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valid? Following the decision in Sprange v Barnard (1789), it would not. The court came to
such a conclusion because there may not be anything left – hence no subject matter to be
held on trust at all. That being said, the courts managed to avoid the rule in Sprange by
employing a ‘floating trust’ argument in Ottoway v Norman (1972) (and the Australian case
of Birmingham v Renfrew (1936)). Such an approach presumes that the ‘remainder’ trust is
‘in suspension’ (i.e. floating) so long as the primary purpose/trust is still being carried out.
The ‘remainder’ trust will only come into effect after the primary trust ends. It should,
however, be noted that in Ottoway, the court refused to apply the ‘floating trust’ argument
on the testator’s money (it was only applied to the house and furnishings). In the present
case, the subject matter is again money (i.e. proceeds from the sale of Lawtel shares) and
therefore, the Ottoway approach may not work.
All the above, however, may not invalidate the ‘remainder’ trust since it has been
concluded above that the ‘purpose trust’ for the education of Fred’s nieces and nephews is
already void. Could the trustees therefore use the entirety of the proceeds for ‘charitable or
benevolent purposes’? Once again, it is argued that they could not as such a trust would
also be void. While charitable trusts are valid at law, it should be noted that the courts do
not think that ‘charity’ is synonymous with ‘benevolence’ (following the explanations given
by Sir William Grant in Morice v Bishop of Durham (1804)). Furthermore, as Fred stated
that the trustees are allowed to select ‘charitable’ OR ‘benevolent’ purposes, it may be the
case that the trustees use 100% of the funds solely for ‘benevolent’ purposes and this would
not be allowed at law. In short, Fred’s second bequest would fail as invalid purpose trusts.
iii. ‘residue of my estate to be held on trust’:
Finally, Fred’s third bequest is clearly a discretionary trust as his trustees have been
given a dispositive discretion on what to do with the residue of his estate. Also, there are no
issues with certainty of subject matter since Fred’s residuary estate is ascertainable. As for
certainty of objects, the ‘Any Given Postulant’ test (McPhail v Doulton (1970)) is applied
and, on the given facts, there are no issues with conceptual certainty since the terms used
by Fred (‘my trustees or their next of kin or to my spouse or my children’) are all
conceptually certain.
The problem here appears to be one with administrative unworkability. In the
situation of a power of appointment, Fred’s instructions would be similar to an
‘intermediate power’ or ‘hybrid power’ allowing the power holders to appoint anyone in the
world except for a class of persons. Following the guidelines of Megarry J in Re Hay’s ST
(1982), an ‘intermediate power’ will not fail for administrative unworkability. This is correct
since there is no compulsion/duty to exercise a power of appointment. However, Megarry J
clearly distinguished between an ‘intermediate power’ and an ‘intermediate trust’. The
latter would fail for administrative unworkability.
In McPhail, Lord Wilberforce gave the example of ‘residents of Greater London’ as a
class that was so large ‘as to not resemble a class’. Here, it is argued that the size of the class
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alone should not be determinative or conclusive in deciding whether a trust is
administratively workable. However, it should be surmised from Lord Wilberforce’s
judgment that it is the testator who bears the burden in clearly defining his class and should
his description of the class be so inconclusive ‘as to not resemble a class’, it should fail for
administrative unworkability. On the given facts, it appears that Fred has NOT defined a
class at all. He had only defined the excluded persons. On this note, it is argued that Fred’s
third bequest should also fail for administrative unworkability.
2006 Zone A Question 4
Consider the validity and effect of the following provisions in Georgiana’s will:
i. all my good wines, as my wine merchant shall in his absolute judgment
determine, to Herbert, my husband, the remaining bottles to be sold and the
proceeds to be used for the upkeep of my tortoise, Sadie, until the end of her
days;
ii. £300,000 to be used to make grants within six months of my death to such
of my longstanding friends as my trustees shall in their absolute discretion
think fit, any funds remaining to fall into residue;
iii. the residue of my estate on trust for my husband Herbert for life, remainder
to such members of the ‘Appointed Class’ and in such amounts as my trustees
shall in their absolute discretion see fit. The ‘Appointed Class’ shall consist of
my children, their spouses or former spouses or widows or widowers and any
issue thereof, and any person appointed to the Appointed Class by my trustees
by written deed within the lifetime of my husband Herbert, my trustees to
have power to appoint in their absolute discretion anyone in the world to the
Appointed Class except the trustees or the trustees’ next of kin, employees or
dependants.
Suggested Solution:
Following Knight v Knight (1840), Lord Langsdale held that a trust can only be valid if
it satisfies the three certainties of intention, subject-matter and objects. Each of Georgiana’s
testamentary provisions will be considered one after another below to ascertain whether or
not a valid trust has been created.
1) Wines:
On the facts, it appears that Georgiana intended to create a fixed trust as there was
no dispositive discretion conferred upon her trustees. They were simply instructed to give
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all of her ‘good wines’ to Herbert and then use the proceeds from the sale of the rest of the
wines for the care of Sadie.
There appears to be a problem with certainty of subject matter – ‘good wines’. This
is comparable to the ‘hopelessly wide concept’ mentioned by C.T. Emery in his example of
‘good citizens’. It does not appear that ‘good wines’ is an ascertainable concept on the part
of the courts. The question is whether Georgiana’s wine merchant should be allowed to
determine which of her wines are ‘good wines’.
In Re Tuck’s ST (1978), Lord Denning mentioned (obiter) that a third party opinion
such as that of the Chief Rabbi could be used to resolve the uncertainty of who qualified as a
‘good Jewish wife’. That being said, the other judges did not agree with Lord Denning’s
obiter as there was no uncertainty in the case at all. In fact, the case had nothing to do with
a trust and was only concerned with certainty of object for a gift. Therefore, it is not certain
whether that is even an authority for the situation here to do with uncertainty of subject-
matter in the ‘good wines’.
Traditionally, the courts have been reluctant to admit third party’s opinion on the
grounds that to do so would amount to allowing the third party’s opinion to oust the
jurisdiction of the courts. It is here argued that this need not be so. The third party opinion
could simply be admitted as a form of ‘expert evidence’ in order to prove a fact in issue – i.e.
what is or is not ‘good wine’? After all, Georgiana had authorized the wine merchant to do
so and the court would simply be upholding Georgiana’s intention.
Should the above argument be accepted by the court, the ‘good wines’ would
therefore be ascertainable and thence be delivered by the trustees to Herbert. As for the
remaining wines, it appears on the facts that Georgiana was created a private purpose trust
for the upkeep of Sadie the tortoise. The general rule governing such trusts is that they will
fail for the lack of human beneficiaries (Re Astor (1952) and Re Endacott (1960)) unless they
fall into one of the categories of ‘anomalous purpose trusts’ that are valid but
unenforceable. On the facts, it is argued that the trust for the upkeep of Sadie does indeed
fall into such a category as the courts have traditionally allowed for purpose trusts for the
care of animals (Pettingall v Pettingall (1842) – a black mare; and Re Dean (1889) – horses).
That being said, the trust for the upkeep of Sadie ‘up to the end of her days’ may still be
invalid as it offends the perpetuity rule. Following Re Haines (1952), if Georgiana had
included a saving clause such as ‘for the upkeep of Sadie so long as the law allows’, it would
be validly upheld for 21 years. As such a saving clause was not present, it is argued that the
trust would therefore fail.
2) Grants:
On the facts, it appears that the trustees are allowed to confer gifts upon any of
Georgiana’s ‘longstanding friends’ according to their own discretion. The provision does not
really look like a discretionary trust because Georgiana seems to have left it entirely to the
discretion of her trustees – to the point of even considering the possibility of remaining
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funds not distributed by her trustees. Should the trustees be allowed to decide on what is to
be given out and what remains, it appears that Georgiana’s instruction includes a ‘gift-over
in default of appointment’ arrangement where any amounts not distributed would go into
her residuary estate. It is therefore argued that this is NOT a discretionary trust.
The problem remains whether or not ‘longstanding friends’ is conceptually certain.
Following Re Barlow’s WT (1979), Browne-Wilkinson J argued that ‘friends’ would NOT be
conceptually certain for a discretionary trust. In that case, however, an instruction allowing
the testatrix’s ‘friends’ to purchase her paintings at a discount was held to be simply a valid
gift for individuals who satisfy a condition precedent. Therefore, it was argued that there
was no requirement that any ‘class certainty’ be satisfied. So long as an individual can show
that he or she is a ‘friend’ of the testatrix, he or she would be allowed to purchase the
paintings at a discount.
That being the case, the correctness of Re Barlow has been seriously doubted by C.T.
Emery who argued that it would have been more appropriate to construe the circumstances
as one which conferred a power upon the testatrix’s trustees to sell her paintings to people
who fall within the class of objects – namely, the testatrix’s ‘friends’. Furthermore, it should
be noted today that the reasoning in Re Barlow was founded upon the erroneous reasoning
in Re Allen (1953) where the court applied the ‘one-person-test’ for certainty of objects
(overruled in Re Gulbenkian (1970)).
While Re Barlow has never been expressly overruled thereafter, it is doubtful
whether the courts will continue applying it. On the facts above, it does appear more likely
to argue that Georgiana’s trustees have been conferred a power of appointment to
distribute up to £300,000 (with a residue also allowed) in the form of grants to her
‘longstanding friends’. Following Re Gulbenkian (1970), the test for certainty of objects for
powers of appointment is the ‘any-given postulant’ test which requires class certainty. As
Browne-Wilkinson J held that ‘friends’ would not be certain should class certainty within a
discretionary trust be required, it is argued here that ‘longstanding friends’ would also be
uncertain in the case of powers of appointment. As a result, the power would be invalid and
the £300,000 would fall into residue entirely.
3) Residuary Estate:
Finally, as to Georgiana’s residuary estate, it appears on the facts that Georgiana
intended to create a discretionary trust as her trustees were allowed to exercise their
discretion in how to distribute the assets to the ‘Appointed Class’.
There is no problem with the subject-matter of the trust as the residuary estate is
ascertainable by the courts. In Palmer v Simmonds (1854), the court held that the ‘bulk’ of
the residuary estate was uncertain because it was impossible to quantify ‘bulk’ with
certainty. However, should the entirety of the residuary estate be intended as the subject-
matter of the trust, it would have been ascertainable. Therefore, there is no reason why the
residuary estate cannot be held on trust for Herbert. As to the ‘remainder’ of the estate for
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distribution to the ‘Appointed Class’, it appears that Herbert only has a life interest in the
residuary estate and there would presumably be a ‘remainder’ (Re Last (1958)). This should
be distinguished from the situation of a ‘whatever-is-left’ gift where the donee of the gift is
allowed to extinguish all of the available assets (Sprange v Barnard (1789)).
The final question is whether the objects here (‘Appointed Class’) satisfy the ‘any-
given postulant’ test required for discretionary trusts (McPhail v Doulton (1970))? It is
noted on the facts that none of the terms used by Georgiana are uncertain (‘children’,
‘spouses’, ‘former spouses’, etc.). The question is whether the trust will fail for
administrative unworkability should the class of objects be so widely defined as to not
resemble “anything like a class” (per Lord Wilberforce in McPhail). That being said, it should
be argued that the size of a class alone should not be conclusive as to whether or not a trust
is administratively workable but other factors should be considered such as whether the
subject-matter of the trust can justifiably be divided among the objects (i.e. is there enough
to satisfy everyone at all?) or whether it is too troublesome or impossible to do so? Lord
Reid in Re Gulbenkian argued (obiter) that “if the classes of potential beneficiaries were so
numerous that it would cost quite disproportionate enquiries and expense to find them all
and discover their needs or deserts, then the provision would fail”.
On the facts above, it does not appear to be so as Georgiana’s trustees have
absolute discretion to appoint individuals into the ‘Appointed Class’ before commencing the
distribution of the residue estate. It appears that Georgiana’s trustees have also been
conferred a power of appointment to select people to become part of the ‘Appointed Class’.
As this is a ‘hybrid’ power of appointment (with certain individuals excluded from being
appointed), it is argued that there is no reason for the court to disallow the width of such a
power if it is properly exercisable by agreement (Re Hay’s ST (1982)). As it was Georgiana’s
intention that the trustees be conferred such a power before they decide on the amounts to
be distributed to the members of such a class, it is argued that her final provision for the
residuary estate is valid.
2011 Zone A Question 2
While exploring a cave, Aron was trapped by falling rock. His mobile phone was
damaged, but could still send and receive text messages. After three days,
Aron realised there was no hope of rescue or escape. He had studied the law
of trusts several years ago and remembered that it was much easier to declare
an inter vivos trust than to make a will. He therefore sent the following text
message to several friends: ‘I hereby declare that I now hold all my assets in
trust: flat for Kristi/ bank account for Megan/100 Goldcorp shares for
Rana/everything else for caving friends. Bye.’
Aron died two days later. His estate consists of:
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(a) a long lease of a two-bedroom flat in London;
(b) two bank accounts, with credit balances of £500 and £15,000;
(c) 300 shares in Goldcorp Ltd;
(d) assorted goods worth £10,000.
Aron was a member of the London Caving Club, which had 127 members at the
date of Aron’s text.
Advise Sonja, the administrator of Aron’s estate.
Suggested Solution:
Sonja would like to know if any of the trusts declared by Aron is valid. On the facts, it
is argued that Aron intended to create trusts of his assets for Kristi, Megan, Rana and his
‘caving friends’. As Aron has declared himself to be the trustee, Sonja has now stepped into
Aron’s shoes as his administrator and would thereby be required to hold the assets on trusts
should the intended trusts be valid. Each of the intended trusts will be examined individually
below:
(a) Flat for Kristi:
Should the trust for the flat be valid, assuming that Kristi is sui juris (i.e. of full age
and with sound mind), she would be entitled to apply the principle in Saunders v Vautier to
instruct Sonja to transfer the ownership of Aron’s two-bedroom leasehold flat in London to
her.
Following Knight v Knight (1840), Lord Langsdale explained that for a trust to be
valid, it must satisfy the three certainties of intention, subject-matter and object. On the
facts, it is clear that Aron intended to create an inter vivos fixed trust for Kristi. As the
London flat was the only one owned by Aron, there does not seem to be any problems with
certainty of subject-matter either. That being said, should anyone else have a competing
claim on the flat, he or she may argue that the trust is invalid as it cannot be proven by any
writing signed by Aron (following the evidential requirement for declarations of trusts
involving land from s.53(1)(b) of the Law of Property Act 1925). The Sub-section provides
that should Kristi fail to produce any written evidence of the trust of the flat declared by
Aron, the court will not be able to recognise that such a trust exist.
On the facts, it is argued that the text messages sent out on Aron’s mobile phone
may satisfy the ‘writing’ requirement of s.53(1)(b) LPA 1925. However, it should also be
noted that on a strict construction of the sub-section, the written evidence should also be
signed. Could it be argued that a text message traceable to Aron’s personal mobile phone
(that was with him and no one else in the cave) could be seen as a ‘signature’? After all, the
purpose of a signature was to verify that the signee was the originator and/or has given
assent to the written message.
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Should the courts be unwilling to admit the phone message as evidence that satisfies
the requirements of s.53(1)(b) LPA 1925, Kristi may attempt to argue that a fraud would be
committed should Sonja and/or anyone else be allowed to deny the trust. In Rochefoucauld
v Boustead (1897), Lindley LJ allowed oral evidence of a declaration of trust involving land
to be admitted despite the similar evidential requirement in s.7 of the Statute of Frauds
1677. It was argued in that equity will not permit a statute to be used as an instrument of
fraud. That being said, it must be noted that Kristi’s situation is different from that of Mr
Rochefoucauld, who would have suffered at the hands of a fraudulent denial of the trust of
land by Mr Boustead as the latter intended to sell off the land to a third party. While the
Court of Appeal argued that it was an express trust that was enforced in Rochefoucauld, it is
more appropriate today to argue that it was, in fact, a constructive trust since the objective
of declaring the existence of the trust was to prevent a fraud.
That being said, it does not appear that Kristi would be able to argue for a
constructive trust since there is no evidence showing that she had been defrauded or
detrimentally relied upon a promise that she will receive the flat (as was the situation with
the claimant in Eves v Eves (1975)). The only argument left to Kristi would be to rely upon
the extension of the ‘fraud argument’ in secret trusts where a trustee would be allowed to
deny his/her trust obligations should the oral evidence proving the trust be denied (as was
discussed by the House of Lords in McCormick v Grogan (1869) and Lord Sterndale MR in Re
Gardner (1920)). On the facts, however, it is quite unlikely that this argument would
succeed. Even within secret trusts, this argument is today regarded with suspicion (for
instance, it was criticised by Sheridan (1951) for its undeniably circular reasoning).
(b) Bank account for Megan:
With regards to the bank account for Megan, it is to be understood that Aron
intended the balance of the bank account to be held on trust for Megan. However, on the
facts, Aron had two bank accounts and he did not specify which of them to form the subject
matter of the trust. It should also be noted that the balance in the two bank accounts were
different - £500 and £15,000 in credit respectively. If the balances were the same, it could
be that either of the bank accounts could form the subject matter of the trust. As the
balances were different, and Aron failed to specify which should be the subject matter, it is
argued that there is uncertainty of subject matter. Furthermore, he did not provide any
discretion on the part of the trustee to choose which of the bank accounts should be held
on trust for Megan (similar to the situation in Boyce v Boyce (1849) where the trustee was
also unable to select which of the houses was to be held on trust for which beneficiary).
Therefore, following Mussorie Bank v Raynor (1882), it is argued that uncertain of
subject matter would result in a reflexive action indicating that Aron never intended to
create a trust in the first place to favour Megan. The court would then conclude that there
was no trust for Megan.
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(c) Goldcorp shares for Rana:
The Goldcorp shares to be held on trust for Rana also suffer from a deficiency with
regards to certainty of subject matter. On the facts, it should be noted that Aron had 300
Goldcorp shares, of which he indicated that 100 of them should be held on trust for Rana.
However, he did not specify which of the shares were to form the subject matter of the
trust – in other words, the 100 shares for Rana were not segregated from the rest of the
Goldcorp shares. Following the direction in Re London Wine Shippers (1986) and Re
Goldcorp Exchange (1995), unsegregated units from a larger collection of similar properties
(i.e. fungibles) would fail for uncertainty of subject matter for a trust.
That being the case, it is argued that as the subject matter was shares, these are
intangible fungibles. Following Hunter v Moss (1994), the rule above only apply to tangible
fungibles (for instance, wine in Re London Wine and gold bullions in Re Goldcorp). There is
no need for segregation when we are dealing with intangible fungibles. While taking note of
the criticisms of Hunter by Underhill & Hayton, the Privy Council (per Lord Neuberger in Re
Harvard Securities (1997)) nevertheless held that Hunter represented English law as applied
to intangible fungibles forming the subject matter of a trust. In other words, there is no
need for Aron to have specifically identify which 100 Goldcorp shares out of his 300
Goldcorp shares were to be held on trust for Rana. The trust would therefore be valid.
(d) Everything else for ‘caving friends’:
Finally, Aron also indicated that everything else was to be held on trust for caving
friends. Here, it is presumed that ‘everything else’ meant Aron’s residuary estate. Residuary
estate would be certain as the subject matter of a trust. In Palmer v Simmonds (1854), the
testatrix left the ‘bulk’ of her ‘residuary estate’ for her husband. The court held that ‘bulk’
was too uncertain and therefore there was no valid gift. However, there was no problem
with residuary estate per se as that was ascertainable after all the other bequests have been
carried out.
The problem here appears to be certainty of objects. Here, it should be noted that
Aron had not given any dispositive discretion to his trustees. Therefore, it is argued that
Aron intended to create a fixed trust. Following IRC v Broadway Cottages (1955), the test
for certainty of objects in a fixed trust is the complete list test. This simply meant that the
trustees must be able to show both conceptual certainty (i.e. what Aron meant by ‘caving
friends’) and evidential certainty (i.e. everyone who qualifies as Aron’s ‘caving friends’). On
the facts, there are 127 members of the London Caving Club. If Aron had said ‘members of
the caving club’, it would likely be conceptually certain and the trustees would then simply
include all 127 members in the class. However, it is uncertain what Aron really meant by
‘caving friends’. It is uncertain whether all 127 members were also Aron’s ‘friends’.
Furthermore, although ‘friends’ was allowed by Browne-Wilkinson J in Re Barlow’s
Wills Trust (1979), that was a situation involving individual gifts with a condition precedent.
In fact, Browne-Wilkinson J specifically said that ‘friends’ would be conceptually uncertain
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as objects of a trust. With this, it is submitted that Aron’s final bequest would likely fail for
uncertainty of objects.
LAW OF TRUSTS - November 2009 newsletter (Mohamed Ramjohn)
The ‘any given postulant’ test for certainty of objects
The test for certainty of objects varies with the nature of the transfer by the settlor. If the
settlor creates, on the one hand, a mere power of appointment or (since 1971) a
discretionary non-charitable trust, the test for certainty of objects is the 'any given
postulant’ test. On the other hand, if the settlor creates a fixed private trust, the test for
certainty of objects is the 'list' test.
The distinction between a fixed and discretionary trust is that in the former, the settlor has
attempted to define the beneficiaries and their interests in the trust instrument e.g. £50,000
held by the trustees on trust to be divided equally between my two children, A and B. OT
Computers Ltd v National Tricity Finance Ltd [2003] EWHC 1010, provides a recent
illustration where an intended fixed trust for the benefit of ‘urgent suppliers’ failed and a
resulting trust had arisen. On the other hand, a discretionary trust is one whereby the
trustees are obliged to exercise their discretion in order to distribute the property in favour
of members drawn from a specified group of persons or objects, e.g. £50,000 to be
distributed in the discretion of the trustees in favour of such of my children as the trustees
may decide in their absolute discretion.
Mere powers
The test for certainty of objects in relation to powers has always been whether the donee of
the power (or appointor) may say with certainty that any given individual (postulant) is or is
not a member of a class of objects and it is unnecessary for the trustees to be able to draw
up a comprehensive list of all the objects. This test was laid down by Harman J in Re
Gestetner's Settlement [1953] Ch 652.
In essence, the 'any given postulant' test will be satisfied if the boundaries concerning the
identification of the class or classes of objects are clearly drawn, and it is unnecessary to
name each member of the class of objects, e.g. if a power of distribution is given in favour of
the relatives of the settlor. The gift will be valid if the expression, 'relatives' is capable of
being legally defined to such an extent that the trustees and the courts are able to
distinguish the objects from the non objects. It is unnecessary for the trustees to identify
each object.
Prior to the House of Lords decision in Re Gulbenkian's Settlement [1970] AC 508, the courts
adopted a diluted approach to the any given postulant test, namely, whether at least one
person clearly fell within the class of objects, even though it may not be possible to say
whether others come within the class or fell outside it. The House of Lords in Re
Gulbenkian's Settlement overruled this approach (as applied by the Court of Appeal in this
case) and reiterated the strict any given postulant test, (see Lord Upjohn’s judgment)
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Discretionary trusts
Prior to the House of Lords decision in McPhail v Doulton (sub nom Re Baden) [1971] AC
424, the test for certainty of objects, applicable to all express private trusts, was whether
the beneficiaries (or objects) were ascertained or ascertainable i.e. whether the trustees
were capable of drawing up a comprehensive list of all the beneficiaries (or objects). This
was known as the 'list test’, or the Broadway Cottages test, or the class ascertainability test.
If the trustees were unable to draw up such a list the trust was void for uncertainty of
objects, and a resulting trust would have arisen. This test was applicable to both fixed and
discretionary trusts (see IRC v Broadway Cottages Trust [1955] Ch 20). In McPhail v Doulton,
the House of Lords decided that the ‘list test’ was too restrictive for discretionary trusts and
that the Gulbenkian test ought to be adopted for certainty of objects in relation to
discretionary trusts, (see Lord Wilberforce’s judgment).
Moreover, Lord Wilberforce laid down three limitations in respect of the 'any given
postulant' test as follows:
a. Semantic or conceptual uncertainty. This proviso is applicable to both powers and trusts.
If the gift suffers from such uncertainty it is void and a resulting trust will arise. This involves
uncertainty or vagueness in defining the class or classes of individuals who comprise the
objects e.g. anyone with a moral claim on the settlor, or friends of the settlor.
b. Evidential uncertainty. This principle applies to both powers and trusts, but does not on
its own invalidate either. This limitation concerns uncertainty in ascertaining the existence
or whereabouts of some of the objects. In this event, the trustees may apply to the courts
for directions and the courts may make such order (a Benjamin order, see Re Benjamin
[1902] 1 Ch 723) as is appropriate in the circumstances.
c. Administrative unworkability. This involves situations where the settlor has specified the
class of objects so broadly that it becomes difficult for the court to ascertain any sensible
exercise of the discretion. In the event of the trustees failing to exercise their discretion the
court may find it difficult to exercise the discretion in a rational manner e.g. a duty to
distribute a fund in favour of such of the residents of Greater London as the trustees may
decide in their absolute discretion. This type of uncertainty does not affect the validity of
mere powers of appointment but trust powers may be invalidated for administrative
unworkability. In R v District Auditors ex p West Yorkshire County Council [1986] RVR 24, an
intended discretionary trust in favour of any or all of the residents of West Yorkshire was
void for administrative unworkability. See Templeman J’s approach in Re Manisty’s
Settlement [1974] Ch 17 and compare this with Megarry VC’s views in Re Hay’s Settlement
Trust [1981 3 All ER 786.
Following the decision of the House of Lords in McPhail v Doulton, the case was remitted to
the High Court for a decision as to whether the new test for certainty of objects in respect of
the discretionary trust was satisfied. The High Court decided in favour of validity. This
decision was affirmed by the Court of Appeal in Re Baden Deed Trusts (No 2) [1973] Ch 9.
The expression 'relatives' was taken to mean anyone who may establish a common ancestry
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with the settlor and 'dependants' was defined as a person who is wholly or partly
dependent on the means of another.
Inconsistencies in applying the ‘any given postulant' test
Judges have enunciated differing views in respect of the approach to the given postulant
test. Some judges have expressed a lax approach to the test while others have adhered to
the strict test. There seem to be five approaches to the test.
1. The question of fact approach propounded by Sachs LJ in Re Baden's Deed Trusts (No 2);
2. The substantial number of objects adoption by Megaw LJ in Re Baden (No 2);
3. The strict approach as reiterated in Re Gulbenkian. This was referred to by Stamp LJ in Re
Baden (No 2);
4. The dictionary approach applied by the Court of Appeal in Re Tuck's Settlement Trusts
[1978] Ch 49;
5. The approach involving the dichotomy of conditional gifts, namely gifts subject to
conditions precedent and subsequent as stated by the Court of Appeal in Re Tuck and
applied by the High Court in Re Barlows’s Will Trust [1979] 1 WLR 278.
The question of fact approach
This approach is based on the assumption that the gift is linguistically certain. It then
becomes a question of evidence or fact as to whether an individual is capable of proving
that he is within the class. Failure to discharge this burden of proof means that he or she is
outside the class. In this respect it makes no difference whether the class is small or large. It
is submitted that this approach concerns the practicalities of exercising the discretion as
opposed to a test of validity of the gift. Applying this approach to the facts in Re Baden (No
2) it would appear that it would be up to the trustees to be convinced that a given individual
is a relative or dependant of an officer or ex-officer etc of the specified company. Failure to
convince the trustees means that the individual is not within the class.
The substantial number approach
This approach advocated by Megaw LJ in Re Baden (No 2) is that in terms of the validity of
the gift, the test for certainty of objects is whether a substantial number of objects is within
the class of objects, and it is immaterial that it is not possible to say with certainty that
other objects are within or outside the class of objects. What is a substantial number of
objects is for the courts to decide. Accordingly, the given postulant test is diluted to a
substantial number of objects test.
The advantage of this approach is that the gift remains valid despite the fact that the classes
of objects are incapable of definition. To a limited extent the broad objective of the settlor
will be achieved. But this approach attracts a number of objections such as the striking
similarity with the now defunct 'one person' approach which has been overruled by the
House of Lords in Re Gulbenkian. The substantial number test seems to be a variant of the
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outdated approach. Moreover, this diluted approach has the effect of creating a class within
a possible class. The class as laid down by the settlor is varied to include only a substantial
number of objects. It is questionable whether such an approach accords with the intention
of the settlor.
The strict approach
Stamp LJ subscribed to the orthodox view that the 'any given postulant' test requires the
trustees to say of any individual that he either is clearly within or outside the class of
objects. Accordingly, if in any given case a person is classified as being within or outside the
class of objects, the gift is valid. This requires clarity and precision in defining the qualifying
class or classes of objects without listing them. If such a precise definition of the class of
objects is not forthcoming the gift is void.
The dictionary approach
This approach is based on the notion that the settlor may adopt a partial definition of the
class or classes of objects and appoint an arbitrator to deal with any difficulties concerning
the class of objects. The effect is that there is likely to be little doubt as to the category of
objects intended to benefit, e.g. the settlor may give the trustees a discretion to distribute
in favour of such of my old friends as they may decide. He may then define the expression,
'old friends' in any way he considers appropriate and appoint an arbitrator (X) to deal with
difficulties concerning the objects. In this way the class of objects which would otherwise
have failed may be rescued by the arbitrator. This approach was sanctioned by the Court of
Appeal in Re Tuck’s Settlement Trust [1978] Ch 49.
This approach may be objectionable on the ground that the relevant objects clause may be
too vague. There must be a limit to the extent to which a settlor or testator may 'rescue' a
defective objects clause. If the class of objects is incapable of definition, how could an
arbitrator possibly adopt a rational definition of the class? See Re Coxen [1948] Ch 747. In
addition, such a clause has the tendency to oust the jurisdiction of the courts except in cases
where the arbitrator has acted in bad faith. Generally, 'ouster' clauses are void on public
policy grounds, see Re Raven [1915] 1 Ch 673.
Gifts subject to conditions precedent and subsequent
The approach here is based on the property law distinction between gifts subject to
conditions precedent and subsequent. In the case of gifts subject to conditions precedent
the requirement of certainty is less stricter as opposed to gifts subject to conditions
subsequent, see Blathwayt v Baron Cawley [1976] AC 397, and Re Allen [1953] 1 Ch 810.
The reason for the distinction lies in the court’s perception that the interest ought to be
enjoyed by the beneficiary at the earliest possible time and for the maximum time period.
A gift subject to a condition precedent is one where the donee does not acquire an interest
in the property until he satisfies the relevant condition or qualification, e.g. a gift of £500 to
A provided that he is called to the Bar. A does not obtain the property until he satisfies the
condition. On the other hand, a gift subject to a condition subsequent operates to divest or
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determine a gift that has already vested. If the condition is void the gift is retained by the
donee and may become absolute e.g. an annual endowment to A until he is called to the
Bar.
The approach adopted by the High Court in Re Barlow's Will Trust [1979] 1 All ER 296, was
more or less a practical approach towards enforcing the gift but based on two assumptions.
First, the quantum of the gift did not vary with the extent of the class of objects. In other
words the chattels (paintings) were to be acquired at an undervalue. This advantage did not
vary with the extent of the class of objects as opposed to a gift of £1,000 to be divided
equally between 'my old friends’. Second, the gift was subject to a condition precedent
which permitted the court to adopt a more liberal application of the test of certainty.
In Re Barlow, a testatrix left a valuable collection of paintings to be sold and the proceeds
distributed in accordance with the residuary clause in her will, but subject to her executor
selling any of the paintings at pre-set prices to 'any member of my family and any friends of
mine'. The question in issue was whether the direction was valid even though the word
'friend' was uncertain. Browne-Wilkinson J decided that a series of individual gifts to
persons satisfying a description was made and further issued guidelines in respect of the
method of identifying friends.
Formalities
2013 Zone B Question 3
Cathy and her brother, Sean, were the beneficiaries of a family trust, in equal
shares. The trust assets consisted of (a) a fee simple estate (which they called
‘the cottage’), (b) shares in a private company, and (c) an interest-bearing bank
account. Sean wanted to buy Cathy’s interest in the trust. She orally agreed to
sell her interest in the company shares and the bank account to him for
£100,000, but told him that she was keeping the cottage for the benefit of
Adam, who is the 15-year-old son of her dearest friend, Marlene. Sean paid
Cathy as agreed, but no documents were ever signed.
Cathy wrote and signed a letter to Marlene, which contained the following
sentence: ‘I’ve sold my interest in the family trust to Sean, except for the
cottage, which I’m holding in trust for Adam.’
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Cathy died recently, and under her will, her entire estate will go to several
charities. What rights, if any, do Sean and Adam have to Cathy’s interests in
the family trust?
Suggested Solution:
On the given facts, Sean would like to argue that he now has Cathy’s interests in the
company shares and the bank account. In other words, that would make Sean the sole
beneficiary of the company shares and the bank account. However, it should be noted that
Cathy had never formally transfer the interests to Sean. As for Adam, he would want to
argue that Cathy’s interest in the cottage should be now held on a trust for him. Should the
arguments of Sean and Adam be set aside by the court, all the above interests will then go
to the charities (per Cathy’s instructions in her will).
(a) Oral contract for the sale of Cathy’s interest in shares and bank account to Sean:
As Cathy is the beneficiary of a trust, her contract with Sean was to transfer her
interests in the company shares and bank account under the trust. S.53(1)(c) of the Law of
Property Act 1925 provides that this would be a ‘disposition of subsisting equitable
interests’ and must thereby be done in writing or be void.
In Grey v IRC (1960), it should be noted that the House of Lords adopted a very
broad reading of the phrase ‘disposition of subsisting equitable interests’ under s.53(1)(c). In
effect, the House of Lords held that should a party have an equitable interest which he
subsequently loses following a particular action, the said action will be regarded as a
‘disposition’ of the party’s subsisting equitable interests. Applying that rule to the present
case, Cathy must satisfy the written requirements of s.53(1)(c), or her ‘disposition’ will be
void.
On the facts, Cathy had not formally transferred any of the interests to Sean. Her
letter to Marlene would amount to written evidence of her intention to transfer her
interests (aside from the cottage) to Sean. However, it should be noted that s.53(1)(c) is a
substantive requirement and not merely an evidential one. The ‘disposition’ itself must be
DONE in writing (not merely EVIDENCED in writing).
That being said, it should be noted that Sean had already paid Cathy to purchase her
interests. The question now is whether or not the contract between Sean and Cathy is one
which is specifically enforceable. On the facts, it is clear that the shares were in a private
company (where there are usually restrictions on transfers of shares). The contract for the
purchase of the company shares would therefore be a specifically enforceable one.
Following the Court of Appeal decision in Neville v Wilson (1997), affirming Lord
Radcliffe’s minority opinions in Oughtred v IRC (1960), by specifically enforcing the contract
between Sean and Cathy, the court would enforce a constructive trust between them. This
would therefore be a situation under s.53(2), which dispenses with the need to comply with
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the requirements under s.53(1)(c). In other words, Cathy’s executor would then have to
hold the company shares on a bare sub-trust for Sean.
However, it should be noted that the contract for the transfer of Cathy’s interest in
the bank account would not likely be specifically enforceable. In this instance, damages
would be an appropriate remedy for Cathy’s failure to comply with the terms of the
contract. As a result, Neville would not apply and the ‘disposition’ of the interests in the
bank account is void. As Sean had provided consideration for the interests, he should
therefore sue for damages.
(b) Trust of the cottage for Adam:
S.53(1)(b) LPA 1925 provides that a declaration of trust involving interests in land
must be evidenced in writing. Here, it is submitted that while Cathy’s letter to Marlene
failed to satisfy s.53(1)(c) above, it is sufficient as written evidence to satisfy s.53(1)(b). As a
result, the court will admit the letter as evidence to prove the trust of Cathy’s interest in the
cottage for Adam.
That being said, it appears that Cathy is declaring a sub-trust of her interest under
the trust (for the cottage) for Adam. Whether or not such a transaction amounts to a
‘disposition’ of subsisting equitable interests (for the purposes of s.53(1)(c)) will be
examined below:
The traditional ‘Sub-trust Argument’ in Grainge v Wilberforce (1889):
o The courts will make a distinction between ‘Bare Sub-trusts’ and ‘Active Sub-
trusts’. In Grainge, the court held that a ‘Bare Sub-trust’ was in place as the
entirety of the beneficiary’s equitable interest has been declared on a sub-
trust favouring another. The original beneficiary (i.e. Cathy, in the present
case) thereby ‘drops out of the picture’ automatically, leaving the original
trustees to hold the property on trust for the new beneficiary (i.e. Adam, in
the present case). This would amount to a DISPOSITION.
o Should the sub-trustee retain a portion of her equitable interests and/or
retain some active duties to oversee the sub-trust, she will not ‘drop out of
the picture’ and this would be an ‘Active Sub-trust’ (Onslow v Wallis (1849)).
This would therefore be the creation of a NEW TRUST and not a ‘disposition’.
o On the facts given, it appears that Cathy was declaring a sub-trust of her
entire equitable interest under the original trust for Adam. This is similar to
Grainge and therefore, Cathy will automatically ‘drop out’ of the picture,
leaving her original trustees to hold the shares on trust directly for Adam.
This would therefore be a DISPOSITION and s.53(1)(c) must be satisfied. As
the ‘disposition’ was done orally, it would be void. The equitable interests
remain with Cathy’s estate.
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o That being said, it is uncertain whether the courts today will follow the
traditional ‘Sub-trust Argument’ above. After all, both Grainge and Onslow
pre-dated the 1925 Law of Property Act. It cannot be argued with certainty
that the courts today will apply the above arguments to s.53(1)(c).
Brian Green, in ‘Grey, Oughtred and Vandervell – A Contextual Reappraisal’ [1984]
47 MLR 385, criticised the decision in Grainge (above). Quoting the older case of
Head v Lord Teynham (1783), Green argued the sub-trustee (i.e. Cathy) never
automatically ‘drops out of the picture’. Cathy will only be able to ‘drop out’ upon
the knowledge and consent of all the parties (i.e. Cathy himself, her original trustees
and Adam).
o It should be noted that Green, however, argued that ALL sub-trusts should be
regarded as DISPOSITIONS and therefore, s.53(1)(c) must be satisfied.
Recently, Lawrence-Collins LJ, in Nelson v Greening & Sykes (2007), reconsidered
the matter. He agreed with Green that the sub-trustee (i.e. Cathy) never
automatically ‘drops out of the picture’. However, he argued that ALL sub-trusts
should be regarded as NEW TRUSTS and therefore, s.53(1)(c) had no application.
o That being said, it should be noted that the above statements were merely
obiter as Nelson was a case to do with land charges rather than sub-trusts.
Finally, despite the non-binding obiter statements of Lawrence-Collins LJ above, it is
argued that his argument may represent the direction taken by the courts today to minimise
the applicability of s.53(1)(c). Should that be so, it will likely be followed by in subsequent
cases involving sub-trusts. As a result, it is submitted that Cathy’s creation of a sub-trust of
her equitable interests favouring I will likely escape s.53(1)(c) and may thereby be valid.
2004 Zone A Question 5
Consider the effect of the following acts:
a. A conveys land to B, orally declaring that it is to be held on trust for A;
b. C conveys land to D, orally declaring that it is to be held on trust for E;
c. F, a beneficiary of a trust of shares, orally directs his trustees to hold the
shares for G;
d. H, a beneficiary of a trust of shares, orally declares that he holds his interest
on trust for I.
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Suggested Solution:
The question calls for a discussion of the effects of s.53(1)(b) and s.53(1)(c) of the
Law of Property Act 1925 on several given transactions.
On the given facts, (a) and (b) involved the creation of trusts involving land. Such
trusts of land must be proven by signed written evidence from the person creating the
trusts (following the evidential requirement in s.53(1)(b)). Otherwise, the courts will not be
able to recognise that the trusts of land exist as there are no admissible evidence to prove
that they exist.
Furthermore, it appears that the beneficiaries of trusts of shares in (c) and (d) were
attempting to ‘dispose’ of their equitable interests under the shares. Should they intend to
do so, the ‘dispositions’ will only be valid if they are done in signed writing (following the
substantive requirement in s.53(1)(c)). Failure to comply with the statutory requirement
would render the ‘dispositions’ void.
Scenario (a):
On the facts, A would argue that B is holding the land conferred to B on trust for A.
However, it should be noted that A only gave oral instructions to B to do so. There is nothing
in s.53(1)(b) prohibiting an oral declaration of a trust of land. The problem A faces is in how
to prove to the court that such a trust exists. After all, following s.53(1)(b), the court cannot
accept merely oral evidence from A (or anyone else) to prove the trust of land. Should this
be the case, the conveyance of land may end up being construed purely as a gift from A to
B.
Consequently, A may seek to rely on the argument from Rochefoucauld v Boustead
(1897) that the court should allow his oral evidence to prove the trust of land. In that case,
Lindley LJ (Court of Appeal) allowed the claimant to submit oral evidence to prove the trust
of land and held that the defendant should not be able to exploit s.7 of the Statute of
Frauds 1677 as an ‘instrument of fraud’ in order to deny the trust (because no written
evidence were available to the claimant). A would thereby argue that Rochefoucauld could
be applied by analogy to s.53(1)(b) to prevent B from committing a fraud and keeping the
land for himself as a gift.
That being said, the present facts differ from Rochefoucauld in that there is no
indication that B (unlike the defendant, Boustead, in that case) has actually committed a
fraud and was seeking to rely on s.53(1)(b) to perpetrate said fraud. A would therefore have
to raise the ‘extended fraud argument’ from secret trusts (McCormick v Grogan (1869), as
affirmed by Lord Sterndale MR in Re Gardner (1920)) to argue that A’s oral evidence should
still be admitted by the court (contrary to s.53(1)(b)) to prevent a ‘potential fraud’ on B’s
part. In order to succeed in this argument, A bears the burden to prove that there may be a
‘potential fraud’ on B’s part should the court refuse to allow him to bring in oral evidence to
prove the trust of land.
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As an alternative argument, A may also say that in situations of a voluntary transfer
of property to another (i.e. B), the court should presume that the property is intended to be
held on a bare trust by B for himself. In other words, there should be a presumed intention
resulting trust (PIRT) to give effect to this. B would then bear the burden to disprove the
presumption and argue that A intended the land as a gift instead.
Alternatively, if B is A’s wife or child, B may argue that there is a presumption of
advancement (i.e. gift) in B’s favour (per Lord Eldon in Murless v Franklin (1818) and Jessel
MR in Bennet v Bennet (1879)). Should this be the case (note: it is not clear on the given
facts what the relationship was between A and B), A will bear the burden to disprove such a
presumption.
Next, B may also seek to rely on s.60(3) LPA 1925 and argue that for voluntary
conveyances of land, the court should not imply a PIRT. It should be noted that in cases
where the courts implied a PIRT, personal properties and not real properties were at stake
(e.g. war loan stocks in Re Vinogradoff (1935)). Should the sub-section apply to PIRTs, A
bears the burden to prove that a trust rather than a gift was intended.
That being said, the exact applicability of s.60(3) is uncertain following Hodgson v
Marks (1971). In that case, the Court of Appeal upheld a PIRT despite s.60(3). This implies
that s.60(3) should only operate to prevent Automatic Resulting Trusts (ARTs) from arising in
voluntary conveyance of land, and should not be extended to preventing PIRTs. While
Hodgson has been criticised (for instance, by Professor William Swadling), it should be noted
that the decision has not been overruled. In other words, should s.60(3) be restricted only
to ARTs, the court may still imply a PIRT in favour of A in his voluntary conveyance of land to
B. As a result, B will bear the burden to disprove such a presumption.
Scenario (b):
The situation in (b) also involves a trust of land. The difference in this instance is that
it involves a 3-party trust situation as compared to (a).
On the facts, it is likely that both C and E would argue the principle in Rochefoucauld
v Boustead (1897) (as above) to allow them to prove the trust of land by oral evidence
(despite the evidential requirements of s.53(1)(b)). Similarly, C and E would then bear the
burden to prove that unless oral evidence be admitted to prove the trust of land, D would
end up committing a (potential) fraud and then using s.53(1)(b) as an ‘instrument of fraud’.
Should this be so, the court may estop D from relying on s.53(1)(b) and allow either C
or E to bring in oral evidence to prove that D is, in fact, a trustee and not a legatee of land.
The question then is, who will D (as trustee) hold the land for under the trust? It is
submitted that there are 3 possibilities:
In Rochefoucauld, Lindley LJ held that what was in place was an EXPRESS TRUST
based on the original consent/intention of the parties. Should this be true in the
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present situation, an express trust would uphold C’s original intention to have D hold
the land on trust for E.
In Bannister v Bannister (1948), the Court of Appeal instead held that a
CONSTRUCTIVE TRUST is in place when oral evidence is admitted to prove a trust of
land. In fact, it should be noted that all other authorities post-Rochefoucauld argued
for constructive trusts. This seems plausible since the courts, in setting aside the
statutory provision, sought to prevent a fraud (or a potential fraud) from taking
place. Both Penner and Hayton favour this interpretation as a constructive trust
would therefore fall under s.53(2) LPA 1925, which is an exception to the evidential
rule in s.53(1)(b). Should this be true in the present situation, D will be made a
constructive trustee of the land for E.
In Hodgson v Marks (1971), however, the Court of Appeal held that a RESULTING
TRUST should be in place instead. Swadling, as mentioned above, criticised this
approach and argued that Rochefoucauld got it right by saying that it was an express
trust. Swadling, in fact, argued that the ‘Rochefoucauld trust’ was not a constructive
trust, nor a resulting trust. A constructive trust arises for reasons other than consent
on the part of the settlor (to create a trust). A resulting trust, on the other hand,
arises where there is no proof or evidence of an intention and the intention is
therefore presumed. Despite Swadling’s arguments, should the court follow
Hodgson and enforce the trust as a resulting trust, D will end up holding the land on
trust for C (rather than E).
Here, it is submitted that a ‘resulting trust’ (following Hodgson) would be the best
general solution for a 3-party situation, as in the present case. The reasons are as follows:
A resulting trust gives effect to s.53(1)(b) (with s.53(2) as exception) and prevents D’s
fraud or ‘potential fraud’.
E cannot complain about any losses or unfairness simply because he has not received
gratuitous benefit from C. After all, E has not provided consideration.
If C wants to carry out his original intention, he can declare the trust again and make
sure that he provides written evidence of such a declaration in compliance with
s.53(1)(b). This allows C (the donor) to repent of his intentions if he so decides.
It should be noted, however, that the situation would be different should E have
provided consideration or suffers a ‘detriment’ in reliance of C’s promise. In such situations
(this is not stated clearly on the given facts), E may then argue that a ‘constructive trust’
should be in place as the most equitable remedy. Should E succeed in proving this, the court
may then enforce a ‘constructive trust’ whereby D holds the land for E.
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Scenario (c):
The situation here appears to be similar to the facts of Grey v IRC (1960), in that F
(like Mr Hunter in the case) orally instructs his trustees to hold the shares on trust for
another beneficiary, G. The House of Lords, in Grey, held that such a transaction amounted
to a ‘disposition’ of subsisting equitable interests for the purpose of s.53(1)(c), and must
therefore be done in writing or void. It is therefore argued that F’s intended ‘disposition’ of
his equitable interests in the shares to G is void as it was done orally. As a result, the
equitable interests in the shares remain with F.
G, on the other hand, may argue that s.53(1)(c) should not have been applied to a
situation involving personalty such as shares in the first place. After all, following s.205(1)(x)
LPA 1925, it should be noted that ‘equitable interests’ in the Act refers to ‘equitable
interests in LAND’. G may then attempt to argue that Grey was decided per incuriam and
should thereby be overruled.
Such an argument (tempting though it may be) is unlikely to succeed. Firstly, s.205(1)
itself provides a caveat allowing the courts to depart from the definitions provided when
‘the context otherwise requires’. Brian Green, in ‘Grey, Oughtred and Vandervell – A
Contextual Reappraisal’ [1984] 47 MLR 385, argued that on the weight of three House of
Lords decisions applying s.53(1)(c) to equitable interests in shares, it is undeniable that
s.53(1)(c) is a clear example of a context requiring the courts to depart from the definition in
s.205(1)(x) and apply ‘equitable interests’ to personalty such as shares rather than limit it to
interests in land.
With that, it is submitted that F’s disposition, done orally, is void because of non-
compliance with s.53(1)(c). The equitable interests in the shares under the trust remain with
F. Should G have received any income/dividends from the shares, G will be required to
transfer them back to F.
Scenario (d):
Finally, H appears to be declaring a trust of his own equitable interests in the shares
for I. Whether or not such a transaction amounts to a ‘disposition’ of subsisting equitable
interests (for the purposes of s.53(1)(c)) will be examined below:
The traditional ‘Sub-trust Argument’ in Grainge v Wilberforce (1889):
o The courts will make a distinction between ‘Bare Sub-trusts’ and ‘Active Sub-
trusts’. In Grainge, the court held that a ‘Bare Sub-trust’ was in place as the
entirety of the beneficiary’s equitable interest has been declared on a sub-
trust favouring another. The original beneficiary (i.e. H, in the present case)
thereby ‘drops out of the picture’ automatically, leaving the original trustees
to hold the property on trust for the new beneficiary (i.e. I, in the present
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case). This would amount to a DISPOSITION (as the facts/outcome are not
dissimilar from the situation in Grey v IRC (above)).
o Should the sub-trustee retain a portion of his equitable interests and/or
retain some active duties to oversee the sub-trust, he will not ‘drop out of
the picture’ and this would be an ‘Active Sub-trust’ (Onslow v Wallis (1849)).
This would therefore be the creation of a NEW TRUST and not a ‘disposition’.
o On the facts given in (d), it appears that H is declaring a sub-trust of his entire
equitable interest under the original trust for I. This is similar to Grainge and
therefore, H will automatically ‘drop out’ of the picture, leaving his original
trustees to hold the shares on trust directly for I. This would therefore be a
DISPOSITION and s.53(1)(c) must be satisfied. As the ‘disposition’ was done
orally, it would be void. The equitable interests remain with H.
o That being said, it is uncertain whether the courts today will follow the
traditional ‘Sub-trust Argument’ above. After all, both Grainge and Onslow
pre-dated the 1925 Law of Property Act. It cannot be argued with certainty
that the courts today will apply the above arguments to s.53(1)(c).
Brian Green, in ‘Grey, Oughtred and Vandervell – A Contextual Reappraisal’ [1984]
47 MLR 385, criticised the decision in Grainge (above). Quoting the older case of
Head v Lord Teynham (1783), Green argued the sub-trustee (i.e. H) never
automatically ‘drops out of the picture’. H will only be able to ‘drop out’ upon the
knowledge and consent of all the parties (i.e. H himself, his original trustees and I).
o It should be noted that Green, however, argued that ALL sub-trusts should be
regarded as DISPOSITIONS and therefore, s.53(1)(c) must be satisfied.
Recently, Lawrence-Collins LJ, in Nelson v Greening & Sykes (2007), reconsidered
the matter. He agreed with Green that the sub-trustee (i.e. H) never automatically
‘drops out of the picture’. However, he argued that ALL sub-trusts should be
regarded as NEW TRUSTS and therefore, s.53(1)(c) had no application.
o That being said, it should be noted that the above statements were merely
obiter as Nelson was a case to do with land charges rather than sub-trusts.
Finally, despite the non-binding obiter statements of Lawrence-Collins LJ above, it is
argued that his argument may represent the direction taken by the courts today to minimise
the applicability of s.53(1)(c). Should that be so, it will likely be followed by in subsequent
cases involving sub-trusts. As a result, it is submitted that H’s creation of a sub-trust of his
equitable interests favouring I will likely escape s.53(1)(c) and may thereby be valid.
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2002 Zone A Question 1
A is the beneficiary of a trust of shares. Discuss the proprietary effect of the
following alternative actions:
i. A orally declares that he henceforth holds his beneficial interest on trust for
B.
ii. A orally instructs his trustees to hold his beneficial interest on trust for B.
iii. A orally instructs his trustees to convey legal title to the shares to B, at the
same time informing B that he is now the outright owner of the shares.
iv. A enters into an oral contract with B for the purchase of A’s beneficial
interest.
Suggested Solution:
As A is the beneficiary of a trust of shares, the actions A takes in (i), (ii), (iii) and (iv)
will be examined against s.53(1)(c) of the Law of Property Act 1925 (and all relevant
authorities).
In Grey v IRC (1960), it should be noted that the House of Lords adopted a very
broad reading of the phrase ‘disposition of subsisting equitable interests’ under s.53(1)(c). In
effect, the House of Lords held that should A have an equitable interest which he
subsequently loses following a particular action, the said action will be regarded as a
‘disposition’ of A’s subsisting equitable interests. As a result, A must satisfy the written
requirements of s.53(1)(c), or his ‘disposition’ will be void.
That being said, it may be argued that s.53(1)(c) should not have been applied to a
situation involving personalty such as shares in the first place. After all, following s.205(1)(x)
LPA 1925, it should be noted that ‘equitable interests’ in the Act refers to ‘equitable
interests in LAND’. On this note, it could be argued that Grey was decided per incuriam and
should thereby be overruled.
Such an argument (tempting though it may be) is unlikely to succeed. Firstly, s.205(1)
itself provides a caveat allowing the courts to depart from the definitions provided when
‘the context otherwise requires’. Brian Green, in ‘Grey, Oughtred and Vandervell – A
Contextual Reappraisal’ [1984] 47 MLR 385, argued that on the weight of three House of
Lords decisions applying s.53(1)(c) to equitable interests in shares, it is undeniable that
s.53(1)(c) is a clear example of a context requiring the courts to depart from the definition in
s.205(1)(x) and apply ‘equitable interests’ to personalty such as shares rather than limit it to
interests in land.
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Scenario (i):
In the first action, A appears to be declaring a trust of his own equitable interests in
the shares for B. Whether or not such a transaction amounts to a ‘disposition’ of subsisting
equitable interests (for the purposes of s.53(1)(c)) will be examined below:
The traditional ‘Sub-trust Argument’ in Grainge v Wilberforce (1889):
o The courts will make a distinction between ‘Bare Sub-trusts’ and ‘Active Sub-
trusts’. In Grainge, the court held that a ‘Bare Sub-trust’ was in place as the
entirety of the beneficiary’s equitable interest has been declared on a sub-
trust favouring another. The original beneficiary (i.e. A, in the present case)
thereby ‘drops out of the picture’ automatically, leaving the original trustees
to hold the property on trust for the new beneficiary (i.e. B, in the present
case). This would amount to a DISPOSITION (as the facts/outcome are not
dissimilar from the situation in Grey v IRC (above)).
o Should the sub-trustee retain a portion of his equitable interests and/or
retain some active duties to oversee the sub-trust, he will not ‘drop out of
the picture’ and this would be an ‘Active Sub-trust’ (Onslow v Wallis (1849)).
This would therefore be the creation of a NEW TRUST and not a ‘disposition’.
o On the facts given in (i), it appears that A is declaring a sub-trust of his entire
equitable interest under the original trust for B. This is similar to Grainge and
therefore, A will automatically ‘drop out’ of the picture, leaving his original
trustees to hold the shares on trust directly for B. This would therefore be a
DISPOSITION and s.53(1)(c) must be satisfied. As the ‘disposition’ was done
orally, it would be void. The equitable interests remain with A.
o That being said, it is uncertain whether the courts today will follow the
traditional ‘Sub-trust Argument’ above. After all, both Grainge and Onslow
pre-dated the 1925 Law of Property Act. It cannot be argued with certainty
that the courts today will apply the above arguments to s.53(1)(c).
Brian Green, in ‘Grey, Oughtred and Vandervell – A Contextual Reappraisal’ [1984]
47 MLR 385, criticised the decision in Grainge (above). Quoting the older case of
Head v Lord Teynham (1783), Green argued the sub-trustee (i.e. A) never
automatically ‘drops out of the picture’. A will only be able to ‘drop out’ upon the
knowledge and consent of all the parties (i.e. A himself, his original trustees and B).
o It should be noted that Green, however, argued that ALL sub-trusts should be
regarded as DISPOSITIONS and therefore, s.53(1)(c) must be satisfied.
Recently, Lawrence-Collins LJ, in Nelson v Greening & Sykes (2007), reconsidered
the matter. He agreed with Green that the sub-trustee (i.e. A) never automatically
‘drops out of the picture’. However, he argued that ALL sub-trusts should be
regarded as NEW TRUSTS and therefore, s.53(1)(c) had no application.
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o That being said, it should be noted that the above statements were merely
obiter as Nelson was a case to do with land charges rather than sub-trusts.
Finally, despite the non-binding obiter statements of Lawrence-Collins LJ above, it is
argued that his argument may represent the direction taken by the courts today to minimise
the applicability of s.53(1)(c). Should that be so, it will likely be followed by courts today in
subsequent cases involving sub-trusts. As a result, it is submitted that A’s creation of a sub-
trust of his equitable interests favouring B will likely escape s.53(1)(c) and may thereby be
valid.
Scenario (ii):
The situation here appears to be similar to the facts of Grey v IRC (1960), in that A
(like Mr Hunter in the case) orally instructs his trustees to hold the shares on trust for
another beneficiary, B. The House of Lords, in Grey, held that such a transaction amounted
to a ‘disposition’ of subsisting equitable interests for the purpose of s.53(1)(c), and must
therefore be done in writing or void. It is therefore argued that A’s intended ‘disposition’ of
his equitable interests in the shares to B is void as it was done orally. As a result, the
equitable interests in the shares remain with A. Should B have received any
income/dividends from the shares, B will be required to transfer them back to A.
Scenario (iii):
The third situation above differs from (ii) in that A orally instructed his trustees to
convey the legal title of the shares to B rather than merely transferring his equitable
interests under the trust to B. Furthermore, A notifies B that the latter is the absolute or
outright owner of the shares.
In a normal situation where a beneficiary instructs the trustee to transfer the legal
title in the trust property to another, it would amount to no more than having the new
holder of the legal title as the new trustee. In other words, it would mean no more than a
change of trustee. Should that be so, B is simply the new trustee of the shares for A. In order
for B to become the absolute or outright owner of the shares, logically, A would need to also
transfer his equitable interests in the shares to B (in writing, following s.53(1)(c)). In short,
there will be two steps required to make B the outright owner of A’s shares:
1. A’s trustees convey the LEGAL TITLE of the shares to B.
2. A (in writing) transfers his EQUITABLE INTEREST in the shares to B.
However, it should be noted that the House of Lords, in Vandervell v IRC (1967),
held that there was no need to perform the 2nd step above. In the case, Mr Vandervell orally
instructed his trustees to convey the legal title of shares to the Royal College of Surgeons
(RCS). The House of Lords held that this was sufficient to make RCS the new outright owner
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of the shares. To justify the decision, the House held that Mr Vandervell’s equitable
interests were not ‘disposed’ but instead ‘extinguished’ since the ‘greater title’ (i.e. legal
title) has been conveyed to a new owner. Furthermore, Lord Upjohn explained that
s.53(1)(c) should have no use in a situation where there are no secret or hidden transactions
(i.e. Mr Vandervell, his trustees as well as RCS were all informed as to the nature of the
transfer).
Despite the many criticisms levelled against the decision in Vandervell, it has not
been overruled. In the present case, A instructed his trustees to convey the legal title of the
shares to B and also informed B that the latter was now the outright owner of the shares. In
effect, this meant that there were no secret/hidden transactions. Following Vandervell, A
would not need to comply with s.53(1)(c) as his equitable interest in the shares has been
‘extinguished’. B is therefore the new outright owner of the shares.
Scenario (iv):
In the final scenario, the outcome depends on whether or not the contract between
A and B is one which is specifically enforceable. On the facts, it is unclear whether the shares
held on trust for A are public company shares (traded in the open market) or private
company shares (where there are usually restrictions on transfers of shares). Should it be
the latter, the contract would likely be a specifically enforceable one.
Following the Court of Appeal decision in Neville v Wilson (1997), affirming Lord
Radcliffe’s minority opinions in Oughtred v IRC (1960), by specifically enforcing the contract
between A and B, the court would enforce a constructive trust between them. This would
therefore be a situation under s.53(2), which dispenses with the need to comply with the
requirements under s.53(1)(c).
With that, it is submitted that A’s action in (iv) would be valid. In effect, A will be
holding the equitable interest in the shares on a bare sub-trust for B.
2006 Zone B Question 5
At a recent family dinner, Julia announced, ‘I’ve decided to simplify my life. I no
longer want any interest under our family trusts.’ Turning to her uncle
Winston, she said, ‘Winston, you know those shares in Frenchay plc you hold
for me absolutely? I want you to transfer them to my children, Alex and Kate,
and I would like you now to pay the money I receive from my income interest
under the trust from my father’s will to my sister Clarice.’
She then said to all assembled, ‘I would also like to declare that any money I
receive under Aunt Sadie’s will I hold on trust for my nieces and nephews in
equal shares.’
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The rest of the evening went badly, and Julia has now had second thoughts
about whether her family merits this generosity, and wonders whether her
statements are binding.
Advise Julia.
Suggested Solution:
Julia would like to know if any of the statements that she made at the recent family
dinner are binding, or would she be able to retract/revoke any of them. On the given facts,
it appears that Julia was attempting to give away her interests under the family trusts.
Should this be so, there may be issues with s.53(1)(c) of the Law of Property Act 1925 which
requires written instructions for valid ‘dispositions’ of subsisting equitable interests.
That being said, it may be argued that s.53(1)(c) should not be applied to situations
involving personalty such as shares or money. After all, following s.205(1)(x) LPA 1925, it
should be noted that ‘equitable interests’ in the Act refers to ‘equitable interests in LAND’.
G may then attempt to argue that Grey was decided per incuriam and should thereby be
overruled.
Such an argument (tempting though it may be) is unlikely to succeed. Firstly, s.205(1)
itself provides a caveat allowing the courts to depart from the definitions provided when
‘the context otherwise requires’. Brian Green, in ‘Grey, Oughtred and Vandervell – A
Contextual Reappraisal’ [1984] 47 MLR 385, argued that on the weight of three House of
Lords decisions applying s.53(1)(c) to equitable interests in shares, it is undeniable that
s.53(1)(c) is a clear example of a context requiring the courts to depart from the definition in
s.205(1)(x) and apply ‘equitable interests’ to personalty such as shares rather than limit it to
interests in land.
(a) Shares in Frenchay plc:
With regards to Julia’s instructions regarding the shares in Frenchay plc, it appears
that she is attempting to give them away to Alex and Kate. Following Grey v IRC (1960), it
should be noted that the House of Lords gave a very broad reading to the phrase
‘disposition of subsisting equitable interests’ in s.53(1)(c). In effect, the House of Lords held
that should a party have an equitable interest which he subsequently loses following a
particular action, the said action will be regarded as a ‘disposition’ of the party’s subsisting
equitable interests. As a result, he must satisfy the written requirements of s.53(1)(c), or his
‘disposition’ will be void.
On the facts, Julia instructed her trustee, Winston, to give the shares away to Alex
and Kate. Such an action would deprive Julia of her equitable interests and would thereby
amount to a ‘disposition’ (following Grey above). However, on closer inspection, it appears
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that Julia was really instructing Winston to convey the legal title of the shares absolutely to
Alex and Kate, and not merely transferring her equitable interests to them.
In a normal situation where a beneficiary instructs the trustee to transfer the legal
title in the trust property to another, it would amount to no more than having the new
holder of the legal title as the new trustee. In other words, it would mean no more than a
change of trustee. Should that be so, Alex and Kate are simply the new trustees of the
shares for Julia. In order for them to become the absolute or outright owners of the shares,
logically, Julia would need to also transfer her equitable interests in the shares to them (in
writing, following s.53(1)(c)). In short, there will be two steps required to make Alex and
Kate the outright owners of Julia’s shares:
1. Winston to convey the LEGAL TITLE of the shares to Alex and Kate.
2. Julia (in writing) transfers her EQUITABLE INTEREST in the shares to Alex and Kate.
However, it should be noted that the House of Lords, in Vandervell v IRC (1967),
held that there was no need to perform the 2nd step above. In the case, Mr Vandervell orally
instructed his trustees to convey the legal title of shares to the Royal College of Surgeons
(RCS). The House of Lords held that this was sufficient to make RCS the new outright owner
of the shares. To justify the decision, the House held that Mr Vandervell’s equitable
interests were not ‘disposed’ but instead ‘extinguished’ since the ‘greater title’ (i.e. legal
title) has been conveyed to a new owner. Furthermore, Lord Upjohn explained that
s.53(1)(c) should have no use in a situation where there are no secret or hidden transactions
(i.e. Mr Vandervell, his trustees as well as RCS were all informed as to the nature of the
transfer).
Despite the many criticisms levelled against the decision in Vandervell, it has not
been overruled. In the present case, Julia instructed Winston to convey the legal title of the
shares to Alex and Kate and, presumably, announced such an intention in the presence of
Alex and Kate. In effect, this meant that there were no secret/hidden transactions.
Following Vandervell, Julia would not need to comply with s.53(1)(c) as her equitable
interest in the shares has been ‘extinguished’. Alex and Kate are, therefore, the new
outright owners of the shares. Julia is hereby advised that her instruction is valid and
binding.
(b) Income interest to Clarice:
As for her second instruction to Winston, it appears that the facts are similar to Grey
v IRC (1960) in that Julia (like Mr Hunter in the case) orally instructs Winston to pay the
income interest from the trust (under her father’s will) to another beneficiary, Clarice. The
House of Lords, in Grey, held that such a transaction amounted to a ‘disposition’ of
subsisting equitable interests for the purpose of s.53(1)(c), and must therefore be done in
writing or void. It is therefore argued that Julia’s intended ‘disposition’ of her equitable
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interests in the shares to Clarice is void as it was done orally. As a result, the equitable
interests in the shares remain with Julia.
(c) Money from Aunt Sadie’s will:
The difficulty with the third situation is that it is uncertain (on the given facts)
whether a trust has already been set up by Aunt Sadie’s will (favouring Julia), whether Aunt
Sadie was still alive, or whether she was dead but with an estate yet to be administered.
Should it be the case that Julia was referring to ‘future property’ that she hopes to
receive from Aunt Sadie’s will (upon the death of Aunt Sadie and/or the administration of
Aunt Sadie’s estate), there will be no trust for Julia’s nieces and nephews. Julia will not be
able to declare a trust for ‘future property’ since she has no interest in the property in
question (Williams v CIR (1965)). The simple explanation for this is that one cannot give
away what one does not own.
However, if Julia is already a beneficiary of a trust of money under an existing trust
(created by Aunt Sadie’s will), it will appear that Julia is declaring a trust of her own
equitable interests under the trust in equal shares for her nieces and nephews. Whether or
not such a transaction amounts to a ‘disposition’ of subsisting equitable interests (for the
purposes of s.53(1)(c)) will be examined below:
The traditional ‘Sub-trust Argument’ in Grainge v Wilberforce (1889):
o The courts will make a distinction between ‘Bare Sub-trusts’ and ‘Active Sub-
trusts’. In Grainge, the court held that a ‘Bare Sub-trust’ was in place as the
entirety of the beneficiary’s equitable interest has been declared on a sub-
trust favouring another. The original beneficiary (i.e. Julia, in the present
case) thereby ‘drops out of the picture’ automatically, leaving the original
trustees to hold the property on trust for the new beneficiary (i.e. Julia’s
nieces and nephews, in the present case). This would amount to a
DISPOSITION (as the facts/outcome are not dissimilar from the situation in
Grey v IRC (above)).
o Should the sub-trustee retain a portion of her equitable interests and/or
retain some active duties to oversee the sub-trust, she will not ‘drop out of
the picture’ and this would be an ‘Active Sub-trust’ (Onslow v Wallis (1849)).
This would therefore by the creation of a NEW TRUST and not a ‘disposition’.
o On the available facts, it appears that Julia is declaring a sub-trust of her
entire equitable interest under the original trust for her nieces and nephews.
This is similar to Grainge and therefore, Julia will automatically ‘drop out’ of
the picture, leaving her original trustees to hold the shares on trust directly
for her nieces and nephews. This would therefore be a DISPOSITION and
s.53(1)(c) must be satisfied. As the ‘disposition’ was done orally, it would be
void. The equitable interests remain with Julia.
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o That being said, it is uncertain whether the courts today will follow the
traditional ‘Sub-trust Argument’ above. After all, both Grainge and Onslow
pre-dated the 1925 Law of Property Act. It cannot be argued with certainty
that the courts today will apply the above arguments to s.53(1)(c).
Brian Green, in ‘Grey, Oughtred and Vandervell – A Contextual Reappraisal’ [1984]
47 MLR 385, criticised the decision in Grainge (above). Quoting the older case of
Head v Lord Teynham (1783), Green argued the sub-trustee (i.e. Julia) never
automatically ‘drops out of the picture’. Julia will only be able to ‘drop out’ upon the
knowledge and consent of all the parties (i.e. Julia herself, her original trustees and
her nieces and nephews).
o It should be noted that Green, however, argued that ALL sub-trusts should be
regarded as DISPOSITIONS and therefore, s.53(1)(c) must be satisfied.
Recently, Lawrence-Collins LJ, in Nelson v Greening & Sykes (2007), reconsidered
the matter. He agreed with Green that the sub-trustee (i.e. Julia) never automatically
‘drops out of the picture’. However, he argued that ALL sub-trusts should be
regarded as NEW TRUSTS and therefore, s.53(1)(c) had no application.
o That being said, it should be noted that the above statements were merely
obiter as Nelson was a case to do with land charges rather than sub-trusts.
Lastly, despite the non-binding obiter statements of Lawrence-Collins LJ above, it is
argued that his argument may represent the direction taken by the courts today to minimise
the applicability of s.53(1)(c). Should that be so, it will likely be followed by courts today in
subsequent cases involving sub-trusts. As a result, it is submitted that Julia’s creation of a
sub-trust of her equitable interests favouring her nieces and nephews will likely escape
s.53(1)(c) and may thereby be valid and binding.
2009 Zone B Question 7
Lionel holds shares in Kybosh Ltd, a private company, on trust for Mark. Mark
orally instructs Lionel to transfer the Kybosh shares to Peter as a gift. After
Lionel does so, Peter orally contracts with Quentin to sell his interest in the
shares to him.
Lionel also holds shares in Sundance Ltd, another private company, on trust for
Nigel for life, remainder to Oliver. Oliver orally contracts with Nigel to assign
him his interest under the Sundance trust. Nigel then orally declares himself
trustee of that interest for Rachel.
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Finally, Oliver holds a fee simple title to Purpleacre, a farm. Oliver procures the
registration of Lionel as proprietor of his fee simple title to Purpleacre, having
previously orally instructed him to hold it on trust for Ursula.
Discuss.
Suggested Solution:
The question calls for a discussion of the effects of s.53(1)(b) and s.53(1)(c) of the
Law of Property Act 1925 on several given transactions:
1) Kybosh shares to Peter as a gift:
With regards to Mark’s instructions to Lionel regarding the shares in Kybosh, it
appears that he is attempting to give them away to Peter. Following Grey v IRC (1960), it
should be noted that the House of Lords gave a very broad reading to the phrase
‘disposition of subsisting equitable interests’ in s.53(1)(c). In effect, the House of Lords held
that should a party have an equitable interest which he subsequently loses following a
particular action, the said action will be regarded as a ‘disposition’ of the party’s subsisting
equitable interests. As a result, he must satisfy the written requirements of s.53(1)(c), or his
‘disposition’ will be void.
On the facts, Mark instructed his trustee, Lionel, to give the shares away to Peter.
Such an action would deprive Mark of his equitable interests and would thereby amount to
a ‘disposition’ (following Grey above). However, on closer inspection, it appears that Mark
was really instructing Lionel to convey the legal title of the shares absolutely to Peter, and
not merely transferring his equitable interests to Peter.
In a normal situation where a beneficiary instructs the trustee to transfer the legal
title in the trust property to another, it would amount to no more than having the new
holder of the legal title as the new trustee. In other words, it would mean no more than a
change of trustee. Should that be so, Peter is simply the new trustee of the shares for Mark.
In order for Peter to become the absolute or outright owners of the shares, logically, Mark
would need to also transfer his equitable interests in the shares to them (in writing,
following s.53(1)(c)). In short, there will be two steps required to make Peter the outright
owner of Mark’s shares:
1. Lionel to convey the LEGAL TITLE of the shares to Peter.
2. Mark (in writing) transfers his EQUITABLE INTEREST in the shares to Peter.
However, it should be noted that the House of Lords, in Vandervell v IRC (1967),
held that there was no need to perform the 2nd step above. In the case, Mr Vandervell orally
instructed his trustees to convey the legal title of shares to the Royal College of Surgeons
(RCS). The House of Lords held that this was sufficient to make RCS the new outright owner
of the shares. To justify the decision, the House held that Mr Vandervell’s equitable
interests were not ‘disposed’ but instead ‘extinguished’ since the ‘greater title’ (i.e. legal
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title) has been conveyed to a new owner. Furthermore, Lord Upjohn explained that
s.53(1)(c) should have no use in a situation where there are no secret or hidden transactions
(i.e. Mr Vandervell, his trustees as well as RCS were all informed as to the nature of the
transfer).
Despite the many criticisms levelled against the decision in Vandervell, it has not
been overruled. In the present case, Mark instructed Lionel to convey the shares to Peter.
On the facts, there were no secret/hidden transactions. Following Vandervell, Mark would
not need to comply with s.53(1)(c) as his equitable interest in the shares has been
‘extinguished’. Peter is, therefore, the new outright owner of the shares.
2) Peter and Quentin:
On the above, since Peter ends up getting the shares outright, Peter can simply
contract to sell them to Quentin. No issues with formalities here.
3) Oliver and Nigel:
As for the trust involving the shares in Sundance, it should be noted that Nigel has a
life interest and Oliver is the remainderman. Could Oliver actually dispose of his equitable
interest in the Sundance shares without writing (i.e. against the requirement of s.53(1)(c))?
The central question is this: What is the effect of the contract between Oliver and
Nigel? The outcome, it is argued, depends on whether or not the contract between Oliver
and Nigel is one which is specifically enforceable. On the facts, since Sundance is a private
company (where there are usually restrictions on transfers of shares), the contract would
likely be a specifically enforceable one.
Following the Court of Appeal decision in Neville v Wilson (1997), affirming Lord
Radcliffe’s minority opinions in Oughtred v IRC (1960), by specifically enforcing the contract
between Nigel and Oliver, the court would enforce a constructive trust between them. This
would therefore be a situation under s.53(2), which dispenses with the need to comply with
the requirements under s.53(1)(c). With that, it is submitted that Oliver would then be a
constructive trustee of the equitable interest for Nigel (which interest can then be
transferred absolutely to Nigel upon his instruction, thus allowing Nigel to be the sole
beneficiary of the trust of Sundance shares).
4) Nigel and Rachel:
Following (3) above, Nigel is now the sole beneficiary of the trust of Sundance
shares. On the facts, he declares himself sub-trustee for Rachel. Whether or not such a
transaction amounts to a ‘disposition’ of subsisting equitable interests (for the purposes of
s.53(1)(c)) will be examined below:
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The traditional ‘Sub-trust Argument’ in Grainge v Wilberforce (1889):
o The courts will make a distinction between ‘Bare Sub-trusts’ and ‘Active Sub-
trusts’. In Grainge, the court held that a ‘Bare Sub-trust’ was in place as the
entirety of the beneficiary’s equitable interest has been declared on a sub-
trust favouring another. The original beneficiary (i.e. Nigel, in the present
case) thereby ‘drops out of the picture’ automatically, leaving Lionel to hold
the property on trust for the new beneficiary (i.e. Rachel, in the present
case). This would amount to a DISPOSITION (as the facts/outcome are not
dissimilar from the situation in Grey v IRC (above)).
o Should the sub-trustee retain a portion of his equitable interests and/or
retain some active duties to oversee the sub-trust, he will not ‘drop out of
the picture’ and this would be an ‘Active Sub-trust’ (Onslow v Wallis (1849)).
This would therefore by the creation of a NEW TRUST and not a ‘disposition’.
o On the available facts, it appears that Nigel is declaring a sub-trust of his
entire equitable interest under the original trust for Rachel. This is similar to
Grainge and therefore, Nigel will automatically ‘drop out’ of the picture,
leaving Lionel to hold the shares on trust directly for Rachel. This would
therefore be a DISPOSITION and s.53(1)(c) must be satisfied. As the
‘disposition’ was done orally, it would be void. The equitable interests remain
with Nigel.
o That being said, it is uncertain whether the courts today will follow the
traditional ‘Sub-trust Argument’ above. After all, both Grainge and Onslow
pre-dated the 1925 Law of Property Act. It cannot be argued with certainty
that the courts today will apply the above arguments to s.53(1)(c).
Brian Green, in ‘Grey, Oughtred and Vandervell – A Contextual Reappraisal’ [1984]
47 MLR 385, criticised the decision in Grainge (above). Quoting the older case of
Head v Lord Teynham (1783), Green argued the sub-trustee (i.e. Nigel) never
automatically ‘drops out of the picture’. Nigel will only be able to ‘drop out’ upon the
knowledge and consent of all the parties (i.e. Nigel himself, Lionel and Rachel).
o It should be noted that Green, however, argued that ALL sub-trusts should be
regarded as DISPOSITIONS and therefore, s.53(1)(c) must be satisfied.
Recently, Lawrence-Collins LJ, in Nelson v Greening & Sykes (2007), reconsidered
the matter. He agreed with Green that the sub-trustee (i.e. Nigel) never
automatically ‘drops out of the picture’. However, he argued that ALL sub-trusts
should be regarded as NEW TRUSTS and therefore, s.53(1)(c) had no application.
o That being said, it should be noted that the above statements were merely
obiter as Nelson was a case to do with land charges rather than sub-trusts.
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Lastly, despite the non-binding obiter statements of Lawrence-Collins LJ above, it is
argued that his argument may represent the direction taken by the courts today to minimise
the applicability of s.53(1)(c). Should that be so, it will likely be followed by courts today in
subsequent cases involving sub-trusts. As a result, it is submitted that Nigel’s creation of a
sub-trust of her equitable interests favouring Rachel will likely escape s.53(1)(c) and may
thereby be valid and binding.
5) Purpleacre for Ursula:
Finally, Oliver declares a trust of land (Purpleacre) for Ursula, with Lionel as the
trustee. It should be noted that such trusts involving an interest in land must be proven by
signed written evidence from the person creating the trusts (following the evidential
requirement in s.53(1)(b)). The problem here is that Oliver declared the trust orally. Oliver’s
oral declaration would not be admissible to prove the trust of Purpleacre. In other words,
the court will not be able to recognise that the trusts of Purpleacre exists as there is no
admissible evidence (i.e. written evidence signed by Oliver) to prove that the trust exists.
Should the trust not be recognised, Lionel may be able to retain the title to Purpleacre for
himself (as a gift from Oliver).
In spite of the above, Ursula may seek to rely on the argument from Rochefoucauld
v Boustead (1897) that the court should allow oral evidence to prove the trust of land. In
that case, Lindley LJ (Court of Appeal) allowed the claimant to submit oral evidence to prove
the trust of land and held that the defendant should not be able to exploit s.7 of the Statute
of Frauds 1677 as an ‘instrument of fraud’ in order to deny the trust (because no written
evidence were available to the claimant). Ursula would thereby argue that Rochefoucauld
could be applied by analogy to s.53(1)(b) to prevent Lionel from committing a fraud and
keeping the land for himself as a gift.
That being said, the present facts differ from Rochefoucauld in that there is no
indication that Lionel (unlike the defendant, Boustead, in that case) has actually committed
a fraud and was seeking to rely on s.53(1)(b) to perpetrate said fraud. Ursula would
therefore have to raise the ‘extended fraud argument’ from secret trusts (McCormick v
Grogan (1869), as affirmed by Lord Sterndale MR in Re Gardner (1920)) to argue that oral
evidence should still be admitted by the court (contrary to s.53(1)(b)) to prevent a ‘potential
fraud’ on Lionel’s part. In order to succeed in this argument, Ursula bears the burden to
prove that there may be a ‘potential fraud’ on Lionel’s part should the court refuse to allow
him to bring in oral evidence to prove the trust of land.
Should this be so, the court may estop Lionel from relying on s.53(1)(b) and allow
oral evidence to be admitted in order prove that Lionel is, in fact, a trustee and not a legatee
of land. The question then is, who will Lionel (as trustee) hold the land for under the trust?
It is submitted that there are 3 possibilities:
In Rochefoucauld, Lindley LJ held that what was in place was an EXPRESS TRUST
based on the original consent/intention of the parties. Should this be true in the
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present situation, an express trust would uphold Oliver’s original intention to have
Lionel hold the land on trust for Ursula.
In Bannister v Bannister (1948), the Court of Appeal instead held that a
CONSTRUCTIVE TRUST is in place when oral evidence is admitted to prove a trust of
land. In fact, it should be noted that all other authorities post-Rochefoucauld argued
for constructive trusts. This seems plausible since the courts, in setting aside the
statutory provision, sought to prevent a fraud (or a potential fraud) from taking
place. Both Penner and Hayton favour this interpretation as a constructive trust
would therefore fall under s.53(2) LPA 1925, which is an exception to the evidential
rule in s.53(1)(b). Should this be true in the present situation, Lionel would be made
a constructive trustee of Purpleacre for Ursula.
In Hodgson v Marks (1971), however, the Court of Appeal held that a RESULTING
TRUST should be in place instead. Swadling, as mentioned above, criticised this
approach and argued that Rochefoucauld got it right by saying that it was an express
trust. Swadling, in fact, argued that the ‘Rochefoucauld trust’ was not a constructive
trust, nor a resulting trust. A constructive trust arises for reasons other than consent
on the part of the settlor (to create a trust). A resulting trust, on the other hand,
arises where there is no proof or evidence of an intention and the intention is
therefore presumed. Despite Swadling’s arguments, should the court follow
Hodgson and enforce the trust as a resulting trust, Lionel will end up holding the land
on trust for Oliver (rather than Ursula).
Here, it is submitted that a ‘resulting trust’ (following Hodgson) would be the best
general solution for a 3-party situation, as in the present case. The reasons are as follows:
A resulting trust gives effect to s.53(1)(b) (with s.53(2) as exception) and prevents
Lionel’s fraud or ‘potential fraud’.
Ursula cannot complain about any losses or unfairness simply because she has not
received gratuitous benefit from Oliver. After all, Ursula has not provided
consideration for any such benefits.
If Oliver wants to carry out his original intention, he can declare the trust again and
make sure that he provides written evidence of such a declaration in compliance
with s.53(1)(b). This allows Oliver (the donor) to repent of his intentions if he so
decides.
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*** Most recent 2016 Exam Questions (on Formalities and Constitution):
2016 Zones A/B Question 3
Barney was an elderly single man who had been married and divorced twice.
He arranged a meeting with his closest friends, Lily, Marshall, Robin, and Ted,
to discuss the creation of two trusts: (a) the ‘Victoria trust’ for the children and
grandchildren of his first marriage to Victoria and (b) the ‘Wendy trust’ for the
children and grandchildren of his second marriage to Wendy.
Lily and Marshall agreed to be the trustees of the Victoria trust. The sole trust
asset was to be a pub, which was owned by Barney in fee simple. Barney
executed the form to transfer his registered title to that estate to Lily and
Marshall and handed the form to Lily.
Robin and Ted agreed to be the trustees of the Wendy trust. The trust assets
were to consist of Barney’s shares in a men’s clothing company. Barney said he
would transfer those shares later. One week later, Robin called Barney to say
that she had changed her mind and did not want to be a trustee. Barney said,
‘Don’t worry, Ted and I will do it.’
Barney died two weeks later. Nothing further had been done to set up the
trusts and nothing about them had been written down. The transfer of the pub
had not been submitted for registration.
Carl and Daphne have been appointed as the executors of Barney’s estate.
They seek your advice about the validity of the Victoria and Wendy trusts.
Advise Carl and Daphne.
Summary of facts:
Barney wants to create two trusts:
o Victoria Trust:
For children & grandchildren of his 1st marriage to Victoria
Sole trust asset = a pub owned by Barney in fee simple
Lily & Marshall agreed to be trustees
Barney executed transfer form to Lily & Marshall (handed form to Lily)
Form not sent for registration
o Wendy Trust:
For children & grandchildren of his 2nd marriage to Wendy
Trust asset = shares in a men’s clothing company
Robin & Ted agreed to be trustees
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Robin later refuses to be trustee (Barney agrees and said that he and
Ted will be trustees)
No shares transferred
Carl & Daphne = executors of Barney’s estate
Answer Plan:
Carl and Daphne would like to know the validity of the Victoria and Wendy trusts.
Each will be considered in detail below.
Victoria Trust:
o Constitution (Milroy v Lord – land not registered in trustees’ names):
Argue Re Rose (3 conditions in Hodgson v Marks all satisfied since (i)
Barney intended to transfer the pub to Lily/Marshall on trust; (ii)
Barney has relinquished control of the title; and (iii) Lily can complete
the registration on her own).
Trust can be constituted.
o Formalities (s.53(1)(b) LPA 1925 – evidence for trust of land):
Beneficiaries argue the trust for pub exists but no written evidence.
Court cannot recognise existence of trust.
Beneficiaries argue Rochefoucauld v Boustead but no evidence of
fraud on the part of Lily/Marshall.
Beneficiaries may try extended fraud argument from secret trust.
Bears burden to prove a “potential fraud” on the part of Lily/Marshall.
If successful, oral evidence admitted to say that trust exists – but what
trust?
Constructive trust for beneficiaries? (Bannister v Bannister)
Resulting trust for Barney’s estate? (Hodgson v Marks)
Most likely RT since beneficiaries are “volunteers”.
Wendy Trust:
o Constitution (Milroy v Lord – shares not transferred to Robin/Ted):
Possible argument – Barney himself replaced Robin as one of the
trustees (would this be a self-declared trust then? - Choithram v
Pagarani).
In other words, Barney is joint-trustee with Ted and would have a
duty to convey the shares to their joint-names. Likely to be successful.
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