Trust Mids Exams

PART B
Question Number 4

In the present scenario, there are various trust properties that need to be examined, to see whether or
not they have fulfilled the required formalities to create an express trust or whether they will pass
through the testators will.

The problem question concerns Aron (A) as the sole legal owner of various properties. It follows that he
attempted to create 4 express trusts over 4 different pieces of that property. There are no issues of
constitution of these trusts, as the legal title was to stay with A, him being the sole trustee. As a way of
introduction, the law of trusts is based on the principles of equity with the trustee being person of strict
fiduciary obligations towards the beneficiaries under the trust. Express Trust can be created for
individual beneficiaries i.e. charities known as public trusts. There are two method of creating a trust. 1.
The settlor can make a declaration of trust and transfer the legal title to the trustees, or 2. The settlor
can simply declare himself to be the trustee of the property. A trust created in person’s life is known as
inter vivos trust, the creator is known as a settlor.

Firstly, following Knight V Knight the trust settlor must have a certainty of intention, i.e. it must be clear
that he intended to create a trust. From the wording of A’s declaration it seems pretty clear that A
wanted to create a trust with himself being a trustee of that property. Therefore the certainty of
intention requirement seems to be satisfied in relation to all 4 potential trusts.

The second formality of declaration is fulfilled when the settlor makes a valid declaration. Flat is classed
as a real property.
A long lease of a two bedroom flat in London is a real estate in land. Section 53(1) (b) of the Law of
Property Act 1925 provides that a declaration of trust over land must be manifested and proved by
some writing signed by a person entitled to declare a trust or else the trust will be unenforceable.
The issue is whether A’s text message can be deemed to be made ‘in writing’. Nowadays, because of rise
of communication technologies, e.g. e-mails. It would appear that a text message is of more or less
permanent nature, not transient, and may allow for Kristi to use it as evidence of her beneficial title in
court.

The next issue is a ‘signed’ requirement of s53 (1) (b). The text message was not signed. There’s only
‘bye’ in the end. On the other hand, the court may still find it evident that it was A who sent the test
message. In any event, it follows from the wording of s53 (1) (b) (‘proved by some writing’) that the trust
will not be void for the lack of writing, it is only unenforceable. Therefore, it seems that the trust of long
lease was valid, but the chances are Kristi will be having hard times proving its validity to the estate of A
in court.
The certainty of the subject matter element from Knight V Knight stipulates that it must be certain what
property is subject to the trust (Sprange v Barnard). Here there seems to be no way in which a trust of a
bank account in a situation where the settlor has two bank accounts can be said to have a certain
subject matter. It is simply impossible to determine, which bank account is Megan would have a
beneficial title in. Therefore, the trust is void ab initio, as never existed.
The second trust property is that of Shares (legal interest). Shares are considered to be personal
property. Unlike like real property, there is no statutory requirement for a written declaration. The
default rule is that the property under the trust must be segregated in order to be individually identified
(see Re London Wine). However, it was ruled by Lord Dillan in Hunter v Moss that if the property is
intangible (e.g. shares), it need not be segregated. The only requirement is that is must be
homogeneous, i.e. of the same type (e.g. the same class of shares) Re Harvard Securities. On the facts A
declared a trust of 100 shares out of 300 shares. There is no indication of existence of different classes
of shares of Goldcorp in A’s possession. Therefore, the requirement of certainty of subject will be
satisfied – it does not matter which individual shares will be held on trust, since they all the same.
As for the formalities, the trust over chooses in action, such as shares, can be declared informally, in any
manner whatsoever (Paul v Constance). Therefore, the text message will suffice and the trust is likely to
be held valid.
The certainty of the subject matter will be satisfied – the wording ‘everything else’ would allow to
ascertain the residual property of the estate and it is, therefore, certain.
The issue here will be with the certainty of objects requirement, which states that it must always be
clear who the beneficiaries under the trust are (Morice v Bishop of Durham). The rules differ, however,
in relation to the discretionary trusts and fixed trusts. Here A purported to create a bare trust, which is a
simplest form of a fixed trust. A bare trust is when the trustees are mere nominees and do not have any
active duties, except in the case of minors. The Under IRC v Broadway Cottages the fixed trust requires a
full list of beneficiaries to be able to be created. The obvious problem here is the ‘friends’ qualification in
the wording of A’s declaration. Friends is a totally subjective concept incapable of objective definition
(although see some fascinating guidance by Browne-Wilkinson J in Re Barlow’s WT). It is therefore
impossible to ascertain who the ‘carving friends’ of A were. The trust will therefore fail for uncertainty
as to its beneficiaries. As such, 10.000 GPB will be held on resulting trust for the A’s estate.

Now you can consider the solution to the problem. To create a trust, certainty is required in three
elements (Knight V Knight). 1. Intention (the intention of the settlor to establish the trust must be
proven). 2. Subject (property transferred to the trust must be determined). 3. Objects (must be
identified or identifiable beneficiaries of the trust).

No questions arise with intent, since Aron clearly wrote: "I hereby declare that I now hold all my assets
in trust."

The next issue is regarding Apartment. As a general rule writing is not required to create a trust, words
or, as in this example, text messages are enough. The exception is real estate trusts. According to Art. 53
(1) (b) Law of Property Act 1925
 "A declaration of trust respecting any land or any interest therein must be manifested and proved by
some writing signed by some person who is able to declare such trust or by his will. In general, there are
many questions, but if we go back to the trusts and to the apartment, then Christie has little chance of
proving in court that the trust in respect of the apartment was properly declared. Therefore, the
apartment remains in Aron's estate.

Another issue is regarding the Banks Account Apparently, Aron did not teach law well, since he had to
remember (or maybe forgot because of stress) that the subject of the trust must be determined. Since it
is not clear which bank account of the two is in question, Megan was also out of luck and both accounts
remain in Aron's estate.

There is a precedent that is being criticized, but which has not yet been overruled - Hunter v Moss. In
this case, in a similar situation, it was decided that the trust was valid. Therefore, Rana became the
beneficiary of 100 shares. There are precedents according to which the concept of "other property" is
definable.

More questions arise from the notion of "friends from the 127-member cavers' club." For the trust to
exist in this example (it is about a fixed trust), a list of beneficiaries is required. If we interpret Aron's
text as “10,000 pounds only for those club members who are my friends”, then since the concept of
“friend” is uncertain, the trust has not been created - the list of beneficiaries cannot be compiled such a
trust is void.

First, there is absolutely no constitution of trusts (transfer of legal title in favor of a trustee or donee).
Secondly, no concepts of conceptual certainty From the Re Barlow's case: the donation will be valid if at
least one person meets the criterion. In this case, it all comes down to proving the right to receive the
gift from each individual. Simply put, everyone who believes that he falls under the conditions of
donation comes to the estate manager and tries to prove that he is, respectively, a "friend" (screenshot
from VK, for example: D) or "relative", etc. And so on until the donated property ends. This is exactly
what happened in Re Barlow, where the testator bequeathed that her paintings could be sold at a
discount to family members or friends (all or any member of my family and any friends of mine who
wish to do so [may] purchase any of such pictures at the lower of probate value or 1970 catalog price).

By the way, the concept of "relatives" may well be objectively defined. See, for example, Re Baden
(No.2), where Judge Stamps LJ designated relatives as "next of a kin" and Judges Megaw LJ and Sachs LJ
considered "relatives" as' descendants of a common ancestor '(descendants of a common ancestor).

"Christie has little chance of proving in court that the trust in the apartment was duly declared"

It was declared just in a proper way, because s53 (1) (b) requires a written form with a signature
only for the proof ('proved by writing ... and signed'). That is, the trust is valid in any case. But it will
be impossible to enforce, that is, to apply its consequences, without written proof. S53 (1) (b)
differs in this respect from s53 (1) (c), which stipulates that any transfer of beneficial title must be
entirely in writing and signed, otherwise it is invalid ab initio.
In Conclusion, bank account for Megan trust is void, the share will be held valid. It is impossible to
ascertain who the carving friends of A were so 10.000 GPB will be held on resulting trust for A
Estate. Christie has little chance to prove trust in apartment. And for club trust is void. The problem
is that the will requires the distribution to be made _equally_ among the beneficiaries. It seems
that in order to quantify the piece of property any individual beneficiary is entitled to, the full list of
beneficiaries will need to be drawn. As this is impossible on the facts, it appears that the gift will
fail. This also leads to uncertainty of the subject matter – the beneficial interest of in the devised
property of any potential beneficiary will be uncertain.

PART C

Question No 6

The law of equity and trust required a transfer of legal title of property to the trustee for a valid
trust to be constituted. The equity will be ineffective if the trust is not properly constituted because
the maxim of “ equity cannot perfect an imperfect gift” and “equity will not assist a volunteer”.
Jones V Lock and Richards V Delbridge would be the best description of these maxims when there
is a failed gift and no intention to create a trust for volunteer. In order to make a gift of property, a
donor must transfer legal title in that property to the done. If this is not done the gift will be
deemed imperfect and as, Sir George Jessel MR explained in Richards V Delbridge, equity will not
perfect an imperfect gift. In legal terms, this means that equity will not regard the beneficial
interest as having been transferred to the intended done before legal title is considered to have
done so. The basic fundamental rule in this area of law is the principle that equity will not perfect
an imperfect gift. This originates from the court of Appeal’s decision in Milroy V Lord. For the trust
to have been fully constituted, legal title must have been vested in M. in this case, the settlor failed
to transfer legal title.

The decision of Pennington V Waine had led to confusion on Re Rose rule and raised some
interesting issues. After, the court of Appeal’s ruling in Pennington V Waine it led to dramatic shift
in law. COA stated that C’s intention was so clear that it would have been unconscionable for her to
deny the gift. Therefore, it concluded that it was open to it to recognize the gift as complete in
equity. This meant that at the time of her death, although legal title to the shares remained with C,
beneficial title had already passed to H.

Pennington V Waine widened equity’s scope in cases of incompletely constituted express trusts,
relying on a broad notion of “unconscionability” to alternatively impose a constructive trust. This
decision conflates the principles of “declaration” and “transfer” and confuses questions of
constitution and estoppel. Pennington V Waine did not lay down specific guidelines to illustrate the
circumstances in which it would be unconscionable for a donor to recall an imperfect gift. Using the
facts of Pennington V Waine as the benchmark does not provide much more by the way of
certainty : firstly, the facts of cases are never identical, and secondly, it is virtually impossible task to
state with certainty whether the donor in any given scenario has taken more or less steps than the
donor. What is clear from Pennington V Waine is that the done does not have the authority to
request perfection of a gift in every case. However, the problem in this situation is that Pennington
V Waine sets a low detrimental reliance threshold. On the one hand, the approach in Pennington V
Waine gives judges flexibility to formulate s bespoke solution, tailored to individual cases. It
appeared that an attempt to transfer shares would only be complete if the requirements of Re Rose
were fulfilled. The principe in Re Rose is no longer absolute, the CA in Pennington expanded the
ambit of the rule by introducing the concept of unconscionability which if satisfied, equity will
declare a transfer complete before all formalities are completed.

The decision in Pennington renders it almost impossible for the practitioners to confidently advise
clients undertaking property transfers in order to avoid court action or to advise clients if they are
faced with an imperfect transfer. Morris agrees and argues that Pennington has made it difficult to
know where you and your client stand. It is logical to conclude that Pennington seriously
undermines the maxim that equity will not assist a volunteer by perfecting imperfect gifts. In
evaluating Pennington’s wider “unconscionability” test, it is necessary to identify the constitutive
requirements for an express trust. The effect of Pennington V Waine should not as introducing a
new exception to the rule against imperfect gifts; rather it is an opportunity to recast Re Rose in a
theoretically sound fashion by shifting the focus away from the extent of the formalities completed
and onto the conscience of the transferor. In addition, a broad attitude to unconsnsionability
enabling the courts to take the surrounding circumstances of the transfer into account, would
resolve many of the practical problems inherent in the rules as it stands. The reasoning of Clarke L.J.
in Pennington is open to criticism since he assumed that the assumed that the executed transfer
form amounted to a valid trust. Question arose if purported disposition of the legal interest in
property was a valid disposition of the equitable interest, the doctrine of Re Rose would not
present.

The intention in Pennington was to effect a gift because courts of equity should not strike down
gifts too eagerly then the Rose principle could be extended to protect this gift. The situation is much
more confusing in Paul V Constance when the court perfected an imperfect gift, which it clearly
was not as seen in Choithram. The stance adopted by the court of Appeal in Pennington may give
courts of equity an unfettered discretion as to whether a voluntary gift or trust should take effect.
This is because of the court interpretation on the role of unconscionability. Unconscionability refers
to abuse of legal rights, powers or position. The law of trusts allows the donor to change mind
when there had no complete performance of the necessary transfer. The doctrine of
unconscionability undermines the strict nature of the trust and it should be the behest of the donor
on the fully constituted of beneficiaries instead of focusing on the certainty of intention and
irrevocability of the trust. Given that Clarke L.J himself moved to remark that in Pennington V
Waine that hard cases make bad law, the COA seems to have taken an approach which appears to
be less interested in the wishes of the donor, and instead of favoring certainty even this produces
harsh results. However, it is submitted that the unconscionability approach is unsupportable. This is
for three reasons. Firstly, it is unclear whether it could ever be unconscionable for a donor to resile
from a gift before it is completely constituted. As Jenkins LJ noted in Re McArdle, a donor retains a
locus poenitentiae before completion. In this period, there can arguably be no question of
unconscionability vis-à-vis the donee: the latter will not normally have provided consideration in
expectation of the gift, and “there is nothing dishonest on the part of an intending donor if he
chooses to change his mind at any time before the gift is complete” . A response to this might be
that recognizing the donor’s locus penitential can, paradoxically, frustrate the donor’s intentions to
make the gift. This would occur, for example, where the donor dies before the gift is completed: as
property rights crystallise upon death, the gift could no longer be completed, even if the donor had
manifested no intention to resile from it. Secondly, the reasoning in Pennington is dubious. Arden LJ
based the requirement of unconscionability largely on the decision of the Privy Council in T
Choithram International SA v Pagarani . In Pennington, on the other hand, the entire issue was
whether or not the donor was a trustee of the property. As such, Davies and Virgo rightly argue that
the reasoning is “irretrievably contaminated and should not be followed”. Re Rose has considerably
altered the main ratio in Pennington V Waine which introduces the concept of unconscionability as
a mean of justifying a trust in equity. By introducing Unconscionability as a justification for
separating legal and equitable title, Pennington V Waine has inadvertently stumbled across a way
of utilizing the constructive trust in the context of perfecting imperfect gifts without violating
elementary trust law. In short, the unconscionability approach is supported by weak reasoning and
unduly undermines certainty in the law, and therefore cannot be the basis for the perfection of
incompletely constituted gifts in equity. The concept of the “unconscionability” and the
“benevolent Principles of construction” might give the court a greater discretion to apply justice
depending on the special circumstances on each particular case. Nevertheless, certainty in law is
the most fundamental issue in common law legal system. In my opinion, the decision in Pennington
disrupted the legal certainty and left the law in this area in a doubtful and non-predicable manner.

PART A

QUESTION NO 2

The formality rule under s.53 (1) (c) was originally enacted to protect trustees from fraud by
seeking to regulate the beneficiary’s (B1) power to transfer a subsisting equitable interest to
another beneficiary (B2). However the many attempts to avoid tax, payable on the written
instrument by which the property is transferred, have used the exception in s.53 (2) to restrict the
scope of this formality rule to the point where its purpose has been rendered functionally
redundant and should be abolished in favour of reform.

S.53 (1)(c) applies to dispositions of equitable interests arising under trusts when the trust is
already in force. ‘Equitable interest’ being defined in relation to existing ‘in or over land’. A
disposition under s.53 (1)(c) occurs if “at the commencement of a transaction a person has a
subsisting equitable interest and at the end no longer has that interest”. The reason the legislation
drafters targeted ‘subsisting equitable interests’ for protection is because evidence of their
movement through written instruments will often be the only indicator of where the right resides at
any particular time. In s.53 (2) the term ‘implied trust’ seems to add nothing to the section.
Consequently I will be analyzing the formality requirements in relationship to ‘the creation or
operation’ of just resulting and constructive trusts.

In Re Vandervell's Trusts (No. 2) Vandervell instructed the trust company to utilise the option to
repurchase to avoid surtax liability. The option was held to be destroyed when it was exercised
resulting in Vandervell’s equitable interest in it being extinguished. Lord Denning saw the use of
the children’s settlement money as evidence there was an operative express declaration of trust
which automatically extinguished Vandervell’s interest behind the resulting trust. In his own words;
“a resulting trust for the settlor is born and dies without any writing at all”. Lawton LJ reached the
same conclusion but held the exercise of the option terminated the resulting trust as its subject-
matter was extinguished

However these approaches are difficult to justify as they generates the question of whether
‘creation or operation’ can be seen to include ‘termination’. This is arguably the antithesis to
‘creation’, so would have to fall under ‘operation’. However ‘operation’ signifies the “subsistence
and continuing effect of such resulting trust… for as long as it operates”, meaning ‘operations with
resulting equitable interests’ are outside its meaning. Therefore I find this an unconvincing
interpretation.

Here is also the criticism of Stephenson LJ as to whether Vandervell or the trust company could
have intended the disposition of the interest, when at the time they did not know who held
beneficial interest pending the decision in Vandervell v IRC. On this point, Green comments it would
be impossible to suppose the trustee company was exercising such power as a resulting trustee;
however it was theoretically possible for Vandervell to have formed intent to dispose of an interest
he did not know he had. Following Re Kayford, it is possible to construct the intention through
conduct, and the payment of dividends into the children’s settlement is evidence of an intention to
create a trust.

One could argue the case is confined to its particular facts and of little consequence to wider
dispositions of equitable interests through resulting trusts. However, as Oakley argues, the
formulations of principles in the case were not restricted to options held on resulting trust, which
suggests any property held on resulting trust can avoid s.53(1)(c) when the beneficiary directs the
trustee to declare a new trust of that property.

In Grey v IRC it was held that an oral direction by B1 to his trustee to hold the assets for B2 amounts
to a ‘disposition’. However if B1 contracts for value to dispose of his beneficial interest in private
company shares with B2, there is no disposition of a subsisting equitable interest, because a new
equitable interest has been created through a constructive trust. Initially the majority in Oughtred
v IRC held the equitable interest generated by a specifically enforceable contract did not prevent
the subsequent document being stampable. Thompson argues this is because, despite the
acquisition of a beneficial interest under a constructive trust, the nature of the trust meant B1 and
B2 retained their respective beneficial interests until completion and Penner argues this was
largely based on ‘principles of stamp duty law’.

However the dissenting opinions of Upjohn J at first instance and Lord Radcliffe in the House of
Lords were confirmed in by the Court of Appeal in Neville v Wilson outside the stamp duty context.
It held an equitable interest in shares could be could be transferred through a contractual
constructive trust arising on a specifically enforceable oral agreement. The contract was specifically
enforceable because the shares were private (and thus unique, meaning the purchaser cannot
acquire equivalent shares) and as “equity treats as done that which ought to be done”, equitable
title would have passed to the purchaser with legal title being held on constructive trust by the
vendor. However the reasoning might not be totally convincing, indeed there are two
interpretations taken.

The first, taken by Upjohn J, saw constructive trusts disposing of the entire equitable interest
absolutely. Grey v IRC held it was possible for B1 could declare himself trustee of an equitable
interest for the benefit of B2. Upjohn J utilised this approach to hold that when B1 became
constructive trustee, the entire equitable interest was disposed. However Milne argues this
position is fundamentally flawed as it “involves the notion of a trustee without any title to the trust
property”.

The second approach taken by Lord Radcliffe and supported by Green, is to see s.53(1)(c) applying
at both the ‘assignment of beneficial interest’ and ‘declaration of trust’ stage which operate as
‘part-disposals’ of subsisting equitable interests. The declaration of trust is a disposal of the
beneficial part of the hitherto subsisting equitable right.[31] As with the part-declaration of an
express trust, a partial disposition of the equitable interest in a constructive trust case must
therefore also be subject to s.53(1)(c) and so fall under the s.53(2) restriction.

Regardless of which interpretation you adopt, what is clear that if a constructive trust is found the
equitable interest can transfer without s.53 (1) (c) formality requirements? However because the
court in Neville failed to recognise and decide between the different approaches, it is not possible
to predict whether the courts actually used constructive trusts to effect the disposition and will do
so in the future.