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Summary - Equity And Trust (LAW5003)
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In- depth notes on equity and trusts with explanation and analysis of numerous topics.
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Notes:Reading (Principles of Equity and Trusts, Graham Virgo)
Chapter 3:
2 fundamental features of the trust:
1)A person holds property rights for a person or purpose-the property component;and
2)that person is obliged in equity to exercise those rights for that purpose or person.the obligation
component.
Parkinsons de nition of the express trust (trust expressly created by the settlor)
“An express trust is an equitable obligation binding a person (the trustee) to deal with identi able
property to which he or she has legal title for the bene t of others to whom he or she is in some
way accountable.Such obligations may either be for the bene t of persons who have proprietary
rights in equity, of whom they may be one, or for the furtherance of a certain purpose which can
be enforced by someone intended to have a right of enforcement under the terms of the trust or
by operation of law.
Person who transfers the property is the SETTLOR and the person for whom the land is held is
called BENEFICIARY.
In common law,legal owner is the one who holds property however in equity this is the TRUSTEE
who holds the property for another person.
The trustee obliges to manage the property wholly in the interest of the bene ciary.
A testator may create a will and under their will it stipulates that it becomes e ective only on their
death.
Langbein believes that the obligations of the trustee can be modi ed by the terms of the trust
instrument.
FUNDAMENTAL PRINCIPLES RELATING TO TRUST:
As highlighted by lord browne wilkinson in west deutche case:
1)Conscience:Equity operates on the conscience of the owner of the legal interest, it would be
unconscionable if the legal owner does not ful l the purpose for which the interest has been
vested in him i.e passing the interest to the bene ciary.
2)Awareness of facts that a ect conscience:Trustee can not be ignorant or negligent to the facts
of the trust as it a ects the conscience.
3)Identi able property:
In order to establish a trust, there must be identi able trust property that constitutes the subject
matter of the trust.trustee must keep trusted property segregated from his own property.
4)Equitable proprietary interest:From the date on which the trust is established, the bene ciary
has in equity a proprietary interest in the trust property.
FUNCTIONS OF THE TRUST:
1)Segregation of assets: the trust enables the property to be passed on from the settlor to the
bene ciary in case of the insolvency of the settlor as these will not then be passed to the creditors
as they do not form part of the assets of the settlor but rather are on trust for the bene ciary.
2)Asset partioning: refers to creating di erent rights in a property. In family context,settlor could
express his trust in the form of gifting it to adam for life and remainder to brenda,means adam will
have the property till he lives and then property will go to brenda.
3)Management of property: Could be advantageous for property to be held on trust by someone
who can administer the property better or keep property out of reach of young adults or someone
who can not be trusted with the property.
4)Convenient property holding:for e.g trust held for investment funds or pensions.
5)Tax avoidance:could be used to reduce payable taxes.
RIGHTS AND INTERESTS UNDER A TRUST:
If a person has legal and bene cial title to a property,there is no equitable interest in it.
If adam wishes to transfer a property to brenda and john to keep on trust for david but the trust is
not validly conveyed, legal title will have been transferred to brenda and john but an equitable
proprietary interest will be created in adams favour following the failure of the express trust, by
means of what is known as a RESULTING TRUST.
The existence of the trust in brenda and john strips them o legal ownership.
Once the trust is legally created,david will have an equitable and bene cial interest in the land.
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, It is possible to declare a trust of an equitable proprietary interest in property for eg emma has the
legal title to the money that is held on trust for frank that involves a trust of legal rights. This chain
could continue inde netly.
MERGER OF LEGAL AND EQUITABLE INTERESTS:
Harman J said”you cannot have a trust existing when nobody is interested under it except the
trustee,because nobody can enforce it and there is no trust in existence.
Re cook case.
If the trustee has the authority to sell the property he has held on trust,the bene ciary loses the
proprietary equitable interest and the interest is converted to the purchase price redeemed by the
sale.so,as the equitable interest is destroyed.
If the trustee deals or sells the property in an unauthorised manner,the legal title will go to the third
party however the equitable interest will remain with the bene ciary even if the third party is not
aware of the trust created.
However,if the third party provides bona de value for the transfer of the property and was
unaware of the trust,the bene ciarys equitable interest gets destroyed.In such scenarios,the
bene ciarys only claim is against the trustee for breach of trust.
NATURE OF EQUITABLE RIGHTS:
1)Proprietary right:Right in rem,characterised by the right that the holder can exclude anybody in
the world from making use of the asset in which they have the right.This is the case in which a
legal owner operates however equitable rights operate di erently and as seen above, equitable
rights arent binding on everyone.
2)Personal right:Maitland case characterised the bene ciarys equitable rights as being personal
rights against the trustee known as a right in personam
3)Right against rights: Mcfarlane and Steven believe rather than equitable rights being personal or
proprietary it is a stronger right of the bene ciary which overrides the right of the trustee.
However,this nature is not often accepted by courts.
MODIFIED PROPRIETARY RIGHTS
Shell uk v total uk. Equitable proprietary right could be considered to be a modi ed right.It is a
proprietary right that if a third party interferes and causes loss,the bene ciary is entitled to
damages and obtain remedies however only if the trustees are made part of the legal proceedings
as he has legal ownership. Vandepitte procedure is where the bene ciary can name the trustee as
defendant and bring proceedings against the third party as seen in shell v total.
Trustee must voluntarily accept trusteeship.There is essence of a contract in trusts as there is no
consideration between the parties.
CLASSIFICATIONS OF TRUST:
How do trusts arise?
1)By event:
Trusts can be classi ed by reference to particular events upon which the trust can arise. Birks
case started this.
2)By context:Trusts can be characterised by reference to a descriptive categories that are
determined by reference to the context in which trust arises. Categories are not mutually
exclusive.
Types of trust:
1)Express trust
2)Fixed Trust
3)Discretionary trust
4)Inter vivos Trust
5)Testamentary trusts
6)Bare trusts
7)Public and private trusts
8)Protective Trust
9)Pension fund trusts
In pension fund trusts the context is work and remuneration and each member is a settlor of
separate settlement within the head trust but is also the bene ciary. Employer is bound to make
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, contributions from the salary of the employee to the trust. Since it is the trustees discretion to
keep the fund he has to use the fund safely as it has to be paid to the employers at the end of
their work age.This trust is statute bound notably the pensions act 1995 which provides
safeguards for the trust including the requirement to hire professional advisers and has a
minimum funding requirement to prevent a shortfall of funds.
10)Resulting trusts: in events where the transferor fails to create an express trust but transfers the
trust to the trustee it will be assumed that the transferor wished for the trustee to hold the
property in trust for himself.This follows with the principle that equity is cynical about the making
of gifts.
11)Constructive trusts:
12)Common law trusts:
In akers v samba nancial group: lord mance said “in the eyes of english law, a trust may be
created,exist and be enforceable in respect of any assets located in a jurisdiction,the law of which
does not recognise trusts in any form.”
DISTINGUISHING TRUSTS FROM OTHER CONCEPTS:
1)Contract
2)Debt:cases are reh lehman brothers and duggan v governer of full sutton prison
3)Bailment
4)Agency
5)Assignment: assignment involves transferring existing rights from one person to another
whereas equity involves creation of new rights.
6)Gifts: case is Attorney general v the cordwainers and re frame.
INTERESTS UNDER A WILL OR INSECTASY:: Where a testator dies, their property will pass to
executors, who will receive the property absolutely, but subject to a duciary duty to ensure that it
is transferred to those entitled under the will. Bene ciary does not have a legal or equitable
interests until the executor has paid all creditors and transferred ownership to
bene ciary.commisioner of stamp duties v livingston
POWERS: Fundamental di erence between trusts and powers is that trusts impose obligations
that must be performed,whilst powers are discretionary,so they may be performed.So, if there is a
trust obligation to make a transfer, the court will do so upon the death of a trustee however the
trust obligation will die along with the trustee if he had been given power to do so.
A hierarchy of trusts and powers can be identi ed:
1)Fixed trusts: under a xed trusts, the duty to distribute trust property to the bene ciaries must
be discharged.If not, the court will ensure that the duty is performed by appointing the trust
property according to the terms of the trust.
2)Discretionary trust: discretion can be characterised as a power, the sense that the trustee can
choose who can bene t. But this power must be executed, so in that sense it resembles a trust. If
the trustee fails to do so, the trust will be executed by the court either by making an equal order
for division among the bene ciaries or in such proportions as appear to be appropriate in the
circumstances.
3)Fiduciary power: This power is a power of appointment that is given to a trustee in their capacity
as a trustee. However, this is a true power as the trustee is not obliged to exercise it at all, if he
does not, it will lapse and the power will default according to the terms of the trust.
Fiduciary powers can be divided into three categories:
A)General power- a power to appoint property to anyone the trustee chooses
B)Special power- a power to appoint to a person from a selected group;
C)Intermediate power-a power to appoint property to anybody except certain people or a certain
group of people.
4)Power coupled with a trust:
Another category is that where there is a power to make an appointment, but a trust arises if the
appointment is not made.However, if power is not exercised before the trustee dies, the power
will lapse and will be replaced with a trust obligation in favour of the objects of the power. Burrow
v Philcox case.
5)Mere powers: Powers may be given to people who are not trustees or otherwise in a dicuary
relationship. The person with the power is not obliged to even consider the exercise of it.
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