Equity and Trust Law Lecture Notes PDF

Lecture 1 - Equity & Trusts (Maxims) The birth of equity We will mostly deal with Trust, which is a part of Equity. It matters because that’s where all the money is. What is equity in English law ? Equity is a body of principles, doctrines, rules and maxims. They are historically from the Courts of Chancery. It was developed in competition with the law (Court of Chancery vs Court of Common Law). Important : Equity is NOT law. BUT it is similar to law. A system of law balances the needs for certainty of ruling. ⇒ There is a need for the rules to be certain and to balance that with judicial discretion to create fairness/leniency. Equity is there to make sure the justice is fair/just. Equity means fairness, it was created to make the law fair because the law can be unfair. In ordinary terms, Equity means “to do justice”, “what is fair”. A) Origins of equity Equity was born in the 13th century, in the reign of Edward the 1st, known as Edward Longshanks but also the Hammer of the Scots. (He was 6ft2) He spent most of his life reforming administration of the law. He subjected Scotland & Wales to English rule. He expelled the Jews. ⇒ He started as the Chancellor of the Exchequer (room in the Tower of London which had a chessboard in the ground = The Treasure) A person could appeal to the King when the Bench quashed his writ, separated from the Court. This stated as an administrative reform, to see the King who was not available you had to see his chancellor. The new writs from treasure were quashed by judges as they were new. ❖ Possibility to petition the King He started to allow claimants to write petitions to the King. This would bypass the Bench (the judges). ⇒ That is when the Chancellor (Treasurer) began to develop his power, his judicial power. Through the King, a division between 2 forms of justice emerged : - Court of Common Pleas = Court of Common Law - Courts of Chancery = Court of Equity ⇒ Under this system, the criminal cases would be sent to the King’s bench for jury trial. The others could petition to the Chancellor for a writ. In Equity, the Chancellor could command people to come and meet him, he was the representative of the King : Writ of Subpoena = force the defendant to be present and answer questions under oath with no jury ⇒ If you are subpoenaed by the chancery, you are subject to the power of the judge = Extraordinary justice offered by the Chancellor, which irritated the lawyers, judges and Parliament. It did not take long for the Common Law Courts to forbid the Chancellor to deal with Common law cases. ⇒ The Chancellor could deal with contracts, trust law, fraud, accident, breach of confidence… Existence of Court reporters Btw the 14th and 15th century, there were no Court reporters, so there was no written record of the decision made by the Chancellor. It is only by the 16th century that Court reporters appeared, in about 1557. Starting from the 1500s, the Chancellors were using injunctions to prevent people from doing something, to pursue their case in the Courts of Common Law. ⇒ Possibility to go to the Court of Chancery if the people were unhappy with their decision ⇒ That institutional conflict of laws created tensions between law and equity. Personification of an example: ❖ Lord Chancellor Ellesmere (IMPORTANT) Reminder : The Chancellor wasn’t a judge, he was like a PM ❖ Sir Edward Coke = Chief justice of the King’s Bench Reminder : He made English law fair and just. Before him, the Common Law was oppressive. ❖ Francis Bacon = Attorney general of King James I Remark : He was the father of scientific methods, he created the “sine qua non” of causation ★ Earl of Oxford Case (1615) When equity and law are in conflict, who wins ? ⇒ Equity ⇒ The reporting of cases made Equity more fixed, it created precedents and made it look like Common law. What looked like a remedy started to look like a Court. ❖ Richard Francis, Maxims of Equity (1727) Richard Francis wrote the Maxims of Equity in 1727. ⇒ The maxims were brought together after reading reports that existed since 1557. He did not invent them. ⇒ He called the principles of Equity “Maxims of equity”, the word maxims also existed in other matters. Was equity fused with law in 1875 ? In England, they did legal reforms to bring together all the different Courts in a single High Court of Justice. ⇒ A single Court of Equity could not handle all the cases that were brought to him. ❖ Charles Dickens, Bleak House (1850) ⇒ Gave a vivid description of the Court of Chancery ⇒ He wrote about injustice with fictional realism to make social commentaries ★ Judicature Act of 1873-1875 Lord Chancellor Selbourg introduced the Judicature Act of 1873-1875. ⇒ It made Chancery Court a mere division of the High Court of Justice. Did that make equity fuse with Common law ? ⇒ There is no correct answer. This is a philosophical question. Opinions are sharply divided on this matter. ➔ Orthodox view: Most people say that they did not fuse ⇒ Equity remains a different system because it has different functions. ⇒ Fix law = Remedy for law ⇒ In the name of justice, equity fixes law and makes law less rigid. It prevents to use the law for injustice, like the Statutes of Limitations ➔ Other view: The others say that equity fused with the Common law. Remark: In the Commonwealth, all the other countries fused Equity and Common Law. Can equity create new principles ? ⇒ English law is mostly archaic, traditional. ➔ Infertile: There is a general consensus that equity is a bunch of rigid rules. This is because the Court of Chancery will make its decision based on precedents, on the maxims of equity. ⇒ So basically equity can’t create new principles = stare decisis (let the decision stand). ➔ Fertile: HOWEVER, some people say that equity is not infertile. They believe that “Judge-made-law” is likely to invent new doctrines that didn’t exist before. ⇒ It donates eggs to surrogate, so the judge can apply the maxims of equity as he sees fit. What is a trust ? ⇒ Not in ordinary daily English ⇒ A Trust is an operation of law, and more precisely an operation of equity. It is a relationship : - A trustee hold property for another person, the beneficiary - A settler creates the trust ⇒ Three-way relationship ❖ Origins of Trust Trust was born way before equity. In 1066, there was only the conquest of England. BUT even before the Norman conquest, it was possible to allow someone else to use one’s land for a temporary period. ⇒ By the 13th century, a landlord (a feoffor), could give a “feoffee to uses” to hold land to the beneficiary of a person called the “cestui que use”. ⇒ Someone could break their trust and keep the land and not return it or use it for the beneficiary. There would be no possibility to hold them liable as there was no law to regulate trusts. ⇒ Trust without law ends with Henry VIII THE END Lecture 2 - Maxims of Equity There is no definitive list of maxims, no actual source of Equity. Equity = assemblance of maxims Maxims (“maximo propositio”) = the major premise Maxims are a general truth or a rule of conduct that is expressed in a short sentence, expression. The major premise is derived from the rules of logic learnt by ancient jurists. They learnt syllogisms. In a syllogism, there is: 1) a major premise (general truth, as “all men are mortal”) 2) a minor premise (specific claim, as “Donald Trump is a man”) 3) and a deduction/conclusion (“Donald Trump is mortal”). ⇒ We can use this mechanism for the law. Isonomia : equality before the law⇒ It’s a major premise that can be used The author Richard Francis wrote the Maxims of Equity (1727) ⇒ A maxim isn’t law. It compiles judges’ maxims, but we are not sure about the entire list of maxims. - For example, some maxims disappeared because of lack of use. Equity is based on a series of fundamental principles formulated in short phrases, maxims. Maxims are NOT rules of law / legal rules, they are moral prescriptions supposed to be there to fix the law. The common law legal reasoning is reasoning by example. The maxims of equity are not binding rules of law: Ex: Robbery example ○ 2 robbers agreed to split 50/50 ○ Then after committing bank robbery, the big one told the other he could only have 20% ○ The weaker could not take the one to court because “out of an illegal contract no action can lie” ⇒ Maxim ⇒ However, there was no contract between the 2 because contracts are governed by rules of law. ⇒ Equity is a complement to law → The principles of fairness intervene when the law isn’t fair. The aim of a maxim is to prevent unfair application of law. Typology of maxims : 1) “Equity acts in personam, not in rem” ➔ Penn v Lord Baltimore (1750) 2) “Equity follows Law” ➔ Earl of Oxford Case (1615) 3) “He Who Comes To Equity Must Come With Clean Hands” ➔ Cross v. Cross (1983) ➔ Argyll v. Argyll (1967) 4) “He Who Seeks Equity, Must Do Equity” ➔ Chappell v. Times Newspapers (1975) 5) “Delay Defeats Equity” or “Those Who Sleep on their Rights will not receive Equity” ➔ Leaf v. International Gallery (1950) 6) “Equity looks to Substance, Not Form” ➔ Comiskey v. Bowring-Hanbury (1905) 7) “Equity Will Not Permit a Statute to be used as an Instrument of Fraud” ➔ Katherine, Duchess of Suffolk v. Henredon (1560) 8) “Equity sees as done, that which ought to be done” ➔ Walsh v. Lansdale (1882) 9) Equity is equality” ➔ Diwell v. Farnes (1961) 1) “Equity acts in personam, not in rem” ⇒ personam : personal jurisdiction ≠ in rem : only the property. Equity does NOT act directly on the object of the lawsuit ⇒ Equity won’t act on the profits, the things, the property ⇒ it acts on a person. → beneficiary in a trust → property right (in rem) + personal right (in personam). Penn v Lord Baltimore (1750) ⇒ conflict between William Penn and Lord Baltimore → owned property in the American colonies. They had a dispute over land that they owned in colonial America ⇒ It is a dispute over land that is outside of England → the defense was that he can’t sue him, because the English court doesn’t have jurisdic*on over there. The colonies were not part of England. He argued that he had to sue him in an American court. The judge in equity made the maxim that the contract was made in England, so Chancellery has jurisdiction on in personam, since “equity has jurisdiction in personam, not in rem” ⇒ It is important since a lot of wealth is offshore. “Equity follows the law” ⇒ equity not here to overrule common law → BUT for preventing the law to be unjust. Earl of Oxford Case (1615) ⇒ the earl of Oxford claimed title to land which Magdalene College in Cambridge had leased to someone else. This case opposed Lord Ellesmere (Lord Chancellor) and Sir Edward Coke (Chief Justice). Coke didn’t agree with Oxford and Lord Ellesmere agreed. Coke represents law and Ellesmere, equity. Francis Bacon was the Attorney General and ruled that when there is a conflict between law and equity, equity will prevail. ⇒ It will later be enshrined in the Judicature Acts (1873-1875). “He who comes to Equity must come with clean hands” ⇒ equity means fairness → can’t have been unfair if went in front of an equitable court to ask for fairness. Cross v. Cross (1983) ⇒ husband transferred his part of the house to his wife → but already living w her new lover so didn’t need house BUT took it → didn’t tell him → when she sued → husband didn’t want to give the part → she acted unfairly. **Argyll v. Argyll (1967) ⇒ wife’s adultery led to the divorce → but this did not prevent her to get an injunction (which is an equitable remedy) from publishing confidential information about their marriage. She had not badly behaved in the context of those particular circumstances, so she could ask for this remedy. “he who seeks Equity, must do equity” ⇒ diff from the one before → means what you’re going to do in the future → have to show the court you are ready to provide equity. **Chappell v. Times Newspapers (1975) ****⇒ newspapers → workers on strike → publishers tried to cancel their contracts / fire them ⇒ went to equity to prevent to get injunction (prevent someone from doing smth) → workers didn’t promise to go back to work → if they wanted the judge to prevent publishers / give an injunction from firing them → had to do equity ⇒ promise to go back to work. “Delay defeats Equity” ⇒ statute of limitations ⇒ common law → old doctrine : laches → let go of rights ⇒ equity defense. → Possible for the court to infer consent if the delays runs out. **Leaf v. International Gallery (1950) ****⇒ Leaf bought a painting and he discovered it was a fake constable five years later. It is a sell contract. He sued and wanted to rescind the contract (it is an equitable remedy, you can redraw your consent). The court decided five years was too much *me. Equity doesn’t say how long is too long though. **“Equity looks to substance, not form” ⇒ law : sometimes too rigid → it becomes unfair → equity prevents from using formalities if they lead to injustice. **Cominsky v. Bowring-Hanbury (1905) ****⇒ will and testament → testator left property to his wife → said in full confidence she will divides it to my nieces as she may think fit → BUT didn’t gives the nieces → House of Lords ⇒ showed that this created a trust. ⇒ Imposed an equitable obligation → intended some of the inheritance to go the his nieces / create a trust → substance. “Equity will not permit a statute to be used as an instrument of fraud” ⇒ equity will not allow the statute to be used for fraudulent purposes. Equity can be appealed to ⇒ in order to prevent a statute (which is constutional) from being used to perpetrate wrong. → Equity will deviate from formal legal rules exceptionally when a party wants to rely on these rules in order to commit fraud. A secret trust precludes the identity of the true beneficiary ⇒ A clause of non-disclose beneficiary can be written ⇒ however it sounds like the perfect vehicle for fraud. The Wills Act of 1837 requires the beneficiary of the trust to be written down. **Katherine, Duchess of Suffolk v. Herenden (1560) ****⇒ it was not allowed for women to inherit property. The duke of Suffolk knew he could not leave his property, so he created a trust without designating her. As long as she didn’t commit fraud, it was a matter of equity. “Equity sees as done, that which ought to be done” ⇒ Equity is able to presume the completion of a deal, even though the contract is uncomplete because it is missing one of the elements required by the common law. Walsh v. Lansdale (1882) ⇒ Landsdale rented his mill with looms to Walsh, but there was no deed ⇒ There was payment made in advance for one-year rent if asked. Landsdale asked that of Walsh and Walsh refused to pay in advance, because there was no written lease. So, they went to equity. Walsh had agreed, so it was held that Landsdale was under the same terms as if a lease had been granted ⇒ He has equitable rights that are similar to a lease. Walsh cannot complain of the exercise of the landlord rights, that he would have had if there was a legal lease. **“Equity will not suffer a wrong without a remedy” ****⇒ equity can follow the law BUT not blindly → old common law principle → when there is a law, there must be a right. Equitable remedies ⇒ no limit / infinite. Ashby v White (1703) ⇒ 1703 elections → few ppl can vote → Ashby was denied to vote by a bad cop → ashby had the right to vote BUT then couldn’t. → Wen to court to sue → have to bring to Parliament BC of parliamentary supremacy on elections → no remedy for him → so went to equity ⇒ equity will not suffer a wrong without a remedy → if the plaintiff has a right → created a remedy bc each wrong need a remedy. “Equity is equality” ⇒ equity would not play favorite → Upon divorce, without other terms, title to the home is divide equally. Diwell v. Farnes (1961) ⇒ it was for example held that a mistress and a widow should have the same shares to the house in which they both lived. Lecture 3 - Types of trust Remark: Partnership is also equity Most people have little knowledge of what a trust is. It is a technical special knowledge of law. Unbeknownst to themselves, most people are beneficiaries of a trust even though they have no clue what a trust is. - Ex: Some people without knowing it are trustees History Dynastic trusts were used to keep property in a family, the idea being that the property/the estate would pass down the male line of the family forever. - Private pension funds ⇒ Trusts - Beneficiary of a trust if u receive pensions ⇒ The pensioners are beneficiary of a trust because most are, tho not all pensions are trusts - Even retirement pension funds take the legal form of a trust ⇒ Trustees are obliged to invest that capital and make profit. That’s how the pension is worth more than the more you put in. Unit trusts ⇒ Unit trusts are when banks or other financial organizations invest investor's money in stocks These unit trusts are funds that generate return on investments ⇒ You give ur money to someone to manage it for you = Beneficiary Trust funds ⇒ Financial trust set up by a trust lawyer for families → Parents for their children for example - Ex: The children are then trust fundees Important: These were stopped in England, trust funds are only found in the USA. Since 2011, trust funds are no longer allowed. Trust of land ⇒ Mostly between couples ⇒ Create a land trust, particularly when unmarried - The couple are both trustees and beneficiary Recap: All of these trusts have 2 things in common 1) They are trust 2) Used to avoid paying taxes - Ex: Corporations don’t pay taxes, their money is put into trusts ⇒ You want to avoid losing money ⇒ Economic rational Remark: Charitable trusts are created for charitable purposes BUT they don’t pay taxes either and they become a way of hiding money from taxes in the name of charity. ⇒ Tax avoidance schemes Evolution: - Resulting trusts - Constructive trusts ⇒ Created by courts who look at the intention of both parties (=quasi-contrat) ★ Abrahams v. Trustee in Bankruptcy of Abrahams (1999) ⇒ Mrs. Abrahams is a widow and is a beneficiary of a trust. She had continued to pay her husband 1£ for him to buy lottery tickets and he won the lottery. She had the right to 1/15th of the winnings bcs she was considered as the beneficiary of that trust. ⇒ The Court construed that she was a trustee. Equity provided her with equitable grounds because there wasn’t any contract. ⇒ She had an “equitable interest” = property right Historically, only the trustee had “in rem” ownership rights = the property right SO they could claim the land and not only compensation. Trustees are the owners with ownership and not simply possession The beneficiary of a trust has possession = “in personam” ownership rights. ⇒ Their rights is attached to the trustee, to the thing → Through the relationship through the trustee, she beneficiary has hopes to get the thing A beneficiary can sue the trustee for mismanaging or stealing the rem ⇒ Can force an action, get compensation for dilapidating the property ⇒ The beneficiary only has an equitable interest What is an equitable interest ? ⇒ A property right BUT not a legal property right = equitable property right - National provincial Banks v. Ainsworth (1965) ⇒ Definition of equitable interest 1) It is definable 2) Identifiable by third parties 3) Capable in its nature to be assumed by third parties - If u die, the children can assume ur equitable rights - U can even give money to the Church or ur cat 4) Has some degree of permanence or stability ⇒ An equitable interest can be bought, sold, mortgaged or left in a will Remark: If someone buys property, it doesn’t necessarily buy the trust. The registrar of land doesn’t contain equitable interests. ⇒ You are called a “bona fide purchaser” (good faith) and you will not be bound by that property interest The beneficiary cannot sue the bona fide purchaser, only the trustee for breach of trust in equitable court = Trust case The money owing to a trust (ex: the debt) goes first to the trustee then to the beneficiary who will inherit the property (death of the trustee). And according to the will of the will, the beneficiary will have to distribute the property. Remark: The trust fund will eventually go to the beneficiary but they rely on the trustee, the lawyer, to enforce the trust Solution: All the beneficiary can do is to trust the trustee or claim the assistance of a court to sue the trustee and compel him to distribute the trust. Classification system of a trust Expressed trusts Express trusts ⇒ A trust is a minimum 3 way relationship - Settlor → Trustee → Beneficiary ⇒ An expressed trust is made expressly by the settler to a trustee on behalf of the beneficiary Private Public ⇒ A private trust is created for the benefit of ⇒ A public trust is created for the private individuals purpose of benefiting the public Can be either : ⇒ The public is the beneficiary 1) inter vivos (=alive) - Exempt for taxes so if the trust 2) testamentary (takes upon death of the is made of stocks of increasing settler) value, no taxes Inter Testamentary Charitable Non-chari vivos ⇒ Allow to hide the beneficiary, ⇒ Benefits the public, table (trust) which is a problem for tax the money is used for ⇒ Money ⇒ The authorities education, religion, and for a settlor is 1) Secret relief of poverty… dog/cat… alive but 2) Half-secret ⇒ Not allowed in the perhaps Reason: A will is a public will document Hetherington Gibbs v McDonald (1990) ⇒ Paid for masses to pray for her soul to be saved = Charitable trust Gilmore v. Coats (1949) ⇒ A testatrix paid for Carmelite Convent and that trust was deemed insufficient to be qualified as a charitable trust bcs it wasn’t public Secret Half-secret ⇒ Communicated ⇒ Allowed to the trustee before the death testator/tes Katherine Duchess tatrix to of Suffolk v. refer in the Herendon will the ⇒ Duc created a existence of secret trust to the the trust duchess, only told but in the trustee, not in secret terms the will bcs the will that have to is public be communica ted before the execution A trust is an equitable enforceable agreement. Implied trusts ⇒ They are 3 kinds of implied trusts but they weren’t deliberately created Implied trusts Statutory trusts Resulting trust Constructive trust Hussey v. Palmer (1972) Can create implied trusts When someone Someone got property when people die intestate intended a trust: without having the = without a will they bought permission to : they something for broke a promise someone else but did not expressly Hussey v. Palmer (1972) created one ⇒ Mrs. Hussey lived with ⇒ Property returns her daughter and her or results back to the son-in-law. She paid for beneficiary her extension in the house. After an argument, she left. Then she came back and asked the money back ⇒ The judge construed a trust and said that Mrs. Hussey is the beneficiary of a trust and Mr. Palmer was the trustee Remark: Most trusts come about in wills. That’s where most of the wealth of the world is. Privately held and inherited. - Executors are named in a will. - In a trust you have trustees. Trust Will Trustee(s) Executor(s) ⇒ If there is no will, it’s intestency, the court appoints an administrator ⇒ The executor or administrator are personal representatives = trustee - The testator may create a trust or designate an executor (siblings/parents) Competency - The executor or administrator can be sued for 12 years, but only 6 years for a trustee. - Trustees can retire from their position - Executor or administrator CANNOT, their mission ends when they are done dividing the estate Problem: Often, they are called a trustee in a document/will although there is no trust. The word trustee is used in wills even if they are not trustees ⇒ Even called trustees, they aren’t trustee - The estate will sometimes be called a trust - The beneficiary will sometimes be called a beneficiary Differences ➔ BUT the will falls under common law vs the trust which falls under equity law. ➔ Unlike the trustee, the executor or administrator has legal estate and legal interest ⇒ Its possible to sell the estate for the trustee ➔ The trustee has legal property, but the beneficiaries have an equitable interest. ➔ The beneficiaries in a will have a legal right, a chose in action, to see that the property is properly administered. Lecture 4 - The power of appointment and the 3 certainties I) The power of appointment The testator/testatrix writes his will and gives a power of appointment to someone which authorizes the appointer to transfer property to appointees. The appointer appoints an appointment ⇒ Power of appointment, they can distribute ⇒ The power of appointment aims to give some discretion to the appointer How much discretion ? Can you appoint anybody ? Most discretion to least discretion 1) Mere (naked) power ⇒ NO duty to carry out, no responsibility 2) Fiduciary power 3) Non exhaustive discretionary trust 4) Exhaustive discretionary trust 5) Fixed trust ⇒ LEAST discretion Testor → Appointer → Appointee 1) Mere/Bare power ⇒ Not a trustee - “To my trustee Tim & Tom to hold for A for life, remainder to such of my nephews and nieces as A may decide, but in default of appointment, to my sister absolute.” - Tim & Tom are the trustees - A is likely the child of the testator - A is made an appointer - If A doesn’t carry out the appoint, then everything goes to the sister ⇒ No right to go to court - Nephews & nieces only have a spes (=hope), its not equitably enforceable - The appointer may chose only one of them or neither to keep the money 2) A fiduciary power ⇒ Not a trust = will ⇒ The fiduciary is held by a trustee BUT its not a trust ⇒ All trustees have fiduciary power (faith) - The trustee has to periodically whether or not to exercise his power - Must consider the range of beneficiaries and appropriateness of the appointment - The beneficiaries only have a spes, the appointer may chose no one 3) The non-exhaustive discretionary trust ⇒ This is a trust. The trustee is instructed not to distribute all the property - The trustee keeps some money in case they are more appointees - The beneficiaries have a right and equitable right, a right that is enforceable collectively but maybe some won’t get anything. Individually they only have a spes, but collectively they get a right 4) The exhaustive discretionary trust ⇒ The trustees are instructed to distribute all of the property, they can’t hold the property back 5) The fixed trust ⇒ Least discretion ⇒ The appointer does not have to be a trustee “To my trustee Tim & Tom to hold for A for life, remainer to all of my nephews and nieces” ⇒ Clear express instructions to follow = expressed fixed trust has been created ⇒ Based on a duty, not discretion II - The Three Certainties The Three Certainties are a basic principle of trust law ⇒ for a trust to be valid, it must satisfy the three conditions: - The words - The subject - The object It was decided by Lord Eldon in Wright v. Atkins (1823): “in order to determine whether a trust is a trust... it is a matter of observation, first that the words must be imperative, secondly that the subject must be certain and, thirdly that the object must be ascertain as the subject.” ⇒ So the words, the subject and the object of the trust have to be certain. 1. The words (intention) The words of a trust have to be clear enough that it shows that it was intended to create a trust. The word “trust” doesn’t have to be used. → Many wills will make trust without using the word “trust”. Do these words give an equitably binding obligation or just a spe(s)? → Precatory words are not enough. A precatory word is when someone is asked to do something ⇒ it is a request, not a duty. Lambe v. Eames (1871): an estate was left to a widow and the words said, “to be at her disposal in any way she may think fit for the benefice of herself and her family”. Those were precatory words, it wasn’t a trust ⇒ those words don’t make her a trustee and give her total discretion. Re Adams v. Kensington Vestry (1884): an estate was left to a widow “in full confidence that she will do what is right as to the disposal thereof between my children”. ⇒ It means that he trusts her entirely that she will do what is right. It wasn’t considered as a trust, and she wasn’t a trustee ⇒ They were precatory words. Comiskey v. Bowring Hanbury (1905): there is trust, since the words were “at her death she will divide it to such one or more of my nieces as she may think fit and at her death be equally divided among the surviving said nieces”. She has no discretion concerning the fact to give it to his nieces, only to the identity of the nieces who will receive it. 2. The subject The subject matter of trust law is property. ⇒ The courts have never given a test, for rather they say you must be able to identify the trust property ⇒ the subject matter of the trust is the property that is in the trust. Palmer v. Simmonds (1854): the testatrix left the “bulk” of her estate to someone; which could mean anything from 51% to 99%. It is not precise enough to be certain how much of the property is in the trust. So, there is no trust. Re London Wine (1986) ⇒ it concerned tangible chattel, that can be changed, sold, or inherited. One thousand bottles of wine were stored in a warehouse, but they couldn’t specify which one were theirs. It matters who gets what. With tangible chattel, you have to specify which is the subject of the trust. It was thus decided that there wasn’t any trust since it was uncertain. Lehman Bros., Re (2012) ⇒ intangible chattel calls for another decision. There was a mixed fund, with complex investments. It was a derivative, and it was intangible. A trust of money can be created without the obligation of keeping it in a separate account. Intangible property can be mixed with non-trust property, but not the tangible property. But the subject must still be certain. 3. The object The object of the trust is the person. Lord Eldon said that ⇒ except for charitable trust, every other trust must have a definite object. Whom is the trust for? Except for charitable trust, every trust must have identifiable human beneficiaries. The rule for fixed trust is simple ⇒ it must be possible to make a list of who these people are ⇒ It is the rule of exhaustive enumeration. The rule for a fiduciary power (which is not a trust) is that you can define a category of beneficiaries. The rule for discretionary trust uses the same approach as the fiduciary power ⇒ the certainty of object test. McPhail v. Doulton (1971) ⇒ this case defines the certainty of object test. For example, “the trust is valid if it can be said with certainty that any individual is or is not a member of the class” Lecture 5 - The Formality Requirements I) Formality Requirements in Equity Origin and Basis of Formality Formality in equity transactions originated from the Statute of Frauds (1677). The Law of Property Act (1925) introduced specific requirements for formal transactions: ○ Deed for conveyance of land: must be signed, sealed, and delivered. ○ Written declaration for trusts of land: requires a signature. Exceptions to Written Requirements Boundary disputes: Agreements between neighbors can be made orally. Trusts of chattel: ○ A written declaration is not required; an oral declaration is sufficient. ○ Delivery of the chattel is necessary to complete the trust. Key Cases on Oral Trusts ★ Rowe v. Prance (1999): ○ A man divorced his wife, sold his house, and bought a boat, telling his lover the boat was "theirs." ○ Although he retained the deed, the court constructed a trust, granting her an equitable right to the boat. ★ Re Cole (1964): ○ A man told his wife their furnished house was hers. ○ However, as the furnished house was attached to the land, delivery was insufficient, and the gift failed. II) Transfer of Chose in Action Legal estate in a chose in action (e.g., Bitcoin) requires an express writing under the Law of Property Act (1925). Separation of property interests: Legal estate: Held by the trustee. Equitable interest: Held by the beneficiary. ⇒ So there are 2 kinds of property Trusts in Shares conditions: 1) Trusts in shares can be declared orally. 2) Transferring the legal estate of shares requires a certificate or written document. ❖ Hunter v. Moss (1994): - Hunter works for Moss - Moss orally promised Hunter 5% of firm shares (=choses in action) - He said he would hold the shares for tax purposes and would give the dividends to him - But Moss did not transfer dividends. - Hunter had to sue for his shares and Moss argued that to transfer a legal estate of shares you must have a writing ⇒ The court recognized the trust, establishing that a trust in shares can be created orally, although transferring the legal estate would require formalities. Dispositions/Conditions of Equitable Interests ○ Beneficiaries must declare the transfer of equitable interests in writing ⇒ It is a disposition ○ The requirement avoids fraud and tax evasion (e.g., avoidance of the Stamp Act). Remark: When there is an ingenious effort to avoid writing and go around legal requirements in order to avoid tax (ex: stamp act) BUT, it can be hard to know if a declaration of trust has been made, since it can be done orally. ⇒ It can be hard to know if a trust exists or if it is just a disposition of an equitable interest. ⇒ So the concept of sub-trusts appeared. Sub-Trusts ○ Concept: A (trustee) holds on trust for B (beneficiary). B declares they hold their equitable interest for C (sub-trust beneficiary). A is thus holding the property for both B and C. ○ Writing is required for the declaration of a sub-trust to prevent fraud. ❖ Nelson v. Greening & Sykes (2007): ○ Greening held land on trust for Nelson (buyer). ○ Nelson declared Hanley provided the funds, creating a sub-trust. ○ Both Nelson and Hanley had equitable interests in the land, requiring the sub-trust to be in writing. Equity Exceptions to Formality: “Equity Will Not Permit A Statute To Be Used As An Instrument Of Fraud” ⇒ Oral trusts over land may be recognized to prevent fraud or injustice. ❖ Rochefoucauld v. Boustead (1897): - A countess needed money so she arranged with Boustead to purchase her estate, which will have to be in writing. - Then they arranged orally that he would hold the estate in trust for her. - However, Boustead knew it would have to have been in writing. - So, Boustead purchased the estate and mortgaged the estate. Then he went bankrupt. - She sued him. He claimed that there was no written declaration of trust, and the law was clear that for a deed in land, it needed to be in writing. - However, equity will not permit a statute to be used as an instrument of fraud. So, he lost, and she won. Rules on Gifts: “There Is No Equity To Perfect An Imperfect Gift”: Three methods for making a gift: ○ Direct transfer of the gift. ○ Declaration of trust. ○ Declaration as trustee. Examples of imperfect gifts: ○ Milroy v. Lord (1862): Failure to register the title transfer for shares. ○ Jones v. Lock (1865): A cheque gifted to a baby failed as it was not endorsed. ○ Richards v. Delbridge (1874): A deed to land was not properly executed. Volunteers and Consideration “Equity Will Not Aid A Volunteer”: ○ Volunteers (those who provide no consideration) cannot enforce promises in equity. ○ Paul v. Paul (1882): A marriage settlement trust provided for children or defaulted to next of kin (volunteers). The couple had no children and separated but could not revoke the trust. Next of kin, as volunteers, were not entitled to enforce the trust. Marriage Settlements: ○ Settlor creates the covenant. ○ Trustees hold it for beneficiaries (e.g., children). ○ Next of kin, as residual beneficiaries, are not regarded as providing consideration (e.g., having children). Law of Property Act (1925) ⇒ requires a written deed for conveyance of the land, signed, sealed and delivered. → requires written contract to be drawn before the conveyance of the deed for land. → requires written declaration → for trust of land. Exception ⇒ boundary dispute (2 neighbors arguing on the land) → neighbors can settled things orally. ONLY trust of land requires a declaration in writing → SO declaration of a trust of chattel can be declared orally(CAUSE not land). Rowe v. Prance, 1999 ⇒ Rowe and Prance were lovers → while Rowe still married → divorced his wife → sold his house → bought a boat and said the boat was Prance’s ⇒ boat is a chattel → lived in it. He had the deed to the boat BUT had said it’s him and Prance. The court thus constructed a trust, she had an equitable right to the boat. Re Cole, 1964 ⇒ he took his wife into the house and said that it was all hers. However, the furnished house was attached the land. There was no delivery, this is a gift case. There was no deed signed, sealed and delivered. → trust wasn’t created BC house is realty → need formality. Formality requirement for realty ⇒ NOT for chattel. When transfer a chose in action (ex : bitcoin) → require some form of writing → Law of Property Act of 1925 ⇒ need express notice of writing. → requires a certificate. Legal estate ⇒ trustee. Equitable interest ⇒ beneficiary. → 2 kinds of property. Declaration of trust in shares ⇒ can create the trust orally BUT if you want to transfer the legal estate to the trustee, you need a certificate, there has to be something in writing. Hunter v. Moss, 1994 ⇒ Hunter worked for Moss. Moss promised him 5% of shares. Would hold the shares for tax purposes and would give the dividends to him ⇒ choses in action. BUT didn’t give him 5% → Hunter sued and got the shares → judge declares he was the beneficiary of a trust → can be done orally. However juge recognize that the transfer of a trust of shares ⇒ can be done orally. ⇒ This case highlights that a trust in shares can be created orally, giving the beneficiary an equitable interest. However → the legal estate of the shares (formal ownership) would still require a written document or certificate to be transferred BUT since Moss retained the legal estate as trustee, no formal transfer was needed. Beneficiary ⇒ need disposition in writing to transfer his equitable interest. When there is an ingenious effort to avoid writing and go around legal requirements in order to avoid tax ⇒ to avoid for example to pay the stamp act, it can be hard to know if a declaration of trust has been made, since it can be done orally. ⇒ It can be hard to know if a trust exists or if it is just a disposition of an equitable interest. Sub-trust ⇒ sub-trust is in writing. Example ⇒ A holds on trust for B for tax purposes → A is the trustee / has legal property → B is the beneficiary and has equitable interest. B makes declaration / declares that he’s holding that interest for C → SO A is also holding the property for C in a sub-trust. → Declaration of a sub-trust ⇒ requires writing bc dispossessed of an equitable interest. Nelson v. Greening & Sykes, 2007 ⇒ Greening holding on to land for Nelson who paid for it → legal estate. Nelson declares that the money was provided to him by Hanley → sub-trust. Nelson has an equitable interest in the land BUT Hanley also has one from the sub-trust. To prevent fraud ⇒ this sub-trust should be declared in writing as it dispossess of an equitable interest. This ability to hold land in a trust is an equitable exception to the formality requirement → an equitable right in landdoesn’t have to be in writing. → Equity allows an exception when it is necessary to prevent fraud or injustice. In such cases, an oral trust over land may be recognized. “Equity Will Not Permit A Statute To Be Used As An Instrument Of Fraud.” → This exception can then allow a declaration of trust over land to be oral. Rochefoucauld v. Boustead, 1897 ⇒ countess needed money → she arranged orally w B to purchase her estate and hold on trust for her, which will have to be in writing. Then they arranged orally that he would hold the estate on trust for her. However, Boustead knew it would have to have been in writing. So, Boustead purchased the estate and mortgaged the estate. Then he went bankrupt. She sued him. He claimed that there was no written declaration of trust, and the law was clear that for deed in land, it needed to be in writing. However, equity will not permit a statute to be used as an instrument of fraud. So, he lost, and she won. → exception to the rule. “There Is No Equity To Perfect An Imperfect Gift” Donor has three ways to make a gift : They can transfer directly the gift; they can create a trust and give the gift through a declaration of trust they can make no transfer and make themselves the trustee, they declare a trust where there are the settlor and the trustee. ⇒ The donor has to choose one of those three methods. Milroy v. Lord, 1862 ⇒ it is an example of an incomplete gift. The settlor handed shares certificate to Lord, to hold on trust for Milroy; but the settlor didn’t register this transfer of title; so, he hadn’t transferred the legal estate that the papers represented. It was thus an imperfect gift. Jones v. Lock, 1865 ⇒ here, the settlor handed a cheque to a baby and he said, “I give this to the baby”, but he didn’t endorse the cheque. So, that gift failed, since there was no transfer. Richards v. Delbridge, 1874 ⇒ He wrote on a deed to land that he gifted it to someone. However, he didn’t execute a fresh deed to land. As a result, he never actually handed over the land. On all three cases, there was a formality requirement that was not met. In order to provide certainty to business, it is a hard deal. Since then, the rules have softened, notably with Re Rose (1952). “Equity Will Not Aid A Volunteer” ⇒ a volunteer means someone who has not provided consideration. Paul v. Paul, 1882 : it concerned a marriage settlement ⇒ it is a trust when a couple marry to provide for them and their children. There can be a default clause in a marriage settlement ⇒ if there is no child, they do not get the property ⇒ So, the property will go to the next of kin. The next of kins are the volunteers, since they hadn’t provided any consideration. In this case, the clause said that the remainder would go to the next of kin. Since the trust had not been completely constituted, the settlors could not revoke it. The couple had no children and they got separated and they wanted to recover the property. However, they didn’t provide children, so they were volunteers, so they didn’t get the property. If the next of kins are trying to enforce the promise of transfer to them, the court will not enforce those promises; because volunteers are not parties to a contract, since in contract law, consideration is crucial. Settlors create the covenant of land ⇒ the trustees hold this on behalf of the beneficiaries. → The settlors and the beneficiaries (children) can enforce the contract. The next of kin are residual beneficiaries they are not regarded as a providing a consideration →the consideration in a marriage settlement is having children. Lecture 6 - Proprietary estoppel A judge should not be bound by strict legal rules if this leads to injustice. The rules can be unjust if too strictly applied. That is why equity is there for, equity is justice. - Last week = formality ⇒ Equity is not going to let you win because of strict formalities. Proprietary estoppel enables a plaintiff to claim a land right when only an oral promise was made. ❖ Requirements for proprietary estoppel Equity gives a doctrine called proprietary estoppel. The requirements are named as the five probanda (the thing requiring proof) : 1) The plaintiff makes a mistake about his legal rights 2) The plaintiff spends money or does something of value bcs of that mistake 3) The defendant knows his right 4) The defendant knows the plaintiff has a mistaken belief 5) The defendant encourages the plaintiff to act to his loss or acquiesces to act to his loss It’s not necessary to prove all 5, it’s possible to be missing one of them. They are like guidelines. ★ Taylor Fashions v. Liverpool Victoria (1982) ➔ Taylor had a lease but no right to extend his lease. He paid for extensive improvements of the property. ➔ Liverpool Victoria didn’t know that they had no right to extend the lease (4th probanda missing) ➔ It was held that it was not necessary for the defendant to know about it, because it couldn’t be proven that it was known. The court said it would be “unconscionable” (no conscience) = legal standard, key concept for proprietary estoppel Unconscionable = unjust, not right, not reasonable ★ Yeoman’s Row Management v. Cobble (2008) Lord Wacker said ➔ A developper negotiated over land development to build houses and obtained a planning license to build those houses. Then the other party wanted to renegotiate the original terms of the agreement. ➔ The negotiation was oral and there was no written contract ➔ If there was a written contract, it would be a breach of contract ➔ It was held that there was no written contract and no proprietary estoppel ⇒ It’s not supposed to be a joker card, that’s not enough for business men, unconscionability is important but it’s not enough in case of business trade ➔ Requirement of 3 things to be proven: ◆ Representation ⇒ A thing is promised ◆ Reliance on their representation → The developer went to get permit to develop the houses ◆ Detriment ⇒ The developer acted to his detriment ❖ Thorner v. Major (2009) ➔ Cousin David helped to run a farm and worked without being paid for 29 years. He had no recreation, no female companionship, he was promised the farm when his cousin died. ◆ Problem: Oral promise for real estate is not enforceable, not legal ➔ So David sued and wanted to get the farm ➔ His cousin died intestate, without a will ➔ The 3 requirements : Representation, reliance and detriment are ➔ Lower standard for normal people, higher for business people ⇒ The rules of equity, the doctrine of proprietary estoppel worked ⇒ It is an equitable property right, not a legal one → A judge should not be bound by strict legal rules if doing so will lead to unconscionability Remark: The representation doesn’t have to be an oral representation ★ Re Basham (1986) ➔ A woman looked after her stepfather from 1936 to 1982 because he promised her the cottage when he died. The stepfather died intestate, he didn’t have a will. ◆ She has a representation, she relied on the representation and acted to her detriment ➔ During her life, she turned down other opportunities to take care of him. ➔ It would be unconscionable, unfair for anyone else to get that cottage ⇒ It’s not necessary to make a promise for representation to exist ❖ Crabb v. Arun (1976) ➔ Arun knew that Crabb was selling part of his land which had access to cross his land with a gate. ➔ Arun closed the gates and asked for £30 000 from Crabb for him to cross his land BUT he didn’t have an easement to his land ➔ Acquiescence = consent to cross the land → Led Crabb to sell his land thinking he still had access to the gates ➔ Reliance = link between the representation and the detriment ⇒ The person relied on the representation and that’s why they acted to their detriment ◆ They have to prove that they acted to their detriment because they relied on the representation ★ Greasley v. Cook (1980) ➔ Cook was a maid who looked after a family for no pay. She had been promised land, a home for life. ➔ However, she was eventually told to leave. She had no property right, no lease, no title to the land. She was just a lodger. ➔ Once her detriment is established (working as a maid for free), and the representation is established, which includes acquiescence (a house for life), the reliance is presumed. ◆ The presumption is rebuttable BUT the defense must disprove reliance and prove another motif than reliance ❖ Wayling v. Jones (1995) ➔ Jones runs a hotel and M. Wayling, his lover, worked in the hotel for pocket money ➔ Jones promised to leave him the hotel, and died. But he had a will and Wayling wasn’t mentioned in it. ➔ Oral promise ⇒ Representation is presumed that no one works for pocket money ➔ The burden of proof shifted to the defendant to prove that Wayling had worked for something else than the promise ➔ Representation (oral promise), reliance (get the hotel), detriment (pocket money) Remark: The detriment doesn’t always have to be money. It concerns all the things the claimant did. ❖ Dilwyn v. Llewelyn (1862) ➔ The plaintiff spent 40 000 in 1862 to build a house on his father’s land but the father left the land to his brothers in his will ◆ Fixture ⇒ Quicquid solo plantatur → the house built belongs to the land ➔ The son was given a fee simple for having built the land, but the brothers were given the land ⇒ The court is supposed to look at all the things the claimant did to identify the detriment ❖ Remedy in the proprietary estoppel ? 1) The minimum equity to provide justice 2) To do what the defendant promised: give the cottage / farm… 3) Given something in proportion to the detriment suffered by the claimant to create equity ❖ Sledmore v. Dalby (1996) ➔ A daughter and her husband lived in the father’s house and paid for improvements in the house. ➔ They didn’t pay any rent from 1976 to 1996. ➔ The judge said that they lived there rent free for 20y so their equity in the property expired = improportion to the detriment suffered Conclusion: Proprietary estoppel is an exception to the Law of Property Act of 1925. “Contract for sale of land to be made by signed writing…” - Maxim of equity = equity will not permit a statute to be used as an instrument of fault - Proprietary estoppel could exist on the same fact of constructive and resulting trust ⇒ It has to be an agreement between the parties : trustee, beneficiary - HOWEVER, in proprietary estoppel, the judge has discretion bcs he doesn’t have to prove that there was a trust - Intention, object, subject Lecture 7 - Wills, secret trusts and death bed gifts - Main job of a solicitor = drafting a will If you die without a will, you will die intestate. Then, the rules of intestacy will apply and your property and assets will go to your relatives, your next-of-kin. ⇒ Wills are governed by the Wills Act of 1837, before democracy. ★ The Wills Act of 1837 lays down very strict rules for a will. ○ Section 9: The will must be written, signed by the testator/testatrix and witnessed by two persons who can’t be beneficiaries. ○ Section 18: Marriage or divorce revokes the will, since it changes the marital status. ○ A will is a public document. It is an easy online search. - (Probate case = conflicts over wills) - Probate registry ⇒ Wills can be found online - www.gov.uk./search-will-probate.com ❖ Doctrine of incorporation by reference The doctrine of incorporation by reference prevents fraud by requiring any amendment to a will, in a codicil (cf. below), to be signed by the testatrix/testator and witnessed by two witnesses. Definition: Codicil A codicil is a legal document that allows a person to make changes to their will without having to create an entirely new will. It is used to add, remove, or modify provisions in a will, as long as the changes are not too significant. Otherwise, the codicil could be challenged by someone. Solution to avoid public eyes : Secret trust A secret trust allows a testator or testatrix to avoid the public eye and to keep it away from the taxman. What if someone wants to give money to the Church ? ⇒ CANNOT give money to the Church in the will ★ Statute of Mortmain (1736) ⇒ It goes way back to the beginning of Common law and Edward I (Hammer of Scotland / Longshanks) who wanted to tax land, he benefited from Protestant reformations ○ The first Statute of Mortmain is dated to 1297. - The goal was to preserve taxable land from the church because inheritance and transfer are taxable. ⇒ So, the Statute of Mortmain prevented giving wealth to the church by inheritance ⇒ Mortmain comes from the never dying → The Church doesnt pay taxes there is never going to be inheritance from the Church. ★ The Statute of Frauds (1677) said that wills must be written. BUT Chancery was willing to enforce oral statements on a secret trustee in order to prevent fraud ⇒ It would be unconscionable to let a trustee to fraud a beneficiary ❖ Different types of secret trusts Fully secret trust vs half-secret trust FULLY SECRET TRUST HALF-SECRET TRUST This trust leaves the property absolutely This trust will indicate that the trustee to the secret trustee with NO indication CANNOT keep the money that is that the property is actually for a true promised to someone else BUT the secret beneficiary beneficiary is a secret - Ex: To Lulu & Loulou absolutely… ⇒ - Ex : To Lulu & Loulou for a purpose The fact that it is a trust is a total ⇒ Creation of a trust = creation secret of a duty ⇒ Both the trustee and beneficiary are secret to the public The testator/testatrix has to communicate to the trustees that they are a trustee before they die Problem: BUT the trustee can betray and never give the money ⇒ Court of equity → The beneficiary must prove that the testator intended to leave him/her the money Conditions to prove that there is a trust: There are three main elements to a secret trust, 3 certainties: 1) Certainty of intention ⇒ The intention to create a trust must be clear, you have to prove that it is a trust and not a gift ★ McCormick v. Grogan (1869) ⇒ In a letter within the will, Grogan was asked to make some gifts BUT it mentions “leave it entirely to your own good judgment” ○ Remark: A letter in a will CAN be a codicil BUT if NOT a codicil = trust 2) Certainty of subject (matter) ⇒ The property must be clearly specified 3) Certainty of object ⇒ The beneficiary must be clearly identified Condition: The secret trustee must know, before the death of the testator, what you are supposed to make do with the property. There must be a promise to do it. They have to accept to be a secret trustee. ★ Re Boyes (1884) ⇒ After death, there was a letter in the will with specific instructions, but the trustee already knew that he was to give the money to the mistress. ⇒ The trustee can “acquiesce”, just be silent, instead of explicitly accepting. In McCormick, he didn’t know to whom he had to give the money but he didn’t HAVE to give it to anyone. He could guess whom to give it to as the mistress sued him. Problem: It can be difficult to know whether a secret trust exists. Often there is no witness and it will be done orally. How to prove it ? ⇒ Standard of proof is “balance of probabilities” = prima facie case ⇒ What a beneficiary is to prove that it is “more likely than not” that the testator intended to give money to the person. Remark: The only secret thing in a half-secret trust is the identity of the beneficiary. BUT he cannot keep the property because it is clear that the beneficiary isn’t the trustee. It would be fraud to keep it. ★ Johnson v. Ball (1851) ⇒ Rule: The communication HAS to be made before the will ○ He told the trustee to provide for his bastards. ○ He wrote “to hold the same upon the uses appointed by letter signed by them” (=half-secret trust) ⇒ The trustee was given money to give to the beneficiary BUT the identities of the beneficiary were NOT given before ○ The communication MUST be made BEFORE the will with witnesses and signed ○ Adding the beneficiaries later is forbidden, a will cannot be made for it to be changed later Remark: Changes can be made to a secret trust as long as they are communicated to the trustee. Reason: Secret trusts are NOT part of the will, the trust is under equity, not Common law ⇒ A secret trust is “dehors” (outside) of the will. It doesn’t require witnesses. ❖ Mutual wills ⇒ It is another doctrine of equity. It allows the testators (usually husband and wife) that they will NEVER change theirs minds - Ex : Kids are beneficiaries ⇒ In law it isn’t possible to NOT change their mind In the Will Act, it is possible to change the will. Mutual Will = creation of equity, of something that isn’t normally possible ⇒ It is like a contract - Consideration = promise to never change the will - There MUST be a proof, something like a written document ⇒ If there aren’t any, the mutual will doesn’t exist - But what happens if they were spouses and then divorce? ⇒ Since in law, wills are ambulatory, equity provides mutual wills. When the spouse dies, with the mutual wills, the agreement will still be binding on the survivor. ⇒ Mutual wills allow you to say the wills will never change, when the Wills Act would not allow it. ★ Re Goodchild (1997) ⇒ A wife dies, and the husband remarries. He made a new will leaving everything to his new wife. There was no evidence of a mutual will. ★ Charles v. Fraser (2010) ⇒ The mutual will was made by oral agreement. It was witnessed by eight people, so it was evidence of mutual will, even though there was no written evidence in the will itself. ⇒ The mutual will agreement is enforced as a constructive trust. Therefore, there is no formality requirement, since it is construed, even if it involves land. ❖ Death-bed gifts = “donation mortis causa” ⇒ The gift made on a death-bed = donation The donor is expected to die and he intends to give something on their death-bed. Delivery ? How do you part of dominion to your property without violating the existing will or the intestacy law? How to transfer the property effectively? - Chattel ⇒ The person simply delivers it - If it is a chose in action, a document (Re Weston, 1902) needs to be handed out to the person, or bank books (Re Lillingston, 1952), or keys - If it is land, handing out title deeds is sufficient - Sen v. Headly (1991) Lecture 8 - Resulting trusts Remark: Difficult words are useful for trust lawyers, people don’t know what is going on. - Equitable apparatus placed on facts or situations. Resulting trust = property will return to the settlor Etymology: latin “resalire” = reverting/jumping back Resulting trust happens when: 1) a trust fails, so the money/property goes back to the settlor 2) 2 people buys something in the name of 1 of them There are 2 kinds of resulting trusts : 1) Automatic resulting trusts = automatically takes effect as result of law 2) Presumed resulting trusts = takes effect because there is a presumption, though rebuttable (reason: all presumptions are rebuttable) I) Automatic resulting trusts ❖ Re Boyes (1884) ⇒ A property was left in a secret trust in a will to a trustee BUT he didn't tell who the beneficiary was. Because he didn’t tell him before, the secret trust failed When a secret trust fails, where does the money go ? ⇒ It cannot go back to the settlor as he is dead ⇒ The trustee CANNOT keep it, it goes to the next-of-kin (=important concept when people die intestate) ⇒ Out of the 3 certainties, the certainty of object is missing ★ Vanderville v. IRC (1967) ⇒ To avoid paying high taxes to the IRC, the settlor gave money to the Royal college of surgeons BUT he created an option to repurchase the shares he had given to them ○ Option = contrat ⇒ Option contrat ★ He didn’t declare a trust through this action so they were reverted back to him = failure of the trust = resulting trust ⇒ Now he has to pay taxes bcs there was never an intention to give money - Charitable trusts ⇒ Usual place of tax fraud apparatus If the trustee does not know for whom he is holding property, the trust fails and it becomes a resulting trust for the settlor. - A resulting trust is not an express trust, it’s the judge who decides : operation of law ★ Re Ames Settlement (1946) ⇒ Marriage settlement → Create of the trust is to create children, heirs SO if u don’t have children, what happens ? ○ Le marriage was nullified bcs the husband was not able to consummate ○ Since the marriage was void, there was no marriage settlement Where does the money go ? ⇒ No children ⇒ The money returns back to the settlor 3rd way : Surplus after the purpose of the trust has been completed, the judge will create a resulting trust ★ Re Gillingham Bus Disaster Fund (1958) ⇒ There was a bus disaster and all kinds of people died. An organism gathered donations to go to the survivors ★ They had nice funerals for all the people for the people BUT there was money leftover ★ In charity, u usually have a gala ★ BUT they raised all the money for the funerals but they didn’t spend any money at all, it was all paid the bus company and the victims were already compensated ⇒ Revert back to the donors ? The Crown claimed a bona vacantia doctrine (= ownerless goods) ⇒ If something is claimed bona vacantia, it is given to the state ⇒ Therefore the Court decided to create a resulting trust and the surplus would go back to the donors ★ Air Jamaica v. Joy Charlon (1999) ⇒ They were privatized = private owners bought it, so it produced a surplus of 400 000 000$ Who gets the surplus of money ? ⇒ The company claimed that they should get the surplus ⇒ The employees claimed that they should get the surplus ⇒ The state claimed that it is bona vacantia ⇒ The judge decided to create a resulting trust : - 1/2 ⇒ Employees - 1/2 ⇒ Company ⇒ Aim to create some kind of justice II) Presumed resulting trusts Presumed to exist ? What is presumed to exist ? ⇒ Presumption ≠ assumption ⇒ Presumption = public policy creates it to protect some interest A resulting trust can be created, presumed, it is not automatic so it is rebuttable : 1) 1st kind = The voluntary transfer resulting trust 2) 2nd kind = Purchase in the name of another A) Voluntary transfer to another A gives property to B for nothing = resulting trust with B holding property on trust for A. ⇒ NO consideration so B is a trustee and A is a settlor and a beneficiary ⇒ This resulting trust was created to prevent gold-diggers from claiming a gift ⇒ The law created a rule that there would be a resulting trust to protect heirs from gold-diggers ⇒ To get the money back, the judge will create a resulting trust and the gold-digger will have to rebut the presumption ★ Fowkes v. Pascoe (1875) ⇒ An elderly healthy woman transferred 7000£ to a young man and he provided evidence that it was a gift. Whereas her heirs claimed it was a resulting trust. ⇒ The presumption was that it was someone taking advantage of an elderly lady. It is not a resulting trust, since when you have property, you have the right to give it. - But there is a presumption that someone who has been given money from an elderly person is a gold-digger who used emotional manipulation to get money. - This presumption however is rebuttable. - The young man was able to rebut this presumption and that he was the son of a widowed daughter-in- law. - So, there was a family relationship and it was enough to rebut the presumption that he was a gold-digger. ⇒ This presumed resulting trust exists because of gold diggers. B) Purchase something in the name of another Someone puts up the money and the property is being held on trust for the person who put up the money. Relationship ⇒ Settlor - trustee - beneficiary This resulting trust can be used for : 1) Business partnership ⇒ A business man can make purchases on behalf of the other partners 2) Unmarried couples ⇒ Living together ⇒ They will have an equitable interest in proportion to their contribution BUT not automatic resulting trust so it is rebuttable bcs it is a presumed trust ⇒ It is presumed BUT maybe something else was intended = theory advancement - Ex : Gift / support obligation… - Example: If you have a transfer from a husband to a wife ⇒ Presumption for the wife to keep it - Example: Transfer of wealth to a father to his child ⇒ Presumption of gift to the child ⇒ These presumptions are rebuttable. ★ Fowkes v. Pascoe (1875) ⇒ The young man had lived with her, and she had provided for him. If she wanted, she could have invested money for herself. ⇒ So the presumption of resulting trust was rebutted, since he was her closest kin. The Court prefers evidence that is nearer in time bcs people can change their minds about gifts. SO Parliament explicitly abolished the presumption of advancement from husbands to wifes because it was not reciprocal and no presumption of advancement ★ Equality Act of 2010 ⇒ “the rule of Common law that a husband must maintain his wife is abolished” ★ Section 199: “The presumption of advance by which a husband is presumed to be making a gift to his wife is abolished” III) Illegality “He Who Comes To Equity Must Come With Clean Hands” ★ Cutis v. Perry (1802) ⇒ a member of Parliament was not allowed to get a government contract because of conflict of interests. ⇒ SO he had his business partner buy a ship, which benefited from a government contract ⇒ UNCLEAN HOWEVER, his business partner who after falling out with him, took sole possession of the ship; however, that would be inequitable, unfair, to the MP ⇒ SO the MP argued he should have a part of that boat. BUT, since it was illegal, he could not profit from the resulting trust. Lecture 9 - Charitable trusts Charity used to be performed by the Catholic church in the medieval period. After the protestant reformation passed an act of Parliament : The Statute of Charitable Trust (1601) The Preambule to the Statute of Charitable Trust is still used today to qualify if something is a charitable trust. ⇒ Judges will start by determining what the object of the trusts are and will look at the Preambule and reason by analogy to know things that didn’t exist by 1601 ⇒ This doctrine remains grounded in judicial reasoning. ❖ Morice v Bishop of Durham, 1805 ⇒ The judge identifies 4 types of charities : The Courts created equity on this matter : 1) Relief of poverty 2) Advancement of education 3) Advancement of religion 4) Anything beneficial to the community ❖ Charities Act of 2011 Parliament enacted the Charities Act of 2011 which codified the relative law. It defines 12 charitable purposes : 1) Poverty; 2) Education; 3) Religion; 4) Saving lives and health; 5) Community development; 6) Arts; Culture, Heritage and science; 7) Amateur sport; (U can’t do a charitable trust for a professional sport) 8) Human rights; Conflict resolution; Religious and racial harmony; 9) Environmental protection; 10)Youth, aged people (elderly), ill health, disability, financial hardship; 11) Animal welfare; 12) Armed forces, police, fire and rescue services So, the number of activities has grown: it is a way of limiting the creation of trust. ★ Section 5 of the Charities Act includes purposes that are analogous to the spirit of these charities → Reasoning by analogy ⇒ This Act is for England and Wales. ❖ Exemption of taxes Charities do not pay taxes on : ➔ income, ➔ capital gains, ➔ inheritance, ➔ capital transfer, ➔ stamp duties ➔ or value added tax (VAT) Remark: There is a temptation for tax dodgers to create a charitable trust. The Court of Chancery is aware of this issue of tax fraud. There is a suspicion that the charitable trust isn’t created for a charitable purpose. ⇒ 2 principles developed by the Court of Chancery to avoid that: the charitable trust must be : 1) Socially useful to qualify as a charity 2) For the public benefit N.B.: Something can be socially useful and not for the public benefit and vice versa. Solution: In 1853, a charity commission was created. It still exists today and was established to identify what is and what is not a charity. Plus, the Charities Act inserted the two principles : 1) The relief of poverty 2) Advancement of education I) Relief of poverty ⇒ The charitable trust must provide “some relief of poor people” Remark: Poverty is difficult to define and so is charity. - Etymology: Charity = providing meat ❖ Re Coulthurst (1951) ✅ A trust was created “for widows and children of bank employees”. Some objected and argued these widows and children weren’t poor. ⇒ The court held that it qualifies as poverty since destitution isn’t necessary. Poverty ≠ destitution ❖ Re Sanders’ Will Trust (1954) ❌ A trust was created to provide dwellings for the working classes, however, it didn’t qualify as a charitable trust since it didn’t designate poor people. ⇒ You can be in the working class and not be poor. It didn’t exclude people who were not poor. ❖ Re Niyazi (1978) ✅ A trust was created for a working man’s hostel. It is likely to help the poor and not the rich, so it qualifies as a charitable trust. ⇒ The hostel qualifies as a charity. ❖ Re Scarisbrick (1951) ✅ A trust was created for poor relatives in “needy circumstances”. It qualifies as a charitable trust, as assistance to the poor, because it targets only people in poverty ⇒ It doesn’t have to go to a mass of people to qualify as a relief of poverty. ❖ Dingle v Turner (1972) ✅ A trust was created to pay pensions to poor employees of a company. This qualifies, and by analogy to the relatives in needy circumstances, an exemption of tax was made of the criteria “for the public benefit” II) Advancement of education The Preamble to the Statute of Charitable Trust (1601) stated that a charitable trust for advancement of education is a trust “for schools of learning, free schools and scholars in universities”. ⇒ Giving money to education qualifies as charitable trust. ❖ Re Hopkins Will Trust (1965) ✅ A trust endowed money to Francis Bacon society to study and publish the works of Francis Bacon to the public. The plaintiff (tax authorities) said it was only an endeavor of the works of one man. The court education goes beyond teaching, so it could qualify as charitable activity under advancement of education. ⇒ Education is more than just teaching ❖ Re Lopez (1931) ✅ A trust was created to upkeep the local zoo. Some of the money was dedicated to provide food and amusements, including elephant rides. The other side said it wasn’t educational. ⇒ The court held that education could also be fun and include ancillary services. ❖ Re Shaw’s WT (1952) ✅ The widow of the play-writer created a trust to advance her husband’s work; she wanted to promote his work. But the Court also qualified this as advancement of education. ⇒ So, advancement of education isn’t only giving money to schools. Can a trust for education promote political purposes? ⇒ NO, political purposes are NOT allowed. ❖ Bowman v Secular Society (1917) ❌ The secular wanted to educate people against religion (marriage, religious education, Church). ⇒ This kind of education doesn’t qualify as charity, since it promotes political ideas that are in conflict with the supremacy of Parliament. III) Advancement of religion ★ Re South Place Ethical Society (1980) ❌ It promotes ethics; the opponents said ethics is not the same thing as religion. The court held that a charity set up to promote ethics did not qualify as a trust for religion. - Religion requires a God, - Worship of that God - And active promotion of that God. The Charities Act (2011), section 3.2 ⇒ “A religion which does not involve belief in God” ❖ Gilmour v Coats (1949) ❌ There was a Carmelite priory, a contemplative order was to be funded by a trust. ⇒ It didn’t qualify because there was no public benefit. So, the religion must be available to the public. ❖ Re Hetherington (1990) ✅ A trust was created to fund public masses to save the souls of a family. ⇒ Since it funded public masses, it qualified as a charitable trust. IV) Other purposes Other categories CANNOT be created, so there has to be an analogy to other categories. A) Hospitals The Preambule spoke of relief for: 1) aged, 2) impotent (ill), and 3) poor people. Remark: “And” has been interpreted by the courts as meaning “or”. ❖ Re Robinson (1951) ✅ A charitable trust was created to help old people over 65 years and a challenge was made because that would include rich old people. ⇒ It however qualified as a charitable trust because of the interpretation of “or” ❖ Re Resch’s Will Trust (1969) ✅ Saint Vincent’s private hospital received a trust to help ill people. A challenge was made that it wasn’t public, but private. ⇒ However, it was accepted as a charitable trust, BUT they must be non-profit AND not exclude poor people. B) Saving lives The analogy to save lives comprehends repair of bridges, ports, havens, cost waves, churches, sea banks, highways (Preamble of 1601). ⇒ It includes rescue units, lifeboats or victims of natural disasters and wars = Saving lives C) Animal Welfare Charities for the benefit of animals are the most numerous and popular type of charitable trusts in England. Remark: It is not included in the Preamble of 1601 because it is a NEW form. Requirement: These charities must also benefit the human public to qualify as a charitable trust. Charity is not for animals, it’s indirectly for humans. Protecting biodiversity and wildlife is important for human life. ❖ Re Grove Grady (1929) ❌ A trust was created for the preservation of all animals. The tax authorities opposed as they said it would include bugs, vermines, etc… ⇒ The Chancery held that it didn’t benefit humans, since it included dangerous animals for humans and vermines. So, it wasn’t a charitable trust. ❖ Hanchett-Stamford v Attorney General (2009) ❌ A society of anti-vivisectionists, including activists, wanted to prevent the use of animals for experiments and in circuses and films. ⇒ It was not allowed because it was political and they wanted to change the law. D) Sports education Principle: The money must be available/open to all the community or it’s not a charitable trust. It must not be private. ❖ Cy-près (= aussi près) doctrine Etymology: The cy-près doctrine takes its name from Norman French, “near to” or “close to” ⇒ When it is impossible for a charity to run, when the money cannot be given for the purpose it was created. With this doctrine, the money can be given to a similar charity to the initial one. ❖ Re Campden Charities (1881) Land was left and it generated revenue ⇒ Half of which was supposed to be given to the poor and needy ; and the other half for boys to become apprentices. ⇒ But by 1881, there were no longer such apprenticeships. Through the cy-près doctrine, the Chancery held that the money would go to scholarships (=bourses). ❖ Re Satherwaile’s Will Trust (1966) The testatrix hated all human beings despite being fabulously rich. In her will, she indicated a trust. She didn’t want her money to go to human beings and she wanted her money to go to animal charities that she listed. ⇒ However, one of those charities didn’t exist anymore, so it was given to another similar animal charity through the cy-près doctrine. The cy-près doctrine does not look at the words, but the intent. Cy-près stands out as an area of equity without any underlying principle. It is pure analogy and was built cases after cases. Only through studies of cases, can charitable trusts be identified. Lecture 10 - Breach of trust 3 ways relationship : Settlor - Trustee - Beneficiary ⇒ The breach of trust is against the trustee. The trustee can be sued if they breach their duty of care, which is to protect the trust fund, distribute intact the trust to the beneficiary and to properly invest that trust. Remark: A trustee can act dishonestly. Here, the trustee is sued, the defendant, and the beneficiary can sue them. ⇒ The trustee has a duty of care, so it can be similar to negligence if they fail to meet their duty, which is to protect the trust fund and to distribute the property intact and make good investments. ⇒ The duty of care of a trustee is to run the trust as an ordinary prudent man of business, with reasonable skill and care = standard of reasonable care. However, if the trustee is a professional, they are held to a higher standard of care, special care and skill. ❖ Fiduciary Trustees are fiduciaries (fides = faith) ⇒ The trustee has a fiduciary responsibility, they have a distinguishing obligation, loyalty, to the settlor and to the beneficiary. They must act in good faith, not make a profit, nor act for their own benefit with the property. ⇒ They must not have a conflict of interest. All this would be disloyal. ❖ Responsibility in case of breach of trust If a trustee is found liable for a breach of trust, their liability is to restore the trust to what it would have been before the breach ⇒ It is restoration of property. We are not looking for punitive damages. - Ex: Old-fashioned trust = Land / possession of the house of a wealthy family ⇒ Simpler to restore - BUT modern trust = mixture of property (mostly not land even for rich people) such as shares/stocks/bonds… (Ex: BitCoin) It is harder to identify what it means to restore the property in modern times ⇒ Fluctuating instrument such as a stock, a bond, a share… ❖ Bartlett v Barclays Bank (1980) ✅ - Barclays had a disastrous development scheme and it failed to obtain planning permission. The people who invested did not make any profit. The bank made a breach of fiduciary duty, they had special care and skill of duty. ⇒ The Court said that the bank’s breach of duty (no permit obtained) caused this loss. ❖ Nestlé v National Westminster Bank (1993) ❌ - The beneficiary claimed that she would have had more than 1 million pound if money had been properly invested ⇒ The Court said that she had to prove that the trustee had caused a loss. Just bcs the trustee did not make the BEST choice of investment does not mean that there was a breach of trust ⇒ In this case, it’s just that it didn’t have a high enough return. 🚨 In a commercial trust, a trustee is only liable for a loss that’s caused by his breach. It is similar to negligence. ❖ Swindle v Harrison (1997) - Swindle was a solicitor and received 1,000£ from the bank, foraging a loan for a hotel venture. - The venture failed. Is he not allowed to make a profit, he has to return the 1,000£ - Would he have to compensate the settlor for all the money lost in the venture? T - ⇒ NO, the judge said that he had to return the 1,000£ and could keep the fee for a failed project. However, Swindle did not have to compensate for the failed hotel venture. Exception: The sleeping trustee - It is a negligent trustee who is not being mindful; he assumed a responsibility and did not watch it. ⇒ The sleeping trustee is usually one person among several trustees and left the fiduciary duty to other trustees. A trustee can’t delegate away their duty to the other trustees: they have a joint and several liability. It is relevant when the failing trustee cannot be identified. ⇒ SO, one of them or ALL of them can be sued by the beneficiary and be found liable EVEN if they can prove they didn’t know. ❖ Bahin v Hughes (1886) ✅ - 3 daughters were made trustees; only one of the daughters managed the trust and lost money. - All of them were liable, to the 2 other sisters were sleeping trustees ⇒ The Court said “The cestui que trust (seisty k trust) is entitled to redress against the trustee. The cestui que is made for the beneficiary”. - Reason: The other two left the responsibility to her. When the sister lost the money, the beneficiary sued the three of them. The two sisters argued that they were not responsible since they did not manage the trust. ⇒ They were found jointly and severally liable. - Exception: The only way to escape liability, those other sisters could have avoided joint liability if the sister committed fraud or took all the money for herself. However, fraud must be proven. ❖ Head v Gould (1898) ✅ - Gould is the solicitor, made a co-trustee along with the daughter over a house, because the mother was unable to manage the house. - The solicitor and the daughter sold the house to help the mother. They ended up losing the house. - The brother sued because they sold the house at a loss because the daughter claimed she relied on the advice of Gould. However, she provided no proof. ⇒ The Court held that she couldn’t prove it so they have “joint and several liability” ⇒ If the trustee takes trust property, they are guilty of theft, which is a crime. Even though they have title to the property, a legal estate, they stole it by not delivering it to the beneficiary. ⇒ If someone fraudulently breach the trust, and you can prove it, you can escape liability ❖ R. v Clowes (1994) (criminal case) ✅ - A group of professional investors did not invest the money as they promised. Instead they used the money for their own interests - They lost the money invested in them. The people found out they invested the money for their own purpose dishonestly - So, they were found guilty of breach of trust BUT also guilty of theft. ❖ Defences of breach of trust Trustees have several defences of breach of trust: 1) Exemption clause ⇒ This must be an expressed clause that can be inserted in the trust instrument. It will exempt the trustee of liability under certain circumstances. It can protect the trustee from being sued by the beneficiary. - Example of exemption clause: “No trustee shall be liable for any loss or damage which may happen to X’s fund, or any part thereof, or the income thereof, unless such loss or damage shall be caused by his own actual fraud.” ⇒ This clause has to be clear to the settlor. Plus, this is relevant for expressed trust. 2) Consent ⇒ If the beneficiary consented, if he gives his informed consent to a breach of trust, the trustee can use this defence. ★ Re Pauling’s Settlement Trust (1964) ❌ ○ Miss Pauling was an heiress married to a naval officer, Commander Younghusband, with NO fortune (he’s broke). ○ Her fortune was put into a trust bcs it smells of gold-digging ○ BUT he started asking advances on the trust, on their children’s shares. ○ They took out advances NOT on their own share but on their children’s share of the trust to solve their financial problems. ○ However, the children were over 21. They sued them, tho they had consented to this advancement. ⇒ The Commander got away with it bcs the children consented 3) Excuse ⇒ Section 61 of Trustees Act (1925) ⇒ It allows an excuse for a trustee if he can prove that he acted honestly and reasonably. ⇒ The person can be excused, he only made a mistake as he is not a professional trustee = gamble ❖ Re Evans (deceased) (1999) - After the parents’ death, the money was supposed to go to the son and daughter of M. Evans. - He did not have to be present at the opening of the will to be a beneficiary. But if he cannot be found, someone will be designated to act as a trustee. The daughter was chosen, and she was honest. - There was no will, so the parents died intestate. - SO, she took an insurance policy called: “A missing beneficiary insurance policy” - HOWEVER, later, the brother comes back. He sued her for breach of trust bcs she didn’t make any money out of it. - HOWEVER, she acted honestly and reasonably, so the judge excused her for not investing the money and making interests. ⇒ She was never advised to consider interest and that relieves her from the plaintiff’s claim. 4) Limitations ⇒ Limitation Act (1980): - The limitation is of six years for a normal trust, - and twelve years for the estate of a deceased person. ⇒ Why ? Documents can get lost. Memories can be forgotten. How can we counterattack ? Exception ⇒ The judge may declare a constructive trust. An expressed trust or an implied trust can be construed. ❖ James v Williams (1999) - A son lived in a father’s house and the father died intestate. He lived in the house without any legal procedures. - The son made a will and left it to one of his two sisters. - So the other sister sued in trust BUT he won bcs it was a constructed trust. - Reason: There was a constructed trust and there is NO time limit on it. - If he took possession without permission, it is inequitable. 5) Doctrine of laches (lachèz) ⇒ “Equity Aids The Vigilant, Not Those Who Sleep” ⇒ CONSTRUCTIVE trust for the brother so the sister lost - BUT if the beneficiary delays too long (20y maximum), this suggests consent. - BUT the doctrine is flexible and the claim may even be allowed 38y ❖ Fisher v Brooker (2009) ⇒ A claim might even be allowed 38 years later Fisher played the organ and composed a song with the help of Brooker. ⇒ Brooker claimed a copyright for his contribution to the song 38 years later, when others tried to claim it as theirs. ⇒ You can claim a copyright even 38 years after ? Because the copyright is not in equitable right but in legal right → ⇒ CAN be go on even 38 years later in case of intellectual property right Laches doctrine is only an equitable right. ⇒ Copyright is legal property right, recognized by statutes, thus the laches doctrine failed. Lecture 11 - Tracing (=localising) Tracing is a very old remedy in law. If someone takes your property, you should be able to recover it as long as it is identifiable. The key issues for tracing are evidential, as it is necessary to prove that this was once your property. However, sometimes it can be challenging. Both law and equity allow tracing: there are legal tracing and equitable tracing. I) Legal Tracing Common law tracing does not allow tracing once the property is mixed, as it cannot distinguish what belongs to you. Origins: It dates back to the Middle Ages. - For example, if someone stole your bag of gold, you could recover it even if it had been used to buy something, as long as it could be identified. - Remark: It doesn’t matter if the gold changed form as long as you could identify that the horse was bought with your gold, as long as it can be traced. ❖ Taylor v. Plumer (1815) - A lawyer entrusted with money to buy bonds. - However, he used the funds to purchase 🇺🇸 stocks and gold bullion instead - He then fled to America. - But he was arrested at the airport. ⇒ Despite the money changing form, it was traceable, and the property could be recovered, as long as he proves that the gold and stocks were bought with his money. ⇒ The court ruled that the change in form did not matter. He was allowed to recover the money ❖ Lipkin Gorman v. Karpnale (1991) - A solicitor stole money from a client’s account. - He lost it, gambling at a playboy club, a casino. - The client retraced the money to the chips. ⇒ The court ruled the money was traceable to the chips, allowing recovery. Q: What if the client bought a new type of property that increases in value such as Bitcoins ? ⇒ The trustee must return ALL the money and profits as if they had made an investment. ❖ Jones & Sons v. Jones (1996) - In this case, a bankrupt partnership’s funds were used wrongfully - The person invested in potato futures, yielding significant profits. - They got 4x the money, they quadrupled the initial money ⇒ The original owner traced and recovered both the money and the profits. Q. What if it is mixed ? ⇒ You can’t get it back in Common law tracing. BUT the solution is equitable tracing II) Equitable Tracing Equitable tracing allows recovery even when the property has been mixed. Conditions: - The property must be subject to a trust - OR involve fiduciary relationships that are not a trust. ❖ Re Hallett’s Estate (1879-80) - A solicitor, not formally named as a trustee, made unauthorized investments. - The client retraced the money and got it back. - It was his solicitor so they had a fiduciary relationship ⇒ The Court held that he was deemed a fiduciary and held liable for the breach. ⇒ This case established that formal trust documentation is not necessary for equitable tracing. Q.: What if it is mixed with others’ property ? ❖ Jones v. De Marchant (1916) A husband used his wife’s 18 beaver 🦫 skins to make a coat for his mistress, mixing it with his mistress’s 4 beaver skins. She couldn’t prove what beavers’ skins were hers. So she sued under equitable tracing The wife successfully traced and recovered the ENTIRE coat under equitable tracing principles, as common law tracing would not have allowed recovery. Q. Why did the mistress not get the coat ? ⇒ The husband and her were seen as wrongdoers Mix of funds Equitable tracing applies even when the fiduciary mixes their funds with the client’s funds. ❖ Re Hallett’s Estate (1879-80) - A solicitor took money from his own marriage settlement - He mixed the money with his client’s money - If the fiduciary mixes client money with their own and makes investments, the client can recover all the funds. ⇒ If stolen money is used to purchase property, such as a boat, the claimant may recover the entire property, not just the proportion attributable to the stolen money. ⇒ The client recovered ALL the money, even the solicitor’s III) Challenges in Tracing Tracing becomes complex when funds are deposited into bank accounts. Q.: What if the accounts are empty ? ⇒ Tracing requires proving that the bank knowingly accepted stolen money, with the due diligence principle. ⇒ You can’t sue the banks, they are not responsible Remark: HOWEVER, the concept of due diligence has evolved in banking law. IMPORTANT: 🇬🇧 You CAN’T trace into the general assets of the banks, because it loses its individuality. Q.: What if you traced your money ? You are physically there. But there are other people there too and you all have a claim for the same money. ⇒ Equity loves equality. ⇒ When multiple claims exist, competing contributors have equal rights (=pari passu ⇒ Spread equality 🥖🧈🍴 ) to recover their proportional share → In proportion to what was taken from them. Q.: What if there is not enough ? ⇒ You get your compensation, proportionally from what’s left. “First in, first out” principle ⇒ Alternatively, the “first in, first out” principle applies when there are multiple claimants but there is not enough money left ❖ Clayton’s Case, Devaynes v. Noble (1816) - After a bank collapsed, customers sought recovery. - The court applied the “first in, first out” rule, prioritizing claims based on deposit order. ⇒ Those who put the money first get their money back first Q.: What if the property increases in value ? ⇒ If the money increases in va

Equity and Trust Law Lecture Notes PDF

Document Details

Tags

Related

Summary

Full Transcript

Upgrade to continue