Equity and Trust Coursework

* The donor, Mr Chet died recently, and left directions in his Will to his executors relating to a couple of gifts. * This hearing relates to the execution of the will which have been causing difficulties. * The Executors have adopted a neutral stance between the competing claims, and with the Court’s permission have merely undertaken to abide by the Court’s eventual decision: as such they will not be represented in this hearing.

* Clause 6: My trustees are to hold all of my shares on Trust for Zeke, except that for the period of 5 years after my death my Trustees are to give 1000 of my shares (or whatever lesser number my trustees think fit ) in whichever Company they shall think fit to any of my University classmates who ask for it and they in their discretion think fit.

I submit to the court that my client is the sole beneficiary under a fixed trust and as such owns equitable rights in the trust property. His interest should be given precedence over the gift which the testator purported to offer in the latter part of the clause. I also submit to the court that the 3 certainties required for a legally enforceable trust have been well observed in this trust instrument. My client wishes to invoke the rule established in Saunder v Vautier and have the legal title of the trust property transferred to him.

My submissions are supported as follows:

We must consider if the will has been properly drafted, having regard to the ‘certainty’ requirements of a well formulated trust instrument?

The general rule is that for a trust instrument to be held valid:

“...first...the words must be imperative...; secondly...the subject matter must be certain...; and thirdly...the object must be as certain as the subject" (per Lord Eldon in Wright v. Atkyns (1823) Turn. & R. 143, 157).

Let us consider the Certainty of intention:

The wordings of the clause is sufficiently imperative….This is not simply because the testator used the word ‘trust’. Of course, it is well settled that a trust can be created without using the word ‘trust’ (Megarry J. in Re Kayford). However, there is no doubt that the testator could have possibly intended anything other than a trust for the benefit of Zeke. It is important that the court takes the will to construe and see what exactly was intended by the testator and give effect to it.

An objective approach to each individual case was suggested by Lindley LJ in Re Hamilton [1895] (“take the will you have to construe and see what it means, and if you come to the conclusion that no trust was intended you say so”). This approach has been favoured by the court as subsequent cases have shown flexibility in judges’ approach to cases of ill-formulated trusts. I humbly suggest that the court closely construe the draft before us to determine the actual intention of the testator

As for the Certainty of subject matter:

Does the wordings ‘all my shares’ create ambiguity as to what shares were to be the subject matter of the trust? No it doesn’t. If there is any contention as to what is meant by ‘all my shares’, such contention is an artificial one. The word is one which is of general use and should create no controversy as to its interpretation. All simply means everything.

The requirement of certainty of subject matter is more or less paramount to the validity of a trust instrument. The orthodox approach is that the property which is intended to constitute the trust property is segregated from all other property so its identity is sufficiently certain. This rule is associated with the difficulty in identifying what property is to be administered in accordance with the terms of the trust. This problem may arise especially in complex situations when there are different classes of the same kind of property which are contested by different claimants.

The courts have taken different approaches to resolve this issue by distinguishing between tangible property and the so called fungible or intangible property such as ‘shares’ like the case before us.

In Re London Wine Co. (Shippers) Ltd. (1986) which dealt with tangible property it was stressed that where the settlor fails to segregate the property to make each beneficiaries share clearly identifiable the trust will fail. This same approach was followed in the subsequent case of and Re Goldcorp [1995] which also involved tangible property.

On the other hand, with intangible property, Dillion LJ took a different approach. In Hunter v Moss he held that there was a valid trust over shares even where there was no attempt by the settlor to specify those shares which were subject to the arrangement. In that case, there appears to have been two underlying motivations for his decision: the first was that the finding of a trust would enforce the terms of the employment contract between the parties; the second was that it made no practical difference which 50 shares were subject to the trust given that there was no qualitative difference between one ordinary share and another ordinary share.

This approach although heavily criticized was subsequently followed in Re Harvard Securities Ltd and as such remains good law

There are 3 notable features of Dillion LJ’s judgement: i) He justified the theoretical possibility of creating trust rights over a collection of identical property. ii) He established that the the rule requiring segregation was not an absolute rule, he felt sufficiently empowered to find trust on the facts before him. iii) He stated that there were situations in English law which the courts may find that a trustee is entitled to enforce a trust over unsegregated property when the subject matter is intangible property as opposed to tangible property.

The property in question is intangible property just like in Hunter, the trust was a fixed trust created for the benefit of my client Zeke who is the sole object of the trust. The testator has not apportioned to him a share in part, but rather in whole of ‘all’ the shares that he owned during his lifetime. For this reason, the requirement of segregation should not present an obstacle to giving effect to the legally enforceable trust. It may be dogmatic to suggest that the settlor would have specified in detail every single share he owned by the company name and by their classes.

This may have presented the risk of him failing to include some of the shares which would have resulted in creating even more doubt as to his ultimate intention. Perhaps, it was such deliberation as this that the testator tried to avoid. In my opinion, the settlor intended to leave all his shares to David and I humbly request that the court gives effect to this notion.

As the beneficiary of the trust, at what point would my client derive proprietary interest in equity which is legally enforceable?

In Westdeutsche Landesbank v. Islington [1996], Lord Browne-Wilkinson sought to set out the framework upon which beneficiaries rights operates, he stated that once a trust is established, as from the date of its establishment the beneficiary has, in equity, a proprietary interest in the trust property which will be enforceable in equity against any subsequent holder of the property (whether the original property or substituted property into which it can be traced) other than a purchaser for value of the legal interest without notice. In the instant case, Zeke’s proprietary interest took effect at the very moment the trust was created, irrespective of the latter part of the clause which appeared to have extended the date when he would derive his rights as the beneficiary.

The right of beneficiaries take precedence of any other rights which may be attached to the trust property, as they are technically the owners of the trust property.

As the sole beneficiary my Client Zeke wishes to terminate the trust and requests that legal title of the shares be transferred to him based on the Saunders v Vautier principle.

According to the rule in Saunders v Vautier, if a trust has only one beneficiary, and he is an adult and of unimpaired legal capacity, he can wind the trust up entirely. That is, he can require the trustees to transfer him the trust property, so that he becomes no longer beneficiary of a trust of it but straightforwardly the owner. For the sake of completeness, the rule also applies if a trust property has multiple beneficiaries and they are all adults and of unimpaired legal capacity and agree to do so, they can proceed in the same way.

In that case the property was to be held on trust until the beneficiary attained the age of 25. However, when the beneficiary was 18 he pursued having the trust ended. The court upheld his claim on the basis that he had attained the age of majority.

The main facet of the rule is especially revealing in this vein. Where a beneficiary is given an absolute interest, but only upon some condition such as-his reaching a certain age or perhaps ‘after a number of years’, the condition can be disregarded.

Under this rule the beneficiaries’ wishes are given precedence over the settlor’s. It thus reflects the thesis that beneficiaries as recipients of the property should be able to enjoy the property absolutely, rather than on the settlor’s terms. In Re Bowes [1896] – (use of Saunders v Vautier to allow human beneficiaries to displace settlor’s stated intention)

Re Nelson [1928] - “the principle in Saunders v Vautier is that where there is what amounts to an absolute gift, it cannot be fettered by prescribing a mode of enjoyment.

Zeke may invoke the rule, he is an adult and of unimpaired legal capacity as such is eligible to rely on the Saunders v Vautiers principle. He requests that the trust created on his behalf be terminated and the shares transferred to him.

On the basis of the above submissions, I respectfully request that the the Chancery Court exercises its power to authorise dealings with trust property under section 57 of the trustees Act 1925 orders the Trustees to have the trustees take

Zeke may invoke the rule, he is an adult and of unimpaired legal capacity as such requests that the trust created on his behalf be terminated and the shares transferred to him.