Mr. Webb was an entrepreneur and established trusts to arrange his assets. Him
and his wife enjoyed a high class lifestyle as a result. Shortly after they were
married, Mr. webb set up a a trust where as settlor, he appointed himself as a
trustee and nominated himself and his son as beneficiaries.
iii. Lord Kitchin
 1. ‘it has long been recognised that a completely general power of
appointment, such that the holder of the power can appoint the subject
matter of the power to himself, may be tantamount to ownership.
iv. Lower courts held this wasn’t a sham but that Mr. webb must still be considered
the owner of the property.
1. Lord kitchin disagreed.
2. 87: Acceptance that Mr. Webb intended to create trusts does not in any
way preclude a finding that he reserved such broad powers to himself
as settlor and beneficiary that he failed to make an effective disposition
of the relevant property’
3. You can genuinely intend to make a trust but you have such broad
powers that we can’t treat you as if you weren’t absolutely entitled.
4. Two options for analysis
a. Does it have the irreducible core of obligations owed by
trustees to the beneficiaries and enforceable by them which is
fundamental to the concept of a trust
b. Orrrr ‘whether the powers reserved to Mr webb were so
extensive that in equity he can be regarded as having had rights
which were tantamount to ownership
5. Answer is that Mr. Webb is indistinguishable from ownership. The
bundle of rights he had is indistinguishable from ownership.
v. Making sense of the arrangement
1. Is the arrangement genuine
2. Is what remains ‘tantamount to ownership?
3. Successful disposition of property?
4. Sham?
a. There may be overlap between these or one might be satisfied
but not the other.
K. Fraud on a power (doesn’t involve dishonest necessarily, you are defrauding the settlers
intention by frustrating their intention of applying something to the relevant purpose)
a. Limit on exercise of personal power
i. Donee can only appoint to objects
ii. Donee cannot avoid restriction by appointing to object for purpose of benefiting
non-object
iii. Depends on intention of donor
b. Not fraud in the usual sense
i. Improper motive is ‘fraud’ even if honest.
L. Defective execution
a. You’ve tried to go through with the power but something has gone wrong
b. Tollet v Tollet
i. Husband had power to make an appointment his wife by deed, but he did it
through will.
ii. When can equity step in to cure that kind of defect?
iii. Sir joseph Jekyll
 1. You have to try to exercise a power but do it by a wrong method for
equity to intervene. If you don’t exercise a specific power, equity will
not intervene to compel it.
c. Non-execution v defective execution
i. English v keats
1. Mother purported to execute a deed of appointment to give each of her
children an interest in the relevant settlement. 4 trustees and only three
of them signed the trust deed. Mother didn’t sign it. Hadn’t realized
they had to do it. Ineffective deed. Failure to sign it by mother was only
realized after she had died. THe children applied to the court to fix that
defect.
2. court originally said there must have been attempted execution of the
power and therefore was not a defective exercise of the trustee’s
power, they had not exercised it all
3. Judge hacon said that all 4 trustees intended to exercise a power, the
failure of the mother to sign rendered the trustee’s attempt defective.

Lectures on certainty

A. Creation of trusts: express trusts

a. The three certainties
b. Formalities
c. Constitution: legal title being vested in the trustee.
i. You need all three elements for there to be an express trust
B. Three certainties: framework
a. Certainty of intention: did the settlor have the intention to create a trust
b. Certainty of subject matter
i. Is it tangible or intangible?
c. Certainty of object: what type of trust is it
i. For beneficiaries
1. Fixed: complete list
2. Discretionary: ‘is or is not’ (Mcphail, etc)
ii. For purpose?
1. Charitable?
2. Private purpose?
3. Otherwise, void. .
C. Why does it matter?
a. A trust is a big deal, you need certainty and all the relevant elements
b. Wilkinson v north David Richards LJ
i. Because you can’t go back on a trust and it is important in of itself, the law
requires certainty on three crucial elements
1. The intended beneficiaries
2. The property to be subject to the trust
3. And intention of settlor to create the trust
 ii. Must be established objectively by reference to doc’s words or conduct relied
on as creating the trust.
D. What do we need to make this work?
a. Knight v Knight
i. Lord Langdale:
ii. First… if the words are so used, that upon the whole, they ought to be
construed as imperative
iii. Secondly, if the subject of the recommendation or wish be certain
iv. Thirdly, if the objects or persons intended to have the benefit of the
recommendation or wish be also certain.
E. Certainty of intention
a. Did S have a serious intention to create the legal relationship known as a trust?
i. People can be trustees without grasping the significance. This question asks if
you absolutely intended the legal relationship
b. James Lee’s Will example
i. “I leave 100 to Eloise in the hope that she will use it to help Natasha”
1. You could either be giving Eloise 100 absolutely, with a moral obligation
to help natasha
2. Or 100 to be held on trust by Eloise in favour of natasha.
3. Must be one or the other, but we need to know which.
c. The word trust
i. Normally using the word trust will indicate an intention to create a trust
1. Exception Tito v Waddell
a. Island called Panama island. Crown had given undertaking of
local community to the island. They trusted them to do
something. Was this intended to be legally binding expectation
or not?
b. Megarry V-C at 223: Looking at matters as a whole, they seem
to be explicable, and best explicable on the footing of
governmental obligation and not true trust.
c. Trust in the higher sense
i. Not so much about legal obligations, but you can trust
us to undertake something solemnly.
d. Sometimes use of the word trust does not always suffice,
context important.
d. Precatory words (praying words)
i. Precatory words alone do not establish certainty of intention.
1. ‘in the hope that’
2. ‘with every confidence that’
3. Wishing that
4. Believing that
5. With every expectation that.
ii. Lambe v Eames
 1. Estate left to widow ‘to be at her disposal in any way she may think
best, for the benefit of herself and her family’
2. James LJ: testator was not imposing on his wife trust obligations.
iii. Re adams v Kensington Vestry
1. ‘in full confidence that she would do what was right as to the disposal
thereof between his children, either in her lifetime or by will after her
decease’
a. Cotton LJ
i. In full confidence sounds stronger towards a trust, but it
still is framed in language of moral obligation rather
than legal obligations
iv. Comiskey v Bowring-Hanbury
1. You look beyond the language of confidence and look to the context if a
trust is intended.
v. You always need to look at the surrounding circumstances when looking at
precatory words
1. Re snowden: a woman was not sure what to do about her will and
wanted to do right by people in her family. Was with solicitor and her
brother, and decided she would leave stuff to brother. ‘leaving it to her
brother to split up the remainder as he thought best’
a. There was no legal obligation, his conscience in a moral sense is
burdened.
2. Re Steele
a. Case can be somewhat over-used by students
b. Settlor intended to create a trust and went and looked up a
precedent, based on an out of date case in relation to
sufficiently certain words.
i. Precatory words alone do not establish certainty of
intention but did the settlor have a serious intention to
create the legal relationship known as the trust
ii. He looked up the words and had a serious intention to
create the trust, just cause he got the words wrong, he
still wanted to create that relationship.
e. Making sense of the words used
i. Paul v Constance
1. Man separated from his wife and had a joint account that was only in
husband’s name. it was found that on several occasions, husband said
‘the money is as much yours as mine’. Dispute arose after his death,
between his ex-wife and new partner. Was the money being held on
trust for his new partner, or was it only his money.
2. Scarman LJ at 530
a. No declaration of trusts through wording, but must consider the
actions of the plaintiff and the deceased during the time of their
domestic relations. You do not need to solemnly swear there is
 a trust and use lawyer language, you need to look at intention
to create legal relationship of trust.
ii. Don King Productions v Frank Warren
1. How was the agreement to share the profits were to be understood
between the promoter and British boxer.
2. Lightman LJ
a. Intention and context key. Even if neither body created a trust,
a trust still can have been created. On the facts, the only way
the profit agreement was to be effective was to be a trust.
b. Make sense of it on the facts and light of the business context
i. Trust was created as a means of sharing business
profits.
iii. Wilkinson v north
1. Claim by claimant who was suing Defendants (sons of man who
allegedly created a trust), argued that a property was held on trust for
them because they invested tons of money in deceased businessman.
He allegedly agreed that C’s would receive certain benefits. C’s said
trust was created for them and should share in profits,
2. No trust was created on the facts, settlor had no intention.
3. David Richards LJ
a. Although documents have legal jargon, parties had limited
understanding of legal matters. It is inconceivable that Mr.
North intended to give a proprietary interest in the assets, while
not giving him any recourse as regards the debts of the business
for which he would be personally liable. The significant point in
the present context is that no thought at all had been given to
the issue, no trust.
f. Sham intentions
i. Midland Bank v Wyatt: concerned family home. Mr wyatt wanted to create a
trust of the family home on trust for his family. Did not tell bank, business
partners or solicitors. Did so to protect home if his business went into financial
difficulty. Company went into liquidation. Was the house one of his assets or
not? Was this trust valid or not?
1. Insolvency Act 1986 s. 423 Transactions defrauding creditors.
2. “ I consider the trust deed was executed by him, not to be acted upon
but to be put in the safe for a rainy day.” Trust was a sham, had no
interest of kids getting an interest in the house.
ii. Webb v Webb JCPC
1. Lord Wilson
a. Acceptance that Mr Webb intended to cerate trust does not in
any way preclude a finding that he reserved such broad powers
to himself as settlor and beneficiary that he failed to make an
effective disposition of the relevant property.
g. Gift or trust?
 i. James Lee’s will thing
1. Must be one or the other as they are inconsistent intentions.
ii. Requirements
1. Still need certainty of subject matter
2. Still need certainty of objects
3. But specific tests may be vary.
h. FINAL THING: DID S HAVE A SERIOUS INTENTION TO CREATE THE LEGAL RELATIONSHIP
KNOWN AS A TRUST
F. Certainty of Subject matter
a. Approach of law depends on the quality of the property in question: Tangible/intangible
i. Matters because a trust is a big deal: as a trustee, you own a lot of property
under a trust and some that isn’t yours to deal with. you have to know which
property is available under the trust to fulfil duties as trustee.
b. Lehman Brothers v CRC Credit Fund
i. Arden LJ 171: a trust cannot be created without property to which it can attach.
Where there is no property to form subject matter, no trust is created.
c. You need to be able to identify the property: put your finger on it (tangible/intangible)
d. Some general points
i. Choice: Boyce v Boyce
1. Testator left all his houses to trustees. Property was being held on trust
for wife, for duration of her life, but after his death, trustees would
convey one property to one daughter (first choice) and other daughter
would get the others. The one who needs to pick first died without
making her choice. Can the other daughter have access to all the other
properties?
2. Unfortunately she wasn’t entitled to the other properties. Because no
choice had been made, the gift in favour of the other daughter had
failed.
ii. Problem of adjectives
1. Adjectives introduce an element of subjectivity: ‘nice’ ‘fine’
a. These words can be used in different ways in English language.
b. If we can’t be sure what the words mean, limits ability to
identify what is included in the property in question
2. Re Golay’s
a. Provision of someone enjoying a flat during her lifetime and
receiving ‘reasonable’ income during her lifetime. What is
reasonable meant to mean.
i. ‘to enjoy one of my flats during her lifetime and to
receive a reasonable income.
b. Ungoed-Thomas J
i. 972: reasonable is not meant to be considered
subjectively but objectively by the courts. “In my view
the testator intended by ‘reasonable income’ the
yardstick which the court could and would paply in
 quantifying the amount so that the direction in the will
is not in my view defeated by uncertainty’
e. Wilde article
i. Argues for a fourth ‘three certainty’-‘distributional certainty’?
1. Interesting argument.
2. There should be a fourth question, Who gets what?
a. Cuts across subject matter and objects
b. Who gets what? E.g. boyce
i. Helps to understand challenge of subject matter. What
are the entitlements under the trust.
f. Tangible property
i. Physical things which can be touched in the real world.
ii. Palmer v Simmonds
1. ‘the bulk of may said residuary estate’. There was a will and this was the
final request, to give what’s left of the will away.
a. Common to make residue of your estate to go somewhere.
2. Court considered whether the quote was sufficiently certain or not. At
the time you write the will, you don’t know what will be left of your
estate. You can only get to the residue, when you get rid of everything
else.
3. Residue was enough, but what does ‘bulk’ mean. Bulk means majority
not all. The word bulk is not sufficiently clear.
4. Sir R. T. Kindersley VC at 225
a. If ‘my residual estate’ was used, there would be no problem.
But including ‘the bulk’, it is not precise or definite. The term in
law has no appropriate meaning.
iii. Re London Wine Co
1. Company sold wine to purchasers as an investment. There was a sale
but wine was not delivered to purchaser, everything was remained in
bulk storage. This was not capable of establishing a trust, not sufficiently
certain to put your finger on which bottles of wine to 100% certainly say
who was the exact purchaser. It does matter who owns each bottle.
Even if they may seem interchangeable, each bottle is different.
iv. Re Goldcorp Exchange
1. You need sufficient ascertainability of individual items for a trust. Privy
council had to consider whether Claimants (the purchaser) were able to
make a claim of entitlement under a trust in respect of the different
assets.
2. 3 types of claimants
a. Generally bought bullion on non-allocated basis
b. One guy bought 1000 coins on non-allocated basis
i. Had previously bought 52 specific coins.
c. Bought bullion on specific, allocated basis-subsequently
Goldcorp misused the money.
 3. Lord Mustill: certainty of subject matter in tangible things
a. You need to put your finger at all times on what the property is
to which the terms of the trust can attach.
b. People just want to get their gold bars, but not specific enough,
no entitlement.
c. In order for claim to work there must have been a separate and
sufficient stock of bullion in which proprietary interest could be
created.
4. Issue:
a. Separation, identification, ascertainability.
i. Separation deals with the fact that you just need to
identify which gold bar is attributable to who. Does not
need to be physically separate.
ii. You need to be able to identify and ascertain the
property being talked about in the trust.
g. Intangible property
i. Hunter v Moss
1. Shares in this company Moss Electrical Co Ltd. 1000 shares. Of those 50,
were owned by another guy. Settlor owned 950 shares. Self declared he
was holding 50 shares for a potential beneficiary. Was this sufficient to
create a trust?
2. Arguments
a. Not sufficiently certain and not effective trust
i. You haven’t separated things out, not sufficient
identification
b. Although not tangible property
3. Dillon LJ distinguished from London Wine case
a. ‘But here the discussion is solely about the shares of one class in
the one company’
b. Because the shares are truly identical in the specific class of
shares, self declaring a trust is sufficient in this case.
ii. Re Harvard Securities
1. Court had to determine whether the company or its former clients had
beneficial entitlement to two groups of shares held by the company.
2. Neuberger J
a. ‘in all the circumstances, therefore it seems to me that the
correct way for me, at first instance, to explain the difference
between the result in Hunter and that in London Wine and
Goldcorp is on the ground that Hunter was concerned with
shares, as opposed to chattels.’
3. Intangible property justifies the different way we treat it. You still
need ascertainable property and know the specific subject matter.
iii. Lehman Bros
1. Arden LJ
 a. ‘the shareholding was in existence, the shares were fungible
and thus the trust property could be identified.’
iv. Cryptoassets?
1. AA v Persons Unknown
a. Crypto’s looked at as property with rights.
2. Generally law tries to look at them as being caught under property
rights.
v. Identifiable fund when money is referred to?
1. Let’s say you are talking about 100 pound
a. Money in coins, piggy bank, regular bank, where Is money
coming from. Has to be sufficiently certain.
2. Macjordan Construction v Brookmount Erostin
a. Building contract with provision for interim payments during
course of building project. The retention money was to be
retained by the developer as trustee to the contractor. Money
was to be in a separate account. No account was ever
established. Was a trust ever established.
b. Scott LJ 598: ‘the plaintiff has no equity as against the bankt o
require the bank to make available, in order that the retention
fund may be set up, assets over which the bank has na
equitable interest under the charge. If money was paid into it,
there would have been trust. Unless fund was paid into, there is
nothing we can point to.
c. If trust is not validly created, you can always change your mind.
3. Hemmens v Wilson Browne
a. Settlor instructed solicitor to graft a document that the
claimant would have an immediately enforceable right to call at
a future date to be paid a 100k pounds. Solicitor said akin to the
trust. Was this a trust?
b. 226: it did not create a trust because there was no identifiable
fund which could form the subject matter of such a trust.
G. Certainty of objects
a. Certainty of object: what type of trust is it?
i. For beneficiaries
1. Fixed trust: complete list
2. Discretionary trust: “is or is not” (McPhail)
ii. For purpose?
1. Charitable?
2. Private purpose?
3. Otherwise? Void
b. Why does it matter
i. Beneficiary principle
1. Morice v Bishop of Durham
 a. ‘every other trust (which is not charitable) must have a definite
object. There must be somebody in whose favour the court can
decree performance’
H. Fixed trusts
a. What is fixed in a fixed trust
i. It is the extent of each beneficial interest which is fixed
ii. The shares do not need to be equal
1. E.g. ‘I declare myself trustee of 100, with 75% in favour of Eloise and
25% in favour of natasha
iii. But in default of specified shares ‘equity is equality’
1. Four beneficiaries=25%
2. Cannot divide equally unless we know how many beneficiaries there are
iv. Therefore we must have a complete list test
1. Must be able to identify all beneficiaries.
b. What do we need to make this test work?
i. OT computers
1. Computer sales company. Company was worried what would happen if
they got into financial difficulty. ‘The directors therefore request that
two separate trust accounts be maintained with the bank for the
payment of customer deposits and payments due to urgent supplies to
be held on trust for those parties in order to safeguard such monies in
the event of insolvency.’
a. Is urgent supplies sufficiently certain? No mention of discretion
meaning we need a fixed list.
b. Urgent is an adjective and introduce subjectivity.
2. Held that it was not possible to determine with sufficient certainty what
urgent suppliers meant.
a. Pumfrey J at 21: ‘it is not sufficient to be able to say whether or
not any identified person is or is not a member of the class
entitled to be considered.’
c. missing beneficiaries?
i. What if we can’t be sure if people are still alive to remain in the class for the
trust.
1. ‘re Benjamin’ gave rise to Benjamin Order
a. Order permitting distribution of trust fund in the event of a
missing beneficiary
b. Benjamin Jr disappeared. Testator settled debt that was owed
to his employers and was entitled to a share of the estate.
Father dies and son had not been heard of for years. Rest of the
family comes to court to distribute the deceased share amongst
the living.
2. Re Evans- Insurance?
a. Missing beneficiary insurance
 b. Family falling out. D, administering estate had not heard from
claimant for 30 years and assumed their death. Was advised to
take out missing beneficiary insurance. MBI Allows you to meet
the claim of the beneficiary who turns up without needing to
reclaim money or impose any other liability on the
administrator.
I. Discretionary trusts
a. What is discretionary in a discretionary trust
i. The discretion is as to the beneficial interests
1. ‘to hold on trust at his discretion’
2. ‘in such shares as she thinks fit’
3. ‘for whichever of my relatives she may choose’
ii. We do not know what share, if any, each person has until the discretion is
exercised.
1. We need to be able to say who is in a class before the trustee can
exercise discretion as to who gets what.
b. Mcphail v Doulton (Re Baden No. 1)
i. ‘the trustees shall apply the net income of the fund in making at their absolute
discretion grants to or for the benefit of any of the officers or ex-employees of
the company or to any relatives or dependants of any such persons in such
amounts at such times and on such conditions (if any) as they think fit’
1. Who are the objects?: officers and employees or ex versions of those.
The challenge was if relatives or dependants of those persons was
sufficiently certain.
ii. Prior to this case, fixed trusts test applied to all express trusts. That was thought
to be the law. Now a new test that is adopted to objects of the power of
appointment
1. 449 Lord Wilberforce: trustee with a duty to distribute to a large class
means the complete list of names is impossible. Instead, examine the
field by class and category with careful inquiries to see which individuals
gain priority in the trust. “If he acts int his manner, can it really be said
that he is not carrying out the trust’
2. 456 Lord Wilberforce: The trust is valid if it can be said with certainty
that any given individual is or is not a member of the class’
iii. Dissent from lord Hodson: ‘I still adhere to the view (expressed in broadway
Cottages case and Gulbenkian case) as to the requirements for certainty in the
case of the objects of a trust’
1. Wilberforce is going for convenience rather than logic.
c. Conceptual certainty v evidential certainty
i. Conceptual
1. Can we give a sensible workable meaning to the class?
ii. Evidential
1. How do we prove who falls within that definition.
d. Re Baden (No. 2)
 i. ‘dependants’ and ‘relatives’
1. Both certain
ii. Majority (Megaw and Sachs LJJ)
1. Is the person in the class or not?
2. If they are definitely in the class, they are in the class
3. If not, then they are not,
4. If it is uncertain, then they are not in the class.
iii. Minority (Stamp LJ)
1. Have to show conclusively you are or are not in the class.
iv. Megaw LJ 24:
1. ‘the answer would have to be, not ‘they are outside the trust’, but ‘it is
not proven whether they are in or out.’ Don’t need a complete list
v. Applied the ‘is or is not’ test in Re Baden No 1
1. If there is a wide class, sometimes court can construe what it means,
sufficiently large number of people.
vi. What meaning do we give to the provisions? Who benefits?
1. Dependants: ‘any one wholly or partly dependant on the means of
another is a ‘dependant’ (Sachs LJ at 21)
2. Relatives: ‘a person is a relative of an ex/officer or ex/employee, if both
trace legal descent from a common ancestor (Brightman J 1972 CH 607
at 625)
J. What happens if the discretion is not exercised, if there is a default
a. Burrough v Philcox Lord Cottenham LC
i. Son and daughter of original testator, last one to survive was given the ability to
distribute to
1. ‘amongst my nephews and nieces, or their children, either all to one of
them or to as many of them as my surviving child shall think proper’
a. is it too vague? Or can we find the meaning within it
ii. Lord Cottenham LC
1. ‘when there appears a general intention in favour of a class, and a
particular intention in favour of individuals of a class to be selected by
another person, and the particular intention fails, from that selection
not being made, the court will carry into effect the general intention in
favour of the class.’
a. What happens will depend on the surrounding circumstances of
the will.
b. Trust in favour of nephews and nieces
K. Limitations around certainty
a. Administrative unworkability: Lord Wilberforce McPhail v Doulton
i. Where words are clear but the class is so wide, it is administratively unworkable.
(457)
1. ‘all the residents of greater london’
 b. R v district auditor, ex parte West Yorkshire MCC
i. County was being merged or something and had some assets that they wanted
to distribute to the residents of West Yorkshire. Quite a lot of people lived there
but fund was 400k pounds. Was it too broad/wide?
1. Lloyd LJ: ‘THe class is defined with sufficient clarity… it seems to me, be
open to argument what is meant by “an inhabitant” of the county of
West Yorkshire. But I put that difficulty on the side…. A trust with as
many as 2.5 million potential beneficiaries… is quite simply unworkable’
c. Capriciousness? Lacking serious intent: silliness
i. Re Manisty
1. Templeman J: ‘A power to benefit “residents of greater london” is
capricious because the terms of the power negative any sensible
intention on the part of the settlor.’
L. is it possible to cure an uncertainty: the methods
a. reference to third parties
i. cannot oust the jurisdiction of the court- Re Wynn
1. you can’t say it is up to trustees who is in a class.
ii. May be possible- Lord Denning in Re tuck’s
1. Conceptual or evidential uncertainty?
2. “if the appointed person is ready and willing to resolve the doubt or
difficulty, I see no reason why he should not do so.’
a. If his decision is not wholly unreasonable, the decision should
stand.
b. Wilde article
i. Argues for a fourth “three certainty”
1. “distributional certainty”
ii. Cuts across subject matter and objects
iii. “Who gets what”
M. Conditional Gifts
a. Scott v Bridge HHJ Paul Mathews
i. “if there is not certainty of intention to give, the certainty of what is that is
intended t be given, and the certainty of the person to whom it is to be given,
there can be no gift.”
b. Re Lloyd’s Trust Instruments Megarry J
i. “Where the concept is uncertain, the gift is void. where the concept is certain,
then mere difficulty in tracing and discovering those who are entitled normally
does not invalidate the gift.
N. What do we need to make conditional gifts work
a. Re Barlow’s Will Trusts
i. ‘I direct the corporation to allow any member of my family and any friends of
mine who may wish to do so to purchase any such pictures at the prices shown”
1. Friends?
a. Can have a wide range of meaning.
ii. Browne-Wilkinson J
 1. 282: ‘Each person coming forward to exercise the option has to prove
that he is a friend; it is not legally necessary, in my judgement, to
discover who all the friends are… All that is required is that the
executors should be able to say of that individual whether he has
proved that he is a friend”

Tutorial 4 book reading ch, 7

A. Power of appointment
a. power given by donor of the power to the done of the power to appoint property to
some person.
b. Different types of powers
i. A gift to A for life with remainder to whomsoever he shall appoint is a general
power. General power is for many purposes equivalent to ownership
ii. A special power is one in which the choice of appointees is restricted by terms
of the power: example, a power to appoint in favour of one’s children.
iii. A power which does not fit neatly into these categories is one where the done is
given power to appoint to anyone except certain people or groups of people.
Intermediate or hybrid powers.

Formalities

A. Creation of trusts: express trusts

a. The three certainties+ formalities+ constitution= an express trust.
B. What is the point of formality rules
a. Clarity
b. Focusing the mind of the settlor/transferor
c. Publicity
d. Preventing fraud
i. but can it also encourage fraud?
C. Formality Rules
a. Transaction?
b. Property/interest?
c. What is the rule?
d. What is the effect of non-compliance.
D. S. 53: instruments required to be in writing
a. 1) Subject to the provision hereinafter contained with respect to the creation of
interests in land by parol
i. (b) A declaration of trust respecting any land or any interests therein must be
manifested and proved by some writing signed by some person who is able to
declare such trust or by his will
ii. ©A disposition of an equitable interest or trust subsisting at the time of the
disposition, must be in writing signed by the person disposing of the same, or by
his agent thereunto lawfully authorized in writing or by will
b. no special formalities required for creation of trusts of personal property

Formality rules in s. s. 53(1)(b) S. 53(1)©

 53

Transaction Declaration of Disposition

trust

Property/interest Any land or any Equitable interest

interest therein (in anything)
subsisting at the
time of the
disposition)

Rule? Must be Must be in writing

manifested and signed by the
proved by some person disposing
writing signed by of the same, or by
some person who his agent
is able to declare thereunto lawfully
such trust or by authorised in
his will writing or by will
Effect of non- Unenforceable, Void
compliance? not void

E. Taylor v taylor HHJ Mathews

a. 50: ‘Under section 53(1)(b) of LPA 1925, it is not necessary that a declaration of trust be
made in writing. It is only necessary that it should be evidenced in writing. Accordingly
it possible for an oral declaration of trust of land to be made on one day, and evidenced
by signed writing on another. In such a case, the oral declaration of trust is rendered
enforceable from the beginning.
F. Ong v Ping Rimer LJ:
a. 62: ‘I consider that Madam Lim’s later letter… provided sufficient proof and
manifestation for section 53(1)(b) purposes of the trust she had created. The trust
deed… can be identified by extrinsic evidence. On its face, it created no trusts of
anything… Her letter, however, expressly linked the house with her trust. What can she
have thereby intended to acknowledge other than that the house was an asset of the
trust.
G. Equity will not permit a statute to be used as an instrument of fraud.
a. Rochefoucauld.
i. D’s estate manager purchased C’s estates in Sri Lanka at auction. C contended
that D did so on her behalf. There was no proof in writing of this arrangement,
and D pleaded the statute of frauds in defence.
ii. A trust was found in C’s favour.
iii. Lindley LJ: 206: ‘it is competent for a person claiming land conveyed to another
to prove by parol evidence that it was so conveyed upon trust for the claimant
and that the grantee, knowing the facts is denying the trust and relying upon
the form of conveyance and the statute, in order to keep the land himself'
H. The formalities quartet
a. Grey v irc
i. Court held that the word ‘disposition’ is to be given its natural meaning.
‘disposition’ is a familiar work in the law and means an act by which someone
ceases to be the owner of that property in law or in equity.
ii. Does ‘grants and assignments’ (old statute)= ‘disposition’? (1925 act)
iii. Counsel’s argument: If x hold property in trust for A as absolute owner and A
then directs X to hold property on the settlement trusts for the benefit of B, C,
and D, and X accepts the trust, is that direction a ‘disposition of subsisting
equitable interest within the meaning of section 53.’
iv. Viscount Simonds at 13: ‘I am clearly of the opinion, which I understand to be
shared by your lordships, that there is no justification for giving the word
‘disposition’ a narrower meaning than it ordinarily bears…’
v. Sub-trust?
1. When is a disposition not a ‘disposition’ (disposition is just when a
person ceases to own item or property in question)
2. Grainge v Wilberforce
a. 437: ‘Where A was trustee for B who was trustee for C, A holds
in trust for C and must convey as C directed’
b. Oughtred v irc
i. Facts: taxpayer and her son owner through a trust the entire beneficial interest
in the shares of a company. She agreed to transfer other shares to him in return
for his interest in the shares subject to the trust, releasing the trust. Revenue
contended that there must be a deed giving effect to the transaction releasing
the interest in the trust shares and that it was subject to ad valorem stamp duty.
ii. Held that stamp duty was payable on documents only. Nevertheless, the
transfer gave effect to a transfer within s. 54 of 1891 act and was liable to ad
valorem duty despite low nominal consideration expressed in it.
1. Property such as chattels which pass on delivery can be transferred
from one owner to another without attracting duty.
2. Though an agreement for sale may be chargeable ad valorem, an oral
agreement for the sale of property involves no charge to duty because
no instrument is brought into existence to effect or to record it.
iii. Upjohn J (first instance) 1958 Ch 383 at 390:
1. ‘this was an oral agreement for value… the vendor, became a
constructive trustee of his equitable reversionary interest in the funds
for the appellant. No writing to achieve that result was necessary, for an
agreement of sale and purchase of an equitable interest in personalty
may be made orally and section 53 has no application to a trust arising
by construction of law.’
iv. Lord Denning: ‘peter and his mother agreed by word of mouth that they would
effect an exchange: he would make over to his reversionary interest in the 200k
shares and she in exchange would make over to him the entire interest in the
72.7k shares.
 1. ‘was this transfer “a conveyance or transfer on sale of any property”
such as to attract stamp duty… I have no doubt it was.’
v. Lord Radcliffe Dissenting
1. ‘there was… no equity to the shares that could be asserted against her,
and it was open to her, if she so wished to let the matter rest without
calling for a written assignment from her son… it follow that… this
transfer cannot be treated as a conveyance of the son’s equitable
reversion at all.
c. Vandervell v irc No 1
i. Taxpayer made a gift of shares to a trust set up to fund a medical professorship.
Shares were in a private company and an option was given for their repurchase
once a certain level of dividends had been attributed t them. He was assessed to
substantial subcharges on them on the basis that the arrangement was a
settlement under which he retained an interest and of which he had not
divested himself absolutely.
ii. ‘a game of two halves’
1. First half: formalities point-vandervell wins
2. Second half: resulting trust point-revenue wins (next term)
iii. Lord Upjohn: ‘If A intends to give away all his beneficial interest in a piece of
property and thinks he has done so but, by some mistake or accident or failure
to comply with the requirements of the law, he has failed to do so… by
operation of law, there will be a resulting trust for him of the beneficial interest
of which he had failed effectually to dispose. If the beneficial interest was in A
and he fails to give it away effectively to another or others or on charitable
trusts it must remain in him’
iv. Note from youtube video
1. Bank holds shares on trust for Mr. Vanderwell who wants to donate to
some college but hopes to do it in tax efficient way. Directs bank to
transfer title of shares to college and dividends are declared. They are
required to issue an option to purchase, which went to Vandwell trustee
company. Trust failed and went back to original donateor through a
resulting trust
a. RT Defies legal analysis because it was the last thing the guy
wanted. A resulting trust does not arise because of an intention
to create it.
v. Lord Donovan at 317: “if owning the entire estate, legal and beneficial, and
desiring to transfer that entire estate to another, I do so by means of a
disposition which deals only with the legal estate, it would be ridiculous to
argue that section 53(1) has not been complied with, and that therefore the
legal estate alone has passed’
vi. Akers v Samba Lord Neuberger
1. 72: ‘there is no “disposition” of an equitable interest, when there is a
transfer by the legal owner of the legal estate, which is subject to that
 equitable interest, to a bona fide purchaser for value without notice of
that equitable interest’
d. Vandervell no2
i. Court considered requirement that a proposed beneficiary must establish some
positive act on the part of the person creating the trust for that person to be
bound by the trust asserted.
ii. Latwon LJ 325-6: ‘the exercise of the option and the transfer of the shares to the
trustee company necessarily put an end to the resulting trust of the option.
There could not be a resulting trust of a chose in action which was no more. The
only reason why there ever had been a resulting trust of the option was the rule
that the beneficial interest in property must be held for some one if the legal
owner is not entitled to it”
iii. Megarry J: ‘
1. (1) If a transaction fails to make any effective disposition of any interest
it does nothing. This is so at law and in equity, and has nothing to do
with resulting trusts.
2. Normally, mere existence of some unexpressed intention in the breast
of the owner of the property does nothing: there must be at lease some
expression of that intention before it can effect any result. To yearn is
not to transfer.
3. Before any doctrine of resulting trust can come into play, there must at
least be some effective transaction which transfers or creates some
interest in property
4. Where A effectually transfers to B any interest in any property, whether
legal or equitable, a resulting trust for A may arise in two distinct classes
of case.
a. The transfer to B is not made on any trust.
i. Presumption: property has been carried to B and from
the absence of consideration and any presumption of
advancement, B is presumed not only to hold entire
interest on trust, but also to hold the beneficial interest
for A absolutely.
ii. Establishes both that B is to take on the trust and also
what that trust is. (presumed resulting trusts)
b. The second class is where transfer to B is made on trusts which
leave some or all of the beneficial interest undisposed of
i. B automatically holds on a resulting trust for A to the
extent that that the beneficial interest has not been
carried to him or others.
ii. This resulting trust does not depend on any intentions
or presumptions, but is automatic consequence of A’s
failure to dispose of what is vested in him.
iii. Since the transfer is on trust, the resulting trust does
not establish the trust but merely carries back to A the
 beneficial interest that has not been disposed of.
(Automatic resulting trusts)
5. Where trustees hold property in trust for A and it is they who at A’s
direction make the transfer to B, similar principles apply
a. If the transfer to B is on trust, B will hold any beneficial interest
that has not been effectually disposed of in an automatic
resulting trust for the true transferor.
b. If the transfer to B is not on a trust, there will be a rebuttable
presumption that B holds on a resulting trust for A
e. Neville v Wilson
i. Nourse LJ 158: ‘just as in Oughtred v IRC… the son’s oral agreement created a
constructive trust in favour of the mother, so here each shareholder’s oral or
implied agreement created an implied or constructive trust in favour of the
other shareholders. Why then should ss. (2) not apply? No convincing reason
was suggested in argument and none has occurred to us since’
I. Disclaimer and surrender
a. Disclaimer: Re Paradise Motor Co Ltd
i. Facts:
1. J, who was W’s stepson, went to live with W and his wife at 16
previously in custody of his own father. W treated J as one of his family.
Got married and W bought 350 shares in family business and directed it
to be put in J’s name. Company’s articles of association required that
every instrument of transfer be signed by the transferee. J denied that
he ever signed instrument. Transferred 300 shares to W. Register
though, recorded J as being shareholder. J did not want anything to do
with the shares. W commenced proceedings claiming that he was
entitled to 50 shares in J’s name.
2. Arguments:
a. Fact that J did not sign instrument of transfer was a mere
irregularity and did not affect validity of instrument.
b. Relationship between W and J was such as to give rise ot a
presumption of advancement
c. W had done all in his power to make an effective gift of the
shares to J but
d. That the gift had been nullified by J’s conduct which amounted
to a disclaimer of the beneficial interest
e. And that a disclaimer of an attempted gift inter vivos could not
be withdrawn.
ii. A “proper instrument of transfer” within the meaning of Companies Act 1948 s.
75 is an instrument such as would attract stamp duty and is not limited to an
instrument whish is necessarily in complete accordance with the company’s
articles of association.
iii. Failure of trasnferree to sign an instrument of transfer may in an appropriate
case be a mere irregularity not going to the validity of the instrument.
 iv. Writing is not necessary for a disclaimer of a beneficial interest since a
disclaimer is an avoidance not a disposition within the LPA 1925 s. 53
v. A disclaimer of an attempt to make inter vivos gift cannot be withdrawn.
b. Surrender: IRC v Buchanan
i. The surrender of a life interest under a will trust in favour of those people
entitled in remainder operated as a ‘disposition’ of that life interest for the
purposes of sections 20 and 21 of the finance act 1943.
ii. Jenkins LJ rejected argument that there was no disposition because ‘a surrender
of a life interest destroys the interest and there is nothing left’
J. Difference between express, resulting, constructive trusts.
a. Express trust is created purposefully and not imposed by the court
b. Implied trust occurs by an act of law or through an interpretation of the facts of the
case. Two categories of implied trusts
i. Constructive trusts and resulting trusts
1. Constructive trusts is a civil remedy where a person can recovery
property or damages from a D that would otherwise be unjustly
enriched by keeping the contents of the trust
2. Resulting trust
a. Dictated by the court based on the conduct of the parties.
b. Created when a trustee holds legal title of property but an
equitable title remains with the settlor of the trust.
c. The presumption of a resulting trust is that the trustee holding
legal title to the property was intended to hold possession to
hold the property for the intended owner.

Constitution

A. Constitution
a. Conveyance
i. Getting legal title to the trustee
ii. Some cases involve gifts; others involve trusts- question of whether title has
been vested
b. Declaration of trust
B. Maxims
a. ‘equity will not assist a volunteer’
i. Volunteer is somebody who has not given consideration
1. Beneficiary of a trust is a volunteer.
b. ‘equity will not perfect an imperfect gift’
C. Giving other people the benefit
a. Milroy v Lord, turner LJ 274:
i. Settlor executed voluntary deed purporting to transfer the shares in the bank to
Mr. Lrod to hold on trust for the claimant, steps needed to be taken for the
appropriate transfer. Mr. Lord had power of attorney to finish all the remaining
steps but he did not do this. Transaction was not actually registered. Trust which
had been set up had not actually been constituted.
 ii. ‘he may of course do this by
1. actually transferring the property to the persons for whom he intends to
provide, and the provision will then be effectual,
2. and it will be equally effectual if he transfers the property to a trustee
for the purposes of the settlement,
3. or declares that he himself holds it in trust for those purposes’
b. ‘in order to render the settlement binding, one or more of these modes must… be
resorted to… the court will not give effect to it by applying another one of those modes.
the court will not hold the intended transfer to operate as a declaration of trust, for
then every imperfect instrument would be made effectual by being converted into a
perfect trust’
i. Once you pick a mode, you need to see it all the way through, you can’t say
when somebody is trying to give an outright give but something fails, that it is a
declaration of self as trustee because you are benefiting.
ii.
c. Equity will not perfect an imperfect gift: how to give other people the benefit?
i. Outright gift
ii. Transfer to trustee to hold on trust
iii. Declaration of self as trustee
D. Has everything been done?
a. Jones v Lock
i. A farmer had been away on business in Birmingham, came back to family home
where he had a young baby. Everybody was around the table with the nurse.
Nurse said dad didn’t bring anything back for the baby. Said he got slippers but
he would also give the kid a check. He died shortly afterwards. Was check
property of the baby or the father.
ii. ‘look you here, I give this cheque to baby; it is for himself’
iii. Unsuccessful gift. He used the language of benefitting his son so we should treat
this as a self declaration of trust. But. Equity will not perfect an imperfect gift.
iv. Here is an example of a simple failure of an outright gift.
b. Richards v Delbridge
i. Grandfather was entitled to leasehold premises and sought to transfer it to his
grandson. He endorsed the premises and said he would give deed to grandson.
Gave deed to the mother of the grandson and did not refer to property in his
will. Found not to be an effective gift to his grandson. He had not done
everything for the required steps and endorsement alone was not enough.
Because gift failed, trust would also fail because the words were that of gift not
of trust.
ii. Jessel MR at 14: Settlor need not use the words “I declare myself a trustee” but
he must do something which is equivalent to it, and use expressions which have
that meaning; for however anxious the court may be to carry out a man’s
intention, it is not at liberty to construe words, otherwise than according to
their proper meaning.
 iii. You need to show the mode. Did you intend to benefit through an outright gift
or was it through a trust? You can’t intend both.
iv. See also Paul v Constance.
c. Choithram v Pagarani
i. Very wealthy man wanted to set up a charitable foundation, he did this through
executing a trustee. There was to be several trustees of the foundation including
himself. The donor in this case was not a fan of lawyers being legalistic about
things. He executed the trustee but died before it was successfully transferred.
1. ‘I now give all my wealth to the foundation’
ii. Question here was, given that the assets had failed to be transferred to the
trustees, could this be a gift?
iii. Privy council said this could be successfully constituted
1. ‘although equity will not aid a volunteer, it will not strive officiously to
defeat a gift.’
iv. Lord Browne Wilkinson at 12:
1. ‘the foundation has no legal existence apart from the trust declared by
the foundation trust deed. Therefore the words “I give to the
foundation” can only mean “I give to the trustees of the foundation
trust deed to be held by them on the trusts of foundation trust deed”
Although the words are apparently words of outright gift, they are
essentially words of gift on trust.
d. Deslauriers v Guardian Asset Management
i. Recitals
1. 4) the settlor intends shortly to transfer the trust property into the
names of the trustees to be held by the trustees upon the trusts
hereinafter declared.
2. 5) The settlor desires that the Settlement made by this deed shall take
effect immediately upon the execution of the deed.
ii. Mrs. D did not transfer the relevant property and did not take any relevant
steps immediately after that. Question here is whether we have a validly
constituted trust or whether Mrs. D has remained the owner the whole time
iii. Privy council said there was no valid constitution. Even though wording was
good, she took no steps to constitute the transfer.
e. Has everything been done
i. Milroy v Lord Turner LJ 274
1. In order to render a voluntary settlement valid and effectual, settlor
must have done everything according to the nature of the property
comprised in the settlement, was necessary to be done in order to
transfer the property, and render the settlement binding upon him”
E. The rule in Re Rose: involves asking, Has the donor done everything in their power?
a. Re Rose, Jenkins J at 89:
i. ‘he had executed a transfer. It is not suggested that the transfer was not in
accordance with the company’s regulations. He had handed that transfer
 together with the certificates to Mr. Hook. There was nothing else the testator
could do’
b. Re fry
i. Donor was domicilied abroad and needed for the relevant transfer to be
effective some treasury consent. Applied for it but had not yet secured it.
Treasury could have asked him for more information. Donor did not do
everything in their power.
c. Mascall v Mascall Browne Wikinson LJ
i. Applied Re rose principle to registered land. Father executed a transfer of a
house to his son. Transfer was sent off for stamping but by the time it was
returned, father felt out with son and wanted to get a declaration of invalidity.
Son had not yet applied to land registry, not yet legal title. Father says gift not
affected, he could still change his mind. However, Court of appeal held that gift
was complete because the father had done everything in his power, the son
did not need the assistance of the court of equity to complete the gift.
ii. 126: ‘Equity will not come to the aid of a volunteer. Therefore, if a done needs
to get an order from a court of equity in order to complete his title, he will not
get it. If the donee has under his control everything necessary to constitute his
title completely without any further assistance from the donor, the done needs
no assistance from equity and the gift is complete’
1. Re Rose: gift is complete as soon as settlor or donor has done everything
that the donor has to do=as soon as donee has within his control all the
things necessary to enable him to complete his title.
F. Pennington v Waine
a. Key point: the donor does not need to do everything within his power for equity to
perfect an imperfect gift if to recall the gift would be unconscionable
b. Facts:
i. Ada Crompton intended to transfer shares to her nephew Harold. AC failed to
hand over share transfer form to the company secretary who is tasked with the
registration of shares but handed it to the auditor, who as agent of AC neglected
to register the share transfer. AC passed away
ii. Did the shares belong to AC’s estate or were they held on trust for H
c. Held that the shares were held on constructive trust for H.
d. Has it become unconscionable
i. Arden LJ: ‘there can be no comprehensive list of factors which makes it
unconscionable for the donor to change his or her mind: it must depend on the
court’s evaluation of all the relevant considerations
e. Extent of pennington
i. Zeital v Kaye
1. Key point: an imperfect gift is only perfected by trust when the donor
had done everything in his power to carry out the transfer, as was held
in re Rose.
2. Facts: Z intended to transfer shares he owned to his lover S. However, Z
did not complete the share transfer form nor hand over the share
 certificates to S. Z died intestate and his children sought to claim the
shares from S
3. Held: children’s claim succeeded. Z’s intended gift to S could not be
perfected. Z did not do all in his power to transfer the second share to S.
ii. Shah v Shah
1. ‘I am as from today holding 4000 shares in the above company for you’
2. Court of appeal refused to allow Party A to avoid its liability under a
deed by asserting that the deed did not comply with ss. 1(3) of the
LP(MP)A 1989 namely that the witness was not present when party A
had signed. (essentially court said that deed was good even though it
was not signed in witness present.)
3. Phill LJ: ‘I can detect no social policy which requires the person attesting
the signature to be present when the document is signed… It is not
fundamental to the public interest, which is in the requirement for a
signature. Failure to comply with the additional formality of attestation
should not in itself prevent a party into whose possession an apparently
valid deed has come’
iii. Curtis v pulbrook
1. Key point: equity will perfect an imperfect gift where there is
detrimental reliance by the done.
2. Facts:
a. An interim charging order was granted against shares D owned
for court damages. D claimed that he had in 2007 given 300 of
his shares to his wife and 14 to his daughter and these shares
could not be subject to the final charging order. D did not
complete the share transfer forms and did not pass them his
share certificates but issued them new certificates unauthorized
by the company.
3. Held that D did not transfer away the shares successfully. None of the
three situations below are applicable
a. Briggs J at 43-48
i. There are three situations in which equity will perfect
an imperfect gift
1. Where the donor has done everything in his
power to give (principle in re Rose)
2. Where there is detrimental reliance by the done
on the imperfect gift.
3. Benevolent construction to find an intention to
give or declare a trust.
4. ‘no amount of benevolence in construction would lead to the conclusion
that Mr. Pulbrook intended to declare himself a trustee… On the
contrary, he did his incompetent best to transfer both legal and
beneficial title to the shares… Mr. Pulbrook did his best, but without
 success, to effect an immediate and outright transfer of his beneficial
interest.
G. Constitution
a. Has everything been done? (Milroy)
b. Has donor done everything in their power? (Re Rose)
c. Has it become unconscionable? (Pennington)
H. Khan v Mahmood
a. K and M-joint legal owners of property, held on trust for themselves in equal shares. K
lived there with his family. M never lived there. M executes defective TR1 form
purporting to transfer his beneficial interest to K. M never paid the registration fee. K
argued that equity should perfect the imperfect gift.
b. Held that it would be unconscionable for M to resile from the otherwise ineffective gift
here.
c. Marcus Smith J: the imperfections of the gift, ‘these were, perhaps threefold: (i) the
failure to name the Appellant as one of the transferors, (ii) the failure to pay the 60 to
effect the transfer and (iii) the failure to present the TR1 to the appellant, so that he
could do the necessary… pre pennington v waine, might well have been fatal’
i. 44: ‘unconscionability… focuses more on the conduct of the donor. Whereas
reliance focuses more on the conduct of the donor, whereas reliance focuses
more on the conduct of the done in respect to the donor’s gift.’
I. Other exceptions?
a. Fortuitious vesting
i. The rule in strong v bird
1. Key point: an imperfect gift is perfected when the intended donee is
appointed as the executor of the donor’s will, as long as the donor had
the immediate intention to gift at the time of death.
2. Facts: B borrowed 1100 from his stepmother who was a tenant at his
house, it was agreed that her rent shall be reduced by a 100 every
quarter, which will go towards discharging B’s debt. Reduced rent was
paid for two quarters, but on the third quarter the stepmother insisted
on paying the full amount and continued till her death 4 years later, the
total extra amount paid amounting 900. B was appointed as sole
executor of his stepmother after she died.
3. Held that B was released from his outstanding debt to his stepmother
when he was made her executor.
4. Completion of an otherwise imperfect gift or release of a debt by the
property subsequently vesting in the done (e.g. by appointment of done
as executor.
J. Self declarations
a. Agnew & Douglas at 69:
i. ‘when one turns to self-declarations, because legal title remains with the settlor,
there is no legally relevant act or transaction other than the declaration itself.
This alone is effective to change the settlor’s status from absolute owner to
trustee and give the beneficiary equitable title.’
 b. At 84-85
i. law requires proof of a substantive fact… a double intention is required. First,
settlor must intend to hold rights for the benefit of another. Secondly, the
settlor must intend, by their words or acts, to constitute the trust relationship.

Formalities and secret trusts

A. taylor v taylor
a. father and son bought land to hold on trust for themselves as joint tenants. Dispute
arose as to whether that trust was enforceable. Vendors of the land hadpromised to
declare the trusts on completion of the sale and they had signed a transfer form that
referred to the land being transferred on trust to the purchasers.
b. The purchasers themselves had not signed that form, but it was still held to evidence
the trust for the purposes of s. 53(1)(b) because it was the vendors, prior to completion,
who were the people “able to declare such trusts”
B. The instrument of fraud principle
a. What should be done if a transferee procures a conveyance of land on the strength of
an oral agreement to hold on trust for the transferor or a third party and then seeks to
shelter behind the s. 53(1)(b) requirements and keep the property beneficially?
i. Equity, will not permit a statute to be used as an instrument of fraud.
b. Rochefoucald v Bousted
i. Claimant was mortgagor of some land. Sold by mortgagee to D, who had orally
agreed to hold land on trust for the mortgagor subject to the repayment to the
D of the purchase price, and expenses. D sold the land at a profit, but did not
account to the mortgagor. D became bankrupt.
ii. Mortgagor obtained an order for an account. The court of appeal refused to
allow the statute of frauds to prevent the proof of fraud
iii. In the case of fraud, oral evidence is admissible to establish the trust in spite of
the statue.
C. Subsiting meaning
a. Indicates that the subsection only applies where an equitable interest has already been
separated from the legal estate.
D. Transfers of equitable interests
a. Assignment of equitable interest
i. Beneficiary under a trust assigns his or her interest to another. Void unless in
writing.
b. Direction to trustees to hold on trust for another
i. Where a beneficiary directs the trustee to hold his or her interest upon other
trusts, there is a disposition of the beneficiary’s interest.
ii. Grey v IRC
1. Attempt by the settlor to save stamp duty on shares being put into a
settlement. At that time, ad valorem stamp duty (varying with the value
of interest transferred) was payable on deeds of gift.
2. Duty was payable upon the instruments through which property was
transferred, not on the transaction itself. If the valuable interest could
 be moved independently of a document, tax liability could be
minimised.
3. Pennycuick QC: If x holds property in trust for A as absolute owner and
A then directs X to hold property on settlement trusts for the benefit of
B, C, and D, and X accepts the trust, is that direction a ‘disposition of a
subsisting equitable interest within meaning of s. 53
a. Yes. Ad valorem stamp duty was payable on the documents.

Beneficiary Principle & Private purpose trusts

A. General rule
a. A trust for a purpose is void
i. Why?
b. Morice v Bishop of Durham: Beneficiary principle
i. ‘every other trust [which is not charitable] must have a definite object. There
must be somebody in whose favour the court can decree performance’
ii. The court was asked whether a gift of residue to be applied ‘to such objects of
benevolence and liberality as the Bishop of Durham in his own discretion shall
most approve of’ was valid as being confined to purposes that were charitable
iii. For a non-charitable trust to be given effect at law, the beneficiaries of the trust
must be identifiable.
c. Bowman v Secular Society
i. Lord Parker 141: ‘a trust to be valid must be for the benefit of individuals… or
must be in that class of gifts for the benefit of the public which the courts in this
country recognise as charitable…’
d. Re astor
i. Facts: Re Astor’s settlement trusts were created with the following objectives
1. Trust for various purposes
2. ‘the maintenance of good relations between nations [and] the
preservation of the independence of the newspapers’
ii. Held that the trusts were not for the benefit of individuals therefore they were
uncertain and the trusts void.
iii. Roxbugh J at 541:
1. ‘trustee would not be expected to be subject to an equitable obligation
unless there was somebody who could enforce a correlative equitable
right…’
2. ‘if the purposes are not charitable, great difficulties arise’
a. Theory: having regard to historical origins of equity, difficult to
visualize the growth of equitable obligations which nobogy can
enforce
b. Practice; not possible to contemplate with equanimity the
creation of large funds devoted to nn-charitable purposes which
no court and no department of state can control.’
e. Re Shaw
 i. Gift was left in the will of Mr. Shaw for the development of a new phonetic
alphabet that everyone in the world would be able to understand.
ii. Held that the trust was not educational because it merely increased knowledge
and did not combine teaching and education. Therefore, the trust was void.
f. Royal choral society v irc- to determine if a charitable purpose is for education you must
evaluation of quality and usefulness
g. Re Endacott: Lord Evershed MR 246
i. Testator left a gift of 20k in his will to his local council ‘for the purpose of
providing some useful memorial to myself’
ii. Held that the gift was not absolute. However, something in the nature of a trust
was imposed. The local government act 1933 s. 268 for the council to accept gift
for ‘any local public purpose’ was not confined to charitable purposes’
Therefore the gift itself failed.
iii. ‘no principle perhaps has greater sanction or authority behind it than the
general proposition that a trust by English law, not being a charitable trust, in
order to be effective, must have ascertained or ascertainable beneficiaries.’
h. The rule in Saunders v Vautier
i. The case provided the rule of equity which provides that if all of the
beneficiaries are of adult age with full legal competence, they may force the
trustee to transfer the legal estate to them and thereby terminate the trust.
1. Wind up the trust and convey the property to them.
ii. ‘if he has an absolute indefeasible interest in the legacy, it is not bound to wait
until the expiration of that period, but may require payment the moment he is
competent to give a valid discharge.
i. Objections to purpose trusts
i. Enforcement
1. Practicality
2. Intellectual coherence
ii. alienation (tying up property)
iii. certainty
iv. capriciousness
v. out of date?
B. Construction: purpose or gift with motive?
a. Is it actually a purported trust for a purpose
b. Re Osoba
i. Concerning the construction of a trust to benefit people rather than a purpose
ii. A bequest in favour of the testator’s widow was made. It read ‘for her
maintenance and for the training of my daughter, up to university grade and for
the maintenance of my aged mother.
1. The bequest for the training of the daughter was not a purpose trust.
However, it was an absolute gift to the three women with a merely
moral obligation expressed in the trust.
 2. Settlor did not intend to create a trust in favour of his daughter, but
rather to make a gift to her with an expression of how he would have
liked the gift to be used.
iii. ‘if a testator has given the whole of a fund… in the absence of any contra
indication, as having manifested an intention to benefit that person to the full
extent of the subject matter… he may have expressly stated that the gift is made
for a particular purpose, which may prove to be impossible of performance.’
c. Exception no. 1: trusts for charitable purposes are not void, but upheld as being for
the benefit of society
d. Exception 2 : there are a limited number of anomalous exceptions permitted for
historical reasons.
e. Otherwise: any purported trust for a purpose is void
C. Anamlous exceptions
a. Re Endacott: Lord Evershed MR 246:
i. ‘no principle has greater sanction or authority behind it than the general
proposition that a trust by English lawn, not being a charitable trust, in order to
be effective, must have ascertained or ascertainable beneficiaries. These cases
constitute an exception to that general rule’
ii. Harman LJ 251: Re Endacott: ‘I cannot think a case of this kind, the case of
providing outside a church an unspecific and unidentified memorial, is the kind
of instance which should be allowed to add to those troublesome, anomalous
and aberrant cases.
iii. ‘there have been decisions at time which are not really to be satisfactorily
classified… these cases stand by themselves and ought not to be increased in
number, nor indeed followed, except where the one is exactly like another
1. Certainty- does it fall exactly within an existing exception.
b. Re Hooper
i. Testator left a sum of money for the trustees to upkeep the graves of family
members “so as long as the law allow”
ii. He trust would carry on for 21 years. Therefore it did not go over the perpetuity
period.
c. Re Denley: limited exception
i. The trust sports ground was ‘primarily for the benefit of the employees of the
company and secondarily for the benefit of such other person or persons as the
trustees may allow to use the same’
1. The trust deed also provided: ‘if at any time the number of employees
subscribing shall be less than 75% of the total number of employees or
if said land cease to be required or to be used by the said employees as
a sports ground or if the company shall go into liquidation then trustees
shall
a. Convey the said land to a named charity or as it shall direct.
2. Held that there was sufficient ascertainable beneficiaries and it was
sufficiently precise, therefore, the trust was valid.
a. There were indirect beneficiares
 ii. Goff J 383: ‘the beneficiary principle of re Astor’s settlement trusts which was
approved in re endacott… is confined to purpose or object trusts which are
abstract or impersonal. The objection is not that the trust is for a purpose or
object per se, but that there is no beneficiary’
1. ‘where then the trust though expressed as a purpose, is directly or
indirectly for the benefit of an individual or individuals, it seems to me
that it is in general outside the mischief of the beneficiary principle’
iii. Gibbons v Smith
1. ‘ I do not see that the failure of the association deed to constitute a
charity had the effect of relegating the club to the antecedent trust…
similarly to Re Denley here, the member as defined the association
deed, are entitled to the use and enjoyment of the associations’
premises and facilities, including specifically the land.’
d. Pettingall v pettingall
i. The testator left funds in trust to provide for maintenance for maintenance of
his horses and the dogs for as long as they should live.
1. The gift was held to be valid
e. Re Dean
i. Testator left 750 pound per annum to be used for the maintenance of his horse
and hounds for as long as they live
ii. Since there were no human beneficiaries, there was no perpetuity period.
However, as animals die, there was no need for perpetuity rule to be
satisfied/stated.
f. Re Thompson
i. 1000 pound was left by testator to a friend to be applied at discretion to the
promotion and furtherance of fox hunting and with the balance/ residuary
ii. This was a valid trust. It was sufficiently certain and contained a perpetuity
clause.
g. Bourne v Keane
i. Exception for the saying of masses in private
1. Saying masses in public would be a charitable purpose- Re Hetherington
ii. Irish roman catholic testator bequeathed 200 pounds to Westminster Cathedral
for the masses and 200 pounds and his residuary personal estate to the Jesuit
fathers of farm street, again for the masses. Next of kin contended that the
bequests to the Jesuit Fathers were void under Roman Catholic Relief Act 1829,
as gifts to a monastic order.
iii. A bequest of personal estate for masses for the dead is not void as a gift to
superstitutious uses.
h. In re St. Andrew’s (Cheam) Lawn Tennis Club Trust
i. Arnold J 62: ‘it is, regrettably, fairly plain, that the trust deed is an attempt to
achieve the legally impossible: a perpetual trust for a non-charitable purpose
namely to enable the members of the club to play tennis’
 ii. Gift of land intended to provide tennis club for members of Presbyterian
Church, trust deed held void for perpetuity; land held on resulting trust for
estate of the settlor.
D. Unincorporated associations
a. Hanchett-Stamford v A-g
i. Lewison J 28: ‘unincorporated associations do not have separate legal
personalities. Almost all the myriad legal problems to which they give rise stem
from this.’
ii. Case concerns an unincorporated association called the Performing and Captive
Animals Defence League. The association was formed in 1941 with the aim of
changing the law to ban performing animals. Membership fell to just 2 members
and second to last member, died. What should be done with the 2.5 million
worth of assets society held under the contract-holding theory
iii. Court said association’s contract was discharged on penultimate member’s
death. Funds simply belonged to association’s members at the time of the
dissolution, free from contractual restrictions; and of course only one member
existed s she could take 2.5 million pounds absolutely.
b. Is it another way of leaving money for a particular purpose
c. Conservative and Unionist Central Office v Burrell
i. An unincorporated association is defined as
1. ‘two or more persons bound together for one or more common
purposes, not being business purposes, by mutual undertakings each
having mutual duties and obligations, in an organisation which has rules
which identify in whom control of it and its funds rests and on what
terms and which can be joined or left at will. ‘
d. History
i. Leahy v Att Gen for New South Wales
1. Property was ‘upon trust for such order of nuns of the catholic church…
as my executors and trustees shall select’ He gave his residuary estate
upon trust for ‘the provision of amenities in such covenants as my said
executors and trustee shall select.. the receipt of the Reverend
Mother… of that particular order of nuns or convent shall be a sufficient
discharge for any payment under this clause’
2. Gifts in both clauses were saved in so far as they related to active orders
of nuns
ii. Neville Estates v Madden
a. Land was sold subject to the consent of the charity
commissioners who had refused their consent. The buyer was a
synagogue and held upon trust for their members. Part of the
money had been raised at a time when the synagogue was not a
mixed charity. The claimant sought an order for specific
performance on the basis that the trusts were not charitable or
that the land was exempt from the consent of the Charity
Commissioners by virtue of the Charitable Trusts Act 1853 s. 62
 b. Claim was dismissed. Trust was charitable even though it was
for the benefit of the mmebrs of the synagogue. As a result,
specific performance could not be ordered.
c. Cross J: a gift for an unincorporated association may take effect
in 3 different way s
i. A gift to the association’s members on the relevant date
as joint tenants
ii. A gift to existing members, not as joint tenants but
subject to their respective contractual rights and
liabilities towards one another as member of the
association
iii. The terms, or the rule of the association may show that
the property shall not be at the disposal of the
members, but held on trust for purposes of the
association as a quasi corporate entity. Purpose trust
will fail unless the association is a charitable body.
iii. Re Recher’s WT
1. A part of the residue of will trusts was to be held on trust for an anti-
vivisection association which had ceased to exist at the time of the
testator’s death
2. The issue arose as to the validity of the gift in any event, as if the
association had still continued in existence
3. Brightman J held that this transfer could be interpreted to be an
‘accretion to the club’s fund’ and that it would consequently fail to be
administered in accordance with the terms of the club’s contractual
constitution. Thus taking the transfer out of the ambit of the beneficiary
principle.
4. Therefore gift failed.
e. Re Lipinski
i. Gift to association ‘in memory of my late wife to be used solely in the work of
constructing the new buildings for the association and/or improvements to the
said buildings’
ii. Oliver J: distinction between ‘the case where a purpose is prescribed which is
clearly intended for the benefit of ascertained or ascertainable beneficiaries…
and the case where no beneficiary at all is intended… or where the beneficiaries
are unascertainable.’
iii. Bequest was an outright gift. Testator intended that the association take
complete control of his capital. Therefore there was not an issue with the
beneficiary principle as the beneficiary principle does not apply to gifts. AS a
result, the gift survived.
f. Summary quote from Lewison J in Hanchett-Stamford v A-G
i. ‘the thread that runs through all these cases is that the property of an
unincorporated association is the property of its members, but that they are
contractually precluded from severing their share except in accordance with the
 rules of the association; and that, on its dissolution, those who are members at
the time are entitled to the assets free from any such contractual restrictions.
E. Perpetuity
a. Common Law (as opposed to statutory) Rule
i. A trust is void if it is at all possible for a person to acquire vested interest
outside the ‘perpetuity period’ i.e. a life in being +21 years, unless some other
period is specified.
1. ‘ so long as the law permits’ Re Hooper.
b. Perpetuities and accumulations Act 2009
i. S. 5 perpetuity period
1. Perpetuity period is 125 years (and no other period)
2. Subsection (1) applies whether or not the instrument referred to in
section 1(2) to (6) specifies a perpetuity period; and a specification of a
perpetuity period in that instrument is ineffective.
F. Duration: the rule against inalienability
a. Perpetuities and Accumulations Act 2009
i. S. 18 rule as to duration not affected
1. This act does not affect the rule of law which limits the duration of non-
charitable purpose trusts’

Tutorial Reading

A. National Anti-vivisection society v irc 1948 ac 31

a. The anti-vivisection society applied to the charity commissioners to be registered as a
charity under the charities act 1960 s. 4
b. Was the society’s purpose charitable?
i. AS the society’s aim was to ban animal experimentation, they frequently
campaigned to change legislation. As a result, the court held that the society’s
aim was too political to qualify as a charity and therefore, its application failed.
B. Independent schools council v charity commission for England and Wales [2011] UKUT 421 TCC
a. The independent school’s committee applied to be registered as a charitable trust on
the grounds that they advance education
i. ISC sought an order that ‘where the benefit was to a section of the public, the
opportunity to benefit should not be restricted by ability to pay fees.
b. Court considered whether or not tis was a charitable trust?
i. Held that public benefit must be directed at a sufficiently large section of the
community. An organisation which excluded the poor, could not be charitable.
Therefore, the schools should make more than a token effort to help the poor.
Thus the principle focus must be on the accessibility of the school to the
public. They could make provisions of scholarships and so forth to enable
everyone to attend.
C. The temple of the jedi order- application for registration, Charity Commission Decision
a. Star wars based faith was latest showcase for commission’s latest thoughts on the two
charitable purposes of
i. The advancement of religion
 1. The charity law definition of religion must take into account the case of
Hodkin
a. Supreme court ruled that a building used by scientologists was
“a place of meeting for religious worship’ for purposes of s. 2 of
places of worship registration act 1855.
2. Reflecting on charity law of human rights cases concerning religious
rights and discrimination , the courts considered that previously, to
constitute a religion, beliefs must attain a certain level of seriousness
and cogency,
ii. And the promotion of moral or ethical improvement
b. Held that the organisation was not established for exclusively charitable purposes and
could not be registered. Commission was not satisfied that Jediism is a religion in
charity law.
D. Human Dignity Trust v The charity commission for England and wales
a. HDT was established to support people whose human rights are violated by the
criminalisation of private, adult, consensual homosexual conduct.
i. Assisting them and their lawyers
b. Charity commission refused to register them as a charity because it said its purposes
were ‘political’ (within the doctrine in McGovern v AG)
c. First Tier Tribunal allowed the appeal ruling that
i. HDT was concerned with promotion of human rights by establishing whether
particular laws were valid through a process of constitutional interpretation-
this process fell entirely outside the categories of activity held to be political in
Mcgovern
ii. HDT was engaged in upholding the law, not changing it
iii. HDT’s purposes were for public benefit. There was a public benefit in seeking to
interpret, clarify and protect superior constitutional rights.

Charitable Purpose Trusts

A. Charitable trusts benefit from a number of exceptions

a. General rule: a trust for a purpose is void
i. The objects of a trust must be certain
1. The Exception: Certainty of object for charities
a. A trust for “charitable purposes”
i. Only requirement in respect of certainty is for the trust
to be exclusively charitable: S. 1 Charities Act 2011;
Chichester Diocesan Fund and Board of Finance v
Simpson
ii. If it is a trust for charitable purposes there cannot be an
explicit list of beneficiaries. Personal nexus rule
b. General Rule: a trust may not be perpetual in duration
i. The Exception: charitable trusts may be perpetual in duration
 1. Rule of remoteness of vesting does still apply (subject to gift from one
charity to another) s.2 Perpetuities and Accumulations Act 2009
c. If a charitable purpose trust, settlor cannot sue the trustee for improper
performance/loss, only the charity commissioner can
d.
B. Tax Benefits
a. Charities exempt from income tax provided that the income is applied for charitable
purposes only.
b. Gifts to charities out of a deceased estate are also exempt from inheritance tax.
c. No requirement for the object/s of the trust to be certain.
i. The objects must be exclusively charitable.
ii. The purpose provided must have sufficient certainty.
d. Dingle v Turner
i. Trust for the purpose of relieving poverty
1. Was it a successful charitable gift?
ii. Held that the intention of the gift was to benefit the poor generally rather than
certain individuals. Gift was charitable and did not fail
1. Fiscal advantages obtained by making a gift charitable should not be
taken into account in assessing its motives and charitable status.
C. History of Legislation
a. Preamble of Charitable Uses Act 1601
b. Then the Pemsel Classification
i. “charity” in the legal sense comprises of four principal divisions
1. Trusts for the relief of poverty
2. Trusts for the advancement of education
3. Trusts for the advancement of religion. \
4. And trusts for other purposes beneficial to the community’
ii. Lord macnaghten at 583
c. Finally the Charities Acts 2006 and 2011
i. 2006 major reform and consolidation
ii. 2011 tidying up and further consolidation of 2006 act.
d. Charity commission
i. ‘it Is not the place of the commission as independent regulator to take a view on
whether or not certain categories of organisation should or should not be
charities. The test for whether or not an institution is a charity is a test set by
parliament’
D. Using the statutes: Charities Act 2011
a. Starting point: what is a charity
i. S. 1(1): charity is an institution which
1. Is established for charitable purposes only and
2. Falls to be subject to the control of the High Court in the exercise of its
jurisdiction with respect to charities.
b. What is a charitable purpose
i. S. 2(1): it is a purpose which
 1. Falls within s. 3(1) and
2. Is for the public benefit (s. 4)
c. List of purposes
i. S. 3(1)
1. The prevention or relief of poverty
2. The advancement of education
3. The advancement of religion
4. The advancement of health or the saving of lives
5. The advancement of citizenship or community development
6. The advancement of the arts, culture, heritage or science
7. The advancement of amateur sport.
8. Advancement of human rights, conflict resolution or reconciliation or
the promotion of religious or racial harmony or equality and diversity
9. The advancement of environmental protection or improvement
10. The relief of those in need by reason of youth, age, ill-heath, disability,
financial hardship or other disadvantage.
11. The advancement of animal welfare
12. The promotion of the efficiency of the armed forces of the crown, or of
the efficiency of the police, fire and rescue services or ambulance
services.
13. Any other purposes
a. That are recognised under. S. 5 (recreational and similar trusts)
or under the old law
b. That may reasonably be considered analogous with the previous
sections.
c. Anything else being found recognized under the law relating to
charities goes here.
d. Clarifications s. 3(2)
i. 2(1)(a)(c) “religion includes”
1. A religion which involves belief in more than one god and
2. A religion which does not involve belief in a god.
ii. (b)(d) “advancement of health”
1. Includes the prevention or relief of sickness, disease, or human suffering
iii. ©(e)
1. Rural or urban regeneration
2. Promotion of civic responsibility, volunteering, the voluntary sector or
the effectiveness or efficiency of charities.
iv. (d)(g) “sport”
1. Means sports or games which promote health by involving physical or
mental skill or exertion
v. (e)(j)
1. Includes relief given by the provision of accommodation or care to the
persons mentioned in that paragraph and
vi. (f) in paragraph (l) “fire and rescue services”
 1. means services provided by fire and rescue authorities under p.2 of Fire
and Rescue Services Act 2004.
e. Is the law prior to 2006/2011 Acts still relevant?
i. Yes (except as modified by the acts)
ii. The “old law” means the law relating to charities in England and Wales as in
force immediately before April 2008.
f. Framework structure
i. S. 1
1. Exclusively charitable?
ii. S. 2
1. What are charitable purposes
iii. S. 3
1. Is it a purpose from the s. 3(1) list
a. Any clarification in s. 3(2)
b. Old authorities?
c. Post act authorities?
iv. S. 4
1. Public benefit?
E. Specific s. 3(1) purpose
a. Prevention or Relief of poverty
i. What is poverty?
1. Re Coulthurst: Lord eversherd MR at 655-666: “it is quite clearly
established that poverty does not mean destitution… meaning persons
who have to “go short” in the ordinary acceptation of that term, due
regard being had to their status in life, and so forth.’
b. Advancement of education
i. General point ‘advancement’
ii. Re Shaw: Harman J:
1. “if the object be merely the increase of knowledge, that is not in itself a
charitable object unless it be combined with teaching or education;
iii. Re Hopkins Wilberforce J:
1. Education goes beyond just teaching.
2. ‘in order to be charitable, research must either be of educational value
to the researcher or must be so directed as to lead to something which
will pass into the store of educational material, or so as to improve the
sum of communicable knowledge in an area which education may
cover’
c. Advancement of religion
i. Requirements of religion for charities: charity commission
1. Belief in a god or goddess (s) or supreme being which is the focus of the
religion
2. Relationship between believer and supreme being
3. A degree of cogency, cohesion, seriousness, and importance
4. And identifiable positive, beneficial, moral or ethical framework.
 ii. What about scientology
1. Charity commissioners’ decision in 1999
a. Not a religion and did not advance the public benefit
2. Regina Hodkin v Registrar General of Births Deaths and Marriages (not a
case on charity law)
a. Hodkin was told that a church of scientology chapel in central
London could not be used to conduct weddings.
b. Judges ruled that place was a place of worship and she should
be able to get married there. Religion did not have to involve
worshipping a god
F. Other purposes
a. Public benefit (this is a requirement once you run through everything else do not
forget it)
i. S.4 Any reference to the public benefit is a reference to the public benefit as
that term is understood for the purposes of the law relating to charities.
ii. Charity Commission, s.17 requirement for guidance
iii. Independent schools council case
1. 44: the first aspect of public benefit is that the nature of the purpose
itself must be such as to be a benefit to the community.
2. The second aspect is that those who may benefit from the carrying out
of the purpose must be sufficiently numerous and identified.
b. what about fee charging in relation to charities: Nuffield Health v Merton LBC
i. ‘the character of Nuffield health’s activity at the premises was indistinguishable
from those of a commercial operator in the sector and contained a minimal
offering to the poor.’ Peter Jackson LJ
ii. David Richards LJ: ‘long established principle’ that ‘it is not an objection per se
that a charity makes charges for its services’
1. ‘in order to be for the public benefit, the relevant services must be
provided to the public or a sufficiently large class of the public and the
‘poor’ must not be excluded’
c. The ‘benefit’ aspect
i. This section tries to determine whether a purpose is beneficial
ii. Legal requirement: to satisfy the ‘benefit aspect’ of public benefit
1. A purpose must be beneficial
2. Any detriment or harm that results from the purposes must not
outweigh the benefit.
iii. Gilmour v Coats
1. Carmelite prioriy was a convent comprising of nuns. They devoted
themselves entirely to worship, prayers, and meditations within the four
walls of their cloister. The nuns did not engage in any activities outside
their cloister regardless of whether it benefited anyone outside their
association.
 2. Because the nuns were living away form the public, they did not make
any public benefit and there the priory could not be considered
charitable
d. The ‘public aspect’
i. The ‘public aspect’ of public benefit is about whom the purpose benefits
1. Legal requirement: to satisfy this the purpose must
a. Benefit the public in general, or a sufficient section of the public
b. Not give rise to more than incidental personal benefit.
G. Public in general or sufficient section?
a. IRC v Baddeley
i. Land had been conveyed to trustees for moral, social and physical wellbeing of a
community. Court considered whether trust was charitable in nature because it
confied benefits to a class of people who did not constitute the public or a
relevant section of it.
ii. Held that it was not charitable because of its vagueness and generality.
b. Personal Nexus Rulse
i. Those who may benefit must not be linked by connection such as family
common employer etc.
1. exception for trusts for the relief or prevention of poverty
c. Oppenheim
i. Trust to “provide for the education of children of employees or former
employees of the company. There were 110k employees and former employees
ii. Held that a trust to pay for the school fees of the children of the company’s
employees was not a public benefit.
iii. There could not be a public benefit if there was a connection between the
people who established the charity and the people who were intended to
benefit.
iv. Lord Simonds: ‘the possible… beneficiaries must be not numerically negligible
and secondly that the quality which distinguishes them from members of the
community… must be a quality which does not depend on their relationship to a
particular individual.
d. Overseas?: McGovern v Attorney General, Slade J:
i. ‘the mere fact that the trust was intended to be carried out abroad would not
by itself necessarily deprive it of charitable status.’
H. Political purposes are not charitable
a. National Anti-Viviseciton Society v IRC
i. Lord Simonds: ‘the court has no means of judging whether a proposed change in
the law will or will not be for the public benefit.’
b. Human Dignity Trust
i. 89: ‘the trust is not concerned with procuring the reversal of lawful government
policies and decisions… reversing decisions and policies which are unlawful’
I. Campaigning
a. The Runnymeded Trust
 i. It is not for the regular to tell trustees how to best further their charity’s
purposes. Charities are free to take up positions that are controversial, if the
trustees come to a reasoned decision that doing so furthers the charity’s cause’
1. But a charity must follow the responsibilities and guidelines.
J. Summary of 2006/2011 reforms
a. Definition of charitable purpose
b. Individual purposes clarified, some changed
c. All previous charitable purposes remain potentially charitable after the act, subject to
public benefit
d. ‘presumption’ of public benefit for relief of poverty/ advancement of
religion/advancement of education abolished
e. Increased role for charity commission compared to commissioners.

The nature of the beneficiary’s rights under a trust

A. Beneficiary’s interest
a. Webb v webb
ii. Dispute between husband and wife at end of relationship
iii. Mr. Webb was an entrepreneur and established trusts to arrange his assets. Him
and his wife enjoyed a high class lifestyle as a result. Shortly after they were
married, Mr. webb set up a a trust where as settlor, he appointed himself as a
trustee and nominated himself and his son as beneficiaries.
iv. Lord Kitchin
1. ‘it has long been recognised that a completely general power of
appointment, such that the holder of the power can appoint the subject
matter of the power to himself, may be tantamount to ownership.
v. Lower courts held this wasn’t a sham but that Mr. webb must still be considered
the owner of the property.
1. Lord kitchin disagreed.
2. 87: Acceptance that Mr. Webb intended to create trusts does not in any
way preclude a finding that he reserved such broad powers to himself
as settlor and beneficiary that he failed to make an effective disposition
of the relevant property’
3. You can genuinely intend to make a trust but you have such broad
powers that we can’t treat you as if you weren’t absolutely entitled.
4. Two options for analysis
a. Does it have the irreducible core of obligations owed by
trustees to the beneficiaries and enforceable by them which is
fundamental to the concept of a trust
b. Orrrr ‘whether the powers reserved to Mr webb were so
extensive that in equity he can be regarded as having had rights
which were tantamount to ownership
5. Answer is that Mr. Webb is indistinguishable from ownership. The
bundle of rights he had is indistinguishable from ownership.
vi. Making sense of the arrangement
 1. Is the arrangement genuine
2. Is what remains ‘tantamount to ownership?
3. Successful disposition of property?
4. Sham?
a. There may be overlap between these or one might be satisfied
but not the other.
b. Columbia Law Review Vol. XVII April 1917 No. 4
i. ‘if a trustee should destroy the trust res, or should sell it to a purchaser without
notice of the trust and dissipate the purchase money the cestui que trust may
maintain a suit in equity against the trustee for breach of trust… His right is a
personal right against the trustee; it is an equitable obligation’
ii. Scott 289: ‘the rights of the cestui que trust in respect to their duration,
transmission, and alienation are treated like property rights rather than like
obligations.’
B. ‘rights against rights’
a. Macfarlane & Stevens
i. ‘where an equitable property right relates to a physical thing, it does not give its
holder a right to that thing.’
1. A has title to care and holds right on trust for B. X steals car, B has no
direct claim against X. X is not liable to B.
ii. ‘B Therefore does not have a right against the car: he or she does not have a
right to exclude all non-beneficiaries from the enjoyment of trust assets’
iii. The correct analysis is that only A is an owner of the thing. While A has a right
against the thing, B has a right against A’s right of ownership.
b. Penner: the true nature of a beneficiary’s equitable proprietary interest under a trust
i. Once the beneficiary’s interest in the trust assets is characterised as an interest
in the trustee’s exercise of his powers over the trust assets and that a trustee’s
undertaking of trust determines that he has no beneficial interest himself in the
exercise of those powers
ii. ‘the orthodox’ idea that the beneficial ownership of the trust assets lies with the
beneficiaries appears as no mystery.
iii. Notes
1. A better explanation 1: the beneficiary’s interest is in the trustee’s
powers of title, not in any right of the trustee to possession.
a. Smith, Mcfarlane, and Stevens have a misconceived paradigm of
the trust
i. They use the example of the car which, may be good for
students but no actual case shows it. Not a good
example and leads students astray
2. A better explanation 2: what trusts are for
a. SMS concerned with formal rather than functional explanation
of the trust, even though one of the main maxims of equity is
that it looks to intent (function) not form.
 b. SMS paint a picture of a trust as something for which the
beneficiary’s right to a right is a right to the trustee’s right to
immediate, exclusive possession.
3. “the purpose of a trust… is never for the trustee to hold property on
trust so as to keep possession of the trust assets on some equitable
basis for the beneficiaries. Rather it is to carve up the common law
interests in property amongst the beneficiaries, either to grant them
possession of the trust assets for themselves to enjoy or give them
future rights to have the legal title in some or all of the trust assets
transferred to them.
C. Title to sue
a. MCC Proceeds Inc v Lehman Bros INternation
i. Mummery LJ 687;
1. ‘A claim for conversion of goods is not maintainable by a person who
only has an equitable interest in them against another who has acquired
the legal title to the goods as a bona fide purchaser for value without
notice of the prior equitable claim. Such an interest has been
overreached and extinguished’
2. 691: conversion is a common law action and the common law did not
recognise the equitable title of the beneficiary under a trust. It
recognised only the title of the trustee.’
b. Shell UK Ltd v Total Uk Ltd
i. Total damaged oil pipelines which Shell had a beneficial interest in but did not
own
ii. Could Shell sue total for the damages to the third party owned property
iii. Claim was allowed.
iv. 142: ‘provided that the beneficial owner can join the legal owner in the
proceedings… it does not matter that the beneficial owner is not himself in
possession of the property.
1. ‘it would be a triumph of form over substance to deny a remedy to the
beneficial owner of that property when the legal owner is a bare trustee
for that beneficial owner.
2. 136: ‘special relationship’
v. Criticism
1. Edelman 70: The common law and equity are both looking at the same
bundle of rights but reaching diametrically opposed conclusions. The
common law sees one person as the owner. Equity sees another.
2. 74: in relation to ‘proprietary right’ or ‘ownership’: ‘in equity we are
using those terms in a very different sense from the sense in which they
are used at common law. ‘
c. THe Aliakmon
i. Goods were damaged in transport
1. Could the buyers of the goods sue for resulting losses?
 2. At the time of the damage the claimant was neither the owner nor
possessor of the cargo, but under the terms of the purchase contract,
he had assumed the risk of damage to the cargo.
ii. No liability because they did not own the goods at the time.
1. For a person to claim in negligence for loss caused to him by reason of
loss of or damage to property, he must have had either the legal
ownership of or a possessory title to the property concerned at the time
when the loss or damage occurred. Contractual rights not enough.

Use and abuse of trusts

A. Introduction
a. Why does it matter?
i. Are the legal rules in England and Wales Justified
ii. Ought we change the legal rules in England and Wales
iii. Ought we try to persuade other jurisdictions to change their law?
B. Uses of trusts
a. Tax avoidance
i. Distinguish tax evasion and avoidance
ii. Taxes: corporate, income, capital gains, inheritance
iii. Inheritance tax example
1. General Anti Abuse Rule (GAAR) Finance act 2013
b. Pensions
i. Fund contributions from members (beneficiaries) and employees
ii. Trustee manages fund
iii. Trustee has duty to distribute to members upon retirement.
c. Charities
i. Charitable purposes: charities Act 2011 sections 2-3
ii. Trustees owe fiduciary duties
d. Minors or people with incapacities
i. Trustee holds/controls the subject matter
ii. Trustee has fiduciary duties to manage subject-matter in the best interests of
the beneficiaries
e. Avoidance of creditors
i. You owe money to creditors
ii. You put assets in a trust and make benefit contingent
1. No cigar: JSC Bank v Pugachev
iii. Fraudulant conveyance
f. Terrorist/criminal funding/money laundering
i. Put money into trust
ii. Conceal source of funds
iii. Conceal destination of funds
iv. Conceals from authorities
1. Especially in offshore jurisdictions where disclosure rules are less
stringent
 v. Money laundering Terrorist Financing and Transfer of Funds Regulations 2017
g. Investment trusts
i. Investors give money to a trustee
ii. Trustee has duties under terms of the trust to make investments
iii. Trustee has a duty of care to be careful when making investments
iv. Trustee has duties under terms of the trust to distribute the fund to investors at
particular times.
h. Loans
i. Lender gives money to a borrower
ii. Lender declares borrower as a trustee with the lender as a beneficiary
i. Family trusts
i. Give property to a trustee and give instructions over how to deal with it over a
long period of time
ii. Jane Austen: Pride and Prejudice
iii. Rule against perpetuities
1. Some jurisdictions have very relaxed perpetuities rules.
j. Blind trusts
i. E.g. politician gets elected
1. Has political power for example to grant government contracts
2. Conflict of interest-politician could purchase shares in company X and
then give large government contracts to them boosting the share price.
ii. Blind trust politician gives property to trustee who invests it in various ways and
does not tell the politician of the management of the trust until after office
1. Obvious problems
a. Politician knows initial investments
b. Politician could use letter of wishes which may not be subject to
disclosure orders
c. Politician can secure ‘trusted’ trustees.
k. Trusts of land
i. Any land in England and Wales that is co-owner will be subject to a trust
ii. E.g. my friend and I buy freehold 40: 60
iii. Legal estates (fee simple/lease) can only be held as joint tenants: LPA 1925 s.
1(6)
C. Features of trust law
a. Settlor imposes duties upon trustees
i. Terms of the declaration of trust
ii. Duty to follow the ‘terms of the trust’
iii. Duty to hold, distribute, invest, sell, etc.
iv. Rule against perpetuities
v. Uses: pensions, charities, minors/people who lack capacity, family trusts.
b. Settlor grants powers to trustees
i. Eg. Trustee with a duty to distribute capital and income in fifty years
ii. Powers generally constrained by further duties
iii. Gives flexibility
 iv. Confidentiality
v. Useful: minors/people who lack capacity, family trusts, tax avoidance; terrorist
funding
c. Objects have priority on trustee’s insolvency
i. Standard loans
1. Borrower defaults
2. Borrower insolvent
3. Lender joins queue of unsecured creditors- pari passu
ii. Quistclose trust
1. Borrower holds loan on trust for lender with a power to apply to
purpose of loan
2. Borrower insolvent
3. Lender skips queue of unsecured creditors.
a. Barclays v Quistclose 1970
b. Twinsectra v Yardley 2002
d. ‘commonly abused’ trust structures
i. Charitable trusts
1. Red cross trusts
ii. Non-charitable purpose trusts
1. Star Trusts: cayman islands, Special trusts alternative regime
iii. ‘massively discretionary Trusts’
1. Not a term of art
2. Pugachev case
e. Settlor retains control but benefit contingent
i. Pugachev
1. P owed more than 1bn to creditors
2. Trust contained assets valued at around 95 million.
a. Trustees had discretions over who to give assets
b. Pugachev was one possible beneficiary but he could in theory
receive nothing.
c. Pugachev was protector
i. Veto trustee’s decision to distribute
ii. Remove trustees
iii. Veto trustee’s decision to remove people from list of
potential beneficiaries
3. Judicial gold [31]
4. Held (Briss J) that the creditors could get assets
ii. Uses:
1. Avoiding creditors and tax.
f. Offshore: lenient rules in other jurisdictions.
i. Possible relxations
1. Non enforcement of foreign judgements
2. Higher burdens of proof
3. Short limitation periods
 4. Absence of regulatory doctirnes
5. Tweaked/no rule against perpetuities
ii. Countries
1. Cook islands
2. Cayman islands
3. Belize
4. New Zealand
iii. Why? Financial incentives.
g. Terms of the trust: drafting practices
i. Duress clause
1. Make it a breach of the terms of the trust for a trustee to comply with
foreign court orders
ii. Flee clause
1. In certain circumstances, obligate the trustee to change the trust
address, governing law or the trustee
h. Letters of Wishes
i. Settlor writes their preferences in a document and gives to trustee
ii. Trustee not duty bound ot follow the letter of wishes
1. But trustee has a duty to take the letter into account
iii. Trustee need not disclose to objects unless they think it is in the best interests
of the objects: Breakspear v Ackland 2008 Briggs J
D. Regulation of trust
a. Illusory trust
i. Pugachev
1. Were Pugachev’s legal powers as protector constrained by fiduciary
duties? Question of interpretation.
a. Finding: illusory trust
ii. Requirements
1. IN pugachev: as protector, he had legal powers which enabled him to
ensure that subject matter of trust went to him and his powers were
not constrained by fiduciary duties.
iii. Effectt
1. In Pugachev, creditors could get subject matter of trust
b. Sham
i. Requirements laid out in pugachev
1. Document containing declaration of trust, properly interpreted creates
rights and obligations ‘x’
2. Settlor subjectively intends to create different rights and obligations
3. Settlor subjectively intends to give false impression of the rights and
obligations to third parties by using the document
4. Trustee must have a common intention to the settlor. Either:
a. Trustee has intentions (2 and 3) or
b. Trustee is recklessly indifferent to settlor’s intentions in 2 and 3
ii. Effects of sham
 1. Disregard the trust
iii. Applied in pugachev
1. On assumption that P’s power as protector were fiduciary
2. Found sham
c. Illegality
i. Requirements
1. Would recognising the trust as valid be harmful to the integrity of the
legal system
2. ‘trio of factors’
a. The underlying purpose of the prohibition that has been
transgressed
b. Any other relevant public policy on which denial of the claim
might have an impact.
c. Would denying the claim be a proportionate response to
illegality.
3. Effect
a. Trust will be invalid.
d. Beneficiary principle
i. Re Endacott 1960
1. Generally a trust must be for beneficiaries or a charitable purpose
2. Charitable trusts must be ‘exclusively’ charitable
ii. Red cross trusts?
e. Registration requirements
i. Eu money laundering Directive 2015
ii. Money laundering, terrorist financing and transfer of funds (information of the
payer) regulations 2017
1. Trustees: must keep information concerning beneficiaries and potential
beneficiaries of UK trusts
a. Wide meaning of beneficiary: settlor, trustee, beneficiaries,
people with control
2. Trustees: must disclose information if requested by ‘law enforcement
agency’
3. Trustee: must register UK trusts that are taxable
E. Justifiying trusts law
a. Questions
i. Ought a person declare at trust?
ii. Ought we abolish trust law?
iii. Ought we change the rules of trust law?
iv. What ought people do with their property?
1. Note the Panama, Paradise and Pandora papers.
b. Evaluating rules of trusts law
i. Legal rule: the holders of certain forms of subject matter have the power to
declare a trust for private or charitable objects
1. Potential reasons in favour
 a. Settlor autonomy
b. Charities
c. Pensions
d. Trusts for minors
2. Against
a. Tax avoidance, terrorist funding, money laundering, inequality
ii. change the legal rules?
1. To provide more reasons in favour
2. To reduce reasons against
iii. Abolish?
1. No reasons in favour
c. Evaluating a particular trust
i. Why relevant?
1. reasons in favour: settlor autonomy, benefit to beneficiaries, furthering
charitable purposes
2. reasons against: discriminatory provisions, terrorist funding, wrongful
tax avoidance.
3. Is autonomy a trumping value?
d. Tax avoidance
i. Is avoidance always wrongful?
1. No, take for example company relocation
ii. Is avoidance sometimes wrongful?
1. We have moral duties to support the flourishing of others
2. You take the benefit of a state, you ought to contribute to the state.
3. Undermining state authority
4. Undermining democracy.
e. Reforms
i. Transparency
1. Registration of trusts a condition for validity
2. Publication of details of trusts
ii. No ownerless assets
iii. Refuse to recognise certain trust provisions
iv. Blacklist abusive offshore regimes
v. Tax assets directly

Express trustees: duties and powers

A. Some quotes for intro

a. Chapman v chapman
i. Lord Simonds LC
1. ‘it is the function of the court to execute a trust, to see that the turstees
do their duty and to protect them If they do it, to direct them if they are
in doubt, and if they do wrong, to penalize them.
b. Harries v Church Commissioners: Sir Donald Nicholls
 i. ‘trustees are concerned to further the purposes of the trust…TO enable them
the better to discharge that duty, trustees have powers vested in them. Those
powers must be exercised for the purpose for which they have been given: to
further the purposes of the trust’ That is the guiding principle.
B. Duties of express trustees
a. Normal duties of express trustees
i. Duties may be complex and onerous
ii. Trustees have agreed to perform the trust
b. Constructive and resulting trustees
i. Bare trust
ii. Trust impose
C. Source of powers & duties
a. Express: on the terms of the trust
b. Implied: duties imposed by law
c. Statute: statutory extensions or restrictions
d. Court: can grant permission for certain things.
D. Terms of the trust
a. Trust instruments
i. General law of trusts
1. Trustee act 1925 s. 19 (power to insure)
2. Trustee act 2000 ss. 3-10 (power to invest)
ii. Law for special type of trust
1. Pension
2. Charity
E. Duties upon appointment
a. Understand terms of trust
b. Inventory of trust assets
c. Ensure compliance
d. Account from previous trustee
F. Duties: exercise of discretions
a. Not obliged to exercise discretions
i. Tempest v lord camoys
b. Must act unanimously
i. Luke v south Kensington hotel co
ii. Staechelin v aclbdd holdings ltd
G. Duties: proper exercise of discretions
a. Failure to exercise discretion at all
i. Turner v turner
b. Taking account of irrelevant matters
i. Klug v klug
c. Children’s investment foundation
i. Lord Briggs “it would be a plain breach of fiduciary duty for a relevant fiduciary
of the charity to vote otherwise, a fortiori to exercise a fiduciary power so as in
 effect to veto the very transaction which the court has decided should proceed
in furtherance of the charity’s purposes.
H. Duties: account
a. Maintain records
i. Statement of account
ii. Supporting documents
b. Provide info
i. At regular intervals
ii. When important info arises
iii. On request
iv. At the end of the trust
I. Duty to give reasons?
a. No general duty to give reasons
i. Re beloved wilkes charity
b. When are beneficiaries entitled to access trust documents
i. Re Londonderry’s settlement.
ii. Vadim Shmidt v Rosewood Trust Limited
1. Petitioner sought disclosure of trust documents as a beneficiary.
Disclosure had been refused as he had not been a named beneficiary
2. Held that times had moved on and trust documents had taken more
indirect ways of conferring benefits.
a. A beneficiary of a discretionary trust has a non assignable and
non transmissible interest in the trust, and has no entitlement
as of right to any trust documents or other information relating
to the trust in the possession or control of the trustees.
b. Privy council rejected previous proprietary explanation of a
beneficiary’s right to disclosure that had been set out in re
londderry’s settlement
c. Disclosure to a beneficiary having a propriety interest has thus
become a matter of discretion to the courts
3. Factors guiding court’s decision
a. Nature of claimant’s interest
b. Competing interests of beneficiaries, trustees
c. Type of document
d. Safeguards to protect confidentiality
4. Lord Walker
a. ‘beneficiary’s right to seek disclosure of trust documents
although sometimes not inappropriately described as a
proprietary right, is best approached as one aspect of the
court’s inherent jurisdiction to supervise the administration of
trusts’
iii. Breakspear v ackland
1. ‘it is in the interests of beneficiaries of family discretionary trusts, and
advantageous to the due administration of such trusts that the exercise
 by trustees of their dispositve discretionary powers be regarded… as an
essentially confidential process’
a. Briggs J 54
b.
c. Duty to consult: trusts of land Only s. 11 TOLATA
i. Lewis v Tamplin
1. HHJ Matthews
a. ‘despite not being given a role in the management of the trust,
the beneficiaries are entitled in principle to know what the
trustees have done. But they are not entitled to make the
trustees’ decisions for them or even to be consulted upon
proposed decisions’
ii. Ss. 1: the trustees of land shall in the exercise of any function relating to land
subject to the trust
1. So far as practicable, consult the beneficiaries of full age and beneficially
entitled to an interest in possession in the land and
2. So far as consistent with the general interest of the trust, give effect to
the wishes of those beneficiaries, or (in case of dispute) of the majority
(according to value of combined interests
iii. Exceptions in ss. 11(2-3)
d. Duty of even handedness
i. Income vs capital
1. Interest, dividends, use by beneficiary
2. Sale value
3. E.g. leasehold estate, gold ingots
ii. Life estate v remainder
iii. Modern discretionary trust
J. Standard of care
a. Speight v Gaunt
i. ‘a trustee is only bound to conduct the business of the trust in such a way as an
ordinary prudent man would conduct a business of his own.’
b. Professionals: bartlett v barclays bank trust
i. Brightman J ‘I am of opinion that a higher duty of care is plainly due from
someone like a trust corporation which carries on a specialised business of trust
management. A trust corporation holds itself out in its advertising literature as
being above ordinary mortals
c. Standard of care: Trustee act 2000 s. 1 the duty of care
i. 1) whenever the duty under this section applies to a trustee, he must exercise
such care and skill as is reasonable in the circumstances, having regard in
particular
1. A) To any special knowledge or experience that he has or holds himself
out as having and
 2. B) If he acts as trustee in the course of a business or profession, to any
special knowledge or experience that it is reasonable to expect of a
person acting in the course of that kind of business or profession.
K. Investment
a. Traditional position
i. ‘the duty of a trustee is not to take such care only as a prudent man would take
if he only had himself to consider, the duty rather is to take such care as an
ordinary prudent man would take if he were minded to make an investment for
the benefit of other people for whom he felt morally bound to provide
1. Lindley LJ in Re Whiteley at 355
b. Former background
i. Re Harari’s Settlement Trusts
1. Common law: very limited
ii. Statue: trustee investments act 1961
1. Restrictive approach
2. ‘Narrow and wide’ range of investments.
c. Current position
i. Trustee act 2000 (general powers limited by specific duties and with reference
to standard investment criteria)
1. S. 3 general power of investment
2. S. 4 standard investment criteria
3. S. 5 advice
d. General power of investment s. 3
i. S. 3(1) subject to the provisions, a trustee may make any kind of investment that
he could make if he were absolutely entitled to the assets of the trust
1. 3) the general power of investment does not permit a trustee to make
investments in land other than in loans secured on land.
e. Standard investment criteria s. 4
i. 1)In exercising any power of investment, whether arising under this part or
otherwise, a trustee must have regard to the standard investment criteria
ii. 2) A trustee must from time to time review the investments of the trust and
consider whether, having regard to the standard investment criteria, they
should be varied.
iii. 3) the standard investment criteria, in relation to a trust, are
1. The suitability to the trust of investments of the same kind as any
particular investment proposed to be made or retained and of that
particular investment as an investment of that kind and
2. The need for diversification of investments of the trust in so far as is
appropriate to the circumstances of the trusts.
iv. ‘portfolio theory’
1. Don’t put all your eggs in one basket
2. Nestle v national Westminster Bank PLC
a. riskier investments can be balanced out
3. trustee act 2000
 a. s. 4(3)(b) the need for diversification of investments of the trust
in so far as is appropriate to the circumstances of the trust
f. advice s. 5
i. 1) before exercising any power of investment, whether arising under this part or
otherwise, a trustee must (unless exception applies) obtain and consider proper
advice about the way in which, having regard to the standard investment
criteria, the power should be exercised.
ii. 2) when reviewing the investments of the trust, a trustee must (unless
exception applies) obtain and consider proper advice about whether, having
regard to the standard investment criteria, the investments should be varied.
iii. 3) the exception is that a trustee need not obtain such advice if he reasonably
concludes that in all the circumstances it is unnecessary or inappropriate to do
so.
iv. 4) Proper advice is the advice of a person who is reasonably believed by the
trustee to be qualified to give it by his ability in and practical experience of
financial and other matters relating to the proposed investment.
v.
vi. Gregson v HAE trustees
1. 90: the section 4(3) duty is a duty to review and consider diversification
+of the investment of the trust, it is not a duty to diversify’
L. Ethical investments
a. Palestine Solidarity Campaign
i. Lord Wilson: 1: ‘by an ethical investment, I mean an investment made not, or
not entirely, for commercial reasons but in the belief that social, environmental,
political or moral considerations make it, or also make it, appropriate.’
ii. 30: AS the law commission observed, administrators of local government
schemes have duties which, at a practical level are similar to those of trustees
and they consider themselves to be quasi trustees who should act in the best
interests of their members’
iii. Lord Carnwath 43:
1. there appears not to be general acceptance that the criteria proposed
by the law commission are lawful and appropriate. I agree thus
administering authorities may take non financial considerations into
account
2. “provided that doing so would not involve significant risk of financial
detriment to the scheme and where they have good reason to think
that scheme members would support their decision.
iv. Law commission fiduciary duties of investment intermediaries
1. 6.100-101
a. The primary concern of trustees must be to generate risk
adjusted returns. Trustees should take into account
environmental, social and governance factors. It is for trustees
acting on proper advice, to evaluate and weigh these risks
 b. However, the law is flexible enough to accommodate other
concerns. Trustees may take into account non financial factors if
they have a good reason to think scheme members share a
particular view and their decision does not risk significant
financial detriment to the fund.
v. Lady Arden and Lord Sales (dissenting)
1. 58: “in doing so, it recognises that framing investment decisions by
reference to such factors may serve to communicate or express views of
a political, social or ideological character…. It is clear that the state and
scheme member may both have an interest in how this expressive
function is exercised.
b. Cowan v Scargill
i. Minewokers’ pension trust with 10 trustees
1. 5 appointed by national coal board
2. 5 appointed by national union of mineworkers
ii. In 1982 arthur scargill appointed
1. President of union
2. Deputy chairman of board of trsutees
iii. Union trustees refused to approve investment plan unless it was restricted to
exclude
1. Energies in direct competition with coal
2. Overseas investment
iv. Employer trustees applied for decisions
1. Whether union trustees in breach of fiduciary duty
2. Whether investment plan should be adopted.
v. Megarry V-C at 2286-287
1. ‘the starting point is the duty of trustees to exercise their powers in the
best interests of the present and future beneficiaries of the trust… when
the purpose of the trust is to provide financial benefits for the
beneficiaries are normally their best financial interests. IN the case of a
power of investment… the power must be exercised so as to yield the
best return for the beneficiaries judged in relation to the risks of the
investments in question’
c. Martin v Edinburgh DC
i. Lord Murray 334
1. ‘the trustees ignored or at any rate did not explicitly face a vital issue
which it was their prime duty as trustees to take into account
2. ‘but I cannot conceive that trustees have an unqualified duty… simply to
invest trust funds in the most profitable investment available. To accept
that without qualification would, in my view, involve substituting the
discretion of financial advisers for the discretion of trustees’
M. Charities: harries v church commissioners
a. Charitable trusts
i. Two qualifications
 1. ‘when the objects of the charity are such that investments of a
particular type would conflict with the aims of the charity’
2. Deterrence of donors or recipients
ii. Undue restriction on ability to invest?
iii. 1246: ‘most charities need money; and the more of it there is available, the
more the trustees can seek to accomplish
iv. 1247: ‘the law is not so cynical as to require trustees to behave in a fashion
which would bring them or their charity into disrepute
b. Law commission
i. ‘charity trustees are not under a duty to seek the best financial return from
social investments, but may consider the overall return, comprising both the
financial return and the furtherance of the charity’s purposes (‘mission benefit’)
c. Charities act 2011 s. 292(b) (inserted by charities (protection and social investment) act
2016)
i. 2) the charity trustees of a charity must, before exercising a power to make a
social investment
1. Consider whether in all the circumstances any advice about the
proposed social investment ought to be obtained
2. Obtain and consider any advice they conclude ought to be obtained an
3. Satisfy themselves that it is in the interests of the charity to make the
social investment, having regard to the benefit they expect it to achieve
for the charity (by directly furthering the charity’s purposes and
achieving a final return)
N. Acquisition of/investment in land
a. Re Power: Jenkins J 575
i. ‘there is a distinction between purchasing freehold property for the sake of the
income one is going to get from it and purchasing freehold property for the sake
of occupying it or permitting somebody else to occupy it.’ The former is an
investment, the latter is a purchase other than the receipt of income
b. TOLATA s. 6
i. 3) the turstees of land have power to purchase a legal estate in any land in
England or Wales
ii. The power conferred by Ss. (3) may be exercised by trustees to purchase land
1. By way of investment
2. For occupation by any beneficiary or
3. For any other reason
c. Acquisition of land, trustee act s. 8
i. S. 8(1) a trustee may acquire freehold or leashold land in the UK
1. As an investment
2. For occupation by a beneficiary or
3. For another reason
ii. Freehold or leasehold land means
1. A) in relation to England and Wales, a legal estate in land
 iii. 3) for the purpose of exercising his functions as a trustee, a trustee who
acquires land under this section has all the powers of an absolute owner in
relation to the land.
O. Correcting Trustees’ mistakes: the rule formerly known as: the rule in re hastings-bass
a. The rule in re hasitings bass
i. Came to be understood as “would the trustees have acted differently if they had
not taken into account a factor that they should have (or if they had taken into
account a factor that they should not have)?
b. Lehtimaki v cooper
i. Lady Arden: 120-1: ‘there is no doubt in my judgement that there is a well
established “non intervention principle” which means that the role of the court
is to ensure that the trustees of a charity exercise their discretion properly and
that the court does not interfere in the trustees’ exercise of a discretionary
power unless they act improperly or unreasonably
ii. Leading authority on non intervention principle is now pitt v holt’
c. Pitt v holt/ futter v futter
i. Lord walker 69: ‘it is a striking feature of the development of the rule that it has
led to trustees asserting and relying on their own failings, or those of their
advisers, in seeking the assistance of the court… in general it would be
inappropriate for turstees to take the initiative in commencing proceedings of
this nature. They should not regard them as uncontroversial proceedings in
which they can confidently expect to recover their costs out of the trust fund’
ii. The rule to apply 73: “the inadequate deliberation on the part of the trustees
must be sufficiently serious as to amount to a breach of fiduciary duty. Breach of
duty is essential… because it is only a breach of duty on the part of the trustees
that entitles the court to intervene…’
1. It is not enough to show trustee’s deliberations have fallen short of
highest possible standards. Apart from exceptional circumstances (such
as impasse reached by honest and reasonable trustees) only breach of
fiduciary duty justifies judicial intervention’
iii. 97: “mrs. Pitt had taken supposedly expert advice and followed it. There is no
reason to hold that she personally failed in the exercise of her fiduciary duty.
Unfortunately the advice was unsound.
iv. Lingering question
1. Is the question whether the trustees ‘would not’ or ‘might now’ have
acted differently
2. [91-92[ as a mater of principle there must be a high degree of flexibility
in the range of the court’s possible responses. To lay down a rigid rule of
either would inhibit the court in seeking the best practical solution in
the paplciaiton of the hastings bass rule in a variety of different factual
situations
P. Exclusion/Modification
a. Schedule 1 para 7 Trustee act 2000
 i. The duty of care does not apply if or in so far as ti appears from the trust
instrument that the duty is not meant to apply
b. What liability can be exlucded
i. Armitage v nurse
1. Clause 15 of settlement
a. No trustee shall be liable for any loss or damage which may
happen to Paula’s fund or any part thereof of the income
thereof at any time or from any cause whatsoever unless such
loss or damage shall be caused by his own actual fraud…’
2. Millet lj 251: Clause effective to exempt “the trustee from liability for
loss or damage to the trust property no matter how indolent,
imprudent, lacking in diligence, negligent or wilful he may have been, so
long as he has not acted dishonestly.
a. If he acts in a way which he does not honestly believe is in their
interest then he is acting dishonestly. It does not matter
whether he stands, or thinks he stands, to gain personally from
his actions.
3. 253-254: “I accept that there is an irreducible core of obligations owed
by the trustees to the beneficaires and enforceable by them which is
fundamental to the concept of a trust. If the beneficaires have no rights
enforceable against the trustees there are no trusts
a. But I do not accept… that these core obligations include the
duties of skill and care, prudence and diligence.
b. The duty of the trustees to perform the trusts honestly and in
good faith for the benefit of the beneficiaries is the minimum
necessary to give substance to the trusts, but in my opinion it is
sufficient.
4.
ii. Barnsley v noble:
1. Clause
a. No trustee shall be liable for any loss to the trust premises
arising by reason of any improper investment made in good
faith… or by reason of any other matter or thing except wilful
and individual fraud or wrongdoing on the part of the trustee’
2. Sales LJ
a. “the phrase wilfrul fraud means that is it a knowing and
deliberate breach of a relevant equitable duty or reckless
indifference to whether what is done is in breach of such duty
which has to be shown… it is the wrong doing, not the doing,
which must be willful.
iii. Armitage v Nurse cont
1. Millet lj 256: ‘the view is widely held that these clauses have gone too
far and that trustees who charge for their services… would not dream of
excluding liability for ordinary professional negligence should not be
 able to rely on a trustee exemption clause excluding liability for gross
negligence.
i. If clauses should be denied “then in my opinion this
should be done by parliament, which will have the
advantage of wide consultation with interested bodies
and the advice of the trust law committee’
iv. spread trustee case
1. 62 Lord Clarke: being a trustee “includes a duty to act with reasonable
care and skill and thus without negligence. In these circumstances,
there might be much to be said for saying, as a mattery of policy, that it
is not permissible to exclude liability for any breach of that duty.
2. Lady Hale Dissenting
a. 137: “house of lord had held it to be in the Scottish cases, and
that the exclusion of liability for gross negligence “was void” as
being repugnant to the nature of a trust or contrary to public
policy”
Q. Politics and reforms
a. ‘trustee exemption clauses operate within a complex economic system in which the
interests of the three principal players (settlor trustee and beneficiary) are not always
coincidental’
b. Law commission
i. S. Bridge ‘better regulation of trustee exemption clauses’
1. ‘the most appropriate response to the concerns which have been raised
about the current use of such clauses is the introduction of a rule of
professional practice’
2. the rule
a. ‘any paid trustee who causes a settlor to include a clause in a
trust instrument which has the effect of excluding or limiting
liability for negligence must, before the creation of the trust,
take such steps as are reasonable to ensure that the settlor is
aware of the meaning and effect of the clause
c. Spread trustee: lord mance
i. “but in relation to circumstances falling short of dishonesty or wilful
misconduct, courts do best to leave the nature and extent of any intervention in
parties’ own arrangements to legislators’

Resulting trusts

A. Trusts operated by law (TOBL)

a. TOBL=a trust that arises despite the absence of express intention on part of the settlor
i. Resulting trusts
ii. Constructive trusts
b. A resulting trust arises essentially when a trustee holds some right or interest on trust
for the person from whom he received that right or interest
i. ‘express’ and ‘constructive’ trust refer to how a trust came into existence
 ii. RT refer to question for whom the trust property is held on trust.
B. RT basic structure
a. The rule: if A transfers the legal title to B, B is presumed to be a trustee not a full owner
b. Beneficial interest ‘results’ i.e. ends up with A-> paper title is transferred to B->
C. The medieval use
a. The typical use of land was created without any express terms, accept that the settlor
would give future instructions. The ‘foeffee’ received only a ‘paper title’ and had to do
nothing
b. This form of holding land becomes so popular that courts of equity assumed that if
there is not enough evidence to determine the nature of a transfer of land from A to B,
B was intended to hold the land as a foefee for A=’presumed resulting use’
c. Resulting=jumps back
d. The presumption does not determine the result of many disputes.
D. What happens upon transfer from A to B
a. ‘retention theory’- Lord Reid in Vandervell: A retains the beneficial interest
i. Mee: this is how the courts understood RT historically
b. Lord Browne-Wilkinson in Westdeutsce: no absolute beneficial interest is not a
sandwich comprised of legal title stuffed with equitable title. Rather, the equitable title
only arises once a person’s conscience is affected. And so, A acquires a new interest
once an RT is created
c. However, the received view is that RT arises immediately upon the transfer to B, even if
B is not aware of the fault and her conscience is therefore clean. B only comes under
any duty to A once she learns of the fault.
E. Two kinds of RT: presumed & automatic
a. Presumed RT(PRT) arises where A transfers to B or purchases for B an interest in
property in circumstances where the law presumes that A did not intend to make a gift
of that interest to B
i. Both the existence and the content of the trust need to be proved
ii. But A does not need to show that the transfer was gratuitous, only that a
transfer occurred.
b. Automatic RT (ART) arises where the dispositive provisions in an express trust fail, in
whole or in part
i. Re Vandervell No. 2: “the resulting trust… is the automatic consequence of A’s
failure to dispose of what is vested in him” We know that B is a trustee, only the
identity of the beneficiary needs to be proved.”
F. Two kinds of PRT
a. Voluntary Transfer RT: A transfers her property to B-> presumption: B holds the
property for A on RT
b. Purchase contribution RT: A pays C to transfer property to B-> presumption: B holds the
property for A on RT
c. In both cases: A&B put down money to buy property-> presumption: A and B share the
beneficial interest in proportion to their contribution regardless of the way the legal
title is held.
G. Voluntary Transfer of rights in land
 a. May be treated differently from payment of the purchase price in England and Wales
(and in the USA)
i. LPA 1926 s. 60(3) “in a voluntary conveyance a resulting trust for the grantor
shall not be implied merely be reason that the property is not expressed to be
conveyed for the use or benefit of the grantee.
ii. Does the section mean that the presumption of RT does not apply to land? Not
necessarily; case law is underdetermined.
b. Family home: stack v dowden: the presumption no longer applies in the context of
family home. Ownership will be determined on the basis of constructive trust principles
H. Hodgson v Marks 1971
a. Legal background
i. If trust is for widow, it has priority over buyer’s estate and mortgage because
she remained in occupation.
ii. Express trust of land must be manifested and proved by writing: LPA 1925 s.
53(1)(b)
iii. Statute does not prevent evidence of fraud: ROchefoucald v Boustead 1897
b. Russel LJ: “the evidence is clear that the transfer was not intended to operate as a gift,
and in those circumstances, I do not see why there was not a resulting trust which
would not, of course, be affected by section 53(1)
c. Lawteacher facts: Hodgson owned the house where she lived, transferred property to
her lodger. She and the lodger had oral agreement which made it clear that Mrs.
Hodgson was to remain equitable owner and that she was only transferring legal title to
the house. Lodger subsequently sold property to the respondent. Appellant sought a
declaration that the defendant was bound to transfer the house to her free of any
charges
i. Issues: under s. 701g LRA 1925: the interest of a person who is in actual
occupation and who does not do anything to abandon that interest overrides a
registered disposition provided that on any enquiry he revels those rights. The
appellant argued that she was still the equitable owner of the property and had
done nothing to abandon those rights. No enquiry had ever been made of er by
the purchase, and she had remained in occupation. Therefore, her interest
bound the purchaser.
ii. Court allowed the appeal. Mrs. H was in actual occupation and had an
overriding interest under s. 70(1)(g) of the 1925 act. She could be in occupation
even though she shared occupation of the property with the registered
proprietor, the lodger. Therefore, her overriding interest bound the purchaser.
Furthermore, since Mrs. H was the true beneficial owner of the entire property
the purchaser had to transfer the entire estate over to her. fg
I. The presumption of advancement
a. Applies to apparent gifts from fathers to sons
b. Grey v Grey 1677 2 swans 584
i. “generally and prima facie as they say, a purchase in the name of a stranger is a
trust, for want of a consideration, but a purchase in the name of a son is no
trust, for the consideration is apparent.
 ii. Extended to gifts from… -persons standing in loco parentis- husbands
iii. Australia: extended to gifts from mothers- Nelson v Nelson 1995
iv. Equality act 2010 s. 199 (not in force) “the presumption of advancement (by
which for example, a husband is presumed to be making a gift to his wife if he
transfers property to her, or purchases property in her name) is abolished.
J. Illegal transfers
a. The rule: it is impossible to rely on evidence that points to illegality
b. Can the transferor rebut the presumption of RT if the purpose of the transfer was
illegal?
i. Tinsely v Milligan 1994
1. Facts: share in family home was transferred to partner in order to claim
undeserved benefits. Upon separation the transferee sought to evice
the transferor.
2. Decided: the claimant is not relying on the illegality but merely on the
presumption
3. Problem: if the presumption of advancement applies the transferor will
lose as in that case she has to explain and rely on her purpose.
K. Patel v Mirza 2017
a. Facts: claim in unjust enrichment following a payment for inside information that was
never obtained
b. Issues:
i. Mirza sought to argue that the monies should not be returned to Patel on
resulting trust because Patel would have to rely on his own unlawful conduct to
establish his interest in the monies.
ii. Tinsley v Milligan was authority for the point that a party could not seek to rely
on his illegal conduct to establish an equitable interest in property, as this would
e against public policy.
iii. Patel argued the illegal act had not been put into effect and was therefore no
justification to allow Mirza’s unjust enrichment to persist. Further he argued, it
would be unjust
iv. Further he argued, it would be unjust to allow one co-conspirator to keep all the
monies. Allowing mirza to keep money would positively encourage commission
of such offences since he had profited and so deterrence is a valid policy
argument.
c. Decided: the reliance test of Tinsely is unanimously rejected
i. the transferor’s claim can succeed in spite of the illegality if a “range of factors”
point out to a public interest that his claim should be heard in spite of the
illegality:
1. the purpose behind the infringed law and whether that would be
furthered by denying the claim before the court
2. other public policy interests that would be affected by the denial or
grant of relief
3. proportionality
d. conclusion: the claim is unjust enrichment and the public interest test is satisfied.
L. Stoffel & Co v Grondona 2020
a. Facts: claim in negligence following a mortgage fraud
b. Decided:
i. The focus of the llegality defence is to disallow recovery where to do so would
result in an incoherent contradiction damaging to the integrity of the legal
system
ii. Applying Mirza:
1. Denying recovery will not promote the purpose of preventing mortgage
fraud
2. Policy considerations: allowing recovery will promote an important
policy of protecting victims of solicitors’ negligence
3. Proportionality need only to be analysed where the defence survived
Lord Toulson’s first two considerations.
c. Conclusion: the negligent solicitors cannot use the illegality defence to fend off the claim
against them.
M. Coursework 3: quistclose trusts
a. QT are typically found where A advances money to B so B can pay a debt to C and for
this purpose only. Engagement with this type of trusts will help you to better
understand the debates surrounding PRT’s and their great important in market
transactions;
N. ART (automatic RT) : failures of trusts
a. Westdeutsche Landesbank Girozentrale v Islington LBC 1996
i. Facts: the bank sued the local authority for the return of over 1 million pound
that it had paid under an interest rate swap agreement with the council. Such
agreements had been declared by the house of lords to be ultra vires and void
ii. The dispute: what sort of interest is to be paid, simple (Common law) or
compound (equity)
iii. Decided (majority): no ART because the transferor intended the transferee to
become absolute owner. The bank could only recover its money with simple
interest as it only has a personal claim.
iv. Case under law prof
1. Key points:
a. Payments made with the intention to discharge contractual
obligations rebuts a presumed resulting trust even if the
contract it was paid under was void
b. Birk’s theory of resulting trusts was rejected.
i.
2. Facts:
a. D (Islington) entered into interest rate swaps with bank C. the
interest rate swap contract was void in fact. C argues that the
money it paid to D under the contract is held by D for it under
resulting trust.
3. Held
 a. C’s claim was rejected by the HOL, the money was not held for C
under presumed resulting trust
4. Lord Browne-wilkinson
a. Normative argument against imposition of prt
i. The effect of creation of equitable interest in money
received under void contract is that the money is not
available for creditors
ii. The proprietary interest is enforceable against any
recipient of the property other than bona fide
purchaser.
b. Doctrinal issues
i. Equity operates on the conscience of the owner of legal
interest, a person cannot be a trustee if and so long as
he is ignorant of the facts alleged to affect his
conscience
c. On ART
i. There was no transfer of money to D on express trust,
thus no ART could arise.
b. Is the settlor’s intention relevant
i. Megarry in Vandervell no. 2 was wrong
1. (in relation to automatic resulting trusts) Where A transfers property to
B on express trusts but the trusts declared do not exhaust the whole BI,
the resulting trust is not imposed by law against the intentions of the
trustee but gives effect to his presumed intention.
ii. Lord Browne Wilkinson in Westdeutche: Yes “if the settlor has expressly, or by
necessary implication, abandoned any beneficial interest… the undisposed of
equitable interest vests in the crown as bona vacantia” (pursuant to west sussex
case)
1. What did BW means
a. In most cases of failure to establish express trust the court does
ask whether a trust was intended and finds that it was indeed
intended.
b. In some, rare, cases the settlor intends to abandon the
equitable interest even when she did not express this intention
in the trust. The court will nevertheless respect it and no RT will
arise.
c. Vandervell v IRC (1) 1967
i. Facts: V directs T to convey shares to RCs, with an option for VT to buy the
shares back. Has V divested himself of beneficial interest
ii. Held:
1. V retained the beneficial interests in the shares.
2. An oral direction to a bare trustee to transfer the trust property to a
third party absolutely is valid.
 iii. Possible rationale: the trustees must be involved in the transaction so no risk
arises for which you need writing. And the transaction also brought the trsut to
an end, so again, no risk for which you need writing.
d. Vandervell No 2 1974
i. CA: the RT for V terminated once the option was exercised. THe trust for the
children (created by V following the Art for him) is valid. As it is not a disposition
of V’s subsisting equitable interest. Hence, no RT for V
ii. Rationale: It was inevitable that T will be involved in transaction- no risk of T
being confused tas to who duties are owed.

Cases for tutorial

A. Re Gillingham bus disaster fund

a. Facts: a fund was established for the benefit of the victims of a bus crash
i. It was to pay for funeral and medical costs. Donations came from name and
anonymous donors. Trustees sought direction about what to do with extra.
b. Held that surplus created a resulting trust that needed to be retained.
i. Trustees needed to find donors. Trust was not charitable so failed for
uncertainty and could not be applied to others.
ii. Where money is held on trust and the trust purpose has surplus, there is a
resulting trust for the donor because they did not mean to dispose of their
interest absolutely
iii. Therefore they were identified and the donors should get it back
proportionately.

Constructive trusts

A. TOBL: scheme
a.
B. What are constructive trusts
a. Express trusts are made by the settlor herself when she effectively exercises her power
of ownership to create a trust
b. TOBL the law itself creates the equitable title. CT are a kind of TOBL. Beyond this, very
little binds the different categories of CT
i. Anticipatory CT
ii. TP recipients of trust property transferred in breach of trust
iii. Common intention: mainly family home
1. +residual category
C. The nature of CT
a. Holding property on a constructive trust for someone else is not the same as being a
constructive trustee
b. The question of what are the duties of someone who does hold property on a
constructive trust for someone is very difficult
c. Not all constructive trusts are the same, and not all liabilities to account as a
constructive trustee are the same
d. Some CT’s don’t really exist (e.g. of dishonest assistant)- we just say that property is held
on a constructive trust to allow the owner of that property to take advantage of the
equitable tracing rules.
D. Anticipatory CT
a. Two kinds
i. Re Rose-once a legal owner has done everything she is required to do to
transfer the property, she holds it on trust for the transferee
ii. Application to the maxim: equity looks upon that as done which ought to be
done. To contracts for sale aka specific performance
1. In land: transaction has two stages
a. Binding contract
b. Execution of documents that transfer title=’completion’
b. What happens between signing and completion
i. It is not the case that the vendor holds the property on trust for buyer full stop:
she can protect her own interest, possess and keep rents and profit
ii. Where Is the equitable interest then
1. Answer 1: lord walker in Jerome v Kelly
a. Neither the seller nor the buyer has unqualified beneficial
ownership. Beneficial ownership of the land is in a sense split
between the seller and the buyer.. the seller is entitled to
enjoyment of the land or its rental income
2. Answer 2: Kern Corp AH 1987
a. The vendor himself maintains a continuing beneficial interest in
the land- and is hence- entitled to possession and use.
c. Is there an anticipatory CT here at all?
1. Some think that the answer is ‘no’ (swaddling, Penner)
ii. The contract is binding in insolvency because it is specifically enforceable not
because there is a trust
 iii. No fiduciary relationship
iv. Sub purchaser can only sue the purchaser to force him to sell
1. others (peter turner, Chambers) think that a trust which comprises of
several equities responds to the plurality of events that may take place
during the transitory stage.
d. Pallant v Morgan
i. Facts: two neighbouring landowners orally agreed in the auction room that the
plaintiff’s agent would refrain from bidding at auction and that D if his agent’s
bid was successful, would divide the land according to an agreed formula.
ii. Held: the agreement was incomplete in its detail and too uncertain to be
specifically enforceable. But the plaintiff holds the property for both of them as
a constructive trustee
iii. Possible justification
1. The plaintiff relied to his detriment on the defendant’s word= common
intention
2. The joint venture agreement created fiduciary relationship
E. Fraud
a. The defrauded party has a right to rescind
b. The fraudster only holds the property on CT once the contract is rescinded-equity
upgrades the remedy to a proprietary in nature
i. Advantage in insolvency+ tracing in equity
c. Why constructive trust? This is important for third parties who enjoy the protection of
equity’s darling.
F. CT for proceeds of theft
a. 2 possible analyses
i. The thief holds the proceeds for the owner on purchase money RT
ii. The thief holds his frail title on CT for the owner- owner can trace to proceeds.
G. Theft of case
a. Westdetuche: stolen money is traceable in equity. Why?
i. The thief acquires possessory title to the property he steals,. He can sell his frail
title and hold it on trust for the theft victim
ii. If the theif steals cash and buys a picture, a bona fides seller gets good title. Is
there CT for the victim on the picture
1. Chambers: RT
2. This is not different from property theft, the theif still uses her frail title
to buy the picture, only here, statute extinguishes the owners’ superior
title.
H. Remedial CT
a. A remedial equitable interest is awarded by the court following a trial of action and does
not preexist the court award
b. Distinction between the court powers and duties: is CT shaped by the court power to
make an award or is it more ‘institutional’=follows from the rules of title that the court
must follow once it makes finding on the fact
i. CT of vendors and recipients of trust property is clearly institutional
 ii. But what about common intention CT (and proprietary estoppel)
iii. Remedial CT is accepted in US, Canda, Australia, NZ and Singapower
I. Remedial CT in England and Wales.
a. The RCT is understood to come into existence from the moment the court declaresit,
but has effect retroactively to the time of the occasion that gave rise to it. Is it
recognised in E& W
i. Polly Peck: No
b. Is that really so? When deciding to award a CT isn’t the court in fact exercising discretion
that amounts to a retrospectively effective equitable interests?

Secret tursts

A. A proper will
a. Property can only be left for a particular reason upon death of the owner in a will which
is a revocable and ambulatory document, and subject to particularly stringent
formalities
i. Formalities: s. 9 Wills Act 1837
1. No will shall be valid unless
a. It is in wrigin and signed by the testator, or by some other
person in his presence and by his direction and i
b. It appears that the testator intended by his signature to give
effect to the will; and
c. The signature is made or acknowledged by the testator in the
presence of two or more witnesses present at the same time
and
d. Each witness either
e. Attests and signs the will or
f. Acknowledges his signature, in the presence of the testator (but
not necessarily in the presence of any other witness)
B. What are secret tursts
a. A is the testator and C (the recipient) promises to hold on trust for B
b. B has right against C under a “secret trust”
C. Elements of the claim
a. Ottaway v Noramn 1972 Brightman J “the essential elements which mustbe proved to
exist are
i. The intention of A to subject C to an obligation in favour of B
ii. Communication of that intention to C and
iii. The acceptance of that obligation by C either expressly or by acquiescence.
D. Fully and half secret trsuts
a. Fully secret trust- the property is given by a will to C absolutely without mention of any
trust
i. But any time during the testator’s lifetime, the details of a trust and the
intended beneficiaries thereof must are communicated to the legatee, either
orally or in writing; if the legatee agrees, he will hold the property on trust for
the hidden beneficiaries when the testator died.
 ii. Both the identity of the beneficiaries and existence of a trust are secret.
1. In the will, not in the actual writing.
iii. Fully secret trust: McCormick v Grogan 1869
1. Facts: the deceased makes a will leaving all his property to Grogan-
Grogan says “is that right” -the deceased tells Grogan that he will find a
letter with the will in which he instructs him what to do with the
property- the letter contains various instructions, including one to pay
an annuity to McCormick. But the letter also says “ I do not wish you to
act strictly to the foregoing instructions, but leave it entirely to your
own good judgement to do as you think I would if living… there cannot
be any fault with you by any of the parties should you not act in strict
accordance with it”
2. Held that G does not hold on trust for M, as it was given to his discretion
how much and to whom to appoint. But it has been long established rin
equity that a person apparently taking property by devise or bequest
from a testator with this knowledge of the existence of another
instrument, which he actually or impliedly undertake to carry into
effect, will be fixed as trustee with the performance of such instructions
and directors as are given in that other instrument”
iv. Motivation: risk of fraud?
1. Mccormick can be interpreted in two ways
a. Fraudulent scheme to induce the deceased to make a will in the
Defendant’s favour, promising her to make her wishes good,
while intending all the wile to take the gift to himself.
b. The D is post death ‘fraudulently’ refusing to comply with the
agreemend he had with the deceased and upon which she
relied.
i. Effectively allows the testator to avoid the strictures of
the wills act. But this is how the law developed.
1. Re gardner 1920: “if he (the ST) were dispose of
it in any other way he would be committing a
breach of trust, or as it has been called in some
of the cases, a ‘fraud’
2. Testators now have an option to use a human
legatee as an unatested will
b. Half secret trusts: Blackwell v Blackwell 1929
i. A will gave 12000 to five people to invest and apply the income “for the
purposes indicated by me to them” and with a power to pay 8k of the capital to
“such person or persons indicated by me to them” with the balance to be paid
to the trustees. The deceased gave detailed oral instructions to C, one of the
five and all five knew and accepted his basic intentions before he signed the will.
On same day will was signed, C signs a memorandum specifying the identify of
the beneficiaries, B1 and B2. A’s residuary legatees challenge the validity of the
trust of the 12000
 ii. Held that C holds on trust for the intended beneficiaries
1. Why not on RT to A’s estate? Is there a risk of fraud here as well?
2. Lord Buckmaster: C ‘cannot defraud beneficiaries for whom he has
consented to act by keeping the money for himself… the real
beneficiaries are equally defrauded in both cases…”
a. Hopelessly circular
3. Viscount Sumner: ‘Dehors the will’ theory: the HST are inter vivos, but
they are not constituted until the death of the testator. Therefore they
operate outside the wills act.
c. If you have a will in a problem question, keep in the back of your mind the fact that it
could be a fully or half secret trsut
i. More likely to have a half secret trust on a pq
1. On the will it would state that there was a trust vs a gift (FST), and
then separate document would have the beneficiaries, terms of the
trust etc.
E. How can we sidestep the formalities of the wills act
a. Two analyses of the trust type
i. Express trust: statute cannot be used as an instrument of fraud.
1. Intention to create a trust, which was not expressed in required form
(i.e. the will formalities) + fraud= trust
ii. Constructive trust:
1. Actions of the parties+ detrimental reliance= constructive trust
2. The question remains, why not automatic resulting trust to the
deceased.
F. Why we enforce half secret trusts: the “outside the will” theory
a. Re Snowden 1979 Ch Megarry V-
i. ‘the whole basis of secret trusts… is that they operate outside the will,
changing nothing that is written in it, and allowing it to operate according to its
tenor, but then fastening a trust on to the property in the hands of the
recipient.
b. The problem:
i. Every informal testamentary disposition is outside the will, otherwise It IS a will-
> confusion if “outside the will” or “outside the wills act”
c. ST ARE TESTAMENTARY DISPOSITIONS
i. S. 9 of the Wills act applies to “any… testamentary disposition” testamentary=
1. Revocable- can be revoked before death
2. Ambulatory- tales effect and fixed on death, not before.
d. Trusts on future property are invalid.
G. Why we enforce HST: pragmatic reasons
a. Blackwell, Viscount Sumner
i. “in both (FST and HST) the testator’s wishes are incompletely expressed in his
will. Why should equity, over a mere matter of words, give effect to them in one
case and frustrate them in the other?
b. There may be a judicial basis for enforcing FHS and HST but that would ridicule the law
 H. Communication thing: fully and half secret trusts
a. One key difference between half secret trusts and fully secret trusts
i. FST: Communication of the existence and terms of the trust must be before the
settlor’s death
ii. Hst: the details of the trust must be communicated to the trustee and accepted
by him/her, before or at the same time of the execution of the will
1. It may be enough, however, if C is given exclusive access to the
information before the will is made, for example, given a sealed
envelope which C must not open until the testator’s death
I. Explaining the difference: incorporation by reference
a. Where a will refers to a document existing when the will is executed, that document
becomes part of the properly attested will. It needs to be in existence before or at the
time of the will.
b. Paul Matthews: “the rule in half-secret trusts regarding the time of the expression or
communication of the trusts is (an extension of the rule)… regarding the time of coming
into existence of material to be incorporated by reference into the text of the will.
c. Extension or pragmatism

Coursework tutorial-trusts in the service of the commercial world

A. Barclays bank v quistclose investments

a. If the purpose of a transaction is not carried out, then the money is held on resulting
trust.
b. Lord Wilberforce 580 and 582
i. “that arrangements of this character for the payment of a person’s creditors by
a third person, give rise to a relationship of a fiduciary character or trust, in
favour, as aprimary trust, of the creditors, and secondarily, if the primary trust
fails, of the third person, has been recognised in a series of cases over some 150
years
ii. In the present case the intention to create a secondary trust for the benefit of
the lender, to arise if the primary trust, to pay the dividend, could not be carried
out, is clear and I can find no reason why the law should not give effect to it:
B. William Swadling ‘orthodoxy’ \
a. Quistclose trusts: theories
i. Problems with Lord Wilberforce’s “two trusts” approach
ii. Where is the beneficial interest?
1. Lender? PJ millet QC “the Quistclose trust: Who can enforce it” 1985
101 LQR 269
2. Borrower
3. Party to benefit
4. In suspense
5. No trust at all?
b. Twinsectra: problem solved?
i. Lord Millet at 100
 1. “as sherlock holmes reminded Dr. Watson, when you have eliminated
the impossible, whatever remains, however improbable, must be the
truth
a. I would reject all the alternative analyses, which I find
unconvincing for the reasons I have endeavoured to explain and
hold the Quistclose trust to be an entirely orthodox example of
the kind of default trust known as a resulting trust.
c. Cooper v Prg powerhouse
i. “13. I made this payment on the clear understanding with the company,
reached both with Mr. Onslow and Mr. Hoskin on its behalf and reflected ni the
terms of Mr. Hoskin’s aforementioned letter of 27th July 2006, that the company
would forward the monies on to Godfrey Davis (together with an addition 3k
contributed by the company itself) in full and final settlement of the sums due
under the credit agreement between myself and Godfrey davis”
ii. Evans-Lobe J 24: ‘it has been clearly established by Mr. Cooper that his payment
to the company was impressed with a purpose trust to pay that sum to Godfrey
davis in reduction of his loan.
1. ‘it seems to nme that what emerges from this passage in lord millet/s
speech is that whether or not money has been paid subject to a purpose
trust is a question of fact. If a purpose trust is to be established, it is
necessary for the payer to show that the arrangement pursuant to
which the payment was made defined the purpose for which it was
made in such a way that It was understood by the recipient that it was
not at his free disposal”
C. Dr. Emily HUdon: ‘a normative approach to the quistclose trust
a. Implications of quistclose trusts
i. Insolvency regime
ii. Registration as a security interest
iii. Justification?

Fiduciary duties

A. The main questions

a. When will fiduciary relationships arise
b. What duties are owed in that relationship\
c. What remedies are available upon breach
i. How are they different
ii. Why?
iii. Should they be changed?
iv. Should it be proprietary or personal?
B. Who is a fiduciary: rough idea
a. Wikipedia
i. In a fiduciary relationship, one person,in a position of vulnerability justifiably
vests confidence, good faith, reliance and trust in another whose aid, advice or
protection is sough in some matter.
 b. PD Finn (Fiduciary Obligation 1977)
i. The term ‘fiduciary’ is a veil behind which individual rules and principles have
been developed… these rules are everything. The description ‘fiduciary nothing’
c. Core examples: company directors, trustees, solicitors
d. Why does it matter? Unusual content of the duty+ particularly stern remedies for
breach
C. What is expected of a fiduciary-rough idea
a. Act in a disinterested way
b. Millet LJ In B&W BS v Mothew CA 1998
i. The distinguishing obligation of a fiduciary is the obligation of loyalty. Breach of
fiduciary obligation, therefore, connotes disloyalty… mere incompetence is not
enough. A servant who loyally does his incompetence best for his master is
not… guilty of a breach of his fiduciary duty
c. Cardozo in Mainhard v salmon NY CA 1928
i. A trustee is held to something stricter than the morals of the market place. Not
honesty alone, but the punctilio of an honor the most sensitive, is then the
standard of behaviour… the level of conduct for fiduciaries has been kept at a
higher level than that trodden by the crowd.
D. The boundaries of the fiduciary duty
a. Millet Lj In mothew
i. “a fiduciary is someone who has undertaken to act for or on the behalf of
another in a particular matter in circumstances which give rise to relationship of
trust and confidence
b. Paul Miller
i. “in a fiduciary relationship ‘one party (the fiduciary) exercises discretionary
power over the significant practical interests of another (the principal)
c. What about doctors? Parents?
i. It is hard (impossible? Undesirable? To capture all the cases in one neat
definition
E. What is the duty of loyalty
a. What it is not
i. B&W BS v Mothew
1. Solicitor acted for both the lender and borrower in purchase of
property. He had negligently given info to the claimant. C relying on info
proceeded with wrong transaction and suffered loss. However D argued
that even if he provided the right info, C would have still proceeded
with the same transaction and suffered the same loss
2. Was D responsible for C’s loss and should he be held responsible.
3. Applied downs v chappel 1997
a. It was necessary to show that C had relied on the negligently
given info in relation to the second charge ie. Causal link had to
be established.
 b. However, C did not need to prove that it would not have
proceeded with the transaction had it received the true
information
c. C had to establish the loss he has suffered arising from the
wrong transaction as a result of D’s negligent statement. The
claimt that D had breached the fiduciary duty was not successful
because D never acted in bad faith or breached the conflict rule.
ii. Millet LJ: we need to distinguish between
1. Misapplication of trust money (allows to falsify the account)- does not
apply as the transfer was according to the mandate.
2. Negligence-applies, as by not informing B&W about the second
mortgage M was negligent (and probably in breach of contract)
3. Breach of the fiduciary duty of loyalty-does not apply as there was no
conflict of interests or bad faith and hence no breach of loyalty.
b. What is the fiduciary duty
1. “this core liability has several facets. A fiduciary must act in good faith;
a. He must not make a profit out of his trust
b. He must not place himself in a position where his duty and his
interest may conflict
c. He may not act for his own benefit or the benefit of a third
person without the informed consent of his principal
d. Not an exhaustive list
2. Lionel smith: the core duty is negative in nature: when a fiduciary
exercises her discretion she must refrain from taking into account
anyone else’s interests except of the principal’s
c. How the goal is achieved: no conflict rule
i. The “no conflict rule= a fiduciary must not place herself in a position where her
own interests might conflict with those of her principal
1. The duty of parties to a contract.
ii. Keech v Sandford 1726
1. T holds a lease for a minor beneficiary. The lessor refuses to renew the
lease for the minor. T renews the lease for himself with the intention
that the benefit could be passed on to the child. However, trustee was
benefiting from the trust fund personally. AS a result an application was
made on behalf of the child to the court for the benefit of the lease to
be held on trust for him.
2. While there had been no allegation of fraud in this case, Lord Chancellor
established a principle that a trustee must not take an unauthorised
profit from a trust. Furthermore, this principle, should be ‘strictly
pursue’ because there were risks of fraud in allowing trustees to take
the benefit of renewed leases which they had previously held on trust.
3. King LC: T breached his FD and he therefore holds the lease on a trust
for the minor. Lord King: “this may seem hard, that the trustee is the
only person of all mankind who might not have the lease; but it is very
 proper that the (no conflict) rule should be strictly pursued, and not in
the least relaxed.”
iii. Justifying the no conflict rule
1. Risk factor 1: temptation
a. Whichcote v lawrence 1798
i. ‘where a trustee has a prospect of advantage to himself,
it is a great temptation to him to be negligent”
b. The principals are particularly disadvantaged: very limited ability
to monitor and detect explitation
c. Potential profit+easy escape=> temptation
2. Risk factor 2: discretion
a. The dynamic setting of fiducariy relationship inhibits any precise
explication of fiduciary duties
b. The duties are framed so as to leave a wide room for the
discretion and flexibility
i. The fiduciary is granted a great deal of power to
translate general open ended duties to specific actions.
3. Exception: authorised conflicts
a. The principal can authorise any transaction that involves conflict
of interest
b. S. 29 trusrtee act 2000: if the trust instrument is silent on this
point, a professional trustee is entitled to ‘reasonable
remuneration’
c. Cradock v Piper 1850: a solicitor trustee is automatically allowed
to charge the trust for a litigation work in the normal rates.
d. The court has an inherent jurisdiction to allow remuneration
d. The self dealing rule (in the context of trustees)
i. The rule: any transaction in which the trustee purchases trusts property or sells
her own property, it is voidable, i.e. the beneficiary can set it aside even if it is
absolutely fair
ii. The rationale: the trustee acts as both vendor and purchaser and the conflict is
therefore inherent
iii. Exception: Holder v Holder: the purchaser of trust property in an auction was a
fiduciary in a technical sense. CA: the sale will not be set aside as the fiduciary
bought the famr in an auction in which he was never involved as a seller.
e. The fair dealing rule
i. The rule: Tito v Waddell 1977: Maggary V-C “if a trustee purchases his
beneficiary’s beneficial interest, the beneficiary may have the sail set aside
unless the trustee can establsiht eh propriety of the transaction, showing that
he had taken no advantage of his position and that the beneficiary was fully
informed and received full value”
ii. Third parties: since the transaction is voidable rather than void, an innocent
purchaser takes a good title before the transaction is voided.
f. The disgorgement remedy
 i. The fiduciary is stripped of any gains accrued from a position of conflict
1. Vyse v Foster 1872 James LJ: “If an executor or trustee makes profit by
an improper dealing with the assets or the trust fund, that profit he
must give up to the trust”
2. The disgorgement remedy is not punitive. It is an expression of the duty
which the fiduciary took upon herself, namely to act so as to benefit
only her principal (equity sees as done as what ought to be done.)
3.
4.
F. Strict liability: Boardman v Phipps HL 1967
a. B-a solicitor (was not himself a trustee but was in a fiduciary capacity as adviser to
Phipps family trust), was aware of a large amount of commercial information about the
company, confidential info.
b. With great amount of work on the soliciotr’s part, the company generated large profit
for the trust and him personally. However, one of the beneifciaries learned that
Boardman had taken personal profit. They sought to sue Boardman to recover the profit
for the benefit of the trust.
i. The court held 2:3 that B has to account for all his profit
1. Lord Cohen: the no conflict rule… in no way depends on fraud, or
absence of bona fides; or upon such questions or considerations as
whether the profit would or should otherwise have gone to the
plaintiff… or whether the plaintiff has in fact been damaged or benefited
by his action.
c. B was awarded significant remuneration for his efforts.
G. Two reasons for strict liability
a. Deterrence
i. De bussche v alt 1878
1. “by this strictness the temptation to embark in what must always be a
doubtful transaction is removed” (Lionel Smith: not a worthy goal for
private law)
b. Evidentiary complexity
i. Parker v mckenna 1874 James LJ:
1. ‘this court, is not entitled in my judgement, to receive evidence, or
suggestion, or argument as to whether the principal did or did not suffer
any injury in fact by reason of the dealing of the agent; for the safety of
mankind requires that no agent shall be able to put his principal to the
danger of such an inquiry as that.’
c. Murad v Al-Saraj 2005
i. The rule should be relaxed
1. Allow the fiduciary to prove that the conflict of interests did not harm
the principal-> the principal is protected by switching the burden of
proof
ii. What can be said about
 1. Deterrence: arden LJ: shifting the burden unto the fiduciary to prove
his/her bona-fides will be enough of a deterrence
2. Evidential complexity Parker LJ: it may be said that commercial conduct
which in 1874 was thought to imperil the safety of mankind may not
necessarily be regarded nowadays with the same depth of concern.
H. Bringing the reasoning up to the 21st century
a. Evidential complexity
i. Princiapls should not be exposed to the risk of a complicated and inevitably
expensive litigation about hypothetical scenarios and internal states of mind
ii. The control which trustees enjoy over the trust acocujt make it very easy for
them to ‘seed’ evidence that would misdirect even the most sophistictade fact-
finding mechanisms that courts can now employ
iii. Lionel smith in “the motive not the deed’ 2003: the fiduciary would break her
duty if she puts the principal in a situation where he has to prove that a
potential conflict indeed materliased.
b. Pre-authorisation
i. R Flannigang ‘The strict character of fiduciary liability’ (NZLR 209)
1. “once established… consent is a complete answer to a claim of breach’
I. The remedy for a breach of fiduciary duty
a. Proprietary
i. The property which is the subject to the duty to account is held on a
constructive trust for the principal
ii. Priority in insolvency
iii. Property in species-increase of value
iv. Tracing
b. Personal
i. Ordinary debt
ii. The fiduciary has to give back the value of what she gained form the conflictual
transaction (equitable compensation)
iii. No priority over other creditors.
c. FHR European ventures LLP & Ors v Mankarious & Ors
i. Key point; any benefit (including bribes and secret commissions) received by a
fiduciary in breach of fiduciary duty would be held on constructive trust for the
principal
ii. Facts: D’s company entered into a brokerage agreement with the owner of a
hotel where it will seek to identify purchasers and obtain a commission when it
is sold
1. D’s company advised C’s to buy hotel.
2. C’s had no knowledge that D’s company was paid commission by the
buyer.
iii. Held by the supreme court that the commission was held on constructive trust
for the claimants
1. Lord Neuberger: equity does not permit an agent to rely on his own
wrong to justify retaining the benefit
 2. As he received the benefit as a result of his agency, he acquired it for his
principal
3. Bribes and secret commissions should belong to the principal as they
undermine trust in the commercial world.
iv. Simon J: the investors are not entitled to a proprietary remedy against cedar,
but were only entitled to the personal remedy of an account in equity.
d. Authorities for proprietary
i. AG for Hong Kong v Reid 1994
1. Facts: reid, a general attorney took bribes. He invested them
successfully, and the value of the property inflated
2. Lord Templeman: as a fiduciary to the crown, he should have given
them the money as soon as he received it. The false fiduciary held the
bribe on constructive trust since equity treats as done that which ought
to be done.
ii. Australia: unanimous HC in Grimald v Chamelon Mining NL
1. Due to remedial constructive trust?
iii. Broadman v Phipps
1. Etherton in European ventures: the order was for CT
e. Earlier authroities for personal: lister & Co v Stubs 1890
i. Facts: stubs, a foreman, employed by Lister & Co, a firm of textile
manufacturers, was entrusted with the task of buying dyestuffs at market
prices. He placed large orders with Varley & CO who paid him a secret
commission per order. Stubbs invested part of the commission in property in
York
1. Lindley LJ: Stubs is “liable to account for the commissions money the
moment he gets it. It is an obligation to pay and account… but the
relation between them is that of debtor and creditor; it is not that of
trustee and cestui que trust”
f. Recent authority for personal: Sinclair v Versailles
i. The appellant challenged a decision that it was not entitled to a proprietary
interest in the proceeds of sale of some shares which had been acquired with
the proceeds of a breach of trust.
1. THe claims gave rise to an issue as to what circumstances a proprietary
interest arises in
2. An issue as to what constitutes sufficient notice to defeat a person’s
claim that he is a purchaser for value without notice in good faith
3. And a number of otherissues relating to tracing claims
ii. The court analysed the conflicting decisions on these issues and decided that it
should follow Heiron and Lister, and Tyrrell for a number of reasons
1. Court decided not to follow privy council precedent and instead said
that as a court of appeal it should follow its own cases, any irregularities
should be remedied by the supreme court.
iii. Different rbeackdown
 1. Investors (the principal) provide money to invest to Cusheny the
fiduciary, he then buys shares in a known company and when the share
price is inflated: cushney sells shares (Which he bought before the
breach) for huge profit.
2. Lord Neuberger said there was no proprietary remedy.
g. The test in Sinclair
i. Lord Neuberger: s. 80 “a bribe paid to a fiduciary could not possibly be said to
be an asset which the fiduciary was under a duty to take for the beneficiary.
There can thus be said to be a fundamental distinction between
1. A fiduciary enriching himself by depriving a claimant of an a asset
2. And a fiduciary enriching himself by doing a wrong to the claimant.
ii. “a beneficiary of a fiduciary’s duties cannot claim a proprietary interest… unless
the asset or money
1. Is or has been beneficially the property of the beneficiary
2. Or the trustee acquired the asset or money by taking advantage of an
opportunity or right which was properly that of the beneficiary”
iii. In all other cases, the remedy will be personal.
h. Applying the test in FHR in the Court of appeal
i. Etherton MR
1. Does the commission fall into category 1?
a. No.
b. The money paid to Cedar was not ‘beneficially the property’ of
the investors.
2. what about category 2?
a. Yes
b. Cedar diverted form the investor group the opportunity to
acquire the hotel for up to 10million less than the Investor
Group actually paid.
i. FHR supreme court
i. Lord Neuberger:
1. The authorities are mixed-there is no one absolutely right answer
2. Therefore we should ask which answer will lead to more certainty. THe
answer: the simple one: all profits are held on trust.
3. Accepts that principal’s position is likely to have been worse off as a
result of the bribe/secret commission
4. Creditors of the principals are also not entitled to enjoy bribes.

Fiduciary duties tutorial 15 prep

Reading

A. Bray v Ford
a. Appellant was a governor of a college of which the respondent was vice chairman.
Simultaneously, respondet was acting as the solicitor to the college. As a result, he was
receiving money contrary to his fiduciary duty as vice chariman
 b. Judge held that a ‘person in a fiduciary poisiotn is not, unless otherwise expressly
provided, entitled to make a profit; he is not allowed to put himself in a position where
interest and duty conflict’ Solicitor was not allowed to profit.

Quistclose tutorial 14 prep

Reading for tutorial (open doc)

General Notes

A. Quistclose trust is a form of RT that may arise when funds are transferred for specific and
exclusive purposes
a. Twinsectra Ltd v Yardley
B. Transfer for specific and exclusive purpose
a. Transferor makes a transfer to a recipient for a specific purpose and no other prupose.
i. Funds transferred remain the property of transferor unless recipient applies
them for a specified purpose.
ii. If recipient becomes insolvenet before applying funds for that purpose, those
funds cannot be used to satisfy its creditors.
C. The QC trust
a. A loan is for an exclusive purpose and thus the beneficiary has a fiduciary duty to use it
(if at all) for that purpose and no other.
i. Trust arises because duty applies to a specific fund.
b. Lender parts with the loan funds on terms that do not exhaust its beneficial interest, the
borrower holds the funds on a RT for the lender.
c. Lender remains the beneficial owner of the funds unless the borrower exercises the
power to apply the funds for the specified purpose
d. The borrower must keep the funds separate from its own assets.
e. Breach of trust for borrower to use loan funds for any purpose other than specified
purpose
f. Borrower must return the funds to lender if
i. Purpose fails
ii. Power is not valid.
1. It is sufficiently certain to be valid if court can dictate that a given
application of funds is within terms or not.
a. Re Baden’s deed trusts
b. Mcphail v Doulton
g. Purpose of a qc is to prevent funds from being applied otherwise than in accordance
with the lender’s wishes.
D. Barclays Bank v QUistclose
a. Q made a loan to another company, to pay a dividend that those shareholders had
approved. That company paid funds into separate account with Barclays and agree with
Barclays that the funds would be used only to pay the dividend.
i. The company became insolvent before paying dividend. At insolvency, Barclays
recouped money and Q claimed funds
 b. Lord Wilberforce with majority:
i. The loan was made specifically to allow the other company to pay the approved
dividend and for no other purpose
ii. The funds did not become part of the assets of the company. Trust in favour of
Q
iii. Barclays had notice of trust and thus it was binding unto them.
iv. Since dividend could not be paid, funds should be returned to Q
v. If company used funds to pay the dividend, Q would have been left with a
remedy in debt as for any other loan.
E. Twinsectra v Yardley
a. Mr. Y obtained a loan from T for a property purchase. T insisted on receiving a solicitor’s
personal undertaking to secure the loan. Mr. Yardley’s solicitor, mr Leach, refused to
give it. Another solicitor, Mr. Sims, agreed to give the undertaking with the following
provisions
i. Loan money would be retained by them until acquisition of property
ii. Loan money would be utilised only for the acquisition of the property.
b. When S received the money, he transferred it to L. L paid it into client account from
which he made payments on Y’s instructions. Some of the funds were applied in buying
property and some were applied for other purposes
c. Loan was not repaid and T claimed from L
i. Argued that thefunds applied for other purposes, on the basis of dishonest
assistance in a breach of trust by Mr. S
d. The claim for dishonest assistance could only succeed if the court first found that the
funds were subject to a trust.
e. Court held there was a QC for the following reasons
i. Effect of undertaking was that loan funds belonged to T until applied in the
purchase of property.
ii. MR. S held money in trust for T but subject to a power to apply it by way of loan
to Y in accordance with the undertaking.
iii. The power was not void for uncertainty, it was clear that the funds claimed by
TL had not been applied in buying property.
iv. Breach of trust for Mr. S to pay money to Mr. L.
f. Lord Hoffman and Lord Millet, with whom the rest of the court agreed on this issue,
confirmed that the correct analysis of a QC trust is the resulting trust analysis above.
i. Lord Hoffman commented that a QC was similar to a retention of title clause,
although with a differnet object
1. Twinsectra paragraph 81
ii. However court held by majority that Mr. L had not been dishonest. Claim
against him failed.

Peter Millet, “the quistclose trust: who can enforce it”

A. Crticisms of lord millets analysis

 a. Seems wrong to state that B’s positive obligations to expend the trust monies in any
particular ways should be treated as trust duties. Should always be regarded as
personal.
b. The cornerstone of lord millet’s analysis is that under a QC trust
i. beneficial interest remains at all times in A until the money is properly
expended, and the imposition of any trust duties on B would necessarily
displace A’s interest.
ii. Given the scope of QC trusts, only by treating any duties upon B as personal
does Lord Millet’s analysis keep the quistcloset rust under the traditional
principles of trust law.

Cooper v PRG Powerhouse LTD

A. High court decided that a payment that is subject to a quistclose trust makes the payee fiduciary
for the benefit of the payer. THe effect is that if they become bankrupt, the payer is netitled to
trace his funds in the hands of the payee and may recover his funds priority over the creditors of
the payee.
a. Claimant had been the manging director of the defendant company. Purchased
Mercedes pursuant to a credit agreement and D agreed to discharge the instalment
payments on his behalf as part of the salary which he received. Later the claimant
resigned and it was agreed that claimant might keep the car in return for a lump sum.
b. It was expected D company would pay this to the car company. Cliaimant made
payment to defendant but before latter could pay the car company, D went into
administration and the payment failed.
c. Claimant brought proceedings for declaration that the sums paid were held on trust for
him and that he was entitled to a repayment of funds.
B. The issues
a. Whether a purpose trust had been created in favour of claimant
b. if so, whether claimant was entitled to trace funds in hands of defendant company
C. Court held in favour of the claimant and decided that on the evidence it was clear that the
payment by the claimant was impressed with a purpose trust to pay that sum to the car
company.
a. The effect was that D company became fiduciary in respect of sum received.
b. Failure to carry out the purpose meant that the claimant was entitled in equity, to trace
his funds back,
D. Caste comments
a. Objection to the imposition of a constructive trust in the context of a quistclose trust is
that such a trsut is not dependent on the intention of the lender or transferor.
i. Trust is created by courts in order to promote good conscience or to prevent
unjust enrichment.
b. The claimant’s (lender’s) equitable interest does not leave him until the sum is applied
for the purpose stipulated by the lender.
i. On receipt, the borrower merely acquires the legal title to the funds to be used
for the stipulated purpose.

Proprietary Estoppel
A. Typical example: Crabb v Arrun District Council 1976
a. LPMPA1989
i. 2(1) a contract for the sale or other disposition of an interest in land can only be
made in writing and only be incorporating all the terms which the parties have
expressly agreed in one document
b. Facts:
i. R owned land with access to a road owned by O (a local authority) at pointA. R
wanted to sell his land as two separate plots; he needs right of access at a
different point. R and O agreed in principle that a right of access would be
granted at point B. O constructed a new substantial gate at B. R sell plot 2. O
decided to retreat from understandings with R and resealed access point B
c. Scarman LJ held
i. O will grant R an easement of right of way.
B. The issues
a. Different patterns of facts/relationships that typically give rise to PE claim
b. Elements of the PE claim
i. Factual
ii. Unconscionability
c. Remedy
i. Size
ii. Nature
C. The elements of a PE claim-overview
a. To make a successful PE claim, the claimant must prove the following+ unconscionability
i. Representation: a statement or action (which can include silence or inaction) by
the defendant who ought to appreciate that the claimant is likely to rely on it.
ii. Reliance: an act by the claimant in the reasonable believe that he has or will get
an interest in land, induced by that statement or action
iii. Detriment: to the claimant if the defendant is entitled to resile from her
statement or action.
b. Gillet v Holt & Anor 2000
i. Lord Walker 225
1. “the doctrine of proprietary estoppel cannot be treated as subdivided
into three or four watertight compartments… the quality of the relevant
assurances muay influence the issue of reliance… reliance and
detriment are often intertwined… and the fundamental principle that
equity is concerned to prevent unconscionable conduct permeates all
the elements of the doctrine. In the end, the court must look at the
matter in the round”
c. The remedy
i. In response to a successful PE claim, the court may transfer, change the nature
of, or altogether abolish proprietary rights.
ii. This is done without requiring first that the parties abide by the strict rules of
formality that normally govern transactions of that kind, so as to ensure the
stability and clarity of proprietary rights
 1. PE Disrupts the good order of property law
D. three types of PE
a. common expectation: O and R have consistently dealt with each other in such a way as
reasonably to cause R to rely on a shared supposition that she would acquire rights of
some kind in O’s land”
b. imperfect gift: usually argued for by an R who had extensive intimate relationships with
O, focused on the way the defendant’s failure to complete the gift belies the legitimiate
expectations R had as a result of the very specific relationship they had.
c. Acquiescence: R acts to his detriment in the mistaken belief that he has an interest in
land which in fact belongs to O. O realises what is happening and does not correct Rs
mistake.
E. iMperfect gift PE
a. THorner v Major 2009
i. Facts: peter Thorner was a farmer. David T was his cousin. David, R, worked on
Peter’s, O’s farm for 30 years without pay. R expected to inherit O’s farm, O died
intestate
ii. Held that it is possible for a representation to be made by conduct alone, so
long as the conduct conveys the message to a reasonable person sufficiently
clearly that the claimant was to have a proprietary interest in the land.
F. Common Expectation PE: HAQ v Island Homes
a. Facts: r started works to build a new supermarket before the lawyers finalised the
agreement. He was allowed to enter the premises and carry out substantial building
works prior to the final conclusion of an agreement for a new lease
b. Why R acted in that way: starting early would have enabled him to open the store
sooner, and pay the higher rent as set in the proposed deal
c. Held that R did not rely on O’s representation. R committed himself to building contract
before the parties arrived at the ‘agreement in principle’ and before they obtained from
O the keys that allowed them access to the new premises.
G. CE PE: economic justification
a. In most exchanges, the parties have opportunities to make pre-contractual investments
that render the bargain more valuable
b. Obstacle in the way of the ideal pre-contractual investment decisions: a ‘holdup’ trap. A
crafty player may take advantage of a situation where the other party invested more
heavily and raise the price to just below the point where R will prefer to give up the
sunken costs of the investment and cut the losses
c. The result is a chilling effect.
d. The solution: PE that ensures that the investor will get her investemtn back if the deal is
aborted and O is unconsinoable
H. The reliance element
a. The test of whether R’s expectation is worthy of protection is put in terms of
reasonableness
i. He must show that O’s representation could have reasonably been interpreted
as inviting reliance
 b. Cobbe: ‘it is not enough to hope, or even to have a confident expectation, that the
person who has given assurances will eventually do the proper thing’
I. Crown Melbourne Limited v Cosmopolitan Hotel
a. Facts: R argued that his landlord is bound to grant him a further 5 years lease once the
initial term had expired. IN spite of there being no written contract to his effect, R
argued that O assure him during the pre-contractual negotiations that he would be
‘looked after at renewal time’
b. Held that “the statement is not capable of conveying to a reasonable person that the
tenants would be offered a further lease.
J. Causal link between representation and detriment elements
a. Haq v Island Homes, the fact that they committed to themselves to the building contract
before reaching an agreement in principle with O, and before they obtained from O the
keys to the new premises shows that the pre-contractual investment was not done in
reliance on O’s representation; rather it was done out of hope
b. This requirement is crucial for the proper function of the doctrine, as without it, R may
be tempted to make substantive investment on a hint of commitment on O’s part in
order to secure the deal
i. An opposite ‘hold up’ problem is created: o will refrain from making efficiency-
increasing representation out of fear that R will exploit it to make risk-free over
investment.
K. The role of consionability
a. View 1: the reference to conscience is merely a fancy way of disclosing that equity
intervenes in the situation: can be discarded
b. View 2: handley J (UNSW SC extra judicially) ‘reference to unconscionability in this
context is unhelpful, unnecessary and unsatisfactory
c. View 3: conscionability is an essential element of PE>
i. Crabb v Arune: ‘the court cannot find any equity… unless it is prepared… to say
that it would be unconscionable and unjust to allow the defendant to set up
their undoubted rights against the cliaim being made by the plaintiff.
d. Davides v Davies- the cowshed Cinderella
i. Viv spent 25 years working on her parent’s dairy farm in Wales. She presented a
Cinderalla story of unappreciated work on the farm and being forced to stay at
home while 2 sisters went out. She asserted that her reward for years of low
pay was a promised share of the farm. At various stages she was given
assurances that she was entitled to a share in land and assets. The relationship
was fractious and the daughter left the farm on three separate occasions after
falling out with parents. However, each time reconciliation was achieved via
promises made that she will get the farm.
ii. High Court: given the ups and downs of their relationship it could not be said
that Erian positioned her whole life on the basis of her parents’ assurances, and
therefore the expected benefit, cannot be said to be ‘equivalent or not
disproportionate.’
 1. A lump sum of 1.3 million, representing a third of the famr’s value
would be a fair reflection of expectation and detriment and other
factors.
iii. CA Lewison LJ
1. Reduced Eirian’s share to 500k. The fact that Erian left the farm on 2
occasions (once following an argument and once when she found out
that parents did not sign partnership agreement) changed the whole
picture, as when she left she had no expectations regarding the farm.
iv. Criticism of CA
1. The sum awared to her by the CA was far below 1/3 share she would get
under the will that discounted all her life work in the farm
2. The reality of everyday relationship is that people tend to physically
leave the toxic situation without giving up on the expectations that the
other party created in her representations
3. The method Lewison chose of a mechanical calculation of how much
she would have earned had she been paid property and subtracting
countervailing benefits like accommodation and with reference to a
distinction between dividends, shareholder titles and freehold is wholly
unsuitable to the relationship at hand, since the assurances were made
between family members, not as between sophisticated business
partners Davies v Davies 28
L. The remedy; expectation or reliance?
a. Crabb v Arun District Council 1976: Scarman LJ Looked for the ‘minimum equity that is
required to do justice’ to R. In that case, a ‘history of delay and indeed high-handedness
‘that caused a ‘sterilisation of an industrial estate for a very considerable period of time’
led the court to award R more than his expectation interest: free proprietary right of
access
b. In many of the recent cases in which Pe was successfully argued, the claimant ended up
getting the value of his or her expectation. O was often forced to maker her
representation good.
M. How to explain the remedy
a. View 1: the courts deserted Scarman LJ’s standard of ‘minimum required equity’
standard
b. View 2: McFarlane, Robertson, Bright: the courts emphasis again and again that the
remedy must be in tune with the claimant’s reliance rather than fixed at the expectation
level. The reason why the remedy still ends up satisfying the claimant’s expectation
interest is that in the knotty circumstances typical of PE it may well be the only way to
ensure that the harm to R is adequately redressed.
N. Acquiescence-based PE
a. The typical scenario
i. R acts to his detriment in the mistaken belief that he has an interest in land
which in fact belongs to O
ii. O realises what is happening and does nothing to correct R’s belief and save him
from the mistake.
 iii. O insists on her property rights after R relies to his detriment.
b. Why is equity intervening?
i. No duty to rescue in common law
1. In England and wales there is no criminal liability for failing to rescue
a. Exception: special relationship between the victim and the
person who failed to act (like parent and child; person in public
office, like police officer)
2. French and other continental codes
a. Art. 63(2) of Penal Code; “any person who voluntarily fails to
render assistance to a person in peril which he or she could
have given either personally or by calling for help, without
personal danger or danger to others is guilty of an offence 4
O. Legal liability for omissions
a. Why should the law regulate behaviour through proscribing harmful acts and not
through orders to benefit
i. Cheaper: abstentions are easier to adhere to and their benefit is more widely
distributed-not enough
ii. Intrusiveness-acts requires more resources (time, money attention)
iii. Authorship and the danger of diluting our sense of personal responsibility- to be
responsible you must be sufficiently connected to the scene.
b. Ramsden v Dyson 1886
i. Lord Cranworth LC:
1. ‘if a stranger beings to build on my land, supposing it to be his own and
I, perceiving his mistake, abstain from setting him right and leave him to
persevere in his error, a court of equity will not allow me afterwards to
assert my right… it considers that when I saw the mistake to which he
has fallen, it was my duty to be active and assert my adverse title, and
that it would be dishonest in me to remain wilfully passive on such an
occasion, in order afterwards to profit by the mistake that I might have
prevented
2. O can exploit Rs ignorance to generate illicit profit: equity intervents to
assume an agreement on O’s part to transfer the property right, and to
enforce it in spite of its informal state.
c. Bibby v stirling 1998
i. Facts: attached to Mrs/ B’s house was a valuable strip of land. The stirlings (r)
were allowed to use the land for many years, in return for modest rent. At some
point they built substantial greenhouse. When Mrs. B (O) asked R to vacate
land, R refused and argued that a representation had been made to her that
they could enjoy the occupation of the strip for as long as they lived in the
house. On the basis of which they invested in the greenhouse.
ii. Held: O is estopped from demanding the removal of the greenhouse.
iii. Lord Millet Asked: “must it have been obvious to O when he saw his neighbour
building the greenhouse that R belived that he had more than a eyarly tenancy
or licence of the strip? When we consider the scale of the operation involved in
 the erection fo the greenhouse, said Lord millet, the answer to the question
must be ‘yes’

Consequences of a breach of trust

A. Example
a. You are a new solicitor and you and two other are appointed as trustees of a trust that
has just been set up
b. What are your powers and duties
i. Read the trust deed!
c. Deed provides: no investments are excluded; trustees have a power to advance up to
one third of the capital to each beneficiary
d. Trust ufnd: 10k in bank account and 10k invested in sourdough supplier company.
e. One year later:
i. Passively left investment alone
ii. Sourdough investment running at a loss
iii. Advancement of 300 to wrong person
iv. You have not spoken to co trustees and they are not answering your calls.
B. Consequences
a. Poor reputation
b. Removal/replacement
c. Arguably worse: trustees may be ordered to repay losses out of their own pocket.
C. Context
a. Suing trustees personally (this topic)
b. Third parties may also be liable for their (wrongful) dealings with trust property (TP
liability, next topic.
c. Beneficiary may also have proprietary remedies to reclaim assets for the trust fund
(tracing: topic 19)
D. Determining liability
a. Taking an account
i. What is an account
1. Mechanism that developed in court of chancery
2. Direct enforcement of rights and duties
3. Turstees have a duty to account for their stewardship of the trust and a
duty to make available the trust accounts
4. Beneficiaries have the right to ask for an account to be taken and the
court will order turstees to produce their accounts of the trust fund.
ii. There are two categories of deficit to be made by trustees
1. Unathorised disbursements: e.g. making an investment not permitted
by the trust deed
2. Poor performance: e.g. making a permitted investment in breach of
duty to take care.
b. Liability type 1: unathorised disbursements
i. Trustee applies trust asset in a way not authorised by the trust deed (ultra vires)
ii. Examples
 1. payying money to somebody who is not a beneficiary
2. Spending money on an investment not permitted in trust deed
3. Misappropriation of an asset to the trustee’s personal use
4. Selling an asset without complying with some prerequisitie stated in the
trust deed, such as consulting with an expert valuer.
iii. Consequences
1. Lord millet in libertarian investments v hall 2013 at {168}
a. ‘if the account discloses an unauthorised disbursement the
plaintiff may falsify it, that is to say ask for the disbursement to
be disallowed. This will produce a deficit which the defendant
must make good, either in specie or in money’
i. Crossed out as if it never happened
ii. It is the turstee’s problem
b. The value of the fund is now less in reality than on paper, and
the trustee is under a duty to make substitutive performance
i. Repay the value
ii. Or if it is a specific asset, restore it to the trust fund.
c. Liability is strict.
2. Examples: paying 5k to someone who is not a beneficiary
a. Beneficiary may falsify the payment, trustee now liable to repay
5k to the trust fund
3. Pt2: trustee spends 5k on an investment that was not authorised by
deed
a. Beneficiary may falsify this investment
i. Treated as trustee’s personal investment, so trustee
repays 5k to trust fund,
ii. Or trustee sells the investment and spends the
proceeds on a permitted investments. If proceeds less
than 5k, the trustee repays.
b. But if the unauthorised investment was profitable, beneficiary
can instead choose to adopt the investment.
c. Liability type 2: poor performance
i. This type of liability covers proper, intra vires disbursements that were made
negligently, or a failure to gain property which the trustee ought to have gained
ii. Example
1. Trustee invests 10k in shares over time
a. The shares are in gaming software companies- this is permitted
by the trust deed
b. But trustee has not been exercising reasonable skill and care (s.
1(1) trustee act 2000)
c. Had trustee done so, would have made differnet investment
decisions and made more money for the trust
iii. Elements
1. Beneficiary
 a. Not just taking an account, but alleging Wilful default
b. Must prove breach of duty and Loss (including failure to gain)
2. Proving loss
a. Nestle v Nat west 1993
i. Claimant argued that trustee bank had invested
negligently and failed to make gains
1. 270k value after 60 years vs 1.8 million argued
value by claimant
ii. But claimant had not provided proof that a trustee
complying with duties would have added more value.
b. Trustee complying with duties is not liable for investment losses
that would have happened anyway (housing bubble bursts,
stock market crashes)
iv. Consequences of poor performance
1. Keep the investment and surcharge the account by the amount which a
careful trustee would have earned for the trust
a. Treated as if they had obtained the omitted value
b. Trustee is ordered to pay compensation for the difference.
2. Back to the 10k investment in breach of duty of care, now worth 11k
but reasonable trustee would have made 14k. the account is surcharged
with 3k.
a. Because it is permitted, the investment stayson the account and
cannot be falsified.
d. Recap on account
i. Unauthorized disbursement-> falsified (treated as if not made) and trustee
makes up the difference
ii. Authorised but poor performance-> prove breach of duty caused loss->
surcharged (difference is noted on the account) and trustee makes up the
difference.e
e. other claims
i. order or injunction
1. e.g. to restrain a payment in breach of trust
ii. declaration of the court
1. e..g that the proposed course of action would be in breach of trust
a. cowan v scargill 1985
iii. treat unauthorised profits as being held for the trust
iv. remove or replace an untrustworthy trustee
E. the commercial bare trust- a new measure of liability?
a. Question?
i. Is accounting mechanism useful when there is a trust with no account
1. Bare trusts, short term in nature, that arise to ensure performance of
some obligation under a contract
2. Obligation could be for bare trustee to release money to a customer on
strict instruction
 3. What if the trustee does not fulfil instructions when releasing money
and money is lost- but the lsos would have happened anyway?
4. Courts have disregarded account mechanism and developed a simplified
compensation rule
5. Tradition vs commercial trusts
b. Target holdings v redferns 1996
i. TH gave 1. 7 to redferns solicitors to be loaned to crowngate developments to
buy a property. TH instructed R not to release the funds until the purchase was
completed. However, R released the funds to intermediary pruchasers prior to
completion. Therefore, rbeaching terms of agreement. R argued that even
though they have breached the trust, it had nothing to do with the loss that TH
had incurre.d the court of appeal ordered R to restore the whole of the loan less
500k recovered on the sale of the property. R subsequently appealed.
ii. Should R have had to repay all losses incurred or just the loss resulting from
their breach of trust.
iii. Appeal allowed
1. Trustee in rbeach was only liable to compensate for losses caused by
the breach. The court argued that the causation element does apply in
breach of trust in contrast to the fiduciary relationship. The
compensation was said to be similar to breach fo contract and liability in
tort. In other words, breach of trust is equated to breach of contract
and tortious liability where causation is required.
iv. School notes
1. HOL Lord Brown Wilkinson
a. Since the loss would have happened anyway, Redferns could
not be liable for it.
b. It ‘flies in the face of common sense’ p. 436 to allow Target to
recover the full amount
c. No liability to repay.
v. Decision seems intuitively correct: target did not lose anything (except a small
amount of interest) by the breach itself, and the los was due to external factors
1. Controversy because the decision seemed to disregard using the
traditiaonl falsification mechanis in favour of a principle of
compensation for loss.
vi. Lord BW 435:
1. “it is in any event wrong to lift wholesale the detailed rules developed in
the context of traditional trusts and then seek to apply them to trusts of
quite a different kind. In the modern world the trust become a valuable
device in commercial and financial dealing…. It is important, fi the trust
is not to be rendered commercially useless, to distinguish between the
basic principles of trust law and those specialist rules developed in
relation to traditional trusts which are applicable only to such rusts and
the rationale of which ahs no application to tursts of quite a different
kind”
 2. 436: “but to import into a trust an obligation to restore the trust fund
once the transaction ahs been completed would be entirely artificial…’
a. ‘the obligation to reconstitute the trust fund applicable in the
case of traditional trusts reflects the fact that no one beneficiary
is entitled to the trust property and the need to compensate all
beneficiaries for the breach… once a conveyancing transaction
has been completed the client has no right to have the
solicitor’s account reconstituted as a “trust fund”
vii. Justified?
1. There is no trust account to be falsified
2. Trust is a mere vehicle “designed to give effect to the solicitor’s status
as custodian of the client’s fund’
3. Note: target did eventually get its charge.
4. Obiter suggestion mthat equitable compensation and common law
damages based on same principles.
c. AIB group plc v mark redler & co solicitors
i. M had acted for bank regarding a mortgage advance of 3.3 million. IN same
transaction, M were acting for their clients S who were re mortgaging with the
B’s ufnds. S’s property was already subject to a 1.5 mortgage in favour of
another bank (k)
1. Sinstructed M to pay B’s advance to discharge K’s existing charge.
However M miscalculated the funds required to discharge K’s mortgage.
Therefore there was a shortfall of 300k. B’s charge was registered as a
secondary charge and K’s charge remained. Remainder of mortgage
advance was paid to S. S defaulted on mortgage payments to B.
Property was repo’d and sold by K for 1.2 million of which B received
900k. B claimed it was entitled to the full amount of its loan, less the
amount already recovered
2. Court of appeal ruled against B
a. It would be a backward step to depart from Lord BW’s analysis
in Target holdings. In this case, there had been no fraud.
Terhefore, B will havre uffered loss even if M had properly
performed their duties. Thus it would not be equitable to
impose a rule that gave redress to B for their loss.
ii. School notes
1. Traditional account approach- account is taken on the basis that the
asset I still in the fund and the trustee pays 2.4 million
2. Or modern target approach, put the account in the position it would
have been but for the breach, trustee pays 300k.
3. SC adopted the target approach: awarding the 2.4 would be (65)
‘artificial and unrealistic) would sound like ‘fairy tales’ [69]
a. 64: “where there has been a breach of that duty, the basic
purpose of any remedy will be either to put the beneficiary in
the same position as if the breach had not occurred or to vest in
 the beneficiary any profit which the trustee may have made by
reason of the breach (and which ought therefore properly to be
held on behalf of the beneficiary”
4. Lord Toulson 71
a. ‘the extent of equitable compensation should be the same as if
damages for breach of contract were sought at common law.
That is not because there should be a departure in such a case
from the basic equitable principles applicable to a breach of
trust, whether by a solicitor or anyone else…. Rather the fact
that the trust was part of the machinery for the performance of
a contract is relevant as a fact in looking at what loss the bank
suffered by reason of the breach of trust’
5. AIB Group applies the same ‘common sense’ principle as target
holdings: claimant can only recover for losses caused by the rbeach
a. But contrast Target holdings (breach was ‘fixed’ within one
month when the charge was obtained) with AIB group (the first
charge was never obtained
i. But see Lord Toulson 74: ‘as a commercial matter the
transaction was executed or ‘completed’ when the loan
moneis were released to the borrowers’
b. Equity vs common law
iii. Commentary on AIB group
1. L Ho and R Nolan ‘the performance interest in the law of trusts’ 2020
a. ‘the remedial structure of the law of trusts seeks to hold the
trustees to performance of their promise, or to provide the
nearest monetary approximation to performance, rather than
seeking to compensate beneficiaries for loss caused by the
trustees’ non performance’
2. M Yip and J Lee ‘the commercialisation of Euqity’ 2017
a. ‘In AIB, lord toulosn, seemingly without a full appreciation of
the underlying conceptual significance, hastily concluded that
the terminology had been replaced by the vocabulary of
‘equitable compensation’. The English abolition of the
accounting rules- in particular, the falsification of account- is
silently reforming the core obligation of trusteeship’
i. Symptomatic of a primacy of commercialist pragmatism
in the SC’s reasoning. Quite clearly, the supreme courts’
objective in AIB was to simplify the remedial rules for
breach of trust’
d. Subsequent cases
i. Main v gimabrone & law 2017
1. Investors’ deposit funds were held on trust by solicitor- had transferred
them to developers without authorisation
2. Held funds could be recovered from trustee
 3. Jackson LJ said duty was to ‘act as custodians of the deposit monies
indefinitely’ (para 61)
ii. Auden Mckenzie Ltd v Patel 2019
1. Director-shareholders misappropriated company funds, argued that
they would have received funds lawfully anyways- as shareholder
dividends.
2. CA set aside summary judgement for company.
F. Other matters: set off and approptioning liability
a. Set off profit vs loss
i. What happens if the account reveals both gains made from trustees’ good
investment decisions, and losses made from poor performance (type2)? Can
trustees set off profits against losses?
ii. The general rule is that they cannot: gains are for the beneficiaries, and losses
are for the trustees
iii. Exception: when the loss and the gain relate to the same scheme of
investments.
iv. Bartlett v Barclays bank trust (No 1) 1980
1. Separate investments but part of the same scheme of investments
2. ‘ I think it would be unjust to deprive the bank of the element of salvage
in the course of assessing the cost of the shipwreck (p. 538)
b. Apportioning liability
i. Starting point: innocent trustee is not vicariously liable for co-trusrtee’s breach
ii. BUT Bahin v Hughes 1886 (Ca) Cotton LJ [396]
1. ‘it would be laying down a wrong rule to hold that where one trustee
acts honestly, though erroensouly, the other trustee is to be held
entitled to indemnity who by doing nothing neglects his duty more than
the acting trustee’
iii. Trustees have a duty to make decisions unanimously
iv. Where cotrustees have partaken in the same breach of trust, they are jointly
and severally liable
v. A beneficiary could so co-trustee for the lot or sue everyone.
c. Contribution and indemnity
i. Contribution: turstees A B and C who are jointly liable may not be equally liable
1. Civil liability (contribution) act 1978, S. 6: the liability of a given D shall
be ‘such as may be found by the court to be just and equitable having
regard to the extent of that person’s responsibility for the damage in
question’
ii. Indemnity: a can be fully indemnified where B was responsible for the loss
1. e.g. where A was a lay trustee entirely relying on the advice of B, a
professional trustee
a. what if A is also culpable? Re turner 1897
G. avoiding liability: defences
a. list
i. exemption clauses
 ii. statutory relief-s. 61 Trustee Act 1925
iii. Limitation
iv. Laches
v. Authorisation by the beneficiaries.
b. Exemption clauses
i. An exemption clause excuses a trustee from liability to pay compensation where
the liability is within its scope.
1. Example
a. Trustee inadvertenyl pays 20k to beneficiary without authority
b. Deed contains ‘a trustee shall not be liable for loss or damagre
which may happen to the fund from any cause whatsoever
unless such loss or damage shall be caused by his own actual
fraud’
c. The trustee does not have to repay 20k
d. Trust fund takes the loss instead.
ii. Why are they included in trust deeds
1. Encourage taking on onerous role of trusteeship
2. Settlor has freedom to decide terms
3. Lay trustees v professional trustees
iii. But do they defeat the purpose of setting up a trust
1. Armitage v Nurse 1998 (CA): cannot exclude the ‘irreducible core of
obligations owed by the trustees to the beneficiares’ duty ‘to perform
the trusts honestly and in good faith for the benefit of the beneficiaries’
2. Spread Trustee Co Ltd v Hutcheson 2012
c. Statutory relief
i. Court may exercise discretion to relieve trustee from liability
ii. Last chance for mercy
1. Emerged in late 19th century, before prevalence of exemption clauses
2. Evolution: trusts in middle ages (passively holding land) to trusts in
industrial age (active duties to manage money and shares for families of
new merchant class)
3. Trusteeship was unpaid and taken on by laypeople without investment
expertise who found themselves innocently in breach
a. Typically a ‘farmer… who from a sense of cronyship has
consented to act as aturstee under the will of a neighbour with
whom on market days he has often had a friendly glass’
4. Court had no power to relieve those well-intentioned trustees-calls for
legislative reform.
iii. Trustee act 1925 s. 61
1. ‘if it appears to the court that a trustee... is or may be personally liable
for any breach of trust… but has acted honestly and reasonably and
ought fairly to be excused for the breach and for omitting to obtain the
directions of the court… then the court may relieve him either wholly or
partly from personal liability for the same’
 iv. S. 61 requirements
1. ‘if it appears to the court…’
2. ‘is or may be personally liable’
3. Trustee acted honestly and reaosnabyl
a. ‘honestly’
b. ‘reasonably’
i. Re turner 1897
ii. compare with s. 1(1) trustee act 2000
4. trustees ought fairly to be excused
a. should beneficiaries bear the loss instead.
v. Statutory relief
1. What about a deliberate unauthorised act that the trustee though
necessary?
2. Settlor’s wishes v trustee’s decisions
3. Perrins v bellamy 1899
a. ‘my old master, the late Selwyn LJ, used to say: “the main duty
of a trustee is to commit judicious breaches of trust”
vi. Re pauling’s settlement tursts 1961(affirmed on appeal)
1. ‘the family were a united family, who at all material times, lived beyond
their means and were continually in grave financial difficulties’ p. 303
2. Trustee bank paid out money from the family trust to the children
beneficiaries after they turned 21, everyone knowing that the money
was really to pay for their mother’s debts, a new house when the old
one had to be sold
a. improper exercise of power-> falsification
b. trustees sought relief on s. 61 relying on beneficiaries consent.
c. CA refused relief for some outgoings but granted for others-it
was fair because beneficiaries had given informed consent.
d. Limitation: the starting point
i. Limitation act 1980 s. 21(3)
1. Subject to the preceding provisions of this section, an action by the
beneficiary to recover trust property or in respect of any breach of trust,
not being an action for which a period of limitation is prescribed by any
other provision of this act, shall not be brought after the expiration of 6
years from the date on which the right of action accrued.
ii. Special cases
1. S. 21(1)
a. No period of limitation prescribed by this act shall apply to an
action by a beneficiary under a trust, being an action
i. A) in respect of any fraud or fraudulent breach fo trust
to which the trustee was a party or privy
ii. Or
iii. B) to recover from the trustee trust property or the
proceeds of trust property in the possession of the
 trustee, or previously received by the trustee and
converted to his use.
2. Burnden Holidngs UK Ltd v Fielding 2018
a. Misapplication of company funds
i. D’s argued that claim by liquidators was out of time.
b. Held that company directors were ‘trustees’ within the meaning
of the limitation act 1980
i. The funds were vested in corporate vehicles rather than
the trustees themselves, but Sc nevertheless held that
the funds were ‘previously received by the trustee and
converted to his use’ so came within s. 21(1(b)) claims,
for which no limit.
3. Minors: six years from date when achieved full age- limitation act s.
28(1) and 38(2)
e. Laches: equitable defence to a claim brought after unconscionable delay
i. Lindsay Petroleum Co v Hurd 1874
ii. Limitation act 19280 s. 36(2): ‘nothing in this act shall effect any equitable
jurisdiction to refuse relief on the ground of acquiescence or otherwise’
f. Authorisation
i. If the beneficiaries have authorised a course of action that would be a breach of
trust, they will not be able to claim compensation from the trustees for the
same breach
ii. Full age and capacity, and unanimous decision (or acquiescence)
iii. Before or after the trustee has acted
iv. Re Paulings Settlement Trusts 1961 (Wilberforce J)
1. ‘the court has to consider all the cirucmstnaces in which the
concurrence of the cestei que trust was given with a view to seeing
whether it is fair and equitable, that having given his concurrence, he
should afterwards turn round and sue the trustee’s
g. Defences: summary
i. Exemption clauses- can exclude liability for anything except dishonest conduct
ii. S. 61 trustee act 1925
1. Court can grant relief
2. Less used today (Santander UK plc v Ra legal solicitors 2014)
iii. Limitation, laches, authorisation.

Third party liability

A. Why sue a TP
a. The trustee may be insolvent
b. The trust asset may have been dissipated or sold to a bona fide purchaser with the sale
proceeds being dissipated (see tracing)
c. The trustee may benefit from an exemption clause
d. The trustee may be excused from liability under s. 61 trustee act 1925
e. Who are typical tp’s
 i. Interfered with due performance of trustee’s duties or facilitated a breach
ii. Solicitors, banks, bank employees, accountatns, company directors, or trustees’
clinets, with deep pockets and or indemnity insurance.
B. The nature of third party liability
a. Liability is personal, not proprietary
b. Need for balance between beneficaires’ rights and free operation of business
i. Royal brunei airlines v tan 1995 (lord nicchols)
1. ‘ordinary, everyday business would become impossible if third parties
were to be held liable for unknowingly interfering in the due
perfomrance of trusteeship’
ii. So liability is established on the basis of fault.
C. Two types of TP liability
a. Third party assistance with a breach of trust
i. Must be dishonest
b. Third party receipt of trust assets in breach of trusts
i. Must involve knowledge sufficient to make it unconscionable to use or retain
assets.
D. Constructive trusteeship
a. Courts said that third parties were sued ‘as if’ they were trustees and referred to them
as constructive trustees
b. Fiction?
c. But now seems discredited.

Third party liability 1: dishonest assistance

A. Example
a. B is a trustee of pristine family trust. A is a solicitor managing a personal client account
for B
b. B instructs A to pay money from account to account held in Crafty Bank by the Shifty
Shell Company. A receives several such instructions, paying 20k until account depleted.
c. It transpires that B’s money was entirely stolen from the pristine trust, there is no
money left in trust fund and B has disappeared.
d. Is A liable to repay anything.
B. Dishonest assistance
a. D has procured, induced, or lent assistance to trustee in the commission of the rbeach
of trust
b. Liability is based on fault
i. Would be unduly harsh and commercially nonsensical to hold D’s liable for vast
sums of money for innocently following trustee’s instructions
ii. But what should level of fault be? Courts have settled on dishonesty
C. The elements of dishonest assistance
a. Breach of trust or fiduciary duty
b. With which the third party assisted
c. And this assistance was dishonest.
D. Breach of trust or fiduciary duty
 a. There must be some breach of trust or fiduciary duty in the first place
b. Dishonest assistance liability is accessorial
c. Often, trustee will be dishonest too, but they need not be
i. Innocent or negligent trustee+ fraudulent adviser
ii. Royal Brunei Airlines v Tan clarified that the trustee need not have acted
dishonestly.
1. Facts:
a. Proceeds of sale was paid into wrong account. Should have
been paid into a specific account but instead the money was
paid into a current account with the assistance of the managing
director (tan). He didn’t have bad intentions and only wanted to
use the money on temporary basis and pay it back before
anyone knew it was missing. However company became
insovlent and claim of dishonest assistance was brough against
Tan
b. Lord nicchols held that the correct test of dishonesty to apply is
an objective one. IN other words, what an honest person would
do.
E. Assistance
a. There should at least be an act connected to the breach, not passive acquiescence
i. Brinks ltd v abu-shaleh no 3 1996
1. Trips to Switzerland to launder money that was stolen in breach of
fiduciary duty. Presence of wife on trips to make operation appear
innocent. Held that wife’s conduct did not amount to assistance
ii. Group seven ltd v notable services LLP 2019
1. ‘more than minimal assitance’
iii. Independent trustee service ltd v gp noble trustees ltd 2010
1. Facts
a. GP noble concerned proceedings ancillary to a divorce, but
underlying that was a fraud allegedly orchestrated by the
husband Mr Morris. Mr Morris had made a settlement in
respect of the divorce with his wife, reduced to a court order in
full and final settlement
b. Accordingly, the wife received some 1.5 million which was
traceable to the fraud. (the underlying breach of trust and
fiduciary duty)
c. However neither MRs Morris nor her solicitors knew of the
fraud, which made her a bona fide purchaser for value without
notice of the breach of trust or fiduciary duty. Therefore she
was not liable in the equitable proprietary claim for it
d. Later wife suspected non disclosure of her husband’s true
financial position. She therefore applied to the court to have the
original order set aside. Unbeknownst to her, fraud abstract of
funds had by then begun.
 e. The order was set aside, and the claimant then sued for the
return of 1.5 m from the wife. Notice of the claim ment notice
of the underlying fraud and breach of trust
f. At first instance, Holman J held that Mrs Morris could still rely
on the defence and refused the claim, claimant appealed.
2. Decision
a. Wife argued that upon the transfer, the bona fide purchaser
defence operated to fully extinguish the claimant’s equitable
interest, relying on dicta in Re Diplock.
b. Wilkes v Spooner also referred to old authority describing bona
fide purhcasers as ‘absolute owners’ of what they received. On
this basis, rescission or setting aside could not revive that equity
and therefore the defence stood.
c. Patten LJ however did not accept proposition as unqualified.
There was the exception in wilkes that if a trustee reacquires
the property after bona fide purchaser by a third party, she is
bound by beneficiary interest.
i. Hence it was said that equitable interest was not fully
extinguished, and is ‘either revived or remains
enforceable’ at 49. Patten LJ rejected the submission
that this would create uncertainty for subsequent
purchasers who would lose security of receipt. They
could rely on their own bona fide purchaser defence at
50
ii. While setting aside of judicial order was different to
rescission of a contract, for present purposes the effect
would be the same. Upon rescission or setting aside the
transferring transaction, wife was put in position she
would have been had it never come into effect (60)
iii. Given she thereafter had notice, she could not then rely
on the bona fide purchaser defence. Mrs M therefore
had to give up the 1.5 m and was left to compete with
Mr. M’s creditors for a share of his assets.
F. Dishonesty
a. Debate on level of fault required
b. Before Royal Brunei airlines v tan, courts asked what was the defendant’s level of
knowledge
c. Baden, Delvaux v Societe Generale 1993:
i. Five categories of knowledge
1. Rough idea
2. Knowing
3. Turning a blind eye because did not want to know
4. None of his business
5. Etc.
d. Agip (africa) ltd v Jackson 1990
i. Millet LJ 293 : ‘But if he did suspect wrongdoing yet failed to make inquiries
because “he did not want to know” (category ii) or because he regarded it as
‘none of his business’ (cat 3), that is quite another. Such conduct is dishonest,
and those who are guilty of it cannot complain if, for the purpose of civil
liability, they are treated as if they had actual knowledge’
e. Royal Brunei airlines v tan 1995
i. Clarification by privy council
1. Type of fault required is dishonest
2. Dishonest is to be assessed objectively
3. Held that Tan had acted dishonestly, he had caused the company to mix
beneficiary’s funds with other funds, knowing that the company did not
have authority to do so under the terms of the turst’
ii. Lord nicchols (PC) 389: ‘acting dishonestly or with a lack of probity, which is
synonymous, means simply not acting as an honest person would in the
circusmtnaces. This is an objective standard. At first sight this may seem
surprising. Honesty has a connotation of subjectivity, as distinct from the
objectivity of negligence.
1. Honesty, indeed, does have a strong subjective element in that it is a
description of a type of conduct assessed in the light of what a persin
actually knew at the time, as distinct from what a reasonable person
would have known or appreciated.
2. Honesty… concerned with advertent conduct, not inadvertent conduct.
Carelessess is not dishonesty… dishonesty is to be equated with
conscious impropriety’
iii. Cont 390-391:
1. ‘the circumstances will dictate which one or more of the possible
courses should be taken by an honest person. He might, for instance,
flatly decline to become involved. He might ask further questions….
Ultimately in most cases an honest person should have little difficulty in
knowing whether a proposed transaction… would offend the normally
accepted standards of conduct;
2. ‘likewise, when called upon to decide whether a person was acting
honestly, a court will look at all the cirucmstnaces known to the third
party at the time. THe court will also have regard to personal attributes
of the third party, such as his experience and intelligence, and the
reason why he acted as he did’
f. Twinectra ltd v Yardley 2002
i. Lord Hutton (majority)
1. Knowledge of facts
2. Rendering participation dishonest by the standards of honest people
3. And defendant must have realised the paritciaption was dishonest by
the standards of honest people
ii. Lord Millet (dissenting)
 1. Knowledge of facts
2. Rendering a participation dishonest by the standards of honest people.
iii. Explaining the dissent
1. D knew of terms of undertaking- this was enough to realise the money
was not at the free disposal of Y and D should not assist
2. 137: ‘the man in the street’ would see D’s actions as culpable.
3. Consistent with royal brunei
a. 121: ‘Lord N in (that case) was adopting an objective standard of
dishonest by which the defendant is expected to attain the
stadnrad which would be observed by an honest person placed
in similar circumstances
b. Account must be taken of subjective considerations such asD’s
experience and intelligence and his actual state of knowledge
at the relevant time. But it is not necessary that he should
actually have appreciated that he was acting dishonestly; it is
sufficient that he was’
4. Less defednatn friendly approach
g. Barclow Clowes v Eurotrust internation
i. Large payments with no apparent commercial purpose
1. D henwood ‘not of a naturally curious disposition concerning matters
which did not affect him personally and might no have applied his mind
to what was happening’ (6)
2. Eventually ‘strongyl suspected’ that money came from the investors
a. but continued to participate –‘exaggerated notion of dutiful
service to clinets, which produced a warped moral approach
that it was not improper to treat carrying out client’s as being all
important’ 12
3. PC advice: liable for dishonest assistance (objective test)
ii. Lord Hoffman 10
1. ‘liability for dishonest assistance requires a dishonest state of mind on
the part of the person who assist in a breach of trust. Such a state of
mind may consist in knowledge that the transaction is one in which he
cannot honestly participate (for example, a misappropriation of other
people’s money) or it may consist in a suspicion combined with a
conscious decision not to make inquiries which might result in
knowledge….
2. Although a dishonest state of mind is a subjective mental state, the
standard by which the law determines whether it is dishonest is
objective. If by ordinary standards, D’s mental state would be
characterised as dishonest. It is irrelevant that D judges by different
standards” ‘
iii. Hoffman 15
1. ‘their lordships accept that there is an element of ambiguity in these
remarks… that the Twinsectra case had departed from the law as
 previously understood and invited inquiry not merely into D’s mental
state about the nature of the transaction in which he was participating
but also into his views about generally acceptable standards of honesty.
I do not consider that this is what Lord Hutton meant.
2. ‘the reference to “what he knows would offend normally accepted
standards of honest conduct” meant only that his knowledge of the
transaction had to be such as to render his pariticpation contrary to
normally acceptable standards of conduct. It did not require that he
should have had reflections about what those normally acceptable
standards were’
h. Subsequent cases
i. Ivey v genting casinos UK ltd 2017
1. Cheating at gambling
2. SC redefined meaning of dishonest in criminal law from combined test
to objective test and endorsed the latter as applying to private law too
ii. Group seven ltd v notable services llp 2019
1. Supports objective test in barlow clowes and Ivey
2. S Williams 2021 35(1) Trust law internaiton 57
i. Summary of requirements
i. Knowledge of the facts or suspicion of facts with a failure to make inquiries that
might result in knowledge
ii. … that would render pariticpation dishonest
iii. …. According to ordinary standards, not according to D’s own morality
iv. … and D need not have realised that ordinary people would think they are
dishonest.
G. Remedies for dishonest assistance
a. Equitable compensation
i. Dishonest assister (DA) is jointly and severally liable with trustees
1. Considering DA are often sued because trustees cannot pay, DA will
often be liable for everything
2. DA May sue trustees for contribution- s. 2 Civil liability (contribution) act
1978
b. Account of profits
i. DA is liable for profits they personally made from the breach of trust or fiduciary
duty: Ultraframe UK Ltd v Fielding 2005
ii. Novoship Ltd v Nikitin 2014
1. DA not liable for profits caused by market fluctuations
H. Recap
a. D’s may be liable for dishonestly assisting with a breach of trust
b. Requirements
i. Breach of trust or fiduciary duty- even innocent breach
ii. Assistance- active not passive
iii. Dishonesty-objective but in light of what D knew
c. Remedies.
TP Liability 2: knowing receipt

A. Example
a. A trustee E steals 20k from trust fund and gives 2k as a gift to his wife F
b. F then spends all of the 2k on plane tickets
i. What does F know about the source of the money
ii. Does E normally make gifts like this.
B. When is knowing receipt useful
a. Similar situations to those in which dishonest assistance liability is useful
i. Trustee is action proof
ii. And trust assets or their traceable proceeds are lost
b. Unlike DA, one aspect of the knowing receipt (KR) claim is that D has held the trust
property at some point, so why not just claim the property?
i. KR useful if the trust property, traced through the hands of D has been
dissipated
1. Topic 19: but if not dissipated and no other bars to tracing, then trust
assets can be claimed directly from a Defendant currently holding them
a. No fault basis
b. Simple enforcement of the beneficiary’s proprietary rights.
C. Knowing receipt
a. D third party is laibel for receiving trust property beneficially and for their own use
b. Examples
i. An art dealer receives painting stolen from a trust by his friend, who is one of
the trustees of that trust
ii. A hotel bar receives money embezzled from a company
iii. A friend receives bribe proceeds as a gift from a civil servant who was induced
not to prosecute fraudsters.
c. As with DA liability, KR is based on D fault
i. Nature of fault has been subject of some debate as well.
D. Elements of knowing receipt
a. El Ajou v Dollar Land Holdings PLc 1994 (Hoffman LJ)
i. ‘the plaintiff must show
1. first, a disposal of his assets in breach of fiduciary duty;
2. secondly, the beneficial recept by D of assets which are traceable as
representing the assets of the plaintiff
3. thirdly, knowledge on the part of D that the assets received are
traceable to a breach of fiduciary duty’
E. The elements explored
a. disposal of his assets in breach of fiduciary duty;
i. examples
1. trustee makes an unauthorised disbursement from the trust fund
2. trustee or other fiduciary transfers their unauthorized profits to a third
party rather than holding them for beneficiary/principal
3. employee or agent of a company embezzles company funds- AGIP
(Africa)
b. the beneficial recept by D of assets which are traceable as representing the assets of the
plaintiff
i. traceable assets
1. ie: D received asset at some point, and the asset would have been
traceable
a. means if D has a defence to tracing, e.g. bona fide purchaser,
then knowing receipt is also unavailable.
ii. Beneficial receipt
1. For D’s own use
a. Trustee receives bribe of 10k and gifts half to parents, this is for
their own use-beneficial receipt
i. But trustee despots other half with agent, this is not for
agent’s own use-ministerial receipt
2. Do banks receive beneficially
a. One thought
i. Ban is mere agent of customer when customer deposits
money with bank
ii. So bank only receives ministerially and cannot be liable
in knowing receipt
iii. Exception fi deposit is to reduce an overdraft
1. Agip
a. ‘in paying or collecting money for a
customer the bank acts only as his
agent. It is otherwise however…. The
customer’s overdraft. In doing so it
receives the money for its own benefit’
b. Opposing view
i. Other school of thought notices that banks do benefit
from deposits
ii. A depost of 100 to your bank gives you a choice in
action against the bank- right to demand up to that
amount from atm or bank
iii. Bank technically has legal title to 100 but owes you
1. This benefits the banks as it uses customers’
deposits in its business of making loans to other
customers!
a. Suggested in Uzinterimpex JSC v
Standard Bank pLc 2008
c. The position of banks
i. The account holder can also be sued in knowing recipet
1. And in dishonest assistance if he or she took an
active role
a. The bank and its relevant employees
can be sued in dishonest assistance
 b. NB anti-money laundering regime
applies to bamks
i. Banks obliged to have
processes to mitigate risk and
report suspicious activity
ii. Processes can include refusing
to deal with forms of business
typically used to launder money
and or clients that pay frequent
and big sums of money to their
accounts.
iii. Fines under proceeds of crime
act 2002
iv. Does this regime reduce chance
that bank/employee will have
fault required for DA/KR
c. knowledge on the part of D that the assets received are traceable to a breach of
fiduciary duty’
i. T pays 2k to F who spends it on plane tickets
1. Was D’s (F) conscience affected by knowledge that this was trust
property
ii. Current statement of the law is from Bank of Credit and Commerce
International v Akindele
iii. Development of the law up to that point: categorisaiton of levels of knowledge
1. Baden, Delvaux v Societe Generale CH
a. Knowledge
i. Actual knowledge
ii. Wilfully shutting eyes to the obvious
iii. Eilfully and recklessly failing to make such inquiries as
an honest and reoasnable man would make
b. Constructive knowledge
i. Knowledge of circumstances which would indicate the
facts to an honest and reasonable man
ii. Knowledge of cirucmstnaces which would put an honest
and reasonable man on inquiry
c. This was previously a guide to fault for both DA and KR
1. Categorisaiton issues
2. Would constructive knowledge suffice for
liability?
3. Re Montagu’s settlement trusts 1987 CH
2. Bank of credit and commerce international v Akindele 2001
a. Claim by liquidators of bank of credit and commerce
international (BBCI) against defednatn A for 6.6m
 i. Purported agreement between A and ICIC, a company in
the same group as BCCI to buy and resell shares with
high rate of return- A invested 10m and received 6.6 m
profit.
ii. Was part of BCCI fraudulent plan to hid liquidity issues
from regulatros, customers, public
iii. A did not know fo specific plan, but by time of receipt,
had suspicious about bank’s reputation.
b. Norse LJ gave current position on fault element in knowing
receipt
i. 455: ‘The recipient’s state of knowledge must be such
as to make it unconsionabel for him to retain the
benefit of the receipt. A test in that form, though it
cannot avoid diffuclities in application, ought to avoid
those of definition and allocation to which the previous
categorisations have led. Moreover, it should better
enable the courts to give commonsense decisions in the
commercial context in which claims in knowing receipt
are now fraudulently made”
c. Held A not liable in knowing receipt
i. Judge had found nobody outside BCCI had reason to
doubt the integrity of transactions at the time
ii. D had no knowledge of the underlying fraud, either in
general or in relation to the agreement: he saw it
‘simply as an arm’s length business transaction’ and did
not suspect wrongdoing.
iii. Suspicious by the time of receipt were raised by news
including arrests, as well as warning from other banks-
but there were not reasons to question transaction.
iv. Murky issues
1. Clear that liability for receipt is not strict
a. Exception: receipt in breach of duty from the administrator of
an estate- RE diplock
2. Also clear that fault depends on knowledge and unconsinoability
a. Is unconsionabiliyt a clear standard?
b. Should fault level for receipt be different from that for
assistance?
c. Commercial context?
d. Should there be strict liability for receipt
3. Argument that liability should be strict
a. Defences would be
i. Change of position
ii. Bona fide purchaser
b. Back to earlier example with a modifcaiton
 i. W immediately liable to pay back 2k
ii. If in good faith W spent only 1k on holiday, pay back 1k
(the value left)
c. Based on common law claim for money had and received.
d. Lipkin Gorman v Karpnal 1991
i. Solicitor at lipkin law firm drew cheques on client
account and made them out to ‘cash”
ii. Spent money gambling at playboy club casino
iii. Held firm could trace into club’s hands and claim
restitution
iv. Subject to change of position defence
F. Remedies
a. Equitable compensation
i. Liability is personal
ii. Account for what was dissipated
iii. Increases in value of asset? Re Rothko 1977
b. Account of profits?
c. Contribution
i. S. 2 civil liability (contribution) act 1978
1. City index ltd v gawler 2007

Are TP’s constructive turstees?

A. Overview
a. Debate about the correct basis for holding third parties liable
b. One school of thought: they become constructive trustees
c. Other school of thought: they merely have a personal liability for wrongdoing
d. Implication e.g. for applicable statutory limitation periods: willaims v Central bank of
Nigeria 2014
i. Facts:
1. Claimant was a victim of fraud. He claimed he had been induced to pay
6 million to an individual who said he would hold the money on trust for
him. However the individual paid the money into another account held
with the bank
a. He claimed the bank was a party to fraud and sued the bank. He
argued the bank should trace the money and be held to account
because it had dishonestly assisted in the breach of trust. AS a
response, bank argued that an action brough against them
should be time barred under the Limitation act 1980. Court
ruled in favour of claimant
b. Bank appealed
ii. Held
1. Appeal was allowed
2. Limitation act 1980 s. 21(1(a) did not disapply s. 21(3) of the act because
it is only concerned with the actions against trustees and the bank was
 not a trustee. Neither was it a constructive trustee. Therefore 6 year
period applied.
B. One School of thought
a. Barnes v Addy 1874 CH
i. Lord Selbourne LC 252:
1. ‘strangers are not to be made constructive trustees merely because
thye act as the agents of trustees in transactions within their legal
powers, transactions, perhaps of hwihc a court of equity may
disapprove, unless those agents receive and become chargeable with
some part of the trust property, or unless they assit with knowledge in a
dishonest and fraudulent design on the part of the trustee’s
C. Other school of thought: they are not
a. Applying the term constructive trustee to dishonest assistants and knowing recipients if
fiction
b. Courts said that TP were liable as if they had become trustees
c. It can be misleading
i. Remedy is personal liability, not proprietary remedy to recover the asset
ii. D must be at fault (not the case for action to recover tursrt property from a
trustee or third party)
iii. Dishonest Assistant need not hold, and often has not held, trust property
d. it is unnecessary- DA and KR have developed as actions in their own right.
e. Paragon Finance PLC v DB Thackerar 1999
i. Millet LJ at 409: ‘Such a person is not in fact a trustee at all, even though he may
be liable to account as if he were. He never assumes the position of a trustee,
and if he receives the trust property at all it is adversely to the plaintiff by an
unlawful transaction which is impugned by the plaintiff. IN such a case, the
expressions ‘constructive trust; and ‘constructive trustee’ are misleading, for
there is no trust and usually no possibikity of a proprietary remedy; they are
‘nothing more than a formula for equitable relief’
D. Evaluation
a. While it is indeed difficult to characterise dishonest assistants as trustees
b. A D who is liable for knowing receipt is similar to a trustee
i. If you receive the trust asset, it can be claimed from you even if you are
innocent (tracing)
ii. If you then dispose of the asset, not liable unless meet elements of knowing
receipt
iii. If liable, must repay the trust the value of the disposed of asset- this is the same
ideas as falsification
c. Mitchell & Watterson ‘remedies for knowing receipt’ in C Mitchell (ed) Construcitve and
Resulting trusts 2010
i. 129: KR is a ‘distinctive, primary, custodial liability, which closely resembles the
liability of express turstees to account for the trsut property with which they are
charged’
E. Willaims v central bank of Nigeria 2014
 a. Recap on time limits for breach of trust
b. 6 years limit: ‘an action in respect of a breach of trust’ s. 21(3) limitation act 1980
c. No limit: fraud on recovery of trust property (s. 21(1) Limitation act 1980)
i. Action in respect of any fraudulent breach of trust to which the trustee was a
party or privy’ s. 21(1)(a))
1. Trusteeship argument; since trustee means constructive trustee it must
cover third parties
2. ‘in respect of’ argument; ‘in respect of’ is wide enough to cover an
action against a third party
d. SC majority dismissed both arguments. Therefore 6 year limit applies to actions against
DA and KR. Calimant had no remedy
e. On trusteeship argument
i. Lord Sumption JSC at 9: DA and KR are persons who never assumed and never
intended to assume the status of a trustee, whether formally or informally, but
have exposed themselves to equitable remedies by virtue of their participation
in the unlawful application of trust assets. Either they have dishonestly
assisted… or they have received trust assets knowing… IN either case, they may
be required by equity to account as if they were trustees or fiduciaries, although
they are not. These can conveniently be called cases of ancillary liability’
ii. Lord Sumption JSC at 31
1. ‘his possession is therefore at all times wrongful and adverse to the
rights of both the true trustees and the beneficaires… he does not have
the powers or duties of a trustee… his sole obligation of any practical
significance is to restore the assets immediately.
f. Is the majority decision coherent
i. Innocent/negligent trustee+ dishonest assiter=both protected from claims after
6 years
ii. Dishonest trustee+ dishonest assister- DA protected after 6 years, trustee could
be sued at any time
g. Lord mance JSC (dissenting) at 157: parliament’s intention was to treat dishonest
assisters in the same way as dishonest trustees
h. J Lee ‘constructing and limiting liability in equity’ 2015 131 Law Quarterly Review 39
i. Byers v Samba financial group 2021 CH at [110] Fancourt J

Tracing

A. Why make a proprietary claim

a. Priority in insolvency
b. Appreciation in value
c. Income or fruits of the property
i. Foskett v mckeown
1. Facts:
a. Mr. M was entrusted with money to invest overseas. Murphy
used 20k of that money to pay for the premium on a life
 insurance policy. He committed suicide. His children were paid
the 1million under the insurance policy. Mr Foskett and the
other investors sued the children, claiming a 40% share in the
policy monies.
b. The beneficiaries wanted the life insurance policy. They argued
that they had a proprietary interest in the insurance monies:
the insurance policy had been purchased using a proportion of
misapplied trust funds.
c. Children argued against it because they said they had done
nothing wrong.
2. Held
a. Investors and children held in the proportions that they had
paid the policy
b. The purchasers could clearly trace the money
c. Mixed funds belong proportionately to those who contributed
d. You can either follow the asset or the value.
e. Tracing is a process establishing a proprietary right: it is not a
claim or a remedy
f. Can make a claim against trustee for breach of trust to restore;
or asset ownership of the property representing the funds
taken.
3. Lord Millet 127: the process of ascertaining what happened to the
plaintiff’s money involves both tracing and following. These are both
exercises in locating assets which are or may be taken to represent an
asset belonging to the plaintiffs and to which they assert ownership
4. The processes of following and tracing are however distinct. Following is
the process of following the same asset as it moves form hand to hand.
Tracing is the process of identifying a new asset as the substitute for the
old. Where one asset is exchanged for another, a claimant can elect
whether to follow the original asset into the hands of the new owner or
trace its value into the new asset in hands of the same owner.
B. Tracing, following, claiming
a. Approaches to tracing: general
i. Common law-restrictive
1. No tracing into mixed funds
ii. Equity- more generous
1. Can trace into mixed funds
iii. What right are you relying on?
b. Tracing at common law
i. Variety of claims
1. Legal title-not beneficiaries
2. In rem claim
ii. Mixing?
1. Jones v de marchant
 iii. Change of form
1. Taylor v plumer
a. Held: lord ellensborough was clear that there must be a clean
substitute to trace at common law, such that the substituted
can be ascertained to represent the original property
b. So if you convert the property into money and mix that with
other money you lost the power to trace at common law
c. Common law tracing rarely appledi.
2. Unjust enrichment: lipkin Gorman v karpnale
3. FC Jones (trustee in bankruptcy) v jones
iv. No longer identifiable
1. Mixtures of money: agip v Jackson
a. Millet J 286: nothing passed between Tunisia and London but a
stream of electrons. It is not possible to treat the money
received by Lloyds bank in London or its correspondent bank in
new York as representing the proceeds of the payment order of
any other physical asset previously in its hands and delivered by
it in exchange for money.
c. Tracing in equity
i. Requirements
1. Equitable proprietary interest
2. Requirement of fiduciary relationship
a. The requirement has been widely condemned and depends on
authority rather than principle (agip)
i. Risk of distortions of fiduciary law
ii. Televantos LQR article.
b. Re diplock at 530: ‘equity may operate on the conscience not
merely of those who acquire a legal title in breach of some
trust, express or constructive, or of some other fiduciary
obligation, but of volunteers provided that as a result of what
has gone before some equitable proprietary interest has been
created and attached to the property in the hands of the
volunteer’
ii. Original form- no difficulty
1. Change of form- election between transfer or charge over acquisition
(foskett)
a. Lord Browne-Wilkinson
i. ‘this case unusually, raises the question which of two
innocent parties is to benefit from the activities of the
fraudster’
b. Lord Millet
i. 131: ‘accordingly, I would state the basic rule as follows.
Where a trustee wrongfully uses trust money to provide
part of the cost of acquiriign an asset, the beneficiary is
 entitled at his option either to claim a proportionate
share of the asset or to enforce a lien upon it to secure
his personal claim against the trustee for the amount of
the misapplied money. It does not matter whether the
trustee mixed the trust money with his own in a single
fund before using it to acquire the asset, or made
separate payments (whether simultaneously or
sequentially) out of the differently owned funds to
acquire a signle asset’
c. Lord Browne- 109: ‘the rules establishing equitable proprietary
interests and their enforceability against certain parties have
been developed over the centuries and are an integral part of
the property law of England. It is a fundamental error to think
that, because certain property rights are equitable rather than
legal, such rights are in some way discretionary
i. This case does nod depend on whether it is fair, just and
reasonable to give the purchasers an interest as a result
of which the court in its discretion provides a remedy. It
is a case of hard nosed property right;
d. Lord Hope- dissenting: 122: ‘I do not think that the purchasers
can demonstrate on these facts that they have a proprietary
right to a proportionate share of the proceeds. They cannot
show that their money contributed to any extent to, or
increased the value of, the amount paid to the trustees of the
policy. A substantially greater sum was paid out by the insurers
as death benefit than the total of the sums which they received
by way of payment.
i. A profit was made on the investment. But the terms of
the policy show that the amount which produced this
profit had been fixed from the outset when the first
premium was paid. Ti was attributable to the rights
obtained by the life assured when he paid the first
premium from his own money. No part of that sum was
attributable to value of the money taken from the
purchasers to pay the additional premiums;
iii. Mixed funds (equity)
1. Generally, equity does not have the same strict approach as common
law, so a beneficiary can trace into a mixed fund
a. Pennel v deffel
b. If the mixing is authorised (as is unlikely but possible) then
beneficiaries may claim the relevant proportion of the mixed
fund.
2. Money mixed with trustee’s funds
a. Frith v Cartland at 421:
 i. backof trust property in the same box on the other side,
and then takes out 500 and applies it to his own
purposes, the court will not allow him to say that
money was taken from the trust fund. The trust must
have its 1k so long as a sufficient sum remains in the
box
ii. money spent out of account will be trustee’s first
rather than trust: cannot say they used up trust money
first and then their own.
b. Re hallet’s estate
i. Facts: a solicitor sold shares he held on trust and paid
the proceeds into his own bank
ii. Held that on the death of the solicitor, the client was
entitled to recover from the bank account, where a
trustee has money in a personal bank account to which
trust money is added, the trustee is acting honestly
when paying money out of it.
1. Therefore, it is assumed that the trustee is
paying out o her own money on investments
which lose money and not the trust money->
therefore, it is said the trustee has rightfully
dissipated her own moneys such that the trust
money remains intact.
c. Limits of this case
i. Re Oatway, Joce J at 359
1. Held: the doctrine of honest trustee recognises
the basis of the trust in the conscience of the
trust; therefore not only is the court assuming
trustee was acting honestly, but it is also
applying the tenets of equity so as to require
him to act honestly
2. ‘it is in my opinion, equally clear that when any
of the money drawn out has been invested, and
the investment remains in the name or under
the control of the trustee, the rest of the
balance having been afterwards dissipated by
him, he cannot maintain that the investment
which remains represents his own money alone,
and that what has been spent and can no longer
be traced and recovered was the money
belonging to the trust’
ii. Turner v Jacob
d. Limit to Re hallet” lowest intermediate balance
i. James Roscoe Ltd v Winder, Sargant at 68-69
 1. Facts: trust fund was mixed with private money
in a bank account. The owner of the account
spent most of it reducing the total credit in the
bank to about 25 at one point. Money was later
paid in, resulting in a balance of 358 at his death
ii. Held: it was held that the seller could not claim more
than 25 from the deceaseds bank account, as this was
the lowest intermediate balance.
a. ‘you must, for the purpose of tracing,
which was the process adopted in re
hallet’s estate, put your finger on some
definite fund which either remains in its
original state or can be found in
another shape. That is tracing, and
tracing by the very facts of case seems
to be absolutely except as to the 25
pounds and 18 shillings.
iii. You must… put your finger on some definite fund
which either remains in its original state or can be
found in another shape.
3. Mixture of two claimant’s money?
a. Pro rata share in losses and profits
b. Withdrawals: first in, first out
i. Clayton’s case Grant MR at 608
1. Facts: there was a partnership that, in breach of
its fiduciary duty, sold treasury bills worth 1035
deposited by Clayton and kept the proceeds for
its own use. However, clayton continued to deal
with the bank and drew out sums greater than
the amount converted by the bankers
2. Held: it was held that clayton could have no
claim against estate in respect of the 1035 as
that debt was set against the later drawings.
3. ‘presumably it is the sum first paid in, that is
first drawn out. It is the first item on the debit
side of the account., that is discharged, or
reduced, by the first item on the credit side. The
appropriation is made by the very act of setting
the two items against each other. Upon that
principle, all accounts current are settled, and
particularly cash acocutns’
c. Barlow clowes international v Vaughan
i. Facts: an investment company went into liquidation
leaving insufficient claims to satisfy all its investors
 ii. Held: the rule in Clayton’s case was reafirremd as the
prima facie rule, but it cannot be applied if it would
result in injustice
1. Here the rules was not used, it was clear the
investors were investing in a common fund, so
would have been impracticable to apply the
clayton rule
2. The court of appeal favoured, by a majority, a
distribution to the investors pari passu rateably
in due proportions due to them .
iii. Woolf LJ at 39: ‘the rule need only be applied when it is
convenient to do so and when its application can be
said to do broad justice having regard to the nature of
the competing claims’
iv. Leggatt LJ at 46: in my judgement the so called ‘rule of
convenience’ would be exceedingly inconvenient in its
application here. A glance at the judge’s order shows
how complex it would be to apply’
v. Woolf 41: here what excludes the rule therefore is (a)
the pooling of the investments of a vast number of
investor by BCI for its own purposes
1. B) the fact this would not be contemplated by
the investors when they made their investment
2. C) the fact that all the moneys invested have
been misapplied, at least to some extent, when
part of the pool because the withdrawals from
the pool continued from the pool after the last
investment was credited.
3. And D) what happened to the investments after
they were credited to the pool cannot as a
result of investigations which are practical be
said to be affected by the date on which they
were credited’
d. Russel cooke trust co v Prentis
i. Lindsay J at 56: it is as I see it, one thing to apply a ‘first
in, first out’ rule where it might have been expected or
intended by the investor to be applied and where
nothing is known inconsistent with its being so
expected or intended but quite another to presume it
as an intention where both a reasonable contemplation
of what was intended and the known facts can be seen
to be inconsistent with it’
4. Money mixed with innocent volunteer’s money
a. Re Diplock 524: the burden on the conscience of the volunteer
is not such as to compel him to treat the claim of the equitable
owner as paramount. That would be to treat the volunteer as
strictly as if he himself stood in a fiduciary relationship to the
equitable owner which ex hypothesi he does not
b. Cont.: the volunteer is under no greater duty of conscience ot
recognize the interest of the equitable owner than that which
lies upon a person having an equitable interest in one of two
trust funds of “money” which have become mixed towards the
euqitbale owner of the other. Such a person is not in conscience
bound to give precedence to the equitable owner of the other
of the two funds’
c. Subrogation: Boscawen v bajwa
i. Definition: Subrogation is a term describing a right
held by most insurance carriers to legally
pursue a third party that caused an insurance
loss to the insured
ii. Teacher note
1. Stepping into the shoes of somebody
elses right, who has a particular right. Its
like acquiring a new asset, tracing into
new rights.
iii. Facts
1. D had charged his property to Halifax, Abbey
supplied funds to secure its discharge, but its
own charge was not registered. It sought to
take advantage of halifax’s charge which had
still not been removed.
iv. Held
1. A mortgage whose loan is used to repay
another rcharged debt is subrogated to that
debt, and can rely on that charge.
v. Millet LJ 335: ‘tracing property so called… is neither a
claim nor a remedy but a process. Moreover, it is not
confined to the case where the plaintiff seeks a
proprietary remedy, it is equally necessary where he
seeks a personal remedy against the knowing recipient
or knowing assistant. It is the process by which the
plaintiff traces what has happened to his property,
identifies the persons who have handled or received it,
and justifies his claim that the money which they
handled or received (and, if necessary, which they still
retain) can properly be regarded as representing his
property…’
 1. He needs to do this because his claim is based
on the retention by him of a beneficial interest
in the property which the defendant handled or
received. Unless he can prove this he cannot (in
the traditional language of equity) raise an
equity against D or (in modern language of
restitution) show that the defendant’s unjust
enrichment was at his expense’
C. Loss of the right to trace/defences
a. Dissipation, consumption or destruction
b. Payment into overdrawn account
i. Shalson v russo,
1. Rimer J at 140: ‘the consequence is that the claimant cannot show that
his money has become represented by an asset into which it is possible
to trace: all his money has done is to reduce a liability and so has ceased
to exist’
c. Backwards tracing
i. Backwards tracing' has been described as 'tracing into payment of a
debt' by Smith, meaning that when misappropriated funds are used to
pay a debt, they are then traceable into what was acquired in exchange
for incurring of the debt
ii. Foskett v McKeown (CA not HL(
iii. Bishopsgate INvesment Management v Homan (CA)
1. Facts: following ROber Maxwell’s death, it transpired that money
belonging to a pension trust fund under his control had been
misapplied. The money had been paid into an account which then went
overdrawn.
2. Held: it was held that it is impossible for the claimants to trace the
money into an overdrawn bank account on the basis that the property
they seek to trace has disappeared.
iv. Relfo v Varsani (CA)
1. Facts
a. Liquidater of Relfo sued V, a friend of the former director, who
got money from the company. HMRC had sued RElfo for
outstanding tax, whereupon Relfo put the 500k in its bank
account to pay the equivalent uS sum to a Latvian account.
Then coincidentally “intertrade” (company name) paid the same
amount at the same time. After V gave Mr Gorecia 100k, the
liquidator argued this was all connected and the 100k was Mr
G’s reward for diverting Relfo’s funds for Varasani’s benefit.
b. Therefore, Relfo retained a title in equity over the funds that Mr
Varsani held, that Varsani was on notice of the facts at all times
and so was a constructive trustee, and that even if tracing was
 not possible, the payments were connected enough to base an
unjust enrichment claim.
2. Decision
a. CA held that Relfo (the liquidator) was entitled to be repaid
money that had ended up in Versani’s hands because the sums
were causally linked through various transaciotns.
b. Where monies are improperly paid away they may be traced
through various accounts to the end recipient even if each of
the stages in the laundering cannot be id’d.
c. Likely to become major authority on unjust enrichment deicidng
that an indirect recipient of funds will be liable to give
resituttion where is a sufficient degree of connection between
the payment away and receipt.
3. Arden LJ 64: ‘there is no logical reason why the substituted product of a
claimant’s money cannot be traced through any number of accounts.
There is no limit on the number of substitutions that can in theory take
place. However, the number of substitutions and the fact that they do
not occur in chronological sequence may make it harder to substitute
one asset for another;
v. Serious fraud office v Hotel Portfolio II
1. Facts
a. Party owing fiduciary obligations had breached the ‘noprofit’
rule, and had then used the ill gotten profits to repay a
preexisting loan facility. The loan facility had earlier been
obtained in order to fund and as secured against valuable
property abroad. However upon repayment of the loan facility,
the wrong doing fiduciary had not just repaid the lender under
the pre-existing loan facility, but was then immediately
substituted as lender to the same borrowers under a new
facility.
b. Hotel P argued it should be allowed to trace the value of its
interest in those wrongfully acquired profits into the assets that
had earlier been acquired with the pre-existing loan facility
c. HP’s opponents argued that if HP pursued the claim, it could
not also seek to trace into the loan rights the wrong doing
fiduciary acquired when it was substituted as lender. HPII had
no elect which tracing ‘route’ to follow to the exclusion of
alternatives.
2. Decision
a. Backwards tracing is not permitted except for in certain narrow
exceptions
b. Exceptions (para 46
i. One party pays another through banking network, but
at one or more stages in the process, a recipient
 account was credited before the paying account was
debited.
ii. The debit from trust assets and the credit which it is
sought to be traced into ‘were effected as part of a
single transaction intended to achieve that outcome
through a series of co-ordinated elements, whatever
the chronological ordering of those elements.
iii. An asset is acquired on the basis of an undertaking that
the trust property will be (and then is) exchanged for it
(referred to as ‘anticipatory substitution’) and
iv. In an otherwise conventional transaction payment
(using trust money) for an asset is made after title to
the asset has passed to the purchaser.
c. Second exception most relevant to HPII
i. Judge decided it did not apply, he held that what was
important was to have regard to the substance of the
transactions, and not to fall into ‘too minute an analysis
of the different steps in a composite transaciton’
3. Foxton J: 37: ‘in summary, In relfo, the court accepted a form of
anticipatory substitution, where the claimant agrees to provide the trust
property in exchange for another asset, receives the asset and then
proceeds to fulfil its promise;’
vi. Brazil v Durant (PC)
1. Brazilianbusinessman hid taxpayer’s millions in Jersey bank account
2. Facts:
a. Mayor of Sao Paulo received 10.5 million usd in bribes in
connection with a major public road building contract. These
payments eventually ended up in an account held by the
defendant (a company under the effective control of the
mayor).
b. THe claimant (the town) brought a proprietary claim for the full
usd 10.5 million; on appeal to the privy council, the defendant
sought to rely on the lowest intermediate balance rule and the
bar on backwards tracing to limit this amount to 7.7 million.
i. He argued that the bar on backwards tracing/lowest
intermediate balance rule applied, argued the
defendant, because the account had been drawn down
in part following payment in of the proceeds of bribery
before then being topped up again by other payments.
3. Decision
a. Privy council made tracing property rights much easier by
recognising an exception to two previous limits to the doctrine-
“backwards tracing” and the “lowest intermediate balance rule”
 b. THe new exception applies where the various steps taken by a
wrongdoer are part of a coordinated scheme”
c. Significantly enhances the ability of victims of fraud to bring
proprietary claims and thus gain priority over other creditors in
liquidations and administrations.
4. Lord Toulson: 33: ‘the courts should be very cautious before expanding
equitable proprietary remedies in a way which may have an adverse
effect on other innocent parties. If a trustee on the verge of bankruptcy
uses trust funds to pay off an unsecured creditor to whom he is
personally indebted, in the absence of special circumstances it is hard to
see why the beneficiaries claim should take precedence over those of
the general body of unsecured creditors’
34: however, there may be cases where there is a close causal and
transactional link between the incurring of a debt and the use of trust
funds to discharge it’
5. 38: ‘the development of increasingly sophisticated and elaborate
methods of money laundering, often involving a web of credits and
debits between intermediaries, makes it particularly important that a
court should not allow a camouflage of interconnected transactions to
obscure its vision of their true overall purpose and effect. If the ocurt is
satisfied that the various steps are part of a coordinated scheme, it
should not matter that, either as a deliberate part of the choreography
or possibly because of the incidents of the banking system, a debit
appears in the bank account of an intermediary before a reciprocal
credit entry.
a. The board agrees with sir Richard scott V-c’s observation in
foskett v mckewon that the availability of equitable remedies
ought to depend on the substance of the transaction in
question and not upon the strict order in which associated
events occur’
6. 38: the board therefore rejects the argument that there can never be
backward tracing, or that the court can never trace the value of an asset
whose proceeds are paid into an overdrawn account. But the claimant
has to establish a coordination between the depletion of the trust fund
and the acquisition of the asset which is the subject of the tracing claim,
looking at the whole transaction, such as to warrant the court
attributing the value of the interest acquired to the misuse of the trust
fund. This is likely to depend on inference form the proved facts,
particularly since in many cases the testimony of the trustee, if
available, will be of little value.
vii. Forester Maurice labrouche v frey
1. Asplin J (obiter) 277: it seems clear from the analysis contained in the
judgmeent of lord Toulson in the privy council in the federal republic of
brazil case… that forester must be bale to establish a coordination
 between the destruction of the founder’s rights and the acquisition of
an asset by Newin Foundation which lookin at the whole transaction
would warrant the court attributing the value of the interest acquired to
the misuse of the trust asset, being the founders’ rights. IN my
judgmenet, he cannot do so.
viii. Kea investments v Watson
1. Nugee LJ 69: ‘the whole question of ‘backward’ or ‘reverse’ tracing as it
is sometimes called, was comprehensively examined by the privy
council in august 2015 in Federal Republic of Brazil v Durant
international corpn and it can now be regarded as settled law that so
long as the later credit is linked to the earlier debit there is no
impediment to tracing’
ix. Serious fraud office v hotel portfolio II
1. Foxton J 43: where the relevant breach of trust is, as matter of
substance, the use of trust funds to pay a third party, then tracing will
allow the beneficiary to claim the benefit of that act even if the trustee
implements it through a series of coordinated steps
2. 45: I have concluded that present state of English law is that backwards
tracing into assets acquired prior to the misuse of trust assets is not
permitted save in certain narrow (but soft edged and overlapping)
exceptions where a strict insistence on chronological sequence would
fail to reflect the substance of the position’
d. Bona fide purchaser for value without notice
i. Independent trustee services v noble
1. Lloyd LJ 96: in principle it seems to me that there is much to be said for
the proposition that, where a defendant relies on the defence of having
been a bona fide purchaser for value without notice at the time of
receipt, and for that purpose has to show that value was given under a
transaction, but by the time that the point is raised the relevant
transaction has been set aside, then it is no longer open to the
defendant to deploy that defence successfully, or, at any rate, that the
fact that the transaction has been set aside, and the circumstances in
which it was, are relevant to the enquiry as to whether value was given
for the transfer of the legal title.
2. 113: neither in principle nor in practice can isee any sound reason for
the court being required to shut its eyes to the fact that, by the time the
point arises, the transaction on which the recipient of the property
depends to show that he or she is a bona fide purchaser for value
without notice has been set aside, at the instance of whichever party on
grounds such as MR, non disclosure, or any other such vitiating factor,
so that it is to be treated, as far as possible, as if it had never happened,
or at any rate had never had any legal effect;
e. Change of position
i. Common law claims only
 ii. Lipkin Gorman v karpnale, Lord Goff at 580-1
1. ‘the recognition of change of position as a defence should be doubly
beneficial. It will enable a more generous approach to be taken to the
recognition of the restitution, in the knowledge that the defence is in
appropriate cases available: and while recognizing the different
functions of property at law and in equity, there may also in due course
develop a more consistent approach to tracing
iii. Foskett
1. Millet 129: ‘furthermore, a claim in unjust enrichment is subject to a
change of position defence, which usually operates by reducing or
extinguishing the element of enrichment. An equitable action like the
present is subject to the bona fide purchaser for value defence, which
operates to clear the defendant’s title.’
f. Re Diplock 1948
i. Facts: this case arose from earlier case where it was held that bequests for
‘charitable or benevolent’ objects failed as a purpose trust, so resulted to the
residuary beneficiaries. By the time this verdict was reached, some 250k had
been distributed to 139 charitites, thus the second case was brought to
determine whether, and how, the money could be recovered.
ii. Held: following Sinclair v Brougham the court of appeal held that equity
operates not only on those that acquire property through their own breach of
trust, but also in hands of people who are volunteers: equity cannot follow
property into hands of people who do not know there has been a breach of
trsut (innocent volunteers): lord green
D. Unification
a. Birks:
i. The process of identification… ceases to be either legal or equitable and
becomes as is fitting, genuinely neutral as to the rights exigible in respect of the
assets into which the value in question is traced. The tracing exercise once
successfully completed, it can then be asked what rights, if any, the plaintiff can,
on his particular facts assert. It is at this point that it becomes relevant to recall
that on some facts those rights will be personal on others proprietary, on some
legal, on others equitable.
b. Foskett: Lord Millet
i. 128-129: given its nature, there is nothing inherently legal or equitable about
the tracing exercise. There is thus no sense in maintaining different rules for
tracing at law and in equity. One set of tracing rules is enough… there is
certainly no logical justification for allowing any distinction between them to
produce capricious results in cases of mixed substitutions by insisting on the
existence of a fiduciary relationship as a precondition for applying equity’s
tracing rules. The existence of such a relationship may be relevant to the nature
of the claim, which the plaintiff can maintain, whether personal or proprietary
but that is a differnet matter.
 ii. This is not, however, the occasion to explore these matters further, for the
present is a straightforward case of a trustee who wrongfully misappropriated
trust money, mixed it with his own, and used it to pay for an asset for the
benefit of his children. Even on the traditional approach, the equitable tracing
rules are available to the plaintiffs.
c. Shalson v russo
i. Rimer J at 104
1. ‘Lord Millet therefore deliberately stopped short of deciding that the
traditional precondition to tracing in equity should be regarded as
overruled… overall my view is that it cannot be said that FOskett has
swept away the long recognised difference between common law and
equitable tracing.