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Summary Trusts Law - Nature of the Beneficiary's Interest

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Comprehensive summary/exam notes on the nature of the beneficiary's interest in Trusts Law. This document outlines the points in favour of and obstacles in the way of classifying the beneficiary's interest as a property/proprietary right, a persistent right (as proposed by McFarlane and Stevens), a...

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  • October 7, 2024
  • 5
  • 2022/2023
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Nature of the Beneficiary’s Interest
Beneficiary of a trust = the individual or group of people chosen to benefit from the trust; such rights
are held on trust for their benefit by the trustee.
The nature of these rights held by the beneficiary, however, have long been contested.

Main questions:
(1) Can the beneficiary’s right accurately be characterised as a proprietary right?
(2) Even if we accept that the beneficiary has a proprietary right, does it follow that this right is
ownership?

Question 1:
Despite judicial preference towards the conclusion that the beneficiary’s right is indeed
proprietary, this is merely an issue of terminology and the idea of a “persistent right”
proposed by McFarlane and Stevens is much stronger, specifically in its ability to reflect the
third-party effects of trusts.
Given ownership’s definition as a particular type of property right, it follows from
this that a beneficiary cannot be seen to have ownership of the subject matter.

Question 2:
Explore Penner’s view that McFarlane’s and Stevens’ notions of ownership are misconceived
and that by instead thinking of ownership as about title, rather than rights to possession, the
beneficiary’s rights can amount to “beneficial ownership”.
BUT – while Penner’s view may be strong, it fails to respect the idea that ownership
is absolute.

1. Is it a property/proprietary right?
Proprietary/property rights = rights over or in respect of a physical thing.
Adopting this particular definition of property:
Anyone can interfere with the physical thing – why it binds third
parties.
Is a common feature of such rights that they can bind and be asserted against third
parties.
An argument most often articulated is that there are certain kinds of third
parties that the beneficiary can sue and therefore it can be said that the
beneficiary has a proprietary right in the subject matter of the trust.
e.g., if a trustee disperses with (transfers) the rights under the trust to a third-
party contrary to the terms of the trust, thereby acting in breach of it, the
beneficiary has the right to sue the third party to “get the rights back”.
Pilcher v Rawlins
a. What do the judges say?
Judges seem to have been firmly of the view that the beneficiary’s right is indeed
proprietary.
Lord Wrenbury in Baker v Archer-Shee –
Held that the rights belonging to the beneficiary, in this case the
daughter benefiting from a trust created by her father, for tax
purposes were “beyond all question property.”
BUT – context specific – less persuasive authority.
People use trusts as a way to avoid tax – courts are aware of
this and want people to have to pay tax.
Carter Holt Harvey v The Commonwealth – “belong to B” =
specifically for tax purposes.
Lord Browne-Wilkinson in Westdeutsche –

, Stated that the fact that the beneficiary has a proprietary right is
fundamental to the law of trusts and uncontroversial.
BUT – this was obiter! The issue in the case was whether
there was a trust – C wanted compound interest, which you
can get with a trust.
Akers v Samba –
Liquidation of a Cayman Islands company sought a declaration under
s.127 Insolvency Act 1986 that the transfer to D of shares in various
Saudi Arabian banks, purportedly held on trust for the company, was
void as a “disposition of the company’s property…made after the
commencement of the winding up.”
Lord Sumption: B has a “true proprietary right” and this position
must be respected as settled.
Lord Collins: B has “the paradigm of an equitable interest in
property.”
Lord Mance: acknowledged the different views but ultimately left the
question open.
BUT – not very authoritative.
Both Lord Sumption and Lord Collins were speaking obiter.
Lord Mance who gave the leading judgement left Q open.
The question whether the right was proprietary or not was
not necessary for the judgement as s.127 Insolvency Act
includes its own section of what “property” is – very broad,
includes all your rights, even personal.
McFarlane – would argue that the results of cases carry far more importance than
what individual judges have to say.
The rules of precedent and stare decisis tell us that courts must treat like
cases alike; it would be an unfortunate, or even perilous, state of affairs if
cases had different outcomes simply because a judge, unknowingly or
perhaps without thinking, used the incorrect term.
Apt illustration = Akers v Samba, in which Lord Collins expressed that the
beneficiary has a “paradigm of an equitable interest in property” because they
can sue people who receive the rights.
What is most clear from this statement is the recognition that the
right does not operate like a property right at common law, despite
the use of the term.
Doubtful whether considerable weight should be attached to such judicial
proclamations of a proprietary right.
b. Problems with such approach:
Subject matter of a property right is the physical thing itself.
BUT – with trusts, the subject matter does not have to be a physical thing.
e.g., bank account = contractual right against the bank.
Pilcher v Rawlins point above:
BUT – in relation to a trust, the beneficiary’s right does not bind third parties
in the sense in which it is normally referred to; suing a third party is normally
seen when they have interfered with the physical thing in dispute.
A quick analysis of the case law tells us that such route is unavailable to a
beneficiary under a trust.
In Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd (‘The
Aliakmon’) –
Goods loaded on the defendant shipowners’ vessel were
damage due to bad stowage at the hands of the time
charterers. The plaintiff buyers, who had contracted with the
defendants to ship the goods, sought to bring an action in
respect of the loss suffered as a result of the damage.

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