Unit 3 - The Beneficiary Principle

03.11.26

Beneficiary Principle

reasons for needing a beneficiary

• the structure of a trust

  • settlor transfers property

  • trustee holds legal title

  • beneficiary takes equitable interest + holds the trustee to account

• beneficiary

  • equitable owner

  • capable of suing for breach of trust

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

• the court needs someone who is entitled to go to court + complain if the trustee fails to carry out the trust

objections to a private purpose trust

• beneficiary principle

• uncertainty - purpose requirements

• supervision - inability of court to supervise performance

• capriciousness - irrational / wasteful scheme

• perpetuity - money tied up forever

• good answers identify each objection + why

Re Astor’s Settlement Trusts [1952] Ch 534

• Lord Astor tried to create trusts for purposes of maintaining good understanding between nations, preserving independence + integrity of newspapers & protecting newspapers from particular financial / political influence

• court held that the trusts were void

  • Roxburgh J identified the difficulty of equitable obligations outlined

  • nobody could enforce + no court could effectively control

  • no public department could supervise / reform

  • “Integrity of newspapers” also lacked a sufficiently workable standard.

Brown v Burdett (1882) 21 Ch D 667

• example of capricious purposes

• testator wanted her house to be sealed for 20 years - nails on hooks through doors + windows

• court said it was pointless, wasteful + capricious

  • did not serve any purpose to anyone

McCaig v University of Glasgow (No 2) 1906 SC 231 + McCaig’s Trustees v Kirk Session of United
Free Church of Lissmore 1915 SC 426

• law cares when you attempt to use a trust to use money unwisely

perpetuity - the law restricts arrangements that tie properties up for too long

perpetuity rules

• remoteness of vesting

  • contingent interest + discretionary trusts

  • modern statutory period of 125 years

  • perpetuities and accumulations act 2009

  • asks when the interest must vest

• inalienability

  • mostly relevant for non-charitable purpose trusts

  • capital must not be tied up indefinitely

  • common law 21-year rule (private purpose trust cannot exist longer than this)

  • asks whether the capital can be spent / otherwise alienated

05.11.26

Private Purpose Trusts

exceptions

• recognised historical anomaly

• a purpose that is actually a method of benefitting identified people

• a purpose directly / tangibly benefiting an identifiable class under Re Denley [1969] 1 Ch 673

12.11.26

Trusts for Commercial Purposes

Barclay’s Bank Ltd V Quistclose Investments Ltd [1970] AC 567

• Rolls Razor declared a dividend but did not have the funds to pay the shareholders

• Quistclose lent money to Rolls Razor to pay the dividends - they put it into a separate account

• Rolls Razor then became insolvent before they paid the dividends

• Quistclose recovers the money - the fact it was a loan did not preclude the existence of the trust

Lord Wilberforce’s two trust analysis - two trusts exist, the first one’s purpose is still possible (primary) but when it fails a secondary trust arrives

Primary trusts conflict with the beneficiary principle

Twinsectra v Yardley [2002] 2 AC 164

requirements of a Quistclose trust

• a stated reason for payment

• an expectation about use

• recipient’s knowledge of intended transaction

• restriction must limit beneficial disposal

factors of free disposal

• “solely” / “for no other purpose”

• separate / identifiable account

• prohibition on alternative use

• obligation to return unused money

• identified payment recipient

• money not available for ordinary trading

• holistic approach - not exhaustive list

Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1984] 3 WLR 1016

• example of a Quistclose trust being recognised (not a lender-borrower relationship)

Re Farepak Food and Gifts [2006] ALL ER 265

• customers money was paid into Farepak for a Christmas hamper / gift card

• while there was purpose - no trust found

  • money was not used for solely one purpose

  • no restriction on how money was used in meantime

Re EVTR [1987] BCLC 646

• example looking at refunds

• company gained an advance to buy equipment - before they were delivered EVTR went insolvent

• supplier then refunded part of the price

• Court allowed the proprietary claim to attach to the refund

Analysing a commercial payment for
purpose
- What money was transferred?
- What use was authorised?
- Was that use genuinely exclusive?
- Was the recipient free to use the money otherwise?
- Who held the beneficial interest?
- Was the authorised purpose carried out?
- What property remains identifiable or traceable?
- What is the consequence in insolvency?