Presentation on theme: "EQUITY AND TRUSTS NON-CHARITABLE PURPOSE TRUSTS. Non - Charitable Purpose Trusts Definition These are trusts which: Do not benefit a human being; Are."— Presentation transcript:
EQUITY AND TRUSTS NON-CHARITABLE PURPOSE TRUSTS
Non - Charitable Purpose Trusts Definition These are trusts which: Do not benefit a human being; Are not for a charitable purpose, but benefit a purpose - for example a trust to maintain a specific animal or the settlor’s grave.
Definition A trust which is set up to achieve a non - charitable purpose rather than to benefit a human beneficiary.
Objections to purpose trusts 1. The beneficiary principle - For definitive statement see: Morice v Bishop of Durham (1805) 10 Ves 522 “Every trust must have an object; there must be somebody in whose favour the court can decree specific performance.” See also Re Astor’s STs  Ch 534 Trust for preservation of independent newspapers void for want of a human beneficiary to enforce.
Beneficiary principle PTs cannot exist at law simply because there is no beneficiary to enforce Back to basics … a trust imposes an obligation … someone must enforce the obligation Under the beneficiary principle lack of a beneficiary results in failure.
What is the effect on the operation of trusts? Normally beneficiaries are present to enforce Charitable trusts – who enforces? The Attorney- General Trusts in favour of non-human beneficiaries/non- charitable purposes – there is no-one to enforce. Are they trusts at all? They should therefore be void Many have been held valid as trusts but are unenforceable. Hence they are known as trusts of imperfect obligation.
Other “snares” Certainty of objects Purpose of the trust must be certain For example of uncertainty see: Re Endacott  Ch 232 CA: “some useful memorial to myself”. Failed for uncertainty The object was “too wide and uncertain” Also Morice: “such objects of benevolence and liberality” was too wide.
Re Astor  Ch 534 Objects included: “the maintenance of good understanding between nations” “the preservation of the independence and integrity of newspapers” Trust failed: no human beneficiary and so trusts were unenforceable. The purposes were also void for uncertainty (vagueness is sufficient by itself for failure).
Objections to purpose trusts 2. Perpetuity Two perpetuity rules: (i) the rule against remoteness of vesting - the interest must vest in the perpetuity period. E.g. funds to provide for the building of a monument to the first resident of Newcastle to become Prime Minister. Gift might take effect outside the perpetuity period and will thus be void.
Objections to purpose trusts 2. Perpetuity (ii) Rule against perpetual duration. Non-charitable trusts are all subject to rule against perpetual trusts. Policy is that capital cannot be tied up in trusts perpetually. Trust must be brought to an end within the perpetuity period. Trust must be expressly or impliedly limited to the perpetuity period The rule is known variously as the rule against perpetual duration / inalienability or perpetual trusts.
Perpetuity Allowable perpetuity periods: both at common law and under the Perpetuities and Accumulations Act 1964 Common law period – human life or lives in being (i.e. person alive at the time the instrument takes effect) plus 21 years. If no life is specified then period is 21 years.
Perpetuity At common how to identify the life in being? NB the lives in question need not be beneficiaries. Thus use of “royal lives clause” Every person who is living at the date of the gift and is mentioned in it or whose existence is implied by it is a life in being E.g. a gift by testator to “ my grandchildren upon reaching 21” – presupposes the existence of his children who will be taken to be the lives in being for the purpose of the rule.
Perpetuity What if no life in being is specified? It is arguable that if there is no life in being (as with purpose trusts) then the period is 21 years only and hence if the trust can last longer than that, it is void for perpetuity.
Perpetuity – statutory provisions Section 3 PAA 1964 – so called “wait and see” rule does not apply to purpose trusts. So PTs void from outset if it is not certain that it will not last beyond the permitted period. Statutory period – under s1(1) PAA 1964 is 80 years See also 15(4) PAA 1964 – statutory period not available to purpose trusts.
Perpetuity position for purpose trusts Any trust purporting to be perpetual will fail But – trusts expressly limited to 21 years or even a vague restriction then it will not fail. For latter see e.g. Re Hooper  1 Ch 38 “so long as they can legally do so” See also Pirbright v Salwey  WN 86 “so long as the law allows”.
Express perpetuity clauses Such clauses refer to life in being + 21 years trusts example- a trust set up to maintain the testator’s tomb until 21 years after the death of the last surviving descendant of King George VI living at the date of my death.
Express perpetuity clauses Settlor can expressly state the trust is limited to a nominated life in being and 21 years or just 21 years (see Re Hooper) If no stipulation as to the period then the trust is void unless it must necessarily determine within the perpetuity period 21 years in most cases. If trust might exceed period then will be void.
Implied limitation Implied limitation e.g. Mussett v Bingle  WN 170 building of monument / maintenance of monument within period. Valid because assumed monument would be erected within 21 years. Further clause for maintenance void because no period stipulated.
Animals Judicial notice of life-span of animals (see Re Haines: approximate lifespan of cat 16 years) Consider Re Dean (1889) 41 Ch D years maintenance of horses and hounds – valid but an incorrect decision and Pettingall v Pettingall (1842) 11 LJ Ch 176 maintenance of mare valid for life of horse.
Public policy Capricious, or fanciful “useless” purposes are void as a matter of public policy See Brown v Burdett (1882) 21 Ch.D 667 bricking up windows in house – “useless, undisposed of property” See also Scottish cases, e.g. McCaig v University of Glasgow (1907) S.C. 231 money for memorials to family – “a sheer waste of money”
Five exceptions to beneficiary principle: Re Endacott Beneficiary principle should make impossible purpose trusts – however some do exist. Position pre - Re Astor and Re Endacott (“some useful memorial to myself” too uncertain + large sum) was that court permitted purpose trusts. Re Endacott categorised these into five groups: 1. Trusts for the erection or maintenance of monuments or graves e.g. Re Hooper (graves and monuments) Mussett v Bingle (monument). Monuments must be modest – see McCaig above.
Five exceptions to beneficiary principle: Re Endacott 2. Trusts for the saying of masses e.g. Bourne v Kean  AC 815 HL (if public then now charitable) 3. Trusts for the maintenance of particular animals e.g. Re Dean, Pettingall v Pettingall see above.
Five exceptions to beneficiary principle: Re Endacott 4. Trusts for the benefit of unincorporated Associations – see below 5. Miscellaneous cases e.g. Re Thompson  Ch 342 (fox hunting). Such trusts called “trusts of imperfect obligation” – binding in honour. Valid but unenforceable except by appeal to morals/duty.
Judicial attitude Re Astor – see Roxburgh J failed for uncertainty /no-one to enforce / void Indirect enforcement? E.g. Re Thompson by later / default beneficiary not sufficient since they may wish the trust to fail Exceptions per Roxburgh J. were: “anomalous exceptions to the rule…concessions to human weakness and kindness” Re Astor supported by CA in Re Endacott Both cases assert strictly the beneficiary principle.
Status of exceptional cases How far can the cases be relied upon in light of Re Astor and Re Endacott? See Re Endacott, could the trust be a purpose trust? Per Harman LJ – “the cases stand by themselves and ought not to be increased in number, nor indeed followed, except where the one is exactly like the other.” They are “troublesome, anomalous and aberrant” cases Exceptional cases should not added to or be followed except as above Gives rise to problems of degree of similarity.
Can a disposition construed as a purpose trust be saved in any other way? Consider if trust can be seen as for persons and not purposes. E.g. Re Denley sports ground for primary benefit of company employees. Goff held it a trust for benefit of employees. Principle: gift for non-charitable purposes = enforceable if ascertainable people derive sufficient benefit from the carrying out of that purpose. Employees had locus standi to enforce therefore enforceable.
Re Denley In Re Denley – employees held to benefit sufficiently from the provision of the sports ground to give them locus standi to enforce Compare Re Denley with gifts to named individuals/small class of beneficiaries – absolute ownership of the property but qualified by requirement that property be used for purpose.
Re Sanderson (1857) 3 K & J 497 construction “If a gross sum be given, or if the whole income of the property be given, and a special purpose be assigned for that gift, the court always regards the gift as absolute, and the purpose merely as the motive for the gift, and therefore holds that the gift takes effect as to the whole sum or the whole income, as the case may be.”
Application of Re Sanderson Re Andrews  2 Ch 48 – trust for education of seven children. After this complete what of surplus? Reference to education merely an expression of motive; children took absolutely in equal shares Also Re Osoba  All ER 393 CA maintenance and education of daughter completed in Held – absolute gift, education expression of a motive BUT – will the purpose be carried out? Re Bowes  1 Ch. 507 money for tree planting. Held an absolute gift with motive so land owners entitled to do as they wished.
Other methods of circumventing the rule against NCPTs Conveyancing devices. E.g. Re Tyler gift to charity conditional on charity fulfilling non-charitable purpose with gift over. Not an elegant solution. Compare Re Dalziel  2 All ER 656. Draft as power instead of trust. Valid if certain and not in perpetuity. But no obligation to exercise the power. Mandate to use money in certain way (not available on death) or agency Set up a company? Incorporation – see next section on unincorporated associations.
Gifts to unincorporated associations Trusts for the benefit of unincorporated associations referred to in Re Endacott (supra): as an exception but “more doubtful”. Gifts to UAs dealt with differently. Question of construction – are they purpose trusts? No, but may take effect in a number of ways.
Gifts to unincorporated associations What is an unincorporated association? See Conservative & Unionist Central Office v Burrell  2 All ER 1 CA definition: “Two or more persons bound together for one or more common purposes…by mutual undertakings, each having mutual duties and obligations, in an organisation which has rules identifying in whom control of it and its funds rests and which may be joined or left at will” An informal grouping (as opposed to a company) e.g. sports and social clubs, political organisations.
Problems with UAs No legal identity / personality. Thus UAs unable to own property In a very small group all members main own property as tenants in common If land is involved /or size of membership is large the association’s property will usually be owned by designated club officers on trust for all club members (as tenants in common).
Problems with unincorporated associations Beneficiary principle prevents property from being held on trust by UAs for their purposes unless charitable T must be for the members of the association.
Gifts to UAs Particular problem. On what basis will the association hold money and other property gifted to it but intended to be applied for the association’s purposes?
Construction of gifts to UAs As above, gift cannot be for UAs purposes unless charitable. Gifts are therefore to the members and not purposes Judicial attitude to construction has been generous.
Neville Estates Ltd v Madden  Ch 832 Cross J outlined three constructions where gift is to members of the association 1. Absolute gift to current members as joint tenants at the relevant date 2. Gift to be held on trust so that it or its income may be enjoyed by the association or its members from time to time 3. A gift to the existing members subject to their respective contractual rights and liabilities between one another.
First construction “ absolute gift to the members of the association at the relevant date as joint tenants so that any member can sever his share and claim it whether or not he continues to be a member of the association” E.g. Cocks v Manners (1871) LR 12 Eq 574 gift to convent construed as to members in equal shares. Gift saved because absolute, so no BP or perpetuity problems. But is it a desirable construction? Each member can sever thereby defeating donor’s intention.
Problems with the first construction See Leahy v AG for NSW  AC 457 PC: Testator provided funds “upon trust for such order of nuns of the Catholic Church or the Christian Brothers as my Trustees shall select” Prima facie valid as absolute gift to the individual members of the selected order. Land involved – members could be numerous and widely dispersed – could settlor have intended them to be beneficial joint tenants? Court held trust for selected order as a continuing society and furtherance of its work so for a purpose + no perpetuity clause so for both reasons trust was void. Prior to Neville 1 st construction was applied. The presumption was made unless factually rebutted it.
Second construction of gifts to UAs “the property is not to be at the disposal of the members for the time being but is to be held in trust so that it or its income may be enjoyed by the members from time to time” Thus trust for present and future members Capital tied upon trust (endowment) so – perpetuity problem? But see PAA 1964 – wait and see provision s4(4) i.e. wait to see if club dissolved within stat period with members dividing property between them at end when absolutely entitled If thus limited then satisfies BP by virtue of Re Denley
Leahy v AG for NSW (supra) Gift not to benefit the members a trust for the work of the society No restriction on period so void for perpetuity Even if not perpetuitous, void under the beneficiary principle …
So far two possible constructions: Gift to UA could be absolute gift to present members (now uncommon; not likely where association does not confer direct benefits on its members but exists for external purposes) OR Gift is a T for present and future members if perpetuity solved. But is this appropriate where members are not meant to benefit?
Viscount Simonds in Leahy “if a gift is made to individuals, whether under their own names or in the name of their society, and the conclusion is reached that they are not to take beneficially, then they take as trustees. If so, it must be ascertained who are the beneficiaries. If…the class…is fixed and ascertained or ascertainable within the limit of the rule against perpetuities, all is well. If…not…the trust must fail.”
Cross J in Neville Estates v Madden Third more sophisticated construction was set out by Cross J in Neville: “…a gift to the existing members subject to their respective contractual rights and liabilities towards one and another…In such a case a member cannot sever his share. It will accrue to the other members on his death or resignation… It will not be open to objection on the score of perpetuity, unless there is something in its terms or in the rules of the association which precludes the members at any time from dividing the subject of the gift between them…”
Neville Estates v Madden 3rd possible construction – gift construed as to members subject to the contract between them (contractual analysis) Looks like a purpose trust but it is possible to construe it as a gift to the members to be applied in accordance with the rules NB position regarding perpetuity Re Rechers WT  Ch 526 Brightman J - where UA was non-charitable contractual construction most appropriate.
Re Recher’s WT Testatrix gave estate to an anti-vivisection society; not charitable. Society UA. Valid? Brightman J ruled out constructions 1 and 3: “It has been urged on me that if a gift is not a purpose gift, there is no halfway house between... a legacy to the members as joint tenants and... a trust for members which is void for perpetuity…I do not see why the choice should be confined to these two extremes. If the argument were correct it would be difficult, if not impossible, for a person to make a straightforward donation…”
Re Recher’s WT Where subscriptions of members are held as accretion to funds any gifts (absent trusts) will be held on same basis. “ In the case of a donation which is not accompanied by any words which purport to impose a trust…the gift takes effect in favour of the existing members of the association as an accretion to the funds which are the subject matter of the contract...and falls to be dealt with in precisely the same way as the funds which the members themselves have subscribed. So in the case of a legacy…the legacy is a gift to the members…as an accretion to the funds…”
Contractual construction Resolves difficulties with the first construction since members cannot sever + no perpetuity problems provided members can change rules to wind up association Members restrained from demanding shares by terms of contract When wound up donor’s intention will be frustrated.
Re Lipinski  Ch 235 Gift to the Hull Judeans Association “…to be used solely in the work of constructing the new buildings for the Association” Gift to the members effect of the stipulation that funds be used for purposes? First construction ruled out Court assisted by Re Denley Gift indirectly benefited members of Hull Judean society – therefore not in breach of beneficiary principle. Gift absolute within second construction Problems with perpetuity? No because members could vote.
Modern approach to UAs Treated as creatures of contract rather than trust Property held on a bare trust to be dealt with according to the terms of the contract (the rules/constitution of the association) Gift made to such an association will be construed as a gift to the members as an accretion to the body’s property.
Problems with this construction? Can only be applied where there are rules/ contract Members must be able to make the assets their own Re Grant  3 All ER 359: gift to Chertsey Labour Party. Members of the CLP did not control their own property and could not alter the rules. Gift was subject to gift over to the NLP
Re Grant Vinelott J indicated that: “It must, as I see it, be a necessary characteristic of any gift within the second category that the members of the association can…alter their rules so as to provide that the funds, or part of them, shall be applied for some new purpose, or even distributed amongst the members for their own benefit.”
Re Grant Vinelott: impossible to construe as a gift to the members – the members of the CLP did not control the property, National Labour Party had control of local property. Local party could not alter the rules and could not make property their own Thus gift equalled a trust for Labour Party purposes and was void for perpetuity.
Other constructions If not a gift for members under one of the above, then the gift is for purposes, question therefore - Is it for a charitable purpose? Then valid because beneficiary principle does not apply If not, then will be void for infringing the BP (unless within the anomalous exceptions, certain and limited to perpetuity), e.g. Re Grant, Leahy.
Recap: 3 possible “saving” constructions (members) if construction not possible (e.g. Re Grant), then the gift is for the purposes of the association In this case are the association’s purposes charitable? If so, the gift will be valid If not, then the gift takes effect as a purpose trust (NCPT) and invalid (for BP) unless within the narrow group of exceptions (and restricted to the common law period of perpetuity).