Equity Trusts

N i c h o l a s
T o n g W e i J i e

Nick’s Equity & Trust

2012-2013 Exam Notes

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N i c h o l a s T o n g W e i J i e

Table of Contents

CREATION OF EXPRESS TRUST: THREE CERTAINTIES .............................................................. 3
NON-CHARITABLE PURPOSE TRUST ........................................................................................... 11
CHARITABLE TRUST ........................................................................................................................ 15
CONSTITUTION OF TRUST ............................................................................................................. 28
RESULTING TRUSTS & COMMON INTENTION CONSTRUCTIVE TRUST .............................. 34
ADMINISTRATION OF TRUST & TRUSTEE’S DUTIES................................................................ 41
FIDUCIARY DUTIES.......................................................................................................................... 55
CONSTRUCTIVE TRUST .................................................................................................................. 63
PERSONAL LIABILITY AS A CONSTRUCTIVE TRUSTEE ........................................................... 71
TRACING ............................................................................................................................................ 80

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CREATION OF EXPRESS TRUST: THREE CERTAINTIES
P R E L I M I N A R Y : I S I T A P O W E R O R A T R U S T ?
*Note: A power does not confer proprietary rights upon the objects while a trust does.
Discretion to exercise power* Choice of beneficiary or entitlement

• Is there a residual clause or gift over in default • See the words used. A trust must be mandatory e.g.
e.g. If no distribution is made, it goes to X? the trustee must…
• See the words used. A trust must be mandatory
e.g. the trustee must…
Fixed trust No (mandatory) No (mandatory)

Share and interest of the beneficiaries is specified in the
instrument. The beneficiary is the owner of the equitable
interest allocated to him.
Discretionary trust No (mandatory) Yes (discretionary)

(trust power) No beneficiary owns any part of the trust fund unless and
until the trustees have exercised their discretion in his
favour: Gartside v IRC [1968] AC 553
Fiduciary power / Yes (discretionary) Yes (discretionary)

Personal power

General: An express trust will only be valid if all of the ‘3 certainties’ are present. These classic requirements for a valid trust were identified by
Lord Langdale MR in Knight v Knight, where he said that a trust would only come into existence if there were certainty of words, certainty of
subject matter, and certainty of objects. If a trust is uncertain in any of these aspects, it will be invalid. If the trust is indeed invalid, in the case
of a purported declaration of self-‐trusteeship, the owner of the trust property remains the absolute owner of the property. If the property was
transferred to another trustee, the equitable ownership will then revert back to the original owner by means of an automatic resulting trust.

S T E P 1 : C E R T A I N T Y O F I N T E N T I O N
RULES OF CONSTRUCTION

[1] Court will construe the language used in its context in the light of the whole instrument as a whole – to decide whether a trust is intended
and created.
• No general formula which can determine exactly when a transfer will carry with it the whole beneficial interest and when it will
create a trust
o Language construed in its context, including the surrounding circumstances
• Law looks at substance, not labels – Street v Mountford
• No requirement that the settlor must use the words ‘trust’ or in trust
o C.f. older regime where a presumption was raised by precatory words à in an older, more paternalistic, age

[2] In ascertaining the intention of the settlor, VK Rajah in Low Ah Cheow v Ng Hock Guan (SGCA2009) summarised the relevant principles
with regard to the construction of a will as follows:
(a) In the construction of a will, the main task of the court is to ascertain the testator’s intention as expressed in the will
(b) The inquiry is not to discover what the testator subjectively intended to do when he made the will but what the written words in
the will mean
(c) The words used in the will are prima facie given their ordinary meaning “with legal and technical words to be given their legal or
technical meaning unless it clearly appears from the face of the will that they are intended to bear some other meaning”
(d) If the testator’s expressed intention is clear, then the rules of construction will not override that clear intention
(e) If the testator’s intention is ambiguous, then the rules of construction will apply and the court may also admit relevant admissible
extrinsic evidence as an aid to the interpretation of the will
However, such extrinsic evidence is not admissible for the purposes of controlling, varying or altering the written words of the will. It is
simply admitted to enable the court to understand the words used and to declare the expressed intention of the testator.
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[3] (use only if question/facts are favourable) In Australia, the High Court in Byrnes v Kendle (HCA2011) took a detailed consideration on
how trusts are constructed. All the judges agreed that an objective construction of the trust is preferred over a subjective ascertainment.
Heyden and Crennan JJ encapsulated the principle by saying that “contractual construction depends on finding the meaning of the language
of the contract – the intention which the parties expressed, not the subjective intentions which they may have had, but did not express.”
• Heyden and Crennan JJ: Contractual construction depends on finding the meaning of the language of the contract – the intention
which the parties expressed, not the subjective intentions which they may have had, but did not express. A contract means what a
reasonable person having all the background knowledge of the “surrounding circumstances” available to the parties would have
understood them to be using the language in the contract to mean. But evidence of pre-‐contractual negotiations between the
parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of
“surrounding circumstances”
INDICATORS OF CERTAINTY OF INTENTION
USE OF MANDATORY WORDS

[1] An intention to create a trust must be deduced from the use of the language. The words must demonstrate an intention to impose a
mandatory obligation on the recipient of property as opposed to a purely moral obligation such as "know what to do" as in Re Snowden
(Sprange v Barnard).
• ý Re Snowden: "know what to do" too vague – no trust created
• þ Gold v Hill: "look after [his former wife] and the kids" – trust created
• ý Sprange v Barnard: Uncertain if testatrix intended to create trust – no trust created

[2] There must be sufficient manifestation of an intention to create a trust. A trust can be created even without using the words like "trust"
or confidence (Re Kayford).
• þ McPhail v Doulton: The presence of the word "shall" demonstrated that the recipient were under a mandatory duty to make
grants, although they had a discretion in deciding to whom the grants would go to
• ý Tito v Waddell: However, the use of the word "trust" will not of itself indicate the existence of an intention to create a trust,
sicne the word may not have been used as a technical legal term
• þ Don King Productions v Warren: Nevertheless, even if the languaged used in an agreement is inadequate in itself to create a
trust, a trust may be held to have been created if this would fulfill the settlor's overriding intention. In this case, the court held that
such an intention could be deduced as a matter of "business common sense" from the commercial background and the commercial
purpose of the agreements for the assignment of promotion and management of boxers.
SEGREGATION OF FUNDS – strong inference COMMERCIAL PURPOSES – good objective indicator
[1] In commercial cases involving the transfer of funds to or [1] If commercial purposes of the arrangement militate against
collection of funds by one party, segregation of funds is a chief piece finding an intention to create a trust – no intention: Hinckley
of evidence from which to infer that a trust intention exists Singapore Trading v Sogo Department Stores [2001]
• Allows a strong inference to be drawn • Facts
o If there are no other indicators of a trust – o Concessionaire agreement between Sogo and H
absence of obligation to segregate normally à H would exhibit and sell its goods in a part of
negatives any trust intention the department store premises operated by Sogo
o Mingling of funds – raises an inference that there o Customers would pay at Sogo’s cashiers
is no intention to create a trust o At the end of each month, Sogo would give H a
• However it is not conclusive when there are other statement of the total sales –
indicators of a trust – Hinckley v Sogo § After deducting 20% of net monthly
o On one hand, segregation could be undertaken sales – remaining 80% paid to Hinckley
for purposes of convenience of ascertainment, or o Sogo subsequently placed under judicial
for logistics reasons [TYL] management – H sought to recover a net sum
o Absence of segregation is not conclusive against from the sale of H’s goods
the existence of a trust; absence could be a o Issue: whether the sum of money was held on
breach trust for H
• Held
In Hinckley Singapore, the Court of Appeal held that in the absence o Sogo merely a debtor – no trust intention to be
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of an express term creating a trust and where there are no other implied
clear indices of a trust, the maintenance of a separate account by the o Mingling of funds not conclusive – when there is
agent was crucial to constitute the monies as trust monies. other evidence pointing either for or against a
o In Re Lewis’s of Leicester Ltd [1995] 1 BCLC 428, a trust trust
was found despite the money being deposited into a o The commercial context militates against any
general bank account because there was an express imputation or inference of the trust [i.e. would
stipulation of a trust in the contract and the trust monies defeat the commercial purposes of the
could therefore be traced by equitable tracing rules. concessionaire agreement to have the funds
o In Re Fleet Disposal Services Ltd [1995] 1 BCLC 345, the imposed with a trust]
proceeds of the principal’s goods were held to be trust • Relevant facts
monies because there was a designated account for the o Business arrangement – envisaged a possibly
proceeds of sale and the credit period allowed for the agent high but fluctuating turnover of small ticket
to pay the principal was relatively short (five days). items, replicated with many other
o Likewise in Westacre Investments Inc (SGHC2011), the concessionaires
court found that there was no express trust intended § “Wholly unrealistic to suggest parties
because the uncertainty of each of the Other Parties’ share expected a trust to arise in relation to
of the Funds indicate the lack in certainty of intention in the sum received in respect of each
creating a trust item of goods”
o No rental deposit – no security for Sogo that the
[2] Intention to create trust present although no actual segregation concessionaires were able to pay rental à
i.e. intention to segregate is sufficient: Re Kayford Ltd § Indicates that the payment to Sogo was
• Facts a commercial safeguard
o Company (mail-‐order business) in financial § Further, Sogo may have borne risks of
difficulties, concerned for customers of company pilferage and 3P loss
who had sent and were sending money for goods o TYL: highly unlikely that in the circumstances
o Directors intended to segregate funds by opening Sogo would have agreed to hold the sale
separate bank account in which all further sums of proceeds on trust for Hinckley while being
money sent by customers would be paid exposed to those risks
o Passed a resolution that was in evidence of this • Note
intention • Trust would have been more likely –
o Resolution not carried out – funds were deposited o If deduction of commission was required to be
into account in company’s name and mixed made at the outset of every interval
• Held:
§ Sogo not bearing risks? (don’t really get
o Intention to create a trust clear even if no actual
this)
segregation of funds
o If there was an indication that Sogo was likely to
o Failure to carry out intention to segregate the
go under à persons dealing with them might
funds did not preclude a valid trust form arising
intend for moneys to be held on trust to protect
o Company as trustee committed breach of trust in
against insolvency
innocently mixing trust moneys with the trustee’s

own moneys
• N.B.
o In this case there was evidence of intention to
segregate even if there was no actual segregation
– may be a distinguishing factor
o Case distinguishable on policy ground – court was
concerned with protecting the public by giving
effect to good commercial practice of using trust
accounts when coy's ability to perform its
obligations is in doubt
SHAM TRUST: CERTAINTY OF INTENTION NOT JUST TO CREATE A TRUST BUT TO HAVE THE TRUST PERFORM AS A TRUST
An express intention to create a trust might be struck down by the court if it was a sham intention where the owner had no real intention to
subject his property to a trust. The trust is a sham so long as it was intended to give the courts the appearance of rights which are different
from the actual legal rights parties intend to create (Snook v. London).
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The test is the subjective intention of the parties and the court will look at external evidence such as parties conduct, explanations and
circumstantial evidence (per Arden J in Hitch v Stone).

There must be a common intention to mislead among all the parties (Shalson v Russo). If a party is recklessly indifferent and goes along
with the sham, it may be considered as satisfying the requisite “common intention” (Midland Bank v. Wyatt).

Issue: whether a trust that is initially a sham can become

Issue: whether a trust validly created could become a sham
subsequently valid
A v A orbiter A v A orbiter
• Trust initially a sham – but if successor trustees decided to • Suggests that “as a matter of principle, a trust which was
exercise powers and fulfill duties in accordance with the not initially a sham could not subsequently become a sham”
terms of the trust instrument, trust would not be regarded o Unless all the beneficiaries were, with the
as a sham requisite intention, to join together for that
• Problem: purpose with the trustees – Saunders v Vautier
o Sham transaction void – Midland Bank v Wyatt • TYL disagrees: trust validly created should be able to
• TYL reconciling: become a sham
o Would make sense if one thought of the o See reasoning above – if that is right, true position
document as being void in form, but not the is that doctrine of sham transactions only affects
substance of the transaction being void the instrumentation
o In which case – the transaction would not be void o No difficulty in seeing that parties to a trust can
ab initio for sham subsequently intend not to operate it as a trust,
contrary to what the instrument says

S T E P 2 : C E R T A I N T Y O F S U B J E C T M A T T E R
Under the second element, there must be an identifiable subject matter at the point of creation of the trust for trust obligations to be
enforced on (Sprage v. Barnard).

A trust cannot exist in abstract but only in relation to specific assets, the failure to identify any specific property as the trust property will
prevent the creation of a valid trust (Hemmens v Wilson Browne).
ISSUE 1: GOODS HELD IN BULK, BUT UNASCERTAINED/UNIDENTIFIED/NOT APPROPRIATED
[1] Where the trust property is mixed with other [2] Analogous rule where such a trust would be held valid appeared in Hunter v
property without sufficient earmarking such that the Moss where the court held that an oral declaration of trust by Mr Moss of 5% of his
trust property becomes unascertainable, the trust is 950 company shares in favour of Mr Hunter was valid even though the 50 shares
invalid (Re London Wine Co and Re Goldcorp had not been segregated or or apportioned from the rest of his shares. Two ways of
Exchange). interpreting this rule:
• In Re London Wine Co, wine merchant • [A] Hayton supports the view that where trust property expressed as a
failed to segregate bottles ordered by percentage and not numbers, it does not have to be segregated because it
customers from general stock until they are was intended to be treated as a fractional share of a clearly identifiable
to be delivered. Hence, before delivery, no whole, like a tenancy in common.
beneficiary could identity which of the o Under this test… [APPLICATION]
bottles in the general stocks was his or hers. • [B]: An alternative view is to distinguish Hunter and Re Goldcorp, where
Court held that trust failed for want of the former deals with intangible property while the latter deal with
certainty of subject matter. tangible chattels, and the need to segregate only applies to tangibles.
• In Re Goldcorp Exchange, company used o Under this test… [APPLICATION]
investors’ money to acquire bullion which • [C] (if applicable) However it is submitted that a better view is that of
would be held on trust for them. As the scholar Worthington that the requirement of segregation of trust property
company had not appropriated or does not apply to fungible property. As long as there is certainty of
segregated any specific parcels of bullion to intention and objects there is no good reason to deny the trust since for
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the individual purchasers, but rather, held it fungible property such as shares, one share is the same as the other so
in bulk, the PC held no certainty of subject there is no practical need for them to be differentiated and any share will
matter. be sufficient to fulfil the obligations of the trust. Under this test...
• ANALYSIS: Important to note that this case
falls within the sale of goods context. It is
[3] However, if the beneficiary of the failed trust is a consumer, he would be
difficult for equity to intervene in the law of
protected by s20A of the Sale of Goods Act. The effect of section 20A was to give
sale, especially when UK Sale of Goods Act
the buyer in such a situation an undivided share in the bulk so that he could look
s16 states that no property can pass before
directly to the proceeds of sale of the bulk and was not relegated to merely having a
ascertainment, thus reflecting the policy
personal right against the insolvent buyer.
imperative of commercial certainty.
ISSUE 2: FUTURE / NON-‐EXISTENT PROPERTY
Trust over non-‐existent property Trust over future property
Property may be non-‐existent [1] STARTING POINT – It is impossible to create a present trust of future property (i.e. property which a
where person does not presently own, but which he hopes or expects will come into his ownership sometime
• Purported settlor has in the future) as established in Re Ellenborough. Future property must be distinguished from
already disposed of it, residuary interest where a property right has already been conferred subject to the expiry of some prior
no property to be held right. This rule holds true even if the expectation or hope eventually comes true (Re Brookes
on trust Settlement Trusts).
• Settlor merely expects
that he will come into [2] IMPORTANCE OF CONSIDERATION: However, equity treats a present trust over future property as a
possession of the promise to set up a trust in the future when the property materializes. If there is consideration, equity
property – without any will enforce the trust: Tailby v Official Receiver, cf Re Ellenborough.
legal/equitable title • Facts: Packing case manufacturer assigned to Tyrell for valuable consideration over all his
trade assets, thereby creating a floating security reaching over all present and future assets
Starting point: indefinite and • Held: An assignment of future property for value operates in equity by way of agreement,
should be void à no certainty of binding the conscience of the assignor, and binding the property form the moment the
subject matter contract becomes capable of performance
• No reason for equity to o Principle: Equity looks on as done that which ought to be done
intervene because o The moment the future trading assets came into being, they would be property of
subject matter is non-‐ the financier under the bill of sale
existent • N.B.
o Powerful principle of equity sets up a mirror image of the interest to be given even
before it can be given in fact
o Blends two things – contract and transfer – into one
o Consideration – makes the purchaser the owner in equity immediately upon the
creation of the obligation

S T E P 3 : C E R T A I N T Y O F O B J E C T S
SUMMARY
• Mere powers: Core meaning test – so long as the appointee is plainly and unequivocally by any reasonable standard of judgment
within the core meaning of the class criterion. No need for ‘any given postulant’ test because there is no duty to consider the
exercise of power.
• Fixed trusts: Trust is valid as long as trustee is able to draw up a list of all beneficiaries under the trust (IRC v Broadway
Cottages)
• Powers: ("is or is not") Power is valid so long as it is possible to say with certainty that a given individual is or is not a member of
the class (Re Gulbenkian's ST) + exercised capriciously
• Discretionary trusts: Similar test as powers i.e. Re Gulbenkian (McPhail v Doulton) – remitted to High Court (where it was
renamed as Re Baden's Deed Trusts (No 2)) for application of test + administrative unworkability
o In Re Baden's Deed Trusts (No 2), on whether it could be said with certainty that any given individual was or was not a
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member of a class, it was NECESSARY TO DISTINGUISH BETEWEN CONCEPTUAL UNCERTAINTY AND EVIDENTIAL
DIFFICULTY.
§ (YES/PRESUMED NO) Sachs LJ: Onus lies with claimant to show that he is within class of beneficiaries – if he
cannot prove that, he is not within the class. Default position is that the claimant is not within class (pragmatic
approach).
• Slight deviation from HL ruling: Sach’s LJ practical approach will not give a clear ‘is or is not’ result but
merely that the claimant is not proven to be within the class
§ (YES/UNCERTAIN/NO) Megaw LJ: Test is satisfied if, as regards at least a substantial number of objects, it can
be said with certainty that they fall within the class
• Deviation from HL ruling: Megaw LJ’s approach seems to allow for some objects to be in the
‘uncertain’ category, contrary to the ‘is or is not’ approach In HL. This suggests that complete
conceptual certainty was not required but enough certainty in the language for the distribution to be
made to identifiable persons
§ (YES/NO – EVIDENTIAL) Stamp LJ: Must be able to say of any individual and not just the one whose claim you
are considering, whether he is or is not a member of the class
• BUT, Stamp LJ upheld the trust on basis that ‘relatives’ mean next of kin (giving an artificual narrow
meaning to the term, ‘relatives’, in order to avoid conceptual uncertainty)
• Got the meaning of 'relative' as 'next of kin' from old succession cases (OLD MEANING). Arguably not
applicable in modern context since 'relative' has different definition
§ SO WHICH TEST SHOULD WE ADOPT? Should adopt Sachs LJ’s pragmatic approach
• It is submited that Sach’s practical approach has much to commend because it avoids confusing
questions about the inherent validity of the trust or power (conceptual certainty) with difficulties
surrounding its execution (evidential certainty). Moreover, Stamp LJ’s literal approach requires a
degree of certainty barely less than the Broadway Cottages ‘complete list’ test, which has received
much criticism. Finally, Megaw LJ’s least stringent interpretation would satisfy most class gifts. In fact,
his approach is arguably a variant from the ‘one postulant approach’ that was overruled by the HL in
Re Gulbenkian. Hence, Sach’s approach would be the most justifiable and practical to adopt.
o [CONSTRUCTION OF SETTLOR’S CLASS DESCRIPTION] Furthermore, it is clear from Re Baden (No 2) that it is possible
first to construe the settlor’s class description and then apply the ‘is or is not’ test to the class description so construed.
So, in Baden, Sachs and Megaw LJJ decided that ‘relatives’ actually meant ‘able to trace descent from a common
ancestor’ and, therefore, on application of the ‘is or is not’ test, the class so redefined was certain. Stamp LJ, on the other
hand, thought ‘relatives’ meant ‘next of kin’ and was both conceptually and evidentially certain for that reason.
§ Clearly, this power of construction will allow a court to render most class gifts certain if it so chooses, simply by
redefining the testator’s class description in a manner that makes the test easier to be satisfied.
o For discretionary trusts, next consider whether they are administratively unworkable (West Yorkshire).
*ALWAYS INCLUDE SUGGESTION OF RE MANISTY-‐TYPE TRUST AS SOLUTION TO PROBLEM OF CERTAINTY OF OBJECTS
Thanks to Re Manisty the issue of certainty of object can be avoided: all you have to do is to 1) include a few named beneficaries and 2) grant
the power to add on other beneficiaries.
Can uncertainty be resolved by a clause empowering someone to resolve any
What is conceptually certain?
uncertainty?
Distinction between conceptual uncertainty and evidential uncertainty:

Objects of a discretionary trust or power may be defined by reference to a class description: ‘employees’, ‘friends’, ‘relatives’, etc. When
deciding if it is possible to say whether any given individual is or is not a member of these classes, it is important to distinguish between
‘conceptual’ uncertainty and ‘evidential’ uncertainty. A class description is conceptually uncertain when the words used by the settlor or
testator do not have a precise meaning in themselves, irrespective of the factual circumstances surrounding the particular case. For example,
if the class of beneficiaries or objects of the power are ‘my friends’ or ‘people with whom I am acquainted’, there will be conceptual
uncertainty of objects because the concepts used by the settlor are inherently uncertain: the class description is in itself inherently vague and
imprecise. Conversely, a class description is evidentially uncertain when it is impossible to determine whether, in fact, a person falls within the
class description. The issue is one of evidence, not of the meaning of the words used to define the class. Thus, a trust ‘for my employees’ may
be evidentially uncertain if there is no method of determining who is in fact an employee, even if the concept of an ‘employee’ is clear enough.
Different minds make take different views on the [1] Hayton argues that it is possible for the trust instrument to contain a clause
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question of whether a particular description is empowering someone like the trustees or the testator’s widow to resolve any
conceptually certain or not. evidential uncertainty.

Problem is that few descriptions of the kind likely [2] He also argues that a distinction must be made between:
to be encountered in trusts and powers are so clear • APPARENT CONCEPTUAL UNCERTAINTY i.e. not uncertain because court
as to admit of no borderline cases. Most fall construes a term restrictively and thus the person may help resolve any
between those which are indisputably certain e.g. evidential uncertainty. E.g. Court may restrict “Cambridge students” to
‘Nobel prize winners’ and those which are students from time to time studying as junior members of the University of
conceptually unclear e.g. ‘friends’. Cambridge or restrict “fans of Elvis Presley” to members of Elvis Presley
• Dispositions ought if possible to be official fan club. A proviso that in cases of doubt the decision of the Registrar
upheld and “should not be held void on a of the University of Cambridge or of the secretaries of official Elvis Presley
peradventure”. Words such as “relatives” fan clubs shall be conclusive may assist the court restrict the concept.
may cause difficulties but trustees can be • ACTUAL CONCEPTUAL UNCERTAINTY cannot be resolved by such provisos,
expected to act sensibly and not to select except, it seems, where a person acting as an expert (as opposed to acting as
a remote kinsman. an arbitrator) is given power to resolve the matter. [Note: Crown is not
• The best solution is to regard such words convinced as to the expert argument.]
as conceptually certain, leaving it to the o There are no clear conceptual criteria to guide non-‐experts, or indeed,
claimant to establish his case? the court if their exercise of the power is challenged. Nothing and
nobody can cure conceptual uncertainty.
o Any uncertainty in the requirement of being of the Jewish faith and
married to an “approved wife” could be cured by a provision that
disputes were to be decided by a chief rabbi: Re Tuck's Settlement
Trusts [1978] Ch 49; following the decision that Clayton v Ramsden
[1943] AC 321 that the words “Jewish parentage” and “Jewish faith”
were uncertain.
o The settlor or testator cannot however purport to oust the jurisdiction
of the court by giving the trustees conclusive power to construe the
words used UNLESS it was a personal power. Such a clause will be void
as contrary to public policy.
o Nonetheless, the court may still intervene if the power to resolve an
uncertainty was exercised in bad faith and unreasonably and possibly on
other grounds.
ADMINISTRATIVE UNWORKABILITY CAPRICIOUSNESS

(DISCRETIONARY TRUST ONLY) (POWERS ONLY)
[1] Weight of authority supports the view that [1] The court may intervene to void an intermediate power on two grounds: 1) if
administrative unworkability can invalidate power has been exercised in a capricious manner (looks at trustee’s exercise) e.g.
discretionary trusts but not mere powers. choosing objects based on irrelevant facts such as hair colour, and 2) the creation of a
capricious power (looks at settlor’s intent) e.g. Templeman J suggests that power to
[2] Administrative unworkability has been restricted benefit the “residents of Greater London” is capricious because the terms negative any
to discretionary trusts (McPhail v Doulton). sensible intention on the part of the settlor: Re Manisty; Re Hay.
Rationale for this is that the trustee of a • Rationale:
discretionary trust is under more extensive o Trust is mandatory and beneficiaries can enforce. Therefore, it
obligations which the beneficiaries can positively must be administartive workable (POSITIVE DUTY)
enforce whereas the donee of a power is not under o Power is discretionary and trustee only need to consider
an obligation to exercise the power. Therefore, periodically, the only control is by the removal of trustee or
court will only intervene if the power is exercised directions for trustee to distribute. Therefore, it need not be
capriciously. administratve workable but it cannot be capricious (NEGATIVE
• Question is, since they are so similar in DUTY)
substance that the same certainty test • The court may hold that a power is invalid if there is some real problem of
applies equally to both, why should the administration or execution but should be slow to do so. Dispositions ought
administrative workability test be limited to be upheld if possible and the court ought not to be astute to find grounds
to discretionary trusts? upon which a power can be invalidated.

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[2A] Pearce suggests that administrative [2] Megarry J in Re Hay criticised Templeman J’s example of a capricious power i.e.
unworkability must be in milions because 1) Lord residents of Greater London in Re Manisty and said that it would not be capricious if
Wilberforce in McPhail referred to “Greater the settlor was the former chairman of Greater London. This suggests that whether the
London” and 2) Lloyd LJ in West Yorkshire failed power is capricious does not depend directly on the width of the ambit but whether
for 2.5million. there is a 'discernible link' with the settlor which allows for a 'sensible approach' to
be taken by the trustees.
[3] Administrative unworkability cannot invalidate
powers: Re Manisty; Re Hay's Settlement
Trusts.

A L T E R N A T I V E : G I F T S U B J E C T T O A C O N D I T I O N P R E C E D E N T
[1] Significance of using the devise of gift subjecting to a condition precedent is that the test of certainty is relaxed i.e. core meaning test.
Rule is that gift subject to condition precedent is valid if it is possible to say that at least one or more claimants qualified: Re Barlow’s WT;
Re Allen.
• Sufficient if the condition is couched in language that permits some individuals to come with evidence before the trustees/court and
show they satisfy the condition
• Gift will not fail if there is at least one person who can do that

[2] Examples:
• þ Directed executor to give remainder of collection subject to a provision that ‘any members of my family and any friends of mine
who may wish to do so’ be allowed to purchase at a discount: Re Barlow’s Will Trusts.
• þ To the eldest of the sons of A who shall be a member of the Church of England and an adherent to the doctrine of that Church: Re
Allen
• þ Gift to A if he is a tall man: Re Tuck’s ST, Lord Evershed’s dictum

[3] Criticisms: Although Browne-‐Wilkinson J in Re Barlow’s WT considered “a gift of $10,000 to each of my friends” was valid, such an
approach has been criticised as anomalous and illogical. After all, the court may still have to ascertain the conceptual certainty of “friends” if a
person entitled to the fund sues the trustee or executor for paying sums to persons not ranking as “friends”.

-‐ Page 10 of 86 -‐


NON-‐CHARITABLE PURPOSE TRUST
P R E -‐ R E Q U I S I T E S
1. Whether trust or power – if power to apply for specific purpose with residuary legatees, power is valid even if no beneficiaries.
2. Whether certainty of intention and subject matter
3. Whether charitable trust – if charitable there is no need for beneficiaries or perpetuity rules
Purpose Trusts are prima facie invalid unless you can show that: 1) the purpose is charitable (PP reasons, enforceable by the state/AG), 2) it
falls under one of the anomalous cases for non-‐charitable purpose trusts, 3) the purpose trusts fits into a Re Denley purpose trust situation.

S T E P 1 : G E N E R A L R U L E – B E N E F I C I A R Y P R I N C I P L E
A trust is void unless there are human beneficiaries capable of enforcing the trust. Acceptance of this principle renders non-‐charitable purpose
trusts prima facie void (Mourice v Bishop of Durham).

S T E P 2 : E S T A B L I S H 1 O F 3 E X C E P T I O N S
EXCEPTION 1: RE ENDACOTT COUNTER: CAPRICIOUSNESS
As per Re Endacott, the exception to the beneficiary rule applies if it Even if purpose trust falls within anomalous exceptions, they may
falls within one of the accepted exceptions. This is affirmed in be invalid if they are useless or capricious.
Singapore but qualified to the extent that they subject to local • Templeman in Re Manisty’s Settlement: The court may
conditions: Hongkong Bank Trustee (Singapore); Re Khoo intervene if the trustees act "capriciously," i.e. to act for
Cheng Teow. reasons which are irrational, perverse or irrelevant to any
1. Erection or maintenance of graves sensible expectation of the settlor; for example if they
a. þRe Hooper – trust must be in some form of chose a beneficiary by height or complexion or by the
specific memorial and not "some useful memorial, irrelevant fact that he was a resident of Greater London.
which is too vague as per Endacott
2. Saying of masses (þRe Hetherington) or Sinchew rites Issue is whether a person, usually deceased, should be allowed to
a. þRe Khoo Cheng Teow -‐ Sinchew rites for the deprive the community or individuals within it of the beneficial
purpose of perpetuating the testator’s memory use of capital. There is of yet no authority at all to support the
have been recognised proposition that the capriciousness doctrine, if there is one, applies
b. ýBermuda Trust v Wee Richard – applied Re to trust.
Khoo Cheng Teow but failed because it is either
impossible or impracticable to carry out its objects; Scottish judges have been forthright in their disapproval of the
in this case, all 3 objects failed waste of money on useless projects but Scottish cases are very
3. Maintenance of animals weak authority.
a. þPettinghall v Pettinghall -‐ in view of the § ýM'caig v University of Glasgow (1907): Income
willingness of the executor to carry out the from property to be used 1) to erect monuments and
testator’s wishes, a valid trust in favour of the statutes of himself and his family, and 2) to build artistic
animal was created), and towers at prominent points of his estates held void
b. þRe Dean: (2 difficulties) § ýM'caig Trustees v Kirk-‐session of United Free
i. North J seems to reject the beneficiary Church of Lismore (1915): a trust for erecting of
principle completely, saying that he did bronze statutes of the testatrix's parents and their
not accept the view that a trust is not children held void ("sheer waste of money"; "little less
valid if there is no beneficiary to enforce it than appaling")
ii. Seems to offend the perpetuity period – § ýBrown v Burdett (1882): A trust to block up all the
50 years rooms in a house for 20 years was held void.
4. Benefit of unincorporated associations § ýRe Shaw (1957): Testator bequeathed money to be
5. Note: Court refused to re-‐characterise the trust as a power in used to develop a 40-‐letter alphabet and translate his
order to justify purpose trusts. If it is drafted as a power, they play int othis alphabet
may be valid; but if they are drafted as a trust, they will not
be re-‐characterised as a power
-‐ Page 11 of 86 -‐


EXCEPTION 2: RE DENLEY (INDIRECT BENEFICIARIES) EXCEPTION 3: QUISTCLOSE TRUST
Private purpose trusts may be valid if there are INDIRECT BENEFICIARIES: Re Denley's Trust Quistclose money purpose trusts have also
Deed (1969). been construed in accordance with
• The rationale is that a purpose trust is only void if it is abstract or impersonal, and traditional doctrine to be trusts for persons
the objection is not the purpose but to the fact that there is no beneficiary to and not special cases where there is a valid
enforce the trust. purpose trust
o Hence, where the trust, though expressed as a purpose, is directly or
indirectly for the benefit of individuals, it is outside the mischief of the Where X advances money to Y on the
beneficiary principle and can be upheld. understanding that Y is not to have the free
• Facts: Plot of land conveyed to trustees to hold for a period determined by lives, “for disposition of the money and that it may
the purpose of a recreation or sports ground primarily for the benefit of the only be applied for the purpose stated by
employees of the company and secondarily for the benefit of such other person or X, the position will be either that
persons (if any) as the trustees may allow” • X created an express trust (Lord
• Held: Trust was valid Hoffman’s analysis in
Twinsectra) of the money for
Two ways the Re Denley principle may be explained: himself subject to Y’s power as
• [1] It creates a new type of purpose trusts recognised in law (Hayton) trustee to use the money for the
• [2] Another view is that the trust was for individuals and is thus a ‘people’ trust, and specified purpose, or that
not a purpose trust at all. If this is correct, Re Denley breaks no new ground and all • X created a resulting trust (Lord
private purpose trusts remain void unless they fall within the Quistclose trust or Millett’s analysis in Twinsectra)
special categories exception (Millet – decided extrajudicially) to the same effect (presumed in
the absence of any intent of P to
Criticism transfer the beneficial interest to
However it is interesting to note the Re Denley exception is not wholly satisfactory. While Y).
Goff J explained that court could enforce the trust in Re Denley at the suit of the employees
(thereby falling outside the mischief of the beneficiary principal), this analysis does not answer If it is sufficiently clear (i) whether the
the question as to who has beneficial ownership of the land. Does the trustee hold the land on specified purpose can be carried out or (ii)
trust for the employees? If so then under rule in Saunders v. Vautier the employee can when money is misapplied, then it is
together demand the transfer of the land to them and sell it for lucrative cash. In response, sufficiently certain to be valid.
perhaps an alternative rationalization of Re Denley is as argued by Paul Matthew that the
trust was still mainly for the employees and that the purpose was merely an incidental add-‐on.
This is significant if the borrower is
Be that as it may it seems that Re Denley exception is the law and was even applied in Re
insolvent, since the lender will be entitled
Lipinski’s Will Trusts albeit in a slightly different situation of a gift to an unincorporated
to assert an equitable proprietary claim to
association. the money lent (not pari passu with
unsecured creditors) and it will not form
Some examples of purpose trusts which are abstract or impersonal include (i) the trust for the part of the assets of the creditor.
development of a 40-‐letter alphabet (ýRe Shaw); and (ii) trust for freedom of press
(ýAstor).

S T E P 3 : U N C E R T A I N T Y
If the problem of the beneficiary principle has been surmounted or if the case falls within one of the exceptional categories, non-‐charitable
purpose trusts are only valid if the purposes are expressed with sufficient certainty to enable the court to control the performance of the
trust: Morice v Bishop of Durham (1805).
RE ENDACOTT RE DENLEY
For special exceptional categories cases, For Re Denley type cases, apply the McPhail v Doulton test.
• The point commonly arises in cases where incompetent • Consider the two ways in which Re Denley principle
draftsmanship has failed to create a charitable trust; where, for may be explained.
example, the property is to be applied for charitable or • No matter whether one views Re Denley type trusts as
benevolent purposes. a whole new category of trusts or really just a type of
• This objection can be met by specifying in sufficient detail the normal express people trusts, it makes sense to apply
-‐ Page 12 of 86 -‐


purposes to which the property is to be applied. McPhail v Doulton to identify the class of
• Trusts for specific purposes like feeding the testator’s animals, beneficiaries/people that are able to enforce the trust.
or maintaining a tomb or monument, usually pass this test. • Rationale: Even if they are not beneficiaries in the strict
sense of the word, we have a class of peole who can
In general, the modern approach towards purpose trust seems to be enforce the trust then it is valid (since they directly or
strict: indirectly benefit).
• In Re Endacott [1960] Ch 232 the Court of Appeal held void a o Q: How can we say they directly or indirectly
residuary gift “to the North Tawton Devon Parish Council for benefit?
the purpose of providing some useful memorial to myself.” o A: Whether we can or cannot say they are
Such a trust, though specific in the sense that it indicated a identified as part of the trust or whether they
purpose capable of expression, was “of far too wide and are
uncertain a nature to qualify within the class of cases cited.”

S T E P 4 : P E R P E T U I T Y R U L E S
Rule against remoteness of vesting Rule against inalienability

• Applies to ‘people’ trusts • Applies to ‘purpose’ (ONLY ENDOWMENT) trusts
• Directed at persons’ interests vesting at too remote a time • Directed at immediately effective interests which can go on
• Common law rule against remoteness: Perpetuity period for too long
cannot exceed 21 years from the death of some expressly • Makes the few permitted non-‐charitable endowment
or impliedly relevant life in being at the creation of the (where capital is intact and only income is used) purpose
trust. It is possible to identify a 3rd party as the life in being; trusts void unless from the outset it is certain that persons
and the royal family is often used due to ease of tracing will become absolutely entitled beneficiaries by the end of
lineage. the perpetuity period i.e. 21 years from the death of the
last survivor of any causally relevant lives in being at the
creation of the trust.
• Necessary because purposes unlike individuals can last
forever and because a rule against remoteness of vesting is
inappropriate when interests cannot vest in purposes as
opposed to persons.
‘PEOPLE’ TRUST
PERPETUITY PERIOD ‘PURPOSE’ TRUST
(SS 32 AND 34 ALWAYS APPLIES)
21 years 21 years 21 years
100 years (ss 32 and 34 applies) OR 21 years
‘for so long as the law allows’ 100 years
(common law)
100 years (ss 32 and 34 applies) OR royal life
Royal lives clause 100 years
in being + 21 years (common law)
Follows what is specified if less than 100

Follows what is specified if less than 100
More than 21 years years; 100 years if more than 100 years (ss 32
years; 100 years if more than 100 years
and 34 applies) OR void (common law)
100 years (ss 32 and 34 applies) or void

No time limit 100 years
(common law)
‘People’ trust
Perpetuity period ‘Purpose’ trust
(ss 32 and 34 always applies)
[1] A charitable trust may last for ever; a non-‐charitable trust is void if it is to continue beyond the perpetuity period. The reason is that
perpetual non-‐charitable purpose trusts would conflict with the policy of the perpetuity rule, which is the prevention of the tying up of
property for too long a period.
• Reference is often made to a trust offending the perpetuity rule without it being made clear whether the trust infringes the rule
against remoteness of vesting or the rule against alienability.
-‐ Page 13 of 86 -‐


• The two rules are mutually exclusive.

** Note, new CLA provisions only applicable to trusts created after 15 Dec 2004, else common law position stands

[2] At common law, a trust will be void for violation of the rule of perpetuity if it DOES NOT EXPRESSLY STATE AN ACCEPTABLE PERPETUITY
PERIOD. In Singapore, however, s32 of CLA substitutes a fixed perpetuity period of 100 years for the previous period of a life in being plus 21
years.
• Any attempt to specify lives in being for the purpose of calculating the perpetuity period e.g. using royal lives clause will be
ineffective.
• Not possible to provide for a longer period than 100 years but it is possible to specify a shorter period

[3] At common law, one has to DETERMINE AT THE OUTSET whether a disposition may vest outside the perpetuity period. However, in
Singapore, s34 of CLA now provides for a “wait and see” period.
• If it is uncertain whether or not an interest will vest outside the perpetuity period, one can simply wait until it becomes certain that
the vesting will occur outside the permitted period.
• The disposition only fails at the moment when it becomes certain that vesting will occur (if at all) after the end of the permitted
period.
• **Any action taken previously in relation to the disposition remains valid.
ISSUE: DOES S32 OF CLA APPLY TO THE RULE AGAINST INALIENABILITY?
Legislative history
• The main focus of the reform of the rule of perpetuity was the rule against remoteness of vesting.
• According to Prof Jayakumar: ‘…the Bill will reform a complicated common law rule that requires future interests in property to vest
within a “perpetuity period”, if they vest at all. The period is measured by reference to “lives in being” plus 21 years at the relevant
time. There are complicated rules for determining the relevant lives. Sir, not only is this rule complicated for lawyers and judges, it
can frustrate the intention of the person creating the trust.’
• In response to question of whether it applies to private purpose trusts: ‘…many issues that arise, especially from non-‐charitable
purpose trusts and settlors’ reserve powers, are matters which require careful study and we also need to see how other jurisdictions
handle them and what has been their experience.’

Question is whether the phrase ‘the rules against perpetuities’ should include the rule against inalienability.
• [SHOULD APPLY] One view is that the authorities have often conflated the two rules and thus s. 32 should apply to the rule against
alienability as well. For example, the phrase has been used in Khoo Cheng Teow and Bermuda Trust as referring to the rule
against inalienability, and referring to both rules in the case of Re Estate of Chong Siew Kum and other UK authorities. Academics
have also consistently referred to the rule against inalienability as falling under the rule against perpetuities.
o We should read the statute liberally to give effect to the reform and not unduly limit it.
• [SHOULDN’T APPLY] Another view is that s. 32 should not apply to the rule against inalienability because any change in the law
relating to non-‐charitable purpose trusts should await a comprehensive review of this area of law.
• However, Crown argues that changing the rule against inalienability does not impact in any way the operation of the law relating to
non-‐charitable purpose trusts. The requirements are still according to Re Endacott and nothing in s. 32 changes the law established
by that case

-‐ Page 14 of 86 -‐


CHARITABLE TRUST
5 STEPS TO CHARITABLE TRUSTS
1. Does the trust fall under any one of the four Pemsel heads of charitable trusts?
2. If there is ambiguity as to whether it falls under one of the four Pemsel heads, the charitable status of the trustee may help resolve it.
3. Is the trust wholly and exclusively charitable?
4. If there are non-‐charitable purposes within the trust, consider the application of section 64 of the Trustees Act to validate the trust i.e.
apply the blue pencil trust.
5. If there has been a failure after the charitable trust has been set up, consider the application of cy-‐pres pursuant to section 21 of the
Charities Act.
G E N E R A L
Charitable trusts are accorded a number of concessions over other trusts in terms of enforcement, perpetuity, certainty and taxation. To earn
these concessions, especially in relation to taxation, a trust must generally be of benefit to the public and not merely to private individuals but
it seems that the degree of public benefit required varies from head to head.
• Intention of the legislature is to encourage charitable giving and the development of the voluntary sector as a whole.
• There is a well-‐established maxim that the court leans in favour of charity when construing charitable gifts. Thus where a gift is
capable of two constructions, one which would make it void and the other which would render it effectual, the latter must be
adopted. It is better to effectuate than to destroy the intention...
• The court must however be careful not to strain the will to gain money for the charity. For in doing so it will cheat the residuary
legatees or next of kin…

[1] No need for human beneficiaries. Charities are purpose trusts but there is no need for human beneficiaries to enforce them, as there is in
the case of non-‐charitable purpose trusts. Individuals who may benefit from a charitable trust have no standing to enforce them. Charitable
trusts are enforced by the AG in the name of the state, although the general administration of charitable trusts is overseen by the
Commissioner of Charities.

[2] Objects need not be certain. There is no requirement, as with other trusts, that the objects of the trust must be certain. Thus, a trust for
“charitable purposes” will be valid. The court and the Commissioner of Charities have jurisdiction to establish a scheme for the application of
the funds for specific charitable purposes. There must, of course, be no doubt that the objects of the trust are exclusively charitable and the
purpose expressed must not be so vague that the court could not control the application of the assets.

[3] Perpetuity: charitable trusts are exempted from the rule of inalienability (capital cannot be retained for longer than perpetuity period).
However, the rule against remoteness of vesting (all property given to the trust must vest during perpetuity period) applies, with an exception
where there is a gift over form one charity to another charity.

[4] Tax benefits. Not so significant in Singapore because some tax benefits are not automatic but in England, the courts may be slow to hold
trust to be charitable to prevent abuse of these tax advantages à Singapore courts may be more liberal in finding a charitable trust?

P R E L I M I N A R Y : C O M M I S S I O N E R O F C H A R I T I E S ’ G U I D E L I N E S
Technically, the Charities Guidelines have no force of law.

• In practice, can treat it as law since it is how the charities commissioner operate
• But if you get a difficult case, technically you can challenge the guidelines on academic terms. But the guidelines represent the
understanding of the Charities Commissioner on what they believe the law is. So probably what they’ve writtein the guidelines is
what charitable law is. IT is their attempt to explain in simple language what charity law says.

S T E P 1 : C H A R I T A B L E P U R P O S E S & T H E 4 H E A D S O F P E M S E L
[1] Starting point is that charitable purposes are grouped into four distinct heads by Lord McNaughten in Commissioners of Income Tax v
Pemsel, which are trusts for 1) relief of poverty, 2) advancement of education, 3) advancement of religion, and 4) other purposes beneficial
-‐ Page 15 of 86 -‐


to the community. This has been recognised by Lord Wilberforce in Scottist Burial Reform and Cremation Society Ltd v Glasgow Corp
as a classification of convenience with the fourth division as a catch-‐all category. Because the law of charity is a moving subject that is
constantly evolving, the Charity Commssion and Comissioner of Charities have a major role to play in the development of the concept.
• Note that each head involves two elements; 1) an element of benefit and 2) an element of PUBLIC benefit. As mentioned, the
requirement of PUBLIC benefit varies from head to head.
NOTE: Thus, if you want to argue that your trust is charitable, determine whether it is exactly on point with one already recognised and if
there is none, you try to extend the concept by analogy.
[2] However, post-‐2005 in Singapore, following the Budget Speech for 2005, the definition of charitable purposes has been extended to
include new categories such as:
• The advancement of sport where the sport advances the health of individuals;
• The advancement of health;
• The advancement of citizenship or community development;
• The advancement of the arts, heritage or science;
• The advancement of environmental protection or improvement;
• The relief of those in need by reason of youth, age, ill-‐health, disability, financial hardship or other disadvantage; and
• The advancement of animal welfare.

The extended list of charitable purposes has also been recognized in the annual reports of the Commissioner of Charities since 2005.
• However, given that these categories have yet been amened into the Charities Act, and given that there is a lack of publicity of
these categories sufficient for them to be considered as Subsidiary Legislation, these charitable purposes run the risk of being ultra
vires, being invalid because of non-‐compliance with publicity requirements or being of no legal effect as a mere informal rule

[3] Note that a failure to register carries with it the spectre of criminal liability: Charities Act, s5(6).

In the issue where courts decide WHETHER OR NOT CHARITIES COMMISSION GUIDELINES SHOULD BE FOLLOWED, one position is to
defer to Charities Commission’s expertise. Counter position is to bring up technical arguments and state that they do not have force of
law unless Parliament amends Charities Act.
#1: RELIEF OF POVERTY
[1] Concept of poverty is a relative one. A person’s social position and circumstances can be taken into account.
• Re Scarisbrick – “in needy circumstances”
• Re Alsagoff Trusts – “my poor relations”
• Re Shaikh Salman – “poor and in distressed circumstances”
• Gibson v South American Stores – “who are or shall be necessitous and deserving”

[2] Gift must be exclusively for the benefit of the poor: ý Re Gwyon [1930] 1 Ch. 255
• Fund providing for a gift of clothing to boys in Farnham and district failed on the ground that the conditions for qualification, precise
through they were in many ways, failed to exclude affluent children.

[3] In poverty cases, there is no need to show any public benefit: þ Re Scarisbrick [1951] Ch. 622
• In Re Scarisbrick a testator established a trust for the benefit of “such relation of my…son and daughters as in the opinion of
my…son and daughters shall be in needy circumstances…” It was held to be a valid charity even though it was essentially a trust for
the benefit of poor relatives.

[4] However, there can be no charitable trust, even in the poverty category, where the persons to be benefited are specified individuals. If
the class is large enough though, it could constitute a section of the public despite being prima facie a private class: þ Dingle v Turner.
• The "poor members" and the "poor employees" decisions were a natural development of the "poor relations" decisions and to draw
a distinction between different sorts of "poverty" trusts would be quite illogical and could certainly not be said to be introducing
"greater harmony" into the law of charity.
-‐ Page 16 of 86 -‐


[5] Examples
• Poor relatives: Re Scarisbrick
• Poor employees: Dingle v Turner
#2: ADVANCEMENT OF EDUCATION
[1] Concept of educational charity has widened significantly over the years and now covers almost any form of worthwhile instruction or
cultural advancement except for purely professional or career courses.
• Total conception of education:
o Endowments of schools: AG v Lady Downing
o Encouragement of chess-‐playing among young people in Portsmouth : Re Dupree’s Deed Trusts
o Physical education in Universities (as integral part of education for the young): IRC v McMullen
o Materials for study of law: ICLR v AG
• Skills and craft:
o Association for the purpose of encouraging craftsmanship and maintaining standards of modern and ancient crafts: IRC v
White
o Teaching, promotion and encouragement of self-‐control, elocution, oratory, deportment, arts of personal contact, social
intercourse and other arts of public, private, professional and business life: Re Shaw WT
• Dissemination of useful information:
o Research (with element of dissemination): Re Hopkins WT, McGovern v AG, cf: Re Shaw
o Study and dissemination of ethical principles and the cultivation of a rational religious sentiment: Re South Place Ethical
Society
• Arts and Music:
o ý Re Pinion (no artistic merit as per expert evidence), cf: þ Re Delius (music of the composer Delius)
o Music -‐ choral singing in London: Royal Choral Society v IRC; organ music: Re Levien; music of composer Delius: Re
Delius
• ý Political purpose: touchstone of ‘political’-‐ness is whether the gift is designed to change the law
o ý Southwood v AG: Disarmament and pacifism as the best means of achieving peace:
o ý McGovern v AG (1982): The trust established by Amnesty International included some charitable objects but also some
non-‐charitable political purpose, and was held not chariatble

[2] It is for the courts to objectively ascertain educational value/artistic merit of the subject matter, such that there is public benefit, with
the assistance of expert evidence: Re Delius (1957); Re Pinion (1965).
• þ Re Delius: In Re Delius a gift to increase the general appreciation of the musical work of the renowned composer was for the
advancement of education. Roxburgh J. however recognised that there would be a difficulty if a manifestly inadequate composer
had been chosen.
• ý Re Pinion: Harry Pinion was a prolific collector of paintings, furniture, china, glass and other objects d’art. On his death, he left
his residuary estate to trustees to open his studio as a museum housing the collection.
o Expert witnesses considered the merit of the collection and were unanimous in their conclusion that it was of no
educational value. In light of the evidence, the Court held that the trust is not charitable as the works had no artistic merit.

[3] The opinion of the donor that the gift is for the public benefit does not make it so: Re Pinion.

[4] It is necessary to show public benefit under this head. Thus, education requires something more than the mere accumulation of
knowledge e.g. individual directed research.

[5] Public benefit (in trusts for the advancement of education) only exists where the persons who benefit can form a “section of the public”
i.e. 1) no personal nexus (Oppenheim) and 2) no class within a class (IRC v Baddeley).

NO PERSONAL NEXUS NO CLASS WITHIN A CLASS
th
[1] A trust cannot qualify as a charity within the 4 head if the
Test is to look at the distinguishing quality that unites those
-‐ Page 17 of 86 -‐


within the class and ASK IF THAT QUALITY IS PERSONAL OR beneficiaries are a class of persons not only confined to a particular
IMPERSONAL. If personal, the class will not be considered a area but selected from within it by reference to a particular creed
section of the public. Note criticisms/dissenting approach. (IRC v Baddeley (UKHL1955)).
• Facts: This case concerned a trust to promote the moral,
[1] A personal link or nexus among the class, either through common
social and physical well-‐being of Methodists resident in
ancestry or common employer, will normally negate any public
West Ham and Leyton by the provision of facilities.
benefit (Oppenheim v Tobacco Securities Trust Co Ltd (1951)).
• Held: Not charitable, first, because the intended
• EXCEPTION: Even then Re Koettgen (1954) suggests that
beneficiaries did not comprise a sufficient section of the
there is no objection if merely a proportion of the intended
community, and, second, because the promotion of social
class is linked to the donor. A fortiori, the fact that just one
well-‐being was not a charitable purpose
person – the donor’s son – is a member of the club does not
• Note the distinction between
destroy the public nature of its purpose. Whether the test is
o a) a form of relief accorded to the whole
satisfied on the facts of this problem will depend on the
community yet by its very nature advantageous
size of membership of the club. If it is negligible, the club
only to a few and
may fail to satisfy the public benefit test. The court has a
o b) a form of relief accorded to a selected few out
wide discretion in deciding this issue.
of a larger number equally willing and able to take
• ý Thus in Oppenheim, a trust for the education of the
advantage of it
children of employees of British American Tobacco Co Ltd
o (a) is charitable
or any of its subsidiary or allied coy was not a valid

charitable trust although there were over 110,000 current
[2] ‘Class within a class’ rule does not apply in Singapore? AG v Lim
employees.
Poh Neo [1976] 2 MLJ 233
o Majority (Lord Simonds) supported Re
• Settlor conveyed all the interests in lands to the trustees for
Compton’s personal nexus test
use as a burial ground for all persons who are of the ‘Yeo’
o Minority (Lord McDermott) dissented because
clan and of the Hokkien tribe.
the test would likely lead to anomalous results.
• Court held that a gift of a burial ground to members of a
Felt that if size of class is substantial and settlor’s
clan was a gift to charity because members of such a clan
intention was advance interests of the class
form a section of the community and could not be said to
(purpose of trust), then trust should be upheld.
be a group of private individuals or a fluctuating group of
• ý In Re Compton, a testatrix by her will provided: “… the
individuals.
money is to be invested under a trust for ever for the
• On a proper construction of the indenture the settlor had
education of C and P and M children”. Court held that The
made an out and out gift of the property for charity, albeit
trust was not a valid trust because the beneficiaries were
for a particular charitable purpose. As the gift had failed on
defined by reference to a personal relationship, and it
the acquisition of the property by the government and the
lacked the quality of being a public trust.
purpose of the gift has become impossible of performance,
o A trust for the education of the descendents of
the proceeds of the acquisition should be held cy-‐pres and
three named persons was in fact a family trust.
not held as a resulting trust in favour of the settlor`s estate.
o The fundamental requirement of a charitable gift
• Crown: Wrongly decided because didn’t consider relevant
was its public character; that the number of
case authorities?
potential beneficiaries, however large, could not

raise a family or private benefaction into the class
of charitable gifts. [3] Pearce questions the validity of the ‘class within a class’
restriction since there are many trusts with double limitations on
eligibility that should remain valid. The real objection is the
[2] FOR: Needless to say, the efficacy of this test has been challenged
introduction of an arbitrary limitation on eligibility i.e. a Church for
(for example, in Dingle v Turner (1972)), but it is designed to
Christians is acceptable but a bridge for Christians only is not since a
ensure that a donor does not derive a private benefit, with fiscal
bridge should be available to all.
advantages, from what is supposed to be a public purpose.

Consequently, even though the motives of [SETTLOR] may be of the
purest kind, the fact that this trust would confer benefits on their
own employees, making employment at the company more attractive [4A] Discretion to prefer = valid: If a trust for a broad charitable class
and the workforce more content, is enough to deprive the intended of beneficiaries gives the trustees a power, without being under any
trust of charitable status. duty, to prefer a certain private class within the broader public class,
this does not vitiate the validity of the trust as a charitable trust (þ
[2B] AGAINST: The narrow personal nexus approach in Oppenheim Re Koettgen (1954).
is conducive to certainty, but is susceptible to artificial manipulation • In this case, a testatrix bequeathed her residuary estate on
of legal forms in order to obtain incentives as a charitable trust. As trust “for the promotion and furtherance of commercial
-‐ Page 18 of 86 -‐


noted by Lord McDermott, a trust for employees of university will fail education”. She further directed that in selecting the
whereas a trust for university education will be recognised as beneficiaries “it is my wish that the trustees shall give a
charitable. Furthermore, the Law Lords in Dingle v Turner preferred preference to any employees of JB & Co (London) or any
Lord McDermott’s broader approach too, which is concerned with members of the families of such employees”
substance and not form.

[4B] Duty to prefer = void: However, if the trust for the broad
charitable class imposes a duty upon the trustees to use the whole,
if possible, or an uncertain part of the funds for a specified private
class then the trust cannot be a valid charitable trust (ý Re Martin
(1977)).
• If only a maximum specified part of the fund is directed to
be used for the private class then while such part should
not be charitable, the remainder, presumably, should be
SEVERED AS CHARITABLE since it can be used for
exclusively charitable purposes

Trusts for advancement of research Trusts for promotion of sports
[1] Trusts for research purposes are charitable only if it is [1] Traditionally, the promotion of sport was upheld as charitable
contemplated that the research will be published: Re Shaw; Re only where it was ancillary to the pursuit of a charitable purpose:
Hopkin’s Will Trusts • þ Re Mariette (1915) (sport in a school – educational)
• In Re Hopkins’ WT, Wilberforce J held that research must • þ Re Gray (1925) (sport in any army regiment – general
either be of a) educational value to the researcher or must public benefit in promoting efficiency of the Army)
be so directed as to lead to b) something which will pass o Note: doubted in ý IRC v City of Glasgow
into the store of educational material, or so as to improve
Police Athletic Assoc (1953) where it was held
the sum of communicable knowledge in an area which
that the charitable purpose has to be the
education may cover
predominant object
• þ London Hospital Medical College v IRC (1976)
(athletic, cultural and social activities of Students Union –
furthering educational purposes of medical school)
• þ IRC v McMullen (UKHL1981) (soccer and other sports in
schools and universities – educational)

[2] However, post-‐2005 in Singapore, an extended list of charitable
purposes has been recognised following the Budget Speech for 2005
where PM Lee Hsien Loong extended the definition of “charitable
purposes” by including the advancement of sport... where the sport
advances the health of individuals”. The extended list of charitable
purposes has also been recognized in the annual reports of the
Commissioner of Charities since 2005.

#3: ADVANCEMENT OF RELIGION
[1] Definition of religion: The definition of religion was previously defined as “man’s relations with God” and this effectively restricted the
scope of religious trusts to a monotheistic religion: Re South Place Ethical Society. Likewise in Singapore, a restrictive definition of
“religion” was adopted in Nappalli v ITE (1999) where the CA, in addressing the substance of religious belief, excluded ideologies which do
not evince a belief in God.
• Thus, in Re South Place Ethical Society, the Society’s objects, which were the “study and dissemination of ethical principles and
the cultivation of a rational religious sentiment”, failed to qualify it as a religious charity (though it was considered a charity
nevertheless under other heads)
ON BUDDHISM ON OTHER RELIGIONS ON CULTS OR UNORTHODOX BRANCHES

Not accepted: Based on the definition of So far as theistic religions are concerned, no If a movement can establish that its tenets
-‐ Page 19 of 86 -‐


religion by Dillon J in Re South Place distinction is drawn between monotheistic are within the scope of a religion, it is no
Ethical Society, Buddhism was not a and polytheistic religions. objection that those tenets are theologically
religion since a) it is a “realised” rather than • Charitable trusts have been unsound (þ Thornton v Howe (1862)), or
a “revealed” religion, and b) its adherents do registered for the advancement of that the number of followers is minimal (þ
not revere the Buddha as a “god”, but the Church of England, Catholic Re Watson (1973)).
instead believe that they should follow a (Bradshaw v Tasker), Baptist (Re • In Thornton v Howe, a trust for
spiritual path that he laid out which can the publication of the sacred
Strickland’s WT), Jewish (Neville
ultimately lead to spiritual awakening. writings of Joanna Southcott, who
Estates Ltd v Madden), Sikh,
claimed that she was with child by
Islamic, Hindu (Varsani v Jesani)
Argue for acceptance: the Holy Ghost and would give
and Spiritualist religions
• Singapore is accommodative
• Church of Scientology does not birth to a new Messiah was held to
towards religion in general
have charitable status. Its be charitable.
• More than 50% of Singaporeans
application was rejected by Charity • In Re Watson, Plowman J. upheld
are Buddhists
Commission because although a trust for the continuation of the
• Buddhist charitable groups have
successfully registered as a charity Scientologists believe in a supreme work of God…in propagating the
being, this belief does not find truth as given in the Holy Bible by
expression in conduct indicative of financing the continued publication
reverence or veneration for the of the books and tracts of one
supreme being: study and therapy Hobbs who, with the testator, was
or counseling did not amount to the leading member of a very
such worship small group of undenominational
o Note that Scientologists Christians. Expert evidence
have achieved regarded the intrinsic value of the
recognition as a religious work as nil; but it confirmed the
charity in Australia i.e. genuineness of the belief of the
Church of the New adherents of that small group.
Faith v Commissioner
of Pay-‐roll Tax [2] However, doctrines adverse to the very
foundation of all religion cannot be
charitable: Thornton v Howe
[2] Trusts for the adding to or repairing the fabric of a church (þ Hoare v Osborne) or for the upkeep of a churchyard (þ Re Vaughhan; þ
Re Douglas) are charitable but not for the erection or upkeep of a particular tomb in a churchyard (ý Re Hooper).

[3] If a 1) gift is made to an ecclesiastic in his official name and by virtue of his office then if 2) no purposes are expressed in the gift, the gift
is for charitable religious purposes inherent in the office (Re Rumball).
• However, if the purposes are expressed in terms not confining them to exclusively charitable purposes then the charitable
character of the trustee will not make the gift charitable:
o þ Re Simson (gift to vicar “for his work in the parish” charitable);
o ý Farley v Westminster Bank (gift to vicar “for parish work” not charitable since it could include work for other
purposes)

[4] A trust for religious purposes þ will be treated as for charitable religious purposes but a trust for religious institutions ýþ will not be a
charitable trust because some religious institutions lack the necessary public benefit for a charitable trust (ý Gilmour v Coats -‐ e.g. purely
contemplative order of nuns).
• ý MacLaughlin v Campbell: to trustees “for such Roman Catholic purposes…” void because possibility of Catholic political,
economic or social purposes
• þ Re White: gift for “religious purposes” means impliedly “charitable religious purposes”

[5] Public benefit in religious trusts is required but court seems prepared to assume a public benefit where the purpose in question is of a
religious nature unless the contrary is shown. The law assumes that any religious activity carried on in the public domain is charitable. There
is no need for the religion to prove its value or for the court to weigh the validity of its beliefs. However, the belief must be objective and
-‐ Page 20 of 86 -‐


capable of proof in court: Gilmour v Coats.
• In ý Gilmour v Coats (UKHL1949), HL held that a trust for a contemplative order of nuns who did not leave their cloisters nor allow
the public into them was not charitable. The benefits of their edifying example and their intercessory prayers were too vague and
incapable of being proved to be of tangible benefit for the public.
• However in þ Neville Estates Ltd v Madden (UKCh1962), which bears a similar factual matrix as Gilmour v Coats, Cross J upheld
as charitable the trust because the Synagogue’s activities included public services.

#4: OTHER PURPOSES BENEFICIAL TO THE COMMUNITY
Specific mention in the Preamble: AGE & SICKNESS

• The Preamble refers to the “relief of aged, impotent (meaning physically handicapped) and poor people.” The phrase is construed
disjunctively, and there is no need to show that the purpose of a trust includes all three.
• A trust for the relief of the sick is charitable, including faith healing: þ Funnel v Steward (1996)
o So are trusts for the support of hospital
• A nursing home which is privately owned and run for profit is not a charity.

Trusts for the BENEFIT OF A LOCALITY
The courts have adopted a benevolent construction towards gifts made in general terms for the benefit of a named locality or its inhabitants.
Such gifts are construed to be impliedly limited to the charitable purposes in the community.
• Hence, “for the benefit and advantage of Great Britain” (Nightingale v Goulburn) or “for the good of a particular country” (AG v
Earl of Lonsdale) would be charitable.
[1] The mere fact that the object of the trust is beneficial to the community is not enough. The question whether a purpose is beneficial to
the community is one that the court must decide in light of all the evidence available. What the donor thought, or what other people think is
not the issue. In a sense, the test is objective, yet the judges cannot avoid making a subjective choice.
• In ý National Anti-‐Vivisection Society v IRC (1948), the question was whether the Society was entitled to relief from income tax
on the ground that its objects which was the total suppression of vivisection was charitable. The protection of animals from cruelty
is a chartaible purpose. Vivisection on the other hand is a necessary part of medical research, thus is beneficial to community as well.
• The question, as Lord Simmonds said, “is whether the court, for the purposes of determining whether the object of the society is
charitable may disregard the finding of fact that any assumed public benefit in the direction of the advancement of morals and
education was far outweighed by the detriment to medical science and research and consequentl to public health which would
result if the society succeeded in achiving its objects, and on that balance, the object of the society, so far from being for the public
benefit, was gravely injurious thereto.
• The court undertook to make the value judgment, “Weighing conflicting moral and material utilities.” On balance, on the evidence
available to it, the suppression of vivisection was not beneficial to the public, and the claim failed.
• Another reason why the trust failed as a charity in that case is because it was seeking a change in the law to outlaw vivisection.
Political trusts are not charitable and any trust which seeks to change the law is political. See below for more on political trusts.

[2] Analogy approach: you have to show that the purpose is beneficial in the way which law regards as charitable i.e. beneficial within the
spirit and intendment of the Preamble, or by analogy from the principles established by the cases: Williams’ Trustees IRC (1947);
Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation (1968)
• In ý Williams’ Trustees v IRC a trust for the purpose of maintaining an institute "for the benefit of Welsh people resident in or
near or visiting London with a view to creating a centre in London for promoting the moral, social, spiritual and educational welfare
of Welsh people, and fostering the study of the Welsh language and of Welsh history, literature, music and art" failed, on the ground
that the objects of the trust, though beneficial to the community, were not beneficial in the way which the law regards as
charitable.
• In þ Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation a non-‐profit-‐making cremation society was
held charitable by analogy with cases holding burial grounds to be so, though neither facility receives specific mention in the
Preamble.

[3] Singapore may choose to abandon the ‘analogy’ approach and use a wider approach where there is no definitional boundary to the fourth
class.
• Russell LJ in Incorporated Council of Law Reporting v. Attorney-‐General went so far as to say that if a purpose is beneficial to
-‐ Page 21 of 86 -‐


the community, it is prima facie charitable in law, and that the analogy approach is too restrictive.
• In Re South Place Ethical Society (1980) Dillon J. preferred the old analogy approach.
• More recently however, in AG of the Cayman Islands v Wahr-‐Hansen [2000] 3 All ER 64 Lord Browne-‐Wilkinson said in obiter
dicta that Russell LJ’s approach has much to commend it.
• In Hwa Soo Chin v Estate of Lim Soo Ban, the Singapore High Court found that a children’s home in looking to the relief of
children who were liable to neglect and owing to their tender years, helpless to assist themselves, fulfilled a purpose that was
beneficial to the community and charitable within the preamble to the Statute of Elizabeth. This seems to support Russel LJ’s broad
approach.

[4] Treatment of the problem has been much improved by the obligation to register charities under s5(6) of the Charities Act. As part of
their jurisdiction to register or refuse registration, the Commissioners have built up a valuable range of precedents by which they can be
guided. However, there is an appeal from the Commissioners’ decision to the court.

[5] There are dicta to support the view that a higher element of public benefit is required in charities under the fourth head than in the other
categories of charities (see above Advancement of Education’s public benefit)

S T E P 2 : I F A M B I G U O U S , L O O K T O C H A R I T A B L E S T A T U S O F T R U S T E E
The charitable nature of a trust is determined by the terms of the trust and not by the status of the trustee.

But the charitable status of the trustee can in some cases, where the terms of the trust are not spelled out, lead the court to construe the
terms of the trust as charitable.
• In Re Rumball a gift “to the bishop for the time being of the diocese of the Windward Islands to be used by him as he thinks fit in
his diocese” was upheld.

S T E P 3 : E X C L U S I V E L Y C H A R I T A B L E
[1] For a charitable trust to be valid, it must be for exclusively charitable purposes. Thus, in Chichester Diocesan Fund v Simpson, the
court held that the testator’s direction to apply the residue of his estate “for such charitable institution or institutions or other charitable or
benevolent object or objects in England" led to the failure of the trust because “or benevolent” meant that the trust was not exclusively
charitable. Prima facie, the word “or” causes the the words to be read disjunctively whereas the word “and” causes them to be read
conjunctively.
• A statement of objects which includes non-‐charitable purposes is not saved by adding “in so far as they are of a charitable nature”.

[2] If there is a combination of purposes, some charitable and others not, then it will not be charitable unless the private benefits can be seen
as being no more than ancillary or subordiante to the public benefits.
• ý IRC v Oldham Training and Enterprise Council (1996): Lightman J held that a TEC was not a charitable body because its
objects included some non-‐charitable elements, including the promotion of the interests of individuals rather than of the
community in general.
• ý McGovern v AG (1982): The trust established by Amnesty International included some charitable objects but also some non-‐
charitable political purpose, and was held not chariatble.
• ý Williams’ Trustees v IRC (1947): Objects included many that were charitable, but also the promotion of social activities that
are not.
• ý IRC v Baddeley (1955): Promotion of Methodism was a charitable purpose, but not the promotion of sport and recreation.

[3] Benignant construction: Where the court is required to determine whether a gift was for exclusively charitable purposes, it may take a
generous approach and give it a ‘benignant construction’: IRC v McMullen per Lord Hailsham LC; Guild v IRC (UKHL 1992).
• This means that where there is an ambiguity such that a gift is capable of two constructions, one of which would make it void and
the other effectual, court will uphold it.
• Precise scope of the principle permitting a benignant construction was considered in Funnell v Steward where it was held that the
-‐ Page 22 of 86 -‐


it would not save a ‘dual purpose gift’ where one identifiable object was clearly present but plainly not charitable, as the court
could not simply ignore the non-‐charitable element of the trust.
• However, courts can save a gift which had a single purpose capable of being carried into effect in two different ways, one of which
would be charitable and the other which would not.

[4] In Singapore, s 6(1) of the Charities Act provides that an institute that is on the register of charities is presumed conclusively to be a
charity. Therefore, when an institution is registered as a charity, there is no question of (i) it not being a charity, or (ii) the objects not being
exclusively charitable. (Re Will of Samuel Emily, deceased (SGHC2001))
Conjunctions
‘AND’ ‘OR’
• þ Re Sutton: gift to “charitable and deserving” objects held • ý AG of the Cayman Islands v Wahr-‐Hansen: trusts for
exclusively charitable income to be paid "to any one or more religious, charitable
o The word “and” was give a conjunctive or educational institution or institutions OR any
interpretation so that only deserving objects organisations or institutions operating for the public good"
which were ALSO charitable were contemplated. held not valid as charitable trusts and void for perpetuity
• þ Re Best: gift to “charitable and benevolent” institutions • ý Chichester Diocesan Fund and Board of Finance v
held exclusively charitable Simpson: "for such charitable institution or institutions OR
• ý AG of Bahamaas v Royal Trust Co: gift for the “education other charitable OR benevolent object or objects in
and welfare” of Bahamian children construed as disjunctive England" held not exclusively charitable
(in light of circumstances) and gift thus failed since it o In Singapore, can be validated by s64
permitted application of funds for educational purposes • þ Re Bennett: gift to educational purposes and “other
and for welfare purposes which need not necessarily be objects of charity, or any other public objects in the parish
educational of Farringdon” was held to be exclusive charitable.
o Note: rebuttal of presumption that “and” o Court took the clause as a whole and noted the
denotes conjunctive reading; two purposes – word “other”, and held that it was not to be
weflare not “charitable” construed disjunctively but to mean other public
purposes that are also charitable.
o Note: rebuttal of the presumption that “or”
denotes disjunctive reading

S T E P 4 : C A N T H E T R U S T B E S A V E D B Y S 6 4 , T R U S T E E S A C T ?
IMPORTANT: It only applies if the trust is going to be invalidated. If it merely becomes clear that a trust is NOT charitable but still valid as a
private purpose trust, s. 64 does not apply.
S64, TRUSTEES ACT:

No trust shall be held to be invalid by reason that some non-‐charitable and invalid purpose as well as some charitable purpose is or could
be deemed to be included in any of the purposes to or for which an application of the trust funds or any part thereof is by such trust
directed or allowed.
Any such trust shall be construed and given effect to in the same manner in all respects as if no application of the trust funds or any part
thereof to or for any such non-‐charitable and invalid purpose had been or could be deemed to have been so directed or allowed.
This section shall not apply to any trust declared before or to the will of any testator dying before 14th July 1967.
In Nai Seng Hiang v Trustees of the Presbyterian Church in Singapore, court held that trust did not fail for want of exclusive charitable
purpose even though it included the words “social or otherwise” in its declaration of trust. This was because the donor clearly and
unequivocably evinced a general charitable intention that Christian works and evangelistic pursuits were the exclusive purposes with the
other purposes "social or otherwise" as mere adjectives describing Christian works or one aspect of them. Accordingly, the court exercised its
discretion and ordered a cy-‐pres scheme to fulfil the exclusive charitable intent of the donor.
• Might be better if the court had applied s64, Trustees Act instead of coming up with a contrived reasoning

However, a single purpose with both charitable and non-‐charitable elements cannot be given effect to because deleting the non-‐charitable
purpose will completely alter the character of the gift: ý Roman Catholic Archbishop of Melbourne v Lawlor (HCA1934)
-‐ Page 23 of 86 -‐


• The testator set up a trust for the purpose of (1) establishing a Catholic daily newspaper [which is a general newspaper with religious
articles] and (2) finding or supporting a farm for the training of orphan or delinquent boys to country life. The testator next provided
that, until sufficient funds were in hand to found the daily paper and secure the farm, the income from both benefactions should be
used for Catholic education or any good object the trustees might decide.
• Rich J: It is one entire description of one entire purpose. To confine the publication to purposes of religion which are charitable is to
change the whole character of the newspaper intended by the testator.
• Starke J: But [section 64 Trustees Act] cannot be applied to a gift directing the application of the fund for a single purpose—e.g.
establishing a Catholic daily newspaper—the charitable and non-‐charitable elements of which cannot be disentangled, separated
or delimited.

S T E P 5 : C A N C Y -‐ P R E S B E A P P L I E D U N D E R S 2 1 , C H A R I T I E S A C T ?
Where specific charitable purposes become impossible or impracticable to perform, the doctrine of cy-‐près under common law allows the
funds to be applied to purposes as similar to the original purposes as possible.
Under s. 21(1) of the Charities Act the circumstances in which the original purposes of a charitable gift can be altered to allow the property
given or part of it to be applied cy-‐pres are as follows:
(a) Where the original purposes, in whole or in part —
(i) Have been as far as may be fulfilled;
(ii) Cannot be carried out; or
(iii) Cannot be carried out according to the directions given and to the spirit of the gift.
(b) Where the original purposes provide a use for part only of the property available by virtue of the gift;
(c) Where the property available by virtue of the gift and other property applicable for similar purposes can be more effectively used
in conjunction, and to that end can suitably, regard being had to the spirit of the gift, be made applicable to common purposes;
(d) Where the original purposes were laid down by reference to an area which then was but has since ceased to be a unit for some
other purpose, or by reference to a class of persons or to an area which has for any reason since ceased to be suitable, regard being
had to the spirit of the gift, or to be practical in administering the gift; or
(e) Where the original purposes, in whole or in part, have, since they were laid down —
(i) Been adequately provided for by other means;
(ii) Ceased, as being useless or harmful to the community or for other reasons, to be in law charitable; or
(iii) Ceased in any other way to provide a suitable and effective method of using the property available by virtue of
the gift, regard being had to the spirit of the gift.

Under s. 21(2), subsection (1) shall not affect the conditions which must be satisfied in order that property given for charitable purposes may
be applied cy-‐près, except in so far as those conditions require a failure of the original purposes.

Duty of trustee to apply for cy-‐pres.

Distinction between initial failure and subsequent failure

• Where there is an INITIAL failure, the question is whether there is a PARAMOUNT OR GENERAL charitable intention. If so, the
property will be applied cy-‐pres. If not (e.g. intention was that the property should be applied for a specified purpose, which cannot
be carried out or for one specific charitable institution which no longer exists) the gift will lapse and fall into residue for the residuary
legatee.
• Where there is a SUBSEQUENT failure, the doctrine of cy-‐pres will apply automatically.
• The time for determining whether failure as occurred is at the date of the inter vivos gift or at the death of the testator for a
testamentary gift: Re Wright.
INITIAL FAILURE
WHETHER THERE IS A PARAMOUNT OR GENERAL CHARITABLE INTENTION (AS OPPOSED TO SPECIFIC)
For charitable purpose For charitable institutions (CHECK IF IT IS UNINCORPORATED OR INCORPORATED)
For the relief of the blind in Batley Unincorporated association e.g. For Batley Blind Home, High Street, Batley
-‐ Page 24 of 86 -‐


[1] No problem because purposes
3 STEPS
last forever though particular
First, construction of will – whether could ascertain intention of testator as per Re Will of Samuel
institutions carrying out purposes
Emily, deceased
may die.
Second, construe gift to have a continuing purpose
[2] If the purpose is more specific Third, even if gift fails but there’s general charitable intention, apply for cy-‐pres
such that it becomes impossible to
perform e.g. building an old folks’
home at a particular site, then the [1] A gift to an unincorporated charity will be construed as a gift on trust for purposes. As these
purpose may fail and the trust will purposes still exist, there will be no failure as a trust does not fail for lack of a trustee: Re Finger’s
lapse unless cy-‐pres is applied to Will Trusts (1972); Re Vernon’s Will Trusts (1972).
save it • As stated by Buckley J in Re Vernon’s WT, every bequest to an unincorporated charity by
name without more must take effect as a gift for a charitable purpose unless the testator’s
[3] However, if the use of the intention was to the contrary.
specified site was merely incidental
to his charitable intention (of [2A] If the gift is construed as a gift to a particular charitable institution just for its particular
building an old folks’ home) then an purposes then the gift lapses if the institution ceases to exist before the testator’s death: Re Spence’s
alternative site may be used without WT.
need for the application of cy-‐pres at • Re Spence's Will Trusts [1979] where the testatrix gave residue of her estate to a trust to
all. be divided equally between “the Blind Home at Scott Street” and “the Old Folks Home at
Hillworth Lodge”.
o The Blind Home did not exist per se but there was a similar association such that
the court could interpret it as one for a cause, not a particular institution: Re
Harwood
o The Old Folks Home was something that ceased to exist prior to the testatrix’s
death. Seniors now had various other residences and the building now serves as
office space. The gift thus prima facie fails unless a general charitable intention can
be found.
o Megarry V.C. held that the gift failed and could not be applied cy-‐pres. It was not a
general gift to the old people of the district.
• **It is unlikely for a general charitable intention to be found justifying a cy-‐pres application
as per the presumption in Re Harwood. LEAD ON TO POINT ON NON-‐EXISTENT CHARITIES.

[2B] If the gift is construed as a gift for a charitable purpose in circumstances where the existence of
the particular institution carrying out the purpose is not material to the gift’s validity, the gift does
not lapse so long as the purpose can be carried out by other means which are to be determined by the
court in cases of doubt: Re Finger’s WT.
• þ Re Finger’s WT (1972): there was a gift to the National Radium Commission
(unincorporated) and to the National Council for Maternity and Child Welfare
(incorporated). Both had ceased to exist by the testatrix’s death. The gift to the
unincorporated charity was construed as a gift to charitable purposes.
o A scheme was ordered to settle the destination of the gift, but this was not a cy-‐
pres scheme and no general charitable intention was necessary.

[2C] If gift is construed as an augmentation of trust funds, then so long as there are endowment funds
held in trust for the named charity’s purposes the gift augments such funds despite any alteration in
its name or constitution or any amalgamation with other charities: Re Faraker.
• Re Faraker: Gift to “Mrs. Bayley’s Charity, Rotherhithe.” A Mrs. Hannah Bayly had founded
a charity in 1756 for the benefit of poor widows in Rotherhithe. The Charity Commissioners
had consolidated this, with a number of other local charities, under a scheme in 1905, and
the funds were held in various trusts for the benefit of the poor in Rotherhithe.
o Held: Bayly trusts had not been destroyed by the scheme, and that the
consolidated charities were entitled to the legacy. The gift had not failed because
a perpetual charity cannot die.
o Thus, there was no question of cy-‐pres at all.
-‐ Page 25 of 86 -‐


[3] Non-‐existent charities: In Re Harwood it was said that it was easier to find a general charitable
intent in a case where the institution had never existed than it was in the case where an identifiable
institution had ceased to exist.
• If he had a specific intention, he would likely have had gotten the name right.
• The substance of the principle was applied in Re Will of Samuel Emily, deceased, where
the testator left some of the beneficiaries’ names incomplete or misdescribed in her will.
The court held that evidence may be used to show that misdescribed, non-‐existent charities
are actually referring to particular ones.
o Construction: However, the tenor of the will is clear. The testatrix had no blood
relatives as the evidence incontrovertibly shows and was planning to give away her
worldly possessions to the Church, to institutions which she deemed worthwhile
causes and to certain people whom she had associated with in this life. She was
clearly intending to be kind and generous and to do good when she expressed the
bequests in her will. It is in that broad sense of doing charity that she was making
the "Donations for Charities".

Incorporated association e.g. for Batley Blind Home Ltd, High Street Batley
[1] A gift to an incorporated charity is presumed to be an out and out gift to the corporate institution
beneficially as part of its general funds, unless there is something positive in the will to justify the
bequest being treated as on trust for the purposes of the company’s charitable objects.
• Re Finger’s Will Trusts (1972): The gift to the incorporated charity on the other hand
failed but was saved by lapse by the finding of a general charitable intention and was
accordingly applied by the court cy-‐pres.

[2A] Where it is treated as an out and out gift, the gift will lapse if the company is wound up before
the testator dies unless, which is most unlikely, a general charitable intention can be found to justify a
cy-‐pres application.

[2B] Where it is treated as being on trust for purposes, the purposes could be a) to the charity as run
by the company, b) to the company, or c) to a charitable purpose.
• For (a), lapse will occur if the home ceases to exist before the testator’s death
• For (b), lapse will occur if the company is wound up before the testator’s death
• For (c), lapse will not occur

SUBSEQUENT FAILURE
[1] Once assets are effectively dedicated to a charity, there can be no question of a lapse or a resulting trust UNLESS:
• There is no exclusive dedication to charity, such as where the donor retains an interest or there is a gift over to a non-‐charitable
purpose upon a certain event.
• Only the income is gifted – the capital cannot be applied via cy-‐pres.

[2] All that is necessary is that the property has been given “out and out” to charity, in the sense that the donor did not envisage its return
in any circumstances. In general, the court will apply the cy-‐pres doctrine, regardless of how general or specific the intention.

þ Hwa Soo Chin v Estate of Lim Soo Ban: The property therefore represented the asset of a defunct charity and as such it ought to be
applied cy près under s21(1)(a)(ii), Trustees Act where original purposes, in whole or in part, cannot be carried out, or not according to the
directions given and to the spirit of the gift.

þ AG v Lim Poh Neo [1976] 2 MLJ 233
• Settlor conveyed all the interests in lands to the trustees for use as a burial ground for all persons who are of the ‘Yeo’ clan and of
the Hokkien tribe.
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• Court held that a gift of a burial ground to members of a clan was a gift to charity because members of such a clan form a section of
the community and could not be said to be a group of private individuals or a fluctuating group of individuals.
• On a proper construction of the indenture the settlor had made an out and out gift of the property for charity, albeit for a particular
charitable purpose.
o Directions that the trustee should not sell, mortgage or otherwise part with the property was a step taken to ensure that
the property was reserved for the charitable purpose.
o Settlor had not contemplated a failure of the trust as he made no provision for such an eventuality. Settlor did not try to
reserve or preserve any interests for himself should such an eventuality arise.
• Gift had taken effect because the property had been used as a burial ground for a number of years.
• As the gift had failed on the acquisition of the property by the government and the purpose of the gift has become impossible of
performance, the proceeds of the acquisition should be held cy-‐pres and not held as a resulting trust in favour of the settlor`s estate.

G I F T L A P S E S è R E S I D U A R Y E S T A T E
If gift lapses, the property will be passed to residuary legatees by way of a resulting trust.

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CONSTITUTION OF TRUST
S T A R T I N G P O S I T I O N
The test for creating a perfect trust was laid down by Turner LJ in Milroy v Lord (1862). This involves the settlor, [NAME], choosing one of
two modes of creating the trust:
• 1) a transfer of property to the trustees, subject to a direction to hold upon trust for the beneficiaries; or
• 2) a self-‐declaration of trust.

Applying this test to the facts of the problem, we have been informed that [SETTLOR] failed to transfer the relevant properties ([PROPERTIES])
to [TRUSTEE], the intended trustee. Thus, it would appear that the intended trust is imperfect.

M E T H O D 1 : C O N S T I T U T I N G T R U S T B Y T R A N S F E R
GENERAL RULE
The issue here is ‘whether the trust property has been effectively transferred to the trustee’.
The requirements for an effective transfer may vary:
• Land (deed or registration)
o In Singapore, s63(1), LTA states that lease, mortgage or charge requires 1) instrument of transfer in approved form and
2) registration for legal title to be transferred
• Shares (share transfer form + register with company)
• Cheque (endorse by name of transferee and signature at the back)
• Chattel: Transfer of legal title done with delivery of the chattel to the transferee with the intention to transfer legal title.

[1] The settlor must have done everything that, 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: Milroy v Lord; Re Fry.
• ý Milroy v Lord (1862) – [1] No transfer of legal title where something remains to be done to effect transfer; [2] Equity will not
perfect an imperfect gift. If it is intended to take effect by transfer, court will not hold the intended transfer to operate as a
declaration of trust.
o In this case, a voluntary deed purporting to transfer shares to a trustee to be held on trust for Milroy was invalid because
shares could only be transferred by registration of name of transferee (trustee) in the books of coy, which was not done
o Although it was his intention to create a trust, he had tried to do so by transferring the shares to a trustee i.e. method 1. It
was not his intention to declare himself a trustee i.e. method 2.
• ý Richards v Delbridge:
o Transfer of land by memorandum in writing held as invalid declaration of trust because it was not done by deed

[2] At the same time an imperfect transfer will not automatically be construed as a self-‐declaration of trust with the effect of imposing a trust
obligation on [SETTLOR], for otherwise all imperfect transfers will be treated as perfect (Richards v Delbridge (1874)). In any event
[SETTLOR] did not declare an intention to make himself a trustee.

RE ROSE EXCEPTION
IF ACT OF 3P REQUIRED TO PERFECT TITLE
The Re Rose Doctrine Recent Developments
The general rule is that equity would not act to perfect an imperfect
The principle that “the donor has done everything he can” is not
gift, i.e. imperfect attempt at transferring the gift. absolute; it is always possible to find something more that he
could have done. Recent cases seem to illustrate a more lenient
However, the Re Rose exception states that, as between the donor approach to the technicalities of this area of the law on the part
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and donee, the equitable ownership (note: through a constructive of the modern courts.
trust) in the property passes as soon as the donor has done all that
has to be done by him, according to the nature of the property. [1] Benevolent construction: Although equity will not aid a volunteer,
• In Re Rose, husband transferred shares in private company it will not strive officiously to defeat a gift. In effect, where the court
to wife and executed share transfer forms on 30 Mar 1943. is satisfied that the donor had the relevant intention, the court will
in order for wife to avoid estate duty, the transfer has to be construe the words which the donor used as words effecting a gift or
completed before 10 Apr 1943, which is the date that is 5 declaring a trust if they can fairly bear the meaning: T. Choithram v
years before husband’s death. Because husband had done Pagarani (UKPC2001).
everything necessary to be done by executing the share
transfer form, court held that trust was valid and effective [2] Unconscionability: A donor would not be permitted to change his
in equity from 30 Mar 1943, thus shares were not position or recall his gift if it would be unconscionable to do so:
assessable for estate duty. Pennington v Waine (2002).
o The case has been criticised because Mr Rose o In Pennington v Waine, company auditor told donee
(settlor) clearly did not intend to declare himself a nephew he need no take further steps and he signed form
trustee. If company had refused to register the of consent to become director but share transfer form not
share, he could have been a trustee for years, delivered to him nor was he registered as a shareholder by
resulting in the imposition of onerous trustee date of donor’s death a few weeks later. Court stated that it
duties on him. would have been unconscionable if the donee did not get
• In Re Lee Phee Soo, applicant tried to rely on Re Rose the shares since he assumed directorship with its attendant
doctrine but court held that it cannot fairly be said that the liabilities, and accordingly held that the shares had been
intestate has done all that was in his power to perfect the effectively transferred in equity to him prior to donor’s
gift: he had admittedly failed to obtain, or even ask for, death.
the necessary permission of the Controller, which was o COUNTER: Indeed, in Pennington v Waine (2002), the
necessary for share transfer. Court of Appeal decided that the delivery of the share
transfer form to the company could be dispensed with. If it
BONUS: It is unclear as to the precise role played by the third party. would be unconscionable for the transferor to have recalled
Some third parties may have a purely ministerial role while others what she intended to donate, the transfer would be
may have a discretion to refuse registration of the legal title. It would effective in equity. This notion of unconscionability was
appear that the Re Rose principle is applicable irrespective of the role based on analogy with the principle laid down by the Privy
of the third party – dispositive or not.
Council in Choithram International SA v Pagarani

(2001).
o However, the Privy Council in that case had
decided that the trust was perfectly created and
thus it would have been unconscionable for the
settlor to deny the existence of the trust, whereas
in Pennington the donor had neither declared a
trust nor made a perfect gift nor had she done
everything required of her to make the gift.
Accordingly, Pennington was an unjustifiable
extension of the Milroy v Lord principle.

M E T H O D 2 : D E C L A R A T I O N O F S E L F A S T R U S T E E
**Questions usually arise in cases where the settlor’s intention was to make a gift to a donee but the gift failed, and the question is whether
the intent to benefit the donee can be construed as a declaration of trust in his favour.

[1] If settlor wishes to declare himself trustee of some or all of his property, all that is needed is a manifestation of an intention to declare a
trust.
• If property is land, evidence in writing of such intent

[2] Equity will not construe a void gift as a declaration of trust. What is needed is a manifestation of an intention to declare a trust, not just
an intention to benefit someone: Jones v Lock (1865).
• In Jones v Lock, father wanted to make a gift of a cheque to infant son. He died and cheque was found among his effects. Court
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held that there was no evidence that he intended to declare himself trustee of the cheque and to burden himself with trustee duties,
thus child took nothing.

[3] Declaration of self as trustee could be implied through conduct: Paul v Constance (1977), cf Jones v Lock.
• In Paul v Constance, Mr Constance promised his mistress that the money in a bank account was as much hers as his. Although the
statement made by him was in itself insufficient to imply a trust, the fact that Mr Constance and his mistress both paid their bingo
winnings into this account and that a subsequent withdrawal was made for the benefit of both of them implied to the court that Mr
Constance did intent for it to be a trust.

M E T H O D 3 ? T R A N S F E R O F A S S E T S T O G R O U P O F T R U S T E E S W H I C H T R A N S F E R O R W A S P A R T O F
Moreover, in Choithram International SA v Pagarani (2001), the Privy Council decided that where the settlor appoints multiple trustees,
including himself, and declares an irrevocable intention to create a trust for specific persons, a failure to transfer the property to the
nominated trustees is not fatal, for his (settlor’s) retention of the property will be treated as a trustee.
• Facts: Wealthy man TCP executed a trust deed establishing a charitable foundation, and made an oral statement along the lines of ‘I
now give all my wealth to the trust’. He then instructed his accountant to transfer his assets to the trustees, of whom he was one,
but died before this was completed.
• Held: Privy Council held that in the context, settlor’s words amounted to a declaration of trust
• Browne-‐Wilkinson LJ: There can be no distinction between the case where the donor declares himself to be sole trustee for a donee
or a purpose and the case where he declares himself to be one of the trustees for that donee or purpose. In both cases, his
conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from
his gift

T R U S T I N C H O S E I N A C T I O N S A N D C O N V E N A N T S
Fletcher v Fletcher establishes that if A covenants with B to transfer $60,000 to B as trustee with express or implied intent that B shall
hold the benefit of the covenant upon trust for C and D if they attain 21 years of age, then A has created a completely constituted trust,
which may be enforced by C and D, although they are volunteers.
[1] Fletcher rule: Alternatively, the intended beneficiaries may argue that the subject matter of the covenant involves the ‘benefit of the
covenant’, as distinct from the [PROPERTIES IN QUESTION E.G. CASH, YACHT], which constitute choses in action. Such properties are
intangible personal property rights that are transferred by operation of law in accordance with the intention of the transferor. If this
argument were to succeed, it would follow that [TRUSTEE] would have acquired the respective properties from [SETTLOR] and would be
required to hold the same on trust for the beneficiaries: Fletcher v Fletcher (1844). However, the Fletcher rule is restricted to one type of
chose in action, namely debts enforceable at law. Hence, no trust exists for the [PROPERTY THAT IS NOT DEBT].
• Question of fact whether [SETTLOR] had intention of creating a trust of a chose in action. In this case…

[2] To rule out Fletcher application to property other than money: In respect of the Fletcher v Fletcher (1844) rule, it was decided in Re
Cook (1965) that that rule is restricted to debts enforceable at law. This limitation restricts Fletcher to one type of chose only, namely
covenanted obligations to transfer money. Thus the principle would not be applicable to a covenant to transfer the house.

TRANSITION: On the other hand, if the trusts of the covenants are imperfect (i.e. the covenant to transfer £50,000 and the yacht) on the
ground that the subject matter of the trust has not been transferred to Tim, the intended trustee, the trust is imperfect and the principle is
that ‘equity will not perfect an imperfect trust’ and ‘equity will not assist a volunteer’. The unfulfilled covenants will amount to agreements to
create trusts and be enforceable, if at all, in contract law. Have to show either:

I N C O M P L E T E L Y C O N S T I T U T E D T R U S T S
VOLUNTEER NOT A VOLUNTEER
Where the beneficiaries of an incomplete constituted trust are If B is not a volunteer (if he has provided value or within the scope of
volunteers who have not provided valuable consideration, equity marriage consideration (Paullan v Koe)) then he can either
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will not compel the constitution of the trust: Re Cooks’ ST. • Sue the “settlor” for breach of contract or
• Cook executed a covenant that he would settle the • In appropriate circumstances obtain specific performance
proceeds of sale of any picture he had received from his (to force the “settlor” to transfer legal title or declare trust)
father and which he sold in his lifetime on trust for such that the trust becomes completely constituted
members of his family – these beneficiaries provided no
consideration – during his lifetime, he gave Rembrandt’s þ Pullan v Koe (1913)
Titus to his wife, which she wished to sell • Wife covenanted to settle after-‐acquired property of a
• Held: Since potential beneficiaries were volunteers, equity value greater than $100 on the trusts established under the
would not enforce the trust if it was not completely marriage settlement – subsequently received a gift of $285
constituted by the promised transfer of the proceeds of from mother, which she failed to transfer to trustee and
sale. invested in bonds – on husband/s death, bonds were in the
possession of his executors
• Held: Trustees entitled to enforce the trust on behalf of her
children because they were within the scope of the
marriage consideration and not mere volunteers. Bonds
were held on the terms of the marriage settlement even
though they had not been transferred to the trustees.

F O R M A L I T I E S F O R T H E C R E A T I O N O F T R U S T S I N T E R
F O R M A L I T I E S B Y W I L L : S 3 A N D 6 , W I L L S A C T
V I V O S : S 6 & 7 , C I V I L L A W A C T
• An equitable trust can often be set up by will. Then the

APPLICATION: The delivery of the deeds to the house to Ede by
question is always whether the will is valid.
Alfred in 2009 indicates that no perfect inter vivos gift of the
house to Ede has taken place. The appropriate formalities • Note the use of secret trusts to avoid disclosure in wills.
involve a conveyance of the legal title.
Formalities by will
Thus the gift is imperfect intervivos and ‘equity will not perfect
an imperfect gift’, and ‘equity will not assist a volunteer’. (GO ON As per s 6 as the Will Act, in writing and executed in the following
TO DMC) manner
1. Every will shall be signed at the foot or end thereof by the
testator, or by some other personin his presence and by his
A DECLARATION OF TRUST OF LAND (immovable property) must be direction,
manifested and proved by some writing by some person who is able 2. and the signature shall be made or acknowledged by the
to declare such trust or by his will: Section 7(1) testator as the signature to his will or codicil in the
• Relates to a NEW declaration of trust presence of two or more witnesses present at the same
• Lays down an evidential requirement time,
3. and those witnesses shall subscribe the will in the presence
• An oral declaration of trust of other types of property is of the testator, but no form of attestation shall be
enforceable provided the intention is to create a specific necessary
trust.
Declaration of Secret trusts to avoid disclosure in wills
A DISPOSITION OF AN EXISTING EQUITABLE INTEREST OR TRUST The courts in Kamla Hiranand have endorsed the doctrine of secret
must be evidenced in writing as well: Section 7(2) trusts. There must be
• Not limited to land (unspecified) 1. An intention of the deceased to benefit a secret beneficiary
• Not merely an evidential requirement, it must be in writing 2. Communication of the trust to the beneficiary/trustees
and must occur contemporaneously 3. Express or tacit acceptance of the trust by the beneficiary
or trustee, thereby inducing the testator not to execute a
• An exception would be resulting, implied or constructive will or leave a will already executed unrevoked or not to
trusts which do not have to be evidenced in writing: draw up a will.
Section 7(3)
• So if S orally transfers land to T and declares T as trustee,
can T simply ignore the trust as there is nothing in writing
and keep the land for himself? This would enable T to use
the statute to perpetuate a fraud. After all, the statute was
called the ‘statute of frauds’ to stop frauds, not to promote
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fraud. So in spite of this, the trust is still enforced even
though there is no evidence in writing. How did the courts
do this? Historically, it was stated in a maxim that equity
will not allow a statute to be used as an instrument of
fraud. However, modern courts use the s.7(3) constructive
trust provision. The Court would impose a trust on T to
prevent his fraud. The terms of the constructive trust are
identical to the trust expressed by S, which could not be
enforced due to a want of formalities.

When transferring or assigning trust property to trustees, the settlor
must also accord with the instruments prescribed by law. Thus, if
the intended trust property is real property, there must be a transfer
of property by valid conveyance: Section 52(1), CLPA).

Situation: What if transfers to T but no evidence in writing
The trust is still enforced even though there is no evidence in writing.
How did the courts do this? Historically, it was stated in a maxim that
equity will not allow a statute to be used as an instrument of fraud, as
in the case of Rochefoucauld. Failure to uphold the trust would mean
that T is able to use the statute to perpetuate a fraud.

However, modern courts use the s.7(3) constructive trust provision.
The Court would impose a trust on T to prevent his fraud. The terms
of the constructive trust are identical to the trust expressed by S,
which could not be enforced due to a want of formalities

E X C E P T I O N S T O T H E R U L E T H A T “ E Q U I T Y W I L L N O T P E R F E C T A N I M P E R F E C T G I F T ”
STRONG V BIRD EXCEPTION DONATIO MORTIS CAUSA
RELEASE OF DEBT **CUE IS WHEN DONOR IS DYING OR SAY THINGS LIKE “WHEN I
[1] At common law, the appointment of the debtor as executor DIE”.
operates to perfect the imperfect release of a debt: Strong v Bird
(1874). A donatio mortis causa is a lifetime gift which is conditional upon,
• In Strong v Bird B borrowed money from A, his and which takes effect upon, death. It must be distinguished on the
stepmother, who lived in his house paying money a quarter one hand from a normal lifetime gift, under which title passes
for board and it was agreed that the debt should be paid off immediately to the transferee; and, on the other hand, from a
by a deduction of 100 pounds from each quarter’s payment. testamentary gift which takes effect under the provisions of a will. It
Deductions of this amount were made for two quarters; but may therefore be regarded as an exception either to the rules
on the third quarter day and thereafter, A paid the full governing lifetime gifts, or to the rules governing testamentary gifts.
amount. Thus on her death, some 4 years later, there • But the assistance of equity will not be required by the
remained monies owed. B was appointed her sole executor donee in all cases. Where the subject matter is a chattel,
and proved the will. Later A’s next-‐of-‐kin claimed for the which has been delivered to the donee, the donee’s title is
balance of the debt. It was held that the appointment of B complete on the donor’s death, no further act being
as executor released the debt. necessary.
• In the case of a chose in action or land, on the other hand,
GIFTS the donee’s title is not complete on the donor’s death as
The rule in Strong v Bird has been extended to perfecting imperfect the legal title vests in the donor’s personal representatives.
gifts. The donee can seek the assistance of equity to compel the
1. Where an incomplete gift is made during the donor’s personal representatives to do whatever is necessary to
lifetime and the donor appointed the donee as executor, or perfect the donee’s title. It is in this latter situation that the
2. In the case of an intestacy, the donee is appointed doctrine of donatio mortis causa can be seen as an
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administrator exception to the rule that equity will not assist a volunteer
to perfect an imperfect gift.
The vesting of the property in the donee in his capacity as executor or
administrator may be treated as the completion of the gift, overriding
the claims of the beneficiaries under the will or intestacy. 3 ESSENTIALS FOR A VALID DONATIO MORTIO CAUSA as per Cain v
NOTE: It is necessary to show that the donor intended to make Moon [1896]
an intermediate lifetime gift (or to release a debt, as the case 1. Donor is required to contemplate death.
may be) and also that he had a continuing intention until the 2. The gift must have been made under such circumstances
date of his death. Thus an intention to make a testamentary gift as to show that the property is to revert to the donor if he
is not sufficient. The intention must relate to a specific item of should recover. So if the donor intended to give the
property. It is not sufficient that there was a vague desire to property to the donee in all events, there will be no donatio
provide something for the donee. mortis causa.
3. Donor is required to transfer dominion over property

during his lifetime.
BEWARE RED-‐HERRING QUESTIONS: o Chattel can be handed over physically. Dominion
In any event, John and Smith as the intended trustees are the can be given too, for example, the key to a safe
executors of Frank’s will. It is tempting to argue that the rule in can be handed over. For land, the donor must
Strong v Bird (1874) will perfect the imperfect gifts, see Re Ralli deliver the essential indicia or evidence of title to
(1964). But on reflection Frank’s intention was to make future the donee. An antecedent delivery is allowed.
transfers to the trustees. This has the effect of excluding the rule in
Strong v Bird, see Re Freeland (1952). First two issues are issue of fact. Point (3) is usually the contested
issue.
CONTRACTS (RIGHTS OF THIRD PARTIES) ACT
The Contracts (Rights of Third Parties) Act has modified this

principle only to the extent that it allows a non-‐party to a contract to
bring a claim in his own right. If he is a volunteer the remedy will be
damages.

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RESULTING TRUSTS & COMMON INTENTION CONSTRUCTIVE TRUST
Steps:
1. Was there a presumption of resulting trust?
2. Can it be rebutted by evidence or presumption of advancement?
3. Is the presumption of advancement precluded by illegality?
a. Subject to the exceptions of non-‐reliance of illegality and locus poenitentiae?
4. Was there a common intention that the property be shared in different proportions?

R E S U L T I N G T R U S T
GENERAL
[1] Under section 7(3) of the Civil Law Act, resulting and constructive trusts are exempted from the requirement of signed writing.

[2] Note that in matrimonial context, s3 of Inheritance (Family Provision) Act grants power for court to order payment out of net estate
of deceased for benefit of surviving spouse or child.
AUTOMATIC RESULTING TRUSTS

[1] Where an express trust fails to exhaust the trust property, e.g. where the express trust fails because the beneficiary died before the trust
came into effect, the trustee will hold the undisposed of property on a resulting trust for the settlor, if he is alive, or for his estate where he is
dead: Vandervell v IRC (1967); Re Vandervell Trusts (No 2)
• In Re the Trusts of the Abbott Fund (1900), a collection was made to raise money to look after two deaf and dumb ladies. The
money was held on trust for their maintenacne. After they died, there was money left over from the trust. HELD: money was only
held on trust for the old ladies’ maintenace, so that on their death there was gap in the beneficial ownership. Money remaining thus
went on a resulting trust to the people who had subscribed the money.

[2] Not all cases are interpreted the same way; ultimately, it is a question of construction of the trust deed.
• In Re Osoba (1979), the testator gave a bequest to his widow "for her maintenance and for the training of my daughter Abiola up to
university grade and for the maintenance of my aged mother". By the time Abiola, the daughter, had finished her university
education, the widow and the mother had already died. There was money left over in the trust. So the question arose whether this
money should go back to the estate on a resulting trust or to Abiola as remaining joint tenant of an absolute trust. HELD: Trust for
the widow, the mother and the daughter was intended as an absolute trust for them as joint tenants, with the result that now the
others were dead, Abiola was absolutely entitled to the remaining money. The words "for the training of my daughter up to
university grade" etc. just revealed the motive of the gift.
PRESUMPTION OF RESULTING TRUST

The common intention constructive trust analysis is the predominant analysis in the domestic context in England. Cases such as Stack v
Dowden and Abbot v Abbot have rendered the resulting trust analysis almost irrelevant in the domestic context1. However, in Singapore,
the court in Lau Siew Kim v Terence Yeo Guan Chye held on to the resulting trust analysis and thus it is likely to follow the traditional 2-‐
step approach of applying first the resulting trust analysis then the common intention constructive trust analysis.

The presumption of resulting trust is a rebuttable presumption of law (as opposed to a mere discretionary presumption of fact) but it would be
more sensitively applied by varying the strength of the presumption according to the circumstances of the case and contemporary community
attitudes and norms: Lau Siew Kim v Terence Yeo Guan Chye
NATURE OF MONETARY CONTRIBUTIONS

Whilst “indirect” contributions may constitute sufficient detriment to call for the imposition of a constructive trust if there was an express
common intention to share the ownership of the land, only “direct” contributions to the purchase price will give rise to a presumption of
resulting trust in favour of the contributor.

[1] Mortgage instalments
• Joint names situations: Cited Curley v Parkes where it was said that the because of the liability assumed by the mortgagor in a

1
In Stack, however, Lord Neuberger considered that resulting trusts still has a role to play. In Laskar v Laskar, it was held that because mother and daughter
bought the property primarily for rental income and capital appreciation purposes, the traditional resulting trust analysis still applies even though their
relationship is a familial one.
-‐ Page 34 of 86 -‐

case where monies are borrowed by the mortgagor to be used on the purchase, the mortgagor is treated as having provided the
proportion of the purchase price attributable to the monies so borrowed.
• Sole name situations: Payment of mortgage instalments pursuant to the agreement between the parties when the mortgage is
taken out will be “direct” contributions to the purchase price and will give rise to a resulting trust. However, in the absence of any
such agreement, the payment of mortgage instalments or other financial contributions subsequent to the initial acquisition of the
property WILL NOT give rise to any beneficial interest by way of a resulting trust.

[2] Renovation work: Where a property is redeveloped closely after purchase and where its value is increased by the redevelopment,
contributions to the costs of redevelopment can be relevant in determining the respective proportion of contributions to the purchase price
of the property for the purposes of a resulting trust. This is because the courts recognise that whatever the parties’ intentions were at the
outset, they may have changed where one party has financed an extension or substantial imporvement to the property, so that what they
have now is significantly dfferent from what they had then.
RIGHT OF SURVIVORSHIP
As joint tenants of the flat, the plaintiff and defendant have at law an identical interest in the whole of the flat. The position is, however,
different in equity because of the way in which they paid for the flat. The governing principle is that where two or more persons buy a
property together but pay for it in unequal shares, then even if they register themselves as joint owners of the property, the law will presume
that the express joint tenancy has been severed in equity into an implied tenancy in common in unequal shares proportioned to the amount of
the purchase price contributed by each co-‐owner. Equity leans in favour of tenancies in common in given situations because of the inherent
unfairness of the right of survivorship that obtains where there is a joint tenancy.

However, if it is a claim by the estate of the deceased:
The Court of Appeal's conclusion in aligning itself to the basic and direct approach expressed in the paragraph quoted below in the judgment in
Lau Siew Kim reflects its inclination to preserving the right of survivorship in status quo:
• There is no occasion for equity to fasten upon the registered interest held by the joint tenants a trust obligation representing
differently proportionate interests as tenants in common. The subsistence of the matrimonial relationship, as Mason and Brennan JJ
emphasized in Calverley v Green, supports the choice of joint tenancy with the prospect of survivorship (emphasis added.)
• Thus, the defendant could argue that the right of survivorship is part of the presumption of advancement as accepted by Lau Siew
Kim

IF PROPERTY PUT INTO THE NAME OF ‘A’ IF PROPERTY PUT IN JOINT NAMES
IF ‘A’ TRANSFERS PROPERTY TO ‘B’ (question of whether there was a common i.e. they are legal joint tenants (question of
intention for B to acquire beneficial interest) quantification of beneficial interests)
Presumption of resulting trust arises when If A made full contribution If parties’ contributions to the purchase
the transferee: Equity will follow the law and home will be price of the property is the SAME
• Has not given full consideration or deemed to belong to A. Equity will follow the law and parties will be
• Is a fiduciary or No presumption of resulting trust arises. deemed to hold the property as joint tenants
• Is under an obligation to return the in equity as will. If A dies, then B will take
property to the transferor. legal title to the whole by survivorship, but
If B made full contribution will be treated as a tenant in common in
Presumption of resulting trust arises in equity and will hold A’s share of the purchase
favour of B because A gave no consideration. or mortgage money on reslting trust for A’s
estate.
• A can try and prove that B intended
to make him a gift: Loosemore v
McDonnell
• A can try and prove that B intended If parties’ contribution to the purchase price
to lend A the purchase money, thus of the party was UNEQUAL
he must have intended for A to A presumption of resulting trust arises and
have beneficial ownership of parties will be presumed to hold the
property and to owe him a properties as beneficial tenants in common
personal obligation to repay the of shares proportionate to their
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amount of the loan contributions to the acquisition of the
o If proven, B will only be properties.
entitled as A’s creditor to • Because parties’ contributions
the repayment of the crystallise at the date of
sum of money and any acquisition, neither can
agreed interest subsequently claim a larger share
under the resulting trust on the
basis that he has paid for
If BOTH PARTIES made contributions to the improvements to the property or
property paid a higher proportion of the
A presumption of resulting trust arises and mortgage instalments than the
parties will be presumed to hold the parties agreed at the time of
properties as beneficial tenants in common acquisition
of shares proportionate to their
contributions to the acquisition of the
properties. Parties’ contribution should be At the extreme, if ONLY A made full
confined to those made at the time of the contribution, both parties will be presumed
acquisition of the property. to hold the property on resulting trust for A.

Presumption of resulting trust may be Presumption of resulting trust may be Presumption of resulting trust may be
rebutted (i.e. property was an outright gift) rebutted (i.e. contribution made towards the rebutted with:
with: acquisition of the property was meant to be a • Presumption of advancement i.e.
• Presumption of advancement – gift) with: can be expanded to include
which may be rebutted by evidence • Presumption of advancement – intention on the part of the parties
• Evidence of the real objective of which may be rebutted by evidence for the rule of survivorship to
operate such that absolute
the transferor. • Evidence of the real objective of
beneficial ownership is to be
the transferor. conferred on the surviving joint
tenant (Lau Siew Kim) – which
may be rebutted by evidence
• Evidence of the real objective of
the transferor.

P R E S U M P T I O N O F A D V A N C E M E N T
GENERAL
[1] For certain kinds of relationships, it is presumed that a contribution towards the acquisition of property was intended to be an outright
gift.
• In particular, where the joint tenants are spouses, the presumption of advancement applies to presume an intention on the part of
the parties for the rule of survivorship to operate; the scope of the presumption should be expanded to include (if it does not
already so include) the inference of an intention for the absolute beneficial ownership of the property to be conferred on the
surviving joint tenant.
• Traditionally, a presumption of advancement will be raised in 3 types of transfers: 1) husband and wife, 2) father and child, and 3)
person who stands in loco parentis and child.

[2] Singapore law remains committed to the traditional categorisation approach to presumptions of advancement (Lau Siew Kim), albeit in
a more nuanced and fact-‐sensitive way based on, first, the nature of the relationship between the parties and, second, the state of the
relationship (Low Gim Siah, affirmed in Lau Siew Kim).
• The financial dependence of the recipient on the transferor or contributor, mentioned in Low Gim Siah, is but one factor which may
affect the strength of the presumption of advancement.
• In our judgment, two key elements are crucial in determining the strength of the presumption of advancement in any given case:
o first, the nature of the relationship between the parties (for example, the obligation (legal, moral or otherwise) that one
party has towards another or the dependency between the parties); and
o second, the state of the relationship (for example, whether the relationship is a close and caring one or one of formal
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convenience).
• The court should consider whether, in the entirety of the circumstances, it is readily presumed that the transferor or contributor
intended to make a gift to the recipient and, if so, whether the evidence is sufficient to rebut the presumption, given the
appropriate strength of the presumption in that case.
HUSBAND AND WIFE FATHER AND CHILD LOCO PARENTIS AND CHILD
H U S B A N D -‐ T O -‐ W I F E þ F A T H E R -‐ T O -‐ C H I L D þ L O C O P A R E N T I S -‐ T O -‐ C H I L D þ

Although influence of the presumptions of For many years, the Singapore readily A person in loco parentis is regarded as
advancement and resulting trust as between applied the presumption of advancement to someone standing in the position of a lawful
husband and wife is limited in the UK transfers between father and child: Yeo Kia father of the child. Thus, the presumption of
(Pettitt v Pettitt; Neo Tai Kim) and Hong v Yeo Kia Hock. advancement will apply to such person who
considered as ‘an evidential instrument of takes upon himself the duty of the father of a
last resort’ locally in Teo Siew Har v Lee child to provide for that child e.g. a
Kuan Yew, the presumption was applied in grandparent, an uncle and even a mother
force in the recent Court of Appeal case of although it is no longer necessary to
Lau Siew Kim, where the presumption of establish that a mother is in loco-‐parentis to
advancement was even extended to a child for the presumption of advancement
engaged couples. to apply to a transfer from her to a child.
W I F E -‐ T O -‐ H U S B A N D ý M O T H E R -‐ T O -‐ C H I L D þ C H I L D -‐ T O -‐ P A R E N T þ ?

Whereas the presumption of advancement The Court of Appeal in Lau Siew Kim in the One of the factors considered by the court in
traditionally operates upon transfers from form of obiter remarks extended the Lau Siew Kim in expanding the
husbands to wives, it does not apply to presumption of advancement to all parent-‐ presumption of advancement to all
transfers from wives to husbands. child relationships, even where the child was relationships between parent and child is the
• In Lau Siew Kim v Terence Yeo an adult and financially independent, despite statutory duty on the part of both parents to
Guan Chye, CA considered the the contrary view of the majority of the maintain their children under s68 of
changed roles of the modern Supreme Court of Canada in Pecore v Women’s Charter.
Singapore woman at length but did Pecore.
not explicitly consider if the In the reverse scenario of child-‐parent
presumption now operated One possible factor within the parent-‐child transfers, given society’s respect for one’s
between wife and husband. There category which could affect the weight of the elders, it is more probable than not that
are, however, passages suggesting presumption of advancement may be the apparent gifts to one’s parents are actually
implicitly that the presumption number of children the parent (or person intended to be gifts rather than transfers on
ought to apply in such cases as standing in loco parentis) has; ceteris trust. Furthermore, an elderly person who is
well. paribus, the greater the number of children unable to maintain himself is able to seek
one has, the less likely that a transfer of maintenance from any of his children under
property of substantial value to a single the Maintenance of Parents Act too.
child without similar provision for the other
E N G A G E D C O U P L E S þ S I B L I N G -‐ T O -‐ S I B L I N G ý
children would be intended as a pure gift to
Extended by Lau Siew Kim. There is no presumption of advancement
that child. Of course, the presumption of
between siblings.
advancement should still operate in such a
C O -‐ H A B I T E E S ý
case, but it is likely that less weighty evidence
Although the CA in Lau Siew Kim extended would be required to rebut the presumption
the presumption of advancement between of a gift as compared to a case where the
husband and wife to transfers between recipient child was the only child of the
fiancé and fiancée, it expressed a reluctance transferor parent. All the circumstances of
to extend the presumption to transfers the case must be considered: Lau Siew
between co-‐habiting couples. Kim.

I L L E G A L I T Y
General rule: Subject to two exceptions, English authorities support the proposition that equity will not aid a plaintiff who had transferred his
property for an illegal purpose. Thus, he will not be able to lead evidence of an illegal purpose to rebut a presumption.
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EXCEPTION 1 – NON-‐RELIANCE ON ILLEGALITY EXCEPTION 2 – LOCUS POENITENTIAE
One exception to this principle is that where the plaintiff does not have to rely on the illegality Another exception to the rule that a
to support his title, then he is not stopped from doing so by the illegal purpose behind the transferor may not rely on leading
transaction: Tinsley v Milligan; Shi Fang. evidence of the illegal purpose to rebut a
• **Where there is a presumption of advancement and the claimant needed to rebut the presumption is the doctrine of locus
presumption, then he would be prevented from leading in evidence of the illegal poenitentiae as exemplified in Tribe v
purpose, but where the presumption is of a resulting trust instead, the claimant would Tribe. Thus, where the illegal purpose
succeed, since this did not involve the illegal purpose behind the transfer. has been aborted or otherwise not
• APPLICATION: Therefore, if wife transfers to husband to evade tax, the presumption of carried out, the transferor may refer to
advancement does not arise and she would be able to lead evidence of the illegal the aborted purpose to rebut the relevant
purpose to buttress the presumption of resulting trust whereas if a husband transfers presumption.
to wife to evade tax, the presumption of advancement would arise and he would not • This exception was also applied
be able to lead evidence of the illegal purpose to rebut it. in Shi Fang, where although
• In Shi Fang v Koh Pee Huat, the Singapore CA, by way of dicta, followed Tinsley v the transfer from father to son
Milligan and held that the presumption of advancement in a transfer from father to sought to enable the father to
son was rebutted by the son’s admission that he held the property on trust for the avoid paying estate duty, the
father. Thus, the illegal purpose for the transfer, evasion of estate duty by the father, purpose had not been carried at
did not have to be relied on. the time of the dispute.
• It is however difficult to reconcile the decision of the Court of Appeal in Suntoso Jacob
v Kong Miao Meng with that of Shi Fang. No attempt was made in to reconcile Suntoso
Jacob v Kong Miao Meng with Tinsley v Milligan. Nor have local courts considered the
Australian approach to illegality in Nelson v Nelson that espouses a more flexible
approach that takes into account all the policy considerations relevant to the case.

C O M M O N I N T E N T I O N C O N S T R U C T I V E T R U S T
[1] After resulting trust established based on contributions to the purchase price of the property, the initial view of the parties’ shares may
however be adjusted or trumped where there is a 1) common intention that the property be shared in different proportions and 2)
detrimental reliance established.

[2] The basis of the plaintiff's claim for a share in the flat was s 56 of the Women's Charter (Cap 353). The section empowers "the Judge to
make such order with respect to the property in dispute and as to the costs of and consequent on the application as he thinks fit". The law is
settled in that the spouse claiming some proprietary or possessory interest in the property under s 56 of the Women's Charter must establish a
legal or equitable basis for it.
Remember to distinguish the 2 types of CICT question (which could also be merged):
[EXISTENCE OF BENEFICIAL INTEREST] [QUANTIFICATION OF BENFICICAL INTEREST]

Whether there was common intention for A Whether there was common intention for A to have the property
to have beneficial interest absolutely (usually when they’re joint legal owners)
STEP 1: AGREEMENT THAT THE OTHER SPOUSE IS TO HAVE AN INTEREST IN DISPUTED PROPERTY
Express Inferred
**Note that it is common ground that a conveyance into joint [1] Alternatively, the agreement need not be in writing: s7(3), CLA.
names is sufficient to surmount this hurdle Parties may have conducted themselves in such a way that the
agreement may be inferred.
[1] The first and fundamental question is whether there has been, at
any time prior to the acquisition of property or exceptionally at some [2] Only direct contributions to purchase price (at the outset or
later date, some agreement, arrangement or understanding reached direction contributions to the payment of mortgage instalments
between them that the property is to be shared beneficially. Such a afterwards) will amount to sufficient conduct from which an
finding can only be based on evidence of express discussions agreement could be inferred: Lloyd’s Bank v Rosset. Indirect
between the partners, however imperfectly remembered and contributions would not be referable towards the acquisition of the
-‐ Page 38 of 86 -‐


however imprecise the their terms may be: Lloyds Bank plc v house: Burns v Burns.
Rosset. • Look above at resulting trust section for mortgage/renovations
analysis wrt direct contributions
[2] In some cases, although there has been no writing, the parties • However, look at Midlands Bank to see how to court
may have orally declared themselves in such a way as to make their circumvent this rule.
common intention plain: Grant v Edwards.
[3] The question of whether indirect mortgage repayments should
EXISTENCE EXAMPLE also suffice is covered in the House of Lords’ decision in Stack v
• Tan Poh Soon v Phua Sin Yin Dowden, where Baroness Hale held that the law has moved on since
o In addition to the inference, there was an express Lloyds Bank v Rosset, in response to changing social and economic
statement by the plaintiff that the defendant told conditions, and that a holistic approach should be taken, which
her that it was not necessary to include her name includes looking at factors such as how the purchase was financed
as the flat was for both of them till death. The both initially and subsequently.
plaintiff no doubt found this assurance an
incentive to contribute moneys on account of the EXAMPLES
flat. It was therefore a legitimate expectation and • Tan Poh Soon v Phua Sin Yin
unstated undeclared understanding of the parties o Firstly, the marriage status was an ingredient the
that both would have an interest in, and defendant would have relied on in making the
possessory right to, the flat application for the purchase of the flat.
• In Eves v Eves, where the dispute involved an unmarried o Secondly, because she was married to the defendant,
couple, a house was bought in the defendant’s name solely. the plaintiff was prevented from purchasing another
Court found that there was an express agreement because HDB flat in her name. Further, under s 56(1)(a) of the
defendant led the plaintiff to believe that she was to have some Housing and Development Board Act, the flat could
defined interest in the property and that her name was only have been compulsorily acquired by the Board if the
omitted from the conveyance because of her age (under 21). owner and his spouse ceased to occupy the same.
• In Grant v Edwards, also involving an unmarried couple, The plaintiff's occupation of the flat during the time
common intention was established from the evidence that the the defendant was in the Netherlands was an
defendant had told the plaintiff that her name was not included important fact to be taken into consideration.
in the title because it would cause her prejudice in her • In Lloyds Bank plc v Rosset, the house was registered in Mr
matrimonial proceedings, which were then pending. This Rosset’s name alone. Mrs Rosset did not make any contribution
suggests that there was a common intention that she should to the acquisition of the house. There was no evidence of any
have an interest in the house. agreement between her and her husband to share ownership of
the house, so it was held that the husband did not hold his title
QUANTIFICATION EXAMPLES on a constructive trust for her.
• In Tan Thiam Loke (CA), court found that the defendant had • In Burns v Burns, the Court of Appeal rejected plaintiff’s claim
expressly agreed to purchase the property for the plaintiff for a proprietary interest in the house on the basis that her
absolutely and that the defendant caused his name to appear contributions towards household expenses and to buy
on the title as a joint tenant as a mechanism to have some hold consumer durables such as a washing machine for the house
over the plaintiff and to prevent her from walking out on him. were considered indirect contributions, and were thus not
Thus, a common intention that plaintiff was to have property referable towards the acquisition of the house.
absolutely was found • (On existence) In Midland Bank plc v Cooke, the court
o Note that claim for absolute beneficial title to considered that half of the $1,100 from the husband’s parents
property failed eventually at CA because there that was used to pay for the house was “direct contribution”
was no detrimental reliance. Hence, based on the from the wife because of the parents must have intended for
joint tenancy, plaintiff interest fixed at one half of the gift to belong to both of them. Thus, wife made 6% direct
the share of the property. contribution to acquisition of house.
• In Tan Poh Soon, substantial financial contributions + invisible o (On quantification) The Court of Appeal then held that
contribution of having remained as wife of defendant thereby once a party had acquired a share in the property and
foregoing her opportunity to purchase a flat in her own name = there was no evidence of intention, the court could
half interest infer from their conduct the proportions in which
o Further, equity is equality (Lau Choong Choo) they hold the property. On this basis they gave the
thus, ordered defendant to transfer his half wife a half share.
interest in flat as declared by judge to plaintiff so o What Midland Bank does show is that the courts are
she could live with retarded son without not content to follow the strict guidelines laid down
dislocation in Lloyds Bank.
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Imputed (only apply if party expressly said no common intention of sharing beneficial interest e.g. Midland)
There are conflicting views on whether it is permissible for courts to impute intentions on to party. Baronness Hale in Stack stressed that “the
search is still for the result which reflects what the parties must, in light of their conduct, be taken to have intended” and not what the court
considers fair. This is consistent with Lord Diplock’s statement in Gissing v Gissing that it is not open to the court to impute a common
intention to the parties. However, Baroness Hale also said that the search is to ascertain the parties’ shared intentions, “actual, ifnerred or
imputed”. This triggered a dissent from Lord Neuberger who held that to impute an intention would be wrong in principle and precedent. In
most cases, it is likely that there will be ample evidence of the parties’ words and conduct from which the court can form a view of their
intentions one way or another. However, in some cases, imputation may be needed e.g. those like Midland Bank where parties explicitly state
in evidence that they never turned their minds to beneficial ownership of the property. Nevertheless, given the vested interest these parties
have in saying this, it is submitted that courts should take a skeptical view of such declarations.
STEP 2: QUANTIFICATION OF BENEFICIAL INTERST
Baronness Hale in Stack v Dowden stated that context is essential in determining the quantum of beneficial interest that the parties allgedly
shared a common intention to. Because the domestic context is very different from the commercial world, many more factors than financial
contributions may be relevant to divinig the parties’ true intentions:
• Any advice or discussions at the time of the transfer showing their intentions
• Reasons why the home was acquired in joint names
• The purpose for which the home was acquired
• Nature of the parties’ relationship
• Whether they had children for whom they both ad responsibility to provide a home
• How the purchase was financed, both initially and subsequently
• How parties arranged their finances, whether separately or together or a bit of both
• In cohabitation context, mercenary considerations may be more to the fore than they would be in marriage, but it should not be
assumed that they always take pride of place over natural love and affection
STEP 3: DETRIMENTAL RELIANCE
[1] Under the traditional • In þ Grant v Edwards the woman’s very substantial contributions to the household expenses were held
analysis, mere proof of to be made on the understanding that she was to have an interest in the house. The requirement of
common intention, whether acting upon and suffering detriment in addition to that of common intention was upheld by the House
express or inferred, is of Lords in Lloyds Bank.
insufficient to lead the court to
• SGCA in ý Tan Thiam Loke v Woon Swee Kheng Christina [1992] 1 SLR 232, a case concerning
impose a constructive trust.
cohabitees, applied Lloyds Bank and declined to impose a constructive trust even though the court had
There has to be proof of
found that there had been a common intention, because the respondent Christina had not acted upon
detrimental reliance on the
the agreement to her detriment. Although she claimed to have done so by moving in with the
expectation that she had an
interest in the house. defendant Tan, this was contradicted by her evidence that she moved in because she loved Tan and
believed that he was going to marry her.

P R O P R I E T A R Y E S T O P P E L
• REPRESENTATION: Where an owner of land permits the claimant to have, or encourages him in his belief that he has, some right or
interest in the land, and
• RELIANCE: The claimant acts in reliance on this belief
• To his DETRIMENT
• Unconscionability is the overarching inquiry.
Remedies available in a PE case are more numerous and are often weaker than the award of an equitable interest under a constructive trust.
According to Lord Walker in Stack v Dowden, they are awarded on a different basis: “Proprietary estoppel typically consists of asserting an
equitable claim against the conscience of the ‘true owner’. The claim is a ‘mere equity’. It is to be satisfied by the minimum award necessary to
do justice’, which may sometimes lead to no more than a monetary award. A ‘common intention’ constructive trust, by contrast, is identifying
the true benfeicial onwer and the size of their beneficial interests.

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ADMINISTRATION OF TRUST & TRUSTEE’S DUTIES
STARTING POINT
G E N E R A L
Proprietary v. Contractual Model

There are two models to understanding a trust. The first is a Proprietary Model that presupposes the splitting of legal and beneficial interest
and inherently insists on certain and discrete doctrinal rule (e.g. certainty of duration for leases). The second is a Contractual Model where the
trust is seen as essential a contract between the settler and trustees. This means that parties might be able to contract out of certain trust
obligations.
SOURCES OF POWERS AND DUTIES
The trustee has two types of powers, Administrative powers (administration of trust property) and Dispositive powers (power of
appointments). Trustees derive their powers and obligations from 3 sources.

[1] Expressed terms in trust deed
The first is in the express term in the trust deed. If the clause stipulates very wide discretion for trustee to enter into investment, then the
trustee is allowed to do so (In Re Wragg).

[2] Supplementary power
The second source of power is supplementary powers provided by general law and in particular the Trustees Act, but only in so far as no
contrary intention is not expressed in the trust deed (s.2(2) Trustees Act).

[3] Equitable and statutory duties
Trustees also have general equitable and statutory duties.
a. Trustees are a fiduciary and thus have fiduciary duties of undivided loyalty to beneficiary and not to put himself in a position of
conflict as the beneficiary (Bristol v. Mothew)
b. Duties of care and skill also exist in equity, and the standard of trustees is that of an ordinary man of prudence (Downsview
Nominees v. First City). This is also enshrined in s. 3A of the Trustees Act, which may bring in any special knowledge or
experience of the trustee, however once again in so far as it is not contrary to the intention of the trust deed (s. 3A(2) Trustees
Act).
c. Trustees must also act in good faith and for the proper purpose and any arrangement contrary to it could be set aside by the courts
(Cloutte v. Storey). However, courts will not interfere with the trustee’s discretion as long as he has reasonable grounds for his
decisions (Tempest v. Lord Camoys).

T E R M I N A T I O N O F T R U S T ( S A U N D E R S V V A U T I E R R U L E )
[1] Saunders v Vautier holds that if a beneficiary of full capacity has a vested interest in the trust property, he can call for a transfer of legal
title from the trustees, irrespective of any material purpose that the settlor might have had in mind. An absolutely entitled beneficiary can do
whatever he wants with the property, and any restriction on his enjoyment is inconsistent with the absolute nature of his interest. The settlor
cannot oust this principle, even by express declaration.
• Thus beneficiaries of a discretionary trust who are of full capacity and are entitled absolutely to the property between them may call
for a transfer provided that they act together.
• The Saunders v Vautier rule applies even where there are nothing more than powers of appointment with a gift over I ndefault of
appointment.

[2] Where trusts arise out of contractual relationships it is possible for the parties who are beneficiaries to contract out of their Saunders v
Vautier rights. So, for example, unit-‐holders in a unit trust cannot terminate the trust and claim the trust property while the trust is operating
as a going concern and before it is wound up as agreed pursuant to the trust deed.

[3] The rule does not give beneficiaries the right to control the trustee in the exercise of any discretion conferred upon him by statute or the
trust instrument. However, if property is held on trust for beneficiaries all of whom are ascertained and of full capacity then the beneficiaries,
acting collectively, may force the trustees to retire in favour of new trustees whom they have nominated.
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A1: GENERAL ADMIN POWERS & DUTIES
1. Duties upon accepting trusteeship
a. Duty to inspect trust documents: Hallows v Lloyd (1888)
b. Duty to get the trust property: Lewis v Nobbs (1878)
c. Duty to inquire into possible earlier breaches of trust: In Re Strahan (1856)
2. Duties during the administration of trust
a. Duty to obey lawful directions in trust deed: Fry v Fry (1859); Clough v Bond (1838)
b. Duty to pay the correct beneficiaries: Eaves v Hickson (1861)
c. Duty to notify beneficiaries and account them: Armitage v Nurse (1998)
• The right of a beneficiary to obtain accounts from the trustee so that they can then be falsified or surcharged is
at the heart of the trust concept.
• To give substance to this right, a beneficiary of full age or of a primary object of a power of appointment has a
right to be told by the trustee that she is a beneficiary + right to be told by the settlor the name and address of
the trustee to whom a request can then be made for a discretionary distribution
d. Power to sell (s56 of Trustees Act) – see below

P O W E R T O S E L L ( S 5 6 O F T R U S T E E S A C T )
Trustee may apply to the court via s. 56 of the Trustee Act to sell the trust assets. If the court deems it to be expedient it may order sale of
trust property. Court may overrule the express intention of the settlor for expediency sake if it thinks that in the given change in circumstances
the settlor would have intended for the property to be sold instead (Leo Teng Choy; Foo Jee Seng (CA)).
Singapore courts have shown that they are willing to override express intentions of the settlor via s56, Trustees Act regarding trustee’s
power of sale as long as it is EXPEDIENT AND PRAGMATIC.
• This can be seen in Leo Teng Choy, where court overrode settlor’s express intentions that the house may only be sold with
unanimous consent of the sons. Even though one of the sons refused to give consent, court looked at trust deed and reasoned that it
could not have been the intention of settlor to allow only one son to enjoy the property and therefore, since circumstances have
changed, applied s56 and ordered a sale of the property.
• Similarly, in the recent case of Foo Jee Seng, Court of Appeal overturned the HC decision where Prakash J showed undue
deference to trustee’s discretion, affirmed the approach in Leo Teng Choy, and held that even though trust deed granted power to
postpone sale, court reasoned that it was not the intention of the Testator that the trustees should withhold sale of the Property
indefinitely even to the detriment of the beneficiaries.

A2: INVESTMENT POWERS AND DUTIES
N O T E : O N L Y A U T H O R I S E D I N V E S T M E N T S
Starting point: trustee can make any investments But only authorised investments
A trustee may make any kind of investment that he could make if he But other than that scenario, a trustee must not choose investments
were absolutely entitled to the assets of the trust (s. 4 of Trustees other than those which the terms of his trust permit (Speight v.
Act). Gaunt).
Duty to consider standard investment criteria (SIC) Risk adjudged by modern portfolio theory
Trustee also has a duty to periodically review investments by The risk of the investment should be judged based on the standard of
considering the standard investment criteria (s. 5 of Trustees Act), the modern portfolio theory of examining the entire portfolio rather
such as the suitability of the investment and diversification of assets. than the risk attaching to each investment (Nestle v. NWB).
• [1] Is it a suitable investment for the particular type of
trust? If trust is for elderly beneficiaries, suitable
investments are those that carry less risk because elderly
beneficiaries do not have time to recover losses if
investment fares poorly
• [2] Need to diversify portfolio: cannot put all the eggs into
one basket. Need sufficiently broad-‐based approach in
terms of investment, having regard to the type of trust you
are in charge of and modern portfolio theory (Nestle v
-‐ Page 42 of 86 -‐

National Westminster Bank)
Duty of care / ordinary prudent man Duty to get best returns
In addition, there is an overarching duty of care with regard to the As a general rule, trustees as a prudent man must invest to obtain the
investment. This include to take such care as an ordinary prudent best possible returns. This is subject to the principles that 1) trustee’s
man would take if he were minded to make an investment for the personal views are irrelevant, 2) ethical considerations are relevant
benefit of other people for whom he felt morally bound to provide only if all the beneficiaries hold that view, and 3) trustee may even
(Lindley LJ in Re Whiteley). have to act dishonourable i.e. gazumping (offering higher price for
house even though a previous offer already accepted).
Higher standards for professional man • Cowan Scargill: trustees of pension funds of coal miners
If the trustee is a person professing a particular experience in the wanted to prohibit investment overseas and in industries in
management of trust and has been appointed for that reasons or is a competition with coal. Held that trustees cannot fetter their
professional trustee, he will be judged by a higher standard: s3A(1), discretion in investment in such a manner.
Trustees Act. Note, however, that such duties may be exempted o Exception: Small family trust where all
under s3A(2). beneficiaries take a particular view about
particular industries.

…applies to charitable trusts too
Even trustees of charitable trusts should seek to obtain maximum
possible returns: Harris v Church Commssioners for England;
Cowan v Scargill.
• Harries v. Church – Church money on trust. Investment
policy ruled out investments in various industries based on
ethical considerations and Christian principles (e.g.
gambling and tobacco). Held: No, Trustee must maximize
returns, UNLESS it clashes with the object of the charity.

…with the exception to the rule for charities
However, there are exceptions to this general rule for charities, which
is that the investment cannot clash with the object of the charity or
risk alienation of donors (Harries v. Church).
Company shares = onerous duty Duty to obtain advice
If trust asset is company shares, trustee’s obligation is more onerous There is also a duty to obtain advice before making decisions on
as he may have to take an active management role in the company investment (s. 6 of Trustee Act). This is not required if trustee
such as inquiring and consulting with directors in order to safeguard reasonable concludes so: s6(3), TA.
his investment like a prudent man would (Bartlett v. Barclays • If he finds that he has the necessary exprtise and does not
Bank). need to obtain advice
• A prudent man of business will safeguard his investment. • If the trust fund is too small
Inquiry and consultation with directors • If somebody within the group of trustees is an expert
• If necessary, convene a meeting to remove the directors
• A prudent man of business will not be content with mere Trustees must not simply accept the advice given and they must
receipt of information as a shareholder. ultimately make their own decision: Jones v AMP Perpetual
• A trust corporation has a higher duty of care. Breach of duty Trustee Company (NZHC1994).
here by the trustees. Trustees could have prevented the
loss with regard to the Old Bailey project.
Charity Commissioner Guidelines (FOR CHARITIES DOING BUSINESS)
In addition, the Charity Commissioner has set out several guidelines regarding investments for charity trusts.
• First, the investments must not distract charities from their core charitable mission.
• Second the investment and must not expose charities to significant risk to losing assets or materially impact their financials.
• Third, if a charity engages in business it must incorporate a business subsidiary.
SETTLOR MAY RESTRICT INVESTMENT POWERS
By virtue of s. 90(5) of the Trustees Act a trust is valid even if the settler reserves power of investment. This is especially useful for ultra-‐
high net worth settlors who do not wish to risk their properties in the hands of trustees, by reserving certain powers of investments.

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If the trust deed expressly prohibits certain kind of investments which may actually bring high return, an issue arise whether the trustee have
to respect that prohibition. It is submitted that it all depends whether the court follows the contractual versus proprietary model. The
contractual model might suggest that trustee has to follow the trust deed which is a contract. However, the proprietary model would suggest
that because the settler no longer has any interest in the property and the trustee has legal title, he may very well be able to go ahead with
the investments.

R E M E D I E S
[REPARATION CLAIMS] B can seek for reparation claims i.e. claims for trustee to make good harm which beneficiaries suffer as a consequence
of trustee’s breach of duty. These losses will be translated into “surcharging” the trustee with amount of loss as if trustee received amount for
the beneficiaries. This is subject to principles of causation, contributory negligence and remoteness.

[SUBSTITUTIVE CLAIM] Failure to perform in accordance to trust instrument will lead to substitutive claim i.e. for the amount that would have
been realised.

B: DISPOSITIVE POWERS AND DUTIES

D I S P O S I T I V E D I S C R E T I O N V I S -‐ À -‐ V I S T Y P E O F T R U S T
Determine if mandatory or obligatory

When looking a dispositive power of a trustee, the courts need to first determine if it is mandatory or exhaustive (obligatory) power. If it is so
and the trustees do not exercise the power, the court will and it may do so by various methods such as appointing new trustees or directing
trustee to distribute (Lord Wilberforce in McPhail v Doulton).
If power
However, if trustee has absolute discretion in the exercise of certain powers (i.e. non-‐mandatory), the courts will not compel trustees to
exercise these powers as long as trustees do consider exercising such power periodically (Re Hay’s Settlement).

W H E T H E R D E C I S I O N S W E R E P R O P E R L Y M A D E
A trustee must make decisions on proper bases. In Re Hastings Bass it was suggested that the court will only intervene with the trustee’s
action if he has acted ultra vires the trust deed or when trustee has taken into account irrelevant considerations or did not take into account
relevant considerations. The irrelevant considerations may include the wrong instructions from settlor (Abacus v Barr) or receiving the
wrong advice (Sieff v Fox).
#1: Was discretion exercised or #2: Did trustee or fiduciary take into account relevant considerations or irrelevant considerations?
authorised?
[1] Was discretion exercised? [1] Rule to act on proper bases in Re Hastings Bass came to be understood, as expressed in Sieff v Fox
Trustees will not be exercising by Lloyd LJ, as the principle where trustees act under a discretion given to them by the terms of the trust,
their discretion if they merely but the effect of the exercise is different from that which they intended, the court will interfere with
signed document blindly their action if it is clear that they would not have acted as they did had they not failed to take into account
without understanding them considerations which they ought to have taken into account, or taken into account considerations which
(Turner v. Turner) or if they they ought not to have taken into account.
appointment of beneficiaries • Since taxation is a relevant consideration, if the exercise of a discretionary power by trustees
was drafted in a very wide and produced an unforeseen and unwanted tax burden, they could invoke the rule to undo its
non-‐specific manner (Re Hay’s exercise.
Settlement). • Hayton: Hastings-‐Bass principle is too wide -‐-‐ too good to be true -‐-‐ and that trustees, unlike
others, can use it whenever it suits them to wriggle out of their recklessness or negligent
[2] Was the discretion decisions which turn out to have unfortunate consequences
authorised? In Re Hay’s ST, trust
was stipulated “for such person [2] The Court of Appeal in Pitt v Holt (UKCA2011) admitted that the law took “a seriously wrong turn” 20
or purposes… as the trustees years ago and now hold that the purported exercise of a power beyond its scope is void and an exercise
shall execute… within 21 years” within its terms but in breach of fiduciary duty is voidable.
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and in default of appointment • (A) Purported exercise of a power beyond its scope is void
the nephews and nieces of the o The defect may be procedural, such as a failure to use the correct document or obtain
settlor. Trustees purported to the necessary consent, or it may be substantive, such as an improper delegation of the
exercise discretion “to or for the power or an attempt to appoint to someone outside the class of objects. This includes
benefit of any person or persons cases of fraud on a power, where the power is exercised in favour of an object for the
whatsoever or to any charity” as purpose of benefiting a non-‐object.
the trustees thought fit. • (B) Exercise within its terms but in breach of fiduciary duty is voidable
• Held that this was not o The failure to take relevant considerations into account is a breach of fiduciary duty,
a valid exercise of and taxation is normally a relevant consideration
discretion and the o However, trustees will not be in breach of their fiduciary duty if they seek advice
default appointment from apparently competent advisers and follow the advice so obtained, even if it turns
took effect. out that the advice given to them was materially wrong. The proper remedy in that
case ‘lies not in the realms of equity but by way of a claim for damages for
professional negligence.
• Applies to trustees AND fiduciaries such as Mrs Pitt acting as her husband's receiver
• If the exercise of a power is voidable, then normally the action should be brought by the
beneficiaries against the trustees for breach of fiduciary duty, and not by the trustees in breach.
• Also, the “disposition will be valid unless and until the court, in its discretion, decides to grant
rescission setting it aside or some other remedy, such as equitable compensation or an
account.”
• APPLICATION: Having sought professional advice that she believed to be correct, it could not be
said that Mrs Pitt had acted in breach of her fiduciary duties and that on basis of the principle
discussed above, the transactions were neither void nor voidable.
#3: Was there capriciousness?
[1] Courts may also be persuaded to intervene if the trustees act ‘capriciously’ i.e. irrationally, perverse to any sensible expectation of the
settlor: Re Manisty's Settlement [1974] Ch 17, 26

DEFERENCE
In examining the conduct of trustees, courts generally defer to their discretion. This is seen from case law:
• Accuracy and correctness is not the court’s concern, only the honesty and fairness of the decision (Re Beloved Wilkes’s Charity)
• Courts will also intervene when exercised capriciously – ie. Irrational, perverse or irrelevant to any sensible expectation of the settlor
(Re Manisty)
• The HC case of Foo Jee Seng represents the high watermark of deference-‐ where the trustee have absolute discretion to do or
refrain from doing a particular action, and the court will not interfere in the trustee’s exercise of power, except in cases of bad faith.
• This was overturned by the CA decision. While the testator had every right to determine how his assets were to be managed through
his will, the trustee’s duty to exercise discretion had to be exercised properly. THIS DUTY WOULD BE SUBJECT TO THE COURT’S
PURVIEW AND WAS NOT ONLY LIMITED TO INSTANCES WHERE THERE HAD BEEN BAD FAITH ON THE TRUSTEE’S PART. However,
the court would not go so far as to invoke the principles of public law like the English Courts had apparently done i.e. Wednesbury
principle of reasonableness.

ACCESS TO TRUST INFORMATION AND TRUSTEES’ REASONS

A C C E S S T O T R U S T I N F O R M A T I O N A N D T R U S T E E ’ S R E A S O N S
Outside of litigation, trustees are not required to give reasons as per Re Londonderry's Settlement. As explained by Salmon LJ, this is for a
very practical reason that if the trustee had to explain his decisions it may embitter family feelings, strain relationship and beneficiaries may
make life difficult for the trustees such that it is very difficult to persuade people to become trustees in the future. However, the modern
approach is based on the court’s inherent jurisdiction to supervise the administration of a trust and this extends to objects of a power:
Schmidt v Rosewood.
• The court can order the trustee to give the claimant access to such documents and other information relating to the trusteeship
functions as to the court seems appropriate in all the circumstances. There is therefore no need to distinguish between the different
types of trust documents.
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If the beneficiaries attack a decision of the trustees in legal proceedings, the beneficiaries can ask for discovery of the documents or reasons
for their decision: Scott v National Trust for Places of Historic Interest [1998] 2 All ER 705, 719
LETTER OF WISHES
Traditionally, beneficiaries are not entitled to see confidential memorandum of wishes (Hartigan Nominees v Rydge). Because of the new
approach heralding the court’s inherent jurisdiction to supervise the administration of the trust, it may be disclosed if 1) it is relevant to the
construction of a trust deed in litigation and 2) trustees are of the view that it is the interest of the sound administration of the trust as a
whole. Trustees may apply to court for directions (Breakspear v Ackland (2008)).
• Even then courts are generally reluctant to allow beneficiaries to see letter of wishes because it might cause family strife. In fact, in
Breakspear, Briggs J stated that he would have upheld the trustees’ discretion not to disclose the letter if the trustees had not
sought sanction of the court in the scheme of distribution.
• APPLICATION: Based on present facts, given that A is not asking for a scheme of distribution…
DISCLOSUER TO THIRD PARTIES
Disclosure of trust information to third parties are only permitted in limited circumstances as prescribed in s. 49(1) and Third Schedule of
the Trust Companies Act.
• Where the settlor or beneficiary consents;
• Where the settlor passes away and there is no personal representative;
• Disclosure is in connection with an application for a grant of probate or letters of administration of a beneficiary;
• Disclosure is solely in connection with a situation where the settlor or beneficiary has become bankrupt or wound up;
• Disclosure is solely in connection with, the conduct of proceedings relating to a trust that is administered by a licensed trust
company
• Where disclosure pertains to the investigation of an offence that is alleged or suspected to have been committed under any written
law;
• Where disclosure is necessary for compliance with a garnishee order served on a licensed trust company attaching assets in a trust;
and
• Where disclosure is in compliance with any notice by the Monetary Authority of Singapore.

DELEGATION
S27, Trustees Act : Notwithstanding any rule of law or quity to the contrary, a trustee may, by power of attorney, delegate the execution or
execise of all or any trusts, powers and discretions vested in him as trustee either alone or jointly with any other person or persons.
• Delegation under this section is intended as a temporary measure, the donor of the power being automatically liable for the acts
and defaults of the donee as if the donor’s and also having to give written notification to the person, if any, having power to appoint
new trustees and to the donor’s co-‐trustees, who have the same power in default of any such person. They might then consider it
more appropriate to replace the donor as trustee.

S32, Trustees Act: A trustee shall –
• (a) be chargable only for money and securities actually received by him notwithstanding his signing any receipt for the sake of
conformity; and
• (b) be answerable and accountable only for his own acts, receipts, neglects or defaults, and not for those of any trustee, or of any
banker, broker or any other person with whom any trust money or securities may be deposited, nor for the insufficiency or
deficiency of any securities, nor for any other loss, unless the same happens throguh his own wilful default.

S41, Trustees Act: A failure by the trustees to act within the limits of the powers conferred by this Part –
• (a) in authorising a person to exercise a function of theirs as an agentl or
• (b) in appointing a person to act as a nominee or custodian
• Shall not invalidate the authorisation or appointment.

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EXEMPTION CLAUSES
I S S U E : W H E T H E R T R U S T E E S C A N B E E X E M P T E D F R O M L I A B I L I T Y .
Traditionally trustee could exempt themselves from any liability, including gross negligence, via exemption clauses in the trust deed so long
as there is no dishonesty, even if it was arguably against public policy (Armitage v. Nurse). However, trustees cannot contract out of the
“irreducible core” of obligations owed by trustee to beneficiary. The irreducible core contains duty of good faith and honesty but does not
include duty of care and skill.

However this rule was criticized by the Law Commission Consultation Paper 2003 because in most cases the trustees are professional
trustees who are being paid and thus they should not be excluded for liability from negligence. Perhaps as a result, the Law Commission
Report 2006 proposed that the rule of practice is trustee must before creation of the trust ensure that the settlor is aware of the meaning
and effect of the exemption clause. Despite the report, the Privy Council in Spread Trustee v Hutcheson endorsed Armitage v. Nurse with
the exception of Baroness Hale dissenting.

While the Singapore’s position is still open, our court will most likely follow Armitage v. Nurse to maintain competitiveness as a trust and
commercial hub in Asia. Departing from it would likely increase insurance premium of trust companies and increase price of trust services.
Trust companies would also become more reluctant to offer their services or increase the price of their services according to the increased risk
of being liable.

Hence, it is submitted that cases of professional trustees should be analyzed via the contractual model rather than the proprietary model
because the settlors are in all practical terms contracting for the services of these professional trustees. In fact, we see that in Citibank NA v
QVT Financial LP that you could even give third parties powers to direct the trustees so much so that the trustees must follow the third
party’s direction. Under this contractual analysis, trustees and settlor should be free to contract however they wish, notwithstanding cases of
unequal bargaining power. Thus trustees should be allowed to make any exemption clauses as long as the settlor is aware of the meaning of
those clauses as per the Law Commission Report 2006.

Under this rule, in our present case…
CONSTRUING THE EXEMPTION CLAUSE RELIED ON EXEMPTION CLAUSE
[1] Clauses with wordings such as “all acts” could be struck down as Millett LJ in Armitage stated that “a trustee who relied on the
it emcompasses duty to act in good faith and honesty. presence of an exemption clause to justify what he proposed to do
• However, this depends on the attitude of the courts: may would thereby lose its protection: he would be acting recklessly in
read the clause as implying a duty to act in good faith and the proper sense of the term”.
honesty. Courts may not want to strike out such clauses • Exemption only meant to protect trustee when he honestly
outright as it could cause concern among the industry or think that there are risks which he ought to take, and
upset industry practices. Therefore, they may uphold such justifiably believe they have a right to take it.
clauses, but find the it does not exempt the trustees’ • KL: One would criticise this rule in that this would render
behaviour in particular cases exemption clause nugatory, e.g. there is an exemption
• As long as the clause does not purport to exclude the basic clause that allows for conflict of interest, but when actually
minimum duties of the trustees, it would not be construed have conflict of interest, cannot rely on it.
as being void for repugnancy to the trust. Some of the • However, in order to invoke this rule, must prove that he
minimum duties which may not be excluded are the duties did not honestly think that the risk ought to be taken and
of honesty, good faith and acting for the benefit of the that he did not justifiably believe they had a right to take
beneficiaries, see Armitage v Nurse (1997) it. But this is hard to prove since it looks into the
motivation of the trustee.
[2] Blue pencil: Also be aware that courts may be able to strike out o Unless there are clear facts like in the case of not
certain terms using the blue pencil test. This is not unlike Armitage doing anything for 5 years. After all, why else
v Nurse where the courts are asked to strike down the whole clause. would you not do anything if you were not
Therefore, if courts are able to strike down a whole clause, it should thinking of relying on the exemptions?
logically extend that they are able to strike down particular wordings.

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I S S U E : W H E T H E R C O N F L I C T O F I N T E R E S T / U N A U T H O R I S E D P R O F I T S C A N B E E X E M P T E D
This position is still open. The preclusion of the acts that are done in conflict in interest would strictly speaking not fall under the irreducible
core and therefore can be validly exempted because conflict of interest per se does not mean dishonesty or lack of good faith.
YES: One would also argue that one should be able to exempt conflict NO: However, there are two contentions:
of interest. This is by drawing parallel to cases where (i) there was a 1. The exemption clause is general and relates to all conflict of
breach and beneficiary decided to exonerate the trustee and where interest; in contrast, when trustee sought consent, the B
(ii) the trustee sought consent beforehand knowing that he would be would have informed consent relating to a specific conflict
in a position of conflict. Therefore, by extension, trustee should of interest
similarly be allowed to exempt liability through an exemption clause. 2. This is different form procuring consent as exemption
clauses are an agreement between settlor and beneficiary.
Policy: From the perspective of commercial actors, such exemption
clauses should be upheld. Otherwise, it would deter people from
being fiducaries. For instance, in practice, directors are often part of
the Board of Directors of multiple companies, which would prima
facie put them in breach.
Therefore, courts may TAKE A MIDDLE GROUND: that it is implied in such clauses that it does not include actual conflict of interest (rather
than potential ones), as well as those done in good faith and honesty (as the ones seen in Boardman; Regal Hastings). Therefore, courts
do not need to strike down such clauses.
• This depends on the attitue of the court. Courts may not want to strike out such clauses outright as it could cause concern among
the industry or upset industry practices. Therefore, they may uphold such clauses, but find that it does not exempt the trustees’
behaviour in particular cases
• To hold them liable, say that trustee has in fact not acted in good faith and honesty. E.g. accepting commission akin to taking bribes
and this would suggest bad faith and lack of honesty. Therefore, trustee cannot rely on exemption clause.

NO-‐CONTEST CLAUSES
A no contest clause excludes a beneficiary who challenges inter alia the validity of the decision of the trustee and/or protector. However, no-‐
contest clauses are inapplicable if the challenges to the decisions of the trustee are successful, bona fide or justifiable, i.e. not frivolous or
vexatious (AN v Barclays).
• Reasoning to have such no-‐contest clauses in the first place: settlor’s concern to prevent challenge having already established the
struture for legitimate reasons. Most no-‐context clauses preclude challenge to the validity of the settlement and transfer of
property to trustee to be held on trust of the settlement.
• APPLICATION: In AN v Barclays, the no-‐contest clause went further by preventing challenge to decisions of the trustee and
protectors. Held to be void for uncertainty (also questioned whether it would have been settlor’s intention for ANY challenge to any
decision of the trustee to result in automatic forfeiture), repugnancy and public policy (operate to deprive a beneficiary from its right
to enforce the trusts and thus would oust the court's jurisdiction to supervise the administration of trusts). However, CJ found that
clause 23 had to be read in the context of the settlements as a whole and not in isolation. Therefore, Clause 23, seen in light of
Clause 11 (trusts enforceable by beneficiaries) and Clause 19 (does not permit trustee to act contrary to laws), in this context was
not void for repugnancy or contrary to public publicy.
• It provides a psychological barrier to beneficiaries in challenging trustee’s discretion.

ENDING TRUSTEESHIP AND APPOINTING NEW TRUSTEES

• Death: Section 37 of the Trustees Act
• Retirement: Section 40 of the Trustees Act
• Appointment: Sections 37 and 38 of the Trustees Act
o Last surviving trustee can appoint a new trustee

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C: LIABILITY OF TRUSTEES
L I A B I L I T Y O F T R U S T E E S
The personal liability of a trustee for breach of trust extends to all loss which can be causally linked to the breach (Target Holdings v
Redferns (1996)) and it is generally no defence to the imposition of liability that the trustee was innocent, honest or was acting in the best
interests of the trust.

Furthermore, as we shall see, although the liable trustees may have rights of contribution against each other, the liability of trustees for
breach of trust is joint and several, such that a beneficiary may sue any one or all of the trustees in order to recover the full amount of
compensation (Jackson v Dickinson (1903))

The essential nature of liability for breach of trust is that it is restitutionary: it should restore to the trust fund all the loss causally linked to
any breach of trust and it matters not that certain activities of the trustees have brought considerable gains to the trust (Dimes v Scott
(1828); Bartlett v Barclays Bank Trust Co (No 2) (1980)).

D: LAW SUITS WITH THIRD PARTIES

LOCUS STANDI OF BENEFICIARIES
T O S U E 3 P I N R E L A T I O N T O T R U S T P R O P E R T Y

[1] The general rule is that because legal title vests in the trustee and beneficial title vests in the beneficiaries, when a third party interfered
with the legal title, the trustees must sue third parties on behalf of beneficiaries. E.g when commit a tort in relation to the property.

[2] The exception is the Vendepitte procedure as established in Vandepitte v Preferred Accident where if the trustee refuses to sue, the
beneficiary may sue the third party in his own name, but must join the trustee as a third party to the suit. However, the exception does not
apply where the declaration of trust is intended to have the same legal effect as a legal assignment of contractual rights prohibited by anti-‐
assignment provsion (Barbados Trust)

**BEDDOE ORDER
[1] General rule is that trustee is personally liable to third party if trustee contracts with third party.
• But trustee has an indemnity or charge over the trust assets as long as the debts are properly incurred.

[2] Where the trustee defends a law suit by third parties, trustee can apply for a Beddoe order i.e. for the costs of litigation to be paid out of
trust assets: Re Beddoe, Downes v Cottam [1893] 1 Ch 547

How do you apply for this Beddoe Order? Lightman J in Alsop Wilkinson v Neary [1996] 1 W.L.R. 1220 (Ch D) gave some pointers:
• Beddoe Order must be brought in a separate action because you need to tell what the strengths and weaknesses of your case are as
trustee.
• Beneficiaries should be heard.
• No confidential information must be revealed to the judge in the main cause of action.
• Nature of the dispute is important in considering whether Beddoe Order should be given.

E: IRREDUCIBLE CORE OF TRUSTEES’ OBLIGATIONS

Citibank NA v QVT Financial LP [2007] 1 All E.R. (Comm) 475 (noted by Trukhtanov, (2007) 123 LQR 342)
• MBIA directed the trustee to accept cash only. Terms of the documentation allowed MBIA to direct the trustee.
• QVR said that it would be contrary to Citi’s position as trustee and lead to the diminution of the “irreducible core” of the trustee’s
discretion.
• Mary Arden LJ held that the trust deed enabled MBIA to give direction to the trustee. The trustee continues to have an obligation
of good faith – no reduction of the trustee’s obligations below the irreducible core.

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Is it not a substantial concept to begin with? It seems that you can carve out a lot of a trustee’s obligation. We see in Citibank that you can
even give third parties powers to direct the trustees so much so that the trustees must follow the third party’s direction. Or can it be argued
that this is not unusual and that it is orthodox trust law, e.g. Re Tuck’s and by analogy, is not compatible with basic trust law principles? Or
does this case show that we are in the contractarian view of the trust, i.e. if it looks like a contract, the courts will respect the literal words in
the document.

Non-‐excludable trustee duties, David Fox

WHY ARGUE FOR AN IRREDUCIBLE CORE OF TRUSTEE DUTIES?

It is not a matter of deciding whether the parties’ intentions expressed in the trust instrument are real, which is the question at issue when a
sham is alleged. Rather, it is a matter of deciding whether the kind of transaction that the settlor intended to enter into can actually pass
muster as a trust according to the ordinary understanding of what a trust must consist in.

The court may hold the parties to their expressed intention to create a trust but also hold that one of the terms purporting to exclude an
irreducible trustee duty cannot be enforced as it stands: Midland Bank Trustee (Jersey) Ltd v Federated Pension Services Ltd (1996)

ENFORCING THE SUBSTANCE OF THE TRUSTEE’S NON-‐BENEFICIAL OWNERSHIP

[1] The view proposed in this article is that the relevant ‘substance’ of a trust is that one person, the trustee, has the primary legal right of
ownership in assets but that he is barred from exploiting the beneficial incidents of his ownership.

[2] Essentially, the idea is to hold the trustee sufficiently accountable so that his status as a non-‐beneficial owner is practically real.

APPLICATIONS: SOME CORE DUTIES AND THEIR MODIFICATION

Trustees’ duties to disclose information to beneficiaries are part of the irreducible core: ADEQUATE DISCLOSURE OF INFORMATION IS
ESSENTIAL to make the trustee’s duty to the beneficiaries real

THE DUTY TO INFORM BENEFICIARIES OF THEIR STATUS þ
General rule: A beneficiary cannot effectively hold the trustee to account unless he has first been informed of his status.
• However, a settlor should have some freedom to exclude certain beneficiaries from the right to be notified. The very purpose of
the trust may require this, as where the settlor establishes a blind trust for a wasteful family member who might fail to apply himself
if he realized that he was the beneficiary of a trust fund.
• Similarly, the trustees could not be expected to notify every potential object of a broad discretionary power of their possible
entitlement. Those who were expressly or impliedly first in line to receive appointments from the power could fairly be expected to
be vigilant about holding the trustee to account. There might be little to be gained from informing a remote potential object of his
status as beneficiary.

THE DUTY TO GIVE REASONS ý
General rule: Unless the trust instrument specifically provides to the contrary, the general rule is that trustees need not give reasons for the
exercise of their discretionary powers.
• It is easily overlooked that the trustees are the primary owners of the trust assets. They hold them subject to the equitable
limitations in the trust instrument and the general law that make them accountable for their dealings with them.
• The beneficiaries’ beneficial ownership consists in their power to enforce these equitable limitations against the trustees or to
require third parties, other than bona fide purchasers for value without notice, to restore the trust assets received in breach of trust.

SUPERVISION BY A COURT
It is a non-‐excludable feature of a trust that the trustee’s administration of the fund must be, directly or indirectly, subject to the supervision
of the court.

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[1] No-‐contest clauses þ but cannot bar judicial power
• At its most basic level, the requirement means that the beneficiary’s interests under the trust, as a legal institution, MUST BE
ENFORCEABLE BY JUDICIAL PROCESS. This is what distinguishes the trust from an arrangement that is only binding in honour or as
a matter of morality
• The point has ARISEN IN THE CONSTRUCTION OF NO-‐CONTEST CLAUSES contained in testamentary trusts. A testator is free to make
the beneficiary’s interest subject to a condition that would cause it to divest if he brought proceedings to challenge the validity of
the will
• But he cannot bar the beneficiary from resorting to legal proceedings to enforce his beneficial entitlements under a trust that is
accepted to be valid
o The beneficiary of income from an annuity or a rental property cannot be barred from enforcing his claim to be paid the
money due to him from the trustees.

[2] Ouster clauses ý
• At a second level, a settlor CANNOT DEPRIVE THE BENEFICIARY OF HIS RIGHT TO APPLY TO THE COURT ABOUT THE PROPER
ADMINISTRATION OF THE TRUST, or for directions about the construction of the trustee’s powers and how they should be
exercised.
• Again, the cases on NO-‐CONTEST CLAUSES recognize that a clause which purported to forfeit the beneficiary’s interest in this
situation would be void, unless perhaps the beneficiary’s action was clearly frivolous or vexatious.
• Makes no difference that the trust instrument expressly provided some alternative, internal mechanism for controlling the
trustees’ administration of the trust, such as a protection committee which had power to supervise the accounts of the trusts funds,
and to remove or replace trustees: AN v Barclays Private Bank & Trust (Cayman) Ltd.
o Even if the control mechanism is vested in a majority of beneficiaries so that an aggrieved beneficiary can, by democratic
process, obtain the removal and replacement of a trustee or the protection committee, that can be no justification for a
complete prohibition against access to the courts. Such a complete prohibition would be repugnant to the trusts
themselves, to the beneficial interests of the beneficiaries and to their right to seek vindication of their positions before
the court in an appropriate case where such vindication may be necessary. It would also be contrary to public policy
entirely to preclude them from having such access.

[3] Alternative dispute resolution þ
• It seems that there is nothing in the concept of the irreducible core that necessarily precludes compulsory arbitration.
• Traditional view is that settlor may not require compulsory arbitrartion: Re Raven. But read in context, courts are only against
clauses which allow trustee to determine disputes or which trustees have the exclusive power to determine questions of
construction relating to their equitable powers of dealing with the trust fund
• Considered solely from the point of view of the accountability and the irreducible core, there seems no compelling reason why a
settlor should not require trust disputes to be referred to compulsory ADR that would be binding on the beneficiaries. The
accountability of the trustees and their status as non-‐beneficial owners of the assets vested in them could be adequately enforced
without resorting to court proceedings. It is not necessarily repugnant to the nature of the beneficiaries’ interests under the trust.

CONCLUSION
There are reasons to be sceptical about its usefulness. First, the concept of an irreducible core does not provide any clear-‐cut answers to
some difficult trust. Its predictive value is good in extreme cases, such as where a settlor purports to exclude the trustees’ liability for
dishonest breaches of trust or where all disputes under the trust are referred to the trustee for determination. But in more moderate
instances of duty exclusion or modification, its predictive value is weak.

But the concept of an irreducible core still has some value. The concept indicates, in a principled way, the outer limits of trust drafting
beyond which a settlor may not go if he still expects the transaction he creates to take effect as a trust. It is a signal that trust drafting
devices which leave the existing entitlements of the beneficiaries practically unenforceable, or which make the trustees’ purportedly
circumscribed powers in the trust instrument practically unlimited must be treated with caution

E: ATTACKS ON THE TRUST STRUCTURE

P O T E N T I A L A V E N U E S T H R O U G H W H I C H A S I N G A P O R E T R U S T M A Y B E A T T A C K E D
Tang, “An Impregnable Fortress? Possible Attacks on the Singapore Trust?” (2011) 25 Trust Law International 66 (Westlaw)

[1] Sham trust – characterise the trust as nothing more than a sham
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• In Snook v London and West Riding Investment Ltd [1967] 2 QB 786 it was held by Diplock LJ that a sham trust is created when there
are acts or documents intended to give third parties or the court the APPEARANCE OF RIGHTS DIFFERENT FROM ACTUAL LEGAL
RIGHTS which the parties intended to create.
o In that case, Diplock and Russell LJJ held that the plaintiff is estopped by his conduct from denying the defendant's title to
the car. The transaction between the plaintiff, A.F. and the defendants could not be said to be a "sham" to mask a loan
because the defendants were not parties to the alleged "sham"
• Cf Midland Bank v Wyatt -‐ held that it is NOT NECESSARY FOR THE PLAINTIFF TO ESTABLISH THAT ALL PARTIES TO THE
TRANSACTION HAD A COMMON INTENTION that the declaration of trust was not intended to take effect and be acted upon by
them as from the time of its execution. Even if one of the parties merely went along not knowing or caring about what he was
signing, such a person would still be a party to the sham
o (seems to have ignored the requirement of common intention) [1997] 1 BCLC 242, Mr. and Mrs. Wyatt on legal advice
(given over Sunday lunch) executed a trust over their home as to 50% for Mrs. Wyatt and 25% for each of their minor
children. Mrs. Wyatt knew nothing about the trust. She signed documents which were placed before her without reading.
Mr. Wyatt’s daughters did not know of the trust. The document was professionally drawn by their solicitor. The trust was
put away in their safe. Mr. Wyatt later borrowed from the bank on the security of ‘his’ house but did not disclose the trust
to the bank. When the bank started proceedings to recover, the trust was produced.
o Young QC held that the trust was executed by Mr. Wyatt not to be acted upon but to put in the safe for a rainy day and
that it was a sham trust.
o He did not regard that all parties to the sham must have a common intention.
o A "sham transaction will still remain a sham transaction even if one of the parties to it merely went along with the
'shammer' not either knowing or caring about what he or she was signing. Such a person would still be a party to the sham
and could not rely on any principle of estoppel such as was the case in Snook". Hence, it was not fatal that Mrs. Wyatt did
not have a ‘shamming’ intention.
• Common intention requirement?

KEY TO FINDING A SHAM
• Evidence of disparity between documentation and reality

• Test is the parties’ subjective intention
• Documents must be intended to mislead third parties as to rights and obligations
• Requisite intention to mislead must be a common intention of the parties (cf Midland Bank v Wyatt)
• A sham may develop over time if there is a departure from the documents and the parties do nothing to alter the documents

HOW TO AVOID THE SHAM ARGUMENT
• Prevent putting in unusual provisions in the trust deed

• Keep relevant documents carefully
o E.g. minutes of meetings – these show proper exercise of discretion
o Meetings should be conducted outside the presence of the settlor
o Keep letters and minutes of the initial settlement
o Consultation with protectors, settlors etc should be recorded

CYNICAL BENEFITS OF SHAM TRUSTS
• Conceals or limit information about beneficiaries – until the person is appointed, there is no legal status accorded to him.
Advantage of this kind of trust is to DISGUISE BENEFICIAL OWNERSHIP OF ASSETS. At the outset the document would not reveal that
such a person was indeed ever intended to benefit from the trust (so connecting it with a particular settlor or with a particular class
of beneficiaries), and moreover it would mean that questions addressed to the trustees (eg by a court) as to who the beneficiaries
were could be answered truthfully by pointing simply to those who were actually already in the class.

[2] Tax authorities – knocking down trusts to tax them

[3] Creditors – knocking down trusts to access their assets
• Voluntary conveyances to defraud creditors are voidable: Section 73B of the Conveyancing Law and Property Act
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o Except as provided in this section, every conveyance of property, made whether before or after 12th November 1993, with
intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.
o This section does not affect the law relating to bankruptcy for the time being in force.
o This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith
or upon good consideration and in good faith to any person not having, at the time of the disposition, notice of the intent
to defraud creditors.
• Sections 98 and 99 of the Bankruptcy Act
o Section 98: Transactions at undervalue. Includes gifts.
o Section 99: Unfair preference.

[4] Family courts – knocking down trusts to get assets to be distributed as matrimonial assets
• In J v V (2003), Coleridge J expressed that “these sophisticated offshore structures are very familiar nowadays to the judiciary who
have to try them. They neither impress, intimidate nor fool anyone. The courts have lived with them for years.

SCENARIO A: DIVORCE IN SG. SETTLED TRUST IN SG
• Express trust? In CH v CI [2004] SGDC 131 there was a life insurance policy under Section 73 of the Conveyancing and Law of
Property Act in which wife named as a beneficiary (dicta per Lim Hui Min DJ – if section 73 trust declared on behalf of a third party –
not a matrimonial asset) and a section 73 trust declared on behalf of a wife is a matrimonial asset.
• Court has wide powers to make orders on a section 73 trust policy including removing or changing named beneficiaries under section
112 of the Women’s Charter.
• Now governed by section 49L of the Insurance Act – trust nomination.
• Court does not have a similar power to vary a discretionary trust? Argue on policy? The husbands would have no incentive to keep
paying the premiums since he would normally have no desire to benefit the ex-‐wife.
• Setting aside the trust? Under section 132 of the Women’s Charter, the court may set aside the trust if it is a disposition to reduce
maintenance or deprive the spouse of rights to the property and it must be within 3 years of the application.

SCENARIO B: DIVORCE OVERSEAS. SPOUSE SETTLED A TRUST IN SINGAPORE.
SCENARIO C: DIVORCE IN SINGAPORE. SPOUSE SETTLED A TRUST OUTSIDE SINGAPORE.
• “A case that may have some relevance to the trust as a vehicle for wealth management and which I heard as Judge was a
matrimonial dispute concerning maintenance. The couple had lived in the UK where the husband sold his business for a considerable
sum of money. The couple then migrated to Australia where the husband found the tax regime intolerable. So he put his capital into
a Cayman Island discretionary trust to avoid having to pay either income tax or estate duty should he die. They then came to
Singapore where the marriage fell apart, resulting in a claim by the wife for maintenance and custody of the two children of the
marriage. The husband appeared in person and offered a ridiculously small sum for maintenance on the ground that he had no
money as he no longer had a proprietary interest in the capital in the trust fund which was no longer under his control. When I asked
him who owned the fund, he replied that it was the bank which had legal title to the funds. I replied that I would only accept his
argument if the bank concerned was prepared to testify that it had beneficial ownership of the fund. End of argument.” – “Opening
Address by the Honourable Chief Justice Chan Sek Keong” in The Regulation of Wealth Management, (H. Tjio, Ed), (NUS, 2008), xxv.
The case was not actually reported. However, the same parties came before Selvam J in Marie Eileen Guin Nee Fernandez v Arun
Guin [1994] SGHC 157.

• AQT v AQU [2011] SGHC 138
o Divorce in Singapore. Husband settled a trust called the Bemali trust in UK out of savings of £ 480,000.
o Wife said possibility that children would not benefit.
o The trust seemed to be a form of a discretionary trust as judge said beneficial ownership belongs to neither husband nor
wife.
o Lai Siu Chiu J held wife’s fears unfounded because the Memorandum of the Settlor’s wishes stipulated that the children
would benefit. £480,000 not put into the pool of asset to be divided.

• Possibility of analyzing through the sham trust?
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o Minwalla v Minwalla [2005] 1 FLR 771 concerned divorce proceedings. Husband called wife and told her that he had
divested himself of all assets. There was a discretionary trust in Jersey Two contradictory letter of wishes: One is that
during husband’s lifetime, he was the principal beneficiary; the other omits any reference to H as the principal
beneficiary. Singer J held that husband should in his lifetime be regarded as the owner of the trust. It was a sham
transaction – there was shamming intention on the art of the settlor and trustees.
o Cf Charman v Charman [2007] EWCA Civ 503
§ Two letters of wishes by Mr. Charman – “I wish to have the fullest possible access to the capital and income…”
and “During my lifetime, I would like you to treat me as the primary beneficiary…”
§ CA attributed the property held by Dragon Trust to Mr. Charman. The trust was a ‘resource’ to the husband.
§ No need to find that Dragon Trust was a sham. There was enough property in the UK to distribute to Mrs.
Charman.

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FIDUCIARY DUTIES
NOTE: Generally, if you are engaged to defend a fiduciary, always
• [1] attempt to argue that he was not a fiduciary because his role was reduced to vanishing point;
• [2] even if he was a fiduciary, that the extent of fiduciary obligations that he owed was minimal; and
• [3] if both fails, argue that there is no causal link between the breach of fiduciary duty and losses suffered.

#1A: IS X A STATUS FIDUCIARY?

FIRST PRINCIPLES: A fiduciary is one who has undertaken to act for another giving rise to circumstances of trust and confidence (Bristol
v Mothew), such that the principal is vulnerable to the fiduciary’s abuse of power or duty (VK Rajah JA in Ng Eng Ghee).
There are 5 established categories of fiduciaries: Trustee (Keech v. Sandford), Agents (Yuen Chow Hin; Estate Agents Act), Company
Directors (Regal Hastings; Tan Eng Leong), Solicitors (Boardman v. Phipps) and Partners (Chan v. Zacharia). However, these
categories are open and the courts will have to examine if a particular relationship gives rise to trust and confidence (Bristol v Mothew).

Trustees
• Keech v Sandford: Settlor transferred a lease to the trustee on trust for the infant. Prior to the expiry, the trustee sought to renew
the lease on behalf of the infant but was rejected, but was granted a renewal to the trustee for himself. Held: Although there was no
fraud in this case, the trustee should rather have let the lease run out than have had it renewed to himself.
• Boardman v Phipps: Boardman and beneficiary used their own money to buy shares in company – get majority – take control of
company – made lots of profit for everyone. Even though information is not property, but because Boardman owed a fiduciary duty,
such a act constituted a misappropriation of an opportunity that was only available to him in his position as a fiduciary. Liable for
profits, with equitable allowance for his own skill and effort.

Agents
rd
CONSIDER: a) is X able to act on behalf of and under the control of principal company in dealing with 3 parties and b) are her actions, if
acting within her scope of authorisation, binding on the principle.
• Yuen Chow Hin v ERA Realty Network: In that case, the Pfs were husband and wife who decided to sell their flat and they
engaged Jeremy, a senior marketing director of Df ERA to help them. Jeremy was a subordinate of Mike. Jeremy found a buyer
named Natassha, who was Mike’s wife. Pfs did not know that Natassha was Mike’s wife and that Mike as Jeremy’s superior in ERA.
o Natassha flipped the property to a third party within the same month and made over $200k profit.
o Held: Court regarded Jeremy and Mike to be agents of ERA and their conduct to be thus binding on ERA.
o The profit Natassha made from the subsidiary sale was a secret profit amounting to a breach of fiduciary duty even though
Natassha herself was not an estate agent, she was a party to the plan made and carried out by two agents of the Df.
• Estates Agent Act: estate agents now have high duties to meet
• COUNTER: Consider the fact that duty can be excluded i.e. via contract or that the judges can alter the incidence of fiduciary law as
they are applied in relation to particular relationships (Kelly v Cooper). In these two cases, Kelly v Cooper and ERA v Puspha,
since it was widespread in the market that estate agents who act for both sellers and buyers, it was accepted that estate agents in
these situations would normally not owe a duty to advise the seller – his job is mainly to bring the seller and buyer together and
negotiate the property. This type of agent is regarded as a canvassing agent. Tay Yong Kwang J even went further to say that such
agents are not even agents (note that this position is not widely accepted).

Company directors
CONSIDER: Possibility of de facto director (managed all the affairs of the company without formal title; s4(1) of Companies Act: “by
whatever name called”) or shadow director (making all the moves but not wanting to be recognised as a director)
• Regal Hastings: the plaintiff company had formed a subsidiary company with the view to acquiring the latter’s entire share capital
of 5000 shares. The Pf’s Board of Directors (who comprised 5 out of the 6 Dfs) later reached the conclusion, IN GOOD FAITH, that
the Pf lacked the financial capacity to subscribe for more than 2000 of those 5000 shares. They decided then that the Pf should
subscribe for only 2000 of the shares, the remaining being subscribed for by 4 of the Pf’s 5 directors, the Pf’s solicitor and other
persons. They sold the business and made a profit. Buyers then brought an action against the directors, saying that this profit was in
breach of their fiduciary duty to the company and that they did not gained fully informed consent from the shareholders.
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Solicitors
• Boardman v Phipps: The Trust (T) owned shares in a Co that was inefficiently run. But T had no power to acquire more shares to
wrest control over the Co. One of the beneficiaries (B) and the solicitor (S) acquired further shares in order to wrest control. All
beneficiaries were informed, except one. One of the Bs, despite being informed, sued the lawyers and argued that there should be a
constructive trust over profits.
o They were therefore liable for the profits earned. However, they would be able to retain a generous remuneration for the
services performed.

Partners
• Chan v Zacharia: Partners in a medical practice carried on leased premises. The lease contained an option for renewal. The
partnership was dissolved and a receiver appointed. Chan refused to exercise the option of renewal with Zacharia, but instead
obtained a new lease for himself. Zacharia sought a declaration that Chan held the new lease as a constructive trustee for the
partnership.
o Chan owed Zacharia a fiduciary duty and after the dissolution and before the winding up, the obligations of the partners
continued so far as was necessary to wind up the partnership.

#1B: ANY MITIGATING FACTORS?

COMMERCIAL TYPE ARGUMENTS
[1] However, in COMMERCIAL CONTEXT courts would be wary of implying a fiduciary relationship so as to not disrupt the expectations of the
marketplace. For example, although usually a manager is a fiduciary of the company, it may not be so if the manger holds a minor role in the
company and the directors were aware of his outside dealings (Singapore River Cruise).
• Singapore River Cruise: Bitter quarrel between brothers of a company; one brother, PTK, left company and set up competing
business. Held: no FD because PTK while a marketing manager in name, had a very minor role in the company and brothers aware of
him working on other projects.

[2] Also, parties are able to regulate the extent of fiduciary obligations BY CONTRACT. For example even though a property agent is prima facie
a fiduciary of the seller (Yuen Chow Hin), if there is a nominee clause which suggest that seller was uninterested in the identity of the
buyer, then the property agent might not have breached his fiduciary duties if he sold the property to someone related (ERA v. Puspha).
• Yuen Chow Hin: Pf engaged J as property agent, J sold it to N at undervalue. N flipped property to 3P making 200k. N is actually M’s
wife and M is J’s boss in ERA. Held: Breach of FD, secret profit.
• ERA v Puspha: Puspha engaged S as property agent, S sold it to sister-‐in-‐law – conflict of interest. Held: no FD because property
was sold on nominee, i.e. Puspha uninterested in identity of eventual buyer and Puspha knew of collective sale potential of property
and bottom line of $3.6m was met.

[3] When a party alleged to be vulnerable, but court finds that he could have PROVIDED HIMSELF WITH ADEQUATE PROTECTION if he had
thought about it, court would not intervene.
• ý IDC v Cooley: Df was GM of Pf coy. Coy’s client offered Df a job and DF feigned illness and resigned and joined client’s coy. Pf
(coy) successfully sue for Df’s remuneration paid by client. Criticism by Davies: absence of ROT clause, thus Df entitled to resign.
o Court did not seem to have given sufficient attention to the fact hat plaintiff could have provided himself with better
protection e.g. restraint of trade or non-‐compete clauses
• þ US Surgical Corp v Hospital Products (AusHC1984): departed from Cooley and refused to find that the defendant owed a
fiduciary obligation to the plaintiff company. It was held that the reason why the defendant lacked the protection it would have liked
was because Blackman was the better negotiator.

IN SUBSTANCE, NO FIDUCIARY RELATIONSHIP ARGUMENTS

[3] Even if the case falls within an established category of fiduciary relationship, this PRESUMPTION IS REBUTTABLE. For example a director in
a company is not a fiduciary if his role has been reduced beyond “vanishing point” (In Plus v. Pyke), where a manager of a company had
very minor role in the company (Singapore River Cruise).
• In Plus v Pyke (UKCA2002): Pyke fell out with directors of In Plus, who tried to force him to resign after his bout of severe illness.
He was also excluded from company information and management, and deprived of any reumeration . Pyke incorporated separate
coy and worked with major clients of In Plus. Held: No breach of FD because Pyke duties were reduced to “vanishing point”.
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• Singapore River Cruise: Bitter quarrel between brothers of a company; one brother, PTK, left company and set up competing
business. Held: no FD because PTK while a marketing manager in name, had a very minor role in the company and brothers aware of
him working on other projects.

[4] In the context of RETIRING DIRECTORS, whether the director, X, remains a fiduciary is contextually dependent: at one extreme, director (i)
was a director in name only whereas at the other extreme, director had (ii) planned his resignation having in mind the destruction of his
company or at least the exploitation of its property in the form of business opportunities in which he was involved.
• Foster Bryant v Bryant: Case was about alleged breach of a director’s fiduciary duties during a period of notice after he had
resigned as a director but when his resignation had not yet taken effect.
o Mr Bryant was found to have no ulterior motive.
o Resignation forced on him by Mr Foster’s hostile manner (rejected client-‐side proposal to split work between co-‐directors)
and sacking of Mrs Bryant. It is thus not a case where he resigned in order to attempt to take work or clients from the
company.
o He was offered retainment by Alliance; he did not sought it out
o Held: no breach of fiduciary duty

#1C: IS X A FACT-BASED FIDUCIARY THEN?

ARGUE FROM FIRST PRINCIPLES: A fiduciary is one who has undertaken to act for another giving rise to circumstances of trust and
confidence (Bristol v Mothew), such that the principal is vulnerable to the fiduciary’s abuse of power or duty (VK Rajah JA in Ng Eng
Ghee).

Material facts as per Halsbury of Singapore
[1] Wide nature of discretion/power
[2] Nature of job/task
[3] Importance of job as to the principle
[4] Extent to which job/task performance
[5] Absence of special skill suitable to the job/task on the part of the principle

[1] Generally, there is no fiduciary relationship in a TYPICAL CONTRACT. But even in the context of sale and purchase, a fiduciary relationship
may be found in unusual circumstances: English v Dedham Vale Properties (1978).
• Dedham Vale: Elderly couple sold property to a developing company at a very low price on reliance of Managing Director’s words
that there was no prospect of obtaining planning permission. But MD secretly went to apply for planning permission under couple’s
name as agent – value increased. Held: Yes FD, couple would not have gone through with the contract on the same terms but for
reliance on the MD’s assertions.
o Slade J held that Dedham Value without plaintiffs’ authority put itself as a self-‐appointed agent; it placed itself in a
fiduciary relationship with the Pfs. Pfs would not have gone through the contract on the same terms if they had known of
the planning permission. Thus, Pfs have a right to an account of profits made by Df.

[2] In DEBTOR-‐CREDITOR RELATIONSHIPS, bank is generally not considered to be a fiduciary because banks are self-‐interested parties and
customers should not have the expectation that the bank would undertake to be a fiduciary.

Are there contractual Any unusual circumstances? Did the bank create Was it a commercial Was there independent
clauses such as non-‐ expectation in customer that it would advise in his or transaction conducted at professional advice? Did
reliance clauses? her interest i.e. lead customer to believe that his arm’s length? bank advised customer to
interest was consistent with that of the bank. seek such advice?

• In Singapore and UK, fiduciary relationships found in banker-‐customer situations might now be negated by the development of
contractual clauses such as non-‐reliance clauses
• In Australia, courts found that a bank could still owe fiduciary duties to its customers in unusual circumstances: Commonwealth
Bank of Australia v Smith.
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o Bank manager introduced Mr and Mrs Smith to vendors of a hotel and acted as their financial advisors. Couple wanted to
get brokers and accountants to look at the value of the hotel but were actively discouraged to do so. Hotel turned out to
be a bad buy; couple paid too much for the hotel.
o Bank manager should have asked the couple to get independent advice.
• A bank might be expected to act in its own interests in ensuring the security of its position as lender to its customer, but it might
have created in the customer the expectation that nevertheless it would advise in the customer's interests as to the wisdom of a
proposed investment.
o Example: This might be the case where the customer might fairly take it that to a significant extent his interest was
consistent with that of the bank in financing the customer for a prudent business venture.
• Factors such as commercial transaction conducted at arm’s length and whether parties sought independent professional advice go
towards showing the absence of a fiduciary relationship

[3] The LACK OF A FORMAL POSITION in relation to the company does not mean that a person would not owe fiduciary duties: SM Trading
Services v Intersanctuary Ltd.
• In SM Trading Services v Intersanctuary, the defendant brought a third-‐party suit against Kek Kim Hok to indemnify any
potential losses for his role in an alleged conspiracy to sell goods at inflated prices to the defendant company.
• High Court in Singapore held that Mr Kek had vested interests in the business of the columbarium because he was
o 1) actively involved in running the business,
o 2) advising the DF on the management of such businesses, and
o 3) the officers of the Df relied on his advice.
• Hence, a fiduciary relationship arose such that the Df were entitled to Mr Kek’s loyalty.

#2: WHAT IS THE SCOPE OF X’S FIDUCIARY OBLIGATIONS? (BREACH)

A principal is entitled to the single-‐minded loyalty of his fiduciary (Bristol v Mothew), and this include (1) acting in good faith, (2) no making
of unauthorized profit (3) no conflict of interest and (4) no acting for the benefit of 3P without the informed consent of principal.

**Also, NOT ALL BREACHES MADE BY A FIDUCIARY ARE BREACHES OF FIDUCIARY DUTIES. As noted by Millet LJ in Bristol v. Mothew, a
breach of fiduciary duty is different from a duty to use skill and care. Breach of fiduciary duty connotes disloyalty or infidelity. Therefore, mere
incompetence is not a breach of fiduciary duty.

CONFLICT OF INTEREST

In the UK, the test for conflict of interest is the mere possibility of conflict (majority in Boardman, although minority preferred ‘real sensible
possibility of conflict’ which academic Davies supports). In Singapore, Court of Appeal in Ng Eng Ghee preferred Lord Hodson’s STRICTER
APPROACH OF MERE POSSIBILITY for 3 reasons: 1) the need for deterrence combined with 2) evidential difficulties in proving the harm, and
also the 3) agency cost problem i.e. beneficiaries cannot easily monitor the actions of those who manage their business or property on a day-‐
to-‐day basis.

S E L F -‐ D E A L I N G R U L E F A I R -‐ D E A L I N G R U L E
[1] If a trustee sells the trust property to himself, the sale is voidable by any beneficiary as of right, [1] If a trustee purchases the
however fair the transaction: Tito v Waddell (No 2). beneficial interest of any of his
• Ohm Pacific (SGCA1994): Doreen Ng, a solicitor, prepared a document between Ohm Pacific beneficiaries, the transaction
and Pacific Navigation. Ohm Pacific owned a ship called Ohm Marianna and appointed Pacific is not voidable as of right, but
Navigation as its managing agent. When she prepared documentation between Ohm Pacific it can be set aside by the
and Pacific Navigation, she was also a director and shareholder of Pacific Navigation, and so beneficiary unless the trustee
was her husband. can show that he has taken no
o Prima facie, conflict of interest, though claim was eventually dismissed because loss advantage of his position and
which was claimed did not flow from the breach. has made full disclosure to the
beneficiary, and that the
[2A] There is some suggestion that the rule that such a transaction may be set aside without proof that
transaction is fair and honest:
the transaction was unfair is irrebutable: Ex parte James.
Tito v Waddell (No 2).
• Ex parte James (1803) 32 ER 385 per Lord Eldon: “This doctrine as to purchases by trustees,
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assignees, and persons having a confidential character, stands much more upon general • Fair price was paid /
principle than upon the circumstances of any individual case. It rests upon this; that the Beneficiary has not
purchase is not permitted in any case, however honest the circumstances; the general entirely relied on his
interests of justice requiring it to be destroyed in every instance." advice

[2B] However, in Holder v Holder, Harman J doubted whether the court was bound to apply the
principle in Ex parte James as a strict rule and suggested that it should not be applied where the
trustee had ceased to act in effect as a trustee and therefore could not be deemed to be both the seller
of the interest (on behalf of the trust) and also the buyer on his own account.
• Vinelott J in Re Thompson’s Settlement preferred Harman J’s approach and expressed the
decision on the narrow ground that the Df had never acted as executor in a way which could
be taken to amount to acceptance of a duty to act in the interests of the beneficiaries under
his father’s will.

**Whether self-‐dealing rule should apply to a SALE OF AUCTION
• Danckwerts LJ in Holder v Holder expressed doubt whether today the self-‐dealing rule
should apply where trust propety is (i) sold at public auctions, at least in a case where the (ii)
sale is arranged by trustees other than the purchasing trustee. He also held that the claimant
had (iii) acquiesced in or confirmed the sale and could not claim to have set it aside.
• Likewise, Sachs LJ expressed the same doubt as to whether the self-‐dealing rule should apply
now to a sale by auction. He took the view that a hard and fast rule prohibiting all
transactions was unnecessary and could be unjust. The courts should examine the facts and
then determine whether setting the sale aside is appropriate.
[3] Exception: Unanimous consent

Unless all the beneficiaries unanimously consent to the purchase (dicta in Boardman).

If conflict of interest is established, fiduciary is accountable for all profits made from acting within the scope and ambit of his fiduciary duties:
Boardman v Phipps; Warman v Dwyer.

Note that he cannot escape liability to account for profits obtained in breach of fiduciary duty by resigning his post and then taking an
opportunity for himself that came to him in his capacity as fiduciary: IDC v Cooley.

UNAUTHORISED PROFITS
[1] A fiduciary must account to principal for any benefit obtained by reason of his fiduciary position or of opportunity or knowledge
resulting from it (Keech v Sanford, affirmed in Chan v Zacharia).

[2] A trustee who receives commission for introducing trust business will be liable to account for the commission received as an unauthorised
profit (Williams v Barton).
• Defendant trustee worked as clerk in firm of stockbrokers on terms that his salary would consist of 50% commission earned by the
firm on business introduced by him. Defendant recommended firm to value his testator’s securities and earned the commission. Co-‐
trustee brought an action for unauthorised profits. Court held that the profit earned was something which the defendant would
not have made but for his position as trustee, and he was therefore liable to account to truste estate.

[3] As a fiduciary, a company director may not exploit opportunities properly belonging to the company (Boardman v. Phipps). This is so
even if the principal could not take advantage of the opportunity himself (Regal Hasting).

[4] A fiduciary may not take secret bribes in breach of his obligations (AG v. Reid). – see below

#3: PRE-REMEDIES
CAUSATION AND REMOTENESS
-‐ Page 59 of 86 -‐

Y E S , T H E Y A P P L Y N O , T H E Y D O N ’ T A P P L Y .
They were applied in However, there have been dicta by Street J in Re Dawnson and Selvam J in Kumagai (High Court) that a
some UK cases such as fiduciary is liable to make restitution and “consideration of causation, foreseeability and remoteness do not
Bristol v. Mothew, readily enter into the matter”. Re Dawnson could be rationalized in its factual context because it involved a
Swindle v. Harrison trustee’s duty to restore money that he misappropriated and should not be used as support for a broader
and Target Holdings principle as suggested by Selvam J.
and also in the Singapore
case of Ohm Pacific but In Kumagai on appeal, while the Court of Appeal did not disavow Selvam J’s point, it went on to discuss issues of
the claimant only needs causation and remoteness, which would seem to implicitly endorse the application of those principles.
to show that the breach
was one of the causes Further, in John While Spring, albeit a high court case, the court interpreted Kumagai (High Court) to mean
and not the ‘but-‐for’ test. that once liability has been proven, the wrongdoer has to compensate the principal for such loss as was
occasioned by the breach, and it is “in this sense” that foreseeability and remoteness does not apply. But the
court still held that to establish liability in the first place, plaintiffs had to still prove that their losses were caused
by or linked to the defendants’ breaches of fiduciary duties.
SHORT & SWEET: In Singapore, Kumagai (CA) appears to implictly endorse causation and remoteness and the High Court in John While
Spring further interpret the case to mean that once liability has been proven, wrongdoer has to compensate principal for such loss as was
occasioned by the breach. Furthermore, it is submitted that causation should apply because it is unfair for the fiduciary to bear the loss when
the principal would have lost the money anyways, as was the case in Target Holdings.
Therefore, applying the rules of causation and remoteness to the present facts…

CONTRIBUTORY NEGLIGENCE
[1] Traditionally, compensation in EQUITY could not be mitigated by LEGAL defences.

[2] However, in Day v Mead (NZCA1987), the tortious defence of contributory negligence was applied to reduce an award of equitable
compensation for a breach of fiduciary duty. The allowance of legal defences in mitigation was premised on the fusion of law and equity.
• On the facts, the court recognised that knowledge is not static and that although there was a breach of fiduciary duty, claimant could
only recover the first $20k because by the time the $80k investment was made, the court reasoned that Day would have had
considerable knowledge of the affairs of the company and thus reduced the second claim by 50%.

#4: REMEDIES
RESCISSION OF CONTRACT
SM Trading: Kek was a majority shareholder of a Pf coy involved in developing a site into a columbarium which was bought by Df. Df asked
for recession of contract. Held: Kek was fiduciary because actively involved in running of business even though no formal position – position
of conflict.

ACCOUNT OF PROFITS

An account of profit is a gain-‐based remedy that makes remedies for breach of fiduciary duties superior over contractual remedies, which are
normally compensatory, reliance or expectation measure. As such an account of profit is a very harsh remedy but this is justified given the
particular vulnerability of the principal. The harshness is to deter errant fiduciaries and to extinguish all temptations (VK Rajah JA in Ng Eng
Ghee) as well as the difficulty for principals to monitor the actions of the fiduciaries on a day-‐to-‐day basis (Mary Adren LJ in Murad Al Saraj).

EQUITABLE ALLOWANCE
[1] However, in order to mitigate the harshness of account of profits, courts have in some instances awarded equitable allowance to the
defendants. Taking into account the trustee’s own personal skill, effort and resources in achieving the profits, the courts may impose an
account of profits for only a limited period (Warman v. Dwyer – limited to one year) or award generous remuerations (Boardman v.
Phipps).
-‐ Page 60 of 86 -‐


• Cf Hytech Builders where court did not award equitable allowance – F chairman of H (coy) that was in joint-‐venture with S to bid
for contract. In breach of FD, F used another coy, E, to bid for contract. H (coy) unhappy sues F. Held: both F and E held contract on
constructive trust for H.
o Difference with Warman: (1) Had E not been in the picture, H would have won it, unlike in Warman where W was
already going to lose his contract. (2) Here is just ending a contract, in Warman was terminating an ongoing business
• **Similarly in FHR European v Mankarious (UKCA2013), the UK Court of Appeal held that the power to grant equitable
allowance is exercised sparingly out of concern not to encourage fiduciaries to act in breach of fiduciary duty and that it is unlikely
to be used where the fiduciary has been involved in “surreptitious dealing”. But did not entirely rule out the possibility.
o In that case, it was held that there were numerous opportunities opportunities for the agent to inform his principals about
the existence of the commission and, more important, the amount, but none were taken.
o Hence no equitable allowance, but was allowed to retain commission from work in relation to 3 other hotels, presumably
on the basis that these other transactions were severable from the tainted transaction.

[2] Can the doctrine of equitable allowance be extended to other fiduciaries such as company directors? Considerations as per Guinness lc v
Saunders (UKHL1990) include:
• Fiduciary’s own skill, effort and resources
• Whether such an award would be considered interference by the court in the administration of a company's affairs when the
company is not being wound up
• If the relevant articles of association in a company has confided the power to award equitable allowances to the board of directors,
the court would be precluded from exercising such power:
• If such allowance would not have encouraged the fiduciary to act in breach of duty
o Similar concern was raised in FHR European v Mankarious

CONSTRUCTIVE TRUST
Constructive trust is a proprietary remedy that is very advantageous to the beneficiary because it ring-‐fences the assets from the reach of
creditors during insolvency (first priority), and it also allows the beneficiary to obtain the increase in the value of the asset.

REGARDING BRIBES OR SECRET COMMISSIONS:

Y E S , C O N S T R U C T I V E T R U S T ( P R O P R I E T A R Y C L A I M ) N O , A C C O U N T O F P R O F I T S ( P E R S O N A L C L A I M )
[1] Sumitomo and AG v Reid are authorities favourable to the [1] In Lister v Stubbs (1890) 45 Ch D 1, the fiduciary Stubbs was
establishment of a constructive trust over the bribes or secret bribed to channel business to a third party. Court held that the Lister
commission for the principal on the basis that equity would treat as had no proprietary right to money or land, only a mere personal
done what ought to be done and on the policy ground that bribery is right to the bribe.
an evil practice.
• Sumitomo Bank Ltd v Kartika Ratna Thahir [2] Affirmed in Sinclair Investments (UKCA2011) and rejected Reid
[SGHC1993] departed from Lister v Stubbs because it is as being inconsistent with authority, principle and policy.
undesirable for the fiduciary to be only under a personal • Facts: Cushnie, a company director of company A, made use
duty to account. Subsequently approved in CA cases. of A’s funds to inflate the profits and returns of company B.
• In AG for Hong Kong v Reid [NZPC1994] AC 324 criminals He was responsible for a giant Ponzi scheme and was a
paid bribes to Reid, a Crown Counsel in Hong Kong, to major shareholder of company B. He sold the shares in
obstruct their prosecutions. Reid invested the bribes, company B for a profit of 28.6m pounds.
totalling NZ$540,000 in land which increased in value to • AUTHORITY: Earlier decisions of the Court of Appeal e.g.
NZ$2.4m. For the Crown, the A-‐G (Hong Kong) claimed that Lister v Stubbs
Reid was a fiduciary, that Lister was wrongly decided, and • PRINCIPLE: The court distinguished between a 1) fiduciary
therefore that Reid held any land purchased using bribes on enriching himself by depriving the principal of an asset i.e.
constructive trust for the Crown. The Privy Council agreed, misuse of an asset or depriving principal of an opportunity
emphasising that Lister itself was inconsistent with earlier and 2) a fiduciary committing a wrong to the principal i.e.
authority not cited in that case and preferring the views of accepting bribes.
Lai Kew Chai J in Sumitomo Bank Ltd v Kartika Ratna o It was only in the first scenario that the asset
Thahir would be held on constructive trust because it
should be treated as the principal's property e.g.
Cook v Deeks
o Receipt of a bribe fell within the second scenario
-‐ Page 61 of 86 -‐


because the fiduciary was under no duty to obtain
it for the principal, who consequently had no
proprietary right to it.
• POLICY:
o It would be unfair that any claims of the
fiduciary's unsecured creditors should be
defeated
[2] Criticisms: Proprietary overkill [3] FHR European v Mankarious (UKCA2013) affirmed Sinclair principle (but applied it
• Proprietary remedy only differently) to mean that a beneficiary of a fiduciary's duties cannot claim a proprietary interest,
appropriate when defendant but is entitled to an equitable account, in respect of any money or asset acquired by a fiduciary in
profited from interference breach of his duties to the beneficiary (CATEGORY 3), unless
with the principal's actual or 1) the asset or money is or has been beneficially the property of the beneficiary (CATEGORY 1) or
putative proprietary rights. 2) the trustee acquired the asset or money by taking advantage of an opportunity or right which
• Not clear why deterrence was properly that of the beneficiary (CATEGORY 2). Accordingly, to allow for a constructive trust
could not be served by a mere to be applied over secret commission received by Mankarious
duty to account • CONSTRUCTIVE TRUST: It was plain that in reality F's money funded the commission
• Fear that money would be paid to C.
o It was material that the seller was in fact prepared to receive a net sum of
dissipated can be cured by an
€201.5 million from the sale, after paying C's €10 million commission.
application for a freezing
o That fact was not made known to F.
order i.e. a Mareva injunction
o The Commission Agreement, and the fact that it was not disclosed by Cedar to
• Why should the principal be
the claimants, diverted from the claimants the opportunity to purchase the
preferred over third party hotel at the lowest possible price, that is to say a price lower than the price
creditors in insolvency they ultimately agreed to pay
proceedings? o Those facts brought the instant case into category two rather than category
three. C's agreement with the seller diverted from F the opportunity to
purchase the hotel at a lower price. C therefore held the commission on
constructive trust for F
• EQUITABLE ALLOWANCE: Nor was this the type of case in which it would be appropriate
to make an equitable allowance to the agent (para 108). Numerous opportunities had
arisen for the agent to inform the principals, but none of these were taken. The agent
was, however, entitled to retain the commission from work performed in relation to
another three hotels, presumably on the basis that these other transactions were
severable from the tainted transaction

Approach in Singapore? Possibly similar to AG for Hong Kong v Reid given that a premium is placed on maintaining a corruption-‐free
society. Alternatively, it could adopt FHR European v Mankarious, since it does not completely rule out the possibility of constructive trust
and even recognised the various situations a constructive trust will arise.

Note that Sinclair was decided by then Lord Neuburger who has since been elevated to be President of the Supreme Court. So if case is
appealed to SC, likely that Lord Neuburger will support his own position.

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CONSTRUCTIVE TRUST
G E N E R A L
There are 2 types of constructive trusts. The remedial constructive trust is imposed by courts as a proprietary remedy. The institutional
constructive trust, however, arises from the transaction and the court merely declares its existence. The main difference between the 2
constructive trusts is that for the RCT, courts have the discretion to decide whether to impose them therefore should there be unfairness to
any third parties involved, courts can choose a different form of remedy. However, for the ICT, once the elements giving rise to it are fulfilled,
courts have no choice but to declare the trust and this may thus bring unfair results to third parties. In Singapore, courts follow the English
courts in using the ICT. However, the RCT has been allowed as a remedy in Singapore in recent years.
Categories of instances in which a constructive trust is declared:

1. Specifically enforceable contract for sale
2. Breach of fiduciary duty (see 09 Fiduciaries)
3. Proprietary estoppel
4. Transfer of property subject to a condition
5. Unconscionable conduct
6. Breach of confidential information
7. Pallant v Morgan equity
8. Traceable equitable proprietary interest

1. SPECIFICALLY ENFORCEABLE CONTRACT FOR SALE

Equity sees as done what ought to be done. A constructive arises as soon as a specifically enforceable contract for sale of land is entered into:
Lysaght v Edwards (1876) 2 Ch D 499

2. BREACH OF FIDUCIARY DUTY

See chapter on breach of fiduciary duties.

3. PROPRIETARY ESTOPPEL
*HUSSEY V PALMER
A person who paid for an extension to be added to the legal owner's property acquired an equitable interest in the property because justice
and good conscience so required; the court would look at the circumstances of each case to decide in what way the equity could be satisfied.
• Since the payment by the plaintiff for the extension to the house was not intended as a gift and there were no arrangements for its
repayment it was against conscience for the defendant to retain the benefit of it without repayment and he held the property on a
resulting or (per Lord Denning M.R.) constructive trust for the plaintiff proportionate to the £607 she had put into it in paying for
the extension

#1: ESTABLISHING THE EQUITY

REPRESENTATION: Where an owner of land permits the claimant to have, or encourages him in his belief that he has, some right or
interest in the land, and
RELIANCE: The claimant acts in reliance on this belief
To his DETRIMENT
Unconscionability is the overarching inquiry.

3 features of the doctrine that merit reference: Inwards v Baker [1965] 2 QB 29
• Proprietary estoppel can arise even outside the scope of contractual relationships
• Proprietary estoppel may be relied on as a sword; conferring rights of action where none otherwise exist.
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• Equity arising in connection with proprietary estoppel may bind third parties and, in this sense, seems to constitute a substantive
equitable proprietary right, albeit that the benefit flowing from the estoppel is arguably personal to the original estoppel
representee. It may even be that an estoppel-‐based equity gives rise to an enduring personal liability in the representor even after a
transfer or the land to a third party.

[1] Primary issue is whether representations of testamentary intent can be construed as an assurance that there should be a present
acquisition of future right by the representee since testamentary dispositions are inherently revocable.
• þ Re Basham:
o Representation: deceased owned a cottage and had on numerous occasions indicated to the plaintiff that she would get
the cottage when he died in return for what she had done for the deceased
§ Reiterated that intention on his deathbed
o Detrimental reliance: provided nursing care / paid for cost of hiring a solicitor to settle neighbour dispute / kept the
garden and house throughout claimant’s adult life
§ Received no remuneration except for the understanding that she would inherit
o Stepfather died intestate but because the claimant was the stepdaughter, did not automatically inherit property (nieces
were next-‐of-‐kin under intestacy regime). Court held she was entitled, by proprietary estoppel, to whole of estate
• þ Gillet v Holt: UK Court of Appeal held that if there were consistent and unambiguous intimations of testamentary intent,
coupled with substantial acts of reliance, then it makes clear that the assurance is more than a mere statement of present
(revocable intention) and is tantamount to a promise. Furthermore, it is not essential for the promise to be irrevocable since it is the
other party’s detrimental reliance on the premise which made it irrevocable.
o Representation: Holt’s repeated promises to a favoured farm worker Gillett that ‘all this will be yours’
§ ‘exceptionally strong claim’ on the representor’s conscience which could not be disclaimed
o Detrimental reliance: 40 years of underpaid labour on the party of that farm worker / substantial amount of money on
improving farmhouse
o Holt brought a claim and succeeded but full expectation interest was not vindicated – Gillett only obtained conveyance of
one farm house and a sum of money.

[2] Domestic v Commercial dichotomy
It was thought by some practitioners and academics that the decision of the House of Lords in Yeoman's Row v. Cobbe [2008] 1 WLR 1752
had severely curtailed, or even virtually extinguished, the doctrine of proprietary estoppel. However, following the decision of the House of
Lords in Thorner v. Major [2009] 1 WLR 776, it is now clear that proprietary estoppel remains alive and well in the domestic or family
context, although it may be fair to say that it has had its wings clipped in the commercial context.
• It is also clear, following Thorner v. Major, that testamentary proprietary estoppel has survived Yeoman's Row, as has the
established body of law in relation to proprietary estoppel more generally.
• Different context
o IN A COMMERCIAL CONTEXT, it will generally be difficult for a claimant to succeed because the court's emphasis is likely to
be on the need for certainty in commercial dealings. The arrangements between the parties are more likely to be reduced
to writing, and so there is less scope for relying upon assurances arising out of indirect statements and conduct.
§ In Cobbe the relationship between the parties was at arm's length and commercial, and the person raising the
estoppel was a highly experienced businessman and the parties had consciously chosen not to enter into a
contract. Each party knew they were not bound by a legal relationship.
o In contrast, a proprietary estoppel claim IN A NON-‐COMMERCIAL CONTEXT will generally be easier to establish. The court
in that context is more likely to emphasise the need for fairness. Whether an oral representation is sufficiently clear will
depend upon the context in which it is given, but Thorner suggests that the court is likely to take a fairly generous
approach. It is also likely to be easier to argue that a claimant who does not have commercial experience was reasonable in
relying on an assurance.
§ In Thorner, Lord Neuberger emphasised that “the relationship between Peter and David was familial and
personal, and neither of them, least of all David, had much commercial experience”.
• Different kind or extent of uncertainty?
o Lord Neuberger noted that in Cobbe there was no doubt about the physical identity of the property, however there was
total uncertainty as to the nature or terms of any benefit (property interest, contractual right, or money) and if a property
interest, as to the nature of that interest (freehold, leasehold, or charge) to be accorded to Mr Cobbe.
o However, in Thorner the extent of the farm might change, but there was no doubt as to what was the subject of the
assurance, namely the farm as it existed from time to time. Accordingly, the nature of the interest to be received by the
nephew was clear – it was the farm as it existed on the uncle's death.

-‐ Page 64 of 86 -‐

#2: SATISFYING THE EQUITY
[1] The upholding of a claim of proprietary estoppel opens up the court’s jurisdiction to fashion new rights for relevant parties; and the court
may select, in the light of individual circumstances, from a fairly well established spectrum of remedial possibilities.

[2] The history of proprietary estoppel is marked by ambivalence as to whether the proper role of estoppel doctrine is to give effect to the
expectations (expectation interest) of entitlement engendered by the parties’ dealings or merely to protect against the detrimental
consequences (reliance loss) caused when these expectations are undermined by an unconscientious insistence upon legal rights. The
distinction between these remedial perspectives was dramatically demonstrated in:
• Commonwealth of Australia v Verwayen (1990) 170 CLR 394 where Deane J postulated a case in which A, the owner of a block
of land valued at $1m induces B to incur expenditure on the faith of a wholly gratuitous verbal representation that B is henceforth
the fee simple owner of the land. B erects on the land a shed worth $100. Under an expectation based approach the court orders A
to transfer the fee simple estate to B in order to make good the expectation induced in B. Under a compensation-‐based approach
the court merely orders A to indemnify B in respect of the $100 loss flowing from the non-‐realisation of his initial expectation.

[3] Thus, in a series of recent decisions the English Court of Appeal in Jennings v Rice [2002] EWCA Civ 159 has confirmed what appears to be
a graded response to the remedial conundrum depending on the circumstances of the case.
• The MINIMUM RELIEF required is the minimum necessary to do justice, to relieve the unconscionability.
• An EXPECTATION-‐BASED measure of relief seems most relevant where the representor’s assurances and the claimant’s reliance on
them have a consensual character falling not far short of an enforceable contract. In such cases, the parties would have reached a
mutual understanding in reasonably clear terms and the consensual element suggests that both parties probably regarded the
expected benefit and accepted detriment as being equivalent or at any rate not obviously disproportionate.
• A COMPENSATION-‐BASED approach is likely to be relevant where the dealings between the parties were relatively short-‐lived and
the change of position undertaken by the estoppel claimant is both fairly insubstantial and readily calculable in money terms. It is
likewise appropriate where the estoppel claimant’s expectations are uncertain, or extravagant, or out of all proportion to the
detriment which the claimant has suffered.

M I N I M U M E Q U I T Y R E L I A N C E L O S S E X P E C T A T I O N L O S S
• Sledmore v Dalby (rent-‐ • Commonwealth v Verwayen ($100 shed on $1m land) • Pascoe v Turner (grant of fee simple)
free over 18 years) • Jennings v Rice ($200K instead of grant of fee simple) • Goh Swee Fang (grant of 50%
• Chiam Heng Luan (low • Gillett v Holt (“it’s all yours” -‐ but only granted 1) proceeds/share of house)
rent over 50 years) • LS Investment v MUIS (all expenditure incurred)

[4] Menon JC in Hong Leong Singapore Finance Ltd v United Overseas Bank Ltd [2007] 1 SLR 292 adopting Jennings v Rice drew a
distinction between bargain cases and non-‐bargain cases. He also thought that the principle of proportionality is importance on the facts of
the case. In awarding damages, courts need to look at the proportionality between the detriment suffered in reliance as opposed to the
expectation interest that is claimed. In this case, Menon JC granted Yongnam’s expectation interest i.e. the ability to purchase at a particular
price and therefore Yongnam must pay the difference between the sale price and the value of the work they did.
• Developer Ban Hin Leong group tried to develop a property called Springleaf Tower but fell into financial difficulty. Bank, financiers
of Ban Hin Leong group, made a representation that they would give subcontractor Yongnam one floor of the building at a certain
favourable price if they did the steel works for free. Yongnam granted security to Hong Leong Finance on this representation.

4. TRANSFER OF PROPERTY SUBJECT TO A CONDITON

A conditional transfer takes the following form:
X has rights in property belonging to A
A transfers property to B
B knows of X’s pre-‐existing rights (and sometimes undertakes to protect X’s pre-‐existing rights)
Question is whether B is subject to X’s rights.
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[1] When such a situation arises in equity, courts have sometimes responded by declaring B as a constructive trustee for X. The English Court
of Appeal in Ashburn Anstalt v Arnold (CA) cited Lyus and held that ‘the court will not impose a constructive trust unless it is satisfied that
the conscience of the estate owner is affected’.

Rochefoucauld v Boustead [1897] Binions v Evans [1972 Lyus v Prowsa Developments Ltd [1982]
*first established the proposition • Trustees for estate sold • Bank exercised rights as mortgagee and sold land to
• C has rights in property, subject estate to Binions; contract Prowsa Developments, which included a clause that the
to a mortgage. was made subject to Evan’s sale was subject to Lyus’ rights
• Mortgagee sold property to D, rights to live in cottage rent-‐ • Prowsa, through solicitors, made express undertakings
who expressly undertook to free thus B paid less for • P later sold to another subject to Lyuses’ interest
hold property on trust for C property • Held: a constructive trust; the mutual intention
• Held: D is subject to C’s rights • 6 mths later, B tried to turn underlying the clause was to create something like an
even though undertaking was Evans, 79yo, out of cottage express declaration of trust. The court granted Mr and
not in writing, which was • Held (Lord Denning): Evans Mrs Lyus a decree of specific performance.
required under CLA (oral had contractual right to stay • It was fraudulent for Prowsa to deny the positive
undertaking). Language used by in house for life. stipulation // thus CT
court suggested that it will not Unconscionable to turn her • This is obviously a decision that depends on the specific
allow a state to be used to out of house, hence facts of the case. In other cases, the courts have
perpetuate a fraud constructive trust imposed declined to impose a constructive trust on what appear
to be similar facts.

[2] The difficulty in Singapore is that there appears to be a clash between a declaration of a constructive trust and the principle of
indefeasibility. Under Torrens jurisprudence a registered proprietor of land acquires paramount title to the land. However, a declaration of a
constructive trust in favour of a third party who is not the registered proprietor seems to derogate from the principle of indefeasibility.

Ho Kon Kim v Lim Gek Kim Betsy [2001] Overseas Bank Ltd v Bebe bte Mohammad [2006]
This decision can be said to support the view that constructive trust Disagreed.
claims may be accommodated within the Torrens land system.
Ho was an old widow who sold and conveyed her home which was
sitting on a large plot of land to Betsy. The plan was that Betsy should
subdivide the land into 3 lots and build a house on each lot. Betsy will
then transfer one of these houses back to Ho. The easiest solution to
protect Ho’s interest in the land was to lodge a caveat over the land
but for some reason it was not done. Betsy ran into financial
difficulties and mortgaged the land to RHB. Credit application stated
that one of the houses is meant for the original owner. Internal bank
memo and agreement also noted original owner’s interest. Property
was also valued at a lower price. Eventually Betsy was declared
bankrupt and the project was not completed. Ho commenced an
action against Betsy for breach of trust and against RHB.
• LP Thean JA applied Binions and Lyus and found the following Chan Sek Keong CJ said the “language of this subsection [s 46(2)(c) of
facts to be material: the Land Titles Act] seems to apply only to express trusts and not
o (a) RHB had knowledge of the agreement between constructive trusts”. Although the Chief Justice did not overrule
Betsy and Madam Ho; Betsy Lim, Chan CJ preferred to rationalise Betsy Lim as a case
o (b) RHB made an allowance in respect of Madam Ho’s which could be understood as an instance of Torrens fraud. In other
interest and discounted this interest in their words, Madam Ho’s interest prevailed over RHB because RHB’s
evaluation of the property; and conduct could be characterised as fraudulent within Torrens
o (c) in the agreement between RHB and Betsy, RHB jurisprudence.
acknowledge and committed themselves to honour
Madam Ho’s interest in the property.
• It would thus be ‘utterly inequitable’ to renege from their
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obligation. It was unconscionable (though not fraudulent or
dishonest) and equity will compel RHB to honour their obligation
and impose a constructive trust.

[3] Does a declaration of a constructive trust remain a possibility after United Overseas Bank v Bebe? THW argues that not all forms of
constructive trust claims (which arise in a myriad of circumstances) are inconsistent with indefeasibility of title. The key issue is to determine
whether the claim detracts from the general principle of indefeasibility.

C T / / W R O N G D O I N G þ C T / / P A I D V A L U E ý
• For example, constructive trusts which are declared on the basis of wrongdoing by the • However, the Torrens statute
defendant are not precluded by the Torrens statute. This is because indefeasibility of title was properly precludes a
never meant to protect the registered proprietor from his or her own wrongful conduct. constructive trust claim by a
• Indefeasibility of title was devised to protect the registered proprietor from a prior title-‐based plaintiff who seeks to vindicate
claim. his or her equitable title against
• On this analysis, constructive trusts which arise from situations such as commonly intended a registered proprietor who has
beneficial ownership or proprietary estoppel clearly do not detract from the principle of paid value. This is because such a
indefeasibility. Indefeasibility of title does not make the registered proprietor immune from claim is essentially a title-‐based
claims stemming from such conduct as the formation of a common intention to share property claim which detracts from the
with the plaintiff or the making representations to the plaintiff which the latter has relied on to principle of indefeasibility of title.
his or her detriment.
5. UNCONSCIONABLE CONDUCT (MISTAKEN PAYMENTS)

General note on difference between institutional and remedial constructive trust as per Lord Browne-‐Wilkinson in Westdeutsche:
• Under an institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise
to it: the function of the court is merely to declare that such trust has arisen in the past.
o The consequences that flow from such trust having arisen (including the possibly unfair consequences to third parties who
in the interim have received the trust property) are also determined by rules of law, not under a discretion.
• A remedial constructive trust, as I understand it, is different. It is a judicial remedy giving rise to an enforceable equitable
obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.

U K S I N G A P O R E
[1] In the case of a mistaken payment, the payer retains [1] A remedial constructive trust was a restitutionary remedy which the court, in
the equitable interest in the money and the conscience appropriate circumstances, gave by way of equitable relief. In order for a remedial
of the recipient is subjected to a fiduciary duty to constructive trust to arise, the payee’s conscience must have been affected, while
respect the payer’s proprietary right: Chase-‐ the money in question still remained with him: Ching Mun Fong v Liu Cho Chit
Manhattan. On this basis, the payer is entitled to trace (SGCA2001); Westdeutsche.
the money founded on a persistent proprietary interest. • Application: The relationship between Liu and Tan was wholly
• Application: CM paid a London bank twice. commercial, and there was no dishonest conduct on the part of Liu. It
The London bank became insolvent. Goulding was never intended by either party that the sum paid should be kept,
J suggested that a constructive trust may be and it had never been kept, distinct as an identifiable fund. No remedial
declared and he premised this on a constructive trust could and should be imposed on the facts of this
proprietary analysis. case.
• However, this is inconsistent with English law • Note: Did not rely on Chase-‐Manhattan at all.
on passing of title. In most cases, especially
when dealing with money, both legal and [2] If the payee learned of the mistake only after the money had got mixed with
equitable title will pass upon handing over the other funds or dissipated, no constructive trust in respect of the money could
money even if you are paying on mistake. arise. That was because there would no longer be an identifiable fund for the trust
to bite.
[2] Criticised by Westdeutsche and re-‐interpreted the • Application: In this case was that the payment was not kept separate as
rule such that a constructive trust may be declared a discrete fund.
-‐ Page 67 of 86 -‐


when you possess the information that the money was
wrongfully paid to you. A constructive trust is declared [3] Other vitiating factors? Attempt to extend the mistake doctrine leading to
at the moment you have prerequisite knowledge: constructive trust to other categories of vitiating factors such as total failure of
Westdeutsche. consideration i.e. Ching Mun Fong failed.
• This interpretation is affirmed locally in Re
Pinkroccade Educational Services Pte [4] Re Pinkroccade (SGHC2002) followed Westdeutsche’s re-‐interpretation of
Ltd [2002] and applied in Ching Mun Fong. Chase-‐Manhattan as an unconscionability analysis.
• Lord Browne-‐Wilkinson in Westdeutsche • Application: The persons in effective control of the company (the KPMG
Landesbank Girozentrale v. Islington officers) had knowledge that the moneys were paid by mistake before
LBC. [1996] A.C. 669 held that the result in the winding-‐up resolution was passed.
Chase-‐Manhattan Bank was correct but did • The moneys are an identifiable fund in a separate account that is not
not approve of the passing of title analysis. mixed with the other funds of the company. This last fact puts it in a
Instead, he used an unconscionability analysis stronger position than the Chase Manhattan case where there was no
when he said that when the money was paid, finding that the money was not mixed by the time the mistake was
the London bank knew of the mistake two notified to the defendant two days after the payment
days later and it is unconscionable on their
part to retain the money.
***Note: If using Chase/Wesdesutsche then advice client to inform the
other party whom mistaken payment was made to, so now that that party
knows it is unconscionable for him to keep it.

**Whether FUNDS HAD BEEN MIXED OR NOT is an important factor in court’s
decision in choosing between the competing considerations of commercial
certainty and fairness.

6. BREACH OF CONFIDENTIAL INFORMATION

[1] A constructive trust is available as a relief for an action for breach of confidence EVEN IF NO FIDUCIARY DUTY WAS PRESENT: LAC
Minerals v International Corona Resources (CanadaSC1989) (weak authority, can argue both sides)
• Facts: Lac Minerals Ltd ('Lac') was a senior mining company, whereas International Corona Resources ('Corona') was a junior mining
company. Corona provided confidential information to Lac pertaining to the core drilling results conducted on the property owned
by Mrs Williams (the 'Williams' property') on an informal oral understanding as to how each would conduct itself in anticipation of a
joint venture between both companies. In breach of confidence, Lac placed an independent offer for the Williams' property and
succeeded in obtaining the property. The Williams' property turned out to be extremely valuable and was valued up to Can $1.95
billion. Corona sued for a breach of confidence and fiduciary duty.
• Held: The majority 8 thought that while there was an obligation of confidence, there was no fiduciary obligation owed by Lac to
Corona. With regard to the relief available, the majority, La Forest, Lamer and Wilson JJ, decided that Lac held the Williams property
on constructive trust for Corona.
• Majority:
o (a) this was a case of wrongful interception: Lac had intercepted the Williams' property that would have otherwise been
acquired by Corona. But for Lac's breach of confidence, Corona would have obtained the Williams' property"
o (b) the constructive trust was declared to protect the 'institution of bargaining in good faith'. It is a deterrent against the
breach of such a duty'
§ ý It is doubtful that an English court would view this argument kindly. It is beyond the scope of this paper to
investigate the issue of whether the law should recognise good faith in pre-‐contractual negotiations. Suffice to
say, English law does not recognise the 'institution of good faith'40 in bargaining (save for insurance contracts) as
demonstrated by the decision in Walfordv Miles.4' The House of Lords held that an agreement to negotiate had
no legal content. Lord Ackner forcefully said that: 'A duty to negotiate in good faith is as unworkable in practice
as it is inherently inconsistent with the position of a negotiating party. It is here the uncertainty lies.'42 Thus, this
justification for imposing a constructive trust would probably not find favour in an English court.
o (c) the Williams' property was a specific and unique property; it was virtually impossible to value the Williams’ property
accurately because profitability of the mine dependent on range of factors, thus monetary reward would be unfair and
unjust
-‐ Page 68 of 86 -‐


§ Proceeds upon an analogy with a purchaser who had contracted to buy land. It is textbook law that the vendor
who has entered into a contract for sale of land holds the land as a constructive trustee for the purchaser due to
the perceived inadequacy of damages as a substitute for the performance of the contract.
o (d) an action for breach of confidence was very similar to a breach of fiduciary duty. If a constructive trust could be
declared for the latter, then it would be anomalous that a constructive trust not be delcared for a breach of confidence
§ ý Rejected by THW: substantial differences; sui generis action
o (e) it would be unconscionable for LAC to retain the property
• Analysis (THW: Confidence and the Constructive Trust):
o Reasoning by majority unconvincing. While an order for specific restitution for a wrongful interception of a unique
property may be defensible, there appears to be no reason why priority in insolvency should be granted to a claimant for
an abuse of confidence.

[2] Alternatively, base arguments on UNCONSCIONABILITY or BREACH OF FIDUCIARY DUTIES
• Breach of fiduciary duty: conflict of interest / unauthorised profits
o Used Boardman v Phipps so misusing corporate opportunities
§ Lord Upjohn said that CONFIDENTIAL INFORMATION was not 'property in any normal sense, but equity will
restrain its transmission to another if in breach of some confidential relationship'.
o IDC v Cooley case
§ Breach continues even after fiduciary relationship has been determined

7. PALLANT V MORGAN EQUITY

E S P E C I A L L Y R E L E V A N T I N C A S E S O F J O I N T V E N T U R E S

[1] Two elements to a Pallant v Morgan equity:
1. There must be an arrangement that one party will acquire the property concerned.
a. Arrangement need not be contractually enforceable.
2. Reliance on the arrangement by the non-‐acquiring party.
a. This is not detrimental reliance. It suffices to show that the acquiring party had an advantage in acquiring the property
because the non-‐acquiring party did not compete or that the claimant had been prejudiced in acquiring the property in
equal terms.
3. [*] Premised on the idea that allowing a defendant in an action for specific performance to rely upon the uncertainty of an
agreement would be tantamount to sanctioning a fraud
4. Facts: The agents of two neighbouring landowners agreed in an auction room immediately before an auction sale of land that the
plaintiff's agent should refrain from bidding and that the defendant, if his agent was successful, would divide the land according to a
formula agreed between the agents, which, however, left certain details to be agreed later. Morgan having purchased refused to
perform his part and set up the uncertainty of the part to be ceded as grounds for refusal.

B A N N E R H O M E S G R O U P P L C V L U F F D E V E L O P M E N T S L T D ( U K C A 2 0 0 0 )
Law (explaining Pallant v Morgan) Facts & Application
• Facts: Luff Developments and Banner Homes reached an

SIGNIFICANCE: Banner Homes is thus invoked where parties
agreement in principle to acquire a particular site through a new
had been in commercial negotiations over the acquisition of
property but negotiations had failed so that there was no legally company, which they agreed they would own in equal shares.
enforceable agreement. Subsequently, Luff Developments had second thoughts about
the joint venture, but did not inform Banner Homes of its
doubts. It did not do so because it was afraid that Banner Homes
Chadwick LJ explained the essential elements of a Pallant v would also bid for the site if the joint venture fell through. After
Morgan equity: Luff Developments acquired the site through its wholly owned
• a pre-‐acquisition agreement; not necessarily contractually subsidiary, it informed Banner Homes that it was withdrawing
enforceable; from the proposed joint venture.
• contemplating that one party (‘the acquiring party’) will take • Held: The Court of Appeal invoked the Pallant v Morgan
steps to acquire the relevant property and that the other party equity and declared that Luff Developments held the shares in
(‘the non-‐acquiring party’) will have some interest in the the subsidiary equally for itself and Banner Homes.
-‐ Page 69 of 86 -‐


property if it is acquired;
• the acquiring party must not have informed the non-‐acquiring • Application: L had secured an advantage because B had
party, before it is too late, that it no longer intends to honour refrained from seeking to acquire the site. It did not matter that
the arrangement or understanding (‘too late’ meaning either the terms of the shareholders’ agreement had not been finalized
before the date of the acquisition or, possibly, before it is too even though it had been anticipated that the acquisition would
late to undo the advantage / detriment caused by the non-‐ be in the name of the joint venture. It was not inequitable for
acquiring party’s reliance on the arrangement or understanding); the joint venture company to retain the property for itself.
• the non-‐acquiring party’s reliance on the arrangement or Rather, it was unconscionable for L to be allowed to enjoy sole
understanding must either have conferred an advantage on the beneficial owner of the joint venture company; L held the shares
acquiring party in relation to the acquisition of the property or of the company (Stowhelm) as to one half on constructive trust
imposed a detriment on the non-‐acquiring party in terms of its for B.
ability to acquire the property on equal terms.
o It is this presence of either or both of the advantage
or detriment that makes it unconscionable for the
acquiring party to resile from the arrangement or
understanding.

[2] In a recent judgment the English CA suggested that the Pallant v Morgan equity is not a unique category but is simply an instance of a
common intention constructive trust: Crossco No.4 Unlimited & Ors v Jolan Ltd & Ors [2011] EWCA Civ 1619
• But is this a justified rationalisation of the common intention constructive trust?
• A typical common intention constructive trust arises in the context of co-‐habiting couples. Can we also use the common intention
constructive trust in the context of two commercial parties?
• The judgment contains a detailed analysis of the jurisprudential basis for a Pallant v Morgan equity which may be of more interest
to academic lawyers than practitioners. However, it may also indicate an inclination on the part of the courts to restrict the number
of situations in which common intention constructive trusts will be found. This would be consistent with the stricter approach
being taken in relation to proprietary estoppel.

8. TRACEABLE EQUITABLE PROPRIETARY INTEREST

In Foskett v McKeown [2001] 1 AC 102 the fiduciary was given some monies by a group of beneficiaries to invest in a purchase of land. The
fiduciary in question misappropriated the money belonging to the beneficiaries and he used it to purchase an insurance policy on his own life
before he committed suicide so that his next-‐of-‐kin would receive the insurance pay out of 1 million pounds.
• If you can show a pre-‐existing equitable title in the property which is in the hands of a third party and that the third party holds the
property in a segregated/discrete fund, you may ask the courts to declare a constructive trust to vindicate your equitable title.
• Tracing question – what is the QUANTUM of monies that may be claimed by the beneficiaries? Are they allowed to claim only what was
taken from them or can you claim a proportion of the insurance pay out?

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PERSONAL LIABILITY AS A CONSTRUCTIVE TRUSTEE
G E N E R A L
[1] Previous topics have been about a beneficiary’s remedies against a trustee in breach of trust/ fiduciary duties. This is about a third party/
stranger’s liability for his role in the breach. This is significant when:
(i) Trustee (T) is insolvent and Stranger (S) may have deeper pockets
(ii) Beneficiary (B) may enjoy equitable remedies – that sometimes may be proprietary.

[2] Proprietary remedies: Knowing Receipt (KR) / Dishonest Assistance (DA) does not always provide a proprietary remedy. The rationale
behind a proprietary remedy is that the 3rd P is not a bona fide purchaser for value without notice – hence he gets legal title but holds it
subject to B’s equitable interest.
rd
• Thus, conditions for a proprietary remedy to be imposed against a 3 P:
rd
o 3 P must have received trust property
rd rd
o 3 P must not have dissipated trust property (ie. no more asset in 3 P’s hands)
§ Note that dissipation is not the same as transforming the asset into another form/mixing. Such can be saved by
the rules of Tracing (see next topic).
• When a personal, as opposed to proprietary, remedy is granted, the trustee is said to “account as constructive trustee”.
o Note that the order to account is fault-‐based.

C A U S E S O F A C T I O N
(1) Trustee de son tort (2) Knowing Receipt (KR) (3) Dishonest Assistance (DA)
What is it? S takes it upon himself to act S receives trust prop + knows it is trust prop S dishonestly participates in a BOT
as a trustee. committed by the Ts
Liability - Liable as if here were - A CT will be imposed over trust prop in his - Liable personally for any loss
the real trustee hands suffered by trust
- Primary Liability - If dissipated, liable personally for value of - Secondary liability
prop
- Primary Liability
Proprietary Yes Yes No

1. KNOWING RECEIPT
The essential requirements of knowing receipt were stated by Hoffmann LJ in El Ajou v Dollar Land Holdings plc (UKHL1994): 1) Disposal
of his assets in breach of fiduciary duty, 2) beneficial receipt by the defendant of assets which are traceable as representing the assets of the
plaintiff, and 3) knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty

3 E L E M E N T S T O K R
Disposal of claimant’s assets in breach of Beneficial receipt by defendant of assets which are
Fault element
trustee/fiduciary duty traceable to the claimant
Some cases have established that a breach of This effectively exempts receipt of property received The third element, up for
fiduciary duty will also suffice in satisfying this ministerially e.g. banks and agents who receive contention, is the degree of fault
element. This extends liability to breaches in the property for their clients. If you receive merely as an required on the third party’s part
realm of a company e.g. directors (cf Belmont agent, like a bank, you are not liable to account before he is liable for knowing
Finance where KR established for breach of dir under knowing receipt. receipt.
duties). Hence if you are fighting for a director,
you will try and limit this element and say that However, if the bank or agent behaves dishonestly, 1. Dishonesty
knowing receipt is only for breaches of trust, not there may be liability under dishonest assistance. 2. Unconscionability
breaches of fiduciary duties.
-‐ Page 71 of 86 -‐


3. Strict liability

FAULT ELEMENT
TRADITIONAL – DISHONESTY MODERN – UNCONSCIONABILITY
Although the cause of action is framed as “knowing” receipt, the In Belmont Finance, dishonesty has been held not to be a
degree of knowledge is traditionally drawn quite high such that it necessary prerequisite of knowing receipt cases.
almost akin to dishonesty: Carl-‐Zeis Stiftung v Herbert Smith
(1969). Subsequently, the degree of fault required to establish liability has
• Gross negligence is insufficient been lowered to that of unconscionability: BCCI v Akindele (2002).
• Dishonesty stemming from having actual knowledge or Affirmed in Singapore in David Rasif (SGCA2010).
Nelsonian knowledge (willful blindness)

This was supported in Re Montagu’s Settlement Trust (1987),
where it was held that constructive notice or mere negligence is
insufficient, and that actual knowledge is needed to succeed.

L I A B L E N O T L I A B L E
Actual knowledge or wilful blindness: Comboni No strict liability: David Rasif
To constitute wilful blindness, it must be proved that knowing recipient suspects the relevant
facts exist but makes a deliberate decision to avoid confirming that they exist
Constructive notice based on unusual commercial practice: David Rasif re-‐interpreting Negligence or lack of knowledge: Comboni
Akindele
• Courts would not readily import a duty to inquire in commercial transactions, but
this does not mean that commercial man could “plead the shelter of the exigencies
of commercial life” if there is no justification on known facts: Westpac Banking
• A commercial recipient may only be put on inquiry if the facts immediately known
to him make it glaringly obvious that some impropriety is afoot
• (Bonus) Furthermore, recent changes to UK’s Money Laundering Regulations
2007 in mid-‐Febrary this year has placed the onus on businesses in financial sector
to conduct appropriate levels of customer due diligence. Hence, it may no longer
be a defence to say that merchants are not expected to make searching inquiries
since there is now a statutory obligation to do so. Whether Singapore adopts these
practices remain to be seen, but given our anti-‐fraud, pro-‐commerce position as a
leading financial hub, it is likely that we may gravitate towards a similar position.
Failure to appreciate: David Rasif Gross negligence will not suffice: Carl Zeiss
• There is “failure to infer” when a person who knows all the facts relevant to a given Stiftung. There has to be ‘want of probity’:
matter, but who fails to appreciate their factual or legal significance. It is not a Comboni; David Rasif.
facet of constructive notice but of knowledge, because the doctrine of notice is • But caveat: not every situation
'wholly founded on the assumption that a man does not know the facts.' where probity is lacking necessarily
• It is not a failure to inquire that causes the person to be bound or liable, but a gives rise to a constructive trust
failure to appreciate or infer. (David Rasif)
• Example: where the chairman knew of the facts which made the arrangement
illegal even if he believed it to be a good commercial proposition and had sought
legal advice; accordingly there was sufficient knowledge attributed to ground
liability in knowing receipt: Belmont Finance Corp v Williams Furniture Ltd
• Example: David Rasif where the court held that even though the rules governing
a solicitor's use of a client's account were not known to all, the fact that it was an
account belonging to the solicitor's clients and not the solicitor had to have been
plain to a sophisticated businessman such as Ho. Yet, no questions were asked
about why such funds were used.
-‐ Page 72 of 86 -‐


Knowledge not static, will know of fraud by end of trial: Comboni Time of knowledge or fault – See Re
Montague ST where there is liability only if
However, a person who disposes of the asset upon being aware of the fact would be the recipient had the requisite level of
personally liable (see Wesdeutsche). knowledge when he received or dispose of it.
Hence, not liable if he had been aware prior
to receipt but forgotten about it.
• In re Montagu ST: release of
chattels by trustee solicitor to
th
defendant 10 Duke was a breach
of trust but Megarry VC held that
the tenth duke did not have any
knowledge of the breach and that
there was no reason why his
solicitor's knowledge should be
imputed to him so as to affect his
conscience, nor did his failure to
inquire give rise to the imposition of
a constructive trust.
Imputed knowledge (knowledge of fraudulent chairman imputed on to company; piercing of
corporate veil) : El Ajou
• Court of Appeal that F was actively involved in concluding the relevant transactions
in question and that the directing mind and will of the DLH in relation to the
relevant transactions at the material time were the mind and will of F and no other.
Therefore, DLH had the requisite knowledge through F at that time, and was liable
to the plaintiff in constructive trust.
In the commercial context, irrationality in relying on an agent’s authority, which is a

common law standard, refers to the same standard as unconscionability in the receipt or
retention of property traceable to a breach of trust: Lord Neuberger in Thanakharn v Akai.
OTHER FACTORS TO BE CONSIDERED
PERSONAL ATTRIBUTES – see Royal Brunei COMMERCIAL TRANSACTIONS TIME OF KNOWLEDGE OR FAULT – See Re Montague ST
Airlines v Tan, where the PC held that in – See RBA v Tan for the level where there is liability only if the recipient had the
determining if a person acted dishonesty, the of enquiry for commercial requisite level of knowledge when he received or dispose
court should have regard to the personal transactions: whether of it. Hence, not liable if he had been aware prior to receipt
attributes of the person concerned, including commercially unacceptable but FORGOTTEN about it.
experience and intelligence. conduct was present in the
particular context involved However, a person who disposes of the asset upon being
aware of the fact would be personally liable (see
Wesdeutsche).

Comboni: “Party’s state of knowledge was not static and it
might change. By the end of the trial, the defendant must
have known that the remittances were tainted by fraud. If it
still did not know then, it must know it now in view of this
decision.”

R E M E D I E S F O R K N O W I N G R E C E I P T
[1] Liability to restore the properties immediately (restore property in specie; or current monetary value of the property)
• Since the recipient is under a primary restorative duty, the claimant need not show that he breached his duty by failing to return the
property (property brings obligation?)
• Note that the basis for liability will affect the extent of damages:
-‐ Page 73 of 86 -‐


o Unjust enrichment – value at receipt
o Knowing receipt – current monetary value

[2] Proprietary: For a claim in knowing receipt, if the defendant retains the propery, an in rem remedy would be available. The defendant can
also be liable in personam. The difference between proprietary and personal remedies for knowing receipt was distinguished in Ultraframe
(UKHC2005) where the court stated that proprietary remedies depend on retention of trust property by the recipient while personal
remedies do not depend on such retention.
• Volunteer: will hold trust property or traceable proceeds on constructive trust for the beneficiary (even if without knowledge of
breach). But there will be no personal claim against an innocent volunteer.
rd
• 3 party with valuable consideration: will hold trust property or traceable proceeds on constructive trust for the beneficiary (if
sufficient knowledge to affect conscience); possible knowing receipt or dishonest assistance depending on facts.
• Equity’s darling: hold property free of any interests; no personal claim against innocent volunteer.
• ANALYSIS: While cases such as Sinclair and Ultraframe show that English judges tend to prefer personal remedies and are less
willing to grant remedies that are proprietary in nature, Singapore judges, on the other hand, seem to have less qualms in awarding
proprietary remedies as seen in Comboni.

rd
[3] Personal: If a 3 party receives trust property or traceable assets in breach of trust and subsequently dissipates it, the beneficiary can claim
a personal remedy. The liability is fault-‐based i.e. his conscience will only be affected if there is sufficient knowledge to render it inequitable to
act otherwise.
Quantum of damages for EQUITABLE COMPENSATION

In Thanakharn, a director of P had, in breach of fiduciary duties and lacking P’s authority, pledged certain shares certificates belonging to P
to D as security for a loan. P claimed against D in knowing receipt. Significantly, in deciding the quantum of the equitable compensation, the
court cited Target Holdings for the need to establish that the loss would not have occurred but for the breach of duty by the defendants.
The court then held that the quantum should be fixed at the date the bank sold the shares, even if the liability for knowing receipt arose some
18 months earlier on the date of receipt. This is because until the Shares were actually sold, it was always open to Akai to recover them from
the Bank. Thus, one interpretation of the case is that value of the property to be restored must still be assessed, but this is not necessarily
the value of the property at the time of receipt.

U N J U S T E N R I C H M E N T A S A S E P A R A T E C L A I M
It is possible to characterise the same fact pattern as an action in either knowing receipt or unjust enrichment. Say that such arguments have
received judicial support from strong dicta from Law Lords such as Lord Nicholls and Lord Millet, as well as extra-‐judicial support.
KNOWING RECEIPT (UNCONSCIONABILITY) UNJUST ENRICHMENT (STRICT LIABILITY)
1. Disposal of his assets in breach of fiduciary duty 1. Was the defendant enriched?
2. Beneficial receipt by the defendant of assets which are traceable 2. Was the enrichment at the plaintiff’s expense?
as representing the assets of the plaintiff 3. Is there a ground for restitution on the facts of the case i.e. was
3. Knowledge on the part of the defendant that the assets he there an unjust factor?
received are traceable to a breach of fiduciary duty a. Undue influence
b. Total failure of consideration
c. Mistake of law and fact
d. Possibly the free acceptance of benefit while there had
been a reasonable opportunity to reject it
e. Ignorance (Birk’s)
f. It has to be legally recognised. Some categories are still
being developed. Most well-‐developed factor from
which law of unjust enrichment was born is MISTAKE
4. Are there any defences? Primary defence in an unjust
enrichment claim is that if the defendant has changed his or her
position in good faith, it is a complete defence but the change of
position has to be in good faith. [Note: Prior to Lipkin Gorman,
you had no defence.]
-‐ Page 74 of 86 -‐

a. Defence not available to money spent in ordinary
course of things: The mere fact that the defendant has
spent the money, in whole or in part, does not of itself
render it inequitable that he should be called upon to
repay, because the expenditure might in any event
have been incurred by him in the ordinary course of
things.
IN PRACTICE: Although the cases have established in accepting that knowing receipt is premised on unconscionability and not unjust
enrichment, the point is that as a matter of practice, litigants are claiming in most situations, or framing their claims, both in knowing receipt
and unjust enrichment.
SUBSTANTIVE SIGNIFICANCE: It is possible to view the disparate doctrines as a matter of whom the onus of burden of proof rests on. For
knowing receipt, plaintiff first has to prove that the defendant act is unconscionable (defendant was at fault); for unjust enrichment, (once
plaintiff established the framework), defendant has to prove that he changed position in good faith (he was not at fault). Hence, for both
claims, arguments will likely be over the same facts and the main difference is on the burden of proof.
• SAY THAT EXACTLY SAME RESULT WILL BE REACHED EXCEPT FOR BURDEN OF PROOF.
In, Comboni Vincenzo v Shankar’s Emporium (Pte) Ltd [2007] THW suggests that this ought to have been characterised as an
2 SLR 1020, C was duped by a scam into thinking they were paying unjust enrichment claim instead of a knowing receipt or remedial
insurance bonds. Shankar’s Emporium (SE) still had $100K at time of constructive trust claim. It falls within the classic core example of an
trial. C claimed that an express trust was declared in favour of C. unjust enrichment claim.
Alternatively, they sued SE for KR. • Comboni had made payments under a mistake which is a
• Held: rejected C’s claims but granted them judgment for clear unjust factor.
$100k based on KR because the sum was tainted by fraud. • Shankar Emporium entitled to argue the defence of change
• Contrived reasoning: “The defendant had no knowledge of of position in good faith.
the fraud when it received this sum, and did not receive it • If defence fails, they must pay Comboni.
as a constructive trustee. However, a party’s state of
knowledge was not static and it might change. By the end
of the trial, the defendant must have known that the
remittances were tainted by fraud. If it still did not know
then, it must know it now in view of this decision.”
Decision in Akindele criticised in Criterion Properties (2004) by • He said that the true analysis is that if company A contracts with
Lord Nicholls, a person who is persuaded by the unjust enrichment B, A’s ability to recover contractual benefits from B depends on
reasoning, attacked the unconscionable receipt analysis suggested by whether the agreement is binding on A. His analysis is that BCCI
Nourse LJ (see below for facts). v Akindele was not a knowing receipt case but a question of
authority granted to the directors of ICIC.
• [AGENCY] If the ICIC directors had no authority to enter in the
contract and the fact was known to Akindele then the contract
may be rescinded and therefore all resultant effects of payments
made pursuant to the contract will follow from the rescission of
the contract i.e. all payments made pursuant to the contract
must be paid back.
• [UNJUST ENRICHMENT] Additionally, and irrespective of
whether B still has the assets in question, A will have a personal
claim against B for unjust enrichment, subject always to a
defence of change of position. B's personal accountability will
not be dependent upon proof of fault or 'unconscionable'
conduct on his part. B's accountability, in this regard, will be
'strict'.
• Significance: Approved of the unjust enrichment method of
claim – but does not go as far as to say that KR is based on UE.
UE is simply a separate ground to claim.

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K N O W I N G R E C E I P T A N D A G E N C Y
Thanakharn Kasikorn Chamkat (Mahachon) v Akai Holdings Ltd [2010] HKEC 1692 accepted the BCCI v Akindele test and held that
there was no inconsistency between a knowing receipt claim and an apparent authority claim. This parallels Lord Nicholls’ criticism of
Akindele in Criterion, where he stated that the true analysis is that if company A contracts with B, A’s ability to recover contractual benefits
from B depends on whether the agreement is binding on A. His analysis is that BCCI v Akindele was not a knowing receipt case but a
question of authority granted to the directors of ICIC.
Decision in Akindele criticised in Criterion Properties (2004) by • He said that the true analysis is that if company A contracts with
Lord Nicholls, a person who is persuaded by the unjust enrichment B, A’s ability to recover contractual benefits from B depends on
reasoning, attacked the unconscionable receipt analysis suggested by whether the agreement is binding on A. His analysis is that BCCI
Nourse LJ (see below for facts). v Akindele was not a knowing receipt case but a question of
authority granted to the directors of ICIC.
• [AGENCY] If the ICIC directors had no authority to enter in the
contract and the fact was known to Akindele then the contract
may be rescinded and therefore all resultant effects of payments
made pursuant to the contract will follow from the rescission of
the contract i.e. all payments made pursuant to the contract
must be paid back.
• [UNJUST ENRICHMENT] Additionally, and irrespective of
whether B still has the assets in question, A will have a personal
claim against B for unjust enrichment, subject always to a
defence of change of position. B's personal accountability will
not be dependent upon proof of fault or 'unconscionable'
conduct on his part. B's accountability, in this regard, will be
'strict'.
• Significance: Approved of the unjust enrichment method of
claim – but does not go as far as to say that KR is based on UE.
UE is simply a separate ground to claim.

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2. DISHONEST ASSISTANCE
The elements of a claim in dishonest assistance are: (a) the existence of a trust; (b) a breach of that trust; (c) assistance rendered by the third
party towards the breach; and (d) a finding that the assistance rendered by the third party was dishonest: George Raymond Zage III
(SGCA2010).

E L E M E N T S O F D I S H O N E S T A S S I S T A N C E
Existence Breach of trust or Defendant must have procured/assisted the breach of trust or Defendant must have acted
of a trust fiduciary duty fiduciary duty dishonestly
In Brinks Ltd v Abu-‐Saleh (No [1] Trustee/fiduciary need not have acted dishonestly despite the • Objective test (Royal
3) [1996] CLC 133 at 151 Rimer J breach of trust or fiduciary duty. Liability is based on fault on the part Brunei; Barlow
expressed the opinion that a of the accessory. Clowes; George
person cannot be liable for • Provided it is established that the breach caused the loss, there is Raymond Zage)
dishonest assistance in a breach no need to prove a causal link between the assistance and the • Subjective test
of trust unless he knows of the loss. (Twinsectra)
existence of the trust or at least • Claimant must at least show that the defendant’s actions have

the facts giving rise to the trust. made the trustee/fiduciary’s breach of duty easier than it would
But their Lordships do not agree.
otherwise have been. But the causation requirement for dishonest
Someone can know, and can What is the objective test?
assistance is no stronger than this, and it is no answer to a claim,
certainly suspect, that he is
for example, that the claimant’s loss would have occurred anyway,
assisting in a misappropriation because the wrongdoing fiduciary would have committed the
of money without knowing that breach even if the defendant had not assisted him.
the money is held on trust or
o Thus a defendant can be liable for actions or omissions
what a trust means: see
which precede the commission of the breach.
Twinsectra Ltd v Yardley
o However, he cannot be liable if his actions or omissions
(Lord Hoffmann & Lord Millett).
And it was not necessary to only occurred AFTER the breach was FULLY implemented.
know the 'precise involvement'
of Mr Cramer in the group's
affairs in order to suspect that [2] Assistance requires actual participation: George Raymond Zage
neither he nor anyone else had III and another v Rasif David and others held that assistance
the right to use Barlow Clowes requires active assistance and not passive receipt. The jeweller was a
money for speculative passive recipient, thus dishonest assistance was held to be inapplicable.
investments of their own. • The law thus distinguishes between malfeasance and
nonfeasance.
• BUT the line to be drawn is a fine one. CAN ALWAYS RE-‐
CHARACTERISE ACTION AS ACTIVE PARTICIPATION OR
PASSIVE RECEIPT
• Cf Brinks Ltd v Abu-‐Saleh (No 3), where wife was held not
liable since she did not “actively participate” because she was
just in the car
• Pearce criticise the passive/active participation point

KL: Jewellers were not just passively awaiting the receipt of money; they
were actively trying to sell diamonds. What they had done, one could
say, is become actively involved (they would arguely innocent whereas
judge held them to have guilty knowledge) in assisting David Rasif get
his hands on the money in getting it out of the jurisdiction. He started
off with chose in action, with his control over law firm’s client bank
account. Ended up with diamond and some cash. Hence, he did get
some assistance from jewellers.
• Just not so sure if this principle is so easily applicable in
Raymond Zage III
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T H E O B J E C T I V E T E S T O F D I S H O N E S T Y
[1] In determining whether defendant acted dishonestly, recent judicial trends point towards an objective test which takes into account
personal characteristics: Royal Brunei Airlines; Barlow Clowes; Abou-‐Ramah and another v Abacha. Adopted in Singapore: George
Raymond Zage.
• Barlow Clowes re-‐interpreted Twinsectra to mean that an objective test of dishonesty should be adopted.
• In Abou-‐Ramah, Treacy J at first instance appeared to have adopted the Barlow Clowes reinterpretation of Twinsectra – a
subjective appreciation that one’s conduct was dishonest by normally acceptable standards was not required. On appeal, however,
the correct interpretation of Twinsectra as a matter of English law has been put in some doubt. However, each of the judges had
something different to say.

[2] How does court take into account personal characteristics? E.g. if you’re in professional capacity such as lawyer, easier to find dishonesty.

DISHONEST NOT DISHONEST
Deceit: Honest people do not intentionally deceive others to their Carelessness or negligence: is not dishonesty (requires conscious
detriment as per Royal Brunei. impropriety) as per Royal Brunei.
• In Royal Brunei, P appointed BLT as its agent and D was
the managing director and principal shareholder of BLT. In
breach of trust, BLT used the money for its own purposes
and did not pay it to P. Held that D was liable because he
caused BLT to used money for its own purposes when he
knew it was not entitled to do so, thus amounting to
dishonesty.
But imprudence carried to reckless lengths may call into question the Imprudence: (without recklessness or self interest) is not dishonesty:
honesty of the person making the decision. Royal Brunei; Banque Nationale de Paris v Hew Keong Chan
• This is especially so if the transaction serves another Gary (SG2003). All investment involves risk.
purpose in which that person has an interest of his own.
To reduce risks, defendant should (as per Royal Brunei)
Knox J stated that in a case with a commercial setting, person guilty 1. Flatly decline to become involved
of commercially unacceptable conduct would be considered 2. Ask further questions
dishonest: Cowan de Groot Properties Ltd (1942). 3. Seek advice or insist on further advice being obtained
4. Advise trustee of the risks involved before proceeding with
his role in the transaction
Knowledge: Honest people do not knowingly take others’ property. Association per se: is not dishonesty: Caltong (Australia) Pty Ltd
Unless there is a very good and compelling reason, an honest person v Tong Tien See Construction Pte Ltd (SGCA2002)
does not participate in a transaction if he knows it involves a • In that case, the appellant was merely a nominee director
misapplication of trust assets to the detriment of the beneficiaries: of Caltong and played no role in remitting sums to Caltong.
Royal Brunei. This association per se could not mean that she would also
know what was done by the Tongs as far as siphoning of
TTSC's moneys to Caltong was concerned. In short, there
was nothing to implicate Sally to the wrongdoings.
Wilful blindness: Nor does an honest person in such a case Motive: lack of motive may help courts infer that defendant was not
deliberately close his eyes and ears, or deliberately not ask questions, dishonest (Lai J in Banque Nationale affirming Lord Nicholl’s
lest he learn something he would rather not know, and then proceed statement in Royal Brunei in the context of taking risks)
regardless. • Lai J observed that Lord Nicholl’s statement suggests that
• See Agip (Africa) Ltd v Jackson (accounting case) where the court in deciding the liability of dishonest assistance
court held that wilful blindness or indifference in the face of would look at the motive which lies behind the defendant’s
obvious money laundering constituted a fraudulent breach act or ommission.
of duty. • If he stands to gain something, the “touchstone” of
o Decision also based on the fact that defendants dishonesty is probably triggered as an ingredient
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were professional men constituting the equitable wrong of a dishonest accessory.
• In Barlow Clowes, it was found that the respondent knew • On the other hand, if he is driven by ties of kinship,
enough about the origins of the money to have suspected compassion, altruism or an exaggeratedly credulous or
misappropriation and that he acted dishonestly in assisting trusting nature or disposition, I do not think that such
in its disposal. The first instance judge further found that traits or shortcomings, however lamentable, amount to
after June 1987 Henwood “strongly suspected” that the dishonesty in the context of accessory liability.
monies passing through ITC had come from private British
investors. Consequently it was held that no honest person
could have assisted Peter Clowes and Cramer if those
suspicious were correct. Henwood has “consciously
decided not to make inquiries because he preferred in his
own interest not to run the risk of discovering the truth”.
Privy Council affirmed the findings and allowed the appeal.
Recklessness: Acting in reckless disregard of others’ rights or possible Policy: finding of dishonesty is grave against professionals as it may
rights can be a tell-‐tale sign of dishonesty as per Royal Brunei. effectively cripple defendant’s career and that such a result is often
disproportionate to the wrong committed (Lord Hutton’s concern in
Twinsectra, which was not addressed in Barlow).
• Lai J in Banque Nationale addressed such concerns by
bringing up motive and gain as factors to assist judges in
justifying their findings
Overzealousness in acting on client’s instructions: is dishonest: Nature of trade: Woo J in Raymond Zage rightly emphasised that
Barlow Clowes. If you ought to have known better, it is no excuse to considerations of the nature of the trade are essential in preventing
say that you’re following instructions. judges from imposing liability too readily just because profit margin
seems high or deal appears unusual.
• þ For the palm olein industry in Malaysia International,
court found that neither factor was significant as the deals
were large because the parties were eminent
corporations.
• ý For the shipping industry in Bansal, it was a stark
deviation from standard shipping procedure to obtain
goods before making any payment which should have
alerted recipient that something was amiss
• Such judicial sensitivity to unique fact situations ensures
that liability is not unduly imposed where it does not reflect
the commercial realities of a particular industry, thus
PREVENTING ACCESSORY LIABILTIY FROM PARALYSING
TRADE.

R E M E D I E S F O R D I S H O N E S T A S S I S T A N C E
Accessory liability: It depends on the liability of the trustee:
• If the trustee is liable for substitutive performance of his obligations, the assistant is liable jointly and severally
• If the trustee is liable for reparatory liability – the assistant is liable for the same measure of compensation.
o If trustee is ordered to pay $1m, dishonest assistee also ordered to pay $1m. This does not mean that claimant gets $2m –
it just means that you have more people to go after (joint and severally).
• Where the dishonest assistant makes profits for his wrongdoing, he will be primarily liable to disgorge these profits.
o Pearce: he will not be liable for the profits made by the trustee personally (Pearce at 970)
o Some judges think that he should be liable to account for profits that the primary trustee has made. Other judges feel that
that is taking the law too far – becomes penal in nature. This is where the contention in law lies.

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TRACING
G E N E R A L P R I N C I P L E S
**Remember to look at question through perspective of both trustee and beneficiary (different claims available)

[1] Tracing is neither a claim nor a remedy but a precursor to a claim and an evidential process to identify a new asset as substitute for the
claimant’s original asset for the subject matter of his claim (per Lord Millet in Foskett v. Mckeown, adopted locally in Caltong).

[2] Tracing as a prerequisite to making out a claim: Although tracing does not make out the claim itself, courts sometimes need to trace
successfully before a claim can be made out. This happens both in the case of a personal claim (El Ajou) and proprietary claim (FC Jones v
Jones) to the enforcement of a legal or equitable right: Foskett v McKeown.
• Vindication of equitable title may be done by way of a constructive trust
• An interference of legal title may attract liability in the following forms:
o Conversion
o Action in debt
o Unjust enrichment

TRACING FOLLOWING
Identifying a new asset as a substitute for the old Following the same asset
Subject to defence of bona fide change in position Subject to bona fide purchaser for value without notice
Can choose between Tracing and Following (though in practice his choice is often dictated by the circumstances)
“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 to
trace its value into the new asset in the hands of the same owner”.

Supposing B’s home has been misappropriated by T. T then sells it for cash to X.
• B can either TRACE the cash in T’s hands to the home.
• Or B can FOLLOW the home to X’s hands and try and sue in knowing receipt.

P R E L I M I N A R Y ( B O T H L A W & E Q U I T Y ) : H A S P R O P E R T Y B E E N D I S S I P A T E D ?
In the first place, tracing at law (and in equity) requires the property to be in identifiable form. If it has been destroyed, or money has been
dissipated, then tracing is of no use: the property and the legal title to it are extinct.
DISSIPATED DESTROYED
Trustee (third party recipient) uses trust funds to buy a meal, or a house which burns The law deems it destroyed in three
down, then his purchases leave no traceable residue assuming that the house is uninsured. circumstances:
Nothing is left in his hands to which the beneficiaries might assert a proprietary claim. 1. Where the asset is physically attached
to another, “dominant”, asset so that
it would cause serious damage, or be
Issue: Can money received from misappropriated trust funds be traced into the flat? disproportionately expensive, to
NO, IF VOLUNTEER separate the two: here the asset is
Re Diplock concerned a will “for such charitable institutions or other charitable or said to “accede” to the dominant
benevolent object or objects in England” which was void for uncertainty. However, the asset
executors had already distributed to 139 charities and one of the charities had used the a. Case law suggests that
monies to alter/improve a pre-‐existing building. It was held that one cannot trace into the which of the two assets
building. Recognised special defences for innocent volunteer accedes to the other is
• spends money improving his land there can be no declaration of charge because decided impressionistically
the method of enforcing the charge would be to force him to sell the land or by reference to overall
physical significance rather
• uses the money to pay off a mortgage on land because then the beneficiary will
than monetary value
acquire the rights of a mortgagee and may force him to sell the land.
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2. Where the asset is physically attached
YES, IF WRONGDOER to land in such a way that it would
In situations where fiduciary misappropriated money to renovate house, an equitable cause serious damage, or be
charge may be imposed over the property, either to the value of the money spent on it disproportionately expensive, to
(£100,000) or in the proportion that £100,000 represents of the house’s value after separaet the two: here the asset is
improvement (Re Tilley (1967); Foskett v McKeown (2000)) said to become a “fixture” on the land
3. Mixed to create new product:
Borden (UK) Ltd v Scottish
Issue: Innocent donee using money to pay off debts (CHARGE) Timber Products Ltd (1981)
a. In this case, Borden tried to
In Re Diplock, the House of Lords was of the view that it was impossible to trace money
claim for the unpaid resin
that had been used to pay off a debt, both because the creditor could be regarded as a
supplied to Scottist Timber
purchaser for value and because the money effectively ceased to exist as independent
through tracing. But it was
property. However, the Court of Appeal, in Boscawen v Bajawa (1995), allowed the
held that the manufacturing
claimant a remedy against a defendant who had used monies traced to him to pay off a
process had amalgamated
mortgage. In Boscawen, the claimant was subrogated to the creditor who had been paid
the resin with the other
off. So, in our case, if we follow Boscawen, and similar reasoning adopted by the House of
ingredients. As such the
Lords in Banque Financière de la Cité v Parc (Battersea) Ltd (1998), the claimants
resin had lost its identity
will be subrogated to Loanshark Co, and may be able to recover the money by enforcing
and ceased to exist, it
the debt against Ermentrude as creditors.
would be impossible to

trace the resin into the

chipboard
Issue: money gone to hospital to buy hospital equipment (NO)

Conversely, however, there are doubts whether the £500 paid to the local hospital can be
However, in scenario (3), these rules are
recovered by the beneficiaries. There is no doubt that the property is traceable per se; the
modified where the mixing is performed by a
facts suggest that the money has been used to purchase identifiable equipment and there
wrongdoer: Jones v De Marchant, where
is no suggestion that the innocent volunteer (the hospital) had contributed any of its own
defendant stole 18 beaver skins from wife to
money to these purchases. Thus, the matter is not entirely within the Diplock defences
make new coat; court held that following was
referred to above because the innocent volunteer has not mixed its property with that of
allowed (all belonged to wife) (common law
the beneficiaries. Yet, it is clear that the court has a general discretion to deny tracing
tracing)
where it would be inequitable to permit it and this may prevent recovery from the
hospital.

EXCEPTIONS
[1] If the debt is secured by a charge over the defendant’s property then equity can treat the debt and the charge, by a legal fiction, as though
they were not extinguished by the payment, thereby enabling the beneficiaries to trace the value inherent in their money into the value
inherent in the creditor’s fictionally subsisting chose in action against the defendant.

[2] Backward tracing: Exceptionally, if the defendant borrows money, used it to buy an asset and used trust money to repay the creditor,
then the beneficiaries can trace backwards through the loan transaction into the asset and identify the value inherent in the asset as the
proceeds of the value inherent in the trust money IF there is sufficient connection between the misappropriation of trust money and the
acquisition of the asset i.e. trustee intended to use trust money to acquire the asset: Bishopsgate Investment Management Ltd v
Homan; Shalson v Russo; Foskett v McKeown.

S T E P 1 : C O M M O N L A W T R A C I N G
[1] Need for legal title: Tracing at law requires the claimant to have had legal title to property.
• Therefore, as a matter of principle, it is not available to a beneficiary under a trust who is, of course, a person with a pure equitable
title.
• Moreover, it must be clear that the claimant has retained legal title to the property.
o MONEY: Given that title to money usually passes with possession, it is often easy to defeat a claim at law, as in Box v
Barclays Bank (1998) where the legal title had passed from the claimants.
o On the other hand, some cases – for example, Lipkin Gorman v Karpnale (1991) and Jones v Jones (1996) – have
sidestepped the claimants’ apparent lack of title (that is, the claimants may have had title to a ‘chose in action’: a debt now
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representing the money) and allowed the claim to proceed
• AGENCY: E.g. This would not appear to be a problem in this case, especially since James received the money as agent (see Lipkin
Gorman v Karpnale (1991)). Thereafter, James could not transfer the shares beneficially to his daughter under the equitable
maxim nemo dat quod non habet.
o Application: In addition, there is no doubt that a claim to trace at law will survive changes in the nature of the property,
providing that it is not mixed with any other property (Taylor v Plummer (1815)). Thus, Charles will be able to trace his
legal title to the property through James to his daughter. Charles will be able to maintain an action against James’s
daughter personally for wrongful interference with goods and can expect damages to the value of the property she has
received. This liability will persist even if she has disposed of the shares and may be defeated only if she can rely on the
defence of ‘change of position’, recognised in Lipkin Gorman v Karpnale (1991). This is unlikely in the circumstances as
there is no evidence that James’s daughter has in any way acted to her own detriment in innocent reliance on her receipt
of the shares.

[2] Personal claim: The personal nature of tracing at law may cause problems if the defendant has gone bankrupt because, in theory, the
personal claim of the tracer will rank equally with other personal claims made on the bankrupt’s estate.

[3] Tracing into clean substitutes and products: A claim to trace at law will survive changes in the nature of the property, providing that it is
not mixed with any other property: Taylor v Plumer

[4] No tracing into mixed substitutes and products: Although there has been much debate, it seems that tracing at law is not available if the
claimant’s property has been mixed with that of another person and then passed on. The essence of the matter is that mixing at law renders
the legal title to the property unidentifiable, in much the same way as if the property had actually been destroyed: Agip (Africa) Ltd v
Jackson.
• This is a serious practical drawback to the efficacy of common law tracing and is a major reason why successful actions are rare.
• Note, however, that this is an inability to trace against a recipient of the property after it has been mixed. There is nothing to stop
the claimant tracing at law against the person who does the mixing because, prior to that person’s possession, the property was
identifiable.
• Application: James has mixed the trust money with his own money before purchasing the shares and giving them to his son. This is
fatal to a claim of tracing at law against James’s son because, as far as the common law is concerned, the mixing of property before it
is passed to the recipient makes it unidentifiable (AGIP (Africa) Ltd v Jackson (1992)). Despite much criticism of this rule and
possible contrary authority (Banque Belge pour L’Etranger v Hambrouk (1921)), it appears to have been confirmed by the
House of Lords in Lipkin Gorman.
• Bonus (agent as constructive trustee): It is possible that Charles could argue that James became a constructive trustee for him on the
basis that James must have known that he was behaving in breach of trust and so became a trustee on the basis of conscience,
following dicta in Westdeutsche Landesbank Girozentrale v Islington LBC (1996). This would trigger a claim in equity by
Charles – the trustee and now beneficiary. è then go on to tracing claim in equity by beneficiaries

[5] Tracing into profits: Being traditionally regarded as a personal claim, an innocent defendant in an action supported by common law
tracing should not normally be required to disgorge profits made by use of the property wrongfully received. The claim is for the value of the
property, not the property (compare tracing in equity). However, in Jones v Jones (1996), the Court of Appeal held, on general restitutionary
principles, that if the defendant had no title to the money she had received, then she had no title to the profits she made by using it.
• In that case, the defendant was compelled to return the value of the initial sum plus the considerably greater profits she made by
investing it in the futures market.
• This may well indicate the way ahead, although we should note that it involves seeing tracing at law as simply a device for reversing
unjust enrichment.
• Alternatively, it is possible to frame a claim in equity as the the trial judge in Jones v Jones had considered that Mr Jones was a
partner and therefore a fiduciary.

[6] Defence of change of position: A defendant may be able to plead ‘change of position’ as a defence to an action triggered by common law
tracing (Lipkin Gorman v Karpnale (1991)).
• Defence not available to money spent in ordinary course of things: The mere fact that the defendant has spent the money, in whole
or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event
have been incurred by him in the ordinary course of things.

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S T E P 2 : T R A C I N G I N E Q U I T Y
Distinction between tracing at common law and tracing in equity
Tracing in equity does not suffer from the practical limitations of common tracing and consequently is much more versatile. Importantly,
tracing in equity is regarded as proprietary in nature, with the consequence that it attaches directly to the property in the hands of the
possessor (no matter what its current form) and gives the claimant paramount rights to recover it, even if the defendant is bankrupt. The
defendant has no right to the claimant’s property and so it forms no part of the defendant’s assets.

Furthermore, the proprietary nature of the claim means that the claimant is ENTITLED TO ANY INCREASE IN THE VALUE OF ‘HIS’ PROPERTY
while it has been out of his possession, as where shares are purchased with trust money and they rise in value (Re Tilley (1967); Foskett
(2000)).

The remedies in equity include a charge over property in the defendant’s hands if it represents the claimant’s original ownership, or an order
for the return of specific assets, or a charge over specific funds, or a charge over a specific portion of the property or funds.

However, the object of tracing is quite limited: it is to restore to the claimant that of which he has been wrongfully deprived, often in breach of
trust. For that reason, a tracing claim in equity may well be accompanied by a personal claim against the trustee for breach of trust.
GENERAL
SHORT & SWEET: There is no doubt that [CLAIMANT] would be able to satisfy the preconditions for tracing in equity identified in Re Diplock
(1948): as [STATUS: principal, beneficiary] they have an equitable proprietary interest and there is a clear fiduciary relationship between them
and [FIDUCIARY/TRUSTEE].
[1] Equitable proprietary interest: The trigger for a claim of equitable tracing is that the claimant must have an equitable proprietary interest
in property and only an equitable proprietary interest (Re Diplock (1948)). Consequently, a beneficiary under a trust may trace in equity, but
a trustee (legal title only) and an absolute owner may not.

[2] Fiduciary relationship: Second, unlike the position at law, it seems that tracing in equity can occur only if there was in existence a fiduciary
relationship between the equitable owner and some other person before the events giving rise to the tracing claim occurred (AGIP (Africa)
Ltd v Jackson (1992); and confirmed in Westdeutsche Landesbank Girozentrale v Islington LBC (1996)). This will always be the case
where the claim arises out of a trust and it is clear that courts may do their utmost to find the required fiduciary relationship in order to
facilitate the tracing claim (Chase Manhattan Bank v Israel-‐British Bank (1981)). However, the principle is that there must have been an
initial fiduciary relationship.
• Furthermore, it is argued that this requirement is artificial because in most cases courts will construe an artificial fiduciary
relationship if it feels that tracing is justified.
• For example in Chase Manhattan where there was no pre-‐existing fiduciary relationship and the court imposed one based on the
mere fact that payment had been made by mistake, thereby allowing equitable tracing.
• Also, Lord Browne-‐Wilkinson in Westdeutsche suggested that even a thief can be construed as a fiduciary, and this further
demonstrates the artificialness of the fiduciary requirement.

[3] Wrongful act: Third, it is inherent in the equitable tracing claim that the property of the beneficiaries must have been transferred to
another person wrongfully. Otherwise, the equitable owner has no right or reason to claim its return.
MISAPPROPRIATION OF TRUST MONIES
The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own
benefit. In such a case, the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds OR to bring a personal
claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund.

He will normally exercise the option in the way most advantageous to himself:
• If traceable proceeds have increased in value and are worth more than the the original asset, he will assert his beneficial ownership
and obtain the profit for himself
• If traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option. He
will take the whole of the proceeds on either basis.
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INNOCENT RECIPIENT OF MISAPPROPRIATED PROPERTY
In both law and equity, an innocent recipient who receives misappropriated property by way of gift obtains no better title than his donor.
Hence if a proportionate sharing is inappropriate, the wrongdoer and those who derive title under him take nothing: Jones v De Marchant;
Foskett v McKeown. In Jones v De Marchant, husband wrongfully took 18 beaver skins belonging to his wife and used them, with four
skins of his own, to have a fur coat made up which he then gave to his mistress who knew nothing. Court held that the wife was entitled to
recover the coat and mistress’ innocence was immaterial. She was a gratuitious donor and could stand in no better position than the husband.
• Becausee the coat was a new asset and was not reducible to a divisible fund, it was an all or nothing case.
• But it does not exclude a pro rata division where appropriate, as in the case of money and other fungibles like grain, oil or wine.
• Pro rata division is the best that the wrongdoer and his donees can hope for. If a pro rata division is excluded, the beneficiary takes
the whole; there is no question of confining him to a lien.
MIXED FUNDS
Moreover, so long as the beneficiaries’ equitable proprietary interest is identifiable, it is irrelevant that the property is no longer in its original
form or that it has been mixed with other property (Re Hallett (1880); Re Oatway (1903))

#1: MIXING OF TRUST MONIES WITH FIDUCIARY’S OWN MONIES
Rule in Re Hallett Rule in Re Oatway
When T withdraws $ from mixed acct, B may presume that T used his When T withdraws $ from mixed acct, B may presume that B’s money
own money first. was used first.
Used when $ withdrawn has been dissipated or led to losses. Used when $ withdrawn has led to profit OR B simply wants to claw
something because T is insolvent.
***As to how the withdrawals in the mixed fund will be attributed, because T is a wrongdoer, equity resolves any evidential problem against
the trustee by allowing the beneficiary to cherry-‐pick between the two rules (Re Hallet and Re Oatway) to reach the best result: Shalson v
Russo (UKHC2003). In fact, these presumptions could be said to have been superceded by ruling in Foskett v McKeown where the Millet LJ
held that beneficiaries may trace the withdrawals as he pleases on the principle that all inferences will be made against the wrongdoer whose
own act had caused the factual difficulty in the first place.
• In essence, you can use Re Oatway first then switch to Re Hallet for a subsequent withdrawal to maximise your gains.
APPLICATION
• Where there is profit: In this case, the beneficiaries may trace trust fund money into [NAME OF TRUSTEE]’s bank account, and
following the rule in Re Oatway, [NAME OF TRUSTEE] will be presumed to have spent $[AMOUNT] of the trust money on the [e.g.
shares of Z Ltd] (not following Re Hallett (1880) because there are no monies left in the bank account which could satisfy the
beneficiaries’ claim)
• It should also be noted that the beneficiaries are entitled to the increase in the value of Z Co’s shares because tracing in equity gives
the claimants a proprietary right to property and any increase in its value (Foskett)
#2: MIXING WITH THE MONEY OF AN INNOCENT VOLUNTEER
EXAM TIP
If you’re told that it’s a current account, apply Clayton’s case first (work the figures out) then suggest that if courts find it impractical or
unjust as per Barlow Clowes, then pari passu (again, work the figures out)
If you’re told it’s any other account e.g. savings account, straight away pari passu.
If you’re not told what account it is, apply both and do calculations for both.
[1] First in, first out: Clayton’s case (mainly for current account) presumes that where trustee places monies from two innocent volunteers
into the same account, any withdrawals that made from the account is deemed to be made on a ‘first in, first out basis’.
• However, even if it is clear that trustee’s account is an ‘active’ bank account within the Clayton rule, Barlow Clowes that
Clayton’s rule is one of convenience only and should not be applied either where the property of the respective claimants is
identifiable or where it would achieve an inequitable result. A similar view was echoed in Commerzbank v IMB Morgan (2004).

[2] Pari passu: If both the beneficiaries and the innocent volunteer (be it the beneficiary of another trust or just an innocent volunteer) are
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equally innocent victims of the trustee’s wrongdoing, then the beneficiaries will generally have equally strong claims to a rateable share of
gains and equally weak claims to avoid taking a rateable share of losses, to the mixed fund. Hence, gains and losses are generally shared
between the beneficiaries pari passu: Re Diplock; Barlow Clowes; affirmed in Commerzbank AG.

[3] Rolling charge: Woolf and Leggatt LJJ in Barlow Clowes indicated that a “rolling charge” solution might be fairer than pari passu so that
claimants should share losses and gains to the fund in proportion to their interest in the fund immediately prior to each withdrawal. This has
also received the support of Rimer J in Shalson v Russo who prefers the rolling charge rule in such situations because the pari passu rule
ignores evidence of what has actually happened to the claimants’ money.
• Example:
o Suppose that a trustee pays $2000 from Trust A and then $4000 from Trust B into an empty current bank account. HE then
withdraws $3000 and loses it. He then pays in $3000 from Trust C before withdrawing another $3000 to buy shares whose
value increases tenfold. He then withdraws the remaining $3000 and loses it.
o Applying the “rolling charge” rule, the first loss must be borne by A and B in the ratio 1:2, and C need not bear this loss at
all. Immediately after the first withdrawal, the remaining $3000 would be attributable to A and B in the ratio 1:2. After the
next deposit, the $6000 in the account would be attributable to A, B and C in the ratio 1:2:3. Hence, the shares should be
attribued to them in the same proportion, leaving A with shares worth $5000, B with shares worth $10,000 and C with
shares with $15,000.
o In contrast, the pro rata rule would attribute all gains and losses in proportion to the total considerations made by each
trust, givig a ratio of 2:4:3 and leaving A with shares with $6667, B with shares worth $13,333 and C with shares worth
$10,000.
o The FIFO rule would preduce result that A of A’s money is lost, $1000 of B’s money is lost, that all the shares belong to B,
and that all of C’s money is lost.
• Criticism: This rule may be administratively unworkable, impractical or so expensive as to be prohibitive, leaving claimants with the
rought justice of pari passu rule, or the rougher justice of FIFO.
LIMITATIONS OF EQUITABLE TRACING
BONA FIDE PURCHASER FOR VALUE INNOCENT VOLUNTEER CHANGE OF POSITION
Being a claim in equity, equitable tracing is Likewise, it appears that It is felt that this discretionary limitation in Re Diplock is now
not possible against a person who is a bona the court has a discretion subsumed in the developing defence of change of position
fide purchaser for value of the property, to disallow tracing against advocated by Lord Goff in Lipkin Gorman (1991)
although it may still be possible to trace an innocent volunteer if to • Lord Goff formulated the defence on a broad basis.
against the person who has sold the trust do otherwise would be • The defence will not be available to a defendant who
property to the purchaser (Re Diplock inequitable in all the has changed his position in bad faith; e.g. a defendant
(1948) circumstances: Re who spends the claimant’s money after knowledge of
Diplock facts entitling the claimant to restitution.
• Similarly, the defence will not be available to a
wrongdoer, such as a defendant who has acted in
breach of his fiduciary duties.

The requirement the defence being bona fide was later added
in Niru Battery Manufacturing Co and Abou-‐Ramah v
Abacha.
LOWEST IMMEDIATE BALANCE

IF, AFTER MIXING TRUST MONIES, T INTRODUCES HIS OWN MONEY, IT DOES NOT COUNT AS PART OF B’S MONEY.
Absent any payment in of money with the intention of making good earlier depredations, tracing cannot occur through a mixed account for
any larger sum than is the lowest balance in the account between the time the beneficiary’s money goes in, and the time the remedy is
sought: James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62; affirmed in Bishopsgate Investment Management Ltd. v Homan
• In other words, after mixing trust monies, T introduces his own money, it does not count as part of B’s money.
• Exception: T adds own money so as to make good his wrong.
o Note that even though under trust law, even if it is proven that the wrongdoer intended to make good earlier depredations
and that tracing rules apply, it might still be attacked by bankruptcy law i.e. unfair preference!
• Rationale: Premised on the fact that limits must be placed on the beneficiary’s proprietary interests i.e. you cannot give beneficiaries
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indestructible property rights at the expense of other creditors.

P E R S O N A L C L A I M A G A I N S T T R U S T E E F O R B R E A C H O F F I D U C I A R Y D U T I E S
That which they cannot claim, and where they still suffer a loss, can be recovered only in a personal action against trustee or against any of the
third parties who may have had such an awareness of the material facts as to make them liable as constructive trustees.

L I A B I L I T I E S O F C O N S T R U C T I V E T R U S T E E S H I P
For the sake of completeness, it should also be noted that [PERSONS INVOLVED] may incur the additional liabilities of constructive
trusteeship if they have knowingly received trust property in breach of trust and, furthermore, the bank which cashed Charles’s cheque could,
in theory, be liable for assisting Charles in a breach of trust, provided they were dishonest (Royal Brunei Airlines v Tan (1995)).

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Equity Trusts

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N i c h o l a s

Nick’s Equity & Trust

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CREATION OF EXPRESS TRUST: THREE CERTAINTIES .............................................................. 3

NON-CHARITABLE PURPOSE TRUST ........................................................................................... 11

CHARITABLE TRUST ........................................................................................................................ 15

CONSTITUTION OF TRUST ............................................................................................................. 28

RESULTING TRUSTS & COMMON INTENTION CONSTRUCTIVE TRUST .............................. 34

ADMINISTRATION OF TRUST & TRUSTEE’S DUTIES................................................................ 41

CONSTRUCTIVE TRUST .................................................................................................................. 63

PERSONAL LIABILITY AS A CONSTRUCTIVE TRUSTEE ........................................................... 71

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Discretion to exercise power* Choice of beneficiary or entitlement

Fixed trust No (mandatory) No (mandatory)

Discretionary trust No (mandatory) Yes (discretionary)

Fiduciary power / Yes (discretionary) Yes (discretionary)

RULES OF CONSTRUCTION

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INDICATORS OF CERTAINTY OF INTENTION

USE OF MANDATORY WORDS

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Issue: whether a trust that is initially a sham can become

ISSUE 1: GOODS HELD IN BULK, BUT UNASCERTAINED/UNIDENTIFIED/NOT APPROPRIATED

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ISSUE 2: FUTURE / NON-­‐EXISTENT PROPERTY

Trust over non-­‐existent property Trust over future property

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Distinction between conceptual uncertainty and evidential uncertainty:

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ADMINISTRATIVE UNWORKABILITY CAPRICIOUSNESS

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EXCEPTION 1: RE ENDACOTT COUNTER: CAPRICIOUSNESS

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Rule against remoteness of vesting Rule against inalienability

21 years 21 years 21 years

Follows what is specified if less than 100

100 years (ss 32 and 34 applies) or void

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Technically, the Charities Guidelines have no force of law.

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#1: RELIEF OF POVERTY

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#2: ADVANCEMENT OF EDUCATION

NO PERSONAL NEXUS NO CLASS WITHIN A CLASS

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#3: ADVANCEMENT OF RELIGION

ON BUDDHISM ON OTHER RELIGIONS ON CULTS OR UNORTHODOX BRANCHES

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#4: OTHER PURPOSES BENEFICIAL TO THE COMMUNITY

Specific mention in the Preamble: AGE & SICKNESS

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S64, TRUSTEES ACT:

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Distinction between initial failure and subsequent failure

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The Re Rose Doctrine Recent Developments

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ISSUE 2: FUTURE / NON-‐EXISTENT PROPERTY

Trust over non-‐existent property Trust over future property

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H U S B A N D -‐ T O -‐ W I F E þ F A T H E R -‐ T O -‐ C H I L D þ L O C O P A R E N T I S -‐ T O -‐ C H I L D þ

W I F E -‐ T O -‐ H U S B A N D ý M O T H E R -‐ T O -‐ C H I L D þ C H I L D -‐ T O -‐ P A R E N T þ ?

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EXCEPTION 1 – NON-‐RELIANCE ON ILLEGALITY EXCEPTION 2 – LOCUS POENITENTIAE

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ENFORCING THE SUBSTANCE OF THE TRUSTEE’S NON-‐BENEFICIAL OWNERSHIP

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