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Constitution of trusts (1)
A trust must be completely constituted. Can set up a trust in one of two ways: either the settlor can declare himself trustee of certain property for certain persons or purposes; or the settlor can appoint someone else to act as trustee.
First situation- requires that the property is available to the settlor or trustee and that they have made a declaration of trust.
Second- requires that the settlor effectively transfers the property to the trustee and again makes a declaration of trust.
Declaration of trusts: substantive requirements (2)
Express trusts- has to be a declaration of trust- can be implied from words or conduct.
Two aspects: substantive requirements- must indicate the substance of the trust- where there is a trust, what property is subject to that trust and who or what the trust is for. Trust will not be valid unless the declaration is clear on these.
Must be certainty of intention/words; subject matter and objects.
Formalities (3)
Usually mean some form of writing.
Where the settlor is using the second method of constitution (someone else as trustee) the trust property must be transferred to that trustee and depending on the nature of the trust property it might require certain formalities- i.e. specific documentation.
The three certainties (4)
a. Certainty of words or intention
Three certainties must be satisfied in order for there to be a valid express private trust- Knight v Knight.
a. Generally, courts have disregarded a general intention- need to be satisfied the settlor had a particular intention to benefit in a particular way. Settlor must make it clear from their conduct or words that they intended to create a trust- most cases this involves looking at the wording of the trust instrument to see if they can be construed as imposing the required degree of obligation on the trustees.
Do not have to use technical words- trust can be created without using the word 'trust'- Burrough v Philcox
The use of the word trust does not conclusively indicate a trust is being created- i.e. Re Hays- used 'trust' but merely created a POA.
Precatory words are not sufficient to create a trust- Re Adams and Kensington Vestry- BUT a trust will be found on the basis of precatory words if from proper construction of language as a whole it is clear that the testator intended to create a trust.
a. Certainty of words or intention (2)
if trust instrument provides for what happens to the property if no selection is made, then creates a mere POA (Re Hays)
Provision for what happens if selection is not made is conclusive that the disposition is a power not a trust. Converse argument does not apply. Just because there is no gift-over in default of selection does not mean that the disposition creates a trust. Court needs further evidence of what the settlor really intended to do (Burrough v Philcox).
What if there is no formal document to look at? Look at all the circumstances- i.e. conduct of parties etc. to establish if the evidence shows that the settlor intended to create a trust.
Paul v Constance- express trust even though C had no idea he was creating a trust- can create an express trust without knowing anything about the legal concept of the trust- court will look at conduct and substance of intention to determine whether or not you can be taken to have intended to create a trust.
The three certainties (5)
b. Certainty of subject matter
Don King v Warren: benefit of a non-assignable contract can be the subject matter of a trust.
Only thing that cannot be the subject matter of a trust is non-existent property.
Re Ellenborough: whatever form the property takes it must be specified by the settlor with sufficient certainty as the trustees must know exactly what is and what is not subject to the trust.
Courts have held void purported trusts where the purported property comprises the 'bulk of my estate' or 'all my other houses.'
Sprange v Barnard: 'remaining part of what is left'- court declared the trust void.
'residue of my estate goes to X' - not uncertain as can be calculated by taking the whole estate and deducting specific legacies- so trust not void.
The three certainties (6)
b. Certainty of subject matter (2)
Courts managed to resolve apparent uncertainty as to subject matter:
Re Golay's: directed executors to pay the beneficiary a 'reasonable income' - not uncertainty- court could quantify the entitlement.
The three certainties (7)
b. Certainty of subject matter: part property (3)
Part property- purported trust property comprises a part of a bulk of property- general- in those circumstances if there has not been any segregation from the purported trust property from the bulk then there can be no trust.
Re London Wine Co: customers could only claim proprietary rights if their particular orders were held on trust- required the particular order to be segregated from the other stock in the cellars- there was no segregation so there was no trust.
Re Goldcorp: three categories of C
(1) could estbalish the exchange had acquired gold that physically matched their order and the order had been segregated- was a trust- client had a proprietary interest in this property
(2) bullion not segregated- could not show the bullion was theirs so no trust or proprietary interest- could only show a contractual entitlement
(3) C had placed an order for maple leaf gold coin which the exchange did not normally carry a large stock- C could not demonstrate the coins which the exchange had actually been bought specifically for him. Coins had not been segregated- not satisfied the requirement of certainty of subject matter so there was no trust.
Both cases involve tangible property. Does the same orthodox principle apply to intangible property? In principle, there is no reason why it shouldn't.
The three certainties (8)
b. Certainty of subject matter (4)
MacJordan v Brookmount: court applied orthodox principle to money in a bank account. No segregation so money was not held on trust.
Hunter v Moss: judge said there was a valid trust for the shares and declined to follow London Wine for 2 reasons
(1) by finding a trust he was enforcing the contractual rights of the employer under the employment contract between the parties
(2) made no difference which of the shares was subject to a trust- given that all of the shares were ordinary shares of the same class there was no difference between one share and the other
Seemed to say it was not necessary to segregate the property if the bulk and the trust property is intangible and where each unit is indistinguishable from any other unit.
Re Harvard Securities: distinguished London Wine and Goldcorp as they concerned tangible property and applied Hunter as that concerned intangible property.
The three certainties (9)
b. Certainty of subject matter (5)
HOL refused leave to appeal Hunter.
Re Lehman Brothers: not segregated but still held on trust. Outcome was clearly coloured by existence of FSA regulations but shows that the orthodox approach is not absolute.
Parkinson article: debate about trusts of part property is in part misconceived. Obligations of trustees must attach to identifiable property but argues that this is satisfied if two conditions are met:
(1) bulk must be identifiable property
(2) trust obligation must be defined with sufficient clarity so that in the event of a dispute the court can determine how much if any of the bulk is subject to the trust.
Lack of segregation from the bulk reflects the fact that the intended relationship between the company and C was that of debtor and creditor rather than trustee and beneficiary.
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