Equity & Trusts Lecture Outline
Equity & Trusts LAW211/LAW311 Lecture Outline
Non-charitable Purpose Trusts and Unincorporated Associations
Part A: The Beneficiary Principle
Introduction
Basic rule of express trusts requires the 3 certainties plus constitution to create a valid enforceable trust.
In Morice v Bishop of Durham (1805) 10 Ves 522, Grant MR held that a (non-charitable) purpose trust “must have a definite object. There must be somebody in whose favour the court can decree performance.”
The Beneficiary Principle
The core issue with non-charitable purpose trusts is the lack of ascertainable human beneficiaries who can enforce the trust. This concept is termed the beneficiary principle.
Application seen in Re Shaw [1957] 1 WLR 729.
Rationale Behind the Beneficiary Principle
There are three main problems leading to the adoption of the beneficiary principle:
Without beneficiaries, there is no true ‘owner’ of the trust.
No party with locus standi to enforce the trust exists.
Such trusts may violate the rule against perpetuity.
Criticisms of the Beneficiary Principle
The enforcement mechanism is problematic because the residuary legatees who can apply to prevent misapplication of funds might benefit if the purpose is unfulfilled. Hence, there is no incentive to ensure that the Testator’s wishes are fulfilled.
Motivation of self-interest is crucial to supervising trusts; this is absent in purpose trusts.
A Different Approach to the Beneficiary Principle
Some jurisdictions (e.g., Jersey, Isle of Man, Bermuda, Cayman Islands) have initiated schemes for purpose trusts that introduce a third party enforcer to ensure duties are fulfilled. England and Wales have not yet adopted similar schemes.
The Beneficiary Principle and Certainty of Objects
The rationale for beneficiaries and certainty is similar; both ensure court supervision and enforcement of trusts.
Anomalous exceptions have been recognized that are sufficiently certain to allow courts to evaluate the application of property (e.g., ensuring a pet is cared for).
In Re Endacott [1960] Ch 232, Lord Evershed MR stated: “No principle perhaps has greater sanction or authority behind it than the general proposition that a trust by English law, not being a charitable trust in order to be effective must have ascertained or ascertainable beneficiaries.”
Exceptions to the Beneficiary Principle:
Non-charitable purpose trusts.
Trusts for a purpose with ascertainable beneficiaries.
Unincorporated Associations.
Charitable Trusts (explored in Semester 2).
Offshore Trusts (briefly mentioned above).
Part B: Trusts of an Imperfect Obligation
Overview: Some anomalous purpose trusts are enforceable as they fit into categories referred to as ‘trusts of imperfect obligation’ where trustees cannot be compelled due to the absence of a beneficiary.
If unwilling to enforce, the trust property defaults to a resulting trust for the Testator’s estate.
The Perpetuity Period
Trusts of imperfect obligation must adhere to a perpetuity period; if not, they become void.
The perpetuity period is defined as “a human life plus 21 years.”
Legal interpretation includes phrases like ‘for as long as the law allows’ interpreted as 21 years post-death.
Specific life involved must be human, as per Re Kelly [1932] IR 255, with speculation allowed for animal life in, e.g., Re Haines (1952).
Contrast with Charitable Trusts: Non-charitable purpose trusts must adhere to perpetuity restrictions, unlike charitable trusts which do not have such requirements.
Categories of Trusts of Imperfect Obligation
Category 1: Tombs and Monuments
Relevant cases include:
Musset v Bingle [1876] WN 170
Re Hooper [1932] 1 Ch 38
Mitford v Reynolds (1848) 16 Sim 105
Pirbright v Salwey [1896] WN 86
Note: Purposes exceeding perpetuity remain void.
Category 2: Maintenance of Animals
Relevant cases include:
Pettingall v Pettingall (1842) LJ Ch 176
Re Dean (1889) 41 Ch D 552
Re Kelly [1932] IR 255
Re Haines (1952).
Note: Purposes exceeding perpetuity remain void.
Category 3: Saying Masses for the Dead
May be charitable if public but valid as imperfect obligation if private.
Relevant cases include:
Bourne v Keane [1919] AC 815
Re Khoo Cheng Teow [1932] Straits Settlements LR 226.
Note: Purposes exceeding perpetuity remain void.
Category 4: Fox Hunting
Controversially recognized in Re Thompson [1934] Ch 342.
Although classified as anomalous exceptions, any violative purposes will be declared void.
Case Law Analyses
Re Endacott [1960] Ch 232 termed non-charitable purpose trusts as ‘troublesome, anomalous, and aberrant.’
Re Astor’s Settlement Trusts [1952] Ch 534 referenced them as ‘concessions to human weakness and sentiment.’
Validity requires trusts not to be deemed ‘useless, wasteful, or capricious’ (Brown v Burdett (1882) 21 Ch D 667).
In M’Caig’s Trustees v Kirk-session of the United Free Church of Lismore (1915) SC426.
Trusts to Benefit Identifiable Individuals
The rule in Re Denley’s Will Trusts [1969] 1 Ch 373 states that non-charitable purpose trusts will generally be void unless they fall within exceptions of imperfect obligation.
A trust is not automatically void if its purpose benefits identifiable individuals who can enforce it.
In Re Denley’s Will Trust, the court recognized that employees could enforce the trust, preventing it from being void due to the beneficiary principle.
Inapplicability of the Denley Principle
A non-charitable purpose trust may fail if the beneficiary class is overly broad.
Related cases include:
District Auditor ex parte West Yorkshire Metropolitan County Council [1986] RVR 24
Re Harding (Deceased) [2008] 2 WLR 361.
For trusts designed for purposes with human beneficiaries, the intent often clarifies that upon completion of a specified activity, the assets are to benefit those individuals absolutely.
Relevant Cases Demonstrating Principles
Cases include:
Re Sanderson’s Trusts (1857) 3 K&J 497
Re Andrew’s Trust [1905] 2 Ch 48
Re Osoba [1979] 2 All ER 393.
Part C: Unincorporated Associations
Types of Clubs and Societies:
Incorporated clubs or societies
Proprietary clubs
Other societies not classified as unincorporated associations
Unincorporated associations
Definition of an Unincorporated Association:
Defined in Conservative and Unionist Central Office v Burrel [1982] 2 All ER 1:
“Where two or more persons are bound together for one or more common purposes by mutual undertakings – each having mutual duties and obligations in an organisation whose rules identify in whom control of the organisation and its funds are vested and which can be joined or left at will.”
Issues with Unincorporated Associations:
Lack legal standing in private law preventing property ownership or legal rights/duties.
Can bring actions in public law (e.g., Aireborough Neighbourhood Development Forum v Leeds City Council & Ors [2020] EWHC 45 (Admin)).
Asset Holding Challenges:
Clubs raise funds through activities like cake sales, which complicates legacy disputes when challenged by next of kin.
Proposed Solutions for Managing Gifts to Unincorporated Associations
Solution 1: Purpose Trust Theory
As per Leahy v Attorney General for New South Wales [1959] AC 457, if gifts are construed as for the benefit of current members rather than the purpose itself, they can be upheld.
Application of the Re Denley Principle:
In Re Lipinski’s Will Trusts [1976] Ch 235, the trust was seen as benefiting the members despite being described as a purpose trust.
Valid trusts expressed as purposes but that directly/indirectly benefit ascertainable individuals are valid.
Three Construction Possibilities:
A gift to the present members as individuals joint tenants with severance rights.
A gift to present and future members that could be void if not limited to the perpetuity period.
A gift to present members but governed by contractual rights that prevent severance upon resignation or death, allowing claims to accrue to remaining members.
Validity Conditions:
For validity, courts need to determine the gift is for identifiable members within the perpetuity period capable of claiming distribution of funds.
Validity and Distribution of Surplus Funds Post-Dissolution
Surplus Funds Distribution Models:
If one member remains, property won’t automatically pass to the Crown (bona vacantia).
Property should revert to the individual who transferred it based on a resulting trust, particularly with non-member donations.
For outright gifts or transfers, distribution per the club’s constitution is necessary.
Handling Ambiguous Rules on Fund Distribution:
Case law (e.g., Re Sick and Funeral Society of St John’s Sunday School [1973] Ch 51) suggests membership categories won't necessarily dictate share amount; differential distributions may apply based on specific situational analyses.