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Trusts: what are they?

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Tatiana Cutts

on 20 September 2014

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Transcript of Trusts: what are they?

Basic Principles
of
Trusts Law

Express
Resulting
Constructive
(Statutory)
(Implied)

The different kinds of trust:
Started life as the "Use".
An institution of Chancery.

History of the trust
Feoffee
Feoffer
USE
English private law: 3 categories of event that give rise to legal responses
1. Consent
2. Wrongs
3. Unjust Enrichment

Consent: A makes a contract with B. A and B both acquire rights and assume corresponding duties
Wrongs: B breaches that contract. B incurs a liability to pay damages.
Effectively abolished the use.





Reinvented as the TRUST.
Statute of Uses 1535
Where does the TRUST belong in our private law?

Settlor

What kind of event does a trust respond to?
?
The Modern Trust
Sets up the trust by transferring legal title (or declaring himself a trustee).
Unjust Enrichment: A makes a payment to B by mistake. B incurs a liability to return that payment.
Holds legal title (is legal owner).
Holds "equitable title". Is "equitable owner".
Legal title ("Ownership")
A proprietary right.
Proprietary right (right in rem)
Personal right (right in personam)
Can be asserted against an indeterminate category of persons.

Imposes duties on an indeterminate category of persons not to interfere.
rights
duties
Can only be asserted against a limited category of persons
Imposes duties on specific persons
rights
duties
Beneficiary
Trustee
LEGAL TITLE
EQUITABLE TITLE
It was up to him whether or not to award a remedy, according to his conscience.
It was as a regularisation of his responses that the court of Chancery grew up.
Before Medieval ages, law was administered locally. Judge-made
law started to develop rapidly, and the King developed a legal
system common to all of England: the "common law".
Formally split in around 1345. Equity and the Common Law became separate bodies of law administered in separate courts
1873 and 1875 Judicature Acts: Equity and the Common Law formally (though not substantively) fused: Common Law and Chancery courts abolished and replaced with single HIGH COURT, with 3 divisions.
why was the Use created?
to avoid feudal incidents,
to hold land whilst men
were away in battle,
and in order to avoid
the restrictions on
devising land
By early C16th,
most titles to
land were held
by feoffees to
use.
Equity gradually became more systematic, and developed predictable rules and doctrines.
Chancery
(Equity)
QBD
(contract
& tort)
Family
(matrimonial etc)
In Re National
Funds Assurance
Jessel MR: this court is not, as I have often said, a Court of Conscience, but a Court of Law
General attitude was strict and inflexible. Individuals had to fall within established forms of action or their claims would fail.
But they could petition the king for relief. This function was later delegated to the Chancellor.
Chancery: a history of Equity
The body of law developed by Chancery is called EQUITY
Crown concerned
about loss of revenue
Equitable title
a proprietary right?
a personal right?
supported by actions in conversion
and negligence
can be asserted against everyone except the bona fide purchaser of a legal estate
Beneficiary cannot claim in conversion
MCC Proceeds v Lehman Bros
Beneficiary CAN claim in negligence
Shell v Total
Court of Appeal
So long as the beneficiary joins the trustee, they can recover the loss that between them they have suffered (at [129]); it would be "legalistic to deny Shell a right of recovery" since Shell is the "real owner" (at [132]).
[2010] EWCA Civ 180
T
(UKOP & WLPS)
B
(Shell)
Fuel storage facilities, pipelines
X
(agent of Total)
negligently destroyed
(Pilcher v Rawlins)
T
B
X
who acquires bona fide but gratuitously (is a "volunteer")
T
B
X
trust right
interferes with title
right
duty
right
right
right
right
right
duty
duty
duty
duty
duty
not a "right in rem", nor a "right in personam", but a "right against a right"
(McFarlane & Stevens)
?!
a right against the trustee in respect of the rights vested in him
T
B
Res
title
what difference does this make?
A new category of "persistent" rights?
T
X
B
B
right against T
in relation to rights vested in him
T
"core trust duty"
(duty not to use trust res for own benefit)
T
B
Res
right
duty
power
gift
X
B
duty
right
to notify X and impose upon him the core trust duty
duty
liability
right
power
Beneficiary can collapse trust- require trustee to transfer legal title to him
Saunders v Vautier
T
B
power
duty to transfer title
title
duty to transfer title
power
Buncefield
Is it the same power?
Saunders v Vautier
B has a power to impose on X a duty to transfer title to B:
power to acquire a proprietary right
B (and everyone else) has a "factual power" (not a legal interest) to notify X and impose on him a new personal duty not to deal with the trust right:
power to acquire a personal right
vs
proprietary
personal
power created under original trust is proprietary. Imposes a liability on any recipient.
Does not change the proprietary status of the parties in and of itself- concerned with imposing personal duties.
B has a
proprietary power
power
liability
power
liability
power
liability
power
liability
power
liability
duty
right
proprietary
personal
(P. Birks)
Mcfarlane
Saunders v Vautier
T
B
X
T
B
X
B
right/duty
right/duty
power/liability
power/liability
T
B
X
power/liability
power/liability
right/duty
a power to notify T of what? Depends upon some pre-existing interest
not a true power at all- the third party might acquire knowledge by any means
B
T
B
X
X
X
X
X
personal
proprietary
how are trusts made?
The "3 certainties"- settlor must:
intend to create a trust
have identifiable subject matter
have identifiable beneficiaries

What then? What must the settlor do?
Transfer title to T
Trust is "constituted"
Beneficiary gets "equitable title"
Trustee gets legal title.
Difficulties?
Cannot constitute a trust of "future property"
Cannot pass title to something that does not exist.
Re Ellenborough
Covenants to settle after-acquired property
C.or
C.ee
X
covenant
(promise to settle AAP)
C.or receives AAP but refuses to settle it as promised
Can he be made to?
Re Pryce
Equity won't assist a volunteer, and so C.ee will be directed not to sue if damages will be held for a volunteer.
Ought the court now for the sole benefit of these volunteers to direct the trustees to take proceedings to enforce the covenant? I think it ought not; to do so would be to give the next of kin by indirect means what they cannot obtain by any direct procedure.

Accordingly, the trustees ought not to take any steps to compel the transfer or payment to them of the AAP.
Eve J
Ought the C.ee sue?
No, they need not
Yes, they ought
They ought not
Re Kay
Fully-constituted trust of a promise (the right to sue)?
S (C.or)
T (C.ee)
B
right to sue
covenant
Fletcher v Fletcher
Wigram VC: I cannot, I admit, do anything to perfect the liability of the author of the trust, if it is not already perfect. The covenant, however, is already perfect. The covenantor is liable at law, and the court is not called upon to do anything to perfect it.
Equity won't assist a volunteer to become a beneficiary, but once they are, their status as a volunteer is irrelevant.
Paul v Paul
Intention to create a trust of the benefit of the covenant?
Possible?
Yes!
Trustee?
Settlor?
Barret v Universal Island Records
Presumption of intention?
Ordinary civil standard of proof?
Knight v Knight
Fletcher v Fletcher
Vandervell (No 1)
Feltham
intention not discussed
presumption that if given to a trustee company, given on trust
in the absence of special circumstances an intention to create a trust of the benefit of the covenant should be assumed as of course. S has gone through the ritual of signing and sealing a document containing a promise to settle
Re Schebsman
Elliot
it is not legitimate to import into the contract the idea of a trust when the parties have given no indication that such was their intention
a matter of intention to be gathered from the words of the covenant.
a case like Fletcher, where the beneficiary is referred to by name, is very different from a case where the recipients are not the prime object of the bounty but only referred to as an afterthought- e.g. "next of kin".
Who can sue?
What remedies are available to them?
No
Yes
Trust is fully constituted so
either
T can sue, or B can compel him to sue, by joining him as co-defendant.
Damages are substantial (the value of the sum or asset promised)
Re Cavendish-Browne's Settlement Trust
Lloyds v Harper
Wherever the trust is fully constituted, and T has a duty to act in B's best interests, not only may he sue, he has to sue (or breach his duty).
T
cannot sue in order to constitute the trust but might be able to sue under the Broad Ground
B
can sue under the CRTPA 1999. Damages are the same as that which the promisee would be able to recover (i.e. substantial).
But what way do we then have of compelling him to hold damages for the beneficiary? Damages under the broad ground are for infringement of the promisee's own right to performance
Problems?
Re Pryce etc: covenantee can't recover anything!
Are we dealing with "contracts" at all?
Treitel
Re Prudential Assurance Co v Ayres
1.
2.
3.


Constitution continued..

Milroy v Lord
3 modes of making a gift and they are mutually exclusive:
1. outright transfer of legal title
2. transfer of legal title on trust
3. self-declaration of trust
The rule in
Strong v Bird
Imperfect constitution
Fortuitous perfection: where a testator had manifested an intention to forgive a debt during his lifetime, and this intent continues up to death, then if the testator makes the debtor executor of his estate, the debt is regarded as discharged.
Re Ralli's WT
Applied to trusts, where deceased's intended trustee becomes his personal representative.
Role of continuing intention?
The rule in
Re Rose
Where the transferor has done everything in his power to transfer title, but the transfer is dependent upon the act of a third party, equity "treats as done that which ought to be done" and imposes a constructive trust in order to perfect the gift.
T Choithram International
v Pagarini
T executed a deed establishing a charitable foundation and appointed himself one of the trustees. Then said "I give all my wealth to the foundation". Court construed words of gift to be words of trust, and held that since he was one of the trustees, this constituted the trust.
Pennington v Waine
Equity will impose a CT if the stage has been reached at which it would be unconscionable for the donor to resile.
Lord Browne-Wilkinson
It would be "unconscionable" to allow him to resile from his gift.
T Choithram Int
Zeital v Kaye
Tatiana Cutts
http://bit.ly/1cAOXD4
Rights against Rights:
the problems
1) Trusts can arise in the absence of knowledge on the part of the trustee, but how can a trustee be subject to a duty that he does not know exists?
2)
Trusts can bind third parties in the absence of knowledge on the part of the recipient.
No need for a third category of rights. The personal right-duty relationship between the trustee and beneficiary CANNOT explain a new relationship between the beneficiary and a third party. A trustee is subject to duties if and only if he has manifested consent, either of a ROLE (which carries with it certain duties) or of individual DUTIES.
Westdeutsche Landesbank Girozentrale

v Islington LBC
Mallott v Wilson
The trustee can disclaim, but that does NOT destroy the beneficiary's interest. Rather, the settlor holds subject to the interest of the beneficiary.
"Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee if and so long as he is unaware of the facts alleged to affect his conscience i.e. until he is aware that he is intended to hold the property for the benefit of others."
Lord Browne-
Wilkinson
ITS v GP Noble Trustees
"Despite what Lord Browne-Wilkinson said, it seems to me that it is appropriate to speak of A holding on trust for B in this situation, provided that one is not misled into thinking that to call the relationship one of trustee and beneficiary tells you, of itself, what the duties and liabilities of the trustee are."
Lloyd LJ
3) Practical?
"Persistent" because, no matter whose hands
the trust right comes in to, can notify them
and impose upon them the (personal) duty
not to use the trust right on their own behalf
No
Is there an easier answer?
Regardless of any personal rights/duties between B and T
Maybe the power where it DOES have personal rights and duties is "worth more"
Does it really matter?
Why do we care what counts as a trust?

What is the reason for asking the question?
Proprietary power = "mere equity"
Proprietary power + core trust duty = "trust"
Which third parties does the interest effect?
Because we want to know something about the relationship between the trustee and beneficiary?
Or because we want to know the status of third parties?
WHY?
Full transcript