Lecture 1 - Trust Law PDF

Aims & Objectives -- Todays Lecture. The Trust element is the law of equity 1. Understanding equity and its relationship with common law - What is equity? - Where does it come from? - How do we make sense of the modern application of equity? 2\. What is a trust? - Definit...

Aims & Objectives -- Todays Lecture. The Trust element is the law of equity 1. Understanding equity and its relationship with common law - What is equity? - Where does it come from? - How do we make sense of the modern application of equity? 2\. What is a trust? - Definition and examples - Characteristics of trusts - Types of trusts - Trusts vs gifts and powers **What is Equity? -- associated with morality or ethics -- Unlike Law** **We are thinking about how to prevent unconscionable conduct** **Equity operates on conscious of owner legal interest. Owner of property and equity prevents unconscionable conduct. Prevent them from doing wrong.** - Equity operates on the **conscience** of the owner of the legal interest. - A 'gloss' on the common law: - Equity developed because strict application of common law could lead to unjust results, with limited range of actions and remedies - Aggrieved party might petition the King, and later the Lord Chancellor, for relief -- to do 'equity' - The Lord Chancellor as the 'conscience of the King' - The Chancellor's jurisdiction developed into the Court of Chancery, applying 'Equity' Rules of equity come up in contract law when talking about remedies or injunctions or specific performance. **Example** ***The Earl of Oxford's case*** (1615) "The office of the Chancellor is to correct men's consciences for frauds, breaches of trust, wrongs and oppressions of what nature soever they be, and to soften and mollify the extremity of the law\.... Law and equity \... both aim at the same end which is, to do right" (Lord Ellesmere) - L first landowner and legal owner he sold land to queen Elizabeth then she sold to earl of Oxford. - At that time there was a statute prevent some types of sale of land over an amount of money. - Landowner to Elizabeth fell into category - Regardless of act sale went through to Earl of Oxford - L 40 Years later he sells to smith - Earl goes to court against smith. - Go courts of common law decision its smiths. Common law statute said l to q should not happen. Court reasons that this sale should not have happened and go forward as if it never happened. **Final:** Earl of Oxford spent 20k for improvement. Petition to go to chancellor. Chancellor decided opposite and Earl of Oxford owned land Due to... Bought in good faith, spend money and fraud (he sold it twice and if allowed now would be allowed later) This case: 1. Demonstrates why equity is important 2. Demonstrates 2 important rules for equity, Principle statutes cannot be relied upon to commit fraud (sell land twice) (equitable maxim) and whenever there is conflict between common law and equity. Equity prevails **Where does Equity Come from? Origins** **Pause and think** **Are there advantages or disadvantages in the Lord Chancellor's acting as the 'conscience of the King'?** "Equity is a roguish thing. For law we have a measure\...\[but\] equity is according to the conscience of him that is chancellor, and as that is larger or narrower, so is equity. \[It's\] as if they should make the standard for the measure we call a foot a chancellor\'s foot; what an uncertain measure would this be!... This the same in the chancellor's conscience". (John Selden (1584-1654)) The problem this system creates is an element of subjectivity and makes it unpredictable. One person deciding from their perspective and creates uncertainty. **Also creates a long procedure as they have to go to common law courts and then courts of equity and costly.** Two separate jurisdictions had effectively developed - Common Law and Equity (Court of Chancery) - with their own rules and their own courts - Same facts could lead to different results -- led to unjustifiable time and expense in having to bring two claims, or move between courts, or start again Reforms (Judicature Acts 1873-5) created a single High Court with different divisions - Both common law and equity applied in all courts - Did this result in 'fusion' of the laws (substantive fusion), or just the courts (administrative fusion)? - Does it matter? Judicature act created system we have today where courts apply both common law and equity. **Did this result in 'fusion' of the laws (substantive fusion), or just the courts (administrative fusion)?** Another way to say: Did judicature act substantively fuse common law, and equity was it only an institutional administrative fusion. Only court system became more streamline. Different views: \"the two streams of jurisdiction, though they run in the same channel; run side by side, and do not mingle their waters.\" (Ashburner, Principles of Equity, 1933) "... this metaphor has in my view become both mischievous and deceptive. The innate conservatism of English lawyers may have made them slow to recognise that by the \[Judicature Acts\] the two systems... were fused.... If Professor Ashburner's fluvial metaphor is to be retained at all, the waters of the confluent streams of law and equity have surely mingled now." Lord Diplock, *United Scientific Holdings Ltd v Burnley Borough Council* \[1978\] AC 904 **Modern Application of Equity** Is Equity just about 'doing justice', or deciding 'on the facts'? Rules, and development, still underpinned by certain principles - Unconscionability -- Committing fraud Earl of Oxford case A lot of cases not clear cut (don't have people committing fraud. E.g. A party promises to pass ownership of shares if they leave a job and join my company. I start process and change my mind. Equitable will stand in and prevent unconscionable conduct due to the other party suffering detrimentally. But identifying the meaning of 'unconscionable' is not easy - Fiduciary relationships Are regulated by law of Equity. Trustee and beneficiary relationship is a fiduciary relationship. Relationships of trust and confidence, imposing high standards of behaviour. Trustees are fiduciaries. - The equitable maxims? **Examples** Equity will not assist a volunteer Equity will not suffer a wrong to be without a remedy Equity will not allow the law to be used as an engine of fraud He who comes to equity must come with clean hands Equity looks upon as done as that which ought to have been done Equity looks to intent, not to form (if procedure fails to go through will look at intent) Equity abhors a vacuum **What is a trust?** Definitions "A trust is a relationship recognised by Equity which arises where property is vested in someone (called the trustee), who is obliged to hold it for the benefit of some other person, (called the beneficiary) or for charitable purposes" (Pearce & Stevens) "A trust is an equitable obligation, binding a person (called a trustee) to deal with property owned by him (called trust property, being distinguished from his private property) for the benefit of persons (called beneficiaries) of whom he may himself be one, and any one of whom may enforce the obligation." (Underhill & Hayton) Example  **Parent might die, child cant take care of themselves. Give it to sister. B hold property for C. We have split of ownership B become legal holder and has power but has legal obligations which prevents her dealing with house as an actual owner** **Parties to a Trust** **Aniqa Bernarda Colin** Proprietary and personal rights is what Benefiiciaries have. Proprietary rights are rights over a property **Why use a trust in a scenario like this one?** The Management of Assets - minor beneficiary - incapacitated beneficiary Other reasons: - To avoid (not evade!) tax - To allow for future flexibility - To control the destination of capital - To prevent frivolent spending Characteristics of Trust Enables **separation of legal title and beneficial interest** - Means someone else can benefit, without giving outright gift - Can divide beneficial ownership -- both successively and concurrently - Ongoing control/management - Beneficiary has interest of proprietary nature as well as personal rights Flexible, versatile and dynamic area of law, serving a variety of purposes "... the greatest and most distinctive achievement performed by Englishmen in the field of jurisprudence" Maitland, 1936 **Types of Trust (1): Express Private Trusts** - Express private trusts - Created intentionally by the settlor - Contrast with resulting and constructive trusts - Created to benefit one or more persons - Contrast with purpose trusts - They may be testamentary or inter vivos - Testamentary -- created in settlor's (i.e. testator's) will - Inter vivos -- created during settlor's life, either by declaring himself trustee, or transferring property on trust to trustee NB: Express private trusts may be fixed or discretionary **Fixed Trust (Doesn't have to be equal)** Each beneficiary is entitles to a fixed share e.g. "... to my children in equal shares" Its fixed because we know the shares of each beneficiary **Discretionary Trust** E.g. "...for the trustees to hold and distribute at their discretion amongst A, B, C and D in such proportions as they may think appropriate" Each beneficiary has a right to be considered by the trustee Difficult to tax because you don't know what the beneficiary will get. **Different rules apply to each trust. Important to understand distinction** **Trust vs Gift** Gift Trust v Power  **Trust -- imperative -- to decide if to distribute or how** **Power -- discretionary -- if given** **[Powers can be fiduciary or 'mere'/'bare'(means under no legal obligation) :]** - Example 1 -- fiduciary power Marlene gives £10,000 to her solicitor which may be distributed amongst M's friends Solicitor acts as a fiduciary -- has fiduciary power - Example 2 -- mere/bare power Rashid gives £10,000 to his sister which may be distributed amongst R's friends Power given to sister no fiduciary power (not required to act)