Equity & Trusts
“It is often said that the development of law is characterised by the on-going search for a balance between justice and certainty. Or to be more precise, a balance between justice in the individual case and that justice for the civilian population at large which flows from certainty in the law”.
G Watt, Equity & Trusts Law (Oxford Press 2010) at p5.
.
Lord Cowper, in Dudley v. Dudley (1705) stated “equity is actually“ no part of the law, but a moral virtue, which qualifies moderates and reforms the rigour, hardness and edge of the law.1
I would prefer to think that equity is a part of law that acts not as much as a moderator but more like an umpire who rules
justly against unconscionable acts.
Equity has reformed a great deal from the days when the Kings Chancellor determined each case according to his
own discretion, or as 17th century jurist John Selden put it,( and I paraphrase)
“Equity’s conscience is as long as the Chancellors foot”,2
equity itself came to a great reformation in The Earl of Oxford's case (1615). In that case, Coke CJ gave judgment in a common law
action which was alleged to have been obtained by fraud. The Lord Chancellor, Lord Ellesmere, then issued a
common injunction from the Court of Chancery, preventing proceedings to enforce the common law judgment. As the two courts
were dead locked the matter was referred to the Attorney -General, Sir Francis Bacon, who upheld
the use of the common injunction and determined that whenever there was conflict between the common law and equity, tha
t equity would prevail.3
This rule is now preserved in the Supreme Court Act 1981, s49.
The location of Equity’s “conscience as perhaps the mainspring of equitable jurisdiction, according to John Duddington in his boo
k Essentials of Equity and Trusts, has been enormously significant in the development of equity,
especially in more recent years and now there is an increasing tendency t for the courts to rest their decision in a equity case on
whether an act was ‘unconscionable'
Unconscionability is a term which has been increasingly used and has played a major part in the development of equity especially
in relation to the area of trusts.
In Westdeutsche Landsbank Girozentale vIslington LBC (1996) where the claimant bank entered into an interest rate
agreement with the local authority which was later ruled to be unlawful.
The bank sought a return of its money, not under common law principles of restitution, but under equitable principles. The banks
reason was that, under equity, it would be entitled to compound interest on the sum repaid. This was not an unreasonable
request, after all the bank would have had to pay the compound interest if the agreement had been valid, And so was “unjustly
enriched” at the banks expense.
To claim an equitable remedy, the bank tried to argue that a resulting trust arose on the principles of Sinclair v Brougham
(1914),4 The house of Lords declined to follow Sinclair and held that there was no trust relationship on the facts of the present
case. As Lord Brown
Wilkinson puts it: Since the equitable jurisdiction to enforce trusts depends on the conscience of the holder of the legal interest
being affected, he cannot bea trustee of the property if and so long as he is intended to hold the property
the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are
alleged to affect his Conscience.5
In Pennington v Waine (2002) where the case was, that anincompletely constituted gift of shares could be upheld if the gift had
been completed to such an extent that the donee could enforce his rights to the shares as against third parties without forcing
the donor to take any further step. Moreover, it was not always necessary that there should have been delivery of the shares; in
some circumstances, delivery could be dispensed with.
A lady wished to gift 400 shares of which she owned in the family company to her nephew, preparing all necessary paperwork
with the company auditor who placed the stock transfer form on file. The aunt died without the share transfer being registered;
however the nephew argued that the shares had passed to him in equity. The judgement by Judge Howarth found in
favour of the nephew. Two of the beneficiaries of the estate appealed and one Judge, Clark LJ dismissed the appeal for the same
reasons of Judge Howarth, the majority (Arden LJJ with whom Schiemann LJ agreed) reached the same result on a broader basis.
The underlying principle was that “thedonor will not be permitted to change his or her mind if it would be
unconscionable, in the eyes of equity, vis a vis the donee to do so”.
The court held it would have been unconscionable for the aunt to have changed her mind in the circumstances. They also held
alternatively that the result could be justified by holding by a “principle of benevolent construction” that when
the auditor wrote to the nephew informing him about the transfer of shares he became the nephew’s agent for the transfer.6
These and other cases such as
Gafford v Graham (19987) and Cooke v Head (19728) show that sometimes Common law decisions do not apply conscionable
justice, and, this is when the rules of equity step in to rectify judgements. As above the notion of unconscionability is prevalent in the area of trusts.
In T Choithram International SA v Pagarani.9 The main argument being: Where there is more than one trustee and the trust
property has been vested in only one trustee.
Heard before the Privy Council, on appeal from the Caribbean Court of appeal, it was held that a trust would be constituted. The
facts being that,
.A man lying on his deathbed sought to declare a trust over his property.
He executed a trust deed establishing a foundation. The Foundation took the form of a pilot settlement subject to the law of
Jersey in the Channel Islands, which would act as an umbrella for four charities which he had already established, Immediately
after he had signed, he stated that all his wealth, including shares in a number of companies, would now belong to the trust.
He himself was one of the trustees, he then told his accountant to transfer all the money to the trust but he failed to sign the
necessary documents.
Evidently he disliked signing these type of documents and had been told the it was not necessary. The companies in which he
held shares acted in accordance with the deed by registering the trustees of the foundation as shareholders. After Mr Paganini
died, his family claimed that he had not effectively transferred his wealth to the foundation, which accordingly belonged to them.
The Privy Council’s decision that the trust was constituted
rested on two points:
-
Had Paganini actually made an effective declaration of trust?. He did
not use the word “trust) in his actual words, which were never quite
established, “ The witnesses varied in their recollection of the details of
what was said” appeared to indicate a gift. However, it was held that the
content of his words clearly indicated a trust: he intended to give to the
foundation and this body was a trust
-
Assuming that Paganini had declared himself a trustee ( method two
above), did it matter that the trust property was not vested in the other
trustees? The Privy Council held that it did not. Paganini had executed a
solemn declaration of trust and it would be unconscionable to allow him
go back from this promise There was no distinction between cases where
a person declares himself to be a sole trustee and where (as here ) he
declares that he is one of the trustees. In both cases the trust is
constituted.
Lord Brown Wilkinson explained
“There can in principle be no distinction between the case where the dono r declares himself to be sole trustee for a donee or a
purpose and the case where he declares himself to be one of the Trustees for that donee or purpose.
In both cases his conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a
donor to resile from his gift10”.
One might add that, whilst the decision can be supported by an application of Milroy V Lord, the more liberal view taken of the
requirements for constitution, and the notion of unconscionability are in line with the approach
in Pennington V Waine (above) may signal a more relaxed view of the constitution rules.
One could say that the decision in Paganini represents a kind of “ third way “ between methods One Two of a constitution of a trust.11
Alastair Hudson in Equity and Trusts states:
“ For the effective constitution of a trust, there must have been valid declaration of trust and the legal title in the trust fund mus
be transferred to the trustee, or the settlor must have declared him/herself trustee”12.
Hudson then goes on that the question then is understanding the means by which legal if differing forms of property is
transferred to the trustee.
The most definitive statement of the need to vest the trust property in the trustee is given in Milroy v Lord,13 where Turner LJ
held that:
“I take the law of this Court to be well settled, that, in order to render a
voluntary settlement valid and effectual, the settler must have done
everything which, according to the nature of the property comprised in the
settlement was necessary to be done in order to transfer the property and
render the settlement binding upon him”.
When a fully constituted trust exists three consequences arise, they are:
-
Once the settlor has vested his property within the trust, he has no
-
further control over the property, and cannot change his mind
.
-
The trustees are obliged by law to hold the property in accordance with
the terms of the trust
-
And that the beneficiaries will enjoy specific rights which may if
necessary be enforced against the trustees.
Jessell M.R explained in Richards v Delbridge that there are Two methods in which a trust will be perfectly constituted by a settlor.
“he may either do such acts as amount is law to a conveyance or assignment of the property, and thus completely divest himself
of the legal ownership, in which case the person who by those acts acquires the property takes it beneficially, or on
trust, as the case may be; or the legal owner of the property may, by one or other of the modes recognised as amounting to a
valid declaration of trust constitute himself a trustee, and, without an actual transfer of the legal title, may so deal with the
property as to deprive himself of its beneficial ownership, and declare that he will hold it from that time forward on trust for
the other person”14.
If the procedure is not followed correctly, the transfer to the trustees will be ineffective. The maxim “ equity cannot perfect an
imperfect gift “ will apply can have a change of mind .This approach ensures that a donor, who acts unwisely and informally, can
have a change of mind.
In Jones and Lock15 a father was scolded by his family for not bringing back a gift for his son, he therefore produced his
checkbook from his pocket and made a check out for £900 and said “ look you here, I give this to baby” he placed the check in the
baby’s hand. He then took the check back, but apparently intended to see his solicitor to make provision for the baby.
However before he could do that he died.
The court held:
-
There was no gift for the baby, because the check had not been endorsed
-
Nor was there a declaration from Jones that he held the check on trust for the baby. The court said it would not impose the onerous duties of a trustee on a person unless it was clear that a declaration of trust was intended.
This and other cases show that to create a trust a settlor must be certain of what he wants to achieve. The Three certainties of
creating a trust are essential, to create a valid trust.
It is important that the settlor intends to create a trust, The simplest way would be to contact a solicitor and sigh a formal
declaration of trust in the form of a deed. 16 That may not be necessary in many cases, but it does make it easy to prove that
there is a trust.
An example of an ambiguous
intention is in Paul v Constance17. Constance received a court award for £950 for an injury suffered at work and subsequently
decided to set up a bank account, they were advised that the account should be set up in the name Constance because they were
not married, therefor Constance was the common owner of the account. The couple added money from joint bingo winnings over
time and even paid for a holiday from the account.
When Constance died his wife sought to claim the account. In court evidence was submitted that Constance had said that “ This
money is as much mine as yours ” this was enough to show that the words manifested a sufficient intent to create a trust.
Certainty of subject matter is the second certainty. The trust fund must be identifiable. A trust in which the property is mixed
with other property so that it is impossible to identify properly which is held on trust, will be invalid
In Re London Wine Co18 here creditors of a vintner’s business sought to claim wine which was stored in the vintner’s cellars. The
court however held that the creditors would only be entitled to assert proprietary claims as beneficiaries under a trust over any
wine held in the cellar if each creditor could demonstrate that particular, identifiable bottles of wine had been segregated from
the general stock held in the cellar.
Thirdly, Certainty of Objects. The practical reason for this is that unless the trustees know who the beneficiaries are they cannot
distribute the trust property. And that the court needs to be able to control the trust. The
principle derives from Morice v Bishop of Durham (1805)19 Where Sir William Grant put it: “ There can be no trust over the
exercise of which this court will not assume control; for an uncontrollable power of disposition would be ownership and not
trust” This was approved by Eldon LC, when the case was appealed .(1805 ).
1 Dudley v. Dudley (1705) Pree Ch 241
2 Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is equity. ‘Tis all one as if they should make the standard for the measure we call a foot, a Chancellor’s foot; what an uncertain measure would this be? One Chancellor has a long foot, another a short foot, a third an indifferent foot: ‘tis the same thing in a Chancellor’s conscience
3 Earl of Oxfords Case (1615) 1 Rep Ch1.
4 Sinclair v Brougham. [1914] A.C. 398.
5 Westdeutsche Landsbank Girozentale v Islington LBC (1996) AC
6 Pennington v Waine [2002], ECWA Civ 227, [2002] 4 All ER
7 Gafford v Graham (1998) 77 P & CR 73
8 Cooke v Head [1972] 2 All ER 38
9 Choithram International SA v and Others v Lalibai Thakurdas Pagarani and Others Privy Council Appeal No. 53 of 1998 Court of Appeal of the British Virgin Islands
10 IBID 9
11 John Duddington, Essentials of Equity and Trusts, Pearson Education Limited, 2006 England
12 Alastair Hudson, Trusts and Equity 2004 ,3rd edition,Cavendish Publishing Limited, London
13 Milroy v Lord,(1862) 4 De GF & J 264
14 Richards v Delbridge 16 April 1874 [1874 B. 18.] (1874) L.R. 18 Eq. 11
15 Jones v Lock (1865) L.R. 1 Ch. App. 25 CA
16 Law of Property Act ( Miscellaneous provisions ) Act 1989 s,1
17 Paul v Constance [1977] 1 WLR 527
18 Re London Wine Co (Shippers ) Ltd [1986] PCC 121.
19 Morice v Bishop of Durham (1804) 9 Ves Jr 399