Exam (elaborations)
Nature of a beneficiary's interest essay
- Module
- Law Of Trusts
- Institution
- Kings College London (KCL)
Law of Trusts Coursework, Nature of a beneficiary's interest essay, Grade 72
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In discussing the subject of the nature of the beneficiary’s right to the trust property,Frederic Maitland (one of the most important scholars of the law of equity) wrote:
‘[f]or my own part, if a foreign friend asked me to tell him in one word whether
the right of the [beneficiary] is in personam or in rem, I should be inclined to say:
“No, I cannot do that.... [But in] ultimate analysis the right may be in personam’.
To what extent do you agree with either of the two positions Maitland expresses in the
quote (the sceptical and the more decisive)?
After a historical period of uncertainty and doubt regarding the nature of a beneficiary’s
right to the trust property, it can now conclusively be said to be in rem. Maitland’s sceptical
view of the beneficiary’s right to the trust property has significant weight when considering
the trust in theory. However, a decisive position can be achieved when considering how the
paradigm of the trust functions in practice. The orthodox position of the courts, that a
beneficiary's right is in rem, explains assignability, the Saunder v Vauiter rule, how the
beneficial interest binds third parties and why the beneficiary has priority over creditors. 1
Maitland’s decisive position that a beneficiary’s right is in personam corresponds with the
obligation theory of the trust: the beneficiary only has a personal right against the trustee,
akin to a contractual duty. Although the theory views this duty as special and open to
proprietary remedies, they argue the interest hasn’t changed enough to cross the threshold
into being a proprietary right. A novel interpretation of the beneficiary’s interest builds from
this theory and instead views the beneficiary as having a right against the trustee’s right to
the trust property.2 These contractual-based views understand the trust to arise out of the
voluntary undertaking of the trustee. The preferable view is that the trust is created through
the express intention of the settlor, which explains why title can pass without the trustee's
knowledge.3 The proprietary view understands the creation of the trust to split beneficial
ownership from legal ownership. The obligation theory may object to this arguing that there
cannot be two conflicting owners. Scott dismisses this because both law and equity regard
the trustee as the legal owner and the beneficiary as the equitable owner. 4 The splitting of
ownership allows the beneficiary to take the benefit of the property, whilst the trustee has
1
Saunders v Vautier (1841) 49 ER 282
2
Ben McFarlane and Robert Stevens, ‘The Nature of Equitable Property’ (2010) 4 The Journal of Equity
3
Tatiana Cutts, ‘The Nature of Equitable Property: a Functional Analysis’ (2012) 6 Journal of Equity 44
4
AW Scott, ‘The Nature of The Rights of the Cestui Que Trust’ (1917) 17 Columbia Law Review 269
, control over it; their interests are complementary and not competitive. 5 Furthermore, to
create a valid trust there must be certainty of subject matter. If the trust was merely
contractual then there would instead be a focus on the trustee’s commitment to the trust.
The proprietary view is the most convincing explanation of the creation of the trust.
A proprietary feature of a beneficiary’s interest is its ability to bind purchasers and
recipients of trust property. Lord Browne-Wilkinson describes the exclusionary feature as
“the hallmark of any right in rem”.6 As the rules of equity developed the protection of the
beneficiary’s right was extended against purchasers who had notice of the trust and
recipients without consideration.7 The obligation theory’s biggest objection to this is the
bona fide purchaser defence. Arguably the beneficiary’s interest cannot be conclusively
proprietary because it is incapable of binding all third parties. Jaffey explains it does not
matter that the beneficiary’s interest does not always prevail, but that it is capable of
binding a recipient.8 The possibility of losing ownership doesn’t reduce the ownership, while
it continues, to a mere obligation.9 Therefore, it cannot decisively be said that the
beneficiary’s interest was only in personam before a bona fide purchase. The obligation
theory may argue a beneficiary owns the trustee’s obligation to them as a form of property,
which explains why the beneficiary is entitled to proprietary remedies when a third party
interferes with the obligations of the trustee. However, this cannot explain why the
beneficiary’s interest can bind a third party when they have done no wrong. Jaffey criticises
the reliance on interference as fictional and amounting to recognising the beneficiary has a
right to the trust property good against everyone. 10 The bona fide purchaser defence only
proves that a beneficial interest is weaker than legal ownership. 11 This is justified due to the
inherently secret nature of the trust. The proprietary view explains the ability of the
beneficiary’s interest to bind purchasers in a practical and clearer way and the bona fide
defence doesn’t introduce any scepticism.
5
Peter Jaffey, ‘Explaining the Trust’ (2015) 131 LQR
6
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12 [82] (Lord Browne-Wilkinson)
7
EC Zaccaria, ‘The nature of the beneficiary's right under a trust: proprietary right, purely personal right or
right against a right?’ (2019) 135 LQR 460
8
Jaffey (n5)
9
Scott (n4)
10
Jaffey (n5)
11
Zaccaria (n9)
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