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Exceptions to the beneficiary principle (2.1) - Coggle Diagram
Exceptions to the beneficiary principle (2.1)
The problem with purpose trusts
Express trusts must comply with the beneficiary principle
- there must be a living human beneficiary to enforce the trust
e.g. Morice v Bishop of Durham: a trust for 'such objects of benevolence and liberality as the Bishop of Durham in his own discretion shall most approve of' was void; Re Shaw [1957] - a trust for introducing a new 40 letter phonetic alphabet was void
Where a trust does not comply with the beneficiary principle, the trust will be void - the property will be held on resulting trust for the settlor or fall into residue
Where there is no beneficiary, there is a lack of meaningful obligation
(1) Uncertain or vague purposes:
e.g. Re Astor's Settlement Trust [1952]:
trusts for varied purposes including the maintenance of good understanding between nations and the preservation of the independence and integrity of newspapers void for 1) breaching beneficiary principle and 2) uncertain purposes
Could be resolved through better drafting
(2) They often do not comply with perpetuity rules:
Express private trusts for people - people must vest within 125 years (Perpetuities and Accumulations Act 2009)
Purposes trust not subject to the same requirements
(3) Public policy concerns:
Capricious purposes e.g. Brown v Burdett [882] - trust for the purpose of boarding up the windows and doors of a house for 20 years ws void
Charitable trusts
Charity = institution for charitable purposes (s1 Charities Act 2011). A charitable trust is one way of giving money to a charity (not all charities are trust, and can create a charitable trust without giving the money for charity)
Charity trusts are express public trusts - they are trusts for purposes that benefit the public rather than individuals
Advantages of charitable trusts:
No need for ascertainable beneficiaries. They can be enforced by the AG/Charity Commission (an organisation with wide responsibilities over charities)
Charitable trusts can last forever (but property must vest in the charity within 125 years)
Not subject to the rules on certainty of objects, but the purpose must be certain and the purposes must be exclusively charitable
Tax advantage for charities
Requirements for validity:
Exclusively charitable purposes
Public benefit test
Cy-près doctrine
Charitable purposes:
The law has developed over the centuries via statute and case law now consolidated in the
Charities Act 2011
Must be exclusively charitable and fall under one of heads of charity per
S.3
of the 2011 Act
e.g.
the prevention/relief of poverty
advancement of education
advancement of religion
advancement of health/saving of lives
advancement of citizenship/community development
Public benefit:
Must benefit the public or a sufficient section of the public -
S.2 and S.4
of the 2011 Act
Personal nexus means the public benefit test is not satisfied.- must benefit a
sufficient number of people
-
Oppenheim v Tobacco Securities Trust Co Ltd
[1951]
Charities cannot pursue political objectives -
Hanchett-Stamford v AG
[1948]
Complicated area of case law - we just need general idea of how public benefit test works
Prevention or relief of poverty - defined subjectively -
IRC v Oldham Training and Enterprise Council
[1996]
Advancement of education - defined widely, can mean training -
IRC v McMullen
[1981]
Advancement of religion - defined widely to include lots of advancement of different faith groups* e.g. The Druid Foundation (promotes paganism) - Charity Commission decided in 2010 that this is a charity for the advancement of religion
Cy-près doctrine - Failure of a charitable trust:
A charitable trust may fail because that specific charitable purpose cannot be fulfilled or charity ceases to exist
If it happens, cy-près doctrine takes effect
Cy-près translates to 'as close as possible'
Means that any surplus funds will be applied to another charity with a similar purpose
Trust of imperfect obligations
A
form of non-charitable purpose trust
is valid
A type of testamentary trust - sometimes referred as 'anomalous exceptions
'obligation' is 'imperfect' as there is no beneficiary to enforce the trust
Trustee may carry out the trust but they may also not carry out the trust -
must choose wisely!
Probably recognised as a concession to human weakness or sentiment (Re Shaw's Will Trust [1957]
Must fit within one of the recognised categories, the purpose must be certain and a trust for capricious purpose may fail
Categories of TIO
1. Trust for the care of particular animals:
Re Dean
[1889] - trust for testator's horses and hounds was valid;
Pettingail v Pettingnall
[1842] - trust for the testator's horses was vaid n
2. Trusts for saying of private masses:
Bourne v Keane
[1919] - trust for the saying of masses for the testator's soul in private was valid
3. Trusts for the erection and maintenance of monuments and graves:
Re Hooper
[1932] - trust for upkeep and care of family graves was valid;
Pirbright v Salwey
[1986] - trust for maintaining and decorating a grave with flowers was valid
Purpose must be certain:
Re Endacott
[1960] - a trust for 'providing some useful memorial to myself' was void - the purpose was too uncertain
These categories are
not
to be extended
'... the scope of these cases, ought not to be extended. So to do would be to validate almost limitless head of non-charitable trusts... No principle perhaps has greater sanction or authority behind it than the general proposition that a trust by English law, not being a charitable trust,
in order to be effective,
must have ascertained or ascertainable beneficiaries (
Re Endacott
[1960] Lord Evershed MR)
Perpetuities and TIOs
Trust of imperfect obligation must comply with the rules against inalienability of capital (the property can't be tied up for the purpose forever)
For purpose trusts, it's governed by common law rules. Perpetuity period for a trust of imperfect obligation is either:
v- The
life of an identified person (or persons) + 21 years
Or if not such person is named,
just 21 years
(
Re Hooper
[1932])
Not the anomaly in the case of
Re Dean
[1889]:
The trust was valid even though the will stated that the trust couls last for 50 years
Did the judge assume the animals would not live beyond 21 years? Or was this an incorrect decision?
Failure of a TIO:
TIOs are always testamentary trusts
They are non-charitable (or private) purpose trust
Because of this they are a form of express trust
means that on failure, the property will
fall into reside
Re Denley's
trusts
A type of non-charitable purpose trust that is valid because the purpose benefits and individual/individuals who have
locus standi
to enforce the trust
These trusts must comply with certain requirements for validity, otherwise they are just a void non-charitable trust
The principles we need stems from the case of
Re Denley's Trust Deed
[1969]
Facts:
Inter vivos
trust for the purpose of holding land as a sports ground for the use of employees of a particular company for 21 years from the death of the last survivor of a named group of individuals
Also a power to allow other people to use the land. Provision for what should happen to the land if the trust could no longer be carried out (clause 2(j) - not really our focus
Held per Goff J that it was a
valid trust:
"There may be a purpose or object trust, the carrying out of which would benefit an individual or individual, where that benefit is so indirect or intangible... as not to give those persons any locus standi to apply to the court to enforce the trust... The present is not, in my judgement, of that character'
'In my judgement the beneficiary principle... is confied to purpose or object trusts which are abstract or impersonal. The objection is not that the trust is for a purpose or obect per se, but that there is no beneficiary...'
'Where, then the trust, thoug expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, it seems to me that it is in general outside the mischief of the beneficiary principle
Requirements
The purpose must be to provide
direct or indirect benefit
to an individual or a group of individuals
These individuals must be
ascertainable
The purpose must not be
abstract or impersonal
The
perpetuity rules
must be complied with - common law period (identified life plus 21 years
or
just 21 years
If a trust does not comply with the requirements, it will be a
void purpose trust
Note: the individuals who benefit are not referred to as beneficiaries - they don't have equitable proprietary interest in the trust property. The settlor's intention in
Re Denley
was for the employees to use the land, not to own it
Issues with
Re Denley
It is
controversial
Has been
criticised
in other cases like
Re Grant's Will Trusts
[1980] where Vinelott J said the trust in
Denley was not a purpose trust but a discretionary trust (note that Vinelott J's reasoning has also been criticised
)
Judges have been
reluctant to apply
Denley,
and usually avoid it, though it was applied in
Re Lipinski's Will Trust
[1976] but the judgement in
Lipinski
is problematic, court's will follow the contract holding theory more
But
Re Denley
has
not been overruled
For dissolution if a club dissolves:
Follow the club's constitution
If not, remaining trust goes to last remaining members