Titles in the series:
Q&A Company Law Q&A Commercial Law Q&A Contract Law Q&A
Criminal Law Q&A Employment Law
Q&AEnglishLegalSystem
Q&A Equity and Trusts
Q&A European Union Law
Q&A Evidence
Q&A Family Law
Q&AIntellectualProperty Law
Q&A Jurisprudence
Q&A Land Law
Q&A Medical Law
Q&A Public Law
Q&A Torts
QUESTION 1
‘Although equity will not aid a volunteer, it will not strive officiously to defeat a gift’ (per
Lord Browne-Wilkinson in Choithram International SA v Pagarani (2001)).
Evaluate this statement by reference to decided cases.
How to Read this Question
Thisisabroadessayquestionon theconstitutionof atrustandtheconsequencesof creation. The focus ofthe question is whether the courtis prepared to relax the Milroy v Lord
rule infavourof volunteers inorder togive effecttothe clear intentionofthe transferor.
How to Answer this Question
Agoodanswer tothisquestionwilldealwiththeprincipleinMilroy v Lordbyreference
tostructureddiscussionofthe relevant cases.Themainissue iswhenwouldagiftor
trust be fully created and do the courts have a discretion to develop the law in this
area? The permutation of legal principles determining this question are required to be
discussed as well as the effects of constitution and the ineffectual creation of an
express trust or gift.
Up for Debate
Students areurgedtoreadthejudgmentsinthe controversialdecisionPennington v Waine. In this case, Arden LJ’s view of unconscionability was based onthe
discretion of the court and varies with the circumstances of each case. This
thatinvolvetheprocessofthetransferofthelegaltitletoproperty.InPennington
v Waine, what would have been the position if registration of the shares were
declined by the company? If the constructive trust theory is to be maintained,
despitetherefusaltoregister thenewowner,thiswouldresultinequitytreating
an ineffective transfer as a valid declaration of trust. But in Pennington v Waine
thedonorhadnotdeclareda trust,normade agift,norhadshedoneeverything
in her power to make a gift, yetthe court decided thatthe transfer was effective
in equity.
Thefollowingarticlesareinstructiveinorder togetabetterunderstandingofthesubject:
J Morris ‘Questions: when is an invalid gift a valid gift? When is an incompletely constituted trust a completely constituted trust?Answer: after decisions in Choithram and Pennington’(2003)6PCB393; M Halliwell‘Perfectingimperfectgifts andtrusts:havewe
reachedthe endoftheChancellor’s foot?’(2003)Conveyancer192.
Answer Plan
The Milroy v Lordtest.
Transferor completing everything required of him.
No self-declaration following imperfecttransfer.
The principle in Re Ralli.
Multiple trustees, including the settlor.
Trust of a chose in action.
Consequences of a trust being perfect.
Exceptions to the rule that equity will not assist a volunteer.
Answer Structure
This diagram illustrates the methods and consequences of creating trusts, including gifts.
ANSWER
This statement by Lord Browne-Wilkinson highlights two fundamental principles of
equity:the notion that equity will not assist a volunteer and thatthere is no policy in
equitytodefeataperfectgift.Theseareself-evidentpropositions.However,anumberof
landmarkcaseshave striventoperfectgiftswhich,on orthodoxtheory,oughttobe con-
sidered asimperfect.1
1
TheprinciplelaiddownbyTurnerLJinMilroy vLord(1862)identifiesthetwomodesof
constitutingan express trust.Theonus ison the settlor toexecuteone (or in exceptional
circumstancesboth)ofthesemodesfor carryingouthisintention.Thetwomodesofcreating an express trust are:
(a) a self-declaration of trust; and
(b) atransferofpropertytothe trustees,subjecttoadirectiontoholdupontrustfor the
beneficiaries.
A settlor may declare that he presently holds specific property on trust, indicating the
interest,forabeneficiary.Inthisrespecthesimplyretainsthepropertyastrusteefor
the relevant beneficiaries. Clear evidence is needed to convert the status of the original
owneroftheproperty tothatofa trustee,seePaul v Constance(1977).Thetestthatis
applicable here is the ‘three certainties’ test, i.e. certainty of intention, subject matter
and objects.
Thealternativemodeofcreatinganexpresstrustinvolvesatransferoftherelevantproperty toanother person (or persons) as trustee(s), subjecttoa validdeclaration oftrust.In
this context the settlor must comply with two requirements, namely a transfer (gift or
sale)ofthe relevantpropertyor interesttothetrustees complementedwithadeclaration
of the terms of the trust. If the settlor intends to create a trust by this method and
declares the termsofthe trust,butfails totransfer the property tothe intendedtrustees,
it is clear that no express trust is created.2 The court will not automatically imply a selfdeclarationoftrust: see Richards v Delbridge (1874) andJones v Lock (1865).
Theformal requirements,ifany,concerningthetransferofthelegaltitleorequitable
titletopropertyvarywiththenatureoftheproperty involved,inaccordancewiththe
Milroy v Lord (1862) principle; but if the transferor has done everything required of him
totransferthelegaltitletopropertyandsomethinghasyettobedonebyathirdparty,
the transfer will be effective in equity: see Re Rose (1952); contrast Re Fry (1946)in
respectofthetransferofsharesinaprivatecompany.Theeffectofthisrule(knownas
the rule inRe Rose)is that althoughthe transferofthe legaltitle isnot complete,the
transferorwillneverthelessholdthelegaltitletothepropertyasconstructivetrustee
for the transferee.Indeed,inPennington vWaine (2002),theCourtofAppealdecided
thatthedeliveryofthesharetransfer formtothecompanycouldbedispensedwithif
itwouldbeunconscionableforthetransferortorecallwhatsheintendedtodonate,the
transfer would be effective inequity. Thisnotion of unconscionability was based on
analogywiththeprinciple laiddownbythe PrivyCouncil inChoithram InternationalSA
v Pagarani (2001). 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
denytheexistenceofthetrust,whereasinPenningtonthedonorhadneitherdeclared
atrustnormadeaperfectgiftnorhadshedoneeverythingrequiredofhertomakethe
1 Highlightthe significance ofthe modes of creating an express trust.
this test be satisfied?
gift. Accordingly, Pennington may be treated as an unjustifiable extension of the Milroy
v Lord principle.3More recently in Zeital v Kaye (2010), an element of orthodoxy was reinstated when the Court ofAppeal applied the strict Re Roseprinciple and distinguished
Pennington.
In Re Ralli (1964), the High Court decided that a settlor may expressly manifest an
intention to transfer the relevant property to third-party trustees (transfer and declarationmode) and,prior to completingthe transfer,to declare himself a trustee for the
beneficiaries (self-declaration mode). In this event, the trust will be perfect, provided
that the third-party trustee acquires the property during the settlor’s lifetime. The
court had also decided that it was immaterial how the third-party trustee acquired
the relevant property. The mere factthatthe property had reached the hands ofthe
intended trustees was sufficient to constitute the trust. The logic of this test extended
the Milroy v Lord principle.
Moreover, in Choithram International SA v Pagarani (2001), the Privy Council decided that
where the settlor appoints multiple trustees, including himself, and declares a present,
unconditional and irrevocable intention to create a trustfor specific persons, a failure to
transfer the property tothe nominatedtrustees isnotfatal,for his (settlor’s) retention of
the property will be treated as a trustee. Trusteeship for these purposes is treated as a
jointofficesothattheacquisitionofthepropertybyonetrusteeisequivalenttoitsacquisition by allthe trustees. There was no distinction between a settlor declaring himself to
be the sole trustee and one of a number oftrustees.
InFletcher v Fletcher(1844),the court construed the subject matter of a covenant(to
transfer property on trust) as creating a chose in action, namely the benefit ofthe covenant.Thisintangiblepropertyrightmaybetransferredtothetrusteesontrustfor therelevant beneficiaries, thus perfecting the trust. What is needed to assign such a right or
chose is a clear intention on the part ofthe assignor to dispose ofthe chose to the transferee, but it is questionable whether the settlor had the benefit of the covenant. In any
event,the Fletcher principle was subsequently restricted in Re Cook (1965)to debts
enforceable atlaw, as distinctfrom any other choses in action.4
2 Express the controversial nature of the Pennington rule.
3 TheFletcher ruleishighlycontroversialandoughttobestatedaccompaniedbyits limitations.
Where a trustis perfectly created,the beneficiary is given a rightin rem in the trust propertyandmayprotecthisinterestagainstanyone,exceptabonafidetransfereeofthe
Common Pitfalls
Choithram v Pagarani, Pennington v Waine and Fletcher v Fletcher.
legal estate for value without notice. He may bring the claim in his own name and is entitled to join the trustee as a co-defendant. On the other hand, ifthe intended trustis
imperfect, the transaction operates as an agreement to create a trust. This involves the
lawofcontract,asopposedtothelawoftrust.Anagreementtocreateatrustmayonly
beenforcedinequitybynon-volunteers.Theruleisthat‘equitywillnotassistavolunteer’
and ‘equity will not perfect an imperfect gift’. To obtain an equitable remedy,the claimantis required to establish that he has furnished consideration, see Pullan v Koe (1913).
Valuable consideration refers either to common law consideration in money or money’s
worth or marriage consideration in equity. The persons who are treated as providing
marriage consideration are the parties to the marriage and the issue of the marriage,
including remoterissue.
In conclusion, Lord Browne-Wilkinson’s statement is vindicated by a number of exceptional cases including Ralli, Fletcher, Pagarani and Pennington.
QUESTION 2
In2010,Alfred,incontemplationofhismarriagewithBette, covenantedwithTimto
transfer £50,000 tohim to be held on trustfor Bette for life, remainder to any ofthe children ofthe marriage absolutely. The marriage duly took place.A few months laterAlfred
madeabargainwithhisfather-in-law,Freddie,thatinconsiderationof receiving10,000
shares in Cashflow Ltd (a private company), Alfred will settle his yacht, Orca, on trustfor
Bettefor life, remainder toherbrother,Charlie,absolutely.Alfreddulyexecutedanother
covenantwithTimtosettlehisyacht,OrcaontrustforBettefor lifewithremainderto
Charlie.
Alfred failed to make any transfers to Tim in accordance with the covenants
althoughhehasbeenregisteredasthenewownerof10,000sharesinCashflow
Ltd.
In 2012, Bette died leaving a son, Donald. Alfred still refused to transfer any of
the properties to Tim in respect ofthe covenants.
In2013AlfredmetEdeanddecidedtospendhisdecliningyearswithher.
Itisatthispointofananswertoanexclusionclausequestionthatmanystudents
issue of‘reasonableness’.
Aim Higher
Inattemptingquestionsontheconstitutionoftrusts,studentsoughttoadopta
certainties;theremedies,ifany,availabletoaclaimantwhowishestoenforcean
agreementtocreateatrust;theexceptionstotherulethatequitywillnotassista
volunteer; and the statutory formalities, if any, that are applicable to the
transaction.
In February 2014 Alfred died. Amongst his personal effects was a will, executedin
January 2014, which declared that all his property was to be distributed to
Ede. Ede was also appointed executrix ofAlfred’s will.
Advise Donald, Charlie, Freddie, Tim and Ede as to theirrights, if any, in the above
transactions.
[Ignoreanyapplicationsunder theInheritance(ProvisionforFamilyandDependants)Act
1975.]
How to Read this Question
This problem question raises issues on the enforcement of covenants to create trusts.
Material issues in this question are whether Bette’s son, Donald, her father, Freddie and
brother,Charlie aswell asTim,the covenanteemayenforce the agreementtocreate
trusts.
How to Answer this Question
We are toldthatAlfredfailedtotransfer the relevantproperties.Are the trustsofthe covenantsperfect? Ifnot, are the claimants volunteers?The statusof eachofthe claimants is
required to be analysed to ascertain whether the nature of the remedies each may have
against Albert’sheir.
Answer Structure
This diagramindicates therequirements forthecreationof anexpress trust, notes its effect
and lists the remedies that may be available to a claimant.
ANSWER
Alfred executed two covenants with Tim on separate occasions to transfer £50,000 and
theyacht,Orca,tohimtoholdonvarious trusts,butfailedtotransfer theproperties.Two
questions arise in these circumstances: whether the covenants create trusts of
the relevantproperties in favourofthe intendedbeneficiaries; alternatively, whether the
covenants are enforceable as agreements to create trusts.
The testfor creatingaperfecttrustwas laiddown byTurner LJin Milroy v Lord (1862).This
involvesthesettlor,Alfred,choosingoneoftwomodesofcreatingthetrust:
(a) a transfer of property to the trustees, subject to a direction to hold upon trust
for the beneficiaries; or
(b) a self-declaration of trust.
Applyingthis testtothe factsoftheproblem,we havebeeninformedthatAlfredfailedto
transfer the relevant properties (£50,000 and the yacht) to Tim, the intended trustee.5
Thus,it would appear thatthe intended trustis imperfect. Further,the court will not
automatically imply the second mode for creating an express trust as laid down in Milroy
v Lord,namely,aself-declarationoftrust,inorder toconstituteAlfredatrustee: see Richards v Delbridge(1874).Thereasonfor theruleisthat,despitethetransferor’sintentionto
benefit anotherbymeans of a transfer (whether ontrustor not),the transferoroughtnot
to be treated as a trustee if this does not accord with his intention, for otherwise all
imperfect trusts will become perfect
Category | Exam (elaborations) |
Release date | 2021-09-15 |
Pages | 197 |
Language | English |
Comments | 0 |
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