English trusts law is the original and foundational law of trusts in the world, and a unique contribution of English law to the legal system. Trusts are part of the law of property, and arise where one person (a "settlor") gives assets (e.g. some land) to another person (a "trustee") to keep safe or to manage on behalf of another person (a "beneficiary").
The law of trusts developed in the Middle Ages from the time of the crusades under the jurisdiction of the King of England. The "common law" regarded property as an indivisible entity, as it had been done through Roman law and the continental version of civil law. Where it seemed "inequitable" (i.e. unfair) to let someone with legal title hold onto it, the King's representative, the Lord Chancellor who established the Courts of Chancery, had the discretion to declare that the real owner "in equity" (i.e. in all fairness) was another person.
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For a valid trust, the "three certainties" must be present, see Knight v Knight. In Milroy v Lord, Turner LJ stated that:
"...to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property, and render the settlement binding upon himself."
He went on to say that the settlor may constitute an express trust by either transferring the property to the trustee or by a self-declaration of trust. In the latter case, no transfer is needed.
Depending on what type of property is involved, certain formalities need to be satisfied before the property is validly transferred, and the general principle is that equity will not perfect an imperfect gift.[1] Thus, in the case of land, there needs to be a deed , and in the case of shares, ss 182-183 of the Companies Act 1985 provides that in general, a share transfer form must be executed and delivered with the share certificates followed by entry of the name of the new owner in the company books.
There are several formality requirements that have been imposed on express trusts by, inter alia, Wills Act 1837 s 9 and the Law of Property Act 1925 s 53.
Section 9 of the Wills Act 1837 provides that all testamentary trusts must be in writing, signed by the testator or by someone in his presence and by his direction, and be attested by two witnesses. However, secret trusts and now half secret trusts are recognised exceptions to this requirement. A full secret trust occurs when a testator leaves what appears to be an absolute gift in his will, but has communicated to the legatee that she is to hold the property on trust for purposes communicated to her. A half secret trust occurs when a testator leaves property on trust in his will, but communicates the terms of the will to the trustee privately.
The two leading justifications for allowing these exceptions to s 9 are the fraud theory and the modern theoretical approach. The fraud theory was laid down in McCormick v Grogan and is based on the idea that to disregard evidence of an oral testamentary trust and allow the legatee to take the property absolutely would be against the testator's intent and would unjustly enrich the legatee. The modern theoretical approach is based on the analysis that the testator validly declared the trust in his lifetime, and it became constituted by the vesting of the property in the trustee on his death.
The Law of Property Act 1925 s 53(1)(b) states that ‘a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will.’ The declaration itself need not be in writing. The writing required is that of evidence of the declaration and failure to comply with this requirement will render the declaration of trust unenforceable (Leroux v Brown).
Dispositions of equitable interests are void unless they are in writing signed by the person disposing of the interests or by an agent authorised by that person (LPA 1925 s 53(1)(c)). By contrast to s 53(1)(b), the requirement here is that the disposition itself must be in writing. The requirement here also applies to dispositions of equitable interests in both land and personalty, as in Grey v IRC.[2]
As mentioned above, to constitute a trust, there usually needs to be a transfer of trust assets to the trustees and in the course of doing so, there might be certain formalities that have to be complied with. Otherwise, because equity will not perfect an imperfect gift, the trust will not be constituted .
However, since Milroy v Lord, the court have at times appeared to have added the qualification that although legal title to trust property remains vested in the settlor, an attempted transfer by the settlor to the trustee might be effective in equity even though not all the formalities required for a valid transfer have been complied with. This might be the case where the settlor has done everything in his power to divest himself of trust property. In such cases, it is therefore possible for a trust to be constituted even though certain formalities have not been complied with.
An illustration of this principle is seen in Re Rose. Here, the settlor had by voluntary deed transferred shares in a private company to be held on certain trusts. Under the company constitution, however, the directors of the company have the right to refuse to register transfers. Accordingly, they delayed registration by some two months after the deed had been executed. The question faced by the court was when were the shares transferred? Section 182 and s.183 of the Companies Act 1985 would suggest that the shares were only transferred when the directors registered the transfer. However, the court held that the shares were transferred when then the settlor executed the deed and the trust was constituted on that date. This is because the settlor had done everything in his power to divest himself of the shares.
Re Rose was applied subsequently in a number of cases including Mascall v Mascall which concerned the transfer of registered land. More importantly, the Re Rose principle was reviewed in Pennington v Waine. Here the donor intended for her nephew to take up directorship in a private company. To do so, he needed to own shares in the company. Therefore, she executed a share transfer form concerning shares in the company in favour of her nephew. In contravention of the companies act, she had not delivered the share transfer form to her nephew. Neither had he been registered as a shareholder. The donor had sent the forms to her agent, the company auditor, who then told the nephew the he need not take further steps as regards the shares. The nephew then took up directorship of the company. The court held that the shares did not from part of the donor’s estate on her death as there was an equitable assignment of those shares. This was so despite the fact that the donor had not done everything in her power to transfer the shares. The court reached its decision partly on the basis that clearly the donor intended the transfer to have immediate effect and it would have been unconscionable for the donor to retract. Unconscionability would depend on the circumstances in each particular case but in this case, the court felt that it was because the Donor had told the nephew of her intentions and he, in taking up directorship, had acted detrimentally.
Duties of trustees include:
Trustees must be unanimous in their decisions and are personally responsible to the beneficiaries for those decisions. In the event of dispute can apply to the Court of Chancery for directions as to the correct course of action.
Breach of trust is a type of civil wrong.[3]
Beneficiaries who feel the trustees are not (properly) fulfilling their obligations have the right to take the trustees to the Court of Chancery for a declaration concerning the proper actions of the trustees.
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