The Trust Relationship Flashcards

Question

Quistclose trusts - Re Farepark Food and Gifts Ltd

Answer 1

FACTS: Farepak ran a Christmas savings scheme. It agreed with customers that in return for 11 monthly payments, it would obtain retail vouchers for customers and distribute them in November. Farepak went into administration in October. HELD: Money paid by customers to Farepak was not subject to a Quistclose trust. 'There is no suggestion that the money ought to have been put to one side by Farepak pending the transmutation from credited money to goods or vouchers. If there were a Quistclose trust then that obligation would have been inherent in it.' (Mann J)

Answer 2

(1) The borrower's power to apply the money is valid only if the purpose is sufficiently certain. A purpose is certain if it is possible to determine whether any given application of the money does or does not fall within it (Twinsectra). If the purpose is uncertain, the borrower cannot make any use of the money and simply holds it on trust for the lender (Twinsectra) (2) Quistclose trusts are not restricted to loan transactions or to money. They arise in any situation where property is transferred to a person whose use of the property is restricted to a specific purpose: to any case where the property is not at the free disposal of the transferee (Ali v Dinc)

Answer 3

- Proprietary security interests secure the performance of an obligation, usually the payment of a debt. A creditor whose debt is secured is described as a 'secured creditor.' - A charge is the most common security interest. - Both a beneficiary and a chargee have a proprietary interest in the trust property/the charge property - Differences: (1) A beneficiary's interest in trust property is invariably equitable. In certain circumstances, a chargor can create a legal charge over their property (2) A chargor can apply charged property for their own benefit e.g. a sole trader can give a bank a charge over their family home, and the trader and their family can continue to live there. (3) Trustee beneficiaries are entitled to the beneficial enjoyment of the entire trust property, but a chargee's interest in charged property is co-extensive with the debt secured. (4) A defining characteristic of a charge (but not a trust) is a right of redemption, i.e. the chargor's right to unencumber their charged property by paying the debt back.

Answer 4

FACTS: Compaq sold computer equipment to Abercorn on credit terms. Compaq's standard conditions of sale provided that Compaq would retain legal title to the equipment until Abercorn had paid for it. Abercorn could sell equipment which it had not paid for and would hold the proceeds of such sales on trust for Compaq. ISSUE: Whether Abercorn held the proceeds of their sales on trust for Compaq. HELD: Abercorn was not a trustee of the proceeds. Compaq had a charge over these proceeds. 'The rights and obligations of the parties were in reality and in substance characteristic of those of the parties to a charge and not those in a trustee/beneficiary or other fiduciary relationship.' (Morritt J)

Answer 5

- Agency - a relationship in which the agent has authority to create legal relations between the principal and third parties - Both trustees and agents are subject to fiduciary duties - Unlike an agent, a trustee cannot commit a beneficiary to a contract with a third party. A trustee acts as a principal in their transactions with third parties. - A series of cases has considered whether an agent is also a trustee of money or property received on behalf of the principal. The question must be answered by reference to the parties intentions (expressed or inferred) (Angove's Pty Ltd v Bailey)

Answer 6

FACTS: The plaintiff employed the defendant shipping agency to sell their coal. The defendant sold the coal and was paid the purchase price by purchasers. ISSUE: Whether the defendant held the proceeds of sale on trust for the plaintiff. HELD: The relationship between the plaintiff and the defendant was creditor and debtor, not trustee and beneficiary. 'if the terms upon which the person receives the money are that he is bound to keep it separate...and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee' 'if...he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money...he is not a trustee of the money but merely a debtor.'

Answer 7

FACTS: Fleet had a business selling cars for car leasing companies. It paid the proceeds of sale into a separate bank account. Northern Telecom Europe (Nortel) appointed Fleet as its selling agent. Fleet agreed to pay Nortel 'sale proceeds less [commission and agreed costs]...five days after receipt of moneys' by separate cheques. Fleet went into liquidation. ISSUE: whether Fleet held the proceeds of sale on trust from for Nortel HELD: Fleet was a trustee of the proceeds of sale. This was based on 3 factors: (1) The existence of the separate bank account, which had been communicated to Nortel (2) The fact Fleet was Nortel's agent for sale, a relationship in which the court will not readily infer that an agent is intended to be able to finance his business out of the principal's property (3) The express term relating to the short time frame for payment by separate cheques, indicating more than a mere accounting relationship

Answer 8

- Bailment - the transfer of possession of chattels from one person to another - A person who leaves their clothes with a dry cleaner or their car with a mechanic is a bailor and the dry cleaner and mechanic are bailees - Three significant distinctions between a trust and bailment: (1) Only tangible personal property (chattels) can form the subject matter of a bailment. Any asset/right can form the subject matter of a trust (2) The transfer of possession of chattels to a bailee does not transfer the bailor's title to the chattels. The transfer of assets to a trustee on trust divests a settlor of their interest in those assets. (3) Bailment is regulated exclusively by the common law. Unlike a beneficiary (who has an equitable interest in trust property), a bailor has a legal interest in the bailed chattels (MCC Proceeds Inc v Lehman Bros International) - The bailor's interest in the chattels generally survives a misapplication of the chattels by the bailee in favour of a third party, incl. a purchaser of legal interest without notice. The interest of a beneficiary does not survive a misapplication of trust property in favour of such a purchaser.

Answer 9

- Both can be used as vehicles for holding property, and there are some similarities between the roles of trustee and director (both fiduciary roles) - Crucial difference = a trust does not have a legal personality. The trustees as legal owners of the trust property must carry out these functions. - Concept of limited liability does not apply to the role of trustee, meaning a trustee will be personally liable for arrangements it enters into as a trustee. - A company can however act as a trustee.

Answer 10

- A personal representative is responsible for the administration of a deceased person's estate. There are two types: (1) Executors: appointed by the deceased (2) Administrators: appointed by the court - A personal representative must distribute the deceased's estate in accordance with their will or the intestacy rules. - Similarity = one person holds property for the benefit of others - Key distinctions (1) Unlike personal representatives, trustees frequently hold office for several years and have enduring asset management/investment functions. (2) Demonstrated in the case of Commissioner of Stamp Duties (Queensland) v Hugh Duncan Livingston

Answer 11

FACTS: Mr Livingston (deceased) gave 1/3 of his residuary estate to Mrs Coulson. His estate included land in Queensland. Mrs Coulson died shortly after Mr Livingston, before his executor had administered his estate. ISSUE: Whether Mrs Coulson had a 'beneficial interest' in the land in Queensland on the date of her death HELD: She did not. Mr Livingston's executor had 'full ownership' of Mr Livingston's estate 'without distinction between legal and equitable interests.' Although the executor was bound to apply the estate in accordance with the terms of the will, equity did not 'recognise or create for [Mrs Coulson] a beneficial interest in the assets.' - A person interested in a deceased person's estate does not have an equitable proprietary interest in any of the estate assets. They have a personal right against the executor relating to proper administration of the estate. - Also the authority for the fact that the full legal owner of an asset (that is not subject to a trust) does not have a legal and equitable interest in that asset. There is just one interest, the legal interest, which assumes all rights to the asset.

Answer 12

- Modern uses for trusts often arise out of a contractual relationship, but many trusts still involve gratuitous acts by the settlor. - A gratuitous transfer on trust can sometimes be described as a 'gift on trust', but an 'outright gift' is a more simple arrangement of just giving property from one person to another. The gift involves absolute transfer of legal ownership. There is no separate equitable interest in the property at any stage.

Answer 13

In order to create a valid express trust, it is necessary to comply with the rules known as the three certainties: (1) Certainty of intention (2) Certainty of objects (3) Certainty of subject matter

Answer 14

An intention to impose or assume the duty which is characteristic of a trust, i.e. a duty to hold property for, or apply it for the benefit of, a beneficiary (or purpose) (Re Williams) Re Oldfield - A woman gave property to her daughters in her will and expressed her 'desire' that they should make a provision for her son. Kekewich J held that the woman had not created a trust, saying 'a desire carries no obligation except a moral one.'

Answer 15

- If a person manifests an intention to impose or assume a duty which is characteristic of a trust, that person intends to create a trust. It is irrelevant whether they do actually (subjectively) intend to create a trust or whether they are even aware that such a thing exists. - Twinsectra Ltd v Yardley - 'subjective intentions are irrelevant. If he enters into arrangements which have the effect of creating a trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them.'

Answer 16

- A person's intention is ascertained from their words and conduct (Bellis v Challinor) - In some situations, intention is reduced to writing (e.g. contract/will) - The intention of a document is ascertained by identifying the meaning of the words which they have used, by reference to: a) Their natural and ordinary meaning b) Any relevant contextual features of the document c) The facts which were known to or assumed by the author(s) of the document when it was created d) Common sense

Answer 17

- The parties' intention is ascertained from the express terms of their contract and any implied terms. Re Lehman Brothers International FACTS: Lehman provided various brokerage services, incl. the acquisition and custody of services. It agreed to hold securities acquired for clients on trust for them. Lehman received various payments in respect of the trust securities, and Lehman and its client agreed in Clause 5.2 of their contract that (i) Lehman was to have 'full ownership' of payments; (ii) Lehman would use the sums received 'in the course of its business'; and (iii) the client would 'rank as a general creditor' in respect of such payments. Lehman went into administration. ISSUE: whether clients were mere creditors HELD: Lehman held post-administration receipts on trust for clients. It was an implied term of the agreement that if Lehman was unable to carry on its business then Clause 5.2 would cease to operate. It was a further implied term that Lehman held post-administration receipts on trusts for clients whose securities generated them.

Answer 18

Lyell v Kennedy FACTS: Ann Duncan owned land which was let to tenants. Kennedy collected rent on Ann's behalf. Ann died intestate. There was a dispute about the identity of Ann's heir and Kennedy continued to collect rent and pay it into a separate bank account. He told various people that the sum in the account belonged to Ann's heir, however he later claimed it for himself. HELD: Kennedy held the sum on trust for Ann's heir. 'A man who receives the money of another on his behalf, and places it specifically to an account with a banker ear-marked and separate from his own moneys...is...a trustee of the fund standing to credit of that account.' 'no express words are necessary'

Answer 19

FACTS: Kayford Ltd was a mail order company. Its MD Kay was concerned about its solvency and about customers who were paying for goods the company might be unable to supply. He consulted an insolvency specialist about these concerns, who advised Kay to open a separate bank account and call it the 'Customers Trust Deposit Account' and to pay into the account any further payments received by customers. The company went into voluntary liquidation. HELD: The sum credited to the account was held on trust for customers. 'The whole purpose of what was done was to ensure that the moneys remained in the beneficial ownership of those who sent them, and a trust is the obvious means of achieving this.' (1) A trust can be created without use of the word 'trust' (2) Although payment into a separate account is a good indicator of intention, it is not necessary/conclusive.

Answer 20

FACTS: A cohabiting couple. In 1973, Dennis Constance received a cheque for £950 and said to Doreen Paul 'the money is as much yours as mine.' They agreed to pay the cheque into a bank account. The bank manager advised Dennis to open the account in his sole name as they were unmarried. Dennis made enquiries of the manager to ensure that Doreen was able to draw on the account. Dennis repeated to Doreen multiple times that the sum credited to the account was as much hers as his. They paid in additional sums they had won together playing bingo. HELD: Dennis had declared a trust of the sum credited to the account for Doreen and himself. Dennis was a simple, unsophisticated man and in ascertaining his intention, the court 'should consider the various things that were said and done...during their time together against their own background and in their own circumstances.' (Scarman LJ)

Answer 21

- A good indicator that a person intends to create one - Not determinative, either by its presence or absence (Re Kayford) - The fact a transaction is characterised by the transacting parties as a trust is not conclusive as to its nature (Modelboard Ltd v Outer Box Ltd) - The fact a transaction is characterised as something other than a trust does not prevent it taking effect as a trust if it generates a duty characteristic of a trust (Don King Productions v Warren)

Answer 22

FACTS: The plaintiff sold cardboard sheets to the defendant. The parties agreed that (i) the plaintiff would retain ownership of sheets delivered to the defendant until they were paid for, (ii) the defendant would pay the purchase price within 30 days of delivery, (iii) the defendant could use sheets which had not been paid for in its manufacturing process, and (iv) if the defendant sold any products incorporating sheets which had not been paid for, the defendant would hold 'the entire proceeds thereof...in trust for the plaintiff.' HELD: The defendant did not hold the proceeds of sale on trust, but rather the plaintiff had a charge over those proceeds. The only solution which made 'business sense' and was consistent with 'commercial reality' was that the plaintiff's interest in the proceeds of sale only extended so far as was necessary to discharge the defendant's payment obligation. The plaintiff's interest in the proceeds was capable of being defeated by payment of the purchase price. This was not changed by the fact the parties used the word 'trust.'

Answer 23

FACTS: Two boxing promoters and managers formed a partnership. They assigned the partnership 'the full benefit' of their existing promotional and management agreements with boxers. The purported assignments however were void because agreements for personal services are unassignable. HELD: The only way to give effect to the evident intention of the parties was by way of trust.

Answer 24

A trust is a duty. It is unlikely that a person intends to impose a duty if the alleged duty is so vague that the person required to discharge it is unable to identify what they are required to do. Mussoorie Bank Ltd v Raynor - The testator gave all his property to his wife 'feeling confident that she will act justly to our children in dividing the same when no longer required of her.' The wife was not a trustee of the property. The indeterminate nature of both the alleged trust property and the quantum of the alleged beneficiaries' interests demonstrated that the testator did not intend a trust at all.

Answer 25

'It is impossible to have a title to [property], when nobody knows to which [property] the title relates' (Lord Mustill, Re Goldcorp Exchange Ltd)

Answer 26

(1) The trust property requirement - it must be possible to identify the trust property (2) The beneficial entitlement requirement - it must be possible to ascertain the beneficiary's interest in the trust property

Answer 27

(1) A person attempts to identify the trust property by description (2) A person attempts to create a trust of a specific number of items from a larger quantity of similar items without identifying the items to be held on trust

Answer 28

- A trust will fail for uncertainty if it is not possible to ascertain the trust property from the description. - e.g. a person cannot create a testamentary trust of the 'bulk' of their residual estate because although the residual estate can be identified, it is not possible to ascertain how much of it constitutes the 'bulk' (Palmer v Simmonds) - A company cannot create a trust of its 'net assets' because 'net assets' does not describe any specific property (Wilkinson v North)

Answer 29

- Depends on the property in issue. - Trusts of fractional interests in a mass of items presents no difficulties with certainty of subject matter, provided the mass has been clearly identified (Wilkinson) e.g. a person can create a trust of 1/5 of their diamonds. The diamonds are the trust property and the beneficiary has a 1/5 interest in each one of them. - Re London Wine Company - Customers of a wine merchant purchased wine on the basis that the company continued to store wine in its warehouse until the customer requested delivery. The company issued 'certificates of title' to the customers stating the customer was the 'sole and beneficial owner' of the wine they had purchased. But the company did not appropriate wine from the stock to any particular contract; it simply maintained the general stock. Held that it did not hold the wine on trust for the customers, as they failed to allocate any specific wine to any specific contract, so it was not possible to identify the trust property. 'to create a trust it must be possible to ascertain with certainty not only what the interest of the beneficiary is to be but to what property it is to attach' (Oliver J)

Answer 30

FACTS: Defendant was the registered shareholder of 950 ordinary shares in a company. He declared a trust of 50 of those shares for the plaintiff but did not identify them. HELD: There was a valid trust of 50 shares. London Wine was distinguished; as every tangible asset (wine) was discrete, its physical properties may have differed from those of seemingly identical assets, which is why it was necessary to specifically identify which tangible assets are to be held on trust. However, this has no application to intangible assets of the same type (e.g. ordinary shares in the same company), because these assets really are identical. 'The shares were...of such a nature that each of them could satisfy the trust just as well as any other of them'

Answer 31

- The principal problem is that there is a subsisting trust of 20 shares for example, but it is impossible to identify the shares out of 100 shares which are held on that trust. - Lehman Brothers, Briggs J: 'The analysis which I have found the most persuasive is that such a trust works by creating a beneficial co-ownership share in the identified fund, rather than the conceptually much more difficult notion of seeking to identify a particular part of that fund which the beneficiary owns outright.' - So according to Hunter, the trusts takes effect as a trust of 20 specific shares, with the remaining 80 shares unaffected, but according to Briggs in Lehman, the trust takes effect as a trust of all the shares, with the beneficiary having a 1/5 interest in every one of them. - Briggs' approach changes the intention of the trust, which isn't usually allowed (London Wine, Goldcorp) - Briggs in Lehman: 'A trust of part of a fungible mass without the appropriation of any specific part of it for the beneficiary does not fail for uncertainty of subject matter, provided that the mass itself is sufficiently identified and provided also that the beneficiary's proportionate share of it is not itself uncertain.'

Answer 32

- It must also be possible to ascertain the nature and extent of the beneficiary's interest in the trust property. If it is not possible to do so, the trust will fail. - e.g. If a trust provides that trustees should hold one of two trust assets, selected by X, for B, but X dies before making the selection, the trust for B fails because it is impossible to ascertain which one B is entitled to (Boyce v Boyce) - Re Golay's Will Trusts - A testator directed his trustees to pay a 'reasonable income' to the beneficiary. Ungoed-Thomas LJ held that the trust was valid. He argued that 'reasonable income' was an 'objective yardstick' and it was possible to ascertain the extent of the beneficiary's interest. He said the court is 'constantly involved in making...objective assessments of what is reasonable and is not to be deterred from doing so because subjective influences can never be wholly excluded.'

The Trust Relationship Flashcards

(56 cards)