Equity & Trusts

Equity

A branch of law that deals with fairness and justice, especially in cases where the common law is too rigid.

Trust

The trust allows for ownership to be split into ownership at law and ownership in equity so that there can be more than one owner of land. The result is that one person holds the legal title whilst another is able to hold the equitable title.

Settlor

The person(s) who created the trust and the absolute owner of the property.

Trustee

The legal owner that holds the land on trust for the equitable owner/beneficiary. 

Beneficiary

The equitable owner of the land, also known as the cestui que trust or ‘beneficiary’.

Express trust

Trusts that are expressly created deliberately and formally. Express trusts of land must satisfy formality requirements. They must be ‘manifested and proved by some writing’ under section 53(1)(b) of the LPA 1925.

Implied trust

Trusts that are created by operation of law (implication by the court), not by an express, written declaration, arising from the presumed intention of the parties or the circumstances of a situation. Does not have a trust deed.

Resulting trust

A type of implied trust where property "results" or reverts to the original owner (settlor) because the legal owner/trustee was not intended to have the full beneficial interest, often arising when someone contributes to a property's purchase but isn't on the title, or when an express trust fails to dispose of all assets.

Fixed trust

A trust where there is a certain fixed group/complete list of beneficiaries and the property is held in specific shares.

Discretionary trust

Trust where the trustee is given a list of potential beneficiaries and the trustees have the discretion to choose which, of a defined class or group, they choose to apply the income or property of the trust to. 

Charitable trust

A subset of discretionary trust. There is no fixed list, there is a charitable purpose the trustee serves. A class of objects which the trustee makes a selection from the class. 

Constructive trust

A trust that arises by operation of law where it would be unconscionable for a person who holds an asset to deny the beneficial interest of another person in the asset, and there is a common intention whether the parties like it or not. Does not have a trust deed.

Trust powers

Powers to appoint held by trustee/fiduciary which must be exercised. Little discretion with when and how to exercise the power but it is mandatory. 

Fiduciary powers

Powers to appoint held by trustee/fiduciary, but no duty to exercise power per se (duty to consider exercising). Must at least consider exercising the power from time to time and provide reasons as to why you have exercised the power or not. Subject to judicial oversight. 

Akers v Samba Financial Group [2017] AC 424

A transfer of the legal interest by the trustee does not transfer the beneficial interest, which remains with the beneficiaries.

Knight v Knight (1840) 49 ER 58

Established the legal test for a valid trust to be created: The three certainties.

The Three Certainties

1. Certainty of intention: there must be intention to create a trust;

2. Certainty of subject matter: the assets constituting the trust must be readily determinable;

3. Certainty of objects: the people to whom the trustees are to owe a duty must be readily determinable.

Certainty of Intention

1. Settlor must have the capacity to create a trust. 

2. Settlor must have intended to create a trust.

Paul v Constance [1977] 1 WLR 527

The creator of the trust must want somebody to hold property for the benefit of another person, so that they are under a duty to do so, in order to create a trust. This intention will be sufficient to create a trust, even though the creator of the trust did not understand that this was the effect of what they were doing.

North v Wilkinson [2018] EWCA Civ 161

No particular language is required for the creation of a trust.

Precatory language

Expressing a wish or request of the testator but not necessarily binding.

Mussoorie Bank Ltd v Raynor (1882) 7 App Cas 321

If the creator says that they ‘desire’, or ‘wish’, or ‘request’, or are ‘confident’ that the party receiving property will hold it for somebody else, this lacks the necessary element of requiring the other party to do so and will not be evidence of a sufficiently certain intent to create a trust.

Re Diggles (1888) 39 Ch D 253

The use of ‘precatory words’, like ‘request’ or ‘desire’, often indicate that the intention to create a trust is absent.

Rowe v Prance [1999] 2 FLR 787

A person can make an express declaration of trust without specifically using the word ‘trust’ or any other legalistic form of words.

Jones v Lock (1865) 1 Ch App 25

The intention to gift displaces the intention to trust.

Re Adams and the Kensington Vestry (1884) 27 Ch D 394

The court can infer an intent to create a trust from the circumstances of the case, the conduct of the parties, and careful construction of any relevant document.

Certainty of subject-matter

What assets are held on trust?

Sprange v Barnard (1789) 2 Bro CC 585

To make a valid declaration of trust, the subject matter of the trust must be sufficiently certain.

In order for the trust power to be exercised, it is essential that the trustees know from the outset who the potential beneficiaries might be. If this is unclear, the trust will be void for uncertainty.

AA v Persons Unknown [2019] EWHC 3556

It has been recognized that virtual currencies (known as cryptocurrencies), such as Bitcoin, constitute property even though they cannot be possessed and do not embody any right which is capable of being enforced by action, but they do have other characteristics of property, since they possess economic value, are definable and identifiable, can be traded, and have some degree of permanence.

Palmer v Simmonds (1854) 2 Drew 221

Vague or subjective language, which makes the property to be held on trust unascertainable, will cause a trust to fail. Here, the “bulk” of an estate was held to be too vague to give rise to a trust.

Re Last [1958] P 137

The reference to ‘anything that is left’ of the testator’s estate was sufficiently clear subject matter.

Re London Wine Co Ltd [1986] PCC 121

Segregation of chattels from a bulk is required for the subject matter of a trust to be certain.

Re Goldcorp Exchange Ltd [1995] 1 AC 74

Even among homogenous chattels (tangible), segregation is required for there to be certainty of subject matter for a trust to arise.

Hunter v Moss [1994] 1 WLR 452 

A portion of identical intangible assets does not have to be segregated from the rest to form the subject of a trust.

Re Golay’s Will Trusts [1965] 1 WLR 969

The word ‘reasonable’ is capable of being a sufficiently certain term for the purposes of the certainty of subject matter test in trust law.

Certainty of objects

Who gets the assets under the trust?

Requirements for a fixed trust

1. Complete List 

2. Conceptual Certainty 

3. Evidential Certainty

The Complete List Test:

1. The ‘complete list’ must be capable of being drawn-up, not at the time the trust is created, but instead, at the time when the property is to be distributed to the intended beneficiaries. If, at the moment of distribution, a ‘complete list’ cannot be drawn-up then the trust shall be void ab initio.

2. Any reason a ‘complete list’ cannot be drawn-up, then trust void ab initio. Either conceptual or evidential uncertainty will be fatal to a fixed trust.

3. So long as a complete list of beneficiaries can be made, the fact that the trustees cannot ascertain the whereabouts of any one of them will not constitute ‘evidential’ uncertainty, the trust will not be rendered void just because it is difficult to get in touch with a stray beneficiary.

Condition precedent

A condition which needs to be satisfied before the property can be distributed.

Re Barlow's Will Trusts [1979] 1 WLR 278

A condition precedent, which must be satisfied before property can be distributed, will be valid if it can be said of just one person that they satisfy the condition.

Re Tuck's Settlement Trusts [1977] EWCA Civ 11

Conceptual uncertainty would not render a condition precedent void, whereas it would invalidate a condition subsequent.

Condition subsequent

If the condition is satisfied, a beneficiary will no longer be entitled to the trust property (invalidates the distribution to that beneficiary). Only necessary that the condition is conceptually certain, not evidentially certain.

Clayton v Ramsden [1943] A.C. 320

A condition subsequent will be valid only if it can be known with certainty from the start, the exact event that will result in the defeat of the beneficiary’s interest. If this cannot be established, the condition will be void.

Blathwayt v Baron Cawley [1976] AC 397

A private person may impose religiously discriminatory conditions in their wills.

McPhail v Doulton [1970] UKHL 1

Established the Any Given Postulant Test for determining certainty of objects: Can it be said with certainty that any given individual is or is not a member of the class.

Re Gulbenkian’s Settlements Trusts [1968] UKHL 5

The essential test of certainty of objects for fiduciary powers is that the test was met if it could be determined that any individual was or was not a member of the class (AGP test).

R v District Auditor No 3 Audit District of West Yorkshire MCC, ex parte West Yorkshire MCC [1986] RVR 24 

If the class of objects is so wide that it is considered administratively unworkable, the trust will be void.

Armitage v Nurse [1997] EWCA Civ 1279

Exclusions of the liability of trustees are limited by the idea of the ‘irreducible core’ of obligations which make up a trust, which is to manage the trust honestly for the benefit of the trustees.

Actual fraud is acting in a way which the trustee does not honestly believe is in the interests of the trust; this cannot be excluded from the liability of trustees.

Trustee Duties: 

Trustee Duties: 

1. Investment duties

   1. Duty to safeguard trust assets

   2. Duty to invest 

2. Fiduciary duties

   1. No-conflict rule

   2. No-profit rule

3. Administrative duties

   1. Duty to reduce the trust property into possession

   2. Duty to comply with the terms of the trust

   3. Duty to account

AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58

Duties of a trustee can fall into these 3 categories: 

1. A custodial stewardship duty to preserve the trust assets, save to the extent that the trust instrument permits the trustee to do otherwise;

2. A management stewardship duty to manage the trust assets with proper care; and

3. A duty of undivided loyalty, which prohibits the trustee from taking advantage of their position without the fully informed consent of the beneficiaries.

General Law Duty of Care

‘Ordinary prudent man of business’.

Speight v Gaunt [1883] UKHL 1

“[A]s a general rule a trustee sufficiently discharges his duty if he takes in managing trust affairs all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own.”

Learoyd v Whiteley [1887] UKHL 1

Trustees tasked with investing trust money should be held to the standard of an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide, as such they should not engage in overly speculative investments.

Bartlett v Barclays Bank Trust Co Ltd (No. 2) [1980] 1 Ch 515

A trust corporation is held to a higher standard of care than a private/lay trustee due to its professional expertise.

Portfolio theory

 The modern approach to investment practice is called ‘portfolio theory’. Investors should have regard to the composition of their investments as a whole, known as the ‘portfolio’, to determine whether they are balanced and suit the needs of the particular trust. A balanced portfolio of investments will have ‘diversification’ of the investments.

Trustee Act 2000, s. 5(1): Advice.

1. Before exercising any power of investment, whether arising under this Part or otherwise, a trustee must (unless the exception applies) obtain and consider proper advice about the way in which, having regard to the standard investment criteria, the power should be exercised.

2. The exception is that a trustee need not obtain such advice if he reasonably concludes that in all the circumstances it is unnecessary or inappropriate to do so.

Buttle v Saunders [1950] 2 All ER 19

There will be circumstances under which trustees may even have to act dishonorably for the benefit of the trust. So, even where trustees have accepted an offer to sell property, if they subsequently receive a better offer, they should typically renege on the first and accept the second.

Cowan v Scargill [1985] Ch 270

Trustees must put aside their own personal interests and political or social views in administering the trust, including when deciding on what to invest trust capital in.

Martin v City of Edinburgh DC [1988] SLT 329

Trustees have a duty not to fetter their investment discretion for reasons extraneous to the trust purpose, including reasons of a political or moral nature.

R (Palestine Solidarity Campaign) v Secretary of State for Housing [2020] UKSC 16

Trustees can make ethical investments as long as it is balanced against financial considerations. 

Bristol and West Building Society v Mothew [1998] Ch 1

1. Defined “fiduciary”: “A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary”.

2. A fiduciary agent can work for two conflicting principals without breaching the duty of undivided loyalty provided that both have provided their informed consent, but he must act in good faith to both principals and not allow his relationship with one to prejudice his performance of duties to the other and if an actual conflict between the principals arise, the agent may have to cease acting for one principal or maybe both.

Fiduciary duties for a discretionary trust:

1. To genuinely consider the trust; 

2. Consider the range of the beneficiaries;

3. Act for proper purposes the trust was set up.

De Bussche v Alt (1878) 8 Ch D 286

Agents are a recognized category of fiduciary relationship.

Children’s Investment Fund Foundation (UK) v Attorney General [2020] UKSC 33

The key obligation of a fiduciary is one of loyalty, in that the principal is entitled to the single-minded loyalty of the fiduciary in denial of their own self-interest.

Bray v Ford [1896] AC 44

Recognized the no-conflict and no-profit rule: “It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent’s, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.

Aberdeen Railway Co v Blaikie Brothers (1854) 1 Paterson 394

Recognized the no-conflict rule: “it is a rule of universal application, that no one, having [fiduciary] duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect.”

Regal Hastings Ltd v Gulliver [1967] 2 AC 134

A fiduciary agent has to account for any profits acquired by reason of his fiduciary position and the opportunity or knowledge resulting from it, even if the principals could not have made the profits themselves with such opportunity or knowledge, unless the principal has given his informed consent.

Tito v Waddell (No 2) [1977] Ch 106

1. Self-Dealing Rule: The self-dealing rule provides that a fiduciary is barred from dealing on behalf of themself and the principal in the same transaction.

2. Fair-Dealing Rule: The fair-dealing rule provides that, where a fiduciary personally transacts with the principal, the transaction is voidable save where the fiduciary can show that they took no advantage of their fiduciary position, that they made full disclosure to the principal, and that the transaction was fair and honest.

Keech v Sandford [1726] EWHC J76

1. Trustees can be required to account for unauthorised profits even if the beneficiary has not suffered any loss.

2. Trustees hold a fiduciary duty of loyalty to their beneficiaries, and this requires them to avoid putting themselves into a position where they might have a conflict of interest.

Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10

Fiduciaries cannot defend claims for an account by arguing that they would have made the same profits without any breach. The decision reaffirms the prophylactic and deterrent function of the no-profit rule.

Murad v Al-Saraj [2005] EWCA Civ 959

A fiduciary who induces another to enter into a joint venture upon a fraudulent misrepresentation holds any profits he earned on to account of the other, subject to allowances for services and expenditure he rendered.

Saunders v Vautier [1841] EWHC J82

The adult beneficiaries can come together, go to the court, and then collapse a trust.

Schmidt v Rosewood Trust Ltd [2003] UKPC 26

Beneficiaries do not have an entitlement as of right to disclosure of trust documents; the court may have to balance competing interests.

Falsification

The process whereby when B sees an unauthorised act, she can cross it off. The effect of it is that, in the eyes of equity, the transaction had not happened, and T cannot rely on the transaction to explain the change to the trust fund, and must therefore “restore” the  trust fund with her personal funds.

Re Vandervell Trustees Ltd (No 2) [1974] EWCA Civ 7

Established influential definitions of presumed resulting trusts and automatic resulting trusts:

1. Presumed resulting trusts is where the courts presume the parties' intend to make a resulting trust, it is founded on a rebuttable presumption about the transferor’s intentions.

2. Automatic resulting trusts are where assets are passed to a trustee on express trusts, but the transfer on trust fails to dispose of the entire beneficial interest and a surplus remains.

The Venture [1908] P 218

Under the presumption of resulting trust, it is presumed that where A advances money to fund the purchase of property by B, A holds a pro rata beneficial share in the property and any proceeds from its future sale (unless contrary intention of A can be proven).

Marr v Collie [2017] UKPC 17 

Presumption of a resulting trust may be rebutted by evidence of a common intention.

Morice v Bishop of Durham (1804) 9 Ves Jr 399

This case laid down the beneficiary principle which states that a valid trust must be enforceable by definite objects (i.e. beneficiaries), with the exception of charitable trusts.

Hodgson v Marks [1971] EWCA Civ 8

An automatic resulting trust arises where an express trust fails for lack of formality.

Quistclose trust

A Quistclose trust is a specific, specialized form of a resulting trust arising when money is lent for a specific purpose that fails, requiring the funds to be returned to the lender rather than entering the borrower's general assets.

Lysaght v Edwards (1876) 2 Ch D 499

A vendor under a contract for the sale of land holds the land on constructive trust for the purchaser as soon as there is a binding and specifically enforceable contract.

Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 

Where money was paid under a mistake, the transferor retains the equitable interest in the money and the recipient is constituted a trustee.

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12

An automatic resulting trust happens whenever a person transfers property without consideration, but the intended transaction fails. It is necessary for the recipient’s conscience to be affected at the time of receipt.

FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45

Affirmed the principle from AG for Hong Kong v Reid [1994] into English law: Any benefit (including bribes and secret commissions) received by a fiduciary in breach of fiduciary duty would be held on constructive trust for the principal.

CPS v Aquila Advisory Ltd [2021] UKSC 49

Constructive trusts arise automatically when directors breach their fiduciary duties.

Cook v Fountain (1676) 3 Swan 585

Articulated that the "conscience" governing equity should be bound by established rules rather than arbitrary individual discretion.

Re Montagu’s ST [1987] Ch 264

A constructive trust based on knowing receipt requires actual knowledge or recklessness, not merely notice or imputed knowledge.

Charity

An institution which is established for charitable purposes only (s.1(1) Charities Act 2011)

The two requirements for a ‘charitable purpose’:

Two stage test (s.2(1) CA 2011)

1. The purpose of the charity is listed in s.3(1) CA 2011; and

2. It is ‘for the public benefit’ as per s.4(1) CA 2011. [This is broken down into two elements: ‘public’ and ‘benefit’]

Cy-Près Doctrine

The cy-près doctrine is an equitable principle in trust law that allows the court to modify the terms of a charitable trust when the original charitable purpose becomes impossible, impractical, or illegal to fulfil. Rather than allowing the trust to fail, the court will direct the trust property to be applied to a charitable purpose "as near as possible" (cy-près) to the donor's original intention. This doctrine preserves the charitable gift whilst ensuring the settlor's general charitable intent is honoured.

Requirements for a charitable trust

1. Does the proposed charity serve a Charitable Purpose:

   1. List in Charities Act 2011, s 3(1) (this is now determinative)

2. Does the proposed charity pass the Public Benefit Test – two-part test

   1. ‘Benefit’ to the wider community? AND

   2. ‘Public’ – such that the general public or a sufficiently wide section thereof shall benefit.

s3(1) of the Charities Act 2011

Charities Act 2011, s 3(1):

(a) the prevention or relief of poverty; 

(b) the advancement of education; 

Re Shaw; Royal Choral Society v IRC; Incorporated Council of Law Reporting…; Re Hopkinson

(c) the advancement of religion; 

(d) the advancement of health or the saving of lives;

(e) the advancement of citizenship or community development; 

(f) the advancement of the arts, culture, heritage or science;

(g) the advancement of amateur sport;

(h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;

(i) the advancement of environmental protection or improvement;

(j) the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage;

(k) the advancement of animal welfare;

(l) the promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services;

(m) Residual clause – ‘In the Spirit of above heads/sections’ (a catch-all clause to account for social change and new purposes for charity).

Re Sander’s WT [1954] Ch 265

The trust here failed to be charitable because the wording did not stipulate that beneficiaries needed to be ‘poor’.

Re Coulthurst [1951] Ch 661

Established a broad legal definition of poverty in the context of charitable trusts. It clarified that "poverty" does not require destitution, but rather the inability to afford the "ordinary necessities" of life appropriate to one's status.

Incorporated Council of Law Reporting for England and Wales v Attorney General [1972] Ch 73 (CA)

Education is activity “extending to the improvement of a useful branch of human knowledge and its public dissemination”.

Re Shaw [1957] 1 WLR 729

An object is not deemed charitable unless it is combined with elements of teaching or education.

Re Hopkins WT [1965] Ch 669

The research/knowledge must be published/disseminated to be considered for a charitable use.

R (Hodkin and Church of Scientology Religious Education College Inc.) v Registrar General for Births, Deaths and Marriages [2013] UKSC 77

A transcendental aspect to the creed is necessary to be considered a “religion”.

Re South Place Ethical Society [1980] 1 WLR 1565 

The “religion” cannot be purely secular ethical/philosophical teaching.

Church of Scientology’s Application for Registration as a Charity [1999] 11 WLUK 529 

The “religious” practices must involve “worship”.