IntroductionEmma made four bequests (a, b, c,and d). The issue raised in the first bequest is the beneficiary principle.
Thesecond bequest then raised the issue of secret trust. The third bequest has anissue with the breach of trust. Finally, the fourth bequest raised the issue ofcy-près. First bequest – Beneficiary Principle The Belfast Bike Club (BBC) is anon-charitable unincorporated association. As a general rule, a trust is validonly if there is at least one person as beneficiary (Morice v Bishop of Durham1).An unincorporated association was defined in Conservative and Unionist Central Office v Burrell2. Anunincorporated association has no legal personality and so cannot own property.
One of the various ways ofinterpreting and analysing dispositions in favour of unincorporatedassociations is to treat disposition in favour of unincorporated association asanother anomalous exception to the beneficiary principle. This can be seen in Re Drummond3,however, it is no longer reliable, as a result of dicta in Leahy v A-G for NSW4. The second way is to apply Re Denley’s Trust Deed5. Denley has been followed in Re Lipinski’s WT6. However,the purpose of BBC is too abstract and there is no identifiable class ofbeneficiary.
It is unclear who or what would benefit from the trust. Therefore,Denley could not be applied in thiscircumstances. The third way is to view it as a disposition in favourof the present members of the unincorporated association. This type ofmechanism does not operate for the benefit of the association’s purpose, butonly for the benefit of the members at the time of the transfer, each of whomcan sever his or her own interest for his or her own benefit at any time. Thus,this is unlikely to be a mechanism that will be adopted. The fourth way is to construe thegift as a trust for present and future members (Leahy). This would satisfy the beneficiary principle, but the disadvantageis that by creating an endowment so that future members will benefit, there ispotential infringement of the rule against perpetuities, because futuremembers’ shares may not vest within the perpetuity period.
Consequently, thisinterpretation is unlikely to be adopted as there is significant disadvantage. The fifth way is the contract-holding theory, whichmeans it is an outright gift to, or trust for, the current members of theunincorporated association but subject to their respective contractual rightsand liabilities towards one another under the rules of the unincorporatedassociation. The significance of this contractual modification of the classicalmodel of joint tenancy is that the members cannot sever the joint tenancy atwill. The contract-holding theory was first articulated by Cross J. in Neville Estates v Madden7.
Itwas first applied in Re Recher’s WT8. Thisanalysis can only work if the terms of the gift and the rules of theunincorporated association support it. See ReGrant’s WT9.Consequently, this is by far the most satisfactory and workable explanation ofproperty-holding in respect of unincorporated associations. Second bequest – Secret Trust The bequest made here is a halfsecret trust. There are three requirements for a half secret trust, as set outin Ottaway v Norman10. First,there must be an intention onthe part of the testator to subject the primary donee to an obligation infavour of the secondary donee. In thiscircumstances, the wording used in this bequest is unambiguous, therefore thereis no option for Harold to not comply (McCormickv Grogan11, Re Snowden12).
The second requirement of half secret trust is that there must be communication of that intentionto the trustee before or at the time of the execution of the will (Englishlaw). The communication can be oral or written. In Blackwell v Blackwell13, itis stated that the testator ‘cannot reserve to himself a power of making futureunattested dispositions by merely naming a trustee and leaving the purposes ofthe trust to be supplied afterwards’. However, in Ireland, communication of ahalf secret trust can take place any time before death, as confirmed in Re Prendiville14. Emmacommunicated to the trustee after the execution of the will before her death.This indicates that the trust will fail in England since the communicationrequirement is not met.
However, in Ireland, it is likely that this trust will beheld enforceable since the communication took place before death. Then, there must be acceptance of that obligation by the trustee. Acceptancecan be either by express agreement or by implication from silence, as wasestablished in Paine v Hall15. Thiswas shown in McCormick and Blackwell. In Emma’s case, Harold agreedto the request thus acceptance is clearly established here. Consequently, I would say that whether this half secret trust will besuccessful would depend on whether the English law or the Irish law is applied.English law is highly persuasive in NI courts while Irish law historically havehad a significant influence in development of law in NI.
After Emma’s death, a letter is found which asks Harold (trustee) tosplit the £1,000 and use £500 for Padfoot and £500 to benefit his daughter,Jenny. The initial trust was to give £1,000 entirely for Emma’s pet dog,Padfoot. We now have to discuss whether the modification in the codicil wouldbe valid. In Re Colin Cooper16, modificationto property subject to a half secret trust was not communicated until the deathof the testator and it was held that the codicil is invalid while the initialtrust would still be valid. Therefore, applying this case to the facts, Emma’schanges to the trust is most likely to be held invalid since the letter wasfound after her death. In sum, I would advise that there is potential that the secret trust tobe invalid. If this is the case, then there will be an automatic resultingtrust to Emma’s estate where property will fall into residue. Third bequest – Breach of Trust Paula (trustee) is in the breach of trust due to the misappropriation offunds.
Michael (beneficiary) will be able to elect between the available claimsand remedies (Foskett v McKeown17)and have the option of taking a personal claim against the trustee or aproprietary claim against the trustee or third parties. Personal liability of trustee As trustee, Paula owes Michael fiduciary duties and non-fiduciaryduties. As Paula has misappropriated trust property by transferring the full£4,000 into her own current account, the defendant owes an equitable duty tothe claimant and is clearly in breach of duty. Then, we have to see whether the beneficiary’s rights are being infringedby ‘taking an account’, whereby the trustee is obliged to provide all relevantdata in relation to the states of the trust fund. There was a loss to trust(misappropriated property).
Paula lodged the full £4,000 of the trust money into her own currentaccount. In relation to claims/remedies available, Michael could seek acompensation claim and apply for ‘reconstitution of the trust fund’ whereby apersonal claim is taken against Paula to return the value (£4,000) of the assetto the fund. In sum, it is most likely that Michael could reclaim loss of £4,000.However, if Paula owes money to other creditors, this would prevent Michaelrecovering as the personal claims are not secured on property and therefore hewould not have any priority over other creditors.
Proprietary liability of trustee/ third parties Foskett v McKeown lays out the specific steps for taking sucha claim. The criteria are: i) the existence of background fiduciaryrelationship; ii) the creation equitable interest in the property; iii) beingable to track that equitable interest into property in the defendant’s hands;iv) be able to isolate interest; v) be able to identify and choose anappropriate remedy; and vi) consideration of what defences might apply. Regarding Paula’s breach of trust, the first two criteria are easily fulfilledas the existence of a trust automatically leads to the creation of a backgroundfiduciary relationship. Similarly, a beneficiary automatically gains equitableproprietary interests in trust property. However, it becomes trickier when we examine whether it is possible totrack and isolate the equitable proprietary interest – this involves applyingthe mechanisms of following the original trust property and tracing theequitable proprietary interest, through mixed hands and a series of rebuttablepresumptions apply.
Also, refer to articles such as those by Hayton18or Birk19. First, Paula removes the full£4,000 from the trust fund and places it in her current account (irrelevant thetype of account as she is a trustee), where she mixes it with £32,000 of herown money. This involves mixed funds. Essentially, between Re Hallett’s Estate20,Re Oatway21,and Re Tilly’s WT22there are a series of evidential rules that work to the beneficiary’sadvantage. Applying these evidentialrules, let us see what Michael’s best options are. Paula transferred £2,000 fromher account to Fiona’s account.
We are not told that there is Fiona’s own moneyin that account however it is unclear whether Paula’s money or the trustproperty was being transferred. Relying on Foskettv McKeown, we know that we can follow or trace into Fiona’s account even ifshe is an innocent volunteer. Fiona used the £2,000 to install new windows inher house. Where a defendant spends trustmoney on maintaining or improving property that they already owned, abeneficial ownership claim is not available to the beneficiary.
The only claimavailable would be the claim for value that is then secured by a charge or lienon the property (Re Diplock’s Estate1948 Ch 463). If Fiona knows of the breach,then she is a wrongdoing third party. Michael could then bring a claim forvalue for £2,000 and Fiona would be bound to repay it.
As a wrongdoer, Fionawould also have no defence of change of position available. However, there isnothing on the facts showing that Fiona is a wrongdoer and may well be aninnocent volunteer instead. If we presume Fiona is aninnocent volunteer, according to ReDiplock, she must be treated paripassu with the beneficiary equally.
This means that generally only abeneficial ownership claim is available to Michael. However, there is acontradiction to potential to take a claim where trust property was used tomaintain/improve existing property (only a claim for value is available).Michael is essentially trapped because he can only take a claim for value (asre maintaining property) and can only take a beneficial ownership claim (asagainst an IV), which becomes mutually exclusive. Regarding the £2,000 remainingin Paula’s bank account, Michael will be able to establish a beneficialownership claim over this amount and have it transferred over to him. Consequently, Michael wouldwant to claim that the money in Fiona’s account was trustee’s own money, ratherthan the trust funds. He therefore will rely upon Re Hallett’s Estate.
If so, it would be simple enough to take aproprietary claim against Paula and have that £4,000 in Paula’s account transferredover to him. However, there is an issue here as it is rather clear that Paulaintended to transfer half of the trust money to Fiona, after being convinced byher husband, Thomas. Therefore, there is a possibility that the presumptionwill be rebutted. A final consideration forMichael is whether an action is possible against Thomas. Personal liability ofthird parties may take two forms – recipient liability and accessory (Barnes v Addy23).
As Thomas did not act as a trustee or receive original or substitute trust property,the only possible claim is that of accessory liability. To hold Thomas liable,there would need to be a breach of trust procured, induced or assisted by himdishonestly (Royal Brunei Airlines v Tan24).If successful, Michael could sue Thomas personally for the potential loss of£2,000 related to the money transferred to Fiona. Overall, a personal claimagainst Paula would be reasonably simple to bring and would guarantee beingable to claim £4,000 compensation provided that Paula is solvent while there isa possibility that the £2,000 transferred to Fiona could not be claimed ifMichael takes a proprietary claim. Fourth bequest – Cy-près In relation to this bequest, to know whether Cy-près can be applied, wefirst have to see whether the bequest is a charitable one.
There are threecriteria to be satisfied in order to be considered as a charity as laid out in Hanchett-Stanford v AG25. The first criterion is the purpose has to fall under one of the relevantheadings outlined in s.2(2) of the Charities Act (NI) 2008. Emma’s bequestfalls under the purposes of advancement of animal welfare as shown in s.2(2)(k)of the CA (NI) 2008. Animal welfare has been held to include providing for thewelfare of particular types of animal, such as cats26,or providing for the welfare of all animals27. Thetrust has a charitable purpose. The second criterion is that the trust must benefit the public.
S.3(2)of the CA (NI) 2008 outlined that in determining whether an institutionprovides or intends to provide public benefit, we need to consider whether itis beneficial on balance, and whether it benefits the public or a section ofpublic. On the face, we can tell that the purpose of the trust is to providerescue shelter for animals, thus it is likely that the purpose is indirectly beneficialto the public by the promotion of humanity and morality. This could benefit asection of the public. See Re Grove-Grady28.
The third criterion is that the purpose has to be wholly and exclusivelycharitable. In Emma’s case, we can assume that it meets this criterion. Sincethe three criteria are met, this is a charitable bequest. Then, we will have to see whether the trust has failed as the charitabletrust must fail in order to apply cy-près to save it. The failure must havebeen such as to make the main purpose of the trust impossible or impracticable,examples of what can be considered failure are Re Dominion Students’ HT29,and Re Robinson30. The Lisburn Donkey Sanctuary (LDS) ceased to exist before the trustcommences, therefore, there is an initial failure of the charitable purpose (Re Finger’s WT31).Where there is an initial failure, the funds can be applied cy-près for a similarcharitable purpose only if the testator had a general charitable intent (GCI). Whethera testator had GCI must be decided by looking at a particular document.
32 Wherea donation related to a specific charity (or purpose) that existed but hasceased to exist, there is a rebuttable presumption of no GCI.33 Therefore,there is a presumption that Emma did not have a GCI. Where a testator makes a number of gifts to charities with similarpurposes, but one of those charities does not in fact exist, the court will bewilling to find a GCI and so the gift to non-existent charity will be appliedcy-près. In Re Satterthwaite’s WT34, itwas held that cy-près is applicable although one of the nine bodies concernedwith animal welfare did not exist. The reasoning is that testator showed a GCIsince they are all kindred objects. In special circumstances of Re Finger’s WT, the GCI was foundalthough it was a gift to an incorporated charity that ceased to exist. It washeld that it is not impossible to find GCI even if left to named body which hadpreviously existed.
This indicates that the existence of similar charitablebequests is an influencing factor. Therefore, it can be argued that Emma had aGCI even though LDS did exist previously, since there are two other animalcharities in her bequest with similar purposes, applying the doctrine ofcharity by association and the cases mentioned above. However, there is still a certain difficulty to rebut the presumption ofno GCI. Therefore, it is likely that cy-près cannot be applied and the giftwill fail. There will be an automatic resulting trust to Emma’s estate where itwill fall into residue.ConclusionIn relation to the first bequest, there is a potential to use contractholding theory to construe gift as valid.
Regarding the second request, thereis a potential for invalid secret trust as the communication failed to occurbefore the execution of the will. The codicil will fail as well. Regarding thethird bequest, Michael can claim the remainder of £2,000 in Paula’s account,however, he may need to take a personal claim against Paula for the £2,000spent on the new windows in Fiona’s house. Finally, for the fourth request, itis most likely that the gift to Lisburn Donkey Sanctuary could not be saved.
There will be an automatic resulting trust to Emma’s estate. 1 (1840) 9 Ves. 399.2 1982 1 WLR 522, 525.3 1914 2 Ch 904 1959 Ac 457.51969 1 Ch 373.61976 Ch 235.7 1962 Ch 832, 849.
8 1972 Ch 526.9 1979 3 All ER 359.10 1972 Ch 698.11 (1869) LR 4 HL 82.12 1979 2 WLR 654.13 1929 AC 318.
14 1995 2 ILRM 578.15 (1812) 18 Ves. Jr. 475 Ct ofChancery.161939 Ch 811.17 2001 1 AC 102.
18 D. Hayton, ‘Equity’s IdentificationRules’ in Birks (ed.) Laundering and Tracing (Oxford, Clarendon Press, 1995),pp.
1-21.19 P. Birks, ‘Mixing and Tracing'(1992) Current Legal Problems 69.20 (1880) 13 Ch D 696.21 1903 2 Ch 356.22 1967 Ch 1179.23 (1874) 9 Ch App 244.
24 1995 2 AC 378.25 2008 EWHC 330 (Ch), 2009 Ch 173.26 Re Moss1949 1 All ER 495.27 Tatham v Drummond (1864) 4 De GJ & Sm 484.28 1929 1 Ch 557.
29 1947 Ch 183.30 1923 2 Ch 332.31 1972 Ch 286.32 Re Dunwoodie1977 NI 141.33 Re Harwood1936 Ch 285. 34 1966 1 WLR 277.