LAWS5980 Equity & Trusts - Lecture 10 - Property-Power and Moral Distance - PDF

Trusting and Trusts in the Modern World II: Property-Power and Moral Distance LAWS5980 Equity & Trusts | 23 February 2024 Equity’s manipulation of property ‘To many minds, Equity’s greatest contribution to the law has been its manipulation of traditionally accepted concerns of property.’ - Worthingt...

Trusting and Trusts in the Modern World II: Property-Power and Moral Distance LAWS5980 Equity & Trusts | 23 February 2024 Equity’s manipulation of property ‘To many minds, Equity’s greatest contribution to the law has been its manipulation of traditionally accepted concerns of property.’ - Worthington, Equity (2nd ed, 2006), p 51 ‘[I]t is fair to say that the concept of equitable proprietary rights is in some respects somewhat paradoxical. Equity, unlike the common law, classically acts in personam; yet equity is far more ready to accord proprietary claims than common law.’ - FHR European Ventures v Cedar Capital Partners (2014) at per Lord Neuberger From moral to legal trust ‘A “trust” in English law is in some measure the translation into legal terms of the word “trust” as used in ordinary speech. Its conceptual starting point is “a confidence reposed in some other”. The “confidence” so reposed gives rise to moral obligations to which the courts, aided by the legislature, have purported to develop legal parallels.’ - Garton, Moffat’s Trusts Law, p 1 From moral to legal trust: regulating the risk of trusting ‘To the extent that law controls trustees, the risk of relying on them is reduced and the moral relationship of trust is displaced from the trustee and attaches to law itself. Thus, law’s significance is to reduce the risk of interpersonal trust. Instead of having to put one’s moral trust purely in the trustee, one can have confidence in law which guarantees the trustee’s proper behaviour.’ - Cotterrell, ‘Trusting in Law’, p 79 Different conceptions of the nature and functions of trusts Moralistic Individual property Capital management Moralistic trust Settlor’s personal trust in trustee Obligation in conscience Focus on settlor intention Aristocratic wealth across generations Beginnings of the emergence of the trust as a distinct legal category Coke v Fountain (1676) Statute of Frauds 1677 Duke of Norfolk’s Case (1682) Lord Nottingham (1675–1682) The trust as individualised property Lord Eldon (Lord Chancellor between 1801-1806 and 1807-1827) Formalism and the category of ‘trust’ ‘…there is a vast difference between things to which we give the same denomination, I mean trusts.’ Lord Eldon in Cholmondeley v Clinton (1821) 3 certainties: Knight v Knight (1840) Beneficiary principle: Morice v Bishop of Durham (1805) Beneficial interest as assignable property: Brandon v Robinson (1811) Beneficiaries can (collectively) end the trust: Saunders v Vautier (1841) Transformation of economy: from agrarian to industrial capitalism Lord Eldon (1801-1806, 1807-1827) Trusts and property-power ‘Behind the concept of the trust, however, stands an even more fundamental one of great and universally recognised ideological significance – the concept of property.’ (Cotterrell, ‘Property, Power and the Law of Trusts’, p 82) Ideology (appearance) → (formal) equality before the law Reality → inequality, for example unequal property distribution ‘The trust provides a way of freeing the property owner from constraints which the ideology of property otherwise imposes on her or him through its logic.’ (Cotterrell, ‘Property, Power and the Law of Trusts’, p 83) Persons → replaceable trustees and indefinite range of beneficiaries collectively entitled Things → trust creates idea of the fund (‘clusters of value’) Apparent property power → trustees Real property power → beneficiaries Beneficiary principle Fiduciary obligations The beneficiary principle and the ideology of property ‘Private purpose trusts run into difficulties since by their nature they have no human beneficiaries. … [T]he real difficulty is that property necessarily represents in ideological form the attributes of power of someone or some collectivity. Ultimately the ideological form must be consistent with what it represents. Thus the law cannot comprehend property without any beneficial owner.’ Cotterrell, ‘Property, Power and the Law of Trusts’, p 88 Charities Act 2011 Section 1(1) ‘For the purposes of the law of England and Wales, “charity” means an institution which— (a) is established for charitable purposes only, and (b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.’ Section 2(1) A charitable purposes is: one falling under section 3; and for the public benefit. Charitable purposes: s.3(1) (a) the prevention or relief of poverty; (b) the advancement of education; (c) the advancement of religion; (d) the advancement of health or the saving of lives; (e) the advancement of citizenship or community development; (f) the advancement of the arts, culture, heritage or science; (g) the advancement of amateur sport; (h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity; (i) the advancement of environmental protection or improvement; (j) the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage; (k) the advancement of animal welfare; (l) the promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services; (m) any other purposes— (i) that are not within paragraphs (a) to (l) but are recognised as charitable purposes by virtue of section 5 (recreational and similar trusts, etc.) or under the old law, (ii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of paragraphs (a) to (l) or subparagraph (i), or (iii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes which have been recognised, under the law relating to charities in England and Wales, as falling within sub-paragraph (ii) or this sub-paragraph. Charitable trusts and the ideology of property? ‘Property put into a charitable trust is not “disembodied” property. Not only is it technically owned by charity trustees but its protection is in various aspects the responsibility of public officials (the Attorney General, the Charity [Commission]). The crucial factor here is that property settled on charitable trust is given for the “public benefit”. Its ultimate beneficial owner is “the public” or, we might say, “society”. Charitable trusts provide a rare, perhaps unique, instance of the construction of society as a collective subject – a property owner – within private law.’ Cotterrell, ‘Property, Power and the Law of Trusts’, p 88-89 Trusts and capital management Large discretionary trusts: A new test for certainty of objects: McPhail v Doulton (1970) Pension trusts Unit trusts Collective investment schemes Financial markets Wealth management and further transformations of the trust Globalisation and the offshore Asset protection trusts Non-charitable purpose trusts (eg Cayman Islands STAR trusts) – a return to trust as obligation? Reform and abolition rule against perpetuities Limitations on rights of beneficiaries: Rise of exemption clauses: Armitage v Nurse (1997) Changes in principles of access to information about the trust: Schmidt v Rosewood (2003) Trustees as ‘professional managers of capital’ ‘The trust is an effort to escape from the ever-deepening and everrecurrent crisis in capitalism. It is the confession of the upper middle class – the class that has most used the trust – that the contradictions in capitalism cannot be resolved. The risks of capitalism … must be minimised as much as possible through the employ of an astute, intelligent, ever watchful class of professional managers of capital ….’ - M. Franklin (1933-34) quoted in Moffat’s Trusts Law pp. 1-2 Size, expertise and discretion – the need for responsibility ‘[A]s moral distance in trusts increases, especially with the elements of size and special expertise, the moralistic notion of fiduciary responsibility, suggesting a personal obligation of care and concern owed to identifiable beneficiaries, is likely to receded. Correspondingly, the element of technical competence, implying the need for freedom and initiative to apply expertise, assumes increased prominence.’ - Cotterrell, ‘Trusting in Law’ at 85 Trusts, power and ethics Private trusts: Trusts as hiding property-power (of beneficiaries)? Trusts as facilitating property-power (of settlors)? Trusts as creating property-power of managerial class (of trustees)? Charities: A public benefit? See eg Independent School Commission (2011) State-charity nexus? Political purposes and activity? https://youtu.be/hpAMbpQ8J7g?t=306