Formalities of Express Trusts - Lecture 8-11

Explain the importance of formalities and constitution

If there is an objective manifested intention and certainty of object and subject matter, then the key requirements of a valid trust are satisfied. There may also be further steps:

Formalities - statutory formal requirements relating to the creation of express trusts of particular types

Constitution - S needs to ensure the title to the trust assets successfully vests in T

And a given trust will have to

Registration of trusts - requirement

Now a legal requirement. Tried to do this in the 16th century to prevent tax evasion, but failed. Now the goal is to prevent money laundering.

The requirement is in section 44 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

Registration of trusts and validity / consequences for non-compliance

Registration does not affect the validity of the trust.

Exceptions: pensions, charitable trusts, trusts that take effect via will unless they will last for two years after the date of the will

Who talks about the functions of formalities and what are those functions?

Lon Fuller - Evidential, Cautionary, and Channeling

Requirements for a testamentary trust

Wills Act 1837, section 9

Requirements for inter vivos trusts of personalty

None - Jones v Lock

You will want to use writing for evidence though - not a requirement but just good practice

Trusts of Land - Relevant LPA Sections

section 53(1)(a) and section 53(1)(b)

Implications of section 53(1)(a) and 52(1)(b)

The comparitive language of s53(1)(a) and 53(1)(b) seem to indicate that you can make a trust of land orally, but you have to manifest/prove the existence of the trust in writing (ie. you could make the trust and write it down later than this would still work)

Formality compliance (section 53(1)(b)) for a self declared trust

you cannot have a valid self declared trust of land if it does not comply with section 53(1)(b). This is because otherwise the settlor would be prevented from changing their mind after they orally declare. there is no injustice in letting a settlor change their mind, but there is injustice in holding them to the trust without the formalities - the formalities provide the good reason to hold them to it.

Trusts by transfer and formality compliance with section 53(1)(b)

Rochefoucauld v Bousted - Facts and Decision

Facts about the banana plantation, the comtesse and her manager/divorce situation. Comtesse owned the plantations but defaulted on her mortgage, the property went to auction and she got her manager to buy it because she was going through a divorce and wanted to hide the assets from her husband. The manager owned the legal title to the plantations and ran them, but there were letters between the Comtesse and the manager about holding it on trust as agreed. The manager then takes out a mortgage over the land because he wants more cash, and the Comtesse is really not happy about this. She wanted to the court to declare that there is a trust on the facts, based on the arrangement when the Manager purchased the land.

By this point, B had defaulted on the mortgage and his creditors had sold the land. Comtesse is trying to argue that she was entitled to the proceeds of sale.

Manager tries to rely on s7 of the Statute of Frauds (predecessor to s53(1)(b)) to say there is no signed writing so no trust.

First instance judge - agreed with the manager, said there was a requirement for signed writing and therefore no trust.

CA - decide in favour of the Comtesse, there is a trust. If land is conveyed for the purposes of you holding it on trust, and you know that that is the case, it is unconscionable for you to turn around and deny the existence of the trust. Focus on the traditional equitable jurisdiction to prevent unconscionability.

Suggests that section (53)(1)(b) is an evidential requirement only, and the letters were evidence enough.

Rochefoucauld v Bousted - how do we make sense of it in light of s53(1)(b)?

It is not totally clear that there was no signed writing - there were letters between the Comtesse and her manager referring to the trust arrangement, and it is arguable that those were enough to satisfy the signed writing requirement. The court had a choice between accepting shakier evidence than we might like, or letting the manager win and allowing the statutory instrument to be used to engage in unconscionable behaviour.

The case was only 20 years after the Chancery jurisdiction was abolished, and there is still a strong sense that the point of Chancery is to prevent unconscionable conduct.

Academics who say that 53(1)(b) is an evidential requirement and not a substantive requirement

Douglas and Swadling

Academics who think that 53(1)(b) is a substantive requirement

Webb and Akkouh

Practical consequence of an express trust not manifested in signed writing

NOT void, just unenforceable - if you have a good trustee you may never run into a problem

Constructive trust analysis of Rochefoucauld v Bousted

Bannister v Bannister - two cottages, Mrs B transfers them both to her brother for half of market value on the basis hat she can life in one of them until she dies without paying rent, and then when she dies he can do whatever he wants with them. The condition is not written down and then the brother tries to evict her.

Held: she had a trust over the property she lives in. CA said a constructive trust arose over that property, because the brother had tried to rely on the absolute character of the conveyance even though the bargain was on a particular basis.

Court says this is the same kind of thing that we saw in Rochefoucauld v Bousted

Outcomes if a trustee in a trust by transfer tries to rely on section 53(1)(b)

1. Rochefoucauld - express trust valid without signed writing

2. Bannister - constructive trust

Implications of Rouchefoucauld or Bannister: Two Party versus Three Party Cases

Two party case: doesn’t really matter. A transfers to B to hold on trust and the beneficiary is A themselves (Rochefoucauld). There is no signed writing. Based on Rochefoucauld we say there is an express trust, but whether it is an express or constructive trust doesnt matter because B still holds on trust for A.

Three party case: A transfers land to B to hold on trust for C, without signed writing. Rochefoucauld approach would say that 53(1)(b) is misapplied, oral evidence is enough, and B holds for C as intended. In the Bannister approach, it is less clear what happens. We know it is not based on settlor intention because it is a constructive trust arising by operation of law. There is a constructive trust here which stops B form acting unconscionably and keeping the land for themselves, but that doesn’t tell us who they hold It for - it could be C, as originally intended, or A.

Staden v Jones

Applies the Bannister approach in a three party case (husband and wife diverging, they agreed in Unsigned writing that the wife would transfer her share in the family home to the husband, who would eventually make sure it went to her daughter, husband then remarries and transfers the legal title to the joint names of him and his wife and then dies without making a will). Arden LJ explained Bannister as being about giving effect to informal arrangements, but it is not clear that that is what Bannister is about (remember Bannister was a two party case)

Academic arguments for a 3 party 53(1)(b) situation: B holds the land on express trust for C

Swadling, Douglas

Academic arguments for a 3 party 53(1)(b) situation: B holds the land on constructive trust for C

Youdan, McFarlane and Mitchell

What does LPA s53(1)(c ) say?

Dispositions of an equitable interest … subsisting at the time of the disposition, must be in writing signed by the person disposing of the same

Not limited to land - applies to any property where the beneficiary wants to transfer their equitable interest under the trust to another person.

Only applies to express trusts (see s53(2))

Why do we have section 53(1)© ?

It requires signed writing - all of the Fuller formality functions apply

Protects the trustee - they have onerous duties to the beneficiary and need to know who they are working for

Consequences of non-compliance with section 53(1)©

Transfer will be void and ineffective if it is not in signed writing

Significance of ‘disposition’ in section 53(1)©

Not defined in the section, but it is significant that the word is not ‘transfer’

Predecessor of section 53(1)© was section 9 Statute of Frauds, which referred to ‘grants and assignments’, so it suggests that disposition includes those

Does it count as a disposition for the purposes of section 53(1)© if B assigns her equitable interest to C?

Straightforwardly Yes

Does it count as a disposition for the purposes of section 53(1)© if B orally directsT to hold her equitable interest in property on trust for C?

Yes - Grey v IRC

Does it count as a disposition for the purposes of section 53(1)© if B directs T to transfer to X absolutely?

Vandervell v IRC - complex facts amounting to an instruction from B to T that T should transfer property absolutely to C. Holds that this is NOT a disposition and therefore there is no signed writing requirement.

Does it count as a disposition for the purposes of section 53(1)© if B directs A to transfer to C to hold on trust for D?

This is too complex and we don’t know - depends if it is more like Grey v IRC or Vandervell

Does it count as a disposition for the purposes of section 53(1)© if B declares a sub-trust of her equitable interest in favour of another?

Yes - signed writing required

It might be:

passive sub trust situation (B assumes no active duties to C) - Grainge v Wilberforce

active sub trust situation - (B assumes active duties to C) - Re Lashmar