TRUSTS LONG SUMMARY
Table of Contents
1. Equity and the Trust.......................................................................................................5
1. The Concept of Equity...............................................................................................................5
2. The Common Law and Equity Divide.........................................................................................6
3. Equitable Maxims.....................................................................................................................7
4. Fusion of (Administration of) Law and Equity:..........................................................................8
5. The Trust as a Creation of Equity..............................................................................................9
2. Introduction to Trusts...................................................................................................10
I. THE CONCEPT OF THE TRUST...................................................................................................10
1.1 What is a trust?.......................................................................................................................................10
1.2 The express trust: its constituent parts..................................................................................................10
1.3. Separation of legal and equitable ownership........................................................................................11
1.4. Separation of control and benefit.........................................................................................................11
1.5. Fundamental Essence of a Trust............................................................................................................12
1.6. Consequences of creation of a private express trust............................................................................13
II. CLASSIFYING TRUSTS..............................................................................................................13
2.1 The traditional classification...................................................................................................................13
2.2 The trust as a response to an event.......................................................................................................15
2.3 The trust as a species of obligation........................................................................................................16
2.4 Classification by context (i.e. reasons we create trusts)........................................................................17
III. DISTINGUISHING TRUSTS FROM OTHER LEGAL FORMS.........................................................17
3. The Trusts Powers Spectrum.........................................................................................18
1. THE GIFT - POWER – TRUST SPECTRUM..................................................................................18
1.1 Example instruments............................................................................................................19
1.2 Gifts......................................................................................................................................20
1.3 Powers of appointment........................................................................................................20
1.4. Discretionary trusts..............................................................................................................26
1.4A Trusts and Powers – are they clearly distinguishable?........................................................33
1.5. Failure to exercise a power..................................................................................................34
1.6 Fixed trust.............................................................................................................................35
1.7 Example Situation from the Textbook...................................................................................36
Trust/Powers Exercise................................................................................................................37
4. Certainty of Intention...................................................................................................41
Creation of express trusts: Overview of requirements................................................................41
Capacity......................................................................................................................................41
1
, The Three Certainties.................................................................................................................41
1. Certainty of intention...............................................................................................................................42
5. Certainty of Subject Matter..........................................................................................50
4.1. Nature of subject matter......................................................................................................50
4.2. Description/definition of the subject matter.......................................................................50
4.2.1. ‘bulk of my residuary estate’..............................................................................................................51
4.2.2. ‘Whatever is left’.................................................................................................................................51
4.2.3 ‘Anything that is left’............................................................................................................................52
4.2.4 Trust of the ‘residue’............................................................................................................................52
4.2.5 The ‘reasonable income’ trust.............................................................................................................53
4.2.6 Other examples....................................................................................................................................53
4.3 Identity of the subject matter...............................................................................................53
4.3.1 Trusts of part of a larger bulk of property...........................................................................................53
4.4 Certainty of division of beneficial share................................................................................59
4.5 Absence of certainty of subject-matter.................................................................................59
6. Certainty of Objects......................................................................................................60
5.1 Introduction..........................................................................................................................60
5.1.1 The most hallowed or ‘cardinal principle’: Emery...............................................................................60
5.1.2 Aspects of certainty.............................................................................................................................61
5.1.3 How to approach analysis of certainty of objects...............................................................................61
5.1.4 Key requirements summary................................................................................................................61
5.2 Fixed Trusts...........................................................................................................................62
5.2.1 Essential test: “complete list”..............................................................................................................62
5.2.2 Conceptual certainty............................................................................................................................62
5.2.3 Evidential certainty..............................................................................................................................63
5.2.4 Ascertainability....................................................................................................................................64
5.2.5 Administrative workability...................................................................................................................64
5.2.6 Capriciousness.....................................................................................................................................64
5.3 Discretionary trusts of Burrough type...................................................................................64
5.4 Discretionary trusts of Baden type........................................................................................65
5.4.1 Essential test: “is or is not”..................................................................................................................65
5.4.2 Conceptual certainty............................................................................................................................66
5.4.3 Evidential certainty..............................................................................................................................66
5.4.4. Ascertainability...................................................................................................................................67
5.4.5 Administrative workability...................................................................................................................67
5.4.6 Capriciousness.....................................................................................................................................68
5.5 Powers of appointment........................................................................................................68
5.5.1. Essential test: “is or is not” test..........................................................................................................68
5.5.2. Conceptual certainty...........................................................................................................................69
5.5.3. Evidential certainty.............................................................................................................................69
5.5.4. Ascertainability...................................................................................................................................69
5.5.5. Administrative Workability.................................................................................................................69
5.5.6. Capriciousness....................................................................................................................................70
5.6 Curing uncertainty................................................................................................................70
5.6.1. Series of conditional gifts....................................................................................................................70
5.6.2. Trustee as arbiter................................................................................................................................71
2
, 5.6.3 Third party arbiter...............................................................................................................................72
5.7 Effect of absence of three certainties....................................................................................72
5.8 Topics of debate (Textbook Critique)....................................................................................72
1) Should there be a single test for certainty of objects?............................................................................72
2) An alternative test for powers..................................................................................................................72
7. Beneficiary Principle.....................................................................................................73
1. Introduction............................................................................................................................73
2. Rationale for the Beneficiary Principle....................................................................................74
3. Legitimacy of the Beneficiary Principle...................................................................................75
4. Trusts of Imperfect Obligation................................................................................................77
4.1 Trusts for the care and maintenance of specific animals.......................................................................78
4.2 Trusts to erect and maintain monuments and graves...........................................................................79
4.3 Trusts for the saying of private masses..................................................................................................79
How to reconcile trusts of imperfect obligation with the beneficiary principle?........................................80
5. Purpose (in)directly benefits ascertained individuals..............................................................81
6. Trust for persons where purpose is a motive for the gift........................................................83
8. Formalities...................................................................................................................85
Introduction...............................................................................................................................85
S53 (1) Law of Property Act 1925:...............................................................................................88
i) Property other than land/Trusts of pure personalty.................................................................................89
ii) Trusts of Land............................................................................................................................................90
iii) Disposition of Subsisting Equitable Interests...........................................................................................93
9. Constitution................................................................................................................109
A. INTRODUCTION....................................................................................................................109
B. FORMALITIES FOR THE TRANSFER OF TITLE..........................................................................112
C. MUTUALLY EXCLUSIVE METHODS OF MAKING A GIFT..........................................................113
D. EXCEPTIONAL CASES WHERE THE COURT FOUND A FULLY CONSTITUTED TRUST.................113
1. Re Rose [1952] Ch 499, CA......................................................................................................................114
2. T. Choithram International SA v Pagarani [2001] 1 WLR 1, PC...............................................................116
3. Pennington v Waine [2002] EWCA Civ 227 [2002] 1 WLR 2075.............................................................119
4. Fortuitous vesting of legal title...............................................................................................................123
5. The rule in Strong v Bird (1874) LR 18 Eq 315........................................................................................124
E. EXCEPTIONS TO THE RULE THAT EQUITY WILL NOT ASSIST A VOLUNTEER............................127
The rule in Strong v Bird.............................................................................................................................127
Donatio mortis causa..................................................................................................................................127
Proprietary estoppel...................................................................................................................................128
OVERALL SUMMARY.................................................................................................................129
10. TRUSTEES’ DUTIES AND REMEDIES FOR BREACH.......................................................130
A. Introduction.........................................................................................................................130
B. Duty of Investment...............................................................................................................131
3
, 1. The duty to invest...................................................................................................................................131
2. Powers of investment.............................................................................................................................132
3. Duties of trustees in making investments..............................................................................................135
4. Introducing Breach of Trust: Proving a breach of trust and what happens if something goes wrong? 141
C. Personal Liability of a Trustee for Breach of Trust or Duty....................................................142
1. Election between remedies....................................................................................................................143
2. What breaches may have occurred?......................................................................................................143
3. Equitable compensation.........................................................................................................................144
4. Liability between trustees – how is it shared?.......................................................................................149
5. Defences.................................................................................................................................................151
D. Fiduciary Duty of Loyalty and Unauthorised Profits..............................................................163
1. Introduction; the existence of a fiduciary relationship..........................................................................164
2. Duty of loyalty: introduction...................................................................................................................164
3. Duty of loyalty: specific examples..........................................................................................................167
4. Allowance for skill and work done..........................................................................................................176
5. Authorised profits...................................................................................................................................176
6. Duties of a fiduciary: how strict should the law be?..............................................................................176
E. Remedies where there is an Unauthorised Profit..................................................................177
(i) T’s duty to account for profit..................................................................................................................177
(ii) Proprietary remedy: A constructive trust imposed on the profits........................................................178
11. PROPRIETARY CLAIMS AND REMEDIES......................................................................179
1. Introduction..........................................................................................................................179
2. Remedies for Equitable proprietary claims...........................................................................180
2.1 Types of remedy...................................................................................................................................180
2.2 Nature of proprietary remedies...........................................................................................................181
2.3. Nature of liability.................................................................................................................................181
3. Process for establishing a claim and remedy.........................................................................185
4. The proprietary base.............................................................................................................186
4.1 Creation of equitable property interests..............................................................................................186
4.2. Retention of equitable property interest............................................................................................187
5. Following and tracing............................................................................................................187
5.1. Fundamental principles of tracing.......................................................................................................188
5.2. Tracing rules in Equity..........................................................................................................................189
5.3. Restrictions on equitable tracing.........................................................................................................195
5.4. Backward tracing.................................................................................................................................196
Should backward tracing be a doctrine?....................................................................................................198
5.5. Inequitable to trace.............................................................................................................................199
6. Claiming................................................................................................................................199
6.1. Claims...................................................................................................................................................199
6.2 Subrogation...........................................................................................................................................201
7. Defences...............................................................................................................................203
12. PERSONAL LIABILITY OF STRANGERS.........................................................................203
1. Introduction..........................................................................................................................203
1.1 The nature of the remedy: personal liability to account in equity.......................................................204
2. Unconscionable Receipt........................................................................................................205
4
Table of Contents
1. Equity and the Trust.......................................................................................................5
1. The Concept of Equity...............................................................................................................5
2. The Common Law and Equity Divide.........................................................................................6
3. Equitable Maxims.....................................................................................................................7
4. Fusion of (Administration of) Law and Equity:..........................................................................8
5. The Trust as a Creation of Equity..............................................................................................9
2. Introduction to Trusts...................................................................................................10
I. THE CONCEPT OF THE TRUST...................................................................................................10
1.1 What is a trust?.......................................................................................................................................10
1.2 The express trust: its constituent parts..................................................................................................10
1.3. Separation of legal and equitable ownership........................................................................................11
1.4. Separation of control and benefit.........................................................................................................11
1.5. Fundamental Essence of a Trust............................................................................................................12
1.6. Consequences of creation of a private express trust............................................................................13
II. CLASSIFYING TRUSTS..............................................................................................................13
2.1 The traditional classification...................................................................................................................13
2.2 The trust as a response to an event.......................................................................................................15
2.3 The trust as a species of obligation........................................................................................................16
2.4 Classification by context (i.e. reasons we create trusts)........................................................................17
III. DISTINGUISHING TRUSTS FROM OTHER LEGAL FORMS.........................................................17
3. The Trusts Powers Spectrum.........................................................................................18
1. THE GIFT - POWER – TRUST SPECTRUM..................................................................................18
1.1 Example instruments............................................................................................................19
1.2 Gifts......................................................................................................................................20
1.3 Powers of appointment........................................................................................................20
1.4. Discretionary trusts..............................................................................................................26
1.4A Trusts and Powers – are they clearly distinguishable?........................................................33
1.5. Failure to exercise a power..................................................................................................34
1.6 Fixed trust.............................................................................................................................35
1.7 Example Situation from the Textbook...................................................................................36
Trust/Powers Exercise................................................................................................................37
4. Certainty of Intention...................................................................................................41
Creation of express trusts: Overview of requirements................................................................41
Capacity......................................................................................................................................41
1
, The Three Certainties.................................................................................................................41
1. Certainty of intention...............................................................................................................................42
5. Certainty of Subject Matter..........................................................................................50
4.1. Nature of subject matter......................................................................................................50
4.2. Description/definition of the subject matter.......................................................................50
4.2.1. ‘bulk of my residuary estate’..............................................................................................................51
4.2.2. ‘Whatever is left’.................................................................................................................................51
4.2.3 ‘Anything that is left’............................................................................................................................52
4.2.4 Trust of the ‘residue’............................................................................................................................52
4.2.5 The ‘reasonable income’ trust.............................................................................................................53
4.2.6 Other examples....................................................................................................................................53
4.3 Identity of the subject matter...............................................................................................53
4.3.1 Trusts of part of a larger bulk of property...........................................................................................53
4.4 Certainty of division of beneficial share................................................................................59
4.5 Absence of certainty of subject-matter.................................................................................59
6. Certainty of Objects......................................................................................................60
5.1 Introduction..........................................................................................................................60
5.1.1 The most hallowed or ‘cardinal principle’: Emery...............................................................................60
5.1.2 Aspects of certainty.............................................................................................................................61
5.1.3 How to approach analysis of certainty of objects...............................................................................61
5.1.4 Key requirements summary................................................................................................................61
5.2 Fixed Trusts...........................................................................................................................62
5.2.1 Essential test: “complete list”..............................................................................................................62
5.2.2 Conceptual certainty............................................................................................................................62
5.2.3 Evidential certainty..............................................................................................................................63
5.2.4 Ascertainability....................................................................................................................................64
5.2.5 Administrative workability...................................................................................................................64
5.2.6 Capriciousness.....................................................................................................................................64
5.3 Discretionary trusts of Burrough type...................................................................................64
5.4 Discretionary trusts of Baden type........................................................................................65
5.4.1 Essential test: “is or is not”..................................................................................................................65
5.4.2 Conceptual certainty............................................................................................................................66
5.4.3 Evidential certainty..............................................................................................................................66
5.4.4. Ascertainability...................................................................................................................................67
5.4.5 Administrative workability...................................................................................................................67
5.4.6 Capriciousness.....................................................................................................................................68
5.5 Powers of appointment........................................................................................................68
5.5.1. Essential test: “is or is not” test..........................................................................................................68
5.5.2. Conceptual certainty...........................................................................................................................69
5.5.3. Evidential certainty.............................................................................................................................69
5.5.4. Ascertainability...................................................................................................................................69
5.5.5. Administrative Workability.................................................................................................................69
5.5.6. Capriciousness....................................................................................................................................70
5.6 Curing uncertainty................................................................................................................70
5.6.1. Series of conditional gifts....................................................................................................................70
5.6.2. Trustee as arbiter................................................................................................................................71
2
, 5.6.3 Third party arbiter...............................................................................................................................72
5.7 Effect of absence of three certainties....................................................................................72
5.8 Topics of debate (Textbook Critique)....................................................................................72
1) Should there be a single test for certainty of objects?............................................................................72
2) An alternative test for powers..................................................................................................................72
7. Beneficiary Principle.....................................................................................................73
1. Introduction............................................................................................................................73
2. Rationale for the Beneficiary Principle....................................................................................74
3. Legitimacy of the Beneficiary Principle...................................................................................75
4. Trusts of Imperfect Obligation................................................................................................77
4.1 Trusts for the care and maintenance of specific animals.......................................................................78
4.2 Trusts to erect and maintain monuments and graves...........................................................................79
4.3 Trusts for the saying of private masses..................................................................................................79
How to reconcile trusts of imperfect obligation with the beneficiary principle?........................................80
5. Purpose (in)directly benefits ascertained individuals..............................................................81
6. Trust for persons where purpose is a motive for the gift........................................................83
8. Formalities...................................................................................................................85
Introduction...............................................................................................................................85
S53 (1) Law of Property Act 1925:...............................................................................................88
i) Property other than land/Trusts of pure personalty.................................................................................89
ii) Trusts of Land............................................................................................................................................90
iii) Disposition of Subsisting Equitable Interests...........................................................................................93
9. Constitution................................................................................................................109
A. INTRODUCTION....................................................................................................................109
B. FORMALITIES FOR THE TRANSFER OF TITLE..........................................................................112
C. MUTUALLY EXCLUSIVE METHODS OF MAKING A GIFT..........................................................113
D. EXCEPTIONAL CASES WHERE THE COURT FOUND A FULLY CONSTITUTED TRUST.................113
1. Re Rose [1952] Ch 499, CA......................................................................................................................114
2. T. Choithram International SA v Pagarani [2001] 1 WLR 1, PC...............................................................116
3. Pennington v Waine [2002] EWCA Civ 227 [2002] 1 WLR 2075.............................................................119
4. Fortuitous vesting of legal title...............................................................................................................123
5. The rule in Strong v Bird (1874) LR 18 Eq 315........................................................................................124
E. EXCEPTIONS TO THE RULE THAT EQUITY WILL NOT ASSIST A VOLUNTEER............................127
The rule in Strong v Bird.............................................................................................................................127
Donatio mortis causa..................................................................................................................................127
Proprietary estoppel...................................................................................................................................128
OVERALL SUMMARY.................................................................................................................129
10. TRUSTEES’ DUTIES AND REMEDIES FOR BREACH.......................................................130
A. Introduction.........................................................................................................................130
B. Duty of Investment...............................................................................................................131
3
, 1. The duty to invest...................................................................................................................................131
2. Powers of investment.............................................................................................................................132
3. Duties of trustees in making investments..............................................................................................135
4. Introducing Breach of Trust: Proving a breach of trust and what happens if something goes wrong? 141
C. Personal Liability of a Trustee for Breach of Trust or Duty....................................................142
1. Election between remedies....................................................................................................................143
2. What breaches may have occurred?......................................................................................................143
3. Equitable compensation.........................................................................................................................144
4. Liability between trustees – how is it shared?.......................................................................................149
5. Defences.................................................................................................................................................151
D. Fiduciary Duty of Loyalty and Unauthorised Profits..............................................................163
1. Introduction; the existence of a fiduciary relationship..........................................................................164
2. Duty of loyalty: introduction...................................................................................................................164
3. Duty of loyalty: specific examples..........................................................................................................167
4. Allowance for skill and work done..........................................................................................................176
5. Authorised profits...................................................................................................................................176
6. Duties of a fiduciary: how strict should the law be?..............................................................................176
E. Remedies where there is an Unauthorised Profit..................................................................177
(i) T’s duty to account for profit..................................................................................................................177
(ii) Proprietary remedy: A constructive trust imposed on the profits........................................................178
11. PROPRIETARY CLAIMS AND REMEDIES......................................................................179
1. Introduction..........................................................................................................................179
2. Remedies for Equitable proprietary claims...........................................................................180
2.1 Types of remedy...................................................................................................................................180
2.2 Nature of proprietary remedies...........................................................................................................181
2.3. Nature of liability.................................................................................................................................181
3. Process for establishing a claim and remedy.........................................................................185
4. The proprietary base.............................................................................................................186
4.1 Creation of equitable property interests..............................................................................................186
4.2. Retention of equitable property interest............................................................................................187
5. Following and tracing............................................................................................................187
5.1. Fundamental principles of tracing.......................................................................................................188
5.2. Tracing rules in Equity..........................................................................................................................189
5.3. Restrictions on equitable tracing.........................................................................................................195
5.4. Backward tracing.................................................................................................................................196
Should backward tracing be a doctrine?....................................................................................................198
5.5. Inequitable to trace.............................................................................................................................199
6. Claiming................................................................................................................................199
6.1. Claims...................................................................................................................................................199
6.2 Subrogation...........................................................................................................................................201
7. Defences...............................................................................................................................203
12. PERSONAL LIABILITY OF STRANGERS.........................................................................203
1. Introduction..........................................................................................................................203
1.1 The nature of the remedy: personal liability to account in equity.......................................................204
2. Unconscionable Receipt........................................................................................................205
4
