Lecture 1: Introduction

Sunday, 1 March 2015

11:35 p.m.

Key foundation of private law

 Obligations
o Torts
 Enforcement or protection of property
o Contract
 Exchange of property
 Property and entitlement
o Rules of assignment and title/ownership
 EQUITY?
o Equitable remedies
 Equity provides a range of (flexible) remedies that can vindicate property rights
 Common law's only remedy is damages
 You have to pay the money or it would attract adverse consequences to
your property, e.g: seizure
 Make you do stuff
 Supplementary to the common law remedies
 Function: Vindicate property right
 e.g: specific performance
 Make the infringing party do something
 Rescission
 Under certain circumstances the contract can be rescind
 Obligation under the contract must be carried out under
common law, but under equity one can stop to perform the
obligation
 Injunction
 Make you do something or it would be unconscionable if it is refrain
 Prohibit you from doing something
 Breach of confidence (prevent somebody from breaching private or
confidential things)
 Unconscionable for you to tell someone else about something that
was told in confidence
 We can do something about that: injunction that prevent one
from divulging confidential info.
 Get the Court to issue the order of injunction (the order is
backed by sanction)
 Contempt to Court: punishment and sanctions
(imprisonment is awaiting)
 Common law did not offer sufficient remedy
o Overlay of different principles: why is it correct to say that if you want to describe the
private law adequately, you have to describe "equity" as well?
 Lord Browne-Wilkinson in Westdeutsche Bank
 "…in 1993, English law has one single law of property made up of legal and
equitable interests"
 Common law interest defined by case and statute + equitable overlay
 Institution of trust is central to private law
 Wills
Why do we have equity?: Philosophical distinction
 e.g: contract - mistake - certain kind of mistake have certain consequences
o It has to assume a character before the common law allow the contract to be voidable
 Equity would have a different standard
o Look more kindly on the claimant
 Allow more people to claim that the contract should not be performed: they
should not be compelled to perform that contract
o Equitable mistake? Concepts are similar to common law mistake
 The rules built upon a foundation of a new social situation
o But the rules itself is inept to the future people: they are bound by it
o They invent it by improvising the old rules rather than do away with it
o (playground example)
 Common law causes injustice to the claimant
o Unfairness calls out the judges to rule by conscience
 But why should we soften the common law by using equity?
o Common law declares general rules from a body of cases: systematize the common law
 Or this job can be done by statute
o Equity mitigate the harshness of the common law; general rule
 Equity is an exception to the common law
o It allows the judges to avoid the general rules embodied in the common law
o Exceptions allow the judges to reach to the fair result
 Aristotle and equity
o Idea of making exception to make the rule more fair

Why do we have equity? Jurisdictional perspective

 A person; institution who will listen to common law's claim
 Equity as a different institution in England
o Sitting alongside with the common law that heard something different
o Rules of equity comes from this different institution
 Equity is a body of principles, doctrines, and rules developed originally by the old Court of
Chancery in constructive competition with the principles, doctrines, and rules developed by
the common law courts.
o A body of law developed in the Chancery Court
 In New Zealand, the courts were always “courts of common law and equity”
 In England/Wales this needed to wait until the unification process (1873-75)
 Through the Judicature Act 1873 and 1875
 History of equity
o Norman the Conqueror streamlined the Court system
o Prior to the Norman Conquests (1066), no unified English law
o 12th Century: development of the notion of justice residing in the King
o Institution of the King's Court was established (Curia Regis)
o Common law action becomes very rigid
 Your claim must comply with the existing writ or you have no claim under the
common law
 Very difficult to bring novel claims
o King: a form of justice within the realm
 You can appeal directly to the king
 "do what the conscience requires"
o Lord Chancellor
 In the 14th century, these appeals were delegated to the Lord Chancellor
 Religious figure: a person who controls the man's conscience
  In the 15th century, the Chancellor were issuing decrees in his own name
 The king's Court rule by conscience
o Conflicts between the decision made by the court of common law and court of chancery
 What Lord Chancellor think is conscionable is really variable between different LC:
"Chancellor's feet"
o Principles developed in the Chancery were meant to remedy defects of common law
o Judicature Act 1873 and 1875: streamline the Courts
o In NZ: equity and common law fuse together
 Principles developed in the Chancery were meant to remedy defects of common law
o Rigidity of legal rules
o Strict rules of evidence / procedure

Conflicts between common law and Equity

 Earl of Oxford's Case
o Difference between common law and equity rules?
 Equity prevails
 If common law prevails?
 Equity has limited application: they cover the same area of law
 overlapped with each other
o “The Cause why there is a Chancery is, for that Men[’]s Actions are so divers[e] and
infinite, That it is impossible to make any general Law which may aptly meet with every
particular Act, and not fail in some Circumstances. The Office of the Chancellor is to
correct Men[‘]s Consciences for Frauds, Breach of Trusts, Wrongs and Oppression, of
what Nature so ever they be, and to soften and mollify (reduce the severity of
something) the Extremity of the Law.”
 Aristotle's Ethics
o “Equity is just, but not what is legally just: it is a rectification of legal justice.”
o “Law is universal, and there are some things about which it is not possible to pronounce
rightly in general terms; therefore in cases where it is necessary to make a general
pronouncement, but impossible to do so rightly, the law takes account of the majority
of cases, though not unaware that in this way errors are made.”
 Lord Dudley v Lady Dudley (1705) Prec Ch 241, 244, per Lord Cowper.
o Now equity is no part of the law, but a moral virtue, which qualifies, moderates, and
reforms the rigour, hardness, and edge of the law, and is an universal truth; it does also
assist the law where it is defective and weak in the constitution (which is the life of the
law) and defends the law from crafty evasions, delusions, and new subtleties, invested
and contrived to evade and delude the common law, whereby such as have undoubted
right are made remediless: and this is the office of equity, to support and protect the
common law from shifts and crafty contrivances against the justice of the law. Equity
therefore does not destroy the law, nor create it, but assist it.”

Equity's development
 Unification of common law and Equity courts in England and Wales in the High Court
 Equity’s rules and principles become systematized and precedent-based
 Similarly, the common law no longer uses such rigid forms of action; and it develops according
to moral/social mores
Lecture 2: The Structure of Trust
Thursday, 5 March 2015
10:31 a.m.

 Characteristic: Trust is an equitable institution

 Maitland: most distinctive achievement by English law is the trust
o Common law development is the key force in shaping the law of trust
 Equity looks like the common law and become the founding block of trust
o Other institution have to set up the institution of trust artificially, rather than having the
advantage to access to the historicity wisdom.

What is a trust? Do you have any rights or obligations under a trust?

 “…an equitable obligation, binding a person, called a trustee, to deal with property (called the
trust property), owned by him as a separate fund, distinct from his own private property, for
the benefit of persons (called beneficiaries or, in old cases, cestuis que trust)…”. D Hayton et
al., Underhill and Hayton: Law of Trusts and Trustees (17th ed, Butterworths, London 2006).
 The essence of a trust is the imposition of an equitable obligation on a person who is the
legal owner of property (a trustee) which requires that person to act in good conscience
when dealing with that property in favour of any person (the beneficiary) who has a
beneficial interest recognised by equity in the property. The trustee is said to “hold the
property on trust” for the beneficiary. There are four significant elements to the trust:
o that it is equitable,
o that it provides the beneficiary with rights in property,
o that it also imposes obligations on the trustee, and
o that those obligations are fiduciary in nature.” Thomas and Hudson, The Law of Trusts
 Do you have any rights or obligations under a trust?
o Acquiring absolute title to the property: the owner use her power to create a trust
o Fund of trust property
o Obligations on trustee
 trust instrument, fiduciary, statute
o Personal and proprietary remedies for the beneficiary
 against trustee and third parties
o Legal title vs equitable rights
 What is a trust?
o Holding a property on behalf of the beneficiary for the benefit of somebody else
 legitimate use of trust
o Mental incapacity to manage the property
 Unable at law to manage their property
o Give them the benefit of the property through trust structure
 Someone else would own the legal title of the property at common law
 Through the owner of the legal title in common law to administer the property
 Equity would require the person who hold such a title should act in the interest of
the beneficiary according to any written provision whatsoever
 They can't use that property to their own benefit
 Property rights are important
o They give people the autonomy
o They want people to feel secure in their property
o The person who owns property who has the legal title of the benefit can't take the
property
 Fundamental limitation of the use of the property: ultimately for the benefit of somebody else
 o The ability to give and gave over time that is managed by one person on behalf of the
other
o They can no longer have the benefit derived from the property for themselves
 e.g: large pools of funds; superannuation, kiwi saver
o Further statutory regulations may step in to regulate, but their basis is the trust
o The trust structure is set up to manage your property in equity
o In equity, you have proprietary right to it
 Separate fund?
o We need to know if a person called the trustee has got the legal title to this property
that was held by the trustee, which piece of it are they entitled for?
 Cestuis que trust: certainty of object

How to set up a trust?

 Express/Implied trust
o “The Settlor directs and declares and the Trustees declare and acknowledge that the
Trustees shall stand possessed of the TRUST FUND on the trusts, and with the powers
set out in this deed….”
o Someone else is intentionally setting up an express trust
o Someone else has the legal title to a property at common law, decide to dispose that
property through the mechanism of the trust
 Complicated kind of gift
 Person with legal title either declare themselves the trustee, divesting the
equitable title to other people
o Transfer the common law title to someone else, but wanting them to hold that property
for some other's benefits
o Based on the settlor’s (objectively determined) intention to create a trust.
 Our job is to work out whether a trust exists.
 Resulting and Constructive Trust
o Where the law (equity) will recognize a trust
 unconscionable behaviour
 to give effect to presumed intentions, etc.
o Law presumes the trust is intended by the parties who create it
 The law imposes the trust
o Because of what happen, the person who holds the legal title to the property must hold
it for the other person's benefit
o The equity would deem it unconscionable for the trustee not to hold the property for
the benefit of somebody else, i.e: the beneficiary
o The person who holds the legal title of the property must hold it for the benefits of the
other party, or it may be unconscionable.
o In the situation of constructive trust, the person who holds the property may not have
the intention to establish a trust. They might want to hold the property for their own
benefit
 The law is going to force them to act according to their conscience to hold it for
the benefit of somebody else
 S entrusts T with property to hold on B’s behalf
o T is to hold the legal title to Blackacre until B returns from overseas
 Equity considered that it would be unconscionable for T to assert his (legal) title against B’s
(equitable) interest. S trusted T to hold the property for B. Equity will uphold that trust—even
though the trust is not reflected in the legal title. (Also, Equity will impose strict duties on T.)
 Despite T’s absolute ownership at common law, B is beneficially entitled to the property in
equity
  ‘Equitable title’
 Equity says (in effect) T’s conscience is burdened by T’s obligation to B
o Equity will not let T act unconscionably

Its origin
 Trust = avoidance mechanism first and foremost
 Feudal system whom the king had controls all the property
o The king grants out land on condition that the person who gets the land have no full
ownership, but has to pay taxes to the king
o They have limitations on the land: they can't live the land as they wish
 The land will inherited to the first born son, or it would be acquired back by the
king
o But not all people wants his land to be divested to his firstborn son: how to benefit all of
my son?
 Inter vivos (during one's life time) the legal title will be dispose to someone else,
and they have to hold it for the benefit of their children
 "Trust": you have to trust those people who hold the land
 Common law said that these people are the legal owner of the land
 But equitable conscience dictate that they had to uphold the promise: the
promise to use the land to the benefit of the children
o Equity: against your conscience not to give effect to the promise/obligation
 Equity is going to enforce the institution of trust: you have to uphold the
obligation
 Trustee at common law cannot use it for their own benefit
o Because they have the title at common law
o Equitable title on the property: a degree lower than the legal title?
o Obligation owed by the person who has a title on the common law
 Declaration of the trust
o Equity prevent the owner from using the land to his benefit

Trust as a tripartite structure

[Hudson's magical triangle]
 Settlor transfer the legal title to the trustee
o Therefore the trustee now has the legal title in common law
o Settlor no longer has the rights to the property that they had divested
 Settlor created the equitable interest to the beneficiary
o They "transfer" the benefits of the property divested to the beneficiary
o Beneficial interest is an equitable interest
o No equitable obligations placed upon the settlor
 The absolute owner owns the property, in this case is the settlor
o Beneficial interest: it is transferred from the previous absolute owner (settlor) to the
beneficiary
 But it can only happen when the equitable interest is created
o Therefore, the settlor created the equitable interest to the beneficiary
o OR the transfer of the beneficial interest which was there when the settlor owns the
property herself
 She can give the beneficial rights to the beneficiary
 The title was given to the trustee, who holds the property on behalf of the
beneficiary
o But the beneficiary do not have the full beneficial interest as the settlor as he is not the
absolute owner
  The trustee cannot and will not have beneficial interest because the equity forbid
them to derive the benefit from the use of the property
 The trustee is not allowed to benefit [refer to slide]
o Trustee owes obligations to the beneficiary through equity
o Settlor would drop out from the equation
o Settlor can say that they are the "beneficiary" OR become the trustee with someone else
 They divest their rights as an absolute owner or settlor
 Trustee and beneficiary cannot be the same person in the trust
o Equitable interest cannot be owned by the same person and benefit himself
Lecture 3: Trust as a device
Friday, 6 March 2015
10:32 a.m.

What if the settlor declares herself to be the trustee?

 A valid trust consist of three parties:
o Settlor
 Would drop out of the equation once he relinquished his legal title
 Constructive trust: there is no real settlor
 Someone would deliberately settle property on trust
 Deliberately use their property rights to create a trust
 Court will uphold this trust
o Trustee
o Beneficiary
 Settlor declares herself to be the trustee?
o This is possible: refer to the diagram
o Initially there is no equitable right
 They transfer their equitable beneficial interest on the beneficiary
 Therefore it eliminates the need for a third party
o Implication? Get the property subjected to the trust into the hands of the trustee
properly
o No transfer of property to someone else: he himself would be the trustee.
 Paul v Constance: imperfect gift may, through the instrument of trust, be transformed to
become a perfect gift

Written Trust Instrument

 “The Settlor directs and declares and the Trustees declare and acknowledge that the Trustees
shall stand possessed of the TRUST FUND on the trusts, and with the powers set out in this
deed….”
 Precedents: some smart lawyers had drafted out a trust
 Trust is intentionally done by the person who owns the property
 Either you are be forced to write them down or you find a lawyer to draft it out
o This is the evidence for the intention to create the trust

Whether the Valid Trust Exist

 Two types of trust:
o Express trust
o Imposed trust
 Three Certainties
o Did the person intended to set up a trust?
o If they did had that intention, had they specified the subject matter of the property well
enough?
o Had they specified the identity of the beneficiary well enough?
 The essence of a trust is the imposition of an equitable obligation on a person who is the
legal owner of property (a trustee) which requires that person to act in good conscience
when dealing with that property in favour of any person (the beneficiary) who has a
beneficial interest recognised by equity in the property. The trustee is said to “hold the
property on trust” for the beneficiary. There are four significant elements to the trust:
o that it is equitable,
o that it provides the beneficiary with rights in property,
o that it also imposes obligations on the trustee, and
 o that those obligations are fiduciary in nature.” Thomas and Hudson, The Law of Trusts
 Property rights are enforceable against third parties
o e.g: trustee has legal title to the property and they owe somebody else an obligation
 Trustee can't use that property for his own benefit even though he has the legal
title to the property
 Looks like I am the owner but he owe obligation to somebody else in equity and
also, he can't use that property to repay the debt that he owe to the creditor
o The proprietary nature of the beneficiary entitled to the trust property in equity
 But this beneficial interest, which is equitable in its nature, is unrecognisable
under the common law
 Third party can't access to the property
o How it give the rights to the beneficiary of the property
 It provides the beneficiary with rights in property
 Trustee has the legal title to the property, they owned someone else the obligation
o Using the property to the benefit of the beneficiary
o Can't use the property to the trustee's benefit
o Under common law, the trustee seemed to own the property, but the equitable
conscience dictate that the trustee shall not allow that property to be accessed by the
third party
 When the trustee is insolvent, they have obligations to the creditor
o Beneficiary: obligation owed by the trustee sits along the proprietary rights owned by
him
 To ensure that the trustee will not vilify the trust property
o Beneficiary's proprietary interest is binding against trustee and his creditors (Re Kayford)
 If the company or the person owes you a debt, and if you have the proprietary rights on a
particular property
o e.g: mortgage, trust relationship, personal securities payment…
 Personal and proprietary remedies against third parties and the trustee
o Link to the property law concept of rights to exclusion

What motivates the assertion of a trust? What are trusts used for?
 Owing this asset to someone else, and I am going to get them back
 The use of trust:
o ‘Ring-fenced’ fund of assets
o Asserting proprietary rights
o Flexibility in Wealth management
 Succession planning; gifts over time
 Tax
 Creditors
 Family provision (or avoiding it)
 Pension funds, investment schemes, unit trusts
 Commerce: trading trusts, taking security
o Give it on certain terms
o Gaining values on certain terms
o Earn income
 At the end of a certain period, all the money will be paid off
 To divest more decision making power in relation to wealth management
o Allow the trustee to make the decision later on
 What trust can do?
o It separate out the legal ownership of an asset
  Make it seemed like you don't own the property: technically they don't own the
property
 But the settlor can still remain as a trustee or a beneficiary
 Avoid tax: the magic of distribution can allow that property to become yours
o It allow you to avoid creditors
 Though I owe someone an obligation, you can't take my property even though I
still owned it because I divest the legal title to someone else
o Clayton v Clayton: this business is my property, but I entrust it to someone else
 Family provision
 Splitting out the ownership and derive benefit in an equitable sense
 For Clayton, refer to 3.28-3.30
(http://r130.publications.lawcom.govt.nz/Chapter+3+-
The+new+Trusts+Act/The+new+Trusts+Act+and+the+validity+of+trusts)
 Express trusts that exclude mandatory duties
 3.28 The more difficult question, however, is what the effect will be of
requiring courts to read into deficient trust documents the mandatory
obligations that we have specified. The case of Clayton v Clayton presents an
example. That case concerned a series of trusts, the validity of which were
challenged in relationship property proceedings. Rodney Hansen J found
that in relation to one of the trusts in dispute, the way in which the trustee
who was also the settlor and a beneficiary might exercise discretion without
reference to the interest of the beneficiaries was so inconsistent with the
normal obligations of a trustee that a trust had not been established. This
was despite the intention to create a trust.117
 3.29 Disputes like Clayton will unquestionably remain an important pressure
point in the law of trusts in New Zealand. Although we make no judgement
about the particular facts of Clayton itself, the question arises from the
result or the reasoning by which the result was reached, as to how this
particular kind of dispute might be reasoned under the new Trusts Act. The
approach under our recommended statute would be to first start with the
provision that confirms the courts’ ability to declare that a purported trust
not to be an express trust within the meaning of the new Act. Under our
new statute, once those core characteristics have been satisfied, the
question then becomes one of whether the terms of the trust have
purported to exclude one of the mandatory duties that is otherwise
provided for in the Trusts Act. If it has purported to exclude such a duty then
the provision that we have recommended would have the effect of
rendering that exclusion void and would essentially read those duties into
the trust deed. It is possible that what might have otherwise been held to be
a sham or illusory trust for having purported to have excluded a key
mandatory duty will be saved in essence by the voiding of the otherwise
offensive clause.
 3.30 However, that would not be a necessary result of our new Trusts Act.
We would expect a court faced with such a contention to look at whether
the existence of such an exclusion in the terms of the trust went directly to
the intention of the parties to create a trust in the first place. In many cases
the express exclusion of the mandatory duties will indeed indicate lack of
intention to create a trust, and hence there will not be a trust. We have
taken the view in this Report that it should not be a necessary consequence
of the exclusion of one of the core mandatory duties that there was in fact
no intention to create a trust. There may well remain cases where it can be
 appropriately held that there was an overriding intention to create a trust
relationship despite poor wording or misapprehension as to what must be
contained in a valid express trust deed. Such a determination would
necessarily be particularly fact specific, as indeed it is under the current law.
o It ultimately protects the settlor
 But there are legislations to defeat these rules
 e.g: anti-avoidance rules
o Pension fund, investment schemes
 Allow the banks to control the funds and generate benefit
 Protecting investments
o Commerce: take security
 Structure to carry on business
 Let it look like a company

Three Certainties: Knight v Knight

 [refer to slide for picture]
 What was the court required to decide? What did it decided?
o Grandfather left a lot of assets to the grandson. Grandson died. He transferred these
assets to his other sons. His brother contested
o Was there a trust?
 The land is meant to go along the male line
 Richard P Knight stop that from happening.
 He leaves a will which says: "I trust to the liberality of my successors to
reward any others of my old servants and tenants according to their deserts,
and to their justice in continuing the estates in the male succession,
according to the will of the founder of the family, my above-named
grandfather Richard Knight"
 He can do whatever he can do. BUT did he create the trust that effectuate the
grandfather's will, or had he replicated the situation that the grandfather do not
want that to happen?
o So eventually the property came to the female line instead of the male line.
o The male line of the family contested
o The female line of the family contended that Richard P Knight just hoping in a colloquial
sense that the property will be left with to the male line
 Preferably the property is to be left with to the male line of the descendants
 But this is only binding in honour, not binding in equity

1. Was there an intention to create a trust?

 The rule:
o "As a general rule, it has been laid down, that when property is given absolutely to any
person, and the same person is, by the giver who has power to command,
recommended, or entreated, or wished, to dispose of that property in favour of another,
the recommendation, entreaty, or wish shall be held to create a trust.
First, if the words are so used, that upon the whole, they ought to be construed as
imperative;

Secondly, if the subject of the recommendation or wish be certain; and,

Thirdly, if the objects or persons intended to have the benefit of the recommendation or
wish be also certain."
 o “…it does not appear to me that he intended to subject them, as trustees, to the power
of this Court, so that they were to be compelled to do the same thing which he states he
trusted their own sense of justice would induce them to do.”
o “’…I cannot say that he has left it to the Court of Chancery to accomplish his wishes.’”
 There was an intention to create a trust
 Legally hold it for the benefit of another
 Imperative: it is binding/ you have no option to differ
 e.g: TRUSTEE: TO BE HELD IN TRUST
o This means a clear intention to hold this property in trust
 In this case: is it an absolute gift to the donee? I state my preference rather than an imperative
o "hope", "wish": this incline towards moral obligation, not an imperative
o Upon the whole, that does not change
 Need to look at words, or action, or statement made orally
 Need to look at the whole situation
o The person who had the disposing power of the property, would intended the trust
relationship arose
 "trust" in that context means that he has the confident
 Use of the word "trust" is not decisive (Paul v Constance)
o Not using the word "trust", does not necessarily negate the arousal of a trust
o What we need to look for is that intention
 Why we want to have such a stringent requirement?
o The Court just want to refrain from unnecessarily stepping into the relationship
o Equity: should we step in?
 Saying to the owner of the property: you do not benefit fully
 You shall not contradict your own conscience
o Only if the gift is made alongside with the declaration of trust, the equity would step in
to give effect to the intention
 The case
o The language use is insufficient to amount to an imperative
o The settlor is in effect saying: "I trust them for doing what is right"
 Consist not any binding force

2. Certainty of Subject
 The estates: which estate is he referring to?
o Is it the original estates given by the grandfather, or did it also include the property that
the Richard P Knight had acquired?
o This would also impact our view on whether a trust is created
 ambiguity in the language: “the estate”
 property had changed its character since testator inherited it
o unclear whether the “trust” was limited to the property that had been passed down
from the grandfather

3. Certainty of Object
 “The objects do appear to me to be indicated with sufficient certainty”
o [Male heirs of the grandfather.]
Lecture 4: Paul v Constance; Thexton v Thexton
Monday, 9 March 2015
2:56 p.m.

 Sham trust: in reality the person do not intend to give effect to the objectively manifested
intention
o "Whether a trust is illusory is a different question from whether a trust is a sham. A trust
will only be a sham where there is an intention to have an express trust in appearance
only"
o Clayton v Clayton ([57]-[85])
 Check out Andrew Butler's book
 The trust was not a sham because the settlor had intended to create a trust for
legitimate business purposes (see [79]).
 The unfettered discretion relieved the trustee from the obligation to act
impartially towards beneficiaries but did not erode the core obligations of a
trustee to act honestly and in good faith for the benefit of the beneficiaries (see
[80], [81]).
 The power of revocation did not confer an absolute power to deal with trust
property as the trustee pleased because it was directed only at the provisions of
the trust deed which concerned the management or administration of the trust.
There were, however, other provisions in the trust deed which led to the
conclusion that the trust was illusory. The trust deed gave the trustee unfettered
power to distribute the income and capital of the trust to himself if he wished and
to bring the trust to an end at any time. On this basis he retained powers
tantamount to ownership of the trust property (see [83], [84], [85], [89], [90]).

Knight v Knight
 Language used in the written intention: what the document is intending?
o From the point of view of the objective observer
o What Is the relevant background knowledge?
 Richard P Knight's statement is not sufficient to amount to a declaration of a trust
o "I trust the liberality…": indicating that "I believe that my relative is good. He will give
effect to what I have intended"

Paul v Constance
 No written will, no written document: concern with a bank account:
o Trust can be inferred in some circumstances
 Does this written document amount to a declaration of trust? In some
circumstances this is the easiest way to establish intention
 Look into what he said and done to infer the existence of a trust
 Facts:
o There is no formal separation between the couple
o Mr Constance is still married with Mrs Constance
o Relative rule of disposing the property will prevail unless otherwise is specified by the
owner of the property's legal title
o Ms Paul, being the partner of Mr Constance since his informal separation with his wife,
sue Mrs Constance
 Foundation of the claim
o "the money is as much yours as mine"
o Is this sufficient to manifest the intent to create trust?
 In common law, the bank account belongs to Mr Constance
 o This is because that bank account is solely registered under Mr Constance's name
 Effectively, he is then the owner of the property (bank account)
 How the bank works?
o Bank account with the bank: contain the deposit of some money or cash with your own
that is being paid by your employer
o Bank hold it in trust for you
 They separate them out and identified your ownership on these money
o People can't have proprietary rights in the money deposited into the bank
 This is important when the bank went insolvent: you have to rush to the bank and
get the money out as soon as possible because if you don't, you may not be able
to get your money back
 The bank may not have separated your money with the others' money and hence,
you can't claim that you own that amount of money
o Get a percentage from the bank: the bank is technically in debt to you.
 Declare trust over things that are strictly speaking, not a property assets
o Contract, personal assets
 Hold that personal rights for the benefit of someone else
o The trust property in this case is speaking, not a property
 Mr Constance had exclusive legal title to the bank account
 Under the terms of the trust, Ms Paul can claim that the thing is hers
 2 examples of the fundamental claims that people will make
o Trustee isn't giving effect to the trust obligation
 i.e: they are not giving effect to the effect of the legal title that they had inherited
from others
 This is the scenario of the case: the beneficiary say that the trustee must return
the property to her
o Insolvency: trustee might not care that much
 They have to repay their debt by giving any assets, including those assets that
were held under trust, to the creditors.
 The other party is trying to retain the property as an administrator to the property
 The creditors were trying to claim that the trust property must be repaid to the
other creditors
 They must be distributed equally
 Generally creditors who had no proprietary interest to the properties would
try to resort to this claim
 Why there is a trust in this case?
o Not everybody know that they had set up the bank account
 Under whose name should the bank account be set up?
 This is the subject of the conversation between the bank manager and the couple
o What does this discussion revealed in relation to the certainty of intention?
 He did not want to monopolise the money
 Due to technicalities of legal title ownership, there is eventually only one name of
the bank account: that the account belong to Mr Constance
o There was an intention on Mr Constance's part to create a trust relationship
 This is reflected in words and action
 "we are dealing with simple people, unaware of the subtleties of equity, but
understanding very well indeed their own domestic situation."
 Shows that there is no declaration of trust, but there was an intention to
create a trust
 They don't understand what a trust was
  ""A trust may well be created, although there may be an absence of any
expression in terms imposing confidence." A trust may thus be created without
using the word "trust", for what the court regards is the substance and effect of
the words used.'"
 Clear legal intention that the property is to be held for the benefit of
somebody else
 There is no need for one to understand how the equity works
o Informed trust, close relationship: "the money is as much yours as mine"
 There is then a shared understanding
 Some words that the court can point to and say that "there was a trust"
 Beneficiary would then have a beneficial interest on the benefit
o Had Constance declared a trust over the bank account (b/ac)
o “the money is as much yours as it is mine”
o Plan was to open bank account together; allows Paul to draw money from b/ac; pay
joint bingo winnings into b/ac
o Q: what was the intention of the person who ‘owned’ / had disposing power over the
‘property’
o Jones and Richards: trust or imperfect gift?
 Intention?
o Intention that the party to whom (or which) common law title is passed holds that
property for the benefit of another.
 That the people know that the property is withheld for benefit of someone else
 It can be set up a relationship to hold the property for somebody's benefit
o Settlor holds the property for the benefit of another
 Binding obligation (Knight v Knight)
 Words such as recognition, plea, entreaty or wish would amount to a trust
 "but he must do something which is equivalent to it, and use expressions which
have that meaning"
 Have to show that you intended to hold the property for someone else's
benefit
 You intend it to be binding
o “I am now disposing of my interest in this fund so that you, Mrs Paul, now have a
beneficial interest in it”.
 These words must amount to an imperative
 The intention must held someone to be legally bound
 Self-declaring? Casual language itself is not binding
 They imply moral obligation, which is in itself not binding
 As a binding obligation, not merely a moral obligation or wish (precatory words)
o Look at situation and trust document as a whole
 "He went upstairs and come down with a cheque made out in his own name for
$900 and said in the presence of his wife and the nurse: 'look you here, I give this
to baby'" (Jones v Lock)
 Gift or trust?
 Imperfect gift, instead of trust
 Certainty of intention concerning the constitution of the property
 Language used: you can't say that there was a trust, but you can say that a gift is
intended instead
 Gift = a way to disposing property to somebody else
 At common law, give that property to other person
 Do you intend to transfer the property, legally and property, under
common law?
  If you choose that option, the formalities required is needed to
be complied with to give effect to that common law transfer
 Trust = you retain the legal title; the common law rights of the property
 While you give the other person the equitable interest: back to the
magical triangle again (beneficial interest)
 If the formalities is not observed, the trust, instead, is intended by the
giver
 Depends on the precision of the language
 The imperfect gift should not be made effectual by turning it
into a perfect trust (Richards v Delbridge)
 Did not properly make the gift: the common law title remains
with the settlor, they fail to make a gift in the common law
 If he died?
 The property will be distributed according to the will
or the succession rules would apply
 The person claiming the property was there would say: "they had created a trust
by self-declaration"
 Even though the settlor retain the legal title, they actually meant to give me
the equitable title.
 Therefore you have to give effect to that obligation
 Court would not allow you to make that claim without any written or oral
evidences
 If they fail to give you that gift? You cannot then turn around and
claim that it is a trust
o Is what was intended a gift? Or a trust?
 Look at the documentation and the action and oral evidences

Thexton v Thexton
 Held that property for me - trustee - beneficiary relationship
o This is a case concerning the legal battle between the wife of David Sr and David Jr
concerning the amount of shares transferred
 Intention in plain language that David Kr would held some shares for David Sr's benefit
 Basically father and son had equal power in the company
o Father has more shares: the rest of the shares are being hold on trust
 He is then a 50% shareholder of the company [37]
 Is there a declaration of a trust?
o David Jr said that he had some property that was held for the benefit of somebody else
o [40]: the first memorandum
o Written document reveals the plan and ownership division of the property
 "It was always the intention that the shareholdings be 50/50. David snr was with
the view that estate duties could affect him severely and accordingly it has always
been understood that David jnr hold 40% of the shares for his father."
 David jnr should now transfer 40% of the shares in the company to David snr.
Based on results and the relatively low equity level in the company the value of
the shareholdings to be dealt with now would be a more manageable figure than
probably in the future.
 Intention to hold the shares beyond 50% and they will be transferred on one
day
 But the mode of transfer is not clear
 The intention to create a trust is therefore, not clear
 50% - 50% split of the shares
  David Sr scare that the legal title of the estate may burden him
 Any disposition by him would be taxed
o [42]: second memorandum
 “D J Thexton has at all times acknowledged that he holds shares in trust for D E
Thexton, the quantum being the excess over his own 50 per cent holding.”
 Is there a trust? The judge think not
 No clear statement that trust will be created
 No memorandum that the 50% shares is held in trust
 "hold shares in trust": there is an understanding that the trust do exist
 But no memorandum of trust is found
 Shareholding: features
o During the time they held the share, had they dispose the share?
 More share comes in, the percentage of the share ownership is diluted
 David Junior maintain his percentage on paper
 Debuted to what the company owe him
 He give much less money to David Senior
o If David Jr always hold 30% of the shares, each time he give the shares away, he should
transfer more share to his father
 This transfer is therefore for the benefit of the father
 Need to see a new declaration of the trust each time.
Lecture 5: Thexton v Thexton; Re Kayford
Saturday, 14 March 2015
9:21 p.m.

Thexton v Thexton - Continued

 Why there was no trust?
o Matter of declaring the trust
o Trust concerns the trustee and the settlor
 How do we know that the trust is declared?
 We have no trust deed, only some statements which are equivocal
o [52]
"In order to create a trust there must have been either a transfer of the shares or a
declaration of trust by David Junior so as to bring about complete constitution. Whilst it
is not difficult to find an intention on the part of David Junior, the existence of a
declaration of trust presents problems. There is no written document existing so other
evidence of the existence of such a declaration is required. If the trust is not completely
constituted then absent consideration on the part of the beneficiary, the trust is not
binding on the settlor: equity will not assist a volunteer. A declaration of trust does not
require a technical form of expression, it is a question of construction whether the
words used, taking into account the surrounding circumstances, amount to a clear
declaration of trust. What is needed is the manifestation of an intention to declare a
trust: Paul v Constance [1977] 1 All ER 195. Where no words exhibiting the necessary
intent are used it may in exceptional cases be possible to infer a declaration of trust
from acts showing that a person has constituted themselves as trustee, ie from conduct
evincing an intent to deal with his property so that somebody else to his own exclusion
acquires the beneficial interest in his property."
 Need to see the manifestation of an intention to declare a trust
 Need to see the actual declaration of the trust
 Had David Jr said at one point that he had become a trustee, holding the shares
for the benefit of the father?
 This is absent
 We see no written documentation
 The memoranda saying that David Jr "always understood that the property
was held on trust" is not satisfactory
 Misunderstanding arise on this issue that 50% of the shares is held on
trust on behalf of David Sr
o Funeral speech
 David Jr appreciate his father as an important figure of the company who owned
that much of shares
 But David Jr does not act according to his plan
 Ownership of shares: David Sr ultimately intend to leave the shares to David Jr at
some point
o Anyway, Mrs Thexton had a larger paid out in other cause of action
 She lost, however, in the claim that a trust was created
 Realist point of view: matters not if she did not win on this ground
 She still win overall

Re Kayford
 Has the trust been properly declared?
 Facts:
o The company with the risk of becoming insolvent created a "trust deposit" account
  To alleviate the risk of liquidation
 Creditor sue for the amount to repay the company's debt after they went
insolvent
 Company make the property of others as a trust
o That money is held on trust: acting in good faith to the customer
o An obligation owe to the customer to held the money for their benefit
o Held on trust for the customer: something honourable
 Was a trust actually been declared so that the customers would have the property rights?
o We don't have written declaration of the trust
o Transfer of property to the trustee?
 This is a self-declared trust
 Common law property stays where it is: burdened by trust obligation
o Trust account is actually separate from other company's fund
 Put money into the bank
 Intention has been acted on
o Bank account: did not rename it? Not really a problem
 Property has formality rules, but equity has not
 Beneficial ownership goes to someone else even if formalities rules are not
observed
o The money was transformed from property to equity, from general to trust
 Payments to a separate bank account can be an indication that a trust intended
o Objective test: was there a trust declared?

Test
 Was there a written document that objectively assessed, an intention to create a trust had
been declared?
  Has there an action that changes the legal character of the 'property', personal or real, so that
it was held on behalf of the third party?
 Objective test: Can we infer a trust from what he said and done?
o Thexton: maybe not
 30% transfer of the share is not conclusive
 No unequivocal statement to declare himself as a trustee
 No actual point shows that David Jr declares a trust
 Father: not getting the full 50% share benefit
 A gift?
 Himself pay off the share? Maybe this is not done
 For sham trust: Does the subjective intention of the settlor coincide with the objectively
manifested intention contained in the written document
o Yes? Genuine trust
o No? look at Palmer and Conaglen debate
 Settlor alone or settlor and trustee had to collaborate to not give effect to the
written manifestation of the intention?
 But this will still be a sham trust
 Clayton v Clayton: A trust will only be a sham where there is an intention to
have an express trust in appearance only
 Distinguishes between the intention to create a trust and
o the creation of a moral obligation
o a wish of the testator: e.g. Knight v Knight
o an idea that was floated: Thexton v Thexton
o other commercial arrangements

When will an intention be manifested?

 no special words are needed to create a trust
o formalities are required for inter vivos settlements of land: Property Law Act 2007
 can be inferred from the circumstance: Paul v Constance; Re Kayford
o Sometimes the facts point away from the inference that a trust was intended: Thexton
 can be inferred in the context of complex commercial arrangements

Sham Trust
 No genuine intention to hold the property for other people's benefit
o A situation where there is an appearance or pretence – usually in documentation – to
create one set of legal arrangements, but the actual legal relationship intended is
something different.
o Written intention/ documented intention was not given effect by the parties
o No intention to give effect to the legally stated intention
 Who is the settlor, trustee or beneficiary? That is not of paramount importance in
sham trust situation
 Normal express trust: Looking objectively if there is any intention to create the trust
 When sham trust is suspected to exist, you will look at the subjective intention of the people.
Their intention would be not to give effect to the declared intention
o Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (CA); per Diplock LJ
o “if it has any meaning in law, it means acts done or documents executed by the parties
to the ‘sham’ which are intended by them to give to third parties or to the court the
appearance of creating between the parties legal rights and obligations different from
the actual legal rights and obligations (if any) which the parties intend to create. But one
thing, I think, is clear in legal principle, morality and the authorities…that for acts or
documents to be a ‘sham’, with whatever legal consequences follow from this, all the
 parties thereto must have a common intention that the acts or documents are not to
create the legal rights and obligations which they give the appearance of creating.”
 Objectively assessed, the action and words used by the parties were mere
pretence of a trust
 Documented intention is never given effect by both settlor and the trustee
 "looks like trust, but it is not a trust"
 Ben Nevis
o "In essence, a sham is a pretence. … A document will be a sham when it does not
evidence the true common intention of the parties. They either intend to create
different rights and obligations from those evidenced by the document or they do not
intend to create any rights or obligations, whether of the kind evidenced by the
document or at all. A document which originally records the true common intention of
the parties may become a sham if the parties later agree to change their arrangement
but leave the original document standing and continue to represent it as an accurate
reflection of their arrangement."
o Legal relationship set-up is inconsistent with the parties' intention to not give effect to
the documented intention
 Settlor has to collaborate with trustee
 Actual legal situation is not declared on the documentation (Palmer)
 What is a sham?
o The person who asserts that a legal situation is a sham – who bears the onus of proving
this – will benefit from a court ruling that the true legal situation is not as the objectively
interpreted documents presented it. There is caution about – and a presumption against
– reading documents as shams: National Westminster Bank plc v Jones [2001] 1 BCLC 98
at para [59]; Official Assignee v Wilson at [77], [93], [111].
 Does the intention had to be mutual?
o Palmer argues that because only the settlors intention matters in determining whether a
trust has been declared, only the purported settlor needs to have the sham intention
 A trustee need not accept the trustee office; the court will appoint a different
trustee
 This view sees the (evident) subjective sham intention as negating the settlor’s
objective intention to declare a trust
 “the sham intention requirement must mirror the intention required for the
relevant transaction”
 It is all about certainty of intention: subjective intention would override objective
intention
 No trust is declared.
o Conaglen argues that the general ‘sham doctrine’ always refers to mutual intentions,
and that doctrine is used where the required objective intention to declare a trust does
exist
 Most trusts are bilateral in the sense that there is a settler and a trustee who are
separate persons
 The exceptional bypassing the orthodox ‘objective’ interpretation of legal
documents is only warranted where all parties had the sham intention
 Trust property is transferred to somebody else
 Separate person: involved in a sham
 Not to give effect to the sham intention
 Separate person: objective intention is paramount in normal trust
 Sham trust? Settlor and trustee must be involved and collaborate together
(Wilson; per Glazebrook J)
Lecture 6: Wilson; Certainty of Subject Matter
Monday, 16 March 2015
15:02

Official Assignee v Wilson

 Wilson prefer Conaglen's approach: the settlor and the trustee must have the mutual
intention to not give effect to the documented intention
 Both parties used to be on the sham
 Not explicitly declared to create a trust
o Actual subjective intention is important
 Objective intention: manifested on written document
o Subjective intention reveals whether or not the person is not going to give effect to
the objective intention of the trust
o It overrides objective intention
o Trust will then have no legal effect (Palmer)
 If that's the case, then no trust can be said to exist
o Does the settlor intent to declare a trust?
 Look for objective intention manifested orally or in written document
 Look for subjective intention
o Conaglen: objective intention is sufficient to declare the existence of the trust
 Subjective intention would kicks in when determining whether there is a trust
 Do they intend to give effect to the objectively declared intention?
 In Wilson, the judge held that it was not a sham
o It is needed to show that both settlor and the trustee do not want to give effect to
the legally declared situation
 It seemed that Mr Reynold, rather than the beneficiary, is in control of the property
o Property is not in control by the beneficiary: alter ego argument
o It is the settlor who is in control
o If the settlor seemed to be in control of it, it would look like a trust but in fact,
someone is effectively exercising control despite the legal situation
 They will be treated as the owner
 Poor administration
o The financial situation can be fluid as in what is supposed to be the trust property,
and what is supposed to be the property to be owned
 e.g: treating trust property as his own
 In fact, trustee should prevent the beneficiary to be in control
 He is just not the owner
o Might arise if the trustee does not seemed to be making decision
 Why are we going after Mr Reynold?
o The property disposed to the beneficiary is actually Mr Reynold's property
 Creditor want to get these amount paid
o Settlor can still use the house despite being the property of the trustee
 Providing his children a discretionary trust
 No fixed entitlement
 But still intent to give effect to the written intention
 The settlor can have control on the trust so long as they do not go as far
as to deny the written trust objectives.
 Trustee can make some distribution at his own discretion in the future
o It is his children will benefit from the trust: even though Mr Reynold live in it
 Even though he benefits from it, it is not conclusive to say that this is a sham
 Test for sham:
 o Did the person's subjective intention do not want to give effect to the objective
intention manifested in the document?
 Misjudged by the trustee on some part
o Mr Reynolds is the trustee: he will give effect to his trust obligation

 Rosebud v Bublitz
o Sham trust: settlor is in fact the owner of the company, set up in a trust form
o Later of separation of individual rights and obligations from the company
o “A trust will be a sham where the intention was to create the appearance of a legitimate
trust, but there was no intention to effect the rights and obligations of the relevant parties
in the way that a valid trust would. A Sham will exist where there is an intention to
conceal the true nature of a transaction, and a trust will be held to be a sham where there
is an intention to have an express trust in appearance only. There is then an intention to
mislead and the trust is void for lack of intention to create the trust. The settlor has to
intend, at the inception of the trust, to give third parties, or the court the appearance of
creating rights and obligations different from the legal rights and obligations actually
intended”
 If the trust is not a valid trust, it will be void
o http://makemytrust.co.nz/easyblog/entry/rosebud-corporate-trustee-limited-v-bublitz-
2014-nzhc-2018.html

Certainty of Subject Matter

 Re Goldcorp; Kensington v Liggett
o What is the property that is subjected to trust?
 You need to specify the subject matter to its precision in order to be sufficiently
clear to have a trust
o What if you have a lot of homogeneous property?
 You need to segregate them from the bulk
o There are generally no strict rules concerning the establishment of the trust, except that
certain rules must be observed
 Which of the assets belong to who?
 Which property belongs to the trustee?
  Which of the property is not to be used to the trustee's benefit?
 Had he sold his property legitimately?
 Determine, in insolvency, what can be taken away to repay the creditor's debt
 e.g: just specifying well enough that thing go to who
 Which people are to benefit from what thing?
 “I appreciate the point taken that the subject matter is a part of a homogeneous mass so that
specific identity is of as little as importance…To create a trust it must be possible to ascertain
with certainty not only what the interest of the beneficiary is to be but to what property it is to
attach. I cannot see how, for instance, a farmer who declares himself to be a trustee of two
sheep (without identifying them) can be said to have created a perfect and complete trust
whatever rights he may confer by such declaration as a matter of contract. And it would seem to
me to be immaterial that at the time he has a flock of sheep out of which he could satisfy the
interest.” Oliver J in In re London Wine Company (Shippers) Ltd [1986] PCC 121, 137.
o In a will trust: "anything left by me" will be given to him
 This is sufficiently certain
 In Palmer v Simmonds, this is not sufficiently certain: it is unclear what does "bulk of
the content" refers to
 In Sprange v Barnard, the "remaining part of what is left that he does not want" fails
to clearly specify which property that the person will be inheriting
 Boyce v Boyce shows that it can be certain provided that Marie choose the property
first. If Marie died, the subject matter of the trust becomes uncertain
o Property held on trust: where you can see there is a whole lot kind of property, it looks
like trust is declared but you can't say precisely which property is subjected under that
trust (Re London Wine)
 Until you can ascertain which bottle of wine belongs to who, trust cannot exist for
want of certainty of subject matter
 Analogous to Boyce v Boyce
 Which of that property owned is to be held on trust
 Which property belongs to the trustee himself?
 Re Goldcorp
o Sell gold: company - insolvent
o Goldcorp have no money to pay back to the creditor because they do not have enough
gold
o Bank gain security interest on those gold on behalf of the creditors
 Event leading up to insolvency? Bank could seize those assets
 Bank claim proprietary rights on these gold: they will remain as the rightful
owner unless and until the other person had possessed the gold prior to the
bank
 Do anyone other than the bank have a better title on this pile of gold?
 It was held that the gold bar belongs to no one but Goldcorp themselves; no trust was declared
o Can't have property passing at law: nature of things
o Can't say that the gold belongs to the customers because they do not know precisely
which gold bar belongs to them
 Have to be able to pick up what you owned exactly: the rule of tracing may apply
o Sounds like the customers are buying the specific gold
 But in fact these things are non-allocated
 Not going to specifically allocate any gold under your name
 When you want to have it, the company will only then give it to them
Lecture 7: Certainty of Subject Matter
Friday, 20 March 2015
21:30

Re Goldcorp
 Three groups of claimant
o Mr Leggett
 He is in a slightly different position
 He had bought 56 of the maple gold coins, appropriated and ascertained
 He claimed that following that appropriation, he would be able to trace the coin
from the mixture of coins and see which coins belong to who
o Non-allocated claimant
 Why did both of them lose their case?
o Although the company hold them on their behalf, there is no specific identification of
this gold as the gold that belongs to them
 No segregation of property was seen
 Absence of the particular property rights on that thing
 No separate identified fund is found
 Never a sufficient fund: the pool of gold is too small to satisfy all claims
o What about the argument that there was trust over all of the gold?
 The whole pool of gold can be treated as the subject matter of the trust
 But among them, can we identified which pool of the gold belongs to the trust
property?
o They owned it proportionately among all of the claimant
 This matter would not change even if there are only a small number of gold.
 Can't satisfy all of the beneficiaries
 Why should we not say that the whole pool of gold is subjected under a trust? Would this
work?
o Subject matter of the trust is that whole pile of bullion
o This would not work because there is no individual identification occurred
o The pool is not segregated out and identified them as beneficiary as a whole
o If the company do so, it is no longer the general assets of the company
 It is the trust property
 No trust property is identified in this sense
 Equitable title is hence not conferred to the beneficiaries
  No certainty of subject matter if:
o No identification by the trustee
o No serial number
o If the goods is fungible or completely interchangeable, we can't precisely identify that
goods belong to one owner
 Hunter v Moss
o Intangible property should not be subjected under the same rule enunciated in Re
Goldcorp
 What about Mr Liggett?
o Company buys in a lot of maple coins and he bought 56 of those
 But ultimately, it is the company who owned the whole thing
o The company did not bought the maple coin specifically for Mr Liggett
 Furthermore, they are not identified as the subject matter of trust that is distinct
from the general assets of the company.
o His purchased maple coin are not identified as the subject matter of trust that is distinct
from the general assets of the company
 CM 55, pg 96-97 of the case
 Ratio: one can't have trust over non-existent property

White v Shortall
 Subject matter of the trust: shares
 Can we get certainty of subject matter on this fungible property?
 Facts
o Ms White owns a company that produces retractable needle
 This company is valuable to Mr Shortall
o Allegation of contract to pay the share
o Alternative claim: there is a trust that Mr Shortall had to pay 222,000 of the shares out
of the 1,500,000 shares.
 It was said that Mr Shortall had written down a memorandum where it was
mentioned "shares assigned as a trust"
o Ms White asked Mr Shortall to give her the shares
 Caused her some losses due to failure to act in accordance with the agreement
o Out of 1,500,000 shares, he is holding 222,000 shares for her.
 Practically speaking the shares is still his.
 One do not know which shares are the subject matter of trust
 Some contentious legal points
o Hunter v Moss: employer said to employee that he will hold 50 out of 950 shares
 Held: there is a trust: the trust is valid because the intangible property would
rendered the rule enunciated in Re Goldcorp inapplicable
o The rule in Re Goldcorp: you need to separate the trust property from general assets
 This is a stricter rule: show that the fungible goods are the trust property
o White v Shortall
 Judges criticize the rule in Hunter v Moss
 Distinguish on the basis that there is an insolvency situation in Re Goldcorp
 The subject matter is needed to repay the creditor's debt
 In Goldcorp, they simply did not have enough property to repay the creditor
 You can't require them to do what they ought to do to pull out enough
amount of gold and to give effect to the trust
 The gold had to go somewhere else: to repay the creditor
 What good conscience required: Re Goldcorp can't segregate the property
  In this kind of situation: the Court would be more lenient to the insolvent
party in terms of giving effect to their intended arrangement
 BUT Mr Shortall is not in insolvent situation: he is solvent
o If there isn't an insolvency situation, the good conscience would require the person to
enforce the trust
 If there is an insolvency situation, let's be lenient on the subject matter
 Let's allow the person to do what he said he want to do even though the class of
the subject matter is not clearly identified
 Shortall would argue that there is no trust because there wasn't a segregation of the property.
o The trust cannot be operative for want of certainty of subject matter
 Orthodoxy: we can carved out the trust property
o That is going to work in favour of Ms White
o No actual identification on the shares - transfer the shares to somebody else
o Self-declared the trust?
 Look for the tension between White v Shortall and Hunter v Moss
 Hunter v Moss attempt to distinguish itself from Re London Wine on the basis of fungible or
unique goods
o Is there, then, a different rule for intangibles?
o Harvard Securities: follow Hunter v Moss and say that you do not need to segregate the
intangible property
 Unless there is a testamentary situation:
o Will situation: we do know which property is to be held on trust or the property of the
trustee
 All property is to be distributed in accordance with the trust will
 The deceased had no longer had any interest on that property, but the executor
would get all the power to identify which property is held on trust
o How to avoid Hunter v Moss then?
Lecture 8: Certainty of Subject Matter continued
Friday, 20 March 2015
21:56

Some considerations concerning the certainty of subject matter

 Identical things held by trustee
o Which is held on trust?
o Which are belongs to the trustee themselves?
 Solution of the certainty of subject matter in the cases
o Identify the trust property as opposed to the general assets
 White v Shortall: had to say which property is definitely held on trust while identify
the others as the trustee's property
 What about a big pool of shares?
o Not sufficient to say that there is a trust in one of those shares
o Look at the subject matter and declare the whole shares as a trust
o Interpret what is going on in terms of how to make the subject matter certain
 Say that the whole pool of the assets are held on trust
 To avoid the Goldcorp rule,
o Hunter v Moss followed by Harvard Securities
 The rule concerning the certainty of subject matter does not matter because the
subject matter at issue are all identical
o White v Shortall
 The whole thing is declared as a trust
 2 different beneficiary
 The trustee can do what he likes

 We can't have only trustee and only beneficiary

 How can he had fiduciary duty on himself?
 If similar situation arose in New Zealand, it is open to the Court to decide whether the White v
Shortall approach or the Hunter v Moss approach be followed.
 How to reconcile with Re Goldcorp then?
o Tangibility and fungibility distinction?
  Things in White v Shortall and Hunter v Moss are intangible and completely
interchangeable
 Different rules in Goldcorp because the bullions involved can be differentiated
 Re London Wine as an example
o What if it is tangible yet fungible?
 Such as wheat, flower, ball bearing….
 In Goldcorp, we can't interpret that the whole gold was held on trust
 There are none of the reasons to think that the bullion has been distinguished
from the general assets
 There isn't any identifiable pool of property that you can point to claim that
they are trust.
o It is only the person with ostensible authority to change the legal relationship of the
goods can declare a good subjected to trust

Lehman Brothers International Europe (LBIE)

 Stretch the idea of subject matter to its breaking point
o It failed to merge the principles enunciated in White v Shortall and Hunter v Moss
 Acted as a hub for other Lehman Brothers subsidiary and take in their shares
 Facts
o On what basis that these securities is fed up to LBIE?
 Beneficially owned by affiliates?
 The affiliates can claim ownership and prevent the creditors to get their property
held in LBIE
o LBIE misused them in one big pool: these properties are not properly differentiated
 Certainty of subject matter issue
 Property rights on the pool of the thing
 Owned by LBIE? Can be used for debt recovery
o Regulatory requirements on holding client funds
 These funds had to be held on trust: compliance would result that whole thing be
declared trust
 Satisfied certain financial regulations
o This shows that they intend to give effect to the regulations to hold these funds on trust
 Hence, the intention to create a trust can be inferred.
 Held:
o Hunter v Moss should be followed
 Part of the intangible goods are subjected as a trust property
o Pool of identical things are indistinguishable
o It does not matter if you did not segregate them. What matters is that you have a pool
or a part
 Looks like the idea in White
 The whole property is subjected to trust
o The trustee shall decide to whom the part of the pool of the wealth shall go to
 Is this consistent with the reasoning in Goldcorp?
o No: we still don't have the fungible mass: we did not identify it
o The mass itself is not sufficiently identified
o What's going on here? They are using these securities as if they were its property
 [72]
o Did not segregate them: they use these shares deposited in LBIE as if their own
 Practical convenience to give effect to the trust
 Just want to enforce the trust
 Clear intention to create the trust
  Strict rule should therefore not prevail
 In Goldcorp, the certainty of intention is questionable
 But other cases, the intention is certain
 The obligation of LBIE is having the power to sell, not replace, the trust
property
 When there is a big mixture of property, how do you know whose property it is?

Certainty of Object
 It follows from clear Intention, clear in what trust property is
o i.e: who is/are the beneficiaries?
 This is to allow the court to enforce the trust
o We do not know which people has the obligation.
o It would be difficult for the Court to police the trustee's action if the identity of the
beneficiaries are vague
 Morice v Bishop of Durham
o Beneficiaries has to be legal or natural person
o Charities are the exception
o Words for conceptual uncertainties
Lecture 9: Kinds of Power
Tuesday, 7 April 2015
22:16

Kinds of Trusts
 One trust instrument can have different combination of trust or powers.
 Different kinds of trusts have different kinds of tests
 If there is insufficient certainty of objects, the trust or power will be void

Fixed Trust
 For fixed trust/ bare trust, the trustee had no discretion over the candidates of beneficiaries
o All beneficiaries know how much they are going to be inherited respectively.
o Bare trust is an instrument where the trustee pretty much had no duty other than
handling over the property to the designated beneficiaries
 e.g: investments: you have appoint a solicitor to administer that amount to buy a
house. The solicitor that you employed hold that amount in "bare trust": What he
needs to do is just to transfer the money to the seller. Apart from that he will not
be required to do anything.
 No discretion/power is conferred upon the trustee or any other party to vary the class of the
beneficiaries or the quantum of their interests.
o Divide equally
 All the beneficiaries must be ascertainable: Re Beckbessinger [1993] 2 NZLR 362
 McPhail v Doulton: “[T]here cannot be equal division among a class unless all the members of
the class are known.”
 IRC v Broadway Cottage: “Complete list”

Discretionary Trust
 Also known as trust power
o Usually you need to have a list of characteristics so that you can know for certain that
the person is or is not a member of the designated class
 It is similar to fixed trust because in both occasion, the trustee has a duty to distribute the
property
 It requires the trustee to carry out the prescribed duty with discretion.
 It denotes a power to distribute which the donee (the person who gives away the property)
must exercise
 The trustees must have a comprehensive range of people within the contemplated lists
 Re Gulbenkian's Settlement: The trustee's power include the power to appoint the capital or
income among a group of people
o It actually affirms the "list" test for discretionary trust, but it also allow room for is or is
not test
 McPhail v Doulton [1971] AC 424 “The power is valid if it can be said with certainty whether
any given individual is or is not a member of the class and does not fail simply because it is
impossible to ascertain every member of the class.”
o “The trust is valid if it can be said with certainty that any given individual is or is not a
member of the class.”

Fiduciary Power
 Also known as mere power
o Usually you do not need to draw up a range of potential trustees
 It resembles discretionary trust because the trustees in both cases have discretion on deciding
how to distribute the property
  The trustee gets to choose what's involve
o The discretionary power
 Fiduciary obligation to manage the trust
o Should I give them all away to others? Or should I continue to accumulate the wealth?
o Fiduciary duty refers to the duty to consider what is the best interest for the objects
 Trustee can't surrender the power or they would breach the fiduciary obligation
 Trustee must consider in using the power from time to time
 Re Gulbenkian's Settlement: “[A] mere or bare power of appointment among a class is valid if
you can with certainty say whether any given individual is or is not a member of the class; you
do not have to ascertain every member of the class.”

Power of Appointment
 It is a kind of purely personal power that is not fiduciary
 A person may be given a power to appoint property or to dispose the trust property
 Not subject to fiduciary power

4 examples to illustrate the nature of different kinds of trusts and power: Traditional form of trusts
1. All the rest and residue of my estate to my trustees on trust for my beloved wife Mary for life,
and then for my three sons, Jacob, Jasper and Jeremy in equal shares
 Not flexible
 "equal shares": denotes no discretion in part of the trustee
 Beneficiaries are clearly identified
o Not class of persons
 Mary has the life estate: she becomes the income beneficiary
o Trustee are going to use the residual estate to generate income in order to provide her
with income
o Once she died, the capital beneficiaries (the people who take what is left) would get
equal shares of the residual estates

2. All the rest and residue of my estate to my trustees on trust for my beloved wife Mary for life,
and then for my three sons, Jacob, Jasper and Jeremy in such shares as my trustees shall in
their absolute discretion think fit, with power to my trustees to appoint up to half the capital
during my wife's lifetime to such of my sons and in such amounts as they shall in their absolute
discretion think fit.
 Discretionary trust: different people had been given different kind of flexibility
o By appointing someone's capital to someone
o But with regards to Mary, there is no choice for Mary
 The inheritance to her is designed as a fixed trust
o The nature of discretion: They have the power to appoint capital, but they don't have to
 To the three sons: it is a kind of discretionary trust
o Between trust funds and capital: the trust must be distributed to the three sons
o Choice on trustee: he can decide how much to give to the sons
 Extent of discretion: the trustee can say that the beneficiary shall inherit nothing from the
capital
o The possible beneficiaries would not have the certainty of inheriting the wealth. They
only have the hope
o Can Wednesbury irrationality be applicable in this context to scrutinise the potentially
wide ranging trustee's power?
o But absolute discretion denotes that the Court may be unwilling to interfere with the
Trustee's decisions
 3. All the rest and residue of my estate to my trustees on trust for my beloved wife Mary for life,
and then for my three sons, Jacob, Jasper and Jeremy in such shares as my wife shall appoint
by her will, with power to my wife Mary to appoint up to half the capital during her lifetime to
such of my sons and in such amounts as she shall in their absolute discretion think fit.
 Power of appointment: She has to decide where the property shall go
o Discretionary trustee
o In her life, she has the discretion on who gets what
o Bring in a special person to act as a special trustee to appoint that capital

4. All the rest and residue of my estate to my trustees on trust to pay or apply the income during
the life of my beloved wife Mary for the benefit of Mary and three sons Jacob, Jasper and
Jeremy in such shares as my trustees shall in their absolute discretion think fit, and then to my
three sons, Jacob, Jasper and Jeremy in equal shares, with power to my wife Mary to appoint
up to half the capital during her lifetime to such of my wife's brothers and sisters and nieces
and nephews in such amounts as she shall in her absolute discretion think fit.
 "Mary…income for life": this is a kind of discretionary trust
 "3 sons with equal shares": fixed trust with capital
o Power for Mary to appoint capital
 Power of appointment is given to a non-trustee
 Mary can do what she wants to do
o Settlor's didn't want to benefit?
 Something given to Mary to do what she wishes
 Live up to the fiduciary obligation, in good faith
 But this does not denote that they have unfettered power.

Beneficiary interests
 Discretionary trust: right under the trust
o Orthodox position: "hopefully I can get some property"; spes
 Particular claim to trust fund: they can have no vested interest on the funds
 Can't claim that that bit of assets belongs to them
o Fixed trust: capitals are equally divided
o No way that you can't get the capital because the trustee has duty without discretion to
carry out the wishes of the settlor
 Beneficiaries can regard that that thing as theirs if there is no discretion (in the case of fixed
trusts)
 Interests in fixed trusts can be used to pay off the creditors
o e.g: White v Shortall
 The shares belongs to Mrs White
 Fixed trust: beneficiaries' interest is theirs
 Discretionary trusts: beneficiary do not own anything
o Easier to claim under fixed trust
o Harder to claim under discretionary trust because of the orthodox rule which dictates
that you owned nothing other than the mercy of the trustee who may bequeath some
property to you.
 Nature of the interest under the discretionary trust: New Zealand version
o Hunt v Muollo:
 Mr Hunt refused to produce the required document, claiming that he is the
discretionary beneficiary and that the property is not his but belong to the settlor
 Issue in principle: whether the interest of a purely discretionary beneficiary in a
trust is a species of property capable of coming within the concepts of “assets” or
“means” for the purposes of R 621(2).
  Spes: no more than mere expectancy
 It is simply an expectation or hope that the trustee's discretion may be
exercised in the beneficiary's favour.
 An ordinary discretionary beneficiary has no interest, legal or equitable, in
the assets of the trusts
o Kain v Hutton
 Rule in Sanders v Vautier [fixed trusts]
o If a person has all of the interest under the fixed trust in the capital, and attain majority,
notwithstanding the limitations or ability for the trustee to access to the property, the
beneficiaries can claim the interest on the trst
 The trustee must hand over the property to beneficiaries
o Reflects the freedom to property: ultimately it is the beneficiary who would own the
property. He should be given the property to do whatsoever he deemed fit.
 Income and capital beneficiaries
o Get a group of people to say that they are the only one who can derive benefit from the
trusts, and claim the portion that belongs to you
 Without prejudice to the other beneficiaries' interest
o Beneficiary has all the rights? What if they are the only one who can get the rights?
 They can claim such interest even if it is a discretionary trust
 Akin to a complete list, where the person is the sole beneficiary

Expounding on different kinds of trust

1. Fixed Trust
 Test: "complete list"
o Who has the beneficiaries' interest under this trust?
o All of the beneficiaries' identity has to be ascertainable so that we can determine who
gets what under such rights
 All of the possible people must be written down
o So that the property can be divided equally between all ascertainable beneficiaries
 Pay everyone their share of the capital
o Specify the identity of the person such as wife, children..
 Class term make things difficult
o We must know by who we are referring to when we use that "class terms"
o "immediate family"
 This term is certain enough to denote anyone who relates to it
 If the class of beneficiaries are too wide, it would open floodgate for anyone to sue the trustee
so that he would exercise his power
 There might be a situation where the individual or class term to define beneficiaries is not
clearly specified
o Why? The settlor is trying to be a good person, so that all people can be benefited
 e.g: McPhail v Doulton: employee or ex-employee

2. Trust power: big class of people

 Descriptive term include many people
o No good evidence of that all of the people will be included in the list
o A power to distribute in which the donee must exercise
 More difficult to draw up a complete lists
 e.g: ex-employee --- is it possible to draw up a lot of those people who had work
for the company?
o Re Guibenkien: a weird attitude in endorsing two kinds of test, the complete lists test
and the is or is not test
 In the old test, the trust would be void for want of certainty
 This issue is expounded in McPhail v Doulton
o Benevolent gift must fail: intention of the trustee would be frustrated if a complete lists
had failed to be drawn
o The Court will only interfere if the trustee did not exercise the given "trust power"
o Hemming v Chambers: broad discretionary power to administer the trust is held
Lecture 10: Re Baden (No. 2)
Wednesday, 8 April 2015
19:59

 Why the Court shifted their stance in McPhail v Doulton?

o Equal division can only be done if the complete number of beneficiaries are known
o Discretionary trusts: bound to make the distribution
o Nature of distribution?
 You can decide what shares to give, and to give to who
 Look at each beneficiaries and decide: need a complete lists to decide
o Question of determination: Are you deserving? Are you falling within the class? How
much would you get from the trustee's disposition?
o Held: the definition of the class must be certain enough for the Court to say that the
person is or is not within the class
 Looser test of the certainty of object
 Are they someone who can distribute the property?
 But why we do not need the fixed, complete list to find out all of the beneficiaries?
o Duty of the trustee: What are the duty that the settlor had dictated the trustee to do?
 The scope of the trustee's power matters here
o The nature of the trusts is very similar to each other
 You have the power to distribute, but you do not need to
 What you have to do when you have a mere power?
o You just do the similar thing with those who had trust power
o "Any trustee would surely make it his duty to know what is the permissible area of
selection and then consider responsibly, in individual cases, whether a contemplated
beneficiary was within the power and whether, in relation to other possible claimants, a
particular grant was appropriate."
o "A trustee with a duty to distribute, particularly among a potentially very large class,
would surely never require the preparation of a complete list of names, which anyhow
would tell him little that he needs to know. He would examine the field, by class and
category; might indeed make diligent and careful inquiries, depending on how much
money he had to give away and the means at his disposal, as to the composition and
needs of particular categories and of individuals within them; decide upon certain
priorities or proportions, and then select individuals according to their needs or
qualifications. If he acts in this manner, can it really be said that he is not carrying out
the trust?"
 Look at general possible class of claimants, determine who is or is not within the class in
compliance with the criteria set out by the settlor
o But this would not require you to sit down to figure out a complete lists of beneficiaries
o The trustee do not need to figure out the complete lists
 He just need to figure out the criteria of the beneficiaries: how much to give?
 Court: make sure the individual is not within the class of the trust be able to claim
the benefit assigned by the trustees
 What kind of rights that they have under a discretionary trust, possible object of the mere
power and the fixed trust? This is decisive in Lord Wilberforce's judgment
 Why before McPhail v Doulton there is a higher level of certainty test for discretionary trust?
o Divide the property equally: need complete list to do so
 Dissents: you do have to consider everybody
 That's why we need a fixed list
o No complete list? Would defeat the settlor's intention
 It can't have been taken to include all people
 o Implicit that you can select some beneficiaries on the subset of the "trust" criteria
o Allow the trustee to narrow the field of the potential beneficiaries
 Reasons for lower level of certainty?
o Equal distribution would fail to give effect to the discretionary trust
o Court will control the trustee that he would not give away the property to someone who
is not within the class
o Trustee can make the general survey as in who is fit to claim the trust?

Trust Power
 Discretionary trust
 Is or is not test: no need to have a complete lists
 Do not need to assertion every member of the class
o Are these people definitely the beneficiaries or not?
o Looking at the class terms
 Specify the individual? It can solve the problems of uncertainty completely
o Hence, you do not need a complete list

Re Baden (No. 2)
 Say for certain that an individual is or is not the current employee in a relevant sense
 Look at the person that terms up and determine if they is or is not the employee or ex-
employee
o What if you don't know them?
 e.g: independent contractor: apply an employment analysis to give us a
conceptual certainty
o It must mean "employer" in the employment sense
 Depends on the circumstances
o Refer to the uncertainty that we have when applying the test to the class of individuals
 Is the class certain enough due to the nature of the term?
 Might need to stipulate a particular characteristics of the class

Types of uncertainties
 Conceptual uncertainty: the individual must be able to be identified to a class
o How it is distinguished from evidentiary uncertainty?
 Evidentiary uncertainty: they can't prove it - not enough evidence
 Conceptual uncertainty: can this concept identify a group of beneficiaries?
 Would it be too wide that there is no once could possibly be said to fall
within the class?
 Complete list vs is or is not test?
o The latter would not be defeated even though all of the beneficiaries cannot be
determined?
o Only applicable in the context of large number of beneficiaries
o Concept defines the class can't be too vague: it must be certain enough to determine the
individual is or is not within the class, subjecting to the availability of the evidences
o You can't prove that they are within the class, they are then not within the class
 What then, the trustee has to do?
o Just because you find someone does not have enough evidence, it does not follow that
the trust would void
o They are not proven to be within the class
 They can't be seen as beneficiary
o "a survey of the range of objects or possible beneficiaries"
 "Whereabouts" uncertainty: you do not know where the beneficiaries
  "hopelessly wide": administrative unworkability (Morice v Bishop of Durham)
o Not necessarily to be worried about
 Trustee can't be remunerated unless there is a provision that say so
o Professional trustee should be appointed

How to apply "is or is not" test?

 Evidence of the person is determinative
o Not conclusive at one point
 Get the list of possible beneficiaries: figure out who they are
o Making sure that the person who actually not a beneficiary should not be awarded the
benefit of the trust
 Conceptually certain: work out the possible evidences

Re Beckbessinger as an illustration
 Is this trust administratively workable?
o Followed McPhail v Doulton
o The class of people would have an interest: but it would be void for conceptual
uncertainty
o What do you mean by interest though?
Lecture 11: Constitution of Trust
Wednesday, 8 April 2015
21:48

Some exercise about determining certainty of object

Q: would defining every term resolve the uncertainties of that term?
 "My Children": this phrase can potentially be conceptually uncertain
 If there are some additional words such as 'legitimate children', this is sufficient in terms of
conceptual certainty
o Might need additional evidences to prove that fact
 Students enrolled in LAWS 312 in 2015: complete list can be obtained
 "friends of students enrolled in LAWS 312 in 2015":
o Could every bystander claim acquaintance to you?
 How would you, then, know about it?
o Which of these people were friend of yours? It is too difficult to check it out
o Therefore, it is too uncertain for it is not a complete list
 "Friends": court would regard it uncertain
 "My old friend": this is too vague
 Depends on circumstances
 "The members of the 2011 World Cup winning All Black Team"
o "team": refer to?
 Does it include the squat who did not play?
 What a trustee might do to increase or improve certainty?
 "Retired soldiers": what do you mean by 'soldiers'?
o Have to inquire into the structure of army
o Whether there is any certainty? Can the criterion ascertaining the soldier be applicable
to all people?
 "Residents of Wellington"
o Too many evidential problems
 Can we say for sure that he is or is not falling within that class?
 Definition of the term "Resident" is unclear

Constitution of Trusts
 General rule: the law would not enforce the imperfect gift
 Binding trust would occur if the trust property find its way to the trustee
o Transfer the property legally, directly to the beneficiaries
o Pass the legal title to trustee, and beneficiary has equitable title in that property
o Self-declare as a Trustee, and the beneficiary interest is transferred to the beneficiary
 Does not require the transfer of the legal rights
 In what circumstances, if you do not have the above 3 situations, equity can give effect to the
imperfect gift?
o Imperfect gift: legal title had yet to be given away
o Requirement of transfer of property is not complied OR have not self-declared the trust
 No property rights, equitable and legal, is not given away
 Re Rose: property rights is given in some form
o Non-volunteers: equity would step in and enforce the trust
o Milroy v Lord: Equity would not assist the volunteer
o Equity would enforce the properly constituted trust

Milroy v Lord
 judges want to give effect to the intention
 o Interpreting what the settlor wants to do
o We should not say that the settlor self-declared as a trustee just because he did not
divest the legal title properly
o Equity would not assist a volunteer
 How to transfer rights?
o Legal transfer of the title: actually transferring the property
o What happened in Milroy v Lord?
 Refer to the picture in notes
o Legal title is not transferred: property hold on trust for the person while the settlor self-
declared as a trustee
 Facts in Milroy v Lord
o A man transfer some property to the niece
 But actually the settlor's attempt to make the gift is incomplete
 This follows that the transfer of the legal title to the trustee is incomplete
 There would be no trust in this case
o [refer to the diagram]
 Legal title must be passed to someone else before the trust can be given effect to
o Equity seek to enforce the trust, but the legal rules and equitable rules concerning the
transfer of the property should not be different from one another
 We might be able to find an avenue to transfer the gift in equity if we can't do it
through
o If it is a contract, then you have a claim at common law
 Or you are just a volunteer in which rights are yet to be given to you
 Thexton: general intention to benefit the beneficiary
o Shouldn’t the Court give effect to this intention?
o Only give effect to things that the settlor actually did
o The requirement set forth must be complied with
 Rules transferring the property must be observed
o Actually comply with those requirements to make the transfer effective
o c.f: T.Choithrum
 Benevolent interpretation of the settlor's intention

Re Rose Exception
 Facts
o He does everything that he needed to do to transfer the legal title
o But something else is needed to complete the transfer
 Registration of the new owner
o Then the person would have legal titles on the shares
 If Milroy v Lord is applied, equity would not intervene because the transaction is yet to be
completed
o Therefore, there will be no trust
 Initial position: husband owes the shares and he gives the shares to his wife before he died
o But when did the transfer happened? It determines when the gift tax would be
applicable
o Have to transfer the property at least 5 years before you die or the tax levy would be
imposed
 Property: give away before 30/3
o Tax would not be levied on you
o But Mrs Rose is only a legal owner at June 30
 Wife has the beneficial entitlement to the property
o Every steps that the husband need to do had been done
 o It was clear that the transfer had been made: the wife had the beneficial title
o He actually filled up the form and gave to the registrar of the shares
 Milroy v Lord: To institute legally binding trust, all things have to be done
o He actually filled up the form and gave the registrar of the shares
o Does not seemed to be consistent with Milroy v Lord
 Re Rose: Settlor must do everything necessary to be done. Once it is out of his hands, the
transfer of property is binding in equity
o How is it that there is a full transfer?
 The transfer refers to the transfer of beneficiary interest, though the owner
remains as a legal owner
o There is a constructive trust: the Court is bound to hold the property legally owned by
him for his wife
 How to reconcile with Milroy v Lord?
o As soon as Donor had done everything that he need to do, the Donee would hold the
property on trust even though he has the legal title
o Refer to picture
Lecture 12: T Choithram
Thursday, 9 April 2015
17:59

Pagarani Case
 TCP had established a very big supermarket chain
o Wants to establish charities through his wealth
o Who is challenging the ability of the Court to do so?
o Residual request: the rest of his property would be distributed among the sons
o Next of kin: statutory rules
 If testator's wish on trust is nullified, the testator's estate will remain intestate
 Statute rules will then kick in
 Why this trust is invalid?
o Company has to pay out certain money to Mr Paragani and lots of company owe him
money
o It was never purposely put into the hands' of the trustee
o What did Mr Pagarani do?
 He did not rested all of the property to the trustee
 "trust triangle" is different
o Trust for charitable purposes
 Trustee: people who involved in the business + Mr Pagarani
 [picture]
 What did TCP do?
o The property's legal title had not been transferred to the trustees
o No suggestion that Re Rose can be applicable: legal title had not been transferred
o What he actually said?
 "I now give all my wealth to the trust" or "I have given everything to the trust" or
"I am handling all my gift, all my wealth, all my shares, to the trust"
 Oral declaration on the bequeath of the property to the trust
 Intention to make a gift: but did not actually transfer the legal title
 "A gift for the foundation can only properly be construed as a gift to the purposes
declared by the trust deed and administered by the trustees"
o Foundation did not have legal existence
o Had not done anything required at law to transfer the legal title
 Make the gift effectual
 Imperfect gift: when will equity make it perfect?
o Property must be held on Mr Pagarani's estate
 Constitution: did the settlor did what is required to property confer the legal title to the
trustee?
o He wants to set up a charitable trust!
 What about the requirements of trust constitution?
 Words on gift of trust: why, despite its insufficiency, the Court still give effect to the trust?
o He did not actually give to the trustee!
o Essentially, CIF did not exist apart from TCP
o "I hold the property on behalf of the trustees"
 Why self-declaration then?
 TCP held the trust property
o My own property is burdened on myself
o Bound in equity to make other co-trustee as the co-owner of the property
o If the trust is going to be effective, TCP has to declared himself trustee amongst the
board of trustees
 Is there a difference between self-declaration of trust and being one of the trustee to declare
the trust?
o [refer to picture.]
Lecture 13: Formalities and Secret Trusts
Wednesday, 15 April 2015
14:35

 Self-declaration in Choithrum
o Only document that is needed to be signed can be treated as a trust documents
 If so, it is not one individual declaring themselves as trustee for this person for these purposes
o Mr Pagarani set up another trust
o But Mr Pagarani can declare trust for other organisation as well
o He can transfer the legal title to other trustee
 The clearest way to show the intention of setting up a trust
o Does it matter that he is a trustee?

Formalities and Secret Trusts

 Formalities: life time trust (inter vivos)
o Personal property: oral declaration would suffice
o Trusts of land : making the trust of land require the interest in the land
 S 25(4) of Property Laws Act 2007
 Only applies to express trust
 Not trusts arise from operation of law (constructive or resulting)
 Will trusts? Formalities requirements outlined in Wills Act 2007, s 11 must be complied with
o Written will that was signed and witness will be sufficed
o Required relevant mental capacity
 How to get around with the formalities requirements?
o Its function:
 Provide evidences concerning the establishment of trust
 Prevent fraud
o To ascertain the trust requires evidences. Without evidences, no trust can be found
o Exceptions
 The courts have consistently made exceptions to these requirements where
evidence shows that these requirements are being used as an ‘instrument of
fraud’
 Eg – a person encourages land to be transferred to them on trust for a beneficiary,
but they know the formality was not complied with and so deny the trust
obligations and use it as their own
 Equity will recognise that it would be unconscionable to allow the ‘trustee’ to deny
the trust, assisted by the statutory formality
 For example: secret trusts…
 Governed by Wills Act 2007
 s 11: Basic requirements as to what comprises a valid will
 s 15: Amendments to the will require same formalities
 s 14 High Court may validate documents not conforming to s 11.
 s 13 A disposition of property in a will is void if (a) the disposition is to
a witness (etc.)
 Brown v Pourau
o Can we enforce the trust that does not live up the formalities rules?
 Formalities imperfection would render the trust from being strike down
 When will the Court not give effect to this? When trust is used as an instrument of
fraud or establishing a secret trust
o Why? You want to hide something from your loved ones
  Avoiding family disputes
 It only takes effect in a person's death though
 Upheld the trust? To avoid fraud in general
o Prevent the formalities rule to perpetuate fraud

Re Young
 illustrates the principle that a secret trust operates “dehors the will” (or “outside the will”).
 How to rationalised secret trust in light of the formalities rule?
o Secret trust as an exception
 To continue to compel the establishment of secret trust to comply with the
formalities rule would be inequitable: perpetuate fraud
o Secret trust is part of the will, therefore the rules on formalities simply do not apply
 Facts
o Leave property to wife: others are disposed for charitable purpose
o Trust: denote life interest in this circumstances
 She is going to give effect to other elements on the trusts
 "permanent aid of distressed gentlefolk"
o Valid trust: what's the problem then?
 It is secret in some degree: did not specify who will get the property
 We don't know the identity of the beneficiaries
 One of the beneficiaries is a witness: can he get the property?
o Witnesses should not be bequeathed for the will that he is witnessing
o S 15, Wills Acts 1887
o "the whole theory of the formation of a secret trust is that the Wills Act has nothing to
do with the matter because the forms required by the Wills Act are entirely disregarded,
since the persons do not take by virtue of thee gift in the will, but by virtue of the secret
trusts imposed upon the beneficiary, who does in fact take under the will."
 Trustee had to hold that on trust for the beneficiaries' benefit
o Any trusts set up in the lifetime does not have to comply with the Wills Act requirements
 Criticism on Re Young's theory
o Disposition under secret trust are revocable
 Self-declaration of inter vivos trust is irrevocable
 But secret trust is not binding on you as a secret trust: you can revoke it at any
time before you die
 It will only be given effect to after you have died
 The latter Will will revoke the prior Will
 Different from the ordinary life time trust
 Should be caught within the Wills Act
o The trust is not constituted until the testator's death
 Trustee had no rights to the property until he is dead
 You could create the secret trust and simultaneously grant disposition to another
person under the other Will
 It should be caught within the Wills Act, because it will not take effect until
the person had died.
 Requirement of a secret trust (Page v Page)
o Intention: looks like express trust
o It has to be communicated: timely communication
o The intended trustee must accept the trust obligation
 Burden of proof is on someone who claim that the express trusts exists: prove to
balance of probability
 Show actually there is a secret trust
  Testator did not have to tell anyone else apart from the trustee
 Only trustee knows that though: how to proof then?
 If you make the trust secret, how can evidences be gathered?
 Secrecy itself only be relative, but it could defeat the very nature of secret
trust
Fully secret trust Half secret trust

 Can't see that in the face of the 
will
 Communication of settlor's
intention must happen during his
life time
 Can happen after the will is
made
 It becomes the supposed trustee's
property
The nature of the terms is unknown to the public
 e.g: the identity of the beneficiary
 "X can't use the property for her own benefit"
 What if the terms is not clearly
communicated? It becomes a resulting
trust:
o Goes back to the settlor's residual
estates
 Or not communicated timely
 The person cannot use the property for her own
benefit
 Communication must happen before or at the
time , not after the will had been made

 Where the existence and the  Where the existence, but not the terms, of the
terms of the trust are not trust are disclosed in the will.
disclosed in the terms of a will: the  “$100k to X to hold as I have instructed her” “to
person given the property seems X on trust”
to take as absolute owner  X cannot use property for her own benefit
 “$100k to X”  Communication before or at the time of the
 The claim is that X is really a making of the will (cf reference to outside
trustee of a secret trust. X cannot documents in wills – must be existing document)
use the property for her own  If not communicated in time, resulting trust to
benefit testator’s estate
 The intention to create a trust
must have been communicated to
the intended trustee, who must, in
turn have accepted the office of
trustee
 Communication must happen
during the lifetime of the will
maker (whether before or after
the will is made)

Page v Page
 What was Seb’s strategy in asserting a trust on the facts of Page v Page?
o Risky to have a secret trust: tell somebody to deliver oral evidences
o Keep some mother's painting: alleged that he had held it to be the intimate steward of
these paintings
 This imply that Seb is the secret trustee of these drawings.
o He was not beneficially entitled to the paintings
o They did not comprise his property
o Therefore they did not form part of the relationship property pool (subject to equal
distribution)
 [40]: Another thing to note: he is facing divorce
o Do he need to divide the property (painting) in 50/50?
 Hold on trust for other people: it is not his property
o No suggestion on the lifetime trust that has been set up
 Not on the will: got to be secret trust
 Why the Court refuse to held that there was a secret trust?
o Evidences can suggest both ways
o The meeting itself is inconclusive
o [39]
 The painting is not insured
 He intended to sell the painting (if something is held on trust, you can't use it to
your own benefit)
 Shows that there isn't any intention on Mrs Page part to create a trust, let
alone a secret trust
Lecture 14: Charitable Trust
Wednesday, 15 April 2015
16:13

Beneficiary Principle
 Charity: fall outside of the subject matter of law of trust
 "effect of charity on trust"
o Avoid the requirement of beneficiary
 General rules on trust: cannot have an abstract purpose for your trust: set up for particular
legal persons
o Will trust: benevolence and liberality
 That trust is invalid for want of certainty
 That property has to be held as resulting trust for the settlor
 Next of kin get it because the testator would hold it for the beneficiaries
 The trust for purposes instead of people are not charitable
o Does not get the property to use for himself personally
o Trust for charitable purpose or held on resulting trust:
 Benefit go back to settlor?
 If a trustee had legal title to the property and there is no one who can go to the Court and say
that nobody can give effect to the equitable obligation, once the settlor give away the
property, the settlor play no part on the trust
o Settlor can't enforce the trust
o Beneficiaries/ company can enforce the trust
o Charitable purpose: charities are enforced by the Crown effectively

Beneficiary Principle: Case law

 Morice v Bishop of Durham: Manifestation of the beneficiary principle
o personal estate on trust to the B of D … “to dispose of the ultimate residue to such
objects of benevolence and liberality as [he] in his own discretion shall most approve
of.”
o “There can be no trust, over which the exercise of which this Court will not assume a
control; for an uncontrollable power of disposition would be ownership, and not trust…
There must be somebody, in whose favour the court can decree performance.
 "benevolence and liberality": does not limit the defendant to who the property solely for this
purpose
 Within these purpose, the defendant could devote the property for charitable purpose
o But such purpose is actually quite narrow compared to benevolence and liberality
 "The only question is, whether the trust, upon which the residue of the personal estate is
bequeathed, be a trust for charitable purposes?"
 "Every other trust must have a definite object. There must be somebody, in whose favour the
Court can decree performance."
 "The question is, not, whether he may not apply it upon purposes strictly charitable, but
whether he is bound so to apply it?"
o For non-charitable purpose, the trust can be void and deemed invalid for want of
certainty of object

Re Astor's Settlement Trust

 Property: devote on trust
o Fund set up for purposes of maintaining good relations between nations, preservation of
the independence of newspapers, editors and writers
 o “The typical case of a trust is one in which the legal owner of property is constrained by
a court of equity so to deal with it as to give effect to the equitable rights of another.
These equitable rights have been hammered out in the process of litigation in which a
claimant on equitable grounds has successfully asserted rights against a legal owner or
other person in control of property. Prima facie, therefore, a trustee would not be
expected to be subject to an equitable obligation unless there was somebody who could
enforce a correlative equitable right, and the nature and extent of that obligation would
be worked out in proceedings for enforcement.”
o “if the purposes are not charitable, great difficulties arise both in theory and in practice.
In theory, because having regard to the historical origins of equity it is difficult to
visualize the growth of equitable obligations which nobody can enforce, and in practice,
because it is not possible to contemplate with equanimity the creation of large funds
devoted to non-charitable purposes which no court and no department of state can
control, … no case has been found in the reports in which the court has ever directly
enforced a non-charitable purpose against a trustee. Indeed where, as in the present
case, the only beneficiaries are purposes and an at present unascertainable person, it is
difficult to see who could initiate such proceedings. If the purposes are valid trusts, the
settlors have retained no beneficial interest and could not initiate them. It was
suggested that the trustees might proceed ex parte to enforce the trusts against
themselves. I doubt that, but at any rate nobody could enforce the trusts against them.”
 Beneficiary principle: someone has to be able to control the action of the trustee
o Individual, human, company…[trust]
o People trusts good; purpose trusts bad
o Private purpose trusts are invalid; trusts must be for the benefit of ascertainable
individuals
 Charitable trust: enforceable by the Crown
o Not charitable trust? Crown will enforce it
o Nobody have the rights to enforce the charitable trust
 Non-charitable purpose trusts are invalid
o Trust: benefit of ascertainable individuals
 Leahy v Attorney General [1959] HCA 20, (1959) 101 CLR 611: held for trust
o For Catholic Brotherhood
o Particular kind of activity is not charitable
 Not beneficial to any orders of nuns
o General purpose: helping the Catholic Brothers
 Re Denley's Trust Deed
o Suggestion: purpose trust to maintain the sports ground for recreation purpose?
o Mere people: specified employees
 They are the one who will be enforcing the trust

Charitable Trusts
 Charities is not equal to trusts
o Other structures?
o The law of charities is often associated with its origin in the courts of equity in relation to
charitable trusts
o However, charities need not be trusts
o They may also be
 ‘Incorporated Trusts’ under the Charitable Trusts Act 1957
 Incorporated Societies
 Unincorporated Societies
 Companies
  Definition of charities: need to meet the statutory definition under the Statute of Elizabeth
1601 in order to qualify as a valid trust
o Responding to community need on behalf of the public
 S 5(1) Charities Act 2005
o Codified Pemsel
 the relief of poverty
 the advancement of education
 the advancement of religion
 the advancement of other purposes beneficial to the community, not falling under
the above heads.
o Object must be for the benefit of the public (as a whole or a sufficient section of it)
o CDC: it is held to be too remote to just relief for poverty
 Education? Not for a broad section of public
 Public benefit? Difficult to link
 Political purpose
o Re Collier
 Government policies
 Can be contested as if they are not for public benefit
 The object of changing the law was not “illegal”, but also not charitable. Molloy v
CIR [1981] 1 NZLR 688
 Court cannot tell if the desired outcome would be desirable
o Australian adopted a broader approach. They said that no general exclusion of political
purpose for charitable purposes
 "Is this demonstrably for public benefit?"
o Greenpeace [2014] NZSC 105
 “The majority held that a political purpose exclusion should no longer be applied
in New Zealand. They concluded that a blanket exclusion of political purposes is
unnecessary and distracts from the underlying inquiry whether a purpose is of
public benefit within the sense the law recognises as charitable.“
 Expound the purpose of public benefit

Key Features of Charitable Trusts

 Re Tennant [1996] 2 NZLR 633, 637
o “It has to be recalled that charitable trusts are an exception to the usual revenue and
other laws. Because of this privileged position charities must meet strict legal
requirements.” .
 Exception to the beneficiary principle
o No time limit on the trust’s duration
o Tax advantages
 Exemptions from income tax, general rates, etc
 Donor’s get tax credit for donations
o Only applicable to purpose trust
 It have to be charitable or it would be deemed invalid
 Fundamental difference other trusts or requirement would be charitable
 Rule: can't have that trust to go on forever
o The day when the trust would cease: 80 years from the inception of the trusts
 Vesting clauses
o Perpetuities
 Trust's expired day
 Some other people will take that property absolutely after the trust has expired
o But perpetuities period does not apply to charitable trusts
 Eg of vesting clause: ““Vesting Day” means: (a) the day upon which shall expire the period of
eighty (80) years from the date of execution of this deed, being a date within the perpetuity
period permitted to be specified by virtue of section 6 of the Perpetuities Act 1964, and the
perpetuity period applicable to the trusts created by this deed is hereby specified
accordingly…[or at an earlier date determined by the Trustees in their absolute and unfettered
discretion].”
 Plus another clause specifying what happens on the vesting day: such as, all beneficiaries take
the remaining trust fund in equal shares as tenants in common
 Section 6. Power to specify perpetuity period
o (1) Subject to subsection (2), where the instrument by which any disposition is made so
provides, the perpetuity period applicable to the disposition under the rule against
perpetuities, instead of being of any other duration, shall be such period not exceeding
80 years as is specified in the instrument as the perpetuity period applicable to the
disposition […].
 How to create charitable trust?
o Transfer the property inter vivos
 Self-declaration
 Conveyance to trustee
o By will
 Charitable purpose, if stated vaguely, will confer wide discretionary power to the trustee
instead of failing for want of certainty of object
o Traditional rule is that the validity of a charitable trust depends on the legal effect of the
language used by the Settlor.
 What happen if things in some way had gone wrong?
o Morice: mixture of charitable or non-charitable purpose would just invalidate the trust
 Frustrate the settlor's charitable intention
 Will trust? Fall unto the residual estate
 "gift over" clauses
 If this trust fail, the property will go to someone else
 May defeat the charitable intention of the settlor
 Response?
o "blue pencil" rule: [93] of CDC
 Get rid the non-charitable purposes
 Delete and modify the language to eradicate non-charitable purposes
 Vague intention: non-charitable intention
 But if it is too vague, s 61B would not be applicable
 Thus, the trust is rendered invalidate
o There must be some charitable purpose within the gift, whether general or particular
o Where there are particular purposes, the non-charitable ones can be ‘blue pencilled’
out, leaving the charitable purposes
o Where the purpose is in general terms that may include non-charitable purposes, those
terms may be modified;
 But not simply a vague purpose that might have some aspect of charity within it;
the testator must have had a “substantially charitable mind”
 What about the operative clauses? Can we blue pencil them out?
o Cannot “blue pencil” the operative clauses – CDC [102]
 What happens if Charitable purpose can't be carried out?
o Court has inherent jurisdiction to vary charitable trusts
 Despite the identification of a particular purpose that is impossible or
impracticable to carry out, the intention of settlor is to give the property for a
 general or ‘paramount’ charitable purpose (ie not only for the particular purpose)
or surplus of funds after particular charitable purpose carried out
o Devote to purpose “as close as possible” to original purpose
o Court can direct a scheme for carrying out the charitable purpose
 What happens if charitable purpose cannot be carried out? (2) Section 32 Charitable Trusts Act
1957
o Trust must be charitable
 whether general or particular charitable purpose
 for the Court to have jurisdiction
o Important to the administration of charitable trusts
 “impossible or impracticable or inexpedient to carry out the purpose”
 Devote to purpose “as close as possible” to original purpose
 Court establishes a “scheme” for the administration of the trust in these
circumstance
 Is there any limits to the application of s 61B?
o Maybe not: to do so may effectively transform a corporate societies to become a charity
 Judge say yes: no logical reason to limit s 61B to charitable trusts
 Purpose of s 61B: save the trusts that would otherwise fail for beneficiary principle
infringement
 Corporation: simply invalid at the first place
 S 61B only applies to charitable trusts.