THE UNIVERSITY OF MALAWI

CHANCELLOR COLLEGE

FACULTY OF LAW

DEPARTMENT OF FOUNDATIONAL LAW

LAW OF TRUSTS NOTES

LAW OF TRUST

Prepared by Kassim Mdala Amuli

A. FOUNDATIONAL CONCEPTS

1. The Social Trust & Trust Notions

▪ The social trust defined
▪ Equity & trusts
▪ The trust in the higher sense across jurisdictions
▪ The trust in the lower sense across jurisdictions
▪ The trust and the concept of resources
▪ The trust, control, management & benefit
▪ The fund
▪ Fiduciary relationship defined
▪ Trusts, rights, duties and accountability
▪ Powers, the trust, management and control

2. The Trust in Property Law

▪ The incidents of property and the trust notion
▪ Property and the trust across legal traditions
▪ The trust and the nature of proprietary rights
▪ The parties in a trust relationship
▪ The beneficial interest
▪ The trust and related legal conceptions

3. Types of the Trust in Property and other Laws

▪ By origin
▪ By purpose
▪ By execution
▪ By completeness
▪ By trustee duties
 ▪ By the “public/private divide”

B. THE SOCIO-LEGAL ROLE OF THE TRUST

1. Uses of the Trust Tool in Public and Private Legal Regulation

▪ The trust and isolation of objects of property for management and use
▪ The trust as a mechanism to pool resources
▪ The trust and property security or wealth preservation.
▪ The trust and proprietary interest multiplication
▪ The trust and allocation of proprietary interests
▪ The trust and taxation
▪ The trust and wealth creation

2. Potential uses of the Trust in the Malawian Context

▪ The trust and poverty
▪ The social trust and inter and intra generational equity
▪ The trust and the right to development

C. CREATION AND EXISTENCE OF TRUSTS

1. Capacity
▪ Mental capacity
▪ Economic capacity and the law of trusts

2. Substantive and Formal requirements

▪ Certainty
▪ Constitution of a trust
▪ Formalities
▪ Appointment of Trustees

3. Trusts, Statutory law & the Management of Public Resources

 ▪ The constitution and the trust in the higher sense
▪ Key examples from legislation

4. Secret Trusts
▪ Purpose
▪ Creation and conditions

5. Inequitable Exclusion and Trust Implications

a. Unjust enrichment
▪ As a remedy
▪ As a proprietary right
▪ As a principle of trust notions and trusts

b. Resulting Trusts
▪ Definition
▪ Rationale
▪ Chief types and conditions
▪ Allocating the beneficial interests

c. Constructive Trusts
▪ Definition
▪ As a remedy against a fiduciary
▪ As a remedy against strangers
▪ In contracts, commercial transactions and other agreements
▪ Undue influence and constructive trusts
▪ Adjustments after relationship breakdown

d. Proprietary Estoppel
▪ Introduction and definition
▪ Proprietary contrasted from promissory
 ▪ Elements

e. Charitable trusts
▪ Definition and Classification
▪ The trustee Incorporation Act
▪ Advantages
▪ Categories
▪ Administration and supervision
▪ Termination

f. Discretionary Trusts
▪ Powers and duties
▪ Nature of discretion
▪ Discretion and control
▪ Purpose of discretionary trust
▪ Creation and conditions
▪ Termination

g. Protective Trusts
▪ Purpose
▪ Creation and conditions
▪ Termination
▪ The Synergy between protective trusts and discretionary trusts

h. Commercial Trusts
▪ Commerce and the Trust
▪ Trust devices distinct to commerce
o Pensions
o Cooperative Trusts
▪ The trust, commerce and credit
▪ Unit Trusts
i. Incorporation of Trusts
▪ Purpose of incorporation
▪ Eligibility
▪ Procedure
▪ Effect

D. PROPERTY RESOURCE—MANAGEMENT AND THE TRUST

1. Fiduciary Duties and the Trust

▪ Identifying fiduciary relationships
▪ The three fiduciary duties and property resource management
▪ The three fiduciary duties and the trust in the lower sense
▪ The three fiduciary duties and the trust in the higher sense

2. Powers and Duties of Trustees of the Trust in the Lower sense

▪ Nominal holding
▪ Management powers
▪ Investment
▪ Delegation
▪ Trust Accounts
▪ Variation
▪ The Trust and Private enterprise management

3.Management and the Trust in the Higher sense

▪ Public enterprises
▪ Non-Governmental organisations
▪ Public functionaries
▪ Public funds
E. PROPERTY—CONTROL AND THE TRUST AND REMEDIES

1. The Parties that control

▪ The Creator
▪ The fiduciary
▪ The beneficiary
▪ Parliament
▪ The court
▪ Other State Departments

2. Remedies
▪ Damages
▪ Equitable damages
▪ Tracing
▪ Subrogation
▪ Types of Injuctions and conditions
▪ Specific performance

A. FOUNDATIONAL CONCEPTS

1. The social Trust and Trust notions

The Social Trust Defined

• Social trust is defined by R Cotterrel in his article entitled “Trusting in Law:
Legal and Moral Concepts of the trust,” in MDA Freedman and BA Hepple
(eds.) (1993) 46 Current legal problems, part 2, Collected Papers, 75-95. It
is a trust in a broad moral sense: involving reliance in social relationships in
other people’s goodwill, solicitude and competence; or a confidence that
general expectations in familiar social circumstances will not be
frustrated.
• Foundation of any social trust based relationship is interdependence and
altruism. Relationship based on reposition of confidence.
• The concept of trust is the prominent social trust device in the Anglo-
American legal tradition where confidence is placed in other people to
perform a particular task out of their goodwill.
• The reposition of confidence gives rise to an obligation in the other to act
accordingly. Individuals in whom confidence is reposed arec called
trustees or fiduciaries. The beneficiaries are called cestui qui trust.

Equity and Trusts

• Equity is a branch of law that has its own full-fledged principles.

• 1873 and 1875 Judicature Act made both common law and equity to
be administered by the same court. Where the rules are in conflict, the
Rules of Equity prevails. See s.25 of the Judicature Act.

• Equity always acts in personam – Chellaram v. Chellaram [1985] 1

matter what the netwise the on real Dublin is the one of the more All ER
1043 where the trust assets and trust settlement were done outside
England and the trustees argued that court in England had no
jurisdiction to issue any order against the trustees. The court decided
that it has an inherent jurisdiction and can make an in personam order
against the trustees requiring them to resign and to vest the trust assets
 in new trustees if the trustees fail to distribute the capital or income to
the beneficiaries.
• In a trust relationship, equity recognizes that a trustee is a legal owner
of property.
• Equitable principles no longer vary to the Chancellor’s foot as
previously stated. See Cowcher v. Cowcher [1972] 1 All ER It was
stated in obiter that rights of property are not to be determined
according to what is reasonable and fair or just in all the
circumstances. The only justice that can be attained by mortals, who
are fallible and are not omniscient, is justice according to law; the
justice which flows from the application of sure and settled principles to
proved or admitted facts. Court stated that the expression ‘family
assets’, although in some contexts convenient, has no legal meaning
and its use affords no assistance in determining property rights. So court
further declared that the house which was in dispute was to be held on
trust for sale and that the net proceeds of sale be held on trust for both
Mrs Cowcher and and Mr Cowcher as tenants in common as to 1/3
there of for the wife and 2/3 there of for the husband. Court came to
this decision by utilising the settled principles of property distribution
after breakdown of relationship.

• There are two schools of thought on the fusion of the common law and
equity. One school of thought, orthodox position, is to the effect that
the Judicature Act of 1873 and 1875 fused the administration of the law
and equity but the principles of common law and equity are distinct.
The other position which is seen in the opinion of Diplock in United
Scientific Holdings v. Burnley Borough Council[1977] 2 All ER 62 at 68
states that the principles of equity and common law are fused.
Remarks of the Attorney General when the bills were introduced were
to the effect that they wanted to provide an administration of both
common law and equity at one place and not to fuse them.
 • It appears that the common law and equity have remained distinct.
See Walsh v. Lonsdale [1882] 21 Ch 9 where the defendant had
agreed to grant the plaintiff a lease of a weaving mill. The rent was
payable yearly in advance. No legal lease was ever executed but the
plaintiff was allowed into possession of the mill and paid rent quarterly
in arrears to the defendant. Under the common law the plaintiff had
thereby become a periodic tenant of the mill. Under the terms of this
periodic tenancy the rent was payable in arrears. In equity, however,
the contract between the defendant and the plaintiff gave rise to an
equitable lease, under the terms of which the rent was payable in
advance as agreed in the contract. The defendant demanded
payment of rent in advance and exercised the remedy of distress to
secure payment. The plaintiff claimed that this distress was improper.
The question of whether the defendant’s exercise of distress was lawful
or improper depended on whether the parties’ relationship as landlord
and tenant was governed by legal or equitable rule. If there was a
legal periodic tenancy the distress was improper as the rent was not
due, whereas under an equitable lease the rent was in arrears and the
defendant was entitled to exercise his right to recover it. The Court of
appeal held that there was a conflict between the respective legal
and equitable rules, section 25 of the Judicature Act applied and the
equitable rule prevailed. The defendant’s exercise of distress was
therefore proper.

.Legal title is the common law title and beneficial title is the equitable
title.

Historical origins of trust

See Chapter 2 of Graham Moffat, Trusts Law: Text and Materials (London:
Butterworths, 1999).

The use of trust developed during Feudal time as a means of evading tax.
During the crusades, property would be put in the care of somebody on trust
for the benefit of family members.

The use of the concept of use deprived the King to collect enough revenue.

Statute of uses was passed to curb tax evasion. Statute of use recognised the
one to whom property was conveyed to as a legal owner. The system gave
rise to the concept of trust. A certain jurist, FW Maitland described trust as the
greatest and most distinctive achievement performed by an Englishman in
the field of jurisprudence. This was so because trust can be used to achieve
many results because of its versatility.

The Trust in the “Higher sense” across jurisdictions

Two broad categories of social trust are trust in the higher sense and trust in
the lower sense. The dominant legal thought in the Anglo-American traditions
is that trust in the higher sense is governmental obligation and is generally
unenforceable. It can be realised politically. In Tito v. Waddell [1977] 3 ALLER
129 Megarry, V.C stated that trust in lower sense is called true trust and is
justiciable in court. The case concerned the issue where the Crown issued
licences to British companies to mine phosphate in the Banabans island and
agreed that in turn the Banabans would benefit from the mining and the
worked out lands would be replanted. Things did not go as agreed and the
Banabans brought the action against the Crown trying to enforce their rights
in their relationship with the Crown. The court stated that the relationship
between the Banabans and the Crown is that of trust in a higher sense
unefforceable in courts but can only be realised politically.
See also Kinlock v. Secretary of State for India in Council (1882) 7 App. Cas. p.
619

Other jurisdictions recognise trust in the higher sense as a fiduciary relationship

and is enforceable in court.
See- Mabo v. Queensland (Australia) (1992) 175 CLR 1;

-Guerin v. The Queen (1984) 2 SCR 335 (Canada)

Minors Oposa v. Secretary of the Department of environment and

natural
resources 1994 33 International legal material 173(Philippine)

-Should there be distinction between

Trust in the higher sense and trust in the lower sense: see s.12 of the
constitution of Malawi.
- See the purpose and reason for the relationship government has entered
with people.
-Fiduciary principles by their nature are capable to protect fundamental
human and personal interest. See Norbeg v. Wynrib (1992) 2 SCR 226 per
Justice Mc Lachlin. It involved a doctor who abused his calling and took
advantage of a drug addicted Norberg and made sexual harassment. The
Court stated that the appellant was not in a position to make a free choice.
There was a marked in equality in the respective powers of the parties.
Fiduciary principles apply here to protect the vulnerable
-Courts of equity do protect the vulnerable.
-English courts are reluctant to enforce trust in the higher sense because of
parliamentary supremacy.
It is only if the legislature constitutes government as a trustee or when crown
declares itself a fiduciary.
See – Civilian war claimants v. R [1931] ALL E.R 432 Where the Crown received
money from Germany as a compensation for all damage done to the civilian
population of the allies and their property by land, by sea, and from the air.
The question was whether the Crown held the money as a trustee. Court
stated that the Crown would only be held as a trustee if they so declare or if
parliament precisely constitutes the executive as a trustee. - See also s.12 of
the Malawi constitution, 1994.

The Trust in the lower sense across jurisdictions

-The starting point is where Megarry V-C stated in Tito v. Waddell [1977] 3 ALL
ER 129 that trust in the lower sense is called true trust. These are trusts
recognised in private law as true trusts because they can be enforced in
court in England. Those in the public domain are classified as trust in the
higher sense.
-These are private trust, which are regulated by private law. They regulate the
private persons rights and obligations.
-All the jurisdictions recognise trust in the lower sense as a fiduciary
relationship.

The Trust and the Concept of Resources

-The nature of trust allows the resources to be pooled together and have a
big resource base.
In a trust relationship the settlor settles the property to the trustee for the
beneficiary. It is how the trustee relates to the settlor and the beneficiary that
attracts investment.

The Trust, Control, Management and Benefit

-The trustee is a fiduciary and is subject to three fiduciary duties or principles.

• A fiduciary is not to place himself/herself in a position where duty and
interest may conflict. See Bray v. Ford (1896) A.C 44 at 51 where Lord
Herschell stated that “ it is an inflexible rule of a court of equity that a
person in a fiduciary position …is not, unless otherwise expressly
provided, entitled to make a profit; he is not allowed to put himself in a
position where his interest and duty conflict.”

• A fiduciary is to act with reasonable prudence in their conduct of trust

business. See Speight v. Gaunt [1883] 22 Ch D 727 at 739 where it was
stated that a trustee is bound to conduct the business of the trust in
such a way as an ordinary prudent man of business would conduct a
business of his own. In the circumstances of this case, court held that
the trustee fully discharged his duties properly as an ordinary man of
business.

• A fiduciary is to act fairy towards the beneficiaries by complying with all

terms of the trust. See Lloyds Bank v. Duker [1987] 1 WLR 1324 at 1330-
31 where John Mowbray QC stated that there was a general principle
that: “…trustees are bound to hold an even hand among their
beneficiaries and not to favour one as against another.”
-If a fiduciary fails to discharge his duties equity has created a range of
remedies for the beneficiary and notable among these remedies are the
right of the beneficiary to demand an account from the fiduciary and to
trace the trust property that has been disposed of in breach of trust.

The Fund

Success of trust as proprietary relationship is premised on the concept of the

fund. The concept of the fund allows objects of property to be separated
and allow the funds to be put in one pool to attain particular objects.
The advantages of pooling resources together are:
a. There is a big resource base.
b. The resources are subjected to specialist managers.
c. It is easy to maximise profits.

Fiduciary Relationship defined

See Article by L. Seally “Fiduciary relationship” 1962 Cambridge Law Journal

p. 69

-It is difficult to define fiduciary relationship because no definition can

embrace all circumstances where fiduciary relationship arises. So categories
of relationship that give rise to a fiduciary relationship have not been closed.
See English v. Dedham vale Properties [1987] 1 ALLER 382 per Slade at 398
- See also Guerin v. The Queen (1984) 2 SCR 335
- What court is to do is to assess the relationship within the settled principles in
order to find whether a fiduciary relationship does arise.
There are categories of relationship that are undoubtedly fiduciaries. These
are:
- Trustee and beneficiary
- Guardian and ward
- Director and shareholder
- Agents and principals

There are approaches that determine fiduciary relationship. These are:

1. Those relationships that have been held undoubtedly fiduciaries
2. Look at the facts of the case if they contain fiduciary traits like
interdependence, confidence reposition and altruism

a. A. Scott in his article called “Fiduciary Principle “ 1949, 37 California Law

Review at 49 has defined a fiduciary as a person who undertakes to act in
the interest of another person. One doesn’t need to declare that I am a
fiduciary but the conduct itself is enough. See Norberg v. Wynrib (1992) 2 SCR
226

b. Hodgikinson v. Simms (1994) 3 SCR 377 is of the view that as long as the
other party expects you to act in his interest then it’s a fiduciary relationship.
In this case, La Foresta identified the following indicators that show that one is
a fiduciary. These are:
1. Discretion
2. Influence
3. Vulnerability
4. Trust

c. Other scholars like P.D Finn in the book of T. Youdan “equity, fiduciary &
trust” have identified the following indicators of a fiduciary position:
 a. Ascendancy
b. Dependence
c. Confidence
d. Influence
e. Vulnerability
f. Trust
A common factor in these indicators is that one person has stronger power
than the other. As was stated in Frame v. Smith (1987) 42 DLR (4th) 81 that a
fiduciary relationship exists where
1. One party exercises power or discretion
2. That power or discretion can be exercised unilateral
3. The exercise of that power or discretion does affect the other party.
The case concerned a man who was denied access to his children after
breakdown of marriage with his wife. The court held to his favour.
La Foresta in LAC minerals ltd v. international corona ltd (1989) 61 DLR (4th)
14-27 held that the following are categories of fiduciary relationship:
a. The traditional category or undoubted fiduciary relationship
b. Look at facts and see the position of the parties and deduce
whether there exists fiduciary relationship or not
c. Where fiduciary relationship is imposed to remedy the particular
wrong. This is fictional or remedial fiduciary relationship. See Chase
Manhattan Bank v. British Israel Bank.[1981] Ch. 105 where court
held that there was a fiduciary relationship. Chase Manhattan
owed the defendants some money. Unfortunately due to a clerical
error, they paid the same amount again a day later. The Israeli-
British Bank subsequently became insolvent and Chase Manhattan
sought to recover the money that had been overpaid. Court held
that Chase Manhattan were entitled to assert a proprietary claim
to the overpaid money which was still held by the insolvent bank by
way of a constructive trust. Chase Manhattan were able to gain
 priority over the rights of the other creditors of the Israeli- British
Bank.

Trusts, Rights, Duties and Accountability

-Where a right exist, there is also an obligation /duty attached to it.

-The rights always pertain to four incidents of property, which are:
1. Nominal title
2. Property control
3. Property management
4. Beneficial interest
-A right to property in a trust relationship relates to any of the four incidents of
property. One may have a beneficial interest, the other nominal title etc.
-The law of trust safeguards the rights and duties within the trust relationship. If
the trust is breached, the law of trust has crafted a lot of remedies.

Powers, the Trust, Management and Control

-Almost every trust that is expressly created has a deed or a constitution; it

spells out what power one has and how to perform the stipulated tasks.
- If a deed authorises a trustee to invest in a particular manner then that
trustee is under an obligation not to do otherwise. It will be breach of trust if
he or she doesn’t do in the manner prescribed.
-There is Ordinary power and Trust power. The latter is done as a matter of
obligation/ duty within the scope of the authority while the former is entirely
based on the trustee’s discretion as regards to the performance of the trust
and cannot be taken to court. See Mc Phail v. Doulton [1970] 2 ALL ER 228
where a distinction was made between mere power and trust power. A
trustee with mere power cannot be taken to court in regard to the exercise
of his discretion. The case concerned Mr Bertram Baden who established a
trust in 1941 to provide benefits for the staff of his company and their relatives
and the defendants. Clause 9 (a) of the trust deed stated that: “The trustees
shall apply the net income of the fund in making at their absolute discretion
grants to or for the benefit of any of the officers and employees or ex officers
and ex-employees of the company or to nay relative or dependants of any
such person in such amounts… as they think fit”. In 1941 the company
employed some 1300 people. By 1962 the fund contained assets valued at
163000 pounds, which had risen to 463000 pounds in 1972. Clearly, it was
never the intention of Mr Baden that each and every member of the
specified class should receive payments from the fund, but that those
appointed trustee should have the discretion to select some to benefit.
Equally, it was not his intention that the trustees be able to sit idly by and fail
to make any allocations at all. The language of the deed clearly indicated
an obligation, or duty, to distribute the income of the fund. The House of
Lords held that a discretionary had been created. Although the trustees had
complete discretion, which particular members of the class specified were to
receive shares of the income produced by the fund, they had no freedom to
refuse to carry out the trust.

2. The Trust in Property law

The incidents of Property and the trust notions

-There are four incidents of property. These are Nominal title, property control,
property management and beneficial interest. Trust notion allows the
separation of the incidents of property and enhances the pooling of
resources for attainment of particular objects.

Property and the Trust across legal traditions

-The concept of trust in property is not uniquely relevant to English law only as
claimed by F.W. Maitland that the trust concept is greatest achievement of
Englishman in the field of jurisprudence. Though we are to agree that trust has
developed complex institutions at English law.
See Asante “fiduciary principles in Anglo-American law and the customary
law of Ghana- a comparative study” (1965) 41 CLQ 1144
-African system of land holding recognises the notion of trust. Land was
always held on trust. Settlors were the dead entrusting on the living holding it
for the unborn. Land cannot be sold because it is held on trust and the chief
of the village is a trustee. Ownership of land relates only to use the land.
-It can be argued that African conceptualisation of the concept of trust is
better than English conceptualisation of trust because there exists no
distinction of trust in the higher sense and trust in the lower sense in African
culture.

-See- Amodu Tijani v. secretary, southern Nigeria (1921) 2AC 399

-See Asante “Fiduciary principles in Anglo-American Law and the Customary
Law of Ghana-A comparative Study” (1965) 4 International Comparative and
Law quarterly
-See Chapter 6 of Pachai’s book history of the nation (1973)

The Trust and the Nature of Proprietary Rights

-The legal owner of the trust property is the trustee.

But this ownership of trust property is nominal.
The true owner of the trust property is the beneficiary who in certain cases
can demand the performance of the trust. See Saunders v. Vaultier [1841] 4
Beav 115 where property was held on trust for a beneficiary who was aged
21. The terms of the trust required the trustees to accumulate the income
generated by the trust fund for the beneficiary, who was only to be entitled
to receive it on reaching the age of 25. It was held that, as the beneficiary
had attained the age of majority, he was entitled to demand that the
trustees transfer the trust property to him, thus negating the age restriction
imposed by the settlor.
-Trustee has the right to control, manage the property depending on the
deed that constituted the trust.
A trustee can also be a beneficiary of the trust property.

The Parties in a Trust Relationship

There are always three parties in the trust relationship. These are: the settlor,
the trustee and the beneficiary.

Settlor settles the subject of property. The trustee holds the property for the
benefit of the beneficiary, and the beneficiary can demand the
performance of the trust.

The beneficial interest

-It is an incident of property. A beneficiary is also known as cestui que trust.

-The nature of beneficial interest in trust relationship has been categorised
either as a right in rem or a right in personam.
A right in personam means that a beneficiary can enforce only on specified
persons e.g. the trustees.
A right in rem means that a beneficiary can sue anyone for breach of trust
except the BFP.
If trust property is in the hands of a BFP, equity would not enforce it because
equity’s darling is BFP. See Pilcher v. Rawlins [1872] 7 Ch App.259 where
trustees held money on trust for Jeremiah Pilcher, which they lent to Rawlins
by way of a mortgage. The mortgage was secured by the transfer of the
legal title to the mortgaged land to the trustees. The trustees subsequently re-
conveyed the legal title to Rawlins to enable him to fraudulently borrow
further money by granting a mortgage to Stockwell and Lambe. Jeremiah
Pilcher, as a beneficiary of the trust, claimed that Stockwell and Lambe were
bound to observe the trust. However, the court of appeal held that they were
bona fide purchasers without notice of the existence of the trust. They had
therefore acquired their legal mortgage free from his equitable interest

The Trust and Related Legal Conceptions

A. Trust and Bailment

-Bailment is delivery of personal chattel upon condition express or implied

once the purpose has been carried out.
-Bailment is a common law institution.
-Bailment relates to personalty. Bailee has only special ownership of property
during the subsistence of bailment. He cannot pass good title to third parties.
-Trust originated in equity. It relates both to personalty and realty. In trust
relationship, the trustee has full title. He can pass title to the BFP.
-Beneficiaries in a trust relationship are allowed to trace a trust property.

B. Agency and Trust

-An agent is a party to the contract

-Relationship between principal and agent is always created by agreement.
An agent acts for his principal.
-Agents can’t delegate because he is a delegate himself
-Principal continually issues direction on the work of the agent during
subsistence of an agency.
-For the creation of agency, the principal and agent are in contract while in
a trust relationship; there is no contract between the trustee and the
beneficiary. The similarity between contract and trust relationship is that both
the trustee’s interest and the agent’s interest should not conflict with the
beneficiary’s interest or the principal’s interest
-Trustee can delegate within certain limits
-Trustee is not subject to direction from his beneficiaries in how he discharges
his duties
-Once trust relationship is created, the settlor can’t continue to give further
direction as to the work of trustee.
-Trustees are not liable in contract or tort subject to few exceptions yet an
agent is liable in contract and in tort.
-In certain cases, an agent is a trustee of principal’s property and the
principal could exercise remedies against an agent just like a beneficiary
could.
-Note: Agent and principal are in a fiduciary relationship but it is not a trust.

C. Contract and trust

. Contract originated from common law. No consideration no contract

formed
. Only party to contract can sue
. Trust relationship is formed in equity
. Trust’s creation does not require consideration. All what is required is that the
settlor passes title to trustees.
. Contract is a bargain. All are equal in stature
. In trust, sometimes beneficiaries are not even aware that trust was created
so consideration is not required in trust’s creation.

3. Types of the Trust in Property and other Laws

This is all about classification of trust. There is no one agreed way of classifying
trust. In Carl Zeiss Stiftung v. Herbert Smith No.2 [1969] 2 ALLER 367, Slade J.
said that constructive trust has no boundaries. This means that new situations
can be included that give rise to constructive trust.
In Anglo-American legal traditions, trust is classified by referring to:

A. The manner it was created.

It can either be expressly or impliedly created. Express trust is where the settlor
has taken all the steps to create the trust while implied trust are enforced as
result of circumstances surrounding the trust regardless of the settlor’s
intention.
There are two categories of implied trust, which are constructive trust and
resulting trust.
It’s the circumstances that necessitate the creation of constructive trust
where it is applied to meet the ends of justice even without regard to settlor’s
intention. It is imposed to meet justice otherwise it would be fraud in Equity or
bad conscious and somebody could be unjustly enriched.
Resulting trust arises as a result of failure on the part of the settlor to properly
execute his intention.
In Vandervell’s Trust [1974] 1 ALLER 47, Megary said that resulting trust is in two
categories, which are:

1. Presumed resulting trust—where court determines to construct the

intention of the parties. See Cowcher v. Cowcher [1972] 1 WLR 425
2. Automatically resulting trust—where the trust property automatically
reverts back to the settlor.
The case of Vandervell’s trust is where the Vandervell Trust Company held a
share option on trust for Mr Vandervell. The option was exercised using 5000
pounds that the trust company held on separate trusts for Vandervell’s
children. Thereafter, the trustees wrote to the Inland Revenue saying that the
shares would be held on trust for the children’s settlement, and dividends
arising from the shares were henceforth paid into the children’s settlement.
Given that this was all done with the full assent of Mr Vandervell, the Court of
Appeal held that the evidence of the intention to declare a trust was clear
and manifest and that the trustee company held the shares on trust for the
children.
-Express trust can be created by an individual or by statutes. The instruments
that create the trust are construed the same way as an ordinary statute is
construed.

B. Trust can be classified by “Public-Private” divide.

This depends on the level of involvement of the State in the creation and
management of the trust. Private law regulates private person’s rights and
obligations while public law is between the State and its citizens. See
Wandsworth Local Burlough Council v. winder [1984] 3 ALLER 976
-In Tito v. Waddell, Megary said that those trust recognised in private law are
true trusts and are enforceable and those in public law domain are classified
as trust in the Higher sense.

C. Trust can be classified by reference to the Purpose it was created for.

There are private and charitable trusts. Under Private trusts there is also
protective trust which protects the property from being wasted. Charitable
trusts are often expressed to benefit the public. They are also known as
Purpose trusts—to satisfy specific purpose. They are tax exempted and
enforced by the Attorney General.

D. Trust can be classified by reference to the mode of execution

There are executory and executed trusts which are just mere sub-division of
express trust. Executory trust is where the settlor has expressed his general
intention as to the way his or her property should go. It implies an initial
agreement or covenant that trust will be executed at a later date. See Miles
v. Harford [1879] 12 Ch 691. There is need to determine whether there was
consideration or mere voluntary in executory trust.
-Executed trust is where the settlor has clearly spelt out his or her wish on how
the property should be treated. In construing executed trust equity will follow
the law. The instrument will be strictly construed giving intention to the words
used. Only in cases where the meaning is not clear is when the court can
imply other purposes. Yet in Executory trust the court is to construe widely by
looking at the whole instrument and endeavour to determine the intention of
the settlor. See Sackville- west Holmesdale (1870) LR 4 HL 543

E. Trust can be classified according to the mode of completeness.

There are completely constituted trust and incompletely constituted trust.

-Completely constituted trust is where all requirements that are needed to
constitute a trust are met while incompletely constituted trust certain things
are still required to be done later like transferring the property, the nominal
title or transferring of interests. The court is to infer from the dealings the
general intent. Justice Turnor in Milroy v. Lord (1862) 4 De GF & J 264 said that
one can create a trust either by declaring himself as a trustee or he can
transfer his property to the other people by doing so creating trust. This is the
case where Thomas Medley attempted to create a trust of 50 shares in the
Bank of Louisiana in favour of the plaintiffs by transferring them on trust to
Samuel Lord. By the constitution of the bank the shares were only transferable
in the books of the company. Although Medley had executed a deed of
assignment and delivered the share certificates to Lord, the view of the court
was that title had not been effectively transferred and the trust remained
incompletely constituted.

F. Trust can be classified according to the duties of trustees.

There are three broad categories of trustees.

1. A bare trustee –is a mere repository of
trust funds or trust resources. He plays
no active role and is hardly involved in
the management and control of trust
property.
2. Active trustee –is the one required to
perform the trust to attain its objects.
His powers depend whether its
discretionary or not.
3. Custodian trustee –is the one who
holds trust property to facilitate
greater security. He is not a manager;
he is there to prevent loss pf property.
-It does not matter whether one is a bare trustee or custodian trustee but
fiduciary principles do apply.
B. THE SOCIO –LEGAL ROLE OF THE TRUST

1. USES OF THE TRUST TOOL IN PUBLIC AND PRIVATE LEGAL REGULATION

Trust as an institution has managed to achieve massive social legal reform in
areas where it has been applied. Resources are subjected to specialised
management and greater profits have been realised.

a. The Trust and Isolation of Objects of Property for Management and Use.

Trust notion in its nature is able to isolate objects of property for management
and use. It allows concealment of real owner of property as ordinarily
understood. Settlor moves his ownership to trustees. In society those with
property have greater power and trust is able to conceal where real power
lies.
-Trust does confer power on people e.g. ownership is vested in minors as
beneficiaries of a particular trust. The managers of the property are subject to
fiduciary principles and these principles bring honesty, fairness, good faith
and prudence.

b. The Trust as a Mechanism to Pool Resources.

Funds are needed to constitute the trust. So people put their resources to one
common pool. This common pool is a separate entity distinct from the
contributors. This enables the common pool to be subjected to specialists to
manage it. It increases chance of greater productivity as the resource base is
widened. See Cooperative Societies Act 1998 where fiduciary principles are
entrenched.
c. The Trust and Property Security or Wealth Preservation

Trust is a tool for property security. The use of custodian trustee entails that
objects of property are secured. Trust devices like discretionary trust or
protective trust are executed to provide security.
Trust is used to pool funds together and with such big resource base more
wealth is generated and preserved.
The creation of pension scheme is one way of preserving wealth. These
schemes are regulated by fiduciary principles.
As long as rules of perpetuity and accumulation can permit, one can create
Protective (family) trust as a way of preserving wealth.

d. The Trust and Proprietary Interest Multiplication

Property management does not imply property preservation only. It also

implies property multiplication. This is achieved through the power or
discretion given to trustees to invest in order to maximise returns. Trustees are
under a duty to convert objects of property from wasting form to profitable.

e. The Trust and Allocation of Proprietary Interests.

Trust can be looked at as a mechanism by which proprietary interests can be

allocated. The settlor can allocate his property immediately, contingent or in
future.
In discretionary trust, the trustee has discretion to allocate between the
potential classes of beneficiaries. See Mc Phail v. Doulton (1971) AC 424
-In Implied trust like constructive trust, courts do allocate resources to
beneficiaries though there is no clear intention to create trust.

f. The Trust and Taxation

There is a difference between tax evasion and tax avoidance. The latter is
any legal method by which one can reduce his tax bill. Any person has the
liberty to manage his affairs so that tax is avoided. See IRC v. Duke of West
Minister [1935] ALLER 259 where Lord Tomlin said: “Every man is entitled if he
can to order his affairs so that the tax attaching under the appropriate Act is
less than it otherwise would be. If he succeeds in ordering them so as to
secure that result, then, however unappreciative the commissioners of Inland
Revenue or his fellow tax payers may be of his ingenuity, he cannot be
compelled to pay an increased tax.’
-Tax evasion is illegal. It involves non-disclosure of material facts to Revenue
authorities.
-The liability of a taxpayer in a law of taxation is always construed by literal
interpretation. There is no equity in taxation. The language of the statute is
construed strictly. See W.T Ramsay v. IRC [1979] 3 ALLER 215 per Lord
Templeman and Furniss v. Dawson [1984] 1 ALLER 530 where the
House of Lords held that where steps are inserted into a pre-ordained series of
transactions which have no commercial or business purpose but are inserted
solely to avoid tax, the transaction will be treated as a single whole and
taxed as such. See also Vest v. IRC (1980) AC 1148
-What is common in both tax evasion and tax avoidance is that there are
pre-ordained series of steps or transaction that have no commercial value.
-But the notion of trust can be used to avoid tax. The transferring of property
trustees reduces fee as is evidenced in discretionary trust.

g. The Trust and Wealth Creation

In Private law, trust is a proven device for wealth creation. It is enhanced by

the fact that the funds are pooled together, the resource base is enlarged
and the funds are subjected to specialist managers who are fiduciaries.
-The device has been used even to create family wealth.
2. POTENTIAL USES OF THE TRUST IN THE MALAWIAN CONTEXT

a. The Trust and Property

Trust concept could be utilised in:

1. Poverty reduction Schemes e.g. MASAF. Fiduciary principles would

regulate the use of the funds and the beneficiaries would benefit a lot.
2. Strengthening the management of family resources both in nuclear
and extended families.
3. Management of public resources generally. This would generate
accountability in public functionaries as these public functionaries do
exercise some measure of discretion in the management of the
resources. There is nothing in law like Absolute discretion. See Rooke’s
case 77 ER 209 which concerned the repairing of the river banks. If the
banks were not repaired then all the neighbouring lands would be
damaged. So the tax commissioners had to decide who would be
assessed in order to get money to repair the river bank. They assessed
that only the person who had land adjoining the river bank should pay
the tax. The one who had the adjoining land argued that the statute
required that all those whose lands were in danger of being damaged
should pay tax. But the commissioners relied on the phrase in the
statute that said that they have the discretion to decide who to pay
and who not to. Court held that though the statute says that the
commissioners had to decide by their discretion, there is nothing like
absolute discretion but discretion based on reason and law. So the
commissioners ought to have taxed all whose lands were in danger.
4. Management of NGO’s and community based organisations so that
they can be held accountable.
-Statutory power conferred on a person is power conferred on trust. So
fiduciary rules are to govern in the discharge of that power. See Public
Finance Management Act
Public Procurement Act
Public Audit Act

b. The Social Trust and Inter and Intra Generational Equity.

This is where the State resources are to be used for the benefit of the present
generation and preserve for the future generation. The resources are to be
used equitably and the notion of trust can be instrumental in achieving the
equitable use of the resources as fiduciary principles would apply in the
management of state resources. See Minors Oposa v. Secretary of the
Department of Envirnment and Natural Resources (1994) 33 International
Legal Materials 173. Where a group of 43 children who were represented by
their parents launched a complaint to revoke the timber licences and not to
issue any more due to the deforestation resulting from the extensive logging.
The Supreme Court held that the plaintiffs had locus standi and they could
also represent generations yet unborn. The government was held as a
fiduciary hence fiduciary principles apply in management of State resources.

c. The Trust and Breakdown of Family Relations.

Trust is used where there is an issue of distribution of family property. It applies
whether the couple was married or just cohabited. Just results have been
achieved in cohabited relationships through the use of the institution of trust.

d. The Trust and the Right to development

-Section 30 of the Constitution of Malawi stipulates the right to development.
It can be achieved by subjecting all managers of State resources to fiduciary
principles. Trust notions can greatly be utilised in the work of Anti- Corruption
bureau.
C. CREATION AND EXISTENCE OF TRUSTS

-Trust can be created by voluntary act or by result of situation. Voluntary act

means that one has created the trust deliberately. There are requirements
that are to be followed in order to create the trust deliberately. These are:

1. CAPACITY
-A minor cannot own certain objects of property. Section 2 of Wills and
Inheritance Act defines a minor.
-A person of unsound mind cannot dispose property
-In England, minors or persons under disability cannot be transferees of
property. Compare with the position of Malawi under Sectons 79, 108 of
Registered Land Act.
-Where a minor makes a settlement, that settlement can be avoided. See
Edwards v. Carter (1893) AC 360

2. INTENTION (FREE MIND).

It is important to prove that a settlor intended to settle a particular property.
He should not be influenced by fraud, duress or undue influence from the
beneficiaries. The settlor must know the nature of the transaction being
created. See Banks v. Good fellow [1870] LR 5 QB 549
-Fraud, duress and undue influence operate to negate the capacity settlor
might had in creation of trust.

WHAT IS FRAUD
It can be actual or constructive. The former consists of false statement of fact
made by a person to another knowingly or without belief in its truth or reckless
without caring whether it’s true or false with intent that it should be acted
upon and was actually acted upon.
-Constructive fraud is so diverse and infinite in variety that courts have refused
to define it. See Reddaway v. Banham (1896) AC 199 per Lord Mc Naghten

UNDUE INFLUENCE
There are two types, Express or presumed.
Where there is no fiduciary relationship, express undue influence is to be
proved. See Smith v. Kay (1839) 7 HL App. CAS 50
-Presumed undue influence operates where there is fiduciary relationship.
Gifts that are made and cannot be explained in an ordinary situation gives
rise to presumed undue influence. See Goldsworthy v. Brickell [1987] 1 ALLER
853 where a widower aged 85 depended so much on Brickell and his
employees in the management of his farm. Trust and confidence were
reposed in Brickell who was not in any way related to the widower. Brickell
proposed to the widower a tenancy agreement between them. The
agreement was very much favourable to him and disadvantageous to the
widower. Court held that due to the confidential relationship between them,
the presumption of undue influence applied and that the tenancy
agreement had not been entered into by the widower with a full free and
informed thought and its execution had been manifestly and unfairly
disadvantageous to the plaintiff and so improvident that it could not be
reasonably accounted for by ordinary motives. So the tenancy agreement
was set aside.
-Equity will always intervene as long as the following is proved;
1. That trust and confidence was placed in that person that’s why the gift
was made
2. That the gift was rare and improvident (substantial) gift that occasion
serious disadvantages to the donor. See Allcard v. Skinner [1887] 36 Ch 145
where a substantial gift was made and there was no independent advisor to
the donor. Court held that there was undue influence. See also Inche Noriah
v. Sheikh Allie Bin Omar (1929) AC 127
-Equity does not save people from consequences of their own stupidity but
where one is injured or duped.
-If it is shown that the gift was made after the full nature of the transaction
was explained to the donor by an independent person, then undue influence
does not arise. See National Westminster Bank v. Morgan (1985) AC 686;
Zamnet v. Hyman [1961] 1 WLR 1442; Sauze v. Argante H.C. Civil Cause No.
597 of 1986

SUBSTANTIVE AND FORMAL REQUIREMENTS FOR THE CREATION OF TRUST.

-Equity looks at substance rather than the form. So sufficient intention to
create trust is enough. Where certain formalities are not complied with, equity
considers what is undone as done as long as intention is established. But the
intention must not contravene:
Public policy
If it contravenes public policy then the trust created will either be void or
voidable depending on the circumstances. Examples of circumstances that
will render the trust void or voidable are:
i. Alienation of land in order to defraud creditors. Fraudulent Conveyances
Act 1575, section 1 is to the effect that any alienation of land to defraud
creditors is void. See also Lloyds Bank v. Marcan [1973] 1 WLR 339 ; Freeman v.
Pope [1870] LR 5 Ch App 5 ; Re Wise [1866] 17 QBD 290

-Trying to put away resources out of reach of your creditors is illegal and the
trust created will be invalid. See Cadogan v. Cadogan [1977] 1 WLR 1041
where the parties were in separation and when the husband heard that the
wife was applying for various forms of financial relief, he executed a voluntary
conveyance of the former matrimonial home which was his only asset to his
child. Court held that the conveyance was fraudulent because it was made
with an intention to defeat her claim in the matrimonial proceedings. So the
conveyance was set aside. See also Redenham [1975] 1 WLR 151

ii. It would be against public policy to create trust to induce divorce or to get
a person not to get married. See Allen v. Jackson [1875] 1 Ch 399 ; Re
Carbone [1943] Ch 222

iii. It would be against public policy to create trust that is against public
morality, to enhance crime or to separate children from their parents. See Re
Piper [1946] 2 ALLER 503 where trust was set to benefit the children on
condition that they should not reside with their father. Court held that the trust
was against public policy hence invalid.
THE THREE CERTAINTIES
All the three certainties have to be present for the trust to be valid. See Knight
v.Knight (1840) 3 Bear 143 per Lord Langadale ; Wright v.Akyns (1823) Turn & R
143.
-Uncertainty in one of them impacts or cast doubts on the other. See
Mussourie Bank v.Raynor (1882) 7 App.Cas 721 where testatotr gave to his
widow the whole of his real and personal property “feeling confient that she
will act justly to our children in dividing the same when no longer required by
her.” Court held that the widow took an absolute interest in the property
because the words used cast doubts whether trust was created.

1.Certainty of words or intention

-It is not necessary to use technical words. Facts themselves tell whether there
was an intention to create a trust.
-Precatory words are words that express wish or want and do not import an
imperative that trust is created. Earlier jurisprudence recognised that
precatory words do create trust. See Palmer v. Simmonds (1854) 2 Drew 221
where the testatrix used the words “bulk of her residuary estate” and Court
held that the language did not describe the subject of the gift with sufficient
certainty to create a precatory trust.. But in Lambe v. Eames [1871] LR 6 Ch
per Lord Janes said that court is exercising kindness when precatory words
are recognised to create trust.
-What is required is to analyse the words used and discern if the intention is
clear that it was to create trust. See Re Adams Kensington vestry [1884] 27 Ch
394 ; Re Halmiton [1895] 2 Ch 37 ; Mussourie Bank v. Raynor (1882) 7 App.Cas
721
-If the words used are uncertain then the settlor might not have meant to
create trust. But if the words used were once held to create trust then by
doctrine of precedents, those words do create trust. See Re Steele’s Trust
[1948] Ch 253 ; Shelley v. Shelley (1868) LR 6 Eq 540
2.Certainty of Subject matter
Property that is to be settled must be certain. Where the property is not
identified with
precision and clarity, the trust created is void. See Palmer v. Simmonds (1854)
2
Drew 221
-Certainty of words is related to certainty of subject matter. See Mussourie
Bank v. Raynor (supra)

3.Certainty of Objects
-If beneficial interest is uncertain then the trust is void and the trustees hold
the property on resulting trust for the settlor. So even if the two certainties
above are valid but uncertainty on the beneficial interest renders the trust
void. See Morice v.Bishop of Durham 32 ER 656 @658 where Sir William Grant
MR stated that: “Every trust must have a definite object. There must be
somebody in whose favour the court can decree specific performance. The
case concerned a bequest to a Bishop upon trust for such objects of
benevolence and liberality as the Bishop in his own discretion shall approve
of. Court held that it was not a charitable trust hence it was required to have
certainty of objects. So the trust failed due to lack of certainty of objects. See
also Re Vandervell’s Will Trust No.2 [1974] 1 ALLER47 reiterated the beneficiary
principle. In fixed trust each and every beneficiary must be ascertained for
the trust to be valid. It is very different with discretionary trust. See also Mc
Phail v. Doulton ; Re Tucks Settlement [1803-13] ALLER 501 ; Re Ball [1948] Ch
228 ; Re Endeacott [1960]Ch 232
-The test used in fixed trust is complete list test. See IRC v. Broadway Cottages
[1954] ALLER 569. This case was not a fixed trust case but discretionary case
but the ration in that case was that of fixed trust. The test in discretionary trust
is that in Mc Phail v.Doulton [1971] AC 424. It followed that of Gulbenkian
Settlement Trust (1970) AC 508
-No need for evidential certainty as required in fixed trust. As long as there is
conceptual certainty discretionary trust becomes valid. See Re Badens (No.2)
[1993] 1 WLR 509. If the class of potential beneficiaries is too wide that it
becomes unworkable then the trust is invalid. See Re Hay’s Settlement Trust
[1931] 3 ALLER 786

THE CONSTITUTION OR CREATION OF A TRUST

1.Trust created under a will
This is where nominal title is transferred on to the trustees through
testamentary disposition. It takes effect when the testator dies. Section 5 of
Wills and Inheritance Act spells out the conditions that have to be met before
a will becomes valid.

2.Trust created by Transfer of Property intervivos

As was stated by Turnor in Milroy v. Lord (1862) 4 De & J 274 that trust can be
created intervivos by either declaring oneself to be a trustee or transferring of
the property to trustees.
-There can be completely constituted trust where nominal title is completely
vested on the trustees or incompletely constituted trust where settlor has not
yet done all that is required to establish a trust. This can happen either
nominal title is still vested in himself or herself or he or she may not yet have
transferred the property to the trustees.
-Incomplete constitution of trust is enforceable if consideration is furnished.
Equity does not perfect an imperfect gift or does not assist a volunteer. See
Pullan v. Koe [1913] Ch 9 where a wife covenanted to settle after-acquired
property of a value greater that 100 pounds on the trusts established under
her marriage settlement. She subsequently received a gift of 285 pounds from
her mother, which she failed to transfer to the trustees and which was instead
invested in bonds. On the death of her husband, the bonds were in the
possession of his executors. Court held that the trustees were entitled to
enforce the trust on behalf of her children because they were within the
scope of the marriage consideration and not mere volunteers. The bonds
were therefore held on the terms of the marriage settlement even though
they had not been transferred to the trustees. See also Re Hay Settlement
Trust [1931] 3 ALLER 786 ; Re Pryce [1917] Ch 234 ; Canon v. Hartley [1949] Ch
215 ; Ellison v. Ellison (1802) 6 ves 526 ; Donaldson v. Donaldson (1854) Kay 711
This general rule has two exceptions:
i. The rule in Strong v. Bird (1874) LR 18 Eq. 315 which is to the effect that:
a. The giver must have an intention to make the
immediate gift during his or her lifetime.
b. The inteded gift must actually become
materialised –animus donandi
c. The donee must be appointed executor
subsequently
d. The subject matter must continue to exist after
the death of the donor.
The case of Strong v. Bird concerned an incomplete release of a debt. Strong
had borrowed 1100 pounds from his step- mother who lived in his house and
paid board to him. It was initially agreed that he would repay the sum to her
by means of a deduction of 100 pounds from the board she paid quarterly.
After two quarters where the deduction was made, she told him that she did
not want the money returned and reverted to paying full board. This was not
effective as a release of the debt at common law, which required a deed,
and Strong had not provided any consideration. Four years later she died.
Strong was appointed sole executor in her Will. The court held that his
appointment operated to perfect the imperfect release of the debt, so that
strong was no liable to repay the loan to the estate.
-It must be noted that prior equity takes precedence over later equity so the
rule in Strong v. Bird may be defeated by prior equity. See Re Ralli’s Will Trust
[1964] Ch 288 ; Re Gonin [1979] Ch 16 ; Re Pink [1912] Ch 528
ii. Gift made in contemplation of death –donatio mortis causa. The gift is
effectual if settlor did not constitute what he or she ought to have done and
as long as the following requirements are met:
a. He or she made the gift when death was
contemplated
b. The gift is on condition that he dies
c. There must be delivery or parting of dominion of
property.
See Sen v. Headley [1991] Ch 425 where Mrs Sen had lived with Mr Hewitt for
ten years and had remained very close to him after this. When he was dying
he told her that his house, title to which was unregistered, was hers, and he
gave her the keys to a steel box which contained the deeds. It was held that
in these circumstances a valid donatio had been made in her favour, and
she was therefore entitled to compel the administration of his estate to
transfer the legal title of the house into her name. See also Duffield v.Elwes
(1827) 1 Bli (NS) 497 ; Miller v. Miller (1735) 3 PW wins 356; Rich v. Treasury
Solicitor [1951] Ch 298

THE FORMALITIES—HOW SHOULD PROPERTY BE TRANSFERRED

The nature of property determines how it can be conveyed.

a. Land
Section 7 of statute of Frauds 1677 says that there is need of evidence of
memorandum in writing. The general principle is that oral evidence is not per
se void but its unenforceable. If a trust is partly by way of oral declaration
and partly in writing, that oral declaration should be evidenced by writing—
there is no need to use technical words because what is required is an
inference that property was conveyed. See Richards v.Delbridge (1874) LR 18
Eq. 11.
-There is an exception to the rule that oral declaration has to be supported
by writing. Equity has recognised this exception by saying that statute of
frauds should not be used as a tool or engine of fraud. See Rochefourcauld v.
Bousted [1897] 1 Ch 196. where Rochefoucauld owned the Delmar Estates in
Ceylon, subject to a mortgage of 25,000 pounds. The land was sold by the
mortgagee to the defendant, who was intended to take as a trustee for
Rochefoucauld. He subsequently mortgaged the land to a further 70,000
pounds without her consent. Rochefourcauld sought a declaration that the
defendant had acquired the land subject to a trust in her favour. The
defendant claimed that the alleged trust had no been proved by any writing
signed by him, as required by the statute of frauds section 7. The Court of
Appeal held that despite the lack of formalities compliant with the statutory
provision evidence other than writing signed by the defendant would be
admitted to prove the trust, since otherwise the defendant would be
committing a fraud against Rochefoucauld.
-Once land is conveyed and there is a vacancy in the trustees, the new
trustees become automatically vested with the same power as original
trustees. See s.50 of trustee Act.
-Malawi is still using the statute of frauds while our friends in England have
revised their rules and they have Law of property Act of 1925.

b. Chattels
Can be transferred either by a deed or an intention to transfer coupled with
actual delivery of the chattel. See Re Ralli [1964] Ch 288 ; Re Cole [1964] Ch
175 ; Ryalls v. Rolls (1750) 1 ves ser 348.
-The rule of automatically vesting applies.

c. Shares
-By registration of new owner on the shares company. All the procedures of
share transfer have to be followed by completing share transfer forms.
Transfer will be valid even if there are a few internal administrative delays by
the company. See Re Rose [1952] 1 ALLER 1217; Milroy v. Lord (1862) 4 De GF
& j 274; Re Fry [1946] Ch 312. If the transferor dies before the administration of
the transfer, the transferee becomes the owner.

d. Equitable interest
It must be in writing and signed by the grantor or assignor. See section 9 of
statute of frauds. See also Kekewich v. Manning (1851) 1 De GM & G 176.
-No need to have the documents executed at one time. It can be at
different times as long as an inference of intention can be made. See Section
9 of the Statutes of fraud.
-What can be disposed as beneficial interest is not only grants or assignment
but can be more than that. See Gray v. IRC (1960) AC 1

e. Future property
Trust cannot be presently created over future property e.g. property under a
will, damages hoped to recover under litigation. But there are forms of future
property that can be used to create trust. For example, if one has a
contingent interest in some property like a remainder of a life interest. See
Pullan v. Koe [1913] Ch 9; Fletcher v.Fletcher (1844) 4 Hare 67; Re Ellen
Borough [1903] Ch 697; Brooks Settlement Trust [1939] Ch 993

HOW DOES ONE BECOME A TRUSTEE

One can become a trustee in words or conduct. He or she can declare

himself or herself to be a trustee since no magic words are needed. See
Richards v. Delbridge (1874) LR 18 LR EQ 11. at 14 where Jessel MR made
clear that the settlor does not need to use particular words or technical
expressions to create a trust by declaration: “… he need not use the words “ I
declare myself a trustee”, but he must do something which is equivalent to it,
and use expressions which have the meaning.”
-Settlor can appoint one to be a trustee. What is required is an inference that
he or she clearly intended to constitute a trust. See Re Cozen [1913] 2 Ch 748
-Loose conversation is not enough to create a trust. See Jones v. Lock [1865]
1 Ch App. 25 where Jones was an iron- monger who had returned from a
business trip to Birmingham. The nurse of his infant son complained that he
had not brought anything back as a parent for the baby. Jones then
produced a cheque for 900 pounds, payable to himself, which was the result
of his business negotiations and handed it to the baby saying: “ Look you
here, I give this to baby; it is for himself, and I am going to put it away for him,
and will give him a great deal more a long with it.” A few days later he died.
The question was whether in the circumstances the father had created a trust
of the money represented by the cheque for the son. The cheque had not
been effectively transferred to the son, as this would have required the
father’s endorsement. Court held that there was equally no effective
declaration of trust.
-Words spoken over a long period of time may suggest an intention to create
a trust. See Paul v. Constance [1970] 1 WLR 77
-Conduct by itself may be sufficient to constitute trust. See Vandervell’s Trust
(No.2) [1974] 1 ALLER 47
-If a beneficiary is not a ware that trust has been created by declaration, it
does not invalidate the trust. See Middleton v. Pollock [1876] 2 Ch 104;
Standing v. Browring (1855) 31 Ch 282

RULES AGAINST PERPETUITY, UNALIENABILITY AND ACCUMULATION.

These rules have to be complied with for trust to be valid. The rationale is that
there must be a balance between the interest of the economy and the trust
owner.
Rule Against Perpetuity
Any future interest going beyond a life of a settlor + 21 years is against the
rule. Read what was said in Press Trust case (SCA)
-Vesting outside perpetuity period is void except charitable trusts. The
beneficiaries must access the trust within the perpetuity period. See Duke of
Norfolk’s case [1831] 31 Ch1; Re Abbort [1893] 1 Ch 54; Re Caleys Will Trust
[1938] Ch 192; Leake v. Robinson (1817) 2 Mer 363
-Common law rules regarding perpetuity are applicable to Malawi. Under the
common law there was no wait and see. It was void there and then. But now
there are new rules in England that require first to assess the situation. See
Perpetuity and Accumulation Act 1964 of England.

Rule Against Inalienability

Trustees are not allowed to keep funds away from the general economy.
Money has to change hands. Its only charitable trusts that does not offend
the rules of inalienability.

Rule Against Accumulation

-Trustees have power to accumulate trust property especially in non-
exhaustive discretionary trust.
-Permissible periods of accumulation are during the lifetime of settlor or
minority of beneficiary. Otherwise the trustees are to allow the beneficiaries
to access the funds. See section 42 of Trustee Act.

TRUSTS, STATUTORY LAW AND THE MANAGEMENT OF PUBLIC RESOURCE

A. The Constitution and the Trust in the Higher Sense

The law of trust in the higher sense manifests in our statutes. The recognition of
some trust notions imports fiduciary relationships.
-Section 5 states that it is the supreme law
-The constitution is founded on social contract principles and social trust
notions.
-The ideological basis is provided in sections 12 and 13
-Section 12 talks of accountability, transparency to strengthen public
confidence
-Section 13 states that the State is to initiate policies
-Section 13(0) talks of financial probity
-Section 30 talks of the right to development. It means the State is a duty
bearer.
-The Constitution and other statutes create funds by utilising trust notions. See
chapter 8 of the constitution.
-Management of public entities in Malawi has trust implications due to
incorporation of councils, boards, committees e.t.c So it is possible to deduce
that that these public functionaries are fiduciaries.

B. Key Examples from Legislation

Sections 56-80 of the Environment and Management Act, Act No.23 of 1994
Sections17, 100 of the National Parks and Wildlife Act, Act No.11 of 1992
Sections 3, 13 of Mzuzu University Act
Sections 3-8 of ESCOM Act, Act No.20 of 1998
Sections 8, 25, and 26 of Land Act, Act No.25 of 1965
Section 2 of Mines and Minerals Act, Act No.1 of 1981

What is apparent is that Public functionaries do not account to their

supposed beneficiaries but to their political superiors.
The State is quick to enforce fiduciary principles on the Citizenry than the vice
versa. See Reading v. AG [1949] 2 KB 323; Ag of Hong Kong v. Reid [1994] 1
ALLER 1

SPECIFIC FORMS OF TRUST

SECRET TRUSTS
This is a mechanism that allows a settlor or testator to provide beneficiaries
without disclosing the full particulars of who the beneficiaries are.
-The settlor is allowed to incorporate documents or trusts in the will without
even following the proper procedures of the will. See Re Snowden [1979] 2
ALLER 172 where Megary said that secret trust is a trust that operates outside
a will but changes nothing that is written in the will. It attaches a trust to the
property in the custody of a particular recipient. The case concerned an
elderly testatrix who left her entire residuary estate to her older brother
because she was uncertain as how she should leave her property amongst
her relatives, and she said that her brother would “ know what to do.” She
died without changing her Will, and six days later her brother also died,
leaving all his property to his only son. The question was whether the brother
had taken Mrs Snowden’s residuary estate on secret trust for her nephews
and nieces equally. Court held that she had not possessed the necessary
intention to impose a trust on her brother in favour of the nephews and
nieces, but that she had merely intended to impose on him a “moral
obligation” to do what he thought best. As a result no secret trust was
established, and the brother’s son was entitled to the entire residue
absolutely.
-Equity also does allow a person to provide for a beneficiary even without full
incorporation of document in the will as long the following conditions are
met:
1. The document must exist at the date the will was drafted. See Singleton v.
Tomlison (1878) AC 844
2. The document must be referred to in the will that it exists –the will must say
so. See Re Smart [1902] P 238
3. The document must clearly be identified in the will. See Re Balmes [1897] P
26
-But Secret trust has allowed that documents can be incorporated even if the
above three requirements have not been followed. The rationale is that
secret trust is recognised to prevent fraud. It can be recognised even if
provisions of Wills and Inheritance Act have not been complied with. So the
position of Secret trust as of now is what was stated by Megary in Re
Snowden (supra) that secret trust is a trust that operates outside a will but
changes nothing that is written in the will.
-Parole evidence is allowed in secret trust. See Blackwell v. Blackwell (1929)
AC 318 where testator left property to a trusted friend who agreed in
advance to pass it on to his mistress and to his illegitimate child. On the face
of the Will it simply suggested that bequest was made to a friend but the
reality behind the scenes was that the provision was made secretly for the
unrevealed beneficiaries. Court allowed the parole evidence from the
trustees that they received from the testator a communication of the trusts to
be attached to the gift.

TYPES OF SECRET TRUSTS

-There is fully secret trust and half secret trust. The former arises where the
settlor leaves the property to Y on a will that it should be held for beneficiary
X. They agree secretly that the property is held on trust. On the face of the will
there is no indication that the property is held on trust. So the integrity of Y is
material to the implementation of the trust. Fraud here is inevitable that’s why
the justification that secret trust is recognised to prevent fraud is trashed.
There are rules that govern the operation of fully secret trust which were
stated in the case of Ottaway v. Norman [1971] 3 ALLER 1325. These are:
1. There should be an intention of the testator to subject the primary
donee an obligation in favour of the secondary donee. It is not enough
to impose moral obligation. See Re Snowden(supra)
2. There must be communication to primary donee of the facts of the
trust and its full terms. This must be done before the death of the
 testator. See Ottaway v. Norman (supra). The case concerned Harry
Ottaway who cohabited with Miss Hodges in his house. On his death,
the house was left to Miss Hodges in his will, and she left it in her Will to
Mr and Mrs Norman. The son of Ottaway claimed that the house had
been left to Miss Hodges on the understanding that she would leave it
to him on her death. He claimed that a secret trust had been created
in his favour; so that Miss Hodges held the house on trust for him and
that it had not therefore formed part of her estate. Court held that a
fully secret trust was created in favour of the son.
3. The intended trustee must accept. Acceptance may be deemed by
acquiescence or conduct. See Moss v. Cooper (1816) 1 John & H 352
or 70 ER 782
Half Secret Trust
This is where on the face of the will there is an indication that there is a trust
but no full terms are disclosed. The full terms are revealed secretly to the
trustee.
-There should be a clear indication of settlor’s intention to impose an
obligation on the trustee. Settlor has to communicate the facts and the terms
of the trust before the execution of the will or before he dies. As long as the
settlor is alive, a will can be amended.
-Communication in half secret trust is complete. Parole evidence that is
inconsistent with the face of the will is not allowed. See Blackwell v. Blackwell
(1929) AC 318
-Testator is not allowed to reserve power to change the trust in future. If he
reserves power and dies then the trust created would be invalid. See Re Keen
[1937] 1 ALLER 452: Re Bateman Will Trust [1970] 3 ALLER 817
- Communication has to go to all relevant trustees. See Wallgrave v. Tebbs
(1855) K & J 313 where William Coles left property in his Will to the defendants.
From a letter he had written it appeared that he had intended that it should
be applied by them for the charitable purpose of endowing church.
However, as his intention had not been communicated to them during his
lifetime, Page-Wood V-C held that no trust had been created and that the
defendants were entitled to take the property bequeathed to them
absolutely. See also Re Stead [1900] 1 Ch 237
-It is required that the intended trustees should accept to hold the property
on trust.

What if the communication is in effective in half secret trust?

As already stated above that in half secret trust, trust is evident on the face of
the will. It is clear that trust is created. So if the communication is in effective
the trust does not fail but the primary donee holds it in favour of residuary
legatee. It is no longer held on secret trust but a resulting trust. See Moss v.
Cooper 70 ER 782
What happens if fully secret trust fails?
It means the intended trustee takes absolutely. See Wallgrave v. Tebbs (1835)
K & J 313

INEQUITABLE EXCLUSION AND TRUST IMPLICATIONS

A. UNJUST ENRICHMENT

-It is a principle that a person should not be permitted to unjustly enrich

himself at the expense of the other but instead be compelled to make
restitution. So unjust enrichment presumes an obligation to make restitution.

Requirements to prove unjust enrichment

1. Prove that there has been an enrichment or benefit that has accrued
to a particular person.
2. There is knowledge (actual, imputed or constructive) or appreciation of
benefit by the particular dependant.
3. There is retention of the benefit with knowledge that the benefit has
accrued inequitably.

-It is required that any person who has unjustly enriched should make
restitution. See Sinclair v. Brougham [1914] ALLER 622 where a building society
had operated an ultra vires banking business. It concerned the rights of the
depositors who had invested their money with the bank when the building
society had become insolvent. The House of Lords held that they were not
entitled to claim restitution at common law through the action for money
had and received, which would have meant that they would have stood as
creditors in the insolvency and they would have ranked pari passu with other
general creditors of the society. The House of Lords held that, since the
building society had acted ultra vires in conducting the banking business, any
contract to repay the depositors would also have been ultra vires and
therefore void and unenforceable. But House of Lords held that the building
society had received their deposits as a fiduciary and that they were entitled
to trace their money in equity into the remaining assets. The decision of this
case was questioned in Westdeustche case (1996) AC 669 where the House
of Lords held that if the same facts of Sinclair v. Brougham had arisen today,
the depositors would have been entitled to personal restitution on the
grounds that the building society had been unjustly enriched by the receipt
of their deposits when there had been a total failure of consideration
because their promise to repay was ultra vires and void. There would
therefore be no need to trace in equity and the House of Lords overruled the
decision in Sinclair case where it had found that the deposits were held on
trust for the depositors by the building society so as to be traceable in equity.
See also Fibrosa v. Fairbain [1942] 2 ALLER 122

-Basis for finding unjust enrichment has varied across jurisdictions.

In Canada,
Unjust enrichment is emphasised. See Pettkus v. Becker 117 DLR 257 (1980) per
Justice Dickson. The case concerned a woman who had lived with a man for
14 years and had worked with him on his honey farm. On termination of the
relationship, the Supreme Court held that she was entitled to a half share by
way of a constructive trust.
In Australia,
Unconscionable conduct is emphasised. See Baumgartner v. Baumgartner
(1987) 164 CLR 137 where Leo and Frances Baumgartner, who were
unmarried, began to cohabit in 1978 in Leo’s home. In 1979 he bought a
house in his own name with a mortgage, while they lived together; Frances
gave her pay apcket to Leo. Who paid all the expenses associated with their
accommodation and household. Their relationship broke down and Frances
claimed that she was entitled to an interest in the property. Court held that
the property should be held in the same shares to which they contributed
their income to the common pool, thus 45 % and 55% respectively.

In New Zealand,
Reasonable expectation is emphasised. See Gillie v. Keogh (1989) NZLR 327
where a man moved in with a woman. A house was purchased in her sole
name, using funds from her previous matrimonial property and various loans
from family and friends. They both worked and their earnings were paid into a
joint account, which was used to pay household expenses and outgoings
associated with the house, which was also extended and improved.
Throughout the relationship she indicated to him that she regarded the house
as hers. Court held that in these circumstances he had no reasonable
expectation of obtaining an interest in the house and he was not therefore
entitled to a constructive trust.

In USA,
The emphasis is to protect reliance and beneficial or proprietary interest. See
Latham v. Father Divine 299 NY 22 (1949).

In United Kingdom,
The emphasis is on prior common intention or implied promise (agreement).
See Gissing v. Gissing [1970] 2 ALLER780 where the issue was whether a wife
was entitled to a share of the ownership of her matrimonial home, which had
been purchased in the sole name of her husband. Court held that there was
no common intention that she will have a share and she did not substantially,
financially contribute to its buying. See also Pettitt v. Pettitt (1970) AC 777; Re
Diplock (1948) Ch 465. In Chase Manhattan Bank v. Israeli British Bank [1981]
Ch 105, court recognised that there should be restitution where there is unjust
enrichment. It is a case with difficulties due to the fictitious fiduciary
relationship but equity won’t suffer a wrong without a remedy.
-Since 1948, English courts have limitedly applied unjust enrichment. They
have insisted that unjust enrichment is not a separate cause of action but
part of an implied promise therefore for one to be restituted he or she has to
establish a proprietary right. See Re Diplock (1948) Ch 465 where Caleb
Diplock left his residuary estate to his executors to be applied to “such
…charitable or benevolent objects” as they shall” in their absolute discretion
select”. The executors of Caleb Diplock had wrongfully distributed his
residuary estate amongst various charities because they thought that valid
charitable bequests had been made since the charities were innocent
volunteers, who had not provided valuable consideration, they received the
money subject to the pre-existing equitable interests of the beneficiaries to
whom it should have been allocated. His next of kin were therefore able to
claim from the charities any assets that could be shown to represent the trust
property by the rules of tracing.

-In Malawi we follow the English approach but notions of constructive trust,
estoppel and resulting trust are included. See
Kayambo v. Kayambo11 MLR 259;
Malinki v. Malinki 9 MLR 441;
Nyangulu v. Nyangulu 10 MLR 433;
Chibweya v. Chibweya 10 MLR 279;
Sauze v. Argante H.C Civil Cause No. 597 of 1986.

What emerges from Pettkus v. Becker (supra) is that unjust enrichment can be
proved if a party proves that there was:
1. Benefit
2. Corresponding detriment
3. Absence of any juristic reason for retaining the benefit.
-But English courts still insist that there has to be common agreement.
See AG of Hong Kong v. Humphrey’s Estates (1987) AC 114 where the
claimants failed to show that they had relied on an expectation which had
been encouraged. See Lim Ten Huang v. Ang Swee Chuan [1992] 1 WLR 113;
compare with Greasley v. Cooke [1980] 1 WLR 1306

Relationship between unjust enrichment as a principle of trust and trust

notions

Enforcement of trust notions is to facilitate fairness. Unjust enrichment

presumes restitution and restitution is enforced to facilitate fairness. Equity
enforces fairness. See Clarkson v. Hanway 24 ER 700; Bridgman v. Green 28 ER
399; Thynn v. Thynn 23 ER 479.
-A remedy of tracing is available once unjust enrichment is proved but it
requires prior fiduciary relationship. See Sinclair v. Brougham (1914) AC 398;
Agip (Africa) Ltd v. Jackson [1992] 4 ALLER 451 where a company was
defrauded by its chief accountant, Zdiri, who altered the name of the payees
of genuine payment orders so that they were payable to dummy companies
he had created. Millet J held that as the accountant was a fiduciary of the
company by virtue of his senior position and responsibility, the
misapropriated money was held on constructive trust by the recipient dummy
companies and Agip was enabled to trace it.;

Re Hallet (1880) 13 Ch 696 where a solicitor, who was a trustee of his own
marriage settlement, was entrusted with money by a client for investment. He
paid money from the trust and his client’s money into his bank account,
which also contained some of his own money. He made various payments
out, which had been dissipated. On his death the account contained enough
money to satisfy the claims of the trust and the client, but not his other
creditors. The central question was whether the money in the account could
be said to be the property of the trust and client, in which case they would
gain priority over the general creditors. Court held that the trustee must be
presumed to have spent his own money first, and to have preserved the trust
moneys.;

Lipkin Gorman v. Karpnale [1992] 4 ALLER 512 where Norman Cass was a
partner in a firm of solicitors who used some money from the firm’s client
account to finance his gambling at the club. The firm subsequently sought to
recover the money that had been paid to the club. It alleged that the club
was liable to account as a constructive trustee for the money received, which
was no longer identifiable by the rules of tracing because it had become
mixed with its other receipts. It was held that the club had not received the
money with sufficient knowledge that it was subject to a trust to render it
liable to account as a constructive trustee.

B. RESULTING TRUST

-It is an implied trust founded on unexpressed but presumed intention of the

settlor. It is different from constructive trust though some cases seem to
suggest that there is no distinction. Constructive trust is imposed as a result of
conduct of party who becomes a trustee while resulting trust arises where
settlor fails to properly execute his or her intention. The equitable title results
back to the settlor (automatic resulting trust comes into being by mere
operation of the law) or court tries to construct the intention of the parties
(presumed resulting trust comes into being because it is presumed that in that
particular instance the intention of the settlor has manifested that he did not
intend to divest himself of the property. This presumption is rebuttable).
-The rationale for resulting trust is that any property which the settlor has failed
to transfer remains his or her own. See Re Sick and Funeral Society of St John’s
Sunday school [1973] Ch 51 per Megary;

Vandervell v. IRC [1967] 1 ALLER 1 per Lord Reid.

HOUSE OF LORDS
15, 16, 20 JUNE, 24 NOVEMBER 1966
Surtax – Settlement – Income of property of which settlor claims to have “divested himself
absolutely” – Property or income becoming payable to him or applicable for his benefit – Gift
of shares to college, they granting a purchase option to trustee company – Dividends to
provide funds for chair in pharmacology – Intent – Beneficial trusts of option not defined –
Whether resulting trust inferred from primary facts or established in law on the evidence –
Income Tax Act, 1952(15 & 16 Geo 6 & 1 Eliz 2 c 10), s 415(1) (d), (2).

Equity – Equitable interest – Transfer – Writing – Transfer of legal interest of bare trustee of
shares in a company, beneficial owner intending gift of them – Whether any need for
separate written transfer of equitable interest – Law of Property Act, 1925(15 & 16 Geo 5 c
20), s 53(1) (c).

In 1958 the taxpayer, who controlled a very successful private company, decided to give
£150,000 to the Royal College of Surgeons to found a chair of pharmacology. The
company’s issued ordinary share capital was (i) five hundred thousand ordinary shares,
substantially all of which were held by the taxpayer; (ii) one hundred thousand “A” ordinary
shares held by a bank as nominee for the taxpayer and (iii) 2,600,000 “B” ordinary shares, of
which the taxpayer held 546,692 and the remaining 2,053,308 were held by V T Ltd as trustees
of a family settlement. Only the first class of shares carried voting rights. In order to achieve
his purpose the taxpayer, through R his financial adviser, suggested giving to the college the
one hundred thousand “A” ordinary shares, intending to pass to the college both the legal
and beneficial interest in them. Subsequently, on the advice of R and by way of second
thoughts in order to avoid any future difficulties if the company were to be converted into a
public company, the taxpayer acceded to R’s suggestion that the college should give an
option to V T Ltd to purchase the shares for £5,000 within five years. In November, 1958, R
delivered to the college the transfer by the bank of the “A” ordinary shares and an option
deed. The college sealed these deeds and were registered as owners of the shares.
Dividends on the “A” shares, amounting to £145,000 less tax at the standard rate, were paid
to the college. On 11 October 1961, V T Ltd exercised the option. The £5,000 was paid to the
college. The taxpayer was assessed to surtax on the basis that the dividends in the years
1958–59 and 1959–60 which, with the £5,000 on the exercise of the option, made up the gift
to the college, were his income or were required to be treated as his income under s 415 of
the Income Tax Act, 1952. It was not disputed that there was a settlement within the meaning
of s 411(2) of that Act. The taxpayer contended that he had by the settlement within s 411(2)
􀂭 1􀂭 divested himself absolutely of the property and thus came within the exception
provided by s 415(1)(d) and (2)a
________________________________________
a Section 415 provides, so far as is material: “(1) Where, during the life of the settlor, income
arising under a settlement … is … payable to or applicable for the benefit of any person
other than the settlor, then, unless … the income … —(d) is income from property of which
the settlor has divested himself absolutely by the settlement … the income shall be treated
for the purposes of surtax as the income of the settlor … “(2) The settlor shall not be deemed
for the purposes of this section to have divested himself absolutely of any property if that
property or any income therefrom or any property directly or indirectly representing
proceeds of, or of income from that property or any income therefrom is, or will or may
become, payable to or applicable for his benefit in any circumstances whatsoever.”
Subsection (2) was amended by the Finance Act 1965, s 12(2) and (4), in relation to
settlements made after 7 April 1965; but the alteration appears to be immaterial as respects
the ratio decidendi of this case.
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (i) (Lord Reid and Lord Donovan dissenting) the option to purchase the “A” shares was
vested in the trustee company in 1958, either (per Lord Upjohn and Lord Pearce) as a matter
of inference from the primary facts on such trusts as might be declared subsequently, or (per
Lord Wilberforce) as a matter of interpretation of the evidence on trusts which were
undefined, and on either basis the consequence in law was that the option was held on a
resulting trust for the taxpayer; accordingly the taxpayer had failed to divest himself
absolutely of the property which was the source of the dividends paid to the college, and
had not brought himself within the exempting provisions of s 415(1)(d), (2) of the Income Tax
Act, 1952, with the consequence that the assessments should stand (see p 11, letters a and c,
p 6, letter e, p 17, letter i, and p 18, letter c, post).
(ii)since a transfer of the “A” shares had been executed by the bank, which was nominee for
the taxpayer, and had been delivered on the taxpayer’s behalf to the college, which
became registered as owners of the shares, there had been no need for a separate transfer
of the taxpayer’s equitable interest in the
“A” shares and s 53(1)(c) of the Law of Property Act, 1925, had no application (see p 7,
letters g and i, p 6, letter e, p 4, letter i, p 11, letters d and e, and p 18, letter h, post).
Per Lord Upjohn: I do not agree that prima facie a transfer of the legal estate carries with it
the absolute beneficial interest in the property transferred; this plainly is not so, eg, the
transfer may be on a change of trustee; it is a matter of intention in each case. If the
intention of the beneficial owner in directing the trustee to transfer the legal estate to “X” is
that “X” should be beneficial owner, I can see no reason for any further document, or further
words in the document assigning the legal estate, also expressly transferring the beneficial
interest (see p 7, letter f, post).
Decision of the Cort Of Appeal ([1965] 2 All ER 37) affirmed, but on rather different reasoning.

Instances that give rise to resulting trust

1. Where there is failure to exhaust the beneficial interest. See Re Abbot
Fund Trusts [1900] Ch 326 where a fund was collected and established in 1890 for
the support of two deaf and dumb ladies. On their death in 1899 a surplus remained
in the fund. The court held that the surplus should be held for the benefit of those who
had subscribed to the fund.

2. Where there is partial exhaustion of trust fund. See Re Ames Settlement

[1946] Ch 127
3. Failure of the initial terms of the Trust –lack of certainty of objects. See
Morice v. Bishop of Durham (1804) 9 ves 399
4. Where there is failure to perform the trust- where trust becomes
unworkable. See Mc Phail v. Doulton (1971) AC 424
5. Trust that infringe rules relating to perpetuity period.
6. Where trust fails as result of illegality. See Tinsley v. Milligan [1993] 3
ALLER 87 where a lesbian couple purchased a house in the sole name of Tinsley. The
purchase price was raised by way of mortgage and the remainder derived from the
sale of a car that they owned jointly. The question was whether a plaintiff could assert
a claim to an equitable interest in land by way of a resulting trust where she had
acted illegally as they registered the house in the sole name of Tinsley so that Milligan
could still get the social welfare help. The House of Lords held that this direct
contribution gave rise to a presumption of a resulting trust in favour of Milligan of a
 half share in the house. She was successful because she relied on the contribution
made not on the illegally involved.

See Thrupp v. Collet (1858) 26 Beav. 125

7. Where there is voluntary conveyances and presumption of trusts

Voluntary Conveyances and Presumption of Trusts

-There are two main basic presumptions in this regard:

1. Presumption against gifts. It is presumed that outside certain relationships
certain gifts cannot be made. Any voluntary transfer without consideration
will be presumed to have been made on trust and not as a gift.

2. Presumption in favour of the person who provides purchase money for

particular objects of property. It will be presumed that the provider intended
to retain an equitable interest
See Dyer v. Dyer (1788) 2 Cox Eq.92
-Gifts by volunteers are to be presumed to be on trust. It can be rebutted.
-In some circumstances because of the nature of relationships presumption of
advancement arises. It arises in relationships where one is seen as socially
obliged to support the other financially. See Murless v. Franklin (1818) 1 Swan
13.

Examples of Relationships where there is Presumption of Advancement

a. Relationship of husband and wife. It is archaic law that husband has to

provide for the wife. See Re Eykyn’s Trust [1877] 6 Ch 115. But now
 economic dependence is not as it used to be. See Pettitt v. Pettitt
(1970) AC 777
b. Man and his fiancée.
See Tinker v. Tinker [1970] 3 ALLER 958;
Mossop v.Mossop [1988] 2 ALLER 202
- The presumption does not apply where wife transfers property to the
husband. See Halsetine v. Halsetine [1971] 1 ALLER952
c. Father and Child. See Re Roberts [1946] Ch 1; Shepherd v. Cartwright
(1955) AC 431.
- The presumption does not arise in Father in law and son in law. See Drury
v. Drury (1675) 73
- The presumption does apply to father and adopted son or daughter.
Bennet v. Bennet [1879] 10 Ch 474; Re Paradise Motor Ltd [1968] 1 WLR 725

Presumptions are Rebuttable

a). From husband to wife

Prove that trust was intended to be created or a loan was made. See
Fowkes v. Pascoe [1875] 10 Ch 343; Anson v. Anson [1953] 1 KB 636. Any
evidence that discloses illegality is inadmissible. See Tinker v. Tinker [1970]
1 ALLER 540 where a husband had purchased a house in the name of his wife, on the
advice of his solicitor, again with the intention of preventing the house from being seized
by creditors if his business failed. On the breakdown of the marriage it was held that he

could not rebut the presumption of advancement. See also Halsetine v. Halsetine
[1971] 1 ALLER 952; Gascoigne v. Gascoigne [1918] 1 KB 223;
Tinsley v. Milligan [1993] 3 ALLER 65
a. Father and Child – the presumption is rebuttable. Evidence must not
reveal an improper purpose, illegality. See Tinker v. Tinker (supra);
Shepherd v. Cartwright (supra)
- In Malawi courts rely on documentary evidence to rebut the
presumption.
Allocation of Beneficial Interests

- If it is a fixed trust which has failed, the benefit results back to settlor’s
estate. See Sanderson’s Trust (1857) 3 K & J 497; Re Andrew’s Trust [1905] 2
Ch 48. Compare with Re Abbot’s Trust Fund [1900] 2 Ch 326; Re Osoba
[1979] 1 WLR 247 which concerned a trust established by a testator “ for training of my
daughter Abiola up to University grade and for the maintenance of my aged mother.”
His mother had died, and the daughter had completed her university education, leaving
a surplus in the fund. The question arose whether this should pass on a resulting trust to the
testators’s second wife and daughter, who were the residuary legatees of this estate. The
Court of Appeal held that the gift was an absolute gift and the reference to the purpose
“merely a statement of the testator’s motive in making the gift.”

- Money collected from gate keepers- will the money go bona vacatia? It
depends to how the money was raised. See Hillier’s Trust [1953] 2 ALLER
1547 where court held that person’s contributing to a fund through street collections
parted with their money “out- and – out” and retained no interest in it. See also West
sussex constabulary [1971] Ch 1 where a fund to provide benefits to the widows of
members of the west sussex police force was wound up when the force was
amalgamated with others, leaving a surplus of some money. The club’s revenue was
derived from: a) members’ subscriptions; b) Legacies and donations from outsiders; c)
proceeds of entertainments and collecting boxes. The question arose as to how the
surplus should be distributed. Court held that persons contributing to a fund through

street collections parted with their money “out-and-out” and retained no interest in it. ;
Re Gilligham Bus disaster [1958] Ch 300 where a fund had been established in the
aftermath of an accident, in which twenty four cadets had been killed, to defray the
funeral expenses of the dead and care for the disabled, some money was raised, largely
by anonymous contributors to street collections. After providing for the funerals and care,
there was a large surplus of the fund remaining, and the question before the court was
whether that surplus should be returned to the donors on the basis of a resulting trust, be
applied cy-pres to other charitable purposes, or pass as bona vacatia to the Crown.
Court held that as the objects of the fund were not exclusively charitable there could be
no application cy-pres, and the surplus should be held on resulting trust for the
contributors.
 B. CONSTRUCTIVE TRUSTS

It is trust imposed by law irrespective of the express or implied intention of the

settlor. See Carl Zeiss Stiftung v. Herbert Smith [1969] 2 ALLER 367 per Lord
Edmund Davies.
In the Carl Zeiss Stiftung case, Edmund-Davies LJ declared the
reasons why the boundaries of a constructive trust have been deliberately left vague
by the courts and stated that the basis for imposing a constructive trust is to satisfy the
demands of justice and good conscience.

Carl Zeiss Stiftung v Herbert Smith and Co (No 2) [1969] 2 Ch 276,CA

Edmund-Davies LJ: English law provides no clear and all-embracing definition of a constructive
trust.Its boundaries have been left perhaps deliberately vague, so as not to restrict the court by
technicalities in deciding what the justice of a particular case may demand.But it appears that in
this country unjust enrichment or other personal advantage is not a sine qua non.Thus, in Nelson v
Larholt [1948] 1 KB 339, it was not suggested that the defendant was himself one penny better off
by changing an executor’s cheques; yet, as he ought to have known of the executor’s want of
authority to draw them, he was held liable to refund the estate, both on the basis that he was a
constructive trustee for the beneficiaries and on a claim for money had and received to their use.
Nevertheless, the concept of unjust enrichment has its value as providing one example among
many of what, for lack of a better phrase, I would call ‘want of probity’, a feature which recurs
through and seems to connect all those cases drawn to the court’s attention where a constructive
trust has been held to exist. Snell’s Principles of Equity expresses the same idea by saying 26th ed,
1966, p 201 that:
A possible definition is that a constructive trust is a trust which is imposed by equity in order
to satisfy the demands of justice and good conscience, without reference to any express or
presumed intention of the parties.
It may be objected that, even assuming the correctness of the foregoing, it provides no assistance,
inasmuch as reference to ‘unjust enrichment’, ‘want of probity’ and ‘the demands of justice and
good conscience’ merely introduces vague concepts which are in turn incapable of definition and
which therefore provide no yardstick.I do not agree.Concepts may defy definition and yet the
presence in or absence from a situation of that which they denote may be beyond doubt.The
concept of ‘want of probity’ appears to provide a useful touchstone in considering circumstances
said to give rise to constructive trusts, and I have not found it misleading when applying it to the
many authorities cited to this court.It is because of such a concept that evidence as to ‘good faith’,
‘knowledge’ and ‘notice’ plays so important a part in the reported decisions.
However, a number of general categories may be posited as to when the trust may be
imposed. These are:
(a) occasions when a trustee or fiduciary makes unauthorised profits;
(b) contracts for the sale of land;
(c) the operation of the maxim, ‘Equity will not allow a statute to be used as an engine
for fraud’; and
(d) occasions when it would be unconscionable for the legal owner of property to deny
an interest in property in favour of another.

-There are two approaches to constructive trusts, which are institutional

constructive trust and remedial constructive trust. Just like unjust
enrichment has been understood differently in other jurisdictions, the same
 is the notion of constructive trusts but the main feature is that it is a trust
that is created irrespective of the express or implied intention of the settlor.

Institutional Constructive Trusts

-Certain factual circumstances relating to property automatically give rise

to the creation of constructive trust. Once created the property is held by
the legal owner on trust for the beneficiaries. Facts trigger the imposition of
the constructive trust—court has no discretion. It just has to recognise the
pre-existing proprietary rights. See Re Sharpe [1980] 1 ALLER 198 per Brown
Wilkerson at 208. Mr and Mrs Sharpe lived in their house with their 82 year
old aunt, Mrs Johnson. The property had been purchased in the name of
Mr Sharpe for 17,000 pounds. Mrs Johnson had contributed 12,000 pounds
towards the purchase price, whilst the remainder was raised by way of a
mortgage. Mr and Mrs Sharpe were subsequently declared bankrupt and
Mrs Johnson claimed to be entitled to a proprietary interest in the house
by means of a resulting trust presumed from her contribution to the
purchase price. Court held that the money had in fact been advanced
by way of a loan, with the intention that it would be repaid. She was not
therefore entitled to any share of the equitable interest of the property.
In ReSharpe, Browne-Wilkinson J declared that the constructive trust creates a property right
in favour of the claimant on the date of the transaction, as opposed to the date of the
court order. The claimant then adopts the most appropriate remedy in order to give
effect to such right.

Re Sharpe [1980] 1 All ER 198,HC

Browne-Wilkinson J: Even if it be right to say that the courts can impose a constructive trust as
a remedy in certain cases (which to my mind is a novel concept in English law), in order to provide
a remedy the court must first find a right which has been infringed ... The introduction of an
interest under a constructive trust is an essential ingredient if the plaintiff has any right at all.
Therefore ... it cannot be that the interest in property arises for the first time when the court
declares it to exist.The right must have arisen at the time of the transaction in order for the
plaintiff to hvae any right the berach of which can bee mr edied ...
Note
Remedial Constructive Trusts
-Court looks at unconscionable conduct of the errant party. It is imposed to
remedy the wrong. If court finds that it is unjust enrichment then court imposes
constructive trusts as a remedy to right a particular wrong. Constructive trust is
one of the remedies and the other remedy could be damages. See Metall
AG v. Donaldson [1990] 1 QB 391

Metall und Rohstoff AG v. Donaldson Lufkin & Jenrette Inc

(1989) it was held that no action lay in tort for procuring a breach of trust.
Gatehouse J held that as a person who procures a breach of trust himself becomes
liable as a constructive trustee, a beneficiary does not need the extra protection
of an action in tort.

- English courts have adopted the institutional constructive trusts

traditionally. See Lord Reid judgment in Metall AG v. Donaldson (supra).
Compare with what was said in Lipkin Gorman v. karpnale (1991) 2 AC 548
to the effect that now English courts appreciate remedial constructive
trust in certain cases.
In Lipkin Goman v Karpnale [1992] 4 All ER 512 Norman Cass was a partner in a
firm of solicitors who used some money from the firms client account to finance his
gambling at the club. The firm subsequently sought to recover the money that had
been paid to the club. It alleged that the club was liable to account as a constructive
trustee for the money received, which was no longer identifiable by the rules of
tracing because it had become mixed with its other receipts. It was held that the club
had not received the money with sufficient knowledge that it was subject to a trust to
render it liable to account as a constructive trustee.

- In spite differences in approaches but what is common is the conduct of the

party that triggers constructive trust and there is no need to prove the three
certainties as required in express trust.

Examples of Situations where constructive trusts have arisen

a. Institutional constructive trusts as a remedy against a fiduciary

A fiduciary is to act for the benefit of the other person. He needs to act to
promote the interest of the beneficiary. See Frame v. Smith 42 DLR (4th)
(1987).
Fiduciary relationships exist where one person is in a strong position than the other. In Frame v Smith [1987]
(42) DLR 81 Richard Frame and Eleanor Smith had three children during their marriage. After their separation,
the wife was granted custody, with generous visiting privileges to the husband, and more specific orders of
access were later issued. The husband maintains that his former wife did everything in her power to frustrate his
access to the children: she moved to distant cities without notification, changed the children's surname and
religion, told them that the appellant was not their father, forbade telephone conversation with him, and
intercepted his letters to them. The husband alleges he has undergone considerable expense and has suffered
severe emotional and psychic distress because of this conduct and claims damages from respondents flowing
from their wrongful interference with the legal relationship he had with his children.
Fiduciary relationship exist where
1. One party exercises unilateral power/discretion.
2. The exercise of such power does affect the other party.

Categories that give rise to fiduciary relationships should not be deemed to

have been closed. See English v. Dedham Vale Properties Ltd [1978] 1 ALLER
392 per Slade;
English v Dedham vale Properties [1978] 1 All ER 382 the plaintiffs were owners of a
piece of land. A development company, through their manager H, offered to
purchase the property for £7,750. That sum was less than the sum which the
plaintiffs could have obtained if planning permission to develop the property was
likely to be granted. H told the plaintiff that there was no immediate possibility of
planning permission being granted for development of the property as a whole but he
did not make any representations to her as to the prospects of obtaining permission
to develop the small plot. The parties had just drawn contracts but before they
exchanged them, unknown to the plaintiff, and therefore without their authority the
defendants made an application to the local planning authority for a permission to
develop the land. The application was made in the plaintiffs’ names and was signed
by the defendants’ employee as ‘agent’ for the plaintiffs and requested that the
decision should be sent to the employee’s address. Inadvertently the plaintiffs
became aware of the process and they contended that the defendants were liable to
account for those profits because, without the plaintiffs’ authority, they had put
themselves in the position of self-appointed agents of the plaintiffs in making the
planning application and had thereby placed themselves in a fiduciary relationship
with the plaintiffs with the consequence that they were under a duty to disclose to the
plaintiffs that the planning application had been made. The defendants contended
that there was no general principle of law which obliged a self-appointed agent who
had acted without authority from his purported principal to account to his principal for
any profit acquired during the course of the assumed authority, and that the
defendants would be liable to account to the plaintiffs only if the case fell within one
or more of three recognized categories where liability to account fell on a self-
appointed agent, none of which applied to the instant case. The court held that the
defendants were liable to account to the plaintiffs for the profits which had accrued to
them by reason of the grant of the planning permission, for the reason that the
categories of relationship which gave rise to fiduciary duties on the part of a
defendant towards a plaintiff were not limited to a certain number of defined
relationships. The test was whether in the eyes of equity the relationship between
the parties gave rise to a constructive trusteeship which imposed on the defendant
fiduciary duties towards the plaintiff.
Guerin v. The Queen (1984) 2 SCR 335.
Geuerin v The Queen [1984] 2 SCR 335 the Musqueam Indian Band approved to
surrender its reserve piece of land to the Crown. The actual terms of the surrender
document did not incorporate the details. The crown concluded a lease on terms not
authorized by the band and less advantageous to them. The true terms of the lease
were not discussed to the band until 1970. It was held that court looks at the facts
and assesses the relationship of the parties in order to assess if a fiduciary
relationship exist.
Fiduciary relationship is like an umbrella under which the Trustee-Beneficiary
relationship falls.
Where there is a fiduciary relationship there do exist duties/ principles.

-There are three overriding duties of a fiduciary. These are duty to act fairly,
duty to be prudent, duty not to place oneself where duty and personal
interests conflict. Courts have applied these principles very strictly. See Bray v.
Ford (1896) AC 44 per Herschell at 51

a. A fiduciary must not place him-self in a position where duty and interest would
conflict.

Bray v Ford [1896] AC 44 @51 Mr Bray was a governor of Yorkshire College. Mr

Ford was the vice-chairman of the governors and had also been working as a
solicitor for the college as such he received some remuneration. Lord Herschell
described the prohibition on a fiduciary making a profit or placing himself where his
interest and duty conflict as being "based on the consideration that, human nature
being what it is, there is danger, in such circumstances, of the person holding a
fiduciary position being swayed by interest rather than by duty..... prejudicing those
whom he was bound to protect." The rule against profiting personally from a trust
was described in Costa Rica Ry v Forwood (1901) "in order to protect a trustee
against the Infallibility of human nature." Lord Hasweel went on further to state that
that it is an inflexible rule in the court of equity a person in a fiduciary position is not
unless otherwise expressly provided, entitled to make a profit, he is not allowed to
put him-self in a position where his interest and duty conflict. For example a fiduciary
would put himself in a position of conflict if enters into a contract with the trust.
b. A fiduciary must act with reasonable prudence in the conduct of the trust
business

Speight v Gaunt [1883] 22 Ch D 727 @739 (1883-84) LR 9 App Cas 1 Mr John

Speight, a Bradford industrialist, had appointed Mr Isaac Gaunt and Mr Alfred
Wilkinson as trustees for his estate in his will. The trustees employed a young
broker, John Cooke, to invest £15,000 of the estate's money into company shares.
The trustees gave over the money. The broker dishonestly took the money for
himself, and gave excuses for the delays in getting the company shares. The truth
only transpired when Cooke was declared bankrupt. The beneficiaries of Speight's
trust sued Mr Gaunt for failing in his duty of care as a trustee. The court held that
because the trustee acted in the ordinary course of business, he was not liable to
make good the loss occasioned by the embezzlement of the trust moneys by the
broker.
c. A fiduciary must act fairly toward the beneficiaries by complying with all the
terms of the trust.

Lloyds Bank v Duker [1987] 3 All ER 193; 1 WLR 1324 @1330 – 31 the estate of
a deceased person consisted mainly of virtually all the share capital of an
unquoted company. D was entitled to a large enough share of the estate
to give him more than 50 per cent of the shares in the company on a
strict apportionment. The Court held that the personal representatives
should not distribute the shares pro rata to the beneficiaries under the
will, because that would mean what D received was proportionately
greater than what the others would receive, because the value of the
majority holding, per share, was far greater than the value of the
minority holdings per share. Instead they should sell the shares, giving D
first refusal, and distribute the proceeds.
Another version: By his will the testator appointed his wife and the plaintiff as
executors upon trust to sell or retain his residuary estate, including 999 shares in a
private company. The executors were directed to pay his wife one half of the estate
and to divide the remainder between other beneficiaries in certain proportions. In the
events following his death in 1979 the estate became divisible in fractions of 1/80th
which resulted in the testator's wife becoming entitled to 46/80ths of the estate and
the remaining five defendant beneficiaries to 34/80ths in proportion to their
entitlements under the will. The wife required the plaintiff to transfer to her 574
shares in the company, being approximately 46/80ths of 999, but, by the time of her
death in 1982, no transfer was made. By her will she appointed the plaintiff as
executor and left her estate to the first defendant, now managing director of the
company, who called upon the plaintiff to transfer the 574 shares to him. By an
originating summons the plaintiff sought to determine whether it had a duty to
comply with the first defendant's request or to sell the 999 shares on the open
market. The defendants argument was that the general rule whereby a beneficiary
was entitled to call for the transfer of his share in divisible personalty prevailed even
if the distribution broke up the controlling interest thus reducing the value of the
whole. In the present case however there was a further reason to be considered
because if the shares were transferred to the beneficiaries in 1/80ths the first
defendant would get a greater value per share than the other beneficiaries and none
more than 46/80ths of the total value received by them as a body. To that could be
applied another general principle that trustees were bound to treat the beneficiaries
equally. A transfer of 46/80ths of the shares would favour the first defendant beyond
the testator's intentions and the 574 shares in his hands would be worth markedly
more than any minority holding; as controlling shareholder and managing director he
could draw any salary without declaring a dividend. To prevent such unfairness and
to ensure that the first defendant took 46/80ths measured by value the plaintiff
should sell the 999 shares on the open market. The court stated that the trustee are
bound to hold an even hand among the beneficiaries as not to favour one as against
the other.
If a fiduciary has failed to discharge his duties equity has created a range of
remedies for the beneficiaries to enforce. The beneficiaries, for example have
the right to demand an account from the fiduciary, and the right of tracing

; Aberdeen Railway v. Blaikie (1854) 1 Maq 461;

Boardman v. Phipps [1966] 3 ALLER 721;

in Boardman v Phipps, it was decided that the confidential information obtained
in such circumstances may be treated as trust property.
Boardman and Another v Phipps [1967] 2 AC 46, HL (Lords Cohen, Hodson
and Guest;Viscount Dilhorne and Lord Upjohn dissenting)
Facts
The trust property consisted of shares in a company. One of the beneficiaries and Mr
Boardman, the solicitor to the trust, were dissatisfied with the way the company’s
business was organised and obtained control of the company on behalf of the trust by
acting on privileged information available only to the trust. The company was
reorganised and substantial profits accrued to the trust. Mr Boardman at all material
times had acted honestly but wrongly believed that he had the full approval of the
trustees and beneficiaries. John Phipps, a beneficiary, claimed that Mr Boardman and
his accomplice were required to account to the trust for their profits as constructive
trustees.
Held
The appellants were fiduciaries and were liable to account for their profits but the
court awarded them generous remuneration for their efforts:
Lord Hodson: The proposition of law involved in this case is that no person standing in a
fiduciary position, when a demand is made upon him by the person to whom he stands in the
fiduciary relationship to account for profits acquired by him by reason of the opportunity and the
knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he
made profits with the knowledge and assent of the other person.
It is obviously of importance to maintain the proposition in all cases and to do nothing to whittle
away its scope or the absolute responsibility which it imposes.
So far as Mr Tom Phipps is concerned, he was not placed in a fiduciary position by reason of his
being a beneficiary under his father’s will.He was acting as agent for trustees with Mr Boardman
before any question of acting with him for his own benefit arose.He has not, however, sought to
be treated in a different way from Mr Boardman upon whom the conduct of the whole matter
depended and with whom he has acted throughout as a co-adventurer; he does not claim that he
should succeed in this appeal if Mr Boardman fails.
Mr Boardman’s fiduciary position arose from the fact that he was at all material times solicitor to
the trustees of the will of Mr Phipps senior.This is admitted, although counsel for the appellants
has argued, and argued correctly, that there is no such post as solicitor to trustees.The trustees
either employ a solicitor or they do not in a particular case and there is no suggestion that they
were under any contractual or other duty to empyl oMr Boardman or his firm.Nevertheless, as an
historical fact they did employ him and look to him for advice at all material times and this is
admitted.It was as solicitor to the trustees that he obtained the information . . .This information
enabled him to acquire knowledge of a most extensive and valuable character which was the
foundation upon which a decision could, and was taken to buy the shares in Lester & Harris Ltd.
As to this it is said on behalf of the appellants that information as such is not necessarily property
and it is only trust property which is relevant.I agree, but it is nothing to the point to say that in
216 Cases & Materials on Trusts
these times corporate trustees, for example, the public trustee and others, necessarily acquire a
mass of information in their capacity of trustees for a particular trust and cannot be held liable to
account if knowledge so acquired enables them to operate to their own advantage, or to that of
other trusts.Each case must depend on its own facts and I dissent from the view that information
is of its nature something which is not properly to be described as property.

Keech v. Sandford 25 ER 223;

The rule is that a person occupying a position of confidence (such as a trustee or
fiduciary) is prohibited from deriving any personal benefit by availing himself of his
position, in the absence of authority from the beneficiaries, trust instrument or the
court. In other words, the trustee or fiduciary should not place himself in position
where his duty may conflict with his personal interest. If such a conflict occurs and the
trustee obtains a benefit or profit, the advantage is held on constructive trust for the
beneficiary. This is generally known as the rule in Keech v Sandford.
Keech v Sandford [1726] Sel Cas Ch 437,HL
Facts
The defendant, a trustee, held the profits of a lease of Romford market on trust for a
minor. Before the expiration of the lease, the defendant requested a renewal of the
Chapter 9: Constructive Trusts: Conflict of Duty and Interest 209
lease in favour of the beneficiary personally, but this was refused. The trustee then
attempted to renew the lease in his capacity as trustee for the infant, but this was also
refused. The lessor agreed to renew the lease in favour of the trustee personally and
this was done. Aclaim was brought on behalf of the beneficiary.
Held
The profits of the renewed lease were held on constructive trust in favour of the
beneficiary:
Lord King LC: I must consider this as a trust for the infant, for I very well see, if a trustee, on the
refusal to renew, might have a lease to himself, few trust estates would be renewed to the cestui
que use.Though I do not say there is fraud in this case, yet he should rather have let it run out than
to have had the lease to himself.It may seem hard that the trustee is the only person of all
mankind who might not have the benefit of the lease; but it is very proper that the rule should be
strictly pursued and not in the least relaxed; for it is very obvious what would be the
consequences of letting trustees have the lease, on refusal to renew to the cestui que trust.
Note
Perhaps the reason for this harsh rule is that the courts are reluctant to run the risk of
finding it difficult in many cases to ascertain accurately whether or not an unfair
advantage has been taken by the trustee or not. Unfairness to the trustee is not the
major concern; the primary consideration of the courts is to ensure that there is no
possibility of injustice to the beneficiaries.
The rationale for the harsh rule in Keech v Sandford was stated by Lord Herschell in
Bray v Ford.

Bray v Ford [1896] AC 44,HL

Lord Herschell: It is an inflexible rule of a court of equity that a person in a fiduciary position ...
is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put
himself in a position wheer his interest and his duty conflict.It does notp paear to me that this rule
is . . .f ounded upon principles of morality.I regard it rather as based on the consideration that
human nature being what it is, there is a danger, in such circumstances, of the person holding a
fiduciary interest being swayed by interest rather than duty, and thus prejudicing those he is bound
to protect.It has, therefore, been deemed expedient to yla down this positive rule.
The doctrine in Keech v Sandford (as it is sometimes called) has been extended to other

Cheese v. Thomas [1994] 1 ALLER 35; Speight v. Gaunt [1883] 22 Ch 727;

Howe v. Earl of Dartmouth 32 ER 56. See also sections 4-20, 24, 71 Trustees Act

b. Constructive trusts imposed on actors who are not fiduciaries

There are three instances, which are:
Where there is Trustee de son tort—trustee in his own wrong. The conduct of
the party shows that he has taken upon attributes of a trustee. See Mara v.
Browne [1896] 1 Ch 199; Soar v. Foster [1893] 2 QB 390The principle governing the
liability of an agent as a constructive trustee was
summarised by Smith LJ in Mara v Browne.
Mara v Browne [1896] 1 Ch 199,CA
Facts
A solicitor acting on behalf of the trustees unlawfully invested trust funds on certain
mortgages and the trust suffered loss.
Held
The solicitor was not liable as a constructive trustee, though he would have been liable
in contract for his negligence had the action not become time barred:
Smith LJ: It is said that the facts show that there should be imputed to Hugh Browne the
character of a trustee, or, in other words, that he was a trustee de son tort, and upon this ground
the learned judge has held him liable.It is not contended on behalf of the plaintiffs that Hugh
Browne has been guilty of any fraudulent or dishonest conduct to the injury of the cestuis que trust,
nor, to use Lord Langdale’s words in Fyler v Fyler (1841) 3 Beav 560, did he, being a solicitor, ‘take
advantage of his position to acquire a benefit for himself at the hazard, if not to the prejudice, of
the trust’; but it was said that he had made himself a constructive trustee, which, so far as I know,
is the same thing as a trustee de son tort. Now, what constitutes a trustee de son tort? It appears to me
if one, not being a trustee and not having authority from a trustee, takes upon himself to intermeddle with
trust matters or to do acts characteristic of the office of trustee, he may thereby make himself what is
called in law a trustee of his own wrong, ie, a trustee de son tort, or, as it is also termed, a constructive
trustee [emphasis added].
[After referring to Lord Selborne’s speech in Barnes v Addy (1874) LR 9 Ch App 244, he continued:]
In my judgment it is incorrect to hold that he was acting as trustee de son tort; why is this to be
assumed? The learned judge came to the conclusion that Arthur Reeves never acted under the
deed of January, 1884, and that it was abandoned; but why is it this to be so held? We find Arthur
Reeves (a plaintiff) after its execution at once entering upon the business of the trust; and why is it
to be assumed and held that he then acted as a trustee in his own wrong rather than as a properly
appointed trustee? I can draw no such inference.

1. Instance of knowing receipt—this is where a person receives trust

property knowingly that it is trust property.
. Knowledge and notice is used differently. Notice can be actual,
constructive or imputed. What is required in this instance is to prove
knowledge. Five types of knowledge have been identified and these are:
a. Actual knowledge
b. Wilful shutting one’s eyes to the obvious
c. Wilfully or recklessly failing to make such enquiries as an honest and
reasonable man would make
d. Knowledge of circumstances which would reveal or indicate the facts to
an honest and reasonable man
e. Knowledge of circumstances which would put an honest and reasonable
man on enquiry.
See Re Montagu [1987] Ch 264

Re Montagu’s Settlement [1987] Ch 264,HC

Facts
Under a subsisting trust, the trustees, on advice from a firm of solicitors, settled chattels
in favour of the beneficiary, the 10th Duke of Manchester, absolutely. The transfer was
in breach of trust but as a result of an honest mistake on the part of the solicitors and the
Duke. The Duke disposed of a number of chattels during his lifetime. After his death,
the 11th Duke claimed that his predecessor had become a constructive trustee of the
chattels and was liable to re-transfer the remaining assets (and traceable proceeds of
sale of the disposed chattels), and was also personally liable in respect of the value of
any assets disposed of and in respect of which the proceeds were not traceable.
Held
The Duke (or his estate) was not personally liable as a constructive trustee because he
did not have subjective knowledge of the breach, but was liable to re-transfer to the
settlement trustees undisposed trust assets and traceable proceeds as an innocent
volunteer:
Megarry VC: In the books and the authorities the word ‘notice’ is often used in place of the
word ‘knowledge’, usually without any real explanation of its meaning.This seems to me to be a
fertile source of confusion.The classification of ‘notice’ into actual notice, constructive notice and
imputed notice has been developed in relation to the doctrine that a bona fide purchaser for value
of a legal estate takes free from any equitable interests of which he has no notice.I need not
discuss this classification beyond saying that I use the term ‘imputed notice’ as meaning any actual
or constructive notice that a solicitor or other agent for the purchaser acquires in the course of
the transaction in question, such notice being imputed to the purchaser.Some of the cases
describe any constructive notice that a purchaser himself obtains as being ‘imputed’ to him; but I
confine ‘imputed’ to notice obtained by another which equity imputes to the purchaser.
In determining whether a constructive trust has been created, the fundamental question is
whether the conscience of the recipient is bound in such a way as to justify equity in imposing a
trust on him.The rules concerning a purchaser without notice seem to me to provide little
290 Cases & Materials on Trusts
guidance on this and to be liable to be misleading.First, they are irrelevant unless there is a
purchase.Second, although a purchaser normally employs solicitors, and so questions of imputed
notice may arise, it is unusual for a volunteer to employ solicitors when about to receive bounty.
Third, there seems to me to be a fundamental difference between the questions that arise in
Alternative rationale for liability
Megarry VC, in Re Montagu’s Settlement, reviewed the basis of liability under this head
and concluded that:
the constructive trust should not be imposed unless the conscience of the recipient is affected;
this depends on knowledge, not ‘notice’; want of probity includes actual knowledge, shutting one’s
eyes to the obvious, or wilfully and recklessly failing to make such inquiries as a reasonable and
honest man would make; it does not include knowledge of circumstances which would indicate the
facts to an honest and reasonable man or would put the latter on enquiry.
Thus, according to Megarry VC, cognisance within the first three categories of
knowledge (subjective inquiry) as laid down by Gibson J in Re Baden Delvaux is
relevant under this head; constructive knowledge including objective recklessness
(categories (iv) and (v)) is unsuitable as a test of constructive trusteeship. In Megarry
VC’s view, the basis of liability under this head is ‘want of probity’ or ‘dishonesty’,
which requires subjective knowledge of wrongdoing on the part of the defendant.

He or she could not really be treated as dealing with the claimant’s property;
see Carl Zeiss Stiftung v Herbert Smith.
Carl Zeiss Stiftung v Herbert Smith and Co (No 2) [1969] 2 Ch 276,CA
Facts
Following the partition of Germany, members of the East German firm of Carl Zeiss
fled to the West and founded the West German firm of the same name. The East
German firm claimed the assets of the West German firm. Solicitors of the West
German firm were paid a sum of money for work done for their clients. The East
German firm claimed this money from the solicitors contending that they had received
the sum knowing that the same belonged to the plaintiff.
Held
The court found in favour of the defendants because the ownership of the assets of the
plaintiff was seriously in dispute on reasonable grounds. The solicitors could have no
knowledge that the funds belonged to the plaintiff. Furthermore, the defendants were
under no duty to inquire. In short, the plaintiff had a ‘doubtful equity’:
Edmund-Davies LJ: It is true that not every situation where probity is lacking gives rise to a
constructive trust.Ne vertheless, the authorities appear to show that nothing short of it will do.
Not even gross negligence will suffice.
Mr Kerr gave the court a helpful distillation of the numerous authorities to which reference has
already been made by my Lords.Their effect, he rightly submits, may be thus stated: (A) a solicitor
or other agent who receives money from his principal which belongs at law or in equity to a third
party is not accountable as a constructive trustee to that third party unless he has been guilty of
some wrongful act in relation to that money; (B) to act ‘wrongfully’ he must be guilty of (i)
knowingly participating in a breach of trust by his principal; or (ii) intermeddling with the trust
property otherwise than merely as an agent and thereby becomes a trustee de son tort; or (iii)
receiving or dealing with the money knowing that his principal has no right to pay it over or to
instruct him to deal with it in the manner indicated; or (iv) some dishonest act relating to the
money.These are, indeed, but variants or illustrations of that ‘want of probity’ to which I have
earlier referred.
Chapter 11: Constructive Trusts: Strangers as Constructive Trustees 289
Do the demands of justice and good conscience bring the present case within any of the foregoing
categories? In my judgment, the question is one which demands a negative answer.

; Karak rubber co. Ltd v. Burden (No.2) and others [1972] 1 ALLER 1210; Carl
Zeiss Stiftung v. Herbert Smith [1972] 1 ALLER 1210

3. Instance of knowing assistance—any person who assists in the

commission of fraudulent design against the interest of the beneficiaries will
be held as a constructive trustee. See Lipkin Gorman v. Karpnale (1991) 2 AC
548; Barnes v. Addy [1874] 9 Ch 244. The person assisting should have an
element of unconscionability. The following are to be proved:
a. He knew the existing of the trust
b. He knew the fraudulent design
c. He participated (assisted) in that fraudulent design

c. Constructive trust may be imposed based on public policy

No one is allowed to retain the benefit from his crime. See Cleaver v. Mutual
Reserve Fund Agency [1892] 1 QB 147;
Husband and Wife - Assurance policy by husband for benefit of wife - Wife to benefit if surviving
husband -
Murder of husband by wife - Right of husband's estate to policy money.
Public Policy - Criminal not allowed to benefit from crime.
By s 11 of the Married Women's Property Act 1882: "A policy of assurance effected by any man on his
own
life, and expressed to be for the benefit of his wife shall create a trust in favour of the objects therein
named,
and the moneys payable under any such policy shall not, so long as any object of the trust remains
unperformed, form part of the estate of the insured "
By a policy of life assurance taken out by a husband on 3 October 1888, it was agreed that there
should be
payable to his wife, if living at the time of his death, the sum of 2,000 pounds. The husband died on
11 May
1889, and in August 1889, the wife was convicted of having murdered him. On a claim under the
policy by
the administrator of the wife's property appointed under the Forfeiture Act, 1870, s 9, and by the
husband's
executors,
Held: it was against public policy to allow a criminal to claim any benefit by virtue of his crime, and so
the wife
had rendered incapable of performance the trust in her favour provided by s. 11 of the Act of 1882;
accordingly, the policy money had become part of the husband's estate and was recoverable by his
executors from the insurers.

Reading v. AG [1951] 1 ALLER 617 where the House of Lords held that an army
sergeant who had used his uniform to enable lorries smuggling spirits and
drug to pass through army check points was a fiduciary, and therefore he
was obliged to account to the crown for the money he had received from the
smugglers for his services. The general principle is that no person should be
allowed to retain the benefit from his criminal conduct. Reading v AG [1951] 1 All ER
617 the house of lord held that an army sergeant who had used his uniform to
enable lorries smuggle drugs to pass through army check points was a fiduciary, and
therefore he was obliged to account to the crown for the money he had received
from the smugglers for his services. Master and Servant - Profits obtained by a servant
dishonestly by virtue of employment - Right of master to
profits - Soldier - Bribes by civilian - Right of Crown thereto.
The appellant, a sergeant in the army stationed at Cairo, on several occasions, while in uniform,
boarded a
private lorry and escorted it through Cairo, thus enabling it to pass the civilian police without being
inspected.
The lorry was loaded with cases, the contents of which were unknown. On each occasion the
sergeant
received from a civilian a large sum of money of which the military authorities later took possession.
Held - Any position which enabled a servant to earn money by its use gave the master a right to
receive the
money so earned even though it was earned by a criminal act; this right was derived from an implied
promise
by the servant, made at the time that the contract of employment was entered into, that he would
account to
his master for any moneys he might receive by reason of his employment, and it was not open to the
servant
to set up his own wrong as a defence to the master's claim; the appellant was using his position as a
sergeant in His Majesty's army, and the uniform to which his rank entitled him, to obtain the money
which he
received, and, therefore, the Crown, his master, was entitled to that money.

See Section 32 of Corrupt Practices Act as amended in 2004

d. Constructive trusts may also arise in Contracts, Commercial transactions
and other agreements.
In contracts, the rights and duties acquired may give rise to constructive
trusts if one is a fiduciary. Constructive trusts may be imposed where
expectation, reliance is frustrated. Courts have imposed constructive trusts in
contract of sale of land.

Some Instances where Constructive trust is imposed in Contracts are:

Instances where the vendor is under specifically contract of sale. See
Oughtred v. IRC (1960) AC 206;
Stamp Duty - Conveyance on sale - Transfer of shares - Shares subject to settlement - Oral
agreements to
exchange reversionary interest in settled shares for shares owned by life tenants - Trustees'
subsequent
transfer of shares to life tenant - Whether conveyance of beneficial interest - Stamp Act, 1891(54 & 55
Vict c
39), s 54, Sch 1 - Law of Property Act, 1925 (15 & 16 Geo 5 c 20), s 53 (1), (2).
Under a settlement, shares in a limited company were held by trustees on trust for O for life with
remainder
to her son, P. By an oral agreement made on 18 June 1956, between O and P, it was agreed that P
would,
on 26 June 1956, exchange his interest under the settlement for shares in the limited company then
owned
by O, to the intent that O's life interest in the settled shares should be enlarged into absolute
ownership. On
26 June 1956, three documents were executed. They were a deed of release made between O, P
and the
trustees of the settlement, giving a release to the trustees in respect of any "act deed matter or thing
done"
by the trustees in the execution of the trusts of the settlement; a transfer of her shares by O to P's
nominees
in consideration of 10s; and a transfer (called hereafter "the disputed transfer") by which the trustees
vested
the legal title in the settled shares in O in consideration of 10s. Recital (F) of the deed of release, after
acknowledging that the settled shares were then held on trust for O, recited that it was intended that
they
should forthwith be transferred to O Stamp duty ad valorem was claimed on the disputed transfer
assessed
on the value of the shares transferred to O.
Held - Lord Radcliffe and Lord Cohen dissenting): the disputed transfer was a transfer on sale of
property
within s 54 of the Stamp Act, 1891, and attracted ad valorem duty on the consideration given by O
(viz, the
value of the shares which she transferred) for her acquisition of P's reversionary interest in the settled
shares
for the following reasons--
(i) assuming that the oral agreement of 18 June 1956 (which was a contract for sale), created a
constructive
trust of P's equitable reversionary interest in the settled shares in favour of O, nevertheless a transfer
of the
shares to O, executed in performance of the contract for sale, would be a transfer on sale for the
purposes of
stamp duty, notwithstanding that the constructive trust in O's favour existed before the transfer was
executed, and
(ii) in fact the disputed transfer was such a transfer on sale, for the parties to the sale intended (as
recital (F)
showed) that the transaction of sale should be completed by this instrument; moreover (per Lord
Jenkins and
Lord Keith of Avonholm), although the interest that P sold was a reversionary beneficial interest, the
disputed
transfer must be regarded as being a transfer on sale that included this reversionary interest, and the
fact
that the transferors were the trustees (not P) did not prevent the disputed transfer being a transfer on
sale,
since the trustees were transferring by the directions of O and P.

Shaw v. Foster (1872) LR HL 38;

Lysaght v. Edwards [1876] 2 Ch 499. On the date that a specifically enforceable contract for the
sale of land is made, the
purchaser becomes the equitable owner of the property. Thus, on the date of the
exchange of contracts, the vendor becomes a constructive trustee for the purchaser
until the date of the completion of the sale: see Lysaght v Edwards.
Lysaght v Edwards (1874) 2 Ch D 498,CA
Facts
Edwards agreed in writing to sell real property to the plaintiff but, before completion,
Edwards died. By his will, he devised his real property to trustees on trust to sell and
invest the proceeds of sale. The plaintiff claimed for an order requiring the executors to
complete the sale.
Held
On the date of the creation of the contract, the equitable title to the property becomes
transferred to the purchaser by operation of law:
Lord Jessel MR: The effect of a contract for sale has been settled for more than two centuries.It
is that the moment you have a valid contract for sale, in equity, the vendor becomes the trustee
Chapter 9: Constructive Trusts: Conflict of Duty and Interest 241
for the purchaser of the real estate sold; the beneficial ownership passes to the purchaser of the
estate, the vendor retaining a right to the pcuhrase money ...
Note
This rule illustrates the equitable maxim, ‘Equity regards as done that which ought to
be done’.

Instances where mortgagee is in possession of the proceeds of sale of land

where the interest of the mortgagor is frustrated. See Cuckmere Brick v.
Mutual Finance Ltd [1971] Ch 949; Mortgage - Sale - Duty of mortgagee - Standard of duty
in exercising power of sale - Duty to take reasonable
care to obtain price equal to market value - Site with planning permission for development with flats -
Planning permission also for development with houses - Advertisement of sale referring only to
permission
for houses - Mortgagees aware of both permissions - Estate agents handing sale unaware of
permission for
flats at time advertisements distributed - Estate agents subsequently apprised of permission for flats -
Allowing sale to go ahead without further advertisement - Evidence that site would have realised
substantially higher price if permission for flats advertised - Whether mortgagees liable to mortgagors
for
their own and agents' negligence in failing to realise full market price.
Damages - Assessment - Enquiry as to damages - Property valuation - Negligence - Exercise of
power of
sale by mortgagee - Mortgagee negligent in failing to realise market value of property - Assessment of
true
value by trial judge - Evidence of true market value at trial inadequate - Request by both parties to
judge to
assess damages on basis of evidence of market value given at trial - Duty of judge to direct enquiry
as to
damages.
Estate agent - Negligence - Estate agent handling sale of building site on behalf of mortgagee
exercising
power of sale - Site with planning permission for development with flats - Planning permission also for
development with houses - Estate agent unaware of permission for flats - Advertisements of sale
mentioning
permission for houses only - Estate agent subsequently apprised of permission for flats - Estate agent
allowing sale to go ahead without further advertisement of permission for flats.
The plaintiffs borrowed £50,000 from the defendants on the security of a mortgage of a site on the
outskirts
of Maidstone for which the plaintiffs had planning permission for development by the erection of 100
flats
with garages. Subsequently, in 1964, owing to temporary financial embarrassment making more
costly flats
development less easy, they told the defendants that it would be more 'profitable' and 'simpler' to
develop the
site with houses. With the defendants' concurrence they obtained planning permission to erect 33
houses. As
they had not commenced building by 1966, however, the defendants gave notice calling in the
mortgage and
took possession of the site. In January 1967 the defendants put the site into the hands of estate
agents, who
were informed that the outline planning permission for flats had lapsed. The estate agents valued the
site
with permission for houses at £30,000 (subsequently revised to £35,000) and stated that, in their
opinion,
'the development of the site with flats would not be an economic proposition as there is considerable
sales
resistance ... to this form of development and there have been difficulties in the selling of flats on the
The estate agents valued the site
with permission for houses at £30,000 (subsequently revised to £35,000) and stated that, in their
opinion,
'the development of the site with flats would not be an economic proposition as there is considerable
sales
resistance ... to this form of development and there have been difficulties in the selling of flats on the
adjoining site'. The estate agents were not shown a letter subsequently written to the defendants by
their
surveyors stating that they still considered the land with planning permission for flats was worth
upwards of
£50,000 or perhaps £70,000, flats on an adjoining site selling for £3,650. The defendants went ahead
with
plans for the sale of the site by auction to take place on 22 June. Advertisements of the sale were
inserted in
the national and local press, posters were published and particulars were sent to developers all over
the
country. That material prominently featured the planning permission for houses but no mention was
made of The estate agents valued the site
with permission for houses at £30,000 (subsequently revised to £35,000) and stated that, in their
opinion,
'the development of the site with flats would not be an economic proposition as there is considerable
sales
resistance ... to this form of development and there have been difficulties in the selling of flats on the
adjoining site'. The estate agents were not shown a letter subsequently written to the defendants by
their
surveyors stating that they still considered the land with planning permission for flats was worth
upwards of
£50,000 or perhaps £70,000, flats on an adjoining site selling for £3,650. The defendants went ahead
with
plans for the sale of the site by auction to take place on 22 June. Advertisements of the sale were
inserted in
the national and local press, posters were published and particulars were sent to developers all over
the
country. That material prominently featured the planning permission for houses but no mention was
made of have realised £65,000 instead of £44,000.
Held - (i) A mortgagee was not a trustee of the power of sale for the mortgagor and, where there was
a
conflict of interests, he was entitled to give preference to his own over those of the mortgagor, in
particular in
deciding on the timing of the sale; in exercising the power of sale, however, the mortgagee was not
merely
under a duty to act in good faith, ie honestly and without reckless disregard for the mortgagor's
interest, but
also to take reasonable care to obtain whatever was the true market value of the mortgaged property
at the
moment he chose to sell it

Warring v. London and Manchester Assurance [1935] Ch 301

Mortgage - Sale - Contract for sale by mortgagee - Time of extinction of equity of redemption -
Undervalue -
Grounds for restraining completion or setting aside sale - Law of Property Act 1925 (15 and 16 Geo 5,
c 20)
s 101(1)(i) s 104(1) and (2).
If a mortgagee has, in the exercise of his power of sale, contracted to sell the mortgaged property, the
court
will not restrain the completion of the sale upon tender of the money under the mortgage unless the
contract
was made in bad faith. The mere fact that the sale is at an undervalue does not show bad faith.
Dictum of KAY J in Warner v Jacob (1) (1882) 20 Ch D 220 at p 224, applied.
In 1929 a mortgagor charged certain property in favour of a mortgagee to secure 180,000 and
interest. In
1930, the mortgagor having made default in payment of interest, the mortgagee appointed a receiver
of the
mortgaged property, who endeavoured to sell the property under the power of sale conferred upon
the
mortgagee by s 101(1)(i) of the Law of Property Act 1925. In July 1934, the mortgagor was informed
that
negotiations were then being carried on for the sale of the property, and that the intending purchaser
was
pressing for an exchange of contracts. At this time the mortgagor was negotiating with a potential
lender for a
fresh loan of 200,000 pounds, which would discharge the sums due to the mortgagee. The mortgagor
from
time to time requested the mortgagee to postpone the sale in order to allow the negotiations for the
fresh
loan to be completed. The sale was consequently postponed, but, ultimately, on 3 Oct 1934, as the
receiver
bad no definite statement from the potential lender that it would make the advance, the mortgagee
exchanged contracts with the purchaser for the sale to him of the property for 186,000 pounds
completion to
take place on 24 Dec 1934. The mortgagee was expressed to sell as mortgagee. On motion by the
mortgagor for an injunction to restrain the mortgagee and the purchaser from completing the contract
of 3
Oct 1934, on the grounds that until completion there was no sale which bound him, and that the sale
was at
a gross undervalue, and for leave to redeem the property,
Held: the mortgagor was not entitled to the relief claimed because (i) s 101(1)(i) of the Law of
Property Act
1925, empowered the mortgagee to bind the mortgagor by a contract for sale; if he did so the equity
of redemption did not remain in force pending completion of the sale by conveyance; and the
mortgagee,
therefore, no longer had any right to redeem; (ii) there was no evidence of lack of good faith on the
mortgagee's part, and so the mortgagor was not entitled to have the sale set aside.
Instances where there is an abrogation of an agreement under a mutual will.
If A and B enter into an agreement to leave property to each other or to
somebody else and upon death of A, B changes the will, constructive trust
will be imposed against B.
- It is required that the parties must agree to execute mutual will. See Re
Cleaver [1981] 2 ALLER 1018 where Arthur and Flora Cleaver had married in
1967, when he was 78 and she was 74. He had three children by a previous
marriage and she had none. They executed identical wills leaving the bulk of
their estates to the survivor absolutely, and in default of their survival to the
three children. Arthur died in 1975. The Will was proved and Flora became
entitled to his estate absolutely. She subsequently executed a new will
leaving her entire estate, which included the property she had inherited from
Arthur, to only one of the children. Court held that the new will made by flora
was invalid as there was mutual will which is effective and cannot be
changed. It is required that it should be a valid contract where there is
consideration.
It is required that the parties must agree to execute mutual wills. In Re Cleaver
[1981] 2 All ER 1018 Arthur and Flora Cleaver had married in 1967 when the man
was 78 and the wife was 74. The man had three children by a previous marriage and
the wife had none. They executed identical wills leaving the bulk of their estate to
the survivor absolutely, and in default of their survival to the three children. The
husband predeceased the wife and the wife became entitled to the estate absolutely.
She subsequently executed a new will which purported to favour one in exclusion of
the other two of the three children named in the first will. The court held that the new
will was invalid as there was a mutual will which was then effective and could not be
changed.
Will - Mutual wills - Requirements for enforceable mutual wills - Evidence required to establish
enforceable
agreement to dispose of property pursuant to mutual wills - Husband and wife making wills on same
date in
similar terms - Wife taking benefit under husband's will in accordance with his will - Wife making new
will
differing from terms of mutual wills - Whether wife under legal obligation to dispose of her estate in
accordance with terms of mutual wills - Whether mere fact of simultaneity of wills in similar terms
sufficient to
establish enforceable agreement - Whether constructive trust arising out of enforceable agreement for
mutual wills.
The testator and the testatrix married in October 1967 when he was aged 78 and she was aged 74.
He had
three children, she had none. They each had assets of their own and kept their finances separate. On
19
December 1967 and 12 June 1970 they made successive wills in similar terms whereby each, after
directing
the payment of certain legacies, left the remainder of his or her estate to the survivor absolutely and in
default of survival left their respective residuary estates to the testator's children in equal shares. By
1974 the
testator had determined that one of his children ('the daughter') should receive only a life interest in
his
residuary estate because he did not wish her husband to benefit from the estate. The testatrix either
shared
that wish or was prepared to fall in with it. Accordingly, on 7 February 1974, the testator and the
testatrix
made further wills similar to those they had made in 1967 and 1970 except that the daughter's interest
was
cut down to a life interest in one-third of the residuary estates with a gift over on the daughter's death
to the
testator's other two children in equal shares. The testator died in the early hours of 27 February 1975.
That
evening the testatrix had a conversation with the testator's son in which she recognised that she had
an
obligation to the testator to dispose of her estate in accordance with her 1974 will. The testator's will
was duly
proved and, after payment of the legacies the testator had bequeathed, the testatrix became
absolutely
entitled to his estate. In May 1975, within three months of the testator's death, the testatrix made a
new will
which in every material respect was identical to her 1974 will. In November 1975 she made a further
will by
which she left her residuary estate to the testator's three children absolutely in equal shares, thus
breaching
the arrangement regarding the daughter's share which she and the testator had made in 1974 and
given
effect to in their 1974 wills. In June 1977 the testatrix made her last will, by which she left her
residuary
estate to the daughter and her husband absolutely in equal shares and left nothing to the testator's
two other
children, the plaintiffs. The testatrix died in 1978. In 1979 the plaintiffs brought proceedings seeking a
declaration that the executors of the testatrix held her estate on trust to give effect to her 1974 will,
and an
order that the executors administer and distribute her estate accordingly, on the ground that there was
an
enforceable agreement between the testator and the testatrix that they would execute mutual wills
disposing
of their property in identical terms in pursuance of the agreement.
Held - For mutual wills to be enforceable it had to be established by clear and satisfactory evidence
that on
the balance of probabilities there had been an agreement between the makers of the two wills to
dispose of
their respective property in a similar way under mutual wills. The mere simultaneity of wills and the
similarity
of their terms was not enough by itself to establish the necessary agreement, but the fact that there
weresuch wills was a relevant circumstance to be taken into account. If there was an enforceable
agreement to
execute mutual wills equity would interfere to impose a constructive trust
[1981] 2 All ER 1018 at 1019
on the survivor's property on the principle that equity would not permit a person to whom property had
been
transferred on the faith of an agreement that it would be dealt with in a particular way for the benefit of
a third
party to deal with it inconsistently with that agreement. In all the circumstances there was clear and
satisfactory evidence that the 1974 wills were executed in pursuance of an enforceable agreement
between
the testator and the testatrix which imposed mutual obligations on them to dispose of their property in
a
similar way and accordingly, since the testatrix had had the benefit of the testator's estate, a
constructive
trust was imposed on her estate for the benefit of the plaintiffs. Her executors were therefore bound to
administer and distribute the estate in accordance with her 1974 will.

Held - NOURSE J.
This is a case in which it is alleged that mutual wills are enforceable. By that I mean that it is one
where it is
alleged that two persons (in this case husband and wife) made an enforceable agreement as to the
disposal
of their property and executed wills in substantially identical terms in pursuance thereof. The husband
died
first without having revoked his will. The wife accepted benefits under the husband's will and later
made her
last will in substantially different terms. She is now dead. The question is whether the persons who
would
have been the beneficiaries under the wife's original will can claim that her estate should be held on
the
trusts of that will and not of her last will.

See Re Dale [1993] 4 ALLER 129; Re Oldham [1925] Ch 75; Duffour v. Perreira
21 ER 332. The fact that they have identical wills is not a proof of mutual wills.
See Gray v. Perpertual trustee co. Ltd (1928) AC 391

Categories of property where constructive trusts arise in cases of mutual wills

1. Property received from the first estate of person died who was part of
the mutual will.
2. Some of the property B held when A died.
3. All property B held at the time of the will
4. All property owned by the deceased when B died. The beneficiary will
get all this.
 Constructive trust in mutual wills arises when the first testator dies. The
nature of beneficial interest is floating. It can be enforced once one of the
testators dies. So the rule in Saunders v. Vautier [1804] 4 Beav 115 does not
apply.
WILLS - CONSTRUCTION - VESTING - PERSONALTY - GIFT OF INTERIM INCOME - DIRECTION
FOR
ACCUMULATION - EFFECT OF -- WHETHER BEQUEST VESTED AND CONTINGENT
Testator, by his will, bequeathed to his executors and trustees all the East India stock which should
be
standing in his name at his death, upon trust to accumulate the dividends until D should attain twenty-
five,
and then to transfer the principal, together with such accumulations, to D, his executors,
administrators, or
assigns, absolutely. The will contained also a residuary bequest. Testator had £2,000 East India stock
standing in his name at his death: Held D took an immediate vested interest in that legacy, although
he was
a minor at testator's death.
There is not only the gift of the intermediate interest, indicative . . . of an intention to make an
immediate gift,
because, for the purpose of the interest, there must be an immediate separation of the legacy from
the bulk
of the estate; but a positive direction to separate the legacy from the estate, and to hold it upon trust
for the
legatee when he shall attain twenty-five (Lord Cottenham C).

-Courts have been reluctant to recognise fiduciary obligation in

commercial transactions. The assumption is that those who enter into
these transactions have equal powers.
-Constructive trust does arise also in instances where the property has been
transferred by mistake or under undue influence. See Sauze v. Argante H.C
Civil Cause No. 597 of 1986;
Allcard v. Skinner [1887] 36 Ch 145 Constructive trusts do also arise where
property has been transferred by undue influence. In Allcard v Skinner [1887] 36 Ch
145 Allcard v Skinner [1887] 36 Ch 145 the plaintiff was introduced by her spiritual
director to the defendant who was the lady incharge of religion institution called the
sisters of the poor. The plaintiff joined the grouping and became a professed
member of the group. The rules required that allcard had to be bound to observe all
the rules of poverty, chastity and obedience. The rules also required that the voice of
the superior is the voice of God and no member should seek external advice
without leave of the defendant and that each member had to surrender his
property to the sister hood and that on condition that he is leaving the
sisterhood there should be no right of claim. Shortly after joining the grouping the
plaintiff made a will and surrendered all her property to the defendant. She also
surrendered money plus stocks and shares. Later the plaintiff renounced her
membership and revoked the will. The question before the court was whether the
defendant was under undue influence when he gave her property. Where the
relations between the donor and donee have at or shortly before the execution of the
gift been such as to raise a presumption that the donee had influence over the donor
In the second class of cases the Court interferes, not on the ground that any
wrongful act has in fact been committed by the donee, but on the ground of public
policy, and to prevent the relations which existed between the parties and the
influence arising therefrom being abused.
-Where there is a mistaken transfer, courts impose constructive trust or
resulting trust. See Chase Manhattan Bank v. Israeli British Bank []1981] Ch 105.
Constructive trusts arise where property has been mistakenly transferred. Courts do
impose constructive trusts or resulting trusts. Chase Manhattan Bank v Israel British
Bank [1981] Ch 105 Chase Manhattan was instructed to pay $2m to the
Israel-British Bank, but it paid the sum twice by mistake. The Israel-
British Bank went insolvent, and Chase Manhattan wished to claim the
money back, without waiting in the insolvency queue. The Israel-British
bank had known about the mistake before it finally went into liquidation.
Judgment Goulding J held that Chase Manhattan could recover the
full sum, because the money was held on trust from the moment it
was received. ‘a person who pays money to another under a factual
mistake retains an equitable property in it and the conscience of
that other is subjected to a fiduciary

Chase Manhattan Bank v Israel-British Bank [1979] 3 All ER 1025,HC

Facts
The plaintiff, Chase, a New York bank, acting on instructions, paid $2,000,687 to
another New York bank, via the New York clearing house system, for the defendant’s
account. Later on the same day, owing to a clerical error on the part of an employee of
Chase, a second payment of the same amount was made. The defendant, another bank
based in London, received the funds and discovered the mistake two days later.
Subsequently, the defendant company was wound up and was found to be insolvent.
The plaintiff brought an action in equity to trace its funds in the hands of the
defendant.
Held
The plaintiff had retained a proprietary right in the funds and was entitled to a
charging order against the defendant:
Goulding J: The plaintiff’s claim, viewed in the first place without reference to any system of
positive law, raises problems to which the answers, if not always difficult, are at any rate not
obvious.If one party P pays money to another party D by reason of a factual mistake, either
common to both parties or made by P alone, few conscientious persons would doubt that D
ought to return it.But suppose that D is, or becomes, insolvent before repayment is made, so that
P comes into competition with D’s general creditors, what then? If the money can still be traced,
either in its original form or through successive conversions, and is found among D’s remaining
assets, ought not P to be able to claim it, or what represents it, as his own? If he ought, and if in a
particular case the money has been blended with other assets and is represented by a mixed fund,
no longer as valuable as the sum total of its original constituents, what priorities or equalities
should govern the distribution of the mixed fund? If the money can no longer be traced, either
separate or in mixture, should P have any priority over ordinary creditors of D? In any of these
cases, does it make any difference whether the mistake was inevitable, or was caused by P’s
carelessness, or was contributed to by some fault, short of dishonesty, on the part of D?
At this stage I am asked to take only one step forward, and to answer the initial question of
principle, whether the plaintiff is entitled in equity to trace the mistaken payment and to recover
what now properly represents the money ...The facts and decisions in Sinclair v Brougham [1914] AC 398 and in Re Diplock [1948]
Ch 465 areduty to respect his proprietary right’.
 This can happen in the following ways:

1. Where one creates a situation that makes people believe that they
owe that person money and in the process they give the money. See
Kelly v. Solari (1841) 9 M & W54 Where one creates a situation that makes
people believe that they owe the person money and in the process they give
that particular person the money. Kelly v Solari (1841) 9M & W 54 Mr Solari died. His
widow claimed under his life insurance policy as executrix. The insurers later found they were not in fact liable to pay
because he had not paid a premium instalment. The policy had been marked lapsed, but the office had not checked.

Judgment[edit]
The Court of Exchequer held that the widow was bound to repay. Her lack of fault was irrelevant or that the insurers were
careless.

Parke B, said if the money,

“ is paid under the impression of the truth or a fact which is untrue, it may, generally speaking, be recovered back, however
careless the party paying may have been, in omitting to use due diligence to inquire into the fact. In such a case the
receiver was not entitled to it, nor intended to have it. ”
Rolfe B said to the fact that Mrs Solari was innocent ‘it cannot be otherwise than unconscientious to retain it.’ (i.e. the money).

LORD ABINGER CB:

I think that the defendant ought to have had the opportunity of taking the opinion of the jury on the
question
whether in reality the directors had a knowledge of the facts, and, therefore, that there should be a
new trial,
and not a verdict for the plaintiff; although I am now prepared to say that I laid down the rule too
broadly at
the trial as to the effect of their having had means of knowledge. That is a very vague expression, and
it is
difficult to say with precision what it amounts to; for example; it may be that the party may have the
means of
knowledge on a particular subject, only by sending to and obtaining information from a correspondent
abroad. In Bilbie v Lumley (1)
[1835-42] All ER Rep 320 at 322
the argument as to the party having means of knowledge was used by counsel and adopted by some
of the
judges; but that was a peculiar case and there can be no question that, if the point had been left to the
jury,
they would have found that the plaintiff had actual knowledge. The safest rule, however, is that if the
party
makes the payment with full knowledge of the facts, although under ignorance of the law, there being
no
fraud on the other side, he cannot recover it back again. There may also be cases in which, although
he
might by investigation learn the state of facts more accurately, he declines to do so, and chooses to
pay the
money notwithstanding; in that case there can be no doubt that he is equally bound. Then there is a
third
case, and the most difficult one where the party had once a full knowledge of the facts but has since
forgotten them. I certainly laid down the rule too widely to the jury when I told them that, if the
directors once
knew the facts, they must be taken still to know them and could not recover by saying that they had
since
forgotten them. I think that the knowledge of the facts which disentitles the party from recovering must
mean
a knowledge existing in the mind at the time of payment. I have little doubt in this case that the
directors had
forgotten the fact, otherwise I do not believe they would have brought the action; but as counsel for
the
defendant certainly has a right to have that question submitted to the jury, there must be a new trial.

2. Where there is a mistaken gift and the recipient has the relevant
knowledge of the transfer.
Constructive Trusts in property adjustments
Constructive trusts have been held to be effective in property adjustment
after the end of relationships. See Gissing v. Gissing [1970] 2 ALLER 780;
Constructive trusts have been held to be effective in property adjustments
after the end of relationships. Gissing v Gissing [1970] 2 All ER 780 the
issue at stake was whether a wife was entitled to a share of the ownership
of a matrimonial home, which had been purchased in the sole name of the
husband. The court held that there was no common intention that she
would have a share and that she did not substantially, financially,
contribute to the acquisition of the house.

Gissing v Gissing [1971] AC 886,HL

Lord Pearson:

Contributions are not limited to those made directly in part payment of the price
of the property or to those made at the time when the property is conveyed into the name of
one of the spouses.F or instance there can be a contribution if by arrangement between the
spouses one of them by payment of the household expenses enables the other to pay the
mortgage instalments.

The undertaking between the parties concerning indirect contributions to the

acquisition of the property may take the form of an express agreement, albeit not inwriting, following
discussions between the parties.

Pettitt v. Pettitt [1970] AC 777;

Pettitt v Pettitt [1970] AC 777 In Pettitt, the wife had used her own
money to buy a house during the marriage and both she and her husband resided
therein until the wife left the husband. The husband claimed that he had carried out a
considerable number of improvements to the house and garden. These
improvements consisted of internal decoration work, building a wardrobe, laying a
lawn and constructing an ornamental wall and a side wall in the garden. By virtue of
these efforts the husband sought a beneficial interest in the proceeds of sale of the
property. Title to the house had been in the wife's name.[1]
Judgment[edit]
In the course of his judgment, Lord Diplock said,
"It would, in my view, be an abuse of the legal technique for ascertaining or imputing
intention to apply to transactions between the post-war generation of married
couples "presumptions which are based upon inferences of fact which an earlier
generation of judges drew as to the most likely intentions of earlier generations of
spouses belonging to the propertied classes of a different social era."
Greasely v. Cooke[1980] 3 ALLER 710.
-Cardozo in Beatty v. Guggenheim Exploration 225 NY 380 (1919) said that
constructive trust is a formulae in which conscience of equity finds
expression.
-Lord Denning in Hussey v. Palmer [1972] 3 WLR 477 proposed New Model
constructive trust, which is imposed whenever justice and good
conscience requires its imposition. This case involved a woman who had
moved into the house of her son in law and paid for an extension to be
built. Court held that she was entitled to an equitable interest.
Trust and trustee - Resulting trust - Expenditure on property of another - Family arrangement -
Equitable
principle applicable - Imposition of trust whenever justice and good conscience require it -
Improvement to
property paid for by person other than legal owner - Mother-in-law coming to live at son-in-law's house
-
Extension to house to provide bedroom for mother-in-law - Extension paid for by mother-in-law -
Mother-in-law subsequently leaving to live elsewhere - Resulting trust for mother-in-law giving her an
interest
in the house proportionate to money expended on extension - Resulting trust consistent with
transaction
being a loan to son-in-law.
In 1967, when the plaintiff sold her condemned house, she was invited by her daughter and her son-
in-law,
the defendant, to live with them in their house, which was owned by the son-in-law. As the house was
too
small for them all the son-in-law arranged to have a bedroom built on to it as an extension for the
plaintiff's
use, it being assumed that she would live in the house, using the bedroom, for the rest of her life. The
extension was built between April and September 1967. It cost £607 and was paid for by the plaintiff
direct to
the builder, in June and September 1967. The son-in-law said nothing to the plaintiff about repaying
the £607
to her. When the extension was completed the plaintiff moved into it. She lived in the house until
March 1968
when, because of differences between her and the daughter and son-in-law, she left and went to live
elsewhere, She became hard up but the son-in-law refused her request for financial help. In April
1970 the
plaintiff brought proceedings against the son-in-law claiming from him, as money lent, the £607 which
she
had paid for the extension. At the hearing of the claim the registrar intimated his view that the £607
was not a
loan but was paid by the plaintiff under a family arrangement; accordingly the plaintiff submitted to a
non-suit
and in July 1971 brought fresh proceedings against the son-in-law claiming the £607 on a resulting
trust. In
those proceedings the plaintiff gave evidence that she had lent the £607 to the son-in-law; he elected
to call
no evidence. On that evidence the county court judge held that the £607 was a loan and that there
was no
case for a resulting trust, and he dismissed the plaintiff's claim. He did not think it right to insist on
amendment of the particulars of claim to add a claim for money lent since the plaintiff had twice
elected not
to pursue such a claim. On the plaintiff's appeal,
Held - (Cairns LJ dissenting) The case came within the principle that where it was inequitable on the
grounds
of justice and good conscience that the legal owner of property should take the property for himself
and
exclude another from it, the law would impute or impose a trust for the other's benefit. A person who
paid for
an extension to be added to the legal owner's property acquired an equitable interest in the property
because justice and good conscience so required; the court would look at the circumstances of each
case to decide in
what way the equity could be satisfied. In the circumstances of the present case the court should
impose or
impute a resulting trust for the plaintiff by which the son-in-law held the house on terms which gave
the
plaintiff an interest in the house proportionate to the £607 she had put into it in paying for the
extension, even
if (per Phillimore LJ) the transaction was a loan for that would not be inconsistent with it also involving
a
resulting trust. The appeal would therefore be allowed

English courts have rejected the new model Constructive trusts. See Grant
v. Edward [1986] Ch 638. where Mrs Linda Grant left her husband and
moved in with Mr George Edwards. A modest house was purchased with
the aid of mortgage to provide a home for the couple. The purchase was
made in the name of George Edwards and his brother Arthur. Miss Grant’s
name was not included in the purchase, since Mr Edwards suggested that
it might complicate her divorce proceedings. Mrs Grant helped with the
purchase by contributing to the repayment of the mortgage and in other
ways. The court imposed a trust on George and Arthur to give effect to
the understanding that Mrs Grant would be entitled to a half share in the
net value of the house.
TRUSTS - NATURE AND CREATION OF TRUSTS - CONSTRUCTIVE AND RESULTING TRUSTS -
CONSTRUCTIVE TRUSTS - IN GENERAL - NATURE OF CONSTRUCTIVE TRUST - HOW
CREATED --
PRESUMED FROM CIRCUMSTANCES -- CONSEQUENCES OF ACTS OF PARTIES -- HOUSE
OWNED
BY MAN -- BENEFICIAL INTEREST OF WOMAN -- CONSIDERATIONS
A man and woman had lived together for several years. The house in which they lived had been
purchased
Page 2
in the names of the man and his brother. He had told the woman that her name was not included on
the title
deeds because to do so would cause prejudice in matrimonial proceedings taking place between the
woman
and her husband. She subsequently claimed a beneficial interest in the house, but was unsuccessful,
the
judge holding that although she had paid some of the mortgage instalments, this amount was not
substantial
enough to give her an interest in the property. On appeal, held, to succeed, the woman had to
establish a
common intention between herself and the man that she was to have some sort of proprietary interest
in the
house and to show then that she had acted to her detriment in reliance on this intention. The excuse
given
by the man for not including her name on the title deeds was clear evidence of a common intention
that she
was to have an interest in the house. The contributions made by the woman to the household
expenses were
essentially linked to the mortgage payments made by the man. In cases of this sort it was often
difficult to
say with certainty whether or not an action was referable to the expectation of an interest in a house.
However, once it was shown that there was a common intention, any act done by the woman to her
detriment relating to the parties' joint lives was a sufficient detriment. The appeal would be allowed,
the woman being entitled to a half interest in the property.

Grant v Edwards [1986] Ch 638,CA

Facts
The claimant, a woman who lived with the defendant, was given a false reason for not
having the house put in their joint names. The woman made substantial contributions
to the family expenses in the hope of acquiring an interest in the house. The expenses
undertaken by the woman enabled the man to keep up the mortgage instalments. The
plaintiff claimed an interest in the house.
Held
The plaintiff was entitled to a half share in the property. She would not have made the
substantial contributions to the housekeeping expenses, which indirectly related to the
mortgage instalments, unless she had an interest in the house. This was the inevitable
inference from the plaintiff’s conduct which established a common intention and
reliance to her detriment:
Nourse LJ: Where there has been no written declaration or agreement, nor any direct provision
by the plaintiff of part of the purchase price so as to give rise to a resulting trust ... She [the
claimant] must establish a common intention between her and the defendant, acted on by her, that
she should have a beneficial interest in the property.If she can do that, equity will not allow the
defendant to deny that interest and will construct a trust to give effect to it ... In this regard the
court has to look at expenditure which is referable to the acquisition of the home.
It is in my view an inevitable inference that the very substantial contribution which the plaintiff
made out of her earnings after August 1972 to the housekeeping and to the feeding and to the
Chapter 10: Constructive Trusts:The Family Home 257
bringing up of the children enabled the defendant to keep down the instalments payable under
both mortgages out of his own income and, moreover, that he could not have done that if he had
had to bear the whole of the other expenses as well.
Was the conduct of the plaintiff in making substantial indirect contributions to the instalments
payable under both mortgages conduct upon which she could not reasonably have been expected
to embark unless she was to have an interest in the house? I answer that question in the
affirmative.I cannot see upon what other basis she could reasonably have been expected to give
the defendant such substantial assistance in paying off mortgages on his house.I therefore
conclude that the plaintiff did act to her detriment on the faith of the common intention between
her and the defendant that she was to have some sort of proprietary interest in the house.
In the same case, Sir Nicolas Browne-Wilkinson VC (as he then was) expressed the
approach of the court exclusively in terms of a constructive trust similar to a
proprietary estoppel. The claimant without the legal interest is required to establish a
constructive trust or a proprietary estoppel by showing that it would be inequitable for
the legal owner to claim sole beneficial ownership. This requires two matters to be
demonstrated:
(a) that there was a common intention that both parties should have a beneficial
interest; and
(b) that the claimant had acted to his detriment on the basis of that common intention.
The intention may be established by direct evidence of an express agreement in
writing between the parties, or may be an inferred common intention from the conduct
of the parties. Direct or indirect substantial financial contributions to the acquisition of
the house (including the mortgage instalments) will have this effect. Indeed,
contributions may be relevant for four different purposes:

The current English position is that constructive trust should be imposed in

very clear and definite terms. See Gissing v. Gissing [1970] 2 ALLER 780;
Pettitt v. Pettitt (1970) AC 777; Nyangulu v. Nyangulu Civil Appeal Cause
No. 208 of 1982 H.C reported
-The House of Lords insist that two essential elements must be present
before constructive trust can arise. These are:
1. Establish common intention—it can be express or implied
2. Establish detrimental reliance
See Llyods Bank v. Rossett (1991) AC 107

Lloyds Bank plc v Rosset [1990] 1 All ER 111, HL

Facts
A semi-derelict farmhouse was conveyed in the name of the husband but the wife
spent a great deal of time in the house supervising the work done by builders. She also
did some decorating to the house. Unknown to the wife, her husband had taken out an
overdraft with the bank. The couple later separated but the wife remained in the
house. The husband was unable to repay the overdraft, with the result that the bank
started proceedings for the sale of the property. The wife resisted the claim on the
ground that she was entitled to a beneficial interest in the house under a constructive
trust. The trial judge and the Court of Appeal decided that the husband held the
property as constructive trustee for wife and himself. The plaintiff appealed.
Held
In favour of the bank on the ground that the wife had no beneficial interest in the
property. There was no understanding between the parties that the property was to be
shared beneficially, coupled with detrimental action by the claimant, nor had there
been direct contributions to the purchase price. In any event, the court decided that the
monetary value of the wife’s work was trifling compared with the cost of acquiring the
house:
Lord Bridge of Harwich:
The first and fundamental question which must always be resolved is
whether, independently of any inference to be drawn from the conduct of the parties in the course
of sharing the house as their home and managing their joint affairs, there has at any time prior to
acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding
reached between them that the property is to be shared beneficially. The finding of an agreement or
arrangement to share in this sense can only, I think, be based on evidence of express discussions between
the partners, however imperfectly remembered and however imprecise their terms may have been.
Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a
beneficial interest against the partner entitled to the legal estate to show that he or she has acted
to his or her detriment or significantly altered his or her position in reliance on the agreement in
order to give rise to a constructive trust or a proprietary estoppel [emphasis added].
In sharp contrast with this situation is the very different one where there is no evidence to
support a finding of an agreement or arrangement to share, however reasonable it might have
been for the parties to reach such an arrangement if they had applied their minds to the question,
and where the court must rely entirely on the conduct of the parties both as the basis from which to infer
a common intention to share the property beneficially and as the conduct relied on to give rise to a
constructive trust. In this situation direct contributions to the purchase price by the partner who is not the
legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference
necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely
doubtful whether anything less will do [emphasis added].
262 Cases & Materials on Trusts
The leading cases in your Lordships’ House are Pettitt v Pettitt [1970] AC 777 and Gissing v Gissing
[1971] AC 886.Both demonstrate situations in the second category to which I have referred and
their Lordships discuss at great length the difficulties to which these situations give rise.The effect
of these two decisions is very helpfully analysed in the judgment of Lord MacDermott LCJ in
McFarlane v McFarlane [1972] NI 59.
Outstanding examples on the other hand of cases giving rise to situations in the first category are
Eves v Eves [1975] 1 WLR 1338 and Grant v Edwards [1986] Ch 638.In both these cases, where the
parties who had co-habited were unmarried, the female partner had been clearly led by the male
partner to believe, when they set up home together, that the property would belong to them
jointly.In Eves v Eves the male partner had told the female partner that the only reason why the property was to be acquired in his
name alone was because she was under 21 and that, but for her
age, he would have had the house put into their joint names.He admitted in evidence that this was
simply an ‘excuse’.Similarl y in Grant v Edwards the female partner was told by the male partner
that the only reason for not acquiring the property in joint names was because she was involved in
divorce proceedings and that, if the property were acquired jointly, this might operate to her
prejudice in those porceedings.As Nourse LJ put ipt, 649:
Just as in Eves v Eves, these facts appear to me to raise a clear inference that there was an
understanding between the plaintiff and the defendant, or a common intention, that the
plaintiff was to have some sort of proprietary interest in the house; otherwise no excuse for
not putting her name on to the title would have been needed.
The subsequent conduct of the female partner in each of these cases, which the court rightly held
sufficient to give rise to a constructive trust or proprietary estoppel supporting her claim to an
interest in the property, fell far short of such conduct as would by itself have supported the claim
in the absence of an express representation by the male partner that she was to have such an
interest.It is significant to note that the shea rto which thee fmale partners in Eves v Eves and Grant
v Edwards were held entitled were one quarter and one half respectively.In no sense could these
shares have been regarded as proportionate to what the judge in the instant case described as a
‘qualifying contribution’ in terms of the indirect contributions to the acquisition or enhancement
of the value of the houses made by the female partners.

Difficulties concerning the Rosset analysis

Lord Bridge in Lloyds Bank v Rosset, in issuing guidelines as to the relevance of
evidence necessary to create proprietary interests in family assets, classified the
evidence into two categories:
(a) Evidence of an agreement based on express discussion between the parties:
The claimant is required to show that ‘there has at any time prior to the acquisition, or
exceptionally at some later date, been an agreement, arrangement or understanding between the
parties that the property is to be shared beneficially based on evidence of express discussion between
the parties.The claimant will then be required to establish that he or she acted to his or her
detriment in reliance on the agreement in order to give rise to a constructive trust or proprietary
estoppel [emphasis added].
(b) Evidence of the conduct of the parties based on direct contributions to the purchase
of the home:
Where there is no evidence to support a finding of an agreement or arrangement to share ... and
where the court must rely entirely on the conduct of the parties both as the basis from which to
infer a common intention to share the property beneficially and as the conduct relied on to give
rise to a constructive trust.In this situation direct contributions to the purchase price ...will readily
justify the inference necessary to the creation of a constructive trust.But . . .it is at least extremely
doubtful whether anything less will do [emphasis added].

Express common intention is where parties agree that the other will retain
the beneficial interest. See Grant v. Edwards[1986] Ch 638;

Eves v. Eves [1975] 1 WLR 338.

Eves v Eves [1975] 1 WLR 1338,CA

Facts
An unmarried couple bought a house which was conveyed in the name of the man
(defendant) instead of both parties on the ground that the plaintiff (as suggested by the
defendant) was under 21. She bore him two children and did a lot of heavy work in the
house and garden before he left her for another woman. The plaintiff applied to
ascertain her share of the house.
Held
The court found in favour of the plaintiff and awarded her a quarter share of the house
on the ground that the property was acquired and maintained by both parties for their
joint benefit:
Lord Denning MR: Although Janet did not make any financial contribution, it seems to me that
this property was acquired and maintained by both by their joint efforts with the intention that it
260 Cases & Materials on Trusts
should be used for their joint benefit until they were married and thereafter as long as the
marriage continued.At any rate, Stuart Eves cannot be heard to say the contrary. He told her that
it was to be their home for them and their children.He gained her confidence by telling her that
he intended to put it in their joint names (just as married couples often do) but that it was not
possible until she was 21.The judge described this as a ‘trick’ and said that it ‘did not do him much
credit as a man of honour’.The man never intended to put it in joint names but always determined
to have it in his won name.It seems to me that he should be judgedy wb hat he told her –y bwhat
he led her to believe – and not by his own intent which he kept to himself.
Note
During the 1970s and early 1980s the Court of Appeal, in a series of decisions,
advocated its own peculiar solution to disputes involving the family home. Its
approach was based on a liberal interpretation of justice and good conscience.

Implied common intention is where the conduct of the parties is material. See
Burns v. Burns (1984) Ch 317

Burns v Burns [1984] 2 WLR 582,CA

Facts
The plaintiff, Mrs Burns, lived with the defendant for 19 years from 1961 without
being married. She gave up her employment shortly after their first child was born. In
1963, when she was expecting her second child, the defendant bought a house in his
sole name for £4,900 of which £4,500 was raised by way of a mortgage. The plaintiff
made no direct contributions to the purchase. Until 1975, the plaintiff was unable to
take up gainful employment because she performed the duties of bringing up the
children. Although the defendant gave her a generous housekeeping allowance and
did not ask her to contribute to household expenses, from 1975 she became employed
and used her earnings for household expenses and to purchase fixtures and fittings. In
1980, the plaintiff left the defendant and claimed a beneficial interest in the house. The
judge decided that the plaintiff did not have an interest in the house. The plaintiff
appealed.
Held
The plaintiff had failed to prove that she had made a contribution, directly or
indirectly, to the acquisition of the property, and therefore she did not have an interest
in the property. A common intention that the plaintiff had acquired an interest in the
property could not be imputed to the parties on the basis that the plaintiff lived with
the defendant for 19 years, brought up the children and did a fair share of domestic
duties. In respect of unmarried couples, the court had no jurisdiction equivalent to the
Matrimonial Causes Act 1973 to make an order dividing up the property on the basis
of what was fair and reasonable:
Fox LJ: If the plaintiff is to establish that she has a beneficial interest in the property, she must
establish that the defendant holds the legal estate upon trust to give effect to that interest.That
follows from Gissing v Gissing [1971] AC 886.F or present purposes I think that such a trust could
only arise (a) by express declaration or agreement, or (b) by way of a resulting trust where the
claimant has directly provided part of the purchase price, or (c) from the common intention of the
parties.
In the present case, (a) and (b) can be ruled out.There was no express trust of an interest in the
property for the benefit of the plaintiff; and there was no express agreement to create such an
interest.And the plaintiff made no direct contribution to the purchase price. Her case, therefore,
must depend upon showing a common intention that she should have a beneficial interest in the
property.Whether the trust which would arise in such circumstances is described as implied,
constructive or resulting does not greatly matter.If the intention is inferred from the fact that
some indirect contribution is made to the purchase price, the term ‘resulting trust’ is probably not
inappropriate.Be that as it may, the basis of such a claim, in any case, is that it would be inequitable
for the holder of the legal estate to deny the claimant’s right to a beneficial interest.
In determining whether such common intention exists it is, normally, the intention of the parties when the
property was purchased that is important [emphasis added].
Looking at the position at the time of the acquisition of the house in 1963, I see nothing at all to
indicate any intention by the parties that the plaintiff should vhea an inteerst in it ...
I come then to the position in the year after the house was purchased.I will deal with them under
three heads, namely financial contributions, work on the house and finally housekeeping.There is
some overlapping in these categories.

Detrimental reliance has to be proved. See Lloyds Bank v. Rosselt (supra).

Constructive trust in unmarried cohabiting couples

See Appleton v. Appleton [1965] 1 ALLER 44; Hazzell v. Hazzell[1972] 1
ALLER 923; Cook v. Head [1972] 2 ALLER 38; Hussey v. Palmer [1972] 3
ALLER 744; Binions v. Evans [1972] Ch 359; Bernard v. Joseph [1982] 3 ALLER
162.

-Constructive trust has little relevance to married parties who are

separated because family law covers it. See Sections 25 & 26 of Divorce
Act; sections 3 & 5 of married women and maintenance Act 1882

Property Division after Divorce

 The mere fact of marriage is not enough to impute joint ownership of
property. There is need to prove common intention or financial
contribution. See Gissing v. Gissing [1970] 2 ALLER 780; Pettitt v. Pettitt
(1970) AC 777; Nyangulu v. Nyangulu (supra); Malinki v. Malinki 1978-80
ALR Mal 441; Foresta v. Foresta Matrimonial cause No. 16 of 1993.
-In America court do recognise domestic labour. See Woodworth
v.Woodworth 337 NW (2d) 332, Michigan. See also Pettkus v. Becker (1980)
2 SCR 834. Article by Simon Gartner “Rethinking family property” (1993) 109
LQR 263
-In Zimbabwe the marriage certificate is no guarantee of maintenance
after dissolution of marriage. Maintenance may vary according to the
requirements to make the weaker party empowered. Court looks at the
issues of age, skill e.t.c See Chiwomba v. Chiwomba [1992] 2 ZLR 197 per
Justice Munyarama. See a Malawian case of Ali v. Mhango Civil Appeal
(T.C) No.15 of 1970

Property adjustment in connection to death is regulated by Wills &

Inheritance Act, Act No. 25 of 1967. There is deliberate attempt to
guarantee testamentary freedom. Section 10 shows that court is to
decipher the intention of the settlor. This sometimes is prejudicial to the
family members. In Zimbabwe and New Zealand, they have modified the
testamentary freedom to enable the wife and children to apply for a will
variation. In Malawi the ambit for such application to vary the will is
limited. See section 24 (2) of the constitution of Malawi; Sections 16,17,18
of Wills and Inheritance Act; Lambat v. Omar 1964-66 ALR Mal 511

D. PROPRIETARY ESTOPPEL

This doctrine applies specifically to land. It prevents a person from insisting in

exercising strict legal rights in property when it’s inequitable for him to do so
having regard to the dealings which have been taken place between the
parties. See Crabb v. Arun District council [1975] 3 ALLER 865 where the plaintiff
developed his land upon an encouragement that he would be granted an access. Court
held to his favour.
In Crabb v District Council [1975] 3 All ER 865 In 1965 Mr Victor Crabb bought two acres of land in the sea-
side village of Pagham, near Bognor Regis. His neighbours on three and a half acres to the west were Arun District Council (ADC)
(formerly Chichester Rural District Council). The north part of land owned by Crabb faced Hook Lane, and the West side was Mill Park
Road, which also the east side of the ADC's land. There were two access points to Mill Park Road, which led up to Hook Lane, and out
of the village, point "A" and point "B". The access point "A" was open by virtue of a formalised easement, granted when the previous
owner of the whole five and a half acres had sold the property on to ADC and Crabb, Access point "B" was open only because the
council was letting Crabb use it, with no formal written agreement in place.

In February 1968 ADC put up gates at point "A" and "B". Crabb believing that he had assurances to use both gates, sold off the
northern half of the land, where access point "A" was. For the southern half of the land, he relied on having access point "B" open. In
January 1969 Crabb secured the inside of the gate at point "B" with padlocks. ADC responded by removing the gates and replacing it
with a fence. Crabb asked for to access point to be re-opened. ADC said they would in return for £3000. Crabb subsequently sued the
council, alleging that he had been given an assurance that the gates would remain open.

The judge found that Crabb had received no formal or firm assurance, but more importantly, if there was, Crabb had given no
consideration in return for it, and it was not enforceable. Crabb subsequently appealed the decision.

the plaintiff developed his land upon an encouragement that he would be granted
access. The court held in his favour. Proprietary estoppels does not apply in public
matters e.g. granting of planning permission
English jurisprudence recognizes cause of action for proprietary estoppels. In other
jurisdictions courts are not strict with proprietary estoppels. Proprietary estoppels
specifically deal with land related matters.
DIFFERENCES BETWEEN PROPRIETARY ESTOPEL AND PROMISSORY
ESTOPPEL
Proprietary estoppels arise outside contractual relationships while promissory
estoppel arises largely in contracts.

Whereas proprietary estoppels can be used both as causes of action and shields,
promissory estoppels can only be used as defenses. In Crab v Arun District Council
In Crabb v Arun District Council ([1976] Ch. 179) P owned land with access to a
road owned by D at point A. P then decided to sell his land as two separate plots.
This meant that he needed an extra right of access to the road from one of the
plots at a different point. P and D agreed in principle that a right of access would
be granted at a point labelled ‘B’, although details remained to be negotiated (as
to whether the right would be an easement or licence and as to the payment
required from P). Nevertheless, D erected a new substantial gate at point B. P,
thinking he had the new right he needed, sold off the part of the land that would
use the access at point A without reserving a right for the retained plot to be able
to get to point A. P did this thinking that the retained plot had the benefit of the
access at point B. D, however, changed its mind and blocked off the access at
point B. P sought a declaration and injunction to the effect that D was estopped
from denying that P had a right of access to the road at point B.

The English Court of Appeal agreed that B should have an easement starting at
point B on the basis of proprietary estoppel. The agreement reached and D’s
conduct in encouraging P to believe that he had the relevant right (eg by installing
a permanent gate at point B) provided the necessary representation. The sale of
the plot without the reservation of a right of way from point A was the detrimental
reliance. It would be unconscionable for D to dispute that P had the right claimed.
Given the loss and delay caused by D’s high-handed actions (that had prevented
the land from being put to use in a way that would have benefited not only P but
also, perhaps, the local economy) the appropriate award was an easement
(rather than a licence) and an award of damages for the lost opportunity to profit
from the land during the time that it was land-locked.

It is interesting to note that the assurance was effective in this case despite the
parties’ awareness that the agreement in principle would need to be made firmer
(by agreeing on details such as payment) and would need to be incorporated in a
deed or contract. The subsequent conduct both illustrated that the parties’
thought that there was a firm agreement and amounted to a representation in its
own right.

Lord Denning commented (at 187) on the fact that some estoppels (proprietary
estoppel) can provide a cause of action. He also sought to explain that, in this
case too, equity is modifying common law rights where conscience required it.
Lord Scarman doubted that there was any benefit in distinguishing between
proprietary and promissory estoppel (

Another version ……proprietary estoppels was used as a cause of action. In 1965 Mr

Victor Crabb bought two acres of land in the sea-side village of Pagham, near Bognor Regis. His neighbours on three and a half acres
to the west were Arun District Council (ADC) (formerly Chichester Rural District Council). The north part of land owned by Crabb faced
Hook Lane, and the West side was Mill Park Road, which also the east side of the ADC's land. There were two access points to Mill
Park Road, which led up to Hook Lane, and out of the village, point "A" and point "B". The access point "A" was open by virtue of a
formalised easement, granted when the previous owner of the whole five and a half acres had sold the property on to ADC and Crabb,
Access point "B" was open only because the council was letting Crabb use it, with no formal written agreement in place.

In February 1968 ADC put up gates at point "A" and "B". Crabb believing that he had assurances to use both gates, sold off the
northern half of the land, where access point "A" was. For the southern half of the land, he relied on having access point "B" open. In
January 1969 Crabb secured the inside of the gate at point "B" with padlocks. ADC responded by removing the gates and replacing it
with a fence. Crabb asked for to access point to be re-opened. ADC said they would in return for £3000. Crabb subsequently sued the
council, alleging that he had been given an assurance that the gates would remain open.

The judge found that Crabb had received no formal or firm assurance, but more importantly, if there was, Crabb had given no
consideration in return for it, and it was not enforceable. Crabb subsequently appealed the decision.

See also Hills v. Metropolitan Railway co. (1872) 2 AC 439.

-Proprietary estoppel does not apply to public matters e.g. grant of
planning permission.
See Western Fish products Ltd v. Penwith Borough Council [1981] 2 ALLER
204
COURT OF APPEAL, CIVIL DIVISION
MEGAW, LAWTON AND BROWNE LJJ
27, 28 FEBRUARY, 1, 2, 3, 6, 7, 8, 9, 13, 14, 15, 16, 17, 20, 21, 22 MARCH, 4, 5, 6, 7, 10, 11, 12,
13, 17,
18, 19 APRIL, 22 MAY 1978
Estoppel - Proprietary estoppel - Conduct leading representee to act to his detriment -
Expectation of acquiring right over land - Plaintiff obtaining assurance from council that
planning permission would be granted for development of his land - Plaintiff spending money
in expectation of obtaining planning permission - Plaintiff not expecting to obtain rights over
another's land - Council refusing planning permission - Whether council estopped from
refusing permission.
Estoppel - Statutory body - Local planning authority - Exercise of discretion - Whether local
planning authority can be estopped from exercising statutory discretion.

In April 1976 the plaintiffs bought an industrial site on which there was a disused factory that
had previously been used for the production of fertiliser from fish and fishmeal. That business
had closed down in 1975. The plaintiffs intended to use the site for the manufacture of fish oil
and fishmeal, for use as animal food, and to prepare and pack fresh fish for human
consumption, and wished to demolish some of the old buildings, repair, alter or rebuild
others, and build substantial new buildings. On 7 April 1976 at a meeting between the
plaintiffs' chairman and a planning officer representing the defendant council, the chairman
explained the intended project and asserted that the plaintiffs had an established use right
arising out of the previous use of the factory and the site and were entitled to carry on their
intended processes without the necessity of obtaining planning permission. The planning
officer asked the chairman to supply information supporting the assertion of an established
use right. The planning officer further stated that if the plaintiffs satisfied him that they had an
established use right the council would do everything possible to assist the plaintiffs and
would not obstruct them. The plaintiffs wrote two letters on 8th and 17 April supplying the
information requested. On 26 April the planning officer replied by letter stating that 'it is
confirmed that the limits of the various component parts of the commercial undertaking as
now existing appear to be established'. The plaintiffs forthwith proceeded to renovate or
rebuild the old buildings, to start erecting new buildings and to prepare for the installation of
expensive machinery. That work was carried on without protest by the council's
representatives although planning permission had not been obtained. On 6 July the planning
officer asked the plaintiffs' architects to submit planning applications and also an application
for an established use certificate under s 94 of the Town and Country Planning Act 1971 and
stated that the application for an established use certificate was purely a formality. Four
applications in respect of the various operations were submitted as well as an application for
the established use certificate. On 26 August a full meeting of the council refused all the
applications and authorised the service of enforcement and stop notices in respect of the
building works which were in progress. In september enforcement notices were issued and all
work on the site stopped. The plaintiffs brought an action against the council, seeking
declarations that they were entitled to existing use rights entitling them to use the factory for
the purposes they intended or that they were entitled to be treated as having planning
permission, an injunction restraining the council from enforcing the stop order and
enforcement notices, an order requiring the council to withdraw the enforcement notices,
and damages. The judge dismissed the plaintiffs' action. The plaintiffs appealed, contending,
inter alia, (i) that the statements made on 7 April by the planning officer and in his letter of 26
April amounted to a representation that the plaintiffs had an existing use right in respect of
the site and that once the existing use right was established the council would grant
planning permission for the new buildings, and that under the doctrine of proprietary
estoppel the council was estopped from deciding on the plaintiffs' applications in a manner
contrary to the planning officer's representations, (ii) that the letter of 26 April was either a
determination under s 53a of the 1971 Act that planning permission was not required for the
site or an established use certificate under s 94 of that Act, and (iii) that the plaintiffs had an
existing use right which entitled them to erect new buildings to enable them to exploit that
right.

Held - The appeal would be dismissed for the following reasons--

(1) The principle of proprietary estoppel only applied where the plaintiff, encouraged by the
defendant, acted to his detriment in relation to his own land in the expectation of acquiring
a right over the defendant's land. Even if the plaintiffs had to their detriment spent money on
their own land at the encouragement of the council, they had not done so in the
expectation of acquiring any rights in relation to the council's or any other person's land and
they could not therefore rely on the principle of proprietary estoppel
(2) In any event, an estoppel could not be raised to prevent a statutory body exercising its
statutory discretion or performing its statutory duty, and therefore, even if the council's
officers while acting in the apparent scope of their authority had purported to determine the
plaintiffs' planning applications in advance, that was not binding on the council because it
alone had power under the 1971 Act to determine the applications. Furthermore, although a
planning authority might be bound by the decisions of an officer if the power to decide the
particular matter had been, or appeared to be, delegated to the officer, for an estoppel to
arise in such circumstances there had to be some evidence, over and above the mere fact
of the officer's position, on which the applicant was justified in thinking that the officer's
statements would bind the council. Since there was nothing, apart from the position held by
the planning officer, on which the plaintiffs could have assumed that the officer could bind
the council, the council was not estopped by anything the planning officer had said from
refusing the plaintiffs' applications for planning consent.
(3) Furthermore, the letter of 26 April was not a representation because it was not
confirmation that the plaintiffs had existing use rights entitling them to use to site for the
purposes they proposed; but, even if it was, the plaintiffs had not acted on it to their
detriment since they had relied not on any representation but on their own belief that they
had an existing use right when carrying out their building works without planning permission.
Accordingly, on the facts no estoppel arose, and even if one did the plaintiffs could not rely
on it.

(4) Although it was not necessary for a person to make a formal written application for a
determination under s 53 of the 1971 Act that planning permission was not required if an
application for planning permission had already been submitted, since the application for
permission impliedly invited the authority to determine that permission was not required, a
formal written application under s 53 could only be dispensed with if an application for
permission had been made. Since the plaintiffs had not made an application for planning
permission their letters of 8th and 17 April could not be treated as informal applications under
s 53 and neither could the planning officer's letter of 26 April be construed as a determination
under s 53.

(5) An established use certificate under s 94 of the 1971 Act was required to be a formal
document in the form set out in Part II of Sch 6 of the Town and Country Planning General
Development Order 1973, and since the planning officer's letter of 26 April was not in that
form it could not be treated as a certificate under s 94; but in any event even if the formal
defects were disregarded the letter of 26 April could not in the circumstances be construed
as a certificated under s 94 (see p 224 d to h, post).
Per Curiam. Consideration should be given to the making of provision, either administratively
or by rules of court, to ensure that the Department of the Environment is apprised of litigation
on matters affecting the powers and duties of the Secretary of State in respect of his
functions relating to town and country planning.

-Proprietary estoppel purpose is to give protection from detriment due to

change of position by the party if the assumption that led to that change
of position has been denied. It comes to remedy the injustice occasioned.

Difference between Proprietary estoppel and promissory estoppel

-Proprietary estoppel arises outside contractual relationship while
promissory esoppel arises largely in contract.
-Proprietary estoppel can be used as a shield and a sword while promissory
estoppel is said to be a shield. See Crabb v. arun District Council (supra).
Estoppel - Estoppel in pais - Estoppel by conduct - Conduct leading representee to act to his
detriment -
Knowledge that representee intending to act in that way - Right of way - Assurance by representor
that he
would grant right of way over his land to and from representee's land - Representor constructing gates
to
allow access to way - Representor doing nothing to indicate intention to resile from assurance -
Representee
selling adjoining plot of land without reserving right of way to retained land - Representee believing
that he
had or would be granted right of way over representor's land - Representor knowing of representee's
intention to sell adjoining land but having no knowledge of actual sale - Effect of denial of right of way
to deny
representee access to retained land - Whether representor estopped from denying that representee
entitled
to right of way.
In 1946 A purchased 5 1/2 acres of land south of a public highway. A divided the land into two plots
and
erected commercial and industrial premises on the two acre plot adjoining the eastern boundary. The
northern portion of the two acre plot was adjacent to the highway, but the southern portion had no
separate
access to the highway. A made a new road on the two acre plot connecting the front and rear
portions. In
1962, after A's death, his executors obtained planning permission to erect dwelling-houses on the
remaining
3 1/2 acre plot. The plan included a proposal to construct a new estate road running along the
boundary
between the 3 1/2 acre plot and
[1975] 3 All ER 865 at 866
the two acre plot. The executors sold the two acre plot to the plaintiff in 1965. In the conveyance the
executors agreed to erect a fence along the boundary line between the two plots with a gap at a point
('point
A') in the northern portion of the two acre plot which would allow access from the two acre plot on to
the
proposed new road. The executors also granted the plaintiff a right of access at point A to the new
road and
a right of way along it to the highway. In 1966 the executors sold the 3 1/2 acre plot to the defendants,
the
local district council, but expressly reserved the rights of access and way granted to the plaintiff. The
defendants undertook to erect the fence on the boundary line save for a gap at point A. In 1967 the
plaintiff
decided to split up the two portions of the two acre plot and sell them off separately. At a meeting with
a
representative of the defendants in July 1967 he explained his plan and pointed out that he would
need
access to the new road at another point ('point B') to serve the southern portion. The defendants'
representative gave the plaintiff an assurance that that would be acceptable to the defendants.
Although no
formal grant was made to the plaintiff of any access at point B or easement over the new road, the
parties
thereafter acted in the belief that he had or would be granted such a right. In early 1968 the
defendants
erected the boundary fence and constructed gates at points A and B; the gates were clearly intended
to be
permanent. In September 1968 the plaintiff agreed to sell the northern portion. However, in the belief
that he
had a right of access to the southern portion at point B, he did not reserve for himself as owner of the
southern portion any right of way over the northern portion to point A. In January 1969, however, the
defendants removed the gates at point B and closed up the access by extending the fence across the
gap.
They offered to grant a right of access and an easement on payment of £3,000 by the plaintiff. The
plaintiff
was unwilling to pay and accordingly, without any access, the southern portion was rendered useless
to him.
In 1971 he began proceedings claiming a declaration that he was entitled to a right of way from the
southern
Page 1
portion along the new road and an injunction restraining the defendants from interfering with his
enjoyment of
the way.
Held - (i) The defendants were estopped from denying that the plaintiff had a right of access at point
B and a
right of way from point B to the public highway since by their words and conduct, ie by the assurance
made
by their representative at the July 1967 meeting, by the erection of the gates at point B and by their
failure
over a period of 13 1/2 months to give any indication that they might resile from their assurance, they
had led
the plaintiff to act to his detriment by selling the northern portion of the land without reserving a right of
way
over it from the southern portion. It was immaterial that the defendants had not had notice in
September 1968 that the plaintiff was about to sell the northern portion since they had known all along
that it was his
intention to do so (see p 871 f, p 872 c to g, p 874 a b and j to p 875 a and p 879 a to f and h to p 880
a,
post).
(ii) It followed that the plaintiff had in equity a right of access from point B to the highway and would be
entitled to an injunction to enforce that right, which in normal circumstances would be granted on
terms that
he made a contribution to the cost of constructing the access. However, since the southern portion
had been
rendered useless for a period of years as a result of the defendants' conduct, the plaintiff had suffered
damage which exceeded any sum which he could reasonably have been expected to pay towards the
cost.
Accordingly he was entitled to a right of access without making any payment to the defendants and
would be
granted the declaration and injunction sought

-Proprietary estoppel binds third parties while promissory estoppel only

binds parties to the contract.
Tanner v. Tanner [1975] 1 WLR 1346
LANDLORD AND TENANT - THE GENERAL LAW - RELATIONSHIP OF LANDLORD AND TENANT -
LEASES DISTINGUISHED FROM LICENCES TO OCCUPY LAND - DISTINCTION BETWEEN LICENCE
AND LEASE - PARTICULAR INSTANCES - OCCUPATION OF PREMISES -- OR PARTICULAR PURPOSE
-- ACCOMMODATION FOR MISTRESS AND CHILDREN

In 1968 plaintiff, a married man, formed an association with defendant, a single woman, who
took his name. Defendant was the tenant of a rent-controlled flat, where plaintiff frequently
visited her. In 1969 she gave birth to twins of whom plaintiff was the father. In 1970 the parties
decided that it would be best to purchase a house to provide accommodation for
defendant and the twins. Plaintiff made it clear to defendant, however, that he did not
intend to marry her. He purchased a house in his own name and himself provided the
purchase price by means of a mortgage. Defendant made no contribution to the purchase.
She gave up her rent-controlled tenancy, and brought a good deal of furniture from her flat
to the house; she also spent £150 on furnishings for the house. She and the twins moved into
the house and occupied the ground floor flat. The rest of the house was let and defendant
managed the lettings for plaintiff. After defendant had moved into the house plaintiff
stopped paying to her the £5 a week maintenance for the twins that he had previously paid
and did not pay her anything for herself or the twins. She obtained a social security
allowance. Plaintiff formed an association with another woman whom he later married. He
wanted to get defendant and the twins out of the house so that he could live there himself
with his new wife and her family. He offered defendant £4,000 to leave the house; the house
was likely to fetch £6,400 if it were sold furnished; but defendant refused the offer saying that
the house was supposed to be for herself and the children until they left school. By letter
dated 16 July 1973 plaintiff purported to terminate forthwith the licence under which he
alleged defendant had been occupying the ground floor flat. She refused to vacate the
house. Plaintiff brought proceedings claiming possession of the house. The judge found that
defendant had made no contribution in cash or kind from which it could be inferred that she
was to have any proprietary interest in the house; accordingly he made an order for
possession in plaintiff's favour and defendant moved out of the house in pursuance of that
order. Defendant appealed against the order for possession. She and the children had been
rehoused by the local authority and she did not ask to be put back into the house: Held in all
the circumstances a contract should be inferred whereby plaintiff had granted defendant a
licence to have accommodation in the house for herself and the children so long as they
were of school age and the accommodation was reasonably required by them. Defendant
had given good consideration for that licence by giving up her rent-controlled flat and
looking after plaintiff's children at the house. Since defendant had given consideration for
the licence, it was not revocable at will, and plaintiff could have been restrained by
injunction from breaking it. It followed that the possession order made by the judge was
wrong. In reversing it the court could do what was just and equitable to make restitution to
defendant for the loss of the licence since it was no longer practicable to enforce it. A
reasonable sum for the loss, which (per Brightman, J) should be quantified as an amount
which defendant might reasonably have requested for a surrender of the licence, would be
£2,000. Accordingly the appeal would be allowed; the order for possession reversed and
plaintiff ordered to pay defendant compensation of £2,000.

Elements of Proprietary Estoppel

-Firstly there is need to establish an equity to trigger proprietary estoppel.
This is where the conduct of the other party is unconscionable.
Circumstances that bring unconscionable conduct are not defined. So
court used to apply the following in order to determine the circumstances
when proprietary estoppel should arise. In Willmont v. Barber [1880] 15 Ch
105 Justice Fry identified five requirements which court has to establish
before a person is stopped to exercise strict legal right of his property.
These are:
1. Plaintiff must have made mistake as to his legal rights.
2. Plaintiff must do something e.g. spending money on the faith of his
mistaken belief.
 3. The defendant must know the existence of his right which is inconsistent
of the right claimed by the plaintiff.
4. The defendant must know the plaintiff’s mistaken belief.
5. The defendant must have encouraged the plaintiff in his spending
money either directly or indirectly.

These five requirements were known as five Probanda. The context of

these probanda was on instance of unilateral mistake of the plaintiff yet
the application of proprietary estoppel is wide. So in Taylor Fashions Ltd. V.
Liverpool Victoria Trustees [1982] QB 133, Justice Oliver summarised that
what is required is to know whether the conduct of the defendant in that
particular case is unconscionable or not.
The approach was supported by Browne Wilkinson in Lim Teng Huang v.
Ang swee Chuan [1992] WLR 113. Where the plaintiff and the defendant were
equitable joint tenants of land in Brunei. The defendant built a house on the land
believing (wrongly) that a contract had been entered between them. The Privy Council
held that the plaintiff was therefore estopped from claiming his title to the land, and that
the land should belong outright to the defendant, subject to him paying compensation
for the value of the land.
ESTOPPEL - PROPRIETORY ESTOPPEL - ACQUIESCENCE -- JOINT OWNERSHIP OF LAND --
UNCONSCIONABLE CONDUCT
The defendant began to build a house on land which he and the plaintiff had purchased jointly. They
subsequently entered into a written agreement, the plaintiff consenting to the construction and
agreeing to
exchange his share of the land for other unspecified land. After the house was completed, the plaintiff
sought
a declaration that he was the owner of half of the land. The defendant counterclaimed for a
declaration that
he was the sole owner of the plaintiff's share. The plaintiff's claim was abandoned and the defendant's
counterclaim was dismissed on the grounds that the plaintiff had not been guilty of unconscionable
conduct
so as to found a proprietary estoppel preventing him from relying on his strict legal rights. On appeal,
it was
held that a proprietary estoppel had been established. The plaintiff appealed and the defendant
cross-appealed: Held on the assumption that the defendant had completed the construction of the
house in
reliance on the written, unenforceable agreement, the plaintiff was estopped from denying the
defendant's
title to the whole of the land. Even though the plaintiff had not acted unconscionably in allowing the
defendant to assume that he would have a sole interest in the house and land on paying him
compensation
for relinquishing his half share, it would be unconscionable for him to renege on that assumption. The
defendant was therefore entitled to a declaration that he was the beneficial owner of the plaintiff's
former
share, conditional upon payment of compensation. As the amount of compensation had not been
agreed and
since there was insufficient evidence to justify an assessment, the value of the land should be
determined by
an inquiry on the assumption that no works had been carried out on the land since before the house
had
been built. The defendant would pay the plaintiff a sum equal to half that amount and the plaintiff
would be
ordered to transfer his half share of the land to the defendant or his nominee. On these terms,
thecross-appeal would be allowed and the appeal allowed in part.

-In essence court looks at the following three elements in order to establish
that proprietary estoppel has been triggered:
1. Demonstrate that there is an assurance. The legal owner must have
created an expectation or made a representation. It can be active
assurance as seen in
Pascoe v. Turner [1979] 1 WLR 431;
ESTOPPEL - PROPRIETORY ESTOPPEL - BELIEVE IN FUTURE RIGHTS OVER PROPERTY – COUPLE
LIVING AS HUSBAND AND WIFE IN HOUSE PAID FOR BY MAN

In the early 1960s the plaintiff, a businessman with investments consisting of private and
commercial property, met and became friendly with the defendant, a widow with a small
amount of invested capital. In 1968 the defendant moved into the plaintiff's home as his
housekeeper and also helped him with his business. They subsequently lived as man and wife,
although the defendant declined the plaintiff's offer of marriage. In 1965 they moved into a
house which, together with the contents, was paid for by the plaintiff. The defendant
continued to help the plaintiff in his business and was given £3 a week housekeeping. The
defendant bought her own clothes and various small things for the house. In 1973 the plaintiff
began a relationship with another woman, with whom he later went to live. The plaintiff then
told the defendant that she had nothing to worry about and that the house and its contents
were hers, but no conveyance was ever drawn up. The defendant continued to live in the
house and, with the plaintiff's full knowledge and encouragement, spent a quarter of her
modest capital on repairs, improvements and redecorations to the house. In 1976 the plaintiff
and the defendant quarrelled. On 9 April the plaintiff's solicitors wrote to the defendant
giving her two months' notice to 'determine her licence to occupy' the house and
demanded possession on 10 June. The defendant refused to leave the house. The plaintiff
brought proceedings in the county court to recover possession, and the defendant
counterclaimed for a declaration that the house and its contents were hers and that the
plaintiff held the realty on trust for her or that the plaintiff had given her a licence to occupy
the house for her lifetime, and claimed that the plaintiff was estopped from denying the trust
or the licence. The judge found that the plaintiff had made a gift to the defendant of the
contents of the house and that the beneficial interest in the house had passed under a
constructive trust inferred from the words and conduct of the parties. The judge denied the
issue of estoppel against the plaintiff. The plaintiff appealed:

Held there was nothing in the facts from which a constructive trust could be inferred.
Therefore, since the defendant had at law no perfected gift or licence other than a licence
revocable at will, the court had to decide what was the minimum equity to do justice to her,
having regard to the way in which she had changed her position for the worse with the
acquiescence and encouragement of the plaintiff. There were two alternatives available to
the court: it could declare that the plaintiff had a licence to occupy the house for her
lifetime or it could order the defendant to transfer the fee simple of the house to her. In the
circumstances equity required the defendant to be granted a remedy assuring her security
of tenure, quiet enjoyment and freedom of action in respect of repairs and improvements
without interference from the plaintiff. The plaintiff would therefore be required to give effect
to his promise and the defendant's expectations, and to perfect the gift. Accordingly the
court would dismiss the appeal but vary the judge's order by declaring that the fee simple of
the house was vested in the defendant.
Inwards v. Baker [1965] 2 QB 29
EQUITY - EQUITABLE DOCTRINES AFFECTING PROPERTY - ELECTION - REQUISITES OF
DOCTRINE - INTENTION TO DISPOSE OF PROPERTY OF ANOTHER - WHEN INTENTION PRESUMED -
DISPOSITION OF ENCUMBERED PROPERTY - ERECTION OF BUILDINGS -- ON LAND OF PARTY
STANDING BY

In 1931, defendant was considering the building of a bungalow on land which he would
have to purchase. His father, who owned some land, suggested the defendant should build
the bungalow on his land and make it a little bigger. Defendant accepted the suggestion
and built the bungalow himself, with some financial assistance from his father, part of which
he had repaid. He had lived in the bungalow ever since. In 1951, the father died. The trustees
of his will who in fact visited defendant at the bungalow, took no steps to get him out of the
bungalow until 1963, when they claimed possession of it on the ground that, at the most,
defendant had a licence to be there which had been revoked: Held since defendant had
been induced by his father to build the bungalow on his father's land and had expended
money for that purpose in the expectation of being allowed to remain there, equity would
not allow the expectation so created to be defeated, and accordingly defendant was
entitled to remain in occupation of the bungalow as against the trustees.
ESTOPPEL - PROPRIETORY ESTOPPEL - EXPENDITURE ON LAND OF PARTY STANDING BY
In 1931, defendant was considering the building of a bungalow on land which he would
have to purchase. His father, who owned some land, suggested that defendant should build
the bungalow on his land and makes it a little bigger. Defendant accepted the suggestion
and built the bungalow himself, with some financial assistance from his father, part of which
he had repaid. He had lived in the bungalow ever since. In 1951, the father died. The trustees
of his will, who in fact visited defendant at the bungalow, took no steps to get him out of the
bungalow until 1963, when they claimed possession of it on the ground that, at the most,
defendant had a licence to be there which had been revoked: Held since defendant had
been induced by his father to build the bungalow on his father's land and had expended
money for that purpose in the expectation of being allowed to remain there, equity would
not allow the expectation so created to be defeated, and accordingly defendant was
entitled to remain in occupation of the bungalow as against the trustees

Or Passive assurance.
See Ramden v. Dyson (1866) LR 1 HL 129 @170.

The assurance must relate to specific land. See Re Basham [1986] 1 WLR 1498
ESTOPPEL - PROPRIETORY ESTOPPEL - BELIEF IN FUTURE RIGHTS OVER PROPERTY --
STEPDAUGHTER WORKING IN DECEASED'S BUSINESS WITHOUT PAY
The stepdaughter of the deceased had worked for him in his business without pay. Later,
when she lived near his cottage, she performed various unpaid personal services for him and
also incurred expenses on his behalf. He repeatedly assured her that she would lose nothing
by doing so, but that his property would later be hers. When he died intestate, the question
arose whether she or his blood relations were entitled to his estate.

Held, she was relying on the principle of proprietary estoppel, which postulated that one
person had acted to his detriment on the faith of a belief, known to and encouraged by
another, that he either had or was going to be given a right on or over that other's property;
the principle would in such a case prevent that other from insisting on his strict legal rights if to
do so would be inconsistent with the first person's belief. Although known as proprietary
estoppel, the principle was properly to be regarded as a kind of constructive trust, at least
where the first person's belief was that he would be given a right in the future. In the instant
case, the stepdaughter had always believed that she would inherit the deceased's estate,
and he had encouraged that belief. What she had done for him went beyond what could
be attributed to natural love and affection for a person who as her stepfather was not her
blood relation; she therefore had to be regarded as having incurred a detriment in that she
had done more than she would in any event have done. Once it was shown that a
statement was calculated to influence a reasonable person, the presumption was that he or
she was so influenced. Even if the evidence had not been sufficient to show positively that
the stepdaughter did so much for the deceased because of her belief that he would leave
her his estate, she would still be entitled to succeed in the absence of proof that she did not
rely on his statements. Furthermore, the principle of proprietary estoppel did not have to
relate to an already existing right or to a clearly identified piece of property. The question
was whether it was unconscionable for the deceased's personal representatives to assert a
legal title to his property, and the principle was broad enough to apply to future rights and to
property such as a residuary estate. Accordingly, the stepdaughter was entitled, through the
application of the principle of proprietary estoppel, to the deceased's estate.

2. Prove reliance. Show that there was reliance upon an assurance that
there is some entitlement to some interest in the land. See AG of Hong
Kong v. Humphrey’s estates (1987) AC 114.

Reliance can be proven by inference from the facts. See Lim Teng
Huang v. Ang swee Chuang ( supra). What is important is that there
should be unbroken chain of causation.
See Mrs Coombes v. Smith [1986] 1 WLR 808
ESTOPPEL - PROPRIETORY ESTOPPEL - EXPENDITURE ON LAND OF PARTY STANDING BY --
WHETHER ESTOPPEL BY CONDUCT -- OCCUPATION OF HOUSE -- CONTRACTUAL LICENCE
On becoming pregnant by the defendant, the plaintiff left her husband and moved into a
house provided by the defendant. She subsequently moved with her child into another
house bought by the defendant, but at no stage did the defendant either move in with her,
or put the house in their joint names. The plaintiff carried out work in the house and garden,
and received an allowance from the defendant, who told her that he would always provide
for her. When the relationship ended she sought conveyance of the house into her name, or
a contractual licence allowing her to occupy it for life.

Held (i) there was nothing in her original actions to show consideration for a contractual
licence, and a contract that she should have a house for life would not be inferred.
(ii) A belief that she would always be provided for did not amount to a belief that she would
be entitled to occupy the house against the defendant's wishes. At no stage could she be
said to have acted to her detriment. The defendant had undertaken to allow her to remain
in the house until the child was 17, but she had not established that she was entitled to
remain thereafter. The defendant did not know of the plaintiff's mistake as to her rights, nor
did he encourage her in any such belief. The plaintiff had established neither a contractual
licence nor a proprietary estoppel, and the action would be dismissed.
 3. Prove detriment or change of position. Show that there was detriment
flowing from your reliance. Actually it is because of detriment that
defendant conduct becomes unconscionable. See Amalgamated
Investment Property Ltd v. Texas [1981] 1 ALLER 923 @12 per Lord
Denning.
Estoppel - Representation - Law - Representation that transaction having legal effect which it
does not in fact have - Representation causing or contributing to representee's error as to his
legal rights – Representee deprived of opportunity to renegotiate transaction - Whether
unconscionable for representor to take advantage of mistake - Whether effect of estoppel
to enforce gratuitous promise - Whether estoppel giving effect to transaction which would
otherwise be void.
Estoppel - Conduct - Encouragement - Representee's conduct influenced by representor's
encouragement or representation - Representee mistakenly believing transaction to have
legal effect – Representor encouraging and reinforcing that belief - Whether unconscionable
for representor to take advantage of representee's mistake.

An English property company arranged with an English merchant bank that the bank should
lend it $3m on the security of properties in England owned by the company and should also
lend $3,250,000 ('the Nassau loan') to wholly-owned Bahamian subsidiary of the company on
the security of an office building in Nassau owned by the subsidiary and a guarantee
provided by the English company. Under the guarantee, in consideration of the bank from
time to time making loans or advances or giving credit to the Bahamian subsidiary, the
English company convenanted to pay the bank on demand all moneys at any time owing or
payable to the bank by the subsidiary. In order to circumvent Bahamian restrictions on
foreign banks trading in the Bahamas, the bank purchased an 'off the shelf' Bahamian
subsidiary ('the Bahamian bank') and the Nassau loan was effected by the bank making a
loan to the Bahamian bank which in turn advanced the same sum to the company's
Bahamian subsidiary. The mortgage of the Nassau building was executed between the
Bahamian bank and the subsidiary, but the guarantee was never amended and remained a
guarantee by the English company in respect of money owing to the bank rather than to the
Bahamian bank. In the course of dealings between the parties, however, it was apparent
that both the bank and the English company mistakenly believed the guarantee to be
binding and effective and to cover the liability of the English company in respect of the
Nassau loan. The mistake originated in the bank but the company, by its course of conduct,
represented to the bank, and encouraged it to believe, that the guarantee was binding and
effective and covered the Nassau loan and thereby confirmed and reinforced the bank's
mistaken belief. Sometime later the English company got into financial difficulties and was
ordered to be compulsorily wound up. Both the bank and Bahamian bank exercised their
respective powers as mortgagees and sold the English properties owned by the English
company and the Nassau building. That left some $750,000 outstanding on the Nassau loan
while the bank held a credit balance of about the same amount after the sale of the English
properties. The bank thereupon applied its credit balance to discharge the amount owing
on the Nassau loan and claimed that under the guarantee it was entitled to do so. The
liquidator of the English company issued a writ seeking a declaration that the English
company was under no liability to the bank under the guarantee in respect of the amount
still owing on the Nassau loan. The bank contended (i) that the Bahamian bank was no more
than a nominee of the bank and the relationship between the two was so close that the
guarantee ought to apply to the Nassau loan made by the Bahamian bank, and (ii) that the
English company was estopped from contending that the guarantee did not cover its
subsidiary's liability to the Bahamian bank, because the English company had actively
acquiesced in and encouraged the bank's assumption that it had certain legal rights against
the company and it would be unjust or unconscionable for the company subsequently to
deny the existence of those rights.

Held - (1) On the natural and ordinary meaning of the guarantee it applied only to money
due, owing or payable to the bank and not to money owing to the Bahamian bank,
however close the relationship between the two banks might have been.
(2) On the question of estoppel, the doctrine of equitable estoppel was not confined to
certain defined categories, and where the estoppel alleged arose out of a situation where
both parties proceeded on the same mistaken assumption the inquiry which the court had to
make was whether in all the circumstances it was unconscionable for the representor to seek
to take advantage of the mistake.
(3) Where the estoppel alleged was founded on active encouragement or representations
made by the representor, it was only unconscionable for the representor to enforce his strict
legal rights if the representee's conduct was influenced by the encouragement or the
representation. However, it was not necessary for the encouragement or representation to
have been the initial cause of the representee's conduct in order to be unconscionable but
merely that his conduct was so influenced by the encouragement or representation that it
would be unconscionable for the representor to enforce his legal rights. The representations
to the bank by the English company that the guarantee was a binding and effective
guarantee by the company and covered the Nassau loan so influenced the bank in
continuing to rely on the guarantee as providing enforceable collateral for the Bahamian
subsidiary's debt that it was unconscionable for the company to take advantage of the
bank's error, and the company was therefore estopped from asserting the invalidity of the
guarantee.
(4) Where there was a representation by one party to another that a transaction between
them had an effect which in law it did not have, an estoppel arose if it was then
unconscionable for the representor to go back on his representation because it had caused
or contributed to the representee's error as to his true legal rights or deprived him of the
opportunity to renegotiate the transaction to render it legally enforceable in terms of the
representation. Moreover, the estoppel arose despite the fact that the effect of the estoppel
in the circumstances was to reduce the representor's rights or increase his obligations and
would thus enforce what was in effect a gratuitous promise. Accordingly, the mere fact that
the effect of an estoppel would be to give effect to a gratuitous promise did not prevent the
English company from being estopped from asserting the invalidity of the guarantee, since
by confirming the bank's erroneous belief that the guarantee was binding and effective in
respect of the Nassau loan the English company had contributed to the bank's error as to the
legal effect of the guarantee and to the bank's failure to seek to correct it.
(5) Where an estoppel related to the legal effect of a transaction between the parties, the
estoppel would be enforced even if the underlying transaction would, but for the estoppel,
be devoid of legal effect, since it was not necessary in such a case for the underlying
relationship to constitute a binding legal relationship.
Accordingly, the fact that the guarantee was not in law a binding contract did not prevent
the representations that it had contractual effect giving rise to an estoppel.

(6) The English company could not claim that if the guarantee were enforced it would be
denied the right of subrogation against the Bahamian subsidiary, since any right of
subrogation would only have been to the mortgage on the Nassau building and that security
had already been realised and applied in partial discharge of the debt.

-Categories that amount to detriment are not closed. See Watts v. Storey
(1983) 134 NLJ 631. The following are some incidents that amount to
detriment:
 1. Improvement of the legal owner’s land. See Inwards v. Baker [1965] 2
QB 29 where Mr Baker’s son, Jack was intending to build a Bungalow. He was
persuaded by his father to build the Bungalow on his land, which he subsequently
did. The Court of Appeal held that this amounted to a sufficient inducement or

encouragement to give rise to an estoppel. See also Pascoe v. Turner [1979] 1

WLR 431
2. Improvement of the claimant’s own land. See Rochdale canal co. v.
King (1853) 16 Beav 630
3. Acquisition of new land by the claimant. See Salvation Army Trustees
co. Ltd v. west Yorkshire Metropolitan county council (1980) 41 P &CR
179 @192
4. Working without adequate remuneration.
Wayling v. Jones (1993) P & CR 170;
ESTOPPEL - PROPRIETARY ESTOPPEL--RELIANCE ON PROMISES--DETRIMENT--BURDEN OF
PROOF
The plaintiff lived with the deceased in a homosexual relationship for all except one year
during a 16-year period, until the deceased's death. The plaintiff helped the deceased to run
several commercial ventures during that period, and also acted as his chauffeur and
companion. In return, the deceased gave the plaintiff pocket money and paid for all his
living and clothing expenses. During the latter part of their relationship, the deceased
repeatedly promised the plaintiff that he would leave him his property. The deceased made
a will naming a particular property as his gift to the plaintiff, but he failed to alter his will when
he subsequently sold that property and bought another, and the original gift was therefore
adeemed on his death. As a result, the plaintiff received only a minimal legacy, and
therefore made a claim against the deceased's estate based on the principle of proprietary
estoppel. On the basis of the plaintiff's trial testimony, the judge concluded that it had not
been proved that the plaintiff had acted in reliance on the promises made to him. On
appeal,
Held, to establish proprietary estoppel, a plaintiff had to show that there was a sufficient link
between the promises relied upon and the conduct which constituted the detriment,
although the promises did not have to be the sole inducement for the conduct. Once that
had been shown, it was for the defendant to prove that the plaintiff had not relied on those
promises. Here, the plaintiff had believed that he would inherit the deceased's property, and
that belief had been encouraged by the deceased. The plaintiff had suffered detriment in
that he had received minimal wages throughout his years of service to the deceased. The
trial judge had erred in his conclusion, as there was evidence that promises were made to
the plaintiff and that the plaintiff's conduct was such that inducement could be inferred, and
the defendants had not discharged the burden of proving that the plaintiff had not relied on
those promises. Accordingly, the appeal would be allowed.

See also Gillett v. Holt [1998] 3 ALLER 917

Estoppel – Proprietary estoppel – Expectation of inheriting estate – Plaintiff working for
defendant and defendant indicating intention to leave bulk of his estate to plaintiff –
Whether representations relied on amounting to irrevocable promise by defendant as to
how his estate would be disposed of – Whether plaintiff entitled to estate.
 In 1956 G began to work for H on the latter's farm, and continued in H's employment until
1995. Over the years H indicated an intention to leave the bulk of his estate to G, and he
made that intention known to G and gave effect to it in wills executed by him. However,
in 1995 the personal and working relationship between G and H broke down and in
November H made a new will, in favour of the second defendant, excluding G entirely.
G brought an action against H and the second defendant, claiming that H had
become subject to an obligation founded on proprietary estoppel to bequeath
substantially the whole of his estate to him, and alleging that he had devoted his entire
working life to H's service on the understanding, fostered by H, that he would inherit his
estate.

Held – The overriding principle of proprietary estoppel, in the context of an alleged

promise to make a will, was that the testator should be held to his representation only if it
would be unconscionable for him to go back on it. Thus, while a binding contract in law
was not necessary, and the estoppel might be founded on an agreement in principle,
or a mere 'expectation, created or encouraged' by the party alleged to be bound, in
reliance on which the other party had acted to his detriment, the party to be bound
had to have been aware that he was so acting. Furthermore, since the facts had to be
looked at against the ordinary presumption that intentions in relation to the contents of
a will were subject to change, the plaintiff needed to show words or conduct by the
prospective testator which went beyond mere statements of intention, and which,
having regard to all the circumstances, he could reasonably claim to have regarded as
amounting to an irrevocable promise by the prospective testator as to how his estate
would be disposed of. In the instant case, the representations relied on could not
reasonably be construed as an irrevocable promise that G would inherit, regardless or
any change in circumstances. Accordingly, the claim would be dismissed.

5. Personal disadvantage. See Re Basham [1986] 1 WLR 1498 @ 1509

where it was held that a plaintiff was able to claim a right by way of
proprietary estoppel to the residuary estate of the defendant who had
made an assurance to that effect.

-The first part is to establish equity where one is to prove assurance, reliance
and detriment. The second part is to satisfy the equity where court grants
remedies. The following are a range of remedies the courts grant:
1. Transfer of the legal ownership of land. See Dillwyn v. Llewellyn (1862) 4
De GF & J 517; Pascoe v. Turner [1979] 1 WLR 431
2. Transfer of an undivided share in the land. See Lim Teng Huan v.Ang
Swee Chuan [1992] 1 WLR 113
3. Grant of a lease.
See Yaxley v. Gotts [2000] 1 ALLER 711
TRUSTS - NATURE AND CREATION OF TRUSTS - CONSTRUCTIVE AND RESULTING TRUSTS -
CONSTRUCTIVE TRUSTS - IN GENERAL - CONSTRUCTIVE TRUSTEES - PROPRIETARY ESTOPPEL -
AGREEMENT FOR DISPOSITION OF INTEREST IN LAND VOID BECAUSE NOT MADE IN WRITING -
WHETHER PLAINTIFF COULD RELY ON PROPRIETARY ESTOPPEL - LAW OF PROPERTY
(MISCELLANEOUS PROVISIONS) ACT 1989, S 2.

The plaintiff claimed to have made an oral agreement with the second defendant to the
effect that, in return for the carrying out of certain building works on a property which was
divided into flats and which the second defendant proposed to purchase, and in return for
acting as the second defendant's managing agent for the flats, the plaintiff would become
the owner of the ground floor of the property. Unbeknown to the plaintiff, the second
defendant arranged that his son, the first defendant, should purchase the property. The
plaintiff began work on the property in the belief that the second defendant had bought it.
He was later told that the second defendant intended to transfer his interest in the property
to the first defendant, who knew all about the arrangements between them. The plaintiff
completed the works and thereafter acted as managing agent. About two and a half years
later the plaintiff and the second defendant fell out, and thereafter the first defendant
refused to allow the plaintiff to continue managing the flats, and denied that there was any
agreement that he should have an interest in the ground floor. The plaintiff commenced
proceedings against the defendants, claiming a declaration and order that he was entitled
to a long lease of the ground floor of the property for such term as the court might deem just
and equitable, or alternatively, payment for the value of his interest in the property, or at
least that the first or second defendant pay him a reasonable sum for the works and services
he had carried out. The judge found that there was an oral agreement between the plaintiff
and the second defendant, and that it had been adopted by the first defendant. He found
that equity was established to the extent of the plaintiff's ownership of the ground floor of the
property, and that he was entitled to that ownership for a term of 99 years, free of ground
rent, and to all rent from the ground floor. The first defendant was directed to execute a
lease within four months unless he paid the plaintiff a sum equivalent to the leasehold
interest. The defendants appealed on the ground that the judge should have held that the
oral agreement between the plaintiff and the defendants was void by virtue of s 2 of the Law
of Property (Miscellaneous Provisions) Act 1989, and that he was wrong in law to hold that
the plaintiff was entitled to ownership of the ground floor by virtue of the doctrine of
proprietary estoppel, since that doctrine could not operate to give effect to an agreement
rendered void by s 2 of the 1989 Act.
Held The appeal would be dismissed.
Section 2(5) (c) of the 1989 Act specifically provided that nothing in the section should affect
the creation of or operation of, inter alia, a constructive trust. There was much common
ground between the doctrines of proprietary estoppel and the constructive trust, just as there
was between proprietary estoppel and part performance. All were concerned with equity's
intervention to provide relief against unconscionable conduct. In the instant case, although
the judge had not made any finding as to the existence of a constructive trust, since he had
not been asked to do so, it was not disputed that a proprietary estoppel arose on the
findings of fact which he had made, and that the appropriate remedy was the grant to the
plaintiff, in satisfaction of his equitable entitlement, of a long leasehold interest rent free of
the ground floor of the property. Those findings equally provided the basis for the conclusion
that the plaintiff was entitled to such an interest under a constructive trust, and accordingly
he was entitled to the relief sought.

4. Right of occupancy. See Greasley v. Cooke [1980] 1 WLR 1306; Inwards

v. Baker [1965] 2QB 29
5. Financial compensation. See Wayling v. Jones (1995) 69 P & CR 170
6. Grant of an easement. See Crub v. Arun District Council [1976] Ch 179,
CA
 7. Constructive trust may be imposed but ordinarily court will not impose
constructive trust to satisfy the equity.

-Proprietary estoppel is similar to adverse possession. See Brown v. Perry

[1991] 1 WLR 1297; Bucks v. Moran [1989] 3 WLR 152; sections 6, 7 of
limitation Act.

-Proprietary estoppel is all about assurance, reliance and detriment. Other

jurisdictions do not recognise proprietary estoppel in the same way English
courts do. In Canada, the courts recognise unjust enrichment as a cause
of action. In Australia, its unconscionability and in New Zealand, its
reasonable expectation.

CHARITABLE TRUSTS

They are also referred to as purpose trust. It is a trust whose terms require to it
to be applied for charitable purposes. For the trust to be charitable, it has to be for
Public benefit and exclusively charitable. All charitable trusts must have a beneficial
link to a public or a class of people in the public except charitable trust for
relief of poverty. See Gilmour v. Coats (1949) AC 426 where a gift of 500
pounds was made to nuns who were cloistered and devoted their lives to
prayer. The House of Lords held that they were not a charity because there
was not the necessary element of benefit to the public. Gilmour v Coats (1949)
AC 426 a gift of £500 was made to nuns who were cloistered and devoted their lives to
prayer the court held that they were not a charity because there was no necessary element
benefit to the public.

Charity – Education – Public character – Public nature of bond between beneficiaries – Gift
for the education of the children of past and present members of
limited company.

On 24 March 1930 J P and his wife, E M P, executed a settlement whereby they assigned to a
trustee certain investments in the B A Co Ltd and certain real
property to be held on certain trusts during the joint lives of the settlors and the life of the
survivor of them and thereafter on trust to apply the income of the
trust premises “in providing for or assisting in providing for the education of children of
employees or former employees of B. A. Co., Ltd. … or any of its
subsidiary or allied companies in such manner and according to such schemes or rules or
regulations as the acting trustees shall in their absolute discretion
from time to time think fit and also at the discretion from time to time of the acting trustees to
apply all or any part of the corpus of the said trust for the like
purposes.” On 8 October 1940, E M P died and on 26 June 1947 J P died. In view of the
perpetuity created by the settlement, the question arose whether the
trust was charitable. The number of persons employed by B A Co Ltd and its subsidiary and
allied companies exceeded 110,000.

Held – Lord MacDermott (dissentiente): the common employment of the beneficiaries would
not be a quality which constituted them a section of the community so as to afford to the trust
the necessary public character to render it charitable, and, there being for this purpose no
distinction between the employees and their children, the gift was void for perpetuity.

Per Lord Simonds: It was at one time suggested that the element of public benefit was not
essential except for charities falling within Lord Macnaghten’s fourth class “other purposes
beneficial to the community.” This is certainly wrong except in the anomalous case of trusts
for the relief of poverty. It is not for me to say what fate might await the “poor relations”
cases if in a poverty case this House had to consider them.

Charity – Charitable purpose – Advancement of religion – Public benefit – Carmelite convent –

Association of strictly cloistered and purely contemplative
nuns.
The income of a trust fund was to be applied to the purposes of a Carmelite convent, if those purposes were
charitable. The convent comprised an association of strictly cloistered and purely contemplative nuns who
devoted themselves entirely to worship, prayers and meditation and engaged in no activities for the
Benefit of anyone outside their own association. They were regarded, however, in the Roman Catholic Church
as causing, by means of their private worship, prayers and meditations, the intervention of God to bring about
the spiritual improvement of members of the public (both Catholic and non-Catholic) outside the convent, and
also as providing an example of self-denial and concentration on religious matters which was of spiritual benefit
to the public. It was contended on behalf of the convent (i) that, in the case of religious charities, the element of
public benefit must be assumed unless the evidence in any particular case showed that an alleged religious
charity was harmful to the public; (ii) that, since the evidence in this case established that in the belief of the
Roman Catholic Community the prayers of the sisters of the convent and the sanctity of their lives brought
Divine Grace on mankind in general and Roman Catholics in particular, this belief must be accepted by the
court as true for the purpose of establishing public benefit; (iii) that, as a fact (as distinguished from a matter of
belief), the sisters, by the holiness of their lives, afforded such measure of edification by example as to provide
the requisite public benefit:—

Held – (i) public benefit was a necessary element in religious as in other charitable trusts; for a trust to be a
valid charitable trust, it must be, not
merely not detrimental, but beneficial to the public; and, as the evidence showed that that element was missing,
the trust, although beneficial to those itended to benefit by it, was not a valid charitable trust.
Cocks v Manners (1871) (LT 12 Eq 574; 24 LT 869), followed.
National Anti-Vivisection Society v Inland Revenue Comrs ([1947] 2 All ER 217; 177 LT 226), applied.
(ii) in deciding whether a gift is for the advancement of religion the court does not concern itself with the truth
of the religion, a matter which is not
susceptible of proof. Once a religion is recognised by the court as such, the beneficial character of a gift for its
advancement will prima facie be assumed, but a gift, to be a valid charitable gift, must be not only for the
advancement of religion, but also for public, and not merely, private benefit. A trust will not be accepted by the
court as being for the public benefit on the simple ground that the church concerned believes it to be for the
public benefit, such belief being in its very nature incapable of proof in a court of law, but when the question is
whether a particular gift for the advancement of religion satisfies the requirement of public benefit, a question of
fact arises which must be answered by the court in the same manner as any other question of fact, ie, by means
of evidence
cognisable by the court. The assumption that the benefit of a religion extends to the public generally or to a
section of the public will not be made merely in the absence of evidence that the religious activities in question
are positively detrimental to the public. An act of a private character, in which the public had no share otherwise
than by supernatural intervention believed to be obtained by means of its performance, was a private act, and the
belief of the Roman Catholic Church that the prayers of the sisters and the sanctity of their lives brought Divine
Grace on the public could not be accepted as admissible evidence
to entitle the trust to be regarded as charitable.
Re Caus, Lindeboom v Camille ([1934] Ch 162; 150 LT 131), criticised and distinguished.
(iii) the edification derived from observing the life of a devout community was not enough to provide the
necessary element of public benefit so as to
make the trust a good charitable trust.

See also IRC v. Pemsel (1891) AC 531. Where land was conveyed on trust for
the purpose of advancing missionary establishment by the Protestant
Episcopal Church to reach the heathen and some for purposes that are
recognised as charitable by the income tax Act. Court held that it was
charitable.
IRC v Pemsel (1891) 531 land was conveyed for purposes of advancing missionary
establishment by the protestant Episcopal church to reach the heathen and some for
purposes that are recognized as charitable by the income tax act are held to be
charitable.

Public benefit—there are approaches used to determine public benefit.

These are:
1. Strict Approach
“Personal nexus” rule—this looks at the connection the settlor has to the
section of the public.
See Openheim v. Tobacco Securities trust co. Ltd (1951) AC 297. Where John
Phillips was a large share holder in British American Tobacco (BAT), and on his
death he left securities to the trust company to be held upon trust and the
income applied to provide for the education of the children of the employees
or ex- employees of BAT. The House of Lords took the view that this group was
not a section of the public but a private class, and that the trust was therefore
non-charitable

In Oppenheim v Tobacco Securities Trust Co Ltd (1951) AC 297 john Phillip was a
large share holder in British American Tobacco (BAT) and on his death he left
securities to the trust company to be held on trust and the income realized there from
to be used for the education of the children of the employees or ex-employees of
BAT. The House of Lords took the view that this group was not a section of the
public but a private class and that the trust was therefore non charitable
Oppenheim v Tobacco Securities Trust Co Ltd and Others
EDUCATION
HOUSE OF LORDS
LORD SIMONDS, LORD NORMAND, LORD OAKSEY, LORD MORTON OF HENRYTON AND
LORD MACDERMOTT
2, 3, 6 NOVEMBER, 13 DECEMBER 1950
Charity – Education – Public character – Public nature of bond between beneficiaries – Gift for
the education of the children of past and present members of
limited company.
On 24 March 1930 J P and his wife, E M P, executed a settlement whereby they assigned to a
trustee certain investments in the B A Co Ltd and certain real
property to be held on certain trusts during the joint lives of the settlors and the life of the
survivor of them and thereafter on trust to apply the income of the
trust premises “in providing for or assisting in providing for the education of children of
employees or former employees of B. A. Co., Ltd. … or any of its
subsidiary or allied companies in such manner and according to such schemes or rules or
regulations as the acting trustees shall in their absolute discretion
from time to time think fit and also at the discretion from time to time of the acting trustees
to apply all or any part of the corpus of the said trust for the like
purposes.” On 8 October 1940, E M P died and on 26 June 1947 J P died. In view of the
perpetuity created by the settlement, the question arose whether the
trust was charitable. The number of persons employed by B A Co Ltd and its subsidiary and
allied companies exceeded 110,000.

Held – Lord MacDermott dissentiente): the common employment of the beneficiaries would not
be a quality which constituted them a section of the
community so as to afford to the trust the necessary public character to render it charitable,
and, there being for this purpose no distinction between the
employees and their children, the gift was void for perpetuity.
Per Lord Simonds: It was at one time suggested that the element of public benefit was not
essential except for charities falling within Lord Macnaghten’s
fourth class “other purposes beneficial to the community.” This is certainly wrong except in the
anomalous case of trusts for the relief of poverty. It is not for
me to say what fate might await the “poor relations” cases if in a poverty case this House had to
consider them.

Compare with Dingle v. Turner (1972) AC 601 where Frank Dingle left his
residuary estate to trustees, the income to be used to pay pensions to the
‘poor employees’ of E Dingle and company which he jointly owned. The
House of Lords held unanimously that the personal nexus rule had no
application to trusts for the relief of poverty.

Charity – Relief of poverty – Poor employees – Trust to provide pensions to poor employees
of a company – Whether valid charitable trust.
Charity – Public benefit – Requirement of public benefit – Section of the public –
Determination whether potential beneficiaries constitute a section of the
public – Relevance.

The testator died on 10 January 1950. By cl 8(e) of his will he directed his trustees to invest a
specified sum on trust ‘to apply the income thereof in paying
pensions to poor employees of [D Ltd] … ’ At the testator’s death D Ltd employed over 600
Ç & persons and there was a substantial number of
ex-employees. Since then the business had expanded and D Ltd had 705 full-time and 189
part-time employees and was paying pensions to 89 ex-employees.
In proceedings to determine whether the trust declared by cl 8(e) was valid it was contended
by those interested on intestacy if the trust failed, that a trust
ought not to be regarded as charitable if the benefits were confined to the employees of a
given individual or company, the validity of trusts for ‘poor relations’
constituting an anomalous exception to the general rule.

Held – The trust constituted a valid charitable trust. It was a natural development of the ‘poor
relations’ decisions to hold as charitable trusts for ‘poor
employees’ of an individual or company or ‘poor members’ of a club or society; to draw a
distinction between different kinds of ‘poverty’ trusts would be
illogical. In the field of trusts for relief of poverty the dividing line between a charitable and a
private trust depended on whether, as a matter of construction,
the gift was for the relief of poverty amongst a particular description of poor people or was
merely a gift to particular poor persons, the relief of poverty
amongst them being the motive of the gift.
Per Lord MacDermott, Lord Simon of Glaisdale and Lord Cross of Chelsea. In determining
for the purposes of the law of charity whether a trust other
than for the relief of poverty is for the public benefit, the question whether or not the potential
beneficiaries of the trust can fairly be said to constitute a section
of the public is a question of degree and cannot be by itself decisive of the question whether
the trust is a charity. Much must depend on the purpose of the
trust (see p 881 b and e and p 889 f and g, post).
Per Viscount Dilhorne, Lord MacDermott and Lord Hodson. The fiscal privileges of a legal
charity are not directly relevant to the determination whether
a given trust or purpose is charitable (see p 880 j and p 881 c and d, post).

A class within a class test—the trust set should not only benefit a certain
individuals of a particular class. See IRC v. Baddeley (1955) AC 572 where a
gift of land was made to a Methodist mission, including an area laid out as a
playing field complete with a pavilion and groundsman’s bungalow. The
purposes of the gift included “the provision of facilities for religious services
and instruction and for the social and physical training and recreation’ of
persons resident in West Ham and Layton. The House of Lords held that this
was not a gift made exclusively for charitable purposes.
Inland Revenue Commissioners v Baddeley and Others
CHARITIES
HOUSE OF LORDS
Preamble
VISCOUNT SIMONDS, LORD PORTER, LORD REID, LORD TUCKER AND LORD
SOMERVELL OF HARROW
13, 14, 15, 16 DECEMBER 1954, 17 FEBRUARY 1955

Charity – Benefit to community – Religious, moral, social, and physical well-being

– Sufficient section of public – Uncertainty – Members or likely to become
members of Methodist Church in two boroughs – Persons benefiting depending
on opinion of mission leaders – Poverty – Insufficiency of means –
Advancement of education – Finance Act, 1947 (10 & 11 Geo 6 c 35), s 54(1).
Stamp Duty – Charity – Moral, social and physical well-being – Whether object
charitable – Finance Act, 1947 (10 & 11 Geo 6 c 35), s 54(1).

Land on which stood a mission church, lecture room and store, was conveyed to
trustees on trust to permit the land to be appropriated and used by the leaders
of a mission “for the promotion of the religious social and physical well-being of
persons resident in the county boroughs of West Ham and Leyton … by the
provision of facilities for religious services and instruction and for the social
and physical training and recreation of such aforementioned persons who for
the time being are in the opinion of [the] leaders [for the time being of the
Stratford Newtown Methodist Mission] members or likely to become members
of the Methodist Church and of insufficient means otherwise to enjoy the
advantages provided by these presents and … by promoting and encouraging all
forms of such activities as are calculated to contribute to the health and well-
being of such persons”. By a second deed, other land, which was laid out as a
playing field, and on which a pavilion and groundsman’s bungalow had been
erected, was conveyed to the same trustees on similar trusts except that
“moral well-being” was substituted for “religious well-being” throughout and the
residents benefiting were required, in the opinion of the mission leaders, to be,
or to be likely to become, members of the Methodist Church,

Held – (i) the trusts were not for the relief of poverty, for “relief” connoted
such need as for a home or for the means to provide some necessity or
quasi-necessity.
(ii) (Lord Reid dissenting) promotion of the “religious social and physical well-
being” or the “moral social and physical well-being” of the persons to
whom the deeds referred were objects of an ambit too wide to include only
purposes which in law were charitable and, accordingly, the trusts constituted
by the deeds were not charitable trusts.
Williams’ Trustees v Inland Revenue Comrs ([1947] 1 All ER 513) followed.

Per Viscount Simonds: (i) regarded as a whole the sum of the activities
permissible under the deed [ie, the deed of conveyance of the Mission Church,
etc] can only be regarded as educational in the loose sense in which all
experience may be said to be educative and, if the activities are examined one
by one, it is impossible to regard many of them as in even the loosest sense
educational (see p 529, letter g, post).
(ii) a trust cannot qualify as a charity within the fourth class in Income Tax
Special Purposes Comrs v Pemsel ([1891] AC 531) (ie, as being of general
public utility) if the beneficiaries are a class of persons not only confined to a
particular area, but selected from within it by reference to a particular creed
(see p 534, letter a, post).

Per Lord Somervell of Harrow: there might well be a valid trust for the
promotion of religion benefiting a very small class. It would not follow at all that
a recreation ground for the exclusive use of the same class would be a valid
charity (see p 549, letter a, post).
Decision of the Court of Appeal, sub nom Baddeley v Inland Revenue Comrs
([1953] 2 All ER 233) reversed.
a.
3. A flexible Approach – this is where facts of each case are discerned.
See the dissenting opinion of Openheim v. Tobacco Securities Ltd
(supra)

Benefit must be exclusively Charitable

It must not advance purposes that are not truly charitable.

See Press Trust case (SCA).

ATTORNEY GENERAL.................................................APPELLANT

- And -

THE MALAWI CONGRESS PARTY and others...........................1ST RESPONDENT

The respondents in this matter, namely, the Malawi Congress Party, Mr L J Chimango, MP
and Dr H M Ntaba, MP, brought an action in the Court below by originating summons
against the appellant, the Attorney General. The summons sought a declaration on a number
of constitutional issues. These were stated as follows: In brief then, the summons sought a
declaration that the Press Trust (Reconstruction) Act was null and void.

The appellants opposed the summons, and the matter went before Mwaungulu J., who, after
hearing argument from counsel on both sides delivered his judgement on 1st July 1996 in
which he upheld the respondents' contention that the Press Trust (Reconstruction) Act was
null and void. It is against that decision that the appellant now appeals to this Court.

The company-PRESS TRUST- was considered to be a vehicle for development. Because

of its status as a quasi-public body, the company enjoyed considerable credit facilities
from the banks. Unfortunately, it became heavily indebted and because of its position
in the economy of the country, its collapse would inevitably entail the collapse of the
Malawi economy. This prompted the Malawi Government to seek financial assistance
from the World Bank to rescue it from economic collapse. the loan.
The present Government, viewing the situation of the Press Trust as a trust created for
the benefit of the Malawi Nation, decided to reconstruct
The Trust under an Act of Parliament through the Press Trust (Reconstruction) Act,
1995 to maximise the benefit for the Nation.
On the 6th November 1995, Parliament met in Zomba. The Clerk of Parliament
circulated to Members of Parliament a bill entitled "Press Trust (Reconstruction) Bill.
There were three parties currently represented in the National Assembly. The United
Democratic Front (UDF) has the largest number of Members of Parliament, followed by the
Malawi Congress Party (MCP) and the Alliance for Democracy (AFORD). The Party in
Government, that is the UDF, does not command an absolute majority to enable it pass
legislation with a simple majority. An alliance was, therefore, formed with AFORD to
redress this situation. However, even with this alliance, the UDF and AFORD could not
constitute two-thirds of the Members entitled to vote as required by certain provisions
of the Constitution and Standing Orders, except that the alliance created a numerical
advantage to pass legislation by a simple majority.

On 7th November 1995, that is, on the following day, the Minister of Finance, Mr Aleke
Banda moved a Motion to dispense with the requirement of notice to Members under
Standing Order 114.

There was stern opposition from MCP Members in the Chamber to the adoption of this
Motion. At the end of the debate on this Motion, the question was put to the House by
the Speaker and a division was called and after the Members were counted, the Motion
was carried. Thereafter, the House was suspended for tea break. When the House
resumed sitting after tea break, the MCP Members did not return. The Members
present in the Chamber debated the Bill and it passed all the stages on the same day,
and a few days later the President assented to the Bill and it became law.

It was the respondents' contention in the lower Court that the Act is null and void, in that it
was passed in contravention of Standing Order 114(1) and s. 96(2) of the Constitution.
The respondents further contended that the conduct of business in the National Assembly
on the 7th November 1995 in respect of that Act was unconstitutional and that the Act was,
therefore, null and void.

The learned judge held that the act was indeed passed unconstitutionally and hence
invalid.

There is now an appeal before us by the appellant against that decision by the issues which
fall for determination, as raised by the appellant, are:

(1) Did the minister of Finance act in breach of Section 96(2) of the Constitution in
putting a Motion without Notice to introduce the Press Trust (Reconstruction) Bill
1995? If so, did this effect the validity of the Act?

(2) Was the National Assembly quorum, in accordance with Section 50 of the
Constitution properly construed, when it passed the 1995 Act? If not, should the
Courts in any event recognise the legislature in accordance with the doctrine of
necessity?

(3) Did the Speaker act in breach of the Constitution in deciding to debate the issue as to
quorum rather than count the members of the National Assembly present and adjourn
the Assembly? If so, is his action justifiable by the Courts?
(4) Did the 1995 Act arbitrarily deprive the Trustees of the Press Trust of any property in
breach of Section 28(2) of the Constitution?

(5) Did the 1995 Act discriminate against the Trustees of the Press Trust or the Press
Trust itself in breach of Section 12(v) and/or Section 20(1) of the Constitution?

(6) Did such breaches of the Constitution, if any, go to the root of the Constitution and/or
affect human rights so as to require the Court to declare the 1995 Act invalid? Or
should the Court in its discretion refuse the relief sought? Should the Court in any
event use its powers under Section 11(3) of the Constitution to give effect to the 1995
Act?

(7) Do the Plaintiffs have the appropriate locus to seek the relief sought?
HELD

We are of the view that the Press Trust (Reconstruction) Bill, 1995 was introduced in
Parliament in complete conformity with both the Constitution and the Standing
Orders which are made under s. 56(1) of the Constitution. It is, therefore, not
correct, as Mwaungulu J held in his judgment that the Minister of Finance acted in
breach of the Constitution and the Standing Orders.

The Minister of Finance had, therefore, every right to move the Motion. We hold,
therefore, that there was no breach of s.96 (2). Even if there was a breach of s.96 (2), we
are of the view that, that breach would not invalidate the Act

The court held that there should be a quorum "at the beginning of a sitting". And not
what Mwaungulu J stated that if one reads s.50(1) and (2) together, the inference is
that the requirement of a quorum should persist throughout the deliberations of the bill
and not at the beginning of a sitting only. We do not agree with this interpretation.
The section clearly requires a quorum at the beginning of the sitting.

We are of the view that at that stage, the need had not yet arisen to draw the Speaker's
attention to the lack of a quorum, because a vote was not required to be taken at that point in
time. Mr Situsi Nkhoma's intervention was, therefore, premature and the Speaker could not
have been in breach of that Standing Order at that time. However, assuming the need arose
to draw the Speaker's attention as to lack of a quorum, was the Speaker answerable to the
Courts, and did his action invalidate the Act? In our considered opinion, under s.53(5) of the
Constitution, he is liable only to the National Assembly. The section provides that:

It is our considered view that this section provides recognition of the privileges of the
legislature and it protects the Speaker from challenges in our Courts as a result of his exercise
of the powers conferred upon him. It is, therefore, clear that if the Speaker fails to enforce
the procedural rules of the National Assembly, he could only be disciplined by the National
Assembly itself, and if necessary the National assembly itself can remove him. After all, it
elected him. Moreover, in the instant case, the respondents themselves created the situation
by staging a walk-out, and it would not be proper for the minority to frustrate the wishes of
the majority. He who comes to equity must come with clean hands.
We conclude by holding that by acting in breach of SO 27, the Speaker of the House did not
infringe on any constitutional right which
is justifiable before the Courts. The remedy for such breach can only be sought and obtained
from the National Assembly itself.

Even if there is a breach of section 50(2) of the Constitution this would not render the Act
invalid. Section 50(2) lays down a rule of procedure only; it does not affect the capacity of
the National Assembly to act and to pass legislation. This is supported by the following
scenarios. The quorum rule, insofar as it affects the capacity of the Legislature to act is
clearly laid down in section 50(1). No further implication is required to give sense to that
rule. To regard section 50(2) as a capacity rule would be to confer upon the National
Assembly the power to regulate its own capacity. In fact, the Constitution only permits the
National Assembly to regulate its own procedure, see s. 56(1). Section 50(2) is, on its face, a
rule of procedure, requiring the Speaker to take certain procedural steps if less than two-
thirds of the members of the National Assembly are present. Therefore, the National
Assembly would retain its capacity to act even though less than two-thirds of its members
were present. Seen in that light, section 50(2) cannot be a rule as to quorum which requires
that the National Assembly should lose its capacity to act if less than two-thirds of its
members are present at any time during a sitting.

A further point which emerged in argument was the deprivation of director’s

allowances. The respondents asserted that by removing the original board of directors
of the Press Corporation Ltd, the directors "were deprived of their right to allowances
which right is property." The answer to this point is that there is no evidence before the
Court that any allowances were in fact payable to the directors.

The concept of equal protection of laws is a positive concept. It postulates for the
application of the same law alike and without discrimination to all persons similarly
situated. It denotes equality of treatment in equal circumstances. It implies that
among equals the law should be equal and equally administered, that the like should
be treated alike without distinction of race, religion, wealth, social status or political
influence. In our view, the Press Trust is not like any other known trust in Malawi,
because its tentacles spread throughout the whole of the Malawian economy. The
Press Trust (Reconstruction) Act is, therefore, not discriminatory because of its
unique character, and further because it did not alter the original nature of the Press
Trust.

We now turn to the issue of locus standi.

Although we find that the Respondents had no locus standi regarding the trust
property or the property of the affected companies, that is to say, Press Holdings
Ltd and Press Corporation Ltd, they nevertheless had locus standi in so far as
the proceedings involving the quorum and notice in the National Assembly are
concerned. The respondents had a "sufficient interest" in that regard, because
as Members of the National Assembly, they took an oath of allegiance to
preserve, protect and defend the Constitution.

The doctrine of necessity is not used in these cases to support some law which is above the
Constitution; it is, instead used to ensure the unwritten but inherent principle of rule of law
which must provide the foundation of any constitution.

In every case in which the doctrine of state necessity has been applied it has been either the
executive or the legislative branch of government which has responded to the necessitous
circumstances, later to have its actions tested in the courts. This fact does not, however,
detract from the general relevance of these cases in demonstrating that the courts will not
allow the Constitution to be used to create chaos and disorder.
In our view, an imperative and inevitable necessity or exceptional circumstances now exist in
Malawi. It is clear to us that Parliament will not be able to pass and approve the March
Budget, with the result that no public funds will be available to support essential services,
such as the Armed Forces, the Police Force, Health Services, just to mention a few. In
addition, there is no other remedy to redress the situation since the next General Elections are
due to be held in 1999. Section 67 of the Constitution prescribes a fixed term of life for the
National Assembly for five years.

We also believe that the decision which we have arrived at is proportionate to the situation
that has arisen and is of a temporary character, limited to the duration of these exceptional
circumstances; in other words, until the Opposition Parties call off their boycott of the
National Assembly.

So far as promoting values which underlie a democratic society in Malawi is concerned,

it should be noted that by section 48(1), (2) and (3) of the Constitution, it is provided
that all legislative powers in Malawi are vested in the Legislature; secondly, an Act of
Parliament shall have primacy over other forms of law, subject to the Constitution; and
finally, any question to be decided by the National Assembly shall be decided by a
majority of the votes of members present and voting, unless the Constitution or any Act
of Parliament provides otherwise.

We will now consider the question of human rights and scope of interference which the
learned Judge raised in his judgment.

The learned Judge found that the 1995 Press Trust (Reconstruction) Act had infringed both
sections 20 and 28 of the Constitution without hearing any argument on these provisions. We
consider these sections below. However, the learned judge did not in any event go on to
consider whether, even if these sections had been infringed, the Act constituted a lawful
limitation or restriction from rights protected by those sections. Section 44 regulates the
extent to which laws infringing certain
Human rights are permitted. Certain rights, specified in section 44(1) are fully protected,
save in emergencies. Those rights not found in subsection (1) can be restricted or limited
provided the conditions in subsections (2) and (3) have been complied with. Neither the right
given by section 28, which relates to arbitrary deprivation of property nor the right given by
section 20, which relates to equal protection from discrimination under the law, is located in
section 44(1) of the Constitution; and both can therefore be the subject of limitation or
restriction, provided the relevant conditions in subsections (2) and (3) are

This is done under the power of eminent domain which is very ably postulated by M. P. Jain
in Indian Constitutional Law, 4th Edn, (supra). The learned author describes this doctrine
thus:
"It is regarded as an inherent right of the State, an essential incidence of its
sovereignty, to take private property for public use. This power, known as Eminent
Domain, depends on the superior domain of the State over all property within its
boundaries, it is supposed to be based upon an implied reservation by the State that
property acquired by its citizens under its protection may be taken, or its use
controlled for public benefit irrespective of the wishes of the owner. An incident of
this power, however, is that property shall not be taken for public use without
compensation. (Emphasis supplied). The power of eminent domain has been
described by the U.S. Supreme Court thus: when public need requires acquisition of
property, the need is not to be denied because of an individual’s unwillingness to sell.
When the need
arises, individuals may be required to relinquish ownership of property so long as
they are given just compensation which the constitution requires. The power of
eminent domain can therefore be defined as the power of the State to take property for
public use, without the owner's consent, upon making just compensation to him. The
two essential ingredients of eminent domain are: (1) property is taken for public use;
(2) compensation is paid for the property taken. In the U.S.A., compensation is
payable for 'taking' the property which does not necessarily mean vesting of
possession or ownership in the government. If regulation of a property right goes too
far, it may be recognised as 'taking' and compensation may become payable. The
question of compensation is justifiable as it is a question of a constitutional right. In
England, the rule is that, unless Parliament explicitly provides to the contrary, it must
be assumed that any legislation authorising compulsory acquisition of property
intended to provide full compensation."

Our own Constitution provides in s. 44(4) that expropriation of property shall be

permissible only when done for public utility and only when there has been
compensation, provided that there shall always be a right to appeal to a court of law.
The power of eminent domain is, in our opinion, compatible with the provisions of s.
44(4) of the Constitution. In the case under consideration, there does not appear to be
evidence that no compensation was paid to the original trustees, and at any rate, the
respondents in this case have no locus standi to pursue the property issue, as we have
already found.

For these reasons, the appeal succeeds. The judgment of the Court below is set aside.

On the question of costs, we have borne it in mind that as a general rule, a successful
party is entitled to costs. It is, however, trite that the matter is really discretionary for
the Court, regard being had to the circumstances of a particular case. The present
case, as was accepted
by the parties, is unique and of national importance, in that it has determined several
issues that arise under the Constitution. Having given the matter our most anxious
consideration, we are of the view that a fair order will be that each party should pay
its own costs, both here and below, and we so order.
-If the deed provides that some part of the benefit should go for
charitable purposes and the other for non-charitable purposes then its
only the part for charitable purposes that is charitable.
-If the central objective of the trust is charitable and the other
benefits are incidental then it’s a charitable trust.
See AG v. Ross [1986] 1 WLR 252
Charity - Education - Educational purposes - Students' union - Union founded to
provide and develop scientific, artistic, cultural, athletic, political, religious and social
activities among students - Constitution also providing for affiliation with National
Union of Students - Whether union formed for furthering educational purposes of
polytechnic - Whether funds of union held on trusts exclusively charitable at law.

In 1971 a London polytechnic founded a students' union as required by its

constitution. The union was an integral part of the polytechnic, which was a
registered charity. The objects of the union as set out in its constitution were, inter alia,
to provide an official organisation representing the students of the polytechnic, to
provide and develop scientific, artistic, cultural, athletic, political, religious and social
activities among the students, to promote their general welfare and to advance the
interest of the polytechnic as a whole in all appropriate ways. In addition, the
constitution provided for the union to be affiliated to the National Union of Students
and to represent the students in their relations with external bodies. It further provided
that the union's funds were to be held 'upon trust for the purpose of the Union'. In
December 1984 the union proposed making payments of £5,000 in support of striking
mineworkers and in aid of the victims of the Ethiopian famine. The Attorney General
took the view that the proposed payments were for purposes which were outside the
scope of the union's objects and would therefore be ultra vires. He sought an
injunction restraining the union from making the payments. The question arose
whether the Attorney General had locus standi to maintain the action, and a
preliminary issue was tried on the question whether the union's funds were held on
charitable trusts, since only if they were would the Attorney General have the locus
standi to intervene. The union contended that although some of its objects were
charitable others, such as the affiliation with the National Union of Students and
representation on outside bodies, were not and that that, and the activities of the
union since its formation, showed that the main purpose of the union was not
charitable but to give effect to the political views of its members.

Held - Activities of an organisation which were ultra vires and non-charitable were
irrelevant to determining whether the main purpose of an organisation was or was
not charitable. On the true construction of the union's constitution, assessed in the
context of the factual background to its formation, the union was formed and existed
for the charitable purpose of furthering, and did further, the education function of the
polytechnic, and the non-charitable activities which, by its constitution, the union was
authorised to carry on were, as a matter of degree, merely the ancillary means by
which the overall charitable purpose could be pursued. It followed that the general
funds of the union were held on trusts which were exclusively charitable.
How to Determine Charitable trust
1. By reference to the Charitable Uses Act 1601
The preamble of this Act contains a list of objects, which the law
regard as charitable in 1601.

Car-2-ndou ‘09 122

 See Scottish Burial Reform & Cremation Society v. Glasgow City
corporation (1968) AC 138 where a trust was set to promote
cremation as a method of disposal of the dead. Court held it
charitable as it fell within the “spirit and intendment” of the
preamble.

Rates - Relief - Charitable organisation - Cremation - Non-profit making company

incorporated for promotion of cremation - Fees charged, but not with a view to profit
- No religious basis - Whether society established for charitable purposes only - Local
Government (Financial Provisions, etc) (Scotland) Act, 1962 (10 & 11
Eliz 2 c 9), s 4(2), (10).

The appellants were a non-profit making limited company incorporated in 1890, the
company's main object being to promote inexpensive and sanitary methods of
disposal of the dead, in particular to promote cremation. For many years the
appellants had carried on a crematorium in Glasgow. The appellants charged fees,
but the fees were not intended to yield a profit; a substantial reserve fund had,
however, been built up. The appellants provided the means of religious observance,
but their purposes were independent of any religious basis. They sought a declarator
under s 4 of the Local Government (Financial Provisions etc) (Scotland) Act, 1962,
that they were entitled to a remission of rates in respect of the crematorium and
premises that they owned and occupied. The question at issue was whether the
appellants were a charity. It was common ground that the definition of charity in s
4(10), as being an organisation established for charitable purposes only, required,
owing to its wording, English law to be applied in determining whether the appellants
were a charity.

Held - The objects of the appellants were for the benefit of the community and fell
within the fourth category of charitable purposes (viz., other purposes beneficial to
the community) in Lord MacNaghten's opinion in Pemsel's case, being within the
intendment of the preamble to the statute, 43 Eliz c 4, and the objects did not cease
to be charitable merely because fees were paid for cremations.

See also section 3 of Trustee Incorporation Act

2. By reference to IRC v. Pemsel (1891) AC 531

Lord Mc Naghten classified four types of charitable purposes, which
are:
a. Trusts for the relief of poverty
b. Trusts for the advancement of
education
c. Trusts for the advancement of religion

Car-2-ndou ‘09 123

 d. Trusts for other purposes beneficial to
the community not falling under any of
the preceding.
Lord Wilberforce in Scottish Burial Reform case (supra) said that the
above classification is a classification of convenience. The law of
charity is a moving subject, which evolves over time.

-Trustee Incorporation Act, cap. 5:03 provides the procedure for

incorporation of trusts. Section 3 defines what entities would qualify to
be charitable organisations.

-Charitable trusts enjoy the following privileges:

1. They are exempted from the requirement to
ascertain objects of property
2. They are perpetual. They must last for an
indefinite period of time
3. They are tax exempted. See section 76 of
Taxation Act.

Classifications of Charitable trust as adopted from Lord

McNaghten’s classification in IRC v. Pemsel

A. Trust for Relief of Poverty

Poverty is a very relative concept. The law requires two basic essential
elements to prove poverty, which are:
1. There must be a need
2. The giving must relieve that particular need. See Joseph
Rowntree Memorial Trust Housing Association Ltd v. AG [1935] Ch
159 where the housing association wished to build small dwellings
for elderly people, who would be able to purchase them on long
leases. The elderly would pay 70 % of the purchase price of the

Car-2-ndou ‘09 124

 premises, with the remainder being paid by the Housing
association. It was held charitable as the gift relieved the need.
The giving must relieve that particular need. In Joseph Rowntree
Memorial Trust Housing Association Ltd v AG [1935] Ch 159 the
housing association wished to build small dwelling houses for the
elderly people who would be able to purchase them on long lease.
The elderly would only pay 70% of the purchase price of the
premises with the remainder being paid by the association. The
trust was held to be charitable as it relieved the need of the
elderly people.

See also Re Young [1951] Ch 344 –the distressed;

Will - "All his worldly goods and chattels both real and personal" - Inclusion of real
property.
Will - Attestation - Attestation by beneficiary under secret trust - Wills Act, 1837 (c 26), s
15.
Trust - Secret trust - Purposes communicated orally to one executor - Trusts to take
effect after death of that executor by means of will of executor - Establishment of
terms of trust by affidavit evidence. Charity - Relief of poverty - "For the permanent
aid of distressed gentlefolk and similar purposes."

By his will, dated 25 April 1942, a testator, who died on 20 December 1943, provided:
"This is the last will and testament of R P Y and is to the effect that he leaves all his
worldly goods and chattels both real and personal unto his wife E M Y for her life-time
only and he appoints the said E M Y together with J T M ... to be his executors it being
a condition of this will that after the testator's death the said E M Y makes a new will
leaving R. P. Y.'s estate for the purposes she knows he desires it to be used for--for the
permanent aid of distressed gentlefolk and similar purposes such will to be held by
and administered by Messrs M & Co ... leaving such small legacies as she knows I wish
to be paid and Messrs M & Co to be allowed to charge reasonable fees for the work
they do." J T M died soon after the testator's death and probate of the testator's will
was granted to E M Y. Questions of construction of the will arose, and, in applying to
the court for directions, E M Y deposed: "Prior to executing his said will the testator
discussed with me the devolution of his estate after my death and I was well aware of
his wishes in regard thereto, which were as follows, namely, that T C ... should receive
a legacy of £2,000, and that G S ... should receive a legacy of £1,000, and that,
subject thereto, his estate should be used to found and endow a home for distressed
gentlefolk." T C was one of the witnesses who attested the testator's will. The testator's
estate consisted of pure personalty and real property. The testator possessed no
leasehold property at the date of his death.

Held - (i) On the true construction of the will, the words "all his worldly goods and
chattels both real and personal" included all the deceased's property both real and
personal.
(ii) having regard to the imperative terms of the will and especially to the words "it
being a condition of this will," the testator intended to impose a trust on his executors
with regard to the dispositions of his estate after his widow's death, and
notwithstanding that the testator's wishes were not made known to both his executors

Car-2-ndou ‘09 125

and that the dispositions were not intended to take effect until after the death of the
widow, the trust so created was an effective secret trust established by the affidavit
evidence of the widow.
(iii) The gift "for the permanent aid of distressed gentlefolk and similar purposes" was
charitable, being for the relief of poor persons, and its charitable nature was
unaffected by the reference to "similar purposes."
(iv)Although T C was an attesting witness, his beneficial interest was not rendered
ineffective by the Wills Act, 1837, s 15, because he was interested under the secret
trust and not under the will.

Re Clarke [1923] 2 Ch 207 – moderate means;

Re Niyazi Will Trust [1978] 1 WLR 910—working men’s hostels in Cyprus;

Charity - Relief of poverty - Working men's hostel - Gift for 'construction of ... working
mens hostel' in area of grave housing shortage - Size of gift pointing to erection of
hostel catering for only basic requirements - Whether 'working mens' and 'hostel'
together gave a connotation of poverty to gift - Whether size of gift and area in
which hostel to be erected relevant factors - Whether gift charitable.

By his will, a testator provided that the residue of his estate, worth about £15,000, was
to be paid to the mayor of Famagusta in Cyprus on condition that it was used for 'the
construction of or as a contribution towards the construction of a working mens
hostel' in Famagusta. The executors of the will sought the determination of the court
whether the residuary gift created a valid charitable trust or whether it failed for
uncertainty and passed to the testator's next-of-kin as on intestacy. Evidence was
produced at the hearing that there was a grave housing shortage in Famagusta.

Held - The terms 'working mens' and 'hostel' together had a sufficient connotation of
poverty to make the residuary gift charitable. Furthermore, the size of the gift implied
that it would be restricted to the relief of poverty because it would only allow the
erection of a building catering for the more basic requirements of those who
occupied it and who would therefore be likely to be in straitened circumstances, and
the erection of a working men's hostel in an area of grave housing shortage was
more likely to help the poor than the rich.

Re Gwyon [1930] 1 Ch 255—clothing for children; Re Sander’s Will

Trust [1954] Ch 256 –buildings for working class people.
Charity - Relief of poverty - Gift "for the working classes and their families" in certain
area - Reference by testator to "my general charitable intention" - Effect of
localisation of gift.

By cl 2 (a) of a codicil to his will a testator gave his residuary estate to his trustee and
directed that he should stand possessed of one third part thereof on trust to apply the
same in any manner which his trustee in his absolute discretion should consider "to be
in furtherance of my general charitable intention ... namely to provide or to assist in
providing dwellings for the working classes and their families resident in the area of
Pembroke Dock ... or within a radius of five miles there from (with preference to
actual dock workers and their families employed at the said docks) ... " On a
summons to determine whether the trust contained in cl 2 (a) was a valid charitable
trust,

Car-2-ndou ‘09 126

Held - (i) a trust for the relief of poverty could not be inferred from the words of the
clause because, although a man might be a member of the working class, it did not
follow that he was poor.
(ii) The localisation of the gift to a particular area could not make the gift a valid
charitable gift where its purpose was specified and was not charitable per se.
(iii) The use of the words "my general charitable intention" by the testator did not
validate the particularintention specified by him which was not, in fact, a charitable
intention, and, therefore, the gift failed.

B. Trust for Advancement of Education

The law takes a wider and generous view of what amounts to

education. Lord Hailsham in IRC v. Mc Mullen (1981) AC 1 spoke of
education of the young as “a balanced and systematic process of
instruction, training and practice containing … both spiritual, moral,
mental and physical elements. The case concerned the Football
Association where it had established a trust for the promotion of
football and other games or sports in schools and universities. It was
held charitable as for the advancement of education even though the
gift was not for the benefit of any specific institution.

CASE
Charity - Education - Educational purposes - Sport - Promotion and encouragement
of sport - Trust to promote, encourage and provide facilities for pupils of schools and
universities to play association football and other games - Whether educational
charity - Whether encouragement of sport subservient to general charitable purpose.

The Football Association Youth Trust was established by a deed dated 30 October
1972, made between the Football Association and the trustees of the deed. The
objects of the trust, as set out in cl 3(a) of the deed, were 'to organise or provide or
assist in the organisation and provision of facilities' which would enable and
encourage students at schools and universities 'to play Association Football or other
games or sports and thereby to assist in ensuring that due attention is given to the
physical education and development of such pupils as well as to the development
and occupation of their minds and with a view to furthering this object' to provide
such things as facilities, playing fields, equipment, lectures, demonstrations and
coaching of association football or other games and sports at schools and
universities. The Charity Commissioners decided to register the trust as a charity,
pursuant to s 4 of the Charities Act 1960. The Crown objected to the registration and

Car-2-ndou ‘09 127

on appeal to the High Court, the judge ([1978] 1 All ER 230) held, inter alia, that the
trust could not be classifed as an educational charity because its object was merely
the encouragement of games and sports and that object had not been made
subservient to the advancement of education. On appeal, the Court of Appeal
upheld that view and added that it was a trust for the encouragement of games and
sports which were not required to be enjoyed as part of a school or university
curriculum. On appeal to the House of Lords,
Held - The appeal would be allowed for the following reasons--
(i) On the true construction of cl 3(a) of the trust deed, the word 'thereby' and the
phrase which followed it denoted an additional purpose of the trust rather than
merely the result which it was hoped would follow from encouraging students to play
association football or other games or sports. The purpose of the deed was therefore
not merely to organise the playing of association football in schools or universities but
also to promote the physical education and development of students as an addition
to their formal education.
(ii) On that construction the trust established by the deed was a valid charitable trust,
because, having regard to the educational theory that the provision of sporting
facilities contributed to providing a balanced education, it was for the advancement
of education, and furthermore was limited to students at universities and schools.

In construing a trust deed where the intention is to set up a charitable trust and where
there is an ambiguity, a benign construction should be given if possible.
Decision of the Court of Appeal [1979] 1 All ER 588 reversed.
Lord Hailsham in IRC v Mc Mullen (1981) AC 1 described education as ‘a
balanced and a systematic process of instruction, training and practice
containing spiritual, moral, mental and physical elements. The case
concerned a football association which established a trust for the promotion of
football and other sporting games in the schools and universities. The trust
was held to be charitable even though it was not for the benefit of any specifit
institution.
Trusts for the advancement of academic teaching, institutions for teaching
have been held to be charitable.
Trusts for the advancement of industrial training and development of
professional bodies are not charitable. In General Nursing Council for England
& Wales v St Marylebone Borough Council (1959) AC 540 it was stated that
the general nursing council which was established by statute to regulate the
nursing profession has not been held to be charitable hence its objects
includes the enhancement of the status of nurses, which is analogous to the
objective of the trade unions to advance the interest of their members.

-Trusts for promotion of academic teaching, institution for teaching

have been held to be charitable. See
Customs & exercise Commissioners v. Bell trust Education [1989] 2 ALLER
217.
Value added tax - Exemptions - Education - Provision of education otherwise than for
profit – Charitable company providing educational courses - Company charging
such fees as would achieve surplus income in order to maintain and improve facilities
offered - Company required to apply income and property solely to its objects and
prohibited from paying profits to its members - Whether company providing

Car-2-ndou ‘09 128

education 'otherwise than for profit' - Value Added Tax Act 1983, Sch 6, Group 6, item
2(a) - Council Directive (EEC) 77/388, art
13(A) (1) (i) (2) (a).

The appellant company was a company limited by guarantee and was a registered
charity. Its objects were to promote the advancement of education and to carry on,
acquire and develop schools. Its memorandum of association expressly provided that
its income and property were to be applied solely towards the promotion of its
objects and that no portion thereof was to be paid or transferred by way of dividend,
bonus or otherwise by way of profit to its members. The company acquired and
carried on as its only activity an educational establishment, and in fixing the fees
payable for courses there it budgeted for, and achieved, a substantial surplus of
income over expenditure, with the intention of using the excess to maintain and
improve the quality of facilities offered to students. The question arose whether the
company was registerable for value added tax or whether it was exempt because it
provided the courses 'otherwise than for profit' within the Value Added Tax Act 1983,
Sch 6, Group 6, item 2(a)a. A value added tax tribunal held that the company was
not so registerable but that decision was reversed by the judge, who held that the
exemption in item 2(a), which was intended to give effect to the exemption provided
for by art 13(A)(1)(i)b of Council Directive (EEC) 77/388, did not apply where for the
time being the organisation in question was aiming to make a surplus or profit on
current account. The company appealed, contending that, since the surplus could
never redound to the profit of any individual but had to be applied for the
educational charitable purposes of the company, the services were being provided
otherwise than for profit. The Crown contended that, so long as the company was
pursuing a policy of making a surplus on the provison of educational services, those
services were being provided for profit.

Held - The phrase 'otherwise than for profit' in item 2(a) of Group 6 of Sch 6 to the 1983
Act, construed in the light of art 13(A)(2)(a) of Council Directive (EEC) 77/388, referred
to the objects for which an organisation was established and not to the budgeting
policy being pursued for the time being by the organisation in question. If the
constitution of the organisation was looked at to discover the purposes for which it
was established, that provided a clear and unambiguous test whether the supplies
made by it were for profit. Since the company's charitable educational objects
prevented the distribution of its profits to private individuals and since the making of a
surplus was incidental to and not an object of the company, it followed that the
company provided educational services 'otherwise than for profit' and was therefore
not registerable for value added tax. The appeal would accordingly be allowed.

-Trusts for promotion of industrial training and development of

professional bodies are not charitable. See General Nursing Council for
England and Wales v. St. Marylebone Borough Council (1959) AC 540
Rates - Limitation of rates chargeable - General Nursing Council for England and
Wales – Organisation concerned with advancement of social welfare - Rating and
Valuation (Miscellaneous Provisions) Act, 1955(4 & 5 Eliz 2 c 9), s 8(1)(a).

Charity - Benefit to community - Nursing authority - Regulation of the profession of

nursing in the manner provided by the Nurses Act, 1957(5 & 6 Eliz 2 c 15) - Whether
charitable object.

The General Nursing Council for England and Wales, originally formed under the
repealed Nurses Registration Act, 1919, existed under and for the objects declared in
the Nurses Act, 1957. The functions of the council included the maintenance of a

Car-2-ndou ‘09 129

register of nurses, together with a roll of assistant nurses; the regulation of the
conditions of admission to and removal from the register and the roll, and, in
connexion therewith, the exercising of supervisory and directing powers in regard to
training and examination; and the exercising of other ancillary powers. The Act of
1957 also provided penalties for the false assumption of the title of registered or
enrolled nurse, and imposed restrictions on the use of the titles of nurse or assistant
nurse. On the question whether the council was an organisation "whose main objects
are charitable or are otherwise concerned with the advancement of ... social
welfare" within the meaning of the Rating and
Valuation (Miscellaneous Provisions) Act, 1955, s 8(1) (a),

Held - The council was not an organisation whose main objects were "charitable or
are otherwise concerned with the advancement of ... social welfare" within s 8(1)(a)
of the Act of 1955, for the following reasons--
(i) (Per Lord Morton of Henryton, Lord Tucker, Lord Cohen and Lord Keith Of
Avonholm) the main object of the council was to regulate the profession of nursing in
the manner and to the extent set out in the Nurses Act, 1957, viz, primarily, to maintain
a register of nurses and a roll of assistant nurses and to make rules governing
admission to and removal from these (or, per Lord Cohen, a main object of the
council was the enhancement of the qualities and status of nurses) and this object
was not charitable.
(ii) (Lord Cohen and Lord Somervell Of Harrow dissenting), however wide a meaning
was given to "social welfare" or to "the advancement of social welfare", the objects or
functions of the council were not concerned with either.

-Trusts to promote the study and practice of art of surgery have held to
be charitable. See
Royal College of Surgeons of England v. National Provincial Bank Ltd
(1952) AC 631.
Charity - Benefit to community - Promotion of surgery - Incidental benefits to
individuals - Gift to Royal College of Surgeons.
Perpetuities - Rule against perpetuities - Gift over from one charity to another -
Second charity incorporated by royal charter.
Will - Gift to medical school of hospital - Gift over if hospital nationalised or passes into
public ownership - Medical school not nationalised.

By her will, dated 13 January 1943, a testatrix, who died on 10 February 1943, gave
her residuary real and personal estate on the usual trusts for conversion and directed
that the resulting "endowment fund" should be held on "the following charitable trusts"
which were, inter alia, "to pay the residue of the income of the endowment fund in
each year to the treasurer ... of the Middlesex Hospital for the maintenance and
benefit of the Bland-Sutton Institute of Pathology now carried on in connection with
the said hospital ... Provided always that should the ... Middlesex Hospital become
nationalised or by any means pass into public ownership or should the [trustees] at
any time become unable lawfully to apply the income of the endowment fund for
the purposes aforesaid then and in any of the said events the [trustees] shall
thereupon pay and transfer the endowment fund ... to the Royal College of Surgeons
... " The Middlesex Hospital was founded in or about 1745. A medical school was
founded in 1835, but the school did not form part of the hospital until 1896. The Bland-
Sutton Institute was a department of the medical school. On 5 July 1948, under the
National Health Service Act, 1946, s 11(8), the hospital was designated a teaching
hospital, and, by virtue of s 6(1) of the Act, the property and liabilities of the hospital
were transferred to and vested in the Minister of Health, but the medical school

Car-2-ndou ‘09 130

became a separate legal entity with a governing body constituted under s 15(1) of
the Act. The Royal College of Surgeons claimed that, by reason of the changes
brought about by the Act, the gift over took effect.

Held - (i) notwithstanding that the medical school of the Middlesex Hospital had not
been nationalised, the institution known and referred to in the will as "the Middlesex
Hospital" had become nationalised within the meaning of the will, and, therefore, the
defeasance clause took effect;
(ii) (Lord Cohen dissentiente) on the true construction of the royal charter, granted in
1800, by which the Royal College of Surgeons was incorporated the objects of the
college were "the due promotion and encouragement of the study and practice of
the art and science of surgery" and were directed to the relief of human suffering or
to the advancement of education or science and not to the promotion of the
interests of individuals, although incidentally individuals carrying on their profession as
surgeons did derive certain benefits from the college;
(iii) For the present purpose there was no distinction between a charity incorporated
by royal charter and one incorporated by any other means; and, therefore, the
college was a charity, and the gift over to it was not had for perpetuity.

Research –trusts for advancement of research of educational value

have been held to be charitable. Slade J. in Re Besterman’s will Trusts
(1980) Times, 21 January laid three criteria:
1. The subject matter of the research must be a useful subject of
study.
2. The knowledge acquired by the research must be disseminated
to others.
3. The trust must be for the benefit of the public, or a sufficiently
important section of the public.
See Re Hopkin’s Will Trust [1965] Ch 669. Compare with Re Shaw
[1957] 1 WLR 729.
Charity - Benefit to community - Education - Research - Gift to Francis Bacon Society
Incorporated to be applied towards finding Bacon-Shakespeare manuscripts - Object
of society to study evidence in favour of Bacon's authorship of plays ascribed to
Shakespeare - Whether for advancement of education – Whether beneficial to
community.

By her will a testatrix gave one-third of her residuary estate to "the Francis Bacon
Society Incorporated ... to be earmarked and applied towards finding the Bacon-
Shakespeare manuscripts". One of the main objects of the society at the date of the
will and at the date of the testatrix's death was "to encourage the general study of
the evidence in favour of Francis Bacon's authorship of the plays commonly ascribed
to Shakespeare". The society was registered as a charity under the Charities Act, 1960.
The court found that the degree of improbability of discovering manuscripts of the
plays was not so great as to justify rejecting the trust as wholly impracticable or futile.
On the question whether the expressed purpose of the gift was in law a valid
charitable purpose,
Held - (i) the trusts on which the gift was to be held were, on the true construction of
the bequest, to use the money to search for manuscripts of plays commonly ascribed

Car-2-ndou ‘09 131

to Shakespeare believed by the testatrix and the society to have been written by
Bacon.
(ii) Approaching the question whether these were valid charitable trusts on the basis
that the court had to decide each particular case as best it could on the evidence
available as to public benefit, the purposes of search or research for original
manuscripts of England's greatest dramatist was within the law's conception of
charitable purpose either as being for education or as being for other purposes
beneficial to the community within the classification in Pemsel's case), for it was a gift
for theimproving of the country's literary heritage.

-Study of culture –need to promote art or culture. See Royal Choral

Society v. IRC [1943] 2 ALLER 101 per Lord Green; Re Pinion
Income Tax - Exemption - Charity - Educational charity - Royal Choral Society -
Whether established for "charitable purposes."

The respondent society was formed for the advancement of choral singing in
London. Rule 10 of its constitution provides that the income shall be applied solely
towards the promotion of the society's objects. Rule 11 provides that, in the event of a
winding up or dissolution of the society, all the property remaining after the payment
of all liabilities shall be transferred to a society with similar objects. The Special
Commissioners found that the society was not "established for charitable purposes
only" and that its income was not "exclusively applied for such purposes" and it was
contended for the Crown that this finding was a finding of fact which could not be
disturbed. It was further contended that the chief object of the society was to
provide pleasure, and that its performances had no educative value:--

Held - (i) whether a particular body is established for charitable purposes is a question
of law and in no circumstances can it be a matter of fact.
(ii) The society was a body established for the promotion of aesthetic education. Its
objects were charitable and its income was exclusively applied for the purposes of
charity. The society was, therefore, entitled to exemption from income tax.
Trusts for promotion of sports in schools and universities have been held
to be charitable. See Re Mariette [1915] 2 Ch 284;
Re Dupree’s Trusts [1945] Ch 16.
Charities - Charitable gift - Gift of encouragement of chess playing by boys or young
men under the age of 21 years - Definite geographical limitation - Educational value.

The donor executed a deed of gift in 1932, made between him, certain acting
trustees, and Lloyds Bank Ltd, as custodian trustee. The deed recited that certain
shares to the value of £5,000 had been transferred to the bank by the donor, and
declared that the bank was to pay the income arising from the trust fund to the
acting trustees to be applied in promoting annual chess tournaments for the
encouragement of chess playing, and in awarding prizes in connection with such
tournaments, open to boys or young men under the age of 21 years and resident in
the City of Portsmouth. The acting trustees were four in number, the Lord Mayor of
Portsmouth, the Town Clerk of Portsmouth, the chairman of the Portsmouth Education
Committee, and the headmaster of Portsmouth Grammar School, or their successors.
The first prize was to be £100; the other prizes were to be fixed by the acting trustees,
who were directed not to pay the prizes in cash but to apply them for the benefit of
the winners. The question to be determined was whether this constituted a valid
charitable gift:--

Car-2-ndou ‘09 132

Held - since the encouragement of chess playing was of definite educational value,
and since the trust was for the benefit of a well-defined and limited area, the deed
constituted a valid charitable gift.
Notes

Compare with Re Nottage [1895] 2 Ch 649

In Re Nottage [1895] 2 Ch 649, at p 656, Lopes LJ said, "I am of opinion that a gift the
object of which is the encouragement of a mere sport or game primarily calculated
to amuse individuals apart from the community at large, cannot upon the authorities
be held to be charitable, though such sport or game is to some extent beneficial to
the public." Here Vaisey J not without hesitation, holds that the promotion of chess
playing among young men is a good charitable object, but it is to be noted that (a)
there was evidence that chess is of sufficient educational value to be adopted as
part of the curriculum in certain schools and (b) the trust was for the benefit of a well-
defined area, as part of the educational activities of the Borough of Portsmouth.

CHARITIES - CHARITABLE PURPOSES - NON-CHARITABLE PURPOSES - PRIVATE CHARITIES

OR
SPECIFIED INDIVIDUALS - OTHER CASES - TO ENCOURAGE YACHT RACING -- VOID
N by his will gave a sum the interest of which was to be expended in providing a cup
to be given for the encouragement of yacht racing: Held (1) the gift was not
charitable; (2) it was void for remoteness

C. Trust for Advancement of Religion

They are presumed to be charitable. There is no need for any religion

to demonstrate any particular value as long as it promotes religion
that’s enough.
See what Lord Reid said in:
Gilmour v. Coats (1949) AC 426 @862 that court should not bother to
weigh the validity of the belief of religion.
Charitable Purpose - Advancement of religion - Public benefit - Carmelite convent -
Association of strictly cloistered and purely contemplative nuns.

The income of a trust fund was to be applied to the purposes of a Carmelite convent,
if those purposes were charitable. The convent comprised an association of strictly
cloistered and purely contemplative nuns who devoted themselves entirely to
worship, prayers and meditation and engaged in no activities for the benefit of
anyone outside their own association. They were regarded, however, in the Roman
Catholic Church as causing, by means of their private worship, prayers and
meditations, the intervention of God to bring about the spiritual improvement of
members of the public (both Catholic and non-Catholic) outside the convent, and
also as providing an example of self-denial and concentration on religious matters
which was of spiritual benefit to the public. The question was whether the gift would
involve public benefit, so as to be a valid charitable trust. It was contended on behalf
of the convent (a) that, since the evidence in this case established that in the belief
of the Roman Catholic community the prayers of the sisters of the convent and the

Car-2-ndou ‘09 133

sanctity of their lives brought Divine Grace on making in general and Roman
Catholics in particular, this belief should be accepted by the court as true for the
purpose of establishing public benefit; (b) that the sisters, by the holiness of their lives,
afforded such measure of edification by example as to provide the requisite public
benefit; (c) that the element of public benefit was also to be found in the fact that
qualification for admission to membership of the community was not limited to any
group of persons but was open to any Roman Catholic woman who had the
necessary vocation.

Held - (i) the decision in Cocks v Manners (1871) (L R 12 Eq 574; 24 LT 869) that a gift to
a community which was similar to the Carmelite convent in this case was not a gift on
a charitable trust as it lacked the element of public benefit had for so long been
followed and was so well established that it could not now be repudiated unless a
radical change of circumstances, established by sufficient evidence, should compel
the court to accept a new view on the matter, and no such change of
circumstances had been so established.

(ii) though the advancement of religion was, generally speaking, one of the heads of
charity, it did not follow that the court must accept as proved whatever a particular
church believed, and a gift to cloistered nuns in the belief that their prayers would
benefit the world at large did not derive validity from that belief alone any more than
did the belief of any other donor for any other purpose: Re Hummeltenberg ([1923] 1
Ch 237; 129 LT 124) approved; the court could only act on proof, and no temporal
court of law could determine the truth of any religious belief; and, therefore, since the
purpose of a trust must be one which the court itself could determine, the court was
not entitled to accept and act on the belief of the Roman Catholic Church that the
spiritual benefit to mankind flowing from intercessory prayer was sufficient to establish
the necessary element of public benefit.

(iii) The benefit to be derived by others from the example of pious lives was something
too vague and intangible to satisfy the test of public benefit.

(iv)As the law was disabled from recognising any public benefit resulting from the
existence of the community, the fact that admission to membership was open to any
Roman Catholic woman having the necessary vocation did not provide the element
of public benefit to make the gift a valid charitable gift.

Decision of the Court of Appeal ([1948] 1 All ER 521; [1948] Ch 340) affirmed.

See Re Watson [1973] 1 WLR 1472;

Thornton v. Howe (1862) 31 Beav 14
-Religion is any belief in a divine being. So societies promoting moral
lifestyle do not qualify.
See United Grand Lodge of Ancient Free and Accepted Masons of
England v. Holborn Borough council [1957] 1 WLR 1080;
Rates - Limitation of rates chargeable - Hereditament occupied by organisation for
the promotion of Freemasonry - Organisation mainly concerned with administrative
work relating to Freemasonry – Whether main object of organisation concerned with
advancement of religion - Whether objects of Freemasonry concerned with the

Car-2-ndou ‘09 134

advancement of religion - Rating and Valuation (Miscellaneous Provisions) Act, 1955
(4 & 5 Eliz 2 c 9), s 8(1).

The appellants, the United Grand Lodge of Masons, were the occupiers of a
hereditament at which they carried out their functions, viz, the central administration
and government of Masonic activities which included administering a benevolent
fund. The objects of Freemasonry, as set out in its constitution, were to promote and
advance the virtues of good citizenship, honest work, morality and wisdom, brotherly
love, compassion, charity to the poor, and belief in a supreme architect of heaven
and earth. On the initiation of a Mason, the Bible was recommended to him as the
standard of truth and justice, and he was urged to regulate his conduct by it, and
while a Mason was not required to have a particular religious belief, he must believe
in a Supreme Being and lead a moral life. In Freemasonry, there was no religious
instruction, no programme to persuade unbelievers, no religious supervision, nor were
any services held or pastoral or missionary work carried out. The appellants who, it
was found, were not established for profit nor conducted their activities for profit,
appealed against a rate levied on them by the respondents on the ground that they
were an organisation, not established or conducted for profit, whose main objects
(though not charitable in the legal sense) were otherwise concerned with the
advancement of religion within s 8(1)(a)a of the Rating and Valuation (Miscellaneous
Provisions) Act, 1955, and therefore, that the amount of rates chargeable in respect
of the hereditament should be limited by s 8(2) of the Act of 1955.
a For the relevant terms of s 8(1)(a) of the Act of 1955, see p 283, letter e, post

Held - (i) in determining what were the main objects of the appellants, regard must
be had to the main purpose of the organisation taken as a whole, not merely to the
functions of the appellants within the organisation.
(ii)the main objects of Freemasonry were not the advancement of religion, and
therefore the appellants were not an organisation within s 8(1)(a) of the Act of 1955
and the amount of rates chargeable in respect of the
Hereditament was not limited by s 8(2).
Appeal dismissed.

Re South Place Ethical Society [1980] 1 WLR 1565 per Dillion J.

-It is not only monotheistic religions.
See Bowman v. secular Society (1917) AC 406;
Compare with Neville Estates Ltd v. Madden [1962] Ch 832 per Lord
Cross
-The law presumes trusts for advancement of religion to be charitable
because it assumes that there is public benefit from any religion. It is
not the spiritual benefit but the benefit that comes to the community
from the adherents of the religion. See Re Hetherington [1990] Ch 1;
Charity - Religion - Charitable or religious purposes - Gift for saying of Masses -
Whether gift for religious purposes - Whether gift establishing valid charitable trust.
Precedent - Ratio decidendi - Binding effect of decision - Legal principles which are
binding.

By a holograph will dated 17 November 1980 the testatrix, who was a Roman
Catholic, left £2,000 to the Roman Catholic Bishop of Westminster for 'masses for the
repose of the souls of my husband and my parents and my sisters and also myself

Car-2-ndou ‘09 135

when I die'. The will further provided that the residue was to be given to a named
church for 'masses for my soul'. By an originating summons the administrator of the will
of the deceased sought, inter alia, the determination of the court on the question
whether those gifts established valid charitable trusts.

Held - A gift for the saying of Masses was prima facie charitable because it was for a
religious purpose and contained the necessary element of public benefit, since in
practice the Masses would be celebrated in public and the provision of stipends for
priests saying the Masses relieved the Roman Catholic Church of the liability to
provide such stipends to that extent.

Neville Estates Ltd v. Madden (supra).

The presumption is rebuttable. See Gilmour v. Coats (1949) AC 426
-Purposes ancillary to religion are held to be charitable e.g.
maintenance of religious buildings. See Re Hooper [1932] 1 Ch 38. Gifts
to religious leaders are held charitable. See Re Flinn [1948] Ch 241

D. Trusts for Other Purposes Beneficial to the Community

It is a “catch all” category which includes all charitable purposes falling
outside of the above three categories. It is not prima face presumption
of public benefit. It requires proving unlike the other three heads where
public benefit is presumed. See what Lord Simmonds said in:
William’s Trustees v. IRC (1947) AC 447.
. In William’s Trustees v IRC (1947) Ac 447 it was stated that it is still a
general principal of law that a trust is not charitable and entitled to privileges
which charity confers unless it is within the spirit and intendment of the statute
of Elizabeth.

Approaches used to determine purposes beneficial to the community

are:
1. The first approach is to check with the Preamble – the spirit and
intendment of the preamble of 1601 Act. If any fall within the
purposes listed on the preamble then its prima facie charitable. It
can be a new purpose but as long as it is analogous to the
purpose in the preamble it will be held charitable.

Car-2-ndou ‘09 136

 2. The second approach is to hold all trusts that promote purposes
that are prima facie beneficial to the public charitable unless
there is a reason to hold to the contrary. The burden is on the
one who asserts to demonstrate that it is for the benefit of the
public. See Incorporated Council of Law Reporting for England
and Wales v. AG [1972] Ch 73, per Russell LJ;

Scottish Burial Reform v. Glasgow City corporation (1968) AC

138;
Rates - Relief - Charitable organisation - Cremation - Non-profit making company
incorporated for promotion of cremation - Fees charged, but not with a view to profit
- No religious basis - Whether society established for charitable purposes only - Local
Government (Financial Provisions, etc) (Scotland) Act, 1962 (10 & 11 Eliz 2 c 9), s 4(2),
(10).

The appellants were a non-profit making limited company incorporated in 1890, the
company's main object being to promote inexpensive and sanitary methods of
disposal of the dead, in particular to promote cremation. For many years the
appellants had carried on a crematorium in Glasgow. The appellants charged fees,
but the fees were not intended to yield a profit; a substantial reserve fund had,
however, been built up. The appellants provided the means of religious observance,
but their purposes were independent of any religious basis. They sought a declarator
under s 4 of the Local Government (Financial Provisions etc) (Scotland) Act, 1962,
that they were entitled to a remission of rates in respect of the crematorium and
premises that they owned and occupied. The question at issue was whether the
appellants were a charity. It was common ground that the definition of charity in s
4(10), as being an organisation established for charitable purposes only, required,
owing to its wording, English law to be applied in determining whether the appellants
were a charity.

Held - The objects of the appellants were for the benefit of the community and fell
within the fourth category of charitable purposes (viz., other purposes beneficial to
the community) in Lord MacNaghten's opinion in Pemsel's case, being within the
intendment of the preamble to the statute, 43 Eliz c 4, and the objects did not cease
to be charitable merely because fees were paid for cremations accordingly the
appellants were entitled to remission of rates.

Williams Trustees v. IRC (1947) AC 477.

-There are two schools of thought as to the test used to determine
whether the purpose is beneficial to the community. There is subjective
test where court is to take the opinion of the donor. If the donor
thought that what he or she was giving was beneficial to the
community then court is to just recognise it as such. See Re Cranston
[1898] 1 TR 43; Re Foveaux [1895] 2 Ch 501. The other test is

Car-2-ndou ‘09 137

objective assessment of benefit where court is to look at the evidence
at hand and determine whether there is any benefit to the public. This
test is problematic in that court cannot make valuable judgment
because some give based on morality and court can not accurately
decide on fine moral issues, which people differ. In this test court is
urged to weigh the merit of the benefit. See National Anti-vivisection v.
IRC [1948] AC 31 where the House of Lords overruled the decision in Re
Foveaux (supra).

National Anti-vivisection v. IRC [1948] AC 31

Income Tax - Exemption - Charity - "Established for charitable purposes only" - Anti-
vivisection society - Income Tax Act, 1918 (c 40), s 37(1) (b).

The appellant society claimed exemption from income tax on the income of its
investments on the ground that it was "a body of persons established for charitable
purposes only" within the meaning of s 37(1)(b) of the Income Tax Act, 1918. The
Special Commissioners were satisfied that the main object of the society was the total
abolition of vivisection and, for that purpose, the repeal of the Cruelty to Animals Act,
1876, and the substitution of a new enactment prohibiting vivisection altogether. Had
they not regarded themselves as precluded from so doing by authority (in particular
Re Foveaux, Cross v London Anti-Vivisection Society ([1895] 2 Ch 501)), the
commissioners would have held, on the evidence that any public benefit in the
advancement of morals and education which would result if the society achieved its
object would be far outweighed by the detriment to medical science and research,
and, consequently, to the public health which would result, and that, on balance,
the object of the society, so far from being for the public benefit, was gravely injurious
thereto, with the result that the society could not be regarded as a charity:--

Held - (i) (Lord Porter dissenting) in determining whether the object of the society was
charitable, the overriding test was whether it was for the public benefit, and that
question was to be answered by the court by forming an opinion on the evidence
before it and weighing injury to the community against the ostensible charitable
purpose of the society, and so, having regard, as the court should, to the finding of
the commissioners that on balance the object of the society was detrimental to the
public benefit, there could be no justification for saying that it was a charitable
object.
Re Foveaux, Cross v London Anti-Vivisection Society ([1895] 2 Ch 501) overruled.
Re Hummeltenberg, Beatty v London Spiritualistic Alliance ([1923] 1 Ch 237)
approved.
(ii) (Lord Porter dissenting) a main object of the society was political, (viz, the repeal of
the Act of 1876), and for that reason also the society was not established for
charitable purposes only and was not entitled to exemption from tax under the
section.
Per Lord Simonds: A purpose regarded in one age as charitable may in another be
regarded differently, but this is not to say that a charitable trust, when it has once
been established, can ever fail. If, by a change in social habits and needs, or, it may
be, by a change in the law, the purpose of an established charity becomes
superfluous or even illegal, or if, with increasing knowledge, it appears that a purpose

Car-2-ndou ‘09 138

once thought beneficial is truly detrimental to the community, it is the duty of trustees
of an established charity to apply to the court, or, in suitable cases, to the Charity
Commissioners, or, in educational charities, to the Minister of Education, and ask that
a cy-pres scheme may be established. There might be cases in which the Attorney
General would think it his duty to intervene to that end. A charity once established
does not die, though its nature may be changed.
Decision of the Court of Appeal, [1946] 1 All ER 205, affirmed

-Trusts with political objects are regarded as non-charitable. Slade J in

Mc Govern v. AG [1982] Ch 321 stated the four criteria in order to
identify objects, which are political in nature. These are:
1 If the purpose is to further the interest of a political party
2. To procure changes in the laws of the particular country registered
3. To procure changes in the law of a foreign country
4. If intended to procure a reversal of government policy or decisions of
government authorities in a foreign country.

The case concerned the Amnesty International wanting to set up a

trust with four main objects which Court held all of them to be political
in nature hence not charitable.
Mc Govern v. AG [1982] Ch 321
Charity - Public benefit - Political purposes - Trust to secure release of prisoners of
conscience and procure abolition of torture or inhuman or degrading treatment or
punishment - Purpose of trust to be achieved by seeking changes in foreign
legislation and reversal of administrative decisions of foreign governments - Whether
a trust for political purposes - Whether trust charitable.
Charity - Public benefit - Research - Trust for research into maintenance and
observance of human rights - Trust for dissemination of results of such research -
Whether trust for such research charitable.

The Amnesty International Trust was set up in 1977 to administer those purposes of
Amnesty International that were thought to be charitable. Amnesty International itself
was an unincorporated, non-profit making body formed with the object of securing
throughout the world that prisoners of conscience (ie persons who were imprisoned,
detained or restricted because of their political, religious or conscientious beliefs, or
their ethnic origin, sex, colour or language) were treated in accordance with the
United Nations Universal Declaration of Human Rights, and to that end Amnesty
International provided assistance to, and worked to secure the release of, prisoners of
conscience by exposing and publicising the plight of such prisoners, mobilising public
opinion and applying persuasion and pressure on imprisoning authorities. Amnesty
International worked independently of any particular government, political faction or
religious creed, and, although philanthropic, was admittedly non-charitable. The
objects of the trust as set out in the trust deed were (i) the relief of needy persons

Car-2-ndou ‘09 139

within the categories of prisoners of conscience or who were or were likely to
become prisoners of conscience or their relatives (cl 2A), (ii) attempting to secure the
release of prisoners of conscience (cl 2B), (iii) procuring the abolition of torture or
inhuman or degrading treatment or punishment (cl 2C), (iv) research into the
maintenance and observance of human rights (cl 2D), (v) disseminating the results of
such research (cl 2E), and (vi) doing all such other things as would promote the
specific objects. The trust deed further provided that the objects of the trust were
'restricted to those which [were] charitable according to the law of the United
Kingdom but subject thereto they may be carried out in all parts of the world'. The
trustees of the trust applied to the Charity Commissioners for registration of the trust as
a charity under s 4 of the Charities Act 1960. The commissioners refused to register the
trust and the trustees appealed to the court under s 5(3) of the 1960 Act by way of an
originating summons seeking a declaration that the trust ought to be registered as a
charity.

Held - (1) Although a trust for the relief of human suffering and distress was capable of
being of a charitable nature, within the spirit and intendment of the preamble to the
Charitable Uses Act 1601, as being a charity of compassion, nevertheless, if the
means of achieving that relief was by securing a change in the laws of a foreign
country and that was a direct and main object of the trust, then the trust had a
political purpose and was not capable of being charitable under English law,
because the court had no means of judging whether the proposed change in the
law of the foreign country would or would not be for the public benefit, either locally
or internationally. Similarly, if a direct and principal purpose of the trust was to procure
a reversal of government policy or a particular governmental decision in a foreign
country, it was not capable of being charitable under English law. On the other hand,
if the main objects of the trust were exclusively charitable, the mere fact that the
trustees had incidental powers under the trust to employ political means to further the
non-political purposes of the trust would not deprive the trust of its charitable status,
provided the political means were not the designated means of carrying out the trust
but merely consequential to carrying it out.
(2) Applying those principles, the trust set out in cl 2B, namely attempting to secure
the release of prisoners of conscience, was a trust for political puroses, and not simply
a trust for the redemption and relief of captives, since it contemplated, as the primary
means of achieving the purpose of the trust, the application of moral pressure on
foreign governments or authorities to persuade them to change their decisions to
imprison prisoners of conscience. The trust was therefore not for the public benefit
and not charitable.
(3) Similarly, the trust set out in cl 2C, namely procuring the abolition of torture or
inhuman or degrading treatment or punishment, was a trust for political purposes,
and not simply a trust for the relief of suffering and distress, since the phrase 'inhuman
or degrading treatment or punishment' included capital and corporal punishment by
process of law and the abolition of such punishment necessarily included procuring
reforming legislation, whether in the United Kingdom or elsewhere. The trust set out in
cl 2C was accordingly not charitable (see p 516 e to h and p 517 f to p 518 c, post).
(4) The trusts set out in cll 2D and 2E, namely promoting research into the
maintenance and observance of human rights and the dissemination of such
research, would, if the trusts had stood alone, have been charitable, since the
subject matter of the research was a useful subject of study and the research would
have been for the benefit of the public (see p 518 j to 519 c, post).
(5) Since the trusts set out in cll 2B and 2C were non-charitable, the purposes of the
trust deed generally were not wholly and exclusively charitable and therefore none
of the trusts contained in the deed could be regarded as charitable. The proviso in
the trust deed to the effect that the objects of the trust were restricted to those which
were charitable according to the law of the United Kingdom did not operate to
exclude from the trust purposes which were not charitable, but merely made it clear

Car-2-ndou ‘09 140

that the trustees should, even when operating outside the United Kingdom, be
restricted to purposes which were charitable under United Kingdom law. The
declaration would accordingly be refused.

Administration of Charitable trust

Its administration is different from private trust. The beneficiaries of

charitable trusts are not defined hence they have no definite share
until the benefit is allocated to the purpose. The beneficiaries cannot
claim because the giving was to the purpose.

-AG has power to enforce charitable trusts in Malawi but Press Trust
case seems to suggest that its parliament that has the mandate to
enforce charitable trust.
-High court has the general inherent jurisdiction of charitable trust. It has
supervisory role. It can appoint trustees, give remuneration, authorise
dealings in connection with the trust e.t.c See Press Trust case Act 1994
and sections 65, 66 of Trustee Act
Reconstitution or Termination of Charitable Trust
The giving in charitable trust is to the purpose and once the purpose
fails then there is need to reconstitute as it was given to the common
pot. So the property has to be applied cypress. It occurs in two ways,
which are:
1. Where there is an initial failure of charitable trust. It occurs where
the purpose it was given for is no longer in existence. So the trust
fails to gain interest in the property. What is required is to prove
that the settlor or testator had general charitable intention. Once
it is proven then the property is applied cypress—cypress
doctrine applies. Gifts given to specific institutions show that they
were not meant for the common pot hence no general intention
can be deduced and cypress doctrine won’t apply.
See Re Spence [1979] Ch 483 where a testatrix left part of her
estate to ‘The old folks Home’ at a certain place in a will that

Car-2-ndou ‘09 141

 was executed in 1968. She died in 1972, but the Old people’s
home had closed down in 1971. The question thus a rises whether
the property should be applied cy-pres to other charitable
purposes, or whether it should pass by a resulting trust to his
residuary legatees.
Case
Charity - Charitable trust - Will - Gift for benefit of patients at home run by charity -
Whether gift to charity's general endowment or for benefit of patients at particular
home.
Charity - Charitable trust - Will - Gift to charitable institution - Dissolution of institution
after date of will and before testatrix's death - Whether in absence of special
circumstances and any indication of charity by association with kindred charitable
gifts general charitable intent shown - Whether gift failed.

By her will a testatrix provided that her residuary estate was to be divided 'equally
between The Blind Home Scott Street Keighley and the Old Folks Home at Hillworth
Lodge Keighley for the benefit of the patients'. The only institution connected with the
blind in Keighley was a charity known as the Keighley and District Association for the
Blind which ran a home for the blind in Scott Street known variously as 'The Blind
Home', 'The Keighley and District Home for the Blind' and 'Keighley Home for the Blind'.
The association also carried on a home for the blind at Bingley. Hillworth Lodge was
at the time the testatrix made her will an old people's home run by the local authority
but by the time the testatrix died it was no longer used for this purpose and was
about to be converted into council offices. The executors of the will sought a
declaration, inter alia, as to whether the residuary gift was valid, and if so, on what
terms.

Held - (i) The gift to 'The Blind Home' fitted the home run by the Keighley and District
Association for the Blind at their premises in Scott Street, Keighley and therefore the
association was entitled to receive one moiety of the gift. However, having regard to
the fact that the testatrix had provided for the gift to be for the benefit of the patients
of that home, the moiety was not to be added to the association's general
endowment but was to be restricted to being used for the benefit of the patients for
the time being of the Scott Street home.
(ii) The gift to the 'Old Folks Home' failed because it was a gift for a specific charitable
purpose which, though possible when the will was made, had become impossible
before the testatrix died. The gift was not a general gift to the old people of a
particular district, and in the absence of special circumstances or any indication of
charity by association with other gifts made by the testatrix for kindred charitable
objects, it was impossible to extract a general charitable intention which would
enable the gift to be applied cy-prés. The other moiety would therefore pass as on
intestacy.

See also Rymer [1895] 1 Ch 19. It is easy to infer general

charitable intention when all the beneficiaries of the trust are
charitable. So if the trust fails then cypress doctrine is triggered.
See Re Jenkins [1966] Ch 249.

Car-2-ndou ‘09 142

 2. Where the charitable trust is unworkable or impracticable then
cypress doctrine applies as long as general intention can be
discerned. It happens in situations where the settlor’s direction
makes it difficult to carry out the trust or where the original
purpose has lost its public utility or it is no longer there. See Re
Spence (supra);
Re Fingers Will Trust [1972] Ch 286;
Charity - Charitable trust - Will - Gift to charitable institution - Dissolution of institution
after date of will and before testator's death - Validity of gift as purpose trust - Gifts to
corporate and unincorporated bodies – Gift to corporate body failing unless
evidence that body was to take as trustee - Gift to unincorporated body per se a
purpose trust unless evidence that continued existence of donee essential to gift.
Charity - Cy-pres doctrine - General charitable intention - Gift in will to named
charitable institution - Dissolution of institution after date of will and before testator's
death - Circumstances in which general charitable intention will be inferred - Virtually
whole estate devoted to charity - Institution merely co-ordinating body for other
charities - Testatrix regarding herself as having no relatives.

By her will dated 25 June 1930 the testatrix, after some small pecuniary legacies,
bequeathed the whole of her residuary estate in equal shares to 11 charitable
institutions, two of which were named as the 'National Radium Commission' and the
'National Council for Maternity for Child Welfare 117 Piccadilly London'. The testatrix
believed that she had no relatives at all. She died on 31 August 1965. The National
Radium Trust ('the trust'), a corporate body, had been created by royal charter dated
25 July 1929. The charter also created an unincorporated body defined as the
Radium Commission ('the commission'). Under the terms of the charter the trust was to
be, in effect, the purchaser and owner of radium and the commission was to see to
its distribution and use. Following the enactment of the national health service
legislation it became apparent that there was no need for the trust or the
commission, which in June 1947 were therefore wound up in accordance with the
charter. The stocks of radium were transferred to the Minister of Health. The work
carried on by the trust and commission were subsequently carried on by or under the
aegis of the Minister of Health and his successor the Secretary of State for Social
Services. So far as the second share was concerned there was at the date of the will
a corporate body ('the council') which, in 1927, had changed its name to the
'National Council for Maternity and Child Welfare'. Its offices were at 117 Piccadilly.
Two of the earliest constituent members of the council were bodies which also had
offices at 117 Piccadilly. In 1937 these two bodies amalgamated to form the National
Association for Maternity and Child Welfare ('the association'). The objects of the
council were mainly of a co-ordinating and supporting nature with respect to its
numerous constituent bodies. On 24 May 1948 the council resolved that it should be
wound up voluntarily and the bulk of its assets handed over to the association.
Thereafter, to all intents and purposes, the work of the council was carried on by the
association. The question arose whether the two shares of the residuary estate had
lapsed and passed on intestacy or whether in some form they were held on valid
charitable trusts.

Held - (i) The gift of the first share was to the commission and not to the trust, since the
word 'Commission' was more significant than 'National', particularly as both bodies
operated on a national basis and the commission was in substance the operative
body which organised the supplies of radium.

Car-2-ndou ‘09 143

(ii) Since, in the case of the second share, the named body existed at the date of the
will there could be no possible doubt as to the identification of the council as the
beneficiary, and this construction of the will could not be altered by the council's
subsequent disappearance before the testator's death; the claim of the association
as successor of the council could not succeed because the association was not the
successor of the council quoad the share which the council would have taken.

(iii) It followed that since both the commission and the council had been dissolved,
both gifts failed unless they could be supported as purpose gifts; in the case of a gift
to an unincorporated body the gift was per se a purpose trust and, provided the work
was still being carried on, would have effect given to it by way of a scheme
notwithstanding the disappearance of the donee in the lifetime of the testator, unless
there was something positive to show that the continued existence of the donee was
essential to the gift; a gift to a corporate body, on the other hand, took effect simply
as a gift to that body beneficially unless there were circumstances which showed
that the recipient was to take the gift as a trustee.
(iv) Accordingly the gift to the commission, being a gift to an unincorporated charity,
was a purpose trust for the work of the commission which did not fail because there
was no indication in the will to make that body of the essence of the gift and the
work of the commission had, since its dissolution, been carried on by the
Secretary of State for Social Services; the gift was therefore valid and a scheme for its
administration would be settled.
(v) On the other hand the gift to the council, a corporate body, failed since there
was no context in the will from which to imply a trust for the carrying on of the work of
the council .
(vi) Although where there was a gift to an identifiable charitable body which had
ceased to exist it was difficult for the court to find a general charitable intention, the
circumstances of the present case were very special; since virtually the whole estate
was devoted to charity, the council was itself merely a co-ordinating body, and the
testatrix regarded herself as having no relatives, it was possible to find a general
charitable intention; the share was therefore applicable cy-pres; accordingly, the
Attorney General not objecting, a scheme would be ordered whereby the share
would be paid to the proper officer of the association to be held on trust for the
association's general purposes.

Re Faraker, Faraker v Durell

Will - Lapse - Gift to charity - Charity consolidated with other charities under scheme -
Objects of consolidated charity not identical to those of pre-existing charity.

Under the will of a testatrix who died in 1756 there was constituted a charity known as
"Hannah Bayly's Charity" for the benefit of widows resident in Rotherhithe. In 1905 the
Charity Commissioners sealed a scheme under which Hannah Bayly's Charity and
thirteen other charities were consolidated under the name "Consolidated Charities"
and the funds of all fourteen charities were thereafter held as one fund for the benefit
of the poor of Rotherhithe in the manner specified in the scheme. By her will dated 19
February 1908, MAF gave to "Mrs. Bailey's Charity, Rotherhithe" a legacy of 200
pounds. In 1911, MAF died, and the question arose whether the legacy was effective.

Held: notwithstanding the failure of the scheme of 1905 to make special provision for
widows in Rotherhithe,
Hannah Bayly's Charity had not ceased to exist, and the legacy took effect in favour
of the Consolidated Charities.

THE CY-PRÈS DOCTRINE

Car-2-ndou ‘09 144

The expression cy-près originates from Norman French meaning ‘near this’. Over the
centuries the expression has been taken to mean ‘as nearly as possible’. The cy-près
doctrine is a principle applicable to gifts for charitable purposes which fail (initially or
subsequently) owing to the impossibility or impracticality of giving effect to the
donor’s intention. Schemes may be approved by the Charity Commissioners and the
courts for the application of the funds as nearly as possible to the original purposes as
stated by the settlor. When the cy-près doctrine is adopted, the donor or his or her
estate is excluded from benefiting by way of a resulting trust.
There are only two conditions to be satisfied for a cy-près application of funds,
namely:
(a) the impossibility or impracticality of carrying out the original charitable purpose, or
the existence of a surplus of funds after the charitable purpose has been fulfilled;
and
(b) the manifestation of a general charitable intention by the donor as opposed to a
specific charitable intention.
IMPOSSIBILITY
Prior to the introduction of the Charities Act 1960 (now the Charities Act 1993), the
courts approached this question by considering whether the purposes, as stated by the
settlor, were capable of being achieved as distinct from merely being undesirable. In
AG v City of London (1790) 3 Bro CC 171, trust funds to be used for the advancement
and propagation of the Christian religion among the infidels in Virginia were applied
cy-près when it became clear that there were no longer any ‘infidels’ in Virginia.
Similarly, in AG v Ironmongers Co (1844) 10 Cl & Fin 908, funds devoted to the
redemption of British slaves in Turkey and Barbary were applied cy-près when the
purpose subsequently became impossible to achieve.
The test of ‘impossibility’ was construed broadly in Re Dominion Students’ Hall
Trust.

Re Dominion Students’ Hall Trust [1947] 1 Ch 183,HC

Facts
A limited company was formed for charitable purposes. The memorandum of
association declared its object to be to maintain a hostel for students ‘of European
origin’ from the overseas dominions of the British Empire. The company proposed a
scheme, for approval by the court, whereby the offensive words ‘of European origin’
would be deleted so that the company would be better equipped to administer the
funds for the benefit of all students from the dominions regardless of racial origin.
Held
The scheme was approved because the retention of the colour bar had the effect of
defeating the main object of the charity:
Evershed J: The purpose of both the petition and the summons is that a restriction which has
hitherto been characteristic of the charity, limiting its objects so as to exclude coloured students
of the British Empire, should be removed and that the benefits of the charity should be open to all
citizens from the Empire without what is commonly known as the ‘colour bar’.
The word ‘impossible’ should be given a wide significance: see In Re Campden Charities (1881) 18
Ch D 310; In Re Robinson [1923] 2 Ch 332.It is not necessary to go to the length of saying that the
original scheme is absolutely impracticable.Were that so, it would not be possible to establish in
the present case that the charity could not be carried on at all if it continued to be so limited as to
exclude coloured members of the Empire.
I have, however, to consider the primary intention of the charity.At the time when it came into
being, the objects of promoting community of citizenship, culture and tradition among all members
of the British Commonwealth of Nations might best have been attained by confining the Hall to
members of the Empire of European origin.But times have changed, particularly as a result of the
war; and it is said that to retain the condition, so far from furthering the charity’s main object,
might defeat it and would be liable to antagonize those students, both white and coloured, whose
support and goodwill it is the purpose of the charity to sustain.The case, therefore, can be said to
fall within the broad description of impossibility.
On the other hand, the test of impossibility was not satisfied in Re Weir Hospital.

Car-2-ndou ‘09 145

Re Weir Hospital [1910] 2 Ch 124,CA
Facts
The testator devised property to be used as the site for a hospital. Expert evidence was
admitted to the effect that the site was not suitable for a hospital and a scheme was
proposed for the building of a nurses’ home instead.
Held
It was not impossible to carry out the testator’s wishes but was simply inadvisable.
Accordingly, the court refused to approve the scheme:
Cozens-HardyMR: Wherever the cy-près doctrine has to be applied, it is competent to the
court to consider the comparative advantages of various charitable objects and to adopt by the
scheme the one which seems most beneficial.But there can be no question of cy-près until it is
clearly established that the directions of the testator cannot be carried into effect.
I am of opinion that neither the trustees nor the Commissioners have authority to choose their
charity so as to leave a surplus to be applied cy-près. They are bound to apply the funds in the
named charities unless it be impracticable.It is clearly impossible for the Commissioners or
trustees to decline to carry out the trusts of a single named lawful charity because they
disapproved of it.It is equally clear that if they have the choice of two or more charities they
444 Cases & Materials on Trusts
cannot apply a part of the trusts funds towards one of such charities and refuse to apply the
balance to the others because they disapprove of them.A case for the cy-près application of trust
funds cannot be manufactured, but must arise ex necessitate rei.I, of course, give the
Commissioners and the trustees full credit for desiring to do their best; but it is of great
importance that their conduct should be in accordance with law.It is contrary to principle that a
testator’s wishes should be set aside, and his bounty administered not according to his wishes but
according to the view of the Commissioners.
Question
How has the expression ‘impossibility’ been interpreted by the courts in the context of
the cy-près principle?
Section 13 of the Charities Act 1993 (which re-enacts s 13 of the Charities Act 1960)
consolidates to some extent and substantially extends the powers of the Charity
Commissioners and the courts to apply property cy-près. The circumstances when
the purposes of the charity will become impractical or impossible are enacted in
s 13(1)(a)–(e) of the Charities Act 1993.
Charities Act 1993, s 13(1)
(a) where the original purposes in whole or in part – (i) have been as far as may be fulfilled; or (ii)
cannot be caried out or not accodring to the deirctions given and to the spirit of the gift ...
Note
This sub-section gives the court the jurisdiction to decide that the original purposes of
the gift have been fulfilled or have become impractical. The only restriction on the
discretion of the court is with regard to the construction of the ‘spirit of the gift’.
The phrase, ‘spirit of the gift’, as used in the Charities Act 1993 (originally adopted in
the Charities Act 1960) has been interpreted by Pennycuick VC in Re Lepton’s Charity as
meaning ‘the basic intention underlying the gift, as ascertained from its terms in the
light of admissible evidence’.

Re Lepton’s Charity [1972] Ch 276,HC

Facts
A testator who died in 1716 devised specific property to trustees on trust to pay an
annual sum of £3 to the Protestant Minister in Pudsey, and the surplus income to the
poor and aged people of Pudsey. In 1716, the total income was £5. On the date of the
application to the court, that income was £790 per annum. Two questions arose for the
determination of the court, namely:
(a) whether on a true construction of the will the minister ought to be paid a fixed sum
of £3 or three-fifths of the annual income; and
(b) whether the court would approve a cy-près scheme increasing the minister’s entitlement
to £100 per annum.
Held
On a construction of the will, the minister was not entitled to three-fifths of the annual

Car-2-ndou ‘09 146

income but only to a fixed sum of £3 per annum. But having regard to the spirit of the
gift, a cy-près scheme would be approved entitling the minister to £100 annually.
Chapter 17: Charitable Trusts:The Cy-Près Doctrine 445
Pennycuick VC: The occasions for applying property cy-près are now set out in s 13 of the
Charities Act 1960 [now s 13 of the CharitieAsc t 1993].It is clear that this section in pt arestates
the principles applied under the existing law, but also extends those principles.The section should
be read as a whole, but for the present purpose it will be sufficient to refer specifically only to a
few sentences.
[The learned judge then read s 13(1) and continued:] Sub-section (1)(e)(iii) appears to be no more
than a final writing out large of para (a)(ii).The expression ‘spirit of the gift’ may be an echo of
words used in the Campden Charities case (1880) 18 Ch D 310. It must, I think, be equivalent in
meaning to the basic intention underlying the gift, that intention being ascertainable from the terms of
the relevant instrument read in the light of admissible evidence [emphasis added].
It seems to me that the words ‘the original purposes of a charitable gift’ are apt to apply to the
trusts as a whole in such a case.Where a testator or settlor disposes of the entire income of a
fund for charitable purposes, it is natural to speak of the disposition as a single charitable gift, albeit
the gift is for more than one charitable purpose.Con versely, it would be rather unnatural to speak
of the disposition as constituting two or more several charitable gifts each for a single purpose.In
a trust of the present character there is an obvious inter-relation between the two trusts in that
changes in the amount of the income and the value of money may completely distort the relative
benefits taken under the respective trusts.The point is familiar in other instances of fixed annuity
and residual income.
Once it is accepted that the words ‘the original purposes of a charitable gift’ bear the meaning
which I have put upon them it is to my mind clear that in the circumstances of the present case
the original purposes of the gift of Dickroyd cannot be carried out according to the spirit of the
gift, or to use the words of para (e)(iii) ‘have ceased ... to provide a suitable and effective method
of using the property ... regard being had to the spirit of the gift’.
Oldham BC v AG [1993] 2 WLR 224,CA
Facts
The original purpose of a devise of land to the Oldham BC was to hold ‘on trust to
preserve and manage the same as playing fields known as the “Clayton Playing
Fields” for the benefit of inhabitants of Oldham, Chatterton and Royton’. The question
in issue was whether an obligation was imposed on the local authority to maintain the
land for use only as a playing field.
446 Cases & Materials on Trusts
Held
On construction of the instrument, the original purpose of the devise was not intended
to impose an obligation on the council to retain the site in perpetuity, for use only as
playing fields for the local community, but to make provision for playing fields for the
benefit of the local community. Accordingly, the council was entitled to sell the site to
developers and use the proceeds to acquire a new site for playing fields for the local
community:
Dillon LJ: Broadly, the effect (of s 13 of the Charities Act 1960) is that an alteration of the ‘original
purposes’ of a charitable gift can only be authorised by a scheme for the cy-près application of the
trust property and such a scheme can only be made in the circumstances set out in paras (a) to
(e) of s 13(1).
[After considering the terms of the deed Dillon LJ continued:] I come to what I regard as the crux
of this case, viz, the true construction of the words ‘original purposes of a charitable gift’ in s 13 of
the Act of 1960.Do the ‘original purposes’ include the intention and purpose of the donor that the
land given should be used for ever for the purposes of the charity, or are they limited to the
purposes of the charity?
Certain of the authorities cited to us can be put on one side.Thus, in In Re JW Laing Trust [1984]
Ch 143, p 153, Peter Gibson J said, plainly correctly:
It cannot be right that any provision, even if only administrative, made applicable by a donor to
his gift should be treated as a condition and hence as a purpose.
In that case, however, the provision, which was held to be administrative and was plainly not a
‘purpose’, was a provision that the capital was to be wholly distributed within the settlor’s lifetime
or within 10 years of his death.
It is necessary, in my judgment, in order to answer the crucial question of the true construction of
s 13, to appreciate the legislative purpose of s 13.P ennycuick VC said in In Re Lepton’s Charity
[1972] Ch 276, p 284 that the section ‘in part restates the principles applied under the existing law,
but also extends those principles’.That section is concerned with the cy-près application of
charitable funds, but sales of charitable lands have, in so far as they have been dealt with by

Car-2-ndou ‘09 147

Parliament, always been dealt with by other sections not concerned with the cy-près doctrine.
There are, of course, some cases where the qualities of the property which is the subject matter
of the gift are themselves the factors which make the purposes of the gift charitable, for example,
where there is a trust to retain for the public benefit a particular house once owned by a
particular historical figure or a particular building for its architectural merit or a particular area of
land of outstanding natural beauty.In such cases, sale of the house, building or land would
necessitate an alteration of the original charitable purposes and, therefore, a cy-près scheme
because after a sale the proceeds or any property acquired with the proceeds could not possibly
be applied for the original charitable purpose.But that is far away from cases such as the present,
where the charitable purpose – playing fields for the benefit and enjoyment of the inhabitants of
the districts of the original donees, or it might equally be a museum, school or clinic in a particular
town – can be carried on on other land.
Accordingly, I would allow this appeal, set aside the declaration made by the judge, and substitute a

F. DISCRETIONARY TRUSTS
-They were defined by Warner J in Mettoy Pension Trustees Ltd v. Evans
[1991] 2 ALLER 513 as “cases where some one, usually but not
necessarily the trustee, is under a duty to select from among a class of
beneficiaries those who are to receive and the proportions in which
they are to receive, income or capital of the trust property”.
Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587,HC

Facts
Mettoy Co plc launched an occupational pension scheme on 1 January 1968. The
plaintiff, a wholly owned subsidiary of Mettoy, became the sole trustee of the scheme.
In 1980, with the introduction of new legislation, new scheme rules were made. Rule
13(5) provided as follows:
Any surplus of the trust fund remaining after securing all the aforesaid liabilities in full may, at the
absolute discretion of the employer be applied to secure further benefits within the limits stated in
the rules, and any further balance thereafter remaining shall be properly apportioned amongst the
principal employer and each participating employer.
Mettoy experienced financial difficulties and receivers were appointed in 1983. The
company was wound up in 1984. As a consequence, the scheme was required to be
liquidated. The plaintiff asked the court for directions in respect of a surplus of funds.
Held
Warner J held that r 13(5) created a fiduciary power which could not be released or
exercised by a receiver or liquidator. Accordingly, the court was required to decide what
method of exercise of the power would be appropriate as if a trust had been created:
Warner J: The beneficiaries under a pension scheme such as this are not volunteers.Their rights
have contractual and commercial origins.They are derived from the contracts of employment of the
members.The benefits provided under the scheme have been earned by the service of the members
under those contracts and, where the scheme is contributory, pro tanto by their contributions.
It would be inappropriate and indeed perverse to construe such documents so strictly as to
undermine their effectiveness or their effectiveness for their purpose.I do not think that, in saying
that, I am saying anything different from, what was said by Lord Upjohn when in In Re Gulbenkian’s
Settlements [1970] AC 508, he referred, in the context of a private settlement, to ‘the duty of the
court by the exercise of its judicial knowledge and experience in the relevant matter, innate
common sense and desire to make sense of the settlor’s or parties’ expressed intentions, however
obscure and ambiguous the language that may have been used, to give a reasonable meaning to
that language it if can do so without doing complete violence to it’.
What the court has to do here is to perform that duty in the comparatively novel and different

Full case

Car-2-ndou ‘09 148

Pension - Pension scheme - Company pension scheme - Surplus fund - Discretion to
augment benefits - Fiduciary power - Group of companies establishing contributory
pension scheme for employees - Rules of scheme conferring discretion on employer,
exercisable on termination of scheme, to use surplus fund to augment benefits
payable - Funds in surplus on termination of scheme - Whether discretion to augment
benefits amounting to full fiduciary power - Whether discretion exercisable by
receivers or liquidators.
Pension - Pension scheme - Company pension scheme - Dissolution of scheme -
Calculation of deferred annuities - Whether trustees should have regard to member's
projected salary and/or future period of service in determining amount of mandatory
benefits.
Pension - Pension scheme - Company pension scheme - New rules for administration
of scheme – Execution of deed bringing new rules into operation - Trustees not fully
aware of consequences of new winding-up provisions - Whether trustees would have
executed deed as drafted if they had been fully aware of such consequences -
Whether deed should be set aside.Company - Compulsory winding up - Date of
liquidation - Occupational pension scheme - Deed initiating scheme incorporating
rules for termination on company 'going into liquidation' - Whether company 'going
into liquidation' on date of presentation of petition or date of winding-up order -
Companies Act 1948, s 229(2).

In 1967 the employer executed an interim trust deed establishing a contributory

group pension scheme for its employees. The scheme took effect in January 1968,
and in 1969 a definitive deed was executed bringing into operation rules for its
administration. Clause 6 of the 1969 deed provided that the employer and trustees
could jointly from time to time and without the consent of the members 'alter cancel
modify or add to' any of the provisions of the deed and rules, provided that such
revision did not change the purpose of the pension scheme or lead to the transfer or
payment of any part of the pension fund to the employer or any other of the
employing companies in the group. On the employer 'going into liquidation' r 11(b) of
the 1969 rules provided for the pension scheme to be wound up and for the trustees
to acquire (i) annuities for beneficiaries then in receipt of pensions whether
immediately or in reversion and (ii) deferred annuities for other members of an
amount to be determined by the trustees having regard to the amount of the
members' pensions at retirement had the scheme not been terminated or such larger
amount as the trustees might determine. Any ultimate balance was to be returned to
the employer and the other employing companies in the group. Between 1973 and
1980 the pension scheme was amended, following full consideration by the trustees
and their solicitors, to ensure that it complied with the statutory requirements for
occupational pension schemes and contracted-out schemes and to incorporate
changes to the scheme's system of investment. In 1980 a newly incorporated trustee
company was purportedly appointed by deed as sole trustee of the scheme, in
place of the individual trustees who were officers of the company, but the deed was
ineffective to discharge the individual trustees since the trustee company was not a
trust corporation. A second deed was executed in 1980 by the employer and the
trustee company to bring into operation new rules for the administration of the
scheme made in exercise of the cl 6 power with the express purpose of replacing
entirely the clauses and rules of the 1969 deed. The new rules had been approved by
the trustees in the form proposed by the scheme's underwriters after only cursory
consideration and without any detailed discussion of the proposed changes which
affected, in particular, the winding up provisions of the scheme. Rule 13(5) differed
from r 11(b) of the 1969 rules in that the power to augment benefits was to be
exercisable at the absolute discretion of the employer, not the trustees, and that the
class of objects of the discretion was extended to include all beneficiaries, including
existing pensioners. In 1983 a further deed was executed, after only scant
consideration by the trustees, to rectify the earlier error in appointing the trustee

Car-2-ndou ‘09 149

company as the sole trustee, but which in other respects was a reprint of the 1980
deed. By mid-1983 the employer was experiencing serious financial difficulties and in
October the employer's bankers appointed receivers of its undertaking and assets
pursuant to a debenture. In November 1983 a petition for the winding up of the
employer was presented and about two months later a compulsory winding-up order
was made. The trustee company was left with a surplus of about £9m after the value
of the assets and liabilities for mandatory benefits (without any augmentation) had
been determined. The trustee company subsequently issued an originating summons
seeking the determination of the court as to how the surplus fund ought to be
administered in consequence of the winding up. The questions arose, inter alia, (i)
whether the reference to the company 'going into liquidation' in r 11(b) of the 1969
rules should be construed as referring to the date of the presentation of the petition
for the winding up of the company, in accordance with s 229(2)a of the Companies
Act 1948, or the date on which the order was made, (ii) as to the factors to which the
trustee company might have regard in determining members' deferred mandatory
benefits, (iii) whether the discretion to augment benefits conferred on the company
under r 13(5) of the 1983 rules was a fiduciary power, (iv) if so, whether the discretion
was exercisable by the receivers or the liquidators or by neither and (v) whether the
1983 deed should be set aside on the ground that the trustee company would not
have executed the deed as drafted if it had been fully aware of the consequences
of the proposed changes in the winding-up provisions and in particular r 13(5).

a Section 229(2), so far as material, provides: 'In any ... case [where no resolution for voluntary winding up
has been passed by a company before a petition for its winding up by the court is presented], the winding
up of a company by the court shall be deemed to commence at the time of the presentation of the
petition for the winding up'.

Held - (1) On its true construction, the term 'going into liquidation' in r 11(b) of the 1969
rules was to be regarded, in the case of a compulsory winding up, as a reference to
the actual beginning of the winding up rather than its statutorily deemed beginning
under s 229(2) of the 1948 Act, ie as a reference to the making of the winding-up
order and not the date of presentation of the petition. That construction followed
from the fact that, if the date of presentation of the petition was to be treated as the
date when the company went into liquidation, the period of delay which would
occur prior to the making of the winding-up order would amount to a period of
uncertainty during which no one would know whether the scheme was to be
administered as a continuing scheme or as a dissolved scheme, ie whether or not
employees' contributions should continue to be collected, which was a situation to
be avoided if
(2) When determining the members' mandatory benefits under r 11(b)(ii) the trustee
company was required to base its actuarial calculations on the pension to which
each member would be entitled at the date of termination of the pension scheme,
but there was no requirement that it should also have regard either to the member's
final pensionable salary at the dissolution date projected forward to his normal
retirement date his prospective salary) or to such period of service as the member
would have completed between the dissolution date and his normal retirement date
had the scheme not terminated (i.e. his future service).
However, when exercising the power to augment benefits pursuant to r 11(b) the
trustee company would be entitled to have regard to either prospective salaries or
future service, or both, in making its calculations.

(3) Where the rules of an occupational pension scheme conferred an absolute

discretion on the employer to apply surplus funds among beneficiaries of the scheme,
that discretion was a fiduciary power in the full sense which could not be released
and, accordingly, the employer, as trustee of the power, was under a duty to the
beneficiaries to consider whether and how the discretion ought to be exercised and
was to some extent subject to the control of the courts in relation to its exercise. If the

Car-2-ndou ‘09 150

discretion had merely entitled the employer to determine the destination of the trust
property without imposing any duty on it to consider the beneficiaries entitled to
discretionary benefits, the discretion would have been illusory from the beneficiaries'
point of view since the words by which the discretion was conferred would have
meant no more than that the employer was free to make gifts out of the surplus fund
as its absolute beneficial owner, with the consequence that if the employer went into
liquidation or was acquired by a 'take-over raider' there would nothing to prevent the
liquidator or the raider from rendering themselves entitled to the entire surplus fund.
Accordingly, the discretion conferred on the employer by r 13(5) of the 1983 rules was
a fiduciary power in the full sense, particularly in view of the fact that the discretion
had been introduced to replace a power which, though narrower, had originally
been vested in the trustees.
(4) Where the employer's powers ceased on its going into liquidation, the fiduciary
power did not vest in either the receivers or the liquidator. In particular, the power
was not part of the assets of which the employer was the beneficial owner, which
meant that it could not be the subject to any charge created by a debenture issued
by the employer or become exercisable by a receiver appointed under the
debenture. A liquidator would also be precluded from exercising the fiduciary power
because if he did so his duties would conflict, in the sense that as trustee of the power
he would be under a duty to hold the balance between the interests of the
beneficiaries under the pension scheme and the interests of the persons entitled to
share in the assets of the company, namely its creditors and possibly its contributories,
whereas as liquidator his duty was to have regard primarily, if not exclusively, to the
interests of the creditors and contributories. Instead, the fiduciary power would be
exercised by the court in the manner which it considered most appropriate in the
circumstances to give effect to the purposes of the pension scheme and it might
exercise that power by appointing new trustees or representative beneficiaries to
prepare a scheme of distribution or by directing the existing trustees to distribute the
surplus fund. It followed that, when the employer went into liquidation and the 1968
scheme fell to be wound up in accordance with the 1983 rules on the footing that the
1983 deed was wholly valid, the r 13(5) discretion did not become exercisable by
either the receivers or the liquidator but would be exercised by the court, on the
provision of further evidence, in the manner which appeared most appropriate in the
circumstances.
(5) Although the court would have set aside the 1983 deed if it was clear that the
trustee company would not have executed the deed as drafted if it had been fully
aware of the consequences of the proposed changes to the winding-up provisions of
the scheme, it was impossible to say what the outcome would have been in terms of
whether the 1983 deed would have been executed in that form if the trustee
company had been advised that r 13(5) was a fiduciary power and that it transferred
to the employer an absolute discretion to distribute surplus funds among the
beneficiaries who were entitled to be considered for discretionary benefits and had
understood the consequences of the new rule in the context of the employer's
impending insolvency. In those circumstances, the 1983 deed remained valid and
would not be set aside.

Power of appointment –the allocator has discretion to choose from the

class of potential beneficiaries who are to benefit at a particular time.
He or she is under a mandatory duty to make allocations in
accordance with the terms of the trust.

Car-2-ndou ‘09 151

-The inherent flexibility coupled with the security of enforcement by the
court has made the discretionary trusts ideal means of allocating large
funds amongst large potential beneficiaries.

See Mc Phail v. Doulton (1971) AC 424.

POWERS - GENERAL NATURE OF POWERS - POWERS IN THE NATURE OF TRUSTS AND
DISCRETIONARY TRUSTS - DISTINCTION BETWEEN TRUSTS AND POWERS - POWERS
DISTINGUISHED FROM TRUSTS

By deed dated July 17, 1941, a fund was established for the benefit of officers and
employees, etc, of a company. Clause 9 of the deed, so far as material provided: '(a)
The Trustees shall apply to the net income of the Fund in making at their absolute
discretion grants to or for the benefit of any of the officer's and employees or ex-
officers or ex-employees of the company or to any relatives or dependants of any
such persons in such amounts at such times and on such conditions (if any as they
think fit ... (b) The Trustees shall not be bound to exhaust the income of any year or
other period in making such grants as aforesaid and any income not so applied shall
be dealt with as provided by Clause 6 (a) hereof'. By Clause 9 (c) the trustees were
empowered to realise 'any investments representing accumulations of income and
[to] apply the proceeds as though the same were income of the Fund ...' They were
further empowered to 'realise any other part of the capital of the Fund ...' Clause 6
(a) provided that moneys in the hands of trustees and not required for the immediate
service of the fund might be placed on deposit or current account with a bank or
might be invested. Clause 10 provided: 'All benefits being at the absolute discretion
of the Trustees, no person shall have any right title or interest in the fund otherwise
than pursuant to the exercise of such discretion, and nothing herein contained shall
prejudice the right of the company to determine the employment of any officer or
employee'. The class eligible for benefit under clause 9 (a) namely 'the officers and
employees or ex-officers or ex-employees ... or any relatives or dependants of any
such persons' was so large as to be almost certainly incapable of exact
ascertainment. On the questions (i) whether the provisions of clause 9 (a) of the deed
constituted a power or a trust and (ii) if clause 9 (a) amounted to a trust, what test
should be applied to determine the validity of the trust: Held (1) Clause 9 (a) was
mandatory and constitutedma trust; (2) the test to be applied to ascertain the
validity of the trust ought to be similar to that accepted in
Gulbenkian's Settlement Trusts, Whishaw v Stephens for powers, namely that the trust
was valid if it could be said with certainty that any given individual was or was not a
member of the class of beneficiaries designated.

The two types of discretionary trusts are exhaustive and non-exhaustive

discretionary trust. The former is where an obligation is on trustees to
distribute the entire trust fund or income. Trustees are not usually given
any power to retain or accumulate the trust fund. See Re Locker’s
Settlement [1977] 1 WLR 1323;
Trust and trustee - Discretionary trust - Payment or application of income - Failure to
distribute income within reasonable time of receipt - Obligatory discretionary power -
Power expressed to be absolute and uncontrolled - Whether discretion extinguished
after lapse of time - Whether court entitled to direct exercise of discretion.

Car-2-ndou ‘09 152

Trust and trustee - Discretionary trust - Payment or application of income - Failure to
distribute income within reasonable time of receipt - Subsequent exercise of
discretion by trustees on court's direction to distribute - Whether beneficiaries
nominated subsequently to default of trustees entitled to benefit in distribution.

By a deed of settlement made on 2 December 1963 the settlor entrusted certain

investments to trustees to be held by them on the discretionary trusts set out in the
deed. Clause 3(i)(a) of the deed provided that the trustees 'shall ... pay divide or
apply the income of the Trust Fund' for certain purposes to or between the
beneficiaries as the trustees 'shall in their absolute discretion determine'. By cl 10 every
discretion or power conferred by the deed on the trustees 'shall be an absolute and
uncontrolled discretion or power'. It was the trustees' duty to distribute the trust
income within a reasonable time after receipt of the income, but because of the
settlor's subsequent wishes the trustees did not distribute the income until 1972. Since
that date the trustees had distributed the income which had arisen since 5 April 1968
but had retained a substantial fund ('the retained fund') which represented trust
income for the period 3 December 1965 to 5 April 1968. The trustees wished to
exercise their discretion over distribution of the retained fund but were uncertain
whether, because of the lapse of time, the discretion had ceased to be exercisable.
The trustees therefore applied to the court for determination of the questions (i)
whether in the circumstances the discretion conferred by cl 3(i)(a) was exercisable by
the trustees or should be exercised by the court and (ii) whether in relation to the
retained fund the discretion was exercisable only as between the original class of
beneficiaries defined in the settlement or was exercisable as between them and the
beneficiaries who had been added after March 1972 under a power of nomination
reserved by the settlor.

Held - (i) Where the duty to distribute income was exercisable under an obligatory, as
distinct from a permissive, discretionary power, failure by the trustees to distribute
within a reasonable time of receipt of the income did not automatically extinguish
the discretionary power and the power remained in existence as an unfulfilled duty.
Accordingly the court was entitled to direct the trustees to repair their failure and to
distribute the retained fund in shares according to the trustees' discretion. The
existence of the provision in cl 10 of the deed that the discretionary power was an
absolute and uncontrolled discretion did not prevent the court from directing
execution of the trusts in accordance with the discretionary power. The court would
therefore declare that the trustees were at liberty forthwith to exercise the discretion
under cl 3(i)(a) in relation to division of the retained fund (see p 219 c h j and p 220 c
to f, post); dictum of Lord Wilberforce in McPhail v
Doulton [1970] 2 All ER at 247 applied;
(ii) It was unacceptable in equity that the default of the trustees in failing to distribute
income promptly should benefit beneficiaries who would not, apart from the default,
have had an interest in the income. Accordingly the court would declare that the
trustees' discretion in relation to the retained fund was exercisable only in favour of
the beneficiaries who would have been objects of the discretion had it been
exercised within a reasonable time after receipt of the retained fund.

Re Gourju’s Will Trust [1943] Ch 24.

Wills - Discretionary trust - Statutory discretionary trust - Principal beneficiary an enemy
- Forfeiture of interest of principal beneficiary - Trustee Act 1925 (c 19), s 33 - Trading
with the Enemy Act 1939 (c 89), s 7 - Trading with the Enemy (Custodian) Order 1939
(SR & O 1939, No 1198).

The testator directed his trustees to hold the income of his residuary estate, during the
life of his wife, upon the statutory protective trusts for her benefit, and, if in
consequence of any act or event she would if absolutely entitled to the income

Car-2-ndou ‘09 153

thereof be deprived of the same, her interest was to cease, and certain discretionary
trusts were to arise. The wife lived at all material times in Nice, which was at the time
in question an unoccupied area of France, but by virtue of the Trading with the
Enemy (Specified Areas) Order 1940, she became an enemy for the purposes of the
Trading with the Enemy Act 1939, on 10 July 1940. By an order made under s 7 of that
Act it was provided, inter alia, that "there shall be paid to the Custodian in particular
any money which would, but for the existence of a state of war, be payable to or for
the benefit of a person who is an enemy by way of ... payment arising under any trust
or settlement":--

Held - (i) the custodian did not receive the money as agent for the wife. An event
had occurred which determined the wife's interest under the trust and the
discretionary trusts therefore arose.
(ii) A sum of £106 already due and payable to the trustees on 10 July 1940, and
received by the bank as agent for the trustees was payable to the Custodian of
Enemy Property.
(iii) a sum of £2,929 received by the trustees after that date, but which, by virtue of
the Apportionment Act 1870, was deemed to have accrued before that date, was
forfeited under the forfeiture clause.
(iv) The trustees were not at liberty, under the discretionary trusts, to retain the income
in their hands, but must apply it for the needs of the beneficiaries as required by the
Trustee Act 1925, s 33(1) (ii).

Non-discretionary trust is where trustees are not obliged to distribute all

but can retain and accumulate the trust fund or income. See Mc Phail
v. Doulton (1971) AC 424.
-The essence of discretionary trust is the discretion conferred on trustees
on how to distribute the trust property. Equity does not recognise
absolute discretion.
See Re Cookes case 77 ER 209 @ 210.
Trust and trustee - Discretionary trust - Payment or application of income - Failure to
distribute income within reasonable time of receipt - Obligatory discretionary power -
Power expressed to be absolute and uncontrolled - Whether discretion extinguished
after lapse of time - Whether court entitled to direct exercise of discretion.

Trust and trustee - Discretionary trust - Payment or application of income - Failure to

distribute income within reasonable time of receipt - Subsequent exercise of
discretion by trustees on court's direction to distribute - Whether beneficiaries
nominated subsequently to default of trustees entitled to benefit in distribution.

By a deed of settlement made on 2 December 1963 the settlor entrusted certain

investments to trustees to be held by them on the discretionary trusts set out in the
deed. Clause 3(i)(a) of the deed provided that the trustees 'shall ... pay divide or
apply the income of the Trust Fund' for certain purposes to or between the
beneficiaries as the trustees 'shall in their absolute discretion determine'. By cl 10 every
discretion or power conferred by the deed on the trustees 'shall be an absolute and
uncontrolled discretion or power'. It was the trustees' duty to distribute the trust
income within a reasonable time after receipt of the income, but because of the
settlor's subsequent wishes the trustees did not distribute the income until 1972. Since
that date the trustees had distributed the income which had arisen since 5 April 1968
but had retained a substantial fund ('the retained fund') which represented trust

Car-2-ndou ‘09 154

income for the period 3 December 1965 to 5 April 1968. The trustees wished to
exercise their discretion over distribution of the retained fund but were uncertain
whether, because of the lapse of time, the discretion had ceased to be exercisable.
The trustees therefore applied to the court for determination of the questions (i)
whether in the circumstances the discretion conferred by cl 3(i)(a) was exercisable by
the trustees or should be exercised by the court and (ii) whether in relation to the
retained fund the discretion was exercisable only as between the original class of
beneficiaries defined in the settlement or was exercisable as between them and the
beneficiaries who had been added after March 1972 under a power of nomination
reserved by the settlor.
Held - (i) Where the duty to distribute income was exercisable under an obligatory, as
distinct from a permissive, discretionary power, failure by the trustees to distribute
within a reasonable time of receipt of the income did not automatically extinguish
the discretionary power and the power remained in existence as an unfulfilled duty.
Accordingly the court was entitled to direct the trustees to repair their failure and to
distribute the retained fund in shares according to the trustees' discretion. The
existence of the provision in cl 10 of the deed that the discretionary power was an
absolute and uncontrolled discretion did not prevent the court from directing
execution of the trusts in accordance with the discretionary power. The court would
therefore declare that the trustees were at liberty forthwith to exercise the discretion
under cl 3(i)(a) in relation to division of the retained fund.
(ii) It was unacceptable in equity that the default of the trustees in failing to distribute
income promptly should benefit beneficiaries who would not, apart from the default,
have had an interest in the income. Accordingly the court would declare that the
trustees' discretion in relation to the retained fund was exercisable only in favour of
the beneficiaries who would have been objects of the discretion had it been
exercised within a reasonable time after receipt of the retained fund.

-It can be said that discretionary trust is adaptable. It depends on a

need of a beneficiary at a particular time and situation. It is used to
exercise some control over the young and improvident beneficiaries.

Validity of Discretionary trusts

-The test of validity of discretionary trust is that set in Mc Phail v. Doulton
(1971) AC 424 which is a conceptual certainty –if it can be said with
certainty that the particular individual is or is not a member of the class
of beneficiaries. It’s unlike the test in fixed trust which is a complete test.
See IRC v. Broadway Cottages [1955] Ch 20;
Fixed and discretionary trusts
Prior to the House of Lords’ decision in McPhail v Doulton (sub nom Re Baden) (below),
the test for certainty of objects, applicable to all express private trusts, was whether the
beneficiaries (or objects) were ascertained or ascertainable, ie, 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’, associated with the case Inland
Revenue Commissioners v Broadway Cottages. If the trustees were unable to draw up such
a list, the trust was void for uncertainty of objects. This test was applicable to both fixed
and discretionary trusts but was considered too restrictive only in respect of

Car-2-ndou ‘09 155

discretionary trusts.

Inland Revenue Commissioners v Broadway Cottages Trust [1955] Ch 20

Facts
A settlement was created whereby trustees held property upon trust to apply the
income for the benefit of all or any of a class of objects including, inter alia, the settlor’s
wife, specific relations of the settlor and the Broadway Cottages Trust, a charitable
institution. The trustees paid income to the Broadway Cottages Trust and claimed
exemption from income tax in respect of this. It was not possible to ascertain all the
objects who might fall within the class of objects, but it was possible to determine with
certainty whether a particular person was a member of the class. The question in issue
was whether the trust was valid or void.
Held
The trust was void for uncertainty of objects and the claim for a repayment of income
tax failed.
The test continues to be applicable to fixed trusts, but in respect of discretionary trusts
what was needed was a much broader test than the list test. This change in the test
concerning objects was adopted by the House of Lords in McPhail v Doulton.

McPhail v Doulton [1971] AC 424,HL

Facts
Mr Bertram Baden executed a settlement and under clause 9(a) empowered the
trustees to apply the net income in their absolute discretion ‘to or for the benefit of any
of the officers and employees or ex-officers or ex-employees of the company or to any
relatives or dependants of any such persons in such amounts at such times and on
such conditions (if any) as they think fit . . .’. The trustees were under no obligation to
exhaust the income in any one year. They were also entitled to realise capital if the
income was insufficient. The issue was whether a mere power or a trust power was
created and whether the gift was valid. The High Court and the Court of Appeal
decided that a mere power of appointment was created which was valid as satisfying
the Gulbenkian test. Had a trust power been created, this would have been void as not
satisfying the restrictive Broadway Cottages test.
124 Cases & Materials on Trusts
Held
A trust power was intended by the settlor. The Law Lords rejected the Broadway
Cottages test in respect of discretionary trusts, and extended the Gulbenkian test to
discretionary trusts:
Lord Wilberforce: It is striking how narrow and in a sense artificial is the distinction, in cases
such as the present, between trusts or as the particular type of trust is called, trust powers, and
powers.It is only necessary to read the learned judgments in the Cotu rof Appeal to see that whatto one mind may
appear as a power of distribution coupled with a trust to dispose of the
undistributed surplus, by accumulation or otherwise, may to another appear as a trust for
distribution coupled with a power to withhold a portion and accumulate or otherwise dispose of
it.A layman and,I suspect,also a logician,would find it hard to understand what difference there is.
It does not seem satisfactory that the entire validity of a disposition should depend on such
delicate shading.
Differences there certainly are between trusts (trust powers) and powers, but as regards validity
should they be so great as that in one case complete, or practically complete ascertainment is
needed, but not in the other? Such distinction as there is would seem to lie in the extent of the
survey which the trustee is required to carry out; if he has to distribute the whole of a fund’s
income, he must necessarily make a wider and more systematic survey than if his duty is

Car-2-ndou ‘09 156

expressed in terms of a power to make grants.But just as, in the case of a power, it is possible to
underestimate the fiduciary obligation of the trustee to whom it is given, so, in the case of a trust
(trust power), the danger lies in overstating what the trustee requires to know or to enquire into
before he can properly execute his trust.The difference may be one of degree rather than of
principle; in the well known words of Sir George Farwell (Farwell on Powers (3rd ed, 1916)) trusts
and powers are often blended, and the mixture may vary in its ingredients.
With this background I now consider whether the provisions of clause 9(a) constitute a trust or a
power.Naturall y read, the intention of the deed seems to me clear: clause 9(a), whose language is
mandatory (‘shall’), creates, together with a power of selection, a trust for distribution of the
income ... I therefore agree with Russell LJ [in the Court of Appeal] and would ... allow the
appeal, declare that the provisions of clause 9(a) constitute a trust and remit the case to the
Chancery Division for determination whether on this basis clause 9 is (subject to the effects of s
164 of the Law of Property Act 1925) valid or void for uncertainty.
This makes it necessary to consider whether, in so doing, the court should proceed on the basis
that the relevant test is that laid down in the Broadway Cottages case [1955] Ch 20 or some other
test.That decision gave the authority of the Court of Appeal to the distinction between cases
where trustees are given a power of selection and those where they are bound by a trust for
selection.In the former case the position, as decided by this House, is that the power is valid if it
can be said with certainty whether any given individual is or is not a member of the class and does
not fail simply because it is impossible to ascertain every member of the class (the Gulbenkian case
[1970] AC 508).But in the latter case it is said to be necessary, for the trust to be valid, that the
whole range of objects (I use, the language of the Court of Appeal) should be ascertained or
capable of ascertainment.
The conclusion which I would reach, implicit in the previous discussion, is that the wide distinction
between the validity test for powers and that for trust powers, is unfortunate and wrong, that the
rule recently fastened on the courts by the Broadway Cottages case [1955] Ch 20 ought to be
discarded, and that the test for the validity of trust powers ought to be similar to that accepted by
this House in Re Gulbenkian’s Settlement Trusts [1970] AC 508 for powers, namely that the trust is valid
if it can be said with certainty that any given individual is or is not a member of the class [emphasis added]
Gulbenkians Settlement Trust [1968] 3 ALLER 785;

Re Gulbenkian’s Settlement [1970] AC 508,HL

Facts
A special power of appointment was granted to trustees to appoint in favour of Nubar
Gulbenkian, ‘any wife and his children or remoter issue . . . and any person . . . in
whose house or apartment or in whose company or under whose care and control or
by or with whom he may from time to time be employed or residing’ subject to a gift
over in default of appointment. The issue was whether the test for certainty of objects
applicable to powers was satisfied.
Held
The gift created a valid power of appointment within the Gestetner test and the court
overruled the diluted approach to the test adopted by the Court of Appeal:
Lord Upjohn: My Lords ... Lord Denning MR [in the Court of Appeal] propounded a test in the
case of powers collateral, namely that if you can say of one particular person meaning thereby,
122 Cases & Materials on Trusts
apparently, any one person only that he is clearly within the category the whole power is good
though it may be difficult to say in other cases whether a person is or is not within the category,
and he supported that view by reference to authority.Mor eover, Lord Denning MR expressed the
view that the different doctrine with regard to trust powers should be brought into line with the
rule with regard to conditions precedent and powers collateral.So I propose to make some
general observations on this matter.
The principle is, in my opinion, that the donor must make his intentions sufficiently plain as to the
object of his trust and the court cannot give effect to it by misinterpreting his intentions by
dividing the fund merely among those present.Secondl y, and perhaps it is the most hallowed
principle, the Court of Chancery, which acts in default of trustees, must know with sufficient
certainty the objects of the beneficence of the donor so as to execute the trust.Then, suppose the

Car-2-ndou ‘09 157

donor does not direct an equal division of his property among the class but gives a power of
selection to his trustees among the class; exactly the same principles must apply.The trustees have
a duty to select the donees of the donor’s bounty from among the class designated by the donor;
he has not entrusted them with any power to select the donees merely from among known
claimants who are within the class, for that is constituting a narrower class and the donor has
given them no power to do this.
So if the class is insufficiently defined the donor’s intentions must in such cases fail for uncertainty.
Perhaps I should mention here that it is clear that the question of certainty must be determined as
of the date of the document declaring the donor’s intention (in the case of a will, his death).
Normally the question of certainty will arise because of the ambiguity of definition of the class by
reason of the language employed by the donor, but occasionally owing to some of the curious
settlements executed in recent years it may be quite impossible to construct even with all the
available evidence anything like a class capable of definition (Re Sayer’s Trust [1957] Ch 423), though
difficulty in doing so will not defeat the donor’s intentions (Re Hain’s Settlement [1961] 1 WLR
440).But I should add this: if the class is sufficiently defined by the donor the fact that it may be
difficult to ascertain the whereabouts or continued existence of some of its members at the
relevant time matters not.The trustees can apply to the court for directions to pay a share into
court.
But when mere or bare powers are conferred on donees of the power (whether trustees or

Re Gestetner’s Settlement, Barnett and Others v Blumka and Others

[1953] 1 Ch 672,HC

Facts
By an inter vivos settlement, a capital fund was held upon trust for members of a
specified class of objects as the trustees might appoint, with a gift over in default of
appointment. The specified class included:
(a) four named individuals;
(b) descendants of the settlor’s father, David Gestetner, or his uncle, Jacob;
(c) any spouse, widow or widower of any such person as aforesaid;
(d) five specified charitable bodies;
(e) any former employees of the settlor or his wife.
The settlor, his spouse and the trustees were excluded from the class. The Inland
Revenue claimed that an express trust was created and was void, and that a resulting
trust was set up in favour of the settlor. The trustees applied to the court for
directions.
Chapter 6: Discretionary Trusts 121
Held
A valid power of appointment was created. Although the trustees did not have a duty
to select the beneficiaries from the class of objects, there was a duty to consider
distributing the fund:
Harman J: ... If a power be a power collateral, or a power appurtenant, or any of those powers
which do not impose a trust upon the conscience of the donee, then I do not think that it can be
the law that it is necessary to know of all the objects in order to appoint to one of them.If that
were so, many appointments which are made every day would be bad.It must often be uncertain
whether there will be further objects coming into existence.It may often be uncertain what
objects are in existence; but, in an ordinary family settlement, the fact that a father did not know
whether one of his sons had married and had children or not could not possibly invalidate the
exercise by him of a power of appointment in favour of those grandchildren of whom he did not
know ...
The document on its face shows that there is no obligation on the trustees to do more than
consider – from time to time, I suppose – the merits of such persons of the specified class as are
known to them andif, they think fitt,o give them something ...
If, therefore, there be no duty to distribute, but only a duty to consider, it does not seem to me
that there is any authority binding on me to say that this whole trust is bad.In fact, there is no
difficulty, as has been admitted, in ascertaining whether any given postulant is a member of the
specified class.Of course, if that could not be ascertained the matter would be quite different, but
of John Doe or Richard Roe it can be postulated easily enough whether he is or is not eligible to

Car-2-ndou ‘09 158

receive the settlor’s bounty.There being no uncertainty in that sense, I am reluctant to introduce a
notion of uncertainty in the other sense, by saying that the trustees must worry their heads to
survey the world from China to Peru, when there are perfectly good objects of the class in
England ... There is no uncertainty in so far as it is quite certain whether particular individuals are
objects of the power.What is not certain is how many objects there are; and it does not seem to
me that such an uncertainty will invalidate a trust worded in this way.
Abolition of the diluted approach
Prior to the House of Lords’ decision in Re Gulbenkian’s Settlement, the courts adopted a
diluted approach to the given postulant test, namely, whether at least one person clearly
fell within the class of objects, even though it might not be possible to say whether others
came within the class or fell outside of it. The House of Lords in Re Gulbenkian’s
Settlement overruled this approach and reiterated the strict given postulant test.

Re Gulbenkian’s Settlement [1970] AC 508,HL

Facts
A special power of appointment was granted to trustees to appoint in favour of Nubar
Gulbenkian, ‘any wife and his children or remoter issue . . . and any person . . . in
whose house or apartment or in whose company or under whose care and control or
by or with whom he may from time to time be employed or residing’ subject to a gift
over in default of appointment. The issue was whether the test for certainty of objects
applicable to powers was satisfied.
Held
The gift created a valid power of appointment within the Gestetner test and the court
overruled the diluted approach to the test adopted by the Court of Appeal:

Lord Upjohn: My Lords ... Lord Denning MR [in the Court of Appeal] propounded a test in the
case of powers collateral, namely that if you can say of one particular person meaning thereby,
122 Cases & Materials on Trusts
apparently, any one person only that he is clearly within the category the whole power is good
though it may be difficult to say in other cases whether a person is or is not within the category,
and he supported that view by reference to authority.Mor eover, Lord Denning MR expressed the
view that the different doctrine with regard to trust powers should be brought into line with the
rule with regard to conditions precedent and powers collateral.So I propose to make some
general observations on this matter.

R v District Auditor ex p West Yorkshire Metropolitan CC

(1986) 26 RVR 24,DC

Facts
The council, threatened with abolition by the Government, settled £400,000 on trust to
spend the capital and income within two years from the transfer for the purposes of
benefiting ‘any or all or some of the inhabitants’ of West Yorkshire (about 2.5 million) by:
(a) assisting their economic development within the county;
(b) providing assistance for youth, ethnic and minority groups; and
(c) informing interested persons or bodies of the consequences of the proposed
abolition of the Metropolitan County Councils.
The question in issue was whether the gift was valid or void for uncertainty.
Held
The purported gift was void because, on construction, a trust was intended which was
administratively unworkable:
Lloyd LJ:
A trust with as many as two and a half million potential beneficiaries is, in my judgment,
quite simply unworkable.The class is far too large. In Re Gulbenkian’s Settlements [1970] AC 508
Lord Reid said at p 518:
It may be that there is a class of case where, although the description of a class of beneficiaries
is clear enough, any attempt to apply it to the facts would lead to such administrative
difficulties that it would for that reason be held to be invalid.
My conclusion is that the dictum of Lord Wilberforce [in McPhail v Doulton [1971] AC 424] remains
of high persuasive authority, despite Re Manisty [1973] 3 WLR 341. Manisty’s case was concerned

Car-2-ndou ‘09 159

with a power, where a function of the court is more restricted.In the case of a trust, the court
may have to execute the trust.Not so in the case of a power.That there may still be a distinction
between trusts and powers in this connection was recognised by Templeman J himself in the
sentence immediately following his quotation of Lord Wilberforce’s dictum, when he said: In these guarded terms, Lord
Wilberforce appears to refer to trusts which may have to be
executed and administered by the court and not to powers where the court has a very much
more limited function.
There can be no doubt that the declaration of trust in the present case created a trust and not a
power.F ollowing Lord Wilberforce’s dictum, I would hold that the definition of the beneficiaries of
the trust is ‘so hopelessly wide’, as to be incapable of forming ‘anything like a class’.I would
therefore reject counsel for the County Council’s argument that the declaration of trust can take
effect as an express private trust.

Mc Phail v. Doulton (1971) AC 424;

Re Baden (No.2) [1973] Ch 9.

Sachs LJ in Re Baden (No 2) thus:
Once the class of persons to be benefited is conceptually certain it then becomes a question of
fact to be determined on evidence whether any postulant has on enquiry been proved to be
within it; if he is not so proved then he is not in it.That position remains the same whether the
class to be benefited happens to be small (such as ‘first cousins’) or large (such as ‘members of the
X Trade Union’ or ‘those who have served in the Royal Navy’).The suggestion that such trusts
could be invalid because it might be impossible to prove of a given individual that he was not in the
relevant class is wholly fallacious.
Applying this approach to the facts in Re Baden (No 2), it would appear that it would
be for 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 to the effect that, in terms
of validity of the gift, the test for certainty of objects is whether a substantial number of
objects are within the class of objects and it is immaterial whether 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:
Megaw LJ:To my mind, the test is satisfied if, as regards at least a substantial number of objects, it
can be said with certainty that they fall within the trust; even though, as regards a substantial
number of other persons, if they ever for some fanciful reason fell to be considered, the answer
would have to be, not ‘they are outside the trusts’, but ‘it is not proven whether they are in or out’.
What is a ‘substantial number’ may well be a question of common sense and of degree in relation
to the particular trust: particularly where, as here, it would be fantasy, to use a mild word, to
suggest that any practical difficulty would arise in the fair, proper and sensible administration of this
trust in respect of relatives and dependants.
Note
Theadvantage 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 fulfilled but this approach attracts a number of objections such as the
striking similarity with the now defunct ‘one person approach’ which had been
Chapter 6: Discretionary Trusts 129
overruled by the House of Lords in Re Gulbenkian. The substantial number test seems
to be a variant of the outdated approach. In addition, this diluted approach to the
given postulant test creates a class within a 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. According to Lord Upjohn
in Re Gulbenkian:
The trustees have a duty to select the donees from among the class designated by the donor; he
has not entrusted them with any power to select the donees merely from among known claimants
who are within the class, for that is constituting a narrower class and the donor has given them no

Car-2-ndou ‘09 160

power to do this.
The strict approach
Stamp LJ subscribed to the 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, everyone is classified as being within or outside the class of objects. This
requires clarity and precision in defining the qualifying class or classes of objects
without listing the objects who fall within the class or classes. If such precise
definitions are not forthcoming, the gift is void.

Re Baden’s Deed Trusts (No 2) [1973] Ch 9

Stamp LJ: Validity or invalidity is to depend on whether you can say of any individual and the
accent must be on that word ‘any’, for it is not simply the individual whose claim you are
considering who is spoken of – that he ‘is or is not a member of the class’, for only thus can you
make a survey of the range of objects or possible beneficiaries.
If the matter rested there, it would in my judgment follow that, treating the word ‘relatives’ as
meaning descendants from a common ancestor, a trust for distribution such as is here in question
would not be valid.Any ‘survey of the range of objects or possible beneficiaries’ would certainly be
incomplete, and I am able to discern no principle on which such a survey could be conducted or
where it should start or finish.The most you could do, so far as regards relatives, would be to find
individuals who are clearly members of the class – the test which was accepted in the Court of
Appeal, but rejected in the House of Lords, in the Gulbenkian case [1970] AC 508.The matter does
not however, rest there ... Harding v Glyn (1739) 1 Atk 469 is authority endorsed by the decision
of the House that a discretionary trust for ‘relations’ was a valid trust to be executed by the court
by distribution to the next of kin.The class of beneficiaries thus becomes a clearly defined class
and there is no difficulty in determining whether a given individual is within it or without it.
Does it then make any difference that here the discretionary trust for relations was a reference
not to the relations of a deceased person but of one who was living? I think not.The next of kin of
a living person are as readily ascertainable at any given time as the next of kin of one who is dead.

Re Tuck’s Settlement Trusts [1978] Ch 49,HC

Facts
Sir Adolf Tuck, the first baronet, made a settlement in 1912 with the intention of
ensuring that each baronet in succession would marry an ‘approved wife’. The
settlement provided for the payment of income to the baronet for the time being so
long as he should be of the Jewish faith and married and living with an ‘approved
wife’. An ‘approved wife’ was identified in the settlement as ‘a wife of Jewish blood by
one or both of her parents and who has been brought up in and has never departed
from and at the date of her marriage continues to worship according to the Jewish
faith’. The settlor then added an arbitration clause to the effect that ‘. . . the decision of
Chief Rabbi in London . . . shall be conclusive’. Sir Adolf died in 1926. He was
succeeded by his eldest son, Sir William Tuck, who married an approved wife. Sir
William died 1954 and was succeeded by his eldest son, Sir Bruce Tuck. Sir Bruce first
married an approved wife but was divorced in 1964. In 1968, he married a lady who
was not an approved wife. The question in issue was whether the limitation was valid
or void.
Held
The limitation was not void on the grounds that the restriction created a condition
precedent which was not wholly uncertain, and the Chief Rabbi clause constituted a
valid delegation of decision making power on the relevant questions of fact in the
event of a dispute. The clause was similar to an arbitration clause in contract law:

Lord Denning MR:

The dichotomy between ‘conceptual’ and ‘evidential’ uncertainty was
adumbrated by Jenkins J in Re Coxen [1948] Ch 747.It is implicit in Lord Upjohn’s speech in Re
Gulbenkian’s Settlement [1970] AC 508 and accepted by Lord Wilberforce in Re Baden’s Deed Trusts
(McPhail v Doulton) [1971] AC 424.I must confess that I find the dichotomy most unfortunate.It
has led the courts to discordant decisions.I will give some relevant instances.On the one hand, a
condition that a person shall ‘not be of Jewish parentage’ has been held by the House of Lords to

Car-2-ndou ‘09 161

be void for conceptual uncertainty, at any rate in a condition subsequent: see Clayton v Ramsden
[1943] AC 320, and a condition that a person shall be ‘of the Jewish race’ was held by
Danckwerts J to be void for conceptual uncertainty, even in a condition precedent: see Re
Tarnpolsk [1958] 3 All ER 479.The reason in each case being that the testator had given no
information or clue as to what percentage or proportion of Jewish blood would satisfy the
requirement.Is

-In a Fixed trust the beneficiaries can compel the performance of the
trust because there is a specific allocation to the beneficiaries hence
the rule in Saunders v. Vaultier [1841] 4 Beav 115 applies.
WILLS - CONSTRUCTION - VESTING - PERSONALTY - GIFT OF INTERIM INCOME -
DIRECTION FOR ACCUMULATION - EFFECT OF -- WHETHER BEQUEST VESTED AND
CONTINGENT
Testator, by his will, bequeathed to his executors and trustees all the East India stock
which should be standing in his name at his death, upon trust to accumulate the
dividends until D should attain twenty-five, and then to transfer the principal, together
with such accumulations, to D, his executors, administrators, or assigns, absolutely. The
will contained also a residuary bequest. Testator had £2,000 East India stockm
standing in his name at his death:

Held D took an immediate vested interest in that legacy, although he was a minor at
testator's death. There is not only the gift of the intermediate interest, indicative . . . of
an intention to make an immediate gift, because, for the purpose of the interest,
there must be an immediate separation of the legacy from the bulk of the estate; but
a positive direction to separate the legacy from the estate, and to hold it upon trust
for the legatee when he shall attain twenty-five (Lord Cottenham C).

But in Discretionary trust the beneficiaries do not have the specific

allocation so they cannot demand the performance of the trust. They
can only demand the trustees to exercise their discretion to allocate. If
the group of beneficiaries is such small that they can group easily then
they can demand allocation of their interest but if the group is too big
then they can only demand that the trustees should exercise their
discretion. See Re Smith [1928] Ch 915.
Compare with Gartside v. IRC (1968) AC 533;
Estate Duty - Determination of life interest - Discretionary trust - Accumulation of
surplus income - Advancement determining discretionary trust in sums advanced -
Meaning of "interest" and of "interest in possession" - Objects of discretionary trust not
entitled individually or collectively to receive the whole or part of trust income -
Whether any determination of interest rendering estate duty leviable on sums
advanced - Finance Act 1894(57 & 58 Vict c 30), s 2(1)(b) - Finance Act 1940(3 & 4
Geo 6 c 29), s 43(1) as amended by Finance Act 1950(14 Geo 6 c 15), s 43(1), Sch 7,
Pt 1.

Under the will of a testator who died on 8 January 1941 the trustees held one quarter
of his residuary estate on trust that during his son's life they should pay or apply the
whole or such part of the income as they thought fit towards the maintenance,

Car-2-ndou ‘09 162

support or benefit of his son and his son's wife and children or any of them ("the
discretionary beneficiaries"), and should accumulate and invest any surplus income
to the intent that the accumulations should be added to the quarter share. The
trustees had power to resort to the accumulations at any time during the son's life
and to use them for the maintenance, support or benefit of the discretionary
beneficiaries. After the son's death, the one-quarter share was to be held for such of
his children as should attain twenty-one or, if daughters marry. Under these trusts the
discretionary beneficiaries did not have at any time the right to receive any of the
income. The only sums which the trustees paid out during the accumulation period
were £786 for the benefit of the testator's son and £50 for his wife in 1961; the balance
of the income was accumulated. On 2 January 1962 a few days before the period of
permissible accumulation ended, the trustees in exercise of a power of advancement
conferred by the will executed two deeds poll, whereby they declared that certain
investments should be held on trust for each of the twin sons of the testator's son, who
were then about seventeen years of age. There were at that time four discretionary
beneficiaries only, the testator's son, his wife and their twin sons. The testator's son
died on 8 May 1963. The aggregate value of the advancements was then about
£47,000. The Crown claimed that estate duty was payable on the advanced sums
under s 43(1) *a of the Finance Act 1940.
a Section 43(1), so far as relevant, is printed at p 124, lettersd to g, post.

Held - no "interest" had been determined, after becoming an interest in possession, by

reason of the advances made on 2 January 1962, and accordingly s 43(1) did not
apply and estate duty was not exigible for the following reasons--
(i) neither individually nor collectively were the discretionary beneficiaries entitled in
any year to receive any part of the trust income and, accordingly, they, as objects of
the discretionary trust, did not have interests extending to the whole or any part of the
income of the one-quarter fund and thus did not have interests in the fund within s
2(1)(b) of the Finance Act 1894, nor interests in possession within s 43(1) of the Finance
Act 1940.
(ii) (per Lord Wilberforce, Lord Hodson concurring) when the advances were made,
with the consequence that the trust for the accumulation of surplus income was
determined (the the extent of the sums advanced), there was no determination of
any interest in possession within s 43(1) of the Finance Act 1940 because the
contingent interests of the testator's grandchildren (the twin sons) in the
accumulations when added to capital were interests in expectancy as distinct from
interests in possession, and the discretionary power to apply accumulations for the
discretionary beneficiaries did not confer on any beneficiary any "interest" for the
purposes of s 2(1)(b) of the Finance Act 1894, or of s 43(1) of the Act of 1940.

Sainsbury v. IRC [1970] Ch 712.

Estate Duty - Determination of life interest - Discretionary trust - Accumulation of
surplus income – Exhaustive discretionary trust - Obligation of trustees to distribute
whole income - Meaning of "interest" and of "interest in possession" - Objects of
discretionary trust not entitled individually or collectively to receive the whole or part
of trust income - Whether any determination of interest rendering estate duty leviable
on the trust fund - Finance Act 1940 (3 & 4 Geo 6 c 29), s 43(1), as amended by
Finance Act 1950 (14 Geo 6 c 15), s 43, Sch 7, Pt I.

Under the will of a testator who died in 1928, the trustees as a result of certain events
having occurred held one-seventh share of his residuary estate for his daughter E, a
spinster, on trust first, in their absolute discretion to apply the whole or any part of the
income for the benefit of E during her life, and, secondly, to apply the surplus income
at their discretion for specified objects, which included persons in being and unborn
and unascertained persons. The trusts were exhaustive in the sense that the trustees
were required to distribute the whole of the income, and had merely a discretion

Car-2-ndou ‘09 163

whether any, and what, part of the whole income was to be distributed to or for the
benefit of any individual object. In July 1961, the court approved an arrangement,
under s 1 of the Variation of Trusts Act 1958, whereby E's share was divided into three
parts. The first part of E's share was held on trust to apply the income for her
maintenance during her life and on her death, subject to a power to raise capital for
maintenance, was held for the reversioners' fund which the order established. As to
the second part, the discretionary trust fund, it was provided that discretionary trusts,
as in the will, were applicable under the trusts of the discretionary fund but excluding
a number of adults who were objects of the discretionary trusts under the will and,
instead of these trusts terminating, as in the will, on E's death, they were to last for a
maximum of 25 years and for a minimum of 12 years from the date of the order, there
being power in the trustees to revoke the trusts between the minimum and maximum
periods. The third part, the reversioners' fund, being the balance of E's one-seventh
share, was held on trusts which would be applicable under the will in conjunction with
a deed dated 1 December 1960, as if E had died without leaving a husband or issue
and D, another daughter of the testator, had predeceased E without leaving a
husband or issue. Some 19 objects were born after the date of the order. E died on 12
June 1966, unmarried. The Crown claimed that estate duty was payable under the
provisions of s 43(1)a of the Finance Act 1940 (as amended) on, or in respect of, the
reversioners' fund or the discretionary trust fund on the death of E, on the ground that
there was, under the trusts of E's share an interest or interests limited to cease on
death within the meaning of s 43 and that such interest or interests was or were in
possession.

a Section 43(1) is set out at p 924, letters f to i, post; s 43 (relating to the "substituted s 2(1)(b)") has now been
repealed and re-enacted by s 36 of the Finance Act 1969

Held - On the true construction of s 43 the objects of the discretionary trust did not,
prior to the order have either an "interest" or "interests" limited to cease on death or, a
fortiori, an "interest" or "interests" in possession, because--
(i) The obligation on the trustees to distribute the whole income did not entitle
any single object to the whole or any definable part of the income so as
to constitute a quantifiable interest within s 43 since the only right which a
single object had under an exhaustive trust was to have the trustees
exercise their discretion and to be protected by the court in that right
(ii) Notwithstanding that it was an exhaustive discretionary trust, the totality
of individual objects did not have interests in possession, since the totality
of separate unquantifiable interests did not constitute separate
quantifiable interests nor one quantifiable interest and, furthermore,
because the individual objects did not constitute a closed class and any
object which came into being prior to distribution would have been
entitled to be considered by the trustees as a potential recipient;
accordingly there was no determination of any interest on the death of E,
s 43(1) did not apply and estate duty was not.
Gartside v Inland Revenue Comrs ([1968] 1 All ER 121) applied.

The right of a beneficiary in a discretionary trust is that “can I also be

considered as a beneficiary under the trust?”
See Holmdens [1966] Ch 511
Cheese, the nature of the beneficiary’s interest and discretionary trusts
It is essential at the outset to appreciate that the term ‘interest’ may encompass a
variety of different meanings depending on the context. ‘It is a fallacy to talk of an
interest as if it were a piece of cheese’ (BagnallQC in Re Holmden’s Settlement Trusts
[1966] Ch 511 at 526). The following questions are in point:

Car-2-ndou ‘09 164

(1) Can an individual object establish a right as against the trustee to any trust property
or force the trustee to allocate?
(2) Can an individual object establish a right as against the rest of the world to any trust
property?
(3) Has an individual object locus standi to ask the court to restrain the trustee, for
example, from making an ultra vires appointment?
(4) If individual objects do not enjoy any of these rights, do they enjoy them collectively
as a class?
The fact that a ‘yes’ answermay be given to some of these questions is not sufficient to
establish a basis for assessing tax on the footing that the beneficiary has an interest.
This was confirmed by Lord Wilberforce in Gartside v IRC [1968] 1 All ER 121
at 134 (a case of a ‘non-exhaustive discretionary trust’, ie income could be either
distributed or accumulated):
No doubt in a certain sense a beneficiary under a discretionary trust has an ‘interest’:
the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a
right to be considered as a potential recipient of benefit by the trustees and a right to
have his interest protected by a court of equity. . . . But that does not mean that he
has an interest which is capable of being taxed by reference to its extent in the trust
fund’s income: it may be a rightwith some degree of concreteness or solidity, onewhich
attracts the protection of a court of equity, yet it may still lack the necessary quality of
definable extent which must exist before it can be taxed.
The House of Lords in Gartside rejected the Revenue argument that as any one

Reid in Re Holmden’s Settlement Trusts [1968] 1 All ER 148

at 151 seem conclusive:
Under the [VTA 1958], the court does not itself amend or vary the trusts of the original
settlement. The beneficiaries are not bound by variations because the court has made
the variation. Each beneficiary is bound because he has consented to the variation . . . the
arrangementmust be regarded as an arrangement made by the beneficiaries themselves.
The court merely acted on behalf of or as representing those beneficiaries who were
not in a position to give their own consent and approval.
Previous practice had been to treat the order of the court as varying the trust (Re
Hambleden’sWill Trusts [1960] 1 All ER 353n), it being assumed that this dispensed
with the need for any other instrument in writing. But a conclusion that the court
merely provided the approval on behalf of minor beneficiaries posed a problem of
formalities. How could the equitable interests of consenting adult beneficiaries be
disposed of without any instrument in writing as required by LPA 1925, s 53(1)(c)
(see Chapter 4)?Were many of the variations made since 1958 therefore void? The
effect of the section was considered at length by Megarry J in Re Holt’s Settlement
[1968] 1 All ER 470 at 474–476 (decided before Re Holmden was reported), who
also decided that it was the arrangement not the court order which varied the
trusts. What then of s 53(1)(c)? The explanations, accepted largely on grounds of
convenience by Megarry J, are succinctly summarised by Pettit (p 491) as follows:
First, that by conferring an express power on the court to do something by order,
Parliament in the Act of 1958 had provided by necessary implication an exception to s
53(1)(c). Secondly that where, as on the facts [in Re Holt], the arrangement consisted
of a specifically enforceable agreement made for valuable consideration, the beneficial
interestwould have passed to the respective purchasers on the making of the agreement.

-Trustees under discretionary trust are under an obligation to act fairly

and in good faith.
See Lloyds Bank v. Duker [1987] 1 WLR 1324;
Tempest v. Lord Canons [1882] 21 Ch 57
Trustee - Powers - Discretionary powers - Exercise - Control by court - Bona fide
exercise of discretion - Refusal of court to interfere.

Car-2-ndou ‘09 165

A will gave trustees power to sell the devised property, and contained a direction
that the proceeds of sale should be laid out in the purchase of other land, which was
to be settled on the same trusts. It also empowered the trustees, in the exercise of
their absolute discretion, to raise any money which they might think fit, for affecting
any purchase which they might, in the exercise of their absolute discretion, think
proper, of any land in the West Riding of Yorkshire. There being a sum of money in
court in a suit for the execution of the trusts, which represented the proceeds of sale
of the devised property, the court was asked to approve a conditional contract for
the purchase of land in the West Riding, for which part of the purchase price was to
be provided by using the sum in court, and part by mortgaging the property which it
was proposed to purchase. All the family and one of the trustees approved of the
proposed purchase, but the other trustee did not. It was not suggested that the
trustee who disapproved was not acting bona fide.

Held: the power to invest the proceeds of sale in land amounted to a trust, and, if a
trustee declined to execute that trust, the court would interfere and perhaps remove
him from his office; in the present case, however, the dissenting trustee had not
declined to invest in land, but had only declined to invest in a particular property,
and, as the will had given the trustees a discretion as to what property the money
was to be invested in and whether money should be raised on mortgage, the court
would not interfere with the bona fide exercise of this discretion by the dissenting
trustee, and would not approve the proposed purchase against his wishes.
Per SIR GEORGE JESSEL, MR: When trustees have a pure discretion as to the exercise
of a power, the court will not compel them to exercise it against their wishes, even
after suit brought, although it will interfere to prevent them from exercising the power
improperly.

In Re Hay’s Settlement, Megarry VC described the scope of the authority given to a

non-fiduciary donee of the power thus:

Re Hay’s Settlement Trusts [1982] 1 WLR 202,HC

Megarry VC: If he does exercise the power, he must, of course confine himself to what is
authorised, and not go beyond it ... A person who is not in a fiduciary position is free to
exercise
the power in any way he wishes unhampeerd by any fiduciary duties ...
Fiduciary powers
A ‘fiduciary’ power, unlike a personal power, is a power of appointment granted to
an
individual virtute officio, such as a trustee. The fiduciary power is similar to a
personal
power in only one respect in that there is no obligation to distribute the property. But
unlike a personal power, the trustees are required to deal with the discretion in a
responsible manner. Accordingly, a number of duties are imposed on the trustees
which have been summarised by Megarry VC in Re Hay’s Settlement Trusts.

Re Hay’s Settlement Trusts [1982] 1 WLR 202,HC

Megarry VC: The duties of a trustee which are specific to a mere power seem to be
threefold.
Apart from the obvious duty of obeying the trust instrument, and in particular of making no
appointment that is not authorised by it, the trustee must, first, consider periodically
whether or

Car-2-ndou ‘09 166

not he should exercise the power; second, consider the range of objects of the power; and
third,
consider the appropriateness of individual appointments.I do not assert that this list is
exhaustive;
but as the authorities stand it seems to me to include the essentials, so far as relevant to the
case
before me.

Duties Trustees owe the beneficiary are:

1. To distribute the trust fund. How they are to distribute will depend
to the type of discretionary trust.
2. To conduct survey of potential range of the class of
beneficiaries. See Mc Phail v. Doulton (1971) AC 424 per
Wilberforce
3. Trustees are not to make an unauthorised allocation. Allocations
made outside the class of beneficiaries are prima facie breach
of trust.

G. PROTECTIVE TRUSTS
It is a device that assists and protects trust funds from being lost. Any
misfortune that attach to the beneficiary does not attach to the trust
fund. The beneficiary and the trust fund are separated.
-Situations where people have resorted to protective trusts are:
1. Where the beneficiary is deemed that he or she cannot manage
the trust property. It might be that the beneficiary does not have
the necessary capacity to manage property either due to
infancy or mental retardation. So the settlor appoints trustees.
2. Where the settlor deems that the beneficiary should not manage
trust property. So the settlor separates the legal and equitable
title.

Car-2-ndou ‘09 167

-In ordinary trusts, if the beneficiary is bankrupt then his trustee in
bankruptcy would get his share. The essence of protective trust is
determined life interest which gives rise to a discretionary trust. See
section 33(1) of 1925 Trustee Act of England. See also Section 43 of
Trustee Act, cap. 5:02 laws of Malawi.
-Property under protective trust is held by the trustees with specific
direction. Occurrence of determinant event e.g. bankruptcy
automatically terminates beneficiary’s entitlement to the trust property
and discretionary trust arises. See Re Gourju’s Will Trust [1942] 2 ALLER
605.
Wills - Discretionary trust - Statutory discretionary trust - Principal beneficiary an enemy
- Forfeiture of interest of principal beneficiary - Trustee Act 1925 (c 19), s 33 - Trading
with the Enemy Act 1939 (c 89), s 7 - Trading with the Enemy (Custodian) Order 1939
(SR & O 1939, No 1198).

The testator directed his trustees to hold the income of his residuary estate, during the
life of his wife, upon the statutory protective trusts for her benefit, and, if in
consequence of any act or event she would if absolutely entitled to the income
thereof be deprived of the same, her interest was to cease, and certain discretionary
trusts were to arise. The wife lived at all material times in Nice, which was at the time
in question an unoccupied area of France, but by virtue of the Trading with the
Enemy (Specified Areas) Order 1940, she became an enemy for the purposes of the
Trading with the Enemy Act 1939, on 10 July 1940. By an order made under s 7 of that
Act it was provided, inter alia, that "there shall be paid to the Custodian in particular
any money which would, but for the existence of a state of war, be payable to or for
the benefit of a person who is an enemy by way of ... payment arising under any trust
or settlement":--

Held - (i) the custodian did not receive the money as agent for the wife. An event
had occurred which determined the wife's interest under the trust and the
discretionary trusts therefore arose.
(ii) a sum of £106 already due and payable to the trustees on 10 July 1940, and
received by the bank as agent for the trustees was payable to the Custodian of
Enemy Property.
(iii) a sum of £2,929 received by the trustees after that date, but which, by virtue of
the Apportionment Act 1870, was deemed to have accrued before that date, was
forfeited under the forfeiture clause.
(iv) the trustees were not at liberty, under the discretionary trusts, to retain the income
in their hands, but must apply it for the needs of the beneficiaries as required by the
Trustee Act 1925, s 33(1) (ii).

There is a difference between determinable interest and a condition

subsequent—the whole mark of determinable interest is where the

Car-2-ndou ‘09 168

determining event is incorporated in the limitation so that the interest is
automatically and naturally determines due to the happening of that
event. While a grant upon a condition subsequent is an interest
granted subject to an independent proviso that spells that the interest
granted is upon that condition fulfilled. See Brandon v. Robinson (1811)
18 ves Jnr 429. If the condition is void then it becomes an absolute gift
to the person conveyed.

-Protective trust should be viewed as a balance between two forces.

One force is that creditors should be able to access the property of the
debtor while the other force is that family property should not be
accessed by the creditors but should be available to support the family
in the event that the head of the family is insolvent or declared
bankrupt.
-The law forbids settling trust in order to protect oneself against
bankruptcy and defeat the claim of trustee in bankruptcy.
See Re Burroghs- Fowler [1916] 2 Ch 251;
BANKRUPTCY AND INSOLVENCY - BANKRUPTCY - ADMINISTRATION OF BANKRUPT'S
ESTATE;
TRUSTEE'S POWERS; PROPERTY AVAILABLE FOR CREDITORS - 'THE PROPERTY OF THE
BANKRUPT' - 'THINGS IN ACTION' - RIGHTS SUBJECT TO FORFEITURE - EFFECT OF
FORFEITURE - LIFE INTEREST -- TRUSTEE'S TITLE INDEFEASIBLE

By an ante-nuptial settlement property of the husband was settled upon trust to pay
the income thereof to him during his life, or until he could be outlawed or be
declared bankrupt or become an insolvent debtor, or should do or suffer something
whereby the income or some part thereof might if absolutely belonging to him
become vested in or payable to some other person or persons, and from and after
the death of the husband or other the determination of the trust for his benefit in his
lifetime to pay the income to the wife for life. The husband was adjudicated bankrupt
in his wife's lifetime:
Held upon the bankruptcy the husband's life interest vested indefeasibly in his trustee
in bankruptcy and was no longer capable of being affected by any subsequent act
of forfeiture by the husband, and the trustee in bankruptcy could make a good title
to the income of the settled property during the remainder of the husband's life.

Re Detmold [1889] 40 Ch 585;

BANKRUPTCY AND INSOLVENCY - BANKRUPTCY - ADMINISTRATION OF BANKRUPT'S
ESTATE;
TRUSTEE'S POWERS; PROPERTY AVAILABLE FOR CREDITORS - 'THE PROPERTY OF THE
BANKRUPT' - 'THINGS IN ACTION' - RIGHTS SUBJECT TO FORFEITURE - EFFECT OF
FORFEITURE - LIFE INTEREST -- GIFT OVER ON APPOINTMENT OF RECEIVE

Car-2-ndou ‘09 169

By a marriage settlement executed in 1881, a sum of stock belonging to the intended
husband was settled upon trust to pay the income to the husband for life, 'or till he
shall become a bankrupt, or shall assign, charge, or incumber the said income, or
shall do or suffer something whereby the same or some part thereof would, through
his act, default, or by operation or process of law, if belonging absolutely to him,
become vested in or payable to some other person or persons.' On the determination
of the trust in favour of the husband, the trustees were to pay the income to the wife
for her life. In June 1888, a creditor recovered judgment for debt against the
husband, and on 19 July he obtained an order, which was made in the presence of
the husband, appointed himself receiver of the income due or becoming due upon
the stock. The husband was afterwards adjudicated a bankrupt upon a subsequent
act of bankruptcy:

Held the gift over in favour of the wife having taken effect on the making of the order
appointing a receiver in the action, she was entitled, as against the official receiver,
to all dividends accrued subsequently to the making of that order.

SETTLEMENTS - SETTLEMENTS OF PERSONALTY - BENEFICIAL INTERESTS IN PERSONALTY -

LIFE INTERESTS - PROTECTED INTERESTS - ACTS INVOLVING FORFEITURE - ASSIGNMENT OR
INCUMBRANCE -- JUDGMENT
A marriage settlement of the settlor's own property was made on trust to pay the
income to himself 'during his life or till he shall become bankrupt or shall assign,
charge or incumber the income or shall do or suffer something whereby the same or
some part thereof would through his act default, or by operation or process of law, if
belonging absolutely to him, become vested in or payable to some other person or
persons' and from and after the determination of the trust in favour of the settlor upon
trust to pay the income to his wife during her life:

Held the limitation over to the wife was valid in the event of an involuntary alienation
by process of law of the income in favour of a judgment creditor of the husband.

Re Wittke [1944] 1 ALLER 383;

Wills - Discretionary trust - Forfeiture - All beneficiaries resident in enemy territory -
Whether residuary gift accelerated.

The testatrix left the income of her estate upon protective trusts for the benefit of her
sister, with a discretionary power to pay her any part of the capital of the estate and
subject thereto to pay the capital and income to the King Edward's Hospital Fund for
London. The sister was resident in enemy-occupied territory and her husband who
was the only other possible beneficiary under the protective trusts was also resident
there. It was contended that, upon the failure of the protective trusts, the words
"subject thereto" in the will caused the property to vest in the King Edward's
Hospital Fund and that the income was not payable to the Custodian of Enemy
Property:--

Held - (i) although the trust was not in terms upon protective trusts during the life of
the sister, yet, upon the proper construction of the will and having regard to the gift of
capital to the sister, the gift was only one during her lifetime.
(ii) the income was payable to the Custodian of Enemy Property during the
lifetime of the sister.

Notes

Car-2-ndou ‘09 170

The judgment herein contains a very necessary caution to those incorporating
statutory trusts, the difficulty here being that the protective trusts were not limited to
the lifetime of the principal beneficiary. On the second point it was sought to be
argued that the protective trusts had failed and that the residuary gift, therefore, took
effect, but, although the effect of a forfeiture is to make the income payable to
persons resident in enemy-occupied territory, that is not a total failure of the
protective trusts which accelerates the residuary gift.

Re Ashby [1892] 1 QB 872;

BANKRUPTCY AND INSOLVENCY - BANKRUPTCY - ADMINISTRATION OF BANKRUPT'S
ESTATE;
TRUSTEE'S POWERS; PROPERTY AVAILABLE FOR CREDITORS - 'THE PROPERTY OF THE
BANKRUPT' - 'THINGS IN ACTION' - INTERESTS SUBJECT TO DISCRETIONARY TRUSTS –
WHOLE FUND APPLICABLE TO BANKRUPT AND OTHERS IN CERTAIN EVENTS -- SURPLUS
OVER SUM REQUIRED FOR MAINTENANCE

Semble: if the trustees of a settlement, under a discretionary trust, pay bankrupt more
than sufficient for his necessary maintenance, he can be made to account for the
excess to his trustee in bankruptcy.

BANKRUPTCY AND INSOLVENCY - BANKRUPTCY - ADMINISTRATION OF BANKRUPT'S

ESTATE;
TRUSTEE'S POWERS; PROPERTY AVAILABLE FOR CREDITORS - 'THE PROPERTY OF THE
BANKRUPT' - 'THINGS IN ACTION' - RIGHTS SUBJECT TO FORFEITURE - VALIDITY OF
FORFEITURE CLAUSE - IN SETTLEMENT OF FUNDS NOT BELONGING TO BANKRUPT --
RESETTLEMENT UNDER JOINT POWER BY BANKRUPT AND ANOTHER

By a settlement made in 1873, real estates were limited to such uses and for such
trusts as A and B should by deed jointly appoint, with remainder to B for life, with
remainders over. The property settled was not B's property, and he was not a party to
the deed. By a resettlement, made in 1888, A and B in exercise of their joint power of
appointment under the deed of 1873, appointed the same estates to trustees for a
term of years to raise by way of mortgage certain sums of money to pay (inter alia)
the private debts of B, which were scheduled to the deed, with remainder to the
trustee during the life of B to permit him to receive the income until he should
become bankrupt, with a discretionary trust over, in the happening of that event, for
the benefit of B, his wife and children or relatives, with remainders over. In 1889 B was
adjudicated bankrupt, and in 1890 A died:

Held the deed of 1888 was not a settlement by B of his own property on himself, and
the discretionary trust over was valid, and took effect.

BANKRUPTCY AND INSOLVENCY - BANKRUPTCY - INDIVIDUAL VOLUNTARY

ARRANGEMENTS - COMPOSITIONS AND SCHEMES AND DEEDS OF ARRANGEMENT -
POSITION OF DEBTOR – RIGHTS - TO REVOKE COMPOSITION AGREEMENT - CREDITORS
NOT PARTIES -- DEED NOT
COMMUNICATED -- DISCRETIONARY TRUST FOR CREDITORS

By a settlement made in 1873, real estates were limited to such uses and for such
trusts as A and B should by deed jointly appoint, with remainder, in default of
appointment, to A for life, with remainder to B for life, with remainders over. The
property settled was not B's property, and he was not a party to the deed. By a
resettlement, made in 1888, A and B, in exercise of their joint power of appointment
under the deed of 1873, appointed the same estates to trustees for a term of years to

Car-2-ndou ‘09 171

raise by way of mortgage certain sums of money to pay (inter alia) the private debts
of B, which were scheduled to the deed, with remainder to the trustees during the life
of B to permit him to receive the income until he should become bankrupt, with a
discretionary trust over, in the happening of that event, for the benefit of B, his wife
and children or relatives, with remainders over. The trustees raised the money, and
had in March 1889, paid some of the debts, when they received a written notice from
B not to pay any more. In 1889 B was adjudicated bankrupt, and in 1890 A died:

Held the trust to pay debts was a revocable mandate which had been duly revoked,
and the trustee in bankruptcy was entitled to the balance in the hands of the trustees
of the settlement.

Re Balfour’s Settlement [1938] 3 ALLER 259

Settlements - Interest determinable on bankruptcy - Breach of trust - Unauthorised
advances by trustee to tenant for life - Income taken to replace capital - Forfeiture.

A marriage settlement gave the income of a fund to the tenant for life until he should
die or should do or suffer something whereby the income or part thereof, if belonging
absolutely to him, should become payable to, or vested in, someone else, and then
followed a discretionary trust. During the years 1933-1936, the then sole trustee of the
settlement, at the request of the tenant for life, made advances to him amounting to
over £1,400. As the settlement contained no provision for such advances, this
payment was a breach of trust. After the death of the trustee, a bank, and later the
Public Trustee, acted in the trusts of the settlement. On 17 August 1937, the trustees by
letter asserted their right to retain the income for the recoupment of capital which
had been advanced. On 26 August 1937, the tenant for life filed his petition in
bankruptcy. The trustee in bankruptcy claimed to be entitled to receive the income
of the fund:--

Held - from the time that the trustees asserted their right to retain the income, it
became payable to, or vested in, some person other than the tenant for life, and
from that moment the tenant for life's interest was forfeited. The trustee in bankruptcy
had therefore no right to any part of the income.

Notes
Forfeitures of this kind usually arise out of an attempted assignment or mortgage by
the tenant for life of his income. In the present case, the forfeiture arises by reason of
the exercise by the trustees of rights accruing to them upon a breach of trust. In this
respect, the case is a new application of the principle of law involved.

Ways Protective Trust can be created are:

1. Settle a trust deed and detail out the protective trust

2. Create protective trust by reference to section 43 of Trustee Act,
cap. 5:02. The avenue of s. 43 creates two types of Trust which
are:

Car-2-ndou ‘09 172

 a. Primary trust. It is where the principal beneficiary enjoys
until determining event happens and he forfeits his benefit.
b. Secondary trust takes effect automatically when the
determining event happens. It takes the form of
discretionary trust and the principal beneficiary is just like
one of the potential range of objects of property under a
discretionary trustee.
-Settlor can settle protective trust to protect himself from the
determining event but cannot settle to protect himself from
bankruptcy. See Re Detmold [1889] 40 Ch 585.

-American courts have tended to allow a person to set up protective

trust to protect himself against bankruptcy.

No specific words are needed to create protective trust. Court is to

infer the intention of the settlor. See Re Wittke [1944] 1 ALLER 383. Court
is also to endeavour to determine whether the determining event that
triggers the forfeiture has indeed occurred.
-Section 43 of Trustee Act says that what it lays has to be complied with.

H. COMMERCIAL TRUSTS
Trust has relevance in commerce because of its versatility of separating
objects of property into a fund which may render itself to collective
investment and the protection that trusts law accords to the interests in
the fund has increasingly been utilised in commerce.
The following are ways trust notions have been relevant in commerce:
1. Trust notions facilitate the creative investment thereby widening
the capital base and the economies scale.
2. Trust notions guarantee priority of interests in case of insolvency.
3. Trust notions gives fair and prudent standards in management
4. Trust notions render objects of property to a specialised skill

Car-2-ndou ‘09 173

 5. Trust notions render objects of property to flexible management
and control if the discretionary trust is used.
6. Trust notions create a moral distance between manager and
owners of the benefit.
7. Trust notions are able to trace objects of property.

See Boscawen v. Bajwa [1995] 4 ALLER 769 where money was held on
trust by a solicitor for Abbey National, which had advanced it intending
that it be used to complete the purchase of a house owned by Mr
Bajwa which was subject to a charge in favour of the Halifax. In breach
of trust the money was used to discharge the charge but the purchase
fell through. The court of Appeal held that the Abbey National’s money
could be traced into the discharge of the debt and that they should be
subrogated to the position of the Halifax, which had been the creditor
of the legal charge. Court explained that the abbey National was
entitled to subrogation because they had intended to retain the
beneficial interest in its money unless and until that interest was
replaced by a first legal mortgage on the property and that in the
circumstances Mr Bajwa could not claim that the charge had been
discharged for his benefit as this would be unconscionable.
Boscawen v Bajwa [1995] 4 All ER 769 The defendant had
charged his property to the Halifax. Abbey supplied funds to secure its
discharge, but its own charge was not registered. It sought to take advantage
of the Halfax's charge. Held: A mortgagee whose loan is used to repay
another charged debt is subrogated to that debt, and can rely on that charge.
Millett LJ: "If the plaintiff succeeds in tracing his property, whether in its
original or in some changed form, into the hands of the defendant, and
overcomes any defences which are put forward on the defendant's behalf, he
is entitled to a remedy. The remedy will be fashioned to the circumstances.
The plaintiff will generally be entitled to a personal remedy; if he seeks a
proprietary remedy he must usually prove that the property to which he lays
claim is still in the ownership of the defendant. If he succeeds in doing this
the court will treat the defendant as holding the property on a constructive
trust for the plaintiff and will order the defendant to transfer it in specie to
the plaintiff. But this is only one of the proprietary remedies which are
available to a court of equity. If the plaintiff's money has been applied by the
defendant, for example, not in the acquisition of a landed property but in its
improvement, then the court may treat the land as charged with the payment
to the plaintiff of a sum representing the sum by which the value of the
defendant's land has been enhanced by the use of the plaintiff's money. And
if the plaintiff's money has been used to discharge a mortgage on the

Car-2-ndou ‘09 174

defendant's land, then the court may achieve a similar result by treating the
land as subject to a charge by way of subrogation in favour of the plaintiff."

Trust and trustee - Following trust property - Use of trust money to discharge mortgage -
Exchange of
contracts for sale of property - Bank's mortgage advance paid to vendor's solicitors pending
completion -
Money applied before completion towards discharge of vendor's prior mortgage - Mortgage
discharged partly
by vendor's own payments - Sale falling rhrough - Whether bank entitled to trace - Whether
vendor an
innocent volunteer - Whether vendor ranking pari passu.
Subrogation - Circumstances in which doctrine applicable - Mortgage - Bank's mortgage
advance to
purchaser paid to vendor's solicitors pending completion - Money applied before completion
towards
discharge of vendor's prior mortgage - Mortgage discharged partly by vendor's own payments
- Sale falling
through - Whether bank entitled to charge by way of subrogation.

In September 1989 B, the registered proprietor of a property, charged it to a building society.

In August 1990
B exchanged contracts for the sale of the property to purchasers who had obtained an offer of
mortgage from
a bank, to be secured by a first legal charge over the property. The bank subsequently
transferred £140,000
(which was the balance payable on completion of the sale) to the client account of the
purchasers' solicitors
to be held on terms which obliged them to use it for completion of the purchase or to return it
if, for any
reason, completion did not take place. The purchasers' solicitors transferred £137,405 to the
account of B's
solicitors and thereafter sent a cheque for the balance of £2,595. B's solicitors then paid
£140,000 to the
building society in part repayment of B's mortgage arrears, the total amount to redeem the
debt being
£141,222·4340. A few days later the cheque for £2,595 from the purchasers' solicitors was
dishonoured and
never paid; the firm subsequently ceased to exist and the sole equity partner was made the
subject of a
bankruptcy order. B's solicitors were able to retrieve the £2,595 from another account which
they held for B.
On 29 April 1991 the building society discharged the charge on the property after a final
payment by B and
forwarded the title deeds to B's solicitors, but they refused to release them to the purchasers
until the
balance on the purchase price was paid. The sale however fell through and the purchasers
never acquired
legal title to the property. In 1992 the plaintiffs, who were judgment creditors of B, obtained a
charging order
absolute on the property and issued an originating summons against B and the bank for
enforcement of the
charging order. An order for possession and sale was made, and the proceeds of sale
amounted to
£105,311·4383. On a counterclaim by the bank, the deputy judge held that, since the bank's
money could be
traced into the payment to the building society and was used towards the discharge of the
latter's charge, the

Car-2-ndou ‘09 175

bank was entitled to a charge on the property by way of subrogation to the rights of the
building society to the
extent that the money had been used to redeem the charge and in priority to any interest of
the plaintiffs. On
appeal the plaintiffs contended inter alia (i) that the deputy judge's aggregation of the two
different equitable
[1995] 4 All ER 769 at 770
doctrines of tracing and subrogation was impermissible, (ii) that the bank's tracing claim
failed, because even
if its money could be traced to the building society it was then lost because money used to
pay off a debt
ceased to be traceable and (iii) that the deputy judge had erred in attempting to supply the
absence of a
Page 1
tracing remedy by invoking the doctrine of subrogation.
Held - (1) The two doctrines of tracing and subrogation could legitimately be invoked in the
same case
because they arose at different stages of the proceedings. Accordingly, there was nothing
impermissible in
the judge's invocation of the two doctrines in the same case: tracing was the process by
which the bank
sought to establish that its money was applied in the discharge of the building society's
charge, whereas
subrogation was the remedy which it sought in order to deprive B of the unjust enrichment
which he would
otherwise obtain at the bank's expense (see p 777 g h and p 785 b, post).
(2) The fiduciary relationship which was a prerequisite of the right to trace in equity was
satisfied as soon as
the purchasers' solicitors received the bank's money and held it on trust for the bank. Indeed,
the actual
appropriation of some of that money by B's solicitors to pay the building society allowed the
bank to trace its
money to the building society. Further, B could not avail himself of the more favourable
tracing rules which
were available to an innocent volunteer who unconsciously mixed trust money with his own,
because
although B and his solicitors had not acted dishonestly they were not innocent volunteers but
were manifestly fiduciaries in that they knew that the money received was money held on
trust which would only become
available to B on completion of the sale (see p 777 j, p 778 e to g, p 779 h to p 790 b and p
785 b, post);
dictum of Slade LJ in Re TH Knitwear (Wholesale) Ltd [1988] 1 All ER 860 at 867 applied;
dictum of Lord
Diplock in Orapko v Manson Investments Ltd [1977] 3 All ER 1 at 7 and Re Diplock's Estate,
Diplock v Wintle
[1948] 2 All ER 318 considered.
(3) There was no general rule which, regardless of circumstances, required the party claiming
subrogation to
a creditor's security to prove that he intended his money to discharge the security in question
and that he
intended to obtain the benefit of the security by subrogation. It was enough that the bank did
not intend to be
an unsecured creditor, and intended to retain the beneficial interest in its money unless and
until that interest
was replaced by a first legal mortgage on the property. The bank's equitable right to
subrogation arose from
the conduct of the parties at the moment that the building society's charge was discharged in
whole or in part
with the bank's money and because it would have been unconscionable for B to assert that it
was discharged

Car-2-ndou ‘09 176

 for his benefit (see p 780 e f, p 781 f to p 782 a, p 784 d and p 785 b, post) Re Diplock's
Estate, Diplock v
Wintle [1948] 2 All ER 318, Orakpo v Manson Investments Ltd [1977] 3 All ER 1 and Paul v
Speirway Ltd (in
liq) [1976] 2 All ER 587 considered.
(4) The interests of the plaintiffs and of the bank did not rank in proportion to the sums paid to
the building
society by B and the bank respectively. B's own payments enured for the benefit of his equity
of redemption,
and ranked behind the bank's subrogated charge just as they ranked behind the building
society's charge.
Further, since B's title was subject to a charge in favour of the bank, the plaintiffs could only
take such
interest as B possessed. The appeal would accordingly be dismissed.

In Cowan v. Scargill [1984] 2 ALLER 750, the National Coal Board

pension fund was controlled by both management-appointed and
union-appointed trustees. The union-appointed trustees objected to a
proposed annual investment plan unless it adopted the policy of
withdrawing from overseas investment and from investment in industries
in competition with coal. This led to a direct clash between the union-
appointed trustees, led by Scargill and the other trustees. Court held
that the action of the union-appointed trustees was unreasonable. The
duty of trustees was to optimise the benefits which the beneficiaries
would receive.

Pensions are a commercial entity where trust notions

have been relevant. Cowan v Scargill [1984] 2 All ER
750 Cowan v Scargill (High Court) - 4 April 1984
This case is an important pensions case. It concerned a dispute over the investment of the assets of the
Mineworkers’ Pension Scheme (the Scheme). As well as guidelines on the duties of trustees when
investing assets, the case is useful for information on general trustee duties and conflicts on interest.

Background

Arthur Scargill, the leader of the National Union of Mineworkers (NUM), joined the Scheme’s trustee
board in 1982. Following his appointment, he and the other union trustees declared that, because of a
conflict with a policy decision of the NUM, they would not support:

• any overseas investments; or

• any investments which directly competed with coal (such as oil and gas).

The trustees received legal advice that the suitability of investments was to be judged almost
exclusively by reference to financial criteria rather than their acceptability for political or moral
reasons. But Scargill re-iterated his “total opposition” to the overseas/competing investments, even if a
better financial result could be obtained from such investments, because the NUM voted unanimously
for this policy.

Car-2-ndou ‘09 177

 As the Scheme had five union trustees and five employer trustees, this resulted in deadlock (whilst the
chairman was an employer appointed trustee, he had no casting vote). Therefore, the case was bought
to resolve this issue – with Cowan chosen to represent the employer trustees and Scargill, the union
trustees.

Trustees' investment duty

Megarry V-C considered the trustees investment duty in detail in this case. He set out the now classic
formulation of the trustees’ investment duty as:

“The starting point is the duty of trustees to exercise their powers in the best interests of the
present and future beneficiaries of the trust… When the purpose of the trust is to provide
financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries
are normally their best financial interests.”

Additional points:

• Second, in considering what investments to make trustees must put on one side their own
personal interests and views. Trustees may even have to act dishonourably though not illegally – for
example, this may include a duty to gazump (see also Buttle v Saunders, 1950).

• Third, the caveat to these two points is that if, for example, all the beneficiaries of the trust are
all adults with strict views on moral issues then it might not be to the “benefit” of those beneficiaries to
invest in something inimical to those views. But this is unlikely to apply in pensions.

• Fourth, the standard of care required of a trustee is that he “must take such care as an ordinary
prudent man would take if he were minded to make an investment for the benefit of other people for
whom he felt morally bound to provide” (Re Whiteley, 1886). This duty includes the duty to seek
advice on matters the trustee does not understand – this is now also a statutory requirement under the
Pensions Act 1995, section 36.

• Fifth, the trustees have a duty to consider diversification of investments – already enshrined in
legislation at the time of the case (Trustee Act 1961, section 6).

• Finally, these investment rules apply to pension trusts as much as to private trusts. In
particular, the large size of pension funds “emphasises the need for diversification, rather than
lessening it”.

Decision
The proposed restrictions on investment did not meet the trustees’ investment duties. As the court has
authority to resolve the deadlock in the trustee board, Megarry V-C declared that the restriction
proposed should not be implemented.

Trust and trustee - Duty of trustee - Duty towards beneficiary - Investments - Power of
investment - Pension
fund - Mineworkers' pension scheme - Scheme authorising overseas investment and
investment in energy
resources competing with coal - Trustees appointed by mineworkers seeking to restrict
investments to
investments in Britain and in industries not competing with coal - Whether trustees of pension
fund subject to

Car-2-ndou ‘09 178

general law relating to trustees - Whether trustees entitled to prohibit particular investment for
social or
political reasons.

A pension scheme for mineworkers provided for the payment of pensions and lump sums to
all industrial
employees of the National Coal Board on retirement, injury and on contracting certain
diseases and also for
payments to their widows and children. The funds of the scheme were provided by
contributions from
mineworkers and by payments made by the board. There were ten trustees of the scheme,
five appointed by
the board and five by the mineworkers' union. The trustees' wide powers of investment under
the scheme
entitled them to invest overseas and in energy industries other than coal. In 1982 the
defendants, the five
trustees appointed by the union, refused to approve an annual investment plan for the
scheme unless it was
amended to prohibit any increase in overseas investment, to provide for withdrawal from
existing overseas
investments at an opportune time, and to prohibit investment in energy industries which were
in direct
competition with coal. The defendants sought those restrictions on investment because it was
the union's
policy that the scheme's funds should be invested in Britain rather than overseas and should
not be invested
in energy industries which were in competition with coal. The plaintiffs, the five trustees
appointed by the
board, applied to the court for directions that the defendants were in breach of their fiduciary
duties as
trustees of the scheme in refusing to concur in the adoption of the investment plan.
[1984] 2 All ER 750 at 751
Held - (1) The trusts of a pension fund were in general governed by the ordinary law relating
to trusts,
subject to any contrary provision in the rules or other provisions which governed the trust. In
particular, the
trustees of a pension fund were subject to the overriding duty of trustees to do the best they
could for the
beneficiaries, the more so in the case of a pension fund, where many of the beneficiaries
were those who, as
members of the pension scheme, had contributed to the fund out of which their pensions were
paid.
Moreover, the trustees were under a general duty, in the interests of the beneficiaries, to take
advantage of
the full range of investments authorised by the terms of the trust, rather than narrowing that
range, and
pursuant to s 6(1)a of the Trustee Investments Act 1961 they were required to consider the
need for
diversification of the trust investments, which was even more important in the case of a large
pension fund.
Accordingly, trustees of a pension fund could not refuse for social or political reasons to make
a particular
investment if to make that investment would be more beneficial financially to the beneficiaries
of the fund
(see p 760 f to h, p 761 b to d, p 762 a b e, p 763 c to f, p 764 f to h and p 766 f, post);
Blankenship v Boyle
(1971) 329 F Supp 1089 and Withers v Teachers' Retirement System of the City of New York
(1978) 447 F
Supp 1248 applied.
Page 1

Car-2-ndou ‘09 179

a Section 6(1) is set out at p 762 e f, post
(2) On the facts, an investment policy in relation to the mineworkers' pension scheme that
was designed to
further the union's policy of ensuring the general prosperity of the coal industry regardless of
financial benefit
to the beneficiaries under the scheme could not be regarded as being a policy that was
directed to obtaining
the best possible results for the beneficiaries, particularly when most of the beneficiaries were
retired from
the coal industry and some of them, such as widows and children of deceased miners, had
never been
engaged in the industry. Moreover, any possible economic benefit to the coal industry that
would accrue to
the beneficiaries, as distinct from the general public, from imposing the restrictions on
investment sought by
the defendants was far too speculative and remote. It followed that, by refusing to approve the
investment
plan unless the restrictions on investment they sought were adopted, the defendants were in
breach of their
fiduciary duties as trustees to do the best they could for the beneficiaries and to invest in the
full range of
investments permitted under the terms of the scheme. In all the circumstances the
appropriate relief to grant
was to make declarations regarding the defendants' duties as trustees of the scheme rather
than to give
directions.

See also Goodhart & Jones (1980) 43 MLR 489.

Commercial Entities where trust has become relevance are: Pension

schemes, Cooperative trusts, Capital market, and commerce and
credit.

Pension Schemes
The occupational pension scheme is where an employer and
employees contribute the scheme is subjected to managers called
actuaries. They manage the scheme and determine what investments
to make. These Actuaries are in a fiduciary position and they are to act
in the best interest of the beneficiaries, must act in good faith and use
their powers properly especially towards former employees.

See Mettoy Pension Trustees Ltd v. Evans [1991] 2 ALLER 513;

Pension - Pension scheme - Company pension scheme - Surplus fund - Discretion to
augment benefits - Fiduciary power - Group of companies establishing contributory
pension scheme for employees - Rules of scheme conferring discretion on employer,

Car-2-ndou ‘09 180

exercisable on termination of scheme, to use surplus fund to augment benefits
payable - Funds in surplus on termination of scheme - Whether discretion to augment
benefits amounting to full fiduciary power - Whether discretion exercisable by
receivers or liquidators.
Pension - Pension scheme - Company pension scheme - Dissolution of scheme -
Calculation of deferred annuities - Whether trustees should have regard to member's
projected salary and/or future period of service in determining amount of mandatory
benefits.
Pension - Pension scheme - Company pension scheme - New rules for administration
of scheme – Execution of deed bringing new rules into operation - Trustees not fully
aware of consequences of new winding-up provisions - Whether trustees would have
executed deed as drafted if they had been fully aware of such consequences -
Whether deed should be set aside.Company - Compulsory winding up - Date of
liquidation - Occupational pension scheme - Deed initiating scheme incorporating
rules for termination on company 'going into liquidation' - Whether company 'going
into liquidation' on date of presentation of petition or date of winding-up order -
Companies Act 1948, s 229(2).

In 1967 the employer executed an interim trust deed establishing a contributory

group pension scheme for its employees. The scheme took effect in January 1968,
and in 1969 a definitive deed was executed bringing into operation rules for its
administration. Clause 6 of the 1969 deed provided that the employer and trustees
could jointly from time to time and without the consent of the members 'alter cancel
modify or add to' any of the provisions of the deed and rules, provided that such
revision did not change the purpose of the pension scheme or lead to the transfer or
payment of any part of the pension fund to the employer or any other of the
employing companies in the group. On the employer 'going into liquidation' r 11(b) of
the 1969 rules provided for the pension scheme to be wound up and for the trustees
to acquire (i) annuities for beneficiaries then in receipt of pensions whether
immediately or in reversion and (ii) deferred annuities for other members of an
amount to be determined by the trustees having regard to the amount of the
members' pensions at retirement had the scheme not been terminated or such larger
amount as the trustees might determine. Any ultimate balance was to be returned to
the employer and the other employing companies in the group. Between 1973 and
1980 the pension scheme was amended, following full consideration by the trustees
and their solicitors, to ensure that it complied with the statutory requirements for
occupational pension schemes and contracted-out schemes and to incorporate
changes to the scheme's system of investment. In 1980 a newly incorporated trustee
company was purportedly appointed by deed as sole trustee of the scheme, in
place of the individual trustees who were officers of the company, but the deed was
ineffective to discharge the individual trustees since the trustee company was not a
trust corporation. A second deed was executed in 1980 by the employer and the
trustee company to bring into operation new rules for the administration of the
scheme made in exercise of the cl 6 power with the express purpose of replacing
entirely the clauses and rules of the 1969 deed. The new rules had been approved by
the trustees in the form proposed by the scheme's underwriters after only cursory
consideration and without any detailed discussion of the proposed changes which
affected, in particular, the winding up provisions of the scheme. Rule 13(5) differed
from r 11(b) of the 1969 rules in that the power to augment benefits was to be
exercisable at the absolute discretion of the employer, not the trustees, and that the
class of objects of the discretion was extended to include all beneficiaries, including
existing pensioners. In 1983 a further deed was executed, after only scant
consideration by the trustees, to rectify the earlier error in appointing the trustee
company as the sole trustee, but which in other respects was a reprint of the 1980
deed. By mid-1983 the employer was experiencing serious financial difficulties and in
October the employer's bankers appointed receivers of its undertaking and assets

Car-2-ndou ‘09 181

pursuant to a debenture. In November 1983 a petition for the winding up of the
employer was presented and about two months later a compulsory winding-up order
was made. The trustee company was left with a surplus of about £9m after the value
of the assets and liabilities for mandatory benefits (without any augmentation) had
been determined. The trustee company subsequently issued an originating summons
seeking the determination of the court as to how the surplus fund ought to be
administered in consequence of the winding up. The questions arose, inter alia, (i)
whether the reference to the company 'going into liquidation' in r 11(b) of the 1969
rules should be construed as referring to the date of the presentation of the petition
for the winding up of the company, in accordance with s 229(2)a of the Companies
Act 1948, or the date on which the order was made, (ii) as to the factors to which the
trustee company might have regard in determining members' deferred mandatory
benefits, (iii) whether the discretion to augment benefits conferred on the company
under r 13(5) of the 1983 rules was a fiduciary power, (iv) if so, whether the discretion
was exercisable by the receivers or the liquidators or by neither and (v) whether the
1983 deed should be set aside on the ground that the trustee company would not
have executed the deed as drafted if it had been fully aware of the consequences
of the proposed changes in the winding-up provisions and in particular r 13(5).

a Section 229(2), so far as material, provides: 'In any ... case [where no resolution for voluntary winding up
has been passed by a company before a petition for its winding up by the court is presented], the winding
up of a company by the court shall be deemed to commence at the time of the presentation of the
petition for the winding up'.

Held - (1) On its true construction, the term 'going into liquidation' in r 11(b) of the 1969
rules was to be regarded, in the case of a compulsory winding up, as a reference to
the actual beginning of the winding up rather than its statutorily deemed beginning
under s 229(2) of the 1948 Act, ie as a reference to the making of the winding-up
order and not the date of presentation of the petition. That construction followed
from the fact that, if the date of presentation of the petition was to be treated as the
date when the company went into liquidation, the period of delay which would
occur prior to the making of the winding-up order would amount to a period of
uncertainty during which no one would know whether the scheme was to be
administered as a continuing scheme or as a dissolved scheme, ie whether or not
employees' contributions should continue to be collected, which was a situation to
be avoided if possible.
(2) When determining the members' mandatory benefits under r 11(b)(ii) the trustee
company was required to base its actuarial calculations on the pension to which
each member would be entitled at the date of termination of the pension scheme,
but there was no requirement that it should also have regard either to the member's
final pensionable salary at the dissolution date projected forward to his normal
retirement date. his prospective salary) or to such period of service as the member
would have completed between the dissolution date and his normal retirement date
had the scheme not terminated (ie his future service).
However, when exercising the power to augment benefits pursuant to r 11(b) the
trustee company would be entitled to have regard to either prospective salaries or
future service, or both, in making its calculations (see
p 542 d to p 543 d, post).
(3) Where the rules of an occupational pension scheme conferred an absolute
discretion on the employer to apply surplus funds among beneficiaries of the scheme,
that discretion was a fiduciary power in the full sense which could not be released
and, accordingly, the employer, as trustee of the power, was under a duty to the
beneficiaries to consider whether and how the discretion ought to be exercised and
was to some extent subject to the control of the courts in relation to its exercise. If the
discretion had merely entitled the employer to determine the destination of the trust
property without imposing any duty on it to consider the beneficiaries entitled to
discretionary benefits, the discretion would have been illusory from the beneficiaries'

Car-2-ndou ‘09 182

point of view since the words by which the discretion was conferred would have
meant no more than that the employer was free to make gifts out of the surplus fund
as its absolute beneficial owner, with the consequence that if the employer went into
liquidation or was acquired by a 'take-over raider' there would nothing to prevent the
liquidator or the raider from rendering themselves entitled to the entire surplus fund.
Accordingly, the discretion conferred on the employer by r 13(5) of the 1983 rules was
a fiduciary power in the full sense, particularly in view of the fact that the discretion
had been introduced to replace a power which, though narrower, had originally
been vested in the trustees.
(4) Where the employer's powers ceased on its going into liquidation, the fiduciary
power did not vest in either the receivers or the liquidator. In particular, the power
was not part of the assets of which the employer was the beneficial owner, which
meant that it could not be the subject to any charge created by a debenture issued
by the employer or become exercisable by a receiver appointed under the
debenture. A liquidator would also be precluded from exercising the fiduciary power
because if he did so his duties would conflict, in the sense that as trustee of the power
he would be under a duty to hold the balance between the interests of the
beneficiaries under the pension scheme and the interests of the persons entitled to
share in the assets of the company, namely its creditors and possibly its contributories,
whereas as liquidator his duty was to have regard primarily, if not exclusively, to the
interests of the creditors and contributories. Instead, the fiduciary power would be
exercised by the court in the manner which it considered most appropriate in the
circumstances to give effect to the purposes of the pension scheme and it might
exercise that power by appointing new trustees or representative beneficiaries to
prepare a scheme of distribution or by directing the existing trustees to distribute the
surplus fund. It followed that, when the employer went into liquidation and the 1968
scheme fell to be wound up in accordance with the 1983 rules on the footing that the
1983 deed was wholly valid, the r 13(5) discretion did not become exercisable by
either the receivers or the liquidator but would be exercised by the court, on the
provision of further evidence, in the manner which appeared most appropriate in the
circumstances.
(5) Although the court would have set aside the 1983 deed if it was clear that the
trustee company would not have executed the deed as drafted if it had been fully
aware of the consequences of the proposed changes to the winding-up provisions of
the scheme, it was impossible to say what the outcome would have been in terms of
whether the 1983 deed would have been executed in that form if the trustee
company had been advised that r 13(5) was a fiduciary power and that it transferred
to the employer an absolute discretion to distribute surplus funds among the
beneficiaries who were entitled to be considered for discretionary benefits and had
understood the consequences of the new rule in the context of the employer's
impending insolvency. In those circumstances, the 1983 deed remained valid and
would not be set aside.

Re Courage Group Pension Scheme v. Imperial brewing and Leisure

[1987] 1 WLR 495;
Pension - Pension scheme - Company pension scheme - Variation of scheme -
Alteration of rules – Removal of surplus in scheme by company - Company pension
scheme managed by committee of management - Scheme having substantial
surplus - Company taken over - New holding company wishing to substitute itself as
'the company' in the scheme and to remove surplus for own use - New company
requesting committee of management to execute deeds amending trust deeds and
rules of scheme - Whether amendments altering purposes of scheme and ultra vires -
Whether committee of management at liberty or bound to execute amending
deeds.

Car-2-ndou ‘09 183

A company, IBL, and its subsidiary companies operated three similar contributory
pension schemes for the benefit of employees of the group. Each scheme was
governed by its own trust deed and rules made there under and each trust deed
defined 'the company' whose employees could belong to the scheme as IBL. The
trust deeds could be varied or altered provided that the alteration or variation did
not 'have the effect of altering the main purpose of the Fund, namely the provision of
pensions on retirement at a specified age for members'. The management of the
schemes was entrusted to a committee of management. Two of the schemes
provided that the rules could at any time be added to, deleted or varied by the
company by deed and the Committee of Management shall concur in executing
any such ... deed'. The schemes made provision for 'the company', with the consent
of the committee of management, to admit associated companies to participation
in the scheme and for limited substitution of another company for IBL as 'the
company'. In February 1986, in anticipation of a take-over bid by H, the trust deeds
were amended by the insertion of a new clause which had the effect of closing each
of the schemes to new entrants if H acquired IBL and its subsidiaries. In April 1986 H
acquired control of IBL and would, but for the closure of the schemes in February,
have become a participating company and its employees entitled to become
participating employees in the schemes. In September H agreed to sell IBL and its
subsidiaries to E while retaining, if possible, the surplus in the schemes for its own
benefit or the benefit of its own employees. H accordingly proposed that the
schemes would not form part of the sale to E, that H would be substituted for IBL as
'the company' in the schemes, that employee members of the scheme would be
transferred to a scheme established by E and H would transfer £10m to the new
scheme to top up their benefits, and that H would either set aside sufficient funds for
the pensioners and deferred pensioners remaining in the schemes and remove the
surplus (some £70m) for its own use or reopen the schemes to new members and
admit its own employees. IBL and its subsidiaries were sold to E and deeds amending
the rules to enable the substitution of H for IBL as 'the company' were executed by IBL.
H requested the committee of management to execute the deeds. The committee
sought the determination of the court on the questions (i) whether on the true
construction of the trust deed for each scheme the committee of management was
at liberty to or was bound, at the request of H, to execute the three deeds of
variation enabling the substitution of H for IBL, and (ii) whether the committee of
management was at liberty to or bound to concur in executing any deed which H
might request the committee to execute for the purpose of reopening the schemes
to new members.

Held - (1) There were no special rules of construction applicable to pension schemes
although a scheme's provisions would wherever possible be construed so as to give
reasonable and practical effect to the scheme, bearing in mind that it had to be
operated against a constantly changing commercial background. The court would
have regard to the fact that it was important to avoid fettering unduly the power to
amend the scheme, thereby preventing the parties from making those changes
which might be required by the exigencies of commercial life, and that was
particularly the case where the scheme was intended to benefit the employees of a
group of companies and not just a single company, since the composition of the
group could constantly change. Furthermore, in the case of an institution of long
duration and gradually changing membership, such as a club or pension scheme,
each alteration in the rules had to be tested by reference to the situation at the time
of the proposed alteration and not by reference to the original rules at the time of its
inception.
(2) On the true construction of the rules, if the proposed amendments could properly
be made the committee nevertheless had a discretion whether or not to concur in
executing the necessary deeds.

Car-2-ndou ‘09 184

(3) It was clearly desirable that some provision for substitution of 'the company' be
included in a group pension scheme, since otherwise the scheme would have to be
wound up if the company was put into liquidation on a reorganisation or
reconstruction of the group. The need for provision to be made for substitution of 'the
company' showed that the identity of 'the company' was not of the essence or part
of the main purposes of the schemes. However, it did not follow from the need for a
properly limited power of substitution that an unlimited power of substitution could be
validly introduced, or that any company could be substituted in any circumstances
and for any purposes. The validity of a power of substitution depended on the
circumstances in which it was capable of being exercised and the characteristics
which had to be possessed by the company capable of being substituted, while the
validity of any purported exercise of such a power depended on the purpose for
which the substitution was made. Since H did not employ and had never employed
any of the employees for whose benefit the schemes had been established and
since H would have no remaining connection with the group and its employees once
the sale to E was completed, it followed that the amendment of the trust deeds and
the rules to permit the substitution of H for IBL would manifestly alter the main purpose
of the scheme and be ultra vires.
(4) In any event, irrespective of the sale to E, H could not have been substituted for IBL
since, in order validly to exercise the power to substitute, the circumstances had to
be such that substitution was necessary or at least expedient in order to preserve the
scheme for those for whose benefit it was established, and the substituted company
had to be recognisably the successor to the business and workforce of the company
for which it was substituted. It was not enough that it was a member of the same
group as, or even the holding company of, the company for which it was substituted.
It followed that the proposed power to substitute IBL's ultimate holding company for
IBL in undefined circumstances was ultra vires because it was far too wide, because it
would alter the main purposes of the schemes and because it was capable of
defeating those purposes. Accordingly, the committee of management was not at
liberty to execute the amending deeds by which H was to be substituted for IBL.
(5) However, in the absence of express provision entrenching the closure of any of
the schemes against any future amendment of the trust deed and rules there was no
reason to imply such a provision, since the company and the members of the closed
schemes were both sufficiently protected against any unwelcome reopening of the
schemes by the fact that both the company and the committee of management
were necessary parties to any amendments which were required to reopen the
schemes. Furthermore, a purported restriction on the powers of the committee of
management would not be effective since the powers conferred on the committee
were vested in it in a fiduciary capacity, and even if the existing members of the
committee could release, fetter or agree not to exercise any of the powers and
discretions vested in the committee they could not deprive their successors of the
right to exercise them. Accordingly, the committee of management was at liberty,
but not bound, to concur in executing any deeds amending the schemes for the
purpose of reopening the schemes to new entrants.

Thrells v. Lomas [1993] 1 WLR 156;

Pension - Pension scheme - Company pension scheme - Surplus fund - Company in
liquidation – Dissolution of scheme - Distribution of surplus fund - Trustee's discretion
surrendered to court - Manner in which discretion to be exercised - Whether employer
precluded from taking surplus out of scheme unless provision made for all pensions
under scheme to be increased by statutory limited price index - Social Security Act
1990, s 11(3).

On 28 November 1984 the plaintiff company went into creditors' voluntary liquidation
owing some £2m to creditors. The company's pension scheme was wound up when

Car-2-ndou ‘09 185

the company went into liquidation and after provision was made for the discharge of
the pension fund's liabilities applicable on a winding up of the fund there was a
surplus of about £505,000 in the fund. The pension scheme provided an earnings-
related pension for employees of 1/60th of the employee's retiring salary for each
year of service and the company was the sole trustee of the fund. Rule 14(ii) of the
scheme's rules provided that in the event of the scheme being wound up the benefits
secured at the date of the discontinuance were to be dealt with in accordance with
r 12 or the scheme was to be wound up under r 15. Rule 12 provided, inter alia, for the
transfer of benefits to another retirement scheme at the request of a member. Rule
15(i) provided that on a winding up of the scheme the entitlement to benefits of
existing pensioners and members who had previously left service was to remain
unaltered and all other members of the scheme were to be entitled to benefits as if
they had left the company's employment on the date of the winding up provided,
however, that the liability of the trustee was limited to securing pensions and
associated benefits for existing and prospective pensioners and dependants in the
manner and sequence prescribed by paras (a) to (f) of r 15(i). Paragraph (f) gave the
trustee power in its discretion to increase benefits for prospective pensioners.
Paragraph (g) provided that any balance remaining after provision was made in
accordance with paras (a) to (f) was to be paid to the company. Under s 11(3)a of
the Social Security Act 1990 no payment was to be made out of an occupational
pension scheme to an employer until provision had been made for every pension
under the scheme to be increased by a percentage equal to the statutory limited
price index increase. Rule 18 of the scheme provided for the alteration or
modification of the rules by the company provided, however, that no alteration or
modification could be made which reduced the benefits of a member which had
already accrued at the date of the alteration or modification. The liquidator of the
company, who was in the irreconcilable position of acting on behalf of both the
creditors and the trustee of the scheme, sought the determination of the court as to
how the surplus in the pension fund should be administered and in doing so
surrendered to the court the exercise of any discretion vested in the company as
trustee of the scheme. The questions arose (1) whether the power of alteration
contained in the declaration of trust and the scheme rules could still be exercised
even though under the rules the scheme was required to be wound up, (2) whether s
11(3) of the 1990 Act applied to the scheme and (3) how the court should exercise
the discretion conferred on the trustee by r 15(i)(f).

Held - (1) On the true construction of the rules the effect of the coming into operation
of r 14(ii) on the company being wound up was to exclude the entirety of the
winding-up provisions in r 15(i) from the company's power of alteration since r 14(ii)
provided for the consequences of a winding up in terms which were inconsistent with
the company retaining any right thereafter to change the rules so far as those
consequences were concerned and r 18 could not have been intended to enable
the company to change the rules once the machinery under r 14(ii), including a
winding up of the scheme under r 15, had been put into operation.
(2) On its true construction s 11(3) of the 1990 Act applied to every pension which was
prospectively payable or was already being paid under the scheme on the date the
company went into liquidation, ie 28 November 1984. If a pension fund was in surplus
the employer was precluded from taking or receiving the surplus out of the scheme
unless the condition for payment, namely that provision was made for every pension
under the scheme to be increased by a percentage equal to the statutory limited
price index increase, had been satisfied at the date when the payment out of the
scheme to the employer was to be made and, in the case of a scheme which was
being wound up, the pensions which were to have the benefit of the limited price
index increase before any payment of surplus to the employer could be made on a
winding up were those payable under the scheme, either actually or prospectively,
when the scheme went into liquidation.

Car-2-ndou ‘09 186

(3) When exercising the discretion conferred on the trustee by r 15(i)(f) the court had
to act in the manner which a reasonable trustee could be expected to act having
regard to all the material circumstances and would do what was just and equitable.
However, having regard to the text and drafting of r 15(i)(f), the discretionary power
to increase benefits contained in the rule only applied to prospective pensions and
could not be used to increase benefits for existing pensioners. Taking into account all
the relevant factors, namely the purpose of the power, which was to compensate
early leavers for erosion by inflation, the source of the surplus, the size of the surplus
and the impact of s 11(3) of the 1990 Act, the financial position of the employer and
the size of the deficiency on its winding up, and the needs of the members of the
scheme, the discretion conferred by para (f) should be exercised in a manner which
would (1) enable s 11(3) to operate fully, (2) increase deferred pensions by limited
price indexing and (3) enable the balance to go to the creditors, subject only to any
payments which the trustee might be compelled to make under European law.

Imperial Group Pension Ltd. v. imperial Tobacco Ltd [1991] 2 ALLER 597
Pension - Pension scheme - Company pension scheme - Pension benefits payable to
members - Increase in pension benefits payable to members - Consent of company
to increases - Company pension scheme managed by committee of management -
Scheme having substantial surplus - Increases in pension benefits made by
amendment of rules with consent of company - Right to increase pension benefits
payable to members of scheme - Whether committee of management having
power to increase pension benefits without company's consent - Whether company
entitled to withhold consent - Whether company's right to give or withhold consent
subject to obligation to act in good faith.

The pension fund of a major public company was established by a trust deed dated
4 April 1929 to provide pensions for employees of the company and their
dependants. The fund was administered by two corporate trustees, the first and
second plaintiffs, and a committee of management (the committee), the third to
eighth plaintiffs. The scheme was a contributory scheme, members having to pay
contributions annually. Until 1985 the rules of the fund made under the trust deed
contained no express provision for increasing the pension benefits payable to
members. However, from 1970 to 1985 the pension benefits were in practice
increased at or rather less than the rate of increase in the retail price index (the RPI).
Those increases were made under cl 36 of the deed, which provided for amendment
of the rules with the written consent of the company.
In 1985, when a take-over bid for the company by another public company, H plc,
was imminent, two amendments were made to the rules, the first providing for the
automatic closure of the fund to new members in the event of any person or
company acquiring control of the company and the second introducing a new r
64A, which provided that all pensions' shall be increased by at least the lesser of (a)
5% and (b) the same increase as shall have occurred in the index of retail prices'. H
plc's bid for the company succeeded and the company was taken over on 18 April
1985, at which date the fund was automatically closed. Under cl 43 of the trust deed
the surplus of the fund, amounting to at least £130m, had to be applied for the
benefit of the members and did not revert to the company. The committee sought
assurances from the company's new management, which wished to reopen the fund
to new members that it would continue to observe the previous practice of
increasing pensions in line with increases in the RPI. However, the position, as the
committee understood it, was that the company would not agree to any further
increase in pensions over that guaranteed by r 64A, ie inflation linking up to a
maximum of 5%. The company decided that the fund should remain closed and
inaugurated a new non-contributory scheme, the retirement benefit scheme (the
RBS), to provide pensions for new employees and indicated that it was prepared to
approve the inclusion in the rules of the RBS of a legal guarantee of annual pension

Car-2-ndou ‘09 187

increases equal to the lesser of 15% or the percentage increase in the RPI for RBS
pensioners and members of the RBS at the point of retirement who agreed to
surrender a proportion of their pension entitlement according to age in return for the
improved guarantee. Under the RBS any ultimate surplus was to be returned to the
company. Members of the fund were given the opportunity to transfer their
membership to the RBS, taking with them their aliquot share of the fund. The
committee took the view that transfer from the fund to the RBS was beneficial to the
members and recommended such transfer. The plaintiffs issued an originating
summons seeking the determination of the court on two questions relating to the
ability to increase the pension benefits payable to members of the fund, viz (i)
whether the committee had power under r 64A without the consent of any other
person to increase pension benefits above the minimum increase stipulated in r 64A
and (ii) if the company's consent was required, whether there were any constraints
on the company granting or withholding its consent. The pensioners and employed
members contended that since r 64A stipulated that pensions were to be increased
by 'at least' the lesser of 5% or the percentage increase in the RPI it was to be implied
that a decision had to be taken each year on the amount of the increase and that
that decision could only be taken by the committee, in whom alone was vested
authority and discretion under the deed establishing the fund, and they further
contended that if the company's consent was required it could not be unreasonably
withheld.

Held - (1) On its true construction r 64A provided for a guaranteed minimum increase
each year and did not confer on the committee a unilateral right to increase pension
benefits above the minimum increase stipulated in that rule. Greater increases could
only be awarded by amending the rules under cl 36 of the deed with the consent of
the company.
(2) Although it was impossible to impose a condition of reasonableness on a
company's right to give or withhold its consent to an increase in the pension benefits
payable to members of its pension fund, its right to give or withhold its consent was
subject to the obligation of good faith implied in every contract of employment
requiring it to exercise its rights in such way as not to destroy or seriously damage the
relationship of confidence and trust between it and its employees and former
employees. The trust deed and the rules of the company's pension scheme likewise
gave rise to an obligation of good faith on the company's part. Accordingly,
although the company was entitled to look after its own interests, financial and
otherwise, in the future operation of the fund, its right to give or withhold its consent to
an amendment under cl 36 to permit increases in the pension benefits payable to
members had to be exercised in good faith, which required it to exercise its rights with
a view to the efficient running of the scheme established by the fund and not for the
collateral purpose of forcing members to give up their accrued rights in the existing
fund which was subject to the scheme. Thus a blanket refusal by the company to
consider amendments under cl 36 to permit increases in the pension benefits would
be a breach of its obligation of good faith. It followed that if the company's purpose
in withholding consent to increased benefits out of the fund was to force members to
transfer the surplus of the fund to the RBS, the surplus of which belonged to the
company, the company would be acting unlawfully.

Megary in Cowan v. Scargill (supra) breaks the duty of the managers

into six rules, which are:
1. Trustee of pension fund is to exercise the powers in the best
interests of the present and future beneficiaries.

Car-2-ndou ‘09 188

 2. The trustee is to put aside personal interests and views.
3. Trustees are to look broadly to the general prosperity of
company by investing and not to restrict benefit merely to
financial benefit but look at the general welfare
4. Trustee is to take reasonable managerial care of a prudent man.
5. Trustee need to diversify the investments
6. Trust not to refuse to invest due to social or political reasons yet if
they invested it would have to be more financial benefit to the
beneficiaries.
See Edge v. Pension Ombudsman [1998] 2 ALLER 547;
Pension - Pension scheme - Maladministration of pension scheme - Jurisdiction of
Pensions Ombudsman - Exercise of jurisdiction of Pensions Ombudsman - Trustees of
pension scheme amending rules by deed of amendment - Pensions Ombudsman
holding that trustees had acted in breach of trust and directing deed of amendment
to be set aside - Deed of amendment depriving members who were not parties to
proceedings of proprietary rights to which they were entitled - Whether ombudsman
having jurisdiction to set aside deed of amendment - Whether trustees under duty to
act impartially when exercising discretionary powers between various beneficiaries -
Whether trustees who were members in service accountable for any benefit resulting
from exercise of discretion because of conflict of interest - Pension Schemes Act 1993,
s 146.

By deed dated 17 August 1993 the trustees of the pension scheme, under which
contributions were payable both by the employers and the employee members,
made certain amendments to the rules, reducing the contributions to be paid by
members and providing an additional pension for the members in service at 1
April 1994. A number of pensioners complained that the amendments were unjust
and took their complaint to the Pensions Ombudsman, inviting him to exercise his
powers under Pt X of the Pension Schemes Act 1993. There was no oral hearing. An
adequate opportunity to comment on the complaints was duly given to the trustees
but not to anyone else. On 14 July 1997 the ombudsman gave a written
determination of the complaint: he held that the trustees had acted in breach of trust
in making the amendments in question and that the additional pension benefit and
the reductions in members' contributions had not been validly introduced; and he
directed that the scheme should be administered on the basis of the rules as they
stood prior to the deed of amendment, effectively depriving members who were not
parties to the proceedings and were not bound by the determination of proprietary
rights to which they were apparently entitled. The trustees appealed, contending that
the long and careful consideration they had given to the amendments to the rules
had been appropriate and proper and that their decision, taken on 30 April 1993,
was within their powers and validly reached. They also appealed against the
ombudsman's determination that the trustees who were members in service were
accountable for any benefits to which they had already or might in future become
entitled under the deed of amendment, since they would be benefiting from a
conflict of interest and duty.

Held - (1) By virtue of s 146(1) and (2)a of the Pension Schemes Act 1993, the Pensions
Ombudsman had jurisdiction to entertain any complaint of maladministration and to

Car-2-ndou ‘09 189

determine any dispute of fact arising out of any such complaint. However, he should
not entertain a complaint or a dispute of fact or law except in circumstances in
which those whose proprietary interest would be adversely affected by his
determination of the issues had had a fair opportunity to make representations in
defence of their interests and where they would be bound by his determination.
Accordingly, the ombudsman had no power, in a case of alleged breach of trust, to
direct remedial steps to be taken that were not steps that a court of law could
properly have directed to be taken. In the instant case, having regard to the
respective positions of the employee members and the employers, the ombudsman
had no power to order the deed to be set aside or direct the trustees to take steps
that could only be justified on the basis that it had been set aside.
(2) Moreover, references to a duty of impartiality were inapposite where what was at
issue was a discretionary power to choose between different beneficiaries. Although
a judge might disagree with the manner in which the trustees had exercised their
decision, he could not interfere unless they had taken into account irrelevant,
improper or irrational factors, or their decision was one that no reasonable body of
trustees properly directing themselves could have reached. In the instant case, the
Pensions Ombudsman's findings did not justify the conclusion that the trustees'
decision was taken in breach of trust.
(3) Furthermore, in circumstances where the rules contemplated that, as trustees, the
employee members would from time to time have to exercise discretion in which their
duty and interest might conflict, there was no rule of equity which required them to
account for the benefits that a proper exercise of discretionary powers might
produce for them. Accordingly, the member trustees were not accountable for
benefits accruing to them, whether in respect of reduced contributions or the
additional service benefit as a result of their decision taken on 30 April 1993.

Re Whiteley [1886] 33 Ch 3471;

Re Imperial foods Ltd Pension Scheme [1986] 2 ALLER 802
Pension - Pension scheme - Company pension scheme - Valuation of fund - Transfer
of part of fund - Company selling subsidiary and transferring portion of its pension
fund to purchaser's fund - Fund in surplus - Appropriate method of valuation of
separate portion - Whether past service reserve or share of fund appropriate method
of valuation.

In 1980 a public company set up a voluntary pension scheme for employees of the
company and its subsidiaries. Under the rules of the scheme the employee members
made specified contributions (which were insufficient to finance the benefits to which
members were entitled under the scheme) and the company made up the amount
required to provide those benefits. The rules further provided that in the event of a
subsidiary ceasing to be such the trustees of the scheme were to set aside a portion
of the fund (the separated portion) which was to be transferred to a new or existing
scheme or dealt with as if the scheme was being dissolved. The separated portion
was to be such portion of the fund as an appointed actuary determined was
appropriate in all the circumstances. In 1982 the company sold two of its subsidiaries
to another company, which set up a new pension scheme for those employees of
the two subsidiaries who opted to transfer to the new scheme. In determining the
amount of the separated portion to be transferred over to the purchasing company's
new scheme the appointed actuary made his valuation using the past service
reserve method (being the amount of assets required to meet pension benefits for
service rendered to date) with allowance for future pay and pension increases. At
the time when the actuarial calculation was carried out the fund had a surplus over
and above the amount required to meet the actuarial liabilities of the scheme. The
plaintiffs, four employees transferring to the purchasing company's scheme and the
purchasing company itself, sought a declaration that the actuary's certificate of the

Car-2-ndou ‘09 190

amount of the separated portion was void claiming that instead of using the past
service reserve method the actuary ought to have used the share of fund method,
which would have increased the amount of the separated portion.

Held - The actuary's valuation of the separated portion could not be impeached
because the circumstances were such that the past service reserve method could be
used by a competent actuary, and there had been no mistake or improper motive
on the part of the actuary when carrying out the valuation. The claim would
therefore be dismissed.

Per curiam. If a company pension fund is in surplus and the company has a right to
reduce its contribution to bring the fund into strict actuarial balance, the share of
fund method is inappropriate to calculate that portion of the fund which is to be
transferred to another scheme as the result of some employees transferring to the
other scheme, because either the employer could reduce its contribution or the
surplus could remain a surplus indefinitely so that there would be no certainty that the
surplus would be used to benefit members, and even if it were to be so used it would
have to be shared with later entrants to the scheme. Furthermore, in the event of a
separation, the past service reserve method would fully meet the entitlement and
expectations of separating members while not altering the strict entitlement and
realistic expectations of members who continue in the fund.

-The trust is the primary legal framework for the pension, especially the
occupational pension scheme because of the following reasons:
a. Avoidance of conflict of interest
b. The technical expertise and distance required
c. Some fiscal advantages enjoyed by trusts
d. Security of assets
e. Social investing
-Principles that apply to other trusts should also apply to pension fund
though it has to be interpreted with the commercial background.

Car-2-ndou ‘09 191

Cooperative Trusts (Society)
It is also characteristically associated with the commercial world. A
cooperative in Malawi is defined in section 2 of Cooperative Societies
Act 1998 as “an autonomous association of persons united voluntarily
to meet their common economic and social needs in accordance
with cooperative principles through a jointly owned and
democratically controlled enterprise.”
-They draw largely from principles of trust notions in their operation e.g.
cooperative society is premised on the following factors:
a. Voluntary membership
b. Democratic management of the society
c. Just distribution of surplus income
d. Payment of limited return on capital
e. Promotion of self reliance
f. Principle of non-discrimination of societies affair
-Cooperative Societies Act regulates credit unions and all societies that
pool resources together. There are rules of the association and rights
that are derived thereof. See sections 14-17, 29-30, 42-50, 89.

Capital Market
The Act that regulates the capital market is capital market
development Act 1990. Capital market is defined in the Act as the
totality of financial markets in the country. The financial mechanisms in
the country include:
1. Unit trusts
2. Mutual funds
3. Investment companies
4. Investment trusts
5. Collective saving schemes
6. Credit unions

Car-2-ndou ‘09 192

7. Micro-credit schemes

-So in all these financial mechanisms trust notions are used.

Section 3 of Capital Market Development regulates the operation of
these financial mechanisms. The Reserve Bank of Malawi must licence
them to operate. This Act provides that the RBM is to do the following:
1. Encourage enterprises to raise finances through securities
2. Encourage investments in securities
3. Foster the development of fair and orderly financial markets
4. Develop the capital market

Duties Conferred on those who run Capital markets reflect Trust notions.
They are prohibited to do the following:
1. Insider dealing is prohibited—this is where one uses the
confidential information which is at his disposal to benefit himself.
So no unauthorised use of insider information
2. Bribery is prohibited
3. No raising or depressing of security prices
4. No giving of false and misleading information
See sections 35-46

-The injured party retains a right to sue for compensation, rescission or

damages against the violator. See section 49

Commerce and Credit

Customers make advance payment, loans and trust notions like

resulting and constructive trust have been used to protect these
advance payments, security of loans made and payments of goods in
cases where the buyer becomes insolvent.

Car-2-ndou ‘09 193

Prepayment
Trust is relevant to this notion of prepayment.
See Re Kayford [1975] 1 ALLER 604;

To protect purchasers entering into commercial transactions

A customer who makes an advance payment for goods may be entitled to utilise the
trust concept in order to secure the return of the purchase money in the event of the
company going into liquidation:

Re Kayford [1975] 1 WLR 279,HC

Facts
Customers made advance payments to a mail order company when ordering goods.
Following advice, the company paid these sums into a separate account. The company
treated funds in this account as belonging to customers until the goods were delivered
in accordance with the order. On the liquidation of the company, the issue arose as to
ownership of the funds in the bank account.
Held
The funds were impressed with a trust in favour of the customers who failed to receive
their goods.

Re Goldcorp Exchange [1995] 1 AC 74 the case concerned a company in

New Zealand which dealt in gold bullion and other precious metals. Customers
purchased what was described as ‘non-allocated metal’, which would be held for
them by the company free of charge. They were entitled to take physical delivery of
the metal by giving seven day’s notice, at which point it would be appropriated from
the metal which the company held in bulk. It was argued that the company stood in
a fiduciary relationship to the customers, but Privy Council held that their relationship
was purely contractual. The court further held that customers could not establish that
the company was holding the metal on trust for them because it was impossible to
identify the specific metal derived from each customer’s individual investment. The
customers were unable to establish the trust hence limited to a contractual claim
against the company for the return of their investment. A trust will also cease to exist if
all the property subject to is destroyed or dissipated.

Sale of goods - Title - Unascertained goods - Generic goods - Purchasers buying gold bullion
for future
delivery from company dealing in bullion - Dealer holding non-allocated stocks of bullion for
customers -
Company becoming insolvent and having insufficient stocks of bullion to satisfy debt owed to
secured
creditor - Non-allocated claimants asserting proprietary interest to bullion held by company -
Whether
non-allocated claimants entitled to proprietary interest in company's bullion stocks in priority
to secured
creditor - Whether contract for sale of unascertained goods conferring equitable title to goods.
The respondents (the 'non-allocated claimants') were customers of a New Zealand company
which dealt in
gold and other precious metals. They purchased bullion for future delivery on terms that they
were
purchasing 'non-allocated metal' which would be stored and insured free of charge by the
company. An

Car-2-ndou ‘09 194

investor who purchased non-allocated metal received a certificate of ownership and had the
right on giving
seven days notice to take physical delivery of the metal purchased. It was explained or
represented by and
on behalf of the company that bullion purchased was not set aside as a customer's metal, but
was instead
stored in safe-keeping as part of the company's overall stock of bullion and was insured by
the company and
that the stock of bullion held by the company from which customers could call for delivery if
they so wished
would always be sufficient to meet the company's obligations under all outstanding contracts
of sale. The
company became hopelessly insolvent and a bank holding a debenture from the company
appointed
receivers. At the date of the appointment of the receivers, when the bank's floating charge
crystallised, the
company held stocks of bullion but the debt secured by the bank's debenture and floating
charge exceeded
the entire assets of the company, including the stocks of bullion. No appropriation of specific
and segregated
parcels of bullion to the individual purchase contracts of non-allocated claimants had been
made and, faced
with the prospect of obtaining nothing in the company's insolvency, the respondents brought
claims of a
proprietary nature claiming to be entitled to trace their proprietary interest to the remaining
stock of bullion.
They later asserted claims to the moneys paid under the various purchase contracts, or to a
proportion of the
company's general assets which represented the moneys so paid. The receivers applied to
the High Court
for directions concerning the disposal of the remaining bullion. At first instance the judge
rejected the claims
of the non-allocated claimants. On appeal, the New Zealand Court of Appeal held that the
non-allocated
claimants had no proprietary rights to the bullion but by a majority allowed their appeal,
holding that the
entire amount of the purchase moneys could be traced into the general assets of the
company on the basis
that the company stood in a fiduciary relationship to the non-allocated claimants and from the
moment of
payment of the purchase price received those monies on trust, and accordingly the non-
allocated claimants
had a charge over (1) An equitable title could not pass under a simple contract for the sale of
unascertained goods merely by
virtue of the sale, since the buyer could not acquire title until it was known to what goods the
title related.
Accordingly, where customers of a company purchased goods for future delivery and the
company became
insolvent before there was any appropriation of specific and segregated parcels of goods to
the individual
purchase contracts the customers could not assert a proprietary interest in the non-allocated
goods. It
followed that property in non-allocated metal held by the company did not pass to the non-
allocated
claimants simply by virtue of the contract of purchase (see p 813 h j, p 814 b d h j and p 815
b, post).
(2) The bullion purchased by the non-allocated claimants was unascertained goods in the
nature of generic
goods sold on terms that the company as the seller was free to decide for itself how and from
what source it

Car-2-ndou ‘09 195

would obtain goods answering the contractual description. On that basis it could not have
been intended by
the parties that the company would create an interest in its general stock of bullion which
would inhibit any
dealings with it otherwise than for the purpose of delivery under the non-allocated sale
contracts or that a
customer's rights would be fixed by reference to a shifting proportion of a shifting bulk,
depending on the
quantity of bullion held by the company at any one time and the number of purchasers who
happened to
have open contracts at that time for goods of that description. It followed that, the remaining
stocks of bullion
being generic goods, it was not possible to impose a declaration of trust over that bullion
arising out of the
collateral promises made by or on behalf of the company as to storage, safe keeping,
insurance and the
maintenance of a separate stock of bullion. Nor could the collateral promises give rise to a
title based on
estoppel since although the company may have represented to its customers that they had
title to bullion
held by the company, a representation could not confer a deemed title by estoppel over
generic goods when
there was never a fixed bulk of goods from which an individual title could be carved out. In
any event, it was
doubtful whether an estoppel could ever confer title to goods which were the subject matter of
the estoppel
but it certainly could not against a third-party creditor possessing a real proprietary interest in
the subject
matter. Furthermore, the collateral promises made by or on behalf of the company did not
impress on the
bullion, as and when it was acquired by the company, either a trust in favour of each
purchaser or a trust
arising out of a floating bailment in respect of the constantly changing undifferentiated bulk of
bullion which
should have been set aside to back the customers' contracts, since that could not be
reconciled with the fact
that the purchases were of generic goods and not purchases ex-bulk and the body of
potential beneficiaries
and the pool of available bullion was constantly changing
[1994] 2 All ER 806 at 807
Re Goldcorp Exchange Ltd [1994] 3 WLR 199,PC
Facts
Goldcorp Exchange Ltd (the company), a dealer in gold and other precious metals,
was put into receivership by the Bank of New Zealand under the terms of a debenture
issued by the company. The company in its promotional literature had made excessive
claims and attracted a great deal of interest from members of the public. Amongst its
assets was a stock of gold, platinum and silver bullion. This stock was insufficient to
satisfy the claims of members of the public who had purchased precious metals for
future delivery. The debts secured by the debentures and floating charges were in
Chapter 21: Breach of Trust 621
excess of the entire assets of the company, so that if the secured interest of the bank
was satisfied in preference to the claims of the purchasers, the latter were entitled to
nothing. The private investors asserted proprietary claims in respect of the bullion.
They were classified into three categories. The first and largest category comprised
those customers who were referred to as ‘non-allocated claimants’. These were
customers who had purchased bullion for future delivery. The second category of
claimant was Mr Liggett, who purchased specific gold coins from the company and
agreed to buy a further 1,000 coins on a non-allocated basis and to store all the coins
with the company. The company subsequently acquired a substantial quantity of gold

Car-2-ndou ‘09 196

coins, but not expressly for him. The third category of claimants consisted of those
who had made contracts for the purchase of bullion from Walker & Hall Commodities
Ltd (W Ltd) before the business of that company was acquired by Goldcorp Ltd. The
receivers applied to the court for directions concerning the disposal. The High Court
rejected the claims of the first two categories of claimants but allowed the claims of W
Ltd’s customers. The Court of Appeal of New Zealand allowed the appeals of the first
and second categories of claimants, on the ground that these claimants had retained
beneficial interests in the purchase moneys paid under the contracts of sale. Such
interests entitled the claimants to trace into the general assets of the company in
priority to the bank’s charges. The Court of Appeal also declared that customers of W
Ltd were in the same position. The receivers and bank appealed to the Privy Council.
Held
(a) The first and second category of claimants had contracted to purchase unascertained
goods in which no property passed to them in law or in equity immediately on
making the purchases.
(b) The collateral promises made in the company’s brochures and by its employees did
not constitute declarations of trust by the company in favour of the customers.
(c) The company did not become a fiduciary towards its customers.
(d) The company did not become a trustee of the purchase moneys for each customer
and, as such, was entitled to spend such sums as it wished.
(e) The bullion belonging to W Ltd’s claimants comprised the lowest balance thereof
held by the company at any time.
Lord Mustill: On the facts found by the judge, the company as bailee held bullion belonging to
the individual Walker & Hall claimants, intermingled the bullion of all such claimants, mixed that
bullion with bullion belonging to the company, withdrew bullion from the mixed fund and then
purchased more bullion, which was added to the mixed fund, without the intention of replacing the
bullion of the Walker & Hall claimants.In these circumstances, the bullion belonging to the Walker
& Hall claimants which became held by the company’s receivers consisted of bullion equal to the
lowest balance of metal held by the company at any time: see James Roscoe (Bolton) Ltd v Winder
[1915] 1 Ch 62 ...
The Walker & Hall claimants now seek to go further and ask the court to impose an equitable lien
on all the property of the company at the date of the receivership to recover the value of their
bullion unlawfully misappropriated by the company.Such a lien was considered by the Board in
Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR
1072.In that case the Board held that beneficiaries could not claim trust moneys lawfully
deposited by a bank trustee with itself as banker in priority to other depositors and unsecured
creditors.But Lord Templeman considered the position which would arise if a bank trustee
unlawfully borrowed trust moneys.He said, at p 1074:
622 Cases & Materials on Trusts
A bank in fact uses all deposit moneys for the general purposes of the bank.Whether a bank
trustee lawfully receives deposits or wrongly treats trust money as on deposit from trusts, all
the moneys are in fact dealt with and expended by the bank for the general purposes of the
bank.In these circumstances, it is impossible for the beneficiaries interested in trust money
misappropriated from their trust to trace their money to any particular asset belonging to the
trustee bank.But equity allows the beneficiaries, or a new trustee appointed in place of an
insolvent bank trustee, to protect the interests of the beneficiaries, to trace the trust money
to all the assets of the bank and to recover the trust money by the exercise of an equitable
charge over all the assets of the bank.
These observations were criticised by Professor Goode in his ‘Mary Oliver Memorial Address’
(1987) 103 LQR 433, pp 445–47, as being inconsistent with the observations of the Court of
Appeal in In Re Diplock [1948] Ch 465, p 521, where it was said:
The equitable remedies presuppose the continued existence of the money either as a separate
fund or as part of a mixed fund or as latent in property acquired by means of such a fund.If,
on the facts of any individual case, such continued existence is not established, equity is as
helpless as the common law itself.If the fund, mixed or unmixed, is spent upon a dinner, equity,
which dealt only in specific relief and not in damages, could do nothing.If the case was one
which at common law involved breach of contract the common law could, of course, award
damages but specific erlief would be out of the question.It itsh,erefore, a necessary matter of r

Car-2-ndou ‘09 197

consideration in each case where it is sought to trace money in equity, whether it has such a
continued existence, actual or notional, as will enable equity to grant specific relief.
In the present case it is not necessary or appropriate to consider the scope and ambit of the
observations in the Space Investments case [1986] 1 WLR 1072 or their application to trustees
other than bank trustees, because all members of this Board are agreed that it would be inequitable
to impose a lien in favour of the Walker & Hall claimants.Those claimants received the same
certificates and trusted the company in a manner no different from other bullion customers.There
is no evidence that the debenture holders and the unsecured creditors at the date of the
receivership benefited directly or indirectly from the breaches of trust committed by the company
or that Walker & Hall bullion continued to exist as a fund latent in property vested in the receivers.
In these circumstances, the Walker & Hall claimants must be restored to the remedies granted to
them by the trial judge.
The same principle was applied in Bishopsgate Investment v Homan concerning an
attempt to trace into a bank account which was overdrawn at one point in its history.

Bishopsgate Investment Management Ltd v Homan [1994] 3 WLR 1270,CA

Facts
BIM Ltd was trustee of certain assets of pension schemes, held on trust for the benefit
of employees and ex-employees of Maxwell Communication Corporation plc (MCC).
MCC fraudulently paid these assets into its overdrawn account. The liquidator of BIM
claimed to be entitled to an equitable charge in priority to all of the other unsecured
creditors of MCC. The judge refused to make the order. The plaintiff appealed.
Held
Equitable tracing did not extend to tracing through an overdrawn account, whether
overdrawn at the time the money was paid into the account or subsequently. The court
applied the principle in Roscoe v Winder and distinguished the Space Investments case:
Dillon LJ:

See also Re Wait [1926] ALLER 433. Constructive trust was utilised in
these cases in favour of the people who had made the initial
contribution order and the money was not supposed to be used to foot
the company’s debts.

Security of Loans and Bank

-If the purpose for which the loan was made for fails, resulting trust will
be invoked.
See;
Barclays Bank Ltd. v. Quistclose Investment Ltd (1970) AC 567 where a
company called Rolls Razor Ltd was in severe financial difficulties. A financier was
willing to lend them some money if they could meet an ordinary share dividend of
210,000 pounds. They obtained a loan for Quistclose on the agreed condition that it
would only be used to pay the dividend and for that purpose the money was to be
kept in a separate bank account. Before the dividends could be paid, Rolls Razor
went into a voluntary liquidation. The House of Lords held that, because of the
exclusive purpose for which the loan was made, the money was received by Rolls

Car-2-ndou ‘09 198

Razor in the fiduciary character of a trust to pay the dividend. Since that purpose had
failed, there was a resulting trust in favour of the lenders.

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567,HL

Facts
The defendant, Quistclose Ltd (Q Ltd), loaned £209,719 to Rolls Razors Ltd (R Ltd) on
the agreed condition that the latter would use the money to pay a dividend to its
shareholders. Q Ltd’s cheque for the relevant sum was sent to R Ltd with a covering
letter dated 15 July 1964 which reiterated the purpose of the loan thus, ‘We would like
to confirm the agreement reached with you this morning that this amount will only be
used to meet the dividend due’. Q Ltd’s cheque was paid into a separate account
opened specifically for this purpose with Barclays Bank Ltd which knew of the
purpose of the loan.
Before the dividend was paid, R Ltd went into voluntary liquidation and Barclays
Ltd claimed the amount to set off against the overdrafts on R Ltd’s other account at the
bank.
Held
The terms of the loan were such as to impress on the money a trust in favour of Q Ltd,
in the event of the dividend remaining unpaid. Further, Barclays had notice of the
nature of the loan and it was not entitled to set off the amount against R Ltd’s overdraft:
Lord Wilberforce: Two questions arise, both of which must be answered favourably to the
respondents if they are to recover the money from the appellants.The first is whether, as between
the respondents and Rolls Razor Ltd, the terms on which the loan was made were such as to
impress on the sum of £209,719 a trust in their favour in the event of the dividend not being paid.
The second is whether, in that event, the appellants had such notice of the trust or of the
circumstances giving rise to it as to make the trust binding on them.
It is not difficult to establish precisely on what terms the money was advanced by the respondents
to Rolls Razor Ltd.There is no doubt that the loan was made specifically in order to enable Rolls
Razor Ltd to pay the dividend.There is equally, in my opinion, no doubt that the loan was made
only so as to enable Rolls Razor Ltd to pay the dividend and for no other purpose.This follows
quite clearly from the terms of the letter of Rolls Razor Ltd to the appellants of 15 July 1964,
which letter, before transmission to the appellants, was sent to the respondents under open cover
in order that the cheque might be (as it was) enclosed in it.The mutual intention of the
respondents and of Rolls Razor Ltd and the essence of the bargain, was that the sum advanced
should not become part of the assets of Rolls Razor Ltd but should be used exclusively for
payment of a particular class of its creditors, namely, those entitled to the dividend.A necessary
consequence from this, by process simply of interpretation, must be that if, for any reason, the
dividend could not be paid, the money was to be returned to the respondents: the word ‘only’ or
‘exclusively’ can have no other meaning or effect.

Insolvency, Payments and Remedies available

-Where the seller sells goods but reserves the title and at the same time
authorises the buyer to resell on condition that the seller accounts to
him or her, if the buyer sells without the condition then the original seller
has a right to trace the proceeds. See Aluminium Industries v. Romalpa
[1976] 2 ALLER 552 where the plaintiffs supplied the defendants with aluminium foil,
of which the defendants had stock worth of 50,000 pounds. Under the terms of the
contract, title was not to pass to the defendants until they had paid all that was
owing to the plaintiffs, and they were required to store the foil in such a way that it
could be identified as the plaintiff’s property. Later the defendants sold the metal.

Car-2-ndou ‘09 199

Court held that the plaintiffs were entitled to the foil in the defendant’s hands and the
defendants were to account for the proceeds of the sale.
Sale of goods - Passing of property - Vendor retaining property in goods - Duty of purchaser
to account for
proceeds of sub-sales - Fiduciary duty as agent and bailee of goods - Right of vendor to trace
and recover
proceeds of sub-sales in priority to other creditors of purchaser - Contract reserving property
in goods after
delivery until full price paid - Implied power of purchaser to sell goods as agent of vendor -
Implied duty to
account to vendor for proceeds of sub-sales - Purchaser in financial difficulties - Receiver
appointed -
Whether vendor entitled to trace and recover proceeds of sub-sales in priority to secured and
unsecured
creditors.
The plaintiffs, a Dutch company which manufactured aluminium foil in Holland, sold quantities
of foil to the
defendants, an English company carrying on business in England. Clause 13 of the general
selling terms
and conditions which governed the individual contracts provided: 'The ownership of the
material to be
delivered by [the plaintiffs] will only be transferred to [the defendants] when [they have] met all
that is owing
to [the plaintiffs]. Until the date of payment [the defendants could be required] to store this
material in such a
way that it is clearly the property of [the plaintiffs].' Clause 13 then continued with elaborate
provisions to deal
with cases in which, after delivery, the foil had been mixed with other material by the
defendants for the
purpose of creating new 'objects'. The clause provided that in those circumstances the
ownership of any
such objects was to be transferred to the plaintiffs as 'surety' for 'full payment' and until full
payment had
been made the defendants were to keep the mixed goods for the plaintiffs as 'fiduciary
owner'. The
defendants were also given an express power of sale over such 'mixed' goods on condition
that, so long as
the defendants had not fully discharged their indebtedness to the plaintiffs, they were, on
request, to assign
to the plaintiffs the benefit of any claim against sub-purchasers. Subsequently the defendants
got into
serious financial difficulties and a receiver was appointed by the debenture holders. At the
date of his
appointment the defendants were indebted to the plaintiffs for over £122,000. Following his
appointment, the
receiver certified that £35,152 was held by him representing the proceeds of sale of unmixed
aluminium foil
supplied by the plaintiffs to the defendants and sold by the latter to third parties. The plaintiffs
claimed that,
by virtue of cl 13 of the general conditions, they were entitled to that sum in priority to the
secured and
unsecured creditors.
Held - In order to give effect to the obvious purpose of cl 13, that clause was to be construed
as conferring
on the defendants a power to sell unmixed foil and also as imposing on them an obligation to
account to the plaintiffs for the proceeds of sale unless and until all moneys owing from the
defendants to the plaintiffs had
Page 1

Car-2-ndou ‘09 200

been paid. Although, so far as sub-purchasers were concerned, the defendants sold the
unmixed foil as
principals, so far as the plaintiffs were concerned, the foil was the plaintiffs' property which the
defendants
were selling as agents for the plaintiffs to whom, by virtue of their fiduciary relationship as
agents and
bailees, they remained
[1976] 2 All ER 552 at 553
fully accountable. It followed therefore that the plaintiffs were entitled to trace the proceeds of
sale of the
unmixed foil and to recover them in priority to the secured and unsecured creditors.

See also Westdeutsche Bank v. Islington London Borough Council

(1996) AC 669
Contract - Failure of consideration - Recovery of money paid - Lump sum payment
made by bank to local authority under interest rate swap agreement - Payments also
made by local authority pursuant to agreement - Agreement being ultra vires the
local authority and void - Balance of lump sum recovered by bank - Whether local
authority liable to pay compound interest on balance from date sum paid – Whether
local authority holding funds on resulting trust - Whether bank entitled to simple
interest only.

Contract - Restitution - Interest rate swap agreement - Bank entering into interest rate
swap agreement with local authority - Agreement ultra vires the local authority -
Balance of lump sum recovered by bank – Whether compound interest recoverable
from date sum paid.

The plaintiff bank entered into a ten-year interest rate swap agreement with the
defendant local authority commencing on 18 June 1987. The interest payments,
which were payable half-yearly, were calculated on a notional principal sum of £25m
by reference to the difference between the fixed rate of interest (payable by the
bank) and the floating London Inter-Bank Offered Rate (payable by the local
authority). Additionally, the bank agreed to pay the local authority a lump sum of
£2·435m on the commencement date as the first of the fixed rate payments. By June
1989 the local authority had made four payments to the bank under the swap
agreement, totalling £1,354,474·4307. However, on 1 November 1989 the Divisional
Court of the Queen's
Bench Division held, in an unrelated case subsequently upheld by the House of Lords
in January 1991, that interest rate swap transactions were outside the powers of local
authorities and void ab initio. Thereafter the local authority made no further
payments. The bank subsequently brought an action against the local authority,
claiming inter alia repayment of £1,145,525·4393, being the amount of the initial lump
sum payment of £2·435m less the payments made by the local authority, and interest
as from 18 June 1987. The judge held that the bank was entitled to recover the
principal sum plus compound interest from 1 April 1990.
The Court of Appeal dismissed the local authority's appeal and allowed the bank's
cross-appeal from the judge's decision that the interest should run from April 1990. The
local authority appealed to the House of Lords against the award of compound
interest.

Held - (1) In the absence of agreement or custom the court had no jurisdiction to
award compound interest either at law or under s 35A of the Supreme Court Act 1981
and therefore, in a common law action for money had and received, the bank was
entitled to recover only simple interest under s 35A. Moreover, in the absence of

Car-2-ndou ‘09 201

fraud, the courts of equity had never awarded compound interest except against a
trustee or other person owing fiduciary duties in cases where the award was in lieu of
an account of profits improperly made by the trustee. The local authority, as a
recipient of money under a contract subsequently found to be void for mistake or as
being ultra vires, did not hold the money under a resulting trust, and there was no
other basis on which it could be regarded as owing fiduciary duties to the bank in
relation to the upfront payment of £2·435m.
(2) (Lord Goff and Lord Woolf dissenting) A claim for money had and received under
an ultra vires contract was a personal action based on the total failure of
consideration; it was not based on an implied contract or on an equitable proprietary
claim. Notwithstanding the strength of the bank's moral claim to receive full
restitution, it would not be appropriate to develop the law and award compound
interest on the ground that equity could act in aid of the common law; Parliament
had twice considered what interest should be awarded on common law claims and
had made it clear, both in s 3(1)a of the Law Reform (Miscellaneous Provisions)
Act 1934 and its successor, s 35Ab of the 1981 Act, that the award of compound
interest was not authorised.
It followed that the bank was entitled only to simple interest on the principal sum from
the date of accrual of its cause of action (ie 18 June 1987) and not compound
interest. The local authority's appeal would accordingly be allowed.

Unit Trusts
This is where different people pool their resources together. Trust notions
are utilised.

INCORPORATION OF TRUSTS

Trustee’s incorporation Act, cap. 5:03 stipulates the procedure for

incorporation of trusts.
Section 3 defines what entity qualifies to be charitable organisation or
association.

Charities and Association Incorporation

The Act does not define what charity is but the law is clear that a
charity can be for any of the following purposes:

Literary, Artistic, scientific, educational, Religious, public charitable.

Car-2-ndou ‘09 202

-If an association is not charitable but is for any of the following
purposes, then that association can be registered under the Act. The
purposes should be for the following:
Religious, educational, Literary, Artistic, Scientific, Social, Athletic,
Charitable and any purpose in the opinion of the minister is for the
benefit or welfare of the inhabitants of Malawi or any part thereof.
-In order to register copies of the constitution or relevant deeds must be
sent to the minister who will issue a certificate.
-The process taken to register an entity as a charity is very slow and
there is an avenue that it can be registered as company Ltd by
guarantee, which is a quicker process.

-Once the minister issues a certificate, it shows that the constitution has
complied with the Act. It is now an entity that can transact business.
The date the certificate is issued is the day of incorporation. See
section 3(5) of the Act. There are also Trustee’s incorporation rules at
the end of the Act, which deals with the amendments. See Rule 5 and
9 of Trustees Incorporation Act. The trustees who are registered are the
ones to remain accountable and liable. See sections 3 & 5 of the Act.

Incorporation of Cooperatives
They are registered under the cooperative Societies Act 1998.
Primary societies require a minimum of 10 members for the association
to be registered while secondary societies require a minimum of two
members to be registered. See section 5 of the Act. Once registered,
the societies are to comply with the following cooperative principles:
1. No bribery
2. No unauthorised benefits
3. No unauthorised use of insider information
4. Not to provide false or misleading information
5. Not to raise or lower prices unnecessarily.
See Sections 35-46 of the Act.

Car-2-ndou ‘09 203

Section 49 of the Act empowers the injured party to seek redress

PROPERTY RESOURCE MANAGEMENT AND THE TRUST

Fiduciary Principles, Powers and Duties of Trustees in the “Lower Sense”
Duties fiduciaries owe to beneficiaries can be reduced to the following:
1. Duty of the fiduciary not to put himself or
herself in a position where duty may conflict
with interest. A fiduciary is not to profit from
the trust nor to place himself at a position
where there is potential conflict between duty
and personal interest. See Bray v. Ford (1896)
AC 44 @ 51 per Lord Herschel
-It is a reasonable man’s understanding that is used to gauge where
there is a real possibility of conflict between duty and personal
interests.
-Liability comes when he/she gets an unauthorised profit by the fact
of his /her trusteeship. The law would not allow the profit to remain in
the hands of the errant party. Accounting is demanded even if the
profit would have been gotten out of good intentions
See- Boardman v. Phipps (1967) 2 AC 46
Trust and Trustee - Profit from trust - Account of profits - Agents for trust - Constructive
trustees - Shareholding of trust used to gain knowledge of affairs of company -
Solicitor to trustees and a beneficiary acquiring shares of the company, realising
assets and distributing profits from the realisation of assets – No sufficient disclosure of
personal interest to beneficiary - Remuneration allowable for work and skill in
acquiring shares and making profit.

The residuary estate of a testator, who had died in 1944, included eight thousand
shares in a private company, which had an issued share capital of thirty thousand
shares. The trustees of the testator's will were, in 1956, his widow (who was then senile),
a married daughter and an accountant. The beneficial trusts of the testator's
residuary estate were for its division, subject to an annuity to his widow, among his
children, of whom the respondent was one and was entitled to five-eighteenths of
the estate. At all material times the appellant B, acted as solicitor for the trustees and
for his co-appellant, P, a son of the testator. In 1956, B and the accountant trustee
decided that the position of the company was unsatisfactory and that something
must be done to improve it. Towards the end of 1956 B and P attended the
company's annual general meeting with proxies obtained from two trustees, the

Car-2-ndou ‘09 204

accountant and the daughter. They attended as representing the estate. Shortly
after this meeting B and P decided, with the knowledge of the two trustees, to
endeavour to obtain control of the company by themselves purchasing shares. The
trustees had no power to invest trust monies in shares of the company. B, purporting
to act on behalf of the trustees as shareholders, obtained information from the
company concerning the price at which shares had changed hands. The
negotiations for acquisition of shares were prolonged and passed through three
phases. During the second phase, from April, 1957, to October, 1958, B obtained
much information from the company by purportedly acting on behalf of the trustees.
in November, 1958, the widow trustee died. Ultimately, on 10 March 1959 (in the third
phase of negotiations) an agreement for the sale of £14,567 shares of the company
to B and P was signed and by the end of July, 1959, they had acquired, with other
purchases, 21,986 shares of the company. A considerable profit subsequently
accrued from capital distributions on these shares. The appellants had acted honestly
throughout. They appealed from a decision affirming an order declaring that they
held five-eighteenths of the shares on trust for the respondent and directing an
account of profits and an inquiry what should be allowed to B and P or either of them
for their work and skill in obtaining the shares. On this appeal it was not contended
that B and P had obtained the informed consent of the respondent beneficiary to
their purchase of the shares of the company.
Held - Viscount Dilhorne and Lord Upjohn dissenting): although the mere use of
knowledge or opportunity coming to a trustee or agent in the course of the
trusteeship or agency did not necessarily render him accountable for profit from its
use, yet in the present case, as both the information which satisfied B and P that the
purchase of the shares would be a good investment and the opportunity to bid for
them came to B and P as a result of B's acting or purporting to act on behalf of the
trustees for certain purposes (though not for the particular purpose of bidding), B and
P were constructive trustees of five-eighteenths of the 21,986 shares in the company
for the respondent and were liable to account to him for the profit thereon
accordingly.
(iii) there should be an inquiry as to what sum was proper to be allowed to B and
P or either of them in respect of their or his work and skill in obtaining the
shares and the profits thereon, such payment to be on a liberal .
(iv) Decision of the Court of Appeal (sub nom Phipps v Boardman [1965] 1 All ER
849) affirmed.
-Aberdeen Railway v. Blaike Brothers (1854) 1macq 461 at 47-

Company - Director - Duty of director - Promotion of interests of company - Prohibition

against entering into contract on behalf of company with himself or firm or company
of which he is a member – Companies Clauses Consolidation Act, 1845 (8 & 9 Vict, c
16) s 86.

It is the duty of a director of a company so to act as best to promote the interests of

the company. That duty is of a fiduciary character, and no one who has such duties
to discharge can be allowed to enter into engagements in which he has, or can
have, a personal interest which conflicts, or possibly may conflict, with the interests of
the company. A director, therefore, is precluded from entering on behalf of the
company into a contract with himself or with a firm or company of which he is a
member, and so strictly is this principle adhered to that no question can be raised as
to the fairness or unfairness of a contract so entered into. The application of the
principle is not affected by s 86 of the Companies Clauses Consolidation Act, 1845 [3
HALSBURY'S STATUTES (2nd Edn) 811], which provides that if a director "be either
directly or indirectly concerned in any contract with the company, or participate in
any manner in the profits of any work to be done for the company ... the office of
such director shall become vacant."
It confirms what Herschel said in Bray v. Ford (supra)

Car-2-ndou ‘09 205

 - Keech v. Sandford (1726) sel. Cas. Ch. 61
Trustee - Duty of trustee - Lease - Renewal refused for benefit of cestui que trust -
Grant to trustee - Duty to assign lease to cestui que trust and account.

The lease of a market was devised to a trustee for the benefit of an infant. Before the
expiration of the lease the trustee applied to the lessor for a renewal for the benefit of
the infant. The lessor refused to renew for the infant for various reasons, but granted a
renewal to the trustee for himself.

Held: the trustee must assign the lease to the infant and account for the profits, for
(per LORD KING, LC) if a trustee on the refusal to renew might have a lease to himself,
few trust estates would be renewed to the cestui que use, and, although there was
no fraud in this case, the trustee should rather have let the lease run out than have
had it renewed to himself.

-O’Sullivan v. Management Agency and music Ltd [1985] QB 428

Equity - Undue influence - Inequality of bargaining power - Assignment of copyright -
Vicarious liability for undue influence - Performer's manager persuading him to assign
copyrights in songs to companies controlled by manager - Manager acting in breach
of fiduciary duty and exerting undue influence on performer - Whether companies
liable for breach of fiduciary duty and undue influence.

Equity - Fiduciary duty - Remedy for breach of duty - Undue influence - Performer's
manager exerting undue influence on performer to enter into disadvantageous
contracts - Contracts fully performed and restitutio in integrum impossible - Whether
performer limited to contractual remedies or entitled to equitable remedies - Whether
performer limited to damages or entitled to account of profits. Interest - Damages -
Award of interest - Equitable jurisdiction - Simple or compound interest - Fiduciary duty
- Breach - Funds used in joint venture - Funds partly used for plaintiff's benefit -
Whether compound or simple interest should be awarded on sums due to plaintiff.

In 1970 the plaintiff, then a young and unknown composer and performer of popular
music, entered into a management contract with M, who had an international
reputation in the popular music business as a manager and producer. M controlled a
number of interrelated music companies, M being concerned with the artistic side
while an associate, S, ran the business side of the companies. The plaintiff who had no
business experience, trusted M implicitly and between 1970 and 1976 entered into
agreements with M's music companies, in particular (i) a recording agreement with
M's recording company, (ii) a publishing agreement with M's music publishing
company, (iii) an employment agreement with a company set up by M and S for tax
purposes to receive the foregin earnings of the plaintiff and other performers, (iv)
assignments of copyright pursuant to the publishing agreement, (v) a 'letter of
inducement' by which the plaintiff agreed to be bound by an agreement entered
into between M's parent company and a major record company for the exploitation
in North America of records made by the plaintiff and other performers. The
agreements were all prepared by S and signed by the plaintiff without the benefit of
independent professional advice and without M, as his manager, warning the plaintiff
that he ought to obtain independent advice. The effect of the agreements was to
bind the plaintiff to M and his companies completely on terms much less
advantageous to the plaintiff than if they had been negotiated at arm's length and
the plaintiff had had the benefit of independent advice. By 1972, with the help of M's
promotion, the plaintiff had become enormously successful but by 1976 the
relationship between the two had broken down. In 1979 the plaintiff issued

Car-2-ndou ‘09 206

proceedings against M and the companies controlled by him and the major record
company alleging that all the agreements were void because they had been
obtained by undue influence and were in unreasonable restraint of trade. The trial
judge upheld the plaintiff's claim and further held that, because M and S stood in a
confidential relationship to the plaintiff, they were fiduciaries. The judge made a
declaration that all the agreements, except the service agreement, were void and
unenforceable and ordered them to be set aside and further ordered that the
copyrights assigned under the agreements be reconveyed to the plaintiff, that the
master tapes of his recordings be delivered up to him, that an account be taken of
the profits made by M and the companies from the copyrights and the recordings,
and that compound interest be paid on the profits due to the plaintiff. M and the
companies accepted the judge's findings that there had been undue influence and
a breach of fiduciary duty on the part of M and S but appealed on the issues of the
companies' liability and the appropriate remedy. The companies contended that
since they had not been in a fiduciary relationship with the plaintiff and had not
exercised any undue influence over him they were not liable for the consequences of
the breach of fiduciary duty and undue influence that had occurred. On the
question of remedy, M and the companies contended that the agreements were
merely voidable as the result of being induced by undue influence, that the
appropriate remedy, namely restitutio in integrum, was inapplicable in the
circumstances because the agreements had all been performed and the parties had
irrevocably altered their positions, and that therefore the plaintiff was limited to
obtaining damages instead of reconveyance of the copyrights and delivery up of
the master tapes. The plaintiff contended that the appropriate relief where a
contract had been induced by undue influence was the equitable remedy of an
account of any benefit derived from the contract by the influencer.

Held - (1) Having regard to the facts that the companies were in the de facto control
of M and S and that M and S were acting in the course of their employment when
they exerted undue influence on the plaintiff, the companies were in a fiduciary
relationship with the plaintiff and were therefore subject to the same remedies
available to the plaintiff against M for exercising undue.
(2) The plaintiff was not barred from having the contract set aside by the fact that
restitutio in integrum was impossible because the contracts had been performed. A
contract entered into by a person in breach of a fiduciary relationship could be set
aside in equity even though it was impossible to place the parties in the precise
position in which they had been before, provided the court could achieve what was
practically just between the parties by obliging the wrongdoer to give up his profits
and advantages, while at the same time compensating him for any work he had
actually performed under the contract. Accordingly, the agreements between the
plaintiff and M's companies had been rightly set aside. However, in taking an
account of profits due to the plaintiff, M and the companies were entitled to be
allowed reasonable remuneration, including a profit element, for all work done by
them, whether gratuitously or under the agreements, to promote the plaintiff and
exploit his compositions, since they had made a significant contribution to the
plaintiff's success.
(3) Although compound interest could be awarded for breach of a fiduciary duty it
was not appropriate to make such an award in respect of the profits due to the
plaintiff, because although the money had been used by M and the companies for
their business purposes those purposes included the joint venture between the
companies and the plaintiff of exploiting the plaintiff's compositions and therefore
part of the money must accordingly have been used for the benefit of the plaintiff
himself. The plaintiff was therefore entitled only to simple interest on the sums repaid
to him.
-Cheese v. Thomas (1994) 1 WLR 129

Car-2-ndou ‘09 207

Equity - Undue influence - Appropriate relief - Transaction held to be manifestly
disadvantageous to plaintiff - Parties unable to be restored to original positions -
Elderly man and great-nephew - Both contributing to purchase price of house in
which both to have interest - Plaintiff entitled to live in house for rest of his life -
House thereafter belonging to defendant - Transaction manifestly unfair to plaintiff -
Transaction set aside - Restitution of parties to original positions - Sale of house - House
sold at loss - Whether distribution of proceeds of sale should be in same proportion as
contributions to purchase price.

In 1990 the plaintiff, who was born in 1904, and the defendant, who was the plaintiff's
great-nephew, agreed to buy a house for £83,000 for the purpose of providing
accommodation for the plaintiff for the remainder of his life. The plaintiff contributed
£43,000 towards the purchase price and the defendant contributed £40,000 by
means of a building society mortgage. The house was purchased in the defendant's
sole name and it was agreed that the plaintiff would live there until his death and it
would thereafter belong to the defendant. The defendant failed to keep up the
mortgage payments and the plaintiff, who felt that his security was threatened,
sought repayment of the £43,000 and brought proceedings against the defendant
claiming, inter alia, that the transaction should be set aside on the ground of undue
influence. The judge held that the transaction was manifestly disadvantageous to the
plaintiff and ordered that the house be sold and the proceeds of sale divided
between the plaintiff and the defendant in the same proportions as they had
contributed to the purchase price (ie 43:40) before the building society mortgage
was repaid. The house was sold for £55,000, a loss of over £27,000 on the purchase
price. The plaintiff appealed from the judge's order, contending that he was entitled
to have restored to him the benefits he had passed to the defendant under the
impugned transaction regardless of the fall in value of the property, ie repayment of
a sum equal to his contribution. The defendant cross-appealed from the finding that
the transaction was manifestly disadvantageous to the plaintiff.

Held - (1) When it ordered restitution the basic objective of the court was to restore
the parties, as closely as possible, to their original positions, consequent upon
cancelling a transaction which the law would not permit to stand. Relief would be
granted even if the parties could not be restored to their precise original positions
since the court would look at all the circumstances and do what was fair and just in
practical terms. Since the transaction between the plaintiff and the defendant had
involved both parties making a financial contribution to the purchase of a house from
which both were intended to benefit, it was axiomatic that when the transaction was
reversed practical justice should be achieved for both parties and not for the plaintiff
alone. Justice required that each party should be returned as near to his original
position as was possible and that the defendant should not be required to shoulder
the whole of the loss brought about by the fall in the market value. Accordingly, each
party should get back a proportionate share of the net proceeds of the house and
the judge had correctly decided that the proceeds of sale should be divided
between the parties in the proportions of 43:40. The plaintiff's appeal would therefore
be dismissed.
(2) The transaction was clearly disadvantageous to the plaintiff as he had used all his
money to purchase the right to live in a house for the remainder of his life and that
right was insecure and tied him to a particular house. The cross-appeal would
therefore be dismissed.
-Zgambo v. Kasungu Flue-cured Tobacco Authority (1989) 12 MLR
311.

Car-2-ndou ‘09 208

2. Obligation to manage resources of the trust with reasonable
prudence
-Needs to protect the trust property –preserve the capital
-Needs to attempt to generate as much income as possible for
the trust.
-Trustee is not obliged to exert any special skills but act as an
ordinary business man.
See Speight v. Gaunt [1883] 22 Ch D 727
EXECUTORS AND ADMINISTRATORS - PERSONAL REPRESENTATIVES' LIABILITIES - LIABILITY
FOR PERSONAL REPRESENTATIVES' OWN ACTS - LIABILITY TO BENEFICIARIES ON A
DEVASTAVIT - WHAT AMOUNTS TO DEVASTAVIT - LOSS ARISING THROUGH EMPLOYMENT
OF AGENTS - GENERAL RULE
I accept it as settled law that although a trustee cannot delegate to others the
confidence reposed in himself nevertheless he may in the administration of the trust
fund avail himself of the agency of third parties such as bankers, brokers and others if
he does so from a moral necessity or in the regular course of business. If a loss to the
trust fund should be occasioned thereby, the trustee will be exonerated unless some
negligence or default of his has led to that result (Lord Fitzgerald).

TRUSTS - ADMINISTRATION OF TRUSTS - POWERS OF TRUSTEES - POWER TO DELEGATE AND

EMPLOY AGENTS - NON-STATUTORY POWERS TO EMPLOY AGENTS - WHO MAY BE
EMPLOYED AND FOR WHAT PURPOSE - IN GENERAL - INVESTMENT OF TRUST FUNDS --
BROKER – USUAL COURSE OF BUSINESS FOLLOWED

A trustee investing trust funds is justified in employing a broker to procure securities

authorised by the trust and in paying the purchase-money to the broker, if he follows
the usual and regular course of business adopted by ordinary prudent men in making
such investments.

A broker employed by a trustee to buy securities of municipal corporations authorised

by the trust, gave the trustee a bought-note which purported to be subject to the
rules of the London Stock Exchange and obtained the purchase-money from the
trustee upon the representation that it was payable the next day, which was the next
account day on the London Exchange. The broker never procured the securities but
appropriated the money to his own use and finally became insolvent. Some of the
securities were procurable only from the corporations direct and were not bought
and sold in the market, and there was evidence that the form of the bought-note
would have suggested to some experts that the loans were to be direct to the
corporations; but (as the House held on the Facts) there was nothing calculated to
excite suspicion in the mind of the trustee or of an ordinary prudent man of business;
and such payment to a broker was in accordance with the usual course of business in
purchases on the London Exchange:

Held the trustee was not liable to the cestuis que trust for the loss of the trust funds.
As a general rule, a trustee sufficiently discharges his duty if he takes in managing trust
affairs all those precautions which an ordinary prudent man of business would take in
managing similar affairs of his own. There is one exception to this: a trustee must not
choose investments other than those which the terms of his trust permit, though they
may be such as an ordinary prudent man of business would select for his own money.

Car-2-ndou ‘09 209

 Re whitely [1886] 33 Ch D 347 per Lindley L.J

But if the trustee is a professional it means he/she has held out to

possess special skills therefore it is required to act professionally.
Trustee Act says Trustees can make two broad types of investment
- Narrower range investment – see part 1 of the schedule
-Wider range investment -- see part 2 of the schedule

Part 2 of the Trustee Act stipulates what the trustees can do to

preserve the capital and at the same time to increase the income.
S. 24 of the Trustee Act part 3 stipulates that the trustee’s power to
compound liability and take asserts of the trust. See Re Brogden
[1888] 38 Ch D 546

-The trust’s deed does spell out the powers of the trustees. If the
deed is silent then look up to the Trustees Act.
Trustees have powers not only to distribute trust property but also to
invest. So trustees are to make proper investments. In the
investment, the three fiduciary duties are a continuing obligation.

-The provisions of the Act are subject to the trust deed to give the
intention of the settlor.
-Trustees are to invest in order to meet the full obligation of the trust.
The interest of the present and future beneficiaries is the paramount
consideration. See Cowan v. Scargill [1984] 2 ALLER 750;
Howe v. Earl of Dartmouth (1802) 7 ves 137 per Lord Eldon.
-Section 4 of the Trustees Act stipulates that a trustee may invest any
trust properly in his hands but when investing for wider range
investment which is in part 2 of the schedule, he or she needs to ask
for advice unless the trustee is a trust corporation. See section 6 of
the Act. It is required that the advice given should be in writing.

Car-2-ndou ‘09 210

 -Section 8 of the Act states what should govern the trustees when
considering investment.
-When Trustees want to invest they can delegate to some one to
find a suitable person to do the job but that person must be
competent in the field. See section 14 of the Act. See Fry v. Tapson
(1884) 28 Ch 268, 280 where trustees wanted to invest in a
mortgage. They delegated the task of selecting somebody to value
the land. They delegated this task to a solicitor. Court held them
liable because it was out of the ordinary course of business of a
solicitor to find a competent land valuer. See also Turner v. Corney
(1841) 5 Beav 515 per Langadale MR;
Pilkington v. IRC (1964) AC 612.
-If Trustee is vested with power to sell the property, the sell should be
by auction or any other. See section 21. If loss is incurred in the
course of selling, the sale cannot be impeached by the beneficiary
unless the consideration was inadequate. See Section 22. The
transaction is valid upon the production of valid receipt. See section
23.
-If the buyer does not honour the contract of sale, the trustee can
compound liability and take the assets of the trust. See 24 and Re
Brogden [1888] 38 Ch 546.

-Trustee may insure the property against loss or damage s.28. If any
damage happens to the property and insurance money is
recovered that is trust money just like the initial capital s.29.
-If trustee wants to be out of Malawi for a month then he has to
delegate and execute power of attorney s.34.
-Court has inherent jurisdiction to ensure good administration of
trusts. See s.71 of the Act. In Chapman v. Chapman (1954) AC 29 H.
Lords said it has inherent jurisdiction to authorise a variation of the
terms of a trust. It can authorise the variation in order:

Car-2-ndou ‘09 211

 1-To bring harmony See Remnant’s Settlement Trusts [1970] Ch 560
where there was a family trust with a clause that if any member of
the family becomes Roman Catholic or marries to a Roman catholic
then his or her interest in the trust would be forfeited. Court held that
the forfeiture clause should be removed or varied so that there be
harmony in the family.
2-Where one is an infant and can’t consent.
3-where court sees that social or moral benefits outweigh financial
benefits of the infant. See Re Weston’s settlement Trusts [1969] 1 Ch
223 at 245 per Lord Denning. In this case the trustees sought the
court to approve on behalf of the beneficiaries who were infants
and could not consent. Trustees wanted court to vary the term of
the trust so that the trust be transferred to USA. Court held that the
variation would produce such financial benefit but the social
benefits of the children remaining in England outweighed the
financial benefit. So court refused to approve the variation.
See Press trust case on courts power to vary the trust. See Re Walker
[1910] 1 Ch 879
-Re Ball’s settlement [1968] 1WLR 899, 905
-Re Stead’s will trust [1960] Ch 407
But court has no power to alter beneficial interests under the trust-
thus the essence of Chapman’s case.
-S.40 of the Act says that trustee is liable for his own breach of trust.
-S.41 of the Act says the trustees are to act even-handed in
allocating the beneficial interest
-S.42 of the Act reiterates the equitable duty to preserve the capital
but also to invest so that the income is increased for the present
beneficiaries. Howe v. Earl of Dartmouth (supra)

3.The third obligation of trustees is to act fairly to all

beneficiaries of the trust –to be fair to all beneficiaries thus to act

Car-2-ndou ‘09 212

 with an even hand. See Lloyds Bank v. Duker [1987] 1 WLR 1324
@1330-1331 per John Mowbray QC
Trustees who have successful beneficiaries are to act evenly. See
Howe v. Earl of Dartmouth (1802) 7 ves 137; Hinves v. Hinves (1844) 3
Hare 609
They are to get rid of waste investments or hazardous investments
and turn them into profitable form e.g. copyrights. See Re Sullivan
[1930] 1 Ch 84.
Fairness is between the beneficiaries themselves and fairness between
the present and future beneficiaries. See ss.41-42 of Trustee Act
-Trustees are under a duty to provide information concerning the trust
property.
See -Low v. Bouverie [1891] 31 Ch 82 per Lindley. They are to keep
accounts of the trusts and allow the beneficiaries to inspect them as
requested. See Pearse v. Green (1819) 1 Jac & W 135 per Plumer MR;
Clarke v. Lord Ormonde (1821) Jac 108
-Beneficiaries are entitled to a copy of the accounts at their own
expense. See
Ottley v. Gilby (1845) 8 Beav 602
-If the trustee fails to deliver accounts then he/she will be liable to pay
the costs of any application to the court to enforce the performance
of his duty. See Re Skinner [1904] 1 Ch 289
-Megarry V.C in Tito v. Waddel (No 2) [1977] Ch 106 @ 242-243 said that
trustee’s duty is simply to provide the beneficiaries with information and
not to provide them with advice.
-Trustees are in no obligation to ensure that trust accounts are audited
but trust deeds take supremacy over the statutes. So if the trust deeds
require that there is to be auditing then trustees are under a duty to
audit.

Car-2-ndou ‘09 213

Management and the Trust in the “Higher Sense”

There is need for strict fiduciary management in the following areas:

Public enterprises,
non-governmental organisations,
public functionaries, public funds,
natural environment management,
nuclear family resources,
extended family resources,
collective enterprises,
commerce,
taxation,
penalties,
fees and
rents e.t.c

a. Commerce
Trust notions have contributed in the protection, multiplication and
allocation of commercial interests through the operation of trust device
i.e. constructive trust. Trust notions have been applied in the
management of commercial entities such as Pension Schemes, Unit
trusts and building societies.

b. Public Enterprises
Many countries including Malawi have often created public enterprises
and the use of fiduciary principles would work to foster prudent
management of the enterprises so that the populace benefit from it.
The application of trust notions would ensure that the beneficiaries who
are the vulnerable are equipped with relevant remedies.

c. Non-Government organisations

Car-2-ndou ‘09 214

Trust notions would be instrumental in these organisations so that they
are held accountable in their dealings.

d. Public Functionaries
In Malawi, the constitution invokes a social trust. See 12(ii), 13 & 14. The
following are some of the Acts, which are to the same effect:
1. SS. 8, 25 & 26 of Land Act, No. 25 of 1965
2. S.2 of Mines & Minerals Act, No.1 of 1981
3. S.4 of Water Resources Act, 1969
4. S. 4 of National Parks and Wild Life Act, No. 11 of 1992
5. SS. 15 & 17 of The Public Enterprises (Privatisation) Act, No. 7 of
1995
6. SS. 4 & 5 of The Forestry Act, 1997
-There is need for application of notions of trust in management of
these State resources. Principles of Constitutional and Administrative,
criminal law are not enough to regulate the management of the State
resources.

e. Public Funds
Application of trust notions would deter those in managing funds from
abusing them. See Bray v. Ford (supra) per Herschel. The beneficiaries
who are the populance would be equipped with remedies. See AG of
Hong Kong v. Reid [1994] 1 ALLER 1 where Reid, the acting Director of
Public Prosecutions for Hong Kong, had accepted bribes in the course
of his duties. The Privy Council held that three houses which Reid had
purchased in New Zealand with the bribe money were held on trust for
the crown.

A trustee can prefer proprietary remedy through tracing

and claim initial trust property and an increase in value.
AG of Hong Kong v Reid [1994] 1 All ER 1 Mr Charles
Warwick Reid was the Hong Kong Deputy Crown
Prosecutor and then Acting Director of Public

Car-2-ndou ‘09 215

Prosecutions, so in a fiduciary relationship with the Hong
Kong government. He took bribes to obstruct prosecution
of some criminals, and used the money to buy land. Some
was kept by Mr Reid and his wife, Mrs Judith Margaret
Reid, some conveyed to Reid’s solicitor. The Hong Kong
government argued the land was held on trust for
them.cThe Privy Council advised the bribe money
received by Reid, and the land acquired after, was held on
constructive trust for the Hong Kong government. This
meant that the land bought by Reid and his wife was held
on trust, and had to be given over to the Hong Kong
government. This was held to be necessary to ensure that
people in positions of trust could in no way profit from their
wrongdoing. If the property was badly invested, the
fiduciary in breach would still be under a duty to make
good the shortfall. Lord Templeman delivered the advice
of the Board.

f. Management of Natural Environment

Use of trust notions would ensure proper management of the
environment. See section 13 of the Constitution of Malawi. See also
sections 2, 3,5 of Environment Management Act, 1996. See also Minors
Oposa v. Secretary of the Department of Environment and Natural
Resources (1994) 33 International legal Materials 173

g. Nuclear and Extended Family Resources

Application of trust-based notions can help to prevent or alleviate
injustices in these social units.

PROPERTY CONTROL AND THE TRUST

It entails the power to authorise, restrict or question decisions or actions

regarding all the other incidents of property. All the four incidents of
property can vest exclusively in a particular party in a trust relationship

Car-2-ndou ‘09 216

but property-control is different. It cannot vest exclusively in a particular
owner or set of owners in the trust relationship.

The Parties that Control

All the parties in the trust relationship share property control.

a. The creator (settlor)

The settlor controls the trust by defining the terms of the trust,
appointing of the trustees and by clearly manifesting his or her intention
about the objective of the trust. Settlor may be a trustee or retain some
powers in the control of trust. See sections 46 of the Trustee Act on
power to appoint new or additional trustees.
-Once trustees are appointed, a settlor who is not one of the trustees or
beneficiaries has no role in the control of the trust including removal of
the trustees. See Turner v. Turner [1983] 2 ALLER 745; Press Trust Case
(SCA)

b. The Fiduciary (Trustees)

They remain in charge of their duties and discretion. They can only be
questioned if they fail to discharge their duties or exercised their
discretion improperly. See Mc Phail v. Doulton (1971) AC 424; Mettoy
Pension Trustees Ltd. v. Evans [1991] 2 ALLER 513 @560
-Trustees may have power to appoint new or additional trustees and
this may give them an opportunity to influence the operation of the
trust. Sometimes they may be a separate holder of powers of
appointment rather than a trustee. See section 46(1) of the Trustees
Act.

c. The Beneficiary

Car-2-ndou ‘09 217

Once the trust is in operation, the beneficiaries may have powers to
control the trust through the removal of trustees, appointment of new
or additional trustees, questioning of the decisions and actions of the
trustees, variation of the trust and termination of the trust. The
beneficiary has the following rights and powers:

1. The power to terminate the trust

The rule is in Saunders v. Vaultier (1841) 4 Beav 115 which states that a
beneficiary of full age and of sound mind and entitled to the entire
equitable interest can terminate the trust by requiring the trustees to
transfer the property to her or him.
-If there are two or more beneficiaries as long as they are able to group
in harmony with each other’s rights and all are competent, entitled to
the property-benefit then they can call for the termination of the trust.
See Re Smith [1928] Ch 915.
Rights of the individual should not be in conflict or prejudicial with the
rights of other beneficiaries. See Lloyds Bank plc v. Duker [1987] 3 ALLER
193

2. The Right to appoint new trustee

Section 66 of the Trustee Act gives right to beneficiary to apply for the
appointment of a new trustee.

3. The Right to access trust information

The law provides a right to a beneficiary who wants to be informed of
the State of the trust or wants to question certain decisions and actions.
See O’Rourke v. Darbinshire (1920) AC 581
-This means trustees especially for big commercial or complicated trusts
must keep accounts and be ready to produce such accounts.
-There are two apparently conflicting rules—the first rule says that in the
exercise of their discretion, the trustees are not bound to disclose to

Car-2-ndou ‘09 218

their beneficiaries the reasons for certain decisions but when they give
the reasons the court can examine the soundness of such reasons. How
do we reconcile this rule with the second rule that says that the
documents relating to the trust are part of trust property. See Re
Londonderry’s Settlement [1965] Ch 918; Megarry [1965] 81 LQR 192.
There was no satisfactory result from these cases so in Re Hay’s
Settlement Trusts [1981] 3 ALLER 786 and Re Manistry’s Settlement [1974]
Ch 17 borrowed principles of judicial review from administrative law—
duty to explain when under duty to account.
-But the new developments as noted in Mc Phail v. Doulton (1971) AC
424 and the true implications of being a fiduciary may eventually lead
to the abandonment of Re Londonderry’s case. See Mettoy Pension
Trustees Ltd v. Evans [1990] 1 WLR 1587; Gardner (1991) 107 LQR 214

d. Parliament
-The laws made by parliament may control the establishment,
administration, management and termination of trusts including the
rights and duties attendant to trust relations. See Trustee Act or
Companies Act.
-Press Trust case and Press Trust Reconstruction Act shows that
parliament can also regulate a particular trust by statute if the object
and nature of the trust is so important and requires it to intervene.

e. The Court
Section 108 of the Constitution gives High Court very wide powers. So
High Court can control the trust but in practice the court is moved at
the instance of somebody. See Sections
2,51,52,54,59,65,65,67,68,69,70,71 of Trustee Act.

f. Other State Departments

Car-2-ndou ‘09 219

Other State departments through the Common law, Acts of Parliament
and subsidiary legislation may also be involved in the control of trusts.
See Trustee Incorporation Act, Trustee Incorporation Rules, Press Trust
Reconstruction Act, The Wills & Inheritance Act, Forestry Act,
Environment Management Act, National Roads Authority Act. See also
Banque Financie’re de la cite v. Parc (Battersea) Ltd [1998] 1 ALLER
737.

REMEDIES FOR BREACH OF TRUST

In Tito v. Waddell [1977] 3 ALLER 129 at 246 to 247 Megary was reluctant
to adopt to what a mount to breach of a trust. So he referred to two
definitions accepted by courts in America. These are:
a. Breach of trust is every violation or omission of trustee of a duty
which equity lays on him.
b. Professor Scott suggested that breach of trust is where a trustee is
in violation of a duty he owes to the beneficiaries.
Therefore from these two proposals above we can say that the
essence of the breach of trust is failure by the trustee to manage the
trust by not following the terms of the trust. This can be a breach of a
clause of trust deed or breach of what equity has regarded as a duty
of trustee.

So these breaches could be a positive act or an omission. An example

of a positive act could be making investments outside what the trustee
is allowed to make. An example of an omission could be failure to
transfer at a particular time as the trust deed requires.
If a beneficiary is able to prove a breach then the trustee should
account and it does not matter whether the loss has come about due
to direct or indirect conduct of the trustee. Even if there is no loss, the

Car-2-ndou ‘09 220

trustee will be liable as long as the beneficiary is able to prove breach
of the trust.
It is simple to prove breach of trust by a positive act i.e. if terms of a
trust are breached that is enough, but proving an omission is not
straight forward i.e. if a trustee’s performance falls below the standard
of an ordinary prudent man that would amount to a breach. See
Bartlett v. Barclays Bank Trust Co. Ltd (No.2) [1980] 2 ALLER 92, per
Justice Brightman where the trustees held a controlling shareholding in a property
investment company. It was held that they were in breach of trust in failing to review the
activities of the company and in permitting the directors to engage in a speculative and in
advisable development scheme.
Bartlet v Backlays Bank Trust Co Ltd (No 2) [1980] 2 All
ER 92 the trustees held a controlling share holding in a
property investment company. It was held that they were
in breach of the trust in failing to review the activities of the
company and in permitting the directors to engage in a
speculative and in advisable development scheme.
The standard required by professional trustees is very
high and failure to discharge professional skills amounts to
breach by omission.
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92,HC
Brightman J: The obligation of a trustee who is held liable for breach of trust is fundamentally
different from the obligation of a contractual or tortious wrongdoer.The trustee’s obligation is to
restore to the trust estate the assets of which he has deprived it.
If the trust property cannot be restored to the trust, compensation may be payable to
the trust in order to maintain the value of the trust assets. The trust is required to be
compensated fully for any loss caused by the breach. The extent of this liability is not
restricted by the strict common law principles governing remoteness of damage in
claims in tort or breach of contract. Once a breach of trust has been committed, the
trustees become liable to place the trust estate in the same position as it would have
been in if no breach had been committed. Although liability is not unlimited, the time
of assessment of the loss is at the time of the trial: see Caffrey v Darby.
Caffrey v Darby (1801) 6 Ves 488
Facts
Trustees, owing to their negligence, failed to recover possession of part of the trust
assets and, later still, the assets became lost. The trustees argued that the subsequent
loss was not attributable to their neglect.
Held
Once the trustees committed a breach of trust, they were responsible for compensating
the estate in respect of the resulting loss:
Lord Eldon: if they have already been guilty of negligence, they must be responsible for any loss,
in any way, to that property, for whatever may be the immediate cause, the property would not
have been in a situation to sustain that loss if it had not been for their negligence.If the loss had
happened by fire, lightning, or any other accident, that would not be an excuse for them if guilty of
previous negligence.
At common law, there are two principles that are fundamental to the award of
damages:
(a) the breach must cause the loss claimed by the claimant; and
(b) the claimant must be put in the same position as he would have been in had he not

Car-2-ndou ‘09 221

suffered a breach.
In equity, although the starting point to a compensation claim is different, the award of
damages is, to a large extent, governed by the same two principles. The strict test of
foreseeability is not a concern in assessing compensation, but it is essential that the losses
claimed are the losses which are caused by the breach. This broader approach to the issue
of causation was referred to by Lord Browne-Wilkinson in Target Holdings v Redferns.
Target Holdings v Redferns [1995] 3 All ER 785,HL
Lord Browne-Wilkinson: In both systems the defendant is not responsible for damage not
caused by his wrong or to pay more compensation than the loss suffered by the plaintiff.Under
both systems liability is fault-based.The defendant is only liable for the consequences of the legal
wrong he has done to the plaintiff and to make good the damage caused by such wrong.The
detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from
those applicable at common law.
However, if
Target Holdings Ltd v Redferns [1995] 3 All ER 785,HL
Facts
A company, Crowngate Ltd (C Ltd), agreed to purchase a property for £775,000 and
then approached the mortgagee, Target Holdings Ltd (T Ltd), for a loan of £1.525
million to be secured by way of a mortgage on the property. The purchase price of the
property was stated as £2 million, having been valued negligently by a firm of estate
agents. T Ltd was not informed that the property was not being purchased for
£775,000. A scheme was arranged by C Ltd to obtain a mortgage for £1.525m from T
Ltd in order to purchase a property for £775,000. C Ltd instructed one of the
defendants, a firm of solicitors, to incorporate another company, Panther Ltd (P Ltd),
in order to purchase the property from the vendors for £775,000. P Ltd would sell the
property to Kohli Ltd (K Ltd, owned by C Ltd) for £1.25 million and K Ltd would sell
the property to C Ltd for £2 million. The defendant firm of solicitors acted for the three
companies and T Ltd. T Ltd approved the loan and paid the defendant £1.525 million.
Prior to the completion of the sale, the defendant notified T Ltd that the sale of the
property and mortgage charge had been completed. Some days later, C Ltd arranged
for £775,000 to be paid to the vendor of the property, and the various transfers and T
Ltd’s charge were completed. C Ltd became insolvent and T Ltd repossessed the
property. The property was sold for £500,000. T Ltd brought an action against the
defendant firm of solicitors and the valuer. The firm of solicitors conceded that it acted
in breach of trust by paying out the mortgage funds to the three companies without
authority, but argued that it was not liable to compensate T Ltd for the loss suffered
because its breach did not cause the loss sustained by the company.
Held
The loss suffered by T Ltd was not directly attributable to the defendant firm of
solicitors but was wholly caused by the fraud of third parties. T Ltd would have
Chapter 21: Breach of Trust 573
advanced the same amount of money, obtained the same security and received the
same amount on the realisation of that security, with or without the breach of trust
committed by Redferns:
Lord Browne- Wilkinson: My Lords, this appeal raises a novel point on the liability of a trustee
who commits a berach of trust to compensate beneficiarieso rf such breach.Is the trustee liable to
compensate the beneficiary not only for losses caused by the breach but also for losses which the
beneficiary would, in any event, have suffered even if there had been no such breach?
[Fault based liability for damages at common law and equity]
At common law, there are two principles fundamental to the award of damages.First, that the
defendant’s wrongful act must cause the damage complained of.Second, that the plaintiff is to be
put ‘in the same position as he would have been in if he had not sustained the wrong for which he
is now getting his compensation or reparation’: Livingstone v Rawyards Coal Co (1880) 5 App Cas 25,
p 39, per Lord Blackburn.Although, as will appear, in many ways equity approaches liability for
making good a breach of trust from a different starting point, in my judgment those two principles
are applicable as much in equity as at common law.Under both systems liability is fault-based: the
defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to
make good the damage caused by such wrong.He is not responsible for damage not caused by his
wrong or to pay by way of compensation more than the loss suffered from such wrong.The

Car-2-ndou ‘09 222

detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from
those applicable at common law.But the principles underl ying both systems ar e the same.
[Beneficiary’s right to due administration of the trust]
The basic right of a beneficiary is to have the trust duly administered in accordance with the
provisions of the trust instrument, if any, and the general law.Thus, in relation to a traditional trust,
where the fund is held in trust for a number of beneficiaries having different, usually successive,
equitable interests (for example,A for life with remainder to B), the right of each beneficiary is to
have the whole fund vested in the trustees so as to be available to satisfy his equitable interest
when, and if, it falls into possession.Accordingly, in the case of a breach of such a trust involving the
wrongful paying away of trust assets, the liability of the trustee is to restore to the trust fund, often
called ‘the trust estate’, what ought to have been there.
[Subsisting trust]
The equitable rules of compensation for breach of trust have been largely developed in relation to
such traditional trusts, where the only way in which all the beneficiaries’ rights can be protected, is
to restore to the trust fund what ought to be there.In such a case the basic rule is that a trustee
in breach...

Standard required by professional trustees is very high and failure to

discharge his or her professional skills amounts to breach by omission.
-The law of trusts and fiduciaries provide a range of strong personal
and proprietary remedies if liability is established.
See Target Holdings Ltd v Redferns (a firm) [1995] 3 ALLER 785
HOUSE OF LORDS
LORD KEITH OF KINKEL, LORD ACKNER, LORD JAUNCEY OF TULLICHETTLE, LORD BROWNE-WILKINSON AND LORD LLOYD OF
BERWICK
20, 21, 22 FEBRUARY, 20 JULY 1995

Trust and trustee – Breach of trust – Payment of trust moneys to stranger – Compensation for
breach – Trustee’s duty to compensate beneficiary for losses – Principles to be applied –
Solicitor acting for mortgagor and mortgagee releasing mortgage moneys to strangers without
authority before mortgage security executed – Mortgage security executed some days later –
Solicitor in breach of trust – Whether solicitor under immediate duty to make restitution of
mortgage moneys subject to mortgagee giving credit for moneys recovered from sale of
property – Whether trustee liable to compensate beneficiary for losses which beneficiary would
have suffered if there had been no breach.

A company, C Ltd, incorporated by the defendant solicitors for clients, agreed to purchase a
property for £775,000 and then approached the plaintiffs for a loan of £1,525,000 to be secured
by a mortgage on the property. The purchase price of the property was stated to be £2m,
having been valued at that figure, allegedly negligently, by a firm of estate agents. The
plaintiffs were not informed that the property was being purchased for £775,000. The
defendants’ clients had in the meantime instructed the defendants to incorporate another
company, P Ltd, and it was proposed that P Ltd would purchase the property from the vendor
for £775,000, that P Ltd would sell the property on to K Ltd (another company owned by the
clients) for £1·25m and that K Ltd would sell it on to C Ltd for £2m. In that way the purchase
price would be uplifted from the original £775,000 to the £2m purchase price. The defendants
acted for all three companies. The plaintiffs approved the loan of £1,525,000 and made a
mortgage offer of that amount to C Ltd. The plaintiffs also instructed the defendants to act for
them as the mortgagees in the transaction. Prior to completion the plaintiffs paid the
£1,525,000 to the defendants, who before completion paid the moneys, less fees and stamp
duty, to P Ltd and K Ltd. The defendants then notified the plaintiffs that the purchase and the
plaintiffs’ charge had been completed, although those transactions had not at that stage
taken place. Some days later the defendants’ clients arranged for £775,000 to be paid to the
vendor of the property and the various transfers and the plaintiffs’ charge were in fact
completed. The balance of the loan advanced by the plaintiffs was to the knowledge of the
defendants retained by K Ltd. The plaintiffs subsequently repossessed the property when C Ltd
became insolvent and having sold it for £500,000 brought an action against, inter alia, the
defendants for breach of trust. In proceedings for summary judgment the defendants applied
for leave to defend. They accepted that they had received the loan moneys from the plaintiffs

Car-2-ndou ‘09 223

as their agents and until authorised to release the moneys they held them on trust for the
plaintiffs and that they had committed a breach of trust when they paid the moneys to
strangers, P Ltd and K Ltd, before the contract for the purchase of the property by C Ltd and
the mortgage were executed, but claimed that the breach of trust was technical only and
that the plaintiffs had not suffered any loss because they had obtained for the 􀂭 785􀂭 plaintiffs
the mortgages to which they were entitled. The judge gave the defendants leave to defend
upon condition that they made an interim payment of £1m to the plaintiffs. The defendants
appealed to the Court of Appeal, contending that since the plaintiffs had suffered no loss as a
result of the breach of trust they were entitled to unconditional leave to defend and no interim
payment should have been ordered. The plaintiffs cross-appealed on the ground that the
judge should have given final judgment on the claim for breach of trust. The Court of Appeal
dismissed the defendants’ appeal and allowed the plaintiffs’ cross-appeal, on the grounds that
the obligation of a trustee who had committed a breach of trust was to put the trust fund in the
same position as it would have been in if no breach had taken place and that where the
breach consisted in the wrongful paying away of trust moneys to a stranger so that there was
an immediate loss the ‘clock was stopped’ with the result that as soon as the breach occurred
the defendants were under an immediate duty to make restitution, subject only to the plaintiffs
giving credit for moneys recovered from the sale of the properties. The defendants appealed
to the House of Lords.

Held – A trustee who committed a breach of trust was not liable to compensate the
beneficiary for losses which the beneficiary would, in any event, have suffered if there had
been no such breach, since, applying the two principles fundamental to the award of
damages at common law that the defendant’s wrongful act had to cause the damage
complained of and the plaintiff was to be put in the same position as he would have been in if
he had not sustained the wrong for which he was being compensated, in such a case no
relevant right had been infringed so as to give rise to a loss thereby making it necessary to
consider the extent of the trustee’s liability to compensate for such loss. In the case of a bare
trust arising out of a conveyancing transaction by virtue of moneys being paid to a solicitor by
a client, once the transaction was completed the client had no right to have the solicitor’s
client account reconstituted as a ‘trust fund’. Furthermore, although a cause of action
accrued as soon as a breach of trust was committed, the purpose of equitable compensation
for that breach was to make good a loss in fact suffered by the beneficiaries and which, using
hindsight and common sense, could be seen to have been caused by the breach and, as
such, the compensation was to be assessed as at the date of judgment and not at an earlier
date. In particular, the breach did not have the effect that the ‘clock was stopped’ at that
date, with the result that the quantum of the compensation payable was fixed as at the date
when the breach occurred. On the assumed facts, the plaintiffs had obtained exactly what
they would have obtained had no breach by the defendants occurred, ie a valid security for
the sum advanced, and therefore had suffered no compensatable loss and were not entitled
to any compensation for breach of trust. The defendants were accordingly entitled to leave to
defend the breach of trust claim. However, if the moneys made available by the defendants’
breach of trust were essential to enable the transaction to go through, then but for the
defendants’ breach the plaintiffs would not have advanced any money and the loss suffered
by the plaintiffs by reason of the breach of trust was the total sum advanced to C Ltd less the
proceeds of the security. In those circumstances and having regard to the undoubted
suspicion that the transaction was tainted by fraud and negligence, the order for payment into
court of £1m as a condition of granting leave to defend was fully justified. The appeal would
therefore be allowed and the order of the judge restored (see p 788 b to d, p 792 d to h, p 793
d, p 795 h to p 796 b h j, p 797 h to p 798 c and p 799 g to p 800 c, post).
􀂭 786􀂭
Dicta of McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 160,
162, 163 applied.
Bishopsgate Investment Management Ltd (in liq) v Maxwell (No 2) [1994] 1 All ER 261
distinguished.
Jaffray v Marshall [1994] 1 All ER 143 overruled.
Per curiam. In traditional trusts for persons by way of succession, once those trusts have been
exhausted and the fund has become absolutely vested
in possession, the beneficiary is not normally entitled to have the exhausted trust reconstituted.
His right is to be compensated for the loss he has suffered
by reason of the breach (see p 788 b to d, p 794 f to p 795 a and p 800 c

Car-2-ndou ‘09 224

-Personal liability, which is key in trusts, depends on causation or
remoteness or foreseeability of loss. See s.10 of Trustee Act; Re Vickey
[1931] Ch 572; Target Holdings Ltd v Redferns (a firm) [1995] 3 AllER785;
Bartlett v. Barclays Bank Trust Co. Ltd (No.2) [1980] 2 ALLER 92.

-Where more than one trustees are liable such liability is joint and
several. See Bahin v. Hughes [1886] 31 Ch.390 and read together with
s.40 of Trustee Act. The case of Bahin v. Hughes is where an
unauthorised investment was made by two of the three trustees of a
settlement, with the third trustee, Mr Edwards, taking no active part. He
claimed that he was not liable to contribute, but the court of Appeal
held that the trustees were equally liable and there was no ground for
an indemnity.

In Bahin v Hughes [1886] 31 Ch 390 unauthorized

investment was made by two of the three trustees of a
settlement, with the third trustee, Mr. Edwards, taking no
active part. He claimed that he was not liable to contribute,
but the court of appeal held that the trustees were equally
liable and there was no ground for indemnity.
Trustees Liability.

The following are the liability of the trustees.

a. If there are ten trustees and it is one who has breached the trust,
he alone will be liable. See s.40 of Trustee Act and Townley v.
Sherborn[1634] J Bridg 35.

b. As between several errant trustees, all of them are jointly and

severally liable. See Bishopsgate Investment Management Ltd v.
Maxwell (No.2) [1994] 1 ALLER 261. It concerned the infamous Maxwell

pension fund. Ian and Kevin Maxwell were directors of a company which held assets
on trust for the pension schemes of companies owned by Robert Maxwell. To support
other private companies which Robert Maxwell owned, property was misappropriated
from the trust fund. Kevin and Ian, as directors, were held responsible for signing
transfer forms authorising the misappropriations.

Car-2-ndou ‘09 225

Beneficiary can recover entire loss from one of the trustees, the one
who has deeper pocket. See Wilson v. Moore (1883) 1 My & K 126.

c. The general rule is that a trustee is not liable for breaches, which
occurred before he became a trustee. But on appointment he
was obliged to make sure that affairs of the trust are in order. A
trustee is to conduct proper inquiries before assuming office.

d. A trustee is not liable for breaches occurring after he has

resigned. But retirement itself does not absolve a trustee from
breaches especially when the breaches happened before he or
she retired. A retire trustee would be liable if it is proven that he or
she retired in order to perpetrate fraud. See Head v. Gould [1898]
2 Ch 250 @ 273-274 per Kekewich.

e. Trustees are not liable for breach of others. See s. 40 of the

Trustee Act.

The basic proposition is that a trustee is liable only for his act. But if
he participated or loss complained is part of his wilful default then
he is liable. Wilful default then he is liable. Wilful default was defined
in Re Vickery [1931] 1 Ch 572 where it was said that a trustee is not
vicariously liable unless he knows or is recklessly careless that breach
is committed. The trustee who is guilty in wilful default will liable for
acts of others or agents.

REMEDIES AVAILABLE TO BENEFIACIARIES

-If beneficiary is able to establish breach of trust, he or she can avail

himself or herself any of the remedies equity gives in breach of trust.

A. Compensation

Car-2-ndou ‘09 226

This is where a beneficiary is compensated for the loss suffered as a
result of the breach. See Target Holdings Ltd v. Redferns [1995] 3 ALLER
785; Re Dawson [1966] 2 NSWR 211 @ 215.

-Compensation aims at putting the beneficiary back to the position

where he could have been if no breach had occurred –thus Restitutio
integrum.

-It is required that a causal link be established between breach and

the loss. See Bishopgate Investment Management Ltd v. Maxwell (No.2)
[1994] 1 ALLER 261.
-Remoteness of damages still remains a controversial issue in Equity.
The Traditional position is that a trustee is to compensate all loss caused
by the breach. Thus the dominant thought in English law but in Canada
the position is that equity must learn from common law hence a claim
of breach is subject to remoteness of damages as in tort or contract.
See Canson Enterprises v. Broughton & co. (1991) 85 DLR (4th) 129.
Remoteness of damages still remains a controversial
issue in equity. According to Canson Enterprise v
Broughton & Co (1991) 85 DLR 129 the position in
Canada is that equity must learn from common law hence
a claim for breach of trust is subject to remoteness of
damages as is the case in tort or contract.

-Recent English decisions still maintain the orthodox rule that

reasonable foreseeability do not apply in Equity. See Target Holdings
Ltd v. Redferns (supra).

-It is required that a beneficiary should mitigate his or her damage.

B. Proprietary Remedy
-In AG Reference (No. 1 of 1985) [1986] QB 491 @ 506 where it was said
that there can be no proprietary remedy unless there is an asset which
can be “identified as a separate piece of property”
AG Ref No 1 of 1985 [1980] QB 491 @ 506 it was stated
that proprietary remedy will only be invoked if a

Car-2-ndou ‘09 227

beneficiary would demonstrate that there is an asset
which can be identified as a separate piece of property.
This means that there must be assets available for
proprietary remedy to be available. Proprietary remedy is
effected through the process of tracing. Tracing has a set
of rules to help ascertain property to which proprietary
remedy can apply. Cowcher case/Mbesaka Mwambi case

-So assets must be available for it to be possible. So tracing provides set

of rules or regulations to help ascertain property to which equitable
remedies can apply.

C. Equitable Damages

The High Court has general jurisdiction to award equitable damage in

cases where it would a ward an injuction but there is only a common-
law based criteria for the a ward of such damage. See Sheffer v. City of
London Electric Co. [1895] 1 Ch 287

D. Equitable Remedies

The following are equitable remedies: Tracing, Subrogation, Injuctions

and Specific performance.

1. TRACING

Equitable tracing is not restricted to trustee-beneficiary relationship, but

applicable to all fiduciary relationships. See Re Hallet [1880] 13 Ch 696;

Tracing definition - Lord Millett - Is the process by which the plaintiff traces what has happened to his
property, identifies the persons who have handled/received it ... and justifies his claim that the money they
handled/received can ...be regarded as his property.

Applies to all fiduciary relationships in Re Hallet [1880] 13

Ch 696 In Re Hallet (1880) 13 Ch 696 a solicitor was a trustee of his
marriage settlement and he was entrusted with money by a client for
investment. He paid money from the family trust and his client’s into his bank
account. The account also contained some of his own money. He made
various payments out which had been dissipated. On his death the account

Car-2-ndou ‘09 228

had enough money to satisfy the claims of the trust and the client, but not his
other creditors. The question was whether the money in the account could be
held to be property of the trust and the client in which case they would gain
priority over other general creditors. The court held that the trustee must be
presumed to have spent his own money first and to have preserved the trust
money.
The Westdeutsche case (1996) AC 669. In the Westdeutsche
Landesbank Girozentrale v Islington LBC the plaintiff was
claiming from the defendants the sum of £1,145,525,
including compound interest that it had paid under an
interest rate swap agreement, which had been held ultra
vires the powers of the council. The bank argued there
was a resulting trust of the money it paid to the council,
and so because the contract had no legal effect, nothing
was given in return for the money, and the presumption of
a resulting trust was raised. The bank argued that
presumption was not rebutted because the bank did not
intend to make a gift of the money to the council.
In February 1993, Hobhouse J held the bank could
recover the money because the council had been unjustly
enriched at the bank’s expense, and could recover
compound interest.

The majority of the House of Lords held that the bank had
a personal claim for recovery of the money in a common
law action of money had and received. But the bank had
no proprietary equitable claim. Lord Browne-
Wilkinson, Lord Slynn and Lord Lloyd held it followed only
simple, not compound, interest was payable. Lord Goff
and Lord Woolf thought compound interest should be
awarded as an equitable remedy in aid of the common
law, so the bank could have restitution of the user value of
its money. Lord Goff gave a dissenting judgment first,
holding that compound interest should be available.
-There is a debate of whether tracing is a remedy or not. Tracing in this
topic would mean a preliminary step necessary for a ward of any

Car-2-ndou ‘09 229

remedy. Tracing or following is a mechanism or series of steps to identify
property which any remedy may apply.

Tracing as a proprietary claim has the following advantages:

1. In Insolvency – a personal remedy is of little relevance where the

trustee is bankrupt. The beneficiary will rank like any other
creditor. Yet tracing enables the beneficiary to identify the trust
property and beneficiary has the priority over other creditors.

2. A beneficiary can prefer proprietary remedy through tracing and

claim initial trust property and an increase in value. See AG of
Hong Kong v. Reid [1994] 1 ALLER 1;
PRIVY COUNCIL
LORD TEMPLEMAN, LORD GOFF OF CHIEVELEY, LORD LOWRY, LORD LLOYD OF BERWICK AND SIR THOMAS EICHELBAUM
4, 5, 6 OCTOBER, 1 NOVEMBER 1993
Trust and trustee – Constructive trust – Bribe – Equitable duty of fiduciary who receives bribe –
Property purchased with proceeds of bribe – Increase in value of property purchased with
proceeds of bribe – Whether recipient of bribe entitled to keep increase in value of property
purchased with proceeds of bribe – Whether fiduciary who receives bribe under equitable duty
to account for profits from bribe. Precedent – New Zealand Court of Appeal – Departure from
decision of English Court of Appeal – Whether New Zealand Court of Appeal free to review
English Court of Appeal authority and to depart from it if considered wrong.

R was convicted of accepting bribes given to him in the course of his position as a public
prosecutor in Hong Kong as an inducement to exploit his official position by obstructing the
prosecution of certain criminals. He was sentenced to eight years’ imprisonment and ordered
to pay the Crown the sum of $HK12·4m, being the value of assets then controlled by him which
could only have been derived from bribes. No payment to the Crown was made by R. The
Attorney General for Hong Kong registered caveats on behalf of the Hong Kong government
against the titles to three properties in New Zealand registered in the names of R and his wife or
his solicitor which were alleged to have been bought with bribes received by R. In an
application in the High Court of New Zealand to renew the caveats the Attorney General
claimed that the three properties, the value of which had increased since their purchase, were
held on a constructive trust in favour of the Crown. The respondents claimed that the Crown
had no equitable interest in the properties. The judge held that the Crown as caveator could
not as a matter of law establish an arguable case that it had a proprietary interest in the three
properties. On appeal by the Attorney General the Court of Appeal of New Zealand, following
a long-established English Court of Appeal authority, upheld the judge’s decision on the
grounds that as between principal and fiduciary the receipt of a bribe by the fiduciary only
gave rise to the relationship of creditor and debtor and not trustee and cestui que trust as the
principal had no proprietary interest in the bribe or moneys or investments representing it. The
Attorney General appealed to the Privy Council.

Held – When a fiduciary accepted a bribe as an inducement to betray his trust he held the
bribe in trust for the person to whom he owed the duty as fiduciary; and, if property
representing the bribe increased in value, the fiduciary was not entitled to retain any surplus in
excess of the initial value of the bribe because 􀂭 1􀂭 he was not allowed by any means to make
a profit out of a breach of duty. A bribe was a secret benefit which the fiduciary derived from
trust property or obtained from knowledge which he acquired in the course of acting as a
fiduciary and he was accountable under a constructive trust for that secret benefit to the
person to whom the fiduciary duty was owed as soon as the bribe was received, whether in
cash or in kind, under the equitable principle that equity considered as done that which ought

Car-2-ndou ‘09 230

to have been done. If property representing the bribe increased in value or if a cash bribe was
invested advantageously the false fiduciary was accountable not only for the original amount
or value of the bribe but also for the increased value of the property representing the bribe
since otherwise he would receive a benefit from his breach of duty. Accordingly, the three
properties so far as they represented bribes accepted by R were held in trust for the Crown,
which was entitled to have the caveats renewed. The appeal would therefore be allowed.

Reading v. AG [1951] 1 ALLER 617

Reading v AG [1951] 1 All ER 61 Mr Reading was stationed in

Egypt as an army sergeant. Smugglers paid him to ride in their
lorries, while they were doing their smuggling of illegal spirits, while
visibly wearing his army uniform, hence making a search less
likely. Mr Reading was caught, and the Crown seized the money
he was paid, and put him in prison. Mr Reading claimed that the
money should be returned. The House of Lords held that the
Crown could retain the money for many reasons, including that Mr
Reading was in a fiduciary position. He was required to give up all
unauthorised profits to his principal, the Crown.
In other instances, statute bars personal claim. So in such a case
proprietary remedies may be available. See Sinclair v. Brougham
(1914) AC 398 Where personal claim was barred but proprietary claim
was allowed. Sinclair v Brougham (1914) AC398 A building
society had operated an ultra vires banking business. The case concerned the
rights of the people who deposited their money into the building society when
it eventually became insolvent. Under the law of contract they could not claim
their deposits from the building society. But then the House of Lords held that
as the building society had acted ultra vires, it received the deposits as a
fiduciary and that the depositors were entitled to trace their money in equity
into the remaining assets of the building society.

RULES GOVERNING TRACING

These rules try to identify or ascertain trust property so that they can be
recovered. Tracing can be classified into equitable and common law
tracing. Equitable tracing has greater applicability and significance
than common law rules. Common law tracing only applies in simple
transaction.

a. Common law Tracing

-It applies only where there is clean substitution. It does not apply in
mixed fund. See Taylor v. Plumer (1815) 3 M & S 562 where Sir Thomas Plumer

had entrusted a stock broker, Walsh, with money for investment in Exchequer bills. Walsh

Car-2-ndou ‘09 231

instead misappropriated the money and used it to purchase bullion and American bonds. He
was apprehended and surrendered the property. The central issue was whether the bullion
and bonds were rightly the property of Sir Thomas or Walsh’s trustee in bankruptcy. Court held
that the money which Sir Thomas had given to Walsh could be traced into the bullion and

securities, and that they were the property of Sir Thomas . See also Hallet’s Estate
[1880] 13 Ch 696; Banque Belge v. Hambrouck [1921] 1 KB 321

-Common law tracing is able to trace funds that have gone into bank
accounts as long as there was no mixing. It has been recently
reiterated in:

Agip (Africa) Ltd v. Jackson [1992] 4 ALLER 451.

COURT OF APPEAL, CIVIL DIVISION
FOX, BUTLER-SLOSS AND BELDAM LJJ
9, 10, 11, 12, 16, 17 OCTOBER, 21 DECEMBER 1990
Money - Money had and received - Right to trace funds at common law - Funds
transmitted to bank by telegraphic transfer - Plaintiff's employee forging payment
order in favour of nominee company set up and controlled by defendant
accountants - Plaintiff's bank transmitting funds by telegraphic transfer to nominee
company's London bank account - London bank reimbursed by correspondent bank
in New York via New York clearing system - Whether plaintiff having title to bring
action - Whether funds recoverable as money had and received - Whether origin of
funds identifiable. Trust and trustee - Constructive trust - Fraud - Knowing assistance in
fraudulent design - Plaintiff's employee forging payment order in favour of nominee
company set up and controlled by defendant accountants - Plaintiff's funds
transferred to nominee company's bank account and then to account operated by
defendants' firm - Funds later transferred to firm's clients' account - Defendants
disposing of money on clients' instructions in disregard of plaintiff's request for its return
- Defendants in receipt of legal advice as to possibility of fraud but failing to act -
Whether defendants liable to account for funds as constructive trustees
- Whether defendants knowingly assisting in fraudulent design.
The plaintiff company, which was incorporated in Jersey, was involved in oil
exploration in Tunisia. The plaintiff's Tunis branch held a US dollar account at a Tunis
bank from which payments were made to overseas suppliers. Between 1983 and 1985
the plaintiff's chief accountants fraudulently altered the name of the payee on 28
payment orders, with which he had been entrusted, and so diverted the payments to
recipients of his own choosing. The substituted payees were all nominee companies
set up and controlled by the defendants, of whom the first and second were in
partnership as chartered accountants and the third was an employee of the
partnership, to enable their clients to receive the funds, which totalled over
$US10.5m,via accounts held by the companies at a London bank. The last of the
diverted payments was for $US518,822.92. The Tunis bank executed the order, which
had a value date of 7 January 1985, by debiting the plaintiff's account with that sum
and sending instructions by telex to the London bank to credit the payee's account
with the funds and to its correspondent bank in New York to reimburse the London
bank through the New York clearing system. The plaintiff discovered the fraud on 4
January, but the extent of the fraud did not become apparent until 7 January, when
a senior officer visited the Tunis bank and was shown the forged payment orders. The
Tunis bank's subsequent attempt to stop the payment failed, since the London bank
had already credited the funds to the payee company's account and the payee

Car-2-ndou ‘09 232

company refused to make a refund. On 8 January, before the London Bank had
been reimbursed in New York, the London bank transferred the $US518,822.92 to the
ordinary partnership account of the defendants' firm, which was also held by the
bank. Acting on their unidentified clients' instructions at all times the defendants then
transferred the funds to the firm's clients' account, which had been newly opened at
an Isle of Man bank for the purpose, and from there disposed of the greater part of
the funds to various recipients in disregard of the plaintiff's request for the return of the
money. The plaintiff brought an action at common law against the defendants to
recover the $US518,822.92 as money had and received. Alternatively, it claimed that
the defendants were liable to account in equity as constructive trustees of the funds.
The judge held (i)
that the common law tracing remedy was not available to the plaintiff, since it were
not possible to follow money which was transmitted by telegraphic transfer as if it was
the proceeds of a cheque or other physical asset presented by the collecting bank in
exchange for payment by the paying bank, but (ii) that, as strangers to the fiduciary
relationship between the plaintiff and its chief accountant, the defendants were
liable to account in equity as constructive trustees of the funds, since they were at
best indifferent to the possibility of fraud, having failed to act on legal advice as to
the possibility of fraud against the plaintiff which they had received in 1984, and had
knowingly assisted in the fraudulent design engineered by the chief accountant. The
defendants appealed on the ground that the plaintiff's lack of title to sue, which
resulted from the fact that the Tunis bank had no authority to make the payment to
the nominee company, precluded it from succeeding either at common law for
money had and received or in equity.

Held - (1) The plaintiff had a right to sue because a principal could recover where
there was a mistaken payment made by an authorised agent acting within the
former's instructions. Since the payment order emanated from within the plaintiff
company, it was properly signed, the amount had not been altered, the Tunis bank
had no reason at all to doubt its authenticity and for the practical purposes of a
banking transaction the order had been given effect to according to its tenor as if it
were a proper order, it followed that it had to be regarded as having been paid by
the Tunis bank as the authorised agent of the plaintiff and
acting within the plaintiff's instructions (see p 463 d to f h and p 469 j, post); dictum of
Lord Atkinson in
Westminster Bank Ltd v Hilton (1926) 43 TLR 124 at 126 applied.

(2) In determining whether the common law remedy of tracing was available to the
plaintiff, which in turn depended on whether the origin of the funds could be
identified, it did not matter that the payment order was not a cheque or other
physical asset or that the money was transmitted by telegraphic transfer. There was
however, a difficulty in identifying the origin of the property which arose from the fact
that, while the Tunis bank could be regarded as having paid the nominee company
with the plaintiff's money, the London bank, acting as instructed by the Tunis bank,
had paid the company with its own money and although it was subsequently
reimbursed by the New York bank the origin of the funds could not be identified
without tracing the money through the New York clearing system, where it would
have been mixed with other money. If followed therefore that the money with which
the London bank had been reimbursed could not, without recourse to equity, be
identified as being that of the Tunis bank and accordingly the common law tracing
remedy was not available to the plaintiff (see p 463 j, p 465 h j, p 466 a b d e and p
469 j, post); Banque
Belge pour l'Etranger v Hambrouck [1921] 1 KB 321 considered.

(3) A stranger to a trust relationship could be made liable in equity where he

knowingly assisted in a fraudulent design, the necessary degree of knowledge being

Car-2-ndou ‘09 233

knowledge of circumstances which would indicate to an honest and reasonable
man that a fraudulent design was being committed or would put him on inquiry as to
whether it was being committed. On the facts, it was clear that the first and third
defendants had knowingly assisted in the fraud perpetrated by the plaintiff's chief
accountant, since they must have known they were laundering money and were
consequently helping their clients to make arrangements to conceal certain
dispositions of money which had such a degree of impropriety that neither they nor
their clients could afford to have them disclosed. In the circumstances the first and
third defendants were liable to account in equity as constructive trustees. The second
defendant was also liable for the acts of the first defendant, who was his partner, and
the third defendant, who was employed by his firm. Accordingly, all three defendants
were liable to the plaintiff in equity. The appeal would therefore be dismissed (see p
467 b c g, p 468 d and p 469 g to j, post); Barnes v
Addy (1874) LR 9 Ch App 244, dictum of Ungoed-Thomas J in Selangor United Rubber
Estates Ltd v
Cradock (No 3) [1968] 2 All ER 1073 at 1104 and Baden v Société Générale pour
Favoriser le

Développement du Commerce et de l'Industrie en France SA (1982) [1992] 4 All ER

161 applied.

Agip (Africa) limited v Jackson [1992] 4 All ER 451 a company was defrauded
by its chief accountant who altered the name of the payees of genuine
payments so that they were made payable to dummy companies he had
created. The court held that the accountant was a fiduciary of the company by
virtue of his senior position and responsibility and the misappropriated money
was held on constructive trust by the recipient dummy companies and Agip
was enabled to trace it.
Another version Mr Zdiri, an Agip Ltd employee, changed the name on a
payment order of $518,000 to Baker Oil Services Ltd, a puppet controlled by
Mr Jackson and other accountants, who acted on clients’ instructions. The
money was transferred from Banque du Sud in Tunisia to Baker Oil’s account
with Lloyds Bank in London. All but $43,000 was then paid on to unknown
parties. Agip Ltd sued Mr Jackson for return of the money.
Judgment [edit]
High Court [edit]
Millett J held Agip Ltd was entitled to an equitable proprietary claim for the
$43,000 from Mr Jackson and the accountants were liable for ‘knowing
assistance in a breach of trust’. But Agip Ltd could not succeed for receipt at
the money at common law (which did not allow electronic rather than physical
tracing) or in equity (because the money was not transferred for the
accountants’ benefit). Banks can be liable in knowing receipt only if they
receive and apply trust money to reduce or discharge a customer’s
overdraft.[1] Otherwise banks merely pay and receive money as agents of their
customers. It must be for their own ‘use and benefit’. He suggested that the
liability for knowing receipt could be imposed if the circumstances would put
an honest and reasonable person on inquiry. Agip Ltd appealed on the
common law point.

Car-2-ndou ‘09 234

Court of Appeal [edit]
Court of Appeal upheld Millett J’s decisions, but did not allow a claim at
common law, because Agip Ltd’s money had been mixed in the New York
clearing system and could not therefore be traced.. Fox LJ gave judgment.
Butler-Sloss LJ and Beldam LJ concurred.
Equity allows property owners to trace it as long as it can be ascertained.
Limits of Equitable tracing.

The ability of common law to recognise title was held in Spence v.

Union Marine Insurance (1868) LR 3 CP 427. The significance of
common law tracing is that it does not require an initial fiduciary
relationship before it operates yet court of equity insists that there
should be an initial fiduciary relationship in order to trace. See Chase
Manhattan Bank v. Israeli British Bank [1981] Ch 105.

b. Equitable Tracing

It requires an initial fiduciary relationship. See Agip (Africa) Ltd. v.

Jackson [1992] 4 ALLER 451.

-Equity allows property owners to trace as long as property can be

ascertained.

The following are limits to equitable Tracing:

1. Dissipation

Where property has been used up, it is impossible to trace because

the property cannot be ascertained. There remains nothing that
represents the original property. See Re Gold Corp Exchange Ltd
[1994] 2 ALLER 806;

Where property has already been used up it is impossible to trace because

the property cannot be ascertained. There remains nothing that represents
the original property. Re Gold Corp Exchange Ltd [1994] 2 All ER 806
Goldcorp Exchange Ltd had a business of holding gold reserves for
customers wishing to invest in gold. Bullion levels were held for customers,
but these varied from time to time. The Privy Council advised that it was
impossible to say what each customer owned, and also impossible to know
the customer’s fraction of the total. The total amount purchased by individual
customers exceeded the total amount of gold bullion that was

Car-2-ndou ‘09 235

stored.Unascertainable goods cannot also be traced. According to Re Gold
Corp Exchange Ltd [1994] 2 All ER 806 Goldcorp Exchange Ltd had a
business of holding gold reserves for customers wishing to invest in gold.
Bullion levels were held for customers, but these varied from time to time. The
Privy Council advised that it was impossible to say what each customer
owned, and also impossible to know the customer’s fraction of the total. The
total amount purchased by individual customers exceeded the total amount of
gold bullion that was stored.
There cannot be equitable tracing into the bulk where no title has been
allocated nor trust set up in farvour of the purchases.

Where the property is in the hands of a BFP tracing can also not be effected
more so. BFP is equity’s darling and the only remedy that a beneficiary can
avail himself with is to trace the proceeds for which the BFP made the
consideration.

The Keza Case-BFP (Bonafide Purchaser)

TEMBO, SC, JA:

This is an appeal by Mr. Abdullah Al-Nadhi against a High Court
ruling dated 26th October, 2009, which was made by the learned
Manyungwa, J, in the matter of Dr. Elson Bakili Muluzi and in the
matter of Section 23A of the Corrupt Practices Act.

By its ruling, the High Court refused to grant an order staying

execution of the seizure warrant dated 20th June, 2009, which the
Anti-Corruption Bureau (ACB) had obtained from the High Court, in
so far as in its schedule two the seizure warrant related to the
property known as Keza Office Complex situated on title Number
Chichiri 1/1, being Plot Number CC1157 (Keza Office Complex). In
granting the seizure warrant, to the ACB, to seize Keza Office Complex
the High Court also made an order which placed Keza Office Complex
under the custody, care and control of the ACB, whereby any rents,
charges, fees or dues or other monies whatsoever, in respect of Keza
Office Complex, were to be paid to the ACB or its agents and that such
monies had to be deposited into an interest-earning holding account.
By that ruling, the High Court also refused the appellant’s application
for the variation of the seizure warrant so as to strike out Keza Office
Complex from the list of properties and assets affected by the seizure
and freezing warrants.

The instant appeal is supported by eighteen grounds of appeal.

The appellant seeks the following reliefs: (a) that the ruling of the
lower court refusing to vary the seizure and freezing orders and
warrant dated 20th June, 2009, be reversed; (b) that in place of that
ruling, this Court should vary the seizure and freezing orders and

Car-2-ndou ‘09 236

warrant by striking out Keza office Complex from the orders and
warrant; and (c) that costs be for the appellant both here and below.

The relevant facts and sequence or chronology of events

pertaining to the instant appeal are well captured in the appellants
skeleton arguments, and they are as follows: On 8th July, 2005 a
restriction notice was addressed to the Land Registrar (Blantyre) and
the Commissioner for Lands. The notice was issued under section
23(1) of the Corrupt Practices Act (CPA). The Director of Anti
Corruption Bureau restricted the Land Registrar and the
Commissioner for Lands from authorizing the sale of Keza Office
Complex without his consent. Subsequently, the then owner of Keza
Office Complex, Atupele Properties Limited, applied to the High Court
for a reversal or variation of the restriction notice, in question, in so
far as it restricted the sale of Keza Office Complex. On 9th November,
2005, the High Court delivered its ruling by which it vacated the
restriction notice. Besides, by that ruling, the Minister responsible for
Land matters was ordered to give his consent for the transfer of the
title in Keza Office Complex from Atupele Properties Limited to the
intended purchaser within a period of seven days from the date of the
ruling, thus, 9th November, 2005. The learned Judge declined an
application for stay of the ruling which the ACB made. Subsequently,
the ACB appealed to this Court against the High Court ruling of 9th
November, 2005, by which the High Court vacated the restriction
notice and ordered the Minister responsible for land matters to grant
consent for the transfer of title in Keza Office Complex. On 14th
November, 2005, the ACB made a fresh application for stay of the
High Court’s ruling of 9th November, 2005, which our learned brother
Honourable Justice of Appeal Tambala sitting as a single member of
this Court, dismissed on 16th November, 2005. In essence, Justice of
Appeal Tambala thereby also approved and ratified the order earlier
made by the High Court requiring the Minister responsible for land
matters to grant his consent for the transfer of title in Keza Office
Complex within the time specified, then, by the High Court.

Thereafter, in February, 2006, Atupele Properties Limited sold

and transferred title in Keza Office Complex to the appellant in the
instant case at a price of K285 million. On 2nd March, 2007, this
Court delivered its judgment on the substantive appeal against the
High Court ruling of 9th November, 2005. This Court’s ruling was on
points of law which were raised for its determination. We dare say, in
that regard, that our ruling did not in anyway whatsoever and
howsoever interfere, and was not at all meant to interfere, with the
High Court’s ruling and orders of 9th November, 2005.

Thereafter, the matter went to rest until 19th June, 2009, when
the ACB applied for and obtained, ex-parte, an order and seizure
warrant which necessitated the application by the appellant for

Car-2-ndou ‘09 237

variation thereof, and which eventually led to the decision of the High
Court against which the instant appeal lies.

To begin with, it is our considered view that although the

appellant has raised eighteen grounds of appeal, his appeal, in the
main, can, and should without more, readily be considered and
determined on the basis of six grounds as follows: That –

3:12 the learned Judge erred in law and fact in holding

in effect that by its judgment dated 2nd March, 2007
in the case of ACB –v- Atupele Properties Limited,
the Supreme Court reversed the rulings of the High
Court and the Supreme Court sitting as a single
member;

3:13 the learned Judge erred in law in failing to hold that

when the respondent applied ex-parte for a seizure
warrant and stated in its supporting affidavit that
the Supreme Court had reversed the ruling of the
High Court and that of a single member of the
Supreme Court in the case of ACB -v- Atupele
Properties Limited, that, that statement amounted
to a suppression of a material fact;

3:14 the learned Judge erred in fact and law in holding

that Keza Office Complex was dissipating when
there was no evidence of dissipation;

3:15 the learned Judge erred in law in holding that there

was technical dissipation of Keza Office Complex;

3:16.5 the property (Keza Office Complex) is in no way

dissipating despite the learned Judge’s erroneous
reasoning to the effect that the property “has
technically dissipated”; and

3:17 the learned Judge erred in law in failing to hold that

the sale and transfer of title in Keza Office Complex
was executed under a court order which was never
set aside, that the rights of the appellants were not
liable to be defeated and were free from all other
interests and claims whatsoever including the
ACB’s claims.

We start with ground 3:17. We are in complete agreement with

the contention and submission of the learned Counsel for the
appellant on this point. The Registered Land Act (Cap. 58:01) in
section 25, on rights of the proprietor, provides as follows –

Car-2-ndou ‘09 238

 The right of a proprietor, whether acquired on first
registration or whether acquired subsequently for
valuable consideration or by an order of the Court, shall
be rights not liable to be defeated except as provided in
this Act and the Land Act and shall be held by the
proprietor, free from all other interests, and claims
whatsoever, but subject –
(a) to the leases, charges and other
encumbrances, if any, shown in the register;
and

(b) unless the contrary is expressed in the

register, to such liabilities, rights and
interests as affect the same and are declared
by section 27 not to require noting on the
register –

Provided that -

(i) nothing in this section shall be taken to

relieve a proprietor from any duty or
obligation to which he is subject as a
trustee, or as a family representative;

(ii) the registration of any person under

this Act shall not confer on him any
right to any minerals or to any mineral
oils as defined in the Mining Act and
the Mining Regulations (Oil) Act
respectively unless the same are
expressly referred to in the register.

We must observe, without more, that the circumstances of the

instant case have no relevance to section 27. We are in agreement
with the submission of Counsel for the appellant that the appellant
had purchased Keza Office Complex from Atupele Properties Limited
after both the High Court and this Court, in the capacity of its single
member as earlier observed, had allowed the disposal of Keza Office
Complex, by refusing to allow the ACB to continue restricting the
disposal of Keza Office Complex through a restriction notice. In these
circumstances, we concur with learned Counsel for the appellant that
it would be absurd, unreasonable and indeed quite unfair to now
allow seizure of Keza Office Complex and freezing of the income
therefrom when Keza Office Complex is in the hands of a third party
who is not connected with the offences under the Corrupt Practices
Act and indeed a third party who acquired Keza Office Complex upon
furnishing valuable consideration, in the sum of MK285 million. We
in that respect, again, observe that the sale under court order had
been effected when the High Court and this Court had vacated, so to

Car-2-ndou ‘09 239

speak, the restriction notice which the ACB had earlier on obtained.
In the circumstances, the appellant was under no restraint of any
kind in regard to which he had to guard against, even the fact that
there were court proceedings relating to Keza Office Complex. The
effecting of the sale had the prior authorization of the Court. We
would on that ground alone allow the appeal.

Be that as it may, it is also the considered view of the Court that

Keza Office Complex is not dissipating, in that it is intact. The notion
of “technical dissipation” espoused by the learned Judge in his
Judgment, we reason, does not have any grounding in the law.

Besides we must say it again, as noted above, that this Court

has not at any time by its decision, not even that in the ACB –v-
Atupele Properties Limited delivered on 2nd March, 2007, reversed
the rulings of the High Court and of a single member of this Court in
regard to the vacation of the restriction notice in question. Thus, it
remains a firm view of this Court that the sale of Keza Office Complex
was and is still sanctioned by Court in that regard.

Finally, it is our firm view that the ACB is guilty of inordinate

delay in its effort to prosecute the criminal matter in question. In the
circumstances, it would be wrong for the Court to reinstate the
restriction notice which would operate to the prejudice of the
appellant, who is a bona fide purchaser of Keza Office Complex
with adequate consideration.

In the circumstances and for all the reasons we have expressed

hereinabove, we allow the appeal in its entirety. Costs are for the
appellant both here and below. We so order.

For the avoidance of doubt, our Judgment is that the ruling of

the lower court refusing to vary the seizure and freezing orders and
warrant dated 20th June, 2009, is reversed; that thereby the seizure
and freezing orders and warrant are varied by striking out Keza Office
Complex from the list of properties or assets listed therein; that
henceforth rents, charges, fees or dues or other monies whatsoever, in
respect of Keza Office Complex, shall cease to be paid to the ACB, or
its agents and that thereby all such monies so far deposited and held
by the ACB or it’s agents (in such interest-earning account) be
forthwith paid or restored to the appellant without further legal
process.

DELIVERED in Open Court this 1st day of July, 2010 at

Blantyre.

Bishopgate Investment v. Horman [1995] 1 ALLER 347; Re Diplock

[1948] Ch 465; Re Tilley’s Will Trust [1967] Ch 1179

Car-2-ndou ‘09 240

 2. Unascertained goods or property. See Re Gold Corp Exchange
(supra). There cannot be equitable tracing into the bulk where
no title has been allocated nor trust set up in favour of the
purchasers.

3. Where the property is in possession of a bona fide purchaser. A

BFP is equity’s darling and the only remedy a beneficiary can
avail is to trace the consideration.

4. Where equity court deems that it is inequitable (unconsionable)

to trace because the result would be unjust.
See Re Diplock [1948] Ch 465

Re Diplock [1948] Ch 465 Caleb Diplock died in 1936 and his will created a
trust leaving the residue of his estate to "benevolent" organizations in
England. Most of the money was distributed when, in 1939, having exhausted
any remedy they might have had against the trustee, Diplock's next-of-kin
challenged the validity of the trust arguing that "benevolent" was different from
"charitable" and that trusts for non-charitable purposes are invalid. The next-
of-kin wanted to retrieve (i.e. to trace) the money given to the benevolent
organizations. The problem was that some of the benevolent organizations,
on good faith, used Diplock's money to build on land they owned, thus mixing
the trust money with property of their own. The court refused to allow the
tracing to attack this endeavour, stating that the trust assets were no longer
identifiable.

In his excellent book Equity and the Law of Trusts (1993), author Philip Pettit
wrote:
"The general principle laid down in Re Diplock Estate is that whenever there is
an initial fiduciary relationship, the beneficial owner of an equitable
proprietary interest in property can trace it into the hands of anyone holding
the property except a bona-fide purchaser for value without notice.
MIXED FUND

It is difficult to trace a mixed fund. So the rules used to trace a mixed

fund are just presumptions the court of equity has developed. The
rules attempt to reflect the moral blameworthy of the parties. They
operate harshly on the trustee who has mixed trust property with his
own as compared to an innocent volunteer.

The following are rules or principles used to trace a mixed fund:

Car-2-ndou ‘09 241

 1. Firstly determine whether there is still money remaining in the
trustee’s account. The presumption is that all the money
remaining is trust money. See Re Hallett’s Estate (1880) 13 Ch 696;
Firstly determine if there is still money remaining in the trustee’s
account. In Re Hallet (1880) 13 Ch 696 a solicitor was a trustee of his
marriage settlement and he was entrusted with by a client for
investment. He paid money from the trust and his client’s money into
his bank account. The account also contained some of his own money.
He made various payments out which had been dissipated. On his
death the account had enough money to satisfy the claims of the trust
and the client, but not his other creditors. The question was whether
the money in the account could be held to be property of the trust and
the client in which case they would gain priority over other general
creditors. The court held that the trustee must be presumed to have
spent his own money first and to have preserved the trust money.
In the case of innocent volunteer, the rules tend to do subatanive
justice where the funds are held in ratable proportions according to the
contributions – thus sharing in pari pasu. In situations where funds are
mixed in an active bank account, the blameworthiness of the parties
will be considered but a distinction is drawn based on the nature of the
account. In the case of a current account, the payment of money out of
the bank is presumed to have been made in the same order that the
money was paid in or first in, first out.

Re Hallett’s Estate (1880) 13 Ch D 696,CA

Sir George Jessel MR:

But where the trustee has mixed the money with his own the beneficiary
can no longer elect to take the property, because it is no longer bought with the trust money but
610 Cases & Materials on Trusts
with a mixed fund.He is, however, still entitled to a charge on the property purchased for the
amount of the trust monye laid out in the pcuhrase ... That is the modern doctrine of equ. ity
Facts
Mr Hallett was a solicitor and a trustee of his own marriage settlement in favour of his
wife for life and subject thereto for himself for life with remainder to the issue of the
marriage. He paid the trust moneys into his bank account. As a solicitor, he acted on
behalf of Mrs Cotterill and paid a sum of money received on her behalf into his
account. He made various payments into and out of the account. At the time of his
death, the account had sufficient funds to meet the claims of the trust and Mrs Cotterill
but not, in addition, the claims of the general creditors.
The personal representatives of Hallett sued to ascertain whether or not the trustees
and Mrs Cotterill (collectively) had priority in satisfaction of their claim over the
general creditors.
Held
The trustees and Mrs Cotterill had priority over the general creditors and were entitled
to a charge on the bank account.

Car-2-ndou ‘09 242

In Re Hallett, the personal representatives had argued that the amounts withdrawn
from the account were primarily trust moneys so that the balance remaining in the
account belonged to the personal representatives. This argument was rejected by the
Court of Appeal on the ground that an individual who controls funds belonging to an
innocent person which have been mixed with his own, and withdraws part of the fund
which is dissipated, is assumed to have withdrawn his own funds before depleting the
innocent person’s balance in the account.

Re Hallett’s Estate (1880) 13 Ch D 696,CA

Sir George Jessel MR: Where a man does an act which may be rightfully performed, he cannot
say that that act was intentionally and in fact done wrongly.When we come to apply that principle
to the case of a trustee who has blended trust monies with his own, it seems to me perfectly plain
that he cannot be heard to say that he took away the trust money when he had a right to take
away his own money.The simplest case put is the mingling of trust monies in a bag with money of
the trustee’s own.Suppose he had 100 sovereigns in a bag and he adds to them another 100
sovereigns of his own, so that they are co-mingled in such a way that they cannot be distinguished
and the next day he draws out for his own purposes £100, is it tolerable for anybody to allege that
what he drew out was the first £100 of trust monies and that he misappropriated it and left his
own £100 in the bag? It is obvious he must have taken away that which he had a right to take away,
his own £100.
The rule in Re Hallett’s Estate seems to be that if a trustee or fiduciary mixes trust
moneys with his own:
(a) the beneficiary is entitled, in the first place, to a charge on the amalgam of the fund
in order to satisfy his claim;
(b) if the trustee or fiduciary withdraws moneys for his own purposes, he is deemed to
draw out his own moneys, so that the beneficiary may claim the balance of the fund
as against the trustee’s general creditors.

Roscoe v Winder [1915] 1 Ch 62, HC

Facts
In accordance with an agreement for the sale of the goodwill of a business, the
purchaser, Wigham, had agreed to collect the debt and pay it over to the company. He
collected the debt (£623, 8s, 5d) and paid £455, 18s, 1d into his personal bank account.
The remainder of the debt was unaccounted for. He drew out funds which were
dissipated until the credit balance in his account was only £25, 18s. Later, he paid in
more of his own moneys and died leaving a balance in the account of £358, 5s, 5d. The
question in issue was the extent to which the plaintiff could claim a charge under the
rule in Re Hallett’s Estate.
Held
Although Wigham had held the money as trustee, the charge was limited to £25, 18s –
the lowest intermediate balance subsequent to the appropriation:
Sargant J: It appears that after the payment in by the debtor of a portion of the book debts
which he had received, the balance at the bank was reduced by his drawings to a sum of £25, 18 s.
So that, although the ultimate balance at the debtor’s death was about £358, there had been an
intermediate balance of only £25, 18s.The result of that seems to me to be that the trust monies
cannot possibly be traced into this common fund which was standing to the debtor’s credit at his
death to an extent of more than £25, 18s because although prima facie under the second rule in Re
Hallett any drawings out by the debtor ought to be attributed to the private monies which he had
at the bank and not to the trust monies, yet, when the drawings out had revealed such an amount

Car-2-ndou ‘09 243

that the whole of his private money part had been exhausted, it necessarily followed that the rest
of the drawings must have been against trust monies.Counsel for the plaintiff contended that the
account ought to be treated as a whole and the balance from time to time standing to the credit
of that account was subject to one continual charge or trust ... you must for the purpose of
tracing put your finger on some definite fund which either remains in its original state or can be
found in another shape.

The rule in Clayton’s case (1816) 1 Mer 572 Mr Clayton had an

account with a banking firm, a partnership named Devaynes, Dawes,
Noble, and Co. One of the partners, William Devaynes, died. The
amount then due to Clayton was £1,717. The surviving partners,
thereafter paid out to Mr Clayton more than that amount while Clayton
himself, on his part, made further deposits with the firm. The firm
subsequently went bankrupt.
Judgment [edit]
Sir William Grant MR held that the estate of the deceased partner was
not liable to Clayton, as the payments made by the surviving partners
to Clayton must be regarded as completely discharging the liability of
the firm to Clayton at the time of the particular partner’s death.

The ruling was based on the legal fiction that, if an account is in credit,
the first sum paid in will also be the first to be drawn out and, if the
account is overdrawn, the first sum paid in is allocated to the earliest
debit on the account which caused the account to be overdrawn. It is
generally applicable in cases of running accounts between two parties,
e.g., a banker and a customer, moneys being paid in and withdrawn
from time to time from the account, without any specific indication as to
which payment out was in respect of which payment in. In such case,
when final accounts, which may run over several years, are made up,
debits and credits will be set off against one another in order of their
dates, leaving only final balance to be recovered from the debtor by the
creditor.
The rule is only a presumption, and can be displaced. The rule is one
of convenience and may be displaced by circumstances or by
agreement. In Commerzbank Aktiengesellschaft v IMB Morgan plc and
others [2004] EWHC 2771 (Ch) the court elected to not to apply the
rule on the fact of the case (sums held in bank accounts derived from
victims of Nigerian advance fee frauds).
Notwithstanding the criticisms sometimes levelled against it, and
despite its antiquity, the rule is commonly applied in relation to tracing
claims where a fraudster has commingled unlawfully obtained funds
from various sources.

The rule in Clayton’s Case

The rule in Clayton’s Case is a rule of banking law and one of convenience that had
been adopted in the early part of the 19th century to ascertain the respective interests
in a bank account of two innocent parties inter se. Where a trustee mixes trust funds

Car-2-ndou ‘09 244

subsisting in an active current bank account belonging to two beneficiaries, the
amount of the balance in the account is determined by attributing withdrawals in the
order of sums paid in to the account: first in, first out (FIFO).
The rule is applied as between beneficiaries (or innocent parties) inter se in order to:
(a) ascertain ownership of the balance of the fund; and
(b) ascertain ownership of specific items bought from funds withdrawn from the
account.
The basis of the rule lies in the fact that as between the beneficiaries (or innocent
parties) the ‘equities are equal’, that is, there is no need to give one beneficiary any
special treatment over the other. It is worth noting, however, that as between the
trustee and beneficiary, the rule in Re Hallett and not Clayton applies. The wrongdoer
may never take advantage of the FIFO rule.

Clayton’s Case, Devaynes v Noble (1816) 1 Mer 529,CA

Facts
Mr Clayton, a customer at a bank, had a balance of £1,713 in his
favour at the time of
the death of Devaynes, a partner in a bank. Clayton drew out more
than £1,713 (thus
creating an overdraft) and then paid in further sums totalling more
than the overdraft.
Later, the firm of bankers went bankrupt. Clayton sought to
recover from Devaynes’
estate.
Held
The sums withdrawn by Clayton, after Devaynes died, must have
been appropriated
to the earlier debt of £1,713 so that Devaynes’ estate was free from
liability. The sums
which Clayton subsequently paid in constituted a ‘new debt’ for
which the surviving
partners alone were liable:
Grant MR: This is a case of a banking account, where all the sums paid in
form one blended fund, the parts of which have no longer any distinct
existence.Neither banker nor customer ever thinks
of saying, this draft is to be placed to the account of the £500 paid in on
Monday, and this other to

Car-2-ndou ‘09 245

the account of the £500 paid in on Tuesday.There is a fund of £1,000 to
draw upon, and that is
enough.In such a case, there is no room for any other appropriation than
that which arises from
the order in which the receipts and payments take place and are carried
into the account.
Presumably, it is the sum first paid in, that is first drawn out.It is the first
item on the debit side of
the account that is discharged, or reduced, by the first item on the credit
side.The appropriation is
Chapter 21: Breach of Trust 625
made by the very act of setting the two items against each other.Upon
that principle, all accounts
current are settled, and particularly cash accounts.
The rule in Clayton’s Case, as originally formulated, was a rule in
banking law
applicable in determining ownership of funds in an account.
However, the rule has
been extended to ascertain the interests of:
(a) beneficiaries inter se under two or more separate trusts; and
(b) competing claimants or beneficiaries under the same trust.
Re Stenning [1895] 2 Ch 433,HC

Facts
A solicitor paid moneys belonging to a number of clients into his personal bank
account. This money included £448, 18s, 6d which was due to Mrs Smith. There was
often more than this amount in the account, but there was often less than the total of
the clients’ moneys paid in. Mrs Smith brought a claim against the solicitor alleging
that she was a beneficiary under a trust.
Held
No trust had been created on the facts, but only a loan was made by agreement. But if
the £448, 18s, 6d had been trust moneys, Clayton’s Case would have applied as between
Mrs Smith and the other clients.
Note
One criticism that has been levelled against the rule in Clayton’s Case is that it lacks
justice as between claimants of equal standing. The rule exists as a rough and ready
solution, the outcome to which depends on a matter of chance, that is, the application
of the rule depends on the precise time when money from two trusts (or moneys from
the same trust but belonging to two or more beneficiaries) was paid into a current

Car-2-ndou ‘09 246

account.
A more equitable solution, as compared with Clayton’s Case, would have been to allow
the two groups of beneficiaries to share the balance in the account, rateably, in
proportion to the sums originally placed in the account from the two trusts, that is, the
beneficiaries ought to be entitled to an order ranking in pari passu. The House of Lords
adopted this equitable solution in respect of the claims of two innocent parties inter se
to a fund, not being a current account, which had been mixed by a fiduciary.

Exception to the rule

The rule does not apply to payments made by a fiduciary out of an
account which contains a mixture of trust funds and the fiduciary's
personal money. In such a case, if the trustee misappropriates any
moneys belonging to the trust, the first amount so withdrawn by him will
not be allocated to the discharge of his funds held on trust but towards
the discharge of his own personal deposits, even if such deposits were,
in fact made later in order of time. In such cases, the fiduciary is
presumed to spend their own money first before misappropriating
money from the trust; see Re Hallett's Estate (1879) 13 Ch D 696. The
rule is founded on the principles of Equity. If a fiduciary has mixed his
or her own money with sums of trust money in a private account,
withdrawals are attributed to his or her own money as far as
possible, Re MacDonald [1975] Qd R 255. However, if the funds of
two beneficiaries, or of a beneficiary and an innocent volunteer, are
mixed the rule determines their respective entitlements, Re
Diplock [1948] Ch 465.

Re Oatway [1903] 2 Ch 356 –where the opposite of presumption

of Re Hallett’s case was applied. The rules are harsh with a
trustee who mixes the trust property with his own.

2. In the case of innocent volunteer, the rules tends to do

substantive justice where the funds are held in ratable
proportions according to the contributions—thus sharing in pari
passu. In situations where funds are mixed in active bank
account, the blame-worthiness of the parties will be considered
but a distinction is drawn based on the nature of the account. In
the case of a current account, the payment of money out of a
bank account is presumed to have been made in the same
order that the money was paid in or first in, first out. The rule in
Clayton’s case (1816) 1 Mer 572. This rule however is applied only

Car-2-ndou ‘09 247

 when it would achieve justice and it cannot be used as an
instrument of injustice.

See Barlow Clowes International Ltd v. Vougham [1992] 4 ALLER

22.
Barlow Clowes Investment company collapsed in Gibraltor. Depositors
had paid into investment plans, but the money had been misapplied
and the company was left owing some money to investors, with assets
far less than that amount. Some investors argued that the rule in
Clayton’s case should be applied, with the consequence that the late
investors would recover virtually all their money, leaving the early
investors with nothing. After a wide- ranging examination of the
authorities, the court held that the rule was well established and that it
was not open to them to overrule it. However the court felt free to
depart from the rule in the circumstances of the case, because it would
work injustice. So the rule would not be applied because the
investment fund was regarded by the investors as a common pool, and
that they should share pari passu in what remained because they had
experienced a common misfortune.

Barlow Clowes International Ltd (In Liquidation) and Others v Vaughan

and Others [1992] 4 All ER 22,CA
Facts
The companies promoted and managed certain investment plans in gilt-edged stock.
Funds had been misapplied and the companies went into liquidation, and receivers
were appointed. At the time of the collapse, the companies had a total liability of £115
million owed to around 11,000 investors. The amount available was far less than the
amount of the investors’ claims. The moneys and assets available for distribution to
investors were contributed by three classes of claimants, namely:
(a) moneys paid by investors for investments in gilts which were acquired by the
companies;
(b) moneys in bank accounts awaiting investment in gilts at the time the receivers were
appointed;
(c) the net proceeds of sale of additional assets, including a yacht, Boukephalos.
The receivers brought proceedings for directions as to the basis on which the assets
and moneys ought to be distributed. The judge (Peter Gibson J) decided that the
distribution should be made in accordance with the rule in Clayton’s Case (‘first in, first
out’). Thus, the investors were to be paid in the reverse order to that in which they had
made deposits, so that later investors were more likely to be repaid. The second
defendant appealed.
Held
The moneys and assets were intended to form a common investment pool and the
claimants ranked in pari passu. Thus, they were entitled to a charge on the common
investment pool shared rateably, in proportion to their contributions, in accordance
with the principle in Sinclair v Brougham. Where the rule in Clayton is impractical, or

Car-2-ndou ‘09 248

may cause injustice, or is contrary to the intention of the investors, the court is entitled
to refuse to apply it, provided that an alternative method of distribution is available.
Clayton’s rule was considered to be time-consuming and expensive. In addition, the
rule would cause injustice, because a relatively small number of investors would
become entitled to most of the fund and the rule was, in any event, not applicable to
tracing claims. An alternative method, known as the ‘rolling charge’, was rejected by
the court. This solution regards a mixture of funds from different sources as a ‘blend or
cocktail’. The effect is that a withdrawal is treated as a depletion of an interest in the
account in the same proportion as the interest bears to the fund immediately before
the withdrawal is made. Thus, losses are borne proportionately, but later payments in
the account are unaffected by earlier withdrawals. The court rejected this solution as
complex, expensive and impractical:

Dillon LJ: The question is, in relation to the balances in the bank accounts specified in schedule A
to the judge’s order: which were moneys contributed by investors for investment, which had not
been invested by the time BCI went into liquidation and the receivers were appointed, whether
these moneys became part of the common funds as soon as they were received into the bank
accounts of BCI from the investors?
There are attractions in the view that if moneys are paid for investment in a common fund of giltedged
investments they only become part of the common fund when invested in gilts, and are, in the meantime,

1. funds, and then a withdraw is followed by further payment into

the account from other sources, the trust entitlement is limited to
the lowest intermediate balance unless the subsequent deposits
were intended to replenish the trust fund. See James Roscoe
(Bolton) Ltd v. Winder [1915] 1 Ch 62 where a wrong doer
misappropriated some 455 pounds which he paid into his own
bank account. After a few days the balance was reduced to 25
pounds, though by his death it had risen to 358 pounds. It was
held that a charge could only extend over the 25 pounds.

JUSTIFICATION FOR TRACING

-Since original owner retains an equitable title then he has to trace his
property into the hands of the third party. The receipt by the third party
does not defeat the owner’s equitable title.

-Circumstances of the receipt by the third party may trigger the right to
trace. If the conduct of the third party who received the trust property
is unconscionable, tracing is triggered. See Chase Manhattan Bank v.
Israeli British bank [1981] Ch 1o5; AG of Hong Kong v. Reid [1994] 1
ALLER 1

Car-2-ndou ‘09 249

CIRCUMSTANCES WHERE TRACING IS POSSIBLE

1. Where there is a breach of trust by a trustee

2. Where trust property gets into the hands of third party

3. Where unauthorised profits are made by trustees, equity can

follow such proceeds/profits. See AG of Hong Kong v. Reid [1994]
1 ALLER 1

4. Where there is payment made under a void contract. Void

contract confers no right. The receiver holds on constructive trust
for the payor as long as the receiver had knowledge of the
receipt. See Westdeutsche case [1996] 2 ALLER 961

Car-2-ndou ‘09 250

 2. SUBROGATION

-It arises in equity when it would be unconscionable to deny a

proprietary right arising from established principles, a set of
circumstances or the conduct of the parties.

See Boscawen v. Bajwa [1995] 4 ALLER 769

COURT OF APPEAL, CIVIL DIVISION
STUART-SMITH, WAITE AND MILLETT LJJ
16, 17 MARCH, 10 APRIL 1995

Trust and trustee - Following trust property - Use of trust money to discharge mortgage -
Exchange of contracts for sale of property - Bank's mortgage advance paid to vendor's
solicitors pending completion - Money applied before completion towards discharge of
vendor's prior mortgage - Mortgage discharged partly by vendor's own payments - Sale falling
rhrough - Whether bank entitled to trace - Whether vendor an
innocent volunteer - Whether vendor ranking pari passu.

Subrogation - Circumstances in which doctrine applicable - Mortgage - Bank's mortgage

advance to purchaser paid to vendor's solicitors pending completion - Money applied before
completion towards discharge of vendor's prior mortgage - Mortgage discharged partly by
vendor's own payments - Sale falling through - Whether bank entitled to charge by way of
subrogation.

In September 1989 B, the registered proprietor of a property, charged it to a building society. In

August 1990 B exchanged contracts for the sale of the property to purchasers who had
obtained an offer of mortgage from a bank, to be secured by a first legal charge over the
property. The bank subsequently transferred £140,000 (which was the balance payable on
completion of the sale) to the client account of the purchasers' solicitors to be held on terms
which obliged them to use it for completion of the purchase or to return it if, for any reason,
completion did not take place. The purchasers' solicitors transferred £137,405 to the account of
B's solicitors and thereafter sent a cheque for the balance of £2,595. B's solicitors then paid
£140,000 to the building society in part repayment of B's mortgage arrears, the total amount to
redeem the debt being £141,222·4340. A few days later the cheque for £2,595 from the
purchasers' solicitors was dishonoured and never paid; the firm subsequently ceased to exist
and the sole equity partner was made the subject of a bankruptcy order. B's solicitors were
able to retrieve the £2,595 from another account which they held for B. On 29 April 1991, the
building society discharged the charge on the property after a final payment by B and
forwarded the title deeds to B's solicitors, but they refused to release them to the purchasers
until the balance on the purchase price was paid. The sale however fell through and the
purchasers never acquired legal title to the property. In 1992 the plaintiffs, who were judgment
creditors of B, obtained a charging order absolute on the property and issued an originating
summons against B and the bank for enforcement of the charging order. An order for
possession and sale was made, and the proceeds of sale amounted to £105,311·4383. On a
counterclaim by the bank, the deputy judge held that, since the bank's money could be
traced into the payment to the building society and was used towards the discharge of the
latter's charge, the bank was entitled to a charge on the property by way of subrogation to
the rights of the building society to the extent that the money had been used to redeem the
charge and in priority to any interest of the plaintiffs. On appeal the plaintiffs contended inter
alia (i) that the deputy judge's aggregation of the two different equitable doctrines of tracing
and subrogation was impermissible, (ii) that the bank's tracing claim failed, because even if its
money could be traced to the building society it was then lost because money used to pay off
a debt ceased to be traceable and (iii) that the deputy judge had erred in attempting to
supply the absence of a tracing remedy by invoking the doctrine of subrogation.

Car-2-ndou ‘09 251

Held - (1) The two doctrines of tracing and subrogation could legitimately be invoked in the
same case because they arose at different stages of the proceedings. Accordingly, there was
nothing impermissible in the judge's invocation of the two doctrines in the same case: tracing
was the process by which the bank sought to establish that its money was applied in the
discharge of the building society's charge, whereas subrogation was the remedy which it
sought in order to deprive B of the unjust enrichment which he would otherwise obtain at the
bank's expense (2) The fiduciary relationship which was a prerequisite of the right to trace in
equity was satisfied as soon as the purchasers' solicitors received the bank's money and held it
on trust for the bank. Indeed, the actual appropriation of some of that money by B's solicitors to
pay the building society allowed the bank to trace its money to the building society. Further, B
could not avail himself of the more favourable tracing rules which were available to an
innocent volunteer who unconsciously mixed trust money with his own, because although B
and his solicitors had not acted dishonestly they were not innocent volunteers but were
manifestly fiduciaries in that they knew that the money received was money held on trust
which would only become available to B on completion of the sale.
(3) There was no general rule which, regardless of circumstances, required the party claiming
subrogation to a creditor's security to prove that he intended his money to discharge the
security in question and that he intended to obtain the benefit of the security by subrogation. It
was enough that the bank did not intend to be an unsecured creditor, and intended to retain
the beneficial interest in its money unless and until that interest was replaced by a first legal
mortgage on the property. The bank's equitable right to subrogation arose from the conduct of
the parties at the moment that the building society's charge was discharged in whole or in part
with the bank's money and because it would have been unconscionable for B to assert that it
was discharged for his benefit.
(4) The interests of the plaintiffs and of the bank did not rank in proportion to the sums paid to
the building society by B and the bank respectively. B's own payments enured for the benefit of
his equity of redemption, and ranked behind the bank's subrogated charge just as they ranked
behind the building society's charge. Further, since B's title was subject to a charge in favour of
the bank, the plaintiffs could only take such interest as B possessed. The appeal would
accordingly be dismissed.
-It finds one of its chief uses in the situation where one person
advances money on the understanding that he is to have certain
security for the money he has advanced, and, for one reason or
another, he does not receive the promised security. See Burston
Finance Ltd v. Speirway Ltd [1974] 1 WLR 1648 per Walton @ 1652
B-C Subrogation finds one of its chief issues in the situation where one
person advances money on the understanding that he is to have
certain security for the money he has advanced, and for one reason or
the other, he does not receive the promised security. Burston Finance
Limited v Speirway Limited [1974] 1 WLR 1648 per Walton @1652 "It
finds one of its chief uses in the situation where one person advances
money on the understanding that he is to have certain security for the
money he has advanced, and, for one reason or another, he does not
receive the promised security. In such a case he is nevertheless to be
subrogated to the rights of any other person who at the relevant time
had any security over the same property and whose debts have been
discharged, in whole or in part, by the money so provided by him, but
of course only to the extent to which his money has, in fact, discharged
their claims." (emphasis added)

-Subrogation is allowed in different situations where one paid another

on mistake, under compulsion or failed to pay consideration. It is
unconscionable for the payee to retain the property. Subrogation is

Car-2-ndou ‘09 252

one sense like contract of indemnity where if A gives to B under
mistake, it’s like A is indemnified by B
-What is material is for the party to prove the unjust enrichment. Once
the equity is established the court satisfies it by declaring that the
property in question is subject to a charge by way of subrogation. So
subrogation is a remedy and not a cause of action. See Boscawen v.
Bajwa (supra) per Millet J;

Boscawen v Bajwa [1995] 4 All ER769 The defendant had charged his
property to the Halifax. Abbey supplied funds to secure its discharge, but its
own charge was not registered. It sought to take advantage of the Halfax's
charge. Held: A mortgagee whose loan is used to repay another charged debt
is subrogated to that debt, and can rely on that charge. Millett LJ: "If the
plaintiff succeeds in tracing his property, whether in its original or in some
changed form, into the hands of the defendant, and overcomes any defences
which are put forward on the defendant's behalf, he is entitled to a remedy.
The remedy will be fashioned to the circumstances. The plaintiff will generally
be entitled to a personal remedy; if he seeks a proprietary remedy he must
usually prove that the property to which he lays claim is still in the ownership
of the defendant. If he succeeds in doing this the court will treat the defendant
as holding the property on a constructive trust for the plaintiff and will order
the defendant to transfer it in specie to the plaintiff. But this is only one of the
proprietary remedies which are available to a court of equity. If the plaintiff's
money has been applied by the defendant, for example, not in the acquisition
of a landed property but in its improvement, then the court may treat the land
as charged with the payment to the plaintiff of a sum representing the sum by
which the value of the defendant's land has been enhanced by the use of the
plaintiff's money. And if the plaintiff's money has been used to discharge a
mortgage on the defendant's land, then the court may achieve a similar result
by treating the land as subject to a charge by way of subrogation in favour of
the plaintiff."

Orakpo v. Manson Investments Ltd. (]1978) AC 95 @ 104; In Re TH

Knitwear (wholesale) Ltd. [1988] Ch 275 @ 284

-It is available to reverse the defendant’s unjust enrichment. It is not a

remedy which court has a general discretion to impose whenever it
thinks just to do so but it arises just like the same way institutional
constructive trust arises.
-May, LJ in Filby v. Mortgage Express (No.2) Ltd [2004] EWCA Civ 759
said that the remedy of equitable subrogation is a restitutionary remedy
available to reverse what would otherwise be unjust enrichment of a
defendant at the expense of the claimant. Filby v Mortgage Express No 2
Ltd 2004 EWCA Civ 759 Applying the relevant principles regarding the
remedy of equitable subrogation the claimants were entitled to a right against

Car-2-ndou ‘09 253

the defendant equivalent to the unsecured personal rights against her arising
under a joint loan account she held with her ex-husband. The effect of the
defendant's husband forging her signature on the mortgage application meant
that the contract was a nullity as against the defendant and money that had
been paid into their joint account under the mortgage remained the claimants.
It was held that the remedy of equitable subrogation is a restitutionary remedy
available to reverse what would otherwise be unjust enrichment of the
defendant at the expense of the claimant.

3. INJUNCTIONS

-It is an equitable remedy. It is an order of the court, which compels a

defendant to desist from taking a particular conduct and it can
compel him or her to take particular steps.

Mpinganjira et al v Speaker of Naotional Assembley and AG

On the 6th of November 2001 the Speaker of the National Assembly declared the
Parliamentary seats of the Plaintiffs vacant. Two days later, i.e. on 8th November
2001, during an ex-parte application, this court made an order of an interlocutory
injunction against the Defendants (Respondents), and it was in the following terms:-
“Until the hearing of the inter partes application for injunction slated for Sunday
November 11th, 2001 at 14.00 hours the Defendants must not either by themselves,
their servants, followers or agents, or however otherwise:-
0.1 Implement the decision of dismissing the Plaintiffs from the National Assembly or
declaring their seats vacant.
0.2 Bar the Plaintiffs from enjoying the privileges and exercising powers given to
them by the positions they hold as members of the National Assembly until a further
order of this court or until a trial.”
It was further ordered by this court that the service of the order would be effected on
the office of the Attorney General. The order in respect of service was made in view
of the privileges and immunities that the office of Speaker is said to enjoy when the
National Assembly is sitting.

Further, it has to be observed that this order was made pursuant to the Plaintiff’s
(Applicant) prayer contained in the ex-parte summons filed with the court on the said
8th of November 2001. In the ex-parte summons, the Applicants were praying for an
interlocutory order of injunction to restrain the Defendants (Respondents), their
agents or servants, from enforcing the decision of the Speaker declaring the seats of
the Applicants, in the National Assembly, vacant and expelling the Applicants from
the National Assembly pending the determination of the Plaintiffs’ (Applicants’)
application for Judicial Review.
Perhaps it is also important to note that on the 9th of November 2001 the Applicants
were actually granted leave to apply for Judicial Review. I shall revert this order of
9th November 2001 later in this Ruling. Suffice it to say, at this stage, that on the

Car-2-ndou ‘09 254

grant of leave this court observed that the Applicant’s complaint merits a hearing
under Judicial Review (see the order of my learned brother Judge Hon. Mr Justice
Hanjahanja made on 9th November 2001).
Moreover, I wish to point out that the title of both the Summons herein and the Notice
of Application for Judicial Review belie the real intention behind the applications.
The title of these proceedings, and the Notice of application for leave to apply for
Judicial Review, ought to have been as follows:-
“The State
-vs-
The Speaker
-and-
The Attorney General
Ex-parte (The names of the Applicants viz
Hon. Brown Mpinganjira etc.”
It is no wonder that the title of the heading of these proceedings has caused a lot of
confusion as regards whether these proceedings are a suit or not. It is hoped that
learned Counsel for the Applicants will, at the appropriate time, regularise this
position.
The fact that Counsel for the Applicants did not properly draft the papers he filed with
this court should not make us lose sight of the fact that this application has been made
in Judicial Review proceedings. This poor drafting of documents, which for all intents
and purposes is a technicality, should not make the Applicants fail to get a temporary
protection, from this court, if it is found that same would be necessary and
appropriate.

Chilumpha case:
In The State And The President, Office Of The President & Cabinet, The
Chief Secretary For President And Cabinet, The Chief Secretary For
Public
Service and the Attorney General Exparte Dr. Cassim Chilumpha S.C.1
Honourable Justice A.C. Chipeta made the following remarks in
relation to mandatory Injunctions:
“The law, in respect of mandatory orders of injunction is
that they are a rare species of equitable remedy as
shown by multiple cases on the subject. In Bonner vs.
G.E. Railways [1883] 24 Ch D.1 it was confirmed and

1
Miscellaneous Civil Cause No. 22 of 2006 at page 31

Car-2-ndou ‘09 255

 emphasized that the court has jurisdiction to grant a
mandatory injunction order on an inter-parties
application. Further, the case of Canadian Pacific
Railway –vs- Gaud [1949] 2KB 239 emphasized the
point that it is an exceptional form of relief. For a party
to deserve and get from the court a mandatory order
of injunction therefore, he needs to have an unusually
strong and clear case. Among others the case of
Redland Brick Limited versus Morris (1970) AC 652, ably
articulates the principles applicable on such type of
application.”

In the Chilumpha case, The Honourable Justice Chipeta ordered

that the applicant was by virtue of his office entitled to all that
had been withdrawn or withheld from him, until the court
decides whether or not he must be deemed to have
constructively resigned from his office. The respondents were
specifically ordered to restore to the applicant all the
entitlements and benefits of his office which had been withdrawn
or withheld from him. In Honourable Brown Mpinganjira and Others
vs The Speaker of the National Assembly and Attorney General2
Mr Chisanga representing the respondents made an analysis of the
law in Malawi in relation to Section 10. Mr. Chisanga’s analysis was
summarized by Honourable Justice Kapanda at page 24 of his
Ruling as follows:-

“Mr. Chisanga, learned Counsel for the

Respondents, has submitted that section 10 of
the Civil procedure (suits by or Against
Government or Public Officers) Act entreats the

2
Civil Cause Number 64 of 1998

Car-2-ndou ‘09 256

 courts not to grant injunctions against the
government. It is his further contention that if this
court upholds the interim order of Injunction
herein then that would infringe the provisions of
the said section 10 and it will further mean that
basically this court has made a determination on
the substantive issue in the Judicial review
proceedings. Mr. Chisanga has further
contended that this court should discharge this
injunction by taking the approach of this court in
the case of D. R. D. Alufandika and Another
versus The Minister of Local Government and the
Attorney General, (ante) and Mhango and
Others –vs- The Attorney General, Inspector
General, Lilongwe City Assembly (supra)”

In dealing with Mr. Chisanga’s submission, Honourable Justice

Kapanda made the following remarks

“As earlier found, this statute is not intended to

regulate Judicial Review Proceedings. That is the
reason why one need not give notice to the
Attorney General or Public Officer in terms of
Section 4 and 5 of the said Cap 6:01 of the Laws
of Malawi before commencing Judicial Review
Proceedings. In Ndamise’s case (Supra), if the
courts were to insist on the need to giving notice
in Judicial Review Proceedings then that would
defeat the whole purpose of protecting people’s
right’s and freedoms enshrined in our constitution,
if those rights or freedoms are threatened. This

Car-2-ndou ‘09 257

 court does not accept that Cap.6.01 of the Laws
of Malawi passed on 28th December, 1946 was
not intended to cover Judicial Review
Proceedings which are a new phenomenon. In
my judgment, and as already found the
expression “suit” or “claim” which features highly
in this statute excludes what are now called
applications for Judicial Review. But even if it be
accepted that the plaintiff’s application falls
within the expression “suit” or “claim” as shall be
seen later, it must be recognized that the
Constitution has given power to the courts to give
an effective remedy where there is a complaint
that a right or freedom has been infringed or is
being threatened3”.

Honourable Justice Kapanda then went and made his final analysis of
the law as follows;

“…To this end in interpreting the provisions of

section 10 of Cap 6:01 today, as read with the
Republican Constitution of Malawi, the traditional
rules of the common law, one must yield to the
Constitution. This court although respecting its
previous decisions in the Alufandika and
Mhango’s case (supra) where it was held that an
injunction can not be issued against
Government, cannot regard those previous
decisions as representing an accurate statement

3
Per Honourable Justice Kapanda in Civil Cause No. 3140 of 2001, Honourable Brown
Mpinganjira
and others versus the Speaker of the National Assembly and the Attorney General at page 36

Car-2-ndou ‘09 258

 of the modern constitutional law principles
applicable in Malawi in so far as the said Section
10 of the Cap. 6:01 of the Laws of Malawi and
the said previous decisions, want to limit the
power of the court to make an order, albeit
temporary, to secure the enjoyment of rights and
freedoms where a court finds that a threat exists
to such rights or freedoms4”

The above discussion represents the current Law on order of injunctions

against Public Officers and the Speaker of the National Assembly.

In the State and the Director of Public Prosecution and the Lilongwe
Chief Resident Magistrates Court Exparte Dr. Cassim Chilumpha5
Honourable Justice Kapanda restated his position on the issue of what
he called “stay of proceedings and /or purported injunction” in the
following manner6:

“This court stayed proceedings before the Chief

Resident Magistrate court sitting at Lilongwe. It is the
view of this court that in granting such relief the court
was guided by what the law is as regards the need to
stay proceedings until the determination of judicial
Review Proceedings. Indeed as observed elsewhere it
would not make sense that the court shall grant leave
for judicial Review while at the same time allow that a
challenged decision should stand or be implemented.
There is no denying the fact that the Director of Public

4
Miscellaneous Cause No 3140 of 2001, Honourable Brown Mpinganjira and Others vs The
Speaker
of National Assembly and the Attorney General at page 31
5
Miscellaneous Civil Cause Number 3115 of 2005
6
The remarks by Honourable Justice Kapanda were made at page 28 and 29 of the Ruling

Car-2-ndou ‘09 259

 Prosecutions made a decision to have the Vice
President committed for trial in the committal
Proceedings that he caused to be instituted in the
magistrate’s courts in Lilongwe. For the avoidance of
doubt the so called Temporary Order of injunctive relief
against the respondents will remain in place until the
hearing of the substantive judicial Review
Proceedings.”

In the State and the Speaker of the National Assembly Exparte Mary
Nangwale,7Honourable Justice Mrs. I.C. Kamanga granted like order of
interlocutory injunction restraining the respondents from implementing
the Speaker’s declaration that the National Assembly by simple
majority had resolved not to confirm the applicant in the Office of
Inspector General of police pending judicial review proceedings which
the applicant had obtained leave to prosecute.
In The State and The Office of the President and Cabinet, The Chief
Secretary for President and Cabinet, The Chief Secretary for Public
Service and The Attorney General Exparte Dr. Cassim Chilumpha8
Honourable Justice Chipeta made pertinent observations relating to
law on injunctions against Government and its ministries when he
observed as follows:

CLASSIFICATION OF INJUNCTIONS

a. Prohibitory or Mandatory

Prohibitory injunction is an order of court to refrain from engaging in

particular conduct or discontinuance of a particular conduct. While
mandatory injunction requires a person to perform an act, and is often
given after the wrong has been done and orders its reversal e.g. If A

7
Miscellaneous Civil Cause Number 3115 of 2005
8
Miscellaneous Civil Cause No. 22 of 2006

Car-2-ndou ‘09 260

has already built a house wrongfully, a mandatory injunction would
order the building to be pulled down.

See Allen v. Greenwood [1980] Ch 119

Mandatory injunctions require a person to perform certain acts, often

given when the wrong has already been done and it orders the reversal
.e.g. if A has already built a house wrongfully a mandatory injunction
would order that it be pulled down. Allen v Greenwood [1980] Ch 119

-Historically all injunctions, whether prohibitory or mandatory had to be

given in a prohibitory form but since the decision of Jackson v.
Normanby Brick Co. [1899] 1 Ch 438 which stated that an injunction
which is mandatory in substance will be given in a mandatory form.

b. Perpetual or Interim/ Interlocutory Injunction

Perpetual injunction is granted to defend a plaintiff’s rights after a full

hearing. The terminology “perpetual” seems to suggest that it last
forever but it should be understood that it is a final remedy.

-Interim or interlocutory injunction is granted in order to preserve the

status quo pending a full trial and before the party’s rights have fully
been established.

-There are other injunctions called Quia Timet injunctions. Quia timet
means “he who fears”. This is an injunction to prevent a threatened
infringement of the plaintiff’s rights, which is not yet taken place. See
Redlands Bricks Ltd v. Morris [1970] AC 652 this case is where the plaintiffs had

adjoining property with the defendant which they used as a market place. The defendant was
a company and was doing some digging work that ended up causing landslips on the plaintiffs
adjoining property. The plaintiffs brought an action for damages, prohibitory injunction and
mandatory quia timet injunction. The lower court awarded the plaintiffs accordingly. The
defendant appealed on the grant of mandatory injunction because the injunction did not
specify on what exactly they should do. The House of Lords allowed their appeal as the court
considered the cost of doing the remedial work. Court exercised its discretion because the

Car-2-ndou ‘09 261

defendant would have to foot 35,000 pounds to perform the remedial work on their land in
order to provide support for the plaintiff’s land which was only worth 1,500 pounds.

Redland Bricks Limited v Morris [1970] AC 652 the plaintiffs had an adjoining
property to the plaintiffs which they used as a market place. The defendants
was a company and was doing some digging work on their piece of land
which ended up in causing land slips on the plaintiff’s adjoining property. The
requirement of proof is greater for a party seeking a quia timet injunction than
otherwise. Lord Upjohn said: “A mandatory injunction can only be granted
where the plaintiff shows a very strong probability upon the facts that grave
danger will accrue to him in the future. As Lord Dunedin said in 1919 it is not
sufficient to say “timeo”. [A-G for Canada v Ritchie Contracting]. It is a
jurisdiction to be exercised sparingly and with caution but in the proper case
unhesitatingly.” and “[T]he court must be careful to see that the defendant
knows exactly in fact what he has to do and this means not as a matter of law
but as a matter of fact, so that in carrying out an order he can give his
contractors the proper instructions.” Quia timet meat means ‘he who fears’

GENERAL PRINCIPLES GOVERNING THE GRANT OF PERPETUAL

INJUNCTION

a. If the infringement is of a continuing nature then damages will be

inadequate e.g. in trespass, nuisance. So an injunction is granted
where damages prove inadequate. See London & Blackwell
Railway Co. v. Cross (1886) 31 Ch 354

b. Plaintiff is to prove an infringement of his or her legal or equitable

right enforceable at law. See Day v. Brownrigg (1878) 10 Ch 294
where Day had given a particular name to his house and his neighbour Brownrigg
gave also exactly the same name. Day then applied for an injunction to restrain the
defendant from naming the house the same name he gave to his house. Court held
that there was no infringement of any legal or equitable right of the plaintiff hence he

has nothing to complain about.

In Day v Briwnrigg (1878) 10 Ch 294 the plaintiff had given a

particular name to his house. His neighbor, the defendant also
gave the same name to his house. The plaintiff then applied for an
injunction to restrain the defendant from giving the same name to
his house. The court held that there was no infringement of any
legal or equitable right of the plaintiff hence he had nothing to
complain about.

Car-2-ndou ‘09 262

In Paton v. British Pregnancy Advisory Service Trustees [1979] QB 276, the
Paton’s wife was pregnant and wanted to do a lawful abortion per the advice of the defendant.
Paton did not want abortion to be done and applied for an order to restrain or prevent his
pregnant wife from having a lawful abortion. Court refused to grant him the order because he
had no right that was thereby infringed.
In Paton v British Pregnancy Advisory Services Trustees [1979] QB 276 the
plaintiff wife was pregnant and she wanted to do a lawful abortion per the
advice of the defendants. Paton did not want the abortion to be done and he
applied for an order to restrain or prevent his pregnant wife from having a
lawful abortion. The court refused him an order because he had no right that
was going to be infringed.
1. Its an equitable remedy so the award of injunction is at the court’s
discretion. But as a general rule, if a party establishes the infringement
of his right then he is entitled to an injunction. See Redlands Bricks Ltd v.
Morris (1970) AC 652 per Lord Upjohn. Redland Bricks Limited v Morris
[1970] AC 652 the plaintiffs had an adjoining property to the plaintiffs
which they used as a market place. The defendants was a company
and was doing some digging work on their piece of land which ended
up in causing land slips on the plaintiff’s adjoining property. “A
mandatory injunction can only be granted where the plaintiff shows a
very strong probability upon the facts that grave danger will accrue to
him in the future. As Lord Dunedin said in 1919 it is not sufficient to say
“timeo”. [A-G for Canada v Ritchie Contracting]. It is a jurisdiction to be
exercised sparingly and with caution but in the proper case
unhesitatingly.” and “[T]he court must be careful to see that the
defendant knows exactly in fact what he has to do and this means not
as a matter of law but as a matter of fact, so that in carrying out an
order he can give his contractors the proper instructions.

Delay and acquiescence. Court may refuse to grant an injunction

because delay shows a waive of rights—don’t sleep over your rights.
See Blue Town Investments v. Higgs et al [1990] 1 WLR 696. Do not sleep
over your rights. Blue Town Investments v Higgs et al [1990] 1 WLR 696
where the plaintiff was given the option of maintaining its claim (of
interference with its rights of light) if it was willing to apply for an
interlocutory injunction and give the appropriate cross-undertaking in
damages. It was said on behalf of the company that there was no
jurisdiction to do what had been done in the Blue Town case; that there
was a strong public policy against denying a citizen the right to bring a
bona fide claim before the court in the ordinary way; and that in the
absence of malice there was no cause of action at common law for
damage caused by threats of litigation or the existence of the litigation
itself. There was a great deal of force in those views. There was in any
case a substantial difference between the Blue Town case and the
present, where the company had a seriously arguable case. If the
company had the benefit of the covenant and wanted to enforce it, there

Car-2-ndou ‘09 263

 was no need for any further justification for making the attempt.
Application dismissed. (WLR)

PRINCIPLES GOVERNING THE GRANT OF INTERLOCUTORY INJUNCTIONS

They are granted to preserve the status quo before the parties
respective rights can be determined at trial. The rationale was said by
Wilberforce in Hoffmann & Co. v. Secretary of State for Trade and
Industry (1975) AC 295 @ 355 that the objective is to prevent a litigant from losing the
fruit of his litigation due to delay of the law. In this case the defendant sought an injunction to
prohibit the plaintiff from charging for the drugs more than specified in an order. The defendant
refused to make an undertaking as to damages. Court held that the Crown can not be
compelled to make an undertaking as to damages. So court granted the injunction.
Interlocutory injunction is aimed at preserving the status quo before the
parties respective rights can be determined at the trial. The rationale was laid
down in Hoffman & Co v Secretary of State for trade and industry (1975) AC
295 @355 that the objective is to prevent a litigant from losing the fruits of his
litigation due to the delay of the law. In this case the defendant sought an
injunction to prohibit the plaintiff from charging for the drugs more than
specified in the order. The defendant refused to make an undertaking as to
damages. The court held that the crown cannot be compelled to make an
undertaking as to damages so the court granted the injunction.

-Lord Diplock in American Cyananmid Co. v. Ethicon Ltd (1975) AC

396 @ 408 outlined the guidelines to govern the court. These are not
rules but guidelines with room for flexibility. The guidelines are:

a. The plaintiff is not required to establish prima facie case but to

establish that there is a serious issue/ questions to be tried. It
should not be frivolous.

b. Once the plaintiff shows that there is a right to be protected then

the court should weigh the balance of convenience between
granting and refusing the injunction.

c. Each case raises special factors so court is to consider factors

that individual case raises.

d. The Plaintiff must always make an undertaking as to damages if

court erroneously made the injunction order and consequently
the defendant has suffered harm.
The American Cynamid case is where the plaintiff had a patent-surgical product.
The defendant also had made their surgical product and they wanted to launch. The plaintiff

Car-2-ndou ‘09 264

claimed that the defendant patent was in breach of their patent hence applied for an
interlocutory injunction to prevent the defendant from launching the surgical product. The
House of Lords granted the injunction after considering many factors such as the fact that the
defendant had not yet any business which would be affected if the injunction was granted.
American Cyanamid Co v Ethcon Ltd (1975) AC 396 @ 408 The plaintiffs, an
American company, owned a patent covering certain sterile absorbable
surgical sutures. The defendants, also an American company, manufactured
in the United States and were about to launch on the British market a suture
which the plaintiffs claimed infringed their patent. The defendants contested
its validity on divers grounds and also contended that it did not cover their
product. In an action for an injunction the plaintiffs applied for an interlocutory
injunction which was granted by the judge at first instance with the usual
undertaking in damages by the plaintiffs. The Court of Appeal reversed his
decision on the ground that no prima facie case of infringement had been
made out. On the plaintiffs' appeal:
Held, allowing the appeal, (1) that in all cases, including patent cases, the
court must determine the matter on a balance of convenience, there being no
rule that it could not do so unless first satisfied that, if the case went to trial on
no other evidence than that available at the hearing of the application, the
plaintiff would be entitled to a permanent injunction in the terms of the
interlocutory injunction sought; where there was a doubt as to the parties'
respective remedies in damages being adequate to compensate them for loss
occasioned by any restraint imposed on them, it would be prudent to preserve
the status quo (post, pp. 406C-F,407G,408F).
(2) That in the present case there was no ground for interfering with the
judge's assessment of the balance of convenience or his exercise of
discretion and the injunction should be granted accordingly (post, p. 410
outlines the guidelines that may govern the court. These are not rules but
merely guideline so they have room for flexibility
a. It is not necessary that the plaintiff must prove a prima face case. The
plaintiff must only show that there is a serious issue/question to be tried
by the court. It should not be frivolous.
b. Once the applicant has established that there is a right to protect then
the court will have to weigh the balance of convenience between
granting and refusing the injunction.
c. Each case raises special factors so the court is to consider factors that
individual cases raises. Hence the granting of the injunction is a
discretionary remedy.
d. The applicant must make an undertaking as to compensate the
damages which the respondent may suffer in the event that the court
granted him the injunction erroneously and consequently the
respondent has suffered harm.

The American Cyanamid case had a patent surgical product. The defendants
also had made their own surgical product and they wanted to launch. The
plaintiff claimed that the defendant the defendant was in breach of their patent
hence applied for an interlocutory injunction to prevent the defendants from
launching their product. The House of Lords granted the injunction after

Car-2-ndou ‘09 265

considering many factors such as the fact that the defendants had not yet
been in business which would be affected if the injunction was affected.

MANDATORY INTERLOCUTORY INJUCTION

Court is reluctant to award this type of injunction. It requires higher test

than the one in American Cyanamid case (supra)

-The court needs to feel a high degree of assurance that at the trial it
will appear that the injunction was rightly granted.

-Lord Denning said that the plaintiff should make a strong prima facie
case. See De Falco v. Crawley Borough Council [1980] QB 460 where the

plaintiff sought a mandatory injunction to secure the provision of accommodation by the

defendant who were the local authority and were required under the Act to secure
accommodation for the homeless. Court held that the plaintiff failed to demonstrate that they
were homeless and the decision of the defendant refusing to secure the accommodation was
upheld.

- Megary made emphasis on the same point in Shepherd Homes Ltd v.

Sandham [1971] Ch 340 @ 349 where he said that “ the case has to be
unusually strong and clear” before mandatory interlocutory injunction
will be granted.

QUIA TIMET INJUNCTION

The infringement complained of has to be apprehended or

anticipated.

It is granted where 1. The defendant is not yet hurt but is threatened to

be hurt.

2. The plaintiff has been fully compensated for the

harm complained but he sees that there is still harm coming. He
complains that the earlier actions of the defendant may lead to future
causes of action. See Red land Bricks Ltd. v. Morris (1970) AC 652

Car-2-ndou ‘09 266

-Quia timet may be a mandatory, perpetual or interlocutory quia timet
injunction.

-Lord Dunedin said in the case of AG for the Dominion of Canada v.

Ritchie Contracting Co. (1919) AC 999 @ 1005 that it is not sufficient to
say “timeo”. It is required that there should be “a strong case of
probability” that the anticipated infringement will occur. See AG v.
Manchester Corporation [1893] 2 Ch 87 @ 92.

A plaintiff should show that there is imminent danger and that the
apprehended damage will be substantial.

There are two types of Injunctions within Injunctions, which are Mareva
and Anton Piller orders

a. Mareva Injunction

-It is granted in an interlocutory form and usually obtained ex-parte.

-If granted it prevents a defendant (or a third party holding a

defendant’s assets) from dissipating or removing his assets from the
jurisdiction so that there will be nothing remaining to satisfy a judgment
which might be obtained against him at trial.

-Kerr LJ in Z Ltd. v. A-Z [1982] QB 558 @ 585 stated the two

circumstances in which mareva injunction can be granted. These are:

1. If it appears that the plaintiff is likely to recover judgment against

the defendant for a certain or approximate sum.

2. Where there are reasons to believe that the defendant has

property within the jurisdiction that can meet the judgment in
whole or in part but he might take steps to ensure that the
property will no longer be available or traceable when the
judgment is given against him.

Car-2-ndou ‘09 267

-The rationale for the grant of this injunction order was stated in Derby &
Co. v. Weldon (No. 3 & 4) [1990] Ch 65 @76 where Donaldson MR said
that the fundamental principle underlying the jurisdiction to grant
mareva injuction is that “ no court should permit a defendant to take
action designed to ensure that subsequent orders of the court are
rendered less effective than would otherwise be the case” The case
concerned the defendants who were the directors of the plaintiff
company who conducted certain businesses on their own behalf and
not for the benefit of the company but in the process the company
made huge losses. The defendants did every trick possible to make sure
that their assets were out of reach hence untraceable. Court held that
this was the appropriate case to award a world- wide mareva.

-If mareva is granted, a defendant is entitled to draw up his assets to

fund his legitimate expenses including the expenses he will incur in
defending the action. Defendant is not stopped to use his property but
if it turns out that the plaintiff had a proprietary claim and the
defendant used up the property then the defendant will be liable. Third
parties who receive the property with knowledge of the on-going
litigation will be liable.

-Mareva is a recent creation of equity but Lord Denning in The Siskina

(1979) AC 210 said that mareva injuction is a “rediscovery” of the
earlier procedure of “foreign attachment”. The term mareva comes
from a case called Mareva Compania Niviera SA v. International Bulk
carriers SA [1980] 1 ALLER 213 but the injuction was first granted in
Nippon Yusen Kaisha v. Kaa Georgis [1975] 1 WLR 1093. Lord Denning
was in both cases and he said that the development of the order is
“the greatest piece of judicial law reform in my time”. These two
decisions marked a turning point because before them the common
law could not restrain a defendant to deal with his property until the
plaintiff get a judgment. See Lister v. Stubbs (1890) 45 Ch 1

Car-2-ndou ‘09 268

GUIDELINES FOR THE GRANT OF A MAREVA INJUCTION

-In Re BCCI SA (No.9) [1994] 3 ALLER 764 @ 785 Rattee stated that there
are three issues which court has to be satisfied before it grants a
mareva injuction. The three principles are:

1. Applicant must have a good arguable case. Mareva is an

interlocutory injuction but strict standard is applied than an
ordinary interlocutory application. Lord Denning in Third Chandris
Shipping Corporation v. Unimarine SA [1979] QB 645 said that he
who seeks a mareva injuction should do the following:

a. Make full and frank disclosure of all matters in his

knowledge, which is material for the judge to know.

b. Give particulars of his claim against the defendant

1. State grounds of the claim

2. State the amount being claimed

3. Applicant must state the points he is making against

the defendant.

-If it appears subsequently that the applicant did not make full
disclosure then the injuction gotten will normally be discharged.

2. Applicant must satisfy the court that there are assets within the
jurisdiction and show that the defendant has also assets without
the jurisdiction if extra-territorial mareva is sought. It is now an
established fact that mareva injuction can be available against
both movable and immovable property. See Derby & Co. Ltd. v.
Weldon (No. 3 & 4) [1990] Ch 65

Car-2-ndou ‘09 269

 3. Applicant must demonstrate the real risk of dissipation and that
the judgment will be rendered ineffective. See Camdex
International Ltd. v. Bank of Zambia (No.2) [1997] 1 ALLER 728

4. When mareva injuction is granted the plaintiff must make an

undertaking as to damages if court erroneously made the
injuction.

-Plaintiff must move very expediously without delay because the

mareva order attaches to the property of the defendant not to
devalue it.

-If mareva order is disobeyed, the defendant is liable for contempt

of court.

-If third party i.e. bank knows of the order, it must freeze the
account.

-Court has jurisdiction to award a “world wide” mareva injuction.

This was said in Derby & Co. Ltd. v. Weldon (No.3 & 4) [1990] Ch 65 @
95; [1989] 1 ALLER 469

CONDITIONS THAT HAVE TO BE MET BEFORE WORLD WIDE MAREVA IS

ISSUED

-It is awarded in exceptional cases. In Derby & Co. v. Weldon [1989]

1 ALLER 469, Lord Browne Wilkinson stated the following conditions:

1. Special circumstances of the case must justify the award of this

exceptional form of relief.

2. The rationale of mareva is that there should be no splitting of

assets that will render the order of the court less effective. So if

Car-2-ndou ‘09 270

 there are assets within the jurisdiction that can meet the court
judgment then there is no need to award worldwide mareva.

3. The worldwide mareva should not conflict with rules of Public

International law.

b. Anton Piller Order

It prevents a defendant from destroying vital evidence before an issue

comes to trial by requiring him to allow the plaintiff to enter his premises
and search for, examine, remove or copy article specified in the order.

-Lord Denning explained the rationale in the case of Anton Piller KG v.

Manufacturing Processes Ltd [1976] Ch 55 @61 where he said that this
order can be made by a judge ex-parte so that the plaintiff be
allowed to inspect the defendant’s premises so that justice be done
between the parties because if it is granted inter-partes, there is a
grave danger that vital evidence will be destroyed, that papers will be
burnt or lost or hidden.

-This order was first granted in Emi v. Pandit [1975] 1 ALLER 418. It was a
lower court. But the name is derived from the court of Appeal case of
Anton Piller (supra)

-The House of Lords in Rank Film Distributors Ltd. v. Video Information

Centre (1982) AC 380 approved Anton Piller orders. The court said that
these orders are particularly appropriate in cases where it is suspected
that “pirating” music or films has taken place.

-The case of Entick v. Carrington (1769) 19 State Tr 1029 is for the

proposition that the power to conduct search by the police officers is
derived from the warrant that authorises the search. The same is in

Car-2-ndou ‘09 271

Anton piller orders where court authorises the search and removal of
assets on exparte application.

CONDITIONS THAT MUST BE MET BEFORE ANTON PILLER ORDER IS ISSUED

-There is an element of surprise as the order is issued exparte. The

preconditions were stated in Anton Piller KG v. Manufacturing
Processes Ltd (Supra) by Ormrold as follows:

1. There must be an extremely prima facie case. It is a very high

standard than the test laid in American Cyanamid case (supra)

2. The damage whether potential or actual caused to the

applicant must be very serious

3. There must be clear evidence that the defendants have in their

possession incriminating documents or things and that there is a
real possibility that they may destroy such material before inter-
partes application is made.

4. This fourth precondition was added by Lord Denning where he

said that the order granted should not do real harm to the
defendant or to his case.

5. The plaintiff should make an undertaking in damages.

-The law should try to balance between the right of the plaintiff and
the right of the defendant to use his property so that his right not to be
curtailed before being heard. See Columbia Picture Industries v.
Robinson [1986] 3 ALLER 338 per Scott.

Car-2-ndou ‘09 272

SAFEGUARDS FOR THE DEFENDANT

1. When serving the order, the applicant should be accompanied

by an independent supervising solicitor who is to explain what
the order means to the defendant in every day language. If the
premises are likely to be occupied by unaccompanied woman
and the supervising solicitor is a man then one of the persons
accompanying must be a woman.

2. The order may only be served between 9:30 am and 5:30 pm on

a week day.

3. Defendant may apply to the court at short notice for variation or

discharge of the order, provided that the plaintiff and his solicitor,
and the supervising solicitor have been allowed to enter the
premises, although not yet commenced the search.

4. Plaintiff to prepare the list of the items to be removed and supply

that copy of the list to the defendant or his agent and give him a
reasonable opportunity to check the list before applicant
removes the items from the premises.

5. Premises should be searched only in the presence of the

defendant or his agent / employee.

6. Plaintiff must make an undertaking in damages to compensate

the plaintiff for any loss he suffers as a result of the carrying out of
the order if the court decides that he should be compensated.

4. SPECIFIC PERFORMANCE

-It is regarded as an exceptional remedy but nevertheless

accessible. See Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd.
[1977] 3 ALLER 297

Car-2-ndou ‘09 273

 -It is an order of court directing a party to a contract to perform
according to its terms.

-At Common law the only remedy for breach of contract was
damages. If contract is breached, the party that has breached
would not be compelled to perform the contract but liable to
compensate the plaintiff for any loss suffered (either expectation or
reliance loss) as a consequence of the breach. So the innocent
party would use what is compensated to purpose alternative
performance e.g. by buying replacement goods on the open
market or by finding an alternative supplier of services.

-The Common law worked advantageously to the defendant

because he had an option either to perform the contract or breach
the contract and pay damages. It is unjust to allow the defendant
to avoid performance and say he will pay damages. So this was
inadequacy of common law of the common law. So Equity came
to intervene.

-By means of an order of specific performance, court can compel

the defendant to perform his contractual obligations. It can even
order to confer benefits on third parties. See Beswick v. Beswick
(1968) AC 58. where Mr Beswick agreed with his nephew to provide
pension to his wife. Upon the death of Mr Beswick, the nephew
failed to perform his part of the agreement. Mrs Beswick was not
supported and she was not a party to the contract but she was the
husband’s personal representative and on that capacity she was
entitled to bring an action. But she could recover only nominal
damages because she had not personally suffered any loss that
needed to be compensated as she was not part of the contract.
Court felt that specific performance was the adequate remedy.

Car-2-ndou ‘09 274

 -Specific performance is an order made personally against the
defendant and it illustrates how equity acts in personam. See Penn
v. Lord Baltimore (1750) 1 ves sen 444 where the parties had
bordering lands and entered into an agreement to fix boundaries.
The defendant failed to perform the agreement. When the plaintiff
brought the action, the defendant argued that the court had no
jurisdiction because the land in question was not within its jurisdiction
though the defendant lived in England where the court has
jurisdiction. Court held that the jurisdiction of the court of equity is in
personam and specific performance was decreed because the
conscience of the defendant was bound by the agreement. ;
Richard West & Partners Ltd. v. Dick [1969] 1 ALLER 289

-Non-compliance to this order amounts to contempt of court and

may face possible imprisonment.

WHEN IS SPECIC PERFORMANCE AVAILABLE

-It is not generally available as a remedy for breach of contract. But

it is only available where it can do “more and complete justice”.
See Wilson v. Northampton and Banbury Railway Company [1874] 9
Ch App. 279 @ 284 per Lord Selbourne.

CIRCUMSTANCES WHERE DAMAGES WOULD NOT PROVIDE AN

ADEQUATE REMEDY

1. Contract concerning sale of land. Land is unique and there is no

identical market alternative. See Jones v. Lipman [1962] 1 WLR
832

2. Where the item is unique and cannot be found on the market.

Car-2-ndou ‘09 275

 3. Where the damages are nominal. See Beswick v. Beswick
(supra)

CONTRACTS WHERE SPECIFIC PERFORMANCE IS NOT AVAILABLE

a. Contract of personal service. See De Francesco v. Barnum

[1890] 45 Ch 430

b. Contract requiring constant supervision of court. See Ryan

v. Mutual Tontine [1893] 1 Ch 116.

-It has to be noted that specific performance is just like other

equitable remedies where court exercises it as a matter of
discretion although the discretion has to be exercised in
accordance with settled principles. See Haywood v. Cope
(1858) 25 Beav 140 @ 151 per Romilly MR

Car-2-ndou ‘09 276

 SOME BOOKS AND ARTICLES TO READ

A. Mason, The place of equity and equitable remedies in the

contemporary common law world (1994) 110 Law Quarterly Review
238-246

A Scott, The fiduciary principle (1949) 37 California Law Review 539

B. Pachai, Malawi: The history of the nation (1973)

G. Mhone (ed) (1992) Malawi at the Cross-roads: The post-colonial

Political economy (1992) 188

G.Kamchedzera The law and the disregard of the interests of the

people of Malawi in the management of public resources. Paper
presented at a symposium on the law and the recovery of benefits
unjustly accruing to public functionaries: Solutions for Malawi, Blantyre,
Malawi, 29 December, 2004

G. Kamchedzera and another We are people too: The right to

development, the quality of rural life and the performance of
legislative duties during Malawi’s first five years of multiparty politics.
Research Dissemination seminar Number Law/2001-2002/001
(unpublished)

G. Kamchedzera, Trusts concepts, Trust law and Current and Potential

Uses. Unpublished; 2001

G. Kamchedzera, Trust notions, Law and Economic Security

(manuscript)

G. Kamchedzera, Lecture Guide for trust.

G. Kamchedzera, Reprint of Difficulties to find sources for the law of

trusts. At Reserve in the main Library.

Car-2-ndou ‘09 277

G. Kamchedzera, Access to property, the social trust and the rights of
the child. Ph. D. Thesis: Cambridge University (1996)

G. Kamchedzera, Land tenure Relations, the law and development in

Malawi in G Mhone (ed.) Malawi at Cross-roads. The post-colonial
political economy (1992) 188

Gray Watt, Learning Text, law of Trusts. Blackstone Press Ltd. 1998

F. Kanyongolo, The Limits of Liberal democratic Constitutionalism in K.

Phiri and another (eds.) Democratisation in Malawi: A stock taking
(1998) 353-354

Hanbury & Maudsley, Modern Equity. Stevens & Sons. 1989

H.Wade, Administrative Law (1997) 36

Kevin Gray, Property in Thin Air (1990) 50 Cambridge Law Journal 252

L. Seally, Fiduciary Relationships (1962) Cambridge Law Journal 69-70

Lewin on Trusts (16th ed.) 1964

Maudsley & Burns, Trusts and Trustees, Cases and Materials on Trusts;
London: Butterworths, 1990

M. Nkhata, Fiduciary obligations, equity and the Relevance of the

equitable Remedy of Tracing in the Recovery of Benefits Unjustly
obtained by Public functionaries in Malawi. A seminar paper presented
at a symposium on “the law and recovery of benefits unjustly accruing
to public functionaries: solutions for Malawians”. 30th December, 2004

M. Nkhata, Good Governance and the Utility of Social Trust Based

Notions to the Malawi Poverty Reduction Strategy. LLB (Hons)
Dissertation (Zomba: 2003)

Moffat Graham, Trust law Text & Materials, London: Butterworths, 1999

Car-2-ndou ‘09 278

Nathan & Marshall, A case Book on Trusts. Stevens & Sons, 1967.

Ngwira. T, Evading the Obstacle of Standard of Proof in the Recovery

of grand corruption proceeds by public officers under the 1995 Corrupt
Practices Act. Unpublished LLB (Hons) disseratation: University of
Malawi, August 2003

Parker D.B. The Modern Law of Trust: Sweet & Maxwell, 1970

Pearce & Stevens, The Law of Trusts & Equitable Obligations; London:
Butterworths, 2002

Philip H. Pettit, Equity and the Law of Trusts, (6th ed.) London:
Butterworths, 1989

P. Finn, The fiduciary principle in T. Youdan (ed) Equity, Fiduciaries and

Trusts (1989) 1-27

Phiri, k. and another (eds.) (1998) Democratisation in Malawi: A stock

taking, Blantyre: Claim

Riddall, J.G, The law of Trusts; London: Butterworths, 1987

R. Cotterrell, Trusting in the Law: Legal and Moral Concepts of the Trust
in M. Freeman and another (eds) (1993) 46 Current Legal Problems,
part 275

Simon Gartner, Rethinking Family Property 1993 Volume 109 of

Quarterly Review @ 263

S. Asante, Fiduciary principles in Anglo-American Law and the

Customary Law of Ghana – A comparative Study (1965) 4 International
Comparative and Law Quarterly 1144

Underhill & Hayton, Law Relating to Trusts and Trustees, London:

Butterworths,1995

Car-2-ndou ‘09 279

Car-2-ndou ‘09 280