Proving Declaration of Trust and Effecting Disposition of Beneficiary’s Interest

Exceptions:a) Trust of land where the declaration has to be manifested and proved by some writing (Section 7 of Statute of Fraud Act 1677; Section 53(1)(b) of Law of Property Act 1925). The reason for this rule is to prevent fraud (Youdan). The written evidence can antedates or postdate the declaration of trust. b) Testamentary trust/trust executed after death by will (will be discussed in the chapter of secret trust).

Consequence of oral declaration in case of trust of land:a) An oral declaration is perfectly valid because the section 53(1)(b) is an evidential section. b) But problem arises during litigation when the declaration is challenged. c) It is often said that, though mistakenly, without written evidence a declaration of trust is valid but unenforceable. d) This is based on an analogy with the section 40(1) of LPA 1925 but this section was repealed in 1989. e) There are two reasons for this analogy to be false:

i) Section 53(1)(b) is concerned about proof and section 40(1) was concerned about enforceability as apparent from the wordings of the sections. ii) Section 40(1) had been overruled back in 1989.

f) Subject guide is of the view that if a declaration of trust cannot be proved by evidence then there is no trust at all, not a valid but unenforceable one.

Exceptions to section 53(1)(b):

a) Common Law exception: Oral evidence can be admissible in order toprevent a fraud. For example, a trustee himself would commit a fraud if he were allowed to shelter behind the statutory provision and deny the declaration of trust (Rochefoucauld). b) This exception is only applicable in case of express trust. c) Statutory exception: The section 53(1)(b) is not applicable in case of resulting, implied or constructive trust (section 8 of Statute of Fraud Act; section 53(2) of LPA 1925). d) It is because, in case of constructive, resulting or implied trust no allegation is made as to the fact that a declaration of trust has been made and thus we need to prove it. So, when there is no declaration of trust, the need to prove it cannot exist.

e) Matrimonial homes cases such as Pettitt, Gissing, Rossett, Stack are express trusts of land (Rochefoucauld) even though it is been mentioned in these cases that they are ‘Common Intention Constructive Trust’. This is a misnomer to say them CICT because a CT arises for any reason other than intention to create a trust so there cannot be ‘common intention constructive trust’.

Effecting Disposition of Beneficiary’s Interest:

a) Disposition of an equitable interest or trust subsisting at the time of disposition must be in writing signed by the person disposing the same or by his agent (Section 53(1)(c) LPA 1925). b) So there is no disposition until it is written and signed, the reason is section 53(1)(c) is a substantive section as apparent from the wording of the section. c) One can argue that as the wording of the predecessors of section 53(1)(b) and 53(1)(c) are similar (i.e. section 7 and 9 of Statute of Fraud Act), therefore, there should not be this difference between these two sections. d) However, the courts have taken this approach and we need to follow it.

e) There is a question that whether section 53(1)(c) is only applicable in relation to trust of land. As per section 205(x) of LPA 1925 equitable interest means interest in or over land or in the proceeds of sale thereof. As such 53(1)(C) is only confined to trust of land. f) However, as significant cases like Grey, Oughtred and Vandervell were not cases of land but section 53(1)(c) was applied there, therefore, the best way to solve this dilemma is to say that those cases were decided per incuriam of section 205(x).

What transactions are dispositions or assignments and caught by section 53(1)(c)?

a) Disposition has wider meaning than assignment though disposition included assignment. b) The key to understand disposition is to understand that it only covers disposition of equitable interest. If somehow, there is no equitable interest to dispose of or if both the legal and equitable interests are disposed of then there cannot be a disposition under section 53(1)(c). c) A direction of a beneficiary to his trustee to hold the rights on trust for a third party is disposition can caught by section 53(1)(c) (Grey v IRC).

d) A direction by the beneficiary to the trustee to transfer the right to a third party then there is no need to comply with section 53(1)(c) as the direction is to transfer both the legal and equitable interest rather than equitable interest only (Vandervell v IRC) e)

A self declaration of trust by the beneficiary for the whole or part is disposition and caught by section 53(1)(c) (Grainge v Wilberforce). f) A declaration of trust by the trustee for a third party with the consent of the existing beneficiary is a disposition and should be caught by section 53(1)(c) provided estoppel does not operate. If estoppel occurs as occurred in re Vandervell (No 2) and thus prevents the trustee to dispose of the equitable interest in favour of someone, then section 53(1)(c) cannot operate (re Vandervell (No 2).

g) A contract by the beneficiary to assign their rights does not fall into section 53(1)(c) (Oughtred v IRC; Neville v Wilson). h) A surrender of a beneficial interest is caught by section 53(1)(c) (IRC v Buchanan). i) Disclaimer of beneficial interest is not covered by section 53(1)(c) (re Paradise Motor Ltd).

The rationale of 53(1)(c):

a) The purpose of this section is to prevent fraud by way of protecting the trustee from false allegation by someone to be an assignee of the beneficiary’s interest. If the trustee disposes the interest to that false assignee then he will be vulnerable to a claim of breach of trust. b) Therefore, in Vandervell v IRC, as the rights were no longer held in trust, therefore, there was no trustee to protect and as such the section had no work to do and inapplicable.

c) Now, as in Grey, the trustee received the direction from the beneficiary himself and knew that it was genuine and no allegation by false assignee can deceive him, therefore, the section 53(1)(c) cannot apply there. It is because the trustee need not be protected against any false allegation here. In the light of this, Grey can be revisited.